Memory Aid - COMML

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

4

1 2I. NEGOTIABLE INSTRUMENTS 3 LAW (NIL) 4 5NEGOTIABLE INSTRUMENT (NI)- it is a written 6contract for the payment of money which by its 7form and on its face is intended as a substitute 8for money and passes from hand to hand as 9money, so as to give the holder in due course 10(HDC) the right to hold the instrument free from 11defenses available to prior parties. 12

13BRIEF HISTORY OF THE LAW: 14 15 16 17 18 19 20

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

21TWO DISTINCTIVE FEATURES OR 22CHARACTERISTICS OF NI: 23 241. 25 26 27 28 29 30 312. 32 33 34 35 36 37 38 39 40 41

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

42DISTINCTIONS: NEGOTIABLE 1. must contain all requisites of sec. 1

NONNEGOTIABLE 1. does not contain all requisites of sec.1

2. transferable by negotiation and assignment.

2. transferable by assignment not negotiation

3. HDC can have rights better than his transferor

3. a transferee acquires no better rights than his transferor

4. prior parties warrant payment (secondarily 5

4. prior parties do not warrant payment but

liability).

merely the legality of his title

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

67DISTINCTIONS: Negotiable Instruments

1. The subject is money

Negotiable Documents of Title 1. The subject is goods

2. Is itself the property with value

2. The document is a mere evidence of title – the things of value being the goods mentioned in the documents

3. Has all the requisites of Sec 1 of NIL

3. Does not have these requisites

4. A holder of NI may run after the secondary parties for payment if dishonored by the party primarily liable

4. Intermediate parties are not secondarily liable if the document is dishonored

5. A holder, if HDC, may acquire rights over the instrument better than his predecessor

5. A holder can never acquire rights to the document better than his predecessors

68 69 70 71 72DISTINCTIONS: PROMISSORY

BILL OF

Page 1 6Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 7(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 8Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 9Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 10Antonio, Jil, Reina, Macky Macaldo

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

NOTE 1. unconditional promise 2. involves 2 parties 3. maker primarily liable 4. only one presentment: for payment 1 2DISTINCTIONS: BILL OF EXCHANGE 1. Not necessarily drawn on a deposit. It is not necessary that a drawer of a BOE should have funds in the hands of the drawee.

2. Death of a drawer of a BOE with the knowledge of the bank, does not revoke the author of the banker to pay. 3. May be presented for payment within a reasonable time after its last negotiation because it may be further negotiated.

EXCHANGE 1. unconditional order 2. involves 3 parties 3. drawer is only secondarily liable 4. two presentments: for acceptance and for payment CHECK 1. It is necessary that a check is drawn on a deposit. Otherwise, there would be fraud.

2. Death of the drawer of a check, with the knowledge by the bank, revokes the authority of the banker to pay. 3. Must be presented for payment within a reasonable time after its issue.

3 4ASSIGNMENT VS. NEGOTIATION 51. Assignment pertains to contracts in general; 6 Negotiation pertains to negotiable 7 instruments. 82. One who takes an instrument by assignment 9 takes the instrument subject to the defenses 10 obtaining among the original parties; 11 whereas a person who takes the instrument 12 by negotiation, who is a HDC, takes it free 13 from personal defenses available among the 14 parties. 15 16OTHER FORMS OF NEGOTIABLE 17INSTRUMENTS: 181. Certificate of deposit issued by banks, 19 payable to the depositor or his order, or to 20 bearer 212. Trade acceptance 223. Bonds, which are in the nature of promissory 23 notes 244. Drafts, which are bills of exchange drawn by 25 one bank upon another 26

27LEGAL TENDER 28☛ that kind of money which the law 29 compels a creditor to accept in payment 30 of his debt when tendered by the debtor 31 in the right amount. 32NOTE: A negotiable instrument although 33intended to be a substitute for money, is 34generally not legal tender. Thus, a creditor is 35not bound to accept commercial papers, like 36a check, in satisfaction of his demand, 37because a check, even if good when 38offered, does not meet the requirements of a 39legal tender. 40 41INCIDENTS IN THE LIFE OF A NI: 421. Issue 432. Negotiation 443. Presentment for acceptance in certain 45 kinds of BOE 464. Acceptance 475. Dishonor by non-acceptance 486. Presentment for payment 497. Dishonor by non-payment 508. Notice of Dishonor 519. Protest in some cases 5210. Discharge 53 REQUISITES OF NEGOTIABILITY 54(SEC. 1): 551. Must be in writing and signed by the 56 maker or drawer; 572. Must contain an unconditional promise 58 or order to pay a sum certain in money; 593. Must be payable on demand, or at a 60 fixed or determinable future time; 614. Must be payable to order or to bearer; 625. When the instrument is addressed to a 63 drawee, he must be named or otherwise 64 indicated therein with reasonable 65 certainty. 66 67UNCONDITIONAL PROMISE OR ORDER68where the promise or order is made to 69depend on a contingent event, it is 70conditional, and the instrument involved is 71non-negotiable. The happening of the event 72does not cure the defect. 73 74☛ The unconditional nature of the promise 75 or order is not affected by: 76a) An indication of a particular fund out of 77 which reimbursement is to be made, or 78 a particular account to be debited with 79 the amount; or 80b) A statement of the transaction which 81 gives rise to the instrument (Sec. 3, NIL) 82☛ But an order or promise to pay out of a 83 particular fund is NOT unconditional. 84 85 86 87 88

89DISTINCTIONS:

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

Fund for Reimbursement 1. Drawee pays the payee from his own funds; afterwards, the drawee pays himself from the particular fund indicated. 2. Particular fund indicated is NOT the direct source of payment but only the source of reimbursement. 3. Indication in the instrument does not affect the unconditional nature of the promise or order.

Particular Fund for Payment 1. There is only one act- the drawee pays directly from the particular fund indicated. Payment is subject to the condition that the fund is sufficient. 2. Particular fund indicated is the direct source of payment.

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

1

2CERTAINTY OF SUM (Sec. 2, NIL) 3 4 The instrument is still negotiable and it is 5payable-6a) With interest; or 7b) By stated installments; or 8c) By stated installments with an acceleration 9 clause; 10 ACCELERATION CLAUSE- renders whole 11 debt due and demandable upon failure of 12 obligor to comply with certain conditions. 13d) With exchange; or 14e) With cost of collection or attorney’s fees. 15 16PAYABLE IN MONEY 17 18☛ if some other act is required other than 19 payment of money, the instrument is not 20 negotiable (Sec. 5, NIL). 21 22Exception: Gives option to creditor/holder to 23choose another in lieu of money. 24 25 PAYABLE ON DEMAND (Sec. 7, NIL) 26 27☛ an instrument is payable on demand: 28a) where expressed to be payable on demand, 29 at sight or on presentation; 30b) where no period of payment is stated; 31c) where issued, accepted, or indorsed after 32 maturity (only as between immediate 33 parties). 34

35DETERMINABLE FUTURE TIME 36(Sec. 4, NIL) 37

38☛ An instrument is payable at a 39 determinable future time when payable: 40a) At a fixed period after date or sight; 41b) On or before a fixed or determinable 42 future time specified therein; or 43c) On or at a fixed period after the 44 occurrence of a specified event, which is 45 certain to happen, though the time of 46 happening be uncertain. 47 48PAYABLE TO ORDER (Sec. 8, NIL) 49 50☛ The instrument is payable to order 51 where it is drawn payable to the order of 52 a specified person or to him or to his 53 order. 54 55PAYABLE TO BEARER (Sec. 9, NIL) 56 57☛ The instrument is payable to bearer: 58a) When it is expressed to be so payable; 59 or 60b) When it is payable to a person named 61 therein or to bearer; or 62c) When it is payable to the order of a 63 fictitious or non-existing person, and 64 such fact was known to the person 65 making it so payable; or 66d) When the name of the payee does not 67 purport to be the name of any person; or 68e) When the only or last indorsement is an 69 indorsement in blank. 70 71NOTE: An instrument originally payable to 72bearer can be negotiated by mere delivery 73even if it is indorsed specifically. If it is 74originally a BEARER instrument, it will 75always be a BEARER instrument. 76As opposed to an original order instrument 77becoming payable to bearer, if the same is 78indorsed specifically, it can NO LONGER be 79negotiated further by mere delivery, it has to 80be indorsed. 81 82REAL DEFENSE- those that attach to the 83instrument and are available against all 84holders, whether in due course or not. 85 86PERSONAL DEFENSE- or equitable 87defenses are available only against the 88holder not in due course who stands in 89privity with the party who is entitled to set it 90up or those who are not or do not have the 91rights of a holder in due course. 92

93EXAMPLES 94DEFENSES: 951. 96 972. 98 993. 100

OF

PERSONAL

Absence or failure of consideration, partial or total. Want of delivery of complete instrument. Insertion of wrong date in an instrument, where it is payable at a

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 54. 6 7 85. 96. 10 117. 12 138. 14 159. 1610. 17 1811. 1912. 2013. 21 22 23 24 2514. 26 2715. 28 29 3016. 31 32

fixed period after date and it is issued undated or where it is payable at a fixed period after sight and the acceptance is undated. Filling up of blank contrary to authority given or not within reasonable time, where the instrument is delivered. Fraud in inducement. Acquisition of instrument by force, duress, or fear. Acquisition of the instrument by unlawful means. Acquisition of the instrument for an illegal consideration. Negotiation in breach of faith. Negotiation under circumstances that amount to fraud. Mistake. Intoxication according to better authority. Ultra vires acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued. Want of authority of agent where he has apparent authority. Insanity where there is no notice of insanity on the part of the one contracting with the insane person. Illegality of contract where form or consideration is illegal.

341. 352. 363. 374. 385. 396. 407. 41 428. 43 44 45 469. 4710. 48 4911. 50 51 5212. 53

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

56 57 58 591. 60 612. 62 633.

A. EFFECTS OF INCOMPLETE BUT DELIVERED NI (SEC. 14, NIL):

33EXAMPLES OF REAL DEFENSES:

54EFFECTS OF DEFENSES 55

64

MAKER

DRAWER

ACCEPTOR

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

1. engages that on due presentment, the instrument will be accepted, or paid, or both according to its tenor; 2.admits the existence of the payee;

1.engages that he will pay according to the tenor of his acceptance;

2.admits the existence of the payee;

3. admits payee’s capacity to indorse

65 66 67 68 69☛ 70 71 72 73 74 75 76 77 78 79 801. 81 82 832. 84 853. 86 87

3. admits payee’s capacity to indorse

2. admits the existence of the drawer, the genuineness of his signature, and his capacity & authority to draw the instrument; 3. admits the existence of the payee and his capacity to indorse.

B. EFFECTS OF INCOMPLETE AND UNDELIVERED NI (SEC. 15, NIL): if completed and delivered without authority, not a valid contract against a person who has signed before delivery of the contract even in the hands of HDC but subsequent indorsers are liable. C. EFFECTS OF COMPLETE BUT UNDELIVERED NI (SEC. 16, NIL): Between immediate parties and remote parties not a HDC, must be an authorized delivery. As to HDC, all prior deliveries are conclusively presumed valid; and If instrument is not in the hands of drawer/maker, valid and intentional delivery is presumed.

Holder has prima facie authority to fill up the instrument. Completion within reasonable time and according to authority; and HDC can enforce such despite deficiency.

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2

COMPARISON OF SECTIONS 14, 15 AND 16

Section 14

Section 15

Section 16

a. b.

incomplete

complete

COMPLETENESS DELIVERY

delivered

undelivered

Undelivered

wanting in any material particular blank paper with signature

Note: Delivery may be made for a conditional or for a special purpose only and not for the purpose of transferring the property in the instrument

AUTHORITY OF PERSON IN POSSESSION

a.

WHEN ENFORCEABLE

No authority to complete and / or negotiate instrument

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

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

Not enforceable

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

KIND OF DEFENSE

Personal

Real

Personal

RIGHTS OF HOLDER

If holder in due course, he can enforce the instrument as completed against parties prior or subsequent to the completion

None in the hands of the holder. However, the invalidity of the above instrument is only with reference to parties whose signatures appear on the instrument prior to delivery because as to parties whose signatures appear on the instrument after delivery, the instrument is valid.

Can enforce the instrument. Note: Where the instrument is in the hands of a holder in due course , a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery to him is presumed until the contrary is proved.

b.

prima facie authority to complete it by filling up the blanks therein signature operates as a prima facie authority to fill up it up as such for any amount

If not a holder in due course, he can enforce the instrument as completed only against parties subsequent to the completion but not against those prior thereto.

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 D. EFFECT OF ABSENCE OR FAILURE 3 OF CONSIDERATION (SEC. 28, NIL): 4 5☛ Personal defense to the prejudiced party 6 and available against any person not HDC. 7 8 E. FORGERY 9 10☛ counterfeit making or fraudulent alteration of 11 any writing, which may consist of: 121. signing of another name with intent to 13 defraud; or 142. alteration of an instrument in the name, 15 amount, name of payee, etc. with intent to 16 defraud. 17 18EFFECTS OF FORGERY (SEC. 23, NIL): 19 20☛ signature (not instrument itself and 21 subsequent indorsers) is wholly inoperative, 22 and no right to retain the instrument, or to 23 give a discharge therefor, or to enforce 24 payment thereof against any party to it, is 25 acquired through or under such signature 26 UNLESS the party against whom it is sought 27 to enforce such right is precluded from 28 setting up the forgery or want of authority. 29 30☛ Persons precluded from setting up forgery: 311. those who warrant or admit the genuineness 32 of the signature in question. This includes 33 indorsers, persons negotiating by delivery 34 and acceptors. 352. Those who by their acts, silence, or 36 negligence, are estopped from setting up the 37 defense of forgery. 38

39VALUABLE CONSIDERATION 40 41☛ 42 43 44 45 46 47

In general, it is said to consist either in some right, interest, profit or benefit, accruing to the party who makes the contract, or some forebearance, detriment, loss, responsibility, act , labor, or service on the other side.

48ACCOMMODATION - legal arrangement 49under which a person called the accommodation 50party, lends his name and credit to another 51called the accommodated party without any 52consideration. 53

54REQUISITES OF ACCOMMODATION 55(SEC. 29, NIL): 56 571. 58 592. 60 613. 62

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

63EFFECTS OF ACCOMMODATION (SEC. 6429, NIL):

65 66☛ person to whom instrument thus executed is 67 subsequently negotiated has a right of 68 recourse 69 70against the accommodation party inspite of the 71former’s knowledge that no consideration 72passed between the accommodation and 73accommodated parties. 74 75NOTE: A corporation cannot act as an 76accommodation party. The issue or indorsement 77of negotiable instrument by a corporation without 78consideration and for the accommodation of 79another is ultra vires. (Crisologo vs. CA, 117 80SCRA 594). 81

82RIGHTS AND LEGAL POSITION OF 83ACCOMODATION PARTY 84 851. 86 872. 88 89 90

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

93☛ 94 95 96 97

liable on the instrument to a holder for value notwithstanding such holder at the time of the taking of the instrument knew him to be only an accomodation party

91LIABILITY OF ACCOMODATION PARTY 92

98RIGHTS OF ACCOMODATION PARTY 99AGAINST EACH OTHER 100 101☛ 102 103 104☛ 105 106 107 108 109 1102. 111

112 113

114☛ 115 116 117 118 119 120 121 122 123 124 125☛ 126 127

demand from principal debtor reimbursement of the amount which he had paid on the promissory note demand contribution from his coaccomodation maker without first directing his action against the principal debtor provided: 1. he made the payment by virtue of judicial demand the principal debtor is insolvent

F. MATERIAL ALTERATION any alteration which changes the date, sum payable, time or place of payment, number or relation of parties, or medium or currency of payment, or adds a place of payment where none is specified or which alters the effect of the instrument in any respect. (PNB vs. CA) EFFECTS OF MATERIAL ALTERATION (SECS. 124 & 125, NIL): avoids the instrument except as against the party who made, authorized, or assented to the alteration and subsequent indorsers.

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

1 2 3 4 5 6

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

HDC can enforce it accordingly to its original tenor.

7 8LIABILITIES OF PARTIES 9 101. PARTIES PRIMARILY LIABLE 11 12 a. MAKER (Sec. 60, NIL) 13 (i) engages to pay according to the 14 tenor of the instrument; and 15 (ii) admits the existence of the 16 payee and his capacity to indorse. 17 b. ACCEPTOR OR DRAWEE (Sec. 62, 18 NIL) 19 (i) engages to pay according to the 20 tenor of his acceptance; 21 (ii) admits the existence of the 22 drawer, the genuineness of his 23 signature and his capacity and 24 authority to draw the instrument; 25 and 26 (iii) admits the existence of the 27 payee and his capacity to indorse. 28 292. PARTIES SECONDARILY LIABLE 30 31 a. DRAWER (Sec. 61, NIL) 32 (i) Admits the existence of the 33 payee and his capacity to indorse. 34 (ii) Engages that the instrument will 35 be accepted or paid by the party 36 primarily liable; and 37 (iii) Engages that if the instrument is 38 dishonored and proper 39 proceedings are brought, he will 40 pay to the party entitled to be paid. 41 42 b. GENERAL INDORSER (Sec. 66, NIL) 43 (i) warrants --44 (1) genuineness of the 45 instrument; 46 (2) his good title to it; 47 (3) capacity to contract of prior 48 parties; and 49 (4) instrument is valid and 50 subsisting. 51 (ii) engages that the instrument will be 52 accepted or paid by the party 53 primarily liable; and 54 (iii) engages that if the instrument is 55 dishonored and proper 56 proceedings are taken he will pay 57 to the party entitled to be paid. 58 59 c. IRREGULAR INDORSER – one who 60 affixes his signature in blank on an 61 instrument before delivery (Sec. 64, 62 NIL).

(i) instrument payable to the order 64 of a 3rd person 65 -liable to payee and subsequent parties 66 (ii) instrument payable to maker or 67 drawer 68 -liable to all parties subsequent to the 69 maker or drawer. 70 (iii) irregular indorser signs for 71 accommodation of payee. 72 73 74-liable to all parties subsequent to payee. 75 763. PARTIES WITH LIMITED LIABILITY (Sec. 77 65, NIL; METROPOL FINANCING VS. 78 SAMBOK, 120 SCRA 864). 79 80 a. QUALIFIED INDORSER- warrants that 81 (i) instrument is genuine and in all 82 respects what it purports to be; 83 (ii) he has good title to it; 84 (iii) all prior parties had capacity to 85 contract; 86 (iv) he has no knowledge of any fact 87 which would impair the validity of 88 the instrument or render it 89 valueless. 90 91 b. PERSONS NEGOTIATING BY 92 DELIVERY 93 94 (i) warranties same as those of 95 qualified indorsers; and 96 (ii) warranties extend to immediate 97 transferee only. 98 99INDORSEMENT - legal transaction effected by 100the writing of one's own name at the: 101 102 a. back of the instrument 103 b. upon a paper (allonge) 104 attached thereto with or without 105 additional words specifying the 106 person to whom or to whose order 107 the instrument is to be payable 108 whereby one not only transfers one 109 legal title to paper transferred but 110 likewise enters into an implied 111 guaranty that the instrument will be 112 duly paid (Section 31, NIL) 113 114GENERAL RULE: Indorsement must be of the 115entire instrument 116 EXCEPTION: Where instrument has 117been paid in part, it may be indorsed as to the 118residue (Section 32, NIL). 119 63

120KINDS OF INDORSEMENT 121 122A. 123 124 125B. 126

SPECIAL - specifies the person to whom or to whose order the instrument is to be payable (Section 34) BLANK - specifies no indorsee; 1. may be negotiated by delivery

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6C. 7 8 9 10 11 12 13 14 15D. 16 17 18E. 19 20 21 22 23 24 25 26F. 27 28 29 30G. 31 32H. 33I. 34J. 35

2. may be converted to special indorsement by writing over the signature of indorser in blank any contract consistent with character of indorsement (Sections 34 and 35) ABSOLUTE - one by which indorser binds himself to pay: 1. upon no other condition than failure of prior parties to do so 2. upon due notice to him of such failure

391. 40 41 422. 43 44 453. 46

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

CONDITIONAL - indorsement subject to the happening of a contingent event (Section 39) RESTRICTIVE 1. when it PROHIBITS further negotiation of the instrument; 2. when it CONSTITUTES the indorsee the agent of the indorser 3. when it VESTS the title in the indorsee in trust for or to the use of other persons (Section 36) QUALIFIED - made by adding to the indoser's signature words like "sans recourse", "without recourse", "indorser not holden", "at the indorser's own risk", etc. JOINT - indorsement payable to 2 or more persons (Section 38) SUCCESSIVE IRREGULAR FACULTATIVE

65those under a general indorsement when an 66instrument negotiable by delivery is indorsed to 67holder --- becomes liable as indorsee (Sec. 366837, NIL). 69 70☛ An indorsement is restrictive, which either: 71a) prohibits further negotiation of the 72 instrument; or 73b) constitutes the indorsee the agent of the 74 indorser; or 75c) vests the title in the indorsee in trust for or to 76 the use of some other person. But mere 77 absence of words implying power to 78 negotiate does not make an indorsement 79 restrictive. 80

81 82HOLDER IN DUE COURSE (SEC. 52, NIL): 83 841. 85 862. 87 88 893. 904. 91 92

93 94DISTINCTIONS:

Negotiating by Mere delivery or by Qualified Indorsement 1. he has good title to it;

36REQUISITES BEFORE SECONDARY 37LIABILITY ATTACHES: 38

47RECOURSE- resort to a person secondarily 48liable after default of person primarily liable. 49 50NEGOTIATION- transfer of instrument from 51one person to another to constitute the 52transferee as holder thereof (Sec. 30, NIL). 53 54CONDITIONAL INDORSEMENT- right of the 55indorsee is made to depend on the happening of 56a contingent event. Party required to pay may 57disregard the conditions (Sec. 39, NIL). 58 59SPECIAL INDORSEMENT- name of indorsee 60specifed (Sec. 34, NIL). 61 62RESTRICTIVE INDORSEMENT- limits the 63right of indorsee by restricting further 64negotiation; giving the indorsee lesser right than

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

General Indorser 1. he has good title to it;

2. all prior parties had capacity to contract;

2. all prior parties had capacity to contract;

3. he has no know- ledge of any fact which would impair the validity of the instrument or render it valueless.

4. the instrument is, at the time of his indorsemen t valid and subsisting.

95

96PRESENTMENT – the production of a bill of 97exchange to the drawee for his acceptance, or to 98the drawee or acceptor for payment or the 99production of a p.n. to the party liable for the 100payment of the same. (Section 70, NIL) 101 102☛ Presentment for payment consists of: 1031. personal demand for payment at the proper 104 place; 1052. readiness to exhibit the instrument if 106 required, and to receive payment and to

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

1 2 3

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

surrender the instrument if the debtor is willing to pay.

4WHEN PRESENTMENT 5MADE (Section 71, NIL) 6

SHOULD

BE

71. 8 92. 10 113. 12 13

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

161. 17 18 192. 203. 214. 22 23 24

made by the holder or any person authorized to receive payment on his behalf;

281. 292. 30 31 323. 33 34 35

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

14WHAT CONSTITUTES A SUFFICIENT 15PRESENTMENT

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

25PRESENTMENT FOR PAYMENT IS MADE 26AT A PROPER PLACE WHERE: 27

364. 37 38 39 40

41THE PURPOSE OF EXHIBITION IS TO 42ENABLE THE DEBTOR TO : 43 441. determine the genuiness of the instrument 45 and the right of the holder to receive 46 payment; and 472. to enable him to reclaim possession upon 48 payment. (Section 74, NIL)

49 50WHEN EXHIBITION EXCUSED

511. when debtor does not demand to see the 52 instrument but refuses payment on some 53 other grounds, and 542. when the instrument is lost or destroyed. 55 56☛ Instrument payable at a bank must be made 57during banking hours unless there are no funds 58to meet it at any time during the day, 59presentment at any hour before the bank is 60closed on that day is sufficient. 61☛ If the person liable is dead, presentment 62may be made to his personal representative. 63

64PRESENTMENT FOR PAYMENT IS NOT 65REQUIRED: 66 671. 68 69 702. 71 72 73 74 75

in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument; in order to charge an indorser when the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

76WHEN DELAY IN MAKING 77PRESENTMENT OR OF GIVING NOTICE 78IS EXCUSED: 79 801. when caused by circumstances beyond the 81 control of the holder; and 82

83

842. not imputable to his default, misconduct, or 85negligence.

86 87WHEN PRESENTMENT FOR PAYMENT 88IS EXCUSED: 89 901. 91 922. 933. 94

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

95THE INSTRUMENT IS DISHONORED BY 96NON-PAYMENT WHEN: 97 981. It is duly presented for payment and 99 payment is refused or cannot be obtained; 1002. Presentment is excused and the instrument 101 is overdue and unpaid. 102 103☛ When instrument is dishonored by non104payment, there is an immediate right of recourse 105by the holder against persons secondarily liable. 106However, notice of dishonor is generally 107required. 108 109☛ Every negotiable instrument is payable at 110the time fixed therein without grace. 111

112REQUISITES OF PAYMENT IN DUE 113COURSE: 114

1151. Payment must be made at or after maturity. 1162. Payment must be made to the holder. 1173. Payment must be made in good faith and 118 without notice that the holder’s title is 119 defective. 120☛ Good faith refers to the maker or acceptor 121and not to the holder. 122

123

124 125NOTICE OF DISHONOR- notice given by holder 126or his agent to party or parties secondarily liable

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1that instrument was dishonored by non2acceptance by drawee of a bill, or by non3payment by acceptor of a bill or by non-payment 4by maker of a note. (Sec. 89, NIL). 5 6 7 8

9 10REQUISITES OF NOTICE OF DISHONOR: 11 121. 13 14 152. 16 173. 18 194. 20 21

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

22WHEN NOTICE OF DISHONOR IS 23DISPENSED WITH: 24

251. when party to be notified knows about the 26 dishonor, actually or constructively (Secs. 27 114-117, NIL); 282. if waived (Sec. 109, NIL); and 293. when after due diligence, it cannot be given 30 (Sec. 112, NIL). 31 32How given: 33 34 1. by bringing verbally or 35 2. by writing to the knowledge of 36 the person liable the fact that a specified 37 instrument, upon proper proceedings 38 taken, has not been accepted or has not 39 been paid, and that the party notified is 40 expected to pay it. 41 42To whom given: 43 44 1. Non-acceptance (bill) – to 45 persons secondarily liable, namely, the 46 drawer and indorsers as the case may 47 be. 48 2. Non-payment (both bill and 49 note) – indorsers. 50 51 NOTE: Notice must be given to persons 52 secondarily liable. Otherwise, such parties 53 are discharged. Notice may be given to the 54 party himself or to his agent. 55

56WHERE INSTRUMENTS PAYABLE IN 57INSTALLMENTS: 58 591. 60 61 62 632. 64

No acceleration clause – failure to give notice of dishonor on a previous installment does not discharge drawers and indorsers as to succeeding installments. With acceleration clause – failure to give notice as to previous installment will

65 discharge the persons secondarily liable as 66 to the succeeding installments. 67 68By whom given: 69 701. the holder 712. another on behalf of the holder 723. any party to the instrument who may be 73 compelled to pay it to the holder, and who 74 would have a right to reimbursement from 75 the party to whom the notice is given. 76 77☛ Notice of dishonor given by or on behalf of 78a holder inures to the benefit of: 79 801. all parties prior to the holder, who have a 81 right of recourse against the party to whom 82 the notice is given; and 832. all holders subsequent to the holder giving 84 notice. 85 86 87 88☛ Notice of dishonor given by or on behalf of 89a party entitled to give notice inures to the 90benefit of: 911. the holder; and 922. all parties subsequent to the party to whom 93 notice is given. 94 95☛ Where an instrument is dishonored in the 96hands of an agent, he can do either of the 97following: 981. directly give notice to persons secondarily 99 liable thereon; or 1002. give notice to his principal. In such case, he 101 must give notice within the time allowed by 102 law as if he were a holder. 103 104☛ A party giving notice is deemed to have 105given due notice where: 106 1.the notice of dishonor is duly addressed, 107 and 108 2.deposited in the post-office, even when 109 there is miscarriage of mail. 110 111☛ Notice is deemed to have been deposited in 112the post office when deposited in any branch 113post-office or in any letter box under the control 114of the post office department. 115☛ Where a party receives notice of dishonor, 116he has, after the receipt of such notice, the same 117time for giving notice to antecedent parties that 118the holder has after the dishonor. 119 120☛ Notice may be waived either before the time 121of giving notice, or after the omission to give due 122notice. Waiver may be expressed or implied. 123 124☛ As to who are affected by an express waiver 125depends on where the waiver is written. 126 1. if it appears in the body or on the face 127 of the instrument, it binds all parties; but 128 2. if it is written above the signature of an 129 indorser, it binds him only.

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2PROTEST- is the formal instrument executed 3usually by a notary public certifying that the legal 4steps necessary to fix the liability of the drawee 5and the indorsers have been taken. 6☛ Where protest is waived, presentment and 7notice of dishonor are also deemed waived. But 8where the notice of dishonor is waived, 9presentment is not waived. 10 11☛ Notice is dispensed with when, after the 12exercise of reasonable diligence, it cannot be 13given or does not reach the parties sought to be 14charged. 15☛ Notice of dishonor is not required to be 16given to the drawer in any of the ff. cases: 171. drawer and drawee are the same; 182. drawee is a fictitious person or not having 19 the capacity to contract; 203. drawer is the person to whom the instrument 21 is presented for payment; 224. the drawer has no right to expect or require 23 that the drawee or acceptor will honor the 24 instrument; 25 265. where the drawer has countermanded 27 payment. 28 29☛ Notice of dishonor is not required to be 30given to an indorser in either of the ff. cases: 31 32 1. drawee is a fictitious person or does not 33 have the capacity to contract, and 34 indorser was aware of that fact at the 35 time he indorsed the instrument; 36 2. indorser is the person to whom the 37 instrument is presented for payment; 38 3. instrument was made or accepted for his 39 accommodation. 40 41☛ If an instrument is not accepted by the 42drawee, there is no sense presenting it again for 43payment, and notice of dishonor must at once be 44given. If there was acceptance, presentment for 45payment is still required and if payment is 46refused, there is a need for notice of dishonor. 47 48☛ An omission to give notice of dishonor by 49non-acceptance does not prejudice the rights of 50a holder in due course subsequent to the 51omission. 52 53☛ Protest is necessary only in case of foreign 54bills of exchange which have been dishonored 55by non-acceptance or non-payment, as the case 56may be. If it is not so protested, the drawer and 57indorsers are discharged

58 59FOREIGN BILL OF EXCHANGE: 60 611. 62 632. 64

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

65

66DISCHARGE OF NEGOTIABLE 67INSTRUMENT (Section 119, NIL): 68

69☛ Discharge of an instrument- means a 70release of all parties, whether primary or 71secondary, from the obligations arising 72thereunder. It renders the instrument without 73force and effect and, consequently, it can no 74longer be negotiated.

75 76WHEN A NEGOTIABLE INSTRUMENT IS 77DISCHARGED: 78 791. 80 812. 823. 834. 84 855. 86 87 88

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

89WHEN A PERSON SECONDARILY 90LIABLE IS DISCHARGED (Section 120, 91NIL): 92 931. By any act which discharges the instrument; 942. By the intentional cancellation of his 95 signature by the holder; 963. By the discharge of a prior party; 974. By a valid tender of payment made by a 98 prior party; 995. By the release of the principal debtor, unless 100 the holder’s right of recourse against the 101 party secondarily liable is expressly 102 reserved; 1036. By any agreement binding upon the holder 104 to extend the time of payment or to 105 postpone the holder’s right to enforce the 106 instrument. 107 108☛ In the following cases, the agreement to 109extend the time of payment does not discharge a 110party secondarily liable: 111a) where the extension of time is consented to 112 by such party; 113b) where the holder expressly reserves his 114 right of recourse against such party. 115 116☛ Payment at or after maturity by a party 117secondarily liable does not discharge the 118instrument. It only cancels his own liability and 119that of the parties subsequent to him. (Section 120121, NIL). 121

122EFFECT OF RENUNCIATION (Section 123122, NIL): 124 1251. A renunciation in favor of a secondary party 126 may be made by the holder before, at or 127 after maturity of the instrument. The effect

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

1 2 3 42. 5 6 7 8 9

10 11

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

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

NOTE: In either case, renunciation does

12 not affect the rights of a holder in due course 13 without notice. 14 15☛ Cancellation of an instrument includes 16tearing, erasure, obliteration, or burning. It is not 17limited to writing of the word ‘cancelled”, or 18“paid”, or drawing of criss-cross lines across the 19instrument (Section 123, NIL). 20 21MATERIAL ALTERATION - any change in 22the instrument which affects or changes the 23liability of the parties in any way.

24 25EFFECT OF ALTERATION: 26 271. 28 29 30 31 32 33 34 35 36 37 382. 39 403. 41 42 43 44 45 46 47 48 49 50 51

Alteration by a party ☛ material alteration by the holder is to discharge the instrument and all prior parties thereto who did not give their consent to such alteration. NOTE: Since no distinction is made, it does not matter whether it is favorable or unfavorable to the party making the alteration. The intent of the law is to preserve the integrity of the negotiable instruments. Alteration by a stranger ☛ it is called spoliation. The right of holder in due course ☛ A material alteration avoids the instrument in the hands of one who is not a holder in due course as against any prior party who has not assented to the alteration. ☛ If an altered instrument is negotiated to a HIDC, he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent.

561. 572. 583. 594. 605. 61 626. 63

date sum payable, either for principal or interest time or place of payment number or relations of the parties medium or currency in which payment is to be made that which adds a place of payment where no place of payment is specified

52CHANGES IN THE FOLLOWING 53CONSTITUTES MATERIAL 54ALTERATIONS: 55

647. any other change or addition which alters 65 the effect of the instrument in any respect.

66 67 68 69 70ACCEPTANCE AND PRESENTMENT FOR 71ACCEPTANCE (Secs. 132-151, NIL) 72

73☛ Acceptance of a bill is the signification by 74the drawee of his assent to the order of the 75drawer. It is the act by which the drawee 76manifests his consent to comply with the request 77contained in the bill of exchange directed to him 78and it contemplated an engagement or promise 79to pay.

80 81WHEN PRESENTMENT 82ACCEPTANCE IS REQUIRED: 83

FOR

841. where the bill is payable after sight, or when 85 it is necessary in order to fix the maturity of 86 the instrument; 87 882. where the bill expressly stipulates that it 89 90shall be presented for acceptance; 91 923. where the bill is drawn payable elsewhere 93 than at the residence or place of business of 94 the drawee. 95 96NOTE: In all the above cases, the holder must 97either present the bill for acceptance or 98negotiate it within a reasonable time; otherwise, 99the drawer and all indorsers are discharged.

100 101FORM OF PRESENTMENT 102ACCEPTANCE: 103

FOR

1041. 1052. 1063. 1074. 108

must be made by or no behalf of the holder; at a reasonable hour or a business day; before the bill is overdue; and to the drawee or some person authorized to accept or refuse to accept on his behalf.

1121. 113 114 1152. 116 1173. 118 119 120

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

109 110WHEN PRESENTMENT EXCUSED: 111

121WHERE BILL DISHONORED BY NON122ACCEPTANCE: 123 1241. when it is duly presented for acceptance and 125 such an acceptance is refused or cannot be 126 obtained; or

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

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

23KINDS OF ACCEPTANCE: 24 251. 26 272. 28 29 30a) 31 32 33b) 34 35c) 36 37d) 38e) 39

GENERAL- assents without qualification to the order of the drawer. QUALIFIED- which in express terms varies the effect of the bills as drawn. Conditional- makes payment by the acceptor dependent on the fulfillment of a condition therein stated. Partial- an acceptance to pay part only of the amount for which the bill is drawn. Local- an acceptance to pay only at a particular place. Qualified as to time The acceptance of some one or more of the drawees but not of all.

40 41 42PROTEST (Secs. 152-160) 43

44PROTEST IS REQUIRED FOR 2 GOOD 45REASONS: 46 471. 48 492. 50 51 52 53 54 55 56

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

591. 602. 61 62 63

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

57PROTEST MAY BE MADE BY: 58

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

73 74ACCEPTANCE FOR HONOR

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

87REQUISITES OF ACCEPTANCE FOR 88HONOR: 89 901. 91 92 932. 94 95 963. 97 98 994. 100 101

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

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

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

acceptance for honor must be with the consent of the holder of the instrument.

102FORMAL REQUISITES: 103

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

122 123REQUISITES OF PAYMENT FOR HONOR: 124

1251. the bill has been dishonored by non126 payment;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

12. it has been protested for non-payment; 23. payment supra protest (another term for 3 payment for honor because prior protest for 4 non-payment is required) is made by any 5 person, even by a party thereto; 64. the payment is attested by a notarial act of 7 honor which must be appended to the 8 protest or form an extension of it; 9 10 115. the notarial act must be based on the 12 declaration made by the payee for honor or 13 his agent of his intention to pay the bill for 14 honor and for whose honor he pays. 15 16NOTE: If the above formalities are no complied 17with, payment will operate as a mere voluntary 18payment and the payer will acquire no right to 19full reimbursement against the party for whose 20honor he pays. 21 22☛ In payment for honor, the payee cannot 23refuse payment. If he refuses, he cannot 24recover from the parties who would have been 25discharged had he accepted the same. In 26acceptance for honor, the holder’s consent is 27necessary. 28 29☛ The payer for honor is given the right to 30receive both the bill and the protest obviously to 31enable him to enforce his rights against the 32parties who are liable to him. 33 34BILLS IN SET (Secs. 178-183) 35 36BILL IN SET is one composed of several parts, 37each part being numbered and containing a 38 39reference to the other parts, the whole of the 40parts constituting but one bill. 41 42☛ Purpose: Are usually availed of in cases 43where a bill had to be sent to a distant place 44through some conveyance. If each part is sent 45by different means of conveyances, the chance 46that at least one part of the set would reach its 47destination would be greater. 48 49☛ Rights of holders where parts are 50negotiated separately: 51 1. if both are HIDC, the 52 holder whose title first accrues is 53 considered the true owner of the bill. 54 2. But the person who 55 accepts or pays in due course shall 56 not be prejudiced. 57 58☛ Obligations of holder who indorses 2 or 59more parts of the bill in set: 60 61 1. the person shall be 62 liable on every such part; 63 2. every indorser 64 subsequent to him is liable on the part

65 66 67

he has himself indorsed, as if such parts were separate bills.

68LEGAL TENDER (R.A. 7653, NEW 69CENTRAL BANK ACT) 70 71Section 52. Legal Tender. All notes and coins 72issued by the Bangko Sentral shall be fully 73guaranteed by the Government of the Republic 74of the Philippines and shall be legal tender in the 75 76Philippines for all debts, both public and private. 77PROVIDED, however, That, unless otherwise 78fixed by the Monetary Board, coins shall be legal 79tender in amounts not exceeding Fifty pesos 80(P50.00) for denominations of Twenty-five 81centavos and above, and in amounts not 82exceeding Twenty pesos (P20.00) for 83denominations of Ten centavos or less. 84 85R.A. 8183 (Repealed R.A. 529, the Uniform 86Currency Act- Foreign currency as mode of 87payment) 88 89SECTION 1. All monetary obligations shall be 90settled in the Philippine currency which is legal 91tender in the Philippines. However, the parties 92may agree that the obligation or transaction shall 93be settled in any other currency at the time of 94payment. 95 96 97

98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9 10

11 12II. CORPORATION CODE 13

14CORPORATION- artificial being created by 15operation of law having the right of succession, 16and the powers, attributes and properties 17expressly authorized by law and incident to its 18existence (Sec. 2). 19

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

471. 48 492. 50 51 52 53

PRIMARY FRANCHISE – the franchise to exist as a corporation. SECONDARY FRANCHISE – right or privilege conferred upon existing corporation, such as to use the streets of a municipality to lay pipes or tracks, or operate a messenger and express delivery service.

45FRANCHISES OF CORPORATION 46

54 55DISTINCTIONS : 56

SECONDARY 1. refers to the exercise of rights as for example, the right of eminent domain or the partial appropriation of public property

2. vested in the individuals who compose the corporation and is essential to a corporation de jure.

2. It is deemed to vest in the corporation

3. it cannot be sold or transferred because it is inseparable from the corporation itself.

3. It may be sold or transferred; sue or be sued; subject to sale on execution, subject to levy provided such sale is decreed or ordered in judgment and is effective only when sale is confirmed by court often due notice.

57 58 59 60 61 62

20THEORIES ON THE FORMATION OF 21A CORPORATION: 22 231. 24 25 26 27 28 292. 30 31 32 33 343. 35 36 37 38 394. 40 41 42 43 44

PRIMARY 1. refers to the franchise of being or existing as a corporation, i. e., possessing a unity and continuity of existence

63

64ATTRIBUTES OF A CORPORATION: 65 661. 672. 683. 694. 70 71 72

It is an artificial being. It is created by operation of law. It enjoys the right of succession. It has the powers, attribute and properties expressly authorized by law or incident to its existence.

73CLASSES OF CORPORATION: 74 751. AS TO ORGANIZERS 76 a. public – by State only; and 77 b. private – by private persons alone or 78 with the State. 792. AS TO FUNCTIONS 80 a. public – governmental and other 81 functions; and 82 b. private – usually for profit-making 83 functions 843. AS TO GOVERNING LAW 85 a. public – Special Laws; and

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 b. private – Law on Private Corporations 24. AS TO LEGAL STATUS 3 a. de jure corporation – corporation 4 organized in accordance with 5 requirements of law 6 b. de facto corporation – a corporation 7 where there exists a flaw in its 8 incorporation (Sec. 20). Its existence 9 cannot be inquired collaterally. Such 10 inquiry may be made by the Solicitor 11 General in a quo warranto proceeding 12 (Sec. 20). 13 14 15 16 17

18 19REQUISITES OF DE FACTO 20CORPORATION: 21 221. 23 242. 253. 264. 27 28 29

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

30

c. corporation by estoppel – groups of

31 32 33 34 35 36

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

37 38

39 40 41 42 43 445. 45 46 47 48 49 50 51 52 53 54 55 56 576. 58 59 60 61 62 63 64

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

65 66 67 68 69 70 71

mere investment. It has a passive portfolio merely holding securities for control and management, as distinguished from an active investment policy which has an active portfolio buying and selling securities

75 76

one corporation owns 51%-94% of the capital stock of another corporation. WHOLLY OWNED SUBSIDIARY – where one corporation holds 95% to 100% of the capital stock of another corporation.

72TWO KINDS OF SUBSIDIARIES 73 741. MAJORITY OWNED SUBSIDIARY – where 772. 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 1017. 102 103 104 105 106 107 108 109 110 111 1128. 113 114 115 116 117 118 119

b. Affiliates – company which is subject to common control of a mother holding company and operated as part of the system. c. parent and subsidiary corporation separate entities with power to contract with each other. The board of directors of the parent company determines its representatives to attend and vote in the stockholder’s meeting of its subsidiary. The stockholders of the parent company demand representation in the board meetings of its subsidiary. The board of directors of the parent or holding company has the prerogative to choose its nominees in the board of directors or its subsidiary. AS TO PLACE OF INCORPORATION a. Domestic corporation- corporation formed, organized or existing under laws b. Foreign Corporation – a corporation formed , organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporation to do business in its own country or state (Section 123). OTHER CORPORATIONS a. Close Corporation b. Special Corporation 1. educational corporation 2. religious corporation a. corporation sole b. religious societies

120 121ACQUIRED ASSET CORPORATION – 122 123(a) organized under general corporation law 124under private ownership where at least a 125majority of the shares of stock of which were 126conveyed to a government corporation in 127satisfaction of a debt incurred with a government

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1financial institution, whether by foreclosure or 2otherwise; or 3(b) a subsidiary corporation of a government 4corporation organized exclusively to own and 5manage, or lease or operate specific physical 6assets acquired by a government financial 7institution in satisfaction of debts incurred 8therewith (PD 2029, Sec. 3 c).

9 10RULE ON CONVERSION

11 121. STOCK CORPORATION TO NON-STOCK 13☛ An existing stock corporation may be 14 converted into a non-stock corporation by 15 mere amendments of its articles of 16 incorporation. 17 18 19 202. CONVERSION OF NON-STOCK 21 CORPORATION TO STOCK 22 CORPORATION 23 24☛ Mere amendment of the articles would not 25 suffice as it would change its very nature 26 from non-profit to monetary gain. It is 27 fundamental that the non-stock corporation 28 be dissolved first. A non-stock corporation 29 only holds its funds in trust for carrying out 30 the objectives expressed in its charter. The 31 conversion without dissolving it first would 32 be tantamount to distribution of its assets or 33 income to its members inasmuch as after its 34 conversion, the asset of the non-stock 35 corporation would now be treated as 36 payment to the subscriptions of the 37 members who will now become stockholders 38 of the corporation. Moreover, the scheme 39 might defraud the public 40 41who may have given donations not for the 42benefit of the stockholders but for organization 43purposes.

44 45ADVANTAGES OF CORPORATION AS 46AGAINST UNREGISTERED 47ASSOCIATION 48 491. 50 512. 523. 534. 54 555. 56 576. 58 59

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

60DOCTRINE OF SEPARATE 61PERSONALITY 62

63☛ A corporation has a personality separate 64and distinct from that of its stockholders or 65members. 66

67PIERCING DOCTRINE OF THE VEIL OF 68CORPORATE FICTION 69 70☛ Allows the state to disregard for certain 71justifiable reasons the fiction of juridical 72personality for the corporation, separate and 73distinct from the persons composing it. 74

75THREE CLASSES OF PIERCING: 76 771. 78 792. 80 81 82 83

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

84 85INSTRUMENTALITY RULE- Where one 86corporation is so organized and controlled and 87its affairs are conducted so that it is in fact, a 88mere instrumentality or adjunct of the other, the 89fiction of the corporate entity of the 90“instrumentality” may be disregarded. The 91control necessary to invoke the rule is not mere 92majority or even complete stock control but such 93domination of finances, policies, practices that 94the controlled corporation has, so to speak, no 95separate mind, will or existence of its own, and 96is, but a conduit for its principal. 973. Equity cases – when piercing the corporate 98fiction is necessary to achieve justice or equity 99

100COMPONENTS OF A CORPORATION: 1011. 1022. 1033. 1044. 1055. 106 1076. 1087. 109

incorporators; corporators; stockholders and members; promoter; board of directors; executive committee; and officers of the corporation.

110INCORPORATORS-

They are those 111mentioned in the articles of incorporation as 112originally forming and composing the 113corporation, having signed the articles and 114acknowledged the same before a notary public. 115They have no powers beyond those vested in 116them by the statute. 117 118☛ Only natural persons can be incorporators 119 except when otherwise allowed by law as in 120 the case of incorporated cooperative which 121 are allowed to be incorporators of rural 122 banks.

123 124NUMBER AND QUALIFICATION OF 125INCORPORATORS: (Sec. 10) 126

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

11. 22. 33. 44. 5 65. 7 8

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

9DISTINCTIONS : 10

INCORPORATORS

CORPORATORS

1. signatory to articles

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

2. do not cease to be such 11 12 13

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

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

14

15CONTENTS OF ARTICLES OF 16INCORPORATION (SEC. 14): 17 181. 192. 20 213. 224. 235. 24 256. 26 277. 28 29 30 31 328. 33 34 359. 36 37 38 3910. 40 4111. 42 43 44 45 46

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

47WHAT CANNOT BE AMENDED IN THE 48ARTICLES OF INCORPORATION

49 50Those matters referring to facts existing as of 51the date of the incorporation such as: 52 531. names of incorporators; 542. names of original subscribers to the capital 55 stock of the corporation and their subscribed 56 and paid up capital; 573. treasurer elected by the original subscribers; 584. members who contributed to the initial 59 capital of a non-stock corporation; 605. date and place of execution of the articles of 61 incorporation; 626. witnesses to and acknowledgment of the 63 articles. 64

65LIMITS ON THE USE OF CORPORATE 66NAME 67 681. 69 70 712. 723. 73 74

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

75DISTINCTIONS : 76 ARTICLES OF INCORPORATION

BY-LAWS

1. It is essentially a contract between the corporation and the stockholders/ members; between the stockholders/ member inter se, and between the corporation and the State; hence must be notarized themselves;

1. It is more of a rule for the internal government of the corporation but has the force of a contract between the corporation and the stockholders/ members, and between the stockholders and members; 2. It is usually executed after the incorporation although Sec. 46 allows simultaneous filling of the two;

2. It is executed before incorporation

3.It is a condition precedent in the acquisition of corporate existence;

3.It is a condition subsequent;

4. It is amended by a majority of the directors/ trustees and stockholders representing 2/3 of the outstanding

4. It may be amended by a majority vote of the BOD and majority vote of outstanding

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

capital stock, or 2/3 of the members in case of non-stock corporations 5. Power to amend/repeal articles cannot be delegated by the stockholders/ members to the board of directors/ trustees.

capital stock or a majority of the member in nonstock corporation 5. Power to amend or repeal by-laws or adopt new bylaws may be delegated by the 2/3 of the outstanding capital stock or 2/3 of the members in the case of nonstock corporation.

1 2 3 4 5

6ELEMENTS OF A VALID BY-LAWS: 7 81. 9 10 112. 12 133. 14 154. 16 17 18 19 20 215. 22 23 24 25 26 276. 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

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

45 46 47 48 49

at no time of its adoption, contractual relations with the corporation - If stockholders alone are affected, only they can attack.

50BINDING EFFECTS OF BY-LAWS: 51 521. AS TO MEMBERS AND CORPORATION53☛ They have the same force and effect as the 54 provisions of the charter and articles of 55 incorporation. They have the force of 56 contract between the members themselves. 57☛ They are binding only upon the corporation 58 adopting them and on its members and 59 those having direction, management and 60 control of its affairs. 612. AS TO THIRD PERSONS 62☛ Strangers are not bound to know the by63 laws which are merely provisions for the 64 government of a corporation and notice to 65 them will not be presumed. 66 67Rationale: by-laws have no extra-corporate 68force and are not in the nature of legislative 69enactments so far as third persons are 70concerned. 71

72POWERS OF A CORPORATION

73 74KINDS: 75 76 1. Express Powers – granted by law , 77 Corporation Code and its Articles of 78 Incorporation or Charter 79 2. Inherent / Incidental Powers – not 80 expressly stated but are deemed to be 81 within the capacity of corporate entities 82 3. Implied / Necessary – exists as a 83 necessary consequence of the exercise 84 of the express powers of the corporation 85 or the pursuit of its purposes as 86 provided for in the Charter 87

88THEORY OF GENERAL CAPACITY –

89corporation is said to hold such powers as are 90not prohibited or withheld from it by general law 91(everything is allowed except when prohibited). 92

93THEORY OF SPECIAL CAPACITY – 94corporation cannot exercise powers except 95those expressly or impliedly given (everything is 96prohibited except when allowed). 97

98A. GENERAL CORPORATE POWERS 99AND CAPACITY (SEC. 36): 100 1011. 1022. 1033. 1044. 1055. 1066. 107

To sue and be sued; Of succession; To adopt and use of corporate seal; To amend Articles; To adopt by-laws; For stock corporations – issue and sell stocks to subscribers and treasury stocks,

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 for non-stock corporations – admit 2 members; 37. Purchase; 4 Receive } real property 5 Grant } personal property 6 Take } securities and 7 Deal } bonds 88. to enter into merger or consolidation; 99. to make reasonable donations for: 10 a. public welfare; 11 b. hospital; 12 c. charitable; 13 d. cultural; 14 e. scientific; 15 f. civic; and 16 g. similar purposes 17 Prohibitions : no donation to – 18i i.political party; 19ii ii.candidate; and 20 iii.partisan political activity. 21 2210. to establish; 23 a. pension 24 b. retirement 25 c. and other plans for the benefit of 26 i. directors; 27 ii. trustees; 28 iii. officers; 29 iv.employees. 30 3111. Other powers essential or necessary to 32 carry out its purposes 33 34RESTRICTIONS ON THE POWER TO MAKE 35DONATIONS:

36

371. 38 39 402. 41 423. 43

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

44 45B. SPECIAL POWERS 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

1. Power to extend or shorten corporate term 2. Increase / Decrease Corporate Stock 3. Incur, Create Bonded Indebtedness 4. Sell, Dispose. Lease, Encumber all or substantially all of corporate assets 5. Purchase or acquire own shares provided: (i)

there is an unrestricted retained earnings (ii) for legitimate purpose 6. Invest corporate funds in another corporation or business for other purpose other than primary purpose 7. Power to declare dividends out of unrestricted retained earnings

65 66

8. Enter into management contract.

67MANAGEMENT CONTRACT – one entered 68into between two corporations whereby one 69corporation undertakes to manage all or 70substantially all of the business of the other 71corporation for certain period of time, whether 72such be a service contract, operating agreement 73or otherwise. 74

75ULTRA VIRES ACT AND ILLEGAL ACTS 76 77☛ 78 79☛ 80 81 82 83 84 85 86 87 88 89 90 91 92

An ultra vires act is not necessary illegal although an illegal act is always ultra vires. When the act of a corporation are spoken of as ultra vires, it is not intended that they are unlawful but merely those which are beyond the powers conferred upon the corporation by the act of its creation, and are in violation of the trust reposed in the managing board by the shareholders that the affairs of the corporation shall be managed and the funds applied solely for carrying out business objectives. An illegal act however is one which is expressly prohibited by the charter or statute or which is immoral or against public policy.

951. 96 972. 98 99 1003. 101 102 1034. 104 105 106

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

93EFFECTS OF ULTRA VIRES ACT ON: 94

107WASTING ASSET DOCTRINE- It permits 108corporations solely or principally engaged in the 109exploitation of “wasting assets” to distribute the 110net proceeds derived from exploitation of their 111holdings such as mines, oil wells, patents and 112leaseholds, without allowance or deduction for 113depletion. 114 The justification of such rule is that as 115the business of wasting asset corporation is to 116exploit and exhaust its assets, no one can 117expect that its capital would be kept intact. 118Hence that dividends cannot be paid out of the 119capital but only from the profits must not be 120applied as a rule. 121

122 123NOTE: RELATION TO THE TRUST FUND 124DOCTRINE -

125Under the Doctrine, no dividends can be 126declared out of capital except only in two 127instances: (1) liquidating dividends and (2)

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1dividends from investments in wasting asset 2corporation. 3

4BOARD OF DIRECTORS REPOSITORY 5OF CORPORATE POWERS – unless

6otherwise provided by the Code, the corporate 7powers of all corporation shall be exercised, all 8business conducted and all property of such 9corporations controlled and held by the board of 10directors or trustees to be elected from among 11the members of the corporation, who shall hold 12office for one year and until their successors are 13elected and qualified. 14 15Except: 161. Executive Committee; or 172. The corporation enters into a management 18 contract. 19

20QUALIFICATIONS OF DIRECTORS/ 21TRUSTEES: 22

231. He must own at least (1) share capital stock 24 of the corporation in his own name, and if he 25 ceases to own at least one share in his own 26 name, he automatically ceases to be a 27 director. For non-stock corporation, only 28 members of the corporation can be elected 29 to seat in the board of trustees (Sec. 23). 302. A majority of the directors/ trustees must be 31 residents of the Philippines 32 (Sec. 23). 333. He must not have been convicted by final 34 judgment of an offense punishable by 35 imprisonment for a period exceeding six (6) 36 years or a violation of the Corporation Code, 37 committed within five years from the date of 38 his election 39 (Sec. 27). 404. He must not have a substantial interest in a 41 competing corporation. 425. Only natural persons can be elected 43 directors/trustees. 446. Other qualifications as may be prescribed in 45 the by-laws of the corporation. 46 47“BUSINESS JUDGMENT RULE.”- The board of 48directors is the body usually entrusted with the 49general control and management of the 50business of the corporation having plenary 51power/ authority to transact all the ordinary 52business of the corporation within the scope of 53its charter power. The SEC, stockholders and 54the courts cannot overrule a pure business 55judgment. 56

57THREE-FOLD DUTIES OF DIRECTORS; 58 59 60 61 62 63

64

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

3. Duty of Loyalty

65 66SOLIDARY LIABILITY OF DIRECTORS 67FOR DAMAGES(SEC. 31): 68 691. 70 71 722. 73 743.

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

811. 822. 83 84 85 86

injunction, if the act has not yet been done; dissolution if the abuse amounts to a ground for quo warranto but the Solicitor General refuses to act; and derivative suit or complaint filed with SEC.

75 76 77REMEDIES IN CASE OF 78MISMANAGEMENT: 79 801. receivership;

87SPECIAL FACT DOCTRINE – director takes 88advantage of an information by virtue of his 89office to the disadvantage of the corporation. 90 91INHERENT POWER OF “AMOTION “- It is 92the power to remove directors, officer and 93trustees prior to the expiration of their term. 94

95DOCTRINE OF CORPORATE 96OPPORTUNITY – if there is presented to a

97corporate officer or director a business 98opportunity which: 991. corporation is financially able to undertake; 1002. from its nature, is in line with corporations 101 business and is of practical advantage to it; 102 and 1033. one in which the corporation has an interest 104 or a reasonable expectancy. 105 106☛ By embracing the opportunity, the self107 interest of the officer or director will be 108 brought into conflict with that of his 109 corporation, the law will not permit him to 110 seize the opportunity. 111 112SELF-DEALING DIRECTORS- those who 113personally contract with the corporation in which 114they are directors. It is discouraged because 115there can be no real bargaining where the same 116is acting on both sides of the trade. 117

118REQUIREMENTS FOR THE VALIDITY OF 119CONTRACTS OF SELF-DEALING 120DIRECTORS: 121 122 123 124 125 126

1. All the requisites in Sec. 32, to wit: a) The presence of such director/trustee in the board meeting approving the contract was not

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

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

necessary for constituting a quorum for such meeting; b)The vote of such director/trustee in the board meeting approving the contract was not necessary for the approval of the contract; c) The contract is fair and reasonable under the circumstances; In the case of an officer, there was previous authorization by the board of directors. 2. Although not all said conditions are present, the corporation elects not to attack or question the validity of the contract without prejudice to the liability of the consenting director/trustee for damages under Sec. 31. 3.Where any of the first two conditions is absent, said contract must be ratified by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose, provided that full disclosure of the adverse interest of the director/ trustee involved is made at such meeting.

32INTERLOCKING DIRECTORS- They are 33those who sit in the boards of two or more 34corporations that transact business with one 35another or contract with each other whether on 36isolated or regular basis not only because one 37has big investments therein but also because 38his services may have been proven to be 39valuable, competent and efficient. 40

41REQUIREMENTS FOR VALIDITY OF 42CONTRACTS OF INTERLOCKING 43DIRECTORS: 44 451. 462. 47 483. 49 50 51 52 53 54 55 56 57 58 59 60 61 62

63

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

64LIMITATIONS ON THE POWERS OF 65EXECUTIVE COMMITTEE (SEC.35): 66 67It cannot act on the following: 681. matters needing stockholder approval; 692. filling up of board vacancies; 70 713. amendment, repeal or adoption of by-laws; 724. amendment or repeal of any resolution of 73 the Board which by its express terms is not 74 amendable or repealable and 755. cash dividend declaration

76 77CORPORATE OFFICERS (SEC. 25): 78 791. President – who shall be a director; 802. Treasurer – who may or may not be a 81 director; 823. Secretary – who shall be a resident and 83 citizen of the Philippines; and 844. such other officers as may be provided in 85 the by-laws. 86 87CORPORATE ACTS – see table on page 35 . 88

89DOCTRINE OF INDIVIDUALITY OF 90SUBSCRIPTION- A subscription is one entire 91and indivisible whole contract. It cannot be 92divided into portions. (Sec. 64) 93

94VALID CONSIDERATIONS IN 95SUBSCRIPTION AGREEMENT: (SEC. 62)

96 971. Cash; 982. Property; 993. Labor or services actually rendered to the 100 corporation; 1014. Prior corporate obligations; 1025. Amounts transferred from unrestricted 103 retained earning to stated capital, 1046. Outstanding shares in exchange for stocks 105 in the event of reclassification or conversion. 106 107NOTE: shares of stock shall not be issued in 108exchange for promissory notes or future 109services. 110

111PRE-INCORPORATION SUBSCRIPTION 112CONTRACT – subscription of shares of stock

113of a corporation still to be formed shall be 114irrevocable for a period of at least 6 months from 115date of subscription, unless: 1161. all of the other subscribers consent to the 117 revocation; 1182. the incorporation of said corporation fails to 119 materialize with said period or within a 120 longer period as may be stipulated in the 121 contract of subscription; provided that no 122 pre-incorporation subscription may be 123 revoked after the submission of the articles 124 of incorporation to the SEC (Sec.61). 125 126 127

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2CAPITAL STOCK OR LEGAL STOCK OR 3STATED CAPITAL – the amount fixed by the

1. unit of interest in a corporation

4corporate charter to be subscribed and paid in 5cash, kind or property at the organization of the 6corporation or afterwards and upon which the 7corporation is to conduct its operation. 8 9CAPITAL – actual property or estate of the 10corporation whether in money or property.

1. Evidence of the holder’s ownership of the stock and of his right as a shareholder and of his extent specified therein.

2. it is an incorporeal or intangible property

2. It is concrete and tangible

3. it may be issued by the corporation even if the subscription is not fully paid.

3. It may be issued only if the subscription is fully paid.

Situs is generally the state where the corporation has its domicile a) For purposes of taxation, situs is inconsistent with an express provision of the statute or it is unjust. b)To register the chattel mortgages over the shares of stock the status is the duty/promise in which the corporation has its principal place of business. c)For purposes of execution, it is the domicile of the corporation.

4.The situs may be the place where it is located or at the domicile of the owner even though the domicile of the owner, except when corporation is dominated elsewhere.

11 12AUTHORIZED CAPITAL STOCK – total 13amount in the charter, which may be raised by 14the corporation for its operations. 15

16WAYS OF INCREASING THE CAPITAL 17STOCK: 18

191. by increasing the number of shares and 20 retaining the par value; 212. by changing the par value of existing shares 22 without increasing the number of shares; 233. by increasing the number of shares and 24 increasing the par value. 25☛ The way of increase varies according to the 26 reason for the increase, and is left to the 27 sound judgment of the board of directors, 28 subject to ratification by the stockholders. 29 30SHARES OF STOCK – interest or right which 31owner has in the management of the 32corporation, and its surplus profits, and, on 33dissolution, in all of its assets remaining after the 34payment of its debt. 35WORKING CAPITAL – excess of current assets 36over current liabilities. 37CIRCULATING CAPITAL – refers to the total 38amount of current assets. 39

40DISTINCTIONS:

CAPITAL STOCK 

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

SHARES OF STOCK 

- the interest or right which the stockholder has in the management of the corporation, and its surplus profits, and upon a dissolution, in all of its assets remaining after payment of corporate debts. Share of stock belongs to the individual stockholders and not to the company.

41 42DISTINCTIONS : SHARE OF STOCK

CERTIFICATE OF

STOCK

4.

43 44 45UNDERWRITING AGREEMENT- It is an 46agreement between a corporation and a third 47person, termed the “underwriter”, by which the 48latter agrees, for a certain compensation, to take 49a stipulated amount of stocks or bonds, specified 50in the underwriting agreement, if such securities 51are not taken by those to whom they are first 52offered. 53

54DISTINCTIONS :

UNDERWRITING AGREEMENT

STOCK SUBSCRIPTION AGREEMENT

1. The signers obligate themselves to take the shares of stock which cannot be sold. 2. Underwriters are usually allowed a commission. 3. In pure underwriting agreement, the signer

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

can refuse to become a stockholder/ member of the company in pursuance of his contract with the promoter. 1 2

to pay the amount due on the stock.

3MINIMUM CAPITAL STOCK REQUIRED 4(SEC. 12) 5

6GENERAL RULE : NO minimum required for 7capital stock. 8 Except: 9 1. Domestic Insurance 10 Corporations – P500T capital stock; 11 50% subscribed and the balance 12 payable in 12 months. 13 2. Private Development Banks 14 • P4M for class A 15 • P2M for class B 16 • P1M for class C 17 3. Investment Companies – paid 18 up at least P500T 19 4. Savings and Loan Corporation – 20 to be fixed by the Monetary Board but 21 not less than P100T. 22 5. Financing Companies 23 • Paid up: P2M for Metro 24 Manila 25 P1M for Cities 26 P500T for others 27

28AMOUNT OF CAPITAL STOCK TO BE 29SUBSCRIBED AND PAID FOR 30PURPOSES OF CORPORATION 31(SEC. 13): 32 33☛ 34 35☛ 36 37 38

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

411. 42 43 44 452. 46 47 48 49 50 51 52 53 54 55 56

PREFERRED SHARES – issued with par value and preference may be to (a) assets after dissolution, (b) distribution of dividends and other preferences; REDEEMABLE SHARES (SEC. 8) – are those which permit the issuing corporation to redeem or purchase its own shares.

39CLASSIFICATION OF SHARES (SEC. 6): 40

LIMITATIONS ON THE ISSUANCE OF REDEEMABLE SHARES: 1. Redeemable shares may be issued only when expressly provided for in the articles of incorporation (Sec. 8). 2. The terms and conditions affecting said shares must be stated

57 both in the articles of incorporation and 58 in the certificate of stock representing 59 such share (Sec. 8). 60 3. Redeemable shares may be 61 deprived of voting rights in the articles of 62 incorporation, unless otherwise provided 63 in the Code. 64 653. TREASURY SHARES (SEC. 9) 66 shares which have been earlier issued as 67 fully paid and have thereafter been acquired 68 by the corporation by purchase, donation, 69 redemption or through some lawful means. 70 71☛ IF PURCHASED FROM THE 72 STOCKHOLDERS – the transaction in effect 73 is a return to the stockholders of the value of 74 their investment in the company and a 75 reversion of the shares to the corporation. 76 The corporation must have surplus profits 77 with which to buy the shares so that the 78 transaction will not cause an impairment of 79 the capital. 80 81☛ IF BY DONATION FROM THE 82 STOCKHOLDERS – the act would amount 83 to a surrender of their stock without getting 84 back their investments which are instead, 85 voluntarily given to the corporation. 86 874. FOUNDER’S SHARE (SEC. 7); 885. NON-VOTING SHARES; 896. VOTING SHARES 907. COMMON SHARE – is the basic class of 91 stock ordinarily and usually issued without 92 extraordinary rights and privileges and the 93 owners thereof are entitled to a pro rata 94 share in the profits of the corporation and in 95 its assets upon dissolution and likewise in 96 the management of its affairs without 97 preference or advantage whatsoever. 988. PROMOTERS SHARES – are those issued 99 by mining corporations to owners of mines 100 who transferred their mining rights to such 101 corporations or they are shares issued to 102 promoters of a corporation. 1039. ESCROW STOCK – deposited with 3rd 104 person to be delivered to S/H or his assign 105 after complying with certain conditions, 106 usually payment of full subscription price; 10710. OVER-ISSUED STOCK – are those issued 108 in excess of the authorized capital stock. 10911. WATERED STOCK – issued as fully paid 110 when in fact it is not (Sec.65); 111 112“WATER” IN THE STOCK- It represents the 113difference between the fair market value at the 114time of the issuance of the stock and the par or 115issued value of said stock. Both par and no-par 116stocks can thus be watered stocks. 117 11812. PAR VALUE SHARES- value in fixed in the 119 articles of incorporation 12013. NO PAR VALUE SHARES- shares having 121 no par value but have issued value stated in

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2

the articles of incorporation or to be fixed by the Board

4 5

LIMITATIONS ON THE ISSUANCE OF “NO PAR VALUE” SHARES:

3 6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2914. 30 3115. 32 33 3416. 35 36 37 3817. 39 4018. 41 42 43 44 45 4619. 47 48 49 5020. 51 52 5321. 54 55 56 5722. 58 59 6023. 61 62 63 64 65

1. No par value shares cannot have an issued price of less than P5.00 while the par value of a share can be as low as 1 cent. 2. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividends. 3. They cannot be issued as preferred stocks. 4. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loan association. 5. The articles of incorporation must state the fact that it issued no par value shares as well as the number of said shares. 6. Once issued, they are deemed fully paid and non-assessable. DEBENTURE – charged on the net earning and profit of the corporation; DEFERRED SHARES – are those which are entitled to dividends after the payment of holders of common share. STOCK WARRANT – security which entitle holder the right to subscribe to, or purchase from, the unissued capital stock of a corporation in the future; SCRIP – applied to certificates issued by trustee in a voting trust; STREET CERTIFICATE – stock certificate endorsed by the registered holder in blank and transferee can command its transfer to his name from the issuing corporation. The certificate may be transferred by mere delivery; and CUMMULATIVE PREFERRED SHARES – which entitle the holder thereof to payment of current dividends as well as dividends in arrears. NON-CUMMULATIVE – which entitle the holder thereof only to the payment of current and not past dividends. PARTICIPATING – which entitle the holder thereof to participate with the holders of common shares after their preferred rights has been satisfied. NON-PARTICIPATING – which entitle the holder to payment of the stipulated preferred dividends and no more. CUMMULATIVE-PARTICIPATING – which entitle the holder thereof to payment of dividends in arrears, and also after receiving his preferred shares of dividends, to participation with the holders of common stock in the remaining profits.

66

67MATTERS WHERE HOLDERS OF NON68VOTING SHARES MAY VOTE (SEC. 6): 69 701. 71 722. 733. 74 754. 765. 77 786. 797. 80 818. 82

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

83DOCTRINE OF EQUALITY OF SHARES84Where the articles of incorporation do not 85provide for any distinction of the shares of stock, 86all shares issued by the corporation are 87presumed to be equal and enjoy the same rights 88and privileges and are also subject to the same 89liabilities. 90 91TRUST FUND DOCTRINE – the subscribed 92 93capital stock of the corporation is a trust fund for 94the payment of debts of the corporation which 95the creditors have the right to look up to satisfy 96their credits. Corporation may not dissipate this 97and the creditors may sue stockholders directly 98for the unpaid subscription. 99

100REACQUISITION BY CORPORATION OF 101ITS STOCK (SEC. 41): 102 1031. 1042. 105 1063. 1074. 108

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

1111. 112 113 114 1152. 116 117 118 119 120 121 122 123 124 125 126 127

DIRECT OR INDIRECT PARTICIPATION IN MANAGEMENT – a. voting rights (Sec. 6); and b. right to remove directors (Sec. 28) PROPRIETARY RIGHTS – a. right to dividends; b. appraisal right (Sec. 81); c. rightr to issuance of stock certificate for fully paid shares (Sec.64); d. proportionate participation in the distribution of assets in liquidation (Sec.118-119); e. right to transfer of stocks in corporate books (Sec. 63); f. preemptive right (Sec. 39); g. right to inspect books and records (Sec. 74);

109RIGHTS OF STOCKHOLDERS: 110

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 h. right to be furnished of the most recent 2 financial statement/ financial report 3 (Sec. 74 and 75); 4 i. right to recover stocks unlawfully sold for 5 delinquent payment of subscription. 6 73. REMEDIAL RIGHTS – 8 a. individual suit; 9 b. representative suit; and 10 11 12 c. derivative suit - suit brought by S/H, for 13 and in behalf of the corporation and 14 against any person he be also a S/H, 15 director, officer or 3rd person. 16 17 REQUISITES: 18 i. the party bringing suit should be 19 a shareholder as of the time of 20 the act or transaction 21 complained of; 22 ii. he has exhausted intra23 corporate remedies; and 24 iii. the cause of action actually 25 devolves on the corporation, the 26 wrongdoing or harm having 27 been caused to the corporation 28 and not to the particular 29 stockholder bringing the suit. 30 31PREEMPTIVE RIGHT OF STOCKHOLDERS – 32shareholders right to subscribe to all issues or 33dispositions of shares of any class in proportion 34to his present stockholdings, the purpose being 35to enable the shareholder to retain his 36proportionate control in the corporation and to 37retain his equity in the surplus. 38

39OBLIGATIONS OF A STOCKHOLDER:

40 411. Liability to the corporation for unpaid 42 subscription (Sec. 67-70) 432. Liability to the corporation for interest on 44 unpaid subscription if so required by the by45 laws (Sec. 66) 463. Liability to the creditors of the corporation for 47 unpaid subscription (Sec. 60) 484. Liability for watered stock (Sec. 65) 495. Liability for dividends unlawfully paid (Sec. 50 43) 516. Liability for failure to create corporation 52 (Sec. 10) 53 54UNKNOWN STOCKHOLDER- They are owners 55of stock who cannot be located or identified. A 56trust relation is created between them and the 57corporation and their shares shall stand in the 58name of the corporation as a “trustee”. 59 60 HOW IDENTIFIED: 61☛ Through a publication in a newspaper of 62 general circulation. If this proves futile, it is 63 nevertheless the fiduciary duty of the 64 corporation to continuously hold such shares

65 66 67

as trustees for the owners, unless otherwise escheated in accordance with law.

68LIMITATIONS ON THE STOCKHOLDER’S 69RIGHT TO VOTE: 70a. Where the articles of incorporation provides 71 for classification of shares pursuant to Sec. 72 6, non-voting shares are not entitled to vote 73 except as provided for in the last paragraph 74 of Sec. 6. 75 76b. Preferred or redeemable shares may be 77 deprived of the right to vote unless 78 otherwise provided in the Code (Sec. 6). 79c. Fractional shares of stock cannot be voted 80 unless they constitute at least one full share 81 (Sec. 41). 82d. Treasury shares have no voting rights as 83 long as they remain in the treasury (Sec. 84 57). 85e. Holders of stock declared delinquent by the 86 board of directors for unpaid subscription 87 are not entitled to vote or a representation at 88 any stockholder’s meeting (Sec. 67). 89f. A transferee of stock cannot vote if his 90 transfer is not registered in the stock and 91 transfer book of the corporation (Sec. 63). 92g. Stock held in escrow cannot be voted until 93 the performances of a certain condition or 94 the happening of a certain event as 95 contained in the agreement. (opinion) 96 97CUMULATIVE VOTING – S/H, being entitled to 98that number of votes that his number of shares 99multiplied by the number of directors to be 100elected will bring, may give all said votes to one 101candidate or he may distribute them among as 102many candidates as he sees fit (Sec. 24). 103 104PROXIES – S/H and members may vote in 105person of by proxy in all meetings of S/H or 106members (Sec. 58). 107 FORM – in writing, signed by the S/H or 108 member and filed before the scheduled 109 meeting with the corporate secretary. 110 PERIOD OF VALIDITY – unless 111 otherwise provided in the proxy, it 112 should be valid only for the meeting for 113 which it is intended. No proxy shall be 114 valid and effective for a longer period 115 than five years at any one time. 116☛ Proxies are also considered as corporate 117 devise for securing voting control of the 118 corporation.

119 120INSTANCES WERE THE RIGHT TO VOTE 121BY PROXY ARE EXPLICITLY PROVIDED 122FOR: 123 1241. 125 1262. 127

election of the board of directors or trustees (Sec. 24). voting in case of joint ownership of stock (Sec. 56).

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

13. 2 34. 45.

voting by trustee under voting trust agreement (Sec. 59). pledged or mortgaged share (Sec. 55). as provided for in its by-laws (Sec. 47 (4).

5 6DISTINCTIONS: VOTING TRUSTS

PROXY

1. The trustee votes as owner rather than as mere agent

1. The proxy holder votes as agent

2. The trust may vote in person or by proxy unless the agreement provides otherwise

2. The proxy must vote in person

3. The beneficial owner ceases to be recognized as a shareholder of record and the trustee assumes practically all the rights of a stockholder

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

4. Trustee acquires legal title to the shares of the transferring stockholder 5. The agreement must be notarized 6. The agreement is irrevocable

4.Proxy has no legal title to the shares of the principal

7. Trustee is not limited to act at any particular meeting 8. A trustee can vote and exercise all the rights of the stockholder even when the latter is present 9. An agreement must not exceed 5 years at any one time except when the same is

5. Proxy need not be notarized 6. Revocable anytime except one with interest 7.Proxy can only act at a specified stockholder’s meeting (if not continuing) 8.A proxy can only vote in the absence of the owners of the stock

9. A proxy is usually of shorter duration although under Sec. 58 it cannot exceed 5 years

made a condition of a loan. 10. The voting right is divorced from the ownership of stocks

at any one time 10. The right to vote is inherent in or inseparable from the right to ownership of stock

7 8VOTING TRUST – one or more S/H of a stock 9corporation may create a voting trust for the 10purpose of conferring upon a trustee or trustees 11the right to vote and other rights pertaining to the 12shares for a period not exceeding 5 years at any 13one time. However, if the voting trust was a 14requirement for a loan agreement, period may 15exceed 5 years but shall automatically expire 16upon full payment of the loan (Sec. 59). 17 18DIVIDENDS – unrestricted retained earnings set 19apart from the general mass of funds of the 20corporation and distributed among the S/H in 21proportion to their shares or interest in the 22corporation, in the form of cash, property or 23stocks. 24 25 26APPRAISAL RIGHT – right to withdraw from the 27corporation and demand payment of the fair 28value of his shares after dissenting from certain 29corporate acts involving fundamental changes in 30corporate structure (Sec.81) 31 32 INSTANCES WHERE IT MAY BE 33 EXERCISED: 34 1. extension of duration of 35 corporate term; 36 2. change in the rights of S/H, 37 authorize preferences superior to those 38 S/H, or restrict the right of any S/H; 39 3. S/H authorized the board to 40 invest corporate funds in another 41 corporation; 42 4. S/H authorized board to engage 43 in a purpose other than main purposes 44 stated in the Articles; and 45 5. corporation decides to sell or 46 dispose of all or substantially all assets 47 of corporation. 48 49STOCK OPTION – privilege granted to a party 50to subscribe to a certain portion of the unissued 51capital stock of a corporation within a certain 52period and under the terms and conditions of the 53grant exercisable by the grantee at any time 54within the period granted. The grant is not 55covered by any provision of the Code. 56

57METHODS FOR COLLECTION 58UNPAID SUBSCRIPTION (SEC. 68):

OF

591. call delinquency and sale at auction of 60 delinquent shares;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

12. 23. 3 4 5

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

ordinary court actions (Sec. 70); and collection from cash dividends and other amounts due to S/H, if allowed by the bylaws, or agreed by him.

6PROCEDURE FOR THE 7DELINQUENT STOCKS: 8

SALE

OF

91. Notice of call- Call by resolution demanding 10 payment of the balance of the subscription. 11 However, if the contract of subscription 12 itself prescribes the date of payment of the 13 unpaid subscription, no call is necessary. 142. The stockholders are given notice of the 15 board resolution by the corporate secretary, 16 either personally or by registered mail. 17 Publication of notice of call is not required by 18 law. 19 If the stockholders concerned do not pay 20 within (30) days from the date specified in 21 the contract of subscription or in the call, all 22 the stocks covered by the subscription shall 23 be declared delinquent and shall be subject 24 to sale under Sec. 68. 253. Notice of delinquency served on the 26 subscribers either personally or registered 27 mail AND publication in a newspaper of 28 general circulation in the province or the city 29 where principal office is located for once a 30 week for two consecutive weeks. Notice 31 shall state the amount due on each 32 subscription plus accrued interest, and the 33 date, time and place of the sale which shall 34 not be less than 30 days not more than 60 35 days from the date the stocks become 36 delinquent. (Sec. 67-70) 37 38EFFECT OF DELINQUENCY: No delinquent 39stock shall be voted for or be entitled to vote or 40to representation at any stockholder’s meeting, 41nor shall the holder thereof be entitled to any 42rights of the stockholder except right to 43dividends. (Sec. 71) 44

45BOOKS REQUIRED TO BE KEPT (SEC. 4674): 47

481. Book of Minutes; 49 a. minutes of S/H meetings; and 50 b. minutes of board meetings. 512. Book of all business transactions; 523. Stock and transfer book 53 54MERGER – one corporation absorbs the other 55and remains in existence while the other is 56dissolved (Sec. 76).

57

58CONSOLIDATION – a new corporation is 59created, and consolidating corporations are 60extinguished (Sec. 76). 61

62PROCEDURE FOR 63CONSOLIDATION:

MERGER

OR

64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128

1. Board of each corporation shall draw up a plan of merger or consolidation setting forth: a. names of the corporation involved b. terms and mode of carrying it c.

statement of changes, if any, in the present articles of the surviving corporation or the articles of the new corporation to be formed in the case of consolidation.

2. Plan for merger or consolidation shall be approved by majority vote of each of the board of the concerned corporations at separate meetings, and approved by the majority vote of the 2/3 of the OCS or members for non-stock corporations. 3. Any amendment to the plan must be approved by the majority vote of the board members or trustees of the constituent corporations and affirmative vote of 2/3 of the OCS or members. 4. Articles of Merger or Articles of Consolidation shall be executed by EACH of the constituent corporations, signed by the President or VicePresident and certified by secretary or assistant secretary setting forth: (i) plan of merger or consolidation (ii) for stock corporation, the number of shares outstanding; for non-stock, the number of members; (iii) as to each corporation, number of shares or members voting for and against such plan respectively 5. Four copies of the Articles of Merger or Consolidation shall be submitted to the SEC for approval. Banks, insurance companies, building and loan associations, trust companies, public utilities, educational institutions and other special corporations favorable recommendation of government agency concerned. GENERAL RULE – when one corporation buys all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still maintaining their separate corporate entities, one will not answer for the debts of the other. Exceptions: 1. if there is an assumption of liabilities;

express

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2. there is a consolidation or 2 merger; 3 3. if the purchase was in fraud of 4 creditors; and 5 4. if the purchaser becomes a 6 continuation of the seller. 7 8CORPORATE TERM – 50 years which may be 9subject to extension for another 50 years by 10amendment of Articles (Sec.11). 11

12SHORTENING OF CORPORATE TERM. 13HOW DONE: 14 15☛ 16 17 18☛ 19 20 21

22

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

23EXTENSION OF CORPORATE TERM- It refers 24to the continuation of a corporation beyond the 25term originally fixed in the articles of 26incorporation.

27 28REQUISITES FOR AN EXTENSION OF 29CORPORATE TERM: 30 311) The extension cannot be made earlier than 32 five (5) days prior to the original or 33 subsequent expiry date unless warranted by 34 a justifiable reason to be determined by the 35 SEC- for evaluation purposes. 362) There can be no more extension after the 37 expiration of the corporate term of existence 38 because there is no more corporate life to 39 extend and promote in such case. 403) It should be approved by 2/3 of the 41 outstanding capital stock. 42 43DOCTRINE OF RELATION- Where the failure 44to issue a new charter before the expiration of 45the old one is due solely to the fault of the clerk 46to whom application therefore is reasonably 47made, the new charter, when issued will relate 48back, and will be treated as taking effect from 49the day the corporation was entitled to have the 50charter issued. (Also see article 1174 of the 51NCC on fortuitous events). 52

53EFFECTS OF NON-USE OF CORPORATE 54CHARTER AND CONTINUOUS 55INOPERATION OF CORPORATION (SEC. 5622): 57 581. 59 60 61 62 63 64

NON-USER FOR 2 YEARS – when the corporation does not fully organize and commence the transaction of its business or the construction of its works within 2 years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. Suspension or

65 cancellation of corporate franchise is not 66 automatic. 672. NON-USER FOR 5 YEARS – when the 68 corporation has commenced the transaction 69 of its business but subsequently becomes 70 continuously inoperative for a period of at 71 least 5 years EXCEPT if reason for non-use 72 73or inoperation is beyond the control of the 74corporation. 75 76 77DISSOLUTION OF A CORPORATION – 78extinguishment of the franchise of a corporation 79and the termination of its corporate existence.

80 81MODES OF DISSOLUTION OF A 82CORPORATION: 83

841. VOLUNTARY DISSOLUTION – 85 a. where no creditors are affected (Sec. 86 118) 87 88 Procedure: 89 1) administrative application filed 90 with the SEC by a majority vote of the 91 BOD 92 2) notice thru registered mail or 93 delivered 30 days prior to the meeting 94 3) Publication of the notice for 3 95 consecutive weeks in a newspaper of 96 general circulation 97 4) Resolution approved by 2/3 of 98 the OCS 99 5) Copy of Resolution Certified by 100 majority of BOD countersigned by 101 secretary 102 103 104 b. where creditors are affected (Sec 119); 105 106 Procedure: 107 1) Petition signed by majority of 108 BOD/trustees/officers verified by 109 President/ Secretary/ Director 110 2) Claims and demands must be 111 stated in the petition 112 3) Stockholders approval 113 representing 2/3 OCS 114 4) SEC order setting date for 115 objections 116 5) Publication of the order and 117 Posting 118 6) Hearing 119 7) Appointment of Receiver (if 120 necessary) 121 122 c. by shortening corporate term 123 (Sec. 120). 124 125 Procedure: 126 1) Amendment of AOI 127 2) Publication

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 3) Oath undertaking by majority of 2 SH or officers to personally answer for 3 obligations 4 4) BIR clearance of tax liability 5 5) Listing of creditors and Consent 6 to the shortening of the term 7 6) Affidavit of assumption of 8 liability by SH 9 7) Latest audited financial 10 statement of corporation 11 12 d. expiration of corporate term 13 142. INVOLUNTARY DISSOLUTION (Sec. 121), 15 16 Procedure: 171) Verified Complaint 182) Proper Notice and Hearing in SEC 193) Grounds 204) failure to organize and commence business 21 within 2 years from incorporation;(Sec 22) 22 235) Continuously inoperative for 5 years ( Sec 24 22) 256) may be dissolved by SEC – on grounds 26 provided by existing laws, rules and 27 regulations: 28☛ failure to file by-laws within 30 days from 29issue of certificate of incorporation. 30☛ Continuance of business not feasible as 31found by Management Committee or 32Rehabilitation Receiver 33☛ Fraud in procuring Certificate of Registration 34☛ Serious Misrepresentation 35☛ Failure to file required reports 36 37SEQUESTRATION- It means taking into 38custody or placing under the commission’s 39control or possession any asset, fund or property 40as well as relevant records or documents, to 41prevent their concealment, destruction, 42impairment or dissipation pending determination 43of whether said asset, fund or property is ill44gotten wealth under EO’s 1 and 2. 45 46FREEZE ORDER- It is an order intended to 47stop or prevent any act or transaction which may 48affect the title, possession, status, condition, 49integrity or value of the asset of property which 50is or which might be the object of any action or 51proceeding under EO’s number 1 and 2. 52

53LIQUIDATION: 54 55Process by which all the assets of the 56corporation are converted into liquid assets 57(cash) in order to facilitate the payment of 58obligations to creditors, and the remaining 59balance if any is to be distributed to the SH or 60members. 61 62Three Modes of Liquidation: 63 64 1. By BOD / Trustee

65 66 67 68

2. Conveyance to a trustee made within three year period 3. By management committee or rehabilitation receiver

69 70FOREIGN CORPORATION – corporation 71formed, organized or existing under any law 72other than those of the Philippines, and whose 73laws allow Filipino citizens and corporations to 74do business in its own country or state (Sec. 75123). 76 77 DOING BUSINESS – implies a community 78 of commercial dealings and arrangements, 79 and contemplates to some extent the 80 performance of acts or works or the exercise 81 of some functions normally incident to and in 82 progressive prosecution of, the purpose and 83 object of its organization. (Continuity Test) 84 85 DOCTRINE OF ISOLATED TRANSACTION 86 Foreign corporation can sue or be sued on a 87 transaction or series of transaction set apart 88 89 from the common business of a foreign 90 enterprise in the sense that there is no 91 intention to engage in a progressive pursuit 92 of the purpose and object of business 93 transaction

94 95 96 97

98 99 100 101 102 103 104 105 106 107 108

SUABILITY OF FOREIGN CORPORATIONS: 1. Foreign corporation doing business in the Philippines – a. with license : may sue and be sued in the Philippines; b. without license : cannot sue but may be sued in the Philippines. 2. Foreign corporation not doing business in the Philippines, on isolated transaction – may sue and be sued.

109CLOSE CORPORATIONS 110

111REQUIREMENTS FOR CLOSE 112CORPORATIONS (SEC. 96): 113 1141. 1152. 116 1173. 118 119 120 121☛ 122 123 124 125☛ 126 127 128

number of stockholders not to exceed 20; restriction on the transfer ; preemption in favor of the stockholder or the corporation; the stocks cannot be listed in the stock exchange nor should they be publicly offered. Special type of close corporation – 2/3 of the voting stocks or voting rights is owned or controlled by another corporation which is not a close corporation. The following cannot be a close corporation: a. mining companies; b. oil companies; c. stock exchanges;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

1 2 3 4 5 6 7

d. e. f. g. h.

banks; insurance companies; public utility; education institution; other corporation declared to be vested with public interest.

8RESTRICTIONS ON TRANSFERS – the 9restrictions in the transfer of the stocks must 10appear (Sec. 98): 11 121. in the articles; 132. in the by-laws; and 143. on the stock certificates. 15 16☛ Restriction on the transfer must not be 17 onerous than granting the existing SH or 18 corporation the option to purchase the 19 shares 20

21 22PREEMPTIVE RIGHT IN CLOSE 23CORPORATIONS – shall extend to all stocks

24to be issued, including re-issuance of treasury 25share, whether for money or property or 26personal services, or in payment or corporate 27debts, unless the articles of incorporation 28provide otherwise (Sec. 102). 29

30CHARACTERISTICS 31CORPORATIONS: 32 331. 34 352. 363. 37 38 394. 40 41 42 435. 446. 45 467. 47 48

OF

CLOSE

S/H act as directors without need of election and therefore are liable as directors; Quorum may be greater than mere majority; Transfers of stocks to others, which would increase the number of S/H to more than the maximum are invalid; Corporate actuations may be binding even without a formal board meeting, if the S/H had knowledge or ratified the informal action of the others; Preemptive right extends to all stock issues; Deadlocks in board are settled by the SEC, on the written petition by any S/H; and S/H may withdraw and avail of his right of appraisal.

49NON-STOCK CORPORATIONS 50

51DEFINITION- corporation where no part of its 52income is distributable as dividends to (Sec. 87): 53 a. members; 54 b. trustees; and 55 c. officers. 56 Except – at dissolution. 57 58DISPOSITION OF PROFITS- for furtherance 59of purpose or purposes of the corporation. 60 61CONDITIONS: necessary and proper (Sec. 88) 62

63PURPOSES:

64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79

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

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

80DISTRIBUTION OF ASSETS ON 81DISSOLUTION OF NON-STOCK 82CORPORATION (SEC. 94): 83

841. all its creditors shall be paid; 852. assets held subject to return on dissolution, 86 shall be delivered back to their givers; 873. assets held for charitable, religious, etc., 88 without a condition for their return on 89 dissolution, shall be conveyed to one or 90 91more organizations engaged in similar activities 92as dissolved corporation; and 934. all other assets shall be distributed to 94 members, as provided for in the Articles or 95 by-laws.

96 97RELIGIOUS CORPORATIONS 98

99KINDS (SEC. 109): 100 1011. 102 103 104 105 106 1072. 108 109 110 111

CORPORATION SOLE – special form of corporation, usually associated with the clergy and consists of one person only and his successors, who are incorporated by law to give some legal capacities and advantages; and RELIGIOUS SOCIETIES – non-stock corporation governed by a board but with religious purposes.

112SECURITIES AND EXCHANGE 113 COMMISSION 114 REORGANIZATION 115 DECREE (P.D. 902-A) 116 117 118Sec. 2,4, 8 repealed by RA 8799:

119 120ORIGINAL AND EXCLUSIVE 121JURISDICTION OF THE COURTS OF 122GENERAL JURISDICTION/ RTC (SEC. 5 123PD 902-A IN RELATION TO SEC. 5.2 RA 1248799): 125

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

11. 2 3 42. 5 6 73. 8 94. 10 11 12 13 14

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

15GROUNDS FOR SUSPENSION OR 16CANCELLATION OF CERTIFICATE OF 17REGISTRATION (SEC. 6 (L)): 18 191. 202. 21 223. 234. 245. 25 266. 277. 28

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

29 30 31

REPUBLIC ACT 8799 THE SECURITIES REGULATION CODE

failure to file reports; and other similar grounds.

32

33PURPOSES OF SECURITIES ACT 341. 35 362. 37 383. 394. 405. 416. 42 437. 44 45 46

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

47POWERS AND FUNCTIONS OF THE 48SEC (SEC. 5) 49 50 51 52 53 54 55 56 57 58 59 60 61

1. 2. 3. 4. 5.

jurisdiction/supervision over corporations, partnerships, and grantees of primary franchise approve, reject registration statements/licensing applications Suspend, revoke, after notice and hearing primary franchise on grounds regulate/supervise activities of persons to ensure compliance Supervise monitor, suspend or take over, exchanges, clearing agencies and SROs

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118☛ 119 120 121 122 123 124 125 1261.

6. 7.

8.

9. 10.

11.

Recommend policies, advise, propose legislation to Congress on securities market Prepare, approve, amend or repeal rules, regulations, issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code. Issue cease and desist orders to prevent fraud or injury to the investing public Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision.

12.

13.

Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers and files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

12. Exempt Transactions 2

3EXEMPT SECURITIES (SEC. 9): 4 51. 6 7 8 9 10 112. 12 13 14 15 16 17 18 193. 20 21 224. 23 24 25 26 27 285. 29

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

331. 34 35 362. 37 383. 394. 405. 41 426. 43 44 45 46 47 487. 49 50 518. 52 53 549. 5510. 56 5711. 58 5912. 6013. 61 6214. 6315. 64

Judicial sale by executor, administrator, guardian/receiver in insolvency or bankruptcy. Sale of pledged or foreclosed property to liquidate debts. sale on isolated transactions by owner . Distribution of stock dividends. Sale of capital stock to stockholders where no commission is paid The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale. Issuance of security in exchange of any security from same issuer pursuant to right of conversion. Broker’s transactions, executed upon customer’s orders on any registered Exchange or other trading market. Pre-incorporation subscription. Exchange of securities by issuer with securities holders exclusively Sale to less than 20 persons during any 12 month period Sale of securities to banks Sale of securities to registered investment houses Sale of securities to insurance company Sale of securities to pension fund or retirement plan maintained by the

30 31EXEMPT TRANSACTIONS (SEC. 10): 32

65 66 67 68 6916. 7017. 71 72

Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions Sale of securities to investment company Sale of securities to such other person as the Commission may rule determine as qualified buyers

73 74GROUNDS FOR REJECTION AND 75REVOCATION OF REGISTRATION (SEC. 7613): 77

781. 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 982. 99 100 101 102 1033. 104 105 106 107 108 109 110 1114. 112 113

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

1181. 119 120 121 1222. 123 124 1253. 126 127

If any time, the information contained in the registration statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect; or The sale or offering for sale of the security registration there under may work or tend to work a fraud; Pending investigation of the security registered to ascertain whether the registration of such security should be

The registration statement is on its face incomplete or inaccurate or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein. The issuer or any underwriter has been convicted by a competent judicial or administrative body of an offense involving moral turpitude and/or fraud or is enjoined by the Commission or other competent judicial or administrative body for violations of securities, commodities and other related laws Any issuer who refuses to permit the examination to be made by the Commissioner.

114 115SUSPENSION OF REGISTRATION 116(SEC. 15): 117

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

1 2 34. 4 5

revoked on any ground specified in this Code; and Refusal to furnish information required by the Commission.

6UNLAWFUL ACTS: 7 81. For any beneficial owner, director, or officer 9 to sell any security if the seller or his 10 principal does not own or does not deliver it 11 within 20 days from sale. (Sec. 23.3) 122. Manipulation of security prices. (Sec. 24.1) 133. Employment of manipulative or deceptive 14 device or contrivance in connection with 15 purchase and sale of authorities. Short sale, 16 stop loss order be effected only in 17 accordance with rules of SEC. (Sec. 24.2) 18 19SHORT SALE – when seller does not own or 20control the securities he is selling, and therefore, 21cannot himself supply the securities for delivery. 22 23STOP-LOSS ORDER – an order to broker to sell 24or buy stock as soon as the market price 25reaches a designated figure. 26 274. For any member of Exchange directly or 28 indirectly endorse or guarantee the 29 performance of any put, call, straddle, option 30 or privilege in relation to any security 31 registered. (Sec. 25) 32 33PUT – an option that, in consideration of 34premium paid, gives the purchaser the right top 35make the seller take from him a given number of 36 37shares of a named stock between a given time 38at a stipulated price, which is usually below a 39prevailing market price of the stock at the time 40the “put” is purchased.

41 42CALL – an option that in consideration of

43premium paid entitles buyer the right to compel 44seller to deliver to him a certain number of share 45of named stock within a given time at a 46stipulated price which is usually higher than the 47prevailing market price at the time the “call” is 48bought. 49 50STRADDLE – double privilege of a “put” and a 51“call”, and secures to holder the right to demand 52of seller at a certain price within a certain time a 53certain number of shares of specified stock, or to 54require him to take, at the price within the time, 55the same shares of stock. 56 57WASH SALE- to effect any transaction in any 58security which involves no change in the 59beneficial ownership thereof. 60 61SHORT SWING TRANSACTION — one where 62a person buys securities and sells the same 63within a period of six months. 64

655. 666. 67

Fraudulent transactions (Sec.26); insider trading (Sec. 27)

68

INSIDER TRADING – it shall be unlawful

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

for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public unless: (a) The insider proves that the information was not gained from such relationship, or (b) If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: (i) that he disclosed the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in possession of the information.

87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 1077. 108 109

a. The issuer b. A director or officer (or person performing similar functions) of, or a person controlling the issuer c. A person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public d. A government employee, or director , or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public, or

86INSIDER —means:

110

e.

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

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

111 MATERIAL NON-PUBLIC INFORMATION 112 a. If It has not been generally disclosed 113to the public and would likely to affect the market 114price of the security after being disseminated to 115the public and the lapse of a reasonable time for 116the market to absorb the information; or 117 b. Would be considered by a reasonable 118person important under the circumstances in 119determining his course of action to buy, sell or 120hold security. (SEC 27.2) 121 1228. Unlawful Tender Offer (Sec 27.4) 1239. Use of Extensive Credit (Sec48.1) 124 125MARGIN – sum of money, or its equivalent, 126placed in the hands of a stockbroker by principal 127or persons on whose account the purchase is to 128be made, as a security to the former against

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1losses to which he may be exposed by a 2subsequent depression in the market value of 3the stock. 4 — Credit extended must not be 5greater than which ever is higher of 6 7 a.65% of current market price of 8 the security 9 b. 100% of lowest market price 10 of security during preceding 36 11 calendar months but not greater 12 than 75% of the current market 13 price.

4 Page 35 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2 3 4

CORPORATE ACTS CORPORATE ACT

1. Amendment of AOI (Sec 16)

NUMBER OF VOTES FOR BOD Majority Vote

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

PROCEDURE / OTHER REQUIREMENTS



Non-voting can vote Appraisal right in certain cases Effective upon approval by SEC or date of filing if not acted upon within six months Must be for a legitimate purpose

  

2. Election of Directors or Trustees ( Sec 24 )

Majority of OCS / members

  

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

3. Removal of Directors or Trustees (Sec 28)

2/3 of OCS

 

Notice and stated purpose requirement Meeting called by the secretary on President’s order or on written demand of OCS majority Non-voting shares cannot vote Removal without cause cannot be used to deprive minority stockholders of their right of representation

 

4. Ratification of a contract of self – dealing directors where presence of Director necessary to constitute quorum or vote of Director necessary for approval of the contract (Sec 32)

2/3 of OCS or members

 

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2

5.

Extension or shortening of corporate term (Sec 37 )

Majority vote

2/3 OCS or members

   

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

Meeting required Non-voting can vote No appraisal right Notice requirement SEC approval Treasurer’s statement No decrease of capital stock if will prejudice right of creditors

6. Election of officers (Sec 25)

Majority vote of all the members of BOD

7. Increase or decrease of capital stock ( Sec 38 )

Majority vote

2/3 OCS or members

      

8. Incur, Create , Increase Bonded Indebtedness

Majority vote

2/3 OCS or members

 Meeting required  Non-voting can vote  No appraisal right  Notice required Registration of bonds with SEC

9. Sale ,Lease, Exchange, Mortgage, Pledge, Dispose of all or substantially all of corporate assets (Sec 40 )

Majority Vote

2/3 OCS or members

    

Majority can vote Non-voting can vote Appraisal right available Notice required If sale is abandoned director’s action is sufficient, no need for ratification by stockholders

3 4 Page 37 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5

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

    

Non-voting can vote Appraisal Right available Notice required Investment for secondary purpose Stockholders ratification not necessary if the investment is incidental to primary purpose



Out of unrestricted retained earnings

Majority of OCS / members



Non-voting can vote

Majority of OCS



Non-voting can vote

2/3 OCS



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

Majority Vote

2/3 OCS or members

11. Issuance of Stock Dividends ( Sec 43 )

Majority of the quorum

2/3 OCS

12. Management Contract ( Sec 44)

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

Majority of OCS / members of both managing and managed corporation and in some cases 2/3 of OCS / members

13. Adoption of By- laws (Sec 46) 14. Amendment or repeal of By laws or Adoption of New By-Laws ( Sec 48)

Majority vote

15. Delegation of the Power to Amend, Repeal or Adopt New By Laws to BOD (Sec 48 ) 16. Fixing the issued Price of No- Par Value shares (Sec 62, last paragraph)48)

Majority of Quorum of BOD

Majority of OCS if BOD not authorized by AOI

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW Any form of reproduction of this copy is strictly prohibited!!!

3

if authorized by AOI 1 2 3 4

17. Merger or Consolidation (Sec 77 )

Majority of BOD of constituent corporation

2/3 OCS / members of constituent corporation

 

Non-voting can vote Appraisal right available but if plan is abandoned right is extinguished

18. Dissolution of Corporation (Sec 118 and 119 )

Majority Vote

2/3 OCS / members

 

Read Sections 117-122 Non-voting can vote

19. Adoption of plan or distribution of assets of non-stock corporation ( Sec 95 par 2)

Majority Vote of Trustees

2/3 of members having voting rights



If no quorum stockholders to elect

   

Provided that there is unrestricted retained earnings Only for legitimate purposes Only if AOI or amendment to AOI denies pre-emptive right Applies to shares issued in good faith in exchange for property needed for corporate purposes or in payment of previously contracted debts

   

Reasonable per diems By-Laws may provide for compensation May be fixed by majority OCS Limit: not more than 10% of the net income before tax

20. Ratification of act of disloyal director 21. Vacancies in BOD if not due to removal, expiration of the term or increase in number of directors 22. Power to acquire own shares 23. Denial of pre-emptive right

24. Fixing compensation for directors

2/3 OCS Majority vote of remaining directors if quorum still exists Director’s action 2/3 OCS approval

5

4 Page 39 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1III. INSURANCE LAW 2

3INSURANCE

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

9REQUISITES OF INSURANCE: 10 111. existence of an insurable interest (Secs. 1212

14);

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

27DOING AN INSURANCE BUSINESS OR 28TRANSACTING AN INSURANCE 29BUSINESS (Sec. 2, par. 4) INCLUDES: 30 311. 32 332. 34 35 36 373. 38 394. 40

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

47☛ 48 49 50 51 52 53 54 55 56 57 58☛ 59 60 61

Insurance is a contract of adhesion considering that the most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may “adhere” if he chooses but which he cannot change. Hence, in case of doubt, the contract shall be interpreted strictly against the insurer and liberally in favor of the accused.

41 42PRINCIPLES: 43 44I. CONTRACT OF ADHESION OR FINE 45PRINT RULE 46

However, if the terms of the contract are clear, there is no room for interpretation and the courts are bound to adhere to the insurance contract although the contract

62 63 64 65 66

maybe rather onerous. Courts cannot make a new contract for the parties where they themselves have employed clear and unambiguous words.

67II. UBERRIMA FIDES CONTRACT 68 69☛ 70 71 72 73 74 75☛ 76 77 78 79

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

80III. RIGHT OF SUBROGATION 81 82☛ Insurer who pays shall be subrogated to 83 the rights of insured against wrongdoer 84 or person who has violated contract. 85☛ The principle of subrogation is a normal 86 incident of indemnity insurance as a 87 legal effect of payment; it inures to the 88 insurer without any formal assignment 89 or any express stipulation to that effect 90 in the policy. Said right is not dependent 91 upon nor does it grow out of any private 92 contract. Payment to the insured makes 93 the insurer an assignee in equity 94 (Article 2207, NCC). 95☛ However, the insurer can only recover 96 from the third person what the insured 97 could have recovered. 98 99Exceptions: there can be no subrogation if: 100 1011. The insured by his own act releases the 102 wrongdoer/third person liable for the 103 loss. (Manila Mahogany 104 Manufacturing Corporation vs. CA) 1052. Where the insurer pays the insured for a 106 loss or risk not covered by the policy. 107 (Pan Malayan Insurance Company vs. 108 CA, 184 SCRA 54) 109

110IV. INDEMNITY 111 112☛ 113 114 115 116 117 118 119 120 121 122

The contract of insurance is a contract of indemnity. It is the basis of all property insurance. It simply means that the insured that has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss. Any contract of property insurance that gives to the insured more than indemnity against his actual loss that may be

4 Page 40 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 suffered by reason of designated perils is 2 wagering policy. 3 4NOTE: Applicable only to property insurance, 5except creditor insuring the life of his debtor. 6

7TYPES OF INSURANCE CONTRACTS: 8

91. LIFE INSURANCE; a. individual life (Secs. 179 – 183, 227); b. group life ( Sec. 50, last paragraph, 12 228); and 13 c. industrial life (Secs. 229 – 231). 14 152. NON-LIFE INSURANCE 16 a. Marine (Secs. 99 – 166); 17 b. Fire (Secs. 167 – 173); and 18 c. Casualty (Sec. 174). 19 203. CONTRACTS OF SURETYSHIP (Secs. 175 21 –178). 22

10 11

23PARTIES TO INSURANCE CONTRACT: 24 251. INSURER – person who undertakes to 26 272. 28 29 303. 31 32 33i. 34 35 36 37 38 39ii. 40 41 42 43iii. 44 45

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

46EFFECTS OF IRREVOCABLE 47DESIGNATION OF BENEFICIARY: 48 49Insured cannot: 50 1. assign the policy 51 2. take the cash surrender value of the 52 policy 53 3. allow his creditors to attach or execute 54 on the policy; 55 4. add new beneficiary; or 56 5. change the irrevocable designation to 57 revocable, even though the change is 58 just and reasonable. 59

60INSURABLE INTEREST – interest which 61the law requires a person making a contract 62of insurance to have in the person or thing 63insured to prevent the contract from 64becoming a wagering contract. 65 66INSURABLE INTEREST IN LIFE – interest 67which a person has in his life, or interest 68which he may have in the lives of other 69persons (Sec. 10): 701. on whom he depends wholly or in part 71 for education or support; 722. under legal obligation to him to pay 73 money, to deliver property, or to render 74 service; or 753. upon whose life any estate or interest 76 vested in him depends. 77 78GENERAL RULE: In life insurance, there is 79no limit in the amount the insured can insure 80his life. 81 82Exception: in creditor-debtor relationship 83where the creditor insures the debtor, the 84limit of insurable interest is equal to the 85amount of the debt. 86 87NOTE: Insurable interest in the life of 88another need exist only at the time of 89perfection of the contract and need not exist 90thereafter. 91 92INSURABLE INTEREST IN PROPERTY – 93every interest in property whether real or 94personal, or any relation thereto, or liability 95in respect thereof, of such nature that the 96contemplated peril might directly damnify the 97insured (Sec. 13), which may consist in 98(Sec. 19): 99 100 1. an existing interest; 101 2. any inchoate interest founded 102 on an existing interest; or 103 3. any expectancy coupled with an 104 existing interest in that out of 105 which the expectancy arises. 106 107NOTE: Expectancy is not insurable unless 108coupled with an interest in the thing from 109which it shall arise. 110 111☛ Example: an owner of a business can 112 insure against a contingency which may 113 cause loss of profits resulting from the 114 cessation or interruption of his business. 115 (See Sec. 14, ICP) 116 117NOTE: Insurable interest must exist in the 118same person both at the perfection of the 119contract as well as the time of loss. In 120between, the effect of loss of insurable 121interest is merely to suspend the policy. 122(Sec. 20, ICP)

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2Exceptions: 31. in case of life, health and accident insurance 4 (Sec. 20); 52. change in interest results after occurrence of 6 an injury which results in a loss (Sec. 21) 73. change in interest in one or more several 8 distinct things separately insured by one 9 policy (Sec. 22); 104. change in interest by will or succession on 11 death of insured (Sec. 23); 125. transfer of interest by one of several 13 partners, joint partners, or owners in 14 common who are jointly insured, to others 15 (Sec. 24). 16when a policy is so framed that it will inure to the 17 benefit of whomsoever, during the 18 continuance of the risk, may become the 19 owner of the interest insured (Sec. 57); 20when is an express prohibition against alienation 21 in the policy, in case of alienation, the 22 contract of insurance is not merely 23 suspended but avoided (Art. 1306, NCC). 24

25DISTINCTIONS:

Insurable interest in Life Insur ance 1. must exist only at the time the policy is taken. 2. taken on insured’s life, his beneficiaries need not have an insurable interest on his life. 3. no limit to the amount of insurable interest (save in life insurance effected by creditor on life of the debtor) (Sec. 10).

Insurable Interest in Property 1. must exist at time policy is taken and at time of loss. 2. beneficiary must have an insurable interest in property insured. 3. insurable interest limited to value of interest in property insured (Sec. 19).

26

27INSURABLE INTEREST OF 28MORTGAGOR AND MORTGAGEE OVER 29MORTGAGED PROPERTY. 30 31☛ 32 33 34 35☛ 36 37 38 39

40 41

The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. The mortgagor of property, as owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The mortgagee's interest is only up to the extent of the debt.

42 43 44 45 STANDARD OR UNION MORTGAGE CLAUSE  - the subsequent acts of the mortgagor cannot affect the rights of the assignee

OPEN OR LOSS PAYABLE MORTGAGE CLAUSE  the mortgagor does not cease to be a party to the contract acts of the mortgagor affects the mortgagee (Sections 8 and 9 ICP). 

46

47DEVICES USED FOR ASCERTAINING 48AND CONTROLLING RISK AND 49LOSS: 50

511. CONCEALMENT: A neglect to 52communicate that which a party knows and 53ought to communicate (Sec. 26, ICP) 542. REPRESENTATION: are factual 55statements made by the insured at the time 56of or prior to the issuance of the policy to 57give information to the insurer and other 58wise induce him to enter into the insurance 59contract. 603. WARRANTIES: are statements or 61promise by the insured set forth in the policy 62itself or incorporated in it by proper 63reference, the untruth or nonfulfillment of 64which in any respect and without reference 65to whether the insurer was in fact prejudiced 66by such untruth or nonfulfillment. The same 67may be expressed, implied, affirmative or 68promissory. 694. CONDITION: The insurer must also 70protect himself against fraudulent claims of 71loss and this he attempts to do by inserting 72in the policy various conditions which take 73the form of conditions precedent. For 74instance, there are conditions requiring 75immediate notice of loss or injury and 76detailed proofs of loss within a limited 77period. 78 79Exceptions: It makes more definite the 80coverage indicated by the general 81description of the risk by excluding certain 82specified risk that otherwise would be 83included under the general language 84describing the risks assumed. 85

86CONCEALMENT

87 88TEST OF MATERIALITY: determined not by 89the event, but solely by the probable and 90reasonable influence of the facts upon the

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1party to whom the communication is due, in 2forming his estimate of the disadvantages of the 3proposed contract, or in making his inquiries 4(Sec. 31). 5 6EFFECTS OF CONCEALMENT: vitiates the 7contract and entitles insurer to rescind, even if 8the death or loss is due to a cause not related to 9the concealed matter (Sec. 27). 10 11REPRESENTATION – oral or written statement 12of a fact or condition affecting the risk, made by 13insured to insurer, tending to induce insurer to 14assume risk (Sec.36). 15 16KINDS (Sec.39): 17 181. AFFIRMATIVE – affirmation of a fact when 19the contract begins; and 202. PROMISSORY – promise to be performed 21after policy was issued. 22 23TEST OF MATERIALITY: determined by the 24probable and reasonable influence of the facts 25on the party on whom communication is due, in 26forming his estimate of the contract, risks and 27premium (Sec. 31) 28 29EFFECTS OF MISREPRESENTATION: injured 30party entitled to rescind from the time when the 31representation becomes false.

32 33WARRANTY

34 35statement or promise set forth in the policy or by 36 reference incorporated therein, 37 the untruth or non-fulfillment of 38 which in any respect, and 39 without reference to whether 40 insurer was in fact prejudiced 41 by such untruth or non42 fulfillment, renders the policy 43 voidable. 44

45KINDS (Sec. 67): 46

47 1. EXPRESS; and 48 2. IMPLIED – only found in marine insurance, 49deemed included in the contract, although not 50expressly mentioned. 51 52EFFECT OF BREACH OF WARRANTY – 53gives insurer the right to rescind (Secs. 74-76).

54 55DISTINCTIONS: 56 WARRANTY

REPRESENTATION

1. Part of the contract.

1. Mere collateral inducement. 2. may or may not be written in the policy.

2. written on the policy, actually or by reference

3. conclusively presumed material. 4. must be strictly complied with.

3. must be proved to be material. 4. require only substantial truth and compliance.

57 58

59INCONTESTABILITY CLAUSE - After a 60policy of life insurance made payable on the 61death of the insured shall have been in force 62during the lifetime of the insured for a period 63of two years from the date of its issue or of 64its last reinstatement, the insurer cannot 65prove that the policy is void ab initio or is 66rescindible by reason of the fraudulent 67concealment or misrepresentation of the 68insured or his agent. 69

70REQUISITES FOR 71INCONTESTABILITY CLAUSE:

72 731. It is payable on the death of the insured 742. It has been in force during the lifetime of 75the insured for at least 2 years from its date 76of issue or of its last reinstatement (Sec. 48, 77ICP) 78 79NOTE: The period of 2 years may be 80shortened but it cannot be extended by 81stipulation. 82

83DEFENSES NOT BARRED BY 84INCONTESTABILITY CLAUSE: 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107

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

108POLICY OF INSURANCE – written 109instrument in which a contract of insurance 110is set forth (Sec. 49)

111 112CONTENTS OF POLICY (Sec.51): 113

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

11. parties 22. amount of insurance, except in open or 3 running policies; 43. rate of premium; 54. property or life insured; 65. interest of the insured in the property if he is 7 not the absolute owner; 86. risk insured against; and 97. duration of the insurance. 10 11BINDING RECEIPT – merely an 12acknowledgment on behalf of the company that 13their branch office had received from the 14applicant the insurance premium and had 15accepted the application subject to processing 16by the head office. 17 18COVER NOTE – a concise and temporary 19written contract issued to the insurer through its 20duly authorized agent embodying the principal 21terms of an expected policy of insurance. It is 22intended to give insurance protection coverage 23to the applicant pending the acceptance or 24rejection of his application. Not exceeding 60 25days unless a longer period is approved by 26Insurance Commissioner (Sec. 52). 27

63NOTE: Notwithstanding any agreement to 64the contrary, no policy or contract of 65insurance issued by an insurance company 66is valid and binding unless and until the 67premium thereof has been paid, except in 68the case of a life or an industrial life policy 69whenever the grace period provision 70applies. 71

28GROUNDS FOR CANCELLATION OF 29POLICY (EXCEPT LIFE INSURANCE 30POLICY) (SEC. 64): 31 321. 332. 34 353. 36 374. 38 39 405. 41 426. 43 44 45

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

49 50

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

46KINDS OF POLICIES: 47 481. OPEN POLICY – value of thing insured is 512. 52 53

543. 55 56 57 58

59PREMIUM – consideration paid an insurer for 60undertaking to indemnify the insured against a 61specified peril (Sec. 77). 62 4 Page 44 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1Exceptions: 2 1. Credit agreement 3 2. Acknowledgement in the policy (Sec. 4 78) 5

6INSURED ENTITLED TO RETURN OF 7PREMIUMS PAID: 8 91. If thing insured was never exposed to the 10 risks insured against (Sec. 79); 112. Contract is voidable due to the fraud or 12 misrepresentation of insurer; 133. Insurer never incurred liability (Sec. 81); 144. When the insurance is for a definite period 15 and the insured surrenders his policy before 16 the termination thereof; 175. Contract is voidable because of the 18 existence of facts of which the insured was 19 ignorant without his fault; 206. When there is over-insurance (Sec. 82) and; 217. When rescission is granted due to the 22 insurer’s breach of contract. 23 24DOUBLE INSURANCE – exists where same 25person is insured by several insurers separately 26in respect to same subject and interest 27(Sec. 93).

28 29REQUISITES OF DOUBLE INSURANCE: 30

311. The person insured is the same; 322. Two or more insurers insuring separately; 333. The subject matter is the same; 344. The interest insured is also the same; 355. The risk or peril insured against is likewise 36 the same. 37 38EFFECTS OF DOUBLE INSURANCE: where 39double insurance is allowed, but over insurance 40results, he can claim in case of loss only up to 41the agreed valuation or up to the full insurable 42value from any, some or all insurers, without 43prejudice to the insurers ratably apportioning the 44payments. Insured can also recover before or 45after the loss, from both insurers the excess 46premium he has paid (Sec. 94). 47 48REINSURANCE – a contract by which the 49insurer procures a 3rd person to insure him 50against loss or liability by reason or such original 51insurance (also known as Reinsurance Cession) 52(Sec. 95).

53 54 In every reinsurance, the original contract of 55 56 57

insurance and the contract of reinsurance are covered by separate policies.

58DISTINCTIONS : 59

DOUBLE INSURANCE

(Sec. 93)

(Sec. 95)

1. involves same interest 2. insurer remains in such capacity

1. insurance of different interest 2. insurer becomes an insured in relation to reinsurer. 3. original insured has no interest in reinsurance contract.

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

4. subject of insurance is the original insurer’s risk. 5. consent of original insured, not necessary

60

61LOSS - injury or damage sustained by insured 62from perils insured against. 63 64PROXIMATE CAUSE – active efficient cause 65which sets in motion a train of events which in 66turn brings about a result without intervention of 67any force operating and working actively from a 68new and independent force. 69

70LOSS FOR WHICH INSURER IS LIABLE: 71 72 1. loss the proximate cause of 73 74 75 76 77 78 79 80 81 82 83

84 85 86 87 88 89

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

90LOSS FOR WHICH INSURER IS NOT 91LIABLE: 92 93

94 95 96 97

1.

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

98 99MARINE INSURANCE – insurance against REINSURANCE

100risks connected with navigation, to which a ship, 101cargo, freightage, profits or other insurable

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1interest in movable property, may be exposed 2during a certain voyage or a fixed period of time 3(Sec. 99). 4

5COVERAGE OF MARINE INSURANCE

6(SEC. 99): 7 81. vessels, goods, freight, cargo, merchandise, 9 profits, money, valuable papers, bottomry 10 and respondentia, and interest in respect to 11 all risks or perils of navigation; 122. persons or property in connection with 13 marine insurance; 143. precious stones, jewels, jewelry and 15 precious metals whether in the course of 16 transportation or otherwise; and 174. bridges, tunnels, piers, docks and other aids 18 to navigation and transportation. 19 20☛ Cargo can be the subject of marine 21 insurance, and once it is entered into, the 22 implied warranty of seaworthiness 23 immediately attaches to whoever is insuring 24 the cargo, whether he be the shipowner or 25 not. (Roque vs IAC, 139 SCRA 596). 26

27IMPLIED WARRANTIES IN MARINE 28INSURANCE: 29 30 1. that the ship is seaworthy at the 31

inception of the insurance (Sec.113,ICP)

32

2. that the ship will not deviate from agreed

33 34 35 36

voyage unless deviation is proper (Sec. 123, 124, 125, ICP) 3. that the ship will not engage in an illegal venture 4. warranty of neutrality : that the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted 5. presence of insurable interest.

37

38 39 40 41 42 43

44INSURABLE INTEREST IN MARINE 45INSURANCE: 46 471. Shipowner – over the vessel, except that if 48 49 50 51 52 53 54

552. 56

573. 58 59 60

chartered, the insurance is only up to the amount not recoverable from the charterer (Sec. 100); and if hypothecated by a bottomry loan, the insurable interest is only up to the excess of the value of the vessel over the loan (Sec. 101). He also has an insurable interest on expected freightage. Cargo owner – over the cargo and expected profits (Sec. 105). Charterer – over the amount he is liable to the shipowner, if the ship is lost or damaged during t he voyage (Sec. 106).

61PERILS OF THE SEA – extend only to losses

63elements, and does not embrace all losses 64happening at sea. Include only such losses as 65are extraordinary in nature, or arise from 66overwhelming power, which cannot be guarded 67against by ordinary exertion of human skill and 68prudence (Sec. 99). 69

70PERILS OF THE SEA VS. PERILS OF THE 71SHIP 72 73☛ 74 75 76 77 78 79 80 81 82 83 84 85 86 87☛ 88 89 90 91 92 93 94 95 96 97

Perils of the sea or “perils of navigation” includes only those casualties due to the unusual violence or extra ordinary causes connected with navigation. It has been said to include only such losses as are of extraordinary nature or arise from some overwhelming power which cannot be guarded against by the ordinary exertion of human skill or prudence, as distinguished from the ordinary wear and tear of the voyage and from injuries suffered by the vessel in consequence of her not being unseaworthy. Perils of the ship is a loss which in the ordinary course of events, results: 1. from the natural and inevitable action of the sea 2. from the wear and tear of the ship 3. from the negligent failure of the ship’s owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.

98BARRATRY – willful misconduct on the part of 99the master or crew in pursuance of some 100unlawful or fraudulent purpose without consent 101of owners, and to the prejudice of owner’s 102interest.

103 104INSURANCE AGAINST ALL RISKS – 105insurance against all causes of conceivable loss 106or damage, except as otherwise excluded in the 107policy or due to fraud or intentional misconduct 108on the part of the insured. 109 110☛ The insurer can avoid coverage upon 111 demonstrating that a specific provision 112 excludes the loss from the coverage. (Choa 113 Tiek Seng vs CA, 183 SCRA 223).

114 115INCHAMAREE CLAUSE – covers loss or 116damage to the hull or machinery through: 1171. negligence of the captain, engineers, etc. 1182. explosions, breakage of shafts; and 1193. latent defect of machinery or hull. 120 121

122MATTERS ALTHOUGH CONCEALED, 123WILL NOT VITIATE THE CONTRACT

62caused by sea damage, or violence of the 4 Page 46 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1EXCEPT WHEN THEY CAUSED THE 2LOSS (SEC. 110): 3

41. 52. 6 73. 8 94. 105. 11

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

12DEVIATION – departure of vessel from course 13of voyage, or an unreasonable delay in pursuing 14voyage, to the commencement of an entirely 15different voyage (Sec. 123). 16

17DEVIATION IS PROPER WHEN 18(SEC. 124): 19 201. 21 222. 233. 244. 25 26

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

291. 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47☛ 48 49 50 51 52

TOTAL LOSS – that which may be: a. actual loss, involving (Sec. 130) (i) total destruction; (ii) loss by sinking (iii) damage rendering the thing valueless; or (iv) total deprivation of owner of possession of thing insured. b. constructive total loss (Sec. 131, in relation to Sec. 139), involves --(i) actual loss of more than ¾ of the value of the object; (ii) damage reducing value by more than ¾ of the value of the vessel and of cargo; and (iii) expense of transhipment exceed ¾ of value of cargo.

27LOSS: 28

In case of constructive total loss, insured may abandon goods or vessel to the insurer and claim for whole insured value, or he may, without abandoning vessel, claim for partial actual loss.

531. PARTIAL LOSS – that which is not total 54 55

(Sec. 128).

56GENERAL AVERAGE LOSS VS. 57PARTICULAR AVERAGE LOSS 58 59 GENERAL AVERAGE LOSS include damages 60and expenses which are deliberately caused by 61the master of the vessel or upon his authority, in 62order to save the vessel, her cargo, or both at

63the same time from real or known risk. it must be 64borne equally by all of the interests concerned in 65the venture. 66 67PARTICULAR AVERAGE LOSS it includes all 68damages and expenses caused to the vessel or 69to her cargo which have not inured to the 70common benefit and profit of all persons 71interested in the vessel and her cargo. It refers 72to those losses which occur under such 73circumstances as do not entitle the unfortunate 74owners to receive contribution from other owners 75concerned in the venture as where a vessel 76accidentally runs aground and goes to pieces 77after the cargo is saved. 78

79REQUISITIES OF GENERAL AVERAGE 80CONTRIBUTION: 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

1. there must be a common danger to the vessel or cargo 2. part of the vessel or cargo was sacrificed deliberately 3. the sacrifice must be for the common safety or for the benefit of all 4. it must be made by the master or upon his authority 5. it must be not be caused by any fault of the party asking the contribution 6. it must be successful, i.e. resulted in the saving of the vessel or cargo. 7. It must be necessary

96ABANDONMENT – is the act of the insured by 97which, after a constructive total loss, he declared 98the relinquishment to the insurer of his interest in 99the thing insured (Sec. 138). 100

101REQUISITES FOR VALID 102ABANDONMENT: 103 1041. 105 106 1072. 108 1093. 110 1114. 112 113 1145. 1156. 116 117 1187. 119 120 121

There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138); There must be a constructive total loss (Sec. 139); The abandonment be neither partial nor conditional (Sec. 140); It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141); It must be factual (Sec. 142); It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).

122CO-INSURANCE (Sec. 157, ICP) - A marine 123insurer is liable upon a partial loss, only for such 124proportion of the amount insured by him as the

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1loss bears to the value of the whole interest of 2the insured in the property insured. 3 Co-Insurance in Co-insurance in Marine Property Insurance



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



 

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

4

5FIRE INSURANCE – contract by which the 6insurer for a consideration agrees to indemnify 7the insured against loss of, or damage to, 8property by fire, but may include loss by 9lightning, windstorm, tornado or earthquake and 10other allied risks, when such risks are covered 11by extension to fire insurance policies or under 12separate policies (Sec. 167).

13 14ALTERATION- An alteration in the use or

15condition of a thing insured from that to which it 16is limited by the policy made without the consent 17of the insurer, by means within the control of the 18insured, and increasing the risks, entitles the 19insurer to rescind a contract of fire insurance 20(Sec. 168, ICP). 21

22WHEN ALTERATION IN THING INSURED 23ENTITLES INSURER TO RESCIND: 24 251. 26 272. 28 293. 30 314. 32 335.

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

34 35ALTERATION 36RESCISSION: 37

NOT

RESULTING

IN

381. Alteration not increasing the risk; and 392. Alterations increasing the risk but not 40 violating the contract. 41 42FALL-OF-BUILDING CLAUSE – clause in 43fire insurance policy that if the building or any 44part thereof falls, except as a result of fire, all 45insurance by the policy shall immediately cease. 46 47CASUALTY INSURANCE – insurance 48covering loss or liability arising from accident of 49mishap, excluding those falling under other 50types of insurance as fire or marine (Sec. 174). 51

52COMPULSORY MOTOR 53LIABILITY (Sec. 373):

VEHICLE

54METHOD OF COVERAGE: 55 1.Insurance Policy; 56 2.Surety Bond; and 57 3.Cash Bond. 58 59NON-FAULT CLAUSE – any claim for death 60or injury shall be paid up to PHP 5,000.00 61without necessity of proving fault or negligence, 62provided the following proofs of loss under oath 63are submitted (Sec. 378): 641. death certificate and evidence sufficient to 65 establish proper payee; 662. police report; and 673. medical report and evidence of medical or 68 hospital disbursement. 69 70☛ Claim is collected from insurer of vehicle 71 where claimant is riding, mounting, or 72 dismounting from. In any other case, claim 73 shall lie against the insurer of the directly 74 offending vehicle. 75 76AUTHORIZED DRIVER CLAUSE – The 77clause means that it indemnifies the insured 78owner against loss or damage to the car but 79limits the use of the insured vehicle to the 80insured himself or any person who drives on his 81order or with his permission (Villacorta vs. 82Insurance Commissioner; Perla Compania de 83Seguro vs. CA) 84 85 ☛ The requirement that the person driving the 86 insured vehicle is permitted in accordance 87 with the licensing laws or other laws or 88 regulations to drive the motor vehicle. It is 89 applicable only if the person driving is 90 other than the insured. 91 92COOPERATION CLAUSE – clause in an 93automobile insurance policy which provides in 94essence that the insured shall give all such 95information and assistance as the insurer may 96require, usually requiring attendance at trials or 97hearings. 98 99THIRD PARTY LIABILITY INSURANCE – 100insurance secured by the assured to protect 101third parties up to the limit stated in the policy, 102but third party victim is not at all affected by the 103limitation in the “schedule of indemnity” which 104binds only the contracting party [Sec. 378, (iii)]. 105 106PASSENGER, (CMVLI)—any fare paying 107person being transported and conveyed in and 108by a motor vehicle for transportation of 109passenger for compensation, including persons 110expressly authorized by law or by the vehicle’s 111operator or his agents to ride without faire (Sec. 112373{b}, CMVLI) 113

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1THIRD PARTY is any person other than the 2passenger as defined in 373 of CMVLI and shall 3also exclude a member of the household or a 4member of the family within the second degree 5of consanguinity or affinity, of a motor vehicle 6owner or land transportation operator, as 7likewise defined herein, or his employee in 8respect of death or bodily injury arising out of 9and in the course of employment (Sec. 373{c}, 10CMVLI). 11 12SURETYSHIP – agreement whereby surety 13guarantees the performance by another of an 14undertaking or an obligation in favor of a 3rd 15party (Sec. 175). 16☛ Essentially a credit accommodation. 17 18FIDELITY BOND – contract of insurance against 19loss from misconduct. 20 21FIDELITY GUARANTY INSURANCE – a 22contract whereby one, for a consideration, 23agrees to indemnify the assured against loss 24arising from the want of integrity, fidelity or 25honesty of employees or other persons holding 26positions of trusts. 27 28LIFE INSURANCE – insurance on human life 29and insurance appertaining thereto or connected 30therewith which includes every contract or 31pledge for the payment of endowments or 32annuities (Sec. 179). 33 34☛ Effect of death of insured through suicide – 35 the insurer in a life insurance contract shall 36 be liable in case of suicide by the insured 37 committed after the policy has been in force 38 for a period of two years from the date of its 39 issue or its last reinstatement, unless the 40 policy provides a shorter period: provided, 41 however, that suicide committed in a state of 42 insanity shall make the insurer liable 43 regardless of the date of the commission of 44 the suicide (Sec. 180-A).

45 46KINDS: 47

481. ORDINARY LIFE, GENERAL LIFE OR OLD 49 50 51

522. 53 54 55 56

573. 58 59 60

614. 62

LINE POLICY - insurer pays a premium every year until he dies. Surrender value after 3 years. LIMITED PAYMENT POLICY – insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. ENDOWMENT POLICY – pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. TERM INSURANCE – insurer pays once only, and he is insured for a specified

63 64 65 66

675. 68 69 70

716. 72 73 74 75 76 77 78

period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. INDUSTRIAL LIFE _ life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener; and VARIABLE CONTRACT – any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment.

79INTENTIONAL VS. ACCIDENTAL AS 80USED IN INSURANCE: 81 82INTENTIONAL as used in an accident policy 83excepting intentional injuries inflicted by the 84insured or any other person implies the exercise 85of the reasoning faculties, consciousness and 86volition. Where a provision of the policy excludes 87intentional injury, it is the intention of the person 88inflicting the injury that is controlling. If the 89injuries suffered by the insured clearly resulted 90from the intentional act of the third person, the 91insurer is relieve from liability as stipulated 92(Biagtan vs. the Insular Life Assurance Co. 93Ltd. 44 SCRA 58, 1972) 94 95ACCIDENTAL - The terms “accident” and 96“accidental” as used in insurance contract, have 97not acquired any technical meaning. They are 98construed by the courts in the ordinary and 99common acceptation. Thus, the terms have 100been taken to mean that which happens by 101chance or fortuitously, without intention or 102design, which is unexpected, unusual and 103unforeseen. The terms do not without 104qualification, exclude events resulting in damage 105or loss due to fault, recklessness or negligence 106of third parties. The concept is not necessarily 107synonymous with “no fault.” It maybe utilized 108simply to distinguish intentional or malicious acts 109from negligent or careless acts (Pan Malayan 110Insurance Corp. vs. CA, 184 SCRA 54). 111 112

113INSURANCE AS A RISK DISTRIBUTING 114DEVICE: 115

116 The devices of insurance serves to 117distribute the risk of economic loss among as 118many as possible of those who are subject to 119same kind of risk. By paying a pre-determine 120amount into a general fund out of which payment 121will be made for an economic loss of a defined 122type, each member contributes to a small 123degree toward compensation for losses suffered 124by any member of the group. This broad sharing

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1of economic risk is the principle of risk2distribution. 3

4LIABILITY OF INSURER IF INSURED 5WAS COMMITTING A FELONY 6 Liabilities arising out of acts of negligence, 7which are also criminal, are also insurable on the 8ground that such acts are accidental. Thus, a 9motor insurance policy covering the insured’s 10liability for accidental injury caused by his 11negligence, even though gross and attended by 12criminal consequences such as homicide 13through reckless imprudence, will not be void as 14against public policy. But liability consequences 15of deliberate criminal acts are not insurable. 16

17PRESCRIPTION PERIOD 18(SEC. 63, 384, ICP).

19 ☛ In the absence of an express stipulation in 20 the policy it being based on a written 21 contract, the action prescribes in 10 years. 22 However the parties may validly agree on 23 a shorter period provided it is not less than 24 one year from the time the cause of action 25 accrues. The cause of action accrues from 26 the final in rejection of the claim of the 27 insured and not from the time of loss.

28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

61 62IV. TRANSPORTATION LAWS 63 64

65CONTRACT

OF

TRANSPORTATION-

66contract whereby, a person, natural or juridical, 67obligates, to transport persons, goods or both, 68from one place to another by land, air or water 69for a price or compensation. 70 71COMMON CARRIER- one that holds itself out 72as ready to engage in the transportation for hire 73as a public employment and not as a casual 74occupation. 75 76☛ persons, firms, corporations or associations 77 engaged in the business of carrying or 78 transporting passengers or goods or both, 79 by land, water, or air, for compensation, 80 offering their services to the public. 81 (Art.1732, New Civil Code) 82 83☛ Art. 1732 of the New Civil Code avoids any 84 distinction between a person or enterprise 85 offering transportation service on a regular 86 or scheduled basis and one offering such 87 service on an occasional, episodic or 88 unscheduled basis. 89 90☛ Neither does the law distinguish between a 91 carrier offering its services to the general 92 public that is the general community or 93 population and one who offers services or 94 solicits business only from a narrow 95 segment of the general population. (De 96 Guzman vs. CA, September 15, 1993) 97

98GOVERNING LAWS: 99(in the order mentioned) 100 101A. 102 103 104 105 106 107 108B. 109 110 111 1123 1134 114 115 116 117 118 119 120 121 122

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2CHARACTERISTICS OF A COMMOM 3CARRIER: 4 51. 6 7 8 92. 10 11 123. 13 144. 15

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

16PRIVATE CARRIER- not engaged in business 17of carrying as a public employment, undertakes 18to deliver goods or passengers for compensation 19(requires only ordinary diligence) (Home 20Insurance Co. vs. American Steamship 21Agency, 23 SCRA 24) 22

23DISTINCTIONS :

24 COMMON CARRIER

1. holds himself out for all people indiscriminately 2. requires extraordinary diligence 3. subject to State regulation 4. parties may not agree on limiting the carrier’s liability except when provided by law 5. presumption of fault or negligence applies

PRIVATE CARRIER 1. contracts with particular individuals or groups only 2. ordinary diligence is required 3. not subject to State regulation 4. parties may agree on limiting the carrier’s liability provided not contrary to law, morals or good customs 5. no fault or negligence is presumed

25 26CASO FORTUITO 27 28Requisites: 29 301. event independent of human will; 312. occurrence makes it impossible for debtor 32 to fulfill the obligation in a normal manner; 333. obligor must be free of participation in, or, 34 aggravation of, the injury to the debtor; and 354. impossible to foresee or impossible to avoid. 36 (Juntilla vs. Fontanar, 136 SCRA 624; 37 Vasquez vs. CA, 138 SCRA 553) 38 39☛ A common carrier is held liable for the flaws 40 of its equipment (tire blow-out, knuckle’s 41 failure) if such defects are discoverable and 42 such cannot be considered a caso fortuito. 43 This is because the passenger has no privity 44 with the manufacturer of the defective 45 equipment and thus, has no remedy against

46 him while the carrier has. (Necessito vs. 47 Paras, 104 Phil 75) 48 49☛ Hijacking of the carrier truck does not fall 50 among the five categories of exempting 51 causes. The common carrier is presumed to 52 be at fault or to have acted negligently 53 unless there is proof of extraordinary 54 diligence on the part of the common 55 carrier. The duty of extraordinary diligence 56 is reached where the goods are lost as a 57 result of robbery attended by grave or 58 irresistible threat, violence or force. (De 59 Guzman vs. CA, September 15, 1993). 60 61NOTE: In Quisumbing Sr. vs. CA, 189 SCRA 62213, an action against an airline company to 63recover damages for the loss of certain 64valuables belonging to passengers after a(n) 65hijacking robbery was dismissed. The Court 66considered hijacking robbery a caso fortuito. It 67ruled: the mandatory use of the most 68sophisticated electronic detection devices, the 69imposition of severe penalties, the development 70of screening procedures, the compilation of 71hijacker’s behavioral profiles, the assignment of 72sky marshalls, and the weight of outraged world 73opinion may have minimized hijackings but all 74these proved ineffective against truly determined 75hijackers.

76 77KABIT SYSTEM: VOID AND INEXISTENT 78UNDER ART. 1409, NEW CIVIL CODE 79

80☛ This is a system whereby a person who has 81 been granted a certificate of public 82 convenience allows other persons who own 83 motor vehicles to operate under such 84 license, for a fee or percentage of such 85 earnings. 86☛ This has been identified as one of the root 87 causes of the prevalence of graft and 88 corruption in the government transportation 89 offices. A certificate of public convenience is 90 a special privilege conferred by the 91 government. Abuse of this privilege by the 92 grantees thereof cannot be countenanced. 93 (LITA ENTERPRISES INC. VS CA, 129 94 SCRA 79) 95 96EFFECTS OF THE SYSTEM AND LIABILITIES 97OF THE REGISTERED OWNER AND THE 98ACTUAL OWNER OF THE MOTOR VEHICLE: 99 100 1011. The transfer, sale, lease or assignment of 102 the privilege granted is valid between the 103 contracting parties but not upon the public or 104 third persons. (Gelisan vs. Alday, 154 105 SCRA 388) 1062. The registered owner is primarily liable for 107 all the consequences flowing from the 108 operations of the carrier because to rule

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 173. 18 19 20 21 22 23 24 25 26 274. 28 29 30 31

otherwise would be utterly subversive to the thrust of public policy herein involved. The public has the right to assume that the registered owner is the actual or lawful owner thereof. It would be very difficult and often impossible, as a practical matter, for the public to enforce their rights of action that they may have for injuries inflicted by the vehicle if they should be required who the actual owner is. It would also open the door to collusion between the registered owner and the actual owner and to shifting liability from the carrier to one without financial capability to meet the resulting damages. (Benedicto vs. IAC, 187 SCRA 547) The registered owner cannot recover from the actual owner and the latter cannot obtain transfer of the vehicle to himself, both being in pari delicto. The Court will not aid either party to enforce an illegal contract, but will leave them both where it find them. Where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. (Teja Marketing vs. IAC, 148 SCRA 347 ) For the better protection of the public, both the registered owner and the actual owner are jointly and severally liable with the driver. (Zamboanga Transportation Co. vs. CA)

32 33CONTRACT OF ADHESION- one that is

34unilaterally drafted and printed in advance by 35monopolies, insurance companies, carriers and 36money lenders and the only participation of the 37carrier party is the signing of his signature or his 38“adhesion” thereto (Eastern Shipping Lines 39vs. Margarine, 93 SCRA 257)

40 41 NEW CIVIL CODE PROVISIONS ON 42 COMMON CARRIERS 43 (ART. 1732-1766) 44

451. REQUIREMENT OF 46 EXTRAORDINARY DILIGENCE 47☛ 48 49 50 51 52 53 54 55 56☛ 57 58 59 60 61 62

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods and for the safety of the passengers transported by them according to all the circumstances of each case (Art. 1733, in relation to Art. 1755) Rationale: The business of common carriers is impressed with a special public duty such that the public must of necessity rely on their skill and care over the goods and/or passengers transported. Also, with the development in science and invention, transportation has become more rapid, but

63 64 65 66 67 68 69☛ 70 71 72 73 74 75 76 77 78 79☛ 80 81 82 83 84 85 86 87☛ 88 89 90 91 92 93 94 95☛ 96 97 98 99 100 101 102 103☛ 104 105 106 107

more complicated and hazardous, so the public is forced to trust all the more in the utmost diligence and foresight of common carriers. (Commission Report on the Proposed Civil Code) When the officers and the crew were aware of the typhoon but decided to proceed with the voyage believing that the weather was still “good,” although, according to the weather forecast, they were already within the typhoon zone, the sinking of the vessel proves that required extraordinary diligence was not duly observed. (Vasquez cs. CA, 138 SCRA 553) A common carrier neglects its duty to transport its passengers safely when a passenger died because the floor of its bus gave way after a tire blow out caused by overcrowding, overspeeding and weak flooring. (M. Ruiz Highway Transit, Inc. vs. CA, 11 SCRA 98) The announcement by a train conductor of the next flag stop, three minutes ahead of time, causing the passengers to rise from their seats, and the subsequent fall by them as a consequence of the jerking, resulting in deaths and injuries to them, is negligence. (Brinas vs. People, 125 SCRA 687) The mere fact that the bus was inspected the day before the accident is not sufficient to rebut the presumption of negligence, where the bus was overloaded in spite of the fact that its route consisted of mountainous, circuitous and ascending roads. (Landingin vs. Pangasinan, 33 SCRA 284) Where a vessel’s departure was delayed by repairs, and on management’s instruction, the first port of call was bypassed, the event is not fortuitous to be exempt from liability. (Sweet Lines vs. CA, 121 SCRA 769)

1082. RULES ON 109 NEGLIGENCE 110A. 111 112 113 114 115☛ 116 117 118 119 120 121 122

PRESUMPTION

OF

In the carriage of goods. In case of loss, destruction and deterioration of the goods, common carriers are presumed to be at fault or have acted negligently, unless they prove that they exercise extraordinary diligence. In the transport of goods, mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. (Coastwise Lighterage Corp. vs. CA, 245 SCRA 796

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1B. In the carriage of passengers. The same 2presumption applies. 3 4☛ The courts need not make an express 5 finding of fault or negligence of common 6 carriers, the law imposes upon common 7 carriers strict liability, as long as it is shown 8 that there exists a relationship between the 9 passenger and the common carrier and 10 that injury or death took place during the 11 existence of the contract. 12 13Reason for the presumption: Because as to 14when and how goods were damaged in transit is 15a matter peculiarly within the knowledge of the 16carrier and its employees. (Mirasol vs. Dollar, 1753 PHIL 124) Also, the contract between the 18passenger and the carrier imposes on the latter 19to transport the passenger safely, hence the 20burden of explaining should fall on the carrier. 21NOTE: The doctrine of res ipsa loquitor applies.

22 233. DEFENSE OF COMMON CARRIERS

24 25☛ Common carriers are responsible for the 26 loss, destruction, or deterioration of the 27 goods, unless the same is due to any of the 28 following causes only: 291. Flood, Storm, earthquake, lighting, or other 30 natural disaster or calamity. 312. Act of the public enemy in war, whether 32 international or civil 333. Act or omission of the shipper or the owner 34 of goods 354. The character of the goods or defects in the 36 packing or in the containers. 375. Order or act of competent authority 38 (Art1734, NCC). 39 40Reason for the exceptions: Because the 41carrier is not an insurer of the safety of its 42passengers and is not absolutely and at all 43events to carry them safely and without injury. 44(Santos vs. Dela Cruz, December 2, 1959) 45

46A. NATURAL DISASTER

47 48Requisites for the Defense: 491. must be the proximate and only cause of the 50 loss 512. carrier must exercise due diligence to 52 prevent or minimize the loss before, during 53 or after the occurrence of the disaster (Art. 54 1739, NCC) 553. carrier had not negligently incurred in delay 56 in transporting the goods (Art. 1740, NCC) 57

58ACTS OF PUBLIC ENEMY

59 60Requisites for the Defense: 611. the act must be the proximate and only 62 cause of the loss

632. 64 65 66 67 68

carrier must exercise due diligence to prevent or minimize the loss before, during or after the act causing the loss, deterioration or destruction of the goods (Art. 1739, NCC)

71☛ 72 73 74 75 76 77☛ 78 79 80 81 82 83 84 85 86 87 88

If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the carrier, the carrier shall still be liable for damages, but such shall be equitably reduced. When the shipper declared an inaccurate weight of the equipment transported causing it to fall when it is being unloaded, the carrier was still held liable for damages because such accident could have been avoided if the carrier had exercised reasonable attention in overseeing the unloading of the equipment. However, the liability was reduced as the shipper was liable for contributory negligence. (Compania Maritima vs. CA, 164 SCRA 685)

92☛ 93 94 95 96☛ 97 98 99 100 101 102 103

Even if the damage should be caused by the inherent defect/character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. The carrier, knowing the fact of improper packing of the goods upon ordinary observation, still accepts the goods notwithstanding such condition, is not relieved of liability or loss or injury resulting therefrom. (Southern Lines, Inc. vs. CA, 4 SCRA 258)

69CONTRIBUTORY NEGLIGENCE OF THE 70SHIPPER

89C. CHARACTER OF THE GOODS OR 90 DEFECTS IN THE PACKING OR IN 91 THE CONTAINER

104D. ORDER/ACT OF PUBLIC AUTHORITY 105☛ Said public authority must have the power to 106 issue the order. Consequently, where the 107 officer acts without legal process, the 108 common carrier will be held liable. 109 110NOTE: Diligence in the selection and 111supervision of employees under Articles 21801122181, NCC, cannot be interposed by the 113common carrier to prevent damages because 114the liability of the carriers arises from the breach 115of the contract of carriage. The defense under 116said articles is applicable to negligence in quasi117delicts. (Del Prado vs. Manila Electric Co., 52 118PHIL 900) 119

120E. 121

STIPULATIONS LIMITING LIABILITY OF COMMON CARRIERS

122 1231. 124

IN THE CARRIAGE OF GOODS- the common carrier and the shipper may agree

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 on the carriers observance of diligence to a 2 degree less than extraordinary provided it be 3 a) In writing, signed by the shipper or 4 owner; 5 b) Supported by a valuable 6 consideration other than the service 7 rendered by the carriers; and 8 c) Reasonable, just and not contrary 9 to public policy. (Art. 1744). 10 11☛ The following stipulations are considered 12 unjust, unreasonable and contrary to public 13 policy: 141. the goods are transported at the risk of the 15 owner or shipper 162. the carrier will not be liable for any loss, 17 destruction or deterioration of the goods 183. the carrier need not observe any diligence in 19 the custody of the goods 204. the carrier shall exercise a degree of 21 diligence less than that of a good father of a 22 family over the movable transported 235. the carrier shall not be responsible for the 24 acts or omissions of his or its employees 256. the carrier’s liability for acts committed by 26 thieves or robbers who do not act with grave 27 or irresistible threat, violence or force is 28 dispensed with or diminished 297. the carrier is not responsible for the loss, 30 destruction or deterioration of the goods on 31 account of the defective condition of the car, 32 vehicle, ship or other equipment used in the 33 contract of carriage. 34 35Other Valid stipulations limiting the carrier’s 36liability: 371. A stipulation that the common carrier’s 38 liability is limited to the value of the goods 39 appearing in the bill of lading unless the 40 shipper or owner declares a greater value 41 (HEACOCCK VS MACONDRAY, 42 PHIL 42 205) 432. A contract fixing the sum to be recovered by 44 the owner or shipper for the loss, destruction 45 or deterioration of the goods, if it is 46 reasonable and just under the 47 circumstances and has been fairly and freely 48 agreed upon (Art. 1750, NCC) 493. An agreement limiting the common carrier’s 50 liability for delay on account of strikes or 51 riots (Art. 1748, NCC) 52 53 542. IN THE CARRIAGE OF PASSENGERS 55☛ The extraordinary responsibility of a 56 common carrier for the safety of passengers 57 imposed by law cannot be dispensed with or 58 lessened by stipulation, by posting of 59 notices, by statements on tickets or 60 otherwise (Art. 1757, NCC). 61☛ When a passenger is carried gratuitously, a 62 stipulation limiting the common carrier’s 63 liability for negligence is valid, but not for

64 willful acts on gross negligence (Art. 1758, 65 NCC). 66 67NOTE: The diligence required in the carriage of 68the goods may be reduced by only one degree, 69from extraordinary to ordinary diligence or 70diligence of a good father of a family. (Art. 1744, 71Art. 1745, no.4, NCC) 72☛ In the transport of passengers, the diligence 73 required may be reduced by two degrees 74 from extraordinary to ordinary diligence or 75 even to simple negligence but ot to gross 76 negligence. (Art. 1758, NCC)

77 78G. DURATION OF RESPONSIBILITY OF 79 COMMON CARRIERS 80 811. 82☛ 83 84 85 86 87 88 89 90 91☛ 92 93 94 95 96☛ 97 98 99 100 101 102 103 1042. 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126

GOODS. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered actually or constructively by the carrier to the consignee or to the person who has the right to receive them. (Art. 1736, NCC) It remains in full force and effect even when they are temporarily unloaded or stored in transit unless the shipper or owner has made use of the right of stoppage in transitu. (Art. 1737, NCC) It continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination until the consignee has bee advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. (Art. 1738, NCC) PASSENGERS. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier’s conveyance or had a reasonable opportunity to leave the carrier’s premises. All persons who remain on the premises within a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. (La Mallorca vs CA, July 27 1966; Abiotiz Shipping Corporation vs CA, November 6, 1989) In case of flight diversion due to bad weather or other circumstances beyond the pilot’s control, the relation between the carrier and the passenger continues the latter has been landed at the port of

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8

destination and has left the carrier’s premises. The carrier should necessarily exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. (PHILIPPINE AIRLINES VS CA, 226 SCRA 423)

9 10H. LIABILITY OF THE CARRIER FOR 11 ACTS OF ITS EMPLOYEES AND 12 OTHER PASSENGERS 13 141. 15☛ 16 17 18 19 20 21 22 23 24 25 26 27☛ 28 29 30 31 32 33 34☛ 35 36 37 38 392. 40 41☛ 42 43 44 45 46 47 48 49☛ 50 51 52 53 54 55

For acts of Employees Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. (1759, NCC) The liability of the carrier for the personal violence of its employees or agents upon its passengers extends only to those acts that the carrier could foresee or avoid through the exercise of the degree of diligence required. The carrier is not liable for acts of employee not on duty or in the line of duty. (DE GILLACO VS MRR, 97 PHIL884; MARANAN VS PEREZ, 20 SCRA 412) For acts of other Passengers A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carrier’s employees, through the exercise of the diligence of a good father of a family could have prevented or stopped the act. (1763, NCC) The carrier is liable when its personnel allowed a passenger to drive the vehicle causing it to collide with another vehicle resulting to the injuries suffered by the other passengers.(MRR VS BALLESTEROS, 16 SCRA 641)

56I. RULES ON PASSENGERS’ 57 BAGGAGES 58☛ 59 60 611. 62 63

As to baggage of passengers, the law makes a distinction between: BAGGAGE IN THE CUSTODY OF THE PASSENGERS OR THEIR EMPLOYEE

64☛ under this, the baggage is in the personal 65 custody of the passenger or his employee in 66 that the baggage while in transit will be 67 considered as necessary deposits. The 68 common carrier shall be responsible for the 69 baggage as depositaries, provided that 70 notice was given to them or its employees 71 and the passenger took the necessary 72 precautions which the carrier has advised 73 them relative to the care and vigilance of 74 their baggage. 75☛ In case of loss due to the fault of the 76 passenger, the carrier will not be liable . The 77 act of thief will not be force majeure unless 78 the same is committed by armed men an 79 through irresistible force (Article 1754, 80 NCC) 81 822. BAGGAGE NOT IN SUCH CUSTODY, BUT 83 IN THAT OF THE CARRIER (Article 1733 to 84 1573 of the NCC) 85☛ carrier who has in his custody the baggage 86 of a passenger to be carried like any other 87 goods is required to observe extraordinary 88 diligence. In case of loss or damage the 89 carrier is presumed negligent. 90 918) CAUSE OF ACTION ARISING FROM THE 92 NEGLIGENT ACT OF THE CARRIER 93 94 The injured passenger can avail of any of 95the three causes of action arising from the 96negligent act of the common carrier: 97 981)culpa contractual – Art.1759, NCC – only the 99 carrier could be held liable, not the driver 100 because the there is no privity between the 101 driver and the passenger 1022)culpa acquiliana – Art. 2180, NCC – the carrier 103 and driver are solidarily liable as joint 104 tortfeasors 1053)culpa criminal – Art. 100, Revised Penal Code 106 – the carrier could be held liable only if driver 107 be convicted and declared insolvent, making 108 him subsidiarily liable. 109

110LIABILITY OF SUCCESSIVE AIR 111CARRIERS: 112 113 114 115 116 117 118 119 120 121 122

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

123BILL OF LADING- written acknowledgment of 124receipt of goods and agreement to transport 125them to a specific place to a person named or to 126his order. It is not indispensable for the creation

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1of a contract of carriage (COMPANIA 2MARITIMA vs. INSURANCE CO. OF NORTH 3AMERICA, 12 SCRA 213) 4 5ON BOARD BILL OF LADING- issued when 6the goods have been actually placed aboard the 7ship with very reasonable expectation that the 8shipment is as good as on its way. 9

10FUNCTIONS OF A BILL OF LADING:

11(MAGELLAN, MANUFACTURING vs. CA 201 12SCRA 2021) 13 141. best evidence of the existence of the 15 contract of carriage of cargo; 162. commercial document whereby, if 17 negotiable, ownership may be transferred by 18 negotiation; and 193. receipt of cargo. 20

21LIMITATIONS AS TO CARRIERS 22LIABILITY

23 24 A stipulation in the bill of 25lading limiting the liability of the carrier 26to an agreed valuation unless the 27shipper declares a higher value and pays a 28higher rate of freight is valid (ORG. VS. CA 29AND PAL, 91 SCRA 223). 30 31 ☛ However, the carrier cannot limit is liability 32 for injury to, or loss of, goods shipped 33 where such injury or loss was caused by 34 its own negligence (SHEWARAM VS. 35 PAL, 17SCRA 606). 36

37RECOVERY OF DAMAGES FROM 38CARRIER FOR CARRIAGE OF GOODS39 401. 41 42 43 44 45 46 47 48☛ 49 50 51☛ 52 53 54 55 56 57 58 592. 60 61

INTER-ISLAND- if goods arrived in damaged condition: Art 366, CODE OF COMMERCE). a. If damage is apparent, the shipper must file a claim immediately; or b. If damage is not apparent, he should file a claim within 4 hours from delivery The filing of claim under either (1) or (2) is a condition precedent for recovery. If the claim is filed, but the carrier refuses to pay: enforce carrier’s liability in court by filing a case a. within 6 year, if no bill of lading has been issued; or b. within 10 years, if a bill of lading has been issued.

OVERSEAS- where goods arrived in a damaged condition from a foreign port to a Philippine port of entry;

62 63 64 65 66 67 68☛ 69 70 71 72 73 74

a. upon discharge of goods, if the damage is apparent , claim should be filled immediately; or b. if damage is not apparent, claim should be filled within 3 days from delivery. Filing of claim is not condition precedent, but an action must be filed against the carrier within a period of 1 year from discharge; if there is no delivery, the undelivered or lost cargo), or from delivery to the arrastre (in case of damaged cargo).

75 EXEMPTION FROM LIABILITY 76 77☛ A common carrier may be freed from liability 78 for loss or damage if it proves any of the 79 following circumstances: 80 a. natural disaster; 81 b. act of the public enemy in war; 82 c. act or omission of the shipper; 83 d. character of the goods and defect in 84 packaging; 85 e. order of competent public authority 86 (MARITIME CO. VS. CA 171 SCRA 61). 87 88DOCTRINE OF COMBINED/CONNECTING 89CARRIERS – Under Art. 373, Code of 90Commerce, the original carrier that entered into 91the contract of carriage shall be liable for 92damages caused by its connecting carriers. 93Such carrier is liable if connecting carriers refuse 94to carry passengers. (KLM VS CA, 65 SCRA 95237)

96 97MARITIME COMMERCE 98

99MERCHANT VESSEL 100☛ 101 102☛ 103 104 105 106

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

107 108CHARACTERISTICS 109TRANSACTION:

OF

MARITIME

1101) Real- similar to transactions over property 111 with respect to effectively against third 112 persons which is done through registration 113 as shown by the limitation of the liability of 114 the agents to the actual value of the vessel 115 and the freight money; and the right to retain 116 the cargo and embargo and detention of the 117 vessel; and 1182) Hypothecary- the liability of the owner of 119 the value of the vessel is limited to the 120 vessel itself (Doctrine of Limited Liability) 121 122PREFERENCE OF CREDITS - Mortgage of a 123vessel properly registered becomes of preferred

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

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

1. 2. 3. 4.

37 38PARTICIPANTS IN MARITIME 39COMMERCE 40 shipowners and ship agents 41 captains and masters of the 42vessel 43 officers and crew of the vessel 44 supercargoes 45 46A. SHIPOWNERS AND SHIP AGENTS 47 48 49 50 51 52 53 54 55

SHIPOWNER – person who has possession, control in management of the vessel and the consequent right to direct her navigation and receive freight earned and paid, while his possession continues; SHIP AGENT – person entrusted with provisioning and representing the vessel in the port in which it may be found; also includes the shipowner;

60 61 62

1) For acts of the captain and for the obligations contracted to repair, equip and provision the vessel

56 57CIVIL LIABILITIES OF THE SHIPOWNER 58AND THE SHIP AGENTS: 59

63 64 65 66 67

2) Indemnities in favor of third persons arising from the conduct of the captain in the care of the goods loaded in the vessel

71 72 73 74 75 76 77 78 79 80 81 82 83 84

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

68POWERS, FUNCTIONS AND LIABILITIES 69OF THE SHIP AGENTS: 70

85 86 87 88

DUTY OF SHIP AGENT TO DISCHARGE THE CAPTAIN AND MEMBERS OF THE CREW:

89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104

☛ If the seamen contract is not for a definite period or voyage, he may discharge them at his discretion. ☛ If for a definite period, he may not discharge them until after the fulfillment of their contracts, except on the following grounds: -insubordination in serious matters -robbery -theft -habitual drunkenness -damage caused to the vessel or to its cargo through malice or manifest or proven negligence

105B. CAPTAINS AND MASTERS OF THE 106VESSEL 107

108THREE-FOLD 109CAPTAIN:

CHARACTER

OF

THE

110 111 112 113 114

1) general agent of the shipowner; 2) technical director of the vessel; 3) representative of the government of the country whose flag he navigates

116 117 118 119 120 121

1) Filipino citizen; 2) legal capacity to contract; 3) passed the required physical and mental examinations required for licensing him as such

123 124

1) appoint crew in the absence of ship agent;

115QUALIFICATIONS OF THE CAPTAIN:

122INHERENT POWERS OF THE CAPTAIN:

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9 10 11 12

2) command and direct crew; 3) impose correctional punishment on those who, while on board vessel, fail to comply with his orders or are wanting in discipline; 4) make contracts for the charter of vessel in the absence of ship agent. 5) supply, equip, and provision the vessel; and 6) order repair of vessel to enable it to continue its voyage.

17 18 19 20 21 22

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

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

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

13SOURCES OF FUNDS TO COMPLY WITH 14THE INHERENT POWERS OF THE 15CAPTAIN: 16

23 24DUTIES OF THE CAPTAIN: 25

48LIABILITIES OF THE SHIP AGENT/SHIP 49OWNER FOR ACTS DONE BY THE 50CAPTAIN TOWARDS PASSENGERS AND 51CARGOES, MAKING THEM SOLIDARILY 52LIABLE TO THE LATTER: 53 541. 55 562. 573. 584. 595. 606. 617.

damages to vessel and to cargo due to lack of skill and negligence thefts and robberies of the crew losses and fines for violation of laws damages due to mutinies damages due to misuse of power for deviations for arrivals under stress

628. damages due to non-observance of marine 63 regulations 64 65 66 67

68NO LIABILITY FOR THE FOLLOWING: 69 70 71 72 73 74 75 76 77

1) damages caused to the vessel or to the cargo by force majeure 2) obligations contracted for the repair, equipment, and provisioning of the vessel unless he has expressly bound himself personally or has signed a bill of exchange or promissory note in his name

78 79GROUNDS 80CAPTAIN:

FOR

DISCHARGE

OF

A

81 82insubordination in serious matters 83robbery 84theft 85habitual drunkenness 86damage caused to the vessel or to its cargo 87through malice or manifest or proven negligence

88 89B. OFFICERS AND CREW OF THE 90 VESSEL 91

92The following are the officers and crew of the 93vessel: 94 1) Sailing Mate/First Mate 95 2) Second Mate 96 3) Engineers 97 4) Members of the crew 98 99 1) SAILING MATE/FIRST MATE 100 ☛ second chief of the vessel who takes 101 the place of the captain in case of 102 absence, sickness, or death and shall 103 assume all of his duties, powers and 104 responsibilities. 105 QUALIFICATIONS OF THE SAILING 106 MATE: 107 1) have the qualifications required by 108 the marine or navigation laws and 109 regulations 110 2) not to be disqualified in accordance 111 therewith for the discharge of his 112 duties 113

114

115 116 117 118 119 120 121 122

DUTIES OF THE SAILING MATE: 1) provide himself with maps and charts with astronomical tables necessary for the discharge of his duties 2) keep the Binnacle Book 3) change the course of the voyage on consultation with the captain and the officers of the boat, following the

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 decision of the captain in case of 2 disagreement 3 4) responsible for all the damages 4 caused to the vessel and the cargo 5 by reason of his negligence 6 7 8 9 2) SECOND MATE 10 115 ☛ take command of the vessel in case of 12 the inability or disqualification of the captain 13 and the sailing mate, assuming in such case 14 their powers and responsibilities. 15 16 DUTIES OF THE SECOND MATE: 17 1) preserve the hull and rigging of the 18 vessel 19 2) arrange well the cargo 20 3) discipline the crew 21 4) assign work to crew members 22 5) inventory the rigging and equipment 23 of the vessel, if laid up 24 25 3) ENGINEERS 26 27 C ☛ officers of the vessel but 28 have no authority except in matters 29 referring to the motor apparatus. When 30 two or more are hired, one of them shall 31 be the chief engineer. 32 33 DUTIES OF THE ENGINEERS: 34 1) in charge of the motor apparatus, 35 spare parts, and other instruments 36 pertaining to the engines 37 2) keep the engines and boilers in 38 good condition 39 3) not to change or repair the engine 40 without authority of the captain 41 4) inform the captain of any damage to 42 the motor apparatus 43 5) keep an Engine Book 44 6) supervise all personnel maintaining 45 the engine 46 47 4) MEMBERS OF THE CREW 48 ☛ hired by the ship agent, where he is 49 present and in his absence, the captain 50 hires them, preferring Filipinos, and in 51 their absence, he may take in 52 foreigners, not exceeding 1/5 of the 53 crew. 54 55CLASSES OF SEAMAN’S CONTRACTS: 56 1. by the voyage 57 2. by the month; and 58 3. by share of profits or freightage 59 60 JUST CAUSES FOR THE DISCHARGE 61 OF SEAMAN WHILE CONTRACT SUBSISTS: 62 63 1) perpetration of a crime

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2CHARTER PARTY-

contract by virtue of 3which owner or agent binds himself to transport 4merchandise or persons for a fixed price. 5 ☛ contract by which an entire ship, or 6some principal part thereof is let by the owner to 7another person for a specified time or use. 8(PUROMINES VS. CA 220 SCRA 281) 9

10CLASSES OF CHARTER PARTY

11(PLANTERS PRODUCT Case: LITONJUA 12SHIPPING CO. INC. vs. NATIONAL 13SEAMEN’S BOARD, 176 SCRA 189) 14 151. BAREBOAT OR DEMISE- charterer 16 provides crew, food and fuel, charterer is 17 liable as if he were the owner, except when 18 such arises from the unworthiness of the 19 vessel.

20

21OWNER PRO HAC VICE –a bareboat charterer, 22to whom full possession and control of the 23vessel is delivered, for a period of time; 24charterer is considered as owner of the vessel 25for the voyage or service stipulated. The master 26of the vessel is the agent of the charterer and 27not of the shipowner. The charterer, and not the 28general owner of the vessel is held liable for the 29expenses of the voyage including the wages of 30the seamen. 31 322. TIME CHARTER – vessel is chartered for a 33 period of time or duration of voyage; owner 34 retains possession and control of the 35 vessel; charterer acquires the right to use 36 the carrying capacity, facilities of the vessel 37 and could designate destinations. 38 393. VOYAGE OR TRIP CHARTER- contract for 40 hire of vessel for one or series of voyages 41 usually for purposes of transporting goods 42 for charterer. 43 444. CONTRACT OF AFREIGHTMENT- owner 45 leases the boat or part of it for the carriage 46 of goods. 47 48 RIGHTS AND OBLIGATIONS IN A 49 CHARTER PARTY 50 A. OF THE SHIP OWNER OR SHIP 51 AGENT 52 1) if the vessel chartered wholly, not to 53 accept cargo from others 54 2) to observe represented capacity 55 3) to unload cargo clandestinely placed 56 4) to substitute another vessel if load is 57 less than 3/5 of capacity 58 5) to leave the port if the charterer 59 does not bring the cargo within the 60 lay days and extra lay days allowed 61 6) to place in a vessel in a condition to 62 navigate

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

95 96

97 98

7) to bring cargo to nearest neutral port in case of war or blockade B. OF THE CHARTERER 1) to pay the agreed charter price 2) to pay freightage on unboarded cargo 3) to pay losses to others for loading uncontracted cargo and illicit cargo 4) to wait if the vessel needs repair 5) to pay expenses for deviation RESCISSION OF A CHARTER PARTY A. At Request of Charterer 1) by abandoning the charter and paying half of the freightage 2) error in tonnage or flag 3) failure to place the vessel at the charterer’s disposal 4) return of the vessel due to pirates, enemies or bad weather 5) arrival at a port for repairs B. At Ship Owner’s Request 1) if the extra lay days terminate without the cargo being placed alongside the vessel 2) sale by the owner of the vessel before loading by the charterer

PRIMAGE- bonus to be paid to the captain after the successful voyage.

99

DEMURRAGE – sum due, by express

100 101 102 103 104 105

contract, for the detention of the vessel, in loading and unloading, beyond the time allowed in the contract of afreightment, and to any other improper detention or delay beyond the time set for loading.

106

SALVAGE- services one person render to 107 the owner of a ship or goods, by his own 108 labor, preserving the goods or the ship 109 which the owner or those entrusted with the 110 care of them have either abandoned in 111 distress at sea, or are unable to protect or 112 secure. 113 114CONTRACT OF TOWAGE - contract whereby 115one vessel, usually motorized, pulls another, 116whether loaded or not with merchandise, form 117one place to another, for a compensation. It is a 118contract for services rather than a contract of 119carriage. 120

121USUAL FORMS OF CONSUMMATING 122CONTRACTS: 123 1241. C.I.F – cost, insurance and freight;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

12. F.O.B.- free on board; 23. F.A.S.- free alongside ship; and 34. C and F- cost and freight. 4 5TRANSHIPMENT OF GOODS- act of taking 6cargo from one ship and loading it in another, if 7done without legal excuse, however, competent 8and safe the vessel into which the transfer is 9made is a violation of contract and infringement 10of right of shipper and subjects carrier to liability 11if freight is lost event by cause otherwise 12excepted (MAGELLAN MANUFACTURING vs. 13CA , 201 SCRA 102) 14 15LOAN OF BOTOMMRY- loan made by 16shipowner or shipagent guaranteed by vessel 17itself and repayable upon arrival of vessel at 18destination.

19

20LOANS ON RESPONDENTIA – loan, taken on 21security of cargo laden on a vessel, and 22repayable upon safe arrival of cargo at 23destination. 24 25COMMON ELEMENTS OF LOANS ON 26BOTTOMRY AND RESPONDENTS: 27 28 1) Exposure of security to marine peril 29 2) Obligation of the debtor conditioned only 30 upon safe arrival of the security at the 31 point of destination. 32 33FORMS OF A LOAN ON 34BOTTOMRY/RESPONDENTIA: 35 36May be executed by means of: 37 1) public instrument 38 2) policy signed by the contracting parties 39 and the broker taking part therein 40 3) private instrument 41 42CONTENTS OF THE LOAN CONTRACT: 43 44 1) kind, name and registry of the vessel 45 2) name, surname and domicile of the 46 captain 47 3) names, surnames and domiciles of the 48 borrower and the lender 49 4) amount of the loan and the premium 50 stipulated 51 5) time for repayment 52 6) goods pledged to secure repayment 53 7) voyage during which the risk is run 54 55WHO MAY CONTRACT: 56 57 1) Bottomry – general rule: the owner; if 58owner is absent; captain; 59 2) Respondentia – only the owner of the 60 cargo. 61 62 63

64 65 66

67 68DISTINCTIONS : 69

LOANS ON ORDINARY LOAN BOTTOMRY/RESPON DENTIA 1. Not subject to Usury 1. Subject to Usury Law Law 2. Liability of the 2. Not subject to any borrower is contingent contingency on the safe arrival of the vessel or cargo at destination 3. The last lender is a 3. The first lender is a preferred creditor preferred creditor 70 71NOTE: Under existing laws, the parties to a loan, 72whether ordinary or maritime, may agree on any 73rate of interest. (CB Circular 905). 74 75EXCEPTIONS TO THE HYPOTHECARY 76NATURE OF BOTTOMRY AND 77RESPONDENTIA: 78 79 1) loss due to inherent defect; 80 2) loss due to the barratry on the part of the 81 captain; 82E 3) loss due to the fault of malice of the 83 borrower; 84F 4) that the vessel was engaged in 85 contraband; and 86G 5) that the cargo loaded on the vessel be 87 different in form that agreed upon.. 88

89ACCIDENTS IN MARITIME COMMERCE 90(Averages, Arrival Under Stress, 91Collision, Shipwreck): 92

931. AVERAGES- an extra-ordinary or accidental 94 expense incurred during the voyage in 95 order to preserve the cargo, vessel or both; 96 and all damages or deteriorations suffered 97 by the vessel from departure to the port of 98 destination, and to the cargo from the port of 99 loading to the port consignment. 100 101CLASSES: 102 103 a. Particular or Simple Average 104 - expenses or damage cause to vessel 105 or cargo not inured to common benefit 106 and borne by respective owners. 107 - The owner of the goods which gave 108 rise to the expense or suffered the 109 damage shall bear this average. 110 111 b. Gross or General Average

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 - damage and expenses deliberately 2 caused in order to save the vessel, its 3 cargo or both from renal and known risk. 4 - All the persons having an interest in 5 the vessel and the cargo therein at the 6 time of the occurrence of the average 7 shall contribute to satisfy this average. 8 9REQUISITES: 101) common danger 112) deliberate sacrifice 123) success 134) proper formalities and legal steps 14 15PROCEDURE FOR RECOVERY: 16 17 1) There must be a resolution of the 18 captain, adopted after a deliberation with 19 the other officers of the vessel and after 20 hearing all persons interested in the 21 cargoes. If the latter disagree, the 22 decision of the captain should prevail but 23 they shall register their objections. 24 2) The resolution must be entered in the 25 logbook, stating the reasons and 26 motives for the dissent, and the 27 irresistible and urgent causes if he acted 28 in his own accord. It must be signed, in 29 the first case, by all persons present in 30 the hearing. In the second case, by the 31 captain and all the officers of the vessel. 32 3) The minutes must also contain a detail 33 of all the goods jettisoned and those 34 injuries caused to those on board. 35 4) The captain shall deliver it to the 36 maritime judicial authority of the first port 37 he may make, within 24 hours after his 38 arrival, and to ratify it immediately under 39 oath. 40 41ORDER OF GOODS TO BE CAST 42OVERBOARD IN CASE OF JETTISON: 43 44 1) those which are on the deck, 45 preferring the heaviest one with the 46 least utility and value 47 2) those which are below the upper 48 deck, beginning with the one with 49 greatest weight and smallest value 50 512. ARRIVAL UNDER STRESS- arrival of vessel 52 at a port of destination on account of lack of 53 provision, well founded fear of seizure, 54 pirates, or accidents of sea disabling 55 navigation. 56 57 When not lawful: 58 59 a. lack of provisions due to 60 negligence to carry according to usage 61 and customs; 62 b. risk of enemy not well known or 63 manifest

64 c. defect of vessel due to improper repair; 65 and 66 d. malice, negligence, lack of foresight or 67 skill of captain. 68 69 Who bears expenses: 70 The ship owner bears all the expenses 71 except when it is unlawful arrival, the ship 72 owner also answers for damages to the 73 owners of the cargo and the passengers. 74 753. COLLISIONS- impact of 2 vessels both of 76which are moving. 77 78 ZONES OF TIME IN THE COLLISSION OF 79 VESSELS (URRUTIA AND CO. VS. BACO 80 RIVER PLANTATION CO., 26 PHIL 632). 81 82 1. 1ST ZONE – all time up to the moment 83 when risk of collision begins; 84 2. 2ND ZONE – time between moment 85 when risk of collision begins and 86 moment it becomes a practical 87 certainty; 88 3. 3RD ZONE – time when collision is 89 certain and time of impact. 90 91RULES ON COLLISSION OF VESSELS (Arts. 92826, 827, 828, 830, 831, and 832, Code of 93Commerce) 94 95 1. The collision may be due to the fault, 96 negligence or lack of skill of the captain, 97 sailing mate, or any other member of the 98 complement of the vessel. The owner of 99 the vessel at fault be liable for losses or 100 damage (826 Code of Commerce) 101 1022. The collision may be due to the fault of both 103 vessels. Each vessel shall suffer its own 104 losses, but as regards the owner of 105 cargoes both vessels shall be jointly and 106 severally liable. (827, CC) 107 1083. If it cannot be determined which vessel is at 109 fault. Each vessel shall also suffer its own 110 losses and both shall be solidarily liable for 111 losses o damages on the cargoes. (828, 112 CC) 113 1144. The vessels may collide with each other 115 through fortuitous event or force majeure. 116 In this case each shall bear its own damage. 117 (830, CC). 118 1195. Two vessels may collide with each other 120 without their fault by reason of a third vessel. 121 The third vessel will be liable for losses and 122 damagea (831, CC) 123 1246. A vessel which is properly anchored and 125 moored may collide with those nearby 126 reason of storm or other cause of force

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 majeure. The vessel run into shall suffer its 2 own damage and expense (832, CC) 3 4PREQUISITE TO RECOVERY: 5 6 ☛ Protest should be made within 24 7 hours before the competent authority at the 8 point of collision or at the first port of arrival, 9 if in the Philippines and to the Philippine 10 consul, if the collision took place abroad. 11 ☛ Injuries to persons and damage to 12 cargo of owners not on board on collision 13 time, need not be protested. 14 15DOCTRINE OF “INSCRUTABLE FAULT” 16 17 ☛ In a collision, the vessel at fault shall 18indemnify the damages sustained or losses 19incurred (Article 826, Code of Commerce), and 20if both vessels were at fault, each shall suffer its 21own damages, and both Articles 827-828, Code 22of Commerce). This solidarity expressed in 23Article 827 of the Code of Commerce has been 24held to preclude a common carrier operating a 25vessel from interposing the defense of due 26diligence in the selection and supervision of its 27employees in an action against it by a shipper of 28the other colliding vessel as distinguished from 29the ordinary rule in liabilities for tort or culpa 30aquiliana. Under the “doctrine of inscrutable 31fault”, where fault is established but it cannot be 32determined which of the two vessels were at 33fault , both shall be deemed to have been at 34fault. 35 36NOTE: The Doctrine of Limited Liability 37applies in case of collisions, but it shall be 38limited only to the value of the vessel with all its 39appurtenances and freightage earned during the 40voyage. When the latter is not sufficient to cover 41all the liabilities, the indemnity due by reason of 42the death or injury of persons shall have 43preference. (Art. 837,838, Code of Commerce) 44 45 46ALLISION- impact between a moving vessel 47and a stationary one. 48 49ERROR IN EXTREMIS- sudden movement 50made by a faultless vessel during the 3rd zone of 51collision with another vessel which is at fault 52during the 2nd zone. Even if such sudden 53movement is wrong, no responsibility will fall on 54said faultless vessel (URRUTIA CASE) 55 56 574. SHIPWRECK- loss of the vessel at sea as a 58consequence of its grounding, or running against 59an object in sea or on the coast. 60 61 If the wreck was due to malice, 62negligence or lack of skill of the captain, the

63owner of the vessel may demand indemnity from 64said captain. 65 66 67 68 69 70

71CARRIAGE OF GOODS BY SEA ACT 72(COM. ACT NO. 65) 73 74 75 76 77 78 79 80 81 82 83

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

84PRESCRIPTIVE PERIODS – suit for loss or 85 damage to the cargo should be brought 86 within one year after. 87a. delivery of the goods; or 88b. the date when goods should be deliver 89

90NOTICE OF DAMAGE

91 ☛ If the damage is externally apparent, 92it should be given on receipt of the goods; if the 93damage is externally visible, then within three 94days from receipt. Failure to give notice 95however, does not bar the filing of the suit if 96made within one year. 97

98PUBLIC SERVICE LAW 99 100PURPOSES 101 1) to protect the public against 102 unreasonable charges and poor, 103 insufficient service 104 2) to protect and secure investments in 105 public services 106 3) to prevent ruinous competition 107 108PUBLIC SERVICE 109 includes every person that now or hereafter 110 may own operate, manage or control in the 111 Philippines for hire or compensation, with 112 general or limited clientele, whether 113 permanent, occasional or accidental, and 114 done for general business purposes, any 115 common carrier or public utility, ice plants, 116 power and water supplies communication 117 and similar public services. 118 119CERTIFICATE OF PUBLIC CONVENIENCE 120(CPC) 121 ☛ an authorization issued by the PSC for 122 the operation of public services for which no 123 franchise, either municipal or legislative, is 124 required by law, e.g., common carriers

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2CERTIFICATE OF PUBLIC CONVENIENCE 3AND NECESSITY- authorization issued by the 4PSC for the operation of PS for which a prior 5franchise is required by law. e.g. telephone and 6other services. 7 8NOTE: A certificate of public convenience 9constitutes neither a franchise nor a contract, 10confers no property right, and is a license or a 11privilege. The holder of said certificate does not 12acquire a property right in the route covered 13thereby. Nor does it confer upon the holder any 14proprietary right or interest or franchise in the 15public highways. Revocation of this certificate 16deprives him of no vested right. New and 17additional burdens, alteration of the certificate, or 18even revocation or annulment thereof is 19reserved to the State. (LUQUE VS. VILLEGAS, 2030 SCRA 408) 21 22CONDITIONS THAT MUST CONCUR IN THE 23GRANT OF CERTIFICATE OF PUBLIC 24CONVENIENCE AND NECESSITY (VDA. DE 25LAT VS. PSC):

26

27 1) grantee must be a citizen of the 28 Philippines or a corporation or entity 29 60% of the capital of which is owned by 30 such citizens. 31 2) grantee must have sufficient financial 32 capability to undertake the services 33 3) the service will promote public interest 34 and convenience in a proper and 35 suitable manner 36 37NOTE: primordial considerations: public interest, 38necessity, and convenience. 39 40GROUNDS FOR THE REVOCATION OF THE 41CERTIFICATE: 42 43 When the holder: 44 1) violates or contumaciously refuses to 45 comply with any order, rule or regulation 46 of the commission 47 2) is a mere dummy 48 3) ceases operations by placing his buses 49 in storage 50 4) abandons the service 51 52GROUND FOR SUSPENSION: When the 53operator willfully or contumaciously refuses to 54comply with any order, rule or regulation. But 55such can only be suspended upon prior notice 56and hearing. The only exception is when it is 57necessary to avoid serious and irreparable 58damage or inconvenience to the public or private 59interest, in which case, a suspension not more 60than 30 days may be ordered, prior to the 61hearing. (Soriano vs. Medina, 164 SCRA 36)

62 63POWERS REQUIRING PRIOR NOTICE AND 64HEARING: 65 66 1) issuance of certificate of public 67 convenience and certificate of public 68 convenience and necessity 69 2) fixing of standards and qualifications 70 3) fixing of standards for measuring 71 quantity 72 4) establishment of rules to secure 73 accuracy of all meters and all 74 measuring appliances 75 5) compel operators to furnish proper 76 service 77 6) extension of facilities 78 79POWERS EXERCISABLE WITHOUT PRIOR 80NOTICE AND HEARING: 81 82 1) investigation of public utility companies 83 2) require public services to pay expenses 84 of investigation 85 3) valuation of properties of public utilities 86 4) examination and test of measuring 87 appliances 88 5) grant of special permits to make extra or 89 special trips in territories specifdied in 90 the certificate 91 6) uniform accounting system and 92 furnishing of annual reports 93 7) investigation of accidents 94 8) compel compliance with the laws and 95 regulations 96 97UNLAWFUL ACTS OF PUBLIC UTILITY 98COMPANIES: 99 100 1) engage in public service business 101 without first securing the proper 102 certificate 103 2) provide or maintain unsafe, improper or 104 inadequate service as determined by 105 the proper authority 106 3) commit any act of unreasonable and 107 unjust preferential treatment to any 108 particular person, corporation or entity 109 as determined by the proper authority 110 4) refuse or neglect to carry public mail 111 upon request 112 113ACTS REQUIRING PRIOR APPROVAL: 114 115 1) establish and maintain individual or joint 116 rates 117 2) establish and operate new units 118 3) issue free tickets 119 4) issue any stock or stock certificates 120 representing an increase of capital 121 5) capitalize any franchise in excess of the 122 amount actually paid to the Government 123 6) sell, alienate, mortgage or lease 124 property, certificates or franchise

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6

7

NOTE: Under Sec. 20g of C.A. 146, the sale, etc. may be negotiated and completed before the approval by the proper authority. Its approval is not a condition precedent to the validity of the contract. The approval is necessary only to protect public interest.

8PRIOR OPERATOR RULE 9 10 ☛ rule allowing an existing franchised 11operator to invoke a preferential right within the 12authorized territory as long as he renders 13satisfactory and economical service. It 14subordinates the PRIOR APPLICANT RULE 15which gives the first applicant priority only if 16things and circumstances are equal. 17 ☛ The granting of preference to an old 18operator applies only when said operator has 19made an offer to meet the increase in traffic or 20demand for service and not when another 21operator, even a new one, has made the offer to 22serve the new line or increase the service on 23said line. The rule of preference protects only 24those who are vigilant, in meeting the needs of 25the travelling public. (TIONGSON VS. PSC, 36 26SCRA 241) 27 28PRIOR APPLICANT RULE 29 30 ☛ presupposes a situation when two 31interested persons apply for a certificate to 32operate a public utility in the same community 33over which no person has as yet granted any 34certificate. If it turns out, after the hearing, that 35the circumstances between the two applicants 36are more or less equal, then the applicant who 37applied ahead of the other, will be granted the 38certificate. 39 40

41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

61 62 63 64 65 66 67 68 69 70 71 72 73

74 V. INTELLECTUAL PROPERTY 75

76INTRODUCTION to Intellectual Property Law 77(R. A. 8293 - Intellectual Property Code or 78IPC; effective Jan. 1, 1998) 79 80 Intellectual Property 81 82☛ those property rights which result from the 83physical manifestation of original thought. 84(Ballantine's Law Dictionary) 85 86☛ refers to the totality of all rights which the law 87recognizes in favor of the author, composer, 88painter, artist, scientist, or any other person with 89respect to the creations or product of his 90intellect, and consists of principally, in his right 91to;(1) authorize; or 2) refuse; the publication 92or production of such creations or products (De 93Leon; Comments and Cases on Property). 94 95NOTE: There are no property rights protected 96by law in mere ideas or mental conceptions. 97When creations of mind are put in tangible form, 98however, there is appropriate subject of property 99that is protected by the law (63A Am Jur. 3d, 100Property, Section 5; TRIPS). 101

102THE TERM "INTELLECTUAL 103PROPERTY" CONSISTS OF (SEC. 4)

1041. COPYRIGHT AND RELATED LAWS 1052. TRADEMARKS AND SERVICE MARKS 1063. Geographic indications 1074. PATENTS 1085. Layout - Designs (Topographies) of 109 Integrated Circuits; and 1106. Protection of Undisclosed Information (TRIPS) 111

112INTERNATIONAL CONVENTION 113RECIPROCITY (SEC. 3)

AND

114☛ Any person who is a national or who is 115domiciled or has a real and effective industrial 116establishment in a country which is: 117 (1) A party to any convention, treaty, or 118 agreement relating to intellectual 119 property rights or the repression of 120 unfair competition to which the 121 Philippines is also a party, or;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9

(2) Extends reciprocal rights to nationals of the Philippines by law, shall be entitled to benefits to the extent necessary to give effect to any provision of such convention, treaty, or reciprocal law, in addition to the rights to which any owner of an intellectual property right is otherwise entitled by this act.

171. 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

.Examine applications for grant of letters patent for inventions and register utility models and industrial designs; 2. Examine applications for the registration of marks, geographic indications, integrated circuits; 3. Register technology transfer arrangements and settle disputes involving technology transfer payments; 4. Promote the use of patent information as a tool for technology development; 5. Publish regularly in its own publication the patents, marks, utility models and industrial designs, issued and approved, and the technology transfer arrangements registered; 6. Administratively adjudicate contested proceedings affecting intellectual property rights; and 7. Coordinate with other government agencies and the private sector to strengthen the protection of intellectual property rights in the country; 8. Custody of all records, books, drawings, specifications, documents, and other papers and things relating to the intellectual property rights applications filed with the Office.

10 11 12 13 14FUNCTIONS OF THE INTELLECTUAL 15PROPERTY OFFICE (IPO) (SEC. 5) 16

46LAW ON COPYRIGHT 47

48COPYRIGHT 49 50 51 52 53 54

☛ It is that system of legal protection an author enjoys in the form of expression of ideas. (World Intellectual Property Organization WIPO) ☛ the exclusive right (or rights) of an author to the work of his authorship (1987 Constitution).

55 56DEFINITIONS 57 "Author" - is the natural person who

58has created the work. 59 60 "Collective Work" - is a work which 61has been created by two (2) or more natural 62persons at the initiative and under the direction

63of another with the understanding that it will be 64disclosed by the latter under his own name and 65that contributing natural persons will not be 66identified. 67 68 "Joint Work" - is a work prepared by 69two or more authors with the intention that their 70contributions be merged into inseparable or 71interdependent parts of a unitary whole. i.e. 72medical textbook that is jointly authorized by two 73or three experts. 74 75 "Work of applied art" - is an artistic 76creation with utilitarian functions or incorporated 77in a useful article, whether made by hand or 78produced on an industrial scale. 79 80 "Performers" - are actors, singers, 81musicians, dancers, and other persons who act, 82sing, declaim, play in, interpret, or otherwise 83perform literary and artistic work. 84

85CONSTITUTIONAL BASIS

86 87☛ The State shall protect and secure the 88exclusive rights of SCIENTISTS, INVENTORS, 89ARTISTS AND OTHER GIFTED CITIZENS to 90their intellectual property and creation, 91particularly when beneficial to the people, for 92such period as may be provided by law. (Art. 93XIV, Sec. 13, 1987 Constitution) 94

95CIVIL CODE PROVISIONS

96 97☛ By Intellectual creation, the following persons 98acquire ownership: 991. The author with regard to his literary, 100 dramatic, historical, legal, philosophical, 101 scientific or other work; 1022. The composer, as to his musical 103 composition; 1043. The painter, sculptor, or other artist, with 105 respect to the product of his art; 1064. The scientist or technologist or any other 107 person with regard to his discovery or 108 invention. (Art. 721, NCC) 109 110☛ Letters and other private communications in 111writing are owned by the person to whom they 112are addressed and delivered, BUT they cannot 113be published or disseminated without the 114consent of the writer or his heirs. (Art. 723, 115NCC) 116

117SIGNIFICANT PROVISIONS OF THE 118AGREEMENT ON TRADE-RELATED 119ASPECTS OF INTELLECTUAL 120PROPERTY RIGHTS (TRIPS) IN REGARD 121TO COPYRIGHTS: 122

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1a) 2 3 4b) 5 6c) 7 8 9 10 11 12 13 14 15 16 17 18d) 19 20 21 22 23 24 25 26 27

Compliance with the provisions of the Paris convention (1967) is made compulsory to members. Obligations under the Paris, Berne and Rome conventions remain, The treatment any member-state accords its own nationals relative to intellectual property is to be accorded the nationals of all other member-states. Furthermore, any advantage, favor or privilege accorded the nationals of any other country shall be accorded the nationals of other member states. EXCLUDED from this most favored nation provision are the rights of performers, producers of phonograms and broadcasting organizations (RECIPROCITY RULE). Members are to comply with the Berne Convention of 1971 and its appendix, EXCEPT the rights and obligations under Article 6bis (has to do with an author's "moral rights") - MEANING: whether or not the protection and guarantees conferred by Article 6bis (moral rights) apply or not is left with the municipal legislation of each member-state.

28SUBSISTENCE OF THE RIGHTS 29

30Conferment of rights 31☛ The rights conferred by the IPC insofar as 32COPYRIGHT is concerned subsists from the 33moment of creation (Sec. 172.1). 34☛ Under Philippine Law, NO FORMALITY IS 35REQUIRED that the author be vested with the 36rights of copyright. 37

38CREATION OF A WORK: 39

40☛ A copyrightable work is created when the two 41requirements are met: 421. ORIGINALITY- does not mean novelty or 43 ingenuity, neither uniqueness nor creativity, 44 it simply means that the work "owes its 45 origin to the author". 46 ☛ The work is an independent 47 creation of the author. 48 49 EXPRESSION-there must be "Fixation"; 50 to be "fixed" a work must be embodied in a 51 medium sufficiently: 52 a) PERMANENT; or 53 b) STABLE; 54 to permit it to be perceived, reproduced, or 55 otherwise communicated for a period of 56 more than transitory duration. 57 Strictly speaking there is no work for 58 copyright purpose, unless there is 59 something tangible. 60 -It is fixation that defines the time from 61 when copyright subsists. Before the time of 62 fixation there can be no infringement.

63 -Crucial event or act that allows the author 64 to invoke the law: 65 - It must be when a work of authorship is at 66 least expressed in some determinate form, 67 i.e. fixation. 68 69NOTE : CONTRARY VIEW - The new 70Intellectual Property Code is silent on the 71requirement of fixation. Absent this requirement 72of fixation, then copyright would attach to bear 73ideas which is excluded by universal principles 74of copyright. 75 76

77DURATION OF COPYRIGHT FOR 78VARIOUS WORKS: (CHAP. XIV, SEC. 79213) 80 81a. 82 83 84 85 86 87 88 89 90b. 91 92 93 94 95 96c. 97 98 99 100 101 102d. 103 104 105e. 106 107 108 109 110f. 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125

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

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2THE SUBJECT OF COPYRIGHT 3 4A. LITERARY AND ARTISTIC WORKS 5 6 1. Books, pamphlets, articles and 7 other writings; 8 2. Periodicals and newspapers; 9 3. Lectures, sermons, addresses, 10 dissertations prepared for oral delivery, 11 whether or not reduced in writing or 12 other material form; 13 4. Letters; 14 5. Dramatic or dramatico-musical 15 compositions; choreographic works or 16 entertainment in dumb shows; 17 6. Musical compositions, with or 18 without words; 19 7. Works of drawing, painting, 20 architecture, sculpture, engraving, 21 lithography or other works of art; models 22 or designs for works of art; 23 8. Original ornamental designs or 24 models for articles of manufacture, 25 whether or not registrable as an 26 industrial design, and other works of 27 applied art; 28 9. Illustrations, maps, plans, 29 sketches, charts and three (3) 30 dimensional works relative to 31 geography, topography, architecture or 32 science; 33 10. Drawings or plastic works of a 34 scientific or technical character; 35 11. Photographic works including 36 works produced by a process analogous 37 to photography; lantern slides; 38 12. Audiovisual works and 39 cinematographic works and works 40 produced by a process analogous to 41 cinematography or any process for 42 making audiovisual recordings; 43 13. Pictorial illustrations and 44 advertisements; 45 14. Computer programs; and 46 15. Other literary, scholarly, 47 scientific and artistic works. (Sec. 172) 48 49 NOTE: The author of speeches, 50lectures, sermons, addresses, and dissertations 51shall have the exclusive right of making a 52collection of his works. (Sec. 176.2) 53 54B. DERIVATIVE WORKS 55 56The following derivative works shall also be 57protected by copyright. 58 1. Dramatizations, translations, 59 adaptations, abridgments, arrangements, 60 and other alterations of literary or artistic 61 works; and 62 2. Collections of literary, scholarly 63 or artistic works, and compilations of data

64 and other materials which are original by 65 reason of the selection or coordination or 66 arrangement of their contents (Sec. 173). 67 68☛ An important innovation of the new law is the 69distinct copyright that the publisher of a work 70enjoys. The code provides - "In addition to the 71right to publish granted by the author, his heirs, 72or assigns, the publisher shall have a copyright 73consisting merely of the right of reproduction of 74the typographical arrangement of the published 75edition of the work." (Sec. 174) 76

77 78 79 80WORKS NOT PROTECTED: 81 821. 83 84 85 86 87 882. 89 90 913. 92 93 944. 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 1125. 1136. 114 115 116 117 118 119 120 121 122 123 124 125

No protection shall extend, under this law, to any idea, procedure, system, method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; (Sec. 175) News of the day and other miscellaneous facts having the character of mere items of press information; (Sec. 175) or Any official text of a legislative, administrative or legal nature, as well as any official translation thereof. (Sec. 175) Any work of the Government of the Philippines; ☛ However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose as a condition the payment of royalties. ☛ No prior approval or conditions shall be required for the use of any purpose of statutes, rules and regulations, and speeches, lectures, sermons, addresses, and dissertations, pronounced, read or rendered in courts of justice, before administrative agencies, in deliberative assemblies and in meetings of public character. (Sec. 175) Pleadings; Although not explicitly mentioned, DECISIONS OF COURTS AND TRIBUNALS are likewise non-copyrightable. They may therefore be freely used or quoted. NOTE: This pertains to the "original decisions" not the SCRA PUBLISHED VOLUMES WITH ANNOTATIONS since these are protected under derivative works as "collections of literary, scholarly, or artistic works and compilations of data and other materials which are original by reason of the selection or coordination or

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3

arrangement of their contents." (Sec. 173.1 b)

4THE RIGHTS OF COPYRIGHT 5

6A. Copyright or Economic Rights 7 8Copyright or Economic rights shall consist of the 9exclusive right to (a) carry out, (b) authorize or 10(c) prevent the following acts: 11 12 1. Reproduction of the work or 13 substantial portion of the work; 14 2. Dramatization, translation, 15 adaptation, abridgment, arrangement or 16 other transformation of the work; 17 3. First public distribution of the 18 original and each copy of the work; 19 4. Rental of the original or a copy 20 of an audiovisual or cinematographic 21 work; 22 5. Public display of the original or a 23 copy of the work; 24 6. Public performance of the work; 25 and 26 7. Other communication to the 27 public of the work. (Sec. 177) 28

29B. Moral Rights

30 31The author of a work shall, independent of 32economic rights or the grant of an assignment or 33license with respect to such right, have the right: 34 1. Require that the authorship of 35 the works be attributed to him, in a 36 prominent way on the copies, and with 37 the public use of the work; 38 2. Make any alterations of his work 39 prior to, or to withhold it from publication; 40 3. Object to any distortion, 41 mutilation or other modification of, or 42 other derogatory action in relation to, his 43 work which would be prejudicial to his 44 honor or reputation; and 45 4. Restrain the use of his name 46 with respect to any work not of his own 47 creation or in a distorted version of his 48 work (Sec. 193). 49

50LIMITATIONS ON COPYRIGHT:

51 52 The following acts shall NOT constitute 53infringement of copyright: 54 551. Recitation or performance of a work 56 -made accessible to the public 57 -privately done 58 - free of charge 59 -strictly for a charitable or religious 60 institution; 612. Making of quotations from a published work 62 - compatible with fair use 63 - to the extent justified for the purpose

64 65 66 67 683. 69 70 71 72 73 74 75 76 774. 78 79 80 81 82 83 845. 85 86 87 88 89 90 91 926. 93 94 95 96 97 98 99 100 101 1027. 103 104 105 1068. 107 108 109 110 111 112 113 1149. 115 116 117 118 119 12010. 121 122 123 124 125 126

- including quotations from newspaper articles and periodicals - source and name of the author, appearing on work, must be mentioned; Reproduction or communication to the public by mass media - of articles on current political, social, economic, scientific or religious topic, lectures, addresses and other works, delivered in public - use is for information purposes - not expressly reserved - source is already indicated; Reproduction and communication to the public of literary, scientific or artistic works - as part of reports of current events -by means of photography, cinematography or broadcasting - to the extent necessary for the purpose; Inclusion of a work in a publication, broadcast, or other communication to the public, sound recording or film - if made by way of illustration for teaching purposes - compatible with fair use - source and name of the author, appearing on work, must be mentioned; Recording made in schools, universities, or educational institutions of a work included in a broadcast for the use of such schools, universities or educational institutions - such recording must be deleted within a reasonable period - such recording may not be made from audiovisual works which are part of the general cinema repertoire of feature films EXCEPT for brief excerpts of the work; Making of ephemeral recordings -by a broadcasting organization - by means of its own facilities - for use in its own broadcast; Use made of a work by or under the direction or control of the Government - Government - National Library - Educational, Scientific, or professional institutions - use is in the public interest - compatible with fair use; Public performance or the communication to the public of a work - in a place where no admission fee is charged by a club on institution - for charitable or educational purpose only - aim is not profit making; Public display of the original or a copy of the work not made by means of a film, slide, television image or otherwise on screen or by means of any other device or process - either the work has been a) published b) sold

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 c) given away 2 d) transferred to another person by the 3 author or his successors in title; 411. Any use made of a work for the purpose 5 - of any judicial proceedings; or 6 - for the giving of professional advice by a 7 legal practitioner. 8 9☛ The provisions of this section shall be 10interpreted in such a way as to allow the work to 11be used in a manner which does not conflict with 12the normal exploitation of the work and does not 13unreasonably prejudice the right holder's 14legitimate interests. (Sec. 184.2) 15 16☛ The private reproduction of a published work 17in a single copy, where the reproduction is made 18by a natural person exclusively for (1) research 19and (2) private study, shall be permitted, without 20the authorization of the owner of copyright in the 21work. (Sec. 187.1) HOWEVER, the permission 22granted under Subsection 187.1 SHALL NOT 23EXTEND to the reproduction of: 24 xxx 25(b) An entire book, or a substantial part thereof, 26or of a musical work in graphic form by 27reprographic means; (Sec. 187.2) 28 29☛ Under Article 9, paragraph 2 of the Berne 30Paris Convention, individual countries may 31permit the reproduction of literary and artistic 32works "provided that such reproduction does not 33conflict with a normal exploitation of the work 34and does not unreasonably prejudice the 35legitimate interests of the author." (also found 36in Sec. 187.2 e) 37☛ The same caveat is contained in Article 14 of 38the GATT 94 intellectual property agreement: 39Limitations or exceptions to the exclusive rights 40shall be confined to certain special cases which 41do not conflict with a normal exploitation of the 42work and do not unreasonably prejudice the 43legitimate interests of the right - holder. This in44built protection of the interests of a copyright 45owner is now unequivocally enshrined in Sec. 46187.2 e. 47 48PERSONAL USE - generally understood as 49making a single reproduction, adaptation, 50arrangement or other transformation of another's 51work exclusively for one's own individual use in 52such cases as personal research, learning or 53amusement. 54 55PRIVATE USE - generally understood in relation 56to a published work as making a reproduction, 57adaptation or other transformation of it, in a 58single person, as in the case of "personal use" 59but also for a common purpose by a specific 60circle of persons only. 61

62FAIR USE OF A COPYRIGHTED WORK

63 64 Fair Use 65 ☛ A privilege, in persons other than the 66 owner of the copyright, to use the 67 copyrighted material in a reasonable 68 manner without his consent, notwithstanding 69 the monopoly granted to the owner by the 70 copyright. 71 72 ☛ It is meant to balance the monopolies 73 enjoyed by the copyright owner with the 74 interests of the public and of society. 75 76NOTE: It only applies to copyrighted work and 77not to non-copyrightable material. 78 79 80

81CRITERIA TO DETERMINE WHETHER 82USE IS FAIR OR NOT: 83 841. 852. 863. 87 884. 89 90

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

941. 952. 96 97 98 99 100

Criticizing, commenting, and news reporting; Using for instructional purposes, including producing multiple copies for classroom use, for scholarship, research and similar purposes is not an infringement of copyright. (Sec. 185)

91THE "FAIR USES" OF PROTECTED 92MATERIAL ARE: 93

101REPROGRAPHIC REPRODUCTION BY 102LIBRARIES: 103 104☛ Any library or archive whose activities are not 105for profit may, without the authorization of the 106author of copyright owner, make a single copy of 107the work by reprographic reproduction, when: 108 1. Fragile or rare 109 2. Isolated articles 1103. Preservation (Sec. 188.1) 111 112✓ ☛ It shall not be permissible to produce a 113 volume of a work published in several 114 volumes or to produce missing tomes or 115 pages of magazines or similar works, unless 116 the volume, tome or part is necessary for the 117 collection of the library and is out of stock. 118 (Sec. 188.2) 119✔ 120 ☛ The rights mentioned vest in libraries, 121public archives and museums. There is no 122requirement that the library be a public library, it 123could be private. And is limited only to literary or 124artistic works.

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1

2CRITERIA FOR "REPROGRAPHIC 3REPRODUCTION" OF LIBRARIES: 4

51. Photocopying only, i.e. "xerox" (not by other 6 medium) 72. Single copy 8 3. Consistent with the activities of the library 9 or archive 10

11REPRODUCTION OF COMPUTER 12PROGRAMS: 13

14 The reproduction of a computer program is 15allowed on the following conditions: 161. Only one (1) copy is made; 172. Lawful owner made the copy; 183. Purpose for which the reproduction is made 19 is legal, like: 20 a) use to which the program is made and for 21 which it was purchased demand the 22 reproduction of a copy; or 23 b) loss or destruction is avoided. 24 (Sec. 189.1) 25

26Importation for Personal Purposes 27

28☛ The importation of a copy of a work by an 29individual for his personal purposes shall be 30permitted without the authorization of the author 31of, or other owner of copyright in, the work under 32the following circumstances: 33a. Copies of the work are not available in the 34 Philippines and: 35 1.One (1) copy at one time is imported, 36 for strict individual 37 2.By Authority of and for the use of the 38 Philippine Government; or 39 3.Religious, Charitable or Educational 40 Society or institution imported not 41 more than three (3) copies per title (or 42 kind) provided they are not for sale. (it 43 is enough if the importation be for 44 the sake of such society or institution) 45b. Copies form parts of libraries and personal 46baggage belonging to persons or families 47arriving from foreign countries and are not 48intended for sale: Provided, That such copies do 49not exceed three (3). (Sec. 190)

50 51THE OWNERSHIP OF COPYRIGHT 52 531. 54 552. 56 57 58 59 60 61 62

SINGLE CREATOR - The creator, his heirs or assigns owns copyright. JOINT CREATION - The co - authors shall be the original owners of the copyright and in the absence of agreement, their rights shall be governed by the rules on co ownership. If, however, a work of joint authorship consists of parts that can be used separately and the author of each part can be identified, the author of each part

63 shall be the original owner of the copyright in 64 the part that he has created. 653. COMMISSIONED WORK - Ownership of the 66 work is in the person commissioning; 67 ownership of copyright, remain with the 68 creator, unless there is a written stipulation 69 to the contrary. 704. CINEMATOGRAPHIC WORK The 71 producer exercises copyright for purposes of 72 exhibition; for all other purposes, the 73 producer, the author of the scenario, the 74 composer, the film director, the photographic 75 director and the author of the work are the 76 creators. For purpses of showing the film, 77 however, the producer is to be deemed 78 copyright owner. 795. PSEUDONYMOUS AND ANONYMOUS 80 WORKS - Unless the author is undisputably 81 known, the publisher shall be presumed to 82 be the representative of the author. (Sec. 83 178 and 179) 84 85☛ As regards moral rights, the joint authors are 86entitled to be acknowledged as authors of the 87work (Sec. 193.1 may apply). As regards 88contributions to a collective work, the law 89provides that unless the contributor expressly 90reserves his right (which often will not be the 91case precisely because he is in the employ of a 92putative author or commonly accepted author), it 93is the putative author to whom the work will be 94attributed. (Sec. 196) 95☛ When a writer, a photographer, an artist - or 96any other contributor - sends in his piece to a 97periodical or newspaper publisher, such writer or 98artist retains his copyright on the piece except 99the right to publish once - which is deemed 100granted to the publisher. (Sec. 180.3) 101

102COPYRIGHT OWNERSHIP OF FOREIGN 103AUTHORS 104

105☛ When the author, though a foreigner, has 106habitual residence in the Philippines, or when 107the headquarters of the producer of audiovisual 108works is in the Philippines, copyright protection 109is beyond doubt. 110☛ Protections afforded the code are applied to 111works "protected by virtue of and in accordance 112with any international convention or other 113international agreement to which the Philippines 114is a party. (Sec. 221.2) 115☛ Members shall accord the treatment provided 116for in this Agreement to the nationals of other 117Members. (Art. 1, par. 3, TRIPS; Paris - Berne 118Convention; GATT 94) 119

120DEPOSIT AND NOTICE

121 122Registration and Deposit with the National 123Library and the Supreme Court Library 124

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1☛ For the purpose of completing the records of 2the National Library and the Supreme Court 3Library, within three (3) weeks, two (2) complete 4copies of the work shall be registered and 5deposited with the said libraries, by personal 6delivery or by registered mail. 7☛ A certificate of deposit shall be issued and the 8prescribed fee collected for which the copyright 9owner shall be exempt from making additional 10deposit of the works with the aforementioned 11libraries under other laws. 12☛ If, within three (3) weeks after receipt by the 13copyright owner of a written demand from the 14directors for such deposit, the required copies or 15reproductions are not delivered and the fee is 16not paid, the copyright owner shall be liable to 17pay a fine. (Sec. 191) 18 19NOTICE OF COPYRIGHT 20 21☛ Each copy of a work published or offered for 22sale may contain a notice bearing the name of 23the copyright owner, x x x. (Sec. 192) 24☛ Notice of copyright is allowed, not prescribed, 25for the permissive "may" is used. 26

27INFRINGEMENT

28 29REMEDIES of one who complains of 30infringement: 31 32 1. INJUNCTION to prevent infringement 33 (Sec. 216) 34 2. DAMAGES assessed on the basis of the 35 proof alleged by the plaintiff of sales 36 made by the defendant of the infringing 37 work minus whatever costs the 38 defendant may be able to prove and 39 appreciated by the court. (b) 40 3. DELIVERY UNDER OATH OF ALL 41 IMPLEMENTS employed in the 42 production of the infringing items, as 43 well as the infringing products 44 themselves, for impounding. (c) 45 4. DELIVERY under oath of all infringing 46 copies or devises for destruction. (d) 47 5. PAYMENT of moral and exemplary 48 damages in the discretion of the court. 49 (e) 50 51☛ The infringer also exposes himself to criminal 52liability wherein the law prescribes penalties of 53imprisonment and fines, including subsidiary 54imprisonment in case of insolvency. (Sec. 218) 55

56RELATED ISSUES

57 581. JURISDICTION 59✕ Original jurisdiction lies with the Director 60 General of the IPO over disputes relating to 61 the terms of a license involving the author's 62 right to public performance or other 63 communication of his work. (Sec. 7 c)

64☛ Other infringement cases are not within the 65jurisdiction of the Director - General. In fact 66throughout Section 216, the term "court" is used, 67leaving no doubt that jurisdiction will rest with the 68"court" in view of the jurisdictional amount and 69the criminal prosecution of imposable penalties. 70 712. STANDING TO SUE 72 Persons who may sue: 73 a) Legal owner; or 74 b) Beneficial owner; since they are 75 "parties in interest." 76 773. DEFENDANTS 78✖ ☛ Those who may be liable for infringement 79 under the copyright law: 80 a) Infringer 81 b) Aids 82 c) Abets 83 d) Participates 84 e) Contributes 85 f) Authorizes 86 a) Benefits (deemed included in 87 Sec. 217). 88 89☛ A corner book store and magazine store that 90vends pirated copies of a work is in fact violating 91the copyright owner's right to exclusively 92distribute his work. Such store would therefore 93be infringing. The printer who, though acting 94under instructions from another, sets into motion 95the illegal reproduction of protected material 96would, in fact, be infringing copyright. 97 984. PRESCRIPTIVE PERIOD 99 100☛ No damages may be recovered after four (4) 101years from the time the cause of action arose. 102(Sec. 226) This pertains only to recovery of 103damages. 104☛ There is no such prescriptive period in 105petitions for injunctive relief as well as for the 106impounding and destruction of infringing 107material. The crime of infringement is subject to 108the general rules of prescription of crimes. 109

110PERFORMER'S RIGHTS 111 1121. 113 114 115 116 117 118 119 120 121 122 1232. 124 1253. 126

Authorize as well as prohibit: a. The broadcasting and other communication to the public of their performance (including telecast). (Sec. 203.1 a) b. The fixation of their unfixed performance. (b) ☛ (The above rights shall be maintained and exercised fifty (50) years after his death, by his heirs, and in default of heirs, the government Sec. 204.2) Direct or indirect reproduction of their performances (Sec. 203.2) First Public distribution of the original and copies of their performance (Sec. 203.3).

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

14. 2 3 45. 5 6 7

Commercial rental to the public of the original and copies of their performances (Sec. 203). Making available to the public of their performances fixed in sound recordings by wire or wireless means (Sec. 204.5).

8MORAL RIGHTS OF PERFORMERS 9 101. Identified as the performer. 112. Object to any distortion or mutilation of the 12 performance (Sec. 204). 13 14 15 16 17

18LAW ON TRADEMARKS

19 20TRADEMARK is anything which is adopted and 21used to identify the source of origin of goods, 22and which is capable of distinguishing them from 23goods emanating from a competitor. 24 25GOODWILL is the reputation and public 26confidence that a business venture has earned 27through a period of creditable dealings. 28 29 ☛ The reason the law protects trademarks 30 is to protect the interests of producers in 31 their marks, and in the goodwill earned. 32 ☛ The essence of trademark infringement 33 is: passing off one’s goods as those of a 34 producer of fame or note.

35

36SERVICE MARK distinguishes the services of 37an enterprise from the service of other 38enterprises. 39 40MARK any visible sign capable of distinguishing 41the goods or services of an enterprise and shall 42include a stamped or marked container of 43goods. 44 ☛ The term “visible” is not limited to 45 whatever may be “perceptible by the 46 senses”. 47 48COLLECTIVE MARK any visible sign 49designated as such in the application for 50registration and capable of distinguishing the 51origin or any other common characteristic, 52including the quality of goods or services of 53different enterprises which use the sign under 54the control of the registered owner of the 55collective mark. 56

57DISTINCTION :

TRADEMARKS - The goods or services offered by a proprietor or an enterprise are designated by

TRADE NAME - The person (whether natural or juridical) who does the business and produces the goods

trademarks or service marks. 58 59 60 61 62 63 64 65 66 67 68 69 70

or services is designated by a trade name.

☛ A trademark has an existence proprietor or the juridical person doing business and producing the goods or distinct from the existence of the the services offered by such person or enterprise. ☛ Under the new law, there is no need to register trade names in order to secure protection for them (Sec. 165.2, a, IPL).

71DISTINCTIONS : TRADEMARKS - is anything which is adopted and used to identify the source of origin of goods, and which is capable of distinguishing them from goods emanating from a competitor. 72 73 74 75 76 77

78

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

☛ In practice, a word, a name of a phrase, coupled with indicators of business organization, such as “Inc.”, “Corp.” or “Co.” will not be registered as trademarks or service marks.

79TRADE DRESS involves the total image of a 80product, including such features as size, shape, 81color or color combinations, texture and /or 82graphics. 83 84 ☛ Unfair competition includes the “selling of 85 goods and giving them the general 86 appearance of goods of another 87 manufacturer or dealer, either as to the 88 goods themselves or in the wrapping of the 89 packages in which they are contained, or the 90 devices or words thereon, or in any other 91 feature of their appearance, which would be 92 likely to influence purchasers to believe that 93 the goods offered are those of a 94 manufacturer, or dealer, or who otherwise 95 clothes the goods with such appearance as 96 shall deceive the public and defraud another 97 of his legitimate trade, or any subsequent 98 vendor of such goods or any agent of any 99 vendor engaged in selling such goods with a 100 like purpose”. 101 ☛ All that is necessary is the likelihood of 102 deception. 103

1044 FUNCTIONS OF A MARK 105

106According. to the World Intellectual Property 107Organization:

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

11. 2 3 42. 5 63. 7 8 94. 10

Distinguishing or differentiating functions. It sets apart the products or services of an enterprise from those of another. Origin or source function. It refers to origin or source in terms of enterprise. Quality function. The marks guarantees the same standards and controls with which it is associated. Advertising function.

11ACQUISITION OF RIGHT/GOODWILL 12THROUGH USE 13 14 15 16 17 18 19 20 21 22☛ 23 24 25 26 27 28 29 30 31 32☛ 33 34 35 36 37 38

☛ When a person has identified in the mind of the public the goods he manufactures or deals in his business or services from those of others, such a person has a property right in the goodwill of the said goods, of services which will be protected in the same manner as other property rights. Priority in registration in the Philippines of a trademark is not material in an action for unfair competition as distinguished from an action for infringement of trademark. The basis of an action for unfair competition is confusing and misleading similarity in general appearance, not similarity of trademark. (Converse Rubber World v. Jacinto Rubber, G.R. Nos. L-27425 and L30505, April 28, 1980) The use of the mark must be such as to allow the same to be associated by the public with a particular producer or manufacturer. Hence, mere intention to adopt a particular mark or name without actual use gives rise to no rights at all.

39DISTINCTIONS : 40 INFRINGEMENT OF TRADE MARK

50 51 52 53 54 55

designation or origin, or any false description or representation. 3. Procuring fraudulently from the patent office the registration of trade name, trademark or service mark. (Fraudulent registration)

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

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

56 57 ACQUISITION THROUGH 58 REGISTRATION 59

75EFFECTS OF NON-USE 76 77 78 79 80 81 82 83 84 85 86 87

☛ Circumstances arising independently of the will of the trademark owner (Sec. !52, IPL), such as military coup, or political changes that impede commerce. ☛ Registration is an administrative act declaratory of a pre-existing right that does not, of itself, perfect a trademark, for what does is actual use. ☛ Non-use is a ground for removing a mark from the register (Sec. 124.2, IPL).

88THE FOLLOWING ARE NOT ELIGIBLE 89FOR LICENSING:

UNFAIR COM PETI TION

1. it is the unauthorized 1. is the passing off use of a trademark of one’s goods as 2. fraudulent intent is those of another unnecessary 2. fraudulent intent is 3. prior registration of essential the trademark is a 3. registration is not prerequisite to the necessary. action 41 42 43ARTICLE 189 of the Revised Penal Code 44provides for the following punishable acts: 45 1. Selling one’s goods, giving them the 46 general appearance of the goods of another 47 manufacturer or dealer. (Unfair competition) 48 2. Affixing to one’s goods or using in 49 connection with one’s services a false

90 91A mark cannot be registered if it: 92 1. Consists of immoral, deceptive, or 93 scandalous matter, or matter which may 94 disparage or falsely suggest a connection 95 with persons, living or dead, institutions, 96 beliefs, or national symbols, or bring them 97 into contempt or disrepute; 98 ☛ Whether a mark is immoral, scandalous 99 or contrary to public decency is to be 100 ascertained from the standpoint of a 101 substantial composite of the general public. 102 2. Consists of the flag or coat of arms or other 103 insignia of the Philippines or any of its 104 political subdivisions, or of any foreign 105 nation, or any simulation thereof; 106 3. Consists of a name, portrait or signature 107 identifying a particular living individual 108 except by his written consent, or the name, 109 signature, or portrait of a deceased 110 President of the Philippines, during the life 111 of his widow, if any, except by written 112 consent of the widow;

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 4. Is identical with a registered mark 2 belonging to a different proprietor or a mark 3 with an earlier filing or priority date, in 4 respect of: 5 (i) the same goods or services, 6 or 7 (ii) closely related goods or 8 services, or 9 (iii) if it nearly resembles such a 10 mark as to be likely to deceive 11 or cause confusion; 12 13REVERSE CONFUSION -takes place when a 14large junior user makes use of a mark or a name 15confusingly similar to the mark or a name of a 16small senior user, occasioning the impression 17that the products of the senior are those of the 18junior, or that the senior has somehow been 19absorbed or merged into the junior. 20 21 ☛ The law institutes a “race for the registry 22 office”, she who reaches and registers first 23 gains the protection of law to the exclusion of 24 others in regard to the same – or a confusingly 25 similar – mark. 26 5. Is identical with, or confusingly similar to, or 27 constitutes a translation of a mark which is 28 considered by the competent authority of 29 the Philippines (IPO) to be well-known 30 internationally and in the Philippines., 31 whether or not it is registered here, as being 32 already the mark of a person other than the 33 applicant for registration, and used for 34 identical or similar goods or services: 35 Provided, That in determining whether a 36 mark is well-known, account shall be taken 37 of the knowledge of the relevant sector of 38 the public, rather than of the public at large, 39 including knowledge in the Philippines. 40 Which has been obtained as a result of the 41 promotion of the mark; 42 43 ☛ Protects even unregistered marks and 44 names. 45 ☛ Deals with an applicant’s goods that are 46 identical or similar to those under a 47 previously registered or previously well48 known mark. Where the same sign is used 49 for identical goods, there will be presumption 50 of the likelihood of confusion. (Sec. 147.1, 51 IPL) 52 53 6. Is identical with, or confusingly similar to, or 54 constitutes a translation of a mark 55 considered well-known in accordance with 56 the preceding paragraph, which is 57 registered in the Philippines with respect to 58 goods or services which are not similar to 59 those with respect to which registration is 60 applied for: Provided, That use of the 61 mark in relation to those goods or 62 services would indicate a connection 63 between those goods or services, and

64 the owner of the registered mark: 65 Provided further, That the interests of the 66 owner of the registered mark are likely to be 67 damaged by such use; 68 69☛ This provision deals with goods or services 70dissimilar from those disposed of under the 71same mark or name. 72 73 DOCTRINE OF DILUTION -refers to copying 74 which, while not sufficiently confusing to divert 75 sales in the short run, will tend to divert them in 76 the long run by weakening the instantaneous 77 favorable associations the public makes with 78 highly regarded products. 79 80 81 82 83 84

85 TESTS OF TRADEMARK 86 INFRINGEMENT DOMINANCY TEST

HOLISTIC TEST

- consists in seeking - takes stock of the out the main, other features of a essential or mark, taking into dominant features consideration the of a mark. entirety of the marks. 87 88 ☛ Under the Dominancy Test, if the competing 89 trademark contains the main or essential or 90 dominant features of another, and confusion 91 and deception is likely to result, infringement 92 takes place. 93

94TRANSLATIONS

95☛ There will be infringement when a translation 96of a well-known mark in the Philippines. or 97internationally is used for similar goods or 98products. There will like wise be infringement 99when a translation of a registered mark in the 100Philippines. is used for dissimilar goods or 101products. 102 103DOCTRINE OF FOREIGN LANGUAGE 104EQUIVALENTS - states that "the foreign 105equivalent of a merely descriptive English106language word is deemed to be no more 107registrable than the English word itself, despite 108the fact that the foreign term may not be 109commonly known to be general public". 110 111 7. Is likely to mislead the public, particularly as 112 to the nature, quality, characteristics or 113 geographical origin of the goods or 114 services; 115 116 ☛ A mark then will not be granted registration 117 that suggests a quality, a characteristics or an 118 origin that the good or service does not 119 possess. 120

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 8. Consists exclusively of signs that are 2 generic for the goods or services that they 3 seek to identify; 4 9. Consists exclusively of signs or of 5 indications that have become customary or 6 usual to designate the goods or services in 7 everyday language or in bona fide and 8 established trade practice; 9 10 ☛ It must be made clear that the fact that a 11 term is generic does not per se render it non12 registrable. What the law excludes is the 13 registration of a mark that is generic relative to 14 the goods or products for which the mark is 15 used. 16 ☛ Where a word or a term was originally the 17 subject of a trademark, but becomes so 18 associated in the public mind with an article to 19 which it is applied and thereby becomes a 20 generic indicator, it can no longer be 21 protected. 22 23 10. Consists exclusively of signs or of 24 indications that may serve in trade to 25 designate the kind, quality, quantity, 26 intended purpose, value, geographical 27 origin, time or production of the goods or 28 rendering of the services, or other 29 characteristics of the goods or services; 30 31☛ That which may rightly be said of all can be 32appropriated by none. 33 34 11. Consists of shapes that may be 35 necessitated by technical factors or by the 36 nature of the goods themselves or factors 37 that affect their intrinsic value; 38 12. Consists of color alone, unless defined by a 39 given form; or 40 13. Is contrary to public order or morality (Sec. 41 123.1, IPL). 42 43Sec. 123.2. As regards signs or devices 44mentioned in paragraphs (j), (k) and (l), nothing 45shall prevent the registration of any such sign or 46device which has become distinctive, in relation 47to the goods for which registration is requested 48as a result of the use that have been made of it 49in commerce in the Philippines. The Office may 50accept as a prima facie evidence that the mark 51has become distinctive, as used in connection 52with the applicant's goods or services in 53commerce, proof of substantially exclusive and 54continuous use thereof by the applicant in 55commerce in the Philippines for five (5) years 56before the date on which the claim of 57distinctiveness is made. 58 59DOCTRINE OF SECONDARY MEANING 60 61☛ While a generic, indicative or descriptive mark 62will, as a general rule, be denied registration, 63there is a circumstance that will allow it to be

64registered, this is the doctrine of secondary 65meaning which has been defined as, when a 66mark has become distinctive of the applicant's 67goods in commerce and, and in the mind of the 68public, indicates a single source to consumers, it 69may be registered. 70 71☛ Requirements of the doctrine: 72 1. The secondary meaning must 73 have arisen as a result of substantial 74 commercial use in the Philippines. 75 2. The use result in the 76 distinctiveness of the mark insofar 77 as the goods or the products are 78 concerned. 79 3. Prima facie evidence is proof of 80 commercial use in the Philippines 5 81 years before date of claim. 82.

83RIGHTS CONFERRED

84 851. The right to the exclusive use of the mark for 86 one's own goods or services. 872. The right to prevent others from the use of 88 the same mark for identical goods or services 89 in the course of trade. 903. The right to the exclusive use of one's 91 already registered mark even for goods or 92 services into which one's venture expands, if 93 use by others for dissimilar products is likely 94 to damage the business interests of the first 95 venturer (Sec. 147, IPL). 96 97☛ The rights, by Sec. 145, lasts for ten (10) 98years subject to indefinite renewal for periods of 99ten years each. 100☛ The right to the use of a registered trademark 101may be licensed to another person, natural or 102juridical, enabling such a party to produce, 103market, distribute and advertise goods or 104services by the trade or service mark of the 105licensor. Sec. 150.1 however requires that a 106licensor effectively control the quality of the 107goods or services of the licensee. 108

109STANDING TO SUE AND JURISDICTION 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126

☛ The right to the use of the corporate or trade name is a property right, a right in rem, which it may assert and protect in any of the courts of the world even in jurisdiction where it does not transact business just the same as it may protect its tangible property, real or personal against trespass or conversion. ☛ Sec. 160 leaves no doubt that a foreign national or juridical person who is a national of a country that is party to a relevant convention to which the Philippines. is also a party may bring a civil or an administrative action for opposition, cancellation, infringement, unfair competition or false designation of origin and false description, regardless of its status (or lack of it) in the Philippines., and even if such

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 an entity does not do business in the 2 Philippines. 3

4ELEMENTS OF THE CRIME OF 5TRADEMARK INFRINGEMENT: 6 71. 8 9 102. 11 12 13 143. 15 16 174. 18 19

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

20 21PATENT 22 23☛ Is a document, issued, upon application, by a 24government office, which describes an invention 25and creates a legal situation in which the 26patented invention can normally only be 27exploited (manufactured, used, sold, imported) 28with the authorization of the owner of the patent 29 30☛ is an exclusive right acquired over an 31invention, to sell, use and make the same 32whether for commerce or industry. 33

34DISTINCTIONS : 35 PATENT

COPYRIGHT

– When a person, by - It may be vested in a independent work closely similar research arrives at or even identical to the same product or an earlier, already that already patented work, patented, he is provided that the restrained by the former is truly arm of the law from original, ie., it owes exploiting such an its existence to its invention by reason creator. of the patent granted the earlier discoverer. 36 37☛ It will be remembered that what is not 38patentable may nevertheless be protected under 39copyright law. 40

41PATENTABILITY

42 43To be patentable, a product must be: 44 a. a technical solution of a problem in 45 any field of human activity 46 b. novel 47 c. an invention 48 d. industrially applicable

49 50 These criteria may apply to: 51 a. products 52 b. processes 53 c. improvements of either products or 54 processes 55 56PROCESS- consists of an act, operation, or 57steps or a series thereof, performed upon a 58specified subject matter to produce physical 59result. 60☛ where the patent is for a process, the law 61forbids others from using the process, and also 62from manufacturing, dealing in , or importing any 63product obtained directly or indirectly from such 64process.

65

66PRODUCT-is broad enough a term to include 67every output of human ingenuity, every tangible 68result of craftsmanship or partnership. It is to be 69noted that not all products are patentable 70because not all process the requirements of 71patentability. 72 73IMPROVEMENTS- to be patentable, the 74improvement should be non-obvious to one 75skilled in the art of the original invention and is 76truly novel. If it is merely a consequence of 77technical configuration of the original invention 78and is thus “suggested” by the invention itself, 79the improvement is still within the dominion of 80the original invention. 81

82 EXCLUDED FROM PATENT 83PROTECTION: 84

851. 86 872. 88 89 903. 91 92 93 944. 95 96 975. 986. 99 100

discoveries, scientific theories and mathematical method schemes, rules and methods of performing mental acts, playing games, or doing business, and programs for computer methods for treatment of the human body or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body. Plant varieties or animal breeds of essentially biological process for the production of plants or animals Aesthetic creations Anything which is contrary to public order or morality (Sec. 22).

101REQUIREMENTS FOR PATENT: 102 1031. 104 105 106 107 108 109 110 111

NOVELTY- that which does not form part of the prior art (Sec. 23). “Prior art” is specified under Sec. 24, to wit: a. that which has been made available to the public anywhere in the world before the filing date or the priority date of application b. that which forms part of an application whether for patent, utility

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 model or industrial designed, 2 effective in the Philippines, provided 3 that: 4 b.1. the inventor or applicants are 5 not the same 6 b.2. the contents of the application 7 are published in accordance with the 8 requirements of patent application 9 rules 10 b.3. the filing date of prior art Is 11 earlier 12 13☛ thus prior art is synonymous with prejudicial 14disclosure 15☛ Sec. 25 RA 8293 embodies the exception to 16prior art under the heading “non-prejudicial 17disclosure” any disclosure of the invention made 18within twelve (12) months before the filing date 19does not prejudice the application if the 20disclosure is made by: 21 a. inventor himself (or by anyone who 22 has the right to patent, Sec. 25, 2) 23 b. patent office- when the information 24 of the latter office comes another 25 application filed by the inventor that 26 should not have been disclosed by 27 the office 28 c. third person’s application when such 29 persons information directly 30 indirectly comes from the inventor 31 himself without the inventor’s 32 permission, or from any third 33 persons who obtained his 34 information from the inventor. 35 362. INVENTIVENESS 37 38✗ ☛ an invention involves an inventive step if, 39 having regard to prior act, it is not obvious to 40 a person skilled in the art at the time of the 41 filing date or priority date of the application 42 claiming the invention (Sec. 26, RA 8293). 43✘ It is suggested that the test of non44 obviousness be pursued in four steps: 45 1. the scope and 46 content of the prior art are determined 47 2. the differences 48 between the prior art and the claims at 49 issue are ascertained 50 3. the level of ordinary 51 skill in the pertinent art is resolved 52 4. against this 53 background, the obviousness or non54 obviousness of the subject matter is 55 ascertained (60 AM JUR 2d, Patents, 56 Sec. 144). 57 583. CAPABLE OF INDUSTRIAL 59 APPLICATION 60 61 (TRIPS, Sec. 5 Art. 27, par. 1) 62Two requirements of industrial applicability shall 63be fulfilled:

64 a. it can be produced 65 b. can be used in industry (Sec. 27) 66 67✙ ☛ The application shall disclose the 68 invention in a manner sufficiently clear and 69 complete for it to be carried out by a person 70 skilled in the art. 71 ☛ according to TRIPS, it is synonymous with 72 “useful” 73 ☛ (Sec. 5 Art. 29 year 1, TRIPS) “an applicant 74 for a patent shall disclose the invention in a 75 manner sufficiently clear and complete for the 76 invention to be carried out by a person skilled in 77 the art and may require the applicant to indicate 78 the best mode for carrying out the invention 79 known to the inventor at the filing date” 80 81FIRST TO FILE RULE 82☛ Under Sec. 29 R.A. 8293, if two or more 83person have made the invention separately and 84independently of each other the right to the 85patent shall belong to the person who first filed 86an application for such invention.

87 88OWNERSHIP OF PATENT RIGHTS:

89 90The right to a patent belongs to: 91 a. inventor, his heirs, or assigns 92 b. when two (2) or more persons have 93 jointly made an invention – to them 94 jointly 95 c. if two (2) or more persons have the 96 invention separately and 97 independent of each other – to the 98 person who filed an application for 99 such invention 100 d. where 2 or more application are filed 101 for the same invention – to the 102 applicant who has the earliest filing 103 date or the earliest priority date 104 (Sec. 28) 105

106TERM OF A PATENT

107☛ The term of a patent shall be twenty (20) 108years from the filing date of application 109(Sec. 54 ). 110 111INFRINGEMENT- the making, using, offering for 112sale , selling or importing a patented product or 113a product obtained directly or indirectly from a 114patented process, or the use of a patented 115process without the authorization of the patentee 116(Sec. 76.1). 117

118TESTS OF PATENT INFRINGEMENT 119 1201. 121 1222. 123 124 125

Literal infringement- resort is had to the ”words “ of the claim. Doctrine of equivalents- if two devices do the same work in substantially the same way, the same result, and produce substantially same result, they are the same

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 eventhough they differ in name, form or 2 shape. 3 4☛ Sec. 78 warns that where the product is 5identical, it shall be presumed to have been 6obtained thru the use of the patented process. 7Thus there has evolved the doctrine of 8equivalents which protects a patented invention 9from circumvention by minor changes or 10deviations. 11 12THE RIGHTS OF A PATENTEE ( SEC. 71) 13 141. In came of a product, the patentee shall 15 have the exclusive right to make, use, offer 16 for sale, sell or import the product. 172. In case of a process, the patentee shall 18 have the exclusive right to use the process, 19 and to manufacture, deal in, use, sell or offer 20 for sale or import any product obtained 21 directly or indirectly from such process. 22 23☛ The government or a third person authorized 24by the government may use the patent without 25the authority of a patent owner, provided: 26 1. on public interest grounds, in 27 particular, national security, nutrition, 28 health or the development of other 29 sectors, as determined by the 30 appropriate agency of the government 31 so requires; i.e. importation of 32 medicines under the Generics Act by 33 the Department of Health. 34 2. The manner of exploitation by 35 the owner of the patent or his licensee, 36 is anti-competitive (Sec. 74.1). 37 38☛ Under Sec. 46 R.A. 8293, After the 39publication of the patent application, the 40applicant, event while his application is still 41pending, is already accorded the rights of a 42patentee granted under the law as against any 43person unlawfully exercising patent rights, 44provided the ff. conditions concur 45 46 1. the latter has actual 47 knowledge that the invention he was 48 using was the subject matter of a patent 49 2. he has written notice of 50 such fact 51 3. the action may be filed 52 only after the grant of the patent and 53 within four (4) years from the 54 commission of the acts complained of. 55 56UTILITY MODELS - are models of implement 57 or tools of any industrial product even 58 if not possessed of the quality of 59 invention but which is of “practical 60 utility.” 61 62☛ Sec. 108.1 treats patents and utility models 63similarly what distinguishes a utility model

64however from a patentable invention is set forth 65in Sec. 109.1: An invention qualifies for 66registration as a utility model if it is “new” and 67“industrially applicable.” 68That is why it is said that the degree of 69inventiveness necessary for the grant of 70protection to utility model is lower in degree than 71that required of a patentable invention.

72 73MANDATORY PROVISIONS

74The law requires that certain mandatory 75provisions be incorporated in the technology 76transfer agreement (TTA) 77 a. Philippine Law should govern the 78 interpretation of contracts and that in 79 case of litigation, the venue shall be 80 the peace where the licensee has its 81 principal office. 82 b. The licensee shall have continued 83 access to improvements in 84 techniques and processes related to 85 the technology for the duration of 86 the TTA. 87 c. In cases of arbitration, the arbitration 88 laws of the Philippines or of the UN 89 Commission or International trade 90 law or of the International Chamber 91 of Commerce shall apply and the 92 venue shall be the Philippine or any 93 neutral country, and 94 d. Payment of Philippine Taxes relating 95 to the TTA shall be borne by the 96 licensor. 97 98

99VI. BANKING LAWS 100 101R.A. 337 (GENERAL BANKING 102ACT) 103

104VOTING STOCK OF A BANK THAT MUST 105BE OWNED BY FILIPINO CITIZENS: 106 107☛ At least 70% - must be owned by Filipinos. 108 30% - can be owned by Foreigners. 109 110 EXCEPTIONS: 111 a) The Monetary Board may, with the 112 approval of the President, increase 113 the percentage of foreign voting 114 stock in any domestic bank from 115 30% to 40% (Sec. 12 and 12-A, RA 116 337). 117 b) Where a new bank is established as 118 a result of 1) local incorporation of 119 the existing branches of foreign 120 banks pursuant to Sec. 68 of RA 121 337 or 2) merger or consolidation 122 of existing banks in any of which 123 there are foreign owned voting

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

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2

3

c)

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

20

d)

21 22 23

24 25 26 27 28 29 30 31 32 33 34

e)

f)

stocks at the time of consolidation (Secs. 12 and 12-A, RA 337). When MB authorizes foreign banks to operate through any of the following: 1) by acquiring, purchasing or owning up to 60% of the voting stock of an existing bank; 2) by investing in up to 60% of the voting stock of a new banking subsidiary incorporated under laws of Philippines; 3) by establishing branches with full banking authority, provided: a) foreign bank may avail itself of only one mode of entry and b) foreign bank or Philippine corporation may own up to 60% of the voting stock of only one domestic bank or new banking subsidiary (Sec. 2,RA. 7721). Foreign banks or certain Philippine corporations may own up to 60% of voting stock of a domestic bank (RA 7721). Foreigners or any foreign corporation may own up to 60% of the voting stock in thrift banks established after approval of RA No. 7906. Generally, the capital stock of rural banks shall be fully owned by Filipinos and corporations, associations or cooperatives qualified to own such stock.

35STOCK OWNERSHIP PERCENTAGE OF 36LIMITATIONS IN BANKS OF: 37 38a. Natural persons and their relatives within 3rd degree of consanguinity or affinity – 20% of voting stock. 41b. Corporation (cooperative, association, 42 partnership) 43 - 30% of voting stock. 44 1. If 2 or more corporations are 45 owned or controlled by the same 46 group of persons, the aggregate 47 voting stocks which said 48 corporations may own in any single 49 bank shall not exceed 30% of voting 50 stock of the bank. 51 2. If said corporations are owned 52 or controlled by one person or group 53 of persons related within the 3rd 54 degree of consanguinity or affinity, 55 the aggregate voting stocks which 56 such corporations may own in any 57 bank shall not exceed 20% of voting 58 stock of the bank (Secs. 12-B-12-D, 59 RA 337). 60 61 DISCLOSURE REQUIREMENT- Banks 62 shall report to the Central Bank any 39 40

63 sale or other forms of transfer of 64 ownership of their shares of stock by 65 and between corporations or individuals 66 and corporations, for purposes of 67 determining compliance with the 68 limitations on bank equity holdings of 69 corporations. 70 71NOTE: The Monetary Board may exempt voting 72stockholdings of corporations and of any 73person/s related to each other within the third 74degree of consanguinity or affinity from the 75prescribed ceilings in exceptional cases and 76when circumstances warrant, such as but not 77limited to PURCHASES IN THE EQUITY OF 78DISTRESSED BANKS FOR PURPOSES OF 79REHABILITATION. 80 81 82 83 84

85BOARD OF DIRECTORS IN A BANK

86(Section 13, RA 337) 87 88☛ At least 2/3 of the members of the board of 89directors of any bank shall be citizens of the 90Philippines. 91 92☛ The limitation on the number of directors in a 93corporation under Sec. 14 of Corporation Code 94shall not be applied in case of a BANK 95MERGER OR CONSOLIDATION, so that 96membership in the new board may include up to 97the total number of directors provided for in the 98respective articles of incorporation of the 99merging or consolidating banks. 100 101☛ No appointive or elective public officials, 102whether full-time or part-time, shall at the same 103time serve as OFFICER of any private bank, 104EXCEPT in cases where such service is incident 105to financial assistance provided by the 106government-owned or controlled corporation to 107the bank. 108 109☛ Elective and appointive public officials can 110serve as directors but not as officers of the bank. 111 112COMMERCIAL BANK – is a corporation 113organized to carry on the business of 114commercial banking by: 115 1161) discounting and negotiating promissory 117 notes, drafts, bills of exchange and other 118 evidences of debts; 1192) accepting drafts and issuing letters of 120 credit ; 1213) receiving deposits; 1224) buying and selling foreign exchange and 123 gold or silver bullion; 124 5) lending money against personal security 125 or against securities consisting of

4 Page 80 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5

personal property of mortgages on improved real estate and the insured improvements thereon (Section 20, RA 337).

6ALLIED UNDERTAKINGS OF 7COMMERCIAL BANKS INCLUDING 8GOVERNMENT BANKS AND FOREIGN 9BANKS WITH EXISTING LOCAL 10BRANCHES: 11 12a. warehousing companies 13b. leasing companies 14c. storage companies 15d. safe deposit box companies 16e. companies engaged in the management of 17 mutual funds but not in the mutual funds 18 themselves 19 PROVIDED: 20 1. the total investment in equities shall not 21 exceed 25% of the net worth of the bank; 22 2. the equity investment in any one 23 enterprise shall not exceed 15% of the 24 net worth of the bank; 25 3. the total equity investment of the bank in 26 any single enterprise shall remain a 27 minority holding in that enterprise. 28 EXCEPT when the enterprise is a non29 financial allied undertaking and when a 30 commercial bank owns more than 30% of 31 the voting stock of thrift bank or rural 32 bank up to a majority thereof; 33 4. the equity investment in other banks shall 34 be deducted from the investing bank’s 35 net worth for purposes of computing the 36 prescribed ratio of net worth to risk 37 assets. EQUITY INVESTMENTS SHALL 38 NOT BE PERMITTED IN NON39 RELATED ACTIVITIES (Sec. 21-A, RA 40 337).

41 42EXPANDED COMMERCIAL 43AUTHORITY 44

BANKING

45☛ Whenever it is necessary to further national 46development objectives or support national 47priority projects, the Monetary Board may 48authorize a commercial bank, bank authorized to 49provide commercial banking services as well as 50government-owned and controlled bank to 51operate under an expanded commercial bank 52authority and by virtue thereof: 53 a. exercise the powers of an Investment 54 House under PD 129; 55 b. invest in the equity of non-allied 56 undertaking; 57 c. own majority or all of the equity in a 58 financial intermediary other than a 59 commercial bank or bank authorized to 60 provide banking services. 61 PROVIDED:

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82

1. the total investment in equities shall not exceed 50% of the net worth of the bank; 2. the equity investment in any enterprise whether allied or nonallied shall not exceed 15% of the net worth of the bank; 3. the equity investment of the bank or of its wholly-or majority owned subsidiary, in a single non-allied undertaking shall not exceed 35% of the total equity in the enterprise nor shall it exceed 35% of the voting stock in the enterprise; 4. the equity investment in other banks shall be deducted from the investing bank’s net worth for purposes of computing the prescribed ratio of net worth to risk assets (Section 21-B, RA 337)

83COMMERCIAL BANKS MAY OWN 84VOTING STOCKS OF A THRIFT BANK 85OR RURAL BANK 86

87☛ Commercial Banks may own more than 30% 88of voting stock of thrift bank or rural bank up to a 89majority or all of equity thereof, 90 PROVIDED: 91 1. acquisition of such equity is 92 approved by the Monetary Board; 93 2. the equity ownership of any 94 individual, related group or corporation 95 in the investing bank is in accordance 96 with Sections 12, 12-A,12-B,12-D of 97 RA 337; 98 3. the equity investment in other banks 99 shall be deducted from the investing 100 bank’s net worth for purposes of 101 computing the prescribed ratio of net 102 worth to risk assets (Section 21-C, RA 103 337) 104Section 22 - prescribed that a bank’s capital 105should be at least 10% of its total loan portfolio 106minus non-risk assets. For example, if a bank’s 107net worth or capital is P10 billion, its total loan 108portfolio, net of risk assets, should not exceed 109P100 billion. 110 111Section 23- SINGLE BORROWER’S LIMIT OR 112 SBL- 25% of unimpaired capital and surplus 113 of the bank under present BSP regulations. 114 115

116EXCLUDED FROM THE SBL ARE THE 117FOLLOWING. NON-RISK ASSETS: 118 119 120 121 122 123

1. loans secured by obligations of the Central Bank or Philippine Government; 2. loans fully guaranteed by the government as to the payment of principal and interest;

4 Page 81 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 3. loans to the extent covered by hold-out 2 on, or assignment of, deposits 3 maintained in the lending bank and held 4 in the Philippines; 5 4. loans and acceptances under letters of 6 credit to the extent covered by margin 7 deposits; 8 5. other loans or credits which the Monetary 9 Board may from time to time, specify as 10 non-risk assets; 11 12☛ An additional 15% may be granted to the 13borrower if the additional liabilities are secured 14by shipping documents, warehouse receipts or 15other documents transferring or securing title 16covering readily marketable, non-perishable 17staples, which staples must be fully covered by 18insurance and must have a market value equal 19to at least 125% of such additional liabilities. 20 21“LIABILITIES” - includes the direct liability of 22 the maker, acceptor, endorser, drawer or 23 guarantor; in case of a partnership, the 24 liabilities of the members; and in case of a 25 corporation, all the liabilities of all 26 subsidiaries thereof in which such 27 corporation owns or controls a majority 28 interest. 29 30☛ The Monetary Board prescribe the 31combination of the liabilities of the subsidiary 32corporations or members of the partnership 33EVEN IF THE CORPORATION/PARTNERSHIP 34HAS NO LIABILITY TO THE BANK in the 35following cases: 36 1) the parent corporation or partnership 37 guarantees the repayment of the 38 liabilities; 39 2) the liabilities were incurred for the 40 accommodation of the parent 41 corporation or another subsidiary or 42 of the partnership; 43 3) the subsidiaries through separate 44 entities operate merely as divisions 45 or departments of a single entity 46Section 24 - No commercial bank shall make 47any loan or discount on the security of shares of 48its own capital stock, nor be the purchaser of 49any such shares, 50 51 UNLESS: 52 1. such security or purchase is 53 necessary to prevent loss upon a 54 debt previously contracted in good 55 faith and 56 2. the stock so purchased or acquired 57 for any other reason in the course of 58 its operations, shall within 6 months 59 from the time of its purchase or 60 acquisitions, be sold or disposed of 61 at public or private sale; or

62 3. in default thereof, a receiver shall be 63 appointed to close up the business 64 of the bank in accordance with law. 65 66☛ In FILIPINAS MILLS, INC. vs. DAYRIT (192 67SCRA 177) under Section 24 of RA 337, there 68is a SPECIFIC EXCEPTION, “xxx unless such 69security or purchase be necessary to prevent 70loss upon a debt previously contracted in good 71faith xxx” and a GENERAL EXCEPTION “xxx or 72purchased or acquired for any other reason in 73the course of its operations xxx”. Thus, if and 74when the bank decides to purchase those 75shares of stocks in the public auction sale, this 76circumstance will not result in violation of 77Section 24, RA 337, as it is allowed under the 78GENERAL EXCEPTION. 79 80Section 25 allows a commercial bank to 81purchase, hold and convey real estate for the 82following purposes: 83 84 A 1) when it is necessary for its 85 immediate accommodation in 86 the transaction of its business; 87 M 2) when mortgaged to it in good 88 faith by way of security for 89 debts; 90 C 3) when conveyed to it in 91 satisfaction of debts previously 92 contracted in the course of its 93 dealings; 94 P 4) when purchased at sales under 95 judgments, decrees, 96 mortgages or trust deeds held 97 by it and such as it shall 98 purchase to secure debts due 99 to it. 100

101

CODE: A M C P

102 103☛ In the case of REGISTER OF DEEDS OF 104MANILA vs. CHINA BANKING 105CORPORATION (4 SCRA 1146), “debts” 106referred to in Section 24 are only those resulting 107from previous loans and other similar 108transactions made or entered into by the 109commercial bank in the ordinary course of its 110business as such. Thus, an alien-owned 111commercial bank cannot acquire ownership of 112real estate by virtue of a deed of transfer 113executed by its former employee in satisfaction 114of a civil liability arising from a criminal offense of 115a qualified theft. 116 117Section 25 - But no such bank shall hold the 118possession of any real estate under mortgage or 119trust deed, or title and possession of any real 120estate purchased to secure any debt due to it, 121for a longer period than 5 years. 122 123TRUST CORPORATION - any corporation 124formed or organized for the purpose of acting as

4 Page 82 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1trustee or administering any trust or holding 2property in trust or on deposit for the use, benefit 3or behalf of others (Section 56, RA 337). 4 5Section 57 6☛ A trust company may, with the approval of 7the Monetary Board, do a commercial banking 8business but such business must be kept 9separate and distinct from its trust business. All 10relevant provisions governing the business of 11commercial banking corporations shall be held 12to apply to the commercial banking activities of a 13trust company. 14☛ Any banking corporation may, with the 15approval of the Monetary Board, be authorized 16to engage in the business of a trust company, 17but shall be subject to provisions as regards its 18trust business. 19 20 21 22

23Section 58- POWERS OF TRUST 24CORPORATION : 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

1.

to act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any other municipal or corporate trust not inconsistent with law;

2.

to act under the order or appointment of any court of record as guardian, receiver, trustee or depository or the estate of any minor, insane person, idiot, habitual drunkard or other incompetent or irresponsible person and as receiver and depository of any moneys paid into court by parties to any legal proceedings and/or property of any kind which may be brought under the jurisdiction of the court by proper legal proceedings;

3.

to act as the executor of any last will or testament when it is named in the last will as executor;

4.

to act under appointment of a court of competent jurisdiction as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there’s no will and when in either case, there’s no person qualified, competent willing, able and entitled to accept such administration.

5.

to accept and execute any legal trust confided to it by any court of record or by any person or corporation for the holding, management and administration of any

63 estate, real or personal, and the rents, 64 issues and profits thereof; 65 66 6. to establish and manage 67 common trust funds. 68 69 Section 64 Real estate acquired by a trust 70company shall be governed by Section 25, RA 71337.

72 73Section 72 - OTHER SERVICES 74PERFORMED BY BANKING 75INSTITUTIONS: R F M A 76 771. Receive in custody funds, documents and 78 valuable objects and rent safety deposit 79 boxes for the safeguarding of such effects. 802. Act as financial agent and buy and sell, by 81 order of and for the account of their 82 customers, shares, evidences of 83 indebtedness and all types of securities. 843. Make collections and payments for the 85 accounts of others and perform such other 86 services for the customers as are not 87 incompatible with banking business. 884. Act as managing agent, adviser, consultant 89 or administrator of investment 90 management/advisory/consultancy accounts 91 with approval of Monetary Board. 92 93Banks shall perform services under 1, 2, 3 as 94depositories or as agents. 95

96Section 74 97PRACTICES:

–

COMMON

BANKING

98

991. borrowing of money by banking institution 100 1012. 1023.

1034. 104 105 1065. 107 1086. 1097. 1108. 111 112 113 114 115 1169. 117 118 119

through the rediscounting of receivables; acceptance of drafts or bills of exchange; certification of checks; transactions involving the release of documents attached to items received for collection; letters of credit transaction, includingstandby arrangements; repurchase agreements; shipside bonds; ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign firms or persons to domestic borrowers for capital investment purposes; other transactions which Monetary Board may define or specify as not covered by the prohibition.

120PROHIBITIONS: 121 122Section 73 Banking institutions shall not 123engage in insurance business as the insurer. 124

4 Page 83 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1Section 74 - No bank shall enter directly or 2indirectly into any contract of guaranty or 3suretyship or shall guarantee the interest or 4principal of any obligation of any person, co5partnership, association, corporation, or other 6entity. However, this provision shall not apply to 7common banking practices. 8

9Section 78 10LOAN AGAINST REAL ESTATE 11SECURITY

12 13☛ shall not exceed 70% of appraised value of 14real estate plus 70% of appraised value of 15insured improvements; 16☛ title to real estate shall be in the mortgagor; 17☛ in the event of foreclosure, whether judicially 18 or extrajudicially, the mortgagor or debtor 19 shall have the right within 1 year after the 20 sale to redeem the property by paying the 21 amount fixed by the court in the order or 22 execution or the amount due under the 23 mortgage deed with interest at rate specified 24 in the mortgage, costs, judicial expenses 25 less income of property; 26☛ 27☛ The purchaser of the auction sale concerned 28in a judicial foreclosure shall have the right to 29enter upon and take possession of the property 30immediately after the date of confirmation of 31auction sale by court. 32 33☛ In JOVEN VS. CA (212 SCRA 700), to give 34effect to his right of possession, the purchaser 35must invoke the aid of courts and ask for a writ 36of possession. He cannot simply take the law 37into his own hands and enter the property 38without judicial authorization. He need not bring 39a separate and independent suit for this 40purpose. Nevertheless, it is essential that he 41ask for and be granted a writ of possession in 42order that he may be legally installed in the 43property he has bought. 44 45☛ As a general rule, there is no right of 46redemption from a judicial foreclosure sale after 47confirmation of the sale. However, foreclosure 48of mortgages to banking institutions shall be 49subject to legal redemption even after 50confirmation (LIMPIN VS. IAC, GR No. 70987, 51GSIS VS. CFI, 175 SCRA 19).

52 53LOANS ON SECURITY OF CHATTELS 54 55☛ shall not exceed 50% of the appraised value 56of the security; 57☛ title to the chattels shall be free from all 58encumbrances; 59☛ title to the chattels shall be in the name of 60mortgagor. 61 62☛ Shares of stock can be mortgaged under 63the Chattel Mortgage Law.

64 65☛ RECTO LAW applies only to foreclosure of 66personal property sold should the vendee fail to 67pay 2 or more installments. 68☛ The foreclosure pursuant to RECTO LAW 69shall not apply in case of personal property held 70as security for a loan. 71 72Section 82 - Banks shall not advertise the 73amount of their authorized or subscribed capital 74stock without indicating the amount of their 75capital actually paid-up. 76 77 ☛ No branch of any foreign bank doing 78business in the Philippines shall in any way 79announce the amount of the capital and surplus 80of its head office or of the bank in its entirety 81without indicating the amount of the capital 82assigned to such branch. In case no capital has 83been definitely assigned to such branch, such 84fact shall be stated and shall form part of 85advertisement. 86

87Section 83 - LOANS TO DIRECTORS, 88OFFICERS, STOCKHOLDERS AND 89THEIR RELATED INTEREST (DOSRI) 90

91☛ No Director or officer of any bank shall 92borrow any of the deposits of funds of such 93banks, EXCEPT, with written approval of 94majority of the directors of the bank, excluding 95the director concerned. The approval shall be 96entered upon the records of the bank and a copy 97of such entry shall be transmitted to the 98appropriate supervising department of BSP. 99 100☛ The credit accommodation which may be 101extended by a bank to each of its stockholders 102owning 2% or more of the subscribed capital 103stock, its directors or officers shall be limited to 104an amount equivalent to the respective 105outstanding deposits and book value of paid in 106capital contribution in the bank. 107 108☛ Loans and advances to officers, in the form 109of fringe benefits granted in accordance with 110rules prescribed by Monetary Board shall not be 111subject to the limitation that the loanable amount 112shall not exceed the outstanding deposits and 113book value of the paid-in capital contribution to 114the bank of the borrower-officer concerned. 115 116Section 87-A, as amended, penalizes an officer, 117employee or agent of a bank, who, without order 118of a court of competent jurisdiction, shall 119disclose to any unauthorized person any 120information relative to the funds or properties in 121the custody of the bank belonging to a private 122person, whether natural or juridical. 123 124

4 Page 84 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1R.A. 1405 SECRECY OF BANK 2DEPOSITS LAW 3

4PURPOSES: 5a.) 6 7b.) 8 9 10 11

To encourage people to deposit money in banks; To discourage private hoarding so that these deposits may be properly utilized by banks in authorized loans to assist in the economic development of the country.

12DEPOSITS COVERED BY LAW: 13(Section 2) 14☛ All deposits of whatever nature with banks or 15banking institutions in the Philippines including 16investments in bonds issued by the Government 17of the Philippines, its political subdivisions and 18its instrumentalities. 19 20☛ These deposits are considered as of an 21ABSOLUTELY CONFIDENTIAL NATURE AND 22MAY NOT BE EXAMINED and may not be 23examined, inquired or looked into by any person, 24government al, bureau, or office. EXCEPT IN 25THE offici FOLLOWING CASES: 26 27 1) Where the depositor consents in 28 writing; 29 2) Impeachment cases; 30 3) By court order in bribery or 31 dereliction of duty cases against 32 public officials; 33 4) Deposit is subject of litigation; 34 5) If authorized by Monetary Board if it 35 has reasonable ground to believe 36 that such account is used to defraud 37 the bank; 38 6) When made by an independent 39 auditor hired by the bank for the 40 exclusive use of the bank (Sec. 2, 41 RA 1405); 42 7) Anti-graft cases (Added by analogy 43 in PNB VS. GANCAYCO, 15 SCRA 44 91); 45 8) Inquiry of Commissioner of BIR into 46 bank deposits of: 47 a) a decedent to determine his 48 gross estate 49 b) a taxpayer who has filed an 50 application for compromise of his tax 51 liability (Sec. 6 (F) NIRC). 52 53☛ In PNB VS. GANCAYCO (15 SCRA 91), the 54court held that a bank can be compelled to 55disclose the records of accounts of a depositor 56who is under investigation for unexplained 57wealth. 58☛ Section 2 of RA 1405 provides that bank 59deposits are “absolutely confidential xxx and 60therefore may not be examined, inquired or 61looked into”, except in cases mentioned therein. 62Meanwhile, Sec. 8 of RA 3019 (Anti-Graft Law)

63directs that bank deposits “shall be taken into 64consideration in the enforcement of this section, 65notwithstanding any provision of law to the 66contrary.” The only conclusion possible is that 67Sec. 8 of Anti-Graft Law is intended to amend 68Sec. 2 of RA 1405 by providing an additional 69exception to the rule disclosure of bank deposits. 70(Ibid. p. 92). 71 72☛ In CHINA BANKING CORPORATION VS. 73ORTEGA (49 SCRA 355), the Court held that 74garnishment of bank deposit of judgment debtor 75does not violate RA 1405. The lower court did 76not order an examination of or inquiry into the 77bank deposit of the defendant, as contemplated 78in the law. It merely required the cashier of the 79bank to inform the court whether or not the 80defendant had a deposit in said bank only for 81purposes of garnishment issued by it. So that 82the bank would hold the same intact and not 83allow any withdrawal until further order. 84 85 86 87☛ In BANCO FILIPINO SAVINGS AND 88MORTGAGE BANK VS. PURISIMA (161 SCRA 89576), the Supreme Court reiterated its ruling in 90PNB VS. GANCAYCO, supra and expanded the 91coverage of persons excluded from the 92prohibition against disclosures in RA 1405. 93Under RA 3019, illegally acquired property 94extends to cases where property is concealed by 95being held by or recorded in the name of 96respondent’s spouse, ascendants, descendants, 97relatives, or any other persons. Bank records of 98transactions by or in the names of the wife, 99children and friends of a person charged with 100violation of Anti-Graft Law may be the proper 101subject of subpoena duces tecum. 102 103☛ In MELLON BANK VS. MAGSINO (190 104SCRA 633), private respondents sought to 105disallow testimony on the bank accounts of the 106third parties for violating RA 1405. The court 107ruled that an inquiry into the whereabouts of the 108illegally acquired amount extends to whatever is 109concealed by being held or recorded in the 110name of persons other than the one responsible 111for the illegal acquisition. Since the action was 112aimed at recovering the amount converted by 113respondents for their own benefit such inquiry 114therefore involved deposited money which was 115the subject matter of litigation to be exempted 116from the prohibition. 117 118☛ Safe deposit boxes are not strictly deposits 119since the relationship between the bank is that of 120lessor and lessee. However, any information 121regarding the existence of the safe deposit box 122in the name of the renter is considered 123confidential in view of Sec. 87-A of RA 337 as 124amended. 125

4 Page 85 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1Section 26, RA 7653 2 3☛ Any director, officer, stockholder who, 4together with his related interests, contracts a 5loan or any form of financial accommodation 6from his bank / from a bank which is: 7 a) a subsidiary of a bank holding 8 company of which both his bank and 9 the lending bank are subsidiaries; or 10 b) in which a controlling proportion of 11 the shares is owned by the same 12 interest that owns a controlling 13 proportion of the shares of his bank 14 in excess of 5% of the capital and 15 surplus of the bank or in the 16 maximum amount permitted by law, 17 whichever is lower, shall be required 18 by the lending bank to WAIVE THE 19 SECRECY OF HIS DEPOSITS OF 20 WHATEVER NATURE IN ALL 21 BANKS IN THE PHILIPPINES. 22 23☛ Any information obtained form an 24examination of his deposits shall be held strictly 25confidential and may be used by the examiners 26only in connection with their supervisory and 27examination responsibility or by the Bangko 28Sentral in an appropriate legal action it has 29initiated involving the deposit account. 30 31PENALTIES 32 ☛ Violation of the secrecy of bank 33deposits will subject the offender upon 34conviction to imprisonment of not more than five 35(5) years or a fine not more than Php 20,000 or 36both , in the discretion of the court.

37 38PHILIPPINE DEPOSIT INSURANCE 39CORPORATION ACT 40 41☛ Created the Philippine Deposit Insurance 42Corporation (PDIC), a government corporation, 43financed completely by the Central Bank where 44banks are mandatorily required to insure their 45deposits with, and pay premium to; 46 47☛ Purpose of the law to insure the deposit 48liability of banks in an account up to 49P100,000.00 for every single depositor of each 50bank irrespective of the number of accounts 51therewith. 52DEFINITONS 53 1. Deposit — means the unpaid 54 balance of money or its equivalent 55 received by a bank in the usual 56 course of business and for which it 57 has given or is obliged to give credit 58 to a commercial, checking, savings, 59 time or thrift account or which is 60 evidenced by passbook, check 61 and/or certificate of deposit, printed, 62 issued in accordance with Central 63 Bank rules and regulations and

64 other applicable laws, together with 65 such other obligations of a bank 66 which, consistent with banking 67 usage and practices, the Board of 68 Directors shall determine and 69 prescribe by regulations to be 70 deposit liabilities of the Bank: 71 Provided, That any obligation of a 72 bank which is payable at the office 73 of the bank located outside of the 74 Philippines shall not be a deposit for 75 any of the purposes of this Act or 76 included as part of the total deposit 77 or of the insured deposit: Provided, 78 further, That subject to the approval 79 of the Board of Directors, any 80 insured bank which is incorporated 81 under the laws of the Philippines 82 which maintains a branch outside 83 the Philippines may elect to include 84 for insurance its deposit obligation 85 payable only at such branch. 86 872. Insured Deposits — means the net 88 amount due to any depositor for 89 deposits in an insured bank (after 90 deducting offsets) less any part 91 thereof which is in excess of 92 Php100,000.00. 93 94TYPES OF DEPOSIT INSURED: 95 96 1. Savings Deposits 97 2. Time Deposits 98 3. Current or Demand Deposits 99 100☛ By virtue of Presidential Decree No. 1974, 101approved on June 27, 1984, TRUST FUNDS 102were deleted from the scope of “insured 103deposits”. Hence, effective said date, trust funds 104were no longer insured with PDIC. 105 106PRIMARY OBJECTIVE OF PDIC 107 108 ☛ To enhance public confidence in the 109banking system through the provision of 110insurance protection to bank depositors and the 111effective regulation of banks. 112 113MAIN FUNCTIONS OF PDIC: 114 115 1. Risk Management — The insurance 116 and examination function of the 117 PDIC deals with the insurance 118 assessment and premium collection 119 from member banks. PDIC monitors 120 the health of member banks, 121 examines and identifies “risk” areas 122 in banks, or their weaknesses. It 123 also institutes corrective measures 124 to prevent closures thru bank 125 rehabilitation. Further, it provides 126 financial assistance to distressed

4 Page 86 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 banks and assists in the reopening 2 of closed banks, provided all PDIC 3 requirements are met. 4 2. Claims, Receivership and 5 Liquidation — Claims refers to the 6 settlement of claims for insured 7 deposits; Receivership deals with 8 the takeover and control of all 9 assets, liabilities and affairs of 10 closed banks; Liquidation covers the 11 conversion of loans, disposal of 12 fixed assets into cash deposits, and 13 the implementation of final 14 settlement with creditors. 15 16What specific risks to a bank does PDIC Cover? 17 Only the risk of bank closures. Thus 18losses due to a bank theft is not covered by 19PDIC. 20 21When is an insured bank deemed closed? 22 An insured bank shall be deemed closed 23on account of insolvency upon the order of 24closure by the Monetary Board of the Bangko 25Sentral ng Pilipinas under Section 29 of R.A. 26265 as amended by the New Central Bank Act. 27 28 Insolvency refers to a situation wherein 29a bank’s liabilities exceed its total assets 30resulting in the bank’s inability to repay its 31creditors. 32 33Section 4, RA 3591 - The deposit liabilities of 34any bank or banking institution which is engaged 35in the business of receiving deposits as herein 36defined on the effective date of this Act or which 37thereafter may engage in the business of 38receiving deposits, shall be insured by the 39corporation. 40 41☛ If a bank is insolvent, every depositor is 42compulsorily insured for a maximum amount of 43P100,000.00. 44 45☛ If the total valid deposits (as determined by 46PDIC) exceeds the amount of Php 100,000.00, 47the excess amount can still be claimed from 48PDIC upon the final liquidation of the remaining 49assets of the closed bank. 50 51☛ The schedule of payment beyond the Php 52100,000.oo maximum insurance shall be based 53on priorities set by law. 54 Under the law, claims for deposit in excess 55 of the insured Php100,000.00 will be settled 56 together with other ordinary claims, after 57 preferred claims like government, taxe, 58 labor claims are settled. 59 60TWO (2) TYPES OF CLAIM SETTLEMENT 61 1. Direct Claims Settlement 62 2. Transfer Deposit Settlement 63

64RECOVERABLE CEILING IN CASE 65SEVERAL ACCOUNTS ARE MAINTAINED 66BY THE SAME DEPOSITOR: 67 68a. If a single depositor maintains several 69 accounts with one bank of several branches 70 of the same bank totaling more than 71 P100,00.00, the amount insured is only 72 P100,000.00, although the depositor is 73 maintaining his deposits in different 74 accounts; 75b. If three accounts are maintained in the same 76 bank in the individual capacity of each of the 77 depositors and in an and/or capacity or 78 jointly by the depositors, the three accounts 79 are insured up to P100,000.00 each 80 because the depositors are maintaining the 81 accounts in different capacities and rights. 82c. If two bank accounts (savings and current) 83 are held jointly by two persons, the said 84 accounts are not deemed insured separately 85 but are added together and covered on up to 86 a total of P100,000.00 because the amounts 87 are maintained in the same capacity and 88 right by the two depositors. 89 90☛ PDIC is given priority to be appointed as 91receiver of any banking institution. 92 93☛ PDIC is subrogated to all rights of depositor 94against a closed bank to the extent of the 95payment made by the PDIC. 96 97☛ Provided that in the event a depositor in a 98closed bank fails to file a claim for his insured 99deposit within 18 months after the Monetary 100Bank shall have ordered the closure of said 101bank, all rights of depositor against the 102Corporation with respect to the insured deposit 103shall be barred. 104 105REPUBLIC vs. COURT OF APPEALS (65 106SCRA 186) the Supreme Court ruled that since 107the relation between the depositor and the bank 108is that of creditor and debtor, a depositor has 109every right to apply his credit with the bank 110against his loans. When all the elements 111necessary for set-off are present, compensation 112takes place ipso-jure, without need of any 113conscious intent on the part of the parties.

114 115THRIFT BANKS ACT, RA No. 7906 116 117THRIFT BANKS – shall include savings and 118mortgage banks, private development banks, 119and stock savings and loans associations 120organized under existing laws, and any banking 121corporations that may be organized for the 122following purposes: 123 1241. Accumulating the savings of depositors and 125 investing them, together with capital loans

4 Page 87 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 162. 17 18 19

203. 21 22 23 24 25

secured by bonds, mortgages in real estate and insured improvements thereon, chattel mortgage, bonds and other forms of security or in loans for personal or household finance, whether secured or unsecured or in financing for homebuilding and home development, in readily marketable and debt securities; in commercial papers and accounts receivables, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; and in such other investments and loans which the Monetary Board may determine as necessary in the furtherance of national economic objectives. Providing short-term working capital, medium- and long-term financing, to businesses engaged in agriculture, services, industry and housing. Providing diversified financial and allied services for its chosen market and constituencies especially for small and medium enterprises and individuals (Section 3).

26POWERS: (Section 10) 27 281. 292. 30 31 32 33 343. 35 364. 37 38 395. 40 41 42 436. 44 457. 46 47 48 49

508. 51 52 53 549. 55 5610. 5711. 58 5912. 60 61

Accept savings and time deposits; Open current or checking accounts, provided, that the thrift bank has net assets of at least P20 M and it shall be allowed to directly clear its demand deposit operations with the Bangko Sentral and PCHC; Act as correspondents for other financial institutions; Act as collection agent for government entities, including but not limited to BIR, SSS, Bureau of Customs; Act as official depository of national agencies and of municipal, city or provincial funds in the municipality, city or province where the thrift bank is located; Rediscount paper with PNB, Land Bank, DBP, and other GOCC; Issue mortgage and chattel mortgage certificates buy and sell them for its own account or for the account of others, or accept and receive them in payment or as amortization or its loan; Purchase, hold, convey real estate under the same conditions as those governing commercial banks under Section 25, RA 337; Engage in quasi-banking and money market operations; Open domestic letters of credit; Extend credit facilities to private and government employees; Extend credit against the security of jewelry, precious stones and articles of similar nature;

6213. Offer banking services as provided under 63 64 65

Sec. 72 of RA 337 and RA 6426 as amended.

66RA 7353 RURAL BANKS ACT 67 68☛ Rural banks shall be organized in the form 69of stock corporations. 70 71☛ Cooperatives and corporations primarily 72organized to hold equities in rural banks may 73organize a rural bank and/or subscribe to the 74shares of stock of any rural bank. 75 76☛ The capital stock of any rural bank shall be 77fully owned and held directly or indirectly by 78citizens of the Philippines or corporations, 79associations or cooperatives qualified under 80Philippine laws to own land EXCEPT 81shareholdings of corporations organized 82primarily to hold equities in rural banks under 83Sec. 12-C of RA 337. 84 85☛ Nothing in this Act shall be construed as 86prohibiting any appointive or elective public 87official form serving as director, officer, 88consultant or in any capacity in the bank. 89 90☛ Loans extended shall be primarily for the 91purpose of meeting the normal credit needs of 92farmers, fishermen or farm families owning or 93cultivating land dedicated to agricultural 94production as well as normal credit needs of 95cooperatives and merchants with the land as 96security. 97 98☛ Rural bank may devote a portion of their 99loanable funds to meeting the normal credit 100needs of small business enterprises and of 101essential enterprises and industries provided 102loans shall not exceed 15% of net worth of rural 103bank or amount prescribed by Monetary Board 104may be warranted by prevailing economic 105conditions. 106 107 With the approval of Monetary Board, any 108 rural bank may act as trustees over estates 109 or properties of farmers and merchants or 110 perform services authorized for savings and 111 mortgage banks or for commercial banks 112 under RA 337 or operating under an 113 expanded banking authority. 114 115

116RA 6938 COOPERATIVE BANKS 117 118☛ Cooperative Bank is one organized the 119majority shares of which is owned and controlled 120by cooperatives primarily to provided financial 121and credit services to cooperatives. It shall 122include cooperative rural banks; 123

4 Page 88 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1☛ Membership of a cooperative bank shall 2include only cooperatives and federations of 3cooperatives. 4 5 MBR No. 115, as amended 6 7☛ Only one cooperative bank shall be 8established in each province which must be 9located in a place accessible to the public. 10 11☛ Capital contributions in a cooperative bank 12shall be as widely dispersed as possible. No 13cooperative members shall own or control more 14than 30% of the total capital contributions of a 15cooperative bank. This limitation shall also 16apply to cooperatives purchasing government17held preferred shares of cooperative banks 18converted into common stock. 19 20☛ Any officer or employee of Cooperative 21Development Authority and elective officials of 22the Government EXCEPT BARANGAY 23OFFICIALS, shall be disqualified to be elected or 24appointed to any position in a cooperative bank. 25 26

27RA 3936 UNCLAIMED 28BALANCES LAW 29 30UNCLAIMED BALANCES include credits or 31deposits of money, bullion, security or other 32evidence of indebtedness of any kind and 33interest thereon with banks, buildings and loan 34associations and trust corporations in favor of 35any person known to be dead or who has not 36make further deposits or withdrawals during the 37preceding 10 years or more. 38 39ELEMENTS OF UNCLAIMED BALANCES: 40 41 1. There must be a claim or deposit of: 42 a. money, 43 b. bullion, 44 c. security, or 45 d. other evidence of 46 indebtedeness 47 2. The credit or deposit must be with a 48 bank, building and loan association, or 49 trust corporation; and 50 3. The credit or deposit is in favor of a 51 person: 52 a. who is dead, or 53 b. who has not made further 54 depsotis or withdrawals during 55 the preceding ten years or 56 more. 57Builidings and Loan Association — are 58corporations whose capital stock is required or is 59permitted to be paid in by the stockholders in 60regular, equal, periodical payments and whose 61purpose is to accumulate the savings of its 62stockholders, to repay to said stockholders their

63accumulated savings and profits upon their 64surrender of their shares. 65 66 67☛ The Solicitor General, when informed of such 68unclaimed balances, shall commence an action 69in the name of People of Republic of Philippines 70in the RTC of the province where the bank is 71located. Bank and depositors shall be made 72defendants. 73 74☛ Summons shall be issued directed to all 75persons, OTHER THAN THOSE NAMED AS 76DEFENDANTS, claiming any interest in any 77unclaimed balance requiring them to appear 78within 60 days after publication of such 79summons and show cause why it shall not be 80deposited with the Treasurer. 81 82☛ Upon trial, if the court determines that such 83deposits are unclaimed, judgment shall be 84rendered declaring that said unclaimed balances 85be escheated in favor of the government and 86commending said bank to deposit it with the 87Treasurer of the Philippines. 88 89☛ Any bank which shall make any deposit with 90the Treasurer shall not be liable to any person 91which the latter may bring against the bank. 92

93RA 6426 FOREIGN 94DEPOSIT ACT

CURRENCY

95 96Foreign Currency Deposit Unit — shall refer to 97that unit of a local bank or of a local branch of a 98foreign bank authorized by the Central Bank to 99engage in foreign currency-denominated 100transactions. 101 102☛ All foreign currency deposits under RA 6426 103and PD 1034 are absolutely confidential in 104nature and may not be examined EXCEPT 105UPON WRITTEN PERMISSION OF 106DEPOSITOR. 107 108☛ Foreign currency deposits are exempt from 109garnishment, attachment or any court process. 110 111☛ However in SALVACION, et al. VS. CBP, 112et al. 278 SCRA 27, the court allowed 113garnishment of such deposits since to hold 114otherwise would result to injustice to a citizen 115perpetrated by a foreigner. 116

117RA 7721 AN ACT LIBERALIZING THE 118ENTRY AND SCOPE OF OPERATIONS 119OF FOREIGN BANKS IN THE 120PHILIPPINES

121 122☛ When MB authorizes foreign banks to 123operate through any of the following:

4 Page 89 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7

1)

8

3)

2)

by acquiring, purchasing or owning up to 60% of the voting stock of an existing bank; 2) by investing in up to 60% of the voting stock of a new banking subsidiary incorporated under laws of Philippines; by establishing branches with full banking authority, provided: a) foreign bank may avail itself of only one mode of entry and b) foreign bank or Philippine corporation may own up to 60% of the voting stock only one domestic bank or new banking subsidiary (Sec. 2,RA. 7721).

9 10 11 12 13 14 15 16 17☛ Only those among the top150 foreign banks 18in the world or the top 5 banks in their country of 19origin as of the date of application shall be 20allowed entry in allowance with Sections 2 , 21numbers 2 and 3 (Sec. 3). 22☛ In the exercise of this authority, the MB shall 23adopt such measures as may be necessary to: 24 1. ensure that at all times the control of 25 seventy percent (70%) of the resources 26 or assets of the entire banking system is 27 held by domestic banks which are at 28 least majority-owned by Filipinos: 29 2. prevent a dominant market position by 30 one bank or the concentration of 31 economic power in one or more 32 financial institutions, or in corporations, 33 partnerships, groups and individuals 34 with related interests; and 35 3. secure the listing in the Philippine 36 Stock Exchange of the shares of stocks 37 of banking corporations established 38 under Section 2, numbers 1 and 2. 39 Provided, that said banking corporations 40 shall establish stock option plans for 41 their officers and employees as the 42 resources or assets of these 43 corporations may allow in the best 44 business judgment of their respective 45 boards of directors, pursuant to the 46 Corporation Code of the Philippines 47 ( Sec. 3). 48

49 50

PD 1034 OFFSHORE BANKING SYSTEM

51 52OFFSHORE BANKING – shall refer to the 53conduct of banking transactions in foreign 54currencies involving receipt of funds from 55external sources and the utilization of such 56funds. 57 58BASIS FOR THE ISSUANCE OF 59CERTIFICATE OF AUTHORITY TO OPERATE 60AN OFFSHORE BANKING UNIT 61 62☛ Only banks organized under any law other 63than those of Republic of Philippines shall be

64qualified to operate offshore banking units in the 65Philippines. 66 67☛ However, LOCAL BRANCHES of foreign 68banks already authorized to accept foreign 69currency deposits under RA 6426 may opt to 70apply for authority to operate an offshore 71banking unit provided that upon their receipt of 72certificate of authority to operate as an offshore 73banking unit, the license to transact business 74under RA 6426 shall be deemed automatically 75withdrawn. 76 77

78RA 8183 REPEALING ACT NO. 529 79OR UNIFORM CURRENCY ACT 80 81 82 83 84 85 86 87 88

Section 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.

89Art 1249, 1st paragraph of Civil Code 90 The payment of debts in money shall be 91made in the currency stipulated and if it is not 92possible to deliver such currency, then in the 93currency which is legal tender in the Philippines. 94 95LEGAL TENDER – all notes and coins issued 96by the BSP fully guaranteed by the Republic of 97Philippines for all debts, public or private. 98 99 Not exceeding P50.00 – 25 centavos or 100above 101 Not exceeding P20.00 - 10 centavos or 102less. 103 104

105VII. SPECIAL LAWS 106 107

108BULK SALES LAW 109

110WHEN IS A SALE CONSIDERED A SALE 111IN BULK? 112 113a. 114 115b. 116 117c. 118 119

when a sale, transfer or disposition is other than in the ordinary course; the sale is of all or substantially all of the business; when the sale is of all or substantially all of the fixtures and equipment.

120PURPOSE 121 122☛ To prevent the defrauding of creditors by the 123secret sale or disposal in bulk of all or 124substantially all of a merchant’s stock of goods. 125

4 Page 90 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1EXCEPTIONS: 2 3a. 4 5b. 6 7c. 8d. 9 10

sale is made in the ordinary course of business; there is a waiver from all the creditors and must be written; sale is by virtue of a judicial order; those sold by assignee or those beyond the right of creditors.

11FORMALITIES REQUIRED BY LAW 12 13a. the sale in bulk to be accompanied by sworn 14 statement of the vendor/mortgagor listing 15 the names and addresses of, and amounts 16 owing to, creditors (to be furnished to the 17 buyer); 18b. the seller to prepare an inventory of stock to 19 be sold and notify the creditors of projected 20 sale at least n10 days before such sale 21 (Sec. 3-4). 22 23 24 25 26EFFECTS OF SALE IN VIOLATION OF BSL – 27

28VALID between the parties, VOID as to 29 affected creditors. 30a. sale in bulk is void; 31b. purchaser holds property in trust for seller 32 (whether in good faith or bad faith); 33c. purchaser is liable to seller’s creditors for 34 properties forming part of bulk and already 35 disposed by him. 36 37DISTINCTION BETWEEN FRAUDULENT 38CONVEYANCE UNDER THE BULK SALES 39LAW FROM THE TRANSFER IN FRAUD OF 40CREDIORS UNDER THE CIVIL CODE 41 42☛ A conveyance or transfer fraudulently made 43in violation of the Bulk Sales Law is null and void 44while a conveyance or transfer in fraud of 45creditors under Article 1381-1389 of the New 46Civil Code is rescissible and is valid until set 47aside by a competent court. 48

49CHATTEL MORTGAGE LAW 50 51CHATTEL MORTGAGE 52☛ contract by virtue of which personal property 53is recorded in the Chattel Mortgage Register as 54security for the performance of an obligation. 55☛ No longer considered a conditional sale. 56 57SUBJECT MATTER OF CHATTEL 58MORTGAGE 59 60☛ personal or movable property. 61 621. Shares of stock;

632. Interest in business; 643. Machinery treated by the parties as personal 65 property subsequently installed on leased 66 land; (Davao Sawmill vs. Castillo) 674. Vessels recorded in the office of the 68 Philippine Coast Guard to be effective as to 69 3rd persons; not necessary to be recorded in 70 the Office of the Registry of Deeds; 715. Motor Vehicles mortgage registered in LTO 72 (for vehicles used for public services); 736. House of mixed materials; 747. House intended to be demolished; 758. House built on rented land, 76 GENERAL RULE: still immovable property; 77 EXCEPTION: by estoppel; 789. House of strong materials- personal property 79 for purposes of executing a chattel mortgage 80 as the parties to the contract so agree and 81 NO innocent 3rd party will be prejudiced. 82 83☛ The rule that the chattel mortgage shall be 84deemed to cover only the property described 85therein and not like on substituted property does 86not apply to stores open to the public. (sec. 7, 87par. 4 CML). 88 89AFFIDAVIT OF GOOD FAITH — It is an oath in 90contract of chattel mortgage wherein the parties 91“severally swear that the mortgage is made for 92the purpose of securing the obligation specified 93in conditions thereof, and for no other purpose 94and that the same is just and valid obligation and 95one not entered into for the purpose of fraud.

96

97EFFECT OF ABSENCE OF AFFIDAVIT OF 98GOOD FAITH: 99 100a. Valid between the parties; 101b. Does not affect 3rd persons without notice 102 like creditors and subsequent 103 encumbrances. 104 105NOTE: A house of is a real property regardless 106of ownership, however the parties may treat the 107same as personal property and by estoppel be 108binding between them. However, third persons 109are not bound. 110 111RIGHT OF REDEMPTION 112 113The following may redeem: 114 a. the mortgagor; 115 b. a person holding a subsequent 116 mortgage; or 117 c. a subsequent attaching creditor. 118 119RECTO LAW 120 121 a. applies only to sale of personal 122 property in installments; 123 b. remedies are alternative, not 124 cumulative;

4 Page 91 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 2 3 4 5 6 7 8 9 10

c.

d.

foreclosure of chattel mortgage on the things sold shall ban recovery of any deficiency. Thus, seller cannot recover from guarantor; if seller-mortgagee opts to exercise remedy number one, he shall be deemed to have waived his right as a mortgagee but may still levy on the mortgage property.

11DISTINCTION : CHATTEL MORTGAGE 1. the delivery of the personal property to the mortgagee is not necessary 2. the registration of the same in Chattel Mortgage Register is necessary for its validity 12 3. the procedure for the sale of the thing given as security is different, the procedure is found in Sec. 14 of Act no. 1508 4. if the property is foreclosed, the excess over the amount due goes to the debtor

5.if there is a deficiency, the creditor is entitled to recover the deficiency from the debtor

PLEDGE 1. delivery is necessary 2. the registration in the Registry of Property is not necessary

3. procedure is found in Art. 2112 of the Civil Code

4. the debtor is not entitled to the excess unless it is otherwise agreed or except in the case of a legal pledge 5. the creditor is not entitled to recover the deficiency notwithstanding any stipulation to the contrary

13 CHATTEL MORTGAGE 1. It is an accessory contract to secure the fulfillment of the performance of an obligation. 2. Title to the thing mortgaged is not transferred

PACTO DE RETRO 1. It is a principal contract.

2. the title to the subject matter of the contract is transferred to the vendee a retro but subject to the redemption by the vendor.

3. One of the formalities required is the execution of affidavit in good faith

3. It is not required.

14 CHATTEL MORTGAGE

REAL MORTGAGE

1. The thing mortgaged must be personal or movable property

1. The thing mortgaged must be real or immovable property.

2. Affidavit of good faith executed by the mortgagor is required. 3. The mortgagor cannot alienate the thing mortgaged without the written consent of the mortgagee annotated at the back of the mortgage 15 16 17 4. Redemption of the thing mortgaged may be made only before the sale thereof.

2. Affidavit of good faith is not required. 3. The mortgagor can alienate the thing mortgaged without the consent of the mortgagee and any stipulation prohibiting such is void

4. The thing mortgaged may be redeemed after it is judicially sold but before judicial confirmation of the sale or if extrajudicially sold, within one year from and after the date of sale.

18 19EXTENT OF CHATTEL MORTGAGE 20 21Section 7, paragraph 4 of Act No. 158, 22provides : 23 "A chattel mortgage shall be deemed to 24cover only the property described therein and 25not like or substituted property therafter acquired 26by the mortgagor and placed in the same 27depository as the property originally mortgaged 28anything in the mortgage to the contrary 29notwithstanding." 30☛ The provision does not apply to stores open 31to public for retail business where the goods are 32constantly sold and substituted with new stock. 33(Torres vs Limjap, 56 Phil 141).

34 35CHATTEL MORTGAGE COVERS ONLY 36EXISTING OBLIGATIONS. 37

38☛ While a pledge, real estate mortgage, or 39antichresis may exceptionally secure after40incurred obligations so long as these future 41debts are accurately described, a chattel 42mortgage can only cover obligations existing at 43the time the mortgage is constituted. Promise

4 Page 92 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1expressed in a chattel mortgage to cover debts 2yet to be contracted may be binding but security 3itself arise only after amending the old contract 4conformably with the form prescribed by the 5Chattel Mortgage Law. (Acme Shoe Rubber 6and Plastic Corp. vs. CA) 7.

8CODE OF COMMERCE 9 10PROVISIONS OF THE CODE OF 11COMMERCE WHICH ARE STILL IN 12FORCE— 131. 14 152. 163. 174. 18 195. 206.

Merchants, Book of Merchants, Commercial contracts Joint Account Transfers of Non-negotiable credits Commercial Contracts of Overland Transportation letters of credit Maritime Commerce

21 22 23 24 25LAWS WHICH REPEALED EITHER 26EXPRESSLY OR IMPLIEDLY CERTAIN 27PORTIONS OF THE CODE OF 28COMMERCE: 29 301. 31 32 332. 34 35 36 373. 38 39 404. 41 425. 43 446. 45 46 477. 48 49 50 51 52 53 54

The Corporation Law which repealed principally the provisions on Sociedad Anonimas; The Negotiable Instruments Law, which repealed the provisions on Promissory Notes and Bills of Exchange also in Book Two; The Insolvency law, which repealed the provisions on Suspension of Payments and Bankruptcy in Book Four; The Insurance Law, which repealed the provisions on Fire and Marine Insurance; The Securities Act, which repealed the provisions on Commercial Houses; The New Civil Code, which repealed the provisions on Partnership, Agency, Sales, Loan, Deposit and Guaranty; Commerce- branch of human activity, purpose of which is to bring products to community by means of exchanges or operations which tend to supply and extend to him, habitually, with intent to gain at the proper time and place and in good quality and quantity.

561. 57 58 592. 60 61

those who having capacity to engage in commerce, habitually devote themselves to it. The commercial or industrial companies which may be created in accordance with existing legislation. (Art. 1)

55MERCHANTS ARE:

62 63 QUALIFICATIONS: 64 1. having completed the age of 18 65 years; and 66 2. having the free disposition of his 67 property. 68 69 70LEGAL PRESUMPTION OF HABITUALITY71exists from the moment a person who intends to 72engage in commerce announces through 73circulars, newspapers, handbills, posters 74exhibited to the public, or in any other manner 75whatsoever, an establishment which has for its 76object some commercial acts. 77 78 “Habituality” in the practice of 79commerce presupposes the repetition and 80continuation of commercial acts in such manner 81that they are related to each other by reason of 82the commercial purpose or end which they tend 83to have, which is the exchange or circulation of 84products. However, it may be shown by a single 85act of commerce, if it manifests the intention to 86engage habitually in commerce. 87

88ACTS OF COMMERCE

89 90☛ Those acts contained in this Code of 91Commerce and all other acts of analogous 92character. An act need not be performed by a 93merchant in order that it may be considered an 94act of commerce. Hence, an act performed by 95one who is not a merchant would, nevertheless, 96be an act of commerce if it is contained in the 97Code or is one of analogous character. 98

99DISQUALIFICATION TO ENGAGE IN 100COMMERCE 101 102a) ABSOLUTE DISQUALIFICATIONS 103 1041. 105 1062. 107 1083. 109 110

Those serving the penalty of civil interdiction; Those judicially declared insolvent until they would have obtained a discharge; Those who are absolutely disqualified under special laws. (Art. 13, Code of Commerce)

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

(in specified territories such as in places where they exercise their functions, or under certain circumstances) 1. certain government officials, such as judicial officers, prosecutors, department heads, collectors, and custodian of government funds; 2. money and commercial brokers 3. those who are under relative disqualification under special laws (Art. 14, Code of Commerce)

111b) RELATIVE DISQUALIFICATIONS

4 Page 93 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1DISTINCTIONS : 2 ABSOLUTE INCAPACITY 1. extends through out the Philippines.

2. act is null and void if incapacity is absolute and apparent.

44 45 46 47 48 49

RELATIVE INCAPACITY 1. extends only to the province or town where the officer incapacitated is exercising his functions. 2. the effect is merely to subject the person violating Art. 14 to such disciplinary action or punishment as may be imposed by the special laws.

50APPLICABILITY OF LAWS 51COMMERCIAL TRANSACTIONS: 52 531. 542. 55 563. 57

3 4INDIVIDUAL MERCHANTS- not required to 5register however cannot enjoy the benefits of 6registration.

7

8JURIDICAL MERCHANTS9register with the SEC. 10

mandated

to

11Disqualification of certain constitutional 12officials: 13 141. 15 16 17 18 19 20 21 22 23 242. 25 26 27 28 29 30 31 32 333. 34 35 36 37 38 39 40 414. 42 43

any government owned or controlled bank to the President, Vice-President, Members of the Cabinet, Congress, Supreme Court and the Constitutional Commission, Ombudsman during their tenure.”

Art. VI, Sec. 14 - No Member of Congress “shall directly or indirectly, be interested financially in any contract with, or in any franchise or special privilege granted by the Government during his term of office. He shall not intervene in any matter before any office of the Government for his pecuniary benefit or where he may be called upon to act on account of his office.” Art. VII, Sec. 13 - “The President, VicePresident, Members of the cabinet, and their deputies or assistants shall not, during said tenure, practice any profession, participate in any business, be financially interested in any contract or franchise granted by the Government. They shall avoid conflict of interest in the conduct of their office.” Art. IX, Sec. 2 - “No member of the Constitutional Commission shall engage in the practice of any profession or active management of any business which may be affected by the functions of his office, nor shall he be financially interested with any contract or franchise with the Government.” Art. XI, Sec. 16 - “No loan, guaranty, or other form of financial accommodation for any business purpose may be granted by

TO

First, the Code of Commerce; In the absence of the foregoing, the commercial customs; and Civil Code (in the absence of the first two).

58

GENERAL RULE: Commercial contracts

59 60 61 62 63 64

shall be valid and give rise to obligations and causes of action in suits, whatever the form and language in which they may be executed, provided their existence is shown by means established by civil law.

65

EXCEPTIONS:

66 1. when the Code of Commerce or 67 other special laws require that it must be 68 reduced in writing, require forms or 69 formalities necessary for efficacy (for 70 validity); 71 2. when executed in a foreign 72 country whose laws require certain 73 instruments, forms or formalities for their 74 validity, although Philippine Law does 75 not require them ( for validity); and 76 3. Commercial contract exceeding 77 PHP 300.00 cannot be proved by parol 78 evidence (for enforceability). 79 80☛ Illicit arrangements do not give rise to 81 obligations or causes of actions even should 82 they refer to commercial transactions. 83 84☛ Contracts entered into by correspondence 85 shall be perfected from the moment an 86 answer is made accepting the offer or the 87 conditions by which the latter may be 88 modified. (This is the Manifestation Theory 89 as distinguished from the Cognition theory 90 followed under the Civil Code). 91 92☛ When an agent or a broker intervenes in a 93commercial contract, the same is perfected only 94when the contracting party shall have accepted 95his offer. 96

97RULES IN INTERPRETATION OF 98COMMERCIAL CONTRACTS: 99

1001. 101 102 1032. 104 105

interpretation and compliance in good faith and full enforceability of their provisions in their plain, usual and proper meanings; in case of conflicts between copies of the contract, and an agent should have intervened in its negotiation, that which

4 Page 94 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1 appears in the agent’s book shall prevail; 2 and 33. in case of doubt, and the rules enunciated 4 cannot resolve the conflict, issues shall be 5 decided in favor of the debtor. 6 7LETTER OF CREDIT- those issued by one 8merchant to another for the purpose of attending 9to a commercial transaction. 10 11KINDS OF LETTERS OF CREDIT: 12 13 1. COMMERCIAL LETTER OF 14 CREDIT - an instrument by which a 15 bank, for the account of a buyer of 16 merchandise, gives formal evidence to a 17 merchandise seller, of its willingness to 18 permit him (the seller), to draw bills 19 against it, on certain terms, and 20 stipulates in legal form that all such bills 21 will be honored. 22 23 2. TRAVELER’S LETTER OF 24 CREDIT- is a letter from a bank 25 addressed to one or more of its 26 correspondents stating that drafts up to 27 a certain sum drawn by the beneficiary 28 will be honored by the bank. 29 30ESSENTIAL CONDITIONS OF LETTERS OF 31CREDIT: 32 33 1. to be issued in favor of a definite 34 person and not to order. 35 2. to be limited to a fixed and 36 specified amount, or to one or more 37 undetermined amounts, but within a 38 maximum limits of which have to be 39 stated exactly. 40 3. Those which do not have any of 41 these last circumstances shall be 42 considered as mere letters of 43 recommendation. 44 45TERM/ DURATION OF A LETTER OF CREDIT:

46

47 48 49 50

51

1. upon the period fixed by the parties 2. in its absence, within 6 months from its date in any point in the Philippines and within 12 months outside thereof

52

53INSOLVENCY LAW 54 55PURPOSE OF THE LAW: 56 571. 58 592. 60 61 62

to effect an equitable distribution of assets of an insolvent debtor among his creditors; to benefit the debtor in discharging him from his liabilities and enabling him to start anew with the property set apart to him as exempt.

63

64REMEDIES OF A DEBTOR: 65 661. 672. 683. 69

apply for suspension of payment; apply for voluntary insolvency; creditor may file for an involuntary insolvency.

70 71DOUBLE MAJORITY

72 73 At least 2/3 of the creditors representing 74at least 3/5 of the total liabilities of the debtor. 75

76CANNOT PARTICIPATE

77 781. claims of laborers; 792. funeral; 803. contractual mortgages or pledges. 81 82NOTE: In case of corporation and partnerships, 83SEC has jurisdiction. 84

85ACTS OF INSOLVENCY: 86 871. 88 892. 90 913. 92 934. 94 955. 96 976. 98 997. 100 101 1028. 103 1049. 105 106 10710. 108 109 11011. 111 112 11312. 114 115 116

intention to depart or departure from the Philippines to defraud creditors; absence from the Philippines to defraud creditors; concealment of debtor to avoid legal processes; concealment or removal of his property to avoid legal processes; confession of judgment in favor of any creditor to defraud other creditors; allowing default judgment in favor of a creditor to defraud other creditors; allowing his property to be taken under legal process in preference of a particular creditor to defraud other creditors; making conveyance, assignment or transfer of his property to defraud his creditors; making conveyance, assignment or transfer of his property in contemplation of insolvency; default of a merchant or tradesman to pay his current obligations for a period of thirty days after demand; failure to pay money on deposit or received in a fiduciary capacity for a period of thirty (30) days; insufficiency of property to satisfy an execution issued against him. (Sec. 20, Insolvency Law)

117SUSPENSION OF PAYMENTS 118 119☛ is the postponement, by court order, of 120payment of debts of one who, while possessing 121sufficient property to cover his debts, foresees 122the impossibility of meeting them when they 123respectively fall due. 124

125DISTINCTIONS :

4 Page 95 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

SUSPENSION OF PAYMENT

INSOLVENCY

1. The debtor has sufficient property but he foresees the impossibility of meeting his debts as they fall due. 2. The purpose is to suspend or delay the payment of debts. 3. The amount of indebtedness is not affected.

1. The debtor does not have sufficient property to pay his debts.

4. The number of creditors is immaterial.

2. The purpose is to discharge the debtor from the payment of certain debts. 3. Some of the creditors may receive less than their credits. 4. In case of involuntary insolvency, 3 or more creditors are required.

1 2 3 4 5 6DISTINCTIONS : VOLUNTARY INSOLVENCY 1. One creditor is sufficient. 2. Filed by the debtor. 3. No need for the commission of acts of insolvency. 4. Amount of indebtedness must exceed one thousand pesos (P1,000.00). 5. Bond is not required.

INVOLUNTARY INSOLVENCY 1. Three or more creditors are required. 2. Filed by three or more qualified creditors. 3. Debtors must have committed one or more acts of insolvency. 4. Indebtedness must not be less than one thousand pesos (P1,000.00). 5. Petition must be accompanied by a bond.

7

8EFFECTS OF FILING OF PETITION OF 9SUSPENSION OF PAYMENTS: 10 11a. 12 13 14 15 16b. 17 18

No disposition in any manner of his property may be made by the petitioner except insofar as concerns the ordinary operations of commerce or of industry in which he is engaged; No payments may be made by the petitioner except in the ordinary course of his business or his industry, and;

19c. 20 21 22 23

Upon request to the court, all pending executions of the debtor shall be suspended except execution against property especially mortgaged.

24EFFECTS OF 25INSOLVENCY: 26

ADJUDICATION

OF

27The adjudication or declaration of insolvency by 28the court after hearing or default shall have the 29following effects: 30a. forbid the payment to the debtor of any debt 31 due to him and the delivery to him of any 32 property belonging to him; 33b. forbid the transfer of any property to him; 34c. stay of all pending civil proceedings against 35 the insolvent. (Secs. 18 and 24 of Act 36 1956) 37 38☛ Unpaid claims of wages are subordinate to 39legal and contractual claims. 40

41JURISDICTION:

42 43Note: The provisions of the Insolvency Law still 44governs the procedure when a corporate debtor 45seeks to pursue voluntary insolvency 46proceedings (the word “debtor” includes 47partnerships, corporations and sociedades 48anonimas). 49 50VOLUNTARY INSOLVENCY 51 52Sec. 14 An insolvent debtor, owing debts 53exceeding in amount the sum of P1,000, may 54apply to be discharged from his debts and 55liabilities by petition to the Regional Trial Court 56of the province or city in which he has resided 57for six months next preceding the filing of such 58petition.

59 60INVOLUNTARY INSOLVENCY 61 62Sec. 20 An adjudication of insolvency may be 63made on the petition of three or more creditors, 64residents of the Philippines whose credits or 65demand accrued in the Philippines, and the 66amount of which credits or demand are in the 67aggregate not less than P1,000: PROVIDED, 68that none of his creditors has become a creditor 69by assignment, however made, within 30 days 70prior to the filing of said petition. Such petition 71must be filed in the Regional Trial Court of the 72province or city in which the debtor resides or 73has his principal place of business, and must be 74verified by at least three of the petitioners. 75

76SUSPENSION OF PAYMENTS 77 78A) INDIVIDUAL DEBTOR 79

4 Page 96 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1Sec. 2 The debtor who, possessing sufficient 2property to cover all his debts foresees the 3impossibility of meeting them when they 4respectively fall due, may petition that he be 5declared in the state of suspension of payments 6by the court, or the judge thereof in vacation, of 7the province or city in which he has resided for 8six months next preceding the filing of his 9petition. 10

11DEBTOR CORPORATION

12 13Sec. 5[d]. P.D. 902-A: Petitions of Corporations 14to be declared in a state of suspension of 15payments in cases where the corporation 16possess sufficient property to cover all its debts 17but foresees the impossibility of meeting them 18when they respectively fall due or in cases 19where the corporation has no sufficient assets to 20cover its liabilities but is under management of a 21Rehabilitation Receiver or Management 22Committee. 23 24

25 26 27 28 29 30TRUST RECEIPT LAW 31 32TRUST RECEIPT 33☛ trust receipt is a security transaction intended 34to aid in financing importers or dealers in 35merchandise by allowing them to obtain delivery 36of the goods under certain covenants.

37 38OBLIGATION OF: 39 40 41 42 43 44 45

(A) ENTRUSTER An entruster releases the title and possession of goods (over which he holds absolute title or security interest) to an entrustee upon the latter’s execution of the trust receipt.

47 48 49 50 51 52 53 54 55 56 57 58 59

(B) ENTRUSTEE (See Sec. 9 of P.D. 115 TRL)

46

1.holds the goods, documents or instruments in trust; 2.receives the proceeds in trust; 3.insures the goods for their total value against loss; 4.keeps said goods or proceeds thereof; 5.binds himself to hold the goods in trust for the entruster and to sell or otherwise dispose the same and to turn over to the entruster the amount still owing;

60 6.returns the goods, documents or 61 instruments if unsold or upon demand of 62 entruster; 63 7.observes all other terms and conditions of 64 the trust receipt. 65 66IN CASE OF LOSS: (Sec 10) The risk of loss 67shall be borne by the entrustee. Loss of goods, 68documents or instruments which are the subject 69of the trust receipt, pending disposition, 70irrespective of whether or not it is due to the 71default or negligence of the entrustee shall not 72extinguish his obligation to the entruster for the 73value thereof. 74 75☛ It is assumed that the title and possession is 76turned over to the entrustee. The law does not 77cover sales on credit with the title or other 78interest being retained by the seller as security 79thereof. 80

81NO AGENCY RELATIONSHIP IS 82ESTABLISHED. 83 84☛ 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104

No agency relationship is established; an entrustee’s breach of trust, however, subjects him to criminal and civil liability to estafa. As held by the Supreme Court in People vs. Cuervo (104 SCRA 312), the enactment of P.D. 115 with its penal sanction is, in reality, merely confirmatory of existing jurisprudence on situations covered by Article 315 of the Revised Penal Code. Thus, the court ruled, an entrustee in a trust receipt who failed to account for the proceeds of the goods sold or to return the goods, as the case maybe, is guilty of estafa even where the offense was committed before the promulgation of P.D. 115 on June 29, 1973. But unlike the old rule, P.D. 115 now expresses a criminal liability on the part of responsible officers of corporation and judicial entities.

105NOTE:

The borrower continues to be the 106owner of the goods and may not exempt himself 107from liability by offering the goods to the bank. 108

109 110TRUTH IN LENDING ACT 111

112SCHEME OF THE LAW 113☛ The law requires the creditor to make a full 114disclosure of the credit cost to the person to 115whom the credit is extended, otherwise, the 116debtor may recover any interest payment made 117by him but the validity of the contract/transaction 118itself is NOT adversely affected. 119

120PURPOSE OF THE LAW

4 Page 97 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1a. to protect a debtor from the effects of 2 misrepresentation or concealment; 3b. to permit him to fully appreciate and 4 evaluate the real cost of his borrowing; 5c. to avoid circumvention of usury laws. 6 7 NOTE: Non-compliance with the law would 8authorize the debtor to recover any interest 9payment made and subject the creditor to penal 10sanction for double finance charges plus 11attorney’s fees. The transaction, however, is 12valid. 13 14

15WAREHOUSE RECEIPTS LAW 16

17WAREHOUSE RECEIPT 18a. It is a written acknowledgement by a 19 warehouse that he has received and holds 20 certain goods therein described in store for 21 the person to whom it is issued. 22b. It is a simple written contract between the 23 owner of the goods and the warehouseman 24 to pay the compensation for that service. 25c. It is a bilateral contract. It imports that 26 goods are in the hands of a warehouseman 27 and is a symbolical representation of the 28 property itself. 29 30☛ If goods are stolen and deposited by the thief 31with a warehouseman, the warehouseman shall 32not be liable to the holder of the receipt even if 33he delivers the goods to the real owners without 34the receipt being surrendered to him. (Secs. 11 35and 141, WRL) 36 37

38MEANING OF NEGOTIABLE UNDER THE 39ACT

40 41☛ It indicates that in the passage of warehouse 42receipts through the channels of commerce, the 43law regards the property which they describe as 44following them and gives to their regular transfer 45by indorsement the effect of manual delivery of 46the things specified in them. 47 48DISTINCTION between the right of a person to 49whom a receipt has been negotiated and rights 50of a person to whom a receipt has been 51transferred. 52 53a. Rights of a person to whom a receipt has 54 been negotiated (Sec. 41): 55 1. the title of the person negotiating the 56 receipt over the goods covered by the 57 receipt; 58 2. the title of the person (depositor or 59 owner) to whose order by the terms of 60 the receipt the goods were to be 61 delivered over such goods; and 62 3. the direct obligation of the 63 warehouseman to hold possession of

64 the goods for him, as if the 65 warehouseman directly contracted with 66 him. 67 68b. Rights of a person to whom receipt has 69 been transferred (Sec. 42): may be 70 defeated by levy and execution 71 1. The title of the goods as against the 72 transferor with respect to a negotiable 73 warehouse receipt not duly negotiated 74 (merely steps into the shoes); 75 2. If the receipt is non-negotiable, such 76 person also acquires the right to notify 77 the warehouseman of the transfer 78 thereof; and 79 3. The rights, thereafter, to acquire the 80 obligation of the warehouseman to hold 81 the goods for him. 82 83☛ An unpaid seller’s lien or right of stoppage in 84transitu cannot defeat the right of the holder in 85good faith of NWR. 86 87Sec. 25 of Warehouse Receipt Law

88

89 ☛ If goods are delivered to a 90warehouse man by the owner or by a person 91whose act in conveying the title to them to a 92purchaser in good faith for value would bind the 93owner, and the negotiable receipts is issued for 94them. 95 ☛ While in possession of such 96warehouseman, the goods cannot be attached 97or levied upon under execution UNLESS: 981. The document be first surrendered; or 992. Its negotiation is enjoined; or 1001. The document is impounded by the court. 101 102 Reason: the law protects an innocent 103 purchaser for value in the negotiation of 104 NWR. 105 106☛ Goods covered by NWR cannot be attached 107or levied upon unless receipt is surrendered. 108 109 WAREHOUSEMAN 110☛ A person lawfully engaged in the business of 111storing goods for compensation for such service. 112 113 TO WHOM DELIVERED 114☛ upon demand made by the holder of receipt 115or depositor provided such demand is 116accompanied by : 117 a. an offer to satisfy the WM’s lien; 118 b. an offer to surrender the receipt, if 119 negotiable, with such endorsement as 120 would be necessary for the negotiation 121 of the receipt; and 122 c. a readiness and a willingness to sign, 123 when the goods are delivered, if such 124 signature is requested by the 125 warehouseman. 126

4 Page 98 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE OF LAW, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

1WARRANTIES ON SALE OF RECEIPT: (Sec. 244) 3 4a. that the receipt is genuine; 5b. that he has legal right to negotiate or 6 transfer it; 7c. that he has knowledge of no fact which 8 would impair the validity or worth of the 9 receipt; and 10d. that he has a right to transfer the title to the 11 goods and that the goods are merchantable 12 or fit for a particular purpose whenever such 13 warranties would have been implied, if the 14 contract of the parties had been to transfer 15 without a receipt the goods represented 16 thereby. 17 18

19RETAIL TRADE 20ACT OF 2000 21 (RA 8762) 22

LIBERALIZATION

23PURPOSE 24 25It is the policy of the State: 26☛ to promote consumer welfare in attracting, 27promoting and welcoming productive 28investments that will bring down prices for the 29Filipino consumer, 30☛ create more jobs, 31☛ promote tourism, 32☛ assist small manufacturers, 33☛ stimulate economic growth and 34☛ enable Philippine goods and services to 35 become globally competitive through the 36 liberalization of the retail trade sector. 37ELEMENTS WHICH MUST CONCUR TO 38CONSIDER IT AS RETAIL:

39

40a. the seller must be habitually engaged in 41 selling; 42b. the sale must be direct to the general public; 43c. the object of the sale is limited to 44 merchandise, commodities or goods for 45 consumption (Marsman and Co. vs. First 46 Coconut). 47 48FOREIGN EQUITY PARTICIPATION 49CONSUMER GOODS 50 51☛ Category A – Enterprises with paid – up 52capital of the equivalent in Philippine Peso of 53less than Two million five hundred thousand US 54dollars ( US $2, 500,000.00) shall be reserved 55exclusively for Filipino citizens and corporations 56wholly owned by Filipino citizens. 57 58☛ Category B – Enterprises with a minimum 59paid – up capitail of the equivalent in Philippine 60Pesos of Two million five hundred thousand US 61dollars ( US$2, 500,000.00) but less than Seven 62million five hundred thousand US dollars

63(US$7,500,000.00) may be wholly owned by 64foreigners except for the first two (2) years after 65the effectivity of this Act wherein foreign 66participation shall be limited to not more than 67sixty percent (60%) of total equity. 68 69☛ Category C – Enterprises with a paid – up 70capital of the equivalent in Philippine Pesos of 71Seven million five hundred thousand US dollars 72(US$7, 500,000.00) or more may be wholly 73owned by foreigners : Provided, however, That 74in no case shall the investments for establishing 75a store in Categories B and C be less than the 76equivalent in Philippine Pesos of Eight hundred 77thirty thousand US dollars. (US$830,000.00) 78☛ Category D – Enterprises specializing in 79high-end or luxury products with a paid-up 80capital of the equivalent in Philippine Pesos of 81Two hundred fifty thousand US dollars 82(US$250,000.00) per store may be wholly 83owned by foreigners. 84

85END-USE DOCTRINE

86☛ This means that a person who buys the 87goods acquires them for his own use and not for 88resale, in that case the transaction is retail. 89

90 91 92 93 94 95 96 97 98ANTI-DUMMY LAW 99(CA 108 As Amended) 100 101☛ The law punishes the evasion of 102nationalization laws (by the use of dummies) and 103prohibit them from intervening in the 104management, operation, administration or 105control of any nationalized industries. 106 107ALIENS MAY BE EMPLOYED IN THE 108FOLLOWING CASES: 109 1101. Employment in technical personnel 111 approved by the president upon 112 endorsement of the department head 113 concerned (i.e. the Secretary of Justice or 114 under special laws, by the entity or office 115 concerned, such as the Bureau of 116 Industries, the Director of Mines and Geo117 sciences. 1182. Election of alien directors to the extent 119 allowable and actual foreign equity 120 participation.

4 Page 99 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

1

SAN BEDA COLLEGE, 2000-2001

2

MEMORY AID in COMMERCIAL LAW

3

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

5

4Memory Aid in Commercial Law: