Commercial Law

1
COMMERCI AL LAW
MEMORY AID
ATENEO CENTRAL BAR OPERATIONS 2001
CODE OF COMMERCE
COMMERCE - branch of human activity; purpose is to bring products to the consumer through
operations habitually and with intent of gain
COMMERCIA A! - branch of private law which regulates the "uridical relations arising from
commercial acts
C#ARAC$ERI%$IC% O& COMMERCIA A!'
1. universal
2. uniform
3. e(uitable
4. customary
5. progressive
)OR$IO*% O& CO+E O& COMMERCE %$I A))ICA,E'
1. merchants; boo- of merchants and general provision of contracts
2. "oint account association
3. commercial barter
4. transfers of non-negotiable credits
5. commercial contracts of overland transportation
6. letters of credit
7. maritime commerce
O$#ER%'
1. Commerce - bringing products from the manufacturers to the consumers
2. Characteristics of Commerce'
a. habituality
b. rapidity - if period is fi.ed/ debtor in delay without need of demand; if contract does not
fi. period/ 01 days
c. intent to "oin
3. Merchant'
a. Individuals - legal capacity/ 20 years/ or sub"ect to parental authority/ habitually engaged in
commerce
b. 3uridical )ersons - commercial and industrial company organi4ed in accordance with law/
habitually engaged in business
4. 5eneral Rule' Minors cannot engage in commerce
E.ceptions'
a. to continue business of deceased parents through guardian
b. court authori4es guardian to place minor and property in business
c. minor is an alien and his national law allows him to be a merchant
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COMMERCI AL LAW
MEMORY AID
5. !hich persons are not allowed to engage in commerce6
a. suffering accessory penalty of civil interdiction 7reclusion perpetua and reclusion
temporal8
b. those "udicially declared insolvent until they can obtain their discharge
c. prohibited by Constitution and special laws
6. Aliens
a. capacitated under his national law to engage in business
b. engaged in the business in the )hilippines not reserved for the &ilipinos
c. after securing license and ,OI certificate
7. &amily Code' Either spouse may engage in business; when ob"ected to by the other/ court will
loo- into valid grounds/ i9e9 serious and moral grounds
8. ,OI Certificate must be obtained by'
a. alien
b. foreign firm
9. Meaning of )hilippine *ational
a. citi4en
b. domestic corporation wholly owned and organi4ed by &ilipinos in the )hilippines
c. &ilipino corporation where &ilipino capital entitled to vote is at least :1;
10. Query' If a corporation is a shareholder of another corporation/ how do you determine
whether the latter corporation is a &ilipino national6
Answer' $he following must concur -
a. At least :1; of the outstanding capital stoc- and entitled to vote of both corporations are
held by citi4ens of the )hilippines
b. At least :1; of the ,oard of +irectors of both corporations are &ilipinos
11. $enor of ,OI Certificate
a. ,usiness or activity to be engaged is consistent with the Investment )riorities )lan
b. ,usiness will contribute to the sound and balanced development of the national economy
in a self-sustaining basis
c. ,usiness will not conflict with the Constitution and local laws
d. ,usiness is not ade(uately e.ploited by &ilipino nationals
e. *o danger of monopolies<combinations in restraint of trade
12. ,asic )rinciples<Conditions laid down by ,OI
a. resident agent of foreign firm is a &ilipino citi4en
b. establishment of office in the )hilippines
c. bringing assets tot he )hilippine office as capital
d. complete set of accounting records
13. Merger and Consolidation sub"ect to ,OI re(uirements for the issuance of certificate'
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COMMERCI AL LAW
MEMORY AID
!hen merger and consolidation result in ownership and control of non-&ilipino nationals over
more than =1; of the capital of a consolidated corporation9
14. %EC icense issued upon compliance with the following re(uirements'
a. proof of compliance with principle of reciprocity
b. ,OI certificate
c. Applicant for license gives re(uired information
articles of incorporation
by-laws
names and addresses of resident agents
principal place of business in the )hilippines
d. proof of solvency
e. deposit acceptable securities to protect future creditors
RETAIL TRADE NATIONALIZATION LAW
7*ote' Material on the Retail $rade iberali4ation aw will not be included in this reviewer9
%upplement to follow8
1. Retail $rade - any act/ occupation/ or calling of habitually selling direct to the general public/
merchandise/ commodities/ or goods for consumption
3urisprudence has held that the term >retail? should be associated with and limited to
goods for personal/ family or household use/ consumption and utili4ation9 $he Retail $rade
*ationali4ation aw refers to >consumption goods? or >consumer goods? which directly satisfy
human wants and desires and are needed for home and daily life9 E.cluded from the law are those
goods which are considered generally raw material used in the manufacture of other goods/ or if
not/ as one of the component raw material/ or at least as elements utili4ed in the process of
production and manufacturing9
2. Elements of !hat Constitutes Retail $rade'
a. $he seller habitually engages in selling;
b. $he sale is direct to the general public; and
c. $he ob"ect of the sale is limited to merchandise/ commodities or goods for consumption9
3. 5eneral Rule' After 0@:=/ only &ilipinos or corporations whose capital is 011; &ilipino may
engage in retail trade9
4. E.ceptions/ that is/ instances when aliens may engage in retail trade in the )hilippines'
a. manufacturer or processor if capital does not e.ceed )A/111911;
b. farmer or agriculturist when selling his products;
c. manufacturer or processor selling to industrial or commercial users or consumers who use
the produce to render service to the general public or to produce or manufacture goods
which are sold by them to the public;
d. hotel owners or -eepers of restaurants included or incidental to the hotel business;
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COMMERCI AL LAW
MEMORY AID
e. sale by a manufacturer or processor to the 5overnment or its agencies/ including
government owned and controlled corporations
5. Query: #ow to determine citi4enship of shares of the corporation when they are not held
directly by individuals/ but in turn held by another entity6
Answer' apply the 5RA*+&A$#ER RBE/ to wit'
%hares belonging to corporations or partnerships at least :1; of the capital of which is
owned by &ilipino citi4ens shall be considered as )hilippine nationality/ but if the percentage of
&ilipino ownership in the corporation or partnership is less than :1;/ only the number of shares
corresponding to such percentage shall be counted as of )hilippine nationality9 $hus/ if 011/111
shares are registered in the name of a corporation or partnership at least :1; of the capital stoc-
or capital respectively/ of which belong to &ilipino citi4ens/ all of the said shares shall be recorded
as owned by &ilipinos9 ,ut/ if letCs say/ A1; of the capital stoc- belongs to &ilipino citi4ens/ only
A1/111 shares shall be counted as owned by &ilipinos and the other A1/111 shares shall be
recorded as belonging to aliens9
#owever/ while a corporation with :1; &ilipino and =1; foreign e(uity ownership is
considered a )hilippine national for purposes of investment/ it is not (ualified to invest in or enter
into a "oint venture agreement with corporations or partnerships/ the capital or ownership of
which under the Constitution or other special laws are limited to &ilipino citi4ens only9 #ence/ for
purposes of the law/ whatever the percentage of &ilipino ownership in the owning corporation/
the foreign ownership would always render a portion of its holding in the company as foreign
e(uity and would dis(ualify the corporation to engage in retail trade9
ANTI-DUMMY ACT
1. $he Act penali4es &ilipinos who permit aliens to use them as nominees or dummies to en"oy
privileges reserved for &ilipinos or &ilipino corporations9 Criminal sanctions are imposed on
the president/ manager/ board member or persons in charge of the violating entity and causing
the latter to forfeit its privileges/ rights and franchises9
2. +is(ualified aliens cannot intervene in the management/ operation/ administration or control
of the business reserved to &ilipinos whether as an officer/ employee or laborer/ with or
without remuneration/ e.cept when'
a. alien ta-es part in technical aspects;
b. provided that no &ilipino can do such technical wor-; and
c. with e.press authority from the )resident/ upon the recommendation of the department
head concerned9
3. ,y way of e.ception/ the following may participate in management'
a. Aliens may be elected to the ,oard of +irectors to the e.tent of their allowable share in
the capital of the corporation 7in partially nationali4ed industries89
b. A registered enterprise may employ foreign nationals in supervisory/ technical/ and
advisory positions for a period of A years sub"ect to e.tension9
c. !here ma"ority of stoc-s of a pioneer enterprise is owned by foreign investors/ the
following positions may be held by foreign nationals'
president
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COMMERCI AL LAW
MEMORY AID
treasurer
general manager
e(uivalent positions
4. A &ilipino common-law wife of an alien is not barred from engaging in the retail business
provided she uses capital e.clusively derived from her paraphernal properties; however/
allowing her common-law alien husband to ta-e part in the management of the retail business
would be a violation of the law9
5. !hat doing business means'
a. soliciting orders/ purchases/ service contracts;
b. opening offices whether called liaison offices or branches;
c. appointing representatives or distributors who are domiciled in the )hilippines or who in
any calendar year stay in the country for a period totaling 0D1 days or more;
d. participating in the management or supervision or control of any domestic firm/ entity or
corporation in the )hilippines;
e. any other act or acts that imply continuity in commercial dealings
6. !hen commissioned merchants<investors or commercial bro-ers act in their own name in
selling foreign products/ the foreign firm manufacturing these products is not doing business in
the )hilippines9
7. !hen a local corporation or person acts in the name of a foreign firm/ the latter is doing
business in the )hilippines9
8. $he following are *O$ doing business'
a. mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business;
b. e.ercise of rights as such investor;
c. having a nominee director or officer to represent interests in such corporation;
d. appointing a representative or distributor domiciled in the )hilippines which transacts
business in its own name and for its own accounts9
TRUST RECEIPTS LAW
1. )urpose'
a. to encourage use of and to promote transactions based on trust receipts;
b. to regulate the use of trust receipts
2. +efinition'
A written<printed document signed by the E*$RB%$EE in favor of the E*$RB%$ER
whereby the latter releases the goods/ documents or instruments tot he possession of the former
upon the E*$RB%$EEC% promise to hold said goods in trust for the E*$RB%$ER/ and to sell
the goods/ etc9 !I$# $#E O,I5A$IO* $O $BR* OEER $#E )ROCEE+% $#EREO& $O
$#E EF$E*$ O& !#A$ I% O!I*5 $O $#E E*$RB%$ER; or to return the goods if
B*%O+/ or for other purposes9
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COMMERCI AL LAW
MEMORY AID
3. $rust receipts are denominated in )hilippine currency or acceptable and eligible foreign
currency9
4. E*$RB%$ER is not liable as principal or vendor under any sale or contract to sell made by
the E*$RB%$EE9
5. Ris- of loss is borne by the E*$RB%$EE9
6. )ending the duration of the trust agreement/ the E*$RB%$ERC% security interest cannot be
pre"udiced by claims of creditors of the E*$RB%$EE9
7. oss of goods pending the dispossession shall not e.tinguish the obligation to the
E*$RB%$ER for the value thereof9
LETTERS OF CREDIT
1. Ginds'
a. Commercial etters of Credit
b. $ravelerCs etters of Credit
2. *o protest re(uired in case of dishonor9
3. Issued to definite persons and not to order/ thus/ non-negotiable9
4. imited to a fi.ed account9
PRICE TAGS LAW
1. It re(uires articles of commerce sold at retail to bear prices9
JOINT ACCOUNTS
1. It e.ists when a merchant interests himself in the transaction of another merchant/ contributing
thereto the amount of capital they may agree upon/ and participating in the favorable or
unfavorable results thereof in the proportion they may determine9
2. 3oint accounts do not adopt a firm name9
3. *o suit may be maintained - investor and third persons dealing with the merchant conducting
business9
4. It is not sub"ect to any formal re(uirement for validity; it may be oral9
BULK SALES LAW
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COMMERCI AL LAW
MEMORY AID
1. )urpose' meant to protect creditors of businessmen against preferential or fraudulent transfers
2. $he law covers all transactions/ whether done in good faith or not, or whether or not the
seller is in a state of insolvency/ that fall within the description of what is a >bul- sale?9
3. $ypes of transactions which are treated as >bul- sales?'
a. %ale/ transfer/ mortgage or assignments of a stoc- of goods/ wares/ merchandise/
provisions/ or materials otherwise than in the ordinary course of trade;
b. %ale transfer/ mortgage or assignments of all/ or substantially all/ of the business of the
vendor/ mortgagor/ transferor/ or assignor;
c. %ale/ transfer/ mortgage/ or assignment of all/ or substantially all/ of the fi.tures and
e(uipment used in the business of the vendor/ mortgagor/ transferor/ or assignor9
4. Only creditors at the time of the sale in violation of the law are within the protection of the
laws and creditors subse(uent to the sale are not covered9
5. Even if the transaction falls within the definition of >bul- sale?/ the following are not deemed
covered by the law'
a. If the vendor/ mortgagor/ transferor or assignor produces and delivers a written waiver of
the provisions of the law from his creditors as shown by verified statements;
b. $he law does not apply to e.ecutors/ administrators/ receivers/ assignees in insolvency/ or
public officers/ acting under process9
6. Obligations when transaction is a bul- sale'
a. $he vendor must deliver to such vendee a written statement of'
names and addresses of all creditors to whom said vendor or mortgagor may be
indebted;
amount of indebtedness due or owing to each of said creditors
b. $he vendor must apply the purchase money to the pro-rata payment of bona fide claims of
the creditors as shown in the verified statement9
c. $he seller/ at least 01 days before the sale/ shall'
ma-e a full detailed inventory of the goods/ merchandise/ etc9/ cost price of each
article to be included in the sale
notify every creditor at least 01 days before transferring possession of the goods/ of
the price/ terms and conditions of the sale
7. Conse(uences of Eiolation of Re(uirements under H: above stated'
a. !hen :7a8 above is not complied with/ the sale itself is void; the seller will be criminally
liable9
b. !hen :7b8 above is not complied with/ the sale itself is also void; seller is also criminally
liable9
c. !hen :7c8 is not complied with/ the sale is not void; no criminal liability on the seller9
INSURANCE LAW
8
COMMERCI AL LAW
MEMORY AID
1. aws applicable to insurance in the order of priority'
a. Insurance Code
b. Civil Code
c. 5eneral )rinciples prevailing on the sub"ect in the B%
2. Contract of Insurance - an agreement whereby one underta-es for a consideration to
indemnify another against loss/ damage or liability arising from an un-nown contingent event
3. Contract of %uretyship - deemed to be an insurance contract within the meaning of the
Insurance Code/ only if made by a surety who or which/ as such/ is doing an insurance
business
4. +efinition of >doing an insurance business?'
a. ma-ing or proposing to ma-e/ as insurer/ any insurance contract;
b. ma-ing or proposing to ma-e as a surety/ any contract of suretyship as a vocation and not
merely incidental to any other legitimate business or activity of the surety;
c. doing reinsurance business;
d. doing or proposing to do any business in the substance e(uivalent to any of the foregoing
in a manner designed to evade the provisions of the Insurance Code9
5. Re(uisites of Insurance'
a. e.istence of an insurable interest;
b. ris- of loss;
c. assumption of ris-;
d. scheme to distribute losses; and
e. payment of premiums
*ote' If only a/ b/ and c are present/ it is not a contract of insurance but a ris- shifting
device9
6. Characteristics of an insurance contract'
a. consensual
b. voluntary
c. aleatory - depends upon some contingent event; however/ it is not a wagering nor a
gambling contract
d. e.ecuted as to the insured after payment of the premium
e. e.ecutory as to insurer - not e.ecuted until payment for a loss
f. personal - each party ta-es into account the character/ credit and the conduct of the other
g. conditional - liability is based on the happening of the event insured against
7. )arties to a contract of Insurance'
a. insurer - party who assumes the ris- or underta-es to indemnify the insured or to pay a
certain sum on the happening of a specified contingency
b. insured - person in whose favor the contract is operative/ and who is indemnified against/
or is to receive a certain sum upon the happening of a specified contingency
c. beneficiary - may or may not be the same as the insured
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COMMERCI AL LAW
MEMORY AID
!hat perils may be insured6
(a) any contingent or un-nown event/ whether past or future/ which may damnify a person
having an insurable interest; or
(b) any contingent or un-nown event/ whether past or future/ which may create a liability
against the person insured9
8. Every person has an insurable interest in the life and health of'
a. himself/ his spouse and his children
b. any person on whom he depends wholly or in part for education or support/ or in whom he
has a pecuniary interest
c. any person under a legal obligation to him for the payment of money/ or respecting
property or services/ of which death or illness might prevent the performance or delay it
d. any person upon whose life any estate or any interest vested in him depends
9. Insurable Interest in )roperty may consist of'
a. an e.isting interest
b. an inchoate interest/ founded on an e.isting interest
c. an e.pectancy/ coupled with an e.isting interest out of which the e.pectancy arises
+efinition of Insurable Interest in )roperty' Interest in property/ whether real or personal/
or any relation thereto/ or liability in respect thereof/ of such nature that a contemplated
peril might directly damnify the insured9
10. Instances when Insurable Interest must e.ist'
a. Interest in )roperty insured must e.ist when the insurance ta-es effect and when the loss
occurs/ but need not e.ist in the meantime9
b. Interest in the ife or #ealth of a )erson Insured must e.ist when the insurance ta-es
effect/ but need not e.ist thereafter or when the loss occurs9
c. ,eneficiaries of ife Insurance need not have insurable interest in the life of the insured9
d. ,eneficiaries of )roperty Insurance must have insurable interest in the property insured9
Category I!"ra#$e Itere!t % L%&e I!"ra'e I!"ra#$e Itere!t % Pro(erty
09 basis may be based on pecuniary interest/
affinity/ or consanguinity
based purely on pecuniary interest
29 when interest must e.ist at the time the policy ta-es effect
EFCE)$' life insurance ta-en by the
creditor on the life of the debtor wherein
interest must also e.ist at the time of the
loss
at the time the policy ta-es effect
and at the time of the loss
I9 amount of insurable
interest
no limit EFCE)$' if insurable interest
is based on creditor-debtor relationship
7only to the e.tent of the credit or debt8
limited to the actual value of
damage<in"ury<loss
11. 5eneral Rule' A change of interest in any part of a thing insured unaccompanied by a
corresponding change in interest in the insurance suspends the insurance to an e(uivalent
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COMMERCI AL LAW
MEMORY AID
e.tent/ until the interest in the thing and the interest in the insurance are vested in the same
person9
E.ceptions' a9 In case of life/ health/ and accident insurance
b. when the change in interest results after the occurrence of an in"ury which
results in a loss
c. a change of interest in one or more several distinct things/ separately insured by
one policy
d. a change in the interest by will or succession on the death of the insured
7interest passes to the heirs8
e. a transfer of interest by one of several partners/ "oint owners in common who
are "ointly insured to the others 7even though it has been agreed that the
insurance shall sei4e upon the alienation of the thing insured8
12. Revocation of ,eneficiaries
5eneral Rule' Insurance contracts are revocable9
E.ception' Any person who is forbidden to receive any donation under Article JI@ of the
Civil Code cannot be named beneficiary of a life insurance policy by the person who
cannot ma-e the donation to him9
$he following donations shall be void'
a. those made between persons who were guilty of adultery or concubinage at the time
of the donation;
b. those made by persons found guilty of the same criminal offense/ in consideration
thereof;
c. those made to a public officer or his wife/ descendants/ ascendants/ by reason of his
office9
Other )ertinent )rovisions on Revocation'
(a) $he termination of a subse(uent marriage shall allow the innocent spouse to revo-e
the designation of the other spouse who acted in bad faith as beneficiary in any
insurance policy/ even if such designation be stipulated as irrevocable9
(b) After the finality of the decree of legal separation/ the innocent spouse may revo-e the
donations as well as the designation of the latter as a beneficiary in any insurance
policy/ even if such designation is irrevocable9 $he revocation of or change in the
designation shall ta-e effect upon written notification thereof to the insured9 $he
action to revo-e the donation under this article must be brought within A years from
the time the decree of legal separation has become final9
(c) $he interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal/ accomplice or accessory in willfully bringing about the
death of the insured/ in which event/ the nearest relative of the insured shall receive the
proceeds of said insurance if not otherwise dis(ualified9
13. %uspension - a change of interest in any part of a thing insured unaccompanied by a
corresponding change of interest in the insurance suspends the insurance to an e(uivalent
e.tent until the interest in the thing and the interest in the insurance are vested in the same
person9
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COMMERCI AL LAW
MEMORY AID
14. Concealment - a neglect to communicate that which the party -nows or ought to
communicate
5eneral Rule' $he insured is not re(uired to communicate the nature 7or -ind8 or the
amount of his insurable interest in the life or property insured to the insurer9
E.ception' a9 !hen the insurer ma-es in(uiry from the insured of the nature or amount
of the latterCs insurable interest/ whether in life or property insurance;
b. insurance policy must specify the interest of the insured in the property
insured/ if he is not the absolute owner thereof9
A concealment/ whether intentional or not/ entitles the in"ured party to rescind a contract
of insurance9
Re(uisites'
(a) the party concealing must have -nowledge of the facts concealed;
(b) the facts concealed must be material to the ris-;
(c) the party is duty bound to disclose such fact to the other;
(d) the party concealing ma-es no warranty as to the facts concealed;
(e) the other party has no other means of ascertaining the facts concealed9
*ote' An insured need not die of the very disease he failed to reveal to the insurer9 It is
sufficient that the non-revelation has misled the insurer in forming his estimate of the
disadvantages of the proposed policy or in ma-ing his in(uiries in order to entitle the
insurance company to avoid the contract9
*ote' $he insured is under an obligation to disclose not only such material facts as are
-nown to him/ but also those -nown to his agent where'
a. it was the duty of the agent to ac(uire and communicate information of the facts in
(uestion;
b. it was possible for the agent/ in the e.ercise of reasonable diligence/ to have made the
communication before the ma-ing of the insurance contract9
&ailure on the part of the insured to disclose such facts -nown to his agent/ or wholly
due to the fault of the agent/ will avoid the policy/ despite the good faith of the insured9
15. *either party to the insurance contract is bound to communicate information on the following
matters e.cept in answer to the in(uiries of the other'
a. those of which the other -nows;
b. that which/ in the e.ercise of ordinary care/ the other ought to -now and of which the
former has no reason to suppose his ignorance/ i9e9 political situation/ general usages of
trade;
c. those of which the other waives communication;
d. those which prove or tend to prove the e.istence of the ris- e.cluded by a warranty and
which are not otherwise material;
e. those which relate to a ris- e.cepted from the policy and which are not otherwise material9
*either party is bound to communicate his mere opinion/ even upon in(uiry/ because such
opinion would add nothing to the appraisal of the application9
!aiver of material facts may be'
(a) by the terms of the insurance; or
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COMMERCI AL LAW
MEMORY AID
(b) by the neglect to ma-e in(uiry as to such facts/ where they are distinctly implied in
other facts which information is communicated
Materiality is to be determined not by the events but solely upon the probable and
reasonable influence of the facts on the party to whom the communication is due in
forming his estimate of the disadvantages of the proposed contract or in ma-ing his
in(uiries9
Concealment/ whether intentional or not/ entitles the other party to rescind the contract9
16. Representation
It is a factual statement made by the insured at the time of/ or prior to/ the issuance of the
policy/ to give information to the insurer and otherwise induce him to enter into the insurance
contract9
It may be made orally or in writing9
It may be made at the time of/ or before/ the issuance of the policy9
It may be altered or withdrawn before the insurance is effected/ but not afterwards9
A representation cannot (ualify an e.press provision in a contract of insurance but it may
(ualify an implied warranty9
A representation as to the future is to be deemed a promise unless it appears that it was merely
a statement of belief or an e.pectation9 7must be susceptible of present/ actual -nowledge8
$he statement of an erroneous opinion/ belief or information/ or of an unfulfilled intention/
will not avoid the contract of insurance/ unless fraudulent9
Right to rescind because of false representation'
a. must be e.ercised previous to the commencement of an action on the contract 7the action
referred to is that to collect a claim on the contract8
b. misrepresentation/ whether intentional or not/ gives the right to rescind
Incontestable Clause' After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the insured for a period of 2 years from
the date of its issue or of its last reinstatement/ the insurer cannot prove that the policy is void
ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the
insured or his agent9
E.ceptions' 7a8 absence of insurable ris-
(b) cause of loss is an une.pected ris-
(c) fraud
(d) non-payment of premium
(e) violation of conditions relating to naval or military services
(f) failure to comply with conditions subse(uent to the occurrence of the loss
17. !arranties'
5eneral Rule' *on-performance of a promissory warranty avoids a contract of insurance9
E.ceptions'
a. when before the time for performance of the promissory warranty/ a loss insured
against occurs;
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COMMERCI AL LAW
MEMORY AID
b. when before the time of the performance of the warranty/ the act becomes unlawful;
c. when before the time of the performance of the warranty/ said performance becomes
impossible9
A statement or a promise set forth in the policy or by reference incorporated therein/ the
non-fulfillment of which in any respect and without reference to whether the insurer was in
fact pre"udiced by such non-fulfillment/ renders the policy voidable by the insurer/ wholly
irrespective of the materiality of such statement or promise9
Warraty Re(re!etat%o
part of the insurance contract collateral inducement
always written on the policy maybe oral or written
conclusively presumed material materiality must be proved
must be strictly complied with re(uires substantial truth
made by the insured may be made by insurer or insured
*ote' If there is a breach of warranty/ even if the cause of the loss is a different ris-/ the
insurer is entitled to rescind the contract of insurance9
,reach must refer to a material warranty/ whether intentional or not9
18. )olicy
!hat is a Rider6 It is an additional provision in a policy not part of the body of the printed
form9
Cover *ote' written memorandum of the most important terms of a preliminary contract
of insurance/ intended to give temporary protection pending the investigation of the ris- by
the insurer/ or until the issuance of a formal policy9
5eneral Rule' Cover notes bind insurer temporarily pending the issuance of the policy9
E.ception' !here it is merely an ac-nowledgment on behalf of the company that the
latterCs branch office had received from the applicant the insurance premium and accepted
the application sub"ect for processing by the insurance company and that the latter will
either approve or re"ect the same9
Ginds of )olicies'
a. Open - the value of the thing insured is not agreed upon/ but is left to be ascertained at
the time of the loss
b. Ealued - e.presses on its face an agreement that the thing insured shall be valued at a
specific sum
c. Running - contemplates successive insurance which provides that the ob"ect of the
policy may be from time to time defined especially as to the sub"ect of insurance by
additional statements or endorsements
*ote' If an amount is written on the face of an open policy/ it is merely a
determination of the ma.imum limit of recovery and not as the value of the policy9
Category O(e Po$%'y )a$"e* Po$%'y
what needs to be proven in
order to be able to claim
value of property upon loss no need for proof of value of property
upon loss
determining value of loss value of property is to be value of property upon loss is
14
COMMERCI AL LAW
MEMORY AID
ascertained upon loss conclusively stipulated to a specified
amount
)eriod for commencing an action against the policy' !ithin 0 year from the time the
cause of action accrues/ i9e9/ from the time of re"ection of the claim by the insurer9 Any
condition/ stipulation/ or agreement limiting the time to less than 0 year is void9
5rounds for Cancellation of a )olicy by the Insurer'
For Policies Other than Life:
(1) prior notice of the cancellation to insured
(2) notice must be based on the ff9 occurrences after effective date of the policy
(a) non-payment of premiums
(b) conviction of a crime arising out of acts increasing the ha4ard insured
against
(c) discovery of fraud or material misrepresentation
(d) discovery of willful or rec-less acts or omissions increasing the ha4ard
insured against
(e) physical changes in the property insured which results in the property
becoming uninsurable
(f) determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of the Insurance Code
(3) notice must be in writing
(4) it must be mailed or delivered to the insured at the address shown in the policy
(5) notice must state the ground relied upon and that upon written re(uest of the
insured/ the insurer will furnish facts on which the cancellation is based
Renewal of the )olicies Other than ife'
Insurer must mail or deliver to the insured notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of coverages
within =A days before the policy ends9 Otherwise/ insured entitled to renew the policy upon
payment of the premium due on the effective date of the renewal9
19. )remium
5eneral Rule' *o policy is binding until the premium thereof has been paid9
E.ceptions' 7a8 in case of life or industrial life policy/ whenever the grace period applies
(b) in case of estoppel
Insurer is entitled to payment of premiums as soon as the thing insured is e.posed to the
perils insured against9
!hen insurer entitled to Return of )remiums
a. when the contract is voidable on account of fraud or misrepresentation of the insurer;
b. when on account of facts/ the e.istence of which the insured was ignorant without his
fault
c. when by any default of the insured other than actual fraud/ the insurer never incurred
any liability under the policy
d. when the insured has become a public enemy and the policy automatically canceled 7on
the ground of e(uity8
15
COMMERCI AL LAW
MEMORY AID
e. in case of over-insurance by several insurers 7ratable return of premiums/ proportioned
to the amount by which the aggregate sum insured in all policies e.ceed the insurable
value of the thing at ris-8
20. oss
!hen Insurer is iable'
a. where the peril insured against was the pro.imate cause/ although a peril not
contemplated by the contract may have been the remote cause or even the immediate
cause of the loss
b. where the thing insured is rescued from the peril insured against that would otherwise
have caused a loss/ if/ in the course of such rescue/ the thing is e.posed to a peril not
insured against/ which permanently deprives the insured of its possession in whole or in
part
c. where loss is caused by efforts to rescue the thing insured from a peril insured against
d. insurer is not e.onerated by a loss caused by simple negligence of the insured if the
pro.imate cause of the loss is a peril insured against
e. loss/ the immediate cause of which is a peril insured against e.cept when the pro.imate
cause is an e.cepted peril
!hen Insurer *ot iable'
a. where the peril insured against was only a remote cause
b. where the peril is specifically e.cepted/ a loss which would not have occurred but for
such peril is thereby e.cepted
c. loss caused by the connivance of the insured
d. loss caused by the willful act of insured
e. loss caused by insuredCs negligence/ if it amounts to bad faith
5eneral Rule' $he insurer is not liable for a loss caused by the willful act of the insured9
E.ception' %uicide Clause in ife Insurance' Insurer liable in case insured committed
suicide after the policy has been in force for a period of 2 years from the date of its issue or
last reinstatement9 If insured -ills himself within a period of 2 years/ insurer is not liable9
E.ception to E.ception' If suicide is committed in a state of insanity/ regardless of the
time of commission/ the insurer is liable9
21. +ouble Insurance - e.ists where the same person is insured by several insurers separately in
respect to the same sub"ect and interest
Re(uisites' a9 person insured must be the same
b. e.istence of several insurers
c. sub"ect matter insured must be the same
d. interest the same
e. ris- insured against also the same
O+er I!"ra'e Do"#$e I!"ra'e
may be only one insurer must be 2 or more insurers
16
COMMERCI AL LAW
MEMORY AID
insurance covers more than the value of insurable
interest
Insurance may or may not e.ceed the value of
insurable interest
$he Code prohibits double insurance without the consent of the insurer9
iability of Insurer'
Insurance ta-en
from each insurer
---------------------------------- . value of property received K liability of insurer
total insurance
22. Reinsurance' A process by which an insurer procures a third person to insure him against loss
or liability by reason of such original insurance9
$he original insured cannot recover from this insurance unless there is a specific grant/ or
assignment of/ the reinsurance contract in favor of the insured/ or a manifest intention of the
contracting parties to the reinsurance contract to favor the insured9
5eneral Rule' $he insurer who obtains reinsurance must communicate'
a. all the representations of the original insured; and
b. all the -nowledge and information he possesses/ whether previously or
subse(uently ac(uired which are material to the ris-
E.ception' under automatic reinsurance treaties
Re%!"ra'e Do"#$e I!"ra'e
1. insurer becomes the insured
2. sub"ect matter is the insured ris- or liability
3. different ris-s and interests of insured
4. there must be consent of original
5. one who is original insured has no interest in the
contract of reinsurance which is independent of
the original contract of insurance
1. insurer remains the insurer
2. sub"ect matter is property
3. the same interest and ris- are insured
4. insured has to give his consent
5. insured is the party in interest in all contracts
23. Marine Insurance' insures against perils of the sea/ not of the ship
Per%$! o& t,e Sea Per%$! o& t,e S,%(
covered by marine insurance not covered by marine insurance
denote nature accidents peculiar to the sea which do
not happen by intervention of man nor are to be
prevented by human prudence
damage or losses resulting from'
1. natural and inevitable action of the sea
2. ordinary wear and tear of a ship/ or
3. negligent failure of the ship owner to provide
the vessel with proper e(uipment to convey the
cargo under ordinary conditions
Owner of the %hip has Insurable Interest'
17
COMMERCI AL LAW
MEMORY AID
a. in the ship even if it has been chartered by one who promises to pay him in value in
case of loss 7insurer is liable for what insured cannot recover from the charterer8/ even
when hypothecated by bottomry 7only the e.cess of its value over the amount secured
by bottomry8 and
b. in the freightage/ which according to the ordinary and probable course of things he
would have earned but for the intervention of a peril insured against or other peril
incident to the voyage
Charterer has insurable interest in the ship to the e.tent that he is liable to be damnified by its
loss9
,arratry' Any willful misconduct on the part of the masters or crew/ in pursuance of some
unlawful or fraudulent purpose/ without the consent of the owners and to the pre"udice of
the ownerCs interest9
3ettison' Intentional casting overboard of any part of a venture e.posed to a peril/ whether it
be of the cargo/ or the shipCs furniture or tac-le/ in the hope of saving the rest of the
venture9
Insurable Interest in Marine Insurance' +etermined when one will sustain loss from the
destruction of the sub"ect matter or derive benefit from its preservation9
Charter )arty' Contract by virtue of which the owner or the agent of a vessel binds himself to
transport merchandise or persons for a fi.ed price9 It has also been defined as a contract by
virtue of which the owner or the agent of the vessel for the transportation of goods or
persons from one port to another9
oan on ,ottomry' Contract in the nature of a mortgage whereby the owner of a ship
borrows money for the use/ e(uipment or repair of the vessel for a definite term/ and
pledges the ship as a security for repayment/ with maritime or e.traordinary interest on the
account of the maritime ris-s to be borne by the lender9 It is stipulated in such a contract
that if the ship be lost in the course of the specific voyage or during a specified limited time
caused by any of the perils enumerated in the contract/ the lender shall resolutely lose his
money9
oan on Respondentia' Contract a-in to that of mortgage made on the goods on board the
ship/ and which are to be sold or e.changed in the course of the voyage9 $he goods serve
as the principal security9
&reightage' %ignifies all the benefits derived by the owner/ carriage of his own goods/ or
those of others9
Concealment' In marine insurance/ information or the belief or e.pectation of a I
rd
person/ in
reference to a material fact is material9
18
COMMERCI AL LAW
MEMORY AID
Concealment of the following merely e.onerates the insurer from the resulting loss
therefrom'
a. national character of the insured
b. liability of the thing insured to capture and detention
c. liability to sei4ure from breach of foreign laws of trade
d. want of necessary documents
e. use of false and simulated papers
Implied !arranties'
a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of
commencement of ris-/ e.cept' 7a8 insurance for a specified length of time - at the
commencement of every voyage it underta-es during that time; 7b8 cargo to be
transshipped at indeterminate port - each vessel upon which cargo is shipped is
seaworthy at the commencement of each particular voyage
b. that the vessel shall not engage in illegal venture
c. that the vessel shall not deviate from the course of the voyage insured
d. where the nationality or neutrality of a ship or cargo is e.pressly warranted/ it is implied
that the ship will carry the re(uisite documents to show such nationality or neutrality and
that it will not carry any documents which may cast reasonable suspicion thereon
%eaworthiness depends on'
a. nature of the ship
b. nature of the voyage
c. nature of the service
%eaworthiness of the vessel is re(uired only at the commencement of the ris-
E.ceptions'
a. in a $ime )olicy - commencement of every voyage that must be underta-en
b. in a Cargo )olicy - commencement of each particular voyage
c. in a Eoyage )olicy - commencement of each portion of the voyage
+eviation
a. a departure from the course of the voyage insured
b. unreasonable delay in pursuing the voyage
c. commencement of an entirely different voyage
!hen is +eviation proper6
a. when caused by circumstances over which neither the master not the owner of the ship
has any control
b. when necessary to comply with a warranty or to avoid a peril whether it is insured
against or not
c. when made in good faith for the purpose of saving human life or relieving another vessel
in distress
d. when made in good faith and upon reasonable grounds of belief in its necessity to avoid a
peril
19
COMMERCI AL LAW
MEMORY AID
oss
a. Actual $otal oss
a total destruction of the thing insured
the irretrievable loss of the thing by sin-ing or by being bro-en up
any damage to the thing which renders it valueless tot he owner for which he held it
any other event which effectively deprives the owner of possession/ at the port of
destination/ of the thing insured
a. Constructive $otal oss - gives to the person insured the right to abandon
Average - any e.traordinary or additional e.pense incurred during the voyage for the
preservation of the vessel/ cargo/ or both and all damages to the vessel and cargo from the
time it is loaded and the voyage commenced until it ends and the cargo unloaded
5eneral Average - an e.pense or damage suffered deliberately in order to save the vessel/ its
cargo/ or both from the real or -nown ris-
Abandonment - act of the insured by which/ after a constructive total loss/ he declares the
relin(uishment to the insured of his interest in the thing insured 7where the cause of loss is a
peril insured against8
(a) more than L thereof in value is actually lost or would have been e.pended to recover it
from the peril
(b) it is in"ured to such an e.tent as to reduce its value by more than L
(c) if the thing insured is the ship and the voyage cannot be lawfully performed without
incurring an e.pense of more than L of the whole/ or a ris- which a prudent man would
not underta-e under the circumstances
(d) if the thing insured is cargo or freightage/ and the voyage cannot be performed on
another ship procured by the master within a reasonable time and with reasonable
diligence to forward the cargo without incurring an e.pense or a ris- as stated above
&reightage cannot be abandoned unless ship is also abandoned9
Re(uisites of a Ealid Abandonment'
a. must be total and conditional
b. made within a reasonable time
c. e.plicit notice
d. coupled with actual abandonment
Re(uisites for Ealid Ealuation in the Ealued Marine )olicy'
a. insured must have interest at ris-
b. there must be no fraud on the insuredCs part
*otice of Abandonment'
a. may be oral or in writing 7if oral/ written notice must be submitted within J days from
oral notice8
b. must be e.plicit
20
COMMERCI AL LAW
MEMORY AID
c. must specify the particular cause for abandonment
d. need not be accompanied by proof of interest or loss
Acceptance of Abandonment
a. may be e.press or implied 7i9e9 silence for unreasonable length of time8
b. conclusive upon the parties and admits the loss and sufficiency of abandonment
c. irrevocable/ unless the ground on which it is made is proved to be unfounded
If insurer refuses to accept a valid abandonment - liable as upon actual total loss
Bpon actual abandonment
a. freightage earned before loss - belongs to the insurer of freightage
b. freightage earned after loss - belongs to insurer of ship
Co-insurance' form of insurance in which the person who insures his property for less than
the entire value is understood to be his own insurer for the difference which e.ists between
the true value of the property and the amount of insurance
Co-insurance applies only where the'
a. insurance ta-en is less than the actual value of the thing insured
b. loss is partial
)rimage - increase in freightage
24. &ire Insurance
Insurer is liable for loss or damage caused by hostile fire 7fire that escapes from the place
where it was intended to burn and ought to be in8 and not that caused by friendly fire 7fire which
burns in a place where it is intended to burn89
%cope of &ire Insurance'
a. fire
b. lightning
c. windstorms
d. tornado
e. earth(ua-e
f. other allied ris-s
!hen does alteration in the use or condition entitle the insurer to rescind the contract6
a. such alteration violates a provision in the policy
b. it was made without the insurerCs consent
c. it is done within the insuredCs control/ and it increases the ris- of loss or damage
Rules'
a. policy shall not protect the insured from in"ury conse(uent upon his negligent use or
management of fire/ so long as it is confined to the place where it ought to be
21
COMMERCI AL LAW
MEMORY AID
b. if it escapes/ even though the insured was negligent/ the insurer is liable
c. even though a fire may remain in its proper place/ it may become hostile if it by accident/
becomes so e.tensive as to be beyond control
Options of the Insurer
a. purchase the property at appraised valuation
b. restore the property damaged - contract of insurance is discharged and parties enter into
a new contract of insurance
25. Casualty Insurance' Any in"ury that is intended/ une.pected and unusual/ even though it
results from an act or even which was intelligently done9
Insurer is iable for death<in"ury to insured'
a. by his own hand while insane
b. by ta-ing poison by mista-e
c. by overdoes of drugs administered or ta-en by mista-e/ by ignorance or material
pathological conditions
d. by une.pected bacterial infection conse(uent upon doing acts/ even though such acts
were intentionally done
e. by unprovo-ed violence of others
Compulsory Motor Eehicle iability Insurance
)ersons sub"ect to CMEI'
a. motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose
name such vehicle is registered with the $O
b. land transport operator or one who is the owner of a motor vehicle or vehicles being
used for conveying passengers for compensation 7including school buses8
*o &ault Indemnity Clause' $he insurance company shall pay any claim for death or bodily
in"uries sustained by a passenger or I
rd
party without the necessity of proving fault or
negligence of any -ind sub"ect to certain conditions9 $his does not apply to property
damage9
26. %uretyship - an agreement whereby the surety guarantees the performance of the principal or
obligor of an obligation or underta-ing in favor of a I
rd
party called the obligee
27. ife Insurance' an insurance in human life and insurance appertaining thereto or connected
therewith may be payable'
a. on the death of the insured
b. on his surviving a specified period
c. otherwise/ contingently on the continuance or cessation of life
7b and c refer to endowment or annuities8
Bses and Common Ginds of ife Insurance'
22
COMMERCI AL LAW
MEMORY AID
a. !hole ife or Ordinary )olicies - here/ the insured agrees to pay annual/ semi-annual
or (uarterly premiums while he lives9 $he insurer agrees to pay the face value of the
policy upon the death of the insured9
b. imited )ayment ife )olicy - premiums paid only for a specified period of years9
c. $erm )olicy - insurerCs liability arises only upon the death of the insured within the
agreed term as period9 If the latter survives the period/ the contract terminates and
the insurer is not liable
d. Endowment )olicy - insurer agrees to pay a certain sum to the insured if the latter
outlives a designated period; if he dies before that time/ the proceeds are paid to the
beneficiary
e. ife Annuity - debtor binds himself to pay an annual pension or income during the life
of one or more persons in consideration of a capital consisting of money or other
property/ whose ownership is transferred to him with the burden of income
28. $he ,usiness of Insurance
a. ife or Endowment )olicies
5race )eriod - I1 days for the payment of any premium due after the first premium has
been paid
)eriod of Incontestability - after the lapse of 2 years from the date of issue or date of
approval of last reinstatement
Reinstatement of )olicy - within I years from the date of default of premium/ upon'
a. production of evidence of insurability/ and
b. payment of all overdue premiums and any indebtedness to the company upon said
policy
E.ceptions'
a. if cash surrender value has been paid
b. if period of e.tension has e.pired
b. Claims %ettlement
Bnfair Claims %ettlement )ractices'
(a) -nowingly misrepresenting to claimants pertinent facts or policy provisions relating to
coverage at issue
(b) failing to ac-nowledge with reasonable promptness pertinent communications with
respect to claims arising under its policies
(c) failing to adopt or implement reasonable standards for the prompt investigation of
claims arising under its policies
(d) no attempt in good faith to effectuate prompt/ fair and e(uitable settlement of claims
submitted in which liability has become reasonably clear
(e) compelling policy holders to institute suits to recover the amount due under its policies
by offering with no "ustifiable reason an amount substantially less than that ultimately
recovered in suits brought by them
23
COMMERCI AL LAW
MEMORY AID
)roceeds of ife Insurance - payable within :1 days after'
(a) presentation of claims/ and
(b) filing of proof of death 7upon failure to pay interest/ at the rate of 2 times the ceiling
prescribed by the Monetary ,oard unless based on the ground that the rate is
fraudulent8
)roceeds of )olicies other than ife - payable'
(a) upon proof of loss
(b) upon ascertainment of loss or damage 7if not made within :1 days of proof of loss/
payable in @1 days8
c. )ower of Commissioner to %uspend<Revo-e icense
(a) if insurance contract is in unsound condition
(b) if it has failed to comply with the provisions of law or regulations obligatory upon it
(c) its conditions or methods of business s such as to render its proceedings ha4ardous to
the public or to its policy holders
(d) that its paid up capital stoc-/ or its available cash assets/ or its security deposits/ as the
case may be/ is impaired or deficient
(e) that the margin of solvency re(uired of each company is deficient
Insurance Agent - any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transacts for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in negotiating of such
insurance9 #e must be first licensed as such before doing any acts as insurance agent9
Insurance ,ro-er - any person for any compensation/ commission or any other thing of value/
acts/ or aids in any manner in soliciting/ negotiating or procuring the ma-ing of any insurance
contract or in placing ris- or ta-ing out insurance/ on behalf of an insured other than himself9 A
license is re(uired9
WARE-OUSE RECEIPTS LAW
1. !arehouse - a building or place where goods are deposited and stored for profit9
2. !arehouseman - person lawfully engaged in the business of storing goods for profit9

Only a warehouseman may issue warehouse receipts9
3. !arehouse Receipt - written ac-nowledgment by a warehouseman that he has received and
holds certain goods therein described in store for the person to whom it is issued9
4. *on-negotiable Receipt - receipt deliverable to a specified person9
5. *egotiable Receipt - receipt deliverable to order or to bearer9
24
COMMERCI AL LAW
MEMORY AID
6. Essential $erms which MB%$ be embodied in a !arehouse Receipt'
a. location of the warehouse
b. date of the issue of the receipt
c. consecutive number of the receipt
d. statement whether the goods received will be delivered to bearer/ or a specified person/ or
his order
e. rate of storage charges
f. description of the goods or pac-ages containing them for identification purposes
g. signature of the warehouseman
h. statement of the amount of advances made and of liabilities incurred for which the
warehouseman claims as lien
7. Effect of omission of any of the essential terms'
a. $he validity of the warehouse receipt is not affected9
b. $he warehouseman shall be held liable for damages to those in"ured by his omission9
c. $he negotiability of the warehouse receipt is not affected9
d. $he issuance of a warehouse receipt in the form provided by the law is merely permissive
and directory and not mandatory in the sense that if the re(uirements are not observed/
then the goods delivered for storage become ordinary deposits9
8. $erms which may be inserted in a !arehouse Receipt' Any other terms e.cept 7a8 those
contrary to the provisions of this Act; 7b8 those that would impair a warehousemanCs
obligation to e.ercise that degree of care in the safe-eeping of the goods entrusted to him9
9. Mar-s to be made on a warehouse receipt'
a. A non-negotiable receipt must be clearly mar-ed non-negotiable or not negotiable/
otherwise/ the holder of the receipt who purchased it for value and who supposed it to be
negotiable/ may treat it as negotiable9
b. +uplicate receipts must be so mar-ed/ otherwise/ the warehouseman is held liable for all
damages suffered by a holder believing the same to be the original9
10. !arranties of a warehouseman as to duplicate receipts'
a. $he duplicate is an accurate copy of the original receipt9
b. %uch original receipt is uncancelled at the date of the issue of the duplicate9
11. Effects of alteration on the liability of the warehouseman'
a. If the alteration is IMMA$ERIA 7the tenor of the receipt is not changed8/ whether
fraudulent or not/ authori4ed or not/ the warehouseman is liable on the altered receipt
according to its original tenor9
b. If the alteration is MA$ERIA but AB$#ORIME+/ the warehouseman is liable according
to the terms of the altered receipt9
c. If the alteration is MA$ERIA/ B*AB$#ORIME+ but I**OCE*$N MA+E/ the
warehouseman is liable on the altered receipt according to its original tenor9
d. If the alteration is MA$ERIA and &RAB+BE*$N MA+E/ the warehouseman is
liable'
25
COMMERCI AL LAW
MEMORY AID
(1) to the purchaser of the receipt for value and without notice of the alteration according
to the tenor of the altered receipt
(2) to the alterer/ according to the terms of the original receipt
(3) to subse(uent purchasers with notice of the alteration/ according to the terms of the
original receipt
12. Effects of misdescription of goods'
a. A warehouseman is under the obligation to deliver the identical property stored with him
and if he fails to do so/ he is liable directly to the owner9
b. As against a bona fide purchaser of a warehouse receipt/ the warehouseman is estopped
from denying that he has received the goods described in the receipt9
c. If the description consists merely of mar-s or label upon the goods or upon the pac-ages
containing them/ the warehouseman is not liable even if the goods are not of the -ind as
indicated in the mar-s or labels9
13. )rincipal Obligations of a !arehouseman'
a. $o ta-e care of the goods entrusted to his safe-eeping
5eneral Rule' A warehouseman is re(uired to e.ercise such degree of care which a
reasonable careful owner would e.ercise over similar goods of his own9 #e shall be
liable for any loss or in"ury to the goods caused by his failure to e.ercise such care9
E.ception' #e shall not be liable for any loss or in"ury which could not have been
avoided by the e.ercise of such care9
E.ception to the E.ception' #e may limit his liability to an agreed value of the
property received in case of loss9 #e cannot stipulate that he will not be responsible
for any loss caused by his negligence9
a. $o deliver the goods to the holder of the receipt or the depositor upon demand/ provided
demand is accompanied with'
(1) an offer to satisfy the warehousemanCs lien;
(2) an offer to surrender the negotiable receipt properly endorsed9 If the receipt is non-
negotiable/ any person lawfully entitled to the possession of the goods may be entitled
to delivery without surrender of the receipt9
(3) a readiness and willingness to sign an ac-nowledgment that the goods have been
delivered if such is re(uested by the warehouseman9
14. )ersons to whom goods must be delivered'
A. )ersons lawfully entitled to the possession of the goods or his agent'
a9 persons to whom a competent court has ordered the delivery of the goods
(1) where a negotiable instrument has been lost or destroyed/ the court may order
delivery to a person upon satisfactory proof of such loss or destruction and upon
proper posting of a bond to protect the warehouseman from any liability or e.pense
which he may incur by reason of the original receipt remaining outstanding9
(2) where more than one person claims title or possession of the goods the
warehouseman may re(uire all claimants to interplead9 $he court will then order
delivery to the person having a better right9
26
COMMERCI AL LAW
MEMORY AID
b. an attaching creditor - 5oods/ while in the possession of the warehouseman and
covered by a negotiable receipt/ cannot be attached or levied upon under an e.ecution
unless'
(I) the negotiable receipt is first surrendered to the warehouseman/ or
(ii) its negotiation is en"oined/ or
(iii) the receipt is impounded by the court
c9 to the purchaser in case of sale of the goods by the warehouseman to enforce his lien
d. to the purchaser where perishable or ha4ardous goods are sold at private or public sale
B. If goods are covered by a non-negotiable receipt'
a. a person entitled to the delivery by the terms of the receipt/ or
b. one who has written authority from letter a
C. If goods are covered by a negotiable receipt/ a person in possession of the receipt/ the
terms of which the goods are deliverable'
a. to him or order
b. to bearer
c. indorsed to him
d. indorsed in blan- by the person whom delivery was promised
15. !hen is there Misdelivery6
!hen the warehouseman delivers the goods to a person who is not in fact lawfully entitled
to the possession of the goods because'
a. the person does not fall under letter , or C above; or
b. the person falls under letter , or C but prior to delivery/ the warehouseman had either'
(1) been re(uested by the person lawfully entitled to the delivery not to ma-e such
delivery/ or
(2) had information that the delivery about to be made was to one not lawfully entitled to
the possession of the goods
16. Effects of Misdelivery'
$he warehouseman shall be liable for conversion to all having a right to property or
possession of the goods9
17. !hat happens if there is proper delivery or partial delivery but the warehouseman fails to
cancel the receipt or record on the receipt of such partial delivery6
a. If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but
he fails to ta-e the receipt and cancel it/ then he is still liable to one who purchases for
value and in good faith such receipt9
b. If he ma-es partial delivery of the goods but fails to record the partial delivery on the
receipt then he may still be held liable for the entire receipt to one who purchases for value
and in good faith such receipt9
18. awful e.cuses for refusal to deliver goods'
27
COMMERCI AL LAW
MEMORY AID
a. $he warehouseman can refuse to deliver the goods if he has ac(uired title or right to the
possession of the goods'
(1) directly or indirectly from a transfer made by the depositor at the time of the deposit
for storage or subse(uent thereto; or
(2) from the warehousemanCs lien
b. If someone other than the depositor or person claiming under the depositor has a claim to
the title or possession of the goods and the warehouseman has information of such claim/
the warehouseman shall be e.cused from liability for refusing to deliver the goods either to
the depositor or person claiming under him until he has had a reasonable time to ascertain
the validity of the adverse claim or to bring legal proceedings to compel all claimants to
interplead9
c. $he warehouseman will not be re(uired to deliver the goods if such had been lost9 ,ut
this is without pre"udice to liabilities which may be incurred by him due to such loss9
d. $he warehouseman having a valid lien against the person demanding the goods may refuse
to deliver the goods to him until the lien is satisfied9
e. If goods have been lawfully sold or disposed of because of their perishable or ha4ardous
nature/ the warehouseman shall not be liable for failure to deliver the goods9
19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming
under him on the ground that adverse title to the goods belongs to a third person9
20. Rules as regards Co-mingling of +eposited 5oods'
5eneral Rule' A warehouseman may not co-mingle goods belonging to different
depositors or belonging to the same depositor for which separate receipts had been issued9
E.ception' A warehouseman may co-mingle fungible goods of the same -ind and grade
provided he is authori4ed by agreement or by custom9
21. Effect of Co-mingling of 5oods'
a. $he different owners become co-owners of the whole mass9
b. $he warehouseman shall be severally liable to each depositor for the care and redelivery of
his share of such mass to the same e.tent and under the same circumstances as if the
goods had been -ept separate9
22. Remedies of a Creditor' 7the debtor being the owner of the negotiable receipt8
Creditors of the depositors/ before negotiation/ may protect themselves by obtaining a writ of
preliminary in"unction and serve the same on the depositor before he has a chance to negotiate the
receipt9 Once en"oined/ there will be no longer a danger that a I
rd
person will be pre"udiced so the
goods may now be attached/ levied upon/ or that the vendorCs lien or the right of stoppage in
transit be e.ercised9
23. !arehousemanCs ien
28
COMMERCI AL LAW
MEMORY AID
E.tent of !arehousemanCs ien'
A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his
hands for'
a. all lawful charges for storage and preservation of the goods
b. all lawful claims for money advances/ interest/ insurance/ transportation/ labor/
weighing/ cooperating and other charges and e.penses in relation to such goods
c. all reasonable charges and e.penses for notice and advertisements of sale and for sale
of the goods where default has been made in satisfying the warehouse lien
5oods %ub"ect to lien'
a. goods belonging to the depositor who is liable to the warehouseman as debtor
whenever such goods are deposited and
b. goods belonging to other persons stored by the depositor who is liable to the
warehouseman as debtor with authority to ma-e a valid pledge
#ow is a lien enforced6
a. by refusing to deliver the goods until the lien is satisfied
b. by causing the e.tra"udicial sale of the property and applying the proceeds to the value
of the lien
c. by filing a civil action for unpaid charges or by way of counterclaim in an action to
recover the property from him
#ow is a lien lost6
a. when the warehouseman voluntarily surrenders possession of the goods without
re(uiring payment of his lien; or
b. when the warehouseman wrongfully refuses to deliver the goods when a demand is
made with which he is bound to comply
24. *egotiation and $ransfer of Receipts
#ow do we negotiate a receipt deliverable to order6
a. by indorsing it in blan- thereby ma-ing it deliverable to bearer or
b. by special indorsement - which would re(uire further indorsements for further
negotiations9
In both cases/ the indorsements must be coupled with delivery9
#ow do we negotiate a receipt deliverable to bearer6
$here is no need to indorse for negotiation9 )hysical delivery of the instrument will suffice9
,ut if the instrument is indorsed specially/ the bearer character of the receipt is destroyed and
for further negotiation/ there will be a need for indorsement9
!ho may negotiate warehouse receipts6
a. the owner of the receipt/ or
b. the person to whom possession of the receipt was entrusted to by the owner
Rights ac(uired by a person to whom the receipt has been negotiated'
29
COMMERCI AL LAW
MEMORY AID
a. the title of the person negotiating the receipt over the goods covered by the receipt
b. the title of the person 7depositor or owner8 to whose order by the terms of the receipt
the goods were to be delivered
c. the direct obligation of the warehouseman to hold possession of the goods for him/ as if
the warehouseman directly contracted with him
May non negotiable receipts be negotiated6
*o/ even if the receipt is indorsed/ the transferee ac(uires no additional right9 $hat is why
they are called non negotiable receipts9 ,ut they may be transferred or assigned by delivery9
Rights of a person to whom a non negotiable receipt has been transferred'
a. the title to the goods as against the transferor
b. the right to notify the warehouseman of the transfer thereof and
c. the right thereafter to ac(uire the obligation of the warehouseman to hold the goods for
him
+istinction between a non negotiable receipt from a negotiable receipt with regard to
attachment or e.ecution upon goods'
No-egot%a#$e Re'e%(t Negot%a#$e Re'e%(t
)rior to notification of the warehouseman by the
transferor or transferee/ the warehouseman is not bound
to the transferee whose right may be defeated by a levy
of an attachment or e.ecution upon the goods by the
creditor of the transferor or by a notification to such
warehouseman of the subse(uent sale of the goods9
$he goods cannot be attached or levied under an
e.ecution unless the receipt be first surrendered to the
warehouseman or its negotiation en"oined9
Rights of a person to whom a negotiable receipt has been transferred/ not indorsed'
a. the right to the goods as against the transferor
b. the right to compel the transferor to indorse the receipt9 ,ut if the intention of the
parties is that the receipt should merely be transferred/ the transferee has no right to
re(uire the transferor to indorse the receipt9
*ote' *egotiation ta-es effect as of the time when the indorsement is actually made9
!arranties of a person negotiating or transferring a receipt'
a. the receipt is genuine
b. he has a legal right to negotiate or transfer it
c. he has -nowledge that would impair the validity or worth of the receipt and
d. he has a right to transfer the title to the goods and that the goods are merchantable
A holder for security of a receipt 7mortgagee or pledgee8 who in good faith accepts payment
of the debt from a person does not warrant the genuineness of the receipt not the (uality or
(uantity of the goods therein described9
It is the duty of the purchaser/ mortgagee or pledgee of goods for which a negotiable receipt
has been issued to re(uire the negotiation of the receipt to him/ otherwise his failure will
have the same effect as an e.press authori4ation on his part to the seller/ mortgagor/ or
30
COMMERCI AL LAW
MEMORY AID
pledgor in possession of such receipt to ma-e any subse(uent negotiation9 $he subse(uent
purchaser must have ta-en the receipt in good faith and for value9
A bona fide purchaser of a negotiable warehouse receipt ac(uires title to the goods where he
purchases from the ownerCs agent within the actual or apparent scope of his authority9 In
sum/ negotiation is valid despite having been made in breach of trust9
+istinctions between a negotiable instrument and a negotiable warehouse receipt'
Negot%a#$e I!tr".et Negot%a#$e Ware,o"!e Re'e%(t
!hen a negotiable instrument is altered deliberately/ it
becomes null and void9
!hen a warehouse receipt is altered/ it is still valid but
it may be enforced only in accordance with its original
tenor9
If a negotiable instrument is originally payable to
bearer/ it will always remain so payable regardless of
the way it is indorsed/ whether specially or in blan-9
If a warehouse receipt/ payable to bearer/ is indorsed
specially/ it will be converted into a receipt deliverable
to order and can only be negotiated further by
indorsement and delivery9
A holder in due course may be able to obtain a title
better than that which the party who negotiated the
instrument to him had9
An indorsee even if a holder in due course obtains only
such title as the person negotiating has over the goods9
$he indorsement of a negotiable instrument has a
double effect9 It is at the same time a conveyance of the
instrument and a contract the indorser has with the
indorsee that on certain conditions/ the indorser will
pay the instrument if the party primarily liable fails to
do so9
$he indorsement of a warehouse receipt amounts
merely to a conveyance by the indorser9 Accordingly/ an
indorser of a receipt shall not be liable to the holder if/
for e.ample/ the warehouseman fails to deliver the
goods because they were lost due to his fault or
negligence9
GENERAL BONDED WARE-OUSE LAW
Any warehouseman receiving commodities for 7a8 storage; 7b8 milling; 7c8 co-mingling must'
a. obtain prior license from the ,ureau of Commerce
b. file a bond in an amount e(uivalent to II 0<I ; of the capacity of the warehouse against
which bond depositors may sue directly
c. open to the public/ no discrimination allowed
d. liable for double mar-et value should he accept goods in e.cess of the capacity of
warehouse if goods are damaged or destroyed
*ote' for palay and corn license/ a bond with the *ational 5rains Authority is re(uired; also
an insurance cover is re(uired9
U%&or. C"rre'y La/
1. Obligations *ull and Eoid
a. obligations payable in gold<foreign currency
b. obligations payable in )hilippine currency but measured in gold<foreign currency
2. E.empt $ransactions
a. government to government transactions or with international ban-ing institutions
31
COMMERCI AL LAW
MEMORY AID
b. transactions affecting high priority economic pro"ects
c. forward e.change transactions between ban-s
d. import and e.port and other international ban-ing/ financial/ investment and industrial
transactions
3. Merchants and Commercial $ransactions
Classes of Investments'
a. )ermitted - one allowed without need of prior authority from the )hilippine
5overnment9 If registered status/ invest up to e.tent as not to affect its registered
status9 If enterprise not registered/ investment not to e.ceed =1;9
b. )ermissible - invest in e.cess of =1; in unregistered enterprise but with prior approval
of ,OI
c. )ioneer Area - 7a8 involves manufacturing/ processing/ production of product not
produced at all<produced in non-commercial scale; 7b8 uses a design/ scheme/ formula
that is new and untried in the )hils9; 7c8 agricultural activities<services essential to the
attainment of food sufficiency; 7d8 produces non-conventional fuels<utili4es non-
conventional sources of energy 7all others are non-pioneer8
4. Absolutely +is(ualified to become Merchants
a. serving penalty of civil interdiction
b. insolvent
c. absolutely dis(ualified by special laws
5. Relatively +is(ualified
a. "udicial and prosecuting officials in active service
b. administrative/ economic/ military chiefs
c. government collection agents and custodian of funds
d. stoc- and commercial bro-ers
e. by special laws cannot trade in specified territories
6. ,oo-s a Merchant must -eep
a. boo- of inventories and balances/ statement of assets/ liabilities and capital
b. "ournal of day to day operations
c. ledger for classifying accounts
d. copying boo- for letters and telegrams; if "uridical person/ include boo- of minutes and
stoc- and transfer boo-
7. )robative Ealue of MerchantCs ,oo-
a. evidence against merchants themselves
b. in case of conflicts between 2 boo-s - that which s properly -ept prevails
c. if one -eeps boo-s and the other does not and cannot e.plain why/ the former prevails
d. if both boo-s are properly -ept and there is a conflict/ other proofs can be resorted to
32
COMMERCI AL LAW
MEMORY AID
8. Commercial Contracts by Correspondence are perfected from the moment the offeree accepts
the offer/ even before -nowledge of said acceptance by the offeror9 $his does not apply to
deposit/ guaranty/ sales/ loan/ agency/ partnership9
9. 3oint Account )artnership - business arrangement whereby 2 or more persons interest
themselves in the business of another by ma-ing contributions thereto and participating in the
results thereof
a. only one member is ostensible/ others are silent
b. no common name
c. only ostensible partners can sue<be sued
d. no "uridical personality
TRANSPORTATION LAW
1. Contract of $ransportation - contract whereby a certain person or association of persons
obligate themselves to transport persons/ things/ news/ from one place to another for a fi.ed
price
2. )arties to the Contract of $ransportation'
a. %hipper - one who gives rise to the contract of transportation by agreeing to deliver the
things or news to be transported/ or to present his own person or those of other or others
in the case of transportation of passengers
b. Carrier<Conductor - one who binds himself to transport persons/ things/ or news/ as the
case may be/ or one employed in or engaged in the business of carrying goods for others
for hire
3. Common Carrier - person/ corporation/ firm/ association engaged in the business of carrying
or transporting passengers/ goods or both/ by land/ water/ air/ for compensation/ offering
services to the public; must e.ercise e.traordinary diligence
)rivate Carrier - not engaged in the business of carrying; no public employment; underta-es
to deliver goods<passengers for compensation; re(uires only ordinary diligence
=9 Re(uisites of Caso &ortuito
a. event independent of human will
b. occurrence ma-es it impossible for debtor to perform in normal manner
c. debtor free from aggravation<participation
d. impossible to foresee or avoid
5. Contributory negligence does not entitle passengers to recover moral<e.emplary damages9
6. ,ill of ading - written ac-nowledgment of receipt of goods and agreement to transport them
to a specific place to a person named or his carrier
It is not indispensable to the creation of a contract of carriage9 $he contract itself arises
from the moment goods are delivered by shipper to carrier and the carrier agrees to carry them9
33
COMMERCI AL LAW
MEMORY AID
$he function of the ,ill of ading' the legal basis of the contract between the shipper and
carrier shall be the bills of lading/ by the contents of which all disputes which may arise with
regard to their e.ecution and fulfillment shall be decided/ no e.ceptions being admissible other
than forgery or material errors in the drafting thereof9
CarrierCs responsibility starts from the moment he receives unconditionally the
merchandise personally or through an agent and lasts until he delivers them actually or
constructively to the consignee or his agent9
Mere delay in the delivery of goods to consignee does not give right to refuse goods - only
breach of contract/ ergo damages9 If delay is unreasonable/ then he may refuse to accept and
ma-e carrier liable for conversion9
7. Eessels - those engaged in navigation/ whether coastwise or on the high seas/ including
floating doc-s/ pontoons/ dredges/ scows and any other floating apparatus destined for the
services of the industry or maritime commerce
8. )ersons )articipating in Maritime Commerce'
a. ship owner and<or ship agent
b. captain or master
c. other officers of the vessel
d. supercargo
9. iability of %hip owners and %hip agents'
a. civil liability for the acts of the captain
b. civil liability for contracts entered into by the captain to repair/ e(uip and provision the
vessel/ provided that the amount claimed was invested for the benefit of the vessel
c. civil liability for indemnities in favor of I
rd
persons which may arise from the conduct of
the captain in the care of the goods which the vessel carried/ as well as for the safety of the
passengers transported
%hip owner<ship agent not liable for the obligations contracted by the captain if the latter
e.ceeds his powers and privileges inherent in his position of those which may have been
conferred upon him by the former9 #owever/ if the amount claimed were made use of for
the benefit of the vessel/ the ship owner or ship agent is liable9
10. +octrine of imited iability - liability of shipowners is limited to amount of interest in said
vessel because of the real and hypothecary nature of maritime law such that where the vessel
is entirely lost/ the obligation is e.tinguished9
E.ceptions' 708 vessel is not abandoned
(2) claims under wor-menCs compensation
(3) in"ury<damage due to shipownerCs fault
(4) vessel is insured
$he doctrine also applies for claims due to death or in"uries to passengers/ aside from
claims for goods9
In abandoning the vessel/ there is no procedure to be followed9 $here is neither a
prescriptive period within which the ship owner can ma-e the abandonment9 #e may do so
34
COMMERCI AL LAW
MEMORY AID
for so long as he is not estopped from invo-ing the same or do acts inconsistent with
abandonment9
11. Roles of the Captain'
a. general agent of the ship owner
b. technical director of the vessels
c. represents the government of the country under whose flag he navigates
12. oan on ,ottomry - made by shipowner<ship agent guaranteed by vessel itself/ repayable upon
arrival at destination
13. oan In Respondentia - ta-en on security of the cargo repayable upon the safe arrival at cargo
destination
14. Accidents and +amages in Maritime Commerce'
a. Averages
b. Arrivals Bnder %tress
c. Collisions
d. %hipwrec-s
15. Average'
a. all e.traordinary or accidental e.penses which may be incurred during the voyage for the
preservation of the vessel or cargo or both
b. all damages or deterioration which the vessel may suffer from the time it puts to sea at the
port of departure until it casts anchor at the port of destination/ and those suffered by the
merchandise from the time they are loaded in the port of shipment until they are unloaded
in the port of their consignment
16. %imple Average - e.penses<damages caused to the vessel<cargo not inured to common benefit
and profit of all the persons interested in the vessel and her cargo; borne by respective owners
17. 5eneral Average - e.penses<damages deliberately caused in order to save the vessel/ its cargo
or both from a real and -nown ris-
Re(uisites'
a. deliberately incurred
b. intended to save vessel and cargo or both
c. from real and -nown ris-
d. there is success
18. &ormalities for Incurring 5ross Average'
a. there must be an assembly of the sailing mate and other officers with the captain including
those with interests in the cargo
b. there must be a resolution of the captain
c. the resolution shall be entered in the log boo-/ with the reasons and motives and the votes
for and against the resolution
35
COMMERCI AL LAW
MEMORY AID
d. the minutes shall be signed by the parties
e. within 2= hours upon arrival at the first port the captain ma-es/ he shall deliver one copy
of these minutes to the maritime "udicial authority thereat
19. Arrivals under %tress - arrival of the vessel at a port not of destination on account of 7a8 lac-
of provisions; 7b8 well-founded fear of sei4ure; 7c8 by reason of accident of the sea disabling it
to navigate
!hen *ot awful'
a. lac- of provisions due to negligence to carry according to usage and customs
b. ris- of enemy not well -nown or manifest
c. defect of vessel due to improper repair
d. malice/ negligence/ lac- of foresight or s-ill of captain
20. Collision - impact of 2 vessels both of which are moving
21. Allision - stri-ing of a moving vessel against one that is stationary
22. Cases of Collision'
a. due to the fault/ negligence or lac- of s-ill of the captain/ sailing mate or the complement
of the vessel - ship owner liable for the losses and damages 7Culpable &ault8
b. due to fortuitous event or force ma"eure - each vessel and its cargo shall bear its own
damages 7&ortuitous8
c. it cannot be determined which of the 2 vessels caused the collision - each vessel shall
suffer its own damages/ and both shall be solidarily responsible for the losses and damages
occasioned to their cargoes 7Inscrutable &ault8
23. Error in E.tremis - sudden movement made by a faultless vessel during the I
rd
4one of
collision with another vessel which is at fault/ even if the said movement is wrong/ no
responsibility will fall on said vessel
24. %hipwrec- - denotes all types of loss< wrec- of a vessel at sea either by being swallowed up by
the waves/ by running against another vessel or thing at sea or on coast where the vessel is
rendered incapable of navigation
25. %alvage - the compensation allowed to persons by whose voluntary assistance a ship at sea or
her cargo or both have been saved in whole or in part from an impending peril/ or such
property recovered from actual peril or loss/ in cases of shipwrec-s/ derelict or recapture; a
service which one person renders to the owner of a ship or goods by his own labor/ preserving
the goods or ship which the owner or those entrusted with the care of them either abandoned
in distress at sea or are unable to protect and secure; a permit is re(uired to engage in the
salvage business
26. +erelict - a ship or cargo which is abandoned and deserted at sea by those who are in charge
of it/ without any hope of recovering it/ or without any intention of returning it
36
COMMERCI AL LAW
MEMORY AID
27. Elements of a Ealid %alvage'
a. a marine peril
b. service voluntarily rendered when not re(uired as an e.isting duty or from special contract
c. success/ in whole or in part/ or that the services rendered contributed to such success
28. Contract of $owage - contract whereby a vessel usually motori4ed pulls another from one
place to another for compensation9 It is a contract of services9
29. +ifference between $owage and %alvage'
Sa$+age To/age
crew of salvaging ship is entitled to salvage/ and can
loo- to the salvaged vessel for its share
crew of the towing ship does not have any interest or
rights with the remuneration pursuant to the contract
salvor ta-es possession and may retain possession until
he is paid
tower has no possessory lien; only an action for
recovery of sum of money
court has power to reduce the amount of remuneration if
unconscionable
court has no power to change amount in towage even if
unconscionable
CARRIAGE OF GOODS BY SEA ACT
1. !hen Applicable'
a. contracts for the carriage of goods
b. by sea
c. to and from )hilippine ports
d. in foreign trade
2. *otice of oss or damage must be given in writing to the carrier or his agent at the port of
discharge or at the time of the removal of the goods into the custody of the person entitled to
delivery9 If the loss or damage is not apparent/ the notice must be given within I days of
delivery9 #owever/ the carrier shall be discharged from all liability in respect of loss or
damage of goods unless suit is brought within 0 year after delivery of the goods or the date
when the goods should have been delivered9 *otice of loss/ if not given/ that fact shall not
affect or pre"udice the right of the shipper to bring suit within the 0 year prescriptive period9
WARSAW CON)ENTION
1. !hen Applicable'
a. international transport by air
b. transport of persons/ baggage/ or goods
2. iabilities under the Convention'
a. damage sustained in the event of the death or wounding of a passenger ta-ing place on
board the aircraft or in the course of any of the operations of embar-ing or disembar-ing
b. loss or damage to any chec- baggage or goods sustained during the transport by air
37
COMMERCI AL LAW
MEMORY AID
c. delay in the transport by air of passengers/ baggage/ or goods
Enumeration of causes of action as above stated is not an e.clusive list9 7*orthwest Airlines
vs9 Cancer8
3. Meaning of $ransport by Air - period during which the baggage or goods are in charge of the
carrier/ whether in an airport or on board an aircraft/ or in the case of landing outside an
airport/ in any place whatsoever
4. Action for damages must be brought at the option of the plaintiff/ either'
a. before the court of the domicile of the carrier;
b. court of principal place of business of carrier;
c. court where he has a place of business through which the contract has been made;
d. before the court at the place of destination
5. Convention provides for a limitation of liability'
a. for each passenger - limited to 02A/111 francs
b. for goods and chec-ed in baggage - limited to 2A1 francs per -ilogram
c. for hand carry - limited to A/111 francs per passenger
!hen can you not avail of this limitation6
(1) willful misconduct
(2) default amounting to willful misconduct
(3) accepting passengers without tic-et
(4) accepting goods without airway bill or baggage without baggage chec-
6. $he right to damages shall be e.tinguished if an action is not brought within 2 years from the
date of arrival at the destination/ or from the date on which the aircraft ought to have arrived/
or from the date on which the transportation stopped9
7. *otice re(uirement' damage to baggage ' within I days from receipt
damage to goods' within J days from receipt
delay' within 20 days from receipt
&ailure to file written notice/ no action shall lie against the carrier/ save in the case of fraud
on his part9
8. *otice Re(uirements'
COGSA Co*e o& Co..er'e War!a/ Co+et%o
loss<damage apparent protest at time of receipt
of goods
protest at time of receipt
of goods
loss<damage not
apparent
protest within I days
from delivery
protest within 2= hours
after receipt
damage of baggage protest within I days
from receipt
damage of goods within J days from
receipt
delay within 20 days from
receipt
38
COMMERCI AL LAW
MEMORY AID
PUBLIC SER)ICE ACT
1. Every person that may own/ operate/ manage/ control in the )hilippines/ for
hire<compensation with general<limited clientele whether permanent/ occasional/ accidental/
and done for a general business purpose any common carrier/ shipyard/ electric light/ heat and
power and public utility9
2. )ublic Btility - business or service engaged in regularly supplying the public with some
commodity or service of public conse(uence such as electricity/ gas/ water/ transportation/
telephone or telegraph service9
3. )rior Operator Rule - before permitting a new operator to invade the territory of another
already established/ the prior operator must be given an opportunity to e.tend its service to
meet the public needs in the matter of transportation9
4. )rior Applicant Rule - presupposes a situation where two interested persons apply for a C)C
in the same community over which no person has yet been granted a C)C to operate9 If both
applicants e(ual/ then the applicant who applied first will be given the C)C9
5. +istinctions between C)Cs and C)C*s
Cert%&%'ate o& P"#$%' Co+e%e'e Cert%&%'ate o& P"#$%' Co+e%e'e a* Ne'e!!%ty
any authori4ation to operate a public service issued
by the appropriate government agency
issued by the appropriate government agency to a
public service to which any political subdivision has
granted a franchise
an authori4ation issued by the proper government
agency for the operation of public services for
which no franchise/ either municipal or legislative is
re(uired by law
an authori4ation issued by the proper government
agency for the operation of public services for
which a franchise is re(uired by law
6. Re(uirements of C)C and franchise'
a. &ilipino citi4enship
b. financial capacity
c. public convenience
CORPORATION LAW
1. +octrine of Corporate Opportunity - a director is made to account to his corporation/ gains
and profits from transactions entered into by him<another competing corporation in which he
has substantial interest/ which should have been a transaction underta-en by the corporation9
$his s a breach of fiduciary relationship9
2. +octrine of )iercing the Eeil of Corporate Entity - it is to disregard for "ustifiable reasons by
the state the fiction of "uridical personality of the corporation separate and distinct from the
persons composing it
39
COMMERCI AL LAW
MEMORY AID
3. +e 3ure Corporation - corporation formed with all the re(uirements of law
4. +e &acto Corporation - corporation defectively formed from a bona fide attempt to
incorporate under the e.isting law and e.ercises corporate powers
5. Corporation by Estoppel - a group of persons which holds itself out as a corporation and
enters into a contract with I
rd
persons on the strength of such appearance cannot be permitted
to deny its e.istence in an action under said contract
6. Corporation by )rescription - body not lawfully organi4ed as a corporation but has been
recogni4ed by immemorial usage as a corporation with rights and duties maintainable by law
7e.9 Roman Catholic8
7. $rust &und +octrine - the subscribed capital stoc- of the corporation is a trust fund for the
payment of debts of the corporation which the creditors have the right to loo- up to satisfy
their credits9 Corporations may not dissipate this and the creditors may sue the stoc-holders
directly for their unpaid subscriptions
8. Eoting %hares
a. &ounders %hares - given rights and privileges not en"oyed by owners of other stoc-s; right
to vote<be voted in the election of directors shall not e.ceed A years
*on-Eoting %hares
a. )referred %hares - issued only with par value; given preference in distribution of assets in
li(uidation and in payment of dividends and other preferences stated in the articles of
incorporation
b. Redeemable %hares - e.pressly provided in articles; have to be purchased<ta-en up upon
e.piration of period of said shares purchased whether or not there is unrestricted retained
earnings
c. $reasury %toc-s - stoc-s previously issued and fully paid for and reac(uired by the
corporation through lawful means 7purchase/ donation/ etc98
9. E.ceptions where holders of non-voting shares may vote'
a. amendments of articles of incorporation
b. adoption<amendment of by-laws
c. increase<decrease of bonded indebtedness
d. increase<decrease of capital stoc-
e. sale<disposition of all<substantially all corporate property
f. merger<consolidation of corporation
g. investment of funds in another corporation<another business purpose
h. corporate dissolution
10. )referred Cumulative )articipating %hare of %toc- - share entitling its holder to preference in
the payment of dividends ahead of common stoc-holders and to be paid the dividends ahead
of common stoc-holders and to be paid the dividends due for prior years and to participate
further with common stoc-holders in dividend declarations
40
COMMERCI AL LAW
MEMORY AID
11. )romotion %toc- for %ervices Rendered )rior to Incorporation Escrow %toc- - stoc-
deposited with a I
rd
person to be delivered to stoc-holder<assignor after complying with
certain conditions - usually payment of full subscription price
12. Over-issued %toc- - stoc- issued in e.cess of authori4ed capital stoc-; null and void
13. !atered %toc- - stoc- issued gratuitously/ money<property less than par value/ services less
than par value/ dividends where no surplus profits e.ist
14. Certificate of %toc- - written ac-nowledgment by the corporation of the stoc-holderCs interest
in the corporation9 It is the personal property and may be mortgaged<pledged9 $ransfer binds
the corporation when it is recorded in the corporate boo-s9 A stoc-holder who does not pay
his subscription is not entitled to the issue of a stoc- certificate9 $he total par value of the
stoc-s subscribed by him should first be paid9
15. Chattel mortgage of shares registered with the Registrar of +eeds need not be registered in
corporate boo-s to bind third parties because corporate boo-s only cover absolute transfers9
,ut the pledgee<mortgagee may not have voting rights unless stated in the contract and
registered in the corporate name9
16. Methods of Collection of Bnpaid %ubscription
a. call/ delin(uency and sale at public auction of delin(uent shares
b. ordinary civil action
c. collection from cash dividends and other amounts due to stoc-holders if allowed by by-
laws<agreed to by him
17. A corporation can reac(uire stoc-s in the following cases'
a. eliminate fractional shares
b. corporate indebtedness arising from unpaid subscriptions
c. purchase delin(uent shares
d. e.ercise of appraisal right
18. Right of Appraisal
a. amending articles/ changing/ restricting/ enlarging stoc-holderCs rights<e.tending/
shortening corporate life
b. sale<disposition of all<substantially all of corporate assets
c. merger and consolidation
d. investment of funds in another corporation<for a different purpose
19. 5rounds for Re"ection of Registration
a. not in prescribed form
b. purpose illegal/ inimical
c. treasurerCs affidavit false
d. non-compliance with re(uired &ilipino stoc- ownership
41
COMMERCI AL LAW
MEMORY AID
20. Corporation must organi4e within 2 years from issuance of certificate of incorporation9
#ow to organi4e6
a. adoption of by-laws
b. election of ,oard of +irectors
c. election of officers
,ut from issuance of certificate/ it ac(uires "uridical personality
21. Merger - one corporation absorbs the other and remains in e.istence while the other is
dissolved
22. Consolidation - a new corporation is created and the consolidating corporations are
e.tinguished
23. $heory of 5eneral Capacity - a corporation is said to hold such powers as are not
prohibited<withheld from it by general law
24. $heory of %pecial Capacity - the corporation cannot e.ercise powers e.cept those
e.pressly<impliedly given
25. Concession $heory - a group of persons wanting to create a corporation will have to e.ecute
documents and comply with re(uirements set by the state before being given corporate
personality; merely a privilege; state may provide causes for which the privilege may be
withdrawn
26. Acts re(uiring ma"ority vote of stoc-holder'
a. filing of issue value of no par value share
b. adoption/ amendment/ repeal of by-laws
c. compensation and other per diems for directors
27. !here similar acts have been approved by the directors as a matter of general practice/
custom and policy/ the general manager may bind the company even without formal
authori4ation of the board of directors
28. )owers of stoc-holders'
a. a direct participation in management - where his vote is needed to approve certain
corporate actions
b. indirect participation in management to vote or remove directors
c. proprietary rights
d. remedial rights
29. Eoting $rust Agreement - an agreement between a group of stoc-holders and trustee for a
term not e.ceeding A years in which control over the stoc-s is lodged in the trustee9 $he
purpose is for controlling the voting9
a. in writing/ notari4ed and filed with the %EC and the corporation
42
COMMERCI AL LAW
MEMORY AID
b. period not e.ceeding A years
c. cannot be entered into to circumvent the laws against monopolies/ illegal combinations in
restraint of trade in fraud
30. Cumulative Eoting - the number of votes that a shareholderCs number of shares multiplied by
the number of directors may give all said votes to one candidate or he may distribute them as
he may deem fit9 Cumulative voting is a matter of right in a stoc- corporation9 In a non-stoc-
corporation/ it cannot be utili4ed unless allowed by the by-laws<articles
31. $he power of removal of directors that may be e.ercised with or without cause cannot apply
to the director representing the minority shareholders9 #e may only be removed with cause9
32. 5eneral Rule' If surplus profits e.ceed the re(uirements the corporation shall declare
dividends9 $his is compulsory if the surplus is e(ual<or more than the paid-up capital9
E.ceptions'
a. "ustified by approved e.pansion pro"ects
b. prohibited by creditor to declare dividends
c. retention is necessary under e.isting circumstances
33. ,usiness 3udgment Rule - decisions made by a corporationCs management body shall not be
interfered with even by the courts unless such acts are oppressive<unconscionable as to violate
the rights of the minority
34. Individual %uit - one brought to assert a right of a stoc-holder peculiar to himself
35. Representative %uit - brought by the stoc-holder in his own behalf and in behalf of other
stoc-holders similarly situated/ having common cause against the corporation
36. +erivative %uit - brought by a stoc-holder for and in behalf of the corporation to
protect<vindicate corporate rights after he has e.hausted intra-corporate remedies
Re(uisites'
a. cause of action in favor of the corporation
b. refusal of corporation to sue
c. in"ury to the corporation
Although corporations dissolved have I years to wind up/ they can convey their properties to
a trustee who can continue the suit beyond the I year period9 $he lawyer who handled the
case in the trial court may be considered as trustee for the dissolved corporation with respect
to the matter in litigation only even if no appointment was e.tended to him9 7%elano vs9 CA8
In a case filed before dissolution/ it may continue even beyond the I year period until final
determination of litigation9 Otherwise/ the corporation in li(uidation would lose what "ustly
belongs to them<be e.empt from payment of obligations because of a technicality9
37. &oreign Corporations
43
COMMERCI AL LAW
MEMORY AID
a. +oing ,usiness - continuity of commercial dealings incident to prosecution of purpose and
ob"ect of the organi4ation9 Isolated/ occasional or casual transactions do not amount to
engaging in business9 ,ut where the isolated act is not incidental<casual but indicates the
foreign corporationCs intention to do other business/ said single act constitutes engaging in
business in the )hilippines
b. Instances when unlicensed foreign corporations can sue'
(1) isolated transactions
(2) action to protect good name/ goodwill/ and reputation of a foreign corporation
(3) contracts provide that )hil9 Courts will be venue to controversies
(4) license subse(uently granted enables foreign corporation to sue on contracts e.ecuted
before the grant of the license
(5) recovery of misdelivered property
(6) where the unlicensed foreign corporation has a domestic corporation
38. Religious Corporations
a. Corporation %ole - special form of corporation; associated with the clergy and consists of
0 person only and his successors; incorporated by law giving them legal capacity and
advantage
b. Close Corporations - one whose articles provide that its shares shall not be held by more
than 21 persons; its issued stoc- shall be sub"ect to one or more restrictions on transfer
and shall not be listed in any stoc- e.change<ma-e public offering
c. *on-stoc- Corporation - one where no part of its income is distributable to its members
and shall be used in furtherance of the purpose of which it was organi4ed
39. %EC 3urisdiction
a. original and e.clusive "urisdiction
(1) fraudulent devices and schemes employed by directors detrimental to public interest
(2) intra-corporate disputes and with the state in relation to their franchise and right to
e.ist as such
(3) controversies in the election/ appointment of directors/ trustees/ etc9
(4) petition to be declared in a state of suspension of payments
b. 5rounds for %uspension<Revocation of Certificate of Registration
(1) fraud in procuring registration
(2) serious misrepresentation as to ob"ectives of corporation
(3) refusal to comply with lawful order of %EC
(4) continuous inoperation for at least A years
(5) failure to file by-laws within the re(uired period
(6) failure to file reports
(7) other similar grounds
RE)ISED SECURITIES ACT
7Material on the %ecurities Regulation Code of 2111 to follow8
44
COMMERCI AL LAW
MEMORY AID
1. 5eneral Rule' All securities before being offered for sale<actual sale to the public must first be
registered and have the proper permit9
E.ception'
a. e.empt securities
b. securities emanating from e.empt transactions
2. E.empt %ecurities
a. issued by the government subdivisions<instrumentalities
b. issued by foreign government which the )hilippines has diplomatic relations
c. issued by receiver<trustee of an insolvent approved by the court
d. issued by building and loan association
e. issued by receiver<trustee of an insolvent approved by the court
f. policy of insurance issued by insurance corporation supervised by the insurance
commission
g. security<right<interest in real property including subdivision lot<condominium supervised by
the Ministry of #uman %ettlements
h. pension plans regulated by ,IR<Insurance Commission
3. E.empt $ransactions
a. "udicial sale by e.ecution/ etc9 in insolvency
b. sale of pledged property<foreclosed property to li(uidate an obligation
c. isolated transactions on securities done by owner<agent
d. stoc- transfers emanating from mergers and consolidations
e. pre-incorporation subscription
f. securities issued by public service operator to broaden e(uity base
4. 5rounds for Re"ection of Registration
a. application incomplete<untruthful<omits to state a material fact
b. issuer<registrant insolvent/ violated code< %EC rules/ engages in fraudulent transactions
c. issuerCs business not sound
d. officer/ director/ stoc-holders of issuers is dis(ualified
e. issue would pre"udice the public
5. 5rounds for Revocation
a. issuer insolvent
b. violated of Code<%EC rules
c. fraudulent transaction
d. dishonesty by issuer<misrepresented prospectus
e. does not conduct business in accordance with law
6. Acts )rohibited
a. manipulation of security prices
b. manipulation of deceptive devices
c. artificial measures of price control
d. fraudulent transactions
45
COMMERCI AL LAW
MEMORY AID
e. insider trading
f. false prospectus/ communications/ reports
SECRECY OF BANK DEPOSITS
1. +eposits in ban-s/ including government ban-s/ may not be in(uired into by any person/
e.cept'
a. if depositor agrees in writing
b. impeachment cases
c. by court order in cases of bribery and dereliction of duty against public officials
d. deposit is sub"ect of litigation
e. anti-graft cases
f. general and special e.amination of ban- order of the Monetary ,oard of ban- fraud or
serious irregularity
g. re-e.amination made by an independent auditor hired by a ban- to conduct its regular trust
LAWS ON INTELLECTUAL CREATION
Co(yr%g,t
1. !hat !or-s are not )rotected'
a. any idea/ procedure/ system/ method or operation/ concept/ principle/ discovery/ or mere
data as such/ even if they are e.pressed/ e.plained/ illustrated or embodied in a wor-;
news of the day or other miscellaneous facts/ having the character of mere items of press
information/ or any official te.t of a legislative/ administrative or legal nature as well as
any official translation thereof
b. wor-s of the government
c. statutes/ rules/ and regulations of government agencies and offices
d. speeches/ lectures/ sermons/ addresses and dissertations/ pronounced or rendered in courts
of "ustices or nay administrative agencies in deliberative assemblies and meetings of public
character
2. &air Bse of a Copyrighted !or- is not Infringement
a. for criticism/ comment/ news reporting/ teaching/ research/ scholarship/ and similar
purposes
b. decompilation' the reproduction of the code and translation of the forms of the computer
program with other programs
3. &actors to Consider in +etermining &air Bse'
a. purpose and character of the use/ including whether such use is of a commercial nature or
for no profit or educational purposes
b. nature of the copyrighted wor-
c. amount and substantiality of the portion used in relation to the copyrighted wor- as a
whole
d. effect of use upon the potential mar-et for a value of the copyrighted wor-
46
COMMERCI AL LAW
MEMORY AID
4. $erms of the )rotection
a. copyrighted wor-' lifetime of creator plus A1 years after death 7to be computed on the 0
st
day of 3anuary of the year following the death8
b. performances not incorporated in recordings' A1 years from end of year in which the
performance too- place
c. sound or image and sound recordings and performances incorporated therein' A1 years
from end of the year in which the recording too- place
d. broadcasts' 21 years from the date the broadcast too- place
5. Remedies for Infringement
a. in"unction
b. actual damages/ including legal costs and other e.penses/ as he may have incurred due to
the infringement as well as the profits the infringer may have made due to such
infringement
c. impounding of articles during pendency of the action
d. destruction of all infringing copies and<or devices
e. moral and e.emplary damages
6. Criminal )enalties
a. imprisonment of 0 to I years plus fine of )A1/111 to )0A1/111 for the first offense
b. imprisonment of I years and 0 day to : years plus fine ranging from )0A1/111 to )A11/111
for the 2
nd
offense
c. imprisonment of : years and 0 day to @ years plus fine of )A11/111 to )0/111/111 for the
I
rd
<subse(uent offenses
I* A CA%E%/ subsidiary imprisonment in cases of insolvency
7. )resumptions'
a. )resumption of copyright in the wor- of other sub"ect matter to which the action related
b. )laintiff is presumed to be the owner of the copyright
c. $he natural person whose name is indicated on a wor- in the usual manner as the author
shall/ in the absence of proof to the contrary/ be presumed to be the author of the wor-9
$his is applicable even if the name is a pseudonym/ where the pseudonym leaves no doubt
as to the identity of the author9
8. )rescription' *o damages may be recovered after = years from time the cause of action arose9
Patet!
1. )atentable Inventions - any technical solution of a problem in any field o human activity that is
new/ involve an inventive step and is industrially applicable shall be patentable9 It may be or
may relate to as product/ or process or an improvement of any of the foregoing9
2. *on-)atentable Inventions
a. discoveries/ scientific theories and mathematical methods
47
COMMERCI AL LAW
MEMORY AID
b. schemes/ rules and methods of performing mental acts/ playing games or doing business/
and programs for computers
c. methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human or animal body
E.ception' products and composition for use in any of these methods
d. plant varieties or animal breeds or essentially biological process for the production of
plants and animals
E.ception' micro-organisms and non-biological and micro-biological processes
e. aesthetic creations
f. contrary to public order or morality
3. Re(uisites of )atentability
a. new/ novelty
b. involves an inventive step;
c. is industrially applicable
4. *ovelty
$he novelty re(uirement in the Code is absolute9 $hus/ an invention is not considered new if
it forms part of a prior art9 A prior art consists of'
a. anything which has been made available to the public anywhere in the world before the filing
date or the priority date of the application/ or
b. the whole contents of an application for a patent/ utility model/ or industrial design
registration/ published in the I)O ga4ette/ filed or effective in the )hilippines/ with a filing or
priority date that is earlier than the filing or priority date of the application/ provided that the
application which has validly claimed the filing date of an earlier application 7priority date8 is
prior art with effect as of the filing date of such earlier application/ and provided further/ that
the applicant and the inventor identified in both applications are not one and the same
5. Inventive %tep - an invention involves an inventive step/ if having regard to the prior art/ it is
not obvious to a person s-illed in the art at the time of the filing date of priority date of the
application claiming the invention
6. Industrial Applicability - an invention is considered industrially applicable if it can be produced
and used in the industry
7. $he &irst-to-&ile %ystem - if 2 or more persons have made the invention separately and
independently of each other/ the right to the patent belongs to the person who filed an
application for such invention/ or where 2 or more applications are filed for the same
invention/ the right of the patent belongs to the person who has the earliest filing date or the
earliest priority date
Bnder this system/ the patent is granted to the inventor who filed his patent application earlier
than others thus simplifying the determination of who is entitled to own the patent9
$he &irst-to-&ile %ystem increases the rights of the inventor by'
a. guaranteeing the confidentiality of the application prior to its publication
48
COMMERCI AL LAW
MEMORY AID
b. giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
c. e.panding the rights of the inventor to institute cancellation proceedings for the duration
of the term of the patent9 Cancellation proceedings may be filed at any time during the
term of the patent9
Bnder this system/ the applicant declared by final court order as having the right to the patent
may'
a. prosecute the application as his own application in place of the original applicant
b. file a new patent application in respect of the same invention
c. re(uest that the application be refused or
d. see- the cancellation of the patent/ if one has already been issued
8. !hat is the difference between novelty in patents and originality in copyright6
*ovelty in )atents - even if you do not -now of any previous creation/ as long as a patent on
the same creation has already been published anywhere in the world/ you cannot claim novelty9
*o access tot he other creation is no defense9
Originality in Copyright - even if there is same creation/ as long as you do not copy your own
creation/ it is still considered an original creation9 *o access to the previous creation is a defense9
9. *on-)re"udicial +isclosure
$he disclosure of information contained in the application during the 02 months preceding
the filing date or the priority date of the application shall not pre"udice the applicant on the ground
of lac- of novelty if such disclosure was made by 7a8 inventor; 7b8 a patent office and the
information was contained
10. $erm of )atent - 21 years from the filing date of the application
11. 5rounds for Compulsory icensing'
a. national emergency or other circumstances of e.treme urgency
b. where public interest/ national security/ health or the development of other vital sectors of
the national economy as determined by the appropriate agency of the government so
re(uires
c. where a "udicial or administrative body has determined that the manner of e.ploitation by
the owner of the patent or his licensee is anti-competitive
d. in case of public non-commercial use of the patent by the patentee/ without satisfactory
reason
e. if not being wor-ed in the )hilippines on a commercial scale
12. In case of Compulsory icensing of )atents involving %emi-conductor $echnology/ the license
may be granted only in case of public non-commercial use or to remedy a practice determined
after "udicial or administrative process to be anti-competitive
13. Btility Models - an invention (ualifies for registration as a utility model if it is new and
industrially applicable
49
COMMERCI AL LAW
MEMORY AID
- no inventive step re(uired for registration
- no search and e.amination re(uired
14. $erm )rotection - J years after the filing date of application without possibility of renewal
15. Industrial +esign - any composition of lines or colors or any I dimensional form/ whether or
not associated with lines or colors
Industrial +esigns essentially dictated by technical or functional considerations to obtain a
technical result or those that are contrary to public order/ health or morals shall not be protected
16. $erm of )rotection - A years from filing date of application/ renewable for not more than 2
consecutive periods of A years each
I!o$+e'y La/
1. +istinguish %uspension of )ayment and Insolvency
S"!(e!%o o& Pay.et I!o$+e'y
debtor has enough assets to meet liabilities but
cannot meet them as they fall due
debtor has more liabilities than assets
always initiated by debtor initiated by creditors<other persons if involuntary;
initiated by debtor if voluntary
2. &raudulent )reference - any act of insolvent which gives rise<has tendency to give preference
to a creditor to the assets of the insolvent pre"udicial to the right of other creditors of said
insolvent
3. Effect on Actions Bpon Ad"udication of Insolvency
a. suits pending in court
(1) secured obligations suspended until assignee appointed
(2) unsecured obligations terminated e.cept to fi. amount of obligation
(3) foreclosure suits pending continue
b. suit not yet filed - cannot be filed anymore/ but claims may be presented to assignee
4. +ebts and Obligations not Affected by +ischarge of Insolvent
a. assessments due to national and local government
b. debts due to fraud<embe44lement
c. debts in which he is bound solidarily
d. alimony
e. corporate debts
f. debts not included in the schedule submitted by debtor
C,atte$ Mortgage La/
1. $he law primarily governs chattel mortgage9 )rovisions on pledge of *CC in so far as not in
conflict with CM also govern chattel mortgages9
50
COMMERCI AL LAW
MEMORY AID
2. Chattel Mortgage may be rescinded for being in fraud of creditors9
3. 5rowing fruits are covered by chattel mortgage but they may not be pledged9
4. Machinery placed on plant or building owned by another can be the ob"ect of chattel
mortgage9
5. 5eneral Rule' Chattel Mortgage cannot cover debts subse(uently contracted9
6. Rules' Chattel Mortgage cannot cover debts subse(uently contracted
a. registered in place where mortgagor resides and where property 7chattel8 is located9 If
mortgagor resides abroad/ register in place where property is located9
b. Motor Eehicles' register also in and $ransportation Office
c. %hares of %toc-' place of domicile of corporation and shareholder9 *o need for notation
in boo-s of corporation
d. Eessels' )hil9 Coastguard
7. $o be valid against I
rd
persons'
a. affidavit of good faith
b. contract must be registered
8. 5eneral Rule' In Chattel Mortgage/ there is recovery of deficiency "udgment9
E.ception' when Recto aw applies
9. Re(uisites of CM'
a. constituted to secure the fulfillment of principal obligation
b. mortgagor is absolute owner of the thing mortgaged
c. persons constituting the mortgage have the free disposal of the property and in the absence
thereof/ they be legally authori4ed for the purpose
d. recorded to bind I
rd
persons
10. &ormal Re(uisites of CM'
a. substantial compliance with form in %ec9 A of CM
b. signed by at least 2 witnesses
c. must contain an affidavit of good faith
d. certificate of oath 7notarial ac-nowledgment8
11. Affidavit of 5ood &aith - where the parties severally swear that the mortgage is made for the
purpose of securing the obligation specified and for no other purpose and that the same is a
"ust and valid obligation and not one entered into for fraud
- property given in CM must be described to enable the parties or any
other person after reasonable in(uiry and investigation to identify it
12. &uture property may not be covered by CM but when such property is a'
51
COMMERCI AL LAW
MEMORY AID
a. renewal of/ or in substitution for goods on hand when the mortgage was e.ecuted/ or
b. purchased with proceeds 7not of your own money8 of said goods/ said property may be
covered by CM
13. Criminal Acts - removal of chattel to another city or province without written consent of
mortgagee/ selling property already pledged/ or mortgaged without written consent of
mortgagee
14. A chattel mortgage may be foreclosed "udicially or e.tra-"udicially/ in the latter case/ before a
notary or sheriff/ or creditor or mortgagee when stipulated/ even without need of notice 7when
mortgagee forecloses8
0A9 )actum Commissorium applies to Chattel Mortgage9

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