Professional Documents
Culture Documents
Commercial law
Prepared by:
Parties:
a. Maker one who makes a promise and
sign the instrument
b. Payee one to whom the promise is
made or
the instrument is payable.
Page 1
may
have
rights
better than transferor
Subject is money
Instrument itself
property of value
Negotiable
Instruments
Have requisites
Sec. 1 of the NIL
of
Check
Non-negotiable
- Always drawn
Instruments
upon a bank or
Doesbanker
not contain all
- Always payable
the requisites
of Sec.
1 of the
NIL
on demand
Transferred
by
assignment
- Not necessary
Transferee
acquires
be
rightsthatonly it of his
presented
for
transferor
acceptance
Prior - parties
Drawn merely
on a
warrant
legality of
deposit
title - The death of a
Transferee has no
drawer
of
a
right of recourse
check,
with
knowledge
by
the
banks,
revokes
Negotiable the
Documents
authorityofofTitle
the
Doesbanker
not pay
contain
requisites
of Sec. 1 be
of
Must
NIL
presented
for
No secondary liability
payment
within
of
intermediate
a
reasonable
parties
time after its
Transferee
merely
issue (6 months)
is
Promissory Note
Unconditional
promise
Involves 2 parties
Maker primarily liable
Only 1 presentment for payment
BOE
PN be drawn
CHECK
- May or may not
- There are two (2) - There are three (3)
against a bank
parties, the maker parties, the drawer,
and
the payee
- May be
payable
on demand the drawee bank and
or at a fixed or determinable the payee
- May be drawn Always
drawn
future time
against any person, against a bank
- Necessary that it be
not
necessarily
a
presented for acceptance
bank
- May be payable on -Always payable on
demand or at a fixed demand
- Not drawn on a deposit
or
determinable
future
time
- The death of the drawer of
- A promise to pay
- An order to pay
the ordinary bill of exchange
*Note: PN, BOE and
does not
Checkdefinitions
(2002 BEQ)
Page 2
However,
these
instruments
are
non-negotiable:
1. Treasury warrant
are
non-negotiable
because there is an
indication of the fund
as the source of
Page 3
c.
Page 4
RULES AS TO DATES
There are several important principles as to
dates in negotiable instruments. These are:
1. Where the instrument, its acceptance, or
indorsement is dated, such date is
presumed to be the corresponding true
date; Date is important 2. Where the instrument is payable within a
specified period after date, or after
acceptance, in which case the date of the
instrument and the date of maturity of the
instrument; in these cases, the holder may
insert the true date;
a. when the instrument is payable on
demand, the date is necessary to
determine whether the instrument
was presented within a reasonable
time from issue in the case of notes
or from last negotiation in the case
of bills, as these factors will show
whether the last holder is a holder in
due course or not; and
b. when the instrument is an interestbearing one, to determine when the
interest starts to run.
3. Antedating or postdating an instrument
does not affect validity or negotiability,
unless done for an illegal or fraudulent
purpose.
REAL DEFENSES Those that attach to the
instrument itself and are available against all
holders, whether in due course or not.
(WAD FIMMU WIFE)
1. Want of delivery of incomplete
instrument;
Page 5
Instrument:
Notes on Section 15
It is a real defense. It can be interposed
against a holder in due course.
Where
an
INCOMLETE
and
UNDELIVERED instrument is in the
hands of a HDC, there is PRIMA FACIE
PRESUMPTION of delivery.
Defense of the maker is to prove non-delivery
of the incomplete instrument.
Page 6
Rules
on
Instruments:
Interpretation
of
Page 7
RULE ON SIGNATURES
General Rule: A person whose signature does
not appear on the instrument in not
liable.
Exception:
a. One who signs in a trade or assumed
name (Sec. 18)
b. A duly authorized agent (Sec. 19)
c. A forger (Sec. 23)
LIABILITY of a person SIGNING AS AGENT:
An agent is exempt from personal liability,
provided he:
1. Acts within the scope of his authority;
2. Discloses the name of his principal; and
3. Discloses that he is acting in a representative
capacity (Sec. 20)
Notes on Section 20
General rule: An agent is not liable on the
instrument if he were duly authorized to
sign for or on behalf of a principal.
Exception:
The party against whom it is sought to
be enforced is precluded from setting up
the forgery or want of authority. (Sec.23)
Page 8
Notes on Section 23
Section 23 applies only to forged signatures
or signatures made without authority
Alterations such as to amounts or like fall
under section 124
Forms of forgery are a) fraud in factum b)
duress amounting to fraud c) fraudulent
impersonation
Only the signature forged or made without
authority is inoperative, the instrument or
other signatures which are genuine are
affected
The instrument can be enforced by holders
to whose title the forged signature is not
necessary
drawee bank is conclusively presumed to
know the signature of its drawer
if endorsers signature is forged, loss will be
borne by the forger and parties subsequent
thereto
Page 9
Absence of Consideration:
(1995 and 1996 Bar Exam)
Effect of want of consideration:
a. Personal defense to the prejudice of a
party and available against any person
not holder in due course.
b. Partial failure of consideration is a
defense pro tanto, whether the failure is
an asceratained and liquidated amount
otherwise. (Sec 29)
Notes on Section 28
Absence of consideration is where no
consideration was intended to pass.
Failure of consideration implies that
consideration was intended by that it failed
to pass
The defense of want of consideration is
ineffective against a holder in due course
A drawee who accepts the bill cannot allege
want of consideration against the drawer
Accommodation
Legal arrangement under which a person called
the accommodation party lends his name and
credit to another called the accommodated
party, without consideration.
defense
by
the
accommodation
(Prudencio v. CA, 143 SCRA 6).
party.
*A
promissory
note
with
an
accommodation maker, utilized to settle an
estafa case, has an illegal consideration, and
does not make the co-maker liable. (United
Industries v. Paler, 112 SCRA 404)
A
corporation
cannot
act
as
an
accommodation party. Such is an ultra vires
act. (Crisologo-Jose v CA, 117SCRA594)
Page 10
NEGOTIATION
Notes on Section 31
The paper attached with the indorsement is
an allonge
An allonge must be attached so that it
becomes a part of the instrument, it cannot
be simply pinned or clipped to it.
Kinds of Indorsements:
a.
b.
c.
d.
e.
Page 11
Notes on Section 40
Section 40 applies only to instruments
originally payable to bearer
It cannot apply where the instrument is
payable to bearer because the only or last
indorsement is in blank
1.
2.
3.
4.
Page 12
WHO IS
COURSE?
HOLDER
IN
DUE
it
discharges
the
Page 13
under circumstances
amounting to fraud
11. Mistake
12. Intoxication
13. Ultra vires acts
of corporations
14. Want of authority
of the agent where
he has apparent
authority
15. Illegality of
contract where form
or consideration is
illegal
16. Insanity where
there is no notice of
insanity
Real Defenses
instrument between
public enemies
Illegality of contract
made by statue
Forgery
Alteration
Want of delivery of
incomplete
instrument
LIABILITIES OF PARTIES:
1. A maker is primarily liable:
Effects of making the instrument, the
maker:
a. Engages to pay according to tenor of
instrument
b. Admits existence of payee and his
capacity to indorse (Sec. 60 NIL)
Duress amounting to
forgery
Fraud in factum or in
esse contractus
Minority
Marriage in case of a
wife
Insanity where the
insane person has a
guardian appointed
by the court
Ultra vires acts of a
corporation where its
charter or by statue,
it is prohibited from
issuing commercial
paper
Want of authority of
agent
Execution of
Page 14
Notes on Section 60
A
makers
liability
is
primarily
and
unconditional
One who has signed as such is presumed to
have acted with care and to have signed with
full knowledge of its contents, unless fraud is
proved
The payees interest is only to see to it that
the note is paid according to its terms
When two or more makers sign jointly, each is
individually liable for the full amount even if
one did not receive the value given
The maker is precluded from setting up the
defense of:
a) The payee is fictional,
b) That the payee was insane, a minor or a
corporation acting ultra vires
2. A drawer is secondarily liable
Effects of drawing the instrument,
drawer:
a. Admits the existence of the payee,
the
Notes on Section 61
A drawer may insert an express stipulation to
negative or limit his liability
3. An acceptor is primarily liable
By accepting the instrument, an acceptor:
Engages that he will pay according to
the tenor of his acceptance
Admits the existence of the drawer, the
genuineness of his signature and his
capacity and authority to draw the
instrument
The existence of the payee and his then
capacity indorse
IRREGULAR INDORSER
- a person not
otherwise a party to an instrument places
his signature in blank before delivery is
liable as an indorser in the following
manner:
a. If payable to order of a third person
liable to the payee and to all subsequent
parties
b. If payable to order of the maker or
drawer liable to all parties subsequent
to the maker or drawer
c. If payable to bearer liable to all parties
subsequent to the maker or drawer
d. If signs for an accommodation party
liable to all parties subsequent to the
payee (Sec. 64)
*Note: Irregular Indorser v. General Indorser
(2005 BEQ)
Irregular Indorser, is not a party to the
instrument but he places his signature in blank
before delivery. He is not a party but he
becomes one because of his signature in the
instrument. Because his signature he is
considered an indorser and he is liable to the
parties in the instrument. While, a General
Limitations of warranties:
- If by delivery extends only to immediate
transferee
- Warranty of capacity to contract does not
apply to persons negotiating
public or corporate securities
(Sec. 65 NIL)
4.
Page 15
Notes on Section 65
A qualified indorser is one who indorses
without recourse or sans recourse
Recourse - resort to a person secondarily
liable after default of person primarily liable
A qualified indorser cannot raise the defense
of a) forgery b) defect of his title or that it is
void c) the incapacity of the maker, drawer or
previous indorsers.
A qualified Indorsement makes the indorser
mere assignor of title of instrument, relieves
him of general obligation to pay if instrument
is dishonored, but he is still liable for the
warranties arising from instrument only up to
warranties of general indorser
The warranty is to the capacity of prior parties
at the time the instrument was negotiated.
Subsequent incapacity does not breach the
warranty.
lack of knowledge of the indorser as to any
fact that would impair the validity or the value
of the instrument must be subsisting all
throughout
Notes on Section 66
The indorser under Section 66 warrants the
solvency of a prior party
The indorser warrants that the instrument is
valid and subsisting regardless of whether he
is ignorant of that fact or not.
Warranties extend in favor of a) a HDC b)
persons who derive their title from HDC c)
immediate transferees even if not HDC
The
indorser
does
not
warrant
the
genuineness of the drawers signature
General indorser is only secondarily liable
Consists of
a) a personal demand for
payment at a proper place b) the bill or note
must be ready to be exhibited if required and
surrendered upon payment.
Notes on Section 70
Presentation for payment production of a
BOE to the drawee for his acceptance, or to a
drawee or acceptor for payment.
Also
presentment of a PN to the party liable for
payment of the same.
Page 16
Notes on Section 72
Only the holder or one authorized by him has
the right to make presentment for payment
Presentment cannot be made on a Sunday or
holiday
If the instrument is payable on demand a) if
it is a note presentment must be made
within reasonable time after issue b) if it is a
bill - presentment must be made within
reasonable time after last negotiation.
Notes on Section 82
What is excused is the failure to make
presentment. There is no need to make any
presentment versus under section 81 (delay
in presentment) presentment for payment is
still required after the cause of delay has
ceased.
Other instances where presentment for
payment is not required:
1. in order to charge the drawer, where he
has no right to expect or require that the
drawee or acceptor will pay the instrument;
2. in order to charge an indorser, where the
instrument was made or accepted for his
accommodation and he has no right to
expect that the instrument will be paid if
presented; and
3. when a bill is dishonored by nonacceptance, an immediate right of recourse
against the drawer and indorsers accrues to
Page 17
Notes on Section 84
Parties cease to be secondarily liable and
become principal debtors.
Liability becomes the same as that of the
original obligors.
NOTICE OF DISHONOR
When a negotiable instrument has been
dishonored by non-acceptance non-payment,
notice of dishonor must be given to the drawer
and to each indorsers.
Any drawer or indorser to whom such notice is
not given is discharged.
Effects of notice:
a. Where notice is given by or on behalf
of the holder, it inures for the benefit of all
subsequent holders and all prior parties who
have a right of recourse against the party to
whom it is given.
b. Where notice is given by or on behalf
of a party entitled to give notice, it inures for
the benefit of the holder and all parties
subsequent to the party to whom it is given.
Forms of notice:
a. May be written or oral
b. Written notice need not be signed or
may be supplemented by verbal
communication
c. May be by personal delivery or by mail
Notice may be waived either expressly or
implied:
a. Before the time of giving notice has
arrived
b. After the omission to give due notice
Dispensation with Notice:
Page 18
General rule:
When materially altered,
without the consent of all parties liable,
the instrument is avoided except as
against:
a. The party who has made the alteration
b. The party who authorized or assented to
the alteration.
c. Subsequent indorsers
Exception:
If in the hands of a HDC, may be
enforced according to its original tenor
MATERIAL ALTERATION
BAR OPERATIONS 2011
Page 19
MATERIAL ALTERATION
- Any change in the instrument which affects
or changes the liability of the parties in any
way.
ACCEPTANCE
The signification by the drawee of his assent to
the order of the drawer. It is an act by which a
person on whom the Bill of Exchange is drawn
assents to the request of the drawer to pay it.
As a general rule, acceptance, in order to be
valid must be:
1. Written;
2. Signed by the drawee; and
3. Must contain an express or implied to pay
in money.
Kind of acceptance:
A. Constructive Acceptance:
a. Where the drawee to whom the bill has
been delivered destroys it
b. The drawee refuses within 24 hrs after
such delivery or within such time as is
given, to return the bill accepted or not
Notes on Section 137
Drawee becomes primarily liable as
acceptor.
Mere retention is equivalent to acceptance
B. General Acceptance:
An acceptance to pay at a particular
place is a general acceptance unless it is
expressly states that the bill is to be paid there
only and not elsewhere.
C. Qualified Acceptance if in express terms
varies the effect of the bill as drawn.
Kinds of Qualified Acceptance:
a. Conditional one which makes
payment
by
the
acceptor
dependent on the fulfillment of a
condition therein stated;
b. Partial an acceptance to pay
part only of the amount for
which the bill is drawn;
c. Local an acceptance to pay
only at a particular place;
d. Qualified as to time
e. The acceptance of some or
more drawees but NOT ALL.
-
Effect of taking
acceptance:
Page 20
an
qualified
Page 21
PRESENTMENT
For Acceptance (Sec. 143)
For Payment ( Sec. 70)
( 2000 & 2003 BEQ)
PURPOSE: To get acceptance of the drawer
for purpose of making him primarily liable as
an acceptor. Presentment is also prerequisite
to the accrual of secondary liability against
the drawer and the indorsers.
On what days presentment must be made:
A bill may be presented for acceptance
on any day on which negotiable instruments
may be presented for payment. When Saturday
is not otherwise a holiday, presentment for
acceptance may be made before twelve oclock
noon, on that day.
Presentment
made:
for
acceptance
must
be
Page 22
Debentures; and
Income bonds;
Convertible bonds;
Redeemable Bonds;
Registered Bonds; and
- Coupon Bonds those which are
attached
a
sheet
of
dated,
numbered and similarly printed
coupons which the bondholder may
cut off when due or thereafter. Such
coupons may be served and
deposited in a bank, negotiated
before the maturity of the interest
they represent, and transferred just
like any commercial paper. They are
negotiable if it the requisites in
Section 1, NIL are complied with.
Page 23
CORPORATION LAW
IRON
CLAD
RULE
prohibits
the
countermanding of payment of certified
checks. (Rep. v. PNB, Dec. 1, 1961)
A. CORPORATION, DEFINED
An artificial being created by operation of law
having the right of succession, and the
powers, attributes and properties expressly
authorized by law and incident to its
existence. (Sec. 2). It has a separate and
distinct personality from its incorporators.
(2000 Bar Examination)
Attributes of a Corporation
1. It is an artificial being.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and
properties expressly authorized by law or
incident to its existence.
1.
2.
Page 24
Page 25
Page 26
Page 27
ii.
iii.
2. Minimum
Capital
Stock
subscription requirement
i.
Subscription requirement
and
ii.
4. Classification of Shares
COMMON SHARES are the basic
class of stock ordinarily and
usually
issued
without
extraordinary rights and privileges.
The owners thereof are entitle to a
pro rata share in the profits of the
corporation and in its assets upon
dissolution and, likewise, in the
management of its affairs without
preference
or
advantage
whatsoever.
ii.
PREFERRED SHARES are those
issued with par value, and
preferences either with respect to:
a. assets
after
dissolution
(PREFERRED SHARES AS TO
ASSETS)
b. distribution
of
dividends
(PREFERRED SHARES AS TO
DIVIDENDS)
c. or both, and other preferences.
i.
Page 28
i.
ii.
iii.
iv.
Limitations:
Redeemable shares may be
issued only when expressly
provided for in the articles of
incorporation;
Terms and conditions affecting
said shares must be stated
both
in
the
articles
of
incorporation
and
in
the
certificates
of
stock
representing such shares;
Redeemable shares may be
deprived of voting rights in the
articles of incorporation, unless
otherwise provided in the
Code.
Redeemable shares may be
redeemed, regardless of the
existence
of
unrestricted
retained earnings (Sec. 8), and
provided further that the
corporation has, after such
redemption, sufficient assets in
its books to absorb corporate
debts and liabilities.
F. INCORPORATION
ORGANIZATION
1. Promoter
2. Subscription Contract
AND
Page 29
SUBSCRIPTION
Refers to unissued
shares
Corporation still to
be form or already in
existence
The subscriber can
exercise all his right
as
a
stockholder
even
before
full
payment
of
the
subscription
Corporate creditors
may proceed against
the subscriber for his
unpaid subscription
in case the corporate
asset
are
not
sufficient to satisfy
their claims
Subscriber may not
be legally released
from the payment of
his
unpaid
subscription unless
no creditors would
be prejudiced and all
the
stockholders
agree thereto
Subscription may be
in any form, not
covered
by
the
statute of frauds.
PURCHASE OF
SHARES
Refers to issued
shares
The corporation
is
already
in
existence
The
purchaser
can only exercise
his right upon full
payment of the
purchase price
Corporate
creditor cannot
proceed against
the purchaser for
the balance of
the
purchase
price because of
the lack of privity
of
contract
between them
The corporation
can rescind or
cancel
the
contract in case
of
non
fulfillment by the
buyer.
Purchase
of
shares is covered
by the statute of
frauds in case of
purchases
amounting
to
more than Php
500.00
incorporation
Agreements
Subscription
incorporation
subscription
constitutes a binding contract among
the subscribers.
NOTE: It shall be irrevocable for a
period of at least six (6) years from
the date of subscription unless:
a. All of the other subscribers
consent to the revocation, or
b. The incorporation fails to
materialize
It shall likewise be irrevocable after
the submission of the articles of
incorporation to the SEC.
UNDERWRITING
AGREEMENT
between a corporation and a third
person, termed the underwriter is
an agreement by which the latter
agrees, for a certain compensation, to
purchase a stipulated amount of
stocks or bonds, specified in the
underwriting agreement, if such
securities are not purchased by those
to whom they are first offered.
4. Consideration of Stocks
Valid considerations in subscription
agreement:
a. Cash actually received;
b. Property, tangible or intangible
necessary or convenient for its use
and lawful purpose;
c. Labor or services actually rendered
to the corporation;
Page 30
d. Previously
incurred
corporate
indebtedness
(Note:
the
indebtedness involved must be
one that is acknowledged by the
board);
e. Amounts
transferred
from
unrestricted retained earnings to
stated capital;
f. Outstanding shares in exchange
for stocks in the event of
reclassification or conversion.
5. Articles of Incorporation
i.
Definition:
Basic
document
defining the charter of the
corporation
ii.
Significance: Condition precedent
in the acquisition of corporate
existence
iii.
Contractual
significance:
A
contract between 3 parties: (1) the
State and the corporation, (2) the
stockholders and the State, and
(3) the corporation and its
stockholders.
iv.
Effects as to Outsiders: Bind a
third person dealing with the
corporation
v.
Requisites for Validity
a. Filed and registered with the
SEC
b. Banks,
public
utilities,
insurance companies: needs
favorable
recommendation
from appropriate agency that
articles are in accordance with
law
c. SEC shall examine AOI upon
filing and upon satisfaction of
all legal requirements, issue
certificate of incorporation and
only then shall Corporation
have a personality separate
and
distinct
from
its
stockholders or members
d. Sworn
Statement
of
the
Treasurer
regarding
subscription requirement
vi.
Basic Content (Sec. 14)
a. The name of the corporation;
vii.
b. The
specific
purpose
or
purposes
for
which
the
corporation
is
being
incorporated;
c. The place where the principal
office of the corporation is to
be located, which must be
within the Philippines;
d. The term for which the
corporation is to exist;
e. The number of directors or
trustees, which shall not be
less than 5 nor more than 15;
f. The names, nationalities and
residences of persons who
shall act as director or trustees
until the first regular directors
or trustees are duly elected
and qualified in accordance
with the Code;
g. If it be a stock corporation, the
amount
of
its
authorized
capital stock in lawful money of
the Philippines, the number of
shares into which it is divided,
and in case the share are par
value shares, the par value of
each, the names, nationalities
and residences of the original
subscribers, and the amount
subscribed and paid by each
on his subscription, and if some
or all of the shares are without
par value, such fact must be
stated;
h. If it be a non stock
corporation, the amount of its
capital,
the
names,
nationalities and residences of
the
contributors
and
the
amount contributed by each;
and
i. Such other matters as are not
inconsistent with law and
which the incorporators may
deem
necessary
and
convenient.
Adoption and Form: File with the
Securities and Exchange Commission
articles of incorporation in any of the
official languages duly signed and
acknowledged by all of the incorporators.
Page 31
viii.
Amendment
a. Majority vote of BOD / trustees and
vote or written assent of 2/3
outstanding capital stock, without
prejudice to the appraisal right of
dissenting stockholders.
b. Amendments take effect upon
approval by SEC or from the date of
filing with SEC if not acted upon
within 6 months from date of filing
for a cause not attributable to the
corporation.
ix. Grounds for Rejection or Disapproval (Sec.
17)
a. That the articles of incorporation
or any amendment thereto is not
substantially in accordance with
the from prescribed herein;
b. That the purpose or purposes of
the
corporation
are
patently
unconstitutional, illegal, immoral
or contrary to government rules
and regulations;
c. That the Treasurers Affidavit
concerning the amount of capital
stock subscribed and / or paid is
false;
d. That the percentage of ownership
of the capital stock to be owned by
citizens of the Philippines has not
been complied with as required by
existing laws or the Constitution.
6. Corporate Name
The name of the corporation must not
be
identical
or
deceptively
or
confusingly similar to any existing
corporation.
7. Registration
and
issuance
Certificate of Incorporation
of
Page 32
G. CORPORATE POWERS
1. GENERAL
POWERS,
THEORY
OF
GENERAL CAPACITY (Sec. 36)
a. To sue and be sued;
b. Of succession;
c. To adopt and use of corporate seal;
d. To amend its Articles of Incorporation;
e. To adopt its by-laws;
f. For stock corporations: issue and sell
stocks to subscribers and treasury
stocks; for non-stock corporations:
admit members;
g. To purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and deal with real and
personal property, securities and bonds
h. To enter into merger or consolidation;
i. To make reasonable donations for
public welfare, hospital, charitable,
cultural, scientific, civic or similar
purposes, provided that no donation is
given to any (i) political party, (ii)
candidate and (iii) partisan political
activity.
j. To establish pension, retirement, and
other plans for the benefit of its
directors,
trustees,
officers
and
employees.
k. To exercise other powers essential or
necessary to carry out its purposes.
2. SPECIFIC
POWERS,
THEORY
OF
SEPECIFIC CAPACITY (Sec. 37 44)
a. Power to extend or shorten corporate
term (2000 Bar Examination)
Majority of BOD, 2/3 of capital stock
Extension Sec. 37: right of
appraisal for dissenting stockholders
Shortening Sec. 81 allows for right
of appraisal, but technically there
shouldnt be because investors are
also in it for the short term (there
is no novation)
b. Increase or decrease corporate stock
Majority of BOD, 2/3 of capital stock
Needs SEC approval
Page 33
level
transaction:
Although there is no effect in
relationship between State and
Corporation, its just as if there is
resetting to starting point of
business life
Compare:
i.
Usual
and
regular
course of business (Business
Judgment Doctrine)
ii.
Proceeds of sale for
conduct of remaining business
The test: It just has to be ordinary
so the sale of all business of a
corporation
in
light
of
using
proceeds to set up anew still needs
RATIFICATION
When no ratificatory vote from the
stockholders / members needed:
i. If it is necessary in the usual and
regular course of business
ii. If the proceeds of the sale or
other
disposition
of
such
property
and
assets
be
appropriated for the conduct of
the remaining business.
Page 34
i.
Cash
Property
Stock
REQUISITES:
1. Existence of unrestricted retained
earnings out of which the dividends
may be declared and paid (2005
Bar Examination)
2. A corporate resolution of the board
of directors declaring the payment
of a portion or all such earnings to
the stockholders (The Corporation
Code of the Phil. Annotated by
Hector de Leon, 2006 ed)
GENERAL RULE: Stock corporation
cannot retain surplus profits in excess
of 100% of paid up capital stock
except: (2001 Bar Examination)
1. Justified by definite corporate
expansion
projects
/
programs
approved
by
BOD
2. Loan agreement, where creditor
has to first consent before corporation
can declare dividends
3. Special circumstances
h. Enter into management contract with
another corporation (not with an
Types:
(Philippine Corporate Law, Cesar
Villanueva, 2001 ed.)
1. Acts done beyond the powers of the
corporation as provided in the law or
its articles of incorporation;
Page 35
ILLEGAL ACTS
Unlawful;
against
law, morals, public
policy, and public
order
Cannot be ratified
Cannot
bind
the
parties
3. Creditors
a. Nullification of contract in fraud of
creditors
j.
DOCTRINE OF
SUBSCRIPTION
INDIVIDUALITY
OF
1. RIGHTS OF A STOCKHOLDER
a. Managerial Rights
b. Proprietary Rights
c. Pre emptive Rights
d. Remedial Rights
e. Appraisal Rights
f. Inspection Rights
2.
MANAGERIAL RIGHTS
a. Voting rights; and
b. Right to remove directors
Page 36
Page 37
1. Books of Account;
2. List of Stockholders or Members; and
3. Financial Records.
e.
Appraisal
right
(2007
Bar
Examination) is the right of a
stockholder who dissents from a
fundamental or extraordinary corporate
action to demand payment of the fair
value of his shares. The corporate acts
involves fundamental changes in the
corporate structure namely:
1.
An amendment
to the articles of incorporation that
has the effect of
2.
Sale,
encumbrance or other dispositions of
all or substantially all of the corporate
property or assets
3.
Merger
or
consolidation
4.
Investment of
corporate funds in another corporation
or in a purpose other than the primary
purpose (Sec. 42)
GENERAL RULE: A dissenting stockholder who
demands payment of his shares is no longer
allowed to withdraw from his decision EXCEPT
when:
1. The corporation consents to the
withdrawal
2. The proposed corporate action is
abandoned or rescinded by the
corporation
3. The proposed corporate action is
disapproved by the SEC where its
approval is necessary
4. The Commission determines that
such stockholder is not entitled to
appraisal right.
f.
RIGHT OF FIRST
Page 38
RIGHT
May be exercised
even when there is
no
express
provision of law
Pertains
to
unsubscribed
portion
of
the
authorized capital
stock. A right that
may be claimed
against
the
corporation
REFUSAL
Arises
only
by
virtue
of
contractual
stipulations but is
also granted under
the provisions on
Close Corporation
Exercisable against
another stockholder
of the corporation
of his shares of
stock
4. REMEDIAL RIGHTS
a. Individual suit a suit instituted by a
shareholder for his own behalf against
the corporation;
b. Representative suit a suit filed by a
shareholder in his behalf and in behalf
likewise of other stockholders similarly
situated and with a common cause
against the corporation; and
c. Derivative suit (2009, 2006, 2005,
2004 Bar Examination) a suit filed
in behalf of the corporation by its
shareholders (not creditors whose
remedies are merely subsidiary such
as accion subrogatoria and accion
pauliana) upon a cause of action
belonging to the corporation, but not
duly pursued by it, against any person
or against the directors, officers
and/or controlling shareholders of the
corporation.
Requisites:
i.
An existing cause of
action
in
favor
of
the
corporation
ii.
The
stockholder/member must first
make a demand upon the
corporation
or
the
management to sue unless
such a demand would be futile
iii.
The
stockholder/member must be
such at the time of the
6.
LIABILITIES OF STOCKHOLDERS
a. Liability to the corporation for unpaid
subscription
b. Liability to the corporation for interest
on unpaid subscription
c. Liability to creditors of the corporation
on the unpaid subscription
d. Liability for watered stock
e. Liability for dividends unlawfully paid
f. Liability for failure to create corporation
STOCKHOLDERS
MEETING
OR
MEMBERS
WHEN:
1. REGULAR - held on the date fixed in the
by-laws or if not fixed on any date in
April; and
2. SPECIAL - held at any time deemed
necessary or as so provided in the bylaws.
WHERE:
WHERE: In the city or municipality where the
principal office of the corporation is located,
and if practicable, in the principal office of
the corporation.
Page 39
However,
in
the
case
of
non-stock
corporations, the by-laws may provide that
meetings may be held at any place even
outside the principal place of the corporation.
(Sec. 93)
I.
OR
OF
TENURE, QUALIFICATIONS
AND
DISQUALIFICATIONS
OF
DIRECTORS
Qualifications:
1. For a stock corporation, ownership of at
least 1 share capital stock of the
corporation in his own name, and if he
ceases to own at least one share in his
own name, he automatically ceases to
be a director. (Sec. 23) For a non-stock
corporation, only members of the
corporation can be elected to seat in
the Board of Trustees.
In order to be eligible as a director,
what is material is the legal title to, not
beneficial ownership of the stocks
appearing on the books of the
corporation
Page 40
be
the
Disqualifications
of
Trustees or Officers
Directors,
1.
Conviction by
final judgment of offenses punishable by
imprisonment for excess of 6 years, or
2.
Violation
of
code committed within 5 years prior to
date of his election or appointment.
Terms of Directors
For 1 year or until their successors are
elected and qualified (Hold over Principle)
3.
ELECTION OF DIRECTORS
OR TRUSTEES
a. Quorum in Meeting for Election
Majority of the outstanding capital
stock or member entitled to vote
Present either in person or by
representative by WRITTEN PROXY
b. How
Viva Voce, or
By ballot if requested by any
voting stockholder or member
Every
stockholder through this method,
may vote such number of shares for
as many persons as there are
directors.
h. CUMULATIVE VOTING
i.
Every stockholder is
entitled to such number of votes
that
his
number
of
shares
multiplied by the total number of
directors to be elected will bring.
He may give all such votes to one
candidate (CUMULATIVE VOTING
FOR ONE CANDIDATE) or he may
distribute them among as many
candidates
as
he
sees
fit
(CUMULATIVE
VOTING
BY
DISTRIBUTION). (Sec. 24)
ii.
A minority director
elected through cumulative voting
cannot be removed without cause.
(Sec. 28)
iii.
A PROXY is a written
instrument,
signed
by
the
stockholder
or
member
(as
principal) and filed before the
scheduled
meeting
with
the
corporate secretary, and given to
another
person
(as
agent)
authorizing
such
person
to
exercise the voting rights of the
former.
What is the period of validity of proxy?
Unless otherwise provided in the proxy, it
should be valid only for the meeting for
which it is intended. No proxy shall be valid
and effective for a longer period than five
years at any one time. (Sec. 58)
Instances whereby Right to vote by
Proxy may be exercised:
1.
Election of the
board of directors or trustees;
2.
Voting in case
of joint ownership of stock;
3.
Voting
by
trustee under voting trust agreement;
Page 41
4.
5.
mortgage of shares;
in its by laws.
Pledge
or
As provided for
e.
REMOVAL OF DIRECTORS
OR TRUSTEES
a. How may be removed
i. 2/3 vote of stockholders or
members entitled to vote
ii. During a regular meeting or a
special meeting called by the
secretary upon:
Order of the President
FILLING OV VACANCIES IN
THE OFFICE OF DIRECTOR OR
TRUSTEE
a. Ground for Removal
1. Removal by the stockholder or
members or upon expiration of
term
Vacancy shall be filled by the
stockholder in a regular or special
meeting called for that purpose.
Page 42
DUTY OF LOYALTY
To Act according to the corporations best
interest
DOCTRINE OF
CORPORATE
DISLOYALTY OF
A DIRECTOR
dealing
transaction and file
a derivative suit
Applies
to
both
stock and non
stock corporations
Cover
same
subject which is
business
opportunity
Only applicable to
DIRECTORS
and
not to officers
Allows
RATIFICATION of a
transaction by a
self
dealing
director by the
vote
of
stockholders
representing 2/3 of
the
outstanding
capital stock.
10.
11.
CONTRACTS
a. By self dealing directors with the
corporation
Contracts between the corporation and
one or more of its directors or trustees or
officers are VOIDABLE at the option of
the corporation but VALID if the following
are present:
i.
Presence of director /
trustee in the board meeting which
Applies only to
stock corporations
8.
BUSINESS
JUDGMENT
RULE
Business judgment rule exists to protect
and promote the full and free exercise of
managerial power granted to directors.
The rule is a a presumption that in
making a business decision, the directors
of a corporation acted on an informed
basis, in good faith and in the honest
belief that the action taken was in the
best interest of the company. (Smith vs.
Van Gorkam)
9.
DUTY OF DILIGENCE
a. Violations of Duty of Diligence
i. Willfully and knowingly vote for or
assent to patently unlawful acts of
the corporation
ii. Guilty of gross negligence or bad
faith in directing the affairs of the
corporation
iii. Acquire any personal or pecuniary
interest in conflict with their duty
as director or trustee
iv. He consents to the issuance of
watered stocks or who, having
knowledge thereof, does not
forthwith file with the corporate
Page 43
Page 44
12.
EXECUTIVE COMMITTEE
a. Creation
A body created by the by-laws
and composed of some members of
the board which, subject to the
statutory limitations, has all the
authority of the board to the extent
provided in the board resolution or
by-laws. (The Corporation Code of
the Philippines Annotated, Hector de
Leon, 2002 ed.)
Must be provided for in the by-laws and
composed of not less than 3 members of
the board appointed by the board.
May act by a majority vote of all of its
members
b. Limitations on its powers
It cannot act on the following:
1. Matters needing stockholder approval;
2. Filling up of board vacancies;
3. Amendment, repeal or adoption of bylaws;
4. Amendment
or
repeal
of
any
resolution of the Board which by its
express terms is not amendable or
repealable; and
5. Cash dividend declaration.
13.
MEETINGS
b.
c.
d.
e.
f.
Page 45
CORPORATE
EMPLOYEE
Employed by the
action
of
the
managing officer of
the corporation
NLRC
has
jurisdiction in case
of labor dispute
CAPITAL AFFAIRS
2.
CERTIFICATE
OF STOCKS
The document evidencing the ownership of
shares of stocks by a stockholder and the full
payment of its issue or subscription price.
a. Nature of the certificate
It is not essential to the ownership
and/or existence of the share of stock.
Where the certificate of stock reflects a
greater volume of shares than the
actual number of shares issued or to be
issued, the following rules may be
considered:
1. To the extent that there is an over
issue, the excess issuance (over the
authorized capital stock or the stated
capital) shall be void as being ultra
vires.
2.
If there is no over issue, but no
payment has been made to cover the
par or stated value of the excess
3.
CAPITAL STOCK
Amount paid in or
secured to be paid in
by the stockholders
upon
which
the
corporation
is
to
conduct
its
operation. It is the
property
of
the
corporation
itself
(monetary value).
SHARES OF STOCK
Unit of interest in a
corporation
Incorporeal
or
intangible property
May be issued by
the corporation even
if the subscription is
not fully paid.
Interest or right
which
the
stockholder has in
the management of
the
corporation,
and
its
surplus
profits, and upon a
dissolution, in all of
its assets remaining
after payment of
corporate debts.
CERTIFICATE OF
STOCK
Evidence of the
holders ownership
of the stock and of
his
right
as
a
shareholder
Concrete
and
tangible
May be issued only
if the subscription is
fully paid.
b. Negotiability
REQUIREMENTS FOR
TRANSFER OF
STOCK
a. In case of shares covered by a
certificate, the indorsement of the
Page 46
WATERED
STOCKS
Watered stock is stock issued not in
exchange for its equivalent in cash,
property, shares, stock dividends or
services. It includes stock that is issued
(a) without consideration (b) issued as
fully paid when the corporation receives
a sum less than par or issued value (c)
issued for a consideration other than
cash, the fair valuation of which is less
than par or issued value (d) stock
dividend without sufficient retained
earnings or surplus.
Page 47
3.
COLLECTION
OF
UNPAID
SUBSCRIPTION
1. Voluntary payment
a. Upon the date specified in the
subscription contract
b. Upon call by the Board of Directors
2. Involuntary payment
a. Extra-judicial
i. Delinquency sale
ii. Application of dividends
b. Judicial action
Note: The prescriptive period in case of
subscription of shares begins to run only from
the time the board of directors declares that
the balance are due and payable. It does not
begin to run from the date of the
subscription. (Garcia vs. Suarez, 67 Phil. 441)
4. SALE OF DELINQUENT SHARES
1. If the subscription contract fixes the date
for payment, failure to pay on such date
shall render the entire balance due and
payable with interest. Thirty days
therefrom, if still unpaid, the shares
become delinquent, as of the due date,
and subject to sale, unless the board
declares otherwise.
2. If no date is fixed in the subscription
contract, the board of directors can make
the call for payment, and specify the due
date. The notice of call is mandatory. The
failure to pay on such date shall render
the entire balance due and payable with
interest. Thirty days therefrom, if still
unpaid, the shares become delinquent, as
of the date of call, and subject to sale,
unless the board declares otherwise. (Sec.
67)
A. Effect of Delinquency:
A. Upon the stockholder
1. Accelerates the entire amount of the
unpaid subscription;
2. Subjects the shares to interest,
expenses and costs;
3. Disenfranchises the shares from any
right that inheres to a shareholder,
except the right to dividends (but
which shall be applied to any amount
due on said shares or, in the case of
Page 48
WINDING
UP
1. DISSOLUTION
When the corporation ceases to be a
juridical person
METHODS: (Sec 117)
1. Voluntary
2. Involuntary
A corporation may be dissolved by the
SEC upon filing of a verified complaint
and after proper notice and hearing on
the grounds provided by existing laws,
rules and regulations (Sec. 121)
The 3 Methods by which a Stock
Corporation may be voluntarily Dissolve
are: (2002 Bar Examination)
1.
Volun
tary dissolution where no creditors
are affected. This is done by a majority
vote of the directors and resolution vote
of at least 2/3 vote of the stockholders,
submitted to the SEC.
2.
Volun
tary dissolution where creditors are
affected. This is done by a petition for
dissolution which must be filed with the
Page 49
REHABILITATION
Connotes
a
reopening
or
reorganization
Contemplates
a
continuance
of
corporate life in an
effort to restore the
corporation to its
former
successful
operation
OTHER COPORATIONS
1. CLOSE CORPORATION
A special kind of stock corporation:
1. whose articles of incorporation should
provide that:
a. the number of stockholders shall not
exceed 20;
b. issued stocks are subject to transfer
restrictions, with a right of preemption
in favor of the stockholders or the
corporation; and
c. the corporation shall not be listed in
the stock exchange or its stocks
should not be publicly offered; AND
2. Whose at least 2/3 of the voting stocks
or voting rights should not be owned or
controlled by another corporation which is
not a close corporation. (Sec. 96)
Characteristics:
1. Stockholders may act as directors
without need of election and therefore
are liable as directors;
2. Stockholders who are involved in the
management of the corporation are
liable in the same manner as directors
are.
3. Quorum may be greater than mere
majority;
4. Transfers of stocks to others, which
would increase the number of
stockholders to more than the
maximum are invalid;
5. Corporate actuations may be binding
even without a formal board meeting,
if the stockholder had knowledge or
ratified the informal action of the
others;
6. Preemptive right extends to all stock
issues;
7. Deadlocks in board are settled by the
SEC, on the written petition by any
stockholder; and
8. Stockholder may withdraw and avail
of his right of appraisal.
Note: Special rules are provided for close
corporations because it is essentially an
incorporated partnership. (The Corporation
Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
The following cannot be a close corporation:
Page 50
mining companies;
oil companies;
stock exchanges;
banks;
insurance companies;
public utilities;
education institutions;
other corporations declared to be
vested with public interest. (Sec. 96)
ORDINARY
STOCK
CORPORATION
Its
articles
of
incorporation
need only contain
the
general
matters
enumerated
in
Sec. 14 of the
Code.
Its status as an
ordinary
stock
corporation is not
affected by the
ownership of its
voting stock or
voting rights.
Its articles cannot
classify
its
directors.
Business of the
corporation
is
managed by the
board of directors.
The
corporate
officers
and
employees
are
elected
by
a
CLOSE
CORPORATION
Its
articles
must
contain the special
matters prescribed
by Sec. 97, aside
from the general
matters in Sec. 14.
Failure to do so
precludes a de jure
close
corporation
status.
2/3 of its voting
stock
or
voting
rights must not be
owned or controlled
by
another
corporation which is
not
a
close
corporation.
Its
articles
may
classify its directors.
Business
of
the
corporation may be
managed by the
stockholders if the
articles so provide,
but they are liable
as directors.
Its
articles
may
provide that any or
all of the corporate
officers
or
Page 51
majority vote of
all the members
of the board of
directors.
employees may be
elected or appointed
by the stockholders.
The pre-emptive
right is subject to
the
exceptions
found in Sec. 39.
The
pre-emptive
right is subject to no
exceptions
unless
denied
in
the
articles
The appraisal right
may be exercised
and
compelled
against
the
corporation by a
stockholder for any
reason.
The
appraisal
right
may
be
exercised by a
stockholder only
in
the
cases
provided in Secs.
81 and 42 of the
Code.
Except as regards
redeemable
shares,
the
purchase by the
corporation of its
own stock must
always be made
from
the
unrestricted
retained earnings.
Arbitration
of
intra-corporate
deadlock by the
SEC is not a
remedy in case
the directors or
stockholders are
so
divided
respecting
the
management
of
the corporation.
In
case
of
an
arbitration
of
an
intra-corporate
deadlock
by
the
SEC, the corporation
may be ordered to
purchase its own
shares
from
the
stockholders
regardless of the
availability
of
unrestricted
retained earnings.
Arbitration of intracorporate deadlock
by the SEC is an
available remedy in
case the directors or
stockholders are so
divided
respecting
the management of
the corporation.
Stockholders may
vote by proxy
Officers
are
elected by the
Board of Directors
Stockholders
Page 52
and
NON-STOCK
Does
not
have
shares and may
not
distribute
profits
to
its
members
Members
cannot
transfer
their
membership unless
allowed
by
the
articles or by-laws
Cumulative voting
not
available
unless
otherwise
provided in the
articles or by-laws
Trustees
may
exceed
15
in
number
The term of a
trustee is 3 years;
1/3 of the Board
shall be elected
annually
Members may be
deprived of the
right to vote by
proxy
in
the
articles or by-laws
Officers may be
directly elected by
the
members
unless
otherwise
provided in the
articles or by-laws
Members may be
SPECIAL CORPORATIONS
NON-STOCK
EDUCATIONAL
CORPORATION
A
non-stock
corporation
Governed by the
provisions on nonstock corporations
and suppletorily by
the provisions on
stock corporations
The
number
of
board of trustees
may be more than
15
The term of office
of the board of
trustees shall be 3
years
A special corporation
which may a stock
or non-stock
Governed by special
laws and by the
general provisions of
the
Corporation
Code
The number of the
board of trustees
should not be less
than 5 but not more
than 15.
The term of office of
the board of trustees
shall be 5 years
2. RELIGIOUS CORPORATION
A corporation composed entirely of spiritual
persons and which is organized for the
furtherance of a religion or for perpetuating
the rights of the church or for the
administration of church or religious work or
property. It is different from an ordinary nonstock corporation organized for religious
purposes.
Kinds:
A) CORPORATION SOLE
- A special form of corporation, usually
associated with the clergy, consisting of
one person only and his successors, who is
incorporated by law to give some legal
capacities and advantages; and
B) RELIGIOUS SOCIETIES
1. EDUCATIONAL CORPORATION
EDUCATIONAL
CORPORATION
Page 53
1.
2.
3.
4.
5.
6.
7.
8.
9.
CONTENTS
FOR
APPLICATION
OF
LICENSE
1. Date and term of incorporation
2. The address of the principal office in the
country of incorporation
3. The name and address of resident agent
4.
The place in the Philippines where it
intends to operate
5. The specific purpose or purposes
6. The names and addresses of the present
directors and officers of the corporation
1.
A statement of its authorized capital
stock
2. A statement of its outstanding capital
stock
3. A statement of the amount actually paid
in
4. Such additional information as may be
necessary to enable the SEC to determine
Page 54
c.
The
articles
of
merger
or
consolidation shall be executed by each
of the constituent corporations
d. Submission to the SEC for approval
CONSOLIDATION
Union of 2 or more
corporations to form
a new corporation
called
a
consolidated
corporation (A + B
= C)
Same
Parties
called
constituent
corporations
Absorbed corporation
dissolved
without
liquidation of assets
Absorbing
corporation acquires
all
assets
and
assumes liabilities of
the
absorbed
corporation
regardless
WON
creditors consented
Stockholders
of
absorbed corporation
becomes
stockholders
of
absorbing
corporation
All
constituent
corporation
are
dissolved
without
liquidation of assets;
consolidated
corporation survives
Consolidated
corporation acquires
all
assets
and
assumes liabilities f
constituent
corporations
regardless of WON
creditors consented
Stockholders
of
constituent
corporations
becomes
stockholders
of
consolidated
corporation
PROCEDURE:
a. The board of directors or trustees of
each corporation shall approve a plan of
merger or consolidation
b. The plan shall be submitted for
approval
by
the
stockholders
or
members of each of such corporation at
separate corporate meetings duly called
for the purpose
Page 55
OR
1.
2.
3.
4.
EXCEPTIONS AS TO NON-ASSUMPTION OF
LIABILITIES:
If there is an express assumption of liabilities;
If there is a consolidation or merger;
If the purchase was in fraud of creditors; and
If the purchaser is merely a continuation of
the seller.
DE FACTO MERGER
One corporation acquiring all or
substantially all of the properties of another
corporation in exchange for shares of stock of
the acquiring corporation. The acquiring
corporation would end-up with the business
enterprise of the selling corporation whereas
the latter would end up with basically its
remaining assets being the shares of stock of
the acquiring corporation and may then
distribute it as liquidating dividend to its
stockholders. (Philippine Corporate Law,
Cesar Villanueva, 2001 ed.)
MERGER and
CONSOLIDATION
Sale of assets
always involved
is
There is automatic
assumption
of
liabilities
There is continuance
of the enterprise and
of the stockholders
SALE OF
ASSETS
Merger/consolidat
ion is not always
involved
Purchasing
corporation is not
generally
liable
for the debts and
liabilities of the
selling
corporation
The
selling
corporation
ordinarily
contemplates
a
liquidation of the
enterprise
Transfer of title is
by
virtue
of
contract
The
selling
corporation is not
dissolved by the
Page 56
dissolved
mere transfer of
all its property
TYPES
OF
ACQUISITIONS
(Philippine
Corporate Law, Cesar Villanueva, 2001 ed.)
a. ASSETS-ONLY LEVEL
The purchaser is interested only in the raw
assets and properties of the business. He is
not interested in the entity of the corporate
owner of the assets nor of the goodwill and
other factors relating to the business itself.
The transferee would not be liable for the
debts and liabilities of his transferor since
there is no privity of contract over debt
obligations between the transferee and the
transferors creditors
b. BUSINESS-ENTERPRISE LEVEL
The transferee merely continues the same
business of the transferor since he obtains
the earning capability of the venture
The transferee is liable for the debts and
liabilities of the transferor
c. EQUITY LEVEL
The purchaser takes control and ownership of
the business by purchasing the shareholdings
of the corporate owner. What the purchaser
actually purchased is the ability to elect the
members of the board of the corporation who
run the business
INSURANCE
CONTRACT OF INSURANCE
Agreement whereby one undertakes
for a consideration to indemnify
another against loss, damage, or
liability arising from an unknown or
contingent event. (Sec. 2, par. 2)
A contract of suretyship shall also
be deemed an insurance contract if
made by a surety who or which is
doing an insurance business.
NATURE AND CHARACTERISTICS OF A
CONTRACT OF INSURANCE:
ALEATORY
depends upon some
contingent event.
Contract of INDEMNITY for Non-Life
recovery is commensurate to the loss. It
is an investment in life insurance
secured by the insured as a measure of
economic security for him during his
lifetime and for his beneficiary upon his
death except one secured by the creditor
on the life of the debtor.
PERSONAL contract - insurer contracts with
reference to the character of the insured and vice
versa.
EXECUTORY & CONDITIONAL on part
of the insurer.
It is one of PERFECT GOOD FAITH
Contract of ADHESION insurance
companies manage to impose upon the
insured prepared contracts, which the
insured cannot change. Consequently,
they are to construed as follows:
(a)
In case there is no doubt as to the
terms of the insurance contract, it is
to be construed in its plain,
ordinary, and popular sense.
(b)
If doubtful, ambiguous, certain,
it is to be construed strictly against
the insurer and liberally in favor of
the insured because the latter has
no voice in the selection of the
words used, and the language used
is selected by the lawyers of the
Insurer (Qua Chee Gan vs. Law
Union Rock Ins. Co. Ltd. 52 OG
1982).
Page 57
An existing interest
An inchoate interest founded on
an existing interest
An expectancy coupled with an
existing interest in that out of
which the expectancy arises;
Note:
- Expectancy must be founded on an
actual right to the thing or a valid
contract for it;
- A carrier or depository of any kind has
insurable interest in the thing held by
him such to the extent of his liability
but not to exceed the value thereof
(Sec. 13, 14, and 15).
-
But,
a
mere
contingent
or
expectant interest in anything, not
founded on contract or actual right
to the thing is not insurable as
there is no insurable interest (Sec.
16).
Page 58
INSURABLE
INTEREST
DEPOSITS
BAR EXAM; 2000 (VIII - b)
IN
BANK
INSURABLE
INTEREST IN
PROPERTY
Must exist at the
time the policy
takes effect and
when the loss
occurs
Limited to actual
value of interest
in
property
insured.
An expectation of
a benefit to be
derived from the
continued
existence of the
property insured
must have a legal
basis.
The
beneficiary
must
have
insurable interest
over the thing
insured.
Page 59
(2)
(3)
(5)
(6)
(7)
CONTINUATION OF ELEMENTS:
1. Insurable interest;
2. The insured is subject to risk of loss
through the destruction or impairment
of that interest by the happening of
the designated risk;
3. The insurer assumes the risk of loss;
4. Such assertion is part of a general
scheme to distribute actual loss
among a large group of persons
bearing somewhat similar risk;
5. As a consideration for the insurers
promise, the insured makes a ratable
contribution called a premium to the
general insurance fund;
WHAT MAY BE INSURED AGAINST
Any unknown or contingent event,
whether past or future, which may damnify a
person having insurable interest or create a
liability against him, may be insured against
(Sec. 3).
NOTE: IN RELATION TO THE INSURANCE
SO SECURE
1. The consent of the husband is not
necessary for the validity of an insurance
policy taken by a married woman on her
life and that of her children. Under Art.
145 of the Family Code, she can also
Page 60
Page 61
Page 62
A
prior
conviction
for
adultery/concubinage
is
not
required, it can be proven by
preponderance of evidence in the
same
action
nullifying
the
designation. Note the cases of Insular
Life vs. Ebrado, 80 SCRA 181, where a
common law wife of the insured who
is married could not be named as a
beneficiary and SSS vs. Davac, 17
SCRA
863,
where
the
insured
designated his second wife as a
beneficiary was upheld as the latter
was not aware of the first marriage.
Beneficiary
in
life
and
insurance (BAR EXAMS; 2005)
property
Page 63
CONCEALMENT
Page 64
HOW IS THE
CONCEALMENT
DETERMINED?
MATERIALITY OF THE
OR
REPRESENTATION
an
intentional
fraudulent omission on the part of the
one insured to communicate information
on a matter proving or tending to prove
falsity of a warranty entitles the insurer to
rescind. (Sec. 29)
1996, 1997, and 2001 BAR EXAMS
Sun Life Assurance Co. of Canada vs.
CA, June 22, 1995
Robert Bacani was issued life insurance nonmedical policy for P100,000.00 with his
mother as beneficiary. In his application, he
concealed his confinement at the Lung
Center of the Philippines for certain illness.
He died of a plane crash. The insurance
company refused to pay for breach of the
insurance contract.RTC and CA granted the
claim of the beneficiary because the
concealed facts were not material or
irrelevant to the cause of death.
SC:
Page 65
(a)
(b)
Affirmative an affirmation of a
fact existing when the contract
begins.
Promissory statement by the
insured concerning what is to
happen during the term of the
insurance.
CAN
A
REPRESENTATION
WITHDRAWN OR ALTERED
It
is
also
qualified
by
2nd
paragraph of Section 48 which provides
that after a policy of life insurance 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 issue or its
last reinstatement, the insurer cannot prove
that the policy is void ab initio or is subject to
rescission by reason of a fraudulent
concealment or misrepresentation of the
insured or his agent (known as the
incontestability clause).
BE
DOES
(b)
WHAT
IS
THE
EFFECT
OF
MISREPRESENTATION ON A MATERIAL
POINT?
If it is false on material point, whether
affirmative or promissory the injured party
is entitled to rescind the contract from the
time the representation becomes false.
However, the right to rescind is considered
waived by the acceptance of premium
payments despite knowledge of the ground
to rescind. (Sec. 45)
WHEN IS THE RIGHT TO
SUPPOSED TO BE EXERCISED
REQUISITES
CLAUSE
(1)
(2)
(3)
RESCIND
Page 66
INCONTESTABILITY
non-payment of premiums;
lack of insurable interest;
(5)
(6)
(7)
CONCEALMENT
COMPARED
AND
REPRESENTATION
(1)
(2)
(3)
(4)
(5)
(6)
(7)
COVER NOTES
It is a written memorandum of the
most important terms of a preliminary
contract of insurance intended to give
protection pending investigation by
the insurer of the risk or until the
insurance of the formal policy (Sec.
52). It is also known as binding slip
or receipt or binder.
EFFECTIVITY OF A COVER NOTE
The effectivity of a cover note is 60
days as within such period, a policy shall be
issued including in its terms the identical
assurance found under the cover rate and the
premium therefore. It may however, be
extended beyond 60 days and with the
written
approval
of
the
Insurance
Commissioner if he determines that it does
not violate the Insurance Code.
NOTE THE FOLLOWING RULES HAVE
BEEN PROMULGATED BY THE INSURANCE
COMMISSIONER:
(1)
(2)
Page 67
(3)
(4)
Page 68
(b)
(3)
(4)
(5)
(6)
Page 69
OPEN POLICY
(1)
(2)
(3)
(4)
(5)
(6)
Courts;
Insurance Commissioner, who has
concurrent jurisdiction with courts
for
claims
not
exceeding
Php100,000.00;
(3)
POEA/DOLE have the power to
compel a surety to make good on
a solidary undertaking in the same
proceeding where the liability of
the
principal
obligor
is
determined.
Note that the claim becomes action upon
filing with the court.
CANCELLATION OF THE POLICY
If policy other than life shall be cancelled by
the insurer except upon prior notice
Page 70
WARRANTIES
It is a statement or promise stated in the
policy or incorporated therein by
reference, whereby the insured
expressly or impliedly (Section 67)
contracts as to the past, present or future
(Section 68) existence of certain facts,
conditions or circumstances the literal
truth of which is essential to the validity
of the contract.
KINDS OF WARRANTIES
(2)
(3)
THE
NON
PERFORMANCE
OF
A
PROMISSORY WARRANTY DOES NOT
AVOID THE POLICY WHEN BEFORE THE
ARRIVAL
OF
THE
TIME
FOR
PERFORMANCE (Sec. 73)
(1)
(2)
(3)
Page 71
REPRESENTATION
Merely a collateral
inducement thereto
May be oral or
written in another
statement
Presumed material
Must be shown to
be so
Breach of warranty
is a breach of the
contract itself
Misrepresentation is
a ground to rescind
the contract
PREMIUM
Must be
substantially true
1.
(2)
(3)
Page 72
(3)
(4)
(5)
(6)
Page 73
(1)
(2)
(3)
LOSS
NOTICE
OF
LOSS
Page 74
(c)
(d)
TRANSFER OF CLAIMS
An agreement not to transfer the
claim of the insured after the loss happens
is VOID if MADE BEFORE THE LOSS except as
otherwise provided in case of life insurance
(Sec. 33).
This means that the insured has an
absolute right to transfer his claim against
the insurer AFTER THE LOSS occurs, what is
prohibited is a transfer prior to the loss.
This is so because such stipulation
after the loss occurs shall hinder the
transmission of property. Neither does it
affect the insurer as its liability is already
fixed and what is actually assigned is the
money claim, not the contract itself.
The exception in Sec. 173 that
provides that the transfer of a fire insurance
policy to any person or company who acts as
an agent for or otherwise represents the
issuing company is prohibited and is void
insofar as it affects other creditors of the
insured.
NOTICE AND PROOF OF LOSS
Notice of loss must be given without
unnecessary delay by the insured or some
person entitled to the benefit of the
insurance. IF NOT THEN, the insurer is
exonerated (Sec. 88).
PROOF OF LOSS
If the policy requires Preliminary Proof
of Loss (evidence given the insurer of the
occurrence of the loss, its particulars, and
data necessary to enable it to determine
liability and the amount thereof) IT IS NOT
NECESSARY that the insured give such proof
AS MAY OR WOULD BE NECESSARY IN A
(a)
Page 75
(b)
(c)
OF DOUBLE INSURANCE:
Same person is insured;
There are several insurers;
Subject insured is the same;
Interest insured is the same;
Risk of peril insured against is
the same;
There is prohibition TO PREVENT
OVER-INSURANCE, thus preventing
fraud.
Page 76
The
value
must
always be in excess
of
the
insurable
interest;
REINSURANCE
Occurs when an insurer procures a 3RD
person to insure him against loss or liability
by reason of such original insurance (Sec.
95).
Page 77
It is presumed to be a contract of
indemnity against liability, and
merely against damage (Sec. 97).
As a RULE, the reinsurer is not liable
to the reinsured for a loss under an
original policy if the reinsured is not
liable to the original policyholder.
EXTENT OF LIABILITY OF THE
REINSURER?
The liability of the reinsurer is measured by
the liability of the reinsured to the original
policy holder PROVIDED, it does not exceed
the amount of reinsurance.
CLASSES OF INSURANCE
MARINE
INSURANCE
(b)
(c)
Precious
stones,
jewels,
jewelry,
precious metals whether in the course
of transportation or otherwise;
(d)
Bridges,
tunnels
or
other
instrumentalities of transportation and
communications (excluding buildings,
their furniture and furnishings, fixed
contents, and supplies held in storage),
piers, wharves, docks, slips, and other
aids to navigation and transportation
including dry docks, marine railways,
dams and appurtenant facilities for the
control of waterways.
AND Marine Protection and
Indemnity Insurance meaning
insurance against, or against legal
liability of the insured for loss,
damage or expense incident to
Page 78
ownership,
operation,
chartering,
maintenance,
use,
repair,
or
construction of any vessel, craft or
instrumentality in use in ocean or
island waterways, including liability of
the insured for personal injury, illness
or death or for loss or damage to the
property of another person (Sec. 99).
WHAT RISKS ARE INSURED AGAINST?
-
Page 79
2.
MARINE
INSURANCE
Page 80
Opinion or belief of a
3RD person or own
judgment
of
the
insured
is
not
material and need
not
be
communicated (Sec.
35)
A causal connection
between the fact
concealed and cause
of
loss
is
not
necessary for the
insurer to rescind;
Belief or expectation
of 3RD person in
reference
to
a
material
fact
is
material and has to
be communicated;
The concealment of
any of the matters
stated in section 110
merely
exonerates
the insurer from loss,
if the results from the
fact concealed;
REPRESENTATION IN MARINE
INSURANCE:
If
the
representation
is
intentionally false in any material
respect, or, in respect of any fact
on which the character and
nature of the risk depends, the
insurer may rescind (Section 111).
But the eventual falsity of a
representation
as
to
an
expectation does not in the absence
of fraud avoid the contract (Sec.
112).
WHAT ARE THE IMPLIED WARRANTIES IN
MARINE INSURANCE? 2000 BAR EXAM
(IX b)
1. In every contract of marine
insurance upon a ship or freight,
freightage or upon anything which is
the subject of marine insurance,
there is an implied warranty that
the ship is sea worthy (Sec. 113).
The
implied
warranty
of
seaworthiness complied with as a
general
rule
when
it
is
seaworthy at the time of the
commencement of the risk
except:
(a)
when the insurance is
made for a specified length
of
time,
it
must
be
seaworthy
at
the
commencement of every
voyage it undertakes at
that time.
(b)
when the insurance is upon
cargo, which by the terms
of the policy description of
the voyage, or established
custom of trade, it is
required to be transshipped
at an immediate port in
which case each vessel
upon which the cargo is
shipped or transshipped
must be seaworthy at the
commencement of each
particular
voyage
(Sec.
115).
(c)
where different portions of
the voyage contemplated in
the policy differ in respect
to the things requisite to
make the ship seaworthy, I
which case it must be
seaworthy
at
the
commencement of each
portion (Sec. 117).
WARRANTY OF SEAWORTHINESS
EXTENDS TO:
The
warranty
of
seaworthiness
extends not only to the condition of the
structure of the ship, but it requires that:
(a)
it be properly laden or loaded
with cargo;
(b)
is provided with a competent
master, sufficient number of
officers and seamen;
(c)
it must have the requisite
equipment and appurtenances
like ballast, cables, anchors,
cordage, sails, food, water,
Page 81
there
is
no
unreasonable delay in repairing
the defect. Otherwise the
insurer is exonerated on the
ship or the ship owners
interest from any liability from
any loss arising therefrom
(Sec. 118). Hence, if loss is not
one due to the defect or peril
was not increased by the
defect insurer is liable.
Also, while a ship may be
seaworthy for purposes of
insurance on it, it may by
reason of being unfitted to
receive cargo, be unseaworthy
for the purpose of insurance
on the cargo (Sec. 119).
2. It
shall
carry
the
requisite
documents to show its nationality
or neutrality and that it shall not
carry any document that will cast
reasonable
suspicion
on
the
vessel (Sec. 120). This warranty
arises only when nationality or the
neutrality of the vessel or cargo is
expressly warranted.
3. That the vessel shall not make
any improper deviation from the
intended voyage.
DEVIATION:
It is a departure from the course of the
voyage as defined by Section 121 and 122 or
an unreasonable delay in pursuing the
voyage or the commencement of an entirely
different voyage. (Sec. 123)
WHEN IS DEVIATION PROPER (2005 BAR)
Page 82
(2)
Page 83
(b)
(2)
EFFECTIVITY OF ABANDONMENT:
Abandonment becomes effective upon
the acceptance of the insurer. If it is not
accepted despite validity, the insured may
nevertheless claim an actual total loss.
LIABILITY FOR AVERAGES
AVERAGE is any extraordinary or accidental
expense incurred during the voyage for the
preservation of the vessel, cargo, or both and
all damages to the vessel or cargo from the
time it is loaded and the voyage commenced
until it ends and the cargo is unloaded.
KINDS OF AVERAGES:
(a)
Page 84
(b)
MEASURE OF
INSURANCE
IN
MARINE
2.
If however, hyphotecated by the
bottomry or respondentia before insurance
and without knowledge of the person
securing it he may show the real value;
3.
An insurer is liable upon a partial loss
only for such proportion of the amount
insured by him as the loss bears to the
whole interest of the insured (Sec. 157). The
effect is that the insured is deemed a coinsurer if the value of the insurance is less
than the value of the property. This applies
even in the absence of a stipulation in the
contract and is also known as the average
clause.
The two requisites for the application of the
average clause:
a.
b.
Page 85
(c)
(d)
IF THE CARGO
PARTIAL LOSS
INSURED
AGAINST
FIRE
INSURANCE
Page 86
(2)
(3)
(4)
CASUALTY
INSURANCE
by
authorized companies)
Guarantors liability
depends
on
an
independent
agreement to pay if
primary debtor fails
to pay
Primarily liable.
Secondarily liable.
Not
entitled
exhaustion.
to
Entitled
exhaustion.
to
INSURANCE
Page 87
WHOLE
LIFE/ORDINARY
LIFE/STRAIGHT LIFE: premiums are
payable for life and the insurer agrees to
pay the face value upon the death of the
insured.
(2)
(3)
Page 88
IS
A
LIFE
INSURANCE
POLICY
TRANSFERABLE OR ASSIGNABLE? Yes, it
may pass by transfer, will or succession to
any person, whether he has insurable interest
or not. (Sec. 181)
IS
NOTICE
TO
THE
INSURER
OR
TRANSFER OR BEQUEST REQUIRED? It is
not necessary to preserve the validity of the
policy unless thereby expressly required
(Sec. 181)
IS THE CONSENT OF THE BENEFICIARY
REQUIRED? Yes, if he designated as an
irrevocable beneficiary as he has acquired a
vested right;
BUSINESS
INSURANCE
(e)
the
amounts
required
of
stock
corporations (Php1,000,000.00 if a life
insurance company or Php500,000.00,
if a non life insurance company).
If a foreign insurance company, it must
appoint a resident agent, deposit
securities and maintain a legal reserve
(Sec. 184-193).
(b)
(c)
Comprehensive
insurance
answers for all liabilities/damages
arising from the use/operation of a
motor vehicle it includes third
party own damage, theft and
property damage.
Page 89
(b)
PAYMENT OF CLAIMS
A claim for payment must be filed
without any unnecessary delay, within 6
month from the date of accident by giving
written notice setting forth the nature, extent
and duration of the injuries as certified by a
duly licensed physician (Sec. 384).
WHAT IS NO FAULT INDEMNITY?
A no fault indemnity claim is a claim for
payment for death or injury to a passenger of
third party without necessity of proving fault
or negligence. This is payable by the insurer
provided:
(a)
indemnity in respect of one
person shall not exceed
Php5,000.00;
(b)
the necessary proof of loss
under oath to substantiate
the claim is submitted
(4)
(2)
(3)
Page 90
(5)
TRANSPORTATION LAWS
COMMON CARRIERS
(Arts. 1732-1766, New Civil Code)
Common
Carriers
are
persons,
corporations, firms or associations engaged
in the business of carrying or transporting
passengers or goods or both, by land, water,
or air, for compensation, offering their
services to the public.
Private Carrier
As to Availability
Holds himself out
for
all
people
indiscriminately
Contracts
particular
individuals
groups only
Page 91
or
As to require Diligence
Extraordinary
Ordinary
Diligence
Diligence
As to regulation
Subject to state Not subject to
regulation
state regulation
Stipulation limiting liability
Parties may agree Parties may limit
on
limiting
the the
carriers
carriers
liability liability, provided
except
when it is not contrary
provided by law
to morals or good
customs
Exempting circumstances
Prove extraordinary Caso forfuito, Art.
diligence
and 1174 NCC
Art.1734,NCC
Presumption of Negligence
There is a
No presumption
presumption of fault of
fault
or
or negligence
Negligence
Governing law
Law on Common Law
on
Carriers
obligations
and
contracts
with
2
3
Page 92
Page 93
The
common
carrier
negligently
incurred
transporting the goods
has
delay
not
in
REQUISITES for act of public enemy 1. The act of public enemy must have
been the proximate of the loss
2 It must have been the only cause of
the loss
3 The common carrier must have
exercised due diligence to prevent or
minimize before , during and after the
act of public enemy in war.
REQUSITE FOR act or omission of
Shipper 1 That the act or omission of the shipper
/owner of the goods must have been
the proximate cause of the loss
2 That it must have been the only cause
of the loss.
REQUSITES for character of goods ,
fault in packing or containers1. That the loss , destruction or
deterioration was caused by the character
of the goods ; or the faulty nature of the
packing /containers
2. That
the
common
carrier
had
exercised due diligence to forestall or
lessen the loss.
REQUISTES for the act of public
authority
1. The common carrier must prove that
the public authority had the power to
issue the order for the destruction /
seizure of the goods.
B.) Another defensive strategy to escape
liability is to invoke that it exercised
extraordinary diligence to prevent or
minimize the loss at the time the accident
occurred.
Negligence is the failure to observe due
diligence with respect to the circumstances
at hand.
Contributory Negligence is the failure to
observe due diligence that an ordinary or
Page 94
1
2
3
Page 95
Page 96
If
the
passenger
is
carried
gratuitously, stipulation limiting CC for
negligence is valid but not for WILLFUL ACT
OR GROSS NEGLIGENCE.
A reduction of fare does not justify any
limitation of the common carrier's liability.
Is the carrier liable for death of or
injuries to the passengers due to the
negligence or willful acts of ITS
EMPLOYEES?
YES, although such employees may have
acted beyond the scope of their authority or
in violation of the orders of the common
carriers.
Illustrative rule: Two passengers engage in a
fist-fight inside a bus terminal. An on-duty
driver attempts to pacify them but instead
kills one. The carrier is liable! But, if the
killing of the passenger occurred while the
driver is off-duty, the carrier is not liable.
(Recall the case of Gillaco v. Manila Railroad,
the carrier was held not liable when its
employee, a security guard who harbored a
grudge against a fellow passenger, shot and
killed the latter. The guard committed the
killing while he was off-duty.)
The Common carrier is held liable because 1 The driver , although stopping the
bus, nevertheless did not put off the
engine.
2 He started to run the bus even before
the conductor gave him the signal to
go and while the passenger was still
unloading part of the baggage . ( LA
MALLORCA vs. CA)
In the case of LACAM vs. SMITH , the Court
held that an accident caused by defects in
the automobile is not a caso fortuito. The
rationale of the carriers liability is the fact
that the passenger has neither the choice nor
control over the carrier in the selection and
use of the equipment and appliances in use
by the carrier.
Q: Is the carrier liable for death of or
injuries to the passengers due to the
willful acts or negligence of other
passengers or of strangers?
Page 97
Page 98
Page 99
Under Art. 363, in case of partial nondelivery, where the consignee proves
that he cannot make use of the goods
capable of delivery independently of
those not delivered.
Under Art. 365, where the goods are
rendered
useless
for sale
and
Page 100
Even
where
overbooking
of
passengers is allowed as a commercial
practice, the airline company would
still be guilty of bad faith and still be
liable for damages if it did not
properly inform passenger that it
could breach the contract of carriage
even
if
they
were
confirmed
passengers( Zalamea vs. CA GR
104235)
Neglect or malfeasance of the
carriers employees could give ground
for an action for damages. Passengers
have a right to be treated by the
carriers employees with kindness,
respect,
courtesy
and
due
consideration and are entitled to be
protected
against
personal
misconduct,
injurious
language,
indignities and abuses from such
employees.
An air carrier is not liable for the loss
of baggage in an amount in excess of
the limit specified in the tariff which
was filed with the proper authorities,
such tariff being binding on the
passenger
regardless
of
the
passengers lack of knowledge thereof
or assent thereto. In a contract of air
carriage, a declaration by the
passenger of a higher value is needed
to recover a greater amount.
Page 101
by
one
of
the
successive
airlines(Lufthansa German Airlines
vs. CA; GR. No. 83612)
MARITIME COMMERCE/ WATER
TRANSPORTATION
Special contract of maritime commerce:
1 Charter party
2 Bill of lading
3 Loan of bottomry/respondentia
4 contract of transportations passengers
5 Marine insurance
VESSELS (in general)extends to everything
floating in and on the water, built in the form
of vessel and used for navigation regardless
of form, right or motive power.
MERCHANT VESSELS- engaged in the
transportation of passengers and freight from
one port to another or from one place to
another.
*Are vessels real or personal property?
PERSONAL- but they partake to a certain
extent, of the nature and conditions of real
property, on account of their value and
importance of the world of commerce.
CHARACTERISTICS
OF
MARITIME
TRANSACTIONS:
1 Real- similar to transactions over real
property with respect to effectivity
against third persons, which are done
through registration. The evidence of real
nature is shown by:
the limitation of the liability of the
agents to the actual value of the
vessel and the freight money and
the right to retain cargo, embargo
and detention of the vessel even in
cases where ordinary civil law
would not allow more than a
personal action against debtor.
2 Hypothecary- the liability of the owner of
the vessel is limited to the vessel itself.
3 Preference of credits- Mortgage of a
vessel properly registered becomes of
preferred mortgage lien which shall have
priority over all claims against the vessel
in an extrajudicial foreclosure for:
Page 102
EXCEPTIONS
TO
LIMITED
LIABILITY
RULE:
1 When the vessel is not abandoned by
the owner or ship agent
2 When the vessel is covered by
insurance
3 Expenses for repair of the vessel
before it sails
4 Claims of employees under the labor
laws
5 When ship owner/ship captain is at
fault or guilty of negligence.
a. lack of proper and adequate
equipment(insufficient
life
vests)
b. lack of proper technical
training of the offices and of
the vessel
Monarch Ins Co. vs. Ca; Allied Guarantee
Insurance Co vs. CA & Equitable
Insurance vs. CA, (June 8, 2000)
As a general rule, a ship owner's
liability is merely co-extensive with his
interest in the vessel, except where
actual fault is attributable to the ship
owner. Thus, as an exception to the limited
liability doctrine, a ship owner or ship
agent may be held liable for damages when
the sinking of the vessel is attributable to the
actual fault or negligence of the ship owner
or its failure to ensure the seaworthiness of
the vessel. The instant petitions cannot be
spared from the application of the exception
to the doctrine of limited liability in view of
the unanimous findings of the courts below
that both Aboitiz and the crew failed to
ensure the seaworthiness of the M/V P.
Aboitiz.( Aboitiz Shipping Corp vs CA,
October 17,2008)
Page 103
Page 104
POWER
AND
FUNCTIONS
AND
LIABILITIES OF SHIP AGENT:
1 capacity to trade;
2 discharge duties of the captain in case of
the latter's absence;
3 contract in the name of the owners with
respect to repairs, details of equipment,
armament, and all that relate to the
requirements of navigation;
4 order of new voyage and make a new
charter or insure the vessel after
obtaining authorization from the ship
owners.
DUTY OF SHIP AGENT TO DISCHARGE
THE CAPTAIN AND MEMBERS OF THE
CREW:
- If the seamen contract is not for a definite
period or voyage, he may discharge them at
his discretion
- If for a definite period, he may not
discharge them until after the fulfillment
of their contracts EXCEPT on the ff.
grounds:
a insubordination in serious matters
b robbery
c theft
d habitual drunkenness
e damage caused to the vessel or to its
cargo through malice, manifest or
proven negligence
EFFECT/LOSS/DESTRUCTION OF VESSEL:
1 extinguishes liability arising from the
conduct of the captain in the vigilance of
the goods and for the safety of the
passengers and for any liability arising
from negligent acts of the captain
2 extinguishes liability for the wages of the
captain and the crew and for advances
made by the ship agent if the vessel is
lost by shipwreck or capture
3 liability for collision
B. CAPTAINS AND MASTERS OF THE
VESSEL
Captain- who govern vessels that navigate
the high seas or ships of large dimensions
and importance, although engaged in the
coastwise trade
Page 105
8
9
1
-
DUTIES:
1 provide himself with maps, and charts
with astronomical tables necessary for
the discharge of his duties
2 keep the Binnacle book
3 Change the course of the voyage on
consultation with captain and the
officers of the boat, following the
decision of the captain in case of
disagreements.
4 Responsible for all the damages
caused to the vessel or to the cargo
by reason of his negligence
2
-
Second mate
takes command of the vessel in case of
the
inability or disqualification of the
captain and the sailing mate, assuming in
such
case
their
powers
and
responsibilities and duties
Page 106
DUTIES:
1 preserve the hull and rigging of the
vessel
2 arrange well the cargo
3 discipline the crew
4 assign work to crew members
5 Inventory the rigging and equipment
of the vessel, if laid up.
3
-
Engineers
Officers of the vessel but have no
authority EXCEPT in matters to motor
apparatus. When 2 or more are hired, one
of them should be the Chief Engineer
DUTIES:
1 in charge of motor apparatus, spare
parts,
and
other
instruments
pertaining to the engines
2 keep the engines and boilers in good
condition
3 not to change or repair the engine
without authority of the captain
4 inform the captain of any damage to
the motor apparatus
5 keep an Engine book
6 supervise all personnel maintaining
the engine
4 Members of the Crew
Hired by the ship agent. Where he is present
and in his absence, the captain hires them
preferring Filipinos, and in their absence,
he ,ay take in foreigners but not exceeding
1/5 of the crew.
CLASSES OF SEAMAN'S CONTRACT:
1 by the voyage
2 by the month
3 by share of profits or freightage
JUST CAUSES FOR THE DISCHARGE OF
SEAMAN WHILE CONTRACT SUBSISTS:
1 perpetration of a crime
2 repeated
insubordination,
want
of
discipline
3 repeated incapacity and negligence
4 habitual drunkenness
5 physical incapacity
6 desertion
3
4
Interdiction of Commerce
a governmental prohibition of commercial
intercourse intended to bring about an entire
cessation for the time being of all trade
Embargo
- a proclamation or order of the State
usually issued in time of war/ threatened
hostilities prohibiting the departure ships/
goods from some or all the ports of such
State until further order
Blockade
- a sort of circumvallation of place by all
foreign connections and correspondence
is as far as human power can affect it to
be cut-off
SUPERCARGOES
- person who discharge administrative
duties assigned to him by ship agent or
shippers, keeping an account and record
of transaction as required in the
accounting book of the captain
B.CHARTER PARTY
- Contract by virtue of which the owner or
agent
binds
himself
to
transport
merchandise or persons of a fixed price. It
may either be contract of affreightment
(time and Voyage Charter) and bareboat
or demise charter.
CLASSES OF CHARTER PARTY
1
As to time
a until a fixed day/ for a determined
number of days and months
b for
a
voyage(outgoing/return/roundtrip)
As to freightage
Page 107
Page 108
"Lay days"
-days allowed to charter parties for loading
and unlading
- period when vessel will be delayed in port
for loading and unloading.
"Extra Lay Days"
- days which followed after lay days have
elapsed
Deadfreight
A cargo not loaded is considered as
deadfreight, which covers the amount paid by
or recoverable from the charterer for the
portion of the ships capacity the latter
contracted for but failed to occupy.
GOODS TRANSFERRED MAY BE:
1 sold by captain to necessary repairs
2 jettisoned for the common safety
3 loss by reason of shipwreck/stranding
4 seized by pirates/enemies
5 suffer deterioration/diminutions
6 increase by natural cause and weight or
size
RIGHTS AND OBLIGATIONS OF CHARTER
PARTY:
A Of the ship owner or ship agent
1 If the vessel is chartered wholly not to
accept cargo from others;
2 To observe represented capacity;
3 To unload cargo clandestinely placed;
4 To substitute another vessel if load is
less than 3/5 of capacity;
5 To leave the port if the charter does
not bring the cargo within the lay days
and extra lay days allowed;
6 To place in a vessel in a good
condition to navigate;
7 To bring cargo to nearest neutral port
in case of war or blockade.
B
Of the charterer
1 to pay the agreed charter price
2 to pay freightage or unboarded
cargoes
3 to pay losses to others for loading
uncontracted cargo and illicit cargo
4 to wait if the vessel needs repair
5 to pay expenses for deviation
Page 109
2
3
4
5
Bottomry/repondenti
Simple loan
a
Marine risk
Duly
established Not necessary
existence of a marine
risk is necessary
Form and manner
Must be executed in Formal requisites
accordance with the of an ordinary
form
and
manner contract
will
prescribed by the code suffice
of commerce
Registry of Vessels
Must be recorded in No
such
the registry of Vessel registration
is
to be binding to third required
persons
Preference
Preference is extended Preference
is
to the last lender
extended to the
first lender
COMMERCE
Average
An extraordinary or accidental expense
incurred during the voyage in order to
preserve the cargo, vessel or both, and all
damages or deterioration suffered by the
vessel from departure to the port of loading
to the consignment (art 806 Code of
commerce)
The person whose property has been
saved must contribute to reimburse the
damage caused or expense incurred if the
situation constitutes general average.
It is classified into: (1) general or gross
average or (2) simple or particular.
Particular/ simple
Gross/ general
Definition
Damages
or Damages
or
expenses caused to expenses
the vessel or cargo deliberately caused
that did not inure to in order to save the
the
common vessel, its cargo
benefit, and borne orboth from real
by
respective and known risk.
owner.( art 809)
(811)
Liability
The owner of the All persons having
goods which gave an interest in the
rise to the expense vessel
and
the
or
suffered
the cargo therein at the
damage shall bear time of the average
this average.(810)
shall contribute to
satisfy
this
average(812)
The insurers and
lenders
on
bottomry
and
respondentia shall
likewise contribute
Numbers of interests involved
owners
property
saved
Right to recover
No reimbursement
There may be
reimbursement
Page 110
When
unlawful
1. lack of
provisions
due
to
negligence
to
carry
according
to
usage
and
customs;
2.risk
of
enemies
not
wellknown
or
manifest;
3.defect
due
to
improper
repair;
4.malice,
negligence,
lack
of
foresight,
lack of skill
Who bears
expenses
The
ship
owner
or
ship agent
is liable in
case
of
unlawful
arrival
under
stress. But
they
shall
not
be
liable
for
damages
caused by a
reason of a
lawful
arrival.
Cases of collision:
1. Due to the fault, negligence or lack of skill
of the captain, sailing mate or the
Page 111
time
of
collisions
(3
time
Page 112
Page 113
II
III PROCEDURE:
A If the vessel is abandoned, salvor
must tow it to the nearest port
where it will be delivered to the
Municipal Treasurer or to the
Collector of Customs who will
advertise the fact of salvage;
Page 114
Page 115
Page 116
the
Philippine
government,
said
convention does not operate as an
exclusive enumeration of the instances
for declaring a carrier liable for breach of
contract of carriage or as an absolute
limit of the extent of that liability. The
Warsaw Convention declares the carrier
liable in the enumerated cases and under
certain limitations. However, it must not
be construed to preclude the operation of
the Civil Code and pertinent laws. (PAL
vs. CA, G.R. No. 119641 May 17,
1996)
II
2
3
Varying
views
misconduct:
as
regards
Page 117
G.R.
No.
The
two
(2)-year
limitation
incorporated in Art. 29 as an absolute
bar to suit and not to be made subject to
the various tolling provisions of the laws
of the forum. This therefore forecloses
the application of our own rules on
interruption of prescriptive periods.
Article 29, par. (2), was intended only to
let local laws determine whether an
action had been commenced within the
two (2)-year period. (United Airlines
vs. Uy, G.R. No. 127768 November
19, 1999)
Prescription of action covered by
Warsaw convention distinguished
from those arising from torts:
Respondent's complaint reveals that
he is suing on two (2) causes of action:
(a) the shabby and humiliating treatment
he received from petitioner's employees
at the San Francisco Airport which
caused him extreme embarrassment and
social humiliation; and, (b) the slashing
of his luggage and the loss of his
amounting
to
US
Page 118
(2000 Bar
Page 119
CONSTITUTIONAL BASIS:
1 ARTICLE XII, SECTION 11:
> A franchise, certificate, or any
other form of authorization for the
operation of public utility shall be
granted to:
-
Filipino Citizens
Corporations
or
associations organized
Page 120
Laws
and
OFFICES
NOW
CHARGED
WITH
ENFORCEMENT OF PUBLIC SERVICE LAW
The Public Service Commission has been
abolished. The following replaced it:
1
2
3
5
6
JURISDICTION
General Rule: Over persons engaged
in public utilities, or over a public
utility, which holds a Certificate of
Public Convenience.
Exemption: violators of a valid
regulation promulgated under the law
Page 121
3
4
5
6
7
8
9
Page 122
Page 123
Page 124
Page 125
2.
The primary purpose of a letter of
credit is to substitute for, and therefore
support, the agreement of the buyer-importer
to pay money under a contract or other
arrangement.This instrument is basically a
credit security through availment of credit
facilities of the participating banks.
3.
The parties to a letter of credit are: (a)
The Buyer- he is the one who procures the
letter of credit and obliges himself to
reimburse the issuing bank upon receipt of
the documents of title (b) The Issuing Bankis the bank from whom the letter of credit is
procured and which undertakes to pay the
seller upon receipt of the draft and proper
documents of titles and to surrender the
documents
to
the
buyer
upon
reimbursement, and (c) The seller- who in
compliance with the contract of sale ships the
goods to the buyer and deliver the
documents of title and draft to the issuing
bank to recover payment.
3.1.
In an international credit transaction
carried through a letter of credit, the parties
are: (a) The Customer- who is the party who
applies to a bank in one country for the
opening of a letter of credit in favor of the
seller in another country (b) The Issuing
Bank- is the bank in the country of the
customer to which the customer applies for
the issuance of a letter of credit (c) The
Beneficiary- who is the party in another
country who is the creditor of the customer.
Usually, he is the one selling goods to the
customer (d) The Advising Bank is the bank
in the country of the beneficiary which
communicates to the beneficiary the notice
of the credit issued by the issuing bank (e)
The Confirming/Correspondent Bank- is the
bank that undertakes that the letter of credit
will be fully paid. Usually the confirming bank
is also the advising bank, otherwise it is
utilized to lend credence to the letter of credit
issued by a lesser known issuing bank and is
directly liable to the beneficiary.
3.2
The relationships of the parties are to
be governed as follows: (a)Issuing bank and
applicant/buyer/importer Their relationship
Their
relationship is governed by the terms of the
letter of credit issued by the bank, and (c)
Applicant and beneficiary Their relationship
is governed by the sales contract.
3.3
It is clearly settled in law that there
are thus three contracts which make up the
letter of credit transaction: The contract
between buyer and seller, buyer and issuing
bank, and the letter of credit proper. These
transactions are to be maintained in a state
of perpetual separation.
4.6
A letter of credit becomes void if the
bearer of a letter of credit does not make use
thereof within the period agreed upon with
the drawer, or, in default of a period fixed,
within 6 months counted from its date, in any
point in the Philippines, and within 12 months
anywhere outside thereof, it shall be void in
fact and in law.
4.
The essential conditions of a letter of
credit are: (a) That it be issued in favor of a
definite person and not to order; and (b)
That it be limited to a fixed and
specified amount, or to one or more
undetermined
amounts,
but
within
a
maximum the limits of which has to be stated
exactly.
5.
A standby letter of credit is a bankissued option on a loan involving three
parties: the bank issuing the credit, the party
requesting for such issuance (otherwise
known as the account party) and the
beneficiary. Under the terms of standby letter
of credit (SLC), the beneficiary has the right
to trigger the loan option (referred to as
taking down the loan) if the account party
fails to meet its commitment, in which case
the issuing bank disburses a specified sum to
the beneficiary and books an equivalent loan
to its customer.
SLCs may support
nonfinancial obligations such as those of
bidders, or financial obligations such as those
of borrowers. In the latter case, the borrower
purchases an SLC and names the lender as
beneficiary. Should the borrower default, the
beneficiary has the right to take down the
SLC and receive the principal balance from
the issuing.
4.1
Hence, a letter of credit is not a
negotiable instrument because it is required
to be drawn in favor of a definite person.
4.2
Those which do not have any of the
essential conditions shall be considered
merely as a letter of recommendation.
4.3
The bank or drawer of a letter of credit
shall be liable to the person on whom it was
issued for the amount paid by virtue thereof,
within the maximum fixed therein, while a
notifying bank does not incur any liability
except to notify the beneficiary of the letter
of credit. Before paying, it shall have the right
to demand the proof of the identity of the
person in whose favor the letter of credit is
issued.
4.4
The drawer of a letter of credit may
annul it, informing the bearer and the person
to whom it is addressed of such revocation.
Page 126
4.5
The bearer of a letter of credit shall
pay the amount received to the drawer
without delay. Should he not do so, an action
involving execution may be brought to
recover it, with legal interest and current
exchange in the place where payment was
made on the place where it is repaid.
5.1
Another definition is that it is a bankissued option on a loan involving three
parties: the bank issuing the credit, the party
requesting for such issuance (account party)
and the beneficiary. Under its terms, the
beneficiary has the right to trigger the loan
option if the account party fails to meet its
commitment, in which the case the issuing
bank disburses a specified sum to the
Page 127
1.1
It is a security transaction intended to
aid in financing importers and retail dealers
who do not have sufficient funds or resources
to finance the importation or purchases of
merchandise, and who may not be able to
acquire credit, except through utilization, as
collaterals, of the merchandise imported or
purchased.
1.2
The subject matter of a trust receipt is
always chattel. It will not apply to chattel so
attached to land so as to become part
thereof.
2.
A trust receipt transaction is a
transaction between an entruster and an
entrustee whereby the entruster, who owns
or hold absolute title or security interests
over certain specified goods, documents or
instruments, releases the same to the
possession of the entrustee upon the latters
execution and delivery to the entruster of a
trust receipt wherein the entrustee binds
himself to hold the specified gods, documents
or instruments in trust for the entruster and
to sell or otherwise dispose of the goods,
documents or instruments with the obligation
to turn over to the entruster the proceeds
thereof to the extent of the amount owing to
the entruster, or the goods, documents or
instruments themselves if they are unsold or
not otherwise disposed of.
2.1
A Security Interest means a property
interest in goods, documents or instruments
to secure performance of some obligations of
the entrustee or of some third persons to the
entruster and includes title, whether or not
expressed to be absolute, whenever such title
is in substance taken or retained for security
only.
2.2
A
trust
receipt
transaction
distinguished from:(a) A pledge-in a pledge,
the person doing the financing has
possession of the property; in a trust receipt,
the property is in the possession of the
person financed (b) A conditional sale-in a
conditional sale, there is a sale of the
property from the seller to the buyer; in a
trust receipt, there is no sale of the property
from the entruster to the entrustee (c) A
Page 128
Page 129
Page 130
Page 131
5.2
A warehouseman may thus legally
refuse to deliver goods covered by a
warehouse receipt under the following
instances: (a)When the demand is not
accompanied by the three requirements
provided in Section 8 (b)When he has a lien
valid against the person demanding the
goods, he can refuse to deliver the goods
until the lien is satisfied and, (c) In cases
when there are several adverse claimants to
the title or possession of the goods. The
warehouseman can refuse to deliver to any of
the claimants until he has had a reasonable
to ascertain the validity of the claims.
5.3
A misdelivery or conversion occurs
when (a) delivery is made to one not lawfully
entitled to it, or (b) even if delivery is made
to a person holding a non-negotiable or
negotiable receipt, if prior to delivery, he had
either been requested not to make delivery
by the person lawfully entitled to a right of
property or possession in the goods or had
information that delivery about to be made
was to one not lawfully entitled to possession
of the goods.
5.4
A warehouseman can protect against
a misdelivery by: (a) availing of a the
reasonable time that he is entitled to within
which to ascertain the validity of an adverse
claim or to bring legal proceedings to force
the claimants to interplead or may actually
require the claimants to interplead.
5.5
A warehouseman cannot commingle
as he is bound to keep the goods of a
depositor separate from the goods of other
depositors or from the goods of the same
depositor for which a separate receipt has
been issued. The purpose of the prohibition is
to permit inspection and redelivery at all
times. Exceptions are: (a) the goods are
fungible, as when any unit of the good is from
its nature or mercantile usage, treated as an
equivalent of any other unit (Section 58,
Warehouse Receipts Law) or (b) it is
authorized by agreement or custom.
6.
For failure to take up and cancel a
negotiable receipt, or one the negotiation of
which would transfer the right to the
Page 132
Page 133
Page 134
Page 135
Page 136
Page 137
Page 138
6.1
This finds basis in the fact that real
estate mortgage is an accessory contract,
which cannot exist independently of the
principal obligation. The consideration for the
mortgage is the consideration of the contract
of loan. Consequently, the amount of the loan
must be specified, otherwise the contract of
loan, as well as the accessory contract of
mortgage, shall not be perfected for lack of
consideration with respect to the unspecified
loan in the future. The Supreme Court has
held in China Banking Corporation vs.
Lichuaco, 46 Phil 460 that: a mortgage is an
accessory contract, its consideration is the
very consideration of the principal contract,
from which it derives life, and without which
it cannot exist as an independent contract.
6.2
Further, under Article 2176 of the Civil
Code, a mortgage may only be foreclosed for
the fulfillment of the obligation for whose
security it was constituted
6.3
Mortgages with a dragnet clause is a
contract of adhesion that must be strictly
construed as against the bank.
6.4
To constitute a real estate mortgage
as security for future loans, the future loans
must be agreed upon and fixed in the
mortgage deed at the time of the execution
of the same
6.5
A stipulation that the amounts named
as consideration in a contract of mortgage do
not limit the amount for which the mortgage
may stand as security if from the four corners
of the instrument the intent to secure future
and other indebtedness can be gathered is
valid and binding and is known in American
Jurisprudence as the blanket mortgage
clause.
7.
Issue of PD 385 prohibiting the
issuance of an injunction against foreclosure
by any government financial institution is
arbitrary and unreasonable. Hence, may be
argued as being unconstitutional. Hence, it
cannot be sustained if there is a clear legal
ground to restrain foreclosure
8.1
The proceedings related thereto allow
the mortgagor to participate although
jurisprudence provides that the hearings are
ex-parte. However, with the mandate of
Section 8 of Act 3135 which allow the
mortgagor to set aside foreclosure in the
same proceedings, it is the better rule to
actually allow the mortgagors active
participation.
1.1
A central bank is a bank that holds the
cash reserves of a countrys commercial
banks, performs monetary services for the
government, issues bank notes, and makes
funds available to commercial banks
8.2
The obligation of the court to issue a
writ of possession in favor of the purchaser in
an extrajudicial foreclosure sale ceases to be
ministerial once it is shown that there is a
third party in possession of the property who
is claiming a right adverse to that of the
mortgagor and that such third party is a
stranger to the foreclosure proceedings in
which the ex-parte writ of possession was
applied for.
8.3
As a limitation on the right to
possession, a writ of possession may be
legally issued only if the debtor is in
possession and no third person has
intervened.
8.4
Order granting a writ of possession
under Act 3135 is a final order. Hence, it is
appealable.
In
expropriation,
it
is
interlocutory.
9.
Grounds for the proper annulment of
the foreclosure sale are the following: (a)
there was fraud, collusion, accident, mutual
mistake, breach of trust or misconduct by the
purchaser (b) the sale was not fairly and
regularly conducted (c) price was inadequate
and the inadequacy was so great as to shock
the conscience of the court.
Central Bank Act
1.
The law was enacted on June 14, 1993
and has for its policy the maintenance of a
central monetary authority with the power:
(a) function and operate as an independent
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Conservatorship
1.
The appointintment by the Monetary
Board of a conservator takes place whenever
a bank or quasi-bank is in a state of
continuing inability or unwillingness to
maintain a condition of liquidity deemed
adequate to protect the interest of depositors
and creditors.
1.1
It is an attempt to save the bank from
bankruptcy and ultimate liquidation.
1.2
The appointed conservator is to take
charge of the assets, liabilities, and the
management thereof for a period not
exceeding one (1) year
2.
A conservator may take over a bank
or quasi-bank without the need of first
declaring the bank insolvent (P.D. 1937, June
27, 1984). Nonetheless, the designation of a
conservator is not a precondition to the
designation of a receiver (Section 30)
2.1
A conservator is the person appointed
to take over the management of a bank and
shall assume exclusive powers to oversee
every aspect of the banks operation and
affairs.1
3.The conservatorship is terminated when:
(a)
When Monetary Board is satisfied that
institution can continue to operate on its own
and the conservatorship is no longer
necessary
(b)Should
Monetary
Board
determine that the continuance in business of
the institution would involve probable loss to
its depositors or creditors, in which case
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1.6
Receivership is equivalent to an
injunction to restrain in the bank officers from
intermeddling with the property of the bank
in any way. Thus, the appointment of a
receiver operates to suspend the authority of
the bank and of its directors and officers over
its property and effects (Villanueva vs. CA,
244 SCRA 395)
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Classification of Banks:
1.
Banks are classified under the General
Banking Law as follows:
(a)
Universal banks- these are those that
used to be called expanded commercial
banks and whose operations are now
primarily governed by the GBL. They can
exercise the powers of an investment house
and invest in non-allied enterprises. They
have the highest capitalization requirement.
An investment house is a company that earns
income solely or primarily by holding and
investing in securities issued by other
companies or by government agencies.
(b)
Commercial banks- these are ordinary
or
regular
commercial
banks,
as
distinguished from a universal bank. They
have a lower capitalization requirement than
universal banks and cannot exercise the
powers of an investment house and invest in
non-allied enterprises.
(c)
Thrift banks-these are savings and
mortgage banks, stock savings and loan
associations, and private development banks
which are governed primarily by the Thrift
Banks Act.3
(d)Rural banks-these are mandated to make
needed
credit
available
and
readily
accessible in the rural areas on reasonable
terms and which are governed primarily by
the Rural Banks Act of 1992.4
(e)Cooperative
banks-these
are
banks
organized primarily to make financial and
credit services available to cooperative banks
3 RA 7906
4 RA 7353
2 RA 337
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Page 142
primarily
by
the
as
5 RA 6938
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Page 143
2.
This power of the BSP is found in
Section 25 of the BSP Law which mandates
the
conduct
of
periodic
or
special
examinations, to include those of its
subsidiaries and affiliates engaged in allied
activities, but such shall be possible only in
the in the course of its examination of such
bank.
2.1
A subsidiary corporation is one more
than 50% of whose voting stock is owned by
the bank or quasi-bank.
2.2
An affiliate corporation is one less
than 50% of whose voting stock is owned by
the bank or quasi-bank or which is related or
linked to such bank or quasi-bank through
common stockholders or such factors as may
be determined by the Monetary Board.6
Management of a Bank:
1.The principle that since a bank is a juridical
person that its powers are to be exercised, its
business is to be conducted, and that its
properties are to be held by a board as
provided for by Section 23 of the Corporation
Code obtains.
2.
However, an independent director,
who is a person other than an officer or
employee of the bank, its subsidiaries or
affiliates or related interests must be elected
to the board. Note that the term
independent director is also used in the
Securities Regulation Code7 to refer to a
person other than an officer or employee of
the corporation, its parent or subsidiaries, or
any other individual having a relationship
with the corporation, which would interfere
with the exercise of independent judgment in
carrying out the responsibilities of a director.
3.There must also be adherence to the fit and
proper rule8 which provides that to maintain
the quality of bank management and afford
better protection to depositors and the public
in general, the Monetary Board shall:
9 Section 5, RA 7353
10 Section 15, GBL
11 Section 17, GBL
12 Section 15, Par. (2), GBL
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2.
Hence, if a depositor has two or more
accounts maintained in the same right and
capacity, the coverage of PHP 500,000.00
shall be held to apply to the sum of all such
accounts.
3.
A joint account (whether and/or, or,
and shall be insured separately from any
individual-owned account. If held by a
juridical person or entity with a natural
person, the account shall be presumed to
belong to the juridical person.
2.
It insures the deposit liability of all
banks to a maximum deposit insurance
coverage (MDIC) of P500,000 per depositor in
consideration of a premium paid by the bank
to the said corporation.(As per RA 9576)
3.1
Accounts under joint ownership is
considered equally shared among codepositors unless otherwise indicated in the
deposit document.
3.
The risk insured against is the closure
of a bank.
TRUTH IN LENDING
3.1.
The nature of the coverage is
compulsory as the law provides that the
deposit liabilities of any bank or banking
institution which is engaged in the business
of receiving deposits or which thereafter may
engage in the business or receiving deposits,
shall be insured with PDIC.
3.2
Deposits that are covered are savings
accounts, current account, time deposits and
deposits in acceptable foreign currencies
pursuant to Foreign Currency Deposit Act.
3.3
Exempted though from the coverage
of the law are trust funds as it was was
expressly excluded from the term deposit
under R.A. 7400 and
money market
placement as it is not included in the term
deposit
DETERMINATION OF THE AMOUNT DUE THE
DEPOSITOR
1.
Insured deposits under the law means
the net amount due the depositor for any
deposits in the insured bank after deducting
any offsets but should not exceed PHP
500,000.00.
Page 148
2.
The provisions of the law apply to
creditors, who is defined by law as: any
person engaged in the business of extending
credit, including any person who as a regular
business practice makes loans or sells or
rents property or services on a time, credit or
installment basis either as principal or agent,
who requires as an incident to the extension
of credit the payment of a finance charge.
4.
To accomplish the policy of the law to
protect citizens from a lack of awareness of
the true cost of credit to the user by assuring
a full disclosure of such cost, a creditor or
lender is obliged to provide the debtor or
borrower with a statement in writing, before
perfection of the contract containing the
following: (a) Cash price of property or
service to be acquired (b)
Amount credited
as down payment and or trade-in(c)
Charges paid or to be paid not
incident to the extension of credit (d)
Charges paid or to be paid not
incident to the extension of credit (e)Total
amount to be financed (f)
Finance charge;
and (g)Percentage of finance charge to total
amount to be financed.
2.1
The application of the law is
compulsory for
(a) banks (b) non-bank
financial intermediaries authorized to engage
in quasi-banking are required strictly to
adhere to the law. Banks and non-bank
financial intermediaries authorized to engage
in quasi-banking functions are required to
strictly adhere to the provisions of the Truth
in Lending Act and shall make the true and
effective cost of borrowing an integral part of
every loan contract (Consolidated vs. CA, 246
SCRA 195)
3.
The provisions of the law does not
apply to the following credit transactions:
a.
those that do not involve the payment
of any finance charge by the debtor; and
b.
those in which the debtor is the one
specifying a definite and fixed set of credit
terms such as bank deposits, insurance
contracts, sale of bonds, etc.
3.1
Finance charges (Sec. 3[3]; Sec. 2[h],
CB Circular 158) are the amounts to be paid
by the debtor incident to the extension of
credit such as interests, discounts, collection
fees, credit investigation fees and attorneys
fees.
3.2
Non Finance charges (Sec. 2[f], CB
Circular 158) are the amounts advanced by a
creditor for items normally associated with
the ownership of property or the availment of
the services purchased which are not incident
to the extension of credit. For example, when
a debtor purchases a car on credit, the
creditor may advance the insurance premium
Page 149
4.1
The disclosure must be made in a
separate document, and not one that is
merely incorporated in a document by the
statement that the transaction subjects the
debtor to a finance charge.
4.2
The failure to comply does not render
the
principal
contract
invalid
or
unenforceable, but would entitle the debtor
to recover any interest payment made.
4.3
A violation of the law may subject the
violator to: (a) a civil action brought within
one year to recover from the seller/lender an
amount of P100.00 or double the finance
charge imposed, whichever is greater, but
not to exceed P2,000.00, plus attorneys fees
and costs, and (b) a criminal action against
the seller/lender who if convicted may be
imposed a fine ranging from P1,000 to P5,000
or imprisoned from 6 months to 1 year or
both. Note that a final judgment that may be
rendered in any criminal proceeding to the
effect that the defendant has willfully violated
the act shall be prima facie evidence against
such defendant in an action or proceeding
brought by any other party against such
defendant under the Act as to all matters
respecting which said judgment would be
estoppel as between the parties thereto.
creditor-debtor
relationship
is
created
between the bank and the client.41
The law does not apply to money
market placements as they are not deposits,
rather, they are trades in short term
negotiable instruments such as securities or
treasury bills.
3) What disclosures or inquiries into
deposits are not prohibited?
a
b
c
d
39 Sec. 1, RA 1405.
40 Sec. 2, RA 1405.
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45 Sec. 6, NIRC.
Page 150
bank
48 Sec. 1, RA 9160.
49 RA 3936.
50 Onate vs. Abrogar, 230 SCRA 181
51 China Banking Corp. vs Court of Appeals, 193
SCRA 454
Page 151
of
deposits
INTELLECTUAL PROPERTY
CODE
R.A. No. 8293
INTELLECTUAL PROPERTIES
Those property rights which result from the
physical manifestation of an original thought.
(Ballantines Law Dictionary)
Purpose: to strengthen the intellectual and
industrial property system in the Philippines
as mandated by the countrys accession to
54 Sec. 8, RA 6426.
55 Sec. 11, RA 9160
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jurisdiction
all
conditions,
restrictions,
limitations, diminutions, requirements or
penalties that may be imposed by such
foreign state on a Filipino national seeking
intellectual property protection in that
country. (Section 231)
ADMINISTRATIVE PENALTIES IMPOSED
FOR VIOLATIONS OF LAWS INVOLVING
IPR
a Cease and desist order (CDO);
b Acceptance
of
voluntary
assurance
compliance (VAC) or voluntary assurance
of discontinuance (VAD);
c Condemnation or seizure of products
subject of the offense;
d Forfeiture of properties used in the
commission of the offense;
e Imposition of administrative fines;
f Cancellation of permit, license, authority
or registration;
g Withholding of permit, license, authority
or registration;
h Assessment of damages;
- Must be recovered within four (4)
years from the time the cause of
action arose (Sec. 226)
i
Censure;
j
Analogous penalties or sanctions (Sec.
10.2 [b])
ELEMENTS OF UNFAIR COMPETITION
(1) confusing similarity in the general
appearance of the goods; and
(2) intent to deceive the public and
defraud a competitor.
The confusing similarity may or may not
result from similarity in the marks, but may
result
from
other
external
factors
in the packaging
or presentation of the
goods. The intent to deceive and defraud
may be inferred from the similarity of the
appearance of the goods as offered for sale
to the public. Actual fraudulent intent need
not be shown (In-N-Out Burger vs. Sehwani
GR No. 179127)
and
Page 154
e
f
RIGHT TO A PATENT
The right to a patent belongs:
a to the inventor, his heirs, or assigns
b when 2 or more persons have made the
invention jointly to them jointly
c if two (2) or more persons have made
the
invention
separately
and
independently of each other to the
person who filed an application for
such invention (FIRST TO FILE
RULE)
d where 2 or more applications are filed
for the same invention to the
applicant who has the earliest filing
date or the earliest priority date
(FIRST TO FILE RULE) (Sec. 29)
e In case of inventions created pursuant
to a commission to the person who
commissions the work UNLESS agreed
otherwise.
f If made by an employee, the patent
shall belong to:
the employee if invention not
part of his regular duties even if he
uses the time, facilities and
materials of the employer; OR
The employer if the invention is
the result of the performance of
Page 155
Utility Models
-models of implement or tools of any
industrial product even if not possessed of
the quality of invention but which is of
practical utility
Industrial Design
-any composition of lines or colors or
any three-dimensional form, whether or not
associated with lines or colors provided that
such composition or form gives a special
appearance to and can serve as pattern for
an industrial product or handicraft.
CANCELLATION OF PATENTS
1 Who may file?
any person
2
INFRINGEMENT
-the making, using, offering for sale,
selling or importing a patented product or a
product obtained directly or indirectly from a
patented process or the use of a patented
process without the authorization of the
patentee. (Sec. 76)
Test of Patent Infringement
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a
b
c
d
Page 160
Derivative Works
Dramatizations,
translations,
adaptations,
abridgments,
arrangements, and other alterations of
literary works
b
Collections of literary, scholarly or
artistic works, and compilations of
data and other materials which are
original by reason of the selection or
coordination or arrangement of their
contents. (Sec. 173)
a
Page 161
5
6
RIGHTS OF AN AUTHOR
A Economic Rights (Sec. 177)
-exclusive right to carry out, authorize
or prevent the following acts
1 Reproduction
of
the
work
or
substantial portion of the work
2 Dramatization, translation, adaptation,
abridgement, arrangement or other
transformation of the work;
3 The first public distribution of the
original and each copy of the work by
sale or other forms of transfer of
ownership;
4 Rental of the original or a copy of an
audiovisual or cinematographic work;
5
Public display of the original or copy
of the work;
6 Public performance of the work; and
7 Other communication to the public of
the work
B
1
2
3
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5)
Reprographic Reproduction by
Libraries
-any library or archive whose activities
are not for profit may, without the
authorization
of
the
author
of
copyright owner, make a single copy
of
the
work
by
reprographic
reproduction.
6)
Reproduction of Computer
Programs
-allowed on the ff. conditions:
a only one copy is made;
b)lawful owner made the copy;
c)purpose of which the reproduction is
made is legal like:
use to which the program is made
and for which it was purchased
demand the reproduction of a
copy; or
the reproduction of a copy is
necessary to guarantee against
loss or destruction (Sec. 189.1)
THE
FAIR-USES
OF
PROTECTED
MATERIAL ARE
Criticizing, commenting, and news
reporting;
Using
for
instructional
purposes
including producing multiple copies of
classroom
use,
for
scholarship,
research and similar purposes (Sec.
185)
3
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