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Commercial Law Review LETTER OF CREDIT, 15 ............................................ d

MORTGAGE, 1 ............................................................ b COMMON CARRIERS, 17.......................................... d

DOCUMENT OF TITLE, 6 .......................................... b CARRIAGE OF GOODS BY SEA ACT, 18 ............... d

BILL OF LADING, 6 ................................................... b ADMIRALTY, 19......................................................... d

WAREHOUSE RECEIPT, 7 ........................................ b WARSAW CONVENTION, 21 ....................................e

TRUTH IN LENDING ACT, 8 .................................... b PUBLIC SERVICE, 22 ..................................................e

BULK SALES LAW, 8 ................................................ b FOREGN INVESTMENTS ACT, 23 ............................e

SECRECY OF BANK DEPOSITS, 9 ...........................c INTELECTUAL PROPERTY CODE, 24 ..................... f

GEN BANKING ACT of 2000, 9..................................c INSURANCE LAW, 29................................................ g

PHL DEPOSIT INSURANCE CODE, 12 .....................c NEGOTIABLE INSTRUMENTS LAW, 37 ................. i

NEW CENTRAL BANK ACT, 13 ................................c CORPORATION LAW, 45 .......................................... k

Comm Rev Dean Abella 9 Feb 2015


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MORTGAGE, 1 WAREHOUSE RECEIPT, 7


Chattel v REM Governing Law
CHATTEL MORTGAGE, 1 Who issues
Act 1508 Reqts for issuance
Where to register, 2 Negotiability of WRs
Forms of registration, 2 Liens of WHM
Cr Remedies, 2 Effect of OR loss
REAL ESTASTE MORTGAGE, 3
Act 3135
Extrajudiicial F/C of REM TRUTH IN LENDING ACT, 8
Purpose
History
DOCUMENT OF TITLE, 6 How: Disclosure Statement
Governing Laws Regulating Body
Who issues DoTs
Forms of DoTs
How to negotiate DoTs BULK SALES LAW, 8
Purpose
Acts covered & regulated
BILL OF LADING, 6 Requirements
Governing Law Exemptions from reqts
Kinds of B/L
Formal Reqts
Contents of B/L
Effect of issuance, 7
Purposes of DoTs, B/Ls

Comm Rev Dean Abella 9 Feb 2015


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SECRECY OF BANK DEPOSITS, 9


Purpose
Scope
Reserve Requirement PHL DEPOSIT INSURANCE CODE, 12
Rediscounting Facility History
What is insured
Money Market Placements
What is Max Indemnity
GEN BANKING ACT of 2000, 9
Definition: Bank
Kinds of Bank NEW CENTRAL BANK ACT, 13
Commercial Bank Purpose
Definition Composition of Monetary Board
Ownership of Banks, 10 Prohibition to join private banks
Universal Bank, 10 Business
Nature Functions of BSP
An Investment House What is Money?
Ownership of other banks Money v Currency
Thrift Banks Legal Tender
Cooperative Bank
Rural Bank
Islamic Banks
Lending Money, 11
Regulation of Banks, 11

Comm Rev Dean Abella 9 Feb 2015


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LETTER OF CREDIT, 15 CARRIAGE OF GOODS BY SEA ACT, 18


Governing Law Background
Definition Scope of COGSA
What is a Commercial Trxn? Salient Features
Who is a Merchant?
Persons involved
Reqts of L/C ADMIRALTY, 19
Kinds: Domestic & Foreign Vessel: qualifications
Who issues L/Cs? Hypothecary Rule
How L/Cs work? Crew of a vessel
Benefit of L/Cs to banks? Contracts in Admiralty, 20
What is L/C-TR line? Charter Party
What are TRs?, 16 Ship Agent
Entrustee Undertakings Husbanding Agent
Parties to a TR Averages: types, procedures
Effect of returing goods to Entruster, Er Supercargoes
Why need for TR Law? Bottomry
When Ee fails to return, 2 views Respondentia
Credit Installment sales Marine Insurance
Accidents in Admiralty

COMMON CARRIERS, 17
Definition
Elements
Carriage of Goods
When may CC avoid goods L/D liability
Standards of Care, 18
Carriage of Passengers, 18

Comm Rev Dean Abella 9 Feb 2015


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WARSAW CONVENTION, 21
What is WC
Who are the parties
What is an Intl Air Transporation
What documents must be uniform
Currency of Indemnity
Fixed liabilities of the carrier
What
Why fixed
What to do to claim full amount

PUBLIC SERVICE, 22
Who may render PS
Who regulates PS
How to engage in PS
Reqts or qualifications to engage in PS
Kabit system
Prior Applicant Rule
Old Operator Rule

FOREGN INVESTMENTS ACT, 23


Purpose
Salient features

Comm Rev Dean Abella 9 Feb 2015


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INTELECTUAL PROPERTY CODE, 24 TRADE NAMES


Governing Law What is a trade name
Kinds of IP Trade name v business name
PATENTS Trademark, 26
What is a patent Service Name
Patentable inventions Duration of Protection
Not patentable inventions Why register Trademarks or Tradenames
To whom patents are issued Certain rules
Invention already patented? Doctrine of Colorable Imitation
Duration of a patent, 25 2 Tests to determine infringement
Kinds of Licensing Dominancy test
Voluntary Holistic Test
Compulsory Doctrine of Secondary Meaning, 26
Infringement v Unfair competition COPYRIGHT, 27
INDUSTRIAL DESIGN, 25 Scope
LAY-OUT of TOPOGRAPHY of ICs Who owns copyright
Duration
Advantage
Rights of copyright holder
Remedies vs infringement
Copying acts that are NOT infringing

Comm Rev Dean Abella 9 Feb 2015


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INSURANCE LAW, 29 LIFE INSURANCE, 32


What is insurance What is life insurance
Parties to an insurance Kinds of policies
Characteristics of an insurance Term
Reinsurance Ordinary
Who may be an insurer Non-forfeiture values in ordinary LI
Who may be an insured Cash value
Insurable interest Paid-up Insurance
Kinds of insurance Extended Term insurance
Insurable interest Nature of non-forfeiture values
In Property insurance Premiums, 33
In Life insurance How computed in Property Insurance
When II must exist How computed in Life insurance
How one gets to be insured, 30 When do you pay premiums
Representations Automatic Premium Loan Clause
Misrepresentations Options for insured if policy lapses
Concealment Losses in Property Insurance, 34
Consequence of Misrepresentation Partial
Contestability period Total
PROPERTY INSURANCE Losses in Marine Insurance
Over-insurance When is insurer obliged to pay
Under-insurance What must insured to in case of loss or damage
Co-Insurance, 31 How may beneficiaries be designated
Double-insurance Revocable
Under-insurance Irrevocable
What are policies? What insurer reqd to file, in case of death
Kinds of policies How to settle claims in property insurance

Comm Rev Dean Abella 9 Feb 2015


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FIRE INSURANCE, 35
Scope
Kinds
Amount of insurance
When is insurer not liable
Affrimative warranty
Promissory warranty
CASUALTY or ACCIDENT INSURANCE
Definition
Compensable body parts
MARINE INSURANCE
Definition
Extent of insurable interest
MI v Fire insurance
Perils of the Sea, 36
Peris of the Ship
Seaworthiness
Warrranty: cargo owners
If Insurer pays Insured
Kinds of losses
Effect of deviation on insurer liability
SURETYSHIP, 36

Comm Rev Dean Abella 9 Feb 2015


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NEGOTIABLE INSTRUMENTS LAW, 37 Who are liable under a NI


Applicabiltiy Who are endorsers
What are instruments Liability of endorsers
Promissory Notes May they sign through agents
Bill of Exchange What is NEGOTIATION. 40
Reqts for negotiability Modes of negotiating an instrument
Parties in P/N What is an INDORSEMENT, 40
Parties in B/L Where is an indorsement placed
1st reqt: In writing & signed Limits on the number of indorsements?
2nd reqt Kinds of indorsement
Unconditional promise or order In Blank
Suspensive condition Special
Resolutory condtion Conditional
Why reqd to be unconditional Qualified
Pay sum certain in money, 38 Restrictive
If payable in installments Sequence of endorsements: effect
Divisible obligation Marked-off Endorsement: effect
rd Who are Holders of an instrument, 40
3 Reqt: payble on demand, fixed, or DFT, 38
When payable on demand Holder for value
When payable at a fixed time Holder in due course
When payable at DFT HDC reqts
Remedy in case of period uncertainty 1st: complete & regular
th
4 Reqt: payable to order or to bearer, 39 2nd: in GF & for Value, 41
When is it an Order instrument? 3rd: before overdue
How negotiated? 4th: no:infirmity notice/title defect
When it is a Bearer instrument? Payee as HDC?
How negotiated Advantages as HDC
Effects of delivery

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Parties in a Negotiable instrument, 42


Irregular indorser
Per Procuration
Obligations of parties in a NI
Stages of life of a
P/N
B/L
How PAYMENT OR DISCHARGE effected
Payment in due course
Person primarily liable
Accommodation party
Accommodated party
If accommodation party pays
Intentional cancellation by holder, 43
Any other mode of obli extinguishment
Discharge of primary party
How to discharge Foreign B/E, 43
Bills in Set
How do they work
Certified Checks
Supreme Court rulings in forgery, 44
Gen Rule & exceptions
If what is forged is Payees signature
Drawee, collecting bank effects
Clearing House
24 hr clearing rule
When are checks not cleared
Are banks reqd to accept any check

Comm Rev Dean Abella 9 Feb 2015


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CORPORATION LAW, 45 Articles of Incorporation (AoI), 46


What is Corporation AoI: Common for SCorp/NSC: Arts 1-6
Corporation vs Partnership #1: Corporate Name, 47
Manner of creation #2: Purposes
Name used #3: Term of Corp
Purpose #4: Principal Place of Bus/Res
Number of organizers #5: Incrs Info
Term of Existence #6: two parts
Extent of Liability # of Directors
Sharing of profits Incorporating Director info
Management AoI: for Stock Corporations, 47
Causes of Dissolution #7: two parts
Amt of capitalization ACS Amt, # Shares, Value/share
Right of succession Subscribers (Sbr) info
Nature Definitions
Relationship to Property ACS
Who may organize, 46 Shares
What is an Incorporator (Incr) Par value
Stock corporation (SCorp) Min Par value
Non-stock corporation (NSC) Min Paid up Capital
Formation of a corporation Stock Split
How to form a NSC Reverse stock split, 48
Other reqts for NSC Is subscription reqd in ACS
#8: Sbr name & amt pd on Sbn
#9: Name of Treasurer
#10: Corps reserved for Filipinos

Comm Rev Dean Abella 9 Feb 2015


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AoI for Non-Stock Corporations, 48 Term of directors


#7: Conributors/Donors, amts Rules of Educ corp
Filing of By-laws Vacancies in the BOD
What happens after filing of documents Removal of a director
Acquisition of Juridical Personality, 49 Cumulative voting
Re properties Functions of BOD
Re liabilities Self-dealing Director, 53
If corp becomes bankrupt Interlocking Director
Doctrine of Piercing Corp Veil Officers, 53
Instrumentality Rule Who can be Pres, Sec, Treas
Corporation By-laws, 50 Incompatible Officers
What are By-laws Stock transfer agent
When filed Term of office
What By-laws contain Compensation
Meetings Removal of an officer
Annual or Gen meetings Stock Certificate, 54
Special meetings Importance
Venue When issued
Attendance Who signs
Proxies Remedy for loss of SC
Revocation How to transfer shares of SHs
Term of proxy What is a Stock & Transfer Book
SCorp v NSC, 51 Corporate Seal
Proxy vs VTA Amendments of AOI & BL
Directors, 52 What governs
Qualifications Reqts for amending BL
Disqualifications How amendments made
Compensation

Comm Rev Dean Abella 9 Feb 2015


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Corporate Shares, 56 How do corps merge or consolidate


Preferred shares Articles of Merger or Consolidation
Preferred redeemable shares Dissolution of Corporations, 59
Pref red convertible shares Causes of dissolution
Preemptive rights What happens upon dissolution
Dividends, 56 How residual assets are distributed
Who can declare What are liquidating dividends
What are surplus profits What is income of the corporation
What are Pd up or Pd-in Capital What are dividends
Forms Dividends can be declared Corporation Sole, 60
Watered stocks What is unique about it
Appraisal right Educational Corporations, 60
Fair value of shares, 57 Close Corporations, 60
Book value How do you know if a corp is close
Trust Fund Doctrine Where conditions bind transferres
Treasury Shares, 57 Who manages CC
When shares become TS
Do TS have rights
Nature of TS
Deliquency Shares, 57
When delinquent
What are unpaid subscriptions
What is a call
Remedies of a corp v delinquency
Mergers & consolidation, 58
What are mergers
What are consolidations
Why do corps merge or consolidate

Comm Rev Dean Abella 9 Feb 2015


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SECURITIES REGULATION CODE, 61 Money market placements


Governing law Margin Trading
What are securities Short sales
When are they used Wash Sales
Founders Shares Tender Offer
Rules on solicitation of investments Class A and Class B shares, 65
Investment in form of loan or lending money Straddle, Put and Call
Bond, Debentures Backdoor listing
Investment by being part owner Blue Sky Law
Pref Shares Insider
Pref Redeemable Shares
Pref Redeemable & Convertible shares
Pref Partcipating
Cumulative Pref shares
Sufficient surplus
What is the Phil Stock Exchange, 62
What are exempt securities
Pre-Need Contracts, 63
What are exempt transactions
How to trade stocks
Who are persons associated with brokers
Who are dealers
PAWB vs Brokers
Who are salesmen
Definitions
Money Market, 64
Capital Market
Bond Market

Comm Rev Dean Abella 9 Feb 2015


Commercial Law Review
Dean Eduardo Abella
Return of Excess Not required Required
MORTGAGE Claim for - No recovery under the Recto
Deficiency Law
Introduction (NCC 1484 on installment sale
of personal property where the
- Under the NCC (Book V), there are accessory contracts securing principal mortgage is constituted over the
obligations (special contracts). These include pledge, mortgage, antichresis, object of sale to secure the
guaranty, and suretyship. payment of the purchase price).
For Recto Law to be applied,
Definition mortgage must be constituted
- a mortgage is a contract where the property is recorded (in the register of over the object of the installment
deeds of the city and/or province) to secure a principal obligation sale.
- example: If a mortgaged property is in Batangas City, it must be
registered in both the City and Province of Batangas (Batangas City is - Recovery if not under the
the provincial capital). Recto Law
FROM: Principal Debtor
- an accessory contract, collateral or security for an obligation E: Obligation is solidary with the
Mortgagor
They are valid only if there is a principal contract.

Basic Principles
1.) Accessory Contract only exists if there is a principal contract
CHATTEL MORTGAGE
2.) Mortgagor is the owner of thing mortgaged
3.) Mortgage is extinguished if the principal obligation is extinguished Governing Law: Act No. 1508

CHATTEL MORTGAGE LAW


Scope: It may be constituted over:
ACT NO. 1508
(1) Personal Property (Chattel Mortgage)
This act is considered repealed by the New Civil Code.
(2) Real Property (Real Estate Mortgage)

CM REM
The ratio is that pactum commissorium is void and the Chattel Mortgage Law
Object Personal property Real property considers a Chattel Mortgage as a conditional sale which becomes absolute
Scope Existing and valid obligations; Includes future obligations upon default
Includes voidable, unenforceable, rescissible and natural
obligations
Foreclosure Extrajudicial only EJ or Judicial In Jurisprudence:
EJ Foreclosure No right of redemption Right of Redemption In one case there was a house that was subject to a chattel mortgage. The
reason was that the land belonged to one person and the house to another.
Registration RD of mortgagors residence + The Court ruled that as between the parties there is a valid chattel mortgage
location of property + LTO as under NCC 1159, stipulations of parties valid between themselves.
(motor vehicles)
However, it is not binding on other persons.

1|SMILE. Keep on moving forward!


Commercial Law Review
Dean Eduardo Abella

Collateral issue: The register of deeds was not justified in refusing to record If object is motor vehicle it should be registered with the LTO. It should be first
chattel mortgage over the house; it is a ministerial duty on the part of the registered with register of deeds. After, which, register with the LTO.
register
Practical: Bring two copies, first to Register of Deeds then have him stamp the
Q: May personal property also be classified as real? copy. Bring the second copy to the LTO.
A: Yes, but it is binding only as between the parties
Mortgagor may or may not be the principal debtor.
While registration may be notice to world, it is still not in accordance with law.
A problem arises when the principal debtor defaults.
Definition
- Chattel Mortgage is defined in the NCC as a contract whereby personal REMEDIES OF THE CREDITOR:
property is recorded in the chattel mortgage registry as security for the 1.) Sue for specific performance if the obligation is for a sum of money
performance of an obligation. mortgagee abandons mortgage by suing the principal debtor. If suit is
brought, mortgagor may demand release of mortgage.
Where to Register: Residence of the mortgagor
CM is to be recorded in the Register of Deeds of the City or Province where 2.) Foreclose the mortgage under the Chattel Mortgage Law
the mortgagor resides. - ABSOLUTE REQT: CREDITORS POSSESSION of the thing
Note: There is no Register of Deeds in Municipalities. mortgaged because it must be sold in a public auction
- How does the creditor acquire possession:
Why: Because it can be easily moved Demand for the delivery of the object after default. If concealed, sue
for replevin.
Nature of Requirement:
Not for the validity of the mortgage - Who attends to the foreclosure sale:
But for Constructive Notice to the world Sheriff or
TRIVIA: Forms of Construction Notice: Notary public
Public Instrument, Publication, Registration
- What is the process of foreclosure:
Form of Registration: Affidavit of Good Faith a. Petition for EJ Foreclosure with the sheriff or notary public
- It is a sworn declaration of both the mortgagor and mortgagee that they b. Notice of Auction Sale by the Sheriff/NP after the receipt of
executed the mortgage in good faith to secure a valid obligation and not for the the petition
purpose of fraud - Posted in at least 3 public places,
- IF LACKING: e.g. City/Municipal Hall, Barangay Hall, Hall of Justice
a) the mortgage is still valid between the parties - there is no law that requires the sheriff or np to
b) it is invalid as to third persons because the mortgage cannot be registered make sure that the notices stay where posted
without the affidavit Q: If somebody took the posted notice, will
proceeding be invalidated?
Q: If an affidavit of good faith is omitted is there a valid chattel mortgage? A: No, it will not, posting is enough.
A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of - Copy furnished to the mortgagor at least 10 days before
registration. If there is no affidavit, it is not binding on third persons. Affidavit of the auction sale, otherwise the sale would be void
good faith may be demanded.
c. Sale to the Highest Bidder
Q: What if mortgagor and property are in different locations? - If sold to the mortgagee, he has no obligation to deliver any
A: Register first in the city or province where the mortgagor resides then where amount
the property is found.

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Commercial Law Review
Dean Eduardo Abella

- If sold to a third party, the latter delivers the amount of the bid to - CAFS is not required
S/NP - Note: It is ironic that the remedy is supposed to be extra-judicial or
out of court and yet sheriff is not allowed to accept the petition unless
d. Certificate of Sale the court fees required are paid (SC Circular March 2000)
- Whoever is the highest bidder gets certificate of sale from
sheriff or notary. 3. Referral and Payment of Fees

Hypothetical Q: Mortgagor did not see necessity of recording release of 4. Notice of Auction Sale
mortgage. Went to get a second loan from mortgagee. He merely returned the - By Whom Issued: Sheriff, NP
release of mortgage, is the mortgage revived? - Where: Where the property is situated
A: No, obligation it secured is already extinguished - How:
a) Notice in at least three public places in City or Province where the
property is located
b) Publication in a newspaper of general circulation, once a week for
REAL ESTATE MORTGAGE two consecutive weeks
- NOTE: Publisher must be accredited by the court and
assigned the publication by raffle
Governing Law: ACT 3135
It is a special law creating the right of the mortgagee to foreclose the REM - Should notice be furnished to the mortgagor? No because
extrajudicially
publication is constructive notice to all (This is opposed to
the EJ Foreclosure of Chattel Mortgages where notice to the
How to extrajudicially foreclose a REM
mortgagor is required)
3135 refers to the Rule 39 of the Rules of Court
1. The Mortgagor must expressly authorize the mortgagee to sell the
- REQT: CORRECT DESCRIPTION OF PROPERTY, Otherwise the
mortgaged property in case of default, either in the deed of mortgage
notice would be void
or in a separate instrument
- EXAMPLE: In case of default, the bank shall be authorized to sell,
- How to Prove: Ask for a Certificate of Notice or Affidavit of
as it is hereby authorized to sell.
Publication and a copy of issue of the newspaper
- INSUFFICIENT: Banks use printed deeds of REM with the following
5. Scrutiny of the Title of the Property
provision: In case of default, the Bank can extrajudicially foreclose
- If the property is wrongly described in the publication, then the entire
pursuant to Act No. 3135. According to a SC Circular, mere
proceedings would be void
reference to Act No. 3135 is not enough.
- REMEDY: Inform the publisher and correct the issue
- Thus now, in case of default, the bank must be expressly authorized
to sell the property mortgaged.
6. Auction Sale
- Note: Just copy the wording/form of the law
- Q: If there is a written agreement between the mortgagor and
mortgagee to postpone the auction sale, is it valid? YES, because it is
2. The mortgagee must execute a verified petition
not contrary to law, morals, good customs, public order or policy.
Q: How is it initiated?
However, in case of postponement, the notice requirements should
A: Prepare a verified petition to foreclose the REM. The sheriff or a
be complied with again as in the case of Nepomuceno Productions
notary public may handle this. The mortgagee himself may do it, but it
vs. PNB.
is often the sheriff or notary public.
- Three possible results of an auction sale
- Where filed: Sheriff or Notary public
a. Bid exceeds the amount of the obligation: the excess is
returned to the mortgagor

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Commercial Law Review
Dean Eduardo Abella

b. Bid is less than the amount of the obligation: the deficiency *If tender is refused: the remedy is specific performance. The amount
is recoverable may not be consigned because for consignation to be allowed, there
c. Mortgagor himself is the highest bidder: There is no need for must be a debt due.
the amount of the bid to be delivered to the sheriff or no.
*NOTE: Present the Certificate of Title from the Register of Deeds
NOTE: There is no longer any requirement of having at least 2 with the annotation of the Certificate of Sale.
bidders.
- What is the Certificate of Redemption: It cancels the certificate of
7. Certificate of Sale sale
- By whom issued: sheriff or np
- What to do: Register ASAP with RD BEC the one-year Right of - When is the Redemption Period:
Redemption commences within one year from the date of registration GR: 1y from registration of certificate of sale (NOT 12m)

8. Redemption E: 90d or before the registration of tile over the property,


- Nature: Right, Not a Duty; it may not be forced on the mortgagor whichever comes first IF the mortgagor is a juridical person
- It is a property right arising from property and the mortgagee is a bank (General Banking Act)
- Real property
- Real rights - Is the right of redemption waivable? NO. Express waivers within the
period of redemption is not allowed because it is contrary to public
- Who Exercises Right of Redemption: policy. HOWEVER, waiver may be done by not exercising the right.
a. Mortgagor
b. His successors-in-interest - Is it transferable? YES, either onerously or gratuitously.
c. Judgment creditor of mortgagor Redemption is a real right over real property. The right may be
inherited by succession
- How is it Exercised:
there must be a valid tender of the redemption price 9. Acquisition of Title
within the redemption period - When to obtain title to the property: When the period of redemption
- When is tender valid: If there is tender of the full amount of expired without anyone redeeming the property
in legal tender
- How: 2 ways
- What is the redemption price: a. Have the Sheriff/NP issue a Final Certificate of Sale
a) If there is a special law that created the mortgage and there is an b. Execute an Affidavit of Non-Redemption, which is less
indication of redemption price, then follow that. expensive than the first
b) If it is a bank, it depends on the law. c. Pay BIR the taxes upon the expiration of the redemption
c) If another person: period
1.) Bid price
2.) 1% interest per month on the bid price - Why do it: The BIR requires: (1) certificate authorizing registration
3.) Taxes and charges paid by the highest bidder and (2) the tax clearance certificate
4.) 1% interest per month on the taxes and charges paid a. DST within five days from the month following the expiry of
the redemption period
The Supreme Court construed this as 12% per annum. b. CGT / Withholding Taxes 30 days from expiration of the
redemption period
- To whom must the amount be tendered: c. VAT
Highest bidder or Sheriff/NP conducting the auction, whoever is less d. Transfer Taxes of LGUs
intimidating - Pay the amount of taxes to the LGU

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Commercial Law Review
Dean Eduardo Abella

- Update all realty taxes


- Obtain a Clearance from the local treasurer Practical Matters: When Register of Deeds issues Certificate of Title, he
- Go to the RD for the issuance of a TCT issues at least 2, the original and the owners copy.
There are at least 2 because co-owners may each want a copy of the
- What is the tax base: certificate of title. In which case, the co-owners duplicate should be prepared
Before, it was the bid price. with the original. If you are buying from co-owners, you must get all other
copies so that they may be annotated.
By reason of a BIR Circular dated July 2012, the tax base is now the
highest of: Remedy or the issuance of the writ of possession is the same in extrajudicial
(a) Bid Price or foreclosure, judicial foreclosure and execution sale. There is no remedy if a
(b) Market Value in the Tax Declaration or third party has a better right.
(c) BIR Valuation
Q: Can PDCs be used as chattel mortgaged property?
10. Possession of the Property A: Legally, yes.
- How: Ex parte petition for the Issuance of a Writ of Possession
- It is in the nature of a motion
- Nature:
General Rule: Ministerial duty of the court BUT if filed before the end
of the redemption period, a bond is required.
Exception: Not ministerial if there is another person with a better right.
Ex. Lessee
- REQD: GF of Applicant! Thus, the applicant must inquire into the (a)
TCT and (b) rights of the current possessor to qualify as a buyer in
good faith; otherwise, he will have no right of possession.
New buyer in good faith doctrine: Looking at certificate of
title is no longer enough; you must look at the right of the
person in actual possession of the property. Failure to do so
does not qualify one as a buyer in good faith.

Case: Person borrowed from bank. Parents executed a Real Estate Mortgage.
Borrower issued post-dated checks. The checks were dishonored. The bank
sued the borrower for BP22.
Remedies for bank are as follows:
1.) Civil Collection
2.) BP22
3.) Foreclosure

Filing of BP22 is an abandonment of the mortgage.


If buyer of mortgaged land already owns the land and the prior owner does not
want to leave, file an ex parte Petition for Issuance of Writ of Possession.

Practical Matters: Attach all certified true copies of documents in the petition
title, deed of mortgage, final certificate of sale, BIR clearance (tax clearance,
certificate authorizing registration)

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Commercial Law Review
Dean Eduardo Abella

If Originally To Bearer, then specially endorsed and delivered, the


transferee must also negotiate by endorsment and delivery.
DOCUMENT OF TITLE NOTE: Once it has been especially endorsed, negotiate by
endorsement and delivery all the time thereafter
EXCEPT IF the last endorsement is in blank, then just deliver it
Governing Laws: subsequently
NCC (Sales)
Code of Commerce DIFFERENCE WITH NI: Endorsement in a bearer NI has no effect.
Warehouse Receipts Act

Definition
It is an instrument or document where the bailee acknowledges goods and
BILL OF LADING
contains an undertaking to deliver the goods
Governing Law: Code of Commerce
- DIFF with Instrument under the Negotiable Instruments Law
1) Coverage: NCC covers GOODS to be transported or safely kept.
Kinds:
Bill of Lading Common carrier of goods by water
NIL covers sums certain in money, except other properties that may
Waybill by trucks on land
also be covered.
Airwaybill by aircrafts, airlines
2) Modes of Endorsement
- In DTs, endorsements must be IN BLACK or ESPECIALLY
- In NIs, it may be blank, especially, conditional, qualified, or
restrictive
Formal Requirements
Examples of Documents of Title 1. It must be printed
2. It must contain the complete name and address of the printer
- Bill of Lading, issued by common carriers (Code of Commerce)
3. It must contain the telephone number of the printer.
- Warehouse Receipt, issue by warehousemen (under the Warehouse
4. It must contain the TIN Number of the printer.
Receipts Act and the General Bonded Warehouse Act).
- Quedan, a warehouse receipt that covers rice, sugar, or tobacco
Content of B/L (Code of Commerce)
1.) Complete name and address of consignor/shipper.
Who issues DTs:
Common carriers
2.) Complete name and address of consignee.
Warehousemen
3.) Complete name and address of the carrier/shipee (NCC).
4.) Complete description of goods including marks and markings, e.g.
Numbers on crates, Names in pomelo crate from Davao
Forms of DTs to facilitate trade
5.) Amount of fare
1. Negotiable IF it contains words of negotiability, i.e. to order, to bearer,
6.) Stipulations on limited liability
or those with equivalent words or phrases (e.g. holder, possessor)
- Nature: Contract of Adhesion but it is not prohibited; it is only
2. Non-Negotiable
interpreted against the party who cause the ambiguity
What if it contains deliver to bearer with a red stamp in big font of
Q: Are printed stipulations on Bill of Lading binding on the shipper
NON-NEGOTIABLE: It is negotiable even if the bailee intends it to
even if the shipper does not sign?
be non-negotiable, as long as it contains words of negotiability.
A: GR: Yes, a contract is perfected by mere consent. Here, consent is
How to Negotiate Documents of Title implied even if it is signed only by the carriers representative.
EXCEPTION: There is no consent if print is too small that the shipper
1. To Order Instruments: Indorsement (Blank or Special) and Delivery
could not have read it as in the Shewaram Case.
2. To Bearer: Delivery

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

Negotiability of WH Receipts
A warehouse receipt is negotiable or non-negotiable.

Effect of Negotiation: Transferee acquires the direct right to receive goods from
the warehouseman. However, the right is conditioned upon the following:
1.) Person claiming the goods must first satisfy the liens of the
warehouseman.

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TRUTH IN LENDING ACT BULK SALES LAW


Purpose of the law: To enable persons borrowing money or buying goods on Purpose of the law: To protect creditors from fraudulent schemes of their
installment or credit to know the actual cost in money of the credit. debtors

History: When cost of money had gone beyond a profitable rate and the Acts covered and regulated:
interest was also subject to the usury law, banks thought of other ways to 1. Sale, assignment, mortgage, or other forms of transfer of all or
make money. Banks started charging different fees to avoid the usury law. In substantially all of the stocks of goods, wares or merchandise other
effect, every move by the bank had a price (Processing fee, application fee, than in the ordinary course of business
appraisal fee). Thus, the law obliges lenders to fully disclose all charges 2. Sale, assignment, mortgage, or other forms of transfer of all or
before the consummation of the transaction. substantially all of the businesses of a person, the business/es
themselves
How: Disclosure Statement. 3. Sale, assignment, mortgage, or other forms of transfer of all or
Prior to consummation, person lending money or selling on credit/installment substantially all of fixtures and equipment used in the conduct of
should deliver to the debtor a written statement showing the breakdown of the business
charges. Note that this is already after a meeting of the minds. (Section 4)
WHY All or Substantially All: These are extraordinary transfers
Content of Disclosure Statement
1.) Cash Price less down payment = amount to be financed Note: Not every sale is covered. Sales in the ordinary course of business is
2.) Payable in XX installments not covered, e.g. If all goods were sold while engaged in the wholesale
3.) Total amount to be paid in installments business.
4.) Total Cost
5.) Other charges Requirements: Must be strictly complied with; OTHERWISE, Void sale
1. Notify the creditors in writing of the intended transfer at least 10 days
Regulating Body: Monetary Board of the BSP is the body that oversees the before the intended transaction
implementation of the law. Violation of the Act is a crime; penalty is fine of 2. Deliver to the prospective transferees, a sworn statement stating the
P100 to P2000 and imprisonment of at least 1 month but not more than 5 full names and addresses of creditors and the amounts due them.
years. 3. Furnish a copy to the Director of the Bureau of Commerce/Bureau of
Domestic Trade a copy of the sworn statement
Case: Solidbank extended a credit line of P200k to a client, not just as an
ordinary loan but also as a standby source of funds which earns no interest Note: Transfer without compliance with requirements is void even if the
unless it is drawn. When the borrower draws money, the credit diminishes and buyer acted in GF; the buyer is considered a trustee.
he pays only what is actually received. But, there were accumulated service
fees which were not made available to the borrower. Exemptions from Requirements:
Credit Line when bank sets aside a certain amount for client that 1. Judicial sales (execution, assignee in insolvency)
client may draw on at any time. 2. Sales or transfers of property exempt from execution
SC did not allow Solidbank to collect amount because the additional charges 3. Sale by manufacturer of his own products
were not indicated in the promissory notes. 4. Written waiver by the creditors

In 2009, there was another case where the fees were included in the SC: Sale of a foundry shop (Horseshoe maker/metal fabricator)
promissory notes but there was no delivery of disclosure statements, collection
still not allowed.

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SECRECY OF BANK DEPOSITS GENERAL BANKING ACT OF 2000


(R.A. No. 1405)
Definition: BANK
- It is a corporation authorized by the Monetary Board to accept deposits from
Purpose of the law: To encourage people to deposit their money in banks for the public and to grant loans.
the purpose of promoting the national economy.
Kinds of Banks
Scope: Includes investments in government securities 1. Universal Banks
2. Commercial Banks
Reserve Requirements 3. Thrift Banks
What: Percentage of deposit received by the bank is to be deposited with the a. Savings and Mortgage Bank retail banks catering small
BSP deposits; accepts deposits of small depositors for home-
building purposes (Amount is smaller than those of the
How much: Percentage depends on the deposit liabilities universal banks, e.g. P500 in BPI Family Bank)
1. Highest Checking b. Private Development Bank accepts deposits and grants
2. Medium- Savings loans; once the bank runs out of capital, it can invite the DBP
3. Low Time Deposit to invest in it and DBP would require membership in its BOD;
Development is in its corporate name
Q: How does BSP use reserve requirements to manage money supply? Why c. Stock Savings and Loan Associations it can be non-stock,
is there a need to manage money supply? where it cannot accept deposits from the public but only from
A: If there were a lot of money in circulation, prices would go up. The reserve the restricted groups of persons.
requirement is also there in order for the BSP to have money to lend to banks. 4. Cooperative Bank
5. Rural Bank
REDISCOUNTING FACILITY 6. Islamic Bank
- Promissory notes are used as security

Note: It is illegal for a bank officer or employee to disclose any information Commercial Bank
regarding bank deposits and government securities.
Exceptions: Definition: It is not defined in law. The law only identifies its powers and
1. Written authority from depositor himself Self explanatory functions:
2. In case of impeachment ex. Clarissa Ocampo 1) To accept deposits subject to withdrawal by check.
3. Court order in case of bribery, dereliction of duty of public officer, However, the BSP may license other banks to accept similar deposits
violation of Anti-graft and Corrupt Practices Act, extending to the 2) To open letters of credit.
spouses and relatives, close friends and associates in cases of MB licensed savings bank to do the same, e.g Ph Business Bank
AGCPA 3) To engage in allied enterprises
4. Where deposit is the subject matter of litigation Must be read 4) To exercise the powers of a corporation
literally, e.g. settlement of estate; wife channels funds out of a
corporation
5. By Order of the CA in relation to the Anti-Money Laundering Act As a matter of right, only commercial banks should accept deposits in checking
6. Examination of books of banks by the BSP accounts/current accounts/commercial accounts/demand deposit
7. Independent auditors they are not bank employees/officers 1.) May issue letters of credit
2.) Lend money

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3.) Trading of government securities UB can own 100% of just one other UB or KB. There is no limit on the number
4.) Foreign transactions of smaller banks it can own.
5.) Safety deposit box
Q: if Universal Bank invests allied or non-allied, what is the limit?
Ownership of Other Banks A: Equivalent to 50% of net worth but only up to 25% in a single enterprise
KB can own 100% of just one other KB. There is no limit on the number of
smaller banks it can own.
Why: To encourage merger or consolidation. Thrift Bank
Commercial bank limit is 35% of equity, but still with a maximum of 25% per Kinds:
industry. 1. Savings and mortgage - To lend money to those that want to
construct houses. For small depositors (small amounts of money).
Banks prefer big depositors as maintenance costs are the same
2. Private development bank organized for development of
Universal Bank community. If it needs additional capital, it may invite DBP to invest
with it. To recognize it, check corporate name, it always has
Nature: Actually a commercial bank, but also authorized by Monetary Board to development in its name.
engage in the business of an investment house. 3. Stock savings and loan associations Theres also a non-stock but
not bank. If non-stock no ACS. If stock, may accept deposits from
Functions and Powers: general public, if non-stock only from limited clientele (ex. AFPLSAI
1) To accept deposits subject to withdrawal by check. restricted only to AFP, PNP and family members; MESALA, Meralco
2) To open letters of credit. employees including the Lopez group) Many corporations have
3) To engage in business of investment house savings and loan associations and a credit union.
4) To engage in allied or non-allied enterprises. Non-allied enterprises
have nothing to do with banking.
5) To sell life or non-life insurance policies cross-selling with Cooperative Bank
insurance companies where bank owns 5% of outstanding shares
What: It is one set up and owned by cooperatives. There are no individual
Definition of an Investment House stockholders, all are cooperatives. Under cooperative office, but bank under
Q: What is an investment house? the BSP.
A: It is a quasi-bank with two major functions:
1.) Rediscounting of receivables one entity goes to an Investment
House and as collateral pledges its receivables. (Ex. Business sells
on credit and needs capital again, so it borrows from an Investment Rural Bank
House)
2.) Underwriting for securities where a corporation offers to the market What: It is organized to provide banking services in rural communities, to
securities for sale with certain commitments (ex. In corporation that farmers/tenants or simply stated, in rural areas. It is recognizable by Rural in
needs more capital that cant be raised from stockholders securities its corporate name.
only if 20 or more persons) Get SEC approval first, then have them
sold by securities underwriters
Islamic Banks
Example: House of Investment, Inc. and State Investment House, Inc.
Note: There is only one, owned by the government of the DBP as a controlling
Ownership of Other Banks SH.

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Why: There are no interests earned on deposits because it is considered All banks should be organized as a stock corporation and comply with the
immoral, but there may be profit sharing. requirements of the Monetary Board for licensing. Before a corporation can be
organized, it must go through bank. After requirements submitted to the
Monetary Board and completed, endorsement by Monetary Board to SEC,
LENDING MONEY which then has a ministerial duty to register it.

Is the bank allowed to lend any amount? There is paid-up capital required by the Monetary Board. There is a period
No. The amount of money lent must be secured by titled real properties and it increase in paid-up capital in order for banks to be more stable.
must be subject to the Single Borrowers Limit, the maximum amount which
any borrower may borrow. DOSRI may borrow from banks on the condition For banks to open branches and ATMs, it must first obtain a permit from the
that it is approved by the BOD in a meeting of the BOD with quorum, without MB.
counting the officer involved in the quorum and approval votes, unless the loan
is part of a package, e.g. fringe benefits. Banks should have employees on permanent basis.

What is the amount of the SBL: 20% of net worth of the bank but may be Q: How many directors may a bank have?
increased by 10% of its net worth provided that the additional liabilities of any A: 5-15, odd or even, no law obliges the BOD number to be odd. If
borrower are adequately secured by trust receipts, shipping documents, consolidated, it may have a maximum of 21.
warehouse receipts or other similar documents transferring or securing title
covering readily marketable, non-perishable goods which must be fully covered There must be two independent directors who are neither officers nor
by insurance. employees of the bank.

Do the SBL and DOSRI include legitimate interests only? No, it includes Directors and officers not just anybody may be a director or officer. There is
illegitimate interests. the fit and proper rule.

What is the remedy for SBL: Syndicated Loans where loans from several Fit and proper rule Monetary Board came out with qualifications.
banks are obtained. Must be a college grad.

If secured by real property: Loans may be secured by Real Property; however, Quorum in meetings GBA allows meeting via tele- or video-conferencing
according to Section 37, the maximum amount that may be lent is 75% of the
appraised value of the land. If it has improvements, the value lent is not to Bank should not acquire treasury shares of its own
exceed 60% of the appraised value of improvements. Improvements must be Treasury Shares shares already issued by a corporation but which
insured. shares a corporation reacquires in its own name.

Subscribed and Issued Shares no difference between them in terms of rights

REGULATION OF BANKS If a bank acquires treasury shares, they should be gotten rid of in 6 months.

Under the law, only corporations under supervision of the Monetary Board may Under the General Banking Act, bank should cause to be published at least
use Bank or Banking in corporate name. every quarter their financial statements.

Banks are prohibited from directly engaging in the business of insurance as an Clearing House Bangko Central Lending facility for purpose of collecting
insurer BUT UB can sell insurance policies of insurance companies which it checks drawn on one bank but deposited in another.
may own.

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Ex. BPI Katipunan depositor deposited checks from other banks such as Joint Accounts: It is insured separately and independently. Before, when a
Metrobank and Allied Bank. bank is ordered closed, all deposits of a person in different accounts in
different banks will be collated. In the present law, joint accounts are insured
Clearing house is where banks swap checks they received drawn on other separately. So, it is P500k per sole account per bank, and a total of P500k for
banks. Physically there is no cash involved, but transactions recorded. all joint accounts combined per bank.

Under present rules, if within 24 hours a bank dishonors check, check should Definition: A joint account is an account in the name of 2 or more
be returned or else considered cleared. persons. It is indicated by the words and/or (survivorship account,
each can withdraw on his own) and and (all depositors required to
Bank cannot declare dividends if clearing house account are overdrawn. There sign withdrawal slip).
is only movement of cash if clearing house account is overdrawn.
Kinds of Joint Accounts:
a. & - all depositors must sign the withdrawal slip
b. &/or or survivorship accounts withdrawal may be made through
the signature of one or all
PHILIPPINE DEPOSIT
Under the law, deposits in joint account are presumed co-owned in equal parts
INSURANCE CODE unless the contrary is proved.

History Example 1:
In the 1960s to the 70s, there were so many bank closures leading to the loss
of the publics confidence. To restore faith in banking that is vital to the Sir 490k
economy, the Uniform Currency Act was repealed and the PDIC was created. Sir + Wife Joint 500k
Account
What is insured: Savings, current, time deposits (credit-debtor relationship). Sir + GF Joint 500k
The PDIC insures only deposits in savings, current or time accounts, not any Account
other investments even if made with or through a bank. It excludes money Amount 990k
market transactions, and marginal deposits (amount required to open a L/C). Recoverable by Sir

Q: Why are money market placements not insured in PDIC? Example 2:


A: They are not deposits but investments. There is no debtor-creditor Sir 490k
relationship. Sir + Wife Joint 500k
Account
Money Market Placements transactions through bank but bank is Sir + GF1 Joint 500k
not borrower. Borrowers are other corporations that need to borrow Account
for a short time. Reason for Money Market Placements is that normal
Sir + GF2 Joint 500k
loans take time. Bank is an intermediary between the borrower and Account
lender in the Money Market Placement.
Amount 990k
It is lending to another person. Advanced is that in case of bank
Recoverable by Sir
closure, you make get Promissory Note by borrower.

What is the maximum indemnity: P500k per person per bank in the
Philippines, whether in Philippine or foreign currency. If it is a foreign currency
deposit unit, indemnity amount in pesos on the day the bank is ordered closed.

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Currency has 2 qualifications:


New Central Bank Act 1.) Issued by the BSP
2.) In circulation, meaning out of the BSP vaults

Purpose of law: Because of the bankruptcy of the Central Bank, the Bangko TRIVIA
Sentral was created, having a corporate existence and is controlled by a BSP prints the notes and mints the coins. Production is local but materials are
board, the Monetary Board. imported. Notes are not paper; they are cloth. The cost of materials is very
high.
Composition of MB The currency is called Peso. Its symbol is the capital letter P. There are 2
1. BSP Governor. The BSP Governor has a term of 6 years, except other countries that use Peso; they are Argentina and Mexico. Part of Peso is
when it is to fill a vacancy for an unexpired term. He may be re- called a Centavo. The sign for a Centavo is the small letter c.
appointed once for a total term of 12 years.
2. Cabinet Member depends on the President who to send, currently it A note contains 2 sets of serial numbers; they are located at the upper left and
is DTI Secretary lower right. They also have 2 signatures on them, one belongs to the
3. 5 Fulltime members from the private sector so that the BSP will not Philippine President, and the other belongs to the BSP Governor.
become a dumping ground of political lame ducks. Private sector
representatives need not necessarily be from privately owned private The life of a note is estimated to be 5 years, but in Metro Manila, it is merely 1
corporations. They may come from GOCCs such as the DBP, SSS, year. If the estimated life is over, it is withdrawn and demonetized, i.e. it loses
GSIS but the appointment is staggered for a 6-year term. They may the character of money.
be re-appointed once for a total term of 12 years.
Q: May a damaged note be replaced or accepted for deposit?
Prohibition to Join Private Banks - Within the period of 2 years from A: Yes, it may, but it must fulfill the following requirements:
separation from the Monetary Board, neither the governor nor the full time 1. If damaged, there must be at least 3/5 of the note present.
directors may serve in any capacity in corporations under the supervision of 2. It must have at least one set of complete serial numbers
the Monetary Board (banks, quasi-banks and investment houses), except if he 3. It must have at least one signature present
would be representing the interest of the Philippine Government. 4. There must be no intentional defacement (Its a crime). BSP issued a
circular for banks not to accept for deposit or replacement notes
Business: The Monetary Board is obliged to meet every other week because showing intentional defacement.
it has to closely monitor the prices and take action. In every meeting, there
should be a quorum of at least 4. To pass a resolution, at least 4 members Coins have a much longer existence. Damaged coins may also be replaced if
should concur. If the Governor cannot attend, he should send a Deputy there is no sign of filing, clipping or perforation; the reason for this is that the
Governor. If the Secretary cant attend, he should send an Undersecretary. metal content would be diminished. Ideally, the amount stated is the total cost
of making coins; however, Philippine coins are worth more than their stated
Functions of the BSP value.
1.) Supervision of the banking system
2.) Manages currency and money supply In case of possession of damages coins, the possessor is presumed to have
3.) Gold purchasing caused the damage.

Q; What is MONEY? The year in front of the coin is the year it was minted.
A: Any medium of exchange, anything could be money
Q: What is LEGAL TENDER?
Money vs. Currency A: Legal tender is currency in such quantity prescribed by law to be accepted
Currency is defined by law as notes and coins issued by the BSP and are in in payment of obligations.
circulation.

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All Philippine notes are legal tender for all obligations. However, coins are
legal tender only up to a certain amount.

A Monetary Board Circular changed the amount of what may be legal tender
for coins. All centavo coins are legal tender up to P100 while all one peso
coins are legal tender up to P1000. Contrast this with the law that states that
for coins worth 10 centavos or less, they are legal tender only up to P20, while
coins worth 25 centavos and up are legal tender only up to P50.

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LETTER OF CREDIT Q: Why is there a need to specificy the beneficiary? Why not just bearer or
order?
A: Because of obligations to each other.
Governing law: Code of Commerce, which deals with merchants.
Kinds:
Definition: L/C 1.) Domestic all parties in the same country; good for 6 months
- It is a letter addressed by a merchant to another merchant to enable the 2.) Foreign different countries; good for 12 months
person names in the letter to attend to a commercial transaction.
- A form of bank facility or accommodation to enable persons to have a
commercial transaction where the buyer is assured of the delivery of the goods Who issues L/Cs: Commercial banks as a general rule are allowed to issue
he is buying and the seller is assured of payment. letters of credit, but Monetary Board may allow other banks to issue Letters of
Credit.
What is a COMMERCIAL TRANSACTION
It is buy and sell. How do L/Cs work
1. Buyer and seller are insecure
Who is a MERCHANT 2. Buyer goes to the full service branch of a bank to open a L/C in favor
He is a person, natural or juridical, of the seller
having the capacity to engage in commerce and regularly engages in it 3. Bank requires a marginal deposit, the amount required by banks of
Regularly engages means habitual, not necessarily a big volume of the purpose of opening L/C
transaction 4. Bank remits the amount to the seller only after the seller presents
proof of delivery
If a natural person:
1.) At least 18 years of age Example
2.) With the capacity to enter into contracts of sale BPI QC requests BPI Cebu to open a L/C in favor of a seller in Cebu.
BPI Cebu communicates to the Cebuano seller to ship the goods and upon
If a juridical person partnerships and stock corporations proof of such delivery, BPI Cebu will pay him. Shipper thus ships the goods
1.) Organized according to law and the shipping company issues a bill of lading. If the goods are delivered to
2.) SEC Certificate of Registration (corporations) the common carrier and it issues a B/L, it is considered as delivery to the
buyer.
Persons Involved BPI Cebu gets the B/L from the seller, pays the seller, forwards the B/L to BPI
1. The sender or maker, who is a merchant Manila.
2. The addressee who is also a merchant, and Buyer pays BPI Manila, claims the B/L, and receives the goods under the B/L
3. The beneficiary or person name in the letter who may or may not be a from the carrier.
merchant.
What is the benefit of L/Cs to banks
Requirements for a Letter of Credit Service fees and interest on advance.
1.) The person to whom credit is extended is stated. It must not be a Example: Purchase price is P200k. The marginal deposit required is
bearer instrument. P120k, from which the bank advances P80k to the seller. Interest on
2.) The amount or maximum amount of credit to be extended to that the P80k advanced by the bank is payable by the buyer to the bank.
person shall be stated. It must not be an open L/C. Addressee must
not have the discretion as to how much is to be given under the L/C. What is a Letter of Credit Trust Receipt Line
A trust receipt is a receipt with undertakings. In lieu of a 100% marginal
If the requirements are not met, it is called a Letter of Recommendation. A deposit, the buyer has the option to execute a Trust Receipt in addition to the
letter of credit cannot be in negotiable form. marginal deposit. Under the Trust Receipt, the bank releases the B/L to

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enable the buyer to acquire the goods which he would sell and either (a) use
the proceeds thereof in paying the bank within a stipulated period, and/or (b) Consequences of the Entrustees Failure:
return the goods unsold. - Before, there are two views
1. Violation of a TR is a criminal act under Art. 315 of the RPC.
What are TRUST RECEIPTS 2. Violation of a TR only leads to civil liability.
- A trust receipt is a receipt with undertakings. - NOW, the TR Law explicitly provides for criminal liability and requires the
- In a trust receipt transaction, the entruster, who has security interests over entrustee to insure the goods against all risks.
the goods, entrusts those goods to the entrustee so that the entrustee may sell
those goods and remit the proceeds of the sale within the stipulated period. If When a document has the same stipulations as a promissory note along with
the amount owing to the entruster has not been met within the period, the undertakings present in a trust receipt, then it is still considered a trust receipt.
entrustee is to return the goods not sold.
- Trust receipts are issued to guarantee debts due to failure to pay the amount In banks, the transaction is often called an L/C-T/R line because of the
bank advanced in the Letter of Credit. interrelation of the 2 transactions.

Undertakings of the Entrustee CREDIT INSTALLMENT SALES


1. To sell the goods and from the proceeds of the sale, remit the amount - It is the use of TR but is not a trust receipt by provision of law because the
owing to the entruster within the period stipulated. The proceeds buyer did not intend to sell the goods sold but to use it.
mentioned include the profits as long as there is still an amount owing
to the entrustee.
2. If the amount owed cannot be remitted, to return the goods within the
period.

Parties to a T/R
- Entrustee
- Entruster, who has security interests over the goods, e.g. holder of a B/L
which is a document of title
SC: In a TR, the entruster is the theoretical owner of the goods as he
advanced the full payment of the goods.

Note: Trust receipts may be between individuals

Effect of Returning Goods to Entruster


- The entrustee has the option of returning all of the goods to the entruster if
the due date is near and he has not sold the goods to avoid a prosecution for
estafa. In this event, the bank would be the one to sell the goods and deduct
the proceeds from the debt of the entrustee.
- Returning the goods does not extinguish the obligation to pay the amount
advanced by the bank.

Why is there a need for the Trust Receipts Law:


The bankruptcy of bank became rampant from their failure to collect from
borrowing importers who did not remit any amount to the banks after they have
claimed the goods. The P.D. regulating trust receipts was made to protect the
banking system. The PD requires the entrustee to insure the goods against all
risks.

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Exception to the exception: Eordinary Diligence if the shipper asks for delivery
COMMON CARRIERS back to himself.

Q: Is the common carrier an insurer of the goods?


Definition: A common carrier is a person natural or juridical who is regularly A: No, the common carrier is not an insurer against all risks related to
engaged in the transportation of goods, passengers or both, offering its
transportation.
services to the public for a fee.
When may the CC avoid liability for loss or damage to goods:
Elements
1.) When the proximate and only cause is a storm, earthquake, lightning,
1.) Transporting goods, passengers or both.
or other natural calamity.
2.) Offering service to the public
2.) When the proximate and only cause is an act of a public enemy in
3.) For a fee
times of war, whether civil or international.
3.) When the proximate and only cause is the character of goods or a
The common carrier is at liberty to transport what they want.
defect in the container or packaging.
4.) When the proximate and only cause is the act or omission of the
Q: What is the public?
shipper himself.
A: It is not necessarily the general public; it may merely be a narrow segment
5.) When the proximate and only cause is the order of a competent
of the public, e.g. school bus operator is a common carrier; pipeline is also
public authority.
considered a common carrier, transporting fuel, and its clients are Shell and
Caltex.
REQD: There must be no unnecessary delay in the prosecution of the
voyage. The carrier should not have committed an improper deviation.
Q: Do you need a motor vehicle?
The diligence required is still extraordinary diligence (BUT, according to
A: No.
NCC 1739, it is only Due Diligence).
Importance of Classification: The diligence required of a common carrier is
Q: If not one of these five occurred, might the carrier excuse itself from
extraordinary diligence.
liability?
A: Yes it may, but it is the obligation of the Common Carrier to prove that
CARRIAGE OF GOODS
under the circumstances, it exercised extraordinary diligence. The burden of
proof is on the common carrier.
When to exercise ED:
General Rule: Extraordinary diligence is to be exercised when Q: If one of these five occurred, is there a chance to recover from the common
the goods are unconditionally placed at the disposal of the common carrier,
carrier?
until the goods shall have been delivered to the consignee or A: Yes, but the burden of proof is on the shipper to prove that there is failure to
until consignee has been informed of arrival of the goods and given a
exercise the required standard of care, still extraordinary diligence.
reasonable opportunity to claim the goods.
Q: May a common carrier and shipper validly stipulate on a standard of care
Reasonable opportunity is dependent upon the circumstances.
less than extraordinary?
A: Yes, but it must conform to the following requirements:
Exception: When the shipper exercises the right of stoppage in transitu.
1.) Must be in writing and signed by both parties
Q: In case of stoppage in transit, what is the relationship of the common carrier
2.) It must be supported by consideration other than to transport (ex.
to the shipper?
Discount)
A: The common carrier is merely a bailee, where the diligence required is only
3.) The stipulated standard of care must not be less than that of a good
that of a good father of a family.
father of a family.
4.) If there are other stipulations, they must be fair and reasonable.

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There are 2 prestations in a bilateral contract to transport. With respect to the


carrier its prestation is the promise of the shipper to pay the fare. With respect
CARRIAGE OF GOODS BY SEA ACT
of the shipper, it is the promise of the carrier to transport the goods.
Background
Standards of Care:
The COGSA is a law of American origin; it was made part of our laws during
1.) Utmost diligence of a very cautious person (transportation of person)
the American occupation.
2.) Extraordinary diligence (transportation of goods)
3.) Good father of a family.
In case of conflict between the Code of Commerce and the COGSA, the
Note: There is no name for the standard of care in between former prevails due to specific provision in the COGSA.
extraordinary diligence and that of a good father of family.
Scope of COGSA
It covers the shipment of goods by sea coming from another country into the
The shipper also has the obligation to minimize damage to itself.
Philippines. The shipment of goods must be covered by a B/L.
CARRIAGE OF PASSENGERS It is not applicable to:
1.) Inter-island or coast-wise shipping
Q: When should diligence start? 2.) Shipment of livestock
A: When the carrier agrees to take in the person as a passenger. 3.) Those not covered by BL
4.) Before, COGSA does not apply also to shipment of goods on deck.
Q: May the passenger and the carrier stipulate a lower standard of care? But NOW, there is no more transportation on deck because goods are
A: No transported only via containers.


Q: Is a common carrier insurer against all risks? Salient Features
A: No, it is not, BUT in case of mechanical defects or when a common carrier Time of filing claims:
violates a traffic rule, the common carrier is always liable. o Apparent Loss or Damage: File it right away, immediately
with the carrier
Employees Negligence: The common carrier shall be liable for acts o Not Apparent: 3 days from delivery
or omission of its employees although said employees may have
acted without or in excess of their authority Note: Under general law (Civil Code and Code of Commerce), the
claim must be filed right away if the damage is apparent; if it is not
Strangers Negligence: For acts or omissions of other passengers or apparent, it must be filed within 24h from delivery (Code of
third persons, if the common carrier could have prevent death or Commerce).


injury by merely exercising the diligence of a good father of a family
and it failed to do so, the carrier is liable. Actions of the Carrier on the Claim
o Settle it right away
Q: When may a common carrier be liable for moral damages? o Not to act on it
A: In the following instances: o Reject the claim.
1.) Death of passengers in favor of the heirs
2.) When passenger suffers physical injuries What is the remedy of the consignee in case of rejection: If the claim
3.) When the common carrier acts in bad faith is denied, the claim should be filed in court within 1 year from the
delivery of the goods by the common carrier to the arrastre operator.
A common carrier is liable for moral damages against a waitlisted passenger This is because the transfer of the goods from the carrier to the
whose number is called, given a boarding pass, allowed to proceed to the pre- arrastre is documented in a tally sheet after an ocular inspection by
departure area but not allowed to board. the arrastre operator. When the arrastre receives the goods, it

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inspects the goods and lists the defects in the tally sheet. If there are A: Within one year from the last day when the carrier had the last chance to
defects found, they are formalized in the Bad Order Form. deliver the goods to the arrastre operator, e.g. before the ship sails to another
port.
Q: Is the filing of a claim with the common carrier a condition precedent to
recover from the carrier by complaint in court? Q: If the prescriptive period is about to expire, can the consignee extend it by
A: Under COGSA, no, it is not required. But under the Code of Commerce, it sending a Demand Letter to the carrier?
is a condition precedent and thus constitutes the cause of action. A: No.

Q: When goods are insured and turned over to the arrestre operator and loss ADMIRALTY
or damage is determined, where and when should the claim by the insurer be
filed? Qualifications to be a Vessel: Not every watercraft is a vessel; it has to have
A: Claim of the consignee must be filed with the insurer also within one year the following qualifications:
from delivery to the arrestre operator. The insurer merely subrogates and 1.) It must not be a mere accessory to another watercraft (ex. Lifeboats)
steps into the rights of the insured. 2.) It must be registered with the MARINA
3.) It must be used to transport goods, passengers or both
Q: If the insurer did not act on the claim of the insured until after 1y, can it 4.) It is seagoing
involve prescription?
A: No. Prescription between the insurer and the insured is as stated in the Q: Who may own a vessel?
insurance policy or Insurance Code. A: Anybody. If a vessel is owned by more than one person, there is a
disputable presumption that a partnership exists.
Q: What if the goods are not annotated as damaged in the tally sheet or bad
order form upon turnover to the arratre, but the goods are damaged upon Hypothecary Rule
turnover by the arrastre to the consignee? The limited liability of a shipowner.
A: The suit should be against the arrastre on the basis of quasi-delict since It is the value of the vessel, plus
there is no pre-existing contractual relation between the arrastre and the earned freightage plus
consignee. insurance, if any.
Q: If the goods are insured but no claim is made by the insured against the Q: Who participates in admiralty?
insurer within 1 year from delivery of goods, is the claim against the insurer A: Those involved in navigation (crew) and housekeeping (compliment)
barred after one year?
A: No. Crew of a Vessel:
1.) Captain
Q: What if there is no damage annotation on the tally sheet, and the customs The title captain is used to refer to the commanding officer of a ship
broker received the goods from the arrastre, but upon delivery by the customs that goes abroad.
broker to the consigee, there is damage which is not annotated on the delivery The title master is used to refer to the commanding officer of a ship
receipt? that is engaged in local/inter-island travel.
A: Sue the broker on the basis of breach of contract of carriage, because the
customs broker is a common carrier. The ruling is that a customs broker who A ship captain has three roles:
offers to transport goods to client as part of services qualifies as a common a. Represent the owner of the vessel
carrier. b. Be the technical director of the vessel
c. Represent the country where the vessel is registered.
Q: In case of missing goods, or, if the vessel arrives but the goods are not off-
loaded, when should the claim be filed? 2.) Mates (1st, 2nd, 3rd etc.)
3.) Engineers.

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Contracts in Admiralty: Procedure for General Average:


1.) Charter party 1.) Captain calls a meeting with the representatives of the owners of
2.) Bottomry cargo.
3.) Respondentia 2.) They make a decision to throw away certain cargo.
4.) Marine Insurance 3.) If the decision is urgent, the captain may choose from the largest and
of least value proceeding to the smallest of the most value.

Charter Party Supercargoes: representatives of owners of cargoes. They sell cargo for the
Definition: A contract of lease over a vessel owner. Generally, they are only able to use profits to buy goods. If they have
a special power of attorney, they may use capital to buy goods.
Kinds:
1.) Bareboat/demise, where the lessor provides only the vessel, without Bottomry: Loan taken by the ship-owner secured by the vessel. If the vessel
crew, stores (things you eat), provisions (water and fuel). sinks, the creditor loses the right to collect and the obligation to pay is
2.) Affreightment extinguished. If loan exceeds the value of the vessel, the excess is an
3.) Time-charter, or a lease for a specific term of the vessel, with stores ordinary loan.
and provisions
4.) Voyage-charter, or a lease of a vessel for a voyage or series of Respondentia: Loan taken by the cargo owner and secured by the cargo. If
voyages, with stores and provisions. loan exceeds the value of the cargo, the excess is an ordinary loan.

According to the Supreme Court, the true charter is the bareboat charter. Marine Insurance: Insurance over the vessel or freightage, cargoes or profits
The time and voyage charter are merely subtypes of affreightment, which is a expected from cargo.
contract of carriage.
Accidents in Admiralty:
Ship Agent: Corporation representing the owner in every port where the 1.) Collision, or the impact of two or more moving vessels
vessel may make a call or stop. The ship agent is in charge of provisioning the As opposed to Allision,
vessel. the impact of one stationary and one moving vessel

Q: What will be the liability of a ship agent for procurement of provisions? 2.) Arrival under stress, or when a vessel is forced to sail to the nearest
A: A ship agent is solidarily liable with the ship owner for contracts entered into port.
for provisions of the vessel. This liability is different from that of a mere agent, Q: What is the obligation of a ship captain in arrival under
who is not liable if he discloses his principal and acts within the authority given stress?
him. A: The captain must execute a MARITIME PROTEST, a
sworn statement where the captain relates what transpired.
Husbanding Agent: Agent in charge of freightage and settlement of averages
Examples:
Q: What are AVERAGES? a. Natural calamity along route.
A: In admiralty, they refer to damages b. Avoidance of pirates
c. Loss of provisions
Types of Averages: d. Accident that renders the vessel incapable of
1.) Gross/General Average, or damages suffered by the vessel or prosecuting the voyage
owners of cargo that shall benefit not only the ship-owner but also the
owners of the other cargo. 3.) Shipwreck
2.) Specific/Particular Average or those that do not benefit anyone.
Q: Is the owner of a barge a party to a contract of carriage?

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A: No, he is not a party, unless the barge is self-propelled. The contracting Currency of Indemnity: Before, original indemnity used to be fixed in Swiss
party is the owner of the towing vessel. Francs; now, this was changed to US Dollars.

Three zones of time in Collision: What are the fixed liabilities of the carrier
1.) First time anytime the danger of collision appears. 1.) Death of a passenger: $100k, no question asked.
2.) Second time from the time the danger appears until it becomes a 2.) Physical injuries: $100k maximum, depending on the severity of the
practical certainty injury.
3.) Third time from the time it becomes a practical certainty to impact. 3.) Checked-in articles: $1k per kilo UNLESS a greater value is declared
and the fare corresponding to the bigger value is paid
The value must be proven to be at least $1/kilogram;
DOCTRINE OF INSCRUTABLE FAULT: otherwise it is only value you can prove.
If there is a collision of two vessels and it cannot be determined who is at fault, 4.) Hand-carried articles: $1k maximum regardless of weight and actual
each bears his own loss. However, both ship-owners are solidarily liable for value
the damage to all cargoes.
Why are liabilities fixed: Because of the different ways to assess damages
for injuries or loss of goods
WARSAW CONVENTION What to do to claim the full amount:
1.) Declare the value
What: It is an agreement among sovereign nations for:
2.) Pay fare according to the value
1.) Having uniform documents in international air transportation,
2.) Fixing the liabilities for international air carriers.

Who are the parties:


The signatories are referred to as HIGH CONTRACTING PARTIES.
The Philippines was not an original party because at the time, it was not yet a
state and it had no aircraft. Ph was a party by accession to the US.

What is an INTERNATIONAL AIR TRANSPORTATION:


- One where the port of origin is in one country and the port of destination is in
another

- One where the port of origin is in one country and the port of destination is in
the same country but the agreed stopping place is in another country. This
often occurred when there were multiple colonies, e.g. LA (US) Tokyo
(Japan) Guam (US).

- Movement of goods by land or water to the aircraft

What documents must be uniform:


1.) Passenger Ticket, issued by the carrier
2.) Baggage Check, the white strip of long sticker with a bar code
3.) Airwaybill, it is a B/L

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According to the SC, there is an employer-employee relationship


PUBLIC SERVICE between the driver and the operator by reason of the control test.

Who may render public service OLD OPERATOR RULE: If someone is already rendering the service, it must
Only - Ph citizens or first be allowed to offer to add the same service
- Corporations with 60% ownership by Ph citizens

Grandfather Rule: Control test where the citizenship of the


corporation owning another is taken into consideration in determining
the 60% Filipino ownership

Who regulates public service


Under the 1935 Constitution, it was the Public Service Commission.
Now, it is regulated by different government agencies: DOTC, LTFRB, CAB,
MARINA, LGUs (lakes, rivers)

How to engage in public service


1. Application by petition
2. Hearing
3. Issuance of a CERTIFICATE OF PUBLIC CONVENIENCE, a written
authority issued by the government regulator to enable persons to
engage in public service

DIFF WITH CERTIFICATE OF PUBLIC CONVENIENCE AND


NECESSITY: Latter authorizes public service for which service, a
legislative franchise is required. This is because franchises are no
longer exclusively legislative.

Requirements or Qualifications to engage in PS


1. Ph citizenship
2. Willingness to engage in PS
3. Financial capacity why:
a. Acquiring equipment to engage in PS
b. Settling damage claims

KABIT SYSTEM it is an illegal manner of engaging PS by doing it


through others where it does not itself possess of the qualifications

PRIOR APPLICANT RULE: If two or more persons apply to render the same
public service, the one who first filed the application should be granted the
authority.

Example: Boundary System where the driver pays an amount to the


operator of a jeep for use of the motor vehicle for an agreed period.

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FOREIGN INVESTMENTS ACT


Purpose of law: to encourage and entice foreign investments to bring in more
foreign currency. It was formerly illegal for transactions to be paid in foreign
currency or in relation to foreign currency.


Salient Features
Foreigners can own 100% of any enterprise related to exports so long


as it is not covered by Negative List A & B
Negative List A, activities reserved by the Constitution or other
special laws to Filipinos


e.g. advertising, public service
Negative List B, activities that are exclusively for Filipinos
e.g. those relating to ammunition and firearms (unless the Secretary
of National Defense consents), pyrotechnics, nightclubs, beerhouses,
steambaths, and massage parlours.

Inward Remittance: A foreigner may also own 100% of a domestic


market enterprise if the foreigner remits and makes an investment
worth $200k or equivalent but not in areas where there are health
related risks ex. Bars, beer houses, massage parlors, sauna baths,
dancing halls.


EXCEPTION TO $200k REMITTANCE:
If the enterprise advances technology, as determined by the
DOST and hires more than 50 Filipino employees; the investment


must also be no less than $100k; or
If the alien is a former natural-born Filipino, then he is allowed to
own urban properties with an area of 5000sqm. or rural
properties up to 3 hectares. If both spouses are formerly natural
born Filipinos, their total lands must not exceed the above-stated
land areas, and the land acquired must be in different locations.

Filipino Corporations:
a. Domestic corporations must be at least 60% owned by
Filipinos.
b. Foreign corporations must be 100% Filipino owned.

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paste to cure pimples, then such involved an inventive step and is thus
INTELLECTUAL PROPERTY CODE patentable.

Governing Law: Intellectual Property Code. It is a compilation of old laws on E: Microorganisms


patent, copyright, trade marks, trade names, service names, service marks. eg Those which improve the digestive process or eat garbage.
The Code is administered by the Intellectual Property Office. The head is the
Director-General who must be at least 40 years of age and a lawyer. The term What is INDUSTRIAL APPLICATION:
of the Director-General is 5 years, eligible for a single re-appointment. The invention develops a new industry or an existing one for mass
However, the first Director-General appointed has a term of 7 years without re- production of the invention. It could lead to development of new or
appointment. existing industry.

Kinds of Intellectual Properties:


1.) Patents What are not patentable inventions?
2.) Copyrights 1. Those contrary to law, eg substitutes for shabu or prohibited
3.) Industrial Designs ingredients
4.) Layout or Topography of Integrated Circuits 2. Those contrary to morals or public order, eg vibrator which moves
5.) Trademarks and Tradenames back and forth at different speeds. HOWEVER, though these may
6.) Geographic indication not be patentable, they may be mass produced because their mass
7.) Trade-Related Aspects of Intellectual Property Rights production is not prohibited by law.
3. Mere concepts or ideas, eg sound makes people move
4. Mathematical solutions
5. Surgical procedures, eg horizontal cut for caesarian birth.
PATENTS HOWEVER, the gadgets used are patentable.
What is a patent: It is issued upon an invention, granting the exclusive right to
mass produce or license the mass production of the invention. To whom are patents issued?
1. Inventor
What are patentable inventions?
2. Co-owners IF two or more invented it UNLESS there is an agreement
1. New
to the contrary
2. Involves an inventive step
3. One who first files an application IF the invention was arrived at by
3. Capable of industrial application
two or more persons individually and independently
4. Employer IF the employee-inventor was hired to work on the
What is NEW:
invention, UNLESS there is agreement to the contrary
It is new if it is not part of prior art and if it is a different technology.
eg. Chemist is hired by AVON to work on makeup products
eg. Heat-operated microphone
5. Employee-Inventor IF he was hired to do something else, though he
made the invention during his working hours
What is an INVENTIVE STEP:
eg Security guard invented something while on duty
GR: It involves an inventive step if it is not just newly discovered but
involved a process of trying this and that until one finds what works. What is the advantage in patenting ones invention: It is only the
patent holder who gets the exclusive right to mass produce the
eg. X tripped and fell on carabao grass, face first and discovered its
invention or to license the same.
magical effect on pimples. This cannot be patented because it is merely
discovered without any inventive step. BUT IF X first tried guava leaves, How do you know if an invention is already patented?
then malunggay leaves, then garlic, then chili, and then flour to make a
The patent symbol P and number are already in the invention itself.

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How long is the duration of a patent: 20y from the filing of the application
How soon does the applicant get the patent: Only god knows What are the remedies of a patent holder against infringement?
1. Civil: Injunction and Actual Damages (Royalties)
What are the KINDS OF LICENSING a. Prove actual damages. This is not easy, so just ask for
1. VOLUNTARY, or by agreement between the patent holder and the royalties.
licensee b. Ask for royalties
Can the holder just impose anything? No, there are prohibited 2. Criminal: ONLY IF the infringement is repeated
stipulations and the list is not exclusive. The list includes the number
of products produced; prohibition on export; limit on the price of sale;
source of raw materials, which must be a person nominated by the
holder; hiring of employees which must be recommended by the
holder; any other. These are prohibited because of the great moral
INDUSTRIAL DESIGN
ascendancy of the holder over the applicant
What are INDUSTRIAL DESIGNS:
What is the right of a patent holder in the license: It is a combination of lines, or of colors, or of lines and colors. Lines need not
ROYALTIES. These are not in any amount because the IPO be straight.
eg Shirts with stripes; floral designs; Burberry and Luis Vuitton
prescribes the amount and computation

NOTE: Patent and the patented article are two different properties
that must be dealt with separately.
LAYOUT OR TOPOGRAPHY
2. COMPULSORY
How: A person applies with the IPO for a license to mass produce a OF INTEGRATED CIRCUITS
patented article. Proceedings are then held before the
IPO. The licensee would still be liable for royalties What: The pattern of a mother board is intellectual property.

When:
When the patented article is food or medicine
And it is not being mass produced despite demand for it TRADE NAMES
Or its current mass production cannot meet the demand for
the product What is a TRADE NAME:
The name that a person gives to his products to identify them and to
distinguish them from the products of others.
Is any unauthorized copying of a patented article an infringement?
NO. The following do not constitute infringement:
personal and exclusive use
How is it different from a BUSINESS NAME: A business name is

use by the government, BUT it must pay royalties


the name that a person uses to identify his place of business.

research and development It is governed by the Business Names Law. If using a business name
different from true name, you register with the DTI, Bureau of
INFRINGEMENT UNFAIR COMPETITION Domestic Trade. There is a need for a public record of who owns
Unauthorized copying Copying a product of another and passing businesses in order to know who to sue. This is needed for signs or
them off as ones own. This is a felony.
printed documents.
Patent must be registered Product may not be patented

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What is a TRADEMARK
It is a sign, emblem, or mark that a person uses to identify and distinguish his Examples:
products from that of others. 1. Bottles of Del Monte are patented. One case involved the Sunshine
brand of ketchup that used the bottles of Del Monte because the
What is a SERVICE NAME owner of Sunshine could not afford to make his own bottles. The
It is the name, sign, emblem, or mark that is used to identify service (eg. Good manufacturer replaced the labels of the bottles but the labels had the
Year Servitek, Rapide). It covers both things and services. same color combination. Add to this the fact that the bottles had
markings that they were products of Del Monte. It was not ordinary
What is the DURATION OF PROTECTION: 10y, with limitless renewals. But buyers that were misled but also those that read the labels.
after five years, the owner must file an affidavit of use (Declaration of Actual
Use) of the Trademark or Trade name with the IPO over the past period. 2. Beer na Beer Case. In the 70s, Asia Brewery created Beer na Beer
Mj: Under the IPC, the Declaration must be filed 3y from filing and 1y (Beer housen) that had the same taste as San Miguel (pale pilsen),
from the fifth anniversary (124.2, 145). but Asia Brewery also used the same shape of bottles. The Supreme
Court held that there was no unfair competition, applying the holistic
Why do you need to register Trademarks or Trade names test. The beer of AB could not be mistaken for San Miguel because
To enjoin the use by others or to file a suit for infringement the prices of the former are cheaper.

Certain Rules TWO TESTS TO DETERMINE INFRINGEMENT:


Exclusivity: Once a TM or TN is registered in the name of a person, 1.) DOMINANCY TEST when the prevalent features are likely
no other person may use a similar or confusingly similar name or to confuse one product with another. To determine whether
mark in connection with a similar or closely-related product. there is possible confusion between products, look into the
eg. You cant use Del Monte in connection with foodstuff but dominant features.
you can use it for underwear. 2.) HOLISTIC TEST consider not just the prevalent features
Trade names may be trade marks at the same time, but both must be but also other factors. Even if there is similarity, there is
registered to be protected. eg Selecta is a trade name and how it is likelihood that they will not be confused with each other.
packaged is a trade mark
Trade names and Marks include service name and mark Example of Dominancy Test
Taste is not protected. 1.) Converse vs Custombuilt both shoes use the same star
First to File System; prior use is not required logo
2.) Alaska All Purpose Milk vs Alacta Infant Preparation not
likely to be confused with each other because each is used
What is the DOCTRINE OF COLORABLE IMITATION for different purposes. One if infant formula, the other is
Under this doctrine, there is colorable imitation when a person gives his cows milk.
product an appearance that is similar or confusingly similar in appearance
to the product of another calculated to make the ordinary buyer believe that Examples of NOT CLOSELY-RELATED PRODUCTS
his product is the same as the product of another. Del Monte in shoes.
Mj: Under jurisprudence, it is such a close or ingenious imitation as to Esso in cigarettes.
be calculated to deceive ordinary persons or such a resemblance to
the original as to deceive an ordinary purchaser giving such attention What is the DOCTRINE OF SECONDARY MEANING
as a purchaser usually gives, as to cause him to purchase the one When a name is used so long and so exclusively to identify a product, that
supposing it to be the other. whenever the name is mentioned, reference is readily made to said product,
although the name is not registered because it is not registrable, no other
Q: Who is an ordinary buyer? person may use that name in connection with a similar or closely related
A: Buyer relying on the general appearance, images, and color product.
combinations of products.

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Why do we have this doctrine: Because not all names are registrable. What is the DURATION OF COPYRIGHT: Copyright is protected from
Geographic words or names creation and lasts until the lifetime of the copyright holder and 5y from his
Generic death (which is counted from the first day of the year following his death).
Descriptive If a person wants copyright protected, within 30d of becoming public, register
Names, sign, or portrait of Past Presidents, UNLESS the widow the work.
consents Mj: BUT under the IPC, Registration is purely for recording the date of
Flags and simulations registration and deposit of the work and shall not be conclusive as to
Coat of arms and simulations copyright ownership or the term of copyrights or the rights of the
copyright owner, including neighboring rights.

Advantage of Copyright: Copyright cannot be attached while it belongs to the


intellectual creator. However, when transferred to another, it may be levied.
COPYRIGHT This is different from patent which can be attached even if owned by the
intellectual creator.
Scope of Copyright
Other intellectual creations, such as books, musical compositions, adaptations,
song lyrics, melodies, photos, computer programs, and slogans. What are RIGHTS OF A COPYRIGHT HOLDER
NOTE!
Copyright is one property and the copyrighted work is another
1. A copyright is an economic right. Economic rights include:
a. the right to mass produce the work or to license it;
property.
There is copyright for the lyrics and another for the melody in
b. the right to make other versions of the work
2. A copyright includes moral rights, or the right of the owner to demand
songs.
Adaptation of musical compositions are works patterned after the
that his authorship be acknowledged and in a certain manner of
presentation. If there are errors, he can demand rectification of the
works of others
Patterns of TV and radio programs are not copyrightable
errors.

Who owns copyright



What are the REMEDIES AGAINST INFRINGEMENT
1. Intellectual creator

Civil action for injunction and damages
2. Co-creators IF 2 or more persons created the same, UNLESS there is
Criminal prosecution. Repetition of infringement is not required! The
an agreement to the contrary. There is no first to file doctrine due to
very first act of infringement is already criminal. But for the
impossibility of making the same intellectual creation.
prosecution of piracy, the original is required. The law provides for
3. Employer IF the person is hired to do intellectual creation, UNLESS
there is an agreement to the contrary. the destruction of printed materials, plates and stencils.
4. Employee IF he is hired to do another thing, even though done during
Are there acts of copying that are not infringing? YES
work hours.
1. Personal use, one copy only
5. Commissioned person: If a person is commissioned to create
intellectual property, the work belongs to the commissioner while the 2. Quotations of portions from books, with acknowledgement
3. Fair use of legitimate computer programs, eg one computer, one
person commissioned owns the copyright, UNLESS there is an
program
agreement to the contrary
4. Libraries with old books may reproduce these books so long as they
Is registration required for protection? NO. It follows the first-to-use are no longer being published. However, this is only for library use
and not for resale.
system, NOT the first-to-file.
5. Rebroadcasting, which is only a simultaneous broadcasting.

Q: Whom do our intellectual property laws protect?


A: The following:

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1. Citizens, nationals
2. Residents with an effective establishment
3. Residents of a country that participated in an international convention
where the Philippines also participated.
4. Citizens of countries that offer reciprocal rights to Filipinos.

Q: May foreign corporation, not registered with the SEC as a foreign


corporation, sue in our courts for the protection of intellectual property rights?
A: Yes, Philippines is part of Paris Convention for Protection of Intellectual
Property Rights.
Mj: As long as there is reciprocity.

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Who may be an INSURER


INSURANCE LAW 1. GR: Only CORPORATIONS may be insurers, NOT individuals or
partnerships.
What is INSURANCE E: Insular Life (previously a limited partnership but now a mutual
Insurance is a contract whereby one person, known as the insurer, agrees to benefit company)
indemnify another person, known as the insured, against loss, damage, or Why: In cases of individuals or partnerships, they may predecease
liability arising from an unknown or contingent event. the insured
What is an ASSURANCE: It is a life insurance initiated by the 2. Certificate of Authority (a yearly license) must be obtained from the
beneficiary himself. Insurance Commissioner. The insurer must first obtain a clearance
from the IC, who will issue a formal indorsement of incorporation
Who are the PARTIES TO AN INSURANCE papers to SEC. The Insurance Commission prescribes a minimum
1. Insured paid-up capital for insurers. For non-life insurance it must be P250M,
2. Insurer for life insurance it must be P500M. By 2016, the minimum paid-up
3. Assured capital required for both is P1B.

What are the CHARACTERISTICS of an Insurance Who may be INSURED


1. Aleatory contract. It involves the assumption of risks Anyone with an insurable interest.
2. Indemnity contract. It is not a wagering contract where one invests
and hopes to profit. In insurance, one invests to be restored to the What is INSURABLE INTEREST
same status prior to the risk happening. The insured does not expect A person who has such a relationship to the thing or life insured that he will
to profit. benefit from its preservation or damnified by its loss or destruction.
3. Risk-distributing. It is not a risk-shifting device as guarantees or


suretyships. Kinds of Insurance


Property or non-life, insurance over a thing
Insured does not expect to profit: Life, over a human life
ex A new car is insured against theft so that in case of loss, the insurer
gives the insured money to acquire another car. Insurable Interest in Property Insurance
In life, the money is given not to buy another person but to divert and 1. Existing right, eg mortgagee
assuage the feeling of loss 2. Expectancy founded on an existing interest, eg purchaser of crops
3. Inchoate right founded on an existing right, eg SHs of a corp.
What is REINSURANCE
The insurer insures the same risk with another. eg Your life is insured with A When must Insurable Interest exist?
for P10M. Then A finds out that you are entering politics, and thus the At the time of taking the insurance and at the time of loss, EVEN IF in the
chances of dying increased. A thus goes to B to reinsure your life for P6M. interim, it does not exist.
Thus, when you die, A pays only P4M from his own funds, while B pays for
P6M.

Insurable Interest in Life Insurance


Oneself
Q: If the insurance company is bankrupt, can the beneficiary claim

Spouse
from the reinsurer? It cannot, because there was no privity of

Descendants
contract. However, the beneficiary may still file with the bankruptcy

Another upon whom one depends for support
court because the claims against the reinsurer are part of the One who is obliged to pay him a sum of money or whose death may
receivables of the corporation. The reinsurance will be part of the bulk

delay the performance of an obligation, eg Debtors, obligors
of assets of the insurance and be distributed according to the Civil
Another upon whose life an estate depends, eg usufructuary who
Code provisions on preference of credits
sells his usufruct to another, reservista in reserva troncal

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condition. The policy was therefore rescinded and refused to be paid


When must Insurable Interest exist? because of concealment of a material fact. The SC affirmed the
At the time the insurance is taken; thereafter it need no longer exist. insurer. What is concealed or misrepresented need not be the
proximate cause of death. HOWEVER, the insurer must refund the
Q: If one is insuring a debtor, for how long is the insurance effective? premiums paid.
A: Theoretically, there is no limit. Insurance is effective even after
payment because insurable interest in life insurance should exist only Can the insurer rescind the policy at any time? NO. 2y!
when it is taken. However, in practice, it is only up to the end of the


obligation. What is the CONTESTABILITY PERIOD?
As a general rule, the insurer is entitled to rescind the policy only within
Q: What is meant by upon whose life an estate depends? two years from the last reinstatement or from issuance of the policy.
A: An example is when the assignee insures the life of an assignor. OTHERWISE, after the two-year period, the insurer can no longer contest
Another example is in case of reserve troncal, the life if the reservista is the insurability of the insured.


insured.
EXCEPT! In cases of FRAUD OF THE VICIOUS TYPE, the policy may be
contested beyond two years. eg When the applicant for life insurance
How does one get to be insured? substitutes his urine sample.
One must file an application for insurance coverage with the insurer. The
application form asks basis information and representations.
PROPERTY INSURANCE
What are REPRESENTATIONS
These are matters truthfully stated by the application in the application form, What is OVER-INSURANCE
which information may influence the insurer in acting on the application. In PROPERTY insurance, the property is insured for a value over the value of
the insurable interest. It is a void insurance as to the excess.
What are MISREPRESENTATIONS eg Property is P800 worth but is insured for P1M.
Untruthful statements on matters which may influence the insurer in acting on
the application. Why only in property insurance: Life is incapable of pecuniary
estimation. BUT IN PRACTICE, earning capacity is taken into
What is CONCEALMENT consideration in determining the policies.
It is the omission or neglect to communicate what one knows and ought to
communicate. What is the VALUE OF THE PROPERTY? Acquisition cost and
replacement costs, estimated at the value of the property at present.
What is the CONSEQUENCE OF MISREPRESENTATION
The misrepresentation of a material fact entitles the insurer to rescind the What is UNDER-INSURANCE
policy. In PROPERTY INSURANCE, a person insures his property for an amount less
Who determines materiality: It is the insurer because materiality is than the value of his insurable interest. This is valid.
determined by the influence which the misrepresentation or eg Property is worth P1M but the fire insurance taken is only for
concealment has on the insurer in assessing the risk it is to assume. P400k.
Case of Sun Life Canada: The person applied for insurance

What is the effect in case of loss:
coverage. In the application form, there was a question on whether or

In case of total loss, the insurer pays the amount insured in full.
not the applicant had any consultation or treatment with a doctor for
In case of partial loss, the insurer only pays the amount insured
the past two years. It was not answered, and the policy was issued.
in proportion to the total value of the thing insured
The insured then died from a plane crash. It was discovered by the
insurer that the insured had been previously hospitalized for a heart

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eg Property is worth P1M, and is insured for P400k. If the What are POLICIES


loss in estimated at P200k, the amount of the indemnity is A policy is the instrument embodying the insurance.
only 40% (400k / 1M) of P200k, which is P80k. It must be printed. What is not printed is the personal information


of the insured.
Policies of insurers contain almost identical provisions because
What is CO-INSURANCE drafts are pre-approved by the Insurance Commissioner to avoid
It is similar to co-ownership and exists only in practice. It can arise in two ambiguity.
situations: in double insurance and in under insurance (full and partial loss).
What are the KINDS OF POLICIES IN PROPERTY INSURANCE
DOUBLE INSURANCE: When the same thing and the same interest 1. OPEN, where parties agree on the maximum amount of insurance
are insured against the same risk with more than one insurer. There coverage and the premium is paid on such amount, BUT the value of
are thus two or more insurers who apportions the indemnity to the the thing insured is determined at the time of loss. This is availed of
extent of the amount agreed upon under the policy. It is valid as long when the prices of the object fluctuate.
as the total insurance coverage is within the insurable interest.
2. VALUED, or when the parties have already agreed on the value of
UNDER-INSURANCE: In case of partial losses. the thing insured; eg Car is valued at P1M. In case of loss, the
indemnity shall be that agreed upon.
Example 1: Property is worth P1M. It is insured with A for P500k, B
for P300k, and C for P200k. If there is a loss estimated at P400k, 3. RUNNING, which contemplates successive insurance contracts
who pays the loss? Is it A because he insured the property for where the insurance coverage over goods sold are transferred to
P500k? NO. The indemnity is shared proportionally as follows: goods which serve as replenishment. Insurance coverage on some
things, after they have been disposed of, shall also apply to the
Amount insured replacements. eg. Merchant on his inventory and structure; Grocery
x Amount of Loss
Total amount insured

THUS, the liability of


A is (500k/1M) (400k) or P200k
B is (300k/1M) (400k) or P120k
C is (200k/1M) (400k) or P80k.

Example 2: If the property worth P1M is insured only for P600k


(under-insurance), the owner becomes a self-insurer to the extent of
P400k and bears the risk of loss alone like someone who did not
insure his property. In this case, the property owner is considered as
a co-insurer.

Example 3: In case of partial loss in under-insurance where the value


of the property is P1M and the loss is P200k, the loss is apportioned
accordingly:
Insurer is (600k/1M) (200k) or P120k
Owner is (400k/1M) (200k) or P80k

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

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What are PREMIUMS


These are the amounts the insured has promised to pay the insurer to keep Note: The more premiums are paid, the higher the amounts because
the policy active. of high administrative costs.

How is it computed in Property Insurance When do you pay the premiums? Every time a premium is due in a
As a general rule, they are computed on an annual basis and fully paid in life insurance policy, there is a ONE-MONTH GRACE PERIOD. If the
advance. same is not paid, the amount is deducted from the insurance.
Why is there a grace period? Insurers do not want their
How are premiums paid: CASH ON DELIVERY (COD) of policy. In the policies to lapse.
policy, there is a printed acknowledgement of premium payment. Policies
thus serve as receipts as well. What if the insured fails to pay after 1m?
1. IF there is an AUTOMATIC PREMIUM LOAN CLAUSE, the
May premiums be paid on credit and in the meantime, be insured already? accumulated cash value would cover the unpaid premium as a
These days, premiums may also be paid by credit card which is as good loan.
as cash. According to the SC, it is not prohibited by law. THUS, when the Example: Premium is due on Dec. 15, 2012. It remains
risk happens when the premium is not yet paid, the insurer is obliged to outstanding until January 22. The policy could have lapsed
pay as long as the premium is paid within the credit term. The insured already but the accumulated cash value was used as a loan to
must thus pay the premium first before he files his claim. pay for the premium. If the insured dies, the insurer pays the
policy less the amount of the loan and the interests.
UCPB v. Masagana: Masagana procured fire insurance from an agent. It 2. IF there is no such clause, the policy lapses.
was not able to pay immediately because of the internal processing time


of the check. The policy was delivered to Masagana, but before its check What are the options of the insured when the policy lapses?
was released to the agent, fire broke and damaged the properties. He can apply for a new policy (BUT with higher rates


Masagana tried to pay the insurer and the insurer accepted. The following because he is now older)
day, it filed a claim, but the claim was rejected because premium had not He can apply for a reinstatement of his policy, where the
been paid. The SC considered the insurer in estoppel because it was premium is at the original rate, BUT he must first pay all
regular procedure for the insured and insurer to pay at a date later than accrued premium and interests due in lump sum. There is
the effectivity of the policy. There was a customary date of payment. no limit as to the number of times the insured reinstates his
insurance. He must either undergo the same process for

application of a new policy, or merely issue a Health


Exceptions: Statement. HOWEVER, it is best not to reinstate because
o SHORT-TERM RATES, where the insurance is for a period less than the contestability period is renewed.
1y, thus the rate is on a short-term rate. NOTE: Reinstatement is not a matter of right, but
o HEIRS BOND, where the premium is computed and paid on an discretionary on the part of the insurer.
annual basis but for two-years worth. This is in line with the
requirement in the Rules of Court to answer for the claims of creditors
and excluded heirs in extrajudical settlements.

How is it computed in Life Insurance


It is computed annually but the frequency of payment depends on the
agreement of the parties.
Annual payment is cheapest; Semi-annual or semestral is higher than
the annual; Quarterly; Monthly; Daily (for industrial life insurance
taken by a group of persons) which is the most expensive premium
payment.

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What are LOSSES in Property Insurance? o Guilty of adultery. BUT One may designate his kabit who is single
1. PARTIAL, or when only a part of the thing insured is lost. There is and who he sees only during lunch because there is no adultery and
partial loss only in property insurance. no cohabitation.
2. TOTAL, or when the thing is lost in its entirety. o Government officers

BUT in Marine Insurance, total loss can either be: How many beneficiaries may be designated?
a. ACTUAL 1. PRIMARY, one whom the insured wants the proceeds ahead of the
b. CONSTRUCTIVE others
a. When more than of the thing insured is lost or 2. CONTINGENT or SECONDARY, in case the primary can no longer
damaged, or receive the value
b. When the damage is not big but to put the thing back to NOTE: In the absence of a qualified beneficiary, it pertains to the
its original condition, more than of its value will have estate of the insured.
to be spent
How may beneficiaries be designated?
When is the insurer obliged to pay? 1. IRREVOCABLE. This is the general rule. The written consent of the
If the proximate cause of the loss or damage is the risk insured against, beneficiary is required in case of revocation and change.
although the direct and immediate cause is not the risk insured against. Why require written consent? Because in effect, all rights
eg House is insured against fire. During a storm, a lightning hit the under the policy have already transferred to the beneficiary.
electric post near the house. The firemen directed the water against
the post and as a result, the post fell and collapsed on the roof. The EXCEPTION TO WRITTEN CONSENT: Legal separation,
damage is covered by the insurance. Though the house was not where the innocent spouse may revoke without it.
directly damaged by the fire, it was the burning of the electric post
that caused the damage. 2. REVOCABLE, where the beneficiary may be changed at any time.
There is a small box in the application form if the insured wishes to
What must the insured do in case of loss or damage? the designation to be revocable.
1. He must file with the insurer: a claim for indemnity and a
preliminary proof of loss or damage In case of death, what are required to be filed with the insurer?
eg Pictures are sufficient proof. They need not be in the same degree 1. Death Certificate
as required by courts. 2. Birth Certificate, to ascertain the true statement of age when the
insured applied for insurance
In practice, the insurer refers the claim to an INSURANCE If there is a misrepresentation on age: This is a material
ADJUSTER, an independent third party who is licensed by the misrepresentation. BUT if the two-year contestability period
Insurance Commissioner and paid by the insurer to determine the has lapsed, the insurer is allowed by equity to adjust the
extent of the loss or damage, and to inform the insurers who acts on amount of insurance indemnity based on the true age of the
his recommendation. insured. The premium that the insured paid will be used to
pay for an amount of insurance coverage corresponding to
your true age. If the insured is younger, this has no effect.
Who may be a BENEFICIARY This applies only if the insured is actually older than his
GR: The insured may designate anyone. Beneficiary need not have stated age.
insurable interest in the life of the insured. 3. Sworn Affidavit from two persons that they know the insured and that
E: he is already dead
o Those disqualified by law from making or receiving donations inter
vivos How to settle claims in property insurance
a. Pay the cash value
b. Replace the thing with another property of the same kind and quality

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Note: This is common in motor vehicle insurance, where A: The insured may still recover. It is only when the insured breaches a
other insured abandoned the insured thing to the insurer. promissory warranty or intentionally acts to cause damage that he may not
Insurer salvages parts from the vehicles left to replace those recover.
needed in the currently insured vehicle. However,
replacement needs to be in good condition

CASUALTY OR ACCIDENT INSURANCE


FIRE INSURANCE What is casualty insurance? Where the insurer pays indemnity upon the
death of the insured or upon the loss of certain body parties due to an
Scope of Insurance: Strictly speaking, fire insurance includes earthquake accident. It is generally used only for loss of body parts but it now includes
insurance, but in practice the fire insurance excludes earthquake as a risk. accidental death.
The insured and insurer negotiate as to its inclusion where the insurer checks What is the scope of protection: Indemnities are added with additional
the plans and foundation of the property. premium.

What are compensable body parts? Either eye; Either arm; Either Leg
Q: If you want to vary the policy, how do you vary it? The full amount of insurance coverage is given for loss of both eyes, both
A: On the policy, the insurer adds a rider. arms, or both legs. If you lose only one of each, indemnity shall only be . If
you lose one arm and one leg, the indemnity is still .
Q: What is a rider? In the Philippines, we do not have insurance for individual body parts.
A: In a policy, the rider is a strip of paper containing a stipulation varying what
is printed. The rider is glued to the policy. An authorized representative of the
insurer signs it.
MARINE INSURANCE
What are the Kinds of Fire What is Marine Insurance: It is insurance over a vessel, its freightage, its
1. Friendly fire, used for beneficial purposes. cargoes, and its expected profits from cargoes, against loss, damage, or
2. Hostile fire, damages property. When friendly fire goes out of liability arising from the perils of the sea (NOT perils of the ship).
control, it becomes hostile.
What is the extent of insurable interest:
What is the amount of insurance: If you are going to insure your house or OF THE SHIP OWNER: Value of the vessel, LESS the amount of loan on
structure, the insurer will normally insure it for acquisition or replacement cost. bottomry
Higher premiums are paid for the replacement cost. OF THE CARGO OWNER: Value of the cargo, LESS the amount of loan
TIP: Do not insure the foundation because it would not be destroyed on respondentia
by fire.
Why deduct the amount of the loans: The borrower loses his interest equal
When is the insurer not liable: In fire insurance, the insurer will not be liable to the amount loaned because if the thing is destroyed, it need not pay.
to pay the indemnity if there was breach of a warranty.
- Affirmative warranty representations What is the difference between fire and marine insurance:
- Promissory warranty undertakings ex. You will not bring into In fire insurance, the obligation of the insurer to pay continues to exist even if
your house two tanks of LPG. the house is burned.
In marine insurance, the obligation to pay the loan, in case there are loans on
Q: What if the house burns because of the insureds negligence? bottomry and respondentia, is extinguished if the vessel is destroyed or sinks,
or when the cargo is lost. The value of the owners interest is already paid.

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When is deviation proper:


1. To avoid natural calamity
What are the PERILS OF THE SEA 2. To avoid pirates
These are the danger and risks related to the action of the wind and water. 3. To save human lives
These are risks related to navigation.
NOTE:
What are PERILS OF THE SHIP In marine insurance, the adjustment company and insurer must have
These relate to the physical condition of the vessel, to the incompetence of the absolutely no interest in each other.
crew, or both.
NOTE: Marine insurance does not cover perils of the ship BECAUSE Authority of Insurance Commissioner is broadened, now it also has
in every contract of marine insurance (either over the vessel or the supervision of pre-need contracts. PRE-NEED CONTRACTS are those
cargo), there is an implied warranty that the vessel is seaworthy. where the corporation, in consideration of the promise of a person to pay
an agreed amount of money in cash or in installments, agrees to deliver to
What is SEAWORTHINESS: Seaworthiness is a relative term in the latter an agreed amount of money or to render a particular service
relation to cargoes. A vessel may be brand new but absent any upon arrival of a period or upon the happening of an event.
refrigerating facilities, then it would not be seaworthy for raw meat. It
would, however, be seaworthy for livestock.

Why does the warranty apply to cargo owners: Because he can SURETYSHIP
choose the shipping company to be used.
What is Suretyship: As a general rule, it is not a contract of insurance but a
risk-shifting device. EXCEPT! Suretyship is part of the insurance business IF it
What happens when the insurer pays the insured? When the insurer pays is carried out by an insurer.
the indemnity, he is subrogated to the rights of the insured and can run after Examples of sureties: bail bonds, performance bonds; surety bond;
the person/s who cause the loss or damage. fidelity bond.
TIP: If you are counsel for the insurer and you file a claim based on
the subrogation, present a DEED OF SUBROGATION and a COPY In case of court bonds, must have accreditation from the Supreme Court,
OF THE INSURANCE POLICY. The deed of subrogation proves the renewed on a monthly basis.
subrogation but not the contract of insurance. Thus, prove the latter
with the best proof: policy.

What are the KINDS OF LOSSES in Marine Insurance?


Losses may be partial or total. Total loss may be actual or constructive. There
is CONSTRUCTIVE LOSS when loss or damage is more than or even
though not more than , more than of the value shall be spent to restore it.

In constructive total loss, the insured entitled to recover as if there was actual
total loss. However, the insured has to abandon the property insured to the
insurer. Abandonment may be total or unconditional.

What is the effect of deviation on the liability of the insurer:


If the deviation is proper, then there is no effect. Insurer still liable.
If improper, the insurer shall be relieved from liability.

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NEGOTIABLE INSTRUMENTS Who are the parties in a Promissory Note?


1. MAKER of the promise
LAW 2. PAYEE, to whom the promise is made

Applicability of the Law: Who are the parties in a B/E: There are two original parties
It is an obsolete law but there are still provisions which are still in practice. 1. DRAWER, who signs the B/E
Thus, it must be read it with the Civil Code. 2. PAYEE
3. DRAWEE who is ordered to pay the instrument BUT who does not
become a party EVEN IF his name appears on the instrument UNTIL
What are INSTRUMENTS he accepts the B/E and becomes a party as ACCEPTOR.
These are instruments of credit which involve money except when the
instrument gives the holder the right to deliver another thing. They could be
st
either a promissory note or a bill of exchange, known as money substitutes. 1 Requirement:
They can be assigned or negotiated. IN WRITING AND SIGNED
When negotiated: If the instrument qualifies as negotiable under
section 1.
ND
When assigned: If it does not qualify under sec. 1 2 : A. UNCONDITIONAL PROMISE OR ORDER

What are PROMISSORY NOTES What is a CONDITION


These instruments of credit where the obligor who borrows money from Under the Civil Code, it is a future or uncertain event, or past event unknown to
another or incurs the obligation to another, binds himself to pay. the parties. It may either be Suspensive or Resolutory, which are valid, or
Potestative, which is void.
What is a BILL OF EXCHANGE SUSPENSIVE CONDITION: It holds in abeyance the demandability
It involves obligations but instead of the obligor binding himself to pay, he of the obligation. As long as it is not fulfilled, the creditor cannt
orders another person to pay. demand the fulfillment of the obligation.

RESOLUTORY CONDITION: One which puts an end to an


What are the REQUIREMENTS FOR NEGOTIABILITY obligation.
a. PROMISSORY NOTE
1. It must be in writing and signed by the maker What is required in the NIL:
2. It must contain an unconditional promise to pay a sum certain in There must be no suspensive or resolutory condition.
money It is also invalid to stipulate that the amount would be paid from a
3. It must be payable on demand, or at a fixed, or determinable future particular fund. BUT in a B/E ONLY, IF payment is not from a particular
time fund, but its reimbursement is from a particular fund, the instrument is still
4. It must be payable to order or bearer negotiable.

b. BILLS OF EXCHANGE Why is it required to be unconditional:


1. It must be in writing and signed by the drawer To serve the purpose of negotiable instruments, which is to facilitate
2. It must contain an unconditional order to pay a sum certain in money commercial transactions where one can transact without having cash on hand.
3. It must be payable on demand, or at a fixed, or determinable future
time Q: If the instrument does not meet the requirements of sec.1, or it is non-
4. It must be payable to order or bearer negotiable, is it valid?
5. The drawee must be named or indicated therein with reasonable A: YES, negotiability is different from validity. It is also transferrable but by
certainty assignment.

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nd
2 : B. PAY A SUM CERTAIN IN MONEY What is a DIVISIBLE OBLIGATION: When the amount of the obligation is
payable in stated installments, it is a divisible obligation that may be performed
What does it mean: What is to be paid is sure to be money. in parts.
GR: Instruments involve money What is the Effect of a Divisible Obligation: If the obligor defaults
E: The instrument is still negotiable if it gives the holder the right to on the first installment, the creditor cannot sue yet for the entire
demand the delivery of another thing. The right must be given to the obligation because the period had not yet lapsed, as provided under
holder, and NOT the drawer, maker, or drawee. Otherwise, the the Civil Code. The creditors remedy is to put an acceleration
instrument is only non-negotiable; it is still valid. eg I promise to pay clause.
P20k on or before April 2, 1992, or at the option of the holder, I agree
to deliver a pig instead. NOTE: It is also a sum certain even if there is a proviso for compounded
interests, the payment of attorneys fees, costs of suit and expenses of
Example: Promise to pay bearer one thousand is INVALID because it stated litigation. Negotiability is also not affected by a statement of the transaction
no currency. that gave rise to the issuance of an instrument.

Example: A provision for payment of interest at an agreed rate is valid. I


rd
promise to pay bearer P30k on or before December 31, 2012, together with 3 : PAYABLE ON DEMAND, AT A FIXED TIME,
interest of 2% per month. This is valid. If the date of reckoning of the interest OR AT A DETERMINABLE FUTURE TIME
does not appear, then it is the date of issue. If the date of issue is not stated,
then the holder may insert the true date of issue. When is the instrument PAYABLE ON DEMAND
When it is so stated to be payable on demand or
DATE OF ISSUE is not required in Sec. 1 but it is not totally When no date is mentioned as to payment (pure obligation), or
irrelevant. It is merely not required for negotiability but it is important When it is payable on sight.
in relation to the obligation to pay interests. eg When the creditor demands payment, literally, and no
period is involved. The creditor, upon handing the money to
POSTDATED: Date of issue is stated in the future the debtor, collects the same two minutes later.
ANTEDATED: Date of issue is stated in the past
NOTE: Ante- and post-dating do not affect negotiability but could When is it PAYABLE AT A FIXED TIME
affect rights of holder and liabilities of maker or drawer. When the obligor is to pay ON a particular date
or ON OR BEFORE a particular date.
Example: I promise to pay bearer P30k on or before April 2, 2012, with On or before is construed favorably to the debtor. Under the Civil
interest. This is valid because the interest rate would then be the legal rate of Code, when the period is fixed, the creditor cannot demand payment,
12% pa, if no rate is stated. and neither can the debtor demand acceptance earlier than the
period. But under the NIL, the creditor must accept the amount even
Example: I promise to pay bearer P30k on or before April 2, 2012, with if it is tendered before the expiration of the period.
interest of 30%. This is valid even if there is no indication as to the frequency
of interest payment. In such case, payment would only be once. When is it PAYABLE AT A DETERMINABLE FUTURE TIME
If, for example, it is payable within 15d from the proclamation of the 2013
What if the instrument is payable in installments elected senators. It not valid if the period states on or after April 12, 2012
In case of stated installments, there must be certainty in the amount of every because it is not determinable.
installment and date of payment or when every installment is payable.
What is the remedy in case of uncertainty in period?
Example: I promise to pay B, P10k in two equal monthly installments. This is Ask the court to fix the period.
NOT NEGOTIABLE. Though the amount is determinable, there is no
indication as to when it is payable.

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th
4 : PAYABLE TO ORDER OR TO BEARER 3. If the instrument is already completed but not yet delivered, and it falls
into the hands of a holder in due course, then the HDC is protected
What is payable to order or to bearer and his rights are not subject to personal defenses EXCEPT Forgery.
These are the WORDS OR PHRASES OF NEGOTIABILITY. The instrument
can also use holder or possessor. It is important to know the presence of
these words to determine the manner of negotiation. Who are LIABLE UNDER A NEGOTIABLE INSTRUMENT
1. PROMISSORY NOTE: Maker
When is it an ORDER INSTRUMENT 2. BILL OF EXCHANGE: Drawer and the Drawee Who Accepts
A stipulation that an instrument is NON-NEGOTIABLE is immaterial because 3. PN/BE: Endorsers
it is always payable to order in the following cases: 4. Forgers
Pay to Jose Cruz or order
Pay to the order of Jose Cruz Who are Endorsers
Pay to the order of Jose Cruz and Pedro (joint where there are two Endorsers are persons who sign the instrument. Only those whose signature
payees) appears in the instrument are liable thereon. In cases of negotiation by
Pay to the order of Jose Cruz or Pedro Cruz (several) delivery, they are liable only to the immediate transferee.
Pay to the order of the holder of office for the time being
What is the liability of Endorsers?
How is an order instrument negotiated? Their liability may either be general or irregular, as when they sign the
By Indorsement of the holder, followed by delivery. Otherwise, the negotiation instrument but they have no concern therein.
would be ineffective/
May they sign through agents? YES, as long as the agent discloses the
When is it a BEARER INSTRUMENT principal and acts within the scope of his authority.
Pay to bearer
Pay to Jose Cruz or bearer (NOT to bearer Jose Cruz where the
designation of bearer is only descriptive and thus the instrument is
non-negotiable)
Pay to order of Batman (to the order of a fictitious person and such
fact must be known to the person making it so payable)
Pay to the order of Adolf Hitler (to the order of a non-existing person
and such fact must be known to the person making it so payable)
Pay to the order of cash (to the order of a payee who does not purport
to be a name of any person)
When the last indorsement is in blank

How is a bearer instrument negotiated?


By mere delivery. Any indorsement is a mere surplusage.

What are the EFFECTS OF DELIVERY


1. If the instrument is signed and delivered but there are blanks therein,
then the holder-deliveree has the implied authority to fill in the blanks
according to the true agreement of the parties
2. If the instrument is not yet delivered, then it cannot be enforced
against the maker or drawer. It is unenforceable.

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What is NEGOTIATION
Negotiation is the transfer of an instrument as to constitute the transferee the What is the EFFECT OF THE SEQUENCE OF ENDORSEMENTS
holder thereof. The first in the list is presumed to be the first endorser. As such,
subsequent transferees can run after prior endorsers. Thus, in
What are the MODES OF NEGOTIATING AN INSTRUMENT practice, endorsers first sign at the bottom, or sign with a date.
1. ORDER: Indorsement and Deliver
2. BEARER: Delivery eg Pedro Cruz first signed the instrument. Jose Santos then
endorsed it to Juan Reyes. Juan Reyes can then run after Pedro and
What is an INDORSEMENT Jose should the instrument be dishonored.
It is negotiation through the signature of the person who has the right over the
instrument or document. What is the EFFECT OF A MARKED-OFF ENDORSEMENT
When a name is stricken off, the holder cannot run after the stricken
Where is the indorsement placed? The law is silent. off endorser and all the endorsers subsequent to such name because
- It is customary to be made at the back so as not to confuse the they are relieved from liability as there are no more indorsements in
endorsers signature with that of the maker or drawer, especially in their favor.
cases of PNs stating I promise to pay and there are two signatures
appear, the result being the two signatures treated as co-makers.
- It may also be made in an ALLONGE, or a separate sheet of paper Who are the HOLDERS OF AN INSTRUMENT
attached to the instrument where the indorsements can be made. 1. Holder for value
2. Holder in due course

Are there limits on the number of indorsements?


Under the NIL, there are none. BUT under a Circular of the Monetary Who is a HOLDER IN DUE COURSE
Board, banks are prohibited from accepting any check with more than A holder in due course is one who acquired the instrument under the following
one endorsement to avoid forgeries against banks. conditions (Sec. 52)
a. That it is complete and regular upon its face;
What are the KINDS OF INDORSEMENT b. That he took it in good faith and for value;
1. IN BLANK, when the holder merely signs his name c. That he became the holder of it before it was overdue, and without
2. SPECIAL, when the transferee is named and the holder signs notice that it has been previously dishonored, if such was the fact;
the same. The indorsement need not contain the words of d. That at the time it was negotiated to him, he had no notice of any
negotiability, eg Pay to Jose Cruz. Such words are required infirmity in the instrument or defect in the title of the person
only on the face of the instrument and not on specific negotiating it.
endorsements.
eg Pay to order of Jose Cruz only is a special and st
1 : COMPLETE AND REGULAR
restrictive endorsement.
3. CONDITIONAL, as when it states Pay to X only if he graduates When is an instrument complete? No blanks
on March 2013. This is also a special indorsement and which
does not affect negotiability. When is it NOT REGULAR?
4. QUALIFIED, if the holder adds without recourse to his RE: CROSSED CHECKS: Crossing of checks, or the placing of two parallel
signature. There is no recourse to him if the instrument is lines on the upper left corner of a check, makes the instrument no longer
dishonored. regular on its face (SIHI Case). This is because such crossing indicates that
5. RESTRICTIVE, as when the endorser states Pay to Jose Cruz the check is not intended for encashment but only for deposit to the bank
only or Pay to trustee only for the purpose of collection without account of the payee. It may thus be endorsed only once, ie for deposit to the
authority to enter into subsequent contracts. This affects and payees account.
ends the negotiability of the instrument.

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th
La Suerte Cigarette Company v. SIHI: The cigarette company sold its 4 : NO NOTICE OF INFIRMITY OR DEFECT OF TITLE
products through agents. The clients deposited post-dated checks
with the agents who rediscounted the same with SIHI but Can the PAYEE be a HDC
appropriated the proceeds. The clients refused to pay the checks As a general rule, NO because the fourth requirement contemplates a
because the products were not delivered to them. SIHI thus failed to transfer, at the time it was negotiated to him. And between immediate
collect. It was not considered as a HDC. and direct parties (payee and maker/drawer), personal defenses are
available. The purpose of the principle of HDC is to build confidence in
If there are alterations it might not appear regular upon its face, it instruments of credit as a money substitute.
might be considered irregular. An exception is provided by the SC where the payee is treated as a HDC
because of the peculiar circumstances of the case. A owed B, and B
nd
2 : IN GOOD FAITH AND FOR VALUE owed C. B requested A to make As check payable directly to C. C thus
sued A for collection, and C was treated as a HDC.
When is it acquired IN GOOD FAITH:
When the transaction is above fraud.
What are the advantages of being a HDC?
When it is acquired FOR VALUE 1. He is not subject to personal defenses, EXCEPT Forgery, EXCEPT
When the acquisitions is for a valuable consideration under the law on EXCEPT The maker can still be liable if the forgery is ratified or due
contracts, and to estoppel.
When the consideration is not contrary to law, morals, good customs, 2. Prior parties are liable to him
public order and public policy 3. Subsequent transferees acquire the rights of a HDC
Example: Law endorses the check he obtained from his client to a
prostitute. The prostitute is not a holder in due course because her NOTE: While a person does not qualify as a HDC but derives his right
services do not constitute a valuable consideration under the contract from a HDC, then he will have the same rights as the HDC.
law. BUT IF the check is endorsed to a massage lady or house
cleaner, then the latter is a HDC because the check was acquired Example: Client issued a check to his lawyer. Lawyer indorsed it to
legitimately. the store owner in payment of his overdue account. The store owner
is thus a HDC. If the store owner indorses it to a prostitute, the latter
rd
3 : BEFORE OVERDUE is not a HDC but acquires the rights of the store owner who is a HDC.

When is an instrument overdue


When the date of payment has passed.

Example: If a PN shows that it is payable today and it is negotiated to you


today, you are a HDC because the date of payment, which is today, has not
yet passed.

Example: If a check is dated 25 December 2012, but it is negotiated to you


only today, 3 February 2013, you are still a HDC. CHECKS NEVER BECOME
OVERDUE AS THEY ARE ALWAYS PAYABLE ON DEMAND. But under
jurisprudence, the demand for payment must be made within a reasonable
period determined on a case-to-case basis, eg six months.
REMEDY OF THE HOLDER: Ask the drawer to re-date it with his
counter-signature.

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Who are the PARTIES IN A NI NOTE: Holder goes to the drawee, bringing the bill of exchange.
A person is liable on an instrument only if his/her signature appears on it There must be presentment of instrument for acceptance.
(maker, drawer, acceptor, general indorser, irregular indorser, forger). When drawee refuses to return or destroys the bill of exchange when
Irregular indorser: Person is not a party to the instrument but presented for acceptance, it is deemed accepted.
indorses the instrument If the bill is dishonored, the holder should give notice of dishonor to all
prior parties within a reasonable period. A party not notified shall be
Per Procuration: Signing authority but with limitation. discharged.

Exceptions: 3. Negotiation
a. Person negotiating by mere delivery 4. Presentment for Payment
The person who negotiated by mere delivery is liable to the person to Why: Presentment of acceptance is not an assurance of payment.
whom he negotiated the instrument (the immediate transferee) Thus, there are also two possibilities here.
b. Person who was duly represented by his/her agent, subject to two - Payment by the drawee
conditions: that the agent discloses his principal and the agent acts - Dishonor by non-payment
within his authority.
5. Payment/Discharge
What are the OBLIGATIONS OF THE PARTIES IN A NI
1. MAKER: To pay and to warrant the existence and capacity of the How is PAYMENT OR DISCHARGE EFFECTED?
payee because he borrowed from the payee himself 1. Payment in due course by the person primarily liable, to the
2. DRAWER: To warrant the existence and capacity of the payee; that person entitled to receive the payment, at the place agreed upon
upon presentment, the drawee shall honor the check; if it is
dishonored, then he will pay after notice What is PAYMENT IN DUE COURSE
When it is made at or after the maturity date. If payment is made
before the maturity date, then there is no discharge yet because the
What are the STAGES OF LIFE OF A PN payor can still further negotiate the instrument. But in practice, a
1. Making fresh PN is requested after payment is already made.
2. Negotiation
3. Payment
Who is the person primarily liable:
Q: In case of promissory notes, do they need to be presented for For PN, maker. For B/E, acceptor. The accommodated party is also
acceptance? primarily liable.
A: No, they are presented for payment.
Who is an ACCOMMODATION PARTY
What are the STAGES OF LIFE OF B/E He who signs the instrument as a maker, drawer, acceptor, or
1. Drawing/Issue endorser but without receiving anything of value therefor and only for
2. Presentment for Acceptance By the Drawee the purpose of lending his name. He is liable under the instrument
Two possibilities: even if the payee knows that he is signing only as an accommodation
- Drawee accepts party.
- Drawee dishonors the check by non-acceptance. NOTE: For one to be an accommodation party, he must
have CLEAR INTENTION TO SIGN AND TO BE BOUND
REMEMBER: The drawee is not an original party and only becomes a AS AN ACCOMMODATION PARTY.
party as an acceptor upon his acceptance. And in case he accepts,
he is bound only by the terms of his acceptance, and not by the terms Who is the ACCOMMODATED PARTY
of the b/e. Person in whose favor it is signed.

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What if the accommodation party pays the instrument? What are BILLS IN SET
It is not yet discharged because he can still run after the They are usually used in importation to facilitate payment of obligations
accommodated party. between persons in distant places.

2. Intentional cancellation of the instrument by the holder How do they work


Effect: The obligation is NOT extinguished. Condonation of a debt The drawer prepares the B/E in two copies, the original and the duplicate
requires the acceptance of the debtor. indicated as such. He makes an instruction as follows: Pay this bill (Bill 1) if
the other bill (Bill 2) is not paid. The contents are the same. The payee then
3. Any other mode of existing an obligation to pay a sum of money presents both bills to the drawee.
Example: Compensation; Confusion of the rights of the debtor and
creditor If the payee negotiates both bills to different persons with different interests,
the drawer is liable only to the one whose bill is first accepted by the drawee.
4. Discharge of the primary party The remedy of the other holder is against the payee.

Q: How may a party secondarily liable be relieved from liability? What are CERTIFIED CHECKS
a. Payment in due course by the person primarily liable These are checks certified by banks to be credit-worthy, where the debtor is
b. By discharge of a prior party certified as having enough money for the same. It is no longer used today
c. By striking out indorsement (this relieves not only the person whose because of the inconvenience to the banks.
name was stricken out but all those after him/her)
d. Valid tender of payment by a prior party. Now, banks issues managers checks. The advantages are its convenience
and the fact that the obligation of the bank to pay is not affected by any
garnishment of the drawers account. Its disadvantage is the effect of the
How to Discharge of Foreign Bills of Exchange banks insolvency, making the holder an unsecured creditor of the bank.
A domestic bill of exchange is also called an inland bill of exchange.
A bill of exchange is foreign when the parties are in different countries. If
a foreign bill of exchange is dishonored you make a protest.

Q: Who makes a protest? Certified Check


A: It is made either by a notary public or a reputable member of the community It is an ordinary check that has already been accepted by a bank with money
in the presence of 2 or more persons. set aside for it.
Eventually, banks stopped the practice of certifying checks and just issued
managers checks. The managers check is disadvantageous because in case
of insolvency of the bank, the holder is considered an unsecured creditor.

Bills in Set
A bill of exchange prepared with more than one copy. It facilitates payment
between persons on distant places. When one bill is lost, the other bills may
take its place.

24-Hour Clearing Process

A clearinghouse is a facility of the BSP for the convenient collection of checks


drawn on different banks but deposited in another bank.

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At an agreed time, representatives of banks convene in a particular place in When are checks not cleared:
order to swap checks. The banks process the checks. Within 24 hours from DAIF: Drawn against insufficient funds.
receipt, the drawee bank must return these checks to clearing house if it DAUD: Drawn against uncollected deposits.
intends to dishonor them.
Are banks required to accept any check
A BSP Circular provides that when a check is received from the clearinghouse NO. There is a MB Rule that banks should not accept
and the check should be returned due to insufficiency of funds, the banks checks presented for deposit or encashment by anyone
should dishonor the checks. This is the reason why overdrafts no longer occur. other than the payee.

SUPREME COURT RULINGS ON FORGERY


1. As a general rule, the bank suffers the loss ultimately if what is forged
is the drawers signature, and the check is presented for over-the-
counter encashment or deposit with the drawee or collecting bank
who pays.

EXCEPTIONS: The drawer is made solely or solidarily liable in some


cases.

Why is the bank ultimately liable:


- The bank ought to know the genuine signature of its depositors and
- There is breach of contract by the bank, ie the specimen signature
card, where it undertook to pay only on the basis of any of the
signatures therein.

2. If what is forged is the payees signature:


a. Drawee ultimately suffers the loss if the check is presented
for over-the-counter encashment because it failed to
properly identify the payee and thus the drawee bank paid
the wrong person due to negligence.
b. Collecting bank ultimately suffers the loss if the check (of
another bank) is presented for deposit because of its failure
to properly identify the payee and because of its breach of
warranty, that All prior endorsers guaranteed, before it
presented the check in the clearing house.

What is a CLEARING HOUSE


It is a facility of the BSP for convenient collection by banks of
the checks drawn on other banks but deposited with them.

What is the TWENTY-FOUR HOUR CLEARING RULE


Within 24h from receiving checks from the clearing house, a
bank must return the checks un-cleared. Otherwise, they
would be cleared.

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suit against the latters use of the name


CORPORATION LAW because they are confusingly similar: a)
industrial is only a descriptive word, NOT a
proper name, and b) they are in the same
What is a CORPORATION industry
A corporation is an artificial being, created by operation of law, having the right Purpose
Always for profit. It is found in the definition of May or may not be for profit
of succession and the powers and attributes which are expressly conferred by partnership itself.
law or incidental to its existence. It is a juridical person. Example of Non-Profit Corporations:
- Non-stock corporations
Two Kinds of Persons - Educational corporations because they
perform governmental functions
1. Natural - Corporate Sole because they are for religious
2. Juridical artificial beings that include the State, political purposes
subdivisions, partnerships and corporations - Eleemosynary corporations which are for
charity, eg Caritas Manila, Inc., ABS-CBN
Foundation, Inc., Bantay-Bata, Inc.
PARTNERSHIP CORPORATION
Number of Organizers
Manner of Creation
Minimum of 2. GR: Min. 5, Max. 15
GR: By mere agreement of the parties. Need - By law No maximum. E: 1 Person only for Corporate Sole, who is the
not be in writing - By operation of law head of the religious sect or denomination
Term of Existence
E: Re: GOCCs
Partners may agree on any term Cannot be for a term longer than 50 years
- Pship Agreement must be in writing IF the - GR: Created by law
capital contribution exceeds P3000 - E: GOCCs created under the Corporation Extent of Liability
- Pship Agreement must be in a public Code (PNCC, CDCP) General partners are obliged to pay the GR: Subscriber who is fully paid on his
instrument IF real property is contributed obligations of the partnership even if they are subscription cannot be obliged to contribute
regardless of amount. OTHERWISE, the pship Re: Private Corporations fully paid on their subscription more. Shareholder may not be obliged to
agreement is void - GR: Created by operation of law contribute more than his current participation.
- A limited partnership is also not created by - E: PNB, a private corporation but which E: Corporate veil is pierced
mere agreement of the parties was created by law because it was Sharing of Profits
previously a GOCC but has been privatized Shared according to the agreement of the Dividends are distributed pro-rata to the
Name Used parties stockholders
Any name as long as it is not similar or Corporation must always include the words Management
confusingly similar to the name of another Corporation or Incorporated (NOT Managed by all partners. Managed by a Board of Directors or Trustees
existing partnership or corporation Incorporation) as part of its corporate name, Decisions are made by the partner/s having except for corporations sole or close
whether fully spelled out or abbreviated. controlling interests corporations.
Decisions are made by a majority of the board,
Notes: in a meeting with quorum, with every director
- Corp. or Inc. need not be at the end, eg having only one vote regardless of shareholding
Construction and Development Corporation of Causes of Dissolution
the Philippines, Private Development At will of any one of the partners Cannot be dissolved at will.
Corporation of the Philippines 1) Board Resolution (THUS at least two
- and Company, Inc. is a corporation persons)
- Use in Similar or Confusingly Similar Products: 2) Ratification by 2/3 of the outstanding shares
case of Phillips, an international corp. whose Amount of Capitalization
products include electronics. In Ph, Phillips No minimum amount P5000 minimum paid-up capital
was used as a corporate name for conveyor Right of Succession
belts. THUS, the foreign corporation sued the Does not exist in partnership Expressly given to corporations
domestic Phillips. SC upheld the foreign corp. Nature
even when it has no exclusive right over the Both a person and a contract Only a person, not a contract
surname of Phillips. Relationship to Property
- Same Line of Business Case of Sinclair Partners may validly claim they are co-owners Shareholders cant claim to be co-owners of
where there were two corporations: First was of properties in the name of the partnership corporate property
the Refractories Corporation of the
Philippines, and then there was Sinclair that
changed its name to Industrial Refractories
Corporation of the Ph. SC upheld the formers

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Who may organize a corporation? FORMATION OF A CORPORATION


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

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What are the CONTENTS OF THE AOI ARTICLE 5 FULL NAME, NATIONALITY, AND COMPLETE
*Arts. 1-6 are the common provisions for non/stock ADDRESS OF THE INCORPORATORS
o FULL NAME OF INCORPORATORS: They must be 5-15 persons for
- ARTICLE 1: CORPORATE NAME both non/stock corps.
o Name must have Corporation or Incorporated, either fully spelled out o ADDRESS: Residential or Office, NOT PO Box
or abbreviated
o It must not be misleading or misdescriptive of the business of the corp. Q: What if 16 persons want to incorporate? Fifteen sign as incorporators
o Only corporations under the supervision of the Monetary Board may add and one signs as a witness.
Bank or Banking in its name
o Only corporations under the supervision of the Insurance Commissioner ARTICLE 6 has two parts: a) Number of Directors, and b) Full Names,
may use Insurance in its corporate name Nationality, and Address of the Incorporating Directors
o Under the SEC Rules, the following words cannot be used as the first o NUMBER OF DIRECTORS
word of a corporate name: Philippine, National, Republic, State. Their Stock: 5-15 Members
exclusive use as such is reserved to the Ph Govt. Non-Stock: At least 5
o It must not be similar or confusingly similar to the name of an existing *The number can be even or odd. In practice, the number is often
corporation or partnership odd but it is not a guarantee against deadlocks.
o INCORPORATING DIRECTORS
- ARTICLE 2 PURPOSES Stock, they should have subscribed to one share.
o A corporation must have only one primary purpose. The primary Non-stock, they must be a member.
purpose cannot be stated briefly.
o A corporation may have many secondary purposes, as long as they are STOCK CORPORATIONS:
not incompatible with the primary purpose or with one another ARTICLE 7 has two parts as well: a) AMOUNT OF ACS, NUMBER OF
Incompatible purpose if banking is primary purpose, it cannot be SHARES, AND VALUE ASSIGNED TO EACH SHARE, and b) FULL
engaged in the business of insurance as an insurer, BUT it can sell NAME OF THE SUBSCRIBERS, NATIONALITY, NUMBER OF SHARES
insurance policies as bank assurances. SUBSCRIBED, AND VALUE OF EVERY SUBSCRIPTION.

ARTICLE 3 TERM OF CORPORATION o AMOUNT OF ACS, NUMBER OF SHARES, AND VALUE ASSIGNED
o The maximum term of a corporation is 50 years. TO EACH SHARE
o The term is extendible before its expiration. A filing fee is due, in the o AUTHORIZED CAPITAL STOCK, or the maximum amount that can be
same amount as a formation of a new corporation which is based on the capitalized, is always expressed in pesos. eg ACS is P1M, divided into
ACS. 1M shares, each share having a value of P1
o There is no limit as to the number of extensions. o There is no minimum paid-up capital.
GR: Term cannot be extended earlier than 5 years before it o What are SHARES: Units of participation, representing the breakdown
expires. of the ACS to determine the extent of the contribution
E: Extended earlier for justifiable reasons. eg Corp. obtains a long- o What is PAR VALUE: Value assigned to every share. eg P10M ACS to
term loan of 10 years, but the term of the corp. expires in 7y. Thus, 1M shares THUS P10 par value
it is allowed to extend 7 years before the expiration. o What is the MINIMUM PAR VALUE: 1 centavo, because it is the least
o The term may be shortened for the purpose of dissolution, BUT it denomination of Ph currency
requires prior BIR clearance. o Is there a MINIMUM PAID UP CAPITAL: Unless laws or regulations
require a minimum amount of paid-up capital, incorporators can agree
ARTICLE 4 PRINCIPAL PLACE OF BUSINESS OR RESIDENCE on any amount
o Before, SEC allowed corps. to state only the city or municipality where o What is a STOCK SPLIT: When par value is divided into two shares
the corp. would be set up with lower par value
o Now, the exact address of the corp. should be stated and detailed.

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eg Original par value of SMC shares was P10 each. In the 1980s, NON-STOCK CORPORATIONS
the par value of P10 was split into P5 each. It has no effect on the ARTICLE 7 NAMES OF CONTRIBUTORS OR DONORS AND
investor because he has the same amount of shares. AMOUNT INDIVIDUALLY CONTRIBUTED TO THE CORP.
Rationale: In the stock market, you buy shares by lots (ODD LOT if o In non-stock corporations, amount given is not paid-up but contributions
you buy less than a lot) for a minimum price. By splitting the shares or donations.
into shares with smaller values, then small investors are o The contributors or donors must receive nothing in exchange of their
accommodated by splitting the shares into more affordable shares. contributions
eg Lot of 1000 shares would have a lesser price.
o What is a REVERSE STOCK SPLIT: Ayala Corp., the oldest Ph What about the By-Laws?
corporation aside from UST, has an original par value of P1. By-laws may be filed with AOI, if not so filed it must be filed within 30 days
Subsequently, they combined 50 shares into 1 share. It also has no from issuance of certificate of registration.
effect on the holdings because the value of the shares is the same. Its If the by-laws are filed with the AOI, it must be signed by all incorporators.
purpose is only for convenience. If filed later, it need only be signed by a majority of the incorporators.
o Is subscription required in ACS: Yes, At least 25% of the ACS must
be subscribed and 25% of such subscription must be paid-up
What happens after the filing of the documents
NOTE: Shares may have NO-PAR VALUE they are issued for value Documents are filed with SEC
of at least P5. All subscriptions to no-par value shares must always be Application is assigned to an examiner
paid in full. Payment for no-par value shares is always capital SEC issues a CERTIFICATE OF REGISTRATION, which is akin to a
contribution; it cannot be used for the payment of dividends. Certain natural persons birth certificate.
corporations cant issue no-par value shares. Examples are banks, It is upon such issuance that a corporation acquires juridical
insurance companies, trust companies, public utilities, building and loan personality and becomes a person. Corporation can now enter into
associations. contracts, acquire property, sue and be sued. BUT the effectivity
retroacts to the date of filing.
o FULL NAME OF THE SUBSCRIBERS, NATIONALITY, NUMBER OF
SHARES SUBSCRIBED, AND VALUE OF EVERY SUBSCRIPTION eg Docs are filed on 1 Feb. The order to issue a certificate of reg. was
o VALUE OF EVERY SUBSCRIPTION: Total of all subscription must be made on 13 Feb but the Cert. of Reg. was only received subsequently.
25% of the ACS. When does the corp. acquire juridical personality? On 1 Feb. or on the
o SUBSCRIBERS. filing of documents, in practice, and NOT the actual preparation of the
It includes the non-incorporators cert.
It is not limited to natural persons. Thus, they may be partnerships
or corporations, e.g. subsidiary and sister companies
There is no limit as to the number of subscribers

ARTICLE 8 - NAMES OF SUBSCRIBERS AND AMOUNT


INDIVIDUALLY PAID ON THEIR SUBSCRIPTION
o Total amount individually paid on the subscription must be at least 25%
of the total amount subscribed.
o It is not required that every subscriber pay at least 25%

ARTICLE 9 NAME OF TREASURER

ARTICLE 10 - PROVISION APPLICABLE TO CORPORATIONS


WHOSE BUSINESS IS RESERVED FOR FILIPINOS BY LAW

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IMPLICATION OF ACQUISITION OF JURIDICAL PERSONALITY For Rule 2, there must be evidence that the decisions were made
by the controlling SH alone.

The properties of the corporation belong to the corporation.


Re: PROPERTIES What is the INSTRUMENTALITY RULE (Rule 4)

The SHs cannot claim that they are part-owners, as opposed to a


eg. Case of Concept Builders, Inc. A manufacturing corporation
(principal) was organized for the production of pipes. It organized a
partnership where the partners are co-owners of the properties of the pship. subsidiary, CBI, for a construction business. The principal then
incurred liabilities to its laborers, who sued the principal and obtained

The corporation can borrow money and incur other liabilities.


Re: LIABILITIES a favorable decision. The principal corporation had no properties and
thus the laborers levied on the properties of CBI. According to the
SC, CBI is only a subsidiary of the judgment debtor. The fact alone
What if the corporation becomes bankrupt? Can the creditors sue the that the principal and subsidiarys BOD comprise of the same
stockholders? persons does not justify the piercing of corp. entity. The fact alone
GR: No, the corporation has a distinct personality from the SHs and its that all but one of the officers of both is the same does not justify
liabilities are not the liabilities of its SHs. BUT, the stockholder who did not the piercing of corp. entity. The fact alone that both share the same
fully pay his subscription can be obliged to remit his subscription payment office does not justify the piercing of corp. entity. BUT when these
because unpaid subscription are assets of the corporation and booked as circumstances are taken together, then it appears that CBI is a
receivables. mere instrumentality of the principal as it has no mind of its own.
Piercing must be the last resort and only when there is clear and
E: Sue the SHs by PIERCING THE VEIL OF CORPORATE ENTITY, where convincing evidence.
the obligations of the corporation are enforced against the director, officer, or
stockholder. Under this doctrine, the separate personality of the corp. is
disregarded and its liabilities are made that of the officer, director, or SH. It
has no basis in law but in jurisprudence.

What are the rules regarding the doctrine of piercing the corp. veil
1. Mere ownership of the controlling interest of a stockholder does not
necessarily oblige him to pay the debts of the insolvent corp.
2. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that the corp. is only an alter
ego of the controlling stockholder.
3. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that the corporation was
purposely organized for fraud or tax evasion or to defeat public
convenience.
4. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that of two corporations, one is
a mere instrumentality of the other.

How to reconcile numbers 1 and 2: Evidence required for either is


different!
For Rule 1, there must be evidence that the controlling SH did
not decide alone, but the decision must have been that of the
BOD.

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CORPORATION BY-LAWS eg Manila Bulletin holds its meetings in the grand ballroom of the
Manila Hotel. Most publicly-listed corporations have many SHs.
What are the BY-LAWS


These are the set of house rules and regulations. d. ATTENDANCE
How:

When may the By-Laws be filed o In person


It can be filed with the AOI and other incorporation documents, in which o By proxy. PROXY has two meanings, referring to both

case, it must be signed by all of the incorporators the written authority (which need not be embodied in a
If it is not filed with the AOI, then if must be filed within one month from SPA) and the representative person. It is a contract of
the issuance of the Cert. of Reg., and in which case, it may be signed by agency, THUS, the proxy must have the capacity to
at least the majority of the incorporators enter into a contract of agency.

What doe the By-laws contain Practical Note: Bring the proxy (written authority) with him. Go to the
1. Meetings of stockholders or members corp. and present the written authority to the corp. secretary before
2. Directors the meeting. The corsec will compare the signature thereon with the
3. Officers signature of the SH in the corp.s specimen card to verify its
4. Stock Certificates for stock corporations genuineness.
5. Corporate seal
6. Amendments of the AOI and BLs Are proxies revocable? YES, proxies may be revoked, expressly or
*You can add others but these six are mandatory! impliedly, at ANYTIME, UNLESS the proxy is issued pursuant to a
contract (eg Loan secured by shares)
1. MEETINGS


a. ANNUAL OR REGULAR MEETINGS EXPRESS REVOCATION: When the SH himself attends the meeting
State the day of the meeting; it is usually scheduled after the after informing the proxy.
audited financial statements are prepared, and it is usually after
April 15 or the third Tuesday of April because a specific date may IMPLIED REVOCATION: When the SH, without telling the proxy,
attends the meeting himself

fall on a weekend that is not favorable for attendance.
NOTICE is no longer needed as it is already provided in the BL,
What is the TERM OF PROXY:

BUT notice is still sent in practice.
AGENDA: The annual meeting is the most important as it is for - Proxies are valid just for one meeting, as stated in the proxy itself.
the purpose of the election of directors for the following year. - If proxies are issued for a PERIOD, the period must not exceed five
years, renewable upon expiration for another five years.


b. SPECIAL MEETINGS
STOCK CORPORATIONS, How Many Constitutes a Quorum:

These are called by the president.
MANDATORY: WRITTEN NOTICE of the Date and Matters to be SHs representing the majority of the outstanding shares of
taken up BECAUSE the SHs are not aware of the same. Law stock.
requires a call. There must be a written notice at least 10 days o Importance: In every meeting there must be a quorum at
the start of the meeting. If there is no quorum at the

before the scheduled meeting.
Importance of Notice on Agenda: No other matter can be taken start of the meeting, it must adjourn. If stockholders or
up without the consent of all present members leave in the middle, there is no problem as
quorum is reckoned at the start of the meeting.
o What is QUORUM: Presence of stockholders in person

c. VENUE OF MEETINGS
Meetings are held in the principal office or, if it is not big enough, or by proxy representing the majority of the outstanding
then elsewhere in the city or municipality of the principal office shares. In a stock corp., it is the majority of the
outstanding shares that matter.

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Quorum is determined at the start of the o What is then the quorum? 320+1 (Half of 640 + 1)


meeting.
o What are the OUTSTANDING SHARES OF STOCK: NON-STOCK CORPORATIONS, How Many Constitutes a
All shares issued by the corporation, excluding treasury Quorum: Presence in person or by proxy of at least a majority of
shares. the number of members
o What are TREASURY SHARES: Shares already issued o What is the difference in quorum between a stock and
but later reacquired by the corp. in its own name. non-stock corp.? As a general rule, it is the majority of
o What is the difference between SUBSCRIBED, members. BUT, consider the number of members that
ISSUED, and OUTSTANDING: eg Corp. has P1M ACS. would be added in the future. For practical purposes,
Shares subscribed are 250k. The subscribed shares of define the quorum in the by-laws. It can be majority
250k are considered as ISSUED upon subscription, of the members or just twenty members or any
and, they are considered as OUTSTANDING once number of members present.
issued as they are already out of the corp. o What is the difference between proxy in a stock and
non-stock corp.? In a non-stock corp., proxies are
Subscribed Issued Outstanding allowed UNLESS the by-laws do not allow the same.

o What if the same corp. from the previous example What are VOTING STOCK AGREEMENTS: In stock
needs to raise additional capital? It issues 300k new corporations, a Voting Trust Agreement may be entered into. In
shares from its P1M ACS. The total shares subscribed a VTA, the stockholder entrusts his votes to a voting trustee. The
and fully paid is now 550k (250k earlier subscribed + term is for a maximum of 5 years.
300 newly subscribed).
o What if the BOD of the same corp. decides to issue Proxy Voting Trust Agreement
stock dividends of 20%? What would be the basis of the 1. Available in both stock and non-stock 1. Available only in stock corporations
20%? The corp. would issue 20% of 550k (or 110 corporations. 2. It must be in a public instrument
shares) because dividends are distributed pro rata, 2. Private instrument is sufficient 3. Filed also with the SEC
according to participation. 3. Filed with the Corporate Secretary 4. VTA entrusts stock certificates to
4. No delivery of stock certificate to the trustee who in exchange delivers to
o Upon distribution of the stock dividends, how many
proxy the stockholder voting trust certificates
would be the subscribed shares? The subscribed
shares would still be 550k. The 110 shares distributed
as stock dividends are not subscribed because they
are not paid for. Stock dividends are not subscribed
they are merely issued.
o How many shares are issued and outstanding? There
would be 660 issued and outstanding shares. The stock
dividends are included in the issued shares.
o How many shares are unissued? Out of the OCS of
660 shares, there would be 340 unissued shares.
o What if 20k treasury shares are returned to the corp.,
how many OCS are there? It would be 640k (660k less
20k treasury shares). BUT in terms of the number of
subscribed shares, there would be no difference
because once shares are subscribed, they remain as
subscribed. Treasury shares are already subscribed or
issued, and thus they do not revert back to being
unissued or unsubscribed shares.

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2. DIRECTORS What are the rules for EDUCATIONAL CORPORATIONS


The number of directors must be in multiples of five.
Who can be a director? A director must have all the qualifications provided in

The term must expire one after the other.
law and by-laws and none of the disqualifications provided in the law and BLs. If the director whose term expires is reelected, his new term would be five
years.
What are the QUALIFICATIONS OF A DIRECTOR (CORP. CODE)


1. He must own at least one share (stock) or be a member (non-stock) When are there VACANCIES IN THE BOARD
What is meant by ownership: Subscription is sufficient. He need Death, Resignation, Incapacity, or Removal


not have paid for it yet, UNLESS the BLs require payment.
What kind of share must he own? It can be a common or How to FILL VACANCIES DUE TO DEATH, RESIGNATION,
preferred share, BUT in practice, preferred shares are not INCAPACITY: There are two ways. The expensive way is to call a
allowed because such are deprived of the right to elect directors special SHs meeting. The inexpensive way is for the directors
and be elected as directors. themselves to fill the vacancy IF the remaining directors still constitute
2. Bank directors must comply with the fit and proper rule, where special a quorum.
law may provide for other qualifications.


What are the DISQUALIFICATIONS OF A DIRECTOR When can there be REMOVAL OF A DIRECTOR?
1. He must not have been sentenced to final judgment for a crime GR: A director may be removed by the stockholders or members,
punishable by imprisonment exceeding six years.

with or without a valid reason.
2. He must not have committed a violation of the Corporation Code E: A director representing the minority SHs may only be removed
within five years prior to being elected as a director. for a valid cause.
3. He must not be disqualified under the BLs. eg Case of Gokongwei v.
San Miguel Corp. where Gokongwei sought to be elected as director What is the nature of a directors removal: Any act of removing a
BUT he was already the director of a competing company director is always an intra-corporate dispute.


Do directors receive compensation? Who is a director representing the minority SHs: Those voted by


GR: Directors are not entitled to regular compensation cumulative voting.
E: They may receive regular compensation IF...


o So provided in the by-laws or What is CUMULATIVE VOTING
o They pass a resolution giving themselves compensation

It is available only in stock corporations
and the same is ratified by at least 2/3 of the Its purpose is to enable the minority SHs to have representation


outstanding common shares.

in the BOD
Per diems: Law allows directors to receive reasonable per diems In stock corporations, one stock equals one vote. Said number
for attendance in meetings of the board. REASONABLENESS of votes is multiplied by the number of directors to be elected.


depends on the resources of the corporation. The product is the total number that a SH may vote. THUS, a SH
Profit-sharing: Law allows directors to receive share in the net can give all his votes in favor of a candidate.
profits of the corp. but it must not exceed 10% of the net profits

(Number of SS) (Number of Vacancies) = Total number of votes
(of the previous year) prior to income tax. In non-stock corporations, one membership equals one vote.
Said number is multiplied by the number of votes to be elected.
The product is the total number that a member may vote.
What is the TERM OF DIRECTORS? It is as stated in the by-laws. If none is
provided, then it is one year, UNLESS he is elected only to fill a vacancy in
which case, he serves only for the unexpired term. What is the FUNCTIONS OF THE BOD: BOD sets the policies of the
corporation, which is implemented by the officers.

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When do they meet: It depends on the BLs. In practice, most corps. 3. OFFICERS
meet monthly (according to the Corporation Code). There are some
corps. whose investments are considered passive, and thus, the BOD Who are the OFFICERS OF A CORPORATION: President, Treasurer,
does not have to meet frequently. Secretary, and Officers mentioned in the by-laws or created by the BOD.

What is the quorum: Quorum of BOD is the presence of the majority Who can be President
of the number of directors without counting their stockholding, ie. He must be one of the directors These are not required in others
Count per head. He must be a stockholder
He cannot be the treasurer or secretary at the same time
Can there be proxies in board meetings: The law does
not provide it, BUT done in practice. Who can be Treasurer: No requirements. Need not be a director

When is quorum determined: At the start of the meeting. Who can be Secretary: Must be a citizen and resident, but need not be a
director. He takes minutes of the meetings
How does the board decide: They pass a resolution, which requires
the majority vote of the directors present. Can a person hold two or more offices: YES, as long as the offices are
compatible.
Who is a SELF-DEALING DIRECTOR: A director who enters into contracts
with the corporation where he is a director. Who are INCOMPATIBLE OFFICERS: Treasurer cannot be the auditor.
Is it allowed: YES as long as it is done under the following conditions: The chief accountant cannot be the auditor.
1. His proposal was approved in a meeting of the board where there
was a quorum without counting his presence. Who is a STOCK TRANSFER AGENT: It is another corp. that records the
2. The proposal was approved by a majority of the quorum without stock transactions of another corporation.
counting his vote.
3. The terms and conditions must be fair and reasonable. What is the TERM OF OFFICE OF THE OFFICERS
As stated in the by-laws
Why the requirements? A director must not take advantage of whatever If none, it is co-terminous with the BOD that filled it up
information he may have acquired as a director. At the pleasure of the BOD (as long as you are useful)

Who are INTERLOCKING DIRECTORS: When two or more corporations What is the COMPENSATION OF THE OFFICERS: Officers are entitled to
share a common director. There is nothing wrong with it. regular compensation as determined by the BOD. Though directors as such
are not entitled to compensation, they are entitled to compensation as officers
If no one attends the annual meeting of the SHs (to vote for the BOD), if they are also officers.
who manages the corporation? The BOD manages the corp. in a hold-over
capacity. Directors shall serve as such until their successors shall have been Where can one contest the REMOVAL OF AN OFFICER: A contest against
elected and qualified. the validity of removal by the director or officer is an intra-corporate dispute,
that must be filed with the RTC of the principal office.

Can an officer enter into a contract with the corporation? YES, but he
must follow the same conditions as contracts between the director and corp.

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4. STOCK CERTIFICATES 5. CORPORATE SEAL Its design, size, shape and configuration are
left with the BOD.
What is the IMPORTANCE OF STOCK CERTIFICATES: Once it is issued, it
is the best proof of full payment of ones subscription to the capital stock of the Q: What is the use of a corporate seal?
corp. A: It is practically a paperweight, but real use is in making stock certificates.

When is it issued: Upon full payment of the subscription.


Note: A subscription contract is an indivisible contract. Thus, partial 6. AMENDMENTS OF AOI AND BL
payment is partial payment for all shares, and not full payment as to
some, and no payment as to the rest. What rules govern amendments: a) As provided in the by-laws, b) If none is
provided, then as provided by law.
Who signs the stock certificates:
The secretary, who is in charge of the Stock Transfer Book What are the requirements for amending AOI under the law
President or anyone authorized by the BOD or BL Board resolution
*Stock certs. are not individually signed for publicly-listed corps. Ratification by 2/3 of all outstanding shares, common and preferred,
or members
What is the REMEDY FOR LOSS OF STOCK CERT.
a. File an AFFIDAVIT OF LOSS with the corp. sec. What are the requirements for amending BL under the law
b. Cause the publication of NOTICE OF LOSS once a week for Board resolution
three weeks in a np of general circulation Vote of the majority of OCS, common and preferred, or members
c. Wait one year from last publication
d. File a BOND for the value of the shares if you want to claim
it earlier than one year, for such amount and in such form How are AMENDMENTS MADE:
satisfactory to the BOD Copy the AOI or BL verbatim, underscore the amendments, and then put
in parentheses, the words as amended. The paper is letter size.
How to TRANSFER SHARES OF SHs When filed, has to be accompanied by directors certificate. This
1. Publicly-listed corporations: Transferor must indorse the stock certificate authenticates the amendment.
2. Not Publicly-listed corporations: Deed of Sale via stock brokers SEC then reviews the amended AOI or BL, and after approval, the SEC
a. OVER-THE-COUNTER TRANSACTIONS: Those between the issues a certificate of filing of amended BL or AOI.
parties themselves and involving shares listed in a stock
exchange.

What is a STOCK AND TRANSFER BOOK OF STOCK CERTIFICATE: It is


a register where stock ownership is recorded. Corp. should register its stock
and transfer book within thirty days from issuance of certificate of registration.
There is a penalty for failure to register.

NOTE: Shares are personal property and thus, they may be mortgaged or
pledged.

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CORPORATE SHARES 4. When new shares are issued to comply with the legal
requirement that the corporation go public, eg. Commercial bank
What are PREFERRED SHARES: Shares which enjoy priority or preference becoming a universal bank
over common stocks 5. When the shares are issued pursuant to a stock option plan
eg Preference in the distribution of dividends or assets. (Preference granted to officers and/or employees of the corp.
in dividends normally includes preference in assets)

eg If a corporation is new, the shares are all common because the


corporation has no history of profitability yet. Thus, when do
corporations issue preferred shares? When it wants to raise money to
finance expansion programs sourced from the public.

What are PREFERRED REDEEMABLE SHARES: They are issued by the


corporation but the latter reserved the right to reacquire the same within a
certain period.

What are PREFERRED REDEEMABLE CONVERTIBLE SHARES: They are


preferred shares which are redeemable within a certain period. If the
corporation does not redeem it, the stockholder may have his redeemable
shares converted into common shares.

What are PREEMPTIVE RIGHTS: Right of a stockholder to be given


preference or priority to subscribe to new issues of shares of a corp.
How it works: BOD sets aside part of the unissued shares for
subscription by SHs and others, but the present SHs are preferred.

Why grant preemptive rights: To enable present SHs to maintain the


present ratio of their holdings in the corp.

Are these rights personal: Yes, preemptive rights are personal


property arising from stockholders, but they are not strictly personal.

Are these rights waivable: YES.

Are these rights transferable: YES, either onerously or gratuitously.

Are these rights absolute: NO, because these are unavailable at


some times:
1. When so provided by the AOI or BLs, eg. Filinvest
2. When new shares are issued to pay for property which the
corporation needs and the owner wants to be paid in shares
3. When shares are for payment of previously contracted debts

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DIVIDENDS o Re: Treasury Shares: These are issued by the corp. but later on
reacquired in its own name, as when its prices are down. It can
What are DIVIDENDS: These are earnings of the corporation. be used as property dividends BUT it must be ratified by 2/3 of
the outstanding common shares. It is not distributed as stock
Who can DECLARE DIVIDENDS: Only the BOD and only when they are dividends because stock dividends are distributed from the
acting as such (and not as an executive committee), and only when there is unissued shares.
surplus profits. Stock Dividends Distribution requires Declaration by the BOD and
Ratification by 2/3 of the outstanding common stocks. Vote of the
When to declare dividends: Only when the corporation has surplus profits. preferred shares are not included because they are not affected.
NOTE: According to the SC, no court can order the corporation to
declare dividends, which is an exercise of business judgment. No law *Why is ratification required: Common SHs will suffer a dilution of their
requires the declaration of dividends BUT the corp. should not retain investments.
earnings in excess of 100% of its paid up capital.

SURPLUS v. EXCESS: Surplus is what is outside the hand when it What are WATERED STOCKS: These are shares of stock that are issued by
touches a boob. Excess is the other boob. the corporation, but for which shares, the corporation did not get the full fair
value.
What are RETAINED EARNINGS: Those not declared.
What if there are unpaid creditors, who can they go after:
What are RESTRICTED RETAINED EARNINGS: Part of the surplus Recipient of the watered stocks
profits that is set aside for a definite purpose. Directors who did not object to the issuance of the watered
stocks
o Includes those who abstained
What are SURPLUS PROFITS: It is net profits after income tax, without any o To validly object, the director must have filed a written
impairment or diminution of paid-up capital. objection with the corporate secretary

What are PAID-UP or PAID-IN CAPITAL: Total amount paid by the


subscribers on their subscriptions. It is impaired or diminished by losses.
Appraisal Right
eg Paid-up capital is P500k. After 1y, there is a loss of P70k. Thus,
the net of PU is P430k. The following year, there is a loss of P20k, What is an APPRAISAL RIGHT: It is a stockholders right to demand payment
bringing down the net of PU to P410k. The following year, there is of the fair value of his shares under certain conditions:
net profit of P110k. The paid-up capital is decreased by P90k (total 1. There must be a board resolution authorizing:
amount of losses) to restore it to the original amt of P500k using the a. Amendments of the AOI/BL that limits or restricts the existing
profits. The surplus would then just be P20k. rights of a SH
b. Investments of the corporate funds in another corporation
In what FORMS may dividends be declared c. Sales or dispositions of all or substantially all of the assets of
Cash Dividends paid in cash in the form of checks. a corp.
o What is required: Declaration by the BOD for payment or d. Mergers or consolidations
distribution, which also fixes the date of distribution 2. The resolution must be ratified by the required number of votes, i.e. at
Property Dividends paid by the properties of the corp., including the SS least 2/3 of the shares
of another corp. 3. The stockholder demanding payment shall have voted against the
o What is required: Declaration by the BOD, with the date fixed for ratification
its distribution. a. He must be present in the meeting, in person or by proxy
b. He must not have abstained

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4. He must demand payment within thirty days from ratification


5. The corporation has sufficient surplus Do treasury shares have rights: NO, treasury shares have no voting rights or
right to receive dividends because the corporation itself cannot vote or receive
dividends.
What is the FAIR VALUE OF THE SHARES: It can either be the par value
(which remains constant), or book value or market value (which fluctuates). What is the NATURE OF TREASURY SHARES: These are assets of the
(Charles: Average of market value and book value) corporation.

What is the BOOK VALUE: Is it good for a stockholder that a corporation has treasury shares: YES
Total Assets
Less: Total Liabilities
-----------------------------------------
Net Worth DELINQUENCY SHARES
Number of Shares
------------------------------------------ When are shares delinquent: When the corporation calls for payment of the
Book Value unpaid subscription and the SH fails to pay

What are UNPAID SUBSCRIPTIONS: If the SH is unpaid on the


How come there is need for surplus profits first entire amount of subscription. There cannot be an unpaid amount on
o GR: Surplus profit is needed because if there is none yet payments are the total number of shares BECAUSE subscriptions are indivisible.
made, then it would be a violation of the TRUST FUND DOCTRINE.
o What is the TRUST FUND DOCTRINE: All subscriptions, paid What is a CALL: Demand for payment
up and unpaid, constitute a trust fund for the benefit of the
creditors of the corporation. This is because the stockholder What are the REMEDIES OF A CORP. AGAINST DELINQUENCY
promised to contribute resources, and which promise is legally 1. Bring an action for specific performance to collect the unpaid amount
enforceable against him as a subscription receivable. (which is an intra-corporate dispute)
o eg. Corp. has P1000 worth of subscription. Such P1000 is the 2. Sell the delinquent shares in a public auction (in a delinquency sale). This
asset of the corp. as much as it is the liability of the SH. remedy is unique as the bid is only for the amount demanded by the
o E: There is no need for surplus profits if the corporation redeems corporation for the least number of shares the bidder is willing to receive
redeemable preferred shares. for said amount
o EE: Surplus profits is needed for redeemable shares if after the a. eg Value of delinquency shares is P100k covering 100 shares.
redemption, the corporation can no longer carry out its purpose if the Bidder A bids P100k for 100 shares. Bidder B bids for P100k for
shares are redeemed 75 shares. Bidder C bids for P100k for 50 shares. Bidder C
wins. The difference between the value of the 50 shares won by
Who owns the shares after payment to the SH: The corporation, as treasury C and the value of the other 50 shares belongs to the delinquent
shares. subscriber.
b. What if there is no bidder: The corp. may bid if it has sufficient
surplus.

TREASURY SHARES NOTES:


- When there is a definite date, no demand needed for it to become
When do shares become treasury shares: delinquent.
When the corporation eliminates fractional shares in dividends, as when - If down payment, balance is payable on call. Call is a demand, formal
the shares have a value of less than one whole share demand to pay balance under the Corporation Code. If not paid, becomes
When the corporation bids for its own shares in delinquency sale delinquent.

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1. Name of the corporation


Consequences of Delinquency 2. Purpose
1.) Delinquent subscriber shall have no voting rights. 3. Term In mergers, there is no difference in term from that of the
2.) Wont receive cash dividends, they are applied to unpaid subscription. surviving corp.
3.) If property or stock dividend, they are withheld. 4. Principal Office It can be changed in mergers or consolidations
5. Incorporators In mergers, they remain the same
6. Number of Directors
7. Authorized Capital Stock In mergers, amount and number of shares
MERGERS AND CONSOLIDATION may not be changed but the par value of the shares may be changed
8. Paid-up Capital Not changed
What are MERGERS: It is the union of two or more corporations where one 9. Valuation of Shares IMPT for purposes of exchange because the
survives and the other is dissolved. shares of the dissolved corp. would be exchanged for the shares of
the surviving corp.
What are CONSOLIDATIONS: It is the union of two or more corporations
where all corporations are dissolved and a new one is created.

Why do corporations merge or consolidate:


- To meet the minimum paid-up capital requirement of the govt. regulator,
eg banks and property insurers
- For better profits, especially in industries with limited markets
- For better business opportunities
- For better corporate image

How do corporations merge or consolidate: Like courtship


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

What is the CONTENT OF THE ARTICLES OF MERGER OR


CONSOLIDATION

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DISSOLUTION OF CORPORATIONS
NOTES:
What are the CAUSES OF DISSOLUTION Liquidating dividend to the extent of return of capital, no tax, but any increase
1. Expiration of the term is taxable.
2. Cancellation of the Certificate of Registration of the Corporation by
SEC for the following reasons Under the ROC, two years to file claim against estate. In case of dissolved
a. Failure to file the by-laws within thirty days from the issuance corporations, 3 years. Within this period corporate property is transferred to
of the cert. of reg. trustee.
b. Failure to organize within two years from the issuance of the
cert. of reg.
c. Failure to carry out its primary purpose for at least five years
d. Failure to comply with the reportorial requirements of SEC
3. Order of Dissolution by the court upon finding that it is insolvent or
organized purposely to commit fraud

NOTES:
- GIS is filed within 30 days from date of annual meeting.
- AFS within 30 days from filing with SEC.
- Show cause letter in certain cases
- Liabilities are paid from assets

What happens upon dissolution: WINDING UP OR LIQUIDATION


PROCESS

How long is the winding up process: Only god knows

How are the assets liquidated: The claims would be paid from the
residual assets.

How are RESIDUAL ASSETS DISTRIBUTED


o Stock: Distribute first to the preferred SHs with preference as
to assets. If the assets are insufficient, they are pro-rated
among the preferred SHs, and then to the common SHs.
o Foundation: Residual assets are normally escheated to the
govt as a condition by the BIR for its tax exemption.
o Non-Stock: Members share in the residual asset.

What are LIQUIDATING DIVIDENDS: What the SHs receive as their share in
the residual assets of the dissolving corporation.

What is the INCOME OF THE CORP.: Excess of the return of capital, and not
the mere return of capital.

What are DIVIDENDS: These are fruits, but not natural, industrial, or civil fruits
(under property) but classified as other fruits.

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CORPORATION SOLE Where must these conditions appear to bind the transferees: The limit on
the transferability of shares must appear in the AOI, the by-laws, and the
What is a CORPORATION SOLE: It is a corporation organized by one stock certificate. If restriction on transferability does not appear in stock
person, who is the head of a religious sect or denomination. certificates but transferee was not informed of restriction, restriction does not
eg Catholic Church, Iglesia ni Kristo, Lutherans, Mormons. El Shaddai apply to him.
is not a corporation sole because its preaching is the same as the
Catholic Church. Who MANAGES A CLOSE CORPORATION:
BOD
What is unique about it: There is no board of directors. THUS, to protect its o If there is a deadlock, a Petition for Appointment of a Provisional
members, any disposition or encumbrance of real property requires judicial Director must be filed in court.
approval. o Who is a PROVISIONAL DIRECTOR: He is appointed by the
court to sit in the BOD of a close corporation to resolved a
deadlock therein. The provisional director need not comply with
the qualifications of the BOD.
EDUCATIONAL CORPORATIONS o Who may be appointed a provisional director: One who has
absolutely no interest in the corp. He must not own a share and
What are ECs: It could be a stock or non-stock corp. Before, under the may not be a creditor.
Education Act of 1982, all must be organized as a non-stock corporation. But o What is the term of the provisional director: As long as he is
such requirement did not apply to previous corporations because of vested needed
rights. Directly by the SHs themselves
o There is no need for an annual meeting because the most
Stock Educational Corporations: FEU; Ph Womens University; CEU; important agenda thereof is the election of the BOD anyway
University of Pangasinan; NU; MAPUA; Univ. of Manila because none.

Non-Stock ECs: Sectarian schools OTHER NOTES


Domestic Corporation one organized on the Philippines regardless of
What is unique about it: The law provides that: nationality of organizers
- its BOD must be in multiples of five
- the term of the directors is five years, BUT the term of the first batch Foreign Corporation one organized in another country, even if organized by
is the agreed term that must be staggered and thus such terms Filipinos.
expire one after another
Foreign Corporation may engage in business in the Philippines if it meets the
following requirements:
1.) Register with the SEC as a foreign corporation it must give certified
CLOSE CORPORATIONS true copies of all incorporation documents in country of origin. If not in
English, with official translation in English.
How do you know if a corporation is close: If the AOI provides that: 2.) Inward remittance at the amount of prescribed capitalization.
the number of shareholders should not exceed twenty, or 3.) Appointment of a resident agent.
the shares should never be listed in any exchange, or
in case any shareholder would transfer his shares, then he must first In case of bidding, must already be registered as a foreign corporation.
offer to transfer the same to the other shareholders under the same
terms and conditions that he would offer to non-shareholders. The
offer must have a term (and not an open term), eg 30d only to
acquire the shares of the SH.

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SECURITIES REGULATION CODE What is a BOND: It is a promissory note with a term exceed five
years, as when a corporation promises to pay on the PN at least until
What is the governing law: Securities Regulation Code after 5y

What are securities: What are DEBENTURES: It is a bond secured by properties, as when
- These are promissory notes, bonds, and debentures a corporation secured its investments with a real estate mortgage
- It involves money
- They are broadly defined as instruments evidencing an investment in
a commercial enterprise, ie stock corporations Investment by being a part owner: Raising capital via stock ownership

When are they used: When companies expand to address the higher demand Q: How does one make an investment, not as a loan but, as a co-investor: One
of its operations, they raise money by securing funds by reclassifying the can invest in shares. It can be in preferred shares where there is a regular
original or the organizers common shares as founders shares and issuing return of income, or in redeemable and convertible preferred shares.
common shares for new investors (which requires SEC approval).
Founders Shares: Exclusive right to be elected in the BOD for a PREFERRED SHARES: Shares with the usual preferences on profits
maximum period of five years from approval. After said period, they and assets. eg Those guaranteed with a 10% per annum income or
become regular common shares and the AOI is amended. dividends. (THUS, they are payable only if the corporation has
surplus profits).
Q: What if a corporation needs more working capital and is to be sourced from
the public: There are rules on the solicitation of investments PREFERRED REDEEMABLE SHARES: Those where the
PUBLIC: More than 19 persons, natural or juridical corporation reserves the right to buy it back within a certain period.

What are these RULES ON SOLICITATION OF INVESTMENTS PREFERRED REDEEMABLE AND CONVERTIBLE: Those with an
1. Before printing the brochures and other marketing documents, the added feature that if the corporation fails to redeem the shares, the
corporation should apply for the registration of its securities with the stockholder has the option to convert the preferred shares into
SEC common shares
2. There are two forms of investments in a commercial enterprise
a. By lending money PREFERRED PARTICIPATING: Those which join the common
b. By becoming a part owner of an enterprise stockholders in receiving additional dividends. There are none in the
Ph.
What is a COMMERCIAL ENTERPRISE: One engaged in
commerce, or in buying and selling (stock corporations) Q: If there are no profits this year and thus no dividend, what happens
if there are earnings next year: Shares could either be CUMULATIVE
Are non-stock corporations covered by the securities law: It or NON-CUMULATIVE.
is still pending determination. Non-stock corporations
engage in limited commercial transactions and only for the CUMULATIVE PREFERRED SHARES: Those which receive what is
benefit of its members. not received in prior years due to absence of surplus

Investment in form of a loan / Lending money: When a corporation borrows NON-CUMULATIVE PREFERRED SHARES: Prior profits cannot be
money and signs a promissory note received in the future. It must be expressly stipulated.

What is a PROMISSORY NOTE: It is a form of securities (where the What is SUFFICIENT SURPLUS: eg Corporation has P50k dividends
maker promises to pay back the amount borrowed), as when a payable, but it has P49,999. There is surplus but no one gets any
corporation borrows money and promises to pay it back dividends because surplus is not sufficient.

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What is the PHILIPPINE STOCKS EXCHANGE: It is the Philippine stock


Q: What if investors come in as stockholders or part owners? market
A: Issue certificates of stock
Why are shares listed therein
Q: If investments in form of stock, what shares? - To raise capital, by making an Initial Public Offering
A: Shares can be common or preferred, but preferred has variations. Ex - To have a convenient facility for shareholders to buy and sell shares
Redeemable, convertible, cumulative, non-cumulative, participating, non- of stock through the exchange or LISTING BY INTRODUCTION.
participating. This is listing without the intent to raise capital

When redeemable, corporation reserves the right to buy back shares after a THUS, if you want to buy or sell shares, you can transact in a matter
certain period. Option is with the corporation. It cant be forced to buy back of seconds. Where there is no market and you need eggs, you would
shares. Redemption is a right and not a duty. have to look for people who sell eggs.

Convertible preferred shares becomes common after a certain period. BUYING AND SELLING: trading

Q: Can a corporation redeem if it has no surplus profits? EXCHANGE: In securities law, it is a corporation organized and
A: Yes, it is not in violation of the trust fund doctrine. However, the corporation licensed by the SEC to put up and operate facilities for the purpose of
shouldnt redeem shares if as a consequence of redemption, it wont be able to trading securities. It is barter or market or palengke in civil law.
carry out its primary purpose. Note: There used to be a PSE in Makati and in Manila. They
were merged.

Q: How do corporations entice the public: The corporation makes FINANCIAL Note: Registration in the SEC is not a guarantee or assurance of listing in the
PROJECTIONS. PSE. According to the SC (Puerto Azul Case), SEC cannot force PSE to list
1. A commercial enterprise must first apply its securities for registration shares. While SEC has supervision, it may not impose on the exchange.
with the SEC before it can cause the printing of its marketing
materials. It must file a REGISTRATION STATEMENT with SEC. It Note: Not all securities are required to be registered in SEC.
is a document where the SEC requirements are attached.
a. Why: To protect the public from being defrauded by allowing What are EXEMPT SECURITIES
them to determine whether the corp. is in a sound condition 1. Those issued by the Ph Govt or any of its political subdivisions
b. What is an AUDITED FINANCIAL STATEMENT: It is a Why: Because the government will never defraud its citizens
schedule or breakdown of the corporations receivables. Do
not take it on its face value. 2. Those issued by Foreign Govts with diplomatic ties with the Ph
2. The form of investment can either be a promissory note, bond,
debentures, certificate of preferred or common shares. Preferred 3. Those issued by receivers in insolvency
shares can be redeemable or convertible. Why: Because it undergoes judicial scrutiny
3. If the corporation intends to raise capital via stock ownership, it must
apply for listing of its shares in the Ph Stocks Exchange after 4. Those issued by corporations under the supervision of the BIR,
registering the securities with SEC. If investments are in the form of Insurance Commission, or HLURB
shares or equity participation, after SEC registration, corporation Note: Pre-need contracts are included in the jurisdiction of the IC
applies for listing with the PSE.
5. Those issued by banks other than its own shares of stock
Why: Because banks engage in daily transactions with the people. If
they are required to list securities, then it will never accept time
deposits

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PRE-NEED CONTRACTS: Contracts wherein a corporation, in consideration Note: Only corporations can be licensed as brokers because
of a promise of another to deliver an agreed amount in lump sum or in individuals and partnerships can die.
installments, agrees to deliver an agreed amount or to render a particular
service upon the arrival of a period or the happening of an event; eg Who are DEALERS: Corporations licensed by the SEC to buy and
educational plans, memorial plans (which includes internment fee plans) sell securities for its own account.
Example: B anticipates the death and internment expenses of his
mother-in-law. Thus, he buys a burial lot at present. Is it a pre-need
contract? NO, even if it is in anticipation of a future need. There is no PERSONS ASSOCIATED DEALER
particular service or delivery of money to be rendered by the WITH BROKER
corporation. Here, the contract is a sale on installments. Acts for clients always Acts for its own account, for itself
Earns commissions Males profits and suffers loss
Does not invest its own money Invests its own money
What are EXEMPT TRANSACTIONS: May require prior registration, but may
apply for exemption. Its types are Certificated or Uncertificated Who are SALESMEN: Persons representing stock brokers inside the trading
floor of the PSE and accepting orders for buying or selling from clients of the
UNCERTIFICATED CERTIFICATED broker. They also get a license, but a license is issued to salesmen is also
- When securities bought are sold as soon - When securities are bought or sold to only for a specific broker
as the prices go up build up stock ownership; it is a long-term Note: All transactions in the PSE are conducted through the telephone
- These are paperless securities, where plan
ownership is evidenced by electronic - Stock ownership is covered by Note: The trading hours of the PSE is from 0930-1200, 1300-1530. It is
records only. Records are also kept by the certificates of stock the time when you can buy or sell shares through the exchange
PSE, the broker, and the salesman, thus, it - It takes longer to sell because certificated
is not entirely paperless stock ownership cannot be sold right away Note: Where do you find brokers? In their offices!
- The broker prepares a PURCHASE as the broker must have these certificates
CONFIRMATION or SALE validated first (which takes 5 days)
CONFIRMATION, showing the number of Note: All participants except investors are licensed. Licensing is annual.
shares bought or sold, the price, and
from/to what company it was 2. The salesman, who has a cubicle in the PSE, then makes a post of
purchased/sold, and the commission the shares that a client wants to buy or sell, in the computer of the
- Easier to sell PSE. Orders to buy are then matched with orders to sell. Once they
are matched, the orders are removed in the computer.

How to Trade Stocks

1. Engage the services of a broker


Q: If shares are listed in the PSE, can you still sell directly to the buyer or buy
What is a BROKER: Corporations licensed by SEC to buy and sell directly from the seller? YES, OVER-THE-COUNTER TRANSACTIONS are
securities for their clients or on their behalf. allowed! It is the buying or selling of shares listed in the PSE but made directly
between the parties and no longer coursed through the exchange.
How much commission do brokers receive: It depends but
the maximum is 2% of the volume. They are paid because
they do the legwork in the SEC and BIR.
ADVANTAGE:
Who are PERSONS ASSOCIATED WITH BROKERS: A corporation - The buyer does not have to pay the brokers commission and stock
acts through its agents or officers known as persons associated with transfer tax, and the seller only pays CGT (if there is gain) and DST.
brokers. They are also licensed.

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Note: Tax avoidance scheme is to sell shares worth What is MARGIN TRADING: Trading is buy and sell. It is an arrangement
P100,000 today and then the rest tomorrow so that the tax with the broker where the investor has not much money and the broker
rate applicable is only 5%. advances part of the purchase price in the form of a loan.
- Hassle-free because the broker does all the work C: Broker does not use its own money, they use money of the client.
Eventually, buyer may ask broker to advance money. This is called
DISADVANTAGES: margin trading, the broker pays part of the purchase price.
- Buyer might be buying shares covered by fictitious certificates of
stock. In the PSE, certificated stock ownership cannot be sold right What are SHORT SALES: It occurs when a person sells shares he does not
away because the broker must have these certificates validated first own while the prices are up, but he later on buys back such same shares when
(which takes 5 days). (THUS, uncertificated SS are easier to sell) the prices are down, so he can return and deliver such shares which he had
- Parties themselves do the legwork earlier sold. In other words, the seller sells shares he borrowed and does not
own, but later he has to buy the same shares. This is legal.

There are 3 participants in a market: What are WASH SALES: These are illegal. It is a stock price manipulation.
1.) Producer eg Case of BW Resources, Corp. It is a bingo company, whose
2.) Buyer shares has a par value of P1. Over the years, the market value of its
3.) Seller/Intermediary shares rose to P2. Through manipulation, its market value very
quickly became P107 each. The next day, it fell to P7. THUS, those
What are the different financial markets? who bought the shares at P107 suffered loss of P100 per share. It is
1.) Money market because of this that he PSE became very strict!
2.) Capital market
3.) Bond market PSE RULE: When there is an unusual increase or decrease in the
4.) Stock market prices of shares, the PSE suspends the trading of the shares of
such corporation to investigate the cause of the increase or decrease.
Money Market a source of funds, payment period not more than a year There is unusual increase or decrease when the value of the shares
increases or decreases by 10% in a days transaction.
Capital Market payment period is over a year but less than 5 years

Bond Market payment period is more than 5 years What is a TENDER-OFFER: When a person or group of persons representing
the same interests wants to acquire: (a) at least 15% of a listed company or (b)
Stock Market Source of funds for equity participation at least 15% of a company that is not listed but with assets worth P50M or
more and with no less than 200 stockholders, each owning no less than 100
Money market placements are made through a bank. A bank finds funds shares, (c) at least 30% of any of said companies, within a period of twelve
through time depositors (usually) and after getting their consent, the amount is months, makes a formal offer with the SEC, stating the price they are willing to
loaned to the borrower. The bank is a mere intermediary. pay and the terms of payment. Upon approval by the SEC, such person or
group of persons can make announcements in newspapers.
Licensing persons associated with broker may only use the license with a
particular broker. If you move between brokers, you must get a new license. Securities Regulation Code: SEC. 19. Tender Offers. 19.1. (a) Any person or
group of persons acting in concert who intends to acquire at least fifteen per
cent (15%) of any class of any equity security of a listed corporation or of any
class of any equity security of a corporation with assets of at least Fifty Million
Pesos (P50,000,000.00) and having two hundred (200) or more stockholders
with at least one hundred (100) shares each or who intends to acquire at least
thirty per cent (30%) of such equity over a period of twelve (12) months shall
make a tender offer to stockholders by filing with the Commission a declaration
to that effect; and furnish the issuer, a statement containing such of the

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information required in Section 17 of this Code as the Commission may It then merges with the doorman corporation and in the merger, it is the
prescribe. Such person or group of persons shall publish all requests or doorman corporation that survives.
invitations for tender, or materials making a tender offer or requesting or
inviting letters of such a security. Copies of any additional material soliciting or
Example: Case of Urban Development Bank and EI Bank. Urban
requesting such tender offers subsequent to the initial solicitation or request
shall contain such information as the Commission may prescribe, and shall be Bank was a universal bank whose shares are listed. UB, however,
filed with the Commission and sent to the issuer not later than the time copies could no longer comply with the increased paid up capital requirement
of such materials are first published or sent or given to security holders. of the BSP and it thus downgraded to a commercial bank. The result
was a bank run and holiday; it never reopened until the EI Bank
wanted its own shares to be listed and thus acquired and merged with
OPEN: The price paid for the very first transaction of the day UDB. UDB was the surviving corp. but its name was changed to
Export and Industry Bank.
CLOSE: The price paid for the last transaction of the day

LOW: The lowest price in between the trading hours BLUE-SKY LAW any law relating to investments

HIGH: The highest price of the day INSIDER Could be a stockholder, officer, director or employee who because
of relation with corporation has information not available to public which
VOLUME: All shares of the corporation traded for the day information could influence the price of shares of the corporation. An insider
need not necessarily be a member of a corporation but one who derives
information from another.
What are CLASS A and CLASS B SHARES: Class B shares are more
expensive BUT they are exactly the same and identical shares. They are
classified to comply with the citizenship requirement of the Constitution and NOTE: Original and exclusive jurisdiction over intracorporate controversies is
only for the purpose of monitoring stock ownership. no longer with SEC but with the RTC having jurisdiction over the principal
eg MERALCO, which is engaged in public service, classified its place of business.
shares into Class A and B. Class A shares comprise 60% and are
allowed only for Filipinos. Class B shares comprise 40% and are sold
to aliens. Class B shares are more expensive because there are less FINAL NOTE: 09178012694. Text Sir for questions and, most importantly,
of it and thus the law of supply and demand. when we pass the Bar

STRADDLE, PUT, and CALL

PUT: A contract which gives the holder the right to buy a specified number of
shares for a specified price for a particular (definite) period

CALL: A contract which gives the holder the right to sell a specified number of
shares for a specified price for a particular (definite) period

STRADDLE: Combination of both

What is BACKDOOR LISTING: It is a legal scheme where a corporation


which wants to avoid the hassle of listing instead acquires the controlling
interest a corporation (2/3 of OCS) whose shares are already listed in the PSE
but which corporation is no longer operating (DOORMAN CORPORATIONS).

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