Memory Aid - COMML

1 SAN BEDA COLLEGE OF LAW, 2000-2001
2 MEMORY AID in COMMERCIAL LAW

3 Any form of reproduction of this copy is strictly prohibited!!!
4
liability). merely the
1
legality of his
2I. NEGOTIABLE INSTRUMENTS title
3 LAW (NIL)
43
4
5NEGOTIABLE INSTRUMENT (NI)- it is a written 44
6contract for the payment of money which by its 45CLASSES OF NI:
7form and on its face is intended as a substitute 46
8for money and passes from hand to hand as 471. PROMISSORY NOTE (PN)-
9money, so as to give the holder in due course 48 unconditional promise in writing by one
10(HDC) the right to hold the instrument free from 49 person to another signed by the maker
11defenses available to prior parties. 50 engaging to pay on demand or at a fixed
12 51 or determinable future time, a sum
13BRIEF HISTORY OF THE LAW: 52 certain in money to order or to bearer.
14 53 (Sec. 184, NIL)
15 Act No.2031, the Negotiable Instruments 542. BILL OF EXCHANGE (BE)-
16 Law, took effect on June 2,1911, and is 55 an unconditional order in writing
17 patterned after the U.S Uniform Negotiable 56 addressed by one person to another,
18 Law, which in turn is copied from the 57 signed by the person giving it, requiring
19 English Bill of Exchange Act of 1882. 58 the person to whom it is addressed to
20 59 pay on demand or at a fixed or
60 determinable future time a sum certain
21TWO DISTINCTIVE FEATURES OR 61 in money to order or to bearer (Sec.
22CHARACTERISTICS OF NI: 62 126, NIL); and
23 633. CHECK- a bill of exchange drawn on a
241. NEGOTIABILITY- it is that attribute or 64 bank payable on demand (Sec. 185,
25 property whereby a bill or note or check may 65 NIL).
26 pass from hand to hand similar to money, so 66
27 as to give the holder in due course the right 67DISTINCTIONS:
28 to hold the instrument and to collect the sum Negotiable Negotiable
29 payable for himself free from defenses. Instruments Documents of
30
Title
312. ACCUMULATION OF SECONDARY
1. The subject is 1. The subject is
32 CONTRACTS- secondary contracts are
money goods
33 picked up and carried along with Negotiable
34 Instruments as they are negotiated from one 2. Is itself the 2. The document is
35 person to another; or in the course of property with value a mere evidence of
36 negotiation of negotiable instruments, a title – the things of
37 series of juridical ties between the parties value being the
38 thereto arise either by law or by privity. The goods mentioned in
39 indorsers become secondarily liable to the the documents
40 holder.
41 3. Has all the 3. Does not have
42DISTINCTIONS: requisites of Sec 1 these requisites
of NIL
NEGOTIABLE NON- 4. A holder of NI 4. Intermediate
NEGOTIABLE may run after the parties are not
1. must contain all 1. does not contain secondary parties secondarily liable if
requisites of all requisites of for payment if the document is
sec. 1 sec.1 dishonored by the dishonored
party primarily
2. transferable by 2. transferable by liable
negotiation and assignment not
assignment. negotiation 5. A holder, if HDC, 5. A holder can
may acquire rights never acquire rights
3. HDC can have 3. a transferee over the instrument to the document
rights better than acquires no better than his better than his
his transferor better rights predecessor predecessors
than his 68
transferor 69
70
4. prior parties 4. prior parties do 71
warrant payment not warrant 72DISTINCTIONS:
(secondarily payment but PROMISSORY BILL OF
5 Page 1
6Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON
7(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius
8Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone
9Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle
10Antonio, Jil, Reina, Macky Macaldo
NOTE EXCHANGE 27LEGAL TENDER

1. unconditional 1. unconditional 28☛ that kind of money which the law
promise order 29 compels a creditor to accept in payment
2. involves 2 2. involves 3 parties 30 of his debt when tendered by the debtor
parties 31 in the right amount.
3. maker primarily 3. drawer is only 32NOTE: A negotiable instrument although
liable secondarily liable 33intended to be a substitute for money, is
4. only one 4. two 34generally not legal tender. Thus, a creditor is
presentment: for presentments: for 35not bound to accept commercial papers, like
payment acceptance and 36a check, in satisfaction of his demand,
for payment 37because a check, even if good when
1 38offered, does not meet the requirements of a
2DISTINCTIONS: 39legal tender.
BILL OF CHECK 40
EXCHANGE 41INCIDENTS IN THE LIFE OF A NI:
1. Not necessarily 1. It is necessary 421. Issue
drawn on a deposit. that a check is 432. Negotiation
It is not necessary drawn on a deposit. 443. Presentment for acceptance in certain
that a drawer of a Otherwise, there 45 kinds of BOE
BOE should have would be fraud. 464. Acceptance
funds in the hands 475. Dishonor by non-acceptance
of the drawee. 486. Presentment for payment
497. Dishonor by non-payment
508. Notice of Dishonor
2. Death of a 2. Death of the 519. Protest in some cases
drawer of a BOE drawer of a check, 5210. Discharge
with the knowledge with the knowledge 53 REQUISITES OF NEGOTIABILITY
of the bank, does by the bank, 54(SEC. 1):
not revoke the revokes the 551. Must be in writing and signed by the
author of the authority of the 56 maker or drawer;
banker to pay. banker to pay. 572. Must contain an unconditional promise
58 or order to pay a sum certain in money;
3. May be 3. Must be
593. Must be payable on demand, or at a
presented for presented for
60 fixed or determinable future time;
payment within a payment within a
614. Must be payable to order or to bearer;
reasonable time reasonable time
625. When the instrument is addressed to a
after its last after its issue.
63 drawee, he must be named or otherwise
negotiation
64 indicated therein with reasonable
because it may be
65 certainty.
further negotiated.
66
3
67UNCONDITIONAL PROMISE OR ORDER-
4ASSIGNMENT VS. NEGOTIATION
68where the promise or order is made to
51. Assignment pertains to contracts in general;
69depend on a contingent event, it is
6 Negotiation pertains to negotiable
70conditional, and the instrument involved is
7 instruments.
71non-negotiable. The happening of the event
82. One who takes an instrument by assignment
72does not cure the defect.
9 takes the instrument subject to the defenses
73
10 obtaining among the original parties;
74☛ The unconditional nature of the promise
11 whereas a person who takes the instrument
75 or order is not affected by:
12 by negotiation, who is a HDC, takes it free
76a) An indication of a particular fund out of
13 from personal defenses available among the
77 which reimbursement is to be made, or
14 parties.
78 a particular account to be debited with
15
79 the amount; or
16OTHER FORMS OF NEGOTIABLE
80b) A statement of the transaction which
17INSTRUMENTS:
81 gives rise to the instrument (Sec. 3, NIL)
181. Certificate of deposit issued by banks,
82☛ But an order or promise to pay out of a
19 payable to the depositor or his order, or to
83 particular fund is NOT unconditional.
20 bearer
84
212. Trade acceptance
85
223. Bonds, which are in the nature of promissory
86
23 notes
87
244. Drafts, which are bills of exchange drawn by
88
25 one bank upon another
26 89DISTINCTIONS:
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Fund for Particular Fund for 38☛ An instrument is payable at a

Reimbursement Payment 39 determinable future time when payable:
1. Drawee pays 1. There is only one 40a) At a fixed period after date or sight;
the payee from act- the drawee 41b) On or before a fixed or determinable
his own funds; pays directly from 42 future time specified therein; or
afterwards, the the particular fund 43c) On or at a fixed period after the
drawee pays indicated. 44 occurrence of a specified event, which is
himself from the Payment is 45 certain to happen, though the time of
particular fund subject to the 46 happening be uncertain.
indicated. condition that the 47
fund is sufficient. 48PAYABLE TO ORDER (Sec. 8, NIL)
2. Particular fund 2. Particular fund 49
indicated is NOT indicated is the 50☛ The instrument is payable to order
the direct source direct source of 51 where it is drawn payable to the order of
of payment but payment. 52 a specified person or to him or to his
only the source 53 order.
of reimburse- 54
ment. 55PAYABLE TO BEARER (Sec. 9, NIL)
3. Indication in the 3. Indication in the 56
instrument does instrument makes 57☛ The instrument is payable to bearer:
not affect the the promise or 58a) When it is expressed to be so payable;
unconditional order conditional. 59 or
nature of the 60b) When it is payable to a person named
promise or 61 therein or to bearer; or
order. 62c) When it is payable to the order of a
1 63 fictitious or non-existing person, and
2CERTAINTY OF SUM (Sec. 2, NIL) 64 such fact was known to the person
3 65 making it so payable; or
4 The instrument is still negotiable and it is 66d) When the name of the payee does not
5payable-- 67 purport to be the name of any person; or
6a) With interest; or 68e) When the only or last indorsement is an
7b) By stated installments; or 69 indorsement in blank.
8c) By stated installments with an acceleration 70
9 clause; 71NOTE: An instrument originally payable to
10 ACCELERATION CLAUSE- renders whole 72bearer can be negotiated by mere delivery
11 debt due and demandable upon failure of 73even if it is indorsed specifically. If it is
12 obligor to comply with certain conditions. 74originally a BEARER instrument, it will
13d) With exchange; or 75always be a BEARER instrument.
14e) With cost of collection or attorney’s fees. 76As opposed to an original order instrument
15 77becoming payable to bearer, if the same is
16PAYABLE IN MONEY 78indorsed specifically, it can NO LONGER be
79negotiated further by mere delivery, it has to
17
18☛ if some other act is required other than 80be indorsed.
19 payment of money, the instrument is not 81
20 negotiable (Sec. 5, NIL). 82REAL DEFENSE- those that attach to the
21 83instrument and are available against all
22Exception: Gives option to creditor/holder to 84holders, whether in due course or not.
23choose another in lieu of money. 85
24 86PERSONAL DEFENSE- or equitable
25 PAYABLE ON DEMAND (Sec. 7, NIL) 87defenses are available only against the
26 88holder not in due course who stands in
27☛ an instrument is payable on demand: 89privity with the party who is entitled to set it
28a) where expressed to be payable on demand, 90up or those who are not or do not have the
29 at sight or on presentation; 91rights of a holder in due course.
30b) where no period of payment is stated; 92
31c) where issued, accepted, or indorsed after 93EXAMPLES OF PERSONAL
32 maturity (only as between immediate 94DEFENSES:
33 parties). 951. Absence or failure of consideration,
34 96 partial or total.
35DETERMINABLE FUTURE TIME 972. Want of delivery of complete
36(Sec. 4, NIL) 98 instrument.
37 993. Insertion of wrong date in an
100 instrument, where it is payable at a
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1 fixed period after date and it is issued 64

2 undated or where it is payable at a fixed MAKER DRAWER ACCEPTOR
3 period after sight and the acceptance is
4 undated. 1. engages 1. engages 1.engages
54. Filling up of blank contrary to authority that he will that on due that he will
6 given or not within reasonable time, pay it presentment, pay
7 where the instrument is delivered. according the according to
85. Fraud in inducement. to is tenor; instrument the tenor of
96. Acquisition of instrument by force, will be his accept-
10 duress, or fear. accepted, or ance;
117. Acquisition of the instrument by unlawful paid, or both
12 means. according to
138. Acquisition of the instrument for an illegal its tenor;
14 consideration. 2.admits 2.admits the 2. admits the
159. Negotiation in breach of faith. the existence of existence of
1610. Negotiation under circumstances that existence of the payee; the drawer,
17 amount to fraud. the payee; the genuine-
1811. Mistake. ness of his
1912. Intoxication according to better authority. signature,
2013. Ultra vires acts of corporations where the and his
21 corporation has the power to issue capacity &
22 negotiable paper but the issuance was authority to
23 not authorized for the particular purpose draw the
24 for which it was issued. instrument;
2514. Want of authority of agent where he has 3. admits 3. admits 3. admits the
26 apparent authority. payee’s payee’s existence of
2715. Insanity where there is no notice of capacity to capacity to the payee
28 insanity on the part of the one contracting indorse indorse and his
29 with the insane person. capacity to
3016. Illegality of contract where form or indorse.
31 consideration is illegal. 65
32 66 B. EFFECTS OF INCOMPLETE AND
33EXAMPLES OF REAL DEFENSES: 67 UNDELIVERED NI (SEC. 15, NIL):
341. Alteration 68
352. Want of delivery of incomplete instrument. 69☛ if completed and delivered without
363. Duress amounting to forgery. 70 authority, not a valid contract against a
374. Fraud in factum or fraud in esse contractus. 71 person who has signed before delivery
385. Minority 72 of the contract even in the hands of
396. Marriage in the case of a wife 73 HDC but subsequent indorsers are
407. Insanity where the insane person has a 74 liable.
41 guardian appointed by the court. 75
428. Ultra vires acts of a corporation, where the 76 C. EFFECTS OF COMPLETE BUT
43 corporation is absolutely prohibited by its 77 UNDELIVERED NI (SEC. 16, NIL):
44 charter or statute from issuing any 78
45 commercial paper under any circumstances. 79
469. Want of authority of agent. 801. Between immediate parties and remote
4710. Execution of instrument between public 81 parties not a HDC, must be an
48 enemies. 82 authorized delivery.
4911. Illegality of contract where it is the contract 832. As to HDC, all prior deliveries are
50 or instrument itself which is expressly made 84 conclusively presumed valid; and
51 illegal by statute. 853. If instrument is not in the hands of
5212. Forgery. 86 drawer/maker, valid and intentional
53 87 delivery is presumed.
54EFFECTS OF DEFENSES
55
56 A. EFFECTS OF INCOMPLETE BUT
57 DELIVERED NI (SEC. 14, NIL):
58
591. Holder has prima facie authority to fill up the
60 instrument.
612. Completion within reasonable time and
62 according to authority; and
633. HDC can enforce such despite deficiency.
4 Page 4
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1
2 COMPARISON OF SECTIONS 14, 15 AND 16
Section 14 Section 15 Section 16
a. wanting in any material particular incomplete complete

COMPLETENESS b. blank paper with signature
DELIVERY delivered undelivered Undelivered
Note: Delivery may be made for a conditional or

for a special purpose only and not for the purpose
of transferring the property in the instrument
AUTHORITY OF a. prima facie authority to complete it by filling up No authority to complete and / or negotiate May negotiate if delivered to him by or under the
PERSON IN the blanks therein instrument authority of the party making, indorsing, drawing or
b. signature operates as a prima facie authority to accepting , as the case may be.
POSSESSION fill up it up as such for any amount
WHEN If filled up strictly in accordance with authority given Not enforceable When delivery is made by or under authority of the
ENFORCEABLE and within a reasonable time party making, indorsing, drawing or accepting , as
the case may be.
KIND OF DEFENSE Personal Real Personal
RIGHTS OF HOLDER If holder in due course, he can enforce the instrument None in the hands of the holder. However, the Can enforce the instrument.
as completed against parties prior or subsequent to the invalidity of the above instrument is only with Note: Where the instrument is in the hands of a
completion reference to parties whose signatures appear on holder in due course , a valid delivery thereof by all
the instrument prior to delivery because as to parties prior to him so as to make them liable to
If not a holder in due course, he can enforce the parties whose signatures appear on the instrument him is conclusively presumed. Where the
instrument as completed only against parties after delivery, the instrument is valid. instrument is no longer in the possession of a party
subsequent to the completion but not against those whose signature appears thereon, a valid and
prior thereto. intentional delivery to him is presumed until the
contrary is proved.
4 Page 5
5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie
6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred
7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
8
1 65
2 D. EFFECT OF ABSENCE OR FAILURE 66☛ person to whom instrument thus executed is
3 OF CONSIDERATION (SEC. 28, NIL): 67 subsequently negotiated has a right of
4 68 recourse
5☛ Personal defense to the prejudiced party 69
6 and available against any person not HDC. 70against the accommodation party inspite of the
7 71former’s knowledge that no consideration
8 E. FORGERY 72passed between the accommodation and
9 73accommodated parties.
10☛ counterfeit making or fraudulent alteration of 74
11 any writing, which may consist of: 75NOTE: A corporation cannot act as an
121. signing of another name with intent to 76accommodation party. The issue or indorsement
13 defraud; or 77of negotiable instrument by a corporation without
142. alteration of an instrument in the name, 78consideration and for the accommodation of
15 amount, name of payee, etc. with intent to 79another is ultra vires. (Crisologo vs. CA, 117
16 defraud. 80SCRA 594).
17 81
18EFFECTS OF FORGERY (SEC. 23, NIL): 82RIGHTS AND LEGAL POSITION OF
19 83ACCOMODATION PARTY
20☛ signature (not instrument itself and 84
21 subsequent indorsers) is wholly inoperative, 851. AP is generally regarded as SURETY for the
22 and no right to retain the instrument, or to 86 party accomodated
23 give a discharge therefor, or to enforce 872. When AP make payment to holder of the
24 payment thereof against any party to it, is 88 note, they have the right to sue the
25 acquired through or under such signature 89 accomodated party for reimbursement
26 UNLESS the party against whom it is sought 90
27 to enforce such right is precluded from
28 setting up the forgery or want of authority.
91LIABILITY OF ACCOMODATION PARTY
29 92
30☛ Persons precluded from setting up forgery: 93☛ liable on the instrument to a holder for value
311. those who warrant or admit the genuineness 94 notwithstanding such holder at the time of
32 of the signature in question. This includes 95 the taking of the instrument knew him to be
33 indorsers, persons negotiating by delivery 96 only an accomodation party
34 and acceptors. 97
352. Those who by their acts, silence, or 98RIGHTS OF ACCOMODATION PARTY
36 negligence, are estopped from setting up the 99AGAINST EACH OTHER
37 defense of forgery. 100
38 101☛ demand from principal debtor
39VALUABLE CONSIDERATION 102 reimbursement of the amount which he had
40 103 paid on the promissory note
41☛ In general, it is said to consist either in 104☛ demand contribution from his co-
42 some right, interest, profit or benefit, 105 accomodation maker without first directing
43 accruing to the party who makes the 106 his action against the principal debtor
44 contract, or some forebearance, detriment, 107 provided:
45 loss, responsibility, act , labor, or service on 108 1. he made the payment by virtue
46 the other side. 109 of judicial demand
47 1102. the principal debtor is insolvent
111
48ACCOMMODATION - legal arrangement
49under which a person called the accommodation 112 F. MATERIAL ALTERATION
50party, lends his name and credit to another 113
51called the accommodated party without any 114☛ any alteration which changes the date, sum
52consideration. 115 payable, time or place of payment, number
53 116 or relation of parties, or medium or currency
54REQUISITES OF ACCOMMODATION 117 of payment, or adds a place of payment
118 where none is specified or which alters the
55(SEC. 29, NIL):
119 effect of the instrument in any respect. (PNB
56 120 vs. CA)
571. accommodation party must signs as maker,
121
58 drawer, acceptor, or indorser;
122 EFFECTS OF MATERIAL ALTERATION
592. no value is received by the accommodation
123 (SECS. 124 & 125, NIL):
60 party from the accommodated party; and
124
613. purpose is to lend the name.
125☛ avoids the instrument except as against the
62
126 party who made, authorized, or assented to
63EFFECTS OF ACCOMMODATION (SEC. 127 the alteration and subsequent indorsers.
6429, NIL):
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1 HDC can enforce it accordingly to its original 63 (i) instrument payable to the order
2 tenor. 64 of a 3rd person
3 65 -liable to payee and subsequent parties
4 66 (ii) instrument payable to maker or
5 67 drawer
6 68 -liable to all parties subsequent to the
7 69 maker or drawer.
8LIABILITIES OF PARTIES 70 (iii) irregular indorser signs for
9 71 accommodation of payee.
101. PARTIES PRIMARILY LIABLE 72
11 73
12 a. MAKER (Sec. 60, NIL) 74-liable to all parties subsequent to payee.
13 (i) engages to pay according to the 75
14 tenor of the instrument; and 763. PARTIES WITH LIMITED LIABILITY (Sec.
15 (ii) admits the existence of the 77 65, NIL; METROPOL FINANCING VS.
16 payee and his capacity to indorse. 78 SAMBOK, 120 SCRA 864).
17 b. ACCEPTOR OR DRAWEE (Sec. 62, 79
18 NIL) 80 a. QUALIFIED INDORSER- warrants that
19 (i) engages to pay according to the 81 (i) instrument is genuine and in all
20 tenor of his acceptance; 82 respects what it purports to be;
21 (ii) admits the existence of the 83 (ii) he has good title to it;
22 drawer, the genuineness of his 84 (iii) all prior parties had capacity to
23 signature and his capacity and 85 contract;
24 authority to draw the instrument; 86 (iv) he has no knowledge of any fact
25 and 87 which would impair the validity of
26 (iii) admits the existence of the 88 the instrument or render it
27 payee and his capacity to indorse. 89 valueless.
28 90
292. PARTIES SECONDARILY LIABLE 91 b. PERSONS NEGOTIATING BY
92 DELIVERY
30
93
31 a. DRAWER (Sec. 61, NIL)
94 (i) warranties same as those of
32 (i) Admits the existence of the
95 qualified indorsers; and
33 payee and his capacity to indorse.
96 (ii) warranties extend to immediate
34 (ii) Engages that the instrument will
97 transferee only.
35 be accepted or paid by the party
98
36 primarily liable; and
37 (iii) Engages that if the instrument is 99INDORSEMENT - legal transaction effected by
38 dishonored and proper 100the writing of one's own name at the:
39 proceedings are brought, he will 101
40 pay to the party entitled to be paid. 102 a. back of the instrument
41 103 b. upon a paper (allonge)
104 attached thereto with or without
42 b. GENERAL INDORSER (Sec. 66, NIL) 105 additional words specifying the
43 (i) warrants --- 106 person to whom or to whose order
44 (1) genuineness of the 107 the instrument is to be payable
45 instrument; 108 whereby one not only transfers one
46 (2) his good title to it; 109 legal title to paper transferred but
47 (3) capacity to contract of prior 110 likewise enters into an implied
48 parties; and 111 guaranty that the instrument will be
49 (4) instrument is valid and 112 duly paid (Section 31, NIL)
50 subsisting. 113
51 (ii) engages that the instrument will be 114GENERAL RULE: Indorsement must be of the
52 accepted or paid by the party 115entire instrument
53 primarily liable; and 116 EXCEPTION: Where instrument has
54 (iii) engages that if the instrument is 117been paid in part, it may be indorsed as to the
55 dishonored and proper 118residue (Section 32, NIL).
56 proceedings are taken he will pay 119
57 to the party entitled to be paid.
58
120KINDS OF INDORSEMENT
121
59 c. IRREGULAR INDORSER – one who 122A. SPECIAL - specifies the person to whom or
60 affixes his signature in blank on an 123 to whose order the instrument is to be
61 instrument before delivery (Sec. 64, 124 payable (Section 34)
62 NIL). 125B. BLANK - specifies no indorsee;
126 1. may be negotiated by delivery
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1 2. may be converted to special 65those under a general indorsement when an
2 indorsement by writing over the 66instrument negotiable by delivery is indorsed to
3 signature of indorser in blank any 67holder --- becomes liable as indorsee (Sec. 36-
4 contract consistent with character of 6837, NIL).
5 indorsement (Sections 34 and 35) 69
6C. ABSOLUTE - one by which indorser binds 70☛ An indorsement is restrictive, which either:
7 himself to pay: 71a) prohibits further negotiation of the
8 1. upon no other condition than 72 instrument; or
9 failure of prior parties to do so 73b) constitutes the indorsee the agent of the
10 2. upon due notice to him of such 74 indorser; or
11 failure 75c) vests the title in the indorsee in trust for or to
12 76 the use of some other person. But mere
13 77 absence of words implying power to
14 78 negotiate does not make an indorsement
15D. CONDITIONAL - indorsement subject to the 79 restrictive.
16 happening of a contingent event (Section 80
17 39) 81
18E. RESTRICTIVE 82HOLDER IN DUE COURSE (SEC. 52, NIL):
19 1. when it PROHIBITS further negotiation 83
20 of the instrument; 841. Instrument is complete and regular upon its
21 2. when it CONSTITUTES the indorsee the 85 face;
22 agent of the indorser 862. Became a holder before it was overdue and
23 3. when it VESTS the title in the indorsee 87 had no notice that it has been previously
24 in trust for or to the use of other persons 88 dishonored;
25 (Section 36) 893. For value and in good faith; and
26F. QUALIFIED - made by adding to the 904. At the time he took it, he had no notice of
27 indoser's signature words like "sans 91 any infirmity in the instrument nor defect in
28 recourse", "without recourse", "indorser not 92 the title of the person negotiating it.
29 holden", "at the indorser's own risk", etc. 93
30G. JOINT - indorsement payable to 2 or more
94DISTINCTIONS:
31 persons (Section 38)
Negotiating by General
32H. SUCCESSIVE
Mere delivery or Indorser
33I. IRREGULAR
by Qualified
34J. FACULTATIVE
Indorsement
35 1. he has good 1. he has
36REQUISITES BEFORE SECONDARY title to it; good title to
37LIABILITY ATTACHES: it;
38
391. presentment for payment in notes and 2. all prior parties 2. all prior
40 presentment for acceptance and/or payment had capacity to parties had
41 in bills of exchange. contract; capacity to
422. Dishonor by non-payment in notes and contract;
43 dishonor by non-acceptance and/or non-
44 payment in bills of exchange; and 3. he has no 4. the
453. Notice of dishonor to secondary parties. knowledge of instrument
46 any fact which is, at the
47RECOURSE- resort to a person secondarily would impair time of his
48liable after default of person primarily liable. the validity of indorsemen
49 the instrument t valid and
50NEGOTIATION- transfer of instrument from or render it subsisting.
51one person to another to constitute the valueless.
52transferee as holder thereof (Sec. 30, NIL). 95
53 96PRESENTMENT – the production of a bill of
54CONDITIONAL INDORSEMENT- right of the 97exchange to the drawee for his acceptance, or to
55indorsee is made to depend on the happening of 98the drawee or acceptor for payment or the
56a contingent event. Party required to pay may 99production of a p.n. to the party liable for the
57disregard the conditions (Sec. 39, NIL). 100payment of the same. (Section 70, NIL)
58 101
59SPECIAL INDORSEMENT- name of indorsee 102☛ Presentment for payment consists of:
60specifed (Sec. 34, NIL). 1031. personal demand for payment at the proper
61 104 place;
62RESTRICTIVE INDORSEMENT- limits the 1052. readiness to exhibit the instrument if
63right of indorsee by restricting further 106 required, and to receive payment and to
64negotiation; giving the indorsee lesser right than
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10
1 surrender the instrument if the debtor is 64PRESENTMENT FOR PAYMENT IS NOT
2 willing to pay. 65REQUIRED:
3 66
4WHEN PRESENTMENT SHOULD BE 671. in order to charge the drawer where he has
5MADE (Section 71, NIL) 68 no right to expect or require that the drawee
6 69 or acceptor will pay the instrument;
71. Demand instrument within reasonable time 702. in order to charge an indorser when the
8 after its issue 71 instrument was made or accepted for his
92. Bill of exchange payable on demand: within 72 accommodation and he has no reason to
10 reasonable time after its last negotiation 73 expect that the instrument will be paid if
113. Instrument payable on a specified date: on 74 presented.
12 the date it falls due. 75
13 76WHEN DELAY IN MAKING
14WHAT CONSTITUTES A SUFFICIENT 77PRESENTMENT OR OF GIVING NOTICE
15PRESENTMENT 78IS EXCUSED:
161. made by the holder or any person 79
17 authorized to receive payment on his behalf; 801. when caused by circumstances beyond the
18 81 control of the holder; and
192. at a reasonable hour on a business day; 82
203. at a proper place; 83
214. to the person primarily liable or if he is 842. not imputable to his default, misconduct, or
22 absent or inaccessible, to any person found 85negligence.
23 at the place where the presentment is made. 86
24
87WHEN PRESENTMENT FOR PAYMENT
25PRESENTMENT FOR PAYMENT IS MADE 88IS EXCUSED:
26AT A PROPER PLACE WHERE: 89
27 901. after exercise of reasonable diligence, it
281. it is presented at the place specified; 91 cannot be made;
292. no place is specified, and the address of the 922. drawee is a fictitious person;
30 person to make payment is given, and it is 933. express or implied waiver
31 there presented; 94
323. no place specified, no address is given,
95THE INSTRUMENT IS DISHONORED BY
33 presentment may be made at the usual
34 place of business or residence of the 96NON-PAYMENT WHEN:
35 person to make payment; 97
981. It is duly presented for payment and
364. in any other case, if presented to the person
99 payment is refused or cannot be obtained;
37 to make payment wherever he can be found,
1002. Presentment is excused and the instrument
38 or if presented at his last known place of
101 is overdue and unpaid.
39 business or residence. (Section 73, NIL)
102
40
103☛ When instrument is dishonored by non-
41THE PURPOSE OF EXHIBITION IS TO 104payment, there is an immediate right of recourse
42ENABLE THE DEBTOR TO : 105by the holder against persons secondarily liable.
43 106However, notice of dishonor is generally
441. determine the genuiness of the instrument 107required.
45 and the right of the holder to receive 108
46 payment; and 109☛ Every negotiable instrument is payable at
472. to enable him to reclaim possession upon 110the time fixed therein without grace.
48 payment. (Section 74, NIL) 111
49 112REQUISITES OF PAYMENT IN DUE
50WHEN EXHIBITION EXCUSED 113COURSE:
511. when debtor does not demand to see the 114
52 instrument but refuses payment on some 1151. Payment must be made at or after maturity.
53 other grounds, and 1162. Payment must be made to the holder.
542. when the instrument is lost or destroyed. 1173. Payment must be made in good faith and
55 118 without notice that the holder’s title is
56☛ Instrument payable at a bank must be made 119 defective.
57during banking hours unless there are no funds 120☛ Good faith refers to the maker or acceptor
58to meet it at any time during the day, 121and not to the holder.
59presentment at any hour before the bank is 122
60closed on that day is sufficient. 123
61☛ If the person liable is dead, presentment 124
62may be made to his personal representative. 125NOTICE OF DISHONOR- notice given by holder
63 126or his agent to party or parties secondarily liable
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10
1that instrument was dishonored by non- 65 discharge the persons secondarily liable as
2acceptance by drawee of a bill, or by non- 66 to the succeeding installments.
3payment by acceptor of a bill or by non-payment 67
4by maker of a note. (Sec. 89, NIL). 68By whom given:
5 69
6 701. the holder
7 712. another on behalf of the holder
8 723. any party to the instrument who may be
9 73 compelled to pay it to the holder, and who
10REQUISITES OF NOTICE OF DISHONOR: 74 would have a right to reimbursement from
11 75 the party to whom the notice is given.
121. given by holder or his agent, or by an party 76
13 who may be compelled by the holder to pay 77☛ Notice of dishonor given by or on behalf of
14 (Sec. 90, NIL). 78a holder inures to the benefit of:
152. Given to secondary party or his agent (Sec. 79
16 97, NIL). 801. all parties prior to the holder, who have a
173. Given within the periods provided by law 81 right of recourse against the party to whom
18 (Sec. 102, NIL); and 82 the notice is given; and
194. Given at the proper place (Sec. 103, 104, 832. all holders subsequent to the holder giving
20 NIL). 84 notice.
21 85
22WHEN NOTICE OF DISHONOR IS 86
87
23DISPENSED WITH: 88☛ Notice of dishonor given by or on behalf of
24 89a party entitled to give notice inures to the
251. when party to be notified knows about the 90benefit of:
26 dishonor, actually or constructively (Secs. 911. the holder; and
27 114-117, NIL); 922. all parties subsequent to the party to whom
282. if waived (Sec. 109, NIL); and 93 notice is given.
293. when after due diligence, it cannot be given 94
30 (Sec. 112, NIL). 95☛ Where an instrument is dishonored in the
31 96hands of an agent, he can do either of the
32How given: 97following:
33 981. directly give notice to persons secondarily
34 1. by bringing verbally or 99 liable thereon; or
35 2. by writing to the knowledge of 1002. give notice to his principal. In such case, he
36 the person liable the fact that a specified 101 must give notice within the time allowed by
37 instrument, upon proper proceedings 102 law as if he were a holder.
38 taken, has not been accepted or has not 103
39 been paid, and that the party notified is 104☛ A party giving notice is deemed to have
40 expected to pay it. 105given due notice where:
41 106 1.the notice of dishonor is duly addressed,
42To whom given: 107 and
43 108 2.deposited in the post-office, even when
44 1. Non-acceptance (bill) – to 109 there is miscarriage of mail.
45 persons secondarily liable, namely, the 110
46 drawer and indorsers as the case may 111☛ Notice is deemed to have been deposited in
47 be. 112the post office when deposited in any branch
48 2. Non-payment (both bill and 113post-office or in any letter box under the control
49 note) – indorsers. 114of the post office department.
50 115☛ Where a party receives notice of dishonor,
51 NOTE: Notice must be given to persons 116he has, after the receipt of such notice, the same
52 secondarily liable. Otherwise, such parties 117time for giving notice to antecedent parties that
53 are discharged. Notice may be given to the 118the holder has after the dishonor.
54 party himself or to his agent. 119
55 120☛ Notice may be waived either before the time
56WHERE INSTRUMENTS PAYABLE IN 121of giving notice, or after the omission to give due
57INSTALLMENTS: 122notice. Waiver may be expressed or implied.
58 123
591. No acceleration clause – failure to give 124☛ As to who are affected by an express waiver
60 notice of dishonor on a previous installment 125depends on where the waiver is written.
61 does not discharge drawers and indorsers 126 1. if it appears in the body or on the face
62 as to succeeding installments. 127 of the instrument, it binds all parties; but
632. With acceleration clause – failure to give 128 2. if it is written above the signature of an
64 notice as to previous installment will 129 indorser, it binds him only.
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10
1 65
2PROTEST- is the formal instrument executed 66DISCHARGE OF NEGOTIABLE
3usually by a notary public certifying that the legal 67INSTRUMENT (Section 119, NIL):
4steps necessary to fix the liability of the drawee 68
5and the indorsers have been taken. 69☛ Discharge of an instrument- means a
6☛ Where protest is waived, presentment and 70release of all parties, whether primary or
7notice of dishonor are also deemed waived. But 71secondary, from the obligations arising
8where the notice of dishonor is waived, 72thereunder. It renders the instrument without
9presentment is not waived. 73force and effect and, consequently, it can no
10 74longer be negotiated.
11☛ Notice is dispensed with when, after the 75
12exercise of reasonable diligence, it cannot be 76WHEN A NEGOTIABLE INSTRUMENT IS
13given or does not reach the parties sought to be
77DISCHARGED:
14charged.
15☛ Notice of dishonor is not required to be 78
16given to the drawer in any of the ff. cases: 791. By payment I due course by or on behalf of
171. drawer and drawee are the same; 80 the principal debtor;
182. drawee is a fictitious person or not having 812. Payment by accommodated party;
19 the capacity to contract; 823. Intentional cancellation by the holder;
203. drawer is the person to whom the instrument 834. By any act which will discharge a simple
21 is presented for payment; 84 contract for the payment of money;
224. the drawer has no right to expect or require 855. When the principal debtor becomes the
23 that the drawee or acceptor will honor the 86 holder of the instrument at or after maturity
24 instrument; 87 in his own right.
25 88
265. where the drawer has countermanded 89WHEN A PERSON SECONDARILY
27 payment. 90LIABLE IS DISCHARGED (Section 120,
28 91NIL):
29☛ Notice of dishonor is not required to be 92
30given to an indorser in either of the ff. cases: 931. By any act which discharges the instrument;
31 942. By the intentional cancellation of his
32 1. drawee is a fictitious person or does not 95 signature by the holder;
33 have the capacity to contract, and 963. By the discharge of a prior party;
34 indorser was aware of that fact at the 974. By a valid tender of payment made by a
35 time he indorsed the instrument; 98 prior party;
36 2. indorser is the person to whom the 995. By the release of the principal debtor, unless
37 instrument is presented for payment; 100 the holder’s right of recourse against the
38 3. instrument was made or accepted for his 101 party secondarily liable is expressly
39 accommodation. 102 reserved;
40 1036. By any agreement binding upon the holder
41☛ If an instrument is not accepted by the 104 to extend the time of payment or to
42drawee, there is no sense presenting it again for 105 postpone the holder’s right to enforce the
43payment, and notice of dishonor must at once be 106 instrument.
44given. If there was acceptance, presentment for 107
45payment is still required and if payment is 108☛ In the following cases, the agreement to
46refused, there is a need for notice of dishonor. 109extend the time of payment does not discharge a
47 110party secondarily liable:
48☛ An omission to give notice of dishonor by 111a) where the extension of time is consented to
49non-acceptance does not prejudice the rights of 112 by such party;
50a holder in due course subsequent to the 113b) where the holder expressly reserves his
51omission. 114 right of recourse against such party.
52 115
53☛ Protest is necessary only in case of foreign 116☛ Payment at or after maturity by a party
54bills of exchange which have been dishonored 117secondarily liable does not discharge the
55by non-acceptance or non-payment, as the case 118instrument. It only cancels his own liability and
56may be. If it is not so protested, the drawer and 119that of the parties subsequent to him. (Section
57indorsers are discharged 120121, NIL).
58 121
59FOREIGN BILL OF EXCHANGE: 122EFFECT OF RENUNCIATION (Section
60 123122, NIL):
611. Drawn in the Philippines but payable outside 124
62 the Philippines. 1251. A renunciation in favor of a secondary party
632. Payable in the Philippines but drawn outside 126 may be made by the holder before, at or
64 the Phillipines. 127 after maturity of the instrument. The effect
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10
1 is to discharge only such secondary party 647. any other change or addition which alters
2 and all parties subsequent to him but the 65 the effect of the instrument in any respect.
3 instrument itself remains in force. 66
42. A renunciation in favor of the principal 67
5 debtor may be effected at or after maturity. 68
6 The effect is to discharge the instrument and
69
7 all parties thereto provided the renunciation
70ACCEPTANCE AND PRESENTMENT FOR
8 is made unconditionally and absolutely.
9 71ACCEPTANCE (Secs. 132-151, NIL)
10 72
73☛ Acceptance of a bill is the signification by
11 NOTE: In either case, renunciation does
74the drawee of his assent to the order of the
12 not affect the rights of a holder in due course
75drawer. It is the act by which the drawee
13 without notice.
76manifests his consent to comply with the request
14
77contained in the bill of exchange directed to him
15☛ Cancellation of an instrument includes
78and it contemplated an engagement or promise
16tearing, erasure, obliteration, or burning. It is not
79to pay.
17limited to writing of the word ‘cancelled”, or
18“paid”, or drawing of criss-cross lines across the 80
19instrument (Section 123, NIL). 81WHEN PRESENTMENT FOR
20 82ACCEPTANCE IS REQUIRED:
21MATERIAL ALTERATION - any change in 83
22the instrument which affects or changes the 841. where the bill is payable after sight, or when
23liability of the parties in any way. 85 it is necessary in order to fix the maturity of
24 86 the instrument;
25EFFECT OF ALTERATION: 87
882. where the bill expressly stipulates that it
26 89
271. Alteration by a party
90shall be presented for acceptance;
28 ☛ material alteration by the holder
91
29 is to discharge the instrument and all
923. where the bill is drawn payable elsewhere
30 prior parties thereto who did not give
93 than at the residence or place of business of
31 their consent to such alteration.
94 the drawee.
32 NOTE: Since no distinction is made, it does
95
33 not matter whether it is favorable or
96NOTE: In all the above cases, the holder must
34 unfavorable to the party making the
97either present the bill for acceptance or
35 alteration. The intent of the law is to
98negotiate it within a reasonable time; otherwise,
36 preserve the integrity of the negotiable
99the drawer and all indorsers are discharged.
37 instruments.
382. Alteration by a stranger 100
39 ☛ it is called spoliation. 101FORM OF PRESENTMENT FOR
403. The right of holder in due course 102ACCEPTANCE:
41 ☛ A material alteration avoids the 103
42 instrument in the hands of one who is 1041. must be made by or no behalf of the holder;
43 not a holder in due course as against 1052. at a reasonable hour or a business day;
44 any prior party who has not assented to 1063. before the bill is overdue; and
45 the alteration. 1074. to the drawee or some person authorized to
46 ☛ If an altered instrument is 108 accept or refuse to accept on his behalf.
47 negotiated to a HIDC, he may enforce 109
48 payment thereof according to its original 110WHEN PRESENTMENT EXCUSED:
49 tenor regardless of whether the 111
50 alteration was innocent or fraudulent. 1121. where the drawee is dead, or has
51 113 absconded, or is a fictitious person not
52CHANGES IN THE FOLLOWING 114 having capacity to contract by bill.
53CONSTITUTES MATERIAL 1152. after exercise of reasonable diligence,
54ALTERATIONS: 116 presentment cannot be made;
55 1173. although presentment has been irregular,
561. date 118 acceptance has been refused on some other
572. sum payable, either for principal or interest 119 ground.
583. time or place of payment 120
594. number or relations of the parties 121WHERE BILL DISHONORED BY NON-
605. medium or currency in which payment is to 122ACCEPTANCE:
61 be made 123
626. that which adds a place of payment where 1241. when it is duly presented for acceptance and
63 no place of payment is specified 125 such an acceptance is refused or cannot be
126 obtained; or
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10
12. when presentment for acceptance is 64☛ Protest for better security- is one made by
2 excused, and the bill is not accepted. 65the holder of a bill after it has been accepted but
3 66before it matures, against the drawer and
4☛ If bill is duly presented for acceptance and it 67indorsers, where the acceptor has been
5is not accepted within the prescribed time, the 68adjudged a bankrupt or an insolvent, or has
6person presenting it must treat the bill as 69made an assignment for the benefit of the
7dishonored by non-acceptance or he loses the 70creditors.
8right of recourse against the drawer and 71
9indorsers. 72
10 73
11☛ When a bill is dishonored by non- 74ACCEPTANCE FOR HONOR
12acceptance, an immediate right of recourse 75(Secs. 161-170)
13against the drawers and indorsers accrues to the 76
14holder and no presentment for payment is 77☛ Acceptance for honor- is an undertaking by
15necessary. 78a stranger to a bill after protest for the benefit of
16 79any party liable thereon or for the honor of the
17☛ There is implied acceptance if after 24 80person for whose account the bill is drawn which
18hours, the drawee fails to return the instrument. 81acceptance inures also to the benefit of all
19He is also deemed to have accepted the 82parties subsequent to the persons for whose
20instrument when he destroys the same. 83honor it is accepted, and conditioned to pay the
21 84bill when it becomes due if the original drawee
22 85does not pay it.
23KINDS OF ACCEPTANCE: 86
24 87REQUISITES OF ACCEPTANCE FOR
251. GENERAL- assents without qualification to 88HONOR:
26 the order of the drawer. 89
272. QUALIFIED- which in express terms varies 901. the bill must have been protested for
28 the effect of the bills as drawn. 91 dishonor by non-acceptance or for better
29 92 security;
30a) Conditional- makes payment by the acceptor 932. the acceptor for honor must be a stranger
31 dependent on the fulfillment of a condition 94 and not a party already liable on the
32 therein stated. 95 instrument;
33b) Partial- an acceptance to pay part only of 963. bill must not be overdue;
34 the amount for which the bill is drawn. 97
35c) Local- an acceptance to pay only at a 98
36 particular place. 994. acceptance for honor must be with the
37d) Qualified as to time 100 consent of the holder of the instrument.
38e) The acceptance of some one or more of the 101
39 drawees but not of all. 102FORMAL REQUISITES:
40 103
41 1041. must be in writing;
42PROTEST (Secs. 152-160) 1052. must indicate that it is an acceptance for
43 106 honor;
44PROTEST IS REQUIRED FOR 2 GOOD 1073. signed by the acceptor for honor;
45REASONS: 1084. must contain an express or implied promise
46 109 to pay money;
471. for uniformity in international transactions 1105. the accepted bill for honor must be delivered
48 bec. most countries require it; and 111 to the holder.
492. it furnishes authentic and satisfactory 112
50 evidence of the dishonor to the drawer, who 113PAYMENT FOR HONOR (Secs.171-
51 from his residence abroad, would 114177)
52 experience difficulty in verifying the matter 115
53 and thus be compelled to rely on the 116☛ Payment for honor- is payment made by a
54 representation of the holder. 117person, whether a party to the bill or not, after it
55 118has been protested for non-payment, for the
56 119benefit of any party liable thereon or for the
57PROTEST MAY BE MADE BY: 120benefit of the person for whose account it was
58 121drawn.
591. a notary public; or 122
602. any respectable resident of the place where 123REQUISITES OF PAYMENT FOR HONOR:
61 the bill is dishonored, in the presence of 2 or 124
62 more credible witnesses. 1251. the bill has been dishonored by non-
63 126 payment;
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12. it has been protested for non-payment; 65 he has himself indorsed, as if such
23. payment supra protest (another term for 66 parts were separate bills.
3 payment for honor because prior protest for 67
4 non-payment is required) is made by any 68LEGAL TENDER (R.A. 7653, NEW
5 person, even by a party thereto; 69CENTRAL BANK ACT)
64. the payment is attested by a notarial act of 70
7 honor which must be appended to the 71Section 52. Legal Tender. All notes and coins
8 protest or form an extension of it; 72issued by the Bangko Sentral shall be fully
9 73guaranteed by the Government of the Republic
10 74of the Philippines and shall be legal tender in the
115. the notarial act must be based on the 75
12 declaration made by the payee for honor or 76Philippines for all debts, both public and private.
13 his agent of his intention to pay the bill for 77PROVIDED, however, That, unless otherwise
14 honor and for whose honor he pays. 78fixed by the Monetary Board, coins shall be legal
15 79tender in amounts not exceeding Fifty pesos
16NOTE: If the above formalities are no complied 80(P50.00) for denominations of Twenty-five
17with, payment will operate as a mere voluntary 81centavos and above, and in amounts not
18payment and the payer will acquire no right to 82exceeding Twenty pesos (P20.00) for
19full reimbursement against the party for whose 83denominations of Ten centavos or less.
20honor he pays. 84
21 85R.A. 8183 (Repealed R.A. 529, the Uniform
22☛ In payment for honor, the payee cannot 86Currency Act- Foreign currency as mode of
23refuse payment. If he refuses, he cannot 87payment)
24recover from the parties who would have been 88
25discharged had he accepted the same. In 89SECTION 1. All monetary obligations shall be
26acceptance for honor, the holder’s consent is 90settled in the Philippine currency which is legal
27necessary. 91tender in the Philippines. However, the parties
28 92may agree that the obligation or transaction shall
29☛ The payer for honor is given the right to 93be settled in any other currency at the time of
30receive both the bill and the protest obviously to 94payment.
31enable him to enforce his rights against the 95
32parties who are liable to him. 96
33 97
34BILLS IN SET (Secs. 178-183) 98
35
36BILL IN SET is one composed of several parts, 99
37each part being numbered and containing a 100
38 101
39reference to the other parts, the whole of the 102
40parts constituting but one bill. 103
41
104
42☛ Purpose: Are usually availed of in cases
43where a bill had to be sent to a distant place 105
44through some conveyance. If each part is sent 106
45by different means of conveyances, the chance 107
46that at least one part of the set would reach its 108
47destination would be greater. 109
48 110
49☛ Rights of holders where parts are 111
50negotiated separately: 112
51 1. if both are HIDC, the 113
52 holder whose title first accrues is 114
53 considered the true owner of the bill. 115
54 2. But the person who 116
55 accepts or pays in due course shall 117
56 not be prejudiced. 118
57 119
58☛ Obligations of holder who indorses 2 or 120
59more parts of the bill in set: 121
60 122
61 1. the person shall be 123
62 liable on every such part; 124
63 2. every indorser 125
64 subsequent to him is liable on the part 126
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10
1
2 PRIMARY SECONDARY
3 1. refers to the 1. refers to the
4 franchise of exercise of rights
5 being or as for
6 existing as a example, the right
7 corporation, i. of eminent
8 e., possessing domain or the
9 a unity and partial
10 continuity of appropriation of
11 existence public property
12II. CORPORATION CODE 57
13 58
14CORPORATION- artificial being created by 59
15operation of law having the right of succession, 60
16and the powers, attributes and properties 61
17expressly authorized by law and incident to its 62
18existence (Sec. 2). 2. vested in the 2. It is deemed to
19 individuals who vest in the
20THEORIES ON THE FORMATION OF compose the corporation
corporation and
21A CORPORATION: is essential to a
22 corporation de
231. CONCESSION THEORY – juristic principle jure.
24 in the creation of corporation, under which a
25 corporation is an artificial creature without 3. it cannot be sold 3. It may be sold or
26 any existence until it has received the or transferred transferred; sue
27 imprimatur of the state acting according to because it is or be sued;
28 law, through the SEC. inseparable from subject to sale on
292. THEORY OF CORPORATE ENTERPRISE the corporation execution, subject
30 OR ECONOMIC UNIT – corporation not itself. to levy provided
31 merely an artificial being, but more as an such sale is
32 aggrupation of persons doing business, or decreed or
33 an underlying business unit. ordered in
343. ETHNOLOGICAL THEORY – Corporate judgment and is
35 idea is the product of no one people, and no effective only
36 one country but on the contrary, developed when sale is
37 more or less independently, in varying forms confirmed by
38 among the several ethnological units. court often due
394. IMITATIVE THEORY OF JURAL notice.
40 DEVELOPMENT – the formation of private
41 corporation for certain purposes is permitted 63
42 on the condition that they did not operate in 64ATTRIBUTES OF A CORPORATION:
43 violation of laws of the state. 65
44 661. It is an artificial being.
45FRANCHISES OF CORPORATION 672. It is created by operation of law.
46 683. It enjoys the right of succession.
471. PRIMARY FRANCHISE – the franchise to 694. It has the powers, attribute and properties
48 exist as a corporation. 70 expressly authorized by law or incident to its
492. SECONDARY FRANCHISE – right or 71 existence.
50 privilege conferred upon existing 72
51 corporation, such as to use the streets of a 73CLASSES OF CORPORATION:
52 municipality to lay pipes or tracks, or operate 74
53 a messenger and express delivery service. 751. AS TO ORGANIZERS
54 76 a. public – by State only; and
55DISTINCTIONS : 77 b. private – by private persons alone or
56 78 with the State.
792. AS TO FUNCTIONS
80 a. public – governmental and other
81 functions; and
82 b. private – usually for profit-making
83 functions
843. AS TO GOVERNING LAW
85 a. public – Special Laws; and
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1 b. private – Law on Private Corporations 65 mere investment. It has a passive
24. AS TO LEGAL STATUS 66 portfolio merely holding securities for
3 a. de jure corporation – corporation 67 control and management, as
4 organized in accordance with 68 distinguished from an active investment
5 requirements of law 69 policy which has an active portfolio
6 b. de facto corporation – a corporation 70 buying and selling securities
7 where there exists a flaw in its 71
8 incorporation (Sec. 20). Its existence 72TWO KINDS OF SUBSIDIARIES
9 cannot be inquired collaterally. Such 73
10 inquiry may be made by the Solicitor 741. MAJORITY OWNED SUBSIDIARY – where
11 General in a quo warranto proceeding 75 one corporation owns 51%-94% of the
12 (Sec. 20). 76 capital stock of another corporation.
13
14
772. WHOLLY OWNED SUBSIDIARY – where
15 78 one corporation holds 95% to 100% of the
16 79 capital stock of another corporation.
17 80
81
18 82 b. Affiliates – company which is subject to
19REQUISITES OF DE FACTO 83 common control of a mother holding
20CORPORATION: 84 company and operated as part of the
21 85 system.
221. The existence of a valid law under which it 86
23 may be incorporated; 87 c. parent and subsidiary corporation -
242. An attempt in good faith to incorporate; 88 separate entities with power to contract
253. Use of corporate powers; and 89 with each other. The board of directors
264. Issuance of certificate of incorporation by 90 of the parent company determines its
27 the SEC as a minimum requirement of 91 representatives to attend and vote in the
28 continued good faith. 92 stockholder’s meeting of its subsidiary.
29 93 The stockholders of the parent company
30 c. corporation by estoppel – groups of 94 demand representation in the board
31 persons which holds itself out as a 95 meetings of its subsidiary. The board of
32 corporation and enters into a contract with 96
33 a 3rd person on the strength of such 97 directors of the parent or holding company
34 appearance. It cannot be permitted to 98 has the prerogative to choose its nominees
35 deny its existence in an action under said 99 in the board of directors or its subsidiary.
36 contract (Sec. 21). 100
37 1017. AS TO PLACE OF INCORPORATION
38 d. corporation by prescription – body that 102
39 though not lawfully organized as a 103 a. Domestic corporation- corporation
40 corporation, has been duly recognized by 104 formed, organized or existing under laws
41 immemorial usage as a corporation, with 105 b. Foreign Corporation – a corporation
42 rights and duties maintainable at law. 106 formed , organized or existing under any
43 107 laws other than those of the Philippines
445. AS TO EXISTENCE OF SHARES OF 108 and whose laws allow Filipino citizens
45 STOCK 109 and corporation to do business in its own
46 110 country or state (Section 123).
47 a. stock corporation – a corporation in 111
48 which capital stock is divided into shares 1128. OTHER CORPORATIONS
49 and is authorized to distribute to holders 113
50 thereof of such shares dividends or 114 a. Close Corporation
51 allotments of the surplus profits on the 115 b. Special Corporation
52 basis of the shares held. (Sec. 3). 116 1. educational corporation
53 b. Non-stock corporation – not issue stocks 117 2. religious corporation
54 and not distribute dividends to their 118 a. corporation sole
55 members, for public good and welfare. 119 b. religious societies
56 120
576. AS TO RELATIONSHIP OF MANAGEMENT 121ACQUIRED ASSET CORPORATION –
58 AND CONTROL 122
59 123(a) organized under general corporation law
60 a. holding corporation - it is one which 124under private ownership where at least a
61 controls another as a subsidiary by the 125majority of the shares of stock of which were
62 power to elect management. It is one 126conveyed to a government corporation in
63 which holds stocks in other companies 127satisfaction of a debt incurred with a government
64 for purposes of control rather than for
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10
1financial institution, whether by foreclosure or 63☛ A corporation has a personality separate
2otherwise; or 64and distinct from that of its stockholders or
3(b) a subsidiary corporation of a government 65members.
4corporation organized exclusively to own and 66
5manage, or lease or operate specific physical 67PIERCING DOCTRINE OF THE VEIL OF
6assets acquired by a government financial 68CORPORATE FICTION
7institution in satisfaction of debts incurred 69
8therewith (PD 2029, Sec. 3 c). 70☛ Allows the state to disregard for certain
9 71justifiable reasons the fiction of juridical
10RULE ON CONVERSION 72personality for the corporation, separate and
11 73distinct from the persons composing it.
121. STOCK CORPORATION TO NON-STOCK 74
13☛ An existing stock corporation may be 75THREE CLASSES OF PIERCING:
14 converted into a non-stock corporation by 76
15 mere amendments of its articles of 771. Fraud Cases – when a corporation is used
16 incorporation. 78 as a cloak to cover fraud, or to do wrong
17 792. Alter Ego Cases – when the corporate entity
18 80 is merely a farce since the corporation is an
19 81 alter ego, business conduit or instrumentality
202. CONVERSION OF NON-STOCK 82 of a person or another corporation
21 CORPORATION TO STOCK 83
22 CORPORATION 84
23 85INSTRUMENTALITY RULE- Where one
24☛ Mere amendment of the articles would not 86corporation is so organized and controlled and
25 suffice as it would change its very nature 87its affairs are conducted so that it is in fact, a
26 from non-profit to monetary gain. It is 88mere instrumentality or adjunct of the other, the
27 fundamental that the non-stock corporation 89fiction of the corporate entity of the
28 be dissolved first. A non-stock corporation 90“instrumentality” may be disregarded. The
29 only holds its funds in trust for carrying out 91control necessary to invoke the rule is not mere
30 the objectives expressed in its charter. The 92majority or even complete stock control but such
31 conversion without dissolving it first would 93domination of finances, policies, practices that
32 be tantamount to distribution of its assets or 94the controlled corporation has, so to speak, no
33 income to its members inasmuch as after its 95separate mind, will or existence of its own, and
34 conversion, the asset of the non-stock 96is, but a conduit for its principal.
35 corporation would now be treated as 973. Equity cases – when piercing the corporate
36 payment to the subscriptions of the 98fiction is necessary to achieve justice or equity
37 members who will now become stockholders 99
38 of the corporation. Moreover, the scheme 100COMPONENTS OF A CORPORATION:
39 might defraud the public 1011. incorporators;
40 1022. corporators;
41who may have given donations not for the 1033. stockholders and members;
42benefit of the stockholders but for organization 1044. promoter;
43purposes. 1055. board of directors;
44 106
45ADVANTAGES OF CORPORATION AS 1076. executive committee; and
46AGAINST UNREGISTERED 1087. officers of the corporation.
47ASSOCIATION 109
48 110INCORPORATORS- They are those
491. enjoys perpetual succession under 111mentioned in the articles of incorporation as
50 corporate name and in an artificial form 112originally forming and composing the
512. can take and grant property 113corporation, having signed the articles and
523. can contract obligations 114acknowledged the same before a notary public.
534. can sue and be sued in its corporate name 115They have no powers beyond those vested in
54 as a juridical person 116them by the statute.
555. capacity to receive and enjoy common 117
56 grants of privileges and immunities 118☛ Only natural persons can be incorporators
576. no personal liability beyond value of their 119 except when otherwise allowed by law as in
58 shares 120 the case of incorporated cooperative which
59 121 are allowed to be incorporators of rural
60DOCTRINE OF SEPARATE 122 banks.
61PERSONALITY 123
62 124NUMBER AND QUALIFICATION OF
125INCORPORATORS: (Sec. 10)
126
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10
11. natural person; 49
22. not less than 5 but not more than 15; 50Those matters referring to facts existing as of
33. of legal age; 51the date of the incorporation such as:
44. majority must be resident of the Philippines; 52
5 and 531. names of incorporators;
65. each must own or subscribe to at least one 542. names of original subscribers to the capital
7 share. 55 stock of the corporation and their subscribed
8 56 and paid up capital;
9DISTINCTIONS : 573. treasurer elected by the original subscribers;
10 584. members who contributed to the initial
INCORPORATORS CORPORATORS 59 capital of a non-stock corporation;
605. date and place of execution of the articles of
1. signatory to articles 1. stockholder of 61 incorporation;
stock corporation 626. witnesses to and acknowledgment of the
or member of 63 articles.
non-stock 64
corporation 65LIMITS ON THE USE OF CORPORATE
2. do not cease to be 2. cease to be such 66NAME
such if they are no 67
longer 681. Names which are identical, deceptively or
stockholders 69 confusingly similar to that of any existing
11 70 corporation;
12 712. a name already protected by law;
13 723. a name which is patently deceptive,
3. number is limited 3. no restriction as 73 confusing or contrary to existing laws.
t0 5-15 number 74
4. must have 4. may be such 75DISTINCTIONS :
contractual capacity through a 76
guardian ARTICLES OF BY-LAWS
14 INCORPORATION
15CONTENTS OF ARTICLES OF 1. It is essentially a 1. It is more of a
16INCORPORATION (SEC. 14): contract between the rule for the
17 corporation and the internal
181. name of corporation; stockholders/ government of
192. purpose/s, indicating the primary and members; between the corporation
20 secondary purposes; the stockholders/ but has the force
213. place of principal office; member inter se, and of a contract
224. duration; between the between the
235. names, citizenship and residences of corporation and the corporation and
24 incorporators; State; hence must be the stockholders/
256. number, names, citizenship and residences notarized themselves; members, and
26 of directors; between the
277. if stock corporation, amount of capital stock, stockholders and
28 number of shares and in case of par value members;
29 stock corporations, the par value of each 2. It is executed 2. It is usually
30 share; before incorporation executed after
31 the incorporation
328. names, residences, number of shares and although Sec. 46
33 amounts of subscription of subscribers allows
34 which shall not be less than 25% of ACS; simultaneous
359. names, residences, and amount paid by filling of the two;
36 each subscriber on their subscription, which
37 shall not be less than 25% of total 3.It is a condition 3.It is a condition
38 subscription; precedent in the subsequent;
3910. name of treasurer elected by subscribers; acquisition of
40 and corporate
4111. if the corporation engages in a nationalized existence;
42 industry, a statement that no transfer of
43 stock will be allowed if it will reduce the 4. It is amended by a 4. It may be
44 stock ownership of Filipinos to a percentage majority of the amended by a
45 below the required legal minimum. directors/ trustees majority vote of
46 and stockholders the BOD and
47WHAT CANNOT BE AMENDED IN THE representing 2/3 of majority vote of
48ARTICLES OF INCORPORATION the outstanding outstanding
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capital stock, or 2/3 capital stock or a 45 at no time of its adoption, contractual
of the members in majority of the 46 relations with the corporation
case of non-stock member in non- 47 - If stockholders alone are affected,
corporations stock corporation 48 only they can attack.
49
50BINDING EFFECTS OF BY-LAWS:
5. Power to 5. Power to amend 51
amend/repeal or repeal by-laws 521. AS TO MEMBERS AND CORPORATION-
articles cannot be or adopt new by- 53☛ They have the same force and effect as the
delegated by the laws may be 54 provisions of the charter and articles of
stockholders/ delegated by the 55 incorporation. They have the force of
members to the 2/3 of the 56 contract between the members themselves.
board of directors/ outstanding 57☛ They are binding only upon the corporation
trustees. capital stock or 58 adopting them and on its members and
2/3 of the 59 those having direction, management and
members in the 60 control of its affairs.
case of non- 612. AS TO THIRD PERSONS
stock 62☛ Strangers are not bound to know the by-
corporation. 63 laws which are merely provisions for the
1 64 government of a corporation and notice to
2 65 them will not be presumed.
3 66
4 67Rationale: by-laws have no extra-corporate
5 68force and are not in the nature of legislative
6ELEMENTS OF A VALID BY-LAWS: 69enactments so far as third persons are
7 70concerned.
81. Must not be contrary to existing law nor 71
9 inconsistent with the Code, else they have 72POWERS OF A CORPORATION
10 no binding effect; 73
112. Must not be contrary to morals and public 74KINDS:
12 policy – State will interfere if it is so; 75
133. Must not impair contract obligations –Art III 76 1. Express Powers – granted by law ,
14 Sec 10,1987 Constitution 77 Corporation Code and its Articles of
154. Must be general and uniform – they must 78 Incorporation or Charter
16 affect all alike, and operate equally as to all 79 2. Inherent / Incidental Powers – not
17 persons or matters standing in equal status 80 expressly stated but are deemed to be
18 or circumstances and without any 81 within the capacity of corporate entities
19 unreasonable discrimination as to any 82 3. Implied / Necessary – exists as a
20 particular person or thing of the class; 83 necessary consequence of the exercise
215. Must be consistent with the charter or 84 of the express powers of the corporation
22 articles of incorporation – “charter” is used 85 or the pursuit of its purposes as
23 here in its broadest sense without regard to 86 provided for in the Charter
24 whether the statutory right to be a 87
25 corporation is obtained by special act or 88THEORY OF GENERAL CAPACITY –
26 under general statutes; 89corporation is said to hold such powers as are
276. Must be reasonable ,not arbitrary or 90not prohibited or withheld from it by general law
28 oppressive . Reasonableness depends 91(everything is allowed except when prohibited).
29 upon: 92
30 a. Facts and circumstances of the case 93THEORY OF SPECIAL CAPACITY –
31 94corporation cannot exercise powers except
32 b. Nature, Purpose, Object of the 95those expressly or impliedly given (everything is
33 corporation 96prohibited except when allowed).
34 c. Whether or not it is within the 97
35 corporation’s power of adoption 98A. GENERAL CORPORATE POWERS
36 d. The relation which the person raising the 99AND CAPACITY (SEC. 36):
37 question sustains to the corporation, i.e.
100
38 whether he is a stockholder or member
1011. To sue and be sued;
39 or stranger to the corporation.
1022. Of succession;
40 -Thus a by-law may be reasonable as to
1033. To adopt and use of corporate seal;
41 the corporation and as to the third
1044. To amend Articles;
42 persons contracting subsequently to its
1055. To adopt by-laws;
43 adoption with the corporation, and yet
1066. For stock corporations – issue and sell
44 be invalid as to third persons sustaining
107 stocks to subscribers and treasury stocks,
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1 for non-stock corporations – admit 65 8. Enter into management contract.
2 members; 66
37. Purchase; 67MANAGEMENT CONTRACT – one entered
4 Receive } real property 68into between two corporations whereby one
5 Grant } personal property 69corporation undertakes to manage all or
6 Take } securities and 70substantially all of the business of the other
7 Deal } bonds 71corporation for certain period of time, whether
88. to enter into merger or consolidation; 72such be a service contract, operating agreement
99. to make reasonable donations for: 73or otherwise.
10 a. public welfare; 74
11 b. hospital; 75ULTRA VIRES ACT AND ILLEGAL ACTS
12 c. charitable; 76
13 d. cultural; 77☛ An ultra vires act is not necessary illegal
14 e. scientific; 78 although an illegal act is always ultra vires.
15 f. civic; and 79☛ When the act of a corporation are spoken of
16 g. similar purposes 80 as ultra vires, it is not intended that they are
17 Prohibitions : no donation to – 81 unlawful but merely those which are beyond
18i i.political party; 82 the powers conferred upon the corporation
19ii ii.candidate; and 83 by the act of its creation, and are in violation
20 iii.partisan political activity. 84 of the trust reposed in the managing board
21 85 by the shareholders that the affairs of the
2210. to establish; 86 corporation shall be managed and the funds
23 a. pension 87 applied solely for carrying out business
24 b. retirement 88 objectives. An illegal act however is one
25 c. and other plans for the benefit of 89 which is expressly prohibited by the charter
26 i. directors; 90 or statute or which is immoral or against
27 ii. trustees; 91 public policy.
28 iii. officers; 92
29 iv.employees. 93EFFECTS OF ULTRA VIRES ACT ON:
30
94
3111. Other powers essential or necessary to
951. executed contract – courts will not set aside
32 carry out its purposes
96 or interfere with such contracts;
33
972. executory contracts – no enforcement even
34RESTRICTIONS ON THE POWER TO MAKE
98 at the suit of either party (void and
35DONATIONS:
99 unenforceable);
36 1003. part executed and part executory – principle
371. The donation must be reasonable, otherwise 101 of “no unjust enrichment at expense of
38 it would be tantamount to a conversion of 102 another” shall apply; and
39 corporate funds; 1034. executory contracts apparently authorized
402. That it must not be in aid of any political 104 but ultra vires – the principle of estoppel
41 party or candidate; 105 shall apply.
423. That it must not be for purposes of partisan 106
43 political activity.
107WASTING ASSET DOCTRINE- It permits
44 108corporations solely or principally engaged in the
45B. SPECIAL POWERS 109exploitation of “wasting assets” to distribute the
46 110net proceeds derived from exploitation of their
47 1. Power to extend or shorten corporate 111holdings such as mines, oil wells, patents and
48 term 112leaseholds, without allowance or deduction for
49 2. Increase / Decrease Corporate Stock 113depletion.
50 3. Incur, Create Bonded Indebtedness 114 The justification of such rule is that as
51 4. Sell, Dispose. Lease, Encumber all or 115the business of wasting asset corporation is to
52 substantially all of corporate assets 116exploit and exhaust its assets, no one can
53 5. Purchase or acquire own shares 117expect that its capital would be kept intact.
54 provided: 118Hence that dividends cannot be paid out of the
55 119capital but only from the profits must not be
56 120applied as a rule.
57 (i) there is an unrestricted 121
58 retained earnings 122
59 (ii) for legitimate purpose
123NOTE: RELATION TO THE TRUST FUND
60 6. Invest corporate funds in another
61 corporation or business for other
124DOCTRINE -
62 purpose other than primary purpose 125Under the Doctrine, no dividends can be
63 7. Power to declare dividends out of 126declared out of capital except only in two
64 unrestricted retained earnings 127instances: (1) liquidating dividends and (2)
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1dividends from investments in wasting asset 65
2corporation. 66SOLIDARY LIABILITY OF DIRECTORS
3 67FOR DAMAGES(SEC. 31):
4BOARD OF DIRECTORS REPOSITORY 68
5OF CORPORATE POWERS – unless 691. willfully and knowingly vote for and assent to
6otherwise provided by the Code, the corporate 70 patently unlawful acts of the corporation;
7powers of all corporation shall be exercised, all 71 and
8business conducted and all property of such 722. guilty of gross negligence or bad faith in
9corporations controlled and held by the board of 73 directing the affairs of the corporation;
10directors or trustees to be elected from among 743. acquire any personal or pecuniary interest in
11the members of the corporation, who shall hold 75 conflict of duty.
12office for one year and until their successors are
76
13elected and qualified.
14
77REMEDIES IN CASE OF
15Except: 78MISMANAGEMENT:
161. Executive Committee; or 79
172. The corporation enters into a management 801. receivership;
18 contract. 811. injunction, if the act has not yet been done;
19 822. dissolution if the abuse amounts to a ground
20QUALIFICATIONS OF DIRECTORS/ 83 for quo warranto but the Solicitor General
21TRUSTEES: 84 refuses to act; and
85 derivative suit or complaint filed with SEC.
22 86
231. He must own at least (1) share capital stock
24 of the corporation in his own name, and if he 87SPECIAL FACT DOCTRINE – director takes
25 ceases to own at least one share in his own 88advantage of an information by virtue of his
26 name, he automatically ceases to be a 89office to the disadvantage of the corporation.
27 director. For non-stock corporation, only 90
28 members of the corporation can be elected 91INHERENT POWER OF “AMOTION “- It is
29 to seat in the board of trustees (Sec. 23). 92the power to remove directors, officer and
302. A majority of the directors/ trustees must be 93trustees prior to the expiration of their term.
31 residents of the Philippines 94
32 (Sec. 23). 95DOCTRINE OF CORPORATE
333. He must not have been convicted by final 96OPPORTUNITY – if there is presented to a
34 judgment of an offense punishable by 97corporate officer or director a business
35 imprisonment for a period exceeding six (6) 98opportunity which:
36 years or a violation of the Corporation Code, 991. corporation is financially able to undertake;
37 committed within five years from the date of 1002. from its nature, is in line with corporations
38 his election 101 business and is of practical advantage to it;
39 (Sec. 27). 102 and
404. He must not have a substantial interest in a 1033. one in which the corporation has an interest
41 competing corporation. 104 or a reasonable expectancy.
425. Only natural persons can be elected 105
43 directors/trustees. 106☛ By embracing the opportunity, the self-
446. Other qualifications as may be prescribed in 107 interest of the officer or director will be
45 the by-laws of the corporation. 108 brought into conflict with that of his
46 109 corporation, the law will not permit him to
47“BUSINESS JUDGMENT RULE.”- The board of 110 seize the opportunity.
48directors is the body usually entrusted with the 111
49general control and management of the 112SELF-DEALING DIRECTORS- those who
50business of the corporation having plenary 113personally contract with the corporation in which
51power/ authority to transact all the ordinary 114they are directors. It is discouraged because
52business of the corporation within the scope of 115there can be no real bargaining where the same
53its charter power. The SEC, stockholders and 116is acting on both sides of the trade.
54the courts cannot overrule a pure business 117
55judgment. 118REQUIREMENTS FOR THE VALIDITY OF
56 119CONTRACTS OF SELF-DEALING
57THREE-FOLD DUTIES OF DIRECTORS; 120DIRECTORS:
58 1. Duty of Obedience- they will direct the 121
59 affairs of the corporation only in 122 1. All the requisites in Sec. 32, to wit:
60 123 a) The presence of such
61 accordance with the purposes for which it 124 director/trustee in the board meeting
62 was organized; 125 approving the contract was not
63 2. Duty of Diligence- 126
64 3. Duty of Loyalty
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1 necessary for constituting a quorum 64LIMITATIONS ON THE POWERS OF
2 for such meeting; 65EXECUTIVE COMMITTEE (SEC.35):
3 b)The vote of such director/trustee in 66
4 the board meeting approving the 67It cannot act on the following:
5 contract was not necessary for the 681. matters needing stockholder approval;
6 approval of the contract; 692. filling up of board vacancies;
7 c) The contract is fair and 70
8 reasonable under the 713. amendment, repeal or adoption of by-laws;
9 circumstances; 724. amendment or repeal of any resolution of
10 In the case of an officer, there 73 the Board which by its express terms is not
11 was previous authorization by the 74 amendable or repealable and
12 board of directors. 755. cash dividend declaration
13 76
14 2. Although not all said conditions are
77CORPORATE OFFICERS (SEC. 25):
15 present, the corporation elects not to
16 attack or question the validity of the 78
17 contract without prejudice to the 791. President – who shall be a director;
18 liability of the consenting 802. Treasurer – who may or may not be a
19 director/trustee for damages under 81 director;
20 Sec. 31. 823. Secretary – who shall be a resident and
21 83 citizen of the Philippines; and
22 3.Where any of the first two conditions is 844. such other officers as may be provided in
23 absent, said contract must be ratified by 85 the by-laws.
24 the vote of the stockholders representing 86
25 at least 2/3 of the outstanding capital stock 87CORPORATE ACTS – see table on page 35 .
26 or 2/3 of the members in a meeting called 88
27 for the purpose, provided that full 89DOCTRINE OF INDIVIDUALITY OF
28 disclosure of the adverse interest of the 90SUBSCRIPTION- A subscription is one entire
29 director/ trustee involved is made at such 91and indivisible whole contract. It cannot be
30 meeting. 92divided into portions. (Sec. 64)
31 93
32INTERLOCKING DIRECTORS- They are 94VALID CONSIDERATIONS IN
33those who sit in the boards of two or more 95SUBSCRIPTION AGREEMENT: (SEC. 62)
34corporations that transact business with one 96
35another or contract with each other whether on 971. Cash;
36isolated or regular basis not only because one 982. Property;
37has big investments therein but also because 993. Labor or services actually rendered to the
38his services may have been proven to be 100 corporation;
39valuable, competent and efficient. 1014. Prior corporate obligations;
40 1025. Amounts transferred from unrestricted
41REQUIREMENTS FOR VALIDITY OF 103 retained earning to stated capital,
42CONTRACTS OF INTERLOCKING 1046. Outstanding shares in exchange for stocks
43DIRECTORS: 105 in the event of reclassification or conversion.
106
44 107NOTE: shares of stock shall not be issued in
451. The contract is not fraudulent.
108exchange for promissory notes or future
462. The contract is fair and reasonable under
109services.
47 the circumstances.
110
483. If the interlocking director’s interest in one
49 corporation or corporations is nominal(not 111PRE-INCORPORATION SUBSCRIPTION
50 exceeding 20% of the outstanding capital 112CONTRACT – subscription of shares of stock
51 stock), then all the conditions prescribed in 113of a corporation still to be formed shall be
52 Sec. 32 on self-dealing directors must be 114irrevocable for a period of at least 6 months from
53 present with respect to the corporation in 115date of subscription, unless:
54 which he has 20% or less interest: 1161. all of the other subscribers consent to the
55 a. the presence of the interlocking 117 revocation;
56 director in the board meeting in 1182. the incorporation of said corporation fails to
57 which the contract was approved 119 materialize with said period or within a
58 was not necessary for the approval 120 longer period as may be stipulated in the
59 of the contract; 121 contract of subscription; provided that no
60 b. the vote of such director is not 122 pre-incorporation subscription may be
61 necessary for the approval of the 123 revoked after the submission of the articles
62 contract. 124 of incorporation to the SEC (Sec.61).
63 125
126
127
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1 STOCK
2CAPITAL STOCK OR LEGAL STOCK OR 1. unit of interest in a 1. Evidence of the
3STATED CAPITAL – the amount fixed by the corporation holder’s ownership of
4corporate charter to be subscribed and paid in the stock and of his
5cash, kind or property at the organization of the right as a shareholder
6corporation or afterwards and upon which the and of his extent
7corporation is to conduct its operation. specified therein.
8
9CAPITAL – actual property or estate of the 2. it is an incorporeal 2. It is concrete and
10corporation whether in money or property. or intangible property tangible
11
3. it may be issued by 3. It may be issued
12AUTHORIZED CAPITAL STOCK – total the corporation even if only if the
13amount in the charter, which may be raised by
the subscription is not subscription is fully
14the corporation for its operations.
fully paid. paid.
15
16WAYS OF INCREASING THE CAPITAL 4. Situs is generally 4.The situs may be
17STOCK: the state where the place where it is
18 the corporation located or at the
191. by increasing the number of shares and has its domicile domicile of the owner
20 retaining the par value; a) For purposes of even though the
212. by changing the par value of existing shares taxation, situs is domicile of the owner,
22 without increasing the number of shares; inconsistent with an except when
233. by increasing the number of shares and express provision of corporation is
24 increasing the par value. the statute or it is dominated
25☛ The way of increase varies according to the unjust. elsewhere.
26 reason for the increase, and is left to the b)To register the
27 sound judgment of the board of directors, chattel mortgages over
28 subject to ratification by the stockholders. the shares of stock the
29 status is the
30SHARES OF STOCK – interest or right which duty/promise in which
31owner has in the management of the the corporation has its
32corporation, and its surplus profits, and, on principal place of
33dissolution, in all of its assets remaining after the business.
34payment of its debt. c)For purposes of
35WORKING CAPITAL – excess of current assets execution, it is the
36over current liabilities. domicile of the
37CIRCULATING CAPITAL – refers to the total corporation.
38amount of current assets. 43
39
44
40DISTINCTIONS: 45UNDERWRITING AGREEMENT- It is an
CAPITAL STOCK SHARES OF 46agreement between a corporation and a third
STOCK 47person, termed the “underwriter”, by which the
 - the amount paid  - the interest or 48latter agrees, for a certain compensation, to take
in or secured to right which the 49a stipulated amount of stocks or bonds, specified
be paid in by the stockholder has in 50in the underwriting agreement, if such securities
stockholders the management 51are not taken by those to whom they are first
upon which the of the corporation, 52offered.
corporation is to and its surplus 53
conduct its profits, and upon a 54DISTINCTIONS :
operation. It is dissolution, in all of UNDERWRITING STOCK
the property of its assets AGREEMENT SUBSCRIPTION
the corporation remaining after
itself (monetary payment of
AGREEMENT
value). corporate debts. 1. The signers 1. The obligation of the
Share of stock obligate themselves signer to the
belongs to the to take the shares of purchasers and to the
individual stock which cannot public is absolute.
stockholders and be sold.
not to the 2. Underwriters are 2. There is no
company. usually allowed a commission.
commission.
41 3. In pure 3. He becomes a
42DISTINCTIONS : underwriting stockholder of the
SHARE OF STOCK CERTIFICATE OF agreement, the signer company and is liable
4 Page 23
10
can refuse to become to pay the amount due 57 both in the articles of incorporation and
a stockholder/ on the stock. 58 in the certificate of stock representing
member of the 59 such share (Sec. 8).
company in 60 3. Redeemable shares may be
pursuance of his 61 deprived of voting rights in the articles of
contract with the 62 incorporation, unless otherwise provided
promoter. 63 in the Code.
1 64
2 653. TREASURY SHARES (SEC. 9) -
3MINIMUM CAPITAL STOCK REQUIRED 66 shares which have been earlier issued as
4(SEC. 12) 67 fully paid and have thereafter been acquired
68 by the corporation by purchase, donation,
5
6GENERAL RULE : NO minimum required for 69 redemption or through some lawful means.
7capital stock. 70
8 Except: 71☛ IF PURCHASED FROM THE
9 1. Domestic Insurance 72 STOCKHOLDERS – the transaction in effect
10 Corporations – P500T capital stock; 73 is a return to the stockholders of the value of
11 50% subscribed and the balance 74 their investment in the company and a
12 payable in 12 months. 75 reversion of the shares to the corporation.
13 2. Private Development Banks 76 The corporation must have surplus profits
77 with which to buy the shares so that the
14 • P4M for class A
78 transaction will not cause an impairment of
15 • P2M for class B
79 the capital.
16 • P1M for class C 80
17 3. Investment Companies – paid 81☛ IF BY DONATION FROM THE
18 up at least P500T 82 STOCKHOLDERS – the act would amount
19 4. Savings and Loan Corporation – 83 to a surrender of their stock without getting
20 to be fixed by the Monetary Board but 84 back their investments which are instead,
21 not less than P100T. 85 voluntarily given to the corporation.
22 5. Financing Companies 86
23 • Paid up: P2M for Metro 874. FOUNDER’S SHARE (SEC. 7);
24 Manila 885. NON-VOTING SHARES;
25 P1M for Cities 896. VOTING SHARES
26 P500T for others 907. COMMON SHARE – is the basic class of
27 91 stock ordinarily and usually issued without
28AMOUNT OF CAPITAL STOCK TO BE 92 extraordinary rights and privileges and the
29SUBSCRIBED AND PAID FOR 93 owners thereof are entitled to a pro rata
30PURPOSES OF CORPORATION 94 share in the profits of the corporation and in
31(SEC. 13): 95 its assets upon dissolution and likewise in
32 96 the management of its affairs without
33☛ 25% of ACS must be subscribed at time of 97 preference or advantage whatsoever.
34 incorporation; and 988. PROMOTERS SHARES – are those issued
35☛ 25% of total subscription must be paid 99 by mining corporations to owners of mines
36 upon subscription but must not be less than 100 who transferred their mining rights to such
37 P5,000 101 corporations or they are shares issued to
38 102 promoters of a corporation.
39CLASSIFICATION OF SHARES (SEC. 6): 1039. ESCROW STOCK – deposited with 3rd
40 104 person to be delivered to S/H or his assign
411. PREFERRED SHARES – issued with par 105 after complying with certain conditions,
42 value and preference may be to (a) assets 106 usually payment of full subscription price;
43 after dissolution, (b) distribution of dividends 10710. OVER-ISSUED STOCK – are those issued
44 and other preferences; 108 in excess of the authorized capital stock.
452. REDEEMABLE SHARES (SEC. 8) – are 10911. WATERED STOCK – issued as fully paid
46 those which permit the issuing corporation to 110 when in fact it is not (Sec.65);
47 redeem or purchase its own shares. 111
48 112“WATER” IN THE STOCK- It represents the
49 LIMITATIONS ON THE ISSUANCE OF 113difference between the fair market value at the
50 REDEEMABLE SHARES: 114time of the issuance of the stock and the par or
51 115issued value of said stock. Both par and no-par
52 1. Redeemable shares may be 116stocks can thus be watered stocks.
53 issued only when expressly provided for 117
54 in the articles of incorporation (Sec. 8). 11812. PAR VALUE SHARES- value in fixed in the
55 2. The terms and conditions 119 articles of incorporation
56 affecting said shares must be stated 12013. NO PAR VALUE SHARES- shares having
121 no par value but have issued value stated in
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10
1 the articles of incorporation or to be fixed by 66
2 the Board 67MATTERS WHERE HOLDERS OF NON-
3 68VOTING SHARES MAY VOTE (SEC. 6):
4 LIMITATIONS ON THE ISSUANCE OF 69
5 “NO PAR VALUE” SHARES: 701. amendment of Articles of Incorporation;
6 71
7 1. No par value shares cannot 722. adoption and amendment of by-laws;
8 have an issued price of less than P5.00 733. increase or decrease of bonded
9 while the par value of a share can be as 74 indebtedness;
10 low as 1 cent. 754. increase or decrease of capital stock;
11 2. The entire consideration for its 765. sale or disposition of all or substantially all of
12 issuance constitutes capital so that no 77 corporate property;
13 part of it should be distributed as 786. merger or consolidation of corporation;
14 dividends. 797. investments of funds in another corporation
15 3. They cannot be issued as 80 or another business purpose; and
16 preferred stocks. 818. corporate dissolution.
17 4. They cannot be issued by 82
18 banks, trust companies, insurance 83DOCTRINE OF EQUALITY OF SHARES-
19 companies, public utilities and building 84Where the articles of incorporation do not
20 and loan association. 85provide for any distinction of the shares of stock,
21 5. The articles of incorporation 86all shares issued by the corporation are
22 must state the fact that it issued no par 87presumed to be equal and enjoy the same rights
23 value shares as well as the number of 88and privileges and are also subject to the same
24 said shares. 89liabilities.
25 6. Once issued, they are deemed 90
26 fully paid and non-assessable. 91TRUST FUND DOCTRINE – the subscribed
27 92
28 93capital stock of the corporation is a trust fund for
2914. DEBENTURE – charged on the net earning 94the payment of debts of the corporation which
30 and profit of the corporation; 95the creditors have the right to look up to satisfy
3115. DEFERRED SHARES – are those which are 96their credits. Corporation may not dissipate this
32 entitled to dividends after the payment of 97and the creditors may sue stockholders directly
33 holders of common share. 98for the unpaid subscription.
3416. STOCK WARRANT – security which entitle 99
35 holder the right to subscribe to, or purchase 100REACQUISITION BY CORPORATION OF
36 from, the unissued capital stock of a
101ITS STOCK (SEC. 41):
37 corporation in the future;
3817. SCRIP – applied to certificates issued by
102
1031. to eliminate fractional shares;
39 trustee in a voting trust;
1042. to compromise an indebtedness arising out
4018. STREET CERTIFICATE – stock certificate
105 of unpaid subscription;
41 endorsed by the registered holder in blank
1063. to purchase delinquent shares; and
42 and transferee can command its transfer to
1074. to exercise its right of appraisal.
43 his name from the issuing corporation. The
108
44 certificate may be transferred by mere
45 delivery; and 109RIGHTS OF STOCKHOLDERS:
4619. CUMMULATIVE PREFERRED SHARES – 110
47 which entitle the holder thereof to payment 1111. DIRECT OR INDIRECT PARTICIPATION IN
48 of current dividends as well as dividends in 112 MANAGEMENT –
49 arrears. 113 a. voting rights (Sec. 6); and
5020. NON-CUMMULATIVE – which entitle the 114 b. right to remove directors (Sec. 28)
51 holder thereof only to the payment of current 1152. PROPRIETARY RIGHTS –
52 and not past dividends. 116 a. right to dividends;
5321. PARTICIPATING – which entitle the holder 117 b. appraisal right (Sec. 81);
54 thereof to participate with the holders of 118 c. rightr to issuance of stock certificate for
55 common shares after their preferred rights 119 fully paid shares (Sec.64);
56 has been satisfied. 120 d. proportionate participation in the
5722. NON-PARTICIPATING – which entitle the 121 distribution of assets in liquidation
58 holder to payment of the stipulated preferred 122 (Sec.118-119);
59 dividends and no more. 123 e. right to transfer of stocks in corporate
6023. CUMMULATIVE-PARTICIPATING – which 124 books (Sec. 63);
61 entitle the holder thereof to payment of 125 f. preemptive right (Sec. 39);
62 dividends in arrears, and also after receiving 126 g. right to inspect books and records (Sec.
63 his preferred shares of dividends, to 127 74);
64 participation with the holders of common
65 stock in the remaining profits.
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10
1 h. right to be furnished of the most recent 65 as trustees for the owners, unless otherwise
2 financial statement/ financial report 66 escheated in accordance with law.
3 (Sec. 74 and 75); 67
4 i. right to recover stocks unlawfully sold for 68LIMITATIONS ON THE STOCKHOLDER’S
5 delinquent payment of subscription. 69RIGHT TO VOTE:
6 70a. Where the articles of incorporation provides
73. REMEDIAL RIGHTS – 71 for classification of shares pursuant to Sec.
8 a. individual suit; 72 6, non-voting shares are not entitled to vote
9 b. representative suit; and 73 except as provided for in the last paragraph
10 74 of Sec. 6.
11 75
12 c. derivative suit - suit brought by S/H, for 76b. Preferred or redeemable shares may be
13 and in behalf of the corporation and 77 deprived of the right to vote unless
14 against any person he be also a S/H, 78 otherwise provided in the Code (Sec. 6).
15 director, officer or 3rd person. 79c. Fractional shares of stock cannot be voted
16 80 unless they constitute at least one full share
17 REQUISITES: 81 (Sec. 41).
18 i. the party bringing suit should be 82d. Treasury shares have no voting rights as
19 a shareholder as of the time of 83 long as they remain in the treasury (Sec.
20 the act or transaction 84 57).
21 complained of; 85e. Holders of stock declared delinquent by the
22 ii. he has exhausted intra- 86 board of directors for unpaid subscription
23 corporate remedies; and 87 are not entitled to vote or a representation at
24 iii. the cause of action actually 88 any stockholder’s meeting (Sec. 67).
25 devolves on the corporation, the 89f. A transferee of stock cannot vote if his
26 wrongdoing or harm having 90 transfer is not registered in the stock and
27 been caused to the corporation 91 transfer book of the corporation (Sec. 63).
28 and not to the particular 92g. Stock held in escrow cannot be voted until
29 stockholder bringing the suit. 93 the performances of a certain condition or
30 94 the happening of a certain event as
31PREEMPTIVE RIGHT OF STOCKHOLDERS – 95 contained in the agreement. (opinion)
32shareholders right to subscribe to all issues or 96
33dispositions of shares of any class in proportion 97CUMULATIVE VOTING – S/H, being entitled to
34to his present stockholdings, the purpose being 98that number of votes that his number of shares
35to enable the shareholder to retain his 99multiplied by the number of directors to be
36proportionate control in the corporation and to 100elected will bring, may give all said votes to one
37retain his equity in the surplus. 101candidate or he may distribute them among as
38 102many candidates as he sees fit (Sec. 24).
39OBLIGATIONS OF A STOCKHOLDER: 103
40 104PROXIES – S/H and members may vote in
411. Liability to the corporation for unpaid 105person of by proxy in all meetings of S/H or
42 subscription (Sec. 67-70) 106members (Sec. 58).
432. Liability to the corporation for interest on 107 FORM – in writing, signed by the S/H or
44 unpaid subscription if so required by the by- 108 member and filed before the scheduled
45 laws (Sec. 66) 109 meeting with the corporate secretary.
463. Liability to the creditors of the corporation for 110 PERIOD OF VALIDITY – unless
47 unpaid subscription (Sec. 60) 111 otherwise provided in the proxy, it
484. Liability for watered stock (Sec. 65) 112 should be valid only for the meeting for
495. Liability for dividends unlawfully paid (Sec. 113 which it is intended. No proxy shall be
50 43) 114 valid and effective for a longer period
516. Liability for failure to create corporation 115 than five years at any one time.
52 (Sec. 10) 116☛ Proxies are also considered as corporate
53 117 devise for securing voting control of the
54UNKNOWN STOCKHOLDER- They are owners 118 corporation.
55of stock who cannot be located or identified. A 119
56trust relation is created between them and the 120INSTANCES WERE THE RIGHT TO VOTE
57corporation and their shares shall stand in the 121BY PROXY ARE EXPLICITLY PROVIDED
58name of the corporation as a “trustee”.
122FOR:
59
60 HOW IDENTIFIED: 123
1241. election of the board of directors or trustees
61☛ Through a publication in a newspaper of
125 (Sec. 24).
62 general circulation. If this proves futile, it is
1262. voting in case of joint ownership of stock
63 nevertheless the fiduciary duty of the
64 corporation to continuously hold such shares 127 (Sec. 56).
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10
13. voting by trustee under voting trust made a at any one time
2 agreement (Sec. 59). condition of a
34. pledged or mortgaged share (Sec. 55). loan.
45. as provided for in its by-laws (Sec. 47 (4). 10. The voting right 10. The right to
5 is divorced from vote is inherent
6DISTINCTIONS: the ownership in or inseparable
VOTING PROXY of stocks from the right to
TRUSTS ownership of
stock
1. The trustee 1. The proxy
7
votes as owner holder votes as
8VOTING TRUST – one or more S/H of a stock
rather than as agent
9corporation may create a voting trust for the
mere agent
10purpose of conferring upon a trustee or trustees
11the right to vote and other rights pertaining to the
2. The trust may 2. The proxy must
12shares for a period not exceeding 5 years at any
vote in person vote in person
13one time. However, if the voting trust was a
or by proxy
14requirement for a loan agreement, period may
unless the
15exceed 5 years but shall automatically expire
agreement
16upon full payment of the loan (Sec. 59).
provides
17
otherwise
18DIVIDENDS – unrestricted retained earnings set
19apart from the general mass of funds of the
3. The beneficial 3. The principal in 20corporation and distributed among the S/H in
owner ceases a proxy does 21proportion to their shares or interest in the
to be not cease to be 22corporation, in the form of cash, property or
recognized as a a stockholder 23stocks.
shareholder of 24
record and the 25
trustee 26APPRAISAL RIGHT – right to withdraw from the
assumes 27corporation and demand payment of the fair
practically all 28value of his shares after dissenting from certain
the rights of a 29corporate acts involving fundamental changes in
stockholder 30corporate structure (Sec.81)
31
4. Trustee acquires 4.Proxy has no 32 INSTANCES WHERE IT MAY BE
legal title to the legal title to the 33 EXERCISED:
shares of the shares of the 34 1. extension of duration of
transferring principal 35 corporate term;
stockholder 36 2. change in the rights of S/H,
5. The agreement 5. Proxy need not 37 authorize preferences superior to those
must be be notarized 38 S/H, or restrict the right of any S/H;
notarized 39 3. S/H authorized the board to
6. The agreement is 6. Revocable 40 invest corporate funds in another
irrevocable anytime except one 41 corporation;
with interest 42 4. S/H authorized board to engage
7. Trustee is not 7.Proxy can only 43 in a purpose other than main purposes
limited to act at act at a specified 44 stated in the Articles; and
any particular stockholder’s 45 5. corporation decides to sell or
meeting meeting (if not 46 dispose of all or substantially all assets
continuing) 47 of corporation.
48
8. A trustee can 8.A proxy can only 49STOCK OPTION – privilege granted to a party
vote and vote in the absence 50to subscribe to a certain portion of the unissued
exercise all the of the owners of the 51capital stock of a corporation within a certain
rights of the stock 52period and under the terms and conditions of the
stockholder 53grant exercisable by the grantee at any time
even when the 54within the period granted. The grant is not
latter is present 55covered by any provision of the Code.
9. An agreement 9. A proxy is 56
must not usually of 57METHODS FOR COLLECTION OF
exceed 5 years shorter duration 58UNPAID SUBSCRIPTION (SEC. 68):
at any one time although under 591. call delinquency and sale at auction of
except when Sec. 58 it cannot 60 delinquent shares;
the same is exceed 5 years
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10
12. ordinary court actions (Sec. 70); and 64
23. collection from cash dividends and other 65 1. Board of each corporation shall draw up
3 amounts due to S/H, if allowed by the by- 66 a plan of merger or consolidation setting
4 laws, or agreed by him. 67 forth:
5 68 a. names of the corporation involved
6PROCEDURE FOR THE SALE OF 69 b. terms and mode of carrying it
7DELINQUENT STOCKS: 70
8 71 c. statement of changes, if any, in the
91. Notice of call- Call by resolution demanding 72 present articles of the surviving
10 payment of the balance of the subscription. 73 corporation or the articles of the new
11 However, if the contract of subscription 74 corporation to be formed in the case of
12 itself prescribes the date of payment of the 75 consolidation.
13 unpaid subscription, no call is necessary. 76
142. The stockholders are given notice of the 77 2. Plan for merger or consolidation shall be
15 board resolution by the corporate secretary, 78 approved by majority vote of each of the
16 either personally or by registered mail. 79 board of the concerned corporations at
17 Publication of notice of call is not required by 80 separate meetings, and approved by the
18 law. 81 majority vote of the 2/3 of the OCS or
19 If the stockholders concerned do not pay 82 members for non-stock corporations.
20 within (30) days from the date specified in 83
21 the contract of subscription or in the call, all 84 3. Any amendment to the plan must be
22 the stocks covered by the subscription shall 85 approved by the majority vote of the
23 be declared delinquent and shall be subject 86 board members or trustees of the
24 to sale under Sec. 68. 87 constituent corporations and affirmative
253. Notice of delinquency served on the 88 vote of 2/3 of the OCS or members.
26 subscribers either personally or registered 89
27 mail AND publication in a newspaper of 90 4. Articles of Merger or Articles of
28 general circulation in the province or the city 91 Consolidation shall be executed by
29 where principal office is located for once a 92 EACH of the constituent corporations,
30 week for two consecutive weeks. Notice 93 signed by the President or Vice-
31 shall state the amount due on each 94 President and certified by secretary or
32 subscription plus accrued interest, and the 95 assistant secretary setting forth:
33 date, time and place of the sale which shall 96 (i) plan of merger or
34 not be less than 30 days not more than 60 97 consolidation
35 days from the date the stocks become 98 (ii) for stock corporation, the
36 delinquent. (Sec. 67-70) 99 number of shares
37 100 outstanding; for non-stock,
38EFFECT OF DELINQUENCY: No delinquent 101 the number of members;
39stock shall be voted for or be entitled to vote or 102 (iii) as to each corporation,
40to representation at any stockholder’s meeting, 103 number of shares or
41nor shall the holder thereof be entitled to any 104 members voting for and
42rights of the stockholder except right to 105 against such plan
43dividends. (Sec. 71) 106 respectively
44 107
45BOOKS REQUIRED TO BE KEPT (SEC. 108 5. Four copies of the Articles of Merger or
4674): 109 Consolidation shall be submitted to the
110 SEC for approval. Banks, insurance
47
481. Book of Minutes; 111 companies, building and loan
49 a. minutes of S/H meetings; and 112 associations, trust companies, public
50 b. minutes of board meetings. 113 utilities, educational institutions and
512. Book of all business transactions; 114 other special corporations favorable
523. Stock and transfer book 115 recommendation of government agency
116 concerned.
53
54MERGER – one corporation absorbs the other 117
118 GENERAL RULE – when one
55and remains in existence while the other is
119 corporation buys all the shares of
56dissolved (Sec. 76).
120 another corporation, this will not operate
57 121 to dissolve the other corporation and as
58CONSOLIDATION – a new corporation is
122 the two corporations still maintaining
59created, and consolidating corporations are
123 their separate corporate entities, one will
60extinguished (Sec. 76).
124 not answer for the debts of the other.
61
125
62PROCEDURE FOR MERGER OR 126 Exceptions:
63CONSOLIDATION: 127 1. if there is an express
128 assumption of liabilities;
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10
1 2. there is a consolidation or 65 cancellation of corporate franchise is not
2 merger; 66 automatic.
3 3. if the purchase was in fraud of 672. NON-USER FOR 5 YEARS – when the
4 creditors; and 68 corporation has commenced the transaction
5 4. if the purchaser becomes a 69 of its business but subsequently becomes
6 continuation of the seller. 70 continuously inoperative for a period of at
7 71 least 5 years EXCEPT if reason for non-use
8CORPORATE TERM – 50 years which may be 72
9subject to extension for another 50 years by 73or inoperation is beyond the control of the
10amendment of Articles (Sec.11). 74corporation.
11 75
12SHORTENING OF CORPORATE TERM. 76
13HOW DONE: 77DISSOLUTION OF A CORPORATION –
14 78extinguishment of the franchise of a corporation
15☛ It refers to the dissolution of a corporation 79and the termination of its corporate existence.
16 prior to the expiration of its term as fixed in 80
17 the articles of incorporation. 81MODES OF DISSOLUTION OF A
18☛ This is done by following the formal 82CORPORATION:
19 requirements of Sec. 16 (not mere written 83
20 assent) and the procedural requirements of 841. VOLUNTARY DISSOLUTION –
21 Sec. 37 of the Corporation Code. 85 a. where no creditors are affected (Sec.
22 86 118)
23EXTENSION OF CORPORATE TERM- It refers 87
24to the continuation of a corporation beyond the 88 Procedure:
25term originally fixed in the articles of 89 1) administrative application filed
26incorporation. 90 with the SEC by a majority vote of the
27 91 BOD
28REQUISITES FOR AN EXTENSION OF 92 2) notice thru registered mail or
29CORPORATE TERM: 93 delivered 30 days prior to the meeting
30 94 3) Publication of the notice for 3
311) The extension cannot be made earlier than 95 consecutive weeks in a newspaper of
32 five (5) days prior to the original or 96 general circulation
33 subsequent expiry date unless warranted by 97 4) Resolution approved by 2/3 of
34 a justifiable reason to be determined by the 98 the OCS
35 SEC- for evaluation purposes. 99 5) Copy of Resolution Certified by
362) There can be no more extension after the 100 majority of BOD countersigned by
37 expiration of the corporate term of existence 101 secretary
38 because there is no more corporate life to 102
39 extend and promote in such case. 103
403) It should be approved by 2/3 of the 104 b. where creditors are affected (Sec 119);
41 outstanding capital stock. 105
42 106 Procedure:
43DOCTRINE OF RELATION- Where the failure 107 1) Petition signed by majority of
44to issue a new charter before the expiration of 108 BOD/trustees/officers verified by
45the old one is due solely to the fault of the clerk 109 President/ Secretary/ Director
46to whom application therefore is reasonably 110 2) Claims and demands must be
47made, the new charter, when issued will relate 111 stated in the petition
48back, and will be treated as taking effect from 112 3) Stockholders approval
49the day the corporation was entitled to have the 113 representing 2/3 OCS
50charter issued. (Also see article 1174 of the 114 4) SEC order setting date for
51NCC on fortuitous events). 115 objections
52 116 5) Publication of the order and
53EFFECTS OF NON-USE OF CORPORATE 117 Posting
118 6) Hearing
54CHARTER AND CONTINUOUS
119 7) Appointment of Receiver (if
55INOPERATION OF CORPORATION (SEC. 120 necessary)
5622): 121
57 122 c. by shortening corporate term
581. NON-USER FOR 2 YEARS – when the 123 (Sec. 120).
59 corporation does not fully organize and 124
60 commence the transaction of its business or 125 Procedure:
61 the construction of its works within 2 years 126 1) Amendment of AOI
62 from the date of its incorporation, its 127 2) Publication
63 corporate powers cease and the corporation
64 shall be deemed dissolved. Suspension or
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10
1 3) Oath undertaking by majority of 65 2. Conveyance to a trustee made within
2 SH or officers to personally answer for 66 three year period
3 obligations 67 3. By management committee or
4 4) BIR clearance of tax liability 68 rehabilitation receiver
5 5) Listing of creditors and Consent 69
6 to the shortening of the term 70FOREIGN CORPORATION – corporation
7 6) Affidavit of assumption of 71formed, organized or existing under any law
8 liability by SH 72other than those of the Philippines, and whose
9 7) Latest audited financial 73laws allow Filipino citizens and corporations to
10 statement of corporation 74do business in its own country or state (Sec.
11 75123).
12 d. expiration of corporate term 76
13 77 DOING BUSINESS – implies a community
142. INVOLUNTARY DISSOLUTION (Sec. 121), 78 of commercial dealings and arrangements,
15 79 and contemplates to some extent the
16 Procedure: 80 performance of acts or works or the exercise
171) Verified Complaint 81 of some functions normally incident to and in
182) Proper Notice and Hearing in SEC 82 progressive prosecution of, the purpose and
193) Grounds 83 object of its organization. (Continuity Test)
204) failure to organize and commence business 84
21 within 2 years from incorporation;(Sec 22) 85 DOCTRINE OF ISOLATED TRANSACTION
22 86 Foreign corporation can sue or be sued on a
235) Continuously inoperative for 5 years ( Sec 87 transaction or series of transaction set apart
24 22) 88
256) may be dissolved by SEC – on grounds 89 from the common business of a foreign
26 provided by existing laws, rules and 90 enterprise in the sense that there is no
27 regulations: 91 intention to engage in a progressive pursuit
28☛ failure to file by-laws within 30 days from 92 of the purpose and object of business
29issue of certificate of incorporation. 93 transaction
30☛ Continuance of business not feasible as 94
31found by Management Committee or 95 SUABILITY OF FOREIGN
32Rehabilitation Receiver
96 CORPORATIONS:
33☛ Fraud in procuring Certificate of Registration
34☛ Serious Misrepresentation 97
35☛ Failure to file required reports 98 1. Foreign corporation doing
36 99 business in the Philippines –
100 a. with license : may sue and be
37SEQUESTRATION- It means taking into 101 sued in the Philippines;
38custody or placing under the commission’s 102 b. without license : cannot sue but
39control or possession any asset, fund or property 103 may be sued in the Philippines.
40as well as relevant records or documents, to 104 2. Foreign corporation not doing business
41prevent their concealment, destruction, 105 in the Philippines, on isolated
42impairment or dissipation pending determination 106 transaction – may sue and be sued.
43of whether said asset, fund or property is ill- 107
44gotten wealth under EO’s 1 and 2. 108
45
46FREEZE ORDER- It is an order intended to 109CLOSE CORPORATIONS
47stop or prevent any act or transaction which may 110
48affect the title, possession, status, condition, 111REQUIREMENTS FOR CLOSE
49integrity or value of the asset of property which 112CORPORATIONS (SEC. 96):
50is or which might be the object of any action or 113
51proceeding under EO’s number 1 and 2. 1141. number of stockholders not to exceed 20;
52 1152. restriction on the transfer ; preemption in
53LIQUIDATION: 116 favor of the stockholder or the corporation;
1173. the stocks cannot be listed in the stock
54
55Process by which all the assets of the 118 exchange nor should they be publicly
56corporation are converted into liquid assets 119 offered.
57(cash) in order to facilitate the payment of 120
58obligations to creditors, and the remaining 121☛ Special type of close corporation – 2/3 of the
59balance if any is to be distributed to the SH or 122 voting stocks or voting rights is owned or
60members. 123 controlled by another corporation which is
124 not a close corporation.
61
62Three Modes of Liquidation: 125☛ The following cannot be a close corporation:
126 a. mining companies;
63
64 1. By BOD / Trustee 127 b. oil companies;
128 c. stock exchanges;
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1 d. banks; 64 a. charitable;
2 e. insurance companies; 65 b. religious;
3 f. public utility; 66 c. educational;
4 g. education institution; 67 d. professional;
5 h. other corporation declared to be 68 e. cultural;
6 vested with public interest. 69 f. fraternal;
7 70 g. literary;
8RESTRICTIONS ON TRANSFERS – the 71 h. scientific;
9restrictions in the transfer of the stocks must 72 i. social;
10appear (Sec. 98): 73 j. civic service; and
11 74 k. similar purposes, such as chambers
121. in the articles; 75 or combinations for –
132. in the by-laws; and 76 i. trade;
143. on the stock certificates. 77 ii. industry;
15 78 iii. agricultural.
16☛ Restriction on the transfer must not be 79
17 onerous than granting the existing SH or 80DISTRIBUTION OF ASSETS ON
18 corporation the option to purchase the 81DISSOLUTION OF NON-STOCK
19 shares 82CORPORATION (SEC. 94):
20 83
21 841. all its creditors shall be paid;
22PREEMPTIVE RIGHT IN CLOSE 852. assets held subject to return on dissolution,
23CORPORATIONS – shall extend to all stocks 86 shall be delivered back to their givers;
24to be issued, including re-issuance of treasury 873. assets held for charitable, religious, etc.,
25share, whether for money or property or 88 without a condition for their return on
26personal services, or in payment or corporate 89 dissolution, shall be conveyed to one or
27debts, unless the articles of incorporation 90
28provide otherwise (Sec. 102). 91more organizations engaged in similar activities
29 92as dissolved corporation; and
30CHARACTERISTICS OF CLOSE 934. all other assets shall be distributed to
31CORPORATIONS: 94 members, as provided for in the Articles or
32 95 by-laws.
331. S/H act as directors without need of election 96
34 and therefore are liable as directors; 97RELIGIOUS CORPORATIONS
352. Quorum may be greater than mere majority; 98
363. Transfers of stocks to others, which would 99KINDS (SEC. 109):
37 increase the number of S/H to more than the 100
38 maximum are invalid; 1011. CORPORATION SOLE – special form of
394. Corporate actuations may be binding even 102 corporation, usually associated with the
40 without a formal board meeting, if the S/H 103 clergy and consists of one person only and
41 had knowledge or ratified the informal action 104 his successors, who are incorporated by law
42 of the others; 105 to give some legal capacities and
435. Preemptive right extends to all stock issues; 106 advantages; and
446. Deadlocks in board are settled by the SEC, 1072. RELIGIOUS SOCIETIES – non-stock
45 on the written petition by any S/H; and 108 corporation governed by a board but with
467. S/H may withdraw and avail of his right of 109 religious purposes.
47 appraisal. 110
48 111
49NON-STOCK CORPORATIONS 112SECURITIES AND EXCHANGE
50 113 COMMISSION
51DEFINITION- corporation where no part of its 114 REORGANIZATION
52income is distributable as dividends to (Sec. 87):
53 a. members; 115 DECREE (P.D. 902-A)
54 b. trustees; and 116
55 c. officers. 117
56 Except – at dissolution. 118Sec. 2,4, 8 repealed by RA 8799:
57 119
58DISPOSITION OF PROFITS- for furtherance 120ORIGINAL AND EXCLUSIVE
59of purpose or purposes of the corporation. 121JURISDICTION OF THE COURTS OF
60 122GENERAL JURISDICTION/ RTC (SEC. 5
61CONDITIONS: necessary and proper (Sec. 88) 123PD 902-A IN RELATION TO SEC. 5.2 RA
62 1248799):
63PURPOSES: 125
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10
11. fraudulent devices and schemes employed 62 6. Recommend policies, advise,
2 by directors detrimental to the public interest 63 propose legislation to Congress on
3 and to other firms; 64 securities market
42. intra-corporate dispute and with the state in 65 7. Prepare, approve, amend or repeal
5 relation to their franchise and right to exist 66 rules, regulations, issue opinions
6 as such; 67 and provide guidance on and
73. controversies in election, appointment of 68 supervise compliance with such
8 directors or trustees; and 69 rules, regulations and orders
94. petition to be declared in state of suspension 70 8. Enlist the aid and support of and/or
10 of payments. 71 deputize any and all enforcement
11 -SEC HAS JURISDICTION TO 72 agencies of the Government, civil
12 PETITIONS FILED AS OF JUNE 30, 73 or military as well as any private
13 2000. 74 institution, corporation, firm,
14 75 association or person in the
15GROUNDS FOR SUSPENSION OR 76 implementation of its powers and
16CANCELLATION OF CERTIFICATE OF 77 functions under this Code.
17REGISTRATION (SEC. 6 (L)): 78 9. Issue cease and desist orders to
79 prevent fraud or injury to the
18
191. fraud in procuring registration; 80 investing public
202. serious misrepresentation as to objectives of 81 10. Punish for contempt of the
21 corporation; 82 Commission, both direct and
223. refusal to comply with lawful order of SEC; 83 indirect, in accordance with the
234. continuous inoperation for at least 5 years; 84 pertinent provisions of and
245. failure to file by-laws within required period; 85 penalties prescribed by the Rules
25 86 of Court.
266. failure to file reports; and 87 11. Compel the officers of any
277. other similar grounds. 88 registered corporation or
28 89 association to call meetings of
90
29 REPUBLIC ACT 8799 91 stockholders or members thereof under
30 THE SECURITIES REGULATION 92 its supervision.
31 CODE 93
32 94 12. Issue subpoena duces tecum and
33PURPOSES OF SECURITIES ACT 95 summon witnesses to appear in
341. establish a socially conscious self-regulating 96 any proceedings of the
35 free market 97 Commission and in appropriate
362. encourage the widest participation of 98 cases, order the examination,
37 ownership in enterprises 99 search and seizure of all
383. enhance democratization of wealth 100 documents, papers and files and
394. promote development of capital market 101 records, tax returns, and books of
405. protect investors 102 accounts of any entity or person
416. enhance full and fair disclosure about 103 under investigation as may be
42 securities 104 necessary for the proper
437. minimize if not totally eliminate insider 105 disposition of the cases before it,
44 trading and other fraudulent or manipulative 106 subject to the provisions of existing
45 devices and practices 107 laws
46 108 13. Exercise such other powers as
47POWERS AND FUNCTIONS OF THE 109 may be provided by law as well as
110 those which may be implied from,
48SEC (SEC. 5)
111 or which are necessary or
49 1. jurisdiction/supervision over
112 incidental to the carrying out of, the
50 corporations, partnerships, and
113 express powers granted the
51 grantees of primary franchise
114 Commission to achieve the
52 2. approve, reject registration
115 objectives and purposes of these
53 statements/licensing applications
116 laws.
54 3. Suspend, revoke, after notice and
117
55 hearing primary franchise on
118☛ Securities shall not be sold and offered for
56 grounds
119 sale or distribution within the Philippines,
57 4. regulate/supervise activities of
120 without a registration statement duly filed
58 persons to ensure compliance
121 with and approved by the Commission may
59 5. Supervise monitor, suspend or take
122 prescribe, shall be made available to each
60 over, exchanges, clearing agencies
123 prospective purchaser. (Sec. 8.1)
61 and SROs
124
125 EXCEPTIONS:
1261. Exempt securities; and
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10
12. Exempt Transactions 65 Government of the Philippines or any
2 66 political subdivision thereof or managed by a
3EXEMPT SECURITIES (SEC. 9): 67 bank or other persons authorized by the
4 68 Bangko Sentral to engage in trust functions
51. Any security issued or guaranteed by the 6916. Sale of securities to investment company
6 Government of the Philippines, or by any 7017. Sale of securities to such other person as
7 political subdivision or agency thereof, or by 71 the Commission may rule determine as
8 any person controlled or supervised by and 72 qualified buyers
9 acting as an instrumentality of said 73
10 Government. 74GROUNDS FOR REJECTION AND
112. Any security issued or guaranteed by the 75REVOCATION OF REGISTRATION (SEC.
12 government of any country with which the 7613):
13 Philippines maintains diplomatic relations, or 77
14 by any state, province or political subdivision 781. The issuer:
15 or agency thereof on the basis of reciprocity: 79 a) Has been judicially declared insolvent
16 Provided, That the Commission may require 80 b) Has violated any of the provisions of this
17 compliance with the form and content of 81 Code, the rules promulgated pursuant
18 disclosures the Commission may prescribe. 82 thereto, or any order of the Commission of
193. Certificates issued by a receiver or by a 83 which the issuer has notice in connection
20 trustee in bankruptcy duly approved by the 84 with the offering for which a registration
21 proper adjudicatory body. 85 statement has been filed.
224. Any security or its derivatives the sale or 86 c) Has been or is engaged or is about to
23 transfer of which, by law, is under the 87 engage in fraudulent transactions.
24 supervision and regulation of the Office of 88 d) Has made any false or misleading
25 the Insurance Commission, Housing and 89 representations of material facts in any
26 land Use Regulatory Board, or the Bureau of 90 prospectus concerning the issuer or its
27 Internal Revenue. 91 securities
285. Any security issued by a bank except its 92 e) Has failed to comply with any
29 own shares of stock. 93 requirement that the Commission may
30 94 impose as a condition for registration of the
31EXEMPT TRANSACTIONS (SEC. 10): 95 security for which registration statement has
32 96 been filed
331. Judicial sale by executor, administrator, 97
34 guardian/receiver in insolvency or 982. The registration statement is on its face
35 bankruptcy. 99 incomplete or inaccurate or includes any
362. Sale of pledged or foreclosed property to 100 untrue statement of a material fact or omits
37 liquidate debts. 101 to state a material fact required to be stated
383. sale on isolated transactions by owner . 102 therein.
394. Distribution of stock dividends. 1033. The issuer or any underwriter has been
405. Sale of capital stock to stockholders where 104 convicted by a competent judicial or
41 no commission is paid 105 administrative body of an offense involving
426. The issuance of bonds or notes secured by 106 moral turpitude and/or fraud or is enjoined
43 mortgage upon real estate or tangible 107 by the Commission or other competent
44 personal property, where the entire 108 judicial or administrative body for violations
45 mortgage together with all the bonds or 109 of securities, commodities and other related
46 notes secured thereby are sold to a single 110 laws
47 purchaser at a single sale. 1114. Any issuer who refuses to permit the
487. Issuance of security in exchange of any 112 examination to be made by the
49 security from same issuer pursuant to right 113 Commissioner.
50 of conversion. 114
518. Broker’s transactions, executed upon 115SUSPENSION OF REGISTRATION
52 customer’s orders on any registered 116(SEC. 15):
53 Exchange or other trading market. 117
549. Pre-incorporation subscription. 1181. If any time, the information contained in the
5510. Exchange of securities by issuer with 119 registration statement filed is or has become
56 securities holders exclusively 120 misleading, incorrect, inadequate or
5711. Sale to less than 20 persons during any 12 121 incomplete in any material respect; or
58 month period 1222. The sale or offering for sale of the security
5912. Sale of securities to banks 123 registration there under may work or tend to
6013. Sale of securities to registered investment 124 work a fraud;
61 houses 1253. Pending investigation of the security
6214. Sale of securities to insurance company 126 registered to ascertain whether the
6315. Sale of securities to pension fund or 127 registration of such security should be
64 retirement plan maintained by the
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10
1 revoked on any ground specified in this 655. Fraudulent transactions (Sec.26);
2 Code; and 666. insider trading (Sec. 27)
34. Refusal to furnish information required by 67
4 the Commission. 68 INSIDER TRADING – it shall be unlawful
5 69 for an insider to sell or buy a security of the
6UNLAWFUL ACTS: 70 issuer, while in possession of material
7 71 information with respect to the issuer or the
81. For any beneficial owner, director, or officer 72 security that is not generally available to the
9 to sell any security if the seller or his 73 public unless:
10 principal does not own or does not deliver it 74 (a) The insider proves that the
11 within 20 days from sale. (Sec. 23.3) 75 information was not gained from
122. Manipulation of security prices. (Sec. 24.1) 76 such relationship, or
133. Employment of manipulative or deceptive 77 (b) If the other party selling to or buying
14 device or contrivance in connection with 78 from the insider (or his agent) is
15 purchase and sale of authorities. Short sale, 79 identified, the insider proves:
16 stop loss order be effected only in 80 (i) that he disclosed the information
17 accordance with rules of SEC. (Sec. 24.2) 81 to the other party, or
18 82 (ii) that he had reason to believe that
19SHORT SALE – when seller does not own or 83 the other party otherwise is also
20control the securities he is selling, and therefore, 84 in possession of the information.
21cannot himself supply the securities for delivery. 85
22 86INSIDER —means:
23STOP-LOSS ORDER – an order to broker to sell 87 a. The issuer
24or buy stock as soon as the market price 88 b. A director or officer (or person
25reaches a designated figure. 89 performing similar functions) of, or a
26 90 person controlling the issuer
274. For any member of Exchange directly or 91 c. A person whose relationship or former
28 indirectly endorse or guarantee the 92 relationship to the issuer gives or gave
29 performance of any put, call, straddle, option 93 him access to material information about
30 or privilege in relation to any security 94 the issuer or the security that is not
31 registered. (Sec. 25) 95 generally available to the public
32 96 d. A government employee, or director , or
33PUT – an option that, in consideration of 97 officer of an exchange, clearing agency
34premium paid, gives the purchaser the right top 98 and/or self-regulatory organization who
35make the seller take from him a given number of 99 has access to material information about
36 100 an issuer or a security that is not
37shares of a named stock between a given time 101 generally available to the public, or
38at a stipulated price, which is usually below a 102
39prevailing market price of the stock at the time 103 e. A person who learns such information
40the “put” is purchased. 104 by a communication from any of the
41 105 foregoing insiders. (SEC. 3.8)
42CALL – an option that in consideration of 106
43premium paid entitles buyer the right to compel 1077. For insider to communicate material non-
44seller to deliver to him a certain number of share 108 public information about issuer or security.
45of named stock within a given time at a 109 (SEC 27.3)
46stipulated price which is usually higher than the 110
47prevailing market price at the time the “call” is 111 MATERIAL NON-PUBLIC INFORMATION -
48bought. 112 a. If It has not been generally disclosed
49 113to the public and would likely to affect the market
50STRADDLE – double privilege of a “put” and a 114price of the security after being disseminated to
51“call”, and secures to holder the right to demand 115the public and the lapse of a reasonable time for
52of seller at a certain price within a certain time a 116the market to absorb the information; or
53certain number of shares of specified stock, or to 117 b. Would be considered by a reasonable
54require him to take, at the price within the time, 118person important under the circumstances in
55the same shares of stock. 119determining his course of action to buy, sell or
56 120hold security. (SEC 27.2)
57WASH SALE- to effect any transaction in any 121
58security which involves no change in the 1228. Unlawful Tender Offer (Sec 27.4)
59beneficial ownership thereof. 1239. Use of Extensive Credit (Sec48.1)
60 124
61SHORT SWING TRANSACTION — one where 125MARGIN – sum of money, or its equivalent,
62a person buys securities and sells the same 126placed in the hands of a stockbroker by principal
63within a period of six months. 127or persons on whose account the purchase is to
64 128be made, as a security to the former against
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10
1losses to which he may be exposed by a
2subsequent depression in the market value of
3the stock.
4 — Credit extended must not be
5greater than which ever is higher of
6
7 a.65% of current market price of
8 the security
9 b. 100% of lowest market price
10 of security during preceding 36
11 calendar months but not greater
12 than 75% of the current market
13 price.
4 Page 35
10
1
2
3 CORPORATE ACTS
4
CORPORATE ACT NUMBER OF NUMBER OF VOTES PROCEDURE / OTHER REQUIREMENTS

VOTES FOR OF SHAREHOLDERS
BOD
1. Amendment of AOI (Sec 16) Majority Vote Vote or written assent of 2/3  Non-voting can vote
OCS SH or Members  Appraisal right in certain cases
 Effective upon approval by SEC or date of filing if not acted upon within six
months
 Must be for a legitimate purpose
2. Election of Directors or Trustees Majority of OCS / members  Candidates with a highest number
( Sec 24 )  Cumulative voting: No. of shares x No. of directors to be elected
 Non-voting shares cannot vote
3. Removal of Directors or Trustees (Sec 28) 2/3 of OCS  Notice and stated purpose requirement
 Meeting called by the secretary on President’s order or on written demand of
OCS majority
 Non-voting shares cannot vote
 Removal without cause cannot be used to deprive minority stockholders of
their right of representation
4. Ratification of a contract of self – dealing 2/3 of OCS or members  The contract must be fair and reasonable under circumstances
directors where presence of Director necessary to  Full disclosure of adverse interest of directors or trustees involved
constitute quorum or vote of Director necessary
for approval of the contract (Sec 32)
4 Page 36
8
1
2
5. Extension or shortening of corporate term Majority vote 2/3 OCS or members  Non-voting can vote
(Sec 37 )  Appraisal Right available
 Notice requirement
 Meeting for the amendment of AOI
6. Election of officers (Sec 25) Majority vote of all

the members of BOD
7. Increase or decrease of capital stock ( Sec 38 ) Majority vote 2/3 OCS or members  Meeting required
 Non-voting can vote
 No appraisal right
 Notice requirement
 SEC approval
 Treasurer’s statement
 No decrease of capital stock if will prejudice right of creditors
8. Incur, Create , Increase Bonded Indebtedness Majority vote 2/3 OCS or members  Meeting required
 No appraisal right
 Notice required
Registration of bonds with SEC
9. Sale ,Lease, Exchange, Mortgage, Pledge, Majority Vote 2/3 OCS or members  Majority can vote
Dispose of all or substantially all of corporate  Non-voting can vote
assets (Sec 40 )  Appraisal right available
 Notice required
 If sale is abandoned director’s action is sufficient, no need for ratification by
stockholders
3
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8
1
2
3
4
5
10. Investment of Corporate Funds to another  Non-voting can vote

Corporation or business for any other purpose Majority Vote 2/3 OCS or members  Appraisal Right available
other than primary purpose (Sec 42)  Notice required
 Investment for secondary purpose
 Stockholders ratification not necessary if the investment is incidental to
primary purpose
11. Issuance of Stock Dividends ( Sec 43 ) Majority of the 2/3 OCS  Out of unrestricted retained earnings
quorum
12. Management Contract ( Sec 44) Majority of the vote Majority of OCS / members of
of BOD of both both managing
managing and managed corporation
and managed and in some cases 2/3 of OCS /
corporation members
13. Adoption of By- laws (Sec 46) Majority of OCS / members  Non-voting can vote
14. Amendment or repeal of By laws or Adoption Majority vote Majority of OCS  Non-voting can vote
of New By-Laws ( Sec 48)
15. Delegation of the Power to Amend, Repeal or 2/3 OCS  Delegation can be revoked by majority OCS
Adopt New By Laws to BOD Non-voting cannot vote
(Sec 48 )
16. Fixing the issued Price of No- Par Value Majority of Quorum Majority of OCS if BOD
shares (Sec 62, last paragraph)48) of BOD not authorized by AOI
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8
if authorized by AOI
1
2
3
4
17. Merger or Consolidation (Sec 77 ) Majority of BOD of 2/3 OCS / members of  Non-voting can vote
constituent constituent corporation  Appraisal right available but if plan is abandoned right is extinguished
corporation
18. Dissolution of Corporation (Sec 118 and 119 ) Majority Vote 2/3 OCS / members  Read Sections 117-122
19. Adoption of plan or distribution of assets of Majority Vote of 2/3 of members having voting
non-stock corporation ( Sec 95 par 2) Trustees rights
20. Ratification of act of disloyal director 2/3 OCS
21. Vacancies in BOD if not due to removal, Majority vote of  If no quorum stockholders to elect
expiration of the term or increase in number of remaining directors if
directors quorum still exists
22. Power to acquire own shares Director’s action  Provided that there is unrestricted retained earnings
 Only for legitimate purposes
23. Denial of pre-emptive right 2/3 OCS approval  Only if AOI or amendment to AOI denies pre-emptive right
 Applies to shares issued in good faith in exchange for property needed for
corporate purposes or in payment of previously contracted debts
24. Fixing compensation for directors  Reasonable per diems

 By-Laws may provide for compensation
 May be fixed by majority OCS
 Limit: not more than 10% of the net income before tax
5
4 Page 39
8
1III. INSURANCE LAW 62 maybe rather onerous. Courts cannot

2 63 make a new contract for the parties
64 where they themselves have employed
3INSURANCE – contract whereby one
65 clear and unambiguous words.
4undertakes for a consideration to indemnify
66
5another against loss, damage or liability arising
6from an unknown or contingent event (Sec. 2, 67II. UBERRIMA FIDES CONTRACT
7par. 2). 68
8 69☛ Contract of insurance is one of perfect
70 good faith not for the insured alone, but
9REQUISITES OF INSURANCE: 71 equally so for the insurer; in fact it is
10 72 more so for the latter, since its dominant
111. existence of an insurable interest (Secs. 12- 73 bargaining position carries with it stricter
12 14); 74 responsibility.
132. risk of loss (Sec. 51, par. 9); 75☛ It requires the parties to the contract of
143. assumption of risks ( Sec. 2); 76 insurance to disclose any material fact,
154. scheme to distribute losses; and 77 which the applicant knows, or which he
165. payment of premiums (Sec. 77). 78 ought to know.
17 79
18GENERAL RULE: a future event is the only 80III. RIGHT OF SUBROGATION
19event that can be covered by an insurance 81
20contract. 82☛ Insurer who pays shall be subrogated to
21 83 the rights of insured against wrongdoer
22Exception: a past event may be covered by a 84 or person who has violated contract.
23marine insurance – if the loss of the vessel in 85☛ The principle of subrogation is a normal
24the past could not have been known by ordinary 86 incident of indemnity insurance as a
25means of communication. 87 legal effect of payment; it inures to the
26 88 insurer without any formal assignment
27DOING AN INSURANCE BUSINESS OR 89 or any express stipulation to that effect
28TRANSACTING AN INSURANCE 90 in the policy. Said right is not dependent
91 upon nor does it grow out of any private
29BUSINESS (Sec. 2, par. 4) INCLUDES: 92 contract. Payment to the insured makes
30 93 the insurer an assignee in equity
311. making or proposing to make as insurer, 94 (Article 2207, NCC).
32 any insurance contract; 95☛ However, the insurer can only recover
332. making or proposing to make, as surety any 96 from the third person what the insured
34 contract of suretyship as a vocation, not as 97 could have recovered.
35 a mere incident to any other legitimate 98
36 business of a surety; 99Exceptions: there can be no subrogation if:
373. doing any insurance business like 100
38 reinsurance and similar acts and;
394. doing or proposing to do any business
1011. The insured by his own act releases the
40 equivalent to above. 102 wrongdoer/third person liable for the
103 loss. (Manila Mahogany
41 104 Manufacturing Corporation vs. CA)
42PRINCIPLES:
1052. Where the insurer pays the insured for a
43 106 loss or risk not covered by the policy.
44I. CONTRACT OF ADHESION OR FINE 107 (Pan Malayan Insurance Company vs.
45PRINT RULE 108 CA, 184 SCRA 54)
46 109
47☛ Insurance is a contract of adhesion 110IV. INDEMNITY
48 considering that the most of the terms of the
111
49 contract do not result from mutual 112☛ The contract of insurance is a contract
50 negotiations between the parties as they are 113 of indemnity. It is the basis of all
51 prescribed by the insurer in printed form to 114 property insurance. It simply means
52 which the insured may “adhere” if he 115 that the insured that has insurable
53 chooses but which he cannot change. 116 interest over a property is only entitled
54 Hence, in case of doubt, the contract shall 117 to recover the amount of actual loss
55 be interpreted strictly against the insurer and 118 sustained and the burden is upon him to
56 liberally in favor of the accused. 119 establish the amount of such loss. Any
57 120 contract of property insurance that gives
58☛ However, if the terms of the contract are 121 to the insured more than indemnity
59 clear, there is no room for interpretation and 122 against his actual loss that may be
60 the courts are bound to adhere to the
61 insurance contract although the contract
4 Page 40
10
1 suffered by reason of designated perils is 60INSURABLE INTEREST – interest which

2 wagering policy. 61the law requires a person making a contract
3 62of insurance to have in the person or thing
4NOTE: Applicable only to property insurance, 63insured to prevent the contract from
5except creditor insuring the life of his debtor. 64becoming a wagering contract.
6 65
7TYPES OF INSURANCE CONTRACTS: 66INSURABLE INTEREST IN LIFE – interest
8 67which a person has in his life, or interest
91. LIFE INSURANCE; 68which he may have in the lives of other
10 a. individual life (Secs. 179 – 183, 227); 69persons (Sec. 10):
701. on whom he depends wholly or in part
11 b. group life ( Sec. 50, last paragraph,
71 for education or support;
12 228); and
722. under legal obligation to him to pay
13 c. industrial life (Secs. 229 – 231). 73 money, to deliver property, or to render
14 74 service; or
152. NON-LIFE INSURANCE 753. upon whose life any estate or interest
16 a. Marine (Secs. 99 – 166); 76 vested in him depends.
17 b. Fire (Secs. 167 – 173); and 77
18 c. Casualty (Sec. 174). 78GENERAL RULE: In life insurance, there is
19 79no limit in the amount the insured can insure
80his life.
203. CONTRACTS OF SURETYSHIP (Secs. 175
81
21 –178).
82Exception: in creditor-debtor relationship
22
83where the creditor insures the debtor, the
23PARTIES TO INSURANCE CONTRACT: 84limit of insurable interest is equal to the
24 85amount of the debt.
251. INSURER – person who undertakes to 86
26 indemnify another; 87NOTE: Insurable interest in the life of
272. INSURED – person with capacity to contract 88another need exist only at the time of
28 and having an insurable interest in the life or 89perfection of the contract and need not exist
29 property of the insured; and 90thereafter.
303. BENEFICIARY – person designated to 91
31 receive proceeds of policy when risk 92INSURABLE INTEREST IN PROPERTY –
32 attaches. 93every interest in property whether real or
33i. Beneficiary of one who insures his own 94personal, or any relation thereto, or liability
34 life – as a general rule, may designate 95in respect thereof, of such nature that the
35 any person as the beneficiary, whether 96contemplated peril might directly damnify the
36 or not the beneficiary has an insurable 97insured (Sec. 13), which may consist in
37 interest in the life of the insured. 98(Sec. 19):
38 Exception: Art. 739 of the Civil Code 99
39ii. Beneficiary of life insurance on the life of 100 1. an existing interest;
40 another person – person who procured 101 2. any inchoate interest founded
41 the insurance on the life of another must 102 on an existing interest; or
42 have an insurable interest. 103 3. any expectancy coupled with an
43iii. Beneficiary of property insurance – must 104 existing interest in that out of
44 have an insurable interest. 105 which the expectancy arises.
45 106
46EFFECTS OF IRREVOCABLE 107NOTE: Expectancy is not insurable unless
47DESIGNATION OF BENEFICIARY: 108coupled with an interest in the thing from
48 109which it shall arise.
49Insured cannot: 110
50 1. assign the policy 111☛ Example: an owner of a business can
51 2. take the cash surrender value of the 112 insure against a contingency which may
52 policy 113 cause loss of profits resulting from the
53 3. allow his creditors to attach or execute 114 cessation or interruption of his business.
54 on the policy; 115 (See Sec. 14, ICP)
55 4. add new beneficiary; or 116
56 5. change the irrevocable designation to 117NOTE: Insurable interest must exist in the
57 revocable, even though the change is 118same person both at the perfection of the
58 just and reasonable. 119contract as well as the time of loss. In
59 120between, the effect of loss of insurable
121interest is merely to suspend the policy.
122(Sec. 20, ICP)
4 Page 41
10
1 42
2Exceptions: 43
31. in case of life, health and accident insurance 44
4 (Sec. 20); 45
52. change in interest results after occurrence of
STANDARD OR OPEN OR LOSS
6 an injury which results in a loss (Sec. 21) UNION MORTGAGE PAYABLE
73. change in interest in one or more several CLAUSE MORTGAGE CLAUSE
8 distinct things separately insured by one
 - the subsequent  the mortgagor
9 policy (Sec. 22);
acts of the does not cease to
104. change in interest by will or succession on
mortgagor cannot be a party to the
11 death of insured (Sec. 23);
affect the rights of contract
125. transfer of interest by one of several
the assignee
13 partners, joint partners, or owners in
14 common who are jointly insured, to others  acts of the
15 (Sec. 24). mortgagor affects
16when a policy is so framed that it will inure to the the mortgagee
17 benefit of whomsoever, during the (Sections 8 and 9
18 continuance of the risk, may become the ICP).
19 owner of the interest insured (Sec. 57); 46
20when is an express prohibition against alienation 47DEVICES USED FOR ASCERTAINING
21 in the policy, in case of alienation, the 48AND CONTROLLING RISK AND
22 contract of insurance is not merely 49LOSS:
23 suspended but avoided (Art. 1306, NCC). 50
24 511. CONCEALMENT: A neglect to
25DISTINCTIONS: 52communicate that which a party knows and
Insurable interest in Insurable Interest in 53ought to communicate (Sec. 26, ICP)
Life Property 542. REPRESENTATION: are factual
Insur 55statements made by the insured at the time
ance 56of or prior to the issuance of the policy to
1. must exist only at 1. must exist at time 57give information to the insurer and other
the time the policy policy is taken and 58wise induce him to enter into the insurance
is taken. at time of loss. 59contract.
2. taken on insured’s 2. beneficiary must 603. WARRANTIES: are statements or
life, his have an insurable 61promise by the insured set forth in the policy
beneficiaries need interest in property 62itself or incorporated in it by proper
not have an insured. 63reference, the untruth or nonfulfillment of
insurable interest 64which in any respect and without reference
on his life. 65to whether the insurer was in fact prejudiced
3. no limit to the 3. insurable interest 66by such untruth or nonfulfillment. The same
amount of limited to value of 67may be expressed, implied, affirmative or
insurable interest interest in property 68promissory.
(save in life insured (Sec. 19). 694. CONDITION: The insurer must also
insurance effected 70protect himself against fraudulent claims of
by creditor on life 71loss and this he attempts to do by inserting
of the debtor) 72in the policy various conditions which take
(Sec. 10). 73the form of conditions precedent. For
26 74instance, there are conditions requiring
27INSURABLE INTEREST OF 75immediate notice of loss or injury and
76detailed proofs of loss within a limited
28MORTGAGOR AND MORTGAGEE OVER
77period.
29MORTGAGED PROPERTY. 78
30 79Exceptions: It makes more definite the
31☛ The mortgagor and mortgagee each have 80coverage indicated by the general
32 an insurable interest in the property 81description of the risk by excluding certain
33 mortgaged and this interest is separate and 82specified risk that otherwise would be
34 distinct from the other. 83included under the general language
35☛ The mortgagor of property, as owner, has an 84describing the risks assumed.
36 insurable interest therein to the extent of its 85
37 value, even though the mortgage debt
38 equals such value. The mortgagee's interest
86CONCEALMENT
87
39 is only up to the extent of the debt.
88TEST OF MATERIALITY: determined not by
40 89the event, but solely by the probable and
41 90reasonable influence of the facts upon the
4 Page 42
10
1party to whom the communication is due, in 3. conclusively 3. must be proved to

2forming his estimate of the disadvantages of the presumed material. be material.
3proposed contract, or in making his inquiries 4. must be strictly 4. require only
4(Sec. 31). complied with. substantial truth
5 and compliance.
6EFFECTS OF CONCEALMENT: vitiates the 57
7contract and entitles insurer to rescind, even if 58
8the death or loss is due to a cause not related to 59INCONTESTABILITY CLAUSE - After a
9the concealed matter (Sec. 27). 60policy of life insurance made payable on the
10 61death of the insured shall have been in force
11REPRESENTATION – oral or written statement 62during the lifetime of the insured for a period
12of a fact or condition affecting the risk, made by 63of two years from the date of its issue or of
13insured to insurer, tending to induce insurer to 64its last reinstatement, the insurer cannot
14assume risk (Sec.36). 65prove that the policy is void ab initio or is
15 66rescindible by reason of the fraudulent
16KINDS (Sec.39): 67concealment or misrepresentation of the
17 68insured or his agent.
181. AFFIRMATIVE – affirmation of a fact when 69
19the contract begins; and 70REQUISITES FOR
202. PROMISSORY – promise to be performed 71INCONTESTABILITY CLAUSE:
21after policy was issued.
22 72
731. It is payable on the death of the insured
23TEST OF MATERIALITY: determined by the
742. It has been in force during the lifetime of
24probable and reasonable influence of the facts
75the insured for at least 2 years from its date
25on the party on whom communication is due, in
76of issue or of its last reinstatement (Sec. 48,
26forming his estimate of the contract, risks and
77ICP)
27premium (Sec. 31)
78
28
79NOTE: The period of 2 years may be
29EFFECTS OF MISREPRESENTATION: injured
80shortened but it cannot be extended by
30party entitled to rescind from the time when the
81stipulation.
31representation becomes false.
82
32 83DEFENSES NOT BARRED BY
33WARRANTY 84INCONTESTABILITY CLAUSE:
34
35statement or promise set forth in the policy or by 85
86 1. That the person taking the
36 reference incorporated therein, 87 insurance lacked insurable interest
37 the untruth or non-fulfillment of 88 as required by law;
38 which in any respect, and 89 2. That the cause of the death
39 without reference to whether 90 of the insured is an excepted risk;
40 insurer was in fact prejudiced 91 3. That the premiums have not
41 by such untruth or non-
92 been paid (Secs. 77,227[b], 228[b],
42 fulfillment, renders the policy
93 230[b].);
43 voidable.
94 4. That the conditions of the
44
95 policy relating to military or naval
45KINDS (Sec. 67): 96 service have been violated (Secs.
46 97 227[b], 228[b].);
47 1. EXPRESS; and 98 5. That the fraud is of a
48 2. IMPLIED – only found in marine insurance, 99 particularly vicious type;
49deemed included in the contract, although not 100 6. That the beneficiary failed to
50expressly mentioned. 101 furnish proof of death or to comply
51 102 with any condition imposed by the
52EFFECT OF BREACH OF WARRANTY – 103 policy after the loss has happened;
53gives insurer the right to rescind (Secs. 74-76). 104 or
54 105 7. That the action was not
55DISTINCTIONS: 106 brought within the time specified.
56 107
WARRANTY REPRESENTATION 108POLICY OF INSURANCE – written
1. Part of the contract. 1. Mere collateral 109instrument in which a contract of insurance
inducement. 110is set forth (Sec. 49)
2. written on the 2. may or may not be 111
policy, actually or written in the policy. 112CONTENTS OF POLICY (Sec.51):
by reference 113
4 Page 43
10
11. parties 63NOTE: Notwithstanding any agreement to

22. amount of insurance, except in open or 64the contrary, no policy or contract of
3 running policies; 65insurance issued by an insurance company
43. rate of premium; 66is valid and binding unless and until the
54. property or life insured; 67premium thereof has been paid, except in
65. interest of the insured in the property if he is 68the case of a life or an industrial life policy
7 not the absolute owner; 69whenever the grace period provision
86. risk insured against; and 70applies.
97. duration of the insurance. 71
10
11BINDING RECEIPT – merely an
12acknowledgment on behalf of the company that
13their branch office had received from the
14applicant the insurance premium and had
15accepted the application subject to processing
16by the head office.
17
18COVER NOTE – a concise and temporary
19written contract issued to the insurer through its
20duly authorized agent embodying the principal
21terms of an expected policy of insurance. It is
22intended to give insurance protection coverage
23to the applicant pending the acceptance or
24rejection of his application. Not exceeding 60
25days unless a longer period is approved by
26Insurance Commissioner (Sec. 52).
27
28GROUNDS FOR CANCELLATION OF
29POLICY (EXCEPT LIFE INSURANCE
30POLICY) (SEC. 64):
31
321. non-payment of premium;
332. conviction of a crime out of acts increasing
34 the hazard insured against;
353. discover of fraud or material
36 misrepresentation;
374. discovery of willful or reckless acts of
38 omissions increasing the risk nsured
39 against;
405. physical changes in property making the
41 property uninsurable; and
426. determination by the Insurance
43 Commissioner that the policy would violate
44 the Insurance Code.
45
46KINDS OF POLICIES:
47
481. OPEN POLICY – value of thing insured is
49 not agreed upon, but left to be ascertained
50 at time of loss (Sec.60);
512. VALUED POLICY – definite valuation is
52 agreed by both parties, and written on the
53 face of policy (Sec. 61);and
543. RUNNING POLICY – contemplates
55 successive insurances and which provides
56 that the subject of the policy may from time
57 to time be defined (Sec. 62).
58
59PREMIUM – consideration paid an insurer for
60undertaking to indemnify the insured against a
61specified peril (Sec. 77).
62
4 Page 44
10
1Exceptions: (Sec. 93) (Sec. 95)

2 1. Credit agreement 1. involves same 1. insurance of
3 2. Acknowledgement in the policy (Sec. interest different interest
4 78) 2. insurer remains 2. insurer becomes
5 in such capacity an insured in
6INSURED ENTITLED TO RETURN OF relation to
7PREMIUMS PAID: reinsurer.
8 3. insured in the 1st 3. original insured has
91. If thing insured was never exposed to the contract is a no interest in
10 risks insured against (Sec. 79); party in interest reinsurance
112. Contract is voidable due to the fraud or in the 2nd contract.
12 misrepresentation of insurer; contract
133. Insurer never incurred liability (Sec. 81); 4. subject of 4. subject of
144. When the insurance is for a definite period insurance is insurance is the
15 and the insured surrenders his policy before property original insurer’s
16 the termination thereof; risk.
175. Contract is voidable because of the 5. insured has to 5. consent of original
18 existence of facts of which the insured was give his consent insured, not
19 ignorant without his fault; necessary
60
206. When there is over-insurance (Sec. 82) and;
217. When rescission is granted due to the 61LOSS - injury or damage sustained by insured
22 insurer’s breach of contract. 62from perils insured against.
23 63
24DOUBLE INSURANCE – exists where same 64PROXIMATE CAUSE – active efficient cause
25person is insured by several insurers separately 65which sets in motion a train of events which in
26in respect to same subject and interest 66turn brings about a result without intervention of
27(Sec. 93). 67any force operating and working actively from a
68new and independent force.
28 69
29REQUISITES OF DOUBLE INSURANCE: 70LOSS FOR WHICH INSURER IS LIABLE:
30 71
311. The person insured is the same;
322. Two or more insurers insuring separately; 72 1. loss the proximate cause of
333. The subject matter is the same; 73 which is the peril insured against (Sec.
344. The interest insured is also the same; 74 84);
355. The risk or peril insured against is likewise 75 2. loss the immediate cause of
36 the same. 76 which is the peril insured against except
37 77 where proximate cause is an excepted
38EFFECTS OF DOUBLE INSURANCE: where 78 peril;
39double insurance is allowed, but over insurance 79 3. loss through negligence of
40results, he can claim in case of loss only up to 80 insured except where there was gross
41the agreed valuation or up to the full insurable 81 negligence amounting to willful acts; and
42value from any, some or all insurers, without 82 4. loss caused by efforts to rescue
43prejudice to the insurers ratably apportioning the 83 the thing from peril insured against;
44payments. Insured can also recover before or 84 5. if during the course of rescue,
45after the loss, from both insurers the excess 85 the thing is exposed to a peril not
46premium he has paid (Sec. 94). 86 insured against, which permanently
47 87 deprives the insured of its possession, in
48REINSURANCE – a contract by which the 88 whole or in part (Sec. 85).
49insurer procures a 3rd person to insure him 89
50against loss or liability by reason or such original 90LOSS FOR WHICH INSURER IS NOT
51insurance (also known as Reinsurance Cession) 91LIABLE:
52(Sec. 95). 92
53 93 1. loss by insured’s willful act;
54 In every reinsurance, the original contract of 94 2. loss due to connivance of the
55 insurance and the contract of reinsurance 95 insured (Sec. 87); and
56 are covered by separate policies. 96 3. loss where the excepted peril is
57 97 the proximate cause.
58DISTINCTIONS : 98
59 99MARINE INSURANCE – insurance against
DOUBLE 100risks connected with navigation, to which a ship,
INSURANCE REINSURANCE 101cargo, freightage, profits or other insurable
4 Page 45
10
1interest in movable property, may be exposed 63elements, and does not embrace all losses
2during a certain voyage or a fixed period of time 64happening at sea. Include only such losses as
3(Sec. 99). 65are extraordinary in nature, or arise from
4 66overwhelming power, which cannot be guarded
5COVERAGE OF MARINE INSURANCE 67against by ordinary exertion of human skill and
6(SEC. 99): 68prudence (Sec. 99).
7 69
81. vessels, goods, freight, cargo, merchandise, 70PERILS OF THE SEA VS. PERILS OF THE
9 profits, money, valuable papers, bottomry 71SHIP
10 and respondentia, and interest in respect to 72
11 all risks or perils of navigation; 73☛ Perils of the sea or “perils of navigation”
122. persons or property in connection with 74 includes only those casualties due to the
13 marine insurance; 75 unusual violence or extra ordinary causes
143. precious stones, jewels, jewelry and 76 connected with navigation. It has been said
15 precious metals whether in the course of 77 to include only such losses as are of
16 transportation or otherwise; and 78 extraordinary nature or arise from some
174. bridges, tunnels, piers, docks and other aids 79 overwhelming power which cannot be
18 to navigation and transportation. 80 guarded against by the ordinary exertion of
19 81 human skill or prudence, as distinguished
20☛ Cargo can be the subject of marine 82 from the ordinary wear and tear of the
21 insurance, and once it is entered into, the 83 voyage and from injuries suffered by the
22 implied warranty of seaworthiness 84 vessel in consequence of her not being
23 immediately attaches to whoever is insuring 85 unseaworthy.
24 the cargo, whether he be the shipowner or 86
25 not. (Roque vs IAC, 139 SCRA 596). 87☛ Perils of the ship is a loss which in the
26 88 ordinary course of events, results:
27IMPLIED WARRANTIES IN MARINE 89
28INSURANCE: 90 1. from the natural and inevitable action of
29 91 the sea
30 1. that the ship is seaworthy at the 92 2. from the wear and tear of the ship
31 inception of the insurance (Sec.113,ICP) 93 3. from the negligent failure of the ship’s
32 2. that the ship will not deviate from agreed 94 owner to provide the vessel with proper
33 voyage unless deviation is proper (Sec. 95 equipment to convey the cargo under
34 123, 124, 125, ICP) 96 ordinary conditions.
35 3. that the ship will not engage in an illegal 97
36 venture 98BARRATRY – willful misconduct on the part of
37 4. warranty of neutrality : that the ship will 99the master or crew in pursuance of some
38 carry the requisite documents of 100unlawful or fraudulent purpose without consent
39 nationality or neutrality of the ship or 101of owners, and to the prejudice of owner’s
40 cargo where such nationality or 102interest.
41 neutrality is expressly warranted 103
42 5. presence of insurable interest. 104INSURANCE AGAINST ALL RISKS –
43 105insurance against all causes of conceivable loss
44INSURABLE INTEREST IN MARINE 106or damage, except as otherwise excluded in the
45INSURANCE: 107policy or due to fraud or intentional misconduct
46 108on the part of the insured.
109
471. Shipowner – over the vessel, except that if 110☛ The insurer can avoid coverage upon
48 chartered, the insurance is only up to the 111 demonstrating that a specific provision
49 amount not recoverable from the charterer 112 excludes the loss from the coverage. (Choa
50 (Sec. 100); and if hypothecated by a 113 Tiek Seng vs CA, 183 SCRA 223).
51 bottomry loan, the insurable interest is only
114
52 up to the excess of the value of the vessel
53 over the loan (Sec. 101). He also has an 115INCHAMAREE CLAUSE – covers loss or
54 insurable interest on expected freightage. 116damage to the hull or machinery through:
1171. negligence of the captain, engineers, etc.
552. Cargo owner – over the cargo and 1182. explosions, breakage of shafts; and
56 expected profits (Sec. 105). 1193. latent defect of machinery or hull.
573. Charterer – over the amount he is liable to 120
58 the shipowner, if the ship is lost or damaged 121
59 during t he voyage (Sec. 106). 122MATTERS ALTHOUGH CONCEALED,
60 123WILL NOT VITIATE THE CONTRACT
61PERILS OF THE SEA – extend only to losses
62caused by sea damage, or violence of the
4 Page 46
10
1EXCEPT WHEN THEY CAUSED THE 63the same time from real or known risk. it must be
2LOSS (SEC. 110): 64borne equally by all of the interests concerned in
3 65the venture.
41. national character of the insured; 66
52. liability if insured thing to capture or 67PARTICULAR AVERAGE LOSS it includes all
6 detention; 68damages and expenses caused to the vessel or
73. liability to seizure from breach of foreign 69to her cargo which have not inured to the
8 laws; 70common benefit and profit of all persons
94. want of necessary documents; and 71interested in the vessel and her cargo. It refers
105. use of false or simulated papers. 72to those losses which occur under such
11 73circumstances as do not entitle the unfortunate
12DEVIATION – departure of vessel from course 74owners to receive contribution from other owners
13of voyage, or an unreasonable delay in pursuing 75concerned in the venture as where a vessel
14voyage, to the commencement of an entirely 76accidentally runs aground and goes to pieces
15different voyage (Sec. 123). 77after the cargo is saved.
16 78
17DEVIATION IS PROPER WHEN 79REQUISITIES OF GENERAL AVERAGE
18(SEC. 124): 80CONTRIBUTION:
19 81
201. if due to circumstances outside the control of 82 1. there must be a common danger to the
21 the ship captain or ship owner; 83 vessel or cargo
222. if done to comply with a warranty; 84 2. part of the vessel or cargo was
233. if made in good faith to avoid a peril; 85 sacrificed deliberately
244. if made to save human life or another 86 3. the sacrifice must be for the common
25 distressed vessel. 87 safety or for the benefit of all
26 88 4. it must be made by the master or upon
89 his authority
27LOSS: 90 5. it must be not be caused by any fault of
28 91 the party asking the contribution
291. TOTAL LOSS – that which may be: 92 6. it must be successful, i.e. resulted in the
30 a. actual loss, involving (Sec. 130) 93 saving of the vessel or cargo.
31 (i) total destruction; 94 7. It must be necessary
32 (ii) loss by sinking 95
33 (iii) damage rendering the thing
96ABANDONMENT – is the act of the insured by
34 valueless; or
97which, after a constructive total loss, he declared
35 (iv) total deprivation of owner of
98the relinquishment to the insurer of his interest in
36 possession of thing insured.
99the thing insured (Sec. 138).
37 b. constructive total loss (Sec. 131, in
100
38 relation to Sec. 139), involves ---
39 (i) actual loss of more than ¾ of the 101REQUISITES FOR VALID
40 value of the object; 102ABANDONMENT:
41 (ii) damage reducing value by more 103
42 than ¾ of the value of the vessel 1041. There must be an actual relinquishment by
43 and of cargo; and 105 the person insured of his interest in the thing
44 (iii) expense of transhipment exceed 106 insured (Sec. 138);
45 ¾ of value of cargo. 1072. There must be a constructive total loss (Sec.
46 108 139);
47☛ In case of constructive total loss, insured 1093. The abandonment be neither partial nor
48 may abandon goods or vessel to the insurer 110 conditional (Sec. 140);
49 and claim for whole insured value, or he 1114. It must be made within a reasonable time
50 may, without abandoning vessel, claim for 112 after receipt of reliable information of the
51 partial actual loss. 113 loss (Sec. 141);
52 1145. It must be factual (Sec. 142);
531. PARTIAL LOSS – that which is not total 1156. It must be made by giving notice thereof to
54 (Sec. 128). 116 the insurer which may be done orally or in
55 117 writing (Sec. 143); and
56GENERAL AVERAGE LOSS VS. 1187. The notice of abandonment must be explicit
119 and must specify the particular cause of the
57PARTICULAR AVERAGE LOSS 120 abandonment (Sec. 144).
58
121
59 GENERAL AVERAGE LOSS include damages
60and expenses which are deliberately caused by
122CO-INSURANCE (Sec. 157, ICP) - A marine
123insurer is liable upon a partial loss, only for such
61the master of the vessel or upon his authority, in
124proportion of the amount insured by him as the
62order to save the vessel, her cargo, or both at
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10
1loss bears to the value of the whole interest of 52COMPULSORY MOTOR VEHICLE
2the insured in the property insured. 53LIABILITY (Sec. 373):
3 54METHOD OF COVERAGE:
Co-Insurance in Co-insurance in 55 1.Insurance Policy;
Marine Property Insurance 56 2.Surety Bond; and
 the only  there must be a 57 3.Cash Bond.
requirement is stipulation and it 58
partial loss even if must comply with 59NON-FAULT CLAUSE – any claim for death
there is full the following 60or injury shall be paid up to PHP 5,000.00
coverage requisites: 61without necessity of proving fault or negligence,
 partial loss and 62provided the following proofs of loss under oath
 underinsurance 63are submitted (Sec. 378):
4 641. death certificate and evidence sufficient to
5FIRE INSURANCE – contract by which the 65 establish proper payee;
6insurer for a consideration agrees to indemnify 662. police report; and
7the insured against loss of, or damage to, 673. medical report and evidence of medical or
8property by fire, but may include loss by 68 hospital disbursement.
9lightning, windstorm, tornado or earthquake and 69
10other allied risks, when such risks are covered 70☛ Claim is collected from insurer of vehicle
11by extension to fire insurance policies or under 71 where claimant is riding, mounting, or
12separate policies (Sec. 167). 72 dismounting from. In any other case, claim
13 73 shall lie against the insurer of the directly
74 offending vehicle.
14ALTERATION- An alteration in the use or 75
15condition of a thing insured from that to which it
16is limited by the policy made without the consent
76AUTHORIZED DRIVER CLAUSE – The
77clause means that it indemnifies the insured
17of the insurer, by means within the control of the
78owner against loss or damage to the car but
18insured, and increasing the risks, entitles the
79limits the use of the insured vehicle to the
19insurer to rescind a contract of fire insurance
80insured himself or any person who drives on his
20(Sec. 168, ICP).
81order or with his permission (Villacorta vs.
21 82Insurance Commissioner; Perla Compania de
22WHEN ALTERATION IN THING INSURED 83Seguro vs. CA)
23ENTITLES INSURER TO RESCIND: 84
24 85 ☛ The requirement that the person driving the
251. The use or condition of the thing is 86 insured vehicle is permitted in accordance
26 specifically limited or stipulated in the policy; 87 with the licensing laws or other laws or
272. Such use or condition as limited by the 88 regulations to drive the motor vehicle. It is
28 policy is altered; 89 applicable only if the person driving is
293. The alteration is made without the consent 90 other than the insured.
30 of the insurer; 91
314. The alteration is made by means within the 92COOPERATION CLAUSE – clause in an
32 control of the insured; and 93automobile insurance policy which provides in
335. The alteration increases the risk. 94essence that the insured shall give all such
34 95information and assistance as the insurer may
35ALTERATION NOT RESULTING IN 96require, usually requiring attendance at trials or
36RESCISSION: 97hearings.
37 98
381. Alteration not increasing the risk; and 99THIRD PARTY LIABILITY INSURANCE –
392. Alterations increasing the risk but not 100insurance secured by the assured to protect
40 violating the contract. 101third parties up to the limit stated in the policy,
41 102but third party victim is not at all affected by the
42FALL-OF-BUILDING CLAUSE – clause in 103limitation in the “schedule of indemnity” which
43fire insurance policy that if the building or any 104binds only the contracting party [Sec. 378, (iii)].
44part thereof falls, except as a result of fire, all 105
45insurance by the policy shall immediately cease. 106PASSENGER, (CMVLI)—any fare paying
46 107person being transported and conveyed in and
47CASUALTY INSURANCE – insurance 108by a motor vehicle for transportation of
48covering loss or liability arising from accident of 109passenger for compensation, including persons
49mishap, excluding those falling under other 110expressly authorized by law or by the vehicle’s
50types of insurance as fire or marine (Sec. 174). 111operator or his agents to ride without faire (Sec.
51 112373{b}, CMVLI)
113
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10
1THIRD PARTY is any person other than the 63 period. If he dies within the period, his
2passenger as defined in 373 of CMVLI and shall 64 beneficiaries benefits. If he outlives the
3also exclude a member of the household or a 65 period, no person benefits from the
4member of the family within the second degree 66 insurance.
5of consanguinity or affinity, of a motor vehicle 675. INDUSTRIAL LIFE _ life insurance entitling
6owner or land transportation operator, as 68 the insured to pay premiums weekly, or
7likewise defined herein, or his employee in 69 where premiums are payable monthly or
8respect of death or bodily injury arising out of 70 oftener; and
9and in the course of employment (Sec. 373{c}, 716. VARIABLE CONTRACT – any policy or
10CMVLI). 72 contract on either a group or individual basis
11 73 issued by an insurance company providing
12SURETYSHIP – agreement whereby surety 74 for benefits or other contractual payments or
13guarantees the performance by another of an 75 values thereunder to vary so as to reflect
14undertaking or an obligation in favor of a 3rd 76 investment results of any segregated
15party (Sec. 175). 77 portfolio of investment.
16☛ Essentially a credit accommodation.
78
17 79INTENTIONAL VS. ACCIDENTAL AS
18FIDELITY BOND – contract of insurance against
80USED IN INSURANCE:
19loss from misconduct.
81
20
82INTENTIONAL as used in an accident policy
21FIDELITY GUARANTY INSURANCE – a 83excepting intentional injuries inflicted by the
22contract whereby one, for a consideration, 84insured or any other person implies the exercise
23agrees to indemnify the assured against loss 85of the reasoning faculties, consciousness and
24arising from the want of integrity, fidelity or 86volition. Where a provision of the policy excludes
25honesty of employees or other persons holding 87intentional injury, it is the intention of the person
26positions of trusts. 88inflicting the injury that is controlling. If the
27 89injuries suffered by the insured clearly resulted
28LIFE INSURANCE – insurance on human life 90from the intentional act of the third person, the
29and insurance appertaining thereto or connected 91insurer is relieve from liability as stipulated
30therewith which includes every contract or 92(Biagtan vs. the Insular Life Assurance Co.
31pledge for the payment of endowments or 93Ltd. 44 SCRA 58, 1972)
32annuities (Sec. 179). 94
33 95ACCIDENTAL - The terms “accident” and
34☛ Effect of death of insured through suicide – 96“accidental” as used in insurance contract, have
35 the insurer in a life insurance contract shall 97not acquired any technical meaning. They are
36 be liable in case of suicide by the insured 98construed by the courts in the ordinary and
37 committed after the policy has been in force 99common acceptation. Thus, the terms have
38 for a period of two years from the date of its 100been taken to mean that which happens by
39 issue or its last reinstatement, unless the 101chance or fortuitously, without intention or
40 policy provides a shorter period: provided, 102design, which is unexpected, unusual and
41 however, that suicide committed in a state of 103unforeseen. The terms do not without
42 insanity shall make the insurer liable 104qualification, exclude events resulting in damage
43 regardless of the date of the commission of 105or loss due to fault, recklessness or negligence
44 the suicide (Sec. 180-A). 106of third parties. The concept is not necessarily
45 107synonymous with “no fault.” It maybe utilized
46KINDS: 108simply to distinguish intentional or malicious acts
47 109from negligent or careless acts (Pan Malayan
481. ORDINARY LIFE, GENERAL LIFE OR OLD 110Insurance Corp. vs. CA, 184 SCRA 54).
49 LINE POLICY - insurer pays a premium 111
50 every year until he dies. Surrender value 112
51 after 3 years. 113INSURANCE AS A RISK DISTRIBUTING
522. LIMITED PAYMENT POLICY – insured pays 114DEVICE:
53 premium for a limited period. If he dies 115
54 within the period, his beneficiary is paid; if 116 The devices of insurance serves to
55 he outlives the period, he does not get 117distribute the risk of economic loss among as
56 anything. 118many as possible of those who are subject to
573. ENDOWMENT POLICY – pays premium for 119same kind of risk. By paying a pre-determine
58 specified period. If he outlives the period, 120amount into a general fund out of which payment
59 the face value of the policy is paid to him; if 121will be made for an economic loss of a defined
60 not, his beneficiaries receive the benefit. 122type, each member contributes to a small
614. TERM INSURANCE – insurer pays once 123degree toward compensation for losses suffered
62 only, and he is insured for a specified 124by any member of the group. This broad sharing
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10
1of economic risk is the principle of risk- 61

2distribution. 62IV. TRANSPORTATION LAWS
3
4LIABILITY OF INSURER IF INSURED 63
64
5WAS COMMITTING A FELONY 65CONTRACT OF TRANSPORTATION-
6 Liabilities arising out of acts of negligence, 66contract whereby, a person, natural or juridical,
7which are also criminal, are also insurable on the 67obligates, to transport persons, goods or both,
8ground that such acts are accidental. Thus, a 68from one place to another by land, air or water
9motor insurance policy covering the insured’s 69for a price or compensation.
10liability for accidental injury caused by his 70
11negligence, even though gross and attended by
71COMMON CARRIER- one that holds itself out
12criminal consequences such as homicide
72as ready to engage in the transportation for hire
13through reckless imprudence, will not be void as
73as a public employment and not as a casual
14against public policy. But liability consequences
74occupation.
15of deliberate criminal acts are not insurable.
75
16
76☛ persons, firms, corporations or associations
17PRESCRIPTION PERIOD 77 engaged in the business of carrying or
18(SEC. 63, 384, ICP). 78 transporting passengers or goods or both,
19 ☛ In the absence of an express stipulation in 79 by land, water, or air, for compensation,
20 the policy it being based on a written 80 offering their services to the public.
21 contract, the action prescribes in 10 years. 81 (Art.1732, New Civil Code)
22 However the parties may validly agree on 82
23 a shorter period provided it is not less than 83☛ Art. 1732 of the New Civil Code avoids any
24 one year from the time the cause of action 84 distinction between a person or enterprise
25 accrues. The cause of action accrues from 85 offering transportation service on a regular
26 the final in rejection of the claim of the 86 or scheduled basis and one offering such
27 insured and not from the time of loss. 87 service on an occasional, episodic or
28 88 unscheduled basis.
29 89
30 90☛ Neither does the law distinguish between a
31 91 carrier offering its services to the general
32 92 public that is the general community or
33 93 population and one who offers services or
34 94 solicits business only from a narrow
95 segment of the general population. (De
35 96 Guzman vs. CA, September 15, 1993)
36 97
37 98GOVERNING LAWS:
38 99(in the order mentioned)
39 100
40 101A. Coastwise
41 102 1) New Civil Code (Art. 1732-1766) –
42 103 primary law
43 104 2) Code of Commerce – suppletory law
44 105 NOTE: COGSA – inapplicable even if the
45 106 parties expressly provide for it
46 107
108B. Foreign Ports to Philippine Ports
47 109 1) New Civil Code – primary law
48 110 2) Code of Commerce
49 111 3) Carriage of Goods by Sea Act
50 1123
51 1134 C. Philippine Ports to Foreign Ports – laws
52 114 of the country to which the goods are to be
53 115 transported. (Eastern Shipping vs. IAC,
54 116 150 SCRA 463, American Home
55 117 Assurance vs. CA, 208 SCRA 343, NDC
56 118 vs. CA, 164 SCRA 593)
119
57
120
58 121
59 122
60
4 Page 50
10
1 46 him while the carrier has. (Necessito vs.

2CHARACTERISTICS OF A COMMOM 47 Paras, 104 Phil 75)
3CARRIER: 48
4 49☛ Hijacking of the carrier truck does not fall
51. undertakes to carry for all people 50 among the five categories of exempting
6 indifferently and thus, is liable for refusal 51 causes. The common carrier is presumed to
7 without sufficient reason (Lastimoso vs. 52 be at fault or to have acted negligently
8 Doliente, October 20, 1961) 53 unless there is proof of extraordinary
92. cannot lawfully decline to accept a particular 54 diligence on the part of the common
10 class of goods for carriage to the prejudice 55 carrier. The duty of extraordinary diligence
11 of the traffic in these goods 56 is reached where the goods are lost as a
123. no monopoly is favored (Batangas Trans 57 result of robbery attended by grave or
13 vs. Orlanes, 52 PHIL 455) 58 irresistible threat, violence or force. (De
144. provides public convenience 59 Guzman vs. CA, September 15, 1993).
15 60
16PRIVATE CARRIER- not engaged in business 61NOTE: In Quisumbing Sr. vs. CA, 189 SCRA
17of carrying as a public employment, undertakes 62213, an action against an airline company to
18to deliver goods or passengers for compensation 63recover damages for the loss of certain
19(requires only ordinary diligence) (Home 64valuables belonging to passengers after a(n)
20Insurance Co. vs. American Steamship 65hijacking robbery was dismissed. The Court
21Agency, 23 SCRA 24) 66considered hijacking robbery a caso fortuito. It
22 67ruled: the mandatory use of the most
68sophisticated electronic detection devices, the
23DISTINCTIONS : 69imposition of severe penalties, the development
24 70of screening procedures, the compilation of
COMMON CARRIER PRIVATE CARRIER 71hijacker’s behavioral profiles, the assignment of
72sky marshalls, and the weight of outraged world
1. holds himself out for 1. contracts with
73opinion may have minimized hijackings but all
all people particular individuals or
74these proved ineffective against truly determined
indiscriminately groups only
75hijackers.
2. requires 2. ordinary diligence is
extraordinary diligence required 76
3. subject to State 3. not subject to State 77KABIT SYSTEM: VOID AND INEXISTENT
regulation regulation 78UNDER ART. 1409, NEW CIVIL CODE
4. parties may not 4. parties may agree 79
agree on limiting the on limiting the carrier’s 80☛ This is a system whereby a person who has
carrier’s liability except liability provided not 81 been granted a certificate of public
when provided by law contrary to law, morals 82 convenience allows other persons who own
or good customs 83 motor vehicles to operate under such
5. presumption of fault 5. no fault or 84 license, for a fee or percentage of such
or negligence applies negligence is 85 earnings.
presumed 86☛ This has been identified as one of the root
25 87 causes of the prevalence of graft and
88 corruption in the government transportation
26CASO FORTUITO
89 offices. A certificate of public convenience is
27
90 a special privilege conferred by the
28Requisites:
91 government. Abuse of this privilege by the
29
92 grantees thereof cannot be countenanced.
301. event independent of human will;
93 (LITA ENTERPRISES INC. VS CA, 129
312. occurrence makes it impossible for debtor
94 SCRA 79)
32 to fulfill the obligation in a normal manner;
95
333. obligor must be free of participation in, or,
96EFFECTS OF THE SYSTEM AND LIABILITIES
34 aggravation of, the injury to the debtor; and
97OF THE REGISTERED OWNER AND THE
354. impossible to foresee or impossible to avoid.
98ACTUAL OWNER OF THE MOTOR VEHICLE:
36 (Juntilla vs. Fontanar, 136 SCRA 624;
99
37 Vasquez vs. CA, 138 SCRA 553)
100
38
1011. The transfer, sale, lease or assignment of
39☛ A common carrier is held liable for the flaws
102 the privilege granted is valid between the
40 of its equipment (tire blow-out, knuckle’s
103 contracting parties but not upon the public or
41 failure) if such defects are discoverable and
104 third persons. (Gelisan vs. Alday, 154
42 such cannot be considered a caso fortuito.
105 SCRA 388)
43 This is because the passenger has no privity
1062. The registered owner is primarily liable for
44 with the manufacturer of the defective
107 all the consequences flowing from the
45 equipment and thus, has no remedy against
108 operations of the carrier because to rule
4 Page 51
10
1 otherwise would be utterly subversive to the 63 more complicated and hazardous, so the
2 thrust of public policy herein involved. The 64 public is forced to trust all the more in the
3 public has the right to assume that the 65 utmost diligence and foresight of common
4 registered owner is the actual or lawful 66 carriers. (Commission Report on the
5 owner thereof. It would be very difficult and 67 Proposed Civil Code)
6 often impossible, as a practical matter, for 68
7 the public to enforce their rights of action 69☛ When the officers and the crew were aware
8 that they may have for injuries inflicted by 70 of the typhoon but decided to proceed with
9 the vehicle if they should be required who 71 the voyage believing that the weather was
10 the actual owner is. It would also open the 72 still “good,” although, according to the
11 door to collusion between the registered 73 weather forecast, they were already within
12 owner and the actual owner and to shifting 74 the typhoon zone, the sinking of the vessel
13 liability from the carrier to one without 75 proves that required extraordinary diligence
14 financial capability to meet the resulting 76 was not duly observed. (Vasquez cs. CA,
15 damages. (Benedicto vs. IAC, 187 SCRA 77 138 SCRA 553)
16 547) 78
173. The registered owner cannot recover from 79☛ A common carrier neglects its duty to
18 the actual owner and the latter cannot obtain 80 transport its passengers safely when a
19 transfer of the vehicle to himself, both being 81 passenger died because the floor of its bus
20 in pari delicto. The Court will not aid either 82 gave way after a tire blow out caused by
21 party to enforce an illegal contract, but will 83 overcrowding, overspeeding and weak
22 leave them both where it find them. Where 84 flooring. (M. Ruiz Highway Transit, Inc. vs.
23 the parties are in pari delicto, no affirmative 85 CA, 11 SCRA 98)
24 relief of any kind will be given to one against 86
25 the other. (Teja Marketing vs. IAC, 148 87☛ The announcement by a train conductor of
26 SCRA 347 ) 88 the next flag stop, three minutes ahead of
274. For the better protection of the public, both 89 time, causing the passengers to rise from
28 the registered owner and the actual owner 90 their seats, and the subsequent fall by them
29 are jointly and severally liable with the 91 as a consequence of the jerking, resulting in
30 driver. (Zamboanga Transportation Co. 92 deaths and injuries to them, is negligence.
31 vs. CA) 93 (Brinas vs. People, 125 SCRA 687)
32 94
33CONTRACT OF ADHESION- one that is 95☛ The mere fact that the bus was inspected
34unilaterally drafted and printed in advance by 96 the day before the accident is not sufficient
35monopolies, insurance companies, carriers and 97 to rebut the presumption of negligence,
36money lenders and the only participation of the 98 where the bus was overloaded in spite of the
37carrier party is the signing of his signature or his 99 fact that its route consisted of mountainous,
38“adhesion” thereto (Eastern Shipping Lines 100 circuitous and ascending roads. (Landingin
39vs. Margarine, 93 SCRA 257) 101 vs. Pangasinan, 33 SCRA 284)
40 102
103☛ Where a vessel’s departure was delayed by
41 NEW CIVIL CODE PROVISIONS ON
104 repairs, and on management’s instruction,
42 COMMON CARRIERS 105 the first port of call was bypassed, the event
43 (ART. 1732-1766) 106 is not fortuitous to be exempt from liability.
44 107 (Sweet Lines vs. CA, 121 SCRA 769)
451. REQUIREMENT OF
46 EXTRAORDINARY DILIGENCE 1082. RULES ON PRESUMPTION OF
47☛ Common carriers, from the nature of their 109 NEGLIGENCE
48 business and for reasons of public policy,
49 are bound to observe extraordinary diligence 110A. In the carriage of goods. In case of loss,
50 in the vigilance over goods and for the 111 destruction and deterioration of the goods,
51 safety of the passengers transported by 112 common carriers are presumed to be at fault
52 them according to all the circumstances of 113 or have acted negligently, unless they prove
53 each case (Art. 1733, in relation to Art. 114 that they exercise extraordinary diligence.
54 1755) 115☛ In the transport of goods, mere proof of
55 116 delivery of goods in good order to a carrier
56☛ Rationale: The business of common 117 and the subsequent arrival of the same
57 carriers is impressed with a special public 118 goods at the place of destination in bad
58 duty such that the public must of necessity 119 order makes for a prima facie case against
59 rely on their skill and care over the goods 120 the carrier. (Coastwise Lighterage Corp.
60 and/or passengers transported. Also, with 121 vs. CA, 245 SCRA 796
61 the development in science and invention, 122
62 transportation has become more rapid, but
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10
1B. In the carriage of passengers. The same 632. carrier must exercise due diligence to
2presumption applies. 64 prevent or minimize the loss before, during
3 65 or after the act causing the loss,
4☛ The courts need not make an express 66 deterioration or destruction of the goods
5 finding of fault or negligence of common 67 (Art. 1739, NCC)
6 carriers, the law imposes upon common 68
7 carriers strict liability, as long as it is shown 69CONTRIBUTORY NEGLIGENCE OF THE
8 that there exists a relationship between the 70SHIPPER
9 passenger and the common carrier and 71☛ If the shipper or owner merely contributed to
10 that injury or death took place during the 72 the loss, destruction or deterioration of the
11 existence of the contract. 73 goods, the proximate cause thereof being
12 74 the negligence of the carrier, the carrier shall
13Reason for the presumption: Because as to 75 still be liable for damages, but such shall be
14when and how goods were damaged in transit is 76 equitably reduced.
15a matter peculiarly within the knowledge of the 77☛ When the shipper declared an inaccurate
16carrier and its employees. (Mirasol vs. Dollar, 78 weight of the equipment transported causing
1753 PHIL 124) Also, the contract between the 79 it to fall when it is being unloaded, the carrier
18passenger and the carrier imposes on the latter 80 was still held liable for damages because
19to transport the passenger safely, hence the 81 such accident could have been avoided if
20burden of explaining should fall on the carrier. 82 the carrier had exercised reasonable
21NOTE: The doctrine of res ipsa loquitor applies. 83 attention in overseeing the unloading of the
22 84 equipment. However, the liability was
233. DEFENSE OF COMMON CARRIERS 85 reduced as the shipper was liable for
24 86 contributory negligence. (Compania
25☛ Common carriers are responsible for the 87 Maritima vs. CA, 164 SCRA 685)
26 loss, destruction, or deterioration of the 88
27 goods, unless the same is due to any of the 89C. CHARACTER OF THE GOODS OR
28 following causes only: 90 DEFECTS IN THE PACKING OR IN
291. Flood, Storm, earthquake, lighting, or other 91 THE CONTAINER
30 natural disaster or calamity. 92☛ Even if the damage should be caused by the
312. Act of the public enemy in war, whether 93 inherent defect/character of the goods, the
32 international or civil 94 common carrier must exercise due diligence
333. Act or omission of the shipper or the owner 95 to forestall or lessen the loss.
34 of goods 96☛ The carrier, knowing the fact of improper
354. The character of the goods or defects in the 97 packing of the goods upon ordinary
36 packing or in the containers. 98 observation, still accepts the goods
375. Order or act of competent authority 99 notwithstanding such condition, is not
38 (Art1734, NCC). 100 relieved of liability or loss or injury resulting
39 101 therefrom. (Southern Lines, Inc. vs. CA, 4
40Reason for the exceptions: Because the 102 SCRA 258)
41carrier is not an insurer of the safety of its 103
42passengers and is not absolutely and at all 104D. ORDER/ACT OF PUBLIC AUTHORITY
43events to carry them safely and without injury. 105☛ Said public authority must have the power to
44(Santos vs. Dela Cruz, December 2, 1959) 106 issue the order. Consequently, where the
45 107 officer acts without legal process, the
46A. NATURAL DISASTER 108 common carrier will be held liable.
47 109
48Requisites for the Defense: 110NOTE: Diligence in the selection and
491. must be the proximate and only cause of the 111supervision of employees under Articles 2180-
50 loss 1122181, NCC, cannot be interposed by the
512. carrier must exercise due diligence to 113common carrier to prevent damages because
52 prevent or minimize the loss before, during 114the liability of the carriers arises from the breach
53 or after the occurrence of the disaster (Art. 115of the contract of carriage. The defense under
54 1739, NCC) 116said articles is applicable to negligence in quasi-
553. carrier had not negligently incurred in delay 117delicts. (Del Prado vs. Manila Electric Co., 52
56 in transporting the goods (Art. 1740, NCC) 118PHIL 900)
57 119
58ACTS OF PUBLIC ENEMY 120E. STIPULATIONS LIMITING
59 121 LIABILITY OF COMMON CARRIERS
60Requisites for the Defense: 122
611. the act must be the proximate and only 1231. IN THE CARRIAGE OF GOODS- the
62 cause of the loss 124 common carrier and the shipper may agree
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10
1 on the carriers observance of diligence to a 64 willful acts on gross negligence (Art. 1758,
2 degree less than extraordinary provided it be 65 NCC).
3 a) In writing, signed by the shipper or 66
4 owner; 67NOTE: The diligence required in the carriage of
5 b) Supported by a valuable 68the goods may be reduced by only one degree,
6 consideration other than the service 69from extraordinary to ordinary diligence or
7 rendered by the carriers; and 70diligence of a good father of a family. (Art. 1744,
8 c) Reasonable, just and not contrary 71Art. 1745, no.4, NCC)
9 to public policy. (Art. 1744). 72☛ In the transport of passengers, the diligence
10 73 required may be reduced by two degrees
11☛ The following stipulations are considered 74 from extraordinary to ordinary diligence or
12 unjust, unreasonable and contrary to public 75 even to simple negligence but ot to gross
13 policy: 76 negligence. (Art. 1758, NCC)
141. the goods are transported at the risk of the 77
15 owner or shipper 78G. DURATION OF RESPONSIBILITY OF
162. the carrier will not be liable for any loss, 79 COMMON CARRIERS
17 destruction or deterioration of the goods 80
183. the carrier need not observe any diligence in 811. GOODS.
19 the custody of the goods 82☛ The extraordinary responsibility of the
204. the carrier shall exercise a degree of 83 common carrier lasts from the time the
21 diligence less than that of a good father of a 84 goods are unconditionally placed in the
22 family over the movable transported 85 possession of, and received by the carrier
235. the carrier shall not be responsible for the 86 for transportation until the same are
24 acts or omissions of his or its employees 87 delivered actually or constructively by the
256. the carrier’s liability for acts committed by 88 carrier to the consignee or to the person
26 thieves or robbers who do not act with grave 89 who has the right to receive them. (Art.
27 or irresistible threat, violence or force is 90 1736, NCC)
28 dispensed with or diminished 91☛ It remains in full force and effect even when
297. the carrier is not responsible for the loss, 92 they are temporarily unloaded or stored in
30 destruction or deterioration of the goods on 93 transit unless the shipper or owner has
31 account of the defective condition of the car, 94 made use of the right of stoppage in transitu.
32 vehicle, ship or other equipment used in the 95 (Art. 1737, NCC)
33 contract of carriage. 96☛ It continues to be operative even during the
34 97 time the goods are stored in a warehouse of
35Other Valid stipulations limiting the carrier’s 98 the carrier at the place of destination until
36liability: 99 the consignee has bee advised of the
371. A stipulation that the common carrier’s 100 arrival of the goods and has had reasonable
38 liability is limited to the value of the goods 101 opportunity thereafter to remove them or
39 appearing in the bill of lading unless the 102 otherwise dispose of them. (Art. 1738, NCC)
40 shipper or owner declares a greater value 103
41 (HEACOCCK VS MACONDRAY, 42 PHIL 1042. PASSENGERS.
42 205) 105 Once created, the relationship will not
432. A contract fixing the sum to be recovered by 106 ordinarily terminate until the passenger has,
44 the owner or shipper for the loss, destruction 107 after reaching his destination, safely alighted
45 or deterioration of the goods, if it is 108 from the carrier’s conveyance or had a
46 reasonable and just under the 109 reasonable opportunity to leave the carrier’s
47 circumstances and has been fairly and freely 110 premises.
48 agreed upon (Art. 1750, NCC)
111 All persons who remain on the premises
493. An agreement limiting the common carrier’s
112 within a reasonable time after leaving the
50 liability for delay on account of strikes or
113 conveyance are to be deemed passengers,
51 riots (Art. 1748, NCC)
114 and what is a reasonable time or a
52
115 reasonable delay within this rule is to be
53
116 determined from all the circumstances, and
542. IN THE CARRIAGE OF PASSENGERS
117 includes a reasonable time to see after his
55☛ The extraordinary responsibility of a
118 baggage and prepare for his departure. (La
56 common carrier for the safety of passengers
119 Mallorca vs CA, July 27 1966; Abiotiz
57 imposed by law cannot be dispensed with or
120 Shipping Corporation vs CA, November
58 lessened by stipulation, by posting of
121 6, 1989)
59 notices, by statements on tickets or
60 otherwise (Art. 1757, NCC).
122 In case of flight diversion due to bad
123 weather or other circumstances beyond the
61☛ When a passenger is carried gratuitously, a
124 pilot’s control, the relation between the
62 stipulation limiting the common carrier’s
125 carrier and the passenger continues the
63 liability for negligence is valid, but not for
126 latter has been landed at the port of
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10
1 destination and has left the carrier’s 64☛ under this, the baggage is in the personal
2 premises. The carrier should necessarily 65 custody of the passenger or his employee in
3 exercise extraordinary diligence in 66 that the baggage while in transit will be
4 safeguarding the comfort, convenience and 67 considered as necessary deposits. The
5 safety of its stranded passengers until they 68 common carrier shall be responsible for the
6 have reached their final destination. 69 baggage as depositaries, provided that
7 (PHILIPPINE AIRLINES VS CA, 226 SCRA 70 notice was given to them or its employees
8 423) 71 and the passenger took the necessary
9 72 precautions which the carrier has advised
10H. LIABILITY OF THE CARRIER FOR 73 them relative to the care and vigilance of
11 ACTS OF ITS EMPLOYEES AND 74 their baggage.
12 OTHER PASSENGERS 75☛ In case of loss due to the fault of the
13 76 passenger, the carrier will not be liable . The
141. For acts of Employees 77 act of thief will not be force majeure unless
15☛ Common carriers are liable for the death of 78 the same is committed by armed men an
16 or injuries to passengers through the 79 through irresistible force (Article 1754,
17 negligence or willful acts of the former’s 80 NCC)
18 employees, although such employees may 81
19 have acted beyond the scope of their 822. BAGGAGE NOT IN SUCH CUSTODY, BUT
20 authority or in violation of the orders of the 83 IN THAT OF THE CARRIER (Article 1733 to
21 common carriers. This liability does not 84 1573 of the NCC)
22 cease upon proof that they exercised all the 85☛ carrier who has in his custody the baggage
23 diligence of a good father of a family in the 86 of a passenger to be carried like any other
24 selection and supervision of their 87 goods is required to observe extraordinary
25 employees. (1759, NCC) 88 diligence. In case of loss or damage the
26 89 carrier is presumed negligent.
27☛ The liability of the carrier for the personal 90
28 violence of its employees or agents upon its 918) CAUSE OF ACTION ARISING FROM THE
29 passengers extends only to those acts that 92 NEGLIGENT ACT OF THE CARRIER
30 the carrier could foresee or avoid through 93
31 the exercise of the degree of diligence 94 The injured passenger can avail of any of
32 required. 95the three causes of action arising from the
33 96negligent act of the common carrier:
34☛ The carrier is not liable for acts of employee 97
35 not on duty or in the line of duty. (DE 981)culpa contractual – Art.1759, NCC – only the
36 GILLACO VS MRR, 97 PHIL884; 99 carrier could be held liable, not the driver
37 MARANAN VS PEREZ, 20 SCRA 412) 100 because the there is no privity between the
38 101 driver and the passenger
392. For acts of other Passengers 1022)culpa acquiliana – Art. 2180, NCC – the carrier
40 103 and driver are solidarily liable as joint
41☛ A common carrier is responsible for injuries 104 tortfeasors
42 suffered by a passenger on account of the 1053)culpa criminal – Art. 100, Revised Penal Code
43 willful acts or negligence of other 106 – the carrier could be held liable only if driver
44 passengers or of strangers, if the common 107 be convicted and declared insolvent, making
45 carrier’s employees, through the exercise of 108 him subsidiarily liable.
46 the diligence of a good father of a family 109
47 could have prevented or stopped the act. 110LIABILITY OF SUCCESSIVE AIR
48 (1763, NCC) 111CARRIERS:
49☛ The carrier is liable when its personnel 112
50 allowed a passenger to drive the vehicle 113 ☛ An airline ticket providing that carriage
51 causing it to collide with another vehicle 114 by successive air carriers is to be
52 resulting to the injuries suffered by the other 115 regarded as a “single operation” is to
53 passengers.(MRR VS BALLESTEROS, 16 116 make the (issuer carrier) liable for the
54 SCRA 641) 117 tortious conduct of the other carrier. A
55 118 printed provision in the ticket limiting
56I. RULES ON PASSENGERS’ 119 liability only to its own conduct is not
57 BAGGAGES 120 enough to rebut that liability (KLM
58☛ As to baggage of passengers, the law 121 ROYAL DUTCH AIRLINES VS. CA)
59 makes a distinction between: 122
60 123BILL OF LADING- written acknowledgment of
611. BAGGAGE IN THE CUSTODY OF THE 124receipt of goods and agreement to transport
62 PASSENGERS OR THEIR EMPLOYEE 125them to a specific place to a person named or to
63 126his order. It is not indispensable for the creation
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1of a contract of carriage (COMPANIA 62 a. upon discharge of goods, if the

2MARITIMA vs. INSURANCE CO. OF NORTH 63 damage is apparent , claim
3AMERICA, 12 SCRA 213) 64 should be filled immediately; or
4 65 b. if damage is not apparent,
5ON BOARD BILL OF LADING- issued when 66 claim should be filled within 3 days from
6the goods have been actually placed aboard the 67 delivery.
7ship with very reasonable expectation that the 68☛ Filing of claim is not condition precedent, but
8shipment is as good as on its way. 69 an action must be filed against the carrier
9 70 within a period of 1 year from discharge; if
10FUNCTIONS OF A BILL OF LADING: 71 there is no delivery, the undelivered or lost
11(MAGELLAN, MANUFACTURING vs. CA 201 72 cargo), or from delivery to the arrastre (in
12SCRA 2021) 73 case of damaged cargo).
13 74
141. best evidence of the existence of the 75 EXEMPTION FROM LIABILITY
15 contract of carriage of cargo; 76
162. commercial document whereby, if 77☛ A common carrier may be freed from liability
17 negotiable, ownership may be transferred by 78 for loss or damage if it proves any of the
18 negotiation; and 79 following circumstances:
193. receipt of cargo. 80 a. natural disaster;
20 81 b. act of the public enemy in war;
21LIMITATIONS AS TO CARRIERS 82 c. act or omission of the shipper;
22LIABILITY 83 d. character of the goods and defect in
23 84 packaging;
24 A stipulation in the bill of 85 e. order of competent public authority
25lading limiting the liability of the carrier 86 (MARITIME CO. VS. CA 171 SCRA 61).
26to an agreed valuation unless the 87
27shipper declares a higher value and pays a 88DOCTRINE OF COMBINED/CONNECTING
28higher rate of freight is valid (ORG. VS. CA 89CARRIERS – Under Art. 373, Code of
29AND PAL, 91 SCRA 223). 90Commerce, the original carrier that entered into
30 91the contract of carriage shall be liable for
31 ☛ However, the carrier cannot limit is liability 92damages caused by its connecting carriers.
32 for injury to, or loss of, goods shipped 93Such carrier is liable if connecting carriers refuse
33 where such injury or loss was caused by 94to carry passengers. (KLM VS CA, 65 SCRA
34 its own negligence (SHEWARAM VS. 95237)
35 PAL, 17SCRA 606). 96
36 97MARITIME COMMERCE
37RECOVERY OF DAMAGES FROM 98
38CARRIER FOR CARRIAGE OF GOODS- 99MERCHANT VESSEL
39 100☛ vessel engaged in maritime commerce,
401. INTER-ISLAND- if goods arrived in 101 whether foreign or otherwise.
41 damaged condition: Art 366, CODE OF 102☛ constitutes property which may be acquired
42 COMMERCE). 103 and transferred by any of the means
43 a. If damage is apparent, the shipper must 104 recognized by law. They shall continue to be
44 file a claim immediately; or 105 considered as personal property. (Art. 573,
45 b. If damage is not apparent, he should 106 585, Code of Commerce)
46 file a claim within 4 hours from delivery 107
47 108CHARACTERISTICS OF MARITIME
48☛ The filing of claim under either (1) or (2) is a 109TRANSACTION:
49 condition precedent for recovery. 1101) Real- similar to transactions over property
50 111 with respect to effectively against third
51☛ If the claim is filed, but the carrier refuses to 112 persons which is done through registration
52 pay: enforce carrier’s liability in court by 113 as shown by the limitation of the liability of
53 filing a case 114 the agents to the actual value of the vessel
54 a. within 6 year, if no bill of lading has been 115 and the freight money; and the right to retain
55 issued; or 116 the cargo and embargo and detention of the
56 b. within 10 years, if a bill of lading has 117 vessel; and
57 been issued. 1182) Hypothecary- the liability of the owner of
58 119 the value of the vessel is limited to the
592. OVERSEAS- where goods arrived in a 120 vessel itself (Doctrine of Limited Liability)
60 damaged condition from a foreign port to a 121
61 Philippine port of entry; 122PREFERENCE OF CREDITS - Mortgage of a
123vessel properly registered becomes of preferred
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10
1mortgage lien which shall have priority over all 63 2) Indemnities in favor of third persons
2claims against the vessel in an extrajudicial 64 arising from the conduct of the captain
3foreclosure for: 65 in the care of the goods loaded in the
4 a. credit in favor of the public treasury; 66 vessel
5 b. judicial costs of the proceedings; 67
6 c. pilotage and tonnage charges and other 68POWERS, FUNCTIONS AND LIABILITIES
7 sea and port charges; 69OF THE SHIP AGENTS:
8 d. salaries of depositaries and keepers of 70
9 the vessel 71 1) Capacity to trade
10 e. captain and crew’s wages; 72 2) Discharge duties of the captain, in case
11 f. general average; 73 of the latter’s absence
12 g. salvage, including contract salvage; 74 3) Contract in the name of the owners with
13 h. maritime liens arising prior in time to the 75 respect to repairs, details of equipment,
14 recording of the preferred mortgage; 76 armament, and all that relate to the
15 i. damages arising out of tort; and 77 requirements of navigation
16 j. preferred mortgage registered prior in 78 4) Order a new voyage, make a new
17 time. 79 charter or insure the vessel after
18 80 obtaining authorization from the
19DOCTRINE OF LIMITED LIABILITY- Because 81 shipowners
20of real and hypothecary nature of maritime law, 82 5) Render an account of the results of
21liability of ship owners is limited to the amount of 83 each voyage
22interest in said vessel such that where vessel is 84
23entirely loss, obligation is extinguished. (LUZON 85 DUTY OF SHIP AGENT TO
24STEVEDORING VS. CA AND ESCANO, 156
86 DISCHARGE THE CAPTAIN AND
25SCRA 169) The interest extends to vessel’s
26appurtenances and equipment, freightage and 87 MEMBERS OF THE CREW:
27insurance proceeds. (CHUA VS. IAC, 166 88
28SCRA 183) 89 ☛ If the seamen contract is not for a definite
29 90 period or voyage, he may discharge them at
30Exceptions: 91 his discretion.
31 1) injury or damage due to shipowner’s 92 ☛ If for a definite period, he may not
32 fault 93 discharge them until after the fulfillment of
33 2) claims under Workmen’s Compensation; 94 their contracts, except on the following
34 3) repair on vessel before loss; 95 grounds:
35 4) vessels not abandoned; 96 -insubordination in serious
36 5) the vessel is insured. 97 matters
98 -robbery
37
99 -theft
38PARTICIPANTS IN MARITIME 100 -habitual drunkenness
39COMMERCE 101 -damage caused to the vessel
1. 40 shipowners and ship agents 102 or to its cargo through malice or manifest or
2. 41 captains and masters of the 103 proven negligence
42vessel 104
3. 43 officers and crew of the vessel 105B. CAPTAINS AND MASTERS OF THE
4. 44 supercargoes 106VESSEL
45 107
46A. SHIPOWNERS AND SHIP AGENTS 108THREE-FOLD CHARACTER OF THE
47 SHIPOWNER – person who has 109CAPTAIN:
48 possession, control in management of the 110 1) general agent of the shipowner;
49 vessel and the consequent right to direct her 111 2) technical director of the vessel;
50 navigation and receive freight earned and 112 3) representative of the government of the
51 paid, while his possession continues; 113 country whose flag he navigates
52 SHIP AGENT – person entrusted with 114
53 provisioning and representing the vessel in 115QUALIFICATIONS OF THE CAPTAIN:
54 the port in which it may be found; also 116 1) Filipino citizen;
55 includes the shipowner; 117 2) legal capacity to contract;
56 118 3) passed the required physical and mental
57CIVIL LIABILITIES OF THE SHIPOWNER 119 examinations required for licensing him
58AND THE SHIP AGENTS: 120 as such
59 121
60 1) For acts of the captain and for the 122INHERENT POWERS OF THE CAPTAIN:
61 obligations contracted to repair, equip 123 1) appoint crew in the absence of ship
62 and provision the vessel 124 agent;
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10
1 2) command and direct crew; 628. damages due to non-observance of marine

2 3) impose correctional punishment on 63 regulations
3 those who, while on board vessel, fail to 64
4 comply with his orders or are wanting 65
5 in discipline; 66
6 4) make contracts for the charter of vessel 67
7 in the absence of ship agent. 68NO LIABILITY FOR THE FOLLOWING:
8 5) supply, equip, and provision the vessel; 69
9 and 70 1) damages caused to the vessel or to the
10 6) order repair of vessel to enable it to 71 cargo by force majeure
11 continue its voyage. 72 2) obligations contracted for the repair,
12 73 equipment, and provisioning of the
13SOURCES OF FUNDS TO COMPLY WITH 74 vessel unless he has expressly bound
14THE INHERENT POWERS OF THE 75 himself personally or has signed a bill of
15CAPTAIN: 76 exchange or promissory note in his
16 77 name
17 (in successive order) 78
18 1) from the consignee of the vessel 79GROUNDS FOR DISCHARGE OF A
19 2) from the consignee of the cargo 80CAPTAIN:
20 3) by drawing on the ship agent 81
21 4) by a loan on bottomry 82insubordination in serious matters
22 5) by sale of part of the cargo 83robbery
23 84theft
24DUTIES OF THE CAPTAIN: 85habitual drunkenness
25 86damage caused to the vessel or to its cargo
26 1) bring on board the proper certificate and 87through malice or manifest or proven negligence
27 documents and a copy of the Code of 88
28 Commerce 89B. OFFICERS AND CREW OF THE
29 2) keep a Log Book, Accounting Book and 90 VESSEL
30 Freight Book 91
31 3) examine the ship before the voyage 92The following are the officers and crew of the
32 4) stay on board during the loading and 93vessel:
33 unloading of the cargo 94 1) Sailing Mate/First Mate
34 5) be on deck while leaving or entering the 95 2) Second Mate
35 port 96 3) Engineers
36 6) protest arrivals under stress and in case 97 4) Members of the crew
37 of shipwreck 98
38 7) follow instructions of and render an 99 1) SAILING MATE/FIRST MATE
39 accounting to the ship agent 100 ☛ second chief of the vessel who takes
40 8) leave the vessel last in case of wreck 101 the place of the captain in case of
41 9) hold in custody properties left by 102 absence, sickness, or death and shall
42 deceased passengers and crew 103 assume all of his duties, powers and
43 members 104 responsibilities.
44 10) comply with the requirements of 105 QUALIFICATIONS OF THE SAILING
45 customs, health, etc. at the port of 106 MATE:
46 arrival 107 1) have the qualifications required by
47 108 the marine or navigation laws and
48LIABILITIES OF THE SHIP AGENT/SHIP 109 regulations
49OWNER FOR ACTS DONE BY THE 110 2) not to be disqualified in accordance
50CAPTAIN TOWARDS PASSENGERS AND 111 therewith for the discharge of his
51CARGOES, MAKING THEM SOLIDARILY 112 duties
52LIABLE TO THE LATTER: 113
53 114 DUTIES OF THE SAILING MATE:
541. damages to vessel and to cargo due to lack 115 1) provide himself with maps and
55 of skill and negligence 116 charts with astronomical tables
562. thefts and robberies of the crew 117 necessary for the discharge of his
573. losses and fines for violation of laws 118 duties
584. damages due to mutinies 119 2) keep the Binnacle Book
595. damages due to misuse of power 120 3) change the course of the voyage on
606. for deviations 121 consultation with the captain and the
617. for arrivals under stress 122 officers of the boat, following the
4 Page 58
10
1 decision of the captain in case of 64 2) repeated insubordination, want of

2 disagreement 65 discipline
3 4) responsible for all the damages 66 3) repeated incapacity and negligence
4 caused to the vessel and the cargo 67 4) habitual drunkenness
5 by reason of his negligence 68 5) physical incapacity
6 69 6) desertion
7 70
8 71CAUSES OF REVOCATION OF VOYAGE:
9 2) SECOND MATE 72
10 73 1) war
115 ☛ take command of the vessel in case of 74 2) blockade
12 the inability or disqualification of the captain 75 3) prohibition to receive cargo at
13 and the sailing mate, assuming in such case 76 destination
14 their powers and responsibilities. 77 4) embargo
15 78 5) inability of the vessel to navigate
16 DUTIES OF THE SECOND MATE: 79
17 1) preserve the hull and rigging of the 80RULES IN CASE OF DEATH OF A SEAMAN:
18 vessel 81
19 2) arrange well the cargo 82 The seaman’s heirs are entitled to
20 3) discipline the crew 83 payment as follows:
21 4) assign work to crew members 84 1) if death is natural
22 5) inventory the rigging and equipment 85 a) compensation up to time of
23 of the vessel, if laid up 86 death if engaged on wage
24 87 b) if by voyage-half of amount if
25 3) ENGINEERS 88 death occurs on voyage out;
26 89 and full, if on voyage in
27 C ☛ officers of the vessel but 90 c) if by shares-none, if before
28 have no authority except in matters 91 departure; full, if after departure
29 referring to the motor apparatus. When 92 2) if death is due to defense of vessel,
30 two or more are hired, one of them shall 93 full payment
31 be the chief engineer. 94 3) if captured on defense of vessel, full
32 95 payment
33 DUTIES OF THE ENGINEERS: 96 4) if captured due to carelessness,
34 1) in charge of the motor apparatus, 97 wages up to the date of the capture
35 spare parts, and other instruments 98
36 pertaining to the engines 99 NO LIABILITY UNDER THE
37 2) keep the engines and boilers in 100 FOLLOWING CIRCUMSTANCES:
38 good condition 101
39 3) not to change or repair the engine 102 1) if, before beginning voyage, captain
40 without authority of the captain 103 attempts to change it, or a naval war
41 4) inform the captain of any damage to 104 with the power to which the vessel
42 the motor apparatus 105 was destined occurs
43 5) keep an Engine Book 106 2) if disease break out and be officially
44 6) supervise all personnel maintaining 107 declared an epidemic in the port of
45 the engine 108 destination
46 109 3) if the vessel should change owner or
47 4) MEMBERS OF THE CREW 110 captain
48 ☛ hired by the ship agent, where he is 111
49 present and in his absence, the captain 112COMPLEMENT OF THE VESSEL – all persons
50 hires them, preferring Filipinos, and in 113on board, from the captain to the cabin boy,
51 their absence, he may take in 114necessary for the management, maneuvers, and
52 foreigners, not exceeding 1/5 of the 115service, thus including the crew, the sailing
53 crew. 116mates, engineers, stokers and other employees
54 117on board not having specific designations, but
55CLASSES OF SEAMAN’S CONTRACTS: 118shall not include the passengers or the persons
56 1. by the voyage 119whom the vessel is transporting.
57 2. by the month; and 120
58 3. by share of profits or freightage 121D. SUPERCARGOES
59 122D ☛ person who discharges administrative
60 JUST CAUSES FOR THE DISCHARGE 123 duties assigned to him by ship agent or
61 OF SEAMAN WHILE CONTRACT SUBSISTS: 124 shippers, keeping an account and record of
62 125 transaction as required in the accounting
63 1) perpetration of a crime 126 book of the captain.
4 Page 59
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1 63 7) to bring cargo to nearest neutral port

2CHARTER PARTY- contract by virtue of 64 in case of war or blockade
3which owner or agent binds himself to transport 65
4merchandise or persons for a fixed price. 66 B. OF THE CHARTERER
5 ☛ contract by which an entire ship, or 67 1) to pay the agreed charter price
6some principal part thereof is let by the owner to 68 2) to pay freightage on unboarded
7another person for a specified time or use. 69 cargo
8(PUROMINES VS. CA 220 SCRA 281) 70 3) to pay losses to others for loading
9 71 uncontracted cargo and illicit cargo
10CLASSES OF CHARTER PARTY 72 4) to wait if the vessel needs repair
11(PLANTERS PRODUCT Case: LITONJUA 73 5) to pay expenses for deviation
12SHIPPING CO. INC. vs. NATIONAL 74
13SEAMEN’S BOARD, 176 SCRA 189) 75 RESCISSION OF A CHARTER PARTY
14 76
151. BAREBOAT OR DEMISE- charterer 77 A. At Request of Charterer
16 provides crew, food and fuel, charterer is 78
17 liable as if he were the owner, except when 79 1) by abandoning the charter and
18 such arises from the unworthiness of the 80 paying half of the freightage
19 vessel. 81 2) error in tonnage or flag
20 82 3) failure to place the vessel at the
21OWNER PRO HAC VICE –a bareboat charterer, 83 charterer’s disposal
22to whom full possession and control of the 84 4) return of the vessel due to pirates,
23vessel is delivered, for a period of time; 85 enemies or bad weather
24charterer is considered as owner of the vessel 86 5) arrival at a port for repairs
25for the voyage or service stipulated. The master 87
26of the vessel is the agent of the charterer and 88 B. At Ship Owner’s Request
27not of the shipowner. The charterer, and not the 89
28general owner of the vessel is held liable for the 90 1) if the extra lay days terminate
29expenses of the voyage including the wages of 91 without the cargo being placed
30the seamen. 92 alongside the vessel
31 93 2) sale by the owner of the vessel
322. TIME CHARTER – vessel is chartered for a 94 before loading by the charterer
33 period of time or duration of voyage; owner 95
34 retains possession and control of the 96 PRIMAGE- bonus to be paid to the captain
35 vessel; charterer acquires the right to use 97 after the successful voyage.
36 the carrying capacity, facilities of the vessel 98
37 and could designate destinations. 99 DEMURRAGE – sum due, by express
38 100 contract, for the detention of the vessel, in
393. VOYAGE OR TRIP CHARTER- contract for 101 loading and unloading, beyond the time
40 hire of vessel for one or series of voyages 102 allowed in the contract of afreightment, and
41 usually for purposes of transporting goods 103 to any other improper detention or delay
42 for charterer. 104 beyond the time set for loading.
43 105
444. CONTRACT OF AFREIGHTMENT- owner 106 SALVAGE- services one person render to
45 leases the boat or part of it for the carriage 107 the owner of a ship or goods, by his own
46 of goods. 108 labor, preserving the goods or the ship
47 109 which the owner or those entrusted with the
48 RIGHTS AND OBLIGATIONS IN A 110 care of them have either abandoned in
49 CHARTER PARTY 111 distress at sea, or are unable to protect or
50 A. OF THE SHIP OWNER OR SHIP 112 secure.
51 AGENT 113
52 1) if the vessel chartered wholly, not to 114CONTRACT OF TOWAGE - contract whereby
53 accept cargo from others 115one vessel, usually motorized, pulls another,
54 2) to observe represented capacity 116whether loaded or not with merchandise, form
55 3) to unload cargo clandestinely placed 117one place to another, for a compensation. It is a
56 4) to substitute another vessel if load is 118contract for services rather than a contract of
57 less than 3/5 of capacity 119carriage.
58 5) to leave the port if the charterer 120
59 does not bring the cargo within the 121USUAL FORMS OF CONSUMMATING
60 lay days and extra lay days allowed 122CONTRACTS:
61 6) to place in a vessel in a condition to 123
62 navigate 1241. C.I.F – cost, insurance and freight;
4 Page 60
10
12. F.O.B.- free on board; 64

23. F.A.S.- free alongside ship; and 65
34. C and F- cost and freight. 66
4 67
5TRANSHIPMENT OF GOODS- act of taking 68DISTINCTIONS :
6cargo from one ship and loading it in another, if 69
7done without legal excuse, however, competent LOANS ON ORDINARY LOAN
8and safe the vessel into which the transfer is BOTTOMRY/RESPON
9made is a violation of contract and infringement DENTIA
10of right of shipper and subjects carrier to liability 1. Not subject to Usury 1. Subject to Usury
11if freight is lost event by cause otherwise Law Law
12excepted (MAGELLAN MANUFACTURING vs. 2. Liability of the 2. Not subject to any
13CA , 201 SCRA 102) borrower is contingent contingency
14 on the safe arrival of
15LOAN OF BOTOMMRY- loan made by the vessel or cargo at
16shipowner or shipagent guaranteed by vessel destination
17itself and repayable upon arrival of vessel at 3. The last lender is a 3. The first lender is a
18destination. preferred creditor preferred creditor
19 70
20LOANS ON RESPONDENTIA – loan, taken on 71NOTE: Under existing laws, the parties to a loan,
21security of cargo laden on a vessel, and 72whether ordinary or maritime, may agree on any
22repayable upon safe arrival of cargo at 73rate of interest. (CB Circular 905).
23destination. 74
24 75EXCEPTIONS TO THE HYPOTHECARY
25COMMON ELEMENTS OF LOANS ON 76NATURE OF BOTTOMRY AND
26BOTTOMRY AND RESPONDENTS: 77RESPONDENTIA:
27 78
28 1) Exposure of security to marine peril 79 1) loss due to inherent defect;
29 2) Obligation of the debtor conditioned only 80 2) loss due to the barratry on the part of the
30 upon safe arrival of the security at the 81 captain;
31 point of destination. 82E 3) loss due to the fault of malice of the
32 83 borrower;
33FORMS OF A LOAN ON 84F 4) that the vessel was engaged in
34BOTTOMRY/RESPONDENTIA: 85 contraband; and
35 86G 5) that the cargo loaded on the vessel be
36May be executed by means of: 87 different in form that agreed upon..
37 1) public instrument 88
38 2) policy signed by the contracting parties 89ACCIDENTS IN MARITIME COMMERCE
39 and the broker taking part therein 90(Averages, Arrival Under Stress,
40 3) private instrument 91Collision, Shipwreck):
41
42CONTENTS OF THE LOAN CONTRACT:
92
931. AVERAGES- an extra-ordinary or accidental
43
94 expense incurred during the voyage in
44 1) kind, name and registry of the vessel
95 order to preserve the cargo, vessel or both;
45 2) name, surname and domicile of the
96 and all damages or deteriorations suffered
46 captain
97 by the vessel from departure to the port of
47 3) names, surnames and domiciles of the
98 destination, and to the cargo from the port of
48 borrower and the lender
99 loading to the port consignment.
49 4) amount of the loan and the premium
100
50 stipulated
101CLASSES:
51 5) time for repayment
52 6) goods pledged to secure repayment 102
103 a. Particular or Simple Average
53 7) voyage during which the risk is run
104 - expenses or damage cause to vessel
54
105 or cargo not inured to common benefit
55WHO MAY CONTRACT:
106 and borne by respective owners.
56
107 - The owner of the goods which gave
57 1) Bottomry – general rule: the owner; if
108 rise to the expense or suffered the
58owner is absent; captain;
109 damage shall bear this average.
59 2) Respondentia – only the owner of the
110
60 cargo.
111 b. Gross or General Average
61
62
63
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10
1 - damage and expenses deliberately 64 c. defect of vessel due to improper repair;

2 caused in order to save the vessel, its 65 and
3 cargo or both from renal and known risk. 66 d. malice, negligence, lack of foresight or
4 - All the persons having an interest in 67 skill of captain.
5 the vessel and the cargo therein at the 68
6 time of the occurrence of the average 69 Who bears expenses:
7 shall contribute to satisfy this average. 70 The ship owner bears all the expenses
8 71 except when it is unlawful arrival, the ship
9REQUISITES: 72 owner also answers for damages to the
101) common danger 73 owners of the cargo and the passengers.
112) deliberate sacrifice 74
123) success 753. COLLISIONS- impact of 2 vessels both of
134) proper formalities and legal steps 76which are moving.
14 77
15PROCEDURE FOR RECOVERY: 78 ZONES OF TIME IN THE COLLISSION OF
16 79 VESSELS (URRUTIA AND CO. VS. BACO
17 1) There must be a resolution of the 80 RIVER PLANTATION CO., 26 PHIL 632).
18 captain, adopted after a deliberation with 81
19 the other officers of the vessel and after 82 1. 1ST ZONE – all time up to the moment
20 hearing all persons interested in the 83 when risk of collision begins;
21 cargoes. If the latter disagree, the 84 2. 2ND ZONE – time between moment
22 decision of the captain should prevail but 85 when risk of collision begins and
23 they shall register their objections. 86 moment it becomes a practical
24 2) The resolution must be entered in the 87 certainty;
25 logbook, stating the reasons and 88 3. 3RD ZONE – time when collision is
26 motives for the dissent, and the 89 certain and time of impact.
27 irresistible and urgent causes if he acted 90
28 in his own accord. It must be signed, in 91RULES ON COLLISSION OF VESSELS (Arts.
29 the first case, by all persons present in 92826, 827, 828, 830, 831, and 832, Code of
30 the hearing. In the second case, by the 93Commerce)
31 captain and all the officers of the vessel. 94
32 3) The minutes must also contain a detail 95 1. The collision may be due to the fault,
33 of all the goods jettisoned and those 96 negligence or lack of skill of the captain,
34 injuries caused to those on board. 97 sailing mate, or any other member of the
35 4) The captain shall deliver it to the 98 complement of the vessel. The owner of
36 maritime judicial authority of the first port 99 the vessel at fault be liable for losses or
37 he may make, within 24 hours after his 100 damage (826 Code of Commerce)
38 arrival, and to ratify it immediately under 101
39 oath. 1022. The collision may be due to the fault of both
40 103 vessels. Each vessel shall suffer its own
41ORDER OF GOODS TO BE CAST 104 losses, but as regards the owner of
42OVERBOARD IN CASE OF JETTISON: 105 cargoes both vessels shall be jointly and
43 106 severally liable. (827, CC)
44 1) those which are on the deck, 107
45 preferring the heaviest one with the 1083. If it cannot be determined which vessel is at
46 least utility and value 109 fault. Each vessel shall also suffer its own
47 2) those which are below the upper 110 losses and both shall be solidarily liable for
48 deck, beginning with the one with 111 losses o damages on the cargoes. (828,
49 greatest weight and smallest value 112 CC)
50 113
512. ARRIVAL UNDER STRESS- arrival of vessel 1144. The vessels may collide with each other
52 at a port of destination on account of lack of 115 through fortuitous event or force majeure.
53 provision, well founded fear of seizure, 116 In this case each shall bear its own damage.
54 pirates, or accidents of sea disabling 117 (830, CC).
55 navigation. 118
56 1195. Two vessels may collide with each other
57 When not lawful: 120 without their fault by reason of a third vessel.
58 121 The third vessel will be liable for losses and
59 a. lack of provisions due to 122 damagea (831, CC)
60 negligence to carry according to usage 123
61 and customs; 1246. A vessel which is properly anchored and
62 b. risk of enemy not well known or 125 moored may collide with those nearby
63 manifest 126 reason of storm or other cause of force
4 Page 62
10
1 majeure. The vessel run into shall suffer its 63owner of the vessel may demand indemnity from
2 own damage and expense (832, CC) 64said captain.
3 65
4PREQUISITE TO RECOVERY: 66
5 67
6 ☛ Protest should be made within 24 68
7 hours before the competent authority at the 69
8 point of collision or at the first port of arrival, 70
9 if in the Philippines and to the Philippine 71CARRIAGE OF GOODS BY SEA ACT
10 consul, if the collision took place abroad. 72(COM. ACT NO. 65)
11 ☛ Injuries to persons and damage to
73
12 cargo of owners not on board on collision
13 time, need not be protested. 74
75 COGSA is suppletory to
14
76 the Civil Code and the
15DOCTRINE OF “INSCRUTABLE FAULT”
77 Code of Commerce in
16
78 the Carriage of goods
17 ☛ In a collision, the vessel at fault shall
79 from foreign parts to the
18indemnify the damages sustained or losses
80 Philippines (EASTERN
19incurred (Article 826, Code of Commerce), and
81 SHIPPING VS. IAC,
20if both vessels were at fault, each shall suffer its
82 150 SCRA 463).
21own damages, and both Articles 827-828, Code
22of Commerce). This solidarity expressed in 83
23Article 827 of the Code of Commerce has been 84PRESCRIPTIVE PERIODS – suit for loss or
24held to preclude a common carrier operating a 85 damage to the cargo should be brought
25vessel from interposing the defense of due 86 within one year after.
26diligence in the selection and supervision of its 87a. delivery of the goods; or
27employees in an action against it by a shipper of 88b. the date when goods should be deliver
28the other colliding vessel as distinguished from 89
29the ordinary rule in liabilities for tort or culpa 90NOTICE OF DAMAGE
30aquiliana. Under the “doctrine of inscrutable 91 ☛ If the damage is externally apparent,
31fault”, where fault is established but it cannot be 92it should be given on receipt of the goods; if the
32determined which of the two vessels were at 93damage is externally visible, then within three
33fault , both shall be deemed to have been at 94days from receipt. Failure to give notice
34fault. 95however, does not bar the filing of the suit if
35 96made within one year.
36NOTE: The Doctrine of Limited Liability 97
37applies in case of collisions, but it shall be 98PUBLIC SERVICE LAW
38limited only to the value of the vessel with all its 99
39appurtenances and freightage earned during the 100PURPOSES
40voyage. When the latter is not sufficient to cover 101 1) to protect the public against
41all the liabilities, the indemnity due by reason of 102 unreasonable charges and poor,
42the death or injury of persons shall have 103 insufficient service
43preference. (Art. 837,838, Code of Commerce) 104 2) to protect and secure investments in
44 105 public services
45 106 3) to prevent ruinous competition
46ALLISION- impact between a moving vessel 107
47and a stationary one. 108PUBLIC SERVICE -
48 109 includes every person that now or hereafter
49ERROR IN EXTREMIS- sudden movement 110 may own operate, manage or control in the
50made by a faultless vessel during the 3rd zone of 111 Philippines for hire or compensation, with
51collision with another vessel which is at fault 112 general or limited clientele, whether
52during the 2nd zone. Even if such sudden 113 permanent, occasional or accidental, and
53movement is wrong, no responsibility will fall on 114 done for general business purposes, any
54said faultless vessel (URRUTIA CASE) 115 common carrier or public utility, ice plants,
55 116 power and water supplies communication
56 117 and similar public services.
574. SHIPWRECK- loss of the vessel at sea as a 118
58consequence of its grounding, or running against 119CERTIFICATE OF PUBLIC CONVENIENCE
59an object in sea or on the coast. 120(CPC)
60 121 ☛ an authorization issued by the PSC for
61 If the wreck was due to malice, 122 the operation of public services for which no
62negligence or lack of skill of the captain, the 123 franchise, either municipal or legislative, is
124 required by law, e.g., common carriers
4 Page 63
10
1 62
2CERTIFICATE OF PUBLIC CONVENIENCE 63POWERS REQUIRING PRIOR NOTICE AND
3AND NECESSITY- authorization issued by the 64HEARING:
4PSC for the operation of PS for which a prior 65
5franchise is required by law. e.g. telephone and 66 1) issuance of certificate of public
6other services. 67 convenience and certificate of public
7 68 convenience and necessity
8NOTE: A certificate of public convenience 69 2) fixing of standards and qualifications
9constitutes neither a franchise nor a contract, 70 3) fixing of standards for measuring
10confers no property right, and is a license or a 71 quantity
11privilege. The holder of said certificate does not 72 4) establishment of rules to secure
12acquire a property right in the route covered 73 accuracy of all meters and all
13thereby. Nor does it confer upon the holder any 74 measuring appliances
14proprietary right or interest or franchise in the 75 5) compel operators to furnish proper
15public highways. Revocation of this certificate 76 service
16deprives him of no vested right. New and 77 6) extension of facilities
17additional burdens, alteration of the certificate, or 78
18even revocation or annulment thereof is 79POWERS EXERCISABLE WITHOUT PRIOR
19reserved to the State. (LUQUE VS. VILLEGAS, 80NOTICE AND HEARING:
2030 SCRA 408) 81
21 82 1) investigation of public utility companies
22CONDITIONS THAT MUST CONCUR IN THE 83 2) require public services to pay expenses
23GRANT OF CERTIFICATE OF PUBLIC 84 of investigation
24CONVENIENCE AND NECESSITY (VDA. DE 85 3) valuation of properties of public utilities
25LAT VS. PSC): 86 4) examination and test of measuring
26 87 appliances
27 1) grantee must be a citizen of the 88 5) grant of special permits to make extra or
28 Philippines or a corporation or entity 89 special trips in territories specifdied in
29 60% of the capital of which is owned by 90 the certificate
30 such citizens. 91 6) uniform accounting system and
31 2) grantee must have sufficient financial 92 furnishing of annual reports
32 capability to undertake the services 93 7) investigation of accidents
33 3) the service will promote public interest 94 8) compel compliance with the laws and
34 and convenience in a proper and 95 regulations
35 suitable manner 96
36 97UNLAWFUL ACTS OF PUBLIC UTILITY
37NOTE: primordial considerations: public interest, 98COMPANIES:
38necessity, and convenience. 99
39 100 1) engage in public service business
40GROUNDS FOR THE REVOCATION OF THE 101 without first securing the proper
41CERTIFICATE: 102 certificate
42 103 2) provide or maintain unsafe, improper or
43 When the holder: 104 inadequate service as determined by
44 1) violates or contumaciously refuses to 105 the proper authority
45 comply with any order, rule or regulation 106 3) commit any act of unreasonable and
46 of the commission 107 unjust preferential treatment to any
47 2) is a mere dummy 108 particular person, corporation or entity
48 3) ceases operations by placing his buses 109 as determined by the proper authority
49 in storage 110 4) refuse or neglect to carry public mail
50 4) abandons the service 111 upon request
51 112
52GROUND FOR SUSPENSION: When the 113ACTS REQUIRING PRIOR APPROVAL:
53operator willfully or contumaciously refuses to 114
54comply with any order, rule or regulation. But 115 1) establish and maintain individual or joint
55such can only be suspended upon prior notice 116 rates
56and hearing. The only exception is when it is 117 2) establish and operate new units
57necessary to avoid serious and irreparable 118 3) issue free tickets
58damage or inconvenience to the public or private 119 4) issue any stock or stock certificates
59interest, in which case, a suspension not more 120 representing an increase of capital
60than 30 days may be ordered, prior to the 121 5) capitalize any franchise in excess of the
61hearing. (Soriano vs. Medina, 164 SCRA 36) 122 amount actually paid to the Government
123 6) sell, alienate, mortgage or lease
124 property, certificates or franchise
4 Page 64
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1 NOTE: Under Sec. 20g of C.A. 146, the 61

2 sale, etc. may be negotiated and completed 62
3 before the approval by the proper authority. 63
4 Its approval is not a condition precedent to 64
5 the validity of the contract. The approval is 65
6 necessary only to protect public interest. 66
7 67
8PRIOR OPERATOR RULE 68
9 69
10 ☛ rule allowing an existing franchised 70
11operator to invoke a preferential right within the 71
12authorized territory as long as he renders 72
13satisfactory and economical service. It 73
14subordinates the PRIOR APPLICANT RULE 74 V. INTELLECTUAL PROPERTY
15which gives the first applicant priority only if 75
16things and circumstances are equal. 76INTRODUCTION to Intellectual Property Law
17 ☛ The granting of preference to an old 77(R. A. 8293 - Intellectual Property Code or
18operator applies only when said operator has 78IPC; effective Jan. 1, 1998)
19made an offer to meet the increase in traffic or 79
20demand for service and not when another 80 Intellectual Property
21operator, even a new one, has made the offer to 81
22serve the new line or increase the service on 82☛ those property rights which result from the
23said line. The rule of preference protects only 83physical manifestation of original thought.
24those who are vigilant, in meeting the needs of 84(Ballantine's Law Dictionary)
25the travelling public. (TIONGSON VS. PSC, 36 85
26SCRA 241) 86☛ refers to the totality of all rights which the law
27 87recognizes in favor of the author, composer,
28PRIOR APPLICANT RULE 88painter, artist, scientist, or any other person with
29 89respect to the creations or product of his
30 ☛ presupposes a situation when two 90intellect, and consists of principally, in his right
31interested persons apply for a certificate to 91to;(1) authorize; or 2) refuse; the publication
32operate a public utility in the same community 92or production of such creations or products (De
33over which no person has as yet granted any 93Leon; Comments and Cases on Property).
34certificate. If it turns out, after the hearing, that 94
35the circumstances between the two applicants
95NOTE: There are no property rights protected
36are more or less equal, then the applicant who
96by law in mere ideas or mental conceptions.
37applied ahead of the other, will be granted the
97When creations of mind are put in tangible form,
38certificate.
98however, there is appropriate subject of property
39
99that is protected by the law (63A Am Jur. 3d,
40
100Property, Section 5; TRIPS).
41 101
42 102THE TERM "INTELLECTUAL
43 103PROPERTY" CONSISTS OF (SEC. 4)
1041. COPYRIGHT AND RELATED LAWS
44 1052. TRADEMARKS AND SERVICE MARKS
45 1063. Geographic indications
1074. PATENTS
46 1085. Layout - Designs (Topographies) of
47 109 Integrated Circuits; and
48 1106. Protection of Undisclosed Information (TRIPS)
49 111
50 112INTERNATIONAL CONVENTION AND
51 113RECIPROCITY (SEC. 3)
52 114☛ Any person who is a national or who is
53 115domiciled or has a real and effective industrial
54 116establishment in a country which is:
55 117 (1) A party to any convention, treaty, or
56 118 agreement relating to intellectual
57 119 property rights or the repression of
58 120 unfair competition to which the
59 121 Philippines is also a party, or;
60
4 Page 65
10
1 (2) Extends reciprocal rights to nationals of 63of another with the understanding that it will be
2 the Philippines by law, shall be entitled 64disclosed by the latter under his own name and
3 to benefits to the extent necessary to 65that contributing natural persons will not be
4 give effect to any provision of such 66identified.
5 convention, treaty, or reciprocal law, in 67
6 addition to the rights to which any 68 "Joint Work" - is a work prepared by
7 owner of an intellectual property right is 69two or more authors with the intention that their
8 otherwise entitled by this act. 70contributions be merged into inseparable or
9 71interdependent parts of a unitary whole. i.e.
10 72medical textbook that is jointly authorized by two
11 73or three experts.
12 74
13 75 "Work of applied art" - is an artistic
14FUNCTIONS OF THE INTELLECTUAL 76creation with utilitarian functions or incorporated
15PROPERTY OFFICE (IPO) (SEC. 5) 77in a useful article, whether made by hand or
78produced on an industrial scale.
16 79
171. .Examine applications for grant of letters
18 patent for inventions and register utility 80 "Performers" - are actors, singers,
19 models and industrial designs; 81musicians, dancers, and other persons who act,
20 2. Examine applications for the registration 82sing, declaim, play in, interpret, or otherwise
21 of marks, geographic indications, 83perform literary and artistic work.
22 integrated circuits; 84
23 3. Register technology transfer 85CONSTITUTIONAL BASIS
24 arrangements and settle disputes 86
25 involving technology transfer payments; 87☛ The State shall protect and secure the
26 4. Promote the use of patent information 88exclusive rights of SCIENTISTS, INVENTORS,
27 as a tool for technology development; 89ARTISTS AND OTHER GIFTED CITIZENS to
28 5. Publish regularly in its own publication 90their intellectual property and creation,
29 the patents, marks, utility models and 91particularly when beneficial to the people, for
30 industrial designs, issued and approved, 92such period as may be provided by law. (Art.
31 and the technology transfer 93XIV, Sec. 13, 1987 Constitution)
32 arrangements registered; 94
33 6. Administratively adjudicate contested 95CIVIL CODE PROVISIONS
34 proceedings affecting intellectual 96
35 property rights; and 97☛ By Intellectual creation, the following persons
36 7. Coordinate with other government 98acquire ownership:
37 agencies and the private sector to 991. The author with regard to his literary,
38 strengthen the protection of intellectual 100 dramatic, historical, legal, philosophical,
39 property rights in the country; 101 scientific or other work;
40 8. Custody of all records, books, drawings, 1022. The composer, as to his musical
41 specifications, documents, and other 103 composition;
42 papers and things relating to the 1043. The painter, sculptor, or other artist, with
43 intellectual property rights applications 105 respect to the product of his art;
44 filed with the Office. 1064. The scientist or technologist or any other
45 107 person with regard to his discovery or
46LAW ON COPYRIGHT 108 invention. (Art. 721, NCC)
47 109
110☛ Letters and other private communications in
48COPYRIGHT
111writing are owned by the person to whom they
49 ☛ It is that system of legal protection an author
112are addressed and delivered, BUT they cannot
50 enjoys in the form of expression of ideas.
113be published or disseminated without the
51 (World Intellectual Property Organization -
114consent of the writer or his heirs. (Art. 723,
52 WIPO)
115NCC)
53 ☛ the exclusive right (or rights) of an author to
116
54 the work of his authorship (1987 Constitution).
55 117SIGNIFICANT PROVISIONS OF THE
56DEFINITIONS 118AGREEMENT ON TRADE-RELATED
57 "Author" - is the natural person who
119ASPECTS OF INTELLECTUAL
58has created the work. 120PROPERTY RIGHTS (TRIPS) IN REGARD
59 121TO COPYRIGHTS:
60 "Collective Work" - is a work which 122
61has been created by two (2) or more natural
62persons at the initiative and under the direction
4 Page 66
10
1a) Compliance with the provisions of the Paris 63 -Crucial event or act that allows the author
2 convention (1967) is made compulsory to 64 to invoke the law:
3 members. 65 - It must be when a work of authorship is at
4b) Obligations under the Paris, Berne and Rome 66 least expressed in some determinate form,
5 conventions remain, 67 i.e. fixation.
6c) The treatment any member-state accords its 68
7 own nationals relative to intellectual property 69NOTE : CONTRARY VIEW - The new
8 is to be accorded the nationals of all other 70Intellectual Property Code is silent on the
9 member-states. 71requirement of fixation. Absent this requirement
10 Furthermore, any advantage, favor or 72of fixation, then copyright would attach to bear
11 privilege accorded the nationals of any other 73ideas which is excluded by universal principles
12 country shall be accorded the nationals of 74of copyright.
13 other member states. EXCLUDED from this 75
14 most favored nation provision are the rights 76
15 of performers, producers of phonograms and 77DURATION OF COPYRIGHT FOR
16 broadcasting organizations (RECIPROCITY 78VARIOUS WORKS: (CHAP. XIV, SEC.
17 RULE). 79213)
18d) Members are to comply with the Berne 80
19 Convention of 1971 and its appendix, 81a. LITERARY ARTISTIC WORKS AND
20 EXCEPT the rights and obligations under 82 DERIVATIVE WORKS OF A SINGLE
21 Article 6bis (has to do with an author's 83 CREATOR-the rights subsist during the
22 "moral rights") - MEANING: whether or not 84 lifetime of the creator and for fifty (50) years
23 the protection and guarantees conferred by 85 after his death. (For purposes of reckoning
24 Article 6bis (moral rights) apply or not is left 86 the start of the fifty (50)-year period, the first
25 with the municipal legislation of each 87 day of January of the year following the
26 member-state. 88 event which gives rise to them is the starting
27 89 point - Sec. 214)
28SUBSISTENCE OF THE RIGHTS 90b. In case of JOINT CREATION-the economic
29 91 rights shall be protected during the life of the
30Conferment of rights 92 last surviving author and for fifty years after
31☛ The rights conferred by the IPC insofar as 93 his death (the fifty-year period is counted
32COPYRIGHT is concerned subsists from the 94 from the death of the last surviving co-
33moment of creation (Sec. 172.1). 95 creator).
34☛ Under Philippine Law, NO FORMALITY IS 96c. When an ANONYMOUS OR A
35REQUIRED that the author be vested with the 97 PSEUDONYMOUS WORK- is published,
36rights of copyright. 98 the copyright lasts till the end of fifty years
37 99 following the date of their first publication.
38CREATION OF A WORK: 100 (commencing from January 1 following the
39 101 date of publication - Sec. 214)
40☛ A copyrightable work is created when the two 102d. A work of APPLIED ART enjoys protection
41requirements are met: 103 for twenty-five (25) years from the date of
421. ORIGINALITY- does not mean novelty or 104 making.
43 ingenuity, neither uniqueness nor creativity, 105e. PHOTOGRAPHIC WORKS- are protected
44 it simply means that the work "owes its 106 for fifty (50) years from the publication of the
45 origin to the author". 107 work, or from making the same term is given
46 ☛ The work is an independent 108 to audiovisual works produced by
47 creation of the author. 109 photography or analogous processes.
48 110f. A NEWSPAPER ARTICLE- will therefore
49 EXPRESSION-there must be "Fixation"; 111 enjoy a term of protection equal to that
50 to be "fixed" a work must be embodied in a 112 enjoyed by other literary works: the lifetime
51 medium sufficiently: 113 of the author and fifty years thereafter.
52 a) PERMANENT; or 114 Important, however, relative to newspapers
53 b) STABLE; 115 and periodicals is the denial of copyright
54 to permit it to be perceived, reproduced, or 116 protection to "news of the day and other
55 otherwise communicated for a period of 117 miscellaneous facts having the character of
56 more than transitory duration. 118 mere items of press information." (Sec. 175)
57 Strictly speaking there is no work for 119 A pure news report will no longer find
58 copyright purpose, unless there is 120 protection under the new law, BUT a
59 something tangible. 121 column or published comment will. When
60 -It is fixation that defines the time from 122 newspapers and periodicals include works
61 when copyright subsists. Before the time of 123 enjoying independent copyrights, the works
62 fixation there can be no infringement. 124 so included continue enjoying the rights for
125 a duration proper to them.
4 Page 67
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1 64 and other materials which are original by

2THE SUBJECT OF COPYRIGHT 65 reason of the selection or coordination or
3 66 arrangement of their contents (Sec. 173).
4A. LITERARY AND ARTISTIC WORKS 67
5 68☛ An important innovation of the new law is the
6 1. Books, pamphlets, articles and 69distinct copyright that the publisher of a work
7 other writings; 70enjoys. The code provides - "In addition to the
8 2. Periodicals and newspapers; 71right to publish granted by the author, his heirs,
9 3. Lectures, sermons, addresses, 72or assigns, the publisher shall have a copyright
10 dissertations prepared for oral delivery, 73consisting merely of the right of reproduction of
11 whether or not reduced in writing or 74the typographical arrangement of the published
12 other material form; 75edition of the work." (Sec. 174)
13 4. Letters; 76
14 5. Dramatic or dramatico-musical 77
15 compositions; choreographic works or 78
16 entertainment in dumb shows; 79
17 6. Musical compositions, with or 80WORKS NOT PROTECTED:
18 without words; 81
19 7. Works of drawing, painting, 821. No protection shall extend, under this law, to
20 architecture, sculpture, engraving, 83 any idea, procedure, system, method or
21 lithography or other works of art; models 84 operation, concept, principle, discovery or
22 or designs for works of art; 85 mere data as such, even if they are
23 8. Original ornamental designs or 86 expressed, explained, illustrated or
24 models for articles of manufacture, 87 embodied in a work; (Sec. 175)
25 whether or not registrable as an 882. News of the day and other miscellaneous
26 industrial design, and other works of 89 facts having the character of mere items of
27 applied art; 90 press information; (Sec. 175) or
28 9. Illustrations, maps, plans, 913. Any official text of a legislative,
29 sketches, charts and three (3) 92 administrative or legal nature, as well as any
30 dimensional works relative to 93 official translation thereof. (Sec. 175)
31 geography, topography, architecture or 944. Any work of the Government of the
32 science; 95 Philippines;
33 10. Drawings or plastic works of a 96 ☛ However, prior approval of the
34 scientific or technical character; 97 government agency or office wherein the
35 11. Photographic works including 98 work is created shall be necessary for
36 works produced by a process analogous 99 exploitation of such work for profit. Such
37 to photography; lantern slides; 100 agency or office may, among other things,
38 12. Audiovisual works and 101 impose as a condition the payment of
39 cinematographic works and works 102 royalties.
40 produced by a process analogous to 103 ☛ No prior approval or conditions shall be
41 cinematography or any process for 104 required for the use of any purpose of
42 making audiovisual recordings; 105 statutes, rules and regulations, and
43 13. Pictorial illustrations and 106 speeches, lectures, sermons, addresses,
44 advertisements; 107 and dissertations, pronounced, read or
45 14. Computer programs; and 108 rendered in courts of justice, before
46 15. Other literary, scholarly, 109 administrative agencies, in deliberative
47 scientific and artistic works. (Sec. 172) 110 assemblies and in meetings of public
48 111 character. (Sec. 175)
49 NOTE: The author of speeches, 1125. Pleadings;
50lectures, sermons, addresses, and dissertations 1136. Although not explicitly mentioned,
51shall have the exclusive right of making a 114 DECISIONS OF COURTS AND
52collection of his works. (Sec. 176.2) 115 TRIBUNALS are likewise non-copyrightable.
53 116 They may therefore be freely used or
54B. DERIVATIVE WORKS 117 quoted.
55 118 NOTE: This pertains to the "original
56The following derivative works shall also be 119 decisions" not the SCRA PUBLISHED
57protected by copyright. 120 VOLUMES WITH ANNOTATIONS since
58 1. Dramatizations, translations, 121 these are protected under derivative works
59 adaptations, abridgments, arrangements, 122 as "collections of literary, scholarly, or
60 and other alterations of literary or artistic 123 artistic works and compilations of data and
61 works; and 124 other materials which are original by reason
62 2. Collections of literary, scholarly 125 of the selection or coordination or
63 or artistic works, and compilations of data
4 Page 68
10
1 arrangement of their contents." (Sec. 173.1 64 - including quotations from newspaper

2 b) 65 articles and periodicals
3 66 - source and name of the author, appearing
4THE RIGHTS OF COPYRIGHT 67 on work, must be mentioned;
5 683. Reproduction or communication to the public
6A. Copyright or Economic Rights 69 by mass media
7 70 - of articles on current political, social,
8Copyright or Economic rights shall consist of the 71 economic, scientific or religious topic,
9exclusive right to (a) carry out, (b) authorize or 72 lectures, addresses and other works,
10(c) prevent the following acts: 73 delivered in public
11 74 - use is for information purposes
12 1. Reproduction of the work or 75 - not expressly reserved
13 substantial portion of the work; 76 - source is already indicated;
14 2. Dramatization, translation, 774. Reproduction and communication to the
15 adaptation, abridgment, arrangement or 78 public of literary, scientific or
16 other transformation of the work; 79 artistic works
17 3. First public distribution of the 80 - as part of reports of current events
18 original and each copy of the work; 81 -by means of photography, cinematography
19 4. Rental of the original or a copy 82 or broadcasting
20 of an audiovisual or cinematographic 83 - to the extent necessary for the purpose;
21 work; 845. Inclusion of a work in a publication,
22 5. Public display of the original or a 85 broadcast, or other communication to the
23 copy of the work; 86 public, sound recording or film
24 6. Public performance of the work; 87 - if made by way of illustration for teaching
25 and 88 purposes
26 7. Other communication to the 89 - compatible with fair use
27 public of the work. (Sec. 177) 90 - source and name of the author, appearing
28 91 on work, must be mentioned;
29B. Moral Rights 926. Recording made in schools, universities, or
93 educational institutions of a work included in
30
31The author of a work shall, independent of 94 a broadcast for the use of such schools,
32economic rights or the grant of an assignment or 95 universities or educational institutions
33license with respect to such right, have the right: 96 - such recording must be deleted within a
34 1. Require that the authorship of 97 reasonable period
35 the works be attributed to him, in a 98 - such recording may not be made from
36 prominent way on the copies, and with 99 audiovisual works which are part of the
37 the public use of the work; 100 general cinema repertoire of feature films
38 2. Make any alterations of his work 101 EXCEPT for brief excerpts of the work;
39 prior to, or to withhold it from publication; 1027. Making of ephemeral recordings
40 3. Object to any distortion, 103 -by a broadcasting organization
41 mutilation or other modification of, or 104 - by means of its own facilities
42 other derogatory action in relation to, his 105 - for use in its own broadcast;
43 work which would be prejudicial to his 1068. Use made of a work by or under the
44 honor or reputation; and 107 direction or control of the Government
45 4. Restrain the use of his name 108 - Government
46 with respect to any work not of his own 109 - National Library
47 creation or in a distorted version of his 110 - Educational, Scientific, or professional
48 work (Sec. 193). 111 institutions
49 112 - use is in the public interest
50LIMITATIONS ON COPYRIGHT: 113 - compatible with fair use;
1149. Public performance or the communication to
51 115 the public of a work
52 The following acts shall NOT constitute
116 - in a place where no admission fee is
53infringement of copyright:
117 charged by a club on institution
54
118 - for charitable or educational purpose only
551. Recitation or performance of a work
119 - aim is not profit making;
56 -made accessible to the public
12010. Public display of the original or a copy of the
57 -privately done
121 work not made by means of a film, slide,
58 - free of charge
122 television image or otherwise on screen or
59 -strictly for a charitable or religious
123 by means of any other device or process
60 institution;
124 - either the work has been
612. Making of quotations from a published work
125 a) published
62 - compatible with fair use
126 b) sold
63 - to the extent justified for the purpose
4 Page 69
10
1 c) given away 63
2 d) transferred to another person by the 64 Fair Use
3 author or his successors in title; 65 ☛ A privilege, in persons other than the
411. Any use made of a work for the purpose 66 owner of the copyright, to use the
5 - of any judicial proceedings; or 67 copyrighted material in a reasonable
6 - for the giving of professional advice by a 68 manner without his consent, notwithstanding
7 legal practitioner. 69 the monopoly granted to the owner by the
8 70 copyright.
9☛ The provisions of this section shall be 71
10interpreted in such a way as to allow the work to 72 ☛ It is meant to balance the monopolies
11be used in a manner which does not conflict with 73 enjoyed by the copyright owner with the
12the normal exploitation of the work and does not 74 interests of the public and of society.
13unreasonably prejudice the right holder's 75
14legitimate interests. (Sec. 184.2) 76NOTE: It only applies to copyrighted work and
15 77not to non-copyrightable material.
16☛ The private reproduction of a published work 78
17in a single copy, where the reproduction is made 79
18by a natural person exclusively for (1) research 80
19and (2) private study, shall be permitted, without 81CRITERIA TO DETERMINE WHETHER
20the authorization of the owner of copyright in the 82USE IS FAIR OR NOT:
21work. (Sec. 187.1) HOWEVER, the permission 83
22granted under Subsection 187.1 SHALL NOT 841. Purpose and the character of the use
23EXTEND to the reproduction of: 852. Nature of the copyrighted work
24 xxx 863. Amount and substantiality of the portions
25(b) An entire book, or a substantial part thereof, 87 used
26or of a musical work in graphic form by 884. Effect of the use upon the potential market
27reprographic means; (Sec. 187.2) 89 of the copyrighted work
28 90
29☛ Under Article 9, paragraph 2 of the Berne - 91THE "FAIR USES" OF PROTECTED
30Paris Convention, individual countries may
92MATERIAL ARE:
31permit the reproduction of literary and artistic
32works "provided that such reproduction does not 93
33conflict with a normal exploitation of the work 941. Criticizing, commenting, and news reporting;
34and does not unreasonably prejudice the 952. Using for instructional purposes, including
35legitimate interests of the author." (also found 96 producing multiple copies for classroom use,
36in Sec. 187.2 e) 97 for scholarship, research and similar
37☛ The same caveat is contained in Article 14 of 98 purposes is not an infringement of copyright.
38the GATT 94 intellectual property agreement: 99 (Sec. 185)
39Limitations or exceptions to the exclusive rights 100
40shall be confined to certain special cases which 101REPROGRAPHIC REPRODUCTION BY
41do not conflict with a normal exploitation of the 102LIBRARIES:
42work and do not unreasonably prejudice the 103
43legitimate interests of the right - holder. This in- 104☛ Any library or archive whose activities are not
44built protection of the interests of a copyright 105for profit may, without the authorization of the
45owner is now unequivocally enshrined in Sec. 106author of copyright owner, make a single copy of
46187.2 e. 107the work by reprographic reproduction, when:
47 108 1. Fragile or rare
48PERSONAL USE - generally understood as 109 2. Isolated articles
49making a single reproduction, adaptation, 1103. Preservation (Sec. 188.1)
50arrangement or other transformation of another's 111
51work exclusively for one's own individual use in 112✓ ☛ It shall not be permissible to produce a
52such cases as personal research, learning or 113 volume of a work published in several
53amusement. 114 volumes or to produce missing tomes or
54 115 pages of magazines or similar works, unless
55PRIVATE USE - generally understood in relation 116 the volume, tome or part is necessary for the
56to a published work as making a reproduction, 117 collection of the library and is out of stock.
57adaptation or other transformation of it, in a 118 (Sec. 188.2)
58single person, as in the case of "personal use" 119✔
59but also for a common purpose by a specific 120 ☛ The rights mentioned vest in libraries,
60circle of persons only. 121public archives and museums. There is no
61 122requirement that the library be a public library, it
62FAIR USE OF A COPYRIGHTED WORK 123could be private. And is limited only to literary or
124artistic works.
4 Page 70
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1 63 shall be the original owner of the copyright in

2CRITERIA FOR "REPROGRAPHIC 64 the part that he has created.
3REPRODUCTION" OF LIBRARIES: 653. COMMISSIONED WORK - Ownership of the
4 66 work is in the person commissioning;
51. Photocopying only, i.e. "xerox" (not by other 67 ownership of copyright, remain with the
6 medium) 68 creator, unless there is a written stipulation
72. Single copy 69 to the contrary.
8 3. Consistent with the activities of the library 704. CINEMATOGRAPHIC WORK - The
9 or archive 71 producer exercises copyright for purposes of
10 72 exhibition; for all other purposes, the
11REPRODUCTION OF COMPUTER 73 producer, the author of the scenario, the
74 composer, the film director, the photographic
12PROGRAMS:
75 director and the author of the work are the
13 76 creators. For purpses of showing the film,
14 The reproduction of a computer program is 77 however, the producer is to be deemed
15allowed on the following conditions: 78 copyright owner.
161. Only one (1) copy is made; 795. PSEUDONYMOUS AND ANONYMOUS
172. Lawful owner made the copy; 80 WORKS - Unless the author is undisputably
183. Purpose for which the reproduction is made 81 known, the publisher shall be presumed to
19 is legal, like: 82 be the representative of the author. (Sec.
20 a) use to which the program is made and for 83 178 and 179)
21 which it was purchased demand the 84
22 reproduction of a copy; or 85☛ As regards moral rights, the joint authors are
23 b) loss or destruction is avoided. 86entitled to be acknowledged as authors of the
24 (Sec. 189.1) 87work (Sec. 193.1 may apply). As regards
25 88contributions to a collective work, the law
26Importation for Personal Purposes 89provides that unless the contributor expressly
27 90reserves his right (which often will not be the
28☛ The importation of a copy of a work by an 91case precisely because he is in the employ of a
29individual for his personal purposes shall be 92putative author or commonly accepted author), it
30permitted without the authorization of the author 93is the putative author to whom the work will be
31of, or other owner of copyright in, the work under 94attributed. (Sec. 196)
32the following circumstances: 95☛ When a writer, a photographer, an artist - or
33a. Copies of the work are not available in the 96any other contributor - sends in his piece to a
34 Philippines and: 97periodical or newspaper publisher, such writer or
35 1.One (1) copy at one time is imported, 98artist retains his copyright on the piece except
36 for strict individual 99the right to publish once - which is deemed
37 2.By Authority of and for the use of the 100granted to the publisher. (Sec. 180.3)
38 Philippine Government; or 101
39 3.Religious, Charitable or Educational 102COPYRIGHT OWNERSHIP OF FOREIGN
40 Society or institution imported not 103AUTHORS
41 more than three (3) copies per title (or
42 kind) provided they are not for sale. (it
104
105☛ When the author, though a foreigner, has
43 is enough if the importation be for
106habitual residence in the Philippines, or when
44 the sake of such society or institution)
107the headquarters of the producer of audiovisual
45b. Copies form parts of libraries and personal
108works is in the Philippines, copyright protection
46baggage belonging to persons or families
109is beyond doubt.
47arriving from foreign countries and are not
110☛ Protections afforded the code are applied to
48intended for sale: Provided, That such copies do
111works "protected by virtue of and in accordance
49not exceed three (3). (Sec. 190)
112with any international convention or other
50 113international agreement to which the Philippines
51THE OWNERSHIP OF COPYRIGHT 114is a party. (Sec. 221.2)
52 115☛ Members shall accord the treatment provided
531. SINGLE CREATOR - The creator, his heirs 116for in this Agreement to the nationals of other
54 or assigns owns copyright. 117Members. (Art. 1, par. 3, TRIPS; Paris - Berne
552. JOINT CREATION - The co - authors shall 118Convention; GATT 94)
56 be the original owners of the copyright and 119
57 in the absence of agreement, their rights 120DEPOSIT AND NOTICE
58 shall be governed by the rules on co -
121
59 ownership. If, however, a work of joint 122Registration and Deposit with the National
60 authorship consists of parts that can be 123Library and the Supreme Court Library
61 used separately and the author of each part 124
62 can be identified, the author of each part
4 Page 71
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1☛ For the purpose of completing the records of 64☛ Other infringement cases are not within the
2the National Library and the Supreme Court 65jurisdiction of the Director - General. In fact
3Library, within three (3) weeks, two (2) complete 66throughout Section 216, the term "court" is used,
4copies of the work shall be registered and 67leaving no doubt that jurisdiction will rest with the
5deposited with the said libraries, by personal 68"court" in view of the jurisdictional amount and
6delivery or by registered mail. 69the criminal prosecution of imposable penalties.
7☛ A certificate of deposit shall be issued and the 70
8prescribed fee collected for which the copyright 712. STANDING TO SUE
9owner shall be exempt from making additional 72 Persons who may sue:
10deposit of the works with the aforementioned 73 a) Legal owner; or
11libraries under other laws. 74 b) Beneficial owner; since they are
12☛ If, within three (3) weeks after receipt by the 75 "parties in interest."
13copyright owner of a written demand from the 76
14directors for such deposit, the required copies or 773. DEFENDANTS
15reproductions are not delivered and the fee is 78✖ ☛ Those who may be liable for infringement
16not paid, the copyright owner shall be liable to 79 under the copyright law:
17pay a fine. (Sec. 191) 80 a) Infringer
18 81 b) Aids
19NOTICE OF COPYRIGHT 82 c) Abets
20 83 d) Participates
21☛ Each copy of a work published or offered for 84 e) Contributes
22sale may contain a notice bearing the name of 85 f) Authorizes
23the copyright owner, x x x. (Sec. 192) 86 a) Benefits (deemed included in
24☛ Notice of copyright is allowed, not prescribed, 87 Sec. 217).
25for the permissive "may" is used. 88
26 89☛ A corner book store and magazine store that
27INFRINGEMENT 90vends pirated copies of a work is in fact violating
28 91the copyright owner's right to exclusively
29REMEDIES of one who complains of 92distribute his work. Such store would therefore
30infringement: 93be infringing. The printer who, though acting
31 94under instructions from another, sets into motion
32 1. INJUNCTION to prevent infringement 95the illegal reproduction of protected material
33 (Sec. 216) 96would, in fact, be infringing copyright.
34 2. DAMAGES assessed on the basis of the 97
35 proof alleged by the plaintiff of sales 984. PRESCRIPTIVE PERIOD
36 made by the defendant of the infringing 99
37 work minus whatever costs the 100☛ No damages may be recovered after four (4)
38 defendant may be able to prove and 101years from the time the cause of action arose.
39 appreciated by the court. (b) 102(Sec. 226) This pertains only to recovery of
40 3. DELIVERY UNDER OATH OF ALL 103damages.
41 IMPLEMENTS employed in the 104☛ There is no such prescriptive period in
42 production of the infringing items, as 105petitions for injunctive relief as well as for the
43 well as the infringing products 106impounding and destruction of infringing
44 themselves, for impounding. (c) 107material. The crime of infringement is subject to
45 4. DELIVERY under oath of all infringing 108the general rules of prescription of crimes.
46 copies or devises for destruction. (d) 109
47 5. PAYMENT of moral and exemplary 110PERFORMER'S RIGHTS
48 damages in the discretion of the court. 111
49 (e) 1121. Authorize as well as prohibit:
50 113 a. The broadcasting and other
51☛ The infringer also exposes himself to criminal 114 communication to the public of their
52liability wherein the law prescribes penalties of 115 performance (including telecast). (Sec.
53imprisonment and fines, including subsidiary 116 203.1 a)
54imprisonment in case of insolvency. (Sec. 218) 117 b. The fixation of their unfixed
55 118 performance. (b)
56RELATED ISSUES 119 ☛ (The above rights shall be maintained
57 120 and exercised fifty (50) years after his death,
581. JURISDICTION 121 by his heirs, and in default of heirs, the
59✕ Original jurisdiction lies with the Director 122 government - Sec. 204.2)
60 General of the IPO over disputes relating to 1232. Direct or indirect reproduction of their
61 the terms of a license involving the author's 124 performances (Sec. 203.2)
62 right to public performance or other 1253. First Public distribution of the original and
63 communication of his work. (Sec. 7 c) 126 copies of their performance (Sec. 203.3).
4 Page 72
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14. Commercial rental to the public of the trademarks or or services is

2 original and copies of their performances service marks. designated by a trade
3 (Sec. 203). name.
45. Making available to the public of their 58
5 performances fixed in sound recordings by 59 ☛ A trademark has an existence proprietor
6 wire or wireless means (Sec. 204.5). 60 or the juridical person doing business and
7 61 producing the goods or distinct from the
8MORAL RIGHTS OF PERFORMERS 62 existence of the the services offered by such
9 63 person or enterprise.
101. Identified as the performer. 64 ☛ Under the new law, there is no need to
112. Object to any distortion or mutilation of the 65 register trade names in order to secure
12 performance (Sec. 204). 66 protection for them (Sec. 165.2, a, IPL).
13 67
14 68
15 69
16 70
17 71DISTINCTIONS :
18LAW ON TRADEMARKS TRADEMARKS LABEL
19 - is anything which is - it names what is
20TRADEMARK is anything which is adopted and adopted and used to within the
21used to identify the source of origin of goods, identify the source of container or
22and which is capable of distinguishing them from origin of goods, and package.
23goods emanating from a competitor. which is capable of
24 distinguishing them - purpose:informative
25GOODWILL is the reputation and public from goods
26confidence that a business venture has earned emanating from a
27through a period of creditable dealings. competitor.
28 72
29 ☛ The reason the law protects trademarks 73 ☛ In practice, a word, a name of a phrase,
30 is to protect the interests of producers in 74 coupled with indicators of business
31 their marks, and in the goodwill earned. 75 organization, such as “Inc.”, “Corp.” or “Co.”
32 ☛ The essence of trademark infringement 76 will not be registered as trademarks or
33 is: passing off one’s goods as those of a 77 service marks.
34 producer of fame or note. 78
35 79TRADE DRESS involves the total image of a
36SERVICE MARK distinguishes the services of 80product, including such features as size, shape,
37an enterprise from the service of other 81color or color combinations, texture and /or
38enterprises. 82graphics.
39 83
40MARK any visible sign capable of distinguishing 84 ☛ Unfair competition includes the “selling of
41the goods or services of an enterprise and shall 85 goods and giving them the general
42include a stamped or marked container of 86 appearance of goods of another
43goods. 87 manufacturer or dealer, either as to the
44 ☛ The term “visible” is not limited to 88 goods themselves or in the wrapping of the
45 whatever may be “perceptible by the 89 packages in which they are contained, or the
46 senses”. 90 devices or words thereon, or in any other
47 91 feature of their appearance, which would be
48COLLECTIVE MARK any visible sign 92 likely to influence purchasers to believe that
49designated as such in the application for 93 the goods offered are those of a
50registration and capable of distinguishing the 94 manufacturer, or dealer, or who otherwise
51origin or any other common characteristic, 95 clothes the goods with such appearance as
52including the quality of goods or services of 96 shall deceive the public and defraud another
53different enterprises which use the sign under 97 of his legitimate trade, or any subsequent
54the control of the registered owner of the 98 vendor of such goods or any agent of any
55collective mark. 99 vendor engaged in selling such goods with a
56 100 like purpose”.
57DISTINCTION : 101 ☛ All that is necessary is the likelihood of
TRADEMARKS TRADE NAME 102 deception.
- The goods or - The person (whether 103
services offered by natural or juridical) 1044 FUNCTIONS OF A MARK
a proprietor or an who does the 105
enterprise are business and 106According. to the World Intellectual Property
designated by produces the goods 107Organization:
4 Page 73
10
11. Distinguishing or differentiating functions. It 50 designation or origin, or any false

2 sets apart the products or services of an 51 description or representation.
3 enterprise from those of another. 52 3. Procuring fraudulently from the patent
42. Origin or source function. It refers to origin 53 office the registration of trade name,
5 or source in terms of enterprise. 54 trademark or service mark. (Fraudulent
63. Quality function. The marks guarantees the 55 registration)
7 same standards and controls with which it is 56
8 associated. 57 ACQUISITION THROUGH
94. Advertising function. 58 REGISTRATION
10
59
11ACQUISITION OF RIGHT/GOODWILL 60 ☛ The rights to a mark are acquired through
12THROUGH USE 61 registration with the Bureau of
13 ☛ When a person has identified in the 62 Trademarks( BT) of the Intellectual Property
14 mind of the public the goods he 63 Office (IPO).
15 manufactures or deals in his business or 64 ☛ However, it is not necessary to use the
16 services from those of others, such a 65 the mark in commerce in the Philippines (or
17 person has a property right in the 66 elsewhere) before filing the application with
18 goodwill of the said goods, of services 67 the BT. The use of a mark becomes
19 which will be protected in the same 68 necessary only after it has been filed.
20 manner as other property rights. 69 ☛ new law requires an applicant or the
21 70 registrant to file a declaration of actual use
22☛ Priority in registration in the Philippines of a 71 of the mark, with evidence to that effect,
23 trademark is not material in an action for 72 within three (30 years from the filing date of
24 unfair competition as distinguished from an 73 the application (Sec. 124.2, IPL).
25 action for infringement of trademark. The 74
26 basis of an action for unfair competition is 75EFFECTS OF NON-USE
27 confusing and misleading similarity in
76
28 general appearance, not similarity of 77 ☛ Circumstances arising independently of
29 trademark. (Converse Rubber World v. 78 the will of the trademark owner (Sec. !52,
30 Jacinto Rubber, G.R. Nos. L-27425 and L- 79 IPL), such as military coup, or political
31 30505, April 28, 1980) 80 changes that impede commerce.
32☛ The use of the mark must be such as to 81 ☛ Registration is an administrative act
33 allow the same to be associated by the 82 declaratory of a pre-existing right that does
34 public with a particular producer or 83 not, of itself, perfect a trademark, for what
35 manufacturer. Hence, mere intention to 84 does is actual use.
36 adopt a particular mark or name without 85 ☛ Non-use is a ground for removing a mark
37 actual use gives rise to no rights at all. 86 from the register (Sec. 124.2, IPL).
38 87
39DISTINCTIONS : 88THE FOLLOWING ARE NOT ELIGIBLE
40 89FOR LICENSING:
INFRINGEMENT OF UNFAIR 90
TRADE COM 91A mark cannot be registered if it:
MARK PETI 92 1. Consists of immoral, deceptive, or
TION 93 scandalous matter, or matter which may
1. it is the unauthorized 1. is the passing off 94 disparage or falsely suggest a connection
use of a trademark of one’s goods as 95 with persons, living or dead, institutions,
2. fraudulent intent is those of another 96 beliefs, or national symbols, or bring them
unnecessary 2. fraudulent intent is 97 into contempt or disrepute;
3. prior registration of essential 98 ☛ Whether a mark is immoral, scandalous
the trademark is a 3. registration is not 99 or contrary to public decency is to be
prerequisite to the necessary. 100 ascertained from the standpoint of a
action 101 substantial composite of the general public.
41 102 2. Consists of the flag or coat of arms or other
42 103 insignia of the Philippines or any of its
43ARTICLE 189 of the Revised Penal Code 104 political subdivisions, or of any foreign
44provides for the following punishable acts: 105 nation, or any simulation thereof;
45 1. Selling one’s goods, giving them the 106 3. Consists of a name, portrait or signature
46 general appearance of the goods of another 107 identifying a particular living individual
47 manufacturer or dealer. (Unfair competition) 108 except by his written consent, or the name,
48 2. Affixing to one’s goods or using in 109 signature, or portrait of a deceased
49 connection with one’s services a false 110 President of the Philippines, during the life
111 of his widow, if any, except by written
112 consent of the widow;
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10
1 4. Is identical with a registered mark 64 the owner of the registered mark:

2 belonging to a different proprietor or a mark 65 Provided further, That the interests of the
3 with an earlier filing or priority date, in 66 owner of the registered mark are likely to be
4 respect of: 67 damaged by such use;
5 (i) the same goods or services, 68
6 or 69☛ This provision deals with goods or services
7 (ii) closely related goods or 70dissimilar from those disposed of under the
8 services, or 71same mark or name.
9 (iii) if it nearly resembles such a 72
10 mark as to be likely to deceive 73 DOCTRINE OF DILUTION -refers to copying
11 or cause confusion; 74 which, while not sufficiently confusing to divert
12 75 sales in the short run, will tend to divert them in
13REVERSE CONFUSION -takes place when a 76 the long run by weakening the instantaneous
14large junior user makes use of a mark or a name 77 favorable associations the public makes with
15confusingly similar to the mark or a name of a 78 highly regarded products.
16small senior user, occasioning the impression 79
17that the products of the senior are those of the 80
18junior, or that the senior has somehow been 81
19absorbed or merged into the junior. 82
20 83
21 ☛ The law institutes a “race for the registry 84
22 office”, she who reaches and registers first 85 TESTS OF TRADEMARK
23 gains the protection of law to the exclusion of 86 INFRINGEMENT
24 others in regard to the same – or a confusingly DOMINANCY TEST HOLISTIC TEST
25 similar – mark. - consists in seeking - takes stock of the
26 5. Is identical with, or confusingly similar to, or out the main, other features of a
27 constitutes a translation of a mark which is essential or mark, taking into
28 considered by the competent authority of dominant features consideration the
29 the Philippines (IPO) to be well-known of a mark. entirety of the marks.
30 internationally and in the Philippines., 87
31 whether or not it is registered here, as being 88 ☛ Under the Dominancy Test, if the competing
32 already the mark of a person other than the 89 trademark contains the main or essential or
33 applicant for registration, and used for 90 dominant features of another, and confusion
34 identical or similar goods or services: 91 and deception is likely to result, infringement
35 Provided, That in determining whether a 92 takes place.
36 mark is well-known, account shall be taken 93
37 of the knowledge of the relevant sector of
38 the public, rather than of the public at large,
94TRANSLATIONS
95☛ There will be infringement when a translation
39 including knowledge in the Philippines.
96of a well-known mark in the Philippines. or
40 Which has been obtained as a result of the
97internationally is used for similar goods or
41 promotion of the mark;
98products. There will like wise be infringement
42
99when a translation of a registered mark in the
43 ☛ Protects even unregistered marks and
100Philippines. is used for dissimilar goods or
44 names.
101products.
45 ☛ Deals with an applicant’s goods that are
102
46 identical or similar to those under a
103DOCTRINE OF FOREIGN LANGUAGE
47 previously registered or previously well-
104EQUIVALENTS - states that "the foreign
48 known mark. Where the same sign is used
105equivalent of a merely descriptive English-
49 for identical goods, there will be presumption
106language word is deemed to be no more
50 of the likelihood of confusion. (Sec. 147.1,
107registrable than the English word itself, despite
51 IPL)
108the fact that the foreign term may not be
52
109commonly known to be general public".
53 6. Is identical with, or confusingly similar to, or
110
54 constitutes a translation of a mark
111 7. Is likely to mislead the public, particularly as
55 considered well-known in accordance with
112 to the nature, quality, characteristics or
56 the preceding paragraph, which is
113 geographical origin of the goods or
57 registered in the Philippines with respect to
114 services;
58 goods or services which are not similar to
115
59 those with respect to which registration is
116 ☛ A mark then will not be granted registration
60 applied for: Provided, That use of the
117 that suggests a quality, a characteristics or an
61 mark in relation to those goods or
118 origin that the good or service does not
62 services would indicate a connection
119 possess.
63 between those goods or services, and
120
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10
1 8. Consists exclusively of signs that are 64registered, this is the doctrine of secondary
2 generic for the goods or services that they 65meaning which has been defined as, when a
3 seek to identify; 66mark has become distinctive of the applicant's
4 9. Consists exclusively of signs or of 67goods in commerce and, and in the mind of the
5 indications that have become customary or 68public, indicates a single source to consumers, it
6 usual to designate the goods or services in 69may be registered.
7 everyday language or in bona fide and 70
8 established trade practice; 71☛ Requirements of the doctrine:
9 72 1. The secondary meaning must
10 ☛ It must be made clear that the fact that a 73 have arisen as a result of substantial
11 term is generic does not per se render it non- 74 commercial use in the Philippines.
12 registrable. What the law excludes is the 75 2. The use result in the
13 registration of a mark that is generic relative to 76 distinctiveness of the mark insofar
14 the goods or products for which the mark is 77 as the goods or the products are
15 used. 78 concerned.
16 ☛ Where a word or a term was originally the 79 3. Prima facie evidence is proof of
17 subject of a trademark, but becomes so 80 commercial use in the Philippines 5
18 associated in the public mind with an article to 81 years before date of claim.
19 which it is applied and thereby becomes a 82.
20 generic indicator, it can no longer be 83RIGHTS CONFERRED
21 protected. 84
22 851. The right to the exclusive use of the mark for
23 10. Consists exclusively of signs or of 86 one's own goods or services.
24 indications that may serve in trade to 872. The right to prevent others from the use of
25 designate the kind, quality, quantity, 88 the same mark for identical goods or services
26 intended purpose, value, geographical 89 in the course of trade.
27 origin, time or production of the goods or 903. The right to the exclusive use of one's
28 rendering of the services, or other 91 already registered mark even for goods or
29 characteristics of the goods or services; 92 services into which one's venture expands, if
30 93 use by others for dissimilar products is likely
31☛ That which may rightly be said of all can be 94 to damage the business interests of the first
32appropriated by none. 95 venturer (Sec. 147, IPL).
33 96
34 11. Consists of shapes that may be 97☛ The rights, by Sec. 145, lasts for ten (10)
35 necessitated by technical factors or by the 98years subject to indefinite renewal for periods of
36 nature of the goods themselves or factors 99ten years each.
37 that affect their intrinsic value; 100☛ The right to the use of a registered trademark
38 12. Consists of color alone, unless defined by a 101may be licensed to another person, natural or
39 given form; or 102juridical, enabling such a party to produce,
40 13. Is contrary to public order or morality (Sec. 103market, distribute and advertise goods or
41 123.1, IPL). 104services by the trade or service mark of the
42 105licensor. Sec. 150.1 however requires that a
43Sec. 123.2. As regards signs or devices 106licensor effectively control the quality of the
44mentioned in paragraphs (j), (k) and (l), nothing 107goods or services of the licensee.
45shall prevent the registration of any such sign or 108
46device which has become distinctive, in relation 109STANDING TO SUE AND JURISDICTION
47to the goods for which registration is requested 110
48as a result of the use that have been made of it 111 ☛ The right to the use of the corporate or
49in commerce in the Philippines. The Office may 112 trade name is a property right, a right in rem,
50accept as a prima facie evidence that the mark 113 which it may assert and protect in any of the
51has become distinctive, as used in connection 114 courts of the world even in jurisdiction where it
52with the applicant's goods or services in 115 does not transact business just the same as it
53commerce, proof of substantially exclusive and 116 may protect its tangible property, real or
54continuous use thereof by the applicant in 117 personal against trespass or conversion.
55commerce in the Philippines for five (5) years 118 ☛ Sec. 160 leaves no doubt that a foreign
56before the date on which the claim of 119 national or juridical person who is a national of
57distinctiveness is made. 120 a country that is party to a relevant convention
58 121 to which the Philippines. is also a party may
59DOCTRINE OF SECONDARY MEANING 122 bring a civil or an administrative action for
60 123 opposition, cancellation, infringement, unfair
61☛ While a generic, indicative or descriptive mark 124 competition or false designation of origin and
62will, as a general rule, be denied registration, 125 false description, regardless of its status (or
63there is a circumstance that will allow it to be 126 lack of it) in the Philippines., and even if such
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1 an entity does not do business in the 49

2 Philippines. 50 These criteria may apply to:
3 51 a. products
4ELEMENTS OF THE CRIME OF 52 b. processes
5TRADEMARK INFRINGEMENT: 53 c. improvements of either products or
54 processes
6
55
71. The deceitful act of giving one’s goods the
56PROCESS- consists of an act, operation, or
8 general appearance of the goods of another
57steps or a series thereof, performed upon a
9 manufacturer or dealer.
58specified subject matter to produce physical
102. The deceptive similarity is either in the
59result.
11 goods themselves, in the trade dress, in the
60☛ where the patent is for a process, the law
12 words or devices, or in any other feature of
61forbids others from using the process, and also
13 appearance.
62from manufacturing, dealing in , or importing any
143. The offender offers to sell or sells the goods,
63product obtained directly or indirectly from such
15 or gives others the opportunity to do the
64process.
16 same.
174. An actual intent to deceive the public or 65
18 defraud the competitor. 66PRODUCT-is broad enough a term to include
19 67every output of human ingenuity, every tangible
68result of craftsmanship or partnership. It is to be
20 69noted that not all products are patentable
21PATENT 70because not all process the requirements of
22 71patentability.
23☛ Is a document, issued, upon application, by a 72
24government office, which describes an invention 73IMPROVEMENTS- to be patentable, the
25and creates a legal situation in which the 74improvement should be non-obvious to one
26patented invention can normally only be 75skilled in the art of the original invention and is
27exploited (manufactured, used, sold, imported) 76truly novel. If it is merely a consequence of
28with the authorization of the owner of the patent 77technical configuration of the original invention
29 78and is thus “suggested” by the invention itself,
30☛ is an exclusive right acquired over an 79the improvement is still within the dominion of
31invention, to sell, use and make the same 80the original invention.
32whether for commerce or industry. 81
33 82 EXCLUDED FROM PATENT
34DISTINCTIONS : 83PROTECTION:
35 84
PATENT COPYRIGHT 851. discoveries, scientific theories and
– When a person, by - It may be vested in a 86 mathematical method
independent work closely similar 872. schemes, rules and methods of performing
research arrives at or even identical to 88 mental acts, playing games, or doing
the same product or an earlier, already 89 business, and programs for computer
that already patented work, 903. methods for treatment of the human body or
patented, he is provided that the 91 animal body by surgery or therapy and
restrained by the former is truly 92 diagnostic methods practiced on the human
arm of the law from original, ie., it owes 93 or animal body.
exploiting such an its existence to its 944. Plant varieties or animal breeds of
invention by reason creator. 95 essentially biological process for the
of the patent granted 96 production of plants or animals
the earlier 975. Aesthetic creations
discoverer. 986. Anything which is contrary to public order or
36 99 morality (Sec. 22).
37☛ It will be remembered that what is not 100
38patentable may nevertheless be protected under 101REQUIREMENTS FOR PATENT:
39copyright law. 102
40 1031. NOVELTY- that which does not form part of
41PATENTABILITY 104 the prior art (Sec. 23).
42 105 “Prior art” is specified under Sec. 24, to wit:
43To be patentable, a product must be: 106 a. that which has been made
44 a. a technical solution of a problem in 107 available to the public anywhere in
45 any field of human activity 108 the world before the filing date or the
46 b. novel 109 priority date of application
47 c. an invention 110 b. that which forms part of an
48 d. industrially applicable 111 application whether for patent, utility
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10
1 model or industrial designed, 64 a. it can be produced

2 effective in the Philippines, provided 65 b. can be used in industry (Sec. 27)
3 that: 66
4 b.1. the inventor or applicants are 67✙ ☛ The application shall disclose the
5 not the same 68 invention in a manner sufficiently clear and
6 b.2. the contents of the application 69 complete for it to be carried out by a person
7 are published in accordance with the 70 skilled in the art.
8 requirements of patent application 71 ☛ according to TRIPS, it is synonymous with
9 rules 72 “useful”
10 b.3. the filing date of prior art Is 73 ☛ (Sec. 5 Art. 29 year 1, TRIPS) “an applicant
11 earlier 74 for a patent shall disclose the invention in a
12 75 manner sufficiently clear and complete for the
13☛ thus prior art is synonymous with prejudicial 76 invention to be carried out by a person skilled in
14disclosure 77 the art and may require the applicant to indicate
15☛ Sec. 25 RA 8293 embodies the exception to 78 the best mode for carrying out the invention
16prior art under the heading “non-prejudicial 79 known to the inventor at the filing date”
17disclosure” any disclosure of the invention made 80
18within twelve (12) months before the filing date 81FIRST TO FILE RULE
19does not prejudice the application if the 82☛ Under Sec. 29 R.A. 8293, if two or more
20disclosure is made by: 83person have made the invention separately and
21 a. inventor himself (or by anyone who 84independently of each other the right to the
22 has the right to patent, Sec. 25, 2) 85patent shall belong to the person who first filed
23 b. patent office- when the information 86an application for such invention.
24 of the latter office comes another 87
25 application filed by the inventor that 88OWNERSHIP OF PATENT RIGHTS:
26 should not have been disclosed by 89
27 the office 90The right to a patent belongs to:
28 c. third person’s application when such 91 a. inventor, his heirs, or assigns
29 persons information directly 92 b. when two (2) or more persons have
30 indirectly comes from the inventor 93 jointly made an invention – to them
31 himself without the inventor’s 94 jointly
32 permission, or from any third 95 c. if two (2) or more persons have the
33 persons who obtained his 96 invention separately and
34 information from the inventor. 97 independent of each other – to the
35 98 person who filed an application for
362. INVENTIVENESS 99 such invention
37 100 d. where 2 or more application are filed
38✗ ☛ an invention involves an inventive step if, 101 for the same invention – to the
39 having regard to prior act, it is not obvious to 102 applicant who has the earliest filing
40 a person skilled in the art at the time of the 103 date or the earliest priority date
41 filing date or priority date of the application 104 (Sec. 28)
42 claiming the invention (Sec. 26, RA 8293). 105
43✘ It is suggested that the test of non- 106TERM OF A PATENT
44 obviousness be pursued in four steps: 107☛ The term of a patent shall be twenty (20)
45 1. the scope and 108years from the filing date of application
46 content of the prior art are determined 109(Sec. 54 ).
47 2. the differences 110
48 between the prior art and the claims at 111INFRINGEMENT- the making, using, offering for
49 issue are ascertained 112sale , selling or importing a patented product or
50 3. the level of ordinary 113a product obtained directly or indirectly from a
51 skill in the pertinent art is resolved 114patented process, or the use of a patented
52 4. against this 115process without the authorization of the patentee
53 background, the obviousness or non- 116(Sec. 76.1).
54 obviousness of the subject matter is
117
55 ascertained (60 AM JUR 2d, Patents, 118TESTS OF PATENT INFRINGEMENT
56 Sec. 144).
57
119
1201. Literal infringement- resort is had to the
583. CAPABLE OF INDUSTRIAL
121 ”words “ of the claim.
59 APPLICATION
1222. Doctrine of equivalents- if two devices do
60
123 the same work in substantially the same
61 (TRIPS, Sec. 5 Art. 27, par. 1)
124 way, the same result, and produce
62Two requirements of industrial applicability shall
125 substantially same result, they are the same
63be fulfilled:
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10
1 eventhough they differ in name, form or 64however from a patentable invention is set forth
2 shape. 65in Sec. 109.1: An invention qualifies for
3 66registration as a utility model if it is “new” and
4☛ Sec. 78 warns that where the product is 67“industrially applicable.”
5identical, it shall be presumed to have been 68That is why it is said that the degree of
6obtained thru the use of the patented process. 69inventiveness necessary for the grant of
7Thus there has evolved the doctrine of 70protection to utility model is lower in degree than
8equivalents which protects a patented invention 71that required of a patentable invention.
9from circumvention by minor changes or 72
10deviations. 73MANDATORY PROVISIONS
11 74The law requires that certain mandatory
12THE RIGHTS OF A PATENTEE ( SEC. 71) 75provisions be incorporated in the technology
13 76transfer agreement (TTA)
141. In came of a product, the patentee shall 77 a. Philippine Law should govern the
15 have the exclusive right to make, use, offer 78 interpretation of contracts and that in
16 for sale, sell or import the product. 79 case of litigation, the venue shall be
172. In case of a process, the patentee shall 80 the peace where the licensee has its
18 have the exclusive right to use the process, 81 principal office.
19 and to manufacture, deal in, use, sell or offer 82 b. The licensee shall have continued
20 for sale or import any product obtained 83 access to improvements in
21 directly or indirectly from such process. 84 techniques and processes related to
22 85 the technology for the duration of
23☛ The government or a third person authorized 86 the TTA.
24by the government may use the patent without 87 c. In cases of arbitration, the arbitration
25the authority of a patent owner, provided: 88 laws of the Philippines or of the UN
26 1. on public interest grounds, in 89 Commission or International trade
27 particular, national security, nutrition, 90 law or of the International Chamber
28 health or the development of other 91 of Commerce shall apply and the
29 sectors, as determined by the 92 venue shall be the Philippine or any
30 appropriate agency of the government 93 neutral country, and
31 so requires; i.e. importation of 94 d. Payment of Philippine Taxes relating
32 medicines under the Generics Act by 95 to the TTA shall be borne by the
33 the Department of Health. 96 licensor.
34 2. The manner of exploitation by 97
35 the owner of the patent or his licensee, 98
36 is anti-competitive (Sec. 74.1). 99VI. BANKING LAWS
37
38☛ Under Sec. 46 R.A. 8293, After the 100
39publication of the patent application, the 101R.A. 337 (GENERAL BANKING
40applicant, event while his application is still
41pending, is already accorded the rights of a 102ACT)
42patentee granted under the law as against any 103
43person unlawfully exercising patent rights, 104VOTING STOCK OF A BANK THAT MUST
44provided the ff. conditions concur 105BE OWNED BY FILIPINO CITIZENS:
45 106
46 1. the latter has actual 107☛ At least 70% - must be owned by Filipinos.
47 knowledge that the invention he was 108 30% - can be owned by Foreigners.
48 using was the subject matter of a patent 109
49 2. he has written notice of 110 EXCEPTIONS:
50 such fact 111 a) The Monetary Board may, with the
51 3. the action may be filed 112 approval of the President, increase
52 only after the grant of the patent and 113 the percentage of foreign voting
53 within four (4) years from the 114 stock in any domestic bank from
54 commission of the acts complained of. 115 30% to 40% (Sec. 12 and 12-A, RA
55 116 337).
56UTILITY MODELS - are models of implement 117 b) Where a new bank is established as
57 or tools of any industrial product even 118 a result of 1) local incorporation of
58 if not possessed of the quality of 119 the existing branches of foreign
59 invention but which is of “practical 120 banks pursuant to Sec. 68 of RA
60 utility.” 121 337 or 2) merger or consolidation
61 122 of existing banks in any of which
62☛ Sec. 108.1 treats patents and utility models 123 there are foreign owned voting
63similarly what distinguishes a utility model
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10
1 stocks at the time of consolidation 63 sale or other forms of transfer of

2 (Secs. 12 and 12-A, RA 337). 64 ownership of their shares of stock by
3 c) When MB authorizes foreign banks 65 and between corporations or individuals
4 to operate through any of the 66 and corporations, for purposes of
5 following: 1) by acquiring, 67 determining compliance with the
6 purchasing or owning up to 60% of 68 limitations on bank equity holdings of
7 the voting stock of an existing bank; 69 corporations.
8 2) by investing in up to 60% of the 70
9 voting stock of a new banking 71NOTE: The Monetary Board may exempt voting
10 subsidiary incorporated under laws 72stockholdings of corporations and of any
11 of Philippines; 3) by establishing 73person/s related to each other within the third
12 branches with full banking authority, 74degree of consanguinity or affinity from the
13 provided: a) foreign bank may avail 75prescribed ceilings in exceptional cases and
14 itself of only one mode of entry and 76when circumstances warrant, such as but not
15 b) foreign bank or Philippine 77limited to PURCHASES IN THE EQUITY OF
16 corporation may own up to 60% of 78DISTRESSED BANKS FOR PURPOSES OF
17 the voting stock of only one 79REHABILITATION.
18 domestic bank or new banking 80
19 subsidiary (Sec. 2,RA. 7721). 81
20 d) Foreign banks or certain Philippine 82
21 corporations may own up to 60% of 83
22 voting stock of a domestic bank (RA 84
23 7721). 85BOARD OF DIRECTORS IN A BANK
86(Section 13, RA 337)
24 e) Foreigners or any foreign
87
25 corporation may own up to 60% of
88☛ At least 2/3 of the members of the board of
26 the voting stock in thrift banks
89directors of any bank shall be citizens of the
27 established after approval of RA
90Philippines.
28 No. 7906.
91
29 f) Generally, the capital stock of rural
92☛ The limitation on the number of directors in a
30 banks shall be fully owned by
93corporation under Sec. 14 of Corporation Code
31 Filipinos and corporations,
94shall not be applied in case of a BANK
32 associations or cooperatives
95MERGER OR CONSOLIDATION, so that
33 qualified to own such stock.
96membership in the new board may include up to
34
97the total number of directors provided for in the
35STOCK OWNERSHIP PERCENTAGE OF 98respective articles of incorporation of the
36LIMITATIONS IN BANKS OF: 99merging or consolidating banks.
37 100
38a. Natural persons and their relatives within 3rd 101☛ No appointive or elective public officials,
39 degree of consanguinity or affinity – 20% of 102whether full-time or part-time, shall at the same
40 voting stock. 103time serve as OFFICER of any private bank,
41b. Corporation (cooperative, association, 104EXCEPT in cases where such service is incident
42 partnership) 105to financial assistance provided by the
43 - 30% of voting stock. 106government-owned or controlled corporation to
44 1. If 2 or more corporations are 107the bank.
45 owned or controlled by the same 108
46 group of persons, the aggregate 109☛ Elective and appointive public officials can
47 voting stocks which said 110serve as directors but not as officers of the bank.
48 corporations may own in any single 111
49 bank shall not exceed 30% of voting 112COMMERCIAL BANK – is a corporation
50 stock of the bank. 113organized to carry on the business of
51 2. If said corporations are owned 114commercial banking by:
52 or controlled by one person or group 115
53 of persons related within the 3rd 1161) discounting and negotiating promissory
54 degree of consanguinity or affinity, 117 notes, drafts, bills of exchange and other
55 the aggregate voting stocks which 118 evidences of debts;
56 such corporations may own in any 1192) accepting drafts and issuing letters of
57 bank shall not exceed 20% of voting 120 credit ;
58 stock of the bank (Secs. 12-B-12-D, 1213) receiving deposits;
59 RA 337). 1224) buying and selling foreign exchange and
60 123 gold or silver bullion;
61 DISCLOSURE REQUIREMENT- Banks 124 5) lending money against personal security
62 shall report to the Central Bank any 125 or against securities consisting of
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10
1 personal property of mortgages on 62 1. the total investment in equities shall

2 improved real estate and the insured 63 not exceed 50% of the net worth of
3 improvements thereon (Section 20, RA 64 the bank;
4 337). 65 2. the equity investment in any
5 66 enterprise whether allied or non-
6ALLIED UNDERTAKINGS OF 67 allied shall not exceed 15% of the
7COMMERCIAL BANKS INCLUDING 68 net worth of the bank;
8GOVERNMENT BANKS AND FOREIGN 69 3. the equity investment of the bank or
9BANKS WITH EXISTING LOCAL 70 of its wholly-or majority owned
71 subsidiary, in a single non-allied
10BRANCHES: 72 undertaking shall not exceed 35% of
11
73 the total equity in the enterprise nor
12a. warehousing companies
74 shall it exceed 35% of the voting
13b. leasing companies
75 stock in the enterprise;
14c. storage companies
76 4. the equity investment in other banks
15d. safe deposit box companies
77 shall be deducted from the investing
16e. companies engaged in the management of
78 bank’s net worth for purposes of
17 mutual funds but not in the mutual funds
79 computing the prescribed ratio of net
18 themselves
80 worth to risk assets (Section 21-B,
19 PROVIDED:
81 RA 337)
20 1. the total investment in equities shall not
82
21 exceed 25% of the net worth of the bank;
22 2. the equity investment in any one 83COMMERCIAL BANKS MAY OWN
23 enterprise shall not exceed 15% of the 84VOTING STOCKS OF A THRIFT BANK
24 net worth of the bank; 85OR RURAL BANK
25 3. the total equity investment of the bank in 86
26 any single enterprise shall remain a 87☛ Commercial Banks may own more than 30%
27 minority holding in that enterprise. 88of voting stock of thrift bank or rural bank up to a
28 EXCEPT when the enterprise is a non- 89majority or all of equity thereof,
29 financial allied undertaking and when a 90 PROVIDED:
30 commercial bank owns more than 30% of 91 1. acquisition of such equity is
31 the voting stock of thrift bank or rural 92 approved by the Monetary Board;
32 bank up to a majority thereof; 93 2. the equity ownership of any
33 4. the equity investment in other banks shall 94 individual, related group or corporation
34 be deducted from the investing bank’s 95 in the investing bank is in accordance
35 net worth for purposes of computing the 96 with Sections 12, 12-A,12-B,12-D of
36 prescribed ratio of net worth to risk 97 RA 337;
37 assets. EQUITY INVESTMENTS SHALL 98 3. the equity investment in other banks
38 NOT BE PERMITTED IN NON- 99 shall be deducted from the investing
39 RELATED ACTIVITIES (Sec. 21-A, RA 100 bank’s net worth for purposes of
40 337). 101 computing the prescribed ratio of net
41 102 worth to risk assets (Section 21-C, RA
42EXPANDED COMMERCIAL BANKING 103 337)
104Section 22 - prescribed that a bank’s capital
43AUTHORITY
105should be at least 10% of its total loan portfolio
44 106minus non-risk assets. For example, if a bank’s
45☛ Whenever it is necessary to further national 107net worth or capital is P10 billion, its total loan
46development objectives or support national 108portfolio, net of risk assets, should not exceed
47priority projects, the Monetary Board may 109P100 billion.
48authorize a commercial bank, bank authorized to 110
49provide commercial banking services as well as 111Section 23- SINGLE BORROWER’S LIMIT OR
50government-owned and controlled bank to 112 SBL- 25% of unimpaired capital and surplus
51operate under an expanded commercial bank 113 of the bank under present BSP regulations.
52authority and by virtue thereof: 114
53 a. exercise the powers of an Investment 115
54 House under PD 129;
55 b. invest in the equity of non-allied
116EXCLUDED FROM THE SBL ARE THE
56 undertaking; 117FOLLOWING. NON-RISK ASSETS:
57 c. own majority or all of the equity in a 118
58 financial intermediary other than a 119 1. loans secured by obligations of the
59 commercial bank or bank authorized to 120 Central Bank or Philippine Government;
60 provide banking services. 121 2. loans fully guaranteed by the government
61 PROVIDED: 122 as to the payment of principal and
123 interest;
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10
1 3. loans to the extent covered by hold-out 62 3. in default thereof, a receiver shall be

2 on, or assignment of, deposits 63 appointed to close up the business
3 maintained in the lending bank and held 64 of the bank in accordance with law.
4 in the Philippines; 65
5 4. loans and acceptances under letters of 66☛ In FILIPINAS MILLS, INC. vs. DAYRIT (192
6 credit to the extent covered by margin 67SCRA 177) under Section 24 of RA 337, there
7 deposits; 68is a SPECIFIC EXCEPTION, “xxx unless such
8 5. other loans or credits which the Monetary 69security or purchase be necessary to prevent
9 Board may from time to time, specify as 70loss upon a debt previously contracted in good
10 non-risk assets; 71faith xxx” and a GENERAL EXCEPTION “xxx or
11 72purchased or acquired for any other reason in
12☛ An additional 15% may be granted to the 73the course of its operations xxx”. Thus, if and
13borrower if the additional liabilities are secured 74when the bank decides to purchase those
14by shipping documents, warehouse receipts or 75shares of stocks in the public auction sale, this
15other documents transferring or securing title 76circumstance will not result in violation of
16covering readily marketable, non-perishable 77Section 24, RA 337, as it is allowed under the
17staples, which staples must be fully covered by 78GENERAL EXCEPTION.
18insurance and must have a market value equal 79
19to at least 125% of such additional liabilities. 80Section 25 allows a commercial bank to
20 81purchase, hold and convey real estate for the
21“LIABILITIES” - includes the direct liability of 82following purposes:
22 the maker, acceptor, endorser, drawer or 83
23 guarantor; in case of a partnership, the 84 A 1) when it is necessary for its
24 liabilities of the members; and in case of a 85 immediate accommodation in
25 corporation, all the liabilities of all 86 the transaction of its business;
26 subsidiaries thereof in which such 87 M 2) when mortgaged to it in good
27 corporation owns or controls a majority 88 faith by way of security for
28 interest. 89 debts;
29 90 C 3) when conveyed to it in
30☛ The Monetary Board prescribe the 91 satisfaction of debts previously
31combination of the liabilities of the subsidiary 92 contracted in the course of its
32corporations or members of the partnership 93 dealings;
33EVEN IF THE CORPORATION/PARTNERSHIP 94 P 4) when purchased at sales under
34HAS NO LIABILITY TO THE BANK in the 95 judgments, decrees,
35following cases: 96 mortgages or trust deeds held
36 1) the parent corporation or partnership 97 by it and such as it shall
37 guarantees the repayment of the 98 purchase to secure debts due
38 liabilities; 99 to it.
39 2) the liabilities were incurred for the 100
40 accommodation of the parent 101 CODE: A M C P
41 corporation or another subsidiary or 102
42 of the partnership; 103☛ In the case of REGISTER OF DEEDS OF
43 3) the subsidiaries through separate 104MANILA vs. CHINA BANKING
44 entities operate merely as divisions 105CORPORATION (4 SCRA 1146), “debts”
45 or departments of a single entity 106referred to in Section 24 are only those resulting
46Section 24 - No commercial bank shall make 107from previous loans and other similar
47any loan or discount on the security of shares of 108transactions made or entered into by the
48its own capital stock, nor be the purchaser of 109commercial bank in the ordinary course of its
49any such shares, 110business as such. Thus, an alien-owned
50 111commercial bank cannot acquire ownership of
51 UNLESS: 112real estate by virtue of a deed of transfer
52 1. such security or purchase is 113executed by its former employee in satisfaction
53 necessary to prevent loss upon a 114of a civil liability arising from a criminal offense of
54 debt previously contracted in good 115a qualified theft.
55 faith and 116
56 2. the stock so purchased or acquired 117Section 25 - But no such bank shall hold the
57 for any other reason in the course of 118possession of any real estate under mortgage or
58 its operations, shall within 6 months 119trust deed, or title and possession of any real
59 from the time of its purchase or 120estate purchased to secure any debt due to it,
60 acquisitions, be sold or disposed of 121for a longer period than 5 years.
61 at public or private sale; or 122
123TRUST CORPORATION - any corporation
124formed or organized for the purpose of acting as
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10
1trustee or administering any trust or holding 63 estate, real or personal, and the rents,
2property in trust or on deposit for the use, benefit 64 issues and profits thereof;
3or behalf of others (Section 56, RA 337). 65
4 66 6. to establish and manage
5Section 57 67 common trust funds.
6☛ A trust company may, with the approval of 68
7the Monetary Board, do a commercial banking 69 Section 64 Real estate acquired by a trust
8business but such business must be kept 70company shall be governed by Section 25, RA
9separate and distinct from its trust business. All 71337.
10relevant provisions governing the business of 72
11commercial banking corporations shall be held 73Section 72 - OTHER SERVICES
12to apply to the commercial banking activities of a 74PERFORMED BY BANKING
13trust company. 75INSTITUTIONS: R F M A
14☛ Any banking corporation may, with the 76
15approval of the Monetary Board, be authorized 771. Receive in custody funds, documents and
16to engage in the business of a trust company, 78 valuable objects and rent safety deposit
17but shall be subject to provisions as regards its 79 boxes for the safeguarding of such effects.
18trust business. 802. Act as financial agent and buy and sell, by
19 81 order of and for the account of their
20 82 customers, shares, evidences of
21 83 indebtedness and all types of securities.
22 843. Make collections and payments for the
23Section 58- POWERS OF TRUST 85 accounts of others and perform such other
24CORPORATION : 86 services for the customers as are not
25 87 incompatible with banking business.
26 1. to act as trustee on any mortgage or 884. Act as managing agent, adviser, consultant
27 bond issued by any municipality, 89 or administrator of investment
28 corporation, or any body politic and to 90 management/advisory/consultancy accounts
29 accept and execute any other municipal 91 with approval of Monetary Board.
30 or corporate trust not inconsistent with 92
31 law; 93Banks shall perform services under 1, 2, 3 as
32 94depositories or as agents.
33 2. to act under the order or appointment of 95
34 any court of record as guardian, receiver, 96Section 74 – COMMON BANKING
35 trustee or depository or the estate of any 97PRACTICES:
36 minor, insane person, idiot, habitual 98
37 drunkard or other incompetent or
38 irresponsible person and as receiver and 991. borrowing of money by banking institution
39 depository of any moneys paid into court 100 through the rediscounting of receivables;
40 by parties to any legal proceedings 1012. acceptance of drafts or bills of exchange;
41 and/or property of any kind which may be 1023. certification of checks;
42 brought under the jurisdiction of the court 1034. transactions involving the release of
43 by proper legal proceedings; 104 documents attached to items received for
44 105 collection;
45 3. to act as the executor of any last will or 1065. letters of credit transaction, includingstand-
46 testament when it is named in the last will 107 by arrangements;
47 as executor; 1086. repurchase agreements;
48 1097. shipside bonds;
49 4. to act under appointment of a court of 1108. ordinary guarantees or indorsements in
50 competent jurisdiction as administrator of 111 favor of foreign creditors where the principal
51 the estate of any deceased person, with 112 obligation involves loans and credits
52 the will annexed, or as administrator of 113 extended directly by foreign firms or persons
53 the estate of any deceased person when 114 to domestic borrowers for capital investment
54 there’s no will and when in either case, 115 purposes;
55 there’s no person qualified, competent 1169. other transactions which Monetary Board
56 willing, able and entitled to accept such 117 may define or specify as not covered by the
57 administration. 118 prohibition.
58 119
59 5. to accept and execute any legal trust 120PROHIBITIONS:
60 confided to it by any court of record or by 121
61 any person or corporation for the holding, 122Section 73 - Banking institutions shall not
62 management and administration of any 123engage in insurance business as the insurer.
124
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1Section 74 - No bank shall enter directly or 64

2indirectly into any contract of guaranty or 65☛ RECTO LAW applies only to foreclosure of
3suretyship or shall guarantee the interest or 66personal property sold should the vendee fail to
4principal of any obligation of any person, co- 67pay 2 or more installments.
5partnership, association, corporation, or other 68☛ The foreclosure pursuant to RECTO LAW
6entity. However, this provision shall not apply to 69shall not apply in case of personal property held
7common banking practices. 70as security for a loan.
8 71
9Section 78 72Section 82 - Banks shall not advertise the
10LOAN AGAINST REAL ESTATE 73amount of their authorized or subscribed capital
11SECURITY 74stock without indicating the amount of their
12 75capital actually paid-up.
13☛ shall not exceed 70% of appraised value of 76
14real estate plus 70% of appraised value of 77 ☛ No branch of any foreign bank doing
15insured improvements; 78business in the Philippines shall in any way
16☛ title to real estate shall be in the mortgagor; 79announce the amount of the capital and surplus
17☛ in the event of foreclosure, whether judicially 80of its head office or of the bank in its entirety
18 or extrajudicially, the mortgagor or debtor 81without indicating the amount of the capital
19 shall have the right within 1 year after the 82assigned to such branch. In case no capital has
20 sale to redeem the property by paying the 83been definitely assigned to such branch, such
21 amount fixed by the court in the order or 84fact shall be stated and shall form part of
22 execution or the amount due under the 85advertisement.
23 mortgage deed with interest at rate specified 86
24 in the mortgage, costs, judicial expenses 87Section 83 - LOANS TO DIRECTORS,
25 less income of property; 88OFFICERS, STOCKHOLDERS AND
26☛ 89THEIR RELATED INTEREST (DOSRI)
27☛ The purchaser of the auction sale concerned 90
28in a judicial foreclosure shall have the right to 91☛ No Director or officer of any bank shall
29enter upon and take possession of the property 92borrow any of the deposits of funds of such
30immediately after the date of confirmation of 93banks, EXCEPT, with written approval of
31auction sale by court. 94majority of the directors of the bank, excluding
32 95the director concerned. The approval shall be
33☛ In JOVEN VS. CA (212 SCRA 700), to give 96entered upon the records of the bank and a copy
34effect to his right of possession, the purchaser 97of such entry shall be transmitted to the
35must invoke the aid of courts and ask for a writ 98appropriate supervising department of BSP.
36of possession. He cannot simply take the law 99
37into his own hands and enter the property 100☛ The credit accommodation which may be
38without judicial authorization. He need not bring 101extended by a bank to each of its stockholders
39a separate and independent suit for this 102owning 2% or more of the subscribed capital
40purpose. Nevertheless, it is essential that he 103stock, its directors or officers shall be limited to
41ask for and be granted a writ of possession in 104an amount equivalent to the respective
42order that he may be legally installed in the 105outstanding deposits and book value of paid in
43property he has bought. 106capital contribution in the bank.
44 107
45☛ As a general rule, there is no right of 108☛ Loans and advances to officers, in the form
46redemption from a judicial foreclosure sale after 109of fringe benefits granted in accordance with
47confirmation of the sale. However, foreclosure 110rules prescribed by Monetary Board shall not be
48of mortgages to banking institutions shall be 111subject to the limitation that the loanable amount
49subject to legal redemption even after 112shall not exceed the outstanding deposits and
50confirmation (LIMPIN VS. IAC, GR No. 70987, 113book value of the paid-in capital contribution to
51GSIS VS. CFI, 175 SCRA 19). 114the bank of the borrower-officer concerned.
52 115
53LOANS ON SECURITY OF CHATTELS 116Section 87-A, as amended, penalizes an officer,
54 117employee or agent of a bank, who, without order
55☛ shall not exceed 50% of the appraised value 118of a court of competent jurisdiction, shall
56of the security; 119disclose to any unauthorized person any
57☛ title to the chattels shall be free from all 120information relative to the funds or properties in
58encumbrances; 121the custody of the bank belonging to a private
59☛ title to the chattels shall be in the name of 122person, whether natural or juridical.
60mortgagor. 123
61 124
62☛ Shares of stock can be mortgaged under
63the Chattel Mortgage Law.
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10
1R.A. 1405 SECRECY OF BANK 63directs that bank deposits “shall be taken into
2DEPOSITS LAW 64consideration in the enforcement of this section,
3 65notwithstanding any provision of law to the
66contrary.” The only conclusion possible is that
4PURPOSES: 67Sec. 8 of Anti-Graft Law is intended to amend
5a.) To encourage people to deposit money in
68Sec. 2 of RA 1405 by providing an additional
6 banks;
69exception to the rule disclosure of bank deposits.
7b.) To discourage private hoarding so that
70(Ibid. p. 92).
8 these deposits may be properly utilized by
71
9 banks in authorized loans to assist in the
72☛ In CHINA BANKING CORPORATION VS.
10 economic development of the country.
73ORTEGA (49 SCRA 355), the Court held that
11
74garnishment of bank deposit of judgment debtor
12DEPOSITS COVERED BY LAW: 75does not violate RA 1405. The lower court did
13(Section 2) 76not order an examination of or inquiry into the
14☛ All deposits of whatever nature with banks or 77bank deposit of the defendant, as contemplated
15banking institutions in the Philippines including 78in the law. It merely required the cashier of the
16investments in bonds issued by the Government 79bank to inform the court whether or not the
17of the Philippines, its political subdivisions and 80defendant had a deposit in said bank only for
18its instrumentalities. 81purposes of garnishment issued by it. So that
19 82the bank would hold the same intact and not
20☛ These deposits are considered as of an 83allow any withdrawal until further order.
21ABSOLUTELY CONFIDENTIAL NATURE AND 84
22MAY NOT BE EXAMINED and may not be 85
23examined, inquired or looked into by any person, 86
24government al, bureau, or office. EXCEPT IN 87☛ In BANCO FILIPINO SAVINGS AND
25THE offici FOLLOWING CASES: 88MORTGAGE BANK VS. PURISIMA (161 SCRA
26 89576), the Supreme Court reiterated its ruling in
27 1) Where the depositor consents in 90PNB VS. GANCAYCO, supra and expanded the
28 writing; 91coverage of persons excluded from the
29 2) Impeachment cases; 92prohibition against disclosures in RA 1405.
30 3) By court order in bribery or 93Under RA 3019, illegally acquired property
31 dereliction of duty cases against 94extends to cases where property is concealed by
32 public officials; 95being held by or recorded in the name of
33 4) Deposit is subject of litigation; 96respondent’s spouse, ascendants, descendants,
34 5) If authorized by Monetary Board if it 97relatives, or any other persons. Bank records of
35 has reasonable ground to believe 98transactions by or in the names of the wife,
36 that such account is used to defraud 99children and friends of a person charged with
37 the bank; 100violation of Anti-Graft Law may be the proper
38 6) When made by an independent 101subject of subpoena duces tecum.
39 auditor hired by the bank for the 102
40 exclusive use of the bank (Sec. 2, 103☛ In MELLON BANK VS. MAGSINO (190
41 RA 1405); 104SCRA 633), private respondents sought to
42 7) Anti-graft cases (Added by analogy 105disallow testimony on the bank accounts of the
43 in PNB VS. GANCAYCO, 15 SCRA 106third parties for violating RA 1405. The court
44 91); 107ruled that an inquiry into the whereabouts of the
45 8) Inquiry of Commissioner of BIR into 108illegally acquired amount extends to whatever is
46 bank deposits of: 109concealed by being held or recorded in the
47 a) a decedent to determine his 110name of persons other than the one responsible
48 gross estate 111for the illegal acquisition. Since the action was
49 b) a taxpayer who has filed an 112aimed at recovering the amount converted by
50 application for compromise of his tax 113respondents for their own benefit such inquiry
51 liability (Sec. 6 (F) NIRC). 114therefore involved deposited money which was
52 115the subject matter of litigation to be exempted
53☛ In PNB VS. GANCAYCO (15 SCRA 91), the 116from the prohibition.
54court held that a bank can be compelled to 117
55disclose the records of accounts of a depositor 118☛ Safe deposit boxes are not strictly deposits
56who is under investigation for unexplained 119since the relationship between the bank is that of
57wealth. 120lessor and lessee. However, any information
58☛ Section 2 of RA 1405 provides that bank 121regarding the existence of the safe deposit box
59deposits are “absolutely confidential xxx and 122in the name of the renter is considered
60therefore may not be examined, inquired or 123confidential in view of Sec. 87-A of RA 337 as
61looked into”, except in cases mentioned therein. 124amended.
62Meanwhile, Sec. 8 of RA 3019 (Anti-Graft Law) 125
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1Section 26, RA 7653 64 other applicable laws, together with

2 65 such other obligations of a bank
3☛ Any director, officer, stockholder who, 66 which, consistent with banking
4together with his related interests, contracts a 67 usage and practices, the Board of
5loan or any form of financial accommodation 68 Directors shall determine and
6from his bank / from a bank which is: 69 prescribe by regulations to be
7 a) a subsidiary of a bank holding 70 deposit liabilities of the Bank:
8 company of which both his bank and 71 Provided, That any obligation of a
9 the lending bank are subsidiaries; or 72 bank which is payable at the office
10 b) in which a controlling proportion of 73 of the bank located outside of the
11 the shares is owned by the same 74 Philippines shall not be a deposit for
12 interest that owns a controlling 75 any of the purposes of this Act or
13 proportion of the shares of his bank 76 included as part of the total deposit
14 in excess of 5% of the capital and 77 or of the insured deposit: Provided,
15 surplus of the bank or in the 78 further, That subject to the approval
16 maximum amount permitted by law, 79 of the Board of Directors, any
17 whichever is lower, shall be required 80 insured bank which is incorporated
18 by the lending bank to WAIVE THE 81 under the laws of the Philippines
19 SECRECY OF HIS DEPOSITS OF 82 which maintains a branch outside
20 WHATEVER NATURE IN ALL 83 the Philippines may elect to include
21 BANKS IN THE PHILIPPINES. 84 for insurance its deposit obligation
22 85 payable only at such branch.
23☛ Any information obtained form an 86
24examination of his deposits shall be held strictly 872. Insured Deposits — means the net
25confidential and may be used by the examiners 88 amount due to any depositor for
26only in connection with their supervisory and 89 deposits in an insured bank (after
27examination responsibility or by the Bangko 90 deducting offsets) less any part
28Sentral in an appropriate legal action it has 91 thereof which is in excess of
29initiated involving the deposit account. 92 Php100,000.00.
30 93
31PENALTIES 94TYPES OF DEPOSIT INSURED:
32 ☛ Violation of the secrecy of bank 95
33deposits will subject the offender upon 96 1. Savings Deposits
34conviction to imprisonment of not more than five 97 2. Time Deposits
35(5) years or a fine not more than Php 20,000 or 98 3. Current or Demand Deposits
36both , in the discretion of the court. 99
37 100☛ By virtue of Presidential Decree No. 1974,
38PHILIPPINE DEPOSIT INSURANCE 101approved on June 27, 1984, TRUST FUNDS
102were deleted from the scope of “insured
39CORPORATION ACT 103deposits”. Hence, effective said date, trust funds
40
104were no longer insured with PDIC.
41☛ Created the Philippine Deposit Insurance
105
42Corporation (PDIC), a government corporation,
106PRIMARY OBJECTIVE OF PDIC
43financed completely by the Central Bank where
107
44banks are mandatorily required to insure their
108 ☛ To enhance public confidence in the
45deposits with, and pay premium to;
109banking system through the provision of
46
110insurance protection to bank depositors and the
47☛ Purpose of the law to insure the deposit
111effective regulation of banks.
48liability of banks in an account up to
112
49P100,000.00 for every single depositor of each
113MAIN FUNCTIONS OF PDIC:
50bank irrespective of the number of accounts
114
51therewith.
115 1. Risk Management — The insurance
52DEFINITONS
116 and examination function of the
53 1. Deposit — means the unpaid
117 PDIC deals with the insurance
54 balance of money or its equivalent
118 assessment and premium collection
55 received by a bank in the usual
119 from member banks. PDIC monitors
56 course of business and for which it
120 the health of member banks,
57 has given or is obliged to give credit
121 examines and identifies “risk” areas
58 to a commercial, checking, savings,
122 in banks, or their weaknesses. It
59 time or thrift account or which is
123 also institutes corrective measures
60 evidenced by passbook, check
124 to prevent closures thru bank
61 and/or certificate of deposit, printed,
125 rehabilitation. Further, it provides
62 issued in accordance with Central
126 financial assistance to distressed
63 Bank rules and regulations and
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10
1 banks and assists in the reopening 64RECOVERABLE CEILING IN CASE

2 of closed banks, provided all PDIC 65SEVERAL ACCOUNTS ARE MAINTAINED
3 requirements are met. 66BY THE SAME DEPOSITOR:
4 2. Claims, Receivership and 67
5 Liquidation — Claims refers to the 68a. If a single depositor maintains several
6 settlement of claims for insured 69 accounts with one bank of several branches
7 deposits; Receivership deals with 70 of the same bank totaling more than
8 the takeover and control of all 71 P100,00.00, the amount insured is only
9 assets, liabilities and affairs of 72 P100,000.00, although the depositor is
10 closed banks; Liquidation covers the 73 maintaining his deposits in different
11 conversion of loans, disposal of 74 accounts;
12 fixed assets into cash deposits, and 75b. If three accounts are maintained in the same
13 the implementation of final 76 bank in the individual capacity of each of the
14 settlement with creditors. 77 depositors and in an and/or capacity or
15 78 jointly by the depositors, the three accounts
16What specific risks to a bank does PDIC Cover? 79 are insured up to P100,000.00 each
17 Only the risk of bank closures. Thus 80 because the depositors are maintaining the
18losses due to a bank theft is not covered by 81 accounts in different capacities and rights.
19PDIC. 82c. If two bank accounts (savings and current)
20 83 are held jointly by two persons, the said
21When is an insured bank deemed closed? 84 accounts are not deemed insured separately
22 An insured bank shall be deemed closed 85 but are added together and covered on up to
23on account of insolvency upon the order of 86 a total of P100,000.00 because the amounts
24closure by the Monetary Board of the Bangko 87 are maintained in the same capacity and
25Sentral ng Pilipinas under Section 29 of R.A. 88 right by the two depositors.
26265 as amended by the New Central Bank Act. 89
27 90☛ PDIC is given priority to be appointed as
28 Insolvency refers to a situation wherein 91receiver of any banking institution.
29a bank’s liabilities exceed its total assets 92
30resulting in the bank’s inability to repay its 93☛ PDIC is subrogated to all rights of depositor
31creditors. 94against a closed bank to the extent of the
32 95payment made by the PDIC.
33Section 4, RA 3591 - The deposit liabilities of 96
34any bank or banking institution which is engaged 97☛ Provided that in the event a depositor in a
35in the business of receiving deposits as herein 98closed bank fails to file a claim for his insured
36defined on the effective date of this Act or which 99deposit within 18 months after the Monetary
37thereafter may engage in the business of 100Bank shall have ordered the closure of said
38receiving deposits, shall be insured by the 101bank, all rights of depositor against the
39corporation. 102Corporation with respect to the insured deposit
40 103shall be barred.
41☛ If a bank is insolvent, every depositor is 104
42compulsorily insured for a maximum amount of 105REPUBLIC vs. COURT OF APPEALS (65
43P100,000.00. 106SCRA 186) the Supreme Court ruled that since
44 107the relation between the depositor and the bank
45☛ If the total valid deposits (as determined by 108is that of creditor and debtor, a depositor has
46PDIC) exceeds the amount of Php 100,000.00, 109every right to apply his credit with the bank
47the excess amount can still be claimed from 110against his loans. When all the elements
48PDIC upon the final liquidation of the remaining 111necessary for set-off are present, compensation
49assets of the closed bank. 112takes place ipso-jure, without need of any
50 113conscious intent on the part of the parties.
51☛ The schedule of payment beyond the Php
52100,000.oo maximum insurance shall be based
114
53on priorities set by law. 115THRIFT BANKS ACT, RA No. 7906
54 Under the law, claims for deposit in excess 116
55 of the insured Php100,000.00 will be settled 117THRIFT BANKS – shall include savings and
56 together with other ordinary claims, after 118mortgage banks, private development banks,
57 preferred claims like government, taxe, 119and stock savings and loans associations
58 labor claims are settled. 120organized under existing laws, and any banking
59 121corporations that may be organized for the
60TWO (2) TYPES OF CLAIM SETTLEMENT 122following purposes:
61 1. Direct Claims Settlement 123
62 2. Transfer Deposit Settlement 1241. Accumulating the savings of depositors and
63 125 investing them, together with capital loans
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10
1 secured by bonds, mortgages in real estate 6213. Offer banking services as provided under
2 and insured improvements thereon, chattel 63 Sec. 72 of RA 337 and RA 6426 as
3 mortgage, bonds and other forms of security 64 amended.
4 or in loans for personal or household 65
5 finance, whether secured or unsecured or in 66RA 7353 RURAL BANKS ACT
6 financing for homebuilding and home 67
7 development, in readily marketable and debt 68☛ Rural banks shall be organized in the form
8 securities; in commercial papers and 69of stock corporations.
9 accounts receivables, drafts, bills of 70
10 exchange, acceptances or notes arising out 71☛ Cooperatives and corporations primarily
11 of commercial transactions; and in such 72organized to hold equities in rural banks may
12 other investments and loans which the 73organize a rural bank and/or subscribe to the
13 Monetary Board may determine as 74shares of stock of any rural bank.
14 necessary in the furtherance of national 75
15 economic objectives. 76☛ The capital stock of any rural bank shall be
162. Providing short-term working capital, 77fully owned and held directly or indirectly by
17 medium- and long-term financing, to 78citizens of the Philippines or corporations,
18 businesses engaged in agriculture, services, 79associations or cooperatives qualified under
19 industry and housing. 80Philippine laws to own land EXCEPT
203. Providing diversified financial and allied 81shareholdings of corporations organized
21 services for its chosen market and 82primarily to hold equities in rural banks under
22 constituencies especially for small and 83Sec. 12-C of RA 337.
23 medium enterprises and individuals 84
24 (Section 3). 85☛ Nothing in this Act shall be construed as
25 86prohibiting any appointive or elective public
26POWERS: (Section 10) 87official form serving as director, officer,
27 88consultant or in any capacity in the bank.
281. Accept savings and time deposits; 89
292. Open current or checking accounts, 90☛ Loans extended shall be primarily for the
30 provided, that the thrift bank has net assets 91purpose of meeting the normal credit needs of
31 of at least P20 M and it shall be allowed to 92farmers, fishermen or farm families owning or
32 directly clear its demand deposit operations 93cultivating land dedicated to agricultural
33 with the Bangko Sentral and PCHC; 94production as well as normal credit needs of
343. Act as correspondents for other financial 95cooperatives and merchants with the land as
35 institutions; 96security.
364. Act as collection agent for government 97
37 entities, including but not limited to BIR, 98☛ Rural bank may devote a portion of their
38 SSS, Bureau of Customs; 99loanable funds to meeting the normal credit
395. Act as official depository of national 100needs of small business enterprises and of
40 agencies and of municipal, city or provincial 101essential enterprises and industries provided
41 funds in the municipality, city or province 102loans shall not exceed 15% of net worth of rural
42 where the thrift bank is located; 103bank or amount prescribed by Monetary Board
436. Rediscount paper with PNB, Land Bank, 104may be warranted by prevailing economic
44 DBP, and other GOCC; 105conditions.
457. Issue mortgage and chattel mortgage 106
46 certificates buy and sell them for its own 107 With the approval of Monetary Board, any
47 account or for the account of others, or 108 rural bank may act as trustees over estates
48 accept and receive them in payment or as 109 or properties of farmers and merchants or
49 amortization or its loan; 110 perform services authorized for savings and
508. Purchase, hold, convey real estate under 111 mortgage banks or for commercial banks
51 the same conditions as those governing 112 under RA 337 or operating under an
52 commercial banks under Section 25, RA 113 expanded banking authority.
53 337; 114
549. Engage in quasi-banking and money market 115
55 operations; 116RA 6938 COOPERATIVE BANKS
5610. Open domestic letters of credit; 117
5711. Extend credit facilities to private and 118☛ Cooperative Bank is one organized the
58 government employees; 119majority shares of which is owned and controlled
5912. Extend credit against the security of jewelry, 120by cooperatives primarily to provided financial
60 precious stones and articles of similar 121and credit services to cooperatives. It shall
61 nature; 122include cooperative rural banks;
123
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10
1☛ Membership of a cooperative bank shall 63accumulated savings and profits upon their
2include only cooperatives and federations of 64surrender of their shares.
3cooperatives. 65
4 66
5 MBR No. 115, as amended 67☛ The Solicitor General, when informed of such
6 68unclaimed balances, shall commence an action
7☛ Only one cooperative bank shall be 69in the name of People of Republic of Philippines
8established in each province which must be 70in the RTC of the province where the bank is
9located in a place accessible to the public. 71located. Bank and depositors shall be made
10 72defendants.
11☛ Capital contributions in a cooperative bank 73
12shall be as widely dispersed as possible. No 74☛ Summons shall be issued directed to all
13cooperative members shall own or control more 75persons, OTHER THAN THOSE NAMED AS
14than 30% of the total capital contributions of a 76DEFENDANTS, claiming any interest in any
15cooperative bank. This limitation shall also 77unclaimed balance requiring them to appear
16apply to cooperatives purchasing government- 78within 60 days after publication of such
17held preferred shares of cooperative banks 79summons and show cause why it shall not be
18converted into common stock. 80deposited with the Treasurer.
19 81
20☛ Any officer or employee of Cooperative 82☛ Upon trial, if the court determines that such
21Development Authority and elective officials of 83deposits are unclaimed, judgment shall be
22the Government EXCEPT BARANGAY 84rendered declaring that said unclaimed balances
23OFFICIALS, shall be disqualified to be elected or 85be escheated in favor of the government and
24appointed to any position in a cooperative bank. 86commending said bank to deposit it with the
25 87Treasurer of the Philippines.
26 88
27RA 3936 UNCLAIMED 89☛ Any bank which shall make any deposit with
28BALANCES LAW 90the Treasurer shall not be liable to any person
29 91which the latter may bring against the bank.
30UNCLAIMED BALANCES include credits or 92
31deposits of money, bullion, security or other 93RA 6426 FOREIGN CURRENCY
32evidence of indebtedness of any kind and 94DEPOSIT ACT
33interest thereon with banks, buildings and loan 95
34associations and trust corporations in favor of 96Foreign Currency Deposit Unit — shall refer to
35any person known to be dead or who has not 97that unit of a local bank or of a local branch of a
36make further deposits or withdrawals during the 98foreign bank authorized by the Central Bank to
37preceding 10 years or more. 99engage in foreign currency-denominated
38 100transactions.
39ELEMENTS OF UNCLAIMED BALANCES: 101
40 102☛ All foreign currency deposits under RA 6426
41 1. There must be a claim or deposit of: 103and PD 1034 are absolutely confidential in
42 a. money, 104nature and may not be examined EXCEPT
43 b. bullion, 105UPON WRITTEN PERMISSION OF
44 c. security, or 106DEPOSITOR.
45 d. other evidence of 107
46 indebtedeness 108☛ Foreign currency deposits are exempt from
47 2. The credit or deposit must be with a 109garnishment, attachment or any court process.
48 bank, building and loan association, or 110
49 trust corporation; and 111☛ However in SALVACION, et al. VS. CBP,
50 3. The credit or deposit is in favor of a 112et al. 278 SCRA 27, the court allowed
51 person: 113garnishment of such deposits since to hold
52 a. who is dead, or 114otherwise would result to injustice to a citizen
53 b. who has not made further 115perpetrated by a foreigner.
54 depsotis or withdrawals during 116
55 the preceding ten years or 117RA 7721 AN ACT LIBERALIZING THE
56 more. 118ENTRY AND SCOPE OF OPERATIONS
57Builidings and Loan Association — are 119OF FOREIGN BANKS IN THE
58corporations whose capital stock is required or is 120PHILIPPINES
59permitted to be paid in by the stockholders in 121
60regular, equal, periodical payments and whose 122☛ When MB authorizes foreign banks to
61purpose is to accumulate the savings of its 123operate through any of the following:
62stockholders, to repay to said stockholders their
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10
1 1) by acquiring, purchasing or owning up 64qualified to operate offshore banking units in the

2 to 60% of the voting stock of an 65Philippines.
3 existing bank; 66
4 2) 2) by investing in up to 60% of the 67☛ However, LOCAL BRANCHES of foreign
5 voting stock of a new banking 68banks already authorized to accept foreign
6 subsidiary incorporated under laws of 69currency deposits under RA 6426 may opt to
7 Philippines; 70apply for authority to operate an offshore
8 3) by establishing branches with full 71banking unit provided that upon their receipt of
9 banking authority, provided: a) foreign 72certificate of authority to operate as an offshore
10 bank may avail itself of only one 73banking unit, the license to transact business
11 mode of entry and b) foreign bank or 74under RA 6426 shall be deemed automatically
12 Philippine corporation may own up to 75withdrawn.
13 60% of the voting stock only one 76
14 domestic bank or new banking 77
15 subsidiary (Sec. 2,RA. 7721). 78RA 8183 REPEALING ACT NO. 529
16 79OR UNIFORM CURRENCY ACT
17☛ Only those among the top150 foreign banks 80
18in the world or the top 5 banks in their country of 81 Section 1. All monetary obligations shall
19origin as of the date of application shall be 82 be settled in the Philippine currency which
20allowed entry in allowance with Sections 2 , 83 is legal tender in the Philippines. However,
21numbers 2 and 3 (Sec. 3). 84 the parties may agree that the obligation or
22☛ In the exercise of this authority, the MB shall 85 transaction shall be settled in any other
23adopt such measures as may be necessary to: 86 currency at the time of payment.
24 1. ensure that at all times the control of 87
25 seventy percent (70%) of the resources 88
26 or assets of the entire banking system is 89Art 1249, 1st paragraph of Civil Code
27 held by domestic banks which are at 90 The payment of debts in money shall be
28 least majority-owned by Filipinos: 91made in the currency stipulated and if it is not
29 2. prevent a dominant market position by 92possible to deliver such currency, then in the
30 one bank or the concentration of 93currency which is legal tender in the Philippines.
31 economic power in one or more 94
32 financial institutions, or in corporations, 95LEGAL TENDER – all notes and coins issued
33 partnerships, groups and individuals 96by the BSP fully guaranteed by the Republic of
34 with related interests; and 97Philippines for all debts, public or private.
35 3. secure the listing in the Philippine 98
36 Stock Exchange of the shares of stocks 99 Not exceeding P50.00 – 25 centavos or
37 of banking corporations established 100above
38 under Section 2, numbers 1 and 2. 101 Not exceeding P20.00 - 10 centavos or
39 Provided, that said banking corporations 102less.
40 shall establish stock option plans for 103
41 their officers and employees as the 104
42 resources or assets of these
43 corporations may allow in the best 105VII. SPECIAL LAWS
44 business judgment of their respective 106
45 boards of directors, pursuant to the 107
46 Corporation Code of the Philippines 108BULK SALES LAW
47 ( Sec. 3). 109
48 110WHEN IS A SALE CONSIDERED A SALE
49 PD 1034 OFFSHORE BANKING 111IN BULK?
50 SYSTEM 112
51 113a. when a sale, transfer or disposition is other
52OFFSHORE BANKING – shall refer to the 114 than in the ordinary course;
53conduct of banking transactions in foreign 115b. the sale is of all or substantially all of the
54currencies involving receipt of funds from 116 business;
55external sources and the utilization of such 117c. when the sale is of all or substantially all of
56funds. 118 the fixtures and equipment.
57 119
58BASIS FOR THE ISSUANCE OF 120PURPOSE
59CERTIFICATE OF AUTHORITY TO OPERATE 121
60AN OFFSHORE BANKING UNIT 122☛ To prevent the defrauding of creditors by the
61 123secret sale or disposal in bulk of all or
62☛ Only banks organized under any law other 124substantially all of a merchant’s stock of goods.
63than those of Republic of Philippines shall be 125
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10
1EXCEPTIONS: 632. Interest in business;

2 643. Machinery treated by the parties as personal
3a. sale is made in the ordinary course of 65 property subsequently installed on leased
4 business; 66 land; (Davao Sawmill vs. Castillo)
5b. there is a waiver from all the creditors and 674. Vessels recorded in the office of the
6 must be written; 68 Philippine Coast Guard to be effective as to
7c. sale is by virtue of a judicial order; 69 3rd persons; not necessary to be recorded in
8d. those sold by assignee or those beyond the 70 the Office of the Registry of Deeds;
9 right of creditors. 715. Motor Vehicles mortgage registered in LTO
10 72 (for vehicles used for public services);
11FORMALITIES REQUIRED BY LAW 736. House of mixed materials;
747. House intended to be demolished;
12
13a. the sale in bulk to be accompanied by sworn 758. House built on rented land,
14 statement of the vendor/mortgagor listing 76 GENERAL RULE: still immovable property;
15 the names and addresses of, and amounts 77 EXCEPTION: by estoppel;
16 owing to, creditors (to be furnished to the 789. House of strong materials- personal property
17 buyer); 79 for purposes of executing a chattel mortgage
18b. the seller to prepare an inventory of stock to 80 as the parties to the contract so agree and
19 be sold and notify the creditors of projected 81 NO innocent 3rd party will be prejudiced.
20 sale at least n10 days before such sale 82
21 (Sec. 3-4). 83☛ The rule that the chattel mortgage shall be
22 84deemed to cover only the property described
23 85therein and not like on substituted property does
24 86not apply to stores open to the public. (sec. 7,
25 87par. 4 CML).
26EFFECTS OF SALE IN VIOLATION OF BSL – 88
27 89AFFIDAVIT OF GOOD FAITH — It is an oath in
28VALID between the parties, VOID as to 90contract of chattel mortgage wherein the parties
91“severally swear that the mortgage is made for
29 affected creditors.
92the purpose of securing the obligation specified
30a. sale in bulk is void;
93in conditions thereof, and for no other purpose
31b. purchaser holds property in trust for seller
94and that the same is just and valid obligation and
32 (whether in good faith or bad faith);
95one not entered into for the purpose of fraud.
33c. purchaser is liable to seller’s creditors for
34 properties forming part of bulk and already 96
35 disposed by him. 97EFFECT OF ABSENCE OF AFFIDAVIT OF
36 98GOOD FAITH:
37DISTINCTION BETWEEN FRAUDULENT 99
38CONVEYANCE UNDER THE BULK SALES 100a. Valid between the parties;
39LAW FROM THE TRANSFER IN FRAUD OF 101b. Does not affect 3rd persons without notice
40CREDIORS UNDER THE CIVIL CODE 102 like creditors and subsequent
41 103 encumbrances.
42☛ A conveyance or transfer fraudulently made 104
43in violation of the Bulk Sales Law is null and void 105NOTE: A house of is a real property regardless
44while a conveyance or transfer in fraud of 106of ownership, however the parties may treat the
45creditors under Article 1381-1389 of the New 107same as personal property and by estoppel be
46Civil Code is rescissible and is valid until set 108binding between them. However, third persons
47aside by a competent court. 109are not bound.
48 110
111RIGHT OF REDEMPTION
49CHATTEL MORTGAGE LAW
112
50 113The following may redeem:
51CHATTEL MORTGAGE 114 a. the mortgagor;
52☛ contract by virtue of which personal property 115 b. a person holding a subsequent
53is recorded in the Chattel Mortgage Register as 116 mortgage; or
54security for the performance of an obligation. 117 c. a subsequent attaching creditor.
55☛ No longer considered a conditional sale. 118
56 119RECTO LAW
57SUBJECT MATTER OF CHATTEL
120
58MORTGAGE 121 a. applies only to sale of personal
59 122 property in installments;
60☛ personal or movable property. 123 b. remedies are alternative, not
61 124 cumulative;
621. Shares of stock;
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10
1 c. foreclosure of chattel mortgage on 3. One of the 3. It is not required.

2 the things sold shall ban recovery of formalities required is
3 any deficiency. Thus, seller cannot the execution of
4 recover from guarantor; affidavit in good faith
5 d. if seller-mortgagee opts to exercise 14
6 remedy number one, he shall be CHATTEL REAL MORTGAGE
7 deemed to have waived his right as MORTGAGE
8 a mortgagee but may still levy on
1. The thing 1. The thing
9 the mortgage property.
mortgaged must be mortgaged must be
10
personal or movable real or immovable
11DISTINCTION : property property.
CHATTEL PLEDGE
MORTGAGE 2. Affidavit of good 2. Affidavit of good
faith executed by the faith is not required.
1. the delivery of the 1. delivery is mortgagor is required.
personal property necessary 3. The mortgagor 3. The mortgagor can
to the mortgagee cannot alienate the alienate the thing
is not necessary thing mortgaged mortgaged without the
2. the registration of 2. the registration in without the written consent of the
the same in the Registry of consent of the mortgagee and any
Chattel Mortgage Property is not mortgagee annotated stipulation prohibiting
Register is necessary at the back of the such is void
necessary for its mortgage
validity 15
16
12 17
3. the procedure for 3. procedure is found 4. Redemption of the 4. The thing
the sale of the in Art. 2112 of the thing mortgaged may mortgaged may be
thing given as Civil Code be made only before redeemed after it is
security is the sale thereof. judicially sold but
different, the before judicial
procedure is found confirmation of the
in Sec. 14 of Act sale or if extrajudicially
no. 1508 sold, within one year
4. if the property is 4. the debtor is not from and after the date
foreclosed, the entitled to the of sale.
excess over the excess unless it is 18
amount due goes otherwise agreed 19EXTENT OF CHATTEL MORTGAGE
to the debtor or except in the 20
case of a legal 21Section 7, paragraph 4 of Act No. 158,
pledge 22provides :
5.if there is a 5. the creditor is not 23 "A chattel mortgage shall be deemed to
deficiency, the entitled to recover 24cover only the property described therein and
creditor is entitled the deficiency 25not like or substituted property therafter acquired
to recover the notwithstanding 26by the mortgagor and placed in the same
deficiency from any stipulation to 27depository as the property originally mortgaged
the debtor the contrary 28anything in the mortgage to the contrary
13 29notwithstanding."
CHATTEL PACTO DE RETRO 30☛ The provision does not apply to stores open
MORTGAGE 31to public for retail business where the goods are
1. It is an accessory 1. It is a principal 32constantly sold and substituted with new stock.
contract to secure the contract. 33(Torres vs Limjap, 56 Phil 141).
fulfillment of the 34
performance of an 35CHATTEL MORTGAGE COVERS ONLY
obligation. 36EXISTING OBLIGATIONS.
2. Title to the thing 2. the title to the 37
mortgaged is not subject matter of the 38☛ While a pledge, real estate mortgage, or
transferred contract is transferred 39antichresis may exceptionally secure after-
to the vendee a retro 40incurred obligations so long as these future
but subject to the 41debts are accurately described, a chattel
redemption by the 42mortgage can only cover obligations existing at
vendor. 43the time the mortgage is constituted. Promise
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10
1expressed in a chattel mortgage to cover debts 62

2yet to be contracted may be binding but security 63 QUALIFICATIONS:
3itself arise only after amending the old contract 64 1. having completed the age of 18
4conformably with the form prescribed by the 65 years; and
5Chattel Mortgage Law. (Acme Shoe Rubber 66 2. having the free disposition of his
6and Plastic Corp. vs. CA) 67 property.
7. 68
8CODE OF COMMERCE 69
9 70LEGAL PRESUMPTION OF HABITUALITY-
10PROVISIONS OF THE CODE OF 71exists from the moment a person who intends to
72engage in commerce announces through
11COMMERCE WHICH ARE STILL IN 73circulars, newspapers, handbills, posters
12FORCE— 74exhibited to the public, or in any other manner
131. Merchants, Book of Merchants, Commercial 75whatsoever, an establishment which has for its
14 contracts 76object some commercial acts.
152. Joint Account 77
163. Transfers of Non-negotiable credits 78 “Habituality” in the practice of
174. Commercial Contracts of Overland 79commerce presupposes the repetition and
18 Transportation 80continuation of commercial acts in such manner
195. letters of credit 81that they are related to each other by reason of
206. Maritime Commerce 82the commercial purpose or end which they tend
21 83to have, which is the exchange or circulation of
22 84products. However, it may be shown by a single
23 85act of commerce, if it manifests the intention to
24 86engage habitually in commerce.
87
25LAWS WHICH REPEALED EITHER
26EXPRESSLY OR IMPLIEDLY CERTAIN 88ACTS OF COMMERCE
89
27PORTIONS OF THE CODE OF 90☛ Those acts contained in this Code of
28COMMERCE: 91Commerce and all other acts of analogous
29 92character. An act need not be performed by a
301. The Corporation Law which repealed 93merchant in order that it may be considered an
31 principally the provisions on Sociedad 94act of commerce. Hence, an act performed by
32 Anonimas; 95one who is not a merchant would, nevertheless,
332. The Negotiable Instruments Law, which 96be an act of commerce if it is contained in the
34 repealed the provisions on Promissory 97Code or is one of analogous character.
35 Notes and Bills of Exchange also in Book 98
36 Two; 99DISQUALIFICATION TO ENGAGE IN
373. The Insolvency law, which repealed the
100COMMERCE
38 provisions on Suspension of Payments and
39 Bankruptcy in Book Four; 101
404. The Insurance Law, which repealed the 102a) ABSOLUTE DISQUALIFICATIONS
41 provisions on Fire and Marine Insurance; 103
425. The Securities Act, which repealed the 1041. Those serving the penalty of civil
43 provisions on Commercial Houses; 105 interdiction;
446. The New Civil Code, which repealed the 1062. Those judicially declared insolvent until
45 provisions on Partnership, Agency, Sales, 107 they would have obtained a discharge;
46 Loan, Deposit and Guaranty; 1083. Those who are absolutely disqualified under
477. Commerce- branch of human activity, 109 special laws. (Art. 13, Code of Commerce)
48 purpose of which is to bring products to 110
49 community by means of exchanges or 111b) RELATIVE DISQUALIFICATIONS
50 operations which tend to supply and extend 112
51 to him, habitually, with intent to gain at the 113 (in specified territories such as in places
52 proper time and place and in good quality 114 where they exercise their functions, or under
53 and quantity. 115 certain circumstances)
54 116 1. certain government officials,
55MERCHANTS ARE: 117 such as judicial officers, prosecutors,
561. those who having capacity to engage in 118 department heads, collectors, and
57 commerce, habitually devote themselves to 119 custodian of government funds;
58 it. 120 2. money and commercial brokers
592. The commercial or industrial companies 121 3. those who are under relative
60 which may be created in accordance with 122 disqualification under special laws
61 existing legislation. (Art. 1) 123 (Art. 14, Code of Commerce)
124
4 Page 93
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1DISTINCTIONS : 44 any government owned or controlled bank to

2 45 the President, Vice-President, Members of
ABSOLUTE RELATIVE 46 the Cabinet, Congress, Supreme Court and
INCAPACITY INCAPACITY 47 the Constitutional Commission, Ombudsman
48 during their tenure.”
1. extends through 1. extends only to
49
out the the province or
Philippines. town where the 50APPLICABILITY OF LAWS TO
officer 51COMMERCIAL TRANSACTIONS:
incapacitated is 52
exercising his 531. First, the Code of Commerce;
functions. 542. In the absence of the foregoing, the
2. act is null and void 2. the effect is 55 commercial customs; and
if incapacity is merely to subject 563. Civil Code (in the absence of the first two).
absolute and the person 57
apparent. violating Art. 14 to 58 GENERAL RULE: Commercial contracts
such disciplinary 59 shall be valid and give rise to obligations
action or 60 and causes of action in suits, whatever the
punishment as 61 form and language in which they may be
may be imposed 62 executed, provided their existence is shown
by the special 63 by means established by civil law.
laws. 64
3 65 EXCEPTIONS:
4INDIVIDUAL MERCHANTS- not required to 66 1. when the Code of Commerce or
5register however cannot enjoy the benefits of 67 other special laws require that it must be
6registration. 68 reduced in writing, require forms or
7 69 formalities necessary for efficacy (for
8JURIDICAL MERCHANTS- mandated to 70 validity);
9register with the SEC. 71 2. when executed in a foreign
10 72 country whose laws require certain
11Disqualification of certain constitutional 73 instruments, forms or formalities for their
12officials: 74 validity, although Philippine Law does
13 75 not require them ( for validity); and
141. Art. VI, Sec. 14 - No Member of Congress 76 3. Commercial contract exceeding
15 “shall directly or indirectly, be interested 77 PHP 300.00 cannot be proved by parol
16 financially in any contract with, or in any 78 evidence (for enforceability).
17 franchise or special privilege granted by the 79
18 Government during his term of office. He 80☛ Illicit arrangements do not give rise to
19 shall not intervene in any matter before any 81 obligations or causes of actions even should
20 office of the Government for his pecuniary 82 they refer to commercial transactions.
21 benefit or where he may be called upon to 83
22 act on account of his office.” 84☛ Contracts entered into by correspondence
23 85 shall be perfected from the moment an
242. Art. VII, Sec. 13 - “The President, Vice- 86 answer is made accepting the offer or the
25 President, Members of the cabinet, and their 87 conditions by which the latter may be
26 deputies or assistants shall not, during said 88 modified. (This is the Manifestation Theory
27 tenure, practice any profession, participate 89 as distinguished from the Cognition theory
28 in any business, be financially interested in 90 followed under the Civil Code).
29 any contract or franchise granted by the 91
30 Government. They shall avoid conflict of 92☛ When an agent or a broker intervenes in a
31 interest in the conduct of their office.” 93commercial contract, the same is perfected only
32 94when the contracting party shall have accepted
333. Art. IX, Sec. 2 - “No member of the 95his offer.
34 Constitutional Commission shall engage in 96
35 the practice of any profession or active 97RULES IN INTERPRETATION OF
36 management of any business which may be 98COMMERCIAL CONTRACTS:
37 affected by the functions of his office, nor 99
38 shall he be financially interested with any 1001. interpretation and compliance in good faith
39 contract or franchise with the Government.” 101 and full enforceability of their provisions in
40 102 their plain, usual and proper meanings;
414. Art. XI, Sec. 16 - “No loan, guaranty, or 1032. in case of conflicts between copies of the
42 other form of financial accommodation for 104 contract, and an agent should have
43 any business purpose may be granted by 105 intervened in its negotiation, that which
4 Page 94
10
1 appears in the agent’s book shall prevail; 63

2 and 64REMEDIES OF A DEBTOR:
33. in case of doubt, and the rules enunciated 65
4 cannot resolve the conflict, issues shall be 661. apply for suspension of payment;
5 decided in favor of the debtor. 672. apply for voluntary insolvency;
6 683. creditor may file for an involuntary
7LETTER OF CREDIT- those issued by one 69 insolvency.
8merchant to another for the purpose of attending 70
9to a commercial transaction. 71DOUBLE MAJORITY
10 72
11KINDS OF LETTERS OF CREDIT: 73 At least 2/3 of the creditors representing
12 74at least 3/5 of the total liabilities of the debtor.
13 1. COMMERCIAL LETTER OF 75
14 CREDIT - an instrument by which a 76CANNOT PARTICIPATE
15 bank, for the account of a buyer of
77
16 merchandise, gives formal evidence to a 781. claims of laborers;
17 merchandise seller, of its willingness to 792. funeral;
18 permit him (the seller), to draw bills 803. contractual mortgages or pledges.
19 against it, on certain terms, and 81
20 stipulates in legal form that all such bills 82NOTE: In case of corporation and partnerships,
21 will be honored. 83SEC has jurisdiction.
22 84
23 2. TRAVELER’S LETTER OF 85ACTS OF INSOLVENCY:
24 CREDIT- is a letter from a bank
86
25 addressed to one or more of its 871. intention to depart or departure from the
26 correspondents stating that drafts up to 88 Philippines to defraud creditors;
27 a certain sum drawn by the beneficiary 892. absence from the Philippines to defraud
28 will be honored by the bank. 90 creditors;
29 913. concealment of debtor to avoid legal
30ESSENTIAL CONDITIONS OF LETTERS OF 92 processes;
31CREDIT: 934. concealment or removal of his property to
32 94 avoid legal processes;
33 1. to be issued in favor of a definite 955. confession of judgment in favor of any
34 person and not to order. 96 creditor to defraud other creditors;
35 2. to be limited to a fixed and 976. allowing default judgment in favor of a
36 specified amount, or to one or more 98 creditor to defraud other creditors;
37 undetermined amounts, but within a 997. allowing his property to be taken under legal
38 maximum limits of which have to be 100 process in preference of a particular creditor
39 stated exactly. 101 to defraud other creditors;
40 3. Those which do not have any of 1028. making conveyance, assignment or transfer
41 these last circumstances shall be 103 of his property to defraud his creditors;
42 considered as mere letters of 1049. making conveyance, assignment or transfer
43 recommendation. 105 of his property in contemplation of
44 106 insolvency;
45TERM/ DURATION OF A LETTER OF CREDIT: 10710. default of a merchant or tradesman to pay
46 108 his current obligations for a period of thirty
47 1. upon the period fixed by the parties 109 days after demand;
48 2. in its absence, within 6 months from its 11011. failure to pay money on deposit or received
49 date in any point in the Philippines and 111 in a fiduciary capacity for a period of thirty
50 within 12 months outside thereof 112 (30) days;
51 11312. insufficiency of property to satisfy an
52 114 execution issued against him. (Sec. 20,
53INSOLVENCY LAW 115 Insolvency Law)
54 116
55PURPOSE OF THE LAW: 117SUSPENSION OF PAYMENTS
56 118
119☛ is the postponement, by court order, of
571. to effect an equitable distribution of assets
120payment of debts of one who, while possessing
58 of an insolvent debtor among his creditors;
121sufficient property to cover his debts, foresees
592. to benefit the debtor in discharging him
122the impossibility of meeting them when they
60 from his liabilities and enabling him to start
123respectively fall due.
61 anew with the property set apart to him as
124
62 exempt.
125DISTINCTIONS :
4 Page 95
10
SUSPENSION OF INSOLVENCY 19c. Upon request to the court, all pending

PAYMENT 20 executions of the debtor shall be suspended
1. The debtor has 1. The debtor 21 except execution against property
sufficient property does not have 22 especially mortgaged.
but he foresees sufficient property 23
the impossibility to pay his debts. 24EFFECTS OF ADJUDICATION OF
of meeting his 25INSOLVENCY:
debts as they fall 26
due. 27The adjudication or declaration of insolvency by
2. The purpose 2. The purpose 28the court after hearing or default shall have the
is to suspend or is to discharge 29following effects:
delay the the debtor from 30a. forbid the payment to the debtor of any debt
payment of the payment of 31 due to him and the delivery to him of any
debts. certain debts. 32 property belonging to him;
3. The amount of 3. Some of the 33b. forbid the transfer of any property to him;
indebtedness is creditors may 34c. stay of all pending civil proceedings against
not affected. receive less than 35 the insolvent. (Secs. 18 and 24 of Act
their credits. 36 1956)
4. The number of 4. In case of 37
creditors is involuntary 38☛ Unpaid claims of wages are subordinate to
immaterial. insolvency, 3 or 39legal and contractual claims.
more creditors 40
are required. 41JURISDICTION:
42
1 43Note: The provisions of the Insolvency Law still
2 44governs the procedure when a corporate debtor
3 45seeks to pursue voluntary insolvency
4 46proceedings (the word “debtor” includes
5 47partnerships, corporations and sociedades
6DISTINCTIONS : 48anonimas).
VOLUNTARY INVOLUNTARY 49
INSOLVENCY INSOLVENCY 50VOLUNTARY INSOLVENCY
1. One creditor is 1. Three or more 51
sufficient. creditors are 52Sec. 14 An insolvent debtor, owing debts
required. 53exceeding in amount the sum of P1,000, may
2. Filed by the 2. Filed by three or 54apply to be discharged from his debts and
debtor. more qualified 55liabilities by petition to the Regional Trial Court
creditors. 56of the province or city in which he has resided
3. No need for the 3. Debtors must 57for six months next preceding the filing of such
commission of have committed 58petition.
acts of one or more acts 59
insolvency. of insolvency. 60INVOLUNTARY INSOLVENCY
4. Amount of 4. Indebtedness 61
indebtedness must not be less 62Sec. 20 An adjudication of insolvency may be
must exceed one than one thousand 63made on the petition of three or more creditors,
thousand pesos pesos 64residents of the Philippines whose credits or
(P1,000.00). (P1,000.00). 65demand accrued in the Philippines, and the
5. Bond is not 5. Petition must be 66amount of which credits or demand are in the
required. accompanied by a 67aggregate not less than P1,000: PROVIDED,
bond. 68that none of his creditors has become a creditor
7 69by assignment, however made, within 30 days
8EFFECTS OF FILING OF PETITION OF 70prior to the filing of said petition. Such petition
9SUSPENSION OF PAYMENTS: 71must be filed in the Regional Trial Court of the
72province or city in which the debtor resides or
10 73has his principal place of business, and must be
11a. No disposition in any manner of his property
74verified by at least three of the petitioners.
12 may be made by the petitioner except
75
13 insofar as concerns the ordinary operations
14 of commerce or of industry in which he is 76SUSPENSION OF PAYMENTS
15 engaged; 77
16b. No payments may be made by the 78A) INDIVIDUAL DEBTOR
17 petitioner except in the ordinary course of 79
18 his business or his industry, and;
4 Page 96
10
1Sec. 2 The debtor who, possessing sufficient 60 6.returns the goods, documents or
2property to cover all his debts foresees the 61 instruments if unsold or upon demand of
3impossibility of meeting them when they 62 entruster;
4respectively fall due, may petition that he be 63 7.observes all other terms and conditions of
5declared in the state of suspension of payments 64 the trust receipt.
6by the court, or the judge thereof in vacation, of 65
7the province or city in which he has resided for 66IN CASE OF LOSS: (Sec 10) The risk of loss
8six months next preceding the filing of his 67shall be borne by the entrustee. Loss of goods,
9petition. 68documents or instruments which are the subject
10 69of the trust receipt, pending disposition,
11DEBTOR CORPORATION 70irrespective of whether or not it is due to the
12 71default or negligence of the entrustee shall not
13Sec. 5[d]. P.D. 902-A: Petitions of Corporations 72extinguish his obligation to the entruster for the
14to be declared in a state of suspension of 73value thereof.
15payments in cases where the corporation 74
16possess sufficient property to cover all its debts 75☛ It is assumed that the title and possession is
17but foresees the impossibility of meeting them 76turned over to the entrustee. The law does not
18when they respectively fall due or in cases 77cover sales on credit with the title or other
19where the corporation has no sufficient assets to 78interest being retained by the seller as security
20cover its liabilities but is under management of a 79thereof.
21Rehabilitation Receiver or Management 80
22Committee. 81NO AGENCY RELATIONSHIP IS
23 82ESTABLISHED.
24 83
25 84☛ No agency relationship is established; an
26 85 entrustee’s breach of trust, however,
27 86 subjects him to criminal and civil liability to
87 estafa. As held by the Supreme Court in
28 88 People vs. Cuervo (104 SCRA 312), the
29 89 enactment of P.D. 115 with its penal
30TRUST RECEIPT LAW 90 sanction is, in reality, merely confirmatory
31 91 of existing jurisprudence on situations
32TRUST RECEIPT 92 covered by Article 315 of the Revised
33☛ trust receipt is a security transaction intended 93 Penal Code. Thus, the court ruled, an
34to aid in financing importers or dealers in 94 entrustee in a trust receipt who failed to
35merchandise by allowing them to obtain delivery 95 account for the proceeds of the goods
36of the goods under certain covenants. 96 sold or to return the goods, as the case
37 97 maybe, is guilty of estafa even where the
98 offense was committed before the
38OBLIGATION OF: 99 promulgation of P.D. 115 on June 29,
39 100 1973. But unlike the old rule, P.D. 115
40 (A) ENTRUSTER 101 now expresses a criminal liability on the
41 An entruster releases the title and 102 part of responsible officers of corporation
42 possession of goods (over which he holds 103 and judicial entities.
43 absolute title or security interest) to an 104
44 entrustee upon the latter’s execution of the trust
105NOTE: The borrower continues to be the
45 receipt.
106owner of the goods and may not exempt himself
46 107from liability by offering the goods to the bank.
47 (B) ENTRUSTEE 108
48 (See Sec. 9 of P.D. 115 TRL)
109
49
50 1.holds the goods, documents or instruments 110TRUTH IN LENDING ACT
51 in trust; 111
52 2.receives the proceeds in trust; 112SCHEME OF THE LAW
53 3.insures the goods for their total value 113☛ The law requires the creditor to make a full
54 against loss; 114disclosure of the credit cost to the person to
55 4.keeps said goods or proceeds thereof; 115whom the credit is extended, otherwise, the
56 5.binds himself to hold the goods in trust for 116debtor may recover any interest payment made
57 the entruster and to sell or otherwise 117by him but the validity of the contract/transaction
58 dispose the same and to turn over to the 118itself is NOT adversely affected.
59 entruster the amount still owing; 119
120PURPOSE OF THE LAW
4 Page 97
10
1a. to protect a debtor from the effects of 64 the goods for him, as if the
2 misrepresentation or concealment; 65 warehouseman directly contracted with
3b. to permit him to fully appreciate and 66 him.
4 evaluate the real cost of his borrowing; 67
5c. to avoid circumvention of usury laws. 68b. Rights of a person to whom receipt has
6 69 been transferred (Sec. 42): may be
7 NOTE: Non-compliance with the law would 70 defeated by levy and execution
8authorize the debtor to recover any interest 71 1. The title of the goods as against the
9payment made and subject the creditor to penal 72 transferor with respect to a negotiable
10sanction for double finance charges plus 73 warehouse receipt not duly negotiated
11attorney’s fees. The transaction, however, is 74 (merely steps into the shoes);
12valid. 75 2. If the receipt is non-negotiable, such
13 76 person also acquires the right to notify
14 77 the warehouseman of the transfer
15WAREHOUSE RECEIPTS LAW 78 thereof; and
16 79 3. The rights, thereafter, to acquire the
17WAREHOUSE RECEIPT 80 obligation of the warehouseman to hold
18a. It is a written acknowledgement by a 81 the goods for him.
19 warehouse that he has received and holds 82
20 certain goods therein described in store for 83☛ An unpaid seller’s lien or right of stoppage in
21 the person to whom it is issued. 84transitu cannot defeat the right of the holder in
22b. It is a simple written contract between the 85good faith of NWR.
23 owner of the goods and the warehouseman 86
24 to pay the compensation for that service. 87Sec. 25 of Warehouse Receipt Law
25c. It is a bilateral contract. It imports that 88
26 goods are in the hands of a warehouseman 89 ☛ If goods are delivered to a
27 and is a symbolical representation of the 90warehouse man by the owner or by a person
28 property itself. 91whose act in conveying the title to them to a
29 92purchaser in good faith for value would bind the
30☛ If goods are stolen and deposited by the thief 93owner, and the negotiable receipts is issued for
31with a warehouseman, the warehouseman shall 94them.
32not be liable to the holder of the receipt even if 95 ☛ While in possession of such
33he delivers the goods to the real owners without 96warehouseman, the goods cannot be attached
34the receipt being surrendered to him. (Secs. 11 97or levied upon under execution UNLESS:
35and 141, WRL) 981. The document be first surrendered; or
36 992. Its negotiation is enjoined; or
37 1001. The document is impounded by the court.
38MEANING OF NEGOTIABLE UNDER THE 101
39ACT 102 Reason: the law protects an innocent
103 purchaser for value in the negotiation of
40
41☛ It indicates that in the passage of warehouse 104 NWR.
42receipts through the channels of commerce, the 105
43law regards the property which they describe as 106☛ Goods covered by NWR cannot be attached
44following them and gives to their regular transfer 107or levied upon unless receipt is surrendered.
45by indorsement the effect of manual delivery of 108
46the things specified in them. 109 WAREHOUSEMAN
47 110☛ A person lawfully engaged in the business of
48DISTINCTION between the right of a person to 111storing goods for compensation for such service.
49whom a receipt has been negotiated and rights 112
50of a person to whom a receipt has been 113 TO WHOM DELIVERED
51transferred. 114☛ upon demand made by the holder of receipt
52 115or depositor provided such demand is
53a. Rights of a person to whom a receipt has 116accompanied by :
54 been negotiated (Sec. 41): 117 a. an offer to satisfy the WM’s lien;
55 1. the title of the person negotiating the 118 b. an offer to surrender the receipt, if
56 receipt over the goods covered by the 119 negotiable, with such endorsement as
57 receipt; 120 would be necessary for the negotiation
58 2. the title of the person (depositor or 121 of the receipt; and
59 owner) to whose order by the terms of 122 c. a readiness and a willingness to sign,
60 the receipt the goods were to be 123 when the goods are delivered, if such
61 delivered over such goods; and 124 signature is requested by the
62 3. the direct obligation of the 125 warehouseman.
63 warehouseman to hold possession of 126
4 Page 98
10
1WARRANTIES ON SALE OF RECEIPT: (Sec. 63(US$7,500,000.00) may be wholly owned by

244) 64foreigners except for the first two (2) years after
3 65the effectivity of this Act wherein foreign
4a. that the receipt is genuine; 66participation shall be limited to not more than
5b. that he has legal right to negotiate or 67sixty percent (60%) of total equity.
6 transfer it; 68
7c. that he has knowledge of no fact which 69☛ Category C – Enterprises with a paid – up
8 would impair the validity or worth of the 70capital of the equivalent in Philippine Pesos of
9 receipt; and 71Seven million five hundred thousand US dollars
10d. that he has a right to transfer the title to the 72(US$7, 500,000.00) or more may be wholly
11 goods and that the goods are merchantable 73owned by foreigners : Provided, however, That
12 or fit for a particular purpose whenever such 74in no case shall the investments for establishing
13 warranties would have been implied, if the 75a store in Categories B and C be less than the
14 contract of the parties had been to transfer 76equivalent in Philippine Pesos of Eight hundred
15 without a receipt the goods represented 77thirty thousand US dollars. (US$830,000.00)
16 thereby. 78☛ Category D – Enterprises specializing in
17 79high-end or luxury products with a paid-up
18 80capital of the equivalent in Philippine Pesos of
19RETAIL TRADE LIBERALIZATION 81Two hundred fifty thousand US dollars
20ACT OF 2000 82(US$250,000.00) per store may be wholly
83owned by foreigners.
21 (RA 8762) 84
22 85END-USE DOCTRINE
23PURPOSE 86☛ This means that a person who buys the
24 87goods acquires them for his own use and not for
25It is the policy of the State: 88resale, in that case the transaction is retail.
26☛ to promote consumer welfare in attracting, 89
27promoting and welcoming productive
28investments that will bring down prices for the
90
29Filipino consumer, 91
30☛ create more jobs, 92
31☛ promote tourism, 93
32☛ assist small manufacturers, 94
33☛ stimulate economic growth and
34☛ enable Philippine goods and services to
95
35 become globally competitive through the 96
36 liberalization of the retail trade sector. 97
37ELEMENTS WHICH MUST CONCUR TO 98ANTI-DUMMY LAW
38CONSIDER IT AS RETAIL: 99(CA 108 As Amended)
39 100
40a. the seller must be habitually engaged in 101☛ The law punishes the evasion of
41 selling; 102nationalization laws (by the use of dummies) and
42b. the sale must be direct to the general public; 103prohibit them from intervening in the
43c. the object of the sale is limited to 104management, operation, administration or
44 merchandise, commodities or goods for 105control of any nationalized industries.
45 consumption (Marsman and Co. vs. First 106
46 Coconut). 107ALIENS MAY BE EMPLOYED IN THE
47 108FOLLOWING CASES:
48FOREIGN EQUITY PARTICIPATION 109
49CONSUMER GOODS 1101. Employment in technical personnel
50 111 approved by the president upon
51☛ Category A – Enterprises with paid – up 112 endorsement of the department head
52capital of the equivalent in Philippine Peso of 113 concerned (i.e. the Secretary of Justice or
53less than Two million five hundred thousand US 114 under special laws, by the entity or office
54dollars ( US $2, 500,000.00) shall be reserved 115 concerned, such as the Bureau of
55exclusively for Filipino citizens and corporations 116 Industries, the Director of Mines and Geo-
56wholly owned by Filipino citizens. 117 sciences.
57 1182. Election of alien directors to the extent
58☛ Category B – Enterprises with a minimum 119 allowable and actual foreign equity
59paid – up capitail of the equivalent in Philippine 120 participation.
60Pesos of Two million five hundred thousand US
61dollars ( US$2, 500,000.00) but less than Seven
62million five hundred thousand US dollars
4 Page 99
10
1 SAN BEDA COLLEGE, 2000-2001
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1 SAN BEDA COLLEGE OF LAW, 2000-2001

2 MEMORY AID in COMMERCIAL LAW

NOTE EXCHANGE 27LEGAL TENDER

Fund for Particular Fund for 38☛ An instrument is payable at a

1 fixed period after date and it is issued 64

a. wanting in any material particular incomplete complete

DELIVERY delivered undelivered Undelivered

Note: Delivery may be made for a conditional or

KIND OF DEFENSE Personal Real Personal

CORPORATE ACT NUMBER OF NUMBER OF VOTES PROCEDURE / OTHER REQUIREMENTS

6. Election of officers (Sec 25) Majority vote of all

10. Investment of Corporate Funds to another  Non-voting can vote

20. Ratification of act of disloyal director 2/3 OCS

24. Fixing compensation for directors  Reasonable per diems

1III. INSURANCE LAW 62 maybe rather onerous. Courts cannot

1 suffered by reason of designated perils is 60INSURABLE INTEREST – interest which

1party to whom the communication is due, in 3. conclusively 3. must be proved to

11. parties 63NOTE: Notwithstanding any agreement to

1Exceptions: (Sec. 93) (Sec. 95)

1of economic risk is the principle of risk- 61

1 46 him while the carrier has. (Necessito vs.

1of a contract of carriage (COMPANIA 62 a. upon discharge of goods, if the

1 2) command and direct crew; 628. damages due to non-observance of marine

1 decision of the captain in case of 64 2) repeated insubordination, want of

1 63 7) to bring cargo to nearest neutral port

12. F.O.B.- free on board; 64

1 - damage and expenses deliberately 64 c. defect of vessel due to improper repair;

1 NOTE: Under Sec. 20g of C.A. 146, the 61

1 64 and other materials which are original by

1 arrangement of their contents." (Sec. 173.1 64 - including quotations from newspaper

1 63 shall be the original owner of the copyright in

14. Commercial rental to the public of the trademarks or or services is

11. Distinguishing or differentiating functions. It 50 designation or origin, or any false

1 4. Is identical with a registered mark 64 the owner of the registered mark:

1 an entity does not do business in the 49

1 model or industrial designed, 64 a. it can be produced

1 stocks at the time of consolidation 63 sale or other forms of transfer of

1 personal property of mortgages on 62 1. the total investment in equities shall

1 3. loans to the extent covered by hold-out 62 3. in default thereof, a receiver shall be

1Section 74 - No bank shall enter directly or 64

1Section 26, RA 7653 64 other applicable laws, together with

1 banks and assists in the reopening 64RECOVERABLE CEILING IN CASE

1 1) by acquiring, purchasing or owning up 64qualified to operate offshore banking units in the

1EXCEPTIONS: 632. Interest in business;

1 c. foreclosure of chattel mortgage on 3. One of the 3. It is not required.

1expressed in a chattel mortgage to cover debts 62

1DISTINCTIONS : 44 any government owned or controlled bank to

1 appears in the agent’s book shall prevail; 63

SUSPENSION OF INSOLVENCY 19c. Upon request to the court, all pending

1WARRANTIES ON SALE OF RECEIPT: (Sec. 63(US$7,500,000.00) may be wholly owned by

4Memory Aid in Commercial Law:

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