Professional Documents
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Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property Law
2012
UP L AW BAR REVIEWER
LAW
Dean Danilo L. Concepcion Dean, UP College of Law Prof. Concepcion L. Jardeleza Associate Dean, UP College of Law Prof. Ma. Gisella D. Reyes Secretary, UP College of Law Prof. Florin T. Hilbay Faculty Adviser, UP Law Bar Operations Commission 2012 Ramon Carlo F. Marcaida Commissioner Eleanor Balaquiao Mark Xavier Oyales Academics Committee Heads Anna Katarina Rodriguez Mickey Chatto Mercantile Law Subject Heads Graciello Timothy Reyes Layout
2012
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
UP L AW BAR REVIEWER
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villega s Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
LAW
MERCANTILE LAW
Copyright and all other relevant rights over this material are owned jointly by the University of the Philippines College of Law and the Student Editorial Team. The ownership of the work belongs to the University of the Philippines College of Law. No part of this book shall be reproduced or distributed without the consent of the University of the Philippines College of Law. All Rights reserved.
Letters of Credit
A. B. C. D. E. Definition/Concept ................. 11 Governing laws ...................... 11 Nature of letter of credit .......... 11 Parties to a letter of credit ....... 12 Basic Principles of letter of credit 12
IV. ..................................... Signature ................................................. 24 A. Signing in Trade Name ............. 24 B. Signature of Agent .................. 24 C. Indorsement by Minor or Corporation ................................ 25 D. Forgery ............................... 25 V. ............................... Consideration ................................................. 27 VI.Accommodation party ................................................. 27 VII.Negotiation .............................. 27 A. Negotiation Distinguished from Assignment................................. 27 B. Modes of Negotiation ............... 27 1. By Delivery - If payable to bearer (Sec. 30) ................................. 27 2. By Indorsement completed by Delivery - If payable to order (Sec. 30) 28 3. Other Kinds of Indorsement .... 29 VIII.Rights of the Holder ................... 29 A. Holder in Due Course (HDC) ....... 29 B. Defenses against the Holder ...... 31 IX.Liabilities of Parties ................................................. 31 A. Parties Primarily Liable (Sec. 60 and 62) 31 B. Parties Secondarily Liable ......... 31 C. Warranties ........................... 32 X.Presentment for Payment ................................................. 33 A. Necessity of presentment for payment .................................... 33 B. Parties to whom presentment for payment should be made ................ 33 C. Dispensation with presentment for payment .................................... 33 D. Dishonor by non-payment.......... 33 XI.Notice of Dishonor ................................................. 33 A. Parties to be notified .............. 33 B. Parties who may give notice of dishonor .................................... 34 C. Effect of notice ..................... 34 D. Form of notice (Sec. 96) ........... 34 E. Waiver ................................ 34 F. Dispensation with notice........... 34
MERCANTILE LAW REVIEWER G. Effect of failure to give notice ... 34 V.Insurable Interest ................................................. 45 A. In Life/Health ....................... 46 B. In Property ........................... 47 C. Double Insurance and Over Insurance ................................... 48 D. Multiple or Several Interests on Same Property [Secs. 8, 9] ..................... 49 VI.Perfection of the Contract of Insurance ................................................. 49 VII. Rescission of Insurance Contracts .... 52 VIII. Claims Settlement and Subrogation . 55
XII. Discharge of Negotiable Instrument 34 A. Discharge of negotiable instrument 34 B. Discharge of parties secondarily liable ....................................... 35 C. Right of party who discharged instrument ................................. 35 D. Renunciation by holder (Sec. 122) 35 XIII.Material alteration ................................................. 35 A. Concept .............................. 35 B. Effect of material alteration ...... 35 XIV. ................................ Acceptance ................................................. 36 A. Definition ............................ 36 B. Manner ............................... 36 C. Time for acceptance (Sec. 136) .. 36 D. Rules governing acceptance....... 36 XV. Presentment of Acceptance ......... 36 A. Time/place/manner of presentment ........................................ 37 B. Effect of failure to make presentment (Sec. 144).................. 37 C. Dishonor by non-acceptance ...... 37 XVI.Promissory Notes ................................................. 37 XVII. ..................................... Checks ................................................. 37 A. Definition ............................ 37 B. Kinds .................................. 37 C. Presentment for payment............ 38 1. Time ............................... 38 2. Effect of delay ................... 38
MERCANTILE LAW REVIEWER B. Duration of liability ................ 65 1. Waiting for carrier or boarding of carrier ................................... 65 2. Arrival at destination ........... 66 C. Liability for acts of others......... 66 1. Employees ........................ 66 2. Other passengers and strangers 66 D. Extent of liability for damages ... 67 IV.Bill of Lading ................................................. 67 A. Three-fold character ............... 67 B. Delivery of goods ................... 67 1. Period for delivery............... 67 2. Delivery without surrender of bill of lading ................................ 67 3. Refusal of consignee to take delivery ................................. 68 C. Period for filing claims............. 68 D. Period for filing actions ............ 68 V.Maritime Commerce ................................................. 68 A. Charter Parties ...................... 68 1. Bareboat/Demise Charter ...... 68 2. Time Charter ..................... 69 3. Voyage/Trip Charter ............ 69 B. Liability of Shipowners and Shipping Agents ...................................... 69 1. Liability for acts of captain .... 69 2. Exceptions to limited liability . 69 C. Accidents and Damages in Maritime Commerce ................................. 70 1. General Average ................. 70 2. Collisions (Asked in 95 and 98 Bar Exams) .................................. 71 D. Carriage of Goods by Sea Act (Commonwealth Act No. 65) ............ 72 1. Application ....................... 72 2. Notice of Loss or Damage....... 72 3. Period of Prescription (Asked in 92, 95, 00 and 04 Bar Exams) ........ 72 4. Limitation of liability ........... 72 VI.Public Service Act ................................................. 73 A. Definition of public utility (Asked in 92, 93, 95, 98 and 00) ................... 73 B. Necessity for certificate of public convenience ............................... 73 1. Requisites for issuance of CPC . 74 2. Prior operator rule .............. 74 C. Fixing of rate ........................ 75 1. Rate of return .................... 75 2. Exclusion of income tax as expense ................................. 75 D. Unlawful arrangements ............ 75 1. Boundary system ................. 75 2. Kabit system (Asked in 90 and 05) 76 E. Approval of sale, encumbrance or lease of property ......................... 76 VII.The Warsaw Convention ................................................. 77 A. Applicability ......................... 77 B. Liability of Carrier for Damages .. 77 C. Limitation of Liability .............. 77 1. Liability to passengers .......... 77 2. Liability for checked baggage .. 77 3. Liability for hand-carried baggage 77 D. Willful misconduct .................. 77
MERCANTILE LAW REVIEWER Definition ......................... 83 Requirements (Sec. 10) ......... 83 B. Minimum Capital Stock and Subscription Requirements .............. 84 C. Corporate Term ..................... 84 D. Classification of Shares ............ 84 VI. Incorporation and organization ................................................. 86 A. Promoter ............................. 86 1. Liability of Promoter ............ 86 2. Liability of Corporation for Promoters Contract .................. 86 B. Subscription Contract .............. 86 C. Pre-incorporation Subscription Agreements ................................ 87 D. Consideration for Stocks ........... 87 E. Articles of Incorporation........... 87 1. Contents (Sec. 14) ............... 87 2. Non-amendable items ........... 88 F. Corporate Name limitations on use of corporate name ....................... 89 G. Registration and Issuance of Certificate of Incorporation ............. 89 H. Election of Directors or Trustees . 89 I. Adoption of By-Laws ............... 90 VII. Corporate powers ..................... 90 A. General powers, theory of general capacity (Sec. 36) ........................ 90 B. Specific powers, theory of specific capacity .................................... 91 1. Power to extend or shorten corporate term......................... 91 2. Power to increase or decrease capital stock or incur, create, increase bonded indebtedness....... 91 3. Power to deny pre-emptive rights 91 4. Power to sell or dispose of corporate assets ....................... 91 5. Power to acquire own shares .. 91 6. Power to invest corporate funds in another corporation or business .. 91 7. Power to declare dividends .... 91 8. Power to enter into management contract ................................. 91 9. Ultra vires acts (Sec. 45) ....... 93 10. Doctrine of individuality of subscription ............................ 93 11. Doctrine of equality of shares 93 12. Trust fund doctrine ........... 94 C. How Exercised....................... 94 1. 2. 1. 2. 3. By the Shareholders ............. 94 By the Board ...................... 94 By the Officers ................... 95
VIII. Stockholders and members ......... 95 A. Fundamental Rights of a Stockholder ................................ 95 B. Participation in Management...... 95 1. Proxy ............................... 95 2. Voting Trust ....................... 95 3. Cases When Stockholders Action is Required .............................. 96 C. Proprietary Rights .................. 98 1. Right to Dividends ............... 98 2. Right of Appraisal ................ 99 3. Right to Inspect .................. 99 4. Preemptive Right ...............100 5. Right to Vote ....................100 D. Remedial Rights ....................100 1. Individual Suit ...................100 2. Representative Suit .............100 3. Derivative Suit ...................101 E. Obligations of a Stockholder .....101 F. Meetings .............................102 1. Regular or Special...............102 2. Who Calls the Meetings ........102 3. Quorum (Sec. 50) ...............102 4. Minutes of Meetings ............103 IX.Board of directors and trustees ............................................... 103 A. Repository of Corporate Powers .103 B. Tenure, Qualifications and Disqualifications of Directors ..........104 C. Elections (Sec. 24) .................104 D. Removal (Sec. 28) .................105 E. Filling of Vacancies (Sec.29) .....105 F. Compensation (Sec. 30) ...........105 G. Disloyalty ............................105 H. Business Judgment Rule ..........106 I. Solidary Liability for Damages ...106 J. Liability for Watered Stocks ......106 K. Personal Liabilities ................106 L. Responsibility for Crimes .........107 M. Special Facts Doctrine ............107 N. Inside Information .................107 O. Contracts ............................107 1. By self-dealing directors with the corporation ............................107 2. Between corporations with interlocking directors ................107 P. Executive Committee .............108 1. Creation ..........................108 2. Limitations on its Powers ......108
MERCANTILE LAW REVIEWER Q. 1. 2. 3. 4. Meetings ............................ 108 Regular or Special .............. 108 Who Presides (Sec. 54) ......... 108 Quorum (Sec. 25) ............... 108 Rule on Abstention ............. 108 3. By Management Committee or Rehabilitation Receiver ..............115 4. Liquidation after Three Years .115 XII.Other corporations ............................................... 115 A. Close Corporations (Corporation Code, Title XII) ...........................115 1. Characteristics of a Close Corporation ............................116 2. Validity of Restrictions on Transfer of Shares ....................116 3. Issuance or Transfer of Stock in Breach of Qualifying Conditions ....116 4. When Board Meeting is Unnecessary or Improperly Held ....116 5. Preemptive Right ...............117 6. Amendment of Articles of Incorporation ..........................117 7. Deadlocks ........................117 B. Non-Stock Corporations (Corporation Code, Title XI)............119 1. Definition ........................119 2. Purposes (sec. 88) ..............119 3. Treatment of Profits............119 4. Distribution of Assets Upon Dissolution .............................119 C. Religious Corporations ............119 1. Corporation Sole (Sec. 110) ...119 D. Foreign Corporations ..............120 1. Bases of Authority Over Foreign Corporations ...........................120 2. Necessity of a License to Do Business ................................120 3. Personality to Sue...............121 4. Suability of Foreign Corporations 121 5. Instances When Unlicensed Foreign Corporations May Be Allowed to Sue ...................................121 6. Grounds for Revocation of License .................................121 XIII. Merger and consolidation .......... 122 A. Definition and Concept (Corporation Code, Title IX)............................122 B. Constituent v. Consolidated Corporation ...............................122 C. Plan of Merger or Consolidation (Sec. 76) ..................................122 D. Articles of Merger or Consolidation (Sec. 78) ..................................122 E. Procedure ...........................122 F. Effectivity ...........................123 G. Limitations ..........................123
X. Capital affairs .......................... 109 A. Certificate of Stock ............... 109 1. Nature of the Certificate ...... 109 2. Uncertificated Shares .......... 109 3. Negotiability ..................... 109 4. Issuance .......................... 109 5. Stock and Transfer Book (Sec. 74, par. 4) .................................. 110 6. Lost or Destroyed Certificates (Sec. 73) ............................... 110 7. Situs of the Shares of Stock ... 110 B. Watered Stocks .................... 110 1. Definition ........................ 110 2. Liability of Directors for Watered Stocks .................................. 110 3. Trust Fund Doctrine for Liability for Watered Stocks ................... 110 C. Payment of Balance of Subscription (Sec. 66 & 67) ............................ 111 1. Call by Board of Directors ..... 111 2. Notice Requirement ............ 111 D. Sale of Delinquent Shares (Sec. 68) 111 1. Effect of Delinquency (Sec. 71) 111 2. Call by Resolution of the Board of Directors (Sec. 68).................... 111 3. Notice of Sale ................... 111 4. Auction Sale ..................... 111 E. Alienation of Shares ............... 112 1. Allowable Restrictions on the Sale of Shares ......................... 112 2. Sale of Partially Paid Shares .. 112 3. Sale of a Portion of Shares not Fully Paid .............................. 112 4. Sale of All of Shares Not Fully Paid 112 5. Sale of Fully Paid Shares ....... 112 6. Requisites of a Valid Transfer. 112 7. Involuntary Dealings ............ 113 XI. Dissolution and liquidation ......... 113 A. Modes of Dissolution .............. 113 1. Voluntary ........................ 113 2. Involuntary....................... 114 B. Methods of Liquidation ........... 114 1. By the Corporation Itself ...... 114 2. Conveyance to a Trustee within a 3-Year Period.......................... 115
MERCANTILE LAW REVIEWER H. Effects ............................... 123 2. Liability of Director/Officer for Delay in the Filing of Required Documents .............................133 3. Liability of Aider/Abettor .....133
MERCANTILE LAW REVIEWER B. Definition and classification of banks ...................................... 146 C. Distinction between banks and quasi-banks and trust entities ......... 147 D. Bank powers and liabilities ....... 147 E. Diligence required of banks ...... 149 F. Nature of bank funds and bank deposits ................................... 150 G. Stipulation on interests ........... 150 H. Grant of loans and security requirements (Prudential measures) . 150 I. Penalties for violation ............ 153 IV. Philippine Deposit Insurance Corporation Act (RA 3591, as amended) ............................................... 153 A. Basic Policy ......................... 153 B. Concept of Insured Deposits ..... 153 C. Liability of Depositors ............. 154 Chapter V. Foreign Currency Deposit Act (RA 6426) .................................. 156 A. Confidentiality ..................... 156 B. Privileges ........................... 157 B. Acquisition of Ownership of Marks 170 C. Acquisition of Ownership of Trade Name ......................................170 D. Non-registrable Marks .............171 E. Tests to Determine Confusing Similarity between Marks ...............171 F. Well-known Marks..................172 Determinants (need not concur)....172 Protection extended to Well-Known Marks ...................................172 G. Rights Conferred by Registration 173 H. Use by Third Parties of names, etc. similar to Registered Marks ............173 I. Cancellation of Trademark .......174 J. Infringement and Remedies ......174 K. Unfair Competition ................176 L. Trade Names and Business Names 177 M. Collective Marks....................178 N. Criminal Penalties .................178 IV. Copyright A. B. C. D. E. F. G. Basic Principles.....................178 Copyrightable Works ..............179 Non-copyrightable Works .........179 Rights of Copyright Owner ........180 Rules on Ownership of Copyright 183 Deposit on Copyrightable Materials 184 Limitations on Copyright ..........185
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V. Registration Flowcharts A. Patent Application .................190 B. Utility Model and Industrial Design 191 C. Copyright Registration and Deposit 192
Letters of Credit
Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
MERCANTILE LAW A. Definition/Concept B. Governing laws C. Nature of letter of credit D. Parties to a letter of credit E. Basic Principles of letter of credit
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A. Definition/Concept
A letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee (Transfield Philippines v. Luzon Hydro, 2004). A letter of credit is an engagement by a bank or other person made at the request of a customer that the issuer shall honor drafts or other demands of payment upon compliance with the conditions specified in the credit (Prudential Bank v. Intermediate Appellate Court, 1992). Its purpose is to substitute for, and support, the agreement of the buyer-importer to pay money under a contract or other arrangement, but does not necessarily constitute as a condition for the perfection of such arrangement (Reliance Commodities, Inc. v. Daewoo Industrial Co., Ltd.)
B. Governing laws
The Uniform Customs and Practice (UCP) for Documentary Credits governs transactions involving letters of credit. The provisions of the Code of Commerce on letters of credit (Art. 567-572) have been repealed. Letters of Credits have long been and are still governed by the provisions of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce. (Metropolitan Waterworks and Sewerage System v. Daway, 2004) We have further observed that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable. (Bank of America, NT&SA v. Court of Appeals, 1993)
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2.
Depending on the transaction, the number of parties to the letter of credit may be increased. Thus, the different types of correspondent banks: 4. Advising/Notifying Bank the bank which conveys to the seller the existence of the credit. The bank assumes no liability except to notify and/or transmit to the seller the existence of the letter of credit. A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. The bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the notifying bank promises to
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Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
b. Kinds a. Negotiable Receipts A receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt (Sec.5). Negotiation may be made either by: i. delivery (a) Where, by terms of the receipt, the warehouseman undertakes to deliver the goods to the bearer, or (b) Where, by the terms of the receipt, the warehouseman undertakes to deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the receipt has indorsed it in blank or to bearer (Sec. 37)
of
ii. indorsement A negotiable receipt may be negotiated by the indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of such person in blank, to bearer or to another specified person. Subsequent negotiation may be made in like manner (Sec. 38) b. Non-Negotiable Receipts A receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person (Sec. 4). The indorsement of such receipt gives the transferee no additional right (Sec. 39) NOTE No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such provision, if inserted shall be void. BUT, a non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it "non-negotiable," or "not negotiable." In case of the warehouseman's failure so to do, a holder of the receipt who purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable (Sec. 7). c. Distinction Instrument and Receipt Negotiable Instrument May be issued by anyone with capacity to contract Must contain all the requisites under Sec. 1 between a a Negotiable Negotiable Warehouse
The warehouseman may deliver the goods to the following: (a) (b) The person lawfully entitled to the possession of the goods, or his agent; A person who is either himself entitled to delivery by the terms of a non-negotiable receipt issued for the goods, or who has written authority from the person so entitled either indorsed upon the receipt or written upon another paper; or A person in possession of a negotiable receipt by the terms of which the goods are deliverable to him or order, or to bearer, or which has been indorsed to him or in blank by the person to whom delivery was promised by the terms of the receipt or by his mediate or immediate indorser (Sec. 9)
(c)
Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by subdivisions (b) and (c) of the preceding section, and though he delivered the goods as authorized by said subdivisions, he shall be so liable, if prior to such delivery he had either: (a) Been requested, by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make such deliver; or (b) Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods.
Negotiable Warehouse Receipt May be issued only by a warehouseman Must contain all the essential terms under
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B. Duties of a Warehouseman
1. Duty to deliver to the persons entitled to delivery as enumerated in Sec. 9 A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor; if such demand is accompanied with: (a) An offer to satisfy the warehouseman's lien; (b) An offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation of the receipt; and (c) A readiness and willingness to sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the warehouseman (Sec. 8) NOTE Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by subdivisions (b) and (c) of the preceding section, and though he delivered the goods as authorized by said subdivisions, he shall be so liable, if prior to such delivery he had either: (a) Been requested, by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make such deliver; or (b) Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods (Sec. 10) 2. Duty to ensure the existence of goods and the accurate description thereof in the warehouse receipt Otherwise, he shall be liable for damages to the holder of the receipt (Sec. 20) 3. Duty to exercise care over goods A warehouseman must exercise the degree of care as a reasonably careful owner would exercise. Otherwise, he shall be liable for any loss or injury arising from failure to exercise such care. 4. Duty to keep goods of different depositors, or of same depositor when his goods are covered by separate receipts, separate. Exception: Fungible goods can be commingled with the same kind, if warehouseman is authorized by agreement or by custom. 5. Duty to cancel/mark a negotiable receipt when goods/part of goods are delivered Otherwise, he shall be liable to anyone who purchases for value in
d. Rights of a holder of a negotiable warehouse receipt as against a transferee of a non-negotiable warehouse receipt Rights of Holder of a Negotiable Warehouse Receipt Acquires: (a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor or person to whose order the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value; and (b) The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman and contracted directly with him (Sec. 41). Rights of a Transferee of Non-Negotiable Warehouse Receipt Acquires: (a) as against the transferor, the title of the goods subject to the terms of any agreement with the transferor. (b) the right to notify the warehouseman of the transfer to him of such receipt and thereby to acquire the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt (Sec. 42) NOTE Prior to the notification of the warehouseman by the transferor or transferee of a nonnegotiable receipt, the title of the transferee to the goods and the right to acquire the obligation of the warehouseman may be defeated by the levy of an attachment or execution upon the goods by a creditor of the transferor or by a notification to the warehouseman by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor. (Sec. 42)
NOTE If the warehouse receipt is negotiable through indorsement, the transferee thereof which acquired the same through mere delivery acquires the right to
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C. Warehousemans Lien
A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands: (a) for all lawful charges for storage and preservation of the goods; (b) for all lawful claims for money advanced, interest, insurance, transportation, labor, weighing, coopering and other charges and expenses in relation to such goods; (c) for all reasonable charges and expenses for notice, and advertisements of sale; and (d) for sale of the goods where default had been made in satisfying the warehouseman's lien (Sec. 27) NOTE General Rule A warehouseman shall have lien only for charges for storage of goods subsequent to the date of the receipt. Exception When the receipt expressly enumerated other charges provided under Sec. 27 even though the amounts thereof are not stated in the receipt. (Sec. 30) However, whether a warehouseman has or has not a lien upon the goods, he is entitled to all remedies allowed by law to a creditor against a debtor for the collection from the depositor of all charges and advances which the depositor has expressly or impliedly contracted with the warehouseman to pay (Sec. 32). 1. Against what property the lien may be enforced: (a) Against all goods, whenever deposited, belonging to the person who is liable as debtor for the claims in regard to which the lien is asserted, and (b) Against all goods belonging to others which have been deposited at any time by the person who is liable as debtor for the claims in regard to which the lien is asserted if such person had been so entrusted with the possession of goods that a pledge of the same by him at the time of the deposit to one who took the goods in good faith for value would have been valid (Sec. 28) 2. Satisfaction of the Lien a. By Sale In accordance with the terms of a notice so given, a sale of the goods by auction may be had to satisfy any valid claim of the warehouseman for which he has a lien on the goods.
The Warehousmans Lien is possessory. The lien may be lost: (a) by surrendering possession thereof; or (b) by refusing to deliver the goods when a demand is made with which he is bound to comply under the provisions of this Act. Thus, a warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied (Sec. 31)
MERCANTILE LAW A. Definition/Concept of a Trust Receipt Transaction B. Rights of the Entruster C. Obligations and Liability of the Entrustee D. Remedies available
purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements made by a bank. The title of the bank to the security is the one sought to be protected and not the loan which is a separate and distinct agreement (People v. Nitafan, 1992) b. Ownership of the goods, documents and instruments under a trust receipt Entrustee is the factual owner of the goods, documents and instruments (Prudentlal Bank v. NLRC) Entruster is the real owner documents and instruments. of the goods,
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A trust receipt transaction, within the meaning of this Decree, is any transactionwhereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments... (Sec. 4, TRL) NOTE "Security Interest" means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. Prudential Bank v. NLRC, 1995 Accordingly, in order to secure that the banker shall be repaid at the critical point that is, when the imported goods finally reach the hands of the intended vendee the banker takes the full title to the goods at the very beginning; he takes it as soon as the goods are bought and settled for by his payments or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the goods are sold [I]n a certain manner, (trust receipt contracts) partake of the nature of a conditional sale as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the person who has advanced payment, until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest. NOTE In the earlier cases of Vintola v. IBAA (1987) and Abad v. Court of Appeals (1990), the Supreme Court held that the entrustee becomes the absolute owner of the goods, documents and instruments, the entruster being a mere security holder.
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The entruster shall have the following rights: (1a) Right to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt; OR (1b) Right to the return of the goods, documents or instruments in case of non-sale; AND (2) Right to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of the TRL. (3) Right to cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. (4) Right to sell the goods, documents or instruments at public or private sale at least five days notice to the defaulting entrustee of the intention to sell. (5) Right to purchase the goods, documents or instruments at a public sale. (6) Right to recover the deficiency from the entrustee should the proceeds of the sale not be sufficient (Sec. 7) a. Validity of the security interest as against the creditors of the entrustee/innocent purchasers for value
(e) To return the goods, documents or Instruments in the event of non-sale or upon demand of the entruster; and (f) To observe all other terms and conditions of the trust receipt not contrary to the provisions of the TRL. (Sec. 9) 2. Liabilities of the Entrustee (a) Liability for Loss - The risk of loss shall be borne by the entrustee. Loss of goods, documents or instruments which are the subject of a trust receipt, pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof (Sec. 10) (b) Liability for failure to turn over proceeds of sale or to return the failure shall constitute the crime of estafa, punishable under Art. 315 (b) of the Revised Penal Code (Sec. 13) d. Penal sanction if offender is a corporation If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense (Sec. 13)
D. Remedies available
1. In case of default or failure of the entrustee to comply with the trust receipt agreement Entruster may cancel the trust receipt agreement, take possession of the goods, documents, instruments, and sell the same at any private or public sale at least five days from notice of intention to sell to the entrustee. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster (Sec. 7) 2. In case of loss of the goods, documents, instruments Entrustee may claim damages from the entrustee (Sec.10) In case of failure to turn over proceeds of the sale of the goods, documents or instruments or to return the same in case of non-sale Entruster may file a criminal complaint for estafa (Art. 315 (b) of the Revised Penal Code) against the entrustee,
3.
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
LAW
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
MERCANTILE LAW I. Forms and Interpretation II. Completion and Delivery III. Rules of Interpretation IV. Signature V. Consideration VI. Accommodation Party VII. Negotiation VIII. Rights of a Holder IX. Liabilities of Parties X. Presentment for Payment XI. Notice of Dishonor XII. Discharge of Negotiable Instrument XIII. Material Alteration XIV. Acceptance XV. Presentment for Acceptance XVI. Promissory Notes XVII.Checks
Definition Written contract for the payment of money, by its form and on its face, intended as substitute for money and intended to pass from hand to hand to give the holder in due course (HDC) the right to hold the same and collect the sum due. Instruments are negotiable when they conform to all the requirements prescribed by the NIL (Act 2031, 03 February 1911). Although considered as medium for payment of obligations, negotiable instruments are not legal tender (Sec. 60, New Central Bank Act, R.A. 7653). BPI vs. Royeca, (2008, Nachura): Q: Can the delivery of a negotiable instrument discharge an obligation? A: Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. Negotiable instruments shall produce the effect of payment only when they have been encashed or when through the fault of the creditor they have been impaired. (Art. 1249, Civil Code) BUT a CHECK which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash.
2. Containing
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of this Act, though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional. a. UNCONDITIONAL The promise or order to pay, to be unconditional, must be unqualified. Fact that the condition appearing on the instrument has been fulfilled will not convert it into a negotiable one (see Sec. 4) A negotiable instrument is conditional when reference to the fund clearly indicates an intention
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c. AT A DETERMINABLE FUTURE TIME Sec. 4. Determinable future time; what constitutes. An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable: (a) At a fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. Examples: - I promise to pay Juan Cruz or order the sum of P100 30 days after date - I promise to pay Juan Cruz or order the sum of P100 on or before Dec. 1, 2000 - I promise to pay Juan Cruz or order the sum of P100 60 days after the death of Jose Effect of acceleration provisions: - If option (absolute or conditional) to accelerate maturity is on the maker, still NEGOTIABLE. - If option to accelerate is on the holder and can be exercised only after the happening of a specified event/act over which he has no control (conditional), still NEGOTIABLE. Provisions extending time of payment General rule Negotiability not affected. Effect is similar with that of an acceleration clause at the option of the maker. Exception Where a note with a fixed maturity provides that the maker has the option to extend time of payment until the happening of contingency, the instrument
4. Payable in money
a. Capable of being transformed into money. b. NON-NEGOTIABLE: An instrument which contains an order or promise to do an act in addition to the payment of money (with the exception of certain acts enumerated in Sec. 5) Payable in personal property like merchandise, shares of stock or gold. Maker or the person primarily liable has the option to require something to be done in lieu of payment of money. (CAMPOS) c. NEGOTIABLE: if the option to require something to be done in lieu of payment of money is with the holder.
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a.
b.
The negotiability or non-negotiability of an instrument is determined from the face of the instrument itself. Where words "or bearer" printed on a check are cancelled by the drawer, instrument becomes not negotiable. (Caltex vs. CA, 1992) c. PAYABLE TO BEARER Sec. 9. When payable to bearer. The instrument is payable to bearer: (a) When it is expressed to be so payable; or (b) When it is payable to a person named therein or bearer; or (c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or (d) When the name of the payee does not purport to be the name of any person; or (e) When the only or last indorsement is an indorsement in blank. Examples: - Expressed to be so payable "I promise to pay the bearer the sum." - Payable to a person named therein or bearer "Pay to A or bearer." - Payable to the order of a fictitious person or non-existing person, and such fact was known to the person making it so payable Pay to John Doe or order." - Name of payee does not purport to be the name of any person "Pay to cash;" "Pay to sundries." - Only or last indorsement is an indorsement in blank. Fictitious payee rule It is not necessary that the person referred to in the instrument is really non-existent or fictitious to make the instrument payable to bearer. The person to whose order the instrument is made payable may in fact be existing but he is still fictitious or nonexistent under Sec. 9(c) of the NIL if the person making it so payable does not intend to pay the specified persons. A check drawn payable to the order of cash is a check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer's indorsement. (Ang Tek Lian vs. CA, 1950)
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2. Bill a. b. c. d.
Check - A bill of exchange drawn on a bank payable on demand. (Sec. 185). It is the most common form of bill of exchange. Instances when a bill of exchange may be treated as a promissory note The drawer and the drawee are the same person; or Drawee is a fictitious person; or Drawee does NOT have the capacity to contract (Sec. 130) Where the bill is drawn on a person who is legally absent; Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election. (Sec. 17[e]) (Sec. 17[e]) Promissory Note vs. Bill of Exchange Promissory note Bill of exchange Unconditional promise Unconditional order Involves 2 parties Involves 3 parties Maker is primarily liable Drawer is only secondarily liable Only one presentment: Two presentments: for for payment acceptance and for payment
B. Completion of Blanks
Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. A signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. For such instrument to be enforceable against any person who became a party thereto prior to its completion, it must be filled up strictly in
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When subsequently negotiated to an HDC, there is a presumption that such instrument is filled up strictly in accordance with the authority given and within reasonable time.
Where two promissory notes, both employing the terms I promise to pay, were each signed by two or more persons, a solidary (joint and several) liability on each note is created on the part of the signors. (Evangelista vs. Mercator Finance, 2003)
IV. Signature
GENERAL RULE One whose signature does not appear on the instrument shall not be liable thereon. EXCEPTIONS a. The principal who signs through an agent is liable; b. The forger is liable; c. One who indorses in a separate instrument (allonge) OR where an acceptance is written on a separate paper is liable; d. One who signs his assumed or trade name is liable; and e. A person negotiating by delivery (as in the case of a bearer instrument) is liable to his immediate indorsee.
B. Signature of Agent
Signature of any party may be made by duly authorized agent, established as in ordinary agency. Signature per procuration operates as notice that the agent has limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. Liability General rule Where a person adds to his signature words indicating that he signs on behalf of a principal, then hes not liable if he was duly authorized. Exceptions a. Mere addition of words describing him as an agent without disclosing his principal b. Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec. 65, unless he discloses name of principal and fact that hes only acting as agent. (Sec. 69)
2.
3. 4.
C. Indorsement Corporation
by
Minor
or
The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon (Sec. 22). REAL defense but available only to the incapacitated party (ex. minor or corporation).
General rule When a signature is forged or made without the authority of the person, the signature (not the instrument itself and the other genuine signatures) is wholly inoperative - Effects: o No right to retain the instrument o No right to give a discharge therefor o No right to enforce payment thereof against any party thereto can be acquired through or under such signature Exception Unless the party against whom it is sought to be enforced is precluded from setting up the forgery or want of authority as a defense (Sec. 23). Persons precluded from setting up defense of forgery 1. Those who warrant or admit the genuineness of the signature in question. This includes indorsers, persons negotiating by delivery and acceptors. 2. Those who, by their acts, silence, or negligence, are estopped from setting up the defense of forgery.
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D. Forgery
Counterfeit making or fraudulent alteration of any writing, which may consist of: a. Signing of anothers name with intent to defraud; or b. Alteration of an instrument in the name, amount, name of payee, etc. with intent to defraud.
Rules on Forgery 1. Promissory Note ORDER INSTRUMENT 1. Maker is not liable because he never became a party to the instrument. 2. Indorsers subsequent to forgery are liable because of their warranties. 3. Party who made the forgery is liable. 1. Maker and payee not liable. 2. Indorsers subsequent to forgery are liable. 3. Party who made the forgery is liable. 1. Maker, payee, indorser whose signature/s was/were forged, and all indorsers preceding the forgery are not liable. 2. Indorsers subsequent to forgery are liable. (Because of their warranties) 3. Party who made the forgery is liable. BEARER INSTRUMENT 1. Maker is not liable. 2. Indorsers may be made liable to those persons who obtain title through their indorsements. 3. Party who made the forgery is liable. 1. Maker is liable. (Why? Indorsement is not necessary to title and the maker engages to pay holder) 2. Party who made the forgery is liable 1. Maker is liable. (Indorsement is not necessary to title and the maker engages to pay the holder) 2. Indorser whose signature was forged is not liable to one who is not a HDC provided the instrument is mechanically complete before the forgery. 3. Party who made the forgery is liable.
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1. Drawer and drawee are liable. 2. Payee is not liable. 3. Collecting bank is liable because of warranty. 4. Party who made the forgery is liable. 1. Drawer is liable. (indorsement not necessary to title) 2. Drawee is liable. 3. Indorser whose signature was forged is liable because indorsement is not necessary to title. 4. Party who made the forgery is liable.
Acceptance and payment under mistake A bank is bound to know the signatures of its depositors. If bank pays a forged check it must be considered as making the payment out of its own funds and cannot charge the account of the depositor whose signature was forged. (PNB vs. Quimpo, 1988) Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check. (Samsung vs. Far East Bank, 2004) Extensions of Price vs. Neal doctrine Doctrine: As between equally innocent persons, the drawee who pays money on a check or draft the signature on which was forged CANNOT recover the money from the one who received it. The drawee is bound to know the signature of its depositor. The bar to recovery is extended to overdrafts and stop payment orders. Overdraft occurs when a check is issued for an amount more than what the drawer has in deposit with the drawee bank. - Rule: The drawee who pays the holder of the bill cannot recover from the holder what he paid under mistake Stop Payment Order is one issued by the drawer of a check countermanding his first order to the drawee bank to pay the check. - Rule: The drawee bank is bound to follow the order, provided it is received prior to its certification or payment of the check.
Effects of Negligence of Depositor If such negligence was the proximate cause of the loss, the drawee-bank is NOT liable - It is the duty of the depositor/drawer to carefully examine banks statements, cancelled checks, his check stubs, and other pertinent records within a reasonable time and to report any errors without unreasonable delay. - If a drawer/depositors negligence and delay should cause a bank to honor a forged check, drawer cannot later complain should bank refuse to recredit his account. When drawee may recover from drawer - Where the instrument is originally a bearer instrument, because the indorsement can be disregarded as being unnecessary to the holders title - Indorsement forged by an employee or agent of the drawer - If due to the drawers negligence/delay, the forgery is not discovered until it is too late for the bank to recover from the holder or the forger When drawee may not recover from holder - Where the instrument is originally a bearer instrument, because the indorsement can be disregarded as being unnecessary to the holders title - If drawee fails to act promptly , if he delays in informing the holder whom he paid
VI.Accommodation party
Sec. 29. Liability of accommodation party. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Liability The person to whom the instrument thus executed is subsequently negotiated has a right of recourse against the accommodation party in spite of the formers knowledge that no consideration passed between the accommodation and accommodated parties (Sec. 29).
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V. Consideration
Value Any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time. Who is a Holder for Value (HFV)? a. A holder of an instrument for which value has been given at any given time but only with respect to all parties who have become parties to the instrument prior to the time at which value has been given. b. A holder who as a lien on the instrument but only to the extent of his lien. Presumption of Consideration Sec. 24. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.
VII.Negotiation
A. Negotiation Distinguished from Assignment
NEGOTIATION The transfer of the instrument from one person to another so as to constitute the transferee as holder thereof (Sec.30). ASSIGNMENT The transferee does not become a holder and he merely steps into the shoes of the transferor. Any defense available against the transferor is available against the transferee.
Effect of Want of Consideration Absence or failure of consideration is a matter of defense as against any person not a holder in due course, hence, a personal defense.
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2. By
Indorsement Where placed The indorsement must be written (Sec. 31): a. On the instrument itself, or b. On a separate piece of paper attached to the instrument called allonge Signature of the indorser, without additional words, is a sufficient indorsement (Sec. 31) Must be of the ENTIRE instrument - CANNOT indorse a part only of the amount payable; BUT if the instrument has been paid in part, then the instrument may be indorsed as to the residue (Sec. 32) - CANNOT transfer the instrument to two or more indorsees severally (Sec. 32) - If not an indorsement of the entire instrument, the transfer remains valid, but as a mere assignment which subjects the holder to all defenses on the instrument (CAMPOS) Kinds of Indorsement As to manner of future method of negotiation 1. Special - Specifies the person to whom/to whose order the instrument is to be payable; indorsement of such indorsee is necessary to further negotiation. - A special indorser is liable to all subsequent holders, unless the instrument is an originally bearer instrument, in which case he is liable only to those who take title through his indorsement (Sec 40). - An instrument, payable to bearer, and indorsed specially, may nevertheless be further negotiated by delivery. (Sec 40)
As to title transferred 1. Restrictive - Such indorsement either: o Prohibits further negotiation of instrument o Constitutes indorsee as agent of indorser o Vests title in indorsee in trust for another (Sec 36) - Rights of Restrictive Indorsee: o Receive payment o Bring any action thereon that the indorser could bring. o Transfer his rights as such indorsee, but all subsequent indorsees acquire only the title of first indorsee under restrictive indorsement. (Sec 37) 2. Non-restrictive As to kind of liability assumed by indorser 1. Qualified - Constitutes indorser as mere assignor of title - Made by adding the words without recourse (Sec. 38). - But this does not mean that the transferee only has the rights of an assignee. Transfer remains a negotiation and transferee can still be a holder capable of acquiring a title free from defenses of prior parties. - Effects: o Relieves the qualified indorser of his liability to pay the instrument should the maker be unable to pay o The qualified indorser does not guarantee the solvency of the maker, but merely his legal title to the instrument o The instrument may still be further negotiated; no effect on its negotiability 2. Non-qualified
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2.
NOTE This section applies only to an instrument payable to the order of the transferor. This cannot apply to bearer instruments.
Material Particulars A change in the ff. is considered a material alteration (Sec. 125): - Date
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NOTE An overdue instrument is still negotiable, but it is subject to the defense existing at the time of the transfer. As to what constitutes a reasonable time, regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instrument, and the facts of the particular case. (Sec. 193) An instrument is not invalid for the reason only that it is ANTE-DATED OR POSTDATED provided not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery (Sec. 12). c. That he took it in good faith AND for value VALUE - Any consideration sufficient to support a simple contract. An antecedent or preexisting debt constitutes value, whether the instrument is payable on demand or at a future time (Sec. 25) HOLDER FOR VALUE - Where value has at any time been given for the instrument, the holder is deemed a HFV in respect to all parties who become such prior to that time (Sec. 26); and - Where the holder has a lien on the instrument, he is deemed a HFV to the extent of his lien (Sec .27). Presumption: Every NI is deemed prima facie issued for valuable consideration; and every person whose signature appears thereon is deemed to have become a party thereto for value (Sec. 24).
State Investment House vs. IAC (1989): A check with 2 parallel lines in the upper left hand corner means that it could only be deposited and may not be converted to cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the holders title to the check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that the holder of the check is not a holder in good faith. DEFECTIVE TITLE Title is NOT defective when at the time it was negotiated to him, he had NO notice of: - any infirmity in instrument - any defect in title of person negotiating Title is DEFECTIVE when (Sec. 55): - instrument / signature obtained by fraud, duress, force or fear or other unlawful means OR for an illegal consideration; or - instrument is negotiated in breach of faith, or fraudulent circumstances - NOTICE of infirmity or defect actual knowledge of the infirmity or defect OR knowledge of such facts that his action in taking the instrument amounted to bad faith (Sec.56) - RIGHT of a transferee who receives NOTICE of any infirmity or defect BEFORE he has PAID THE FULL amount for the instrument.
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Liable
These are persons who by the terms of the instrument are absolutely required to pay the same. 1. Maker (Sec. 60) Promises to pay according to the tenor of the promissory note 2. Acceptor (Sec. 62) Upon acceptance of the bill of exchange, engages to pay the bill according to the tenor of the acceptance. Unconditionally liable; he is duty-bound to pay the holder at date of maturity, WON holder demands payment from him, and he is not relieved from liability even if the instrument should become overdue due to failure of holder to make such demand. NOTE Until he accepts the bill of exchange, the drawee assumes no liability to pay the instrument. Secondary liability A party secondarily liable is not bound to pay unless the following have been fulfilled: Due presentment or demand to the primary party Dishonor by such party Notice of dishonor to secondary party, and, in cases of foreign bills of exchange, protest of the bill
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C. Warranties
Maker 1. existence of the payee; 2. his then capacity to indorse Acceptor 1. the existence of the payee; 2. his then capacity to indorse; 3. existence of the drawer; 4. the genuineness of the drawers signature; 5. the drawers capacity and authority to draw the instrument; Drawer 1. existence of the payee; 2. his then capacity to indorse General/ Unqualified Indorser 1.genuineness of the instrument in all respects that it purports to be; 2. his good title to the instrument; 3. all prior parties capacity to contract; 4. the instrument is valid and subsisting at the time of his indorsement. Qualified Indorser 1.genuineness of the instrument in all respects that it purports to be; 2. his good title to the instrument; 3. all prior parties capacity to contract; 4. no knowledge of any fact which would impair the validity of the instrument or render it valueless. Person Negotiating by Delivery 1.genuineness of the instrument in all respects that it purports to be; 2. his good title to the instrument; 3. prior parties capacity to contract; 4. no knowledge of any fact which would impair the validity of the instrument or render it valueless. NOTEWarranty extends only to immediate transferee
NOTE No. 3 does not apply to person negotiating public or corporation securities other than bills and notes.
Demand bill of exchange within a reasonable time after the last negotiation. (Sec. 71) NOTE Although presentment was made within a reasonable time from last negotiation, it may have been made within an unreasonable time from issuance. Thus holder may still not be a holder in due course under Sec. 71.
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A. Necessity of presentment for payment B. Parties to whom presentment for payment should be made
When necessary In order to charge the drawer and indorsers (Sec. 70) When NOT necessary To charge the person primarily liable on the instrument (Sec. 70) To charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. (Sec. 79) To charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. (Sec. 80) When the bill of exchange has previously been dishonored by non-acceptance and has not been subsequently accepted. Under Sec. 151, an immediate right of recourse against the persons secondarily liable accrues to the holder.
A. Parties to be notified
1) 2) Non-acceptance (bill) to persons secondarily liable, namely, the drawer and indorsers as the case may be. Non-payment (both bill and note) indorsers.
NOTE Notice must be given to persons secondarily liable. Otherwise, such parties are discharged. Notice may be given to the party himself or to his agent. When not Necessary Notice of dishonor is not required to be given to the drawer in any of the ff. cases: Drawer and drawee are the same; Drawee is a fictitious person or not having the capacity to contract; Drawer is the person to whom the instrument is presented for payment; The drawer has no right to expect or require that the drawee or acceptor swill honor the instrument; Where the drawer has countermanded payment. (Sec. 114) Notice of dishonor is not required to be given to an indorser in the ff. cases: Drawee is a fictitious person or does not have the capacity to contract, and indorser was aware of that fact at the time he indorsed the instrument; Indorser is the person to whom the instrument is presented for payment; Instrument was made or accepted for his accommodation. (Sec. 115)
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A. Discharge instrument
of
negotiable
C. Effect of notice
Notice of Dishonor is required to charge parties secondarily liable.
Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. 1) By payment in due course (Asked in 00) Sec. 88. What constitutes payment in due course. Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective. If payment is made before maturity and the note is negotiated to a HDC, the latter may recover on the instrument. Payment to one of several payees or indorsees in the alternative discharges the instrument, but payment to one of several joint payees or joint indorsers is not a discharge. The party receiving payment must have been authorized by others to receive payment. By whom made: a. payment in due course by or on behalf of principal debtor b. payment in due course by party accommodated where party is made/ accepted for accommodation 2) By intentional cancellation Sec. 123. Cancellation; unintentional; burden of proof. A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative. But where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority.
E. Waiver
Sec. 109. Waiver of notice. Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be expressed or implied. Sec. 110. Whom affected by waiver. Where the waiver is embodied in the instrument itself, it is binding upon all parties; but, where it is written above the signature of an indorser, it binds him only.
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XIV. Acceptance
A. Definition
The signification by the drawee of his assent to the order of the drawer. Kinds of Acceptance a. General -- assents without qualification to the order of the drawer b. Qualified - which in express terms varies the effect of the bill as drawn Conditional - makes payment by the acceptor dependent on the fulfillment of a condition therein stated Partial - an acceptance to pay part only of the amount for which the bill is drawn. Local - an acceptance to pay only at a particular place. Qualified as to time - the acceptance of some one or more of the drawees but not of all. (Sec. 141)
B. Manner
Express Acceptance Must be in writing and signed by the drawee and must not express that the drawee will perform his promise by any other means than the payment of money. (Sec. 132) If request for a written acceptance is refused, the holder may treat the bill as dishonored (Sec. 133) Implied Acceptance If the drawee refuses to return the instrument within 24 hours after it was delivered for acceptance. If the drawee destroys the same. If the drawee makes an unconditional promise in writing before the instrument is drawn, with respect to every person who, upon the faith thereof, receives the bill for value.
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A. Time/place/manner of presentment
When made Sec. 146. On what days presentment may be made. A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections seventy-two and eighty-five of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o'clock noon on that day. How made Sec. 145. Presentment; how made. Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and (a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only; (b) Where the drawee is dead, presentment may be made to his personal representative; (c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee.
XVII. Checks
A. Definition
Sec. 185. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.
B. Kinds
1) Cashiers Check One drawn by the cashier of a bank, in the name of the bank against the bank itself payable to a third person. It is a primary obligation of the issuing bank and accepted in advance upon issuance (Tan vs. CA 1994). 2) Managers Check A check drawn by the manager of a bank in the name of the bank itself payable to a third person. It is similar to the cashiers check as to the effect and use. 3) Memorandum Check A check given by a borrower to a lender for the amount of a short loan, with the understanding that it is not to be presented at the bank, but will be redeemed by the maker himself when the loan falls due and which understanding is evidenced by writing the word memorandum, memo or mem on the check. 4) Certified Check An agreement whereby the bank against whom a check is drawn undertakes to pay it at any future time when presented for payment. (Sec. 187)
make
Failure to make presentment discharges the drawer and all indorsers (Sec. 144). What is reasonable time involves a consideration of the nature of the instrument, usage of trade or business with respect to the instrument, and the facts of each case.
C. Dishonor by non-acceptance
Sec. 149. When dishonored by non-acceptance. A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or (b) When presentment for acceptance is excused and the bill is not accepted. Sec. 150. Duty of holder where bill not accepted. Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by
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1. Time
When to present? A check must be presented for payment within reasonable time after its issue.
2. Effect of delay
Effect of delay in presentment The drawer will be discharged from liability thereon to the extent of the loss caused by the delay. (Sec. 186) Certification of Checks An agreement whereby the bank against whom a check is drawn, undertakes to pay it at any future time when presented for payment. Effects Equivalent to acceptance (Sec. 187) and is the operative act that makes banks liable
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
Insurance Code
LAW
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
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Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
Insurance Code
MERCANTILE LAW I. Concept of Insurance II. Elements of Insurance Contract III. Characteristics/Nature of Insurance Contracts IV. Classes V. Insurable Interest VI. Perfection of the Contract of Insurance VII. Rescission of Insurance Contracts VIII.Claims Settlement and Subrogation
Doing or transacting an insurance business GENERAL RULE An insurance business consists in undertaking, for a consideration, to indemnify another against loss, damage or liability arising from an unknown or contingent event. SUPPLEMENTARY RULE Although the business is not formally designated as one of insurance and no profit is derived or no separate or direct consideration is received, It is deemed to be doing an insurance business, If it undertakes any of the following circumstances: 1. Making or proposing to make, as insurer, any insurance contract 2. Making or proposing to make, as surety, any contract of suretyship as a vocation not as a mere incident to any other legitimate business of a surety 3. Doing any insurance business, including a reinsurance business 4. Doing or proposing to do any business in substance equivalent to any of the above [Sec. 2, par. 2]. Sec. 2, Par. 2 The fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
I. Concept of Insurance
Contract of insurance Insurance An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event [Sec. 2, par.1] Definition: A contract of indemnity Wherein one undertakes for a consideration To indemnify another against loss, damage, or liability Arising from an unknown or contingent event. - Contingent: an event that is not certain to take place - Unknown: an event which is certain to happen, but, the time of its happening is not known - Past event may be a designated event only in cases where it has happened already but the parties do not know about it, e.g. prior loss of a ship at sea Regulation by the state through a license or certification of authority is necessary since a contract of insurance involves public interest. [White Gold Marine Services vs. Pioneer (2005)] Sec. 4b of the Pre-Need Code Pre-need plans are contracts, agreements, deeds or plans for the benefit of the planholders which provide for the performance of future service/s, payment of monetary considerations or delivery of other benefits at the time of actual need or agreed maturity date, as specified therein, in exchange for cash or installment amounts with or without interest or insurance coverage and includes life, pension, education, interment and other plans, instruments, contracts or deeds as may in the future be determined by the Commission. Pre-need plans: not considered as insurance contracts because even pre-need plans can be insured, thereby implying that the two are not the same. Not governed by the Insurance Code
3)
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2)
A Risk Distributing Device By paying a pre-determined amount into a general fund out of which payment will be made for an economic loss of a defined type, Each member contributes to a small degree toward compensation for losses suffered by any member of the group. Uberrimae Fides Contract (Principle of Utmost Good Faith) Each party is required to disclose conditions affecting the risk of which he is aware, or any material fact which the applicant knows and those which he ought to know. Violation of this duty gives the aggrieved party the right to rescind the contract. Where the aggrieved party is the insured, the bad faith of the insurer will preclude it from denying liability on the policy based on breach of warranty. [CAMPOS] Personal Contract Each party takes into consideration the character, conduct and/or credit of the other and in making of the contract, each is enjoined by law to deal with the other in utmost good faith. [CAMPOS] So, the insured cannot assign, before the happening of the loss, his rights under a property policy to others without the consent of the insurer [Sec. 20, 58, 83].
8)
3)
4)
9)
5) Aleatory Art. 2010, Civil Code By an aleatory contract one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.
IV. Classes 42
1. Marine [Secs. 99166] Insurance against the peril of property in, or incidental to, transit Covers not only property exposed to risks of navigation but also those which are exposed to risks not connected with navigation [CAMPOS]. Bottomry loan: a loan is obtained for the value of the vessel on a voyage and the lender is repaid only if the vessel subject of the loan arrives safely at its destination. Respondentia loan: a loan is obtained as security for the value of the cargo to be transported and the lender is repaid only if the cargo arrives safely at its destination. Also known as transportation insurance
Has two major divisions: a. Ocean Marine Insurance Insurance against risk connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time Inland Marine Insurance Covers the land or over the land transportation perils of property shipped by railroads, motor trucks, airplanes, and other means of transportation Also covers risks of lake, river or other inland waterway transportation and other waterborne perils outside those covered by ocean marine insurance
Sec. 139 A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against: (a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths; (c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or (d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding subparagraph. But freightage cannot in any case be abandoned unless the ship is also abandoned. Insurer becomes the owner of the thing abandoned. Abandonment must be total and absolute and made within a reasonable time so as to give the insurer the chance to promptly save, if possible, some part of the property abandoned by the insured. If abandonment is not accepted, then the insured can claim the proceeds or bring the matter before the court. Characteristics of a valid abandonment: Explicit notice of abandonment Neither partial nor conditional Irrevocable Given reasonable time to abandon 2. Fire [Secs. 167173] Insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies [Sec. 167]. Fire must be the proximate cause of the damage or loss [CAMPOS]. Fire must be visible heat or light. Combustion which produces heat but not visible glow is not fire [CAMPOS]. Fire must be hostile. [CAMPOS]. Risks in fire insurance Hostile vs. friendly fire HOSTILE FIRE One that escapes from the place where it was intended to burn and ought to be OR FRIENDLY FIRE One that burns in a place where it is intended to burn and ought to be Ex: fire burning in a stove or lamp
b.
Risks that may be insured against: Perils of the sea- includes casualties arising from the violent action of the elements and does not cover ordinary wear and tear or other damage usually incident to the voyage. Insurance policy may cover acts of barratry. Barratry- the willful and intentional act on the part of the master of the crew, in pursuance of some unlawful or fraudulent purpose, without the consent of the owner, and to the prejudice of his interest (ex: burning the ship, unlawfully selling the cargo) [CAMPOS]. Liability of Marine Insurer: Loss- total or partial Total loss- actual or constructive Actual total loss- irretrievable loss of the thing or any damage which renders the thing valueless to the owner for the purpose for which he held it Constructive total loss- gives the insured the right to abandon the thing insured by relinquishing to the insurer his interest in such thing, entitling the former to recover for a total loss thereof. In turn, the insurer acquires all the rights over the thing insured. [CAMPOS]
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Measure of indemnity a. Open policy - only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury b. Valued policy - the parties are bound by the valuation, in the absence of fraud or mistake, just like in marine insurance However, where the face value of the policy is less than the agreed valuation, then even in case of total loss, the insured can only recover up to the policys face value, which is always the maximum limit of the insurers liability. 3. Casualty [Sec. 174] Insurance covering loss or liability arising from accident or mishap, Not falling exclusively within the scope of other types of insurance. Includes, but not limited to, employers liability insurance, workmens compensation insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance (ex: robbery and theft insurance) Governed by the general provisions applicable to all types of insurance + stipulations in the insurance contract Risks in casualty or accident insurance Intentional vs. accidental Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieved from liability as stipulated [Biagtan v. the Insular Life Assurance Co. Ltd. (1972)]. Accidental That which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen.
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Individual Life [Secs. 179-183, 227] Insurance on human lives and insurance appertaining thereto or connected therewith [Sec. 179] May be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuation or cessation of life Group Life [Secs. 50, 228] A blanket policy covering a number of individuals who are usually a cohesive group (ex: employees of a company) No medical examination is required of each person insured (in contrast to individual life insurance) but a specified number of persons is usually required before the policy is issued Based on the theory that by the law of averages, only a determinable percentage of the members of the group would die within the contemplated period The policy need not be in printed form and may be typewritten, but the law prescribes the contents of such policy.
d.
V. Insurable Interest
Insurable Interest, Defined Interest which the law requires the policy owner to have in the person or thing insured, the absence of which renders the contract void. Definition A person is said to have an insurable interest in the subject matter insured where he has a relation or connection with, or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against [44 C.J.S. 870 as cited in Lalican v. Insular Life (2009)] Insurable interest: one of the essential elements of an insurance contract so necessary for its validity, may not be waived Sec. 25 Every stipulation for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void. Rationale for requiring insurable interest To avoid constituting insurance as a wagering contract, because the insured has an interest in the preservation or protection of the subject of the insured. To avoid a moral hazard, wherein the insured will have nothing to lose but everything to gain with the happening of the event insured against. Limits the amount that can be recovered in indemnity insurance. Transfer of interest General Rule Sec. 58 The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. Sec. 53 The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy. Exceptions 1. Life, health and accident insurance [Sec. 20] 2. A change in interest in a thing insured, after the occurrence of an injury, which results in a loss [Sec. 21] 3. A change in interest in one or more of several distinct things, separately insured by one policy [Sec. 22] 4. A change in interest, by will or succession, on the death of the insured [Sec. 23] 5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others [Sec. 24]
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Note: It is the only compulsory insurance coverage under the Insurance Code.
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7.
No-Fault Clause Sec. 378 Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind: Provided, That for the purpose of this section: (i) The total indemnity in respect of any person shall not exceed five thousand pesos; (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: a) Police report of accident; and b) Death certificate and evidence sufficient to establish the proper payee; or c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting, or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. No-fault clause: for immediate compensation, only for a minimal amount so injured party can still recover the remaining balance of the damage after final judgment Person who paid under the no-fault clause can collect from the person at fault in case he was not responsible for the accident.
A. In Life/Health
Who has insurable interest over whose life? Sec. 10 Every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends. Interest in ones own life
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3.
B. In Property
Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest. Forms of insurable interest 1. INTEREST in the property itself Ex: Ownership of or a lien on property. 2. RELATION to such property Ex: Interest of a commission agent on goods he is selling. LIABILITY in respect thereof Ex: Interest of carrier on cargo which he has to carry safely to its destination, such interest being limited to the extent of his liability.
Insurable interest of specific persons 1. Stockholder/partner in a firm has inchoate right to dividends in case the firm earns profits and to share in the assets after payment of corporate debts upon a firm's liquidation. 2. General Creditor does not have insurable interest in a debtor's property. 3. Judgment Creditor - has insurable interest in debtors property because he is given a right to levy (general lien). 4. Mortgage Creditor - has insurable interest (lien) which is recognized by the Insurance Code [Sec. 8]. Measure of insurable interest in property Sec. 15 A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof. Sec. 17 The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. Indemnity principle: insured may not recover a greater value than his actual loss Time of existence Sec. 19 An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. GENERAL RULE Interest must exist BOTH at inception and at time of loss, but not in the meantime. EXCEPTIONS (automatic transfer of interest)
3.
No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. [Sec. 18] Sec. 14 An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. Sec. 16 A mere contingent or expectant interest in anything, not founded on an actual right to the
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2.
and
Over
3. 4.
Distinctions between Insurable Interest in Property and Insurable Interest in Life Insurable Insurable Interest in Interest in Life Property Unlimited (save in Limited to life insurance actual value of Extent effected by a the interest creditor on the life thereon of the debtor) Must exist when the insurance Time takes effect when Must exist at the and when the Insurable time the insurance loss occurs, Interest takes effect BUT need not Must Exist exist in the meantime Expectati on of Must have legal Need NOT have legal Benefit to basis basis Be Derived Need not have insurable interest over the life of the insured if the insured Must have himself secured the Beneficiar insurable policy. But if the ys interest over insurance was Interest the thing obtained by the insured beneficiary, the latter must have insurable interest over the life of the insured. (SUNDIANG) Note: When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. Transfer of policy Interest cannot be transferred without the insurers consent, because the insurer has approved the policy based on the personal qualifications and insurable interest of the insured.
Double insurance (Asked in 93, 99, 05) It exists where the same person is insured by several insurers separately in respect to the same subject and interest [Sec. 93] Requisites 1) same person insured 2) two or more insurers separately insuring 3) same subject matter 4) same interest insured 5) same risk or peril insured against The insured CANNOT recover above the value of property, for otherwise, the insurance would constitute wagering. It is not prohibited by law but it may be prohibited by an other insurance clause. Note: Double insurance is not applicable to life insurance because the latter is incapable of pecuniary estimation. Overinsurance (Asked in 08) This happens when the amount of the insurance policy or policies exceed the value of the insurable interest. Overinsurance is allowed, only that the Insurance Code regulates it. Sec. 94 Where the insured is overinsured by double insurance: (a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; (b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; (c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable vale in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under the contract. In case of loss, the insurer is bound to pay only up to the extent of the real value of the property lost. BUT the insured may recover the amount of the premium corresponding to the excess in value of the property. The insured may claim payment from the insurers in such order as he may select, up to
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Insurance contracts follow the cognition theory. Enriquez vs. Sun Life Assurance Co. of Canada (1920) The insurance contract cannot be perfected without the notice of acceptance coming to the knowledge of the applicant. Under the CC, consent is shown by the concurrence of offer and acceptance. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge, known as the cognition theory. Great Pacific Life Assurance Corp. vs. CA (1999) Note that in insurance contracts, the insured is the one making the offer by submitting an application to the insurer and the latter accepts the offer by approving the application. Thus, mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance. (1) Delay in acceptance If there is delay in the acceptance by the insurer, after the insured has submitted an application and has paid the premium, there are three theories that can be applied: 1. Insurer is liable for tort, under the tort theory. Tort theory no pre-existing contractual relation 2. Here, there is delay in acceptance of the obligation insurance business is imbued with public interest. The measure of damage is the face value of the policy. In life insurance, the proceeds will inure to the insureds estate and not to the beneficiary. Insurer is liable under the policy because its delay in formally accepting/denying the application and payment of premium is taken as an implied acceptance.
Premium, Defined The agreed price for assuming and carrying the risk, that is, the consideration paid an insurer for undertaking to indemnify the insured against the specified peril. Sec. 77 An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. Validity of Contract upon Payment General Rule NO insurance policy issued or renewal is valid and binding until actual payment of the premium. Any agreement to the contrary is void [Sec. 77]. Exceptions 1. In case of life and industrial life whenever the grace period provision applies [Sec. 77]. 2. Where there is an acknowledgment in the contract or policy of insurance that the premium has already been paid [Sec. 78] 3. Where there is an agreement to grant the insured credit extension for the payment of the premium despite full awareness of Sec. 77 [UCPB v. Masagana Telemart (2001)] 4. Where there is an agreement allowing the insured to pay premium in installment and partial payment has been made at the time of the loss [Makati Tuscany vs. CA (1992)] 5. Where the parties are barred by estoppel [UCPB v. Masagana (2001)] Makati Tuscany v CA (1992)
3.
4.
It should be noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first premium with his application. [Perez v. Court of Appeals (2000)] Note: Offer when the insured submits an application to the insurer Acceptance when the insurer approves the application Effectivity upon payment of first premium, provided there has been an approval of the application.
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Options of Insured under a lapsed life insurance policy [Secs. 227(f), (h), (j))] Cash Surrender Value (CSV) Amount that the insured is entitled to receive if he surrenders the policy and releases his claims upon it A portion of the reserve on a life insurance policy, resulting from the accumulation of premium overcharges in the early years of the policy Right to CSV accrues only after 3 premium payments Insured is given the right to claim the amount less than the reserve, reduced by surrender charge. Rationale: Premium is uniform throughout your lifetime, but the risk is varied (higher risk when youre older, low when youre young) thus the cost of protection is more expensive during the early years of the policy Alternatives to Obtaining the Cash Surrender Value 1. Extended Insurance/term insurance To have the policy continued in force from date of default for a time either stated or equal to the amount of the CSV, taken as a single premium Term insurance: pay a single premium (no further payments) to extend the policy for a fixed period of time Failure to extend at the end of the fixed period purchase new policy Face value remains the same but only within the term Reinstatement allowed if made within the term purchased, no reinstatement after the lapse of the term purchased
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Not a non-default option Effect: does not create a new contract, merely revives the original policy so insurer cannot require a higher premium than the amount stipulated in the contract It does not apply to group/industrial life insurance. Requisites: Must be exercised within 3 years from date of default Insured must present evidence of insurability satisfactory to the insurer Pay all back premiums and all indebtedness to the insurer CSV must not have been duly paid to insured nor the extension period expired e. Refund of Premiums
Return of Premiums 1. If the thing insured was never exposed to the risks insured against [Sec. 79(a)] 2. When the contract is voidable due to the fraud or misrepresentation of insurer or his agent [Sec. 81] 3. When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy [Sec. 81]
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Sunlife Assurance vs. CA (1995) The fact that the matter concealed had no bearing on the cause of death is NOT important because it is
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Representation, Defined Factual statements made by the insured at the time of, or prior to, the issuance of the policy [Sec. 37] to give information to the insurer and induce him to enter into the insurance contract. may be oral or written [Sec. 36] Kinds of Representations 1) Affirmative Any allegation as to the existence or non-existence of a fact when the contract begins 2) Promissory Any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. A promissory representation is substantially a condition or warranty. Requisites of a False Representation (Misrepresentation) 1. The insured stated a fact which is untrue. 2. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead. 3. Such fact in either case is material to the risk. There is false representation if the matter is true at the time it was made/represented but false at the time the contract takes effect. [Sec. 44] Remedy of injured party is rescission. But the remedy is not available should the insurer accept the premium notwithstanding knowledge of the ground/s for rescission. [Sec. 45] A representation must be presumed to refer to the date on which the contract goes into effect [Sec.42] NO false representation if the matter is true at the time the contract takes effect although false at the time it was made/represented. Effect of Misrepresentation The injured party is entitled to rescind from the time when the representation becomes false. [Sec. 45] Representation of Opinion General Rule A representation of the expectation, belief, opinion, or judgment of the insured, although false, will NOT avoid the policy, even if such was material to the risk (DE LEON). Exception Such representation will avoid the policy if there is a CONCURRENCE OF MATERIALITY AND FRAUDULENCE OR INTENT TO DECEIVE. However, if the representation is one of fact, the insurer need only prove the materiality of
Warranty, Defined A statement or promise by the insured Set forth in the policy or by reference incorporated therein, The untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, Renders the policy voidable by the insurer [VANCE]. Must always be express Purpose To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change of the condition of the property.
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Requisites for recovery from insurance 1) The insured must have insurable interest in the subject matter; 2) That interest is covered by the policy; 3) There must be a loss; and
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Notice of Loss The formal notice given the insurer by the insured or claimant under a policy of the occurrence of the loss insured against. Purpose: To apprise the insurance company so that it may make proper investigation and take such action as may be necessary to protect its interest. Necessary as the insurer cannot be liable to pay a claim unless he receives notice of that claim. In fire insurance: Insurer is exonerated if notice of loss is not given to the insurer by the insured or by the person entitled to the benefit without unnecessary delay [Sec. 88] However, it has been held that formal notice of loss is not necessary if insurer has actual notice of loss already. Form of Notice In the absence of any stipulation in the policy, notice may be given orally or in writing. The notice of loss may be in the form of an informal or provisional claim containing a minimum of information as distinguished from a formal claim which contains the full details of the loss, computations of the amounts claimed, and supporting evidence, together with a demand or request for payment [DE LEON]. In fire insurance Required Failure to give notice will defeat the right of the In other types of insurance Not required Failure to give notice will not exonerate the insurer, unless there is a stipulation in the
Proof of Loss The formal evidence given the insurance company by the insured or claimant under a policy of the occurrence of the loss, the particulars thereof and the data necessary to enable the company to determine its liability and the amount Is not tantamount to proof or evidence under the law on evidence. Form: Like a notice of loss, in the absence of any stipulation in the policy, proof may be given orally or in writing. Proof of loss is intended to: - Give the insurer information by which he may determine the extent of his liability. - Afford him a means of detecting any fraud that may have been practiced upon him. - Operate as a check upon extravagant claims. b. Guidelines on Claims Settlement Sec. 241. No insurance company doing business in the Philippines shall refuse, without just cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim settlement practices. (1) Unfair Claims Settlement; Sanctions Sec. 241 (1) provides for instances of unfair claims settlement done by an insurance company: 1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue; 2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies; 3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies; 4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear; 5. Compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them.
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Maturity
Delivery of Proceeds
Effect of Refusal or Failure to pay claim within time prescribed: In case of litigation, it is the duty of the Commissioner or the Court to determine WON claim has been unreasonably denied or withheld. Failure to pay any such claim within the time prescribed shall be considered prima facie evidence of unreasonable delay in payment.
(2) Prescription of Action Sec. 63 A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void. Sec. 384 Any person having any claim upon the policy issued pursuant to this Chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting form the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from the date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from the denial of the claim, otherwise, the claimants right of action shall prescribe. Period for presenting a written notice of claim within 6 months from date of accident Period for action or suit for recovery of damage within one year from the denial of the claim (denial of the claim is the time when cause of action
accrues, so prior to such denial, action cannot be brought) Art. 1144, Civil Code The following action must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law (3) Upon a judgment. (n) Rules: 1. In the absence of an express stipulation in the policy, it being based on a written contract, the action prescribes in 10 years. 2. However, the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues. Note: In motor vehicle insurance, action prescribes in one year. 3. The cause of action accrues from the rejection of the claim of the insured and not from the time of loss. The period for filing claim is not merely a procedural requirement. It is essential for the prompt settlement of claims as it demands for suits to be brought while the evidence as to the origin and cause of the loss or destruction has not yet disappeared.
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Definition and Scope Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers the situation under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
Transportation Law
LAW
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
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Transportation Law
MERCANTILE LAW I. Common carriers II. Vigilance over goods III. Safety of passengers IV. Bill of lading V. Maritime commerce VI. Public Service Act VII. The Warsaw Convention
narrow segment of the general population [Fabre vs. CA (1996)] Private Carriers Those who transport or undertake to transport in a particular instance for hire or reward. [Agbayani, Commercial Laws of the Philippines] Common Carrier Holds himself out in common, that is, to all persons who choose to employ him, as ready to carry for hire Bound to carry all who offer and tender reasonable compensation for carrying them Private Carrier Agrees in some special case with some private individual to carry for hire Not bound to carry for any reason, such goods as it is accustomed to carry, unless it enters into a special agreement to do so Ordinary diligence Obligations and contracts Not subject to regulation as a common carrier [Agbayani, Commercial Laws of the Philippines]
Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
Availability
I. Common Carriers
Art. 1732 Civil Code. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. What are the elements of a common carrier? 1. It is engaged in the business of carrying or transporting goods for others as a public employment, or passengers, or both 2. It is for compensation or for hire 3. It is operated generally as a business and not as a casual occupation 4. It holds out to the public as ready to engage in the transportation of goods of the kind to which his business is confined [cf. First Phil. Industrial v. CA] First Phil. Industrial v. CA (1998). There is no doubt that petitioner (engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline) is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. Fabre v. CA (1996). The provision (Art. 1732) makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline). Art. 1732 avoids the following distinctions: 1. Between a person or enterprise offering transportation service on a regular basis and one offering such service on occasional or unscheduled basis 2. Between one offering its services to the general public and one soliciting business only from a
Binding Effect
Regulation
Extraordinary diligence Principally, Civil Code provisions on common carriers A public service and is therefore subject to regulation
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1. Requirement
Negligence
of
Absence
of
4) Character of goods Requisites: 1. The character of the goods or defects in packing or containers [Art 1739] 2. The common carrier must exercise due diligence to forestall or lessen the loss [Art 1739] DAMAGE Ascertainable from package Only upon opening the package WHEN TO CLAIM Claim for damages must be made upon receipt Claim for damages may be made within 24 hours upon receipt
Articles 1739 and 1741 provide that the exempting causes listed above must have been the proximate and only cause of the loss. Since the exempting cause must be the only cause of the loss, it follows that for the exempting causes to apply, the provisions also require the absence of negligence.
2. Absence of Delay
Art. 1740. If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility.
After such periods OR after transportation charges have been paid, no more claims for damages will be entertained. [Art 366, Code of Commerce] Southern Lines v. CA (1962). If the fact of improper packing is known to the carrier or its servants or apparent upon ordinary observation, but [the carrier] accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury resulting therefrom. 5) Order of competent authority Requisites: 1. There must be an order or act of competent authority [Art. 1743] 2. The said public authority must have had the power to issue the order. If the officer acts without legal process, then the common carrier will be held liable [Art. 1743] Ganzon v. CA (1988) The intervention of the municipal officials was not of a character that would render impossible the fulfillment by the carrier of the obligation. The petitioner was not duty bound to obey the illegal order [of the mayor] to dump into the sea the scrap iron. There is absence of sufficient proof that the issuance of the order was attended with such force or intimidation as to completely overpower the will of petitioners employees. The mere difficulty in the fulfillment of the obligation is not force majeure. Melencio-Herrera, dissent: Through the order or act of competent public authority, the performance of the contractual obligation was rendered impossible. Apparently, the seizure and destruction of the goods was done under legal process or authority so that petitioner should be freed from responsibility.
B. Contributory negligence
Art. 1741 Civil Code. If the shipper or owner merely contributed to the loss destruction or deterioration of the goods the proximate cause thereof being the negligence of the common carrier the latter shall be liable in damages which however shall be equitably reduced.
C. Duration of liability
Duration of liability/Extraordinary diligence When does carriers responsibility begin? Under Art. 1738, the extraordinary responsibility of the common carrier begins from the time the goods are delivered to the carrier. The delivery must place the goods to be transported unconditionally in the possession of the common carrier and the latter must receive them. When does carriers responsibility terminate? Under Art. 1738, the extraordinary responsibility of the carrier is terminated at the time the goods are
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D. Stipulation liability
for
limitation
of
1. Void stipulations
Art. 1744 Civil Code. A stipulation between the common carrier and the shipper or owner limiting the liability of the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it be: (1) In writing, signed by the shipper or owner; (2) Supported by a valuable consideration other than the service rendered by the common carrier; and
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1. Checked-in baggage
Art. 1754 Civil Code. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to other baggage, the rules in Articles
2. Baggage
passengers
in
possession
of
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Under Art. 1998, the baggage of passengers in their personal custody or in that of their employees while being transported shall be regarded as necessary deposits. The common carrier shall be responsible for such baggage as depositaries (i.e. like hotelkeepers), provided that 1) notice was given to them or to their employees, and that 2) the passengers take the precautions which said carriers advised relative to the care and vigilance of their baggage. [Agbayani, Commercial Laws of the Philippines] When hotel-keeper liable In the following cases, the hotel-keeper is liable regardless of the amount of care exercised: 1. loss or injury is caused by his servants or employees as well as by strangers (Art 2000) provided that: a) notice has been given by the guest, and b) proper precautions taken by the guest (Art 1998) 2. loss is caused by the act of a thief or robber done without the use of arms or irresistible force (Art 2001) When hotel-keeper not liable 1. loss or injury is caused by force majeure (Art 2000), theft or robbery by a stranger (not by hotel-keepers servant or employee) with the use of arms or irresistible force (Art 2001), etc unless he is guilty of fault or negligence in failing to provide against the loss or injury from his cause 2. loss is due to the acts of the guests, his family, servants, or visitors (Art 2002) 3. loss arises from the character of the things brought into the hotel (Art 2002) Art. 2003 Civil Code. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotelkeeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. What is a passenger baggage? They are the things that a passenger will bring with him consistent with a temporary absence from where he lives. Passenger baggage must have a direct relationship with the passenger who is traveling. E.g. A balikbayan box or suitcase is passenger baggage. However, 10,000 cans of corned beef is not considered as passenger baggage. They are considered as goods. If you carry goods with you, you cannot bring them with you as part of your [passenger] contract of carriage. You will need to get a separate contract of carriage (bill of lading) in order to transport them. These goods will then be
2. Arrival at destination
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When does relationship of common carrier and passenger terminate? It does not cease at the moment that the passenger alights from the common carriers vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had reasonable time or a reasonable opportunity to leave the carriers premises. What is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. [La Mallorca v. CA (1966)] Aboitiz v. CA. It is of common knowledge that by the very nature of petitioner's business as a shipper, the passengers of vessels are allotted a longer period of time to disembark from the ship than other common carriers such as a passenger bus. Such vessels are capable of accommodating a bigger volume of both passenger and baggage as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time. Does the duty of extraordinary diligence get interrupted? No. In PAL v. CA, it was held that PAL had to continue to exercise extraordinary diligence even in the case of stranded passengers until they have reached their final destination.
Culpa Contractual (quasi-delict) Art. 1759 Carrier is directly and primarily liable
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What is the common carriers responsibility towards strangers? Art. 1763 imposes only the duty of ordinary diligence. In Bachelor Express v. CA (1990), the Court held that the common carrier has a duty of extraordinary diligence for the act of a copassenger. However, in Pilapil v. CA (1989), the standard of diligence is only ordinary diligence, referring to the acts of strangers.
A. Three-fold character
a. b. c. receipt as to the quantity and description of the goods shipped; contract to transport the goods to the consignee or other person therein designated, on the terms specified in such instrument; document of title
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delivery
Maritime Agencies & Services, Inc. v. CA. The period for filing the claim is one year, in accordance with the Carriage of Goods by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special law, prevails over the general provisions of the Civil Code on prescription of actions. Section 3(6) of that Act provides as follows: In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, that if a notice of loss for damage; either apparent or concealed, is not given as provided for in this section, that fact shall not effect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.
When consignee may refuse to receive goods 1. Partial Delivery. The consignee may refuse to receive them, when he proves that he cannot make use thereof without the others. [Art. 363, Code of Commerce] 2. When the goods are rendered useless for purposes of sale or consumption in the use for which they are properly destined. [Effect: consignee may demand payment of the goods at current market prices] 3. In case part of the goods is in good condition, the consignee may refuse to receive only the damaged goods if separation is possible. [Art. 365, Code of Commerce] In case of dispute as to the condition of the goods, the same shall be examined by experts appointed by the parties, and the third one, in case of disagreement, appointed by the judicial authority. If the persons interested should not agree with the report, said judicial authority shall order the deposits of the merchandise in a safe warehouse, and the parties interested shall make use of their rights in the proper manner. (Art. 367, Code of Commerce)
V. Maritime Commerce
A. Charter Parties
A charter party is a contract by virtue of which the owner or agent of a vessel binds himself to transport merchandise or persons for a fixed price. It is a contract by which the owner or agent of the vessel leases for a certain price the whole or portion of a vessel for the transportation of the goods or persons from one port to another. Towage is not a charter party. It is a contract for the hire of services by which a vessel is engaged to tow another vessel from one port to another for consideration. Caltex v. Sulpicio Lines (1999). A contract whereby the whole or part of the ship is let by the owner to a merchant or other person for a specified time or use for the conveyance of goods, in consideration of the payment of freight.
After such periods OR transportation charges have been paid, no more claims for damages will be entertained. (Art. 366, Code of Commerce) Shorter period may be stipulated by the parties because it merely affects the shippers remedy and does not affect the liability of the carrier. [PHILAMGEN v. Sweetlines, Inc.]
1. Bareboat/Demise Charter
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes the owner pro hac vice (just for that one particular purpose only), subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer, anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all. [Puromines v. CA] Puromines, Inc. v. Court of Appeals. Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment on account of the
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5. 6.
7.
2. Time Charter
Contract of affreightment* wherein the vessel is let for a fixed day or for a determined number of days or months.
Exemption: abandonment of the vessel [Art. 587, Code of Commerce] The owner or agent shall not be liable for the obligations contracted by the captain if the latter exceeds his powers and privileges. However, if the amounts claimed were made use of for the benefit of the vessel, the owner or agent shall be liable. (Art. 588, Code of Commerce)
3. Voyage/Trip Charter
Contract of affreightment* wherein the vessel is let for a particular or single voyage. Note: A contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for special service to be rendered by the owner of the vessel and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. [Puromines vs. CA] In a contract of affreightment, the common carrier is NOT converted into a private carrier.
and
Shipowner has possession, control and management of the vessel and the consequent right to direct her navigation and receive freight earned and paid, while his possession continues. Shipagent is the person entrusted with the provisioning of a vessel, or who represents her in the port in which she happens to be.
2. The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried.
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1. General Average
General or gross averages shall be all the damages and expenses which are deliberately caused in order to save the vessel, her cargo, or both at the same time, from a real and known risk, and particularly the following: 1. The goods or cash invested in the redemption of the vessel or cargo captured by enemies, privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during the time the arrangement or redemption is taking place. 2. The goods jettisoned to lighten the vessel, whether they belong to the vessel, to the cargo, or to the crew, and the damage suffered through said act by the goods kept. 3. The cables and masts which are cut or rendered useless, the anchors and the chains which are abandoned in order to save the cargo, the vessel, or both. 4. The expenses of removing or transferring a portion of the cargo in order to lighten the vessel and place her in condition to enter a port or roadstead, and the damage resulting therefrom to the goods removed or transferred. 5. The damage suffered by the goods of the cargo through the opening made in the vessel in order to drain her and prevent her sinking. 6. The expenses caused through floating a vessel intentionally stranded for the purpose of saving her. 7. The damage caused to the vessel which it is necessary to break open, scuttle, or smash in order to save the cargo. 8. The expenses of curing and maintaining the members of the crew who may have been wounded or crippled in defending or saving the vessel. 9. The wages of any member of the crew detained as hostage by enemies, privateers, or pirates, and the necessary expenses which he may incur in his imprisonment, until he is returned to the vessel or to his domicile, should he prefer it. 10. The wages and victuals of the crew of a vessel chartered by the month during the time it should be embargoed or detained by force majeure or by order of the Government, or in order to repair the damage caused for the common good. 11. The loss suffered in the value of the goods sold at arrivals under stress in order to repair the vessel because of gross average.
in
Averages The following shall be considered averages: 1. All extraordinary or accidental expenses incurred during the navigation for the preservation of the vessel or cargo, or both. 2. All damages or deterioration the vessel may suffer from the time she puts to sea from the port of departure until she casts anchor in the port of destination, and those suffered by the merchandise from the time it is loaded in the port of shipment until it is unloaded in the port of consignment. [Art. 806, Code of Commerce]
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c.
d.
e.
f.
Arrival under stress the arrival of a vessel at the nearest and most convenient port instead of the port of destination, if during the voyage the vessel cannot continue the trip to the port of destination. It is lawful when the inability to continue voyage is due to lack of provisions, well-founded fear of seizure, privateers, pirates, or accidents of the sea disabling it to navigate. [Art. 819] It is unlawful when: 1. Lack of provisions due to negligence to carry according to usage and customs; 2. Risk of enemy not well known or manifest 3. Defect of vessel due to improper repair; and 4. Malice, negligence, lack of foresight or skill of captain. [Art. 820] Shipwreck - it denotes loss/wreck of a vessel at sea as a consequence of running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation. If the wreck was due to malice, negligence or lack of skill of the captain, the owner of the vessel may demand indemnity from said captain. [Art. 841]
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COGSAwhich provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar."
b.
c.
Hierarchy of laws 1. Art. 1766, CC (COGSA as only in matters not regulated by this Code) this notwithstanding the fact that COGSA is a special law. Goods in a foreign country shipped to the Philippines are governed by the Civil Code 2. Art. 1753, CC
4. Limitation of liability
Under Sec. 4(5), the limit is set at a maximum of $500 per package or customary freight unit. Eastern Shipping vs. IAC (150 SCRA 463). Under the Sec. 4(5), the liability limit is set at $500 per package or customary freight unit unless the nature and value of such goods is declared by the shipper. This is deemed incorporated in the bill of lading even if not mentioned in it. Belgian Overseas v. Philippine First Insurance (2002). The Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce and special
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of
What is a CPC? A CPC is any authorization to operate a public service issued by the pertinent government agency (DOTC, NTC, LTFRB, etc) for the operation of public services for which no franchise, either municipal or legislative, is required by law (e.g. motor vehicles.) It constitutes neither a franchise nor a contract; it does not confer property rights, it is a mere license or privilege [Pantranco v. PSC]. Such privilege is forfeited when the grantee fails to comply with his commitments to serve the public and public necessity.
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Applicant may either be: a. a citizen of the Philippines, or b. corporation, co-partnership or association i. organized under the laws of the Philippines ii. at least 60% of the stock of paid-up capital of which must belong to citizens of the Philippines. [Sec 16a, CA 146, as amended] 2) Promotion of public interests The applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. [Sec 16a CA 146 as amended] 3) Financial capability The applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation.
Exception to Prior Operator Rule 1. When the subsequent CPC or CPCN covers a new route, even if it overlaps with the route of the prior operator; 2. Where the corporate existence of the prior operator has expired; 3. When regularity is at issue regular operators are preferred over irregular operators. 4. When the CPC or CPCN already granted comprises a larger territory than that applied for; 5. Where public interest would be better served by the new operator; 6. When the application of the rule would be conducive to monopoly.
2. Exclusion
expense
of
income
tax
as
Ruinous competition exists when there is actual ruin of the business of the operator; that the existing operator will not gain enough profits if another person is allowed to enter the business; that which will result in the deprivation of sufficient gain in respect of reasonable return of investment, therefore the oppositor, alleging this, must show that he will be deprived of a reasonable return on his investment. Mere possibility of reduction in the earnings of the business or the deterioration in the income of his business is not sufficient to prove ruinous competition. It must be shown that the business would not have sufficient gains to pay a fair rate of interest on his capital investments [Manila Electric Co. vs. Pasay Transportation Co; Ice & Cold Storage Industries v. Valero]
In computing the return, income tax is EXCLUDED as an expense. Republic v. Meralco, 2003. Income tax payments are NOT deductible expenses for purposes of rate determination. Rate regulation calls for a careful consideration of the totality of facts and circumstances material to each application for an upward rate revision. Rate regulators should strain to strike a balance between the clashing interests of the public utility and the consuming public and the balance must assure a reasonable rate of return to public utilities without being unreasonable to the consuming public. What is reasonable or unreasonable depends on a calculus of changing circumstances that ebb and flow with time. Yesterday cannot govern today, no more than today can determine tomorrow.
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C. Fixing of rate
Rates imposed by Public Utilities are regulated by the State. A public utility submits to the regulation of government authorities and surrenders certain business prerogatives, including the amount of rates that may be charged by it. It is the imperative duty of the State to interpose its protective power whenever too much profit becomes the priority of public utilities. Three major factors to be considered by the regulating agency to determine just and reasonable rates to be charged by a public utility: a) rate of return; b) rate base and c) the return itself or the computed revenue to be earned by the public utility. [Republic v. Meralco (2003)] Hence: Rate of return x Rate base = return on the public utility for the use of its property
1. Rate of return
Rates must assure reasonable rate of return. The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements. SC has consistently adopted a 12% rate of return for public utilities [Republic v. Meralco, 2002]. However it has also qualified that what is reasonable or unreasonable depends on a calculus of changing circumstances that ebb and flow with time. [Republic v. Meralco (2003)] Rate base It is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.
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A system whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate under such license, for a fee or percentage of such earnings. Although not penalized outright as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Art 1409 of the Civil Code. "Kabit System" has been identified as one of the root causes of graft and corruption in the government transportation offices. It is a "pernicious system" that cannot be too severely condemned. It constitutes an imposition upon the good faith of the government. It is an abuse of a certificate of public convenience, which is a special privilege granted by the government. [Teja Marketing v. IAC] Example: A, a grantee of a CPC from the LTFRB, is given the authority to operate 10 units of taxis. B, a nongrantee, wishes to operate as a common carrier and kabits with the CPC of A who will obtain approval from the LTFRB to operate another taxi. The taxi will be registered in the name of A, who will be paid by B. Assume that A executed a deed of sale in favor of B in case B decides not to go on with the arrangement, in order to safeguard the rights of B. However, in case of injury to a passenger of the taxi actually operated by B (and previously sold to B as well) it is still A who will be liable. The illegal contract of sale between A & B cannot be used as a defense. A does not have a cause of action against B either. They are in pari delicto. Teja Marketing v. IAC (1987). Parties operated under an arrangement, commonly known as the "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code.
privileges, or rights or any part thereof; or merge or consolidate its property, franchises privileges or rights, or any part thereof, with those of any other public service. The approval herein required shall be given, after notice to the public and hearing the persons interested at a public hearing, if it be shown that there are just and reasonable grounds for making the mortgaged or encumbrance, for liabilities of more than one year maturity, or the sale, alienation, lease, merger, or consolidation to be approved, and that the same are not detrimental to the public interest, and in case of a sale, the date on which the same is to be consummated shall be fixed in the order of approval: Provided, however, that nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business. In order to validly transfer its franchise/certificate such that it would bind the public, a public utility owner/operator must secure PSC approval. However, the proviso contained in the aforequoted law, to the effect that nothing therein shall be construed "to prevent the transaction from being negotiated or complete before its approval", means that the sale, even without the required approval is still valid and binding between the parties themselves. [Montoya vs. Ignacio] Fores v. Medina (1959). A transfer contemplated by the law, if made without the requisite approval of the Public Service Commission, is not effective and binding in so far as the responsibility of the grantee under the franchise in relation to the public is concerned. The provisions of the statute are clear and prohibit the sale, alienation, lease, or encumbrance of the property, franchise, certificate, privileges or rights, or any part thereof of the owner or operator of the public service Commission. The law was designed primarily for the protection of the public interest; and until the approval of the public Service Commission is obtained the vehicle is, in contemplation of law, still under the service of the owner or operator standing in the records of the Commission which the public has a right to rely upon. Note: The approval of the sale of CPCs, CPCNs or other properties does not affect the validity (perfection) of the sale between the parties as long as all the elements of a contract are met. The approval only affects the relation of the parties to the DOTC or to 3rd parties. If there is no approval, then the sale does not bind the DOTC or 3rd parties. The controlling factor therefore is the registration.
VII.
A. Applicability
The Convention is applicable to: 1. International transport by air 2. Transport of persons, baggage, or goods [WC, Art. 1] International air transportation Transportation by air between points of contact of two high contracting parties, or those countries that have acceded to the Convention Two Categories Of "International Transportation By Air" Under The Convention: 1. That where the place of departure and the place of destination are situated within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or a transshipment; and 2. That where the place of departure and the place of destination are within the territory of a single High Contracting Party if there is an agreed stopping place within a territory subject to the sovereignty, mandate or authority of another power, even though the power is not a party to the Convention. [WC, Article 1, No. 2] A carriage to be performed by several successive air carriers is deemed, for the purposes of this Convention, to be one undivided carriage, if it has been regarded by the parties as a single operation, whether it had been agreed upon under the form of a single contract or of a series of contracts. [WC, Article 1, No. 3] The Convention does not apply to carriage performed under the terms of any international postal Convention. [WC, Article 2, No. 2]
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2.
D. Willful misconduct
When can a common carrier not avail itself of this limitation? 1. Willful misconduct [Art. 25] 2. 3. 4. Default amounting to willful misconduct [Art. 25] Accepting passengers without ticket [Art. 3, No. 2] Accepting goods without airway bill or baggage without baggage check
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Lhuillier v. British Airways (2010). Tortious conduct as ground for petitioners complaint is within the purview of the Warsaw Condition; venue Savellano v. Northwest Airlines (2003). Non-use of original contracted route; notice of loss
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
Corporation Law
LAW
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
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Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
Corporation Law
MERCANTILE LAW I. Corporation, defined II. Classification of corporations III. Nationality of corporations IV. Corporate juridical personality V. Capital structure VI. Incorporation and organization VII. Corporate powers VIII.Stockholders and members IX. Board of directors and trustees X. Capital affairs XI. Dissolution and liquidation XII. Other corporations XIII.Merger and consolidation
corporations) or a general law (i.e., Corporation Code in case of private corporations). A corporation comes into existence upon the issuance of the certificate of incorporation. Then and only then will it acquire juridical personality to sue and be sued, enter into contracts, hold or convey property or perform any legal act in its own name (Ladia, Corporation Code of the Philippines 2001 ed.) 3) Has the right of succession Its continued existence during its stated term cannot be affected by any change in the members or stockholders or by any transfer of shares by a stockholder to a 3rd person. 4) Has the powers, attributes and properties expressly authorized by law or incident to its existence A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. (Premium Marble Resources v. CA 1996)
I. Corporation, defined
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence. (Sec. 2, Corporation Code) Attributes of a Corporation 1) An Artificial Being A corporation exists by fiction of law. Hence, it can act only through its directors, officers and employees. Moral Damages cannot be awarded in favor of corporations because they do not have feelings and mental state. They may not even claim moral damages for besmirched reputation (NAPOCOR v. Philipp Brothers Oceanic, 2001). However, a corporation can recover moral damages under Art 2219 (7) if it was the victim of defamation (Pilipinas Broadcasting Network v. Ago Medical and Educational Center 2005). Criminal Liability Since a corporation as a person is a mere legal fiction, it cannot be proceeded against criminally because it cannot commit a crime in which personal violence or malicious intent is required. Criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. v. Hurd [1914], Time Inc. v. Reyes [1971]) NOTE Doctrine of Separate Personality: A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. (Yutivo Sons Hardware v. CTA 1961) 2) Created by operation of law Mere consent of the parties to form a corporation is not sufficient. The State must give its consent either through a special law (in case of government
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C. Other Classification
a. Public corporation (Asked in 04) One formed or organized for the government of a portion of the state. Its purpose is for the general good and welfare. b. Private corporation (Asked in 04) One formed for some private purpose, benefit, aim or end; it may be either stock or non-stock, governmentowned or controlled or quasi-public. c. Close corporation (see Sec. 96) one that is limited to selected persons or members of a family d. Educational corporation One organized for educational purposes (Sec. 106). e. Religious corporations Corporation sole is one formed for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect, or church, by the chief archbishop, bishop, priest, rabbi, or other presiding elder of such religious denomination, sect or church (Sec. 110) Corporation aggregate is a religious corporation incorporated by more than one person. f. Eleemosynary corporation One organized for a charitable purpose
g. Domestic corporation One formed, organized, or existing under the laws of the Philippines. h. Foreign corporation One formed, organized or existing under any laws other than those of the Philippines and whose law allows Filipino citizens and corporations to do business in its own country and state (Sec. 123). i. Corporation created by special laws or charter - Corporations which are governed primarily by the provisions of the special law or charter creating them. Corporation Code has suppletory application. (Sec. 4) Subsidiary corporation one in which control, usually in the form of ownership of majority of its shares, is in another corporation (the parent corporation).
j.
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2. Recovery of damages
GENERAL RULE A Corporation has the power to sue in its corporate name. (Sec. 36) EXCEPTION Moral Damages cannot be awarded in favor of corporations because they do not have feelings and mental state. They may not even claim moral damages for besmirched reputation (NAPOCOR v. Philipp Brothers Oceanic, 2001). HOWEVER, a corporation can recover moral damages under Art 2219 (7) if it was the victim of defamation (Pilipinas Broadcasting Network v. Ago Medical and Educational Center, 2005). Constitutional Rights Corporate entities are entitled to due process, equal protection, and protection against unreasonable searches and seizures. However, a corporation is not entitled to the privilege against selfincrimination (Bataan Shipyard & Engg Co. v. PCGG, 1987)
1. Grounds
for
application
of
doctrine
If done to defraud the government of taxes due it. If done to evade payment of civil liability. If done by a corporation which is merely a conduit or alter ego of another corporation. If done to evade compliance with contractual obligations. If done to evade financial obligation to its employees. Seaoil vs Autocorp Group ( 2008, Nachura): Q: Is a corporation liable for the individual acts of its stockholders or members? Is there an exception to the general rule? A: It is settled that a corporation has a personality separate and distinct from its individual stockholders or members, and is not affected by the personal
V. Capital structure
A. Number and Qualifications of Incorporators 1. Definition
Incorporators - are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof.
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Requirement (Sec 13, Corporation Code) At least twenty-five (25%) percent of the authorized capital stock of the corporation must be subscribed; and At least twenty-five (25%) of the total subscription has been fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least twenty-five (25%) percent of the said subscription, such paid-up capital being not less than five thousand (P5,000.00) pesos.
C. Corporate Term
Maximum life of 50 years. Extendible for a period not exceeding 50 years at any one instance. No extension, however, can be made earlier than 5 years before the end of the term, unless there are justifiable reasons for an earlier extension as may be determined by the SEC (Sec. 11) Extension requires an amendment of the AOI. Any dissenting stockholder may exercise his appraisal right (Sec. 37).
D. Classification of Shares
Shares of stock of stock corporations may be divided into classes or series of shares or both. Each class or series of shares may have rights, privileges or restrictions, as stated in the AOI. Classification of shares: Common shares Preferred shares Par value shares No-par value shares Founders shares Redeemable shares Treasury shares Convertible shares Non-voting shares GENERAL RULE No share may be deprived of voting rights (Sec. 6) EXCEPTIONS Preferred or Redeemable shares, Provided by the Code There shall always be a class/series of shares which have a COMPLETE VOTING RIGHTS (Sec. 6)
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The most common type of shares which enjoy no preference but the owners thereof are entitled to management of the corporation and to equal prorata division of profits after preference. It represents a residual ownership interest in the corporation. b. Preferred Shares
Stocks which are given preference by the issuing corporation in dividends and the distribution of assets of the corporation in case of liquidation or such other preferences as may be stated in the AOI which do not violate the Corporation Code. Limitations: Preferred shares can only be issued with par value. Preferred shares must be stated in the Articles of Incorporation and in the certificate of stock. The BOD may fix the terms and conditions only when so authorized by the AOI and such terms and conditions shall be effective upon filing a certificate thereof with the SEC. c. Par value shares
These are shares, classified as such in the AOI, which are given certain rights and privileges not enjoyed by the owners of other stocks. Where exclusive right to vote and be voted for in the election of directors is granted, such right must be for a limited period not to exceed 5 years subject to approval by SEC. 5 year period shall commence from date of approval by SEC. f. Redeemable Shares (Sec. 8)
These are shares which permit the issuing corporation to redeem or purchase its shares. Limitations: Redeemable shares may be issued only when expressly provided for in the AOI (Sec. 8). The terms and conditions affecting said shares must be stated both in the AOI and in the certificate (Sec. 8). Redeemable shares may be deprived of voting rights in the AOI, unless otherwise provided in the Code. The corporation is required to maintain sinking fund to answer for redemption price if the corporation is required to redeem. The redeemable shares are deemed retired upon redemption unless otherwise provided in the AOI. Unrestricted retained earnings is NOT necessary before shares can be redeemed but there must be sufficient assets to pay the creditors and to answer for operations (Republic Planters Banks v. Agana, 1997). Redemption cannot be made if such redemption will result in insolvency or inability of the corporation to meet its obligations (SEC Opinion, 24 Aug 1987). NOTE Redeemable shares reacquired shall be considered retired and no longer issuable, unless otherwise provided in the Articles of the redeeming corporation (SEC Rules Governing Redeemable and Treasury Shares, 26 April 1982). g. Treasury Shares (Sec. 9)
These are shares with a stated value set out in the AOI. This remains the same regardless of the profitability of the corporation. This gives rise to financial stability and is the reason why banks, trust corporations, insurance companies and building and loan associations must always be organized with par value shares. Par value is minimum issue price of such share in the AOI which must be stated in the certificate d. No-par value shares
These are shares without a stated value. A no par share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation (AGBAYANI) Limitations: No-par value shares cannot have an issue price of less than P5.00 per share (Sec. 6). They shall be deemed fully paid and nonassessable and the holders of such shares shall not be liable to the corporation or to its creditors in respect thereto (Sec. 6). Entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends (Sec. 6).
These are shares which have been issued and fully paid for, but subsequently re-acquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the BOD.
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2. Liability
for
GENERAL RULE A corporation is NOT bound by the contract. A corporation, until organized, has no life and no legal existence. It could not have had an agent (the promoter) who could legally bind it. (Cagayan Fishing Development Co., Inc. v. Sandiko) EXCEPTIONS A corporation may be bound by the contract if it makes the contract its own by: 1. Adoption or ratification of the ENTIRE contract after incorporation. Note: Power of the corporation to adopt a contract must be understood to be limited to such contracts as the corporation itself, after its organization, would be authorized to make. (Builders Duntile Co. v. Dunn Mfg. Co.) Novation or the intent to novate the original contract is required to adopt or ratify the pre-incorporation contract. (Campos, 1990) 2. 3. Acceptance of benefits under the contract with knowledge of the terms thereof. Performance of its obligation under the contract
A type of preferred stock that the holder can exchange for a predetermined number of common shares at a specified time i. Non-voting shares (Sec. 6)
GENERAL RULE Non-Voting Shares are not entitled to vote. EXCEPTIONS Amendment of the AOI Adoption and amendment of by-laws Sale, lease, exchange, other disposition of all or substantially all of the corporate property Incurring, creating or increasing bonded indebtedness Increase or decrease of capital stock Merger and consolidation Investment of corporate funds in another corporation or business Dissolution of the corporation
B. Subscription Contract
Section 60. Subscription contract. Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription contract within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract. a. Characteristics
1. Liability of Promoter
GENERAL RULE The promoter binds himself PERSONALLY & assumes the responsibility of looking to the proposed corporation for reimbursement.
There can be a subscription only with reference to unissued shares of the Authorized Capital Stock (ACS), in the following cases: 1. The original issuance of the ACS at the time of incorporation. 2. The opening, during the life of the corporation, of the portion of the original ACS previously unissued; or 3. The increase in ACS achieved through a formal amendment of the Articles and registration thereof with the SEC. (VILLANUEVA)
A person becomes a shareholder the moment he: Enters into a SUBSCRIPTION CONTRACT with an existing corporation (he is a stockholder upon acceptance of the corporation of his offer to subscribe whether the consideration is fully paid or not). Purchases TREASURY SHARES from the corporation Acquires shares from existing shareholders by SALE OR ANY OTHER CONTRACT (SUNDIANG AND AQUINO) c. Types of subscription contracts i.
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Pre-incorporation subscription (Sec. 61) It is a subscription for shares of stock of a corporation still to be formed. ii. Post-incorporation subscription It is entered into after incorporation. d. Interest on unpaid subscription
GENERAL RULE Stockholder is NOT liable to pay interest on his unpaid subscription. EXCEPTION If so required by the by-laws RATE: that fixed in the by-laws, otherwise, the legal rate (Sec. 66) NOTES Transfer of unissued shares = subscription. Transfer for consideration of treasury shares = sale by the corporation (not subscription). Transfer of previously issued shares by a stockholder to a third person = sale. Shareholders are NOT creditors of the corporation with respect to their shareholdings thereto and the principle of compensation or set-off has no application. Subscription contract is NOT required to be in writing.
Stocks shall NOT be issued for a consideration less than the par or issued price thereof in exchange for promissory notes or future service NOTES Promissory notes and future service may be used as consideration provided that certificates of stock will be issued ONLY AFTER actual encashment of promissory note or performance of such services. Same consideration applies for the issuance of bonds by the corporation.
E. Articles of Incorporation
constitutes the charter of the corporation defines the contractual relationships between the State and the corporation, the stockholders and the State, and the corporation and the stockholders The Articles must be filed with the SEC for the issuance of the Certificate of Incorporation.
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EXCEPTION Non-stock corporations whose articles or by-laws may provide for more than 15 trustees (Sec. 92) Educational non-stock corporations: trustees may NOT be less than 5 NOR exceed 15 number of trustees shall be in multiples of 5 (Sec. 108) Nationalized industries: Aliens may be directors but only in such number as may be proportional to their allowable ownership of shares vii. If STOCK corporation: authorized capital stock in lawful money of the Philippines the number of shares into which the ACS is divided If with par value shares, the par value of each share (Sec. 14(8), Sec. 15(7)). names, citizenship and residences of original subscribers amount subscribed and paid on each subscription fact that some or all shares are without par value viii. If NON-STOCK: amount of capital names, nationalities & contributors amount contributed by each ix.
residences
of
Amount paid by each subscriber on their subscription, which shall not be less than 25% of subscribed capital and shall not be less than P5,000 (Sec. 15 (8 & 9)) Name of treasurer elected by the subscribers (Sec. 15 (10)
x.
xi. Other matters Classes of shares, as well as preferences or restrictions on any such class (Sec. 6). Denial or restriction of pre-emptive right (Sec.39). Prohibition against transfer of stock which would reduce stock ownership to less than the required minimum in the case of a nationalized business or activity (Sec. 15(11)).
2. Non-amendable items
The following items state accomplished facts, therefore, cannot be amended: The names, nationalities and residences of the incorporators (Otherwise, an amendment would go against the definition of incorporators in Sec. 5) First set of directors or trustees Original stock subscriptions and paid-in capital
vi. Number, names, citizenship and residences of directors/trustees. (Asked in 05 and 08) Stock corporations: DIRECTORS Non-stock corporations: TRUSTEES
EFFECT: Commencement of corporate existence and juridical personality (Sec. 19) REVOCATION of certificate of incorporation: If incorporators are found guilty of fraud in procuring the same after due notice and hearing (Sec. 6(i), PD 902-A) c. Grounds for disapproving AOI: (Sec. 17) [F2P2] AOI does not SUBSTANTIALLY comply with the form prescribed Purpose is patently unconstitutional, illegal, immoral, contrary to government rules and regulations Treasurers Affidavit concerning the amount of capital subscribed and or paid is false Required percentage of ownership of Filipino citizens has not been complied with.
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REMEDY in case of rejection of AOI - petition for review in accordance with the Rules of Court (Sec. 6, last par., PD 902-A) SEC shall give the incorporators reasonable time to correct or modify objectionable portions of the articles or amendment (Sec. 17).
To hold the ELECTION meeting: - owners of MAJORITY of the OCS or majority of the members entitled to vote in the meeting must be present, in person or by proxy, Manner of elections GEN. RULE: Viva voce EXCEPTION: Election by ballot if requested STOCKHOLDERS RIGHT TO VOTE and USE ANY METHOD for voting cannot be deprived in the articles of incorporation or in the by-laws In STOCK CORP: Stockholders entitled to vote number of shares of stock standing in OWN NAME in the books of the corporationGENERAL RULE (when by-laws silent): at time of election EXCEPTION: at the time fixed in the by-laws In NON-STOCK CORP: GENERAL RULE: One member = as many votes as there are vacancies but only one vote per candidate EXCEPTION: otherwise provided by AOI/By-laws No delinquent stock shall be voted.
Documents to be filed with SEC (Asked in 02): [BATLaNG] 1. Articles of Incorporation 2. Treasurers Affidavit certifying that 25% of the total authorized capital stock has been subscribed and at least 25% of such has been fully paid in cash or property. 3. Bank certificate covering the paid-up capital. 4. Letter authority authorizing the SEC to examine the bank deposit and other corporate books and records to determine the existence of paid-up capital. 5. Undertaking to change the corporate name in case there is another person or entity with same or similar name that was previously registered. 6. Certificate of authority from proper government agency whenever appropriate like BSP for banks and Insurance Commission for insurance corporations. (SUNDIANG AND AQUINO)
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ii. Cumulative voting for one candidate A stockholder is allowed to cumulate his votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. Illustration: If there are 5 directors to be elected and Pedro, as shareholder, has 100 shares, Pedro can give 500 (5 x 100 shares) votes to just one candidate. iii. Cumulative voting by distribution A stockholder may cumulate his shares by multiplying the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit. Illustration: In the illustration above, Pedro may choose to give 100 votes to candidate 1, 100 votes to candidate 2, 100 votes to candidate 3, 150 votes to candidate 4, and 50 votes to candidate 5.
I. Adoption of By-Laws
BY-LAWS Product of agreement of the stockholders/members and establish the rules for internal government of the corporation (Campos, 1990) Mere internal rules among stockholders and cannot affect or prejudice 3rd persons who deal with the corporation unless they have knowledge of the same (China Banking Corp v CA, 1997) a. ADOPTION OF BY-LAWS (Sec. 46) After incorporation - within 1 month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. Prior to incorporation - approved and signed by all the incorporators & submitted to SEC together with AOI EFFECT OF FAILURE TO FILE THE BY-LAWS WITHIN THE PERIOD: does not imply the "demise" of the corporation. By-laws may be required by law for an orderly governance and management of corporations but they are not essential to corporate birth. Therefore, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation (Loyola Grand Villas Homeowners Assn v. CA (1997) NOTE Section 22 on the effect of failure to formally organize within 2 years from incorporation, the corporations corporate powers cease and the b.
of
7.
8. 9.
Sue and be sued in its corporate name; Succession; Adopt and use a corporate seal; Amend its Articles of Incorporation; Adopt by-laws; For stock corporations - issue or sell stocks to subscribers and sell treasury stocks; for nonstock corporation - admit members to the corporation; Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, pursuant to its lawful business; Enter into merger or consolidation with other corporations as provided in the Code; Make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;
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theory
of
1. Power
or
shorten
92
e)
Deny Preemptive right (Sec. 39) All SH of a Stock Corporation have preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings Pre-emptive right shall not extend to: a) shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public b) shares to be issued in good faith with the approval of 2/3 of the stockholders representing outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt Sell or Dispose of substantially all its assets (Sec. 40) a) Same requirements from a-c as Sec. 37 above b) Any dissenting SH may exercise his appraisal right c) Deemed to cover substantially all the corporate property and assets d) After authorization by the SH/ members, the BOD/ BOT may abandon such sale, lease, exchange, mortgage, pledge or other disposition, subject to the rights of third parties under any contract relating thereto, without further action or approval by the SH/ members e) Corporation is not restricted in its power to dispose assets if the same is necessary in the usual and regular course of business of the corporation or if the proceeds of the sale will be appropriated for the conduct of its remaining business Acquire its own shares (Sec. 41) a) For a legitimate corporate purpose/s, including but not limited to the following: a. To eliminate fractional shares arising out of stock dividends b. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and c. To pay dissenting or withdrawing stockholders b) Provided there are unrestricted retained earnings in the corporate books to cover the shares purchased or acquired Invest in another corporation or business (Sec. 42) a) Same requirements from a-c as Sec. 37 above b) Any dissenting SH shall have appraisal right c) Where the investment is reasonably necessary to accomplish the corporations
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Seaoil vs Autocorp Group (2008, Nachura): An ultra vires act is distinguished from illegal act, the former being voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated. Remedies in Case of Ultra Vires Acts State - Forfeiture by judgment of Court - Suspension or revocation of the certificate of registration by the SEC Stockholders - Injunction - Derivative suit Creditors o Nullification of contract in fraud of creditors
10. Doctrine
of
individuality
of
subscription
i. Applicability doctrine
of
ultra
vires
It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within the charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporations business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. (Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. 15092, May 18, 1962)
Section 64 of the Corporation Code implicitly sets forth the doctrine that subscription is one entire and indivisible contract. Thus, if the stockholder has not paid the full amount of his subscription, he cannot transfer part of it in view of the indivisible nature of subscription contract. It is only upon full payment of the whole subscription that a stockholder can transfer a portion of his subscription. However, the entire subscription although not yet fully paid, may be transferred to a single transferee. It is necessary, however, to secure the consent of the corporation since the transfer of subscription right contemplates a novation of contract which, under Article 1293 of the Civil Code of the Philippines, cannot be made without the consent of the creditor. Likewise, it has to be emphasized that under Section 63 of the Corporation Code, no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. (SEC Opinion, August 7, 1991)
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by
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Boman Environmental Development Corporation v. CA (1988): Trust Fund Doctrine means that the capital stock, properties and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. Stated simply, the trust fund doctrine states that all funds received by the corporation in payment of the shares of stock shall be held in trust for the corporate creditors and other stockholders of the corporation. Under such doctrine no fund shall be used to buy back the issued shares of stock except only in instances specifically allowed by the Corporation Code.
If the investment is OUTSIDE the purpose/s for which the corporation was organized, AOI must be amended first. Adoption, Amendment and Repeal of By-Laws (Sec. 48) Merger and Consolidation Dissolution of the Corporation b. Corporate Acts Requiring Approval of Stockholders or Members (Voting Shares Only)
Declaration of Stock Dividends (Sec. 43) Management Contracts (Sec. 44) - Any contract whereby a corporation undertakes to manage or operate ALL OR SUBSTANTIALLY ALL of the business of another corporation for a period NOT longer than 5 years - Requisites: o Approval by the BOD o Approval by SH owning at least the majority of the OCS or the members of BOTH the managing and the managed corporation (at meeting duly called) o 2/3 vote required of the managed corporation when: Where a SH/s representing the same interest of both the managing and the managed corporations own or control more than 1/3 of the total OCS entitled to vote of the managing corporation; or Where a majority of the members of the BOD of the managing corporation also constitute a majority of the members of the BOD of the managed corporation Fixing the Consideration of No-Par shares (Sec. 62) Fixing the Compensation of Directors (Sec. 30)
GENERAL RULE Vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights (Sec. 6) EXCEPTIONS (Sec. 6) Voting and non-voting shares shall be entitled to vote in the following cases: Amendment of Articles of Incorporation Extend or Shorten Corporate Term Increase or Decrease of Capital Stock Incurring, Creating or Increasing Bonded Indebtedness Sale, Lease, Mortgage or Other Disposition of Substantially all corporate assets Investment of funds in another corporation or business or for any purpose other than the primary purpose for which it was organized Requisites (Sec. 42)(Asked in 95): - Approval of majority of the board of directors or trustees - Ratification by the stockholders representing at least 2/3 of the OCS or the members at a meeting duly called for the purpose - Written notice addressed to each stockholder or member at his place of residence as shown on the books of the corporation - Appraisal right available to dissenting stockholders or members NOTES If it is the same purpose or incidental or related to its PRIMARY purpose, the board can invest the corporate fund WITHOUT the consent of the stockholders. No appraisal right. If the investment is in another corporation of different business or purpose BUT in pursuance of the SECONDARY purpose, the affirmative vote
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2. By the Board
Board as Repository of Corporate Powers GENERAL RULE The corporate powers of the corporation shall be exercised, all business conducted and all property of such corporation controlled and held by the board of directors or trustees. (Sec. 23) EXCEPTIONS - Executive Committee duly authorized in the by-laws (Sec. 35); - A contracted manager which may be an individual, a partnership, or another corporation. NOTE
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3. By the Officers
CORPORATE OFFICER Position is provided for in the by-laws or under the Corporation Code RTC has jurisdiction in case of labor dispute CORPORATE EMPLOYEE Employed by the action of the managing officer of the corporation NLRC has jurisdiction in case of labor disputes
a. Who are Corporate Officers (POST) (Sec. 25) President must be a director; Treasurer may or may not be a director; as a matter of sound corporate practice, must be a resident and citizen of the Phil (SEC opinion) Secretary need not be a director unless required by the by-laws; must be a resident and citizen of the Philippines; and Other officers as may be provided in the bylaws.
Direct or indirect participation in management (Sec. 6) Voting rights (Sec. 6) Right to remove directors (Sec. 28) Proprietary rights - Right to dividends (Secs. 43 and 71) - Appraisal right (Sec. 81) - Right to issuance of stock certificate for fully paid shares (Sec. 64) - Proportionate participation in the distribution of assets in liquidation (Sec. 122) - Right to transfer of stocks in corporate books (Sec. 63) - Pre-emptive right (Sec. 39) Right to inspect books and records (Sec. 74) Right to be furnished with the most recent financial statements/reports (Sec. 75) Right to recover stocks unlawfully sold for delinquent payment of subscription (Sec. 69) Right to file individual suit, representative suit and derivative suits
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B. Participation in Management
7 71. Proxy
Stockholders and members may vote in person or by proxy in all meetings of stockholders or members (Sec. 58).
NOTE Any two (2) or more positions may be held concurrently by the same person, EXCEPT that no one shall act as president and secretary or as president and treasurer at the same time. Additional qualifications of officers may be provided for in the by-laws (Sec. 47(5)). b. Disqualifications (Sec. 27) Convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6 years
2. Voting Trust
An arrangement created by one or more stockholders for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time (Sec. 59).
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Requires approval by majority of the BOD/BOT and approval by stockholders owning at least the majority of the outstanding capital stock/majority of members. Since amendments to by-law is among those enumerated under Sec. 6, the basis of the majority vote includes all stockholders/members with or without voting rights. (c) Revocation of delegation to the BOD of the power to amend or repeal or adopt by-laws (Sec. 48) Requires approval by majority of the BOD/BOT and approval by stockholders owning at least the majority of the outstanding capital stock/majority of members. (d) Calling a meeting to remove directors (Sec. 28) Meeting for the removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock/majority of members. (e) Granting compensation other than per diems to directors (Sec. 30) Compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock. (f) Consideration no-par shares (Sec. 62) When the AOI or the BOD does not provide for the value of no-par shares, the value of such shares shall be determined by the stockholders representing at least a majority of the outstanding capital stock.
Must be in writing Copy must be filed with the corporation. No transfer. Proxy exercises voting rights only for a specific meeting (unless otherwise provided) Proxy cannot be director Revocable at will in any manner, EXCEPT if coupled with an interest. Max of 5 yrs at a time
Max of 5 yrs at a time (unless coterminous with loan) SEC can pass on validity
b. By a Two-Thirds Vote
(a) Amendment of AOI (Sec. 16) Amendment of the AOI may be made by a majority vote of the BOD/BOT and the vote or written assent of the stockholders representing at least two-thirds 2/3 of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders. Since amendment of the AOI is among those enumerated under Sec. 6, the basis of the two-thirds vote includes all stockholders/members with or without voting rights. Amendment of AOI of close corporations (Sec 103): Amendment to the AOI which seeks to delete or remove any provision required to be contained in the AOI of Close Corporations or to reduce a quorum or voting requirement stated in said AOI requires the
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97
Requires approval by a majority vote of the BOD and approval by at least two-thirds (2/3) of the outstanding capital stock. Since increasing/decreasing capital stock is among those enumerated under Sec. 6, the basis of the two-thirds vote includes all stockholders/members with or without voting rights. (e) Incurring, creating, increasing bonded indebtedness (Sec. 38) Requires approval by a majority vote of the BOD and approval by at least two-thirds (2/3) of the outstanding capital stock. Since incurring, creating and increasing indebtedness is among those enumerated under Sec. 6, the basis of the two-thirds vote includes all stockholders/ members with or without voting rights. (f) Issuance of shares not subject to pre-emptive right (Sec. 39) Shares issued in good faith in exchange for property or previously incurred indebtedness with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock are not subject to pre-emptive rights. (g) Sale/disposition substantially all assets (Sec. 40) of of all or corporate
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Requires a resolution adopted by a majority vote of the BOD/BOT, and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock/membership of a meeting to be held upon call for such purpose.
c. By Cumulative Voting
Election of Directors or Trustees (Section 24) - A stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected.
2. Right of Appraisal
Right to withdraw from the corporation and demand payment of the fair value of the shares after dissenting from certain corporate acts involving fundamental changes in corporate structure (Sec. 81). i. Instances of appraisal right Extension or reduction or corporate term (Sec. 11) Change in the rights of stockholders, authorize preferences superior to those stockholders, or restrict the right of any stockholder (Sec. 81) Investment of corporate funds in another business or purpose (Sec. 42) Sale or disposal of all or substantially all assets of the corporation (Sec. 81) Merger or consolidation (Sec. 81) ii. Requirements for exercise of appraisal right (Secs. 82, 86) Stockholder must have voted against the corporate act. Stockholder must make a written demand on the corporation within 30 days after the vote was taken for payment of the fair value of his shares on the said date. Stockholder must submit the certificates to the corporation for notation within ten (10) days after demand for payment. Otherwise, right to appraisal may be terminated at the option of corporation. iii. Effect of demand (Sec. 83) ALL rights accruing to such shares, including voting and dividend rights, shall be suspended EXCEPT the right of such stockholder to receive payment of the fair value thereof Immediate RESTORATION of voting and dividend rights if the dissenting stockholder is not paid the value of his shares within 30 days after the award. iv. Extinguishment of appraisal right (Sec. 84) Withdrawal of demand by the stockholder WITH CONSENT of the corporation Abandonment of the proposed action Disapproval by SEC of the proposed action
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Books that record all business transactions of the corporation which shall include contract, memoranda, journals, ledgers, etc; Minute book for meetings of the stockholders/members; Minute book for meetings of the board/trustees; Stock and transfer book. Stock transfer agent - One engaged principally in the business of registering transfers of stocks in behalf of a stock corporation (licensed by the SEC). The corporate secretary is the one duly authorized to make entries in the stock and transfer book. Torres et al v. CA (1997): It is the corporate secretary's duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferorstockholder may rightfully bring suit to compel performance. iii. Financial Statements (Sec. 75) Within 10 days from written request, the corporation shall furnish its most recent financial statement (balance sheet and profit or loss statement as of last taxable year) At a regular meeting, the Board shall present a financial report of the operations of the corporation for the preceding year, which shall include financial statements duly signed and certified by an independent CPA. iv. Requirements for the exercise of the right of inspection (Sec. 74) It must be exercised at reasonable hours on business days and in the place where the corporation keeps all its records (i.e., principal office). The stockholder has not improperly used any information he secured through any previous examination. Demand is made in good faith or for a legitimate purpose. If the corporation or its officers contest such purpose or contend that there is evil motive behind the inspection, the burden of proof is with the corporation or such officer to show the same.
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3. Right to Inspect
i. Basis of Right
As the beneficial owners of the business, the stockholders have the right to know the financial condition and management of corporate affairs.
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Mandamus Injunction Action for damages File an action under Sec. 144 to impose a penal offense by fine and/or imprisonment
4. Preemptive Right
i. Definition and Distinguished Right of First Refusal from
Pre-emptive right is an option privilege of an existing stockholder to subscribe to a proportionate part of shares subsequently issued by the corporation before the same can be disposed of in favor of others; this right includes all issues and disposition of shares of any class. It is a common law right and may be exercised by stockholders even without legal provision. On the other hand, a right of first refusal arises only by virtue of contract stipulations, by which the right is strictly construed against the right of person to dispose or deal with their property. Stockholders of a corporation shall enjoy preemptive right to subscribe to ALL ISSUES OR DISPOSITIONS of shares of any class, in proportion to their respective shareholdings. NOTE The broad phrase all issues or disposition of shares of any class is construed to include not only new shares issued in pursuance of an increase in capital stock or from the unissued shares which form part of the ACS, but also covers treasury shares. Treasury shares would come under the term disposition. Likewise considering that it is not included among the exceptions enumerated therein, where preemptive right shall not extend, the intention is to include it in its application. (SEC Opinion, 14 January 1993). A pre-emptive right is a right claimed against the corporation on unissued shares of its capital stock, and likewise on treasury shares held by the corporation; while the right of first refusal is a right exercisable against another stockholder on his shares of stock. (VILLANUEVA) Basis of Preemptive Right: to preserve the existing proportional rights of the stockholders (CAMPOS) ii. Limitations to exercise emptive right (Sec. 39): of pre-
5. Right to Vote
Non-voting shares are not entitled to vote except as provided for in the last paragraph of Sec. 6. Preferred or redeemable shares may be deprived of the right to vote Fractional shares of stock cannot be voted. Treasury shares have no voting rights as long as they remain in the treasury. No delinquent stock shall be voted (Sec. 71) A transferee of stock cannot vote if his transfer is not registered in the stock and transfer book of the corporation.
Such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public;
2. Representative Suit
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3. Derivative Suit
A suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit, and the relief which is granted is a judgment against a third person in favour of the corporation (Chua v. CA, 2004) Suits of stockholders based on wrongful or fraudulent acts of directors or other persons. Requisites of Derivative Actions 1) That the person instituting the action stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed; 2) That the stockholder exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the AOI, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires. 3) That there is no appraisal right available for the act(s) complained of; and 4) That the suit is not a nuisance or harassment suit. (Rule 8, Interim Rules of Procedure for Intra-Corporate Controversies) Requisites based on jurisprudence 1) The cause of action actually devolves on the corporation, the wrong or harm having been, or being caused to it and not the shareholder filing the suit. (Evangelista vs. Santos, 1950; SMC v. Kahn, 1989). 2) The reliefs sought pertain to the corporation. (Symaco Trading Corp. v. Santos, 2005). Recent rulings on the matter Status of heirs as co-owners of shares before partition of estate does not make them shareholders until there is compliance with Sec. 63 on the manner of transferring shares, thus the heirs are not automatically registered shareholders of the corporation. (Reyes v. RTC of Makati, 2008) Stockholder may commence a derivative suit for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its right of action when the corporation is put on default by the wrongful refusal of the directors or management to make suitable measures for its protection. (Yu v. Yukayguan, June 18, 2009) Bitong v. CA (1998): The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the BOD that exercises its corporate powers and not in
E. Obligations of a Stockholder
a. Liability to the corporation for unpaid subscription (Sec. 67)
A subscription contract is unconditional (i.e., obligation to pay must not be subject to any contingencies) and indivisible (as to the amount and transferabilityFua Cun v. Summers, 1923). Hence, if the subscriber paid 20% of his subscription, he is not entitled to the issuance of certificates corresponding to 20% of the shares. Unpaid claim refers to any unpaid subscription and not to any indebtedness which a subscriber may owe the corporation rising from any other transaction (China Banking Corp. v. CA, 1997) b. Liability to the corporation for interest on unpaid subscription if so required by the by-laws (Sec. 66)
GENERAL RULE Subscribers for stock are NOT liable to pay interest on his unpaid subscription EXCEPTION If so required in the by-laws at the rate fixed in the by-laws. If no rate is fixed in the by-laws, such rate shall be deemed to be the legal rate (Sec. 66) NOTES Transfer for consideration of treasury shares is a sale by the corporation (not subscription). A transfer of previously issued shares by a stockholder to a third person is a sale. Transfer of unissued shares is subscription. Shareholders are not creditors of the corporation with respect to their shareholdings thereto and the principle of compensation or set-off has no application. Subscription contract is NOT required to be in writing. c. Liability for watered stocks (Sec. 65) i. Definition
These are shares issued as fully paid when in truth no consideration is paid, or the consideration
1. Regular or Special
a. When and Where
When? (Sec. 50) Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws, or if not so fixed, on any date in April of every year as determined by the board of directors or trustees. Where? Stock: City or municipality where the principal office of the corporation is located, or, if practicable, in the principal office of the corporation: Provided, Metro Manila shall be considered a city or municipality. (Sec. 51) Non-stock: Any place even outside the place where the principal office is located, within the Philippines (Sec. 93) Notice (Sec. 50) Regular Meetingwritten notice sent to all SH or members at least 2 weeks prior to the meeting, unless a different period is required by the by-laws Special Meetingwritten notice sent at least 1 week prior to the meeting, unless otherwise provided in the by-laws. Subject to waiver, expressly or impliedly (i.e., attendance despite no notice) Effect of Failure to Give Notice: Failure to give notice would render a meeting VOIDABLE at the instance of an absent stockholder, who was not notified of the meeting (Board v. Tan, 1959).
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These include the following: Issued without consideration (bonus share) Issued as fully paid when the corporation has received less sum of money than its par or issued value (discounted share) Issued for consideration other than actual cash (i.e., property or services), the fair valuation of which is less than its par or issued value Issue stock dividend when there are no sufficient retained earnings or surplus to justify it. NOTE Subsequent increase in the value of the property used in paying the stock does not do away with the watered stocks. Subsequent increase in the value of the property used in paying the stock does not cure the defect in issuance. The existence of watered stocks is determined at the time of issuance of the stock. ii. Liability of directors or officers Any director or officer of a corporation consenting to the issuance of stocks or who, having knowledge thereof, does not forthwith express his objection in writing and file the same with the corporate secretary shall be SOLIDARILY liable with the stockholder concerned to the corporation and its creditors for the difference in value (Sec. 65). d. e. Liability for dividends unlawfully paid (Sec. 31 and 43) Liability for assuming to act as a corporation knowing it to be without authority (Sec. 21)
F. Meetings
GENERAL RULE Stockholders or members approval is expressed in a meeting duly called and held for the purpose. EXCEPTION In case of amendment of AOI, approval may be expressed by referendum or written assent of the stockholders or members (Sec. 16) Who May Attend and Vote? Stockholders, either in person or by proxy Pledgors or mortgagors (Sec. 55) Pledgee or mortgagee, IF expressly given such right by the pledgor or mortgagor in writing which is recorded on the corporate books. Executors, administrators, receivers, and other legal representatives duly appointed by the court, without need of any written proxy. ALL joint owners of stocks, or any one of them with the consent of ALL the co-owners, unless there is a written proxy, signed by all the coowners Any one of the joint owners of shares owned in an "and/or" capacity or a proxy thereof
4. Minutes of Meetings
A record of all the minutes of all meetings of stockholders or members, or of the board of directors or trustees shall be kept and preserved at the principal office of every corporation. Contents: time and place of holding the meeting; how the meeting was authorized; the notice given; whether the meeting was regular or special, if special its object; those present and absent; and every act done or ordered done at the meeting. Upon demand by any director/trustee or SH/member, the following shall also be noted in the minutes: the time when any director, trustee, stockholder or member entered or left the meeting; the yeas and nays on any motion or proposition; the protest of any director/trustee or stockholder/member on any action or proposed action. NOTES The minutes of any meetings shall be open to inspection by any director/trustee or stockholder/member at reasonable hours on business days. The director/trustee or stockholder/member may demand, in writing, for a copy of excerpts from said records or minutes, at his expense. Any officer or agent of the corporation refusing to allow the examination and copying of the minutes shall be: (1) liable to the director/trustee or stockholder/ member; and (2) guilty of an offense punishable under Sec. 144 (Sec. 74) HOWEVER, the officer of agent may use as a defense that: (1) the person demanding examination or copy thereof made improper use of any information secured through any prior examination of the records or minutes of such corporation or of any other corporation thereby; (2) the person demanding examination or copy acts in bad faith or has no legitimate purpose in making his demand.
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In case of a contracted manager which may be an individual, a partnership, or another corporation. Note: In case the contracted manager is another corporation, the special rule in Sec. 44 applies. In case of close corporations, the stockholders may manage the business of the corporation instead by a board of directors, if the articles of incorporation so provide. (Sec. 97) Spouses Constantine Firme v. Bukal Enterprises and Development Corporation (2003): The power to purchase real property is vested in the board of directors or trustees. While a corporation may appoint agents to negotiate for the purchase of real property needed by the corporation, the final say will have to be with the board, whose approval will finalize the transaction. a. 1) 2) 3) Requisites of a VALID Corporate Act by the Board of Directors
4)
The Board must act as a BODY in a meeting. There must be a VALIDLY constituted meeting. There act must be supported by a MAJORITY OF THE QUORUM duly assembled (Exception: Election of officers requires a vote of majority of all the members of the board) The act must be within the powers conferred on the Board. b. Limitations on Powers Directors/Trustees of Board of
Limitations imposed by the Constitution, statutes, articles of incorporation or by-laws; Certain acts of the corporation that require joint action of the stockholders and board of directors: - Removal of director (Sec. 28) - Amendments of AOI (Sec. 16) - Fundamental changes (Sec. 6) - Declaration of stock dividends (Sec. 43) - Entering into management contracts (Sec. 44) - Fixing of consideration of non-par shares (Sec. 62) - Fixing of compensation of directors (Sec. 30)
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Directors shall hold office for one (1) year until their successors are elected and qualified (Sec. 23). Term: One (1) year Tenure: The period within which the director actually holds office, including the holdover period after the end of his term. Valle Verde Country Club v. Africa, 2009: In several cases, we have defined "term" as the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several incumbents shall succeed one another. The term of office is not affected by the holdover. The term is fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify. Term is distinguished from tenure in that an officers "tenure" represents the term during which the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent. Based on the above discussion, when Section 239 of the Corporation Code declares that "the board of directorsshall hold office for one (1) year until their successors are elected and qualified," we construe the provision to mean that the term of the members of the board of directors shall be only for one year; their term expires one year after election to the office. The holdover period that time from the lapse of one year from a members election to the Board and until his successors election and qualification is not part of the directors original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure b. Qualifications
i. Straight Voting Every stockholder may vote such number of shares for as many persons as there are directors to be elected. ii. Cumulative voting for one candidate A stockholder is allowed to concentrate his votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. ILLUSTRATION If there are 5 directors to be elected and Pedro, as shareholder, has 100 shares, Pedro can give 500 (5 x 100 shares) votes to just one candidate. iii. Cumulative voting by distribution A stockholder may cumulate his shares by multiplying the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit. ILLUSTRATION In the illustration in (b), Pedro may choose to give 100 votes to candidate 1, 100 votes to candidate 2, 100 votes to candidate 3, 150 votes to candidate 4, and 50 votes to candidate 5.
If STOCK, director must own at least 1 share of the capital stock, which stock shall stand in his own name (Sec. 23). If NON-STOCK, trustee must be a member. Majority of the directors/trustees must be residents of the Philippines. Natural person Of Legal Age Other qualifications as may be prescribed in the by-laws of the corporation.
The total yearly compensation of directors shall not exceed 10% of the net income before income tax of the corporation during the preceding year. Western Institute of Technology v. Salas (1997): The position of being chairman and Vice-Chairman, like that of treasurer and secretary, are not considered directorship positions but officership positions that would entitle the occupants to compensation. Likewise, the limitation placed under Sec. 30 of the Corporation Code that directors cannot receive compensation exceeding 10% of the net income of the corporation would not apply to the compensation given to such positions since it is being given in their capacity as officers of the corporation and not as board members.
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G. Disloyalty
Duty of Loyalty Directors and trustees should not acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees, otherwise they shall be held liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. (Sec. 31) Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock (Sec. 34) Doctrine of Corporate Opportunity Unless his act is ratified, a director shall refund to the corporation all the profits he realizes on a business opportunity which: corporation is financially able to undertake from its nature, is in line with corporations business and is of practical advantage to it; and one in which the corporation has an interest or a reasonable expectancy. The rule shall be applied notwithstanding the fact that the director risked his own funds in the venture. (Sec. 34) By embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation. Hence, the law does not permit him to seize the opportunity even if he will use his own funds in the venture. (SUNDIANG AND AQUINO) NOTE: Differences between Section 31 and Section 34: First, while both involve the same subject matter (business opportunity) they concern different personalities; Sec. 34 is applicable only to directors
Vacancy/ies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee elected to fill a vacancy in shall be elected only for the unexpired term of his predecessor in office. b. Vacancy by reason of increase in the number of the directors/trustees
Vacancy/ies must be filled by the stockholders: in a regular or special meeting called for that purpose; or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting. c. Vacancy by other cause Vacancy/ies may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum. A director or trustee elected to fill a vacancy in shall be elected only for the unexpired term of his predecessor in office.
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Second. Sec. 34 allows a ratification of a transaction by a self-dealing director by vote of stockholders representing at least 2/3 of the outstanding capital stock (VILLANUEVA)
K. Personal Liabilities
GENERAL RULE Members of the Board, who purport to act in good faith for and in behalf of the corporation within the lawful scope of their authority, are not liable for the consequences of their acts. When the acts are of such nature and done under those circumstances, they are attributed to the corporation alone and no personal liability is incurred. (Price v. Innodata Phils., Inc., 2008) The provisions on seizing corporate opportunity and disloyalty (Secs. 31 and 34) shall also apply to corporate officers NOTE Members of the BOD who are also officers are held to a more stringent liability because they are incharge of day-to-day activities (CAMPOS) DOCTRINE OF LIMITED LIABILITY Shields the corporators from corporate liability beyond their agreed contribution to the capital or shareholding in the corporation. DOCTRINE OF IMMUNITY Protects a person acting for and in behalf of the corporation from being himself personally liable for his authorized actions
Tramat Mercantile, Inc. vs. CA, (1994), reiterated in Atrium Management Corp. v. CA, (2001): Liability of Director, Trustee or Officer (Asked in 96 and 97) Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; He agrees to hold himself personally and solidarily liable with the corporation; or
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2. Between
i.
N. Inside Information
The fiduciary position of insiders , directors, and officers prohibits them from using confidential
1
with
Insider means: (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is
not generally available to the public; (d) a government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or (e) a person who learns such information by a communication from any of the foregoing insiders (3.8, Sec Regulations Code)
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GENERAL RULE A contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone. (Sec. 32) EXCEPTION If contract is fraudulent or not fair and reasonable ii. If the interest of the interlocking director in one of the corporations is nominal (stockholdings 20% or less) while substantial in the other, the contract shall be VALID, if the following conditions are met:
1)
2) 3)
The presence of such director or trustee in the board meeting in which the contract was approved was NOT necessary to constitute a quorum for such meeting That the vote of such director or trustee was not necessary for the approval of the contract That the contract is fair and reasonable under the circumstances.
Where (1) and (2) are absent, the contract can be ratified by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or at least 2/3 of the members in a meeting called for the purpose voted to ratify the contract, provided that: full disclosure of the adverse interest of the directors/trustees involved is made on such meeting; the contract is fair and reasonable under the circumstances.
b.
Notice of regular or special meetings stating the date, time and place of the meeting must be sent to every director or trustee at least one (1) day prior to the scheduled meeting, unless otherwise provided by the by-laws. Notice of meeting is subject to waiver.
4. Rule on Abstention
An abstention is counted as an affirmative vote insofar as it may be construed as an acquiescence in the action of those who vote affirmatively. This manner of counting is obviously based on what is deemed to be a presumption as to the intent of the one abstaining, namely, to acquiesce in the action of those who vote affirmatively, but which presumption, being merely prima facie, would not
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X. Capital affairs
A. Certificate of Stock 1. Nature of the Certificate
A certificate of stock is an instrument formally issued by the corporation with the intention that the same constitute the best evidence of the rights and status of a SH (not a condition precedent to the acquisition of such rights).
3. Negotiability
Theory of Quasi-Negotiability Certificates indorsed in blank where the stockholder indorses his certificate in blank in such a manner as to clothe whoever may be in possession of it with apparent authority to deal with the shares as the latters own, he will be estopped from claiming the shares as against a bonafide purchaser. (Santamaria v. Hongkong & Shanghai Bank, 1951) i. Requirements for Valid Transfer of Stocks (Sec. 63) For a valid transfer of stocks, the requirements are as follows: There must be delivery of the stock certificate; The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and To be valid against third parties, the transfer must be recorded in the books of the corporation. (Bitong v. Court of Appeals, G.R. No. 123553, July 13, 1998) No shares of stock against which the corporation holds an unpaid claim shall be transferable in the books of the corporation.
2. Uncertificated Shares
Uncertificated Shares/Securities Security evidenced by electronic or similar records (Sec. 3.14, Securities Regulation Code) Notwithstanding Sec. 63 of the Corporation Code (certificate of stock and transfer of shares), a corporation whose securities are registered pursuant to the SRC or listed on securities exchange may: If so resolved by the Board of Directors and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all its shares into the name of such shareholders, investors or, securities intermediary in the form of uncertified securities, The use of uncertified securities in these circumstances shall be without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name; and If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name. Transfers of uncertificated securities, how made Valid as between parties - validly made and consummated by appropriate book-entries in the securities intermediaries, or in the stock and transfer book held by the corporation or the stock transfer agent. A transfer made pursuant to the foregoing has the effect of delivery of a security in bearer form or duly indorsed in blank representing the amount of security or right transferred,
4. Issuance
i. Full Payment
GENERAL RULE No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid (Sec. 64) EXCEPTION In Baltazar v Lingayen Gulf Electric Power Company, 1965), where it was the practice of the corporation since its inception to issue certificates of stock to its individual SHs for unpaid shares of stock and to give full voting power to shares fully paid. ii. Payment Pro-rata
Nava Peers Mktg. Corp. and Fua Cun v. Summers (1923): The entire subscription must be paid first before the certificates of stock can be issued. Partial payments are to be applied pro rata to each share of stock subscribed.
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par. 4)
i.
Contents
a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. ii. Who May Make Valid Entries
a licensed stock transfer agent; or the Secretary of the stock corporation provided all rules and regulations imposed on stock transfer agents shall be applicable, except payment of license fee.
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of
The board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it may deem necessary. Payment shall be made on the date specified in the contract of subscription or on the date stated in the call. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided for in the by-laws. If within 30 days from said date no payment is made, all stocks covered by said subscription shall become delinquent and subject to sale under Sec. 68 unless the BOD orders otherwise. There are two (2) instances when call is not necessary to make the subscriber liable for payment of the unpaid subscription: When, under the terms of the subscription contract, subscription is payable, not upon call, but immediately, or on a specified day, or when it is payable in installments at specified times; and If the corporation becomes insolvent, which makes the liability on the unpaid subscription due and demandable regardless of any stipulation to the contrary in the subscription agreement. (Villanueva, 2001)
3. Notice of Sale
If the BOD resolves to proceed with the sale: 1. Notice of sale and a copy of the resolution shall be sent to every delinquent stockholder either personally or by registered mail. 2. Notice of sale shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located.
4. Auction Sale
Procedure for delinquency sale (Sec. 68) Call for payment made by the BOD. Notice of call served on each stockholder. Notice of delinquency issued by the BOD upon failure of the stockholder to pay within 30 days from date specified. Service of notice of delinquency on the nonpaying subscriber, PLUS publication in a newspaper of general circulation in the province or city where the principal office of the corporation is located, once a week for two (2) consecutive weeks.
2. Notice Requirement
Where call is necessary, notice must be given to the stockholder concerned. A call without notice to the subscriber is practically no call at all.
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7. Involuntary Dealings
The right of a stockholder to pledge, mortgage or otherwise encumber his shares is recognized under Section 55 of the Corporation Code, which regulates the manner of voting on pledged or mortgaged shares. If the restriction on the right to pledge or mortgage shares of stock absolutely prohibits the stockholders from pledging or mortgaging their shares without the consent of the board of directors, it would be violative of the statutory right of the stockholders to encumber shares of stock as allowed in Section 55. However, when the restriction merely allows the corporation or existing stockholders to accept the offer within the option period, and thereafter, if no one accepts the offer, the stockholder is free to pledge or mortgage his shares in favor of any third party, such provision is reasonable, valid and binding. By the strict application of Section 63 of the Corporation Code to cover only the sale, assignment or absolute disposition of shares of stock, the Supreme Court has placed a bias against voluntary sales, assignments or dispositions of shares of stock vis--vis pledges, mortgages, attachment or levy thereof. To be valid and binding on third parties, the voluntary sale, assignment or disposition of shares requires the essential element of registration in the stock and transfer book; otherwise the sale, assignment or disposition is considered void as to third parties, even when they have actual notice. Whereas, when it comes to pledge, mortgage, encumbrance, attachment or levy of shares, registration thereof in the stock and transfer book is not essential either for validity or as a species of notifying third parties. (Villanueva, 2001)
The resolution to dissolve must be approved by the majority of the directors/trustees and approved by the stockholders representing at least 2/3s of the OCS or 2/3 of members. A copy of the resolution shall be certified by the majority of the directors or trustees and countersigned by the secretary. The signed and countersigned copy will be filed with the SEC and the latter will issue the certificate of dissolution. NOTE Thus, except for the expiration of its term, no dissolution can be effective without some act of the state (Daguhoy Enterprises v. Ponce, 1954) ii. Where Creditors are Affected (Sec. 119)
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A petition shall be signed by a majority of its board of directors or trustees or other officers having management of its affairs. The petition must be verified by its president, or secretary or one of its director or trustees. Approval of the stockholders representing at least 2/3 of the OCS or 2/3 of members in a meeting called for that purpose. Filing of a petition with the SEC signed by majority of directors or trustees or other officers having the management of its affairs verified by the President or Secretary or Director. Claims and demands must be stated in the petition. If the petition is sufficient in form and substance, the SEC shall issue an order fixing a hearing date for objections. A copy of the order shall be published at least once a week for 3 consecutive weeks in a newspaper of general circulation, or if there is no newspaper in the city or municipality of the principal office, posting for 3 consecutive weeks in 3 public places is sufficient. Objections must be filed no less than 30 days nor more than 60 days after the entry of the Order. After the expiration of the time to file objections, a hearing shall be conducted upon prior 5 day notice to hear the objections. Judgment shall be rendered dissolving the corporation and directing the disposition of assets. The judgment may include appointment of a receiver. iii. By Shortening of Corporate Term (Sec. 120) A voluntary dissolution may be effected by amending the AOI. Upon approval of the amended AOI or the
Notice of the meeting should be given to the stockholders or members by personal delivery or registered mail at least 30 days prior to the meeting. The notice of meeting should also be published for 3 consecutive weeks in a newspaper published in the place, where the principal office of said corporation is located. If no newspaper is published in such place, then in a newspaper of general circulation in the Philippines.
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2. Involuntary
i. By Expiration of Corporate Term
Once the period expires, the corporation is automatically dissolved without any other proceeding and it cannot thereafter be considered a de facto corporation. ii. Failure to Organize and Commence Business within Two Years from Incorporation (Sec. 22)
Failure to formally organize and commence the transaction of its business or construction of its works within two years - its corporate powers shall cease and the corporation shall be deemed dissolved Transacting business implies a continuity of acts or dealings in the accomplishment of the purpose for which the corporation was formed (Mentholatum v. Mangaliman, 1946) Formal organization includes not only the adoption of the by-laws but also the establishment of the body which will administer the affairs of the corporation and exercise its powers Failure to operate for at least 5 consecutive years after commencement of business - ground for suspension or revocation of its corporate franchise or certificate of incorporation. NOTE The corporation may show that the failure to commence its business or to continuously operate is due to causes beyond its control (Sec. 22). iii. Legislative Dissolution The inherent power of Congress to make laws carries with it the power to amend or repeal them. Involuntary corporate dissolution may be effected through the amendment or repeal of the Corporation Code. The limitations on the power to dissolve corporations by legislative enactment are as follows: 1. Under the Constitution, the amendment, alteration, or repeal of the corporate franchise of a public utility shall be made only when the common good so requires; 2. Under Section 145 of the Code, it is provided that: No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof;
B. Methods of Liquidation
Liquidation is the process by which all the assets of the corporation are converted into liquid assets (cash) in order to facilitate the payment of obligations to creditors, and the remaining balance if any is to be distributed to the stockholders. It is a proceeding in rem.
XII.
Other corporations
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3. By Management Committee or
Rehabilitation Receiver
However, the mere appointment of a receiver, without anything more does not result in the dissolution of the corporation nor bar it from the existence of its corporate rights (Leyte Asphalt & Mineral Oil Co. Ltd., v. Block Johnston & Breenbrawn, 1928) Upon five (5) day's notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation (Sec. 119, Code)
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1. Characteristics
Corporation
of
Close
The stockholders themselves can directly manage the corporation and perform the functions of directors without need of election (Sec. 97): When they manage, stockholders are liable as directors; There is no need to call a meeting to elect directors; The stockholders are liable for tort.
4. When
i. When Unnecessary Any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: Before or after such action is taken, written consent thereto is signed by all the directors; or All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing (Sec. 101)
When a directors meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend. UNLESS he promptly files his written objection with the secretary of the corporation after having knowledge thereof (Sec. 101)
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7. Deadlocks
Requisites 1) The directors or stockholders are so divided respecting the management of the corporation's business and affairs 2) The votes required for any corporate action cannot be obtained that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally Powers of the SEC in case of Deadlock in Close Corporations Cancel or alter any provision in the articles of incorporation or by-laws Cancel, alter or enjoin any resolution of the corporation Direct or prohibit any act of the corporation Require the purchase at their fair value of shares of any stockholder either by any stockholder or by the corporation regardless of the availability of unrestricted retained earnings. Appoint a provisional director Dissolve the corporation Granting such other relief as the circumstances may warrant. REGULAR CORPORATIONS
5. Preemptive Right
The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate debts, UNLESS the articles of incorporation provide otherwise (Sec. 102).
6. Amendment
of
Articles
of
Incorporation
Amendment to the AOI which seeks to: delete or remove any provision required to be contained in the AOI of Close Corporations (under the Title on Close Corporations); or to reduce a quorum or voting requirement stated in said AOI requires the affirmative vote of at least 2/3 of the outstanding capital stock, whether with or without CLOSE CORPORATIONS 1. There can be classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock; and The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: No meeting of stockholders need be called to elect directors. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code. The stockholders of the corporation shall be subject to all liabilities of directors. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors. 2. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:
Corporate Powers devolved upon board of directors whose powers are executed by officers. Cannot provide that it be managed by stockholders Board of directors must be elected in a stockholders meeting Stockholders of a corporation are separate and distinct from directors
Meetings The directors or trustees shall not act individually nor separately but as a body in a lawful meeting. They will act only after discussion and deliberation of matters before them. Contracts entered into without a formal
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1. 2.
Before or after such action is taken, written consent thereto is signed by all the directors; or All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing.
3.
4.
If a director's meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof.
Pre-emptive Right
The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise.
5.
Transferability
Restrictions on the right to transfer shares must appear in the AOI and in the by-laws as well as in the certificate of stock otherwise the same shall not be binding on any purchaser thereof in good faith 6.
Withdrawal Right
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4. Distribution
Dissolution
of
Assets
Upon
Order of Distribution of Assets Upon Dissolution of Non-Stock Corporation All its creditors shall be paid. Assets held subject to return on dissolution shall be delivered back to the givers. Assets held for charitable, religious purposes, etc., without a condition for their return on dissolution, shall be conveyed to one or more organizations engaged in similar activities as dissolved corporation All other assets shall be distributed to members, as provided in the AOI or by-laws (Sec. 94)
or
3. Treatment of Profits
Any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this Title. (Sec. 87,2nd sentence)
A corporation sole does not have any nationality but for purposes of applying our nationalizations laws, nationality is determined by the nationality of the members (Roman Catholic Apostolic Church v. Land Registration Commission, 1957).
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Non-stock corporation formed by a religious society, group, diocese, synod, or district of any religious denomination, sect, or church after getting the approval of 2/3 of its members.
D. Foreign Corporations
Foreign Corporation are those formed, organized, or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state (Sec. 123).
As a rule, a foreign corporation can have no legal existence or status beyond the bounds of the State or sovereignty by which it is created or incorporated and organized. It exists only in contemplation of law and by force of the law and where that law ceases to operate, the corporation can have no existence. This principle, however, does not prevent a corporation from acting in another State or country with the latters express or implied consent. This is the consent doctrine which is provided in Sections 125 and 126. But every power which a corporation exercises as such in another State depends for its validity upon the laws of the sovereignty in which it is exercised. A corporation can exercise none of the functions and privileges conferred by its charter in another State or country except by the comity and consent of such State or country. (De Leon, 2010) ii. Doctrine of Doing Business (relate to definition under the Foreign Investments Act, RA 7042) Tests of Doing Business in the Philippines (Asked in 98 and 02) Twin Characterization Test - Under the Continuity Test, doing business implies a continuity of commercial dealings and arrangements, or performance of acts normally incidental to the purpose and object of the organization. - Under the Substance Test, a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized (Mentholatum v. Mangaliman, 1941) Contract test A foreign corporation is doing business in the Philippines if the contracts entered into by the foreign corporation or by an agent acting under the control and direction of the foreign corporation are consummated in the Philippines (Pacific Vegetable Oil v. Singson, 1955).
2. Necessity of a License to Do
Business
i. Requisites for Issuance of a License
The foreign corporation should file a copy of its articles of incorporation and by-laws, and a verified application (See Sec. 125) accompanied by the following: - Name and address of its designated resident agent who will receive summons and notices for the corporation; a special power of attorney should also be submitted for such purpose
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Resident Agent is an individual, who must be of good moral character and of sound financial standing, residing in the Philippines, or a domestic corporation lawfully transacting business in the Philippines, designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against the foreign corporation (Sec. 127-128).
5. Instances
3. Personality to Sue
A foreign corporation transacting business in the Philippines is required to secure a license to have the personality to sue before, or intervene in, any court or administrative proceeding. (Campos, rephrased; Sec. 133, Corporation Code) Agilent Technologies Singapore v. Integrated Silicon Technologies, 2004: The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements: if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts (Sec. 133, Corporation Code); if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction (Eastboard Navigation, Ltd. v. Juan Ysmael & Company, Inc., 102 Phil. 1, 1957); if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporations corporate personality in a suit brought before Philippine courts (Merrill Lynch Futures v. Court of Appeals, G.R. No. 97816, 24 July 1992, 211 SCRA 824); and if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction.
Isolated transactions, i.e. not doing business in the Philippines, (Sec. 133, Corporation Code); Action to protect good name, goodwill, and reputation of a foreign corporation; The subject contracts provide that Philippine courts will be the venue to controversies; A license subsequently granted enables the foreign corporation to sue on contracts executed before the grant of the license; Recovery of misdelivered property; Where the unlicensed foreign corporation has a domestic corporation. When the Philippine citizen or entity is estopped from challenging the foreign corporations personality to sue (Merrill Lynch Futures v. Court of Appeals, G.R. No. 97816, 24 July 1992, 211 SCRA 824)
Failure to file its annual report or pay any fees as required by this Code; Failure to appoint and maintain a resident agent in the Philippines as required by this Title; Failure, after change of its resident agent or of his address, to submit to the Securities and Exchange Commission a statement of such change as required by this Title; Failure to submit to the Securities and Exchange Commission an authenticated copy of any amendment to its articles of incorporation or by laws or of any articles of merger or consolidation within the time prescribed by this Title; A misrepresentation of any material matter in any application, report, affidavit or other document submitted by such corporation pursuant to this Title; Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the Philippine Government or any of its agencies or political subdivisions;
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B. Constituent Corporation
v.
Consolidated
Constituent Corporations the parties to a merger or consolidation Consolidated Corporation - The new corporation created through consolidation. single
Insurance Code The Insurance Commissioner is authorized to suspend or revoke all certificates of authority granted to an insurance company, whether domestic or foreign, when: it is in unsound condition; or it has failed to comply with the provisions of law or regulations obligatory upon it; or its condition or method of business is such as to render its proceedings hazardous to the public or to its policyholders; or its paid-up capital stock, in the case of a foreign company, is impaired or deficient, or that the margin of solvency required of such company is deficient (Sec. 247, Insurance Code) General Banking Act The Monetary Board may revoke the license to transact business in the Philippines of any foreign bank, if it finds that: the foreign bank is insolvent; or in imminent danger thereof; or its continuance in business will involve probable loss to those transacting business with it.
Surviving Corporation one of the constituent corporations which remain in existence after the merger
or
Each of the constituent corporation shall execute Articles of Merger or Consolidation signed by the president/vice-president, and certified by the secretary/assistant secretary setting forth: Plan of merger or consolidation; For stock corporation, the number of shares outstanding; for non-stock, the number of members; As to each corporation, number of shares or members voting for and against such plan respectively. The Articles of Merger or Consolidation: take the place of the Articles of Incorporation of the consolidated corporation; or amend the Articles of Incorporation of the surviving corporation.
E. Procedure
The board of each corporation shall draw up a plan of merger or consolidation. The plan of merger or consolidation shall be approved by majority vote of each of the board of the concerned corporations at separate meetings, and a vote of 2/3 of the members or of stockholders representing 2/3 of the outstanding capital stock. Any amendment to the plan must be approved by the majority vote of the board members or trustees of the constituent corporations and affirmative vote of 2/3 of the outstanding capital stock or members.
G. Limitations
In the case of merger or consolidation of banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, the favorable recommendation of the appropriate government agency shall first be obtained (Sec. 79, Code)
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H. Effects
The constituent corporations shall become a single corporation. The separate existence of the constituents shall cease, except that of the surviving or the consolidated corporation. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation. The surviving or the consolidated corporation shall possess all rights, privileges, immunities and franchises of each constituent corporation and the properties shall be deemed transferred to and vested in the surviving or consolidated corporation without further act or deed. All liabilities of the constituents shall pertain to the surviving or the consolidated corporation. Any claim, action or proceeding pending by or against any of the constituent corporations may be prosecuted by or against the surviving or consolidated corporation; and The rights of the creditors or lien upon the property of any of each constituent corporation shall not be impaired by such merger or consolidation.
F. Effectivity
Upon issuance of the certificate of merger or consolidation, such merger or consolidation shall become effective (Sec. 79). PNB v. Andrada Electric & Engr. Co., Inc. (2002): Merger or consolidation does not become effective by mere agreement of the constituent corporations. The approval of the SEC is required.
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2012
UP L AW BAR REVIEWER
MERCANTILE
MERCANTILE LAW TEAM 2012 Subject Heads Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
MERCANTILE LAW State policy Powers and functions of the SEC Securities required to be registered IV. Procedure for registration of securities V. Prohibitions on fraud, manipulation, and insider trading VI. Protection of investors VII. Civil liability I. II. III.
I. State policy
Purpose The establishment of a socially conscious, free market that: (1) regulates itself; (2) encourage the widest participation of ownership in enterprises; (3) enhance the democratization of wealth; (4) promote the development of the capital market; (5) protect investors; (6) ensure full and fair disclosure about securities; (7) minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market (Sec. 2).
The SEC shall have the powers and functions provided by the SRC, P.D. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; (d) Regulate, investigate or supervise the activities of persons to ensure compliance; (e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; (f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto; (g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders; (h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and function under its Code; (i) Issue cease and desist orders to prevent fraud or injury to the investing public; (j) Punish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; (l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; (m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws (Sec. 5.1)
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B. Under PD 902-A
The SECs jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court (Sec. 5.2) Sections 2, 4 and 8 of Presidential Decree 902-A as amended, are hereby repealed. (Sec. 76) Insofar as not inconsistent with the SRC, the SEC retains its powers under Sec. 6 of P.D. 902-A:
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127
Chapter III, Section 8. Requirement of Registration of Securities x x x 8.2 The Commission may conditionally approve the registration statement under such terms as it may deem necessary. 8.3 The Commission may specify the terms and conditions under which any written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section. 8.4. A record of the registration of securities shall be kept in Register Securities in which shall be recorded orders entered by the Commission with respect such securities. Such register and all documents or information with the respect to the securities registered therein shall be open to public inspection at reasonable hours on business days. Shall include the effect of the securities issue on ownership, on the mix of ownership, especially foreign and local ownership (Sec. 12.3) Shall be signed by the issuers executive officer, its principal operating officer, its principal financial officer, its comptroller, its principal accounting officer, its corporate secretary, or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation (Sec. 12.4) Shall be accompanied by: (a) written consent of the expert named as having certified any
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3.
4.
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B. Short sales
(a) No person shall use or employ, in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance. (b) No short sale shall be effected nor any stop-loss order be executed in connection with the purchase or sale of any security except if allowed by the SEC (Sec. 24.2) NOTE: The SEC may allow certain acts or transactions under Sec. 24 (on Manipulation of Security Prices and Short Sales), for public interest and protection of investors (Sec. 24.3)
C. Fraudulent transactions
It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: (a) Employ any device, scheme, or artifice to defraud; (Sec. 26.1) (b) Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading (Sec. 26.2) (c) Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person (Sec. 26.3)
D. Insider trading
An Insider means: (a) the issuer;
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VI.Protection of investors
A. Tender offer rule
When a tender offer has commenced or is about to commence, It shall be unlawful for: (a) Any person (except the tender offeror) who is in possession of material nonpublic information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if: (i) such person knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such issuer (b) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, and any insider of such issuer to communicate material nonpublic information relating to the tender offer to any other person where such communication is likely to result in a violation of (a) (Sec. 27.4).
C. Disclosure rule
Disclosure by the Issuer - To the SEC Every issuer shall file with the Commission: (a) Annual Report within one hundred thirtyfive (135) days, after the end of the issuers fiscal year, or such other time as the Commission may prescribe (b) Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission may prescribe as necessary to keep current information on the operation of the business and financial condition of the issuer (Sec. 17.1) NOTE: Under this Section, issuer includes: (a) An issuer which has sold a class of its securities pursuant to a registration under section 12 hereof. BUT the requirement shall be suspended for any fiscal year if such issuer, as of the first day of any such fiscal year, has less than one hundred (100) holder of such class securities or such other number as the Commission shall prescribe and it notifies the Commission of such; (b) An issuer with a class of securities listed for trading on an Exchange; and (c) An issuer with assets of at least Fifty million pesos (50,000,000.00) or such other amount as the Commission shall prescribe, and having two hundred (200) or more holder each holding at least one hundred (100) share of a class of its equity securities. The obligation of such issuer to file report shall be terminate ninety (90) days after notification to the Commission by the issuer that the number of its holders holding at least one hundred (100) share reduced to less than one hundred (100) (Sec. 17.2) - To the equity holders An annual report shall be furnished by every issuer which has a class of equity securities satisfying any of the requirements in Subsection 17.2 to each holder of such equity security (Sec. 17.5) Disclosure by Equity Holders
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Disclosure by Insider An insider has the duty to disclose material information with respect to the issuer or the security that is not generally available to the public (Sec. 27.1) (See definitions of insider and material non-public information at pp. 132-133)
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B. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports (Sec. 57) 1. Liability of Sellers/Offerors
Who may be liable? (a) Offeror or seller of a security in violation of Chapter on Registration of Securities; (b) Offeror or seller of a security, whether or not exempted by the provisions of this Code, by means of a prospectus or other written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission). Defense: No knowledge of untruth or omission, despite the exercise of reasonable care (Sec. 57.1). Who may sue? Purchaser of the security may sue to recover: (1) consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security; or (2) for damages if he no longer owns the security (Sec. 57.1).
E. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans (Sec. 60)
Who may be liable? Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 (on Commodity Future Contracts) or 16 (on Pre-Need Plans) (Sec. 60.1) Who may sue? Any person sustaining damages as a result of such act or transaction (Sec. 60.1)
2. Liability
of
False
Who may be liable? Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this Code or any rule or regulation thereunder, which statement as at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to Defense: Good faith and lack of knowledge of the false and misleading statement (Sec. 57.2). Who may sue? Purchaser or seller of security who purchased or sold at a price which was affected by such statement knowing that such statement was false or misleading, and relying upon such statement may sue for damages caused by such reliance (Sec. 57.2).
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G. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability 1. Liability of Controlling Persons
Who may be liable? Every person who controls any person liable under this Code or the rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any person to whom such controlled person is liable (Sec. 51.1) NOTE: Control may be by or through stock ownership, agency, or otherwise, or in connection with an agreement or understanding with one or more other persons (Sec. 51.1) Defense: Lack of knowledge of the existence of facts by reason of which the liability of the controlled person is alleged to exist (Sec. 51.1)
It shall be unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to file any document, report or other information under this Code or any rule or regulation of the Commission thereunder, without just cause, to hinder, delay or obstruct the making or filing of any such document, report, or information (Sec. 51.2)
3. Liability of Aider/Abettor
It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation
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in Connection With Prospectus, Communications and Reports (Sec. 57) A. Liability of Sellers/Offerors
Purchaser of the security may sue to recover: (1) consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security; or (2) for damages if he no longer owns the security (Sec. 57.1).
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Any person who willfully participates in any act or transaction in Section 24 (Manipulation of Security Prices). Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 (on Commodity Future Contracts) or 16 (on PreNeed Plans) (Sec. 60.1) (a) Any insider who violates Subsection 27.1; (b) and any person in the case of a tender offer who violates Subsection 27.4 (a)(I), or any rule or regulation thereunder, by purchasing or selling a security while in possession of material information not generally available to the public (Sec. 61.1)
with Respect to Commodity Futures Contracts and Preneed Plans (Sec. 60)
Any investor who, contemporaneously with the purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender offer, proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him (Sec. 61.1)
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7.
Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability Liability of Controlling Persons
A.
B.
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
LAW
MERCANTILE LAW TEAM 2012 Subject Head | Karina Pulido LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
MERCANTILE LAW The New Central Bank Act (RA 7653) II. Law on Secrecy of Bank Deposits (RA 1405) III. General Banking Law of 2000 (RA 8791) IV. Philippine Deposit Insurance Corporation Act (RA 3591, as amended) V. Foreign Currency Deposit Act (RA 6426) I.
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D. Responsibility objective
1. Primary Objectives
and
primary
A. To maintain price stability conducive to a balanced and sustainable growth of the economy. B. To promote and maintain monetary stability and the convertibility of the peso. 2. Other Responsibilities A. B. To provide policy directions in the areas of money, banking, and credit To supervise operations of banks (Sec. 3, NCBA) All powers, duties and functions vested by law in the Central Bank of the Philippines not inconsistent with the NCBA shall be deemed transferred to the BSP. All references to the Central Bank of the Philippines in any law or special charters shall be deemed to refer to the BSP. (Sec. 136, NCBA)
E. Monetary Board
The body through which the powers and functions of the Bangko Sentral are exercised (Sec 6, NCBA)
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7. Grounds
1. 2.
3.
4.
If the member is subsequently disqualified under Sec. 8; If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such incapacity has lasted for more than 6 months; If he is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of the BSP; and If he no longer possesses the qualifications under Sec. 8.
4. 5.
The appointment of a conservator shall be vested exclusively in the MB. (Sec. 30) Powers and Duties of a Conservator: a. To take charge of the assets, liabilities, and the management thereof b. To reorganize the management c. To collect all monies and debts due said institution, and d. To exercise all powers necessary to restore its viability e. To report and be responsible to the MB f. To overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. (Sec. 29) First Philippine International Bank v. CA, 1996: While the Central Bank law gives vast and far reaching powers to the conservator of a bank, such powers must be related to the preservation of the assets of the bank, the reorganization of the management and the restoration of viability. Such powers cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. Remunerations: General Rule The conservator shall receive remuneration in an amount not to exceed 2/3 of the salary of the president of the institution in 1 year, payable in 12 equal monthly payments Exception A conservator connected with the BSP, in which case said conservator shall not be entitled to receive any remuneration or emolument. (Sec. 29, NCBA)
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1. Conservatorship
Applicability: when a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors (Sec. 29) determination is to be made by the MB on the basis of a report submitted by the appropriate supervising or examining department (Sec. 29) Period and Termination: Period: shall not exceed 1 year (Sec. 29) The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned (Sec. 29) Grounds for termination of conservatorship by MB: a. When it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary b. When, on the basis of the report of the conservator or of its own findings, the MB determines that the continuance in business of the institution would involve probable loss to its depositors or creditors (the bank or quasi-bank would then be placed under receivership) (Sec. 29) Effects of Conservatorship 1. Bank/Quasi-bank retains juridical personality 2. Not a precondition to the designation of a receiver, and; 3. Perfected transactions cannot be repudiated Qualifications of a Conservator: The conservator should be competent and knowledgeable in bank operations and management. (Sec. 29)
2. Receivership
Grounds: Whenever the MB finds that a bank or quasi-bank: a. Is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; b. Has insufficient realizable assets, as determined by the BSP, to meet its liabilities; or c. Cannot continue in business without involving probable losses to its depositors or creditors; or d. Has willfully violated a cease-and-desist order under Sec. 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution Receiver: a. if a banking institution: the PDIC b. if a quasi-bank: any person of recognized competence in banking or finance The appointment of a receiver shall be vested exclusively in the MB. And the designation of a
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Powers and Duties of a Receiver: a. Immediately gather and take charge of all the assets and liabilities of the institution b. Administer the assets for the benefit of the creditors c. Exercise the general powers of a receiver under the Revised Rules of Court d. Not to pay or commit any act that will involve the transfer or disposition of any asset of the institution, except: 1. administrative expenditures 2. receiver may deposit or place funds in nonspeculative investments e. Subject to prior approval of the MB, determine, as soon as possible, but not later than 90 days from take-over, whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public The assets of the institution under receivership and liquidation shall be deemed in custodia legis and shall be exempt from any order of garnishment, levy, attachment, or execution. Close Now, Hear Later Scheme Sec. 29 of the Central Bank Act does NOT contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. It is enough that such action is made subject of a subsequent judicial review. When the law provides for the filing of a case within 10 days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. The legislature could not have intended to authorize no prior notice and hearing in the banks closure and at the same time allow a suit to annul it on the basis of absence thereof (Central Bank vs. Cam GR No. 76118, March 30, 1993)
3. Liquidation / Closure
Should the determination be that the institution cannot be rehabilitated or permitted to resume business, the MB shall notify in writing the board of directors of the institution of its findings and direct the receiver to proceed with the liquidation of the institution. Procedure: 1. The receiver shall file ex parte with the proper RTC, and without requirement of prior notice or any other action, a petition for assistance in the liquidation of the institution pursuant to the liquidation plan adopted by the PDIC (if quasibank, liquidation plan adopted by the MB) 2. Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice, a. adjudicate disputed claims against the institution,
The maximum amount of coins to be considered as legal tender is: [BSP Cicular 537 (2006) ] 1. P1,000.00 for denominations of 1-Piso, 5-Piso and 10-Piso coins; and 2. P100.00 for denominations of 1-sentimo, 5sentimo, 10-sentimo, and 25-sentimo coins. 2. Rate of Exchange (Sec. 74) The MB shall: 1. Determine the exchange rate policy of the country; 2. Determine the rates at which the Bangko Sentral shall buy and sell spot exchange; 3. Establish deviation limits from the effective exchange rate or rates as it may deem proper. 4. Determine the rates for other types of foreign exchange transactions by the BSP, including purchases and sales of foreign notes and coins. Limitation: The margins between the effective exchange rates and the rates established by the MB may not exceed the corresponding margins for spot exchange transactions by more than the additional costs or expenses involved in each type of transactions.
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Ejercito v. Sandiganbayan (Special Division), 2006: The term deposits as used in RA 1405 is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and the bank. If the money deposited under an account may be used by banks for authorized loans to third persons, then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of boosting the economic development of the country. Considering the use of the phrase of whatever nature RA 1405 applies not only to money which is deposited but also to those which are invested. Thus, the protection afforded by RA 1405 extends to trust accounts.
D. Exceptions (Sec. 2)
A. B. C. D. Upon written permission of the depositor; In cases of impeachment; Upon order of a competent court in cases of: a. Bribery; b. dereliction of duty of public officials; or Where the money deposited or invested is the subject matter of the litigation.
China Banking Corporation v. Ortega, 1973: The absolute confidentiality rule in R.A. No. 1405 actually aims at protection from unwarranted inquiry or investigation if the purpose of such inquiry or investigation is merely to determine the existence and nature, as well as the amount of the deposit in any given bank account.
Union Bank v. Court of Appeals, 1999: By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant. (Mathay v. Consolidated Bank and Trust Company, 1974). We note with approval the difference between the "subject of the action" from the "cause of action." We also find petitioner's definition of the phrase "subject matter of the action" is consistent with the term "subject matter of the litigation," as the latter is used in the Bank Deposits Secrecy Act.
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4. 5.
6.
[NOT considered as EXCEPTIONS]: a. In 1981, PD 1792 added the following grounds when the bank can be compelled to reveal the amount of a depositor: i. made in the course of a special or general examination of a bank and is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity, or ii. made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank. However, Sec. 135 of RA 7653 or the New Central Bank Act expressly repealed PD 1792 thereby reverting RA 1405 to its version prior to the promulgation of the Decree. a) Thus, Villanueva says that these two instances are excluded from the enumeration of exceptions to the secrecy of bank deposits (VILLANUEVA, Commercial Law Review, opinion). Morales, however, notes that with the enactment of the AMLA, exception (i) has been substantially resurrected. While there is no similar development of exception (ii), the exclusion of the BSP examiners and independent auditors from the coverage of the Secrecy of Bank Deposits Law finds basis in Opinion No. 243 (s. 1975) of then Secretary of Justice Pedro Tuason. (MORALES, The Philippine General Banking Law, opinion)
b)
b.
It used to be believed that the RA 1405 did not apply to the Ombudsman, on account of his authority under Sec. 15(8) of RA 6770 or the Ombudsman Act of 1989 to examine and have
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E. Garnishment of deposits
General Rule The prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment (China Banking Corporation v. Ortega, 1973; Philippine Commercial and Industrial Bank v. Court of Appeals, 1991) China Banking Corporation v. Ortega (1973): the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank. Exception - Foreign Currency Deposits. The foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (Sec. 8, Foreign Currency Deposit Act) Exceptions to exception 1. 2. upon written permission of the depositor (Sec. 8, Foreign Currency Deposit Act ; Intengan vs CA ; 2002) upon order of a competent court in cases of violation of the Anti-Money Laundering Act of 2001 [as in the case of peso deposits, supra]
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4. 5. 6.
NOTE The term thrift banks also refers to any banking corporation organized for the following purposes: (1) Accumulating the savings of depositors and investing them, together with capital loans secured by bonds, mortgages in real estate and insured improvements thereon, chattel mortgage, bonds and other forms of security or in loans for personal or household finance, whether secured or unsecured, or in financing for homebuilding and home development; in readily marketable and debt securities; in commercial papers and accounts receivables, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; and in such other investments and loans which the Monetary Board may determine as necessary in the furtherance of national economic objectives; (2) Providing short-term working capital, mediumand long-term financing, to businesses engaged in agriculture, services, industry and housing; and (3) Providing diversified financial and allied services for its chosen market and constituencies especially for small and medium enterprises and individuals. (Sec.3(a), R.A. 7906) 4) Cooperative Banks. These are banks organized primarily to make financial and credit services available to cooperative banks. NOTE A cooperative bank is one organized by the majority shares of which is owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. The term "cooperative bank" shall include cooperative rural banks. (Sec. 100, R.A. 6938) 5) Islamic Banks These are banks the business dealings and activities of which are subject to the basic principles and rulings of Islamic Sharia. The Al Amanah Islamic Investment Bank of the Philippines, which was created by RA 6848, is the only Islamic bank in the country at this time. NOTE Islamic Bank refers to the Al-Amanah Islamic Investment Bank of the Philippines, created under R.A. 6848. (See Sec. 44(1) and Sec. 2, R.A. 6848) 6) Rural Banks Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of 1992 (RA 7353) 7) Other classifications of banks As determined by the Monetary Board, i.e., Philippine Veterans Bank (RA 3518), Landbank of the
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1)
Corporate powers
General powers incident to corporations (Sec. 36, Corporation Code) 1. To sue and be sued in its corporate name; 2. Succession by its corporate name for the period stated in the AOI and the certificate of incorporation 3. To adopt and use a corporate seal 4. To amend its AOI 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal them 6. To issue or sell stocks to subscribers and to sell treasury stocks. 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution 8. To enter into merger or consolidation 9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: provided that no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees 11. To exercise such other powers as may be essential or necessary to carry out its purposes as stated in the AOI. 2) Banking and incidental powers All such powers as may be necessary to carry on the business of commercial banking (Sec. 29) a. b. c. Accepting drafts Issuing letters of credit Discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt Accepting or creating demand deposits
d.
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Security of chattels and intangible properties (patents, trademarks, trade names, and copyrights)
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Notwithstanding the degree of diligence required, a bank is not expected to be infallible (Prudential Bank vs. CA, 2000) Fiduciary Nature of Banks Failure on the part of the bank to satisfy the degree of diligence required of banks may warrant the award of damages. Under Sec. 2, the degree of diligence is high standards of integrity and performance. In numerous cases, the Supreme Court has held that the highest degree of diligence and care is expected from banks (Simex International v. CA [1990]; Philippine Bank of Commerce v. CA [1997]; Westmont Bank v. Ong [2002]; Solidbank
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G. Stipulation on interests
The Monetary Board may prescribe the maturities, as well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board in the maximum maturities shall apply only to loans and other credit accommodations made after the date of such action. The Monetary Board shall regulate the interest imposed on micro finance borrowers by lending investors and similar lenders such as, but not limited to, the unconscionable rates of interest collected on salary loans and similar credit accommodations (Sec. 43, GBL)
Risk-based capital ratio: The minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts [i.e. net worth: total risk assets] (Sec. 34, GBL) General Rule A bank must conform to the risk-based capital ratio prescribed by the MB Exceptions The MB may alter or suspend compliance with such ratio whenever necessary for a maximum period of 1 year. a. In case of a bank merger or consolidation; OR b. When a bank is under rehabilitation under a program approved by the BSP; (Sec. 34, GBL) Purpose: A bank must not be allowed to expand the volume of its loans and investments in a manner that is disproportionate to its net worth. (MORALES, The Philippine General Banking Law, Opinion) Effect of non-compliance (Sec. 34, GBL): 1. The MB may limit or prohibit the distribution of net profits by such bank and may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met. 2. The MB may restrict or prohibit the acquisition of major assets and the making of new investments by the bank, with the exception of purchases of readily marketable evidences of indebtedness of the RP and the BSP and any other evidences of indebtedness or obligations
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General Rule The total loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, or corporation or other entity shall at no time exceed 20% of the net worth of such bank. (Sec. 35.1,GBL) Exceptions 1. The Monetary Board otherwise prescribes for reasons of national interest. (Sec. 35.1, GBL) 2. Wholesale lending activities of government banks to participating institutions for relending to end-user borrowers: separate limit of 35% net worth. (BSP Circular No. 425 dated March 25, 2004) Increase of limit: The Monetary Board may increase the limit prescribed by an additional 10% of the net worth, when: a. The additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title; b. Covering readily marketable, non-perishable goods; and c. Which must be fully covered by insurance (Sec. 35.2, GBL) Purpose: To prevent the bank from making excessive loans and other credit accommodations to a single borrower or corporate group, including guarantees for the account of such borrower or group. The bank is prohibited from placing many eggs in the basket of one client. [It] is a damage-control mechanism [and] a device for risk amelioration. (MORALES, The Philippine General Banking Law, Opinion) Basis for determining compliance: The basis for determining compliance with the SBL is the total credit commitment of the bank to the borrower. (Sec. 35.1, GBL) Inclusions in the ceiling: a. the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general indorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank; b. in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other entity, the liabilities of said entities to such bank; c. in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and
Guidelines on the wholesale lending of government banks: a. it shall apply only to loans granted by participating financial institutions (PFIs) on a wholesale basis for on-lending to end-user borrowers; b. it shall apply only to loan programs funded by multilateral, international, or local development agencies, organizations, or institutions, especially designed for wholesale lending activities of government banks; c. the end-user borrowers of the PFIs shall be subject to the 25% SBL, not the increased ceiling of 35%; and d. government banks shall observe appropriate criteria for accrediting PFIs and for the grant/renewal of credit lines to accredited PFIs. (BSP Circular No. 425 dated Mach 25, 2004) Exclusions from the ceiling: Loans and other credit accommodations a. secured by obligations of the BSP or of the Philippine Government; b. fully guaranteed by the government as to the payment of principal and interest; c. covered by assignment of deposits maintained in the lending bank and held in the Philippines; d. under letters of credits to the extent covered by margin deposits; and e. specified by the Monetary Board as non-risk items (Sec. 35.5, GBL) Combination of liabilities: The MB may prescribe the combination of the liabilities of subsidiary corporations or members of the partnership, association, entity or such individual under certain circumstances, including but not limited to any of the following situations: a. the parent corporation, partnership, association, entity or individual guarantees the repayment of the liabilities; b. the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association or entity or such individual; or c. the subsidiaries though separate entities operate merely as departments or divisions of a single entity. (Sec. 35.4, GBL) Loans and other credit accommodations, deposits maintained with, and usual guarantees by a bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as herein prescribed. (Sec. 35.6, GBL) 3. Restrictions on Bank Exposure to Directors, Officers, Stockholders and their Related Interests (DOSRI)
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b.
Exceptions 1. valid insider lending (Sec. 36, GBL) 2. loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders (Sec. 36, GBL) Requirements for valid insider lending (Sec. 36, GBL): a. in the regular course of business ; b. upon terms not less favorable to the bank than those offered to others; c. there is a written approval of the majority of all the directors of the bank, excluding the director concerned; (Except: granted to officers under a fringe benefit plan approved by the BSP; d. the required approval shall be entered upon the record of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the BSP; e. limited to an amount equivalent to the DOSRI borrowers unencumbered deposits and book value of his paid-in capital contribution in the bank Exceptions 1. non-risk items; and 2. loans in the form of fringe benefits. A DOSRI borrower is required to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. (Sec. 26, NCBA) Purpose: The general policy behind DOSRI rules is to level the lending field between the insiders and the outsiders. The objective is to prevent the bank from becoming a captive source of finance for DOSRI. (MORALES, The Philippine General Banking Law, Opinion) 4. Loan-Loss Provisioning (Sec. 49, GBL)
Purposes: a. To control the volume of money created by the credit operations of the banking system, the BSP requires all banks to maintain reserves against their deposit and deposit-substitute liabilities. b. As a ready source of funds that will respond to unusually large number of withdrawals or preterminations of deposits or depositsubstitutes, taking in the shape of a bank run. (MORALES, The Philippine General Banking Law, Opinion) Two types of reserves: a. Statutory legal reserve 10% for deposits and deposit substitutes (BSP Circular No. 491 dated July 12, 2005) For deposit-substitutes evidenced by repurchase agreements covering government securities: 2% (BSP Circular No. 444 dated August 18, 2004) For foreign currency deposit units: 100% (BSP Circular No. 1389 dated April 13, 1993, as amended); 30% of this cover must be in the form of liquid assets (BSP Circular-Letter dated June 6, 1997, as cited in MORALES) b. Liquidity reserve 11% (BSP Circular No. 491). This consists of deposits placed in the Reserve Deposit Account with the BSP for at least 3 months (BSP Circular No. 539 dated August 9, 2006)
The BSP shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. (Sec. 94, NCBA) 6. PDIC Insurance Banks are required to insure their deposit liabilities with the PDIC. Partial Insurance: Each depositor is a beneficiary of the insurance for a maximum amount of P500,000, or its foreign currency equivalent in the case of an FCDU deposit. (RA 9576, 2009) NOTE PDIC only insures deposit (not deposit substitutes) liabilities of a bank or banking institution which is engaged in the business of receiving deposits, or which thereafter may engage in the business of receiving deposits (Sec.5, RA 3591, as amended) Purpose: Full insurance might encourage risky banking activities. A limited insurance of bank deposits serves to limit moral hazard.
The following are subject to regulation by the Monetary Board: a. the amount of reserves for bad debts or doubtful accounts or other contingencies; and b. the writing off of loans, other credit accommodations, advances and other assets. Purpose: For effective banking supervision. There is a problem of mismatch when a loan becomes non-performing. The bank is paying interest on the money it borrowed from the depositors or other placers of funds, but is not recouping that interest from the loan it made. Eventually, the bank may have to write off loan losses against profits. To cushion this
(a) Fine not exceeding Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or quasibank; or (b) Suspension of rediscounting privileges or access to Bangko Sentral credit facilities; (c) Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; (d) Suspension of interbank clearing privileges; and/or (e) Revocation of quasi-banking license. 2. Suspension or Removal of Director If the offender is a director or officer of a bank, quasi-bank or trust entity, the Monetary Board may also suspend or remove such director or officer (Sec. 66, GBL). Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions. (Sec. 37, NCBA) 3. Dissolution of Bank If the violation is committed by a corporation, such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General (Sec. 66, GBL) Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner, the Monetary Board may commence proceedings in liquidation. (Sec. 36, NCBA in relation to Sec. 30, NCBA)
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A. Basic Policy
Promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits (Sec. 1, as amended)
154
1.
C. Liability of Depositors
Deposit Liabilities Required to be Insured with PDIC The deposit liabilities of any bank or banking institution, which is engaged in the business of receiving deposits on the effective date of this Act, or which thereafter may engage in the business of receiving deposits, shall be insured with the Corporation (Sec. 5) NOTE Bank' and 'Banking Institution' shall include banks, commercial banks, savings bank, mortgage banks, rural banks, development banks, cooperative banks, stock savings and loan associations and branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines (Sec. 4(b), as amended) Deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank (Sec. 4(f), as amended). What is not considered a deposit? Any obligation of a bank which is payable at the office of the bank located outside of the Philippines (Sec. 4(f), as amended). 2. Commencement of Liability Liability commences upon the approval of application. 3. Deposit Account not Entitled to Payment The Corporation shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented, recorded or booked as deposit by the bank: (1) Investment products such as bonds and securities, trust accounts, and other similar instruments; (2) Unfunded, fictitious or fraudulent deposit accounts or transactions; (3) Deposits accounts or transactions constituting, and/or emanating from, unsafe and unsound banking practice/s, as determined
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i. If the account is held by a juridical person or entity jointly with one or more natural persons The maximum insured deposits shall be presumed to belong entirely to such juridical person or entity (Sec. 4(g), as amended). NOTE The aggregate of the interest of each coowner over several joint accounts, whether owned by the same or different combinations of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of P500,000.00 (Sec. 4(g), as amended). c. Mode of Payment Payment of the insured deposits on such closed bank shall be made by the Corporation as soon as possible either: (1) by cash; (2) by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor (Sec. 14) NOTE Transfer Deposit means a deposit in an insured bank made available to a depositor by the Corporation as payment of insured deposit of such depositor in a closed bank and assumed by another insured bank (Sec. 4(h), as amended) d. Effect of Payment of Insured Deposit Discharge from Liability to the Depositor The Corporation shall be discharged from liability upon payment under Sec. 14, ie: (1) Payment of an insured deposit to any person by the Corporation;
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The FCDA allowed any person to deposit, and banks to accept deposit, any foreign currency acceptable as part of the Philippines international reserve.
A. Confidentiality
All foreign currency deposits are declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall be examined, inquired or looked into by any person, government official, bureau or office, whether judicial or administrative, or legislative or any other entity whether public or private. (Sec. 8) The foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (Sec. 8) Exceptions 1. upon written permission of the depositor (Sec. 8, Foreign Currency Deposit Act ; Intengan vs CA ; 2002) 2. upon order of a competent court in cases of violation of the Anti-Money Laundering Act of 2001 [as in the case of peso deposits, supra] 3. during Bangko Sentrals periodic or special examinations [as in the case of peso deposits, supra], and 4. disclosure of the Treasurer of the Philippines when the unclaimed balances law applies (Act 3936, as amended by PD 679) 5. BSP/PDIC inquiry if there is a finding of unsafe and unsound banking practice (as in the case of peso deposits, supra) 6. In Salvacion vs. CB (1997), where a Filipino child was raped by a foreigner, the SC allowed garnishment of foreign currency deposits stating
g. Failure of Depositor to Claim Insured Deposits All rights of the depositor against the Corporation with respect to the insured deposit shall be barred:
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B. Privileges
1. Tax exemption the FCD, including interests and all other income or earnings of such deposits, are exempt from any and all taxes whatsoever if these deposits are made by nonresidents and irrespective of whether or not the non-residents are engaged in trade or business in the Philippines (Sec. 6 as amended). FCDs of residents are subject to 7.5% withholding tax. Exemption from attachment, garnishment or any other order or process of any court, legislative or administrative body, or government agency whatsoever (Sec. 8)
2.
EXC: The CA, upon application ex parte by the AMLC and after determination that a probable cause exists that any monetary instrument or property is in any way related to an unlawful activity, the AMLC, may freeze the account (Sec. 10, RA9160).
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2012
UP L AW BAR REVIEWER
MERCANTILE
BAR OPERATIONS COMMISSION 2012 EXECUTIVE COMMITTEE Ramon Carlo Marcaida |Commissioner Raymond Velasco Mara Kriska Chen |Deputy Commissioners Barbie Kaye Perez |Secretary Carmen Cecilia Veneracion |Treasurer Hazel Angeline Abenoja|Auditor
LAW
MERCANTILE LAW TEAM 2012 Subject Heads | Anna Katarina Rodriguez Mickey Chatto LAYOUT TEAM 2012 Layout Artists | Alyanna Apacible Noel Luciano RM Meneses Jenin Velasquez Mara Villegas Naomi Quimpo Leslie Octaviano Yas Refran Cris Bernardino Layout Head| Graciello Timothy Reyes
COMMITTEE HEADS Eleanor Balaquiao Mark Xavier Oyales | Acads Monique Morales Katleya Kate Belderol Kathleen Mae Tuason (D) Rachel Miranda (D) |Special Lectures Patricia Madarang Marinella Felizmenio |Secretariat Victoria Caranay |Publicity and Promotions Loraine Saguinsin Ma. Luz Baldueza |Marketing Benjamin Joseph Geronimo Jose Lacas |Logistics Angelo Bernard Ngo Annalee Toda|HR Anne Janelle Yu Alyssa Carmelli Castillo |Merchandise Graciello Timothy Reyes |Layout Charmaine Sto. Domingo Katrina Maniquis |Mock Bar Krizel Malabanan Karren de Chavez |Bar Candidates Welfare Karina Kirstie Paola Ayco Ma. Ara Garcia |Events OPERATIONS HEADS Charles Icasiano Katrina Rivera |Hotel Operations Marijo Alcala Marian Salanguit |Day-Operations Jauhari Azis |Night-Operations Vivienne Villanueva Charlaine Latorre |Food Kris Francisco Rimban Elvin Salindo |Transpo Paula Plaza |Linkages
Intellectual Property
Letters of Credit Warehouse Receipts Law Trust Receipts Law Negotiable Instruments Law Insurance Code Transportation Law Corporation Law Securities Regulation Code Banking and Finance Intellectual Property
MERCANTILE LAW Intellectual Property in general Patents Trademarks Copyright Registration Flowcharts
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2.
3.
under
the
Copyright; Related Rights of copyright; Trademarks and Service Marks; Geographic Indications; Industrial Designs; Patents; Layout-Designs (Topographies) of Integrated Circuits; [Sec. 4, RA 8293] Protection of Undisclosed Information [TRIPS Agreement].
Industrial Design
Any composition of lines or colors or any threedimensional form, whether or not associated with lines or colors: Provided, that such composition or form gives a special appearance to and can serve as pattern for an industrial product or handicraft. [Sec. 112.1, RA 8293]
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Undisclosed Information
Information which: 1. Is a secret in a sense that it is not, as a body or in the precise configuration and assembly of components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 2. Has a commercial value because it is secret; and 3. Has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret [Art. 39, TRIPS]
2.
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II. Patents
A. Patentable Inventions B. Non-patentable Inventions C. Ownership of a Patent D. Cancellation of a Patent E. Remedy of the True and Actual Inventor F. Rights conferred by a Patent G. Limitations on Rights of Patentees H. Patent Infringement I. Licensing J. Assignment and Transmission of Rights
A. Patentable Inventions
A patentable invention is any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable shall be Patentable. It may be, or may relate to, a product, or process, or an improvement of any of the foregoing. [Sec. 21, RA 8293]
1. Invention Patent
Standards: a. Novelty - An invention shall not be considered new if it forms part of a prior art. [Sec. 23, RA 8293] Prior art shall consist of: i. Everything which has been made available to the public anywhere in the world, before the filing date or the priority date of the application claiming the invention; [Sec. 24.1, RA 8293] ii. The whole contents of an application for a patent, utility model, or industrial design registration, published in accordance with this Act, filed or effective in the Philippines, with a filing or priority date that is earlier than the filing or priority date of the application: Provided, That the application which has validly claimed the filing date of an earlier application under Section 31 of this Act, shall be prior art with effect as of the filing date of such earlier application: Provided further, That the applicant or the inventor identified in both applications are not one and the same. [Sec. 24.2, RA 8293] Non-Prejudicial Disclosures: This is an exception to the General Rule on Prior Art under Sec. 24. It provides that the disclosure of the information contained
2. Utility Model
It is any technical solution of a problem in any field of human activity which is new and industrially applicable. Unlike an invention patent, a utility model need not be inventive. The law merely requires that it be novel and industrially applicable. [Sec. 109.1, RA 8293] A utility model registration shall expire, without any possibility of renewal, at the end of the seventh year after the date of the filing of the application. [Sec. 109.3, RA 8293]
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3.
3. Industrial Design
An industrial design is any composition of lines or colors or any three-dimensional form, whether or not associated with lines or colors: Provided that such composition or form gives a special appearance to and can serve as pattern for an industrial product or handicraft. [Sec. 112.1, RA 8293 as amended by RA 9150]
4.
Cheaper Medicines Act: In addition to discoveries, scientific theories and mathematical methods, the IP Code now includes, in case of drugs and medicines: 1. The mere discovery of a new form or new property of a known substance which does not result in the enhancement of the known efficacy of that substance 2. the mere discovery of any new property or new use of a known substance 3. the mere use of a known process unless such known process results in a new product that employs at least one reactant [Sec. 26.2, RA 8293 as amended by RA 9502]
B. Non-patentable Inventions
The following shall be excluded from patent protection: 1. Discoveries, scientific theories and mathematical methods, and in the case of drugs and medicines, the mere discovery of a new form or new property of a known substance which does not result in the enhancement of the known efficacy of that substance, or the mere discovery of any new property or new use for a known
C. Ownership of a Patent
1. Right to a Patent
General Rule: The right to patent belongs to the inventor, his heirs, or assigns. When two (2) or more persons have jointly made an invention, the right to a patent shall belong to them jointly. [Sec.28, RA 8293] Exception: Inventions created pursuant commission (Work for Hire Doctrine) to a
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ii.
c.
2. First-to-file Rule
If two (2) or more persons have made the invention separately and independently of each other, the right to the patent shall belong to the person who filed an application for such invention, or where two or more applications are filed for the same invention, to the applicant who has the earliest filing date or, the earliest priority date. [Sec. 29, RA 8293]
Where the grounds for cancellation relate to some of the claims or parts of the claim, cancellation may be effected to such extent only. [Sec. 61.2, RA 8293] 2.
The petition for cancellation shall be in writing, verified by the petitioner or by any person in his behalf who knows the facts, specify the grounds upon which it is based, include a statement of the facts to be relied upon, and filed with the Office. Copies of printed publications or of patents of other countries, and other supporting documents mentioned in the petition shall be attached thereto, together with the translation thereof in English, if not in English language. [Sec. 62, RA 8293] 3.
Notice of Hearing
Upon filing of a petition for cancellation, the Director of Legal Affairs shall forthwith serve notice of the filing thereof upon the patentee and all persons having grants or licenses, or any other right, title or interest in and to the patent and the invention covered thereby, as appears of record in the Office, and of notice of the date of hearing thereon on such persons and the petitioner. Notice of the filing of the petition shall be published in the IPO Gazette. [Sec. 63, RA 8293] 4.
4. Right of priority
An application for patent filed by any person who has previously applied for the same invention in another country which by treaty, convention, or law affords similar privileges to Filipino citizens, shall be considered as filed as of the date of filing the foreign application: Provided, That: (a) the local application expressly claims priority; (b) it is filed within twelve (12) months from the date the earliest foreign application was filed; and (c) a certified copy of the foreign application together with an English translation is filed within six (6) months from the date of filing in the Philippines. [Sec. 31, RA 8293]
The rights conferred by the patent or any specified claim or claims cancelled shall terminate. Notice of the cancellation shall be published in the IPO Gazette. Unless restrained by the Director General, the decision or order to cancel by Director of Legal Affairs shall be immediately executory even pending appeal. [Sec. 66, RA 8293]
D. Cancellation of a Patent
1. Grounds for Cancellation of Patent
Any interested person may, upon payment of the required fee, petition to cancel the patent or any claim thereof, or parts of the claim, on any of the following grounds:
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Remedy of persons not having the right to a patent: If a person other than the applicant, is declared by final court order or decision as having the right to the patent, such person may, within three (3) months after the decision has become final: 1. Prosecute the application as his own application in place of the applicant; 2. File a new patent application in respect of the same invention; 3. Request that the application be refused; or 4. Seek cancellation of the patent, if one has already been issued. [Sec. 67, RA 8293]
d.
3.
To be able to effectively and legally preclude others from copying and profiting from the invention, a patent is a primordial requirement. No patent, no protection. The ultimate goal of a patent system is to bring new designs and technologies into the public domain through disclosure. Ideas, once disclosed to the public without the protection of a valid patent, are subject to appropriation without significant restraint. [Pearl Dean, Inc. v. Shoemart, Inc.(2003)]
e.
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2. Prior User
Notwithstanding Section 72 hereof, any prior user, who, in good faith was using the invention or has undertaken serious preparations to use the invention in his enterprise or business, before the filing date or priority date of the application on which a patent is granted, shall have the right to continue the use thereof as envisaged in such preparations within the territory where the patent produces its effect. [Sec. 73.1, RA 8293] The right of the prior user may only be transferred or assigned together with his enterprise or business, or with that part of his enterprise or business in which the use or preparations for use have been made. [Sec. 73.2, RA 8293]
b. Doctrine of equivalents
Under the doctrine of equivalents, an infringement also occurs when a device appropriates a prior invention by incorporating its innovative concept and, albeit with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result. [Godinez v. CA (1993)] In order to infringe a patent, a machine or device must perform the same function, or accomplish the same result by identical or substantially identical means and the principle or mode of operation must be substantially the same. [Del Rosario v. CA (1996)] The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and, although with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result. The principle or mode of operation must be the same or substantially the same. The doctrine of equivalents thus requires satisfaction of the function-means-andresult test, the patentee having the burden to show that all three components of such equivalency test are met. [Smith Klein Beckman Corp. v. CA (2003)]
b.
The use by the Government, or third person authorized by the Government shall be subject, mutatis mutandis, to the conditions set forth in Sections 95 to 97 and 100 to 102 on compulsory licensing. [Sec. 74.2, RA 8293] All cases arising from the implementation of this provision shall be cognizable by courts with appropriate jurisdiction provided by law. No court except the Supreme Court of the Philippines, shall issue any temporary restraining order or preliminary injunction or such other provisional remedies that will prevent its immediate execution. [Sec. 74.3, RA 8293 as amended by RA 9502]
H. Patent Infringement
It is the making, using, offering for sale, selling, or importing a patented product or a product obtained directly or indirectly from a patented process, or the use of a patented process without the authorization
166
Defenses in infringement
action
for
In an action for infringement, the defendant, in addition to other defenses available to him, may show the invalidity of the patent, or any claim thereof, on any of the grounds on which a petition of cancellation can be brought under Section 61. [Sec 81, RA 8293] Patent found invalid may be cancelled: In an action for infringement, if the court shall find the patent or any claim to be invalid, it shall cancel the same, and the Director of Legal Affairs upon receipt of the final judgment of cancellation by the court, shall record that fact in the register of the Office and shall publish a notice to that effect in the IPO Gazette. [Sec 82, RA 8293] Doctrine of File Wrapper Estoppel: Patentee is precluded from claiming as part of patented product that which he had to excise or modify in order to avoid patent office rejection, and he may omit any additions he was compelled to add by patent office regulations. [Advance Transformer Co. v. Levinson 837 F.2d 1081(1988)]
b. Injunction
Any patentee, or anyone possessing any right, title or interest in and to the patented invention, whose rights have been infringed, may bring a civil action before a court of competent jurisdiction, to recover from the infringer such damages sustained thereby, plus attorneys fees and other expenses of litigation, and to secure an injunction for the protection of his rights. [Sec. 76.2, RA 8293]
I. Licensing
1. Voluntary Licensing
Voluntary Licensing is the grant by the patent owner to a third person of the right to exploit the patented invention. [Sec. 85, RA 8293]
Mandatory Provisions
The following provisions shall be voluntary license contracts: a. included in
for
repeated
b.
That the laws of the Philippines shall govern the interpretation of the same and in the event of litigation, the venue shall be the proper court in the place where the licensee has its principal office; [Sec. 88.1, RA 8293] Continued access to improvements in techniques and processes related to the
167
j.
k.
d.
l.
Prohibited clauses
The following provisions shall be deemed prima facie to have an adverse effect on competition and trade: a. Those which impose upon the licensee the obligation to acquire from a specific source capital goods, intermediate products, raw materials, and other technologies, or of permanently employing personnel indicated by the licensor; [Sec. 87.1, RA 8293] Those pursuant to which the licensor reserves the right to fix the sale or resale prices of the products manufactured on the basis of the license; [Sec. 87.2, RA 8293] Those that contain restrictions regarding the volume and structure of production; [Sec. 87.3, RA 8293] Those that prohibit the use of competitive technologies in a non-exclusive technology transfer agreement; [Sec. 87.4, RA 8293] Those that establish a full or partial purchase option in favor of the licensor; [Sec. 87.5, RA 8293] Those that obligate the licensee to transfer for free to the licensor the inventions or improvements that may be obtained through the use of the licensed technology; [Sec. 87.6, RA 8293] Those that require payment of royalties to the owners of patents for patents which are not used; [Sec. 87.7, RA 8293] Those that prohibit the licensee to export the licensed product unless justified for the protection of the legitimate interest of the licensor such as exports to countries where exclusive licenses to manufacture and/or distribute the licensed product(s) have already been granted; [Sec. 87.8, RA 8293] o.
m. Those which prevent the licensee from adapting the imported technology to local conditions, or introducing innovation to it, as long as it does not impair the quality standards prescribed by the licensor; [Sec. 87.13, RA 8293] n. Those which exempt the licensor for liability for non-fulfillment of his responsibilities under the technology transfer arrangement and/or liability arising from third party suits brought about by the use of the licensed product or the licensed technology; [Sec. 87.14, RA 8293] Other clauses with equivalent effects. [Sec. 87.15, RA 8293]
b.
c.
d.
e.
f.
g.
h.
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Exceptional cases
a. In exceptional or meritorious cases where substantial benefits will accrue to the economy, such as high technology content, increase in foreign exchange earnings, employment generation, regional dispersal of industries and/or substitution with or use of local raw materials The case of BOI-registered companies with pioneer status [Sec. 91, RA 8293]
b.
2. Compulsory Licensing
Compulsory Licensing is the grant of the Director of Legal Affairs of a license to exploit a patented invention, even without the agreement of the patent owner, in favor of any person who has shown his capability to exploit the invention. [Sec. 93, Ra 8293 as amended by RA 9502]
h.
Grounds
The Director General of the Intellectual Property Office may grant a license to exploit a patented invention, even without the agreement of the patent owner, in favor of any person who has shown his capability to exploit the invention, under any of the following circumstances: a. National emergency or other circumstances of extreme urgency; [Sec. 93.1, RA 8293 as amended by RA 9502] Where the public interest, in particular, national security, nutrition, health or the development of other vital sectors of the national economy as determined by the appropriate agency of the Government, so requires; [Sec. 93.2, RA 8293 as amended by RA 9502] Where a judicial or administrative body has determined that the manner of exploitation by the owner of the patent or his licensee is anti-competitive; ; [Sec. 93.3, RA 8293 as amended by RA 9502] In case of public non-commercial use of the patent by the patentee, without satisfactory reason; [Sec. 93.4, RA 8293 as amended by RA 9502] If the patented invention is not being worked in the Philippines on a commercial scale, although capable of being worked, without satisfactory reason: Provided, That the importation of the patented article shall constitute working or using the patent; [Sec. 93.5, RA 8293 as amended by RA 9502] Where the demand for patented drugs and medicines is not being met to an adequate
b.
Period of filing a Petition for Compulsory License: At any time after the grant of patent. However, a compulsory license may not be applied for on the ground stated in Sec. 93.5 before the expiration of a period of four (4) years from the date of filing of the application or three (3) years from the date of the patent whichever period expires last. [Sec. 94, RA 8293 as amended by RA 9502]
License
on
c.
General Rule: The license will only be granted after the petitioner has made efforts to obtain authorization from the patent owner on reasonable commercial terms and conditions but such efforts have not been successful within a reasonable period of time. [Sec. 95.1, RA 8293 as amended by RA 9502] Exceptions: The requirement of authorization shall not apply in the following cases: a. Where the petition for compulsory license seeks to remedy a practice determined after judicial or administrative process to be anti-competitive; b. In situations of national emergency or other circumstances of extreme urgency; c. In cases of public non-commercial use. d. In cases where the demand for the patented drugs and medicines in the Philippines is not being met to an adequate extent and on reasonable terms, as determined by the Secretary of the Department of Health. [Sec. 95.2, RA 8293 as amended by RA 9502]
d.
e.
f.
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b. c.
d.
e.
f.
III. Trademarks
A. Definitions of Marks, Collective Marks, Trade Names B. Acquisition of Ownership of Marks C. Acquisition of Ownership of Trade Name D. Non-registrable Marks E. Tests to Determine Confusing Similarity between Marks F. Well-known Marks G. Rights conferred by Registration H. Use by Third Parties of names etc. similar to Registered Marks I. Cancellation of Trademark J. Infringement and Remedies K. Unfair Competition L. Trade Names or Business Names M. Collective Marks N. Criminal Penalties
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For the requirement of actual use in commerce in the Philippines before one may register a trademark, trade name and service mark under the law pertains to the territorial jurisdiction of the Philippines and is not only confined to a certain region, province, city or barangay. [McDonalds Corporation v. MacJoy Fastfood(2007)] Trademark is a creation of use and, therefore, actual use is a pre-requisite to exclusive ownership; registration is only an administrative confirmation of the existence of the right of ownership of the mark, but does not perfect such right; actual use thereof is the perfecting ingredient. [Shangri-La International Hotel v. DCC (2006)]
Collective Marks: Any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark. [Sec. 121.2, RA 8293] Trade Name: The name or designation identifying or distinguishing an enterprise [Sec. 121.3, RA 8293]. Any individual name or surname, firm name, device or word used by manufacturers, industrialists, merchants, and others to identify their businesses, vocations or occupations. [Converse Rubber Corp. v. Universal Rubber Products, Inc. (1980)]
2.
3.
4. 5.
Functions of a Trademark
1. 2. To point out distinctly the origin or ownership of the goods and to which it is affixed; To secure him, who has been instrumental in bringing into the market a superior article of merchandise, the fruit of his industry and skill; To assure the public that they are producing the genuine article; To prevent fraud and imposition; and To protect the manufacturer against substitution and sale of an inferior and different article as its product [Mirpuri v. CA (1998)]
The use of a mark by a company related with the registrant or applicant shall inure to the latter's benefit, and such use shall not affect the validity of such mark or of its registration: Provided, that such mark is not used in such manner as to deceive the public. [Sec.152.4, Ra 8293] A certificate of registration shall remain in force for 10 years [Sec. 145, RA 8293] and may be renewed for periods of 10 years at its expiration upon payment of the prescribed fee and upon filing of a request. [Sec 146, RA 8293]
3. 4. 5.
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D. Non-registrable Marks
A mark cannot be registered if it: 1. Consists of immoral, deceptive or scandalous matter, or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute; [Sec 123.1(a), RA 8293] Consists of flags, coat of arms or other insignia of the Philippines or any foreign country; [Sec 123.1(b), RA 8293] Consists of a name, portrait or signature identifying a particular living individual except by his written consent, or of a deceased President of the Philippines, during the life of his widow, except by written consent of the widow; [Sec 123.1(c), RA 8293] Is identical with a registered mark of another or a mark with an earlier filing or priority date, in respect of: a. The same goods or services, or b. Closely related goods or services, or c. If it nearly resembles such a mark as to be likely to deceive or cause confusion; [Sec 123.1(d), RA 8293] Is identical with, or confusingly similar to, or constitutes a translation of a well-known mark, whether or not registered in the Philippines, and used for identical or similar goods or services; [Sec 123.1(e), RA 8293] Is identical with, or confusingly similar to, or constitutes a translation of a well-known mark which is registered in the Philippines, and used for goods or services which are not similar; [Sec 123.1(f), RA 8293] Likely to mislead the public, particularly as to the nature, quality, characteristics or geographical origin of the goods or services; [Sec 123.1(g), RA 8293] Consists exclusively of signs that are generic for the goods or services that they seek to identify; [Sec 123.1(h), RA 8293] Consists exclusively of signs or of indications that have become customary or usual to designate the goods or services in everyday language or in a bona fide and established trade practice; [Sec 123.1(i), RA 8293]
2.
3.
4.
5.
6.
7.
8.
9.
2. Dominancy test
Infringement is determined by the test of dominancy rather than by differences or variations
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3. Holistic test
To determine whether a trademark has been infringed, we must consider the mark as a whole and not as dissected. If the buyer is deceived, it is attributable to the marks as a totality, not usually to any part of it. The court therefore should be guided by its first impression, for the buyer acts quickly and is governed by a casual glance, the value of which may be dissipated as soon as the court assumed to analyze carefully the respective features of the mark. [Del Monte Corporation, et al. v. CA (1990)] The dominancy test considers the dominant features in the competing marks in determining whether they are confusingly similar. Under the dominancy test, courts give greater weight to the similarity of the appearance of the product arising from the adoption of the dominant features of the registered mark, disregarding minor differences. Courts will consider more the aural and visual impressions created by the marks in the public mind, giving little weight to factors like prices, quality, sales outlets and market segments. [McDonalds Corporation v. L.C. Big Mak Burger, Inc., et al. (2004)] As to the goods or services in connection with which the marks are used (Doctrine of Related Goods/Services): 1. Goods are related when they belong to the same class or have the same descriptive properties or physical attributes, or they serve the same purpose or flow through the same channel of trade. The use of identical marks on noncompeting but related goods may likely cause confusion. Corollarily, the use of identical marks on non-competing and unrelated goods is not likely to cause confusion. [UP 2011 Bar Reviewer]
2. 3.
F. Well-known Marks
A mark which a competent authority of the Philippines has designated to be well-known internationally and in the Philippines. In determining whether a mark is well-known, account shall be taken of the knowledge of the relevant sector of the public, rather than the public at large, including knowledge in the Philippines which has been obtained as a result of the promotion of the mark. [Sec 123.1(e), RA 8293]
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2.
3.
4.
Any license contract concerning the registration of a mark, or an application therefor, shall provide for effective control by the licensor of the quality of the goods or services of the licensee in connection with which the mark is used. If the license contract does not provide for such quality control, or if such quality control is not effectively carried out, the license contract shall not be valid. [Sec. 150.1, RA 8293]
2.
Registration of the mark shall not confer on the registered owner the right to preclude third parties from using bona fide their names, addresses, pseudonyms, a geographical name, or exact indications concerning the kind, quality, quantity, destination, value, place of origin, or time of production or of supply, of their goods or services: Provided, That such use is confined to the purposes of mere identification or information and cannot mislead the public as to the source of the goods or services. [Sec. 148, RA 8293]
I. Cancellation of Trademark
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Upon petition, with due process and hearing, based on the following grounds: 1. 2. Within 5 years from registration: Belief that the registered mark has damaged or will damage the petitioner At any time a. Becomes the generic name for the goods or services for which it has registered; or b. Has been abandoned; or c. The registration was obtained fraudulently or contrary to the provisions of the IPC; or d. Is being used by, or with the permission of the registrant so as to misrepresent the source of the goods or services in connection with which the mark is used e. If the registered owner of the mark, without legitimate reason, fails to use the mark within the Philippines, or to cause it to be used in the Philippines by virtue of a license, for an uninterrupted period of at least 3 years. [Sec. 151, RA 8293]
wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive. [Sec. 155.2, RA 8293] Mighty Corporation v. E. & J. Gallo Winery (2004). A crucial issue in any trademark infringement case is the likelihood of confusion, mistake or deceit as to the identity, source or origin of the goods or identity of the business as a consequence of using a certain mark. Likelihood of confusion is admittedly a relative term, to be determined rigidly according to the particular (and sometimes peculiar) circumstances of each case. In determining likelihood of confusion, the court must consider: (a) the resemblance between the trademarks; (b) the similarity of the goods to which the trademarks are attached; (c) the likely effect on the purchaser; and (d) the registrants express or implied consent and other fair and equitable considerations. McDonalds Corporation v. L.C. Big Mak Burger, Inc., et al., (2004). To establish trademark infringement, the following elements must be shown: (1) the validity of the mark; (2) the plaintiffs ownership of the mark; and (3) the use of the mark or its colorable imitation by the alleged infringer results in likelihood of confusion. Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement. Two types of confusion arise from the use of similar or colorable imitation marks, namely, confusion of goods (product confusion) and confusion of business (source or origin confusion). While there is confusion of goods when the products are competing, confusion of business exists when the products are non-competing but related enough to produce confusion or affiliation. In order to bring a civil action for infringement, it is not required that there is an actual sale of the goods or services using the infringing material. [Sec. 155.2, RA 8293] Infringement takes place upon the mere use or reproduction of the registered mark. No article of imported merchandise which shall copy or simulate the name of any domestic product, or manufacturer, or dealer, or which shall copy or simulate a mark registered in accordance with the provisions of this Act, or shall bear a mark or trade name calculated to induce the public to believe that the article is manufactured in the Philippines, or that it is manufactured in any foreign country or locality other than the country or locality where it is in fact manufactured, shall be admitted to entry at any customhouse of the Philippines. [Sec. 166, RA 8293] A mere distributor and not the owner cannot assert any protection from trademark infringement as it had no right in the first place to the registration of
The use of the mark in a form different from the form in which it is registered, which does not alter its distinctive character, shall not be ground for cancellation or removal of the mark and shall not diminish the protection granted to the mark. [Sec. 152.2, RA 8293] The use of a mark in connection with one or more of the goods or services belonging to the class in respect of which the mark is registered shall prevent its cancellation or removal in respect of all other goods or services of the same class. [Sec. 152.3, RA 8293]
2.
and Injunction
False
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which: a. Is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person;[Sec. 169.1(a), RA 8293] In commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable to a civil action for damages and injunction [Sec. 169.1(b), RA 8293]
The owner of a registered mark may recover damages from any person who infringes his rights, and the measure of the damages suffered shall be either the reasonable profit which the complaining party would have made, had the defendant not infringed his rights, or the profit which the defendant actually made out of the infringement, or in the event such measure of damages cannot be readily ascertained with reasonable certainty, then the court may award as damages a reasonable percentage based upon the amount of gross sales of the defendant or the value of the services in connection with which the mark or trade name was used in the infringement of the rights of the complaining party. [Sec. 156.1, RA 8293] The owner of the registered mark shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such imitation is likely to cause confusion, or to cause mistake, or to deceive. Such knowledge is presumed if the registrant gives notice that his mark is registered by displaying with the mark the words '"Registered Mark" or the letter R within a circle or if the defendant had otherwise actual notice of the registration. [Sec. 158, RA 8293] Should damages be recoverable, the measure of the damages suffered shall be either: a. the reasonable profit which the complaining party would have made, had the defendant not infringed his rights; or b. the profit which the defendant actually made out of the infringement; or c. a reasonable percentage based upon the amount of gross sales of the defendant or the value of the services in connection with which the mark or trade name was used in the infringement of the rights of the complaining party if such measure of damages cannot be readily ascertained with reasonable certainty. [Sec. 156.1, RA 8293]
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b.
Any goods marked or labeled in contravention of the provisions of this Section shall not be imported into the Philippines or admitted entry at any customhouse of the Philippines. The owner, importer, or consignee of goods refused entry at any customhouse under this section may have any recourse under the customs revenue laws or may have the remedy given by this Act in cases involving goods refused entry or seized. [Sec. 169.2, RA 8293]
Marks
of
General Rule: It is unlawful for any person, without the consent of the manufacturer, bottler or seller who has registered the mark of ownership to fill such bottles, boxes, kegs, barrels or other containers so marked and stamped, for the purpose of sale, dispose of, or wantonly destroy the same, whether filled or not, to use the same for drinking vessels or drain pipes, foundation pipes, for any other purpose than that registered. [Sec. 2, RA 623 as amended by RA 5700] The use of the same without apparent permission from the trademark owners thereof, shall be prima facie presumption that such possession or use is unlawful. [Sec. 3, RA 623 as amended by RA 5700] Exceptions: 1. Use of the bottles as containers for sisi, bagoong, patis, and similar native products [Sec. 6 RA 623 as amended by RA 5700] 2. Persons in whose favor the containers were sold [Distelleria Washington v. LA Tondena Distillers (1997)]
Any foreign national who qualifies under the principle on reciprocity and does not engage in business in the Philippines, whether or not it is licensed to do business in the Philippines, may bring civil or administrative action for: 1. Opposition 2. Cancellation 3. Infringement
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Notice of registration of trademark is necessary for an owner of a trademark to recover damages in an action for infringement since knowledge that such imitation is likely to cause confusion, or to cause mistake, or to deceive is an element of infringement. Requirement of notice may be complied by displaying with the mark the words '"Registered Mark" or the letter R within a circle. [Sec. 158, RA 8293]
4. Limitations to infringement
actions
for
The remedies given to the owner of a right infringed shall be limited as follows: a. registered mark shall have no effect against any person who, in good faith, before the filing date or the priority date, was using the mark for the purposes of his business or enterprise: Provided, That his right may only be transferred or assigned together with his enterprise or business or with that part of his enterprise or business in which the mark is used. [Sec. 159.1, RA 8293] Where an infringer who is engaged solely in the business of printing the mark or other infringing materials for others is an innocent infringer, the owner of the right infringed shall be entitled as against such infringer only to an injunction against future printing. [Sec. 159.2, RA 8293] Where the infringement complained of is contained in or is part of paid advertisement in a newspaper, magazine, or other similar periodical or in an electronic communication, the remedies of the owner of the right infringed as against the publisher or distributor of such newspaper, magazine, or other similar periodical or electronic communication shall be limited to an injunction against the presentation of such advertising matter in future issues of such newspapers, magazines, or other similar periodicals or in future transmissions of such electronic communications. The limitations shall apply only to innocent infringers: Provided, That such injunctive relief shall not be available to the owner of the right infringed with respect to an issue of a newspaper, magazine, or other similar periodical or an electronic communication containing infringing matter where restraining the dissemination of such infringing matter in any particular issue of such periodical or in an electronic communication would delay the delivery of such issue or transmission of such electronic
K. Unfair Competition
A person who has identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods, business or services so identified, which will be protected in the same manner as other property rights. [Sec. 168.1, RA 8293] Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor. [Sec. 168.2, RA 8293] The following shall be deemed guilty of unfair competition: a. Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;[Sec. 168.3(a), RA 8293] Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of another who has
b.
c.
b.
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McDonalds Corporation v. L.G. Big Mak Burger, Inc., et al. (2004). The elements of an action for unfair competition are: [1] confusing similarity in the general appearance of the goods, and [2] intent to deceive the public and defraud a competitor. The confusing similarity may or may not result from similarity in the marks, but may result from other external factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the similarity in appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be shown. An action for unfair competition is based on the proposition that no dealer in merchandise should be allowed to dress his goods in simulation of the goods of another dealer, so that purchasers desiring to buy the goods of the latter would be induced to buy the goods of the former. The most usual devices employed in committing this crime are the simulation of labels and the reproduction of form, color and general appearance of the package used by the pioneer manufacturer or dealer. [Caterpillar, Inc v. Samson (2006)] Articles 168.1 and 168.2 provide the concept and general rule on the definition of unfair competition. The law does not thereby cover every unfair act committed in the course of business; it covers only acts characterized by deception or any other means contrary to good faith in the passing off of goods and services as those of another who has established goodwill in relation with these goods or services, or any other act calculated to produce the same result. What unfair competition is, is further particularized under Section 168.3 when it provides specifics of what unfair competition is without in any way limiting the scope of protection against unfair competition. Part of these particulars is provided under Section 168.3(c) which provides the general catch-all phrase that the petitioner cites. Under this phrase, a person shall be guilty of unfair competition who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another. From jurisprudence, unfair competition has been defined as the passing off (or palming off) or attempting to pass off upon the public the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public. It formulated the true test of unfair competition: whether the acts of defendant are such as are calculated to deceive the ordinary buyer making his purchases under the ordinary conditions which prevail in the particular trade to
Fraudulent intent is unnecessary prior registration of the trademark is a prerequisite to the action [Del Monte Corporation, et al. v. CA (1990)]
The law on unfair competition is broader and more inclusive than the law on trademark infringement. The latter is more limited but it recognizes a more exclusive right derived from the trademark adoption and registration by the person whose goods or business is first associated with it. Hence, even if one fails to establish his exclusive property right to a trademark, he may still obtain relief on the ground of his competitors unfairness or fraud. Conduct constitutes unfair competition if the effect is to pass off on the public the goods of one man as the goods of another. [Mighty Corporation v. E. & J. Gallo Winery (2004)]
and
Business
It is the name or designation identifying or distinguishing an enterprise. [Sec. 121.3, RA 8293] Any individual name or surname, firm name, device or word used by manufacturers, industrialists, merchants, and others to identify their businesses, vocations or occupations [Converse Rubber Corp. v. Universal Rubber Products, Inc. (1980)]
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IV. Copyright
A. Basic Principles B. Copyrightable Works C. Non-copyrightable Works D. Rights of Copyright Owner E. Rules on Ownership of Copyright F. Deposit of Copyrightable Materials G. Limitations on Copyright
A. Basic Principles
1. Works are protected by the sole fact of their creation
Principle of Automatic Protection: Copyright is vested from the very moment of creation. [Sec. 172.2, RA 8293] The enjoyment and exercise of copyright, including moral rights, shall not be the subject of any formality; such enjoyment and such exercise shall be independent of the existence of protection in the country of origin of the work. [Article 5(2), Berne Convention for the Protection of Literary and Artistic Works] The Denicola Test in intellectual property law states that if design elements of an article reflect a merger of aesthetic and functional considerations, the artistic aspects of the work cannot be conceptually separable from the utilitarian aspects; thus, the article cannot be copyrighted. [UP 2011 Bar Reviewer]
M. Collective Marks
Any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark [Sec. 121.2, RA 8293] An application for registration of a collective mark shall designate the mark as a collective mark and shall be accompanied by a copy of the agreement, if any, governing the use of the collective mark. [Sec. 167.2, Ra 8293]
2. Protection extends only to the expression of an idea, not the idea itself.
No protection shall extend, under this law, to any idea, procedure, system method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work. [Sec 175, RA 8293]
3. The copyright is distinct from the property in the material object subject to it. [Sec 181, RA 8293] 4. Copyright is a statutory right.
Copyright, in the strict sense of the term is purely a statutory right. Being a mere statutory grant, the rights are limited to what the statute confers. It may be obtained and enjoyed only with respect to the subjects and by the persons, and on terms and conditions specified in the statute. Accordingly, it can cover only the works falling within the statutory enumeration or description. [Pearl and Dean vs. Shoemart (2003)]
The registration of a collective mark, or an application therefor shall not be the subject of a license contract. [Sec. 167.4, RA 8293]
N. Criminal Penalties
Independent of the civil and administrative sanctions imposed by law, a criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from Fifty thousand pesos (P50,000) to Two hundred thousand pesos (P200,000), shall be
B. Copyrightable Works
1. Original Literary and Artistic Works
Sec. 172.1, RA 8293. Literary and artistic works, hereinafter referred to as "works", are original intellectual creations in the literary and artistic domain protected from the moment of their creation and shall include in particular: a. Books, pamphlets, articles and other writings; b. Periodicals and newspapers; c. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in writing or other material form; d. Letters; e. Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows; f. Musical compositions, with or without words; g. Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art; h. Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art; i. Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography, topography, architecture or science; j. Drawings or plastic works of a scientific or technical character; k. Photographic works including works produced by a process analogous to photography; lantern slides; l. Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings; m. Pictorial illustrations and advertisements; n. Computer programs; and o. Other literary, scholarly, scientific and artistic works. When a work is considered original: 1. the work is an independent creation of the author; and 2. it must not be copied from the work of another. A person to be entitled to a copyright must be the original creator of the work. He must have created it by his own skill, labor and judgment without directly copying or evasively imitating the work of another. [Ching Kian Chuan vs. CA (2001)] By originality is meant that the material was not copied, and evidences at least minimal creativity; that it was independently created by the author and that it possesses at least some minimal degree of creativity. Copying is shown by proof of access to
copyrighted material and substantial similarity between the two works. The applicant must thus demonstrate the existence and validity of copyright because in the absence of copyright protection, even the original creation may be freely copied. [Ching v. Salinas (2005)] Originality is not determined by novelty, aesthetic merit or ingenuity but that it is an independent creation. [2011 UP Bar Reviewer] The requirement in US Law that the expression should be fixed in a tangible medium is not applicable here since our law expressly provides that works are protected irrespective of their mode or form of expression. [Sec. 172.2, RA 8293]
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2. Derivative Works
The following derivative works shall also be protected by copyright: a. Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works; and b. Collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents. [Sec. 173.1, RA 8293] Derivative works are protected as new works provided they shall not: a. affect the force of any subsisting copyright upon the original works employed or any part thereof; or b. be construed to imply any right to such use of the original works, or to secure or extend copyright in such original works. [Sec. 173.2, RA 8293]
C. Non-copyrightable Works
1. Unprotected Subject matter
a. Any idea, procedure, system method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work. facts having the character of mere items of press information;
c.
Any official text of a legislative, administrative or legal nature, as well as any official translation thereof; Pleadings; Original decisions of courts and tribunals (This pertains to the original decisions not the SCRA published volumes since these
d. e.
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The format or mechanics of a TV show is not copyrightable as copyright does not extend to ideas, procedures, processes, systems, methods of operation, concepts, principles or discoveries regardless of the form in which they are described, explained, illustrated or embodied. [Joaquin Jr. et al vs. Drilon, et al (1999)] No one may claim originality as to facts as these do not owe their origin to an act of authorship. The first person to find and report a particular fact has not created the same; he has merely discovered its existence. [Feist Publication v Rural Telephone Services (1991)]
3.
These include works whose term of copyright has expired. [2011 UP Bar Reviewer]
4.
Useful articles
Useful Article Doctrine: Works whose sole purpose is utilitarian have no separate artistic value. This can be distinguished from a work of applied art, which has utilitarian functions but there is an identifiable artistic work or creation incorporated thereto. [2011 UP Bar Reviewer]
c.
d.
e. f. g.
Economic rights also give the author the right to assign the copyright and/or the material object in
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be attributed to him, in particular, the right that his name, as far as practicable, be indicated in a prominent way on the copies, and in connection with the public use of his work; [Sec. 193.1, RA 8293] to, or to withhold it from publication; [Sec. 193.2, RA 8293]
on
Ownership
of
Article 721. By intellectual creation, the following persons acquire ownership: (1) The author with regard to his literary, dramatic, historical, legal, philosophical, scientific or other work; (2) The composer; as to his musical composition; (3) The painter, sculptor, or other artist, with respect to the product of his art; (4) The scientist or technologist or any other person with regard to his discovery or invention. Article 722. The author and the composer, mentioned in Nos. 1 and 2 of the preceding article, shall have the ownership of their creations even before the publication of the same. Once their works are published, their rights are governed by the Copyright laws. The painter, sculptor or other artist shall have dominion over the product of his art even before it is copyrighted. The scientist or technologist has the ownership of his discovery or invention even before it is patented. Article 723. Letters and other private communications in writing are owned by the person to whom they are addressed and delivered, but they
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Moral rights are not assignable or subject to license. [Sec. 198, RA 8293]
5.
6.
7.
4. Neighboring Rights
Performers Rights
1. As regards their performances, the right of authorizing: a. The broadcasting and other communication to the public of their performance; and b. The fixation of their unfixed performance. [Sec. 203.1, RA 8293]
Such right shall be maintained and exercised fifty (50) years after his death, by his heirs, and in default of heirs, the government, where protection is claimed. [Sec. 204.2, RA 8293] 2. The right of authorizing the direct or indirect reproduction of their performances fixed in sound recordings, in any manner or form; [Sec. 203.2, RA 8293] Subject to the provisions of Section 206, the right of authorizing the first public distribution of the original and copies of their performance fixed in the sound recording through sale or rental or other forms of transfer of ownership; [Sec. 203.3, RA 8293]
2.
3.
3.
4.
E. Rules on Copyright
Ownership
of
183
Ownership
1. Ownership of Copyright
Work Single Creator of an Original Work
Works of Authorship
Joint
3.
Must-Carry Rule: prevents cable television companies from excluding broadcasting organization especially in those places not reached by signal. Also, the rule prevents cable television companies from depriving viewers in far-flung areas the enjoyment of programs available to city viewers. [ABS-CBN Broadcasting vs. Philippine Multi-Media System (2009)]
Limitations on Protection
Sections 203, 208 and 209 shall not apply where the acts referred to in those Sections are related to: 1. The use by a natural person exclusively for his own personal purposes; 2. Using short excerpts for reporting current events; 3. Use solely for the purpose of teaching or for scientific research; and 4. Fair use of the broadcast subject to certain conditions. [Sec. 212, RA 8293]
Term of Protection
Works For performances incorporated recordings not in Term fifty (50) years from the end of the year in which the performance took place [Sec. 215.1(a), RA 8293] fifty (50) years from the end of the year in which the recording took place. [Sec. 215.1(b), RA 8293] twenty (20) years from the date the broadcast took place[Sec. 215.2, RA 8293]
For sound or image and sound recordings and for performances incorporated therein Broadcasts
Letters
Belongs to the author of the work [Sec. 178.1, RA 8293] Belongs of the co-authors; in the absence of agreement, their rights shall be governed by the rules on co-ownership. However, if the work consists of parts that can be used separately and identified, the author of each part owns the copyright of the part he has created. [Sec. 178.2, RA 8293;BAR Question (1995, 2004)] Belongs to the employee if the creation is not a part of his regular duties, even if he used the time, facilities and materials of the employer. However, belongs to the employer if the work is in the performance of the employees regular duties unless there is an agreement to the contrary. [Sec. 178.3, RA 8293; BAR Question (2008)] The person who commissioned the work holds ownership of the work per se, but copyright remains with the creator unless there was a stipulation to the contrary. [Sec. 178.4, RA 8293; BAR Question (1995, 2004)] Belongs to the producer, author of the scenario, composer of the music, film director, and author of the adapted work. However, subject to stipulations, the producers shall exercise the copyright as may be required for the exhibition of the work, except for the right to collect license fees for the performance of musical compositions in the work. [Sec. 178.5, RA 8293] Belongs to the writer, but the court may authorize their publication or dissemination of the public good or interest of justice requires, pursuant to Art. 723, New Civil Code. [Sec. 178.6, RA 8293 Publishers are deemed to represent the authors, unless
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Collective works
2.
Duration of Copyright
Term Lifetime of author and for fifty (50) years after his death [Sec 213.1, RA 8293] Lifetime of author and for fifty (50) years after his death [Sec 213.1, RA 8293] Lifetime of the last surviving author and for fifty (50) years after his death [Sec 213.2, RA 8293] Fifty (50) years from date of first lawful publication [Sec. 213.3, RA 8293] Twenty-five (25) years from date of making [Sec. 213.4, RA 8293] Fifty (50) years from publication [Sec. 213.5, RA 8293] Fifty (50) years from the making [Sec. 213.5, RA 8293] Fifty (50) years from publication [Sec. 213.6, RA 8293] Fifty (50) years from the making [Sec. 213.6, RA 8293]
Works Original Literary and Artistic Works including Posthumous Works Derivative Works including Posthumous Works Joint Authorship
or
Photographic
F. Deposit Materials
on
Copyrightable
3. Presumption of Authorship
The natural person whose name is indicated on a work in the usual manner as the author shall, in the absence of proof to the contrary, be presumed to be the author of the work. This provision shall be applicable even if the name is a pseudonym, where the pseudonym leaves no doubt as to the identity of the author. The person or body, corporate whose name appears on an audio-visual work in the usual manner shall, in the absence of proof to the contrary, be presumed to be the maker of said work. [Sec. 219, RA 8293] The term of protection subsequent to the death of the author shall run from the date of his death or of publication, but such terms shall always be deemed
Notice of Copyright
Each copy of a work published or offered for may contain a notice bearing the name of copyright owner, and the year of its publication, and, in copies produced after creator's death, the year of such death. [Sec. RA 8293] sale the first the 192,
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c.
d.
SECTION 6. Works that May be Registered and Deposited. The following works may be registered and deposited: a. Dramatic or dramatic-musical compositions, choreographic works or entertainment in shows; b. Photographic works including works produced by a process analogous to photography, lantern slides; c. Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings; d. Pictorial illustrations and advertisements; e. Computer programs; f. Other literary, scholarly, scientific and artistic works; g. Sound recordings; e. Broadcast recording [Sec. 6, Rule 5, Copyright Safeguards and Regulations
G. Limitations on Copyright
1. Doctrine of Fair Use
The fair use of copyrighted work for criticism, news reporting, teaching (including multiple copies for classroom use), research and similar purposes is not an infringement of copyright. A privilege, in persons other than the owner of the copyright, to use the copyrighted material in a reasonable manner without his consent, notwithstanding the monopoly granted to the owner by the copyright. It is meant to balance the monopolies enjoyed by the copyright owner with the interests of the public and of society. Decompilation: Refers to the reproduction of the code and translation of the forms of the computer program to achieve the inter-operability of an independently created computer program with other programs. This may also constitute fair use [Sec. 185.1, RA 8293]. The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made upon consideration of all the above factors. [Sec 185.2, RA 8293]
Registration and Deposit with the National Library and the Supreme Court Library
After the first public dissemination of performance by authority of the copyright owner of a work there shall, for the purpose of completing the records of the National Library and the Supreme Court Library, within three (3) weeks, be registered and deposited with it, by personal delivery or by registered mail two (2) complete copies or reproductions of the work in such form as the directors of said libraries may prescribe. A certificate of deposit shall be issued for which the prescribed fee shall be collected and the copyright owner shall be exempt from making additional deposit of the works with the National Library and the Supreme Court Library under other laws. If, within three (3) weeks after receipt by the copyright owner of a written demand from the directors for such deposit, the required copies or reproductions are not delivered and the fee is not paid, the copyright owner shall be liable to pay a fine equivalent to the required fee per month of delay and to pay to the National Library and the Supreme Court Library the amount of the retail price of the best edition of the work. Only the above mentioned classes of work shall be accepted for deposit by the National Library and the Supreme Court Library. [Sec. 191, RA 8293} All copies deposited and instruments in writing filed with the National Library and the Supreme Court
2. 3. 4.
2. Copyright infringement
Infringement of Copyright and Related Rights means any violation of the rights under the Intellectual Property Code and/or the applicable Intellectual Property Law, including the act of any person who at the time when copyright subsists in a work has in his possession an article which he known, or ought to
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a. b.
c.
Selling, letting for hire, or by way of trade offering or exposing for sale, or hire, the article Distributing the article for purpose of trade, or for any other purpose to an extent that will prejudice the rights of the copyright owner in the work; or Trade exhibit of the article in public. [Sec. 1(l), Rule 1, Rules and Regulations on Administrative Complaints for Violation of Laws involving Intellectual Property Rights]
c.
Habana et al vs. Robles et al. (1999). Infringement consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright. For there to be substantial reproduction of a book, it does not necessarily require that the entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the value of the original work is substantially diminished, there is an infringement of copyright and to an injurious extent, the work appropriated. It is no defense that the pirate did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In cases of infringement, copying alone is not what is prohibited. The copying must produce am injurious effect. Copyright infringement and unfair competition are not limited to the act of selling counterfeit goods. They cover a whole range of acts from copying, assembling, packaging to marketing, including the mere offering for sale of counterfeit goods. [Microsoft Corp vs. Maxicorp Inc.(2004)] Columbia Pictures v. CA (1996). A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know what works he was indirectly copying, or did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute a piracy.
d.
e.
f.
g.
h.
i.
j.
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Rule on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights (A.M. No. 02-1-06-SC)
Application for Search and Seizure [Sec. 3]
a. Remedies
Nature Remedy Injunction,; Actual, Moral and Exemplary Damages; Impounding of documents evidencing sales, articles and packaging that infringe copyright and implements for making them; Destruction without compensation of infringing copies and devices and the means of making infringing copies. [Sec. 216, RA 8293] Imprisonment and finedepending on the value of the infringing materials produced and the damage the copyright owner has suffered by reason of the infringement. [Sec. 217, RA 8293] Administrative action; Cease and Desist Orders; Forfeiture of the paraphernalia used in committing the offense; Administrative fines [Sec. 10, RA 8293] Examination of Applicant and Witnesses [Sec. 5]
Civil
Search conducted in the presence of defendant, his representative or witnesses [Sec. 13]
Verified Return filed by Sheriff to the court w/in 3 days from enforcement [Sec. 17]
Criminal
Judge shall ascertain WON writ was served or return made w/in 5 days
Administrative
Trial/Hearing
Judgment [Sec. 22] Contents of Application a. Ground upon which application is based b. Specific description and location of documents c. Articles to be searched, inspected copied or seized d. Names of applicant, representative, witness and counsel e. Other information necessary for identification of articles [Sec. 4] Grounds for Issuance of Writ a. Applicant is the right holder or his duly authorized representative b. There is probable cause to believe that the applicants right is being infringed c. Damage likely to be caused is irreparable d. Demonstrable risk of evidence that the alleged defendant may destroy, hide or remove the document e. Documents and articles to be seized constitute evidence of the alleged defendants infringing activity or that they infringe or are used or intended to be used as means of infringing the applicants intellectual property right [Sec. 6] Contents of Writ a. An order to the alleged defendant to permit
General Rule: Mere possession of infringing goods is not punishable Exception: Unless one can prove that the possessor knows or ought to know that the goods in his possession are infringing copies of the work and are held for the purpose of: 1. Selling, letting for hire or by way of trade, offering or exposing the article for sale or hire; 2. Distributing the article for trade or for any other purpose to an extent that will prejudice the rights of the copyright owner; 3. Trade exhibit of the article [Sec. 217.3, RA 8293] No damages may be recovered under this Act after four (4) years from the time the cause of action arose. [Sec. 226, RA 8293]
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b. c. d. e.
Discharge of Writ a. Writ was improperly or irregularly issued or excessively enforced b. Bond was insufficient c. Safeguards in the writ was violated by the applicant or the sheriff f. Documents and articles seized are not infringing copies or means for making the materials alleged to infringe the applicants intellectual property right [Sec. 18] Failure to file the complaint the writ, upon motion, shall be set aside [Sec. 20] Alleged defendant may claim for damages a. Writ was discharged b. Finding or no infringement or threat of infringement of an intellectual property right [Sec. 21] Judgment a. Finding of Infringement Court shall order the destruction of goods or donation to charitable, educational institution with prohibition against bringing the same into channels of commerce b. Finding of no infringement Seized materials shall be immediately returned to defendant [Sec. 22]
b. Criminal penalties
Any person infringing any right secured by provisions of Part IV of this Act or aiding or abetting such infringement shall be guilty of a crime punishable by: First Offense: Imprisonment of one (1) year to three (3) years plus a fine ranging from Fifty thousand pesos (P50,000) to One hundred fifty thousand pesos (P150,000). [Sec. 217.1(a), RA 8293] Second Offense: Imprisonment of three (3) years and one (1) day to six (6) years plus a fine ranging from One hundred fifty thousand pesos (P150,000) to Five hundred thousand pesos (P500,000) for the second offense. [Sec. 217.1(b), RA 8293]
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V. Registration Flowcharts
A. Patent Application B. Utility Model and Industrial Design C. Copyright Registration and Deposit D. Trademark
A. Patent Application
Publication of Unexamined Application in the IPO Gazette after 18 months from filing or priority date Request for Substantive Exam (w/in 6 months from date of publication) Substantive Examination Applicant is notified of reasons for refusal
Decision to Grant Patent Publication of Patent in the IPO Gazette Issuance of Patent Certification
Final Refusal
Refusal
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Application is Received
Application is not Formal Applicants Request Application is subjected to Formality Examination Application is Formal Application is recommended for Publication Applicant is Notified of the Result of Examination
Application is Received
With Response
No Response
Directors Request
No Opposition Filed BOP Director Application is confirmed for Registration Application Revived Decision Application is Refused Application is Affirmed for Registration Appeal on the Decision of the Director Director General
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C. Copyright Registration and Deposit [Source: IPOPHL Office Order No. 93 Series of 2011]
Submission of Registration and Deposit Form (RDF) with IP Satellite Office (IPSO)
IPSO Field Specialist received RDF and RDF Number and date of filing upon showing of validated deposit slip
IPSO Field Specialist issues Acknowledgment Receipt (AR) pending release of Official Receipt (OR)
IPSO Field Specialist encodes bibliographic entry in data base and scan documents including AR, SOA and deposit slip IPSO Field Specialist transmit scanned documents to IP Field Operations Unit (IPFOU) to verity completeness of documents
IPFOU transmit documents to IP Office Philippines (IPOPHL) Cashier for preparation of Official Receipt (OR)
Copyright Support Services (CSS) shall print the Certificate of Registration and Deposit
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Publication
YES Opposition
Decision Publication
YES
Favorable to Applicant