Professional Documents
Culture Documents
Mercantile-Law Bar Reviewer
Mercantile-Law Bar Reviewer
L
AW
BAR REVIEWER
2012
MERCANTILE
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
LAW
Dean Danilo L. Concepcion
Dean, UP College of Law
UP
L
AW
BAR REVIEWER
2012
MERCANTILE
BAR OPERATIONS COMMISSION 2012
EXECUTIVE COMMITTEE
Ramon Carlo Marcaida |Commissioner
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COMMITTEE HEADS
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LAW
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Paula Plaza |Linkages
MERCANTILE
LAW
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
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
III.Characteristics/Nature of Insurance
Contracts ..................................... 41
II.Vigilance
over
goods
................................................. 61
A. Exempting Causes ................... 61
1. Requirement of Absence of
Negligence .............................. 62
2. Absence of Delay ................. 62
3. Due diligence to prevent or
lessen the loss .......................... 62
B. Contributory negligence ........... 62
C. Duration of liability ................. 62
1. Delivery of goods to common
carrier ................................... 63
2. Actual or constructive delivery 63
3. Temporary unloading or storage
63
D. Stipulation for limitation of liability
63
1. Void stipulations ................. 63
2. Limitation of liability to fixed
amount .................................. 64
3. Limitation of liability in absence
of declaration of greater value ...... 64
E. Liability for baggage of passengers
(asked in 97 and 98) ...................... 64
1. Checked-in baggage ............. 64
2. Baggage
in
possession
of
passengers .............................. 65
IV......................................... Classes
................................................. 42
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
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
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
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
I.Corporation,
defined
................................................. 80
II.Classification
of
corporations
................................................. 80
A. Stock Corporation (Asked in 01 and
04) 80
B. Non-stock Corporation (Asked in 04)
80
C. Other Classification................. 81
III.Nationality
of
corporations
................................................. 81
A. Control Test ......................... 81
B. The Grandfather Rule .............. 82
IV. Corporate juridical personality ...... 82
A. Doctrine of Separate Juridical
Entity (Asked in 95, 96, 99 and 00) .... 82
1. Liability for torts and crimes ... 82
2. Recovery of damages ............ 82
B. Doctrine of piercing the corporate
veil (Asked in 91, 01 and 04) ............ 82
1. Grounds for application of
doctrine ................................. 82
2. Test in determining applicability
83
V. Capital structure ........................ 83
A. Number and Qualifications of
Incorporators .............................. 83
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.
3.
1.
2.
3.
4.
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
10
B.
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
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
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)
Irrevocable L/C
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2.
3.
1.
7.
13
Warehouse
Receipts Law
14
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. Nature and Functions of a
Warehouse Receipt
B. Duties of a Warehouseman
C. Warehousemans Lien
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
a. To whom delivered
The warehouseman may deliver the goods to the
following:
(a)
(b)
(c)
b. Kinds
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
between
a
a Negotiable
Negotiable Instrument
May be issued by anyone
with capacity to contract
Must contain all the
requisites under Sec. 1
Negotiable
Warehouse
Negotiable Warehouse
Receipt
May be issued only by a
warehouseman
Must contain all the
essential terms under
Rights of a Transferee
of Non-Negotiable
Warehouse Receipt
Acquires:
NOTE
If the warehouse receipt is negotiable through
indorsement, the transferee thereof which acquired
the same through mere delivery acquires the right to
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
15
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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.
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
A. Definition/Concept of a Trust
Receipt Transaction
A Trust Receipt Transaction is any transaction by
and between an entruster and another person as
entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain
specified goods, documents or instruments, releases
the same to the possession of the entrustee upon the
latter's execution and delivery to the entruster of a
signed document called a trust receipt (Sec. 4)
A Trust Receipt is a written or printed document
signed by the entruster wherein the entrustee binds
himself: (1) to hold the designated goods, documents
or instruments in trust for the entruster; and (2) to
sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the
trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other
purposes substantially equivalent to those specified
under Sec. 4.(Sec. 4)
a. Loan/security feature
A letter of credit-trust receipt arrangement is
endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a
loan covered by the letter of credit, with the trust
receipt as a security for the loan. In other words,
the transaction involves a loan feature
represented by the letter of credit, and a security
feature which is in the covering trust receipt x x x
A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a "security
interest" in the goods (Vintola v. IBAA, 1987)
A trust receipt arrangement does not involve a
simple loan transaction between a creditor and
debtor-importer. Apart from a loan feature, the
trust receipt arrangement has a security feature that
is covered by the trust receipt itself. That second
feature is what provides the much needed financial
assistance to our traders in the importation or
of
the
goods,
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D. Remedies available
1.
2.
3.
19
UP
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BAR REVIEWER
2012
MERCANTILE
LAW
MERCANTILE LAW TEAM
2012
Subject Heads | Anna
Katarina Rodriguez Mickey
Chatto
LAYOUT TEAM 2012
Layout Artists | Alyanna
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Layout Head| Graciello
Timothy Reyes
Negotiable
Instruments Law
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
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.
a.
b.
c.
d.
e.
f.
2. Containing
an
unconditional
promise to pay or order to pay
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.
a. ON DEMAND
Sec. 7. When payable on demand.
An instrument is payable on demand:
AT A FIXED TIME
Only on the stipulated date, and not before,
may the holder demand its payment.
Should he fail to demand payment, the
instrument becomes overdue but remains valid
and negotiable. It is merely converted to a
demand instrument.
21
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b.
d. PAYABLE TO ORDER
Sec. 8. When payable to order.
The instrument is payable to order where it is
drawn payable to the order of a specified person or
to him or his order. It may be drawn payable to the
order of:
(a) A payee who is not maker, drawer, or drawee;
or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee
must be named or otherwise indicated therein with
reasonable certainty.
Without the words "to order" or "to the order of,"
the instrument is payable only to the person
designated therein and is therefore non-negotiable.
(Consolidated Plywood Industries vs. IFC Leasing,
1987)
For order instruments - negotiation requires
delivery and indorsement of the transferor.
2. Bill
a.
b.
c.
d.
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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5.
6.
D. Complete
and
Undelivered
Instruments (Sec. 16)
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
Between immediate parties and as regards a remote
party other than a holder in due course, the
delivery, in order to be effectual, must be made
either by or under the authority of the party making,
drawing, accepting, or indorsing.
When the instrument is in the hands of HDC, a
valid delivery thereof by all parties prior to him so
as to make them liable to him is conclusively
presumed.
Incomplete and Delivered Instruments (Sec. 14)
a. Holder has prima facie authority to fill up the
instrument.
b. The instrument must be filled up strictly in
accordance with the authority given and within
reasonable time
c. HDC may enforce the instrument as if filled up
according to b. above.
2.
3.
4.
7.
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)
C. Indorsement
Corporation
by
Minor
or
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.
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.
Rules on Forgery
1.
Promissory Note
Makers signature
forged
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.
Payees signature
forged
Indorsers signature
forged
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.
25
26
Drawers signature
forged
Payees signature
forged
Indorsers signature
forged
ORDER INSTRUMENT
1. Drawer is not liable because he was never
a party to the instrument.
2. Drawee is liable if it paid (no recourse to
drawer) because he admitted the
genuineness of the drawers signature.
Drawee cannot recover from the collecting
bank because there is no privity between
the collecting bank and the drawer. The
latter does not give any warranty re: the
drawers signature. (Associated Bank vs.
CA)
3. Indorsers subsequent to forgery liable
(such as collecting bank or last endorser)
4. Party who made the forgery is liable
1. Drawer and payee not liable
2. Drawee is liable if it paid, but it may pass
liability back through the collection chain
3. Indorsers subsequent to forgery are liable
(such as collecting bank)
4. Party who made the forgery is liable
1. Drawer, payee, indorser whose signature/s
was/were forged and all indorsers
preceding the forgery are not liable.
2. Drawee is liable if it paid.
3. Indorsers subsequent to forgery are liable.
(such as collecting bank)
4. Party who made the forgery is liable.
BEARER INSTRUMENT
1. Drawer is not liable.
2. Drawee is liable if it paid. Drawee
cannot recover from the collecting
bank.
3. Party who made the forgery is
liable.
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.
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).
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.
B. Modes of Negotiation
1. By Delivery - If payable to bearer
(Sec. 30)
27
28
2.
Requisites
a. Mechanical act of writing the instrument
completely and in accordance with the
requirements of Section 1; and
b. The delivery of the complete instrument by
the maker or drawer to the payee or holder
with the intention of giving effect to it.
Presumption of delivery
a. Where the instrument is no longer in the
possession of a party whose signature appears
thereon, a valid and intentional delivery by him
is presumed until the contrary is proved (Sec.
16)
b. if it is in the hands of a HDC, the presumption is
conclusive (Sec. 16)
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
Presumption as to date
a. Date is not an essential element of negotiability
b. An undated instrument is considered to be dated
as of the time it was issued
2. By
Indorsement completed by
Delivery - If payable to order (Sec.
30)
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)
Blank
- Specifies no indorsee, instrument so
indorsed is payable to bearer, and may
be negotiated by delivery
- The holder may convert a blank
indorsement
into
a
special
indorsement by writing over the
signature of the indorser in blank any
contract consistent with the character
of the indorsement. (Sec 35)
- An order instrument may be converted
into a bearer instrument by means of a
blank indorsement, and may be later
reconverted into an order instrument by
a subsequent special indorsement
- But a bearer instrument remains as such
whether it has been indorsed specially
or in blank. It is the liability of the
indorser which is affected.
Non-qualified
2.
NOTE
This section applies only to an instrument payable to
the order of the transferor. This cannot apply to
bearer instruments.
Cancellation of Indorsement
Sec. 48. Striking out indorsement.
The holder may at any time strike out any
indorsement which is not necessary to his title. The
indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved
from liability on the instrument.
Indorsement by Agent
Sec. 20. Liability of person signing as agent, and so
forth.
Where the instrument contains or a person adds to
his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity,
he is not liable on the instrument if he was duly
authorized; but the mere addition of words
describing him as an agent, or as filling a
representative character, without disclosing his
principal, does not exempt him from personal
liability.
2.
Material Particulars
A change in the ff. is considered a material
alteration (Sec. 125):
- Date
29
30
b.
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).
A. Parties
Primarily
(Sec. 60 and 62)
Liable
31
32
2. Indorsers
The following indorsers assume the liability to pay
the instrument: (1) General or Unqualified Indorser;
and (2) Irregular Indorser.
a. General or Unqualified Indorser (Sec. 66)
Engages that he will pay the amount of the
instrument to the holder or to any subsequent
indorser who may be compelled to pay the same if
the instrument be dishonored upon due
presentment and proceedings on dishonor be
taken.
Who is a General or Unqualified Indorser?
Every person who indorses WITHOUT qualification
(Sec. 66.)
A person placing his signature upon an instrument
other than as a maker, drawer, or acceptor unless
he indicates by appropriate words his intention to be
bound in some other capacity (Sec. 63).
A person, who places his signature on an instrument
negotiable by delivery, incurs all the liabilities of an
indorser (Sec. 67).
NOTE
A Qualified Indorser does not assume the liability to
pay the instrument since he is merely an assignor of
the title to the instrument.
C. Warranties
Maker
Acceptor
1. existence of
the payee;
2. his then
capacity to
indorse
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.
NOTE
No. 3 does not
apply to person
negotiating public
or corporation
securities other
than bills and
notes.
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
A. Parties to be notified
1)
2)
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)
33
34
C. Effect of notice
Notice of Dishonor is required to charge parties
secondarily liable.
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.
A. Discharge
instrument
of
negotiable
35
36
3.
4.
5.
6.
7.
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.
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.
B. Effect of failure to
presentment (Sec. 144)
make
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
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)
37
38
5) Crossed Check
The NIL is silent with respect to crossed checks,
although the Code of Commerce makes
reference to such instruments.
Article 541 of the Code of Commerce states:
The maker or any legal holder of a check shall
be entitled to indicate therein that it be paid to
a certain banker or institution, which he shall do
by writing across the face the name of said
banker or institution, or only the words and
company.
Under usual practice, crossing a check is done
by placing two parallel lines diagonally on the
left top portion of the check (State Investment
House vs. IAC, 1989).
The crossing may be special wherein between
the two parallel lines is written the name of a
bank or a business institution, in which case the
drawee should pay only with the intervention of
that bank or company, or crossing may be
general wherein between two parallel diagonal
lines are written the words "and Co." or none at
all as in the case at bar, in which case the
drawee should not encash the same but merely
accept the same for deposit (supra).
Effects
Bataan Cigar vs. CA (1994):
a. That the check may not be encashed; it may
only be deposited with the bank;
b. That the check may be negotiated only once to
a person who has an account with the bank; and
c. That it serves as a warning to a holder that the
check has been issued for a definite purpose.
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
39
UP
L
AW
BAR REVIEWER
2012
MERCANTILE
Insurance Code
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
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
Insurance Code
40
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
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
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)
4)
Insurable Interest
The interest of the insured in a thing or a life
Risk-Distributing Scheme
This assumption of risk is part of a general
scheme to distribute the loss
Among a large number of persons
Exposed to similar risks.
Losses are borne not by the insurer but
proportionally by all those who paid premiums.
III. Characteristics/Nature of
Insurance Contracts
1)
2)
Consensual
It is perfected by the meeting of the minds of
the parties.
There must be concurrence of offer and
acceptance.
Unless otherwise stipulated, the policy is not
essential to the existence of the contract. It
merely evidences the terms and conditions
thereof. (CAMPOS)
Voluntary
General Rule
It is not compulsory. Also, the parties are free
to stipulate terms provided they are not
contrary to law, morals, good customs, public
order, or public policy.
Exception
For motor vehicles [Sec. 373-389]; employees
[Art. 168-184, Labor Code]; or as a condition to
granting a license [DE LEON].
3)
4)
Executory
Once the insured pays the premium, the
contract already takes effect.
Synallagmatic and reciprocal such that even if
the contingent event does not occur, the insurer
has still provided protection against the risk.
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.
7)
8)
9)
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].
41
IV. Classes
42
1.
b.
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
FRIENDLY FIRE
Liability insurance
Insurer assumes the obligation to pay the third
party in whose favor the liability of the insured
arises.
Liability of the insurer attaches as soon as the
liability of the insured to the third party is
established.
Insurer is liable regardless of whether or not the
insured has paid the third party [CAMPOS].
Insurer is not liable
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.
Indemnity insurance
NO action will lie against the insurer unless
brought by the insured for loss ACTUALLY
sustained and paid by him.
Liability of the insurer attaches only AFTER the
insured has paid his liability to the third party
[CAMPOS].
No Action Clause
A requirement in a policy of liability insurance which
provides that suit and final judgment be first
obtained against the insured; that only thereafter
can the person injured recover on the policy.
[Guingon vs. Del Monte 1967]
But, the no-action clause CANNOT prevail over the
Rules of Court provisions which are aimed at
avoiding multiplicity of suits. Parties (the insured
and the insurer) may be joined as defendants in a
case commenced by the third party claiming under a
liability insurance, as the right to relief in respect to
the same transactions is alleged to exist [see Sec. 5,
Rule 2, ROC; Sec. 6, Rule 3, ROC].
4.
43
44
Life
Death or Survival
It 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. [CAMPOS]
Various Life Insurance Plans
- Ordinary or whole life policy: insurer
agrees to pay the face value of the policy
upon the death of the insured
c.
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]
45
46
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
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.
3.
3.
47
48
2.
3.
4.
C. Double Insurance
Insurance
and
Over
49
50
Modes of delivery
1. Actual delivery to the insured
2. Constructive delivery by mail; delivery to the
insureds agent or some person for the benefit
of the insured.
3.
4.
b.
Premium Payment
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)
51
52
2. Paid-up Insurance
Such amount of insurance as the CSV applied as a
single premium
Effect: policy continues in force from date of
default for the whole period and under the same
conditions of the original contract without further
payment of premiums
Same policy, same terms and conditions, different
price
Insured is given the right, upon default, the option
to make the policy continued for the whole period
of insurance without further payment of premiums.
In case of maturity, the beneficiary will recover only
the paid-up value.
No reinstatement allowed
3. Automatic Premium Loan (APL)
Upon default, insurer lends/advances to the insured
without any need of application on his part, amount
necessary to pay overdue premium, but not to
exceed the CSV of the policy
Must be requested in writing by the insured either in
the application or at any time before expiration of
the period
Effect: insurance policy continues in force for a
period covered by the payment. After the period, if
insured still does not resume paying his premiums,
policy lapses, unless CSV still remains
If there is still CSV, APL continues until CSV is
exhausted.
Beneficial for the insured because it continues the
contract and all its features with full force and
effect
d.
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]
4.
Concealment, Defined
A neglect to communicate that which a party knows
and ought to communicate [Sec. 26]
Requisites
1. A party knows a fact which he neglects to
communicate or disclose to the other.
2. Such party concealing is duty bound to disclose
such fact to the other.
3. Such party concealing makes no warranty of the
fact concealed.
4. The other party has not the means of
ascertaining the fact concealed.
5. The fact concealed is material.
Note: Concealment requires fraudulent intent.
Effects of Concealment
It vitiates the contract and entitles the insurer
to rescind, even if the death or loss is due to a
cause not related to the concealed matter [Sec.
27].
The contract is VOIDABLE at the insurers
option.
Note: Good faith is NOT a defense in concealment.
Sec. 27 clearly provides that the concealment
whether intentional or unintentional entitles the
injured party to rescind the contract of insurance.
Test of Materiality
General Rule
Determined not by the event, but solely by the
probable and reasonable influence of the facts upon
the party to whom the communication is due, in
forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries [Sec.
31]
53
54
Misrepresentation/Omissions
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
Breach of Warranties
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.
clause
only
does
not
include
concealment/misre-
55
56
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
insured to
recover.
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.
Maturity
Delivery of Proceeds
LIFE INSURANCE
Upon death of the person
insured;
Upon his surviving a specific
period
Otherwise contingently on the
continuance or cessation of life
[Sec. 180]
General Rule:
Immediately upon maturity of
policy.
Exception:
If payable in INSTALLMENTS or as an
ANNUITY, when such installments or
annuities become due
IF MATURITY IS UPON DEATH:
Within 60 days after presentation of
claim and filing of proof of death of
insured.
Entitles beneficiary to collect
interest on the proceeds of
policy for the duration of the
delay at rate of twice ceiling
prescribed by the monetary
board (unless refusal to pay is
based on ground that claim is
fraudulent)
In case damages awarded, this
includes attorneys fees and
other expenses incurred due to
delay (plus the interest)
NON-LIFE INSURANCE
Upon happening of event insured
against
Event must occur within the period
specified in policy, otherwise insurer
has no liability
Within 30 days after
Proof of loss is received by insurer;
and
Ascertainment of loss or damage is
made either by agreement between
the insured and insurer or by
arbitration
If ascertainment not made within 60
days after such receipt by insurer of
proof of loss, loss or damage shall be
paid within 90 days after such
receipt.
Entitles beneficiary to collect interest
on the proceeds of policy for the
duration of the delay at rate of twice
ceiling prescribed by the monetary
board (unless refusal to pay is based
on ground that claim is fraudulent)
In case damages awarded, this
includes attorneys fees and other
expenses incurred due to delay (plus
the interest)
57
58
is
only
subrogation
in
non-life
59
UP
L
AW
BAR REVIEWER
2012
MERCANTILE
Transportation Law
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
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Karina Kirstie Paola Ayco Ma. Ara Garcia |Events
OPERATIONS HEADS
Charles Icasiano Katrina Rivera |Hotel Operations
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Jauhari Azis |Night-Operations
Vivienne Villanueva Charlaine Latorre |Food
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Paula Plaza |Linkages
LAW
MERCANTILE LAW TEAM
2012
Subject Heads | Anna
Katarina Rodriguez Mickey
Chatto
LAYOUT TEAM 2012
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Timothy Reyes
60
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
Private Carriers
Those who transport or undertake to transport in a
particular instance for hire or reward. [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
I. Common Carriers
Availability
Binding Effect
Diligence
Required
Governing Law
Regulation
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
Extraordinary
diligence
Principally, Civil
Code provisions
on
common
carriers
A public service
and is therefore
subject
to
regulation
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]
61
62
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
1. Requirement
of
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.
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
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
63
64
E. Liability
for
baggage
of
passengers (asked in 97 and 98)
What are the kinds of passenger baggage and the
laws applicable to them?
1. Passenger baggage in the custody of the
passenger (e.g. carry-on luggage). These are
considered as necessary deposits. Articles 1998,
2000-2003 apply.
2. Passenger baggage not in the custody of the
passenger (e.g. checked-in luggage). Arts. 17331753 on extraordinary diligence apply. The
liability is greater for baggage that is in the
custody of the carrier in contrast if such is in
the possession of the passenger.
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
in
possession
of
passengers
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
Validity of Stipulations
Limiting Liability
VALID,
subject
to
conditions [Art. 1749]
GR: VOID
E: gratuitous carriage
[Arts. 1757, 1758]
B. Duration of liability
1. Waiting for carrier or boarding of
carrier
Does the duty of extraordinary diligence occur
right at the perfection of the contract of
transportation?
The perfection of the contract of carriage does not
necessarily coincide with the commencement of the
duty of extraordinary diligence. It may occur at the
same time or later.
It is the duty of common carriers of passengers to
stop their conveyances a reasonable length of time
in order to afford passengers an opportunity to board
and enter, and they are liable for injuries suffered
by boarding passengers resulting from the sudden
starting up or jerking of their conveyances while
they are doing so. [Dangwa Transportation v. CA
(1991)]
Del Prado v. Manila Railroad (1929). A person
boarding a moving car must be taken to assume the
risk of injury from boarding the car under the
conditions open to his view, but he cannot fairly be
held to assume the risk that the motorman, having
the situation in view, will increase the peril by
accelerating the speed of the car before he is
planted safely on the platform.
65
2. Arrival at destination
66
Liability of Obligor
Only natural and probable
consequences
of
the
breach, which have could
have
reasonably
been
foreseen
All damages which may be
reasonably attributed to
breach
Culpa Contractual
(quasi-delict)
Art. 1759
Carrier is directly and
primarily liable
Culpa Aquiliana
Art. 2180
Carrier and employee
are solidarily liable as
joint tort-feasors
due
the
and
of
Defense
of
due
diligence
in
the
selection
and
supervision
of
employees is available
A. Three-fold character
a.
b.
c.
B. Delivery of goods
1. Period for delivery
Rule
Period fixed for the delivery of the goods. If no
period is fixed, within a reasonable time.
Effect of Non-compliance
The carrier shall pay the indemnity agreed upon in
the bill of lading. If no indemnity is fixed, the carrier
shall be liable for the damages which may have been
caused by the delay. [Art. 370, Code of Commerce]
If no period is fixed, the carrier shall be under the
obligation to forward the goods in the first shipment
of the same or similar merchandise which he may
make to the point of delivery. [Art. 358, Code of
Commerce]
67
68
delivery
from
When to Claim
Claim for damages must
be made upon receipt of
delivery
Claim for damages may
be made within 24 hours
upon receipt of delivery.
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.
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
3.
4.
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.
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.
B. Liability of Shipowners
Shipping Agents
and
69
70
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]
Kinds:
1. Particular or Simple Average
2. Gross or General Average
Simple Average
Particular or Simple Averages shall be all damages or
expenses caused to the vessel or cargo that did not
inure to the common benefit, and borne by
respective owners. [Art. 809]
The owner of the goods which gave rise to the
expense or suffered the damage shall bear this
average. [Art. 810]
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.
c.
d.
e.
f.
71
72
1. Application
COGSA is a special law that governs all contracts of
carriage of goods by sea between or to and from the
Philippine ports.
Application of laws
a.
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
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.
73
74
Citizenship
3) Financial capability
The applicant must be financially capable of
undertaking the proposed service and meeting the
responsibilities incident to its operation.
b.
Exceptions
Ruinous competition
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.
2. Exclusion
of
income
tax
as
expense
D. Unlawful arrangements
1. Boundary system
The boundary system is a scheme by an
owner/operator engaged in transporting passengers
as a common carrier to primarily govern the
compensation of the driver, that is, the latters daily
earnings are remitted to the owner/operator less the
excess of the boundary which represents the drivers
compensation.
Under
this
system,
the
owner/operator exercises control and supervision
over the driver. It is different from lease of chattels
because in the latter, the lessor loses complete
control over the chattel and the lessee is still
ultimately responsible for the consequences of its
use.
In the boundary system, the management of the
business is still in the hands of the owner/operator,
who, being the holder of the certificate of public
convenience, must see to it that the driver follows
the route prescribed by the franchising and
regulatory authority, and the rules promulgated with
regard to the business operations. [Villamaria v.
Court of Appeals(2006)]
Note that the boundary system is not in itself
unlawful but only unlawful when used as a defense
to evade true liability. The owner-operator shall
remain liable to the public Indeed to exempt from
liability the owner of a public vehicle who operates
it under the "boundary system" on the ground that he
is a mere lessor would be not only to abet flagrant
violations of the Public Service Law, but also to
place the riding public at the mercy of reckless and
irresponsible drivers reckless because the measure
of their earnings depends largely upon the number of
trips they make and, hence, the speed at which they
drive; and irresponsible because most if not all of
them are in no position to pay the damages they
might cause. [Sps. Hernandez v. CA (2004)]
75
76
VII.
C. Limitation of Liability
1. Liability to passengers
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]
2.
3.
D. Willful misconduct
When can a common carrier not avail itself of this
limitation?
1. Willful misconduct [Art. 25]
2.
3.
4.
77
78
79
UP
L
AW
BAR REVIEWER
2012
MERCANTILE
Corporation Law
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
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
80
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
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
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.
j.
81
82
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)
B. Doctrine
of
piercing
the
corporate veil (Asked in 91, 01
and 04)
Piercing the veil of corporate entity is merely an
equitable remedy, and may be granted only in cases
when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend
crime (Yutivo Sons v CTA 1961)
or where the
corporation is a mere alter ego or business conduit
of a person. (Koppel Phil v Yatco)
1. Grounds
for
application
of
doctrine
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.
83
84
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)
Common Shares
Preferred Shares
85
86
Convertible shares
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
1. Liability of Promoter
GENERAL RULE
The promoter binds himself PERSONALLY & assumes
the responsibility of looking to the proposed
corporation for reimbursement.
EXCEPTIONS
1. Express or implied agreement to the contrary
2. Novation, not merely adoption or ratification of
the contract
2. Liability
of
Corporation
Promoters Contract
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.
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
Status as Shareholder
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.
C. Pre-incorporation Subscription
Agreements
It is a subscription for shares of stock of a
corporation still to be formed.
When subscription is IRREVOCABLE:
1. For a period of at least 6 months from the date
of subscription, UNLESS (1) all of the other
subscribers consent to the revocation, or (2) the
incorporation fails to materialize within six (6)
2.
Limitations on Consideration:
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.
87
88
GENERAL RULE
Not less than 5
directors/trustees
but
not
more
than
15
EXCEPTION
Non-stock corporations whose articles or by-laws
may provide for more than 15 trustees (Sec. 92)
Nationalized industries:
Aliens may be directors but only in such number as
may be proportional to their allowable ownership of
shares
residences
of
ix.
x.
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
b.
NOTES:
AOI must be accompanied by Treasurers sworn
statement of compliance with Sec. 13 on amount of
capital to be subscribed and paid for the purposes of
incorporation; otherwise, SEC shall not accept the
AOI. (Sec. 14)
Registration
Incorporation
of
the
Articles
of
H. Election of Directors or
Trustees
a.
Requirements
89
90
REQUIREMENT TO BE ELECTED:
Candidates receiving the highest number of
votes shall be declared elected (PLURALITY)
b.
Straight Voting
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)
b.
NOTE
Section 22 on the effect of failure to formally
organize within 2 years from incorporation, the
corporations corporate powers cease and the
7.
8.
9.
of
B. Specific powers,
specific capacity
theory
of
1. Power
to extend
corporate term
or
shorten
dispose
of
corporate assets
(Sec. 37-44)
Extend or shorten the corporate Term (Sec. 37)
a) Must be approved by majority vote of the
Board of Directors/ Board of Trustees
(BOD/BOT)
b) Ratified at a meeting by 2/3 of SH
representing the outstanding capital stock/
2/3 of members of non-stock corporations
c) Written notice of meeting (includes
proposed action, time and place of
meeting) shall be addressed to each
SH/member at his place of residence and
deposited to the addressee in the post
office, or served personally
d) In case of extension of corporate term,
appraisal right may be exercised by the
dissenting stockholder
91
92
e)
i. Applicability
doctrine
of
ultra
vires
93
ILLEGAL ACTS
Unlawful; against law,
morals, public policy,
and public order
Cannot be ratified
Cannot bind the parties
10. Doctrine
of
individuality
of
subscription
75
94
C. How Exercised
1. By the Shareholders
a.
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
by
2. By the Board
76
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
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
95
Rights
of
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).
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).
77
96
PROXY
Principal agent
Proxy cant exceed
delegated authority.
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
TRUSTEE
Trustee-beneficiary
The only limit to
authority is that the act
must be for the benefit
of trustee. (fiduciary
obligation)
Must be in writing and
notarized
Copy must be filed with
SEC and the corporation.
Transfer of legal title to
trustee.
Trustee exercises
absolute voting rights
continuously, subject
only to fiduciary duty.
Trustee can be director
Irrevocable, as long as no
misconduct or fraud.
a. By a Majority Vote
(a) Power to enter into management
contracts (Sec. 44)
GENERAL RULE
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 of both the managing and the managed
corporation
EXCEPTIONS
Where a stockholder/s representing the same
interest of both the managing and the managed
corporations own or control more than onethird (1/3) of the total outstanding capital
stock entitled to vote of the managing
corporation; or
Where a majority of the members of the
managing corporations BOD also constitute a
majority of the the managed corporations BOD
Requires at least 2/3 votes of the outstanding
capital
stock/membership
of
the
managed
corporation.
BUT only majority vote is required for the managing
corporation.
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
78
(c)
(d) Increasing/decreasing
stock (Sec. 38)
capital
of
of
all
or
corporate
97
98
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.
C. Proprietary Rights
1. Right to Dividends
GENERAL RULE
Right to Dividends vests upon lawful declaration by
the BOD. From that time, dividends become a debt
owing to the SH. No revocation can be made.
EXCEPTIONS
Dividends are revocable if NOT yet announced or
communicated to the stockholders.
Stock dividends, even if already declared, may
be revoked prior to actual issuance since these
are not distributions but merely represent
changes in the capital structure.
NOTE
Right to dividends vests upon declaration so whoever
owns the stock at such time also owns the dividends.
Subsequent transfer of stock would not carry with it
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
3. Right to Inspect
i.
Basis of Right
99
80
100
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.
from
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.
D. Remedial Rights
1. Individual Suit
A suit brought by the shareholder in his own name
against the corporation when a wrong is directly
inflicted against him.
2. Representative Suit
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.
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.
Definition
101
102
e.
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
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).
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.
103
duly
4)
Limitations on Powers
Directors/Trustees
of
Board
of
104
B. Tenure,
Qualifications
and
Disqualifications of Directors
a.
Tenure
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
c. Disqualifications
Not have been convicted by final judgment of an
offense punishable by imprisonment for a period
exceeding 6 years; or
A violation of the Corporation Code, committed
within five years from the date of his election.
(Sec. 27)
Methods of Voting
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.
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
105
106
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
N. Inside Information
O. Contracts
1. By self-dealing directors with the
corporation
GENERAL RULE
A contract of the corporation with one or more of its
directors or trustees is VOIDABLE, at the option of
such corporation. (Sec. 32)
EXCEPTION
Such contract is VALID if all of the following
conditions are present:
That 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; and
That in case of an officer, the contract has been
previously authorized by the board of directors.
Ratification
In case of absence of the first two conditions above,
contract may be ratified if:
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.
Full disclosure of the adverse interest of the
directors or trustees involved is made at such
meeting.
Contract is fair and reasonable under the
circumstances
2. Between
corporations
interlocking directors
i.
with
107
108
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.
1)
2)
3)
P. Executive Committee
1. Creation
A body created by the by-laws and composed of
some members of the board which, subject to the
statutory limitations, has all the authority of the
board to the extent provided in the board resolution
or by-laws (See Sec. 35).
Q. Meetings
1. Regular or Special
Who May Attend?
The members of the Board themselves; directors in
Board meetings cannot be represented or voted by
proxies.
b.
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
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).
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,
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.
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
109
110
par. 4)
i.
Contents
B. Watered Stocks
1. Definition
These are shares issued as fully paid when in truth
con consideration is paid, or the consideration
received is known to be less than the par value or
issued value of the shares. (Sec. 65)
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
C. Payment
of
Balance
Subscription (Sec. 66 & 67)
of
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.
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.
111
112
Note:
Requirements on notice and publication are
mandatory. Lacking such requirements, the
stockholder may question the sale as provided
under Sec. 69.
Public auction - the highest bidder is one who is
willing to pay the balance of the subscription for
the least number of shares. If there are no
bidders, the corporation must bid for the whole
number of shares regardless of how much the SH
has paid.
Such stocks will pertain to the
corporation as fully paid treasury stocks.
The delinquent stockholder may stop the auction by
paying to the corporation or before the date
specified for the sale the balance due on his
subscription, plus accrued interest, costs of
advertisement and expenses of the sale.
Otherwise, the public auction shall proceed and be
sold to the bidder that will pay the full amount of
the balance of subscription with accrued interest,
costs and expenses of the sale, for the smallest
number of shares or fraction of a share. The stock so
purchased shall be transferred to such purchases in
the books of the corporation and a certificate of
such stuck shall be issued in his favor. The remaining
shares, if any,shall be credited in favor of the
delinquent stockholder who shall likewise be
entitled to the issuance of a certificate of stock
covering such shares.
Irregularities in the delinquency sale (Sec. 69)
Action to recover delinquent stock must be on
the ground of irregularity or defect in the notice
of sale.
Party seeking to recover must first pay or tender
to the party holding the stock the sum for which
the same was sold, with interest from the date
of sale at the legal rate.
The action shall be commenced within six
months from the date of sale.
E. Alienation of Shares
1. Allowable Restrictions on the Sale
of Shares
GENERAL RULE
Shares of stock so issued are personal property and
may
be
transferred
(Sec.
63).
(FREE
TRANSFERABILITY OF SHARES)
EXCEPTION
In CLOSE corporations, restrictions on the right to
transfer shares may be provided in the AOI, by-laws
and certificates (Sec. 98).
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)
A. Modes of Dissolution
1. Voluntary
i.
113
114
2. Involuntary
i.
3.
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.
3. By Management Committee or
Rehabilitation Receiver
XII.
Other corporations
A. Close
Corporations
(Corporation Code, Title XII)
Section 96: Close corporations are those whose AOI
provide the following:
a) all of the corporations issued stock of all classes,
exclusive of treasury shares, shall be held of
record by not more that a specified number of
persons, not exceeding 20
b) all of the issued stock of all classes shall be
subject to one or more specified restrictions on
transfer permitted by the Code
c) the corporation shall not list in any stock
exchange or make any public offering of any of
its stock of any class
d) at least 2/3 of its voting stock must not be owned
or controlled by another corporation which is
not a close
e) must not be a mining or oil company, stock
exchange, bank, insurance company, public
utility, educational institution or corporation
vested with public interest
The AOI must state that the number of stockholders
shall not exceed 20.
The AOI must contain restriction on the transfer of
issued stocks (which must appear in the AOI, by-laws
and certificate of stock)
GENERAL RULE
Free transferability of shares - Shares of stock so
issued are personal property and may be transferred
EXCEPTION
In close corporations: Considering the special
circumstances attending a close corporation (e.g.
formed by persons who know each other well, thus
they would want to choose the persons who will be
allowed in their group), it is justifiable and even
imperative for its stockholders to protect themselves
from future conflicts by placing restrictions on the
right of each one of them to transfer his shares to an
outsider.
Restriction on the transfer must NOT be more
onerous than granting the existing SH or
corporation the option to purchase the shares.
The stocks cannot be listed in the stock exchange
nor be publicly offered.
The corporation must NOT be mining company, stock
exchange, oil company, bank, insurance company,
public utility, educational institution or other
corporation declared to be vested with public
interest.
115
116
1. Characteristics
of
Close
Corporation
4. When
Board
Meeting
is
Unnecessary or Improperly Held
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)
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
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.
CLOSE CORPORATIONS
REGULAR CORPORATIONS
1.
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
117
118
REGULAR CORPORATIONS
1.
2.
3.
4.
3.
Voting / Quorum
No share may be deprived of voting rights, except
Preferred or Redeemable shares, unless otherwise
provided by the Code
Transferability
Pre-emptive Right
5.
Withdrawal Right
REGULAR CORPORATIONS
B. Non-Stock
Corporations
(Corporation Code, Title XI)
1. Definition
One where no part of its income is distributable as
dividends to its members, trustees, or officers,
subject to the provisions of this Code on dissolution.
(Sec.87)
Charitable
Religious
Educational
Professional
Cultural
Fraternal
Literary
Scientific
Social
Civic services
Similar purposes, such as chambers
combinations trade, industry or agriculture
4. Distribution
of
Assets
Upon
Dissolution
C. Religious Corporations
1. Corporation Sole (Sec. 110)
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)
Nationality
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120
Religious Societies
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).
Consent
2. Necessity of a License to Do
Business
i.
Resident Agent
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:
5. Instances
When
Unlicensed
Foreign Corporations May Be
Allowed to Sue
121
122
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.
B. Constituent
Corporation
v.
Consolidated
single
D. Articles
of
Merger
Consolidation (Sec. 78)
or
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.
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.
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)
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.
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124
UP
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AW
BAR REVIEWER
2012
MERCANTILE
LAW
Securities Regulation Code
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
Securities Regulation
Code
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
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).
Regulatory
Adjudicative
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:
125
126
(a) To
issue
preliminary
or
permanent
injunctions,
whether
prohibitory
or
mandatory, in all cases in which it has
jurisdiction, and in which cases the pertinent
provisions of the Rules of Court shall apply;
(d) To pass upon the validity of the issuance and
use of proxies and voting trust agreements
for absent stockholders or members;
(g) To authorize the establishment and operation
of stock exchanges, commodity exchanges
and such other similar organization and to
supervise and regulate the same; including
the authority to determine their number,
size and location, in the light of national or
regional requirements for such activities with
the view to promote, conserve or rationalize
investment; (see Sec. 5(e), SRC)
(h) To pass upon, refuse or deny, after
consultation with the Board of Investments,
Department of Industry, National Economic
and Development Authority or any other
appropriate
government
agency,
the
application
for
registration
of
any
corporation, partnership or association or any
form of organization falling within its
jurisdiction,
if
their
establishment,
organization or operation will not be
consistent with the declared national
economic policies;
Exempt transactions
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or
trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or
mortgagee or any of a pledge lien holder
selling of offering for sale or delivery in the
ordinary course of business and not for the
purpose of avoiding the provision of this
Code, to liquidate a bonafide debt, a
security pledged in good faith as security
for such debt.
(c) An isolated transaction in which any
security is sold, offered for sale,
subscription or delivery by the owner
therefore, or by his representative for the
owners account, such sale or offer for sale
or offer for sale, subscription or delivery
not being made in the course of repeated
and successive transaction of a like
character by such owner, or on his account
by such representative and such owner or
representative not being the underwriter of
such security.
(d) The distribution by a corporation actively
engaged in the business authorized by its
articles of incorporation, of securities to its
stockholders or other security holders as a
stock dividend or other distribution out of
surplus.
(e) The sale of capital stock of a corporation to
its own stockholders exclusively, where no
commission or other remuneration is paid or
given directly or indirectly in connection
with the sale of such capital stock.
Bank;
Registered investment house;
Insurance company;
Pension fund or retirement plan
maintained by the Government of the
Philippines or any political subdivision
thereof or manage by a bank or other
persons authorized by the Bangko
Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission
may rule by determine as qualified
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128
2.
3.
4.
V. Prohibitions on fraud,
manipulation and insider trading
A. Manipulation of security prices
It shall be unlawful for any person acting for himself
or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of
active trading in any listed security traded in an
Exchange of any other trading market (hereafter
referred to purposes of this Chapter as
"Exchange"):
(i) By effecting any transaction in such security
which involves no change in the beneficial
ownership thereof;
(ii) By entering an order or orders for the
purchase or sale of such security with the
knowledge that a simultaneous order or
orders of substantially the same size, time
and price, for the sale or purchase of any
such security, has or will be entered by or
for the same or different parties; or
(iii) By performing similar act where there is no
change in beneficial ownership.
(b) To affect, alone or with others, securities or
transactions in securities that:
(i) Raises their price to induce the purchase of
a security, whether of the same or a
different class of the same issuer or of
controlling, controlled, or commonly
controlled company by others; or
(ii) Creates active trading to induce such a
purchase or sale through manipulative
devices such as marking the close, painting
the tape, squeezing the float, hype and
dump, boiler room operations and such
other similar devices.
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;
129
130
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
131
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)
132
2. Liability
of Makers
Misleading Statements
of
False
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)
3. Liability of Aider/Abettor
It shall be unlawful for any person to aid, abet,
counsel, command, induce or procure any violation
133
134
A.
Liability of Sellers/Offerors
Defense: No knowledge of
untruth or omission, despite
the exercise of reasonable care
(Sec. 57.1).
Any
person
who
willfully
participates
in
any
act
or
transaction
in
Section
24
(Manipulation of Security Prices).
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)
135
136
7.
Liabilities
of
Controlling
Persons, Aider and Abettor
and Other Secondary Liability
A.
Liability of Controlling
Persons
7.
Liabilities
of
Controlling
Persons, Aider and Abettor
and Other Secondary Liability
B.
Liability of Director/Officer
for Delay in the Filing of
Required Documents
Liability of Aider/Abettor
137
138
UP
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BAR REVIEWER
2012
MERCANTILE
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
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.
D. Responsibility
objective
and
primary
1. Primary Objectives
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.
E. Monetary Board
The body through which the powers and functions of
the Bangko Sentral are exercised (Sec 6, NCBA)
139
140
2.
3.
7. Grounds
1.
2.
3.
4.
3.
4.
5.
6.
4.
5.
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
141
142
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,
b.
or
less
unless
D. Exceptions (Sec. 2)
A.
B.
C.
D.
143
144
iv.
4.
5.
6.
b.
b)
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.
145
146
4.
5.
6.
b.
c.
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
c. Power
to
Invest
in
Allied
enterprises
(financial or
nonfinancial)
(Sec.
30,
GBL)
KB
a. Corporate
Powers (Sec.
29, GBL)
b. Banking and
Incidental
Powers (Sec.
29, GBL)
UB
a. Corporate
Powers (Sec.
29, GBL)
b. Banking and
Incidental
Powers (Sec.
23, GBL)
1)
c. Power
to
invest
in
Allied
(financial or
non-financial)
(Sec. 24, GBL)
d. Power
to
invest in Nonallied
enterprises
(Sec. 24, GBL)
e. Powers of an
investment
house
(Sec.
23, GBL)
Corporate powers
Accepting drafts
b.
c.
d.
147
148
EXCEPTION
Banks other than a UB or KB with prior approval
of, and subject to such conditions and rules as
may be prescribed by the Monetary Board (Sec.
33, GBL)
Presumption of ownership of deposits:
It is presumed that money deposited in a bank
account belongs to the person in whose name
the deposit account is opened.
Fultron Iron Works Co. v. China Banking
Corporation, 1930
A depositor is presumed to be the owner of funds
standing in his name in a bank deposit; and where a
bank is not chargeable with notice that the money
deposited in such account is the property of some
other person than the depositor, the bank is justified
in paying out the money to the depositor or upon his
order, and cannot be liable to any other person as
the true owner.
BPI v. CA, 1994
A bank is under no duty or obligation to make an
application or set-off against the deposit accounts of
a borrower. To apply the deposit to the payment of
a loan is a privilege, a right of set-off which the bank
has the option to exercise, but not the obligation.
CA Agro-industrial Dev. Corp. v. CA, 1983
The rent of safety deposit boxes is a special kind of
deposit and cannot be characterized as an ordinary
contract of lease because the full and absolute
possession and control of the deposit box is not given
to the renters. The prevailing rule is that the
relation between the bank renting out and the
renter is that of bailor and bailee the bailment being
for hire and mutual benefit.
e.
Extending credit
Loan Function
Know your customer rule:
Before granting a loan or other credit
accommodation, a bank must ascertain that the
debtor is capable of fulfilling its commitments
to the bank. (Sec. 40)
The bank may demand from its credit applicants
a statement of their assets and liabilities and of
their income and expenditure and such
information as may be prescribed by law or by
rules and regulations of MB to enable the bank
to properly evaluate the credit application
which includes the corresponding financial
statements submitted for taxation purposes to
the BIR. (Sec. 40)
Credit enhancement
If the borrower is less than creditworthy, third
persons may enhance his credit by providing
guarantees and other security devices in favor
of the bank. (MORALES, The Philippine General
Banking Law, opinion)
Security of
chattels and
intangible
properties
(patents,
trademarks,
trade names,
and
copyrights)
EXCEPTION
The Monetary Board otherwise
prescribes (Sec. 37)
GENERAL RULE
Shall not exceed 75% of the
appraised value of the security,
and such loans and other credit
accommodations may be made to
the title-holder of the chattels and
intangible properties or his
assignees
EXCEPTION
The Monetary Board otherwise
prescribes (Sec. 38)
Purpose of Loans
Purpose must be stated in the application and in the
contract between the bank and the borrower. (Sec.
39)
observe
the
highest
degree
of
149
150
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)
1.
2.
d.
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
General Rule
No director or officer of any bank
151
152
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.
Reserves
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)
Criminal Sanctions
a. Refusal by an institution subject to
examination and supervision by the Monetary
Board to file the required report or permit
any lawful examination into its affairs (Sec.
34, NCBA)
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)
153
154
C. Liability of Depositors
1.
NOTE
Unlawful Activity refers to any act or omission
or series or combination thereof involving or
having direct relation to following:
1) Kidnapping for ransom under Article 267 of
Act No. 3815, otherwise known as the
Revised Penal Code, as amended;
2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15,
and 16 of Republic Act No. 9165, otherwise
known as the Comprehensive Dangerous
Act of 2002;
3) Section 3 paragraphs B, C, E, G, H and I of
republic Act No. 3019, as amended,
otherwise known as the Anti-Graft and
Corrupt Practices Act;
4) Plunder under Republic Act No. 7080, as
amended;
5) Robbery and extortion under Articles 294,
295, 296, 299, 300, 301 and 302 of the
Revised Penal Code, as amended;
6) Jueteng and Masiao punished as illegal
gambling under Presidential Decree No.
1602;
7) Piracy on the high seas under the Revised
Penal Code, as amended and Presidential
under the Revised Penal Code, as amended
and Presidential Decree No. 532;
8) Qualified theft under Article 310 of the
Revised penal Code, as amended;
9) Swindling under Article 315 of the Revised
Penal Code, as amended;
10) Smuggling under Republic Act Nos. 455 and
1937;
11) Violations under Republic Act No. 8792,
otherwise known as the Electronic
Commerce Act of 2000;
12) Hijacking and other violations under
Republic Act No. 6235; destructive arson
and murder, as defined under the Revised
Penal Code, as amended, including those
perpetrated by terrorists against noncombatant persons and similar targets;
13) Fraudulent practices and other violations
under Republic Act No. 8799, otherwise
known as the Securities Regulation Code of
2000;
14) (14) Felonies or offenses of a similar
nature that are punishable under the penal
laws of other countries (Sec. 3(i) of R.A.
9160, as amended).
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
4.
Extent of Liability
b.
Joint Accounts
A joint account regardless of whether the
conjunction 'and,' 'or,' 'and/or' is used, shall be
insured separately from any individually-owned
deposit account (Sec. 4(g), as amended).
i. If the account is held by two or more
natural persons or two or more juridical
persons
NOTE
Insured deposit shall not exceed 500,000 (Sec.
4(g), as amended)
General Rule
The maximum insured deposit shall be
divided into as many equal shares as
there are individuals or juridical
persons (Sec. 4(g), as amended).
Exception
Unless a different sharing is stipulated
in the document of deposit (Sec. 4(g),
as amended).
NOTE
The Corporation may require proof of claims to
be filed before paying the insured deposits, and
that in any case where the Corporation is not
satisfied as to the viability of a claim for an
insured deposit, it may require final
determination of a court of competent
jurisdiction before paying such claim (Sec. 14)
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)
6. Calculation of Liability
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)
a.
155
156
e.
General Rule
Failure to settle the claim within six (6)
months from the date of filing of claim for
insured deposit shall, upon conviction,
subject the directors, officers or employees
of the Corporation responsible for the delay
to imprisonment from six (6) months to one
(1) year.
Exceptions
CONFIDENTIALITY
PRIVILEGES
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
B. Privileges
1.
2.
157
158
UP
L
AW
BAR REVIEWER
2012
MERCANTILE
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
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
I.
II.
III.
IV.
V.
MERCANTILE LAW
Intellectual Property in general
Patents
Trademarks
Copyright
Registration Flowcharts
2.
3.
1.
B. Differences between
copyrights, trademarks and
patent
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]
159
160
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]
C. Technology Transfer
Arrangement
Refers to contracts or agreements involving:
1. the transfer of systematic knowledge for
the manufacture of a product
2. the application of a process, or rendering of
a service including management contracts;
3. the transfer, assignment or licensing of all
forms of intellectual property rights,
including licensing of computer software
except computer software developed for
mass market. [Sec. 4.2, RA 8293]
2.
3.
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]
b.
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
c.
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]
161
162
a.
b.
c.
d.
e.
A useful machine;
An implement or tool;
A product or composition;
A method or process; or
An improvement of any of the foregoing.
[Rule 201, Rules and Regulations on Utility
Models and Industrial Designs as amended]
2.
3.
4.
5.
6.
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]
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
ii.
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]
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]
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:
a.
b.
c.
Notice of Hearing
163
164
c.
d.
e.
2.
3.
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.
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
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)]
165
166
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]
d. Criminal
Action
infringement
for
Defenses
in
infringement
action
for
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:
included in
a.
b.
repeated
d.
i.
j.
k.
l.
Prohibited clauses
The following provisions shall be deemed prima facie
to have an adverse effect on competition and trade:
a.
b.
c.
d.
e.
f.
g.
h.
o.
167
168
Exceptional cases
a.
b.
g.
h.
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]
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.
b.
c.
d.
e.
f.
Requirement to Obtain a
Reasonable Commercial Terms
License
on
b.
c.
d.
e.
f.
e.
III. Trademarks
169
170
Service Mark
Any visible sign capable
of distinguishing the
services of an enterprise
from the service of other
enterprises.
1.
3.
Functions of a Trademark
1.
2.
3.
4.
5.
2.
4.
5.
C. Acquisition of Ownership of
Trade Name
B. Acquisition of Ownership of
Marks
D. Non-registrable Marks
A mark cannot be registered if it:
1.
2.
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]
3.
4.
5.
6.
7.
8.
9.
2. Dominancy test
Infringement is determined by the test of
dominancy rather than by differences or variations
171
172
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.
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]
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
1.
2.
3.
4.
G. Rights Conferred by
Registration
Except in cases of importation of drugs and
medicines allowed under Section 72.1 of this Act and
of off-patent drugs and medicines, the owner of a
registered mark shall have the exclusive right to
prevent all third parties not having the owner's
consent from using in the course of trade identical
or similar signs or containers for goods or services
which are identical or similar to those in respect of
which the trademark is registered where such use
would result in a likelihood of confusion. In case of
the use of an identical sign for identical goods or
services, a likelihood of confusion shall be
presumed. [Sec. 147.1, RA 8293 as amended by RA
9502]
2.
5.
173
I. Cancellation of Trademark
174
2.
False
Designations
of
Origin;
Description or Representation
False
b.
Marks
of
2. Actions, Damages
for Infringement
and Injunction
175
176
Unfair Competition
False designation of origin
description [Sec. 160. RA 8293]
or
4. Limitations
to
infringement
actions
false
d.
for
b.
c.
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.
b.
Unfair Competition
passing off of ones
goods
as
those
of
another
Fraudulent
intent
is
essential
registration
is
not
necessary
Fraudulent
intent
is
unnecessary
prior registration of the
trademark
is
a
prerequisite
to
the
action
[Del Monte Corporation, et al. v. CA (1990)]
L. Trade Names
Names
and
Business
177
178
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]
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
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]
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.
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.
c.
d.
Pleadings;
e.
179
180
3.
4.
Useful articles
b.
c.
d.
e.
f.
g.
on
Ownership
of
181
182
4.
5.
6.
7.
4. Neighboring Rights
Performers Rights
1.
1.
2.
3.
4.
3.
2.
3.
E. Rules
on
Copyright
Ownership
Single Creator of an
Original Work
Works
of
Authorship
Joint
Work commissioned
by a person other
than the employer
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]
183
Work
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]
of
1. Ownership of Copyright
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)]
Ownership
Letters
Anonymous and
pseudonymous works
184
Collective works
2.
Duration of Copyright
Works
Original
Literary
and
Artistic Works including
Posthumous Works
Derivative Works including
Posthumous Works
Joint Authorship
Anonymous
Pseudonymous Works
or
Applied Art
Published
Works
Photographic
Unpublished Photographic
Works
Published Audio-visual
Works
Unpublished Audio-visual
Works
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]
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
F. Deposit
Materials
on
Copyrightable
G. Limitations on Copyright
b.
c.
d.
of
the
185
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,
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
186
a.
b.
c.
b.
c.
d.
e.
f.
g.
h.
i.
j.
187
188
a. Remedies
Nature
Civil
Criminal
Administrative
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]
Trial/Hearing
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]
189
190
V. Registration Flowcharts
A. Patent Application
B. Utility Model and Industrial Design
C. Copyright Registration and Deposit
D. Trademark
A. Patent Application
Formality Examination
Classification and Search
Decision to Grant
Patent
Publication of Patent in
the IPO Gazette
Issuance of Patent
Certification
Final Refusal
Court of Appeals
Refusal
Appeal to Supreme Court
Refusal
191
Application is Received
Application is Received
Application is subjected to
Formality Examination
Application is Formal
With Response
Application is recommended
for Publication
Application Deemed
Withdrawn
Opposition Filed
Directors Request
No Response
Application is published
BOP Director
No Opposition Filed
BOP Director
Decision
Application is
Refused
Application is
Affirmed for
Registration
Appeal on the Decision of
the Director
Director General
Decision
Application is
Refused
Application is
Affirmed for
Registration
Registrability Report
192
C. Copyright Registration and Deposit [Source: IPOPHL Office Order No. 93 Series of 2011]
193
Filing of Application
Requirements [Sec.
124, RA 8293]
According of Filing or
Priority
Search and Examination
Actions and
Responses
Allowance for Publication
Certificate of Registration [Sec.
138, RA 8293]
Prima Facie evidence of:
1. Validity of registration
2. Registrants ownership of the
mark
3. Registrants exclusive right to
use the same in connection with
the goods or services and those
that are related thereto
Publication
YES
NO
Issuance of Certificate of
Registration
Is there an
opposition?
Opposition
Decision
Publication
YES
Favorable to
Applicant
NO
Motion for Reconsideration or
Appeal to the Director General