Professional Documents
Culture Documents
UP Bar Reviewer 2013 Mercantile Law
UP Bar Reviewer 2013 Mercantile Law
Basic Principles
of Letter of Credit ................... 3
Remedies Available................ 7
Kinds of Negotiable
Instruments............................12
PROMISSORY NOTE ....................................................12
KINDS OF PROMISSORY NOTES.............................................12
BILL OF EXCHANGE.....................................................12
KINDS OF BILLS OF EXCHANGE .............................................12
Signature................................13
SIGNING IN TRADE NAME ........................................... 13
SIGNATURE OF AGENT ............................................... 13
SIGNATURE PER PROCURATION ........................................... 13
LIABILITY........................................................................ 13
INDORSEMENT BY MINOR OR CORPORATION .......... 14
FORGERY ................................................................... 14
PERSONS PRECLUDED FROM SETTING UP DEFENSE OF FORGERY . 14
RULES ON FORGERY ......................................................... 14
ACCEPTANCE AND PAYMENT UNDER MISTAKE ........................ 15
WHEN DRAWEE MAY RECOVER FROM DRAWED ....................... 15
WHEN DRAWEE MAY NOT RECOVER FROM HOLDER .................. 15
BETWEEN DRAWEE BANK AND COLLECTING BANK .................... 15
Consideration ....................... 16
Accommodation Party ......... 16
LIABILITY ................................................................... 16
ACCOMMODATION PARTY AS SURETY ...................... 16
Negotiation ........................... 16
Warehousemans Lien............ 7
NEGOTIATION DISTINGUISHED
FROM ASSIGNMENT .................................................. 16
MODES OF NEGOTIATION .......................................... 16
BY DELIVERY .................................................................. 16
BY INDORSEMENT COMPLETED BY DELIVERY............................ 17
Definition ................................. 9
Forms and Interpretation ...... 9
Notice of Dishonor................ 21
PARTIES TO BE NOTIFIED ..........................................22
PARTIES WHO MAY GIVE NOTICE OF DISHONOR .......22
EFFECT OF NOTICE .....................................................22
FORM OF NOTICE .......................................................22
WAIVER ......................................................................22
DISPENSATION WITH NOTICE ....................................22
EFFECT OF FAILURE TO GIVE NOTICE ........................22
Discharge of
Negotiable Instrument ........22
DISCHARGE OF NEGOTIABLE INSTRUMENT .............. 23
BY PAYMENT IN DUE COURSE .............................................. 23
BY INTERNATIONAL CANCELLATION ...................................... 23
BY OTHER ACTS THAT DISCHARGE A SIMPLE CONTRACT
FOR PAYMENT OF MONEY ................................................... 23
BY REACQUISITION OF PRINCIPAL DEBTOR IN HIS OWN RIGHT ...... 23
BY MATERIAL ALTERATION ................................................. 23
Acceptance .......................... 24
DEFINITION ............................................................... 24
MANNER ................................................................... 24
EXPRESS ACCEPTANCE ..................................................... 24
IMPLIED ACCEPTANCE ...................................................... 24
TIME FOR ACCEPTANCE ............................................ 24
RULES GOVERNING ACCEPTANCE ............................ 24
Presentment
for Acceptance ......................25
TIME/PLACE/MANNER OF PRESENTMENT ............... 25
WHEN MADE .................................................................. 25
HOW MADE .................................................................... 25
EFFECT OF FAILURE TO MAKE PRESENTMENT ......... 25
DISHONOR BY NON-ACCEPTANCE ............................ 25
Rescission of Insurance
Contracts ............................... 41
CONCEALMENT ......................................................... 41
DEFINITION .................................................................... 41
PROOF OF FRAUD IN CONCEALMENT ..................................... 41
TEST OF MATERIALITY....................................................... 41
EFFECTS OF CONCEALMENT ............................................... 41
CONCEALMENT IN MARINE INSURANCE V. ORDINARY INSURANCE 42
NON-MEDICAL INSURANCE ................................................ 42
MATTERS WHICH NEED TO BE DISCLOSED
EVEN IN THE ABSENCE OF INQUIRY ....................................... 42
MATTERS WHICH DO NOT NEED TO BE DISCLOSED .................... 42
MISREPRESENTATION/OMISSIONS .......................... 42
DEFINITION .................................................................... 42
KINDS OF REPRESENTATIONS ............................................. 43
REQUISITES OF MISREPRESENTATION ................................... 43
PROOF OF FRAUD IN MISREPRESENTATION ............................ 43
TEST OF MATERIALITY....................................................... 43
WHEN MISREPRESENTATION IS MADE ................................... 43
EFFECT OF MISREPRESENTATION......................................... 43
CONCEALMENT V. MISREPRESENTATION ............................... 43
BREACH OF WARRANTIES ......................................... 43
PURPOSE OF WARRANTIES ................................................ 43
KINDS OF WARRANTIES ..................................................... 43
CHARACTERISTICS ........................................................... 44
EFFECT OF BREACH OF WARRANTY....................................... 44
WARRANTIES IN FIRE INSURANCE ........................................ 44
WARRANTY V. REPRESENTATION ........................................ 44
Claims Settlement
and Subrogation.................. 44
CONCEPT OF LOSS ..................................................... 44
DEFINITION .................................................................... 44
CAUSES OF LOSS ............................................................. 44
LIABILITY FOR LOSS .......................................................... 44
REQUISITES FOR RECOVERY FROM INSURANCE ....................... 45
NOTICE AND PROOF OF LOSS.................................... 45
NOTICE OF LOSS .............................................................. 45
FORM OF NOTICE ............................................................. 45
PROOF OF LOSS .............................................................. 45
FORM OF PROOF ............................................................. 45
GUIDELINES ON CLAIMS SETTLEMENT ..................... 45
HOW CLAIMS ARE PAID/SETTLED ........................................ 45
UNFAIR CLAIMS SETTLEMENT; SANCTIONS............................. 46
PRESCRIPTION OF ACTION ................................................. 46
SUBROGATION ................................................................ 46
THE INSURANCE COMMISSIONER ......................................... 47
TRANSPORTATION LAWS
KINDS .......................................................................... 61
SIMPLE AVERAGE ............................................................ 61
GENERAL AVERAGE .......................................................... 61
COLLISION ..................................................................... 62
CORPORATION CODE
Corporation ........................... 67
DEFINITION ............................................................... 67
ATTRIBUTES OF THE CORPORATION ........................ 67
AN ARTIFICIAL BEING ........................................................ 67
CREATED BY OPERATION OF LAW ......................................... 67
HAS THE RIGHT OF SUCCESSION .......................................... 67
HAS THE POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE ............... 67
Nationality of Corporations 69
CHARTER PARTIES.................................................... 59
BAREBOAT/DEMISE CHARTER ............................................ 60
TIME CHARTER ............................................................... 60
VOYAGE/TRIP CHARTER ................................................... 60
LIABILITY OF SHIP OWNERS
AND SHIPPING AGENTS ............................................ 60
LIABILITY FOR ACTS OF CAPTAIN ......................................... 60
EXCEPTIONS TO LIMITED LIABILITY ....................................... 61
ACCIDENTS AND DAMAGES
IN MARITIME COMMERCE .......................................... 61
AVERAGES ..................................................................... 61
Corporate Juridical
Personality ............................70
Incorporation
and Organization................... 71
PROMOTER................................................................. 71
LIABILITY OF PROMOTER .................................................... 71
GENERAL POWERS,
THEORY OF GENERAL CAPACITY ............................... 75
SPECIFIC POWERS,
THEORY OF SPECIFIC CAPACITY................................. 75
EXTEND OR SHORTEN THE CORPORATE TERM ......................... 75
INCREASE OR DECREASE CAPITAL STOCK ............................... 75
INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS ............. 75
DENY PREEMPTIVE RIGHT................................................... 76
SELL OR DISPOSE OF SUBSTANTIALLY ALL ITS ASSETS ............... 76
ACQUIRE ITS OWN SHARES ................................................. 76
INVEST IN ANOTHER CORPORATION OR BUSINESS .................... 76
DECLARE DIVIDENDS ........................................................ 76
ENTER INTO MANAGEMENT CONTRACTS ................................ 76
ULTRA VIRES ACTS ........................................................... 77
DOCTRINE OF INDIVISIBILITY OF SUBSCRIPTION ....................... 77
HOW EXERCISED ........................................................ 77
BY THE SHAREHOLDERS..................................................... 77
BY THE BOARD OF DIRECTORS .............................................78
BY THE OFFICERS .............................................................78
TRUST FUND DOCTRINE ............................................78
Board of Directors
and Trustees ......................... 79
DOCTRINE OF CENTRALIZED MANAGEMENT ............ 79
BOARD IS SEAT OF CORPORATE POWERS ............................... 79
PRINCIPLE ON DELEGATION OF BOARD POWERS ..................... 80
BUSINESS JUDGMENT RULE ..................................... 80
CONSEQUENCES OF THE BUSINESS JUDGMENT RULE ................ 80
REMEDIES IN CASE OF MISMANAGEMENT .............................. 80
TENURE, QUALIFICATIONS AND DISQUALIFICATIONS
OF DIRECTORS OR TRUSTEES................................... 80
TENURE........................................................................ 80
QUALIFICATIONS .............................................................80
DISQUALIFICATIONS ......................................................... 81
ELECTIONS ................................................................ 81
CUMULATIVE VOTING........................................................ 81
STRAIGHT VOTING ........................................................... 81
QUORUM ....................................................................... 81
REMOVAL .................................................................. 81
FILLING OF VACANCIES ............................................. 81
VACANCY BY REMOVAL, BY EXPIRATION OF TERM,
OR WHEN THE REMAINING DIRECTORS
DO NOT CONSTITUTE A QUORUM .........................................
VACANCY BY REASON OF INCREASE IN THE NUMBER
OF THE DIRECTORS/TRUSTEES ...........................................
VACANCY BY OTHER CAUSES...............................................
81
81
81
COMPENSATION ........................................................ 81
COMPENSATION OF DIRECTORS AS CORPORATE OFFICERS ......... 81
FIDUCIARY DUTIES AND LIABILITY RULES ................ 82
DUTIES ......................................................................... 82
SOLIDARY LIABILITY FOR DAMAGES ...................................... 82
LIABILITY FOR WATERED STOCKS ......................................... 82
PERSONAL LIABILITIES ...................................................... 82
SPECIAL FACTS DOCTRINE ................................................. 83
RESPONSIBILITY FOR CRIMES ................................... 83
INSIDE INFORMATION ............................................... 83
CONTRACTS............................................................... 83
BY SELF-DEALING DIRECTORS WITH THE CORPORATION ............ 83
BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS....... 84
MANAGEMENT CONTRACTS ................................................ 84
EXECUTIVE COMMITTEE ............................................ 84
CREATION ..................................................................... 84
LIMITATION ON ITS POWERS ............................................... 84
MEETINGS.................................................................. 84
REGULAR OR SPECIAL ....................................................... 84
WHO PRESIDES ............................................................... 84
QUORUM ....................................................................... 84
RULE ON ABSTENTION ...................................................... 84
Stockholders
and Members ....................... 85
RIGHTS OF STOCKHOLDERS AND MEMBERS ............ 85
DOCTRINE OF EQUALITY OF SHARES ..................................... 85
PARTICIPATION IN MANAGEMENT ............................ 85
PROXY .......................................................................... 85
VOTING TRUST ................................................................ 86
CASES WHEN STOCKHOLDERS ACTION IS REQUIRED ................ 86
PROPRIETARY RIGHTS .............................................. 88
RIGHT TO DIVIDENDS ........................................................ 88
RIGHT OF APPRAISAL ....................................................... 88
RIGHT TO INSPECT ........................................................... 89
PRE-EMPTIVE RIGHT ........................................................ 89
RIGHT TO VOTE ............................................................... 90
RIGHT OF FIRST REFUSAL .................................................. 90
REMEDIAL RIGHTS .................................................... 90
INDIVIDUAL SUIT ............................................................. 90
REPRESENTATIVE SUIT ..................................................... 90
DERIVATIVE SUIT ............................................................. 90
OBLIGATIONS OF A STOCKHOLDER .......................... 91
LIABILITY TO THE CORPORATION FOR UNPAID SUBSCRIPTION ..... 91
LIABILITY TO THE CORPORATION FOR INTEREST
ON UNPAID SUBSCRIPTION IF SO REQUIRED BY THE BY-LAWS ..... 91
LIABILITY FOR WATERED STOCKS ......................................... 91
LIABILITY FOR DIVIDENDS UNLAWFULLY PAID ......................... 92
92
MEETINGS ................................................................. 92
REGULAR OR SPECIAL ...................................................... 92
WHO CALLS THE MEETINGS................................................ 92
QUORUM ...................................................................... 93
MINUTES OF THE MEETINGS ............................................... 93
Dissolution
and Liquidation................... 100
MODES OF DISSOLUTION......................................... 100
VOLUNTARY ................................................................. 100
INVOLUNTARY .............................................................. 100
METHODS OF LIQUIDATION ......................................101
BY THE CORPORATION ITSELF ............................................101
CONVEYANCE TO A TRUSTEE WITHIN A 3-YEAR PERIOD .............101
BY MANAGEMENT COMMITTEE OR REHABILITATION RECEIVER ... 102
LIQUIDATION AFTER 3 YEARS ............................................ 102
Mergers
and Consolidations ............ 108
DEFINITION AND CONCEPT ..................................... 108
CONSTITUENT V. CONSOLIDATED CORPORATION .. 109
PLAN OF MERGER OR CONSOLIDATION .................. 109
ARTICLES OF MERGER OR CONSOLIDATION ........... 109
PROCEDURE ............................................................ 109
EFFECTIVITY ............................................................ 109
LIMITATIONS ........................................................... 109
EFFECTS ................................................................... 110
SECURITIES REGULATION CODE
124
124
124
124
124
HOW THE BSP HANDLES BANKS IN DISTRESS ........ 124
CONSERVATORSHIP ....................................................... 124
RECEIVERSHIP ...............................................................125
LIQUIDATION/CLOSURE ...................................................125
HOW THE BSP HANDLES EXCHANGE CRISIS ............126
LEGAL TENDER POWER ....................................................126
RATE OF EXCHANGE ........................................................126
Law on Secrecy
of Bank Deposits ................ 126
PURPOSE ..................................................................126
PROHIBITED ACTS ....................................................126
DEPOSITS COVERED .................................................126
EXCEPTIONS ............................................................. 127
OTHER EXCEPTIONS ........................................................ 127
NOT CONSIDERED AS EXCEPTIONS ...................................... 127
GARNISHMENT OF DEPOSITS .................................. 128
CONFIDENTIALITY OF FOREIGN
CURRENCY DEPOSITS.............................................. 128
PENALTIES FOR VIOLATION .....................................129
Foreign Currency
Deposit Act ......................... 138
CONFIDENTIALITY.................................................... 138
PRIVILEGES .............................................................. 138
INTELLECTUAL PROPERTY CODE
Trademarks ..........................147
DEFINITION OF MARKS, COLLECTIVE MARKS,
TRADE NAMES.......................................................... 147
MARKS ........................................................................ 147
COLLECTIVE MARKS ....................................................... 148
TRADE NAME................................................................ 148
FUNCTIONS OF A TRADEMARK .......................................... 148
ACQUISITION OF OWNERSHIP OF MARK ................. 148
ACQUISITION OF OWNERSHIP OF TRADENAME ...... 148
NON-REGISTRABLE MARKS .................................... 148
DOCTRINE OF SECONDARY MEANING .................................. 149
PRIOR USE OF MARK AS A REQUIREMENT ............. 149
USE OF MARK AS A REQUIREMENT ..................................... 149
NON-USE OF MARK WHEN EXCUSED ................................... 149
TESTS TO DETERMINE CONFUSING SIMILARITY
BETWEEN MARKS .................................................... 149
DOMINANCY TEST .......................................................... 149
HOLISTIC TEST .............................................................. 149
AS TO THE GOODS OR SERVICES IN CONNECTION WITH WHICH THE
MARKS ARE USED (DODCTRINE OF RELATED GOODS/SERVICES) 149
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LETTERS OF CREDIT
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LETTERS OF CREDIT
(a) First Contract between the party applying for the L/C
(buyer/importer/account party) and the party for whose
benefit the L/C is issued (seller/exporter/beneficiary).
(b) Second Contract between the buyer and the issuing
bank. This contract is sometimes called the "Application
and Agreement" or the "Reimbursement Agreement".
(c) Third Contract between the issuing bank and the seller,
in order to support the contract, under (a) above
(Reliance Commodities v. Daewoo, 1993).
DEFINITION
Letters of credit (L/C) are those issued by one merchant to
another, or for the purpose of attending to a commercial
transaction. (Art. 567, Code of Commerce)
A letter of credit is one whereby one person requests some
other person to advance money or give credit to a third
person, and promises that he will repay the same to the
person making the advancement, or accept the bills drawn
upon himself for the like amount. (Campos, Notes and
Selected Cases on Negotiable Instruments Law)
AS TO REVOCABILITY
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LETTERS OF CREDIT
Basic Principles
of Letter of Credit
DOCTRINE OF INDEPENDENCE
The principle of independence assures the seller or the
beneficiary of prompt payment independent of any breach
of the main contract and precludes the issuing bank from
determining whether the main contract is actually
accomplished or not.
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LETTERS OF CREDIT
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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. A trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a "security
interest" in the goods (Vintola v. IBAA, 1987)
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(2) In case of loss of the goods, documents, instruments Entruster may claim damages from the entrustee
(Sec.10)
(3) In case of failure to turn over proceeds of the sale of the
goods, documents or instruments or to return the same in
case of non-sale - Entruster may file a criminal
complaint for estafa (Art. 315 (b) of the Revised Penal
Code) against the entrustee (Sec. 13)
Warehousemans Lien
A warehouseman shall have a lien on goods deposited or on
the proceeds thereof in his hands:
(1) For all lawful charges for storage and preservation of the
goods;
(2) For all lawful claims for money advanced, interest,
insurance, transportation, labor, weighing, coopering and
other charges and expenses in relation to such goods;
(3) For all reasonable charges and expenses for notice, and
advertisements of sale; and
(4) For sale of the goods where default had been made in
satisfying the warehouseman's lien (Sec. 27)
Notes:
(1) General rule: A warehouseman shall have lien only for
charges for storage of goods subsequent to the date of
the receipt.
(2) 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).
Remedies Available
(1) In case of default or failure of the entrustee to comply with
the trust receipt agreement - Entruster may cancel the
trust receipt agreement, take possession of the goods,
documents, instruments, and sell the same at any
private or public sale at least five days from notice of
intention to sell to the entrustee.
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Definition
Notes:
(1) 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)
(2) 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.
REQUISITES OF NEGOTIABILITY
An instrument to be negotiable must conform to the
following requirements:
(1) It must be in writing and signed by the maker or drawer;
(2) Must contain an unconditional promise or order to pay a
sum certain in money;
(3) Must be payable on demand, or at a fixed or
determinable future time;
(4) Must be payable to order or to bearer; and
(5) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with
reasonable certainty (Sec. 1).
(1) The drawee pays the There is only one act the
payee from his own funds drawee pays directly from
afterwards.
the particular fund indicated.
(2) The drawee pays himself
from the particular fund
indicated.
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Note: Holder may call for payment any time; maker has an
option to pay at any time, and the refusal of the holder to
accept payment will terminate the running of interest, if
any, but the obligation to pay the note remains.
Payable in money
Capable of being transformed into money, since negotiable
instruments are intended to be substitutes for money
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Note: Need not follow the language of the law, but any term
which clearly indicates an intention to conform to the legal
requirements is sufficient.
Notes: 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)
Examples:
(1) Expressed to be so payable - "I promise to pay the
bearer the sum"
(2) Payable to a person named therein or bearer -"Pay to A
or bearer"
(3) Payable to the order of a fictitious person or nonexisting person, and such fact was known to the person
making it so payable - Pay to John Doe or order"
(4) Name of payee does not purport to be the name of any
person "Pay to cash"; "Pay to sundries."
(5) Only or last indorsement is an indorsement in blank.
Examples:
(1) To Juan Cruz and Jose Reyes negotiable
(2) To Juan Cruz or Jose Reyes not negotiable; no
certainty as to drawee
Determination of negotiability: In determining the
negotiability of an instrument, the instrument in its entirety
and by what appears on its face must be considered. It must
comply with the requirements of Sec. 1 of the Negotiable
Instruments Law. (Caltex Phils. v. CA, 1992)
The acceptance of a bill of exchange is not important in the
determination of its negotiability. The nature of acceptance
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Additional Provisions
That Do Not Affect
Negotiability
(1) Non-dating
of
the
instrument
(2) Non-specification
of
value given, or that any
value had been given
(3) Non-specification
of
place where it is drawn or
place where it is payable
(4) Bears a seal
(5) Designation of particular
kind of currency in which
payment is to be made.
(Sec. 6)
Note:
Negotiability
is
affected when instrument
contains a promise or order
to do any act in addition to
the payment of money.
Kinds of Negotiable
Instruments
PROMISSORY NOTE (Sec. 184)
(1) An unconditional promise in writing
(2) Made by one person to another
(3) Signed by the maker
(4) Engaging to pay on demand, or at a fixed or
determinable future time
(5) A sum certain in money to order or to bearer
(6) Where a note is drawn to the maker's own order, it is not
complete until indorsed by him.
Promissory Note
Bill of Exchange
Unconditional promise
Unconditional order
Involves 2 parties
Involves 3 parties
Bill of Exchange
Check
Not necessarily
drawn on It is necessary that a check
a deposit. The drawee need be drawn on a bank deposit.
not be a bank
Otherwise, there would be
fraud.
Death of a drawer of a BOE,
with the knowledge of the
bank, does not revoke the
authority of the drawee to
pay.
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Signature
SIGNATURE OF AGENT
Signature of any party may be made by duly authorized
agent, established as in ordinary agency.
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Exceptions:
(1) Mere addition of words describing him as an agent
without disclosing his principal (Sec. 20)
(2) Where a broker or agent negotiates an instrument
without indorsement, he incurs all liabilities in Sec. 65,
unless he discloses name of principal and the fact that
he is only acting as an agent. (Sec. 69)
FORGERY
Counterfeit making or fraudulent alteration of any writing,
which may consist of:
(1) Signing of anothers name with intent to defraud; or
(2) Alteration of an instrument in the name, amount, name
of payee, etc. with intent to defraud.
RULES ON FORGERY
Promissory note
Order Instrument
Bearer Instrument
(1) Maker is not liable because he never (1) Maker is not liable.
became a party to the instrument.
(2) Indorsers may be made liable to those
(2) Indorsers subsequent to forgery are
persons who obtain title through their
liable because of their warranties.
indorsements.
(3) Party who made the forgery is liable.
(3) Party who made the forgery is liable.
(1) Maker,
payee,
indorser
whose (1) Maker is liable.
signature/s was/were forged, and all (2) Indorser whose signature was forged is not
indorsers preceding the forgery are not
liable to one who is not a HDC provided the
liable.
instrument is mechanically complete before
(2) Indorsers subsequent to forgery are
the forgery.
liable.
(3) Party who made the forgery is liable.
(3) Party who made the forgery is liable.
Bill of exchange
Order Instrument
Drawers signature forged
Bearer Instrument
(1) Drawer is not liable because he was (1) Drawer is not liable.
never a party to the instrument.
(2) Drawee is liable if it paid. Drawee cannot
(2) Drawee is liable if it paid (no recourse to
recover from the collecting bank.
drawer) because he admitted the (3) Party who made the forgery is liable.
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 collecting bank does
not give any warranty re: the drawers
signature. (Associated Bank vs. CA)
(3) Indorsers subsequent to forgery liable
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Consideration
Negotiation
The
transfer
of
the
instrument from one person
to another so as to constitute
the transferee as holder
thereof (Sec.30).
MODES OF NEGOTIATION
BY DELIVERY IF PAYABLE TO BEARER (SEC. 30)
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 (Sec. 29).
Presumption of delivery
(1) 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)
(2) If it is in the hands of a HDC, the presumption is
conclusive (Sec. 16)
LIABILITY
The person to whom the instrument thus executed is
subsequently negotiated has a right of recourse against the
accommodation party in spite of the formers knowledge
that no consideration passed between the accommodation
and accommodated parties (Sec. 29).
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Presumption as to date
(1) Date is not an essential element of negotiability
(2) An undated instrument is considered to be dated as of
the time it was issued
BY INDORSEMENT COMPLETED BY DELIVERY
ORDER (SEC. 30)
IF PAYABLE TO
(2) Non-restrictive
Indorsement
(1) 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
(2) Non-qualified
As to presence/absence of express limitations
(1) Conditional
(a) Additional condition annexed to indorsers liability; such
condition must be expressed
(b) Where an indorsement is conditional, a party required to
pay the instrument may disregard the condition, and
make payment to the indorsee or his transferee, whether
condition has been fulfilled or not.
(c) But any person to whom an instrument so indorsed is
negotiated, will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing
conditionally. (Sec. 39)
Kinds of indorsement
As to manner of future method of negotiation
(1) Special
(a) Specifies the person to whom/to whose order the
instrument is to be payable; indorsement of such
indorsee is necessary to further negotiation.
(b) 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).
(c) An instrument, payable to bearer, and indorsed
specially, may nevertheless be further negotiated by
delivery. (Sec 40)
(2) Unconditional
Other kinds of indorsement
(1) Absolute One by which the indorser binds himself to
pay, upon no other condition than the failure of prior
parties to do so, and of due notice to him of such failure
(2) Joint Where instrument payable to the order of two or
more payees or indorsees not partners, all must indorse,
unless the one indorsing has authority to endorse for the
others (Sec. 41)
(3) Irregular Where a person, not otherwise a party to the
instrument, places thereon his signature in blank before
delivery, he is liable as indorser
As to title transferred
(1) Restrictive Such indorsement either:
(a) Prohibits further negotiation of instrument
(b) Constitutes indorsee as agent of indorser
(c) Vests title in indorsee in trust for another (Sec 36)
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Notes:
(1) An overdue instrument is still negotiable, but it is
subject to the defense existing at the time of the
transfer.
(2) 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)
(3) 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).
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Actual knowledge
What constitutes notice of defect. To constitute notice of an
infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated
must have had actual knowledge of the infirmity or defect, or
knowledge of such facts that his action in taking the
instrument amounted to bad faith. (Sec. 56)
Liabilities of Parties
Defective title
Title is NOT defective when at the time it was negotiated to
him, he had NO notice of:
(1) any infirmity in instrument
(2) any defect in title of person negotiating
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Irregular Indorser
When a person not otherwise a party to an instrument,
places thereon his signature in blank before delivery, he is
liable as an indorser, in accordance with these rules:
(1) Instrument payable to order of 3rd person: liable to
payee and to all subsequent parties
(2) Instrument payable to the order of maker/drawer, or
payable to bearer: liable to all parties subsequent to
maker/drawer
(3) Signs for accommodation of payee: liable to all parties
subsequent to payee (Sec. 64)
INDORSERS
Acceptor
General/
Unqualified Indorser
Drawer
(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;
PAGE 20
Qualified
Indorser
Person Negotiating
by Delivery
UP COLLEGE OF LAW
(5) Drawers
capacity and
authority to
draw the
instrument;
(4) No knowledge
of any fact
which would
impair the
validity of the
instrument or
render it
valueless.
(4) No knowledge
of any fact which
would impair
the validity of
the instrument
or render it
valueless.
Note: Warranty
extends only to
immediate
transferee
Presentment means:
(1) The production of a Bill of Exchange to the drawer or
acceptor for payment; or
(2) The production of a Promissory Note to the party liable
for payment.
DISHONOR BY NON-PAYMENT
The instrument is dishonored by non-payment when:
(1) It is duly presented for payment and payment is refused
or cannot be obtained; or
(2) Presentment is excused and the instrument is overdue
and unpaid (Sec. 83).
Notice of Dishonor
Notice given by holder or his agent to party or parties
secondarily liable that the instrument was dishonored by:
(1) Non-acceptance by the drawee of a bill; or
(2) Non-payment by the acceptor of a bill; or
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Requisites:
(1) Given by holder or his agent, or by any party who may be
compelled by the holder to pay (Sec. 90)
(2) Given to secondary party or his agent (Sec. 97)
(3) Given within the periods provided by law (Sec. 102)
(4) Given at the proper place (Secs. 103 and 104)
EFFECT OF NOTICE
Notice of dishonor is required to charge parties secondarily
liable.
PARTIES TO BE NOTIFIED
(1) Non-acceptance (bill) to persons secondarily liable,
namely, the drawer and indorsers as the case may be
(2) Non-payment (both bill and note) to indorsers
When given
Notice may be given as soon as the instrument is
dishonored (Sec. 102)
Discharge of
Negotiable Instrument
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OTHER GROUNDS
(1)
(2)
(3)
(4)
(5)
(6)
(a)
(b)
By whom made:
(1) payment in due course by or on behalf of principal
debtor
(2) payment in due course by party accommodated where
party is made/ accepted for accommodation
(7)
BY INTENTIONAL CANCELLATION
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Material Alteration
CONCEPT
Any change in the instrument which affects or changes the
liability of the parties in any way.
Any alteration which changes the date, sum payable, time
or place of payment, number of relation of the parties, or
medium of currency of payment where none is specified or
which alters the effect of the instrument in any respect (PNB
v. CA, GR No. L-26001, Oct. 21, 1968)
MANNER
EXPRESS ACCEPTANCE
IMPLIED ACCEPTANCE
Acceptance
DEFINITION
The signification by the drawee of his assent to the order of
the drawer (Sec. 132)
Requisites (Sec. 132):
(1) Must be in writing
(2) Signed by the drawee
(3) Must not express that the drawee will perform his
promise by any other means than the payment of money
Kinds of Acceptance:
(1) General assents without qualification to the order of
the drawer
(2) Qualified which in express terms varies the effect of
the bill as drawn:
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TIME/PLACE/MANNER OF PRESENTMENT
WHEN MADE
Requisites:
(1) By the holder, or by some person authorized to receive
payment on his behalf;
(2) At a reasonable hour on a business day;
(3) At a proper place as herein defined;
(4) To the person primarily liable on the instrument, or if he
is absent or inaccessible, to any person found at the
place where the presentment is made.
(1)
(2)
(3)
(4)
(5)
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Promissory Notes
Checks
DEFINITION
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. (Sec. 185)
Effects:
(1) The check may not be encashed; it may only be
deposited with the bank;
(2) The check may be negotiated only once to a person who
has an account with the bank; and
(3) It serves as a warning to a holder that the check has
been issued for a definite purpose. (Bataan Cigar vs. CA,
1994)
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).
TIME
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INSURANCE CODE
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INSURANCE CODE
Concept of Insurance
CONTRACT OF INSURANCE
INSURANCE
(1)
(2)
(3)
(4)
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.
Notes:
(1) The fact that no profit is derived from the making of
insurance contracts or that no separate or direct
consideration is received shall not be deemed conclusive
to show that the making thereof does not constitute the
doing or transacting of an insurance business (Sec. 2).
(2) According to the case of Philippine Health Care Providers,
Inc. v. CIR (2009), as cited in Sundiang and Aquino:
(a) Contracts of law firm with clients whereby in
consideration of periodical payments, the law firm
promises to represent such clients in all suits for or
against them are NOT insurance contracts.
(b) A contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend
a physician against all suits for damages for malpractice
is one of insurance, and the corporation will be deemed
as engaged in the business of insurance.
(1)
(2)
(3)
(4)
(5)
Payment of Premium
Assumption of Risk: Designated Peril as Cause
Risk of Loss or Damage
Insurable Interest
Risk-Distributing Scheme
Notes:
(1) Payment of Premium
(a) The consideration of the insurance contract
(b) The premium is a ratable consideration
(c) Paid by the insured to a general insurance fund
(d) For the insurers assumption of risk
(2)
(a)
(b)
(c)
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INSURANCE CODE
Characteristics/Nature
of Insurance Contracts
(1) Consensual
(a) It is perfected by the meeting of the minds of the
parties.
(b) There must be concurrence of offer and acceptance.
(c) Unless otherwise stipulated, the policy is not essential to
the existence of the contract. It merely evidences the
terms and conditions thereof. (Campos)
(2) Voluntary
(a) 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.
(b) Exceptions:
(i) Motor vehicles (Sec. 373-389);
(ii) Employees (Art. 168-184, Labor Code); or
(iii) As a condition to granting a license (De Leon).
5) Risk-Distributing Scheme
(a) This assumption of risk is part of a general scheme to
distribute the loss
(b) Among a large number of persons
(c) Exposed to similar risks.
(d) Losses are borne not by the insurer but proportionally by
all those who paid premiums.
(4) Executory
(a) Once the insured pays the premium, the contract
already takes effect.
(b) Synallagmatic and reciprocal such that even if the
contingent event does not occur, the insurer has still
provided protection against the risk.
Classes
(1) Marine
(2) Fire
(5) Aleatory
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(3)
(4)
(5)
(6)
INSURANCE CODE
Suretyship
Life
Compulsory Motor Vehicle Liability Insurance
Casualty
(2)
(a)
(b)
(c)
Notes:
(1) In the absence of stipulation, the risks insured against
are only perils of the sea (Go Tiaco Y Hermanos v. Union
Insurance Society of Canton, 40 Phil. 40).
(2) However, in an all risk policy, all risks are covered unless
expressly excepted. The burden rests on the insurer to
prove that the loss is caused by a risk that is excluded
(Filipino Merchants Insurance Co. v. CA, 179 SCRA 638,
1989)
ABANDONMENT
Definition
Abandonment is the act of the insured by which, after a
constructive total loss, he declares the relinquishment to
the insurer of his interest in the thing insured (Sec. 138)
Condition
Abandonment must be total and absolute and made within
a reasonable time so as to give the insurer the chance to
promptly save, if possible, some part of the property
abandoned by the insured.
Effects
(1) Insurer becomes the owner of the thing abandoned.
(2) If abandonment is not accepted, then the insured can
claim the proceeds or bring the matter before the court.
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INSURANCE CODE
Notes:
(1) A contract of surety becomes an insurance contract only
when authorized to function as an insurance business.
(2) Thus, corporations organized for the purpose of
guaranteeing performance of contractual obligations or
the payment of debts of others are deemed insurance
corporations (Sec. 185) and are thus subject to all the
requirements of the Insurance Code (Campos)
(3) What is unique to a contract of suretyship is that when
the obligee accepts the bond, the bond becomes valid
and enforceable whether or not the premium has been
paid by the obligor (Sec. 177), unlike in an insurance
contract where payment of premium is necessary for the
contract to be valid (Sec. 77)
(4) If the obligee has not yet accepted, then payment of
premium is still necessary for the contract of suretyship
to be valid (Sec. 177)
Friendly Fire
MEASURE OF INDEMNITY
Notes:
(1) 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.
(2) In an open policy, the actual loss, as determined, will
represent the total indemnity due the insured except
only that the total indemnity shall not exceed the total
value of the policy (Devt. Ins. Corp. v. IAC)
SURETYSHIP (Secs 175-178)
DEFINITION
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INSURANCE CODE
Exceptions:
(1) Accidental killing
(2) Self defense
(3) Insanity of the beneficiary at the time he killed the
insured
(4) Negligence (the Code only refers to a willful act)
Note: Conviction of the beneficiary is necessary before his
interest in the insurance policy is forfeited in favor of the
nearest relative of the insured.
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
(1) A species of compulsory insurance that provides for
protection coverage that will answer for legal liability for
losses and damages for bodily injuries or property
damage that may be sustained by another arising from
the use and operation of motor vehicle by its owner.
(2) The Land Transportation Office shall NOT allow the
registration or renewal of registration of any motor
vehicle unless such insurance is obtained (Sec. 376, as
amended by PD 1455).
CLAIMS
rd
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INSURANCE CODE
Indemnity insurance
(1) NO action will lie against the insurer unless brought by
the insured for loss ACTUALLY sustained and paid by
him.
(2) Liability of the insurer attaches only AFTER the insured
has paid his liability to the third party (Campos)
NO ACTION CLAUSE
Insurable Interest
DEFINITION
An insurable interest is that interest which the law requires
the owner of an insurance policy to have in the person or
thing insured, the absence of which renders the contract
void.
Liability insurance
(1) Insurer assumes the obligation to pay the third party in
whose favor the liability of the insured arises.
(2) Liability of the insurer attaches as soon as the liability of
the insured to the third party is established.
(3) Insurer is liable regardless of whether or not the insured
has paid the third party (Campos)
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INSURANCE CODE
Insurance
Takes Effect
Life or Health
Property
Intervening
Period
Loss Occurs
Notes:
(1) The person whose life is insured - the cestui que vie.
(2) Unless the interest of a person insured is susceptible of
exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health
is the sum fixed in the policy (Sec. 183).
CHANGE OF INTEREST
Change of interest means the absolute transfer of the
property insured.
General rule: A change of interest in the thing insured does
not transfer the policy, but suspends the insurance to an
equivalent extent until the interest in the thing and the
interest in the insurance policy are vested in the same
person. (The contract is not rendered void but is merely
suspended) (Sec. 58)
Exceptions:
(1) In life, health, and accident insurance (Sec. 20).
(2) A change of interest in the thing insured after the
occurrence of an injury which results in a loss (Sec. 21)
does not affect the policy
(3) A change in the interest in one or more of several things,
separately insured by one policy (Sec. 22.) A conveyance
of one or more things does not affect the policy with
respect to the others not so conveyed.
(4) A change of interest by will or succession on the death
of the insured (Sec. 23)
(a) The death of the insured does not avoid insurance
policy.
(b) It does not affect the policy except his interest passes to
his heir or legal representative who may continue the
insurance policy on the property by continuing paying
premiums.
(5) A transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly insured,
to the others (Sec. 24).
(a) It does not avoid the insurance.
General rule:
(1) The insured must have pecuniary interest in the life of
another.
(2) In life insurance, unless based on commercial
relationship, the policy owner does not necessarily have
pecuniary interest on the life of the cestui que vie.
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INTEREST IN HEALTH
Notes:
(1) Insurable interest MUST be based on moral and legal
grounds
(2) Such interest exists whenever the insured has a
responsible expectation of deriving benefit from the
continuation of the life of the other person or of
suffering detriment through its termination.
(3) No insurable interest in the life of an illegitimate spouse
(4) CREDITOR may take out insurance on the life of his
debtor. BUT his insurable interest is only up to the
amount of the debt.
(5) ASSIGNEE is not required to have insurable interest in
the life of the insured, for to require such interest in him
is to diminish the investment value of the contract to the
owner. Note, however, that assignment is different from a
change in the designated beneficiary.
(6) When the beneficiary is the PRINCIPAL, ACCOMPLICE,
or ACCESSORY in willfully bringing about the death of
the insured = Interest of beneficiary in life insurance
policy is FORFEITED (Sec. 12).
BENEFICIARY
TRANSFER OF POLICY
Definition
The person who is named or designated in a contract of life,
health, or accident insurance as the one who is to receive
the benefits which become payable, according to the terms
of the contract, intended to be the recipient of the proceeds
or benefits of insurance if the insured risk occurs.
NATURE OF INTEREST
Change in beneficiary
The insured shall have the right to change the beneficiary
he designated in the policy, unless he has expressly waived
this right in said policy (Sec. 11).
In general, the policy owner can change the beneficiary
without the consent of such beneficiary. However, when this
right to change is expressly waived, the consent of the
beneficiary is necessary. This means that despite the waiver,
he can still change the beneficiary provided he obtained the
beneficiarys consent.
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INSURANCE CODE
TRANSFER OF POLICY
Life
Property
Extent
Notes:
(1) A son has no insurable interest over the property of his
father because such is just a mere expectancy and has
no legal basis before he inherits such property.
(2) Insurable interest in property may be based on a
perfected contract of sale, vesting an equitable title
even before delivery of the goods. (Filipino Merchants
Ins. Co. v. CA, 1989)
(3) When the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the
buyer. Insurable interest in property does not imply a
property interest in, or a lien upon, or possession of the
subject matter of the insurance, and neither ownership
nor a beneficial interest is requisite to the existence of
such an interest. Anyone has an insurable interest in
property who derives a benefit from its existence or
would suffer loss from its destruction. (Gaisano Cagayan
Ins. v. Insurance Co. of North America, 2006)
Interest of beneficiary
Must have insurable interest Need not have insurable
over the thing insured
interest over the life of the
insured if the insured himself
secured the policy. But if the
insurance was obtained by
the beneficiary, the latter
must have insurable interest
over the life of the insured.
(Sundiang and Aquino)
TIME OF EXISTENCE
Definition
Double insurance exists where the same person is insured
by several insurers separately in respect to the same subject
and interest (Sec. 93).
Requisites
(1) The same person is insured;
(2) Two or more insurers insuring separately;
(3) The same subject matter;
(4) The same interest insured; and
(5) The same risk or peril insured against
Notes:
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INSURANCE CODE
Different interest
remains
as
is
the
is
not
Over Insurance
Definition
A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or liability
by reason of such original insurance (Sec. 95).
Nature
Reinsurance is a contract of indemnity (Sec. 97). It has been
referred to as an insurance of an insurance. There is no
relationship between the reinsurer of the reinsurance
contract and the insured under the original insurance
contract (See Sec. 98).
Original Insurance Contract vs. Reinsurance Contract
The original insurance contract is separate and distinct from
the reinsurance contract. Insurance contract is independent
from the reinsurance contract.
(1) Insurance - indemnity against damages
(2) Reinsurance- indemnity against liability
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INSURANCE CODE
not become binding until the policy is delivered and the first
premium is paid. (De Leon)
DELAY IN ACCEPTANCE
DELIVERY OF POLICY
PREMIUM PAYMENT
DEFINITION
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INSURANCE CODE
Rescission of Insurance
Contracts
CONCEALMENT
DEFINITION
REFUND OF PREMIUMS
TEST OF MATERIALITY
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INSURANCE CODE
Marine Insurance
Required disclosure
Stricter: state the exact and Substantial truth
whole truth
Effect of concealment
Concealment of certain Any kind of concealment will
matters as provided in Sec. not make the insurer liable.
110 will not entirely avoid the
contract but will merely
exonerate the insurer from
losses resulting from the risk
concealed
- national character of the
insured
- liability of the thing
insured to capture and
detention
- liability to seizure from
breach of foreign laws of
trade
- want
of
necessary
documents
- use of false and simulated
papers
NON-MEDICAL INSURANCE
DEFINITION
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INSURANCE CODE
(1) Affirmative Any allegation as to the existence or nonexistence 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 (Sec. 39). A promissory representation is
substantially a condition or warranty (De Leon).
(3) Oral or written (Sec. 36)
REQUISITES OF MISREPRESENTATION
Life
Property
Who may commit
Act involved
TEST OF MATERIALITY
Passive form
Active form
Insured
withholds
information of material facts
from
the
insurer;
he
maintains silence when he
ought to speak
Materiality
Determined by the same rules
Effect
Same effects on the part of the insured; insurer has right to
rescind
Injured party is entitled to rescind a contract of insurance
on ground of concealment or false representation, whether
intentional or not.
EFFECT OF MISREPRESENTATION
BREACH OF WARRANTIES
PURPOSE OF WARRANTIES
Exceptions:
(1) Incontestability clause;
(2) Misrepresentation AFTER contract takes effect;
(3) Waiver, made by acceptance of insurer of premium
payments despite knowledge of the ground for
rescission (Sec. 45);
(4) A representation of the expectation, belief, opinion, or
judgment of the insured, although false, and even if
material to the risk (Philamcare Health Systems, Inc. v.
CA, 2002).
(5) Representation by insured based on information
obtained from third persons (not his agent), PROVIDED:
(a) the insured has no personal knowledge of the facts;
(b) he believes them to be true; and
KINDS OF WARRANTIES
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INSURANCE CODE
CHARACTERISTICS
Warranty
Representation
Nature
Material warranty
General rule: Violation of a material warranty, or other
material provision of the policy, on the part of EITHER the
insured or insurer, entitles the other to RESCIND (Sec. 74).
Materiality
Presumed material
Must be
material
proved
to
be
Compliance
Must be strictly complied Requires only substantial
with
truth and compliance
Applicability of incontestability clause
Does not apply
Exceptions:
(1) Loss occurs BEFORE the time of performance of the
warranty (Sec. 73)
(2) The performance becomes UNLAWFUL (Sec. 73)
(3) Performance becomes IMPOSSIBLE (Sec. 73)
(4) Waiver or estoppel (Pioneer Insurance & Surety Corp. v.
Yap, 1974; Prudential Guarantee and Assurance, Inc. v.
Trans-Asia Shipping Lines, 2006)
Applies
Claims Settlement
and Subrogation
CONCEPT OF LOSS
Immaterial warranty
General rule: Breach of an immaterial provision does not
avoid the policy (Sec. 75).
DEFINITION
CAUSES OF LOSS
Remote Cause
Proximate Cause
Immediate Cause
An
event
preceding another
in a causal chain,
but
separated
from it by other
events
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INSURANCE CODE
In fire insurance
Required
PROOF OF LOSS
FORM OF PROOF
Exceptions:
(1) For both notice and proof of loss, waiver of:
(a) Defects Defects in a notice or proof of loss may be
waived when such defects, which the insured might
remedy, are not specified, without unnecessary delay, to
him as ground of objection by the insurer (Sec. 90).
(b) Delay in presentation Delay in the presentation to an
insurer of notice or proof of loss is waived if caused by
any act of his, or if he omits to take objection promptly
and specifically upon that ground.
(2) For notice of loss, a formal notice of loss is not necessary
if insurer has actual notice of loss already.
FORM OF NOTICE
Claims
Maturity
Life Insurance
Either (Sec. 180):
(1) Upon death of the person insured;
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Non-Life Insurance
(1) Upon happening of event insured
against
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Rules:
(1) In the ABSENCE of an express stipulation in the policy, it
being based on a written contract, the action prescribes
in 10 years (Article 1144, Civil Code).
(2) However, the parties may validly agree on a shorter
period provided it is not less than one year from the time
the cause of action accrues (Sec. 63).
SUBROGATION
Definition
Subrogation is a process of legal substitution; the insurer,
after paying the amount covered by the insurance policy,
steps into the shoes of the insured and avails himself of the
latter's rights that exist against the wrongdoer at the time
of loss.
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Rules:
(1) Subrogation does NOT require a formal assignment or
an express stipulation in the policy, because it is a legal
effect of payment by the insurer.
(2) The insurer can only recover from the third person what
the insured COULD HAVE recovered. Thus, there can be
no recovery if the insurer voluntarily paid even if the loss
is not covered by the policy.
(3) The insured can no longer recover from the offended
party what was paid to him by the insurer but he can
recover any deficiency IF the damages suffered are more
than what was paid. The deficiency is not covered by the
right of subrogation.
(4) The insurer must present the policy as evidence to
determine the extent of its coverage (Wallen Phil.
Shipping v. Prudential Guarantee, 2003).
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TRANSPORTATION LAWS
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TRANSPORTATION LAWS
Common Carriers
Availability
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TRANSPORTATION LAWS
REASONS
Diligence required
Extraordinary diligence
Ordinary diligence
GOODS
General rule:
(1) Common carriers are responsible for the loss,
destruction, or deterioration of the goods. (Art. 1734) In
fact, they are liable even in those cases where the cause
of the loss or damage is unknown. (Agbayani)
(2) Cause of action: breach of contract (culpa contractual)
(3) Moreover, if the goods are lost, destroyed, or
deteriorated, common carriers are presumed to have
been at fault or to have acted negligently. (Art 1735)
Governing law
(1) Civil Code
Obligations and contracts
(2) Code of Commerce and
special laws: If not
regulated by the Civil
Code,
rights
and
obligations of common
carriers shall be governed
by
the
Code
of
Commerce
and
by
special laws (Art.1766
Civil Code).
(3) Law of the country to
which the goods are to
be
transported,
IF
regarding liability for
loss, destruction, or
deterioration of goods
Regulation
A public service, therefore Not subject to regulation as
subject to regulation
a common carrier
PASSENGERS
General rule:
Art. 1755, Civil Code. A common carrier is bound to carry the
passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.
DILIGENCE REQUIRED
Extraordinary diligence
DEFINITION
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TRANSPORTATION LAWS
PRESUMPTION OF NEGLIGENCE
KABIT SYSTEM
Requisites:
(a) The act of the public enemy was committed either in an
international or civil war. (Art. 1734)
(b) The act of the public enemy must have been the
proximate and only cause (Art. 1739)
(c) The common carrier must exercise due diligence to
prevent or minimize the loss before, during and after the
act of the public enemy causing the loss, destruction or
deterioration of the goods. (Art. 1739)
Thus, for the safety of passengers and the public who may
have been wronged and deceived through the
baneful kabit system, the registered owner of the vehicle is
not allowed to prove that another person has become the
owner so that he may be thereby relieved of responsibility.
Requisites:
(a) The natural disaster must have been the proximate and
only cause of the loss (Art 1739)
(b) The common carrier must exercise DUE diligence to
prevent or minimize the loss before, during and after the
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TRANSPORTATION LAWS
Requisites:
(1) The loss, destruction, or deterioration of the goods is
due to the character of the goods or defects in the
packing or in the containers (Art 1739)
(2) The common carrier must exercise due diligence to
forestall or lessen the loss (Art 1739)
Damage
When to Claim
Art. 1739, Civil Code. In order that the common carrier may be
exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or
minimize loss before, during and after the occurrence of
flood, storm or other natural disaster in order that the
common carrier may be exempted from liability for the loss,
destruction, or deterioration of the goods. The same duty is
incumbent upon the common carrier in case of an act of the
public enemy referred to in Article 1734, No. 2.
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.
DURATION OF LIABILITY
When is the contract of transportation perfected? A contract
of transportation is consensual in nature; therefore it is
perfected upon the meeting of the minds of the parties.
(Art. 1305)
Art. 1739, Civil Code. In order that the common carrier may be
exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss.
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Basis: Art. 1530, Civil Code. When the buyer of the goods
becomes insolvent, the unpaid seller who has parted with
the possession of the goods at any time while they are in
transit, may resume the possession of the goods as he
would have had if he had never parted with the possession.
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VOID STIPULATIONS
Art. 1734, Civil Code. A contract fixing the sum that may be
recovered by the owner or shipper for the loss, destruction or
deterioration of the goods is VALID if it is reasonable and just
under the circumstances and has been fairly and freely agreed
upon.
There are two requisites that must be fulfilled in order that
the liability of PAL be limited according to the stipulations
behind the ticket stub:
(1) That the contract is just and reasonable under the
circumstances
(2) That the contract was fairly and freely agreed upon (Art.
1750)
The fact that the conditions are printed at the back of the
ticket stub in letters so small that they are hard to read would
not warrant the presumption that plaintiff was aware of
those conditions such that he had fairly and freely agreed
to those conditions. (Shewaram v. PAL, 1966)
While the passenger had not signed the plane ticket, he is
nevertheless bound by the provision thereof; such provisions
have been held to be part of the contract of carriage and
valid and binding upon the passenger regardless of the
latters lack of knowledge or assent to the regulation. It is
what is known as a contract of adhesion wherein one party
imposes a ready-made form of contract on the other. The
one who adheres to the contract is in reality free to reject it
entirely. A contract limiting liability upon an agreed
valuation does not offend against the policy of the law
forbidding one from contracting against his own
negligence. (Ong Yiu v. CA, 1979)
Art. 1751, Civil Code. The fact that the common carrier has no
competitor along the line or route, or a part thereof, to which
the contract refers shall be taken into consideration on the
question of whether or not a stipulation limiting the common
carrier's liability is reasonable, just and in consonance with
public policy.
Kinds of Stripulations Limiting Liability
(Heacock v. Macondray, 42 Phil 205)
Exempting the common carrier from any
and all liability for loss or damage
occasioned by its own negligence
Void
Void
Valid
Valid, if 3
requisites in
Art. 1744 are
satisfied
Void
Void
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Art. 2001, Civil Code. The act of a thief or robber, who has
entered the hotel, is not deemed force majeure, unless it is
done with the use of arms or through an irresistible force.
Safety of Passengers
(Asked in 1997 and 2001)
VOID STIPULATIONS
Art. 1757, Civil Code. The responsibility of a common carrier
for the safety of passengers as required in Articles 1733 and
1755 cannot be dispensed with or lessened by stipulation by
the posting of notices, by statements on tickets, or otherwise.
Art. 1758, Civil Code. When a passenger is carried
gratuitously, a stipulation limiting the common carrier's
liability for negligence is valid, but not for willful acts or gross
negligence.
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ARRIVAL AT DESTINATION
DURATION OF LIABILITY
Art. 17, Warsaw Convention. The carrier is liable for damage
sustained in the event of the death or wounding of a
passenger or any other bodily injury suffered by a passenger,
if the accident which caused the damage so sustained took
place on board the aircraft or in the course of any of the
operations of embarking or disembarking.
EMPLOYEES
Art. 1759, Civil Code. Common carriers are liable for the death
of or injuries to passengers through the negligence or willful
acts of the former's employees, although such employees
may have acted beyond the scope of their authority or in
violation of the orders of the common carriers. This liability of
the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the
selection and supervision of their employees.
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Culpa Contractual
Art. 1759
Carrier is directly
primarily liable
Culpa Aquiliana
(Quasi-Delict)
Art. 2180
and Carrier and employee are
solidarily liable as joint tortfeasors
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TRANSPORTATION LAWS
Liability of Obligor
Only natural and probable
consequences of the breach,
which have could have
reasonably been foreseen
Bill of Lading
THREE-FOLD CHARACTER
(1) Receipt as to the quantity and description of the goods
shipped;
(2) Contract to transport and deliver the goods to the
consignee or other person therein designated, on the
terms specified in such instrument; and
(3) Document of title, which makes it a symbol of the goods
DELIVERY OF GOODS
The goods should be delivered to the consignee or any
other person to whom the bill of lading was validly
transferred or negotiated.
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PERIOD OF DELIVERY
When to Claim
Patent damage
(Ascertainable from
package)
Latent damage
(Only upon opening the
package)
Maritime Commerce
CHARTER PARTIES
What is a charter party? 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.
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BAREBOAT/DEMISE CHARTER
(1) The owner of a vessel and the agent shall be civilly liable
for the acts of the captain and for the obligations
contracted by the latter to repair, equip, and provision
the vessel. (Art. 586, Code of Commerce)
(2) The agent shall also be civilly liable for the indemnities
in favor of third persons which arise from the conduct of
the captain in the care of the goods which the vessel
carried.
(3) Damages to vessel and to cargo due to lack of skill and
negligence.
(4) Losses, fines, and confiscations imposed an account of
violation of customs, police, health, and navigation laws
and regulations.
(5) Those caused by the misuse of the powers.
(6) For those arising by reason of his voluntarily entering a
port other than that of his destination.
(7) For those arising by reason of non-observance of the
provisions contained in the regulations on situation of
lights and maneuvers for the purpose of preventing
collisions. (Art. 618)
VOYAGE/TRIP CHARTER
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TRANSPORTATION LAWS
Thus, the liability of the vessel owner and agent arising from
the operation of such vessel were confined to the vessel
itself, its equipment, freight, and insurance, if any, which
limitation served to induce capitalists into effectively
wagering their resources against the consideration of the
large profits attainable in the trade. (Aboitiz Shipping Corp.
vs. General Accident Fire and Life Assurance Corp. (1993))
AVERAGES
KINDS
SIMPLE AVERAGE
GENERAL AVERAGE
Liability for wages of the captain and the crew and for
advances made by the ship agent if the vessel is lost by
shipwreck or capture (Art. 643, Code of Commerce)
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APPLICATION
Application of laws
(1) If the common carrier is coming to the Philippines:
First: Civil Code
Second: COGSA (in foreign trade)
Third: Code of Commerce
(2) If the private carrier is coming to the Philippines:
First: COGSA
Second: Code of Commerce
Third: Civil Code (excluding rules on common carriers)
(3) If the private or common carrier is from the Philippines
to a foreign country: Apply the law of the foreign country
(Art. 1753, CC) UNLESS the parties make COGSA
applicable.
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
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TRANSPORTATION LAWS
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. (Eastern Shipping vs. IAC, 150 SCRA 463).
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 laws. Thus, the COGSA, which is
suppletory to the provisions of the Civil Code, supplements
the latter by establishing a statutory provision limiting the
carrier's liability in the absence of a shipper's declaration of
a higher value in the bill of lading. In the case before us,
there was no stipulation in the Bill of Lading limiting the
carrier's liability. Neither did the shipper declare a higher
valuation of the goods to be shipped. Petitioners' liability
should be computed based on US$500 per package and
not on the per metric ton price declared in the Letter of
Credit. (Belgian Overseas v. Philippine First Insurance, 2002)
APPLICABILITY
(1) All international carriage of persons, baggage, or cargo
performed by aircraft for reward.
(2) Gratuitous carriage by aircraft performed by an air
transport undertaking (Art. 1, No. 1, WC)
PERIOD COVERED
WILLFUL MISCONDUCT
When can a common carrier not avail itself of this limitation?
(1) Willful misconduct (Art. 25, WC)
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PAGE 66
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CORPORATION CODE
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Corporation
DEFINITION
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, unless otherwise indicated,
all sections cited herein are from B.P. 68, or the Corporation
Code)
Classes of Corporations
Notes:
(1) 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).
(2) 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)
(2) 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)
OTHER CORPORATIONS
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FOREIGN CORPORATION
SUBSIDIARY CORPORATION
The test to determine whether a corporation is governmentowned or controlled, or private in nature, is if a corporation
is created by its own charter for the exercise of a public
function, or by incorporation under the general corporation
law (Baluyot v. Holganza, 2000).
PARENT CORPORATION
CLOSE CORPORATION
CORPORATION DE JURE
A corporation organized
requirements of the law.
accordance
with
the
DE FACTO CORPORATION
EDUCATIONAL CORPORATION
in
corporation
CORPORATION BY ESTOPPEL
ELEEMOSYNARY CORPORATION
DOMESTIC CORPORATION
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Nationality of Corporations
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CORPORATION CODE
GRANDFATHER RULE
Method used to determine the nationality of a corporation,
in cases where corporate shareholders are present in the
situation, by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly
nationalized areas of activities, is computed by attributing
the nationality of second or even subsequent tier ownership
to determine the nationality of the corporate shareholder
(Villanueva).
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LIABILITY OF PROMOTER
Notes:
(a) 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.)
(b) Novation or the intent to novate the original contract is
required to adopt or ratify the pre-incorporation
contract. (Campos, 1990)
(2) Acceptance of benefits under the contract with
knowledge of the terms thereof.
(3) Performance of its obligation under the contract
NUMBER AND QUALIFICATIONS OF INCORPORATORS
(1) Natural Persons
(2) Any number from 5-15
(3) Majority are residents of the Philippines
(4) Each incorporator must own or be a subscriber to at
least 1 share of the capital stock of the corporation (Sec.
10)
CORPORATE NAME LIMITATIONS ON USE
CORPORATE NAME (SEC. 18)
Incorporation
and Organization
PROMOTER
Promoters are persons who, acting alone or with others,
take initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor
(RA 8799, The Securities Regulation Code).
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The Articles must be filed with the SEC for the issuance of
the Certificate of Incorporation.
CONTENTS
Exceptions:
(1) Sooner dissolved
(2) Period extended
(a) For periods not exceeding 50 years in any single
instance by an amendment of the AOI
(b) Extensions may not be made earlier than 5 years prior to
the original or subsequent expiry date(s) EXCEPT if the
SEC determines that there are justifiable reasons for an
earlier extension
SUBSCRIPTION REQUIREMENT
Important for:
(a) determining venue in an action by or against the
corporation, and
(b) determining the province where a chattel mortgage of
shares should be registered (Chua Gan vs. Samahang
Magsasaka, 1935).
ARTICLES OF INCORPORATION
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Limitations
(1) Cannot effect amendment when it will contravene any
provision of requirement imposed by the Code or by
special laws
(2) The amendment must be for a legitimate purpose
(3) Must be approved by the directors/trustees and the
stockholders/members through the vote requirement
(4) Appraisal Right
(5) Both the original and the amended articles together
must contain all the provisions required by law to be set
out in the articles.
(6) If the corporation is governed by a special law the
amended articles must be accompanied by a favorable
recommendation of the appropriate government agency
to the effect that such amendment is in accordance with
law (Lopez, 2004)
(7) Will take effect only
(a) Upon their approval by the SEC by the issuance of a
certificate of amended articles
(b) Or from the date of filing with the SEC if not acted upon
within 6 months from the date of filing for a cause not
attributable to the corporation
Procedure
(1) The original and amended articles together shall
contain all provisions required by law to be set out in the
articles of incorporation
(2) The articles, as amended shall be indicated by
underscoring the change or changes made
(3) A copy shall be submitted to the SEC
(a) Duly certified under oath by the corporate secretary and
a majority of the directors or trustees
(b) Stating the fact that the amendment or amendments
have been duly approved by the required vote of the
stockholders or members
If non-stock corporation
amount of capital
names, nationalities & residences of contributors
amount contributed by each
NON-AMENABLE ITEMS
AMENDMENT
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CORPORATION CODE
BINDING EFFECTS
ONLY from date of issuance of SEC of certification that bylaws are not inconsistent with the Code
Pending approval, they CANNOT bind stockholders or
corporation
AMENDMENT OR REVISION
ADOPTION OF BY-LAWS
WHEN ADOPTION IS MADE (SEC. 46)
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Corporate Powers
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Illegal Acts
Cannot be ratified
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CORPORATION CODE
BY THE OFFICERS
Corporate Officer
Corporate Employee
Exceptions:
(1) Executive Committee duly authorized in the by-laws
(Sec. 35);
(2) A contracted manager which may be an individual, a
partnership, or another corporation.
Note: In case the contracted manager is another
corporation, the special rule in Sec. 44 applies.
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CORPORATION CODE
Board of Directors
and Trustees
DOCTRINE OF CENTRALIZED MANAGEMENT
General rule: Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members
of the corporation, who shall hold office for one (1) year until
their successors are elected and qualified. (Sec. 23)
Exceptions:
(1) In case of an Executive Committee duly authorized in
the by-laws; (Sec. 35)
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Directors shall hold office for one (1) year until their
successors are elected and qualified (Sec. 23).
Term: One (1) year
Tenure: The period within which the director actually holds
office, including the holdover period after the end of his
term.
Exceptions:
(1) When the Corporation Code expressly provides
otherwise
(2) When the Directors or officers acted with fraud, gross
negligence or in bad faith.
(3) When Directors or officers act against the corporation in
conflict of interest situation.(Villanueva)
QUALIFICATIONS
(1) Receivership
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Other requisites:
(1) by a vote of the stockholders holding or representing
2/3 of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of 2/3
of the members entitled to vote
(2) at a regular or special meeting after proper notice is
given
ELECTIONS
FILLING OF VACANCIES
CUMULATIVE VOTING
STRAIGHT VOTING
QUORUM
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CORPORATION CODE
Duty of obedience
The Directors or Trustees and Officers to be elected shall
perform the duties enjoined on them by law and by the bylaws of the corporation (Sec. 25).
Duty of diligence
Directors or trustees who (1) willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or (2)
who are guilty of gross negligence or (3) bad faith in
directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons. (Sec 31)
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)
PERSONAL LIABILITIES
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Note: Members of the BOD who are also officers are held to
a more stringent liability because they are in-charge of dayto-day activities (Campos)
Doctrine of Limited Liability
Doctrine of Immunity
INSIDE INFORMATION
The fiduciary position of insiders, directors, and officers
prohibits them from using confidential information relating
to the business of the corporation to benefit themselves or
any competitor corporation in which they may have a mere
substantial interest.
Note: Insider means: (a) the issuer; (b) a director or officer
(or person performing similar functions) of, or a person
controlling the issuer; (c) a person whose relationship or
former relationship to the issuer gives or gave him access to
material information about the issuer or the security that is
not generally available to the public; (d) a government
employee, or director, or officer of an exchange, clearing
agency and/or self-regulatory organization who has access
to material information about an issuer or a security that is
not generally available to the public; or (e) a person who
learns such information by a communication from any of
the foregoing insiders (3.8, Sec Regulations Code)
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REGULAR OR SPECIAL
MEETINGS
Where (1) and (2) are absent, the contract can be ratified by
the vote of the stockholders representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the members in
a meeting called for the purpose voted to ratify the contract,
provided that:
(a) Full disclosure of the adverse interest of the
directors/trustees involved is made on such meeting;
(b) The contract is fair and reasonable under the
circumstances.
Notice
Notice of regular or special meetings stating the date, time
and place of the meeting must be sent to every director or
trustee at least one (1) day prior to the scheduled meeting,
unless otherwise provided by the by-laws.
A director or trustee may waive this requirement, either
expressly or impliedly
WHO PRESIDES
EXECUTIVE COMMITTEE
CREATION
QUORUM
Exceptions:
(1) Unless the articles of incorporation or the by-laws
provide for a greater majority, or
(2) In case of election of officers where a vote of a majority
of all the members of the board is needed.
RULE ON ABSTENTION
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PARTICIPATION IN MANAGEMENT
PROXY
Section 6 of the Corporation Code also contains a Boardenabling clause that although the default rule is that all
shareholders have equal rights and obligations,
nevertheless, when authorized by the articles of
incorporation, the Board of Directors, may fix the terms and
conditions of preferred shares of stock or any series thereof,
or to classify its shares for the purpose of insuring
compliance with constitutional or legal requirements; but
such terms and conditions shall be effective upon filing of a
certificate thereof with the SEC. Thus, a preference or
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By a majority vote
(a) Power to enter into management contracts (Sec. 44)
VOTING TRUST
Corporate Employee
Trustee-beneficiary
Proxy
cannot
exceed The only limit to authority is
delegated authority.
that the act must be for the
benefit of trustee. (fiduciary
obligation)
Must be in writing
Copy must be filed with the Copy must be filed with SEC
corporation.
and the corporation.
No transfer.
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CORPORATION CODE
When the AOI or the BOD does not provide for the value of
no-par shares, the value of such shares shall be determined
by the stockholders representing at least a majority of the
outstanding capital stock
By a two-thirds vote
(a) Amendment of Articles of Incorporation (Sec. 16)
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(2) The vote of such director was not necessary for the
approval of the contract
(3) The contract is fair and reasonable under the
circumstances
(4) In case of an officer, the contract has been previously
authorized by the BOD.
RIGHT TO DIVIDENDS
Exceptions:
(1) Dividends are revocable if NOT yet announced or
communicated to the stockholders.
(2) Stock dividends, even if already declared, may be
revoked prior to actual issuance since these are not
distributions but merely representations of changes in
the capital structure.
RIGHT OF APPRAISAL
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CORPORATION CODE
RIGHT TO INSPECT
Basis of right
As the beneficial owners of the business, the stockholders
have the right to know the financial condition and
management of corporate affairs.
PRE-EMPTIVE RIGHT
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CORPORATION CODE
INDIVIDUAL SUIT
RIGHT TO VOTE
DERIVATIVE SUIT
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CORPORATION CODE
Jurisdiction over derivative suits lies with the RTC (Sec. 5.2,
Securities Regulation Code)
OBLIGATIONS OF A STOCKHOLDER
LIABILITY TO THE CORPORATION FOR UNPAID SUBSCRIPTION
(SEC. 67)
Notes:
(1) Transfer for consideration of treasury shares is a sale (or
disposition) by the corporation (not subscription). A
transfer of previously issued shares by a stockholder to a
third person is a sale (or disposition). Transfer of
unissued shares is subscription.
(2) Shareholders are not creditors of the corporation with
respect to their shareholdings thereto and the principle
of compensation or set-off has no application.
(3) Subscription contract is NOT required to be in writing.
Definition
These are shares issued as fully paid when in truth no
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:
(1) Issued without consideration (bonus share)
(2) Issued as fully paid when the corporation has received
less sum of money than its par or issued value
(discounted share)
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REGULAR OR SPECIAL
Where?
(1) 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)
(2) Non-stock: Any place even outside the place where the
principal office is located, within the Philippines (Sec.
93)
Notice
Nature of notice (Sec. 50)
(1) 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
(1) Special Meetingwritten notice sent at least 1 week prior
to the meeting, unless otherwise provided in the bylaws.
MEETINGS
General rule: Stockholders or members approval is
expressed in a meeting duly called and held for the
purpose.
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Capital Structure
QUORUM
SUBSCRIPTION AGREEMENTS
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.(Sec. 60).
CHARACTERISTICS
1.
2.
3.
Notes:
(1) Transfer of unissued shares = SUBSCRIPTION
(2) Transfer of already issued shares = NOT
SUBSCRIPTION; can either be:
(a) SALE/DISPOSITION BY CORPORATION of treasury
shares
(b) SALE/DISPOSITION BY STOCKHOLDER TO A THIRD
PERSON
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SHARES OF STOCK
NATURE OF STOCK
Post-incorporation subscription
It is entered into after incorporation.
Unit of interest
corporation
in
Notes:
(1) Shareholders are NOT creditors of the corporation with
respect to their shareholdings thereto and the principle
of compensation or set-off has no application.
(2) Subscription contract is NOT required to be in writing.
WATERED STOCK
Definition
These are shares issued as fully paid when in truth no
consideration is paid in any form, 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:
(1) Issued without consideration (bonus share)
(2) Issued as fully paid when the corporation has received
less sum of money than its par or issued value
(discounted share)
(3) 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
(4) Issue stock dividend when there are no sufficient
retained earnings or surplus to justify it.
LIMITATIONS ON CONSIDERATION
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Classification of shares:
(1) Common shares
(2) Preferred shares
(3) Par value shares
(4) No-par value shares
(5) Founders shares
(6) Redeemable shares
(7) Treasury shares
(8) Convertible shares
(9) Non-voting shares
Preferred shares
Stocks which are given preference by the issuing
corporation in dividends and the distribution of assets of the
corporation in case of liquidation or such other preferences
as may be stated in the AOI which do not violate the
Corporation Code.
Limitations:
(1) Preferred shares can only be issued with par value.
(2) Preferred shares must be stated in the Articles of
Incorporation and in the certificate of stock.
(3) The BOD may fix the terms and conditions only when so
authorized by the AOI and such terms and conditions
shall be effective upon filing a certificate thereof with
the SEC.
Par value shares
These are shares with a stated value set out in the AOI. This
remains the same regardless of the profitability of the
corporation. This gives rise to financial stability and is the
reason why banks, trust corporations, insurance companies
and building and loan associations must always be
organized with par value shares.
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Limitations:
(1) No-par value shares cannot have an issue price of less
than P5.00 per share (Sec. 6).
(2) They shall be deemed fully paid and non-assessable
and the holders of such shares shall not be liable to the
corporation or to its creditors in respect thereto (Sec. 6).
(3) Entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall
not be available for distribution as dividends (Sec. 6).
(4) AOI must state the fact that the corporation issues nopar shares and the number of shares.
(5) Banks, insurance companies, trust companies, building
and loan associations, and public utilities cannot issue
no-par value shares (Sec. 6).
(6) The issued price may be fixed in the AOI, or by the BOD
pursuant to authority conferred upon it by the AOI, or, in
the absence thereof, by majority vote of the outstanding
shares in a meeting called for the purpose (Sec. 62).
Exceptions:
(1) Amendment of the AOI
(2) Adoption and amendment of by-laws
(3) Sale, lease, exchange, other disposition of all or
substantially all of the corporate property
(4) Incurring, creating or increasing bonded indebtedness
(5) Increase or decrease of capital stock
(6) Merger and consolidation
(7) Investment of corporate funds in another corporation or
business
(8) Dissolution of the corporation
Limitations:
(1) Redeemable shares may be issued only when expressly
provided for in the AOI (Sec. 8).
(2) The terms and conditions affecting said shares must be
stated both in the AOI and in the certificate of stock(Sec.
8).
(3) Redeemable shares may be deprived of voting rights in
the AOI.
(4) The corporation is required to maintain a sinking fund to
answer for redemption price if the corporation is
required to redeem.
(5) The redeemable shares are deemed retired upon
redemption unless otherwise provided in the AOI (i.e., if
the AOI allows for reissuance of such shares).
(6) URE is NOT necessary before shares can be redeemed
but there must be sufficient assets to pay the creditors
and to answer for operations (Republic Planters Banks v.
Agana, 1997). Redemption cannot be made if such
redemption will result in insolvency or inability of the
corporation to meet its obligations (SEC Opinion, 24 Aug
1987).
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NOTICE REQUIREMENT
Notes:
(1) Requirements on notice and publication are mandatory.
Lacking such requirements, the stockholder may
question the sale as provided under Sec. 69.
(2) 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.
(3) 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.
(4) 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 stock 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.
CERTIFICATE OF STOCK
NATURE OF THE CERTIFICATE
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.
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UNCERTIFICATED SHARES
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.
Payment Pro-Rata
The entire subscription must be paid first before the
certificates of stock can be issued. Partial payments are to
be applied pro rata to each share of stock subscribed. (Nava
Peers Mktg. Corp. and Fua Cun v. Summers, 1923)
LOST OR DESTROYED CERTIFICATES
NEGOTIABILITY
Theory of quasi-negotiability
A stock certificate is regarded as quasi-negotiable only in
the sense that it may be transferred by endorsement,
coupled with delivery.
This notwithstanding, it is well-known that the instrument is
non-negotiable, because the holder thereof takes it without
prejudice to such rights or defenses as the registered owner or
creditor may have under the law, except insofar as such
rights or defenses are subject to the limitations imposed by
the principles governing estoppel. Certificates of stock are
not negotiable instruments. Consequently, a transferee
under a forged assignment acquires no title which can be
asserted against the true owner, unless the latters
negligence has been such as to create an estoppel against
him. If the owner of the certificate has endorsed it in blank,
and it is stolen from him, no title is acquired by on innocent
purchaser for value (De los Santos v. Republic, 1955).
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On the other hand, the SEC has opined that the entire
subscription, although not yet fully paid, may be transferred
to a single transferee, who as a result of the transfer must
assume the unpaid balance. It is necessary, however, to
secure the consent of the corporation since the transfer of
subscription rights and obligations contemplates a novation
of contract which under Article 1293 of the Civil Code
cannot be made without the consent if the creditor.
(Villanueva)
CONTENTS
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MODES OF DISSOLUTION
According to some decisions, the method of effecting
dissolution as prescribed by law are exclusive, and a
corporation cannot be dissolved except in the manner
prescribed by law (De Leon)
VOLUNTARY
According to Campos:
(1) If SEC fails to act within 6 months from filing of the
amended AOI and shortened term expires after the 6month period - the corporation will be dissolved upon
the expiration of the shortened term.
(2) If SEC fails to act within 6 months from filing of the
amended AOI and shortened term expires before the 6month period- the corporation will be dissolved at the
end of the 6-month period.
INVOLUNTARY
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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.
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Upon five (5) day's notice, given after the date on which the
right to file objections as fixed in the order has expired, the
Commission shall proceed to hear the petition and try any
issue made by the objections filed; and if no such objection
is sufficient, and the material allegations of the petition are
true, it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires,
and may appoint a receiver to collect such assets and pay
the debts of the corporation (Sec. 119)
Other Corporations
CLOSE CORPORATIONS
A close corporation is one whose articles of incorporation
provide that:
(1) All the corporation's issued stock of all classes, exclusive
of treasury shares, shall be held of record by not more
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When unnecessary
Any action by the directors of a close corporation without a
meeting shall nevertheless be deemed valid if:
(1) Before or after such action is taken, written consent
thereto is signed by all the directors; or
(2) All the stockholders have actual or implied knowledge
of the action and make no prompt objection thereto in
writing; or
(3) The directors are accustomed to take informal action
with the express or implied acquiescence of all the
stockholders; or
(4) 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)
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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
Close Corporations
Regular Corporations
Management/board authority
All the directors have express or implied knowledge of the Implied ratification may consist of acceptance of benefits from
action in question and none of them makes prompt said unauthorized act while having knowledge of said act
objection thereto in writing.
Failure to give notice would render a meeting voidable.
If a director's meeting is held without proper call or notice, an
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action taken therein within the corporate powers is deemed Attendance to a meeting despite want of notice will be deemed
ratified by a director who failed to attend, unless he promptly implied waiver
files his written objection with the secretary of the corporation
after having knowledge thereof.
All proceedings had and any business transacted at any
meeting of the stockholders or members, if within the powers or
authority of the corporation, shall be valid even if the meeting
be improperly held or called, provided all the stockholders or
members of the corporation are present or duly represented at
the meeting. (51)
Voting/quorum
No share may be deprived of voting rights, except Preferred or
Redeemable shares, unless otherwise provided by the Code
The AOI may provide for a classification of directors into one or There shall always be a class/series of shares which have a
more classes, each of which may be voted for and elected solely COMPLETE VOTING RIGHTS
by a particular class of stock.
EACH SHARE SHALL BE EQUAL IN ALL RESPECTS TO EVERY
OTHER SHARE, except as otherwise provided in the AOI
For Board of directors, the by-laws or AOI can provide for a
The AOI may provide for a greater quorum or voting greater majority in quorum
requirements in meetings of stockholders or directors than
those provided in this Code.
For stockholders, the AOI can provide for a different percentage
in quorum
Pre-emptive right
Transferability
Restrictions on the right to transfer shares must appear in the
AOI and in the by-laws as well as in the certificate of stock
otherwise the same shall not be binding on any purchaser Restrictions on the right to transfer not allowed
thereof in good faith
Withdrawal right
Any stockholder of a close corporation may, for any reason,
compel the said corporation to purchase his shares at their fair
value, which shall not be less than their par or issued value,
when the corporation has sufficient assets in its books to cover
its debts and liabilities exclusive of capital stock
Any stockholder of a close corporation may, by written petition
to the SEC, compel the dissolution of such corporation
whenever:
a. Any of acts of the directors, officers or those in control
of the corporation is illegal, or fraudulent, or
dishonest, or oppressive or unfairly prejudicial to the
corporation or any stockholder, or
b. Corporate assets are being misapplied or wasted.
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e.
NON-STOCK CORPORATIONS
RELIGIOUS CORPORATIONS
DEFINITION
PURPOSES
(1) Charitable
(2) Religious
(3) Educational
(4) Professional
(5) Cultural
(6) Fraternal
(7) Literary
(8) Scientific
(9) Social
(10) Civic services
(11) Similar purposes, such as chambers or combinations
trade, industry or agriculture
TREATMENT OF PROFITS
FOREIGN CORPORATIONS
Foreign corporations 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).
Order of distribution
(1) All its creditors shall be paid.
(2) Assets held subject to return on dissolution shall be
delivered back to the givers.
(3) Assets held for charitable, religious purposes, etc.,
without a condition for their return on dissolution, shall
be conveyed to one or more organizations engaged in
similar activities as dissolved corporation
(4) All other assets shall be distributed to members, as
provided in the AOI or by-laws (Sec. 94)
Consent
As a rule, a foreign corporation can have no legal existence
or status beyond the bounds of the State or sovereignty by
which it is created or incorporated and organized. It exists
only in contemplation of law and by force of the law and
where that law ceases to operate, the corporation can have
no existence. This principle, however, does not prevent a
corporation from acting in another State or country with the
latters express or implied consent. This is the consent
doctrine which is provided in Sections 125 and 126. But
every power which a corporation exercises as such in
another State depends for its validity upon the laws of the
sovereignty in which it is exercised. A corporation can
exercise none of the functions and privileges conferred by its
charter in another State or country except by the comity and
consent of such State or country. (De Leon)
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Doing Business
(1) Soliciting orders, service contracts, or opening offices;
(2) Appointing representatives, distributors domiciled in the
Philippines or who stay for a period or periods totaling
180 days or more;
(3) Participating in the management, supervision, or control
of any domestic business, firm, entity, or corporation in
the Philippines;
(4) Any act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to some
extent the performance of acts or works or the exercise
of some functions, normally incident to and in
progressive prosecution of the purpose and object of its
organization.
Resident agent
Resident agent is an individual, who must be of good moral
character and of sound financial standing, residing in the
Philippines, or a domestic corporation lawfully transacting
business in the Philippines, designated in a written power of
attorney by a foreign corporation authorized to do business
in the Philippines, on whom any summons and other legal
processes may be served in all actions or other legal
proceedings against the foreign corporation (Sec. 127-128).
PERSONALITY TO SUE
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Status
Consequence
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EFFECTIVITY
Upon issuance of the certificate of merger or consolidation,
such merger or consolidation shall become effective (Sec.
79).
PROCEDURE
(1) The board of each corporation shall draw up a plan of
merger or consolidation.
(2) 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. Holders of non-voting shares
or non-voting members are entitled to vote on the plan
(Sec. 6, par. 6(6))
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.
(3) Articles of Merger or Articles of Consolidation shall be
executed by each of the constituent corporations.
(4) Submission of Four (4) copies of the Articles of Merger
or Articles of Consolidation to the SEC for approval.
Mergers and consolidations of corporations governed by
special laws requires a recommendation from the
appropriate government agency (Sec. 79 (1))
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State Policy
(f) Any class of security with respect to which the SEC finds
that registration is not necessary in the public interest
and for the protection of investors (Sec. 9.2)
Securities Required
to be Registered
General rule: Securities shall not be sold or offered for sale
or distribution to the public within the Philippines, without a
registration statement duly filed with and approved by the
Commission (Sec. 8.1) [N.B. The Securities Regulation Code
(SRC) regulates public offering within the Philippines.]
Exceptions:
(1) Exempt securities (Sec. 9)
(a) Any security issued or guaranteed by the Government of
the Philippines/ its political subdivision or agency/its
instrumentality/ or any person controlled or supervised
thereby; [N.B. Rationale for the exception: The public does
not need protection from the government itself. The
government will always be solvent to pay its obligations
because of its ability to raise revenues through taxation.]
(b) Any security issued or guaranteed by the government of
any country with which the Philippines maintains
diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity: Provided,
That the Commission may require compliance with the
form and content for disclosures the Commission may
prescribe; [Rationale for the exception: This is rooted in
comity among nations.]
(c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory
body; [Rationale: This is not a public offering. Besides,
protection is already afforded by that proper adjudicatory
body and additional SEC protection is not necessary.]
(d) Any security or its derivatives the sale or transfer of
which, by law, is under the supervision and regulation of
the Office of the Insurance Commission, Housing and
Land Use Rule Regulatory Board, or the Bureau of
Internal Revenue. [Rationale: The issuers are
governmental agencies covered by exception (a) above.
SEC protection would be a duplication.]
(e) Any security issued by a bank except its own shares of
stock (Sec. 9.1) [Rationale: Banks are under the
supervision of the Bangko Sentral. SEC protection is a
duplication.]
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SHORT SALES
[N.B. The SEC is regulating transactions wherein the seller
does not yet own or have the securities he is selling. He is
required to show that he has made arrangements to effect
delivery of such securities on settlement date; otherwise, the
sale will not be allowed.]
(1) No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or
deceptive device or contrivance.
(2) 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)
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FRAUDULENT TRANSACTIONS
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
(1) Employ any device, scheme, or artifice to defraud; (Sec.
26.1)
(2) 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)
(3) 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)
INSIDER TRADING
[N.B. What is sought to be addressed here is the asymmetry
in information about a public company (such as a
company listed on the Philippine Stock Exchange) between
insiders and outsiders. Insiders could have material
information not yet known to the public about the company,
and they might use this information to benefit themselves
at the expense of the outsiders or the public. Therefore, they
must not trade in the shares of the company pending the
disclosure of such information to the public.]
Protection of Investors
Notes:
(1) An insider means:
(a) The issuer;
(b) A director or officer (or any person performing similar
functions) of, or a person controlling the issuer; gives or
gave him access to material information about the
issuer or the security that is not generally available to
the public;
(c) A government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material information
about an issuer or a security that is not generally
available to the public; or
(d) A person who learns such information by a
communication from any foregoing insiders (Sec. 3.8)
(2) Material non-public information means:
(a) It has not been generally disclosed to the public and
would likely affect the market price of the security after
being disseminated to the public and the lapse of a
reasonable time for the market to absorb the
information; or
(b) Would be considered by a reasonable person important
under the circumstances in determining his course of
action whether to buy, sell or hold a security (Sec. 27.2)
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To the SEC
Every issuer shall file with the Commission:
(1) Annual Report within one hundred thirty-five (135) days,
after the end of the issuers fiscal year, or such other
time as the Commission may prescribe
(2) 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;
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DISCLOSURE BY INSIDER
LIABILITY OF SELLERS/OFFERORS
Civil Liability
CIVIL LIABILITIES ON ACCOUNT OF FALSE
REGISTRATION STATEMENT (SEC. 56)
Civil liabilities arise when the registration statement or any
part thereof contains on its effectivity:
(1) An untrue statement of a material fact; or
(2) Omission to state a material fact required to be stated
therein or necessary to make such statements not
misleading
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LIABILITY OF AIDER/ABETTOR
PAGE 119
Civil Liability
When the registration statement or any (a) Issuer and every person who signed
part thereof contains on its effectivity:
the registration statement;
(a) An untrue statement of a material (b) Director of/partner in the issuer at the
fact; or
time of the filing of the registration
(b) Omission to state a material fact
statement or any part, supplement or
required to be stated therein or necessary
amendment thereof;
to make such statements not misleading (c) One who is named in the registration
statement as being or about to
become (b);
(d) Auditor/auditing firm named as
having
certified
any
financial
statements used in connection with
the registration statement
or
prospectus;
(e) One who, with his written consent
filed with the registration statement,
has been named as having prepared
or certified any part of the registration
statement/any report or valuation
which is used in connection with the
registration statement;
(f) Selling shareholder who contributed
to and certified as to the accuracy of a
portion of the registration statement;
(g) Underwriter with respect to such
security (Sec. 56.1)
In
Connection
With
Prospectus, (a) Offeror or seller of a security in
Communications and Reports (Sec. 57)
violation of Chapter on Registration
of Securities;
A. Liability of Sellers/Offerors
(b) Offeror or seller of a security,
whether or not exempted by the
provisions of this Code, by means of
a prospectus or other written or oral
communication which includes an
untrue statement of a material fact
or omits to state a material fact
necessary in order to make the
statements, in the light of the
circumstances under which they
were made, not misleading (the
purchaser not knowing of such
untruth or omission).
Fraud in Connection with Securities Any person who engages in any act or
Transactions (Sec. 58)
transaction in violation of Sections 19.2,
20 or 26, or any rule or regulation of the
Commission thereunder
Any person who willfully participates in Any person who shall purchase or sell any
any act or transaction in Section 24 security at a price which was affected by
(Manipulation of Security Prices).
such act or transaction
With Respect to Commodity Futures Any person who engages in any act or Any person sustaining damages as a
Contracts and Pre-need Plans (Sec. 60)
transactions in willful violation of any rule result of such act or transaction (Sec. 60.1)
or regulation promulgated by the
Commission under Section 11 (on
Commodity Future Contracts) or 16 (on
Pre-Need Plans) (Sec. 60.1)
On Account of Insider Trading
A. Liability for non-disclosure
Of Controlling Persons, Aider and Abettor It shall be unlawful for any director or
and Other Secondary Liability
officer of, or any owner of any securities
issued by, any issuer required to file any
B. Liability of Director/Officer for Delay document, report or other information
in the Filing of Required Documents
under this Code or any rule or regulation
of the Commission thereunder, without
just cause, to hinder, delay or obstruct the
making or filing of any such document,
report, or information (Sec. 51.2)
Of Controlling Persons, Aider and Abettor It shall be unlawful for any person to aid,
and Other Secondary Liability
abet, counsel, command, induce or
procure any violation of this Code, or any
C. Liability of Aider/Abettor
rule, regulation or order of the
Commission thereunder (Sec. 51.3)
Every person who substantially assists the
act or omission of any person primarily
liable under Sections 57, 58, 59 and 60 of
this Code, with knowledge or in reckless
disregard that such act or omission is
wrongful, shall be jointly and severally
liable as an aider and abettor for
damages resulting from the conduct of
the person primarily liable (Sec. 51.4)
BUT an aider and abettor shall be liable
only to the extent of his relative
contribution in causing such damages in
comparison to that of the person
primarily liable, or the extent to which the
aider and abettor was unjustly enriched
thereby, whichever is greater (Sec. 51.4)
Note: It shall be unlawful for any person,
directly, or indirectly, to do any act or
thing which it would be unlawful for such
person to do under the provisions of this
Code or any rule or regulation thereunder
(Sec. 51.2)
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BANKING LAWS
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BANKING LAWS
MONETARY BOARD
The body through which the powers and functions of the
Bangko Sentral are exercised (Sec 6, NCBA)
STATE POLICIES
The State shall maintain a central monetary authority that
shall function and operate as an independent and
accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and
credit. (Sec. 1)
SALIENT FEATURES
(1) Assurance of BSP independence by providing for the
majority of the members of the Monetary Board to come
from the private sector. (Sec. 6, NCBA)
(2) The BSP may now concentrate on monetary policy, and
will shed itself of fiscal agency functions and its
responsibilities in respect of finance companies without
quasi-banking functions, which in the past, had
distracted it from its primary function. (Secs. 3, 129, &
130, NCBA)
(3) Provides safeguards to ensure that unlike the old
Central Bank which sustained huge losses, the BSP
would have a positive net income position by the
following provisions:
(a) Capitalization of P50B ; (Sec.2, NCBA)
(b) Maintenance of positive net foreign asset position;
(Sec.71, NCBA)
(c) Charging interests on all loans and advances to banks;
(Sec. 85, NCBA)
(d) Authority to collect interests on loans and advances to
closed financial institutions; and
(e) BSP cant acquire shares in banking enterprise, in
development banking and financing (Sec. 128, NCBA)
COMPOSITION
MEMBERS
PRIMARY OBJECTIVES
DISQUALIFICATIONS
UP COLLEGE OF LAW
BANKING LAWS
in
the
CONSERVATORSHIP
Applicability
(1) 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)
(2) Determination is to be made by the MB on the basis of a
report submitted by the appropriate supervising or
examining department (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)
The appointment of a conservator shall be vested
exclusively in the MB. (Sec. 30)
Powers and duties of a conservator
(1) To take charge of the assets, liabilities, and the
management thereof
(2) To reorganize the management
(3) To collect all monies and debts due said institution, and
(4) To exercise all powers necessary to restore its viability
(5) To report and be responsible to the MB
UP COLLEGE OF LAW
BANKING LAWS
While the Central Bank law gives vast and far reaching
powers to the conservator of a bank, such powers must be
related to the preservation of the assets of the bank, the
reorganization of the management and the restoration of
viability. Such powers cannot extend to the post-facto
repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the
Constitution. (First Philippine International Bank v. CA, 1996)
Remunerations
General rule: The conservator shall receive remuneration in
an amount not to exceed 2/3 of the salary of the president
of the institution in 1 year, payable in 12 equal monthly
payments.
Exception: A conservator connected with the BSP, in which
case said conservator shall not be entitled to receive any
remuneration or emolument. (Sec. 29, NCBA)
RECEIVERSHIP
LIQUIDATION/CLOSURE
Grounds
Whenever the MB finds that a bank or quasi-bank:
(1) 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;
(2) Has insufficient realizable assets, as determined by the
BSP, to meet its liabilities; or
(3) Cannot continue in business without involving probable
losses to its depositors or creditors; or
(4) 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
(1) If a banking institution: the PDIC
(2) 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 conservator is not a
precondition to the designation of a receiver.
Powers and duties of a receiver
(1) Immediately gather and take charge of all the assets
and liabilities of the institution
(2) Administer the assets for the benefit of the creditors
(3) Exercise the general powers of a receiver under the
Revised Rules of Court
(4) Not to pay or commit any act that will involve the
transfer or disposition of any asset of the institution,
except:
(a) Administrative expenditures
(b) Receiver may deposit or place funds in non-speculative
investments
(5) Subject to prior approval of the MB, determine, as soon
as possible, but not later than 90 days from take-over,
UP COLLEGE OF LAW
BANKING LAWS
Law on Secrecy
of Bank Deposits
DEPOSITS COVERED
All peso-denominated deposits of whatever nature with banks
or banking institutions in the Philippines are hereby
considered as of an absolutely confidential nature and may
not be examined. [N.B. The confidentiality of foreigncurrency deposits is governed by the Foreign Currency
Deposit Act.]
RATE OF EXCHANGE
The MB shall:
(1) Determine the exchange rate policy of the country;
(2) Determine the rates at which the Bangko Sentral shall
buy and sell spot exchange;
(3) Establish deviation limits from the effective exchange
rate or rates as it may deem proper.
(4) Determine the rates for other types of foreign exchange
transactions by the BSP, including purchases and sales
of foreign notes and coins.
PAGE 127
UP COLLEGE OF LAW
BANKING LAWS
EXCEPTIONS
(1) Upon written permission of the depositor;
(2) In cases of impeachment;
(3) Upon order of a competent court in cases of:
(a) Bribery;
(b) Dereliction of duty of public officials; or
(4) Where the money deposited or invested is the subject
matter of the litigation. (Sec. 2)
UP COLLEGE OF LAW
BANKING LAWS
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)
CONFIDENTIALITY OF FOREIGN
CURRENCY DEPOSITS
General rule: Foreign currency deposits are confidential.
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
PAGE 129
UP COLLEGE OF LAW
BANKING LAWS
POLICY
To promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy. (Sec.
2)
CLASSIFICATION OF BANKS
UP COLLEGE OF LAW
BANKING LAWS
Universal Bank
Deposit function
General rule: Only a Universal Bank (UB) Commercial Bank
(KB) can accept or create demand deposits.
Powers
(a) Corporate Powers (Sec.
29, GBL)
(b) Banking and Incidental
Powers (Sec. 29, GBL)
(c) Power to Invest in Allied
enterprises (financial or
non-financial) (Sec. 30,
GBL)
CORPORATE POWERS
PAGE 131
UP COLLEGE OF LAW
BANKING LAWS
Types of Deposits
(a) Time Deposit Interest rate stipulated depending on
the number of days. During this period, the money
deposited may not be withdrawn without incurring
penalty. High interest rates.
(b) Savings Deposit Bank pays an interest rate, but not as
high as time deposits.
(c) Demand Deposits/Current Accounts - No interest is
paid by the bank because the depositor can take out his
funds any time. It is called demand deposit because the
depositor can withdraw the money he deposited on the
very same day when he deposited it or at any time
thereafter. (Villanueva, Commercial Law Review, opinion)
Grant of loans
(a) Only in amounts and for the periods of time essential for
the effective completion of the operations to be
financed; and
(b) Consistent with safe and sound banking practices. (Sec.
39)
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)
Purpose of loans
Purpose must be stated in the application and in the
contract between the bank and the borrower. (Sec. 39)
Effect of usage of loan proceeds for purposes other than those
agreed upon with the bank
The bank shall have the right to terminate the loan or other
credit accommodation and demand immediate repayment
of the obligation. (Sec. 39)
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)
A bank cannot lend pesos to a nonresident (BSP Circular
No. 22; Sec. 22, Manual of Regulations on Foreign
Exchange Transactions). (Morales, The Philippine GBL
Annotation)
If there is material misrepresentation, the bank may:
(a) Terminate any loan or other credit accommodation
granted on the basis of said statements; and
(b) Shall have the right to demand immediate repayment or
liquidation of the obligation (Sec. 40)
Limit on loans, credit accommodations and guarantees
Real estate
General rule: Shall not exceed
75% of the appraised value
of the respective real estate
security, plus 60% of the
appraised value of the
insured improvements, and
such loans may be made to
the owner of the real estate
or to his assignees
UP COLLEGE OF LAW
BANKING LAWS
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.
Purpose
A bank must not be allowed to expand the volume of its
loans and investments in a manner that is disproportionate
to its net worth. (MORALES, Phil. Gen. Banking Law)
PAGE 133
UP COLLEGE OF LAW
BANKING LAWS
Effect of non-compliance
(1) The MB may limit or prohibit the distribution of net
profits by such bank and may require that part or all of
the net profits be used to increase the capital accounts
of the bank until the minimum requirement has been
met.
(2) The MB may restrict or prohibit the acquisition of major
assets and the making of new investments by the bank,
with the exception of purchases of readily marketable
evidences of indebtedness of the RP and the BSP and
any other evidences of indebtedness or obligations the
servicing and repayment of which are fully guaranteed
by the RP, until the minimum required capital ratio has
been restored. (Sec. 34, GBL)
Increase of limit
The Monetary Board may increase the limit prescribed by an
additional 10% of the net worth, when:
(1) The additional liabilities of any borrower are adequately
secured by trust receipts, shipping documents,
warehouse receipts or other similar documents
transferring or securing title;
(2) Covering readily marketable, non-perishable goods; and
(3) Which must be fully covered by insurance (Sec. 35.2,
GBL)
Combination of liabilities
The MB may prescribe the combination of the liabilities of
subsidiary corporations or members of the partnership,
association, entity or such individual under certain
circumstances, including but not limited to any of the
following situations:
(1) The parent corporation, partnership, association, entity
or individual guarantees the repayment of the liabilities;
(2) The liabilities were incurred for the accommodation of
the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or
(3) The subsidiaries though separate entities operate
merely as departments or divisions of a single entity.
(Sec. 35.4, 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 damagecontrol 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)
UP COLLEGE OF LAW
BANKING LAWS
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)
RESERVES
Purposes
(1) 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.
(2) As a ready source of funds that will respond to unusually
large number of withdrawals or preterminations of
deposits or deposit-substitutes, taking in the shape of a
bank run. (Morales, The Philippine General Banking Law,
Opinion)
Unified reserve
(1) Statutory or legal and liquidity reserve [N.B. The two
reserves have been combined or unified: 18% for
deposits and deposit substitutes (BSP Circular No. 753
dated March 29, 2012)
(a) For deposit-substitutes evidenced by repurchase
agreements covering government securities: 2% (BSP
Circular No. 444 dated August 18, 2004)
(b) 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 CircularLetter dated June 6, 1997, as cited in MORALES)
(2) Reserve: The required reserves are to be kept in the form
of deposits placed in the banks Demand Deposit
Account with the BSP (BSP Circular No. 753 dated March
29, 2012)
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)
PDIC INSURANCE
LOAN-LOSS PROVISIONING
Partial Insurance
Each depositor is a beneficiary of the insurance for a
maximum amount of P500,000, or its foreign currency
equivalent in the case of an FCDU deposit. (RA 9576, 2009)
Purpose
For effective banking supervision. There is a problem of
mismatch when a loan becomes non-performing. The bank
is paying interest on the money it borrowed from the
depositors or other placers of funds, but is not recouping
that interest from the loan it made. Eventually, the bank
may have to write off loan losses against profits. To cushion
Purpose
Full insurance might encourage risky banking activities. A
limited insurance of bank deposits serves to limit moral
hazard.
PAGE 135
UP COLLEGE OF LAW
BANKING LAWS
(a) Fine: Not less than Fifty thousand pesos (P50,000) nor
more than One hundred thousand pesos (P100,000); or
(b) Imprisonment: Not less than one (1) year nor more than
five (5) years; or
(c) Both fine and imprisonment: in the discretion of the
Court.
(of
allied
enterprises)
Not
exceeding
35% of the net
worth of the bank
The
equity (allied/non-allied) (allied)
exceeding Not
exceeding
investment in any Not
25%
of
the
net
25%
of
the net
one enterprise:
worth of the bank worth of the bank
ADMINISTRATIVE SANCTIONS
FINE/IMPRISONMENT
Criminal sanctions
(1) 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)
PAGE 136
UP COLLEGE OF LAW
BANKING LAWS
The PDIC 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 by the PDIC, in consultation
with the BSP, after due notice and hearing, and
publication of a cease and desist order issued by the
PDIC against such deposit accounts or transactions; and
(4) Deposits that are determined to be the proceeds of an
unlawful activity as defined under Republic Act 9160, as
amended.
PAGE 137
UP COLLEGE OF LAW
BANKING LAWS
EXTENT OF LIABILITY
Mode of payment
Payment of the insured deposits on such closed bank shall
be made by the PDIC 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)
CALCULATION OF LIABILITY
BUT the depositor shall retain his claim for any uninsured
portion of his deposit (Sec. 15).
PAGE 138
UP COLLEGE OF LAW
BANKING LAWS
PRIVILEGES
(1) Tax exemption the FCD, including interests and all
other income or earnings of such deposits, are exempt
from any and all taxes whatsoever if these deposits are
made by non-residents and irrespective of whether or
not the non-residents are engaged in trade or business
in the Philippines (Sec. 6 as amended). Interests on
FCDs of residents are subject to 7.5% withholding tax.
(2) Exemption from attachment, garnishment or any other
order or process of any court, legislative or
administrative body, or government agency whatsoever
(Sec. 8)
BUT all rights of the depositor against the closed bank and
its shareholders or the receivership estate to which the PDIC
may have become subrogated, shall thereupon revert to the
depositor.
Thereafter, the PDIC shall be discharged from any liability
on the insured deposit (Sec. 16(e), as amended).
PAGE 140
COPYRIGHT:
STATE POLICIES
(1) To protect and secure the exclusive rights of scientists,
inventors, artists and other gifted citizens to their
intellectual property and creations, particularly when
beneficial to the people, for such periods as provided in
this Act.
(2) To promote the diffusion of knowledge and information
for the promotion of national development and
progress and the common good.
(3) To streamline administrative procedures of registering
patents, trademarks and copyright, to liberalize the
registration on the transfer of technology, and to
enhance the enforcement of intellectual property rights
in the Philippines. [Sec. 2, RA 8293]
Geographic Indication
One which identifies a good as originating in the territory
of a TRIPS member, or a region or locality in that territory
where a given quality, reputation or other characteristic of
a good is essentially attributable to its geographical origin
[Art. 22, TRIPS Agreement]
DEFINITION:
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)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Copyright;
Related Rights of copyright;
Trademarks and Service Marks;
Geographic Indications;
Industrial Designs;
Patents;
Layout-Designs (Topographies) of Integrated Circuits;
[Sec. 4, RA 8293]
(8) Protection of Undisclosed Information (TRIPS
Agreement).
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]
TRADEMARK
Patents
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]
INVENTION PATENT
Utility
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]
Standards:
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:
(1) 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]
(2) 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]
PAGE 142
OWNERSHIP OF A PATENT
RIGHT TO A PATENT
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 substance, or the mere use of a known
process unless such known process results in a new
product that employs at least one new reactant.
FIRST-TO-FILE RULE
RIGHT OF PRIORITY
NOTICE OF HEARING
The action shall be filed within one (1) year from the date of
publication made in accordance with Sections 44 and 51,
respectively. (Sec. 70, RA 8293)
(b) Where the act is done privately and on a noncommercial scale or for a non-commercial purpose:
Provided, That it does not significantly prejudice the
economic interests of the owner of the patent; [Sec.
72.2, RA 8293 as amended by RA 9502]
CONTRIBUTORY INFRINGER
PRIOR USER
Literal infringement
In using literal infringement as a test, resort must be had in
the first instance to the words of the claim. To determine
whether the particular item falls within the literal meaning
of the patent claims, the court must juxtapose the claims
of the patent and the accused product within the overall
context of the claims and specifications, to determine
whether there is exact identity of all material elements.
[Godinez v. CA (1993)]
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)]
LICENSING
VOLUNTARY
Mandatory Provisions
The following provisions shall be included in voluntary
license contracts:
(1) That the laws of the Philippines shall govern the
interpretation of the same and in the event of litigation,
the venue shall be the proper court in the place where
the licensee has its principal office; [Sec. 88.1, RA 8293]
(n) Those which exempt the licensor for liability for nonfulfillment of his responsibilities under the technology
transfer arrangement and/or liability arising from third
party suits brought about by the use of the licensed
product or the licensed technology; (Sec. 87.14, RA
8293)
COMPULSORY
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
PAGE 147
TRANSMISSION OF RIGHTS:
Trademarks
DEFINITION OF MARKS, COLLECTIVE MARKS, TRADE
NAMES
MARKS
Service Mark
ASSIGNMENT OF RIGHTS
NON-REGISTRABLE MARKS
A mark cannot be registered if it:
(1) Consists of immoral, deceptive or scandalous matter,
or matter which may disparage or falsely suggest a
connection with persons, living or dead, institutions,
beliefs, or national symbols, or bring them into
contempt or disrepute; [Sec 123.1(a), RA 8293]
COLLECTIVE MARKS
TRADE NAME
FUNCTIONS OF A TRADEMARK
PAGE 149
TESTS TO DETERMINE
BETWEEN MARKS
CONFUSING
SIMILARITY
DOMINANCY TEST
HOLISTIC TEST
(1) Goods are related when they belong to the same class
or have the same descriptive properties or physical
attributes, or they serve the same purpose or flow
through the same channel of trade.
(2) The use of identical marks on non-competing but
related goods may likely cause confusion.
(3) Corollarily, the use of identical marks on noncompeting and unrelated goods is not likely to cause
confusion.
WELL-KNOWN MARKS
A well-known mark is 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)
DETERMINANTS (NEED NOT CONCUR)
Priority Right.
An application for registration of a mark filed in the
Philippines by a person referred to in Section 3, and who
previously duly filed an application for registration of the
same mark in one of those countries, shall be considered
as filed as of the day the application was first filed in the
foreign country. [Sec. 131.1, RA 8293]
REQUIREMENT OF NOTICE
Exceptions:
(1) Use of the bottles as containers for sisi, bagoong, patis,
and similar native products [Sec. 6 RA 623 as amended
by RA 5700]
(2) Persons in whose favor the containers were sold
[Distelleria Washington v. LA Tondena Distillers (1997)]
DAMAGES
(c) Any person who shall make any false statement in the
course of trade or who shall commit any other act
contrary to good faith of a nature calculated to
discredit the goods, business or services of another.
(Sec. 168.3(c), RA 8293)
McDonalds Corporation v. L.G. Big Mak Burger, Inc., et al.
(2004): The elements of an action for unfair competition
are: (1) confusing similarity in the general appearance of
the goods, and (2) intent to deceive the public and defraud
a competitor. The confusing similarity may or may not
result from similarity in the marks, but may result from
other external factors in the packaging or presentation of
the goods. The intent to deceive and defraud may be
inferred from the similarity in appearance of the goods as
offered for sale to the public. Actual fraudulent intent need
not be shown.
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]
use
Fraudulent
unnecessary
intent
of
Unfair Competition
COLLECTIVE MARKS
A Collective mark is 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]
Copyrights
DEFINITION
Is that system of legal protection an author enjoys of the
form of expression of ideas. [Aquino, Intellectual Property
Law]
PAGE 155
(i) Illustrations, maps, plans, sketches, charts and threedimensional works relative to geography, topography,
architecture or science;
(j) Drawings or plastic works of a scientific or technical
character;
(k) Photographic works including works produced by a
process analogous to photography; lantern slides;
(l) Audiovisual works and cinematographic works and
works produced by a process analogous to
cinematography or any process for making audio-visual
recordings;
(m) Pictorial illustrations and advertisements;
(n) Computer programs; and
(o) Other literary, scholarly, scientific and artistic works
COPYRIGHTABLE WORKS
ORIGINAL LITERARY AND ARTISTIC WORKS
DERIVATIVE WORKS
NON-COPYRIGHTABLE WORKS
PAGE 157
Economic rights also give the author the right to assign the
copyright and/or the material object in whole or in part,
and they allow the owner to derive financial reward from
the use of his works by others. [Sec. 180.1, RA 8293]
PAGE 158
First Sale Doctrine: After the first sale of the lawfully made
copy of the copyrighted work, anyone who is the owner of
that copy can sell or dispose of that copy in any way
without any liability for copyright infringement. The first
sale of an authorized copy of the work exhausts the
authors right to control distribution of copies.
NEIGHBORING RIGHTS
PERFORMERS RIGHTS
Limitations on Protection
Sections 203, 208 and 209 shall not apply where the acts
referred to in those Sections are related to:
(1) The use by a natural person exclusively for his own
personal purposes;
(2) Using short excerpts for reporting current events;
(3) Use solely for the purpose of teaching or for scientific
research; and
(4) Fair use of the broadcast subject to certain conditions.
(Sec. 212, RA 8293)
Term of Protection
Works
For
performances
incorporated in recordings
Term
not Fifty (50) years from the end
of the year in which the
performance took place
[Sec. 215.1(a), RA 8293]
For sound or image and sound Fifty (50) years from the end
recordings and for performances of the year in which the
recording took place. [Sec.
incorporated therein
215.1(b), RA 8293]
Broadcasts
Work
Ownership
Letters
Belongs to the writer, but the court may authorize their publication
or dissemination of the public good or interest of justice requires,
pursuant to Art. 723, New Civil Code. [Sec. 178.6, RA 8293]
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Collective works
DURATION OF COPYRIGHT
Works
Term
Original Literary and Artistic Works including Posthumous Works Lifetime of author and for fifty (50) years after his death (Sec
213.1, RA 8293)
Derivative Works including Posthumous Works
Lifetime of author and for fifty (50) years after his death [Sec
213.1, RA 8293]
Joint Authorship
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]
Applied Art
the rights and remedies which the assignor had with respect
to the copyright. [Sec. 180.1, RA 8293]
PRESUMPTION OF AUTHORSHIP
UP COLLEGE OF LAW
LIMITATIONS ON COPYRIGHT
DOCTRINE OF FAIR USE
COPYRIGHT INFRINGEMENT
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SPECIAL LAWS
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SPECIAL LAWS
RECORD KEEPING
COVERED INSTITUTIONS
(1) banks, non-banks, quasi-banks, trust entities, and all
other institutions and their subsidiaries and affiliates
supervised or regulated by the Bangko Sentral ng
Pilipinas (BSP);
(2) Insurance companies and all other institutions
supervised or regulated by the Insurance Commission;
and
(3) (i) securities dealers, brokers, salesmen, investment
houses and other similar entities managing securities or
rendering services as investment agent, advisor, or
consultant,
(ii) mutual funds, close and investment companies,
common trust funds, pre-need companies and other
similar entities,
(iii) foreign exchange corporations, money changers, money
payment, remittance, and transfer companies and other
similar entities, and
(iv) other entities administering or otherwise dealing in
currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes and other
similar monetary instruments or property supervised or
regulated by Securities and Exchange Commission. (Sec.
3[a], RA 9160)
UP COLLEGE OF LAW
SPECIAL LAWS
COVERED TRANSACTIONS
'Covered transaction' is a transaction in cash or other
equivalent monetary instrument involving a total amount in
excess of Five hundred thousand pesos (P500,000.00)
within one (1) banking day. (Sec. 3[b], RA 9160)
(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 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 non-combatant
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) Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.
(Sec. 3[i], RA 9160)
SUSPICIOUS TRANSACTIONS
'Suspicious transaction' are transactions with covered
institutions, regardless of the amounts involved, where any
of the following circumstances exist:
(1) there is no underlying legal or trade obligation, purpose
or economic justification;
(2) the client is not properly identified;
(3) the amount involved is not commensurate with the
business or financial capacity of the client;
(4) taking into account all known circumstances, it may be
perceived that the clients transaction is structured in
order to avoid being the subject of reporting
requirements under the Act;
(5) any circumstance relating to the transaction which is
observed to deviate from the profile of the client and/or
the clients past transactions with the covered
institution;
(6) the transaction is in any way related to an unlawful
activity or offense under this Act that is about to be, is
being or has been committed; or
(7) any transaction that is similar or analogous to any of the
foregoing. (Sec. 3[b-1], RA 9160 as amended)
FUNCTIONS
The AMLC shall act unanimously in the discharge of its
functions as defined hereunder:
(1) to require and receive covered or suspicious transaction
reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising
Authority or the covered institution to determine the
true identity of the owner of any monetary instrument or
property subject of a covered transaction or suspicious
transaction report or request for assistance from a
foreign State, or believed by the Council, on the basis of
substantial evidence, to be, in whole or in part, wherever
located, representing, involving, or related to, directly or
indirectly, in any manner or by any means, the proceeds
of an unlawful activity.
(3) to institute civil forfeiture proceedings and all other
remedial proceedings through the Office of the Solicitor
General;
(4) to cause the filing of complaints with the Department of
Justice or the Ombudsman for the prosecution of money
laundering offenses;
(5) to [initiate investigations of] investigate suspicious
transactions and covered transactions deemed
suspicious after an investigation by AMLC, money
laundering activities, and other violations of this Act;
(6) to apply before the Court of Appeals, ex parte, for the
freezing of any monetary instrument or property alleged
to be the proceeds of any unlawful activity as defined in
Section 3(i) hereof;
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SPECIAL LAWS
DEFINITION OF TERMS
FOREIGN INVESTMENT
To
ensure
compliance
with
this
Act,
the
BangkoSentralngPilipinas (BSP) may inquire into or
examine any deposit or investment with any banking
institution or non-bank financial institution when the
examination is made in the course of a periodic or special
examination, in accordance with the rules of examination of
the BSP. (Sec. 11, RA 9160)
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SPECIAL LAWS
EXPORT ENTERPRISE
FOREIGN INVESTMENTS
IN DOMESTIC MARKET ENTERPRISE
Non-Philippine nationals may own up to one hundred
percent (100%) of domestic market enterprises unless
foreign ownership therein is prohibited or limited by the
Constitution existing law or the Foreign Investment
Negative List under Section 8 hereof. (Sec. 7, RA 7092, as
amended by R.A. 8179)
REGISTRATION OF INVESTMENTS
ON NON-PHILIPPINE NATIONALS
Without need of prior approval, a non-Philippine national,
as that term is defined in Section 3 a), and not otherwise
disqualified by law may, upon registration with the
Securities and Exchange Commission (SEC), or with the
Bureau of Trade Regulation and Consumer Protection
(BTRCP) of the Department of Trade and Industry in the
case of single proprietorships, do business as defined in
Section 3 d) of this Act or invest in a domestic enterprise up
to one hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise is
prohibited or limited to a smaller percentage by existing law
and/or under the provisions of this Act. The SEC or BTRCP,
as the case may be, shall not impose any limitations on the
extent of foreign ownership in an enterprise additional to
those provided in this Act: Provided, however, That any
enterprise seeking to avail of incentives under the Omnibus
Investment Code of 1987 must apply for registration with
the Board of Investments (BOI), which shall process such
application for registration in accordance with the criteria
for evaluation prescribed in said Code: Provided, finally,
That a non-Philippine national intending to engage in the
same line of business as an existing joint venture, in which
he or his majority shareholder is a substantial partner, must
disclose the fact and the names and addresses of the
partners in the existing joint venture in his application for
registration with SEC. During the transitory period as
provided in Section 15 hereof, SEC shall disallow
registration of the applying non-Philippine national if the
existing joint venture enterprise, particularly the Filipino
partners therein, can reasonably prove they are capable to
make the investment needed for the domestic market
activities to be undertaken by the competing applicant.
Upon effectivity of this Act, SEC shall effect registration of
any enterprise applying under this Act within fifteen (15)
days upon submission of completed requirements. (Sec. 5,
RA 7092)
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