Memory Aid COMML

1
SAN BEDA COLLEGE OF LAW, 2000-2001
MEMORY AID in COMMERCIAL LAW
Any form of reproduction of this copy is strictly prohibited!!!
1
2I. NEGOTIABLE INSTRUMENTS
3 LAW (NIL)
4
5NEGOTIABLE INSTRUMENT (NI)- it is a written
6contract for the payment of money which by its
7form and on its face is intended as a substitute
8for money and passes from hand to hand as
9money, so as to give the holder in due course
10(HDC) the right to hold the instrument free from
11defenses available to prior parties.
12
13BRIEF HISTORY OF THE LAW:

14
15
16
17
18
19
20
Act No.2031, the Negotiable Instruments

Law, took effect on June 2,1911, and is
patterned after the U.S Uniform Negotiable
Law, which in turn is copied from the
English Bill of Exchange Act of 1882.
21TWO DISTINCTIVE FEATURES OR

22CHARACTERISTICS OF NI:
23
241.
25
26
27
28
29
30
312.
32
33
34
35
36
37
38
39
40
41
NEGOTIABILITY- it is that attribute or

property whereby a bill or note or check may
pass from hand to hand similar to money, so
as to give the holder in due course the right
to hold the instrument and to collect the sum
payable for himself free from defenses.
ACCUMULATION
OF
SECONDARY
CONTRACTS- secondary contracts are
picked up and carried along with Negotiable
Instruments as they are negotiated from one
person to another; or in the course of
negotiation of negotiable instruments, a
series of juridical ties between the parties
thereto arise either by law or by privity. The
indorsers become secondarily liable to the
holder.
42DISTINCTIONS:
NEGOTIABLE
1. must contain all
requisites of
sec. 1
NONNEGOTIABLE
1. does not contain
all requisites of
sec.1
2. transferable by
negotiation and
assignment.
2. transferable by
assignment not
negotiation
3. HDC can have

rights better than
his transferor
3. a transferee
acquires no
better rights
than his
transferor
4. prior parties
warrant payment
(secondarily
5
4. prior parties do
not warrant
payment but
liability).
merely the
legality of his
title
43
44
45CLASSES OF NI:
46
471. PROMISSORY NOTE (PN)48
unconditional promise in writing by one
49
person to another signed by the maker
50
engaging to pay on demand or at a fixed
51
or determinable future time, a sum
52
certain in money to order or to bearer.
53
(Sec. 184, NIL)
542. BILL OF EXCHANGE (BE)55
an unconditional order in writing
56
addressed by one person to another,
57
signed by the person giving it, requiring
58
the person to whom it is addressed to
59
pay on demand or at a fixed or
60
determinable future time a sum certain
61
in money to order or to bearer (Sec.
62
126, NIL); and
633. CHECK- a bill of exchange drawn on a
64
bank payable on demand (Sec. 185,
65
NIL).
66
67DISTINCTIONS:
Negotiable
Instruments
1. The subject is
money
Negotiable
Documents of
Title
1. The subject is
goods
2. Is itself the
property with value
2. The document is
a mere evidence of
title the things of
value being the
goods mentioned in
the documents
3. Has all the

requisites of Sec 1
of NIL
3. Does not have

these requisites
4. A holder of NI
may run after the
secondary parties
for payment if
dishonored by the
party primarily
liable
4.
Intermediate
parties
are
not
secondarily liable if
the document is
dishonored
5. A holder, if HDC,
may acquire rights
over the instrument
better than his
predecessor
5. A holder can
never acquire rights
to the document
better than his
predecessors
68
69
70
71
72DISTINCTIONS:
PROMISSORY
BILL OF
Page 1
6Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON
7(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius
8Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone
9Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle
10Antonio, Jil, Reina, Macky Macaldo
NOTE
1. unconditional
promise
2. involves 2
parties
3. maker primarily
liable
4. only one
presentment: for
payment
1
2DISTINCTIONS:
BILL OF
EXCHANGE
1. Not necessarily
drawn on a deposit.
It is not necessary
that a drawer of a
BOE should have
funds in the hands
of the drawee.
2. Death of a
drawer of a BOE
with the knowledge
of the bank, does
not revoke the
author of the
banker to pay.
3. May be
presented for
payment within a
reasonable time
after its last
negotiation
because it may be
further negotiated.
EXCHANGE
1. unconditional
order
2. involves 3 parties
3. drawer is only
secondarily liable
4. two
presentments: for
acceptance and
for payment
CHECK
1. It is necessary
that a check is
drawn on a deposit.
Otherwise, there
would be fraud.
2. Death of the
drawer of a check,
with the knowledge
by the bank,
revokes the
authority of the
banker to pay.
3. Must be
presented for
payment within a
reasonable time
after its issue.
3
4ASSIGNMENT VS. NEGOTIATION
51. Assignment pertains to contracts in general;
6
Negotiation
pertains
to
negotiable
7
instruments.
82. One who takes an instrument by assignment
9
takes the instrument subject to the defenses
10
obtaining among the original parties;
11
whereas a person who takes the instrument
12
by negotiation, who is a HDC, takes it free
13
from personal defenses available among the
14
parties.
15
16OTHER FORMS OF NEGOTIABLE
17INSTRUMENTS:
181. Certificate of deposit issued by banks,
19
payable to the depositor or his order, or to
20
bearer
212. Trade acceptance
223. Bonds, which are in the nature of promissory
23
notes
244. Drafts, which are bills of exchange drawn by
25
one bank upon another
26
27LEGAL TENDER
28 that kind of money which the law
29
compels a creditor to accept in payment
30
of his debt when tendered by the debtor
31
in the right amount.
32NOTE: A negotiable instrument although
33intended to be a substitute for money, is
34generally not legal tender. Thus, a creditor is
35not bound to accept commercial papers, like
36a check, in satisfaction of his demand,
37because a check, even if good when
38offered, does not meet the requirements of a
39legal tender.
40
41INCIDENTS IN THE LIFE OF A NI:
421. Issue
432. Negotiation
443. Presentment for acceptance in certain
45
kinds of BOE
464. Acceptance
475. Dishonor by non-acceptance
486. Presentment for payment
497. Dishonor by non-payment
508. Notice of Dishonor
519. Protest in some cases
5210. Discharge
53 REQUISITES OF NEGOTIABILITY
54(SEC. 1):
551. Must be in writing and signed by the
56
maker or drawer;
572. Must contain an unconditional promise
58
or order to pay a sum certain in money;
593. Must be payable on demand, or at a
60
fixed or determinable future time;
614. Must be payable to order or to bearer;
625. When the instrument is addressed to a
63
drawee, he must be named or otherwise
64
indicated therein with reasonable
65
certainty.
66
67UNCONDITIONAL PROMISE OR ORDER68where the promise or order is made to
69depend on a contingent event, it is
70conditional, and the instrument involved is
71non-negotiable. The happening of the event
72does not cure the defect.
73
74 The unconditional nature of the promise
75
or order is not affected by:
76a) An indication of a particular fund out of
77
which reimbursement is to be made, or
78
a particular account to be debited with
79
the amount; or
80b) A statement of the transaction which
81
gives rise to the instrument (Sec. 3, NIL)
82 But an order or promise to pay out of a
83
particular fund is NOT unconditional.
84
85
86
87
88
89DISTINCTIONS:
4
Page 2
10
Fund for
Reimbursement
1. Drawee pays
the payee from
his own funds;
afterwards, the
drawee pays
himself from the
particular fund
indicated.
2. Particular fund
indicated is NOT
the direct source
of payment but
only the source
of reimbursement.
3. Indication in the
instrument does
not affect the
unconditional
nature of the
promise or
order.
Particular Fund for

Payment
1. There is only one
act- the drawee
pays directly from
the particular fund
indicated.
Payment is
subject to the
condition that the
fund is sufficient.
2. Particular fund
indicated is the
direct source of
payment.
3. Indication in the
instrument makes
the promise or
order conditional.
2CERTAINTY OF SUM (Sec. 2, NIL)

3
4
The instrument is still negotiable and it is
5payable-6a) With interest; or
7b) By stated installments; or
8c) By stated installments with an acceleration
9
clause;
10
ACCELERATION CLAUSE- renders whole
11
debt due and demandable upon failure of
12
obligor to comply with certain conditions.
13d) With exchange; or
14e) With cost of collection or attorneys fees.
15
16PAYABLE IN MONEY
17
18 if some other act is required other than
19
payment of money, the instrument is not
20
negotiable (Sec. 5, NIL).
21
22Exception: Gives option to creditor/holder to
23choose another in lieu of money.
24
25 PAYABLE ON DEMAND (Sec. 7, NIL)
26
27 an instrument is payable on demand:
28a) where expressed to be payable on demand,
29
at sight or on presentation;
30b) where no period of payment is stated;
31c) where issued, accepted, or indorsed after
32
maturity (only as between immediate
33
parties).
34
35DETERMINABLE FUTURE TIME

36(Sec. 4, NIL)
37
38 An instrument is payable at a
39
determinable future time when payable:
40a) At a fixed period after date or sight;
41b) On or before a fixed or determinable
42
future time specified therein; or
43c) On or at a fixed period after the
44
occurrence of a specified event, which is
45
certain to happen, though the time of
46
happening be uncertain.
47
48PAYABLE TO ORDER (Sec. 8, NIL)
49
50 The instrument is payable to order
51
where it is drawn payable to the order of
52
a specified person or to him or to his
53
order.
54
55PAYABLE TO BEARER (Sec. 9, NIL)
56
57 The instrument is payable to bearer:
58a) When it is expressed to be so payable;
59
or
60b) When it is payable to a person named
61
therein or to bearer; or
62c) When it is payable to the order of a
63
fictitious or non-existing person, and
64
such fact was known to the person
65
making it so payable; or
66d) When the name of the payee does not
67
purport to be the name of any person; or
68e) When the only or last indorsement is an
69
indorsement in blank.
70
71NOTE: An instrument originally payable to
72bearer can be negotiated by mere delivery
73even if it is indorsed specifically. If it is
74originally a BEARER instrument, it will
75always be a BEARER instrument.
76As opposed to an original order instrument
77becoming payable to bearer, if the same is
78indorsed specifically, it can NO LONGER be
79negotiated further by mere delivery, it has to
80be indorsed.
81
82REAL DEFENSE- those that attach to the
83instrument and are available against all
84holders, whether in due course or not.
85
86PERSONAL DEFENSE- or equitable
87defenses are available only against the
88holder not in due course who stands in
89privity with the party who is entitled to set it
90up or those who are not or do not have the
91rights of a holder in due course.
92
93EXAMPLES
94DEFENSES:
951.
96
972.
98
993.
100
OF
PERSONAL
Absence or failure of consideration,

partial or total.
Want of delivery of complete
instrument.
Insertion of wrong date in an
instrument, where it is payable at a
4
Page 3
10
1
2
3
4
54.
6
7
85.
96.
10
117.
12
138.
14
159.
1610.
17
1811.
1912.
2013.
21
22
23
24
2514.
26
2715.
28
29
3016.
31
32
fixed period after date and it is issued

undated or where it is payable at a fixed
period after sight and the acceptance is
undated.
Filling up of blank contrary to authority
given or not within reasonable time,
where the instrument is delivered.
Fraud in inducement.
Acquisition of instrument by force,
duress, or fear.
Acquisition of the instrument by unlawful
means.
Acquisition of the instrument for an illegal
consideration.
Negotiation in breach of faith.
Negotiation under circumstances that
amount to fraud.
Mistake.
Intoxication according to better authority.
Ultra vires acts of corporations where the
corporation has the power to issue
negotiable paper but the issuance was
not authorized for the particular purpose
for which it was issued.
Want of authority of agent where he has
apparent authority.
Insanity where there is no notice of
insanity on the part of the one contracting
with the insane person.
Illegality of contract where form or
consideration is illegal.
341.
352.
363.
374.
385.
396.
407.
41
428.
43
44
45
469.
4710.
48
4911.
50
51
5212.
53
Alteration
Want of delivery of incomplete instrument.
Duress amounting to forgery.
Fraud in factum or fraud in esse contractus.
Minority
Marriage in the case of a wife
Insanity where the insane person has a
guardian appointed by the court.
Ultra vires acts of a corporation, where the
corporation is absolutely prohibited by its
charter or statute from issuing any
commercial paper under any circumstances.
Want of authority of agent.
Execution of instrument between public
enemies.
Illegality of contract where it is the contract
or instrument itself which is expressly made
illegal by statute.
Forgery.
56
57
58
591.
60
612.
62
633.
A. EFFECTS OF INCOMPLETE BUT

DELIVERED NI (SEC. 14, NIL):
33EXAMPLES OF REAL DEFENSES:
54EFFECTS OF DEFENSES
55
64
MAKER
DRAWER
ACCEPTOR
1. engages
that he will
pay it
according
to is tenor;
1. engages
that on due
presentment,
the
instrument
will be
accepted, or
paid, or both
according to
its tenor;
2.admits the
existence of
the payee;
1.engages
that he will
pay
according to
the tenor of
his acceptance;
2.admits
the
existence of
the payee;
3. admits
payees
capacity to
indorse
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
801.
81
82
832.
84
853.
86
87
3. admits
payees
capacity to
indorse
2. admits the
existence of
the drawer,
the genuineness of his
signature,
and his
capacity &
authority to
draw the
instrument;
3. admits the
existence of
the payee
and his
capacity to
indorse.
B. EFFECTS OF INCOMPLETE AND

UNDELIVERED NI (SEC. 15, NIL):
if completed and delivered without
authority, not a valid contract against a
person who has signed before delivery
of the contract even in the hands of
HDC but subsequent indorsers are
liable.
C. EFFECTS OF COMPLETE BUT
UNDELIVERED NI (SEC. 16, NIL):
Between immediate parties and remote
parties not a HDC, must be an
authorized delivery.
As to HDC, all prior deliveries are
conclusively presumed valid; and
If instrument is not in the hands of
drawer/maker, valid and intentional
delivery is presumed.
Holder has prima facie authority to fill up the

instrument.
Completion within reasonable time and
according to authority; and
HDC can enforce such despite deficiency.
4
Page 4
10
COMPARISON OF SECTIONS 14, 15 AND 16
Section 14
Section 15
Section 16
a.
b.
incomplete
complete
COMPLETENESS
DELIVERY
delivered
undelivered
Undelivered
wanting in any material particular

blank paper with signature
Note: Delivery may be made for a conditional or

for a special purpose only and not for the purpose
of transferring the property in the instrument
AUTHORITY OF
PERSON IN
POSSESSION
a.
WHEN
ENFORCEABLE
No authority to complete and / or negotiate

instrument
May negotiate if delivered to him by or under the

authority of the party making, indorsing, drawing or
accepting , as the case may be.
If filled up strictly in accordance with authority given

and within a reasonable time
Not enforceable
When delivery is made by or under authority of the

party making, indorsing, drawing or accepting , as
the case may be.
KIND OF DEFENSE
Personal
Real
Personal
RIGHTS OF HOLDER
If holder in due course, he can enforce the instrument

as completed against parties prior or subsequent to the
completion
None in the hands of the holder. However, the

invalidity of the above instrument is only with
reference to parties whose signatures appear on
the instrument prior to delivery because as to
parties whose signatures appear on the instrument
after delivery, the instrument is valid.
Can enforce the instrument.

Note: Where the instrument is in the hands of a
holder in due course , a valid delivery thereof by all
parties prior to him so as to make them liable to
him is conclusively presumed. Where the
instrument is no longer in the possession of a party
whose signature appears thereon, a valid and
intentional delivery to him is presumed until the
contrary is proved.
b.
prima facie authority to complete it by filling up

the blanks therein
signature operates as a prima facie authority to
fill up it up as such for any amount
If not a holder in due course, he can enforce the

instrument as completed only against parties
subsequent to the completion but not against those
prior thereto.
4
Page 5
5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie
6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred
7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
8
1
2
D. EFFECT OF ABSENCE OR FAILURE
3
OF CONSIDERATION (SEC. 28, NIL):
4
5 Personal defense to the prejudiced party
6
and available against any person not HDC.
7
8
E. FORGERY
9
10 counterfeit making or fraudulent alteration of
11
any writing, which may consist of:
121. signing of another name with intent to
13
defraud; or
142. alteration of an instrument in the name,
15
amount, name of payee, etc. with intent to
16
defraud.
17
18EFFECTS OF FORGERY (SEC. 23, NIL):
19
20 signature (not instrument itself and
21
subsequent indorsers) is wholly inoperative,
22
and no right to retain the instrument, or to
23
give a discharge therefor, or to enforce
24
payment thereof against any party to it, is
25
acquired through or under such signature
26
UNLESS the party against whom it is sought
27
to enforce such right is precluded from
28
setting up the forgery or want of authority.
29
30 Persons precluded from setting up forgery:
311. those who warrant or admit the genuineness
32
of the signature in question. This includes
33
indorsers, persons negotiating by delivery
34
and acceptors.
352. Those who by their acts, silence, or
36
negligence, are estopped from setting up the
37
defense of forgery.
38
39VALUABLE CONSIDERATION
40
41
42
43
44
45
46
47
In general, it is said to consist either in

some right, interest, profit or benefit,
accruing to the party who makes the
contract, or some forebearance, detriment,
loss, responsibility, act , labor, or service on
the other side.
48ACCOMMODATION - legal arrangement

49under which a person called the accommodation
50party, lends his name and credit to another
51called the accommodated party without any
52consideration.
53
54REQUISITES OF ACCOMMODATION
55(SEC. 29, NIL):
56
571.
58
592.
60
613.
62
accommodation party must signs as maker,

drawer, acceptor, or indorser;
no value is received by the accommodation
party from the accommodated party; and
purpose is to lend the name.
63EFFECTS OF ACCOMMODATION (SEC.

6429, NIL):
65
66 person to whom instrument thus executed is
67
subsequently negotiated has a right of
68
recourse
69
70against the accommodation party inspite of the
71formers knowledge that no consideration
72passed between the accommodation and
73accommodated parties.
74
75NOTE: A corporation cannot act as an
76accommodation party. The issue or indorsement
77of negotiable instrument by a corporation without
78consideration and for the accommodation of
79another is ultra vires. (Crisologo vs. CA, 117
80SCRA 594).
81
82RIGHTS AND LEGAL POSITION OF

83ACCOMODATION PARTY
84
851.
86
872.
88
89
90
AP is generally regarded as SURETY for the

party accomodated
When AP make payment to holder of the
note, they have the right to sue the
accomodated party for reimbursement
93
94
95
96
97
liable on the instrument to a holder for value

notwithstanding such holder at the time of
the taking of the instrument knew him to be
only an accomodation party
91LIABILITY OF ACCOMODATION PARTY

92
98RIGHTS OF ACCOMODATION PARTY

99AGAINST EACH OTHER
100
101
102
103
104
105
106
107
108
109
1102.
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
demand
from
principal
debtor
reimbursement of the amount which he had
paid on the promissory note
demand
contribution
from
his
coaccomodation maker without first directing
his action against the principal debtor
provided:
1.
he made the payment by virtue
of judicial demand
the principal debtor is insolvent
F. MATERIAL ALTERATION
any alteration which changes the date, sum
payable, time or place of payment, number
or relation of parties, or medium or currency
of payment, or adds a place of payment
where none is specified or which alters the
effect of the instrument in any respect. (PNB
vs. CA)
EFFECTS OF MATERIAL ALTERATION
(SECS. 124 & 125, NIL):
avoids the instrument except as against the
party who made, authorized, or assented to
the alteration and subsequent indorsers.
4
Page 6
10
1
2
3
4
5
6
HDC can enforce it accordingly to its original

tenor.
7
8LIABILITIES OF PARTIES
9
101. PARTIES PRIMARILY LIABLE
11
12
a. MAKER (Sec. 60, NIL)
13
(i)
engages to pay according to the
14
tenor of the instrument; and
15
(ii)
admits the existence of the
16
payee and his capacity to indorse.
17
b. ACCEPTOR OR DRAWEE (Sec. 62,
18
NIL)
19
(i)
engages to pay according to the
20
tenor of his acceptance;
21
(ii)
22
drawer, the genuineness of his
23
signature and his capacity and
24
authority to draw the instrument;
25
and
26
(iii)
27
28
292. PARTIES SECONDARILY LIABLE
30
31
a. DRAWER (Sec. 61, NIL)
32
(i)
Admits the existence of the
33
34
(ii)
Engages that the instrument will
35
be accepted or paid by the party
36
primarily liable; and
37
(iii)
Engages that if the instrument is
38
dishonored
and
proper
39
proceedings are brought, he will
40
pay to the party entitled to be paid.
41
42
b. GENERAL INDORSER (Sec. 66, NIL)
43
(i) warrants --44
(1) genuineness
of
the
45
instrument;
46
(2) his good title to it;
47
(3) capacity to contract of prior
48
parties; and
49
(4) instrument is valid and
50
subsisting.
51
(ii) engages that the instrument will be
52
accepted or paid by the party
53
primarily liable; and
54
(iii) engages that if the instrument is
55
dishonored
and
proper
56
proceedings are taken he will pay
57
to the party entitled to be paid.
58
59
c. IRREGULAR INDORSER one who
60
affixes his signature in blank on an
61
instrument before delivery (Sec. 64,
62
NIL).
(i)
instrument payable to the order
64
of a 3rd person
65
-liable to payee and subsequent parties
66
(ii)
instrument payable to maker or
67
drawer
68
-liable to all parties subsequent to the
69
maker or drawer.
70
(iii)
irregular indorser signs for
71
accommodation of payee.
72
73
74-liable to all parties subsequent to payee.
75
763. PARTIES WITH LIMITED LIABILITY (Sec.
77
65, NIL; METROPOL FINANCING VS.
78
SAMBOK, 120 SCRA 864).
79
80
a. QUALIFIED INDORSER- warrants that
81
(i) instrument is genuine and in all
82
respects what it purports to be;
83
(ii) he has good title to it;
84
(iii) all prior parties had capacity to
85
contract;
86
(iv) he has no knowledge of any fact
87
which would impair the validity of
88
the instrument or render it
89
valueless.
90
91
b. PERSONS NEGOTIATING BY
92
DELIVERY
93
94
(i) warranties same as those of
95
qualified indorsers; and
96
(ii) warranties extend to immediate
97
transferee only.
98
99INDORSEMENT - legal transaction effected by
100the writing of one's own name at the:
101
102
a.
back of the instrument
103
b.
upon a paper (allonge)
104
attached thereto with or without
105
additional words specifying the
106
person to whom or to whose order
107
the instrument is to be payable
108
whereby one not only transfers one
109
legal title to paper transferred but
110
likewise enters into an implied
111
guaranty that the instrument will be
112
duly paid (Section 31, NIL)
113
114GENERAL RULE: Indorsement must be of the
115entire instrument
116
EXCEPTION: Where instrument has
117been paid in part, it may be indorsed as to the
118residue (Section 32, NIL).
119
63
120KINDS OF INDORSEMENT
121
122A.
123
124
125B.
126
SPECIAL - specifies the person to whom or

to whose order the instrument is to be
payable (Section 34)
BLANK - specifies no indorsee;
1. may be negotiated by delivery
4
Page 7
10
1
2
3
4
5
6C.
7
8
9
10
11
12
13
14
15D.
16
17
18E.
19
20
21
22
23
24
25
26F.
27
28
29
30G.
31
32H.
33I.
34J.
35
2. may
be
converted
to
special
indorsement by writing over the
signature of indorser in blank any
contract consistent with character of
indorsement (Sections 34 and 35)
ABSOLUTE - one by which indorser binds
himself to pay:
1.
upon no other condition than
failure of prior parties to do so
2.
upon due notice to him of such
failure
391.
40
41
422.
43
44
453.
46
presentment for payment in notes and

presentment for acceptance and/or payment
in bills of exchange.
Dishonor by non-payment in notes and
dishonor by non-acceptance and/or nonpayment in bills of exchange; and
Notice of dishonor to secondary parties.
CONDITIONAL - indorsement subject to the

happening of a contingent event (Section
39)
RESTRICTIVE
1. when it PROHIBITS further negotiation
of the instrument;
2. when it CONSTITUTES the indorsee the
agent of the indorser
3. when it VESTS the title in the indorsee
in trust for or to the use of other persons
(Section 36)
QUALIFIED - made by adding to the
indoser's signature words like "sans
recourse", "without recourse", "indorser not
holden", "at the indorser's own risk", etc.
JOINT - indorsement payable to 2 or more
persons (Section 38)
SUCCESSIVE
IRREGULAR
FACULTATIVE
65those under a general indorsement when an

66instrument negotiable by delivery is indorsed to
67holder --- becomes liable as indorsee (Sec. 366837, NIL).
69
70 An indorsement is restrictive, which either:
71a) prohibits
further
negotiation
of
the
72
instrument; or
73b) constitutes the indorsee the agent of the
74
indorser; or
75c) vests the title in the indorsee in trust for or to
76
the use of some other person. But mere
77
absence of words implying power to
78
negotiate does not make an indorsement
79
restrictive.
80
81
82HOLDER IN DUE COURSE (SEC. 52, NIL):
83
841.
85
862.
87
88
893.
904.
91
92
93
94DISTINCTIONS:
Negotiating by
Mere delivery or
by Qualified
Indorsement
1. he has good
title to it;
36REQUISITES BEFORE SECONDARY

37LIABILITY ATTACHES:
38
47RECOURSE- resort to a person secondarily

48liable after default of person primarily liable.
49
50NEGOTIATION- transfer of instrument from
51one person to another to constitute the
52transferee as holder thereof (Sec. 30, NIL).
53
54CONDITIONAL INDORSEMENT- right of the
55indorsee is made to depend on the happening of
56a contingent event. Party required to pay may
57disregard the conditions (Sec. 39, NIL).
58
59SPECIAL INDORSEMENT- name of indorsee
60specifed (Sec. 34, NIL).
61
62RESTRICTIVE INDORSEMENT- limits the
63right of indorsee by restricting further
64negotiation; giving the indorsee lesser right than
Instrument is complete and regular upon its

face;
Became a holder before it was overdue and
had no notice that it has been previously
dishonored;
For value and in good faith; and
At the time he took it, he had no notice of
any infirmity in the instrument nor defect in
the title of the person negotiating it.
General
Indorser
1. he has
good title to
it;
2. all prior parties

had capacity to
contract;
2. all prior
parties had
capacity to
contract;
3. he has no
knowledge of
any fact which
would impair
the validity of
the instrument
or render it
valueless.
4. the
instrument
is, at the
time of his
indorsemen
t valid and
subsisting.
95
96PRESENTMENT the production of a bill of

97exchange to the drawee for his acceptance, or to
98the drawee or acceptor for payment or the
99production of a p.n. to the party liable for the
100payment of the same. (Section 70, NIL)
101
102 Presentment for payment consists of:
1031. personal demand for payment at the proper
104
place;
1052. readiness to exhibit the instrument if
106
required, and to receive payment and to
4
Page 8
10
1
2
3
surrender the instrument if the debtor is

willing to pay.
4WHEN PRESENTMENT
5MADE (Section 71, NIL)
6
SHOULD
BE
71.
8
92.
10
113.
12
13
Demand instrument within reasonable time

after its issue
Bill of exchange payable on demand: within
reasonable time after its last negotiation
Instrument payable on a specified date: on
the date it falls due.
161.
17
18
192.
203.
214.
22
23
24
made by the holder or any person

authorized to receive payment on his behalf;
281.
292.
30
31
323.
33
34
35
it is presented at the place specified;

no place is specified, and the address of the
person to make payment is given, and it is
there presented;
no place specified, no address is given,
presentment may be made at the usual
place of business or residence of the
person to make payment;
in any other case, if presented to the person
to make payment wherever he can be found,
or if presented at his last known place of
business or residence. (Section 73, NIL)
14WHAT CONSTITUTES A SUFFICIENT

15PRESENTMENT
at a reasonable hour on a business day;

at a proper place;
to the person primarily liable or if he is
absent or inaccessible, to any person found
at the place where the presentment is made.
25PRESENTMENT FOR PAYMENT IS MADE

26AT A PROPER PLACE WHERE:
27
364.
37
38
39
40
41THE PURPOSE OF EXHIBITION IS TO

42ENABLE THE DEBTOR TO :
43
441. determine the genuiness of the instrument
45
and the right of the holder to receive
46
payment; and
472. to enable him to reclaim possession upon
48
payment. (Section 74, NIL)
49
50WHEN EXHIBITION EXCUSED
511. when debtor does not demand to see the

52
instrument but refuses payment on some
53
other grounds, and
542. when the instrument is lost or destroyed.
55
56 Instrument payable at a bank must be made
57during banking hours unless there are no funds
58to meet it at any time during the day,
59presentment at any hour before the bank is
60closed on that day is sufficient.
61 If the person liable is dead, presentment
62may be made to his personal representative.
63
64PRESENTMENT FOR PAYMENT IS NOT

65REQUIRED:
66
671.
68
69
702.
71
72
73
74
75
in order to charge the drawer where he has

no right to expect or require that the drawee
or acceptor will pay the instrument;
in order to charge an indorser when the
instrument was made or accepted for his
accommodation and he has no reason to
expect that the instrument will be paid if
presented.
76WHEN
DELAY
IN
MAKING
77PRESENTMENT OR OF GIVING NOTICE
78IS EXCUSED:
79
801. when caused by circumstances beyond the
81
control of the holder; and
82
83
842. not imputable to his default, misconduct, or

85negligence.
86
87WHEN PRESENTMENT FOR PAYMENT
88IS EXCUSED:
89
901.
91
922.
933.
94
after exercise of reasonable diligence, it

cannot be made;
drawee is a fictitious person;
express or implied waiver
95THE INSTRUMENT IS DISHONORED BY

96NON-PAYMENT WHEN:
97
981. It is duly presented for payment and
99
payment is refused or cannot be obtained;
1002. Presentment is excused and the instrument
101
is overdue and unpaid.
102
103 When instrument is dishonored by non104payment, there is an immediate right of recourse
105by the holder against persons secondarily liable.
106However, notice of dishonor is generally
107required.
108
109 Every negotiable instrument is payable at
110the time fixed therein without grace.
111
112REQUISITES OF PAYMENT IN DUE

113COURSE:
114
1151. Payment must be made at or after maturity.

1162. Payment must be made to the holder.
1173. Payment must be made in good faith and
118
without notice that the holders title is
119
defective.
120 Good faith refers to the maker or acceptor
121and not to the holder.
122
123
124
125NOTICE OF DISHONOR- notice given by holder
126or his agent to party or parties secondarily liable
4
Page 9
10
1that instrument was dishonored by non2acceptance by drawee of a bill, or by non3payment by acceptor of a bill or by non-payment
4by maker of a note. (Sec. 89, NIL).
5
6
7
8
9
10REQUISITES OF NOTICE OF DISHONOR:
11
121.
13
14
152.
16
173.
18
194.
20
21
given by holder or his agent, or by an party

who may be compelled by the holder to pay
(Sec. 90, NIL).
Given to secondary party or his agent (Sec.
97, NIL).
Given within the periods provided by law
(Sec. 102, NIL); and
Given at the proper place (Sec. 103, 104,
NIL).
22WHEN NOTICE OF DISHONOR IS

23DISPENSED WITH:
24
251. when party to be notified knows about the

26
dishonor, actually or constructively (Secs.
27
114-117, NIL);
282. if waived (Sec. 109, NIL); and
293. when after due diligence, it cannot be given
30
(Sec. 112, NIL).
31
32How given:
33
34
1.
by bringing verbally or
35
2.
by writing to the knowledge of
36
the person liable the fact that a specified
37
instrument, upon proper proceedings
38
taken, has not been accepted or has not
39
been paid, and that the party notified is
40
expected to pay it.
41
42To whom given:
43
44
1.
Non-acceptance (bill) to
45
persons secondarily liable, namely, the
46
drawer and indorsers as the case may
47
be.
48
2.
Non-payment (both bill and
49
note) indorsers.
50
51
NOTE: Notice must be given to persons
52
secondarily liable. Otherwise, such parties
53
are discharged. Notice may be given to the
54
party himself or to his agent.
55
56WHERE INSTRUMENTS PAYABLE IN

57INSTALLMENTS:
58
591.
60
61
62
632.
64
No acceleration clause failure to give

notice of dishonor on a previous installment
does not discharge drawers and indorsers
as to succeeding installments.
With acceleration clause failure to give
notice as to previous installment will
65
discharge the persons secondarily liable as
66
to the succeeding installments.
67
68By whom given:
69
701. the holder
712. another on behalf of the holder
723. any party to the instrument who may be
73
compelled to pay it to the holder, and who
74
would have a right to reimbursement from
75
the party to whom the notice is given.
76
77 Notice of dishonor given by or on behalf of
78a holder inures to the benefit of:
79
801. all parties prior to the holder, who have a
81
right of recourse against the party to whom
82
the notice is given; and
832. all holders subsequent to the holder giving
84
notice.
85
86
87
88 Notice of dishonor given by or on behalf of
89a party entitled to give notice inures to the
90benefit of:
911. the holder; and
922. all parties subsequent to the party to whom
93
notice is given.
94
95 Where an instrument is dishonored in the
96hands of an agent, he can do either of the
97following:
981. directly give notice to persons secondarily
99
liable thereon; or
1002. give notice to his principal. In such case, he
101
must give notice within the time allowed by
102
law as if he were a holder.
103
104 A party giving notice is deemed to have
105given due notice where:
106
1.the notice of dishonor is duly addressed,
107
and
108
2.deposited in the post-office, even when
109
there is miscarriage of mail.
110
111 Notice is deemed to have been deposited in
112the post office when deposited in any branch
113post-office or in any letter box under the control
114of the post office department.
115 Where a party receives notice of dishonor,
116he has, after the receipt of such notice, the same
117time for giving notice to antecedent parties that
118the holder has after the dishonor.
119
120 Notice may be waived either before the time
121of giving notice, or after the omission to give due
122notice. Waiver may be expressed or implied.
123
124 As to who are affected by an express waiver
125depends on where the waiver is written.
126
1. if it appears in the body or on the face
127
of the instrument, it binds all parties; but
128
2. if it is written above the signature of an
129
indorser, it binds him only.
4
Page 10
10
2PROTEST- is the formal instrument executed

3usually by a notary public certifying that the legal
4steps necessary to fix the liability of the drawee
5and the indorsers have been taken.
6 Where protest is waived, presentment and
7notice of dishonor are also deemed waived. But
8where the notice of dishonor is waived,
9presentment is not waived.
10
11 Notice is dispensed with when, after the
12exercise of reasonable diligence, it cannot be
13given or does not reach the parties sought to be
14charged.
15 Notice of dishonor is not required to be
16given to the drawer in any of the ff. cases:
171. drawer and drawee are the same;
182. drawee is a fictitious person or not having
19
the capacity to contract;
203. drawer is the person to whom the instrument
21
is presented for payment;
224. the drawer has no right to expect or require
23
that the drawee or acceptor will honor the
24
instrument;
25
265. where the drawer has countermanded
27
payment.
28
29 Notice of dishonor is not required to be
30given to an indorser in either of the ff. cases:
31
32 1. drawee is a fictitious person or does not
33
have the capacity to contract, and
34
indorser was aware of that fact at the
35
time he indorsed the instrument;
36 2. indorser is the person to whom the
37
instrument is presented for payment;
38 3. instrument was made or accepted for his
39
accommodation.
40
41 If an instrument is not accepted by the
42drawee, there is no sense presenting it again for
43payment, and notice of dishonor must at once be
44given. If there was acceptance, presentment for
45payment is still required and if payment is
46refused, there is a need for notice of dishonor.
47
48 An omission to give notice of dishonor by
49non-acceptance does not prejudice the rights of
50a holder in due course subsequent to the
51omission.
52
53 Protest is necessary only in case of foreign
54bills of exchange which have been dishonored
55by non-acceptance or non-payment, as the case
56may be. If it is not so protested, the drawer and
57indorsers are discharged
58
59FOREIGN BILL OF EXCHANGE:
60
611.
62
632.
64
Drawn in the Philippines but payable outside

the Philippines.
Payable in the Philippines but drawn outside
the Phillipines.
65
66DISCHARGE OF NEGOTIABLE
67INSTRUMENT (Section 119, NIL):
68
69 Discharge of an instrument- means a

70release of all parties, whether primary or
71secondary, from the obligations arising
72thereunder. It renders the instrument without
73force and effect and, consequently, it can no
74longer be negotiated.
75
76WHEN A NEGOTIABLE INSTRUMENT IS
77DISCHARGED:
78
791.
80
812.
823.
834.
84
855.
86
87
88
By payment I due course by or on behalf of

the principal debtor;
Payment by accommodated party;
Intentional cancellation by the holder;
By any act which will discharge a simple
contract for the payment of money;
When the principal debtor becomes the
holder of the instrument at or after maturity
in his own right.
89WHEN A PERSON SECONDARILY

90LIABLE IS DISCHARGED (Section 120,
91NIL):
92
931. By any act which discharges the instrument;
942. By the intentional cancellation of his
95
signature by the holder;
963. By the discharge of a prior party;
974. By a valid tender of payment made by a
98
prior party;
995. By the release of the principal debtor, unless
100
the holders right of recourse against the
101
party secondarily liable is expressly
102
reserved;
1036. By any agreement binding upon the holder
104
to extend the time of payment or to
105
postpone the holders right to enforce the
106
instrument.
107
108 In the following cases, the agreement to
109extend the time of payment does not discharge a
110party secondarily liable:
111a) where the extension of time is consented to
112
by such party;
113b) where the holder expressly reserves his
114
right of recourse against such party.
115
116 Payment at or after maturity by a party
117secondarily liable does not discharge the
118instrument. It only cancels his own liability and
119that of the parties subsequent to him. (Section
120121, NIL).
121
122EFFECT OF RENUNCIATION (Section

123122, NIL):
124
1251. A renunciation in favor of a secondary party
126
may be made by the holder before, at or
127
after maturity of the instrument. The effect
4
Page 11
10
1
2
3
42.
5
6
7
8
9
10
11
is to discharge only such secondary party

and all parties subsequent to him but the
instrument itself remains in force.
A renunciation in favor of the principal
debtor may be effected at or after maturity.
The effect is to discharge the instrument and
all parties thereto provided the renunciation
is made unconditionally and absolutely.
NOTE: In either case, renunciation does
12
not affect the rights of a holder in due course
13
without notice.
14
15 Cancellation of an instrument includes
16tearing, erasure, obliteration, or burning. It is not
17limited to writing of the word cancelled, or
18paid, or drawing of criss-cross lines across the
19instrument (Section 123, NIL).
20
21MATERIAL ALTERATION - any change in
22the instrument which affects or changes the
23liability of the parties in any way.
24
25EFFECT OF ALTERATION:
26
271.
28
29
30
31
32
33
34
35
36
37
382.
39
403.
41
42
43
44
45
46
47
48
49
50
51
Alteration by a party
material alteration by the holder

is to discharge the instrument and all
prior parties thereto who did not give
their consent to such alteration.
NOTE: Since no distinction is made, it does
not matter whether it is favorable or
unfavorable to the party making the
alteration.
The intent of the law is to
preserve the integrity of the negotiable
instruments.
Alteration by a stranger
it is called spoliation.
The right of holder in due course
A material alteration avoids the

instrument in the hands of one who is
not a holder in due course as against
any prior party who has not assented to
the alteration.
If an altered instrument is
negotiated to a HIDC, he may enforce
payment thereof according to its original
tenor regardless of whether the
alteration was innocent or fraudulent.
561.
572.
583.
594.
605.
61
626.
63
date
sum payable, either for principal or interest
time or place of payment
number or relations of the parties
medium or currency in which payment is to
be made
that which adds a place of payment where
no place of payment is specified
52CHANGES IN THE FOLLOWING

53CONSTITUTES MATERIAL
54ALTERATIONS:
55
647. any other change or addition which alters

65
the effect of the instrument in any respect.
66
67
68
69
70ACCEPTANCE AND PRESENTMENT FOR
71ACCEPTANCE (Secs. 132-151, NIL)
72
73 Acceptance of a bill is the signification by

74the drawee of his assent to the order of the
75drawer. It is the act by which the drawee
76manifests his consent to comply with the request
77contained in the bill of exchange directed to him
78and it contemplated an engagement or promise
79to pay.
80
81WHEN
PRESENTMENT
82ACCEPTANCE IS REQUIRED:
83
FOR
841. where the bill is payable after sight, or when

85
it is necessary in order to fix the maturity of
86
the instrument;
87
882. where the bill expressly stipulates that it
89
90shall be presented for acceptance;
91
923. where the bill is drawn payable elsewhere
93
than at the residence or place of business of
94
the drawee.
95
96NOTE: In all the above cases, the holder must
97either present the bill for acceptance or
98negotiate it within a reasonable time; otherwise,
99the drawer and all indorsers are discharged.
100
101FORM
OF
PRESENTMENT
102ACCEPTANCE:
103
FOR
1041.
1052.
1063.
1074.
108
must be made by or no behalf of the holder;

at a reasonable hour or a business day;
before the bill is overdue; and
to the drawee or some person authorized to
accept or refuse to accept on his behalf.
1121.
113
114
1152.
116
1173.
118
119
120
where the drawee is dead, or has

absconded, or is a fictitious person not
having capacity to contract by bill.
after exercise of reasonable diligence,
presentment cannot be made;
although presentment has been irregular,
acceptance has been refused on some other
ground.
109
110WHEN PRESENTMENT EXCUSED:
111
121WHERE BILL DISHONORED BY NON122ACCEPTANCE:

123
1241. when it is duly presented for acceptance and
125
such an acceptance is refused or cannot be
126
obtained; or
4
Page 12
10
12. when presentment for acceptance is

2
excused, and the bill is not accepted.
3
4 If bill is duly presented for acceptance and it
5is not accepted within the prescribed time, the
6person presenting it must treat the bill as
7dishonored by non-acceptance or he loses the
8right of recourse against the drawer and
9indorsers.
10
11 When a bill is dishonored by non12acceptance, an immediate right of recourse
13against the drawers and indorsers accrues to the
14holder and no presentment for payment is
15necessary.
16
17 There is implied acceptance if after 24
18hours, the drawee fails to return the instrument.
19He is also deemed to have accepted the
20instrument when he destroys the same.
21
22
23KINDS OF ACCEPTANCE:
24
251.
26
272.
28
29
30a)
31
32
33b)
34
35c)
36
37d)
38e)
39
GENERAL- assents without qualification to

the order of the drawer.
QUALIFIED- which in express terms varies
the effect of the bills as drawn.
Conditional- makes payment by the acceptor
dependent on the fulfillment of a condition
therein stated.
Partial- an acceptance to pay part only of
the amount for which the bill is drawn.
Local- an acceptance to pay only at a
particular place.
Qualified as to time
The acceptance of some one or more of the
drawees but not of all.
40
41
42PROTEST (Secs. 152-160)
43
44PROTEST IS REQUIRED FOR 2 GOOD

45REASONS:
46
471.
48
492.
50
51
52
53
54
55
56
for uniformity in international transactions

bec. most countries require it; and
it furnishes authentic and satisfactory
evidence of the dishonor to the drawer, who
from
his
residence
abroad,
would
experience difficulty in verifying the matter
and thus be compelled to rely on the
representation of the holder.
591.
602.
61
62
63
a notary public; or
any respectable resident of the place where
the bill is dishonored, in the presence of 2 or
more credible witnesses.
57PROTEST MAY BE MADE BY:

58
64 Protest for better security- is one made by

65the holder of a bill after it has been accepted but
66before it matures, against the drawer and
67indorsers, where the acceptor has been
68adjudged a bankrupt or an insolvent, or has
69made an assignment for the benefit of the
70creditors.
71
72
73
74ACCEPTANCE FOR HONOR
75(Secs. 161-170)
76
77 Acceptance for honor- is an undertaking by
78a stranger to a bill after protest for the benefit of
79any party liable thereon or for the honor of the
80person for whose account the bill is drawn which
81acceptance inures also to the benefit of all
82parties subsequent to the persons for whose
83honor it is accepted, and conditioned to pay the
84bill when it becomes due if the original drawee
85does not pay it.
86
87REQUISITES OF ACCEPTANCE FOR

88HONOR:
89
901.
91
92
932.
94
95
963.
97
98
994.
100
101
the bill must have been protested for

dishonor by non-acceptance or for better
security;
the acceptor for honor must be a stranger
and not a party already liable on the
instrument;
bill must not be overdue;
1041.
1052.
106
1073.
1084.
109
1105.
111
112
must be in writing;
must indicate that it is an acceptance for
honor;
signed by the acceptor for honor;
must contain an express or implied promise
to pay money;
the accepted bill for honor must be delivered
to the holder.
acceptance for honor must be with the

consent of the holder of the instrument.
102FORMAL REQUISITES:
103
113PAYMENT FOR HONOR (Secs.171114177)

115
116 Payment for honor- is payment made by a
117person, whether a party to the bill or not, after it
118has been protested for non-payment, for the
119benefit of any party liable thereon or for the
120benefit of the person for whose account it was
121drawn.
122
123REQUISITES OF PAYMENT FOR HONOR:
124
1251. the bill has been dishonored by non126

payment;
4
Page 13
10
12. it has been protested for non-payment;

23. payment supra protest (another term for
3
payment for honor because prior protest for
4
non-payment is required) is made by any
5
person, even by a party thereto;
64. the payment is attested by a notarial act of
7
honor which must be appended to the
8
protest or form an extension of it;
9
10
115. the notarial act must be based on the
12
declaration made by the payee for honor or
13
his agent of his intention to pay the bill for
14
honor and for whose honor he pays.
15
16NOTE: If the above formalities are no complied
17with, payment will operate as a mere voluntary
18payment and the payer will acquire no right to
19full reimbursement against the party for whose
20honor he pays.
21
22 In payment for honor, the payee cannot
23refuse payment.
If he refuses, he cannot
24recover from the parties who would have been
25discharged had he accepted the same. In
26acceptance for honor, the holders consent is
27necessary.
28
29 The payer for honor is given the right to
30receive both the bill and the protest obviously to
31enable him to enforce his rights against the
32parties who are liable to him.
33
34BILLS IN SET (Secs. 178-183)
35
36BILL IN SET is one composed of several parts,
37each part being numbered and containing a
38
39reference to the other parts, the whole of the
40parts constituting but one bill.
41
42 Purpose: Are usually availed of in cases
43where a bill had to be sent to a distant place
44through some conveyance. If each part is sent
45by different means of conveyances, the chance
46that at least one part of the set would reach its
47destination would be greater.
48
49 Rights of
holders where parts are
50negotiated separately:
51
1.
if both are HIDC, the
52
holder whose title first accrues is
53
considered the true owner of the bill.
54
2.
But the person who
55
accepts or pays in due course shall
56
not be prejudiced.
57
58 Obligations of holder who indorses 2 or
59more parts of the bill in set:
60
61
1.
the person shall be
62
liable on every such part;
63
2.
every
indorser
64
subsequent to him is liable on the part
65
66
67
he has himself indorsed, as if such

parts were separate bills.
68LEGAL TENDER (R.A. 7653, NEW

69CENTRAL BANK ACT)
70
71Section 52. Legal Tender. All notes and coins
72issued by the Bangko Sentral shall be fully
73guaranteed by the Government of the Republic
74of the Philippines and shall be legal tender in the
75
76Philippines for all debts, both public and private.
77PROVIDED, however, That, unless otherwise
78fixed by the Monetary Board, coins shall be legal
79tender in amounts not exceeding Fifty pesos
80(P50.00) for denominations of Twenty-five
81centavos and above, and in amounts not
82exceeding
Twenty
pesos
(P20.00)
for
83denominations of Ten centavos or less.
84
85R.A. 8183 (Repealed R.A. 529, the Uniform
86Currency Act- Foreign currency as mode of
87payment)
88
89SECTION 1. All monetary obligations shall be
90settled in the Philippine currency which is legal
91tender in the Philippines. However, the parties
92may agree that the obligation or transaction shall
93be settled in any other currency at the time of
94payment.
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
4
Page 14
10
1
2
3
4
5
6
7
8
9
10
11
12II. CORPORATION CODE
13
14CORPORATION- artificial being created by

15operation of law having the right of succession,
16and the powers, attributes and properties
17expressly authorized by law and incident to its
18existence (Sec. 2).
19
CONCESSION THEORY juristic principle

in the creation of corporation, under which a
corporation is an artificial creature without
any existence until it has received the
imprimatur of the state acting according to
law, through the SEC.
THEORY OF CORPORATE ENTERPRISE
OR ECONOMIC UNIT corporation not
merely an artificial being, but more as an
aggrupation of persons doing business, or
an underlying business unit.
ETHNOLOGICAL THEORY Corporate
idea is the product of no one people, and no
one country but on the contrary, developed
more or less independently, in varying forms
among the several ethnological units.
IMITATIVE
THEORY
OF
JURAL
DEVELOPMENT the formation of private
corporation for certain purposes is permitted
on the condition that they did not operate in
violation of laws of the state.
471.
48
492.
50
51
52
53
PRIMARY FRANCHISE the franchise to

exist as a corporation.
SECONDARY FRANCHISE right or
privilege
conferred
upon
existing
corporation, such as to use the streets of a
municipality to lay pipes or tracks, or operate
a messenger and express delivery service.
45FRANCHISES OF CORPORATION
46
54
55DISTINCTIONS :
56
SECONDARY
1. refers to the
exercise of rights
as for
example, the right
of eminent
domain or the
partial
appropriation of
public property
2. vested in the
individuals who
compose the
corporation and
is essential to a
corporation de
jure.
2. It is deemed to
vest in the
corporation
3. it cannot be sold
or transferred
because it is
inseparable from
the corporation
itself.
3. It may be sold or
transferred; sue
or be sued;
subject to sale on
execution, subject
to levy provided
such sale is
decreed or
ordered in
judgment and is
effective only
when sale is
confirmed by
court often due
notice.
57
58
59
60
61
62
20THEORIES ON THE FORMATION OF

21A CORPORATION:
22
231.
24
25
26
27
28
292.
30
31
32
33
343.
35
36
37
38
394.
40
41
42
43
44
PRIMARY
1. refers to the
franchise of
being or
existing as a
corporation, i.
e., possessing
a unity and
continuity
of
existence
63
64ATTRIBUTES OF A CORPORATION:
65
661.
672.
683.
694.
70
71
72
It is an artificial being.
It is created by operation of law.
It enjoys the right of succession.
It has the powers, attribute and properties
expressly authorized by law or incident to its
existence.
73CLASSES OF CORPORATION:
74
751. AS TO ORGANIZERS
76
a. public by State only; and
77
b. private by private persons alone or
78
with the State.
792. AS TO FUNCTIONS
80
a. public governmental and other
81
functions; and
82
b. private usually for profit-making
83
functions
843. AS TO GOVERNING LAW
85
a. public Special Laws; and
4
Page 15
10
1
b. private Law on Private Corporations
24. AS TO LEGAL STATUS
3
a. de jure corporation corporation
4
organized
in
accordance
with
5
requirements of law
6
b. de facto corporation a corporation
7
where there exists a flaw in its
8
incorporation (Sec. 20). Its existence
9
cannot be inquired collaterally. Such
10
inquiry may be made by the Solicitor
11
General in a quo warranto proceeding
12
(Sec. 20).
13
14
15
16
17
18
19REQUISITES OF DE FACTO
20CORPORATION:
21
221.
23
242.
253.
264.
27
28
29
The existence of a valid law under which it

may be incorporated;
An attempt in good faith to incorporate;
Use of corporate powers; and
Issuance of certificate of incorporation by
the SEC as a minimum requirement of
continued good faith.
30
c. corporation by estoppel groups of
31
32
33
34
35
36
persons which holds itself out as a

corporation and enters into a contract with
a 3rd person on the strength of such
appearance. It cannot be permitted to
deny its existence in an action under said
contract (Sec. 21).
37
38
39
40
41
42
43
445.
45
46
47
48
49
50
51
52
53
54
55
56
576.
58
59
60
61
62
63
64
d. corporation by prescription body that

though not lawfully organized as a
corporation, has been duly recognized by
immemorial usage as a corporation, with
rights and duties maintainable at law.
AS TO EXISTENCE OF SHARES OF
STOCK
a. stock corporation a corporation in
which capital stock is divided into shares
and is authorized to distribute to holders
thereof of such shares dividends or
allotments of the surplus profits on the
basis of the shares held. (Sec. 3).
b. Non-stock corporation not issue stocks
and not distribute dividends to their
members, for public good and welfare.
AS TO RELATIONSHIP OF MANAGEMENT
AND CONTROL
a. holding corporation - it is one which
controls another as a subsidiary by the
power to elect management. It is one
which holds stocks in other companies
for purposes of control rather than for
65
66
67
68
69
70
71
mere investment. It has a passive

portfolio merely holding securities for
control
and
management,
as
distinguished from an active investment
policy which has an active portfolio
buying and selling securities
75
76
one corporation owns 51%-94% of the

capital stock of another corporation.
WHOLLY OWNED SUBSIDIARY where
one corporation holds 95% to 100% of the
capital stock of another corporation.
72TWO KINDS OF SUBSIDIARIES

73
741. MAJORITY OWNED SUBSIDIARY where
772.
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
1017.
102
103
104
105
106
107
108
109
110
111
1128.
113
114
115
116
117
118
119
b. Affiliates company which is subject to

common control of a mother holding
company and operated as part of the
system.
c. parent and subsidiary corporation separate entities with power to contract
with each other. The board of directors
of the parent company determines its
representatives to attend and vote in the
stockholders meeting of its subsidiary.
The stockholders of the parent company
demand representation in the board
meetings of its subsidiary. The board of
directors of the parent or holding company
has the prerogative to choose its nominees
in the board of directors or its subsidiary.
AS TO PLACE OF INCORPORATION
a. Domestic corporation- corporation
formed, organized or existing under laws
b. Foreign Corporation a corporation
formed , organized or existing under any
laws other than those of the Philippines
and whose laws allow Filipino citizens
and corporation to do business in its own
country or state (Section 123).
OTHER CORPORATIONS
a. Close Corporation
b. Special Corporation
1. educational corporation
2. religious corporation
a. corporation sole
b. religious societies
120
121ACQUIRED ASSET CORPORATION
122
123(a) organized under general corporation law
124under private
ownership where at least a
125majority of the shares of stock of which were
126conveyed to a government corporation in
127satisfaction of a debt incurred with a government
4
Page 16
10
1financial institution, whether by foreclosure or

2otherwise; or
3(b) a subsidiary corporation of a government
4corporation organized exclusively to own and
5manage, or lease or operate specific physical
6assets acquired by a government financial
7institution in satisfaction of debts incurred
8therewith (PD 2029, Sec. 3 c).
9
10RULE ON CONVERSION
11
121. STOCK CORPORATION TO NON-STOCK
13 An existing stock corporation may be
14
converted into a non-stock corporation by
15
mere amendments of its articles of
16
incorporation.
17
18
19
202. CONVERSION OF NON-STOCK
21
CORPORATION TO STOCK
22
CORPORATION
23
24 Mere amendment of the articles would not
25
suffice as it would change its very nature
26
from non-profit to monetary gain. It is
27
fundamental that the non-stock corporation
28
be dissolved first. A non-stock corporation
29
only holds its funds in trust for carrying out
30
the objectives expressed in its charter. The
31
conversion without dissolving it first would
32
be tantamount to distribution of its assets or
33
income to its members inasmuch as after its
34
conversion, the asset of the non-stock
35
corporation would now be treated as
36
payment to the subscriptions of the
37
members who will now become stockholders
38
of the corporation. Moreover, the scheme
39
might defraud the public
40
41who may have given donations not for the
42benefit of the stockholders but for organization
43purposes.
44
45ADVANTAGES OF CORPORATION AS
46AGAINST UNREGISTERED
47ASSOCIATION
48
491.
50
512.
523.
534.
54
555.
56
576.
58
59
enjoys
perpetual
succession
under
corporate name and in an artificial form
can take and grant property
can contract obligations
can sue and be sued in its corporate name
as a juridical person
capacity to receive and enjoy common
grants of privileges and immunities
no personal liability beyond value of their
shares
60DOCTRINE OF SEPARATE
61PERSONALITY
62
63
A corporation has a personality separate
64and distinct from that of its stockholders or
65members.
66
67PIERCING DOCTRINE OF THE VEIL OF

68CORPORATE FICTION
69
70 Allows the state to disregard for certain
71justifiable reasons the fiction of juridical
72personality for the corporation, separate and
73distinct from the persons composing it.
74
75THREE CLASSES OF PIERCING:

76
771.
78
792.
80
81
82
83
Fraud Cases when a corporation is used

as a cloak to cover fraud, or to do wrong
Alter Ego Cases when the corporate entity
is merely a farce since the corporation is an
alter ego, business conduit or instrumentality
of a person or another corporation
84
85INSTRUMENTALITY RULE- Where one
86corporation is so organized and controlled and
87its affairs are conducted so that it is in fact, a
88mere instrumentality or adjunct of the other, the
89fiction of the corporate entity of the
90instrumentality may be disregarded. The
91control necessary to invoke the rule is not mere
92majority or even complete stock control but such
93domination of finances, policies, practices that
94the controlled corporation has, so to speak, no
95separate mind, will or existence of its own, and
96is, but a conduit for its principal.
973. Equity cases when piercing the corporate
98fiction is necessary to achieve justice or equity
99
100COMPONENTS OF A CORPORATION:
1011.
1022.
1033.
1044.
1055.
106
1076.
1087.
109
incorporators;
corporators;
stockholders and members;
promoter;
board of directors;
executive committee; and
officers of the corporation.
110INCORPORATORS-
They
are
those
111mentioned in the articles of incorporation as
112originally
forming
and
composing
the
113corporation, having signed the articles and
114acknowledged the same before a notary public.
115They have no powers beyond those vested in
116them by the statute.
117
118 Only natural persons can be incorporators
119
except when otherwise allowed by law as in
120
the case of incorporated cooperative which
121
are allowed to be incorporators of rural
122
banks.
123
124NUMBER AND QUALIFICATION OF
125INCORPORATORS: (Sec. 10)
126
4
Page 17
10

11.
22.
33.
44.
5
65.
7
8
natural person;
not less than 5 but not more than 15;
of legal age;
majority must be resident of the Philippines;
and
each must own or subscribe to at least one
share.
9DISTINCTIONS :
10
INCORPORATORS
CORPORATORS
1. signatory to articles
1. stockholder of
stock corporation
or member of
non-stock
corporation
2. cease to be such
if they are no
longer
stockholders
2. do not cease to be
such
11
12
13
3. number is limited
t0 5-15
4. must have
contractual capacity
3. no restriction as
number
4. may be such
through a
guardian
14
15CONTENTS OF ARTICLES OF
16INCORPORATION (SEC. 14):
17
181.
192.
20
213.
224.
235.
24
256.
26
277.
28
29
30
31
328.
33
34
359.
36
37
38
3910.
40
4111.
42
43
44
45
46
name of corporation;
purpose/s, indicating the primary and
secondary purposes;
place of principal office;
duration;
names, citizenship and residences of
incorporators;
number, names, citizenship and residences
of directors;
if stock corporation, amount of capital stock,
number of shares and in case of par value
stock corporations, the par value of each
share;
names, residences, number of shares and
amounts of subscription of subscribers
which shall not be less than 25% of ACS;
names, residences, and amount paid by
each subscriber on their subscription, which
shall not be less than 25% of total
subscription;
name of treasurer elected by subscribers;
and
if the corporation engages in a nationalized
industry, a statement that no transfer of
stock will be allowed if it will reduce the
stock ownership of Filipinos to a percentage
below the required legal minimum.
47WHAT CANNOT BE AMENDED IN THE

48ARTICLES OF INCORPORATION
49
50Those matters referring to facts existing as of
51the date of the incorporation such as:
52
531. names of incorporators;
542. names of original subscribers to the capital
55
stock of the corporation and their subscribed
56
and paid up capital;
573. treasurer elected by the original subscribers;
584. members who contributed to the initial
59
capital of a non-stock corporation;
605. date and place of execution of the articles of
61
incorporation;
626. witnesses to and acknowledgment of the
63
articles.
64
65LIMITS ON THE USE OF CORPORATE

66NAME
67
681.
69
70
712.
723.
73
74
Names which are identical, deceptively or

confusingly similar to that of any existing
corporation;
a name already protected by law;
a name which is patently deceptive,
confusing or contrary to existing laws.
75DISTINCTIONS :
76
ARTICLES OF
INCORPORATION
BY-LAWS
1. It is essentially a
contract between the
corporation and the
stockholders/
members; between
the stockholders/
member inter se, and
between the
corporation and the
State; hence must be
notarized themselves;
1. It is more of a
rule for the
internal
government of
the corporation
but has the force
of a contract
between the
corporation and
the stockholders/
members, and
between the
stockholders and
members;
2. It is usually
executed after
the incorporation
although Sec. 46
allows
simultaneous
filling of the two;
2. It is executed
before incorporation
3.It is a condition
precedent in the
acquisition of
corporate
existence;
3.It is a condition
subsequent;
4. It is amended by a
majority of the
directors/ trustees
and stockholders
representing 2/3 of
the outstanding
4. It may be
amended by a
majority vote of
the BOD and
majority vote of
outstanding
4
Page 18
10

capital stock, or 2/3

of the members in
case of non-stock
corporations
5. Power to
amend/repeal
articles cannot be
delegated by the
stockholders/
members to the
board of directors/
trustees.
capital stock or a
majority of the
member in nonstock corporation
5. Power to amend
or repeal by-laws
or adopt new bylaws may be
delegated by the
2/3 of the
outstanding
capital stock or
2/3 of the
members in the
case of nonstock
corporation.
1
2
3
4
5
6ELEMENTS OF A VALID BY-LAWS:

7
81.
9
10
112.
12
133.
14
154.
16
17
18
19
20
215.
22
23
24
25
26
276.
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Must not be contrary to existing law nor

inconsistent with the Code, else they have
no binding effect;
Must not be contrary to morals and public
policy State will interfere if it is so;
Must not impair contract obligations Art III
Sec 10,1987 Constitution
Must be general and uniform they must
affect all alike, and operate equally as to all
persons or matters standing in equal status
or
circumstances
and
without
any
unreasonable discrimination as to any
particular person or thing of the class;
Must be consistent with the charter or
articles of incorporation charter is used
here in its broadest sense without regard to
whether the statutory right to be a
corporation is obtained by special act or
under general statutes;
Must be reasonable ,not arbitrary or
oppressive . Reasonableness depends
upon:
a. Facts and circumstances of the case
b. Nature, Purpose, Object of the
corporation
c. Whether or not it is within the
corporations power of adoption
d. The relation which the person raising the
question sustains to the corporation, i.e.
whether he is a stockholder or member
or stranger to the corporation.
-Thus a by-law may be reasonable as to
the corporation and as to the third
persons contracting subsequently to its
adoption with the corporation, and yet
be invalid as to third persons sustaining
45
46
47
48
49
at no time of its adoption, contractual

relations with the corporation
- If stockholders alone are affected,
only they can attack.
50BINDING EFFECTS OF BY-LAWS:

51
521. AS TO MEMBERS AND CORPORATION53 They have the same force and effect as the
54
provisions of the charter and articles of
55
incorporation. They have the force of
56
contract between the members themselves.
57 They are binding only upon the corporation
58
adopting them and on its members and
59
those having direction, management and
60
control of its affairs.
612. AS TO THIRD PERSONS
62 Strangers are not bound to know the by63
laws which are merely provisions for the
64
government of a corporation and notice to
65
them will not be presumed.
66
67Rationale: by-laws have no extra-corporate
68force and are not in the nature of legislative
69enactments so far as third persons are
70concerned.
71
72POWERS OF A CORPORATION
73
74KINDS:
75
76
1. Express Powers granted by law ,
77
Corporation Code and its Articles of
78
Incorporation or Charter
79
2. Inherent / Incidental Powers not
80
expressly stated but are deemed to be
81
within the capacity of corporate entities
82
3. Implied / Necessary exists as a
83
necessary consequence of the exercise
84
of the express powers of the corporation
85
or the pursuit of its purposes as
86
provided for in the Charter
87
88THEORY OF GENERAL CAPACITY
89corporation is said to hold such powers as are

90not prohibited or withheld from it by general law
91(everything is allowed except when prohibited).
92
93THEORY OF SPECIAL CAPACITY

94corporation cannot exercise powers except
95those expressly or impliedly given (everything is
96prohibited except when allowed).
97
98A. GENERAL CORPORATE POWERS

99AND CAPACITY (SEC. 36):
100
1011.
1022.
1033.
1044.
1055.
1066.
107
To sue and be sued;

Of succession;
To adopt and use of corporate seal;
To amend Articles;
To adopt by-laws;
For stock corporations issue and sell
stocks to subscribers and treasury stocks,
4
Page 19
10
1
for non-stock corporations admit
2
members;
37. Purchase;
4
Receive } real property
5
Grant } personal property
6
Take
} securities and
7
Deal
} bonds
88. to enter into merger or consolidation;
99. to make reasonable donations for:
10
a. public welfare;
11
b. hospital;
12
c. charitable;
13
d. cultural;
14
e. scientific;
15
f. civic; and
16
g. similar purposes
17
Prohibitions : no donation to
18i
i.political party;
19ii ii.candidate; and
20
iii.partisan political activity.
21
2210. to establish;
23
a. pension
24
b. retirement
25
c. and other plans for the benefit of
26
i. directors;
27
ii. trustees;
28
iii. officers;
29
iv.employees.
30
3111. Other powers essential or necessary to
32
carry out its purposes
33
34RESTRICTIONS ON THE POWER TO MAKE
35DONATIONS:
36
371.
38
39
402.
41
423.
43
The donation must be reasonable, otherwise

it would be tantamount to a conversion of
corporate funds;
That it must not be in aid of any political
party or candidate;
That it must not be for purposes of partisan
political activity.
44
45B. SPECIAL POWERS
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
1. Power to extend or shorten corporate

term
2. Increase / Decrease Corporate Stock
3. Incur, Create Bonded Indebtedness
4. Sell, Dispose. Lease, Encumber all or
substantially all of corporate assets
5. Purchase or acquire own shares
provided:
(i)
there is an unrestricted
retained earnings
(ii)
for legitimate purpose
6. Invest corporate funds in another
corporation or business for other
purpose other than primary purpose
7. Power to declare dividends out of
unrestricted retained earnings
65
66
8. Enter into management contract.
67MANAGEMENT CONTRACT one entered

68into between two corporations whereby one
69corporation undertakes to manage all or
70substantially all of the business of the other
71corporation for certain period of time, whether
72such be a service contract, operating agreement
73or otherwise.
74
75ULTRA VIRES ACT AND ILLEGAL ACTS

76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
An ultra vires act is not necessary illegal

although an illegal act is always ultra vires.
When the act of a corporation are spoken of
as ultra vires, it is not intended that they are
unlawful but merely those which are beyond
the powers conferred upon the corporation
by the act of its creation, and are in violation
of the trust reposed in the managing board
by the shareholders that the affairs of the
corporation shall be managed and the funds
applied solely for carrying out business
objectives. An illegal act however is one
which is expressly prohibited by the charter
or statute or which is immoral or against
public policy.
951.
96
972.
98
99
1003.
101
102
1034.
104
105
106
executed contract courts will not set aside

or interfere with such contracts;
executory contracts no enforcement even
at the suit of either party (void and
unenforceable);
part executed and part executory principle
of no unjust enrichment at expense of
another shall apply; and
executory contracts apparently authorized
but ultra vires the principle of estoppel
shall apply.
93EFFECTS OF ULTRA VIRES ACT ON:

94
107WASTING ASSET DOCTRINE- It permits

108corporations solely or principally engaged in the
109exploitation of wasting assets to distribute the
110net proceeds derived from exploitation of their
111holdings such as mines, oil wells, patents and
112leaseholds, without allowance or deduction for
113depletion.
114
The justification of such rule is that as
115the business of wasting asset corporation is to
116exploit and exhaust its assets, no one can
117expect that its capital would be kept intact.
118Hence that dividends cannot be paid out of the
119capital but only from the profits must not be
120applied as a rule.
121
122
123NOTE: RELATION TO THE TRUST FUND
124DOCTRINE -
125Under the Doctrine, no dividends can be

126declared out of capital except only in two
127instances: (1) liquidating dividends and (2)
4
Page 20
10
1dividends from investments in wasting asset

2corporation.
3
4BOARD OF DIRECTORS REPOSITORY

5OF CORPORATE POWERS unless
6otherwise provided by the Code, the corporate

7powers of all corporation shall be exercised, all
8business conducted and all property of such
9corporations controlled and held by the board of
10directors or trustees to be elected from among
11the members of the corporation, who shall hold
12office for one year and until their successors are
13elected and qualified.
14
15Except:
161. Executive Committee; or
172. The corporation enters into a management
18
contract.
19
20QUALIFICATIONS OF DIRECTORS/
21TRUSTEES:
22
231. He must own at least (1) share capital stock

24
of the corporation in his own name, and if he
25
ceases to own at least one share in his own
26
name, he automatically ceases to be a
27
director. For non-stock corporation, only
28
members of the corporation can be elected
29
to seat in the board of trustees (Sec. 23).
302. A majority of the directors/ trustees must be
31
residents of the Philippines
32
(Sec. 23).
333. He must not have been convicted by final
34
judgment of an offense punishable by
35
imprisonment for a period exceeding six (6)
36
years or a violation of the Corporation Code,
37
committed within five years from the date of
38
his election
39
(Sec. 27).
404. He must not have a substantial interest in a
41
competing corporation.
425. Only natural persons can be elected
43
directors/trustees.
446. Other qualifications as may be prescribed in
45
the by-laws of the corporation.
46
47BUSINESS JUDGMENT RULE.- The board of
48directors is the body usually entrusted with the
49general control and management of the
50business of the corporation having plenary
51power/ authority to transact all the ordinary
52business of the corporation within the scope of
53its charter power. The SEC, stockholders and
54the courts cannot overrule a pure business
55judgment.
56
57THREE-FOLD DUTIES OF DIRECTORS;

58
59
60
61
62
63
64
1. Duty of Obedience- they will direct the

affairs of the corporation only in
accordance with the purposes for which it
was organized;
2. Duty of Diligence-
3. Duty of Loyalty
65
66SOLIDARY LIABILITY OF DIRECTORS
67FOR DAMAGES(SEC. 31):
68
691.
70
71
722.
73
743.
willfully and knowingly vote for and assent to

patently unlawful acts of the corporation;
and
guilty of gross negligence or bad faith in
directing the affairs of the corporation;
acquire any personal or pecuniary interest in
conflict of duty.
811.
822.
83
84
85
86
injunction, if the act has not yet been done;

dissolution if the abuse amounts to a ground
for quo warranto but the Solicitor General
refuses to act; and
derivative suit or complaint filed with SEC.
75
76
77REMEDIES IN CASE OF
78MISMANAGEMENT:
79
801. receivership;
87SPECIAL FACT DOCTRINE director takes

88advantage of an information by virtue of his
89office to the disadvantage of the corporation.
90
91INHERENT POWER OF AMOTION - It is
92the power to remove directors, officer and
93trustees prior to the expiration of their term.
94
95DOCTRINE
OF
CORPORATE
96OPPORTUNITY if there is presented to a
97corporate officer or director a business

98opportunity which:
991. corporation is financially able to undertake;
1002. from its nature, is in line with corporations
101
business and is of practical advantage to it;
102
and
1033. one in which the corporation has an interest
104
or a reasonable expectancy.
105
106 By embracing the opportunity, the self107
interest of the officer or director will be
108
brought into conflict with that of his
109
corporation, the law will not permit him to
110
seize the opportunity.
111
112SELF-DEALING DIRECTORS- those who
113personally contract with the corporation in which
114they are directors. It is discouraged because
115there can be no real bargaining where the same
116is acting on both sides of the trade.
117
118REQUIREMENTS FOR THE VALIDITY OF

119CONTRACTS
OF
SELF-DEALING
120DIRECTORS:
121
122
123
124
125
126
1. All the requisites in Sec. 32, to wit:

a) The
presence
of
such
director/trustee in the board meeting
approving the contract was not
4
Page 21
10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
necessary for constituting a quorum

for such meeting;
b)The vote of such director/trustee in
the board meeting approving the
contract was not necessary for the
approval of the contract;
c) The contract is fair and
reasonable
under
the
circumstances;
In the case of an officer, there
was previous authorization by the
board of directors.
2. Although not all said conditions are
present, the corporation elects not to
attack or question the validity of the
contract without prejudice to the
liability
of
the
consenting
director/trustee for damages under
Sec. 31.
3.Where any of the first two conditions is
absent, said contract must be ratified by
the vote of the stockholders representing
at least 2/3 of the outstanding capital stock
or 2/3 of the members in a meeting called
for the purpose, provided that full
disclosure of the adverse interest of the
director/ trustee involved is made at such
meeting.
32INTERLOCKING DIRECTORS- They are

33those who sit in the boards of two or more
34corporations that transact business with one
35another or contract with each other whether on
36isolated or regular basis not only because one
37has big investments therein but also because
38his services may have been proven to be
39valuable, competent and efficient.
40
41REQUIREMENTS FOR VALIDITY OF

42CONTRACTS OF INTERLOCKING
43DIRECTORS:
44
451.
462.
47
483.
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
The contract is not fraudulent.

The contract is fair and reasonable under
the circumstances.
If the interlocking directors interest in one
corporation or corporations is nominal(not
exceeding 20% of the outstanding capital
stock), then all the conditions prescribed in
Sec. 32 on self-dealing directors must be
present with respect to the corporation in
which he has 20% or less interest:
a. the presence of the interlocking
director in the board meeting in
which the contract was approved
was not necessary for the approval
of the contract;
b. the vote of such director is not
necessary for the approval of the
contract.
64LIMITATIONS ON THE POWERS OF

65EXECUTIVE COMMITTEE (SEC.35):
66
67It cannot act on the following:
681. matters needing stockholder approval;
692. filling up of board vacancies;
70
713. amendment, repeal or adoption of by-laws;
724. amendment or repeal of any resolution of
73
the Board which by its express terms is not
74
amendable or repealable and
755. cash dividend declaration
76
77CORPORATE OFFICERS (SEC. 25):
78
791. President who shall be a director;
802. Treasurer who may or may not be a
81
director;
823. Secretary who shall be a resident and
83
citizen of the Philippines; and
844. such other officers as may be provided in
85
the by-laws.
86
87CORPORATE ACTS see table on page 35 .
88
89DOCTRINE OF INDIVIDUALITY OF
90SUBSCRIPTION- A subscription is one entire
91and indivisible whole contract. It cannot be
92divided into portions. (Sec. 64)
93
94VALID CONSIDERATIONS IN
95SUBSCRIPTION AGREEMENT: (SEC. 62)
96
971. Cash;
982. Property;
993. Labor or services actually rendered to the
100
corporation;
1014. Prior corporate obligations;
1025. Amounts transferred from unrestricted
103
retained earning to stated capital,
1046. Outstanding shares in exchange for stocks
105
in the event of reclassification or conversion.
106
107NOTE: shares of stock shall not be issued in
108exchange for promissory notes or future
109services.
110
111PRE-INCORPORATION SUBSCRIPTION
112CONTRACT subscription of shares of stock
113of a corporation still to be formed shall be

114irrevocable for a period of at least 6 months from
115date of subscription, unless:
1161. all of the other subscribers consent to the
117
revocation;
1182. the incorporation of said corporation fails to
119
materialize with said period or within a
120
longer period as may be stipulated in the
121
contract of subscription; provided that no
122
pre-incorporation subscription may be
123
revoked after the submission of the articles
124
of incorporation to the SEC (Sec.61).
125
126
127
4
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10
1
2CAPITAL STOCK OR LEGAL STOCK OR
3STATED CAPITAL the amount fixed by the
1. unit of interest in a
corporation
4corporate charter to be subscribed and paid in

5cash, kind or property at the organization of the
6corporation or afterwards and upon which the
7corporation is to conduct its operation.
8
9CAPITAL actual property or estate of the
10corporation whether in money or property.
1. Evidence of the
holders ownership of
the stock and of his
right as a shareholder
and of his extent
specified therein.
2. it is an incorporeal
or intangible property
2. It is concrete and
tangible
3. it may be issued by
the corporation even if
the subscription is not
fully paid.
3. It may be issued
only if the
subscription is fully
paid.
Situs is generally
the state where
the corporation
has its domicile
a) For purposes of
taxation, situs is
inconsistent with an
express provision of
the statute or it is
unjust.
b)To register the
chattel mortgages over
the shares of stock the
status is the
duty/promise in which
the corporation has its
principal place of
business.
c)For purposes of
execution, it is the
domicile of the
corporation.
4.The situs may be

the place where it is
located or at the
domicile of the owner
even though the
domicile of the owner,
except when
corporation is
dominated
elsewhere.
11
12AUTHORIZED CAPITAL STOCK total
13amount in the charter, which may be raised by
14the corporation for its operations.
15
16WAYS OF INCREASING THE CAPITAL

17STOCK:
18
191. by increasing the number of shares and

20
retaining the par value;
212. by changing the par value of existing shares
22
without increasing the number of shares;
233. by increasing the number of shares and
24
increasing the par value.
25 The way of increase varies according to the
26
reason for the increase, and is left to the
27
sound judgment of the board of directors,
28
subject to ratification by the stockholders.
29
30SHARES OF STOCK interest or right which
31owner has in the management of the
32corporation, and its surplus profits, and, on
33dissolution, in all of its assets remaining after the
34payment of its debt.
35WORKING CAPITAL excess of current assets
36over current liabilities.
37CIRCULATING CAPITAL refers to the total
38amount of current assets.
39
40DISTINCTIONS:
CAPITAL STOCK
- the amount paid

in or secured to
be paid in by the
stockholders
upon which the
corporation is to
conduct its
operation. It is
the property of
the corporation
itself (monetary
value).
SHARES OF
STOCK
- the interest or
right which the
stockholder has in
the management
of the corporation,
and its surplus
profits, and upon a
dissolution, in all of
its assets
remaining after
payment of
corporate debts.
Share of stock
belongs to the
individual
stockholders and
not to the
company.
41
42DISTINCTIONS :
SHARE OF STOCK
CERTIFICATE OF
STOCK
4.
43
44
45UNDERWRITING AGREEMENT- It is an
46agreement between a corporation and a third
47person, termed the underwriter, by which the
48latter agrees, for a certain compensation, to take
49a stipulated amount of stocks or bonds, specified
50in the underwriting agreement, if such securities
51are not taken by those to whom they are first
52offered.
53
54DISTINCTIONS :
UNDERWRITING
AGREEMENT
STOCK
SUBSCRIPTION
AGREEMENT
1. The signers
obligate themselves
to take the shares of
stock which cannot
be sold.
2. Underwriters are
usually allowed a
commission.
3. In pure
underwriting
agreement, the signer
1. The obligation of the

signer to the
purchasers and to the
public is absolute.
2. There is no
commission.
3. He becomes a
stockholder of the
company and is liable
4
Page 23
10

can refuse to become

a stockholder/
member of the
company in
pursuance of his
contract with the
promoter.
1
2
to pay the amount due

on the stock.
3MINIMUM CAPITAL STOCK REQUIRED

4(SEC. 12)
5
6GENERAL RULE : NO minimum required for

7capital stock.
8
Except:
9
1.
Domestic
Insurance
10
Corporations P500T capital stock;
11
50% subscribed and the balance
12
payable in 12 months.
13
2.
Private Development Banks
14
P4M for class A
15
P2M for class B
16
P1M for class C
17
3.
Investment Companies paid
18
up at least P500T
19
4.
Savings and Loan Corporation
20
to be fixed by the Monetary Board but
21
not less than P100T.
22
5.
Financing Companies
23
Paid up:
P2M for Metro
24
Manila
25
P1M for Cities
26
P500T for others
27
28AMOUNT OF CAPITAL STOCK TO BE

29SUBSCRIBED AND PAID FOR
30PURPOSES OF CORPORATION
31(SEC. 13):
32
33
34
35
36
37
38
25% of ACS must be subscribed at time of

incorporation; and
25% of total subscription must be paid
upon subscription but must not be less than
P5,000
411.
42
43
44
452.
46
47
48
49
50
51
52
53
54
55
56
PREFERRED SHARES issued with par

value and preference may be to (a) assets
after dissolution, (b) distribution of dividends
and other preferences;
REDEEMABLE SHARES (SEC. 8) are
those which permit the issuing corporation to
redeem or purchase its own shares.
39CLASSIFICATION OF SHARES (SEC. 6):

40
LIMITATIONS ON THE ISSUANCE OF

REDEEMABLE SHARES:
1.
Redeemable shares may be
issued only when expressly provided for
in the articles of incorporation (Sec. 8).
2.
The terms and conditions
affecting said shares must be stated
57
both in the articles of incorporation and
58
in the certificate of stock representing
59
such share (Sec. 8).
60
3.
Redeemable shares may be
61
deprived of voting rights in the articles of
62
incorporation, unless otherwise provided
63
in the Code.
64
653. TREASURY SHARES (SEC. 9) 66
shares which have been earlier issued as
67
fully paid and have thereafter been acquired
68
by the corporation by purchase, donation,
69
redemption or through some lawful means.
70
71 IF
PURCHASED
FROM
THE
72
STOCKHOLDERS the transaction in effect
73
is a return to the stockholders of the value of
74
their investment in the company and a
75
reversion of the shares to the corporation.
76
The corporation must have surplus profits
77
with which to buy the shares so that the
78
transaction will not cause an impairment of
79
the capital.
80
81 IF
BY
DONATION
FROM
THE
82
STOCKHOLDERS the act would amount
83
to a surrender of their stock without getting
84
back their investments which are instead,
85
voluntarily given to the corporation.
86
874. FOUNDERS SHARE (SEC. 7);
885. NON-VOTING SHARES;
896. VOTING SHARES
907. COMMON SHARE is the basic class of
91
stock ordinarily and usually issued without
92
extraordinary rights and privileges and the
93
owners thereof are entitled to a pro rata
94
share in the profits of the corporation and in
95
its assets upon dissolution and likewise in
96
the management of its affairs without
97
preference or advantage whatsoever.
988. PROMOTERS SHARES are those issued
99
by mining corporations to owners of mines
100
who transferred their mining rights to such
101
corporations or they are shares issued to
102
promoters of a corporation.
1039. ESCROW STOCK deposited with 3rd
104
person to be delivered to S/H or his assign
105
after complying with certain conditions,
106
usually payment of full subscription price;
10710. OVER-ISSUED STOCK are those issued
108
in excess of the authorized capital stock.
10911. WATERED STOCK issued as fully paid
110
when in fact it is not (Sec.65);
111
112WATER IN THE STOCK- It represents the
113difference between the fair market value at the
114time of the issuance of the stock and the par or
115issued value of said stock. Both par and no-par
116stocks can thus be watered stocks.
117
11812. PAR VALUE SHARES- value in fixed in the
119
articles of incorporation
12013. NO PAR VALUE SHARES- shares having
121
no par value but have issued value stated in
4
Page 24
10
1
2
the articles of incorporation or to be fixed by

the Board
4
5
LIMITATIONS ON THE ISSUANCE OF

NO PAR VALUE SHARES:
3
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2914.
30
3115.
32
33
3416.
35
36
37
3817.
39
4018.
41
42
43
44
45
4619.
47
48
49
5020.
51
52
5321.
54
55
56
5722.
58
59
6023.
61
62
63
64
65
1.
No par value shares cannot
have an issued price of less than P5.00
while the par value of a share can be as
low as 1 cent.
2.
The entire consideration for its
issuance constitutes capital so that no
part of it should be distributed as
dividends.
3.
They cannot be issued as
preferred stocks.
4.
They cannot be issued by
banks, trust companies, insurance
companies, public utilities and building
and loan association.
5.
The articles of incorporation
must state the fact that it issued no par
value shares as well as the number of
said shares.
6.
Once issued, they are deemed
fully paid and non-assessable.
DEBENTURE charged on the net earning
and profit of the corporation;
DEFERRED SHARES are those which are
entitled to dividends after the payment of
holders of common share.
STOCK WARRANT security which entitle
holder the right to subscribe to, or purchase
from, the unissued capital stock of a
corporation in the future;
SCRIP applied to certificates issued by
trustee in a voting trust;
STREET CERTIFICATE stock certificate
endorsed by the registered holder in blank
and transferee can command its transfer to
his name from the issuing corporation. The
certificate may be transferred by mere
delivery; and
CUMMULATIVE PREFERRED SHARES
which entitle the holder thereof to payment
of current dividends as well as dividends in
arrears.
NON-CUMMULATIVE which entitle the
holder thereof only to the payment of current
and not past dividends.
PARTICIPATING which entitle the holder
thereof to participate with the holders of
common shares after their preferred rights
has been satisfied.
NON-PARTICIPATING which entitle the
holder to payment of the stipulated preferred
dividends and no more.
CUMMULATIVE-PARTICIPATING which
entitle the holder thereof to payment of
dividends in arrears, and also after receiving
his preferred shares of dividends, to
participation with the holders of common
stock in the remaining profits.
66
67MATTERS WHERE HOLDERS OF NON68VOTING SHARES MAY VOTE (SEC. 6):

69
701.
71
722.
733.
74
754.
765.
77
786.
797.
80
818.
82
amendment of Articles of Incorporation;

adoption and amendment of by-laws;
increase
or
decrease
of
bonded
indebtedness;
increase or decrease of capital stock;
sale or disposition of all or substantially all of
corporate property;
merger or consolidation of corporation;
investments of funds in another corporation
or another business purpose; and
corporate dissolution.
83DOCTRINE OF EQUALITY OF SHARES84Where the articles of incorporation do not

85provide for any distinction of the shares of stock,
86all shares issued by the corporation are
87presumed to be equal and enjoy the same rights
88and privileges and are also subject to the same
89liabilities.
90
91TRUST FUND DOCTRINE the subscribed
92
93capital stock of the corporation is a trust fund for
94the payment of debts of the corporation which
95the creditors have the right to look up to satisfy
96their credits. Corporation may not dissipate this
97and the creditors may sue stockholders directly
98for the unpaid subscription.
99
100REACQUISITION BY CORPORATION OF
101ITS STOCK (SEC. 41):
102
1031.
1042.
105
1063.
1074.
108
to eliminate fractional shares;

to compromise an indebtedness arising out
of unpaid subscription;
to purchase delinquent shares; and
to exercise its right of appraisal.
1111.
112
113
114
1152.
116
117
118
119
120
121
122
123
124
125
126
127
DIRECT OR INDIRECT PARTICIPATION IN

MANAGEMENT
a. voting rights (Sec. 6); and
b. right to remove directors (Sec. 28)
PROPRIETARY RIGHTS
a. right to dividends;
b. appraisal right (Sec. 81);
c. rightr to issuance of stock certificate for
fully paid shares (Sec.64);
d. proportionate
participation
in
the
distribution of assets in liquidation
(Sec.118-119);
e. right to transfer of stocks in corporate
books (Sec. 63);
f. preemptive right (Sec. 39);
g. right to inspect books and records (Sec.
74);
109RIGHTS OF STOCKHOLDERS:
110
4
Page 25
10
1
h. right to be furnished of the most recent
2
financial statement/ financial report
3
(Sec. 74 and 75);
4
i. right to recover stocks unlawfully sold for
5
delinquent payment of subscription.
6
73. REMEDIAL RIGHTS
8
a. individual suit;
9
b. representative suit; and
10
11
12
c. derivative suit - suit brought by S/H, for
13
and in behalf of the corporation and
14
against any person he be also a S/H,
15
director, officer or 3rd person.
16
17
REQUISITES:
18
i.
the party bringing suit should be
19
a shareholder as of the time of
20
the
act
or
transaction
21
complained of;
22
ii.
he
has
exhausted
intra23
corporate remedies; and
24
iii.
the cause of action actually
25
devolves on the corporation, the
26
wrongdoing or harm having
27
been caused to the corporation
28
and not to the particular
29
stockholder bringing the suit.
30
31PREEMPTIVE RIGHT OF STOCKHOLDERS
32shareholders right to subscribe to all issues or
33dispositions of shares of any class in proportion
34to his present stockholdings, the purpose being
35to enable the shareholder to retain his
36proportionate control in the corporation and to
37retain his equity in the surplus.
38
39OBLIGATIONS OF A STOCKHOLDER:
40
411. Liability to the corporation for unpaid
42
subscription (Sec. 67-70)
432. Liability to the corporation for interest on
44
unpaid subscription if so required by the by45
laws (Sec. 66)
463. Liability to the creditors of the corporation for
47
unpaid subscription (Sec. 60)
484. Liability for watered stock (Sec. 65)
495. Liability for dividends unlawfully paid (Sec.
50
43)
516. Liability for failure to create corporation
52
(Sec. 10)
53
54UNKNOWN STOCKHOLDER- They are owners
55of stock who cannot be located or identified. A
56trust relation is created between them and the
57corporation and their shares shall stand in the
58name of the corporation as a trustee.
59
60 HOW IDENTIFIED:
61 Through a publication in a newspaper of
62
general circulation. If this proves futile, it is
63
nevertheless the fiduciary duty of the
64
corporation to continuously hold such shares
65
66
67
as trustees for the owners, unless otherwise

escheated in accordance with law.
68LIMITATIONS ON THE STOCKHOLDERS

69RIGHT TO VOTE:
70a. Where the articles of incorporation provides
71
for classification of shares pursuant to Sec.
72
6, non-voting shares are not entitled to vote
73
except as provided for in the last paragraph
74
of Sec. 6.
75
76b. Preferred or redeemable shares may be
77
deprived of the right to vote unless
78
otherwise provided in the Code (Sec. 6).
79c. Fractional shares of stock cannot be voted
80
unless they constitute at least one full share
81
(Sec. 41).
82d. Treasury shares have no voting rights as
83
long as they remain in the treasury (Sec.
84
57).
85e. Holders of stock declared delinquent by the
86
board of directors for unpaid subscription
87
are not entitled to vote or a representation at
88
any stockholders meeting (Sec. 67).
89f. A transferee of stock cannot vote if his
90
transfer is not registered in the stock and
91
transfer book of the corporation (Sec. 63).
92g. Stock held in escrow cannot be voted until
93
the performances of a certain condition or
94
the happening of a certain event as
95
contained in the agreement. (opinion)
96
97CUMULATIVE VOTING S/H, being entitled to
98that number of votes that his number of shares
99multiplied by the number of directors to be
100elected will bring, may give all said votes to one
101candidate or he may distribute them among as
102many candidates as he sees fit (Sec. 24).
103
104PROXIES S/H and members may vote in
105person of by proxy in all meetings of S/H or
106members (Sec. 58).
107
FORM in writing, signed by the S/H or
108
member and filed before the scheduled
109
meeting with the corporate secretary.
110
PERIOD OF VALIDITY unless
111
otherwise provided in the proxy, it
112
should be valid only for the meeting for
113
which it is intended. No proxy shall be
114
valid and effective for a longer period
115
than five years at any one time.
116 Proxies are also considered as corporate
117
devise for securing voting control of the
118
corporation.
119
120INSTANCES WERE THE RIGHT TO VOTE
121BY PROXY ARE EXPLICITLY PROVIDED
122FOR:
123
1241.
125
1262.
127
election of the board of directors or trustees

(Sec. 24).
voting in case of joint ownership of stock
(Sec. 56).
4
Page 26
10

13.
2
34.
45.
voting by trustee under voting trust

agreement (Sec. 59).
pledged or mortgaged share (Sec. 55).
as provided for in its by-laws (Sec. 47 (4).
5
6DISTINCTIONS:
VOTING
TRUSTS
PROXY
1. The trustee
votes as owner
rather than as
mere agent
1. The proxy
holder votes as
agent
2. The trust may

vote in person
or by proxy
unless the
agreement
provides
otherwise
2. The proxy must

vote in person
3. The beneficial
owner ceases
to be
recognized as a
shareholder of
record and the
trustee
assumes
practically all
the rights of a
stockholder
3. The principal in
a proxy does
not cease to be
a stockholder
4. Trustee acquires
legal title to the
shares of the
transferring
stockholder
5. The agreement
must be
notarized
6. The agreement is
irrevocable
4.Proxy has no
legal title to the
shares of the
principal
7. Trustee is not
limited to act at
any particular
meeting
8. A trustee can
vote and
exercise all the
rights of the
stockholder
even when the
latter is present
9. An agreement
must not
exceed 5 years
at any one time
except when
the same is
5. Proxy need not

be notarized
6. Revocable
anytime except one
with interest
7.Proxy can only
act at a specified
stockholders
meeting (if not
continuing)
8.A proxy can only
vote in the absence
of the owners of the
stock
9. A proxy is
usually of
shorter duration
although under
Sec. 58 it cannot
exceed 5 years
made a
condition of a
loan.
10. The voting right
is divorced from
the ownership
of stocks
at any one time

10. The right to
vote is inherent
in or inseparable
from the right to
ownership of
stock
7
8VOTING TRUST one or more S/H of a stock
9corporation may create a voting trust for the
10purpose of conferring upon a trustee or trustees
11the right to vote and other rights pertaining to the
12shares for a period not exceeding 5 years at any
13one time. However, if the voting trust was a
14requirement for a loan agreement, period may
15exceed 5 years but shall automatically expire
16upon full payment of the loan (Sec. 59).
17
18DIVIDENDS unrestricted retained earnings set
19apart from the general mass of funds of the
20corporation and distributed among the S/H in
21proportion to their shares or interest in the
22corporation, in the form of cash, property or
23stocks.
24
25
26APPRAISAL RIGHT right to withdraw from the
27corporation and demand payment of the fair
28value of his shares after dissenting from certain
29corporate acts involving fundamental changes in
30corporate structure (Sec.81)
31
32
INSTANCES WHERE
IT
MAY BE
33
EXERCISED:
34
1.
extension
of
duration
of
35
corporate term;
36
2.
change in the rights of S/H,
37
authorize preferences superior to those
38
S/H, or restrict the right of any S/H;
39
3.
S/H authorized the board to
40
invest corporate funds in another
41
corporation;
42
4.
S/H authorized board to engage
43
in a purpose other than main purposes
44
stated in the Articles; and
45
5.
corporation decides to sell or
46
dispose of all or substantially all assets
47
of corporation.
48
49STOCK OPTION privilege granted to a party
50to subscribe to a certain portion of the unissued
51capital stock of a corporation within a certain
52period and under the terms and conditions of the
53grant exercisable by the grantee at any time
54within the period granted. The grant is not
55covered by any provision of the Code.
56
57METHODS FOR COLLECTION

58UNPAID SUBSCRIPTION (SEC. 68):
OF
591. call delinquency and sale at auction of

60
delinquent shares;
4
Page 27
10
12.
23.
3
4
5
ordinary court actions (Sec. 70); and

collection from cash dividends and other
amounts due to S/H, if allowed by the bylaws, or agreed by him.
6PROCEDURE FOR THE

7DELINQUENT STOCKS:
8
SALE
OF
91. Notice of call- Call by resolution demanding

10
payment of the balance of the subscription.
11
However, if the contract of subscription
12
itself prescribes the date of payment of the
13
unpaid subscription, no call is necessary.
142. The stockholders are given notice of the
15
board resolution by the corporate secretary,
16
either personally or by registered mail.
17
Publication of notice of call is not required by
18
law.
19
If the stockholders concerned do not pay
20
within (30) days from the date specified in
21
the contract of subscription or in the call, all
22
the stocks covered by the subscription shall
23
be declared delinquent and shall be subject
24
to sale under Sec. 68.
253. Notice of delinquency served on the
26
subscribers either personally or registered
27
mail AND publication in a newspaper of
28
general circulation in the province or the city
29
where principal office is located for once a
30
week for two consecutive weeks. Notice
31
shall state the amount due on each
32
subscription plus accrued interest, and the
33
date, time and place of the sale which shall
34
not be less than 30 days not more than 60
35
days from the date the stocks become
36
delinquent. (Sec. 67-70)
37
38EFFECT OF DELINQUENCY: No delinquent
39stock shall be voted for or be entitled to vote or
40to representation at any stockholders meeting,
41nor shall the holder thereof be entitled to any
42rights of the stockholder except right to
43dividends. (Sec. 71)
44
45BOOKS REQUIRED TO BE KEPT (SEC.

4674):
47
481. Book of Minutes;

49
a. minutes of S/H meetings; and
50
b. minutes of board meetings.
512. Book of all business transactions;
523. Stock and transfer book
53
54MERGER one corporation absorbs the other
55and remains in existence while the other is
56dissolved (Sec. 76).
57
58CONSOLIDATION a new corporation is

59created, and consolidating corporations are
60extinguished (Sec. 76).
61
62PROCEDURE FOR
63CONSOLIDATION:
MERGER
OR
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
1. Board of each corporation shall draw up

a plan of merger or consolidation setting
forth:
a. names of the corporation involved
b. terms and mode of carrying it
c.
statement of changes, if any, in the

present articles of the surviving
corporation or the articles of the new
corporation to be formed in the case of
consolidation.
2. Plan for merger or consolidation shall be

approved by majority vote of each of the
board of the concerned corporations at
separate meetings, and approved by the
majority vote of the 2/3 of the OCS or
members for non-stock corporations.
3. 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 OCS or members.
4. Articles of Merger or Articles of
Consolidation shall be executed by
EACH of the constituent corporations,
signed by the President or VicePresident and certified by secretary or
assistant secretary setting forth:
(i)
plan of merger or
consolidation
(ii)
for stock corporation, the
number of shares
outstanding; for non-stock,
the number of members;
(iii)
as to each corporation,
number of shares or
members voting for and
against such plan
respectively
5. Four copies of the Articles of Merger or
Consolidation shall be submitted to the
SEC for approval. Banks, insurance
companies, building and loan
associations, trust companies, public
utilities, educational institutions and
other special corporations favorable
recommendation of government agency
concerned.
GENERAL RULE when one
corporation buys all the shares of
another corporation, this will not operate
to dissolve the other corporation and as
the two corporations still maintaining
their separate corporate entities, one will
not answer for the debts of the other.
Exceptions:
1. if
there
is
an
assumption of liabilities;
express
4
Page 28
10
1
2. there is a consolidation or
2
merger;
3
3. if the purchase was in fraud of
4
creditors; and
5
4. if the purchaser becomes a
6
continuation of the seller.
7
8CORPORATE TERM 50 years which may be
9subject to extension for another 50 years by
10amendment of Articles (Sec.11).
11
12SHORTENING OF CORPORATE TERM.

13HOW DONE:
14
15
16
17
18
19
20
21
22
It refers to the dissolution of a corporation

prior to the expiration of its term as fixed in
the articles of incorporation.
This is done by following the formal
requirements of Sec. 16 (not mere written
assent) and the procedural requirements of
Sec. 37 of the Corporation Code.
23EXTENSION OF CORPORATE TERM- It refers

24to the continuation of a corporation beyond the
25term originally fixed in the articles of
26incorporation.
27
28REQUISITES FOR AN EXTENSION OF
29CORPORATE TERM:
30
311) The extension cannot be made earlier than
32
five (5) days prior to the original or
33
subsequent expiry date unless warranted by
34
a justifiable reason to be determined by the
35
SEC- for evaluation purposes.
362) There can be no more extension after the
37
expiration of the corporate term of existence
38
because there is no more corporate life to
39
extend and promote in such case.
403) It should be approved by 2/3 of the
41
outstanding capital stock.
42
43DOCTRINE OF RELATION- Where the failure
44to issue a new charter before the expiration of
45the old one is due solely to the fault of the clerk
46to whom application therefore is reasonably
47made, the new charter, when issued will relate
48back, and will be treated as taking effect from
49the day the corporation was entitled to have the
50charter issued. (Also see article 1174 of the
51NCC on fortuitous events).
52
53EFFECTS OF NON-USE OF CORPORATE

54CHARTER AND CONTINUOUS
55INOPERATION OF CORPORATION (SEC.
5622):
57
581.
59
60
61
62
63
64
NON-USER FOR 2 YEARS when the

corporation does not fully organize and
commence the transaction of its business or
the construction of its works within 2 years
from the date of its incorporation, its
corporate powers cease and the corporation
shall be deemed dissolved. Suspension or
65
cancellation of corporate franchise is not
66
automatic.
672. NON-USER FOR 5 YEARS when the
68
corporation has commenced the transaction
69
of its business but subsequently becomes
70
continuously inoperative for a period of at
71
least 5 years EXCEPT if reason for non-use
72
73or inoperation is beyond the control of the
74corporation.
75
76
77DISSOLUTION OF A CORPORATION
78extinguishment of the franchise of a corporation
79and the termination of its corporate existence.
80
81MODES OF DISSOLUTION OF A
82CORPORATION:
83
841. VOLUNTARY DISSOLUTION

85
a. where no creditors are affected (Sec.
86
118)
87
88
Procedure:
89
1)
administrative application filed
90
with the SEC by a majority vote of the
91
BOD
92
2)
notice thru registered mail or
93
delivered 30 days prior to the meeting
94
3)
Publication of the notice for 3
95
consecutive weeks in a newspaper of
96
general circulation
97
4)
Resolution approved by 2/3 of
98
the OCS
99
5)
Copy of Resolution Certified by
100
majority of BOD
countersigned by
101
secretary
102
103
104
b. where creditors are affected (Sec 119);
105
106
Procedure:
107
1)
Petition signed by majority of
108
BOD/trustees/officers
verified
by
109
President/ Secretary/ Director
110
2)
Claims and demands must be
111
stated in the petition
112
3)
Stockholders
approval
113
representing 2/3 OCS
114
4)
SEC order setting date for
115
objections
116
5)
Publication of the order and
117
Posting
118
6)
Hearing
119
7)
Appointment of Receiver (if
120
necessary)
121
122
c. by shortening corporate term
123
(Sec. 120).
124
125
Procedure:
126
1)
Amendment of AOI
127
2)
Publication
4
Page 29
10
1
3)
Oath undertaking by majority of
2
SH or officers to personally answer for
3
obligations
4
4)
BIR clearance of tax liability
5
5)
Listing of creditors and Consent
6
to the shortening of the term
7
6)
Affidavit of assumption of
8
liability by SH
9
7)
Latest
audited
financial
10
statement of corporation
11
12
d. expiration of corporate term
13
142. INVOLUNTARY DISSOLUTION (Sec. 121),
15
16
Procedure:
171) Verified Complaint
182) Proper Notice and Hearing in SEC
193) Grounds
204) failure to organize and commence business
21
within 2 years from incorporation;(Sec 22)
22
235) Continuously inoperative for 5 years ( Sec
24
22)
256) may be dissolved by SEC on grounds
26
provided by existing laws, rules and
27
regulations:
28 failure to file by-laws within 30 days from
29issue of certificate of incorporation.
30 Continuance of business not feasible as
31found
by
Management
Committee
or
32Rehabilitation Receiver
33 Fraud in procuring Certificate of Registration
34 Serious Misrepresentation
35 Failure to file required reports
36
37SEQUESTRATION- It means taking into
38custody or placing under the commissions
39control or possession any asset, fund or property
40as well as relevant records or documents, to
41prevent
their
concealment,
destruction,
42impairment or dissipation pending determination
43of whether said asset, fund or property is ill44gotten wealth under EOs 1 and 2.
45
46FREEZE ORDER- It is an order intended to
47stop or prevent any act or transaction which may
48affect the title, possession, status, condition,
49integrity or value of the asset of property which
50is or which might be the object of any action or
51proceeding under EOs number 1 and 2.
52
53LIQUIDATION:
54
55Process by which all the assets of the
56corporation are converted into liquid assets
57(cash) in order to facilitate the payment of
58obligations to creditors, and the remaining
59balance if any is to be distributed to the SH or
60members.
61
62Three Modes of Liquidation:
63
64
1. By BOD / Trustee
65
66
67
68
2. Conveyance to a trustee made within

three year period
3. By management committee or
rehabilitation receiver
69
70FOREIGN CORPORATION corporation
71formed, organized or existing under any law
72other than those of the Philippines, and whose
73laws allow Filipino citizens and corporations to
74do business in its own country or state (Sec.
75123).
76
77
DOING BUSINESS implies a community
78
of commercial dealings and arrangements,
79
and contemplates to some extent the
80
performance of acts or works or the exercise
81
of some functions normally incident to and in
82
progressive prosecution of, the purpose and
83
object of its organization. (Continuity Test)
84
85
DOCTRINE OF ISOLATED TRANSACTION
86
Foreign corporation can sue or be sued on a
87
transaction or series of transaction set apart
88
89
from the common business of a foreign
90
enterprise in the sense that there is no
91
intention to engage in a progressive pursuit
92
of the purpose and object of business
93
transaction
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
SUABILITY OF FOREIGN
CORPORATIONS:
1.
Foreign
corporation
doing
business in the Philippines
a. with license : may sue and be
sued in the Philippines;
b. without license : cannot sue but
may be sued in the Philippines.
2. Foreign corporation not doing business
in
the
Philippines,
on
isolated
transaction may sue and be sued.
109CLOSE CORPORATIONS
110
111REQUIREMENTS FOR CLOSE

112CORPORATIONS (SEC. 96):
113
1141.
1152.
116
1173.
118
119
120
121
122
123
124
125
126
127
128
number of stockholders not to exceed 20;

restriction on the transfer ; preemption in
favor of the stockholder or the corporation;
the stocks cannot be listed in the stock
exchange nor should they be publicly
offered.
Special type of close corporation 2/3 of the
voting stocks or voting rights is owned or
controlled by another corporation which is
not a close corporation.
The following cannot be a close corporation:
a. mining companies;
b. oil companies;
c. stock exchanges;
4
Page 30
10

1
2
3
4
5
6
7
d.
e.
f.
g.
h.
banks;
insurance companies;
public utility;
education institution;
other corporation declared to be
vested with public interest.
8RESTRICTIONS ON TRANSFERS the

9restrictions in the transfer of the stocks must
10appear (Sec. 98):
11
121. in the articles;
132. in the by-laws; and
143. on the stock certificates.
15
16 Restriction on the transfer must not be
17
onerous than granting the existing SH or
18
corporation the option to purchase the
19
shares
20
21
22PREEMPTIVE
RIGHT
IN
CLOSE
23CORPORATIONS shall extend to all stocks
24to be issued, including re-issuance of treasury

25share, whether for money or property or
26personal services, or in payment or corporate
27debts, unless the articles of incorporation
28provide otherwise (Sec. 102).
29
30CHARACTERISTICS
31CORPORATIONS:
32
331.
34
352.
363.
37
38
394.
40
41
42
435.
446.
45
467.
47
48
OF
CLOSE
S/H act as directors without need of election

and therefore are liable as directors;
Quorum may be greater than mere majority;
Transfers of stocks to others, which would
increase the number of S/H to more than the
maximum are invalid;
Corporate actuations may be binding even
without a formal board meeting, if the S/H
had knowledge or ratified the informal action
of the others;
Preemptive right extends to all stock issues;
Deadlocks in board are settled by the SEC,
on the written petition by any S/H; and
S/H may withdraw and avail of his right of
appraisal.
49NON-STOCK CORPORATIONS
50
51DEFINITION- corporation where no part of its

52income is distributable as dividends to (Sec. 87):
53
a. members;
54
b. trustees; and
55
c. officers.
56
Except at dissolution.
57
58DISPOSITION OF PROFITS- for furtherance
59of purpose or purposes of the corporation.
60
61CONDITIONS: necessary and proper (Sec. 88)
62
63PURPOSES:
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
charitable;
religious;
educational;
professional;
cultural;
fraternal;
literary;
scientific;
social;
civic service; and
similar purposes, such as chambers
or combinations for
i.
trade;
ii.
industry;
iii.
agricultural.
80DISTRIBUTION OF ASSETS ON
81DISSOLUTION OF NON-STOCK
82CORPORATION (SEC. 94):
83
841. all its creditors shall be paid;

852. assets held subject to return on dissolution,
86
shall be delivered back to their givers;
873. assets held for charitable, religious, etc.,
88
without a condition for their return on
89
dissolution, shall be conveyed to one or
90
91more organizations engaged in similar activities
92as dissolved corporation; and
934. all other assets shall be distributed to
94
members, as provided for in the Articles or
95
by-laws.
96
97RELIGIOUS CORPORATIONS
98
99KINDS (SEC. 109):

100
1011.
102
103
104
105
106
1072.
108
109
110
111
CORPORATION SOLE special form of

corporation, usually associated with the
clergy and consists of one person only and
his successors, who are incorporated by law
to give some legal capacities and
advantages; and
RELIGIOUS SOCIETIES non-stock
corporation governed by a board but with
religious purposes.
112SECURITIES
AND
EXCHANGE
113
COMMISSION
114
REORGANIZATION
115
DECREE (P.D. 902-A)
116
117
118Sec. 2,4, 8 repealed by RA 8799:
119
120ORIGINAL AND EXCLUSIVE
121JURISDICTION OF THE COURTS OF
122GENERAL JURISDICTION/ RTC (SEC. 5
123PD 902-A IN RELATION TO SEC. 5.2 RA
1248799):
125
4
Page 31
10

11.
2
3
42.
5
6
73.
8
94.
10
11
12
13
14
fraudulent devices and schemes employed

by directors detrimental to the public interest
and to other firms;
intra-corporate dispute and with the state in
relation to their franchise and right to exist
as such;
controversies in election, appointment of
directors or trustees; and
petition to be declared in state of suspension
of payments.
-SEC
HAS
JURISDICTION
TO
PETITIONS FILED AS OF JUNE 30,
2000.
15GROUNDS FOR SUSPENSION OR

16CANCELLATION OF CERTIFICATE OF
17REGISTRATION (SEC. 6 (L)):
18
191.
202.
21
223.
234.
245.
25
266.
277.
28
fraud in procuring registration;

serious misrepresentation as to objectives of
corporation;
refusal to comply with lawful order of SEC;
continuous inoperation for at least 5 years;
failure to file by-laws within required period;
29
30
31
REPUBLIC ACT 8799

THE SECURITIES REGULATION
CODE
failure to file reports; and

other similar grounds.
32
33PURPOSES OF SECURITIES ACT

341.
35
362.
37
383.
394.
405.
416.
42
437.
44
45
46
establish a socially conscious self-regulating

free market
encourage the widest participation of
ownership in enterprises
enhance democratization of wealth
promote development of capital market
protect investors
enhance full and fair disclosure about
securities
minimize if not totally eliminate insider
trading and other fraudulent or manipulative
devices and practices
47POWERS AND FUNCTIONS OF THE

48SEC (SEC. 5)
49
50
51
52
53
54
55
56
57
58
59
60
61
1.
2.
3.
4.
5.
jurisdiction/supervision
over
corporations, partnerships, and
grantees of primary franchise
approve,
reject
registration
statements/licensing applications
Suspend, revoke, after notice and
hearing primary franchise on
grounds
regulate/supervise activities of
persons to ensure compliance
Supervise monitor, suspend or take
over, exchanges, clearing agencies
and SROs
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
1261.
6.
7.
8.
9.
10.
11.
Recommend
policies,
advise,
propose legislation to Congress on
securities market
Prepare, approve, amend or repeal
rules, regulations, issue opinions
and provide guidance on and
supervise compliance with such
rules, regulations and orders
Enlist the aid and support of and/or
deputize any and all enforcement
agencies of the Government, civil
or military as well as any private
institution,
corporation,
firm,
association or person in the
implementation of its powers and
functions under this Code.
Issue cease and desist orders to
prevent fraud or injury to the
investing public
Punish for contempt of the
Commission, both direct and
indirect, in accordance with the
pertinent
provisions
of
and
penalties prescribed by the Rules
of Court.
Compel the officers of any
registered
corporation
or
association to call meetings of
stockholders or members thereof under
its supervision.
12.
13.
Issue subpoena duces tecum and

summon witnesses to appear in
any
proceedings
of
the
Commission and in appropriate
cases, order the examination,
search
and
seizure
of
all
documents, papers and files and
records, tax returns, and books of
accounts of any entity or person
under investigation as may be
necessary
for
the
proper
disposition of the cases before it,
subject to the provisions of existing
laws
Exercise such other powers as
may be provided by law as well as
those which may be implied from,
or which are necessary or
incidental to the carrying out of, the
express powers granted the
Commission
to
achieve
the
objectives and purposes of these
laws.
Securities shall not be sold and offered for

sale or distribution within the Philippines,
without a registration statement duly filed
with and approved by the Commission may
prescribe, shall be made available to each
prospective purchaser. (Sec. 8.1)
EXCEPTIONS:
Exempt securities; and
4
Page 32
10
12. Exempt Transactions

2
3EXEMPT SECURITIES (SEC. 9):

4
51.
6
7
8
9
10
112.
12
13
14
15
16
17
18
193.
20
21
224.
23
24
25
26
27
285.
29
Any security issued or guaranteed by the

Government of the Philippines, or by any
political subdivision or agency thereof, or by
any person controlled or supervised by and
acting as an instrumentality of said
Government.
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
or agency thereof on the basis of reciprocity:
Provided, That the Commission may require
compliance with the form and content of
disclosures the Commission may prescribe.
Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the
proper adjudicatory body.
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 Regulatory Board, or the Bureau of
Internal Revenue.
Any security issued by a bank except its
own shares of stock.
331.
34
35
362.
37
383.
394.
405.
41
426.
43
44
45
46
47
487.
49
50
518.
52
53
549.
5510.
56
5711.
58
5912.
6013.
61
6214.
6315.
64
Judicial sale by executor, administrator,

guardian/receiver
in
insolvency
or
bankruptcy.
Sale of pledged or foreclosed property to
liquidate debts.
sale on isolated transactions by owner .
Distribution of stock dividends.
Sale of capital stock to stockholders where
no commission is paid
The issuance of bonds or notes secured by
mortgage upon real estate or tangible
personal property, where the entire
mortgage together with all the bonds or
notes secured thereby are sold to a single
purchaser at a single sale.
Issuance of security in exchange of any
security from same issuer pursuant to right
of conversion.
Brokers transactions, executed upon
customers orders on any registered
Exchange or other trading market.
Pre-incorporation subscription.
Exchange of securities by issuer with
securities holders exclusively
Sale to less than 20 persons during any 12
month period
Sale of securities to banks
Sale of securities to registered investment
houses
Sale of securities to insurance company
Sale of securities to pension fund or
retirement
plan
maintained
by
the
30
31EXEMPT TRANSACTIONS (SEC. 10):
32
65
66
67
68
6916.
7017.
71
72
Government of the Philippines or any

political subdivision thereof or managed by a
bank or other persons authorized by the
Bangko Sentral to engage in trust functions
Sale of securities to investment company
Sale of securities to such other person as
the Commission may rule determine as
qualified buyers
73
74GROUNDS FOR REJECTION AND
75REVOCATION OF REGISTRATION (SEC.
7613):
77
781.
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
982.
99
100
101
102
1033.
104
105
106
107
108
109
110
1114.
112
113
The issuer:
a) Has been judicially declared insolvent
b) Has violated any of the provisions of this
Code, the rules promulgated pursuant
thereto, or any order of the Commission of
which the issuer has notice in connection
with the offering for which a registration
statement has been filed.
c) Has been or is engaged or is about to
engage in fraudulent transactions.
d) Has made any false or misleading
representations of material facts in any
prospectus concerning the issuer or its
securities
e)
Has failed to comply with any
requirement that the Commission may
impose as a condition for registration of the
security for which registration statement has
been filed
1181.
119
120
121
1222.
123
124
1253.
126
127
If any time, the information contained in the

registration statement filed is or has become
misleading,
incorrect,
inadequate
or
incomplete in any material respect; or
The sale or offering for sale of the security
registration there under may work or tend to
work a fraud;
Pending investigation of the security
registered to ascertain whether the
registration of such security should be
The registration statement is on its face

incomplete or inaccurate or includes any
untrue statement of a material fact or omits
to state a material fact required to be stated
therein.
The issuer or any underwriter has been
convicted by a competent judicial or
administrative body of an offense involving
moral turpitude and/or fraud or is enjoined
by the Commission or other competent
judicial or administrative body for violations
of securities, commodities and other related
laws
Any issuer who refuses to permit the
examination
to
be
made
by the
Commissioner.
114
115SUSPENSION OF REGISTRATION
116(SEC. 15):
117
4
Page 33
10

1
2
34.
4
5
revoked on any ground specified in this

Code; and
Refusal to furnish information required by
the Commission.
6UNLAWFUL ACTS:
7
81. For any beneficial owner, director, or officer
9
to sell any security if the seller or his
10
principal does not own or does not deliver it
11
within 20 days from sale. (Sec. 23.3)
122. Manipulation of security prices. (Sec. 24.1)
133. Employment of manipulative or deceptive
14
device or contrivance in connection with
15
purchase and sale of authorities. Short sale,
16
stop loss order be effected only in
17
accordance with rules of SEC. (Sec. 24.2)
18
19SHORT SALE when seller does not own or
20control the securities he is selling, and therefore,
21cannot himself supply the securities for delivery.
22
23STOP-LOSS ORDER an order to broker to sell
24or buy stock as soon as the market price
25reaches a designated figure.
26
274. For any member of Exchange directly or
28
indirectly endorse or guarantee the
29
performance of any put, call, straddle, option
30
or privilege in relation to any security
31
registered. (Sec. 25)
32
33PUT an option that, in consideration of
34premium paid, gives the purchaser the right top
35make the seller take from him a given number of
36
37shares of a named stock between a given time
38at a stipulated price, which is usually below a
39prevailing market price of the stock at the time
40the put is purchased.
41
42CALL an option that in consideration of
43premium paid entitles buyer the right to compel

44seller to deliver to him a certain number of share
45of named stock within a given time at a
46stipulated price which is usually higher than the
47prevailing market price at the time the call is
48bought.
49
50STRADDLE double privilege of a put and a
51call, and secures to holder the right to demand
52of seller at a certain price within a certain time a
53certain number of shares of specified stock, or to
54require him to take, at the price within the time,
55the same shares of stock.
56
57WASH SALE- to effect any transaction in any
58security which involves no change in the
59beneficial ownership thereof.
60
61SHORT SWING TRANSACTION one where
62a person buys securities and sells the same
63within a period of six months.
64
655.
666.
67
Fraudulent transactions (Sec.26);

insider trading (Sec. 27)
68
INSIDER TRADING it shall be unlawful
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
for an insider to sell or buy a security of the

issuer, while in possession of material
information with respect to the issuer or the
security that is not generally available to the
public unless:
(a) The insider proves that the
information was not gained from
such relationship, or
(b) If the other party selling to or buying
from the insider (or his agent) is
identified, the insider proves:
(i) that he disclosed the information
to the other party, or
(ii) that he had reason to believe that
the other party otherwise is also
in possession of the information.
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
1077.
108
109
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
86INSIDER means:
110
e.
A person who learns such information

by a communication from any of the
foregoing insiders. (SEC. 3.8)
For insider to communicate material nonpublic information about issuer or security.

(SEC 27.3)
111
MATERIAL NON-PUBLIC INFORMATION 112
a. If It has not been generally disclosed
113to the public and would likely to affect the market
114price of the security after being disseminated to
115the public and the lapse of a reasonable time for
116the market to absorb the information; or
117
b. Would be considered by a reasonable
118person important under the circumstances in
119determining his course of action to buy, sell or
120hold security. (SEC 27.2)
121
1228. Unlawful Tender Offer (Sec 27.4)
1239. Use of Extensive Credit (Sec48.1)
124
125MARGIN sum of money, or its equivalent,
126placed in the hands of a stockbroker by principal
127or persons on whose account the purchase is to
128be made, as a security to the former against
4
Page 34
10
1losses to which he may be exposed by a

2subsequent depression in the market value of
3the stock.
4
Credit extended must not be
5greater than which ever is higher of
6
7
a.65% of current market price of
8
the security
9
b. 100% of lowest market price
10
of security during preceding 36
11
calendar months but not greater
12
than 75% of the current market
13
price.
4
Page 35
10
2
3
4
CORPORATE ACTS
CORPORATE ACT
1. Amendment of AOI (Sec 16)
NUMBER OF
VOTES FOR
BOD
Majority Vote
NUMBER OF VOTES
OF SHAREHOLDERS
Vote or written assent of 2/3
OCS SH or Members
PROCEDURE / OTHER REQUIREMENTS
Non-voting can vote

Appraisal right in certain cases
Effective upon approval by SEC or date of filing if not acted upon within six
months
Must be for a legitimate purpose
2. Election of Directors or Trustees

( Sec 24 )
Majority of OCS / members
Candidates with a highest number

Cumulative voting: No. of shares x No. of directors to be elected
Non-voting shares cannot vote
3. Removal of Directors or Trustees (Sec 28)
2/3 of OCS
Notice and stated purpose requirement

Meeting called by the secretary on Presidents order or on written demand of
OCS majority
Non-voting shares cannot vote
Removal without cause cannot be used to deprive minority stockholders of
their right of representation
4. Ratification of a contract of self dealing

directors where presence of Director necessary to
constitute quorum or vote of Director necessary
for approval of the contract (Sec 32)
2/3 of OCS or members
The contract must be fair and reasonable under circumstances

Full disclosure of adverse interest of directors or trustees involved
4
Page 36
8
1
2
5.
Extension or shortening of corporate term

(Sec 37 )
Majority vote
2/3 OCS or members
Non-voting can vote

Appraisal Right available
Notice requirement
Meeting for the amendment of AOI
Meeting required
Non-voting can vote
No appraisal right
Notice requirement
SEC approval
Treasurers statement
No decrease of capital stock if will prejudice right of creditors
6. Election of officers (Sec 25)
Majority vote of all

the members of BOD
7. Increase or decrease of capital stock ( Sec 38 )
Majority vote
2/3 OCS or members
8. Incur, Create , Increase Bonded Indebtedness
Majority vote
2/3 OCS or members
Meeting required
Non-voting can vote
No appraisal right
Notice required
Registration of bonds with SEC
9. Sale ,Lease, Exchange, Mortgage, Pledge,

Dispose of all or substantially all of corporate
assets (Sec 40 )
Majority Vote
2/3 OCS or members
Majority can vote

Non-voting can vote
Appraisal right available
Notice required
If sale is abandoned directors action is sufficient, no need for ratification by
stockholders
3
4
Page 37
8
1
2
3
4
5
10. Investment of Corporate Funds to another

Corporation or business for any other purpose
other than primary purpose (Sec 42)
Non-voting can vote

Appraisal Right available
Notice required
Investment for secondary purpose
Stockholders ratification not necessary if the investment is incidental to
primary purpose
Out of unrestricted retained earnings
Majority of OCS / members
Non-voting can vote
Majority of OCS
Non-voting can vote
2/3 OCS
Delegation can be revoked by majority OCS

Non-voting cannot vote
Majority Vote
2/3 OCS or members
11. Issuance of Stock Dividends ( Sec 43 )
Majority of the
quorum
2/3 OCS
12. Management Contract ( Sec 44)
Majority of the vote

of BOD of both
managing
and managed
corporation
Majority of OCS / members of

both managing
and managed corporation
and in some cases 2/3 of OCS /
members
13. Adoption of By- laws (Sec 46)

14. Amendment or repeal of By laws or Adoption
of New By-Laws ( Sec 48)
Majority vote
15. Delegation of the Power to Amend, Repeal or

Adopt New By Laws to BOD
(Sec 48 )
16. Fixing the issued Price of No- Par Value
shares (Sec 62, last paragraph)48)
Majority of Quorum
of BOD
Majority of OCS if BOD

not authorized by AOI
4
Page 38
8

if authorized by AOI
1
2
3
4
17. Merger or Consolidation (Sec 77 )
Majority of BOD of
constituent
corporation
2/3 OCS / members of

constituent corporation
Non-voting can vote

Appraisal right available but if plan is abandoned right is extinguished
18. Dissolution of Corporation (Sec 118 and 119 )
Majority Vote
2/3 OCS / members
Read Sections 117-122

Non-voting can vote
19. Adoption of plan or distribution of assets of

non-stock corporation ( Sec 95 par 2)
Majority Vote of
Trustees
2/3 of members having voting

rights
If no quorum stockholders to elect
Provided that there is unrestricted retained earnings

Only for legitimate purposes
Only if AOI or amendment to AOI denies pre-emptive right
Applies to shares issued in good faith in exchange for property needed for
corporate purposes or in payment of previously contracted debts
Reasonable per diems

By-Laws may provide for compensation
May be fixed by majority OCS
Limit: not more than 10% of the net income before tax
20. Ratification of act of disloyal director

21. Vacancies in BOD if not due to removal,
expiration of the term or increase in number of
directors
22. Power to acquire own shares
23. Denial of pre-emptive right
24. Fixing compensation for directors
2/3 OCS
Majority vote of
remaining directors if
quorum still exists
Directors action
2/3 OCS approval
4
Page 39
8
1III. INSURANCE LAW

2
3INSURANCE
contract whereby one

4undertakes for a consideration to indemnify
5another against loss, damage or liability arising
6from an unknown or contingent event (Sec. 2,
7par. 2).
8
9REQUISITES OF INSURANCE:
10
111. existence of an insurable interest (Secs. 1212
14);
132. risk of loss (Sec. 51, par. 9);

143. assumption of risks ( Sec. 2);
154. scheme to distribute losses; and
165. payment of premiums (Sec. 77).
17
18GENERAL RULE: a future event is the only
19event that can be covered by an insurance
20contract.
21
22Exception: a past event may be covered by a
23marine insurance if the loss of the vessel in
24the past could not have been known by ordinary
25means of communication.
26
27DOING AN INSURANCE BUSINESS OR

28TRANSACTING
AN
INSURANCE
29BUSINESS (Sec. 2, par. 4) INCLUDES:
30
311.
32
332.
34
35
36
373.
38
394.
40
making or proposing to make as insurer,

any insurance contract;
making or proposing to make, as surety any
contract of suretyship as a vocation, not as
a mere incident to any other legitimate
business of a surety;
doing any insurance business like
reinsurance and similar acts and;
doing or proposing to do any business
equivalent to above.
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
Insurance is a contract of adhesion

considering that the most of the terms of the
contract do not result from mutual
negotiations between the parties as they are
prescribed by the insurer in printed form to
which the insured may adhere if he
chooses but which he cannot change.
Hence, in case of doubt, the contract shall
be interpreted strictly against the insurer and
liberally in favor of the accused.
41
42PRINCIPLES:
43
44I. CONTRACT OF ADHESION OR FINE
45PRINT RULE
46
However, if the terms of the contract are

clear, there is no room for interpretation and
the courts are bound to adhere to the
insurance contract although the contract
62
63
64
65
66
maybe rather onerous. Courts cannot

make a new contract for the parties
where they themselves have employed
clear and unambiguous words.
67II. UBERRIMA FIDES CONTRACT

68
69
70
71
72
73
74
75
76
77
78
79
Contract of insurance is one of perfect

good faith not for the insured alone, but
equally so for the insurer; in fact it is
more so for the latter, since its dominant
bargaining position carries with it stricter
responsibility.
It requires the parties to the contract of
insurance to disclose any material fact,
which the applicant knows, or which he
ought to know.
80III. RIGHT OF SUBROGATION

81
82 Insurer who pays shall be subrogated to
83
the rights of insured against wrongdoer
84
or person who has violated contract.
85 The principle of subrogation is a normal
86
incident of indemnity insurance as a
87
legal effect of payment; it inures to the
88
insurer without any formal assignment
89
or any express stipulation to that effect
90
in the policy. Said right is not dependent
91
upon nor does it grow out of any private
92
contract. Payment to the insured makes
93
the insurer an assignee in equity
94
(Article 2207, NCC).
95 However, the insurer can only recover
96
from the third person what the insured
97
could have recovered.
98
99Exceptions: there can be no subrogation if:
100
1011. The insured by his own act releases the
102
wrongdoer/third person liable for the
103
loss.
(Manila
Mahogany
104
Manufacturing Corporation vs. CA)
1052. Where the insurer pays the insured for a
106
loss or risk not covered by the policy.
107
(Pan Malayan Insurance Company vs.
108
CA, 184 SCRA 54)
109
110IV. INDEMNITY
111
112
113
114
115
116
117
118
119
120
121
122
The contract of insurance is a contract

of indemnity. It is the basis of all
property insurance. It simply means
that the insured that has insurable
interest over a property is only entitled
to recover the amount of actual loss
sustained and the burden is upon him to
establish the amount of such loss. Any
contract of property insurance that gives
to the insured more than indemnity
against his actual loss that may be
4
Page 40
10
1
suffered by reason of designated perils is
2
wagering policy.
3
4NOTE: Applicable only to property insurance,
5except creditor insuring the life of his debtor.
6
7TYPES OF INSURANCE CONTRACTS:

8
91. LIFE INSURANCE;

a. individual life (Secs. 179 183, 227);
b. group life ( Sec. 50, last paragraph,
12
228); and
13
c. industrial life (Secs. 229 231).
14
152. NON-LIFE INSURANCE
16 a. Marine (Secs. 99 166);
17 b. Fire (Secs. 167 173); and
18 c. Casualty (Sec. 174).
19
203. CONTRACTS OF SURETYSHIP (Secs. 175
21
178).
22
10
11
23PARTIES TO INSURANCE CONTRACT:

24
251. INSURER person who undertakes to
26
272.
28
29
303.
31
32
33i.
34
35
36
37
38
39ii.
40
41
42
43iii.
44
45
indemnify another;
INSURED person with capacity to contract
and having an insurable interest in the life or
property of the insured; and
BENEFICIARY person designated to
receive proceeds of policy when risk
attaches.
Beneficiary of one who insures his own
life as a general rule, may designate
any person as the beneficiary, whether
or not the beneficiary has an insurable
interest in the life of the insured.
Exception: Art. 739 of the Civil Code
Beneficiary of life insurance on the life of
another person person who procured
the insurance on the life of another must
have an insurable interest.
Beneficiary of property insurance must
have an insurable interest.
46EFFECTS OF IRREVOCABLE
47DESIGNATION OF BENEFICIARY:
48
49Insured cannot:
50
1. assign the policy
51
2. take the cash surrender value of the
52
policy
53
3. allow his creditors to attach or execute
54
on the policy;
55
4. add new beneficiary; or
56
5. change the irrevocable designation to
57
revocable, even though the change is
58
just and reasonable.
59
60INSURABLE INTEREST interest which

61the law requires a person making a contract
62of insurance to have in the person or thing
63insured to prevent the contract from
64becoming a wagering contract.
65
66INSURABLE INTEREST IN LIFE interest
67which a person has in his life, or interest
68which he may have in the lives of other
69persons (Sec. 10):
701. on whom he depends wholly or in part
71
for education or support;
722. under legal obligation to him to pay
73
money, to deliver property, or to render
74
service; or
753. upon whose life any estate or interest
76
vested in him depends.
77
78GENERAL RULE: In life insurance, there is
79no limit in the amount the insured can insure
80his life.
81
82Exception: in creditor-debtor relationship
83where the creditor insures the debtor, the
84limit of insurable interest is equal to the
85amount of the debt.
86
87NOTE: Insurable interest in the life of
88another need exist only at the time of
89perfection of the contract and need not exist
90thereafter.
91
92INSURABLE INTEREST IN PROPERTY
93every interest in property whether real or
94personal, or any relation thereto, or liability
95in respect thereof, of such nature that the
96contemplated peril might directly damnify the
97insured (Sec. 13), which may consist in
98(Sec. 19):
99
100
1. an existing interest;
101
2. any inchoate interest founded
102
on an existing interest; or
103
3. any expectancy coupled with an
104
existing interest in that out of
105
which the expectancy arises.
106
107NOTE: Expectancy is not insurable unless
108coupled with an interest in the thing from
109which it shall arise.
110
111 Example: an owner of a business can
112
insure against a contingency which may
113
cause loss of profits resulting from the
114
cessation or interruption of his business.
115
(See Sec. 14, ICP)
116
117NOTE: Insurable interest must exist in the
118same person both at the perfection of the
119contract as well as the time of loss. In
120between, the effect of loss of insurable
121interest is merely to suspend the policy.
122(Sec. 20, ICP)
4
Page 41
10
1
2Exceptions:
31. in case of life, health and accident insurance
4
(Sec. 20);
52. change in interest results after occurrence of
6
an injury which results in a loss (Sec. 21)
73. change in interest in one or more several
8
distinct things separately insured by one
9
policy (Sec. 22);
104. change in interest by will or succession on
11
death of insured (Sec. 23);
125. transfer of interest by one of several
13
partners, joint partners, or owners in
14
common who are jointly insured, to others
15
(Sec. 24).
16when a policy is so framed that it will inure to the
17
benefit of whomsoever, during the
18
continuance of the risk, may become the
19
owner of the interest insured (Sec. 57);
20when is an express prohibition against alienation
21
in the policy, in case of alienation, the
22
contract of insurance is not merely
23
suspended but avoided (Art. 1306, NCC).
24
25DISTINCTIONS:
Insurable interest in
Life
Insur
ance
1. must exist only at
the time the policy
is taken.
2. taken on insureds
life, his
beneficiaries need
not have an
insurable interest
on his life.
3. no limit to the
amount of
insurable interest
(save in life
insurance effected
by creditor on life
of the debtor)
(Sec. 10).
Insurable Interest in
Property
1. must exist at time
policy is taken and
at time of loss.
2. beneficiary must
have an insurable
interest in property
insured.
3. insurable interest
limited to value of
interest in property
insured (Sec. 19).
26
27INSURABLE INTEREST OF
28MORTGAGOR AND MORTGAGEE OVER
29MORTGAGED PROPERTY.
30
31
32
33
34
35
36
37
38
39
40
41
The mortgagor and mortgagee each have

an insurable interest in the property
mortgaged and this interest is separate and
distinct from the other.
The mortgagor of property, as owner, has an
insurable interest therein to the extent of its
value, even though the mortgage debt
equals such value. The mortgagee's interest
is only up to the extent of the debt.
42
43
44
45
STANDARD OR
UNION MORTGAGE
CLAUSE
- the subsequent
acts of the
mortgagor cannot
affect the rights of
the assignee
OPEN OR LOSS
PAYABLE
MORTGAGE CLAUSE
the mortgagor
does not cease to
be a party to the
contract
acts of the
mortgagor affects
the mortgagee
(Sections 8 and 9
ICP).
46
47DEVICES USED FOR ASCERTAINING

48AND CONTROLLING RISK AND
49LOSS:
50
511.
CONCEALMENT: A neglect to
52communicate that which a party knows and
53ought to communicate (Sec. 26, ICP)
542.
REPRESENTATION: are factual
55statements made by the insured at the time
56of or prior to the issuance of the policy to
57give information to the insurer and other
58wise induce him to enter into the insurance
59contract.
603. WARRANTIES:
are statements or
61promise by the insured set forth in the policy
62itself or incorporated in it by proper
63reference, the untruth or nonfulfillment of
64which in any respect and without reference
65to whether the insurer was in fact prejudiced
66by such untruth or nonfulfillment. The same
67may be expressed, implied, affirmative or
68promissory.
694. CONDITION: The insurer must also
70protect himself against fraudulent claims of
71loss and this he attempts to do by inserting
72in the policy various conditions which take
73the form of conditions precedent.
For
74instance, there are conditions requiring
75immediate notice of loss or injury and
76detailed proofs of loss within a limited
77period.
78
79Exceptions: It makes more definite the
80coverage
indicated by the general
81description of the risk by excluding certain
82specified risk that otherwise would be
83included under the general language
84describing the risks assumed.
85
86CONCEALMENT
87
88TEST OF MATERIALITY: determined not by
89the event, but solely by the probable and
90reasonable influence of the facts upon the
4
Page 42
10
1party to whom the communication is due, in

2forming his estimate of the disadvantages of the
3proposed contract, or in making his inquiries
4(Sec. 31).
5
6EFFECTS OF CONCEALMENT: vitiates the
7contract and entitles insurer to rescind, even if
8the death or loss is due to a cause not related to
9the concealed matter (Sec. 27).
10
11REPRESENTATION oral or written statement
12of a fact or condition affecting the risk, made by
13insured to insurer, tending to induce insurer to
14assume risk (Sec.36).
15
16KINDS (Sec.39):
17
181. AFFIRMATIVE affirmation of a fact when
19the contract begins; and
202. PROMISSORY promise to be performed
21after policy was issued.
22
23TEST OF MATERIALITY: determined by the
24probable and reasonable influence of the facts
25on the party on whom communication is due, in
26forming his estimate of the contract, risks and
27premium (Sec. 31)
28
29EFFECTS OF MISREPRESENTATION: injured
30party entitled to rescind from the time when the
31representation becomes false.
32
33WARRANTY
34
35statement or promise set forth in the policy or by
36
reference incorporated therein,
37
the untruth or non-fulfillment of
38
which in any respect, and
39
without reference to whether
40
insurer was in fact prejudiced
41
by such untruth or non42
fulfillment, renders the policy
43
voidable.
44
45KINDS (Sec. 67):

46
47 1. EXPRESS; and
48 2. IMPLIED only found in marine insurance,
49deemed included in the contract, although not
50expressly mentioned.
51
52EFFECT OF BREACH OF WARRANTY
53gives insurer the right to rescind (Secs. 74-76).
54
55DISTINCTIONS:
56
WARRANTY
REPRESENTATION
1. Part of the contract.
1. Mere collateral
inducement.
2. may or may not be
written in the policy.
2. written on the
policy, actually or
by reference
3. conclusively
presumed material.
4. must be strictly
complied with.
3. must be proved to
be material.
4. require only
substantial truth
and compliance.
57
58
59INCONTESTABILITY CLAUSE - After a

60policy of life insurance made payable on the
61death of the insured shall have been in force
62during the lifetime of the insured for a period
63of two years from the date of its issue or of
64its last reinstatement, the insurer cannot
65prove that the policy is void ab initio or is
66rescindible by reason of the fraudulent
67concealment or misrepresentation of the
68insured or his agent.
69
70REQUISITES FOR
71INCONTESTABILITY CLAUSE:
72
731. It is payable on the death of the insured
742. It has been in force during the lifetime of
75the insured for at least 2 years from its date
76of issue or of its last reinstatement (Sec. 48,
77ICP)
78
79NOTE: The period of 2 years may be
80shortened but it cannot be extended by
81stipulation.
82
83DEFENSES NOT BARRED BY

84INCONTESTABILITY CLAUSE:
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
1.
That the person taking the
insurance lacked insurable interest
as required by law;
2.
That the cause of the death
of the insured is an excepted risk;
3.
That the premiums have not
been paid (Secs. 77,227[b], 228[b],
230[b].);
4.
That the conditions of the
policy relating to military or naval
service have been violated (Secs.
227[b], 228[b].);
5.
That the fraud is of a
particularly vicious type;
6.
That the beneficiary failed to
furnish proof of death or to comply
with any condition imposed by the
policy after the loss has happened;
or
7.
That the action was not
brought within the time specified.
108POLICY OF INSURANCE written

109instrument in which a contract of insurance
110is set forth (Sec. 49)
111
112CONTENTS OF POLICY (Sec.51):
113
4
Page 43
10
11. parties
22. amount of insurance, except in open or
3
running policies;
43. rate of premium;
54. property or life insured;
65. interest of the insured in the property if he is
7
not the absolute owner;
86. risk insured against; and
97. duration of the insurance.
10
11BINDING
RECEIPT
merely
an
12acknowledgment on behalf of the company that
13their branch office had received from the
14applicant the insurance premium and had
15accepted the application subject to processing
16by the head office.
17
18COVER NOTE a concise and temporary
19written contract issued to the insurer through its
20duly authorized agent embodying the principal
21terms of an expected policy of insurance. It is
22intended to give insurance protection coverage
23to the applicant pending the acceptance or
24rejection of his application. Not exceeding 60
25days unless a longer period is approved by
26Insurance Commissioner (Sec. 52).
27
63NOTE: Notwithstanding any agreement to

64the contrary, no policy or contract of
65insurance issued by an insurance company
66is valid and binding unless and until the
67premium thereof has been paid, except in
68the case of a life or an industrial life policy
69whenever the grace period provision
70applies.
71
28GROUNDS FOR CANCELLATION OF

29POLICY (EXCEPT LIFE INSURANCE
30POLICY) (SEC. 64):
31
321.
332.
34
353.
36
374.
38
39
405.
41
426.
43
44
45
non-payment of premium;
conviction of a crime out of acts increasing
the hazard insured against;
discover
of
fraud
or
material
misrepresentation;
discovery of willful or reckless acts of
omissions increasing the risk
nsured
against;
physical changes in property making the
property uninsurable; and
determination
by
the
Insurance
Commissioner that the policy would violate
the Insurance Code.
49
50
not agreed upon, but left to be ascertained

at time of loss (Sec.60);
VALUED POLICY definite valuation is
agreed by both parties, and written on the
face of policy (Sec. 61);and
RUNNING
POLICY
contemplates
successive insurances and which provides
that the subject of the policy may from time
to time be defined (Sec. 62).
46KINDS OF POLICIES:
47
481. OPEN POLICY value of thing insured is
512.
52
53
543.
55
56
57
58
59PREMIUM consideration paid an insurer for

60undertaking to indemnify the insured against a
61specified peril (Sec. 77).
62
4
Page 44
10
1Exceptions:
2
1. Credit agreement
3
2. Acknowledgement in the policy (Sec.
4
78)
5
6INSURED ENTITLED TO RETURN OF

7PREMIUMS PAID:
8
91. If thing insured was never exposed to the
10
risks insured against (Sec. 79);
112. Contract is voidable due to the fraud or
12
misrepresentation of insurer;
133. Insurer never incurred liability (Sec. 81);
144. When the insurance is for a definite period
15
and the insured surrenders his policy before
16
the termination thereof;
175. Contract is voidable because of the
18
existence of facts of which the insured was
19
ignorant without his fault;
206. When there is over-insurance (Sec. 82) and;
217. When rescission is granted due to the
22
insurers breach of contract.
23
24DOUBLE INSURANCE exists where same
25person is insured by several insurers separately
26in respect to same subject and interest
27(Sec. 93).
28
29REQUISITES OF DOUBLE INSURANCE:
30
311. The person insured is the same;

322. Two or more insurers insuring separately;
333. The subject matter is the same;
344. The interest insured is also the same;
355. The risk or peril insured against is likewise
36
the same.
37
38EFFECTS OF DOUBLE INSURANCE: where
39double insurance is allowed, but over insurance
40results, he can claim in case of loss only up to
41the agreed valuation or up to the full insurable
42value from any, some or all insurers, without
43prejudice to the insurers ratably apportioning the
44payments. Insured can also recover before or
45after the loss, from both insurers the excess
46premium he has paid (Sec. 94).
47
48REINSURANCE a contract by which the
49insurer procures a 3rd person to insure him
50against loss or liability by reason or such original
51insurance (also known as Reinsurance Cession)
52(Sec. 95).
53
54 In every reinsurance, the original contract of
55
56
57
insurance and the contract of reinsurance

are covered by separate policies.
58DISTINCTIONS :
59
DOUBLE
INSURANCE
(Sec. 93)
(Sec. 95)
1. involves same
interest
2. insurer remains
in such capacity
1. insurance of
different interest
2. insurer becomes
an insured in
relation to
reinsurer.
3. original insured has
no interest in
reinsurance
contract.
3. insured in the 1st

contract is a
party in interest
in the 2nd
contract
4. subject of
insurance is
property
5. insured has to
give his consent
4. subject of
insurance is the
original insurers
risk.
5. consent of original
insured, not
necessary
60
61LOSS - injury or damage sustained by insured

62from perils insured against.
63
64PROXIMATE CAUSE active efficient cause
65which sets in motion a train of events which in
66turn brings about a result without intervention of
67any force operating and working actively from a
68new and independent force.
69
70LOSS FOR WHICH INSURER IS LIABLE:

71
72
1.
loss the proximate cause of
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
which is the peril insured against (Sec.

84);
2.
loss the immediate cause of
which is the peril insured against except
where proximate cause is an excepted
peril;
3.
loss through negligence of
insured except where there was gross
negligence amounting to willful acts; and
4.
loss caused by efforts to rescue
the thing from peril insured against;
5.
if during the course of rescue,
the thing is exposed to a peril not
insured against, which permanently
deprives the insured of its possession, in
whole or in part (Sec. 85).
90LOSS FOR WHICH INSURER IS NOT

91LIABLE:
92
93
94
95
96
97
1.
loss by insureds willful act;

2.
loss due to connivance of the
insured (Sec. 87); and
3.
loss where the excepted peril is
the proximate cause.
98
99MARINE INSURANCE insurance against
REINSURANCE
100risks connected with navigation, to which a ship,

101cargo, freightage, profits or other insurable
4
Page 45
10
1interest in movable property, may be exposed

2during a certain voyage or a fixed period of time
3(Sec. 99).
4
5COVERAGE OF MARINE INSURANCE
6(SEC. 99):
7
81. vessels, goods, freight, cargo, merchandise,
9
profits, money, valuable papers, bottomry
10
and respondentia, and interest in respect to
11
all risks or perils of navigation;
122. persons or property in connection with
13
marine insurance;
143. precious stones, jewels, jewelry and
15
precious metals whether in the course of
16
transportation or otherwise; and
174. bridges, tunnels, piers, docks and other aids
18
to navigation and transportation.
19
20 Cargo can be the subject of marine
21
insurance, and once it is entered into, the
22
implied
warranty
of
seaworthiness
23
immediately attaches to whoever is insuring
24
the cargo, whether he be the shipowner or
25
not. (Roque vs IAC, 139 SCRA 596).
26
27IMPLIED WARRANTIES IN MARINE

28INSURANCE:
29
30
1. that the ship is seaworthy at the
31
inception of the insurance (Sec.113,ICP)
32
2. that the ship will not deviate from agreed
33
34
35
36
voyage unless deviation is proper (Sec.

123, 124, 125, ICP)
3. that the ship will not engage in an illegal
venture
4. warranty of neutrality : that the ship will
carry the requisite documents of
nationality or neutrality of the ship or
cargo where such nationality or
neutrality is expressly warranted
5. presence of insurable interest.
37
38
39
40
41
42
43
44INSURABLE INTEREST IN MARINE

45INSURANCE:
46
471. Shipowner over the vessel, except that if
48
49
50
51
52
53
54
552.
56
573.
58
59
60
chartered, the insurance is only up to the

amount not recoverable from the charterer
(Sec. 100); and if hypothecated by a
bottomry loan, the insurable interest is only
up to the excess of the value of the vessel
over the loan (Sec. 101). He also has an
insurable interest on expected freightage.
Cargo owner over the cargo and
expected profits (Sec. 105).
Charterer over the amount he is liable to
the shipowner, if the ship is lost or damaged
during t he voyage (Sec. 106).
61PERILS OF THE SEA extend only to losses
63elements, and does not embrace all losses

64happening at sea. Include only such losses as
65are extraordinary in nature, or arise from
66overwhelming power, which cannot be guarded
67against by ordinary exertion of human skill and
68prudence (Sec. 99).
69
70PERILS OF THE SEA VS. PERILS OF THE

71SHIP
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
Perils of the sea or perils of navigation

includes only those casualties due to the
unusual violence or extra ordinary causes
connected with navigation. It has been said
to include only such losses as are of
extraordinary nature or arise from some
overwhelming power which cannot be
guarded against by the ordinary exertion of
human skill or prudence, as distinguished
from the ordinary wear and tear of the
voyage and from injuries suffered by the
vessel in consequence of her not being
unseaworthy.
Perils of the ship is a loss which in the
ordinary course of events, results:
1. from the natural and inevitable action of
the sea
2. from the wear and tear of the ship
3. from the negligent failure of the ships
owner to provide the vessel with proper
equipment to convey the cargo under
ordinary conditions.
98BARRATRY willful misconduct on the part of

99the master or crew in pursuance of some
100unlawful or fraudulent purpose without consent
101of owners, and to the prejudice of owners
102interest.
103
104INSURANCE AGAINST ALL RISKS
105insurance against all causes of conceivable loss
106or damage, except as otherwise excluded in the
107policy or due to fraud or intentional misconduct
108on the part of the insured.
109
110 The insurer can avoid coverage upon
111
demonstrating that a specific provision
112
excludes the loss from the coverage. (Choa
113
Tiek Seng vs CA, 183 SCRA 223).
114
115INCHAMAREE CLAUSE covers loss or
116damage to the hull or machinery through:
1171. negligence of the captain, engineers, etc.
1182. explosions, breakage of shafts; and
1193. latent defect of machinery or hull.
120
121
122MATTERS ALTHOUGH CONCEALED,

123WILL NOT VITIATE THE CONTRACT
62caused by sea damage, or violence of the

4
Page 46
10
1EXCEPT WHEN THEY CAUSED THE

2LOSS (SEC. 110):
3
41.
52.
6
73.
8
94.
105.
11
national character of the insured;

liability if insured thing to capture or
detention;
liability to seizure from breach of foreign
laws;
want of necessary documents; and
use of false or simulated papers.
12DEVIATION departure of vessel from course

13of voyage, or an unreasonable delay in pursuing
14voyage, to the commencement of an entirely
15different voyage (Sec. 123).
16
17DEVIATION IS PROPER WHEN

18(SEC. 124):
19
201.
21
222.
233.
244.
25
26
if due to circumstances outside the control of

the ship captain or ship owner;
if done to comply with a warranty;
if made in good faith to avoid a peril;
if made to save human life or another
distressed vessel.
291.
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
TOTAL LOSS that which may be:

a. actual loss, involving (Sec. 130)
(i)
total destruction;
(ii)
loss by sinking
(iii)
damage rendering the thing
valueless; or
(iv)
total deprivation of owner of
possession of thing insured.
b. constructive total loss (Sec. 131, in
relation to Sec. 139), involves --(i)
actual loss of more than of the
value of the object;
(ii)
damage reducing value by more
than of the value of the vessel
and of cargo; and
(iii)
expense of transhipment exceed
of value of cargo.
27LOSS:
28
In case of constructive total loss, insured

may abandon goods or vessel to the insurer
and claim for whole insured value, or he
may, without abandoning vessel, claim for
partial actual loss.
531. PARTIAL LOSS that which is not total

54
55
(Sec. 128).
56GENERAL AVERAGE LOSS VS.

57PARTICULAR AVERAGE LOSS
58
59 GENERAL AVERAGE LOSS include damages
60and expenses which are deliberately caused by
61the master of the vessel or upon his authority, in
62order to save the vessel, her cargo, or both at
63the same time from real or known risk. it must be

64borne equally by all of the interests concerned in
65the venture.
66
67PARTICULAR AVERAGE LOSS it includes all
68damages and expenses caused to the vessel or
69to her cargo which have not inured to the
70common benefit and profit of all persons
71interested in the vessel and her cargo. It refers
72to those losses which occur under such
73circumstances as do not entitle the unfortunate
74owners to receive contribution from other owners
75concerned in the venture as where a vessel
76accidentally runs aground and goes to pieces
77after the cargo is saved.
78
79REQUISITIES OF GENERAL AVERAGE

80CONTRIBUTION:
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
1. there must be a common danger to the

vessel or cargo
2. part of the vessel or cargo was
sacrificed deliberately
3. the sacrifice must be for the common
safety or for the benefit of all
4. it must be made by the master or upon
his authority
5. it must be not be caused by any fault of
the party asking the contribution
6. it must be successful, i.e. resulted in the
saving of the vessel or cargo.
7. It must be necessary
96ABANDONMENT is the act of the insured by

97which, after a constructive total loss, he declared
98the relinquishment to the insurer of his interest in
99the thing insured (Sec. 138).
100
101REQUISITES FOR VALID

102ABANDONMENT:
103
1041.
105
106
1072.
108
1093.
110
1114.
112
113
1145.
1156.
116
117
1187.
119
120
121
There must be an actual relinquishment by

the person insured of his interest in the thing
insured (Sec. 138);
There must be a constructive total loss (Sec.
139);
The abandonment be neither partial nor
conditional (Sec. 140);
It must be made within a reasonable time
after receipt of reliable information of the
loss (Sec. 141);
It must be factual (Sec. 142);
It must be made by giving notice thereof to
the insurer which may be done orally or in
writing (Sec. 143); and
The notice of abandonment must be explicit
and must specify the particular cause of the
abandonment (Sec. 144).
122CO-INSURANCE (Sec. 157, ICP) - A marine

123insurer is liable upon a partial loss, only for such
124proportion of the amount insured by him as the
4
Page 47
10
1loss bears to the value of the whole interest of

2the insured in the property insured.
3
Co-Insurance in
Co-insurance in
Marine
Property Insurance
the only
requirement is
partial loss even if
there is full
coverage
there must be a
stipulation and it
must comply with
the
following
requisites:
partial loss and
underinsurance
5FIRE INSURANCE contract by which the

6insurer for a consideration agrees to indemnify
7the insured against loss of, or damage to,
8property by fire, but may include loss by
9lightning, windstorm, tornado or earthquake and
10other allied risks, when such risks are covered
11by extension to fire insurance policies or under
12separate policies (Sec. 167).
13
14ALTERATION- An alteration in the use or
15condition of a thing insured from that to which it

16is limited by the policy made without the consent
17of the insurer, by means within the control of the
18insured, and increasing the risks, entitles the
19insurer to rescind a contract of fire insurance
20(Sec. 168, ICP).
21
22WHEN ALTERATION IN THING INSURED

23ENTITLES INSURER TO RESCIND:
24
251.
26
272.
28
293.
30
314.
32
335.
The use or condition of the thing is

specifically limited or stipulated in the policy;
Such use or condition as limited by the
policy is altered;
The alteration is made without the consent
of the insurer;
The alteration is made by means within the
control of the insured; and
The alteration increases the risk.
34
35ALTERATION
36RESCISSION:
37
NOT
RESULTING
IN
381. Alteration not increasing the risk; and

392. Alterations increasing the risk but not
40
violating the contract.
41
42FALL-OF-BUILDING CLAUSE clause in
43fire insurance policy that if the building or any
44part thereof falls, except as a result of fire, all
45insurance by the policy shall immediately cease.
46
47CASUALTY INSURANCE insurance
48covering loss or liability arising from accident of
49mishap, excluding those falling under other
50types of insurance as fire or marine (Sec. 174).
51
52COMPULSORY
MOTOR
53LIABILITY (Sec. 373):
VEHICLE
54METHOD OF COVERAGE:
55
1.Insurance Policy;
56
2.Surety Bond; and
57
3.Cash Bond.
58
59NON-FAULT CLAUSE any claim for death
60or injury shall be paid up to PHP 5,000.00
61without necessity of proving fault or negligence,
62provided the following proofs of loss under oath
63are submitted (Sec. 378):
641. death certificate and evidence sufficient to
65
establish proper payee;
662. police report; and
673. medical report and evidence of medical or
68
hospital disbursement.
69
70 Claim is collected from insurer of vehicle
71
where claimant is riding, mounting, or
72
dismounting from. In any other case, claim
73
shall lie against the insurer of the directly
74
offending vehicle.
75
76AUTHORIZED DRIVER CLAUSE The
77clause means that it indemnifies the insured
78owner against loss or damage to the car but
79limits the use of the insured vehicle to the
80insured himself or any person who drives on his
81order or with his permission (Villacorta vs.
82Insurance Commissioner; Perla Compania de
83Seguro vs. CA)
84
85 The requirement that the person driving the
86
insured vehicle is permitted in accordance
87
with the licensing laws or other laws or
88
regulations to drive the motor vehicle. It is
89
applicable only if the person driving is
90
other than the insured.
91
92COOPERATION CLAUSE clause in an
93automobile insurance policy which provides in
94essence that the insured shall give all such
95information and assistance as the insurer may
96require, usually requiring attendance at trials or
97hearings.
98
99THIRD PARTY LIABILITY INSURANCE
100insurance secured by the assured to protect
101third parties up to the limit stated in the policy,
102but third party victim is not at all affected by the
103limitation in the schedule of indemnity which
104binds only the contracting party [Sec. 378, (iii)].
105
106PASSENGER, (CMVLI)any fare paying
107person being transported and conveyed in and
108by a motor vehicle for transportation of
109passenger for compensation, including persons
110expressly authorized by law or by the vehicles
111operator or his agents to ride without faire (Sec.
112373{b}, CMVLI)
113
4
Page 48
10
1THIRD PARTY is any person other than the

2passenger as defined in 373 of CMVLI and shall
3also exclude a member of the household or a
4member of the family within the second degree
5of consanguinity or affinity, of a motor vehicle
6owner or land transportation operator, as
7likewise defined herein, or his employee in
8respect of death or bodily injury arising out of
9and in the course of employment (Sec. 373{c},
10CMVLI).
11
12SURETYSHIP agreement whereby surety
13guarantees the performance by another of an
14undertaking or an obligation in favor of a 3rd
15party (Sec. 175).
16 Essentially a credit accommodation.
17
18FIDELITY BOND contract of insurance against
19loss from misconduct.
20
21FIDELITY GUARANTY INSURANCE a
22contract whereby one, for a consideration,
23agrees to indemnify the assured against loss
24arising from the want of integrity, fidelity or
25honesty of employees or other persons holding
26positions of trusts.
27
28LIFE INSURANCE insurance on human life
29and insurance appertaining thereto or connected
30therewith which includes every contract or
31pledge for the payment of endowments or
32annuities (Sec. 179).
33
34 Effect of death of insured through suicide
35
the insurer in a life insurance contract shall
36
be liable in case of suicide by the insured
37
committed after the policy has been in force
38
for a period of two years from the date of its
39
issue or its last reinstatement, unless the
40
policy provides a shorter period: provided,
41
however, that suicide committed in a state of
42
insanity shall make the insurer liable
43
regardless of the date of the commission of
44
the suicide (Sec. 180-A).
45
46KINDS:
47
481. ORDINARY LIFE, GENERAL LIFE OR OLD

49
50
51
522.
53
54
55
56
573.
58
59
60
614.
62
LINE POLICY - insurer pays a premium

every year until he dies. Surrender value
after 3 years.
LIMITED PAYMENT POLICY insured pays
premium for a limited period. If he dies
within the period, his beneficiary is paid; if
he outlives the period, he does not get
anything.
ENDOWMENT POLICY pays premium for
specified period. If he outlives the period,
the face value of the policy is paid to him; if
not, his beneficiaries receive the benefit.
TERM INSURANCE insurer pays once
only, and he is insured for a specified
63
64
65
66
675.
68
69
70
716.
72
73
74
75
76
77
78
period. If he dies within the period, his

beneficiaries benefits. If he outlives the
period, no person benefits from the
insurance.
INDUSTRIAL LIFE _ life insurance entitling
the insured to pay premiums weekly, or
where premiums are payable monthly or
oftener; and
VARIABLE CONTRACT any policy or
contract on either a group or individual basis
issued by an insurance company providing
for benefits or other contractual payments or
values thereunder to vary so as to reflect
investment results of any segregated
portfolio of investment.
79INTENTIONAL
VS. ACCIDENTAL AS
80USED IN INSURANCE:
81
82INTENTIONAL as used in an accident policy
83excepting intentional injuries inflicted by the
84insured or any other person implies the exercise
85of the reasoning faculties, consciousness and
86volition. Where a provision of the policy excludes
87intentional injury, it is the intention of the person
88inflicting the injury that is controlling. If the
89injuries suffered by the insured clearly resulted
90from the intentional act of the third person, the
91insurer is relieve from liability as stipulated
92(Biagtan vs. the Insular Life Assurance Co.
93Ltd. 44 SCRA 58, 1972)
94
95ACCIDENTAL - The terms accident and
96accidental as used in insurance contract, have
97not acquired any technical meaning. They are
98construed by the courts in the ordinary and
99common acceptation. Thus, the terms have
100been taken to mean that which happens by
101chance or fortuitously, without intention or
102design, which is unexpected, unusual and
103unforeseen. The terms do not without
104qualification, exclude events resulting in damage
105or loss due to fault, recklessness or negligence
106of third parties. The concept is not necessarily
107synonymous with no fault. It maybe utilized
108simply to distinguish intentional or malicious acts
109from negligent or careless acts (Pan Malayan
110Insurance Corp. vs. CA, 184 SCRA 54).
111
112
113INSURANCE AS A RISK DISTRIBUTING

114DEVICE:
115
116
The devices of insurance serves to
117distribute the risk of economic loss among as
118many as possible of those who are subject to
119same kind of risk. By paying a pre-determine
120amount into a general fund out of which payment
121will be made for an economic loss of a defined
122type, each member contributes to a small
123degree toward compensation for losses suffered
124by any member of the group. This broad sharing
4
Page 49
10
1of economic risk is the principle of risk2distribution.

3
4LIABILITY OF INSURER IF INSURED

5WAS COMMITTING A FELONY
6
Liabilities arising out of acts of negligence,
7which are also criminal, are also insurable on the
8ground that such acts are accidental. Thus, a
9motor insurance policy covering the insureds
10liability for accidental injury caused by his
11negligence, even though gross and attended by
12criminal consequences such as homicide
13through reckless imprudence, will not be void as
14against public policy. But liability consequences
15of deliberate criminal acts are not insurable.
16
17PRESCRIPTION PERIOD
18(SEC. 63, 384, ICP).
19 In the absence of an express stipulation in

20
the policy it being based on a written
21
contract, the action prescribes in 10 years.
22
However the parties may validly agree on
23
a shorter period provided it is not less than
24
one year from the time the cause of action
25
accrues. The cause of action accrues from
26
the final in rejection of the claim of the
27
insured and not from the time of loss.
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62IV. TRANSPORTATION LAWS
63
64
65CONTRACT
OF
TRANSPORTATION-
66contract whereby, a person, natural or juridical,

67obligates, to transport persons, goods or both,
68from one place to another by land, air or water
69for a price or compensation.
70
71COMMON CARRIER- one that holds itself out
72as ready to engage in the transportation for hire
73as a public employment and not as a casual
74occupation.
75
76 persons, firms, corporations or associations
77
engaged in the business of carrying or
78
transporting passengers or goods or both,
79
by land, water, or air, for compensation,
80
offering their services to the public.
81
(Art.1732, New Civil Code)
82
83 Art. 1732 of the New Civil Code avoids any
84
distinction between a person or enterprise
85
offering transportation service on a regular
86
or scheduled basis and one offering such
87
service on an occasional, episodic or
88
unscheduled basis.
89
90 Neither does the law distinguish between a
91
carrier offering its services to the general
92
public that is the general community or
93
population and one who offers services or
94
solicits business only from a narrow
95
segment of the general population. (De
96
Guzman vs. CA, September 15, 1993)
97
98GOVERNING LAWS:
99(in the order mentioned)
100
101A.
102
103
104
105
106
107
108B.
109
110
111
1123
1134
114
115
116
117
118
119
120
121
122
Coastwise
1) New Civil Code (Art. 1732-1766)
primary law
2) Code of Commerce suppletory law
NOTE: COGSA inapplicable even if the
parties expressly provide for it
Foreign Ports to Philippine Ports
1) New Civil Code primary law
2) Code of Commerce
3) Carriage of Goods by Sea Act
C. Philippine Ports to Foreign Ports laws
of the country to which the goods are to be
transported. (Eastern Shipping vs. IAC,
150
SCRA
463,
American
Home
Assurance vs. CA, 208 SCRA 343, NDC
vs. CA, 164 SCRA 593)
4
Page 50
10
2CHARACTERISTICS OF A COMMOM
3CARRIER:
4
51.
6
7
8
92.
10
11
123.
13
144.
15
undertakes to carry for all people

indifferently and thus, is liable for refusal
without sufficient reason (Lastimoso vs.
Doliente, October 20, 1961)
cannot lawfully decline to accept a particular
class of goods for carriage to the prejudice
of the traffic in these goods
no monopoly is favored (Batangas Trans
vs. Orlanes, 52 PHIL 455)
provides public convenience
16PRIVATE CARRIER- not engaged in business

17of carrying as a public employment, undertakes
18to deliver goods or passengers for compensation
19(requires only ordinary diligence) (Home
20Insurance Co. vs. American Steamship
21Agency, 23 SCRA 24)
22
23DISTINCTIONS :
24
COMMON CARRIER
1. holds himself out for

all people
indiscriminately
2. requires
extraordinary diligence
3. subject to State
regulation
4. parties may not
agree on limiting the
carriers liability except
when provided by law
5. presumption of fault
or negligence applies
PRIVATE CARRIER
1. contracts with
particular individuals or
groups only
2. ordinary diligence is
required
3. not subject to State
regulation
4. parties may agree
on limiting the carriers
liability provided not
contrary to law, morals
or good customs
5. no fault or
negligence is
presumed
25
26CASO FORTUITO
27
28Requisites:
29
301. event independent of human will;
312. occurrence makes it impossible for debtor
32
to fulfill the obligation in a normal manner;
333. obligor must be free of participation in, or,
34
aggravation of, the injury to the debtor; and
354. impossible to foresee or impossible to avoid.
36
(Juntilla vs. Fontanar, 136 SCRA 624;
37
Vasquez vs. CA, 138 SCRA 553)
38
39 A common carrier is held liable for the flaws
40
of its equipment (tire blow-out, knuckles
41
failure) if such defects are discoverable and
42
such cannot be considered a caso fortuito.
43
This is because the passenger has no privity
44
with the manufacturer of the defective
45
equipment and thus, has no remedy against
46
him while the carrier has. (Necessito vs.
47
Paras, 104 Phil 75)
48
49 Hijacking of the carrier truck does not fall
50
among the five categories of exempting
51
causes. The common carrier is presumed to
52
be at fault or to have acted negligently
53
unless there is proof of extraordinary
54
diligence on the part of the common
55
carrier. The duty of extraordinary diligence
56
is reached where the goods are lost as a
57
result of robbery attended by grave or
58
irresistible threat, violence or force.
(De
59
Guzman vs. CA, September 15, 1993).
60
61NOTE: In Quisumbing Sr. vs. CA, 189 SCRA
62213, an action against an airline company to
63recover damages for the loss of certain
64valuables belonging to passengers after a(n)
65hijacking robbery was dismissed. The Court
66considered hijacking robbery a caso fortuito. It
67ruled: the mandatory use of the most
68sophisticated electronic detection devices, the
69imposition of severe penalties, the development
70of screening procedures, the compilation of
71hijackers behavioral profiles, the assignment of
72sky marshalls, and the weight of outraged world
73opinion may have minimized hijackings but all
74these proved ineffective against truly determined
75hijackers.
76
77KABIT SYSTEM: VOID AND INEXISTENT
78UNDER ART. 1409, NEW CIVIL CODE
79
80 This is a system whereby a person who has

81
been granted a certificate of public
82
convenience allows other persons who own
83
motor vehicles to operate under such
84
license, for a fee or percentage of such
85
earnings.
86 This has been identified as one of the root
87
causes of the prevalence of graft and
88
corruption in the government transportation
89
offices. A certificate of public convenience is
90
a special privilege conferred by the
91
government. Abuse of this privilege by the
92
grantees thereof cannot be countenanced.
93
(LITA ENTERPRISES INC. VS CA, 129
94
SCRA 79)
95
96EFFECTS OF THE SYSTEM AND LIABILITIES
97OF THE REGISTERED OWNER AND THE
98ACTUAL OWNER OF THE MOTOR VEHICLE:
99
100
1011. The transfer, sale, lease or assignment of
102
the privilege granted is valid between the
103
contracting parties but not upon the public or
104
third persons. (Gelisan vs. Alday, 154
105
SCRA 388)
1062. The registered owner is primarily liable for
107
all the consequences flowing from the
108
operations of the carrier because to rule
4
Page 51
10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
173.
18
19
20
21
22
23
24
25
26
274.
28
29
30
31
otherwise would be utterly subversive to the

thrust of public policy herein involved. The
public has the right to assume that the
registered owner is the actual or lawful
owner thereof. It would be very difficult and
often impossible, as a practical matter, for
the public to enforce their rights of action
that they may have for injuries inflicted by
the vehicle if they should be required who
the actual owner is. It would also open the
door to collusion between the registered
owner and the actual owner and to shifting
liability from the carrier to one without
financial capability to meet the resulting
damages. (Benedicto vs. IAC, 187 SCRA
547)
The registered owner cannot recover from
the actual owner and the latter cannot obtain
transfer of the vehicle to himself, both being
in pari delicto. The Court will not aid either
party to enforce an illegal contract, but will
leave them both where it find them. Where
the parties are in pari delicto, no affirmative
relief of any kind will be given to one against
the other. (Teja Marketing vs. IAC, 148
SCRA 347 )
For the better protection of the public, both
the registered owner and the actual owner
are jointly and severally liable with the
driver. (Zamboanga Transportation Co.
vs. CA)
32
33CONTRACT OF ADHESION- one that is
34unilaterally drafted and printed in advance by

35monopolies, insurance companies, carriers and
36money lenders and the only participation of the
37carrier party is the signing of his signature or his
38adhesion thereto (Eastern Shipping Lines
39vs. Margarine, 93 SCRA 257)
40
41 NEW CIVIL CODE PROVISIONS ON
42
COMMON CARRIERS
43
(ART. 1732-1766)
44
451. REQUIREMENT OF
46
EXTRAORDINARY DILIGENCE
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
Common carriers, from the nature of their

business and for reasons of public policy,
are bound to observe extraordinary diligence
in the vigilance over goods and for the
safety of the passengers transported by
them according to all the circumstances of
each case (Art. 1733, in relation to Art.
1755)
Rationale: The business of common
carriers is impressed with a special public
duty such that the public must of necessity
rely on their skill and care over the goods
and/or passengers transported. Also, with
the development in science and invention,
transportation has become more rapid, but
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
more complicated and hazardous, so the

public is forced to trust all the more in the
utmost diligence and foresight of common
carriers. (Commission Report on the
Proposed Civil Code)
When the officers and the crew were aware
of the typhoon but decided to proceed with
the voyage believing that the weather was
still good, although, according to the
weather forecast, they were already within
the typhoon zone, the sinking of the vessel
proves that required extraordinary diligence
was not duly observed. (Vasquez cs. CA,
138 SCRA 553)
A common carrier neglects its duty to
transport its passengers safely when a
passenger died because the floor of its bus
gave way after a tire blow out caused by
overcrowding, overspeeding and weak
flooring. (M. Ruiz Highway Transit, Inc. vs.
CA, 11 SCRA 98)
The announcement by a train conductor of
the next flag stop, three minutes ahead of
time, causing the passengers to rise from
their seats, and the subsequent fall by them
as a consequence of the jerking, resulting in
deaths and injuries to them, is negligence.
(Brinas vs. People, 125 SCRA 687)
The mere fact that the bus was inspected
the day before the accident is not sufficient
to rebut the presumption of negligence,
where the bus was overloaded in spite of the
fact that its route consisted of mountainous,
circuitous and ascending roads. (Landingin
vs. Pangasinan, 33 SCRA 284)
Where a vessels departure was delayed by
repairs, and on managements instruction,
the first port of call was bypassed, the event
is not fortuitous to be exempt from liability.
(Sweet Lines vs. CA, 121 SCRA 769)
1082. RULES ON
109
NEGLIGENCE
110A.
111
112
113
114
115
116
117
118
119
120
121
122
PRESUMPTION
OF
In the carriage of goods. In case of loss,

destruction and deterioration of the goods,
common carriers are presumed to be at fault
or have acted negligently, unless they prove
that they exercise extraordinary diligence.
In the transport of goods, mere proof of
delivery of goods in good order to a carrier
and the subsequent arrival of the same
goods at the place of destination in bad
order makes for a prima facie case against
the carrier. (Coastwise Lighterage Corp.
vs. CA, 245 SCRA 796
4
Page 52
10
1B. In the carriage of passengers. The same

2presumption applies.
3
4 The courts need not make an express
5
finding of fault or negligence of common
6
carriers, the law imposes upon common
7
carriers strict liability, as long as it is shown
8
that there exists a relationship between the
9
passenger and the common carrier and
10
that injury or death took place during the
11
existence of the contract.
12
13Reason for the presumption: Because as to
14when and how goods were damaged in transit is
15a matter peculiarly within the knowledge of the
16carrier and its employees. (Mirasol vs. Dollar,
1753 PHIL 124) Also, the contract between the
18passenger and the carrier imposes on the latter
19to transport the passenger safely, hence the
20burden of explaining should fall on the carrier.
21NOTE: The doctrine of res ipsa loquitor applies.
22
233. DEFENSE OF COMMON CARRIERS
24
25 Common carriers are responsible for the
26
loss, destruction, or deterioration of the
27
goods, unless the same is due to any of the
28
following causes only:
291. Flood, Storm, earthquake, lighting, or other
30
natural disaster or calamity.
312. Act of the public enemy in war, whether
32
international or civil
333. Act or omission of the shipper or the owner
34
of goods
354. The character of the goods or defects in the
36
packing or in the containers.
375. Order or act of competent authority
38
(Art1734, NCC).
39
40Reason for the exceptions: Because the
41carrier is not an insurer of the safety of its
42passengers and is not absolutely and at all
43events to carry them safely and without injury.
44(Santos vs. Dela Cruz, December 2, 1959)
45
46A. NATURAL DISASTER
47
48Requisites for the Defense:
491. must be the proximate and only cause of the
50
loss
512. carrier must exercise due diligence to
52
prevent or minimize the loss before, during
53
or after the occurrence of the disaster (Art.
54
1739, NCC)
553. carrier had not negligently incurred in delay
56
in transporting the goods (Art. 1740, NCC)
57
58ACTS OF PUBLIC ENEMY
59
60Requisites for the Defense:
611. the act must be the proximate and only
62
cause of the loss
632.
64
65
66
67
68
carrier must exercise due diligence to

prevent or minimize the loss before, during
or after the act causing the loss,
deterioration or destruction of the goods
(Art. 1739, NCC)
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
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 carrier, the carrier shall
still be liable for damages, but such shall be
equitably reduced.
When the shipper declared an inaccurate
weight of the equipment transported causing
it to fall when it is being unloaded, the carrier
was still held liable for damages because
such accident could have been avoided if
the carrier had exercised reasonable
attention in overseeing the unloading of the
equipment. However, the liability was
reduced as the shipper was liable for
contributory
negligence.
(Compania
Maritima vs. CA, 164 SCRA 685)
92
93
94
95
96
97
98
99
100
101
102
103
Even if the damage should be caused by the

inherent defect/character of the goods, the
common carrier must exercise due diligence
to forestall or lessen the loss.
The carrier, knowing the fact of improper
packing of the goods upon ordinary
observation, still accepts the goods
notwithstanding such condition, is not
relieved of liability or loss or injury resulting
therefrom. (Southern Lines, Inc. vs. CA, 4
SCRA 258)
69CONTRIBUTORY NEGLIGENCE OF THE

70SHIPPER
89C. CHARACTER OF THE GOODS OR

90 DEFECTS IN THE PACKING OR IN
91 THE CONTAINER
104D. ORDER/ACT OF PUBLIC AUTHORITY

105 Said public authority must have the power to
106
issue the order. Consequently, where the
107
officer acts without legal process, the
108
common carrier will be held liable.
109
110NOTE: Diligence in the selection and
111supervision of employees under Articles 21801122181, NCC, cannot be interposed by the
113common carrier to prevent damages because
114the liability of the carriers arises from the breach
115of the contract of carriage. The defense under
116said articles is applicable to negligence in quasi117delicts. (Del Prado vs. Manila Electric Co., 52
118PHIL 900)
119
120E.
121
STIPULATIONS LIMITING
LIABILITY OF COMMON CARRIERS
122
1231.
124
IN THE CARRIAGE OF GOODS- the

common carrier and the shipper may agree
4
Page 53
10
1
on the carriers observance of diligence to a
2
degree less than extraordinary provided it be
3
a) In writing, signed by the shipper or
4
owner;
5
b) Supported
by
a
valuable
6
consideration other than the service
7
rendered by the carriers; and
8
c) Reasonable, just and not contrary
9
to public policy. (Art. 1744).
10
11 The following stipulations are considered
12
unjust, unreasonable and contrary to public
13
policy:
141. the goods are transported at the risk of the
15
owner or shipper
162. the carrier will not be liable for any loss,
17
destruction or deterioration of the goods
183. the carrier need not observe any diligence in
19
the custody of the goods
204. the carrier shall exercise a degree of
21
diligence less than that of a good father of a
22
family over the movable transported
235. the carrier shall not be responsible for the
24
acts or omissions of his or its employees
256. the carriers liability for acts committed by
26
thieves or robbers who do not act with grave
27
or irresistible threat, violence or force is
28
dispensed with or diminished
297. the carrier is not responsible for the loss,
30
destruction or deterioration of the goods on
31
account of the defective condition of the car,
32
vehicle, ship or other equipment used in the
33
contract of carriage.
34
35Other Valid stipulations limiting the carriers
36liability:
371. A stipulation that the common carriers
38
liability is limited to the value of the goods
39
appearing in the bill of lading unless the
40
shipper or owner declares a greater value
41
(HEACOCCK VS MACONDRAY, 42 PHIL
42
205)
432. A contract fixing the sum to be recovered by
44
the owner or shipper for the loss, destruction
45
or deterioration of the goods, if it is
46
reasonable
and
just
under
the
47
circumstances and has been fairly and freely
48
agreed upon (Art. 1750, NCC)
493. An agreement limiting the common carriers
50
liability for delay on account of strikes or
51
riots (Art. 1748, NCC)
52
53
542. IN THE CARRIAGE OF PASSENGERS
55 The extraordinary responsibility of a
56
common carrier for the safety of passengers
57
imposed by law cannot be dispensed with or
58
lessened by stipulation, by posting of
59
notices, by statements on tickets or
60
otherwise (Art. 1757, NCC).
61 When a passenger is carried gratuitously, a
62
stipulation limiting the common carriers
63
liability for negligence is valid, but not for
64
willful acts on gross negligence (Art. 1758,
65
NCC).
66
67NOTE: The diligence required in the carriage of
68the goods may be reduced by only one degree,
69from extraordinary to ordinary diligence or
70diligence of a good father of a family. (Art. 1744,
71Art. 1745, no.4, NCC)
72 In the transport of passengers, the diligence
73
required may be reduced by two degrees
74
from extraordinary to ordinary diligence or
75
even to simple negligence but ot to gross
76
negligence. (Art. 1758, NCC)
77
78G. DURATION OF RESPONSIBILITY OF
79
COMMON CARRIERS
80
811.
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
1042.
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
GOODS.
The extraordinary responsibility of the
common carrier lasts from the time the
goods are unconditionally placed in the
possession of, and received by the carrier
for transportation until the same are
delivered actually or constructively by the
carrier to the consignee or to the person
who has the right to receive them. (Art.
1736, NCC)
It remains in full force and effect even when
they are temporarily unloaded or stored in
transit unless the shipper or owner has
made use of the right of stoppage in transitu.
(Art. 1737, NCC)
It continues to be operative even during the
time the goods are stored in a warehouse of
the carrier at the place of destination until
the consignee has bee advised of the
arrival of the goods and has had reasonable
opportunity thereafter to remove them or
otherwise dispose of them. (Art. 1738, NCC)
PASSENGERS.
Once created, the relationship will not
ordinarily terminate until the passenger has,
after reaching his destination, safely alighted
from the carriers conveyance or had a
reasonable opportunity to leave the carriers
premises.
All persons who remain on the premises
within a reasonable time after leaving the
conveyance are to be deemed passengers,
and what is a reasonable time or a
reasonable delay within this rule is to be
determined from all the circumstances, and
includes a reasonable time to see after his
baggage and prepare for his departure. (La
Mallorca vs CA, July 27 1966; Abiotiz
Shipping Corporation vs CA, November
6, 1989)
In case of flight diversion due to bad
weather or other circumstances beyond the
pilots control, the relation between the
carrier and the passenger continues the
latter has been landed at the port of
4
Page 54
10
1
2
3
4
5
6
7
8
destination and has left the carriers

premises. The carrier should necessarily
exercise
extraordinary
diligence
in
safeguarding the comfort, convenience and
safety of its stranded passengers until they
have reached their final destination.
(PHILIPPINE AIRLINES VS CA, 226 SCRA
423)
9
10H. LIABILITY OF THE CARRIER FOR
11
ACTS OF ITS EMPLOYEES AND
12
OTHER PASSENGERS
13
141.
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
392.
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
For acts of Employees

Common carriers are liable for the death of
or injuries to passengers through the
negligence or willful acts of the formers
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 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. (1759, NCC)
The liability of the carrier for the personal
violence of its employees or agents upon its
passengers extends only to those acts that
the carrier could foresee or avoid through
the exercise of the degree of diligence
required.
The carrier is not liable for acts of employee
not on duty or in the line of duty. (DE
GILLACO
VS
MRR,
97
PHIL884;
MARANAN VS PEREZ, 20 SCRA 412)
For acts of other Passengers
A common carrier is responsible for injuries
suffered by a passenger on account of the
willful acts or negligence
of other
passengers or of strangers, if the common
carriers employees, through the exercise of
the diligence of a good father of a family
could have prevented or stopped the act.
(1763, NCC)
The carrier is liable when its personnel
allowed a passenger to drive the vehicle
causing it to collide with another vehicle
resulting to the injuries suffered by the other
passengers.(MRR VS BALLESTEROS, 16
SCRA 641)
56I. RULES ON PASSENGERS

57 BAGGAGES
58
59
60
611.
62
63
As to baggage of passengers, the law

makes a distinction between:
BAGGAGE IN THE CUSTODY OF THE
PASSENGERS OR THEIR EMPLOYEE
64 under this, the baggage is in the personal

65
custody of the passenger or his employee in
66
that the baggage while in transit will be
67
considered as necessary deposits. The
68
common carrier shall be responsible for the
69
baggage as depositaries, provided that
70
notice was given to them or its employees
71
and the passenger took the necessary
72
precautions which the carrier has advised
73
them relative to the care and vigilance of
74
their baggage.
75 In case of loss due to the fault of the
76
passenger, the carrier will not be liable . The
77
act of thief will not be force majeure unless
78
the same is committed by armed men an
79
through irresistible force (Article 1754,
80
NCC)
81
822. BAGGAGE NOT IN SUCH CUSTODY, BUT
83
IN THAT OF THE CARRIER (Article 1733 to
84
1573 of the NCC)
85 carrier who has in his custody the baggage
86
of a passenger to be carried like any other
87
goods is required to observe extraordinary
88
diligence. In case of loss or damage the
89
carrier is presumed negligent.
90
918) CAUSE OF ACTION ARISING FROM THE
92
NEGLIGENT ACT OF THE CARRIER
93
94
The injured passenger can avail of any of
95the three causes of action arising from the
96negligent act of the common carrier:
97
981)culpa contractual Art.1759, NCC only the
99 carrier could be held liable, not the driver
100 because the there is no privity between the
101 driver and the passenger
1022)culpa acquiliana Art. 2180, NCC the carrier
103 and driver are solidarily liable as joint
104 tortfeasors
1053)culpa criminal Art. 100, Revised Penal Code
106 the carrier could be held liable only if driver
107 be convicted and declared insolvent, making
108 him subsidiarily liable.
109
110LIABILITY OF SUCCESSIVE AIR

111CARRIERS:
112
113
114
115
116
117
118
119
120
121
122
An airline ticket providing that carriage

by successive air carriers is to be
regarded as a single operation is to
make the (issuer carrier) liable for the
tortious conduct of the other carrier. A
printed provision in the ticket limiting
liability only to its own conduct is not
enough to rebut that liability (KLM
ROYAL DUTCH AIRLINES VS. CA)
123BILL OF LADING- written acknowledgment of

124receipt of goods and agreement to transport
125them to a specific place to a person named or to
126his order. It is not indispensable for the creation
4
Page 55
10
1of a contract of carriage (COMPANIA

2MARITIMA vs. INSURANCE CO. OF NORTH
3AMERICA, 12 SCRA 213)
4
5ON BOARD BILL OF LADING- issued when
6the goods have been actually placed aboard the
7ship with very reasonable expectation that the
8shipment is as good as on its way.
9
10FUNCTIONS OF A BILL OF LADING:
11(MAGELLAN, MANUFACTURING vs. CA 201

12SCRA 2021)
13
141. best evidence of the existence of the
15
contract of carriage of cargo;
162. commercial
document
whereby,
if
17
negotiable, ownership may be transferred by
18
negotiation; and
193. receipt of cargo.
20
21LIMITATIONS AS TO CARRIERS
22LIABILITY
23
24
A
stipulation
in
the
bill
of
25lading limiting the liability of the
carrier
26to an agreed valuation
unless the
27shipper declares a higher value and pays a
28higher rate of freight is valid (ORG. VS. CA
29AND PAL, 91 SCRA 223).
30
31 However, the carrier cannot limit is liability
32
for injury to, or loss of, goods shipped
33
where such injury or loss was caused by
34
its own negligence (SHEWARAM VS.
35
PAL, 17SCRA 606).
36
37RECOVERY OF DAMAGES FROM

38CARRIER FOR CARRIAGE OF GOODS39
401.
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
592.
60
61
INTER-ISLAND- if goods arrived in

damaged condition: Art 366, CODE OF
COMMERCE).
a. If damage is apparent, the shipper must
file a claim immediately; or
b. If damage is not apparent, he should
file a claim within 4 hours from delivery
The filing of claim under either (1) or (2) is a
condition precedent for recovery.
If the claim is filed, but the carrier refuses to
pay: enforce carriers
liability in court by
filing a case
a. within 6 year, if no bill of lading has been
issued; or
b. within 10 years, if a bill of lading has
been issued.
OVERSEAS- where goods arrived in a

damaged condition from a foreign port to a
Philippine port of entry;
62
63
64
65
66
67
68
69
70
71
72
73
74
a. upon discharge of goods, if the

damage is apparent , claim
should be filled immediately; or
b.
if damage is not apparent,
claim should be filled within 3 days from
delivery.
Filing of claim is not condition precedent, but
an action must be filed against the carrier
within a period of 1 year from discharge; if
there is no delivery, the undelivered or lost
cargo), or from delivery to the arrastre (in
case of damaged cargo).
75 EXEMPTION FROM LIABILITY

76
77 A common carrier may be freed from liability
78
for loss or damage if it proves any of the
79
following circumstances:
80
a. natural disaster;
81
b. act of the public enemy in war;
82
c. act or omission of the shipper;
83
d. character of the goods and defect in
84
packaging;
85
e. order of competent public authority
86
(MARITIME CO. VS. CA 171 SCRA 61).
87
88DOCTRINE OF COMBINED/CONNECTING
89CARRIERS Under Art. 373, Code of
90Commerce, the original carrier that entered into
91the contract of carriage shall be liable for
92damages caused by its connecting carriers.
93Such carrier is liable if connecting carriers refuse
94to carry passengers. (KLM VS CA, 65 SCRA
95237)
96
97MARITIME COMMERCE
98
99MERCHANT VESSEL
100
101
102
103
104
105
106
vessel engaged in maritime commerce,

whether foreign or otherwise.
constitutes property which may be acquired
and transferred by any of the means
recognized by law. They shall continue to be
considered as personal property. (Art. 573,
585, Code of Commerce)
107
108CHARACTERISTICS
109TRANSACTION:
OF
MARITIME
1101) Real- similar to transactions over property

111
with respect to effectively against third
112
persons which is done through registration
113
as shown by the limitation of the liability of
114
the agents to the actual value of the vessel
115
and the freight money; and the right to retain
116
the cargo and embargo and detention of the
117
vessel; and
1182) Hypothecary- the liability of the owner of
119
the value of the vessel is limited to the
120
vessel itself (Doctrine of Limited Liability)
121
122PREFERENCE OF CREDITS - Mortgage of a
123vessel properly registered becomes of preferred
4
Page 56
10
1mortgage lien which shall have priority over all

2claims against the vessel in an extrajudicial
3foreclosure for:
4
a. credit in favor of the public treasury;
5
b. judicial costs of the proceedings;
6
c. pilotage and tonnage charges and other
7
sea and port charges;
8
d. salaries of depositaries and keepers of
9
the vessel
10
e. captain and crews wages;
11
f. general average;
12
g. salvage, including contract salvage;
13
h. maritime liens arising prior in time to the
14
recording of the preferred mortgage;
15
i. damages arising out of tort; and
16
j. preferred mortgage registered prior in
17
time.
18
19DOCTRINE OF LIMITED LIABILITY- Because
20of real and hypothecary nature of maritime law,
21liability of ship owners is limited to the amount of
22interest in said vessel such that where vessel is
23entirely loss, obligation is extinguished. (LUZON
24STEVEDORING VS. CA AND ESCANO, 156
25SCRA 169) The interest extends to vessels
26appurtenances and equipment, freightage and
27insurance proceeds. (CHUA VS. IAC, 166
28SCRA 183)
29
30Exceptions:
31
1) injury or damage due to shipowners
32
fault
33
2) claims under Workmens Compensation;
34
3) repair on vessel before loss;
35
4) vessels not abandoned;
36
5) the vessel is insured.
1.
2.
3.
4.
37
38PARTICIPANTS IN MARITIME
39COMMERCE
40
shipowners and ship agents
41
captains and masters of the
42vessel
43
officers and crew of the vessel
44
supercargoes
45
46A. SHIPOWNERS AND SHIP AGENTS
47
48
49
50
51
52
53
54
55
SHIPOWNER
person
who
has
possession, control in management of the
vessel and the consequent right to direct her
navigation and receive freight earned and
paid, while his possession continues;
SHIP AGENT person entrusted with
provisioning and representing the vessel in
the port in which it may be found; also
includes the shipowner;
60
61
62
1) For acts of the captain and for the

obligations contracted to repair, equip
and provision the vessel
56
57CIVIL LIABILITIES OF THE SHIPOWNER
58AND THE SHIP AGENTS:
59
63
64
65
66
67
2) Indemnities in favor of third persons

arising from the conduct of the captain
in the care of the goods loaded in the
vessel
71
72
73
74
75
76
77
78
79
80
81
82
83
84
1) Capacity to trade
2) Discharge duties of the captain, in case
of the latters absence
3) Contract in the name of the owners with
respect to repairs, details of equipment,
armament, and all that relate to the
requirements of navigation
4) Order a new voyage, make a new
charter or insure the vessel after
obtaining
authorization
from
the
shipowners
5) Render an account of the results of
each voyage
68POWERS, FUNCTIONS AND LIABILITIES

69OF THE SHIP AGENTS:
70
85
86
87
88
DUTY
OF
SHIP
AGENT
TO
DISCHARGE THE CAPTAIN AND
MEMBERS OF THE CREW:
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
If the seamen contract is not for a definite

period or voyage, he may discharge them at
his discretion.
If for a definite period, he may not
discharge them until after the fulfillment of
their contracts, except on the following
grounds:
-insubordination
in
serious
matters
-robbery
-theft
-habitual drunkenness
-damage caused to the vessel
or to its cargo through malice or manifest or
proven negligence
105B. CAPTAINS AND MASTERS OF THE

106VESSEL
107
108THREE-FOLD
109CAPTAIN:
CHARACTER
OF
THE
110
111
112
113
114
1) general agent of the shipowner;

2) technical director of the vessel;
3) representative of the government of the
country whose flag he navigates
116
117
118
119
120
121
1) Filipino citizen;
2) legal capacity to contract;
3) passed the required physical and mental
examinations required for licensing him
as such
123
124
1) appoint crew in the absence of ship

agent;
115QUALIFICATIONS OF THE CAPTAIN:
122INHERENT POWERS OF THE CAPTAIN:
4
Page 57
10
1
2
3
4
5
6
7
8
9
10
11
12
2) command and direct crew;

3) impose correctional punishment on
those who, while on board vessel, fail to
comply with his orders or are wanting
in discipline;
4) make contracts for the charter of vessel
in the absence of ship agent.
5) supply, equip, and provision the vessel;
and
6) order repair of vessel to enable it to
continue its voyage.
17
18
19
20
21
22
(in successive order)

1) from the consignee of the vessel
2) from the consignee of the cargo
3) by drawing on the ship agent
4) by a loan on bottomry
5) by sale of part of the cargo
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
1) bring on board the proper certificate and

documents and a copy of the Code of
Commerce
2) keep a Log Book, Accounting Book and
Freight Book
3) examine the ship before the voyage
4) stay on board during the loading and
unloading of the cargo
5) be on deck while leaving or entering the
port
6) protest arrivals under stress and in case
of shipwreck
7) follow instructions of and render an
accounting to the ship agent
8) leave the vessel last in case of wreck
9) hold in custody properties left by
deceased
passengers
and
crew
members
10) comply with the requirements of
customs, health, etc. at the port of
arrival
13SOURCES OF FUNDS TO COMPLY WITH

14THE INHERENT POWERS OF THE
15CAPTAIN:
16
23
24DUTIES OF THE CAPTAIN:
25
48LIABILITIES OF THE SHIP AGENT/SHIP

49OWNER FOR ACTS DONE BY THE
50CAPTAIN TOWARDS PASSENGERS AND
51CARGOES, MAKING THEM SOLIDARILY
52LIABLE TO THE LATTER:
53
541.
55
562.
573.
584.
595.
606.
617.
damages to vessel and to cargo due to lack

of skill and negligence
thefts and robberies of the crew
losses and fines for violation of laws
damages due to mutinies
damages due to misuse of power
for deviations
for arrivals under stress
628. damages due to non-observance of marine

63
regulations
64
65
66
67
68NO LIABILITY FOR THE FOLLOWING:

69
70
71
72
73
74
75
76
77
1) damages caused to the vessel or to the

cargo by force majeure
2) obligations contracted for the repair,
equipment, and provisioning of the
vessel unless he has expressly bound
himself personally or has signed a bill of
exchange or promissory note in his
name
78
79GROUNDS
80CAPTAIN:
FOR
DISCHARGE
OF
81
82insubordination in serious matters
83robbery
84theft
85habitual drunkenness
86damage caused to the vessel or to its cargo
87through malice or manifest or proven negligence
88
89B. OFFICERS AND CREW OF THE
90
VESSEL
91
92The following are the officers and crew of the

93vessel:
94
1) Sailing Mate/First Mate
95
2) Second Mate
96
3) Engineers
97
4) Members of the crew
98
99
1) SAILING MATE/FIRST MATE
100
second chief of the vessel who takes
101
the place of the captain in case of
102
absence, sickness, or death and shall
103
assume all of his duties, powers and
104
responsibilities.
105
QUALIFICATIONS OF THE SAILING
106
MATE:
107
1) have the qualifications required by
108
the marine or navigation laws and
109
regulations
110
2) not to be disqualified in accordance
111
therewith for the discharge of his
112
duties
113
114
115
116
117
118
119
120
121
122
DUTIES OF THE SAILING MATE:

1) provide himself with maps and
charts with astronomical tables
necessary for the discharge of his
duties
2) keep the Binnacle Book
3) change the course of the voyage on
consultation with the captain and the
officers of the boat, following the
4
Page 58
10
1
decision of the captain in case of
2
disagreement
3
4) responsible for all the damages
4
caused to the vessel and the cargo
5
by reason of his negligence
6
7
8
9
2) SECOND MATE
10
115 take command of the vessel in case of
12
the inability or disqualification of the captain
13
and the sailing mate, assuming in such case
14
their powers and responsibilities.
15
16
DUTIES OF THE SECOND MATE:
17
1) preserve the hull and rigging of the
18
vessel
19
2) arrange well the cargo
20
3) discipline the crew
21
4) assign work to crew members
22
5) inventory the rigging and equipment
23
of the vessel, if laid up
24
25
3) ENGINEERS
26
27
C
officers of the vessel but
28
have no authority except in matters
29
referring to the motor apparatus. When
30
two or more are hired, one of them shall
31
be the chief engineer.
32
33
DUTIES OF THE ENGINEERS:
34
1) in charge of the motor apparatus,
35
spare parts, and other instruments
36
pertaining to the engines
37
2) keep the engines and boilers in
38
good condition
39
3) not to change or repair the engine
40
without authority of the captain
41
4) inform the captain of any damage to
42
the motor apparatus
43
5) keep an Engine Book
44
6) supervise all personnel maintaining
45
the engine
46
47 4) MEMBERS OF THE CREW
48
hired by the ship agent, where he is
49
present and in his absence, the captain
50
hires them, preferring Filipinos, and in
51
their absence, he may take in
52
foreigners, not exceeding 1/5 of the
53
crew.
54
55CLASSES OF SEAMANS CONTRACTS:
56
1. by the voyage
57
2. by the month; and
58
3. by share of profits or freightage
59
60 JUST CAUSES FOR THE DISCHARGE
61 OF SEAMAN WHILE CONTRACT SUBSISTS:
62
63
1) perpetration of a crime
64
2) repeated insubordination, want of
65
discipline
66
3) repeated incapacity and negligence
67
4) habitual drunkenness
68
5) physical incapacity
69
6) desertion
70
71CAUSES OF REVOCATION OF VOYAGE:
72
73
1) war
74
2) blockade
75
3) prohibition to receive cargo at
76
destination
77
4) embargo
78
5) inability of the vessel to navigate
79
80RULES IN CASE OF DEATH OF A SEAMAN:
81
82
The seamans heirs are entitled to
83
payment as follows:
84
1) if death is natural
85
a) compensation up to time of
86
death if engaged on wage
87
b) if by voyage-half of amount if
88
death occurs on voyage out;
89
and full, if on voyage in
90
c) if by shares-none, if before
91
departure; full, if after departure
92
2) if death is due to defense of vessel,
93
full payment
94
3) if captured on defense of vessel, full
95
payment
96
4) if captured due to carelessness,
97
wages up to the date of the capture
98
99
NO
LIABILITY
UNDER
THE
100
FOLLOWING CIRCUMSTANCES:
101
102
1) if, before beginning voyage, captain
103
attempts to change it, or a naval war
104
with the power to which the vessel
105
was destined occurs
106
2) if disease break out and be officially
107
declared an epidemic in the port of
108
destination
109
3) if the vessel should change owner or
110
captain
111
112COMPLEMENT OF THE VESSEL all persons
113on board, from the captain to the cabin boy,
114necessary for the management, maneuvers, and
115service, thus including the crew, the sailing
116mates, engineers, stokers and other employees
117on board not having specific designations, but
118shall not include the passengers or the persons
119whom the vessel is transporting.
120
121D. SUPERCARGOES
122D person who discharges administrative
123
duties assigned to him by ship agent or
124
shippers, keeping an account and record of
125
transaction as required in the accounting
126
book of the captain.
4
Page 59
10
2CHARTER PARTY-
contract by virtue of
3which owner or agent binds himself to transport
4merchandise or persons for a fixed price.
5
contract by which an entire ship, or
6some principal part thereof is let by the owner to
7another person for a specified time or use.
8(PUROMINES VS. CA 220 SCRA 281)
9
10CLASSES OF CHARTER PARTY
11(PLANTERS PRODUCT Case: LITONJUA

12SHIPPING CO. INC. vs. NATIONAL
13SEAMENS BOARD, 176 SCRA 189)
14
151. BAREBOAT
OR DEMISE- charterer
16
provides crew, food and fuel, charterer is
17
liable as if he were the owner, except when
18
such arises from the unworthiness of the
19
vessel.
20
21OWNER PRO HAC VICE a bareboat charterer,

22to whom full possession and control of the
23vessel is delivered, for
a period of time;
24charterer is considered as owner of the vessel
25for the voyage or service stipulated. The master
26of the vessel is the agent of the charterer and
27not of the shipowner. The charterer, and not the
28general owner of the vessel is held liable for the
29expenses of the voyage including the wages of
30the seamen.
31
322. TIME CHARTER vessel is chartered for a
33
period of time or duration of voyage; owner
34
retains possession and control of the
35
vessel; charterer acquires the right to use
36
the carrying capacity, facilities of the vessel
37
and could designate destinations.
38
393. VOYAGE OR TRIP CHARTER- contract for
40
hire of vessel for one or series of voyages
41
usually for purposes of transporting goods
42
for charterer.
43
444. CONTRACT OF AFREIGHTMENT- owner
45
leases the boat or part of it for the carriage
46
of goods.
47
48
RIGHTS AND OBLIGATIONS IN A
49
CHARTER PARTY
50
A. OF THE SHIP OWNER OR SHIP
51
AGENT
52
1) if the vessel chartered wholly, not to
53
accept cargo from others
54
2) to observe represented capacity
55
3) to unload cargo clandestinely placed
56
4) to substitute another vessel if load is
57
less than 3/5 of capacity
58
5) to leave the port if the charterer
59
does not bring the cargo within the
60
lay days and extra lay days allowed
61
6) to place in a vessel in a condition to
62
navigate
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
7) to bring cargo to nearest neutral port

in case of war or blockade
B. OF THE CHARTERER
1) to pay the agreed charter price
2) to pay freightage on unboarded
cargo
3) to pay losses to others for loading
uncontracted cargo and illicit cargo
4) to wait if the vessel needs repair
5) to pay expenses for deviation
RESCISSION OF A CHARTER PARTY
A. At Request of Charterer
1) by abandoning the charter and
paying half of the freightage
2) error in tonnage or flag
3) failure to place the vessel at the
charterers disposal
4) return of the vessel due to pirates,
enemies or bad weather
5) arrival at a port for repairs
B. At Ship Owners Request
1) if the extra lay days terminate
without the cargo being placed
alongside the vessel
2) sale by the owner of the vessel
before loading by the charterer
PRIMAGE- bonus to be paid to the captain

after the successful voyage.
99
DEMURRAGE sum due, by express
100
101
102
103
104
105
contract, for the detention of the vessel, in

loading and unloading, beyond the time
allowed in the contract of afreightment, and
to any other improper detention or delay
beyond the time set for loading.
106
SALVAGE- services one person render to

107
the owner of a ship or goods, by his own
108
labor, preserving the goods or the ship
109
which the owner or those entrusted with the
110
care of them have either abandoned in
111
distress at sea, or are unable to protect or
112
secure.
113
114CONTRACT OF TOWAGE - contract whereby
115one vessel, usually motorized, pulls another,
116whether loaded or not with merchandise, form
117one place to another, for a compensation. It is a
118contract for services rather than a contract of
119carriage.
120
121USUAL FORMS OF CONSUMMATING

122CONTRACTS:
123
1241. C.I.F cost, insurance and freight;
4
Page 60
10
12. F.O.B.- free on board;

23. F.A.S.- free alongside ship; and
34. C and F- cost and freight.
4
5TRANSHIPMENT OF GOODS- act of taking
6cargo from one ship and loading it in another, if
7done without legal excuse, however, competent
8and safe the vessel into which the transfer is
9made is a violation of contract and infringement
10of right of shipper and subjects carrier to liability
11if freight is lost event by cause otherwise
12excepted (MAGELLAN MANUFACTURING vs.
13CA , 201 SCRA 102)
14
15LOAN OF BOTOMMRY- loan made by
16shipowner or shipagent guaranteed by vessel
17itself and repayable upon arrival of vessel at
18destination.
19
20LOANS ON RESPONDENTIA loan, taken on

21security of cargo laden on a vessel, and
22repayable
upon safe arrival of cargo
at
23destination.
24
25COMMON ELEMENTS OF LOANS
ON
26BOTTOMRY AND RESPONDENTS:
27
28
1) Exposure of security to marine peril
29
2) Obligation of the debtor conditioned only
30
upon safe arrival of the security at the
31
point of destination.
32
33FORMS OF A LOAN ON
34BOTTOMRY/RESPONDENTIA:
35
36May be executed by means of:
37
1) public instrument
38
2) policy signed by the contracting parties
39
and the broker taking part therein
40
3) private instrument
41
42CONTENTS OF THE LOAN CONTRACT:
43
44
1) kind, name and registry of the vessel
45
2) name, surname and domicile of the
46
captain
47
3) names, surnames and domiciles of the
48
borrower and the lender
49
4) amount of the loan and the premium
50
stipulated
51
5) time for repayment
52
6) goods pledged to secure repayment
53
7) voyage during which the risk is run
54
55WHO MAY CONTRACT:
56
57
1) Bottomry general rule: the owner; if
58owner is absent; captain;
59
2) Respondentia only the owner of the
60
cargo.
61
62
63
64
65
66
67
68DISTINCTIONS :
69
LOANS ON
ORDINARY LOAN
BOTTOMRY/RESPON
DENTIA
1. Not subject to Usury 1. Subject to Usury
Law
Law
2. Liability of the
2. Not subject to any
borrower is contingent
contingency
on the safe arrival of
the vessel or cargo at
destination
3. The last lender is a
3. The first lender is a
preferred creditor
preferred creditor
70
71NOTE: Under existing laws, the parties to a loan,
72whether ordinary or maritime, may agree on any
73rate of interest. (CB Circular 905).
74
75EXCEPTIONS TO THE HYPOTHECARY
76NATURE OF BOTTOMRY AND
77RESPONDENTIA:
78
79
1) loss due to inherent defect;
80
2) loss due to the barratry on the part of the
81
captain;
82E 3) loss due to the fault of malice of the
83
borrower;
84F 4) that the vessel was engaged in
85
contraband; and
86G 5) that the cargo loaded on the vessel be
87
different in form that agreed upon..
88
89ACCIDENTS IN MARITIME COMMERCE

90(Averages,
Arrival
Under
Stress,
91Collision, Shipwreck):
92
931. AVERAGES- an extra-ordinary or accidental

94
expense incurred during the voyage in
95
order to preserve the cargo, vessel or both;
96
and all damages or deteriorations suffered
97
by the vessel from departure to the port of
98
destination, and to the cargo from the port of
99
loading to the port consignment.
100
101CLASSES:
102
103
a. Particular or Simple Average
104
- expenses or damage cause to vessel
105
or cargo not inured to common benefit
106
and borne by respective owners.
107
- The owner of the goods which gave
108
rise to the expense or suffered the
109
damage shall bear this average.
110
111
b. Gross or General Average
4
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10
1
- damage and expenses deliberately
2
caused in order to save the vessel, its
3
cargo or both from renal and known risk.
4
- All the persons having an interest in
5
the vessel and the cargo therein at the
6
time of the occurrence of the average
7
shall contribute to satisfy this average.
8
9REQUISITES:
101) common danger
112) deliberate sacrifice
123) success
134) proper formalities and legal steps
14
15PROCEDURE FOR RECOVERY:
16
17
1) There must be a resolution of the
18
captain, adopted after a deliberation with
19
the other officers of the vessel and after
20
hearing all persons interested in the
21
cargoes. If the latter disagree, the
22
decision of the captain should prevail but
23
they shall register their objections.
24
2) The resolution must be entered in the
25
logbook, stating the reasons and
26
motives for the dissent, and the
27
irresistible and urgent causes if he acted
28
in his own accord. It must be signed, in
29
the first case, by all persons present in
30
the hearing. In the second case, by the
31
captain and all the officers of the vessel.
32
3) The minutes must also contain a detail
33
of all the goods jettisoned and those
34
injuries caused to those on board.
35
4) The captain shall deliver it to the
36
maritime judicial authority of the first port
37
he may make, within 24 hours after his
38
arrival, and to ratify it immediately under
39
oath.
40
41ORDER
OF GOODS TO BE CAST
42OVERBOARD IN CASE OF JETTISON:
43
44
1) those which are on the deck,
45
preferring the heaviest one with the
46
least utility and value
47
2) those which are below the upper
48
deck, beginning with the one with
49
greatest weight and smallest value
50
512. ARRIVAL UNDER STRESS- arrival of vessel
52
at a port of destination on account of lack of
53
provision, well founded fear of seizure,
54
pirates, or accidents of sea disabling
55
navigation.
56
57
When not lawful:
58
59
a.
lack of provisions due to
60
negligence to carry according to usage
61
and customs;
62
b. risk of enemy not well known or
63
manifest
64
c. defect of vessel due to improper repair;
65
and
66
d. malice, negligence, lack of foresight or
67
skill of captain.
68
69
Who bears expenses:
70
The ship owner bears all the expenses
71
except when it is unlawful arrival, the ship
72
owner also answers for damages to the
73
owners of the cargo and the passengers.
74
753. COLLISIONS- impact of 2 vessels both of
76which are moving.
77
78
ZONES OF TIME IN THE COLLISSION OF
79
VESSELS (URRUTIA AND CO. VS. BACO
80
RIVER PLANTATION CO., 26 PHIL 632).
81
82
1. 1ST ZONE all time up to the moment
83
when risk of collision begins;
84
2. 2ND ZONE time between moment
85
when risk of collision begins and
86
moment it
becomes a practical
87
certainty;
88
3.
3RD ZONE time when collision is
89
certain and time of impact.
90
91RULES ON COLLISSION OF VESSELS (Arts.
92826, 827, 828, 830, 831, and 832, Code of
93Commerce)
94
95
1. The collision may be due to the fault,
96
negligence or lack of skill of the captain,
97
sailing mate, or any other member of the
98
complement of the vessel. The owner of
99
the vessel at fault be liable for losses or
100
damage (826 Code of Commerce)
101
1022. The collision may be due to the fault of both
103
vessels. Each vessel shall suffer its own
104
losses, but as regards the owner of
105
cargoes both vessels shall be jointly and
106
severally liable. (827, CC)
107
1083. If it cannot be determined which vessel is at
109
fault. Each vessel shall also suffer its own
110
losses and both shall be solidarily liable for
111
losses o damages on the cargoes. (828,
112
CC)
113
1144. The vessels may collide with each other
115
through fortuitous event or force majeure.
116
In this case each shall bear its own damage.
117
(830, CC).
118
1195. Two vessels may collide with each other
120
without their fault by reason of a third vessel.
121
The third vessel will be liable for losses and
122
damagea (831, CC)
123
1246. A vessel which is properly anchored and
125
moored may collide with those nearby
126
reason of storm or other cause of force
4
Page 62
10
1
majeure. The vessel run into shall suffer its
2
own damage and expense (832, CC)
3
4PREQUISITE TO RECOVERY:
5
6
Protest should be made within 24
7
hours before the competent authority at the
8
point of collision or at the first port of arrival,
9
if in the Philippines and to the Philippine
10
consul, if the collision took place abroad.
11
Injuries to persons and damage to
12
cargo of owners not on board on collision
13
time, need not be protested.
14
15DOCTRINE OF INSCRUTABLE FAULT
16
17
In a collision, the vessel at fault shall
18indemnify the damages sustained or losses
19incurred (Article 826, Code of Commerce), and
20if both vessels were at fault, each shall suffer its
21own damages, and both Articles 827-828, Code
22of Commerce). This solidarity expressed in
23Article 827 of the Code of Commerce has been
24held to preclude a common carrier operating a
25vessel from interposing the defense of due
26diligence in the selection and supervision of its
27employees in an action against it by a shipper of
28the other colliding vessel as distinguished from
29the ordinary rule in liabilities for tort or culpa
30aquiliana. Under the doctrine of inscrutable
31fault, where fault is established but it cannot be
32determined which of the two vessels were at
33fault , both shall be deemed to have been at
34fault.
35
36NOTE: The Doctrine of Limited Liability
37applies in case of collisions, but it shall be
38limited only to the value of the vessel with all its
39appurtenances and freightage earned during the
40voyage. When the latter is not sufficient to cover
41all the liabilities, the indemnity due by reason of
42the death or injury of persons shall have
43preference. (Art. 837,838, Code of Commerce)
44
45
46ALLISION- impact between a moving vessel
47and a stationary one.
48
49ERROR IN EXTREMIS- sudden movement
50made by a faultless vessel during the 3rd zone of
51collision with another vessel which is at fault
52during the 2nd zone. Even if such sudden
53movement is wrong, no responsibility will fall on
54said faultless vessel (URRUTIA CASE)
55
56
574. SHIPWRECK- loss of the vessel at sea as a
58consequence of its grounding, or running against
59an object in sea or on the coast.
60
61
If the wreck was due to malice,
62negligence or lack of skill of the captain, the
63owner of the vessel may demand indemnity from

64said captain.
65
66
67
68
69
70
71CARRIAGE OF GOODS BY SEA ACT

72(COM. ACT NO. 65)
73
74
75
76
77
78
79
80
81
82
83
COGSA is suppletory to
the Civil Code and the
Code of Commerce in
the Carriage of goods
from foreign parts to the
Philippines (EASTERN
SHIPPING VS. IAC,
150 SCRA 463).
84PRESCRIPTIVE PERIODS suit for loss or

85
damage to the cargo should be brought
86
within one year after.
87a. delivery of the goods; or
88b. the date when goods should be deliver
89
90NOTICE OF DAMAGE
91
If the damage is externally apparent,
92it should be given on receipt of the goods; if the
93damage is externally visible, then within three
94days from receipt. Failure to give notice
95however, does not bar the filing of the suit if
96made within one year.
97
98PUBLIC SERVICE LAW

99
100PURPOSES
101
1) to
protect
the
public
against
102
unreasonable charges and poor,
103
insufficient service
104
2) to protect and secure investments in
105
public services
106
3) to prevent ruinous competition
107
108PUBLIC SERVICE 109
includes every person that now or hereafter
110
may own operate, manage or control in the
111
Philippines for hire or compensation, with
112
general or limited clientele, whether
113
permanent, occasional or accidental, and
114
done for general business purposes, any
115
common carrier or public utility, ice plants,
116
power and water supplies communication
117
and similar public services.
118
119CERTIFICATE OF PUBLIC CONVENIENCE
120(CPC)
121
an authorization issued by the PSC for
122
the operation of public services for which no
123
franchise, either municipal or legislative, is
124
required by law, e.g., common carriers
4
Page 63
10
1
2CERTIFICATE OF PUBLIC CONVENIENCE
3AND NECESSITY- authorization issued by the
4PSC for the operation of PS for which a prior
5franchise is required by law. e.g. telephone and
6other services.
7
8NOTE: A certificate of public convenience
9constitutes neither a franchise nor a contract,
10confers no property right, and is a license or a
11privilege. The holder of said certificate does not
12acquire a property right in the route covered
13thereby. Nor does it confer upon the holder any
14proprietary right or interest or franchise in the
15public highways. Revocation of this certificate
16deprives him of no vested right. New and
17additional burdens, alteration of the certificate, or
18even revocation or annulment thereof is
19reserved to the State. (LUQUE VS. VILLEGAS,
2030 SCRA 408)
21
22CONDITIONS THAT MUST CONCUR IN THE
23GRANT OF CERTIFICATE OF PUBLIC
24CONVENIENCE AND NECESSITY (VDA. DE
25LAT VS. PSC):
26
27
1) grantee must be a citizen of the
28
Philippines or a corporation or entity
29
60% of the capital of which is owned by
30
such citizens.
31
2) grantee must have sufficient financial
32
capability to undertake the services
33
3) the service will promote public interest
34
and convenience in a proper and
35
suitable manner
36
37NOTE: primordial considerations: public interest,
38necessity, and convenience.
39
40GROUNDS FOR THE REVOCATION OF THE
41CERTIFICATE:
42
43
When the holder:
44
1) violates or contumaciously refuses to
45
comply with any order, rule or regulation
46
of the commission
47
2) is a mere dummy
48
3) ceases operations by placing his buses
49
in storage
50
4) abandons the service
51
52GROUND FOR SUSPENSION: When the
53operator willfully or contumaciously refuses to
54comply with any order, rule or regulation. But
55such can only be suspended upon prior notice
56and hearing. The only exception is when it is
57necessary to avoid serious and irreparable
58damage or inconvenience to the public or private
59interest, in which case, a suspension not more
60than 30 days may be ordered, prior to the
61hearing. (Soriano vs. Medina, 164 SCRA 36)
62
63POWERS REQUIRING PRIOR NOTICE AND
64HEARING:
65
66
1) issuance of certificate of public
67
convenience and certificate of public
68
convenience and necessity
69
2) fixing of standards and qualifications
70
3) fixing of standards for measuring
71
quantity
72
4) establishment of rules to secure
73
accuracy of all meters and all
74
measuring appliances
75
5) compel operators to furnish proper
76
service
77
6) extension of facilities
78
79POWERS EXERCISABLE WITHOUT PRIOR
80NOTICE AND HEARING:
81
82
1) investigation of public utility companies
83
2) require public services to pay expenses
84
of investigation
85
3) valuation of properties of public utilities
86
4) examination and test of measuring
87
appliances
88
5) grant of special permits to make extra or
89
special trips in territories specifdied in
90
the certificate
91
6) uniform accounting system and
92
furnishing of annual reports
93
7) investigation of accidents
94
8) compel compliance with the laws and
95
regulations
96
97UNLAWFUL ACTS OF PUBLIC UTILITY
98COMPANIES:
99
100
1) engage in public service business
101
without first securing the proper
102
certificate
103
2) provide or maintain unsafe, improper or
104
inadequate service as determined by
105
the proper authority
106
3) commit any act of unreasonable and
107
unjust preferential treatment to any
108
particular person, corporation or entity
109
as determined by the proper authority
110
4) refuse or neglect to carry public mail
111
upon request
112
113ACTS REQUIRING PRIOR APPROVAL:
114
115
1) establish and maintain individual or joint
116
rates
117
2) establish and operate new units
118
3) issue free tickets
119
4) issue any stock or stock certificates
120
representing an increase of capital
121
5) capitalize any franchise in excess of the
122
amount actually paid to the Government
123
6) sell, alienate, mortgage or lease
124
property, certificates or franchise
4
Page 64
10
1
2
3
4
5
6
NOTE: Under Sec. 20g of C.A. 146, the

sale, etc. may be negotiated and completed
before the approval by the proper authority.
Its approval is not a condition precedent to
the validity of the contract. The approval is
necessary only to protect public interest.
8PRIOR OPERATOR RULE

9
10
rule allowing an existing franchised
11operator to invoke a preferential right within the
12authorized territory as long as he renders
13satisfactory and economical service. It
14subordinates the PRIOR APPLICANT RULE
15which gives the first applicant priority only if
16things and circumstances are equal.
17
The granting of preference to an old
18operator applies only when said operator has
19made an offer to meet the increase in traffic or
20demand for service and not when another
21operator, even a new one, has made the offer to
22serve the new line or increase the service on
23said line. The rule of preference protects only
24those who are vigilant, in meeting the needs of
25the travelling public. (TIONGSON VS. PSC, 36
26SCRA 241)
27
28PRIOR APPLICANT RULE
29
30
presupposes a situation when two
31interested persons apply for a certificate to
32operate a public utility in the same community
33over which no person has as yet granted any
34certificate. If it turns out, after the hearing, that
35the circumstances between the two applicants
36are more or less equal, then the applicant who
37applied ahead of the other, will be granted the
38certificate.
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74 V. INTELLECTUAL PROPERTY
75
76INTRODUCTION to Intellectual Property Law

77(R. A. 8293 - Intellectual Property Code or
78IPC; effective Jan. 1, 1998)
79
80
Intellectual Property
81
82 those property rights which result from the
83physical manifestation of original thought.
84(Ballantine's Law Dictionary)
85
86 refers to the totality of all rights which the law
87recognizes in favor of the author, composer,
88painter, artist, scientist, or any other person with
89respect to the creations or product of his
90intellect, and consists of principally, in his right
91to;(1) authorize; or 2) refuse; the
publication
92or production of such creations or products (De
93Leon; Comments and Cases on Property).
94
95NOTE: There are no property rights protected
96by law in mere ideas or mental conceptions.
97When creations of mind are put in tangible form,
98however, there is appropriate subject of property
99that is protected by the law (63A Am Jur. 3d,
100Property, Section 5; TRIPS).
101
102THE
TERM
"INTELLECTUAL
103PROPERTY" CONSISTS OF (SEC. 4)
1041. COPYRIGHT AND RELATED LAWS

1052. TRADEMARKS AND SERVICE MARKS
1063. Geographic indications
1074. PATENTS
1085. Layout - Designs (Topographies) of
109
Integrated Circuits; and
1106. Protection of Undisclosed Information (TRIPS)
111
112INTERNATIONAL CONVENTION
113RECIPROCITY (SEC. 3)
AND
114 Any person who is a national or who is

115domiciled or has a real and effective industrial
116establishment in a country which is:
117
(1) A party to any convention, treaty, or
118
agreement relating to intellectual
119
property rights or the repression of
120
unfair competition to which the
121
Philippines is also a party, or;
4
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10
1
2
3
4
5
6
7
8
9
(2) Extends reciprocal rights to nationals of

the Philippines by law, shall be entitled
to benefits to the extent necessary to
give effect to any provision of such
convention, treaty, or reciprocal law, in
addition to the rights to which any
owner of an intellectual property right is
otherwise entitled by this act.
171.
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
.Examine applications for grant of letters

patent for inventions and register utility
models and industrial designs;
2. Examine applications for the registration
of marks, geographic indications,
integrated circuits;
3. Register
technology
transfer
arrangements and settle disputes
involving technology transfer payments;
4. Promote the use of patent information
as a tool for technology development;
5. Publish regularly in its own publication
the patents, marks, utility models and
industrial designs, issued and approved,
and
the
technology
transfer
arrangements registered;
6. Administratively adjudicate contested
proceedings
affecting
intellectual
property rights; and
7. Coordinate with other government
agencies and the private sector to
strengthen the protection of intellectual
property rights in the country;
8. Custody of all records, books, drawings,
specifications, documents, and other
papers and things relating to the
intellectual property rights applications
filed with the Office.
10
11
12
13
14FUNCTIONS OF THE INTELLECTUAL
15PROPERTY OFFICE (IPO) (SEC. 5)
16
46LAW ON COPYRIGHT
47
48COPYRIGHT
49
50
51
52
53
54
It is that system of legal protection an author

enjoys in the form of expression of ideas.
(World Intellectual Property Organization WIPO)
the exclusive right (or rights) of an author to
the work of his authorship (1987 Constitution).
55
56DEFINITIONS
57
"Author" - is the natural person who
58has created the work.

59
60
"Collective Work" - is a work which
61has been created by two (2) or more natural
62persons at the initiative and under the direction
63of another with the understanding that it will be

64disclosed by the latter under his own name and
65that contributing natural persons will not be
66identified.
67
68
"Joint Work" - is a work prepared by
69two or more authors with the intention that their
70contributions be merged into inseparable or
71interdependent parts of a unitary whole. i.e.
72medical textbook that is jointly authorized by two
73or three experts.
74
75
"Work of applied art" - is an artistic
76creation with utilitarian functions or incorporated
77in a useful article, whether made by hand or
78produced on an industrial scale.
79
80
"Performers" - are actors, singers,
81musicians, dancers, and other persons who act,
82sing, declaim, play in, interpret, or otherwise
83perform literary and artistic work.
84
85CONSTITUTIONAL BASIS
86
87 The State shall protect and secure the
88exclusive rights of SCIENTISTS, INVENTORS,
89ARTISTS AND OTHER GIFTED CITIZENS to
90their intellectual property and creation,
91particularly when beneficial to the people, for
92such period as may be provided by law. (Art.
93XIV, Sec. 13, 1987 Constitution)
94
95CIVIL CODE PROVISIONS
96
97 By Intellectual creation, the following persons
98acquire ownership:
991. The author with regard to his literary,
100
dramatic, historical, legal, philosophical,
101
scientific or other work;
1022. The composer, as to his musical
103
composition;
1043. The painter, sculptor, or other artist, with
105
respect to the product of his art;
1064. The scientist or technologist or any other
107
person with regard to his discovery or
108
invention. (Art. 721, NCC)
109
110 Letters and other private communications in
111writing are owned by the person to whom they
112are addressed and delivered, BUT they cannot
113be published or disseminated without the
114consent of the writer or his heirs. (Art. 723,
115NCC)
116
117SIGNIFICANT PROVISIONS OF THE

118AGREEMENT ON TRADE-RELATED
119ASPECTS OF INTELLECTUAL
120PROPERTY RIGHTS (TRIPS) IN REGARD
121TO COPYRIGHTS:
122
4
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1a)
2
3
4b)
5
6c)
7
8
9
10
11
12
13
14
15
16
17
18d)
19
20
21
22
23
24
25
26
27
Compliance with the provisions of the Paris

convention (1967) is made compulsory to
members.
Obligations under the Paris, Berne and Rome
conventions remain,
The treatment any member-state accords its
own nationals relative to intellectual property
is to be accorded the nationals of all other
member-states.
Furthermore, any advantage, favor or
privilege accorded the nationals of any other
country shall be accorded the nationals of
other member states. EXCLUDED from this
most favored nation provision are the rights
of performers, producers of phonograms and
broadcasting organizations (RECIPROCITY
RULE).
Members are to comply with the Berne
Convention of 1971 and its appendix,
EXCEPT the rights and obligations under
Article 6bis (has to do with an author's
"moral rights") - MEANING: whether or not
the protection and guarantees conferred by
Article 6bis (moral rights) apply or not is left
with the municipal legislation of each
member-state.
28SUBSISTENCE OF THE RIGHTS

29
30Conferment of rights
31 The rights conferred by the IPC insofar as
32COPYRIGHT is concerned subsists from the
33moment of creation (Sec. 172.1).
34 Under Philippine Law, NO FORMALITY IS
35REQUIRED that the author be vested with the
36rights of copyright.
37
38CREATION OF A WORK:
39
40 A copyrightable work is created when the two

41requirements are met:
421. ORIGINALITY- does not mean novelty or
43
ingenuity, neither uniqueness nor creativity,
44
it simply means that the work "owes its
45
origin to the author".
46
The work is an independent
47
creation of the author.
48
49
EXPRESSION-there must be "Fixation";
50
to be "fixed" a work must be embodied in a
51
medium sufficiently:
52
a) PERMANENT; or
53
b) STABLE;
54
to permit it to be perceived, reproduced, or
55
otherwise communicated for a period of
56
more than transitory duration.
57
Strictly speaking there is no work for
58
copyright purpose, unless there is
59
something tangible.
60
-It is fixation that defines the time from
61
when copyright subsists. Before the time of
62
fixation there can be no infringement.
63
-Crucial event or act that allows the author
64
to invoke the law:
65
- It must be when a work of authorship is at
66
least expressed in some determinate form,
67
i.e. fixation.
68
69NOTE : CONTRARY VIEW - The new
70Intellectual Property Code is silent on the
71requirement of fixation. Absent this requirement
72of fixation, then copyright would attach to bear
73ideas which is excluded by universal principles
74of copyright.
75
76
77DURATION
OF
COPYRIGHT
FOR
78VARIOUS WORKS: (CHAP. XIV, SEC.
79213)
80
81a.
82
83
84
85
86
87
88
89
90b.
91
92
93
94
95
96c.
97
98
99
100
101
102d.
103
104
105e.
106
107
108
109
110f.
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
LITERARY ARTISTIC WORKS AND

DERIVATIVE WORKS OF A SINGLE
CREATOR-the rights subsist during the
lifetime of the creator and for fifty (50) years
after his death. (For purposes of reckoning
the start of the fifty (50)-year period, the first
day of January of the year following the
event which gives rise to them is the starting
point - Sec. 214)
In case of JOINT CREATION-the economic
rights shall be protected during the life of the
last surviving author and for fifty years after
his death (the fifty-year period is counted
from the death of the last surviving cocreator).
When
an
ANONYMOUS
OR
A
PSEUDONYMOUS WORK- is published,
the copyright lasts till the end of fifty years
following the date of their first publication.
(commencing from January 1 following the
date of publication - Sec. 214)
A work of APPLIED ART enjoys protection
for twenty-five (25) years from the date of
making.
PHOTOGRAPHIC WORKS- are protected
for fifty (50) years from the publication of the
work, or from making the same term is given
to
audiovisual
works
produced
by
photography or analogous processes.
A NEWSPAPER ARTICLE- will therefore
enjoy a term of protection equal to that
enjoyed by other literary works: the lifetime
of the author and fifty years thereafter.
Important, however, relative to newspapers
and periodicals is the denial of copyright
protection to "news of the day and other
miscellaneous facts having the character of
mere items of press information." (Sec. 175)
A pure news report will no longer find
protection under the new law, BUT a
column or published comment will. When
newspapers and periodicals include works
enjoying independent copyrights, the works
so included continue enjoying the rights for
a duration proper to them.
4
Page 67
10
2THE SUBJECT OF COPYRIGHT

3
4A. LITERARY AND ARTISTIC WORKS
5
6
1.
Books, pamphlets, articles and
7
other writings;
8
2.
Periodicals and newspapers;
9
3.
Lectures, sermons, addresses,
10
dissertations prepared for oral delivery,
11
whether or not reduced in writing or
12
other material form;
13
4.
Letters;
14
5.
Dramatic or dramatico-musical
15
compositions; choreographic works or
16
entertainment in dumb shows;
17
6.
Musical compositions, with or
18
without words;
19
7.
Works of drawing, painting,
20
architecture,
sculpture,
engraving,
21
lithography or other works of art; models
22
or designs for works of art;
23
8.
Original ornamental designs or
24
models for articles of manufacture,
25
whether or not registrable as an
26
industrial design, and other works of
27
applied art;
28
9.
Illustrations,
maps,
plans,
29
sketches, charts and three (3)
30
dimensional
works
relative
to
31
geography, topography, architecture or
32
science;
33
10.
Drawings or plastic works of a
34
scientific or technical character;
35
11.
Photographic works including
36
works produced by a process analogous
37
to photography; lantern slides;
38
12.
Audiovisual
works
and
39
cinematographic works and works
40
produced by a process analogous to
41
cinematography or any process for
42
making audiovisual recordings;
43
13.
Pictorial
illustrations
and
44
advertisements;
45
14.
Computer programs; and
46
15.
Other
literary,
scholarly,
47
scientific and artistic works. (Sec. 172)
48
49
NOTE: The author of speeches,
50lectures, sermons, addresses, and dissertations
51shall have the exclusive right of making a
52collection of his works. (Sec. 176.2)
53
54B. DERIVATIVE WORKS
55
56The following derivative works shall also be
57protected by copyright.
58
1.
Dramatizations,
translations,
59
adaptations, abridgments, arrangements,
60
and other alterations of literary or artistic
61
works; and
62
2.
Collections of literary, scholarly
63
or artistic works, and compilations of data
64
and other materials which are original by
65
reason of the selection or coordination or
66
arrangement of their contents (Sec. 173).
67
68 An important innovation of the new law is the
69distinct copyright that the publisher of a work
70enjoys. The code provides - "In addition to the
71right to publish granted by the author, his heirs,
72or assigns, the publisher shall have a copyright
73consisting merely of the right of reproduction of
74the typographical arrangement of the published
75edition of the work." (Sec. 174)
76
77
78
79
80WORKS NOT PROTECTED:
81
821.
83
84
85
86
87
882.
89
90
913.
92
93
944.
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
1125.
1136.
114
115
116
117
118
119
120
121
122
123
124
125
No protection shall extend, under this law, to

any idea, procedure, system, method or
operation, concept, principle, discovery or
mere data as such, even if they are
expressed,
explained,
illustrated
or
embodied in a work; (Sec. 175)
News of the day and other miscellaneous
facts having the character of mere items of
press information; (Sec. 175) or
Any
official
text
of
a
legislative,
administrative or legal nature, as well as any
official translation thereof. (Sec. 175)
Any work of the Government of the
Philippines;
However, prior approval of the
government agency or office wherein the
work is created shall be necessary for
exploitation of such work for profit. Such
agency or office may, among other things,
impose as a condition the payment of
royalties.
No prior approval or conditions shall be
required for the use of any purpose of
statutes, rules and regulations, and
speeches, lectures, sermons, addresses,
and dissertations, pronounced, read or
rendered in courts of justice, before
administrative agencies, in deliberative
assemblies and in meetings of public
character. (Sec. 175)
Pleadings;
Although
not
explicitly
mentioned,
DECISIONS
OF
COURTS
AND
TRIBUNALS are likewise non-copyrightable.
They may therefore be freely used or
quoted.
NOTE: This pertains to the "original
decisions" not the SCRA PUBLISHED
VOLUMES WITH ANNOTATIONS since
these are protected under derivative works
as "collections of literary, scholarly, or
artistic works and compilations of data and
other materials which are original by reason
of the selection or coordination or
4
Page 68
10
1
2
3
arrangement of their contents." (Sec. 173.1

b)
4THE RIGHTS OF COPYRIGHT

5
6A. Copyright or Economic Rights

7
8Copyright or Economic rights shall consist of the
9exclusive right to (a) carry out, (b) authorize or
10(c) prevent the following acts:
11
12
1.
Reproduction of the work or
13
substantial portion of the work;
14
2.
Dramatization,
translation,
15
adaptation, abridgment, arrangement or
16
other transformation of the work;
17
3.
First public distribution of the
18
original and each copy of the work;
19
4.
Rental of the original or a copy
20
of an audiovisual or cinematographic
21
work;
22
5.
Public display of the original or a
23
copy of the work;
24
6.
Public performance of the work;
25
and
26
7.
Other communication to the
27
public of the work. (Sec. 177)
28
29B. Moral Rights
30
31The author of a work shall, independent of
32economic rights or the grant of an assignment or
33license with respect to such right, have the right:
34
1.
Require that the authorship of
35
the works be attributed to him, in a
36
prominent way on the copies, and with
37
the public use of the work;
38
2.
Make any alterations of his work
39
prior to, or to withhold it from publication;
40
3.
Object
to
any
distortion,
41
mutilation or other modification of, or
42
other derogatory action in relation to, his
43
work which would be prejudicial to his
44
honor or reputation; and
45
4.
Restrain the use of his name
46
with respect to any work not of his own
47
creation or in a distorted version of his
48
work (Sec. 193).
49
50LIMITATIONS ON COPYRIGHT:
51
52
The following acts shall NOT constitute
53infringement of copyright:
54
551. Recitation or performance of a work
56
-made accessible to the public
57
-privately done
58
- free of charge
59
-strictly for a charitable or religious
60
institution;
612. Making of quotations from a published work
62
- compatible with fair use
63
- to the extent justified for the purpose
64
65
66
67
683.
69
70
71
72
73
74
75
76
774.
78
79
80
81
82
83
845.
85
86
87
88
89
90
91
926.
93
94
95
96
97
98
99
100
101
1027.
103
104
105
1068.
107
108
109
110
111
112
113
1149.
115
116
117
118
119
12010.
121
122
123
124
125
126
- including quotations from newspaper

articles and periodicals
- source and name of the author, appearing
on work, must be mentioned;
Reproduction or communication to the public
by mass media
- of articles on current political, social,
economic, scientific or religious topic,
lectures, addresses and other works,
delivered in public
- use is for information purposes
- not expressly reserved
- source is already indicated;
Reproduction and communication to the
public of literary, scientific or
artistic works
- as part of reports of current events
-by means of photography, cinematography
or broadcasting
- to the extent necessary for the purpose;
Inclusion of a work in a publication,
broadcast, or other communication to the
public, sound recording or film
- if made by way of illustration for teaching
purposes
- compatible with fair use
- source and name of the author, appearing
on work, must be mentioned;
Recording made in schools, universities, or
educational institutions of a work included in
a broadcast for the use of such schools,
universities or educational institutions
- such recording must be deleted within a
reasonable period
- such recording may not be made from
audiovisual works which are part of the
general cinema repertoire of feature films
EXCEPT for brief excerpts of the work;
Making of ephemeral recordings
-by a broadcasting organization
- by means of its own facilities
- for use in its own broadcast;
Use made of a work by or under the
direction or control of the Government
- Government
- National Library
- Educational, Scientific, or professional
institutions
- use is in the public interest
- compatible with fair use;
Public performance or the communication to
the public of a work
- in a place where no admission fee is
charged by a club on institution
- for charitable or educational purpose only
- aim is not profit making;
Public display of the original or a copy of the
work not made by means of a film, slide,
television image or otherwise on screen or
by means of any other device or process
- either the work has been
a) published
b) sold
4
Page 69
10
1
c) given away
2
d) transferred to another person by the
3
author or his successors in title;
411. Any use made of a work for the purpose
5
- of any judicial proceedings; or
6
- for the giving of professional advice by a
7
legal practitioner.
8
9 The provisions of this section shall be
10interpreted in such a way as to allow the work to
11be used in a manner which does not conflict with
12the normal exploitation of the work and does not
13unreasonably prejudice the right holder's
14legitimate interests. (Sec. 184.2)
15
16 The private reproduction of a published work
17in a single copy, where the reproduction is made
18by a natural person exclusively for (1) research
19and (2) private study, shall be permitted, without
20the authorization of the owner of copyright in the
21work. (Sec. 187.1) HOWEVER, the permission
22granted under Subsection 187.1 SHALL NOT
23EXTEND to the reproduction of:
24
xxx
25(b) An entire book, or a substantial part thereof,
26or of a musical work in graphic form by
27reprographic means; (Sec. 187.2)
28
29 Under Article 9, paragraph 2 of the Berne 30Paris Convention, individual countries may
31permit the reproduction of literary and artistic
32works "provided that such reproduction does not
33conflict with a normal exploitation of the work
34and does not unreasonably prejudice the
35legitimate interests of the author." (also found
36in Sec. 187.2 e)
37 The same caveat is contained in Article 14 of
38the GATT 94 intellectual property agreement:
39Limitations or exceptions to the exclusive rights
40shall be confined to certain special cases which
41do not conflict with a normal exploitation of the
42work and do not unreasonably prejudice the
43legitimate interests of the right - holder. This in44built protection of the interests of a copyright
45owner is now unequivocally enshrined in Sec.
46187.2 e.
47
48PERSONAL USE - generally understood as
49making a single reproduction, adaptation,
50arrangement or other transformation of another's
51work exclusively for one's own individual use in
52such cases as personal research, learning or
53amusement.
54
55PRIVATE USE - generally understood in relation
56to a published work as making a reproduction,
57adaptation or other transformation of it, in a
58single person, as in the case of "personal use"
59but also for a common purpose by a specific
60circle of persons only.
61
62FAIR USE OF A COPYRIGHTED WORK
63
64
Fair Use
65
A privilege, in persons other than the
66
owner of the copyright, to use the
67
copyrighted material in a reasonable
68
manner without his consent, notwithstanding
69
the monopoly granted to the owner by the
70
copyright.
71
72
It is meant to balance the monopolies
73
enjoyed by the copyright owner with the
74
interests of the public and of society.
75
76NOTE: It only applies to copyrighted work and
77not to non-copyrightable material.
78
79
80
81CRITERIA TO DETERMINE WHETHER

82USE IS FAIR OR NOT:
83
841.
852.
863.
87
884.
89
90
Purpose and the character of the use

Nature of the copyrighted work
Amount and substantiality of the portions
used
Effect of the use upon the potential market
of the copyrighted work
941.
952.
96
97
98
99
100
Criticizing, commenting, and news reporting;

Using for instructional purposes, including
producing multiple copies for classroom use,
for scholarship, research and similar
purposes is not an infringement of copyright.
(Sec. 185)
91THE "FAIR USES" OF PROTECTED

92MATERIAL ARE:
93
101REPROGRAPHIC REPRODUCTION BY
102LIBRARIES:
103
104 Any library or archive whose activities are not
105for profit may, without the authorization of the
106author of copyright owner, make a single copy of
107the work by reprographic reproduction, when:
108
1. Fragile or rare
109
2. Isolated articles
1103. Preservation (Sec. 188.1)
111
112 It shall not be permissible to produce a
113
volume of a work published in several
114
volumes or to produce missing tomes or
115
pages of magazines or similar works, unless
116
the volume, tome or part is necessary for the
117
collection of the library and is out of stock.
118
(Sec. 188.2)
119
120
The rights mentioned vest in libraries,
121public archives and museums. There is no
122requirement that the library be a public library, it
123could be private. And is limited only to literary or
124artistic works.
4
Page 70
10
2CRITERIA FOR "REPROGRAPHIC

3REPRODUCTION" OF LIBRARIES:
4
51. Photocopying only, i.e. "xerox" (not by other

6
medium)
72. Single copy
8
3. Consistent with the activities of the library
9
or archive
10
11REPRODUCTION OF COMPUTER
12PROGRAMS:
13
14
The reproduction of a computer program is
15allowed on the following conditions:
161. Only one (1) copy is made;
172. Lawful owner made the copy;
183. Purpose for which the reproduction is made
19
is legal, like:
20
a) use to which the program is made and for
21
which it was purchased demand the
22
reproduction of a copy; or
23
b) loss or destruction is avoided.
24
(Sec. 189.1)
25
26Importation for Personal Purposes

27
28 The importation of a copy of a work by an

29individual for his personal purposes shall be
30permitted without the authorization of the author
31of, or other owner of copyright in, the work under
32the following circumstances:
33a. Copies of the work are not available in the
34
Philippines and:
35
1.One (1) copy at one time is imported,
36
for strict individual
37
2.By Authority of and for the use of the
38
Philippine Government; or
39
3.Religious, Charitable or Educational
40
Society or institution imported not
41
more than three (3) copies per title (or
42
kind) provided they are not for sale. (it
43
is enough if the importation be for
44
the sake of such society or institution)
45b. Copies form parts of libraries and personal
46baggage belonging to persons or families
47arriving from foreign countries and are not
48intended for sale: Provided, That such copies do
49not exceed three (3). (Sec. 190)
50
51THE OWNERSHIP OF COPYRIGHT
52
531.
54
552.
56
57
58
59
60
61
62
SINGLE CREATOR - The creator, his heirs

or assigns owns copyright.
JOINT CREATION - The co - authors shall
be the original owners of the copyright and
in the absence of agreement, their rights
shall be governed by the rules on co ownership. If, however, a work of joint
authorship consists of parts that can be
used separately and the author of each part
can be identified, the author of each part
63
shall be the original owner of the copyright in
64
the part that he has created.
653. COMMISSIONED WORK - Ownership of the
66
work is in the person commissioning;
67
ownership of copyright, remain with the
68
creator, unless there is a written stipulation
69
to the contrary.
704. CINEMATOGRAPHIC
WORK
The
71
producer exercises copyright for purposes of
72
exhibition; for all other purposes, the
73
producer, the author of the scenario, the
74
composer, the film director, the photographic
75
director and the author of the work are the
76
creators. For purpses of showing the film,
77
however, the producer is to be deemed
78
copyright owner.
795. PSEUDONYMOUS AND ANONYMOUS
80
WORKS - Unless the author is undisputably
81
known, the publisher shall be presumed to
82
be the representative of the author. (Sec.
83
178 and 179)
84
85 As regards moral rights, the joint authors are
86entitled to be acknowledged as authors of the
87work (Sec. 193.1 may apply).
As regards
88contributions to a collective work, the law
89provides that unless the contributor expressly
90reserves his right (which often will not be the
91case precisely because he is in the employ of a
92putative author or commonly accepted author), it
93is the putative author to whom the work will be
94attributed. (Sec. 196)
95 When a writer, a photographer, an artist - or
96any other contributor - sends in his piece to a
97periodical or newspaper publisher, such writer or
98artist retains his copyright on the piece except
99the right to publish once - which is deemed
100granted to the publisher. (Sec. 180.3)
101
102COPYRIGHT OWNERSHIP OF FOREIGN

103AUTHORS
104
105 When the author, though a foreigner, has

106habitual residence in the Philippines, or when
107the headquarters of the producer of audiovisual
108works is in the Philippines, copyright protection
109is beyond doubt.
110 Protections afforded the code are applied to
111works "protected by virtue of and in accordance
112with any international convention or other
113international agreement to which the Philippines
114is a party. (Sec. 221.2)
115 Members shall accord the treatment provided
116for in this Agreement to the nationals of other
117Members. (Art. 1, par. 3, TRIPS; Paris - Berne
118Convention; GATT 94)
119
120DEPOSIT AND NOTICE
121
122Registration and Deposit with the National
123Library and the Supreme Court Library
124
4
Page 71
10
1 For the purpose of completing the records of

2the National Library and the Supreme Court
3Library, within three (3) weeks, two (2) complete
4copies of the work shall be registered and
5deposited with the said libraries, by personal
6delivery or by registered mail.
7 A certificate of deposit shall be issued and the
8prescribed fee collected for which the copyright
9owner shall be exempt from making additional
10deposit of the works with the aforementioned
11libraries under other laws.
12 If, within three (3) weeks after receipt by the
13copyright owner of a written demand from the
14directors for such deposit, the required copies or
15reproductions are not delivered and the fee is
16not paid, the copyright owner shall be liable to
17pay a fine. (Sec. 191)
18
19NOTICE OF COPYRIGHT
20
21 Each copy of a work published or offered for
22sale may contain a notice bearing the name of
23the copyright owner, x x x. (Sec. 192)
24 Notice of copyright is allowed, not prescribed,
25for the permissive "may" is used.
26
27INFRINGEMENT
28
29REMEDIES of one who complains of
30infringement:
31
32
1. INJUNCTION to prevent infringement
33
(Sec. 216)
34
2. DAMAGES assessed on the basis of the
35
proof alleged by the plaintiff of sales
36
made by the defendant of the infringing
37
work minus whatever costs the
38
defendant may be able to prove and
39
appreciated by the court. (b)
40
3. DELIVERY UNDER OATH OF ALL
41
IMPLEMENTS
employed
in
the
42
production of the infringing items, as
43
well as
the infringing products
44
themselves, for impounding. (c)
45
4. DELIVERY under oath of all infringing
46
copies or devises for destruction. (d)
47
5. PAYMENT of moral and exemplary
48
damages in the discretion of the court.
49
(e)
50
51 The infringer also exposes himself to criminal
52liability wherein the law prescribes penalties of
53imprisonment and fines, including subsidiary
54imprisonment in case of insolvency. (Sec. 218)
55
56RELATED ISSUES
57
581. JURISDICTION
59 Original jurisdiction lies with the Director
60
General of the IPO over disputes relating to
61
the terms of a license involving the author's
62
right to public performance or other
63
communication of his work. (Sec. 7 c)
64 Other infringement cases are not within the

65jurisdiction of the Director - General. In fact
66throughout Section 216, the term "court" is used,
67leaving no doubt that jurisdiction will rest with the
68"court" in view of the jurisdictional amount and
69the criminal prosecution of imposable penalties.
70
712. STANDING TO SUE
72
Persons who may sue:
73
a) Legal owner; or
74
b) Beneficial owner; since they are
75
"parties in interest."
76
773. DEFENDANTS
78 Those who may be liable for infringement
79
under the copyright law:
80
a) Infringer
81
b) Aids
82
c) Abets
83
d) Participates
84
e) Contributes
85
f) Authorizes
86
a) Benefits (deemed included in
87
Sec. 217).
88
89 A corner book store and magazine store that
90vends pirated copies of a work is in fact violating
91the copyright owner's right to exclusively
92distribute his work. Such store would therefore
93be infringing. The printer who, though acting
94under instructions from another, sets into motion
95the illegal reproduction of protected material
96would, in fact, be infringing copyright.
97
984. PRESCRIPTIVE PERIOD
99
100 No damages may be recovered after four (4)
101years from the time the cause of action arose.
102(Sec. 226) This pertains only to recovery of
103damages.
104 There is no such prescriptive period in
105petitions for injunctive relief as well as for the
106impounding and destruction of infringing
107material. The crime of infringement is subject to
108the general rules of prescription of crimes.
109
110PERFORMER'S RIGHTS
111
1121.
113
114
115
116
117
118
119
120
121
122
1232.
124
1253.
126
Authorize as well as prohibit:

a.
The
broadcasting
and
other
communication to the public of their
performance (including telecast). (Sec.
203.1 a)
b. The
fixation
of
their
unfixed
performance. (b)
(The above rights shall be maintained
and exercised fifty (50) years after his death,
by his heirs, and in default of heirs, the
government Sec. 204.2)
Direct or indirect reproduction of their
performances (Sec. 203.2)
First Public distribution of the original and
copies of their performance (Sec. 203.3).
4
Page 72
10
14.
2
3
45.
5
6
7
Commercial rental to the public of the

original and copies of their performances
(Sec. 203).
Making available to the public of their
performances fixed in sound recordings by
wire or wireless means (Sec. 204.5).
8MORAL RIGHTS OF PERFORMERS

9
101. Identified as the performer.
112. Object to any distortion or mutilation of the
12
performance (Sec. 204).
13
14
15
16
17
18LAW ON TRADEMARKS
19
20TRADEMARK is anything which is adopted and
21used to identify the source of origin of goods,
22and which is capable of distinguishing them from
23goods emanating from a competitor.
24
25GOODWILL is the reputation and public
26confidence that a business venture has earned
27through a period of creditable dealings.
28
29
The reason the law protects trademarks
30
is to protect the interests of producers in
31
their marks, and in the goodwill earned.
32
The essence of trademark infringement
33
is: passing off ones goods as those of a
34
producer of fame or note.
35
36SERVICE MARK distinguishes the services of

37an enterprise from the service of other
38enterprises.
39
40MARK any visible sign capable of distinguishing
41the goods or services of an enterprise and shall
42include a stamped or marked container of
43goods.
44
The term visible is not limited to
45
whatever may be perceptible by the
46
senses.
47
48COLLECTIVE
MARK
any
visible
sign
49designated as such in the application for
50registration and capable of distinguishing the
51origin or any other common characteristic,
52including the quality of goods or services of
53different enterprises which use the sign under
54the control of the registered owner of the
55collective mark.
56
57DISTINCTION :
TRADEMARKS
- The goods or
services offered by
a proprietor or an
enterprise are
designated by
TRADE NAME
- The person (whether
natural or juridical)
who does the
business and
produces the goods
trademarks or
service marks.
58
59
60
61
62
63
64
65
66
67
68
69
70
or services is
designated by a trade
name.
A trademark has an existence proprietor

or the juridical person doing business and
producing the goods or distinct from the
existence of the the services offered by such
person or enterprise.
Under the new law, there is no need to
register trade names in order to secure
protection for them (Sec. 165.2, a, IPL).
71DISTINCTIONS :
TRADEMARKS
- is anything which is
adopted and used to
identify the source of
origin of goods, and
which is capable of
distinguishing them
from goods
emanating from a
competitor.
72
73
74
75
76
77
78
LABEL
- it names what is
within the
container or
package.
- purpose:informative
In practice, a word, a name of a phrase,

coupled with indicators of business
organization, such as Inc., Corp. or Co.
will not be registered as trademarks or
service marks.
79TRADE DRESS involves the total image of a

80product, including such features as size, shape,
81color or color combinations, texture and /or
82graphics.
83
84
Unfair competition includes the selling of
85
goods and giving them the general
86
appearance
of
goods
of
another
87
manufacturer or dealer, either as to the
88
goods themselves or in the wrapping of the
89
packages in which they are contained, or the
90
devices or words thereon, or in any other
91
feature of their appearance, which would be
92
likely to influence purchasers to believe that
93
the goods offered are those of a
94
manufacturer, or dealer, or who otherwise
95
clothes the goods with such appearance as
96
shall deceive the public and defraud another
97
of his legitimate trade, or any subsequent
98
vendor of such goods or any agent of any
99
vendor engaged in selling such goods with a
100
like purpose.
101
All that is necessary is the likelihood of
102
deception.
103
1044 FUNCTIONS OF A MARK

105
106According. to the World Intellectual Property

107Organization:
4
Page 73
10
11.
2
3
42.
5
63.
7
8
94.
10
Distinguishing or differentiating functions. It

sets apart the products or services of an
enterprise from those of another.
Origin or source function. It refers to origin
or source in terms of enterprise.
Quality function. The marks guarantees the
same standards and controls with which it is
associated.
Advertising function.
11ACQUISITION OF RIGHT/GOODWILL
12THROUGH USE
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
When a person has identified in the

mind of the public the goods he
manufactures or deals in his business or
services from those of others, such a
person has a property right in the
goodwill of the said goods, of services
which will be protected in the same
manner as other property rights.
Priority in registration in the Philippines of a
trademark is not material in an action for
unfair competition as distinguished from an
action for infringement of trademark. The
basis of an action for unfair competition is
confusing
and misleading similarity in
general appearance, not similarity of
trademark. (Converse Rubber World v.
Jacinto Rubber, G.R. Nos. L-27425 and L30505, April 28, 1980)
The use of the mark must be such as to
allow the same to be associated by the
public with a particular producer or
manufacturer. Hence, mere intention to
adopt a particular mark or name without
actual use gives rise to no rights at all.
39DISTINCTIONS :
40
INFRINGEMENT OF
TRADE
MARK
50
51
52
53
54
55
designation or origin, or any false

description or representation.
3. Procuring fraudulently from the patent
office the registration of trade name,
trademark or service mark. (Fraudulent
registration)
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
The rights to a mark are acquired through

registration
with
the
Bureau
of
Trademarks( BT) of the Intellectual Property
Office (IPO).
However, it is not necessary to use the
the mark in commerce in the Philippines (or
elsewhere) before filing the application with
the BT. The use of a mark becomes
necessary only after it has been filed.
new law requires an applicant or the
registrant to file a declaration of actual use
of the mark, with evidence to that effect,
within three (30 years from the filing date of
the application (Sec. 124.2, IPL).
56
57 ACQUISITION THROUGH
58 REGISTRATION
59
75EFFECTS OF NON-USE
76
77
78
79
80
81
82
83
84
85
86
87
Circumstances arising independently of

the will of the trademark owner (Sec. !52,
IPL), such as military coup, or political
changes that impede commerce.
Registration is an administrative act
declaratory of a pre-existing right that does
not, of itself, perfect a trademark, for what
does is actual use.
Non-use is a ground for removing a mark
from the register (Sec. 124.2, IPL).
88THE FOLLOWING ARE NOT ELIGIBLE

89FOR LICENSING:
UNFAIR
COM
PETI
TION
1. it is the unauthorized 1. is the passing off

use of a trademark
of ones goods as
2. fraudulent intent is
those of another
unnecessary
2. fraudulent intent is
3. prior registration of
essential
the trademark is a 3. registration is not
prerequisite to the
necessary.
action
41
42
43ARTICLE 189 of the Revised Penal Code
44provides for the following punishable acts:
45
1. Selling ones goods, giving them the
46
general appearance of the goods of another
47
manufacturer or dealer. (Unfair competition)
48
2. Affixing to ones goods or using in
49
connection with ones services a false
90
91A mark cannot be registered if it:
92 1. Consists of immoral, deceptive, or
93
scandalous matter, or matter which may
94
disparage or falsely suggest a connection
95
with persons, living or dead, institutions,
96
beliefs, or national symbols, or bring them
97
into contempt or disrepute;
98
Whether a mark is immoral, scandalous
99
or contrary to public decency is to be
100
ascertained from the standpoint of a
101
substantial composite of the general public.
102 2. Consists of the flag or coat of arms or other
103
insignia of the Philippines or any of its
104
political subdivisions, or of any foreign
105
nation, or any simulation thereof;
106 3. Consists of a name, portrait or signature
107
identifying a particular living individual
108
except by his written consent, or the name,
109
signature, or portrait of a deceased
110
President of the Philippines, during the life
111
of his widow, if any, except by written
112
consent of the widow;
4
Page 74
10
1 4. Is identical with a registered mark

2
belonging to a different proprietor or a mark
3
with an earlier filing or priority date, in
4
respect of:
5
(i) the same goods or services,
6
or
7
(ii) closely related goods or
8
services, or
9
(iii) if it nearly resembles such a
10
mark as to be likely to deceive
11
or cause confusion;
12
13REVERSE CONFUSION -takes place when a
14large junior user makes use of a mark or a name
15confusingly similar to the mark or a name of a
16small senior user, occasioning the impression
17that the products of the senior are those of the
18junior, or that the senior has somehow been
19absorbed or merged into the junior.
20
21 The law institutes a race for the registry
22 office, she who reaches and registers first
23 gains the protection of law to the exclusion of
24 others in regard to the same or a confusingly
25 similar mark.
26 5. Is identical with, or confusingly similar to, or
27
constitutes a translation of a mark which is
28
considered by the competent authority of
29
the Philippines (IPO) to be well-known
30
internationally and in the Philippines.,
31
whether or not it is registered here, as being
32
already the mark of a person other than the
33
applicant for registration, and used for
34
identical or similar goods or services:
35
Provided, That in determining whether a
36
mark is well-known, account shall be taken
37
of the knowledge of the relevant sector of
38
the public, rather than of the public at large,
39
including knowledge in the Philippines.
40
Which has been obtained as a result of the
41
promotion of the mark;
42
43
Protects even unregistered marks and
44
names.
45
Deals with an applicants goods that are
46
identical or similar to those under a
47
previously registered or previously well48
known mark. Where the same sign is used
49
for identical goods, there will be presumption
50
of the likelihood of confusion. (Sec. 147.1,
51
IPL)
52
53 6. Is identical with, or confusingly similar to, or
54
constitutes a translation of a mark
55
considered well-known in accordance with
56
the preceding paragraph, which is
57
registered in the Philippines with respect to
58
goods or services which are not similar to
59
those with respect to which registration is
60
applied for: Provided, That use of the
61
mark in relation to those goods or
62
services would indicate a connection
63
between those goods or services, and
64
the owner of the registered mark:
65
Provided further, That the interests of the
66
owner of the registered mark are likely to be
67
damaged by such use;
68
69 This provision deals with goods or services
70dissimilar from those disposed of under the
71same mark or name.
72
73 DOCTRINE OF DILUTION -refers to copying
74 which, while not sufficiently confusing to divert
75 sales in the short run, will tend to divert them in
76 the long run by weakening the instantaneous
77 favorable associations the public makes with
78 highly regarded products.
79
80
81
82
83
84
85 TESTS OF TRADEMARK
86 INFRINGEMENT
DOMINANCY TEST
HOLISTIC TEST
- consists in seeking
- takes stock of the
out the main,
other features of a
essential or
mark, taking into
dominant features
consideration the
of a mark.
entirety of the marks.
87
88 Under the Dominancy Test, if the competing
89 trademark contains the main or essential or
90 dominant features of another, and confusion
91 and deception is likely to result, infringement
92 takes place.
93
94TRANSLATIONS
95 There will be infringement when a translation

96of a well-known mark in the Philippines. or
97internationally is used for similar goods or
98products. There will like wise be infringement
99when a translation of a registered mark in the
100Philippines. is used for dissimilar goods or
101products.
102
103DOCTRINE
OF
FOREIGN
LANGUAGE
104EQUIVALENTS - states that "the foreign
105equivalent of a merely descriptive English106language word is deemed to be no more
107registrable than the English word itself, despite
108the fact that the foreign term may not be
109commonly known to be general public".
110
111 7. Is likely to mislead the public, particularly as
112
to the nature, quality, characteristics or
113
geographical origin of the goods or
114
services;
115
116 A mark then will not be granted registration
117 that suggests a quality, a characteristics or an
118 origin that the good or service does not
119 possess.
120
4
Page 75
10
1 8. Consists exclusively of signs that are

2
generic for the goods or services that they
3
seek to identify;
4 9. Consists exclusively of signs or of
5
indications that have become customary or
6
usual to designate the goods or services in
7
everyday language or in bona fide and
8
established trade practice;
9
10 It must be made clear that the fact that a
11 term is generic does not per se render it non12 registrable. What the law excludes is the
13 registration of a mark that is generic relative to
14 the goods or products for which the mark is
15 used.
16 Where a word or a term was originally the
17 subject of a trademark, but becomes so
18 associated in the public mind with an article to
19 which it is applied and thereby becomes a
20 generic indicator, it can no longer be
21 protected.
22
23 10. Consists exclusively of signs or of
24
indications that may serve in trade to
25
designate the kind, quality, quantity,
26
intended purpose, value, geographical
27
origin, time or production of the goods or
28
rendering of the services, or other
29
characteristics of the goods or services;
30
31 That which may rightly be said of all can be
32appropriated by none.
33
34 11. Consists of shapes that may be
35
necessitated by technical factors or by the
36
nature of the goods themselves or factors
37
that affect their intrinsic value;
38 12. Consists of color alone, unless defined by a
39
given form; or
40 13. Is contrary to public order or morality (Sec.
41
123.1, IPL).
42
43Sec. 123.2.
As regards signs or devices
44mentioned in paragraphs (j), (k) and (l), nothing
45shall prevent the registration of any such sign or
46device which has become distinctive, in relation
47to the goods for which registration is requested
48as a result of the use that have been made of it
49in commerce in the Philippines. The Office may
50accept as a prima facie evidence that the mark
51has become distinctive, as used in connection
52with the applicant's goods or services in
53commerce, proof of substantially exclusive and
54continuous use thereof by the applicant in
55commerce in the Philippines for five (5) years
56before the date on which the claim of
57distinctiveness is made.
58
59DOCTRINE OF SECONDARY MEANING
60
61 While a generic, indicative or descriptive mark
62will, as a general rule, be denied registration,
63there is a circumstance that will allow it to be
64registered, this is the doctrine of secondary

65meaning which has been defined as, when a
66mark has become distinctive of the applicant's
67goods in commerce and, and in the mind of the
68public, indicates a single source to consumers, it
69may be registered.
70
71 Requirements of the doctrine:
72
1. The secondary meaning must
73
have arisen as a result of substantial
74
commercial use in the Philippines.
75
2. The
use
result
in
the
76
distinctiveness of the mark insofar
77
as the goods or the products are
78
concerned.
79
3. Prima facie evidence is proof of
80
commercial use in the Philippines 5
81
years before date of claim.
82.
83RIGHTS CONFERRED
84
851. The right to the exclusive use of the mark for
86 one's own goods or services.
872. The right to prevent others from the use of
88 the same mark for identical goods or services
89 in the course of trade.
903. The right to the exclusive use of one's
91 already registered mark even for goods or
92 services into which one's venture expands, if
93 use by others for dissimilar products is likely
94 to damage the business interests of the first
95 venturer (Sec. 147, IPL).
96
97 The rights, by Sec. 145, lasts for ten (10)
98years subject to indefinite renewal for periods of
99ten years each.
100 The right to the use of a registered trademark
101may be licensed to another person, natural or
102juridical, enabling such a party to produce,
103market, distribute and advertise goods or
104services by the trade or service mark of the
105licensor. Sec. 150.1 however requires that a
106licensor effectively control the quality of the
107goods or services of the licensee.
108
109STANDING TO SUE AND JURISDICTION

110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
The right to the use of the corporate or

trade name is a property right, a right in rem,
which it may assert and protect in any of the
courts of the world even in jurisdiction where it
does not transact business just the same as it
may protect its tangible property, real or
personal against trespass or conversion.
Sec. 160 leaves no doubt that a foreign
national or juridical person who is a national of
a country that is party to a relevant convention
to which the Philippines. is also a party may
bring a civil or an administrative action for
opposition, cancellation, infringement, unfair
competition or false designation of origin and
false description, regardless of its status (or
lack of it) in the Philippines., and even if such
4
Page 76
10
1 an entity does not do business in the

2 Philippines.
3
4ELEMENTS OF THE CRIME OF

5TRADEMARK INFRINGEMENT:
6
71.
8
9
102.
11
12
13
143.
15
16
174.
18
19
The deceitful act of giving ones goods the

general appearance of the goods of another
manufacturer or dealer.
The deceptive similarity is either in the
goods themselves, in the trade dress, in the
words or devices, or in any other feature of
appearance.
The offender offers to sell or sells the goods,
or gives others the opportunity to do the
same.
An actual intent to deceive the public or
defraud the competitor.
20
21PATENT
22
23 Is a document, issued, upon application, by a
24government office, which describes an invention
25and creates a legal situation in which the
26patented invention can normally only be
27exploited (manufactured, used, sold, imported)
28with the authorization of the owner of the patent
29
30 is an exclusive right acquired over an
31invention, to sell, use and make the same
32whether for commerce or industry.
33
34DISTINCTIONS :
35
PATENT
COPYRIGHT
When a person, by
- It may be vested in a
independent
work closely similar
research arrives at
or even identical to
the same product or
an earlier, already
that already
patented work,
patented, he is
provided that the
restrained by the
former is truly
arm of the law from
original, ie., it owes
exploiting such an
its existence to its
invention by reason
creator.
of the patent granted
the earlier
discoverer.
36
37 It will be remembered that what is not
38patentable may nevertheless be protected under
39copyright law.
40
41PATENTABILITY
42
43To be patentable, a product must be:
44
a. a technical solution of a problem in
45
any field of human activity
46
b. novel
47
c. an invention
48
d. industrially applicable
49
50
These criteria may apply to:
51
a. products
52
b. processes
53
c. improvements of either products or
54
processes
55
56PROCESS- consists of an act, operation, or
57steps or a series thereof, performed upon a
58specified subject matter to produce physical
59result.
60 where the patent is for a process, the law
61forbids others from using the process, and also
62from manufacturing, dealing in , or importing any
63product obtained directly or indirectly from such
64process.
65
66PRODUCT-is broad enough a term to include

67every output of human ingenuity, every tangible
68result of craftsmanship or partnership. It is to be
69noted that not all products are patentable
70because not all process the requirements of
71patentability.
72
73IMPROVEMENTS- to be patentable, the
74improvement should be non-obvious to one
75skilled in the art of the original invention and is
76truly novel. If it is merely a consequence of
77technical configuration of the original invention
78and is thus suggested by the invention itself,
79the improvement is still within the dominion of
80the original invention.
81
82 EXCLUDED FROM PATENT

83PROTECTION:
84
851.
86
872.
88
89
903.
91
92
93
944.
95
96
975.
986.
99
100
discoveries,
scientific
theories
and
mathematical method
schemes, rules and methods of performing
mental acts, playing
games, or doing
business, and programs for computer
methods for treatment of the human body or
animal body by surgery or therapy and
diagnostic methods practiced on the human
or animal body.
Plant varieties or animal breeds of
essentially biological process for the
production of plants or animals
Aesthetic creations
Anything which is contrary to public order or
morality (Sec. 22).
101REQUIREMENTS FOR PATENT:

102
1031.
104
105
106
107
108
109
110
111
NOVELTY- that which does not form part of

the prior art (Sec. 23).
Prior art is specified under Sec. 24, to wit:
a. that which has been made
available to the public anywhere in
the world before the filing date or the
priority date of application
b. that which forms part of an
application whether for patent, utility
4
Page 77
10
1
model or industrial designed,
2
effective in the Philippines, provided
3
that:
4
b.1. the inventor or applicants are
5
not the same
6
b.2. the contents of the application
7
are published in accordance with the
8
requirements of patent application
9
rules
10
b.3. the filing date of prior art Is
11
earlier
12
13 thus prior art is synonymous with prejudicial
14disclosure
15 Sec. 25 RA 8293 embodies the exception to
16prior art under the heading non-prejudicial
17disclosure any disclosure of the invention made
18within twelve (12) months before the filing date
19does not prejudice the application if the
20disclosure is made by:
21
a. inventor himself (or by anyone who
22
has the right to patent, Sec. 25, 2)
23
b. patent office- when the information
24
of the latter office comes another
25
application filed by the inventor that
26
should not have been disclosed by
27
the office
28
c. third persons application when such
29
persons
information
directly
30
indirectly comes from the inventor
31
himself without the inventors
32
permission, or from any third
33
persons
who
obtained
his
34
information from the inventor.
35
362. INVENTIVENESS
37
38 an invention involves an inventive step if,
39
having regard to prior act, it is not obvious to
40
a person skilled in the art at the time of the
41
filing date or priority date of the application
42
claiming the invention (Sec. 26, RA 8293).
43 It is suggested that the test of non44
obviousness be pursued in four steps:
45
1. the scope and
46
content of the prior art are determined
47
2. the differences
48
between the prior art and the claims at
49
issue are ascertained
50
3. the level of ordinary
51
skill in the pertinent art is resolved
52
4. against this
53
background, the obviousness or non54
obviousness of the subject matter is
55
ascertained (60 AM JUR 2d, Patents,
56
Sec. 144).
57
583. CAPABLE
OF
INDUSTRIAL
59
APPLICATION
60
61
(TRIPS, Sec. 5 Art. 27, par. 1)
62Two requirements of industrial applicability shall
63be fulfilled:
64 a. it can be produced
65 b. can be used in industry (Sec. 27)
66
67 The application shall disclose the
68
invention in a manner sufficiently clear and
69
complete for it to be carried out by a person
70
skilled in the art.
71 according to TRIPS, it is synonymous with
72 useful
73 (Sec. 5 Art. 29 year 1, TRIPS) an applicant
74 for a patent shall disclose the invention in a
75 manner sufficiently clear and complete for the
76 invention to be carried out by a person skilled in
77 the art and may require the applicant to indicate
78 the best mode for carrying out the invention
79 known to the inventor at the filing date
80
81FIRST TO FILE RULE
82 Under Sec. 29 R.A. 8293, if two or more
83person have made the invention separately and
84independently of each other the right to the
85patent shall belong to the person who first filed
86an application for such invention.
87
88OWNERSHIP OF PATENT RIGHTS:
89
90The right to a patent belongs to:
91
a. inventor, his heirs, or assigns
92
b. when two (2) or more persons have
93
jointly made an invention to them
94
jointly
95
c. if two (2) or more persons have the
96
invention
separately
and
97
independent of each other to the
98
person who filed an application for
99
such invention
100
d. where 2 or more application are filed
101
for the same invention to the
102
applicant who has the earliest filing
103
date or the earliest priority date
104
(Sec. 28)
105
106TERM OF A PATENT
107 The term of a patent shall be twenty (20)

108years from the filing date of application
109(Sec. 54 ).
110
111INFRINGEMENT- the making, using, offering for
112sale , selling or importing a patented product or
113a product obtained directly or indirectly from a
114patented process, or the use of a patented
115process without the authorization of the patentee
116(Sec. 76.1).
117
118TESTS OF PATENT INFRINGEMENT

119
1201.
121
1222.
123
124
125
Literal infringement- resort is had to the

words of the claim.
Doctrine of equivalents- if two devices do
the same work in substantially the same
way, the same result, and produce
substantially same result, they are the same
4
Page 78
10
1
eventhough they differ in name, form or
2
shape.
3
4 Sec. 78 warns that where the product is
5identical, it shall be presumed to have been
6obtained thru the use of the patented process.
7Thus there has evolved the doctrine of
8equivalents which protects a patented invention
9from circumvention by minor changes or
10deviations.
11
12THE RIGHTS OF A PATENTEE ( SEC. 71)
13
141. In came of a product, the patentee shall
15
have the exclusive right to make, use, offer
16
for sale, sell or import the product.
172. In case of a process, the patentee shall
18
have the exclusive right to use the process,
19
and to manufacture, deal in, use, sell or offer
20
for sale or import any product obtained
21
directly or indirectly from such process.
22
23 The government or a third person authorized
24by the government may use the patent without
25the authority of a patent owner, provided:
26
1.
on public interest grounds, in
27
particular, national security, nutrition,
28
health or the development of other
29
sectors, as determined by the
30
appropriate agency of the government
31
so requires; i.e. importation of
32
medicines under the Generics Act by
33
the Department of Health.
34
2.
The manner of exploitation by
35
the owner of the patent or his licensee,
36
is anti-competitive (Sec. 74.1).
37
38 Under Sec. 46 R.A. 8293, After the
39publication of the patent application, the
40applicant, event while his application is still
41pending, is already accorded the rights of a
42patentee granted under the law as against any
43person unlawfully exercising patent rights,
44provided the ff. conditions concur
45
46
1.
the latter has actual
47
knowledge that the invention he was
48
using was the subject matter of a patent
49
2.
he has written notice of
50
such fact
51
3.
the action may be filed
52
only after the grant of the patent and
53
within four (4) years from the
54
commission of the acts complained of.
55
56UTILITY MODELS - are models of implement
57
or tools of any industrial product even
58
if not possessed of the quality of
59
invention but which is of practical
60
utility.
61
62 Sec. 108.1 treats patents and utility models
63similarly what distinguishes a utility model
64however from a patentable invention is set forth

65in Sec. 109.1:
An invention qualifies for
66registration as a utility model if it is new and
67industrially
applicable.
68That is why it is said that the degree of
69inventiveness necessary for the grant of
70protection to utility model is lower in degree than
71that required of a patentable invention.
72
73MANDATORY PROVISIONS
74The law requires that certain mandatory

75provisions be incorporated in the technology
76transfer agreement (TTA)
77
a. Philippine Law should govern the
78
interpretation of contracts and that in
79
case of litigation, the venue shall be
80
the peace where the licensee has its
81
principal office.
82
b. The licensee shall have continued
83
access to improvements in
84
techniques and processes related to
85
the technology for the duration of
86
the TTA.
87
c. In cases of arbitration, the arbitration
88
laws of the Philippines or of the UN
89
Commission or International trade
90
law or of the International Chamber
91
of Commerce shall apply and the
92
venue shall be the Philippine or any
93
neutral country, and
94
d. Payment of Philippine Taxes relating
95
to the TTA shall be borne by the
96
licensor.
97
98
99VI. BANKING LAWS

100
101R.A. 337 (GENERAL BANKING
102ACT)
103
104VOTING STOCK OF A BANK THAT MUST

105BE OWNED BY FILIPINO CITIZENS:
106
107 At least 70% - must be owned by Filipinos.
108
30% - can be owned by Foreigners.
109
110
EXCEPTIONS:
111
a) The Monetary Board may, with the
112
approval of the President, increase
113
the percentage of foreign voting
114
stock in any domestic bank from
115
30% to 40% (Sec. 12 and 12-A, RA
116
337).
117
b) Where a new bank is established as
118
a result of 1) local incorporation of
119
the existing branches of foreign
120
banks pursuant to Sec. 68 of RA
121
337 or 2) merger or consolidation
122
of existing banks in any of which
123
there are foreign owned voting
4
Page 79
10
1
2
c)
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
d)
21
22
23
24
25
26
27
28
29
30
31
32
33
34
e)
f)
stocks at the time of consolidation

(Secs. 12 and 12-A, RA 337).
When MB authorizes foreign banks
to operate through any of the
following:
1)
by
acquiring,
purchasing or owning up to 60% of
the voting stock of an existing bank;
2) by investing in up to 60% of the
voting stock of a new banking
subsidiary incorporated under laws
of Philippines; 3) by establishing
branches with full banking authority,
provided: a) foreign bank may avail
itself of only one mode of entry and
b) foreign bank or Philippine
corporation may own up to 60% of
the voting stock of only one
domestic bank or new banking
subsidiary (Sec. 2,RA. 7721).
Foreign banks or certain Philippine
corporations may own up to 60% of
voting stock of a domestic bank (RA
7721).
Foreigners
or
any
foreign
corporation may own up to 60% of
the voting stock in thrift banks
established after approval of RA
No. 7906.
Generally, the capital stock of rural
banks shall be fully owned by
Filipinos
and
corporations,
associations
or
cooperatives
qualified to own such stock.
35STOCK OWNERSHIP PERCENTAGE OF

36LIMITATIONS IN BANKS OF:
37
38a. Natural persons and their relatives within 3rd
degree of consanguinity or affinity 20% of
voting stock.
41b. Corporation (cooperative, association,
42
partnership)
43
- 30% of voting stock.
44
1. If 2 or more corporations are
45
owned or controlled by the same
46
group of persons, the aggregate
47
voting
stocks
which
said
48
corporations may own in any single
49
bank shall not exceed 30% of voting
50
stock of the bank.
51
2. If said corporations are owned
52
or controlled by one person or group
53
of persons related within the 3rd
54
degree of consanguinity or affinity,
55
the aggregate voting stocks which
56
such corporations may own in any
57
bank shall not exceed 20% of voting
58
stock of the bank (Secs. 12-B-12-D,
59
RA 337).
60
61
DISCLOSURE REQUIREMENT- Banks
62
shall report to the Central Bank any
39
40
63
sale or other forms of transfer of
64
ownership of their shares of stock by
65
and between corporations or individuals
66
and corporations, for purposes of
67
determining
compliance
with
the
68
limitations on bank equity holdings of
69
corporations.
70
71NOTE: The Monetary Board may exempt voting
72stockholdings of corporations and of any
73person/s related to each other within the third
74degree of consanguinity or affinity from the
75prescribed ceilings in exceptional cases and
76when circumstances warrant, such as but not
77limited to PURCHASES IN THE EQUITY OF
78DISTRESSED BANKS FOR PURPOSES OF
79REHABILITATION.
80
81
82
83
84
85BOARD OF DIRECTORS IN A BANK
86(Section 13, RA 337)

87
88 At least 2/3 of the members of the board of
89directors of any bank shall be citizens of the
90Philippines.
91
92 The limitation on the number of directors in a
93corporation under Sec. 14 of Corporation Code
94shall not be applied in case of a BANK
95MERGER OR CONSOLIDATION, so that
96membership in the new board may include up to
97the total number of directors provided for in the
98respective articles of incorporation of the
99merging or consolidating banks.
100
101 No appointive or elective public officials,
102whether full-time or part-time, shall at the same
103time serve as OFFICER of any private bank,
104EXCEPT in cases where such service is incident
105to financial assistance provided by the
106government-owned or controlled corporation to
107the bank.
108
109 Elective and appointive public officials can
110serve as directors but not as officers of the bank.
111
112COMMERCIAL BANK is a corporation
113organized to carry on the business of
114commercial banking by:
115
1161) discounting and negotiating promissory
117
notes, drafts, bills of exchange and other
118
evidences of debts;
1192) accepting drafts and issuing letters of
120
credit ;
1213) receiving deposits;
1224) buying and selling foreign exchange and
123
gold or silver bullion;
124
5) lending money against personal security
125
or against securities consisting of
4
Page 80
10
1
2
3
4
5
personal property of mortgages on

improved real estate and the insured
improvements thereon (Section 20, RA
337).
6ALLIED UNDERTAKINGS OF
7COMMERCIAL BANKS INCLUDING
8GOVERNMENT BANKS AND FOREIGN
9BANKS WITH EXISTING LOCAL
10BRANCHES:
11
12a. warehousing companies
13b. leasing companies
14c. storage companies
15d. safe deposit box companies
16e. companies engaged in the management of
17 mutual funds but not in the mutual funds
18 themselves
19 PROVIDED:
20 1. the total investment in equities shall not
21
exceed 25% of the net worth of the bank;
22 2. the equity investment in any one
23
enterprise shall not exceed 15% of the
24
net worth of the bank;
25 3. the total equity investment of the bank in
26
any single enterprise shall remain a
27
minority holding in that enterprise.
28
EXCEPT when the enterprise is a non29
financial allied undertaking and when a
30
commercial bank owns more than 30% of
31
the voting stock of thrift bank or rural
32
bank up to a majority thereof;
33 4. the equity investment in other banks shall
34
be deducted from the investing banks
35
net worth for purposes of computing the
36
prescribed ratio of net worth to risk
37
assets. EQUITY INVESTMENTS SHALL
38
NOT BE PERMITTED IN NON39
RELATED ACTIVITIES (Sec. 21-A, RA
40
337).
41
42EXPANDED COMMERCIAL
43AUTHORITY
44
BANKING
45 Whenever it is necessary to further national

46development objectives or support national
47priority projects, the Monetary Board may
48authorize a commercial bank, bank authorized to
49provide commercial banking services as well as
50government-owned
and controlled bank to
51operate under an expanded commercial bank
52authority and by virtue thereof:
53
a. exercise the powers of an Investment
54
House under PD 129;
55
b. invest in the equity of non-allied
56
undertaking;
57
c. own majority or all of the equity in a
58
financial intermediary other than a
59
commercial bank or bank authorized to
60
provide banking services.
61
PROVIDED:
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
1. the total investment in equities shall

not exceed 50% of the net worth of
the bank;
2. the equity investment in any
enterprise whether allied or nonallied shall not exceed 15% of the
net worth of the bank;
3. the equity investment of the bank or
of its wholly-or majority owned
subsidiary, in a single non-allied
undertaking shall not exceed 35% of
the total equity in the enterprise nor
shall it exceed 35% of the voting
stock in the enterprise;
4. the equity investment in other banks
shall be deducted from the investing
banks net worth for purposes of
computing the prescribed ratio of net
worth to risk assets (Section 21-B,
RA 337)
83COMMERCIAL BANKS MAY OWN

84VOTING STOCKS OF A THRIFT BANK
85OR RURAL BANK
86
87 Commercial Banks may own more than 30%

88of voting stock of thrift bank or rural bank up to a
89majority or all of equity thereof,
90
PROVIDED:
91
1. acquisition of such equity is
92
approved by the Monetary Board;
93
2. the equity ownership of any
94
individual, related group or corporation
95
in the investing bank is in accordance
96
with Sections 12, 12-A,12-B,12-D of
97
RA 337;
98
3. the equity investment in other banks
99
shall be deducted from the investing
100
banks net worth for purposes of
101
computing the prescribed ratio of net
102
worth to risk assets (Section 21-C, RA
103
337)
104Section 22 - prescribed that a banks capital
105should be at least 10% of its total loan portfolio
106minus non-risk assets. For example, if a banks
107net worth or capital is P10 billion, its total loan
108portfolio, net of risk assets, should not exceed
109P100 billion.
110
111Section 23- SINGLE BORROWERS LIMIT OR
112
SBL- 25% of unimpaired capital and surplus
113
of the bank under present BSP regulations.
114
115
116EXCLUDED FROM THE SBL ARE THE

117FOLLOWING. NON-RISK ASSETS:
118
119
120
121
122
123
1. loans secured by obligations of the

Central Bank or Philippine Government;
2. loans fully guaranteed by the government
as to the payment of principal and
interest;
4
Page 81
10
1 3. loans to the extent covered by hold-out

2
on,
or
assignment
of,
deposits
3
maintained in the lending bank and held
4
in the Philippines;
5 4. loans and acceptances under letters of
6
credit to the extent covered by margin
7
deposits;
8 5. other loans or credits which the Monetary
9
Board may from time to time, specify as
10
non-risk assets;
11
12
An additional 15% may be granted to the
13borrower if the additional liabilities are secured
14by shipping documents, warehouse receipts or
15other documents transferring or securing title
16covering readily marketable, non-perishable
17staples, which staples must be fully covered by
18insurance and must have a market value equal
19to at least 125% of such additional liabilities.
20
21LIABILITIES - includes the direct liability of
22
the maker, acceptor, endorser, drawer or
23
guarantor; in case of a partnership, the
24
liabilities of the members; and in case of a
25
corporation, all the liabilities of all
26
subsidiaries thereof in which such
27
corporation owns or controls a majority
28
interest.
29
30
The Monetary Board prescribe the
31combination of the liabilities of the subsidiary
32corporations or members of the partnership
33EVEN IF THE CORPORATION/PARTNERSHIP
34HAS NO LIABILITY TO THE BANK in the
35following cases:
36
1) the parent corporation or partnership
37
guarantees the repayment of the
38
liabilities;
39
2) the liabilities were incurred for the
40
accommodation of the parent
41
corporation or another subsidiary or
42
of the partnership;
43
3) the subsidiaries through separate
44
entities operate merely as divisions
45
or departments of a single entity
46Section 24 - No commercial bank shall make
47any loan or discount on the security of shares of
48its own capital stock, nor be the purchaser of
49any such shares,
50
51
UNLESS:
52
1. such security or purchase is
53
necessary to prevent loss upon a
54
debt previously contracted in good
55
faith and
56
2. the stock so purchased or acquired
57
for any other reason in the course of
58
its operations, shall within 6 months
59
from the time of its purchase or
60
acquisitions, be sold or disposed of
61
at public or private sale; or
62
3. in default thereof, a receiver shall be
63
appointed to close up the business
64
of the bank in accordance with law.
65
66 In FILIPINAS MILLS, INC. vs. DAYRIT (192
67SCRA 177) under Section 24 of RA 337, there
68is a SPECIFIC EXCEPTION, xxx unless such
69security or purchase be necessary to prevent
70loss upon a debt previously contracted in good
71faith xxx and a GENERAL EXCEPTION xxx or
72purchased or acquired for any other reason in
73the course of its operations xxx. Thus, if and
74when the bank decides to purchase those
75shares of stocks in the public auction sale, this
76circumstance will not result in violation of
77Section 24, RA 337, as it is allowed under the
78GENERAL EXCEPTION.
79
80Section 25 allows a commercial bank to
81purchase, hold and convey real estate for the
82following purposes:
83
84
A
1) when it is necessary for its
85
immediate accommodation in
86
the transaction of its business;
87
M 2) when mortgaged to it in good
88
faith by way of security for
89
debts;
90
C 3) when conveyed to it in
91
satisfaction of debts previously
92
contracted in the course of its
93
dealings;
94
P 4)
when purchased at sales under
95
judgments,
decrees,
96
mortgages or trust deeds held
97
by it and such as it shall
98
purchase to secure debts due
99
to it.
100
101
CODE: A M C P
102
103
In the case of REGISTER OF DEEDS OF
104MANILA
vs.
CHINA
BANKING
105CORPORATION (4 SCRA 1146), debts
106referred to in Section 24 are only those resulting
107from
previous loans and other similar
108transactions made or entered into by the
109commercial bank in the ordinary course of its
110business as such.
Thus, an alien-owned
111commercial bank cannot acquire ownership of
112real estate by virtue of a deed of transfer
113executed by its former employee in satisfaction
114of a civil liability arising from a criminal offense of
115a qualified theft.
116
117Section 25 - But no such bank shall hold the
118possession of any real estate under mortgage or
119trust deed, or title and possession of any real
120estate purchased to secure any debt due to it,
121for a longer period than 5 years.
122
123TRUST CORPORATION - any corporation
124formed or organized for the purpose of acting as
4
Page 82
10
1trustee or administering any trust or holding

2property in trust or on deposit for the use, benefit
3or behalf of others (Section 56, RA 337).
4
5Section 57
6 A trust company may, with the approval of
7the Monetary Board, do a commercial banking
8business but such business must be kept
9separate and distinct from its trust business. All
10relevant provisions governing the business of
11commercial banking corporations shall be held
12to apply to the commercial banking activities of a
13trust company.
14 Any banking corporation may, with the
15approval of the Monetary Board, be authorized
16to engage in the business of a trust company,
17but shall be subject to provisions as regards its
18trust business.
19
20
21
22
23Section 58- POWERS OF TRUST

24CORPORATION :
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
1.
to act as trustee on any mortgage or

bond issued by any municipality,
corporation, or any body politic and to
accept and execute any other municipal
or corporate trust not inconsistent with
law;
2.
to act under the order or appointment of

any court of record as guardian, receiver,
trustee or depository or the estate of any
minor, insane person, idiot, habitual
drunkard or other incompetent or
irresponsible person and as receiver and
depository of any moneys paid into court
by parties to any legal proceedings
and/or property of any kind which may be
brought under the jurisdiction of the court
by proper legal proceedings;
3.
to act as the executor of any last will or

testament when it is named in the last will
as executor;
4.
to act under appointment of a court of

competent jurisdiction as administrator of
the estate of any deceased person, with
the will annexed, or as administrator of
the estate of any deceased person when
theres no will and when in either case,
theres no person qualified, competent
willing, able and entitled to accept such
administration.
5.
to accept and execute any legal trust

confided to it by any court of record or by
any person or corporation for the holding,
management and administration of any
63
estate, real or personal, and the rents,
64
issues and profits thereof;
65
66 6. to
establish
and
manage
67
common trust funds.
68
69
Section 64 Real estate acquired by a trust
70company shall be governed by Section 25, RA
71337.
72
73Section 72 - OTHER SERVICES
74PERFORMED BY BANKING
75INSTITUTIONS: R F M A
76
771. Receive in custody funds, documents and
78
valuable objects and rent safety deposit
79
boxes for the safeguarding of such effects.
802. Act as financial agent and buy and sell, by
81
order of and for the account of their
82
customers,
shares,
evidences
of
83
indebtedness and all types of securities.
843. Make collections and payments for the
85
accounts of others and perform such other
86
services for the customers as are not
87
incompatible with banking business.
884. Act as managing agent, adviser, consultant
89
or
administrator
of
investment
90
management/advisory/consultancy accounts
91
with approval of Monetary Board.
92
93Banks shall perform services under 1, 2, 3 as
94depositories or as agents.
95
96Section 74
97PRACTICES:
COMMON
BANKING
98
991. borrowing of money by banking institution

100
1012.
1023.
1034.
104
105
1065.
107
1086.
1097.
1108.
111
112
113
114
115
1169.
117
118
119
through the rediscounting of receivables;

acceptance of drafts or bills of exchange;
certification of checks;
transactions involving the release of
documents attached to items received for
collection;
letters of credit transaction, includingstandby arrangements;
repurchase agreements;
shipside bonds;
ordinary guarantees or indorsements in
favor of foreign creditors where the principal
obligation involves loans and credits
extended directly by foreign firms or persons
to domestic borrowers for capital investment
purposes;
other transactions which Monetary Board
may define or specify as not covered by the
prohibition.
120PROHIBITIONS:
121
122Section 73
Banking institutions shall not
123engage in insurance business as the insurer.
124
4
Page 83
10
1Section 74 - No bank shall enter directly or

2indirectly into any contract of guaranty or
3suretyship or shall guarantee the interest or
4principal of any obligation of any person, co5partnership, association, corporation, or other
6entity. However, this provision shall not apply to
7common banking practices.
8
9Section 78
10LOAN AGAINST REAL ESTATE
11SECURITY
12
13 shall not exceed 70% of appraised value of
14real estate plus 70% of appraised value of
15insured improvements;
16 title to real estate shall be in the mortgagor;
17 in the event of foreclosure, whether judicially
18
or extrajudicially, the mortgagor or debtor
19
shall have the right within 1 year after the
20
sale to redeem the property by paying the
21
amount fixed by the court in the order or
22
execution or the amount due under the
23
mortgage deed with interest at rate specified
24
in the mortgage, costs, judicial expenses
25
less income of property;
26
27 The purchaser of the auction sale concerned
28in a judicial foreclosure shall have the right to
29enter upon and take possession of the property
30immediately after the date of confirmation of
31auction sale by court.
32
33 In JOVEN VS. CA (212 SCRA 700), to give
34effect to his right of possession, the purchaser
35must invoke the aid of courts and ask for a writ
36of possession. He cannot simply take the law
37into his own hands and enter the property
38without judicial authorization. He need not bring
39a separate and independent suit
for this
40purpose. Nevertheless, it is essential that he
41ask for and be granted a writ of possession in
42order that he may be legally installed in the
43property he has bought.
44
45 As a general rule, there is no right of
46redemption from a judicial foreclosure sale after
47confirmation of the sale. However, foreclosure
48of mortgages to banking institutions shall be
49subject to legal redemption even after
50confirmation (LIMPIN VS. IAC, GR No. 70987,
51GSIS VS. CFI, 175 SCRA 19).
52
53LOANS ON SECURITY OF CHATTELS
54
55 shall not exceed 50% of the appraised value
56of the security;
57 title to the chattels shall be free from all
58encumbrances;
59 title to the chattels shall be in the name of
60mortgagor.
61
62
Shares of stock can be mortgaged under
63the Chattel Mortgage Law.
64
65 RECTO LAW applies only to foreclosure of
66personal property sold should the vendee fail to
67pay 2 or more installments.
68 The foreclosure pursuant to RECTO LAW
69shall not apply in case of personal property held
70as security for a loan.
71
72Section 82 - Banks shall not advertise the
73amount of their authorized or subscribed capital
74stock without indicating the amount of their
75capital actually paid-up.
76
77
No branch of any foreign bank doing
78business in the Philippines shall in any way
79announce the amount of the capital and surplus
80of its head office or of the bank in its entirety
81without indicating the amount of the capital
82assigned to such branch. In case no capital has
83been definitely assigned to such branch, such
84fact shall be stated and shall form part of
85advertisement.
86
87Section 83 - LOANS TO DIRECTORS,

88OFFICERS, STOCKHOLDERS AND
89THEIR RELATED INTEREST (DOSRI)
90
91
No Director or officer of any bank shall
92borrow any of the deposits of funds of such
93banks, EXCEPT, with written approval of
94majority of the directors of the bank, excluding
95the director concerned. The approval shall be
96entered upon the records of the bank and a copy
97of such entry shall be transmitted to the
98appropriate supervising department of BSP.
99
100 The credit accommodation which may be
101extended by a bank to each of its stockholders
102owning 2% or more of the subscribed capital
103stock, its directors or officers shall be limited to
104an amount equivalent to the respective
105outstanding deposits and book value of paid in
106capital contribution in the bank.
107
108 Loans and advances to officers, in the form
109of fringe benefits granted in accordance with
110rules prescribed by Monetary Board shall not be
111subject to the limitation that the loanable amount
112shall not exceed the outstanding deposits and
113book value of the paid-in capital contribution to
114the bank of the borrower-officer concerned.
115
116Section 87-A, as amended, penalizes an officer,
117employee or agent of a bank, who, without order
118of a court of competent jurisdiction, shall
119disclose to any unauthorized person any
120information relative to the funds or properties in
121the custody of the bank belonging to a private
122person, whether natural or juridical.
123
124
4
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10
1R.A. 1405 SECRECY OF BANK

2DEPOSITS LAW
3
4PURPOSES:
5a.)
6
7b.)
8
9
10
11
To encourage people to deposit money in

banks;
To discourage private hoarding so that
these deposits may be properly utilized by
banks in authorized loans to assist in the
economic development of the country.
12DEPOSITS COVERED BY LAW:

13(Section 2)
14 All deposits of whatever nature with banks or
15banking institutions in the Philippines including
16investments in bonds issued by the Government
17of the Philippines, its political subdivisions and
18its instrumentalities.
19
20 These deposits are considered as of an
21ABSOLUTELY CONFIDENTIAL NATURE AND
22MAY NOT BE EXAMINED and may not be
23examined, inquired or looked into by any person,
24government al, bureau, or office. EXCEPT IN
25THE offici FOLLOWING CASES:
26
27
1) Where the depositor consents in
28
writing;
29
2) Impeachment cases;
30
3) By court order in bribery or
31
dereliction of duty cases against
32
public officials;
33
4) Deposit is subject of litigation;
34
5) If authorized by Monetary Board if it
35
has reasonable ground to believe
36
that such account is used to defraud
37
the bank;
38
6) When made by an independent
39
auditor hired by the bank for the
40
exclusive use of the bank (Sec. 2,
41
RA 1405);
42
7) Anti-graft cases (Added by analogy
43
in PNB VS. GANCAYCO, 15 SCRA
44
91);
45
8) Inquiry of Commissioner of BIR into
46
bank deposits of:
47
a) a decedent to determine his
48
gross estate
49
b) a taxpayer who has filed an
50
application for compromise of his tax
51
liability (Sec. 6 (F) NIRC).
52
53 In PNB VS. GANCAYCO (15 SCRA 91), the
54court held that a bank can be compelled to
55disclose the records of accounts of a depositor
56who is under investigation for unexplained
57wealth.
58 Section 2 of RA 1405 provides that bank
59deposits are absolutely confidential xxx and
60therefore may not be examined, inquired or
61looked into, except in cases mentioned therein.
62Meanwhile, Sec. 8 of RA 3019 (Anti-Graft Law)
63directs that bank deposits shall be taken into

64consideration in the enforcement of this section,
65notwithstanding any provision of law to the
66contrary. The only conclusion possible is that
67Sec. 8 of Anti-Graft Law is intended to amend
68Sec. 2 of RA 1405 by providing an additional
69exception to the rule disclosure of bank deposits.
70(Ibid. p. 92).
71
72 In CHINA BANKING CORPORATION VS.
73ORTEGA (49 SCRA 355), the Court held that
74garnishment of bank deposit of judgment debtor
75does not violate RA 1405. The lower court did
76not order an examination of or inquiry into the
77bank deposit of the defendant, as contemplated
78in the law. It merely required the cashier of the
79bank to inform the court whether or not the
80defendant had a deposit in said bank only for
81purposes of garnishment issued by it. So that
82the bank would hold the same intact and not
83allow any withdrawal until further order.
84
85
86
87
In BANCO FILIPINO SAVINGS AND
88MORTGAGE BANK VS. PURISIMA (161 SCRA
89576), the Supreme Court reiterated its ruling in
90PNB VS. GANCAYCO, supra and expanded the
91coverage of persons excluded from the
92prohibition against disclosures in RA 1405.
93Under RA 3019, illegally acquired property
94extends to cases where property is concealed by
95being held by or recorded in the name of
96respondents spouse, ascendants, descendants,
97relatives, or any other persons. Bank records of
98transactions by or in the names of the wife,
99children and friends of a person charged with
100violation of Anti-Graft Law may be the proper
101subject of subpoena duces tecum.
102
103 In MELLON BANK VS. MAGSINO (190
104SCRA 633), private respondents sought to
105disallow testimony on the bank accounts of the
106third parties for violating RA 1405. The court
107ruled that an inquiry into the whereabouts of the
108illegally acquired amount extends to whatever is
109concealed by being held or recorded in the
110name of persons other than the one responsible
111for the illegal acquisition. Since the action was
112aimed at recovering the amount converted by
113respondents for their own benefit such inquiry
114therefore involved deposited money which was
115the subject matter of litigation to be exempted
116from the prohibition.
117
118 Safe deposit boxes are not strictly deposits
119since the relationship between the bank is that of
120lessor and lessee. However, any information
121regarding the existence of the safe deposit box
122in the name of the renter is considered
123confidential in view of Sec. 87-A of RA 337 as
124amended.
125
4
Page 85
10
1Section 26, RA 7653

2
3
Any director, officer, stockholder who,
4together with his related interests, contracts a
5loan or any form of financial accommodation
6from his bank / from a bank which is:
7
a) a subsidiary of a bank holding
8
company of which both his bank and
9
the lending bank are subsidiaries; or
10
b) in which a controlling proportion of
11
the shares is owned by the same
12
interest that owns a controlling
13
proportion of the shares of his bank
14
in excess of 5% of the capital and
15
surplus of the bank or in the
16
maximum amount permitted by law,
17
whichever is lower, shall be required
18
by the lending bank to WAIVE THE
19
SECRECY OF HIS DEPOSITS OF
20
WHATEVER NATURE IN ALL
21
BANKS IN THE PHILIPPINES.
22
23
Any information obtained form an
24examination of his deposits shall be held strictly
25confidential and may be used by the examiners
26only in connection with their supervisory and
27examination responsibility or by the Bangko
28Sentral in an appropriate legal action it has
29initiated involving the deposit account.
30
31PENALTIES
32
Violation of the secrecy of bank
33deposits will subject the offender upon
34conviction to imprisonment of not more than five
35(5) years or a fine not more than Php 20,000 or
36both , in the discretion of the court.
37
38PHILIPPINE DEPOSIT INSURANCE
39CORPORATION ACT
40
41 Created the Philippine Deposit Insurance
42Corporation (PDIC), a government corporation,
43financed completely by the Central Bank where
44banks are mandatorily required to insure their
45deposits with, and pay premium to;
46
47 Purpose of the law to insure the deposit
48liability of banks in an account up to
49P100,000.00 for every single depositor of each
50bank irrespective of the number of accounts
51therewith.
52DEFINITONS
53
1.
Deposit means the unpaid
54
balance of money or its equivalent
55
received by a bank in the usual
56
course of business and for which it
57
has given or is obliged to give credit
58
to a commercial, checking, savings,
59
time or thrift account or which is
60
evidenced by passbook, check
61
and/or certificate of deposit, printed,
62
issued in accordance with Central
63
Bank rules and regulations and
64
other applicable laws, together with
65
such other obligations of a bank
66
which, consistent with banking
67
usage and practices, the Board of
68
Directors shall determine and
69
prescribe by regulations to be
70
deposit liabilities of the Bank:
71
Provided, That any obligation of a
72
bank which is payable at the office
73
of the bank located outside of the
74
Philippines shall not be a deposit for
75
any of the purposes of this Act or
76
included as part of the total deposit
77
or of the insured deposit: Provided,
78
further, That subject to the approval
79
of the Board of Directors, any
80
insured bank which is incorporated
81
under the laws of the Philippines
82
which maintains a branch outside
83
the Philippines may elect to include
84
for insurance its deposit obligation
85
payable only at such branch.
86
872.
Insured Deposits means the net
88
amount due to any depositor for
89
deposits in an insured bank (after
90
deducting offsets) less any part
91
thereof which is in excess of
92
Php100,000.00.
93
94TYPES OF DEPOSIT INSURED:
95
96
1.
Savings Deposits
97
2.
Time Deposits
98
3.
Current or Demand Deposits
99
100 By virtue of Presidential Decree No. 1974,
101approved on June 27, 1984, TRUST FUNDS
102were deleted from the scope of
insured
103deposits. Hence, effective said date, trust funds
104were no longer insured with PDIC.
105
106PRIMARY OBJECTIVE OF PDIC
107
108
To enhance public confidence in the
109banking system through the provision of
110insurance protection to bank depositors and the
111effective regulation of banks.
112
113MAIN FUNCTIONS OF PDIC:
114
115
1.
Risk Management The insurance
116
and examination function of the
117
PDIC deals with the insurance
118
assessment and premium collection
119
from member banks. PDIC monitors
120
the health of member banks,
121
examines and identifies risk areas
122
in banks, or their weaknesses. It
123
also institutes corrective measures
124
to prevent closures thru bank
125
rehabilitation. Further, it provides
126
financial assistance to distressed
4
Page 86
10
1
banks and assists in the reopening
2
of closed banks, provided all PDIC
3
requirements are met.
4
2.
Claims,
Receivership
and
5
Liquidation Claims refers to the
6
settlement of claims for insured
7
deposits; Receivership deals with
8
the takeover and control of all
9
assets, liabilities and affairs of
10
closed banks; Liquidation covers the
11
conversion of loans, disposal of
12
fixed assets into cash deposits, and
13
the
implementation
of
final
14
settlement with creditors.
15
16What specific risks to a bank does PDIC Cover?
17
Only the risk of bank closures. Thus
18losses due to a bank theft is not covered by
19PDIC.
20
21When is an insured bank deemed closed?
22
An insured bank shall be deemed closed
23on account of insolvency upon the order of
24closure by the Monetary Board of the Bangko
25Sentral ng Pilipinas under Section 29 of R.A.
26265 as amended by the New Central Bank Act.
27
28
Insolvency refers to a situation wherein
29a banks liabilities exceed its total assets
30resulting in the banks inability to repay its
31creditors.
32
33Section 4, RA 3591 - The deposit liabilities of
34any bank or banking institution which is engaged
35in the business of receiving deposits as herein
36defined on the effective date of this Act or which
37thereafter may engage in the business of
38receiving deposits, shall be insured by the
39corporation.
40
41 If a bank is insolvent, every depositor is
42compulsorily insured for a maximum amount of
43P100,000.00.
44
45 If the total valid deposits (as determined by
46PDIC) exceeds the amount of Php 100,000.00,
47the excess amount can still be claimed from
48PDIC upon the final liquidation of the remaining
49assets of the closed bank.
50
51 The schedule of payment beyond the Php
52100,000.oo maximum insurance shall be based
53on priorities set by law.
54
Under the law, claims for deposit in excess
55
of the insured Php100,000.00 will be settled
56
together with other ordinary claims, after
57
preferred claims like government, taxe,
58
labor claims are settled.
59
60TWO (2) TYPES OF CLAIM SETTLEMENT
61
1.
Direct Claims Settlement
62
2.
Transfer Deposit Settlement
63
64RECOVERABLE CEILING IN CASE

65SEVERAL ACCOUNTS ARE MAINTAINED
66BY THE SAME DEPOSITOR:
67
68a. If a single depositor maintains several
69
accounts with one bank of several branches
70
of the same bank totaling more than
71
P100,00.00, the amount insured is only
72
P100,000.00, although the depositor is
73
maintaining his deposits in different
74
accounts;
75b. If three accounts are maintained in the same
76
bank in the individual capacity of each of the
77
depositors and in an and/or capacity or
78
jointly by the depositors, the three accounts
79
are insured up to P100,000.00 each
80
because the depositors are maintaining the
81
accounts in different capacities and rights.
82c. If two bank accounts (savings and current)
83
are held jointly by two persons, the said
84
accounts are not deemed insured separately
85
but are added together and covered on up to
86
a total of P100,000.00 because the amounts
87
are maintained in the same capacity and
88
right by the two depositors.
89
90 PDIC is given priority to be appointed as
91receiver of any banking institution.
92
93 PDIC is subrogated to all rights of depositor
94against a closed bank to the extent of the
95payment made by the PDIC.
96
97 Provided that in the event a depositor in a
98closed bank fails to file a claim for his insured
99deposit within 18 months after the Monetary
100Bank shall have ordered the closure of said
101bank, all rights of depositor against the
102Corporation with respect to the insured deposit
103shall be barred.
104
105REPUBLIC vs. COURT OF APPEALS (65
106SCRA 186) the Supreme Court ruled that since
107the relation between the depositor and the bank
108is that of creditor and debtor, a depositor has
109every right to apply his credit with the bank
110against his loans. When all the elements
111necessary for set-off are present, compensation
112takes place ipso-jure, without need of any
113conscious intent on the part of the parties.
114
115THRIFT BANKS ACT, RA No. 7906
116
117THRIFT BANKS shall include savings and
118mortgage banks, private development banks,
119and stock savings and loans associations
120organized under existing laws, and any banking
121corporations that may be organized for the
122following purposes:
123
1241. Accumulating the savings of depositors and
125
investing them, together with capital loans
4
Page 87
10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
162.
17
18
19
203.
21
22
23
24
25
secured by bonds, mortgages in real estate

and insured improvements thereon, chattel
mortgage, bonds and other forms of security
or in loans for personal or household
finance, whether secured or unsecured or in
financing for homebuilding
and home
development, in readily marketable and debt
securities; in commercial papers and
accounts receivables, drafts, bills of
exchange, acceptances or notes arising out
of commercial transactions; and in such
other investments and loans which the
Monetary Board may determine as
necessary in the furtherance of national
economic objectives.
Providing
short-term working
capital,
medium- and long-term financing, to
businesses engaged in agriculture, services,
industry and housing.
Providing diversified financial and allied
services for its chosen market and
constituencies especially for small and
medium
enterprises
and
individuals
(Section 3).
26POWERS: (Section 10)

27
281.
292.
30
31
32
33
343.
35
364.
37
38
395.
40
41
42
436.
44
457.
46
47
48
49
508.
51
52
53
549.
55
5610.
5711.
58
5912.
60
61
Accept savings and time deposits;

Open current or checking accounts,
provided, that the thrift bank has net assets
of at least P20 M and it shall be allowed to
directly clear its demand deposit operations
with the Bangko Sentral and PCHC;
Act as correspondents for other financial
institutions;
Act as collection agent for government
entities, including but not limited to BIR,
SSS, Bureau of Customs;
Act as official depository of national
agencies and of municipal, city or provincial
funds in the municipality, city or province
where the thrift bank is located;
Rediscount paper with PNB, Land Bank,
DBP, and other GOCC;
Issue mortgage and chattel mortgage
certificates buy and sell them for its own
account or for the account of others, or
accept and receive them in payment or as
amortization or its loan;
Purchase, hold, convey real estate under
the same conditions as those governing
commercial banks under Section 25, RA
337;
Engage in quasi-banking and money market
operations;
Open domestic letters of credit;
Extend credit facilities to private and
government employees;
Extend credit against the security of jewelry,
precious stones and articles of similar
nature;
6213. Offer banking services as provided under

63
64
65
Sec. 72 of RA 337 and RA 6426 as

amended.
66RA 7353 RURAL BANKS ACT

67
68 Rural banks shall be organized in the form
69of stock corporations.
70
71
Cooperatives and corporations primarily
72organized to hold equities in rural banks may
73organize a rural bank and/or subscribe to the
74shares of stock of any rural bank.
75
76 The capital stock of any rural bank shall be
77fully owned and held directly or indirectly by
78citizens of the Philippines or corporations,
79associations or cooperatives qualified under
80Philippine laws to own land EXCEPT
81shareholdings
of
corporations
organized
82primarily to hold equities in rural banks under
83Sec. 12-C of RA 337.
84
85 Nothing in this Act shall be construed as
86prohibiting any appointive or elective public
87official form serving as director, officer,
88consultant or in any capacity in the bank.
89
90 Loans extended shall be primarily for the
91purpose of meeting the normal credit needs of
92farmers, fishermen or farm families owning or
93cultivating land dedicated to agricultural
94production as well as normal credit needs of
95cooperatives and merchants with the land as
96security.
97
98 Rural bank may devote a portion of their
99loanable funds to meeting the normal credit
100needs of small business enterprises and of
101essential enterprises and industries provided
102loans shall not exceed 15% of net worth of rural
103bank or amount prescribed by Monetary Board
104may be warranted by prevailing economic
105conditions.
106
107 With the approval of Monetary Board, any
108
rural bank may act as trustees over estates
109
or properties of farmers and merchants or
110
perform services authorized for savings and
111
mortgage banks or for commercial banks
112
under RA 337 or operating under an
113
expanded banking authority.
114
115
116RA 6938 COOPERATIVE BANKS

117
118 Cooperative Bank is one organized the
119majority shares of which is owned and controlled
120by cooperatives primarily to provided financial
121and credit services to cooperatives. It shall
122include cooperative rural banks;
123
4
Page 88
10
1 Membership of a cooperative bank shall

2include only cooperatives and federations of
3cooperatives.
4
5
MBR No. 115, as amended
6
7
Only one cooperative bank shall be
8established in each province which must be
9located in a place accessible to the public.
10
11 Capital contributions in a cooperative bank
12shall be as widely dispersed as possible. No
13cooperative members shall own or control more
14than 30% of the total capital contributions of a
15cooperative bank. This limitation shall also
16apply to cooperatives purchasing government17held preferred shares of cooperative banks
18converted into common stock.
19
20 Any officer or employee of Cooperative
21Development Authority and elective officials of
22the Government
EXCEPT BARANGAY
23OFFICIALS, shall be disqualified to be elected or
24appointed to any position in a cooperative bank.
25
26
27RA 3936 UNCLAIMED

28BALANCES LAW
29
30UNCLAIMED BALANCES include credits or
31deposits of money, bullion, security or other
32evidence of indebtedness of any kind and
33interest thereon with banks, buildings and loan
34associations and trust corporations in favor of
35any person known to be dead or who has not
36make further deposits or withdrawals during the
37preceding 10 years or more.
38
39ELEMENTS OF UNCLAIMED BALANCES:
40
41
1. There must be a claim or deposit of:
42
a. money,
43
b. bullion,
44
c. security, or
45
d. other
evidence
of
46
indebtedeness
47
2. The credit or deposit must be with a
48
bank, building and loan association, or
49
trust corporation; and
50
3. The credit or deposit is in favor of a
51
person:
52
a. who is dead, or
53
b. who has not made further
54
depsotis or withdrawals during
55
the preceding ten years or
56
more.
57Builidings and Loan Association are
58corporations whose capital stock is required or is
59permitted to be paid in by the stockholders in
60regular, equal, periodical payments and whose
61purpose is to accumulate the savings of its
62stockholders, to repay to said stockholders their
63accumulated savings and profits upon their

64surrender of their shares.
65
66
67 The Solicitor General, when informed of such
68unclaimed balances, shall commence an action
69in the name of People of Republic of Philippines
70in the RTC of the province where the bank is
71located. Bank and depositors shall be made
72defendants.
73
74 Summons shall be issued directed to all
75persons, OTHER THAN THOSE NAMED AS
76DEFENDANTS, claiming any interest in any
77unclaimed balance requiring them to appear
78within 60 days after publication of such
79summons and show cause why it shall not be
80deposited with the Treasurer.
81
82 Upon trial, if the court determines that such
83deposits are unclaimed, judgment shall be
84rendered declaring that said unclaimed balances
85be escheated in favor of the government and
86commending said bank to deposit it with the
87Treasurer of the Philippines.
88
89 Any bank which shall make any deposit with
90the Treasurer shall not be liable to any person
91which the latter may bring against the bank.
92
93RA 6426 FOREIGN

94DEPOSIT ACT
CURRENCY
95
96Foreign Currency Deposit Unit shall refer to
97that unit of a local bank or of a local branch of a
98foreign bank authorized by the Central Bank to
99engage
in
foreign
currency-denominated
100transactions.
101
102 All foreign currency deposits under RA 6426
103and PD 1034 are absolutely confidential in
104nature and may not be examined EXCEPT
105UPON
WRITTEN
PERMISSION
OF
106DEPOSITOR.
107
108 Foreign currency deposits are exempt from
109garnishment, attachment or any court process.
110
111
However in SALVACION, et al. VS. CBP,
112et al. 278 SCRA 27, the court allowed
113garnishment of such deposits since to hold
114otherwise would result to injustice to a citizen
115perpetrated by a foreigner.
116
117RA 7721 AN ACT LIBERALIZING THE

118ENTRY AND SCOPE OF OPERATIONS
119OF FOREIGN BANKS IN THE
120PHILIPPINES
121
122
When MB authorizes foreign banks to
123operate through any of the following:
4
Page 89
10
1
2
3
4
5
6
7
1)
3)
2)
by acquiring, purchasing or owning up

to 60% of the voting stock of an
existing bank;
2) by investing in up to 60% of the
voting stock of a new banking
subsidiary incorporated under laws of
Philippines;
by establishing branches with full
banking authority, provided: a) foreign
bank may avail itself
of only one
mode of entry and b) foreign bank or
Philippine corporation may own up to
60% of the voting stock only one
domestic bank or new banking
subsidiary (Sec. 2,RA. 7721).
9
10
11
12
13
14
15
16
17 Only those among the top150 foreign banks
18in the world or the top 5 banks in their country of
19origin as of the date of application shall be
20allowed entry in allowance with Sections 2 ,
21numbers 2 and 3 (Sec. 3).
22 In the exercise of this authority, the MB shall
23adopt such measures as may be necessary to:
24
1. ensure that at all times the control of
25
seventy percent (70%) of the resources
26
or assets of the entire banking system is
27
held by domestic banks which are at
28
least majority-owned by Filipinos:
29
2. prevent a dominant market position by
30
one bank or
the concentration of
31
economic power in one or more
32
financial institutions, or in corporations,
33
partnerships, groups and individuals
34
with related interests; and
35
3. secure the listing in the Philippine
36
Stock Exchange of the shares of stocks
37
of banking corporations established
38
under Section 2, numbers 1 and 2.
39
Provided, that said banking corporations
40
shall establish stock option plans for
41
their officers and employees as the
42
resources
or
assets
of
these
43
corporations may allow in the best
44
business judgment of their respective
45
boards of directors, pursuant to the
46
Corporation Code of the Philippines
47
( Sec. 3).
48
49
50
PD 1034 OFFSHORE BANKING

SYSTEM
51
52OFFSHORE BANKING shall refer to the
53conduct of banking transactions in foreign
54currencies involving
receipt of funds from
55external sources and the utilization of such
56funds.
57
58BASIS
FOR
THE
ISSUANCE
OF
59CERTIFICATE OF AUTHORITY TO OPERATE
60AN OFFSHORE BANKING UNIT
61
62 Only banks organized under any law other
63than those of Republic of Philippines shall be
64qualified to operate offshore banking units in the

65Philippines.
66
67 However, LOCAL BRANCHES of foreign
68banks already authorized to accept foreign
69currency deposits under RA 6426 may opt to
70apply for authority to operate an offshore
71banking unit provided that upon their receipt of
72certificate of authority to operate as an offshore
73banking unit, the license to transact business
74under RA 6426 shall be deemed automatically
75withdrawn.
76
77
78RA 8183 REPEALING ACT NO. 529

79OR UNIFORM CURRENCY ACT
80
81
82
83
84
85
86
87
88
Section 1. All monetary obligations shall

be settled in the Philippine currency which
is legal tender in the Philippines. However,
the parties may agree that the obligation or
transaction shall be settled in any other
currency at the time of payment.
89Art 1249, 1st paragraph of Civil Code

90
The payment of debts in money shall be
91made in the currency stipulated and if it is not
92possible to deliver such currency, then in the
93currency which is legal tender in the Philippines.
94
95LEGAL TENDER all notes and coins issued
96by the BSP fully guaranteed by the Republic of
97Philippines for all debts, public or private.
98
99
Not exceeding P50.00 25 centavos or
100above
101
Not exceeding P20.00 - 10 centavos or
102less.
103
104
105VII. SPECIAL LAWS

106
107
108BULK SALES LAW

109
110WHEN IS A SALE CONSIDERED A SALE

111IN BULK?
112
113a.
114
115b.
116
117c.
118
119
when a sale, transfer or disposition is other

than in the ordinary course;
the sale is of all or substantially all of the
business;
when the sale is of all or substantially all of
the fixtures and equipment.
120PURPOSE
121
122 To prevent the defrauding of creditors by the
123secret sale or disposal in bulk of all or
124substantially all of a merchants stock of goods.
125
4
Page 90
10
1EXCEPTIONS:
2
3a.
4
5b.
6
7c.
8d.
9
10
sale is made in the ordinary course of

business;
there is a waiver from all the creditors and
must be written;
sale is by virtue of a judicial order;
those sold by assignee or those beyond the
right of creditors.
11FORMALITIES REQUIRED BY LAW

12
13a. the sale in bulk to be accompanied by sworn
14
statement of the vendor/mortgagor listing
15
the names and addresses of, and amounts
16
owing to, creditors (to be furnished to the
17
buyer);
18b. the seller to prepare an inventory of stock to
19
be sold and notify the creditors of projected
20
sale at least n10 days before such sale
21
(Sec. 3-4).
22
23
24
25
26EFFECTS OF SALE IN VIOLATION OF BSL
27
28VALID between the parties, VOID as to

29
affected creditors.
30a. sale in bulk is void;
31b. purchaser holds property in trust for seller
32
(whether in good faith or bad faith);
33c. purchaser is liable to sellers creditors for
34
properties forming part of bulk and already
35
disposed by him.
36
37DISTINCTION
BETWEEN
FRAUDULENT
38CONVEYANCE UNDER THE BULK SALES
39LAW FROM THE TRANSFER IN FRAUD OF
40CREDIORS UNDER THE CIVIL CODE
41
42 A conveyance or transfer fraudulently made
43in violation of the Bulk Sales Law is null and void
44while a conveyance or transfer in fraud of
45creditors under Article 1381-1389 of the New
46Civil Code is rescissible and is valid until set
47aside by a competent court.
48
49CHATTEL MORTGAGE LAW

50
51CHATTEL MORTGAGE
52 contract by virtue of which personal property
53is recorded in the Chattel Mortgage Register as
54security for the performance of an obligation.
55 No longer considered a conditional sale.
56
57SUBJECT MATTER OF CHATTEL
58MORTGAGE
59
60 personal or movable property.
61
621. Shares of stock;
632. Interest in business;

643. Machinery treated by the parties as personal
65
property subsequently installed on leased
66
land; (Davao Sawmill vs. Castillo)
674. Vessels recorded in the office of the
68
Philippine Coast Guard to be effective as to
69
3rd persons; not necessary to be recorded in
70
the Office of the Registry of Deeds;
715. Motor Vehicles mortgage registered in LTO
72
(for vehicles used for public services);
736. House of mixed materials;
747. House intended to be demolished;
758. House built on rented land,
76
GENERAL RULE: still immovable property;
77
EXCEPTION: by estoppel;
789. House of strong materials- personal property
79
for purposes of executing a chattel mortgage
80
as the parties to the contract so agree and
81
NO innocent 3rd party will be prejudiced.
82
83 The rule that the chattel mortgage shall be
84deemed to cover only the property described
85therein and not like on substituted property does
86not apply to stores open to the public. (sec. 7,
87par. 4 CML).
88
89AFFIDAVIT OF GOOD FAITH It is an oath in
90contract of chattel mortgage wherein the parties
91severally swear that the mortgage is made for
92the purpose of securing the obligation specified
93in conditions thereof, and for no other purpose
94and that the same is just and valid obligation and
95one not entered into for the purpose of fraud.
96
97EFFECT OF ABSENCE OF AFFIDAVIT OF

98GOOD FAITH:
99
100a. Valid between the parties;
101b. Does not affect 3rd persons without notice
102
like
creditors
and
subsequent
103
encumbrances.
104
105NOTE: A house of is a real property regardless
106of ownership, however the parties may treat the
107same as personal property and by estoppel be
108binding between them. However, third persons
109are not bound.
110
111RIGHT OF REDEMPTION
112
113The following may redeem:
114
a. the mortgagor;
115
b. a person holding a subsequent
116
mortgage; or
117
c. a subsequent attaching creditor.
118
119RECTO LAW
120
121
a. applies only to sale of personal
122
property in installments;
123
b. remedies are alternative, not
124
cumulative;
4
Page 91
10
1
2
3
4
5
6
7
8
9
10
c.
d.
foreclosure of chattel mortgage on

the things sold shall ban recovery of
any deficiency. Thus, seller cannot
recover from guarantor;
if seller-mortgagee opts to exercise
remedy number one, he shall be
deemed to have waived his right as
a mortgagee but may still levy on
the mortgage property.
11DISTINCTION :
CHATTEL
MORTGAGE
1. the delivery of the
personal property
to the mortgagee
is not necessary
2. the registration of
the same in
Chattel Mortgage
Register is
necessary for its
validity
12
3. the procedure for
the sale of the
thing given as
security is
different, the
procedure is found
in Sec. 14 of Act
no. 1508
4. if the property is
foreclosed, the
excess over the
amount due goes
to the debtor
5.if there is a
deficiency, the
creditor is entitled
to recover the
deficiency from
the debtor
PLEDGE
1. delivery is
necessary
2. the registration in
the Registry of
Property is not
necessary
3. procedure is found
in Art. 2112 of the
Civil Code
4. the debtor is not

entitled to the
excess unless it is
otherwise agreed
or except in the
case of a legal
pledge
5. the creditor is not
entitled to recover
the deficiency
notwithstanding
any stipulation to
the contrary
13
CHATTEL
MORTGAGE
1. It is an accessory
contract to secure the
fulfillment of the
performance of an
obligation.
2. Title to the thing
mortgaged is not
transferred
PACTO DE RETRO
1. It is a principal
contract.
2. the title to the

subject matter of the
contract is transferred
to the vendee a retro
but subject to the
redemption by the
vendor.
3. One of the
formalities required is
the execution of
affidavit in good faith
3. It is not required.
14
CHATTEL
MORTGAGE
REAL MORTGAGE
1.
The
thing
mortgaged must be
personal or movable
property
1.
The
thing
mortgaged must be
real or immovable
property.
2. Affidavit of good
faith executed by the
mortgagor is required.
3.
The mortgagor
cannot alienate the
thing
mortgaged
without the written
consent
of
the
mortgagee annotated
at the back of the
mortgage
15
16
17
4. Redemption of the
thing mortgaged may
be made only before
the sale thereof.
2. Affidavit of good
faith is not required.
3. The mortgagor can
alienate
the
thing
mortgaged without the
consent
of
the
mortgagee and any
stipulation prohibiting
such is void
4.
The thing
mortgaged may be
redeemed after it is
judicially
sold
but
before
judicial
confirmation of the
sale or if extrajudicially
sold, within one year
from and after the date
of sale.
18
19EXTENT OF CHATTEL MORTGAGE
20
21Section 7, paragraph 4 of Act No. 158,
22provides :
23
"A chattel mortgage shall be deemed to
24cover only the property described therein and
25not like or substituted property therafter acquired
26by the mortgagor and placed in the same
27depository as the property originally mortgaged
28anything in the mortgage to the contrary
29notwithstanding."
30 The provision does not apply to stores open
31to public for retail business where the goods are
32constantly sold and substituted with new stock.
33(Torres vs Limjap, 56 Phil 141).
34
35CHATTEL MORTGAGE COVERS ONLY
36EXISTING OBLIGATIONS.
37
38 While a pledge, real estate mortgage, or

39antichresis may exceptionally secure after40incurred obligations so long as these future
41debts are accurately described, a chattel
42mortgage can only cover obligations existing at
43the time the mortgage is constituted. Promise
4
Page 92
10
1expressed in a chattel mortgage to cover debts

2yet to be contracted may be binding but security
3itself arise only after amending the old contract
4conformably with the form prescribed by the
5Chattel Mortgage Law. (Acme Shoe Rubber
6and Plastic Corp. vs. CA)
7.
8CODE OF COMMERCE
9
10PROVISIONS OF THE CODE OF
11COMMERCE WHICH ARE STILL IN
12FORCE
131.
14
152.
163.
174.
18
195.
206.
Merchants, Book of Merchants, Commercial

contracts
Joint Account
Transfers of Non-negotiable credits
Commercial Contracts of Overland
Transportation
letters of credit
Maritime Commerce
21
22
23
24
25LAWS WHICH REPEALED EITHER
26EXPRESSLY OR IMPLIEDLY CERTAIN
27PORTIONS OF THE CODE OF
28COMMERCE:
29
301.
31
32
332.
34
35
36
373.
38
39
404.
41
425.
43
446.
45
46
477.
48
49
50
51
52
53
54
The Corporation Law which repealed

principally the provisions on Sociedad
Anonimas;
The Negotiable Instruments Law, which
repealed the provisions on Promissory
Notes and Bills of Exchange also in Book
Two;
The Insolvency law, which repealed the
provisions on Suspension of Payments and
Bankruptcy in Book Four;
The Insurance Law, which repealed the
provisions on Fire and Marine Insurance;
The Securities Act, which repealed the
provisions on Commercial Houses;
The New Civil Code, which repealed the
provisions on Partnership, Agency, Sales,
Loan, Deposit and Guaranty;
Commerce- branch of human activity,
purpose of which is to bring products to
community by means of exchanges or
operations which tend to supply and extend
to him, habitually, with intent to gain at the
proper time and place and in good quality
and quantity.
561.
57
58
592.
60
61
those who having capacity to engage in

commerce, habitually devote themselves to
it.
The commercial or industrial companies
which may be created in accordance with
existing legislation. (Art. 1)
55MERCHANTS ARE:
62
63
QUALIFICATIONS:
64
1.
having completed the age of 18
65
years; and
66
2.
having the free disposition of his
67
property.
68
69
70LEGAL PRESUMPTION OF HABITUALITY71exists from the moment a person who intends to
72engage in commerce announces through
73circulars,
newspapers, handbills, posters
74exhibited to the public, or in any other manner
75whatsoever, an establishment which has for its
76object some commercial acts.
77
78
Habituality in the practice of
79commerce presupposes the repetition and
80continuation of commercial acts in such manner
81that they are related to each other by reason of
82the commercial purpose or end which they tend
83to have, which is the exchange or circulation of
84products. However, it may be shown by a single
85act of commerce, if it manifests the intention to
86engage habitually in commerce.
87
88ACTS OF COMMERCE
89
90
Those acts contained in this Code of
91Commerce and all other acts of analogous
92character. An act need not be performed by a
93merchant in order that it may be considered an
94act of commerce. Hence, an act performed by
95one who is not a merchant would, nevertheless,
96be an act of commerce if it is contained in the
97Code or is one of analogous character.
98
99DISQUALIFICATION TO ENGAGE IN
100COMMERCE
101
102a) ABSOLUTE DISQUALIFICATIONS
103
1041.
105
1062.
107
1083.
109
110
Those serving the penalty of civil

interdiction;
Those judicially declared insolvent until
they would have obtained a discharge;
Those who are absolutely disqualified under
special laws. (Art. 13, Code of Commerce)
112
113
114
115
116
117
118
119
120
121
122
123
124
(in specified territories such as in places

where they exercise their functions, or under
certain circumstances)
1.
certain government officials,
such as judicial officers, prosecutors,
department heads, collectors, and
custodian of government funds;
2.
money and commercial brokers
3.
those who are under relative
disqualification under special laws
(Art. 14, Code of Commerce)
111b) RELATIVE DISQUALIFICATIONS
4
Page 93
10
1DISTINCTIONS :
2
ABSOLUTE
INCAPACITY
1. extends through
out the
Philippines.
2. act is null and void

if incapacity is
absolute and
apparent.
44
45
46
47
48
49
RELATIVE
INCAPACITY
1. extends only to
the province or
town where the
officer
incapacitated is
exercising his
functions.
2. the effect is
merely to subject
the person
violating Art. 14 to
such disciplinary
action or
punishment as
may be imposed
by the special
laws.
50APPLICABILITY
OF
LAWS
51COMMERCIAL TRANSACTIONS:
52
531.
542.
55
563.
57
3
4INDIVIDUAL MERCHANTS- not required to
5register however cannot enjoy the benefits of
6registration.
8JURIDICAL MERCHANTS9register with the SEC.

10
mandated
to
11Disqualification of certain constitutional

12officials:
13
141.
15
16
17
18
19
20
21
22
23
242.
25
26
27
28
29
30
31
32
333.
34
35
36
37
38
39
40
414.
42
43
any government owned or controlled bank to

the President, Vice-President, Members of
the Cabinet, Congress, Supreme Court and
the Constitutional Commission, Ombudsman
during their tenure.
Art. VI, Sec. 14 - No Member of Congress

shall directly or indirectly, be interested
financially in any contract with, or in any
franchise or special privilege granted by the
Government during his term of office. He
shall not intervene in any matter before any
office of the Government for his pecuniary
benefit or where he may be called upon to
act on account of his office.
Art. VII, Sec. 13 - The President, VicePresident, Members of the cabinet, and their
deputies or assistants shall not, during said
tenure, practice any profession, participate
in any business, be financially interested in
any contract or franchise granted by the
Government. They shall avoid conflict of
interest in the conduct of their office.
Art. IX, Sec. 2 - No member of the
Constitutional Commission shall engage in
the practice of any profession or active
management of any business which may be
affected by the functions of his office, nor
shall he be financially interested with any
contract or franchise with the Government.
Art. XI, Sec. 16 - No loan, guaranty, or
other form of financial accommodation for
any business purpose may be granted by
TO
First, the Code of Commerce;

In the absence of the foregoing, the
commercial customs; and
Civil Code (in the absence of the first two).
58
GENERAL RULE: Commercial contracts
59
60
61
62
63
64
shall be valid and give rise to obligations

and causes of action in suits, whatever the
form and language in which they may be
executed, provided their existence is shown
by means established by civil law.
65
EXCEPTIONS:
66
1.
when the Code of Commerce or
67
other special laws require that it must be
68
reduced in writing, require forms or
69
formalities necessary for efficacy (for
70
validity);
71
2.
when executed in a foreign
72
country whose laws require certain
73
instruments, forms or formalities for their
74
validity, although Philippine Law does
75
not require them ( for validity); and
76
3.
Commercial contract exceeding
77
PHP 300.00 cannot be proved by parol
78
evidence (for enforceability).
79
80 Illicit arrangements do not give rise to
81
obligations or causes of actions even should
82
they refer to commercial transactions.
83
84 Contracts entered into by correspondence
85
shall be perfected from the moment an
86
answer is made accepting the offer or the
87
conditions by which the latter may be
88
modified. (This is the Manifestation Theory
89
as distinguished from the Cognition theory
90
followed under the Civil Code).
91
92 When an agent or a broker intervenes in a
93commercial contract, the same is perfected only
94when the contracting party shall have accepted
95his offer.
96
97RULES IN INTERPRETATION OF
98COMMERCIAL CONTRACTS:
99
1001.
101
102
1032.
104
105
interpretation and compliance in good faith

and full enforceability of their provisions in
their plain, usual and proper meanings;
in case of conflicts between copies of the
contract, and an agent should have
intervened in its negotiation, that which
4
Page 94
10
1
appears in the agents book shall prevail;
2
and
33. in case of doubt, and the rules enunciated
4
cannot resolve the conflict, issues shall be
5
decided in favor of the debtor.
6
7LETTER OF CREDIT- those issued by one
8merchant to another for the purpose of attending
9to a commercial transaction.
10
11KINDS OF LETTERS OF CREDIT:
12
13
1.
COMMERCIAL LETTER OF
14
CREDIT - an instrument by which a
15
bank, for the account of a buyer of
16
merchandise, gives formal evidence to a
17
merchandise seller, of its willingness to
18
permit him (the seller), to draw bills
19
against it, on certain terms, and
20
stipulates in legal form that all such bills
21
will be honored.
22
23
2.
TRAVELERS LETTER OF
24
CREDIT- is a letter from a bank
25
addressed to one or more of its
26
correspondents stating that drafts up to
27
a certain sum drawn by the beneficiary
28
will be honored by the bank.
29
30ESSENTIAL CONDITIONS OF LETTERS OF
31CREDIT:
32
33
1.
to be issued in favor of a definite
34
person and not to order.
35
2.
to be limited to a fixed and
36
specified amount, or to one or more
37
undetermined amounts, but within a
38
maximum limits of which have to be
39
stated exactly.
40
3.
Those which do not have any of
41
these last circumstances shall be
42
considered
as
mere
letters
of
43
recommendation.
44
45TERM/ DURATION OF A LETTER OF CREDIT:
46
47
48
49
50
51
1. upon the period fixed by the parties

2. in its absence, within 6 months from its
date in any point in the Philippines and
within 12 months outside thereof
52
53INSOLVENCY LAW
54
55PURPOSE OF THE LAW:
56
571.
58
592.
60
61
62
to effect an equitable distribution of assets

of an insolvent debtor among his creditors;
to benefit the debtor in discharging him
from his liabilities and enabling him to start
anew with the property set apart to him as
exempt.
63
64REMEDIES OF A DEBTOR:
65
661.
672.
683.
69
apply for suspension of payment;

apply for voluntary insolvency;
creditor may file for an involuntary
insolvency.
70
71DOUBLE MAJORITY
72
73
At least 2/3 of the creditors representing
74at least 3/5 of the total liabilities of the debtor.
75
76CANNOT PARTICIPATE
77
781. claims of laborers;
792. funeral;
803. contractual mortgages or pledges.
81
82NOTE: In case of corporation and partnerships,
83SEC has jurisdiction.
84
85ACTS OF INSOLVENCY:
86
871.
88
892.
90
913.
92
934.
94
955.
96
976.
98
997.
100
101
1028.
103
1049.
105
106
10710.
108
109
11011.
111
112
11312.
114
115
116
intention to depart or departure from the

Philippines to defraud creditors;
absence from the Philippines to defraud
creditors;
concealment of debtor to avoid legal
processes;
concealment or removal of his property to
avoid legal processes;
confession of judgment in favor of any
creditor to defraud other creditors;
allowing default judgment in favor of a
creditor to defraud other creditors;
allowing his property to be taken under legal
process in preference of a particular creditor
to defraud other creditors;
making conveyance, assignment or transfer
of his property to defraud his creditors;
making conveyance, assignment or transfer
of his property in contemplation of
insolvency;
default of a merchant or tradesman to pay
his current obligations for a period of thirty
days after demand;
failure to pay money on deposit or received
in a fiduciary capacity for a period of thirty
(30) days;
insufficiency of property to satisfy an
execution issued against him. (Sec. 20,
Insolvency Law)
117SUSPENSION OF PAYMENTS
118
119 is the postponement, by court order, of
120payment of debts of one who, while possessing
121sufficient property to cover his debts, foresees
122the impossibility of meeting them when they
123respectively fall due.
124
125DISTINCTIONS :
4
Page 95
10
SUSPENSION OF
PAYMENT
INSOLVENCY
1. The debtor has

sufficient property
but he foresees
the impossibility
of meeting his
debts as they fall
due.
2. The purpose
is to suspend or
delay the
payment of
debts.
3. The amount of
indebtedness is
not affected.
1. The debtor
does not have
sufficient property
to pay his debts.
4. The number of
creditors is
immaterial.
2. The purpose
is to discharge
the debtor from
the payment of
certain debts.
3. Some of the
creditors may
receive less than
their credits.
4. In case of
involuntary
insolvency, 3 or
more creditors
are required.
1
2
3
4
5
6DISTINCTIONS :
VOLUNTARY
INSOLVENCY
1. One creditor is
sufficient.
2. Filed by the
debtor.
3. No need for the
commission of
acts of
insolvency.
4. Amount of
indebtedness
must exceed one
thousand pesos
(P1,000.00).
5. Bond is not
required.
INVOLUNTARY
INSOLVENCY
1. Three or more
creditors are
required.
2. Filed by three or
more qualified
creditors.
3. Debtors must
have committed
one or more acts
of insolvency.
4. Indebtedness
must not be less
than one thousand
pesos
(P1,000.00).
5. Petition must be
accompanied by a
bond.
8EFFECTS OF FILING OF PETITION OF

9SUSPENSION OF PAYMENTS:
10
11a.
12
13
14
15
16b.
17
18
No disposition in any manner of his property

may be made by the petitioner except
insofar as concerns the ordinary operations
of commerce or of industry in which he is
engaged;
No payments may be made by the
petitioner except in the ordinary course of
his business or his industry, and;
19c.
20
21
22
23
Upon request to the court, all pending

executions of the debtor shall be suspended
except
execution
against
property
especially mortgaged.
24EFFECTS OF
25INSOLVENCY:
26
ADJUDICATION
OF
27The adjudication or declaration of insolvency by

28the court after hearing or default shall have the
29following effects:
30a. forbid the payment to the debtor of any debt
31
due to him and the delivery to him of any
32
property belonging to him;
33b. forbid the transfer of any property to him;
34c. stay of all pending civil proceedings against
35
the insolvent. (Secs. 18 and 24 of Act
36
1956)
37
38 Unpaid claims of wages are subordinate to
39legal and contractual claims.
40
41JURISDICTION:
42
43Note: The provisions of the Insolvency Law still
44governs the procedure when a corporate debtor
45seeks
to
pursue
voluntary
insolvency
46proceedings (the word debtor includes
47partnerships, corporations and sociedades
48anonimas).
49
50VOLUNTARY INSOLVENCY
51
52Sec. 14 An insolvent debtor, owing debts
53exceeding in amount the sum of P1,000, may
54apply to be discharged from his debts and
55liabilities by petition to the Regional Trial Court
56of the province or city in which he has resided
57for six months next preceding the filing of such
58petition.
59
60INVOLUNTARY INSOLVENCY
61
62Sec. 20 An adjudication of insolvency may be
63made on the petition of three or more creditors,
64residents of the Philippines whose credits or
65demand accrued in the Philippines, and the
66amount of which credits or demand are in the
67aggregate not less than P1,000: PROVIDED,
68that none of his creditors has become a creditor
69by assignment, however made, within 30 days
70prior to the filing of said petition. Such petition
71must be filed in the Regional Trial Court of the
72province or city in which the debtor resides or
73has his principal place of business, and must be
74verified by at least three of the petitioners.
75
76SUSPENSION OF PAYMENTS
77
78A) INDIVIDUAL DEBTOR
79
4
Page 96
10
1Sec. 2 The debtor who, possessing sufficient

2property to cover all his debts foresees the
3impossibility of meeting them when they
4respectively fall due, may petition that he be
5declared in the state of suspension of payments
6by the court, or the judge thereof in vacation, of
7the province or city in which he has resided for
8six months next preceding the filing of his
9petition.
10
11DEBTOR CORPORATION
12
13Sec. 5[d]. P.D. 902-A: Petitions of Corporations
14to be declared in a state of suspension of
15payments in cases where the corporation
16possess sufficient property to cover all its debts
17but foresees the impossibility of meeting them
18when they respectively fall due or in cases
19where the corporation has no sufficient assets to
20cover its liabilities but is under management of a
21Rehabilitation
Receiver
or
Management
22Committee.
23
24
25
26
27
28
29
30TRUST RECEIPT LAW
31
32TRUST RECEIPT
33 trust receipt is a security transaction intended
34to aid in financing importers or dealers in
35merchandise by allowing them to obtain delivery
36of the goods under certain covenants.
37
38OBLIGATION OF:
39
40
41
42
43
44
45
(A) ENTRUSTER
An entruster releases the title and
possession of goods (over which he holds
absolute title or security interest) to an
entrustee upon the latters execution of the trust
receipt.
47
48
49
50
51
52
53
54
55
56
57
58
59
(B) ENTRUSTEE
(See Sec. 9 of P.D. 115 TRL)
46
1.holds the goods, documents or instruments

in trust;
2.receives the proceeds in trust;
3.insures the goods for their total value
against loss;
4.keeps said goods or proceeds thereof;
5.binds himself to hold the goods in trust for
the entruster and to sell or otherwise
dispose the same and to turn over to the
entruster the amount still owing;
60 6.returns
the
goods,
documents
or
61
instruments if unsold or upon demand of
62
entruster;
63 7.observes all other terms and conditions of
64
the trust receipt.
65
66IN CASE OF LOSS: (Sec 10) The risk of loss
67shall be borne by the entrustee. Loss of goods,
68documents or instruments which are the subject
69of the trust receipt, pending disposition,
70irrespective of whether or not it is due to the
71default or negligence of the entrustee shall not
72extinguish his obligation to the entruster for the
73value thereof.
74
75 It is assumed that the title and possession is
76turned over to the entrustee. The law does not
77cover sales on credit with the title or other
78interest being retained by the seller as security
79thereof.
80
81NO AGENCY RELATIONSHIP IS

82ESTABLISHED.
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
No agency relationship is established; an

entrustees breach of trust, however,
subjects him to criminal and civil liability to
estafa. As held by the Supreme Court in
People vs. Cuervo (104 SCRA 312), the
enactment of P.D. 115 with its penal
sanction is, in reality, merely confirmatory
of existing jurisprudence on situations
covered by Article 315 of the Revised
Penal Code. Thus, the court ruled, an
entrustee in a trust receipt who failed to
account for the proceeds of the goods
sold or to return the goods, as the case
maybe, is guilty of estafa even where the
offense was committed before the
promulgation of P.D. 115 on June 29,
1973. But unlike the old rule, P.D. 115
now expresses a criminal liability on the
part of responsible officers of corporation
and judicial entities.
105NOTE:
The borrower continues to be the

106owner of the goods and may not exempt himself
107from liability by offering the goods to the bank.
108
109
110TRUTH IN LENDING ACT
111
112SCHEME OF THE LAW

113 The law requires the creditor to make a full
114disclosure of the credit cost to the person to
115whom the credit is extended, otherwise, the
116debtor may recover any interest payment made
117by him but the validity of the contract/transaction
118itself is NOT adversely affected.
119
120PURPOSE OF THE LAW
4
Page 97
10
1a. to protect a debtor from the effects of

2
misrepresentation or concealment;
3b. to permit him to fully appreciate and
4
evaluate the real cost of his borrowing;
5c. to avoid circumvention of usury laws.
6
7 NOTE: Non-compliance with the law would
8authorize the debtor to recover any interest
9payment made and subject the creditor to penal
10sanction for double finance charges plus
11attorneys fees. The transaction, however, is
12valid.
13
14
15WAREHOUSE RECEIPTS LAW

16
17WAREHOUSE RECEIPT
18a. It is a written acknowledgement by a
19
warehouse that he has received and holds
20
certain goods therein described in store for
21
the person to whom it is issued.
22b. It is a simple written contract between the
23
owner of the goods and the warehouseman
24
to pay the compensation for that service.
25c. It is a bilateral contract. It imports that
26
goods are in the hands of a warehouseman
27
and is a symbolical representation of the
28
property itself.
29
30 If goods are stolen and deposited by the thief
31with a warehouseman, the warehouseman shall
32not be liable to the holder of the receipt even if
33he delivers the goods to the real owners without
34the receipt being surrendered to him. (Secs. 11
35and 141, WRL)
36
37
38MEANING OF NEGOTIABLE UNDER THE

39ACT
40
41 It indicates that in the passage of warehouse
42receipts through the channels of commerce, the
43law regards the property which they describe as
44following them and gives to their regular transfer
45by indorsement the effect of manual delivery of
46the things specified in them.
47
48DISTINCTION between the right of a person to
49whom a receipt has been negotiated and rights
50of a person to whom a receipt has been
51transferred.
52
53a. Rights of a person to whom a receipt has
54
been negotiated (Sec. 41):
55
1. the title of the person negotiating the
56
receipt over the goods covered by the
57
receipt;
58
2. the title of the person (depositor or
59
owner) to whose order by the terms of
60
the receipt the goods were to be
61
delivered over such goods; and
62
3. the
direct obligation of the
63
warehouseman to hold possession of
64
the goods for him, as if the
65
warehouseman directly contracted with
66
him.
67
68b. Rights of a person to whom receipt has
69
been transferred (Sec. 42):
may be
70
defeated by levy and execution
71
1. The title of the goods as against the
72
transferor with respect to a negotiable
73
warehouse receipt not duly negotiated
74
(merely steps into the shoes);
75
2. If the receipt is non-negotiable, such
76
person also acquires the right to notify
77
the warehouseman of the transfer
78
thereof; and
79
3. The rights, thereafter, to acquire the
80
obligation of the warehouseman to hold
81
the goods for him.
82
83 An unpaid sellers lien or right of stoppage in
84transitu cannot defeat the right of the holder in
85good faith of NWR.
86
87Sec. 25 of Warehouse Receipt Law
88
89
If goods are delivered to a

90warehouse man by the owner or by a person
91whose act in conveying the title to them to a
92purchaser in good faith for value would bind the
93owner, and the negotiable receipts is issued for
94them.
95
While in possession of such

96warehouseman, the goods cannot be attached
97or levied upon under execution UNLESS:
981. The document be first surrendered; or
992. Its negotiation is enjoined; or
1001. The document is impounded by the court.
101
102
Reason:
the law protects an innocent
103
purchaser for value in the negotiation of
104
NWR.
105
106 Goods covered by NWR cannot be attached
107or levied upon unless receipt is surrendered.
108
109
WAREHOUSEMAN
110 A person lawfully engaged in the business of
111storing goods for compensation for such service.
112
113
TO WHOM DELIVERED
114 upon demand made by the holder of receipt
115or depositor provided such demand is
116accompanied by :
117
a. an offer to satisfy the WMs lien;
118
b. an offer to surrender the receipt, if
119
negotiable, with such endorsement as
120
would be necessary for the negotiation
121
of the receipt; and
122
c. a readiness and a willingness to sign,
123
when the goods are delivered, if such
124
signature
is
requested
by
the
125
warehouseman.
126
4
Page 98
10
1WARRANTIES ON SALE OF RECEIPT: (Sec.

244)
3
4a. that the receipt is genuine;
5b. that he has legal right to negotiate or
6
transfer it;
7c. that he has knowledge of no fact which
8
would impair the validity or worth of the
9
receipt; and
10d. that he has a right to transfer the title to the
11
goods and that the goods are merchantable
12
or fit for a particular purpose whenever such
13
warranties would have been implied, if the
14
contract of the parties had been to transfer
15
without a receipt the goods represented
16
thereby.
17
18
19RETAIL TRADE
20ACT OF 2000
21 (RA 8762)
22
LIBERALIZATION
23PURPOSE
24
25It is the policy of the State:
26 to promote consumer welfare in attracting,
27promoting
and
welcoming
productive
28investments that will bring down prices for the
29Filipino consumer,
30 create more jobs,
31 promote tourism,
32 assist small manufacturers,
33 stimulate economic growth and
34 enable Philippine goods and services to
35
become globally competitive through the
36
liberalization of the retail trade sector.
37ELEMENTS WHICH MUST CONCUR TO
38CONSIDER IT AS RETAIL:
39
40a. the seller must be habitually engaged in

41
selling;
42b. the sale must be direct to the general public;
43c. the object of the sale is limited to
44
merchandise, commodities or goods for
45
consumption (Marsman and Co. vs. First
46
Coconut).
47
48FOREIGN EQUITY PARTICIPATION
49CONSUMER GOODS
50
51 Category A Enterprises with paid up
52capital of the equivalent in Philippine Peso of
53less than Two million five hundred thousand US
54dollars ( US $2, 500,000.00) shall be reserved
55exclusively for Filipino citizens and corporations
56wholly owned by Filipino citizens.
57
58 Category B Enterprises with a minimum
59paid up capitail of the equivalent in Philippine
60Pesos of Two million five hundred thousand US
61dollars ( US$2, 500,000.00) but less than Seven
62million five hundred thousand US dollars
63(US$7,500,000.00) may be wholly owned by

64foreigners except for the first two (2) years after
65the effectivity of this Act wherein foreign
66participation shall be limited to not more than
67sixty percent (60%) of total equity.
68
69 Category C Enterprises with a paid up
70capital of the equivalent in Philippine Pesos of
71Seven million five hundred thousand US dollars
72(US$7, 500,000.00) or more may be wholly
73owned by foreigners : Provided, however, That
74in no case shall the investments for establishing
75a store in Categories B and C be less than the
76equivalent in Philippine Pesos of Eight hundred
77thirty thousand US dollars. (US$830,000.00)
78 Category D Enterprises specializing in
79high-end or luxury products with a paid-up
80capital of the equivalent in Philippine Pesos of
81Two hundred fifty thousand US dollars
82(US$250,000.00) per store may be wholly
83owned by foreigners.
84
85END-USE DOCTRINE
86 This means that a person who buys the

87goods acquires them for his own use and not for
88resale, in that case the transaction is retail.
89
90
91
92
93
94
95
96
97
98ANTI-DUMMY LAW
99(CA 108 As Amended)
100
101 The law punishes the evasion of
102nationalization laws (by the use of dummies) and
103prohibit them from intervening in the
104management, operation, administration or
105control of any nationalized industries.
106
107ALIENS MAY BE EMPLOYED IN THE
108FOLLOWING CASES:
109
1101. Employment
in
technical
personnel
111
approved
by
the
president
upon
112
endorsement of the department head
113
concerned (i.e. the Secretary of Justice or
114
under special laws, by the entity or office
115
concerned, such as the Bureau of
116
Industries, the Director of Mines and Geo117
sciences.
1182. Election of alien directors to the extent
119
allowable and actual foreign equity
120
participation.
4
Page 99
10
SAN BEDA COLLEGE, 2000-2001
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1

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

13BRIEF HISTORY OF THE LAW:

Act No.2031, the Negotiable Instruments

21TWO DISTINCTIVE FEATURES OR

NEGOTIABILITY- it is that attribute or

3. HDC can have

3. Has all the

3. Does not have

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

Particular Fund for

2CERTAINTY OF SUM (Sec. 2, NIL)

35DETERMINABLE FUTURE TIME

Absence or failure of consideration,

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

fixed period after date and it is issued

A. EFFECTS OF INCOMPLETE BUT

33EXAMPLES OF REAL DEFENSES:

B. EFFECTS OF INCOMPLETE AND

Holder has prima facie authority to fill up the

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

COMPARISON OF SECTIONS 14, 15 AND 16

wanting in any material particular

Note: Delivery may be made for a conditional or

No authority to complete and / or negotiate

May negotiate if delivered to him by or under the

If filled up strictly in accordance with authority given

When delivery is made by or under authority of the

If holder in due course, he can enforce the instrument

None in the hands of the holder. However, the

Can enforce the instrument.

prima facie authority to complete it by filling up

If not a holder in due course, he can enforce the

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

In general, it is said to consist either in

48ACCOMMODATION - legal arrangement

accommodation party must signs as maker,

63EFFECTS OF ACCOMMODATION (SEC.

82RIGHTS AND LEGAL POSITION OF

AP is generally regarded as SURETY for the

liable on the instrument to a holder for value

91LIABILITY OF ACCOMODATION PARTY

98RIGHTS OF ACCOMODATION PARTY

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW

Any form of reproduction of this copy is strictly prohibited!!!

HDC can enforce it accordingly to its original

SPECIAL - specifies the person to whom or

SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID in COMMERCIAL LAW