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COMMERCE - branch of human activity; purpose is to bring products to the consumer
through operations habitually and with intent of gain
- bringing products from the manufacturers to the consumers
COMMERCIAL LAW - branch of private law which regulates the juridical relations arising
from commercial acts
1. universal
2. uniform
3. equitable
4. customary
5. progressive
1. merchants; book of merchants and general provision of contracts
2. joint account association
3. commercial barter
4. transfers of non-negotiable credits
5. commercial contracts of overland transportation
6. letters of credit
7. maritime commerce

1. Characteristics of Commerce:
a. habituality
b. rapidity - if period is fixed, debtor in delay without need of demand; if contract

does not fix period, 10 days
intent to join

3. Merchant:
a. Individuals - legal capacity, or subject to parental authority, habitually engaged
in commerce

b. Juridical Persons - commercial and industrial company organized in accordance
with law, habitually engaged in business

4. General Rule: Minors cannot engage in commerce

a. to continue business of deceased parents through guardian
b. court authorizes guardian to place minor and property in business
c. minor is an alien and his national law allows him to be a merchant
5. Which persons are not allowed to engage in commerce?
a. suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion

b. those judicially declared insolvent until they can obtain their discharge
c. prohibited by Constitution and special laws


6. Aliens
a. capacitated under his national law to engage in business
b. engaged in the business in the Philippines not reserved for the Filipinos
c. after securing license and BOI certificate
7. Family Code:

Either spouse may engage in business; when objected to by the
other, court will look into valid grounds, i.e. serious and moral grounds

8. BOI Certificate must be obtained by:
a. alien
b. foreign firm
9. Meaning of Philippine National
a. citizen
b. domestic corporation wholly owned and organized by Filipinos in the Philippines
c. Filipino corporation where Filipino capital entitled to vote is at least 60%
10. Query:

If a corporation is a shareholder of another corporation, how do you
determine whether the latter corporation is a Filipino national?
Answer: The following must concur a. At least 60% of the outstanding capital stock and entitled to vote of both
corporations are held by citizens of the Philippines
b. At least 60% of the Board of Directors of both corporations are Filipinos

11. Tenor of BOI Certificate
a. Business or activity to be engaged is consistent with the Investment Priorities

b. Business will contribute to the sound and balanced development of the national
economy in a self-sustaining basis

c. Business will not conflict with the Constitution and local laws
d. Business is not adequately exploited by Filipino nationals
e. No danger of monopolies/combinations in restraint of trade
12. Basic Principles/Conditions laid down by BOI
a. resident agent of foreign firm is a Filipino citizen
b. establishment of office in the Philippines
c. bringing assets tot he Philippine office as capital
d. complete set of accounting records
13. Merger and Consolidation subject to BOI requirements for the issuance of
When merger and consolidation result in ownership and control of non-Filipino
nationals over more than 40% of the capital of a consolidated corporation.

14. SEC License issued upon compliance with the following requirements:
a. proof of compliance with principle of reciprocity
b. BOI certificate
c. Applicant for license gives required information
 articles of incorporation
 by-laws
 names and addresses of resident agents


 principal place of business in the Philippines
d. proof of solvency
e. deposit acceptable securities to protect future creditors

1. Kinds:
a. Commercial Letters of Credit
b. Traveler’s Letters of Credit
2. No protest required in case of dishonor.
3. Issued to definite persons and not to order, thus, non-negotiable.
4. Limited to a fixed account.

1. Purpose:

meant to protect creditors of businessmen against preferential or
fraudulent transfers

2. The law covers all transactions, whether done in good faith or not, or whether or not
the seller is in a state of insolvency, that fall within the description of what is a
“bulk sale”.

3. Types of transactions which are treated as “bulk sales”:
a. Sale, transfer, mortgage or assignments of a stock of goods, wares,

merchandise, provisions, or materials otherwise than in the ordinary course of
Sale transfer, mortgage or assignments of all, or substantially all, of the
business of the vendor, mortgagor, transferor, or assignor;
Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures
and equipment used in the business of the vendor, mortgagor, transferor, or

4. Only creditors at the time of the sale in violation of the law are within the protection
of the laws and creditors subsequent to the sale are not covered.

5. Even if the transaction falls within the definition of “bulk sale”, the following are not
deemed covered by the law:

a. If the vendor, mortgagor, transferor or assignor produces and delivers a written

waiver of the provisions of the law from his creditors as shown by verified
The law does not apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process.

6. Obligations when transaction is a bulk sale:
a. The vendor must deliver to such vendee a written statement of:
 names and addresses of all creditors to whom said vendor or mortgagor
may be indebted;

 amount of indebtedness due or owing to each of said creditors



b. The vendor must apply the purchase money to the pro-rata payment of bona


fide claims of the creditors as shown in the verified statement.
The seller, at least 10 days before the sale, shall:
 make a full detailed inventory of the goods, merchandise, etc., cost price of
each article to be included in the sale
 notify every creditor at least 10 days before transferring possession of the
goods, of the price, terms and conditions of the sale
The purpose of going through the transaction must not be nominal.

7. Consequences of Violation of Requirements under #6 above stated:
a. When 6(a) above is not complied with, the sale itself is void; the seller will be
criminally liable.

b. When 6(b) above is not complied with, the sale itself is also void; seller is also

criminally liable.
When 6(c) is not complied with, the sale is not void; no criminal and civil
consequences on the seller.
When 6(d) is not complied with, the transaction itself is void and seller will be
criminally liable.
 The transaction is void not here not because of the Bulk Sales Law but of the
common law principle that if the price in a sale is nominal, it is not real,
making the contract void.

 Certain doctrines under the Retail Trade Nationalization Law are still applicable
under the Retail Trade Liberalization Act.
 R.A. 8762 repealed R.A. No. 1180, or the Retail Trade Nationalization Law.

1. Retail Trade - any act, occupation, or calling of habitually selling direct to the
general public, merchandise, commodities, or goods for consumption
Jurisprudence has held that the term “retail” should be associated with and limited to
goods for personal, family or household use, consumption and utilization. The Retail
Trade Nationalization Law refers to “consumption goods” or “consumer goods” which
directly satisfy human wants and desires and are needed for home and daily life.
Excluded from the law are those goods which are considered generally raw material
used in the manufacture of other goods, or if not, as one of the component raw
material, or at least as elements utilized in the process of production and

2. Liberal policy of R.A. 8762: to promote consumer welfare in attracting, promoting
and welcoming productive investments that will bring down prices for the Filipino
consumer, create more jobs, promote tourism, assist small manufacturers,
stimulate economic growth and enable Philippine goods and services to become
globally competitive through the liberalization of the retail trade sector; to
encourage Filipino and foreign investors to forge an efficient and competitive retail
trade sector n the interest of empowering the Filipino consumer through lower
prices, higher quality goods, better services and wider choices.

2. Elements of What Constitutes Retail Trade:


00. 6. v. The Court interpreted the old law to exclude from its coverage merchandise and goods which are not “consumer goods. Sales by a farmer or agriculturist selling the products of his farm. c.F. v. Goodrich v. Sr. A natural-born citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of retail trade under the Act. Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital. irrespective of capitalization. Inc. assembly plants. for purposes of determining who are qualified to INVEST in retail trade in the Philippines: a. Consumer goods are limited to goods for personal. and c. Inc.” i. 4. or worker. ii. Inc. or f. Reyes. Marsman & Co. family or household use. consumer goods therefore did not depend entirely on the nature of the goods. The seller habitually engages in selling.. The object of the sale is limited to merchandise. consumption and utilization. b.500. 5. Natural-born Filipino citizens are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their citizenship. regardless of capital. non-consumer goods: a. Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture goods which are in turn sold by them.000. Producer goods such as tools and raw materials and intermediate goods are excluded from the coverage. b. laborer. but its sales to its own officers and employees would be considered retail trade. c. provided that the restaurant is incidental to the hotel business. Rights of former natural-born Filipinos: a. but also required an element the purpose or use for which the goods are bought. First Coconut Central Co. commodities or goods for consumption. Consumer goods vs.5 a. The act uses the same phrase “merchandise. d. Reyes. Union Carbide Philippines. B.A manufacturer which sells rubber products to the government. Restrictions of the Act shall not apply to: a. Sales to the general public. Sales by a manufacturer. Goodyear Tire and Rubber Co.000. Balmaceda v. processed or produced by him if his capital does not exceed P100. through a single outlet owned by a manufacturer or products manufactured. processor. to the general public the products manufactured. 3. b.00. 5 .. commodities or goods for consumption” in defining retail trade as found in the old law. Four categories of Retail Trade Enterprises. Sales to the government and/or its agencies and government-owned and controlled corporations. Exempted Transactions. b. e. Category A – Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than US$2. processed or assembled in the Philippines. industrial and commercial enterprises engaged in manufacturing and sale of essential commodities is not engaged in retail business. The sale is direct to the general public.

500.00. provided that in no case shall the investments for establishing a store be less than the equivalent in Philippine Pesos of US$30. partnership. 9. Under Category B: 1.00 per store. associations and corporations may not invest in retail trade enterprises under Category A (paid-up capital equivalent in Pesos of less than $2. associations and corporations and foreign-owned domestic partnerships. Other than in exempted transactions. associations.00. naturalborn citizens who have lost their Phil citizenship but who reside in Philippines. Citizens of the Philippines. designer clothing.00.5M) which are reserved exclusively for Filipino citizens. and d. i. and 2. foreign partnerships. Act provides for following rules on who may INVEST or ENGAGE in retail trade enterprises in the Philippines: a.000.000. Category D – Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine Pesos of US$250. How Aliens may invest in retail trade. provided that in no case shall the investments for establishing a store be less than the equivalent in Philippine Pesos of US$30. beginning April 2002).500.. sporting goods). provided that investments for establishing a store is not less than the equivalent in Philippine Pesos of US$30. with the DTI. Category B – Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of US$2. c. natural-born citizens who have lost their Philippine citizenship but who reside in the Philippines. electronics.00.00. alien individuals. and corporations which are wholly-owned by Filipino citizens. or in case of foreign-owned single proprietorships. High-end or luxury goods: goods not necessary for life maintenance and whose demand is generated by the higher income groups (e. and D. and corporations wholly owned by Filipino citizens.000.000.000. C.00. may engage directly. limited to not more than 60% of total equity of such retail enterprise within the first 2 years after the effectivity of the Act (or up to March.6 b. For purposes of investment.Under Category C: may wholly own.500. may wholly own such retail enterprises 2 years after effectivity of Act (i. c. 6 .000. a mere investor need not organize a corporation. Category C – Enterprises with a paid-up capital of the equivalent in Philippine pesos of US$7.00 or more. Apply grandfather rule to determine whether an entity is deemed “foreign-owned” to qualify to engage in retail activities under Categories B. but less than US$7..000. and domestic partnerships. 2002). Foreign-owned domestic partnerships. or invest wholly in local enterprises that will engage in all forms of retail trade in all categories provided. 7.e. Under Category D: may wholly own. ii. jewelry. footwear. or association under Philippine laws before it may invest. upon registration with the SEC and DTI. associations and corps may. may invest in retail trade enterprises as follows: i. and iii.000. provided that the investments for establishing a store is less than the equivalent in Philippine Pesos of US$30. b.g. 8.

Criminal sanctions 7 . ANTI-DUMMY ACT 1. 12. Foreign Retailers a. Minimum net worth of 1. This definition seems to include even a domestic partnership or corporation which is not wholly owned by Filipinos.000 net worth of registrant corp for Category D. When owning entity is a corporation. the ownership of which under the Constitution or special laws are limited to Filipino citizens only. and 2. or a corporation.000. See below. partnership. and iv. restaurants and sari-sari stores and such other similar retail activities. association or entity that is not wholly-owned by Filipinos. the use of sales representatives.7 a. apply grandfather rule. Five (5) year track record in retailing.000 of the registrant corporation for Categories B and C. For 10 years after effectivity of Act. Prohibited activities of qualified foreign retailers: Not allowed to engage in certain retailing activities outside their accredited store through the use of mobile or rolling stores or carts. Nationals from. ii. engaged in retail trade. While a corp with 60% Filipino and 40% foreign equity ownership is considered a Philippine national for purposes of investment. Implementing Rules and Regulations: an individual who is not a Filipino citizen. b. For purposes of investments. 13.000. Promotion of locally manufactured products: a. b. only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.000.Five (5) retailing branches or franchises in operation anywhere around the world unless such retailer has at least one (1) store capitalized at a minimum of US$25. iii.000. 10. and 10% for Category D shall be made in the Philippines. it is not qualified to invest in or enter a joint-venture agreement with corporations or partnerships. door-to-door selling. or juridical entities formed or incorporated in countries which allow the entity of Filipino retailers shall be allowed to engage in retail trade in Phils. Anti-Dummy Law applies: Filipinos may not permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Fil corps. 11. all of the ff must concur: i. US$50. Detailed list of prohibited activities shall be formulated by DTI. SEC rule: shares belonging to corporations or partnerships at least 60% of the capital of which his owned by Filipino citizens shall be considered as of Philippine nationality. at least 30% of the aggregate cost of the stock inventory of foreign retailers under Category B and C. but if percentage of Fil ownership is less than 60%. US$200. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. Prequalification requirements before foreign retailer may engage or invest in a retail store.

A Filipino common-law wife of an alien is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties. with or without remuneration. the following may participate in management: a. b. c. When a local corporation or person acts in the name of a foreign firm. duly registered to do business.8 are imposed on the president. manager. soliciting orders. upon the recommendation of the department head concerned. A registered enterprise may employ foreign nationals in supervisory. operation. however. Where majority of stocks of a pioneer enterprise is owned by foreign investors. employee or laborer. the foreign firm manufacturing these products is not doing business in the Philippines. allowing her common-law alien husband to take part in the management of the retail business would be a violation of the law. The following are NOT doing business: a. who in any calendar year stay in the country for a period totaling 180 days or more. except when: a. e. having a nominee director or officer to represent interests in such corporation. the latter is doing business in the Philippines. and advisory positions for a period of 5 years subject to extension. purchases. Aliens may be elected to the Board of Directors to the extent of their allowable share in the capital of the corporation (in partially nationalized industries). 8 . 3. board member or persons in charge of the violating entity and causing the latter to forfeit its privileges. d. rights and franchises. 5. By way of exception. What doing business means: a. Disqualified aliens cannot intervene in the management. c. alien takes part in technical aspects. When commissioned merchants/investors or commercial brokers act in their own name in selling foreign products. b. opening offices whether called liaison offices or branches. mere investment as a shareholder by a foreign entity in domestic corporations b. 2. technical. c. any other act or acts that imply continuity in commercial dealings 6. administration or control of the business reserved to Filipinos whether as an officer. and c. 8. 7. entity or corporation in the Philippines. service contracts. b. with express authority from the President. the following positions may be held by foreign nationals:  president  treasurer  general manager  equivalent positions 4. provided that no Filipino can do such technical work. exercise of rights as such investor. appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own accounts. appointing representatives or distributors who are domiciled in the Philippines or d. participating in the management or supervision or control of any domestic firm.

or to return the goods if UNSOLD. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER. Negotiable Instruments . b.written contracts for the payment of money. intended as a substitute for money and intended to pass from hand to hand. Risk of loss is borne by the ENTRUSTEE. Trust receipts are denominated in Philippine currency or acceptable and eligible foreign currency. to give the holder in due course the right to hold the same and collect the sum due. to encourage use of and to promote transactions based on trust receipts. Definition: A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods.instrument is negotiated from person to person 3. Characteristics of Negotiable Instruments: a. 2. 5. Difference between Negotiable Instruments from Non-Negotiable Instruments: Negotiable Instruments Non-negotiable Instruments Contains all the requisites of Sec. 6. to regulate the use of trust receipts 2. 7. by its form. 1 of the NIL transferred by assignment transferee acquires rights only of his transferor Prior parties warrant payment prior parties merely warrant legality of title transferee has no right of recourse Transferee has right of recourse against intermediate parties 9 . and to sell the goods. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE. etc. or for other purposes.9 TRUST RECEIPTS LAW 1. 1 of the NIL Transferred by negotiation Holder in due course may have better rights than transferor does not contain all the requisites of Sec. accumulation of secondary contracts . 4. Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER for the value thereof. Purpose: a. NEGOTIABLE INSTRUMENTS LAW 1.right of transferee to hold the instrument and collect the sum due b. documents or instruments to the possession of the former upon the ENTRUSTEE’S promise to hold said goods in trust for the ENTRUSTER. Pending the duration of the trust agreement. negotiability . the ENTRUSTER’S security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE. 3.

for acceptance and for payment 9.may or may not be drawn against a bank . 126 NIL) Parties: a. thing of value are the goods mentioned in the document 5.unconditional order in writing addressed by one person to another. it is not complete until indorsed by him.unconditional promise to pay in writing made by one person to anther. 1 of NIL no secondary liability of intermediate parties transferee merely steps into the shoes of the transferor subject is goods instrument is merely evidence of title. Bill of Exchange . When the note is drawn to maker’s own order. requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.always payable on demand . engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer.may be payable on demand or at a fixed or determinable future time . signed by the person giving it. (Sec. drawee/ acceptor 7. (Sec.not necessary that it be presented for acceptance BOE .always drawn upon a bank or banker . Difference between Promissory Note and Bill of Exchange Promissory Note Unconditional promise Involves 2 parties Maker primarily liable only 1 presentment . payee c. Promissory Note . 185 NIL) 8.necessary that it be presented for acceptance 10 .bill of exchange drawn on a bank and payable on demand.10 4. 1 of the NIL Have right of recourse against intermediate parties who are secondarily liable Holder in due course may have rights better than transferor Subject is money Instrument itself is property of value does not contain requisites of Sec. Difference between Negotiable Instruments and Negotiable Documents of Title Negotiable Instruments Negotiable Documents of Title Have requisites of Sec. (Sec. 184 NIL) Parties: a.for payment Bill of Exchange unconditional order involves 3 parties drawer only secondarily liable generally 2 presentments . maker b. signed by the maker. payee 6. Check . drawer b. Distinctions between a Check and Bill of Exchange CHECK .

but the holder must prove that what is written is intended as a signature of the person sought to be charged.there are three (3) parties. 11 .may be payable on demand or at a fixed or determinable future time .the death of a drawer of a check. with knowledge by the banks. print or pencil.a security transaction intended to aid in the financing of importers and retailers who do not have sufficient funds to finance their transaction and acquire credit except to use as collateral the merchandise imported 13. letters of credit 12. not necessarily a bank . 1 NIL) 14.may be presented for payment within a reasonable time after its last negotiation. It may be upon parchment. the drawer. Requisites of a Negotiable Note (PN): (SUDO) It must: order to pay 11. 1 NIL) - - Notes on Section 1: In order to be negotiable. be in writing signed by the drawer b. Trust Receipt . revokes the authority of the banker to pay . contains an unconditional promise or order to pay a sum certain in money c. contains an unconditional promise or order to pay a sum certain in money c. be payable on demand or at a fixed determinable future time d.drawn on a deposit . the drawee must be named or otherwise indicated with reasonable certainty (Sec.11 .may be drawn against any person.not drawn on a deposit . Other Forms of Negotiable Instruments: a. be in writing signed by the drawer b.there are two (2) parties. be payable to order or to bearer (Sec. cloth. be payable on demand or at a fixed determinable future time d. It may consist of mere initials or even numbers. the maker and the payee . The writing may be in ink. Requisites of a Negotiable Bill (BOE): (SUDOC) It must: a. there must be a writing of some kind. It must be signed by the maker or drawer. Distinctions between a Promissory Note and Check PN . else there would be nothing to be negotiated or passed from hand to hand. be payable to order or to bearer e. trade acceptances c.a promise to pay CHECK .always drawn against a bank -always payable on demand .the death of the drawer of the ordinary bill of exchange does not revoke the authority of the banker to pay . the drawee bank and the payee . 10. leather or any other substitute of paper.must be presented for payment within a reasonable time after its issue (6 months) . bonds in the nature of promissory notes d. certificates of deposits b. drafts which are bills of exchange drawn by 1 bank to another e.

it is non-negotiable. Sum payable must be in money only. on or before a specified date/fixed determinable future time c. wares. particularly Section 1 thereof b. else it becomes unconditional and therefore non-negotiable. A drawee’s name may be filled in under Section 14 of the NIL 15. The requirement lacking cannot be supplied by using a separate instrument in which that requirement which is lacking appears. A statement of the transaction does not destroy the negotiability of the instrument. indication of particular fund from which the acceptor disburses himself after payment b. must be examined and compared with the requirements stated in Sec. on or at a fixed date after the occurrence of an event certain to happen though the exact date is not certain (Sec. (Sec. 1. by considering the whole instrument c. it is not negotiable and the provisions of the NIL do not govern the instrument. 16. 2 NIL) 17. with exchange e. Sum is certain even if it is to be paid with: a. Determination of negotiability a. costs of collection or attorney’s fees (Sec. or merchandise or in property. If it appears on the instrument that it lacks one of the requirements. It cannot be made payable in goods. The fund should only be the source of reimbursement. Instrument is payable upon a determinable future time if: a. by what appears on the face of the instrument and not elsewhere *In determining is the instrument is negotiable. 18. there is a fixed period after sight/date b. by the provisions of the Negotiable Instrument Law. something more than the mere asking of a favor. statement of the transaction which gives rise to the instrument. Exceptions: a.12 - The Bill must contain an order. the happening of the event does not cure the defect (still non-negotiable) 12 . 3 NIL) But an order or promise to pay out of a particular fund is not unconditional - Notes on Section 3 The particular fund indicated should not be the direct source of payment. only the instrument itself and no other. in installments with acceleration clause d. General Rule: The promise or order should not depend on a contingent event. interest b. in installments c. Exception: Where the promise to pay or order is made subject to the terms and conditions of the transaction stated. If it is conditional. 4 NIL) - Notes on Section 4 If the instrument is payable upon a contingency.

the drawer or maker c. two or more payees jointly e. or drawee b. accepting. 5 NIL) - Notes on Section 5 Limitation on the provision. drawer. General Rule: If some other act is required other than the payment of money. 15. no period of payment is stipulated c. issued. confession of judgment c. waives benefit of law d. 8 NIL) - Notes on Section 8 The payee must be named or otherwise indicated therein with reasonable certainty. or 16 depending on how the instrument is delivered. the instrument is rendered non-negotiable. the drawee d. The validity and negotiability of an instrument is not affected by the fact that: a. sale of collateral securities b. a payee who is not a maker. There are two kinds of judgements by confession: a) cognovit actionem b) relicta verificatione Confessions of judgement in the Philippines are void as against public policy. as regards to the person so issuing. it is not dated does not specify the value given or that any had been given does not specify the place where it is drawn or payable bears a seal designates the kind of current money in which payment is to be made (Sec. or indorsing it. one or some of several payees f.13 19. 14. it cannot require something illegal. e.if the time for payment is left blank (as opposed to being omitted). d. the holder of an office for the time being (Sec. payable on demand. it is non-negotiable. or endorsed after maturity (Sec. Instrument is payable to order: - where it is drawn payable to the order of a specified person or to a specified person or his order It may be drawn payable to the order of: a. c. 22. gives option to the holder to require something to be done in lieu of money (Sec. 6 NIL) 21. Exceptions: a. accepted. 20. it is. b. Instrument is payable upon demand if: a. accepted or indorsed when overdue. Notes on Section 7 . it may properly be considered as an incomplete instrument and fall under the provisions of Sec. 7 NIL) Where an instrument is issued. it is expressed to be so payable on sight or upon presentation b. If the choice lies with the debtor. 13 .

the knowledge or intent of the signer of the instrument is controlling. incomplete but delivered instrument (Sec. The date may be inserted in an instrument when: a. 14 NIL) b. “fictitious person” means a person who has no right to the instrument because the maker or drawer of it so intended. 16 NIL) c. complete but undelivered (Sec. where the instrument is drawn. the intent of the principal is controlling 24. when it is expressed to be so payable b. To negotiate. there would be no one to indorse the instrument payable to order. Therefore useless to be considered negotiable. Instrument is payable to bearer : a. 23 NIL) 27. maker/drawer’s signature forged (Sec.any holder may insert the true date of issuance or acceptance . incomplete and undelivered instrument (Sec.14 - If there is no payee. an instrument expressed to be payable at a fixed period after date is issued undated b. 15 NIL) b. b. Incomplete but Delivered Instrument: 1. Being several payees is indicated by the conjunction “or”. It must be filled up strictly in accordance with the authority given and within a reasonable time. Holder has prima facie authority to fill up the blanks therein. Where an instrument is wanting in any material particular: to the holder in due course. Holder in Due Course Affected by Abnormality/Deficiency: a. all must indorse. 25. 9 NIL) - Notes on Section 9 “fictitious person” is not limited to persons having no legal existence. when payable to the person named or bearer c. Where the agent has no authority to execute the instrument. 14 . Subsequent Holder in Due Course not affected by the following deficiencies: a. He was not intended to be the payee. An existing person may be considered fictitious depending on the intention of the maker or the drawer. Joint payees in indicated by the conjunction “and”. 13 NIL) Effects: . complete and delivered issued without consideration or a consideration consisting of a promise which was not fulfilled (Sec 28 NIL) 26.the insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course . name of payee not name of any person e. the date inserted (even if it be the wrong date) is regarded as the true date. only and last indorsement is an indorsement in blank (Sec. made or prepared by an agent. payable to order of fictitious or non-existent person and this fact was known to drawer d. where acceptance of an instrument payable at a fixed period after sight is undated (Sec. 23.

(Sec. . It can be interposed against a holder in due course. be effectual there must be authorized delivery by the party making. Delivery may be shown to be conditional or for a special purpose only If the holder is a holder in due course. It was delivered by the person making it in order that it may be converted into a negotiable instrument b. 28. Incomplete and Undelivered Instrument: General Rule: Where an incomplete instrument has not been delivered. delivery is not conclusively presumed where the instrument is incomplete defense of the maker is to prove non-delivery of the incomplete instrument. Complete but Undelivered: General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for the purpose of giving effect thereto. a. 29.g. accepting or indorsing. name of payee). 14 NIL) 2. (Sec. to b. This may be rebutted by proof of non-delivery. c. Where only a signature on a blank paper was delivered: a. If negotiated to a holder in due course. material particular may be an omission which will render the instrument nonnegotiable (e. delivery with intent to convert it into a negotiable instrument is required. 15 NIL) - Notes on Section 15 it is a real defense. 16 NIL) Rules on delivery of negotiable instruments: 1) delivery is essential to the validity of any negotiable instrument 2) as between immediate parties or those in like cases. (Sec. mere possession of the instrument is enough to presume prima facie authority to fill it up. The holder has prima facie authority to fill it up as such for any amount. it will not.g. delivery must be with intention of passing title 3) an instrument signed but not completed by the drawer or maker and retained by him is invalid as to him for want of delivery even in the hands of a holder in due course 4) but there is prima facie presumption of delivery of an instrument signed but not completed by the drawer or maker and retained by him if it is in the hands of a holder in due course. Mere possession is not enough. it is valid and effectual for all purposes as though it was filled up strictly in accordance with the authority given and within reasonable time. drawing. all prior deliveries are conclusively presumed valid If instrument not in hands of drawer/maker. If between immediate parties and remote parties not holders in due course. date) in the case of the signature in blank. if completed and negotiated without authority. valid and intentional delivery is presumed until the contrary is proven (Sec.15 c. an omission which will not render the instrument non-negotiable (e. be a valid contract in the hands of any holder against any person who signed before delivery. 14 NIL) - Notes on Section 14 if the instrument is wanting in any material particular. 15 .

one who signs in a trade or assumed name (Sec. 30. (Sec.16 5) an instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due course.the principal in only bound if the agent acted within the limits of the authority given . General rule: a signature which is forged or made without authority is wholly inoperative. General rule: Infants and corporations incur no liability by their indorsement or assignment of an liability attached to the infant or the corporation . 19) c. 23) 31. (Sec.the party against whom it is sought to be enforced is precluded from setting up the forgery or want of authority. General rule: a person whose signature does not appear on the instrument is not liable. Notes on Section 23 16 . there is conclusive presumption of delivery. 32. he must add words to his signature indicating that he signs as an agent c. delivery to the agent or custodian is sufficient delivery to bind the maker or drawer. there is prima facie evidence of delivery and if it be a holder in due course.the person who takes the instrument is bound to inquire into the extent and nature of the authority given. a forger (Sec. 22 NIL) Effects: . no right to give a discharge c. 23 NIL) Exception: .operates as notice that the agent has a limited authority to sign. 6) If an instrument is completed and is found in the possession of another. Effects: a. 20 NIL) - Notes on Section 20 if an agent does not disclose his principal. 7) delivery may be conditional or for a special purpose but such do not affect the rights of a holder in due course.the instrument is still valid and the indorsee acquires title 34. no right to retain b. Exception: a. Per Procuration . no right to enforce payment can be acquired. Requisites: a. he must disclose his principal (Sec. (Sec. General rule: an agent is not liable on the instrument if he were duly authorized to sign for or on behalf of a principal. he must be duly authorized b. Effects: . the agent is personally liable on the instrument. a duly authorized agent (Sec. 18) b. 21 NIL) 33.

drawee bank is conclusively presumed to know the signature of its drawer if endorser’s signature is forged. the drawee bears the loss and his remedy is to go after the forger if the drawee has not accepted the bill but has paid it. if the drawee has accepted the bill. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank.a party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held liable by a holder in due course provided that it was mechanically complete before the forgery .17 - Section 23 applies only to forged signatures or signatures made without authority Alterations such as to amounts or like fall under section 124 Forms of forgery are a) fraud in factum b) duress amounting to fraud c) fraudulent impersonation Only the signature forged or made without authority is inoperative. the instrument or other signatures which are genuine are affected The instrument can be enforced by holders to whose title the forged signature is not necessary Persons who are precluded from setting up the forgery are a) those who warrant or admit the genuineness of the signature b) those who are estopped.a maker whose signature was forged cannot be held liable by any holder In - a BOE the drawer’s account cannot be charged by the drawee where the drawee paid the drawer has no right to recover from the collecting bank the drawee bank can recover from the collecting bank the payee can recover from the drawer the payee can recover from the recipient of the payment. Drawee bank may recover from collecting bank who may in turn recover from the person depositing. 17 . loss will be borne by the forger and parties subsequent thereto drawee bank is not conclusively presumed to know the signature of the indorser.a party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder . Rules on liabilities of parties on a forged instrument In a PN . Where the payee’s signature is forged. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. such as the collecting bank the payee cannot collect from the drawee bank the collecting bank bears the loss but can recover from the person to whom it paid if payable to bearer. absent any act of negligence on their part. the drawee cannot recover from the drawer or the recipient of the proceeds. Persons who are precluded by warranting are a) indorsers b) persons negotiating by delivery c) acceptors. payments made by the drawee bank to collecting bank is ineffective. the rules are the same as in PN.

he paid by virtue of judicial demand b. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. drawer. he may do this even without first proceeding against the debtor provided: delivery For payable to order . An instrument is negotiated when: a. (Sec. Effect of want of consideration: a. principal debtor is insolvent 39. acceptor. on the instrument itself or upon a piece of paper attached (Sec. 24 NIL) Effects: . Effects: . that the transfer must be in a manner as to constitute the transferee a holder For a bearer instrument . 31 NIL) Notes on Section 31 18 . 26 NIL) 37. (Sec. 28 NIL) - Notes on Section 28 the accommodated party cannot recover from the accommodation party want of consideration cannot be interposed by the accommodation party an accommodation maker may seek reimbursement from a co-maker even in the absence of any provision in the NIL. the deficiency is supplied by the New Civil Code. An accommodation party is one who signs the instrument as maker. 30 NIL) 40.presumption is disputable 36. Absence or failure of consideration may be set up against a holder not a holder in due course (personal defense) indorsement and delivery (Sec. written b. it is transferred from one person to another b. Where value has at any time been given for the accommodation party is liable to the holder for value notwithstanding that such holder knew that of the accommodation. failure of consideration implies that consideration was intended but that it failed to pass the defense of want of consideration is ineffective against a holder in due course a drawee who accepts the bill cannot allege want of consideration against the drawer 38.every person whose signature appears thereon is a party for value . (Sec. the holder is deemed a holder for value in respect to all parties who become such prior to that time. Indorsement to be valid must be: a.18 35. or indorser without receiving value therefor and for the purpose of lending his name to some other person. Partial failure of consideration is a defense pro tanto (Sec 28 NIL) - Notes on Section 28 absence of consideration is where no consideration was intended to pass.

34) is one which specifies the person to whom or to whose order. Restrictive (Sec. Effects: . that is an event that may or may not happen. Requisites for a Holder in Due Course (HDC): a.if in due course it discharges the instrument (Sec. Kinds of Indorsements: a. A holder may strike out any indorsement which is not necessary to his title. 38) is one which constitutes the indorser a mere assignor of the title to the instrument. 35) is one which specifies no indorsee and an instrument so indorsed is payable to bearer and may be negotiated by delivery. 49 NIL) 45.All indorsers subsequent to such indorser who has been discharged are likewise relieved. 51 NIL) 46. e. Effects: . the instrument is to be payable and the indorsement of such indorsee is necessary to the further negotiation of the instrument. or a past event unknown to the parties. Rights of a holder: - a holder may sue in his own name a holder may receive payment. Special (Sec. (Sec. Blank (Sec.An indorser whose indorsement is struck out is discharged . Effects of indorsing an instrument originally payable to bearer: - - it may further be negotiated by delivery the person indorsing is liable as indorser to such persons as to make title through his indorsement (Sec. 48 NIL) 44. 39 NIL) is one where the indorsement is subject to the happening of a contingent event. b. Effects of a transfer without endorsement: - the transferee acquires such title as the transferor had the transferee acquires the right to have the indorsement of the transferor negotiation takes effect as of the time the indorsement is actually made (Sec. 41. d. 36) is one which prohibits further negotiation. constitutes the indorsee the agent of the indorser or vests the title in the indorsee in trust for or to the use of some other persons. receives the instrument complete and regular on its face b.19 - the paper attached with the indorsement is an allonge an allonge must be attached so that it becomes a part of the instrument. previously dishonored if such was the fact takes the instrument for value and in good faith 19 . 40 NIL) Notes on Section 40 Section 40 applies only to instruments originally payable to bearer It cannot apply where the instrument is payable to bearer because the only or last indorsement is in blank 43. it cannot be simply pinned or clipped to it. became a holder before it was overdue and had no notice that it had been c. c. Conditional (Sec. Qualified (Sec. 42.

negotiation in breach of faith Real Defenses Alteration Want of delivery of incomplete instrument Duress amounting to forgery Fraud in factum or in esse contractus Minority Marriage in case of a wife Insanity where the insane person has a guardian appointed by the court Ultra vires acts of a corporation where its charter or by statue.20 d. want of delivery of complete instrument 3. filling up the blanks contrary to authority given or not within reasonable time 5. absence or failure of consideration 2. 53 NIL) 48. insertion of wrong date where payable at a fixed period after date and issued undated. acquisition of the instrument by force. 57 NIL) Notes on Section 57 Personal or equitable defenses are those which grow out of the agreement or conduct of a particular person in regard to the instrument which renders it inequitable for him through legal title to enforce it. at time he took the instrument. Rights of a HDC: - - - holds the instrument free from any defect of title of prior parties free from defenses available to prior parties among themselves (personal/ equitable defenses) may enforce payment of the instrument for the full amount against all parties liable(Sec. the holder is not HDC an instrument is considered complete and regular on its face if a) the omission is immaterial b) the alteration on the instrument was not apparent on its face an instrument is overdue after the date of maturity. A holder is not a HDC where an instrument payable on demand is negotiated at an unreasonable length of time after its issue (Sec. duress or fear 7. Personal Defenses 1. acquisition of the instrument for an illegal consideration 9. the instrument is not overdue and the holder is a HDC acquisition of the transferee or indorsee must be in good faith good faith means lack of knowledge or notice of defect or infirmity 47. acquisition of the instrument by unlawful means 8. it is prohibited from issuing commercial paper Want of authority of agent 20 . on the date of maturity. 52 NIL) - Notes on Section 52 every holder is presumed to be a HDC (Sec. including a HDC. 59) the person who questions such has the burden of proof to prove otherwise if one of the requisites are lacking. fraud in inducement 6. Can be set up against holders not HDC Legal or real defenses are those which attach to the instrument itself and can be set up against the whole world. or at a fixed period after sight and acceptance is undated 4. no notice of infirmity in instrument or defect in the title of the person negotiating it (Sec.

58 NIL) Rights of a holder not a HDC . A instrument not in the hands of a HDC is subject to the same defenses as if it were non-negotiable. ultra vires acts of corporations 14. each is individually liable for the full amount even if one did not receive the value given the maker is precluded from setting up the defense that a) the payee is fictional. the burden is on the holder to prove that he is a HDC or that a person under whom he claims is a HDC (Sec. a minor or a corporation acting ultra vires 52. the instrument is discharged .where it is shown that the title of any person who has negotiated the instrument is defective. the capacity of such payee to indorse 21 .if he derives his title through a HDC and is not a party to any fraud or illegality thereto. Exception: .Real defenses can be interposed against him (he is safe only from personal defenses) (Sec. b) that the payee was insane. A drawer is secondarily liable Effects of drawing the instrument.He himself was not a party to any fraud or illegality affecting the instrument . admits the existence of the payee. unless fraud is proved the payee’s interest is only to see to it that the note is paid according to its terms when two or more makers sign jointly. the drawer: a. Exception: . General rule: every holder is deemed prima facie to be a holder in due course.21 10. A maker is primarily liable: Effects of making the instrument. 60 NIL) - Notes on Section 60 a maker’s liability is primarily and unconditional one who has signed as such is presumed to have acted with care and to have signed with full knowledge of its contents.Holder acquiring from holder in due course . the maker: a. intoxication 13. 59 NIL) 51.may sue in his own name . has all the rights of such HDC 50. b. negotiation under circumstances amounting to fraud 11.holds the instrument subject to the same defenses as if it were non-negotiable . illegality of contract where form or consideration is illegal 16. insanity where there is no notice of insanity Execution of instrument between public enemies Illegality of contract made by statue Forgery 49. admits existence of payee and his capacity to indorse (Sec. Mistake 12.He derived his title from a holder in due course .may receive payment and if it is in due course. want of authority of the agent where he has apparent authority 15. engages to pay according to tenor of instrument b.

engages that on due presentment.the existence of the payee and his then capacity indorse 54. (Sec. 22 .admits the existence of the drawer.a person not otherwise a party to an instrument places his signature in blank before delivery is liable as an indorser in the following manner: a. but he is still liable for the warranties arising from instrument only up to warranties of general indorser the warranty is to the capacity of prior parties at the time the instrument was negotiated. the instrument is genuine and in all respect what it purports to be the indorser has good title to it all prior parties had the capacity to contract indorser has no knowledge of any fact that would impair the validity or the value of the instrument. Limitations of warranties: -if by delivery – extends only to immediate transferee -warranty of capacity to contract does not apply to persons negotiating public or corporate securities (Sec. and the necessary proceedings on dishonor duly taken a. the genuineness of his signature and his capacity and authority to draw the instrument . the instrument will be accepted or paid or both according to its tenor. 61 NIL) - Notes on Section 61 a drawer may insert an express stipulation to negative or limit his liability 53. if payable to order of the maker or drawer – liable to all parties subsequent to the maker or drawer c. a qualified Indorsement makes the indorser mere assignor of title of instrument. if payable to bearer – liable to all parties subsequent to the maker or drawer d.22 c. b. 64 NIL) 55. will pay to any subsequent indorser who may be compelled to pay it. the drawer will pay the amount thereof to the holder b.resort to a person secondarily liable after default of person primarily liable a qualified indorser cannot raise the defense of a) forgery b) defect of his title or that it is void c) the incapacity of the maker. An acceptor is primarily liable By accepting the instrument.engages that he will pay according to the tenor of his acceptance . If the instrument is dishonored. Irregular Indorser . c. if signs for an accommodation party – liable to all parties subsequent to the payee (Sec. 65 NIL) - - Notes on Section 65 a qualified indorser is one who indorses without recourse or sans recourse recourse . an acceptor: . relieves him of general obligation to pay if instrument is dishonored. Warranties where negotiating by delivery or qualified endorsement: a. drawer or previous indorsers. if payable to order of a third person – liable to the payee and to all subsequent parties b. d. Subsequent incapacity does not breach the warranty.

General rule: Presentment for payment is not necessary to charge persons primarily liable on the instrument. the instrument is genuine and in all respect what it purports to be b. They can be sued directly. all prior parties had the capacity to contract d. such willingness and ability is equivalent to tender of payment. 66 NIL) In addition: .23 - lack of knowledge of the indorser as to any fact that would impair the validity or the value of the instrument must be subsisting all throughout. presentment is necessary to charge persons secondarily liable otherwise they are discharged Acts needed to charge persons secondarily liable: a) presentment for payment/acceptance b) dishonor by non-payment/non-acceptance c) notice of dishonor to secondary parties Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment by the drawee b) protest for non-payment by the acceptor for honor 58.g maker and acceptors. Proper presentment: a. consists of a) a personal demand for payment at a proper place b) the bill or note must be ready to be exhibited if required and surrendered upon payment. at a proper place 23 . and the person liable is willing to pay there at maturity. Warranties of a general indorser: a. parties primarily liable – persons by the terms of the instrument are absolutely required to pay the same. that the instrument at the time of his indorsement was valid and subsisting (Sec.engages that the instrument will be accepted or paid or both according to its tenor on due presentment . at a reasonable hour on a business day c. Presentment for payment is necessary to charge the drawer and indorsers. (Sec 70 NIL) - Notes on Section 70 presentation for payment – production of a BOE to the drawee for his acceptance. a person Negotiating by Delivery warrants same as those of qualified indorser and extends to immediate transferees only 56. warranties extend in favor of a) a HDC b) persons who derive their title from HDC c) immediate transferees even if not HDC the indorser does not warrant the genuineness of the drawer’s signature general indorser is only secondarily liable 57. by the holder or an authorized person b.engages to pay the amount thereof if it be dishonored and the necessary proceedings on dishonor are taken - Notes on Section 66 the indorser under Section 66 warrants the solvency of a prior party the indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant of that fact or not. if payable at the special place. the he has good title to it c. E. Also presentment of a PN to the party liable for payment of the same. or to a drawee or acceptor for payment.

presentment cannot be made b. Presentment for payment excused if: a. the drawee is a fictitious person (Sec 82 NIL) - Notes on Section 82 what is excused is the failure to make presentment. b. 83 64. if the instrument is payable on demand – a) if it is a note – presentment must be made within reasonable time after issue b) if it is a bill . the instrument was made or accepted for his accommodation b. 72 NIL) - Notes on Section 72 only the holder or one authorized by him has the right to make presentment for payment presentment cannot be made on a Sunday or holiday presentment for payment is made to the maker.presentment must be made within reasonable time after last negotiation. to the person primarily liable or if absent to any person found at the place where presentment is made (sec. 62. General rule: Presentment for payment necessary to charge persons secondarily liable otherwise they are discharged: Exception: . There is no need to make any presentment versus under section 81 (delay in presentment) presentment for payment is still required after the cause of delay has ceased. he has no right to require that the drawee or acceptor will pay (Sec 79 NIL) 60. 79 the indorser under Sec. 59. Not to the person secondarily liable. How dishonored by non-acceptance: 24 . or acceptor. he has no right to expect b. he has no reason to expect that the instrument will be paid if presented (Sec. Presentment not required to charge the indorser where: a. after due diligence. All other parties secondarily liable are discharged. Summary of rules as to presentment for payment: a. presentment is waived c. 82 when the instrument has been dishonored by non-acceptance under Sec. Presentment not required to charge the drawer: a.Section 79 and 80 - Notes on Section 79 and 80 only the drawer or indorser are not discharged. 80 when excused under Sec. - presentment not necessary to charge persons primarily liable necessary to charge persons secondarily liable except: the drawer under Sec.24 d. 80 NIL) 61. 63.

that the instrument was dishonored by non-acceptance or nonpayment by the drawee/maker 25 . - by or on behalf or the holder by or on behalf of any party who: is a party to the instrument and might be compelled to pay the instrument to a holder who having taken it up would have a right of reimbursement from the party to whom notice is given. may be written or oral (Sec. 96) 69.25 - the instrument was duly presented but payment is refused or cannot be obtained presentment is excused and the instrument is overdue and unpaid (Sec. b. notice and presentment is waived 71. after the omission to give due notice (Sec. 84 NIL) Notes on Section 84 parties cease to be secondarily liable and become principal debtors. Notice of Dishonor may be given: a. notice is also waived Where protest is waived. made at or after the maturity of the instrument to the holder in good faith without notice of any defect in the holder’s title (sec. 109 NIL) 70. presentment is not waived Where presentment is waived. 90 NIL) 68. (Sec.deemed a waiver of presentment and notice of dishonor as well (Sec. 66. written notice need not be signed or may be supplemented by verbal communication (Sec. 83 NIL) 65. may be by personal delivery or by mail (Sec. b. Notice: a. c. before the time of giving notice has arrived b. 111 NIL) - Notes on Section 111 Where notice is waived. Protest may be waived: Effects: . Notice may be waived either expressly or implied: a. 88 NIL) - Notes on Section 88 payment must be made to the possessor of the instrument possession of the note by the maker is presumptive evidence that it has been paid 67. Notice of Dishonor . 95) c. Liability becomes the same as that of the original obligors. Effects of dishonor by non-payment: - - an immediate right of recourse to all parties secondarily liable accrues to the holder. 96) b. d.given by the holder to the parties secondarily liable. Requisites for payment in due course: a. drawer and each indorser. (Sec.

118 NIL) 76. payment by accommodated party c. delay may be excused (Sec.if notice is delayed. Instances when Notice Not Required to Indorser a. any other act discharging a simple monetary obligation e.26 General rule: discharged. discharge of prior party d. instrument made/accepted for his accommodation (Sec. Any drawer or indorser to whom such notice is not given is Exceptions: Waiver (Sec. drawee is a fictitious/incapacitated person c. 114 NIL) 73. Protest for other negotiable instruments is optional. 112) Not necessary to Drawer (Sec. drawee was a fictitious/incapacitated person and the indorser was aware of such at the time of indorsement b. 113) 72. 115) . Causes of Discharge of the Instrument a. payment by the debtor b. payment only cancels the liability of the payor and those obligated after him but does not discharge the instrument. payment by an accommodation party does not discharge the instrument. release of principal debtor 26 . indorser is the person to whom instrument was presented for payment c. tender of payment by prior party e. 114) Not necessary to Indorser (Sec. 109) Notice is dispensed (Sec. Instances when Notice of Dishonor Not Necessary to Drawer a. debtor becomes holder of the instrument at/after maturity in his own right ( Sec 119 NIL) - Notes on Section 119 discharge of the instrument discharges all the parties thereto payment must be in due course. Discharge of Secondary Parties: a. intentional cancellation by holder of instrument d. drawer and drawee same person b. d. and by the principal debtor or on his behalf if payment is not made by the principal debtor. any act discharging the instrument b. a. c. (Sec. 117 NIL) 75. drawer has no right to expect that the drawee will accept/pay the instrument (Sec. b. drawer is the person to whom presentment for payment is made d. cancellation of indorser’s signature by indorsers c. 115 NIL) 74. 77. Protest only necessary for a foreign bill of exchange. Omission to give notice of dishonor by non-acceptance does not prejudice a HDC (Sec.

adding a place of payment where no place is specified g. Instances where a BOE may be treated as a PN: a. Renunciation by a holder discharges an instrument when: a. 78. only he is exonerated from liability and all parties subsequent to him discharge by novation is allowed 79. any other which alters the affect of the instrument 81. medium or currency for payment f. Rights of a party secondarily liable who pays: - the the the the instrument is not discharged party is remitted to his former rights as to all prior parties party may strike out his own and all subsequent indorsements party may negotiate the instrument again Exception: . where the drawee is a fictitious person 27 . Material Alteration – an alternation is said to be material if it alters the effect of the instrument cannot be renegotiated where it is payable to order of a 3 rd person and has been paid by the drawer . dates b. it is absolute and unconditional b. may be enforced according to its original tenor - Notes on Section 124 there is no distinction between fraudulent and innocent alteration 80.27 f. Under Section 125 the following changes are considered material alterations: a. extension of payment by the holder/postponement of right to enforce without assent of secondary parties and without reservation of right of recourse against secondary parties (Sec 120 NIL) 78. the party who has made the alteration b. without the consent of all parties liable. where the drawer and the drawee are one and the same b. General rule: When materially altered. 122 NIL) - Notes on Section 122 if renounced in favor of a party secondarily liable. the instrument is avoided except as against: a. subsequent indorsers Exception: . made at or after maturity of the instrument d. the party who authorized or assented to the alteration. time and place of payment d. made in favor of a person primarily liable c.if in the hands of a HDC.and instrument cannot be renegotiated where is was made or accepted for accommodation and it has been paid by the party accommodated. in writing or the instrument is delivered up to the person primarily liable (Sec. number or relations of the parties e. c. the sum payable c.

c. where the drawee has no capacity to contract (Sec. 130 NIL)
The holder has the option to treat it as a BOE or a PN

82. Acceptance is the signification by the drawee of his assent to the order of the
drawer. It is an act by which a person on whom the BOE is drawn assents to the
request of the drawer to pay it. (Sec. 132 NIL)
Acceptance may be:
a. actual
b. constructive
c. general (Sec. 140)
d. qualified (Sec. 141)
Requisites of actual acceptance:
- in writing
- signed by the drawee
- must not express that the drawee will perform his promise by any other means
than payment of money
- communicated or delivered to the holder
87. A holder has the right:
a. require that acceptance be written on the bill and if refused, treat it as if
dishonored (Sec. 133)
b. refuse to accept a qualified acceptance and may treat it as dishonored (Sec.
88. Constructive Acceptance:
a. where the drawee to whom the bill has been delivered destroys it
b. the drawee refuses within 24 hrs after such delivery or within such time as is
given, to return the bill accepted or not. (Sec. 137 NIL)

Notes on Section 137
drawee becomes primarily liable as an acceptor.
mere retention is equivalent to acceptance

89. When presentment for acceptance is necessary:
a. if necessary to fix the maturity of the bill
b. if it is expressly stipulated that it shall be presented for acceptance
c. if the bill is drawn payable elsewhere than the residence or place of business of
the drawee (Sec. 143 NIL)


Notes on Section 143
Presentment is the production of a BOE to the drawee for his acceptance
presentment is necessary to make parties liable.

90. Summary on presentment for acceptance of Bills of Exchange:
a. to make the drawee primarily liable and for the accrual of secondary liability
(Sec. 144)
b. necessary to fix maturity date, where bill expressly stipulates presentment, bill
payable other than place of drawee (Sec. 143)
c. when presentment is excused: drawee is dead, hides, is fictitious, incapacitated
person, after due diligence presentment cannot be made, presentment is
refused on another ground although presentment is irregular (Sec. 148)



91. General rule: Protest is required only for foreign bills
- inland bills and notes may also be protested if desired
Protest is required:
a. where the foreign bill is dishonored by non acceptance
b. where the foreign bill is dishonored by non-payment
c. where the bill has been accepted for honor, it must be protested for nonpayment before it is presented for payment to the acceptor for honor
d. where the bill contains a referee in case of need, it must be protested for non
payment before presentment for payment to the referee in case of need (Sec.

Notes on Section 152
Protest - formal statement in writing made by a notary under his seal of office at
the request of the holder, in which it is declared that the same was presented
for payment or acceptance (as the case may be) and such was refused.
it means all steps or acts accompanying the dishonor of a bill or note necessary
to charge an indorser
required when the instrument is a foreign bill of exchange.
it must be made on the same date of dishonor, by a notary/respectable citizen
of the place in the presence of 2 credible witnesses so recourse to secondary

92. Acceptance for Honor
(Sec. 161 NIL)– an acceptance of a bill made by a
stranger to it before maturirty, where the drawee of the bill has:
a. refused to accept it
b. and the bill has been protested for non-acceptance
c. or where the bill has been protested for better security
Requisites for acceptance for honor:
- the bill must have been previously protested a) for non-acceptance b) or for
better security
- the bill is not overdue at the time of the acceptance for honor
- the acceptor for honor must be a stranger to the bill
- the holder must give his consent

Notes on Acceptance for Honor
Purpose: to save the credit of the parties to the instrument or some party to it
as the drawer, drawee, or indorser or somebody else.
Acceptor for honor is liable to the holder and to all the parties to the bill
subsequent to the party for whose honor he has accepted (Sec. 164)

93. How acceptance for honor is made:
a. in writing and indicated that it is an acceptance for honor
b. signed by the person making the acceptance (Sec. 162 NIL)
94. Payment for Honor - payment made through a notarial act of honor of a party
liable/stranger to the bill after bill has been dishonored by non-payment by the
acceptor and protested for non-payment by the holder

a. protest for non-payment
b. any person may pay supra protest


Form for payment of honor:
a. payment must be attested by notarial act appended to the protest, or form an
extension to it.
b. notarial act of honor must be based on a declaration by the payer for honor
95. Bills in Set - bill of exchange drawn in several parts, each part of the set being
numbered and containing a reference to the other parts, the whole of the parts
just constituting one bill (Sec 178 NIL)

1. Laws applicable to insurance in the order of priority:
a. Insurance Code
b. Civil Code
c. General Principles prevailing on the subject in the US
2. Contract of Insurance - an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown
contingent event

3. Contract of Suretyship - deemed to be an insurance contract within the meaning of
the Insurance Code, only if made by a surety who or which, as such, is doing an
insurance business

4. Definition of “doing an insurance business”:
a. making or proposing to make, as insurer, any insurance contract;
b. making or proposing to make as a surety, any contract of suretyship as a

vocation and not merely incidental to any other legitimate business or activity of
the surety;
doing reinsurance business;
doing or proposing to do any business in the substance equivalent to any of the
foregoing in a manner designed to evade the provisions of the Insurance Code.

5. Requisites of Insurance:
a. existence of an insurable interest;
b. risk of loss;
c. assumption of risk;
d. scheme to distribute losses; and
e. payment of premiums
 Note: If only a, b, and c are present, it is not a contract of insurance but a risk
shifting device.

6. Characteristics of an insurance contract:
a. consensual
b. voluntary
c. aleatory - depends upon some contingent event; however, it is not a wagering
nor a gambling contract

d. executed as to the insured after payment of the premium
e. executory as to insurer - not executed until payment for a loss
f. personal - each party takes into account the character, credit and the conduct of
the other



g. conditional - liability is based on the happening of the event insured against
7. Parties to a contract of Insurance:
a. insurer - party who assumes the risk or undertakes to indemnify the insured or
to pay a certain sum on the happening of a specified contingency

b. insured - person in whose favor the contract is operative, and who is indemnified

against, or is to receive a certain sum upon the happening of a specified
beneficiary - may or may not be the same as the insured

What perils may be insured?

(a) any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest; or

(b) any contingent or unknown event, whether past or future, which may create a
liability against the person insured.

8. Every person has an insurable interest in the life and health of:
a. himself, his spouse and his children
b. any person on whom he depends wholly or in part for education or support, or in

whom he has a pecuniary interest
any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might prevent the
performance or delay it
any person upon whose life any estate or any interest vested in him depends

9. Insurable Interest in Property may consist of:
a. an existing interest
b. an inchoate interest, founded on an existing interest
c. an expectancy, coupled with an existing interest out of which the expectancy

Definition of Insurable Interest in Property: Interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured.

10. Instances when Insurable Interest must exist:
a. Interest in Property insured must exist when the insurance takes effect and when
the loss occurs, but need not exist in the meantime.

b. Interest in the Life or Health of a Person Insured must exist when the insurance

takes effect, but need not exist thereafter or when the loss occurs.
Beneficiaries of Life Insurance need not have insurable interest in the life of the
Beneficiaries of Property Insurance must have insurable interest in the property

1. basis
2. when interest must exist

Insurable Interest in Life
may be based on pecuniary
at the time the policy takes

Insurable Interest in
based purely on pecuniary
at the time the policy takes


those made by persons found guilty of the same criminal offense. by reason of his office. Exceptions: a. descendants. a change in the interest by will or succession on the death of the insured (interest passes to the heirs) e. even if such designation be stipulated as irrevocable. b. c. separately insured by one policy d. (b) After the finality of the decree of legal separation. in consideration thereof. Revocation of Beneficiaries  General Rule: Insurance contracts are revocable. amount of insurable interest effect EXCEPT: life insurance taken by the creditor on the life of the debtor wherein interest must also exist at the time of the loss no limit EXCEPT: if insurable interest is based on creditor-debtor relationship (only to the extent of the credit or debt) effect and at the time of the loss limited to the actual value of damage/injury/loss 11. 32 . when the change in interest results after the occurrence of an injury which results in a loss c. The revocation of or change in the designation shall take effect upon written notification thereof to the insured. ascendants. General Rule: A change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance suspends the insurance to an equivalent extent. a transfer of interest by one of several partners. Other Pertinent Provisions on Revocation: (a) The termination of a subsequent marriage shall allow the innocent spouse to revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy. until the interest in the thing and the interest in the insurance are vested in the same person.  Exception: Any person who is forbidden to receive any donation under Article   739 of the Civil Code cannot be named beneficiary of a life insurance policy by the person who cannot make the donation to him.32 3. health. a change of interest in one or more several distinct things. The action to revoke the donation under this article must be brought within 5 years from the time the decree of legal separation has become final. and accident insurance b. In case of life. even if such designation is irrevocable. the innocent spouse may revoke the donations as well as the designation of the latter as a beneficiary in any insurance policy. The following donations shall be void: a. those made between persons who were guilty of adultery or concubinage at the time of the donation. joint owners in common who are jointly insured to the others (even though it has been agreed that the insurance shall seize upon the alienation of the thing insured) 12. those made to a public officer or his wife.

When the insurer makes inquiry from the insured of the nature or amount of the latter’s insurable interest.  which the former has no reason to suppose his ignorance. whether in life or property insurance. despite the good faith of the insured.  Exception: a. it was possible for the agent. those which relate to a risk excepted from the policy and which are not otherwise material. but also those known to his agent where: a.33 (c) The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal. 13. 14. entitles the injured party to rescind a contract of insurance. those of which the other knows. to have made the communication before the making of the insurance contract. it was the duty of the agent to acquire and communicate information of the facts in question. Neither party is bound to communicate his mere opinion. Concealment . that which.  A concealment.  Requisites: (a) the party concealing must have knowledge of the facts concealed. if he is not the absolute owner thereof. or wholly due to the fault of the agent. (b) the facts concealed must be material to the risk. the other ought to know and of c. will avoid the policy.  Failure on the part of the insured to disclose such facts known to his agent. because such opinion would add nothing to the appraisal of the application. political situation. Neither party to the insurance contract is bound to communicate information on the following matters except in answer to the inquiries of the other: a. (e) the other party has no other means of ascertaining the facts concealed.    Note: An insured need not die of the very disease he failed to reveal to the insurer. insurance policy must specify the interest of the insured in the property insured. (c) the party is duty bound to disclose such fact to the other. d. in the exercise of reasonable diligence. the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. in which event. 33 . b.a neglect to communicate that which the party knows or ought to communicate General Rule: The insured is not required to communicate the nature (or kind) or the amount of his insurable interest in the life or property insured to the insurer. (d) the party concealing makes no warranty as to the facts concealed. b. b. It is sufficient that the non-revelation has misled the insurer in forming his estimate of the disadvantages of the proposed policy or in making his inquiries in order to entitle the insurance company to avoid the contract. in the exercise of ordinary care. whether intentional or not. general usages of trade. e.e. i. even upon inquiry. Note: The insured is under an obligation to disclose not only such material facts as are known to him. those of which the other waives communication. those which prove or tend to prove the existence of the risk excluded by a warranty and which are not otherwise material. accomplice or accessory in willfully bringing about the death of the insured.

the issuance of the policy. It may be made at the time of. where they are distinctly implied in other facts which information is communicated Materiality is to be determined not by the events but solely upon the probable and reasonable influence of the facts on the party to whom the communication is due in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. Warranties:  General Rule: Non-performance of a promissory warranty avoids a contract of  insurance. or prior to. A representation as to the future is to be deemed a promise unless it appears that it was merely a statement of belief or an expectation. 34 . actual knowledge) The statement of an erroneous opinion. whether intentional or not. a loss insured against occurs. must be exercised previous to the commencement of an action on the contract (the action referred to is that to collect a claim on the contract) b. gives the right to rescind Incontestable Clause: After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement. 15. misrepresentation. Right to rescind because of false representation: a. the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. or of an unfulfilled intention. Concealment. unless fraudulent. to give information to the insurer and otherwise induce him to enter into the insurance contract. when before the time for performance of the promissory warranty. the issuance of the policy. (must be susceptible of present. but not afterwards. or (b) by the neglect to make inquiry as to such facts. A representation cannot qualify an express provision in a contract of insurance but it may qualify an implied warranty.          It may be made orally or in writing. whether intentional or not. It may be altered or withdrawn before the insurance is effected. will not avoid the contract of insurance. Exceptions: a. Exceptions: (a) absence of insurable risk (b) cause of loss is an unexpected risk (c) fraud (d) non-payment of premium (e) violation of conditions relating to naval or military services (f) failure to comply with conditions subsequent to the occurrence of the loss 16. or before. entitles the other party to rescind the contract.34    Waiver of material facts may be: (a) by the terms of the insurance. belief or information. Representation It is a factual statement made by the insured at the time of.

whether intentional or not. Policy  What is a Rider? It is an additional provision in a policy not part of the body of     the printed form. Cover Note: written memorandum of the most important terms of a preliminary contract of insurance. the act becomes unlawful. or until the issuance of a formal policy. c. warranty or endorsement to be binding must be pasted or attached to the policy and its descriptive titles or name must be mentioned and written on the policy’s blank spaces  If the rider is pasted or attached at the time the policy is issued the signature of the insured is not necessary to make it binding. but is left to be ascertained at the time of the loss 35 . warranty or endorsement must be approved by the Insurance Commissioner. wholly irrespective of the materiality of such statement or promise. rider. Open .the value of the thing insured is not agreed upon.35 b. Exception: Where it is merely an acknowledgment on behalf of the company that the latter’s branch office had received from the applicant the insurance premium and accepted the application subject for processing by the insurance company and that the latter will either approve or reject the same.  A rider. when before the time of the performance of the warranty. intended to give temporary protection pending the investigation of the risk by the insurer. General Rule: Cover notes bind insurer temporarily pending the issuance of the policy.  The form of the application. 17. the non-fulfillment of which in any respect and without reference to whether the insurer was in fact prejudiced by such non-fulfillment.  A statement or a promise set forth in the policy or by reference incorporated therein. renders the policy voidable by the insurer.  If the rider is executed after the original policy was issued. when before the time of the performance of the warranty. the rider prevails over the printed clause it covers.  In case of inconsistency. even if the cause of the loss is a different risk. said performance becomes impossible. clause. the insurer is entitled to rescind the contract of insurance. clause. Warranty Representation part of the insurance contract collateral inducement always written on the policy maybe oral or written conclusively presumed material materiality must be proved must be strictly complied with requires substantial truth made by the insured may be made by insurer or insured  Note: If there is a breach of warranty. it must be counter-signed by the insured to be binding unless the rider was applied for by the insured himself.  Breach must refer to a material warranty. Kinds of Policies: a.

18.contemplates successive insurance which provides that the object of the policy may be from time to time defined especially as to the subject of insurance by additional statements or endorsements  Note: If an amount is written on the face of an open policy. Otherwise.. the insurer will furnish facts on which the cancellation is based  Renewal of the Policies Other than Life: Insurer must mail or deliver to the insured notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages within 45 days before the policy ends.  Grounds for Cancellation of a Policy by the Insurer: For Policies Other than Life: (1) prior notice of the cancellation to insured (2) notice must be based on the ff.e.36 b. from the time of rejection of the claim by the insurer. stipulation. Running . 36 . i. occurrences after effective date of the policy (a) non-payment of premiums (b) conviction of a crime arising out of acts increasing the hazard insured against (c) discovery of fraud or material misrepresentation (d) discovery of willful or reckless acts or omissions increasing the hazard insured against (e) physical changes in the property insured which results in the property becoming uninsurable (f) determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code (3) notice must be in writing (4) it must be mailed or delivered to the insured at the address shown in the policy (5) notice must state the ground relied upon and that upon written request of the insured. Premium  General Rule: No policy is binding until the premium thereof has been paid. insured entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Category what needs to be proven in order to be able to claim determining value of loss Open Policy value of property upon loss value of property is to be ascertained upon loss Valued Policy no need for proof of value of property upon loss value of property upon loss is conclusively stipulated to a specified amount  Period for commencing an action against the policy: Within 1 year from the time the cause of action accrues. Any condition. Valued . it is merely a determination of the maximum limit of recovery and not as the value of the policy.expresses on its face an agreement that the thing insured shall be valued at a specific sum c. or agreement limiting the time to less than 1 year is void.

proportioned to the amount by which the aggregate sum insured in all policies exceed the insurable value of the thing at risk) 19. if. where the peril is specifically excepted. loss caused by insured’s negligence. although a peril not b. e. regardless of the time of commission. when the insured has become a public enemy and the policy automatically canceled (on the ground of equity) e. d. b. a loss which would not have occurred but for such peril is thereby excepted c. when the contract is voidable on account of fraud or misrepresentation of the insurer. If insured kills himself within a period of 2 years. 37 . if it amounts to bad faith    General Rule: The insurer is not liable for a loss caused by the willful act of the insured. in case of over-insurance by several insurers (ratable return of premiums. the immediate cause of which is a peril insured against except when the proximate cause is an excepted peril When Insurer Not Liable: a. Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committed suicide after the policy has been in force for a period of 2 years from the date of its issue or last reinstatement. insurer is not liable. the insurer is liable. c. whenever the grace period applies (b) in case of estoppel Insurer is entitled to payment of premiums as soon as the thing insured is exposed to the perils insured against. which permanently deprives the insured of its possession in whole or in part where loss is caused by efforts to rescue the thing insured from a peril insured against insurer is not exonerated by a loss caused by simple negligence of the insured if the proximate cause of the loss is a peril insured against loss. the thing is exposed to a peril not insured against. Exception to Exception: If suicide is committed in a state of insanity. loss caused by the willful act of insured e. the insurer never incurred any liability under the policy d.  contemplated by the contract may have been the remote cause or even the immediate cause of the loss where the thing insured is rescued from the peril insured against that would otherwise have caused a loss. when on account of facts. When insurer entitled to Return of Premiums a. Loss  When Insurer is Liable: a.37    Exceptions: (a) in case of life or industrial life policy. where the peril insured against was the proximate cause. when by any default of the insured other than actual fraud. loss caused by the connivance of the insured d. in the course of such rescue. the existence of which the insured was ignorant without his fault c. where the peril insured against was only a remote cause b.

or a manifest intention of the contracting parties to the reinsurance contract to favor the insured.) Reinsurance 1. all the knowledge and information he possesses. Double Insurance . 4. risk insured against also the same Over Insurance may be only one insurer insurance covers more than the value of insurable interest   Double Insurance must be 2 or more insurers insurance may or may not exceed the value of insurable interest The Code prohibits double insurance without the consent of the insurer. subject matter is the insured risk or liability 3. (in this instance. Double Insurance insurer remains the insurer subject matter is property the same interest and risk are insured insured has to give his consent insured is the party in interest in all contracts interest in the contract of reinsurance which is independent of the original contract of insurance 22. 2. all the representations of the original insured.38 20. The original insured cannot recover from this insurance unless there is a specific grant.   General Rule: The insurer who obtains reinsurance must communicate: a. existence of several insurers c. Liability of Insurer: Insurance taken from each insurer ---------------------------------total insurance x value of property received = liability of insurer 21. person insured must be the same b.exists where the same person is insured by several insurers separately in respect to the same subject and interest  Requisites: a. one who is original insured has no 1. the contract is self-executing and the obligation attaches automatically on acceptance of a risk by the reinsured. different risks and interests of insured 4. 5. subject matter insured must be the same d. the reinsurance contract in favor of the insured. or assignment of. and b. there must be consent of original 5. whether previously or subsequently acquired which are material to the risk Exception: under automatic reinsurance treaties when two or more insurance companies agree in advance that each will reinsure a part of any line of insurance taken by the other. Reinsurance: A process by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. 3. Marine Insurance: insures against perils of the sea. not of the ship Perils of the Sea Perils of the Ship 38 . interest the same e. insurer becomes the insured 2.

It is stipulated in such a contract that if the ship be lost in the course of the specific voyage or during a specified limited time caused by any of the perils enumerated in the contract.  Charter Party: Contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. negligent failure of the ship owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions Owner of the Ship has Insurable Interest: a. with maritime or extraordinary interest on the account of the maritime risks to be borne by the lender. natural and inevitable action of the sea 2. value in case of loss (insurer is liable for what insured cannot recover from the charterer). or the ship’s furniture or tackle. even when hypothecated by bottomry (only the excess of its value over the amount secured by bottomry) and in the freightage.  Insurable Interest in Marine Insurance: Determined when one will sustain loss from the destruction of the subject matter or derive benefit from its preservation. The goods serve as the principal security. in the hope of saving the rest of the venture. or 3. whether it be of the cargo. in the ship even if it has been chartered by one who promises to pay him in b.  Jettison: Intentional casting overboard of any part of a venture exposed to a peril. and pledges the ship as a security for repayment.  Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of a ship borrows money for the use. carriage of his own goods.  Barratry: Any willful misconduct on the part of the masters or crew. 39 . which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage  Charterer has insurable interest in the ship to the extent that he is liable to be damnified by its loss. and which are to be sold or exchanged in the course of the voyage. ordinary wear and tear of a ship. in pursuance of some unlawful or fraudulent purpose. equipment or repair of the vessel for a definite term.  Loan on Respondentia: Contract akin to that of mortgage made on the goods on board the ship. It has also been defined as a contract by virtue of which the owner or the agent of the vessel for the transportation of goods or persons from one port to another.39 covered by marine insurance denote nature accidents peculiar to the sea which do not happen by intervention of man nor are to be prevented by human prudence  not covered by marine insurance damage or losses resulting from: 1. or those of others. the lender shall resolutely lose his money.  Freightage: Signifies all the benefits derived by the owner. without the consent of the owners and to the prejudice of the owner’s interest.

nature of the ship the commencement of every voyage it undertakes during that time. in a Cargo Policy . information or the belief or expectation of a 3 rd person. use of false and simulated papers  Implied Warranties: a.commencement of each portion of the voyage  Deviation a.  Concealment of the following merely exonerates the insurer from the resulting loss therefrom: a.each vessel upon which cargo is shipped is seaworthy at the commencement of each particular voyage that the vessel shall not engage in illegal venture that the vessel shall not deviate from the course of the voyage insured where the nationality or neutrality of a ship or cargo is expressly warranted.40  Concealment: In marine insurance. nature of the voyage c. want of necessary documents e.complied with if the ship is seaworthy at the time b. when caused by circumstances over which neither the master not the owner of the ship has any control b. d. in a Time Policy . a departure from the course of the voyage insured b. nature of the service  Seaworthiness of the vessel is required only at the commencement of the risk  Exceptions: a. liability to seizure from breach of foreign laws of trade d. national character of the insured b. in a Voyage Policy . c. it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which may cast reasonable suspicion thereon  Seaworthiness depends on: a. in reference to a material fact is material. that the ship is seaworthy .commencement of every voyage that must be undertaken b. when made in good faith for the purpose of saving human life or relieving another vessel in distress d. when made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril 40 . of commencement of risk. (b) cargo to be transshipped at indeterminate port . unreasonable delay in pursuing the voyage c.commencement of each particular voyage c. liability of the thing insured to capture and detention c. commencement of an entirely different voyage  When is Deviation proper? a. when necessary to comply with a warranty or to avoid a peril whether it is insured against or not c. except: (a) insurance for a specified length of time .

after a constructive total loss. must specify the particular cause for abandonment d. or a risk which a prudent man would not undertake under the circumstances (d) if the thing insured is cargo or freightage. and the voyage cannot be performed on another ship procured by the master within a reasonable time and with reasonable diligence to forward the cargo without incurring an expense or a risk as stated above  Freightage cannot be abandoned unless ship is also abandoned. must be total and conditional b.  Requisites of a Valid Abandonment: a.41  Loss a. must be explicit c.act of the insured by to the person insured the right to abandon  Average . coupled with actual abandonment  Requisites for Valid Valuation in the Valued Marine Policy: a. Constructive Total Loss . he declares the relinquishment to the insured of his interest in the thing insured (where the cause of loss is a peril insured against) (a) more than ¾ thereof in value is actually lost or would have been expended to recover it from the peril (b) it is injured to such an extent as to reduce its value by more than ¾ (c) if the thing insured is the ship and the voyage cannot be lawfully performed without incurring an expense of more than ¾ of the expense or damage suffered deliberately in order to save the vessel. of the thing insured a. Actual Total Loss  a total destruction of the thing insured  the irretrievable loss of the thing by sinking or by being broken up  any damage to the thing which renders it valueless tot he owner for which he held it  any other event which effectively deprives the owner of possession. its cargo.any extraordinary or additional expense incurred during the voyage for the preservation of the vessel. insured must have interest at risk b. or both from the real or known risk  Abandonment . or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded  General Average . made within a reasonable time c. there must be no fraud on the insured’s part  Notice of Abandonment: a. may be oral or in writing (if oral. at the port of destination. written notice must be submitted within 7 days from oral notice) b. cargo. explicit notice d. need not be accompanied by proof of interest or loss  Acceptance of Abandonment 41 .

even though the insured was negligent. policy shall not protect the insured from injury consequent upon his negligent b. windstorms d.  Scope of Fire Insurance: a. unless the ground on which it is made is proved to be unfounded  If insurer refuses to accept a valid abandonment . tornado e. loss is partial  Primage . insurance taken is less than the actual value of the thing insured b. c. may be express or implied (i. it may become hostile if it by accident.42 a. freightage earned after loss . use or management of fire. silence for unreasonable length of time) b.belongs to the insurer of freightage b. lightning c. fire b. so long as it is confined to the place where it ought to be if it escapes. it was made without the insurer’s consent c. conclusive upon the parties and admits the loss and sufficiency of abandonment c.liable as upon actual total loss  Upon actual abandonment a. it is done within the insured’s control. becomes so extensive as to be beyond control  Options of the Insurer 42 . Fire Insurance Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the place where it was intended to burn and ought to be in) and not that caused by friendly fire (fire which burns in a place where it is intended to burn). earthquake f. and it increases the risk of loss or damage  Rules: a. such alteration violates a provision in the policy b. the insurer is liable even though a fire may remain in its proper place.belongs to insurer of ship  Co-insurance: form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance  Co-insurance applies only where the: a. irrevocable. freightage earned before loss . other allied risks  When does alteration in the use or condition entitle the insurer to rescind the contract? a.increase in freightage 23.e.

by his own hand while insane b.  Insurer is Liable for death/injury to insured: a. even though it results from an act or even which was intelligently done. he shall claim for the person who is directly at fault. Life Insurance: an insurance in human life and insurance appertaining thereto or connected therewith may be payable: a. land transport operator or one who is the owner of a motor vehicle or vehicles being used for conveying passengers for compensation (including school buses)  No Fault Indemnity Clause: The insurance company shall pay any claim for death or bodily injuries sustained by a passenger or 3 rd party without the necessity of proving fault or negligence of any kind subject to certain conditions. otherwise. by taking poison by mistake c. motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose name such vehicle is registered with the LTO b. by unexpected bacterial infection consequent upon doing acts. on the death of the insured b. (3) this is subject to final determination as to the party who is negligent or who is at fault.43 a. restore the property damaged . (4) payment is subject to reimbursement from the party at fault or negligent. by unprovoked violence of others  Compulsory Motor Vehicle Liability Insurance Persons subject to CMVLI: a. embarking or disembarking. by overdoes of drugs administered or taken by mistake. unexpected and unusual. even though such acts were intentionally done agreement whereby the surety guarantees the performance of the principal or obligor of an obligation or undertaking in favor of a 3 rd party called the obligee 26. Suretyship .contract of insurance is discharged and parties enter into a new contract of insurance 24. contingently on the continuance or cessation of life (b and c refer to endowment or annuities)  Uses and Common Kinds of Life Insurance: 43 . The following are the rules on claims under the said provisions: (1) claim shall be made upon the insurer of the vehicle on which he is riding. on his surviving a specified period c. Casualty Insurance: Any injury that is intended. It is in the nature of preliminary indemnity pending final determination as to which party is at fault or negligent. by ignorance or material pathological conditions d. 25. purchase the property at appraised valuation b. (2) if claimant is not a passenger. This does not apply to property damage.

upon: if he dies before that time. The insurer agrees to pay the face value of the policy upon the death of the insured. Whole Life or Ordinary Policies . Life or Endowment Policies Grace Period . c. If the latter survives the period.30 days for the payment of any premium due after the first premium has been paid Period of Incontestability .payable within 60 days after: (a) presentation of claims. semi-annual or quarterly premiums while he lives. Claims Settlement Unfair Claims Settlement Practices: (a) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies (c) failing to adopt or implement reasonable standards for the prompt investigation of claims arising under its policies (d) no attempt in good faith to effectuate prompt.insurer agrees to pay a certain sum to the insured if the latter outlives a designated period. fair and equitable settlement of claims submitted in which liability has become reasonably clear (e) compelling policy holders to institute suits to recover the amount due under its policies by offering with no justifiable reason an amount substantially less than that ultimately recovered in suits brought by them (b) failing Proceeds of Life Insurance .insurer’s liability arises only upon the death of the insured within the agreed term as period. at the rate of 2 times the ceiling prescribed by the Monetary Board unless based on the ground that the rate is fraudulent) 44 . d. if period of extension has expired b. b.debtor binds himself to pay an annual pension or income during the life of one or more persons in consideration of a capital consisting of money or other property. the proceeds are paid to the beneficiary Life Annuity .44 a. and (b) filing of proof of death (upon failure to pay interest. Term Policy . payment of all overdue premiums and any indebtedness to the company upon said policy Exceptions: a. and b.within 3 years from the date of default of premium. the insured agrees to pay annual. if cash surrender value has been paid b. production of evidence of insurability. the contract terminates and the insurer is not liable Endowment Policy .after the lapse of 2 years from the date of issue or date of approval of last reinstatement Reinstatement of Policy .premiums paid only for a specified period of years. e. Limited Payment Life Policy . The Business of Insurance a. whose ownership is transferred to him with the burden of income 27.

on behalf of an insured other than himself. is impaired or deficient (e) that the margin of solvency required of each company is deficient Insurance Agent . except that this restriction shall not apply to any member who has served the full term for which he was appointed.payable: (a) upon proof of loss (b) upon ascertainment of loss or damage (if not made within 60 days of proof of loss. PHILIPPINE DEPOSIT INSURANCE CORPORATION 1. payable in 90 days) c. 2. He must be first licensed as such before doing any acts as insurance agent. and before entering upon his duties as member of the Board of Directors he shall certify under oath that he has complied with this requirement and such certification shall be filed with the Secretary of the Board of Directors. The PDIC is tasked to insure the deposits of all banks which are entitled to the benefits of insurance under RA 3591. commission or any other thing of value. A license is required. negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance. Insurance Broker . Any vacancy in the Board created by the death. or aids in any manner in soliciting. resignation. 3. Power of Commissioner to Suspend/Revoke License (a) if insurance contract is in unsound condition (b) if it has failed to comply with the provisions of law or regulations obligatory upon it (c) its conditions or methods of business is such as to render its proceedings hazardous to the public or to its policy holders (d) that its paid up capital stock. or its security deposits. position or employment in any insured bank. as the case may be. The members of the Board of Directors shall be ineligible during the time they are in office and for a period of two years thereafter to hold any office. acts.45 Proceeds of Policies other than Life .any person for any compensation. or its available cash assets. The Board of Directors is composed of the governor of the Central Bank and two appointees of the President who must be Filipino citizens and must be confirmed by the Commission on Appointments. or removal of an appointive member shall be filled by the appointment 45 . 5.any person who for compensation solicits or obtains insurance on behalf of any insurance company or transacts for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in negotiating of such insurance. No member of the Board of Directors shall be an officer or director of any insured bank. 4.

the financial history and condition of the Bank. a. d. 8. c. 6. The semiannual assessment for each insured bank shall be in the amount of the product of one-half (1/2) the assessment rate multiplied by the assessment base. To authorize such expenditures by the Corporation as are in the interest of the effective administration and operation of the Corporation. 10. The factors to be considered by the Board of Directors for the approval of the application: a. e. and (ii) cash items as determined by either of the following methods. at the option of the bank: 46 . and d. 9. 7. To appoint. the adequacy of its capital structure. its future earning prospects. 11. Although the assessment base shall be the amount of the liability of the bank for deposits. fix the remunerations and remove all officers and employees of the Corporation. the general character of its management. To direct the management. Any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposit. Powers of the Board: To prepare and issue rules and regulations as it considers necessary for the effective discharge of its responsibilities. Any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligation payable only at such branch. the convenience and needs of the community to be served by the Bank and f. b. without any deduction for indebtedness of depositors. 13. c. b. whether or not its corporate powers are consistent with the purposes of the Act. subject to the Civil Service Law. 12. The Board of Directors must also determine that the bank’s assets in excess of its capital requirements are adequate to enable it to meet all its liabilities to depositors and other creditors as shown by the books of the bank. operations and administration of the Corporation. Any bank or banking institution which is engaged in the business of receiving deposits may insure its deposit liabilities with the Corporation.46 of new member to complete the unexpired period of the term of the member concerned. the bank may (1) deduct (i) from the deposit balance due to an insured bank the deposit balance due from such insured bank (other than trust funds deposited by it in such bank) which is subject to an immediate withdrawal. The assessment rate shall be determined by the Board of Directors but shall not exceed one-twelfth of one per centum per annum.

and the amount of devices or authorizations issued by it for cash letters received. or (b) by deducting the total of cash items forwarded for collection on the assessment base days and cash items held for clearing at the close of business on said days. ii. The PDIC. The insured bank must file a certified statement: i. plus such uncollected items paid or credited on preceding days which are in the process of collection: Provided.47 (a) by multiplying by 2 the total of the cash items forwarded for collection on the assessment base days (being the days on which the average deposits are computed) and cash items held for clearings at the close of business on said days. which are in the process of collection and which the bank has paid in the regular course of business or credited to deposit accounts. showing for the 6 months ending on the preceding June 30 the amount of the assessment base and the amount of the semiannual assessment due to the Corporation for the period ending on the following December thirty-one and pay to the Corporation the amount of the semiannual assessment it is required to certify. on or before the 15th day of January of each year. That the Board of Directors may define the terms "cash items". as a condition to the right to make any such deduction or exclusion in determining its assessment base. 14. Any insured bank which fails to file any certified statement required to be filed by it in connection with determining the amount of any assessment payable by the bank to the PDIC may be compelled to file such statement by mandatory injunction or other appropriate remedy in a suit brought for such purpose by the PDIC against the bank and any officer or officers thereof in any court of the Philippines of competent jurisdiction in which such bank is located. "process of collection". shall maintain such records as will readily permit verification of the correctness thereof. and which are not subject to withdrawal by the obligor and are carried in a special non-interest bearing account designated to properly show their purpose. 15. which are in the process of collection and which the bank has paid in the regular course of business or credited to deposit accounts. Each insured bank. 16. each insured bank shall file a similar certified statement for the six months ending on the preceding December thirty-one and shall pay to the Corporation the amount of the semiannual assessment for the period ending on the following June thirty which it is required to certify. in a suit brought in any court of competent jurisdiction. on or before the 15th of July of each year. shall be entitled to recover from any insured bank the amount of any 47 . 17. and (2) may exclude from its assessment base (i) drafts drawn by it on deposit accounts in other banks which are issued in the regular course of business. directing that its deposit account in the sending bank be charged with the amount thereof. and "uncollected items" and shall fix the maximum period for which any such item may be deducted. and (ii) cash funds which are received and held solely for the purpose of securing a liability to the bank but not in an amount in excess of such liability.

Should any insured bank fail or refuse to pay any assessment required to be paid and should the bank not correct such failure or refusal within thirty days after written notice has been given by the PDIC to an officer of the bank. and shall fix a time and place for a hearing before the Board or before a person designated by it to conduct such hearing. at which evidence may be produced. stating that the bank has failed or refused to pay as required by law the insured status of such bank shall be terminated by the Board of Directors. No action or proceeding shall be brought for recovery of any assessment due to the PDIC or for the recovering of any amount paid to the PDIC in excess of the amount due to it. Termination of Status as an insured bank: Any insured bank may. the Board. terminate its status as an insured bank. written notice to the Corporation. 20.48 unpaid assessment lawfully payable by such insured bank to the PDIC. the payment of assessment. or debentures of such bank.  If the Board shall find that any unsafe or unsound practice or violation specified in such notice has been established and has not been corrected within the time above prescribed in which to make such correction. except where the insured bank has made or filed with the PDIC a false or fraudulent certified statement with the intent of evade. upon not less than ninety days. (a) 48 . shall give to the bank not less than 30 days' written notice of intention to determine the status of the bank as an insured bank. in which case the claim shall not have been deemed to have accrued until the discovery by the PDIC that the certified statement is false fraudulent.  The Board shall first give to the Central Bank a statement with respect to such practices or violations for the purpose of securing the correction thereof and shall give a copy thereof to the bank. in a whole or in part. 18. whether or not such bank shall have filed any such certified statement and whether or not suit shall have been brought to compel the bank to file any such statement. capital notes.  Unless the bank shall appear at the hearing. (b) By the PDIC:  When the Board finds that an insured bank or its directors or trustees have o continued unsafe or unsound practices in conducting the business of the bank o have knowingly or negligently permitted any of its officers or agents to violate any provisions of any law or regulation to which the insured bank is subject. if it shall determine to proceed further. and upon such evidence the Board shall make written findings which shall be conclusive. the Board may order that the insured status of the bank be terminated. 21.  Unless such correction shall be made within 120 days or such shorter period of time as the Central Bank shall require. and to the Development Bank of the Philippines if it owns or holds as pledges any preferred stock. 19. The remedies provided in this subsection and in the two preceding subsections shall not be construed as limiting any other remedies against an insured bank but shall be in addition thereto. it shall be deemed to have consented to the termination of its status as an insured bank. unless such action or proceeding shall have been brought within five years after the right accrued for which the claim is made.

things. 24. and all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC may have become subrogated. 23. less all subsequent withdrawals from any deposits of such depositor. All notes. After the PDIC has given at least 3 months notice to the depositor. to public. shall thereupon revert to the depositor. shall continue for a period of two years to be insured. but such depositor shall retain his claim for any uninsured portion of his deposit. from one place to another for a fixed price (business. or similar liabilities of. or of any liability of the depositor to the closed bank or its receiver. Contract of Transportation . debentures. After the termination of the insured status of any bank. all rights of the depositor against the PDIC with respect to the insured deposit shall be barred. the insured deposits of each depositor in the bank on the date of such termination. Acts by the insured bank which need consent from the PDIC: (1) merge or consolidate with any noninsured bank or institution or convert into a noninsured bank or institution (2) assume liability to pay any deposits made in. he must claim his insured deposit from the PDIC within 18 months after the Central Bank or proper court shall have ordered the conversion of the assets of the closed bank into money. and the bank shall continue to pay to the Corporation assessments as in the case of an insured bank during such period. bonds. which is not offset against the claim due from such bank. Otherwise. news. pending the determination and payment of such liability by such depositor or any other person liable therefor. 22. any noninsured bank or institution (3) transfer assets to any noninsured bank or institution in consideration of the assumption of liabilities for any portion of the deposits made in such insured bank.49   The Corporation may publish notice of such termination and the bank shall give notice of such termination to each of the depositors at his last address of record on the books of the bank. 25. 26. on usual routes) 2. The PDIC. for hire. The PDIC may withhold payment of the insured deposit in a closed bank as may be required to provide for the payment of any liability of the depositor as a stockholder of the closed bank. TRANSPORTATION LAW 1.contract whereby a certain person or association of persons obligate themselves to transport persons. upon the payment of any depositor shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment. Parties to the Contract of Transportation: 49 . or such obligations issued by the Corporation shall be exempt from taxation. goods in line with business.

written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or his carrier It is not indispensable to the creation of a contract of carriage. If delay is unreasonable. water. no public employment. one to whom the carrier may lawfully make delivery in accordance with its contract of carriage (shipper and consignee may be the same person) 3. then he may refuse to accept and make carrier liable for conversion. association engaged in the business of carrying or transporting passengers. or to present his own person or those of other or others in the case of transportation of passengers Carrier/Conductor . things. by land.only breach of contract. whether coastwise or on the high seas. deliver the things or news to be transported.those engaged in navigation. Vessels . ergo damages. Mere delay in the delivery of goods to consignee does not give right to refuse goods . dredges. 4.50 a. pontoons. Bill of Lading . offering services to the public. undertakes to deliver goods/passengers for compensation. The contract itself arises from the moment goods are delivered by shipper to carrier and the carrier agrees to carry who gives rise to the contract of transportation by agreeing to b. firm. Carrier’s responsibility starts from the moment he receives unconditionally the merchandise personally or through an agent and lasts until he delivers them actually or constructively to the consignee or his agent. event independent of human will b. requires only ordinary diligence  A common carrier is PRESUMED negligent when there is a breach of its contract. It has to prove it exercised EOD in order to escape liability. by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided.person. scows and any other floating apparatus destined for the services of the industry or maritime commerce 50 . The function of the Bill of Lading: the legal basis of the contract between the shipper and carrier shall be the bills of lading. c. air. debtor free from aggravation/participation d. or one employed in or engaged in the business of carrying goods for others for hire Consignee – the party to whom the carrier is to deliver the things being transported. goods or both.not engaged in the business of carrying. Shipper . occurrence makes it impossible for debtor to perform in normal manner c. impossible to foresee or avoid 5. or news. Common Carrier . Requisites of Caso Fortuito a. 6. no exceptions being admissible other than forgery or material errors in the drafting who binds himself to transport persons. as the case may be. for compensation. including floating docks. corporation. must exercise extraordinary diligence Private Carrier . 7. Contributory negligence does not entitle passengers to recover moral/exemplary damages.

ship owner and/or ship agent b.liability of shipowners is limited to amount of interest in said vessel because of the real and hypothecary nature of maritime law such that where the vessel is entirely lost. Shipwrecks 51 . Averages b. There is neither a prescriptive period within which the ship owner can make the abandonment. the ship owner or ship agent is liable. However.51 8.made by shipowner/ship agent guaranteed by vessel itself. other officers of the vessel d. Roles of the Captain: a. equip and c. aside from claims for goods. if the amount claimed were made use of for the benefit of the vessel. captain or master c. supercargo (a person designated by the owner of goods to accompany the goods on the vessel where the goods are loaded. the obligation is extinguished. Arrivals Under Stress c. Loan on Bottomry . Exceptions: (1) vessel is not abandoned (2) claims under workmen’s compensation (3) injury/damage due to shipowner’s fault (4) vessel is insured  The doctrine also applies for claims due to death or injuries to passengers. Loan In Respondentia . technical director of the vessels c.  provision the vessel. Collisions d. He may do so for so long as he is not estopped from invoking the same or do acts inconsistent with abandonment. general agent of the ship owner b. civil liability for contracts entered into by the captain to repair. provided that the amount claimed was invested for the benefit of the vessel civil liability for indemnities in favor of 3 rd persons which may arise from the conduct of the captain in the care of the goods which the vessel carried. Doctrine of Limited Liability . represents the government of the country under whose flag he navigates 12. Accidents and Damages in Maritime Commerce: a. 10. 11. civil liability for the acts of the captain b. as well as for the safety of the passengers transported Ship owner/ship agent not liable for the obligations contracted by the captain if the latter exceeds his powers and privileges inherent in his position of those which may have been conferred upon him by the former.) 9. He is NOT an employee of the carrier nor a part of the crew but is a passenger.  In abandoning the vessel.taken on security of the cargo repayable upon the safe arrival at cargo destination 14. Liability of Ship owners and Ship agents: a. repayable upon arrival at destination 13. Persons Participating in Maritime Commerce: a. there is no procedure to be followed.

malice. Formalities for Incurring Gross Average: a. with the reasons and motives and the votes for and against the resolution d.each vessel and its cargo shall bear its own damages (Fortuitous) it cannot be determined which of the 2 vessels caused the collision .each vessel shall suffer its own damages. Cases of Collision: a.ship owner liable for the losses and damages (Culpable Fault) due to fortuitous event or force majeure . defect of vessel due to improper repair d. deliberately incurred b.striking of a moving vessel against one that is stationary 22. all damages or deterioration which the vessel may suffer from the time it puts to sea at the port of departure until it casts anchor at the port of destination. (b) well-founded fear of seizure. complement of the vessel . from real and known risk d. there must be a resolution of the captain c. Simple Average . General Average .expenses/damages caused to the vessel/cargo not inured to common benefit and profit of all the persons interested in the vessel and her cargo. all extraordinary or accidental expenses which may be incurred during the voyage for the preservation of the vessel or cargo or both b. Average: a. due to the fault. negligence or lack of skill of the captain.expenses/damages deliberately caused in order to save the vessel. Allision . he shall deliver one copy of these minutes to the maritime judicial authority thereat 19. and both shall be solidarily responsible for the losses and damages occasioned to their cargoes (Inscrutable Fault) 52 . risk of enemy not well known or manifest c. the resolution shall be entered in the log book. within 24 hours upon arrival at the first port the captain makes. there is success 18. negligence. intended to save vessel and cargo or both c. lack of foresight or skill of captain 20.52 15. sailing mate or the b. the minutes shall be signed by the parties e. lack of provisions due to negligence to carry according to usage and customs b. there must be an assembly of the sailing mate and other officers with the captain including those with interests in the cargo b.impact of 2 vessels both of which are moving 21. its cargo or both from a real and known risk Requisites: a. Arrivals under Stress . and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment 16. c.arrival of the vessel at a port not of destination on account of (a) lack of provisions. borne by respective owners 17. Collision . (c) by reason of accident of the sea disabling it to navigate When Not Lawful: a.

in whole or in part. even if the said movement is wrong. When Applicable: a. service voluntarily rendered when not required as an existing duty or from special contract c. to and from Philippine ports d. 29. by running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation 25.a ship or cargo which is abandoned and deserted at sea by those who are in charge of it. and can look to the salvaged vessel for its share salvor takes possession and may retain possession until he is paid court has power to reduce the amount of remuneration if unconscionable Towage crew of the towing ship does not have any interest or rights with the remuneration pursuant to the contract Tower has no possessory lien. or that the services rendered contributed to such success 28. without any hope of recovering it. or without any intention of returning it 27.contract whereby a vessel usually motorized pulls another from one place to another for compensation. Elements of a Valid Salvage: a. a service which one person renders to the owner of a ship or goods by his own labor. contracts for the carriage of goods b. Error in Extremis . Difference between Towage and Salvage: Salvage crew of salvaging ship is entitled to salvage. It is a contract of services.sudden movement made by a faultless vessel during the 3 rd zone of collision with another vessel which is at fault. Derelict . Contract of Towage .the compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending peril. a permit is required to engage in the salvage business 26. preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect and secure. derelict or recapture.denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by the waves. in foreign trade 53 . in cases of shipwrecks. a marine peril b. Shipwreck . Salvage . only an action for recovery of sum of money Court has no power to change amount in towage even if unconscionable CARRIAGE OF GOODS BY SEA ACT 1.53 23. success. no responsibility will fall on said vessel 24. or such property recovered from actual peril or loss. by sea c.

If the loss or damage is not apparent. The right to damages shall be extinguished if an action is not brought within 2 years from the date of arrival at the to 125. international transport by air b. if not given. before the court of the domicile of the carrier. for hand carry . Cancer) 3. the carrier shall be discharged from all liability in respect of loss or damage of goods unless suit is brought within 1 year after delivery of the goods or the date when the goods should have been delivered.period during which the baggage or goods are in charge of the carrier. the notice must be given within 3 days of delivery.54 2. c. Notice of Loss or damage must be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery. (Northwest Airlines vs. either: a.000 francs per passenger  When can you not avail of this limitation? (1) willful misconduct (2) default amounting to willful misconduct (3) accepting passengers without ticket (4) accepting goods without airway bill or baggage without baggage check 6. transport of persons. delay in the transport by air of passengers. or in the case of landing outside an airport. or goods Enumeration of causes of action as above stated is not an exclusive list.000 francs b. loss or damage to any check baggage or goods sustained during the transport by air c. damage sustained in the event of the death or wounding of a passenger taking  place on board the aircraft or in the course of any of the operations of embarking or disembarking b. Meaning of Transport by Air . or from the date on which the transportation stopped. d. court where he has a place of business through which the contract has been made. 7. WARSAW CONVENTION 1. to 250 francs per kilogram to 5. or from the date on which the aircraft ought to have arrived. court of principal place of business of carrier. that fact shall not affect or prejudice the right of the shipper to bring suit within the 1 year prescriptive period. baggage. Convention provides for a limitation of liability: a. Liabilities under the Convention: a. When Applicable: a. Notice requirement: damage to baggage : within 3 days from receipt damage to goods: within 7 days from receipt 54 . b. before the court at the place of destination 5. or goods 2. whether in an airport or on board an aircraft. Action for damages must be brought at the option of the plaintiff. in any place whatsoever 4. for each passenger . However. Notice of loss. for goods and checked in baggage .

119528. Public Utility . CAB (G. PAL v. then the applicant who applied first will be given the CPC.55 delay: within 21 days from receipt Failure to file written or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity. 1997) blurred the distinction between the CPC and CPCN.  8. 4. no action shall lie against the carrier. either municipal or legislative is required by law *However. telephone or telegraph service. 5. If both applicants equal. and done for a general business purpose any common carrier. Prior Applicant Rule . Prior Operator Rule . 2. save in the case of fraud on his part. operate. accidental.before permitting a new operator to invade the territory of another already established. electric light. March 26.R. shipyard. 3. The Court ruled that convenience and necessity must be 55 . Notice Requirements: loss/damage apparent loss/damage not apparent damage of baggage COGSA protest at time of receipt of goods protest within 3 days from delivery Code of Commerce Protest at time of receipt of goods Protest within 24 hours after receipt Warsaw Convention protest within 3 days from receipt within 7 days from receipt within 21 days from receipt damage of goods delay PUBLIC SERVICE ACT 1. heat and power and public utility. water. control in the Philippines. the prior operator must be given an opportunity to extend its service to meet the public needs in the matter of transportation. for hire/compensation with general/limited clientele whether permanent. Distinctions between CPCs and CPCNs Certificate of Public Convenience any authorization to operate a public service issued by the appropriate government agency Certificate of Public Convenience and Necessity Issued by the appropriate government agency to a public service to which any political subdivision has granted a franchise an authorization issued by the proper government agency for the operation of public services for which a franchise is required by law an authorization issued by the proper government agency for the operation of public services for which no franchise. Every person that may own. No.presupposes a situation where two interested persons apply for a CPC in the same community over which no person has yet been granted a CPC to operate. occasional. transportation. gas. manage.

it is to disregard for justifiable reasons by the state the fiction of juridical personality of the corporation separate and distinct from the persons composing it 4. public convenience CORPORATION LAW 1. Founders Shares . Requirements of CPC and franchise: a. 3. right to vote/be voted in the election of directors shall not exceed 5 years Non-Voting Shares a. Corporation by Estoppel .corporation defectively formed from a bona fide attempt to incorporate under the existing law and exercises corporate powers 6. De Facto Corporation .56 construed together.a group of persons which holds itself out as a corporation and enters into a contract with 3 rd persons on the strength of such appearance cannot be permitted to deny its existence in an action under said contract 7. This is a breach of fiduciary relationship. Roman Catholic) 8.the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Further. Corporation by Prescription . Doctrine of Separate Juridical Personality – a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and in general. from the people comprising it. acting through its directors. and that obligations incurred by the corporation. Doctrine of Corporate Opportunity .given rights and privileges not enjoyed by owners of other stocks. De Jure Corporation . Doctrine of Piercing the Veil of Corporate Entity . financial capacity c. which should have been a transaction undertaken by the corporation. Voting Shares a. it is the law which determines the requisites for issuance of such certification and not the title indicating the certificate. Filipino citizenship b. Trust Fund Doctrine .a director is made to account to his corporation. Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions 9.body not lawfully organized as a corporation but has been recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex. given preference in distribution of assets in liquidation and in payment of dividends and other preferences stated in the articles of incorporation 56 .issued only with par value. gains and profits from transactions entered into by him/another competing corporation in which he has substantial interest. 2. 6.corporation formed with all the requirements of law 5. officers and employees are its sole liabilities. Preferred Shares .

purchase delinquent shares 57 .written acknowledgment by the corporation of the stockholder’s interest in the corporation. Transfer binds the corporation when it is recorded in the corporate books. increase/decrease of capital stock e. money/property less than par value. But the pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the corporate name.57 b. Preferred Cumulative Participating Share of Stock . 17. Certificate of Stock . 16.usually payment of full subscription price 13.stocks previously issued and fully paid for and reacquired by the corporation through lawful means (purchase. merger/consolidation of corporation g. ordinary civil action c. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock . A corporation can reacquire stocks in the following cases: a. call. have to be purchased/taken c. amendments of articles of incorporation b. sale/disposition of all/substantially all corporate property f. services less than par value.stock deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions . Methods of Collection of Unpaid Subscription a. etc.stock issued gratuitously. A stockholder who does not pay his subscription is not entitled to the issue of a stock certificate. null and void 14. It is the personal property and may be mortgaged/pledged. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in corporate books to bind third parties because corporate books only cover absolute transfers. eliminate fractional shares b. adoption/amendment of by-laws c. dividends where no surplus profits exist 15. Redeemable Shares .share entitling its holder to preference in the payment of dividends ahead of common stockholders and to be paid the dividends ahead of common stockholders and to be paid the dividends due for prior years and to participate further with common stockholders in dividend declarations 12. Watered Stock . investment of funds in another corporation/another business purpose h. increase/decrease of bonded indebtedness d. corporate indebtedness arising from unpaid subscriptions c. The total par value of the stocks subscribed by him should first be paid. up upon expiration of period of said shares purchased whether or not there is unrestricted retained earnings Treasury Stocks . Exceptions where holders of non-voting shares may vote: a. donation. Over-issued Stock .) 10. delinquency and sale at public auction of delinquent shares b. collection from cash dividends and other amounts due to stockholders if allowed by by-laws/agreed to by him 18.expressly provided in articles.stock issued in excess of authorized capital stock. corporate dissolution 11.

treasurer’s affidavit false d. Consolidation . b. election of officers But from issuance of certificate. election of Board of Directors c. enlarging stockholder’s rights/extending. adoption of by-laws b. it acquires juridical personality 22. Theory of Special Capacity . Merger . state may provide causes for which the privilege may be withdrawn 27. inimical c. How to organize? a. Votes required in different transactions: Provision Subject Matter Votes required 16 Amendment of AoI 24 Election of Directors or Trustees Removal of directors or trustees Filling up vacancy in BoD not due to Majority BoD. Grounds for Rejection of Registration a.a new corporation is created and the consolidating corporations are extinguished 24. d. not in prescribed form b.a corporation is said to hold such powers as are not prohibited/withheld from it by general law 25. Concession Theory . purpose illegal. Right of Appraisal a. Corporation must organize within 2 years from issuance of certificate of incorporation. written assent sufficient Yes 2/3 stockholders Yes Majority BoD If no BoD quorum. restricting. changing. merely a privilege. shortening corporate life sale/disposition of all/substantially all of corporate assets merger and consolidation investment of funds in another corporation/for a different purpose 20.the corporation cannot exercise powers except those expressly/impliedly given 26. exercise of appraisal right 19.58 d. non-compliance with required Filipino stock ownership 21. amending articles. 2/3 stockholders Majority stockholders 28 29 Written Notice Required? corporation absorbs the other and remains in existence while the other is dissolved 23.a group of persons wanting to create a corporation will have to execute documents and comply with requirements set by the state before being given corporate personality. Theory of General Capacity . Appraisal Right? Yes 58 . c.

2/3 stockholders Yes Yes Yes Yes Majority BoD. 2/3 members Yes Majority BoD. 2/3 stockholders Yes Yes Yes Yes Majority BoD. 2/3 stockholders Majority BoD Yes Majority BoD Stockholders’ required vote (2/3 or majority) depends on certain conditions Majority stockholders 2/3 stockholders Yes Yes Majority stockholders Majority BoD/stockholder s Majority of BoD of each Corporation. 2. 119 Granting of compensation to directors Ratify dealings or disloyalty of director Extend or Shorten Corporate Term Increase/Decrease Capital Stock. Increase Bonded Indebtedness Sale or Disposition of Assets Invest funds in another corporation Declaration of Stock Dividends Declaration of Cash dividends Enter into management contract Adoption of ByLaws Delegate to BoD power to amend repeal or adopt by-laws Revocation of Power to amend/repeal or adopt by-laws Amendment of ByLaws Merger or consolidation (approval or amendment of plan) Plan of distribution of assets for NSCs Voluntary dissolution Majority stockholders majority of stockholders Yes 2/3 stockholders Yes Silent for 34 Majority BoD. 2/3 stockholders Yes Yes Yes – extension No – shortening Yes Majority BoD.59 removal 30 32. 34 37 38 40 42 43 43 44 46 48 48 48 77 95 118. 2/3 stockholders Majority BoD. 2/3 stockholders Majority BoD.3 stockholders Yes 59 .

In a non-stock corporation. This is compulsory if the surplus is equal/or more than the paidup capital. cause of action in favor of the corporation b. in writing. 33. Cumulative Voting . Voting Trust Agreement . the general manager may bind the company even without formal authorization of the board of directors 29.brought by a stockholder for and in behalf of the corporation to protect/vindicate corporate rights after he has exhausted intra-corporate remedies Requisites: a. justified by approved expansion projects b. having common cause against the corporation 37.60 agreement between a group of stockholders and trustee for a term not exceeding 5 years in which control over the stocks is lodged in the trustee. remedial rights 30. He may only be removed with cause. General Rule: If surplus profits exceed the requirements the corporation shall declare dividends. indirect participation in management to vote or remove directors c. custom and policy. proprietary rights d. Derivative Suit . refusal of corporation to sue c. illegal combinations in restraint of trade in fraud 31.the number of votes that a shareholder’s number of shares multiplied by the number of directors may give all said votes to one candidate or he may distribute them as he may deem fit. Exceptions: a. it cannot be utilized unless allowed by the by-laws/articles 32. period not exceeding 5 years c. cannot be entered into to circumvent the laws against monopolies. notarized and filed with the SEC and the corporation b. a direct participation in management . prohibited by creditor to declare dividends c. Representative Suit .where his vote is needed to approve certain corporate actions b. Cumulative voting is a matter of right in a stock corporation. Powers of stockholders: a. injury to the corporation 60 . The power of removal of directors that may be exercised with or without cause cannot apply to the director representing the minority shareholders. a.brought by the stockholder in his own behalf and in behalf of other stockholders similarly situated. retention is necessary under existing circumstances brought to assert a right of a stockholder peculiar to himself 36. Where similar acts have been approved by the directors as a matter of general practice. Individual Suit .decisions made by a corporation’s management body shall not be interfered with even by the courts unless oppressive/unconscionable as to violate the rights of the minority such acts are 35. The purpose is for controlling the voting. Business Judgment Rule .

or the exercise of some of the functions normally incident to. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis. Isolated.continuity of commercial dealings incident to prosecution of purpose and object of the organization. 38. firm. But where the isolated act is not incidental/casual but indicates the foreign corporation’s intention to do other business. supervision or control of any domestic business. occasional or casual transactions do not amount to engaging in business. opening offices. The lawyer who handled the case in the trial court may be considered as trustee for the dissolved corporation with respect to the matter in litigation only even if no appointment was extended to him. training domestic workers to operate it. Otherwise. and 8. b. commercial gain or of the purpose or object of the business organization. Foreign Corporations a. said single act constitutes engaging in business in the Philippines. Soliciting orders. b. whether called “liaison” offices or branches. and similar incidental services. servicing the same. service contracts. Having a nominee director or officer to represent its interests in such corporation. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines. and contemplate to that extent the performance of acts or works. 4. 5. and/or the exercise of rights as such investor. such as installing in the Philippines machinery it has manufactured or exported to the Philippines. the corporation in liquidation would lose what justly belongs to them/be exempt from payment of obligations because of a technicality. and 4. generally .61   Although corporations dissolved have 3 years to wind up. 2. Mere investment as a shareholder by a foreign entity in a domestic corporation duly registered to do business. Participating in the management. 7. “Doing business” includes (Foreign Investment Act of 1991): 1. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. “Doing business” does NOT include: 1. Any other act or acts that imply a continuity of commercial dealings or arrangements. and in progressive prosecution of. entity or corporation in the Philippines. 3. they can convey their properties to a trustee who can continue the suit beyond the 3 year period. (Selano vs. The publication of a general advertisement through any print or broadcast media. 2. Collecting information in the Philippines. Instances when unlicensed foreign corporations can sue: (1) isolated transactions 61 . CA) In a case filed before dissolution. and 3. 6. it may continue even beyond the 3 year period until final determination of litigation. c. Doing Business.

and reputation of a foreign corporation (3) contracts provide that Phil. original and exclusive jurisdiction (1) fraudulent devices and schemes employed by directors detrimental to public interest (2) intra-corporate disputes and with the state in relation to their franchise and right to exist as such (3) controversies in the election. issued by foreign government which the Philippines has diplomatic relations c. trustees. Grounds for Suspension/Revocation of Certificate of Registration (1) fraud in procuring registration (2) serious misrepresentation as to objectives of corporation (3) refusal to comply with lawful order of SEC (4) continuous inoperation for at least 5 years (5) failure to file by-laws within the required period (6) failure to file reports (7) other similar grounds REVISED SECURITIES ACT 1. Exempt Securities a. SEC Jurisdiction a. Courts will be venue to controversies (4) license subsequently granted enables foreign corporation to sue on contracts executed before the grant of the license (5) recovery of misdelivered property (6) where the unlicensed foreign corporation has a domestic corporation 39. its issued stock shall be subject to one or more restrictions on transfer and shall not be listed in any stock exchange/make public offering Non-stock Corporation . Corporation Sole .62 (2) action to protect good name. issued by the government subdivisions/instrumentalities b. consists of 1 person only and his successors. incorporated by law giving them legal capacity and advantage Close Corporations . issued by receiver/trustee of an insolvent approved by the court d. appointment of directors.special form of corporation. exempt securities b. Religious Corporations a. securities emanating from exempt transactions whose articles provide that its shares shall not be held by more than 20 persons. etc. where no part of its income is distributable to its members and shall be used in furtherance of the purpose of which it was organized 40. associated with the clergy and b. goodwill. Exception: a. issued by building and loan association e. General Rule: All securities before being offered for sale/actual sale to the public must first be registered and have the proper permit. (4) petition to be declared in a state of suspension of payments b. issued by receiver/trustee of an insolvent approved by the court 62 .

manipulation of deceptive devices c. fraudulent transaction d. 2. etc. g. if not totally eliminate. Exempt Transactions a. ensure full and fair disclosure about securities. pre-incorporation subscription f. director. stockholders of issuers is disqualified e. fraudulent transactions e. officer. issuer’s business not sound d. isolated transactions on securities done by owner/agent d. Powers and Functions of the SEC (Sec 5):  Have jurisdiction and supervision over all entities who are the grantees of primary franchises and/or a license or permit issued by the Government. does not conduct business in accordance with law 6. dishonesty by issuer/misrepresented prospectus e.  minimize. communications. violated code/ SEC rules. violated of Code/SEC rules c.  protect investors. h. manipulation of security prices b. issuer/registrant insolvent. Purpose of the law:  encourage the widest participation of ownership in enterprises. issuer insolvent b. Acts Prohibited a. issue would prejudice the public 5. reports SECURITIES REGULATION CODE OF 2000 (For a memory aid of the IRR of the Securities Regulation Code. Grounds for Revocation a. in insolvency b.63 f. engages in fraudulent transactions c. stock transfers emanating from mergers and consolidations e. application incomplete/untruthful/omits to state a material fact b. securities issued by public service operator to broaden equity base 4. insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. see Appendix A ) 1. 63 . judicial sale by execution. sale of pledged property/foreclosed property to liquidate an obligation c. artificial measures of price control d. false prospectus. Grounds for Rejection of Registration a. insider trading f. policy of insurance issued by insurance corporation supervised by the insurance commission security/right/interest in real property including subdivision lot/condominium supervised by the Ministry of Human Settlements pension plans regulated by BIR/Insurance Commission 3.

Those issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations (on the basis of reciprocity). 3. search and seizure of all documents. g. amend. d. or by any political subdivision. suspend or take over the activities of exchanges. A “dealer” means any person who buys and sells securities for his/her own account in the ordinary course of business. and registration and licensing applications. contract. after proper notice and hearing. clearing agencies and other SROs. Deputize any and all enforcement agencies of the Government. or creator of the security.evidenced by a certificate. agency. Securities: i. b. A “Prospectus” is the document made by or on behalf of an issuer. whether written or electronic in character. participation or interests in a corporation or in a commercial enterprise or profit-making venture ii. both direct and indirect. the franchise or certificate of registration of corporations. e. c. An “Underwriter” is a person who guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company. A “registration statement” is the application for the registration of securities required to be filed with the SEC. 9): a. 902-A (intracorporate disputes) has been transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court. b. A “broker” is a person engaged in the business of buying and selling securities for the account of others. information on the securities shall be made available to each prospective purchaser. or revoke. Compel the officers of any registered corporation or association to call meetings of stockholders or members. obligor. Impose sanctions for the violation of laws and IRR. Handle registration statements. 5. Securities exempt from registration (Sec. However. 6. Issue subpoena duces tecum and summon witnesses to appear in any proceedings. Supervise. underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the SEC. Suspend. are shares. the SEC’s jurisdiction over all cases enumerated under Section 5 of PD No. monitor. instrument. Definitions a. 64 . Issue cease and desist orders to prevent fraud or injury to the investing public. 4. or instrumentality. Punish for contempt. Prior to any sale. An “issuer” is an originator. partnerships or associations. or repeal policies and recommendations concerning the securities market. order the examination. maker.64           Formulate. advise Congress and other government agencies and propose legislation and amendments. f. civil or military as well as any private institutions. Those issued or guaranteed by the Government of the Philippines. All securities must first have a registration statement duly filed with the SEC before they may be sold or offered for sale or distribution within the Philippines.

Housing and Land Use Regulatory Board. the issuer shall pay a fee of not more than 1/10 of 1% of the maximum aggregate price at which such securities are proposed to be offered. by law. 9. 8. its principal operating officer. that the aforesaid registration statement. a sworn registration statement with respect to such securities. photostatic or otherwise. Suspension of Registration (Sec. pay to the SEC a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities. the issuer shall state under oath in every prospectus that all registration requirements have been met and that all information are true and correct as represented by the issuer or the one making the statement. 15):  The SEC may suspend registration if the issuer refuses to furnish information required by the SEC in order to enable it to ascertain whether the registration of such security should be revoked if it finds that: a. d. 65 . is under the supervision and regulation of the Office of the Insurance Commission. principal accounting officer. 10. at its own expense. How does one partake of an exemption?   Apply for an exemption by filing with the SEC a notice identifying the exemption. Any security issued by a bank (except its own shares of stock). Registration of Securities—Procedure (Sec. or the Bureau of Internal Revenue. in two (2) newspapers of general circulation in the Philippines. the registration statement must include any prospectus which may be required  Signature: The registration statement shall be signed by the issuer’s executive officer. or its derivatives. A registration statement may be withdrawn by the issuer only with the consent of the SEC. copies. 12):  Filing: The issuer must file in the main office of the SEC.65 c. inadequate or incomplete in any material respect. 1. reciting: that a registration statement for the sale of such security has been filed. shall be furnished to interested parties at such reasonable charge as the SEC may prescribe. once a week for two (2) consecutive weeks.  Entry of Order: The SEC will enter an order declaring the registration statement to be.  Oath by the issuer: Upon effectivity of the registration statement. the information contained in the registration statement filed is or has become misleading. its corporate secretary or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation. as well as the papers attached thereto are open to inspection. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. its principal financial officer. incorrect. its comptroller.  Fees: Upon filing. which.  Order: Within forty-five (45) days after the date of filing. The sale of any security.  Publication: Notice of the filing of the registration statement shall be immediately published by the issuer. 2. the SEC shall declare the registration statement effective or rejected. e. 7.

the SEC shall conduct a hearing. bonding and other financial responsibility. b. 16): a. Regulation of Pre-Need Plans (Sec. interment. and  Other periodical reports for interim fiscal periods and current reports on significant developments of the issuer 12. The SEC may also suspend the right to sell and offer for sale such security pending further investigation. provide for the performance of future services or the payment of future monetary considerations at the time of actual need. Periodic and Other Reports of Issuers (Sec. 20): i. a. Officers and Principal Stockholders (Sec. ii. an annual report which shall include. Protection of Shareholder Interests. 66 . 17):  Every issuer shall file with the SEC:  Within 135 days.  provide for uniform accounting system. Any sale of the security when the registration is suspended shall be void. Before any pre-need plan is sold or offered for sale to the public. and other plans which the SEC may from time to time approve. 23): Every person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security. of the amount of all equity securities of such issuer of which he is the beneficial owner. No proxy shall be valid and effective for a period longer than 5 years at one time. shall file: i. reports and record keeping with respect to such plans. 12. profit and loss statement and statement of cash flows.  The proxy shall be valid only for the meeting for which it is intended. and a management discussion and analysis of results of operations.66   b. for which planholders pay in cash or installment at stated prices. for such last fiscal year. must be in writing. statement with the SEC and. they must:  be registered. it shall issue an order prohibiting the sale of such security.  impose capital. if there is a change in ownership during such month. filed before the scheduled meeting with the corporate secretary. education. or the sale or offering for sale of the security registered may work or tend to work a fraud. a balance sheet. with or without interest or insurance coverage and includes life. “Pre-Need Plans” are contracts which 1. Proxy Solicitations (Sec. pension. also with the Exchange. or who is a director or an officer of the issuer of such security. If it determines that the sale of any security should be revoked. b.  there must be disclosures to prospective plan holders. ii. iii.signed by the stockholder or his duly authorized representative. Reportorial Requirements. 2.and within 10 days after the close of each calendar month. 11. if such security is listed for trading on an Exchange. after the end of the issuer’s fiscal year. Upon issuance of an order of suspension.  and establish trust funds for the payment of benefits under such plans. Transactions of Directors. a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. certified by an independent certified public accountant.  persons involved in the sale of pre-need plans must be licensed.

Raises their price to induce the purchase of a security. practice or course of business. in connection with the purchase or sale of any securities to: i. 2.a director or officer (or person performing similar functions) of. To create a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market: ii. 27): i. 3. Does not own the security sold. which operates as a fraud or deceit upon any person. Prohibitions on Fraud. v. It shall be unlawful for an insider to sell or buy a security of the issuer. or a person controlling the issuer. a government employee. To make false or misleading statements with respect to any material fact. 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. To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations iv. 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. or ii.To effect any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging. ii. directly or indirectly: i. It shall be unlawful for any person. Depresses their price to induce the sale of a security. Creates active trading to induce such a purchase or sale through manipulative devices iii. unless: 67 . a series of transactions in securities that: 1. b. iv. Obtain money or property by means of any untrue statement of a material fact ii. 13. It shall be unlawful for any person. to sell any equity security of such issuer if the person selling the security or his principal: i.a person who learns such information by a communication from any of the foregoing insiders. Insider’s Duty to Disclose When Trading (Sec. 14. director. iii. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. or does not within 5 days after such sale. 26): a. transaction. does not deliver it against such sale within 20 days. unless otherwise allowed by this Code. deposit it in the mails or other usual channels of transportation. the issuer.Engage in any act. Fraudulent Transactions (Sec. which he knew or had reasonable ground to believe was so false or misleading. alone or with others. fixing or stabilizing the price of such security. Devices and Practices (Sec. It shall be unlawful for any such beneficial owner. or v.67 c. An “Insider” means: i. Manipulation of Security Prices.To effect. 24): a. directly or indirectly. directly or indirectly. or officer. Manipulation and Insider Trading a.If owning the security. or officer of an exchange. or director. while in possession of material information with respect to the issuer or the security that is not generally available to the public. 15.

34): It shall be unlawful for any member-broker of an Exchange to effect any 68 . c. Dealers. If a natural person. directly exercises control of supervisory authority. Registration of Brokers. are issued by a corporation. treasurer. If located outside of the Philippines. the applicant satisfy a minimum net capital as prescribed by the SEC. Segregation and Limitation of Functions of Members. 20. the applicant for registration) are the following: a. vice-president. secretary or any office of trust and responsibility. A “Salesman” is a natural person. 28):  No person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer. Brokers and Dealers (Sec. but does not include a salesman. for its own account or the account of customers. It shall be unlawful for any insider to communicate material non-public information about the issuer or the security to any person who. employed as such or as an agent. becomes an insider.68 ii. or 2. director. or act as a salesman. An “associated person of a broker or dealer” is an employee who. Salesmen and Associated Persons (hereinafter. Regulation of Securities Market Professionals a. that he had reason to believe that the other party otherwise is also in possession of the information. Exchanges and Other Securities Trading Markets a. b. Salesmen and Associated Persons (Sec. 19. or an associated person of any broker or dealer unless registered as such with the SEC. 17. the applicant must file a written consent to service of process upon the SEC. or ii. manager. The qualifications of Brokers. 18. and provide a bond or other security c. In the case of a broker or dealer. and the insider proves: 1. 30):  No for a) b) broker or dealer shall deal in or otherwise buy or sell. or iii. president. by a dealer. When such corporation’s stockholder. or an agent or a person whose functions are solely clerical or ministerial. that he disclosed the information to the other party. Dealers. If the other party selling to or buying from the insider (or his agent) is identified.The insider proves that the information was not gained from such relationship. when: The securities listed on the Exchange and dealt. by virtue of the communication. the applicant must satisfactorily pass a written examination. where the insider communicating the information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in possession of such information. b.would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy. or is a controlling person of the issuer. 16. It has not been generally disclosed to the public and would likely affect the market price of the security. comptroller. Transactions and Responsibility of Brokers and Dealers (Sec. associated person or salesman is at the time holding office in said issuer corporation as a director. sell or hold a security. issuer or broker to buy and sell securities. Information is “material non-public” if: i.

The SEC. “Exchange” is an organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities. b. Acquisition and Transfer of Securities and Settlement of Transactions in Securities a. Registration. transfer agents. To summarily suspend trading in any listed security on any Exchange or other trading market for a period not exceeding thirty (30) days or. size and location of stock Exchanges. iii. 22. and iv. dealers.Any transaction reasonably necessary to carry on an odd-lot transactions. or to remove a member from office. Any other transaction of a similar nature as may be defined by the SEC. to determine the number. 69 . ii. However.69 transaction on such Exchange for its own account. 36): The SEC is authorized (provided there is notice and an opportunity for hearing): i. in the public interest and to protect investors if it finds that a self-regulatory organization has willfully violated or is unable to comply with any provision of this Code to suspend.with the approval of the President of the Philippines. after making an appropriate request in writing to a self-regulatory organization. underwriters. A “Clearing Agency” is any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions. ii. or an account with respect to which it or an associated person exercises investment discretion. ii. is authorized. brokers. iii. Responsibilities and Oversight of Self-Regulatory Organizations (Sec. Powers with Respect to Exchanges and Other Trading Market (Sec. 40): i. to effect specified changes in its rules and practices only after due notice and hearing that such changes are necessary.take custody and management of the fund itself as well as investments in and disbursements from the funds 21. Any transaction by a member-broker acting in the capacity of a market maker. salesmen and other persons transacting in securities. summarily to suspend all trading on any securities Exchange or other trading market for a period of more than thirty (30) but not exceeding ninety (90) days. b. after due notice and hearing. Any transaction to offset a transaction made in error. for the purpose of compensating investors for the extraordinary losses or damage they may suffer due to business failure or fraud or mismanagement of the persons with whom they transact. impose limitations. v. the account of an associated person. the following shall not be unlawful: i.he SEC. expel any member. to establish or facilitate the establishment of trust funds which shall be contributed by Exchanges. other trading markets and commodity Exchanges and other similar organizations iv.

To permit an aggregate indebtedness to exceed the percentage of the net capital (exclusive of fixed assets and value of Exchange membership) employed in the business. or member of an Exchange. If so provided in its articles of incorporation and by-laws. b. and Dealers (Sec. Actions arising from any other provision of this Code must be brought:  within two (2) years after the discovery of the facts constituting the cause of action and within five (5) years after such cause of action accrued. If approved by a Board resolution and agreed by a shareholder. or record the transfer of some or all of its shares in the form of uncertificated securities. General Provisions a. or e. 58)  For Manipulation of Security Prices (Sec. 59)  With Respect to Commodity Futures Contracts and Pre-need Plans (Sec. 44. b. 26. The official records and book entries of a clearing agency shall constitute the best evidence of such transactions between the clearing agency and its participants and members. title and entitlement with respect to the book-entry security holdings of the participants or members held on behalf of the clients. 61) b. f. investor or securities intermediary. Communications and Reports  Such action must be brought within two (2) years after the discovery of the untrue statement or the omission c. To encumber or arrange to encumber any security carried for the account of any customer under circumstances: c. 25. but not exceeding 2. 70 .70 23. 24. issue shares to. On Account of False Registration Statement ii.000%. Civil Liabilities  (Sec. To lend or arrange for the lending of any security carried for the account of any customer without the written consent of such customer or in contravention of the SEC’s IRRs.): a. without his written consent. Limitation of Actions (Sec. Uncertificated Securities (Sec. that will permit the commingling of his securities. But this is without prejudice to the right of participants’ or members’ clients to prove their rights. 43): A corporation whose securities are registered pursuant to this Code or listed on a securities Exchange may: a. 62): For actions which arise i. issue all of the shares of a particular class in the form of uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name. directly or indirectly: a. with the securities of any customer. 57)  For Fraud in Connection With Securities Transactions (Sec. Brokers.Arising in Connection With Prospectus. b. or subjected to any lien or claim for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. 49): It shall be unlawful for any registered broker or dealer. Restrictions on Borrowings by Members. 56)  (Sec. Evidentiary Value of Clearing Agency Record (Sec. d. that will permit such securities to be encumbered. 60)  On Account of Insider Trading (Sec. that will permit such securities to be commingled with the securities of any person other than a bona fide customer.

71 d. then an ex-parte cease and desist order for a maximum period of ten (10) days can be issued. and the methods to be followed in the preparation of accounts. the SEC may consider the offer based on timing. (c) Thrift banks. and rescind such accounting rules and regulations as may be necessary to carry out the provisions of this Code. Power of the SEC with regard to Special Accounting Rules (Sec. Any condition. f. General rule: Whenever it shall appear that any person has engaged or is about to engage in any act or practice which would violate this Code. Settlement Offers (Sec. stipulation.Every contract made in violation of any provision of this Code or IRR. the performance of which involves the violation of. 71 . 70): Any person aggrieved by an order of the SEC may appeal the order to the Court of Appeals by petition for review in accordance with the pertinent provisions of the Rules of Court. the SEC may issue an order to such person to desist from committing such act or practice. Private development banks. as defined in Republic Act No. enjoining the violation and compelling compliance with such provision. any provision of this Code r IRR. (d) Rural banks. as well as the waiver itself. further or future violations by such person. shall be void GENERAL BANKING LAW OF 2000 1. Classifications of Banks: (a) Universal banks. composed of: i. appraisal or valuation of assets and liabilities. (b) Commercial banks. Cease and Desist Orders by the SEC. provision which binds any person to waive compliance with any provision of this Code or IRR. h. g. 71): i. the nature of the investigation or proceeding.Upon receipt of such offer of settlement. ii. amend. 73S3 (hereafter the "Rural Banks Act"). shall be void. the authority to make. ii. Savings and mortgage banks. Parties being investigated and/or charged may propose in writing an offer of settlement with the SEC. or the continuance of any violation of. and the public interest. Exception to the exception: If the SEC makes a finding that there is a reasonable likelihood of continuing.Exception: The SEC cannot charge any person with a violation of the rules of an Exchange or other self regulatory organization unless it appears to the SEC that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person. 55): Procedure: i. Judicial Review of SEC Orders (Sec. i. ii. the items or details to be shown in the balance sheet and income statement. ii. Stock savings and loan associations. iii. 68): i. as defined in the Republic Act No. Validity of Contracts (Sec.prescribe the form or forms in which required information shall be set forth. ii. and iii. e. 7906 (hereafter the “Thrift Banks Act”).

if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National Labor Relations Commission for compulsory arbitration. 6848. That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed. Powers as may be necessary to carry on the business of commercial banking such as i. 5. 3. otherwise known as the “Charter of Al Amanah Islamic Investment Bank of the Philippines”. 6. save in cases where such service is incident to financial assistance provided by the government or a government owned or controlled corporation to the bank or unless otherwise provided under existing laws. This rule shall apply to Filipinos and domestic nonbank corporations. Overseeing to ascertain that laws and regulations are complied with. drafts. (f) Islamic banks as defined in Republic Act No. e.Buying and selling foreign exchange and gold or silver bullion 72 . or f.72 (e) Cooperative banks. and other evidences of debt iii. Authority of the Central Bank a. The issuance of rules of. Receiving other types of deposits and deposit substitutes v. no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any private bank. Accepting or creating demand deposits iv.Discounting and negotiating promissory notes. taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules. The banking industry is hereby declared as indispensable to the national interest and any strike or lockout involving banks. Except as otherwise provided in the Rural Banks Act. Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided. Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. a rural bank or a financial allied or non-allied enterprise d. Invest in equities of allied (financial or non-financial) and non-allied enterprises c. d. Enforcing prompt corrective action. the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same. 4. modes or standards are to be applied. bills of exchange. as defined in Republic Act No 6938 (hereafter the "Cooperative Code"). Powers of a Universal Bank a. However. Exercise powers of an investment bank b. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board. b. Can own up to 100% of the equity in a thrift bank. and (g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas 2. Inquiring into the solvency and liquidity of the institution (2-D). Accepting drafts and negotiating promissory notes ii. c. conduct or the establishment standards of operation for uniform application to all institutions or functions covered.

73 vi. commission. (c) Accept gifts. employee or agent of the bank: (a) Make false entries in any bank report or statement or participate in any fraudulent transaction. or any other entity: Provided. offer. Limit on Loans. non-perishable goods. 73 . or increasing a loan or other credit accommodation or extending the period thereof. Credit Accommodations and Guarantees: not exceed 20% of the net worth of the bank. disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals. A bank shall not directly engage in insurance business as the insurer. (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank. or (e) Outsource inherent banking functions. fully covered by insurance. the unpaid balance of any bank loan and other credit accommodation. corporations.  Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation. warehouse receipts or other similar documents transferring or securing title covering readily marketable. 9. which may include contingent accounts. Prohibited transactions of a borrower:  Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank.  Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining. fee. shipping documents. Prohibited transactions of a director. A borrower may at any time prior to the agreed maturity date prepay. or causing damage to. plus 60% of the appraised value of the insured improvements and such loans may be made to the owners of the real estate and his assignees (same rule for security of chattels and intangible properties) 10. 12. (b) Without order of a court of competent jurisdiction. or  Offer any director. The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets. officer. renewing. thereby affecting the financial interest of. employee or agent of a bank any gift. But may be increased by an additional 10% provided the additional liabilities of any borrower are adequately secured by trust receipts. Acquiring marketable bonds and other debt securities Extending credit 7. That with respect to bank deposits. vii. 8. 11. fees. or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank. in whole or in part. 13. the provisions of existing laws shall prevail. subject to such reasonable terms and conditions as maybe agreed upon between the bank and its borrower. the bank or any person. or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. Loans and other credit accommodations against real estate shall not exceed 75% of the appraised value of the appraised value of the respective real estate security.

quasi-bank or trust entity.” “banking. Within 7 years from effectivity of Act (year 2007). The Bangko Sentral shall have full authority to regulate the use of electronic devices. trust entity.  Act as the executor of any will when it is named the executor thereof. trustee. and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court. benefit. corporation or association. or savings and loan association as defined in this Act. such a corporation shall be referred to as a trust entity. quasi-bank. including the delivery of services and products to customers by such entity. Powers of a Trust Entity:  Act as trustee on any mortgage or bond issued by any municipality. and processes for recording. such as computers. or as administrator of the estate of any deceased person when there is no will. a foreign bank may acquire up to 100% of the voting stock of only 1 bank organized under Philippine laws. 74 . Voluntary Liquidation – written notice sent to Monetary Board who has right to intervene before liquidation is undertaken to protect interests of creditors. the word or words “bank.” “quasi-bank. or any body politic and to accept and execute any trust consistent with law.” “trust company” or words of similar import or transact in any manner the business of any such bank. receiver. or corporation unless duly authorized to engage in the business of a bank.” “quasi-banking. quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as maybe prescribed by the BSP. 17. with the will annexed. corporation. or association.74 14. storing and transmitting information or data in connection with the operations of a bank.  Act under the order or appointment of any court as guardian. Every bank. shall advertise or hold itself out as being engaged in the business of such bank. 15. or depositary of the estate of any minor or other incompetent person.” “savings and loan association. Cessation of Banking Business a. Receivership and involuntary liquidation – grounds and procedure under New Central Bank Act but petitioner is required to post a bond in favor of Bangko Sentral 19. trust entity. or use in connection with its business title. or other banking laws. in a newspaper published in Metro Manila or in the nearest city or province). 21. b.  Act as administrator of the estate of any deceased person. Conduct of offshore banking is governed by PD 1034 (Offshore Banking System Decree) 20. The financial statements must be published in English or Filipino at least once every quarter in a newspaper of general circulation in the city or province of the principal office (if none. quasi-bank.” “trust corporation. Only a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use. No person. 18. 16. association. For purposes of this Act. 22.” “quasi-banker. or behoof of others.” “banker.

24. BSP shall pahse out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance an Guaranty Corporation. banking. 3. any data which it may require for the proper discharge of its functions and responsibilities. hereafter referred to as the Monetary Board which is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years. The BSP  The central monetary authority (the Bangko Sentral ng Pilipinas) established under this Act. shall enjoy fiscal and administrative autonomy.  The seven (7) members are: the Governor of the Bangko Sentral. a member of the Cabinet to be designated by the President of the Philippines and five (5) members who shall come from the private sector.000 pesos. b) supervision over the operations of banks c) exercise such regulatory powers as provided in this Act and other pertinent laws  Primary objective: a) maintain price stability conducive to a balanced and sustainable growth of the economy b) promote and maintain monetary stability and the convertibility of the peso. 75 . or government-owned or controlled corporations. trust entity is required to deposit security of at least 500. Before transacting trust business. subject to such rules and regulations as may be prescribed by the Monetary Board.75   Accept and execute any trust for the holding. and credit. and administration of any estate. Within 3 years from effectivity of this Act (2003).  No member of the Monetary Board may be reappointed more than once.  The President may remove any member of the Monetary Board for any of the following reasons: a) the member falls under the enumeration of disqualifications b) if he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such incapacity has lasted for more than 6 months c) the member is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of the BSP d) the member no longer possesses the qualifications specified in this Act. and Establish and manage common trust funds. 2. THE NEW CENTRAL BANK ACT 1. Operations of the Bangko Sentral  The Bangko Sentral shall have the authority to request from government offices and instrumentalities. issues and profits thereof.  Any vacancy in the Monetary Board shall be filled by the appointment of a new member to complete the unexpired period of the term of the member concerned. management. and the rents. real or personal.  Responsibility of the BSP: a) provide policy directions in the areas of money. 23. while being a government-owned corporation. The Monetary Board  The powers and functions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board.

b) The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. which shall be submitted within ninety (90) days after the end hereof. The Bangko Sentral shall publish a general balance sheet showing the volume and composition of its assets and liabilities as of the last working day of the month within sixty (60) days after the end of each month except for the month of December. the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution: (a) is unable to pay its liabilities as they become due in the ordinary course of business  Provided. d) The conservator shall receive. (b) has insufficient realizable assets. That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community. to meet its liabilities. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership. in which case he shall not be entitled to receive any remuneration or emolument. or (c) cannot continue in business without involving probable losses to its depositors or creditors. The actions of the Monetary Board regarding rehabilitation and liquidation shall be final and executory. 76 .76      The Bangko Sentral through the Governor or in his absence. c) The conservator should be competent and knowledgeable in bank operations and management. involving acts or transactions which amount to fraud or a dissipation of the assets of the institution. The Auditor  The Chairman of the Commission on Audit shall act as the ex officio auditor of the Bangko Sentral and. he is empowered and authorized to appoint a representative who shall be the auditor of the Bangko Sentral. 4. and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. liquidation or conservatorship. a duly authorized representative shall have the power to issue a subpoena for the production of the books and records for the aforesaid purpose. as determined by the Bangko Sentral. The conservatorship shall not exceed one (1) year. Appointment of Conservator: a) Whenever. or (d) has willfully violated a cease and desist order that has become final. the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. the Monetary Board may appoint a conservator connected with the Bangko Sentral. the expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned. as such. e) The Monetary Board shall terminate the conservatorship: 1) when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary 2) when it is determined that the continuance in business of the institution would involve probable loss to its depositors or creditors In these cases.

and in amounts not exceeding Twenty pesos (P20. b) Notes and coins called in for replacement in accordance with this provision shall remain legal tender for a period of one (1) year from the date of call.00) for denominations of Ten centavos or less. they shall cease to be legal tender but during the following year. and in amounts not exceeding. however. Demand Deposits  The term "demand deposits" means all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks.  The Bangko Sentral's holdings of its own notes and coins shall not be considered as part of its currency issue and. accordingly. make arrests. and such operations shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under this Act.77 5.  The Bangko Sentral shall have the authority to investigate.  Only banks duly authorized to do so may accept funds or create liabilities payable in pesos upon demand by the presentation of checks. That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. for the purpose of maintaining the integrity of the currency.00) for denominations of Twenty-five centavos and above. shall not form part of the assets or liabilities of the Bangko Sentral. d) After the expiration of this latter period. or for such longer period as the Monetary Board may determine.  Rules on Retirement of Old Notes and Coins: a) The Bangko Sentral may call in for replacement notes of any series or denomination which are more than five (5) years old and coins which are more than (10) years old. c) After this period. within the territory of the Philippines. Guiding Principles of Monetary Administration by the Bangko Sentral 77 . e) The Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced. the assets of the Bangko Sentral."  The Bangko Sentral shall have the sole power and authority to issue currency. is at the option of the creditor: Provided. both public and private  Unless otherwise fixed by the Monetary Board. Said notes and coins shall be a first and paramount lien on all assets of the Bangko Sentral. they may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the Bangko Sentral for this purpose." which is represented by the sign "P.  All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts. Currency  The unit of monetary value in the Philippines is the "peso. both public and private. conduct searches and seizures in accordance with law.  Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts. 6. coins shall be legal tender in amounts not exceeding Fifty pesos (P50.  Notes and coins issued by the Bangko Sentral shall be liabilities of the Bangko Sentral and may be issued only against. the notes and coins which have not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized. 7.

and the nature and significance of any such changes. Action When the International Stability of the Peso Is Threatened (a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act. the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies. in credit. 8. such additional action as it deems necessary to restore equilibrium in the international balance of payments of the Philippines. (2) the extent to which the changes in the monetary aggregates. are contrary to the national welfare. or c) whenever the international reserve is falling as a result of payments or remittances abroad which. 2) Said evidences of indebtedness may be issued directly against the international reserve of the Bangko Sentral or against the securities which it has acquired or may be issued without relation to specific types of assets of the Bangko Sentral. determine the net assets and net liabilities of banks 8. as a minimum. and (b) submit to the President of the Philippines and the Congress. a description and analysis of: (1) the causes of the rise or fall of the monetary aggregates. and make public. The following are situations which are considered threats to the stability of the Peso: a) whenever the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate to meet prospective net demands on the Bangko Sentral for foreign currencies. 78 . In order to maintain the international stability and convertibility of the Philippine peso. of credit or of prices. or Price Level: (a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act.78      Action When Abnormal Movements Occur in the Monetary Aggregates. wages and economic activity in general. Rules on Issue and Negotiation of Bangko Sentral Obligations: 1) Issuance of such certificates of indebtedness shall be made only in cases of extraordinary movement in price levels. the Monetary Board shall propose to the President. according to the decision of the Monetary Board c) the transfers shall be made at the rates established under the provisions of this Act NOTE: The Monetary Board may. Rules on Foreign Exchange Holdings of the Banks: a) the Monetary Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus holdings of foreign exchange. whenever warranted. employment. b) such transfers may be required for all foreign currencies or for only certain of such currencies. in the opinion of the Monetary Board. and (b) submit to the President of the Philippines and to Congress a detailed report of the circumstances of the situation If the resultant actions fails. a detailed report which shall include. with appropriate notice of the Congress. or b) whenever the international reserve appears to be in imminent danger of falling to such a level. or in prices have been reflected in changes in the level of domestic output. and (3) the measures which the Monetary Board has taken and the other monetary. Credit. fiscal or administrative measures which it recommends to be adopted.

and shall not subscribe to their issue except to replace its maturing holdings of securities with the same type as the maturing securities. BSP as the Banker of the Government  Functions of the Bangko Sentral: a) shall act as a banker of the Government. That for fiscal operations in foreign countries. That the Bangko Sentral shall not guarantee the placement of said securities.  The issue of securities representing obligations of the Government.  Since the requirement to maintain bank reserves is imposed primarily to control the volume of money. b) shall represent the Government in all dealings. and may. through the Secretary of Finance. transfers of funds from this account to other accounts shall be made only upon order of Treasurer of the Philippines  The Bangko Sentral may engage the services of other government-owned and controlled banks and of other domestic banks for operations in localities at home or abroad in which the Bangko Sentral does not have offices or agencies adequately equipped to perform said operations: Provided. shall request the opinion. 4) The evidences of indebtedness of the Bangko Sentral may be acquired by the Bangko Sentral before their maturity. its political subdivisions or instrumentalities. of the Monetary Board on the monetary implications of the following actions: a) Before undertaking any credit operation abroad 79 . 10.79 3) The Monetary Board shall determine the interest rates. Bank Reserves  All banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities: Provided. 5) The evidences of indebtedness acquired or redeemed by the Bangko Sentral shall not be included among its assets.  11. 9. in writing. maturities and other characteristics of said obligations of the Bangko Sentral. BSP as the Financial Advisor of the Government The Government. negotiations and transactions with the International Monetary Fund c) may be authorized by the Government to represent it in dealings with other foreign or international financial institutions d) shall be the official depository of the Government e) shall open a general cash account for Treasurer of the Philippines. at its discretion. the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. if it deems it advisable. denominate the obligations in gold or foreign currencies. however. either through purchases in the open market or through redemptions at par and by lot if the Bangko Sentral has reserved the right to make such redemptions. the Bangko Sentral may engage the services of foreign banking and financial institutions.  The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with remaining maturities of two (2) years or more. may be made through the Bangko Sentral Provided. in which liquid funds of the Government shall be deposited. as well as interbank borrowings. however. and shall be immediately retired and cancelled. also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for deposit substitutes. its political subdivisions and instrumentalities. That the Monetary Board may.

municipal and city taxes. charges and assessments for which the Bangko Sentral itself would otherwise be liable. Transitory Provisions  Within a period of three (3) years but in no case longer than five (5) years from the approval of this Act. and shall not participate in the ownership or management of any enterprise. shall be made only according to the Civil Service Law and regulations  Officers and employees of the Bangko Sentral. the same to be assumed by the Securities and Exchange Commission.  The Bangko Sentral shall not acquire shares of any kind or accept them as collateral. or assessments payable by persons or other entities doing business with the Bangko Sentral  Foreign loans and other obligations of the Bangko Sentral shall be exempt. fees. expenditures. within a period of five (5) years from the effectivity of this Act. the Bangko Sentral shall phase out all fiscal agency functions transfer the same to the Department of Finance.  The exemption authorized in the preceding paragraph shall apply: a) to all property of the Bangko Sentral. however. Privileges and Prohibitions  The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national.  The Bangko Sentral shall. from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral. primarily confidential or highly technical in nature. fees.  Appointments in the Bangko Sentral. either directly or indirectly. or any of its political subdivisions or instrumentalities. and shall not apply to taxes. fees. and the importation of all equipment needed for bank note production.80 b) Before any credit operation abroad is undertaken by all political subdivisions and instrumentalities of the Government. c) Whenever the Government. and of gold and other metals to be used for purposes authorized under this Act. phase out its regulatory powers over finance companies without quasi-banking functions and other institutions performing similar functions as provided in existing laws. nor shall any personnel be considered as having prior or vested rights with respect to retention in the Bangko 80 . metal refining and other security printing operations shall be fully exempt from all customs duties and consular fees and from all other taxes. minting of coins. charges. documents and transactions related to the conduct of the business of the Bangko Sentral  Said exemptions shall apply only to such taxes. except as to those which are policydetermining. profits and income of the Bangko Sentral. shall not engage directly or indirectly in partisan activities or take part in any election except to vote. deeds. charges and assessments. both as to principal and interest.  The importation and exportation by the Bangko Sentral of notes and coins.  No preferential or priority right shall be given to or enjoyed by any personnel for appointment to any position in the new staffing pattern. contemplates borrowing within the Philippines 12. . receipts. assessments and charges related to such importation or exportation. c) to all contracts. b) to the resources. That outstanding loans obtained or extended for development financing shall not be affected by the prohibition 13. provincial. including all members of the Monetary Board.  The Bangko Sentral shall not engage in development banking or financing: Provided.

d. may not be inquired into by any person. production of product not produced at all/produced in non-commercial scale. government to government b. obligations payable in Philippine currency but measured in gold/foreign currency 2. scheme. UNIFORM CURRENCY LAW 1. processing. obligations payable in gold/foreign currency b. serving penalty of civil interdiction 81 .81  Sentral or in any position which may be created in the new staffing pattern. invest up to extent as not to affect its registered status. including government banks. e. All references to the Central Bank of the Philippines in any law or special charters shall be deemed to refer to the Bangko Sentral. investment not to exceed 40%. financial. (d) produces non-conventional fuels/utilizes non-conventional sources of energy (all others are non-pioneer) allowed without need of prior authority from the Philippine b. f. Merchants and Commercial Transactions  Classes of Investments: a.(a) involves manufacturing. Permissible . Permitted . Deposits in banks. SECRECY OF BANK DEPOSITS 1. All powers.. c. b. Absolutely Disqualified to become Merchants a. except: if depositor agrees in writing impeachment cases by court order in cases of bribery and dereliction of duty against public officials deposit is subject of litigation anti-graft cases general and special examination of bank order of the Monetary Board of bank fraud or serious irregularity g. Government. (c) agricultural activities/services essential to the attainment of food sufficiency. If registered status. duties and functions vested by law in the Central Bank of the Philippines not inconsistent with the provisions of this Act shall be deemed transferred to the Bangko Sentral ng Pilipinas. transactions or with international banking institutions transactions affecting high priority economic projects forward exchange transactions between banks import and export and other international banking. even if he should be the incumbent of a similar position prior to organization. d. c. (b) uses a design. re-examination made by an independent auditor hired by a bank to conduct its regular trust a. Obligations Null and Void a. Exempt Transactions a. If enterprise not registered.invest in excess of 40% in unregistered enterprise but with prior approval of BOI Pioneer Area . investment and industrial transactions 3. c. formula that is new and untried in the Phils.

judicial and prosecuting officials in active service b. Books a Merchant must keep a. the former prevails d. military chiefs c. Fraudulent Preference . no common name c.that which s properly kept prevails c. by special laws cannot trade in specified territories 6. if juridical person. Probative Value of Merchant’s Book a. Commercial Contracts by Correspondence are perfected from the moment the offeree accepts the offer. insolvent c. 9. stock and commercial brokers arrangement whereby 2 or more persons interest themselves in the business of another by making contributions thereto and participating in the results thereof a. other proofs can be resorted to 8. even before knowledge of said acceptance by the offeror. copying book for letters and telegrams.any act of insolvent which gives rise/has tendency to give preference to a creditor to the assets of the insolvent prejudicial to the right of other creditors of said insolvent 82 . administrative. partnership. guaranty. Distinguish Suspension of Payment and Insolvency Suspension of Payment debtor has enough assets to meet liabilities but cannot meet them as they fall due always initiated by debtor Insolvency Debtor has more liabilities than assets Initiated by involuntary. Relatively Disqualified a. Joint Account Partnership . journal of day to day operations c. sales. government collection agents and custodian of funds d. no juridical personality INSOLVENCY LAW 1. others are silent b. absolutely disqualified by special laws 5. if both books are properly kept and there is a conflict. ledger for classifying accounts d. only ostensible partners can sue/be sued d. agency. voluntary creditors/other initiated by persons debtor if if 2. book of inventories and balances. in case of conflicts between 2 books . loan. This does not apply to deposit.82 b. economic. liabilities and capital b. evidence against merchants themselves b. only one member is ostensible. include book of minutes and stock and transfer book 7. if one keeps books and the other does not and cannot explain why. statement of assets.

(2) the amounts. (4) the charges. 4.83 3. Effect on Actions Upon Adjudication of Insolvency a. The policy of the State is to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. (5) the total amount to be financed. No. suit not yet filed . Debts and Obligations not Affected by Discharge of Insolvent a. assessments due to national and local government b. 3765) 1. to be credited as down payment and/or trade-in. 2. debts due to fraud/embezzlement c. debts not included in the schedule submitted by debtor TRUTH IN LENDING ACT (R. corporate debts f. 3. suits pending in court (1) secured obligations suspended until assignee appointed (2) unsecured obligations terminated except to fix amount of obligation (3) foreclosure suits pending continue b. and (7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. but claims may be presented to assignee 4. if any. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. debts in which he is bound solidarily d. A final judgment rendered in any criminal proceeding under this Act to the effect that a defendant has wilfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto.A. (3) the difference between the amounts set forth under clauses (1) and (2). individually itemized. (6) the finance charge expressed in terms of pesos and centavos. This is an act to require the disclosure of finance charges in connection with extensions of credit. alimony e.cannot be filed anymore. 83 . The creditor is required to furnish to the debtor a clear statement in writing setting forth the following information: (1) the cash price or delivered price of the property or service to be acquired.