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Definition/Concept That issued by one merchant to another for the purpose of attending to a commercial transaction.1 An instrument issued by a bank on behalf of one of its customers, authorizing an individual or a firm to draw drafts on the bank or one of its correspondents for its account under certain conditions of the credit.2 An engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit.3 Through it, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 2. Governing laws a. Code of Commerce b. Uniform Customs and Practice for Documentary Credits 4 3. Nature of letter of credit The LC is a financial device5 developed as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. 4. Parties to a letter of credit a. Applicant/buyer/importer – one who purchases the goods, procures the LC, and obliges himself to reimburse the issuing bank upon receipt of the documents of title. b. Issuing/opening bank – one which issues the LC, and undertakes to pay the seller upon receipt of the draft and proper documents of title from the seller and to surrender them to the buyer upon reimbursement; and
Art. 567 Commercial Law Review, C. Villanueva, 2004 ed. 3 Prudential Bank vs. CA, 216 SCRA 257 4 The Uniform Commercial Practice for Documentary Credits allow Letters of Credit to be payable to order. 5 mode of payment
c. Seller/exporter/beneficiary – one who sells the goods to the buyer, and who delivers the draft and documents to the issuing bank to recover payment.6 d. Advising/notifying bank – the correspondent bank7 of the opening bank through which it advises the beneficiary of the LC. e. Confirming bank – bank which, upon the request of the beneficiary, confirms the LC issued. f. Paying bank – bank on which the drafts are to be drawn, which may be the opening bank or another bank not in the city of the beneficiary. g. Negotiating bank – bank in the city of the beneficiary which buys or discounts the drafts contemplated by the LC, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. a. Rights and obligations of parties 1. Drawer is liable to person on whom it was issued provided identity proven, for the amount paid within fixed maximum. 2. Bearer has no right of action if not paid by person who issued it. 3. Drawer may annul the letter of credit, informing the bearer and to whom it is addressed. 4. Bearer shall pay the amount received to drawer, otherwise action for execution may be filed with interest and current exchange in place where payment made on place where repaid. 5. If a bearer does not make use of letter of credit within agreed period, or if none, within 6 months from date if in the Philippines, and 12 months if outside the Philippines, it shall be void.8
The number of parties may be increased. Modern letters of credit are usually not made between natural persons. They involve bank-to-bank transactions. 7 agent 8 Arts. 569-572
5. Basic Principles of letter of credit a. Doctrine of independence The three (3) basic contracts are distinct and independent, and the undertakings of the respective parties in each are neither subject to claims and defenses nor affected by the breach in the others. b. Fraud exception principle When the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. 9 c. Doctrine of strict compliance It espouses that the documents tendered by the seller/beneficiary must strictly conform to the terms of the LC.10
Transfield Phils, Inc. vs. Luzon Hydro Corporation, Australia and New Zealand Banking Group Limited and Security Bank Corp., G.R. No. 146717, November 22, 2004 10 i.e. they must include all the documents required by the LC (Feati Bank vs. CA)
B. Warehouse Receipts Law 1. Nature and Functions of a Warehouse Receipt 11 a. To whom delivered: 1. To the person lawfully entitled to the goods 2. To the person named in a non-negotiable receipt or to his assignee 3. To the lawful holder of a negotiable receipt b. Kinds: 1. Negotiable warehouse receipts - a warehouse receipt wherein it is expressly stated that the goods are deliverable to bearer or to the order of a person specified therein.12 2. Non-negotiable warehouse receipts - a warehouse receipt in which it is stated that the goods received will be delivered to the depositor or to any specified person. The receipt should be stamped on its face "non-negotiable." A holder of a non-negotiable receipt not stamped "non-negotiable" believing it to be negotiable may treat the receipt as negotiable.13 c. Distinction between a Negotiable Instrument and a Negotiable Warehouse Receipt Negotiable instrument Subject is money The instrument itself is the object of value
Warehouse receipt14 Subject is merchandise The goods are the objects of value
A warehouse receipt is a written acknowledgment by the warehouseman that he has received the goods described therein and holds the same for the person to whom it is issued or as the latter may order. It is a contract between the owner of the goods or the person authorized by the owner to transfer ownership or possession over the goods, on one hand, and the warehouseman, on the other hand, for the latter to store the goods and the former to pay the compensation for that service. A warehouseman is a person lawfully engaged in the business of storing goods for profit. 12 A warehouse receipt stating that the goods are deliverable to bearer is a negotiable warehouse receipt. If the words "non-negotiable" are inserted in the receipt, the insertion is void, and the receipt remains negotiable. 13 A non-negotiable warehouse receipt, if not stamped with the words "non-negotiable," may make a warehouseman liable for damages suffered by a holder of such receipt who purchases it for value supposing it to be negotiable. The said holder may treat, as his option, such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. 14 even if negotiable, is not a negotiable instrument within the meaning of the Negotiable Instruments Law
Such person acquires thereby as against the transferor the title of the goods subject to the terms of any agreement with the transferor. 2.Intermediate parties become secondarily Intermediate parties are not liable for the liable warehouseman's failure to deliver the goods. and also such title to the goods as the depositor or person to whose order the goods were to be delivered by the terms of the receipt has had ability to convey to a purchaser in good faith for value. such person also acquires the right to notify the warehouseman of the transfer to him of such receipt and thereby to acquire the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt.15 15 Sec. 3. The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman had contracted directly with him. Prior to the notification of the warehouseman by the transfer or transferee of a non-negotiable receipt. Such title to the goods as the person negotiating the receipt to him has had ability to convey to a purchaser in good faith for value. 2. 42 5 . d. If the receipt is non-negotiable. Rights of a holder of a negotiable warehouse receipt as against a transferee of a non-negotiable warehouse receipt Rights of a holder of a negotiable warehouse Rights of a transferee of a non-negotiable receipt warehouse receipt 1. 1. the title of the transferee to the goods and the right to acquire the obligation of the warehouseman may be defeated by the levy of an attachment or execution upon the goods by a creditor of the transferor or by a notification to the warehouseman by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor.
interest. and for the sale of the goods where default has been made in satisfying the warehouseman’s lien. 6 . labor. Duties of a Warehouseman 1. except in the case of fungible goods. coopering. To deliver the goods upon demand made by the holder of the receipt or by the depositor. 2. 3.2. 3. To keep the goods separate from the goods of other depositors. To exercise such care in regard to the goods as a reasonably careful owner of similar goods would exercise. all lawful claims for money advanced. Warehouseman’s Lien All lawful charges for storage and preservation of the goods. also all reasonable charges and expenses for notices and advertisements of sale. insurance. weighing. transportation. and other charges and expenses in relation to such goods.
or c) to load. Trust Receipts Law 1.C. a) to sell or procure their sale or exchange. ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale. documents or instruments. or c) to effect the consummation of some transactions involving delivery to a depository or register. In the case of goods or documents a) to sell the goods or procure their sale. documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods. documents or instruments for profit who. and another person referred to as entrustee. documents or instruments themselves if they are unsold or not otherwise disposed of. In the case of instruments. as against the buyer. in accordance with the terms and conditions specified in the trust receipt. collection or renewal. or d) to effect their presentation. general property rights in such goods. or for other purposes substantially equivalent to any of the following: 1. whereby the entruster. who owns or holds absolute title or security interests over certain specified goods. documents or instruments by a person in the business of selling goods. or b) to deliver them to a principal. at the outset of the transaction. documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods. documents or instruments. or 2. has. Definition/Concept of a Trust Receipt Transaction A trust receipt transaction is any transaction by and between a person referred to as the entruster. The sale of goods. the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt. retaining title or other interest as security for the 7 . or who sells the same to the buyer on credit. unload. or b) to manufacture or process the goods with the purpose of ultimate sale. In the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale. releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods.
and the entruster may. or to the return of the goods. 4. documents.payment of the purchase price. b. not less than five days after serving or sending of such notice. Ownership of the goods. documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. documents or instruments may. 6. on or after default. 16 17 Sec. and the entruster in possession of the goods. give notice to the entrustee of the intention to sell. This is not a simple loan transaction between a creditor and debtor-importer. sell the goods. documents and instruments under a trust receipt 1. and any successor in interest of such person. 8 . or instruments subject of a trust receipt transaction. 2. at a public sale. The entruster may cancel the trust and take possession of the goods. documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt. Purchaser from entrustee gets good title. Bank is preferred over other creditors. Rights of the Entruster17 The entruster shall be entitled to the proceeds from the sale of the goods. Goods are owned by the bank. The law warrants the validity of the entruster’s security interest as against the creditors of the trust receipt agreement. become a purchaser. does not constitute a trust receipt transaction and is outside the purview and coverage of the Decree. 4 Entruster" refers to the person holding title over the goods. Entrustee must deliver money or return unsold goods to entrustor 3. Loan/security feature 1. No particular form is required for trust receipt 2. and are only released to the importer in trust after the grant of the loan. documents or instruments in case of non-sale. The bank acquires a security interest in the goods as holder of a security title for the advances it made to the entrustee. 16 a. 2. Bank is also not liable to buyer of goods as vendor 5. documents or instruments at public or private sale. and may. and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree.
(4) keep said goods or proceeds thereof whether in money or whatever form. pilferage or other casualties. documents or instruments. Notice of sale shall be deemed sufficiently given if in writing. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. whether public or private. 12 20 Sec. Obligations and Liability of the Entrustee The entrustee shall (1) hold the goods. separate and capable of identification as property of the entruster. documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt. (c) to the satisfaction of the entrustee's indebtedness to the entruster. Validity of the security interest as against the creditors of the entrustee/innocent purchasers for value The entruster's security interest in goods. (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust receipt.19 3. or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement. documents or instruments in the event of non-sale or upon demand of the entruster. (5) return the goods. and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address. shall be applied (a) to the payment of the expenses thereof.20 18 19 Sec.The proceeds of any such sale. and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of this Decree. theft.18 a. 7 Sec. (3) insure the goods for their total value against loss from fire. 9 9 . documents. (b) to the payment of the expenses of re-taking. keeping and storing the goods.
Penal sanction if offender is a corporation The penalty provided for in this Decree shall be imposed upon the directors. documents or instruments in case of sale Return the goods. last sen. irrespective of whether or not it was due to the fault or negligence of the entrustee. documents or instruments The risk of loss shall be borne by the entrustee. 10 ibid. shall not extinguish his obligation to the entruster for the value thereof.21 a. Remedies available The entrustor can: a. Cancel trust and take possession of the goofs b. NLRC. Court of Appeals. 24 Prudential Bank vs. irrespective of whether or not it was due to the fault or negligence of the entrustee. Loss of goods. documents or instruments which are the subject of a trust receipt. Tonda. documents or instruments Keep said goods or proceeds separate and capable of identification. Loss of goods. documents or instruments in the event of non-sale or upon demand. 1999) The offense is malum prohibitum. pending their disposition. Return of goods. 2000). without prejudice to the civil liabilities arising from the criminal offense. Payment/Delivery of proceeds of sale or disposition of goods. (Metropolitan Bank vs. 1981) Offense: estafa under Art. 1995 Failure to turn over proceeds of the sale of goods or to return unsold goods is a public nuisance to be abated by the imposition of penal sanctions (Tiomico vs. 10 .22 d. File a 3rd party claim or separate civil action at any time upon default or failure of entrustee to comply with terms and conditions of the trust agreement. b. Liability for loss of goods.The risk of loss shall be borne by the entrustee. pending their disposition. 24 21 22 Sec. 23 4. or intent to defraud (People vs. Cuervo. 251 SCRA 421. shall not extinguish his obligation to the entruster for the value thereof. documents or instruments which are the subject of a trust receipt. officers. 13. employees or other officials or persons therein responsible for the offense. 315 of the Revised Penal Code. c. There is no need to prove damage to the entrustor. 23 Sec.
it is conditional. (Notes and Cases on Banks. and the instrument involved is non-negotiable. NIL) Signature of party may be made by duly authorized agent. written or typed 27 Where the promise or order is made to depend on a contingent event. which by its form and on its face. The instrument may be made payable to the order of: a. or at a fixed or determinable future time. Aquino) 28 The instrument is payable to order where it is drawn payable to the order of a specified person. 4. 3) The dates of each installment must be fixed or at least determinable and the amount to be paid for each installment. Aquino) Signature. Professors Sundiang and Aquino) 26 Any kind of material that substitutes paper is sufficient. (Sec. Negotiable Instruments and other Commercial Documents. A sum is certain if the amount to be unconditionally paid by the maker or drawee can be determined on the face of the instrument and is not affected by the fact that the exact amount is arrived at only after a mathematical computation. Negotiable Instruments Law25 1. (Notes and Cases on Banks. The happening of the event does not cure the defect. Timoteo B. (Sec. The NI must be burdened with the terms and conditions of that agreement to destroy its negotiability. Timoteo B. is intended as a substitute for money and passes from hand to hand as money. 27 3. drawer or drawee 11 .includes print. 18. or b) A statement of the transaction which gives rise to the instrument Where the promise or order is subject to the terms and conditions of the transaction stated. 19.D. (Cesar Villanueva. Must be payable to order or to bearer. NIL) "In writing" . With respect to the signature. Requisites of Negotiability 1. 8) The payee must be named or otherwise indicated therein with reasonable certainty.28 and 25 Negotiable instrument (NI) A written contract for the payment of money which complies with the requirements of Sec. (Sec. Must be in writing and signed by the maker or drawer. The unconditional nature of the promise or order is not affected by: a) An indication of a particular fund out of which reimbursement is to be made. binding so long it is intended or adopted as the signature of the signer or made with his authority. so as to give the holder in due course (HDC) the right to hold the instrument free from defenses available to prior parties. (Sec. Must contain an unconditional promise or order to pay a sum certain in money. No person liable on the instrument whose signature does not appear thereon. the instrument is rendered non-negotiable. no particular form of appointment necessary. Commercial Law Review. it is enough that what the maker or drawer affixed shows his intent to authenticate the writing. (Reviewer on Commercial Law. 26 2.) But an order or promise to pay out of a particular fund is NOT unconditional. Must be payable on demand. Negotiable Instruments and other Commercial Documents. A payee who is not the maker. or to him or his order. or a particular account to be debited with the amount. One who signs in a trade or assumed name liable to same extent as if he had signed in his own name. 1 of the NIL. 2004 ed. Forms and Interpretation a.
Professors Sundiang and Aquino) 29 Applicable only to a bill of exchange A bill may be addressed to 2 or more drawees jointly whether they are partners or not but not to 2 or more drawees in the alternative or in succession. When the instrument is addressed to a drawee. 87 Phil. The holder of an office for a time being Payable to Bearer The instrument is payable to bearer: a. 9(c) of the NIL if the person making it so payable does not intend to pay the specified persons. When the name of the payee does not purport to be the name of any person. (Ang Tek Lian vs. or b. The drawer or maker c. 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. If it is originally a bearer instrument. it has to be indorsed.5. 184 31 Sec. he must be named or otherwise indicated therein with reasonable certainty. When it is expressed to be so payable.29 b. The drawee d. 383) Fictitious payee rule: It is not necessary that the person referred to in the instrument is really non-existent or fictitious to make the instrument payable to bearer. (Sec. Reason: The name of the payee does not purport to be the name of any person. or d. (Reviewer on Commercial Law. Kinds of negotiable instrument Promissory note An unconditional promise in writing by one person to another signed by the maker engaging to pay on demand or at a fixed or determinable future time. One or some of several payees f. it can no longer be negotiated further by mere delivery. or e.31 Bill of exchange b. The person to whose order the instrument is made payable may in fact be existing but he is till fictitious or non-existent under Sec. signed by the person giving it. As opposed to an original order instrument becoming payable to bearer. 2 or more payees jointly e. CA. 9) An instrument originally payable to bearer can be negotiated by mere delivery even if it is indorsed especially. When it is payable to the order of a fictitious or non-existing person. When the only or last indorsement is an indorsement in blank. (Sec. When it is payable to a person named therein or to bearer. 126 12 . A check that is payable to the order of cash is payable to bearer.30 An unconditional order in writing addressed by one person to another. it will always be a BEARER instrument. or c. and such fact was known to the person making it so payable. 128) 30 Sec. a sum certain in money to order or to bearer. if the same is indorsed specially.
after completion. Complete but undelivered instruments 1. it is conclusively presumed that there was valid delivery. that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion. Insertion of date Where an instrument expressed to be payable at a fixed period after date is issued undated.34 c. the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. not a valid contract against a person who has signed before delivery of the contract even in the hands of a holder in due course but subsequent indorsers are liable. 2. it is valid and effectual for all purposes in his hands. 185 Sec. any holder may insert therein the true date of issue or acceptance. Completion and delivery a. but as to him. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course. Completion of blanks Where the instrument is wanting in any material particular. or where the acceptance of an instrument payable at a fixed period after sight is undated. the date so inserted is to be regarded as the true date. 13 34 Sec. 2. This is a real defense. however. In order.35 d. As to a holder in due course. and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. delivery must be coupled with the intention of transferring title to the instrument. But if any such instrument. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.32 It is the most common form of bill of exchange. 15 13 . it must be filled up strictly in accordance with the authority given and within a reasonable time. 14 35 Sec. and 32 33 Sec. Incomplete and undelivered instruments If completed and negotiated without authority.33 b. and the instrument shall be payable accordingly. Between immediate parties and those who are similarly situated. is negotiated to a holder in due course.Check A bill of exchange drawn on a bank payable on demand.
does not exempt him from personal liability. As against an immediate party and remote party who is not a holder in due course. No particular form of appointment is necessary for this purpose. If two or more persons sign “We promise to pay.38 4.41 36 37 Sec. reference will be made to the figures to fix the amount. Signing in trade name One who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. f. Signature of agent The signature of any party may be made by a duly authorized agent. or as filling a representative character. Discrepancy between the amount in figures and that in words – the words prevail. and the authority of the agent may be established as in other cases of agency. but if the words are ambiguous. if undated. Instrument undated – consider date of issue. but the mere addition of words describing him as an agent. 36 3. If one signs without indicating in what capacity he has affixed his signature. Signature a.39 b. c. 16 each liable for his part 38 each can be compelled to comply with the entire obligation (Sec. he is not liable on the instrument if he was duly authorized. presumption of a valid and intentional delivery is rebuttable. e. When the instrument is so ambiguous that there is doubt whether it is a bill or note. Conflict between written and printed provisions – written provisions prevail. Rules of interpretation a. g. he is considered an indorser. without disclosing his principal. from issue thereof. 19 41 Sec.40 Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity.” their liability is joint37 but if they sign “I promise to pay. b.3. 18 40 Sec. 20 14 . 17) 39 Sec. Payment for interest is provided for – interest runs from the date of the instrument.” the liability is solidary. the holder may treat it as either at his election. d.
amount. (Sec. This includes indorsers. Alteration of an instrument in the name. Those who. Consideration Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. 23 48 Sec. 22 Persons precluded from setting up defense of forgery 1. with intent to defraud.42 d. are estopped from setting up the defense of forgery. 24 What constitutes value: a. Those who warrant or admit the genuineness of the signature in question. 44 1 Agbayani. Indorsement by minor or corporation The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein. name of payee. etc. 27) 15 . No right to retain the instrument 2. can be acquired through or under such signature 47 Sec. persons negotiating by delivery and acceptors. 45 not instrument itself and the genuine signatures 46 Legal Effects: 1. Value previously given c. notwithstanding that from want of capacity. To enforce payment thereof against any party thereto.47 5. 1992 ed. the corporation or infant may incur no liability thereon. or negligence. silence.44 General Rule: When a signature is forged or made without the authority of the person. 2. An antecedent or pre-existing debt b. Every person whose signature appears thereon is presumed to have become a party thereto for value. or 2.46 Exception: Unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Forgery43 Counterfeit making or fraudulent alteration of any writing. Signing of another’s name with intent to defraud. the signature45 is wholly inoperative.48 42 43 Sec. Lien arising from contract or by operation of law.To give a discharge therefore 3. by their acts.c. which may consist of: 1.
Modes of negotiation Issuance First delivery of the instrument complete in form to a person who takes it as a holder. Hector de Leon. and for the purpose of lending his name to some other person. and 2.50 transferor.52 1. CA. Mechanical act of writing the instrument completely and in accordance with the requirements of Section 1. If payable to order. Such a person is liable on the instrument to a holder for value. (The Law on Negotiable Instruments with Documents of Title. without receiving value therefor. Any defense available against the transferor is available against the transferee. acceptor. Aquino. at the time of taking the instrument. 222 SCRA 466) 52 Sec. 49 7. Notes and Cases on Banks.53 Subsequent Negotiation 49 50 Sec.6. Negotiable Instruments and other Commercial Documents Assignment may be effected whether the instrument is negotiable or non-negotiable. 51 b. knew him to be only an accommodation party. 2000 ed. The delivery of the complete instrument by the maker or drawer to the payee or holder with the intention of giving effect to it. 2. a NI may be negotiated by indorsement completed by delivery. or indorser. notwithstanding such holder. 29 Sec. Negotiation a. (Sesbreño vs. Distinguished from assignment Negotiation Assignment The transfer of the instrument from one The transferee does not become a holder person to another so as to constitute the and he merely steps into the shoes of the transferee as holder thereof. a negotiable instrument may be negotiated by mere delivery. If payable to bearer. 191 Steps: 1.) 16 . Accommodation party One who has signed the instrument as maker.30 51 Timoteo B. drawer.
Upon no other condition than failure of prior parties to do so. the negotiation takes effect as of the time when the indorsement is made. delivery must be intended to give effect to the transfer of instrument.57 Absolute One by which indorser binds himself to pay: a. 49 55 Sec. the instrument is to be payable. (Development Bank vs.Incomplete negotiation of order instrument Where the holder of an instrument payable to his order transfers it for value without indorsing it. b.55 Specifies no indorsee.56 b. But for the purpose of determining whether the transferee is a holder in due course. Sima Wei. 219 SCRA 736) 54 Sec. 57 Sec. Kinds of Indorsement Special Specifies the person to whom or to whose order.54 c. the transfer vests in the transferee such title as the transferor had therein and he also acquires the right to have the indorsement of the transferor. a. 35 17 . Blank 53 In both cases. Instrument becomes payable to bearer and may be negotiated by delivery. Upon due notice to him of such failure. May be converted to special indorsement by writing over the signature of indorser in blank any contract consistent with character of indorsement. 34 56 id.
Party required to pay may disregard the conditions. A person who.60 Joint Irregular 58 59 Sec. 38 It is made by adding to the indoser's signature words like "sans recourse. places thereon his signature in blank before delivery. Prohibits further negotiation of the instrument. 39 Sec. or b.Conditional Right of the indorsee is made to depend on the happening of a contingent event. Vests the title in the indorsee in trust for or to the use of some other persons. 64 18 . 60 Sec.” “without recourse". But mere absence of words implying power to negotiate does not make an indorsement restrictive. etc. "at the indorser's own risk". Constitutes the indorsee the agent of the indorser. Restrictive Qualified Constitutes the indorser a mere assignor of the title to the instrument. or c. "indorser not holder". not otherwise a party to an instrument.58 When it either: a.59 Indorsement payable to two (2) or more persons.
(Sec. and 4. May receive payment and if payment is in due course. 58 19 . 2. Rights of the Holder61 a. Holder in Due Course62 1. May sue on the instrument in his own name. 3. the instrument is discharged. 191) A holder who has taken the instrument under the following conditions: 1 .64 61 62 Holder . 3 For value and in good faith.63 b. The weight of authority sustains the view that a payee may be a holder in due course. G. Court of Appeals. At the time he took it. and who is not himself a party to any fraud or illegality affecting the instrument. 2. Became a holder before it was overdue and without notice that it had been previously dishonored.R. But a holder who derives his title through a holder in due course. Hence.Instrument is complete and regular upon its face. has all the rights of such former holder in respect of all parties prior to the latter. May enforce payment of the instrument for the full amount thereof against all parties liable thereon. (Sec. (Cely Yang vs. a negotiable instrument is subject to the same defenses as if it were non-negotiable. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. August 15. Holds the instrument free from any defect of title of prior parties and free from defenses available to parties among themselves. 138074. the presumption that he is a prima facie holder in due course applies in his favor. 52) Every holder of a negotiable instrument is deemed prima facie a holder in due course. 2003) 63 Secs. 51 and 57 64 Sec.a payee or endorsee of a bill or note who is in possession of it or the bearer thereof. However. this presumption arises only in favor of a person who is a holder as defined in Section 191 of the NIL. Defenses against the Holder In the hands of any holder other than a holder in due course.8. No. and 4.
he is liable as indorser. and admits the existence of the payee and his then capacity to indorse. Drawer The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse. engages that he will pay it according to its tenor. or is payable to bearer. by making it.67 Where a person places his indorsement on an instrument negotiable by delivery. Indorser Where a person. by accepting the instrument. or both.65 b. he is liable to all parties subsequent to the payee.66 c. 68 65 66 Sec. Liabilities of Parties a.9. places thereon his signature in blank before delivery. he is liable to the payee and to all subsequent parties. Acceptor The acceptor. (b) If the instrument is payable to the order of the maker or drawer. d. (c) If he signs for the accommodation of the payee. in accordance with the following rules: (a) If the instrument is payable to the order of a third person. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder. 64 68 ibid. according to its tenor. the instrument will be accepted or paid. and engages that. engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer. Maker The maker of a negotiable instrument. the genuineness of his signature. and his capacity and authority to draw the instrument. on due presentment. 20 . and (b) The existence of the payee and his then capacity to indorse. he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. he incurs all the liability of an indorser. he is liable to all parties subsequent to the maker or drawer. 61 67 Sec. 60 Sec. and that if it be dishonored and the necessary proceedings on dishonor be duly taken. not otherwise a party to an instrument.
or to any subsequent indorser who may be compelled to pay. according to its tenor.70 69 70 Sec. the warranty extends in favor of no holder other than the immediate transferee. b) That he has a good title to it. on due presentment. and e) He engages that. 65 Sec. and that if it be dishonored and the necessary proceedings on dishonor be duly taken.e. Warranties Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be. (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only. he will pay the amount thereof to the holder. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes. warrants to all subsequent holders in due course: a) That the instrument is genuine and in all respects what it purports to be. 66 21 . as the case may be. (b) That he has a good title to it. or both.69 Every indorser who indorses without qualification. c) That all prior parties had capacity to contract. d) That the instrument is. it shall be accepted or paid. (c) That all prior parties had capacity to contract. at the time of his indorsement. valid and subsisting. it.
last sen. (Sec. Payment is refused or cannot be obtained after due presentment for payment. 72 74 Sec. 70. 83 22 . 77 71 72 Sec. Necessity of presentment for payment Presentment for payment is necessary in order to charge the drawer and indorsers. or to the drawee or acceptor for payment or the production of a Promissory Note to the party liable for the payment of the same. In order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. 79 75 Sec. Presentment for Payment The production of a Bill of Exchange to the drawee for his acceptance. However.73 c. 2. Presentment is excused and the instrument is overdue and unpaid. 70 Sec. 73 Sec. In order to charge an indorser when the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. Dishonor by non-payment76 1. Parties to whom presentment for payment should be made To the person primarily liable or if he is absent or inaccessible. Dispensation with presentment for payment 1. 84) 77 Sec.74 2. notice of dishonor is generally required. 80 76 Effect: There is an immediate right of recourse by the holder against persons secondarily liable. to any person found at the place where the presentment is made.10.75 d.71 a. 72 b.
but 2.80 c. Form of notice 1. Waiver Either before the time of giving notice. 89 Sec. 97 80 Sec. 90 81 Sec. By bringing verbally or 2. upon proper proceedings taken. has not been accepted or has not been paid. 109 83 Sec. 110 23 .11. or after the omission to give due notice.82 As to who are affected by an express waiver depends on where the waiver is written: 1. If it appears in the body or on the face of the instrument. Parties who may give notice of dishonor Given by holder or his agent.78 a. and that the party notified is expected to pay it. Waiver may be expressed or implied.81 d. Parties to be notified Given to secondary party or his agent. or by any party who may be compelled by the holder to pay. 151 82 Sec. If it is written above the signature of an indorser. Effect of notice Immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary.79 b. Notice of Dishonor Notice given by holder or his agent to party or parties secondarily liable that the instrument was dishonored by non-acceptance by the drawee of a bill or by non-payment by the acceptor of a bill or by non-payment by the maker of a note.83 78 79 Sec. it binds him only. By writing to the knowledge of the person liable the fact that a specified instrument. e. it binds all parties.
it can no longer be negotiated. 112 87 Sec. It renders the instrument without force and effect and. 2. consequently. 89 84 85 Secs. Effect of failure to give notice An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. it cannot be given. 3. 84 2. 2000 ed.85 and 3. If waived. 6. 87 12. By a valid tender of payment made by a prior party. By any act which discharges the instrument.86 g. By the discharge of a prior party. from the obligations arising thereunder. By any agreement binding upon the holder to extend the time of payment or to postpone the holder’s right to enforce the instrument. actually or constructively. When after due diligence. whether primary or secondary. unless the holder’s right of recourse against the party secondarily liable is expressly reserved. 109 86 Sec. By the release of the principal debtor. 89 Sec. Hector de Leon. Discharge of negotiable instrument A release of all parties. 117 88 The Law on Negotiable Instruments with Documents of Title. 5. By the intentional cancellation of his signature by the holder. 114-117 Sec.f.88 b. When party to be notified knows about the dishonor. 4. Discharge of Negotiable Instrument a. Discharge of parties secondarily liable 1. 120 24 . Dispensation with notice 1.
or In the following cases. except: (a) Where it is payable to the order of a third person and has been paid by the drawer. e) The medium or currency in which payment is to be made. and he may strike out his own and all subsequent indorsements and against negotiate the instrument. b) where the holder expressly reserves his right of recourse against such party. Payment at or after maturity by a party secondarily liable does not discharge the instrument. but the party so paying it is remitted to his former rights as regard all prior parties. 122 25 . Concept Any alteration which changes: a) The date. (Sec. at. the agreement to extend the time of payment does not discharge a party secondarily liable: a) where the extension of time is consented to by such party. 121 91 Sec. b) The sum payable. f) Adds a place of payment where no place of payment is specified. or after its maturity. and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. 121) 90 Sec. either for principal or interest. But a renunciation does not affect the rights of a holder in due course without notice. it is not discharged. Material alteration a. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. c) The time or place of payment: d) The number or the relations of the parties.c.91 13. It only cancels his own liability and that of the parties subsequent to him.90 d. Renunciation by holder The holder may expressly renounce his rights against any party to the instrument before. Right of party who discharged instrument Where the instrument is paid by a party secondarily liable thereon.
93 14. may treat the bill as dishonored. 132 95 Sec. Time for acceptance The drawee is allowed twenty-four (24) hours after presentment in which to decide whether or not he will accept the bill. dates as of the day of presentation. 136 26 . authorized. Manner Must be in writing and signed by the drawee and must not express that the drawee will perform his promise by any other means than the payment of money. It is the act by which the drawee manifests his consent to comply with the request contained in the bill of exchange directed to him. Definition The signification by the drawee of his assent to the order of the drawer.g) Any other change or addition which alters the effect of the instrument in any respect. When an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration. 125 Sec.96 92 93 Sec.95 c. 133 96 Sec. 124 94 Sec.92 b. it is avoided. if given. b. is a material alteration. or assented to the alteration and subsequent indorsers. and if such request is refused. Acceptance a. Effect of material alteration Where a negotiable instrument is materially altered without the assent of all parties liable thereon. he may enforce payment thereof according to its original tenor. the acceptance. 94 The holder of the bill presenting the same for acceptance may require that the acceptance be written on the bill. except as against a party who has himself made.
139 103 Sec.100 A bill may be accepted before it has been signed by the drawer. if such request is refused. 137 101 Sec. it does not bind the acceptor except in favor of a person to whom it is shown and who. drawn. 135 100 Sec.103 An acceptance is qualified which is: (a) Conditional . A general acceptance assents without qualification to the order of the drawer. upon the faith thereof. may treat the bill as dishonored. on the faith thereof.99 Where a drawee to whom a bill is delivered for acceptance destroys the same.which makes payment by the acceptor dependent on the fulfillment of a condition therein stated. or by nonpayment.97 Where an acceptance is written on a paper other than the bill itself. receives the bill for value. he will be deemed to have accepted the same. 133 Sec. Rules governing acceptance The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill.d.101 An acceptance is either general or qualified. 138 102 Sec. is entitled to have the bill accepted as of the date of the first presentment.an acceptance to pay part only of the amount for which the bill is Sec. 97 98 (b) Partial . or when it is overdue. and. 134 99 Sec.102 An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. to return the bill accepted or non-accepted to the holder. or while otherwise incomplete. receives the bill for value. or after it has been dishonored by a previous refusal to accept. in the absence of any different agreement. the holder. A qualified acceptance in express terms varies the effect of the bill as drawn. or refuses within twenty-four hours after such delivery or within such other period as the holder may allow. But when a bill payable after sight is dishonored by nonacceptance and the drawee subsequently accepts it. 140 27 .98 An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who.
or subsequently assent thereto.106 d. express his dissent to the holder or he will be deemed to have assented thereto.105 15.(c) Local . f. last sen. Where the bill expressly stipulates that it shall be presented for acceptance. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. Effect of failure to make presentment The drawer and all indorsers are discharged. c. Where the drawee is adjudged a bankrupt. Where a qualified acceptance is taken. e. or when it is necessary in order to fix the maturity of the instrument.107 104 105 Sec. 143 107 See sec. Where the bill is payable after sight. 104 The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance. Where drawee is dead. b. he may treat the bill as dishonored by non-acceptance. presentment must be made to all. he must. one or more of the drawees but not of all.an acceptance to pay only at a particular place. Where a bill is addressed to 2 or more drawees who are not partners. (e) The acceptance of some. (d) Qualified . presentment may be made to his personal representative. b. presentment may be made to him or his trustee or assignee.as to time. 141 Sec. When the drawer or an indorser receives notice of a qualified acceptance. insolvent or made an assignment to his creditors. the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance. Presentment for Acceptance a. 144. 142 106 Sec. within a reasonable time. 28 . Time/place/manner of presentment a.
Where a note is drawn to the maker's own order.108 16. a sum certain in money to order or to bearer.110 17. 239 SCRA 310 109 29 . Kinds112 Cashier’s Check One drawn by the cashier of a bank. Definition A bill of exchange drawn on a bank payable on demand. 184 111 Sec. 2004 ed. Checks a. Commercial Law Review. Promissory Notes109 An unconditional promise in writing made by one person to another. A check given by a borrower to a lender for the amount of a short loan.c. It is a primary obligation of the issuing bank and accepted in advance upon issuance. 185 112 Cesar Villanueva. it is not complete until indorsed by him. Dishonor by non-acceptance When duly presented for acceptance – acceptance is refused or cannot be obtained. CA.113 A check drawn by the manager of a bank in the name of the bank itself payable to a third person. It is similar to the cashier’s check as to the effect and use. in the name of the bank against the bank itself payable to a third person. with the understanding that it is not to be presented Manager’s Check Memorandum Check 108 Sec. or at a fixed or determinable future time. engaging to pay on demand. 111 b. 149 A promise to pay money 110 Sec. 113 Tan vs. signed by the maker. or When presentment for acceptance is excused – bill is not accepted.
“memo” or “mem” on the check. Certified Check An agreement whereby the bank against whom a check is drawn undertakes to pay it at any future time when presented for payment. 115 30 .114 c. 187 Sec. Presentment for payment (1) Time Within reasonable time after its issue.116 114 Sec. 186 116 Ibid.at the bank. but will be redeemed by the maker himself when the loan falls due and which understanding is evidenced by writing the word “memorandum”.115 (2) Effect of delay The drawer will be discharged from liability thereon to the extent of the loss caused by the delay.
The insured possesses an insurable interest susceptible of pecuniary estimation.) 31 . Characteristics/Nature of Insurance Contracts Consensual It is perfected by the meeting of the minds of the parties. Concept of Insurance An agreement whereby one undertakes for a consideration to indemnify another against loss. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks. 3. 2 premium 119 A contract possessing only the first 3 elements above is a risk-shifting device. and 5. 2.E. 4. The insurer assumes that risk of loss. damage or liability arising from an unknown or contingent event. Imposes legal duties only on the insurer who promises to indemnify in case of loss. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils. Conditional 117 118 Sec. par. 117 2. Elements of an Insurance Contract 1. The parties may incorporate such terms and conditions as they may deem convenient. 2002 ed. it is a risk-distributing device (The Insurance Code of the Philippines Annotated. The insured makes a ratable contribution118 to a general insurance fund. It is subject to conditions the principal one of which is the happening of the event insured against. Insurance Code 1. Hector de Leon. If all the elements. 119 3. 2. Voluntary Aleatory Unilateral It depends upon some contingent event.
piers.122 A contract by which the insurer for a consideration agrees to indemnify the insured against loss of.Contract of indemnity Except life and accident insurance. and 4. unless delay is waived expressly or impliedly by the insurer 2. docks and other aids to navigation and transportation. Marine Protection and Indemnity Insurance 122 Sec. profits. IAC. and once it is entered into. to which a ship. cargo. credit and conduct of the other. valuable papers. 99) Cargo can be the subject of marine insurance. Classes Marine121 Insurance against risks connected with navigation. or damage to. freight. The determination is important for 2 reasons: 1. the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo. merchandise. money. bottomry and respondentia. jewelry and precious metals whether in the course of transportation or otherwise. 1. and interest in respect to all risks or perils of navigation. Vessels. property by hostile Fire123 120 121 ibid. 3. Rule on co-insurance applies to fire insurance only if expressly agreed upon.120 Personal 4. Precious stones. a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured Each party having in view the character. Aguedo Agbayani. goods. Bridges. 3. Rules on constructive total loss and abandonment – applies only to marine insurance. Delay may also be waived expressly or impliedly by the insurer It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. (Commercial Law Reviewer. profits or other insurable interest in movable property. Rule on co-insurance – applies primarily to marine insurance. 99 123 Prerequisites to recovery: 1.) 32 . (Roque v. jewels. Notice of loss – must be immediately given. (Sec. may be exposed during a certain voyage or a fixed period of time. tunnels. whether he be the shipowner or not. 2. cargo. Proof of loss – according to best evidence obtainable. Persons or property in connection with marine insurance. Coverage: A. 2. freightage. 139 SCRA 596) B. 1988 ed.
3. Suretyship.128 Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities. Solidary. when such risks are covered by extension to fire insurance policies or under separate policies. robbery/theft insurance 2. 179 33 . including loss by lightning. Insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to or damage to property of others. especially in fidelity bonding. tornado or earthquake and other allied risks. 175 129 Sec.126 An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. is thus treated like non-life insurance in some respects. 174 127 It is essentially a credit accommodation. Examples: workmen’s compensation. windstorm. (third party liability insurance) Insurable interest is based on the interest of the insured in the safety of persons.129 Suretyship127 Life 124 125 Sec. (Sec. Insurance against specified perils which may affect the person and/or property of the insured.124 Casualty125 Insurance covering loss or liability arising from accident or mishap. Nature of liability of surety: 1. excluding those falling under other types of insurance such as fire or marine. 176) 128 Sec.fire. the benefit of doubt goes to the other party (insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. motor vehicle liability 126 Sec. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. 2. Limited to the amount of the bond. who may maintain an action against him in case of their injury or destruction. 167 Classifications: 1. and not incidentally. It is considered an insurance contract if it is executed by the surety as a vocation. (accident or health insurance) Examples: personal accident. (Sec. and their property. 20) When the contract is primarily drawn up by 1 party. respectively.
the creditor can no longer recover on the policy because the principle of indemnity applies.Compulsory Motor Vehicle Liability A species of compulsory insurance that Insurance130 provides for protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. that by the preservation of the same he shall derive pecuniary benefit. of any person under a legal obligation to him to pay money or respecting property or services. If at the time of the death of the debtor the whole debt has already been paid. not thereafter or when the loss occurs. 2. 3. 5. so circumstanced. of which death or illness might delay or prevent performance. and by its destruction he shall suffer pecuniary loss. Claimants/victims may be a “passenger” or a “3rd party” It applies to all vehicles whether public and private vehicles. of any person upon whose life any estate or interest vested in him depends. 34 . In Life/Health131 Every person has an insurable interest in the life and health: 1. of his spouse and of his children. so related. the limit of insurable interest is equal to the amount of the debt.132 130 Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents. RTC. 132 Sec. Judge. Exception: In a creditor-debtor relationship where the creditor insures the life of his debtor. It is the only compulsory insurance coverage under the Insurance Code. and 4. so situated. damage or prejudice. especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained (Shafer v. A person has an insurable interest in the subject matter if he is so connected. of himself. 167 SCRA 386). 10 When it should exist: When the insurance takes effect. of any person on whom he depends wholly or in part for education or support. 131 General rule: There is no limit in the amount the insured can insure his life. Insurable Interest The insured possess an interest of some kind susceptible of pecuniary estimation.
or 3. or any relation thereto. or liability in respect thereof. 13 Sec.134 133 134 Sec. an existing interest. 17) When insurable interest should exist: It must exist at the time the policy is taken and at the time the loss incurred but it need not exist in the meantime. an expectancy coupled with an existing interest in that out of which the expectancy arises. 2. 14 The measure of insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof (Sec. 35 .133 which may consist in: 1. of such nature that the contemplated peril might directly damnify the insured. any inchoate interest founded on an existing interest.In Property Every interest in property whether real or personal.
Purposes: 1. 2. 3. 137 Sec. Subject matter is the same. 2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property. The insured. 3. To prevent over-insurance and fraud. 5. Interest insured is also the same. The insurer is bound only to pay to the extent of the real value of the property lost. 75 which provides that “(a) policy may declare that a violation of a specified provision thereof shall avoid it. the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured. Over-insurance – 135 Requisites: 1. 94) 1. It is lawful and specifically allowed under Sec. 2. Person insured is the same. 4.137 when the insured insures the same property for an amount greater than the value of the property with the same insurance company. to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. Where the policy under which the insured claims is an unvalued policy he must give credit. Where the insured receives any sum in excess of the valuation in the case of valued policies. Where the policy under which the insured claims is a valued policy. may claim payment from the insurers in such order as he may select. Effects: Where double insurance is allowed. he must hold such sum in trust for the insurers. To prevent an increase in the moral hazard 2. but over insurance results: (Sec. Each insurer is bound. Two or more insurers insuring separately. Double Insurance135 and Over Insurance136 Double insurance where same person is insured by several insurers separately in respect to same subject and interest. To constitute a violation of the clause. or of the insurable value in the case of unvalued policies. according to their right of contribution among themselves. 136 Effect in case of loss: 1. as against the full insurable value. 4. for any sum received by him under any policy. Risk or peril insured against is likewise the same. 5.” A stipulation against double insurance. otherwise the breach of an immaterial provision does not avoid it. 93 36 . unless the policy otherwise provides. Additional or “Other Insurance” Clause A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property insured.c. there should have been double insurance. up to the amount for which the insurers are severally liable under their respective contracts. as between himself and the other insurers.
d. a. w/c takes an unreasonably long time before processing the application. 139 (2) Delivery of Policy The act of putting the insurance policy140 into the possession of the insured. 41 Phil. w/c is given to the estate of the deceased applicant. Unless each of them is named as insured in the property insurance. the contract is not perfected. Thus.w/ payment of premium – policy becomes effective . Perfection of the Contract of Insurance 138 An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. the applicant dies before the application is processed. (not to beneficiary because contract not perfected. Offer and Acceptance/Consensuality Applicant usually makes the offer to the insurer. even w/ payment is a mere offer on the part of the applicant. (Enriquez vs. it does not bind the insurer. there would be no coverage for those not named. Sun Life Assurance Co. thus. Multiple or Several Interests on Same Property Several persons have insurable interests on same property. Approval of the application by the insurer is necessary to perfect contract. While they did have an insurable interest in the property.141 138 Tort Theory What is being followed in insurance contracts is what is known as the “cognition theory”. no contact) 140 the physical document 141 Effects of Delivery: 1) Where delivery is conditional – Non-performance of Condition precedent prevents contract from taking effect 2) Where delivery is unconditional – Delivery corresponding terms of application consummates the contract and policy delivered becomes final contract bet the parties 37 . “an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge”. Submission of application. Also. no contractual liability also bec. 269) 139 Remedy: Insurer liable for damages (Tort Theory) in the amount of the face value of the policy. 6. their interests were not identified. If made: . of Canada. but due to negligence of company.w/o payment – effective upon payment of premium (1) Delay in acceptance Situation where applicant submits application for insurance.
142 b. Any agreement to the contrary is void. (id. c. De Sindayen case Whether or not policy was delivered after its issuance depends not upon manual possession by the insured but rather upon the intention of the parties as manifested in their acts or agreements. (see Perez v CA case) 142 Vda. so far as to make the policy binding. Masagana Telemart. after the payment of at least three (3) full annual premiums. v. when the grace periods applies. 77) Exceptions: 1. in the absence of any clear agreement that insurer will extend credit. General rule: No policy issued by an insurance company is valid and binding until actual payment of premium. so during the earlier years of the 3) Where premium still unpaid after unconditional delivery – Policy will lapse if premium unpaid at time and manner specified in the policy. 78) 3.. 215 SCRA 462) 4. Whether or not delivery to agent is delivery to insured is a question over w/c there has been many conflicting opinions. 143 Basis of the right of the insurer to collect premiums: Assumption of risk. (Sec. (Sec. Concurrence of both is necessary. in case of default. CA. 308 SCRA 259) 5. 356 SCRA 307) Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. Constructive delivery may be sufficient. Premium Payment143 Consideration paid an insurer for undertaking to indemnify the insured against a specified peril. (Sec. (Makati Tuscany Condominium Corp. Individual life insurance contracts usually stipulate that: 1) Premium be paid and 2) Policy be delivered to the insured while he is alive and in good health. 215 SCRA 462) Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment. (Sec. (Makati Tuscany Condominium Corp. Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. In case of life or industrial life insurance. CA. notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (UCPB vs.Actual delivery of the policy is not essential unless the parties have so agreed in clear language. 77) 2. Where the parties are barred by estoppel. 78) 38 . Where a credit term has been agreed upon. v. When the insurer makes a written acknowledgment of the receipt premium. Non-Default Options in Life Insurance Cash Surrender Value The amount the insured. is entitled to receive if he surrenders the policy and releases his claims upon it. It is the portion of reserve on a life policy Nature: Premium is uniform throughout lifetime of policy.
“temporary insurance” or “paid-up extended insurance” Amount of Insurance that the CSV. after the payment of at least three full annual premiums to have the policy continued in force from the date of default for a time either stated or equal to the amount as the net value of the policy taken as a single premium. the premium charges will be more than the actual cost of the protection against the risk in order to meet the higher cost of risk during the latter years of the policy when the insured is older. has to purchase new policy Better option if insured not in good health or geriatric 147 Effect: Policy continues in force from date of default for the whole period and under the same conditions of the original contract w/o further payment of premiums.policy. upon default. though not the legal. in case of death of 39 . the greater will be the CSV but the value is always a lesser sum than the total amt. can purchase. terminates the contract of insurance 146 Effect: Policy continues in force from date of default. beneficiary can recover face amount of policy. the company has practically no beneficial interest in it except as its custodian.147 Paid-up Insurance 144 145 Reserve Value .145 Extended Insurance Depends on availability of CSV. CSV is the amount company holds in trust for insured deliverable upon demand. He cannot even reinstate the policy by paying past premiums. applied as a single premium.Surrender Charge = Cash Surrender Value Effect: Surrender policy. will purchase Also called “term insurance”. However. will purchase. this is the practical. relation of the company to this fund.144 The more premiums he has paid. Insured can also reinstate the policy w/in this period. of premiums paid. the insured is given the right. So long as the policy remains in force. Beyond extended period: If he survives No benefits.146 Either stated or equal to the amount of the cash surrender value. for a period During extended period: If insured dies. taken as a single premium.
insurer cannot require higher premium than amount stipulated in the contract. he may recover only the “paid-up” value of the policy w/c is much less than the original amount agreed upon. unless there remains CSV. if insured still does not resume paying his premiums.150 2) Required by Insurance Code for every individual and industrial life policy. etc. Other factors affect insurability like nature of work. (In other words. policy lapses. Reinstatement of a Lapsed Policy of Life Insurance 149 1) Does not create a new contract.148 If there is still CSV. After period. but not to exceed the CSV of the policy. auto premium loan continues until it is exhausted. insured. Insured under no legal obligation to repay “loan” d. age. 150 Thus. Only applies if requested in writing by the insured either in the application or at any time before the expiration of the grace period. na-reduce yung original insurance contract to one with a lower value) 148 Effect: Insurance continues in force for period covered by the payment. 149 Sec. 227 (j) Requisites: a) Exercised w/in 3 years from default b) Insured must present evidence of insurability satisfactory to the company c) Pay all back premiums and all his indebtedness to the insurance company d) CSV has not been duly paid nor the extension period expired Insurability – does not mean that insured is in good health. he may later reinstate policy if he wishes Automatic Premium Loan Upon default.Better option if insured is still young and in good health because unlike extended insurance. 40 . insurer lends/advances to the insured without any need of application on his part. merely revives the old policy. amount necessary to pay overdue premium. Advantageous to the insured because it helps to continue the contract and all its features in full force and effect. 3) Not required that three (3) annual premiums have been paid.
It is not an insurance for any single year.4) Application for reinstatement must be filed during the insured’s lifetime.). b) Life insurance (exception to applicability of this section). returned (Sec. before termination thereof152 151 There is no right to recovery of premiums in life insurance because it is not a divisible contract. 2) Where the insurance is made for a definite period and the insured surrenders his policy. w/ a privilege of renewal from year to year by paying the annual premium. 81) d) When the contract is voidable because of the existence of facts of w/c the insurer was ignorant w/o his fault (ibid. as a pro rata rate. 82). 152 such portion as corresponds w/ unexpired time. It is an entire contract of insurance for life subject to discontinuance and forfeiture for nonpayment of any of the stipulated premiums. c) When the contract is voidable because of fraud or misrepresentations of the insurer or his agent (Sec. e. 79) Exceptions: a) Short period rate agreed upon and appears on face of policy (exception to pro rata rate). g) When rescission is granted due to the insurer’s breach of contract 41 . e) When the insurer never incurred any liability under the policy because of default of the insured other than actual fraud (ibid. f) When there is over insurance (Sec. Refund of Premiums151 A person insured is entitled to a return of premium: 1) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against.).
27). 27 clearly provides that. Such party concealing is duty bound to disclose such fact to the other. and good faith and fair dealing requires him to reveal them. It always refers to the date the contract goes into effect. 125678. Good Faith is not a defense in concealment. Sps. 177 156 Requisites of a false representation (misrepresentation): a. Rescission of Insurance Contracts a. e. d. The other party has not the means of ascertaining the fact concealed. It is not a part of the contract but merely a collateral inducement to it. e. even if the death or loss is due to a cause not related to the concealed matter (Sec. “the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance. A party knows a fact which he neglects to communicate or disclose to the other. Concealment153 A neglect to communicate that which a party knows and ought to communicate. No. Matters under Sec. It is made at the same time of issuing the policy or before but not after. He must make further inquiry. answers made in good faith and without intent to deceive will not avoid the policy even though they are untrue. (Sec. b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead. 154 There is concealment where the insured has knowledge of facts material to the risk. 2002). 31).33) Where matters of opinion or judgment are called for. Characteristics: a. Reason: The insurer cannot rely on those statements. March 18. 26 155 Villanueva. The right to information of material facts may be waived. CA. The insured stated a fact which is untrue. in forming his estimate of the advantages of the proposed contract. Phil Commercial Law. It may be oral or written.. d. Sec.7. b. G. (Sunlife v. Such party concealing makes no warranty as to the fact concealed. Exception to Sec. (Philamcare Health Systems vs. 154 Sec. 31: a. c. or in making his inquiries (Sec. 1998 Ed. Material Effects: Entitles insurer to rescind.110 (marine insurance) The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. c. c. either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. Misrepresentation/Omissions156 153 Requisites: a. and he fails to do so.” Test of Materiality: Determined not by the event. It may be altered or withdrawn before the insurance is effected but not afterwards.R. Kinds: 42 . Incontestability clause b. Such fact in either case is material to the risk. but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due. 246 SCRA 268). b. Bacani. 155 b. p.
the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes false. Promissory – promise to be performed after policy was issued.157 Exceptions: a) Loss occurs before the time of performance of the warranty. 75 43 .Factual statements made by the insured at the time of. Affirmative – affirmation of a fact when the contract begins. b) The performance becomes unlawful at the place of the contract. c) Performance becomes impossible. 73 159 ex. Breach of Warranties General rule: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. c. Exception: When the policy expressly provides or declares that a violation thereof will avoid it. and b. They are considered an active form of concealment.159 General rule: It will not avoid the policy.158 Immaterial. 157 Sec. 74 158 Sec. or prior to. Other insurance clause 160 Sec.160 a.
and which the insurer omits to specify to him. 88.8. together with a demand or request for payment Nature of notice and proof of loss Although they are in the form of conditions precedent. it is advisable to give the notice in writing for the protection of the insured or his beneficiary. 162 Proof of loss is distinct from notice of loss and intended to: 1. the particulars and the data necessary to enable the company to determine its liability and the amount. Claims Settlement and Subrogation a.161 policy of the occurrence of the loss. as grounds of objection. according to De Leon. 90 44 . are waived. but it is sufficient for him to give the best evidence which he has in his power at the time. and supporting evidence. without unnecessary delay. afford him a means of detecting any fraud that may have been practiced upon him. Is not tantamount to proof or evidence under the law on evidence. It is necessary as the insurer cannot be liable to pay a claim unless he receives notice of that claim Under Sec. give the insurer information by which he may determine the extent of his liability 2.162 Other provisions: When a preliminary proof of loss is required by a policy. These conditions are intended merely for evidentiary purposes and do not form any part of the conditions of liability and are construed with much less strictness than those conditions that operate prior to loss. computations of the amounts claimed. The law does not stipulate any requirement as to the form in which notice or proof of loss must be given. the insured is not bound to give such proof as would be necessary in a court of justice. It has been held however that formal notice of loss is not necessary if insurer has actual notice of loss already. they are in the nature of conditions subsequent the breach of which affects a right that has already accrued (before the loss. 163 Sec. or in preliminary proof thereof. Notice may be an informal or provisional claim containing a minimum of information as distinguished from a formal claim which contains full details of the loss. his liability becomes properly fixed). 89 164 Sec.164 161 The purpose is to apprise the insurance company so that it may make proper investigation and take such action as maybe necessary to protect its interest. insurer is exonerated if notice of loss is not given to the insurer by the insured or by the person entitled to the benefit without unnecessary delay. Notice and Proof of Loss Notice of Loss Proof of Loss The formal notice given the insurer by the The formal evidence given the insurance insured or claimant under a policy of the company by the insured or claimant under a occurrence of the loss insured against. 163 All defects in a notice of loss. insurer’s liability is contingent but with the happening of the loss. which the insured might remedy. However.
the certificate or testimony of a person other than the insured. then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.165 If the policy requires. Sanction: Considered sufficient cause for the suspension or revocation of the company's certificate of authority. or if he omits to take objection promptly and specifically upon that ground. by way of preliminary proof of loss. 91 Sec. or e) compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them. fair and equitable settlement of claims submitted in which liability has become reasonably clear. 241 (1) & (3) 168 Sec. Sanctions Unfair claim settlement practices: a) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue. Guidelines on Claims Settlement (1) Unfair Claims Settlement. 168 165 166 Sec. b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies. and in case of the refusal of such person to give it.166 b.167 (2) Prescription of Action All criminal actions for the violation of any of the provisions of this Code shall prescribe after three (3) years from the discovery of such violation.Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him. Such actions shall in any event prescribe after ten (10) years from the commission of such violation. it is sufficient for the insured to use reasonable diligence to procure it. c) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies. 420 45 . 92 167 See Sec. d) not attempting in good faith to effectuate prompt.
v.(3) Subrogation169 It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latter’s rights against the wrongdoer at the time of loss. CA.. For recovery of loss in excess of insurance coverage 170 The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment. (Malayan Insurance Co. see also Art. Where the insurer pays the insured for a loss or risk not covered by the policy. it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. c. NCC) 46 . 165 SCRA 536. b. 2207. 170 169 There can be no subrogation in cases: a. Payment to the insured makes the insurer a subrogee in equity. In life insurance e. (Pan Malayan Insurance Company v. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured’s claim for loss. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage. CA. Inc. Said right is not dependent upon nor does it grow out of any private contract. 184 SCRA 54) d.
water. firms or associations engaged in the business of carrying or transporting passengers or goods or both. Inc. 47 . has been properly informed of such fact. 168 SCRA 612). A person or entity is a common carrier even if he did not secure a Certificate of Public Convenience (De Guzman vs. CA). maintains no terminals. 1755-1763). CA. The extra-ordinary diligence required of carriers in the handling of the goods of the shippers and consignees last from the time the cargoes are loaded in the vessels until they are discharged and delivered to the consignees. Vigilance over goods (Arts. stealth. with the carrier. by land. is injured by the carrier. One who has not yet boarded any part of a vehicle regardless of whether or not he has purchased a ticket. (First Philippine Industrial Corporation vs. Safety of passengers (Arts. Transportation Law171 1. It makes no distinction as to the means of transporting.173 171 172 The articles mentioned are under the Civil Code Art. water or air. and are entitled to ordinary diligence only: a. Neither does the law distinguish between a carrier offering its services to the general public that is the general community or population and one who offers services or solicits business only from a narrow segment of the general population. Passenger: A person who has entered into a contract of carriage. according to all the circumstances of each case. Common Carriers Persons. Diligence Required of Common Carriers Common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them.172 a. It does not provide that the transportation should be by motor vehicle. as long as it is by land. 1732 The said article avoids any distinction between one whose principal business activity is the carrying of persons or goods or both and one who does such carrying only as an ancillary activity (sideline). for compensation. or deceit. e. unless the attempt be with the knowledge and consent of the carrier. or air. offering their services to the public. and issues no tickets (Asia Lighterage Shipping. vs. 1733 The law requires CC to exercise extra-ordinary diligence which means that they must render service with the greatest skill and utmost foresight. episodic or unscheduled basis. d. and 2. The following are not considered passengers. One who attempts to board a moving vehicle. Rendition of service with the greatest skill and utmost foresight (Davao Stevedore Co. c.F. CA) One is a common carrier even if he has no fixed and publicly known route. express or implied. v. They are entitled to extraordinary diligence from the common carrier. and on alighting. One who has boarded by fraud. One who remains on a carrier for an unreasonable length of time after he has been afforded every safe opportunity to alight. One who has boarded a wrong vehicle. b. although he has a ticket. corporations. 173 Art. Fernandez) Coverage: 1. It also avoids a distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional. 1734-1754).
b. Vigilance over goods a. To comply with this obligation. hospital and other expenses. Common Carrier is liable for damages for defects of its equipment.174 Carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers. 1759 175 Art.176 f. 1740 48 . the common carrier should be afforded a wide discretion in the selection and supervision of persons who will handle the goods. 176 Art. Invited guests and accommodation passengers. Carrier is liable when it issues to passenger a confirmed ticket for a particular ticket if he is not put in that flight. (2) Absence of Delay The common carrier must not be in delay. Carrier liable only for damages that are natural and probable consequence and breach of contract which includes medical. Common Carrier is liable for the misconduct of its employees done in their own interest. (Lara vs. although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. 174 Art. If the common carrier incurs in delay. Exempting Causes (1) Requirement of Absence of Negligence The extra-ordinary diligence required of common carriers in the handling of the goods of the shipper and the consignees lasts from the time the cargoes are loaded in the vessels until they are discharged and delivered to the consignees. a natural disaster shall not free it from responsibility. Liabilities of Common Carriers Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the carrier’s employees. Valencia) g. One who rides any part of the vehicle which is unsuitable or dangerous or which he knows is not designed or intended for passengers. 1763 A common carrier is responsible for injuries suffered by a passenger on account of the lawful acts/negligence of other passengers or of strangers provided that the employees could have prevented the act or omission through the exercise of a good father of a family.175 2. if the common carrier’s employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission. The liability does not cease even upon proof that they exercised diligence in the selection and supervision of their employees.
1165. supra 180 Art. or deterioration of the goods. destruction or deterioration of the goods. 1737 181 Art. the latter shall be liable in damages. par. 177 Art.180 It continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.181 Under Art. if the obligor incurs delay. 177 c. b. or other natural disaster in order that the common carrier may be exempted from liability for the loss. Duration of liability (1) Delivery of goods to common carrier From the time the goods are unconditionally placed in the possession of. the proximate cause thereof being the negligence of the common carrier. by the carrier to the consignee or to the person who has the right to receive them. 3. destruction. storm. which however. shall be equitably reduced. 1736 179 See (1). actually or constructively. and received by the carrier for transportation until the same are delivered.178 (2) Actual or constructive delivery179 (3) Temporary unloading or storage It remains in full force and effect even when they are temporarily unloaded or stored in transit unless the shipper or owner has made use of the right of stoppage in transitu. 1738 49 . he shall be responsible for any fortuitous event until he has effected delivery. 1741 178 Art. Contributory negligence If the shipper or owner merely contributed to the loss. during and after the occurrence of flood.(3) Due diligence to prevent or lessen the loss The common carrier must exercise due diligence to prevent or minimize the loss before.
or deterioration of the goods is valid. like any other goods. g) The carrier is not responsible for the loss. and has been fairly and freely agreed upon. is required to observe extraordinary diligence. e) The carrier shall not be responsible for the acts or omissions of his or its employees. 1749 185 Under Arts. Stipulation for limitation of liability (1) Void stipulations a) The goods are transported at the risk of the owner or shipper. b) The carrier will not be liable for any loss.184 e. d) The carrier shall exercise a degree of diligence less than that of a good father of a family over the movable transported. In case of loss or damage. 1745 Art. f) The carrier’s liability for acts committed by thieves or robbers who do not act with grave or irresistible threat. the carrier is presumed negligent. if it is reasonable and just under the circumstances. 183 (3) Limitation of liability in absence of declaration of greater value A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading. vehicle. is binding. violence or force is dispensed with or diminished. 1750 184 Art. c) The carrier need not observe any diligence in the custody of the goods. by the owner or shipper for the loss. destruction or deterioration of the goods.185 182 183 Art. Civil Code 50 . Liability for baggage of passengers (1) Checked-in baggage The carrier who has in his custody the baggage of a passenger to be carried. ship or other equipment used in the contract of carriage. destruction or deterioration of the goods on account of the defective condition of the car.182 (2) Limitation of liability to fixed amount A contract fixing the sum that may be recovered. 1733 to 1753.d. unless the shipper or owner declares a greater value. destruction.
(2) Baggage in possession of passengers The baggage in transit will be considered as necessary deposit. Safety of Passengers a. 1754. 188 (2) Arrival at destination The duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip. 17 SCRA 739 .  All persons who remain on the premises within a reasonable time after leaving the conveyance are to be deemed passengers. And the passenger took the necessary precaution. unless it is done with the use of arms or through an irresistible force (Art.. Navidad. In case of loss due to fault of the passenger. who has entered the common carrier’s vehicle is not deemed force majeure. The duty which the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom. by stipulation. CA. by statements on tickets or otherwise.189 186 The act of the thief or robber. 1757 188 Dangwa Trans Co. the carrier will not be liable. but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. vs. which the carrier has advised them relative to the care and vigilance of their baggage. (La Mallorca v. CA. Abiotiz Shipping Corporation v. Void stipulations Dispensing with or lessening the extraordinary responsibility of a common carrier for the safety of passengers imposed by law. id.) 187 Art. by posting of notices. Inc.187 b. 179 SCRA 95) 51 . and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances.186 3. and includes a reasonable time to see after his baggage and prepare for his departure. provided that notice was given to them or its employees. 202 SCRA 574 189 LRTA v. The common carrier shall be responsible for the baggage as depositaries. and they are liable for injuries suffered from the sudden starting up or jerking of their conveyances while doing so. CA. Duration of liability (1) Waiting for carrier or Boarding of carrier It is the duty of common carriers of passengers to stop their conveyances a reasonable length of time in order to afford passengers an opportunity to enter.
1763. limited by Art. 1759 193 Art. by the posting of notices. 3 par.190 (2) Other passengers and strangers Not absolute. by statements on the tickets or otherwise. This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers..191 d. Extent of liability for damages Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former's employees. infra 192 Art. 1760 194 Art. however. the employee must be on duty at the time of the act.c. 194 190 191 Maranan v.193 A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers. Perez rd See d). Liability for acts of others (1) Employees Tort.192 The common carrier's responsibility prescribed in the preceding article cannot be eliminated or limited by stipulation. 1763 52 . if the common carrier's employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.
4. It is a contract by which the three parties. carrier and consignee undertake specific responsibilities and assume stipulated obligations. upon receiving the goods.195 b. 353. its contents shall decide all disputes which may arise with regard to their execution and fulfillment. Delivery of goods (1) Period for delivery Stipulated in Contract/Bill of Lading: Carrier is bound to fulfill the contract and is liable for any delay. cannot return the bill of lading subscribed by the carrier.196 (2) Delivery without surrender of bill of lading In case the consignee. Code of Commerce 53 . namely.. 196 Art. Code of Commerce 197 rd Art. As evidence. because of its loss or of any other cause. Carrier is bound to forward them in the 1st shipment of the same or similar goods which he may make to the point of delivery. their respective claims may be determined by legal proofs which each of the contracting parties may present in conformity with law. this receipt producing the same effects as the return of the bill of lading. 2. It is a legal evidence of the contract between the shipper and the carrier. no matter from what cause it may have arisen. No stipulation: 1.197 195 In the absence of a bill of lading. a. he must give the latter a receipt for the goods delivered. 358. Three-fold character 1. the shipper. 3 .par. Within a reasonable time. and 3. It is a receipt for the goods shipped 2. Bill of Lading The written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or to his order.
p. provided its objections are stated in the bill of lading. Period for filing claims200 Patent damage Shipper must file a claim against the carrier immediately upon delivery201 Shipper should file a claim against the carrier within 24 hours from delivery. (PHILAMGEN vs.198 In case of carriage by railway. Lim Ponzo) 201 it may be oral or written The filing of notice of claim is a condition precedent for recovery.(3) Refusal of consignee to take delivery Instances include the following:: 1) Goods sought to be transported are dangerous objects. 2004 ed. Aquino. Purpose of notice: To inform the carrier that the shipment has been damaged. when a common carrier accepts cargo for shipment for valuable consideration. 199 d. Latent damage 198 Notes and Cases on the Law on Transportation and Public Utilities. CA 200 These rules does not apply to misdelivery of goods.) 54 . & Hernando.68 199 PAL vs. it takes the risk of delivering it in good condition as when it was loaded. capture by enemies and the like 7) Goods like livestock will be exposed to disease 8) Strike 9) Failure to tender goods on time. and it is charged with liability therefore. T. R. Inc. (Roldan vs. or substances including dynamite and other explosives 2) Goods are unfit for transportation 3) Acceptance would result in overloading 4) Contrabands or illegal goods 5) Goods are injurious to health 6) Goods will be exposed to untoward danger like flood. and to give it an opportunity to make an investigation and fix responsibility while the matter is fresh. Shorter period may be stipulated by the parties because it merely affects the shipper’s remedy and does not affect the liability of the carrier.P. However. Sweetlines. the carrier is exempted from liability if carriage is insisted upon by the shipper.
If despite the notice of claim. Justice Jose Vitug. (ICTSI vs. citing Francisco. vs. who thereby become the charter’s servants. Ship owner or ship agent 2. 1997 ed. Charter Parties204 Bareboat/Demise Charter The charterer provides crew. Civil Code rules on prescription apply. Charterer 55 . The shipowner leases to the charterer the whole vessel. except when the cause arises from the unworthiness of the vessel.e. including the master and the crew. Aquino & Hernando. their crews and navigation. possession and consequent control over the vessel’s navigation. 203 Articles mentioned are under the Code of Commerce Maritime/admiralty law It is the system of laws which particularly relates to the affairs and business of the sea. It refers to a contract for the unloading of goods from a vessel. and to maritime conveyance of persons and property. food and fuel. (Notes and Cases on the Law on Transportation and Public Utilities. the carrier refuses to pay. Inc. Prudential Guarantee. (Planters Products. 320 SCRA 244) 204 Charter party A contract by virtue of which the owner or agent binds himself to transport merchandise or persons for a fixed price. (Pandect of Commercial Law and Jurisprudence. 5. A contract by which an entire ship. It 202 Thus. to ships. The charterer is liable as if he were the owner. Period for filing actions Not provided by Article 366.254) Maritime laws apply only to maritime trade and sea voyages. in such absence. or some principal part thereof is let/leased by the owner to another person for a specified time or use.202 No bill of lading was issued Bill of lading was issued: within 6 years within 10 years. p. action must be filed in court. transferring to the latter the entire command.) Arrastre service is not maritime in character. Maritime Commerce203 a. 226 SCRA 476) Parties: 1. CA.
Thefts and robberies of the crew.. control and Person entrusted with provisioning and management of the vessel and the representing the vessel in the port in which it consequent right to direct her navigation and may be found. Damages due to mutinies. Losses and fines for violation of laws. d. 206 A kind of contract of affreightment whereby the owner of the vessel leases part or all of its space to haul goods for others. 207 ibid. Damages to vessel and to cargo due to lack of skill and negligence.211 a. 211 Art. Because the charterer is treated as owner pro hac vice. command and navigation of the ship. The shipowner retains the possession. just for that one particular purpose only. 205 The charterer becomes the owner of the vessel pro hac vice. equip and provision the vessel. b. the charterer merely having use of the space in the vessel in return for his payment of the charter hired. 210 receive freight earned and paid. b.transforms a common carrier into a private carrier. (1) Liability for acts of captain All contracts of the captain. the charterer assumes the customary rights and liabilities of the shipowner to third persons and is held liable for the expense of the voyage and the wages of the seamen. he is solidarily liable with the ship owner. The vessel is leased for one or series of voyages usually for purposes of transporting goods for charterer Voyage/Trip Charter207 . also includes the shipowner. while his possession continues. 586 56 . 208 proprietario 209 naviero 210 Not a mere agent under civil law.205 Time Charter206 Vessel is chartered for a fixed period of time or duration of voyage. Liability of Shipowners and Shipping Agents Shipowner208 Ship agent209 Person who has possession. to repair. whether authorized or not. c.
. Chattel Mortgage of ship213 c. pp. 1998 ed. 855 (2)) 3.216 Collisions 212 213 Art. Phil. For arrivals under stress. (Art. 57 . (Art. f. York-Antwerp Rule) 216 Allision . Liability under the Labor Code d. Accidents and Damages in Maritime Commerce General Average214 Damages or expenses deliberately caused in order to save the vessel.215 Impact of two vessels both of which are moving. h. (Art. g. Damages due to misuse of power. Goods carried on deck. Goods not recorded in the books or records of the vessel. 806) The person whose property has been saved must contribute to reimburse the damage caused or expense incurred if the situation constitutes general average. (Rule IX. Fuel for the vessel if there is more than sufficient fuel for the voyage. When the shipowner is at fault b. and to the cargo from the port of loading to the port of consignment. and all damages or deterioration suffered by the vessel from departure to the port of destination. Commercial Law. 618 Villanueva. Damages due to non-observance of marine regulations. 28-31 214 Average . 811 Goods not covered by general average even if sacrificed: 1.an extraordinary or accidental expense incurred during the voyage in order to preserve the cargo. vessel or both.855) 2.212 (2) Exceptions to limited liability a. Insurance c.impact between a moving vessel and a stationary one. For deviations.e. 215 Art. its cargo or both from real and known risk.
. American Steamship Agencies Inc. 6 SCRA 180) The one-year period shall run from delivery of the last package and is not suspended by extrajudicial demand. Nordeutscher Lloyd. (Fil.S. Patent damage: immediately upon delivery.) and damage arising from delay or late delivery (Mitsui O.222 or b.223 Limitation of liability 217 218 Period of Prescription The liability limit is set at $500 per package C. Lines Ltd.K. 65 from foreign port to Philippine port It can be applied in domestic sea transportation if agreed upon by the parties (Clause paramount or paramount clause) 219 Loss or Damage” as applied to the COGSA contemplates a situation where no delivery at all was made by the shipper of the goods because the same had perished. CA) 222 delivered but damaged goods 223 non-delivery (Sec. 221 The one-year prescriptive period is suspended by: 1. No. SCRA 359) The insurer exercising its right of subrogation is bound by the one-year prescriptive period. 220 Sec. and c.Inc. vs. it does not apply to the claim against the insurer for the insurance proceeds.. (Ang vs. vs. Latent damage: within three (3) days from delivery. 3(6) The filing of a notice of claim is not a condition precedent. b. water/maritime transportation.A. gone out of commerce. In such instance the. Mayer Steel Pipe Corp. Merchants Ins. However. The express agreement of the parties (Universal Shipping Lines. b. (Dole Phils.. it is inapplicable in case of misdelivery or conversion. Manila Railroad Co. vs. 3) 58 . Co. vs. vs. overseas/international/foreign218 Notice of Loss or Damage219 a. 188 SCRA 170) 2. The date when the goods should have been delivered. Inc. Delivery of the goods.220 Within one (1) year221 after: a. Maritime Co. CA). vs. (Stevens & Co. Civil Code rules on prescription shall apply. Inc. The filing of an action in court until it is dismissed. Alejandro. Thus.d. 148 SCRA 118) The one-year period shall run from delivery to the arrastre operator and not to the consignee. (Union Carbide Phils. vs. for the carriage of goods. Carriage of Goods by Sea Act217 Application The transportation must be: a. IAC. or disappeared in such a way that their existence is unknown or they cannot be recovered.
59 . Public Service Act a. IAC. telephone or telegraph service. Necessity for certificate of public convenience 225 (1) Requisites (a) Citizenship Filipino citizen or corporation sixty percent (60%) of which is owned by Filipino citizens. 150 SCRA 463) 225 Certificate of Public Convenience (CPC) . Definition of Public Utility A business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity. 4(5) This is deemed incorporated in the bill of lading even if not mentioned in it (Eastern Shipping vs. water.an authorization issued by the commission for the operation of public services for which no franchise either municipal or legislative is required by law. transportation.224 6. (b) Promotion of public interests The service will promote public interest and convenience. gas.or customary freight unit unless the nature and value of such goods is declared by the shipper. Unless otherwise exempt. (c) Financial capability The grantee must have sufficient financial capability to undertake the service. b. 224 Sec. no public service shall operate without having been issued a certificate of public convenience (no franchise is required by law) or a certificate of public convenience and necessity (a prior franchise is required by law).
(2) Prior operator rule (a) Meaning Before permitting a new operator to invade the territory of another already established. 226 227 Batangas Trans Co.226 c. is complying with the rules and regulations of the commission. Passage through private subdivision which granted permit to another (c) Ruinous competition The law contemplates that the first licensee will be protected in his investment and will not be subjected to a ruinous competition. albeit overlapping with that of the old operator 8. 9. When opportunity to improve service is raised by prior operator only on appeal. and who. When Prior operator offers to meet increases in demand only when another operator offered to render additional service 3. 52 Phil 455 There is a legal presumption that the rates are reasonable and it must be conceded that the fixing of rates by the government through its authorized agent. involves the exercise of reasonable discretion and unless there is an abuse of that discretion. 7.227 Before the Commission can fix rates. Monopoly 10. Prior operator cannot satisfy needs of the public 6. It is not therefore the policy of the law to issue a CPC to a second operator to cover the same field and in competition with a first operator who is rendering sufficient. Prior operators did not oppose application 5. v Orlanes. 2. CPC granted to the applicant is a maiden franchise covering a new route. Operator fails/ neglects to make improvement or effect the increase in service when given the opportunity. Fixing of rate A legislative and governmental power over which the government has complete control. Expiration of corporate existence of prior operator. The old operator must be given the opportunity to improve and extend his lines. there must first be a notice and hearing. adequate and satisfactory service. But it has no power to fix rates which are unreasonable or to regulate them arbitrarily and that as to whether a given rate is fair and reasonable is a judicial question over which the courts have complete control. Abandonment of operation 4. (b) Exceptions 1. in all things and respects. 60 . the prior operator must be given an opportunity to extend its service to meet the public needs in the matter of transportation.
can provisionally approve rates proposed by public services without notice and hearing provided that within thirty (30) days thereafter a hearing must be held upon previous publication and notice to the concerns operating in the territory affected. Unlawful arrangements (1) Boundary system Under this system. There are just and reasonable grounds for making the transfer 2. it is believed is applicable to all regulatory boards. (2) Kabit system One whereby a person who has been granted a certificate of public convenience allows other persons who own vehicles to operate them under such license. it constitutes an imposition upon the good faith of the govt. The jurisdiction and supervision and control over all public 61 . commissions and councils 230 Sec. the authorized operator of a common carrier is liable for the conduct of the driver. is always subject to a revision and regulation by the PSC. (2) Exclusion of income tax as expense d. "this is a pernicious system that cannot be too severely condemned. and therefore. The maximum rate fixed in a franchise. for a fee or percentage of the earnings.However. there being an employer-employee relationship between the operator and the driver. ERB has authority to issue an order granting provisional increase of prices even without notice and hearing.228 (1) Rate of return Rates are submitted by the public carriers but are subject to approval by the PSC which is not limited in the selection of the old or the new rates but could NOT establish such rates as are proper under the evidence presented. the Commission. which its holder is authorized to collect. 20(g) This provision. 229 now regulatory boards. encumbrance or lease of property CPC if: The Commission229 has the power and authority to approve a sale or transfer of a 1.g." e. Approval of sale. void and inexistent.230 228 E. This is contrary to public policy. commissions and councils. in its discretion. as a result of the transfer of powers and functions. The sale or transfer is not detrimental to the public interest.
When public policy is contradicted. suzerainty. Carriage of passengers. or transshipment. Am. 1 Sec. if it has been regarded by the parties as a single operation. or.3) 234 The period during which the baggage or goods are in the charge of the carrier.000 francs per passenger Exception: Agreement to a higher limit services originally vested in the Public Service Commission have been distributed among the various regulatory boards. Applicability232 The transportation must be: 1. and it shall not lose its international character merely because one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty. Code of Commerce and other municipal special laws. commissions and councils 231 As much a part of Philippine law as the Civil Code. Air transportation. 1971.) Transportation to be performed by several successive air carriers shall be deemed to be one undivided transportation. (Art. 235 Art. in any place whatsoever. in case of a landing outside an airport. The WC shall also apply to fortuitous transportation by aircraft performed by an air transportation enterprise. 2. or 2. even though that power is not a party to the Convention. for the purpose of loading. International transportation. whether in an airport or on board an aircraft. CA.7. b. delivery. or authority of the same High Contracting Party. mandate or authority of another power. Limitation of liability235 (1) Liability to passengers General rule: Limited to 250. specifically on the limitation of carrier’s liability. The Warsaw Convention231 a. Within the territory of a single High Contracting Party. 22. baggage or goods. Alitalia vs.234 and 3. and the provisions therein contained. 255 SCRA 48) 232 When inapplicable: 1. as amended by Guatemala Protocol. Within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or transshipment. are in operation in the Philippines but only in appropriate situation (PAL vs. IAC 62 . If the requirements under the Convention are not complied with. whether it has been agreed upon under the form of a single contract or of a series of contracts. mandate. (“round trip”.233 2. It includes any transportation by land or water outside an airport if such takes place in the performance of a contract for transportation by air. if there is an agreed stopping place within a territory subject to the sovereignty. Jur. 233 any transportation in which the place of departure and the place of destination are situated either: 1.
as. carrier is liable to not more than the declared sum unless it proves the sum is greater than actual value. (3) Liability for hand-carried baggage Limited to 5. 63 . the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages which can be reasonable attributed. in accordance with the law of the court seized of the case.236 236 Under domestic law and jurisprudence.000 francs per passenger. of if the damage is similarly caused by any agent of carrier acting within the scope of his management. to the non-performance of the obligation.(2) Liability for checked baggage General rule: limited to 250 francs per kilogram Exception: In case of special declaration of value and payment of a supplementary sum by consignor. c. Willful Misconduct The War Convention denies to the carrier availment of the provisions which exclude or limit the carrier’s liability if the damage is caused by his willful misconduct or by such default on his part. although unforeseen. is considered to be equivalent to willful misconduct. including exemplary damages.
2 241 e. 68 Sec. Corporation Law 1.g. 3.G. 238 b. 237 238 B. Classification of corporations 1. As to functions Public Government of a portion of the territory. As to governing law Public Special Laws 4.241 Private Law on Private Corporations Private Usually for profit-making Private By private persons alone or with the State Organized in Organized with a accordance with the colorable compliance requirements of law.P. The Corporation Code237 a. and the powers. attributes and properties expressly authorized by law and incident to its existence. Roman Catholic Church 64 . defined An artificial being created by operation of law having the right of succession. As to organizers Public By State only 2. Its existence cannot be inquired collaterally. Corporation. As to legal status De jure De facto By estoppel Group of persons that assumes to act as a corporation knowing it to be without authority to do so. and enters into a transaction By prescription One which has exercised corporate powers for an indefinite period without interference on the part of the sovereign power. with the requirements of a valid law.
Actual use or exercise in good faith of corporate powers. 5. It cannot be permitted to deny its existence in an action under said transaction. As to existence of shares of stock: Stock A corporation 1) whose capital stock is divided into shares and 2) which is authorized to distribute to shareholders dividends or allotments of the surplus profits on the basis of the shares held. 21 242 Sec. 20 Requisites: 1. and 4. The only difference between a de facto corporation and a de jure corporation is that a de jure corporation can successfully resist a suit by a state brought to challenge its existence. The existence of a valid law under which it may be incorporated. 2. 3 65 . a de facto corporation cannot sustain its right to exist.239 with a third person on the strength of such appearance.242 Non-stock Does not issue stocks nor distribute dividends to their members. 3.240 It is neither de jure nor de facto. A bona fide attempt in good faith to incorporate under such law.Such inquiry may be made by the Solicitor General in a quo warranto proceeding. 239 Sec. Issuance of a certificate of incorporation by the SEC as a minimum requirement of continued good faith. 240 Sec.
Hector de Leon. The stockholders of the parent company demand representation in the board meetings of its subsidiary. It is one that holds stocks in other companies for purposes of control rather than for mere investment. As to relationship of management and control Holding One which controls another as a subsidiary by the power to elect management. Subsidiary One which is so related to another corporation that the majority of its directors can be elected directly or indirectly by such other corporation. Philippine laws. Sec.6. or existing Foreign under Formed. or existing under any laws other than those of the Philippines.243 Affiliate Company which is subject to common control of a mother holding company and operated as part of the system. organized.244 243 244 The Corporation Code of the Philippines Annotated. 7. 123 66 . 2002 ed. The board of directors of the parent company determines its representatives to attend and vote in the stockholder’s meeting of its subsidiary. organized. As to place of incorporation Domestic Formed. Parent and Subsidiary Separate entities with power to contract with each other.
(Creese vs. (Sec. MV Corporation would have a 30% Filipino interest in XYZ Company (60% of 50%). 136) c. By the Foreign Investments Act. while AC Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%). acting through its authorized agents are its sole liabilities.247 245 246 also known as the “wartime test. This test is applied in times of war. PCGG) 67 . Natividad. 44(3). Right to bring actions – may bring civil and criminal actions in its own name in the same manner as natural persons. corporate secretary. 46. 11. Hence. (Stonehill vs. Protection against unreasonable searches and seizures. Nationality of corporations (1) Control test Determined by the nationality of the controlling stockholders or members. 247 Used for purposes of convenience and to subserve the ends of justice. MV Corporation is 60% owned by Filipinos. Right to acquire and possess property – property conveyed to or acquired by the corporation is in law the property of the corporation itself as a distinct legal entity and not that of the stockholders or members. (Bataan Shipyard vs. treasurer or in-house counsel. the grandfather rule is merely an ancillary rule to the main method of determining nationality.) 6. (The Corporation Code of the Philippines Annotated. Hector de Leon. wherein corporations that are 60% owned by Filipinos are automatically considered as 100% Filipino-owned. while AC Corporation is 50% owned by Filipinos. Bell & Co. Civil Code) 3.245 (2) Grandfather rule Applied in determining the nationality of a corporation.” Ex: MV Corporation and AC Corporation have equal interest in XYZ Company. Liability for acts or contracts – obligations incurred by a corporation. Changes in individual membership – remains unchanged and unaffected in its identity by changes in its individual membership. Acquisition of court of jurisdiction – service of summons may be made on the president. (Art. By the grandfather rule. Diokno. 93 SCRA 483) 2. Rule 14. Rules of Court).c. 5. vs. Civil Code) 4. general manager. Consequences/significance: 1. Only when a corporation is less than 60% owned shall the grandfather rule be applied. Due process (Albert vs. University Publishing. 20 SCRA 383) A corporation is not entitled to invoke the right against self-incrimination. It traces the nationality of the stockholders of investor corporations so as to ascertain the nationality of the corporation where the investment is made. the total Filipino interest is only 55%. Equal protection of the law (Smith. 40 Phil. Entitlement to constitutional guaranties: a.246 The application of the test is limited however to resolving issues on investments. (Art. Corporate juridical personality (1) Doctrine of separate juridical personality A corporation has a juridical personality separate and distinct from that of its stockholders or members. CA. d. 13 SCRA 84) b. 2002 ed.
248 Liability for crimes Since a corporation is a mere legal fiction. Nevertheless. the Supreme Court recognized that corporations can be entitled to moral damages if their financial reputation had been harmed. in such case the responsible officers would be criminally liable. et al. evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. to justify the award of moral damages. serious anxiety. Tan Boon Kong.251 though. Ago Medical and Educational Center-Bicol Christian College of Medicine. This provision expressly authorizes the recovery of moral damages in cases of libel.249 (b) Recovery of damages A corporation is not entitled to moral damages because it has no feelings. no emotions. v. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. CA. the law implies damages. since it does not have the essential element of malice. The Court held that in all cases of libel. it cannot be held liable for a crime committed by its officers. corporations can be awarded moral damages. Therefore. 2005 249 68 .607 250 ABS-CBN vs. unlike a natural person. mental anguish or moral shock. generally. slander or any other form of defamation. the Court’s statement in Mambulao that “a corporation may have a good reputation which. The Court. if besmirched. However. from the directors as the governing body. The Court of Appeals cites Mambulao Lumber Co. 54 Phil. may also be a ground for the award of moral damages” is an obiter dictum. AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil Code.(a) Liability for tort and crimes Liability for torts A corporation is liable whenever a tortuous act is committed by an officer or agent under the express direction or authority of the stockholders or members acting as a body. PNB. In such a case. Moreover. Inc. no senses. where the broadcast is libelous per se. or. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent 248 PNB vs. v. through Justice Antonio Carpio said: “A juridical person is generally not entitled to moral damages because.250 In one case. it cannot experience physical suffering or such sentiments as wounded feelings. 83 SCRA 237r People vs. January 17. a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Court of Appeals 251 Filipinas Broadcasting Network.
The parent company finances the subsidiary 4. or its business or financial responsibility is referred to as the parent corporation’s own. particularly. the broadcasts are libelous per se. 10. 7. 253 252 Mere ownership by a single stockholder or by another corporation of all or substantially all of the capital stock of the corporation does not justify the application of the doctrine. The formal legal requirements of the subsidiary are not observed. 8. (a) Grounds for application of doctrine 252 1. 6. AMEC is entitled to moral damages. 5. The parent and subsidiary corporations have common directors or officers. defeat public convenience. and vice versa because a corporation has a personality separate and distinct from its members or stockholders. 253 Phil. In this case. 9.” (2) Doctrine of piercing the corporate veil It means that while the corporation cannot be generally held liable for acts or liabilities of its stockholders or members. The papers of the parent corporation or in the statements of its officers. 362 SCRA 216  69 . The directors or executives of the subsidiary do no act independently in the interest of the subsidiary but take their orders from the parent corporation. There must be other circumstances that must be present. The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. Ritratto Group. the corporate existence is disregarded under this doctrine when the corporation is formed or used for illegitimate purposes. Thus. The parent corporation uses the property of the subsidiary as its own. however. The subsidiary has grossly inadequate capital. Inc. The parent corporation owns all or most of the capital of the subsidiary. the subsidiary is described as a department or division of the parent corporation. justify wrong. 2. 3.to the recovery of some damages. as a shield to perpetuate fraud. The parent company subscribed to all the capital stock of the subsidiary or otherwise causes its incorporation.. evade a just and valid obligation or defend a crime. National Bank v.
4. 3. or in the absence of a fixed date or dates.00) pesos. Not less than 5 but not more than 15. it is undeniable that corporations can be corporators. Tagario (November 25. Andrada Electric & Engineering Company. the balance to be payable on a date or dates fixed in the contract of subscription without need of call. will or existence or existence of its own. The said control and breach of duty must have proximately caused the injury or unjust loss complained of. (2) Minimum capital stock and subscription requirements a.(b) Test in determining applicability Control – not mere stock control but complete domination – not only of finances. In no case shall the paid-up capital be less than five thousand (P5. Majority must be residents of the Philippines. Capital structure (1) Number and qualifications of incorporators 255 1. e. 381 SCRA 244 . but of policy and business practice in respect to the transaction attacked and must have been such that the corporate entity as to this transaction had at the time no separate mind.are those mentioned in the Articles of Incorporation as originally forming and composing the corporation. where incorporated cooperatives are allowed to be incorporators of rural banks. At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation. b. (PNB v. and. having signed the Articles and acknowledged the same before a notary public. upon call for payment by the board of directors. 13 70 . or a dishonest and an unjust act in contravention of the plaintiff’s legal right. 2. and 5. They have no powers beyond those vested in them by the statute. and c. v. Note: However. Child Learning Center Inc. General rule: Only natural persons can be incorporators.000. 256 Sec. At least twenty-five per cent (25%) of the total subscription must be paid upon subscription. Each must own or subscribe to at least one share. 256 254 Such control must have been used by the defendant to commit a fraud or wrong to perpetuate the violation of a statutory or other positive legal breach of duty.254 e..g. Rural Banks Act of 1992. 2005) 255 Incorporators . Natural persons. Exception: When otherwise allowed by law. Of legal age.
likewise. b. c. it shall still be entitled to vote on matters enumerated in Section 6 paragraph 6. Redeemable shares may be deprived of voting rights in the articles of incorporation. after such redemption. regardless of the existence of unrestricted retained earnings (Sec. and preferences either with respect to (a) assets after dissolution. Redeemable shares may be issued only when expressly provided for in the articles of incorporation. in the management of its affairs without preference or advantage whatsoever. unless otherwise provided in the Code. Preference must not be violative of the Code. 259 Limitations: a. provided that the corporation has. The extension cannot be made earlier than 5 years prior to the expiration date unless there are justifiable reasons as determined by the SEC. Redeemable shares may be redeemed. and the owners thereof are entitled to a pro rata share in the profits of the corporation and in its assets upon dissolution and. d. 8). and other preferences. Those issued with par value. May be issued only with a stated par value.(3) Corporate term Shall not exceed fifty (50) years in any one instance.258 Redeemable shares Permits the issuing corporation to redeem or purchase its own shares. sufficient assets in its books to cover debts and liabilities inclusive of capital stock. for after dissolution by expiration of the corporate term there is no more corporate life to extend. 258 Limitations: a. The terms and conditions affecting said shares must be stated both in the articles of incorporation and in the certificates of stock representing such shares. The board of directors may fix the terms and conditions only when so authorized by the articles of incorporation and such terms and conditions shall be effective upon filing a certificate thereof with the SEC.257 (4) Classification of shares Common shares The basic class of stock ordinarily and usually issued without extraordinary rights and privileges. If deprived of voting rights. or both.259 Preferred shares 257 The amendment is effected before the expiration of corporate term. 71 . c. b. (b) distribution of dividends.
provided it is reasonable.Treasury shares Shares that have been earlier issued as fully paid and have thereafter been acquired by the corporation by purchase. shall nevertheless be entitled to vote on the following fundamental matters: a. If acquired by donation from the stockholders: The act would amount to a surrender of their stock without getting back their investments that are instead. provided that there shall always be a class or series of shares which have complete voting rights. this privilege is subject to approval by the SEC. 262 The law only authorizes the denial of voting rights in the case of redeemable shares and preferred shares. and redemption or through some lawful means. investments of corporate funds in another corporation or another business purpose. donation. incurring. and cannot exceed 5 years from the date of approval. But if an exclusive right to vote and be voted for as director is granted. c. creating or increasing bonded indebtedness. e. when such voting rights are denied. Treasury shares need not be sold at par or issued value but may be sold at the best price obtainable. merger or consolidation of capital stock g. 261 Shares classified as such in the articles of incorporation which may be given special preference in voting rights and dividend payments. there can be no watering of stock because such watering contemplates an original issuance of shares. amendment of Articles of Incorporation b. corporate dissolution 72 . Without right to vote. These redeemable and preferred shares. increase or decrease of capital stock f. 9 If purchased from stockholders: The transaction in effect is a return to the stockholders of the value of their investment in the company and a reversion of the shares to the corporation.260 Shares issued to organizers and promoters of a corporation in consideration of some supposed right or property. The corporation must have surplus profits with which to buy the shares so that the transaction will not cause an impairment of the capital. voluntarily given to the corporation. When treasury shares are sold below its par or issued value. sale or disposition of all or substantially all of corporate property. and h. Treasury shares have no voting rights as long as they remain in treasury (uncalled and subject to reissue). Neither are treasury shares entitled to dividends or assets because dividends cannot be declared by a corporation to itself. adoption and amendment of by-laws.262 Founders' share Voting shares Non-voting shares 260 Sec. Reason: A corporation cannot in any proper sense be a stockholder in itself and equal distribution of voting rights will be effectively lost. d.261 With a right to vote.
Both par and no par stocks can thus be watered stocks. c. It includes stocks: a. Issued without consideration. No par value shares cannot have an issued price of less than P5. usually payment of full subscription price. It is also known as spurious stock. property. (Sec. they are deemed fully paid and non-assessable. stock dividends. Issued as fully paid when the corporation has received a lesser sum of money than its par or issued value. Issued as stock dividend when there are no sufficient retained earnings to justify it. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividends. e. share. Issued for a consideration other than actual cash. 263 With a value fixed in the certificates of stock and the articles of incorporation. the fair valuation of which is less than its par or issued value. d. Its issuance is considered null and void.Escrow stock Deposited with a third person to be delivered to a stockholder or his assign after complying with certain conditions.00. f. c. 6) 73 . The articles of incorporation must state the fact that it issued no par value shares as well as the number of said shares. They cannot be issued by banks. Once issued. Stock issued in excess of the authorized capital stock.264 A stock certificate endorsed by the registered holder in blank and transferee can command its transfer to his name from the issuing corporation Over-issued stock Watered stock Par value shares No par value shares Street certificate 263 “Water” in the stock represents the difference between the fair market value at the time of the issuance of the stock and the par or issued value of said stock. Have no par value but have issued value stated in the certificate or articles of incorporation. b. d. They cannot be issued as preferred stocks. public utilities and building and loan association. insurance companies. or services. trust companies. 264 Limitations: a. b. A stock issued not in exchange for its equivalent either in cash.
such subscriber becomes a stockholder of record entitled to all the rights of a stockholder. and from that time. unless and until after these contracts are ratified. and not the corporation. formed or to be formed 74 . by its Board of Directors/Trustees. subject to and to the extent of his representations. 223 267 Sec. With a value of less than one (1) full share. 60 A person agreed to take and pay for original and unissued shares of a corp. (a) Liability of promoter He is liable to contracts entered by him in behalf of proposed corporation. Without ratification by a corporation after its due incorporation. Co. The subscription contract is a consensual contract that is perfected upon the meeting of the minds of the parties.265 (b) Liability of corporation for promoter’s contracts Contracts by the promoter for and in behalf of a proposed corporation generally bind only him. it continues to be a subsisting liability that is legally enforceable.267 The subscribed shares need not be paid in full in order that the subscription may be valid. Teodoro Sandiko.266 (2) Subscription contract Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. The name of the subscriber is recorded in the stock and transfer book. 65 Phil. a contract entered into in behalf of a corporation yet to be organized or still in the process of incorporation is void as against the corporation.. 265 266 A promoter is an agent of the incorporators but not of the corporation. acting alone or with others. Inc. takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor. Cagayan Fishing Dev. expressly or impliedly. v. Until the stocks are fully paid. Incorporation and organization (1) Promoter Fractional share A person who. f.Convertible share Changeable by the stockholder from one class to another at a certain price and within a certain period.
Labor performed for or services actually rendered to the corporation. 62 Where the consideration is other than actual cash.270 268 Under Sec 60 any contract for the acquisition of unissued stock in a corporation still to be formed shall be deemed a subscription within the meaning of the Corporation Code. unless: Shall be irrevocable for a period of at least 6 months from date of subscription. provided that no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the SEC. Actual cash paid to the corporation. 4. Previously incurred indebtedness of the corporation. Amounts transferred from unrestricted retained earnings to stated capital. May be any or a combination of any two (2) or more of the following: 1. 1. from the date of subscription. a subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of 6 mos. 5. tangible or intangible. or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription. no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to SEC 269 Sec. and 6. unless all of the other subscriber consent to the revocation. Property. 2. Outstanding shares exchanged for stocks in the event of reclassification or conversion. 61 270 Sec.(3) Pre-incorporation subscription agreements 268 Subscription of shares of stock of a corporation still to be formed. Under Sec 61. However. the valuation thereof shall initially be determined by the incorporators or the board of directors. The incorporation of said corporation fails to materialize with said period or within a longer period as may be stipulated in the contract of subscription. 2. or consists of intangible property such as patents of copyrights. actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued.269 (4) Consideration for stocks Stocks shall not be issued for a consideration less than the par or issued price thereof. 3. subject to approval by the Securities and Exchange Commission. All of the other subscribers consent to the revocation. Shares of stock shall not be issued in exchange for promissory notes or future service (ibid) 75 .
(5) Articles of Incorporation The document prepared by the persons establishing a corporation and filed with the SEC containing the matters required by the Code. It defines the charter of corporation & the contractual relationship between state and corporation, shareholders and state, corporation and shareholders. (a) Contents 1. name of corporation; 2. purpose/s, indicating the primary and secondary purposes; 3. place of principal office; 4. term of existence; 5. names, citizenship and residences of incorporators; 6. number, names, citizenship and residences of directors or trustees; 7. names, nationalities, and residences of the persons who shall act as directors or trustees until the first regular ones are elected and qualified; 8. if a stock corporation, the amount of its authorized capital stock, number of shares and in case the shares are par value shares, the par value of each share; 9. names, residences, number of shares, and the amounts subscribed and paid by each of the original subscribers which shall not be less than 25% of authorized capital stock; 10. if non-stock, the amount of capital, the names, residences, and amount paid by each contributor, which shall not be less than 25% of total subscription; 11. name of treasurer elected by subscribers; and 12. if the corporation engages in a nationalized industry, a statement that no transfer of stock will be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required legal minimum.271
(b) Non-amendable items Those matters referring to facts existing as of the date of the incorporation such as: 1. Names of incorporators; 2. Names of original subscribers to the capital stock of the corporation and their subscribed and paid up capital; 3. Treasurer elected by the original subscribers; 4. Members who contributed to the initial capital of a non-stock corporation; 5. Date and place of execution of the articles of incorporation; 6. Witnesses to the signing and acknowledgment of the articles. (6) Corporate name -- limitations on use of corporate name No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws.272 (7) Registration and issuance of Certificate of Incorporation Gives juridical personality to a corporation and places it under SEC jurisdiction. (8) Election of directors or trustees a. In any form; or b. Must be by ballot when requested by any voting stockholder or member; a. Voting may be in person or by proxy.
(9) Adoption of By-Laws273 (a) Requisites of valid by-laws a. Must not be contrary to law nor with the Corporation Code b. Must not be contrary to morals and public policy; c. Must not impair obligations and contracts; d. Must be general and uniform; e. Must be consistent with the charter or articles of incorporation; and f. Must be reasonable, not arbitrary or oppressive. (b) Binding effects a. As to members and corporation They have the force of contract between the members themselves. They are binding only upon the corporation and on its members and those having direction, management and control of its affairs. b. As to third persons They are not bound to know the by-laws which are merely provisions for the government of a corporation and notice to them will not be presumed. 274 (c) Amendments By a majority vote of the Board of Directors and majority vote of outstanding capital stock or a majority of the members in non-stock corporation.275
By-laws - rules of action adopted by a corporation for its internal government and for the regulation of conduct and prescribe the rights and duties of its stockholders or members towards itself and among themselves in reference to the management of its affairs. Functions: a. Supplement the articles of incorporation b. Provide for details not important enough to be stated in the articles of incorporation c. Continuing rule for the government of the corporation and the individuals composing it d. Define the rights and duties of corporate officers and directors/trustees and of stockholders/members towards the corporation and among themselves e. Source of authority for corporate officers and agents of the corporation 274 By-laws have no extra-corporate force and are not in the nature of legislative enactments so far as third persons are concerned. 275 Power to amend or repeal by-laws or adopt new by-laws may be delegated by the 2/3 of the outstanding capital stock or 2/3 of the members in the case of non-stock corporation
g. Corporate powers (1) General powers, theory of general capacity 1. To sue and be sued in its corporate name;276 2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation; 3. To adopt and use of corporate seal; 4. To amend its Articles of Incorporation; 5. To adopt its by-laws not contrary to law, morals, or public policy, and to amend or repeal the same; 6. For stock corporations: issue and sell stocks to subscribers and treasury stocks; for non-stock corporations: admit members; 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and personal property, securities and bonds 8. To enter into merger or consolidation with other corporations; 9. To make reasonable donations for public welfare, hospital, charitable, cultural, scientific, civic or similar purposes, provided that no donation is given to any (i) political party, (ii) candidate and (iii) partisan political activity. 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and
This power (Section 36(1)) is an incident to corporate existence. (De Leon 2006 at 319) As a rule, suits are to be brought by or against the corporation in his own name. Corporation de facto may sue or be sued but a corporation which has been dissolved after the expiration of 3-year winding-up period ceases to exist de jure or de facto. Under Sec. 36 of Corporation Code, in relation to Sec. 23, where a corporation is an injured party, its power to sue is lodged with its Board of Directors. A minority stockholder who is a member of the Board has no such power or authority to sue on the corporation’s behalf. (Tam Wing Tak v. Makasiar, 350 SCRA 475 (2001); Shipside Inc. v. Court of Appeals, 352 SCRA 334 (2001); SSS v. COA, 384 SCRA 548 (2002); United Paragon Mining Corp v. CA, 2006) Where the corporation is real party-in-interest, neither administrator or a project manager could sign the certificate against forum-shopping without being duly authorized by resolution of the Board of Directors (Esteban, Jr. v. Vda. De Onorio, 360 SCRA 230 ), nor the General Manager who has no authority to institute a suit on behalf of the corporation even when the purpose is to protect corporate assets. (Central Cooperative Exchange Inc. v. Enciso, 162 SCRA 706 ). When the power to sue is delegated by the by-laws to a particular officer, such officer may appoint counsel to represent the corporation in a pre-trial hearing without need of a formal board resolution. Citibank, N.A. v. Chua, 220 SCRA 75 (1993) For counsel to sign the certification for the corporation, he must specifically be authorized by the Board of Directors. (BP Leasing Corp. v. CA, 416 SCRA 4 (2003); Mariveles Shipyard Corp. v. CA, 415 SCRA 573 (2003), Metro Drug Distribution Inc. v. Narciso,(2006 )
which would also constitute express powers. In case of extension of corporate term. 2005) A corporation cannot issue stock in excess of the amount limited by its articles of incorporation. 795) 278 Sec. (ibid. To exercise other powers essential or necessary to carry out its purposes as stated in the articles of incorporation. Approved by a majority vote of the board of directors or trustees b. c. Majority vote of the members of the BoD b. such issue is ultra vires and the stock so issued is void even in the hands of a bona fide purchaser for value.. any dissenting stockholder may exercise his appraisal right. Certificate must be accompanied by the Treasurer’s Affidavit certifying compliance with the 25%-25% requirements as to stock corporation. 794 of CLV’s CLR. Ratification by 2/vote of the outstanding capital stock. (p. in a meeting duly called for that purpose with notice previously given c. 36 Enumerates some of the express powers of corporations (many of which even if not expressly provided for by law would constitute implied powers of every entity. Written notice of the proposed action and of the time and place of the meeting addressed to each stockholder or member at his place of residence. 67 279 The corporation must submit proof to the SEC that such decrease will not prejudice the rights of creditors.278 (b) Power to increase or decrease capital stock or incur. increase bonded indebtedness Requisites: a. 2007) Enumerates 10 powers that a corporation enjoys in addition to the special powers that may be provided for in the purpose clause of the articles of incorporation.11.277 (2) Specific powers. Ratified by at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members. July 12. 05-10. p.279 277 Sec. 80 . Certificate of said corporate act shall be signed by majority of the members of the Board and the Chairman and Secretary of the stockholders’ meeting d. (SEC Opinion no. theory of specific capacity (a) Power to extend or shorten corporate term Requites: a. create.
For example. or 2. b. if a stockholder with pre-emptive right owns 20% of the outstanding shares of the corporation. 356 of De Leon. 280 (d) Power to sell or dispose of corporate assets Requisites: a. 2006) 81 . (p. the new issue must be offered first to the stockholders who are such at the rime the increase was made in proportion to their existing shareholdings and on equal terms with other holders of the original stocks before subscriptions are received from the general public. in proportion to their respective shareholdings. the purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the retained earnings and also in the net assets in the event of dissolution. 2007) Whenever a capital stock of a corporation is increased and new shares of stocks are issued. (Page 347 of De Leon.emption or pre-emptive right of stockholders (Page 355 of De Leon. This principle is known as the right of pre.(c) Power to deny pre-emptive rights All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class. 2006) 280 Sec. Such pre-emptive right shall not extend to: 1. Shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public. in exchange for property needed for corporate purposes or in payment of a previously contracted debt. unless such right is denied by the articles of incorporation or an amendment thereto. 832 of CLV’s CLR. The sale. he may subscribe 20% of any shares of stock issued by the corporation. Debentures are issued on the basis of the general credit of the corporation and are not secured by collaterals. and therefore do not constitute bonded indebtedness and will not require approval of the stockholders. 2006) The rule [on pre-emption] aims to safeguard the right of stockholder to preserve unaltered and unimpaired his proportionate influence and interest in the corporation and the relative value of his holdings. Shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock. etc. (p. (Page 243 of CLV’s Textbook) A corporate bond is an obligation to pay a definite sum of money at a future time at a fixed rate of interest. must be approved by the board of directors or trustees. 39 A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of shares or any class in proportion to his present stockholdings. The action of the board of directors or trustees must be authorized by the vote of stockholding representing 2/3 of the outstanding capital stock including holders of nonvoting shares or 2/3 of the members as the case may be. and SEC has limited the term “bonded indebtedness” to cover only indebtedness of the corporation which are secured by mortgage on real or personal property.
In close corporations. if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of the remaining business 282 In letters a-c.281 (e) Power to acquire own shares Instances: a. Ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. To acquire treasury shares e. Redeemable shares regardless of existence of retained earnings f. To collect or compromise an indebtedness to the corporation. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member.c. when there is a deadlock in the management of the business282 (f) Power to invest corporate funds in another corporation or business Requisites: a. and b. 82 . c. The authorization must be done at a stockholders’ or members’ meeting duly called for that purpose after written notice. To effect a decrease of capital stock g. in a delinquency sale and to purchase delinquent shares sold during said sale c. there must be unrestricted retained earnings 283 The other purposes for which the funds may be invested must be among those enumerated as secondary purposes and must further comply with the requirements of Section 42. Any dissenting stockholder shall have appraisal right. 283 281 No ratificatory vote needed: a. arising out of unpaid subscription. If it is necessary in the usual and regular course of business b. Approved by a majority of the board of directors or trustees. or by at least two thirds (2/3) of the members in the case of nonstock corporations. To pay dissenting stockholders d. To eliminate fractional shares out of stock dividends b.
Such depreciation on appraisal increase previously charged to operations has not been impaired by losses. Stock While cash dividends due on delinquent shares can be applied to the payment of the unpaid balance.corporate profits set aside. such as when there is a need for special reserve for probable contingencies. at a gain. However.284 Special rules: a. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation. General Rule: Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock Except: a. and 3. Forms: a. c. hence the same cannot be declared as dividends. the income derived therefrom may be availed of for dividend distribution. 284 Dividends . and ordered to be paid by the directors for distribution among shareholders at a fixed time. Has no deficit at the time the depreciation on the appraisal increase was charged to operations. Property c. 285 Revaluation surplus 286 paid-in surplus Unlike par value shares. Cash b. Increase in the value of a fixed asset as a result of its revaluation is not retained earnings. Has sufficient income from operations from which the depreciation on the appraisal increase was charged 2. Declared only as stock dividends and not cash. 83 . Where a corporation sold its real property. Dividends can be declared out of the amount received in excess of the par value of shares286 when: 1. declared. When the corporation is prohibited under any loan agreement with any financial institution or creditor from declaring dividends without its/his consent and such consent has not yet been secured c. stock dividends cannot be applied as payment for unpaid subscription. increase in the value of fixed assets as a result of revaluation 285 may be declared as cash or stock dividends provided that the company: 1.(g) Power to declare dividends General rule: Dividends can only be declared and paid out of actual and bona fide unrestricted retained earnings. which is not being used for business. When justified by definite corporate expansion projects approved by the board of directors b. when no par value shares are sold at a premium. the entire consideration paid is considered capital. b.
You can just keep renewing it provided. Rule on paid-in surplus is applicable. 288 1. A management contract should not be valid for more than 5 years for any one term. (The Corporation Code of the Philippines Annotated. of both the managed and managing corporation. and 2. dividends from investments in wasting asset corporation. Hector de Leon. There is no impairment of capital.any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation. Management company must always be subject to the superior power of the board to give specific directions from time to time or to recall the delegation of managerial power. e. by majority of the stockholders.287 f. Profits realized from sale of treasury shares are part of capital and cannot be declared as cash or stock dividend as purchase and sale of such shares are regarded as contractions and expansions of paid-in capital. that it is not for more than 5 years at any one time 84 . No dividends can be declared out of capital except only in two instances: 1. Approved by majority of the Board. cannot be included in the profits out of which dividends may be paid. without allowance or deduction for depletion. g. and 3. oil wells. (h) Power to enter into management contract 288 Requisites: a. patents and leaseholds. If a stockholder of the managed corporation owns more than 1/3 of the managing corporation. Express power of a corporation 2. Money cannot be borrowed for the payment of dividends because indebtedness is not a retained earnings of the corporation. No creditors are prejudiced. liquidating dividends. b. 287 It permits corporations solely or principally engaged in the exploitation of “wasting assets” to distribute the net proceeds derived from exploitation of their holdings such as mines. Reduction surplus can be a source of dividends. d. h. the management contract must be approved by at least 2/3 of the stockholders of the managed corporation. Corporate earnings which have not yet been received even though they consist in money which is due. 2002 ed.2.) Management contract .
(i) Ultra vires acts An act which is beyond the conferred powers of a corporation or the purposes or objects for which it is created as defined by the law of its organization.293 289 290 Republic vs. 2. It cannot be divided into portions (k) Doctrine of equality of shares Where the articles of incorporation do not provide for any distinction of the shares of stock. 289 An act done by a corporation outside of the express and implied powers vested in it by its charter and by the law. 6 293 Application of the TFD: 85 . Jorge Miravite. Executory contracts – no enforcement even at the suit of either party291 c. Applicability of ultra vires doctrine The ultra vires doctrine typically applies to a corporate body so that any act done by the body which is beyond its capacity to act will be considered invalid. Part executed and part executory – principle of “no unjust enrichment at expense of another” shall apply. (j) Doctrine of individuality of subscription A subscription is one entire and indivisible whole contract.290 1. 291 void and unenforceable 292 Sec. and which the corporation may not dissipate. Executory contracts apparently authorized but ultra vires – the principle of estoppel shall apply. 7 SCRA 361 Bar Review Materials in Commercial Law. and d.. The creditors may sue the stockholders directly for the latter’s unpaid subscription. Acoje Mining Co. all shares issued by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities. Inc.292 (l) Trust fund doctrine 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. Executed contract – courts will not set aside or interfere with such contracts. b. Consequences of ultra vires acts a. 2002 ed.
often have wide latitude in determining the course of business operations. and (3) authorization from the board. Where it has transferred the corporate property in fraud of its creditors. (2) corporate by-laws. Requisites of board meetings: 1) Meeting of the Board duly assembled 2) Existence of quorum 3) Decision of the majority of the quorum duly assembled (Exception: Election of directors – requires a vote of majority of all the members of the board) 295 In theory.294 (c) By the Officers Via authority from (1) law. the TFD extends to the capital stock represented by the corporation’s legal capital. the TFD extends to the capital stock of the corporation as well as all of its property and assets. 295 1. If the corporation is solvent. 2. custom or acquiescence in the general course of business. and 4. Coverage of the TFD: 1. the Board of Directors alone exercises the powers of the corporation. It is responsible for corporate policies and the general management of the business and affairs of the corporation. If the corporation is insolvent. Where it had released the subscribers to the capital stock from their subscriptions. Exceptions to the TFD: 1. (b) By the Board of Directors Board must act as a body in a meeting. Where the corporation has distributed its capital among the stockholders without providing for the payment of creditors. 8) 2. In practice. 86 . either expressly or impliedly by habit. Where the corporation is insolvent. Redemption of redeemable shares (Sec.(3) How exercised (a) By the shareholders They have residual power of fundamental corporate changes. 3. In close corporation. when there should be a deadlock and the SEC orders the payment of the appraised value of the stockholder’s share. (Sec. 104) 294 Generally. 2. execute the policies laid down by the board.
Right to remove directors a. and – a suit filed by a behalf and in behalf stockholders similarly common cause against Proprietary rights Derivative suit – a suit filed in behalf of the corporation by its shareholders297 upon a cause of action belonging to the corporation. 1997 ed. and b. Proportionate participation in the distribution of assets in liquidation. Representative suit shareholder in his likewise of other situated and with a the corporation. Right to dividends. b. d. e. c.h. against any person or against the directors. Right to transfer of stocks in corporate books. not creditors whose remedies are merely subsidiary such as accion subrogatoria and accion pauliana 298 Requisites: (i) An existing cause of action in favor of the corporation 87 .298 296 297 Pandect of Commercial Law and Jurisprudence. Justice Jose Vitug. Stockholders and members (1) Fundamental rights of a stockholder 296 Managerial rights a. Voting rights. officers and/or controlling shareholders of the corporation. Preemptive right Remedial rights Individual suit – a suit instituted by a shareholder for his own behalf against the corporation. but not duly pursued by it. Right to issuance of stock certificate for fully paid shares. Right to recover stocks unlawfully sold for delinquent payment of subscription f.
302 (ii) The stockholder/member must first make a demand upon the corporation or the management to sue unless such a demand would be futile (iii) The stockholder/member must be such at the time of the objectionable acts or transactions unless the transactions are continuously injurious (iv) The action must be brought in the name of the corporation The number of shares of the stockholder is immaterial since he is not suing in his own behalf The mere trustee of shares registered in his name cannot file a derivative suit for he is not a stockholder in his own right. all rights granted in the agreement shall automatically expire at the end of the agreed period 88 . No proxy shall be valid and effective for a longer period than five years at any one time.(2) Participation in management (a) Proxy It must be in writing and signed by the stockholder or member 299 and filed before the scheduled meeting with the corporate secretary. Unless expressly renewed. 25). and in return. 3. 58 The right to vote by proxy may be exercised in any of the following instances: 1. 58). 292 SCRA 304) 299 as principal 300 Sec. Unless otherwise provided in the proxy. 2. (Bitong vs. As provided for in its by-laws. A certified copy of the agreement must be filed with the corporation and with the SEC e. (Sec. The agreement must not be used for purposes of fraud c. Voting in case of joint ownership of stock. CA. Election of the board of directors or trustees. 5. Voting by trustee under voting trust agreement. directors cannot do so. trust certificates are given to the stockholder/s. subject. The agreement shall be subject to examination by any stockholder of the corporation f. and given to another person (as agent) authorizing such person to exercise the voting rights of the former. 4. to the trust agreement. 301 and/or any other rights 302 Limitations: a. Directors must always act in person. it shall be valid only for the meeting for which it is intended. Stockholders or members may attend and vote in their meetings by proxy (Sec. Cannot be entered into for a period exceeding 5 years at any one time except when it is a condition in a loan agreement or for the purpose of circumventing the law against monopolies and illegal combinations b. Pledge or mortgage of shares.300 (b) Voting trust An agreement whereby one or more stockholders transfer their shares of stocks to a trustee. however. which are transferable like stock certificates. It must be in writing and notarized and specify the terms and conditions thereof d. who thereby acquires for a period of time the voting rights301 over such shares.
The total number of votes cast by a stockholder shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected. Incur. Cannot itself give the minority control of corporate affairs but may affect and limit the extent of majority’s control. To declare stock dividends h. g. To enter into management contract if (1) a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than 1/3 of the total outstanding capital entitled to vote of the managing corporation. Create Bonded Indebtedness.(c) Cases when stockholders’ action is required i. amend or repeal the by-laws. Power to extend or shorten corporate term. To amend the articles of incorporation. However. dispose. b. Cumulative voting is allowed for election of members of the Board in a stock corporation. By cumulative voting A system of voting designed to increase the voting power of minority stockholders in the election of corporate directors when more than one director is to be elected. c. Members of the Board in a Non-stock Corporation shall not be voted cumulatively unless specifically provided for in the By-laws. encumber all or substantially all of corporate assets. a. To enter into management contract if any of the two (2) instances stated 303 are b. Theoretically. iii. lease. business other than the primary purpose. To deny pre-emptive right. Sell. To invest in another corporation. Gives the minority an opportunity to elect a representative to the BOD. By a two-thirds vote a. To adopt. e. i. the minority still needs the majority in order to constitute a quorum. ii. f. or (2) a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of the managed corporation. 304 303 304 infra A stockholder is allowed to concentrate his votes and “give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal”. Increase/Decrease Corporate Stock. 89 . By a majority vote absent. this allows the minority block to dominate the election of BOD. d.
Merger or consolidation. may be revoked prior to actual issuance. revocable before announcement to SHs. accordingly. Exercise of appraisal right: 1. The proposed action is any one of the instances supra. b. Corporation authorized the board to invest corporate funds in another business or purpose. 24 (mandatory in a stock corporation – statutory right of SHs). The stockholder must made a written demand on the corporation within 30 days after the vote was taken. 3. or restrict the right of any stockholder. Extension or reduction of corporate term.(3) Proprietary rights (a) Right to dividends General rule: As soon as the same have been lawfully declared by the BOD. becomes a debt owing to the SH. 305 The right to dividends is based on duly recorded stockholdings. 306 Instances wherein appraisal right may be exercised: 1. The stockholder must be a dissenting stockholder. Exceptions: 1) not yet announced or communicated to the public. 305 (b) Right of appraisal The right to withdraw from the corporation and demand payment of the fair value of his shares after dissenting from certain corporate acts involving fundamental changes in corporate structure.306 By-laws cannot provide against cumulative voting since this right is mandated in Sec. 5. 3. authorize preferences superior to those stockholders. 4. The proposed action is abandoned. the fair value shall be determined by a majority of the 3 distinguished persons one of whom shall be named by the stockholder another by the corporation and the third by the two who were chosen. Corporation decides to sell or dispose of all or substantially all assets of corporation. The price to be paid is the fair value of the shares on the date the vote was taken. The right of appraisal is extinguished when: a. The fair value shall be agreed upon but in case there is no agreement within 60 days from the date the vote was taken. 90 . 4. 5. 2) when stock dividends are declared since these are not distributions but merely represent changes in the capital structure. c. Change in the rights of stockholders. No revocation can be made. He withdraws the demand with the corporations consent. the corporation is prohibited from entitling thereto anyone else. 2. The SEC disapproves the action. 6. 2.
Where the Articles of Incorporation provides for classification of shares pursuant to Sec. This is on the theory that when a corporation at its inception offers its first shares. (d) Preemptive right It is the shareholders’ preferential right to subscribe to all issues or dispositions of shares of any class in proportion to their present stockholdings. Extends to treasury shares in case of their reissuance. it does not follow that said shares shall again be re-offered on a pro rata basis to stockholders who already exercised their preemptive rights. director or trustees demanding the exercise of the right is one who has not improperly used any information secured through any previous examination of the records of the corporation or any other corporation. 2. the burden of proof is with the corporation or such officer to show the same. 307 Purpose: to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus. 4. non-voting shares are not entitled to vote except as other provided in the said section. it offers the remaining unsubscribed portion. Shares requiring stock offering or minimum stock ownership by the public c. 6. In case additional issues of originally authorized shares: General rule: There is no preemptive right. member. Shares to be issued in good faith with the approval of the stockholders representing 2/3 of the outstanding capital stock. and. Exception: When a corporation at its inception offers only a specified portion of its authorized capital stock for subscription. 3. If the corporation or its officers contest such purpose or contend that there is evil motive behind the inspection. 2. The demand must be accompanied with statement of the purpose of the inspection. which must show good faith or legitimate purpose. If the shares preferentially offered to a stockholder are not subscribed or purchased by him.(c) Right to inspect 1. When pre-emptive right not available: a. The demand for inspection should cover only reasonable hours on business days. The stockholder. If subsequently.307 (e) Right to vote Limitations: 1. There is no preemptive right with respect to the share to be re-offered. When denied by the article of incorporation b. it is presumed to have offered all of those which it is authorized to issue. there would be preemptive right as to the remaining portion thus offered for subscription. Preferred or redeemable shares may be deprived of the right to vote unless otherwise provided. in exchange for property needed for corporate purposes or in payment of a previously contracted debt 91 .
Notice is required. Generally. e.312 Special meetings 308 309 see Fundamental Rights of a stockholder. d. b. supra Fixed in the by-laws at regular intervals (like monthly. 7. Liability to the creditors o the corporation for unpaid subscription.311 At any time deemed necessary or as provided in the by-laws. etc. quarterly. if not fixed. 311 as determined by the board of directors or trustees 92 . c. When and where Regular meetings Annually on a date fixed in the by-laws. 6. Liability for failure to create corporation. Holders of stock declared delinquent by the board for unpaid subscription. Liability for dividends unlawfully paid. 5. Liability to the corporation for unpaid subscription. (4) Remedial rights308 (5) Obligation of a stockholder a. 3. Liability to the corporation for interest on unpaid subscription if so required by the by. A stockholder who mortgages or pledges his shares and gives authority for creditor to vote. no notice is required except if required by law. (6) Meetings (a) Regular309 or special310 i.share.laws. weekly. f. Treasury shares have no voting rights as long as they remain in treasury. A transferee of stock if his stock transfer is not registered in the stock and transfer book of the corporation. on any date in April of every year.). Liability for watered stock. Fractional shares of stock cannot be voted unless they constitute at least one full 4. 310 Called specially at a date other than the regular meeting.
1 par. upon petition of a stockholder or member on a showing of good cause therefor. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer.314 (b) Who calls the meetings When there is no person authorized to call a meeting. They can be legal documents. may issue an order to the petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. 52) 93 . Notice Regular meetings Written notice shall be sent to all stockholders or members of record at least two (2) weeks prior to the meeting. 50 st Sec. 314 Ibid. and if practicable in the principal office of the corporation.313 ii. unless otherwise provided in the by-laws. the SEC. 312 313 Special meetings Sec.Meetings.316 (d) Minutes of meetings Formal records of business. 51.315 (c) Quorum Consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations. At least one (1) week written notice shall be sent to all stockholders or members. unless a different period is required by the by-laws. 50 316 unless otherwise provided for in the Code or in the by-laws (Sec. the minutes of the meeting are more like a summary of what happened at the meeting. Notice is required for both regular and special meetings but such notice may be waived. whether regular or special. 315 Sec. expressly or impliedly. In other cases. are held in the city or municipality where the principal office of the corporation is located.
must be a member 2. 6. like in cases of removal of a director. 94 . Majority of the corporate directors/trustees must be residents of the Philippines. the Board of Directors control and exercise the corporate powers of corporation. 42 & 43 320 Ibid. Non-stock Corp. Convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. amendment of articles of incorporation.320 1.318 The board exercises almost all corporate powers. 322 317 responsible for corporate policies and the general management of the business and affairs of the corporation 318 Sec. or 2. . all business conducted and all property of such corporation.321 3. Violation of this Code committed within five (5) years prior to the date of his election or appointment. 321 Ibid. and other major changes.must own at least one (1) share capital stock of the corporation in his own name. Code.i. 23 319 Secs. Stock Corp. lays down all business policies and is responsible for the efficiency of management. Disqualifications: 1. qualifications and disqualifications of directors Tenure Qualifications: Shall hold office for one (1) year until their successors are elected and qualified. . Unless otherwise provided in the Corp. He must be of legal age.319 (2) Tenure. The stockholders have no right to interfere with the board’s exercise of its powers and functions except where the law expressly gives them the final say. Board of directors and trustees317 (1) Repository of corporate powers The board of directors or trustees is responsible for corporate policies and general management of the business affairs of the corporation.
When the remaining directors or trustees do not constitute a quorum. The board cannot remove a director or trustee as member of the board. but with due notice. 323 See also cumulative voting under Stockholders and members. if still constituting a quorum. and d. 1 sen.325 (5) Filling of vacancies By a vote of at least a majority of the remaining directors or trustees. If the officers refuse to call a meeting to consider the removal of the Director. a majority of the members entitled to vote. 27 By-laws may provide for additional qualifications/disqualifications as long as such additional qualifications/disqualifications shall not modify requirements as prescribed in the corporation code or be in conflict with such prescribed requirements. 325 with or without cause Such removal shall take place either at a regular meeting or at a special meeting called for the purpose of removal of Directors or Trustees.323 (b) Quorum The owners of a majority of the outstanding capital stock. b. Members of the board in a non-stock corporation shall not be voted cumulatively except if otherwise provided in the articles of incorporation or by-laws. with previous notice of the time and place of such meeting. 324 (4) Removal By a vote of the stockholders holding or representing 2/3 of the outstanding capital stock. Removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled to under Section 24. or if the corporation be a non-stock corporation. the stockholders or members shall fill the vacancy: a.(3) Elections (a) Cumulative voting Allowed for election of members of the board in a stock corporation. If the vacancy is caused by the removal of a director or trustee c. by a vote of 2/3 of the members entitled to vote. supra 324 st Sec. In case of increase in the number of directors or trustees as a result of an amendment of the articles authorizing such increase 322 Sec. 95 . In the following cases. or if there be no capital stock. 24. it may be called at the instance of any stockholder or member. as well as the intention to propose such removal. If the vacancy is caused by the expiration of term.
When the Corp Code expressly provides otherwise. 327 (8) Business judgment rule Unless otherwise provided in the Code.329 326 327 Sec. contracts and transactions of the BOD. the directors shall not receive any compensation. 30 Sec. Contracts intra vires entered into by the board of directors are binding upon the corp. thereby obtaining profits to the prejudice of such corporation. as such directors. When the directors or officers acted with fraud. notwithstanding the fact that the director risked his own funds in the venture. Exception: If the contracts are so unconscionable & oppressive as to amount to a wanton destruction of the rights of the minority. b. except for reasonable per diems. exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year. and c. In no case shall the total yearly compensation of directors. has been left to the hands of the BOD. as such directors. unless his act has been ratified by a vote of the stockholders owning or representing at least twothirds (2/3) of the outstanding capital stock. Any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. he must account to the latter for all such profits by refunding the same.328 The rule has two (2) consequences: a) The resolution. gross negligence or in bad faith.(6) Compensation In the absence of any provision in the by-laws fixing their compensation. & courts will not interfere. all corporate powers and prerogatives are vested directly in the BOD. This provision shall be applicable. with due care & prudence. in conflict-of-interest situation General rule: Directors cannot be held liable for mistakes or errors in the exercise of their business judgment if they acted in good faith. cannot be overturned or set aside by the SHs or members and not even by the courts under the principle that the business of the corp. by virtue of his office. 34 328 see Sec. acquires for himself a business opportunity which should belong to the corporation.326 (7) Disloyalty Where a director. 23 329 Exceptions: a. fairly 96 . and b) Directors and duly authorized officers cannot be held personally liable for acts or contracts done with the exercise of their business judgment. When directors or officers act against the corp. Board of Directors has authority to modify the proposed terms of the contracts of the corporation for the purpose of making the terms more acceptable to the other contracting parties…The test to be applied is whether the act in question is the direct and immediate furtherance of the corporation’s business.
Sia vs.332 While it is true that a criminal case can only be filed against the officers and not against the corporation itself. it cannot be held liable for a crime committed by its officers. the responsible officers would be criminally liable. Inc. Tan Boon Kong. vs. (1962) Questions of policy or management are left solely to the honest decision of officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors. having knowledge thereof. shall be solidarily liable with the stockholder concerned to the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. the corporation has the power to do it. it does not follow that the corporation cannot be a real partyin-interest for the purpose of bringing a civil action for malicious prosecution for the incidental to the express powers and reasonably necessary to their exercise.(9) Solidary liabilities for damages Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. 65 332 People vs. 39 SCRA 303 (1971) 97 . or b) Acted with bad faith or malice. If so. 607 (1930). Inc. the board is the business manager of the corporation and so long as it acts in good faith its orders are not reviewable by the courts or the SEC. 281 SCRA 232 (1997)) 330 st Sec. otherwise not. its stockholders or members and other persons. (12) Responsibility for crimes Since a corporation is a mere legal fiction. Reyes. 121 SCRA 655 (1983). valued in excess of its fair value. does not forthwith express his objection in writing and file the same with the corporate secretary. Stock Exchange.330 (10) Liability for watered stocks Any director or officer of a corporation consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash. Bacolod MurciaMilling Co. 54 Phil. in such case. 1 par. Court of Appeals. The directors are also not liable to the stockholders in performing such acts (Phil. since it does not have the essential element of malice.331 (11) Personal liabilities Corporate officers are not personally liable for their corporate acts unless: a) They have exceeded their authority. or who. CA. [Montelibano v. 31. Times. 331 Sec. vs.
courts nevertheless hold that where special circumstances of acts are present which make it inequitable for the director to withhold information from the stockholder. the corporation has a cause of action as long as there is unfair use of inside information It is inside information if it is not generally available to others and is acquired because of the close relationship of the director or officer of the corporation. 23. That the vote of such director or trustee was not necessary for the approval of the contract. 3.8. 3.334 Director takes advantage of an information by virtue of his office to the disadvantage of the corporation.2. CA Strong v Repide. 98 . at the option of such corporation.335 (15) Contracts (a) By self-dealing directors with the corporation A contract of the corporation with one or more of its directors or trustees or officers is voidable.61. No duty to disclose facts known to the director or officer. and officers prohibits them from using confidential information relating to the business of the corporation to benefit themselves or any competitor corporation in which they may have a mere substantial interest. (14) Inside information The fiduciary position of insiders.333 (13) Special fact doctrine Conceding the absence of a fiduciary relationship in the ordinary case. 71. That the contract is fair and reasonable under the circumstances. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. The liability of a director or officer guilty of using inside information is to the corporation and not to any individual stockholder Since loss and prejudice to the corporation is not a requirement for liability. directors. and 333 334 Cometa vs. the duty to disclose arises and concealment is fraud.damages incurred by the corporation for the criminal proceedings brought against its officer. 1909 335 Secs. unless all the following conditions are present: 1. 2.2. 27. Securities Regulation Code General rule: (Majority view) Directors owe no fiduciary duty to stockholders but they may deal with them at arm’s length.
Where any of the first two conditions set forth is absent. as may be delegated to it in the by-laws or on a majority vote of the board. That in case of an officer. 336 (b) Between directors corporations with interlocking Except in cases of fraud. composed of not less than three members of the board. 32 supra 338 Sec. to be appointed by the board.4. 338 (16) Executive committee (a) Creation The by-laws of a corporation may create an executive committee.339 336 337 Sec. in the case of a contract with a director or trustee. Stockholdings exceeding twenty percent (20%) of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. and (2) the contract is fair and reasonable under the circumstances. and provided the contract is fair and reasonable under the circumstances. 33 339 st Sec. Said committee may act. he shall be subject to the provisions of Section 32 337 insofar as the latter corporation or corporations are concerned. 1 sen. the contract has been previously authorized by the board of directors. on such specific matters within the competence of the board. 35. such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose. If the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal. 99 . a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone. by majority vote of all its members. provided: (1) full disclosure of the adverse interest of the directors or trustees involved is made at such meeting.
341 ii. 5. A director or trustee may waive this requirement. 4. 343 Sec. Approval of any action requiring concurrence of stockholders. 3. 53 342 Ibid. When and where Regular meetings Shall be held monthly.(b) Limitations on its powers Powers that cannot be delegated to the executive committee: 1. Notice Must be sent to every director or trustee at least one (1) day prior to the scheduled meeting. unless the by-laws provide otherwise.343 340 341 nd Ibid. amendment or repeal of by-laws. Amendment or repeal of board resolution which by its terms cannot be amended or repealed. unless the by-laws provide otherwise. Sec. unless otherwise provided by the by-laws. Distribution of cash dividends. 54 100 .340 (17) Meetings (a) Regular or special i. 2 sen. Adoption.. 2. either expressly or impliedly. Filling of vacancies in the board. unless the by-laws provide otherwise. Special meetings Meetings may be held anywhere in or outside of the Philippines. May be held at any time upon the call of the president or as provided in the by-laws.342 (b) Who presides The president.
p 43 346 For example. 344 nd unless the articles of incorporation or the by-laws provide for a greater majority (Sec. 347 ibid. The vote needed a majority of three yes votes to pass and it only received two. the director should abstain from voting on the issue and make sure his/her abstention is noted in the minutes..345 The president votes on all motions. An abstention may have the practical effect of a "no" vote since the motion may fail for lack of sufficient "yes" votes. Otherwise. An abstention is a non-vote. each night. (from the current 10:00 p. Some by-laws provide that the Chairman of the board of directors or trustees presides at board meetings." and one abstains. If the vote is called for and one of the directors fails or refuses to indicate "yes.(c) Quorum A majority of the number of directors or trustees as fixed in the articles of incorporation.. a director may change his/her vote or the matter may be reconsidered at a later date. a director may vote "yes" or "no. if five directors are present (out of five) and there is a motion to close the pool each day at 8:00 p. Under limited circumstances.m.347 The burden is on an abstaining director to speak up if he/she wants to be recorded as an abstention. Whenever a director believes he/she has a conflict of interest. 25. 348 ibid. Failure to do so could be deemed a breach of their fiduciary duties. 10th ed." If a director abstains from voting.) 345 Robert's Rules of Order. p.) and two directors vote "yes. a matter is deemed "approved" by the board if at any meeting at which a quorum is present at least a majority of the required quorum of directors votes in favor of the action. 2 par.344 (d) Rules on abstention When it comes time for directors to vote on an issue.m. the pool remains open to 10:00 p. a decision not to make a decision. 348 The other reason a director might abstain is that he/she believes there was insufficient information for making a decision.m. directors should cast votes on all issues put before them. the vote is counted as a "yes" vote." two directors vote "no. 346 When the chair calls for a vote. Accordingly. the motion fails. not just to break ties. that means the director has not voted." and the chair of the meeting deems the director to have voted "yes" and the silent director does not object. 394 101 ." "no" or "abstain. abstentions are not called for. Unless a greater number is called for in the articles or bylaws. only the ayes and nays.
Payment pro-rata General rule: Entire subscription must be paid first before the certificates of stock can be issued.com 351 See Sec. has been paid. the number of the certificate or certificates and the number of shares transferred. Capital affairs (1) Certificate of stock (a) Nature of the certificate Evidences of ownership of stock in a corporation. 63 352 Sec. but for which stock certificates have not been issued. 353 349 350 See Sec. Shares of stock being personal property can also be pledged. the date of the transfer. 350 (c) Negotiability i. 64 353 Nava v Peers Mktg Corp and Fua Cun v Summers 102 .352 ii.351 (d) Issuance i. until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction. They are transferable in the manner provided for349 but the transfer shall bind the parties only when recorded in the books of the corporation. Partial payments are to be applied pro rata to each share of stock subscribed. except as between the parties. if any is due. also called book shares. 63 investorwords. (b) Uncertificated shares Mutual fund shares which are maintained on the transfer agent's records. Full payment No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares).j. Requirements for valid transfer of stocks No transfer shall be valid.
stolen or destroyed certificates: 1. However. 278 SCRA 793 (1997) 356 Garcia v. 454 SCRA 54) 355 Gokongwei v. Contents (1) All stocks in the names of the stockholders alphabetically arranged. (2) The installment paid and unpaid on all stock for which subscription has been made. and (4) Such other entries as the by-laws may prescribe. c) the name of the corp. Who may make valid entries The corporate secretary is the officer who is duly authorized to make entries on the stock and transfer book. and the date of payment of any installment. sale or transfer of stock made. d) such other information and evidence which he may deem necessary. the entries are considered prima facie evidence only and may be subject to proof to the contrary (Lanuza v. Lingayen Gulf Electric Power Co case. Jomouad.356 (f) Lost or destroyed certificates Procedure for re-issuance in case of loss. b) the number of shares represented by each certificate.Exception: In the Baltazar vs. which issued the same. (3) A statement of every alienation. to issue certificates of stock to its individual SHs for unpaid shares of stock and to give full voting power to shares fully paid. 323 SCRA 424 (2000) 103 . (e) Stock and transfer book354 i. Court of Appeals. The registered owner of certificates of stock or his legal representative shall file with the corporation an affidavit setting forth as far as possible: a) the circumstances as to how the certificates were lost. 354 The stock and transfer book is the best evidence of the transactions that must be entered or stated therein. the serial numbers of the certificates.355 ii. it was the practice of the corp. SEC. stolen or destroyed.
shall cancel in its books the certificate of stock and issue in lieu thereof new certificates of stock. stolen or destroyed. liable with the stockholder concerned to the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. or who. Even before the one year period expires. For the purpose of registering the chattel mortgage over the shares of stock. the new certificates may be issued if the registered owner files a bond or other security.4. it is the domicile of the corporation that is generally controlling. the situs of shares of stock is the domicile of the corporation. shall be solidarily. 359 Sec. the corp. once a week for 3consecutive weeks at the expense of the owner of the certificate of stock. no action may be brought against the corp. services less than par value. that if there is a pending contest regarding the ownership of said certificates. 3. The right to make such contest shall be barred after the expiration of the one-yearperiod. has its principal office.2. valued in excess of its fair value. 358 For purposes of execution. having knowledge thereof. attachment and garnishment. the issuance of new certificates shall be suspended until the final decision of the court regarding the ownership of the certificate of stock. dividends where no surplus profits exist. which shall have issued certificates of stock in lieu of those lost. Provided. After the expiration of one (1) year from the date of the last publication and if no contest has been presented. 357 (g) Situs of the shares of stock Generally at the domicile of the owner.359 357 Except in cases of fraud. or negligence on the part of the corporation and its officers. bad faith. stolen or destroyed pursuant to the above procedure. 65 104 . (b) Liability of directors for watered stocks Any director or officer of a corporation consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash.358 (2) Watered stocks (a) Definition Stocks issued gratuitously. which has been lost. does not forthwith express his objection in writing and file the same with the corporate secretary. The corp. money/property less than par value. For purposes of taxation. the situs of shares shall be the province in which the corporation has its principal business or office. shall publish a notice in a newspaper of general circulation published in the place where the corp. running for a period of one (1) year for a sum and in such form and with such sureties as may be satisfactory to the BOD.
When the Securities and Exchange Commission approves the valuation it may be difficult to sustain an assertion later on that there has been watering of the shares. before any distribution is made to the stockholders. under Sec." In actual practice the watering of stock is not supposed to happen because property consideration for subscription is always evaluated by the Securities and Exchange Commission which often conducts an examination of the involved properties and appraisal reports are submitted to establish the fair value of such properties. and as against creditors a reduction of the capital stock and take place only in the manner and under the conditions prescribed by the statute or the charter or the articles of incorporation. Poizat.. In any event. 360 A corporation has no power to release an original subscriber to its capital stock form the obligation of paying for his shares. no distinction is made as to creditors whether they become such prior to or subsequent to the issuance of the watered stock and fraud is not made an element.620 362 Cesar L. without a valuable consideration for such release. 62 of the Corporation Code provides that "the valuation thereof shall initially be determined incorporators or the board of directors subject to approval by the Securities and Exchange Commission. 65 actually grant corporate creditors the legal standing to bring at that point a suit against the involved stockholder and the guilty officers? In the payment of property for subscribed shares. But when the corporation is still a "going concern" and the watering of the stock does not actually render it insolvent. The legal standing of corporate creditors against guilty stockholders and officers for watered stock is clear in a situation when the corporation is insolvent since then all corporate assets would be held for the satisfaction of the claims of the creditors.. 65 of the Corporation Code. The Trust fund doctrine under Philippine corporate setting 105 . 498. Moreover.(c) Trust fund doctrine for liability for watered stocks "It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. strict compliance with the statutory regulations is necessary. 361" Likewise. 802 14 C.362 360 361 Velasco vs.J. 37 Phil. does Sec. Sec. Villanueva. Sec. 65 is by itself sufficient basis to hold a stockholder liable to any corporate creditor.
on or before the date specified for the sale of the delinquent stock. 367 (1) Deprives the stockholder the right: a) To be voted for. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance. or unless the board of directors otherwise orders. 67. the board must respect said contract. unless the board of directors orders otherwise. 366 (4) Sale of delinquent shares (a) Effect of delinquency367 Unless the delinquent stockholder pays to the corporation. with accrued interest. or (c) the time when subscriptions become payable. plus accrued interest. costs of advertisement and expenses of sale. or c) To representation at any stockholders’ meeting (2) Delinquent stockholder shall not be entitled to any of the rights of a stockholder but he shall still be entitled to receive dividends. shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. or upon call by the board of directors. While the board may call for payment of the subscription at any time. 392) 364 subject to the provisions of the contract of subscription 365 st Sec. Thus. the balance due on his subscription. for the smallest number 363 Call is a declaration by the board of directors that the unpaid subscriptions are due and payable to the corporation.365 (b) Notice requirement Payment of any unpaid subscription or any percentage thereof. namely: (a) a resolution of the BoD for the payment of unpaid subscriptions. 1 par.(3) Payment of balance of subscription (a) Call by board of directors363 The board of directors of any stock corporation364 may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof. costs of advertisement and expenses of sale. The word “call” is capable of three meanings. together with the interest accrued. if any. computed from such date until full payment. all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided. if the subscription contract specifies a date for payment thereof. in either case. (CLV’s Textbook. as it may deem necessary. 2 par. or b) To be entitled to vote. If within thirty (30) days from the said date no payment is made. said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest.. if any. 366 nd Id. P. (3) Delinquent stocks shall be subject to delinquency sale 106 . unpaid subscription plus interest is payable on a date agreed upon. unless a different rate of interest is provided in the by-laws. (b) notification of such resolution made on the stockholders.
order the sale of delinquent stock and shall specifically state the amount due on each subscription plus all accrued interest. 372 Sec. shall be sent to every delinquent stockholder either personally or by registered mail.. shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares. 371 Id.. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. the same shall not be binding on any purchaser in good faith. the corporation may bid for the same. Certificate of stock Otherwise. by resolution. with a copy of the resolution. last par.371 (5) Alienation of shares (a) Allowable restrictions on the sale of shares It must appear in the 1. time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent. 68. if any. 370 nd Id. 98 rd 107 . Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code.of shares or fraction of a share. st Id. 2 par. 1 par. and the date. 369 (c) Notice of sale Notice of said sale. 3 par. for the smallest number of shares or fraction of a share. 372 368 369 Sec.370 (d) Auction sale Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription together with accrued interest. Articles of incorporation 2. and the total amount due shall be credited as paid in full in the books of the corporation. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located.. The remaining shares. costs of advertisement and expenses of sale.368 (b) Call by resolution of the board of directors The board of directors may. By-laws 3.
the existing stockholders or the corporation fails to exercise the option to purchase. conditions or period stated therein.376 Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms. 374 Must secure the consent of the corporation since the transfer contemplates a novation of contract.(b) Sale of partially paid shares There can be no stock certificate on which an indorsement may be made. But cannot be forced upon the corporation 375 See Sec.373 (d) Sale of all of shares not fully paid Entire subscription not fully paid may be transferred to a single transferee. as by attachment. and b) indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. (g) Involuntary dealings Involuntary Alienation . 63 376 Black’s Law dictionary 108 .374 (e) Sale of fully paid shares Shares of stock issued with stock certificates become personal property and may be transferred by delivery of the certificate endorsed by the owner.375 (f) Requisites of a valid transfer a) Delivery of the certificate or certificates. the transferring stockholder may sell his shares to any third person. If upon the expiration of said period.alienation against the wishes of the transferor. 373 Nava and Fua Cun Difficult to determine whether or not partial payments made should be applied as full payment. Shares are thus not transferable on the books. (c) Sale of a portion of shares not fully paid Stockholder cannot transfer part of his subscription—indivisibility of subscription of contract.
A meeting must be held on the call of directors or trustees. 360 SCRA 33 (2001) Process by which all the assets of the corporation are converted into liquid assets in order to facilitate the payment of obligations to creditors. f.U. connotes a winding up or settling with creditors and debtors. c. discharging liabilities and dividing surplus or loss. Court of Appeals. d. The signed and countersigned copy will be filed with the SEC and the latter will issue the certificate of dissolution. Where creditors are affected a. the directors may be permitted to complete the liquidation by continuing as trustees by legal implication.E. Liquidation. b. the SEC shall issue an Order fixing a hearing date for objections. The notice of meeting should also be published for 3 consecutive weeks in a newspaper published in the place. A copy of the resolution shall be certified by the majority of the directors or trustees and countersigned by the secretary. It is the process of reducing assets to cash. c. It is the winding up of a corporation so that assets are distributed to those entitled to receive them.379 ii. Approval of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of members in a meeting called for the purpose. (Reburiano v. Vega. Claims and demands must be stated in the petition. and the remaining balance if any is to be distributed to the stockholders.B. e. 377 378 Extinguishment of the franchise of a corporation and the termination of its corporate existence. Where no creditors are affected a. If Petition is sufficient in form and substance. Dissolution377 and liquidation378 (1) Modes of dissolution (a) Voluntary i. 301 SCRA 342 (1999) If full liquidation can only be effected after the 3-year period and there is no trustee. in corporation law. The resolution to dissolve must be approved by the majority of the directors/trustees and approved by the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of members. Filing a petition with the SEC signed by majority of directors or trustees or other officers having the management of its affairs verified by President or Secretary or Director.k. v. b. (PVB Employees Union-N. Notice of the meeting should be given to the stockholders by personal delivery or registered mail at least 30 days prior to the meeting. 118 109 . 379 Sec.
posting for 3 consecutive weeks in 3 public places is sufficient. 380 381 Sec.d. Failure to organize and commence business within two (2) years from incorporation382 Its corporate powers cease and the corporation shall be deemed dissolved. By shortening of corporate term This is done by amending the Articles of Incorporation. By filing a verified complaint with the SEC based on any ground provided by law or i. Br. 209 SCRA 294 (1992) 382 non-use of charter 383 automatic 110 . the judgment may include appointment of a receiver. f. A copy of the Order shall be published at least once a week for 3 consecutive weeks in a newspaper of general circulation or if there is no newspaper in the municipality or city of the principal office. After the expiration of the time to file objections. Court of First Instance of Rizal. Judgment shall be rendered dissolving the corporation and directing the disposition of assets. 119 PNB v. 383 iii. g. Pasig. the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. XXI. e. Objections must be filed no less than 30 days nor more than 60 days after the entry of the Order.380 iii. By expiration of corporate term When the period of corporate life expires. (b) Involuntary rules. 381 ii. a hearing shall be conducted upon prior 5 day notice to hear the objections. Legislative dissolution Through appropriate laws passed by Congress.
Refusal to adopt or approve by-laws. the Board of Directors itself. 902-A 387 After the dissolution of the corporation. Ultra vires – mala prohibita. Dissolution by the SEC on grounds under existing laws 1.385 4. 242 SCRA 717 (1995)) In Gelano case. Fraud or misrepresentation as to the paid-up capital of the corporation384 2. 388 384 385 25%-25% requirement Republic vs. . which are persistent despite SEC earnings. including the shareholders and the creditors of the corporation.387 (b) Conveyance to a trustee within a 3-year period Conveyance of all corporate assets to trustees who will take charge of liquidation. the Board of Directors was permitted to complete the corporate liquidation by continuing as “trustees”. Security Credit and Acceptance Corp. The Board who can’t finish liquidating in time may let trustees take over the job. Under Sec.. Court of Appeals. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of shareholders and other persons in interest. it continues to exist as a body corporate. shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. . 388 Anytime during the 3 year period. Continuous inactivity of the corporation for at least five (5) years 5. following the rationale of the decision in Gelano. acting for and in its behalf.386 (2) Methods of liquidation (a) By the corporation itself Liquidation by the corporation itself through its Board of directors who have only three (3) years to finish its work of liquidation. Misrepresentation 3. If the 3-year extended life has expired without a trustee or receiver having been designated. but not for the purpose of continuing the business for which it was established. the 3-year limitation will not apply as long as the designation of trustees is made within said period. but only for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. might make proper representations with the appropriate body for working out a final settlement of the corporate concerns. 145 “No right of remedy in favor or against any corporation .iv. 19 SCRA 58 (1967) 386 P. the counsel of the dissolved corporation was considered a trustee.D. those having pecuniary interest in the assets. and in the absence of a Board. In the later case of Clemente v. may be permitted to so continue as “trustees” to complete liquidation. Unless the trusteeship is limited in its duration by the deed of trust. Court of Appeals. to dispose of and convey its property and to distribute its assets.” This provision safeguards the 111 . but too numerous infractions. (Clemente v.
“Is immaterial that the present action was filed after the expiration of the three years . for at the very least. and assuming that judicial enforcement of taxes may not be initiated after said three years despite the fact that actual liquidation has not terminated and the one in charge thereof is still holding the assets of the corporation.. 301 SCRA 342 (1999). 44 SCRA 418 (1972) 112 . An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. United Cigarette Corp. does not result in the the exercise of its corporate rights. 390 Republic v. (Reburiano v. after the lapse of the said three-year period. obviously for the benefit of all the creditors thereof. made within the three years. the assessment aforementioned. at. dissolution of the corporation nor bar it from (d) Liquidation after three (3) years There is nothing in Sec. 122389 which bars an action for the recovery of the debts of the corporation against the liquidator thereof. Co. . 389 Renunciation by holder. have been appointed by the SEC upon its Three (3) year period does not apply because However.. Marsman Dev. or after its maturity. Court of Appeals. 384 SCRA 48 (2002). .(c) By management committee or rehabilitation receiver Liquidation by a receiver who may decreeing the dissolution of the corporation. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.The holder may expressly renounce his rights against any party to the instrument before. the corporation is substituted by the receiver. definitely established the Government as a creditor of the corporation for whom the liquidator is supposed to hold assets of the corporation. . without anything more.” 390 rights of a corporation which is dissolved pending litigation. the mere appointment of a receiver. But a renunciation does not affect the rights of a holder in due course without notice. Knecht v.
l. Quorum may be greater than mere majority. Transfers of stocks to others. Corporate actuations may be binding even without a formal board meeting. and 2. the corporation shall not be listed in the stock exchange or its stocks should not be publicly offered. Hector de Leon.391 (a) Characteristics of a close corporation 1. on the written petition by any stockholder. whose articles of incorporation should provide that: a. which would increase the number of stockholders to more than the maximum are invalid. with a right of preemption in favor of the stockholders or the corporation. 2002 ed. b. Deadlocks in board are settled by the SEC. if the stockholder had knowledge or ratified the informal action of the others.392 391 392 Sec. 2. Preemptive right extends to all stock issues. Stockholders may act as directors without need of election and therefore are liable as directors. Stockholder may withdraw and avail of his right of appraisal.) 113 . Other corporations (1) Close corporations A special kind of stock corporation: 1. the number of stockholders shall not exceed 20. 96 Special rules are provided for close corporations because it is essentially an incorporated partnership (The Corporation Code of the Philippines Annotated. 6. 3. and c. issued stocks are subject to transfer restrictions. At least 2/3 of the voting stocks or voting rights should not be owned or controlled by another corporation which is not a close corporation. and 8. Stockholders who are involved in the management of the corporation are liable in the same manner as directors are. 5. 4. 7.
4. at its option. If upon the expiration of said period. the same shall not be binding on any purchaser thereof in good faith. 393 Sec. and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof. notice either (a) that he is a person not eligible to be a holder of stock of the corporation. the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. not exceeding twenty (20). who are entitled to be holders of record of its stock. and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons. such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder. refuse to register the transfer of stock in the name of the transferee. has been consented to by all the stockholders of the close corporation. the corporation may. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation.393 (c) Issuance or transfer of stock in breach of qualifying conditions Effects: 1. or if the close corporation has amended its articles of incorporation in accordance with this Title. or (c) that the transfer of stock is in violation of a restriction on transfer of stock. or is conclusively presumed under this section to have.(b) Validity of restrictions on transfer of shares Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock. the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction. the existing stockholders or the corporation fails to exercise the option to purchase. otherwise. 3. If the articles of incorporation of a close corporation states the number of persons. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation to be a holder of record of its stock. 98 114 . (2) or (3). 2. though contrary to subsections (1). 5. The provisions of subsection (4) shall not be applicable if the transfer of stock. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms. or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation. if such acquisition violates the restriction. conditions or period stated therein. and if the certificate for such stock conspicuously states such number. the transferring stockholder may sell his shares to any third person. Whenever any person to whom stock of a close corporation has been issued or transferred has.
express or implied. 102 115 . whether with or without voting rights. or 2.396 (e) Preemptive right Shall extend to all stock to be issued. property or personal services. an action taken therein within the corporate powers is deemed ratified by a director who failed to attend. written consent thereto is signed by all the directors. 101 397 Sec. or 3.6.394 (d) When board meeting is unnecessary or improperly held Any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. The term "transfer" is not limited to a transfer for value. 7. or 4. whether for money. 395 If a director's meeting is held without proper call or notice. including reissuance of treasury shares. Before or after such action is taken. unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. or of such greater proportion of shares as may 394 395 Sec. or in payment of corporate debts. 99 unless the by-laws provide otherwise 396 Sec. unless the articles of incorporation provide otherwise.397 (f) Amendment of articles of incorporation Any amendment to the articles of incorporation which seeks to delete or remove any provision required to be contained in the articles of incorporation or to reduce a quorum or voting requirement stated in said articles of incorporation shall not be valid or effective unless approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover under any applicable warranty.
1 par. or similar purposes. 116 . whenever necessary or proper. Direct or prohibit any act of the corporation 4.399 (2) Non-stock corporations (a) Definition A corporation organized for an eleemosynary purpose. at a meeting duly called for the purpose.be specifically provided in the articles of incorporation for amending. however. like trade. agricultural. deleting or removing any of the aforesaid provisions. Powers of the SEC in case of deadlock in close corporations: 1. civic service. fraternal. alter or enjoin any resolution of the corporation 3. Dissolve the corporation 7. Cancel. during its existence. whenever pertinent. Require the purchase at their fair value of shares of any stockholder either by any stockholder or by the corporation regardless of the availability of unrestricted retained earnings. 398 (g) Deadlocks When the directors or stockholders are so divided respecting the management of the corporation’s business and affairs that the votes required for any corporate action cannot be obtained. or officers. with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally. scientific. be used for the furtherance of the purpose or purposes for which it was organized. trustees. religious. 401 (c) Treatment of profits Any profit which it may obtain as an incident to its operations shall. 88 They are governed by the same rules established for stock corporations. distributable as dividends to its members. 400 (b) Purposes Charitable. 398 399 Sec. 103 st Sec. Granting such other relief as the circumstances may warrant. industry. to a number of special features.) 400 Sec. educational. (id. recreational. subject. social. 5. Cancel or alter any provision in the articles of incorporation or bylaws 2. subject to the provisions of the Corporation Code on dissolution. 87 401 Sec. Appoint a provisional director 6. 104. professional. literary. cultural. and no part of whose income is.
if any. shall be returned. In any other case. 402 Sec. transfer or conveyance. who is incorporated by law to give some legal capacities and advantages. transfer or conveyance by reason of dissolution. All liabilities and obligations of the corporation shall be paid. benevolent.402 (3) Religious corporations A corporation composed entirely of spiritual persons and which is organized for the furtherance of a religion or for perpetuating the rights of the church or for the administration of church or religious work or property. 94 117 . whether or not organized for profit. satisfied and discharged or adequate provision shall be made therefor 2. educational or similar purposes but not held upon a condition requiring return. religious. Assets held by the corporation upon a condition requiring return. as may be specified in a plan of distribution. assets may be distributed to such persons. transferred or conveyed in accordance with such requirements 3. The plan of distribution shall be approved by a majority vote of the board of trustees and by 2/3 of the members having voting rights at a meeting. It is different from an ordinary nonstock corporation organized for religious purposes. Other assets. societies. shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws 5. shall be transferred or conveyed to one or more corporations. consisting of one person only and his successors. and which condition occurs by reason of dissolution. organizations or corporations. Assets received and held by the corporation subject to limitations permitting their use only for charitable. societies or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation pursuant to a plan of distribution 4. (a) Corporation sole A special form of corporation.(d) Distribution of assets upon dissolution 1. usually associated with the clergy.
2001 404 Roman Catholic Apostolic Church v.R.g. 154. 1957 405 e. No. Neff.. v. International Shoe Co.S. 1979 ed.. 118 . he must have certain minimum contacts with it such that the 403 Republic vs. etc. organized or existing under any law other than those of the Philippines. 66 S. vs. nationality is determined not by the nationality of its head but by the nationality of the members constituting the sect in the Philippines even if it is headed by the Pope.404 ii.i. 733. sect. as a requisite for jurisdiction over foreign corporations. LRC. Ed. G. 310. p. cited in the case of Rafael Albano. diocese. is founded on considerations of due process and fair play.408 the jurisdiction of courts to render judgment in personam is grounded on their de facto power over the defendant's person. if he not be present within the territory of the forum. As held in Pennoyer v. 123 The definition espouses the incorporation test and the reciprocity rule and is significant for licensing purposes.Ct. 90 L. 565 (1877) 409 326 U. It is not permitted to “transact or do business in the Philippines” until it has secured a license for that purpose from the SEC and a certificate of authority from the appropriate government agency. et al. State of Washington409 expanded the coverage by stating that due process requires only that in order to subject a defendant to a judgment in personam. religious order. Court of Appeals. 408 95 U. 344. Ed. 405 (4) Foreign corporations A corporation formed. Consent The legal standing of foreign corporations in the host state is founded on international law on the basis of consent.S. 24 L. and whose laws allow Filipino citizens and corporations to do business in its own country or state. 406 Sec. Et al.403 A corporation sole does not have any nationality but for purposes of applying our nationalization laws. 407 Salonga. Private International Law. 407 Consent. Iglesia ni Kristo. his presence within the territorial jurisdiction of a court is prerequisite to its rendition of judgment personally binding him. 714. Nationality No nationality. August 10. 144708. Religious societies A non-stock corporation governed by a board but with religious purposes. It is incorporated by an aggregate of persons. synod. 95 (1945).406 (a) Bases of authority over foreign corporations i. Therefore.
413 and Statutory Tests412 Acts constituting “doing business”: a) Soliciting orders. contemplating to some extent the c) Participating in the management.A.A. 410 Cesar L. 2001 ed. Doctrine of "doing business" The Corporation Code does not define the phrase “doing or transacting business.415 and and object of its organization. No. and in progressive prosecution foreign corporation. 7042 411 119 ."410 ii. opening offices. whether called “liaison” offices or branches. the purpose Philippines. commercial dealings and arrangements. Twin characterization test a) Whether the foreign corporation is maintaining or continuing in the Philippines the body or substance of the business for which it was organized or whether it has substantially retired from it and turned it over another. are consummated in the of.” Jurisprudential Tests:411 1. or the the foreign corporation. Contract Test continuity of commercial dealings or arrangements. firm or entity or corporation in the in progressive prosecution of. service contracts. b) Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period b) Whether there is continuity of or periods totaling 180 days or more. business organization . 7042) 413 Substance Test 414 Continuity Test 415 as defined under R. Villanueva. Cesar Villanueva. Foreign Corporations and the Concept of “Doing Business in the Philippines” Philippine Corporate Law. commercial gain or of the purpose of the Philippines. and contemplate to that extent Whether the contracts entered into by the performance of acts or works. performance of acts or works or the exercise supervision or control of any domestic of some functions normally incident to and business.414 d) Any other act or acts that imply a 2.maintenance of the suit does not offend "traditional notions of fair play and substantial justice. 412 Foreign Investment Act of 1991 (R. or by an agent exercise of some of the functions normally acting under the control and direction of the incident to.
or a domestic corporation lawfully transacting business in the Philippines. 431 SCRA 266 (2004) 419 Ibid. shall be permitted to maintain or intervene in any action. who must be of good moral character and of sound financial standing. 419 416 417 Sec. designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines. et al. unless such license is sooner surrendered. residing in the Philippines. 126 Sec. the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. 417 (c) Personality to sue No foreign corporation transacting business in the Philippines without a license.(b) Necessity of a license to do business i. Upon issuance of the license. on whom any summons and other legal processes may be served in all actions or other legal proceedings against the foreign corporation. Inc. such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation.. Resident agent An individual. revoked.. Chubb & Sons. 120 . 418 (d) Suability of foreign corporations Such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. suit or proceeding in any court or administrative agency of the Philippines. v. rules and regulations. suspended or annulled in accordance with this Code or other special laws. or its successors or assigns. Requisites for issuance of a license If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws. 127-128 418 Lorenzo Shipping Corp. 416 ii.
When the party sued is barred by the principle of estoppel and/or principle of unjust enrichment from questioning the capacity of the foreign corporation. 8. Failure to appoint and maintain a resident agent. 7. can sue or be sued on a transaction or series of transactions set apart from their common business in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of business transaction. Failure to pay taxes. 5. Failure to inform the SEC of the change of residence of the resident agent. Failure to file annual reports required by the Code. 134 121 . 421 420 Foreign corporations. Failure to submit copy of amended articles or by-laws or articles of merger or consolidation. To seek redress for an isolated business transaction. (f) Grounds for revocation of license 1. Engage in business unauthorized by SEC. To protect its corporate reputation. Acting as dummy of a foreign corporation. A misrepresentation in material matters in reports. (Eriks Pte. tort that occurred in the Philippines.Isolated transactions420 1. and 5. Not licensed to do business in the Philippines. 6. 3. and goodwill. e.Ltd vs. 4. When the parties have contractually stipulated that Philippines is the venue of actions. name. 3. CA. 2.(e) Instances when unlicensed foreign corporations may be allowed to sue . 267 SCRA 567) 421 Sec. 2. To enforce a right not arising out of a business transaction. imposts and assessments. and 9. even unlicensed ones. 4.g.
76 122 . The approval of the SEC is required. 423 Of course. There is automatic assumption of liabilities 3. rights of action.423 If there is consolidation. there will be disappearance of both the constituent corporations with the emergence of a new corporate entity. Merger and consolidation422 (1) Definition and concept Merger Consolidation A union whereby one or more existing The union of two or more existing corporations are absorbed by another corporations to form a new corporation corporation which survives and continues called the consolidated corporation. whereas the other corporation shall cease to exist. Merger is the disappearance of one of the corporations with the other corporation acquiring all the assets.424 (2) Constituent v. The constituent corporations are automatically dissolved 425 Sec. the number of shares that will be issued to each of the stockholders under the new corporation is determined by the ration between the assets of the two (2) corporations. which shall obtain all the assets of the disappearing corporations. There is continuance of the enterprise and of the stockholders 4. Title to the assets are transferred by operation of law 5. the combined business. and assuming all the liabilities of the disappearing corporation. Sale of assets is always involved 2. Said stockholders are now stockholders of the corporation which survives. One of the constituent corporations remains as an existing juridical person.m. The proportion between the two (2) corporations will be the basis of the shares of stocks that will be issued to the stockholders under the surviving corporation 424 In a merger or consolidation: 1. there is an arrangement as to the shares of stocks that will be issued to the former stockholders of the two (2) corporations which were merged. Also.425 422 Merger or consolidation does not become effective by mere agreement of the constituent corporations. called the consolidated corporation. consolidated corporation Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. and likewise shall assume all their liabilities.
articles of merger or articles of consolidation shall be executed by each of the constituent corporations: 1) to be signed by the president or vice-president and 2) certified by the secretary or assistant secretary of each corporation The articles of merger or consolidation shall set forth: 1) The plan of the merger or the plan of consolidation. 123 .426 (4) Articles of merger or consolidation After the approval by the stockholders or members. hereinafter referred to as the constituent corporations.(3) Plan of merger or consolidation The board of directors or trustees of each corporation. 426 Ibid. the number of shares outstanding. 2) As to stock corporations. and3) As to each corporation. if any. and 4. party to the merger or consolidation. The names of the corporations proposing to merge or consolidate. respectively The articles of merger or consolidation shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval. the number of shares or members voting for and against such plan. effect. all the statements required to be set forth in the articles of incorporation for corporations organized under this Code. with respect to the consolidated corporation in case of consolidation. in the articles of incorporation of the surviving corporation in case of merger. the number of members. 2. The terms of the merger or consolidation and the mode of carrying the same into 3. or in the case of nonstock corporations. and. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. shall approve a plan of merger or consolidation setting forth the following: 1. A statement of the changes.
Should not create monopolies b. 427 (7) Limitations a. immunities and powers and subject to all the duties and liabilities of a corporation. 2. The articles of merger or consolidation shall be executed by each of the constituent corporations d. in case of merger shall be the surviving corporation and. The constituent corporations shall become a single corporation which. (8) Effects 1. 2 sen. Act 3518. nd 124 . immunities and franchises of each of the constituent corporations. The SEC may or may not conduct a hearing f. The board of directors or trustees of each corporation shall approve a plan of merger or consolidation b. Submission to the SEC for approval e. privileges. 3. The surviving or consolidated corporation shall possess all rights. Sec 20 inhibits illegal combinations. Issuance of certificate of merger or consolidation by the SEC (6) Effectivity Upon issuance by the SEC of the certificate of merger and consolidation. The surviving or consolidated corporation shall thereafter possess all the rights. 4. The separate existence of the constituent corporation shall cease. The plan shall be submitted for approval by the stockholders or members of each of such corporation at separate corporate meetings duly called for the purpose c. 427 Sec. shall be the consolidated corporation. in the case of consolidation. Should not eliminate free and healthy competition c. 79. privileges.(5) Procedure a. except that of the surviving corporation.
5. Any claim. 6. All property. The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each of the constituent corporations. and all receivables due to. 80 125 . The rights of the creditors or lien upon the property of any of each constituent corporation shall not be impaired by such merger or consolidation. and all other interest of each constituent corporation. 7. real or personal. shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed. 428 428 Sec. action or proceeding pending by or against any of the constituent corporations may be prosecuted by or against the surviving or consolidated corporations. and 8.
3. Prepare. firm.H. Approve. amend or repeal rules. revoke. 7. Supervise monitor. To ensure full and fair disclosure about securities 7. 8799 Sec. corporation. 430 2. reject registration statements/licensing applications. To minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. 6. Supervision over corporations. Powers and functions of the SEC a. partnerships. To protect investors 6. To establish a socially conscious. 5. To enhance the democratization of wealth 4. No.431 429 430 R. 5 126 . after notice and hearing primary franchise on grounds.A. suspend or take over. Suspend. advise. State policy Purposes: 1. Regulatory 1. Regulate/supervise activities of persons to ensure compliance. regulations. 2 431 Sec. Securities Regulation Code429 1. To encourage the widest participation of ownership in enterprises 3. exchanges. 2. clearing agencies and SROs. issue opinions 8. approve. Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government as well as any private institution. propose legislation to Congress on securities market. Recommend policies. free market that regulates itself 2. and grantees of primary franchise. 4. To promote the development of the capital market 5. association or person in the implementation of its powers.
Issue cease and desist orders to prevent fraud or injury.433 Exceptions: 1. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission. Exempt transactions. shall be made available to each prospective purchaser. or by any state. Compel the officers of any registered corporation or association to call meetings of stockholders or members. Exempt securities. or by any person controlled by and acting as an instrumentality of said Government. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations. 2. 8 127 . 3. a. 4. Any security issued or guaranteed by the Government of the Philippines. in such form and substance prescribed by the SEC. Exempt securities 1.b. or by any political subdivision or agency thereof. and 2. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. Securities required to be registered General rule: A registration statement duly filed and approved by the SEC is necessary before securities may be sold and offered for sale or distribution within the Philippines. Prior to any sale. Exercise such other powers as may be provided by law which are necessary or incidental to the carrying out its express powers. 432 3. 432 433 ibid. and 5. information on the securities. 2. Punish for contempt of the Commission. 3. province or political subdivision or agency thereof on the basis of reciprocity. Sec. Adjudicative 1.
434 b. Distribution of stock dividends. 5. Exempt transactions 1. 3. pension fund or retirement plan maintained by the government or other persons authorized by the BSP to engage in trust functions. Any securities added by the SEC by rule or regulation after public hearing. 10 128 . 435 434 435 Sec. or the Bureau of Internal Revenue. Any security issued by a bank except its own shares of stock. Broker’s transactions ACS. guardian/receiver in insolvency or bankruptcy. Exchange of securities by issuer with existing security holders exclusively 11. is under the supervision and regulation of the Office of the Insurance Commission. registered investment house. Sale on isolated transactions by owner. insurance companies. 2. Sale to less than 20 persons during any 12. 7. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property. by law. 9 Sec.4. Sale of pledged or mortgaged security to liquidate a bona fide debt. 5. Pre-incorporation subscription and subscription pursuant to an increase of the 10. 6. 8. administrator. Sale of capital stock exclusively to stockholders where no commission is paid. 4. Housing and land Use Regulatory Board. 9. Issuance of security in exchange of any security from same issuer pursuant to right of conversion. Judicial sale by executor. Sale of securities to banks.month period 12. Any security or its derivatives the sale or transfer of which. where the entire mortgage are sold to a single purchaser at a single sale. 6.
437 8.439 In promulgating rules governing the content of any registration statement (including any prospectus made a part thereof or annex thereto). depending on the necessity thereof or their applicability to the class of securities sought to be registered. shall be deemed not to constitute an offer for sale under this Section 439 A record of the registration of securities shall be kept in Register Securities in which shall be recorded orders entered by the Commission with respect such securities. on the mix of ownership. the issuer shall pay to the Commission a fee of not more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities are proposed to be offered. shall include. in such form and with such substance as the Commission may prescribe. in such form and containing such information and document as the Commission prescribe. its principal operating officer.4. its principal accounting officer. a written certification by such selling shareholders as to the accuracy of any part of the registration statement contributed to by such selling shareholders shall be filed.3. (a) Upon filing of the registration statement. The information required for the registration of any kind. by rule.438 and 8. or may require additional information or documents. including written information from an expert.1436 shall be registered through the filing by the issuer in the main office of the Commission. its comptroller.2. or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation. its principal financial officer. among others. The written consent of the expert named as having certified any part of the registration statement or any document used in connection therewith shall also be filed. Procedure for registration of securities All securities required to be registered under Subsection 8. shall be made available to each prospective purchaser. The registration statement shall be signed by the issuer’s executive officer.4. of a sworn registration statement with the respect to such securities. Such register and all documents or information with the respect to the securities registered therein shall be open to public inspection at reasonable hours on business days. the Commission may require the registration statement to contain such information or documents as it may. It may dispense with any such requirements. 129 . 436 Securities shall not be sold or offered for sale or distribution within the Philippines. the effect of the securities issue on ownership. The registration statement shall include any prospectus required or permitted to be delivered under Subsections 8. especially foreign and local ownership. prescribe. information on the securities. 438 The Commission may specify the terms and conditions under which any written communication. The Commission shall prescribe by the rule diminishing fees in inverse proportion the value of the aggregate price of the offering. Prior to such sale. its corporate secretary. 437 The Commission may conditionally approve the registration statement under such terms as it may deem necessary. including any summary prospectus. and all securities. without a registration statement duly filed with and approved by the Commission. Where the registration statement shares to be sold by selling shareholders.
(b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive weeks, or in such other manner as the Commission by the rule shall prescribe, reciting that a registration statement for the sale of such securities has been filed, and that aforesaid registration statement, as well as the papers attached thereto are open to inspection at the Commission during business hours, and copies thereof, photostatic or otherwise, shall be furnished to interested parties at such reasonable charge as the Commission may prescribe. Within forty-five (45) days after the date of filing of the registration statement, or by such later date to which the issuer has consented, the Commission shall declare the registration statement effective or rejected, unless the applicant is allowed to amend the registration statement as provided in Section 14 hereof. The Commission shall enter an order declaring the registration statement to be effective if it finds that the registration statement together with all the other papers and documents attached thereto, is on its face complete and that the requirements have been complied with. The Commission may impose such terms and conditions as may be necessary or appropriate for the protection of the investors. Upon affectivity of the registration statement, 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. Any untrue statement of fact or omission to state a material fact required to be stated herein or necessary to make the statement therein not misleading shall constitute fraud. 440 5. Prohibitions on fraud, manipulation and insider trading a. Manipulation of security prices It shall be unlawful for any person acting for himself or through a dealer or broker, directly or indirectly: (a) To create a false or misleading appearance of active trading in any listed security traded in an Exchange of any other trading market: (i) By effecting any transaction in such security which involves no change in the beneficial ownership thereof; (ii) By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous order or orders of substantially the same size, time and price, for the sale or purchase of any such security, has or will be entered by or for the same or different parties; or (iii) By performing similar act where there is no change in beneficial ownership.
(b) To affect, alone or with others, a securities or transactions in securities that: (i) Raises their price to induce the purchase of a security, whether of the same or a different class of the same issuer or of controlling, controlled, or commonly controlled company by others; or (ii) Creates active trading to induce such a purchase or sale through manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices. (c) 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 of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purpose of sale of such security. (d) To make false or misleading statement with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. (e) To effect, either alone or others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security; unless otherwise allowed by this Code or by rules of the Commission. No person shall use or employ, in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance. Neither shall any short sale be effected nor any stop-loss order be executed in connection with the purchase or sale of any security except in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest for the protection of investors. The foregoing provisions notwithstanding, the Commission, having due regard to the public interest and the protection of investors, may, by rules and regulations, allow certain acts or transactions that may otherwise be prohibited under this Section. 441 b. Short sales A sale of a security that the seller does not own or has not contracted for at the time of sale, and that the seller must borrow to make the delivery. Such a sale is usually made when the seller expects the security’s price to drop. If the price does not drop, the seller can make a profit on the difference between the price of the shares sold and the lower price of the shares bought to pay back the borrowed share.442
Sec. 24 Black’s Law Dictionary
c. Fraudulent transactions It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: (1) Employ any device, scheme, or artifice to defraud; (2) Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person. 443 d. Insider trading The selling or buying of a security by an insider while in possession of material nonpublic information with respect to the issuer or the security. It is considered unlawful unless: 1. The insider proves that the information was not gained from such relationship, or 2. If the other party selling to or buying from the insider444 is identified, the insider proves: a. that he disclosed the information to the other party, or b. that he had reason to believe that the other party otherwise is also in possession of the information.445
Sec. 26 or his agent 445 Sec. 27.1
6. Protection of investors a. Tender offer rule446 A publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a “public company.” It is mandatory to make a tender offer for equity shares of a public company in an amount equal to the number of shares that the person intends to acquire in the following circumstances: a. The person intends to acquire 15% or more of the equity shares of a public company pursuant to an agreement made between or among the person and one or more sellers; b. The person intends to acquire 30% or more of the equity shares of a public company within a period of 12 months; or c. The person intends to acquire shares that would result in ownership of more than 50% of the equity shares of a public company.447 b. Rules on proxy solicitation Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission; Proxies must be in writing, signed by the stockholder or his duly authorized representative and filed with the corporate secretary before the scheduled meeting; 448 unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended; no proxy shall be valid and effective for a period longer than 5 years at one time; 449 and a broker or dealer cannot give a proxy in respect of any security it carries for the account of a customer without the express written authorization of such customer.450 The issuance and solicitation of proxies are regulated to minimize, if not avoid, the abuse and misuse of the proxy device that may lead to the self-perpetuation and irresponsibility of management. Management has innate advantages in the solicitation of
Tender offer is made: 1. By filing with the SEC a declaration to make a tender offer; 2. By furnishing the issuer or the originator of the security a statement containing such information required under Sec. 17 of the SRC: i. Annual Report (includes balance sheet, profit and loss statement); and ii. Periodical reports for interim fiscal periods; and 3. By publishing all requests or invitations for tender, or materials, making a tender offer or requesting or inviting letters of such a security. 447 Rule 19, SRC 448 Sec. 20.2 449 Sec. 20.3 450 Sec. 20.4
(d) A government employee. however. director. 452 or his agent 453 Sec. The form of proxy.8. 432 No solicitation of proxy shall be made unless each person solicited is furnished. concurrently or earlier. 3). legitimate or commonlaw. p. or proves: (b) If the other party selling to or buying from the insider452 is identified. 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. becomes an insider as defined in Subsection 3.8. and it has access to corporate funds for the normally substantial costs of solicitation. 4.proxies. the insider (i) that he disclosed the information to the other party. it has the stockholder’s list. unless: (a) The insider proves that the information was not gained from such relationship. or (ii) that he had reason to believe that the other party otherwise is also in possession of the information. par.1 A purchase or sale of a security of the issuer made by an insider defined in Subsection 3. shall be made unless each person solicited or given to stockholders at least 15 business days prior to the meeting date (SRC Rule 20. 451 c. it benefits from the usual inertia of stockholders. sell or hold a security. or officer of an exchange. That this presumption shall be rebutted upon a showing by the purchaser or seller that he was aware of the material nonpublic information at the time of the purchase or sale. 134 . gives or gave him access to material information about the issuer or the security that is not generally available to the public. 455 "Insider" means (a) the issuer. or a person controlling the issuer. by virtue of the communication. shall be presumed to have been effected while in possession of material nonpublic information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for market to absorb such information: Provided. or (b) would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy. (b) a director or officer (or any person performing similar functions) of. Disclosure rule It shall be unlawful for an insider to sell or buy a security of the issuer. 27. with a written proxy statement containing the information required by the SEC (SRC Rule 20. par.455 where the insider communicating the information 451 Fundamentals of Securities Regulation.453 It shall be unlawful for any insider to communicate material nonpublic information 454 about the issuer or the security to any person who. or such insider’s spouse or relatives by affinity or consanguinity within the second degree. 454 Information is "material nonpublic" if: (a) It has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information.f). or (e) a person who learns such information by a communication from any forgoing insiders. while in possession of material information with respect to the issuer or the security that is not generally available to the public.
or a partner in.3 other than the tender offeror 458 shall include any securities convertible or exchangeable into such securities or any options or rights in any of the foregoing securities 459 Sec.4 (a)(i). 135 . unless it is proved that at the time of such acquisition he knew of such untrue statement or omission: (a) The issuer and every person who signed the registration statement: (b) Every person who was a director of.knows or has reason to believe that such person will likely buy or sell a security of the issuer whole in possession of such information. those acting on its behalf. Civil liability Any person acquiring a security. the issuer of the securities sought or to be sought by such tender offer. 456 for: It shall be unlawful where a tender offer has commenced or is about to commence (i) Any person457 who is in possession of material nonpublic information relating to such tender offer. or a partner 456 457 Sec. 27. to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender offeror. to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender offeror. supplement or amendment thereof with respect to which his liability is asserted. those acting on its behalf. 458 and any insider of such issuer to communicate material nonpublic information relating to the tender offer to any other person where such communication is likely to result in a violation of Subsection 27. may sue and recover damages from the following enumerated persons. or any insider of such issuer. or a person performing similar functions. the issuer of the securities sought or to be sought by such tender offer. those acting on its behalf. and who suffers damage. the registration statement of which or any part thereof contains on its effectivity an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make such statements not misleading.459 7. the issuer of the securities sought or to be sought by such tender offer. the issuer at the time of the filing of the registration statement or any part.4 (a) (i) Any person (other than the tender offeror) who is in possession of material nonpublic information relating to such tender offer. and (ii) Any tender offeror. 27. or any other person performing similar functions. (c) Every person who is named in the registration statement as being or about to become a director of. or any insider of such issuer.
upon the tender of such security. not misleading (the purchaser not knowing of such untruth or omission). of such untruth or omission. with respect to that portion of the registration statement which purports to have been contributed by him. which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements. then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement. 461 or (b) Offers to sell or sells a security.in. or valuation. and in the exercise of reasonable care could not have known. with respect to the statement. shall be liable to the person purchasing such security from him. by the use of any means or instruments of transportation or communication. by means of a prospectus or other written or oral communication. but such reliance may be established without proof of the reading of the registration statement by such person. 56 Registration of securities 136 . the issuer and whose written consent thereto is filed with the registration statement. (f) Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement. less the amount of any income received thereon. which purports to have been prepared or certified by him. and who shall fail in the burden of proof that he did not know. 460 Any person who: (a) Offers to sell or sells a security in violation of Chapter III. in the light of the circumstances under which they were made. (g) Every underwriter with respect to such security. (e) Every person who. who may sue to recover the consideration paid for such security with interest thereon. whether or not exempted by the provisions of this Code. has been named as having prepared or certified any part of the registration statement. (d) Every auditor or auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus. 460 461 Sec. which shall be filed with the registration statement. If the person who acquired the security did so after the issuer has made generally available to its security holders an income statement covering a period of at least twelve (12) months beginning from the effective date of the registration statement. report. or for damages if he no longer owns the security. or as having prepared or certified any report or valuation which is used in connection with the registration statement. with his written consent.
supra 466 Sec. 468 467 Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 469 or 16. 463 20464 or 26. 470 Pre-Need Plans. supra 465 On Fraudulent transactions.2.466 Any person who willfully participates in any act or transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction. undue 462 463 Sec. or any solicitation for any security holders in opposition to or in favor of any such favor of any such offer. prescribing advertising guidelines. not misleading. 59 469 Commodity Futures Contracts.Any person who shall make or cause to be made any statement in any report. The Commission shall. shall be liable to any person who.462 Any person who engages in any act or transaction in violation of Sections 19. . supra 468 Sec. or document filed pursuant to this Code or any rule or regulation thereunder. define and prescribe means reasonably designed to prevent. and the person so injured may sue to recover the damages sustained as a result of such act or transaction. or to engaged to any fraudulent. among other things. imposing capital. 58 467 On Manipulation of Security Prices. 57 It shall be lawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made in the light of the circumstances under which they are made. bonding and other financial responsibility. or accepts or declines an invitation for tender of a security. or invitation.465 or any rule or regulation of the Commission thereunder. such acts and practices as are fraudulent. – No person shall sell or offer for sale to the public any pre-need plan except in accordance with rules and regulations which the Commission shall prescribe. and establishing trust funds for the payment of benefits under such plans. for the damages sustained by such other person as a result of such act or transaction. licensing persons involved in the sale of pre. and relying upon such statement shall have purchased or sold a security at a price which was affected by such statement. unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. manipulation.470 which the Commission denominates at the time of issuance as intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud.need plans. which statement as at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact. for damages caused by such reliance. providing for uniform accounting system.No person shall offer. 137 . grants or refuses to grant any proxy. Such rules shall regulate the sale of pre-need plans by. sell or enter into commodity futures contracts except in accordance with the rules. deceptive or manipulative acts or practices. reports and recording keeping with respect to such plans. as the case may be. requiring disclosures to prospective plan holders. in connection with any tender offer or request or invitation for tenders. for the purposes of this subsection. not knowing that such statement was false or misleading. request. fictitious transactions. shall be liable to any other person who purchases or sells any security. requiring the registration of pre-need plans. The Commission shall promulgate rules and regulations involving commodity futures contracts to protect investors to ensure the development of a fair and transparent commodities market. 464 On Proxies. deceptive and manipulative. consent or authorization. regulations and orders the Commission may prescribe in the public interest.
proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him.478 471 472 Sec. 476 Any insider who violates Subsection 27. purchased or sold securities of the same class unless such insider.4 (a)(I). shall be liable in a suit brought by any investor who. 474 id. the insider.1472 and any person in the case of a tender offer who violates Subsection 27. An insider who violates Subsection 27. the Commission by rule shall prescribe the elements of proof required for recovery and any limitations on the amount of damages that may be imposed. shall be liable in a suit brought by any investor who. purchased or sold securities of the same class unless such insider. by purchasing or selling a security while in possession of material information not generally available to the public.3474 or any person in the case of a tender offer who violates Subsection 27.1 and any person in the case of a tender offer who violates Subsection 27. by purchasing or selling a security while in possession of material information not generally available to the public. 475 id.471 Any insider who violates Subsection 27. shall be liable to any other person sustaining damages as a result of such act or transaction. 477 supra 478 Sec. or other unfair or abusive practices with respect to commodity future contracts.475 or any rule or regulation thereunder. 60 supra 473 id. or such person in the case of a tender offer. proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him. contemporaneously with the purchase or sale of securities that is the subject of the violation.4 (a)(i).speculation. by communicating material nonpublic information. to whom the communication was directed and who is liable under Subsection 61. or person in the case of a tender offer.1 477 by reason of his purchase or sale of a security. or such person in the case of a tender offer.1 476 with.4 (a). As to each such rule or regulation so denominated. 61 138 . contemporaneously with the purchase or sale of securities that is the subject of the violation. and to the same extent as. or any rule or regulation thereunder.473 or any rule or regulation thereunder. shall be jointly and severally liable under Subsection 61.
To regulate the operations of finance stability and the convertibility of the peso. Ten billion pesos (P10. through the Secretary of Finance and the Secretary of Budget and Management. banking. 1 481 Sec. To supervise bank operations 2. The New Central Bank Act479 a. The central monetary. hereafter referred to as the Bangko Sentral. and credit. No. Banking Laws 1. The capital of the Bangko Sentral shall be Fifty billion pesos (P50. companies and non-bank financial institutions performing quasi-banking functions.000. 482 479 480 R. and similar institutions.000). shall enjoy fiscal and administrative autonomy. Responsibility and primary objective Responsibilities Primary objectives 1. To promote and maintain monetary 3. which shall be a body corporate known as the Bangko Sentral ng Pilipinas. 2 482 Sec. to be fully subscribed by the Government of the Republic. while being a government-owned corporation. Creation of the Bangko Sentral ng Pilipinas (BSP) An independent central monetary authority. To provide policy directions in the areas 1. banking and credit. 2.000. 7653 Sec.000. State policies 1. may thereafter determine. 2. 3 139 .A. balanced and sustainable growth of the economy.I. Maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money.480 b. To maintain price stability conducive to a of money.481 c.000.000) of which shall be fully paid for by the Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner and form as the Government.
How the BSP handles banks in distress (1) Conservatorship Whenever on the basis of a report submitted by the appropriate supervising or examining department. shall appoint a conservator. Examination by the appropriate BSP department as to the condition of the bank b. Director shall inform the MB in writing of such fact d. To lease. Examination shows that the condition of the bank is one of insolvency c. the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects. CA 140 .d.483 (3) Receivership Receivership is equivalent to an injunction to restrain the bank in any way. Monetary Board . To acquire and hold such assets and incur such liabilities in connection with its operations or as are essential to the proper conduct of operation 6. 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. own. alter and use a corporate seal which shall be judicially noticed 2. To compromise condone or release any claim of or settled liability to the BSP 7. sell property 4. MB Villanueva v. To enter into contracts 3. To sue and be sued 5. Thus. To adopt.Powers and functions 1. (2) Closure Mandatory requirements for bank closure: a. MB shall find the statement of the department to be true. To do and perform such other necessary powers e.484 483 484 Banco Filipino v.
A determination by the MB that the bank cannot be rehabilitated. or 4. 2. Deposits do not become preferred credits. Suspension of payment of deposit liabilities continuously for more than 30 days (Sec. Under GBL 1. involving acts or transactions which amount to fraud or a dissipation of the assets of the institution. GBL) 3. 53. In case of quasi-banks. levy. 3. The condition of the bank is one of insolvency or that its continuance would involve probable loss to its depositors and creditors. He shall convert the assets of the institution to money for the purpose of paying the debts of the institution. 2. The assets under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall be exempt from garnishment. Willful violation of a cease and desist order that has become final. 53. Inability to pay liabilities as they become due in the ordinary course of business. v CFI) 5. b.(4) Liquidation a. CA) 4. The corporation retains its legal personality (Teal Motor Co. the liquidation plan shall be adopted by the Monetary Board. Insufficiency of realizable assets to meet its liabilities. A determination by the MB that the bank cannot be rehabilitated. The condition of the bank is one of insolvency or that its continuance would involve probable loss to its depositors and creditors. Payment shall be in accordance with the rules on concurrence and preference of credits 141 . Notification to the BSP or public announcement of a bank holiday (Sec. Morfe) Grounds: A. Suspension of operation 2. (Sec. GBL) 2.485 Effects of appointment of receiver/ liquidation: 1. 30) 3. 30) B. Procedure: 1. but not including inability to pay caused by extraordinary demands induced by financial panic in the banking community. 3. Receiver shall file ex parte. 56. a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the PDIC for general application to all closed banks. attachment or execution (Sec. Persistence in conducting business in an unsafe or unsound manner. Bank is not liable to pay interest on deposits during the period of suspension of operation (Overseas Bank v. (Sec. Inability to continue business without involving probable losses to its depositors or creditors. Under NCBA 1. with the proper RTC. GBL) 485 Grounds: 1. 2. 30). (Sec. (CB v.
Notes and coins called in for replacement shall remain legal tender for a period of one year from the date of call.f. 52 Rules: 1. 25 centavos and above: In amounts not exceeding P50. 486 487 Sec. After the expiration of this latter period. Coins – More than 10 years old487 (2) Rate of exchange The Monetary Board shall determine: 1. 57). 486 Legal tender power of coins 1. 142 . 3. The exchange rate policy of the country. The rates of which the Bangko Sentral shall buy and sell spot exchange. How the BSP handles exchange crisis (1) Legal tender power Legal tender All notes and coins issued by the Bangko Sentral are fully guaranteed by the Republic and shall be legal tender in the Philippines for all debts. After that period. Establish deviation limits from the effective exchange rate(s) as it may deem proper. they shall cease to be legal tender during the following year or for such longer period as MB may determine.00 2. and 4. Notes for any series or denomination – More than 5 years old 2. the notes and coins which have not been exchanged shall cease to be a liability of BSP and shall be demonetized (Sec. 10 centavos or less: In amounts not exceeding P20. The rates for other types of foreign exchange transactions by the Bangko Sentral including purchases and sales of foreign notes and coins. 2.00 BSP Authority to Replace 1. 2. 3. both public and private.
Purpose 1. In cases where the money deposited or b. No. as amended Sec. Upon written permission of the 1. Any disclosure by any official or employee of any bank to any unauthorized person of any information concerning the said deposits. A decedent to determine his gross officials. Prohibited acts 1. Gancayco 491 Sec. 1405 From other laws 1.2. To discourage private hoarding so that banks may lend such funds and assist in the economic development. 2. 2 490 R. c. No. A taxpayer who has filed an invested is the subject matter of the application for compromise of his tax litigation. 1405. added by analogy in PNB vs.A. To encourage people to deposit in banks 2. Upon order of a competent court in cases of bribery or dereliction of duty of public a. inquired or looked into by any person. governmental. b.491 488 489 R. cases490 2. 6[f]. 2. bureau. Law on Secrecy of Bank Deposits488 a. He must file a written waiver of his privilege under RA 1405 or other general or special laws.A. No. estate. In cases of impeachment.A. Anti-Graft and Corrupt Practices Act depositor. or office. d.489 liability by reason of financial incapacity to pay his tax liability. 4. Exceptions From R. Examination and inquiry or looking into all deposits of whatever nature with the banks in the Philippines including investments in bonds issued by the Government. Deposits covered The deposits covered by law are considered as of an absolutely confidential nature and may not be examined. Inquiry by the Commissioner of Internal Revenue into bank deposits of: 3. NIRC 143 . 3019.
A. No. Comprehensive Dangerous Drugs Act of 2002.”493 4.A. only for purposes of garnishment. Disclosure to the Treasurer of the Philippines of dormant deposits for at least 10 years under the Unclaimed Balances Act. 3936 495 China Banking Corporation v. 8 of R. 495 f. No. Inquiry or examination by the Anti-Money Laundering Council (AMLC) of any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of the Anti-Money Laundering Law. b. except that no court order shall be required in the following unlawful activities: a.494 e. including foreign deposits Garnishment of bank deposit of judgment debtor does not violate RA 1405. R. No. 9165 Sec. Garnishment of deposits. as amended by Sec. Ortega 144 .A.000 or both. Including those perpetrated by terrorists against noncombatant persons and similar targets. 9160.3. 11. 267 RPC.492 c. 492 493 R. in the discretion of the court. when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity or a money laundering offense. Its purpose is merely to secure information as to the name of the depositor and whether or not the defendant had a deposit in said bank. Penalties for violation Imprisonment of not more than five (5) years or a fine not more than P20. destructive arson and murder under RPC. Hijacking and other violations under RA 6235. 9194 494 Act No. Kidnapping for ransom under Art.
These are a) Savings and mortgage banks. Definition and classification of banks Banks . Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house and invest in non-allied enterprises.A. 497 Entities duly authorized by the Monetary Board to engage in the business of regularly lending funds obtained regularly from the public through the receipt of deposits of any kind.entities engaged in the lending of funds obtained in the form of deposits. General Banking Act 496 a. can exercise the powers of an investment house and invest in non-allied enterprises and have the highest capitalization requirement. Classification: Universal banks Primarily governed by the General Banking Law (GBL).3. c) Private development banks. No.A. 7906 499 R. which are primarily governed by the Thrift Banks Act. 7353 145 .A. 8791 Sec. 2 498 R.498 Rural banks Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of 1992. b) Stock savings and loan associations.499 Those banks organized whose majority Commercial banks Thrift banks Cooperative banks 496 497 R.
6848. Trust A popular type of business arrangement for small business but. is not a legal entity and cannot contract in its own name. 500 501 R. 2. Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. Distinction of banks from quasi-banks and trust entities Banks502 Quasi-banks 1.501 b.500 Islamic banks Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari’a. Entities engaged in the borrowing of funds through the issuance.A. unlike a company. 6938 Sec. Entities authorized to perform universal or commercial banking functions may also engage in quasi-banking functions. They are governed primarily by the Cooperative Code.A. endorsement or assignment with recourse or acceptance of deposit substitutes. 3 502 supra 146 . It shall include cooperative rural banks. such as the Al Amanah Islamic Investment Bank of the Philippines which was created by R.
all such powers as may be necessary to carry on the business of commercial banking. 4. receiving other types of deposits and deposit substitutes. credit.c.503 503 504 Sec. buying and selling foreign exchange and gold or silver bullion. These rules may include the determination of bonds and other debt securities eligible for investment. acquiring marketable bonds and other debt securities. extending credit subject to such rules as the Monetary Board may promulgate. the maturities and aggregate amount of such investment.504 the powers of an investment house as provided in existing laws and the power to invest in non1. 4. 29 supra 147 . and 5. 5. in addition to the powers authorized for a commercial bank in Section 29. discounting and negotiating promissory notes. 3. such as Universal Bank: Shall have the authority to exercise. drafts. accepting drafts and issuing letters of allied enterprises. and other evidences of debt. Bank powers and liabilities (1) Corporate powers Commercial Banks: In addition to the general powers incident to corporations. 2. accepting or creating demand deposits. bills of exchange.
Act as financial agent and buy and sell. November 11. and cannot rely upon what is or is not annotated on the title. (Reyes v. adviser. G.) Due diligence required of banks extend even to persons. shares. degree of diligence. October 28. Rent out safety deposit boxes. The appropriate standard of diligence must be very high. it must exercise due diligence before entering into said contract. 147800. No. regularly engaged in the business of lending money secured by real estate mortgages.506 2. It is expected to ascertain and verify the identities of the persons it transacts business with. Eduardo Santiago. (UCPB vs. 53 PCI Bank v. (DBP vs.R. CA) While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title. PBCom v. CA. CA. CA This applies only to cases where banks are acting in their fiduciary capacity. G. No. documents and valuable objects. by order of and for the account of their customers.505 d. 2003) 148 .R. and 5. Subject to reasonable regulation under the police power of the state. Ramos. evidences of indebtedness and all types of securities. Callejo. if not the highest.relevant jurisprudence 1. 505 506 Sec. act as managing agent. or institutions like the GSIS. Diligence required of banks . (GSIS vs. Receive in custody funds. representatives are sent to the premises offered as collaterals and investigate who the real owners are. 155206. Reason: Before a loan is approved. 331 SCRA 267)The business of a bank is one affected by public interest for which reason the bank should guard against loss due to negligence and bad faith. as depository of the deposits of their depositors. 2. 2003. highest degree of care. that is. 4 Upon prior approval of the Monetary Board. J. in case of a banking institution. consultant or administrator of investment management/advisory/consultancy accounts. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business.(2) Banking and incidental powers 1. 3. 350 SCRA 446.
aleatory contract supported by a lawful consideration which is valid unless when made as a mere cloak to hide an inofficious donation. (Handbook on Bank Deposits. the survivor may withdraw the entire balance on deposit. As trustee-trustor a.) It may be deemed a survivorship agreement depending on the intention of the parties. 507 Types of deposit accounts 1. Safety deposit boxes 3. Trust account 4. consent and signature of the other. Deposit for specific purpose c. Deposit for safekeeping f. As bailee-bailor a. to transfer property in fraud of creditors. (Rivera v. “And/or” account Either one of the co-depositors may deposit and withdraw from the account without the knowledge. And upon the death of one. As debtor-creditor a. Deposit strictly for safekeeping and for specific purposes 5. Viray.Co-ownership The signature of both co-depositors are required for withdrawals. Nature of bank funds and bank deposits 507 1. Savings b. People’s Bank) 508 Characteristics: a. Joint a. As lessor-lessee a. 1998 ed. A. Demand508 2. Central Bank.e. As agent-principal: a. Individual 2. b. In the nature of irregular deposits (Serrano vs. Deposit of check for collection b. 96 SCRA 96) 149 . “And” account . Time c. or to defeat the legitime of a forced heir. Stipulation on interests Allowed provided it is within the limits or ceiling provided for by the Act.
warehouse receipts or other similar documents transferring or 509 510 Sec. 34). 2.g. except: purchases of evidence of indebtedness guaranteed by the Government (Sec. Should such statements prove to be false or incorrect. A bank may demand from its applicants a statement of their assets and liabilities and of their income and expenditures and other information. that such ratio shall be applied uniformly to banks of the same category. shipping documents. The total amount of loans may be increased by additional 10% of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts.510 (2) Single borrower’s limit 1. 2. the MB may temporarily relieve the surviving bank. Rules: 1. or when a bank is under rehabilitation under a program approved by BSP. The total amount of loans extended by a bank to any person. association. In case of a bank merger or consolidation. However. Grant of loans and security requirements Before granting a loan. partnership. 150 . consolidated bank.509 (1) Ratio of net worth to total risk assets Risk-based capital: The minimum ratio prescribed by the Monetary Board which the net worth of a bank must bear to its total risk assets which may include contingent accounts. 34 Effect of non-compliance with the prescribed minimum ratio: 1. 40 Sec. or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio. the bank may terminate any loan granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of obligation. or 2. the Monetary Board may require or suspend compliance with such ratio whenever necessary for a maximum period of one year. 3. Acquisition of major assets and making of new investments may be restricted. a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. corporation or other entity shall at no time exceed 20% of the net worth of such bank. Distribution of net profits may be limited or prohibited and MB may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met.
511 511 The prescribed ceiling shall include: The direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general endorser. association. all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest. c. Loans. 151 . credit accommodations and acceptances under letters of credit to the extent covered by margin deposits. Loans secured by obligations of the Bangko Sentral or the Philippine Government. In a case of a corporation. b. a. association or any other entity. Loans fully guaranteed by the government. the liabilities of the said entities to the bank. partnership. b. and e. In the case of a partnership. Other loans or credit accommodations which the MB may specify as non-risk items. or other entity. In the case of an individual who owns or controls a majority interest in a corporation. drawer or guarantor who obtains a loan or other credit accommodation from or discount paper with or sells paper to such banks. non-perishable goods which must be fully covered by insurance.securing title covering readily marketable. d. Loans covered by assignment of deposits maintained in the lending bank and held in the Philippines. Exclusions from the limits: a. c. and d. the liabilities of the member thereof to such bank.
of the property/interest/ right mortgaged. whichever is lower. or relative by legal adoption of a DOS. e. excluding the director concerned. borrow from such bank nor shall be guarantor. Dealings of a bank with any of its DOSRI shall be upon terms not less favorable to the bank than those offered to others. pledge or assignment covers only said coowner’s undivided interest. b. Directors – Directors of the lending bank 2. f. is in excess of 5% of the capital and surplus of the lending bank or in the maximum amount permitted by law. Corporation wholly or majority owned or controlled by any related entity or a group of related entities in items (b). officer. individually and/or together with any of the following persons. officers. b. 170) 513 Arm’s length rule 152 . amount to 2% or more of the total subscribed capital stock of the bank: a. He contracts a loan or any form of financial accommodation c. or any stockholder of a bank and related interest. assigned to secure the loans or credit accommodations. 170): 1. Spouse. except with the written approval of the majority of all the directors of the bank. relatives within first degree of consanguinity or affinity.(3) Restrictions on bank exposure to DOSRI (directors. or in any manner be obligor or incur any contractual liability to the bank. Officers – Either identified in the by-laws or are generally known as such 3.513 512 Who are covered (BSP Circular No. Co-owner with the DOS or his spouse or relative within the first degree of consanguinity or affinity.(BSP Circular No. No director or officer of any bank shall. stockholders and their related interests)512 a. pledged. or relative by legal adoption. d. A partnership in which the stockholder or his spouse or any of his relatives mentioned above is a general partner. and (e). Corporation with inter-locking directors. pledge or assignment covers only said co-owner’s undivided interest. endorser or surety for loans from such bank to others. His spouse or relative within the first degree of affinity/consanguinity or relative by legal adoption. The loan or financial accommodation is from (1) his bank or (2) a bank that is a subsidiary of a bank holding company of which both his bank and lending bank are subsidiaries. The written approval shall not be required for loans granted to officers under a fringe benefit plan approved by the Bangko Sentral. except when the mortgage. c. (3) a bank in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank. directly or indirectly. 4. b. Partnerships of which a DOS or his spouse or relative within the first degree of consanguinity or affinity. (d). and d. or relative by legal adoption. The borrower is director. Requisites: a. c. The loan or financial accommodation of the DOS. Corporation wherein 20% of the capital stock is owned by the DOS and/or their spouses or relatives mentioned above. Stockholders – those whose stockholdings. A co-owner with the stockholder or the stockholder’s spouse or relative mentioned above of property/right/interest (mortgaged. singly or with that of his related interest. is a general partner. pledged or assigned to secure the loan or credit accommodations. Related Interest – a. b. except when the mortgage.
Proceedings Upon Violation of This Act and Other Banking Laws. False Statement.514 d. Loans. No waiver is required if the related interests are the borrower f.The willful making of a false or misleading statement on a material fact to the Monetary Board or to the examiners of the Bangko Sentral shall be punished by a fine of not less than One hundred thousand pesos (P100. h. . any willful making of a false or misleading statement to the Board or the appropriate supervising and 153 . and advances to officers in the form of fringe benefits. Regulations.000) or by imprisonment of not less than two (2) years nor more than ten (10) years. The resolution approving the loan shall be entered in the records of the bank and transmitted to the BSP e.000) nor more than One hundred thousand pesos (P100. Administrative Sanctions on Banks and Quasi-banks. their directors and/or officers. or by imprisonment of not more than (5) years. in the discretion of the court. or whenever any person or entity willfully violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or any order. credit accommodations. at its discretion. imprisonment Shall be subject to Sections 34.000) nor more than Two hundred thousand pesos (P200. the person or persons responsible for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty thousand pesos (P50. without prejudice to the penalties provided in the preceding paragraph of this section and the administrative sanctions provided in Section 37 of this Act. rules and regulations. Rules.Any officer. instruction. the Monetary Board may. 36 and 37515 of the New Central Bank Act. willful delay in the submission of reports or publications thereof as required by law. 35. Information obtained from examination is strictly confidential. Section 35. Loans extended to DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank. Cooperative bank with regard to its cooperative shareholders 515 Section 34. the Board may. for any willful violation of its charter or by-laws.000) or by imprisonment of not less than one (1) year nor more than five (5) years. at the discretion of the court. Penalties for violations (1) Fine. ii. rule or regulation issued by the Monetary Board. or both. Loans. .000). iii. any refusal to permit examination into the affairs of the institution. being required in writing by the Monetary Board or by the head of the supervising and examining department willfully refuses to file the required report or permit any lawful examination into the affairs of such institution shall be punished by a fine of not less than Fifty thousand pesos (P50. or both. take action under Section 30 of this Act. or both. Waiver of secrecy of deposits of whatever nature in all banks in the Philippines by the borrower. credit accommodations.Whenever a bank or quasi-bank.000) nor more than Two hundred thousand pesos (P200. . and guarantees secured by assets considered as non-risk by the Monetary Board. Refusal to Make Reports or Permit Examination. impose upon any bank or quasi-bank.Without prejudice to the criminal sanctions against the culpable persons provided in Sections 34. owner. Orders or Instructions. director or officer-in-charge of any institution subject to the supervision or examination by the Bangko Sentral within the purview of this Act who. Section 37. manager. Section 36. Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner. . and 36 of this Act. agent. at the discretion of the court. 35.c.516 514 Except – i.
If no such hearing is requested within said period. and may further order that immediate action be taken to correct the conditions resulting from such practice or violation. modified or lifted by the Monetary Board on appeal. and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary Board. the order shall be final. if the institution and/or the directors and/or officers concerned continue with or otherwise persist in the commission of the indicated practice or violation. Monetary Board regulations and policies. the imposition of which shall be final and executory until reversed. (c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments. the following administrative sanctions. said director or officer shall be reinstated in his position: Provided. preventively suspend any director or officer of a bank or quasi-bank pending an investigation: Provided.000) a day for each violation. quasi-bank or trust entity. for any failure to comply with the requirements of law. any banking law or any order. to impose upon banking institutions. (b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities. the Monetary Board may issue an order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or violation. such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General. 516 Sec. the period of delay shall not be counted in computing the period of suspension herein provided. further. and/or instructions issued by the Monetary Board or by the Governor. The above administrative sanctions need not be applied in the order of their severity. but in no case to exceed Thirty thousand pesos (P30. Whether or not there is an administrative proceeding. (d) suspension of interbank clearing privileges. at his discretion. taking into consideration the attendant circumstances. after which the Monetary Board may either reconsider or make final its order. any willful failure or refusal to comply with.000) a day for each violation. The cease and desist order shall be immediately effective upon service on the respondents. The Monetary Board may. or violation of. all issues shall be determined on the basis of records. Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions.(2) Suspension or removal of director or officer If the offender is a director or officer of a bank. (3) Dissolution of bank If the violation is committed by a corporation. If a hearing is conducted. That should the case be not finally decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of suspension. instruction or ruling by the Governor. The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any committee chaired by any Monetary Board member created for the purpose. such as the nature and gravity of the violation or irregularity and the size of the bank or quasi-bank. negligence or petition of the director or officer. That when the delay in the disposition of the case is due to the fault. or any order. instruction or regulation issued by the Monetary Board. examining department or its examiners. the Monetary Board may also suspend or remove such director or officer. upon request made by the respondents within five (5) days from their receipt of the order. or any commission of irregularities. whenever warranted by circumstances. 66 154 . fines not in excess of Ten thousand pesos (P10. and/or (e) revocation of quasi-banking license. whenever applicable: (a) fines in amounts as may be determined by the Monetary Board to be appropriate. The Governor is hereby authorized.
amending Sec. Basic policy To insure the deposits of all banks which are entitled to the benefits of insurance under this Act.A. as amended Sec.A. or (c) cannot continue in business without involving probable losses to its depositors or creditors. any person of recognized competence in banking or finance may be designed as receiver. That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community. to meet its liabilities. 4 520 Proceedings in Receivership and Liquidation. 3591.518 c.000. 155 . 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. there shall be added together all deposits in the bank maintained in the same right and capacity for his benefits either in his own name or in the name of others. as determined by the Bangko Sentral. 7653. Liability to depositors (1) Deposit liabilities required to be insured with PDIC The deposit liabilities of any bank engaged in the business receiving deposits are required to be insured with the PDIC. (b) has insufficient realizable assets. or (d) has willfully violated a cease and desist order under Section 37 that has become final. .Whenever. 30 520 of R. 517 518 R. 3591 519 Sec. 4 (g). No. upon report of the head of the supervising or examining department. To promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits.519 (2) Commencement of liability When an insured bank is closed by the Monetary Board pursuant to Sec. In determining such amount due to any depositor. R. Concept of insured deposits The term "insured deposit" means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of date of closure. 3 (g). 2009). R. but not to exceed Five hundred thousand pesos (P500. b. in which cases. the Monetary Board finds that a bank or quasi-bank: (a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided. involving acts or transactions which amount to fraud or a dissipation of the assets of the institution.4. For a quasi-bank.A. 9576 (April 29. Philippine Deposit Insurance Corporation Act 517 a.A.00).
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. a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation for general application to all closed banks. but not later than ninety (90) days from takeover. and/or emanating from. c) Deposit accounts or transactions constituting. the institution. The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be vested exclusively with the Monetary Board. and with the assistance of counsel as he may retain. attachment. assist the enforcement of individual liabilities of the stockholders. (2) convert the assets of the institutions to money. upon motion by the receiver after due notice. levy. from the moment the institution was placed under such receivership or liquidation. Furthermore. directors and officers. The receiver shall: (1) file ex parte with the proper regional trial court.(3) Deposit accounts not entitled to payment a) Investment products such as bonds and securities. adjudicate disputed claims against the institution. with the exception of administrative expenditures. The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory. administer the same for the benefit of its creditors. and decide on other issues as may be material to implement the liquidation plan adopted. That the receiver may deposit or place the funds of the institution in non-speculative investments. as determined by the Corporation. 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. be exempt from any order of garnishment. whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided. or execution. for the purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines and he may. or defend any action against. the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution. pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided. and exercise the general powers of a receiver under the Revised Rules of Court but shall not. and other similar instruments. trust accounts. The receiver shall pay the cost of the proceedings from the assets of the institution. b) Deposit accounts or transactions which are unfunded. liquidation or conservatorship. institute such actions as may be necessary to collect and recover accounts and assets of. That any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. or that are fictitious or fraudulent. the court shall. the liquidation plan shall be adopted by the Monetary Board. unsafe and unsound banking practice/s. in consultation with the The receiver shall immediately gather and take charge of all the assets and liabilities of the institution. the designation of a conservator is not a precondition to the designation of a receiver. 156 . The receiver shall determine as soon as possible. In case of quasi-banks. Upon acquiring jurisdiction. If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next preceding paragraph. and without requirement of prior notice or any other action. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall. in the name of the institution. dispose of the same to creditors and other parties.
the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank: Provided.523 may be constituted only if money or the equivalent of money is received by a bank. 7400. 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 obligations payable only at such branch.522 (5) Determination of insured deposits The Corporation shall commence the determination of insured deposits upon its actual takeover of the closed bank. as amended. per capacity rule The PDIC’s liability is up to P500. checking. (6) Calculation of liability (a) Per depositor.BSP. In order that a claim for deposit insurance with the PDIC may prosper.A. 521 522 Sec.A. R.00. consistent with banking usage and practices. together with such other obligations of a bank.0000 per depositor / per capacity. 13 April 1992.D. subject to the approval of the Board of Directors. savings. A deposit as defined in Section 3(f). 157 . and d) Deposits that are determined to be the proceeds of an unlawful activity as defined under Republic Act No. 1940. 9576 523 The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial. and publication of a cease and desist order issued by the Corporation against such deposit accounts or transactions. 12 August 2004) 524 Ibid. That 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 insured deposit: Provided.524 (b) Joint accounts A joint account regardless of whether the conjunction “and”. further. R.A. printed or issued in accordance with Bangko Sentral rules and regulations and other applicable laws. 4 (f) Under R. time or thrift account or which is evidenced by passbook. check and/or certificate of deposit. shall be insured separately from an individually-owned deposit account. “or” or “and/or” is used. 27 June 1984. but not to exceed P500. 9302. That.521 (4) Extent of liability Liability covers the amount due to any depositor for deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of closure. (As amended by P.000. No. which. 9160. the law requires that a corresponding deposit be placed in the insured bank. after due notice and hearing.
the maximum insured deposit shall be divided into as many equal shares as there are individuals.If the account is held jointly by two or more natural persons. certificate of time deposits. The amount of insurance due to any depositor for deposits in an insured bank shall be net of any matured or unmatured obligation of the depositor to the insured bank as of date of closure. In case of joint deposit accounts where only one of the co-depositors has an obligation to the closed bank. regardless of the fact that only one of the co-depositors in the joint account is indebted to the closed bank. juridical persons or entities. (c) Mode of payment a. corporate resolutions. juridical persons or entities. specimen signature cards. Cash b.000. the obligation of the depositor who is indebted to the closed bank shall be deducted only from his share in the balance of the joint deposit account. copies of which must be in the custody or possession of the bank upon takeover by PDIC. passbooks or other evidence of deposits. the obligation secured by the hold-out agreement shall be deducted only from the share in the joint account of the depositor who is indebted to the closed bank. unless his co-depositor is himself a co-signatory to the hold-out agreement. or by two or more juridical persons or entities. the maximum insured deposit shall be presumed to belong entirely to the juridical person or entity. “or” or “and/or” account which is not covered by a hold-out agreement. The aggregate of the interests or total share of each co-owner over several joint accounts. If the account is held by a juridical person or entity jointly with one or more natural persons. contracts or similar instruments. Transferred deposit – A deposit in an insured bank made available to a depositor by the PDIC as payment of the insured deposit of such depositor in a closed bank and assumed by another insured bank. unless a different sharing is stipulated in the document of deposit. whether owned by the same or different combinations of individuals. shall likewise be subject to the maximum insured deposit of P500. the following shall apply: a) Where the deposit is a joint “and/or” or “or” account which is covered by a holdout agreement. c) Where the deposit is either a joint “and”. account ledgers.00. b) When the deposit is a joint “and” account which is covered by a hold-out agreement. 158 . Document of deposit referred to in the preceding paragraph pertains to joint account agreements. the obligation secured by the hold-out agreement shall be deducted from the balance of the joint account.
bad faith.525 (f) Failure to settle claim of insured depositor Failure to settle the claim. This preference shall be effective upon liquidation proceedings where no distribution of assets have been made. 2244. within 6 months from the date of filing of claim for insured deposit. 3 par. 15. PDIC is discharged from obligations Payment of an insured deposit to any person by the Corporation shall discharge the Corporation. upon payment of any depositor shall be subrogated to all rights of the depositor against the closed bank. shall subject the directors. where such failure was due to grave abuse of discretion. 2.(d) Effect of payment of insured deposit 1. (e) Payments of insured deposits as preferred credit under Art. Civil Code All payments by the Corporation of insured deposits in closed banks partake of the nature of public funds. or malice. 525 Sec. PDIC is subrogated to depositor’s rights The Corporation. All payments by the Corporation of insured deposits in closed banks partake of the nature of public funds. Payment of a transferred deposit by the new bank or by an insured bank in which a transferred deposit has been made available shall discharge the Corporation and such new bank or other insured bank. gross negligence. The period shall not apply if the validity of the claim requires the resolution of issues of facts and or law by another office. officers or employees responsible to imprisonment from 6 months to 1 year. and must be considered a preferred credit similar to taxes due to the National Government. and as such. must be considered a preferred credit similar to taxes due to the National Government in the order of preference under Article 2244 of the New Civil Code. rd 159 . But the depositor shall retain his claim for any uninsured portion of his deposit. body or agency.
if there is a threatened or impending closure of a bank. 2009 160 . conduct a special examination as the Board of Directors. 16 (e) 528 th Sec.528 526 within 2 years from actual takeover of the closed bank by the receiver. and findings of the Bangko Sentral. the examination shall maximize the efficient use of the relevant reports. 8 par. notwithstanding the provisions of Republic Act No. shall revert to the depositor. or within 2 years after the two-year period to file a claim 527 Sec.A.527 i. 8. as amended by R. April 29. 8791. 12 August 2004. Provided. That no examination can be conducted within twelve (12) months from the last examination date: Provided.A. Republic Act No. R. by an affirmative vote of a majority of all of its members. in coordination with the Bangko Sentral. 9576. That. may inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe or unsound banking practice. all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the Corporation may have become subrogated. the Corporation and/or the Bangko Sentral.(g) Failure of depositor to claim insured deposits 526 All rights of the depositor against the Corporation shall be barred. 6426. as amended. information. That the Corporation may. 9302. however. finally. 1405. Provided. which it shall make available to the Corporation. further. and other laws. However. as amended. Republic Act No. Examination of banks and deposit accounts The Corporation shall have the power: xxx To conduct examination of banks with prior approval of the Monetary Board: Provided.. That to avoid overlapping of efforts.
530 529 Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the statutory maximum amount of insured deposit maintained under the name of natural or juridical persons is broken down and transferred into two (2) or more accounts in the name/s of natural or juridical persons or entities who have no beneficial ownership on transferred deposits in their names within one hundred twenty (120) days immediately preceding or during a bank.declared bank holiday. 12 August 2004. 22 161 . officer. grave injustice and irreparable injury will arise. or immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the maximum deposit insurance coverage. employee or agent of a bank for : xxx 5) splitting of deposits or creation of fictitious loans or deposit accounts. shall issue any temporary restraining order. or any shareholder of the insured bank. preliminary injunction or preliminary mandatory injunction against the Corporation for any action under this Act. This prohibition shall apply in all cases. No court.000 but not more than P2. the insured bank. The party applying for the issuance of a restraining order or injunction shall file a bond in an amount to be fixed by the Supreme Court. Prohibition against splitting of deposits 529 The penalty of prision mayor or a fine of not less than P50. (As added by R. disputes or controversies instituted by a private party.A. 9302. etc.000 or both shall be imposed upon any director. xxx iii. which bond shall accrue in favor of the Corporation if the court should finally decide that the applicant was not entitled to the relief sought.000. June 1. except the Court of Appeals. such that unless a temporary restraining order is issued. as amended by R.A.ii. 2009) 530 Sec. The Supreme Court may issue a restraining order or injunction when the matter is of extreme urgency involving a constitutional issue. 9576. Prohibition against issuances of TROs.
A trademark is any visible sign capable of distinguishing the goods533 or services534 of an enterprise and shall include a stamped or marked container of goods.J.535 c. In relation thereto. Industrial Designs. et al. CA. Differences between copyrights. Protection of Undisclosed Information 532 b. refer to any technical solution of a problem in any field of human activity which is new. Layout-Designs531 of Integrated Circuits.. the scope of a copyright is confined to literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation. a trade name means the name or designation identifying or distinguishing an enterprise. Intellectual Property Rights in general a. or rendering of a service including management contracts. 5. on the other hand. copyright and patents are different intellectual property rights that cannot be interchanged with one another. 6. Patents. and 7. Intellectual Property Law 1. Patentable inventions. Geographic Indications. 531 532 Topographies Sec. Intellectual property rights The term "intellectual property rights" consists of: 1.1 533 trademark 534 service mark 535 Kho v. 3. including licensing of computer software except computer software developed for mass market. trademarks and patent Trademark. 379 SCRA 410  162 . Copyright and Related Rights. Trademarks and Service Marks. 4. Technology transfer arrangements Refers to contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product. the application of a process. Meanwhile. 2. assignment or licensing of all forms of intellectual property rights. 4. involves an inventive step and is industrially applicable. and the transfer.
the right to the patent shall belong to the person who filed an application for such invention. Schemes. to the applicant who has the earliest filing date or. and programs for computers. 2. 21 Provisions under this subsection shall not preclude Congress to consider the enactment of a law providing sui generis protection of plant varieties and animal breeds and a system of community intellectual rights protection. or process.538 c. Plant varieties or animal breeds or essentially biological process for the production of plants or animals. Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body. or may relate to. the earliest priority date. 4. 537 5. his heirs. playing games or doing business. 539 (2) First-to-file rule If two (2) or more persons have made the invention separately and independently of each other. or an improvement of any of the foregoing. This provision shall not apply to products and composition for use in any of these methods.2. scientific theories and mathematical methods. 536 b. Patents a. 538 Sec. 29 163 . Patentable inventions Any technical solution of a problem in any field of human activity which is new. It may be. the right to a patent shall belong to them jointly. 22 539 Sec. Non-patentable inventions The following shall be excluded from patent protection: 1. Anything which is contrary to public order or morality. or where two or more applications are filed for the same invention. 3. a product. 540 536 537 Sec. rules and methods of performing mental acts. 28 540 Sec. and 6. or assigns. Discoveries. When two (2) or more persons have jointly made an invention. Aesthetic creations. involves an inventive step and is industrially applicable shall be patentable. Ownership of a patent (1) Right to a patent Belongs to the inventor. This provision shall not apply to micro-organisms and non-biological and microbiological processes.
or law affords similar privileges to Filipino citizens. if the inventive activity is not a part of his regular duties even if the employee uses the time. 30 Sec. unless otherwise provided in the contract. convention. and (c) a certified copy of the foreign application together with an English translation is filed within six (6) months from the date of filing in the Philippines. shall be considered as filed as of the date of filing the foreign application. 31 543 Sec. (b) it is filed within twelve (12) months from the date the earliest foreign application was filed.(3) Inventions created pursuant to a Commission The person who commissions the work shall own the patent. (b) That the patent does not disclose the invention in a manner sufficiently clear and complete for it to be carried out by any person skilled in the art. 542 d. Provided: (a) the local application expressly claims priority.541 (4) Right of priority An application for patent filed by any person who has previously applied for the same invention in another country which by treaty. Where the grounds for cancellation relate to some of the claims or parts of the claim. the patent shall belong to: (a) The employee. In case the employee made the invention in the course of his employment contract. Grounds for cancellation of a patent: (a) That what is claimed as the invention is not new or patentable. facilities and materials of the employer. if the invention is the result of the performance of his regularlyassigned duties. 61 164 . cancellation may be effected to such extent only. unless there is an agreement.543 541 542 Sec. or (c) That the patent is contrary to public order or morality. to the contrary. express or implied. (b) The employer.
(b) Subject matter of a patent is a process To restrain. Remedy of the true and actual inventor Such person may. if one has already been issued. 2. 545 g. and (b) to conclude licensing contracts for the same. Patent owners shall also have the right (a) to assign. or (d) Seek cancellation of the patent. or importing any product obtained directly or indirectly from such process. selling or importing that product. insofar as such use is performed after that product has been so put on the said market. That it does not significantly prejudice the economic interests of the owner of the patent. 544 545 Sec.e. or with his express consent. Using a patented product which has been put on the market in the Philippines by the owner of the product. within three (3) months after the decision has become final: (a) Prosecute the application as his own application in place of the applicant. Rights conferred by a patent (a) Subject matter of a patent is a product To restrain. offering for sale. 71 546 supra 165 . Where the act is done privately and on a non-commercial scale or for a noncommercial purpose: Provided. and from manufacturing. selling or offering for sale. the acts referred to in Section 71546 hereof in the following circumstances: 1. prohibit and prevent any unauthorized person or entity from making. (b) File a new patent application in respect of the same invention. (c) Request that the application be refused. using. 67 Sec. without his authorization. prevent or prohibit any unauthorized person or entity from using the process. or transfer by succession the patent. using.544 f. dealing in. Limitations of patent rights The owner of a patent has no right to prevent third parties from performing.
3. Where the act consists of making or using exclusively for the purpose of experiments that relate to the subject matter of the patented invention; 4. Where the act consists of the preparation for individual cases, in a pharmacy or by a medical professional, of a medicine in accordance with a medical prescription or acts concerning the medicine so prepared; 5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country entering the territory of the Philippines temporarily or accidentally: Provided, That such invention is used exclusively for the needs of the ship, vessel, aircraft, or land vehicle and not used for the manufacturing of anything to be sold within the Philippines. 547 (1) Prior user Notwithstanding Section 72548 hereof, any prior user, who, in good faith was using the invention or has undertaken serious preparations to use the invention in his enterprise or business, before the filing date or priority date of the application on which a patent is granted, shall have the right to continue the use thereof as envisaged in such preparations within the territory where the patent produces its effect. The right of the prior user may only be transferred or assigned together with his enterprise or business, or with that part of his enterprise or business in which the use or preparations for use have been made.549 (2) Use by the government A Government agency or third person authorized by the Government may exploit the invention even without agreement of the patent owner where: (a) the public interest, in particular, national security, nutrition, health or the development of other sectors, as determined by the appropriate agency of the government, so requires; or (b) A judicial or administrative body has determined that the manner of exploitation, by the owner of the patent or his licensee, is anti-competitive. The use by the Government, or third person authorized by the Government shall be subject, mutatis mutandis, to the conditions set forth in Sections 95 to 97550 and 100 to 102.551
Sec. 72 supra 549 Sec. 73 550 Sec. 95. Requirement to Obtain a License on Reasonable Commercial Terms. 95.1. The license will only be granted after the petitioner has made efforts to obtain authorization from the patent owner on reasonable commercial terms and conditions but such efforts have not been successful within a reasonable period of time. 95.2. The requirement under Subsection 95.1 shall not apply in the following cases:
(a) Where the petition for compulsory license seeks to remedy a practice determined after judicial or administrative process to be anti-competitive; (b) In situations of national emergency or other circumstances of extreme urgency; (c) In cases of public non-commercial use. 95.3. In situations of national emergency or other circumstances of extreme urgency, the right holder shall be notified as soon as reasonably practicable. 95.4. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly. Sec. 96. Compulsory Licensing of Patents Involving Semi-Conductor Technology. - In the case of compulsory licensing of patents involving semi-conductor technology, the license may only be granted in case of public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive. Sec. 97. Compulsory License Based on Interdependence of Patents. - If the invention protected by a patent, hereafter referred to as the "second patent," within the country cannot be worked without infringing another patent, hereafter referred to as the "first patent," granted on a prior application or benefiting from an earlier priority, a compulsory license may be granted to the owner of the second patent to the extent necessary for the working of his invention, subject to the following conditions: 97.1. The invention claimed in the second patent involves an important technical advance of considerable economic significance in relation to the first patent; 97.2. The owner of the first patent shall be entitled to a cross-license on reasonable terms to use the invention claimed in the second patent; 97.3. The use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent; and 97.4. The terms and conditions of Sections 95, 96 and 98 to 100 of this Act. 551 Sec. 100. Terms and Conditions of Compulsory License. - The basic terms and conditions including the rate of royalties of a compulsory license shall be fixed by the Director of Legal Affairs subject to the following conditions: 100.1. The scope and duration of such license shall be limited to the purpose for which it was authorized; 100.2. The license shall be non-exclusive; 100.3. The license shall be non-assignable, except with that part of the enterprise or business with which the invention is being exploited; 100.4. Use of the subject matter of the license shall be devoted predominantly for the supply of the Philippine market: Provided, That this limitation shall not apply where the grant of the license is based on the ground that the patentee’s manner of exploiting the patent is determined by judicial or administrative process, to be anti-competitive. 100.5. The license may be terminated upon proper showing that circumstances which led to its grant have ceased to exist and are unlikely to recur: Provided, That adequate protection shall be afforded to the legitimate interest of the licensee; and 100.6. The patentee shall be paid adequate remuneration taking into account the economic value of the grant or authorization, except that in cases where the license was granted to remedy a practice which was determined after judicial or administrative process, to be anti-competitive, the need to correct the anti-competitive practice may be taken into account in fixing the amount of remuneration. Sec. 101. Amendment, Cancellation, Surrender of Compulsory License. 101.1. Upon the request of the patentee or the licensee, the Director of Legal Affairs may amend the decision granting the compulsory license, upon proper showing of new facts or circumstances justifying such amendment. 101.2. Upon the request of the patentee, the said Director may cancel the compulsory license: (a) If the ground for the grant of the compulsory license no longer exists and is unlikely to recur;
h. Patent infringement 552 1) Tests in patent infringement (a) Literal infringement Resort must be had in the first instance to the words of the claim. To determine whether the particular item falls within the literal meaning of the patent claims, the court must juxtapose the claims of the patent and the accused product within the overall context of the claims and specifications, to determine whether there is exact identity of all material elements.553 (b) Doctrine of equivalents Under this doctrine, an infringement also occurs when a device appropriates a prior invention by incorporating its innovative concept and, albeit with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result.554 (2) Civil and criminal action Civil Action The making, using, offering for sale, selling, or importing a patented product or a product obtained directly or indirectly from a patented process, or the use of a patented process without the authorization of the Criminal Action If infringement is repeated by the infringer or by anyone in connivance with him after finality of the judgment of the court against the infringer, the offenders shall, without prejudice to the institution of a civil action
(b) If the licensee has neither begun to supply the domestic market nor made serious preparation therefor; (c) If the licensee has not complied with the prescribed terms of the license; 101.3. The licensee may surrender the license by a written declaration submitted to the Office. 101.4. The said Director shall cause the amendment, surrender, or cancellation in the Register, notify the patentee, and/or the licensee, and cause notice thereof to be published in the IPO Gazette. Sec. 102. Licensee’s Exemption from Liability. - Any person who works a patented product, substance and/or process under a license granted under this Chapter, shall be free from any liability for infringement: Provided however, That in the case of voluntary licensing, no collusion with the licensor is proven. This is without prejudice to the right of the rightful owner of the patent to recover from the licensor whatever he may have received as royalties under the license. 552 Only the patentee or his successor-in-interest may file an action for infringement. Moreover, there can be no infringement of a patent until a patent has been issued, since whatever right one has to the invention covered by the patent arises alone from the grant of patent. In short, a person or entity who has not been granted letter of patent over an invention and has not acquired any rights or title thereto either as an assignee or a licensee, has no cause of action for infringement because the right to maintain an infringement suit depends upon the existence of a patent. (Creser Precision Systems, Inc. v. CA, et al., 286 SCRA 13 ) 553 Godines v. CA, 226 SCRA 576  554 Ibid.
patentee constitutes patent infringement. Any patentee, or anyone possessing any right, title or interest in and to the patented invention, whose rights have been infringed, may bring a civil action before a court of competent jurisdiction, to recover from the infringer such damages sustained thereby, plus attorney’s fees and other expenses of litigation, and to secure an injunction for the protection of his rights. If the damages are inadequate or cannot be readily ascertained with reasonable certainty, the court may award by way of damages a sum equivalent to reasonable royalty. The court may, according to the circumstances of the case, award damages in a sum above the amount found as actual damages sustained: Provided, That the award does not exceed three (3) times the amount of such actual damages. The court may, in its discretion, order that the infringing goods, materials and implements predominantly used in the infringement be disposed of outside the channels of commerce or destroyed, without compensation. Anyone who actively induces the infringement of a patent or provides the infringer with a component of a patented product or of a product produced because of a patented process knowing it to be especially adopted for infringing the patented invention and not suitable for substantial non-infringing use shall be liable as a contributory infringer and shall be jointly and severally liable with the infringer.555
for damages, be criminally liable therefor and, upon conviction, shall suffer imprisonment for the period of not less than six (6) months but not more than three (3) years and/or a fine of not less than One hundred thousand pesos (P100,000) but not more than Three hundred thousand pesos (P300,000), at the discretion of the court. The criminal action herein provided shall prescribe in three (3) years from date of the commission of the crime.556
Sec. 76 Sec. 84
In the event the technology transfer arrangement shall provide for arbitration. Licensing (1) Voluntary The following provisions shall be included in voluntary license contracts: a. on any of the grounds on which a petition of cancellation can be brought under Section 61558 hereof. petition to cancel the patent or any claim thereof. upon payment of the required fee. the defendant. or parts of the claim. cancellation may be effected to such extent only. or any claim thereof. on any of the following grounds: (a) That what is claimed as the invention is not new or Patentable. 88 170 . Where the grounds for cancellation relate to some of the claims or parts of the claim. 79 Any interested person may. or (c) That the patent is contrary to public order or morality.559 i. in addition to other defenses available to him. b.557 (4) Defenses in action for infringement In an action for infringement. Continued access to improvements in techniques and processes related to the technology shall be made available during the period of the technology transfer arrangement. the Procedure of Arbitration of the Arbitration Law of the Philippines or the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) or the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) shall apply and the venue of arbitration shall be the Philippines or any neutral country. the venue shall be the proper court in the place where the licensee has its principal office. 559 Sec.560 557 558 Sec.(3) Prescriptive period No damages can be recovered for acts of infringement committed more than four (4) years before the institution of the action for infringement. c. may show the invalidity of the patent. and d. The Philippine taxes on all payments relating to the technology transfer arrangement shall be borne by the licensor. That the laws of the Philippines shall govern the interpretation of the same and in the event of litigation. 81 560 Sec. (b) That the patent does not disclose the invention in a manner sufficiently clear and complete for it to be carried out by any person skilled in the art.
" granted on a prior application or benefiting from an earlier priority. in which event the parties become joint owners thereof. 97 Sec. referred to as the "second patent. 104 563 Sec.562 The assignment must be in writing. An assignment may be limited to a specified territory. The use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent. referred to as the "first patent. subject to the following conditions: 1. id. and 4. 105. or of an undivided share of the entire patent and invention. acknowledged before a notary public or other officer authorized to administer oath or perform notarial acts. a compulsory license may be granted to the owner of the second patent to the extent necessary for the working of his invention. The invention claimed in the second patent involves an important technical advance of considerable economic significance in relation to the first patent.(2) Compulsory If the invention protected by a patent. The owner of the first patent shall be entitled to a cross-license on reasonable terms to use the invention claimed in the second patent. 561 j. Assignment and transmission of rights An assignment may be of the entire right. 2. 96 and 98 to 100 of this Act. 563 561 562 Sec. Sec. and certified under the hand and official seal of the notary or such other officer. 171 . 3. The terms and conditions of Sections 95. title or interest in and to the patent and the invention covered thereby." within the country cannot be worked without infringing another patent. 52.
living or dead. 40 567 Sec. Any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic. Acquisition of ownership of trade name Prior use is the basis for ownership of trade names. or national symbols. d.3. institutions. 121 568 Sec. or matter which may disparage or falsely suggest a connection with persons.566 The name or designation identifying or distinguishing an enterprise.567 b. 122 172 . deceptive or scandalous matter. Acquisition of ownership of mark The rights in a mark shall be acquired through registration made validly in accordance with the provisions of this law. Definitions of marks. Trademarks a. including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark. collective marks. Non-registrable marks A mark cannot be registered if it: (a) Consists of immoral. beliefs.568 c. 564 565 Collective mark Trade name trademark service mark 566 Sec. trade names Mark Any visible sign capable of distinguishing the goods564 or services565 of an enterprise and shall include a stamped or marked container of goods. or bring them into contempt or disrepute.
quantity. or portrait of a deceased President of the Philippines. (d) Is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date. or of any foreign nation. or constitutes a translation of a mark considered well-known in accordance with the preceding paragraph. during the life of his widow. or 3) If it nearly resembles such a mark as to be likely to deceive or cause confusion. quality. portrait or signature identifying a particular living individual except by his written consent. intended purpose. characteristics or geographical origin of the goods or services. (g) Is likely to mislead the public. including knowledge in the Philippines which has been obtained as a result of the promotion of the mark. as being already the mark of a person other than the applicant for registration. signature. or the name. or confusingly similar to. (c) Consists of a name. Consists exclusively of signs or of indications that may serve in trade to designate the kind. or confusingly similar to. or 2) Closely related goods or services. rather than of the public at large. and the owner of the registered mark: Provided further. (i) Consists exclusively of signs or of indications that have become customary or usual to designate the goods or services in everyday language or in bona fide and established trade practice. in respect of: 1) The same goods or services. whether or not it is registered here. (f) Is identical with. value. or constitutes a translation of a mark which is considered by the competent authority of the Philippines to be wellknown internationally and in the Philippines. if any. (h) Consists exclusively of signs that are generic for the goods or services that they seek to identify.(b) Consists of the flag or coat of arms or other insignia of the Philippines or any of its political subdivisions. That use of the mark in relation to those goods or services would indicate a connection between those goods or services. quality. and used for identical or similar goods or services: Provided. That the interests of the owner of the registered mark are likely to be damaged by such use. account shall be taken of the knowledge of the relevant sector of the public. except by written consent of the widow. geographical 173 (j) . (e) Is identical with. That in determining whether a mark is well-known. or any simulation thereof. particularly as to the nature. which is registered in the Philippines with respect to goods or services which are not similar to those with respect to which registration is applied for: Provided.
571 (2) Holistic test To determine whether a trademark has been infringed. or other characteristics of the goods or services. the value of which may be dissipated as soon as the court assumed to analyze carefully the respective features of the mark. Similarity in size. v. 181 SCRA 410  174 . whether or not it is registered here. rather than of the public at large.2 571 Asia Brewery v.569 e. it is attributable to the marks as a totality. That in determining whether a mark is well-known. If the competing trademark contains the main or essential or dominant features of another. and used for identical or similar goods or services: Provided. not usually to any part of it. and confusion is likely to result. within three (3) years from the filing date of the application. CA. Prior use of mark as a requirement The applicant or the registrant shall file a declaration of actual use of the mark with evidence to that effect. (l) Consists of color alone. Tests to determine confusing similarity between marks (1) Dominancy test Infringement is determined by the test of “dominancy” rather than by differences or variations in the details of one trademark and of another. Well-known marks Identical with. unless defined by a given form. the application shall be refused or the mark shall be removed from the Register by the Director. we must consider the mark as a whole and not as dissected. (k) Consists of shapes that may be necessitated by technical factors or by the nature of the goods themselves or factors that affect their intrinsic value. time or production of the goods or rendering of the services.570 f. 123. 224 SCRA 437  572 Del Monte Corporation. or confusingly similar to. 124. infringement takes place. 569 570 Sec. or (m) Is contrary to public order or morality.origin. account shall be taken of the knowledge of the relevant sector of the public.1 Sec. form and color. as being already the mark of a person other than the applicant for registration. Otherwise. is not conclusive. The court therefore should be guided by its first impression. while relevant. CA and San Miguel.572 g. for the buyer acts quickly and is governed by a casual glance. et al. If the buyer is deceived. or constitutes a translation of a mark which is considered by the competent authority of the Philippines to be well-known internationally and in the Philippines.
That the interests of the owner of the registered mark are likely to be damaged by such use. provided that use of the mark in relation to those goods or services would indicate a connection between those goods and services and the owner of the registered mark.573 Identical with. provided further that the interest of the owner of the registered mark are likely to be damaged by such use. or any such use of a similar trade name or mark. Rights conferred by registration The owner of a registered mark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs or containers for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion shall be presumed. etc. or confusingly similar to.(f) 575 supra 576 Sec. whether as a trade name or a mark or collective mark. which is registered in the Philippines with respect to goods or services which are not similar to those with respect to which registration is applied for: Provided. 147.574 The exclusive right of the owner of a well-known mark defined in Subsection 123. That use of that mark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered mark: Provided.578 573 574 Sec. 123. That the interests of the owner of the registered mark are likely to be damaged by such use.2 577 Sec.577 i. 165 (b) 175 . 147 578 Sec. Use by third parties of names..including knowledge in the Philippines which has been obtained as a result of the promotion of the mark.576 h.1(e)575 which is registered in the Philippines. further. shall extend to goods and services which are not similar to those in respect of which the mark is registered: Provided. The exclusive right of the owner of a well-known mark which is registered in the Philippines shall extend to goods and services which are similar to those in respect of which the mark is registered.1(e) Id. shall be deemed unlawful. similar to registered mark Any subsequent use of the trade name by a third party. and the owner of the registered mark: Provided further. That use of the mark in relation to those goods or services would indicate a connection between those goods or services. or constitutes a translation of a mark considered well-known in accordance with the preceding paragraph. likely to mislead the public.
j. Infringement and remedies Any person who shall, without the consent of the owner of the registered mark: 1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; 579 or 2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive, shall be liable in a civil action for infringement by the registrant for the remedies hereinafter set forth: Provided, That the infringement takes place at the moment any of the acts stated in Subsection 155.1.580 or this subsection are committed regardless of whether there is actual sale of goods or services using the infringing material. 581 (1) Trademark infringement To establish trademark infringement, the following elements must be shown:  the validity of the mark;  the plaintiff’s ownership of the mark; and  the use of the mark or its colorable imitation by the alleged infringer results in “likelihood of confusion.” Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement. Two types of confusion arise from the use of similar or colorable imitation marks, namely, confusion of goods582 and confusion of business. 583 While there is confusion of goods when the products are competing, confusion of business exists when the products are non-competing but related enough to produce confusion of affiliation.584 A crucial issue in any trademark infringement case is the likelihood of confusion, mistake or deceit as to the identity, source or origin of the goods or identity of the business as a consequence of using a certain mark. Likelihood of confusion is admittedly a relative term, to be determined rigidly according to the particular585 circumstances of each case.
Sec. 155.1 supra 581 Id., (2) 582 product confusion 583 source or origin confusion 584 McDonald’s Corporation v. L.C. Big Mak Burger, Inc., et al., 437 SCRA 10  585 and sometimes peculiar
In determining likelihood of confusion, the court must consider: [a] the resemblance between the trademarks; [b] the similarity of the goods to which the trademarks are attached; [c] the likely effect on the purchaser; and [d] the registrant’s express or implied consent and other fair and equitable considerations.586 (2) Damages The owner of a registered mark may recover damages from any person who infringes his rights, and the measure of the damages suffered shall be either the reasonable profit which the complaining party would have made, had the defendant not infringed his rights, or the profit which the defendant actually made out of the infringement, or in the event such measure of damages cannot be readily ascertained with reasonable certainty, then the court may award as damages a reasonable percentage based upon the amount of gross sales of the defendant or the value of the services in connection with which the mark or trade name was used in the infringement of the rights of the complaining party.587 (3) Requirement of Notice In any suit for infringement, the owner of the registered mark shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such imitation is likely to cause confusion, or to cause mistake, or to deceive. Such knowledge is presumed if the registrant gives notice that his mark is registered by displaying with the mark the words "Registered Mark" or the letter R within a circle or if the defendant had otherwise actual notice of the registration.588
Mighty Corporation v. E. & J. Gallo Winery, 434 SCRA 473  Sec. 156.1. 588 Sec. 158
k. Unfair competition589 A person who has identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods, business or services so identified, which will be protected in the same manner as other property rights.590 Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor.591 The following shall be deemed guilty of unfair competition: (a) Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;
Del Monte Corporation, et al. v. CA, 181 SCRA 410  The following are the distinctions between infringement of trademark and unfair competition: 1. Infringement of trademark is the unauthorized use of a trademark, whereas unfair competition is the passing off of one’s goods as those of another. 2. In infringement of trademark, fraudulent intent is unnecessary, whereas in unfair competition fraudulent intent is essential. 3. In infringement of trademark the prior registration of the trademark is a prerequisite to the action, whereas in unfair competition registration is not necessary. The law on unfair competition is broader and more inclusive than the law on trademark infringement. The latter is more limited but it recognizes a more exclusive right derived from the trademark adoption and registration by the person whose goods or business is first associated with it. Hence, even if one fails to establish his exclusive property right to a trademark, he may still obtain relief on the ground of his competitor’s unfairness or fraud. Conduct constitutes unfair competition if the effect is to pass off on the public the goods of one man as the goods of another (Mighty Corporation v. E. & J. Gallo Winery, 434 SCRA 473 ) The elements of an action for unfair competition are:  confusing similarity in the general appearance of the goods, and  intent to deceive the public and defraud a competitor. The confusing similarity may or may not result from similarity in the marks, but may result from other external factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the similarity in appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be shown. (McDonald’s Corporation v. L.C. Big Mak Burger, Inc., et al., 437 SCRA 10 ) 590 Sec. 168.1 591 Id., 2
(b) Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of another who has identified such services in the mind of the public; or (c) Any person who shall make any false statement in the course of trade or who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another. 592 l. Trade names or business names A name or designation may not be used as a trade name if by its nature or the use to which such name or designation may be put, it is contrary to public order or morals and if, in particular, it is liable to deceive trade circles or the public as to the nature of the enterprise identified by that name. 593 Notwithstanding any laws or regulations providing for any obligation to register trade names, such names shall be protected, even prior to or without registration, against any unlawful act committed by third parties.594 m. Collective marks (a) An application for registration of a collective mark shall designate the mark as a collective mark and shall be accompanied by a copy of the agreement, if any, governing the use of the collective mark. (b) The registered owner of a collective mark shall notify the Director of any changes made in respect of the agreement referred to in paragraph (a). In addition to the grounds provided in Section 149, 595 the Court shall cancel the registration of a collective mark if the person requesting the cancellation proves that only the
Id., 3 Sec. 165.1 594 Id., 2 (a) 595 Assignment and Transfer of Application and Registration. An application for registration of a mark, or its registration, may be assigned or transferred with or without the transfer of the business using the mark. (n) Such assignment or transfer shall, however, be null and void if it is liable to mislead the public, particularly as regards the nature, source, manufacturing process, characteristics, or suitability for their purpose, of the goods or services to which the mark is applied. The assignment of the application for registration of a mark, or of its registration, shall be in writing and require the signatures of the contracting parties. Transfers by mergers or other forms of succession may be made by any document supporting such transfer. Assignments and transfers of registration of marks shall be recorded at the Office on payment of the prescribed fee; assignment and transfers of applications for registration shall, on payment of the same fee, be provisionally recorded, and the mark, when registered, shall be in the name of the assignee or transferee. Assignments and transfers shall have no effect against third parties until they are recorded at the Office.
599 infra 600 Sec. 170 598 Sec. even if they are expressed. 167 Sec. principle.registered owner uses the mark. as well as of their content.600 The copyright is distinct from the property in the material object subject to it. Basic principles Works are protected by the sole fact of their creation. irrespective of their mode or form of expression. false designation of origin. Criminal penalties for infringement. Copyrights a. The registration of a collective mark. the transfer or assignment of the copyright shall not itself constitute a transfer of the material object.596 n. to any idea. illustrated or embodied in a work. system method or operation. concept. or that he uses or permits its use in contravention of the agreements referred to in Subsection 166. 175 601 Sec. shall be imposed on any person who is found guilty of committing any of the acts mentioned. 181 180 . discovery or mere data as such.599 no protection shall extend. Nor shall a transfer or assignment of the sole copy or of one or several copies of the work imply transfer or assignment of the copyright.597 4. under this law.601 596 597 Sec. explained. and false description or misrepresentation A criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from Fifty thousand pesos (P50.000) to Two hundred thousand pesos(P200.2 Protection extends only to the expression of an idea. not the idea itself. procedure. or an application therefor shall not be the subject of a license contract.2 or that he uses or permits its use in a manner liable to deceive trade circles or the public as to the origin or any other common characteristics of the goods or services concerned. unfair competition.000). Consequently. 172. 598 Notwithstanding the provisions of Sections 172 and 173. quality and purpose.
architecture. Pictorial illustrations and advertisements. and other works of applied art. lithography or other works of art. sermons. sculpture. maps. Copyrightable works (1) Original works Literary and artistic works. addresses. topography. Dramatic or dramatico-musical compositions. sketches. Works of drawing. Lectures. whether or not reduced in writing or other material form. scientific and artistic works. articles and other writings. pamphlets. charts and three-dimensional works relative to geography. hereinafter referred to as "works". Computer programs. engraving. Drawings or plastic works of a scientific or technical character. plans. with or without words. choreographic works or entertainment in dumb shows. Photographic works including works produced by a process analogous to photography.1. Original ornamental designs or models for articles of manufacture. painting. scholarly. 172.b. dissertations prepared for oral delivery. models or designs for works of art. are original intellectual creations in the literary and artistic domain protected from the moment of their creation and shall include in particular: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Books. Musical compositions. Letters. whether or not registrable as an industrial design. lantern slides. architecture or science.602 (m) (n) (o) 602 Sec. and Other literary. Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings. Illustrations. Periodicals and newspapers. 181 .
impose as a condition the payment of royalties. or be construed to imply any right to such use of the original works. and dissertations mentioned in the preceding paragraphs shall have the exclusive right of making a collection of his works. rules and regulations. read or rendered in courts of justice. lectures.603 The works referred to in paragraphs (a) and (b) of Subsection 173. and speeches. prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. nor shall publication or republication by the government in a public document of any work in which copy right is subsisting be taken to cause any abridgment or annulment of the copyright or to authorize any use or appropriation of such work without the consent of the copyright owners. and Collections of literary.606 The Author of speeches. translations.1. addresses. and other alterations of literary or artistic works.. addresses. sermons. Such agency or office may. and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents.605 c. bequest or otherwise. the Government is not precluded from receiving and holding copyrights transferred to it by assignment. supra 605 Sec. and dissertations.608 603 604 Sec.. among other things. No prior approval or conditions shall be required for the use of any purpose of statutes. adaptations. arrangements. 606 Sec. That such new work shall not affect the force of any subsisting copyright upon the original works employed or any part thereof. However. before administrative agencies. 173. 3 182 .1 604 shall be protected as a new works: Provided however. in deliberative assemblies and in meetings of public character. 2 608 Id.2. 173. 176. pronounced. sermons. or to secure or extend copyright in such original works. abridgments. lectures. 607 Notwithstanding the foregoing provisions.(2) Derivative works (a) (b) Dramatizations.1 607 id. Non-copyrightable works No copyright shall subsist in any work of the Government of the Philippines. scholarly or artistic works.
Rules on ownership of copyright 1. irrespective of the ownership of the original or the copy which is the subject of the rental. If. 3. In the case of work created by an author during and in the course of his employment. a compilation of data and other materials or a musical work in graphic form. the copyright shall belong to: (a) The employee. Reproduction of the work or substantial portion of the work. 3. Public display of the original or a copy of the work.d. The first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership. a work of joint authorship consists of parts that can be used separately and the author of each part can be identified. (n) 5. Rights of copyright owner Subject to the provisions of Chapter VIII. adaptation. Dramatization. 609 610 Limitations on Copyright Sec. and 7. Other communication to the public of the work610 e. (b) The employer. authorize or prevent the following acts: 1. 4. the author of each part shall be the original owner of the copyright in the part that he has created. if the work is the result of the performance of his regularlyassigned duties. 6. translation. express or implied. unless there is an agreement. however. facilities and materials of the employer. 609 copyright or economic rights shall consist of the exclusive right to carry out. copyright shall belong to the author of the work. abridgment. a work embodied in a sound recording. a computer program. In the case of original literary and artistic works. 2. their rights shall be governed by the rules on co-ownership. In the case of works of joint authorship. arrangement or other transformation of the work. 2. Public performance of the work. to the contrary. Rental of the original or a copy of an audiovisual or cinematographic work. if the creation of the object of copyright is not a part of his regular duties even if the employee uses the time. the co-authors shall be the original owners of the copyright and in the absence of agreement. 177 183 .
if done privately and free of charge or if made strictly for a charitable or religious institution or society. but the copyright thereto shall remain with the creator. Limitations on copyright Notwithstanding the provisions of Chapter V. but they cannot be published or disseminated without the consent of the writer or his heirs. except for the right to collect performing license fees for the performance of musical compositions. lectures. That the source is clearly indicated. In the case of a work-commissioned by a person other than an employer of the author and who pays for it and the work is made in pursuance of the commission. are mentioned. In the case of audiovisual work. which are incorporated into the work. social.4. In respect of letters. That the source and the name of the author. including quotations from newspaper articles and periodicals in the form of press summaries: Provided. The reproduction and communication to the public of literary. the producers shall exercise the copyright to an extent required for the exhibition of the work in any manner. economic.612 f. 5. 178 613 Copyright or Economic Rights 184 . The making of quotations from a published work if they are compatible with fair use and only to the extent justified for the purpose. unless there is a written stipulation to the contrary. the person who so commissioned the work shall have ownership of work. the copyright shall belong to the producer. (b) (c) (d) 611 Letters and other private communications in writing are owned by the person to whom they are addressed and delivered. cinematography or broadcasting to the extent necessary for the purpose. and 6. However. 612 Sec. if appearing on the work. and the author of the work so adapted. the author of the scenario. addresses and other works of the same nature. once it has been lawfully made accessible to the public. scientific or artistic works as part of reports of current events by means of photography. scientific or religious topic.613 the following acts shall not constitute infringement of copyright: (a) the recitation or performance of a work. which are delivered in public if such use is for information purposes and has not been expressly reserved: Provided. subject to contrary or other stipulations among the creators. the copyright shall belong to the writer subject to the provisions of Article 723611 of the Civil Code. the film director. with or without words. The reproduction or communication to the public by mass media of articles on current political. However. the court may authorize their publication or dissemination if the public good or the interest of justice so requires. the composer of the music.
614 614 Sec. The making of ephemeral recordings by a broadcasting organization by means of its own facilities and for use in its own broadcast. whose aim is not profit making. That such recording must be deleted within a reasonable period after they were first broadcast: Provided. scientific or professional institutions where such use is in the public interest and is compatible with fair use. slide. that original or the copy displayed has been sold. or educational institutions of a work included in a broadcast for the use of such schools. universities or educational institutions: Provided. by a club or institution for charitable or educational purpose only. universities. 184 185 . further. or. The public performance or the communication to the public of a work. television image or otherwise on screen or by means of any other device or process: Provided. are mentioned. given away or otherwise transferred to another person by the author or his successor in title. Public display of the original or a copy of the work not made by means of a film. and Any use made of a work for the purpose of any judicial proceedings or for the giving of professional advice by a legal practitioner. if such inclusion is made by way of illustration for teaching purposes and is compatible with fair use: Provided. The use made of a work by or under the direction or control of the Government. subject to such other limitations as may be provided in the Regulations. sound recording or film. That either the work has been published. broadcast. (f) (g) (h) (i) (j) (k) The provisions of this section shall be interpreted in such a way as to allow the work to be used in a manner which does not conflict with the normal exploitation of the work and does not unreasonably prejudice the right holder's legitimate interest. by the National Library or by educational. That the source and of the name of the author. if appearing in the work. That such recording may not be made from audiovisual works which are part of the general cinema repertoire of feature films except for brief excerpts of the work. The recording made in schools.(e) The inclusion of a work in a publication. in a place where no admission fee is charged in respect of such public performance or communication. or other communication to the public.
without the consent of the owner of the copyright... the factors to be considered shall include: (a) (b) (c) (d) The purpose and character of the use. The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made upon consideration of all the above factors. news reporting. v. In cases of infringement. For there to be substantial reproduction of a book it does not necessarily require that the entire copyrighted work. The nature of the copyrighted work. 310 SCRA 511  186 . or even a large portion of it. It is no defense that the pirate did not know whether or not he was infringing any copyright. Decompilation. scholarship.(1) Doctrine of fair use The fair use of a copyrighted work for criticism. et al. et al. 185 Habana.”616 615 616 Sec. The copying must produce an “injurious effect. of anything the sole right to do which is conferred by statute on the owner of the copyright. there is an infringement of copyright and to an injurious extent. including whether such use is of a commercial nature or is for non-profit education purposes. The amount and substantiality of the portion used in relation to the copyrighted work as a whole. and The effect of the use upon the potential market for or value of the copyrighted work.615 (2) Copyright infringement Infringement consists in the doing by any person. Robles. comment. In determining whether the use made of a work in any particular case is fair use. The act of lifting from another’s book substantial portions of discussions and examples and the failure to acknowledge the same is an infringement of copyright. the work is appropriated. research. and similar purposes is not an infringement of copyright. and he copied at his peril. he at least knew that what he was copying was not his. which is understood here to be the reproduction of the code and translation of the forms of the computer program to achieve the inter-operability of an independently created computer program with other programs may also constitute fair use. If so much is taken that the value of the original work is substantially diminished. be copied. copying alone is not what is prohibited. teaching including multiple copies for classroom use.
to prevent the entry into the channels of commerce of imported goods that involve an infringement. wise and equitable and the destruction of infringing copies of the work even in the event of acquittal in a criminal case. including the payment of moral and exemplary damages. or. as he may have incurred due to the infringement as well as the profits the infringer may have made due to such infringement. (b) (c) (d) (e) In an infringement action.617 2. or other means for making such infringing copies as the court may order.(a) Remedies 1. the court shall also have the power to order the seizure and impounding of any article which may serve as evidence in the court proceedings. Pay to the copyright proprietor or his assigns or heirs such actual damages. including legal costs and other expenses. Deliver under oath for destruction without any compensation all infringing copies or devices. Civil Action Any person infringing a right protected under this law shall be liable: (a) To an injunction restraining such infringement. such damages which to the court shall appear to be just and shall not be regarded as penalty.000) to One hundred fifty thousand pesos (P150. Such other terms and conditions. Deliver under oath.000) for the first offense. sales invoices and other documents evidencing sales. for impounding during the pendency of the action. 617 618 Sec. which the court may deem proper. as well as all plates. immediately after customs clearance of such goods. in lieu of actual damages and profits. The court may also order the defendant to desist from an infringement. molds. among others. upon such terms and conditions as the court may prescribe. 216 Works Not Protected 187 . and in proving profits the plaintiff shall be required to prove sales only and the defendant shall be required to prove every element of cost which he claims. all articles and their packaging alleged to infringe a copyright and implements for making them. Criminal Action Any person infringing any right secured by provisions of Part IV 618 of this Act or aiding or abetting such infringement shall be guilty of a crime punishable by: (a) Imprisonment of one (1) year to three (3) years plus a fine ranging from Fifty thousand pesos (P50.
(d) In all cases.000) to One million five hundred thousand pesos (P1. subsidiary imprisonment in cases of insolvency.000) for the third and subsequent offenses. the article.000) for the second offense. or by way of trade offering or exposing for sale. (c) Imprisonment of six (6) years and one (1) day to nine (9) years plus a fine ranging from Five hundred thousand pesos (P500. letting for hire.(b) Imprisonment of three (3) years and one (1) day to six (6) years plus a fine ranging from One hundred fifty thousand pesos (P150. Any person who at the time when copyright subsists in a work has in his possession an article which he knows. or hire. In determining the number of years of imprisonment and the amount of fine.000) to Five hundred thousand pesos (P500. (b) Distributing the article for purpose of trade. or ought to know. the court shall consider the value of the infringing materials that the defendant has produced or manufactured and the damage that the copyright owner has suffered by reason of the infringement. or for any other purpose to an extent that will prejudice the rights of the copyright owner in the work. or (c) Trade exhibit of the article in public. 619 619 Sec. to be an infringing copy of the work for the purpose of: (a) Selling.500. 217 188 . shall be guilty of an offense and shall be liable on conviction to imprisonment and fine as above mentioned.
a chattel mortgage leaves the property in the possession of the debtor.”624 Under Sec. 2 624 Sec.. Formal requisites Registration Requirements to Make Chattel Mortgage Binding Against Third Parties Under Sec. the thing in which mortgage consists may be alienated for the payment to the creditor. to Arts. Affidavit of Good Faith – It is an oath wherein the parties “severally swear that the mortgage is made for the purpose of securing the obligations specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud. 2087 623 Art. 5.622 Mortgagor may be a third person. which remains valid as to them. It is not necessary that the principal debtor should always be the mortgagor.623 b. 1484.625 the absence of the affidavit vitiates a mortgage as against third parties without notice. but not as between the parties thereto. and in the absence thereof. 4. Essential requisites (1) constituted to secure the fulfillment of a principal obligation. (2) that the mortgagor be the absolute owner of the thing mortgage. 62  189 . 1485.2085 622 Art. this section lays down the requisites which must be complied with in order to make a chattel mortgage affect third parties for the protection of the creditor. 2140 and 2141 of the Civil Code Art. 621 It is also of the essence that when the principal obligation becomes due. like creditors and subsequent lienholders.626 620 621 Act 1508 in rel. The Chattel Mortgage Law 620 a. that they be legally authorized for the purpose.K. (3) the persons constituting the mortgage have the free disposal of their property. 5 625 supra 626 Lilius v. par. Special Laws 1. Hence. Manila Railroad Co. 2085.
628 located. and 3. Registration. Must also be registered in the Bureau of Customs in Manila631or in the Office of the Collector of Customs in the port of entry 632 627 628 Sec. IAC. If mortgagor resides abroad. Register with the Register of Deeds where the debtor resides. the affidavit of good faith must be subscribed by an authorized officer. 6 Sec. 100 Phil. Fortune Enterprises. Register with the Philippine Coastguard 2. when and where General Rule: The chattel mortgage must be registered with the Register of Deeds where the debtor resides in order to bind third persons. Register with the Register of Deeds where the motor vehicle is located. 472 ) 630 Borlough v. now Land Transportation Office. (Chua Guan v. the failure of the mortgagee to report the mortgage executed in his favor has the effect of making said mortgage ineffective against a purchaser in good faith who registers his purchase in the motor vehicle office.629 (b) Motor Vehicles: 1. Samahang Magsasaka. 2.Where a corporation is a party. 4 Art 2125 of the Civil Code says that a chattel mortgage is binding between the mortgagor and mortgagee even if not registered (Filipinas Marble Corp vs. 142 SCRA 180. 62 Phil.627 c. must be registered in the province where the property is (a) Share of Stock: 1. Must be registered with the Register of Deeds where the debtor resides: and 2. Must also be registered with the Register of Deeds where the corporation has its principal office. Register with the Motor Vehicle Commission. 631 if in Manila 632 if outside Manila 190 . 1986) 629 Registration in the stock and transfer book of the corporation is not necessary.630 (c) Vessels 1. 1063  Otherwise.
633 634 Sec. however. d. He is not entitled to the actual possession and delivery of the property without first paying the mortgaged debt. does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with form prescribed by the Chattel Mortgage Law. it follows that the judgment or attaching creditor who purchased the property at the execution sale could not acquire anything except such right of redemption. Court of Appeals. 73 SCAD 410. and that the same is a just and valid obligation. Rubber & Plastic Corp. Therefore. therefore. and one not entered into for the purpose of fraud – which makes it obvious that the debt referred to in the law is current. and for no other purpose.633 e. Right of junior mortgagee 1. although a promise expressed in the chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon.634 f. This ruling is due to the requirement in the Affidavit of Good Faith which must contain an oath that – “the mortgage is made for the purpose of securing the obligation specified in the conditions thereof. As between the first and second mortgages. 260 SCRA 714  191 . After payment of debt – If the only leviable or attachable interest of a chattel mortgagor in a mortgaged property is his right of redemption. After-acquired property The chattel mortgage shall cover only the property described in the deed and not any other like or substituted property. not an obligation that is yet merely contemplated. v. Before payment of debt – After a chattel mortgage is executed. the security itself. After-incurred obligation A chattel mortgage can only cover obligations existing at the time the mortgage is constituted. the latter can only recover the property from the former by paying him the mortgage debt. 7 Acme Shoe.(d) Motor vehicle which is public utility and loan is not repayable within one (1) year Register with the Land Transportation Franchising and Regulatory Board. 2. there remains in the mortgagor a mere right of redemption and only this right passes to the second mortgagee in case of a second mortgage.
pursuant to Sec.M. that in no case shall the amount payable under Rule 141. Foreclosure procedure 1. 002-01-SC.000. exceed P100. only one filing fee corresponding to such indebtedness shall be collected. 2. after which the records shall be archived. Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness. and Act 1508. 192 . the filing fees collected. the mortgages sought to be foreclosed. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a notary public shall be published in a newspaper of general circulation pursuant to Section I. (d) sign and issue the certificate of sale. shall be filed with the Executive Judge. 1079. 3. No. No certificate of sale shall be issued in favor of the highest bidder until all fees provided for in the aforementioned sections and in Rule 141. No. as amended. the Vice-Executive Judge. it shall be the duty of the Clerk of Court to: (a) receive and docket said application and to stamp thereon the corresponding file number. Section 9(1) as amended by A. (c) examine. Upon receipt of an application for extra-judicial foreclosure of mortgage. in case of real estate mortgage foreclosure. as amended. as amended by Act 4118. through the Clerk of Court who is also Ex-Officio Sheriff. The collecting Clerk of Court shall. as amended. keep the complete records.M. shall have been paid: Provided. subject to the approval of the Executive Judge. Section 7 (c). which certificate shall serve the purpose of having the application with the Clerks of Court of the places where the other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. pursuant to Act 3135. whether the applicant has complied with all the requirements before the public auction is conducted under the direction of the sheriff or a notary public. while awaiting any redemption within a period of one (1) year from date of registration of the certificate of sale with the Register of Deeds concerned. apart from the official receipt of the fees.00. and issue the corresponding official receipt. dated January 2. issue a certificate of payment indicating the amount of indebtedness. as amended by A. (b) collect the filing fees therefor pursuant to Rule 141. Presidential Decree no. Section 9(1). (e) after the certificate of sale has been issued to the highest bidder. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or a notary public. or in his absence. 1977. the real estates and/or chattels mortgaged and their respective locations.g. date and time of filing. Non-compliance therewith shall constitute a violation of Section 6 thereof. 00-2-01-SC. 4 of Act 3135.
raffle applications for extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs. Claim for deficiency (1) General rule Creditor shall always be entitled to collect the deficiency judgment.637 When the proceeds of the sale are insufficient to cover the debts in an extra-judicial foreclosure of chattel mortgage.638 (2) Exception If the property was sold in installments. NO. the Recto Law 640 which is now reflected in Articles 1484-1485 of the Civil Code 641 specific performance 193 . 639 Art. Ignacio. Act 1508 637 Ablaza v.M.639 (3) Article 1484 The Recto law640 provides that in a contract of sale of personal property. Civil Code.642 635 636 A. should the vendee's failure to pay cover two or more installments. Inc. 13.636 i. should the vendee fail to pay. 217 SCRA 32  Prescriptive Period: Ten (10) years under Art. CA. The Executive Judge shall. v. 1151  638 State Investment House. Tomeldan. the vendor may exercise any of the following remedies: (a) Exact fulfillment of the obligation. the mortgagee is entitled to claim the deficiency from the debtor.4. when the condition of the chattel mortgage is broken. Redemption “Redemption” is before the sale. Any agreement to the contrary is void. 1484. 101 SCRA 171 ). (DBP v. the price of which is payable in installments. 103 Phil. The name/s of the bidder/s shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale.635 h. 2001] Sec. 99-10-05-0 [March 1.k. with the assistance of the Clerk of Court. 5. including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the branches.a. the mortgagee can no longer take any action against the purchaser to recover any unpaid balance of the price. a. 1142 of the Civil Code. 641 (b) Cancel the sale.
53 Phil. (Pacific Commercial Co. v. This amendment prevents mortgagees from seizing the mortgaged property. 53 Phil. 380) The principal object of this amendment was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. 101 194 . It is intended merely to regulate the extrajudicial sale and redemption of the property if and when the mortgagee is given a special power or express authority to do so in the deed itself or in a document annexed thereto. 644 Act 3135. Banco de Islas Filipinas v. Barreto. the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation at the time of the foreclosure proceedings. Dela Rama. Banco Nacional v. 584. 72 Phil. whether or not provision for the same is made in the power. The Act will govern the manner in which the sale and redemption shall be effected. Concepcion Hijos. 645 b. should the vendee's failure to pay cover two (2) or more installments. Enriquez. the vendor gets back the object of the sale and retains the installments paid. but he cannot have both. buying it at foreclosure sale for a low price.(c) Foreclose the chattel mortgage on the thing sold. he has a prior lien on the property. He will have no more priority over the mortgaged property. 86. and it becomes final and executory. Coverage Governs sales made under a special power inserted in or attached to any real-estate mortgage. However. The proceeds of the sale will be applied to the satisfaction of the debt. if the mortgagee resorts to an action to collect the debt. In this case. as amended by RA 4118 645 Sec 1 The law covers only real estate mortgages. 24 Phil. he can enforce said judgment by execution. With this remedy. if one has been constituted. In case of a deficiency. he shall have no further action against the purchaser to recover any unpaid balance of the price. Remedies available to mortgagee upon default of the mortgagor The mortgagee has a choice of one (1) of two (2) remedies. The mortgagee may (i) foreclose the mortgage or (ii) file an ordinary action to collect the debt. not cumulative. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. Any agreement to the contract is void. If the judgment in the action to collect is favorable to him.646 On the other hand. this is not available in the absence of stipulation in the contract 643 These remedies are alternative. which is made as security for the payment of money or the fulfillment of any other obligation. and then bringing the suit against the mortgagor for a deficiency judgment. When the mortgagee chooses the foreclosure of the mortgage as a remedy. he enforces his lien by the sale on foreclosure of the mortgaged property. Real Estate Mortgage Law 644 a. he thereby waives his mortgage lien.643 2. He can even levy execution on 642 This is not the same as rescission because here. 646 Soriano v.
650 (2) Where to sell Province where the property is situated. such sale shall be made in said place (i. P-06-2135. Paguyo v. but he will not have priority over the latter and there may be other creditors who have better lien on the properties of the mortgagor. 2008. 7-2002. 649 The authority to sell is not extinguished by the death of the mortgagor (or mortgagee) 650 Sec.651 (3) Posting requirement Notice of the sale is posted in at least three (3) public places of the municipality or city where the property is situated652 for not less than twenty (20) days and published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the municipality or city. 195 . Gatbunton.M.e. If venue is subject to stipulation. May 25. ibid.653 647 648 Caltex Phils. as amended by the Resolutions dated January 30.the same mortgaged property. A. IAC. 425 Phil. the place so stipulated) or in the municipal building of the municipality in which the property or part thereof is situated. 161. 3135. the Clerk of Court as ExOficio Sheriff is precluded from acting on the application for extrajudicial foreclosure. Need for special power of attorney Under Section 1 of Act No. 360-361 (2002). 99-10-05-0 (re: Procedure in extra-judicial foreclosure of mortgage). Guidelines for the enforcement of Supreme Court Resolution of December 14. (ibid. 648 d. 2001 and August 7.A. April 30. 3. 3135. August 25. 2001 651 Sec. RTJ-08-2109. as amended Sale cannot be made legally outside of the province in which the property sold is situated. vs. Assessor’s Office and Register of Deeds 653 Sec. 356. Magat. 2007.649 e. 647 c.M. Authority to foreclose extrajudicially A mortgage may be foreclosed extrajudicially where there is inserted in the contract a clause giving the mortgagee the power upon default of the debtor. Casano v. no. who is also the Ex-Officio Sheriff. No. a special power of attorney must be inserted in or attached to any Real-Estate Mortgage. 523 SCRA 156. Pardo. 1. Procedure (1) Where to file All applications shall be filed with the Executive Judge through the Clerk of Court. 1989 Office of the Court Administrator v. Circular No. 2. Posting of notice on mortgaged property not required. 1999 in A. to foreclose the mortgage by an extrajudicial sale of the mortgaged property. R..) 652 Sheriff’s Office. Without proof of petitioner's special authority to foreclose.
The newspaper need not have the largest circulation so long as it is of general circulation (Perez vs. Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale.658 f.657 (c) Personal notice to the mortgagor when and when not needed Unless otherwise stipulated by the parties to the mortgage contract. 2009 656 under SC Circular 7-2002 General Rule: Personal notice to the mortgagor is not generally required. However.(4) Publication requirement (a) Sufficiency of newspaper publication Notice shall also be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation654 in the municipality or city where the property is located. Possession by purchaser of foreclosed property Upon failure of the debtor to redeem the property within one (1) year after the date of the registration of the certificate of sale. Nepomuceno. the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. Another publication is required in case the auction sale is rescheduled. Perez (2005)) 655 Metrobank v. and that it is published at regular intervals. 657 DBP vs. trade. 2002) 654 The newspaper need not have the largest circulation so long as it is of general circulation. it is enough that it is published for the dissemination of local news and general information. The last paragraph of the prescribed notice of sale656 allows the holding of a rescheduled auction sale without reposting or republication of the notice. To be a newspaper of general circulation. winning bidder becomes the absolute owner. 394 SCRA 405. The newspaper must not be devoted to the interests or entertainment of a particular class. Peñafiel. A substantial error or omission in a notice of sale will render the notice insufficient and vitiate the sale. No. race or religious denomination. the debtormortgagor need not be personally served a copy of the notice of the extra. calling. The absence of this information in the prior notice of sale will render the rescheduled auction sale void for lack of reposting or republication. it shall be held on ___________. that it has a bona fide subscription list of paying subscribers. profession. the lack of personal notice to the mortgagor is not a ground to set aside a foreclosure sale. Emerald Resorts Hotel 658 SC Circular 7-2002 196 . 173976 Feb.R. Exception: Unless required in the mortgage contract. G.judicial foreclosure.______ without further notice.655 (b) Need for republication in case of postponement Republication is necessary for the validity of a postponed extrajudicial foreclosure sale. (PNB v. 27. and the absence of such republication invalidates the foreclosure sale. In the event the public auction should not take place on the said date.
8 This may be done in the proceedings in which possession was requested. RoC The redemptioner should make an actual tender in good faith of the full amount of the purchase price (Hi-Yield Realty vs. the debtor may petition that the sale be set aside on the ground that the mortgage was not violated or the sale was not made in accordance with the provisions of Act 3135. Redemption within 1 year from registration of sale. Redemption Right of Redemption is the right of the mortgagor to redeem the mortgage property within a certain period660 after it was sold for the satisfaction of the mortgage debt.663 659 Sec. b. 661 (1) Who may redeem a. Any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold662 (2) Amount of Redemption price a. The debtor's successors-in-interest. Sum paid on last redemption if redemptioner. 2. Written notice of redemption served on officer who made the sale. paid by purchaser. Purchase price if judgment obligor. Payment of purchase price plus 1% interest per month thereon if any. 659 h. The debtor. Sec. d. Limited to the winning bid price plus twelve percent (12%) interest per annum. 662 Redemption price to be paid by accommodation mortgagors 663 Rule 39. 28. Any judicial creditor or judgment creditor of the debtor. b. c.g. 660 1 year 661 Requisites for valid redemption: 1. and 3. Remedy of debtor if foreclosure is not proper Within thirty (30) days after the purchaser is given possession of the property. CA (2002) 197 .
8 Mandamus will lie.665 (4) Effect of pendency of action for annulment of sale The filing of court action to enforce redemption has effect of preserving the redemptioner’s rights. 6 Sec.667 Such question cannot be raised to oppose the issuance of the writ. 664 665 Sec. Writ of possession (1) Ministerial duty of the court The duty of the trial court to grant a writ of possession is ministerial. no discretion is left to the Trial Court.(3) Period for redemption Natural persons Juridical persons: Within 1 year from and after the date Until but not after the registration of the of the sale. Any question regarding the cancellation of the writ in respect to the validity/regularity of the foreclosure sale or the mortgage should be determined in a subsequent proceeding (PNB v. Sanao). Any question regarding the regularity and validity of the sale is to be determined in a subsequent proceeding. 668 Samson vs Rivera (2004) 198 . the writ of possession becomes a matter of right (2) Enforcement against third parties The purchaser or last redemption shall be entitled to possession of the property upon the finality of the order of confirmation or upon the expiration of the period of redemption. unless a third party is actually holding the same adversely to the judgment debtor.668 After the consolidation of title in the buyer’s name for failure of the mortgagor to redeem. Such writ issues as a matter of course upon the filing of the proper motion and the approval of the corresponding bond.664 certificate of foreclosure sale with the applicable Register of Deeds. which in no case shall be more than 3 months after foreclosure.A. 8791 666 Banco Filipino v CA 667 Sec. The judge to whom an application for writ of possession is filed need not look into the validity of the mortgage or the manner of its foreclosure. 47. since the proceeding is ex parte. 666 i. In the issuance of a writ of possession. R. and freezing the expiration of one year period to redeem. whichever is earlier.
No. a clear statement in writing setting forth. prior to the consummation of the transaction. Remedy of debtor if foreclosure is not proper. (5) the total amount to be financed. 669 j.672 b. 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.(3) Pendency of action for annulment of sale The pendency of a separate civil suit questioning the validity of the sale of the mortgaged property cannot bar the issuance of the writ of possession. to be credited as down payment and/or trade-in. (2) the amounts. if any. individually itemized. 4 199 . (4) the charges. supra 671 R. 2 673 Sec. (6) the finance charge expressed in terms of pesos and centavos. Purpose 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. Obligation of creditors to person to whom credit is extended Any creditor shall furnish to each person to whom credit is extended.673 669 670 DBP vs Spouses Gatal (2005) See g. to the extent applicable and in accordance with rules and regulations prescribed by the Board. 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.A. 3765 672 Sec. the following information: (1) the cash price or delivered price of the property or service to be acquired. Annulment of sale670 3. Truth in Lending Act 671 a. (3) the difference between the amounts set forth under clauses (1) and (2).
advances and discounts 2. or any credit upon the security of any obligation or claim arising out of any of the foregoing. however. lien. Any option. sale of bonds. Consequences of non-compliance with obligation Non-compliance with the law would authorize the debtor to recover any interest payment made and subject the creditor to penal sanction for double finance charges plus attorney’s fees. property or money 6. The transaction. Any purchase.c. 6 200 . credit transactions which do not involve the payment of any finance charge by the debtor 2.674 674 675 Sec. leasing of property 5. pledge or other claim against. or other acquisition of.675 Excluded transactions: 1. Any conditional sales contract. etc. In which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits. Any transaction or series of transaction having a similar purpose or effect d. demand. any contract to sell. is valid. deeds of trust. either for present or future delivery. insurance contracts. under which part or all of the price is payable subsequent to the making of such sale or contract 3. mortgages. 7. or sale or contract of sale of property or services. Covered and excluded transactions Covered Transactions 1. CB Circular 158 See Sec. bailment. Any rental-purchase contract 4. 3. Any contract or arrangement for the hire. Any loans. or for delivery of.
4. Banks b. Trust entities.A. 676 R. b. Quasi-banks d. as amended by R.A. Non-banks c. Policy of the law 1. and e. to ensure that the Philippines shall not be used as a site for unlawful money laundering activities. 677 See Sec. which transactions are called "covered transactions. Obligations of covered institutions To report transactions being coursed through them that may have tell-tale signs of money laundering. within one banking day. 9160. Covered transactions Transaction. in cash or other equivalent monetary instrument in excess of P500. 9 201 . To pursue State’s foreign policy to extend cooperation in transnational investigations and prosecution on money laundering activities. and 2. All other institutions.000. 9194 Anti-Money Laundering A crime whereby the proceeds of an unlawful activity are translated thereby making them appear to have originated from legitimate sources. To protect and preserve the integrity and confidentiality of bank accounts. 677 d. their subsidiaries and affiliates supervised or regulated by the BSP c. Covered institutions a. Anti-Money Laundering Law676 a.
678 f. f. g. Knowledge that any monetary instrument or property represents. Amount involved is not commensurate with the business or financial capacity d.A. When is money laundering committed Crime of money laundering: 1. b. Suspicious transactions Transactions with covered institutions regardless of the amounts involved. Client is not properly identified c. Any circumstances relating to the transaction which is observed to deviate from the profile and/ or the client’s past transactions with the covered institution. Taking into account all known circumstances. 678 679 Sec. is being or has been committed. Analogous transactions to any of the foregoing. involved or relates the proceeds of any unlawful activity. e. performs or fails to perform any act as a result of which he facilitates the offense of money laundering 3. where any of the following circumstances exists: a. transact or attempts to transact said monetary instrument or property 2. Knowledge that any monetary instrument or instrument is required to be disclosed and filed with AMLC679 fails to do so. There is no underlying legal or trade obligation. it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act. Transaction is in any way related to an unlawful activity or offense under this Act that is about to be. 9194 infra 202 .e. 2. Knowledge that any monetary instrument or property involves proceeds of any unlawful activity. R.
Chairman of Security & Exchange Commissioner AMLC is a collegial body where Chairman & members of AMLC are entitled to one vote each. 455 & 1937 682 General Rule: AMLC acts unanimously in discharge of functions.682 680 681 Comprehensive Dangerous Act of 2002 under RPC and R. swindling 10. smuggling681 11. drug trafficking or violation of RA No. piracy on the high seas 8. plunder 5. robbery and extortion 6. General Rule: 203 . 9165680 2. violations of E-commerce Act of 2000 12. jueteng and masiao ( illegal gambling) 7. Exception: In case of incapacity. any member to discharge his functions.g. the officer designated shall act in his stead. Unlawful activities or predicate crimes 1. Anti-Money Laundering Council (AMLC) Composition: 1. anti-graft and corrupt practices act 4. Insurance Commissioner 3. Nos. hijacking h. Governor of Bangko Sentral ng Pilipinas as Chairman 2. absence or disability. kidnap for ransom 3. qualified theft 9.A.
on secondment shall not reveal in any manner any information by reason of their office Exception: Under any orders of the court. on detail. All covered transactions and suspicious transactions shall be reported to AMLC within 5 working days from occurrence thereof. directly or indirectly. the proceeds of an unlawful activity.684 Members of AMLC. To apply before the Court of Appeals. 7. or any government offices authorized by law. 6. 683 effective immediately upon determination of probable cause shall be for a period of 20 days unless extended by the court 684 through conventions. 5. 683 8. it contravenes provision of Constitution b. unless the Supervising Authority prescribes a longer period not exceeding 10 working days. to be in whole or in part. or related to. all members of Secretariat. Congress. grounds 204 . Executive Director. involving. on the basis of substantial evidence. investigation/prosecution b. To issue orders addressed to the appropriate supervising authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered transaction or suspicious transaction report or request for assistance from a foreign state. To institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Functions 1. 9. or believed by the council. 4. resolutions & other directives of any organizations of which Philippines is a member. wherever located representing. To cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses. To investigate suspicious transactions deemed suspicious after an investigation by the AMLC. in any manner or by any means. ex parte. AMLC may refuse to comply with such request. when: a. To receive and take action in respect to any request from foreign states for assistance in their own anti-money laundering operations. 3. money laundering activities. for the freezing of any monetary instrument or property alleged to be the proceeds of any unlawful activity. and other violations of this Act. To implement such measures as may be necessary and justified under the law to counteract money laundering. However. To require and receive covered or suspicious transaction reports from covered institution 2.i. it prejudices national interest of the Philippines Requirements for requests for mutual assistance from foreign sates: a.
j.10. 685 11. c. Functions. which may include the use of its personnel. department. To develop educational programs on the pernicious effects of money laundering. detection and investigation of money laundering offense and prosecution of offenders 12. covered institution believed to have been any information which may be of assistance to the investigation e. Authority to inquire into bank deposits Inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of the law. all particulars necessary for the issuance of the order/processes f. the methods and techniques used in money laundering. rules. office. identity of said person d. No. when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity or a money laundering offense except that no court is needed for cases qualified by the law. Freezing of monetary instrument or property686 k. other information 685 through nationwide information campaigns to heighten awareness of the public of their civic duty 686 See i. supra 205 . facilities and resources for the more resolute prevention. To enlist the assistance of any branch. the viable means of preventing money laundering and the effective ways of prosecuting and punishing offender. bureau. agency or instrumentality of the government including government-owned and controlled corporations in undertaking any and all anti-money laundering operations. 7. regulations and orders and resolutions. To impose administrative sanctions for the violation of laws.
and governments. As a general rule. service contracts. including their political subdivisions. promote and welcome productive investments from foreign individuals. 688 b. in activities which significantly contribute to national industrialization and socioeconomic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. and/or transfer relevant technologies in agriculture. and any other act or acts that imply a continuity of commercial dealings or arrangements. entity or corporation in the Philippines. whether called "liaison" offices or branches. enhance economic value of farm products. Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment opportunities for Filipinos. firm. supervision or control of any domestic business. Definition of terms (1) Foreign investment Equity investment made by a non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange. electing Filipinos to the board of directors.A. or the exercise of some of the functions normally incident to. and contemplate to that extent the performance of acts or works. there are no restrictions on extent of foreign ownership of export enterprises. That the phrase "doing business: shall not 687 688 R. foreigners can invest as much as one hundred percent (100%) equity except in areas included in the negative list. quality and volume of exports and their access to foreign markets. participating in the management. industry and support services. No. implementing transfer of technology to Filipinos. Foreign Investments Act 687 a. appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more. Foreign investments shall be welcome as a supplement to Filipino capital and technology in those enterprises serving mainly the domestic market. and in progressive prosecution of. 3 206 . expand the scope. promote the welfare of Filipino consumers. 7042 Sec. In domestic market enterprises. Foreign owned firms catering mainly to the domestic market shall be encouraged to undertake measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners. commercial gain or of the purpose and object of the business organization: Provided. however.5. 2 689 Sec. corporations. Policy of the law It is the policy of the State to attract. opening offices.689 (2) "Doing business" in the Philippines Include soliciting orders. partnerships. generating more employment for the economy and enhancing skills of Filipino workers.
unless participation of non-Philippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or limited to a smaller percentage by existing law and/or under the provisions of this Act. nor having a nominee director or officer to represent its interests in such corporation. or renders service or otherwise engages in any business in the Philippines. shall not impose any limitations on the extent of foreign ownership in an enterprise additional to those provided in this Act: Provided. as the case may be. or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. which shall process such application for registration in accordance with the criteria for evaluation prescribed in said Code: Provided. That any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the Board of Investments (BOI). 692 Sec. and/or the exercise of rights as such investor. Registration of investments of non-Philippine nationals Without need of prior approval. or a trustee of funds for pension or other employee retirement or separation benefits. as that term is defined in Section 3 a). or renders services to the domestic market entirely or if exporting a portion of its output fails to consistently export at least sixty percent (60%) thereof. The SEC or BTRCP. 207 . That a non-Philippine national intending to engage in the same line of business as an existing joint venture in his 690 691 Ibid.691 (4) Domestic market enterprise An enterprise which produces goods for sale. Implementing Rules & Regulations of the Foreign Investments Act of 1991 693 The term "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines. however. 690 (3) Export enterprise An enterprise which produces goods for sale. at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines. or with the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of single proprietorships. where the trustee is a Philippine national and at least sixty (60%) of the fund will accrue to the benefit of the Philippine nationals: Provided.be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business. 1 (k). That where a corporation and its nonFilipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise.692 c.693 and not otherwise disqualified by law may upon registration with the Securities and Exchange Commission (SEC). a non-Philippine national. in order that the corporations shall be considered a Philippine national. finally. Ibid. do business as defined in Section 3 (d) of this Act or invest in a domestic enterprise up to one hundred percent (100%) of its capital. nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.
shall subject the enterprise to cancellation of SEC or BTRCP registration. B. 7 208 . without justifiable reason. and a) List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws. b) List B shall contain the areas of activities and enterprises pursuant to law: 694 695 Sec. 5 Sec. SEC shall effect registration of any enterprise applying under this Act within fifteen (15) days upon submission of completed requirements. BOI shall advise SEC or BTRCP. 694 d. A domestic market enterprise may change its status to export enterprise if over a three (3) year period it consistently exports in each year thereof sixty per cent (60%) or more of its output. The SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to the domestic market to not more than forty percent (40%) of its total production. as the case may be. Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be required to ensure continuing compliance of the export enterprise with its export requirement.application for registration with SEC. During the transitory period as provided in Section 15 hereof. Foreign investments in export enterprises Foreign investment in export enterprises whose products and services do not fall within Lists A and B of the Foreign Investment Negative List provided under Section 8 hereof is allowed up to one hundred percent (100%) ownership. Upon effectivity of this Act.696 f. SEC shall disallow registration of the applying non-Philippine national if the existing joint venture enterprise. particularly the Filipino partners therein. failure to comply with such SEC or BTRCP order. Foreign investments in domestic market enterprises Non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited by existing law or the Foreign Investment Negative List. 6 696 Sec. and/or the penalties provided in Section 14 hereof. can reasonably prove they are capable to make the investment needed for they are competing applicant. of any export enterprise that fails to meet the export ratio requirement.695 e. Foreign Investment Negative List C: The Foreign Investment Negative List shall have three (3) component lists: A.
or the Secretary of Education. military ordnance. beerhouses. Culture and Sports. 698 INCLUDE: Pertinent Supreme Court decisions promulgated up to January 31. e) Quantitative restrictions are not applied on imports of directly competing products. approved by the President. lethal weapons. in the absence of such. such as the manufacture and distribution of dangerous drugs. Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of five hundred thousand US dollars (US$500. an area of investment may be recommended by NEDA for inclusion in List C of the Foreign Investment Negative List upon determining that it complies with all the following criteria: a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos. to a non-Philippine national by the Secretary of National Defense. storage and/or distribution of firearms. b) Industry capacity is ample to meet domestic demand. as determined by NEDA applying the criteria provided in Section 9697 of this Act. 698 Sec. pyrotechnics and similar materials. all forms of gambling. bars. with a substantial export component. such as the manufacture. ammunition. Amendments to List B may be made upon recommendation of the Secretary of National Defense. indorsed by the NEDA. c) Sufficient competition exists within the industry. and g) The prices of industry products are reasonable. unless they involve advanced technology as determined by the Department of Science and Technology.1) Which are defense-related activities. unless such manufacturing or repair activity is specifically authorized. approved by the President and promulgated in a Presidential Proclamation. explosives. and are reasonably competitive in quality with similar products in the same price range imported into the country. Export enterprises which utilize raw materials from depleting natural resources. requiring prior clearance and authorization from Department of National Defense (DND) to engage in such activity. or 2) Which have implications on public health and morals. with international standards. d) Industry products comply with Philippine standards of health and safety or. or the Secretary of Health. f) The leading firms of the industry substantially comply with environmental standards. 2012. or upon recommendation motu proprio of NEDA.000) are reserved to Philippine nationals. Upon petition by a Philippine national engage therein. 697 Determination of Areas of Investment for Inclusion in List C of the Foreign Investment Negative List. dance halls. c) List C shall contain the areas of investment in which existing enterprises already serve adequately the needs of the economy and the consumer and do not require further foreign investments. repair. 8 209 . sauna and steambath houses and massage clinics. with paid-in equity capital of less than the equivalent of five hundred thousand US dollars (US$500. nightclubs. and promulgated by Presidential Proclamation.000) are likewise reserved to Philippine nationals.