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Commercial Law Memoryaid: Code of Commerce
Commercial Law Memoryaid: Code of Commerce
C O M M E R C I A L L A W MEMORY AID
CODE OF COMMERCE
COMMERCIAL LAW - branch of private law which regulates the juridical relations arising
from commercial acts
OTHERS:
1. Commerce - bringing products from the manufacturers to the consumers
2. Characteristics of Commerce:
a. habituality
b. rapidity - if period is fixed, debtor in delay without need of demand; if contract does
not fix period, 10 days
c. intent to join
3. Merchant:
a. Individuals - legal capacity, 21 years, or subject to parental authority, habitually
engaged in commerce
b. Juridical Persons - commercial and industrial company organized in accordance
with law, habitually engaged in business
6. Aliens
a. capacitated under his national law to engage in business
b. engaged in the business in the Philippines not reserved for the Filipinos
c. after securing license and BOI certificate
7. Family Code: Either spouse may engage in business; when objected to by the other,
court will look into valid grounds, i.e. serious and moral grounds
13. Merger and Consolidation subject to BOI requirements for the issuance of certificate:
When merger and consolidation result in ownership and control of non-Filipino
nationals over more than 40% of the capital of a consolidated corporation.
14. SEC License issued upon compliance with the following requirements:
a. proof of compliance with principle of reciprocity
b. BOI certificate
c. Applicant for license gives required information
articles of incorporation
by-laws
names and addresses of resident agents
principal place of business in the Philippines
d. proof of solvency
e. deposit acceptable securities to protect future creditors
(Note: Material on the Retail Trade Liberalization Law will not be included in this reviewer.
Supplement to follow)
1. Retail Trade - any act, occupation, or calling of habitually selling direct to the general
public, merchandise, commodities, or goods for consumption
Jurisprudence has held that the term “retail” should be associated with and limited
to goods for personal, family or household use, consumption and utilization. The Retail
Trade Nationalization Law refers to “consumption goods” or “consumer goods” which
directly satisfy human wants and desires and are needed for home and daily life. Excluded
from the law are those goods which are considered generally raw material used in the
manufacture of other goods, or if not, as one of the component raw material, or at least as
elements utilized in the process of production and manufacturing.
3. General Rule: After 1964, only Filipinos or corporations whose capital is 100% Filipino
may engage in retail trade.
4. Exceptions, that is, instances when aliens may engage in retail trade in the Philippines:
a. manufacturer or processor if capital does not exceed P5,000.00;
b. farmer or agriculturist when selling his products;
c. manufacturer or processor selling to industrial or commercial users or consumers
who use the produce to render service to the general public or to produce or
manufacture goods which are sold by them to the public;
d. hotel owners or keepers of restaurants included or incidental to the hotel business;
e. sale by a manufacturer or processor to the Government or its agencies, including
government owned and controlled corporations
5. Query: How to determine citizenship of shares of the corporation when they are not
held directly by individuals, but in turn held by another entity?
Answer: apply the GRANDFATHER RULE, to wit:
Shares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital respectively, of which belong to
Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But, if let’s
say, 50% of the capital stock belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging
to aliens.
However, while a corporation with 60% Filipino and 40% foreign equity ownership is
considered a Philippine national for purposes of investment, it is not qualified to invest in or
enter into a joint venture agreement with corporations or partnerships, the capital or
ownership of which under the Constitution or other special laws are limited to Filipino
citizens only. Hence, for purposes of the law, whatever the percentage of Filipino
ownership in the owning corporation, the foreign ownership would always render a portion
of its holding in the company as foreign equity and would disqualify the corporation to
engage in retail trade.
ANTI-DUMMY ACT
1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to
enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are
imposed on the president, manager, board member or persons in charge of the
violating entity and causing the latter to forfeit its privileges, rights and franchises.
4. A Filipino common-law wife of an alien is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal properties;
however, allowing her common-law alien husband to take part in the management of
the retail business would be a violation of the law.
7. When a local corporation or person acts in the name of a foreign firm, the latter is doing
business in the Philippines.
2. Definition:
A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER
whereby the latter releases the goods, documents or instruments tot he possession of the
former upon the ENTRUSTEE’S promise to hold said goods in trust for the ENTRUSTER,
and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS
THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the
goods if UNSOLD, or for other purposes.
3. Trust receipts are denominated in Philippine currency or acceptable and eligible foreign
currency.
4. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made
by the ENTRUSTEE.
6. Pending the duration of the trust agreement, the ENTRUSTER’S security interest
cannot be prejudiced by claims of creditors of the ENTRUSTEE.
7. Loss of goods pending the dispossession shall not extinguish the obligation to the
ENTRUSTER for the value thereof.
LETTERS OF CREDIT
1. Kinds:
a. Commercial Letters of Credit
b. Traveler’s Letters of Credit
JOINT ACCOUNTS
3. No suit may be maintained - investor and third persons dealing with the merchant
conducting business.
2. The law covers all transactions, whether done in good faith or not, or whether or not
the seller is in a state of insolvency, that fall within the description of what is a “bulk
sale”.
4. Only creditors at the time of the sale in violation of the law are within the protection of
the laws and creditors subsequent to the sale are not covered.
5. Even if the transaction falls within the definition of “bulk sale”, the following are not
deemed covered by the law:
a. If the vendor, mortgagor, transferor or assignor produces and delivers a written
waiver of the provisions of the law from his creditors as shown by verified
statements;
b. The law does not apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process.
INSURANCE LAW
5. Requisites of Insurance:
a. existence of an insurable interest;
b. risk of loss;
c. assumption of risk;
d. scheme to distribute losses; and
e. payment of premiums
Note: If only a, b, and c are present, it is not a contract of insurance but a risk
shifting device.
(b) any contingent or unknown event, whether past or future, which may create a
liability against the person insured.
8. Every person has an insurable interest in the life and health of:
a. himself, his spouse and his children
b. any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest
c. any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might prevent the performance or
delay it
d. any person upon whose life any estate or any interest vested in him depends
11. General Rule: A change of interest in any part of a thing insured unaccompanied by a
corresponding change in interest in the insurance suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person.
Exceptions: a. In case of life, health, and accident insurance
b. when the change in interest results after the occurrence of an injury
which results in a loss
c. a change of interest in one or more several distinct things, separately
insured by one policy
d. a change in the interest by will or succession on the death of the insured
(interest passes to the heirs)
e. a transfer of interest by one of several partners, joint owners in common
who are jointly insured to the others (even though it has been agreed that
the insurance shall seize upon the alienation of the thing insured)
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14. Concealment - a neglect to communicate that which the party knows or ought to
communicate
General Rule: The insured is not required to communicate the nature (or kind) or
the amount of his insurable interest in the life or property insured to the insurer.
Exception: a. When the insurer makes inquiry from the insured of the nature or
amount of the latter’s insurable interest, whether in life or property insurance;
b. insurance policy must specify the interest of the insured in the
property insured, if he is not the absolute owner thereof.
A concealment, whether intentional or not, entitles the injured party to rescind a
contract of insurance.
Requisites:
(a) the party concealing must have knowledge of the facts concealed;
(b) the facts concealed must be material to the risk;
(c) the party is duty bound to disclose such fact to the other;
(d) the party concealing makes no warranty as to the facts concealed;
(e) the other party has no other means of ascertaining the facts concealed.
Note: An insured need not die of the very disease he failed to reveal to the insurer.
It is sufficient that the non-revelation has misled the insurer in forming his estimate
of the disadvantages of the proposed policy or in making his inquiries in order to
entitle the insurance company to avoid the contract.
Note: The insured is under an obligation to disclose not only such material facts as
are known to him, but also those known to his agent where:
a. it was the duty of the agent to acquire and communicate information of the facts
in question;
b. it was possible for the agent, in the exercise of reasonable diligence, to have
made the communication before the making of the insurance contract.
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Failure on the part of the insured to disclose such facts known to his agent, or
wholly due to the fault of the agent, will avoid the policy, despite the good faith of
the insured.
15. Neither party to the insurance contract is bound to communicate information on the
following matters except in answer to the inquiries of the other:
a. those of which the other knows;
b. that which, in the exercise of ordinary care, the other ought to know and of which
the former has no reason to suppose his ignorance, i.e. political situation, general
usages of trade;
c. those of which the other waives communication;
d. those which prove or tend to prove the existence of the risk excluded by a warranty
and which are not otherwise material;
e. those which relate to a risk excepted from the policy and which are not otherwise
material.
Neither party is bound to communicate his mere opinion, even upon inquiry,
because such opinion would add nothing to the appraisal of the application.
Waiver of material facts may be:
(a) by the terms of the insurance; or
(b) by the neglect to make inquiry as to such facts, where they are distinctly implied
in other facts which information is communicated
Materiality is to be determined not by the events but solely upon the probable and
reasonable influence of the facts on the party to whom the communication is due in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries.
Concealment, whether intentional or not, entitles the other party to rescind the
contract.
16. Representation
It is a factual statement made by the insured at the time of, or prior to, the issuance
of the policy, to give information to the insurer and otherwise induce him to enter into the
insurance contract.
Incontestable Clause: After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the insured for a period of 2 years
from the date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
Exceptions: (a) absence of insurable risk
(b) cause of loss is an unexpected risk
(c) fraud
(d) non-payment of premium
(e) violation of conditions relating to naval or military services
(f) failure to comply with conditions subsequent to the occurrence of the
loss
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C O M M E R C I A L L A W MEMORY AID
17. Warranties:
Warranty Representation
part of the insurance contract collateral inducement
always written on the policy maybe oral or written
conclusively presumed material materiality must be proved
must be strictly complied with requires substantial truth
made by the insured may be made by insurer or insured
Note: If there is a breach of warranty, even if the cause of the loss is a different risk,
the insurer is entitled to rescind the contract of insurance.
Breach must refer to a material warranty, whether intentional or not.
18. Policy
What is a Rider? It is an additional provision in a policy not part of the body of the
printed form.
Cover Note: written memorandum of the most important terms of a preliminary
contract of insurance, intended to give temporary protection pending the
investigation of the risk by the insurer, or until the issuance of a formal policy.
General Rule: Cover notes bind insurer temporarily pending the issuance of the
policy.
Exception: Where it is merely an acknowledgment on behalf of the company that
the latter’s branch office had received from the applicant the insurance premium
and accepted the application subject for processing by the insurance company and
that the latter will either approve or reject the same.
Kinds of Policies:
a. Open - the value of the thing insured is not agreed upon, but is left to be
ascertained at the time of the loss
b. Valued - expresses on its face an agreement that the thing insured shall be
valued at a specific sum
c. Running - contemplates successive insurance which provides that the object of
the policy may be from time to time defined especially as to the subject of
insurance by additional statements or endorsements
Note: If an amount is written on the face of an open policy, it is merely a
determination of the maximum limit of recovery and not as the value of the
policy.
Period for commencing an action against the policy: Within 1 year from the time
the cause of action accrues, i.e., from the time of rejection of the claim by the
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insurer. Any condition, stipulation, or agreement limiting the time to less than 1
year is void.
Grounds for Cancellation of a Policy by the Insurer:
For Policies Other than Life:
(1) prior notice of the cancellation to insured
(2) notice must be based on the ff. occurrences after effective date of the
policy
(a) non-payment of premiums
(b) conviction of a crime arising out of acts increasing the hazard insured
against
(c) discovery of fraud or material misrepresentation
(d) discovery of willful or reckless acts or omissions increasing the
hazard insured against
(e) physical changes in the property insured which results in the property
becoming uninsurable
(f) determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of the Insurance
Code
(3) notice must be in writing
(4) it must be mailed or delivered to the insured at the address shown in the
policy
(5) notice must state the ground relied upon and that upon written request of
the insured, the insurer will furnish facts on which the cancellation is
based
Renewal of the Policies Other than Life:
Insurer must mail or deliver to the insured notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of coverages
within 45 days before the policy ends. Otherwise, insured entitled to renew the
policy upon payment of the premium due on the effective date of the renewal.
19. Premium
General Rule: No policy is binding until the premium thereof has been paid.
Exceptions: (a) in case of life or industrial life policy, whenever the grace period
applies
(b) in case of estoppel
Insurer is entitled to payment of premiums as soon as the thing insured is exposed
to the perils insured against.
When insurer entitled to Return of Premiums
a. when the contract is voidable on account of fraud or misrepresentation of the
insurer;
b. when on account of facts, the existence of which the insured was ignorant
without his fault
c. when by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy
d. when the insured has become a public enemy and the policy automatically
canceled (on the ground of equity)
e. in case of over-insurance by several insurers (ratable return of premiums,
proportioned to the amount by which the aggregate sum insured in all policies
exceed the insurable value of the thing at risk)
20. Loss
When Insurer is Liable:
a. where the peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been the remote cause or even the
immediate cause of the loss
b. where the thing insured is rescued from the peril insured against that would
otherwise have caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently deprives the insured
of its possession in whole or in part
c. where loss is caused by efforts to rescue the thing insured from a peril insured
against
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General Rule: The insurer is not liable for a loss caused by the willful act of the
insured.
Exception: Suicide Clause in Life Insurance: Insurer liable in case insured
committed suicide after the policy has been in force for a period of 2 years from the
date of its issue or last reinstatement. If insured kills himself within a period of 2
years, insurer is not liable.
Exception to Exception: If suicide is committed in a state of insanity, regardless of
the time of commission, the insurer is liable.
21. Double Insurance - exists where the same person is insured by several insurers
separately in respect to the same subject and interest
The Code prohibits double insurance without the consent of the insurer.
Liability of Insurer:
Insurance taken
from each insurer
---------------------------------- x value of property received = liability of insurer
total insurance
22. Reinsurance: A process by which an insurer procures a third person to insure him
against loss or liability by reason of such original insurance.
The original insured cannot recover from this insurance unless there is a specific
grant, or assignment of, the reinsurance contract in favor of the insured, or a manifest
intention of the contracting parties to the reinsurance contract to favor the insured.
23. Marine Insurance: insures against perils of the sea, not of the ship
Charterer has insurable interest in the ship to the extent that he is liable to be damnified
by its loss.
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Barratry: Any willful misconduct on the part of the masters or crew, in pursuance of
some unlawful or fraudulent purpose, without the consent of the owners and to the
prejudice of the owner’s interest.
Insurable Interest in Marine Insurance: Determined when one will sustain loss from the
destruction of the subject matter or derive benefit from its preservation.
Charter Party: Contract by virtue of which the owner or the agent of a vessel binds
himself to transport merchandise or persons for a fixed price. It has also been
defined as a contract by virtue of which the owner or the agent of the vessel for the
transportation of goods or persons from one port to another.
Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of a ship
borrows money for the use, equipment or repair of the vessel for a definite term, and
pledges the ship as a security for repayment, with maritime or extraordinary interest
on the account of the maritime risks to be borne by the lender. It is stipulated in such
a contract that if the ship be lost in the course of the specific voyage or during a
specified limited time caused by any of the perils enumerated in the contract, the
lender shall resolutely lose his money.
Loan on Respondentia: Contract akin to that of mortgage made on the goods on board
the ship, and which are to be sold or exchanged in the course of the voyage. The
goods serve as the principal security.
Freightage: Signifies all the benefits derived by the owner, carriage of his own goods,
or those of others.
Implied Warranties:
a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of
commencement of risk, except: (a) insurance for a specified length of time - at
the commencement of every voyage it undertakes during that time; (b) cargo to
be transshipped at indeterminate port - each vessel upon which cargo is shipped
is seaworthy at the commencement of each particular voyage
b. that the vessel shall not engage in illegal venture
c. that the vessel shall not deviate from the course of the voyage insured
d. where the nationality or neutrality of a ship or cargo is expressly warranted, it is
implied that the ship will carry the requisite documents to show such nationality or
neutrality and that it will not carry any documents which may cast reasonable
suspicion thereon
Deviation
a. a departure from the course of the voyage insured
b. unreasonable delay in pursuing the voyage
c. commencement of an entirely different voyage
Loss
a. Actual Total Loss
a total destruction of the thing insured
the irretrievable loss of the thing by sinking or by being broken up
any damage to the thing which renders it valueless tot he owner for which he
held it
any other event which effectively deprives the owner of possession, at the port
of destination, of the thing insured
a. Constructive Total Loss - gives to the person insured the right to abandon
Average - any extraordinary or additional expense incurred during the voyage for the
preservation of the vessel, cargo, or both and all damages to the vessel and cargo
from the time it is loaded and the voyage commenced until it ends and the cargo
unloaded
Abandonment - act of the insured by which, after a constructive total loss, he declares
the relinquishment to the insured of his interest in the thing insured (where the cause
of loss is a peril insured against)
(a) more than ¾ thereof in value is actually lost or would have been expended to
recover it from the peril
(b) it is injured to such an extent as to reduce its value by more than ¾
(c) if the thing insured is the ship and the voyage cannot be lawfully performed
without incurring an expense of more than ¾ of the whole, or a risk which a
prudent man would not undertake under the circumstances
(d) if the thing insured is cargo or freightage, and the voyage cannot be performed on
another ship procured by the master within a reasonable time and with reasonable
diligence to forward the cargo without incurring an expense or a risk as stated
above
Notice of Abandonment:
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a. may be oral or in writing (if oral, written notice must be submitted within 7 days
from oral notice)
b. must be explicit
c. must specify the particular cause for abandonment
d. need not be accompanied by proof of interest or loss
Acceptance of Abandonment
a. may be express or implied (i.e. silence for unreasonable length of time)
b. conclusive upon the parties and admits the loss and sufficiency of abandonment
c. irrevocable, unless the ground on which it is made is proved to be unfounded
If insurer refuses to accept a valid abandonment - liable as upon actual total loss
Co-insurance: form of insurance in which the person who insures his property for less
than the entire value is understood to be his own insurer for the difference which
exists between the true value of the property and the amount of insurance
When does alteration in the use or condition entitle the insurer to rescind the contract?
a. such alteration violates a provision in the policy
b. it was made without the insurer’s consent
c. it is done within the insured’s control, and it increases the risk of loss or damage
Rules:
a. policy shall not protect the insured from injury consequent upon his negligent use
or management of fire, so long as it is confined to the place where it ought to be
b. if it escapes, even though the insured was negligent, the insurer is liable
c. even though a fire may remain in its proper place, it may become hostile if it by
accident, becomes so extensive as to be beyond control
25. Casualty Insurance: Any injury that is intended, unexpected and unusual, even though
it results from an act or even which was intelligently done.
No Fault Indemnity Clause: The insurance company shall pay any claim for death or
bodily injuries sustained by a passenger or 3 rd party without the necessity of proving
fault or negligence of any kind subject to certain conditions. This does not apply to
property damage.
26. Suretyship - an agreement whereby the surety guarantees the performance of the
principal or obligor of an obligation or undertaking in favor of a 3 rd party called the
obligee
27. Life Insurance: an insurance in human life and insurance appertaining thereto or
connected therewith may be payable:
a. on the death of the insured
b. on his surviving a specified period
c. otherwise, contingently on the continuance or cessation of life
(b and c refer to endowment or annuities)
Period of Incontestability - after the lapse of 2 years from the date of issue or date
of approval of last reinstatement
Reinstatement of Policy - within 3 years from the date of default of premium, upon:
a. production of evidence of insurability, and
b. payment of all overdue premiums and any indebtedness to the company upon
said policy
Exceptions:
a. if cash surrender value has been paid
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b. Claims Settlement
Insurance Agent - any person who for compensation solicits or obtains insurance on behalf
of any insurance company or transacts for a person other than himself an application for a
policy or contract of insurance to or from such company or offers or assumes to act in
negotiating of such insurance. He must be first licensed as such before doing any acts as
insurance agent.
Insurance Broker - any person for any compensation, commission or any other thing of
value, acts, or aids in any manner in soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out insurance, on behalf of an insured other
than himself. A license is required.
1. Warehouse - a building or place where goods are deposited and stored for profit.
2. Warehouseman - person lawfully engaged in the business of storing goods for profit.
8. Terms which may be inserted in a Warehouse Receipt: Any other terms except (a)
those contrary to the provisions of this Act; (b) those that would impair a
warehouseman’s obligation to exercise that degree of care in the safekeeping of the
goods entrusted to him.
(2) had information that the delivery about to be made was to one not lawfully
entitled to the possession of the goods
17. What happens if there is proper delivery or partial delivery but the warehouseman fails
to cancel the receipt or record on the receipt of such partial delivery?
a. If goods covered by a negotiable warehouse receipt are delivered by a
warehouseman but he fails to take the receipt and cancel it, then he is still liable to
one who purchases for value and in good faith such receipt.
b. If he makes partial delivery of the goods but fails to record the partial delivery on the
receipt then he may still be held liable for the entire receipt to one who purchases
for value and in good faith such receipt.
b. If someone other than the depositor or person claiming under the depositor has a
claim to the title or possession of the goods and the warehouseman has information
of such claim, the warehouseman shall be excused from liability for refusing to
deliver the goods either to the depositor or person claiming under him until he has
had a reasonable time to ascertain the validity of the adverse claim or to bring legal
proceedings to compel all claimants to interplead.
c. The warehouseman will not be required to deliver the goods if such had been lost.
But this is without prejudice to liabilities which may be incurred by him due to such
loss.
d. The warehouseman having a valid lien against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.
22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)
Creditors of the depositors, before negotiation, may protect themselves by obtaining a
writ of preliminary injunction and serve the same on the depositor before he has a chance
to negotiate the receipt. Once enjoined, there will be no longer a danger that a 3 rd person
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will be prejudiced so the goods may now be attached, levied upon, or that the vendor’s lien
or the right of stoppage in transit be exercised.
Distinction between a non negotiable receipt from a negotiable receipt with regard to
attachment or execution upon goods:
A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts
payment of the debt from a person does not warrant the genuineness of the receipt
not the quality or quantity of the goods therein described.
It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable
receipt has been issued to require the negotiation of the receipt to him, otherwise his
failure will have the same effect as an express authorization on his part to the seller,
mortgagor, or pledgor in possession of such receipt to make any subsequent
negotiation. The subsequent purchaser must have taken the receipt in good faith
and for value.
A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods
where he purchases from the owner’s agent within the actual or apparent scope of
his authority. In sum, negotiation is valid despite having been made in breach of
trust.
a title better than that which the party who obtains only such title as the person
negotiated the instrument to him had. negotiating has over the goods.
The indorsement of a negotiable instrument The indorsement of a warehouse receipt
has a double effect. It is at the same time a amounts merely to a conveyance by the
conveyance of the instrument and a contract indorser. Accordingly, an indorser of a receipt
the indorser has with the indorsee that on shall not be liable to the holder if, for example,
certain conditions, the indorser will pay the the warehouseman fails to deliver the goods
instrument if the party primarily liable fails to because they were lost due to his fault or
do so. negligence.
Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling
must:
a. obtain prior license from the Bureau of Commerce
b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse
against which bond depositors may sue directly
c. open to the public, no discrimination allowed
d. liable for double market value should he accept goods in excess of the capacity of
warehouse if goods are damaged or destroyed
Note: for palay and corn license, a bond with the National Grains Authority is required;
also an insurance cover is required.
2. Exempt Transactions
a. government to government transactions or with international banking institutions
b. transactions affecting high priority economic projects
c. forward exchange transactions between banks
d. import and export and other international banking, financial, investment and
industrial transactions
5. Relatively Disqualified
a. judicial and prosecuting officials in active service
b. administrative, economic, military chiefs
c. government collection agents and custodian of funds
d. stock and commercial brokers
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8. Commercial Contracts by Correspondence are perfected from the moment the offeree
accepts the offer, even before knowledge of said acceptance by the offeror. This does
not apply to deposit, guaranty, sales, loan, agency, partnership.
TRANSPORTATION LAW
13. Loan In Respondentia - taken on security of the cargo repayable upon the safe arrival
at cargo destination
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15. Average:
a. all extraordinary or accidental expenses which may be incurred during the voyage
for the preservation of the vessel or cargo or both
b. all damages or deterioration which the vessel may suffer from the time it puts to sea
at the port of departure until it casts anchor at the port of destination, and those
suffered by the merchandise from the time they are loaded in the port of shipment
until they are unloaded in the port of their consignment
16. Simple Average - expenses/damages caused to the vessel/cargo not inured to common
benefit and profit of all the persons interested in the vessel and her cargo; borne by
respective owners
17. General Average - expenses/damages deliberately caused in order to save the vessel,
its cargo or both from a real and known risk
Requisites:
a. deliberately incurred
b. intended to save vessel and cargo or both
c. from real and known risk
d. there is success
19. Arrivals under Stress - arrival of the vessel at a port not of destination on account of (a)
lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of the sea
disabling it to navigate
When Not Lawful:
a. lack of provisions due to negligence to carry according to usage and customs
b. risk of enemy not well known or manifest
c. defect of vessel due to improper repair
d. malice, negligence, lack of foresight or skill of captain
23. Error in Extremis - sudden movement made by a faultless vessel during the 3 rd zone of
collision with another vessel which is at fault, even if the said movement is wrong, no
responsibility will fall on said vessel
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24. Shipwreck - denotes all types of loss/ wreck of a vessel at sea either by being
swallowed up by the waves, by running against another vessel or thing at sea or on
coast where the vessel is rendered incapable of navigation
25. Salvage - the compensation allowed to persons by whose voluntary assistance a ship
at sea or her cargo or both have been saved in whole or in part from an impending
peril, or such property recovered from actual peril or loss, in cases of shipwrecks,
derelict or recapture; a service which one person renders to the owner of a ship or
goods by his own labor, preserving the goods or ship which the owner or those
entrusted with the care of them either abandoned in distress at sea or are unable to
protect and secure; a permit is required to engage in the salvage business
26. Derelict - a ship or cargo which is abandoned and deserted at sea by those who are in
charge of it, without any hope of recovering it, or without any intention of returning it
28. Contract of Towage - contract whereby a vessel usually motorized pulls another from
one place to another for compensation. It is a contract of services.
1. When Applicable:
a. contracts for the carriage of goods
b. by sea
c. to and from Philippine ports
d. in foreign trade
2. Notice of Loss or damage must be given in writing to the carrier or his agent at the port
of discharge or at the time of the removal of the goods into the custody of the person
entitled to delivery. If the loss or damage is not apparent, the notice must be given
within 3 days of delivery. However, the carrier shall be discharged from all liability in
respect of loss or damage of goods unless suit is brought within 1 year after delivery of
the goods or the date when the goods should have been delivered. Notice of loss, if
not given, that fact shall not affect or prejudice the right of the shipper to bring suit
within the 1 year prescriptive period.
WARSAW CONVENTION
1. When Applicable:
a. international transport by air
b. transport of persons, baggage, or goods
b. loss or damage to any check baggage or goods sustained during the transport by
air
c. delay in the transport by air of passengers, baggage, or goods
Enumeration of causes of action as above stated is not an exclusive list. (Northwest
Airlines vs. Cancer)
3. Meaning of Transport by Air - period during which the baggage or goods are in charge
of the carrier, whether in an airport or on board an aircraft, or in the case of landing
outside an airport, in any place whatsoever
4. Action for damages must be brought at the option of the plaintiff, either:
a. before the court of the domicile of the carrier;
b. court of principal place of business of carrier;
c. court where he has a place of business through which the contract has been made;
d. before the court at the place of destination
6. The right to damages shall be extinguished if an action is not brought within 2 years
from the date of arrival at the destination, or from the date on which the aircraft ought to
have arrived, or from the date on which the transportation stopped.
8. Notice Requirements:
COGSA Code of Commerce Warsaw Convention
loss/damage protest at time of protest at time of
apparent receipt of goods receipt of goods
loss/damage not protest within 3 days protest within 24
apparent from delivery hours after receipt
damage of baggage protest within 3 days
from receipt
damage of goods within 7 days from
receipt
delay within 21 days from
receipt
1. Every person that may own, operate, manage, control in the Philippines, for
hire/compensation with general/limited clientele whether permanent, occasional,
accidental, and done for a general business purpose any common carrier, shipyard,
electric light, heat and power and public utility.
2. Public Utility - business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service.
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3. Prior Operator Rule - before permitting a new operator to invade the territory of another
already established, the prior operator must be given an opportunity to extend its
service to meet the public needs in the matter of transportation.
4. Prior Applicant Rule - presupposes a situation where two interested persons apply for a
CPC in the same community over which no person has yet been granted a CPC to
operate. If both applicants equal, then the applicant who applied first will be given the
CPC.
CORPORATION LAW
2. Doctrine of Piercing the Veil of Corporate Entity - it is to disregard for justifiable reasons
by the state the fiction of juridical personality of the corporation separate and distinct
from the persons composing it
6. Corporation by Prescription - body not lawfully organized as a corporation but has been
recognized by immemorial usage as a corporation with rights and duties maintainable
by law (ex. Roman Catholic)
7. 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. Corporations may not dissipate this and the creditors may sue the
stockholders directly for their unpaid subscriptions
8. Voting Shares
a. Founders Shares - given rights and privileges not enjoyed by owners of other
stocks; right to vote/be voted in the election of directors shall not exceed 5 years
Non-Voting Shares
a. Preferred Shares - issued only with par value; given preference in distribution of
assets in liquidation and in payment of dividends and other preferences stated in
the articles of incorporation
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C O M M E R C I A L L A W MEMORY AID
10. Preferred Cumulative Participating Share of Stock - share entitling its holder to
preference in the payment of dividends ahead of common stockholders and to be paid
the dividends ahead of common stockholders and to be paid the dividends due for prior
years and to participate further with common stockholders in dividend declarations
11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock - stock
deposited with a 3rd person to be delivered to stockholder/assignor after complying with
certain conditions - usually payment of full subscription price
12. Over-issued Stock - stock issued in excess of authorized capital stock; null and void
13. Watered Stock - stock issued gratuitously, money/property less than par value, services
less than par value, dividends where no surplus profits exist
15. Chattel mortgage of shares registered with the Registrar of Deeds need not be
registered in corporate books to bind third parties because corporate books only cover
absolute transfers. But the pledgee/mortgagee may not have voting rights unless
stated in the contract and registered in the corporate name.
20. Corporation must organize within 2 years from issuance of certificate of incorporation.
How to organize?
a. adoption of by-laws
b. election of Board of Directors
c. election of officers
But from issuance of certificate, it acquires juridical personality
21. Merger - one corporation absorbs the other and remains in existence while the other is
dissolved
22. Consolidation - a new corporation is created and the consolidating corporations are
extinguished
23. Theory of General Capacity - a corporation is said to hold such powers as are not
prohibited/withheld from it by general law
24. Theory of Special Capacity - the corporation cannot exercise powers except those
expressly/impliedly given
25. Concession Theory - a group of persons wanting to create a corporation will have to
execute documents and comply with requirements set by the state before being given
corporate personality; merely a privilege; state may provide causes for which the
privilege may be withdrawn
27. Where similar acts have been approved by the directors as a matter of general
practice, custom and policy, the general manager may bind the company even without
formal authorization of the board of directors
29. Voting Trust Agreement - an agreement between a group of stockholders and trustee
for a term not exceeding 5 years in which control over the stocks is lodged in the
trustee. The purpose is for controlling the voting.
a. in writing, notarized and filed with the SEC and the corporation
b. period not exceeding 5 years
c. cannot be entered into to circumvent the laws against monopolies, illegal
combinations in restraint of trade in fraud
30. Cumulative Voting - the number of votes that a shareholder’s number of shares
multiplied by the number of directors may give all said votes to one candidate or he
may distribute them as he may deem fit. Cumulative voting is a matter of right in a
stock corporation. In a non-stock corporation, it cannot be utilized unless allowed by
the by-laws/articles
31. The power of removal of directors that may be exercised with or without cause cannot
apply to the director representing the minority shareholders. He may only be removed
with cause.
32. General Rule: If surplus profits exceed the requirements the corporation shall declare
dividends. This is compulsory if the surplus is equal/or more than the paid-up capital.
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C O M M E R C I A L L A W MEMORY AID
Exceptions:
a. justified by approved expansion projects
b. prohibited by creditor to declare dividends
c. retention is necessary under existing circumstances
33. Business Judgment Rule - decisions made by a corporation’s management body shall
not be interfered with even by the courts unless such acts are
oppressive/unconscionable as to violate the rights of the minority
34. Individual Suit - one brought to assert a right of a stockholder peculiar to himself
35. Representative Suit - brought by the stockholder in his own behalf and in behalf of
other stockholders similarly situated, having common cause against the corporation
36. Derivative Suit - brought by a stockholder for and in behalf of the corporation to
protect/vindicate corporate rights after he has exhausted intra-corporate remedies
Requisites:
a. cause of action in favor of the corporation
b. refusal of corporation to sue
c. injury to the corporation
Although corporations dissolved have 3 years to wind up, they can convey their
properties to a trustee who can continue the suit beyond the 3 year period. The lawyer
who handled the case in the trial court may be considered as trustee for the dissolved
corporation with respect to the matter in litigation only even if no appointment was
extended to him. (Selano vs. CA)
In a case filed before dissolution, it may continue even beyond the 3 year period until
final determination of litigation. Otherwise, the corporation in liquidation would lose
what justly belongs to them/be exempt from payment of obligations because of a
technicality.
1. General Rule: All securities before being offered for sale/actual sale to the public must
first be registered and have the proper permit.
Exception:
a. exempt securities
b. securities emanating from exempt transactions
2. Exempt Securities
a. issued by the government subdivisions/instrumentalities
b. issued by foreign government which the Philippines has diplomatic relations
c. issued by receiver/trustee of an insolvent approved by the court
d. issued by building and loan association
e. issued by receiver/trustee of an insolvent approved by the court
f. policy of insurance issued by insurance corporation supervised by the insurance
commission
g. security/right/interest in real property including subdivision lot/condominium
supervised by the Ministry of Human Settlements
h. pension plans regulated by BIR/Insurance Commission
3. Exempt Transactions
a. judicial sale by execution, etc. in insolvency
b. sale of pledged property/foreclosed property to liquidate an obligation
c. isolated transactions on securities done by owner/agent
d. stock transfers emanating from mergers and consolidations
e. pre-incorporation subscription
f. securities issued by public service operator to broaden equity base
6. Acts Prohibited
a. manipulation of security prices
b. manipulation of deceptive devices
c. artificial measures of price control
d. fraudulent transactions
e. insider trading
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1. Deposits in banks, including government banks, may not be inquired into by any
person, except:
a. if depositor agrees in writing
b. impeachment cases
c. by court order in cases of bribery and dereliction of duty against public officials
d. deposit is subject of litigation
e. anti-graft cases
f. general and special examination of bank order of the Monetary Board of bank fraud
or serious irregularity
g. re-examination made by an independent auditor hired by a bank to conduct its
regular trust
Copyright
6. Criminal Penalties
a. imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense
b. imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to
P500,000 for the 2nd offense
c. imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to P1,000,000
for the 3rd/subsequent offenses
IN ALL CASES, subsidiary imprisonment in cases of insolvency
7. Presumptions:
a. Presumption of copyright in the work of other subject matter to which the action
related
b. Plaintiff is presumed to be the owner of the copyright
c. The natural person whose name is indicated on a work in the usual manner as the
author shall, in the absence of proof to the contrary, be presumed to be the author
of the work. This is applicable even if the name is a pseudonym, where the
pseudonym leaves no doubt as to the identity of the author.
8. Prescription: No damages may be recovered after 4 years from time the cause of
action arose.
Patents
1. Patentable Inventions - any technical solution of a problem in any field o human activity
that is new, involve an inventive step and is industrially applicable shall be patentable.
It may be or may relate to as product, or process or an improvement of any of the
foregoing.
2. Non-Patentable Inventions
a. discoveries, scientific theories and mathematical methods
b. schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers
c. methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body
Exception: products and composition for use in any of these methods
d. plant varieties or animal breeds or essentially biological process for the production
of plants and animals
Exception: micro-organisms and non-biological and micro-biological processes
e. aesthetic creations
f. contrary to public order or morality
3. Requisites of Patentability
a. new, novelty
b. involves an inventive step;
c. is industrially applicable
4. Novelty
The novelty requirement in the Code is absolute. Thus, an invention is not considered
new if it forms part of a prior art. A prior art consists of:
a. anything which has been made available to the public anywhere in the world before the
filing date or the priority date of the application, or
b. the whole contents of an application for a patent, utility model, or industrial design
registration, published in the IPO gazette, filed or effective in the Philippines, with a
filing or priority date that is earlier than the filing or priority date of the application,
provided that the application which has validly claimed the filing date of an earlier
application (priority date) is prior art with effect as of the filing date of such earlier
application, and provided further, that the applicant and the inventor identified in both
applications are not one and the same
5. Inventive Step - an invention involves an inventive step, if having regard to the prior art,
it is not obvious to a person skilled in the art at the time of the filing date of priority date
of the application claiming the invention
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7. The First-to-File System - if 2 or more persons have made the invention separately and
independently of each other, the right to the patent belongs to the person who filed an
application for such invention, or where 2 or more applications are filed for the same
invention, the right of the patent belongs to the person who has the earliest filing date
or the earliest priority date
Under this system, the patent is granted to the inventor who filed his patent application
earlier than others thus simplifying the determination of who is entitled to own the patent.
The First-to-File System increases the rights of the inventor by:
a. guaranteeing the confidentiality of the application prior to its publication
b. giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
c. expanding the rights of the inventor to institute cancellation proceedings for the
duration of the term of the patent. Cancellation proceedings may be filed at any
time during the term of the patent.
Under this system, the applicant declared by final court order as having the right to the
patent may:
a. prosecute the application as his own application in place of the original applicant
b. file a new patent application in respect of the same invention
c. request that the application be refused or
d. seek the cancellation of the patent, if one has already been issued
9. Non-Prejudicial Disclosure
The disclosure of information contained in the application during the 12 months
preceding the filing date or the priority date of the application shall not prejudice the
applicant on the ground of lack of novelty if such disclosure was made by (a) inventor; (b) a
patent office and the information was contained
10. Term of Patent - 20 years from the filing date of the application
13. Utility Models - an invention qualifies for registration as a utility model if it is new and
industrially applicable
- no inventive step required for registration
- no search and examination required
14. Term Protection - 7 years after the filing date of application without possibility of
renewal
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15. Industrial Design - any composition of lines or colors or any 3 dimensional form,
whether or not associated with lines or colors
Industrial Designs essentially dictated by technical or functional considerations to
obtain a technical result or those that are contrary to public order, health or morals shall not
be protected
16. Term of Protection - 5 years from filing date of application, renewable for not more than
2 consecutive periods of 5 years each
Insolvency Law
2. Fraudulent Preference - any act of insolvent which gives rise/has tendency to give
preference to a creditor to the assets of the insolvent prejudicial to the right of other
creditors of said insolvent
b. suit not yet filed - cannot be filed anymore, but claims may be presented to
assignee
1. The law primarily governs chattel mortgage. Provisions on pledge of NCC in so far as
not in conflict with CML also govern chattel mortgages.
3. Growing fruits are covered by chattel mortgage but they may not be pledged.
4. Machinery placed on plant or building owned by another can be the object of chattel
mortgage.
9. Requisites of CML:
a. constituted to secure the fulfillment of principal obligation
b. mortgagor is absolute owner of the thing mortgaged
c. persons constituting the mortgage have the free disposal of the property and in the
absence thereof, they be legally authorized for the purpose
d. recorded to bind 3rd persons
11. Affidavit of Good Faith - where the parties severally swear that the mortgage is made
for the purpose of securing the obligation specified and for no other purpose and that
the same is a just and valid obligation and not one entered into for fraud
- property given in CM must be described to enable the parties
or any other person after reasonable inquiry and investigation to identify it
12. Future property may not be covered by CM but when such property is a:
a. renewal of, or in substitution for goods on hand when the mortgage was executed,
or
b. purchased with proceeds (not of your own money) of said goods, said property may
be covered by CM
13. Criminal Acts - removal of chattel to another city or province without written consent of
mortgagee, selling property already pledged, or mortgaged without written consent of
mortgagee
14. A chattel mortgage may be foreclosed judicially or extra-judicially, in the latter case,
before a notary or sheriff, or creditor or mortgagee when stipulated, even without need
of notice (when mortgagee forecloses)