Abella Danger Notes

Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

BANKING LAWS AND OTHER RELATED LAWS Business: The Monetary Board is obliged to meet every other week because it has to closely monitor
the prices and take action.

 In every meeting, there should be a quorum of at least 4. To pass a resolution, at least 4

NEW CENTRAL BANK ACT members should concur.
RA. 11057 - An Act Strengthening the Secured Transactions Legal Framework in the Philippines,  If the Governor cannot attend, he should send a Deputy Governor. If the Secretary can’t
Which Shall Provide for the Creation, Perfection, Determination of Priority, Establishment of a attend, he should send an Undersecretary.
Centralized Notice Registry, and Enforcement of Security Interests in Personal Property, and for Functions of the Monetary Board
Other Purposes
1) Issuance of Currency
New Central Bank Act  BSP cannot issue currency indiscriminately
- Independence July 4, 1986
- Banco De las Islas Filipinas (Private Bank) Q: What is MONEY?
- Philippines National Bank (Government Bank) A: Any medium of exchange, anything could be money

Purpose of law: Because of the bankruptcy of the Central Bank, the Bangko Sentral ng Pilipinas was Q: What is Currency?
created which have a corporate existence and is controlled by the Monetary Board. A: Currency is defined by law as notes and coins issued by the BSP and are in
circulation.
The Monetary Board is the governing body of the BSP

Composition of MB Currency has 2 qualifications: 1) Issued by the BSP; 2) In circulation, meaning out
of the BSP vaults
1. BSP Governor. The BSP Governor has a term of 6 years, except when it is to fill a
vacancy for an unexpired term. He may be reappointed once for a total term of 12 Q: What is LEGAL TENDER?
years. A: Legal tender is currency in such quantity prescribed by law to be acceptedin
2. Cabinet Member – depends on the President who to send, currently it is DTI Secretary payment of obligations.
3. 5 fulltime Directors from the Private Sector –so that the BSP will not become a
dumping ground of political lame ducks.
P 1, P 5, P 10 Coins Up to P. 1000
 Private sector representatives need not necessarily be from privately owned
Centavo Coins Up to P. 100
private corporations. They may come from GOCCs such as the DBP, SSS,GSIS but
the appointment is staggered for a 6-year term. They may be re-appointed once
for a total term of 12 years. TRIVIA

Prohibition to Join Private Banks - Within the period of 2 years from separation from the Monetary
Board, neither the governor nor the full time directors may serve in any capacity in corporations
under the supervision of the Monetary Board (banks, quasi-banks and investment houses, Trust
Companies, Money changers and Remittance Centers as opposed to Financing companies and
Lending Investors which are regulated by the SEC), except if he would be representing the interest
of the Philippine Government.
BSP prints the notes and mints the coins. Production is local but materials are
imported. Notes are not paper; they are cloth. The cost of materials is very high.
The currency is called Peso. Its symbol is the capital letter P. There are 2other
countries that use Peso; they are Argentina and Mexico. Part of Peso is called a
Centavo. The sign for a Centavo is the small letter c.

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

A note contains 2 sets of serial numbers; they are located at the upper left and  Time (15% - 20% interest charge by the BSP because it
lower right. They also have 2 signatures on them, one belongs to the Philippine manages money supply; abovementioned)
President, and the other belongs to the BSP Governor.  Banks cannot loan all depositors
 Purpose:
The life of a note is estimated to be 5 years, but in Metro Manila, it is merely  Service Withdrawals
1year. If the estimated life is over, it is withdrawn and demonetized, i.e. it loses  Managing of money supply (15% - 20% mentioned)
the character of money.  Serves as source of funds for the discounting facility of the
Replacement of damaged Bills: BSP (Rediscounting of Receivables; Rediscounting Window)

1. If damaged, there must be at least 3/5 of the note present/ remain 3) Supervision of the Banking/ Money System
2. It must have at least one set of complete serial numbers  BSP has the power to issue rules and regulations which the banks follow
3. It must have at least one signature present  BSP has the supervision over the banking system
4. There must be no sign of intentional defacement (It’s a crime). o Close now, Investigate Later
 When BSP receives numerous complaints of unsound
 BSP issued a circular for banks not to accept for deposit or replacement banking practices being committed by a bank
notes showing intentional defacement.  Supervision/ in reality CONTROL

4) Purchase of Precious Metals

Replacement of damaged Bills:  Dollars are backed by Gold; Philippines are backed by nothing
Damaged coins may also be replaced if there is no sign of filing, clipping or 5) Representing the Philippine Government in its International Financial Dealings
perforation;

The reason for this is that the metal content would be diminished/ the value of the
coin would be diminished. Ideally, the amount stated is the total cost of making coins;
however, Philippine coins are worth more than their stated value. The year in front of
the coin is the year it was minted.
In case of possession of damaged coins, the possessor is presumed to have caused the
damage.
SECRECY OF BANK DEPOSITS / BANK SECRECY LAW (R.A. No.
1405)
Purpose of the law: To encourage people to deposit their money in banks forthe purpose of
promoting the national economy.
Scope: Includes investments in government securities

2) Management of Money Supply The relationship between the bank and the depositor is debtor-creditor where the bank is the debtor

All deposits are recorded as deposit liabilities – liability of the bank to the depositor
o How?
 Through Reserve Requirement – a percentage of the deposit liabilities Reserve Requirements
of banks which it needs to deposit with the BSP or invest in gov’t
securities What: Percentage of deposit received by the bank is to be deposited with the BSP
 Deposits How much: Percentage depends on the deposit liabilities
 Savings
 Current, Checking, or Demand 1. Highest – Checking

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

2. Medium- Savings GENERAL BANKING ACT OF 2000

3. Low – Time Deposit
BANK
Q: How does BSP use reserve requirements to manage money supply? Why is there a need to
manage money supply? - It is a corporation authorized by the Monetary Board to accept deposits from the public and to
grant loans.
A: If there were a lot of money in circulation, prices would go up. The reserve requirement is also
there in order for the BSP to have money to lend to banks. - Stock corporation that grants loans from deposits

REDISCOUNTING FACILITY: Promissory notes are used as security Kinds of Banks

General Rule: It is illegal for a bank officer or employee to disclose any information regarding bank 1. Universal Banks
deposits, including government securities. 2. Commercial Banks
3. Thrift Banks
Exceptions: a. Savings and Mortgage Bank – retail banks catering small deposits; accepts
deposits of small depositors for homebuilding purposes (Amount is smaller than
1. Written authority from depositor himself those of the universal bank’s e.g. P500 in BPI Family Bank)
 Must be specific to what account b. Private Development Bank – accepts deposits and grants loans; once the bank
2. In case of impeachment runs out of capital, it can invite the DBP to invest in it and DBP would require
 ex. Clarissa Ocampo membership in its BOD;“Development” is in its corporate name
 Only deposits in foreign currency enjoys absolute immunity (Foreign Currency c. Stock Savings and Loan Associations – it can be non-stock, where it cannot
Deposit Act). They are also exempt from garnishment accept deposits from the public but only from the restricted groups of persons.
 Deposits in Philippine Peso can be the subject of Garnishment (No disclosure in 4. Cooperative Bank
case of garnishment) 5. Rural Bank
3. Upon Court Order in case of bribery, dereliction of duty of public officials, violation of 6. Islamic Bank
Anti-graft and Corrupt Practices Act
 Extends to the spouses and relatives, close friends and associates in cases of Commercial Bank
AGCPA
4. Where deposit is the subject matter of litigation Definition: It is not defined in law. The law only identifies its powers and functions:
 Must be read literally, e.g. settlement of estate; wife channels funds out of a 1. To accept deposits subject to withdrawal by check.
corporation  However, the BSP may license other banks to accept similar deposits
5. By Order of the CA in relation to the Anti-Money Laundering Act 2. To open letters of credit.
6. Examination of books of banks by the BSP  MB licensed savings bank to do the same, e.g Ph Business Bank
7. Independent auditors they are not bank employees/officers 3. To engage in allied enterprises
4. To exercise the powers of a corporation
5. Granting of loans

As a matter of right, only commercial banks should accept deposits in checking accounts/current
accounts/commercial accounts/demand deposit. It may:

1. May issue letters of credit

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

2. Lend money / Granting of loans Example: House of Investment, Inc. and State Investment House, Inc.
3. Trading of government securities
4. Foreign transactions  Committing on a firm basis or best efforts to raise funds
5. Lease of Safety deposit box  Securities – instruments evidencing investment in a commercial enterprise (stock corporation)
 How to invest in a commercial enterprise?
Ownership of Other Banks o Lending money to it via:
 promissory notes,
A Commercial Bank can own 100% of just one other Commercial Bank. There is no limit on the  bonds[ more than 5 years],
number of smaller banks it can own.  debentures [secured by a mortgage]
Why: To encourage merger or consolidation. o Becoming a part owner (certificate of stock)

Commercial bank limit is 35% of equity, but still with a maximum of 25% per industry. Ownership of Other Banks

Universal Bank
Nature: Actually a commercial bank, but also authorized by Monetary Board toengage in the business
of an investment house.
 Engage both in allied or non-allied enterprise
 It is a commercial bank that may engage in the business of investment house
A Universal Bank can own 100% of just one other Universal Bank or Commercial Banks. There is no
limit on the number of smaller banks it can own.
Q: if Universal Bank invests allied or non-allied, what is the limit?
A: Equivalent to 50% of net worth but only up to 25% in a single enterprise
Thrift Bank

Functions and Powers:  Opening of letters of credit

1) To accept deposits subject to withdrawal by check. Kinds:

2) To open letters of credit. 1. Savings and mortgage banks
3) To engage in business of investment house  To lend money to those that want to construct houses. For small depositors
4) To engage in allied or non-allied enterprises. Non-allied enterprises have nothing to (small amounts of money).Banks prefer big depositors as maintenance costs are
do with banking. the same
5) To sell life or non-life insurance policies – cross-selling with insurance companies  a bank that accepts deposits of small depositors for the purpose of home building
where bank owns 5% of outstanding shares  Fixed rate of interest on housing loans
Investment House: It is a quasi-bank with two major functions: 2. Private development bank
 organized for development of community. If it needs additional capital, it may
1. Rediscounting of receivables – one entity goes to an Investment House and as collateral invite DBP to invest with it. To recognize it, check corporate name, it always has
pledges its receivables. development in its name.
 Ex. Business sells on credit and needs capital again, so it borrows from an  characterized lower than Savings & Mortgage banks
Investment House  it can entice DBP to acquire more funds (seats in the BOD)
2. Underwriting for securities where a corporation offers to the market securities for sale 3. Stock savings and loan associations
with certain commitments (ex. In corporation that needs more capital that can’t be raised  There’s also a non-stock but not bank. If non-stock no ACS. If stock, may accept
from stockholders – securities only if 20 or more persons) deposits from general public, if non-stock only from limited clientele
 Get SEC approval first, then have them sold by securities underwriters

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 Ex. AFPLSAI restricted only to AFP, PNP and family members; MESALA, (Meralco
employees including the Lopez group). Many corporations have savings and loan
associations and a credit union.
 Not considered a bank but can accept deposit from registered group of persons
Cooperative Bank
What: It is one set up and owned by cooperatives. There are no individual stockholders, all are
cooperatives. Under cooperative office, but bank underthe BSP.
- National Cooperative Office → Cooperatives
Rural Bank
What: It is organized to provide banking services in rural communities, to farmers/tenants or simply
stated, in rural areas. It is recognizable by “Rural” in its corporate name.
- Can be owned by foreigners up to 60%
Islamic Banks
Note: There is only one, owned by the government of the DBP as a controlling Shareholder.
- Bank providing banking services in Islamic dominated areas
Basic Rules on Banks
- A universal bank may own 100% of another UB/CB
Lending Money
- Is the bank allowed to lend any amount?
No. The amount of money lent must be secured by titled real properties and it must be
subject to the Single Borrower’s Limit, the maximum amount which any borrower may
borrow.
DOSRI may borrow from banks on the condition that:
1. it is approved by the BOD
2. in a meeting of the BOD with quorum,
3. without counting the officer involved in the quorum and approval votes, unless
the loan is part of a package, e.g. fringe benefits.
o Single Borrower’s Limit - Maximum amount that any person may borrow from a
bank
Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella
- What is the amount of the SBL: 20% of net worth of the bank but may be increased by 10%
of its net worth provided that the additional liabilities of any borrower are adequately
secured by trust receipts, shipping documents, warehouse receipts or other similar
documents transferring or securing title covering readily marketable, non-perishable goods
which must be fully covered by insurance.
- Do the SBL and DOSRI include legitimate interests only?
No, it includes illegitimate interests.
- What is the remedy for SBL: Syndicated Loans where loans from several banks are
obtained.
- If secured by real property: Loans may be secured by Real Property; however, according to
Section 37, the maximum amount that may be lent is 75% of the appraised value of the
land. If it has improvements, the value lent is not to exceed 60% of the appraised value of
improvements. Improvements must be insured.
- May directors of a bank borrow from the same bank?
o Yes provided:
 His proposal was approved in a meeting of the board in which there is
a quorum, without counting his vote
 His proposal was approved by a majority of the quorum
 Must be fair and reasonable
- Officers?
o Subject to the same condition as that of the directors
o Pre-approved loans
Regulation of Banks
- Under the law, only corporations under supervision of the Monetary Board may use “Bank”
or “Banking” in corporate name.
- Banks are prohibited from directly engaging in the business of insurance as an insurer BUT
A UNIVERSAL BANK can sell insurance policies of insurance companies which it may own.
(Bancassurance)
- All banks should be organized as a stock corporation and comply with the requirements of
the Monetary Board for licensing. Before a corporation can be organized, it must go
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through bank. After requirements submitted to the Monetary Board and completed,
endorsement by Monetary Board to SEC, which then has a ministerial duty to register it.
- There is a paid-up capital required by the Monetary Board. There is a period increase in
paid-up capital in order for banks to be more stable.
- If a bank wants to put up a branch, ATM, or stall, it needs a prior approval from the MB
- Banks are obliged to hire employees on a permanent basis
o Why? Bank Secrecy law applies to banks officers and employees
- Q: How many directors may a bank have?
A: 5-15, odd or even, no law obliges the BOD number to be odd. If consolidated, it may
have a maximum of 21.
o There must be two independent directors who are neither officers nor employees
of the bank.
- Can anybody be a director of a bank?
o No. Under the law, a person must pass the fit and proper rule
 Fit and Proper Rule
 Under the said rule, the MB is authorized to pass rules
providing for the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and
to disqualify those found unfit after due notice (Sec. 16, GBL)
 In determining whether an individual is fit and proper to hold
the position of a director or officer of a bank, regard shall be
given to his integrity, experience, education, training, and
competence.
 Quorum in meetings – GBA allows meeting via tele- or video-
conferencing
 Bank should not acquire treasury shares of its own
o Treasury Shares – shares already issued by a corporation but which shares a
corporation reacquires in its own name.
o Subscribed and Issued Shares – no difference between them in terms of rights
Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella
o If a bank acquires treasury shares, they should be gotten rid of in 6 months.
 Under the General Banking Act, bank should cause to be published at least every quarter
their financial statements.
o Each branch must submit daily statement of condition to the MB
 Clearing House – Bangko Central Lending facility for purpose of collecting checks drawn on
one bank but deposited in another
o Ex. BPI Katipunan depositor deposited checks from other banks such as
Metrobank and Allied Bank.
o Clearing house is where banks swap checks they received drawn on other banks.
Physically there is no cash involved, but transactions recorded.
o Under present rules, if within 24 hours a bank dishonors check, check should be
returned or else considered cleared.
o Bank cannot declare dividends if clearing house account are overdrawn. There is
only movement of cash if clearing house account is overdrawn.
PHILIPPINE DEPOSIT INSURANCE CODE
History
In the 1960s to the 70s, there were so many bank closures leading to the loss of the public’s
confidence. To restore faith in banking that is vital to the economy, the Uniform Currency Act was
repealed and the PDIC was created.
What is insured: Savings, current, time deposits (credit-debtor relationship). The PDIC insures only
deposits in savings, current or time accounts, not any other investments even if made with or
through a bank. It excludes money market transactions, and marginal deposits (amount required to
open a L/C).
Q: Why are money market placements not insured in PDIC?
A: They are not deposits but investments. There is no debtor-creditor relationship.
Money Market Placements – Transactions through bank but bank is not borrower.
Borrowers are other corporations that need to borrow for a short time. Reason for Money
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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

Market Placements is that normal loans take time. Bank is an intermediary between the
borrower and lender in the Money Market Placement.
It is lending to another person. Advanced is that in case of bank closure, you make get
Promissory Note by borrower.
What is the maximum indemnity: P500k per person per bank in the Philippines, whether in
Philippine or foreign currency. If it is a foreign currency deposit unit, indemnity amount in pesos on
the day the bank is ordered closed.
FOREIGN INVESTMENT ACT
Purpose of law: to encourage and entice foreign investments to bring in more foreign currency. It
was formerly illegal for transactions to be paid in foreign currency or in relation to foreign currency.
(To encourage entry of foreign investments for the creation of new industries to generate more
employment)
Salient Features

Joint Accounts: It is insured separately and independently. Before, when a bank is ordered closed, all  Foreigners can own 100% of any enterprise related to exports so long as it is not covered by
deposits of a person in different accounts in different banks will be collated. In the present law, joint Negative List A & B
accounts are insured separately. So, it is P500k per sole account per bank, and a total of P500k for all 1. Must export 60% of its production to enjoy the incentive or must export 60% of
joint accounts combined per bank. what it will buy locally
2. The foreigners may engage in any activity for as long as those are not covered by
Definition: A joint account is an account in the name of 2 or more persons. It is indicated by Negative List A & B
the words “and/or” (survivorship account, each can withdraw on his own) and “and” (all
depositors required to sign withdrawal slip).  Negative List A, activities reserved by the Constitution or other special laws to
Filipinos. e.g. advertising, public service
Kinds of Joint Accounts:
a. & - all depositors must sign the withdrawal slip
b. &/or or survivorship accounts – withdrawal may be made throughthe signature of one or  Negative List B, activities that are exclusively for Filipinos
all e.g. those relating to ammunition and firearms (unless the Secretary of National
Defense consents), pyrotechnics, nightclubs, beer houses, steam baths, and
Under the law, deposits in joint account are presumed co-owned in equal parts unless the contrary is massage parlours.
proved.
 Retail Trade Nationalization Law
Example 1: o Only Filipinos can engage in retail trade except Foreigners whose paid-up capital
Sir: 490k does not go below $2.5M
Sir + Wife Joint Account: 500k o A foreigner who wants to invest in the Philippines must: a) bring inward
Sir + GF Joint Account: 500k
remittance at least $200k; or, b) hire Filipino Workers no less than 50
Amount Recoverable by Sir: 990k

Example 2: o Inward Remittance: A foreigner may also own 100% of a domestic market
Sir: 490k enterprise if the foreigner remits and makes an investment worth $200k or
Sir + Wife Joint Account: 500k equivalent but not in areas where there are health related risks ex. Bars, beer
Sir + GF1 Joint Account: 500k houses, massage parlors, sauna baths, dancing halls.
Sir + GF2 Joint Account: 500k
Amount Recoverable by Sir: 990k o EXCEPTION TO $200k REMITTANCE:
 If the enterprise advances technology, as determined by the DOST and
hires more than 50 Filipino employees; the investment must also be no
less than $100k; or

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Commercial Law Review. 18-19. Dean Abella

 If the alien is a former natural-born Filipino, then he is allowed to own

urban properties with an area of 5000sqm. or rural properties up to 3
hectares.
 If both spouses are formerly natural born Filipinos, their total
lands must not exceed the above-stated land areas, and the
land acquired must be in different locations.

 Pension Fund – trustee is at least 60% Filipino

 Filipino Corporations:
o Domestic corporations must be at least 60% owned by Filipinos.
o Foreign corporations must be 100% Filipino owned.

 Foreigners may engage in certain professions in the Philippines

o See Labor Code
o There must be reciprocity between states

"Not Doing Business"

 Buying unlisted shares in the stock market is not considered investing in the Philippines
 Employing Distributors: if no capital coming from the foreigner

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

CREDIT TRANSACTIONS What if it contains “deliver to bearer” with a red stamp in big font of“NON-NEGOTIABLE”: It
is negotiable even if the baileeintends it tobe non-negotiable, as long as it contains words
of negotiability.
DOCUMENT OF TITLE How to Negotiate Documents of Title
Governing Laws: NCC (Sales), Code of Commerce, Warehouse Receipts Act 1. To Order Instruments: Indorsement (Blank or Special) and Delivery
 Documents of title - It is an instrument or document where the bailee acknowledges goods 2. To Bearer: Delivery
and contains an undertaking to deliver the goods If Originally to Bearer, then specially endorsed and delivered, the transferee must also negotiate
o Different with Instrument under the Negotiable Instruments Law by endorsement and delivery.

 Coverage: NCC covers GOODS to be transported or safely kept.NIL covers sums certain in NOTE: Once it has been especially endorsed, negotiate by endorsement and delivery all the time
money, except other properties that mayalso be covered. thereafter EXCEPT IF the last endorsement is in blank, then just deliver it subsequently

 Modes of Endorsement DIFFERENCE WITH Negotiable Instrument: Endorsement in a bearer NI has no effect.

o In Documents of Titles, endorsements must be IN BLANK or ESPECIALLY

o In Negotiable Instruments, it may be blank, especially, conditional, qualified, or BILL OF LADING
restrictive
Governing Law: Code of Commerce
Examples of Documents of Title
Kinds:
 Bill of Lading, issued by common carriers (Code of Commerce)
 Warehouse Receipt, issued by warehousemen (under the Warehouse Receipts Act and the  Bill of Lading – Common carrier of goods by water
General Bonded Warehouse Act).  Waybill – by trucks on land
o Quedan, a warehouse receipt that covers rice, sugar, or tobacco  Airway bill – by aircrafts, airlines
o Warehouseman – engage in the business of storing goods Formal Requirements
Who issues DTs: 1. It must be printed
 Common carriers 2. It must contain the complete name and address of the printer
 Warehousemen 3. It must contain the telephone/ facsimile number of the printer.
4. It must contain the TIN Number of the printer.
Forms of DTs – to facilitate trade
Content of B/L (Code of Commerce)
1. Negotiable IF it contains words of negotiability, i.e. to order, to bearer,or those with
equivalent words or phrases (e.g. holder, possessor) 1. Complete name and address of consignor/shipper.
2. Complete name and address of consignee.
2. Non-Negotiable 3. Complete name and address of the carrier/shipee (NCC).
4. Complete description of goods including marks and markings, e.g. Numbers on crates,
Names in pomelo crate from Davao
5. Amount of fare
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Commercial Law Review. 18-19. Dean Abella

6. Stipulations on limited liability What if a warehouseman issues more copies of WH receipts: He must indicate in the receipt that it is
only a copy and not the original. Otherwise, he is liable to a TP who receive it in GF and for value
 Nature: Contract of Adhesion but it is not prohibited; it is only interpreted against the party who
cause the ambiguity If a warehouseman issues more than one copy of a warehouse receipt, he should indicate
on copies that they are merely copies and not the original. If he fails to indicate it as a copy
 Q: Are printed stipulations on Bill of Lading binding on the shipper even if the shipper does not and a person in good faith received the receipt for value, he would be entitled to the goods
sign? as if his warehouse receipt were original.

Negotiability of WH Receipts
A: GR: Yes, a contract is perfected by mere consent. Here, consent is implied even if it is signed
only by the carrier’s representative. - A warehouse receipt is negotiable or non-negotiable.

EXCEPTION: There is no consent if print is too small that the shipper could not have read it as in Effect of Negotiation: Transferee acquires the direct right to receive goods from the warehouseman.
the Shewaram Case. However, the right is conditioned upon the following:

Effect of Issuance of a B/L: Disputable presumption that the carrier received the goods. It is not 1.) Person claiming the goods must first satisfy the liens of the warehouseman.
conclusive. 2.) He must surrender the original to the warehouseman which must be cancelled
Functions/ Purposes of Documents of Title and Bills of Lading 3.) He must express his willingness to sign the receipt upon delivery ofthe goods to him.
1. As a Receipt Liens of the Warehouseman
2. As a Written Contract between parties
3. As a Symbol, standing for the goods mentioned therein (Symbol) Nature: Possessory and Waivable by parting with the goods

1. Storage fees
2. Other arrangements with the depositor, e.g. premium and interest for additional insurance
WAREHOUSE RECEIPT coverage
 Governing Law: GENERAL BONDED WAREHOUSE ACT governs the conduct and business of 3. Cost of packaging and repackaging (though the latter is illegal)
warehousing Q: What should warehouseman do with the original receipt?
Who issues WR: Warehouseman – Public Warehouses A: Cancel it. If he fails to cancel it and the receipt falls into the hands of someone in good faith and
Requirements for Issuance who got it for value, warehouseman is liable to the person.

1. Annual license from DTI Director. Q: May goods covered by a document of title be levied upon on attachment for execution?
2. Bond must be posted before the issuance of a license, to answer for damages to goods A: Yes.
suffered while the goods are in storage. The bond is coterminous with the license.
3. Insurance against fire over all the goods stored in the warehouse. Effect of Loss of Original Receipt

Is there a prescribed minimum area for warehouses? NONE. 1.
What is its difference with a Customs-Bonded Warehouse: WH is licensed and bonded, while a
customs-bonded WH is a facility by importers of raw materials.
The claimant must file an action in court to prove his ownership or right over the goods. In
practice, the claimant merely posts a bond with the warehouseman.
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Commercial Law Review. 18-19. Dean Abella

2. It would be the claimant’s problem because he cannot oblige the warehouseman to deliver - Beneficiary becomes obliged to the maker
the goods without the original receipt
Requirements for a Letter of Credit
3. To protect the warehouseman, the claimant must post a bond for the value ofthe goods. 1. The person to whom credit is extended must be named. It must not be a bearer
instrument.
2. The amount or maximum amount of credit to be extended to that person shall be stated. It
must not be an open L/C. Addressee must not have the discretion as to how much is to be
LETTERS OF CREDIT given under the L/C.

Governing law: Code of Commerce, which deals with merchants. Relationship: Addressee <- Maker <- Beneficiary

Letters of Credit If the requirements are not met, it is called a Letter of Recommendation. A letter of credit cannot be
- It is a letter addressed by a merchant to another merchant to enable the person (merchant) in negotiable form.
named in the letter to attend to a commercial transaction.
- A form of bank facility or accommodation to enable persons to have a commercial Q: Why is there a need to specify the beneficiary? Why not just bearer or order?
transaction where the buyer is assured of the delivery of the goods he is buying and the A: Because of obligations to each other.
seller is assured of payment.
Kinds:
What is a COMMERCIAL TRANSACTION 1. Domestic – all parties in the same country; good for 6 months / 180 days
It is buying and selling. 2. Foreign – different countries; good for 12 months / 360 days

Who is a MERCHANT
He is a person, natural or juridical, having the capacity to engage in commerce and regularly engages Who issues L/Cs: Commercial banks as a general rule are allowed to issue letters of credit, but
in it “Regularly engages” means habitual, not necessarily a big volume of transaction Monetary Board may allow other banks to issue Letters of Credit.

If a natural person: How do L/Cs work

1. At least 18 years of age 1. Buyer and seller are insecure
2. With the capacity to enter into contracts of sale 2. Buyer goes to the full service branch of a bank to open a L/C in favor of the seller
3. Bank requires a marginal deposit, the amount required by banks of the purpose of opening
L/C
If a juridical person – partnerships and stock corporations
4. Bank remits the amount to the seller only after the seller presents proof of delivery
1. Organized according to law
2. SEC Certificate of Registration (corporations)
Example
BPI QC requests BPI Cebu to open a L/C in favor of a seller in Cebu.
Persons Involved BPI Cebu communicates to the Cebuano seller to ship the goods and upon proof of such delivery, BPI
1. The sender or maker, who is a merchant Cebu will pay him. Shipper thus ships the goods and the shipping company issues a bill of lading. If
2. The addressee who is also a merchant, and the goods are delivered to the common carrier and it issues a B/L, it is considered as delivery to the
3. The beneficiary or person name in the letter who may or may not be a merchant. buyer.
BPI Cebu gets the B/L from the seller, pays the seller, forwards the B/L to BPI Manila.
Who becomes obliged to whom? Buyer pays BPI Manila, claims the B/L, and receives the goods under the B/L from the carrier.
- Maker is obliged to addressee

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

What is the benefit of L/Cs to banks  Take note of the Civil Code: Delivery of goods to a Common Carrier for delivery to the
Service fees and interest on advance. buyer is considered delivery to the buyer

Example: Purchase price is P200k. The marginal deposit required is P120k, from which the bank
advances P80k to the seller. Interest on the P80k advanced by the bank is payable by the buyer to the
bank.
What is a Letter of Credit – Trust Receipt Line
A trust receipt is a receipt with undertakings. In lieu of a 100% marginal deposit, the buyer has the
option to execute a Trust Receipt in addition to the marginal deposit. Under the Trust Receipt, the
bank releases the B/L to enable the buyer to acquire the goods which he would sell and either (a) use
the proceeds thereof in paying the bank within a stipulated period, and/or (b) return the goods
unsold.
BANK LETTERS OF CREDIT
Definition: A bank facility or accommodation, to enable persons to have a commercial transactions
where the seller would be ensured of payment and the buyer, assured of delivery
SC Definition: It's a financial device to reconcile the seeming differences between buyer and seller,
where the seller is assured of payment and the seller is assured delivery
Bank acts as an intermediary between the buyer and the seller
Ex. Buyer in Manila, Seller is in Cebu. To be assured of delivery, the buyer in Manila opens a letter of
credit in BPI Manila and deposits the said amount considered as a marginal deposit. BPI Manila will
then in turn call BPI Cebu, informing it that a letter of credit had been opened in behalf of buyer for
the said amount for the order.BPI Cebu will confirm the order with the seller. Upon confirmation of
the order, BPI Cebu requires the following: a copy of the sales invoice, b) packing list, and c) original
bill of lading (most important). Upon delivery of the goods, BPI Cebu will pay the seller and transfer
the original bill of lading to the buyer for him to retrieve the goods at the warehouse of the . In this
transaction, the seller was paid without leaving Cebu, and the buyer got the goods without leaving
Manila. Both parties were secured because the intermediary is trustworthy.
In a Domestic Letter of credit: There are three independent contracts, Four in case of Foreign Letters
of Credit
1. Seller-Buyer
2. Bank-Buyer
3. Bank-Seller
4. Local Bank-Foreign Bank *In case of Foreign Letters of Credit
TRUST RECIEPTS
In a trust receipt transaction, the entruster, who has security interests over the goods, instruments,
or documents, entrusts those goods , instruments, or documents to the entrustee so that the
entrustee may sell those goods, instruments, or documents with the undertaking to remit the
proceeds of the sale to the extent of the amount owing to the entruster within the stipulated period.
If the amount owing to the entruster has not been met within the period, the entrustee is to return
the goods not sold.
- Trust receipts are issued to guarantee debts due to failure to pay the amount bank advanced in the
Letter of Credit.
Ex. Continuation of the earlier example. After a year of transactions with the bank, BPI offered to the
buyer open a Trust Receipt Line, which only required 60% marginal deposit. This is beneficial to the
bank because the bank will have interest over the 40% unpaid balance. The buyer would only be able
to acquire the goods upon payment of the balance, with interest, and service fees.
In case the buyer was unable to pay, the bill of ladings would still be transfered to the buyer, which
he would be able to sell. The proceeds of the sale would be applied to the remaining balance, within
a certain period. Upon failure to sell the said goods, the buyer shall return the said good which were
not sold to the bank.

Marginal Deposit: amount required by the bank to be deposited for the purpose of opening a letter A trust receipt is a receipt with undertakings. Must contain the words "received from"
of credit
Object of a Trust Receipt:
 If new account: 100% deposit depending on the value
 The bank only generates funds only on service fees 1. Goods: Commodities, any article of commerce
 In a Trust Receipt Line: Less than 100% of the value 2. Instrument: Negotiable instruments (via rediscounting)
3. Documents: Documents of title (it stands for the goods stated therein, hence as if already
Bill of Lading is the most important document by the seller. The Bill of Lading serves a receipt in possession)
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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

Parties to a Trust Receipt: o Violation of a TR only leads to civil liability: because of the similarity of Trust
Receipts and promissory notes, where the latter bears civil liability
1. Entrustee - NOW, the Trust Receipts Law explicitly provides for criminal liability and requires the
2. Entruster: who has security interests over the goods, e.g. holder of a Bill of Lading which is entrustee to insure the goods against all risks. In order to protect the banking system
a document of title
When a document has the same stipulations as a promissory note along with undertakings present in
SC: In a Trust Receipt, the entruster is the theoretical owner of the goods until the full payment of a trust receipt, then it is still considered a trust receipt.
the goods.
In banks, the transaction is often called an L/C-T/R line because of the interrelation of the 2
Note: Trust receipts may be between individuals transactions.
Undertakings of the Entrustee Sales on credit or instalments is not covered by the trust receipt law: Only civil liability
1. To sell the goods and from the proceeds of the sale, remit the amount owing to the - There is no trust receipt transaction for persons regularly selling goods for profit
entruster within the period stipulated. The proceeds mentioned include the profits as long
as there is still an amount owing to the entrustee.
2. If the amount owed cannot be remitted, to return the goods not sold within the period.

Effect of Returning Goods to Entruster: Only Civil Liability for the unpaid amount. The Bank will sell
the returned goods and apply the proceeds on the said credit of the entrustee.

- The entrustee has the option of returning all of the goods to the entruster if the due date is
near and he has not sold the goods to avoid a prosecution for estafa since there is no
conversion
o In this event, the bank would be the one to sell the goods and deduct the
proceeds from the debt of the entrustee.
- Returning the goods does not extinguish the obligation to pay the amount advanced by the
bank. Only limited to Civil Liabilities, no Criminal Liability

If a Trust Receipts is entered into by a partnership or corporation: Liability is borne by the person
who signed it

Why is there a need for the Trust Receipts Law:

The bankruptcy of bank became rampant from their failure to collect from borrowing importers who
did not remit any amount to the banks after they have claimed the goods. The P.D. regulating trust
receipts was made to protect the banking system. The PD requires the entrustee to insure the goods
against all risks.

Consequences of the Entrustee’s Failure:

- Before, there are two views:

o Violation of a TR is a criminal act under Art. 315 of the RPC.

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 Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

TRANSPORTATION LAW
Carpool Arrangement: Not a common carrier. Services are not offered to the public (even a narrow
sector of the public) nor is it considered as a business
COMMON CARRIERS
Importance of Classification: The diligence required of a common carrier is extraordinary diligence.
 A common carrier is a person, natural or juridical, who is regularly engaged in the
transportation of goods, passengers or both, offering its services to the public for a fee. Private Carrier: One which, without being engaged in the business of carrying as a public
 Association: no juridical personality employment, undertakes to deliver goods or passengers for compensation
 Firm: may even be a sole proprietorship
Common Carrier Private Carrier
 The common carrier is at liberty to transport what they want. Either exclusively goods or
Laws on Common Carriers Laws on obligation and contract
passengers, or both.
Subject to State Regulation Not subject to State Regulation
 A motor vehicle is not necessarily required to be a common carrier
Holds himself out to the public Contracts with particular individuals or groups
First Philippine Industrial Corp v. CA: Pipeline system is considered as a common carrier: "Common indiscriminately only
carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by Requires Extraordinary Diligence Requires ordinary diligence
land, water or air. It does not provide that the transportation of the passengers or goods should be There is a presumption of fault or negligence No presumption of fault
Must prove extraordinary diligence and Art. Must only prove fortuitous event
by motor vehicle. In fact, in the United States, oil pipe line operators are considered common
1734 as an exempting circumstance
carriers.

Elements
Registered Owner Rule:
1.) Transporting goods, passengers or both.
Gen. Rule: The person who is the registered owner of the vehicle is liable for any damage caused by
2.) Offering service to the public
the negligent operation of the vehicle although the same was already sold or conveyed to another at
3.) For a fee
the time of the accident
“Public”: It is not necessarily the general public; it may merely be a narrow segment of the public,
XPN: In case the vehicle was stolen from the owner
 e.g. school bus operator is a common carrier; pipeline is also considered a common carrier,
Kabit System: Is an arrangement whereby a person who has been granted a certificate of public
transporting fuel, and its clients are Shell and Caltex.
convenience allows another person who own motor vehicles to operate the under his license,
sometimes for a fee, or percentage of the earnings.
Sps Perena vs Sps Zarate: School service is a Common Carrier: The true test for a common carrier is
- A certificate of public convenience is a special privilege conferred by the government. Abuse of this
not the quantity or extent of the business actually transacted, or the number and character of the
privilege by the grantees thereof cannot be countenanced. The "kabit system" has been identified as
conveyances used in the activity, but whether the undertaking is a part of the activity engaged in by
one of the root causes of the prevalence of graft and corruption in the government transportation
the carrier that he has held out to the general public as his business or occupation.
offices.
Calvo vs UCPB General Insurance: Customs Broker and Warehouseman: Transportation of goods is
Standards of Care:
an integral part of her (broker's) business. To uphold petitioner's contention would be to deprive
those with whom she contracts the protection which the law affords them notwithstanding the fact 1.) Utmost diligence of a very cautious person (transportation of person)
that the obligation to carry goods for her customers, as already noted, is part and parcel of 2.) Extraordinary diligence (transportation of goods)
petitioner's business. 3.) Good father of a family / Ordinary Diligence

14

Note: There is no name for the standard of care in between extraordinary diligence and that of a
good father of family.
Obligation of Common Carriers - in General - the duties of the common carrier are:
1.) to accept passengers and goods without discrimination;
2.) To seasonably deliver the goods or to bring the passenger to the destination;
3.) To deliver the goods to the proper person; and
4.) To exercise extraordinary diligence in the performance of duties
5.) To transfer goods to the proper destination.
CARRIAGE OF GOODS
Standard of care required: Extraordinary Diligence
General Rule: Extraordinary diligence is to be exercised when the goods are unconditionally placed at
the disposal of the common carrier, until the goods shall have been delivered to the consignee or
until consignee has been informed of arrival of the goods and given a reasonable opportunity to
claim the goods.
 Reasonable opportunity depends upon the circumstances of time, place, and persons
Exception: When the shipper exercises the right of stoppage in transitu.
Exception to the exception: Ordinary Diligence if the shipper asks for delivery back to himself.
Q: In case of stoppage in transit, what is the relationship of the common carrier to the shipper?
A: The common carrier is merely a bailee, where the diligence required is only that of a good father
of a family.
Common carrier is not an insurer against all risks related to transportation.
When may the Common Carrier avoid liability for loss or damage to goods:
1.) When the proximate and only cause is a storm, earthquake, lightning, or other natural
calamity.
2.) When the proximate and only cause is an act of a public enemy in times of war, whether
civil or international.
3.) When the proximate and only cause is the character of goods or a defect in the container
or packaging.
4.) When the proximate and only cause is the act or omission of the shipper himself.
5.) When the proximate and only cause is the order of a competent public authority.
Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella
 NOTE: There must be no unnecessary delay in the prosecution of the voyage. The carrier
should not have committed an improper deviation.
 The diligence required is still extraordinary diligence (BUT, according to NCC 1739, it is only
Due Diligence).
Q: If not one of these five occurred, might the carrier excuse itself from liability?
A: Yes it may, but it is the obligation of the Common Carrier to prove that under the circumstances, it
exercised extraordinary diligence. The burden of proof is on the common carrier.
Q: If one of these five occurred, is there a chance to recover from the common carrier?
A: Yes, but the burden of proof is on the shipper to prove that there is failure to exercise the required
standard of care, still extraordinary diligence.
Stipulation on a standard of care less than extraordinary: Requirements:
1.) Must be in writing and signed by both parties
2.) It must be supported by consideration other than to transport (ex. Discount)
3.) The stipulated standard of care must not be less than that of a good father of a family.
4.) If there are other stipulations, they must be fair and reasonable.
 The shipper also has the obligation to minimize damage to itself.
There are 2 prestations in a bilateral contract to transport.
 With respect to the carrier its prestation is the promise of the shipper to pay the fare.
 With respect of the shipper, it is the promise of the carrier to transport the goods.
CARRIAGE OF PASSENGERS
Standard of care required: Utmost diligence of a very cautious person
When should diligence start: When the carrier agrees to take in the person as a passenger until the
passenger has reached his destination
Overloading or movement before the passenger is seated constitutes as negligence: Not practiced
though
SC: Brand new tires are not a valid defense and does not constitute utmost diligence: There must be
evidence that employees must have checked the vehicle to constitute as a valid defense
Stipulation lower standard of care: Not allowed. With respect to the safety of passengers, there can
be no compromise
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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

Exception: But if the passenger is transported gratuitously. Since there is no longer a contract of But NOW, there is no more transportation on deck because goods are transported only via
common carriage, but of private carriage containers.

Q: Is a common carrier insurer against all risks? Notice of Damage:

A: No, it is not, BUT in case of mechanical defects or when a common carrier violates a traffic rule,  Apparent Loss or Damage: File it right away, immediately with the carrier
the common carrier is always liable.  Not Apparent: 3 days from delivery

Employees’ Negligence: The common carrier shall be liable for acts or omission of its employees
although said employees may have acted without or in excess of their authority
Stranger’s Negligence: For acts or omissions of other passengers or third persons, if the common
carrier could have prevent death or injury by merely exercising the diligence of a good father of a
family and it failed to do so, the carrier is liable.
Common Carriers Liability for Moral Damages:
Note: Under general law (Civil Code and Code of Commerce), the claim must be filed right away if the
damage is apparent; if it is not apparent, it must be filed within 24h from delivery (Code of
Commerce).
Prescriptive period: An action for loss or damage to the cargo should be brought within 1 year after:
1.) Delivery of the goods (delivered but damaged); or
2.) The date when the goods should have been delivered (non-delivery)

1.) Death of passengers –in favor of the heirs Loss or damage: contemplates a situation where no delivery at all was made by the shipper of the
2.) When passenger suffers physical injuries goods because the same perished, gone out of commerce, or disappeared in such a way that their
3.) When the common carrier acts in bad faith existence is unknown or they cannot be recovered. It does not include a situation:

A common carrier is liable for moral damages against a waitlisted passenger whose number is called,  Where there is indeed a delivery but delivery to a wrong person or misdelivery
given a boarding pass, allowed to proceed to the pre-departure area but not allowed to board.  Where there has been damage arising from delay or late delivery

In such case, the Civil Code rules on prescription shall apply

CARRIAGE OF GOODS BY SEA ACT Actions of the Carrier on the Claim

Background: The COGSA is a law of American origin; it was made part of our laws during the 1. Settle it right away
American occupation. 2. Not to act on it
3. Reject the claim.
 In case of conflict between the Code of Commerce and the COGSA, the former prevails due
to specific provision in the COGSA. What is the remedy of the consignee in case of rejection: If the claim is denied, the claim should be
filed in court within 1 year from the delivery of the goods by the common carrier to the arrastre
Scope: It covers the shipment of goods by sea coming from another country into the Philippines. The operator.
shipment of goods must be covered by a B/L.
The transfer of the goods from the carrier to the arrastre is documented in a tally sheet after an
It is not applicable to: ocular inspection by the arrastre operator. When the arrastre receives the goods, it inspects the
1.) Inter-island or coast-wise shipping goods and lists the defects in the tally sheet. If there are defects found, they are formalized in the
2.) Shipment of livestock Bad Order Form.
3.) Those not covered by BL Under COGSA, a claim with the common carrier is not required. But under the Code of Commerce, it
4.) Before, COGSA does not apply also to shipment of goods on deck. is a condition precedent and thus constitutes the cause of action.

16

Q: When goods are insured and turned over to the arrestre operator and loss or damage is
determined, where and when should the claim by the insurer be filed?
A: Claim of the consignee must be filed with the insurer also within one year from delivery to the
arrestre operator. The insurer merely subrogates and steps into the rights of the insured.
Q: If the insurer did not act on the claim of the insured until after 1y, can it involve prescription?
A: No. Prescription between the insurer and the insured is as stated in the insurance policy or
Insurance Code.
Q: What if the goods are not annotated as damaged in the tally sheet or bad order form upon
turnover to the arrastre, but the goods are damaged upon turnover by the arrastre to the consignee?
A: The suit should be against the arrastre on the basis of quasi-delict since there is no pre-existing
contractual relation between the arrastre and the consignee.
Q: If the goods are insured but no claim is made by the insured against the insurer within 1 year from
delivery of goods, is the claim against the insurer barred after one year?
A: No.
Q: What if there is no damage annotation on the tally sheet, and the customs broker received the
goods from the arrastre, but upon delivery by the customs broker to the consigee, there is damage
which is not annotated on the delivery receipt?
A: Sue the broker on the basis of breach of contract of carriage, because the customs broker is a
common carrier. The ruling is that a customs broker who offers to transport goods to client as part of
services qualifies as a common carrier.
Q: In case of missing goods, or, if the vessel arrives but the goods are not offloaded, when should the
claim be filed?
A: Within one year from the last day when the carrier had the last chance to deliver the goods to the
arrastre operator, e.g. before the ship sails to another port.
Q: If the prescriptive period is about to expire, can the consignee extend it by sending a Demand
Letter to the carrier?
A: No.
WARSAW CONVENTION
What: It is an agreement among sovereign nations for:
1.) Having uniform documents in international air transportation,
2.) Fixing the liabilities for international air carriers.
Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella
Parties to the Warsaw Convention: The signatories are referred to as HIGH CONTRACTING PARTIES.
 The Philippines was not an original party because at the time, it was not yet a state and it
had no aircraft. Ph was a party by accession to the US.
"International Air Transport": Two Concepts
1.) One where the port of origin is in one country and the port of destination is in another
2.) One where the port of origin is in one country and the port of destination is in the same
country but the agreed stopping place is in another country.
 This often occurred when there were multiple colonies, e.g. LA (US) – Tokyo
(Japan) – Guam (US).
Documents made uniform:
1.) Passenger Ticket
2.) Baggage Ticket/Check: the white strip of long sticker with a bar code
3.) Air Consignment Note (Airway bill, it is a bill of lading)
Currency of Indemnity: Before, original indemnity used to be fixed in Swiss Francs; now, this was
changed to US Dollars by virtue of the Guatemala Protocol
*Note: The Senate has yet to ratify the Guatemala Protocol, but it has been the standard used
Fixed liabilities of the carrier - as amended by the Guatamala Protocol
1.) Death of a passenger: $100k, no question asked.
2.) Physical injuries: $100k maximum, depending on the severity of the injury
3.) Checked-in articles: $1k per kilo
- UNLESS a greater value is declared and the fare corresponding to the bigger value
is paid
- The value must be proven to be at least $1/kilogram; otherwise it is only value
you can prove.
4.) Hand-carried articles: $1k maximum regardless of weight and actual value
Why are liabilities fixed: Because of the different ways to assess damages for injuries or loss of goods
What to do to claim the full amount:
1.) Declare the value
2.) Pay fare according to the value
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 Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

ADMIRALTY Collision Allision

Impact between 2 or more moving vessels Impact of a moving vessel to a stationary one
Qualifications to be a Vessel: Not every watercraft is a vessel; it has to have the following
qualifications:
Three zones of time in Collision:
1.) It must not be a mere accessory to another watercraft (ex. Lifeboats)
2.) It must be registered with the MARINA 1. First time – anytime the danger of collision appears.
3.) It must be used to transport goods, passengers or both 2. Second time – from the time the danger appears until it becomes a practical certainty
4.) It is seagoing: not on a lake or river 3. Third time – from the time it becomes a practical certainty to impact.

Q: Who may own a vessel? Arrival Under Stress: Constrained to sail to the nearest port to avoid a. Natural calamity along route.
b. Avoidance of pirates c. Loss of provisions d. Accident that renders the vessel incapable of
A: Anybody. If a vessel is owned by more than one person, there is a disputable presumption that a prosecuting the voyage
partnership exists.
In case of Accidents in Admiralty: The captain must execute a MARITIME PROTEST, a sworn
HYPOTHECARRY RULE: The limited liability of a shipowner. statement where the captain relates what transpired.
- It is the value of the a) vessel, plus b) earned freightage plus c) insurance, if any, in the Contracts in Admiralty:
absence of evidence.
- Formula: Value of the Vessel + Earned Freightage + Insurance 1.) Charter party
2.) Bottomry
Q: Who participates in admiralty? 3.) Respondentia
4.) Marine Insurance
A: Those involved in navigation (crew) and housekeeping (compliment)
Charter Party: A contract of lease over a vessel
Crew of a Vessel:
Kinds of Charter Party:
1.) Captain: The title captain is used to refer to the commanding officer of a ship that goes
abroad. The title master is used to refer to the commanding officer of a ship that is 1. Bareboat/demise: where the lessor provides only the vessel, without crew, stores (things
engaged in local/inter-island travel. you eat), provisions (water and fuel).
- A ship captain has three roles: 2. Affreightment:
 Represent the owner of the vessel a. Time-charter, or a lease for a specific term of the vessel, with stores and
 Be the technical director of the vessel provisions
 Represent the country where the vessel is registered b. Voyage-charter, or a lease of a vessel for a voyage or series of voyages, with
2.) Mates (1st, 2nd, 3rd etc.) stores and provisions.
3.) Engineers.
According to the Supreme Court, the true charter is the bareboat charter. The time and voyage
Accidents in Admiralty: charter are merely subtypes of affreightment, which is a contract of carriage.
1.) Collision, or the impact of two or more moving vessels Ship Agent: Corporation representing the owner in every port where the vessel may make a call or
2.) Arrival under stress, or when a vessel is forced to sail to the nearest port. stop. The ship agent is in charge of provisioning the vessel.
3.) Shipwreck

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

- A ship agent is solidarily liable with the ship owner for contracts entered into for
provisions of the vessel.
- This liability is different from that of a mere agent, who is not liable if he discloses
his principal and acts within the authority given him.

Husbanding Agent: Agent in charge of freightage and settlement of averages

Averages: In admiralty, they refer to damages

Types of Averages:

1.) Gross/General Average, or damages suffered by the vessel or owners of cargo that shall
benefit not only the ship-owner but also the owners of the other cargo.
2.) Specific/Particular Average or those that do not benefit anyone.

Procedure for General Average:

1.) Captain calls a meeting with the representatives of the owners of cargo.
2.) They make a decision to throw away certain cargo.
3.) If the decision is urgent, the captain may choose from the largest and of least value
proceeding to the smallest of the most value.

Supercargoes: representatives of owners of cargoes. They sell cargo for the owner. Generally, they
are only able to use profits to buy goods. If they have a special power of attorney, they may use
capital to buy goods.

Bottomry: Loan taken by the ship-owner secured by the vessel. If the vessel sinks, the creditor loses
the right to collect and the obligation to pay is extinguished. If loan exceeds the value of the vessel,
the excess is an ordinary loan.

Respondentia: Loan taken by the cargo owner and secured by the cargo. If loan exceeds the value of
the cargo, the excess is an ordinary loan.

Marine Insurance: Insurance over the vessel or freightage, cargoes or profits expected from cargo.

DOCTRINE OF INSCRUTABLE FAULT: If there is a collision of two vessels and it cannot be determined
who is at fault, each bears his own loss. However, both ship-owners are solidarily liable for the
damage to all cargoes.

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 Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

INTELLECTUAL PROPERTY CODE  HOWEVER, though these may not be patentable, they may be mass produced
because their mass production is not prohibited by law.
Governing Law: Intellectual Property Code. It is a compilation of old laws on patent, copyright, 3. Mere concepts or ideas, eg sound makes people move
trademarks, trade names, service names, service marks. 4. Mathematical solutions
The Code is administered by the Intellectual Property Office. 5. Surgical procedures, ex. horizontal cut for caesarian birth. HOWEVER, the gadgets used are
patentable.
 The head is the Director-General
 Qualification: Must be at least 40 years of age and a lawyer. When is a person entitled to a patent: Upon creation
 Term: 5 years, eligible for a single re-appointment.  But protection only begins upon registration
 However, the first Director-General appointed has a term of 7 years without
reappointment. Term: 20 years from application

Kinds of Intellectual Properties: To whom are patents issued:

1. Patents 1. Inventor
2. Copyrights 2. Co-owners IF two or more invented it UNLESS there is an agreement to the contrary
3. Industrial Designs 1. One who first files an application IF the invention was arrived at by two or more persons
4. Layout or Topography of Integrated Circuits individually and independently
5. Trademarks and Tradenames 2. Employer IF the employee-inventor was hired to work on the invention, UNLESS there is
6. Geographic indication agreement to the contrary
7. Trade-Related Aspects of Intellectual Property Rights 3. Employee-Inventor IF he was hired to do something else, even though he made the
invention during his working hours

PATENT What is the advantage in patenting one’s invention: It is only the patent holder who gets the
exclusive right to mass produce the invention or to license the same.
 It is issued upon an invention, granting the exclusive right to mass produce or license the
mass production of the invention. Patent is a Personal property (intangible)

What are patentable inventions? The patent and the finished product are different properties, they may be dealt with separately

1. New: not part of prior art and if it is a different technology. Determination of whether a product is patented: the patent symbol “P” and number are already in
2. Involves an inventive step: involves an inventive step if it is not just newly discovered but the invention itself.
involved a process of trying this and that until one finds what works
 Xpn: Yakult Rights of a patent Holder:
3. Capable of industrial application: Could develops a new industry or an existing one for 1. To Mass produce
mass production of the invention or existing industry 2. To Licensing
What are not patentable inventions? a. Voluntary: agreement between the licensee and the patent holder
i. There are prohibited stipulation: Not exclusive-
1. Those contrary to law 1. Prohibition on export;
2. Those contrary to morals or public order 2. Limit on the price of sale;

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

3. Source of raw materials, which must be a person nominated

by the holder;
4. Hiring of employees which must be recommended by the LAYOUT OR TOPOGRAPHY OF INTEGRATED CIRCUITS
holder;  What: The pattern of a mother board is intellectual property.
5. Any other.
ii. These are prohibited because of the great moral ascendancy of the
holder over the applicant GEOGRAPHIC INDICATION
b. Compulsory
i. How: A person applies with the IPO for a license to mass produce a  Identified as to the place of origin
patented article. Ex. Guimaras Mangoes
ii. Proceedings are then held before the IPO.
iii. The licensee would still be liable for royalties
3. Royalties: Manner and rate is already imposed by law
TRADENAMES
Is any unauthorized copying of a patented article an infringement? NO. The following do not
constitute infringement:  The name that a person gives to his products to identify them and to distinguish them from
the products of others.
 personal and exclusive use
 use by the government, BUT it must pay royalties BUSINESS NAME: A business name is the name that a person uses to identify his place of business.
 research and development  It is governed by the Business Names Law. If using a business name different from true
Infringement Unfair Competition name, you register with the DTI, Bureau of Domestic Trade.
Unauthorized copying Copying a product of another and passing  Term: Registration is good for 5 year, subject to renewal prior expiration
them off as one's own; Considered as a  One store, one registration
felony  No juridical personality
Must be registered Product may not be patented
Remedies
TRADEMARK
1. Civil: Injunction and actual damages
 It is a sign, emblem, or mark that a person uses to identify and distinguish his products
 Must prove actual damages
from that of others.
 Ask for royalties
2. Criminal Action: Only if the infringement is repeated
SERVICE NAME
INDUSTRIAL DESIGN  It is the name, sign, emblem, or mark that is used to identify service (eg. Good Year
Servitek, Rapide). It covers both things and services.
 It is a combination of lines, or of colors, or of lines and colors. Lines need not be straight.
Term: 10y, with limitless renewals. But after five years,
Ex. Burberry Checkered pattern, Louis Vuitton pattern
 The owner must file an affidavit of use (Declaration of Actual Use) of the Trademark or
Term: 5 years, subject to 2 renewal of another 5 years
Trade name with the IPO over the past period.

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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

 Under the IPC, the Declaration must be filed 3y from filing and 1y from the fifth anniversary
(124.2, 145).
Why do you need to register Trademarks or Trade names: To enjoin the use by others or to file a suit
for infringement
Certain Rules:
 Exclusivity: Once a Trademark or Tradename is registered in the name of a person, no
other person may use a similar or confusingly similar name or mark in connection with a
similar or closely-related product
 Trade names may be trade marks at the same time, but both must be registered to be
protected
 Trade names and Marks include service name and mark
 Taste is not protected.
 First to File System; prior use is not required
DOCTRINE OF COLORABLE IMITATION
 There is colorable imitation when a person gives his product/s an appearance that is similar
or confusingly similar to the appearance to the product of another, calculated to make the
ordinary buyer believe that his product is the same as the product of another.
 Villapania had been using as trademark of her soy sauce the name of "Bangos
Brand" written in the same distinctive style of lettering as that of the petitioner's
"Carp Brand", above the drawing of the fish similar to the fish drawing on the
trademark of petitioner, on labels also attached to the bottles containing her soy
sauce, and the bottles were wrapped also in tissue paper bearing a similar design
3. Asia Brewery v. CA and San Miguel: Beer na Beer Case.
 In the 70s, Asia Brewery created Beer na Beer (Beer Housen) that had the same
taste as San Miguel (Pale Pilsen), but Asia Brewery also used the same shape of
bottles. The Supreme Court held that there was no unfair competition, applying
the holistic test. The beer of AB could not be mistaken for San Miguel because
the prices of the former are cheaper.
DOCTRINE OF SECONDARY MEANING
 Where a name is used so long and so exclusively to identify a product, that whenever the
name is mentioned, reference is readily made to said product, although the name is not
registered because it is not registrable, no other person may use that name in connection
with a similar or closely related product.
There is a need for a public record of who owns businesses in order to know who to sue. This is
needed for signs or printed documents.

Ordinary buyer: Buyer relying on the general appearance, images, and color combinations of Why do we have this doctrine: Because not all names are registrable but may still be used
products. 1. Generic words: Ex. "sabon"
Under jurisprudence, it is such a close or ingenious imitation as to be calculated to deceive ordinary 2. Immoral words: Profanities
persons or such a resemblance to the original as to deceive an ordinary purchaser giving such 3. Descriptive/Misdescriptive: "Ang Tibay"
attention as a purchaser usually gives, as to cause him to purchase the one supposing it to be the 4. Geographic words or names:
other. 5. Names, sign, or portrait of Past Presidents, UNLESS the widow consent’s
6. Flags and simulations
Case in point: 7. Coat of arms and simulations

1. Del Monte v. CA and Sunshine Sauces: Bottles of Del Monte are patented.
 One case involved the Sunshine brand of ketchup that used the bottles of Del
Monte because the owner of Sunshine could not afford to make his own bottles.
The manufacturer replaced the labels of the bottles but the labels had the same
color combination. Add to this the fact that the bottles had markings that they
were products of Del Monte. It was not ordinary buyers that were misled but also
those that read the labels.
2. Chuanchow Soy & Canning v. Dir. of Patent: Carp v. Bangos
Effect of non-registration: no action for infringement
Case in Point
1. Ana Ang v. Toribio Teodoro: Ang Tibay Case.
 Teodoro has long been using ‘Ang Tibay’ both as trademark and tradename in the
manufacture and sale of its slippers, shoes and indoor baseballs when he formally
registered it. Meanwhile, petitioner Ang registered the same trademark ‘Ang
Tibay’ for its products of pants and shirts. "Ang Tibay,” being neither geographic
nor descriptive, was originally capable of exclusive appropriation as a trade-mark.
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But were it not so, the application of the doctrine of secondary meaning made by
the Court of Appeals could nevertheless be fully sustained because, in any event,
by respondent’s long and exclusive use of said phrase with reference to his
products and his business, it has acquired a proprietary connotation.
TWO TESTS TO DETERMINE INFRINGEMENT:
1. DOMINANCY TEST – When the prevalent features are likely to confuse one product with
another. To determine whether there is possible confusion between products, look into the
dominant features.
 Ex. Leon Katol v. Two Lions Katol, Marca Manok (image of a rooster) v. Hen Brand
(image of a hen)
2. HOLISTIC TEST – Consider not just the prevalent feature but also other factors. Even if
there is similarity, there is likelihood that they will not be confused with each other.
 Mead Johnson v. N. V. J. Van Dorp: Alaska (all purpose milk) v. Alacta (infant
preparation milk): The trademarks in their entirety as they appear in the
respective labels must also be considered in relation to the goods to which they
are attached. The discerning eye of the observer must focus not only on the
predominant words but also on the other features appearing in both labels in
order that he may draw his conclusion whether one is confusingly similar to the
other.
 Taiwan Kolin v. Kolin Electronics: "KOLIN" v. "kolin": No infringement, both are
known brands in their respective countries
COPYRIGHT
Scope: Other intellectual creations, such as books, musical compositions, adaptations, song lyrics,
melodies, compilations, photos, computer programs, and slogans.
 Copyright is one property and the copyrighted work is another property.
 There is copyright for the lyrics and another for the melody in songs.
 Adaptation of musical compositions are works patterned after the works of others
 Patterns of TV and radio programs are not copyrightable
 Protections given to Computer Programs = Copyright
 Copyright still owned by the Copyright holder is not subject to attachment
Who are protected by copyright
1. Intellectual creator: Composer, writer, etc
Abella Danger Notes
Updated by: J E B
Commercial Law Review. 18-19. Dean Abella
2. Co-creators IF 2 or more persons created the same, UNLESS there is an agreement to the
contrary.
 There is no first to file doctrine due to impossibility of making the same
intellectual creation.
3. Employer IF the person is hired to do an intellectual creation, UNLESS there is an
agreement to the contrary
4. Employee IF he is hired to do another thing, even though done during work hours even if
using the resources of the company.
5. Commissioned person: If a person is commissioned to create intellectual property, the
work belongs to the commissioner while the person commissioned owns the copyright,
UNLESS there is an agreement to the contrary
 Ex. Murals (Commissioner - Mural itself : Artist - Copyright)
Is registration required for protection? NO. It follows the first-to-use system, NOT the first-to-file.
Term: Copyright is protected from creation and lasts until the lifetime of the copyright holder and 50
years from his death (which is counted from the first day of the year following his death).
 If a person wants copyright protected, within 30 days of becoming public, he must register
the work.
IPC: Registration is purely for recording the date of registration and deposit of the work and shall not
be conclusive as to copyright ownership or the term of copyrights or the rights of the copyright
owner, including neighboring rights.
Advantage of Copyright: Copyright cannot be attached while it belongs to the intellectual creator.
However, when transferred to another, it may be levied . This is different from patent which can be
attached even if owned by the intellectual creator.
Rights of a Copyright Holder
1. Economic right. Shall have the exclusive right to :
a. the right to mass produce the work or to license it;
b. the right to make other versions of the work: Ex. sequels
c. the right to make translated versions
2. Moral rights, or the right of the owner to demand that his authorship be acknowledged
and in a certain manner of presentation. If there are errors, he can demand rectification of
the errors.
a. Moral rights are perpetual
Copyright Infringement: Unauthorized copying of a protected work
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Updated by: J E B
Commercial Law Review. 18-19. Dean Abella

 XPN
o Personal use, one copy only
o Quotations of portions from books, with acknowledgement
o Fair use of legitimate computer programs: Ex. one computer, one program
o Libraries with old books may reproduce these books so long as they are no longer
being published. However, this is only for library use and not for resale.
o Rebroadcasting, which is only a simultaneous broadcasting
o TV program patterns

Remedies against Infringement:

1. Civil action: For injunction and damages or royalties

2. Criminal prosecution: Repetition of infringement is not required! The very first act of
infringement is already criminal.
 But for the prosecution of piracy, the original is required.
 The law provides for the destruction of printed materials, printing plates and
stencils.

Fair Use Rule: One legitimate program for one computer set

Whom do our intellectual property laws protect: The following:

1. Citizens, nationals
2. Residents with an effective establishment
3. Residents of a country that participated in an international convention where the
Philippines also participated.
4. Citizens of countries that offer reciprocal rights to Filipinos.

Q: May foreign corporation, not registered with the SEC as a foreign corporation, sue in our courts
for the protection of intellectual property rights?

A: Yes, Philippines is part of Paris Convention for Protection of Intellectual Property Rights. As long as
there is reciprocity.

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