CREDIT TRANSACTIONS
LETTERS OF CREDIT
GOVERNING LAW:
 Code of Commerce
DEFINITIONS:
LETTERS OF CREDIT
 Code of Commerce: A letter addressed by a merchant to
another merchant to enable the person named in the
letter to attend to a commercial transaction.
 Alternative definition: A form of bank facility or
accommodation to enable persons to have a commercial
transaction where the buyer is assured of the delivery of
the goods he is buying and seller is assured of payment.
o GR: Only commercial banks may issue L/Cs
COMMERCIAL TRANSACTIONS - contract of sales
MERCHANT
 A person, natural or judicial, having the capacity to
engage in commerce and regularly engages in it.
o 21 years old but reduced to 18 years old
o With capacity to engage in commercial
transactions
o Regularly engages in commercial transactions
 TEST: Habituality not volume
o For Juridical person:
 Organized according to law
 Regulary engaged in commercial
transactions
PARTIES INVOLVED:
 Sender/Maker – merchant
 Addressee – merchant
 Beneficiary/Person named in the L/C – may not be a
merchant
REQUIRMENTS TO BE A L/C
1. Name of the person to whom credit is to be extended is
stated. Cannot be issued in a negotiable form.
2. Amount or maximum amount of credit to be extended to
the beneficiary must be stated.
 If requirements are not met, the letter is called a letter of
recommendation.
KINDS:
 Domestic – all the parties are in one country. Must be
transacted within 6 months.
 Foreign – parties are in different countries. Must be
transacted within 12 months.
LIABILITIES:
 Maker is liable to the addressee, beneficiary is obligated
to the addressee.
HOW DOES L/C WORK
 Buyer and seller enter into a commercial transaction
 Buyer goes to the full service branch of a bank to open
an L/C in favor
 Marginal deposit - required deposit to open an L/C
 Bank remits the amount to the seller after the seller
presents the proof of delivery to the bank
  To enable the corresponding bank to collect on its letter
of credit, it must strictly comply with the requirements of
the local bank

INDEPENDENT PRINCIPLE
 A bank, in determining compliance with the terms of a
letter of credit is required to examine only the shipping
documents presented by the seller and is precluded from
determining whether or not the main contract is actually
accomplished or not.
 The 3 separate contracts are independent from one
another.

HOW MANY CONTRACTS:

o DOMESTIC - 3 independent principal contracts
 Buyer and seller – Contract of sale
 Buyer and bank – The issuance of a letter
of credit upon agreement of reimbursement
to the bank after it has effected payment
 Seller and bank – The payment by the bank
upon submission of the required documents

o FOREIGN – 4 contracts
 Contract between correspondent banks
(local and foreign bank which have facilities
to transact letters of credit)

IMPORTANT PRINCIPLES:
DOCTRINE OF STRICT COMPLIANCE
TRUST RECEIPT
GOVERNING LAW:
 Trust Receipts Law
DEFINITION:
 The entruster who has security interest over goods
entrusts those goods to the entrestee in order for the
entrestee to sell the goods, and the proceeds of the
goods shall be remitted to the entruster within an agreed
period. If such amount could not be remitted after a
period, the entrestee shall return the unsold goods to the
entruster.
 NOT A TRUST RECEIPT: The sale of goods, documents
or instruments by a person in the business of selling
goods, documents or instruments for profit who, at the
outset of the transaction, has, as against the buyer,
general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit,
retaining title or other interest as security for the payment
of the purchase price, does not constitute a trust receipt
transaction and is outside the purview and coverage of
this Decree.
PARTIES:
 Entrustee
 Entruster – the one who has security interest over the
goods
o Entruster is the theoretical owner of the goods
since he advanced the full payment of the goods.
UNDERTAKING OF THE ENTRUSTEE
 Sell the goods, and from the proceeds, remit the amount
to the entruster within a period stipulated.
 If the amount owed cannot be remitted, return all goods
that have not been sold within the period.
o Once the amount is fully paid by the merchant, all
the profits left as well as the goods remaining shall
now belong to the entrustee.
IMPORTANT PRINCIPLES:
 Violation of the T/R
o Punishable as a criminal offense under Art. 315 of the
RPC
 To avoid criminal liability, return all the goods
remaining with you and all that is left is civil
liability for the amount due
 EXC: Criminal liability does not attach when the
object of the T/R is not intended to be sold but
merely for personal use.
 Persons selling goods on credit or installments, does not fall
under the law on trust receipts.
 Liability in case of loss:
o Theoretical owner – Entruster
o Possessor of goods – Entrustee
o Ex. Fire or Roberry
 Entrustee – since law provides that the
entrustee is liable in all events. Law obliges the
entrustee to insure the goods against all risk.
VARIATIONS OF T/R
 Person furnishes another with materials, where another
transforms the materials into a finished product.
o Who owns the finished products? Owner of the
material
MORTGAGE
GOVERNING LAWS:
 Civil Law
 Chattel Mortgage Law CHATTEL MORTGAGE
 Ship Mortgage Decree
 Article 3135 DEFINITION:
 Civil Code: Art. 2140. By a chattel mortgage, personal
DEFINITION: property is recorded in the Chattel Mortgage Register as a
 A mortgage is a contract where the property is recorded in security for the performance of an obligation. If the movable,
the register of deeds of the city or province, to secure a instead of being recorded, is delivered to the creditor or a
principal obligation. third person, the contract is a pledge and not a chattel
 Accessory Contract where property is recorded to secure the mortgage.
fulfillment of any valid obligation  Chattel Mortgage Law: Sec. 3. Chattel mortgage defined. —
A chattel mortgage is a conditional sale of personal property
BASIC PRINCIPLES: as security for the payment of a debt, or the performance of
 Accessory Contract some other obligation specified therein, the condition being
 Mortgagor must be owner that the sale shall be void upon the seller paying to the
purchaser a sum of money or doing some other act named.
 Once the principal is extinguished, mortgaged is also
If the condition is performed according to its terms the
extinguished
mortgage and sale immediately become void, and the
mortgagee is thereby divested of his title.
SCOPE:
o Better to use definition in Civil Code
 Personal Property – Chattel Mortgage
 Real Property – Real Estate Mortgage
BASIC PRINCIPLES:
 Chattel Mortgage involves Personal Property
PARTIES:
o Can there be a chattel mortgage over a house? Yes,
 Mortgagor - who can be actually the principal debtor himself
but only between the parties. Stipulation of the parties
or a 3rd party who agreed to mortgage his property
is the law between the parties (Jurisprudence)
 Mortgagee
 Must be over existing obligations
o Case: mortgagor fully paid, was given a certificate of
release of mortgage but did not register. Loaned
money again and just returned the certificate of
release of mortgage. Judgment creditor from another
loan and tried to foreclose the same chattel. SC:
 Judgment creditor is favored. In the eyes of the court, - ABSOLUTELY NECESSARY: Mortgagee
there was no 2nd mortgage since it secured should have possession of the thing mortgaged
something that was already extinguished. (mortgagee should demand the possession
after the mortgagor defaults)
 How do you gain possession? Replevin
WHERE TO REGISTER: - HIGHEST BIDDER: Sold to the highest
 Recorded with the Register of Deeds in the city or province bidder, who should be ready to pay in cash
where the mortgagor resides. MORTGAGEE:
o What if the chattel is in a different location? Register  No obligation to deliver any amount
in both places (credited tot the total claims)
o Shares of stock? Registration in the RD is enough 3rd PARTY:
o Motor Vehicle? Registered with the RD then with the  Excess - goes to the mortgagor
LTO.  Deficiency – it depends. If covered by
the Recto Law, cannot recover.
FORM FOR REGISTRATION: Otherwise, you can recover.
 Affidavit of good faith – sworn declaration of both mortgagor o RECTO LAW RULE:
and mortgagee that they executed the mortgage in good o The very object of the installment
faith to secure a valid obligation and not for purposes of sales must be what is mortgaged
fraud. o Defaults in at least 2 installments
o If no affidavit, RD won’t accept but the Chattel o Lease purchase agreement – (if
Mortgage is still binding upon the parties. However, cannot pay unpaid rentals, cannot
CM will not be binding upon 3rd parties recover if already repossessed)
 CERTIFICATE OF SALE
REMEDIES: (Alternative Remedies)  Sheriff/Notary prepares a certificate of
 Sue for specific performance, OR sale (not a deed of sale)
 Foreclose the mortgage (Extra-judicial foreclosure)
o Who handles the extrajudicial foreclosure of a CM?
 Sheriff
 Notary Public
o Procedure:
 Petition Extra-judicial foreclosure with the
Sheriff or Notary Public
 Notice of Extra-judicial foreclosure of the CM
by Sheriff of Notary Public
 Notice is posted in at least 2 public places AND
a copy sent to the mortgagor before the auction
sale
 Auction sale

REAL ESTATE MORTGAGE
BASIC PRINCIPLES:
 Covers Real Property
 May be instituted over future obligations
 Dragnet or blanket clause – stipulation that the REM secures
not only a particular obligation of the mortgagor but all other
obligations towards the mortgagee
 Act 3135 governs extrajudicial foreclosure
 Can be foreclosed judicially or extrajudicially
o Extrajudicial foreclosure has right of redemption and
refers to Rule 39 of the Rules of Court
 ABSOLUTELY MANDATORY: To foreclose REM, in the
deed of mortgage or in a separate instrument, the mortgagor
must expressly authorize the mortgagee to sell the property
mortgage in case of default.
o Banks had to revise their deeds of REM so that they
can foreclose extrajudically since it must be expressly
stated.
PROCEDURE FOR EXTRA-JUDICIAL FORECLOSURE:
 Mortgagee must prepare a verified petition to foreclose.
 Petition is filed with the office of the clerk of court and after
paying court fees.
 Petition is given to sheriff or notary public
 Sheriff or notary prepares a notice of auction sale
o Post Notice in at least 3 public places
o Notice should be published once a week for 2
consecutive weeks in a newspaper of general
circulation
o Make sure to particularly describe the property!!
o Notice is proved either by a certificate of notice or
Affidavit of Publication and a copy of the issue of the
newspaper.
 Auction Sale
MORTGAGEE:
o No obligation to deliver any amount (credited tot the
total claims)
3rd PARTY:
o Excess - returned to the mortgagor
o Deficiency – recoverable (compare with CM)
 No longer any requirement of having at least 2
bidders
o REMEDY: TRO on auction sale:
 Proof of full payment of the obligation
 If the only issue is the reasonableness of the
interest being collected
 Certificate of Sale
o Issued by sheriff or notary
o Period of redemption starts from the moment the
Certificate of Sale is registered with the RD
 Redemption
o Exercised by valid tender of the redemption price
 Payment of full amount in legal tender/check
o Redemption period: 1 year from registration
 EXC: GBL 2000 – 90 days or before the
registration of title over the property, whichever
comes first if the mortgagor is a juridical
persona and the mortgagee is a bank
o Parties allowed to exercise right of redemption:
 Mortgagor
 Successors-in-interest
 Judgment creditor of mortgagor
o Redemption price:
 Special law if created by said law, or
 Bid price + 1% interest per month of the bid
price + Taxes and charges + 1% interest on
taxes and charges
 CHATTEL MORTGAGE REAL ESTATE MORTGAGE
OBJECT Personal Property Real Property
SCOPE of Redemption
o Certificate Existing–and valid obligations
cancels the certificate of Existing and valid obligations, including future
sale obligations
 FORECLOSURE
Acquisition of Title Extrajudicial Extrajudicial or Judicial
o Certificate/AffidavitNo right of redemption
REDEMPTION With right of redemption
RIGHT
 Final Certificate of sale from the Sheriff; or
EXCESS Not required
 Affidavit of non-redemption Required
DEFICIENCY
o Payment of taxes and Rightcharges
to recover deficiency except if under Recto Law May claim deficiency
1. After payment, BIR issues certificate
authorizing registration (CAR)
2. Pay in the bank DST & CGT
3. Go to local treasurer for payment of transfer tax
– official receipt possession of the property. Failure to do so
4. tax clearance certificate after updating real does not qualify one as a buyer in good faith.
estate tax
 Payment of taxes should be reckoned from the
date of expiry of redemption
 Tax base: (whichever is higher)
 Bid price; or
 Market value in the tax declaration
 BIR valuation (zonal value)
 Registration with the RD
o Submit all of the above documents to the RD along
with the title of the mortgagor  Certificate of title will
be issued
o What if mortgagor doesn’t want to leave? File an ex
parte petition for the issuance of a writ of possession
in court (in the nature of a motion)
 Attach CTC of the registration of deeds
documents
 Case: Issuance of the writ of possession is a
ministerial duty of the court with respect of the
mortgagor, but in order to be a buyer in good
faith, he should have inquired into the title of
the possessor and checked the TCT.
 Buyer in good faith doctrine: Looking at the
certificate of title is no longer enough; buyer
must look at the right of the person in actual
DOCUMENTS OF TITLE
GOVERNING LAWS:
 NCC (Sales)
 Code of Commerce
 Special laws
DEFINITION:
 It is an instrument or document where the bailee
acknowledges goods and contains an undertaking to
deliver the goods.
o They show ownership and represent the good
FORMS:
1. Negotiable
2. Non-negotiable
o Different from negotiable instrument (only limited
to sum certain in money) vs. document of title
(involves goods)
 How would you know if negotiable or not? Just find out if
there are words of negotiability.
o “Order or to bearer”, or “equivalent meaning”
o As long as it has words of negotiability, even
though it contains the words “non-negotiable”, it
can still be treated as negotiable
NEGOTIATION/ENDORSMENT:
 Why need to negotiate? To facilitate commercial
transactions
 How do you negotiate a document of title?
o Order document = indorse and deliver
o Bearer document = deliver only
 Kinds of endorsement
o In blank – just signs, no other words
o Special – name of the transferee is mentioned +
signature
o For an originally bearer document  specially
indorsed and deliver, the transferee needs to
indorse and deliver again to transfer it (Cf. NIL)
 EXC: last endorsement is in blank
BILLS OF LADING
GOVERNING LAW:
 Code of Commerce
CONTENT:
 Printed (with details of printer)
 Name & Address of shipper/consignor
 Name & Address of consignee
 Name & Address of the carrier/shipee
 Complete description of the goods including marks and
markings
 Amount of fare
 Terms and conditions limiting the liability of the common
carriers in case of lose or damage
o SC: Binding on the shipper although they are only
signed by the common carrier and not the shipper.
Implied acceptance if you do not stipulate.
Contract of adhesion – interpreted against the
party making the contract.
o EXC: Case where the print is too small that the
shipper could not have read it.
FUNCTION: (3-fold)
 It serves a receipt
  Written contract between the parties
 Stands for the goods mentioned therein.
Does the BIL give rise to a conclusive presumption that the
goods were received by the carrier? No, disputable presumption
only
WAREHOUSE RECEIPTS ACT
GOVERNING LAW:
 General Bonded Warehouse Act
REQUIREMENTS:
 Annual license from DTI/BOC
 Bond – to answer for damage of goods in storage
 Insurance
IMPORTANT PRINCIPLES:
 If a warehouse man issued more than 1 copy of a
negotiable warehouse receipt, on a copy he should
indicate that it merely is a copy. Failure to do such, he
shall be liable to whoever may come into possession of
that copy, and shall be treated as if it were an original.
 Obligation of the warehouseman after getting back the
original warehouse receipt? He must cancel it. If it falls
into the hands of a holder in GF and for value, warehouse
man is liable to that person
 If more than one person claims the title or possession of
the goods, the warehouseman may, either as a defense
to an action brought against him for non-delivery of the
goods or as an original suit, whichever is appropriate,
require all known claimants to interplead.
 Goods covered by a document of title may be levied upon
on attachment for execution.
 Warehouse Receipt is either negotiable or non-
negotiable.
CONDITIONS (SSS)
 The person claiming should satisfy all the liens of the
warehouseman
 He must surrender the original warehouse receipt
o If original is lost? Go to court and prove your case.
Claimant is required to post a bond
 He must express willingness to sign the receipt upon
delivery of the goods to him
NEGOTIATION
 Effect of negotiation of a warehouse receipt?
o Through negotiation, the transferee acquires the
direct obligation of the warehouseman to deliver
the goods to him.
 Warranties of a negotiator or transferor
o A person who, for value, negotiates or transfers a
receipt by indorsement or delivery, including one
who assigns for value a claim secured by a
receipt, unless a contrary intention appears,
warrants (Sec. 44)
 That the receipt is genuine,
 That he has a legal right to negotiate or
transfer it,
 That he has knowledge of no fact which
would impair the validity or worth of the
receipt, and
 That he has a right to transfer the title to the
goods and that the goods are merchantable
or fit for a particular purpose whenever such
warranties would have been implied, if the
contract of the parties had been to transfer
without a receipt of the goods represented
thereby.
o However, the indorsement of a receipt shall not
make the indorser liable for any failure on the part
of the warehouseman or previous indorsers of the
receipt to fulfill their respective obligations. (Sec.
45)
 LIENS
 Storage Fees
 Other arrangements with the depositor
 Cost of packaging and repackaging CASES:
 Solidbank provided a credit line with a client. All drawings
TRUTH IN LENDING ACT were paid according to the signed PNs he made. But
PURPOSE: Solidbank insisted that client didn’t pay P30k++. SC ruled
 To let the person borrowing money to know the actual that the amount being claimed represents accumulated
costs of the credit service fees authorized by the monetary board, but client
need not pay since these were not mentioned in the PNs he
REQUIREMENTS: signed.
 Before the consummation, the lendor or vendor should  Even if the fees were mentioned, SC ruled that client need
deliver to the other party a written statement showing the not pay since no disclosure statement was delivered.
breakdown of the charges. (Disclosure Statement) Interests and penalties may be collected under the Civil
Code, but other fees and charges can only be collected if a
LIABILITY disclosure statement is made and delivered.
 Criminal

BULK SALES LAW

COVERAGE:
 Sale, assignment, mortgage, or other forms of transfer of
all or substantially all of the stocks of goods, wares or
merchandise other than in the ordinary course of
business
 Sale, assignment, mortgage, or other forms of transfer of
all or substantially all of the businesses of a person
 Sale, assignment, mortgage, or other forms of transfer of
all or substantially all of the fixtures and equipment used
in the conduct of a business
REQUIREMENTS:
EXCEPTIONS:
1. Notify in writing all the creditors at least 10 days before
the intended transfer
2. Deliver a sworn statement showing names and
addresses of creditors, including amounts due them, to
the transferee
3. Notice to the Director of domestic Trade
For these extraordinary transfers to be valid, you must
comply with the Bulk Sales Law. Failure to comply,
transfer is void!
 If declared void, holder becomes a trustee
over the property he is holding
  Express waiver from the creditors  Sale by a manufacturer of his own products
 Judicial sales (Execution sales)  CASE: Sale by a foundry shop
 What were sold were exempt from execution

BANKING
BANK SECRECY LAW  Manage money supply
 Money for rediscounting window/facility
 It is illegal for any officer or employee to disclose any  Supervision of the banking system
information relating to any peso deposit (savings, checking,  Buys precious metals
time deposit) including investments in government securities.
 EXC:
o Legal authority by the depositor MONETARY BOARD
o Impeachment  7 board members of the Monetary board who manages the
o Order from the court in case of bribery, dereliction of CB
duties, or violation of the anti-corrupt practices act o Composition: BSP Governor, Cabinet Member, 5
o Deposit is the subject matter of litigation fulltime members from the private sector
o AMLA o 6 year term w/ reappointment once
o If appointed to fill in the term of a director, shall only
NEW CENTRAL BANK ACT serve the balance of the term
o Banned to serve in any corporation under the
FUNCTIONS OF THE BSP Monetary Board in any capacity in the next 2 years.
 Manage the money supply (Money in circulation, including o Quorum: 4 members, to pass a resolution needs the
forex) approval of at least 4 members.
o Too much money in circulation will lead to prices
going up SALIENT FEATURES:
 Issuance of notes and coins  Money – every medium of exchange
 Serves as the bank of banks  Currency – notes and coins issued by the BSP and are in
o Reserve requirement - Percentage or portion of circulation (must be outside the vault of the BSP)
deposit liabilities of banks which banks have to o (PESO - P) basic unit (CENTAVO - c)
deposit with the BSP  Legal tender – currency in such a quantity prescribed by law
o Every deposit we have in the bank are recorded are or regulation to be acceptable to be paid in all obligations
deposit liabilities. (Bank=debtor, depositor=creditor) o BSP: coins are legal tender
o Purposes: o 1000 – one peso coins are legal tender up to P1000
 Servicing withdrawals o 100 – centavo coins are only legal tender up to P100
 Features of notes
o Serial numbers: 2 (lower left, upper right)
o Signatures: 2 (President, BSP Gov)
o Damaged bills: There must still be at least 3/5 of the
note for it to be accepted + 1 complete list of serial
numbers + 1 signature + no sign of intentional
defacement
o Damaged coins: no sign of clipping, perforation, filing.
o It is a crime to write on bills or intentionally damaging
coins
GBA 2000
 Banks – corporation authorized by the Monetary Board to
accept deposits from the public and to grant loans
CLASSIFICATION OF BANKS:
 Universal Banks
o Commercial Bank licensed by the MB to engage in
the business of an investment house
 Investment house- corporation licensed by the
MB to engaged in rediscounting of receivable
as well as underriding of securities.
 Committing in a firm basis the sale of
securities.
o May engage in both allied and non-allied enterprises.
 GBA prohibits banks from selling insurance as
an insurer.
 EXC: Can sell insurance policies with
insurance companies in which they own 5% of
the equity. (Bancassurance – cross-selling
insurance policies. Banks act merely as seller
and not insurer)
o Universal banks may own 100% of another universal
banks
 Commercial Banks
o Accept deposits in checking accounts/subject to
withdrawal by checks (other kinds of banks may
accept checking accounts but must be with special
authority/permit of the MB)
 Checking/Current/Demand
Deposits/Commercial Deposits
o Opening of Letters of Credits (Percentage or portion
of deposit liabilities of banks which banks have to
deposit with the BSP)
o May only engage in allied enterprises.
o A commercial bank may own 100% of a commercial
bank
 Thrift Banks
o Savings & Mortgage Banks
 To lend money to those that want to construct
houses.
 For small depositors and involves small
transactions.
o Private Development Banks
 Organized for development of the community.
 If it needs additional capital, it can invite the
development bank of the Philippines to invest
in it.
o Stock Savings and Loan Associations
 With Authorized Capital Stock which comes
from depositors from the general public. “Trust
fund doctrine” applies when you sell your
shares
 Capitalization comes from deposits coming
from the general public.
 NON-STOCK - also have capitalization but no
shares are issued. Capitalization comes in the
form of member contributions. May accept
deposits only from a restricted group of
persons.
 Cooperative Banks
o Stockholders are all cooperatives.
o Cooperatives are under the supervision of National
Cooperative Office
o Cooperative banks are under the BSP
 Rural Banks
o Provide banking services in rural communities or for
the agricultural sector.
 Islamic Banks
o Islamic banking system/practices is different from
regular banks.
o No interest is collected since in islam, collecting
interest is immoral.
RELEVANT PROVISIONS OF THE GBA 2000:
 BSP has the power of control.
o May release rules and regulations over banks
o MB can order the closure of a bank even before
hearing its side. Considered police power by the SC.
(Close now investigate later rule)
o Only corporations under supervision of the MB may
use “Bank” or “Banking” in its corporate name.
 SBL (Single Borrower’s Limit) – maximum amount that any
person may borrow from a bank
o REMEDY: Syndicated loans – a loan agreed upon by
a number of members to extend to a single borrower
 For anyone to be a director or officer of the bank, must pass
the fit and proper rule. MB prescribed the minimum
qualifications.
 Strengthens the bank secrecy law by obliging all banks to
hire employees on a permanent basis.
 DOSRI (Director, Officer, Stockholder, Related Interest)
o DIRECTOR: Comply with the requirement of the
Corporate Code regarding entering into a contract
with the corporation which he is a director of.
 Proposal must be approved in a meeting of the
board, in which meeting there was a quorum
which did not need his presence.
 Terms and conditions must be fair and
reasonable
o OFFICER: Same requirements as the director unless
there is a loan program for the bank officers. Just
comply with the requirements of the loan program.
 To open a branch or an ATM, must seek approval from the
MB.
 Change in location of a branch, requires the approval from
the MB.
 Prohibits banks from selling insurance as an insurer. UB
selling insurance policies of insurance companies is allowed.
PDIC LAW (Philippine Deposit Insurance Code)
 Law insures only deposit liabilities of banks.
 Maximum indemnity in insurance deposits:
o Started 10k – 20k – 50k – 500k per person per bank.
 If the bank closes, the accounts of a person in that bank as
well as all its branches shall be collated. Maximum of P500k
indemnity only.
 Forex account – rate of exchange shall be the rate at the
time of the closure of the bank.
 Joint accounts are now insured separately, subject to the
same limit. Presumed owned equally by co-depositors.
o Deposits in the name of more than 1 person. (Code of
Commerce)
o Kinds:
 And – to withdraw, combined signatures of all
depositors
 Or – any of the co-depositors may do an over
the counter withdrawal.
Ex.
 Deposit in BDO – TD 200k, savings 100k, Checking
150k
 Joint account (wife) in BDO– 500k
 Joint account (GF) in BDO – 500k
 Joint account (GF2) in BDO– 500k
 RECOVERY: 450k + 250k + 250k = 990k only
 Joint account with GF2 won’t be recoverable because
the limit for joint accounts per bank of P500k was
reached

MARKETS
 Financial markets – invisible market
o Money market – source of funds where the agreement
periods is less than 1 year.
o Middle/Capital market – source of funds where the
agreement period is more than 1 but less than 5
years.
o Bond market – source of funds where the agreement
period is more than 5 years.

Ex. SMB needs P50M for its payroll and asks help
from BOC to source the funds, to pay within 60 days.
BOC calls its clients and asks if they want to invest in
money market placement with a higher interest (3%).
After securing the placement, lends money to SMB at
10%. – spread is 7%

o In money market placements, banks are not the

borrowers or lenders, they are mere intermediaries.
 Stock Market
 COMMON CARRIERS
COMMON CARRIERS
DEFINITION:
 A common carrier is a person, natural or juridical, who is
regularly engaged in the transpiration of goods, passengers
or both, offering its services to the public for a fee
1. Transporting goods, passengers, or both
2. Offering service to the public
 Public can merely be a narrow segment of the
public, not always necessarily the general
public
 TEST: Services are available to those who
want to avail of the services
 Ex. School bus or a pipeline operator with only
2 customers, customs broker who agreed to
transport the goods
3. Must be for compensation/fee
CONTRACTS FORMED:
 2 prestations in a bilateral contract.
o 1) Shipper - promise of the carrier to transport the
goods/passengers/both
o 2) Carrier - promise of the shipper to pay the fees
HIERARCHY OF STANDARDS OF CARE:
 Utmost diligence of a very cautious person (passenger)
 Extraordinary diligence (goods)
 Diligence of a good father of a family
CARRIAGE OF GOODS:
STANDARD OF DILIGENCE:
 Exercise extraordinary diligence
DURATION:
 START: Unconditionally placed at the disposal of the
common carrier
 END: Until the goods shall have been delivered to the
consignee OR until the consignee has been informed of
arrival of the goods and given a reasonable opportunity to
claim the goods
o “reasonable opportunity” is dependent upon the
circumstance/goods
LIABILITY:
 Common carrier does not become an insurer of all risk
related to transportation
 Parties can stipulate on a standard of care less than
extraordinary diligence
o Stipulation was in writing and signed by both parties
o Supported by consideration other than the fee to
transport
o The stipulated standard of care must not be less than
ordinary diligence.
o The stipulations must be fair and reasonable
 Common Carrier avoids liability for loss of goods when the
proximate and only cause is:
1. Storm, earthquake, lightning or other natural calamity
2. Public enemy in times of war, whether civil or
international
3. Character or goods or a defect in the container or
packaging
4. Act or omission of the shipper himself
5. Order of a competent public authority
 Customs police: Not considered competent
authority
6. Add: the carrier should not have incurred unnecessary
delay in the prosecution of the voyage. Also the
carrier should not have committed an improper
deviation. (Jurisprudence)
ADDITIONAL NOTES:
o If the loss or damages was on the occasion of any 5,
the common carrier is still under the obligation to
prove that such was the only and proximate cause of
the loss or damage and that it did not deviate or incur
any delay
o If cause is not 1 of the 5, does it automatically make
the common carrier liable? No, carrier can still avoid
liability by proving that under the circumstances, it
exercised extraordinary diligence.
o If one of the 5, shipper can still recover from the
common carrier if it can prove that under the
circumstance, the common carrier did not exercise
extraordinary diligence
PASSENGERS
STANDARD OF DILIGENCE:
 Utmost diligence of a very cautious person
DURATION:
 START: From the time the carrier agrees to take in the
person as a passenger
 END: until it reaches the destination
LIABILITY:
 Parties cannot stipulate on a standard of care lower than
utmost diligence of a very cautious person. With regards the
safety of passengers, there can be no compromise.
 Common carrier does not become insurer of all risks
o EXC: mechanical defects or when they violate traffic
rules.
 EMPLOYEES’ LIABILITY: Common carrier is liable for acts
or omission of its employees although said employees may
have acted without or in excess of their authority. – no
defense for the CC
 STRANGER’S LIABILITY: For acts or omissions of another
passenger or a third person, the common carrier shall be
liable if it could have prevented the death or injury by
exercising the diligence of a good father of a family.
 Liable for moral damages:
o Death of a passenger – heirs are entitled (immediate
members of the family only)
o Physical Injuries – in favor or the injured passenger
o Common carrier acted in bad faith
 Employees are disrespectful
 Discrimination against the passenger
 Overbooking constitutes industry practice and
does not constitute bad faith
SPECIAL LAWS: COGSA CODE OF
COMMERCE
LAWS APPLICABLE: APPARENT Immediately Immediately
 SEA NOT 3 days from delivery Within 24 hours
o Shipments of goods by Sea, coming from another APPARENT
country into the Philippines. FILING OF A Not required for Clim is a condition
o If from one point in the Philippines to another, Civil CLAIM filing a complaint in precedent for filing a
Code and Code of Commerce court complaint in court
o If from Philippines to another country, laws of the
destination.
 LAND POSSIBLE ACTIONS OF THE CARRIER TOWARDS THE
o Civil Code and Code of Commerce CLAIMS MADE:
 AIR  Carrier pay the claim
o Warsaw Convention, Code of Commerce, Civil Code  Carrier won’t act on the claim. Go to court and sue carrier.
 Carrier rejected the claim and decided to go to court.
CARRIAGE OF GOODS BY SEA ACT
TIME PERIOD TO GO TO COURT:
INTERPRETATION:  1 year from delivery of the goods to the arrastre operator.
 Code of Commerce prevails by express provision of o RECKONING POINT OF DELIVERY: Signing of tally
COGSA. sheet.
1. Arrastre before accepting the goods, first examines
APPLICABILITY: the containers to see for any sign of loss or damage.
 Applies only to shipment of goods by sea, coming from Then signs a tally sheet.
anther country into the Philippines. 2. If loss or damage is found, the container is opened
 Only goods covered by Bill of Lading and the loss or damage is assessed and annotated in
 Not applicable to agreements where the goods shall be the tally sheet, signed by the arrastre operator and the
transported on the deck. representative of the carrier;
 Not applicable to shipments of livestocks o Loss or damage is formalized through a Bad
order form.
LOSS OR LIABILITY: 3. If the goods are not unloaded from the ship, and you
 Apparent loss or damage, a claim should be filed want to file a complaint, when does the 1 years start?
immediately with the carrier. 1 year from the last day that the carrier had the last
 If the loss or damage is not apparent, claim should be filed opportunity to deliver the goods to the arrastre
operator.
with the carrier at least 3 days from delivery.
 The filing of a claim is not required for the filing of a
SCENARIOS:
complaint in court (COGSA provisions)
1) INSURANCE COMPANY
 If the insurer pays the amount, insurer shall be subrogated
with the claim of the insured against the person liable.
o Within what period must the insurer file its claim
against the carrier? Same period! 1 year from delivery
to the arrastre operator.
 Insurer rejects the complaint. But by the time it filed a
complaint against the insurer, it was 1 year past the delivery
of the goods. Insurance company claims that the period to
file complaint has prescribed. – NO!
o The period for filing against the insurer is based on
either the insurance policy or the insurance code.
2) TALLY SHEET
 The tally sheet is clean but when turned over to the
consignee, items contained loss or damage. File against the
arrastre operator, under Quasi-delicts since there is no pre-
existing contractual relation. (use period within the civil code)
 The carrier signed a clean tally sheet, engaged the services
of the customs broker who also signed the clean tally sheet.
Customs broker offered to transport the goods via his trucks
to the Consignee. Upon receipt, the consignee finds loss or
damages. Consignee must file a complaint against the
customs broker for breach of contract.
ADMIRALTY
QUALIFICATIONS OF A VESSEL:
 It must not be a mere accessory to another watercraft
 It must be registered with the MARINA
 It must be used to transport goods, passengers or both
 It is seagoing
HYPOTHECARY RULE
 The limited liability of a shipowner. Value of the vessel +
earned freightage + insurance over the vessel
PARTIES INVOLVED IN ADMIRALTY:
 CREW:
o Captain – commanding officer of a ship that goes
abroad.
 Master is used to refer to commanding officer
of a ship that is engaged in local/inter-island
travel
 3 roles of a ship captain:
 Represents the owner of a vessel
 Technical director of the vessel
 Represents the country where the
vessel is registered (PIL: vessel or
aircraft represents the country where it
is registered)
o Mates (1st, 2nd, 3rd etc)
o Engineer
AVERAGE:
 GENERAL/GROSS AVERAGE
o Damage suffered by the vessel or owner of the cargo
that shall benefit not only the ship owner but also the
owners of the other cargo
o Jettison – disposal of cargo in order to save the ship
 Jettison cargo – only cargoes on the deck and
the heaviest can be jettisoned to save the ship
 What if jettison failed and ship still sank?
Vessel need not contribute since no one was
benefited.
 SPECIFIC/PARTICULAR AVERAGE
o Do not benefit anyone.
o Owner or the vessel or the cargo will not be entitled to
any indemnity except from the insurance.
o Ex. Lightning struck the vessel
SPECIAL CONTRACTS IN ADMIRALTY
 Charter party – contract of lease over a vessel
o Bareboat/demise – lessor provides only the vessel,
without the crew, stores, or provisions.
o Contracts of Affraigtment (contract of carriage)
  Time charter – contract of lease over a vessel
over a stipulated period. Lessor providing also
the crew, stores and provisions
 Voyage charter – contract of lease over a
voyage or a series of voyages. Lessor
providing also the crew, stores and provisions
 Loan on bottomry – one taken by the shipowner secured by
the vessel to the extent of the value of the vessel. Condition
of the loan, if the vessel sinks the creditors loses the right to
collect. The excess in value is not considered a loan on
bottomry and shall be considered an ordinary loan – not
extinguished through loss of the thing
 Loan on respondentia – loan taken by the the cargo owner
secured by the cargo to the extent of the value of the cargo.
If the cargo is lost, the creditors loses the right to collect.
Excess in value shall be considered an ordinary loan
 Marine insurance – insurance over a vessel or freightage or
cargoes or profits expected from cargo to insurance such
arising from perils of the sea.
ACCIDENTS IN ADMIRALTY:
 COLLISION – impact of 2 or more moving vessels
 ALLISION – impact of one moving, one stationary
 ARRIVAL UNDER STRESS
 SHIPWRECK
3 ZONES OF TIME IN COLLISION:
 First time – anytime until the danger of collision appears
 Second time – from time the danger appears until it becomes
a practical certainty
 Third time – from time it becomes a practical certainty to
impact
DOCTRINE OF INSCRUTABLE FAULT
 If there is a collision of two vessels, and the court cannot
determine who is at fault, the court shall dismiss the case
and each bears his own loss. Owners of damages cargoes
shall be indemnified by owners of both vessels (solidary
liable)
WARSAW CONVENTION
 It is an agreement (treaty) among sovereign nations:
o To have uniform documents in connection with
international air transportation
 Passenger ticket
 Baggage check – white strip attached to
checked-in baggage
 Airway bill – bill of lading
o To fix the liabilities of international air carriers.
 Death – 100k USD
 Physical injuries – maximum of 100k USD
 Checked-in articles – maximum of $1k per kilo
(must be proved) but if value is less, only to
such extent
 EXC. Greater value is declared and fare
is paid.
 Hand carried articles - $1k per item
PARTIES:
 High contracting parties – signatory states
 Philippines was not an original signatory of the convention,
but is now a party by accession.
INTERNATIONAL AIR TRANSPORT:
 Port of origin is in one country, and port of destination is in
another.
 Also included if domestic flight but with a stopover in a
different country.
 Included is the movement of goods through land or water to
the aircraft.
LIABILITY:
 In case of damage, the person must file a complaint to the
carrier after the discovery of the damage, at the latest, within
 3 days from the date of receipt in case of luggage and 7
days in case of goods.
 The right to damages shall be extinguished if an action is not
brought within 2 years, reckoned 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 carriage
stopped.
 Complaints shall be instituted only in 4 places:
o The court of the domicile of the carrier
o The court of the carrier’s principal place of business
o The court where it has a place of business through
which the contract had been made
o The court of the place of destination
PUBLIC SERVICE
WHO MAY RENDER PUBLIC SERVICE:
 Natural/Juridical Persons - only by Filipino citizens
o Filipino by birth, naturalization, legislation, etc.
o Corporation with 60% ownership by PH citizen
 Requirements set by the SC:
o Philippine citizenship
o Willingness to engage in public service
o Financial capacity
 Acquiring equipment to engage in the public
service
 Settling damage claims
 KABIT SYSTEM – those people who want to engage in
public service but do not meet the requirements/possess
the qualifications
REGULATORY BODY:
 Government Agencies: DOTC, LTFRB, CAB, MARINA,
LGUs
CERTIFICATE:
 Certificate of public convenience; or
o Written authority issued by the government regulator
to enable persons to engage in public service
 Certificate of public convenience and necessity
o Written authority issued by the government regulator
to enable persons to engage in public service for
which service, a legislative franchise is required.
o State Policy: No more exclusive legislative franchises
– competition – now rates are fixed by the
government
 Prior Applicant Rule
 Old Operator Rule
RELATIONSHIP BETWEEN OWNER AND DRIVER
 Boundary system – driver is paid based on revenue earned
per day. SC rule that employer-emplyoee relationship by
reason of control test
 Fixed rate system – driver receives a fixed rate salary
  Expectancy founded on an existing interest
INSURANCE (Ex. Insuring expected fruits of mango tree
– founded on the existing interest over your
own property)
DEFINITION:  Inchoate right founded on an existing
 A contract wherein the insurer agrees to indemnify the interest (Ex. Purchase of property on
insured against loss damage or liability arising from installment where no transfer of ownership
an unknown or contingent event until full payment – though only an inchoate
o Insured does not expect to profit (wagering) right, founded on an existing interest of a
CHARACTERISTICS: buyer who has already paid)
 Contract of Indemntiy – one invests to be restored to  Life insurance
the same status prior to the risk happening o Premiums are computed at an annual basis.
 Risk distributing scheme – not a risk-shifting device Payments are paid more often
(ex. Guarantee or suretyship)  Property Basis
 Aleatory – involves the assumption of risk o Premium computed at an annual basis
PARTIES:
 Insurer
o Issued by the Insurance Commissioner, an
certificate of authority
o Corporation, Partnership, Mutual Benefit
Company
 Individuals are not allowed
 Insured
o Anyone insurable interest in the thing or life
insured
 Insurable Interest – Person has such a
relationship to thing or life insured that
he will benefit from its preservation or
damnified by its loss or destruction
 Assurance – 3rd party
KINDS OF INSURANCE
 Non-life insurance (property)
o Ex. Fire insurance
o Insurable Interest: must exist at the time of taking
the insurance and at the time of the loss, even if in
the interim, it does not exist.
 Existing interest (Ex. Owner of a property or
Mortgagee over mortgaged property)