TABLE OF CONTENTS MERCANTILE LAW TOPICS PAGES I.THE CORPORATION CODE (162 QUESTIONS) BOARD OF DIRECTORS AND TRUSTEES (28 Questions) . i Fiduciary Duties and Liability Rules (15 Questions; Elections (7 Questions) Tenure, Qualifications and Disqualifications of Directors or Trustees (2 Questions). 3 Meetings (2 Questions). a 3 Doctrine of Centralized Management (i Question). 7 : 4 Removal (1 Question) 4 INCORPORATION AND ORGANIZATION (25 Questions) 5 Articles of Incorporation (9 Questions)... 5 Number and Qualifications of Incorporators (8 Questions). . 6 Minimum Capital Stock and Subscription Requirements (3 Questions). 6 6 9 9 Adoption of By-Laws (3 Questions). Corporate Name: Limitations on Use of Corporate Name (1 Question). Registration and Issuance of Certificate of Incorporation (1 Question). CORPORATE POWERS (23 Questions), seven 10 Specific Powers, Theory of Specific Capacity (19 Questions). 10 How Exercised (2 Questions). : iL Trust Fund Doctrine (2 Questions). rey Bar Question 2015 VI... 12 Bar Question 2015 VII, 12 CAPITAL STRUCTURE (23 Questions)... . 13 Consideration for Stocks (8 Questions)... 13 Stock and Transfer Book (5 Questions). 13 Payment of Balance of Subscription (4 Questions). . 13 Shares of Stock (3 Questions) 14 Certificate of Stock (2 Questions). — 14 STOCKHOLDERS AND MEMBERS (22 Questions). : enn 15 Proprietary Rights (11 Questions). ..-c-cnnemnnn . 15 Participation in Management (4 Questions)... 17 Rights of a Stockholder and Members (3 Questions)... 18 Remedial Rights (2 Questions) . 18 Obligation of a Stockholder (1 Question). Meetings (1 Question).CORPORATE JURIDICAL PERSONALITY (14 Questions) Doctrine of Separate Juridical Personality (9 Questions) Doctrine of Piercing the Corporate Veil (5 Questions)... CORPORATION (9 Questions) Attributes of the Corporation (7 Questions). Definition (Corporation) (2 Questions)... DISSOLUTION AND LIQUIDATION (8 Questions), Bar Question 2015 VIII NATIONALITY OF CORPORATIONS (4 Questions). Place of Incorporation Test (2 Questions) Control Test (2 Questions) CLASSES OF CORPORATIONS (3 Questions). OTHER CORPORATIONS (2 Questions)... Foreign Corporations (2 Questions) Bar Question 2015 II. NEGOTIABLE INSTRUMENTS LAW (105 QUESTIONS) | FORMS AND INTERPRETATION (29 questions), Bar Question 2015 1. SIGNATURE (17 Questions), Forgery (9 Questions). Signature of Agent (6 Questions) Signing in Trade Name (1 Question), Indorsement by Minor or Corporation (1 Question), RIGHTS OF THE HOLDER (11 Questions), CHECKS (8 Questions). Kinds of Checks (8 Questions), Presentment for Payment (of Checks) (1 Question). COMPLETION AND DELIVERY (8 Questions). Incomplete and Undelivered Instruments (5 Questions) ‘Completion of Blanks (2 Questions), Insertion of Date (1 Question) NEGOTIATION (6 Questions)... Kinds of Indorsements (5 Questions), Modes of Negotiation (1 Question), CONSIDERATION (5 Questions). 20 20 21 22 22 22 22 24 24 24 25 25IL LIABILITIES OF PARTIES (5 Questions)... Indorser (4 Questions) Maker (1 Question), PRESENTMENT FOR PAYMENT (5 Questions). Dispensation with Presentment for Payment (4 Questions) Necessity of Presentment for Payment (1 Question). NOTICE OF DISHONOR (5 Questions)... ACCEPTANCE (4 Questions).... Rules Governing Acceptance (3 Questions). Manner (1 Question). PROMISSORY NOTES (4 Questions)... ACCOMMODATION PARTY (2 Questions)... DISCHARGE OF NEGOTIABLE INSTRUMENT (2 Questions) (4 Questions). Discharge of Negotiable Instrument (1 Question). Discharge of Parties Secondarily Liable (1 Question). MATERIAL ALTERATION (2 Questions)... PRESENTMENT FOR ACCEPTANCE (1 Question)... Effect of Failure to Make Presentment (1 Question). INSURANCE LAWS R.A. NO. 10607 (77 QUESTIONS) CLASSES (32 Questions)... .. Marine Insurance (12 Questions). Life Insurance (10 Questions), Fire Insurance (5 Questions) Compulsory Motor Vehicle Liability insurance (CMVLI) (4 Ques Casualty Insurance (1 Question) INSURABLE INTEREST (21 Questions). In Property (9 Questions), Bar Question 2015 II, Double Insurance and Over insurance (6 Questions). In Life/Health (5 Questions). Multiple or Several Interests on Same Property (2 Questions), PERFECTION OF THE CONTRACT OF INSURANCE (9 Questions). Premium Payment (8 Questions) Refund of Premiums (1 Question). CLAIMS SETTLEMENT AND SUBROGATION (6 Quest ns). 36 7 37 37 38 at 41 41 4 42 42ELEMENTS OF AN INSURANCE CONTRACT (4 Questions) RESCISSION OF INSURANCE CONTRACTS (3 Questions), Concealment (3 Questions)... Concept of Insurance (1 Question). IV. SPECIAL LAWS (57 QUESTIONS) The Chattel Mortgage Law and Real Estate Mortgage Law (34 Questions), (Excluded and made a part of Civil Law coverage) ANTI-MONEY LAUNDERING ACT (R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194) (13 Questions), Obligations of Covered Institutions (3 Questions) Unlawful Activities or Predicate Crimes (2 Questions)._ Freezing of Monetary Instrument or Property (2 Questions). ‘Authority to Inquire into Bank Deposits (2 Questions) Covered Transactions (1 Question)... Suspicious Transactions (1 Question)... When Is Money Laundering Committed (1 Question). Anti-Money Laundering Council (1 Question), Bar Question 2015 XVI. FOREIGN INVESTMENTS ACT (R.A. NO. 7042) (10 Questions), Definition of Terms (3 Questions) Registration of Investments of Non-Philippine Nationais (3 Questions), Foreign Investment Negative List (2 Questions) Policy of the Law (1 Question). Foreign Investments in Domestic Market Enterprise (i Question) _ Bar Question 2015 XVI. TRANSPORTATION LAW (56 QUESTIONS) MARITIME COMMERCE (21 Questions)... ‘Accidents and Damages in Maritime Commerce (13 Questions) Carriage of Goods by Sea Act (COGSA) (5 Questions)... Liability of Ship Owners and Shipping Agents (2 Questions) Charter Parties (1 Question)... COMMON CARRIERS (18 Questions). Liabilities of Common Carriers (12 Questions). Diligence Required of Common Carriers (6 Questions) Bar Question 2015 11... SAFETY OF PASSENGERS (7 questions) Liability for Acts of Others (4 Questions). Extent of Liability for Damages (2 Questions) 48 48 48 49 50 60 60 60Duration of Liability (1 Question)... VIGILANCE OVER GOODS (5 Questions)... : : Stipulation for Limitation of Liability (3 Questions). Bar Question 2015 II - Exempting Causes (1 Question). = Liability for Baggage of Passengers (i Question). z BILL OF LADING (3 Questions)... _ Delivery of Goods (3 Questions) ‘Three-Fold Character (1. Question)... Bar Question 2015 IIL THE WARSAW CONVENTION (1 Question), VI. BANKING LAWS (54 QUESTIONS) GENERAL BANKING LAW (GBL) OF 2000 (R.A. NO. 8791) (30 Questions). Bank Powers and Liabilities (13 Questions). Grant of Loans and Security Requirements (6 Questions). Bar Question 2015 XIII, 7 Nature of Bank Funds and Bank Deposits (5 Question: Definition and Classification of Banks (4 Questions) Bar Question 2015 XII Distinction of Banks from Quasi-Banks and Trust Entities (7 Question). Stipulation on Interests (1 Question). : Bar Question 2015 XII... LAW ON SECRECY OF BANK DEPOSITS (R.A. NO. 1405, AS AMENDED) (13 Questions). Deposits Covered (5 Questions)... vn Exceptions (5 Questions)... Garnishment of Deposits, including Foreign Deposits (3 Questions). Bar Question 2015 XI... ‘THE NEW CENTRAL BANK ACT (R.A. NO. 7653) (11 Questions)... Responsibility and Primary Objective (7 Questions). Bar Question 2015 XI... Creation of the Bangko Seni State Policies (2 Questions), How the BSP Handles Banks in Distress (1 Question Bar Question 2015 XI. lipinas (BSP) (2 Quest 9 ‘II. INTELLECTUAL PROPERTY CODE (50 QUESTIONS) COPYRIGHT (18 Questions). eee Limitations on Copyright (6 Questions) Rights of Copyright Owner (5 Questions). 7 Rules on Ownership of Copyright (4 Questions) Basic Principles (1 Question) Copyrightable Works (1 Question).TRADEMARKS (14 Questions)... PATENTS (10 Questions). INTELLECTUAL PROPERTY RIGHTS IN GENERAL (8 Questions), SECURITIES REQUIRED TO BE REGISTERED (6 Questions), CIVIL LIABILITY (4 Questions), Non-Copyrightable Works (1 Question! Infringement and Remedies (4 Questions) Tests to Determine Confusing Similarity between Marks (2 Questions) Rights Conferred by Registration (2 Questions)... 7 Acquisition of Ownership of Trade Name (1 Question). Prior Use of Mark as a Requirement (1 Question’ Well-known Marks(1 Question)... Use by Third Parties of Names, Unfair Competition (1 Question). Bar Question 2015 XIV. Trade Names or Business Names (1 Question), Bar Question 2015 XV. rc. Similar to Register Rights Conferred by a Patent (4 Questions) ‘Owmership of a Patent (2 Questions), Patent Infringement (2 Questions). Bar Question 2015 XIV. Patentable Inventions (i Question} Non-Patentable Inventions (1 Question) Differences between Copyrights, Trademarks and Patent (5 Questions). Technology Transfer Arrangements (2 Question), Intellectual Property Rights (1 Question)... Bar Question 2015 XIV. (III. SECURITIES REGULATION CODE (R.A. No. 8799) (50 QUESTIONS) PROHIBITIONS ON FRAUD, MANIPULATION AND INSIDER TRADING (8 Questions)... Bar Question 2015 ix Insider Trading (6 Questions; Bar Question 2015 XI. Manipulation of Security Prices (1 Question) Short Sales (1 Question), Bar Question 2015 IX, ‘Bar Question 2015 X. Bar Question 2015 IX. PROTECTION OF INVESTORS (2 Questions) IX. TRUST RECEIPT LAW (31 QUESTIONS) OBLIGATION AND LIABILITY OF THE ENTRUSTEE (12 Questions),Liability for Loss of Goods, Documents or Instruments (7 Questions). 91 Bar Question 2015 IVA... = 91 Return of Goods, Documents or instruments in Case of Non-Sale (G Questions) _ 92 Penat Sanction if Offender Is a Corporation (2 Questions). 92 Bar Question 2015 TV-B oon =— = 92 WAREHOUSEMAN’S LIEN (10 Questions). . 92 DEFINITION/CONCEPT OF A TRUST RECEIPT TRANSACTION (6 Questions). 93 RIGHTS OF THE ENTRUSTER (2 Questions). e —_ 93 REMEDIES AVAILABLE (1 Question) 94 X. LETTERS OF CREDIT (12 QUESTIONS) BASIC PRINCIPLES OF LETTER OF CREDIT (9 Questions)... 94 Doctrine of Independence (7 Questions)... . 94 Doctrine of Strict Compliance (2 Questions), 7 95 DEFINITION AND NATURE OF LETTER OF CREDIT (3 Questions)... 95 Bar Question 2015 Vi. cecmenrenneenns . EeMERCANTILE LAW I. THE CORPORATION CODE (162 QUESTIONS) Loy NTeNOy wee) AND-TRUSTEES (28 Questions) As agents entrusted with the management of the corporation for the collective benefit of the stockholders, directors. of a_ private corporation occupy a fiduciary relation, and in this sense the relation is one of trust. The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It sptings from the fact that directors have the control and guidance of corporate affaits and property, and of the property interests of the stockholders. Equity recognizes _ that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof. (Gokonguei 1s. SEG 89 SCRA 336 [1979)) Binding Effect of Acts of Corporate Officers GENERAL RULE: The acts of corporate officers within the scope of their authority are binding on the corporation. (Sax Juan Structural and Steel Fabricators, Inc. 18. CA, et aly GR. No, 129459, September 29, 1998) & CEBALLOS BAR TRENDS & CEBALLOS BAR TRENDS EXCEPTION: When the officers exceed their authority, their actions cannot bind the corporation. (Tbid.) EXCEPTIONS TO EXCEPTION: When the corporation: (1) Ratified such acts; or Q Are estopped from disclaiming them. (bid) Liability of Corporate Officers GENERAL RULE: A corporation, being a juridical entity, may act only thtough its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. (MAM Really Development Corp. ¢t al ts, NLRG, ef al, GR. No. 114787, June 2, 1995) EXCEPTIONS: Solidary liabilities may at times be incurred such as under the following exceptional circumstances: (1) When directors and trustees or, in appropriate cases, the officers of a corporation — (@) Vote for or assent to patently unlawful acts of the corporation; (b) Act in bad faith or with gross negligence in directing the corporate affairs; Are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons, (2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not68} CEBALLOS BAR TRENDS forthwith file with the corporate secretary his written objection thereto. @) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation. (4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. id.) Quorum At all elections of dircetors or trustees, the owners of a majority of the outstanding capital stock must be present, cither in person or by representative authorized to act by written proxy. If there be no capital stock, a majority of the members entitled to vote must be present. (Se. 24, BP, Bh 68, Corporation Cade of the Philippines [Corporation Cade)) The election must be by ballot if requested by any voting stockholder or member. (Ibid,) Methods of Voting (I) Straight Voting - Every stockholder entitled to vote may vote such number of shares for as many persons as there are directors to be elected. (2) Cumulative Voting — A stockholder may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal (8) Cumulative Voting by Distribution - A stockholder may distribute his votes by multiplying his shares by the number of directors among as many candidates as he shall see fit: Provided, ‘That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected. (Sea 24, ‘Corporation Code) NOTES: ‘+ No delinquent stock shall be voted. * Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. ‘© Candidates receiving the highest number of votes shall be declared elected. Hold over Situation This situation arises when no successor is elected due to valid and justifiable reason. Thus, the incumbent holds over and continues to function until another officer is chosen and qualified. (SEC Opinion No. 06-18, 20 March 2006) ‘The holdover period is not part of the term of office of a member of the board of directors. The term is fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify % =CEBALLOS BAR TRENDS (3CEBALLOS BAR TRENDS @} ‘The vacancy referred to in Section 29 contemplates a vacancy occurring within the director's term of office. When a vacancy is created by the expiration of a term, logically, there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be the corporation's stockholders who shall possess, the authority to fill in a vacancy caused by the expiration of 2 member's term. (Valle Verde Country Club, Inc. vs. Africa, CR. No, 151969, September 4, 2002) oT Disqualifications of Directors or Tru ekentest ‘Term vs. Tenure ‘Term is distinguished from tenure in that an officer’s tenure represents the term during which the incumbent actually holds office. ‘The tenure may be shorter (ot, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent. (Valle Verde Country Club, Inc. v5. Afric, ibd.) Qualifications (1) Stock corporation: Every directot must own at least one (1) share of the capital stock of the corporation of which he is a ditector. Any director who ceases to be the owner of at least one (1) share shall thereby cease to be a director. (Sex 23, Corporation Code) Ut must be legal title, not beneficial ttle; or Non-stock corporation: ‘Trustees must be members thereof (Ibid, (2) A majority of the directors or trustees of a corporation organized under the Corporation Code must be residents of the Philippines (Ibid & CEBALLOS BAR TRENDS ws) @) He must not possess any of the grounds for disqualification under Sec. 27 (See Grounds for Disqualifcatons below.), and (4) He must be of legal age. (Se 10, Corporation Code) Grounds for Disqualification of Directors, Trustees or Officers (NOT exclusive) (i) Conviction by final judgment of an offense punishable by imprisonment not exceeding six (6) years; and Q) Violation’ of the Corporation Code committed within five (5) years prior to the date of the election or appointment. (See 27, Corporation Cade) The by-laws may validly provide that a stockholder is ineligible to be director if he is also a director of a corporation whose business is in competition with that of the other corporation. (Gokongui, Jr. ve GR. No, L45911, April, 1979) Kinds (1) Annual ~ date is as specified in the By- laws; 2) Regular — monthly, unless otherwise specified in the By-laws; or (8) Special — upon the call of the President, or as provided in the By-laws, Notice One day prior to the scheduled meeting, unless otherwise specified in the By-laws.& CEBALLOS BAR TRENDS Quorum, GENERAL RULE: A majority of the number of directors or trustees as fixed in the AOI shall constitute a quorum for the transaction of corporate business. (See 25, Corporation Code) EXCEPTION: If the AOT or the by-laws provide for a greater majority. (Ibid) Every decision of at least a majority of the directors or trustees present at a meeting at which there is quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board. (See 25, Corporation Cade) Unless otherwise provided in the Corporation Code, the corporate powers of all corporations formed under it shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors of trustees (See 23, Corporation Cade) save in those instances where the Corporation Code requires stockholder’s approval for certain specific acts. (Creat Asian Saks Center Carp. 08. CA, 381 SCRA 537 (2002)) The doctrine is NOT applicable in the following instances: (1) Delegation to the Executive Committee duly authorized in the by-laws; 2) Authorization pursuant to a contracted ‘manager which may be an individual, a partnership or another corporation; CEBALLOS BAR TRENDS (3 (3) In case of close corporations, the stockholders may themselves manage the business of the corporation rather than a Board of Directors, if the atticles of incorporation so provide. Requisites (1) Stock corporation: ‘The removal of any director a corporation from office must be by a vote of the stockholders holding oF representing at least two-thirds (2/3) of the outstanding capital stock; or [Noa-stock corporation: ‘The removal of any trustee of a corporation must be by a vote of at least two-thirds (2/3) of the members entitled to vote; QySuch removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose. (3) The removal must be after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting (4) Removal may be with or without cause; provided that removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24. (Sea 28, (Corporation Cade) Stockholder’s approval is necessary only for removal of Board members. For the removal of a corporate officer or employee, the vote of the Board of Directors is sufficient. ‘The removal of officers is a corporate act which can be done by the Board of Directors.CEBALLOS BAR TRENDS @) (Tabang 15. NLRG, GR. No. 121143, January 21,1997) INCORPORATION AND ORGANIZATION (25 Questions) Exon Asticle of Incorporation (AOI): The basic contract document in corporate law which is the charter of the corporation. Nature and Functions Ie defines the charter of the corporation and the contractual relationship between the Sate and the corporation, the State and the stockholders, and between the corporation and the stockholders. Its contents are thus binding, not only on the corporation, but also fon its shareholders. (Lamuga es. CA, 454 SCRA 54 [2005)) Contents All corporations organized under the Code shall file with the Securities and Exchange Commission (SEC) AOI in any of the official languages duly signed and acknowledged by all” of the incorporators, containing substantially the following: (1) Name of the corporation; 2) Its specific purpose/s; NOTES: © Where a corporation has more than one stated purpose, the AOI shall state which is the primary purpose and which is/are the secondary purpose/s. Gera) © A nonstock corporation may not include a purpose which would change ot contradict its nature as such. (3) Place where its principal office is to be located, which must be within the Philippines; (4) Its term; (5) ‘The names, nationalities and residences of the incorporators; (© The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15); (1) The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified; If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number of shares into which it is divided (@) in case the share are par value shares, the par value of each, the names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his subscription; if some of all of the shares are without par value, such fact must be stated; fit be a nor-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; and Such other matters as are not inconsistent. with law, which the incorporators may deem necessary and convenient. (Sea. 14, Corporation Code) ® &) (10) Amendment (@ Stock corporation: Any provision or matter stated in the articles of incorporation may be amended by a CEBALLOS BAR TRENDS se)CEBALLOS BAR TRENDS majority vote of the board of directors and the vote or written assent of the stockholders representing at least 2/3 of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders. (b) Non-stock corporation: By a majority vote of the board of trustees and the vote or written assent of at least 2/3 of the members. When Effective ‘The amendments shall take effect: (1) Upon approval by the SEC; of 2) From the date of filing with the SEC if not acted upon within six (6) months from the date of filing for a cause not attributabie to the corporation. (Tbid.) Number: Not less than five (5) but not more than fifteen (15) incorporators. (See 70, Corporation Cod) Qualifications: (1) He must be a natural person; (2) He must be of legal age; @) Majority of the incorporators must be residents of the Philippines; (4) Stock corporation: Each of the incorporatoss must own or be a subscriber to at least one (1) share of the capital stock of the corporation. (Ibid, Only a majority of the incorporators and a majority of the directors/trustees must be & 6 CEBALLOS BAR TRENDS residents of the Philippines. (Secs 10 and 23, Corporation Godt) (1) At least 25% of the authorized capital stock of a stock corporation as stated in the AOI must be subscribed at the time of incorporation; (2) At least 25% of the total subscription must be paid upon subscription. (Ser. 13, Corporation Code) The AOI must be accompanied by a sworn statement of the Treasutet (Treasurer's Affidavit) certifying under oath compliance with the said requisites and that the paid-up capital is not less than P5, 000.00. (Sea 14, (Corporation Code) The 60%-40% ownership requirement in favor of Filipino citizens as provided in Seetion 11, Article XII of the Constitution applies not only to shares with voting rights but also to shares without voting sights. (Gamboa 1s, Teves, GR. No, 176579, October 9, 2012) The continuing rules of action adopted by the corporation for its own government and that Of the individuals composing it and having the direction, management and control of its By-laws: relatively permanent and affairs, in whole of in part, in the management and control of its affairs and activities. (ChinaCEBALLOS BAR TRENDS Banking Corp. vs. CA, et al, GR. No. 117604, March 26, 1997) ‘Nature and Functions By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. (Tbid,) REQUISITES OF VALID BY-LAWS (A) Procedure (8). Lfadopeed prior to incorporation ‘The by-laws shall be approved and signed by all the incorporators and submitted to the SEC together with the AOL (See. 46, Corporation Code) (2) Ifadopted after incorporation ‘The corporation must within one (1) month after receipt of notice of the issuance of certificate of incorporation, adopt a code of by-laws for its government not inconsistent with the Corporation Code. (See 46, ibid.) (@). Stock corporation: The adoption must be supported by the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock. Non-stock corporation: Mt least a majority of the members. (©) The by-laws shall be signed by the stockholders/members voting for them, (© A copy duly certified to by a majority of the directors or trustees countersgned by the secretary of the cosporation, shall be filed with the SEC which shall be attached to the original AOL. NOTES: * Failure to submit the by-laws within one (1) month from incorporation does not automatically dissolve the corporation. Tt is merely a ground for suspension or revocation of its charter after proper notice and heating. (See. 6 [1], P.D. No 902-A; Sawadjaan v3. CA, GR. No, 141735, June 8, 2005) ©The by-laws shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours. Ibid.) ®)Limitations: (1) They must be feasonable and calculated to carry into effect the objects ‘of the corporation, and are not contradictory to the general policy of the laws of the land. 2) They must always be _ strictly subordinate to the constitution and the general laws of the land. They must not inftinge the policy of the state, nor be hostile to public welfare. (8) They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or & CEBALLOS BAR TRENDS &CEBALLOS BAR TRENDS member, affect rights of property or create obligations unknown to the law. @ ‘They must be within the charter limits (5) They must not be in conflict with the provisions of the Corporation Law. (Fleischer 13, Botica Nolasco, G.R. No. L- 23241, March 14, 1925) NOTES: ‘The validity of the by-law of a corporation is purely a question of law. (Fleischer ws Botica Nolase, ibid) HOWEVER, this rule is subject to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonabie minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. (Gokongue, jr. SEG of al, GR. No, LA5911, Apri 11, 1979) © By-laws are subordinate to the AOI as well as to the Corporation Code and related statutes. (Loyola Grand Villas Homeowners vs. CA, GR No. 117188. August 7, 1997) Binding Effects (@ As to the corporation and its components: The by-laws are valid and binding not only on the corporation but also on its stockholders/members and those having direction, management and control of its affairs. ‘The directors or trustees and officers to be clected shall perform the duties enjoined on & CEBALLOS BAR TRENDS them by law and the by-laws of the corporation. (See. 25, Corporation Code) 2) Asto third persons GENERAL RULE: Third persons are not bound by the by-laws of a corporation since they ate not privy thereto. (Fleischer mz. Botica Nolasco, supra.) EXCEPTION: When third persons have actual or constructive knowledge of the same. (bid) AMENDMENT OR REVISION (OR REPEAL) The by-laws may be amended or revised in cither of the following: (A) The board of directors or trustees and the stockholders or members may amend (or repeal or adopt) any by-laws at a regular or special meeting duly called for the purpose. Stock corporation: Majority vote of the board of directors and the owners of at least 2 majority of the outstanding capital stock. (Sec. 48, Corporation Cade) Non-stock corporation: Majority vote of the board of trustees and of the members. (Thid,) (B) The stockholders or members may delegate to the board of directors o trustees the power to amend (or repeal or adopt) by-laws: Stock corporation: ‘The owners of two-thirds (2/3) of the outstanding capital stock. (bid)CEBALLOS BAR TRENDS Non-stock corporation: Two-thirds (2/3) of the members. (Ibid) Revocation of the delegated power Such delegated power shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members shall so vote at a regular or special meeting, (id) NOTE: The amended or new by-laws shall only be effective upon the issuance by the SEC of a certification that the same are not inconsistent with the Corporation Code. (Ibid) A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the ‘world in the same manner as it may protect its tangible property, real or petsonal, against trespass or conversion. It cannot be impaired or defeated by subsequent appropriation by another corporation in the same field. (Philips sgport BV. 1s, Court of Appeals, GR. No. 96161 February 21, 1992) Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws.” (Industrial Refractories Corporation t. Court of Appeals, 390 SCRA 252 [2002)) “The policy behind the prohibition is to avoid fraud upon the public that will have occasion to deal with the entity concerned, the evasion ‘of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporation. (Ibid,) The documents required to be submitted to the SEC to obtain a certificate of incorporation of a stock corporation are: (1). Articles of Incorporation; Q) Treasurer's Affidavit; @) Bank certificate of deposit covering the paid-up capital; (4) Letter authorizing the SEC or Monetary Board or its. duly authorized representative to examine the bank deposit and other corporate records to determine existence of the paid-up capitals (8) Verification slip from the records of the SEC as to whether or not the proposed name has already been adopted by another corporation, partnership ot association; ( Letter undertaking to change the proposed name if that chosen was already adopted by another corporation, partnership, or association; () Certificate of Authority from proper government agency whenever appropriate (eg. BSP for banks; Insurance Commission for insurance companies); and (8) Registration Sheet. CEBALLOS BAR TRENDS iw)@ CEBALLOS BAR TRENDS @ ‘Theory of Special/ Limited Capacity No corporation under the Code, shall possess or exercise any corporate power, except those conferred by law, its AOI, those implied from express powers and those as are necessary or incidental to the exercise of powers so conferred. (Ses 45, Corporation Code) When a corporation engages in an activity which is outside of its express, implied or incidental powers set out in its AOT, the act is deemed to be sli vires Specific Powers: extend or shorten (Sec. 57, () Power to corporate term; Corporation Code) ‘The corporate term of a stock corporation is that which is stated in its AOI. It may be extended or shortened by an amendment of the Articles when approved by majority of its Board of Directors and ratified by at least 2/3 of the stockholders representing the outstanding capital stock. (Ihid) “The 5-year rule on amendment of corporate term applies only to extension, not to shortening of term. Q) Power to increase or decrease capital stock or incur, create, increase 10 CEBALLOS BAR TRENDS bonded indebtedness; Corporation Code) Sec. 38, Purpose of increasing capital stock @) To generate more working capital; (0) To have more shares with which to pay for the acquisition of more assets like the acquisition of a company car, stocks, house, machinery or business; and (© To have extsa shares with which to cover or meet the requirement for declaration of stock dividends. (3) Power to deny pre-emptive rights; (Sec. 39, Corporation Code) (4) Power to sell or dispose of corporate assets; (Sec. 40, Corporation Code) (©) Power to acquire own shares; (Sec. 41, Corporation Code) A stock corporation can acquire its own share: (@) If it is for a legitimate and proper corporate purpose; and (©) That the unrestricted retained earnings to purchase the same and its capital is not thereby impaired. (Sec 47, Corporation Cade) (© Power to invest corporate funds in another corporation of business; Sec. 42, Corporation Code) (1) Power to declare dividends; (Sec. 43, Corporation Code) Dividends on shares of stock, whether cash dividend or stock dividend, can be validly declared only out of unrestricted retainedCEBALLOS BAR TRENDS earnings. (Sea 43, Corporation Code) Capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine. (Commitsioner of Internal Revenue vs. CA, CTA and A. Soriano Corp., GR. No. 108576, January 20, 1999) Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital. (See 43, ibid) When a corporation is organized as a stock corporation and its AOL or by-Laws are silent, the corporation is deemed to have the power to declare dividends under Section 43. (8) Power to enter into management contract. (Sec. 44, ibid.) Ultra Vires Doctrine When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. (Carlos 18. Mindanao Sugar Co. et aly GR. No. 136207, October 26, 1932) ‘The defense of ultra vires cannot be set up oF availed of in completed transactions. (Pirevana, et al. 1s. The De la Rama Steamship Co GR. No. L-5377, December 29, 1954) Applicability of Ultra Vires Doctrine ‘The dotrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong, (Ibid) & " CEBALLOS BAR TRENDS Consequences of Ultra Vires Acts (@) If exceuted contract: Courts will not set aside or interfere with such contracts (b) Ifexecutory: The contract is void and cannot be enforced even at the suit of either party. (Q If part executed and part executory: The principle of unjust enrichment shall apply. (2 Questions) Corporate powers ate to be exercised, all business conducted, and all property of corporations controlled and held, by the board of directors. When the act of the board is within corporate powers but it is done without the concurrence of the shareholders as and when such approval is required by law, such act is void. (Rural Bank 1s. OCFEMLA, GR No. 137686, February 8, 2000) ‘Trust Fund Doctrine (exemmenn) ‘The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine wherein the capital stock, property and othet assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the protection of corporate creditors. (Commissioner of Internal Revenue 1. CA, CTA and A. Soriano Corp, GR. No. 108576, January 20, 1999) &CEBALLOS BAR TRENDS @& 12 &} ceBALLOS BAR TRENDS @& |@} CEBALLOS BAR TRENDS Consideration for the issuance of stock may be any or a combination of any two ot more of the following, (1) Actual cash; Q) Property; @) Labor or services actually rendered to the corporation; (4) Previously incurred indebtedness of the corporation; () Amounts transferred from unrestricted retained earnings to stated capital (in case of declaration of stock dividends); and (6) Outstanding shares exchanged for stocks in the event of reclassification or conversion. (See. 62. Corporation Code) NOTES: ‘© Where the consideration is other than actual cash, or consists of intangible property (eg. patents, copyrights), its valuation shall initially be determined by the incorporators or the board, subject to SEC’s approval. (Ibid) © Shares of stock shall not be issued in exchange for promissory notes or future service. (Ibid) * Stocks shall not be issued for a consideration less than the par or issued price thereof. 13 CEBALLOS BAR TRENDS Contents (2) All stocks in the name of the stockholders alphabetically arranged; (2 Amount paid and unpaid on all stocks and the date of payment of any installments Q) Alienation, sale or transfer of stocks: (4) Other entries as the by-laws prescribe. (See. 74, Corporation Code) may NOTE: Only the corporate secretary is duly authorized to make entries in the stock and transfer book. Hence, entries made by the Chairman or President are invalid. (Torres, Jr: 18. Court of Appeals, CR. No. 120138, September 5,197) Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors. (Halley es. Printwell, 648 SCRA 116 [2011)) Effect of failure to pay subscription (1) If the subscription contract fixes the date for payment: (@ Failure to pay on such date shall render the entire balance due and payable with interest. (©) Thirty (30) days therefrom, if still unpaid, the shares become delinquent, as of due date, andCEBALLOS BAR TRENDS subject to sale, unless the board declares otherwise. Q If there is no date in the subscription contract (@ The board of directors can make the call for payment, and specify the due date. Notice of call is mandatory. Mere demand is insufficient. (b) Thirty (0) days thetefrom, if still unpaid, the shares. become delinquent, as of the due date of call, and subject to sale, unless the board declares otherwise. (Se 67, Corporation Cad (exon) Interest of right which an owner has in the management of the corporation, and its surplus profits, and, on dissolution, in all of its assets remaining after the payment of its debt The stockholder may own the share even if he is not holding a certificate of stock. ‘The capital stock of stock corporations shall be divided into shares, for which certificates of stock shall be issued. Shares of stock so issued are personal property and thus may be transferred. (See. 63, Corporation Code) [oer eee ETS (Xen) ‘The capital stock shall be divided into shares for which certificates, signed by the President or Vice President, countersigned by the Secretary or Assistant Secretary, and scaled with the seal of the corporation, shall be issued in accordance with the by-laws. (See. 63, Corporation Code) 4 CEBALLOS BAR TRENDS A stock certificate is merely evidence of a share of stock and not the share itself. (Lincoln Philippine Life Insurance Co, Inc. ws. Court of Appeals, et al, GR. No. 118043, July 23,1998) The certificate of stock once issued is continuing, affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. (Bitong 5. Court of Appeals GR. No, 123553, July 13, 1998 } Uncertificated Shares No certificate of stock shall be issued toa subscriber until the full amount of his subscription together with interest and expenses (in case of delinquency), if any is due, has been paid. (See 64, Corporation Code) Negotiability A. share of stock may be transferred by endorsement of the corresponding stock certificate, coupled with its delivery. However, the tansfer shall "not be valid, except as between the patties," until it is "entered and noted upon the books of the corporation." For this reason, although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such sights or defenses as the registered owner or creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel. &CEBALLOS BAR TRENDS (Delos Santos, et al, vs, J. Howard McGrath, Republic, GR. No. L818, February 28, 1955) Valid ‘Transfer of Requirements for Stocks: () Ifsepresented by a certificate: @ There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact ot other persons legally authorized to make the transfer; and (© To be valid against third parties, the transfer must be recorded in the books of the corporation. (Rural Bark: of Lipa, t al. x5. Court of Appeals et aly GR No. 124535, September 28, 2001) ‘The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee. Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock. (Ibid) Q) If NOT represented by a certificate (eg. when no certificate of stock has yet been issued or where the same is not in the possession of the transferor): (@) The transfer must be by means of a deed of assignment; and (b) It must be duly recorded inthe corporate books. NOTE: An unrecorded transfer, though valid as between the patties, cannot be effective as against the corporation. The tights of a stockholder accrues only upon entry 15 2 CEBALLOS BAR TRENDS cS: of his name in the books of the corporation. (SEC-OGC Opinion No. 07-06, Apnil19, 2007) ‘The execution of the Deed of Assigament of Shares of Stock is equivalent to a lawful pledge of the shares of stock. (Lapeg. rs. Court of Appeals, TH4 SCRA 617 [1982)) No. shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. (See. 63, Corporation Code) Sire HOLDERS AND MEMBERS (etenteren) Rights stions) (A) RIGHT TO DIVIDENDS ‘The board of directors of a stock corporation may declare dividends out of the untéstricted retained earnings which shall be payable in (1) cash; (2) property; or (3) stock to all stockholders on the basis of outstanding stock held by them, Limitations: ‘* Any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, * Stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid. No stock dividend shall be issued without the approval of stockholders representing not less than 2/3 of the outstanding capitalCEBALLOS BAR TRENDS @ stock at a regular or special meeting duly called for the purpose. (Sec. 43, Corporation) (8) RIGHT OF APPRAISAL Valid exercise of appraisal right Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares: (1) In case any amendment to the AOT has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing, preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the teem of corporate existence (See. 16, Corporation Cade), @ In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code (See. 40, Corporation Code); and @) In case of merger or consolidation, (See 77, Corporation Code) ‘The valuation of the shares of a stockholder who exercises his appraisal rights is determined as of the day prior to the date on which the vote was taken, regardless of depreciation or appreciation in the share's f value (© RIGHT TO INSPECT ‘The records of all business transactions and the minutes of any meetings shall be open to inspection by any (director, trustee) stockholder or member of the corporation at reasonable hours on business days and he may 16 CEBALLOS BAR TRENDS demand, in writing, for a copy of excerpts from said records or minutes, at his expense. (Sec. 74, Corporation Cade) (D) PRE-EMPTIVE RIGHT I is the preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings. (Sea. 39, Corporation Code) Pre-emptive right is not available when: (i) Shares to be issued are intended to comply with laws requiring stock offering ‘or minimum stock ownership by the public; (2) Shares issued in good faith in exchange for property needed for corporate purposes; ) Shares issued in payment of previously contracted debts; and (4) In case the right is denied in the AOI. (©) RIGHT TO VOTE ‘See discusion on Participation in Management below. (®) RIGHT OF FIRST REFUSAL Tt is a right that gives shareholdets the preferential right to buy or to refuse the selling party's (co-sharesholder’s) shares. ‘The right of first refusal is meant to protect the original or remaining sharcholder(s) from the entry of third persons who are not acceptable to it as or co-shareholder(s). The right of first refusal thus ensures that the parties are given control over who may become a new shareholder in substitution of or in addition to the original shareholders. (JG Summit Holdings, seCEBALLOS BAR TRENDS Inc. 15, Caurt of Appeals, GR No, 124293, September 24, 2003) Proxy Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. (See. 58, Corporation Code) Requisites: Proxies shall be: (1) In writing; Q) Signed by the stockholder or member; and @) Filed before the scheduled meeting with the corporate secretary. (Ibid) Validity: Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (6) years at any one time. (Ibid) Voting Trust One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares. (Sec. 59 Corporation Code) Validity: Valid for a period not exceeding five (8) years at any time. (Ibid) Cases when Stockholders’ Action is Required: 7 CEBALLOS BAR TRENDS (1) By a majority vote—In the exercise of the following: (@) Power to enter into management contract; (Sea 44, Corporation Code) (b) Amendments, repeal or adoption of by-laws. (See. 48, Copporation Cade) (©) Revocation of the delegated power to amend, repeal or adopt new by-laws. (bid) (2) By a 2/3 vote—In the exercise of the following powers: (@ Power to extend or shorten corporate term; (See. 37, Corporation Code) ©) Power to increase or decrease capital stock; incur, create or increase bonded indebtedness; (Sec 38, Corporation Code) (© Power to deny pre-emptive right; (Sec. 39, Corporation Code) (@ Sale oF other disposition of assets; (Sec. 40, Corporation Code) (© Power to invest corporate funds in another corporation or business or for any other purpose; (Se. 42, Corporation Code) (© Power to declare stock dividends; (Sec. 37, Corporation Code) Power to enter into management contract, where: @ A stockholder/s representing the same interest of both the managing and the managed corporations own or control more than 1/3 of the total outstanding capital stock entitled to vote of the managing corporation; (@ A majority of the members of the BOD of the managing corporation also constitute aCEBALLOS BAR TRENDS majority of the members of the BOD of the managed corporation. (See. 44, Corporation Code) {h) Delegation to the BOD/BOT of the power to amend, repeal ot adopt new by-laws. (Se. 48, Corporation Code) (8) By cumulative voting (See Methods of Voting under Elections) ights of a Stockholder and Members G Questions) Doctrine of Equality of Shares: Except as otherwise provided in the AO and stated in the certificate of stock, each share shall be equal in all respects to every other shate. (Se 6, Corporation Cade) 5 Cerrar ra (2 Questions) Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. (Cig, ef al, 15. Cig, GR No 189486, September 5, 2012) A. INDIVIDUAL SUIT Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not to the stockholders as gtoup or to the corporation, eg., denial of right to inspection and denial of dividends to a stockholder. (Villamor, Jr ws. Umalt, GR. Na, 172843, September 24, 2014) 18 CEBALLOS BAR TRENDS Individual suits against another stockholder or against a corporation are remedies which an aggrieved stockholder may avail of and which are recognized in our jurisdiction as, embedded in the Interim Rules on Intra Corporate Controversy. (Gig, et al, #8. Cay, supra) B, REPRESENTATIVE SUIT If the cause of action belongs to a group of stockholders, such as when the rights violated belong to preferred stockholders, a class of representative suit may be filed to protect the stockholders in the group. (Villamor, Jr. ws Umale, GR. No. 172843, Seplember 24, 2014) C. DERIVATIVE SUIT An action filed by a stockholder to enforce a corporate cause of actign. It can be filed by an individual stockholder on behalf of the corporation to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold control of the corporation. (Strategic Alliance Development Corp. 1s. Radstock Securities Lid, 607 SCRA 413 [2009)) It is allowed by law to enable the minority stockholder/s to protect the interest of the corporation against illegal or disadvantageous act/s of its officers or directors who are the people who are supposed to protect the corporation. (Pascual 1s. Del Saz Orozco, 19 Phil. 82 [1991)) Requisites for Derivative Suits: (1) [The person filing the suit must be] a stockholder/member at the time the acts we‘or transactions subject of the action occurred and the time the action was filed; @ [He must have] exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available; (3) No appraisal rights are available for the act/s complained of, and (4) The suit is not a nuisance or harassment suit. (See. 1, Rule 8, Interin Rules; Ang 1 Sps. Ang, GR. No, 201675, June 19, 2013) Why Direct Individual Suit Substitute for a Derivative Suit Cannot ‘Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is s person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual stockholder. (Cua, ef al. ns. Tar, ef aly GR. No. 181455-56, December4, 2009) Intra-corporate dispute: A dispute between a stockholder and the corporation of which he is a stockholder, or between a stockholder and another stockholder of the same corporation, where the subject of the dispute or controversy arose out of such relationship. (Sunset View Condomininon Corp. vs. Campos, Js 104 SCRA 303 [1981)) & 19 CEBALLOS BAR TRENDS CEBALLOS BAR TRENDS Actions involving —_intra-corporate controversies are cognizable by the RT designated by the Supreme Court under SC AM, No. 00-11-03, which has jutisdiction over the principal office of the corporation, partnership or association concerned. (Sea 5, Rule 1, SCAM. No, 02-2-04) renee rns (1 Question) ‘The stockholders have the obligation to. (1) Pay the corporation for the unpaid subscription including interest therein; and (2) Pay the creditors of the corporation to the extent of their subscription if the corporate assets are not sufficient. Der (Quest @ Regular (@) Annually, on a date fixed in the by- laws; or () If not so fixed, on any date in April of every year as determined by the BOD/BOT. (Sec 49, Corporation Cade) Notice: Written notice of regular meetings shall be sent to all stockholders/members of record at least two (2) weeks priot to the meeting, unless a different period is required by the by-laws. (Ibid) (2) Special: Any time deemed necessary or as provided in the by-laws. (Ibid) Notice: At least one (1) week written notice shall be sent to all stockholders or &CEBALLOS BAR TRENDS members, unless otherwise provided in the by-laws. (Ibid) NOTE: Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member. (Ibid,) Quorum GENERAL RULE: A quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations. (See. 52, Corporation Cade) EXCEPTION: If the Corporation Code or the corporation’s by-laws provides otherwise. Mid) Minutes Upon the demand of any director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in fall on his demand. (See. 74, Corporation Code) PERSONALITY (14 Questions) (9 Questions) A corporation has personality separate and distinct from that of its stockholders or & 20 CEBALLOS BAR TRENDS f members, and the officers that represent it. (Art. 44 [3], Civil Cade) Upon coming into existence, a corporatioi invested by law with a personality separate and distinct from those persons composing it, its directors and officers, as well as from any other legal entity to which it may be related This separate and distinct personality is, however, metely a fiction created by law for conveyance and to promote the ends of justice. (Land Bank of the Philippines vs. Court of Appeals, 364 SCRA 375 (2001) Asa general rule, corporate officers cannot be held personally Hable for the consequences of their acts, for as long as these are for and on behalf of the corporation done in good faith and within the scope of their authority. (Solidbank Corporation uz. Mindanao Ferroalley Corporation, 464 SCRA 409 (2005)) Liability for Torts and Crimes ‘A corporation is civilly liable in the same manner a5 natural persons for torts, because the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. A principal or master is liable for every tort which he expressly directs for authorizes, and this is just as true of a corporation as of a natural person. (Philippine National Bank. Court of Appeal, of al, CR. No. L-27155, May 18, 1978) Recovery of Moral Damages GENERAL RULE: A corporation, being an artificial person and having existence only in@ CEBALLOS BAR TRENDS legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life — all of which cannot be suffered by respondent bank as an artificial person. (National Power Corporation 1. Philipp Brothers Oceanic, Inc, CR. No. 126204, November 20, 2001) EXCEPTION: Article 2219 of the Civil Code expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. This provision does not qualify whether the plaintiff is» natural or juridical person. ‘Therefore, a juridical person such as a corporation can ‘validly complain for libel or any other form of defamation and chim for moral damages. (Filipinas Broadcasting Network, Ine, 1%. AMEC: BCCM, et al, GR No. 141994, January 17, 2005) ‘A corporation has a separate personality, distinct from its stockholders and members. However, the court will not hesitate to disregard the coxporate veil when itis misused ‘or when necessary in the interest of justice. The concept of corporate entity was not meant to promote unfair objectives. (Paniranco Enmployees Assocation vs. NLRC, GR. No. L- 170689, March 17, 2009) ‘The corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and & a CEBALLOS BAR TRENDS in the interest of justice, the corporate veil will bbe justifiably impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. (Saroma 1 NLRC GR. No, 185280, January 18, 2012) Instances when the Doctrine of Piercing the Veil of Corporate Entity will apply: (1) To defeat public convenience; Q) To justify wrong, protect fraud, or defend @) As a shield to confuse the legitimate issues; (4) where a corporation is the mere alter ego of business conduit of a person; (4) Where the corporation is so orginized and controlied and its affairs ate so conducted as to. make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Uali 1s. Court of Appeals, 189 SCRA 529, 542 [1990}) Grounds for Application of Doctrine of Piercing the Corporate Veil It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, ate controlling. “These are as follows: (1) The parent corporation owns all or most Of the capital stock of the subsidiary. (2 The parent and subsidiary corporations have common directors ot officers. (3) The parent corporation finances the subsidiary. (4) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise eauses its incorporation.() The subsidiary has grossly inadequate capital ( The parent corporation pays the salaries and other expenses or losses of the subsidiary. ‘The subsidiary business except parent corporation or no assets except those conveyed to or by the parent corporation. In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is o has substantially no with the ® referred to as the parent corporation's ‘The patent corporation uses the property of the subsidiary as its own. The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their ‘orders from the parent corporation. The formal legal requirements of the not observed, o ) (uy (9 Questions) Attributes of the Corporation (7 Questions) Inherent attributes of a corporation (1) An antificial being (See. 2, Corporation Code); (2) Created by operation of Law (Ibid); @) With sight of Sea Corporation Code), and (4 Having only such powers and properties expressly authorized by law or incidental to its existence. (See 2, Corporation Cade) succession 19, CEBALLOS BAR TRENDS 22 CEBALLOS BAR TRENDS Section 16, Article XII of the 1987 Constitution provides that “The Congress shall not, except by general law, provide for the formation, organization, or regulation of a private corporations. ‘The same provision is contained in Section 7, Article XIV of the 1935 Constitution and Section 4, Article XIV of the 1973 Constitution. Corporation by estoppel A group of persons who assumes to act as a corporation knowing it to be without authority to do so, and enters into a transaction with a third person on the strength of such appearance. It cannot be permitted to deny its existence in an action involving said transaction. (See. 21, Corporation Code) A corporation is an artificial being created by operation of lav, having the sight of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. (See. 2, Corporation Code) DISSOLUTION AND LIQUIDATION (8 Questions) Dissolution: ‘The extinguishment of the franchise of a corporation and the termination of its corporate existence. MODES OF DISSOLUTION (A) Voluntary dissolution &‘When no creditors are affected (1) Meeting must be held on the call of directors or trustees; (2) published for three consecutive weeks in a newspaper published in the place where the principal office of said corporation is located and if no newspaper is published in such place, then in a newspaper of {general circulation in the Philippines; (3) Resolution must be approved by majority vote of the BOD or trustees and adopted by the affirmative vote of stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of its members; (4) Copy of the resolution is then certified by the majority of Board of Directors or Trustees and countersigned by the Secretary of the Corporation; (5) Petition for dissolution together with the signed and conntesigned copy of the resolution is then filed with SEC (6) Approval of SEC of the petition and issuance of Certificate of Dissolution. (See 118, Corporation Code) ‘When creditors are affected (1) Meeting of stockholders or members for purpose of dissolution; (2) Affirmative vote of majority of members in non-stock corporations and of stockholders holding at least 2/3 of outstanding capital stock instock corporation; @) Petition filed with SEC signed by majority of the board and verified by the President or secretary of director; (4) Order setting a date of filing objections, not less than 30 nor more than 60 days, after entry of the order; & CEBALLOS BAR TRENDS 23 CEBALLOS BAR TRENDS (8) Publication of the order in a newspaper once a week for three weeks, and posting in 3 public places in the town or city where the principal corporate office is located, for three weeks; () Hearing of the petition; (1) Judgment of SEC. (See 119 Corporation Code) Dissolution by shortening the corporate term (1) Amendment of the AOI pursuant to Section 16: (a) Tt must be approved by majority vote of the BOD or BOT, and (b) It must be matified at a meeting by the stockholders representing at least 2/3 of the outstanding capital stock or by at least 2/3 of the members in case of non-stock; 2) Copy of the proposed amendment of the ‘AOI shall be submitted to the SEC, G) Approval of SEC of the amended AOI, (8) As an additional requirement, the SEC requites the submission of final audited financial statement not later than 60 days before the application for shortening the corporate term. (Sec. 120, Corporation Code) (B) Involuntary Dissolution Grounds for Involuntary dissolution (1) Fraud or misrepresentation as to the paid-up capital of the corporation (25%: 25% requirement); (2) Misrepresentation; (3) Ultra vires. mala prohibita; where too ‘numerous infractions committed, which are persistent despite SEC warnings& S (Republic 1s. Security Credit & Acceptable Corporation, 19 SCRA 58 [1967))s (4 Continuous inactivity of the corporation for at least 5 years; () Refusal to ado (PD. 902-A) ad or approve by-laws. Bar Question 2015 Vill Barn filed an action to enjoin SN Company's Board of Directors from selling a parcel of land registered in the corporation's name, to compel the corporation to recogmize Barn as a Stockholder sith 50 shares, to allow him to inspect the corporate books, and to claim @amages against the corporation and its officers. Subsequently, the corporation and the individual defendants moved to dismiss the complaint since the — corporation's cortificate of registration was sevoked by the SEC during the pendency of Barn's case on the ground of non-compliance with feportorial requirements. ‘The special commefcial court granted the motion and is action for liquidation of when a corporation has been dissolved and Barn cannot seek ‘eliefs which in effect lead to the continuation Of the corporation's business. The court also ‘ruled that it lost jurisdiction over the intra- corporate controversy upon the dissolation of the corporation. a) Was the court correct? (3%) Answer: No, the Corporation Code provides that no fight or remedy in favor of or against any corporation, its stockholders, _ members, CEBALLOS BAR TRENDS 24 & ireetOR AAU [OFAC Shall be Femoved "or impaired by the subsequent dissolution of the Corporation. In this case, compelling the corporation to recognize Bam as a stockholder and allowing him to inspect corporate books is an intra-corporate dispute ‘which does not constitute a continuation of business. The dissolution of the corpor: prohibits it from continuing its business. b) Four years later, SN Company files a: faction against Barn to recover corporat assets allegedly held by the latter for liquidation. Will this action prosper? ‘Answer: No, the Supreme Court held that the Corporation has no mote legal capacity to <0 after three years from its dissolution. Methods of Liquidation (1) By the Board of Directors 2 ‘Through a trustee to whom the properties are conveyed By management rehabilitation receiver committee or NATIONALITY OF CORPORATIONS (4 Questions) GENERAL RULE: The Corporation is a national of the country under whose laws it is organized or incorporated EXCEPTION: Corporation organized or incorporated abroad and registered as doingCEBALLOS BAR TRENDS business in the Philippines, of which 100% of the outstanding capital stock and entitled to vote is wholly owned by Filipinos, may be considered a Philippine National. (Foreign Investment Act of 1991) Comey Cm ‘There are two acknowledged tests in determining the nationality of a corporation: (1) Control test ‘The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of | the capital of which is owned by Filipino citizens shail be considered as of Philippine zationality," pertains to the control test o the liberal rule. (Narr Nickel Mining and Detelopment Corp. 18. Redmont Consolidated Mines Corps, CR. No, 195580, April 24, 2014) Requirements: (@) Complete domination, not only of finances but of policy and business practice in respect to the questioned transaction such that the corporate entity as to this transaction had at that time no separate mind, will or existence of its own; (©) Such control must have been used by the defendant to commit fraud or ‘wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest or unjust act in contravention of plaintiffs legal right; and (© The control and breach of duty must proximately cause the injury ot unjust loss complained of. (Velarde vs. Lopez, Inc, GR. No.153886, Jan. 14, 2004; 25 2 CEBALLOS BAR TRENDS es Heirs of Ramon Duran, Sr. 08. Uy, GR. No, 136456, Oct. 24, 2000) @ Grandfather rule ‘The second part of the DOJ Opinion which provides, "if the percentage of the Filipino ‘ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality,” pertains to the stricter, more stringent grandiather rule. (id) (1) As to whether their membership is represented by shares of stock of not Stock: one which has capital stock divided into shares and is authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held. Non-stock: does not issue shares, and is created for public good and welfare; no part of its income is distributable as dividends to its members, trustees ot officers. @) As to the no. of persons who compose them Corporation Aggregate: consists of more than 1 member or corporator; must be formed by not less than 5 persons. Corporation Sole: Religious Corporation which consists of 1 member (corpotator) only and his successor. PrCEBALLOS BAR TRENDS @} @) As to whether they are for religious Purpose or not Ecclesiastical: organized for religious purposes. Lay: other purposes than for religion. (4) As to whether they are for charitable purpose or not Eleemosynary: for chatitable purposes. Civil: for business or profit. (8) As to state of country under or by whose laws they have been created Domestic: incorporated under the laws of the Philippines. Foreign: formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. (© As to their legal right to corporate existence De jure: existing both in fact and in law. De facto: existing in fact only (7) As to whether they are open to the public or not Close: limited to selected persons or members of the family only. Open: open to any person who may wish to become a stockholder or member thereof, (8) As to whether they are corporations in a true sense or only in a limited sense & 26 CEBALLOS BAR TRENDS True: one which exists by statutory authority Quasi: exists without formal legislative grant. (9) Corporation by _prescription: exercised corporate powers for an indefinite period without interference by the sovereign power and which, by fiction of law, is given the status of a corporation. (0) Corporation by estoppel All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or ‘on any tost committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality De facto corporation vs. Corporation by estoppel De facto corporation: one which actually exists for all practical purposes as a corporation but which has no hgal right to corporate existence as against the State Corporation by estoppel: exists when persons assume to act as a corporation knowing that it has no authority to do so. In this case, these persons will be liable as general partners for all debts, liabilities and damages incurred or arising as a result of their actions. (I1)As to whether they are for public or private purpose &~ &) CEBALLOS BAR TRENDS Public: formed or organized for the government of a portion of the state. Private: formed for some private purpose. benefit or end. Corporation formed, organized or existing under any law other than those of the Philippines, and whose laws allow Filipino citizens and corporation to do business in its own country oF state. (Sec 123, Corporation Code) The 60%-40% rule Since the corporation is only required to be at feast 60% owned by Filipino citizens, foreigners can be membets of the board of directors in proportion to their equity which cannot exceed 40%. (Sec. 1, P.D No. 715, ameniing CA. No, Stction 2-A of CA. No. 108, The Anti-Dumny Lan) Since the constitutional requirement of 60% Filipino ownership of the capital of public utilities applies not only to voting control but also to beneficial ownership of the corporation, it should also apply to preferred shares. Preferred shares are also entitled to vote in certain corporate matters. (Gamboa 1s. Teves, 682 SCRA 397 (2012) & 7 CEBALLOS BAR TRENDS ‘Bar Question 20152 A foreign company has been exporting goods to a Philippine company for several years now. When the Philippine company failed to pay the latest exportation, the forcign company sted to collect in the Philippines. ‘The Philippine defense ah ace ter vwas doing business in the Philippines without a license; hence, could not sue before a Philippine court. Is this defense tenable? Explain your answer = ‘Answer: No, the defense is not tenable. The foreign company may sue in the Philippines even without license to do business in the Philippines. (The Supreme Court held that the mere act of exporting from one’s own country, without doing any Specific Manufacturing Industries, noe ‘No 14 Dat “May 28, 2007) Others: Close Corporations A close corporation is one whose AOT provide that: (1) All the corporation’s issued exclusive of treasury shates, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); All the issued stock shall be subject to fone of more specified restrictions on stock,CEBALLOS BAR TRENDS @ transfer permitted by Title XII of the Corporation Code; and @) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. (Sec, 96, Corporation Cade) NOTE: Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least 2/3 of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. (Ibid) Corporations which may NOT be incorporated as a close corporation: (1) mining or oil companies; (2) stock exchanges; @) banks; @) insurance companies; () public utilities; (G) educational institutions; and @) corporations declared to be vested with public interest. (Ibid) Non-stock corporations A non-stock corporation is one where no part of its income is distributable as dividends to its membets, trustees, or officers, subject to the provisions on dissolution. (Se. 87, Corporation Cods) Purpose Non-stock corporations may be formed or onganized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, oF similar purposes, like trade, industey, agricultural and like chambers, or any combination thereof, subject to the special 28 CEBALLOS BAR TRENDS provisions of this Title governing particular classes of non-stock corporations. Any profit which it may obtain as an incident to its operations shall, whenever necessary oF proper, be used for the furtherance of the purpose/s for which it was organized, subject to the provisions of Title XI. Ibid.) Applicability of the provisions on stock corporation ‘The provisions governing stock corporation, when pertinent, shall be applicable to non- stock corporations, except as may be covered by specific provisions of 'Title XL II.-NEGOTIABLE pS ee (105 QUESTIONS) FORMS AND INTERPRE’ (ten) Requisites of Negotiability: (1) Tt must be in writing and signed by maker or drawer; 2) Must contain an unconditional promise or order to pay of sum certain in money; (B) Must be payable on demand or at a fixed or determinable future times (@ Must be payable to order or bearer (badges of negotiability); and (8) If the instrument is addressed to a drawee; he must be named or otherwise indicated@) CEBALLOS BAR TRENDS & therein with reasonable certainty. (See. 1, ‘Negotiable Instruments Law (NIL) ‘The negotiability or non-negotiability of an instrument is determined from the face of the instrument itself. ‘The duty of the court ia such case is to ascertain, not what the parties may have secretly intended but the meaning of the words they have used. (Caltex: nr. Court of Appeals (1992)) ‘A negotiable instrument need not follow the exact language of the code, as long as the terms are sufficient which clearly indicate an intention to conform to the requirements of the law. Letter “c” this section applies only to bills of exchange, because a promissory note thas no drawee. (Sea 10, NIL) ‘A negotiable instrument may, instead of being negotiated, also be assigned or transferred. A non-negotiable instrument may not be negotiated, but may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument. (Sesbreio 1s. Court of Appeals (1993)) Kinds of Negotiable Instrument () Promissory notes (PN) ‘An unconditional promise in writing made by fone person to another, signed by the maker, ‘engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. (See 784, NIL) (2) Bill of Exchange (BoE) ‘An unconditional order in writing addressed by one person to another signed by the 29 CEBALLOS BAR TRENDS person giving it, requiring the person to ‘whom itis addressed to pay on demand or at a fixed or determinable futute time a sum certain in money to order or to bearer. (See 126, NIL) NOTE: A check is a special form of BOE. &Tit "Company 18° Chiok, GR No. 172652, Noermber 26, 2014) C. When can you treat a bill of exchange as a promissory note? ‘Answer: A bill of exchange may be treated a8 a promissory note in the following instances. 1. ‘The drawee isa fictitious person or a “person not having the capacity to contract; (See. 130, NIL) The drawer and the deawee are one and the same person; (Thid) 3. Whete the insirument is so. ambipuous that there is a doubt as to whether the instrament is a bill or a note, the holdes ‘may treat it either asa bill or note, at the ‘option of the holder, (See 17 (2), NIL), Stanreauis Meeker) GENERAL RULE: No person is liable upon an instrument whose signature does not appear thereon. (See. 18, NIL} EXCEPTIONS: (1) A person whose signature was forged but is precluded from setting-up forgery as a defense (Sea 23, NIL); Acceptance of a bill of exchange on a separate piece of paper (Sec. 734, NIL); and @) Unconditional promise (in writing) in advance to accept a bill of exchange befote it is drawn. (See. 135, NIL) GEBALLOS BARSDPRENDS Fras (9 Questions) Extent/ Effect of Forgery (1) Only the signature forged is the 0% inoperative, the instrument itself and t genuine signatures are valid; 2) An instrument indorsed which on its face is payable to bearer may be enforced by the holder to whose title over the instrament the forged signature is not necessary; and 3) Instrument can be enforced against those who are precluded from setting up forgery. NOTE: Forgery must be proven clearly convincingly, and the burden of proof lies on the party alleging forgery. (Chiang Yia Min ws Court of Appeals, GR. Na, 137932, March 28, 2001) For an agent to be exempt from liability, he must be: (1) Duly authorized; @) Adds words to his signature indicating that he signs as an agent/representative; and (3) Discloses the name of the principal. (Ser. 20, NIL) Effect of signature of an agent: (1) His signature will bind his principal; and 2) He (agent) is exempted from personal liability. (Ibid)} CEBALLOS BAR TRENDS Procuration: It is an act by which a principal gives power to another to act in his place as he could personally by himself. Signature by procuration operates as notice ot a warning that the agent has but a limited authority to sign and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. (Sec 21, NIL) (1 Question) ‘One who signs using a trade or assumed name will be liable as if he had signed in his own name. (Se 18, NIL) Foe rarer See ET ete erin (1 Question) ‘The indorsement or assignment of the instrament by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon. (See 22, NIL) Minor ‘A contract entered into by a minor is voidable, at the option of the minor, It is a real defense that can be invoked by a minor. While a bound by his indorsement for lack of capacity, he is however not incapacitated to transfer his rights, minor is not When a minor committed actual fraud by specifically stating that he is of legal age, the Le 2) CEBALLOS BAR TRENDS 31 former can be bound by his signature in an instrument. Contract of indorsement of a minor is not void, such that his endorsee has the right to enforce payment from all parties prior to the minor’s endorsement; the capacity of the minor cannot be availed of by prior partis, However, it docs not destroy the right of such minor endorser to disaffirm under rules of minority. (Murray 1s. Thompson, LRA 1917B, 188 SW 578) Pra eeu oe TOOL (11 Question: Holder: A “payee” or “indorsee” of a bill or note who is in possession of it or the bearer thereof. (See 191, NIL: Hi-Gement Corporation 1s, Insular Bank of Asia and America, 534 SCRA 269 [2007)) Classes of Holders: (J) Holders in general (Simple holders) ~ Instrument is subject to the same defenses as if it were non-negotiable; he may enforce the instrument and receive payment therefor. (Sec. 57, NIL) Rights of a General Holder: (@) Sue in his own name; and (b) Receive payment. @) Holders for value ~ important for the liability of an accommodation party Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. (Sea 26, NIL); and@) Holders in due course- A holder who hhas taken the instrument under the requisites provided for in Sections 52 and 57 of NIL, to wit (@) That it is complete and regular upon its face; (b) That he became holder before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (© That he took it in good faith and for value; and (@ _Atthe time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it Rights of a Holder in Due Course: @) Sues (©) Receive payment; (© Hold the instrument free of any defect of title of prior patties; (@ Hold instrument free from defenses available to parties among themselves, and (© Enforce payment of instrument for full amount, against all parties liable. (Secs. 51 & 57, NIL) GENERAL RULE: Every holder is deemed prima facie to be a holder in due course. (See 59, NIL) EXCEPTION: When it is shown that the title of any person who has negotiated the instrument was defective. But this is only as regards a party who became such after acquisition of the defective instrument. (Ibid) 32 ) CEBALLOS BAR TRENDS DEFENSES AGAINST THE HOLDER (A) Real (or Absolute) Defenses: attach to the instrument and are available against all holders, whether in due course oF not, but only by the party or parties entitled to raise them. ‘The following are real defenses: (Q) Minority; 2) Forgery; (@) Non-delivery of incomplete instrument; (4) Material alteration; (6) Ulira vires acts of a corporation; (©) Braud in fan or in ese comtractus: () Mlegalitys (8) Vicious force or violence; (0) Want of authority; (10) Prescription; and (11) Discharge in insolvency. (B)Personal (or Equitable) Defenses: available only against the holder who stands in privity with the party who is entitled to set up or those who are not or do not have the rights of a holder in due course. These are as follows: (1) Failure or absence of consideration; 2) Milegal consideration; @) Non-delivery of complete instrument; (Conditional delivery of complete instrament; (8) Fraud in inducement; (©) Filling up blank not within authority; (Duress oF intimidation; Filling up blank beyond reasonable times ©) Transfer in breach of faith; (10) Mistakes & CEBALLOS BAR TRENDS &CEBALLOS BAR TRENDS (11) Insertion of wrong date; and (12) Ante-dating or post-dating for illegal or fraudulent purpose. ISTO (8 Questions) It is a bill of exchange drawn on a bank payable on demand. Generally, the provisions of NIL are applicable to a bill of exchange payable on demand apply to a check. (Ser. 785, Nil) Checks have the character of negotiability, but at the same time they may constitute evidence of indebtedness in the amounts stated on the faces of those instruments. (Go 1% Bacaron, GR! Ya, 159048, October 11, 2005) A check is a negotiable instrament that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. (Mitra ex. People, C.R. No. 191404, Jul 5, 2010) (a) Cashier's Check It is the bank's own check and may be treated as a promissory note with the bank as the maker. ‘The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand. (Bank: of the Philippine Islands 18. Roxas, C.R. No, 157833, October 15, 2007) 33 CEBALLOS BAR TRENDS () Manager’s Check Drawn by the bank’s manager upon the bank itself it stands on the same footing as a certified check, which is deemed to have been accepted by the bank that certified it. (Seaurty Bank 1s. RCBC, GR. No. 170984, January 30, 2009) (©) Centified Check Drawn by the depositor upon funds to his credit in a bank which an officer of a bank certifies will be paid on presentation, (Sec 187, NIL) (A) Traveler’s Check Instruments purchased from banks oF express companies which can be used like cash upon the second signature by the purchaser, (©) Memorandum check Check with “memorandum? written on its face. The writing signifies that the drawer engages to pay the bona fide holder absolutely, without any condition concetning its presentment. NOTE: An evidence of debt against the drawer although it may not be intended to be presented, has the same effect as an ordinary check and if passed on to a third person, will be valid in his hands like any other check. (People 1s. Nitafan, C.R. No. 75954 (1992)) (Stale check: One that has not been presented for payment within a reasonable time after &CEBALLOS BAR TRENDS @} its issue. It is valueless (should not be paid). A check becomes stale 6 months from date of issue. (International Corporate Bank. 15. Sps. Gueco, GR. No. 141968, February 12, 2001) (g) Crossed check: One where two (2) parallel lines are drawn across its face oF across the comer thereof. A check is crossed “especially” when the name of a particular banker or a company is written between the parallel lines drawn, It is crossed “generally” when only the words “and company” are written or nothing is written at all between the parallel lines. It may be issued so that presentment can be made only by the bank. (Go 1 Metropolitan Bank, G.R. No, 168842 [2010}) i reteny ces Ag One) = (1 Question) Time: A check must be presented for payment within a reasonable time after its issue. (Sea 186, NIL) Effect of Delay: ‘The drawer will be discharged from liability thereon to the extent of the loss caused by the delay. (id) Questions) Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder as against 34 CEBALLOS BAR TRENDS any person whose signature was placed thereon before delivery. (Sec. 15, NIL) Party’s Signature Appeared PRIOR to Delivery ‘The non-dlelivery of an incomplete instrument is a valid defense, not only between the original parties but also against a holder in due course. It is therefore a real defense, available even against a holder in due course. (Sec. 15, NIL) Party's Delivery Signature Appeared AFTER ‘The instrument is valid and enforceable. ‘The maker or drawer may be estopped from claiming the above defense if there should be negligence on his part. (Sec 16, NIL) The holder has authority to fill up blanks in an incomplete but delivered instrument. (See. 14, NIL) Insertion (Keres) Date may be inserted where: (1) An instrument is expressed to be payable at a fixed period after itis issued undated; 2 Acceptance of an instrument payable at fixed period after sight which is undated. (Sec. 13, NIL)CEBALLOS BAR TRENDS @ GENERAL RULE: Date is not essential to the negotiability of the instrument. (See. 13, is important to determine maturity, as: (Where the instrument is payable within a specified period after date, or after sight; (See. 4, NIL) of When the instrument is payable on demand, date is necessary to determine whether the instrument was presented within a reasonable time from issue, or from the last negotiation; (Sec. 71, NIL) (When the instrument is an_ interest: bearing one, to determine when the interest starts to run. (See. 17 (b), NIL) ® Ni: (kote) ‘Types of transfer (1) By assignment; 2) By operation of law; and @) By negotiation (the of an instrument from one person to another so as to constitute the transferee the holder thereof). (Sec. 30, NIL) (5 Questions) (I) Special: Specifies the person to whom or to whose order instrument is to be payable; also known as specific indorsement or indorsement in full; instrament payable to. bearer indorsed specially may subsequently be negotiated by delivery (once a bearer always a bearer); (ec. #4, NIL) transfer & 35, CEBALLOS BAR TRENDS (2) Blank: Specifies no indorsee; instrument so indorsed is payable to bearer, and may be negotiated by delivery; may be converted to special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of an indorsement; (Ibid) GB) Restrictive ‘The instrument: (@) Prohibits farther negotiation of the instrument (destroys the negotiability of the instrument); (b) Indorsee as agent of indorser; and (© Vests title in indorsee in trust for or for the use of some persons. (Se 36, NIL) NOTE: Mere absence of words implying power to negotiate does not make an instrument restrictive. (Thid) (4) Qualified: Indorser as a mere assignor of title, made by adding to the indorser’s signature words like, without recourse, sans recourse or at the indorsee’s own risk (ordinary equitable assignment). (Sec. 38, NIL) () Conditional: Right of the indorsee is made to depend on the happening of a contingent event. (See. 39, NIL) © Absolute: Indorser binds himself to pay, upon failure of prior parties to do so and upon notice to him of such failure. (D Joint: Payable to two oF more persons not partners; all must indorse, unless one indorsing has authority to indorse for others. (Sec. 68, NIL)CEBALLOS BAR TRENDS @ (®) Inregular: Person, not otherwise a party to an instrument, places his signature in blank before delivery. (See 64, NIL) ere rer () If payable to bearer: negotiated by delivery; and @ If payable tu order: negotiated by indorsement of holder completed by delivery. (See. 30, NIL) CONSIDERATION (5 Questions) Every negotiable instrument is deemed prima fase to have been issued for valuable consideration and person whose signature appears thereon is deemed to have become a party for value. (See: 24, NIL; Lee 0s CA, 375 SCRA 579 {2002)) However, such presumption is rebuttable. (Pineda ode la Rama, 121 SCRA 671 (1983) Absence of failure of consideration is a matter of defense only as against any person not a holder in due course. (Sea. 28, NIL) LIABILITIES OF PARTIES (5 Questions) Indorser Cry ‘A person placing his signature upon an instrument otherwise than as maker or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words bis intention to be bound in some other capacity (See. 63, NIL) 36 3 CEBALLOS BAR TRENDS General Indorser vs. Irregular Indorser General Indorsee | Ieregular (See. 66, NIL) Indorsee (Sec 64, NIL) Makes cither a] Always makes a blank blank or special | indorsement. indorsement. Tndorses the | Always makes a instrument after its | blank delivery to the | indorsement. payee. Tiable only to | Liable to the payee ] patties subsequent | and subsequent | to him. parties unless he signs for the accommodation of the payee in which case he is liable only to all parties subsequent tothe payee. Qualified Indorser ‘A person who indorses without recourse warrants that: (1) The instrument is genuine (but does not guaranty payment); 2) He had a good title to it; @) All prior parties had capacity to contract; and (4) He has no knowledge of any fact which would impair the validity of the instrument or render it valueless. (Sea 65, NIL)CEBALLOS BAR TRENDS @& NOTE: Every indorser is liable prima face in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. (See. 68, NIL) Maker ct 1 ‘The maker of a negotiable instrument: (1) Engages that he will pay the instrument according to its tenor; and (2) Admits the existence of payee and his capacity to indorse. (Sea 60, NIL) ‘The maker is liable the moment he takes the negotiable instrument; his liability is primary and unconditional. (PNB ex. Macenas, 48 Phil 207 (1925) When a party signs a promissory note as a co- maker and binds himself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan, such undertaking is dcemed to be that of a surety as an insurer of the debt, and not as a guarantot who warrants the solvency of the debtor. The creditor's right to proceed against the surety exists independently of his right to proceed against the principal. (Palmares 1s. CA, 288 SCRA 422 [1998)) Drawer The drawer, by drawing the instrument: (1) Admits the existence of the payee and his then capacity to indorse; 2) Fngages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, 37 (8) Engages that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it (Sec. 61, NIL) NOTE: The drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder. 9) Acceptor ‘The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (1) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the trument; and ») The existence of the payce and his then capacity to indorse. (Sea 62, NIL) PRESENTMENT Ley SOA NED (5 Questions) GENERAL RULE: If presentment is not made, the drawer and the indorsers are discharged from their secondary liability unless such presentment is excused. (Sec. 70, NIL) EXCEPTIONS: (1) Presentment for payment is not required to charge drawer and indorser when: CEBALLOS BAR TRENDS (3CEBALLOS BAR TRENDS (@ Drawer has no right to expect or require that the drawee or acceptor will pay the instrument (See. 80, NIL}; and (6) Indorserment is made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented; Ibid.) @ Presentment for payment is dispensed with (Sec 70, NIL}:and (Q) When the Bill of exchange has been dishonored by non-acceptance, since no presentment for payment is necessary. (Sec. 71, NIL) When may it be dispensed with? (1) Where, after the exercise of reasonable diligence, presentment cannot be made; Q) Drawee is a fictitious person; @) Waiver of presentment, implied. (See. 82, NIL) express or To whom may presentment for payment be made? ‘To the primary party: (1) Maker of promissory note; of @ Acceptor of accepted bill. If bill of exchange is payable on demand, presentment must be made to drawee although he is not liable on bill. ix Presentme xem) Rees Check must be presented for payment within a reasonable time after its issue. (See. 186, NIL) 38 3 CEBALLOS BAR TRENDS Effects of Delay for Presentment (1) Drawer will be discharged from liability thereon to the extent of the loss caused by the delay; and (2) Indorser shall be discharged from liability. Presentment for payment is not necessary in order to charge the person primarily liable but necessary in order to charge drawer and indorsers. (Sec 70, NIL) If there is no presentment of payment, the drawer cannot be held irrespective for the loss or injury suffered by the payee. (Pio Barrtio Realty Corporation 15. CA, GR. No, 132362, June 28, 2001) Cie KOs: Itis a norice given by the holder to the patties secondarily liable, drawer and each indorser, that the instrument was dishonored by non: Payment or non-acceptance by the drawee/maker. Purposes for requiring notice of dishonor: (1) To inform parties secondarily liable that the maker or acceptor has failed to meet his engagement; Q) To advise them that they are required to make payment. ‘TIME AN PLACE OF GIVING THE NOTICE OF DISHONOR @) As soon as the instrument was dishonored, unless delay is excused. (Se. 102, NIL@) CEBALLOS BAR TRENDS Delay is excused when the delay is caused by circumstances beyond the control of the holdet and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with reasonable diligence. (Sea 113, NIL) (2) Where parties reside in the same place, notice must be given within the following times: (@) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following, (b) IF given at his residence, it must be given before the usual hours of rest on the day following, (© If sent by mai, it must be deposited in the post office in time to reach him in usual course on the day following. (See. 103, NIL) (3) Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: (2) By mail - deposited in the post office in time to go by mail the day following the day of dishonour; or if there be no mail at a convenient hour on last day, by the next mail thereafter, If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision, (See. 104, NIL) 39 (4) Time of notice to antecedent parties - Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonour, (See. 7, NIL) Instances when a negotiable instrument is considered dishonored: (1) For promissory note: (@) Not paid when presented for payment at maturity; o (©) Where presentment is excused or waived and the instrument is overdue and unpaid. (See 83, NIL) (2) For Bill of Exchange: @) If not accepted when presented for acceptance; oF (B) If presentment for acceptance is excused and the bill is not acceptance. (See. 149, NIL) Liability of a person secondarily liable when the instrument is dishonored After the necessary proceedings for dishonor had been taken, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. (See. 84, NIL) ACCEPTANCE (4 Questions) [eng rereetnrg Cre erena (3 Questions) Definition Signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawer. It CEBALLOS BAR TRENDS hersCEBALLOS BAR TRENDS @ must not express that the drawee will perform his promise by any other means than payment of money. (See. 132, NIL) GENERAL RULE: When the holder takes ‘qualified acceptance, the drawer and indorsers are discharged from liability on bill EXCEPTIONS: (1) They have expressly or authorized it; or 2) Subsequently assented thereto; of ) Implied assent. (Se: 142, NIL) impliedly (1) Holder may require that the acceptance be written on the bill, and if refused, may treat bill as dishonored, (See. 133, NIL) 2) An acceptance written on a separate instrument does not bind acceptor except in favor of the person to whom it has been shown and on the faith thereof, received the bill for value. (See. 134, NIL) ‘Time within which to accept Drawee is allowed twenty-four (24) hours after presentment within which to decide whether or not to accept bill; once accepted, the acceptance is deemed as of the day of presentment. (See. 136, NIL) Peni An unconditional promise in writing made by ‘one person to another, signed by maker, engaging to pay on demand, or at a fixed ot 40 CEBALLOS BAR TRENDS determinable future time, sum certain in money to order or to bearer. (Sea 184, NIL) Instances when a bill of exchange is treated as 4 promissory note: (1) The drawer and the drawee are the same person; 2) The drawee is a fictitious person; () The drawee has no capacity to contract; (4) The instrument is so ambiguous that there is doubt whether it is a bill or a note. (Sees. 17 & 130, NIL) COMMODATI 2Q ‘A person who signs as maker, drawer, acceptor or endorser without receiving any value therefor, and for the purpose of lending. his nam: to some other person. (Bautista 1s. Auto Plus Traders, Inc, 561 SCRA 223 [2009)) Such accommodation party CANNOT set up lack of consideration against any holder, even as to one who is not a holder in due course. (See. 29, NIL) Requisites to be an accommodation party: (1) Accommodation party must sign as maker, drawer, acceptor or indorser; @No value is received by the accommodation party from the accommodated party; and @) The purpose is to lend the name. &CEBALLOS BAR TRENDS DISCHARGE OF NEGOTIABLE INSTRUMENT (2 Questions) “The release of all parties, whether primary ot secondaty, from obligation arising thereunder. Ie renders an instrument non-negotiable. Causes for discharge of instrument and discharge of all parties: (1) Payment by debtor (2) Payment by accommodated partys @) intentional cancellation by holder; (4) Any other act discharging simple money obligation; or (8) Reacquisition by principal debtor on his own right. (Sea 719, NIL) (1. Question) Causes: (1) Any act discharging instrument; Cancellation of indorser’s signature by holder; (8) Discharge of prior partys (@ Tender of payment by prior party; (5) Release of principal debtor; ot (© Extension of payment by holder, or postponement of his right to enforce, without assent of secondary parties, and without reservation of any right of recourse against secondary patties. (Sea 120, NIL) a 3 CEBALLOS BAR TRENDS Ierefers to any alteration which changes the: (1) Dates Q) Sum’ payable, either for principal oF interests (3) Time or place of payment; (4) Number or relations of the parties; (5) Medium or currency in which payment is to be made; (© That which adds a place of payment where ao place of payment is specified: and (1) Any other change or addition which alters the effect of the instrument in any respect. (See 125, NIL) Effects of Material Alteration (1) Instrument with material alteration if done without assent of ali parties lable thereon; is avoided, except as against the party who made, authorized ot assented to the alteration and subsequent indorsets; and Q When the instrament materially altered is in the hands of holder in due course and not party to alteration; may enforce payment thereof according to original tenor. In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawer’s instructions as reflected on the face and by the terms of the check. Payment made under materially altered instrament is not payment done in accordance with the instruction of the drawer. (Metrobank us. Cabileg, GR. No. 154469, December 6, 2006)PRESENTMENT FOR ACCEPTANCE (eget) Presentment for payment is necessary in order to charge the drawer and indorsers. (See. 70, NIL) The rule mandates that the checks be retuned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed by law for filing ‘The rationale of the mule is to collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank may be prejudiced and lose the opportunit (0h Central Banke to go after its depositor. (See “reular No. 380) TI. INSURANCE LAWS R.A. NO. 10607 (77 QUESTIONS) Itis an insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a cer voyage ot fixed petiod of time, (Se. 92, Act No. 247) 42. CEBALLOS BAR TRENDS ‘The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. ‘The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen. (Co Tiaoco y Hermanas 1s. Union Insurance Society of Canton, LTD., CR No. 13983, September 1, 1919) Implied warranties in marine insurance: (1) Ship is seaworthy at the inception of the voyage; (Se. 117, Insurance Code of the Philippines{ICP)) NOTE: A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the purties to the policy. (Sec 116, ICP) (2) Ship shall not deviate from the voyage insureds (Sees. 123,124 & 125, ICP) ©) Ship shall carry the necessary documents to show nationality or neuttality and that it will not carry document which will cast reasonable suspicion thereon; (Se 122, ICP) (@) Ship shall not engage in illegal venture; and (6) Presence of an insurable interest, (Sea 102, ICP) (10 Questions) Insurance is on human life and any insurance appertaining thereto or connected therewith. (See. 181, ICP) Life insurance policy is a valued policy. Unless the interest of a person insured is susceptibleCEBALLOS BAR TRENDS of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. (Great Pacific Life vs. CA, GR. No. 115899, October 13, 1999) A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest ‘or not, and such person may recover upon it whatever the insured might have recovered. (See. 184, ICP) ‘Types of Life Insurance Contracts (1) Individual; (Sec. 2#4, ICP) @ Group (Since the employees are still the real parties in interest, the employer thereby acts as the agent of the insurer) ‘Thereby, the insurance company is bound by the fraudulent acts. ofthe representative of the employer, who absconded with the insurance proceeds. (Pineda 1s. CA, GR. No, 105562, September 27,1993); and (@) Industrial. See. 235, ICP) ‘Types of Life Insurance Coverage (1) Term (to protect the beneficiary in case of sudden and unexpected death) (See 216, IOP); and 2 Endowment (to force the insured to save and invest his earnings and also to protect, his family in case of unexpected death; insured expects the policy to mature in his lifetime). (See. 233, ICP) B ) CEBALLOS BAR TRENDS (5 Questions) ‘The insurer agrees to indemnify the insured against loss of or damage by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. (See. 169, ICP) For the beneficiary to recover on the fire ot property insurance policy, it is required that he must have insurable interest in the property insured. (Sea. 13, ICP) ois peeren Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their dependents, are assured of immediate financial assistance, regardless of the financial capacity of the motor vehicle owners. (First Integrated Bonding & Insurance Company, Inc, vs. Harold Hernando, GR. No, L-51221, Ju 31, 1991) Lome ray (1. Question) Covers loss or liability atising from accident or mishap, excluding those falling under types of insurance as fire or marine. (Sec. 176, ICP) It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and &CEBALLOS BAR TRENDS @ theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. (Ibid The insurer is NOT solidarily liable with the insured. The insurer's liability is based on contract; that of the insured is based on torts. Furthermore, the insurer's liability is limited by the amount of the insurance coverage. (Pan Malayan Insurance Corporation 1s. CA, GR. No. 77397, April 3, 1990) yer (9. Questions) Insurable interest in property may consist of (1) an existing interest; Q) an inchoate interest founded on an existing interest; (See: 13, ICP) and @) an expectancy coupled with an existing interest in that out of which the expectancy arises. (See. 14, ICP) Tn property insurance, an interest insured tmust exist when the insurance takes effect and ‘when the loss occurs but need not exist in the meantime. (See. 19, ICP) ‘The measure of an insurable interest in property is the extent to which the insured might be damnified by loss o© injury thereof. (Sec. 17, ICP) 44 CEBALLOS BAR TRENDS Exists where the same person or property is insured by several insurers separately with respect to the same subject and interest. (See 95, ICP) Double insurance is valid (there is no law providing that double insurance is illegal per se); what is prohibited is for the insured to recover more than his interest or value of the property pursuant to the principle of indemnity. (Sec. 96, ICP) Nature of Liability of Insurers Insurers are considered co-insurers, each one is bound to contribute to the loss inproportion to the amount for which he is liable under his contract. (Thi) Life A person has insurable interest in: (1) His life, and the life of his spouse; Q) Life of a debtor or one rendering service; (© life of a person on whom he relies upon for education or support even though it has no legal or moral basis; @) Person upon whose life any estate vested in him depends. (Sea 10, ICP) ‘The interest of the beneficiary in the life insurance policy shall be forfeited when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured; in which event the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (See 12, ICP) Insurable interest in the life of another needs to exist only at the time of perfection of the contract and need not exist thereafter. (Sec 79, ICP) Health GENERAL RULE: In health insurance, there is no limit on the amount the insured can insure his life. EXCEPTION: In a _creditor-debtor relationship where the creditor insures the debior, the limits of insurable interest is equal to the amount of the debe. (See. 2, ICP) = CEBALLOS BAR TRENDS CEBALLOS BAR TRENDS More than one insurable interest may exist in the same property: (1) In trust, both trustor and trustee have insurable interest over the property in trust; (b) in a corporation, both the corporation and its stockholders have insurable interest over the assets; In partnership both the firm and partners have insurable interest over its assets; @ (3) In assignment both the assignor and assignee have insurable interest over the property assigned; In lease, the lessor, lessee and sub-lessees have insurable interest over the property in lease; and Tn mortgage, both the morigagor and mortgagee have insurable interest over the property mortgaged. @ © PERFECTION OF THE CONTRACT OF INSURANCI (9 Questions) cen (8 Questions) ‘The consideration paid to an insurer for undertaking to indemnify the insured against a specified peril. (Gulf Resorts, Inc. 18. Philippine ‘Charter Insurance Corporation, GR. No. 156167, ‘May 16, 2005) GENERAL RULE: No insurance policy issued is valid and binding until actual payment of the premium. Any agreement to the contrary is void. Parties may not agree expressly or impliedly on the extension ofCEBALLOS BAR TRENDS credit or time to pay the premium and consider the policy binding after actual payment. (UCPB General Insurance Co, Inxs Masagana Telemart, Inc, GR. No, 137172, April 4, 2001) EXCEPTIONS: (1) Life and industrial life whenever the grace petiod applies; (Sec. 77, ICP) Q Acknowledgment in the contract or policy of insurance that the premium had already been paid; (Sea 78, ICP) @) If parties have agreed to the payment of premium in installments and partial payment has been made at the time of loss; (UCPB General Insurance Co, Ine.vs Masagana Telemart, Inc, GR. No. 137172, April, 2001) (4) 60-90 day credit term for the payment of the premiums; (Tid) and (5) Parties are barred by estoppel. Rye n) a The insured is entitled to a pro rata return of the premium where the insurance (except life) being for a specified period, the insured surrenders his policy ahead of the period, unless the policy provides for a short period rate, in which case the rate therein will be applicable. (See. 80(b), ICP) In over-insurance, the insurer will have to refund the premiums corresponding to the amount over-insured. (See: 83, ICP) ‘The insured is entided to a return of the whole premium (1) If the thing insured was never exposed to the risks insured against; (Sec 80, ICP) 46 CEBALLOS BAR TRENDS 2) When the contract is voidable due to fraud or mistepresentation of the insurer; and G) When the insurer never incurred a liability. (ec. 82, ICP) CLAIMS SETTLEMENT AND SUBROGATION (6 Questions) Conditions before the insured may recover on the policy after the loss (1) The insured or some person entitled to the benefit of the insurance, without unnecessary delay, must give written notice to the insurer (See 90, ICP); and 2) When required by the policy, insured must present a preliminary proof of loss which is the best evidence hy- has in his power at the same time. (Sea. 97, ICP) Notice of Loss ~ is more or less the formal notice given the insurer by the insured or claimant under a policy of the occurrence of the loss insured against. Life Insurance (1) Proceeds shall be paid immediately upon the maturity of the policy if there is such a maturity date; and @ Policy ‘matures by the death of the insured, within sixty (60) days after presentation of the claim and filing of proof of the death of the insured. (See 248, ICP) Property Insurance (1) Proceeds shall be paid within thirty (30) days after proof of loss is received by the insurer and ascertainment of the loss otCEBALLOS BAR TRENDS damage is made cither by agreement oF atbitration; and Q) IE no ascertainment is made within 60 days after receipt of proof of loss, the loss shall be paid within ninety (90) days after such receipt. (Sea 249, ICP) ‘The insurer required the owner of the insured property to submit additional documents that were not in the insurance policy. Despite compliance by the owner, the insurer did not pay and almost 10 months after the fire, only then did the owner sue to collect. If the ascertainment of loss is not made within 60 days, the claim is payable within 90 days from receipt of proof of loss by the insurer. If not paid, unreasonable delay is presumed. (Cathay 18, CA, 174 SORA 11, (1987) Right of Subrogation Normal incident of indemnity property insurance as a legal effect of payment; it jinures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any privity of contract. Payment to the insured ‘makes the insurer an assignee in equity. (Art 2207, CC; Pan Malayan Ins. 1s. Court of Appeals, GR. No, 81026/1990)) Formal assignment or express stipulation is not necessary as itis legal effect of payment. Insurer can only recover from the third petson what the insured could have recovered. There can be no recovery if the insurer voluntarily paid even if the loss is not covered by the policy. CEBALLOS BAR TRENDS es Insured can no longer recover from the offending party what was paid to him by the inisurer but he can recover any deficiency, that is, if his damage is more than what was paid to him. Deficiency is not covered by the right of subrogation. Insurer must present the policy as evidence to determine the extent of its coverage. (Wallen Philippine Shipping Inc. 0s. Prudential Guarantee Assurance, Inc, GR. No. 152158, February 7, 2003) No Right of Subrogation (i) Insured by his own act releases the wrongdoer/ third person liable for the Joss; (b) Where the insurer pays the insured for a loss or risk not covered by the policy (Pan Malayan Insurance Co. ts CA, 184 SCRA 54/190); 2) Life insurance; (3) Recovery of loss in excess of insurance coverage. Stipulation Pour Autrué A provision in favor of a third person not a partly to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person on which the letter accepted (Bonifacio Bros, Inc, etal, 1s. Enrique Mora, et al, C.R. No. L-20853, May 29, 1967) Delay in Payment of Insurance Proceeds In case of unreasonable delay in the payment of the insured’s claim by the insurer, the insured can recover (1) Attorney’s fees: a7CEBALLOS BAR TRENDS @ Expenses incurred by reason of the unreasonable withholding; @ Interest at double the legal interest rate fixed by the Monetary Board; and (4) Amount of the claim Moral and exemplary damages are recoverable under the Civil Code depending on the presence of fraud and bad faith (in the claim for moral damages) or wantonness or oppressiveness. (in claims for exemplary damages) (Zenith ws. CA, 185 SCRA 398, May 14, 1990) ELEMENTS OF AN Boat) 6 ZiNa [Oe OEE eon (eke) Insurance Contract A contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss of or damage which he may suffer from a specified peril insured against. (Mayer Stee! Pibe Corp. us. CA, GR. No. 124050 (1997). Elements: (1) Scheme to distribute losses; Q) Payment of premium; (3) Existence of insurable interest; (4) Assumption of Risk; and ©) Risk of loss. Contracts of a law firm with clients whereby the law fitm promises to represent such clients in all suits for or against them, even if in consideration of periodical payments are not insurance contracts. However, a contract by which a corporation, in consideration of stipulated amount, agrees at its own expense 48, CEBALLOS BAR TRENDS fe to defend a physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. (Philippine Health Care Providers Ine. es. CIR, GR No. 167330, September 18, 2009) Rea ST Oty Neer keen (3 Questions) ‘A neglect to communicate that which a party knows and ought to communicate to the other party. (Sez. 26. ICP) It may be intentional or unintentional (Sea 27, ICP) An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. (See. 29, ICP) Requisites for concealment to vitiate a contract of insurance (1) The matter concealed must be material; and 2) There must be an obligation of the insured to reveal the concealed matter to the insurer, Instances wherein a contract of insurance may be canceled by the insurer: (1) Non-payment of premium; 2) Conviction of a crime arising out of acts increasing the hazard insured against; @) Discovery of fraud or material mistepresentation;(4) Discovery of willful or reckless acts or omissions increasing the hazard insured against; Physical changes in the property insured which result in the property becoming uninsurable; (© Discovery of other insurance coverage that makes the total insurance in excess of the property insured; or ‘A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code. (Ser. 64, ICP) ©) a No policy of insurance other than life shall be canceled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based fon the occurrence, after the effective date of the policy, of one or more of the abovementioned instances (Thid.) Notice of cancellation All notices of cancellation mentioned in the preceding Section 64 ICP shall be in writing, mailed of delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in the abovementioned section is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. (Sec. 5, ICP) Misrepresentation/Omissions Requisites of Misrepresentation (1) ‘The insured stated a fact which is untrue; (2) Such fact was stated with knowledge that it is untrue and with intent to deceive or & 49 CEBALLOS BAR TRENDS es CEBALLOS BAR TRENDS which he states positively as true without knowing it to be true and which has a tendency to mislead; (3) Such fact in either cas risk material to the Misrepresentation is an affirmative defense. ‘To avoid liability, the insuser has the duty to establish such a defense by satisfactory and convincing evidence. Breach of Warranties Effects of breach of warranty (J) Material - Violation of material warranty or of material provision of a policy will entitle the other party to rescind the contract, EXCEPTION: —_ with promissory watranties: (1) Loss occurred before the time of performance of the warranty: 2 The performance thereof becomes unlawful; (9) Performance Gee. 73, ICP) regard to becomes impossible, (2) Immaterial - This kind of breach will not avoid the policy. EXCEPTION: When the _ policy expressly provides or declares that a violation thercof will avoid it. roe fo) ‘An agreement whereby one undertakes for a consideration to indemnify another againstCEBALLOS BAR TRENDS loss, damage or liability arising from an unknown or contingent event. (See. 2), ICP) IV. SPECIAL LAWS (57 QUESTIONS) (Excluded and made a part of Civil Law coverage) ANTI-MONEY. EAUNDERING Neri e Mtoe. ‘AMENDED BY R.A: NO. 9194) (13. Questions) CONE oNas re nee exe) ‘To submit covered and suspicious transaction reports the Anti-Money Council Unlawful Activities of Predicate Crimes (2 Questions) (1) Kidnapping for ransom; 2) Drug trafficking and offenses; (3) Graft and Corrupt practices; (4) Plunder; (5) Robbery and Extortion; (©) Jueteng and Masiao; () Piracy; ®) Qualified theft; () Swindling; (10) Smuggling; to Laundering, other related ® 50 CEBALLOS BAR TRENDS (11) Violations under the Electronic ‘Commerce Act of 2000; (12) Hijacking, destructive arson, and murder, including those perpetrated by terrorists against non-combatant petsons and similar targets; Fraudulent practices and other violations under the Securities Regulation Code of 2000; (14) Felonies ot offenses of a similar nature that are punishable under the penal laws of other countries. (Se. 3(), RA. 9160, as amended) a) ener See ete (2:Questions) It is solely the Court of Appeals which has the authority order upon application ex parte by the Anti-Money Laundering Council and after determination that probable cause exists. (See 3, RA. 9160, as amended) Authority to Inquire into Bank Deposits (2 Questions) GENERAL RULE: Only upon order of any competent court in cases of violation of R.A. 9160, as amended. EXCEPTION: in cases such as kidnapping, hijacking, drugs, arson, murder. (Sea 17, RA. 9160, as amended) Covered Transactions (1 Question) A. single, combination of transactions involving a total amount in of four million Philippine pesos(Php4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate within five (5) consecutive banking days except those between a covered institution and a person who, at the time of the transaction was a properly identified client and the amount is commensurate with the business or financial capacity of the client; or those with an underlying legal or trade obligation, purpose, origin or economic justification. Tt likewise refers to a single, s combination or pattern of unusually large and. complex transactions in excess of Four million Philippine pesos (Php4,000,000.00) especially cash deposits and having no credible purpose or origin, underlying trade obligation or contract. (See. 3 [B), RA, 9160) ies oF investments ) CEBALLOS BAR TRENDS €&% () Any circumstance relating tothe transaction which is observed to deviate from the profile of the client and/or the client's past transactions with the covered institution; (G) The transaction is in any way related to an unlawful activity of offense under this Act that is about to be, is being or has been committed; or @ Any transaction analogous to any of the foregoing." (Sec. 3 fb), RA 9160, at amended) that is similar or When Is Money Laundering Committed i Geena) Accrime whereby the proceeds of unlawful activity are twansacted, making them apy to have come from lawful transaction. (Sec 4, RA, 9160, as amended) Se (1 Question) Suspicious transactions are transactions with covered institutions, regardless of the amounts involved, where any of the following circumstances exist: (1) There is no underlying legal or trade obligation, purpose or economic justification; The client is not properly identified; The amount involved is commensurate with the financial capacity of the client; @ Taking into account all circumstance the client’s known it may be perceived that action is structured in ing the subject of order to avoid b reporting requirements under the Act; Power and Functions To protect and preserve the integrity and confidentiality of bank accounts; To ensure that the Philippines shall not be used as a money laundering site; To extend cooperation in transnational investigation and prosecution. Bar Question 2015: XVI anti-mottey laundering laws: ‘A. On the i 4. What is the distinction between a "covered transaction report" and a "suspicious transaction repost”? (2%) Answer:EF A covered transaction report involves transactions of cash or other equivalent ‘monetary instrument involving a total amount in excess of Php500, 000 within one banking day while suspicious transaction report involves transactions with covered institutions regardless of the amounts involved made under any of the suspicious circumstances ‘enumerated by law. 2. Does the Anti-Money Laundering Council have the authority to freeze deposits? Explain Answer: No, Anti-Money Laundering Council does not have authority to freeze deposits. The law Provides that the authority to freeze deposits is lodged with and based upon the order of the Court of Appeals. TaOPT ISIE (R.A. NO. 7042) (10 Que: $.ACE Foreign investment Investment made by non - Philippine national in the form of foreign exchange and/or other assets transferred to the Philippines and duly registered with the Central Bank. “Doing Business” in the Philippines Foreign corporations are considered “doing or transacting business” in the Philippines if they are: CEBALLOS BAR TRENDS (1) Soliciting orders, service contracts, and opening offices; @) Appointing representatives, distributors domiciled in the Philippines or who have stayed for a period or periods totaling 180 days or more; @) Participating management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; Any act that imply a continuity of commercial dealings or arrangements, and contemplate to some extent the performance of acts or works of the of some functions normally and in progressive prosecution of, the purpose and object of its onganization. (See 3 (o, RA. 7042) in the a incident to Export Enterprise An enterprise wherein a manufacturer, Processor ot service enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) ‘or more of such purchases. (See 3 (¢, RA. 7042) Domestic market enterprise Produces goods for sale, or renders services to the domestic market entirely of if exporting @ portion of its output fails to consistently export at least 60% thereof. (Ser. 3 (e, RA. 7042)CEBALLOS BAR TRENDS Registration of Investments of Non-Philippin Etre (3 Questions) A non-Philippine national not disqualified to do business or invest in a domestic enterprise up to 100% of its capital without need of prior approval: must register with the Sccurities and Exchange Commission or with the Bureau of ‘Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of single proprietorship. Foreign Investment Negative List cis a list of areas of economic activity whose foreign ownership is limited ta maximum of 40% of the equity capital of the enterprises engaged therein. LIST A: Foreign ownership is limited by mandate of the Constitution and Special Law (1) Mass Media except recording; Q) Practice of professions; ) Retail trade enterprises with paid-up capital of less than US$ 2,500,00; (4) Cooperatives; (9) Private Security Agencies; (6) Small-scale mining; () Utilization of Marine archipelagic waters, territorial sea, and exclusive economic zone as well as small- scale utilization of natural resources in rivers, lakes, bays, and lagoons; (®) Ownership, operation, and management of cockpit ©) Manufacture, repair, stockpiling, and/or distribution of nuclear weapons; Resources in & 33 CEBALLOS BAR TRENDS : (10) Manufacture, repair, stockpiling, and/or distribution of biological, chemical and radiological weapons, and anti-personal mines (various treaties to which the Philippines is a signatory and conventions supported by the Philippines); (11) Manufacture of firecrackers and other pyrotechnic devices. LIST B: Foreign Ownership is limited for reasons of security, defense, risk to health, and morals and protection of small and medium-scale enterprises: (1) Manufacture, repair, storage, and/or distribution of products. and/or ingredients requiring Philippine National Police (PNP) clearance; 2) Telescopic sight, sniper scope, and other similar devices; (@) Manufacture, repair, storige, and/or distribution of products requiring Department of National Defense (OND) clearance; (&) Manufacture and dangerous drugs; (5) Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to public health and morals; (© All forms of gambling, except those covered by investment agreements with PAGCOR or the PAGCOR Charter; (1) Domestic market enterprises with paid-in equity capital of less than the equivalent of 1US$200,000; (8) Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid- in-equity capital of less than the equivalent ‘of US$100,000. (RA 7042) distribution of(emery It is the policy of the State to attract, promote and welcome productive investments in activities which significantly contribute to national industrialization and socio - economic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws from foreign individuals, Partnerships, Corporations, and Governments. Foreign investments shall be encouraged in the enterprises that significantly expand livelihood and employment opportunities for Filipinos Foreign investments shall be welcome as a supplement to Filipino capital and technology in those enterprises serving mainly the domestic market. ‘There are no restrictions on extent of foreign ownership of export enterprises. Except those in areas included in the negative list. Foreign > owned firms are encouraged to undertake measures that will increase Filipino participation in their businesses by (1) Taking in Filipino partners, 2) Electing Filipinos to the board of directors, @) Implementing transfer of technology to Filipinos, (4 Generating more employment for the economy and © Enhancing skills of Filipino workers. (See. 2,RA 7042) Non Philippine nationals may own up to 100% of domestic market enterprises unless foreign ownership prohibited/limited by the Constitution and existing law or the Fosciga Investment Negative List. % Bar Question 2015: 9 B. On foreign investments: 2. ABC Corporation was organized in Malaysia but has a branch in the Philippio-= I is entirely owned by Filipino citizens. Can you consider ABC Coiptinton 4 Philippine ‘atonal CHa Yes, ABC cae i estat Philippine” nati | Corporation Code it is registered ay ing Philippines it is considered a Philippine National. ws) CEBALLO SoBAR ale NDS ow)CEBALLOS BAR TRENDS Averages Any damages or deteriorations which the el may sufler fom the time it puts to sea from the port of departure until it casts anchor in the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment. (Art, 806, Code of Commerc). General Average: (1) Both the ship and cargo are subject to the same danger; (2) There is a deliberate sacrifice on the part of the vessel, cargo, or both; @) Damage or expenses incurred to the vessel, its cargo, or both, redounded to the benefit of the respective owners; and (4) All those who have benefited shall satisfy the average. (Art. 811, Cade of Commerce) Particular Average: (1) No common danger to both the vessel and the cargo; 55 CEBALLOS BAR TRENDS A (2) Expenses and not deliberately made; Did not inure to common benefit and damages ® profit of all persons interested in the vessel and her cargo; and Only the owner of the goods who suffered the damage shall bear the expense of average. (Art. 810, Cade of Commerc) a Arrival under stress Arrival at a port not the original destination fon account of lack of provisions, well founded fear of scizure by ptivateets, or by reason of any accident of the sea disabling it to navigate. (Art. 819, Code of Commercy} Collision and Allision Collision is the impact of two moving vessels, (Unnitia es, Baco River Plantation, 26 Phil. 623 [1914]) While allision is the impact between @ moving vessel and a stationary one. Cases Covered By Collision and Allision: () One vessel at fault Vessel at fault is liable for damage caused to innocent vessel as well as damages suffered by the owners of cargo of both vessels. (Art. 826, Code of Commerce) (2 Both vessels at fault Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners of both or either vessel who will be solidarily liable. (Art 827, Cade of Canmerce) (3) Vessel at fault not known Each vessel must bear its own loss, butthe shippers of both vessels may go against the shipowners who will be solidarily iable.(A rt. 828, Code of Commerc) (4) Third vessel at fault ‘The third vessel will be Hable for losses and damages. (A tice 831, Code of Commerc) ©) Fortuitous event/force majeure No liability. Bach bears its own loss subject to NCC requirement on fortuitous event to exercise due diligence before, during and thereafter and provided that there is no delay. (Art, 830, Code of Commerc) Shipwreck The loss of a vessel at sea as a consequence of its grounding, or running against an object in the sea or on the coast If the wreck was due to malice, negligence or lack of skill of the captain, the owner of the vessel may demand indemnity from said captain. (Art. 841, Cade of Commerce) Application Ie will only be applied in terms of loss or damage of goods transported to and from Philippine ports in foreign trade. It may also apply to domestic trade when there is a paramount clause in the contract. (See. 13, RA. No. $21) CEBALLOS BAR TRENDS 56 CEBALLOS BAR TRENDS Notice of Loss or Damage (1) TE the damage is extremely apparent, then notice should be given on receipt of the goods; and 2) IF the damage is not externally visible, then notice should be given within three days from receipt. Failure to give notice does not bar the filing of the suit if made within one year. (See. RA No. 521) Period of Prescription Should be brought within one year from delivery, oF from the date when the goods should have been delivered. (Ibid) NOTE: The one year period under section 3(6) of the Carriage of Goods by Sea Act within which to file a claim against the casrier starts to fun from the date of delivery of goods to the arrastre operator, not directly to the consignee. (Union os. Manila 77 SCRA 359, June 15, 1977) ‘The insurer exercising its right of subrogation is bound by the one (1) year prescriptive petiod. However, it does not apply to the claim against the insurer for the insurance proceeds because the claim against the insurer is based on contract, it expires in 10 years. (Mayer Steel Pipe Corp. 13. CA, G.R. No. 124050, June 19, 1997) Limitation of Liability ‘As under Section 4(5) of the Carriage of Goods by Sea Act, the liability limit is set at '$500 per package or the actual amount of the loss sustained, this is deemed incorporated in the bill of lading even if not mentioned in it. &CEBALLOS BAR TRENDS (Eastern vs, IAG, 150 SCRA 463, May 29, 1987) Cases where the ship owner/agent shall be liable to the damages caused by the captain: (1) Damages suffered by the vessel and its cargo by reason of want of skill ot negligence on his parts ‘Thefts committed by the crew, reserving, his sight of action against the guilty parties; Losses, fines and confiscations imposed an account of violation of customs, police, health, and navigation laws and regulations; Losses and damages caused by mutinies ‘on board the vessel or by the reason of faults committed by the crew in the service and defense of the same, if he docs not prove that he made timely use of all his authority to prevent or avoid them; Those caused by the Miuses of the powers; For those arising by reason of his going out of his course oF taking a course which he should not have taken without sufficient cause, in the opinion of the officers of the vessel, at a meeting with the shippers or supercargoes who may be on board. No exceptions whatsoever shall exempt him from his obligation; For those arising by reason of his voluntarily entering a port other than that of his determination, outside of the cases or without the formalities referred to in Article 612; 2 @ 4 © © 37 (8) For those arising by reason of non- observance of the Provisions contained in the regulations on situation of lights and maneuvers for the purpose of preventing collisions. (Art. 618, Code of Commerce) Exemption from liability of the captain for loss or injury to persons of cargo ‘The captain shall not be liable for the loss oF injury to persons or cargo if the loss or the injury is based on the following causes: (1) Force majeure; Q) Obligations contracted for the vessel's benefit, except when the captain expressly agrees to be liable. A contract whereby the whole or part of the ship is lent by the owner to a merchant or other person for a specified time ot use for the conveyance of goods, in consideration of payment of freight. (Caltex 1s. Suipiio Lines, GR. No, 131166, September 30, 1999) (1) Bareboat/Demise Charter Contract (@ Negligence of the charterer gives rise to its liability to others; (©) Charterer is regarded as owner pro hac vice; and (© Ship owner temporarily relinquishes possession and ownership of the vessel. (Puromines, Inc. 1s. Court of Appeals, GR. No. 91228, March 22, 1993) Q Time Charter ~ Vessel is chartered for a particular time or duration. While the ship CEBALLOS BAR TRENDS a@ CEBALLOS BAR TRENDS @} owner still retains possession and control of the vessel, the charterer has the right to use all vessel’s facilities. The charterer may likewise designate vessel’s destination. 1ce a time charter the shipowner retains possession and control of the ship, the ship remains a common cartier. (Planters Products, Inc. #8. CA, C.R. No, 101503, Sept 15, 1993) (3) Voyage Charter — A voyage charter is a contract wherein the ship was leased for a single voyage for the conveyance of goods, in consideration of the payment of freight. The shipowner the possession, command and navigation of the space in the vessel in return for his payment of freight. retains An owner who retains possession of th ship remains liable as carrier and must answer for loss or non-delivery of the goods received for transportation. (Cebu Salvage Comp. 1s. Philippine Home Assurance Corps, GR. No, 150403, Jan. 25, 2007) (4) Contract of Affreightment (2) Ship owner remains liable and carrier ‘mast answer for any breach of duty; and (©) Charterer is not regarded as owner. Ship owner retains ownership over the vessel. (Coastuise Lightrage 3. Court of Appeals, GR. No. 114167, July 12, 1999) NOTE: The character of the common cartier as such is not affected by the charter party if the same is a contract of affreightment. If tis & 58 CEBALLOS BAR TRENDS a bareboat or demise charter, the charter party transforms the common carrier into a private cartier. Ibid) COMMON CARRIERS (18 Questions) Sorento (12 Questions) In Transportation of Goods (@) Liability for Failure Observe Extraordinary Diligence to In order that 2 common catrier may be absolved from liability where the loss, destruction or deterioration of the goods is due to a natural disaster or calamity, it must be shown that such natural disaster or calamity was the proximate and only cause of the loss. Even if fire were to be considered a natural disaster under Article 1734 of the Civil Code, a common carrier is still required to exercise due diligence to prevent or minimize loss before, during and after the occurrence of the natural disaster, for it to be exempt from liability under the law for the loss of the goods. (DSR Senator Lines us. Federal Phoenix Insurance, 413 SCRA 14, October 7, 2003) 2 Liability for Loss Due to Improper Packing If the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary observation, but he accepted the goods notwithstanding such condition, he is not telieved of liability for loss or injury resulting there from. (A.F. Sanches 1s. CA, 447 SCRA 427, December 21, 2004) &CEBALLOS BAR TRENDS In Carriage of Passengers (1) Liability if Driver of Other Vehicle is Negligent Tn case of injury to a passenger due to the negligence of the driver of the bus in which he was riding and the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages. (Vinluan vs. CA, 16 SCRA 742 11966) (2 Liability of Registered Owner of Public Utility Vehicle The registered owner or operator of a common carrier is liable for injuries to passengers, solidarily with the driver regatdless of any alleged sale ot lease made on. the vehicle. The actual ownet of the vehicle becomes a mere agent of the registered operator, and does not take away responsibility from the latter as regards the public and third persons. (MYC 13. Vda. De aldo, 132 SCRA 10, September 7, 1984) Kabit System Ts an arrangement whereby a person who has been granted a certificate of public convenience allows another who owns a motor vehicle to operate under his certificate for a fee of a percentage of the earnings. (Lim 13, CA, 373 SORA 394, January 16, 2002) Exceptions to Kabit System: (@) When neither of the parties to the Kabit System is being held liable; (©) When the case arose from the negligence of another vehicle in using the public road to whom no representation or @@ ceEBALLOS BAR TRENDS & misrepresentation as regards the and operation of passenger jeepney was made; and (©) When the siding public was not bothered or inconvenienced at the very least by the illegal arrangement. (Ibid) (@) Liability of a Common Carrier without a Certificate of Public Convenience ‘A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. ‘That liability arises the moment a person or firm acts as a common catticr, ‘without regard to whether or not such carrier hhas also complied with the requirements of the applicable regulatory statute implementing regulations and has been granted a certificate ‘of public convenience or other franchise. (Loadstar vs. CA, 315 SCRA 339, Sept. 28, 1999) (6 Questions) In Transportation of Goods Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of public policy. Extraordinary diligence requires in rendering service with the greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery. (Leamer vs, Malayan, 471 SCRA 698, Sept. 30, 2005)In Carriage of Passengers ‘The law requires common carriers to carry passengers safely using the diligence of a very cautious person with due regard for all circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the tip but for so long as the passengers are within its premises and where they ought to be in pursuance of the contract of carriage. (Light Rail 1s. Natividad, 397 SCRA 75, February 6, 2003) Bar Question 2015: Tt ‘Are common carriers liable for injuries to passengers even if they have observed - Sines (4 Questions) Assaults of Employees If the Common carrier fails to exercise due diligence in the supervision of its employees, CEBALLOS BAR TRENDS 60. CEBALLOS BAR TRENDS it could be held liable for damages. (Art. 1749, Givil Code) Acts of Strangers A common carrier is liable for injuries to passengers caused by willful acts of str if its employees through the exercise of ¢ diligence could have prevented such a act of the bystander is considered a fortuitous event. (Art. 1763, Civil Code) ‘The cartier is obliged to exercise only ordinary diligence if (1) One remains on a cartier for an unreasonable length of time after he has been afforded every safe opportunity to alight One has boarded by fraud, stealth, or deceit; : One attempts to board a moving vehicle, although he has a ticket, unless the attempt be with the knowledge and consent of the carrier One has boarded a wrong vehicle, has been properly informed of such fact, and on alighting, is injured by the carrier; and Invited guests and accommodation passengers. (A boitiz Shipping Corporation vs CA, GR No, 84458 November 6, 1989) ‘The relationship in the contract ends when rassenger after reaching his destination alighted and had reasonable opportunity es, which, ee the common carrier’s premi includes the time to look for his baggage and claim them. (Ibid)&) CEBALLOS BAR TRENDS &} Valid provided it be: (1) In writing, signed by the shipper or owner; (b) Supported by a valuable consideration other than the service rendered by the common cartier; and Q Reasonable, just and not contrary to public policy. (Art. 1744, Cisil Gade) ‘The stipulation in the charter party absolving the ship owner from liability for loss due to the negligence of its agent would be void only if strict public policy governing common cattiers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. ‘The stipulation exempting the shipowner from liability for negligence oF its agent is not against public policy and is deemed valid. (Home Insurance Co, ws. American Steamship Agencies 23 SCRA 24, April4, 1968) the bill of lading excluded liability for such faults. a CEBALLOS BAR TRENDS (¢& Contributory Negligence The passenger must observe the diligence of a good father of a family or ordinary diligence to avoid injury to himself (Art. 1761, Cisil Cod). VE proximate cause of the passenger's injury is his negligence, the common carrier is not liable. The commo: the carrier has the burden of proof in this Regacd. So! GENERAL RULE: Common cartier is presumed at fault or w negligent when the goods transported are lost, destroyed or deteriorated. (Bases rs. Court of Appeal, CR. No. 101089, April 7, 1993) EXCEPTIONS: (1) Caso Fortuito, provided, that: (a) Natural disaster was the proximate and (b) Exercise of diligence to prevent or minimize loss before, during and after the occurrence of the natural disaster; (Ant. 1739, Cinil Code) and (©) Carrier has not negligently incurred in delay. (Art. 1740, Civil Code) Q) Act of the public enemy in war, whether international or civil, provided that: (2) Act was the proximate and only cause; (b) Carrier exercised diligence to prevent or minimize loss before, during and after the act; (Ibid) and (No delay. (Ibid) (3) Act or omission of the shipper or owner of the goods, provided that: (@) If proximate and only exempting; and@} CEBALLOS BAR TRENDS (I contributory negligence — mitigating. (Art. 1741, Civil Code) Duration of Liability Tt lasts from the time the goods are unconditionally placed in the possession of the carrier until the same are delivered to the consignee or to the person who has a right to receive them. (Ar. 1736, Civil Cade) Tn case of checked-in baggage, the provisions of Articles 1733 to 1753 of the Civil Code will apply. Rules if the baggage is in the personal custody of the passenger: (1) The common cartier shall be responsible for shipper’s baggage as. depositaries, provided that notice was given to them of the effects brought by the guests and that, on the part of the shipper, they take the precautions which said common carriers or their substitutes advised relative to the care and vigilance of their effects. (Art. 1998, Civil Code); 2) The responsibility includes the loss of, of injury to the personal property of the shipper caused by the employees of the common cartier as well as strangers; but not that which may proceed from any force majeure. (Art. 2000, Civil Code ); @) The act of a thief or robber is not deemed force majeure, unless it is done with the use of arms or through an. irresistible force. (Art 2001, Civil Code); and 62 CEBALLOS BAR TRENDS (4 The common carrier is not liable for compensation if the loss is due to the acts of the shipper, his family, or servants, or if the loss arises from the character of the things brought into the carrier. (Art 2002, Cini Code) Example: Act of the guest/shipper’s own setvant — the servant may have appropriated the thing for himself, ‘The common carrier cannot free him from responsibility by posting notices that he is not liable for the articles brought by the passenger. Any stipulation between the common cartier and the shipper whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. (Art 2003, Civil Code) BILL-OF LADING Surrender of the bill of lading is necessary upon delivery of the goods (1) If non-negotiable- the action against the cartier does not lie. 2) If negotiable ~ action by the shipper may lie against the carries. NOTE: However, where the seller instructed the shipping company to deliver the cargoes to the buyer without requiring the presentation of the bill of lading, the shipping company is not liable for releasing the cargoes to the buyer. (Macam vs. CA, 313 SCRA 77 [1999})Period of Delivery If a period has been fixed, delivery must be made within such time, and if the cattier fails to deliver as agreed it shall pay the indemnity stipulated in the bill of lading, neither the shipper nor the consignee being entitled to anything swore. (Art. 370, Code of Commerce) If there is no period of time fixed, the carrier is obliged to forward them with the first shipment of the same or similar merchandise he may make to the point where he must deliver them, and should he not do so, the damages occasioned by the delay shall be suffered by him. (Art 358, Code of Commer) Refusal of Consignee to Take Delivery Grounds: (1) When a part 0 the goods transported are delivered and the consignee is able to prove that he canot make use of the part without the others; (Art 365, Code of Conmerce) If the cargo consists of liquids and they have leaked out, nothing remaining in the containers but one-fourth (1/4) of their contents, on account of inherent defect of ‘cargos (Art. 687, Code of Commerce) If the goods are damaged and such damaged renders the goods useless for the particular purpose purpose for which there are to be used; (Art. 365, Cade of Commerc) (4) When there is delay on account of the fault of the cattier. (Art. 371, Code of Commerce) @ CEBALLOS BAR TRENDS 6 CEBALLOS BAR TRENDS (1) Contract; (2) Receipt; and ) Evidence of the Contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value. (Phoenix: Assurance Cos Lid. 15. United States Lines, CR. No. L-24033, February 22, 1968) ‘As a contract, it names the contracting patties, which include the consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties. (hid) x ee cand assumed stipulated it is the evidence of the existence of the contract of carriage for the terms and conditions thereof. (MOF Company, Inc. vs. ShinTZN a Applicability This convention applies to all international catriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking. (An. 1/1], Warsaw Contention) International Carriage - any carriage in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are situated either: (1) Within the territories Contracting Parties; ot Q Within the tertitory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authotity of another Power, even though that Power is not a party to. this Convention. (Art 1/2), Warsaw Convention) of two High Limitation of Liability (1) In the carriage of persons ~ the liability Of the cartier for each passenger is limited to the sum of 125,000 francs. Nevertheless, by special contract, the catrier and the passenger may agree to a higher limit of liability. (Are 22 (1), Warsaw Convention) (2) Liability to checked baggage and goods - the liability of the carrier is 64 CEBALLOS BAR TRENDS @}) CEBALLOS BAR TRENDS limited to a sum of 250 francs per kilogram, unless the consignor has made, at the time when the package was handed over to the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that that sum is greater than the actual value to the consignor at delivery. (Art. 22 [2], Warsaw Convention) (8) Liability for hand-cartied baggage - As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5,000 francs per passenger. (Art. 22 /3}, Warsaw Contention) NOTE: Any provision tending to relieve the carrice of liability or to fix a lower limit than that which is laid down in the Warsaw Convention is be null and void, but the nullity of any such provision does not involve the nullity of the whole contract. (Art. 23, Warsaw Convention) Willful Misconduct The cartier is not entitled to the foregoing limit if the damage is caused by willful misconduct or default on its part. (Art. 23, Warsaw Convention) Where the loss of the baggage of a passenger was due the fault or recklessness of an airline company, the limitation on the liability of airline companies under the Warsaw Convention is not applicable. (A tala os. IAG, 192. SCRA 9 (1990)@> CEBALLOS BAR TRENDS @ VI. BANKING LAWS. (54 QUESTIONS) GENERAL BANKING LAW (GBL) OF 2000 (CW eC) elemento) res eer ET (13 Questions) CORPORATE POWERS Powers necessary in carrying on the business of commercial banking: (1) Accepting drafts and issuing letters of credit; Q Discounting and __ negotiating promissory notes, drafts, bills of exchange and other instrument evidencing debt; () Accepting or creating demand deposits, receiving other types of deposit and deposit substitutes; (4) Buying and selling FOREX and gold or silver bullion; ©) Acquiting marketable bonds and other debt securities; (©) Extending credit; and (@ Determination of bonds and other debt securities eligible for investment including maturities and aggregate amount of such investment, subject to such rules as the Monetary Board may promulgate. (Sec 29, GBL) fe) 65 BANKING AND INCIDENTAL POWERS Additional powers given to a universal bank (1) Act as an investment house; and Q Ability to invest in non-allied enterptises. (See. 23, GBL) Diligence Required of Banks Not only with the diligence of a good father of a family but with the highest degree of care considering the fiduciary nature of their relationship with their depositors. (Westmont Bank ». Ong, GR. No. 132560, January 30, 2002) Banks are liable for damages because of their: (1) Failure to honot/pay a check of a merchant/trader when the deposit is sufficient; 2) When a bank incomplete duplicate deposit stip; () Not credited to the account of the depositor because of the omission of one “zero” in the account number; (4) The bank allowed an impostor to negotiate treasury checks; and (5) The new account teller erroneously used the old account of a depositor instead of the newly opened joint account of the depositor and his spouse, leading to the dishonor of two checks issued by the depositor. telier validates an CEBALLOS BAR TRENDS ce:& CEBALLOS BAR TRENDS & Limit on loans, credit accommodations and guarantees (1) Single Borrower's Limit ‘The total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty five percent (25%) of the net worth of such bank (Sec 35.1, CBL, as amended by BSP Circular No. 425, series of 2004) EXCEPTION: The net worth mentioned may be increased by up to ten percent (10%), provided he additional liabilities of any borrower are adequately secured by documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance. (See. 35.2, CBL) Bat Question 2015: XIT C. Whats the single borrower's limit? 2%) Answer: Under the single borrower's limit, the total amount of loans, credit accommodations and guarintee thar the bank may extend to any ‘person shall not exceed twenty five per cent (25%) of the bank’s net worth. While the law sets the ceiling at twenty percent (20%) of the bank’s net worth, it also empowers BSP to 66 CEBALLOS BAR TRENDS a) inodify’the ceiling! The current SBI. as set by BSP is 25% of the Bank's net worth. 2 Loans against real estate security shall not exceed seventy-five percent ( of the appraised value of ea plus sixty percent (60%) of appraised value of insured improvements (Sec 37, GBL): NOTE: Such loans shall be made only to owner of the real estate of to his assignees (Ibid; @) Loans and other credit accommodations on security of chattels and intangible properties shall not exceed seventy-five percent (7: Cf the appraised value of the security; NOTE: Such loans may be made only to the title-holder of chattels and intangible properties and their assignees. Ibid) Net worth ‘The total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments. (Se 24, GBL) Risk-based Capital ‘The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts. (Se 4, GBL) Effect of _ non-compliance the prescribed minimum ratio ‘The Monetary Board may (1) Limit or prohibit the distribution of net profits by such bank; and (2 Require that part or all of the net profits be used to increase the capital toCEBALLOS BAR TRENDS accounts of the bank until the a minimum requirement has been met. (Sec. 4, CBL) Corporation, association, or firm of which a director ot officer of the bank, ot his spouse is also a director ot officer of such corporation, Restrictions on Bank Exposure to DOSRT association or firms; GENERAL RULE: No director or officer of any bank shall, directly or indirectly, for (©) Corporation, association or firm of himself or as the representative or agent of which any or a group of directors, others, borrow from such bank nor shall he officers, stockholders of the lending become a guarantor, indorser or surety for bank and/or their spouses or relatives loans from such bank to others, or in any within the first. degree of consanguinity or affinity, or relative by legal adoption, hold or own at least twenty percent (20%) of the EXCEPTIONS: subscribed capital of such (1) with the written approval of the corporation, of of the equity of such majority of all the directors of the association or firm; and bank — excluding the -—_ director concerned; and (© Corporation, association or firm (2) Arms Length Rule wholly or — majority-owned ot Upon terms not less favorable to the controlled by any related entity. (BSP bank than those offered to others Circular No, 423, series of 2004) (bid) manner be an obligor or incur any contractual liability to the bank. (See. 36, CBL) ‘Nature of Bank Funds and Bank Deposits Related Interests (5 Questions) (1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a DOS; All kinds of deposits are loans. The bank can make use as its own the money deposited. Said amount is not being held in trust for the depositor nor is it being kept for safekeeping. (Cang Tiong Tick v. American Apothecarits, GR. No. 43682, March 31, 1938) 2) Partnership of which DOS of a bank ip or those that fall under number (1), is ‘a general partner; (3) Co-owner with the DOS or those that Senn ENT Renny fall under number (1), of the property or interest or right mortgaged, pledged or assigned to secure the loans or Universal Banks other credit accommodations, EXCEPTION: when the mortgage, pledge or assignment covers only said co-owner's undivided interest & CEBALLOS BAR TRENDS (1) These banks exercise the powers of an investment house and invest in non ~ allied enterprises (See. 23, GBI} andQ) These have the highest capitalization requirement. (2002 Bar) Commercial Banks (1) Commercial banks shall have the powers to carry on day-to-day commercial banking, (Se. 2, GBL) but can only invest in the equities of allied entesprises (Sea. 30, GBL}; and 2 These have a lower capitalization requirement than universal banks (2002 Bar) Bar Quéstion 20152 XML ‘A.A commercial bank wanis to acquire shares in a cément manufacturing éompany. Do you ‘think it ean do that? Why or why not? (27) ee is ae Ses ‘Thrift Banks (1) Thrift banks are those which are composed of: (@) Savings and mortgage banks; (b) Stock savings and associations, and (© Private development banks (Sec 3a), R.A. No, 7906); ) They have the same powers and functions as that of commercial banks, EXCEPTIONS: Joan & ) CEBALLOS BAR TRENDS 68. CEBALLOS BAR TRENDS (@) Open and maintain current or checking accounts without prior Monetary Board approval; and (b) Issuance of letters of credit. (See 10, RA. 7906) Rural Banks Rural banks are mandated to provide adequate credit facilities to farmers and merchants, of to cooperatives of such farmers and merchants and in general, the people of the rural communities. (Sec. 3, R.A. 7353) Cooperative Banks A cooperative bank is one organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide financial and credit services to cooperatives. The term “cooperative bank” shall include cooperative rural banks. (Art 100, R.A. No, 6938) Islamic Banks ‘The primary purpose of the Islamic Bank shall be to promote and accelerate the socio- economic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking. (See. 3, R.A. No. 6838) Banks Entities engaged in the ending of funds obtained in the form of deposits (Sea 3.7, BL)Entities engaged in the Quasie | Dortowing of funds through tae the issuance, endorsement or assignment with recourse or acceptance of deposit subs | wes for purposes of | re-lending or purchasing of | receivables and obligations (See 4, unlike banks, q| not accept deposits other BL) ranks do A bank or non-bank Gnancial institution, through its | specifically designated business unit to perform Trust entities trust functions, or trust corporation authorized by the BSP to engage in trust iad other fiduciary business | under Section 79 of RA. 8791, or to perform investment t ‘managemi services under Section 53 of RA. 8791 NOTE: A bank does not act as a trustee Sree (ere) ipu Joan or the The rate of interest for forbearance of money, goods ot credits and the rate allowed in judgements, in the absence of an express contract as to such rate of interest shall be six percent (6%) per annum. (BSP Giraular No, 799, series of 2013) CEBALLOS BAR TRENDS CEBALLOS BAR TRENDS Ga Bat Question 2015 xu B. A court found the interest charged by a bank as excessive and unconscionable and struck down the contractual stipulation on interest. If you were the judge, what would you impose as the applicable interest rate? State your lepal basis. (2%) ‘Answer: If 1 were the judge, I will impose legal rate of interest at 6% pet annum. Bangko Sentral Circular 799 provides that the tate allowed in judgments, in the abyence of an express ‘contract as to Such rate of interest, shall be 6% perannum. UENO A BANK:DEPOSITS (R:A..NO, 1405, AS AMENDED) (13 Questions) 7 (5 Questions) All deposits of whatever nature, including investments in government bonds are hereby considered as absolutely confidential in nature. (See 2, R.A. 1405) Prohibited Acts (1) No person, government official, bureau or office may examine, inquire into or look into such deposits (See. 2, RA. 1405); and Q) No official or employee of any banking disclose to institution may any unauthorized person any information concerning said deposits. (Sec 3, RA. 1405) 9Exe a (1) In ease of an examination of the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been ot is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity (Sec: 2, RA. 1405, as amended by P.D. 1792); Q) In case of an examination by an independent auditor hired by the bank for audit purposes only and the results thercof shall be for the exclusive use of the bank (Ibid, Written permission of the depositor(Ibid) In cases of impeachment (Ibid) Upon order of a competent court in cases of bribery or dereliction of duty of public officials (bid j In cases where the money deposited or invested is the subject matter of litigation (dvi): In case of inquiry of the Bureau of Internal Revenue of bank accounts of a decedent for estate tax purposes or in case of a tax compromise; @) a © (®) Incidental disclosures of _ unclaimed balances: (9) Upon order of a competent coutt in cases of violation of AMLA (R.A. 9160); and (10) The examination of a bank account based on Section 10, Rule 57 of the Rules of Court. 70 > CEBALLOS BAR TRENDS NOTE: The garnishment of bank deposits of a defendant does not involve examination ot inquiry into the deposit, but is merely done to inform the court whether defendant h: deposit in the bank, which may be garnished It does not violate Bank Secrecy Act. (China Banking Corporation 1. Ortega, GR No. L H9GA, January 31, 1973) GENERAL RULE: Foreign currency deposit shall be exempt from attachment, garnishment or any other otder or process of any legislative body, government agency or any administrative body. (Sea 8 RA. 6426) EXCEPTION: The AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of this Act when it has been established that there is probable cause that the deposits or investments involved are in any way related to a money laundering offense. (Se. 11, RA 9160) Bae Question 2015) di pCO a es eusacs issued by the Philippine government, through his bank. Subsequently, the Buteat eee Revenue asked his bank to disclose his investments. His bank refused the request for disclosure on the ground that the investments are confidential under the Secrecy of Bank CEBALLOS BAR TRENDS Se)CEBALLOS BAR TRENDS & Deposits) Lave’ (Republic Act No.” 1405, as amended). Is the bank’s refusal justified? Defend your answer. (2%) ‘Answer: ‘The bank’s refusal is justified. Under RA 1405, investment in bonds issued by the Philippine government are also. absolutely confidential and may not be examined, inquired or looked into by any person, ‘government official, bureau or office save for the exceptions provided by law. In this ease, fone of the exceptions apply. B. First. Bank received an order of garnishment over a client's peso and dollar deposits in First Bank. Should First Bank ‘comply with that order? Explain. (3%) Brees : First Bank should comply with the order of garnishment over a client's peso_deposits because there is nothing in RA 1405 that ‘places bank deposits beyond the reach of judgment creditor.-In case of dollar deposits, First Bank should not comply with the order ‘of garnishment because under the Foreign Currency Act (RA 6426), dollars are exempt from garnishment or court order. & a CEBALLOS BAR TRENDS Gs THE NEW CENTRAL BANK ACT (R.A. NO. 7653), (11. Questions) Responsibilities of the Bangko Sentral ng Pilipinas (BSP): (1) To provide policy directions in the areas of money, banking and credit; and To have supervision over the operations of banks and exercise such regulatory powers as provided in the New Central Bank Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi- banking functions. (Sea 3, RA. 7653) 2 Primary Objectives: (1) To maintain price stability conducive toa balanced and sustainable growth of the economy; Q) To promote and maintain monetary stability and convertibility of the peso. (vid) Bar Question 2015 Bae ‘A. Why is the Bangko Sentral ng Pilipinas considered a lender of last resort? (2%) Answer: Bangko Sentral ng Pilipinas is considered a lender of last resort because it can provide loans and assistance to banks and similar institutions when necessary.Characteristics of the BSP: (1) It is established as an independent central monetary authority; BSP’s capital shall be fifty billion pesos (P50,000,000,000) to be fully subscribed by the Philippine Government; © The ten billion pesos (P10,000,000,000) of the capital shall be fully paid for by the Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner and form the Government, through the Secretary of Finance and the Secretary of Budget and Management, may thereafter determine (See. 2, RA. 7653) @ Powers and Functions of the Monetary Board (1) Issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise of its powers; Direct the management, operations, and administration of the Bangko Sentral, reorganize its personnel, and issue such rules and regulations as it may deem @ necessary or convenient for this purpose; () Establish a human resource management system; (@ Adopt an annual budget for and authorize such expenditures by the Bangko Sentral; and Indemnify its members and other officials of the Bangko Sentral, including 6) 72 CEBALLOS BAR TRENDS personnel of the —_ departments performing supervision and examination functions against all costs and expenses reasonably incurred by such persons in connection with any civil or criminal action. (See. 15, RA. 7653) The State shall maintain a central monetary authority that shall: (1) function’ independent and accountable body and operate as an corporate in the discharge of its ‘mandated responsibilities concerning banking and credit; and fiscal and administrative autonomy, while being a government. owned corporation. (Sec 1, R.A. 7653) CONSERVATORSHIP When a conservator is appointed When a bank ot quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. (See. 29, R.A. No. 7653) ‘Termination of conservatorship GENERAL RULE: The conservatorship shall not exceed one (1) year. (Ibi) EXCEPTIONS: (1) When the MB is satisfied that the institation can continue to operate on its own;CEBALLOS BAR TRENDS @&} @ On the basis of the report of the conservator or of its own findings. (Ubi) Powers of a Conservator (1) Take charge of the assets, liabilities, and the management of that institution; (2) Collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution; @ Reorganize the management thereof, and restore its viability; (4) Overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasi: banking functions; and (8) Such other powers as the Monetary Board shall deem necessary. (First Philippine Intemational Bank. ». CA, GR. No. 115849, January 24, 1996) ry RECEIVERSHIP AND LIQUIDATION Grounds for receivership When the Monetary Board finds that the bank or quasi-bank (1) is unable to pay its liabilities as they become due in the ordinary course of business; (2 has insufficient realizable assets to meet its liabilities; (8) cannot continue in business without involving probable losses. to its depositors of creditors; of (4) has willfally violated a cease and desist order. (See. 30, RA. Na, 7653) Powers of a receiver (1) Immediately gather and take charge of all the assets and liabilities of the 3 CEBALLOS BAR TRENDS ws institution, administer the same for the benefit of its creditors (Ibid, @ Exercise the general powers of a receiver under the Rules of Court: (@ to bring and defend, in such capacity, actions in his own name; (©) to take and keep possession of the property in controversy; (©) to receive rents; (@ to collect debts due to himself as receiver or to the fund, property, estate, person, or corporation of which he is the receiver; (©) to compound for and compromise the same; (9 to pay outstanding debts; @ to divide the money and other property that shall remain among the persons legally entitled to receive the same; and (h) generally to do such acts respecting, the property as the court may authorize. (Se: 6, Rule 59, Revised Rudes of Court) EXCEPTION: Pay or commit any act that will involve the transfer or disposition of any asset of the institution. (See. 30, R.A. No. 7653) Ground for liquidation If the receiver determines that the institution cannot be rehabilitated or permitted to resume business. (Ibid,) CLOSURE Banks closed by the Monetary Board shall not be rehabilitated. ‘The Philippine Deposit Insurance Corporation shall be designated as the receiver of said banks. (Se. 12, RA. No. 3591, as amended)Bar Question 2015 XI B, Distinguish a conservator from a receiver ofa bank. (2%) Answer: ‘A conservator is appointed if bank ot quasi- bank is in a state of continuing inability or ‘anvillingness fo maintain a condition of liquidity deemed adequate to protect the interest of creditors and depositors, ‘The Conservator shall take charge of the assets and liabilities of the: bank and exercise management and exercise other powers to restore the bank's viability. “The ‘conservatorship shall not exceed one year. ‘A receiver is appointed generally if the tealizable Value “of the “bank's “assets As determined by BSP is less than its liabilities. ‘The teceiver shall take charge of the assets ‘and liabilities of the institution and administer the same for the benefit of its creditors. The receiver shall determine within 90. days whether the bank can be rehabilitated, otherwise, he shall recommend the closure of the institution 14 CEBALLOS BAR TRENDS ree eet PROPERTY CODE®™ Esse) © [oO paccey Definition works which are original intellect in the literary and artistic domain protected from the moment of their creation, (Kho 1s CA, GR. No. 115758, March 19, 2002) rrpreern eres (6 Questions) General Limitations (1) Performance of a work, once it has been lawfully made accessible to the public, if done privately and free of charge or for a charitable or religious institution or society; (2) The making of quotations from a published work if they are compatible with fair use and only to the extent justified for the purpose; (3) Communication to the public by mass media of articles on current political, social, economic, scientific or religious topic, lectures, addresses and other works of the same nature; (4) As part of reports of current events (é music played or tunes on the occasion of a sporting event and such tunes werCEBALLOS BAR TRENDS @ picked up during a new coverage of the event); ©) For teaching purposes, provided that the source and of the name of the author, if appearing in the work, are mentioned; (© Recording made in educational institutions of a work included in a broadcast for the use of such educational institutions, provided that such recording must be deleted within a reasonable period after they were first broadcast; ( The making of ephemeral recordings by a broadcasting organization by means of its own facilities and for use in its own broadcast; (8) The use made of 2 work by or under the direction or control of the government, by the National Library or by educational, scientific or professional institutions where such use is in the public interest and is compatible with fair uses (9) The public performance of a work, in a place where no admission fee is charged; and (10) Public display of the original or a copy of the work not made by means of a film, slide, television image or otherwise on screen or by means of any other device or process (eg, Public display using posters mounted on walls and display boards); 5 (11) Any use made of 2 work for the purpose of any judicial proceedings or for the giving of professional advice by a legal practitioner. (Sec. 184.1, R.A. No. 8293, as amended by R.A. No, 10372 (IPC, «as amended) Factors to consider to determine fair use (1) The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; 2) ‘The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for or value of the copyrighted work, (Sec. 185, IPC, as amended) ry Serres tions) Economic rights Consist of the right to carry out, authorize or prevent the following acts: (1) Reproduction of the work or substantial portion thereof, (2) Carry-out derivative work; @) First distribution of the original and each copy of the work by sale or other forms of transfer of ownership; (4) Rental right; (5) Public display; (6) Public performance; and () Other communications to the public. (See 177, IPG, as amended) CEBALLOS BAR TRENDS &CEBALLOS BAR TRENDS ‘Moral rights For reasons of professionalism and propriety, the author has the right following rights which are independent of the abovementioned ‘economic rights: (1) To require that the authorship of the works be attributed to him (otherwise known as “attribution rights”); @ To make any alterations of his work prior to, or to withhold it from publication; @) Right to preserve integrity of work, object to any distortion, mutilation or other modification which would be prejudicial to his honor or reputation; and (A To restrain the use of his name with respect to any work not of his own creation or in a distorted version of his, work. (See. 193, IPC, ar amended) NOTE: Moral rights shall not be assignable or subject to license. (See 198, IPC, as amended) Droit de suite ot tight to proceeds in subsequent transfers GENERAL RULE: Otherwise known as follow up rights, this is an inalienable tight to receive to the extent of five percent (5%) of the gross proceeds of the sale or lease of a work of painting or sculpture or of the original manuscript of a writer or composer, subsequent to its first disposition by the author. (Sec: 200, IPC, as amended) EXCEPTIONS: (1) Prints; Q) Etchings; @) Engravings, (4) Works of applied art; or 76 CEBALLOS BAR TRENDS cs (5) Works of similar kind wherein the author primarily derives gain from the proceeds of reproductions. (Se 207, IPG as amended) Lifetime of rights of copyright owner (1) For the lifetime of the author or the last surviving author, as the ease may be and fifty (50) years after his _ | death (ee 213.1 and 213.2, Economic | 1G, as amended) rights | (2) Fifty (50) years from the date that the work was first lawfully published for anonymous or pseudonymous works. 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