Académique Documents
Professionnel Documents
Culture Documents
Letters of Credit
1. Definition/Concept
That issued by one merchant to another for the purpose of attending to a
commercial transaction.1
An instrument issued by a bank on behalf of one of its customers, authorizing an
individual or a firm to draw drafts on the bank or one of its correspondents for its account
under certain conditions of the credit.2
An engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with the conditions
specified in the credit.3 Through it, the bank merely substitutes its own promise to pay for
the promise to pay of one of its customers who in return promises to pay the bank the
amount of funds mentioned in the letter of credit plus credit or commitment fees mutually
agreed upon.
2. Governing laws
a. Code of Commerce
b. Uniform Customs and Practice for Documentary Credits 4
3. Nature of letter of credit
The LC is a financial device5 developed as a convenient and relatively safe mode of
dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a buyer, who wants to have control of
the goods before paying.
4. Parties to a letter of credit
a. Applicant/buyer/importer one who purchases the goods, procures the LC, and
obliges himself to reimburse the issuing bank upon receipt of the documents of title.
b. Issuing/opening bank one which issues the LC, and undertakes to pay the seller
upon receipt of the draft and proper documents of title from the seller and to surrender
them to the buyer upon reimbursement; and
Art. 567
Commercial Law Review, C. Villanueva, 2004 ed.
3
Prudential Bank vs. CA, 216 SCRA 257
4
The Uniform Commercial Practice for Documentary Credits allow Letters of Credit to be payable to
order.
5
mode of payment
2
c. Seller/exporter/beneficiary one who sells the goods to the buyer, and who
delivers the draft and documents to the issuing bank to recover payment.6
d. Advising/notifying bank the correspondent bank7 of the opening bank through
which it advises the beneficiary of the LC.
e. Confirming bank bank which, upon the request of the beneficiary, confirms the
LC issued.
f. Paying bank bank on which the drafts are to be drawn, which may be the
opening bank or another bank not in the city of the beneficiary.
g. Negotiating bank bank in the city of the beneficiary which buys or discounts the
drafts contemplated by the LC, if such draft is to be drawn on the opening bank or on
another designated bank not in the city of the beneficiary.
a. Rights and obligations of parties
1. Drawer is liable to person on whom it was issued provided identity proven, for
the amount paid within fixed maximum.
2. Bearer has no right of action if not paid by person who issued it.
3. Drawer may annul the letter of credit, informing the bearer and to whom
it is addressed.
4. Bearer shall pay the amount received to drawer, otherwise action for execution
may be filed with interest and current exchange in place where payment made on place
where repaid.
5. If a bearer does not make use of letter of credit within agreed period, or if none,
within 6 months from date if in the Philippines, and 12 months if outside the Philippines, it
shall be void.8
The number of parties may be increased. Modern letters of credit are usually not made between natural
persons. They involve bank-to-bank transactions.
7
agent
8
Arts. 569-572
Transfield Phils, Inc. vs. Luzon Hydro Corporation, Australia and New Zealand Banking Group Limited and
Security Bank Corp., G.R. No. 146717, November 22, 2004
10
i.e. they must include all the documents required by the LC (Feati Bank vs. CA)
Negotiable instrument
Subject is money
Subject is merchandise
11
A warehouse receipt is a written acknowledgment by the warehouseman that he has received the
goods described therein and holds the same for the person to whom it is issued or as the latter may
order.
It is a contract between the owner of the goods or the person authorized by the owner to transfer
ownership or possession over the goods, on one hand, and the warehouseman, on the other hand, for the
latter to store the goods and the former to pay the compensation for that service.
A warehouseman is a person lawfully engaged in the business of storing goods for profit.
12
A warehouse receipt stating that the goods are deliverable to bearer is a negotiable warehouse receipt.
If the words "non-negotiable" are inserted in the receipt, the insertion is void, and the receipt remains
negotiable.
13
A non-negotiable warehouse receipt, if not stamped with the words "non-negotiable," may make a
warehouseman liable for damages suffered by a holder of such receipt who purchases it for value
supposing it to be negotiable.
The said holder may treat, as his option, such receipt as imposing upon the warehouseman the same
liabilities he would have incurred had the receipt been negotiable.
14
even if negotiable, is not a negotiable instrument within the meaning of the Negotiable Instruments
Law
Intermediate parties become secondarily Intermediate parties are not liable for the
liable
warehouseman's failure to deliver the goods.
d. Rights of a holder of a negotiable warehouse receipt as against a
transferee of a non-negotiable warehouse receipt
Rights of a holder of a negotiable warehouse Rights of a transferee of a non-negotiable
receipt
warehouse receipt
1. Such title to the goods as the person
negotiating the receipt to him has had ability
to convey to a purchaser in good faith for
value, and also such title to the goods as the
depositor or person to whose order the
goods were to be delivered by the terms of
the receipt has had ability to convey to a
purchaser in good faith for value;
15
Sec. 42
2. Duties of a Warehouseman
1. To deliver the goods upon demand made by the holder of the receipt or by the
depositor.
2. To exercise such care in regard to the goods as a reasonably careful owner of
similar goods would exercise.
3. To keep the goods separate from the goods of other depositors, except in the case
of fungible goods.
3. Warehousemans Lien
All lawful charges for storage and preservation of the goods, all lawful claims for
money advanced, interest, insurance, transportation, labor, weighing, coopering, and other
charges and expenses in relation to such goods, also all reasonable charges and expenses for
notices and advertisements of sale, and for the sale of the goods where default has been
made in satisfying the warehousemans lien.
payment of the purchase price, does not constitute a trust receipt transaction and is outside
the purview and coverage of the Decree. 16
a. Loan/security feature
1. This is not a simple loan transaction between a creditor and debtor-importer.
2. The law warrants the validity of the entrusters security interest as against the
creditors of the trust receipt agreement.
b. Ownership of the goods, documents and instruments under a
trust receipt
1. Goods are owned by the bank, and are only released to the importer in trust after
the grant of the loan. The bank acquires a security interest in the goods as holder of a
security title for the advances it made to the entrustee.
2. Entrustee must deliver money or return unsold goods to entrustor
3. Bank is preferred over other creditors.
4. Bank is also not liable to buyer of goods as vendor
5. Purchaser from entrustee gets good title.
6. No particular form is required for trust receipt
2. Rights of the Entruster17
The entruster shall be entitled to the proceeds from the sale of the goods, documents
or instruments released under a trust receipt to the entrustee to the extent of the amount
owing to the entruster or as appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt provided such are not contrary to the provisions of this
Decree.
The entruster may cancel the trust and take possession of the goods, documents or
instruments subject of the trust or of the proceeds realized therefrom at any time upon
default or failure of the entrustee to comply with any of the terms and conditions of the trust
receipt or any other agreement between the entruster and the entrustee, and the entruster in
possession of the goods, documents or instruments may, on or after default, give notice to
the entrustee of the intention to sell, and may, not less than five days after serving or sending
of such notice, sell the goods, documents or instruments at public or private sale, and the
entruster may, at a public sale, become a purchaser.
16
Sec. 4
Entruster" refers to the person holding title over the goods, documents, or instruments subject of a
trust receipt transaction, and any successor in interest of such person.
17
The proceeds of any such sale, whether public or private, shall be applied
(a) to the payment of the expenses thereof;
(b) to the payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments;
(c) to the satisfaction of the entrustee's indebtedness to the entruster.
The entrustee shall receive any surplus but shall be liable to the entruster for any
deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either
personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last
known business address.18
a. Validity of the security interest as against the creditors of the
entrustee/innocent purchasers for value
The entruster's security interest in goods, documents, or instruments pursuant to the
written terms of a trust receipt shall be valid as against all creditors of the entrustee for the
duration of the trust receipt agreement.19
3. Obligations and Liability of the Entrustee
The entrustee shall
(1) hold the goods, documents or instruments in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of the trust receipt;
(2) receive the proceeds in trust for the entruster and turn over the same to the
entruster to the extent of the amount owing to the entruster or as appears on the trust
receipt;
(3) insure the goods for their total value against loss from fire, theft, pilferage or
other casualties;
(4) keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster;
(5) return the goods, documents or instruments in the event of non-sale or upon
demand of the entruster; and
(6) observe all other terms and conditions of the trust receipt not contrary to the
provisions of this Decree.20
18
Sec. 7
Sec. 12
20
Sec. 9
19
The risk of loss shall be borne by the entrustee. Loss of goods, documents or
instruments which are the subject of a trust receipt, pending their disposition, irrespective of
whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his
obligation to the entruster for the value thereof.21
a. Payment/Delivery of proceeds of sale or disposition of goods,
documents or instruments
Keep said goods or proceeds separate and capable of identification.
b. Return of goods, documents or instruments in case of sale
Return the goods, documents or instruments in the event of non-sale or upon
demand.
c. Liability for loss of goods, documents or instruments
The risk of loss shall be borne by the entrustee. Loss of goods, documents or
instruments which are the subject of a trust receipt, pending their disposition, irrespective of
whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his
obligation to the entruster for the value thereof.22
d. Penal sanction if offender is a corporation
The penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense. 23
4. Remedies available
The entrustor can:
a. Cancel trust and take possession of the goofs
b. File a 3rd party claim or separate civil action at any time upon default or failure of
entrustee to comply with terms and conditions of the trust agreement. 24
21
Sec. 10
ibid.
23
Sec. 13, last sen.
24
Prudential Bank vs. NLRC, 251 SCRA 421, 1995
Failure to turn over proceeds of the sale of goods or to return unsold goods is a public nuisance to be
abated by the imposition of penal sanctions (Tiomico vs. Court of Appeals, 1999)
The offense is malum prohibitum. There is no need to prove damage to the entrustor. (Metropolitan
Bank vs. Tonda, 2000), or intent to defraud (People vs. Cuervo, 1981)
Offense: estafa under Art. 315 of the Revised Penal Code.
22
10
11
Bill of exchange
12
Check
Sec. 185
Sec. 13
34
Sec. 14
35
Sec. 15
33
13
3. As against an immediate party and remote party who is not a holder in due
course, presumption of a valid and intentional delivery is rebuttable. 36
3. Rules of interpretation
a. Discrepancy between the amount in figures and that in words the words prevail,
but if the words are ambiguous, reference will be made to the figures to fix the amount.
b. Payment for interest is provided for interest runs from the date of the
instrument, if undated, from issue thereof.
c. Instrument undated consider date of issue.
d. Conflict between written and printed provisions written provisions prevail.
e. When the instrument is so ambiguous that there is doubt whether it is a bill or
note, the holder may treat it as either at his election;
f. If one signs without indicating in what capacity he has affixed his signature, he is
considered an indorser.
g. If two or more persons sign We promise to pay, their liability is joint37 but if they
sign I promise to pay, the liability is solidary.38
4. Signature
a. Signing in trade name
One who signs in a trade or assumed name will be liable to the same extent as if he
had signed in his own name.39
b. Signature of agent
The signature of any party may be made by a duly authorized agent. No particular
form of appointment is necessary for this purpose; and the authority of the agent may be
established as in other cases of agency.40
Where the instrument contains or a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as
an agent, or as filling a representative character, without disclosing his principal, does not
exempt him from personal liability.41
36
Sec. 16
each liable for his part
38
each can be compelled to comply with the entire obligation (Sec. 17)
39
Sec. 18
40
Sec. 19
41
Sec. 20
37
14
Sec. 22
Persons precluded from setting up defense of forgery
1. Those who warrant or admit the genuineness of the signature in question. This includes indorsers,
persons negotiating by delivery and acceptors.
2. Those who, by their acts, silence, or negligence, are estopped from setting up the defense of forgery.
44
1 Agbayani, 1992 ed.
45
not instrument itself and the genuine signatures
46
Legal Effects:
1. No right to retain the instrument
2.To give a discharge therefore
3. To enforce payment thereof against any party thereto, can be acquired through or under such
signature
47
Sec. 23
48
Sec. 24
What constitutes value:
a. An antecedent or pre-existing debt
b. Value previously given
c. Lien arising from contract or by operation of law. (Sec. 27)
43
15
6. Accommodation party
One who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person.
Such a person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party. 49
7. Negotiation
a. Distinguished from assignment
Negotiation
Assignment
The transfer of the instrument from one The transferee does not become a holder
person to another so as to constitute the and he merely steps into the shoes of the
transferee as holder thereof.50
transferor. Any defense available against the
transferor is available against the transferee. 51
b. Modes of negotiation
Issuance
Subsequent Negotiation
49
Sec. 29
Sec.30
51
Timoteo B. Aquino, Notes and Cases on Banks, Negotiable Instruments and other Commercial
Documents
Assignment may be effected whether the instrument is negotiable or non-negotiable. (Sesbreo vs.
CA, 222 SCRA 466)
52
Sec. 191
Steps:
1. Mechanical act of writing the instrument completely and in accordance with the requirements of
Section 1; and
2. The delivery of the complete instrument by the maker or drawer to the payee or holder with the
intention of giving effect to it. (The Law on Negotiable Instruments with Documents of Title, Hector de
Leon, 2000 ed.)
50
16
c. Kinds of Indorsement
Special
Blank
Specifies no indorsee.
a. Instrument becomes payable to bearer
and may be negotiated by delivery.56
b. May be converted to special indorsement
by writing over the signature of indorser in
blank any contract consistent with character
of indorsement.57
Absolute
53
In both cases, delivery must be intended to give effect to the transfer of instrument. (Development
Bank vs. Sima Wei, 219 SCRA 736)
54
Sec. 49
55
Sec. 34
56
id.
57
Sec. 35
17
Conditional
Restrictive
When it either:
a. Prohibits further negotiation of the
instrument; or
b. Constitutes the indorsee the agent of the
indorser; or
c. Vests the title in the indorsee in trust for
or to the use of some other persons. But
mere absence of words implying power to
negotiate does not make an indorsement
restrictive.
Qualified
Joint
Irregular
58
Sec. 39
Sec. 38
It is made by adding to the indoser's signature words like "sans recourse, without recourse", "indorser
not holder", "at the indorser's own risk", etc.
60
Sec. 64
59
18
61
Holder - a payee or endorsee of a bill or note who is in possession of it or the bearer thereof. (Sec. 191)
A holder who has taken the instrument under the following conditions:
1 .Instrument is complete and regular upon its face;
2. Became a holder before it was overdue and without notice that it had been previously dishonored;
3 For value and in good faith; and
4. At the time he took it, he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it. (Sec. 52)
Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a holder as defined in Section 191 of the NIL. The
weight of authority sustains the view that a payee may be a holder in due course. Hence, the presumption
that he is a prima facie holder in due course applies in his favor. (Cely Yang vs. Court of Appeals, G.R. No.
138074, August 15, 2003)
63
Secs. 51 and 57
64
Sec. 58
62
19
9. Liabilities of Parties
a. Maker
The maker of a negotiable instrument, by making it, engages that he will pay it
according to its tenor, and admits the existence of the payee and his then capacity to
indorse.65
b. Drawer
The drawer by drawing the instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the instrument will be accepted
or paid, or both, according to its tenor, and 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. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own liability to the holder.66
c. Acceptor
The acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
d. Indorser
Where a person, not otherwise a party to an instrument, places thereon his signature
in blank before delivery, he is liable as indorser, in accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is liable to the payee
and to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer, or is payable to
bearer, he is liable to all parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee.67
Where a person places his indorsement on an instrument negotiable by delivery, he
incurs all the liability of an indorser. 68
65
Sec. 60
Sec. 61
67
Sec. 64
68
ibid.
66
20
e. Warranties
Every person negotiating an instrument by delivery or by a qualified indorsement
warrants:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating
public or corporation securities other than bills and notes.69
Every indorser who indorses without qualification, warrants to all subsequent
holders in due course:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title to it;
c) That all prior parties had capacity to contract;
d) That the instrument is, at the time of his indorsement, valid and subsisting; and
e) He engages that, on due presentment, it shall be accepted or paid, or both, as the
case may be, according to its tenor, and 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.70
69
70
Sec. 65
Sec. 66
21
71
Sec. 70
Sec. 70, last sen.
73
Sec. 72
74
Sec. 79
75
Sec. 80
76
Effect: There is an immediate right of recourse by the holder against persons secondarily liable.
However, notice of dishonor is generally required. (Sec. 84)
77
Sec. 83
72
22
78
Sec. 89
Sec. 97
80
Sec. 90
81
Sec. 151
82
Sec. 109
83
Sec. 110
79
23
84
Secs. 114-117
Sec. 109
86
Sec. 112
87
Sec. 117
88
The Law on Negotiable Instruments with Documents of Title, Hector de Leon, 2000 ed.
89
Sec. 120
85
24
In the following cases, the agreement to extend the time of payment does not discharge a party
secondarily liable:
a) where the extension of time is consented to by such party;
b) where the holder expressly reserves his right of recourse against such party.
Payment at or after maturity by a party secondarily liable does not discharge the instrument. It only
cancels his own liability and that of the parties subsequent to him. (Sec. 121)
90
Sec. 121
91
Sec. 122
25
g) Any other change or addition which alters the effect of the instrument in any
respect, is a material alteration.92
b. Effect of material alteration
Where a negotiable instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has himself made, authorized, or
assented to the alteration and subsequent indorsers.
When an instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce payment thereof according to its
original tenor.93
14. Acceptance
a. Definition
The signification by the drawee of his assent to the order of the drawer.
It is the act by which the drawee manifests his consent to comply with the request
contained in the bill of exchange directed to him.
b. Manner
Must be in writing and signed by the drawee and must not express that the drawee
will perform his promise by any other means than the payment of money. 94
The holder of the bill presenting the same for acceptance may require that the
acceptance be written on the bill, and if such request is refused, may treat the bill as
dishonored.95
c. Time for acceptance
The drawee is allowed twenty-four (24) hours after presentment in which to decide
whether or not he will accept the bill; the acceptance, if given, dates as of the day of
presentation.96
92
Sec. 125
Sec. 124
94
Sec. 132
95
Sec. 133
96
Sec. 136
93
26
(b) Partial - an acceptance to pay part only of the amount for which the bill is
97
Sec. 133
Sec. 134
99
Sec. 135
100
Sec. 137
101
Sec. 138
102
Sec. 139
103
Sec. 140
98
27
104
Sec. 141
Sec. 142
106
Sec. 143
107
See sec. 144, last sen.
105
28
c. Dishonor by non-acceptance
When duly presented for acceptance acceptance is refused or cannot be obtained;
or
When presentment for acceptance is excused bill is not accepted.108
16. Promissory Notes109
An unconditional promise in writing made by one 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.
Where a note is drawn to the maker's own order, it is not complete until indorsed by
him.110
17. Checks
a. Definition
A bill of exchange drawn on a bank payable on demand. 111
b. Kinds112
Cashiers Check
Managers Check
Memorandum Check
108
Sec. 149
A promise to pay money
110
Sec. 184
111
Sec. 185
112
Cesar Villanueva, Commercial Law Review, 2004 ed.
113
Tan vs. CA, 239 SCRA 310
109
29
114
Sec. 187
Sec. 186
116
Ibid.
115
30
E. Insurance Code
1. Concept of Insurance
An agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. 117
2. Elements of an Insurance Contract
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of
that interest by the happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a
large group or substantial number of persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution118 to a general insurance fund. 119
3. Characteristics/Nature of Insurance Contracts
Consensual
Voluntary
Aleatory
Unilateral
Conditional
117
Sec. 2, par. 2
premium
119
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a
risk-distributing device (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
118
31
Contract of indemnity
Personal
4. Classes
Marine121
Fire123
120
ibid.
Coverage:
A.
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia, and interest in respect to all risks or perils of navigation;
2. Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise; and
4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or
not. (Roque v. IAC, 139 SCRA 596)
B. Marine Protection and Indemnity Insurance
122
Sec. 99
123
Prerequisites to recovery:
1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly by the
insurer
2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly or
impliedly by the insurer
It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire
insurance. The determination is important for 2 reasons:
1. Rules on constructive total loss and abandonment applies only to marine insurance;
2. Rule on co-insurance applies primarily to marine insurance;
3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial Law
Reviewer, Aguedo Agbayani, 1988 ed.)
121
32
Suretyship127
Life
124
Sec. 167
Classifications:
1. Insurance against specified perils which may affect the person and/or property of the insured.
(accident or health insurance)
Examples: personal accident, robbery/theft insurance
2. Insurance against specified perils which may give rise to liability on the part of the insured for claims
for injuries to or damage to property of others. (third party liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and their property,
who may maintain an action against him in case of their injury or destruction, respectively.
Examples: workmens compensation, motor vehicle liability
126
Sec. 174
127
It is essentially a credit accommodation.
It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally.
(Sec. 20)
When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party
(insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially
in fidelity bonding, is thus treated like non-life insurance in some respects.
Nature of liability of surety:
1. Solidary;
2. Limited to the amount of the bond;
3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee. (Sec. 176)
128
Sec. 175
129
Sec. 179
125
33
130
Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their
dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or
operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA 386).
Claimants/victims may be a passenger or a 3rd party
It applies to all vehicles whether public and private vehicles.
It is the only compulsory insurance coverage under the Insurance Code.
131
General rule: There is no limit in the amount the insured can insure his life.
Exception: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit
of insurable interest is equal to the amount of the debt.
If at the time of the death of the debtor the whole debt has already been paid, the creditor can no
longer recover on the policy because the principle of indemnity applies.
132
Sec. 10
When it should exist: When the insurance takes effect; not thereafter or when the loss occurs.
34
In Property
133
Sec. 13
Sec. 14
The measure of insurable interest in property is the extent to which the insured might be damnified by
loss or injury thereof (Sec. 17)
When insurable interest should exist:
It must exist at the time the policy is taken and at the time the loss incurred but it need not exist in the
meantime.
134
35
Over-insurance
135
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such
order as he may select, up to the amount for which the insurers are severally liable under their respective
contracts;
2. Where the policy under which the insured claims is a valued policy, the insured must give credit as
against the valuation for any sum received by him under any other policy without regard to the actual
value of the subject matter insured;
3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against
the full insurable value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of
the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers,
according to their right of contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.
Additional or Other Insurance Clause
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of
the property insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may
declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid it.
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been double insurance.
136
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the property lost;
2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the
property;
137
Sec. 93
36
Tort Theory
What is being followed in insurance contracts is what is known as the cognition theory. Thus, an
acceptance made by letter shall not bind the person making the offer except from the time it came to his
knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
139
Remedy: Insurer liable for damages (Tort Theory) in the amount of the face value of the policy, w/c is
given to the estate of the deceased applicant. (not to beneficiary because contract not perfected. Also, no
contractual liability also bec. no contact)
140
the physical document
141
Effects of Delivery:
1) Where delivery is conditional Non-performance of Condition precedent prevents contract from
taking effect
2) Where delivery is unconditional Delivery corresponding terms of application consummates the
contract and policy delivered becomes final contract bet the parties
37
Actual delivery of the policy is not essential unless the parties have so agreed in clear
language. Constructive delivery may be sufficient.142
b. Premium Payment143
Consideration paid an insurer for undertaking to indemnify the insured against a
specified peril.
c. Non-Default Options in Life Insurance
Cash Surrender Value
3) Where premium still unpaid after unconditional delivery Policy will lapse if premium unpaid at
time and manner specified in the policy, in the absence of any clear agreement that insurer will
extend credit.
Individual life insurance contracts usually stipulate that:
1) Premium be paid and
2) Policy be delivered to the insured while he is alive and in good health. Concurrence of both is
necessary. (see Perez v CA case)
142
Vda. De Sindayen case
Whether or not policy was delivered after its issuance depends not upon manual possession by the
insured but rather upon the intention of the parties as manifested in their acts or agreements.
Whether or not delivery to agent is delivery to insured is a question over w/c there has been many
conflicting opinions.
143
Basis of the right of the insurer to collect premiums: Assumption of risk.
General rule: No policy issued by an insurance company is valid and binding until actual payment of
premium. Any agreement to the contrary is void. (Sec. 77)
Exceptions:
1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments
and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA,
215 SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (id., 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums
are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far
as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid. (Sec. 78)
38
Extended Insurance
Paid-up Insurance
144
39
40
151
There is no right to recovery of premiums in life insurance because it is not a divisible contract. It is not
an insurance for any single year, w/ a privilege of renewal from year to year by paying the annual
premium. It is an entire contract of insurance for life subject to discontinuance and forfeiture for nonpayment of any of the stipulated premiums.
152
such portion as corresponds w/ unexpired time, as a pro rata rate, returned (Sec. 79)
Exceptions:
a) Short period rate agreed upon and appears on face of policy (exception to pro rata rate).
b) Life insurance (exception to applicability of this section).
c) When the contract is voidable because of fraud or misrepresentations of the insurer or his agent
(Sec. 81)
d) When the contract is voidable because of the existence of facts of w/c the insurer was ignorant w/o
his fault (ibid.);
e) When the insurer never incurred any liability under the policy because of default of the insured
other than actual fraud (ibid.);
f) When there is over insurance (Sec. 82);
g) When rescission is granted due to the insurers breach of contract
41
Requisites:
a. A party knows a fact which he neglects to communicate or disclose to the other.
b. Such party concealing is duty bound to disclose such fact to the other.
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the
concealed matter (Sec. 27).
Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether
intentional or unintentional entitles the injured party to rescind the contract of insurance.
Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom the communication is due, in forming his estimate of the advantages
of the proposed contract, or in making his inquiries (Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more material the
information required of the applicant concerning the previous conditions of health and diseases suffered.
(Sunlife v. Sps. Bacani, 246 SCRA 268).
The right to information of material facts may be waived, either by the terms of the insurance or by
neglect to make inquiries as to such facts where they are distinctly implied in other facts of which
information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and without intent to
deceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those
statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18,
2002).
154
Sec. 26
155
Villanueva, Phil Commercial Law, 1998 Ed., p. 177
156
Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states
positively as true without knowing it to be true and which has a tendency to mislead.
c. Such fact in either case is material to the risk.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not afterwards.
e. It always refers to the date the contract goes into effect.
Kinds:
42
Factual statements made by the insured at the time of, or prior to, the issuance of the
policy to give information to the insurer and induce him to enter into the insurance contract.
They are considered an active form of concealment.
c. Breach of Warranties
General rule:
Violation of material warranty or of a material provision of a policy will entitle the
other party to rescind the contract.157
Exceptions:
a) Loss occurs before the time of performance of the warranty.
b) The performance becomes unlawful at the place of the contract.
c) Performance becomes impossible.158
Immaterial.159
General rule: It will not avoid the policy.
Exception: When the policy expressly provides or declares that a violation thereof
will avoid it.160
43
Proof of Loss
The formal notice given the insurer by the The formal evidence given the insurance
insured or claimant under a policy of the company by the insured or claimant under a
occurrence of the loss insured against.161
policy of the occurrence of the loss, the
particulars and the data necessary to enable
the company to determine its liability and the
amount. Is not tantamount to proof or
evidence under the law on evidence.162
Other provisions:
When a preliminary proof of loss is required by a policy, the insured is not bound to
give such proof as would be necessary in a court of justice; but it is sufficient for him to give
the best evidence which he has in his power at the time. 163
All defects in a notice of loss, or in preliminary proof thereof, which the insured
might remedy, and which the insurer omits to specify to him, without unnecessary delay, as
grounds of objection, are waived.164
161
The purpose is to apprise the insurance company so that it may make proper investigation and take
such action as maybe necessary to protect its interest.
It is necessary as the insurer cannot be liable to pay a claim unless he receives notice of that claim
Under Sec. 88, insurer is exonerated if notice of loss is not given to the insurer by the insured or by the
person entitled to the benefit without unnecessary delay.
It has been held however that formal notice of loss is not necessary if insurer has actual notice of loss
already.
162
Proof of loss is distinct from notice of loss and intended to:
1. give the insurer information by which he may determine the extent of his liability
2. afford him a means of detecting any fraud that may have been practiced upon him.
The law does not stipulate any requirement as to the form in which notice or proof of loss must be
given. However, according to De Leon, it is advisable to give the notice in writing for the protection of the
insured or his beneficiary. Notice may be an informal or provisional claim containing a minimum of
information as distinguished from a formal claim which contains full details of the loss, computations of
the amounts claimed, and supporting evidence, together with a demand or request for payment
Nature of notice and proof of loss
Although they are in the form of conditions precedent, they are in the nature of conditions subsequent
the breach of which affects a right that has already accrued (before the loss, insurers liability is
contingent but with the happening of the loss, his liability becomes properly fixed).
These conditions are intended merely for evidentiary purposes and do not form any part of the
conditions of liability and are construed with much less strictness than those conditions that operate prior
to loss.
163
Sec. 89
164
Sec. 90
44
Sec. 91
Sec. 92
167
See Sec. 241 (1) & (3)
168
Sec. 420
166
45
(3) Subrogation169
It is a process of legal substitution where the insurer steps into the shoes of the
insured and he avails of the latters rights against the wrongdoer at the time of loss. 170
169
46
F. Transportation Law171
1. Common Carriers
Persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public.172
a. Diligence Required of Common Carriers
Common carriers are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.173
171
47
48
Under Art. 1165, par. 3, if the obligor incurs delay, he shall be responsible for any fortuitous event until
he has effected delivery.
177
Art. 1741
178
Art. 1736
179
See (1), supra
180
Art. 1737
181
Art. 1738
49
Art. 1745
Art. 1750
184
Art. 1749
185
Under Arts. 1733 to 1753, Civil Code
183
50
186
The act of the thief or robber, who has entered the common carriers vehicle is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force (Art. 1754, id.)
187
Art. 1757
188
Dangwa Trans Co., Inc. vs. CA, 202 SCRA 574
189
LRTA v. Navidad, [2003]
All persons who remain on the premises within a reasonable time after leaving the conveyance are to
be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances, and includes a reasonable time to see after his baggage and
prepare for his departure. (La Mallorca v. CA, 17 SCRA 739 ; Abiotiz Shipping Corporation v. CA, 179 SCRA
95)
51
190
Maranan v. Perez
rd
See d), 3 par., infra
192
Art. 1759
193
Art. 1760
194
Art. 1763
191
52
4. Bill of Lading
The written acknowledgment of receipt of goods and agreement to transport them
to a specific place to a person named or to his order.
a. Three-fold character
1. It is a receipt for the goods shipped
2. It is a contract by which the three parties, namely, the shipper, carrier and
consignee undertake specific responsibilities and assume stipulated obligations; and
3. It is a legal evidence of the contract between the shipper and the carrier. As
evidence, its contents shall decide all disputes which may arise with regard to their execution
and fulfillment.195
b. Delivery of goods
(1) Period for delivery
Stipulated in Contract/Bill of Lading:
Carrier is bound to fulfill the contract and is liable for any delay; no matter from
what cause it may have arisen.
No stipulation:
1. Within a reasonable time.
2. Carrier is bound to forward them in the 1st shipment of the same or similar goods
which he may make to the point of delivery.196
(2) Delivery without surrender of bill of lading
In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or of any other cause, he must give the latter a
receipt for the goods delivered, this receipt producing the same effects as the return of the
bill of lading.197
195
In the absence of a bill of lading, their respective claims may be determined by legal proofs which each
of the contracting parties may present in conformity with law.
196
Art. 358, Code of Commerce
197
rd
Art. 353, 3 .par., Code of Commerce
53
Latent damage
198
Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004
ed. p.68
199
PAL vs. CA
200
These rules does not apply to misdelivery of goods. (Roldan vs. Lim Ponzo)
201
it may be oral or written
The filing of notice of claim is a condition precedent for recovery.
Purpose of notice: To inform the carrier that the shipment has been damaged, and it is charged with
liability therefore, and to give it an opportunity to make an investigation and fix responsibility while the
matter is fresh.
Shorter period may be stipulated by the parties because it merely affects the shippers remedy and does
not affect the liability of the carrier. (PHILAMGEN vs. Sweetlines, Inc.)
54
within 6 years
within 10 years.
5. Maritime Commerce203
a. Charter Parties204
Bareboat/Demise Charter
202
55
Voyage/Trip Charter207
Ship agent209
Person who has possession, control and Person entrusted with provisioning and
management of the vessel and the representing the vessel in the port in which it
consequent right to direct her navigation and may be found; also includes the shipowner. 210
receive freight earned and paid, while his
possession continues.
(1) Liability for acts of captain
All contracts of the captain, whether authorized or not, to repair, equip and
provision the vessel.211
a.. Damages to vessel and to cargo due to lack of skill and negligence;
b. Thefts and robberies of the crew;
c. Losses and fines for violation of laws;
d. Damages due to mutinies;
205
The charterer becomes the owner of the vessel pro hac vice, just for that one particular purpose only.
Because the charterer is treated as owner pro hac vice, the charterer assumes the customary rights and
liabilities of the shipowner to third persons and is held liable for the expense of the voyage and the wages
of the seamen.
206
A kind of contract of affreightment whereby the owner of the vessel leases part or all of its space to
haul goods for others.
The shipowner retains the possession, command and navigation of the ship, the charterer merely
having use of the space in the vessel in return for his payment of the charter hired.
207
ibid.
208
proprietario
209
naviero
210
Not a mere agent under civil law; he is solidarily liable with the ship owner.
211
Art. 586
56
Collisions
212
Art. 618
Villanueva, Phil. Commercial Law, 1998 ed., pp. 28-31
214
Average - an extraordinary or accidental expense incurred during the voyage in order to preserve the
cargo, vessel or both, and all damages or deterioration suffered by the vessel from departure to the port
of destination, and to the cargo from the port of loading to the port of consignment. (Art. 806)
The person whose property has been saved must contribute to reimburse the damage caused or
expense incurred if the situation constitutes general average.
215
Art. 811
Goods not covered by general average even if sacrificed:
1. Goods carried on deck. (Art.855)
2. Goods not recorded in the books or records of the vessel. (Art. 855 (2))
3. Fuel for the vessel if there is more than sufficient fuel for the voyage. (Rule IX, York-Antwerp Rule)
216
Allision - impact between a moving vessel and a stationary one.
213
57
a.
Patent damage: immediately upon
delivery.
b. Latent damage: within three (3) days from
delivery.220
Period of Prescription
Limitation of liability
217
C.A. No. 65
from foreign port to Philippine port
It can be applied in domestic sea transportation if agreed upon by the parties (Clause paramount or
paramount clause)
219
Loss or Damage as applied to the COGSA contemplates a situation where no delivery at all was made
by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in
such a way that their existence is unknown or they cannot be recovered. Thus, it is inapplicable in case of
misdelivery or conversion. (Ang vs. American Steamship Agencies Inc.) and damage arising from delay or
late delivery (Mitsui O.S.K. Lines Ltd. vs. CA). In such instance the, Civil Code rules on prescription shall
apply.
220
Sec. 3(6)
The filing of a notice of claim is not a condition precedent.
221
The one-year prescriptive period is suspended by:
1. The express agreement of the parties (Universal Shipping Lines, Inc. vs. IAC, 188 SCRA 170)
2. The filing of an action in court until it is dismissed. (Stevens & Co. vs. Nordeutscher Lloyd, 6 SCRA
180)
The one-year period shall run from delivery of the last package and is not suspended by extrajudicial
demand. (Dole Phils.,Inc. vs. Maritime Co., 148 SCRA 118)
The one-year period shall run from delivery to the arrastre operator and not to the consignee. (Union
Carbide Phils, Inc. vs. Manila Railroad Co., SCRA 359)
The insurer exercising its right of subrogation is bound by the one-year prescriptive period. However,
it does not apply to the claim against the insurer for the insurance proceeds. (Fil. Merchants Ins. Co. vs.
Alejandro; Mayer Steel Pipe Corp. vs. CA)
222
delivered but damaged goods
223
non-delivery (Sec. 3[6])
218
58
224
Sec. 4(5)
This is deemed incorporated in the bill of lading even if not mentioned in it (Eastern Shipping vs. IAC,
150 SCRA 463)
225
Certificate of Public Convenience (CPC) - an authorization issued by the commission for the operation
of public services for which no franchise either municipal or legislative is required by law.
Unless otherwise exempt, no public service shall operate without having been issued a certificate of
public convenience (no franchise is required by law) or a certificate of public convenience and necessity (a
prior franchise is required by law).
59
60
The Commission229 has the power and authority to approve a sale or transfer of a
1. There are just and reasonable grounds for making the transfer
2. The sale or transfer is not detrimental to the public interest.230
228
E.g. ERB has authority to issue an order granting provisional increase of prices even without notice and
hearing.
229
now regulatory boards, commissions and councils
230
Sec. 20(g)
This provision, it is believed is applicable to all regulatory boards, commissions and councils, as a result
of the transfer of powers and functions. The jurisdiction and supervision and control over all public
61
services originally vested in the Public Service Commission have been distributed among the various
regulatory boards, commissions and councils
231
As much a part of Philippine law as the Civil Code, Code of Commerce and other municipal special laws,
and the provisions therein contained, specifically on the limitation of carriers liability, are in operation in
the Philippines but only in appropriate situation (PAL vs. CA, 255 SCRA 48)
232
When inapplicable:
1. When public policy is contradicted;
2. If the requirements under the Convention are not complied with.
233
any transportation in which the place of departure and the place of destination are situated either:
1. Within the territories of two High Contracting Parties regardless of whether or not there be a break
in the transportation or transshipment, or
2. Within the territory of a single High Contracting Party, if there is an agreed stopping place within a
territory subject to the sovereignty, mandate or authority of another power, even though that power is
not a party to the Convention. (round trip, Am. Jur.)
Transportation to be performed by several successive air carriers shall be deemed to be one undivided
transportation, if it has been regarded by the parties as a single operation, whether it has been agreed
upon under the form of a single contract or of a series of contracts, and it shall not lose its international
character merely because one contract or a series of contracts is to be performed entirely within a
territory subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting Party.
(Art. 1 Sec.3)
234
The period during which the baggage or goods are in the charge of the carrier, whether in an airport or
on board an aircraft, or, in case of a landing outside an airport, in any place whatsoever.
It includes any transportation by land or water outside an airport if such takes place in the
performance of a contract for transportation by air, for the purpose of loading, delivery, or
transshipment.
235
Art. 22, as amended by Guatemala Protocol, 1971; Alitalia vs. IAC
62
236
Under domestic law and jurisprudence, the attendance of gross negligence (given the equivalent of
fraud or bad faith) holds the common carrier liable for all damages which can be reasonable attributed,
although unforeseen, to the non-performance of the obligation, including exemplary damages.
63
G. Corporation Law
1. The Corporation Code237
a. Corporation, defined
An artificial being created by operation of law having the right of succession, and the
powers, attributes and properties expressly authorized by law and incident to its existence. 238
b. Classification of corporations
1. As to organizers
Public
Private
By State only
2. As to functions
Public
Private
3. As to governing law
Public
Private
Special Laws
4. As to legal status
De jure
De facto
By estoppel
Organized
in Organized with a
accordance with the colorable compliance
requirements of law. with
the
requirements of a
valid
law.
Its
existence cannot be
inquired collaterally.
Group of persons
that assumes to act
as a corporation
knowing it to be
without authority to
do so, and enters
into a transaction
237
B.P. 68
Sec. 2
241
e.g. Roman Catholic Church
238
64
By prescription
One
which has
exercised corporate
powers
for
an
indefinite
period
without interference
on the part of the
sovereign power.241
Non-stock
A corporation
239
Sec. 20
Requisites:
1. The existence of a valid law under which it may be incorporated;
2. A bona fide attempt in good faith to incorporate under such law;
3. Actual use or exercise in good faith of corporate powers; and
4. Issuance of a certificate of incorporation by the SEC as a minimum requirement of continued good
faith.
The only difference between a de facto corporation and a de jure corporation is that a de jure
corporation can successfully resist a suit by a state brought to challenge its existence; a de facto
corporation cannot sustain its right to exist.
240
Sec. 21
242
Sec. 3
65
Subsidiary
Affiliate
One which is so
related to another
corporation that the
majority
of
its
directors can be
elected directly or
indirectly by such
other corporation.243
Company which is
subject to common
control of a mother
holding company
and operated as
part of the system.
7. As to place of incorporation
Domestic
Formed, organized,
Philippine laws.
243
244
Foreign
or
existing
The Corporation Code of the Philippines Annotated, Hector de Leon, 2002 ed.
Sec. 123
66
c. Nationality of corporations
(1) Control test
Determined by the nationality of the controlling stockholders or members. This test
is applied in times of war.245
(2) Grandfather rule
Applied in determining the nationality of a corporation. It traces the nationality of
the stockholders of investor corporations so as to ascertain the nationality of the corporation
where the investment is made.246
The application of the test is limited however to resolving issues on investments. By
the Foreign Investments Act, the grandfather rule is merely an ancillary rule to the main
method of determining nationality, wherein corporations that are 60% owned by Filipinos
are automatically considered as 100% Filipino-owned. Only when a corporation is less than
60% owned shall the grandfather rule be applied.
d. Corporate juridical personality
(1) Doctrine of separate juridical personality
A corporation has a juridical personality separate and distinct from that of its
stockholders or members.247
245
67
248
68
to the recovery of some damages. In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
252
Mere ownership by a single stockholder or by another corporation of all or substantially all of the
capital stock of the corporation does not justify the application of the doctrine. There must be other
circumstances that must be present.
253
Phil. National Bank v. Ritratto Group, Inc., 362 SCRA 216 [2001]
69
254
Such control must have been used by the defendant to commit a fraud or wrong to perpetuate the
violation of a statutory or other positive legal breach of duty, or a dishonest and an unjust act in
contravention of the plaintiffs legal right, and,
The said control and breach of duty must have proximately caused the injury or unjust loss complained
of. (PNB v. Andrada Electric & Engineering Company, 381 SCRA 244 [2002], Child Learning Center Inc.
v. Tagario (November 25, 2005)
255
Incorporators - are those mentioned in the Articles of Incorporation as originally forming and
composing the corporation, having signed the Articles and acknowledged the same before a notary public.
They have no powers beyond those vested in them by the statute.
General rule: Only natural persons can be incorporators.
Exception: When otherwise allowed by law, e.g., Rural Banks Act of 1992, where incorporated
cooperatives are allowed to be incorporators of rural banks. Note: However, it is undeniable that
corporations can be corporators.
256
Sec. 13
70
Preferred shares
Redeemable shares
257
The amendment is effected before the expiration of corporate term, for after dissolution by expiration
of the corporate term there is no more corporate life to extend.
The extension cannot be made earlier than 5 years prior to the expiration date unless there are
justifiable reasons as determined by the SEC.
258
Limitations:
a. If deprived of voting rights, it shall still be entitled to vote on matters enumerated in Section 6
paragraph 6.
b. Preference must not be violative of the Code.
c. May be issued only with a stated par value.
d. The board of directors may fix the terms and conditions only when so authorized by the articles of
incorporation and such terms and conditions shall be effective upon filing a certificate thereof with the
SEC.
259
Limitations:
a. Redeemable shares may be issued only when expressly provided for in the articles of incorporation;
b. The terms and conditions affecting said shares must be stated both in the articles of incorporation
and in the certificates of stock representing such shares;
c. Redeemable shares may be deprived of voting rights in the articles of incorporation, unless
otherwise provided in the Code.
Redeemable shares may be redeemed, regardless of the existence of unrestricted retained earnings
(Sec. 8), provided that the corporation has, after such redemption, sufficient assets in its books to cover
debts and liabilities inclusive of capital stock.
71
Treasury shares
Founders' share
Voting shares
Non-voting shares
260
Sec. 9
If purchased from stockholders: The transaction in effect is a return to the stockholders of the value of
their investment in the company and a reversion of the shares to the corporation. The corporation must
have surplus profits with which to buy the shares so that the transaction will not cause an impairment of
the capital.
If acquired by donation from the stockholders: The act would amount to a surrender of their stock
without getting back their investments that are instead, voluntarily given to the corporation.
Treasury shares need not be sold at par or issued value but may be sold at the best price obtainable,
provided it is reasonable. When treasury shares are sold below its par or issued value, there can be no
watering of stock because such watering contemplates an original issuance of shares.
Treasury shares have no voting rights as long as they remain in treasury (uncalled and subject to
reissue). Reason: A corporation cannot in any proper sense be a stockholder in itself and equal
distribution of voting rights will be effectively lost.
Neither are treasury shares entitled to dividends or assets because dividends cannot be declared by a
corporation to itself.
261
Shares classified as such in the articles of incorporation which may be given special preference in
voting rights and dividend payments. But if an exclusive right to vote and be voted for as director is
granted, this privilege is subject to approval by the SEC, and cannot exceed 5 years from the date of
approval.
262
The law only authorizes the denial of voting rights in the case of redeemable shares and preferred
shares, provided that there shall always be a class or series of shares which have complete voting rights.
These redeemable and preferred shares, when such voting rights are denied, shall nevertheless be
entitled to vote on the following fundamental matters:
a. amendment of Articles of Incorporation
b. adoption and amendment of by-laws;
c. sale or disposition of all or substantially all of corporate property;
d. incurring, creating or increasing bonded indebtedness;
e. increase or decrease of capital stock
f. merger or consolidation of capital stock
g. investments of corporate funds in another corporation or another business purpose; and
h. corporate dissolution
72
Escrow stock
Over-issued stock
Watered stock
Street certificate
263
Water in the stock represents the difference between the fair market value at the time of the
issuance of the stock and the par or issued value of said stock. Both par and no par stocks can thus be
watered stocks.
It includes stocks:
a. Issued without consideration.
b. Issued as fully paid when the corporation has received a lesser sum of money than its par or issued
value.
c. Issued for a consideration other than actual cash, the fair valuation of which is less than its par or
issued value.
d. Issued as stock dividend when there are no sufficient retained earnings to justify it.
264
Limitations:
a. No par value shares cannot have an issued price of less than P5.00;
b. The entire consideration for its issuance constitutes capital so that no part of it should be
distributed as dividends;
c. They cannot be issued as preferred stocks;
d. They cannot be issued by banks, trust companies, insurance companies, public utilities and building
and loan association;
e. The articles of incorporation must state the fact that it issued no par value shares as well as the
number of said shares;
f. Once issued, they are deemed fully paid and non-assessable. (Sec. 6)
73
Convertible share
Fractional share
A person who, acting alone or with others, takes initiative in founding and
organizing the business or enterprise of the issuer and receives consideration therefor.
(a) Liability of promoter
He is liable to contracts entered by him in behalf of proposed corporation.265
(b) Liability of corporation for promoters contracts
Contracts by the promoter for and in behalf of a proposed corporation generally
bind only him, subject to and to the extent of his representations, and not the corporation,
unless and until after these contracts are ratified, expressly or impliedly, by its Board of
Directors/Trustees.
Without ratification by a corporation after its due incorporation, a contract entered
into in behalf of a corporation yet to be organized or still in the process of incorporation is
void as against the corporation.266
(2) Subscription contract
Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed.267
The subscribed shares need not be paid in full in order that the subscription may be
valid. The subscription contract is a consensual contract that is perfected upon the meeting
of the minds of the parties. The name of the subscriber is recorded in the stock and transfer
book, and from that time, such subscriber becomes a stockholder of record entitled to all the
rights of a stockholder. Until the stocks are fully paid, it continues to be a subsisting liability
that is legally enforceable.
265
74
Under Sec 60 any contract for the acquisition of unissued stock in a corporation still to be formed shall
be deemed a subscription within the meaning of the Corporation Code.
Under Sec 61, a subscription for shares of stock of a corporation still to be formed shall be irrevocable
for a period of 6 mos. from the date of subscription, unless all of the other subscriber consent to the
revocation, or unless the incorporation of said corporation fails to materialize within said period or within
a longer period as may be stipulated in the contract of subscription. However, no pre-incorporation
subscription may be revoked after the submission of the articles of incorporation to SEC
269
Sec. 61
270
Sec. 62
Where the consideration is other than actual cash, or consists of intangible property such as patents of
copyrights, the valuation thereof shall initially be determined by the incorporators or the board of
directors, subject to approval by the Securities and Exchange Commission. Shares of stock shall not be
issued in exchange for promissory notes or future service (ibid)
75
271
Sec. 14
76
272
Sec. 18
77
273
By-laws - rules of action adopted by a corporation for its internal government and for the regulation of
conduct and prescribe the rights and duties of its stockholders or members towards itself and among
themselves in reference to the management of its affairs.
Functions:
a. Supplement the articles of incorporation
b. Provide for details not important enough to be stated in the articles of incorporation
c. Continuing rule for the government of the corporation and the individuals composing it
d. Define the rights and duties of corporate officers and directors/trustees and of
stockholders/members towards the corporation and among themselves
e. Source of authority for corporate officers and agents of the corporation
274
By-laws have no extra-corporate force and are not in the nature of legislative enactments so far as
third persons are concerned.
275
Power to amend or repeal by-laws or adopt new by-laws may be delegated by the 2/3 of the
outstanding capital stock or 2/3 of the members in the case of non-stock corporation
78
g. Corporate powers
(1) General powers, theory of general capacity
1. To sue and be sued in its corporate name;276
2. Of succession by its corporate name for the period of time stated in the articles
of incorporation and the certificate of incorporation;
3. To adopt and use of corporate seal;
4. To amend its Articles of Incorporation;
5. To adopt its by-laws not contrary to law, morals, or public policy, and to amend
or repeal the same;
6. For stock corporations: issue and sell stocks to subscribers and treasury stocks;
for non-stock corporations: admit members;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and deal with real and personal property, securities and bonds
8. To enter into merger or consolidation with other corporations;
9. To make reasonable donations for public welfare, hospital, charitable, cultural,
scientific, civic or similar purposes, provided that no donation is given to any (i)
political party, (ii) candidate and (iii) partisan political activity.
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
276
This power (Section 36(1)) is an incident to corporate existence. (De Leon 2006 at 319)
As a rule, suits are to be brought by or against the corporation in his own name.
Corporation de facto may sue or be sued but a corporation which has been dissolved after the
expiration of 3-year winding-up period ceases to exist de jure or de facto.
Under Sec. 36 of Corporation Code, in relation to Sec. 23, where a corporation is an injured party, its
power to sue is lodged with its Board of Directors. A minority stockholder who is a member of the Board
has no such power or authority to sue on the corporations behalf. (Tam Wing Tak v. Makasiar,
350 SCRA 475 (2001); Shipside Inc. v. Court of Appeals, 352 SCRA 334 (2001); SSS v. COA, 384 SCRA 548
(2002); United Paragon Mining Corp v. CA, 2006)
Where the corporation is real party-in-interest, neither administrator or a project manager could sign
the certificate against forum-shopping without being duly authorized by resolution of the Board of
Directors (Esteban, Jr. v. Vda. De Onorio, 360 SCRA 230 [2001]), nor the General Manager who has no
authority to institute a suit on behalf of the corporation even when the purpose is to protect corporate
assets. (Central Cooperative Exchange Inc. v. Enciso, 162 SCRA 706 [1988]).
When the power to sue is delegated by the by-laws to a particular officer, such officer may appoint
counsel to represent the corporation in a pre-trial hearing without need of a formal board resolution.
Citibank, N.A. v. Chua, 220 SCRA 75 (1993)
For counsel to sign the certification for the corporation, he must specifically be authorized by the
Board of Directors. (BP Leasing Corp. v. CA, 416 SCRA 4 (2003); Mariveles Shipyard Corp. v. CA, 415 SCRA
573 (2003), Metro Drug Distribution Inc. v. Narciso,(2006 )
79
11. To exercise other powers essential or necessary to carry out its purposes as stated
in the articles of incorporation.277
(2) Specific powers, theory of specific capacity
(a) Power to extend or shorten corporate term
Requites:
a. Approved by a majority vote of the board of directors or trustees
b. Ratified by at least two-thirds (2/3) of the outstanding capital stock or by
at least two-thirds (2/3) of the members.
c. Written notice of the proposed action and of the time and place of the
meeting addressed to each stockholder or member at his place of residence.
In case of extension of corporate term, any dissenting stockholder may
exercise his appraisal right.278
(b) Power to increase or decrease capital stock or
incur, create, increase bonded indebtedness
Requisites:
a. Majority vote of the members of the BoD
b. Ratification by 2/vote of the outstanding capital stock, in a meeting duly
called for that purpose with notice previously given
c. Certificate of said corporate act shall be signed by majority of the
members of the Board and the Chairman and Secretary of the stockholders meeting
d. Certificate must be accompanied by the Treasurers Affidavit certifying
compliance with the 25%-25% requirements as to stock corporation.279
277
Sec. 36
Enumerates some of the express powers of corporations (many of which even if not expressly provided
for by law would constitute implied powers of every entity. (p. 794 of CLVs CLR, 2007)
Enumerates 10 powers that a corporation enjoys in addition to the special powers that may be
provided for in the purpose clause of the articles of incorporation, which would also constitute express
powers. (ibid., p. 795)
278
Sec. 67
279
The corporation must submit proof to the SEC that such decrease will not prejudice the rights of
creditors. (SEC Opinion no. 05-10, July 12, 2005)
A corporation cannot issue stock in excess of the amount limited by its articles of incorporation; such
issue is ultra vires and the stock so issued is void even in the hands of a bona fide purchaser for value.
80
SEC has limited the term bonded indebtedness to cover only indebtedness of the corporation which
are secured by mortgage on real or personal property. Debentures are issued on the basis of the general
credit of the corporation and are not secured by collaterals, and therefore do not constitute bonded
indebtedness and will not require approval of the stockholders. (Page 243 of CLVs Textbook)
A corporate bond is an obligation to pay a definite sum of money at a future time at a fixed rate of
interest. (Page 347 of De Leon, 2006)
280
Sec. 39
A pre-emptive right is the shareholders right to subscribe to all issues or disposition of shares or any
class in proportion to his present stockholdings, the purpose being to enable the shareholder to retain his
proportionate control in the corporation and to retain his equity in the retained earnings and also in the
net assets in the event of dissolution. (p. 832 of CLVs CLR, 2007)
Whenever a capital stock of a corporation is increased and new shares of stocks are issued, the new
issue must be offered first to the stockholders who are such at the rime the increase was made in
proportion to their existing shareholdings and on equal terms with other holders of the original stocks
before subscriptions are received from the general public. For example, if a stockholder with pre-emptive
right owns 20% of the outstanding shares of the corporation, he may subscribe 20% of any shares of stock
issued by the corporation. This principle is known as the right of pre- emption or pre-emptive right of
stockholders (Page 355 of De Leon, 2006)
The rule [on pre-emption] aims to safeguard the right of stockholder to preserve unaltered and
unimpaired his proportionate influence and interest in the corporation and the relative value of his
holdings. (p. 356 of De Leon, 2006)
81
281
82
284
Dividends - corporate profits set aside, declared, and ordered to be paid by the directors for
distribution among shareholders at a fixed time.
Forms:
a. Cash
b. Property
c. Stock
While cash dividends due on delinquent shares can be applied to the payment of the unpaid balance,
stock dividends cannot be applied as payment for unpaid subscription.
General Rule: Stock corporations are prohibited from retaining surplus profits in excess of 100% of their
paid-in capital stock
Except:
a. When justified by definite corporate expansion projects approved by the board of directors
b. When the corporation is prohibited under any loan agreement with any financial institution or
creditor from declaring dividends without its/his consent and such consent has not yet been secured
c. When it can be clearly shown that such retention is necessary under special circumstances obtaining
in the corporation, such as when there is a need for special reserve for probable contingencies.
285
Revaluation surplus
286
paid-in surplus
Unlike par value shares, when no par value shares are sold at a premium, the entire consideration paid
is considered capital; hence the same cannot be declared as dividends.
83
287
84
85
1. Where the corporation has distributed its capital among the stockholders without providing for the
payment of creditors;
2. Where it had released the subscribers to the capital stock from their subscriptions;
3. Where it has transferred the corporate property in fraud of its creditors; and
4. Where the corporation is insolvent.
Coverage of the TFD:
1. If the corporation is solvent, the TFD extends to the capital stock represented by the corporations
legal capital.
2. If the corporation is insolvent, the TFD extends to the capital stock of the corporation as well as all of
its property and assets.
Exceptions to the TFD:
1. Redemption of redeemable shares (Sec. 8)
2. In close corporation, when there should be a deadlock and the SEC orders the payment of the
appraised value of the stockholders share. (Sec. 104)
294
Generally, the Board of Directors alone exercises the powers of the corporation.
It is responsible for corporate policies and the general management of the business and affairs of the
corporation.
Requisites of board meetings:
1) Meeting of the Board duly assembled
2) Existence of quorum
3) Decision of the majority of the quorum duly assembled (Exception: Election of directors requires a
vote of majority of all the members of the board)
295
In theory, execute the policies laid down by the board.
In practice, often have wide latitude in determining the course of business operations.
86
Proprietary rights
a. Right to dividends;
b. Right to issuance of stock certificate for
fully paid shares;
c.
Proportionate participation in the
distribution of assets in liquidation;
d. Right to transfer of stocks in corporate
books;
e. Right to recover stocks unlawfully sold for
delinquent payment of subscription
f. Preemptive right
Remedial rights
a suit filed by a
behalf and in behalf
stockholders similarly
common cause against
296
Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.
not creditors whose remedies are merely subsidiary such as accion subrogatoria and accion pauliana
298
Requisites:
(i) An existing cause of action in favor of the corporation
297
87
(ii) The stockholder/member must first make a demand upon the corporation or the management to
sue unless such a demand would be futile
(iii) The stockholder/member must be such at the time of the objectionable acts or transactions unless
the transactions are continuously injurious
(iv) The action must be brought in the name of the corporation
The number of shares of the stockholder is immaterial since he is not suing in his own behalf
The mere trustee of shares registered in his name cannot file a derivative suit for he is not a stockholder
in his own right. (Bitong vs. CA, 292 SCRA 304)
299
as principal
300
Sec. 58
The right to vote by proxy may be exercised in any of the following instances:
1. Election of the board of directors or trustees;
2. Voting in case of joint ownership of stock;
3. Voting by trustee under voting trust agreement;
4. Pledge or mortgage of shares;
5. As provided for in its by-laws.
Stockholders or members may attend and vote in their meetings by proxy (Sec. 58); directors cannot
do so. Directors must always act in person. (Sec. 25).
301
and/or any other rights
302
Limitations:
a. Cannot be entered into for a period exceeding 5 years at any one time except when it is a condition
in a loan agreement or for the purpose of circumventing the law against monopolies and illegal
combinations
b. The agreement must not be used for purposes of fraud
c. It must be in writing and notarized and specify the terms and conditions thereof
d. A certified copy of the agreement must be filed with the corporation and with the SEC
e. The agreement shall be subject to examination by any stockholder of the corporation
f. Unless expressly renewed, all rights granted in the agreement shall automatically expire at the end of
the agreed period
88
a. To enter into management contract if any of the two (2) instances stated 303 are
b. To adopt, amend or repeal the by-laws.
ii. By a two-thirds vote
a. Power to extend or shorten corporate term;
b. Increase/Decrease Corporate Stock;
c. Incur, Create Bonded Indebtedness;
d. To deny pre-emptive right;
e. Sell, dispose, lease, encumber all or substantially all of corporate assets;
f. To invest in another corporation, business other than the primary purpose;
g. To declare stock dividends
infra
A stockholder is allowed to concentrate his votes and give one candidate as many votes as the
number of directors to be elected multiplied by the number of his shares shall equal.
Cumulative voting is allowed for election of members of the Board in a stock corporation. Members
of the Board in a Non-stock Corporation shall not be voted cumulatively unless specifically provided for in
the By-laws.
The total number of votes cast by a stockholder shall not exceed the number of shares owned by him
as shown in the books of the corporation multiplied by the whole number of directors to be elected.
Gives the minority an opportunity to elect a representative to the BOD. Cannot itself give the minority
control of corporate affairs but may affect and limit the extent of majoritys control.
Theoretically, this allows the minority block to dominate the election of BOD. However, the minority
still needs the majority in order to constitute a quorum.
304
89
90
Purpose: to enable the shareholder to retain his proportionate control in the corporation and to retain
his equity in the surplus.
Extends to treasury shares in case of their reissuance.
If the shares preferentially offered to a stockholder are not subscribed or purchased by him, it does
not follow that said shares shall again be re-offered on a pro rata basis to stockholders who already
exercised their preemptive rights. There is no preemptive right with respect to the share to be re-offered.
In case additional issues of originally authorized shares:
General rule: There is no preemptive right. This is on the theory that when a corporation at its
inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue.
Exception: When a corporation at its inception offers only a specified portion of its authorized capital
stock for subscription. If subsequently, it offers the remaining unsubscribed portion, there would be
preemptive right as to the remaining portion thus offered for subscription.
When pre-emptive right not available:
a. When denied by the article of incorporation
b. Shares requiring stock offering or minimum stock ownership by the public
c. Shares to be issued in good faith with the approval of the stockholders representing 2/3 of the
outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a
previously contracted debt
91
share.
3. Fractional shares of stock cannot be voted unless they constitute at least one full
4. Treasury shares have no voting rights as long as they remain in treasury.
5. Holders of stock declared delinquent by the board for unpaid subscription.
6. A transferee of stock if his stock transfer is not registered in the stock and
transfer book of the corporation.
7. A stockholder who mortgages or pledges his shares and gives authority for
creditor to vote.
(4) Remedial rights308
(5) Obligation of a stockholder
a. Liability to the corporation for unpaid subscription;
b. Liability to the corporation for interest on unpaid subscription if so required
by the by- laws;
c. Liability to the creditors o the corporation for unpaid subscription;
d. Liability for watered stock;
e. Liability for dividends unlawfully paid;
f. Liability for failure to create corporation.
(6) Meetings
(a) Regular309 or special310
i. When and where
Regular meetings
Special meetings
308
92
Meetings, whether regular or special, are held in the city or municipality where the principal
office of the corporation is located, and if practicable in the principal office of the
corporation.313
ii. Notice
Regular meetings
Special meetings
When there is no person authorized to call a meeting, the SEC, upon petition of a
stockholder or member on a showing of good cause therefor, may issue an order to the
petitioning stockholder or member directing him to call a meeting of the corporation by
giving proper notice required by this Code or by the by-laws.
The petitioning stockholder or member shall preside thereat until at least a majority
of the stockholders or members present have been chosen one of their number as presiding
officer.315
(c) Quorum
Consist of the stockholders representing a majority of the outstanding capital stock
or a majority of the members in the case of non-stock corporations.316
(d) Minutes of meetings
Formal records of business. They can be legal documents. In other cases, the
minutes of the meeting are more like a summary of what happened at the meeting.
312
Sec. 50
st
Sec. 51, 1 par.
314
Ibid.
Notice is required for both regular and special meetings but such notice may be waived, expressly or
impliedly.
315
Sec. 50
316
unless otherwise provided for in the Code or in the by-laws (Sec. 52)
313
93
Qualifications:
Disqualifications:
317
responsible for corporate policies and the general management of the business and affairs of the
corporation
318
Sec. 23
319
Secs. 6, 42 & 43
320
Ibid.
321
Ibid.
94
(3) Elections
(a) Cumulative voting
Allowed for election of members of the board in a stock corporation. Members of
the board in a non-stock corporation shall not be voted cumulatively except if otherwise
provided in the articles of incorporation or by-laws.323
(b) Quorum
The owners of a majority of the outstanding capital stock, or if there be no capital
stock, a majority of the members entitled to vote. 324
(4) Removal
By a vote of the stockholders holding or representing 2/3 of the outstanding capital
stock, or if the corporation be a non-stock corporation, by a vote of 2/3 of the members
entitled to vote.325
(5) Filling of vacancies
By a vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum.
In the following cases, the stockholders or members shall fill the vacancy:
a. When the remaining directors or trustees do not constitute a quorum;
b. If the vacancy is caused by the removal of a director or trustee
c. If the vacancy is caused by the expiration of term; and
d. In case of increase in the number of directors or trustees as a result of an
amendment of the articles authorizing such increase
322
Sec. 27
By-laws may provide for additional qualifications/disqualifications as long as such additional
qualifications/disqualifications shall not modify requirements as prescribed in the corporation code or be
in conflict with such prescribed requirements.
323
See also cumulative voting under Stockholders and members, supra
324
st
Sec. 24, 1 sen.
325
with or without cause
Such removal shall take place either at a regular meeting or at a special meeting called for the purpose
of removal of Directors or Trustees, with previous notice of the time and place of such meeting, as well as
the intention to propose such removal. If the officers refuse to call a meeting to consider the removal of
the Director, it may be called at the instance of any stockholder or member, but with due notice.
Removal without cause may not be used to deprive minority stockholders or members of the right
of representation to which they may be entitled to under Section 24.
The board cannot remove a director or trustee as member of the board.
95
(6) Compensation
In the absence of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors, except for reasonable per
diems. Any such compensation other than per diems may be granted to directors by the vote
of the stockholders representing at least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no case shall the total yearly compensation of
directors, as such directors, exceed ten percent (10%) of the net income before income tax
of the corporation during the preceding year.326
(7) Disloyalty
Where a director, by virtue of his office, acquires for himself a business opportunity
which should belong to the corporation, thereby obtaining profits to the prejudice of such
corporation, he must account to the latter for all such profits by refunding the same, unless
his act has been ratified by a vote of the stockholders owning or representing at least twothirds (2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the venture. 327
(8) Business judgment rule
Unless otherwise provided in the Code, all corporate powers and prerogatives are
vested directly in the BOD.328
The rule has two (2) consequences:
a) The resolution, contracts and transactions of the BOD, cannot be overturned or
set aside by the SHs or members and not even by the courts under the principle that the
business of the corp. has been left to the hands of the BOD; and
b) Directors and duly authorized officers cannot be held personally liable for acts or
contracts done with the exercise of their business judgment.329
326
Sec. 30
Sec. 34
328
see Sec. 23
329
Exceptions:
a. When the Corp Code expressly provides otherwise;
b. When the directors or officers acted with fraud, gross negligence or in bad faith; and
c. When directors or officers act against the corp. in conflict-of-interest situation
General rule: Directors cannot be held liable for mistakes or errors in the exercise of their business
judgment if they acted in good faith, with due care & prudence. Contracts intra vires entered into by the
board of directors are binding upon the corp. & courts will not interfere.
Exception: If the contracts are so unconscionable & oppressive as to amount to a wanton destruction
of the rights of the minority.
Board of Directors has authority to modify the proposed terms of the contracts of the corporation for
the purpose of making the terms more acceptable to the other contracting partiesThe test to be applied
is whether the act in question is the direct and immediate furtherance of the corporations business, fairly
327
96
97
damages incurred by the corporation for the criminal proceedings brought against its
officer.333
(13) Special fact doctrine
Conceding the absence of a fiduciary relationship in the ordinary case, courts
nevertheless hold that where special circumstances of acts are present which make it
inequitable for the director to withhold information from the stockholder, the duty to
disclose arises and concealment is fraud.334
Director takes advantage of an information by virtue of his office to the
disadvantage of the corporation.
(14) Inside information
The fiduciary position of insiders, directors, and officers prohibits them from using
confidential information relating to the business of the corporation to benefit themselves or
any competitor corporation in which they may have a mere substantial interest.
The liability of a director or officer guilty of using inside information is to the
corporation and not to any individual stockholder
Since loss and prejudice to the corporation is not a requirement for liability, the
corporation has a cause of action as long as there is unfair use of inside information
It is inside information if it is not generally available to others and is acquired
because of the close relationship of the director or officer of the corporation.335
(15) Contracts
(a) By self-dealing directors with the corporation
A contract of the corporation with one or more of its directors or trustees or officers
is voidable, at the option of such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable under the circumstances; and
333
Cometa vs. CA
Strong v Repide, 1909
335
Secs. 3.8, 23.2, 27,61, 71.2, Securities Regulation Code
General rule: (Majority view) Directors owe no fiduciary duty to stockholders but they may deal with them
at arms length. No duty to disclose facts known to the director or officer.
334
98
4. That in case of an officer, the contract has been previously authorized by the
board of directors.
Where any of the first two conditions set forth is absent, in the case of a contract
with a director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the purpose, provided:
(1) full disclosure of the adverse interest of the directors or trustees involved is
made at such meeting; and
(2) the contract is fair and reasonable under the circumstances. 336
(b)
Between
directors
corporations
with
interlocking
Except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances, a contract between two or more corporations having interlocking directors
shall not be invalidated on that ground alone. If the interest of the interlocking director in
one corporation is substantial and his interest in the other corporation or corporations is
merely nominal, he shall be subject to the provisions of Section 32 337 insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty percent (20%) of the outstanding capital stock shall
be considered substantial for purposes of interlocking directors. 338
(16) Executive committee
(a) Creation
The by-laws of a corporation may create an executive committee, composed of not
less than three members of the board, to be appointed by the board. Said committee may
act, by majority vote of all its members, on such specific matters within the competence of
the board, as may be delegated to it in the by-laws or on a majority vote of the board.339
336
Sec. 32
supra
338
Sec. 33
339
st
Sec. 35, 1 sen.
337
99
Special meetings
Meetings may be held anywhere in or outside of the Philippines, unless the by-laws provide
otherwise.341
ii. Notice
Must be sent to every director or trustee at least one (1) day prior to the scheduled
meeting, unless otherwise provided by the by-laws. A director or trustee may waive this
requirement, either expressly or impliedly.342
(b) Who presides
The president, unless the by-laws provide otherwise.343
340
nd
Ibid., 2 sen.
Sec. 53
342
Ibid.
343
Sec. 54
341
100
(c) Quorum
A majority of the number of directors or trustees as fixed in the articles of
incorporation.344
(d) Rules on abstention
When it comes time for directors to vote on an issue, a director may vote "yes" or
"no." If a director abstains from voting, that means the director has not voted. An
abstention is a non-vote, a decision not to make a decision.345 The president votes on all
motions, not just to break ties.
An abstention may have the practical effect of a "no" vote since the motion may fail
for lack of sufficient "yes" votes. Unless a greater number is called for in the articles or
bylaws, a matter is deemed "approved" by the board if at any meeting at which a quorum is
present at least a majority of the required quorum of directors votes in favor of the action. 346
When the chair calls for a vote, abstentions are not called for, only the ayes and
nays.347 The burden is on an abstaining director to speak up if he/she wants to be recorded
as an abstention. If the vote is called for and one of the directors fails or refuses to indicate
"yes," "no" or "abstain," and the chair of the meeting deems the director to have voted "yes"
and the silent director does not object, the vote is counted as a "yes" vote.
Whenever a director believes he/she has a conflict of interest, the director should
abstain from voting on the issue and make sure his/her abstention is noted in the minutes. 348
The other reason a director might abstain is that he/she believes there was insufficient
information for making a decision. Otherwise, directors should cast votes on all issues put
before them. Failure to do so could be deemed a breach of their fiduciary duties.
Some by-laws provide that the Chairman of the board of directors or trustees presides at board
meetings.
344
nd
unless the articles of incorporation or the by-laws provide for a greater majority (Sec. 25, 2 par.)
345
Robert's Rules of Order, 10th ed., p 43
346
For example, if five directors are present (out of five) and there is a motion to close the pool each day
at 8:00 p.m. (from the current 10:00 p.m.) and two directors vote "yes," two directors vote "no," and one
abstains, the motion fails. The vote needed a majority of three yes votes to pass and it only received two.
Accordingly, the pool remains open to 10:00 p.m. each night. Under limited circumstances, a director may
change his/her vote or the matter may be reconsidered at a later date.
347
ibid.
348
ibid., p. 394
101
j. Capital affairs
(1) Certificate of stock
(a) Nature of the certificate
Evidences of ownership of stock in a corporation. They are transferable in the
manner provided for349 but the transfer shall bind the parties only when recorded in the
books of the corporation. Shares of stock being personal property can also be pledged.
(b) Uncertificated shares
Mutual fund shares which are maintained on the transfer agent's records, but for
which stock certificates have not been issued, also called book shares. 350
(c) Negotiability
i. Requirements for valid transfer of stocks
No transfer shall be valid, except as between the parties, until the transfer is recorded
in the books of the corporation showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates and the number of shares
transferred.351
(d) Issuance
i. Full payment
No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses (in case of delinquent shares), if any is due,
has been paid.352
ii. Payment pro-rata
General rule:
Entire subscription must be paid first before the certificates of stock can be issued.
Partial payments are to be applied pro rata to each share of stock subscribed. 353
349
See Sec. 63
investorwords.com
351
See Sec. 63
352
Sec. 64
353
Nava v Peers Mktg Corp and Fua Cun v Summers
350
102
Exception:
In the Baltazar vs. Lingayen Gulf Electric Power Co case, it was the practice of the corp.
to issue certificates of stock to its individual SHs for unpaid shares of stock and to give full
voting power to shares fully paid.
(e) Stock and transfer book354
i. Contents
(1) All stocks in the names of the stockholders alphabetically arranged;
(2) The installment paid and unpaid on all stock for which subscription has been
made, and the date of payment of any installment;
(3) A statement of every alienation, sale or transfer of stock made; and
(4) Such other entries as the by-laws may prescribe.355
ii. Who may make valid entries
The corporate secretary is the officer who is duly authorized to make entries on the
stock and transfer book.356
(f) Lost or destroyed certificates
Procedure for re-issuance in case of loss, stolen or destroyed certificates:
1. The registered owner of certificates of stock or his legal representative shall file
with the corporation an affidavit setting forth as far as possible:
a) the circumstances as to how the certificates were lost, stolen or destroyed;
b) the number of shares represented by each certificate, the serial numbers of the
certificates;
c) the name of the corp. which issued the same;
d) such other information and evidence which he may deem necessary.
354
The stock and transfer book is the best evidence of the transactions that must be entered or stated
therein. However, the entries are considered prima facie evidence only and may be subject to proof to the
contrary (Lanuza v. Court of Appeals, 454 SCRA 54)
355
Gokongwei v. SEC, 278 SCRA 793 (1997)
356
Garcia v. Jomouad, 323 SCRA 424 (2000)
103
357
Except in cases of fraud, bad faith, or negligence on the part of the corporation and its officers, no
action may be brought against the corp. which shall have issued certificates of stock in lieu of those lost,
stolen or destroyed pursuant to the above procedure.
358
For purposes of execution, attachment and garnishment, the situs of shares of stock is the domicile of
the corporation. For the purpose of registering the chattel mortgage over the shares of stock, the situs of
shares shall be the province in which the corporation has its principal business or office.
For purposes of taxation, it is the domicile of the corporation that is generally controlling.
359
Sec. 65
104
360
105
Call is a declaration by the board of directors that the unpaid subscriptions are due and payable to the
corporation.
The word call is capable of three meanings, namely: (a) a resolution of the BoD for the payment of
unpaid subscriptions; (b) notification of such resolution made on the stockholders; or (c) the time when
subscriptions become payable. (CLVs Textbook. P. 392)
364
subject to the provisions of the contract of subscription
365
st
Sec. 67, 1 par.
While the board may call for payment of the subscription at any time, if the subscription contract
specifies a date for payment thereof, the board must respect said contract. Thus, unpaid subscription plus
interest is payable on a date agreed upon, or upon call by the board of directors.
366
nd
Id., 2 par.
367
(1) Deprives the stockholder the right:
a) To be voted for; or
b) To be entitled to vote; or
c) To representation at any stockholders meeting
(2) Delinquent stockholder shall not be entitled to any of the rights of
a stockholder but he shall still be entitled to receive dividends.
(3) Delinquent stocks shall be subject to delinquency sale
106
rd
107
Said restrictions shall not be more onerous than granting the existing stockholders or the corporation
the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions
or period stated therein.
If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may sell his shares to any third person.
373
Nava and Fua Cun
Difficult to determine whether or not partial payments made should be applied as full payment.
374
Must secure the consent of the corporation since the transfer contemplates a novation of contract.
But cannot be forced upon the corporation
375
See Sec. 63
376
Blacks Law dictionary
108
377
Extinguishment of the franchise of a corporation and the termination of its corporate existence.
Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the
winding up of a corporation so that assets are distributed to those entitled to receive them. It is the
process of reducing assets to cash, discharging liabilities and dividing surplus or loss. (PVB Employees
Union-N.U.B.E. v. Vega, 360 SCRA 33 (2001)
Process by which all the assets of the corporation are converted into liquid assets in order to
facilitate the payment of obligations to creditors, and the remaining balance if any is to be distributed to
the stockholders. (Reburiano v. Court of Appeals, 301 SCRA 342 (1999)
If full liquidation can only be effected after the 3-year period and there is no trustee, the directors
may be permitted to complete the liquidation by continuing as trustees by legal implication.
379
Sec. 118
378
109
d. A copy of the Order shall be published at least once a week for 3 consecutive
weeks in a newspaper of general circulation or if there is no newspaper in the municipality or
city of the principal office, posting for 3 consecutive weeks in 3 public places is sufficient;
e. Objections must be filed no less than 30 days nor more than 60 days after the
entry of the Order;
f. After the expiration of the time to file objections, a hearing shall be conducted
upon prior 5 day notice to hear the objections;
g. Judgment shall be rendered dissolving the corporation and directing the
disposition of assets; the judgment may include appointment of a receiver.380
iii. By shortening of corporate term
This is done by amending the Articles of Incorporation.
(b) Involuntary
rules.
By filing a verified complaint with the SEC based on any ground provided by law or
i. By expiration of corporate term
When the period of corporate life expires, the corporation ceases to be a body
corporate for the purpose of continuing the business for which it was organized. 381
ii. Failure to organize and commence
business within two (2) years from
incorporation382
Its corporate powers cease and the corporation shall be deemed dissolved. 383
iii. Legislative dissolution
Through appropriate laws passed by Congress.
380
Sec. 119
PNB v. Court of First Instance of Rizal, Pasig, Br. XXI, 209 SCRA 294 (1992)
382
non-use of charter
383
automatic
381
110
384
25%-25% requirement
Republic vs. Security Credit and Acceptance Corp., 19 SCRA 58 (1967)
386
P.D. 902-A
387
After the dissolution of the corporation, it continues to exist as a body corporate, but only for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the
business for which it was established.
388
Anytime during the 3 year period, the corporation is authorized and empowered to convey all of its
property to trustees for the benefit of shareholders and other persons in interest.
If the 3-year extended life has expired without a trustee or receiver having been designated, the Board
of Directors itself, following the rationale of the decision in Gelano, may be permitted to so continue as
trustees to complete liquidation; and in the absence of a Board, those having pecuniary interest in the
assets, including the shareholders and the creditors of the corporation, acting for and in its behalf, might
make proper representations with the appropriate body for working out a final settlement of the
corporate concerns. (Clemente v. Court of Appeals, 242 SCRA 717 (1995))
In Gelano case, the counsel of the dissolved corporation was considered a trustee. In the later case of
Clemente v. Court of Appeals, the Board of Directors was permitted to complete the corporate liquidation
by continuing as trustees. Under Sec. 145 No right of remedy in favor or against any corporation . . .
shall be removed or impaired either by the subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part thereof. This provision safeguards the
385
111
rights of a corporation which is dissolved pending litigation. (Reburiano v. Court of Appeals, 301 SCRA 342
(1999); Knecht v. United Cigarette Corp., 384 SCRA 48 (2002).
389
Renunciation by holder. - The holder may expressly renounce his rights against any party to the
instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights
against the principal debtor made at or after the maturity of the instrument discharges the instrument.
But a renunciation does not affect the rights of a holder in due course without notice. A renunciation
must be in writing unless the instrument is delivered up to the person primarily liable thereon.
390
Republic v. Marsman Dev. Co., 44 SCRA 418 (1972)
112
l. Other corporations
(1) Close corporations
A special kind of stock corporation:
1. whose articles of incorporation should provide that:
a. the number of stockholders shall not exceed 20;
b. issued stocks are subject to transfer restrictions, with a right of
preemption in favor of the stockholders or the corporation; and
c. the corporation shall not be listed in the stock exchange or its
stocks should not be publicly offered; and
2. At least 2/3 of the voting stocks or voting rights should not be owned or
controlled by another corporation which is not a close corporation.391
(a) Characteristics of a close corporation
1. Stockholders may act as directors without need of election and therefore are liable
as directors;
2. Stockholders who are involved in the management of the corporation are liable in
the same manner as directors are.
3. Quorum may be greater than mere majority;
4. Transfers of stocks to others, which would increase the number of stockholders to
more than the maximum are invalid;
5. Corporate actuations may be binding even without a formal board meeting, if the
stockholder had knowledge or ratified the informal action of the others;
6. Preemptive right extends to all stock issues;
7. Deadlocks in board are settled by the SEC, on the written petition by any
stockholder; and
8. Stockholder may withdraw and avail of his right of appraisal.392
391
Sec. 96
Special rules are provided for close corporations because it is essentially an incorporated partnership
(The Corporation Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
392
113
Sec. 98
114
Sec. 99
unless the by-laws provide otherwise
396
Sec. 101
397
Sec. 102
395
115
398
Sec. 103
st
Sec. 104, 1 par.
Powers of the SEC in case of deadlock in close corporations:
1. Cancel or alter any provision in the articles of incorporation or bylaws
2. Cancel, alter or enjoin any resolution of the corporation
3. Direct or prohibit any act of the corporation
4. Require the purchase at their fair value of shares of any stockholder either by any stockholder or by
the corporation regardless of the availability of unrestricted retained earnings.
5. Appoint a provisional director
6. Dissolve the corporation
7. Granting such other relief as the circumstances may warrant. (id.)
400
Sec. 87
401
Sec. 88
They are governed by the same rules established for stock corporations, whenever pertinent, subject,
however, to a number of special features.
399
116
402
Sec. 94
117
i. Nationality
No nationality.403
A corporation sole does not have any nationality but for purposes of applying our
nationalization laws, nationality is determined not by the nationality of its head but by the
nationality of the members constituting the sect in the Philippines even if it is headed by the
Pope.404
ii. Religious societies
A non-stock corporation governed by a board but with religious purposes. It is
incorporated by an aggregate of persons. 405
(4) Foreign corporations
A corporation formed, organized or existing under any law other than those of the
Philippines, and whose laws allow Filipino citizens and corporations to do business in its
own country or state.406
(a) Bases of authority over foreign corporations
i. Consent
The legal standing of foreign corporations in the host state is founded on
international law on the basis of consent. 407
Consent, as a requisite for jurisdiction over foreign corporations, is founded on
considerations of due process and fair play. As held in Pennoyer v. Neff,408 the jurisdiction of
courts to render judgment in personam is grounded on their de facto power over the
defendant's person. Therefore, his presence within the territorial jurisdiction of a court is
prerequisite to its rendition of judgment personally binding him. International Shoe Co. v.
State of Washington409 expanded the coverage by stating that due process requires only that
in order to subject a defendant to a judgment in personam, if he not be present within the
territory of the forum, he must have certain minimum contacts with it such that the
403
Republic vs. Iglesia ni Kristo, cited in the case of Rafael Albano. Et al. vs. Court of Appeals, et al., G.R.
No. 144708, August 10, 2001
404
Roman Catholic Apostolic Church v. LRC, 1957
405
e.g. religious order, diocese, synod, sect, etc.
406
Sec. 123
The definition espouses the incorporation test and the reciprocity rule and is significant for licensing
purposes.
It is not permitted to transact or do business in the Philippines until it has secured a license for that
purpose from the SEC and a certificate of authority from the appropriate government agency.
407
Salonga, Private International Law, 1979 ed., p. 344.
408
95 U.S. 714, 733, 24 L. Ed. 565 (1877)
409
326 U.S. 310, 66 S.Ct. 154, 90 L. Ed. 95 (1945).
118
maintenance of the suit does not offend "traditional notions of fair play and substantial
justice."410
ii. Doctrine of "doing business"
The Corporation Code does not define the phrase doing or transacting business.
Jurisprudential Tests:411
Statutory Tests412
.
410
Cesar L. Villanueva, Foreign Corporations and the Concept of Doing Business in the Philippines
Philippine Corporate Law, Cesar Villanueva, 2001 ed.
412
Foreign Investment Act of 1991 (R.A. No. 7042)
413
Substance Test
414
Continuity Test
415
as defined under R.A. 7042
411
119
416
Sec. 126
Sec. 127-128
418
Lorenzo Shipping Corp. v. Chubb & Sons, Inc., et al., 431 SCRA 266 (2004)
419
Ibid.
417
120
420
Foreign corporations, even unlicensed ones, can sue or be sued on a transaction or series of
transactions set apart from their common business in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of business transaction. (Eriks Pte.Ltd vs. CA, 267 SCRA 567)
421
Sec. 134
121
Consolidation
A union whereby one or more existing The union of two or more existing
corporations are absorbed by another corporations to form a new corporation
corporation which survives and continues called the consolidated corporation.
the combined business.
422
Merger or consolidation does not become effective by mere agreement of the constituent
corporations. The approval of the SEC is required.
423
Of course, there is an arrangement as to the shares of stocks that will be issued to the former
stockholders of the two (2) corporations which were merged. Said stockholders are now stockholders of
the corporation which survives. The proportion between the two (2) corporations will be the basis of the
shares of stocks that will be issued to the stockholders under the surviving corporation
424
In a merger or consolidation:
1. Sale of assets is always involved
2. There is automatic assumption of liabilities
3. There is continuance of the enterprise and of the stockholders
4. Title to the assets are transferred by operation of law
5. The constituent corporations are automatically dissolved
425
Sec. 76
122
2. The terms of the merger or consolidation and the mode of carrying the same into
426
Ibid.
123
(5) Procedure
a. The board of directors or trustees of each corporation shall approve a plan of
merger or consolidation
b. The plan shall be submitted for approval by the stockholders or members of each
of such corporation at separate corporate meetings duly called for the purpose
c. The articles of merger or consolidation shall be executed by each of the
constituent corporations
d. Submission to the SEC for approval
e. The SEC may or may not conduct a hearing
f. Issuance of certificate of merger or consolidation by the SEC
(6) Effectivity
Upon issuance by the SEC of the certificate of merger and consolidation. 427
(7) Limitations
a. Should not create monopolies
b. Should not eliminate free and healthy competition
c. Act 3518, Sec 20 inhibits illegal combinations.
(8) Effects
1. The constituent corporations shall become a single corporation which, in case of
merger shall be the surviving corporation and, in the case of consolidation, shall be the
consolidated corporation;
2. The separate existence of the constituent corporation shall cease, except that of
the surviving corporation;
3. The surviving or consolidated corporation shall possess all rights, privileges,
immunities and powers and subject to all the duties and liabilities of a corporation;
4. The surviving or consolidated corporation shall thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations;
427
nd
124
5. All property, real or personal, and all receivables due to, and all other interest of
each constituent corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed;
6. The surviving or consolidated corporation shall be responsible for all the liabilities
and obligations of each of the constituent corporations;
7. Any claim, action or proceeding pending by or against any of the constituent
corporations may be prosecuted by or against the surviving or consolidated corporations;
and
8. The rights of the creditors or lien upon the property of any of each constituent
corporation shall not be impaired by such merger or consolidation. 428
428
Sec. 80
125
429
126
b. Adjudicative
1. Issue cease and desist orders to prevent fraud or injury;
2. Punish for contempt of the Commission;
3. Compel the officers of any registered corporation or association to call meetings
of stockholders or members;
4. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of
the Commission; and
5. Exercise such other powers as may be provided by law which are necessary or
incidental to the carrying out its express powers. 432
3. Securities required to be registered
General rule:
A registration statement duly filed and approved by the SEC is necessary before
securities may be sold and offered for sale or distribution within the Philippines. Prior to any
sale, information on the securities, in such form and substance prescribed by the SEC, shall
be made available to each prospective purchaser.433
Exceptions:
1. Exempt securities; and
2. Exempt transactions.
a. Exempt securities
1. Any security issued or guaranteed by the Government of the Philippines, or by
any political subdivision or agency thereof, or by any person controlled by and acting as an
instrumentality of said Government.
2. Any security issued or guaranteed by the government of any country with which
the Philippines maintains diplomatic relations, or by any state, province or political
subdivision or agency thereof on the basis of reciprocity.
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the
proper adjudicatory body.
432
433
ibid.
Sec. 8
127
4. Any security or its derivatives the sale or transfer of which, by law, is under the
supervision and regulation of the Office of the Insurance Commission, Housing and land
Use Regulatory Board, or the Bureau of Internal Revenue.
5. Any security issued by a bank except its own shares of stock.
6. Any securities added by the SEC by rule or regulation after public hearing.434
b. Exempt transactions
1. Judicial sale by executor, administrator, guardian/receiver in insolvency or
bankruptcy.
2. Sale of pledged or mortgaged security to liquidate a bona fide debt.
3. Sale on isolated transactions by owner.
4. Distribution of stock dividends.
5. Sale of capital stock exclusively to stockholders where no commission is paid.
6. The issuance of bonds or notes secured by mortgage upon real estate or tangible
personal property, where the entire mortgage are sold to a single purchaser at a single sale.
7. Issuance of security in exchange of any security from same issuer pursuant to right
of conversion.
8. Brokers transactions
ACS.
434
435
Sec. 9
Sec. 10
128
436
Securities shall not be sold or offered for sale or distribution within the Philippines, without a
registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
437
The Commission may conditionally approve the registration statement under such terms as it may
deem necessary.
438
The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section
439
A record of the registration of securities shall be kept in Register Securities in which shall be recorded
orders entered by the Commission with respect such securities. Such register and all documents or
information with the respect to the securities registered therein shall be open to public inspection at
reasonable hours on business days.
129
(b) Notice of the filing of the registration statement shall be immediately published
by the issuer, at its own expense, in two (2) newspapers of general circulation in the
Philippines, once a week for two (2) consecutive weeks, or in such other manner as the
Commission by the rule shall prescribe, reciting that a registration statement for the sale of
such securities has been filed, and that aforesaid registration statement, as well as the papers
attached thereto are open to inspection at the Commission during business hours, and
copies thereof, photostatic or otherwise, shall be furnished to interested parties at such
reasonable charge as the Commission may prescribe.
Within forty-five (45) days after the date of filing of the registration statement, or by
such later date to which the issuer has consented, the Commission shall declare the
registration statement effective or rejected, unless the applicant is allowed to amend the
registration statement as provided in Section 14 hereof. The Commission shall enter an
order declaring the registration statement to be effective if it finds that the registration
statement together with all the other papers and documents attached thereto, is on its face
complete and that the requirements have been complied with. The Commission may impose
such terms and conditions as may be necessary or appropriate for the protection of the
investors.
Upon affectivity of the registration statement, the issuer shall state under oath in
every prospectus that all registration requirements have been met and that all information are
true and correct as represented by the issuer or the one making the statement. Any untrue
statement of fact or omission to state a material fact required to be stated herein or necessary
to make the statement therein not misleading shall constitute fraud. 440
5. Prohibitions on fraud, manipulation and insider trading
a. Manipulation of security prices
It shall be unlawful for any person acting for himself or through a dealer or broker,
directly or indirectly:
(a) To create a false or misleading appearance of active trading in any listed security
traded in an Exchange of any other trading market:
(i) By effecting any transaction in such security which involves no change in
the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such security
with the knowledge that a simultaneous order or orders of substantially the same
size, time and price, for the sale or purchase of any such security, has or will be
entered by or for the same or different parties; or
(iii) By performing similar act where there is no change in beneficial
ownership.
440
Sec. 12
130
441
442
Sec. 24
Blacks Law Dictionary
131
c. Fraudulent transactions
It shall be unlawful for any person, directly or indirectly, in connection with the
purchase or sale of any securities to:
(1) Employ any device, scheme, or artifice to defraud;
(2) Obtain money or property by means of any untrue statement of a material fact of
any omission to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading; or
(3) Engage in any act, transaction, practice or course of business which operates or
would operate as a fraud or deceit upon any person. 443
d. Insider trading
The selling or buying of a security by an insider while in possession of material nonpublic information with respect to the issuer or the security.
It is considered unlawful unless:
1. The insider proves that the information was not gained from such
relationship, or
2. If the other party selling to or buying from the insider 444 is identified, the
insider proves:
a. that he disclosed the information to the other party, or
b. that he had reason to believe that the other party otherwise is also
in possession of the information.445
443
Sec. 26
or his agent
445
Sec. 27.1
444
132
6. Protection of investors
a. Tender offer rule446
A publicly announced intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company.
It is mandatory to make a tender offer for equity shares of a public company in an
amount equal to the number of shares that the person intends to acquire in the following
circumstances:
a. The person intends to acquire 15% or more of the equity shares of a public
company pursuant to an agreement made between or among the person and one or more
sellers;
b. The person intends to acquire 30% or more of the equity shares of a public
company within a period of 12 months; or
c. The person intends to acquire shares that would result in ownership of more than
50% of the equity shares of a public company.447
b. Rules on proxy solicitation
Proxies must be issued and proxy solicitation must be made in accordance with rules
and regulations to be issued by the Commission;
Proxies must be in writing, signed by the stockholder or his duly authorized
representative and filed with the corporate secretary before the scheduled meeting; 448 unless
otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended; no proxy shall be valid and effective for a period longer than 5 years at one time; 449
and a broker or dealer cannot give a proxy in respect of any security it carries for the
account of a customer without the express written authorization of such customer.450
The issuance and solicitation of proxies are regulated to minimize, if not avoid, the
abuse and misuse of the proxy device that may lead to the self-perpetuation and
irresponsibility of management. Management has innate advantages in the solicitation of
446
133
proxies; it has the stockholders list; it benefits from the usual inertia of stockholders; and it
has access to corporate funds for the normally substantial costs of solicitation. 451
c. Disclosure rule
It shall be unlawful for an insider to sell or buy a security of the issuer, while in
possession of material information with respect to the issuer or the security that is not
generally available to the public, unless:
(a) The insider proves that the information was not gained from such relationship; or
proves:
(b) If the other party selling to or buying from the insider452 is identified, the insider
(i) that he disclosed the information to the other party, or
(ii) that he had reason to believe that the other party otherwise is also in
possession of the information.453
It shall be unlawful for any insider to communicate material nonpublic information 454
about the issuer or the security to any person who, by virtue of the communication, becomes
an insider as defined in Subsection 3.8,455 where the insider communicating the information
451
134
knows or has reason to believe that such person will likely buy or sell a security of the issuer
whole in possession of such information. 456
for:
456
Sec. 27.3
other than the tender offeror
458
shall include any securities convertible or exchangeable into such securities or any options or rights in
any of the foregoing securities
459
Sec. 27.4 (a)
(i) Any person (other than the tender offeror) who is in possession of material nonpublic information
relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by
such tender offer if such person knows or has reason to believe that the information is nonpublic and has
been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, or any insider of such issuer.
457
135
in, the issuer and whose written consent thereto is filed with the registration
statement;
(d) Every auditor or auditing firm named as having certified any financial
statements used in connection with the registration statement or prospectus.
(e) Every person who, with his written consent, which shall be filed with the
registration statement, has been named as having prepared or certified any part of
the registration statement, or as having prepared or certified any report or valuation
which is used in connection with the registration statement, with respect to the
statement, report, or valuation, which purports to have been prepared or certified by
him.
(f) Every selling shareholder who contributed to and certified as to the
accuracy of a portion of the registration statement, with respect to that portion of
the registration statement which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
If the person who acquired the security did so after the issuer has made generally
available to its security holders an income statement covering a period of at least twelve (12)
months beginning from the effective date of the registration statement, then the right of
recovery under this subsection shall be conditioned on proof that such person acquired the
security relying upon such untrue statement in the registration statement or relying upon the
registration statement and not knowing of such income statement, but such reliance may be
established without proof of the reading of the registration statement by such person. 460
Any person who:
(a) Offers to sell or sells a security in violation of Chapter III, 461 or
(b) Offers to sell or sells a security, whether or not exempted by the
provisions of this Code, by the use of any means or instruments of transportation or
communication, by means of a prospectus or other written or oral communication,
which includes an untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements, in the light of the circumstances under
which they were made, not misleading (the purchaser not knowing of such untruth
or omission), and who shall fail in the burden of proof that he did not know, and in
the exercise of reasonable care could not have known, of such untruth or omission,
shall be liable to the person purchasing such security from him, who may sue to
recover the consideration paid for such security with interest thereon, less the
amount of any income received thereon, upon the tender of such security, or for
damages if he no longer owns the security.
460
461
Sec. 56
Registration of securities
136
Any person who shall make or cause to be made any statement in any report, or
document filed pursuant to this Code or any rule or regulation thereunder, which statement
as at the time and in the light of the circumstances under which it was made false or
misleading with respect to any material fact, shall be liable to any person who, not knowing
that such statement was false or misleading, and relying upon such statement shall have
purchased or sold a security at a price which was affected by such statement, for damages
caused by such reliance, unless the person sued shall prove that he acted in good faith and
had no knowledge that such statement was false or misleading.462
Any person who engages in any act or transaction in violation of Sections 19.2, 463
20464 or 26,465 or any rule or regulation of the Commission thereunder, shall be liable to any
other person who purchases or sells any security, grants or refuses to grant any proxy,
consent or authorization, or accepts or declines an invitation for tender of a security, as the
case may be, for the damages sustained by such other person as a result of such act or
transaction.466
Any person who willfully participates in any act or transaction in violation of Section
24 shall be liable to any person who shall purchase or sell any security at a price which was
affected by such act or transaction, and the person so injured may sue to recover the
damages sustained as a result of such act or transaction. 468
467
Any person who engages in any act or transactions in willful violation of any rule or
regulation promulgated by the Commission under Section 11 469 or 16,470 which the
Commission denominates at the time of issuance as intended to prohibit fraud in the offer
and sale of pre-need plans or to prohibit fraud, manipulation, fictitious transactions, undue
462
Sec. 57
It shall be lawful for any person to make any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made in the light of the circumstances under
which they are made, not misleading, or to engaged to any fraudulent, deceptive or manipulative acts or
practices, in connection with any tender offer or request or invitation for tenders, or any solicitation for
any security holders in opposition to or in favor of any such favor of any such offer, request, or invitation.
The Commission shall, for the purposes of this subsection, define and prescribe means reasonably
designed to prevent, such acts and practices as are fraudulent, deceptive and manipulative.
464
On Proxies, supra
465
On Fraudulent transactions, supra
466
Sec. 58
467
On Manipulation of Security Prices, supra
468
Sec. 59
469
Commodity Futures Contracts. - No person shall offer, sell or enter into commodity futures contracts
except in accordance with the rules, regulations and orders the Commission may prescribe in the public
interest. The Commission shall promulgate rules and regulations involving commodity futures contracts to
protect investors to ensure the development of a fair and transparent commodities market.
470
Pre-Need Plans. No person shall sell or offer for sale to the public any pre-need plan except in
accordance with rules and regulations which the Commission shall prescribe. Such rules shall regulate the
sale of pre-need plans by, among other things, requiring the registration of pre-need plans, licensing
persons involved in the sale of pre- need plans, requiring disclosures to prospective plan holders,
prescribing advertising guidelines, providing for uniform accounting system, reports and recording
keeping with respect to such plans, imposing capital, bonding and other financial responsibility, and
establishing trust funds for the payment of benefits under such plans.
463
137
speculation, or other unfair or abusive practices with respect to commodity future contracts,
shall be liable to any other person sustaining damages as a result of such act or transaction.
As to each such rule or regulation so denominated, the Commission by rule shall
prescribe the elements of proof required for recovery and any limitations on the amount of
damages that may be imposed.471
Any insider who violates Subsection 27.1472 and any person in the case of a tender
offer who violates Subsection 27.4 (a)(i),473 or any rule or regulation thereunder, by
purchasing or selling a security while in possession of material information not generally
available to the public, shall be liable in a suit brought by any investor who,
contemporaneously with the purchase or sale of securities that is the subject of the violation,
purchased or sold securities of the same class unless such insider, or such person in the case
of a tender offer, proves that such investor knew the information or would have purchased
or sold at the same price regardless of disclosure of the information to him.
An insider who violates Subsection 27.3474 or any person in the case of a tender offer
who violates Subsection 27.4 (a),475 or any rule or regulation thereunder, by communicating
material nonpublic information, shall be jointly and severally liable under Subsection 61.1 476
with, and to the same extent as, the insider, or person in the case of a tender offer, to whom
the communication was directed and who is liable under Subsection 61.1 477 by reason of his
purchase or sale of a security.478
471
Sec. 60
supra
473
id.
474
id.
475
id.
476
Any insider who violates Subsection 27.1 and any person in the case of a tender offer who violates
Subsection 27.4 (a)(I), or any rule or regulation thereunder, by purchasing or selling a security while in
possession of material information not generally available to the public, shall be liable in a suit brought by
any investor who, contemporaneously with the purchase or sale of securities that is the subject of the
violation, purchased or sold securities of the same class unless such insider, or such person in the case of
a tender offer, proves that such investor knew the information or would have purchased or sold at the
same price regardless of disclosure of the information to him.
477
supra
478
Sec. 61
472
138
I. Banking Laws
1. The New Central Bank Act479
a. State policies
1. Maintain a central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit.
2. The central monetary, while being a government-owned corporation, shall enjoy
fiscal and administrative autonomy.480
b. Creation of the Bangko Sentral ng Pilipinas (BSP)
An independent central monetary authority, which shall be a body corporate known
as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be
fully subscribed by the Government of the Republic, Ten billion pesos (P10,000,000,000) of
which shall be fully paid for by the Government upon the effectivity of this Act and the
balance to be paid for within a period of two (2) years from the effectivity of this Act in such
manner and form as the Government, through the Secretary of Finance and the Secretary of
Budget and Management, may thereafter determine.481
c. Responsibility and primary objective
Responsibilities
Primary objectives
479
139
Banco Filipino v. MB
Villanueva v. CA
140
(4) Liquidation
a. The condition of the bank is one of insolvency or that its continuance would
involve probable loss to its depositors and creditors.
b. A determination by the MB that the bank cannot be rehabilitated.485
141
486
Sec. 52
Rules:
1. Notes and coins called in for replacement shall remain legal tender for a period of one year from the
date of call.
2. After that period, they shall cease to be legal tender during the following year or for such longer
period as MB may determine.
3. After the expiration of this latter period, the notes and coins which have not been exchanged shall
cease to be a liability of BSP and shall be demonetized (Sec. 57).
487
142
1.
Upon written permission of the 1. Anti-Graft and Corrupt Practices Act
depositor;
cases490
2. In cases of impeachment;
143
144
Commercial banks
Thrift banks
These are
a) Savings and mortgage banks;
b) Stock savings and loan associations;
c) Private development banks, which are
primarily governed by the Thrift Banks
Act.498
Rural banks
Cooperative banks
496
145
Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng
Pilipinas.501
b. Distinction of banks from quasi-banks and trust entities
Banks502
Quasi-banks
Trust
500
R.A. 6938
Sec. 3
502
supra
501
146
Universal Bank:
503
504
Sec. 29
supra
147
505
Sec. 53
PCI Bank v. CA, 350 SCRA 446; PBCom v. CA
This applies only to cases where banks are acting in their fiduciary capacity, that is, as depository of the
deposits of their depositors. (Reyes v. CA)
While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of
the mortgagors title, in case of a banking institution, it must exercise due diligence before entering into
said contract, and cannot rely upon what is or is not annotated on the title. Reason: Before a loan is
approved, representatives are sent to the premises offered as collaterals and investigate who the real
owners are. (DBP vs. CA, 331 SCRA 267)The business of a bank is one affected by public interest for which
reason the bank should guard against loss due to negligence and bad faith. It is expected to ascertain and
verify the identities of the persons it transacts business with. (UCPB vs. Ramos, G.R. No. 147800,
November 11, 2003, Callejo, J.)
Due diligence required of banks extend even to persons, or institutions like the GSIS, regularly engaged
in the business of lending money secured by real estate mortgages. (GSIS vs. Eduardo Santiago, G.R. No.
155206. October 28, 2003)
506
148
507
149
509
Sec. 40
Sec. 34
Effect of non-compliance with the prescribed minimum ratio:
1. Distribution of net profits may be limited or prohibited and MB may require that part or all of the net
profits be used to increase the capital accounts of the bank until the minimum requirement has been met;
or
2. Acquisition of major assets and making of new investments may be restricted, except: purchases of
evidence of indebtedness guaranteed by the Government (Sec. 34).
3. In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by BSP, the MB may temporarily relieve the surviving bank, consolidated bank, or constituent
bank or corporations under rehabilitation from full compliance with the required capital ratio.
510
150
securing title covering readily marketable, non-perishable goods which must be fully covered
by insurance.511
511
151
512
152
Except
i. Loans, credit accommodations, and guarantees secured by assets considered as non-risk by the
Monetary Board.
ii. Loans, credit accommodations, and advances to officers in the form of fringe benefits.
iii. Cooperative bank with regard to its cooperative shareholders
515
Section 34. Refusal to Make Reports or Permit Examination. - Any officer, owner, agent, manager,
director or officer-in-charge of any institution subject to the supervision or examination by the Bangko
Sentral within the purview of this Act who, being required in writing by the Monetary Board or by the
head of the supervising and examining department willfully refuses to file the required report or permit
any lawful examination into the affairs of such institution shall be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than One hundred thousand pesos (P100,000) or by imprisonment of
not less than one (1) year nor more than five (5) years, or both, in the discretion of the court.
Section 35. False Statement. - The willful making of a false or misleading statement on a material fact
to the Monetary Board or to the examiners of the Bangko Sentral shall be punished by a fine of not less
than One hundred thousand pesos (P100,000) nor more than Two hundred thousand pesos (P200,000), or
by imprisonment of not more than (5) years, or both, at the discretion of the court.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations,
Orders or Instructions. - Whenever a bank or quasi-bank, or whenever any person or entity willfully
violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or
any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible
for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of
not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner,
the Board may, without prejudice to the penalties provided in the preceding paragraph of this section and
the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of this Act.
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal
sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board
may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for any willful
violation of its charter or by-laws, willful delay in the submission of reports or publications thereof as
required by law, rules and regulations; any refusal to permit examination into the affairs of the institution;
any willful making of a false or misleading statement to the Board or the appropriate supervising and
153
154
517
155
The receiver shall immediately gather and take charge of all the assets and liabilities of the institution,
administer the same for the benefit of its creditors, and exercise the general powers of a receiver under
the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit
any act that will involve the transfer or disposition of any asset of the institution: Provided, That the
receiver may deposit or place the funds of the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety (90) days from takeover, whether the
institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business
in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the liquidation of the institution. The
receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any
other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims
against the institution, assist the enforcement of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and other parties,
for the purpose of paying the debts of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may, in the name of the institution,
and with the assistance of counsel as he may retain, institute such actions as may be necessary to collect
and recover accounts and assets of, or defend any action against, the institution. The assets of an
institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver
and shall, from the moment the institution was placed under such receivership or liquidation, be exempt
from any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver under
this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
156
BSP, after due notice and hearing, and publication of a cease and desist order issued by the
Corporation against such deposit accounts or transactions; and
d) Deposits that are determined to be the proceeds of an unlawful activity as defined
under Republic Act No. 9160, as amended.521
(4) Extent of liability
Liability covers the amount due to any depositor for deposits in an insured bank net
of any obligation of the depositor to the insured bank as of the date of closure, but not to
exceed P500,000.00.522
(5) Determination of insured deposits
The Corporation shall commence the determination of insured deposits upon its
actual takeover of the closed bank.
In order that a claim for deposit insurance with the PDIC may prosper, the law
requires that a corresponding deposit be placed in the insured bank. A deposit as defined in
Section 3(f),523 may be constituted only if money or the equivalent of money is received by a
bank.
(6) Calculation of liability
(a) Per depositor, per capacity rule
The PDICs liability is up to P500,0000 per depositor / per capacity.524
(b) Joint accounts
A joint account regardless of whether the conjunction and, or or and/or is
used, shall be insured separately from an individually-owned deposit account.
521
Sec. 4 (f)
Under R.A. No. 9576
523
The term deposit means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account or which is evidenced by passbook, check and/or certificate of deposit,
printed or issued in accordance with Bangko Sentral rules and regulations and other applicable laws,
together with such other obligations of a bank, which, consistent with banking usage and practices, the
Board of Directors shall determine and prescribe by regulations to be deposit liabilities
of the Bank: Provided, That any obligation of a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of
the total deposits or of insured deposit: Provided, further, That, subject to the approval of the Board of
Directors, any insured bank which is incorporated under the laws of the Philippines which maintains a
branch outside the Philippines may elect to include for insurance its deposit obligations payable only at
such branch. (As amended by P.D. 1940, 27 June 1984; R.A. 7400, 13 April 1992; R.A. 9302, 12 August
2004)
524
Ibid.
522
157
If the account is held jointly by two or more natural persons, or by two or more
juridical persons or entities, the maximum insured deposit shall be divided into as many
equal shares as there are individuals, juridical persons or entities, unless a different sharing is
stipulated in the document of deposit.
Document of deposit referred to in the preceding paragraph pertains to joint account
agreements, account ledgers, certificate of time deposits, passbooks or other evidence of
deposits, specimen signature cards, corporate resolutions, contracts or similar instruments,
copies of which must be in the custody or possession of the bank upon takeover by PDIC.
If the account is held by a juridical person or entity jointly with one or more natural
persons, the maximum insured deposit shall be presumed to belong entirely to the juridical
person or entity.
The aggregate of the interests or total share of each co-owner over several joint
accounts, whether owned by the same or different combinations of individuals, juridical
persons or entities, shall likewise be subject to the maximum insured deposit of P500,000.00.
The amount of insurance due to any depositor for deposits in an insured bank shall
be net of any matured or unmatured obligation of the depositor to the insured bank as of
date of closure.
In case of joint deposit accounts where only one of the co-depositors has an
obligation to the closed bank, the following shall apply:
a) Where the deposit is a joint and/or or or account which is covered by a holdout agreement, the obligation secured by the hold-out agreement shall be deducted from the
balance of the joint account, regardless of the fact that only one of the co-depositors in the
joint account is indebted to the closed bank.
b) When the deposit is a joint and account which is covered by a hold-out
agreement, the obligation secured by the hold-out agreement shall be deducted only from
the share in the joint account of the depositor who is indebted to the closed bank, unless his
co-depositor is himself a co-signatory to the hold-out agreement.
c) Where the deposit is either a joint and, or or and/or account which is not
covered by a hold-out agreement, the obligation of the depositor who is indebted to the
closed bank shall be deducted only from his share in the balance of the joint deposit
account.
(c) Mode of payment
a. Cash
b. Transferred deposit A deposit in an insured bank made available to a depositor by
the PDIC as payment of the insured deposit of such depositor in a closed bank and
assumed by another insured bank.
158
525
rd
159
526
within 2 years from actual takeover of the closed bank by the receiver, or within 2 years after the
two-year period to file a claim
527
Sec. 16 (e)
528
th
Sec. 8, 8 par., as amended by R.A. 9302, 12 August 2004, R.A. 9576, April 29, 2009
160
529
Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the
statutory maximum amount of insured deposit maintained under the name of natural or juridical
persons is broken down and transferred into two (2) or more accounts in the name/s of natural or
juridical persons or entities who have no beneficial ownership on transferred deposits in their names
within one hundred twenty (120) days immediately preceding or during a bank- declared bank holiday, or
immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas
for the purpose of availing of the maximum deposit insurance coverage; (As added by R.A. 9302, 12
August 2004; as amended by R.A. 9576, June 1, 2009)
530
Sec. 22
161
Topographies
Sec. 4.1
533
trademark
534
service mark
535
Kho v. CA, et al., 379 SCRA 410 [2002]
532
162
2. Patents
a. Patentable inventions
Any technical solution of a problem in any field of human activity which is new,
involves an inventive step and is industrially applicable shall be patentable. It may be, or may
relate to, a product, or process, or an improvement of any of the foregoing. 536
b. Non-patentable inventions
The following shall be excluded from patent protection:
1. Discoveries, scientific theories and mathematical methods;
2. Schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers;
3. Methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body. This provision shall not apply
to products and composition for use in any of these methods;
4. Plant varieties or animal breeds or essentially biological process for the production
of plants or animals. This provision shall not apply to micro-organisms and non-biological
and microbiological processes. 537
5. Aesthetic creations; and
6. Anything which is contrary to public order or morality.538
c. Ownership of a patent
(1) Right to a patent
Belongs to the inventor, his heirs, or assigns. When two (2) or more persons have
jointly made an invention, the right to a patent shall belong to them jointly. 539
(2) First-to-file rule
If two (2) or more persons have made the invention separately and independently of
each other, the right to the patent shall belong to the person who filed an application for
such invention, or where two or more applications are filed for the same invention, to the
applicant who has the earliest filing date or, the earliest priority date. 540
536
Sec. 21
Provisions under this subsection shall not preclude Congress to consider the enactment of a law
providing sui generis protection of plant varieties and animal breeds and a system of community
intellectual rights protection.
538
Sec. 22
539
Sec. 28
540
Sec. 29
537
163
541
Sec. 30
Sec. 31
543
Sec. 61
542
164
544
Sec. 67
Sec. 71
546
supra
545
165
3. Where the act consists of making or using exclusively for the purpose of
experiments that relate to the subject matter of the patented invention;
4. Where the act consists of the preparation for individual cases, in a pharmacy or by
a medical professional, of a medicine in accordance with a medical prescription or acts
concerning the medicine so prepared;
5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any
other country entering the territory of the Philippines temporarily or accidentally: Provided,
That such invention is used exclusively for the needs of the ship, vessel, aircraft, or land
vehicle and not used for the manufacturing of anything to be sold within the Philippines. 547
(1) Prior user
Notwithstanding Section 72548 hereof, any prior user, who, in good faith was using
the invention or has undertaken serious preparations to use the invention in his enterprise or
business, before the filing date or priority date of the application on which a patent is
granted, shall have the right to continue the use thereof as envisaged in such preparations
within the territory where the patent produces its effect.
The right of the prior user may only be transferred or assigned together with his
enterprise or business, or with that part of his enterprise or business in which the use or
preparations for use have been made.549
(2) Use by the government
A Government agency or third person authorized by the Government may exploit
the invention even without agreement of the patent owner where:
(a) the public interest, in particular, national security, nutrition, health or the
development of other sectors, as determined by the appropriate agency of the
government, so requires; or
(b) A judicial or administrative body has determined that the manner of
exploitation, by the owner of the patent or his licensee, is anti-competitive.
The use by the Government, or third person authorized by the Government shall be
subject, mutatis mutandis, to the conditions set forth in Sections 95 to 97550 and 100 to 102.551
547
Sec. 72
supra
549
Sec. 73
550
Sec. 95. Requirement to Obtain a License on Reasonable Commercial Terms. 95.1. The license will only be granted after the petitioner has made efforts to obtain authorization
from the patent owner on reasonable commercial terms and conditions but such efforts have not been
successful within a reasonable period of time.
95.2. The requirement under Subsection 95.1 shall not apply in the following cases:
548
166
(a) Where the petition for compulsory license seeks to remedy a practice determined after judicial or
administrative process to be anti-competitive;
(b) In situations of national emergency or other circumstances of extreme urgency;
(c) In cases of public non-commercial use.
95.3. In situations of national emergency or other circumstances of extreme urgency, the right holder
shall be notified as soon as reasonably practicable.
95.4. In the case of public non-commercial use, where the government or contractor, without making a
patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for
the government, the right holder shall be informed promptly.
Sec. 96. Compulsory Licensing of Patents Involving Semi-Conductor Technology. - In the case of
compulsory licensing of patents involving semi-conductor technology, the license may only be granted in
case of public non-commercial use or to remedy a practice determined after judicial or administrative
process to be anti-competitive.
Sec. 97. Compulsory License Based on Interdependence of Patents. - If the invention protected by a
patent, hereafter referred to as the "second patent," within the country cannot be worked without
infringing another patent, hereafter referred to as the "first patent," granted on a prior application or
benefiting from an earlier priority, a compulsory license may be granted to the owner of the second
patent to the extent necessary for the working of his invention, subject to the following conditions:
97.1. The invention claimed in the second patent involves an important technical advance of
considerable economic significance in relation to the first patent;
97.2. The owner of the first patent shall be entitled to a cross-license on reasonable terms to use the
invention claimed in the second patent;
97.3. The use authorized in respect of the first patent shall be non-assignable except with the
assignment of the second patent; and
97.4. The terms and conditions of Sections 95, 96 and 98 to 100 of this Act.
551
Sec. 100. Terms and Conditions of Compulsory License. - The basic terms and conditions including the
rate of royalties of a compulsory license shall be fixed by the Director of Legal Affairs subject to the
following conditions:
100.1. The scope and duration of such license shall be limited to the purpose for which it was
authorized;
100.2. The license shall be non-exclusive;
100.3. The license shall be non-assignable, except with that part of the enterprise or business with
which the invention is being exploited;
100.4. Use of the subject matter of the license shall be devoted predominantly for the supply of the
Philippine market: Provided, That this limitation shall not apply where the grant of the license is based on
the ground that the patentees manner of exploiting the patent is determined by judicial or administrative
process, to be anti-competitive.
100.5. The license may be terminated upon proper showing that circumstances which led to its grant
have ceased to exist and are unlikely to recur: Provided, That adequate protection shall be afforded to the
legitimate interest of the licensee; and
100.6. The patentee shall be paid adequate remuneration taking into account the economic value of
the grant or authorization, except that in cases where the license was granted to remedy a practice which
was determined after judicial or administrative process, to be anti-competitive, the need to correct the
anti-competitive practice may be taken into account in fixing the amount of remuneration.
Sec. 101. Amendment, Cancellation, Surrender of Compulsory License.
101.1. Upon the request of the patentee or the licensee, the Director of Legal Affairs may amend the
decision granting the compulsory license, upon proper showing of new facts or circumstances justifying
such amendment.
101.2. Upon the request of the patentee, the said Director may cancel the compulsory license:
(a) If the ground for the grant of the compulsory license no longer exists and is unlikely to recur;
167
Criminal Action
(b) If the licensee has neither begun to supply the domestic market nor made serious preparation
therefor;
(c) If the licensee has not complied with the prescribed terms of the license;
101.3. The licensee may surrender the license by a written declaration submitted to the Office.
101.4. The said Director shall cause the amendment, surrender, or cancellation in the Register, notify
the patentee, and/or the licensee, and cause notice thereof to be published in the IPO Gazette.
Sec. 102. Licensees Exemption from Liability. - Any person who works a patented product, substance
and/or process under a license granted under this Chapter, shall be free from any liability for
infringement: Provided however, That in the case of voluntary licensing, no collusion with the licensor is
proven. This is without prejudice to the right of the rightful owner of the patent to recover from the
licensor whatever he may have received as royalties under the license.
552
Only the patentee or his successor-in-interest may file an action for infringement. Moreover, there can
be no infringement of a patent until a patent has been issued, since whatever right one has to the
invention covered by the patent arises alone from the grant of patent. In short, a person or entity who has
not been granted letter of patent over an invention and has not acquired any rights or title thereto either
as an assignee or a licensee, has no cause of action for infringement because the right to maintain an
infringement suit depends upon the existence of a patent. (Creser Precision Systems, Inc. v. CA, et al., 286
SCRA 13 [1998])
553
Godines v. CA, 226 SCRA 576 [1993]
554
Ibid.
168
555
556
Sec. 76
Sec. 84
169
557
Sec. 79
Any interested person may, upon payment of the required fee, petition to cancel the patent or any
claim thereof, or parts of the claim, on any of the following grounds:
(a) That what is claimed as the invention is not new or Patentable;
(b) That the patent does not disclose the invention in a manner sufficiently clear and complete for it to
be carried out by any person skilled in the art; or
(c) That the patent is contrary to public order or morality.
Where the grounds for cancellation relate to some of the claims or parts of the claim, cancellation may
be effected to such extent only.
559
Sec. 81
560
Sec. 88
558
170
(2) Compulsory
If the invention protected by a patent, referred to as the "second patent," within the
country cannot be worked without infringing another patent, referred to as the "first patent,"
granted on a prior application or benefiting from an earlier priority, a compulsory license
may be granted to the owner of the second patent to the extent necessary for the working of
his invention, subject to the following conditions:
1. The invention claimed in the second patent involves an important technical
advance of considerable economic significance in relation to the first patent;
2. The owner of the first patent shall be entitled to a cross-license on reasonable
terms to use the invention claimed in the second patent;
3. The use authorized in respect of the first patent shall be non-assignable except
with the assignment of the second patent; and
4. The terms and conditions of Sections 95, 96 and 98 to 100 of this Act. 561
j. Assignment and transmission of rights
An assignment may be of the entire right, title or interest in and to the patent and the
invention covered thereby, or of an undivided share of the entire patent and invention, in
which event the parties become joint owners thereof. An assignment may be limited to a
specified territory.562
The assignment must be in writing, acknowledged before a notary public or other
officer authorized to administer oath or perform notarial acts, and certified under the hand
and official seal of the notary or such other officer. 563
561
Sec. 97
Sec. 104
563
Sec. 105; Sec. 52, id.
562
171
3. Trademarks
a. Definitions of marks, collective marks, trade names
Mark
Collective mark
Trade name
trademark
service mark
566
Sec. 40
567
Sec. 121
568
Sec. 122
565
172
(b) Consists of the flag or coat of arms or other insignia of the Philippines or any
of its political subdivisions, or of any foreign nation, or any simulation thereof;
(c) Consists of a name, portrait or signature identifying a particular living individual
except by his written consent, or the name, signature, or portrait of a deceased
President of the Philippines, during the life of his widow, if any, except by
written consent of the widow;
(d) Is identical with a registered mark belonging to a different proprietor or a mark
with an earlier filing or priority date, in respect of:
1) The same goods or services, or
2) Closely related goods or services, or
3) If it nearly resembles such a mark as to be likely to deceive or cause
confusion;
(e) Is identical with, or confusingly similar to, or constitutes a translation of a mark
which is considered by the competent authority of the Philippines to be wellknown internationally and in the Philippines, whether or not it is registered
here, as being already the mark of a person other than the applicant for
registration, and used for identical or similar goods or services: Provided, That in
determining whether a mark is well-known, account shall be taken of the
knowledge of the relevant sector of the public, rather than of the public at large,
including knowledge in the Philippines which has been obtained as a result of
the promotion of the mark;
(f)
(j)
Sec. 123.1
Sec. 124.2
571
Asia Brewery v. CA and San Miguel, 224 SCRA 437 [1993]
572
Del Monte Corporation, et al. v. CA, 181 SCRA 410 [1990]
570
174
including knowledge in the Philippines which has been obtained as a result of the promotion
of the mark.573
Identical with, or confusingly similar to, or constitutes a translation of a mark
considered well-known in accordance with the preceding paragraph, which is registered in
the Philippines with respect to goods or services which are not similar to those with respect
to which registration is applied for: Provided, That use of the mark in relation to those goods
or services would indicate a connection between those goods or services, and the owner of
the registered mark: Provided further, That the interests of the owner of the registered mark are
likely to be damaged by such use.574
The exclusive right of the owner of a well-known mark defined in Subsection
123.1(e)575 which is registered in the Philippines, shall extend to goods and services which are
not similar to those in respect of which the mark is registered: Provided, That use of that mark
in relation to those goods or services would indicate a connection between those goods or
services and the owner of the registered mark: Provided, further, That the interests of the
owner of the registered mark are likely to be damaged by such use.576
h. Rights conferred by registration
The owner of a registered mark shall have the exclusive right to prevent all third
parties not having the owners consent from using in the course of trade identical or similar
signs or containers for goods or services which are identical or similar to those in respect of
which the trademark is registered where such use would result in a likelihood of confusion
shall be presumed.
The exclusive right of the owner of a well-known mark which is registered in the
Philippines shall extend to goods and services which are similar to those in respect of which
the mark is registered; provided that use of the mark in relation to those goods or services
would indicate a connection between those goods and services and the owner of the
registered mark; provided further that the interest of the owner of the registered mark are
likely to be damaged by such use.577
i. Use by third parties of names, etc. similar to registered mark
Any subsequent use of the trade name by a third party, whether as a trade name or a
mark or collective mark, or any such use of a similar trade name or mark, likely to mislead
the public, shall be deemed unlawful.578
573
Sec. 123.1(e)
Id.,(f)
575
supra
576
Sec. 147.2
577
Sec. 147
578
Sec. 165 (b)
574
175
Sec. 155.1
supra
581
Id., (2)
582
product confusion
583
source or origin confusion
584
McDonalds Corporation v. L.C. Big Mak Burger, Inc., et al., 437 SCRA 10 [2004]
585
and sometimes peculiar
580
176
586
177
k. Unfair competition589
A person who has identified in the mind of the public the goods he manufactures or
deals in, his business or services from those of others, whether or not a registered mark is
employed, has a property right in the goodwill of the said goods, business or services so
identified, which will be protected in the same manner as other property rights.590
Any person who shall employ deception or any other means contrary to good faith
by which he shall pass off the goods manufactured by him or in which he deals, or his
business, or services for those of the one having established such goodwill, or who shall
commit any acts calculated to produce said result, shall be guilty of unfair competition, and
shall be subject to an action therefor.591
The following shall be deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of
goods of another manufacturer or dealer, either as to the goods themselves or in the
wrapping of the packages in which they are contained, or the devices or words thereon, or in
any other feature of their appearance, which would be likely to influence purchasers to
believe that the goods offered are those of a manufacturer or dealer, other than the actual
manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall
deceive the public and defraud another of his legitimate trade, or any subsequent vendor of
such goods or any agent of any vendor engaged in selling such goods with a like purpose;
589
178
(b) Any person who by any artifice, or device, or who employs any other means
calculated to induce the false belief that such person is offering the services of another who
has identified such services in the mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who
shall commit any other act contrary to good faith of a nature calculated to discredit the
goods, business or services of another. 592
l. Trade names or business names
A name or designation may not be used as a trade name if by its nature or the use to
which such name or designation may be put, it is contrary to public order or morals and if,
in particular, it is liable to deceive trade circles or the public as to the nature of the enterprise
identified by that name. 593
Notwithstanding any laws or regulations providing for any obligation to register
trade names, such names shall be protected, even prior to or without registration, against any
unlawful act committed by third parties.594
m. Collective marks
(a) An application for registration of a collective mark shall designate the mark as a
collective mark and shall be accompanied by a copy of the agreement, if any, governing the
use of the collective mark.
(b) The registered owner of a collective mark shall notify the Director of any changes
made in respect of the agreement referred to in paragraph (a).
In addition to the grounds provided in Section 149, 595 the Court shall cancel the
registration of a collective mark if the person requesting the cancellation proves that only the
592
Id., 3
Sec. 165.1
594
Id., 2 (a)
595
Assignment and Transfer of Application and Registration. An application for registration of a mark, or its registration, may be assigned or transferred with or
without the transfer of the business using the mark. (n)
Such assignment or transfer shall, however, be null and void if it is liable to mislead the public,
particularly as regards the nature, source, manufacturing process, characteristics, or suitability for their
purpose, of the goods or services to which the mark is applied.
The assignment of the application for registration of a mark, or of its registration, shall be in writing and
require the signatures of the contracting parties. Transfers by mergers or other forms of succession may
be made by any document supporting such transfer.
Assignments and transfers of registration of marks shall be recorded at the Office on payment of the
prescribed fee; assignment and transfers of applications for registration shall, on payment of the same
fee, be provisionally recorded, and the mark, when registered, shall be in the name of the assignee or
transferee.
Assignments and transfers shall have no effect against third parties until they are recorded at the
Office.
593
179
registered owner uses the mark, or that he uses or permits its use in contravention of the
agreements referred to in Subsection 166.2 or that he uses or permits its use in a manner
liable to deceive trade circles or the public as to the origin or any other common
characteristics of the goods or services concerned.
The registration of a collective mark, or an application therefor shall not be the
subject of a license contract.596
n. Criminal penalties for infringement, unfair competition, false
designation of origin, and false description or
misrepresentation
A criminal penalty of imprisonment from two (2) years to five (5) years and a fine
ranging from Fifty thousand pesos (P50,000) to Two hundred thousand pesos(P200,000),
shall be imposed on any person who is found guilty of committing any of the acts
mentioned.597
4. Copyrights
a. Basic principles
Works are protected by the sole fact of their creation, irrespective of their mode or
form of expression, as well as of their content, quality and purpose. 598
Notwithstanding the provisions of Sections 172 and 173, 599 no protection shall
extend, under this law, to any idea, procedure, system method or operation, concept,
principle, discovery or mere data as such, even if they are expressed, explained, illustrated or
embodied in a work.600
The copyright is distinct from the property in the material object subject to it.
Consequently, the transfer or assignment of the copyright shall not itself constitute a transfer
of the material object. Nor shall a transfer or assignment of the sole copy or of one or
several copies of the work imply transfer or assignment of the copyright.601
596
Sec. 167
Sec. 170
598
Sec. 172.2
Protection extends only to the expression of an idea, not the idea itself.
599
infra
600
Sec. 175
601
Sec. 181
597
180
b. Copyrightable works
(1) Original works
Literary and artistic works, hereinafter referred to as "works", are original intellectual
creations in the literary and artistic domain protected from the moment of their creation and
shall include in particular:
602
(a)
(b)
(c)
(d)
Letters;
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
Sec. 172.1.
181
(b)
The works referred to in paragraphs (a) and (b) of Subsection 173.1 604 shall be
protected as a new works: Provided however, That such new work shall not affect the force
of any subsisting copyright upon the original works employed or any part thereof, or be
construed to imply any right to such use of the original works, or to secure or extend
copyright in such original works.605
c. Non-copyrightable works
No copyright shall subsist in any work of the Government of the Philippines.
However, prior approval of the government agency or office wherein the work is created
shall be necessary for exploitation of such work for profit. Such agency or office may,
among other things, impose as a condition the payment of royalties. No prior approval or
conditions shall be required for the use of any purpose of statutes, rules and regulations, and
speeches, lectures, sermons, addresses, and dissertations, pronounced, read or rendered in
courts of justice, before administrative agencies, in deliberative assemblies and in meetings of
public character.606
The Author of speeches, lectures, sermons, addresses, and dissertations mentioned in
the preceding paragraphs shall have the exclusive right of making a collection of his works. 607
Notwithstanding the foregoing provisions, the Government is not precluded from
receiving and holding copyrights transferred to it by assignment, bequest or otherwise; nor
shall publication or republication by the government in a public document of any work in
which copy right is subsisting be taken to cause any abridgment or annulment of the
copyright or to authorize any use or appropriation of such work without the consent of the
copyright owners.608
603
Sec. 173.1.
supra
605
Sec. 173.2.
606
Sec. 176.1
607
id., 2
608
Id., 3
604
182
Limitations on Copyright
Sec. 177
183
(b)
The making of quotations from a published work if they are compatible with
fair use and only to the extent justified for the purpose, including quotations
from newspaper articles and periodicals in the form of press summaries:
Provided, That the source and the name of the author, if appearing on the work,
are mentioned;
(c)
(d)
611
Letters and other private communications in writing are owned by the person to whom they are
addressed and delivered, but they cannot be published or disseminated without the consent of the writer
or his heirs. However, the court may authorize their publication or dissemination if the public good or the
interest of justice so requires.
612
Sec. 178
613
Copyright or Economic Rights
184
(e)
(f)
(g)
(h)
(i)
(j)
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: Provided, That either the work has been published, or, that
original or the copy displayed has been sold, given away or otherwise
transferred to another person by the author or his successor in title; and
(k)
Any use made of a work for the purpose of any judicial proceedings or for the
giving of professional advice by a legal practitioner.
The provisions of this section shall be interpreted in such a way as to allow the work
to be used in a manner which does not conflict with the normal exploitation of the work and
does not unreasonably prejudice the right holder's legitimate interest. 614
614
Sec. 184
185
The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit education purposes;
(b)
(c)
(d)
The effect of the use upon the potential market for or value of the copyrighted
work.
The fact that a work is unpublished shall not by itself bar a finding of fair use if such
finding is made upon consideration of all the above factors.615
(2) Copyright infringement
Infringement consists in the doing by any person, without the consent of the owner
of the copyright, of anything the sole right to do which is conferred by statute on the owner
of the copyright. The act of lifting from anothers book substantial portions of discussions
and examples and the failure to acknowledge the same is an infringement of copyright. For
there to be substantial reproduction of a book it does not necessarily require that the entire
copyrighted work, or even a large portion of it, be copied. If so much is taken that the value
of the original work is substantially diminished, there is an infringement of copyright and to
an injurious extent, the work is appropriated. It is no defense that the pirate did not know
whether or not he was infringing any copyright; he at least knew that what he was copying
was not his, and he copied at his peril. In cases of infringement, copying alone is not what is
prohibited. The copying must produce an injurious effect.616
615
616
Sec. 185
Habana, et al., v. Robles, et al., 310 SCRA 511 [1999]
186
(a) Remedies
1. Civil Action
Any person infringing a right protected under this law shall be liable:
(a)
(b)
(c)
Deliver under oath, for impounding during the pendency of the action,
upon such terms and conditions as the court may prescribe, sales invoices
and other documents evidencing sales, all articles and their packaging
alleged to infringe a copyright and implements for making them.
(d)
Deliver under oath for destruction without any compensation all infringing
copies or devices, as well as all plates, molds, or other means for making
such infringing copies as the court may order.
(e)
Such other terms and conditions, including the payment of moral and
exemplary damages, which the court may deem proper, wise and equitable
and the destruction of infringing copies of the work even in the event of
acquittal in a criminal case.
In an infringement action, the court shall also have the power to order the seizure
and impounding of any article which may serve as evidence in the court proceedings.617
2. Criminal Action
Any person infringing any right secured by provisions of Part IV 618 of this Act or
aiding or abetting such infringement shall be guilty of a crime punishable by:
(a) Imprisonment of one (1) year to three (3) years plus a fine ranging from Fifty
thousand pesos (P50,000) to One hundred fifty thousand pesos (P150,000)
for the first offense.
617
618
Sec. 216
Works Not Protected
187
(b) Imprisonment of three (3) years and one (1) day to six (6) years plus a fine
ranging from One hundred fifty thousand pesos (P150,000) to Five hundred
thousand pesos (P500,000) for the second offense.
(c) Imprisonment of six (6) years and one (1) day to nine (9) years plus a fine
ranging from Five hundred thousand pesos (P500,000) to One million five
hundred thousand pesos (P1,500,000) for the third and subsequent offenses.
(d) In all cases, subsidiary imprisonment in cases of insolvency.
In determining the number of years of imprisonment and the amount of fine, the
court shall consider the value of the infringing materials that the defendant has produced or
manufactured and the damage that the copyright owner has suffered by reason of the
infringement.
Any person who at the time when copyright subsists in a work has in his possession
an article which he knows, or ought to know, to be an infringing copy of the work for the
purpose of:
(a) Selling, letting for hire, or by way of trade offering or exposing for sale, or
hire, the article;
(b) Distributing the article for purpose of trade, or for any other purpose to an
extent that will prejudice the rights of the copyright owner in the work; or
(c) Trade exhibit of the article in public, shall be guilty of an offense and shall be
liable on conviction to imprisonment and fine as above mentioned. 619
619
Sec. 217
188
K. Special Laws
1. The Chattel Mortgage Law 620
a. Essential requisites
(1) constituted to secure the fulfillment of a principal obligation;
(2) that the mortgagor be the absolute owner of the thing mortgage;
(3) the persons constituting the mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose. 621
It is also of the essence that when the principal obligation becomes due, the thing in
which mortgage consists may be alienated for the payment to the creditor.622
Mortgagor may be a third person. It is not necessary that the principal debtor should
always be the mortgagor.623
b. Formal requisites
Registration Requirements to Make Chattel Mortgage Binding Against Third Parties Under Sec. 4, a chattel mortgage leaves the property in the possession of the
debtor. Hence, this section lays down the requisites which must be complied with in
order to make a chattel mortgage affect third parties for the protection of the
creditor.
Affidavit of Good Faith
It is an oath wherein the parties severally swear that the mortgage is made for
the purpose of securing the obligations specified in the conditions thereof and for no
other purposes and that the same is a just and valid obligation and one not entered into
for the purpose of fraud.624
Under Sec. 5,625 the absence of the affidavit vitiates a mortgage as against third
parties without notice, like creditors and subsequent lienholders; but not as between the
parties thereto, which remains valid as to them.626
620
Act 1508 in rel. to Arts. 1484, 1485, 2140 and 2141 of the Civil Code
Art.2085
622
Art. 2087
623
Art. 2085, par. 2
624
Sec. 5
625
supra
626
Lilius v. Manila Railroad Co., 62 [1935]
621
189
If mortgagor resides abroad, must be registered in the province where the property is
(a) Share of Stock:
1. Must be registered with the Register of Deeds where the debtor resides: and
2. Must also be registered with the Register of Deeds where the corporation has
its principal office.629
(b) Motor Vehicles:
1. Register with the Register of Deeds where the debtor resides;
2. Register with the Register of Deeds where the motor vehicle is located; and
3. Register with the Motor Vehicle Commission, now Land Transportation
Office.630
(c) Vessels
1. Register with the Philippine Coastguard
2. Must also be registered in the Bureau of Customs in Manila631or in the Office
of the Collector of Customs in the port of entry 632
627
Sec. 6
Sec. 4
Art 2125 of the Civil Code says that a chattel mortgage is binding between the mortgagor and
mortgagee even if not registered (Filipinas Marble Corp vs. IAC, 142 SCRA 180, 1986)
629
Registration in the stock and transfer book of the corporation is not necessary. (Chua Guan v.
Samahang Magsasaka, 62 Phil. 472 [1935])
630
Borlough v. Fortune Enterprises, 100 Phil. 1063 [1957]
Otherwise, the failure of the mortgagee to report the mortgage executed in his favor has the effect of
making said mortgage ineffective against a purchaser in good faith who registers his purchase in the
motor vehicle office.
631
if in Manila
632
if outside Manila
628
190
(d) Motor vehicle which is public utility and loan is not repayable within one (1) year
Register with the Land Transportation Franchising and Regulatory Board.
d. After-acquired property
The chattel mortgage shall cover only the property described in the deed and not any
other like or substituted property.633
e. After-incurred obligation
A chattel mortgage can only cover obligations existing at the time the mortgage is
constituted.
Therefore, although a promise expressed in the chattel mortgage to include debts that
are yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel mortgage
agreement covering the newly contracted debt is executed either by concluding a fresh
chattel mortgage or by amending the old contract conformably with form prescribed by the
Chattel Mortgage Law.
This ruling is due to the requirement in the Affidavit of Good Faith which must
contain an oath that the mortgage is made for the purpose of securing the obligation
specified in the conditions thereof, and for no other purpose, and that the same is a just and
valid obligation, and one not entered into for the purpose of fraud which makes it obvious
that the debt referred to in the law is current, not an obligation that is yet merely
contemplated.634
f. Right of junior mortgagee
1. Before payment of debt After a chattel mortgage is executed, there remains in
the mortgagor a mere right of redemption and only this right passes to the second mortgagee
in case of a second mortgage. As between the first and second mortgages, therefore, the
latter can only recover the property from the former by paying him the mortgage debt.
2. After payment of debt If the only leviable or attachable interest of a chattel
mortgagor in a mortgaged property is his right of redemption, it follows that the judgment
or attaching creditor who purchased the property at the execution sale could not acquire
anything except such right of redemption. He is not entitled to the actual possession and
delivery of the property without first paying the mortgaged debt.
633
634
Sec. 7
Acme Shoe, Rubber & Plastic Corp. v. Court of Appeals, 73 SCAD 410, 260 SCRA 714 [1996]
191
g. Foreclosure procedure
1. All applications for extra-judicial foreclosure of mortgage whether under the
direction of the sheriff or a notary public, pursuant to Act 3135, as amended by Act 4118,
and Act 1508, as amended, shall be filed with the Executive Judge, through the Clerk of
Court who is also Ex-Officio Sheriff.
2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall
be the duty of the Clerk of Court to:
(a) receive and docket said application and to stamp thereon the
corresponding file number, date and time of filing;
(b) collect the filing fees therefor pursuant to Rule 141, Section 7 (c), as
amended by A.M. No. 00-2-01-SC, and issue the corresponding official receipt;
(c) examine, in case of real estate mortgage foreclosure, whether the applicant
has complied with all the requirements before the public auction is conducted under
the direction of the sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as
amended;
(d) sign and issue the certificate of sale, subject to the approval of the
Executive Judge, or in his absence, the Vice-Executive Judge. No certificate of sale
shall be issued in favor of the highest bidder until all fees provided for in the
aforementioned sections and in Rule 141, Section 9(1) as amended by A.M. No. 002-01-SC, shall have been paid: Provided, that in no case shall the amount payable
under Rule 141, Section 9(1), as amended, exceed P100,000.00;
(e) after the certificate of sale has been issued to the highest bidder, keep the
complete records, while awaiting any redemption within a period of one (1) year
from date of registration of the certificate of sale with the Register of Deeds
concerned,
after
which
the
records
shall
be
archived.
Where the application concerns the extrajudicial foreclosure of mortgages of real
estates and/or chattels in different locations covering one indebtedness, only one filing fee
corresponding to such indebtedness shall be collected. The collecting Clerk of Court shall,
apart from the official receipt of the fees, issue a certificate of payment indicating the
amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the
real estates and/or chattels mortgaged and their respective locations, which certificate shall
serve the purpose of having the application with the Clerks of Court of the places where the
other properties are located and of allowing the extrajudicial foreclosures to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for publication by the
sheriff or by a notary public shall be published in a newspaper of general circulation
pursuant to Section I, Presidential Decree no. 1079, dated January 2, 1977. Non-compliance
therewith shall constitute a violation of Section 6 thereof.
192
4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle
applications for extrajudicial foreclosure of mortgage under the direction of the sheriff
among all sheriffs, including those assigned to the Office of the Clerk of Court and Sheriffs
IV assigned in the branches.
5. The name/s of the bidder/s shall be reported by the sheriff or the notary public
who conducted the sale to the Clerk of Court before the issuance of the certificate of sale.635
h. Redemption
Redemption is before the sale, when the condition of the chattel mortgage is
broken.636
i. Claim for deficiency
(1) General rule
Creditor shall always be entitled to collect the deficiency judgment.637
When the proceeds of the sale are insufficient to cover the debts in an extra-judicial
foreclosure of chattel mortgage, the mortgagee is entitled to claim the deficiency from the
debtor.638
(2) Exception
If the property was sold in installments, the mortgagee can no longer take any action
against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary is void.639
(3) Article 1484
The Recto law640 provides that in a contract of sale of personal property, the price of
which is payable in installments, the vendor may exercise any of the following remedies:
(a) Exact fulfillment of the obligation, should the vendee fail to pay; 641
(b) Cancel the sale, should the vendee's failure to pay cover two or more
installments;642
635
193
(c) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two (2) or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contract is void.643
2. Real Estate Mortgage Law 644
a. Coverage
Governs sales made under a special power inserted in or attached to any real-estate
mortgage, which is made as security for the payment of money or the fulfillment of any
other obligation. The Act will govern the manner in which the sale and redemption shall be
effected, whether or not provision for the same is made in the power. 645
b. Remedies available to mortgagee upon default of the mortgagor
The mortgagee has a choice of one (1) of two (2) remedies, but he cannot have both.
The mortgagee may (i) foreclose the mortgage or (ii) file an ordinary action to collect the
debt.
When the mortgagee chooses the foreclosure of the mortgage as a remedy, he
enforces his lien by the sale on foreclosure of the mortgaged property. The proceeds of the
sale will be applied to the satisfaction of the debt. With this remedy, he has a prior lien on
the property. In case of a deficiency, the mortgagee has the right to claim for the deficiency
resulting from the price obtained in the sale of the real property at public auction and the
outstanding obligation at the time of the foreclosure proceedings.646
On the other hand, if the mortgagee resorts to an action to collect the debt, he
thereby waives his mortgage lien. He will have no more priority over the mortgaged
property. If the judgment in the action to collect is favorable to him, and it becomes final
and executory, he can enforce said judgment by execution. He can even levy execution on
642
This is not the same as rescission because here, the vendor gets back the object of the sale and retains
the installments paid. However, this is not available in the absence of stipulation in the contract
643
These remedies are alternative, not cumulative. (Pacific Commercial Co. v. Dela Rama, 72 Phil. 380)
The principal object of this amendment was to remedy the abuses committed in connection with the
foreclosure of chattel mortgages. This amendment prevents mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price, and then bringing the suit against the mortgagor for
a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of his original indebtedness.
644
Act 3135, as amended by RA 4118
645
Sec 1
The law covers only real estate mortgages. It is intended merely to regulate the extrajudicial sale and
redemption of the property if and when the mortgagee is given a special power or express authority to do
so in the deed itself or in a document annexed thereto.
646
Soriano v. Enriquez, 24 Phil. 584; Banco de Islas Filipinas v. Concepcion Hijos, 53 Phil. 86; Banco
Nacional v. Barreto, 53 Phil. 101
194
the same mortgaged property, but he will not have priority over the latter and there may be
other creditors who have better lien on the properties of the mortgagor. 647
c. Need for special power of attorney
Under Section 1 of Act No. 3135, a special power of attorney must be inserted in or
attached to any Real-Estate Mortgage.
Without proof of petitioner's special authority to foreclose, the Clerk of Court as ExOficio Sheriff is precluded from acting on the application for extrajudicial foreclosure. 648
d. Authority to foreclose extrajudicially
A mortgage may be foreclosed extrajudicially where there is inserted in the contract a
clause giving the mortgagee the power upon default of the debtor, to foreclose the mortgage
by an extrajudicial sale of the mortgaged property.649
e. Procedure
(1) Where to file
All applications shall be filed with the Executive Judge through the Clerk of Court,
who is also the Ex-Officio Sheriff. 650
(2) Where to sell
Province where the property is situated.651
(3) Posting requirement
Notice of the sale is posted in at least three (3) public places of the municipality or
city where the property is situated652 for not less than twenty (20) days and published once a
week for at least three (3) consecutive weeks in a newspaper of general circulation in the
municipality or city.653
647
195
Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes
a jurisdictional defect invalidating the sale. A substantial error or omission in a notice of sale will render
the notice insufficient and vitiate the sale. (PNB v. Nepomuceno, 394 SCRA 405, 2002)
654
The newspaper need not have the largest circulation so long as it is of general circulation. To be a
newspaper of general circulation, it is enough that it is published for the dissemination of local news and
general information; that it has a bona fide subscription list of paying subscribers; and that it is published
at regular intervals. The newspaper must not be devoted to the interests or entertainment of a particular
class, profession, trade, calling, race or religious denomination. The newspaper need not have the largest
circulation so long as it is of general circulation (Perez vs. Perez (2005))
655
Metrobank v. Peafiel, G.R. No. 173976 Feb. 27, 2009
656
under SC Circular 7-2002
General Rule: Personal notice to the mortgagor is not generally required.
Exception: Unless required in the mortgage contract, the lack of personal notice to the mortgagor is
not a ground to set aside a foreclosure sale.
657
DBP vs. Emerald Resorts Hotel
658
SC Circular 7-2002
196
659
Sec. 8
This may be done in the proceedings in which possession was requested.
660
1 year
661
Requisites for valid redemption:
1. Redemption within 1 year from registration of sale;
2. Payment of purchase price plus 1% interest per month thereon if any, paid by purchaser; and
3. Written notice of redemption served on officer who made the sale.
662
Redemption price to be paid by accommodation mortgagors
663
Rule 39, Sec. 28, RoC
The redemptioner should make an actual tender in good faith of the full amount of the purchase price
(Hi-Yield Realty vs. CA (2002)
197
Juridical persons:
Within 1 year from and after the date Until but not after the registration of the
of the sale.664
certificate of foreclosure sale with the applicable
Register of Deeds, which in no case shall be more
than 3 months after foreclosure, whichever is
earlier.665
(4) Effect of pendency of action for annulment of sale
The filing of court action to enforce redemption has effect of preserving the
redemptioners rights; and freezing the expiration of one year period to redeem. 666
i. Writ of possession
(1) Ministerial duty of the court
The duty of the trial court to grant a writ of possession is ministerial. Such writ
issues as a matter of course upon the filing of the proper motion and the approval of the
corresponding bond. Any question regarding the regularity and validity of the sale is to be
determined in a subsequent proceeding.667 Such question cannot be raised to oppose the
issuance of the writ, since the proceeding is ex parte.668
After the consolidation of title in the buyers name for failure of the mortgagor to
redeem, the writ of possession becomes a matter of right
(2) Enforcement against third parties
The purchaser or last redemption shall be entitled to possession of the property
upon the finality of the order of confirmation or upon the expiration of the period of
redemption, unless a third party is actually holding the same adversely to the judgment
debtor.
664
Sec. 6
Sec. 47, R.A. 8791
666
Banco Filipino v CA
667
Sec. 8
Mandamus will lie.
The judge to whom an application for writ of possession is filed need not look into the validity of the
mortgage or the manner of its foreclosure. In the issuance of a writ of possession, no discretion is left to
the Trial Court. Any question regarding the cancellation of the writ in respect to the validity/regularity of
the foreclosure sale or the mortgage should be determined in a subsequent proceeding (PNB v. Sanao).
668
Samson vs Rivera (2004)
665
198
669
199
Excluded transactions:
674
675
200
676
201
e. Suspicious transactions
Transactions with covered institutions regardless of the amounts involved, where any
of the following circumstances exists:
a. There is no underlying legal or trade obligation.
b. Client is not properly identified
c. Amount involved is not commensurate with the business or financial capacity
d. Taking into account all known circumstances, it may be perceived that the clients
transaction is structured in order to avoid being the subject of reporting requirements under
the Act.
e. Any circumstances relating to the transaction which is observed to deviate from
the profile and/ or the clients past transactions with the covered institution.
f. Transaction is in any way related to an unlawful activity or offense under this Act
that is about to be, is being or has been committed.
g. Analogous transactions to any of the foregoing.678
f. When is money laundering committed
Crime of money laundering:
1. Knowledge that any monetary instrument or property represents, involved or
relates the proceeds of any unlawful activity, transact or attempts to transact said monetary
instrument or property
2. Knowledge that any monetary instrument or property involves proceeds of any
unlawful activity, performs or fails to perform any act as a result of which he facilitates the
offense of money laundering
3. Knowledge that any monetary instrument or instrument is required to be disclosed
and filed with AMLC679 fails to do so.
678
679
202
680
203
i. Functions
1. To require and receive covered or suspicious transaction reports from covered
institution
2. All covered transactions and suspicious transactions shall be reported to AMLC
within 5 working days from occurrence thereof, unless the Supervising Authority prescribes
a longer period not exceeding 10 working days.
3. To issue orders addressed to the appropriate supervising authority or the covered
institution to determine the true identity of the owner of any monetary instrument or
property subject of a covered transaction or suspicious transaction report or request for
assistance from a foreign state, or believed by the council, on the basis of substantial
evidence, to be in whole or in part, wherever located representing, involving, or related to,
directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity.
4. To institute civil forfeiture proceedings and all other remedial proceedings through
the Office of the Solicitor General.
5. To cause the filing of complaints with the Department of Justice or the
Ombudsman for the prosecution of money laundering offenses.
6. To investigate suspicious transactions deemed suspicious after an investigation by
the AMLC, money laundering activities, and other violations of this Act.
7. To apply before the Court of Appeals, ex parte, for the freezing of any monetary
instrument or property alleged to be the proceeds of any unlawful activity. 683
8. To implement such measures as may be necessary and justified under the law to
counteract money laundering.
9. To receive and take action in respect to any request from foreign states for
assistance in their own anti-money laundering operations.684
Members of AMLC, Executive Director, all members of Secretariat, on detail, on secondment shall not
reveal in any manner any information by reason of their office
Exception:
Under any orders of the court, Congress, or any government offices authorized by law.
683
effective immediately upon determination of probable cause
shall be for a period of 20 days unless extended by the court
684
through conventions, resolutions & other directives of any organizations of which Philippines is a
member. However, AMLC may refuse to comply with such request, when:
a. it contravenes provision of Constitution
b. it prejudices national interest of the Philippines
Requirements for requests for mutual assistance from foreign sates:
a. investigation/prosecution
b. grounds
204
205
206
Ibid.
Ibid.
692
Sec. 1 (k), Implementing Rules & Regulations of the Foreign Investments Act of 1991
693
The term "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty (60%) of the
fund will accrue to the benefit of the Philippine nationals: Provided, That where a corporation and its nonFilipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both corporations must
be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the
Board of Directors of both corporations must be citizens of the Philippines, in order that the corporations
shall be considered a Philippine national;
691
207
application for registration with SEC. During the transitory period as provided in Section 15
hereof, SEC shall disallow registration of the applying non-Philippine national if the existing
joint venture enterprise, particularly the Filipino partners therein, can reasonably prove they
are capable to make the investment needed for they are competing applicant. Upon
effectivity of this Act, SEC shall effect registration of any enterprise applying under this Act
within fifteen (15) days upon submission of completed requirements. 694
d. Foreign investments in export enterprises
Foreign investment in export enterprises whose products and services do not fall
within Lists A and B of the Foreign Investment Negative List provided under Section 8
hereof is allowed up to one hundred percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and
submit the reports that may be required to ensure continuing compliance of the export
enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may be,
of any export enterprise that fails to meet the export ratio requirement. The SEC or BTRCP
shall thereupon order the non-complying export enterprise to reduce its sales to the
domestic market to not more than forty percent (40%) of its total production; failure to
comply with such SEC or BTRCP order, without justifiable reason, shall subject the
enterprise to cancellation of SEC or BTRCP registration, and/or the penalties provided in
Section 14 hereof.695
e. Foreign investments in domestic market enterprises
Non-Philippine nationals may own up to one hundred percent (100%) of domestic
market enterprises unless foreign ownership therein is prohibited or limited by existing law
or the Foreign Investment Negative List.
A domestic market enterprise may change its status to export enterprise if over a
three (3) year period it consistently exports in each year thereof sixty per cent (60%) or more
of its output.696
f. Foreign Investment Negative List
C:
The Foreign Investment Negative List shall have three (3) component lists: A, B, and
694
Sec. 5
Sec. 6
696
Sec. 7
695
208
697
Determination of Areas of Investment for Inclusion in List C of the Foreign Investment Negative List. Upon petition by a Philippine national engage therein, an area of investment may be recommended by
NEDA for inclusion in List C of the Foreign Investment Negative List upon determining that it complies
with all the following criteria:
a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos;
b) Industry capacity is ample to meet domestic demand;
c) Sufficient competition exists within the industry;
d) Industry products comply with Philippine standards of health and safety or, in the absence of such,
with international standards, and are reasonably competitive in quality with similar products in the same
price range imported into the country;
e) Quantitative restrictions are not applied on imports of directly competing products;
f) The leading firms of the industry substantially comply with environmental standards; and
g) The prices of industry products are reasonable.
698
Sec. 8
209