CODE OF COMMERCE

COMMERCE branch of human activity; purpose is to bring products to the consumer

through operations habitually and with intent of gain
COMMERCIAL LAW branch of private law which regulates the juridical relations arising
from commercial acts
CHARACTERISTICS OF COMMERCIAL LAW:
1.1.
2.2.
3.3.
4.4.
5.5.

universal
uniform
equitable
customary
progressive

PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:

1.1.
2.2.
3.3.
4.4.
5.5.
6.6.
7.7.

merchants; book of merchants and general provision of contracts

joint account association
commercial barter
transfers of non-negotiable credits
commercial contracts of overland transportation
letters of credit
maritime commerce

OTHERS:
1.1.

Commerce bringing products from the manufacturers to the consumers

1.2.
1.a.
2.b.
period,
3.c.

Characteristics of Commerce:
habituality
rapidity if period is fixed, debtor in delay without need of demand; if contract does not fix
10 days
intent to join

1.3.
Merchant:
1.a.
Individuals legal capacity, 21 years, or subject to parental authority, habitually engaged in
commerce
2.b.
Juridical Persons commercial and industrial company organized in accordance with law,
habitually engaged in business
1.4.

General Rule: Minors cannot engage in commerce

Exceptions:
1.a.
2.b.
3.c.

to continue business of deceased parents through guardian

court authorizes guardian to place minor and property in business
minor is an alien and his national law allows him to be a merchant

1.5.
1.a.
2.b.
3.c.

Which persons are not allowed to engage in commerce?

suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion temporal)
those judicially declared insolvent until they can obtain their discharge
prohibited by Constitution and special laws

1.6.
1.a.
2.b.
3.c.

Aliens
capacitated under his national law to engage in business
engaged in the business in the Philippines not reserved for the Filipinos
after securing license and BOI certificate

1.7.
Family Code: Either spouse may engage in business; when objected to by the other, court
will look into valid grounds, i.e. serious and moral grounds
1.8.
1.a.
2.b.

BOI Certificate must be obtained by:

alien
foreign firm

1.9.
1.a.
2.b.
3.c.

Meaning of Philippine National

citizen
domestic corporation wholly owned and organized by Filipinos in the Philippines
Filipino corporation where Filipino capital entitled to vote is at least 60%

1.10. Query: If a corporation is a shareholder of another corporation, how do you determine

whether the latter corporation is a Filipino national?

Answer: The following must concur

1.a.
At least 60% of the outstanding capital stock and entitled to vote of both corporations are
held by citizens of the Philippines
2.b.
At least 60% of the Board of Directors of both corporations are Filipinos
1.11. Tenor of BOI Certificate
1.a.
Business or activity to be engaged is consistent with the Investment Priorities Plan
2.b.
Business will contribute to the sound and balanced development of the national economy in
a self-sustaining basis
3.c.
Business will not conflict with the Constitution and local laws
4.d.
Business is not adequately exploited by Filipino nationals
5.e.
No danger of monopolies/combinations in restraint of trade
1.12. Basic Principles/Conditions laid down by BOI
1.a.
resident agent of foreign firm is a Filipino citizen
2.b.
establishment of office in the Philippines
3.c.
bringing assets tot he Philippine office as capital
4.d.
complete set of accounting records
1.13. Merger and Consolidation subject to BOI requirements for the issuance of certificate:

When merger and consolidation result in ownership and control of non-Filipino nationals over
more than 40% of the capital of a consolidated corporation.
1.14. SEC License issued upon compliance with the following requirements:
1.a.
proof of compliance with principle of reciprocity
2.b.
BOI certificate
3.c.
Applicant for license gives required information

n articles of incorporation
n by-laws
n names and addresses of resident agents

n principal place of business in the Philippines

1.d.
2.e.

proof of solvency
deposit acceptable securities to protect future creditors

RETAIL TRADE NATIONALIZATION LAW

(Note: Material on the Retail Trade Liberalization Law will not be included in this reviewer.
Supplement to follow)
1.1.
Retail Trade any act, occupation, or calling of habitually selling direct to the general public,
merchandise, commodities, or goods for consumption

Jurisprudence has held that the term retail should be associated with and limited to goods
for personal, family or household use, consumption and utilization. The Retail Trade
Nationalization Law refers to consumption goods or consumer goods which directly satisfy
human wants and desires and are needed for home and daily life. Excluded from the law are
those goods which are considered generally raw material used in the manufacture of other
goods, or if not, as one of the component raw material, or at least as elements utilized in the
process of production and manufacturing.
1.2.
1.a.
2.b.
3.c.

Elements of What Constitutes Retail Trade:

The seller habitually engages in selling;
The sale is direct to the general public; and
The object of the sale is limited to merchandise, commodities or goods for consumption.

1.3.
General Rule: After 1964, only Filipinos or corporations whose capital is 100% Filipino may
engage in retail trade.
1.4.
Exceptions, that is, instances when aliens may engage in retail trade in the Philippines:
1.a.
manufacturer or processor if capital does not exceed P5,000.00;
2.b.
farmer or agriculturist when selling his products;
3.c.
manufacturer or processor selling to industrial or commercial users or consumers who use
the produce to render service to the general public or to produce or manufacture goods which are
sold by them to the public;
4.d.
hotel owners or keepers of restaurants included or incidental to the hotel business;
5.e.
sale by a manufacturer or processor to the Government or its agencies, including
government owned and controlled corporations.

1.5.

Query: How to determine citizenship of shares of the corporation when they are not held
directly by individuals, but in turn held by another entity?

Answer: apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or partnership at least 60% of the
capital stock or capital respectively, of which belong to Filipino citizens, all of the said shares
shall be recorded as owned by Filipinos. But, if lets say, 50% of the capital stock belongs to
Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other
50,000 shares shall be recorded as belonging to aliens.

However, while a corporation with 60% Filipino and 40% foreign equity ownership is
considered a Philippine national for purposes of investment, it is not qualified to invest in or
enter into a joint venture agreement with corporations or partnerships, the capital or
ownership of which under the Constitution or other special laws are limited to Filipino citizens
only. Hence, for purposes of the law, whatever the percentage of Filipino ownership in the
owning corporation, the foreign ownership would always render a portion of its holding in the
company as foreign equity and would disqualify the corporation to engage in retail trade.
ANTI-DUMMY ACT
1.1.
The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy
privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are imposed on the
president, manager, board member or persons in charge of the violating entity and causing the latter
to forfeit its privileges, rights and franchises.
1.2.
Disqualified aliens cannot intervene in the management, operation, administration or control
of the business reserved to Filipinos whether as an officer, employee or laborer, with or without
remuneration, except when:
1.a.
alien takes part in technical aspects;
2.b.
provided that no Filipino can do such technical work; and
3.c.
with express authority from the President, upon the recommendation of the department head
concerned.
1.3.
By way of exception, the following may participate in management:
1.a.
Aliens may be elected to the Board of Directors to the extent of their allowable share in the
capital of the corporation (in partially nationalized industries).
2.b.
A registered enterprise may employ foreign nationals in supervisory, technical, and advisory
positions for a period of 5 years subject to extension.
3.c.
Where majority of stocks of a pioneer enterprise is owned by foreign investors, the following
positions may be held by foreign nationals:

n president
n treasurer
n general manager
n equivalent positions
1.4.
A Filipino common-law wife of an alien is not barred from engaging in the retail business
provided she uses capital exclusively derived from her paraphernal properties; however, allowing her
common-law alien husband to take part in the management of the retail business would be a
violation of the law.
1.5.
What doing business means:
1.a.
soliciting orders, purchases, service contracts;
2.b.
opening offices whether called liaison offices or branches;
3.c.
appointing representatives or distributors who are domiciled in the Philippines or who in any
calendar year stay in the country for a period totaling 180 days or more;
4.d.
participating in the management or supervision or control of any domestic firm, entity or
corporation in the Philippines;
5.e.
any other act or acts that imply continuity in commercial dealings

1.6.
When commissioned merchants/investors or commercial brokers act in their own name in
selling foreign products, the foreign firm manufacturing these products is not doing business in the
Philippines.
1.7.
When a local corporation or person acts in the name of a foreign firm, the latter is doing
business in the Philippines.
1.8.
The following are NOT doing business:
1.a.
mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business;
2.b.
exercise of rights as such investor;
3.c.
having a nominee director or officer to represent interests in such corporation;
4.d.
appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own accounts.
2.1.
Purpose:
1.a.
to encourage use of and to promote transactions based on trust receipts;
2.b.
to regulate the use of trust receipts

TRUST RECEIPTS LAW

1.2.

Definition:

A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the
latter releases the goods, documents or instruments tot he possession of the former upon the
ENTRUSTEES promise to hold said goods in trust for the ENTRUSTER, and to sell the goods,
etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF
WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.
1.3.
Trust receipts are denominated in Philippine currency or acceptable and eligible foreign
currency.
1.4.
ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the
ENTRUSTEE.
1.5.

Risk of loss is borne by the ENTRUSTEE.

1.6.
Pending the duration of the trust agreement, the ENTRUSTERS security interest cannot be
prejudiced by claims of creditors of the ENTRUSTEE.
1.7.
Loss of goods pending the dispossession shall not extinguish the obligation to the
ENTRUSTER for the value thereof.

LETTERS OF CREDIT
1.1.
1.a.
2.b.

Kinds:
Commercial Letters of Credit
Travelers Letters of Credit

1.2.

No protest required in case of dishonor.

1.3.

Issued to definite persons and not to order, thus, non-negotiable.

1.4.

Limited to a fixed account.

PRICE TAGS LAW

1.1.

It requires articles of commerce sold at retail to bear prices.

JOINT ACCOUNTS
1.1.
It exists when a merchant interests himself in the transaction of another merchant,
contributing thereto the amount of capital they may agree upon, and participating in the favorable or
unfavorable results thereof in the proportion they may determine.
1.2.

Joint accounts do not adopt a firm name.

1.3.
No suit may be maintained investor and third persons dealing with the merchant
conducting business.
1.4.

It is not subject to any formal requirement for validity; it may be oral.

BULK SALES LAW

1.1.
Purpose: meant to protect creditors of businessmen against preferential or fraudulent
transfers

1.2.

The law covers all transactions, whether done in good faith or not, or whether or not the
seller is in a state of insolvency, that fall within the description of what is a bulk sale.
1.3.
Types of transactions which are treated as bulk sales:
1.a.
Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise, provisions,
or materials otherwise than in the ordinary course of trade;
2.b.
Sale transfer, mortgage or assignments of all, or substantially all, of the business of the
vendor, mortgagor, transferor, or assignor;
3.c.
Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and
equipment used in the business of the vendor, mortgagor, transferor, or assignor.
1.4.
Only creditors at the time of the sale in violation of the law are within the protection of the
laws and creditors subsequent to the sale are not covered.
1.5.
Even if the transaction falls within the definition of bulk sale, the following are not deemed
covered by the law:
1.a.
If the vendor, mortgagor, transferor or assignor produces and delivers a written waiver of the
provisions of the law from his creditors as shown by verified statements;
2.b.
The law does not apply to executors, administrators, receivers, assignees in insolvency, or
public officers, acting under process.
1.6.
1.a.

Obligations when transaction is a bulk sale:

The vendor must deliver to such vendee a written statement of:

n names and addresses of all creditors to whom said vendor or mortgagor may be indebted;
n amount of indebtedness due or owing to each of said creditors
1.b.
The vendor must apply the purchase money to the pro-rata payment of bona fide claims of
the creditors as shown in the verified statement.
2.c.
The seller, at least 10 days before the sale, shall:

n make a full detailed inventory of the goods, merchandise, etc., cost price of each article to
be included in the sale
n notify every creditor at least 10 days before transferring possession of the goods, of the
price, terms and conditions of the sale
1.7.

Consequences of Violation of Requirements under #6 above stated:

1.a.
liable.
2.b.
liable.
3.c.

When 6(a) above is not complied with, the sale itself is void; the seller will be criminally
When 6(b) above is not complied with, the sale itself is also void; seller is also criminally
When 6(c) is not complied with, the sale is not void; no criminal liability on the seller.

INSURANCE LAW
1.1.
1.a.
2.b.
3.c.

Laws applicable to insurance in the order of priority:

Insurance Code
Civil Code
General Principles prevailing on the subject in the US

1.2.
Contract of Insurance an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown contingent event.
1.3.
Contract of Suretyship deemed to be an insurance contract within the meaning of the
Insurance Code, only if made by a surety who or which, as such, is doing an insurance business
1.4.
Definition of doing an insurance business:
1.a.
making or proposing to make, as insurer, any insurance contract;
2.b.
making or proposing to make as a surety, any contract of suretyship as a vocation and not
merely incidental to any other legitimate business or activity of the surety;
3.c.
doing reinsurance business;
4.d.
doing or proposing to do any business in the substance equivalent to any of the foregoing in
a manner designed to evade the provisions of the Insurance Code.
1.5.
1.a.
2.b.
3.c.
4.d.
5.e.

Requisites of Insurance:
existence of an insurable interest;
risk of loss;
assumption of risk;
scheme to distribute losses; and
payment of premiums

Note: If only a, b, and c are present, it is not a contract of insurance but a risk shifting device.
1.6.
Characteristics of an insurance contract:
1.a.
consensual
2.b.
voluntary
3.c.
aleatory depends upon some contingent event; however, it is not a wagering nor a
gambling contract
4.d.
executed as to the insured after payment of the premium
5.e.
executory as to insurer not executed until payment for a loss
6.f.
personal each party takes into account the character, credit and the conduct of the other
7.g.
conditional liability is based on the happening of the event insured against
1.7.
Parties to a contract of Insurance:
1.a.
insurer party who assumes the risk or undertakes to indemnify the insured or to pay a
certain sum on the happening of a specified contingency
2.b.
insured person in whose favor the contract is operative, and who is indemnified against, or
is to receive a certain sum upon the happening of a specified contingency
3.c.
beneficiary may or may not be the same as the insured

What perils may be insured?

(a) any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest; or
(b) any contingent or unknown event, whether past or future, which may create a liability
against the person insured.
1.8.
Every person has an insurable interest in the life and health of:
1.a.
himself, his spouse and his children
2.b.
any person on whom he depends wholly or in part for education or support, or in whom he
has a pecuniary interest
3.c.
any person under a legal obligation to him for the payment of money, or respecting property
or services, of which death or illness might prevent the performance or delay it
4.d.
any person upon whose life any estate or any interest vested in him depends
1.9.
1.a.
2.b.
3.c.

Insurable Interest in Property may consist of:

an existing interest
an inchoate interest, founded on an existing interest
an expectancy, coupled with an existing interest out of which the expectancy arises

Definition of Insurable Interest in Property: Interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured.

1.10. Instances when Insurable Interest must exist:

1.a.
Interest in Property insured must exist when the insurance takes effect and when the loss
occurs, but need not exist in the meantime.
2.b.
Interest in the Life or Health of a Person Insured must exist when the insurance takes effect,
but need not exist thereafter or when the loss occurs.
3.c.
Beneficiaries of Life Insurance need not have insurable interest in the life of the insured.
4.d.
Beneficiaries of Property Insurance must have insurable interest in the property insured.

Category

1. basis

Insurable Interest in Life

Insurance

Insurable Interest in Property

may be based on pecuniary

based purely on pecuniary
interest, affinity, or
interest
consanguinity
2. when interest must exist
at the time the policy takes effect at the time the policy takes effect
EXCEPT: life insurance taken and at the time of the loss
by the creditor on the life of the
debtor wherein interest must also
exist at the time of the loss
3. amount of insurable interest no limit EXCEPT: if insurable limited to the actual value of
interest is based on creditordamage/injury/loss
debtor relationship (only to the
extent of the credit or debt)
1.11. General Rule: A change of interest in any part of a thing insured unaccompanied by a

corresponding change in interest in the insurance suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the insurance are vested in the same person.

Exceptions: a. In case of life, health, and accident insurance

1.b.
when the change in interest results after the occurrence of an injury which results in a loss
2.c.
a change of interest in one or more several distinct things, separately insured by one policy
3.d.
a change in the interest by will or succession on the death of the insured (interest passes to
the heirs)
4.e.
a transfer of interest by one of several partners, joint owners in common who are jointly
insured to the others (even though it has been agreed that the insurance shall seize upon the
alienation of the thing insured)

1.12. Revocation of Beneficiaries

General Rule: Insurance contracts are revocable.
Exception: Any person who is forbidden to receive any donation under Article 739 of the Civil Code
cannot be named beneficiary of a life insurance policy by the person who cannot make the donation
to him.
The following donations shall be void:
1.a.
those made between persons who were guilty of adultery or concubinage at the time of the
donation;
2.b.
those made by persons found guilty of the same criminal offense, in consideration thereof;
3.c.
those made to a public officer or his wife, descendants, ascendants, by reason of his office.
Other Pertinent Provisions on Revocation:

(a)

The termination of a subsequent marriage shall allow the innocent spouse to revoke the

designation of the other spouse who acted in bad faith as beneficiary in any insurance policy,
even if such designation be stipulated as irrevocable.
(b) After the finality of the decree of legal separation, the innocent spouse may revoke the
donations as well as the designation of the latter as a beneficiary in any insurance policy,
even if such designation is irrevocable. The revocation of or change in the designation shall
take effect upon written notification thereof to the insured. The action to revoke the donation
under this article must be brought within 5 years from the time the decree of legal separation
has become final.
(c)
The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice or accessory in willfully bringing about the death of
the insured, in which event, the nearest relative of the insured shall receive the proceeds of
said insurance if not otherwise disqualified.
1.13. Suspension a change of interest in any part of a thing insured unaccompanied by a
corresponding change of interest in the insurance suspends the insurance to an equivalent extent
until the interest in the thing and the interest in the insurance are vested in the same person.
1.14. Concealment a neglect to communicate that which the party knows or ought to
communicate
General Rule: The insured is not required to communicate the nature (or kind) or the amount of his
insurable interest in the life or property insured to the insurer.

Exception: a. When the insurer makes inquiry from the insured of the nature or amount of the
latters insurable interest, whether in life or property insurance;
1.b.
insurance policy must specify the interest of the insured in the property insured, if he is not
the absolute owner thereof.
A concealment, whether intentional or not, entitles the injured party to rescind a contract of
insurance.
Requisites:

(a)

the party concealing must have knowledge of the facts concealed;

(b)

the facts concealed must be material to the risk;

(c)

the party is duty bound to disclose such fact to the other;

(d)

the party concealing makes no warranty as to the facts concealed;

(e)

the other party has no other means of ascertaining the facts concealed.

Note: An insured need not die of the very disease he failed to reveal to the insurer. It is sufficient
that the non-revelation has misled the insurer in forming his estimate of the disadvantages of the
proposed policy or in making his inquiries in order to entitle the insurance company to avoid the
contract.
Note: The insured is under an obligation to disclose not only such material facts as are known to
him, but also those known to his agent where:
1.a.
it was the duty of the agent to acquire and communicate information of the facts in question;
2.b.
it was possible for the agent, in the exercise of reasonable diligence, to have made the
communication before the making of the insurance contract.

n Failure on the part of the insured to disclose such facts known to his agent, or wholly due to
the fault of the agent, will avoid the policy, despite the good faith of the insured.
1.15. Neither party to the insurance contract is bound to communicate information on the following
matters except in answer to the inquiries of the other:
1.a.
those of which the other knows;
2.b.
that which, in the exercise of ordinary care, the other ought to know and of which the former
has no reason to suppose his ignorance, i.e. political situation, general usages of trade;
3.c.
those of which the other waives communication;
4.d.
those which prove or tend to prove the existence of the risk excluded by a warranty and
which are not otherwise material;
5.e.
those which relate to a risk excepted from the policy and which are not otherwise material.
Neither party is bound to communicate his mere opinion, even upon inquiry, because such opinion
would add nothing to the appraisal of the application.
Waiver of material facts may be:

(a)

by the terms of the insurance; or

(b) by the neglect to make inquiry as to such facts, where they are distinctly implied in
other facts which information is communicated
Materiality is to be determined not by the events but solely upon the probable and reasonable
influence of the facts on the party to whom the communication is due in forming his estimate of the

disadvantages of the proposed contract or in making his inquiries.

Concealment, whether intentional or not, entitles the other party to rescind the contract.
1.16. Representation

It is a factual statement made by the insured at the time of, or prior to, the issuance of the
policy, to give information to the insurer and otherwise induce him to enter into the insurance
contract.
It
It
It
A

may be made orally or in writing.

may be made at the time of, or before, the issuance of the policy.
may be altered or withdrawn before the insurance is effected, but not afterwards.
representation cannot qualify an express provision in a contract of insurance but it may qualify an

implied warranty.
A representation as to the future is to be deemed a promise unless it appears that it was merely a
statement of belief or an expectation. (must be susceptible of present, actual knowledge)
The statement of an erroneous opinion, belief or information, or of an unfulfilled intention, will not
avoid the contract of insurance, unless fraudulent.
Right to rescind because of false representation:
1.a.
must be exercised previous to the commencement of an action on the contract (the action
referred to is that to collect a claim on the contract)
2.b.
misrepresentation, whether intentional or not, gives the right to rescind

Incontestable Clause: After a policy of life insurance made payable on the death of the insuredshall
have been in force during the lifetime of the insured for a period of 2 years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable
by reason of the fraudulent concealment or misrepresentation of the insured or his agent.
Exceptions: (a) absence of insurable risk

(b)

cause of loss is an unexpected risk

(c)

fraud

(d)

non-payment of premium

(e)

violation of conditions relating to naval or military services

(f)

failure to comply with conditions subsequent to the occurrence of the loss

1.17. Warranties:
General Rule: Non-performance of a promissory warranty avoids a contract of insurance.
Exceptions:
1.a.
when before the time for performance of the promissory warranty, a loss insured against
occurs;
2.b.
when before the time of the performance of the warranty, the act becomes unlawful;
3.c.
when before the time of the performance of the warranty, said performance becomes
impossible.
A statement or a promise set forth in the policy or by reference incorporated therein, the nonfulfillment of which in any respect and without reference to whether the insurer was in fact
prejudiced by such non-fulfillment, renders the policy voidable by the insurer, wholly irrespective of

the materiality of such statement or promise.

Warranty

part of the insurance contract

always written on the policy
conclusively presumed material
must be strictly complied with
made by the insured

Representation

collateral inducement
maybe oral or written
materiality must be proved
requires substantial truth
may be made by insurer or insured

Note: If there is a breach of warranty, even if the cause of the loss is a different risk, the insurer is
entitled to rescind the contract of insurance.
Breach must refer to a material warranty, whether intentional or not.
1.18. Policy
What is a Rider? It is an additional provision in a policy not part of the body of the printed form.
Cover Note: written memorandum of the most important terms of a preliminary contract of
insurance, intended to give temporary protection pending the investigation of the risk by the insurer,
or until the issuance of a formal policy.
General Rule: Cover notes bind insurer temporarily pending the issuance of the policy.
Exception: Where it is merely an acknowledgment on behalf of the company that the latters branch
office had received from the applicant the insurance premium and accepted the application subject
for processing by the insurance company and that the latter will either approve or reject the same.
Kinds of Policies:
1.a.
Open the value of the thing insured is not agreed upon, but is left to be ascertained at the
time of the loss
2.b.
Valued expresses on its face an agreement that the thing insured shall be valued at a
specific sum
3.c.
Running contemplates successive insurance which provides that the object of the policy
may be from time to time defined especially as to the subject of insurance by additional statements
or endorsements

n Note: If an amount is written on the face of an open policy, it is merely a determination of

the maximum limit of recovery and not as the value of the policy.
Category

Open Policy

what needs to be proven in order value of property upon loss

to be able to claim
determining value of loss
value of property is to be
ascertained upon loss

Valued Policy

no need for proof of value of

property upon loss
value of property upon loss is
conclusively stipulated to a
specified amount

Period for commencing an action against the policy: Within 1 year from the time the cause of action
accrues, i.e., from the time of rejection of the claim by the insurer. Any condition, stipulation, or
agreement limiting the time to less than 1 year is void.
Grounds for Cancellation of a Policy by the Insurer:

For Policies Other than Life:

(1)

prior notice of the cancellation to insured

(2)

notice must be based on the ff. occurrences after effective date of the policy

(a)

non-payment of premiums

(b)

conviction of a crime arising out of acts increasing the hazard insured against

(c)

discovery of fraud or material misrepresentation

(d)

discovery of willful or reckless acts or omissions increasing the hazard insured against

(e)

physical changes in the property insured which results in the property becoming

uninsurable
(f)

determination by the Commissioner that the continuation of the policy would violate or

would place the insurer in violation of the Insurance Code

(3)

notice must be in writing

(4)

it must be mailed or delivered to the insured at the address shown in the policy

(5)

notice must state the ground relied upon and that upon written request of the insured,

the insurer will furnish facts on which the cancellation is based

Renewal of the Policies Other than Life:

Insurer must mail or deliver to the insured notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages within 45 days
before the policy ends. Otherwise, insured entitled to renew the policy upon payment of the
premium due on the effective date of the renewal.
1.19. Premium
General Rule: No policy is binding until the premium thereof has been paid.
Exceptions: (a) in case of life or industrial life policy, whenever the grace period applies

(b)

in case of estoppel

Insurer is entitled to payment of premiums as soon as the thing insured is exposed to the perils
insured against.
When insurer entitled to Return of Premiums
1.a.
when the contract is voidable on account of fraud or misrepresentation of the insurer;
2.b.
when on account of facts, the existence of which the insured was ignorant without his fault
3.c.
when by any default of the insured other than actual fraud, the insurer never incurred any
liability under the policy
4.d.
when the insured has become a public enemy and the policy automatically canceled (on the
ground of equity)
5.e.
in case of over-insurance by several insurers (ratable return of premiums, proportioned to the
amount by which the aggregate sum insured in all policies exceed the insurable value of the thing at
risk)
1.20. Loss
When Insurer is Liable:
1.a.
where the peril insured against was the proximate cause, although a peril not contemplated
by the contract may have been the remote cause or even the immediate cause of the loss
2.b.
where the thing insured is rescued from the peril insured against that would otherwise have
caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against,
which permanently deprives the insured of its possession in whole or in part

3.c.
where loss is caused by efforts to rescue the thing insured from a peril insured against
4.d.
insurer is not exonerated by a loss caused by simple negligence of the insured if the
proximate cause of the loss is a peril insured against
5.e.
loss, the immediate cause of which is a peril insured against except when the proximate
cause is an excepted peril
When Insurer Not Liable:
1.a.
where the peril insured against was only a remote cause
2.b.
where the peril is specifically excepted, a loss which would not have occurred but for such
peril is thereby excepted
3.c.
loss caused by the connivance of the insured
4.d.
loss caused by the willful act of insured
5.e.
loss caused by insureds negligence, if it amounts to bad faith
General Rule: The insurer is not liable for a loss caused by the willful act of the insured.
Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committed suicide after
the policy has been in force for a period of 2 years from the date of its issue or last reinstatement. If
insured kills himself within a period of 2 years, insurer is not liable.
Exception to Exception: If suicide is committed in a state of insanity, regardless of the time of
commission, the insurer is liable.
1.21. Double Insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest
Requisites: a.
1.b.
2.c.
3.d.
4.e.

person insured must be the same

existence of several insurers

subject matter insured must be the same
interest the same
risk insured against also the same

Over Insurance

Double Insurance

may be only one insurer

must be 2 or more insurers
insurance covers more than the value of insurable insurance may or may not exceed the value of
interest
insurable interest
The Code prohibits double insurance without the consent of the insurer.
Liability of Insurer:

Insurance taken
from each insurer

- x

value of property received

= liability of insurer total

insurance
1.22. Reinsurance: A process by which an insurer procures a third person to insure him against loss
or liability by reason of such original insurance.

The original insured cannot recover from this insurance unless there is a specific grant, or
assignment of, the reinsurance contract in favor of the insured, or a manifest intention of the
contracting parties to the reinsurance contract to favor the insured.
General Rule: The insurer who obtains reinsurance must communicate:

1.a.
all the representations of the original insured; and
2.b.
all the knowledge and information he possesses, whether previously or subsequently
acquired which are material to the risk
Exception: under automatic reinsurance treaties

Reinsurance

Double Insurance

1.
2.
3.
4.
5.

1.
insurer becomes the insured
2.
subject matter is the insured risk or liability
3.
different risks and interests of insured
4.
there must be consent of original
5.
one who is original insured has no interest
in the contract of reinsurance which is
independent of the original contract of insurance
6. 1.
insurer remains the insurer
7. 2.
subject matter is property
8. 3.
the same interest and risk are insured
9. 4.
insured has to give his consent
10.5.
insured is the party in interest in all
contracts
1.23. Marine Insurance: insures against perils of the sea, not of the ship

Perils of the Sea

covered by marine insurance

denote nature accidents peculiar to the sea which
do not happen by intervention of man nor are to1.
be prevented by human prudence
2.
3.

Perils of the Ship

not covered by marine insurance

damage or losses resulting from:
1.
natural and inevitable action of the sea
2.
ordinary wear and tear of a ship, or
3.
negligent failure of the ship owner to
provide the vessel with proper equipment to
convey the cargo under ordinary conditions

Owner of the Ship has Insurable Interest:

1.a.
in the ship even if it has been chartered by one who promises to pay him in value in case of
loss (insurer is liable for what insured cannot recover from the charterer), even when hypothecated
by bottomry (only the excess of its value over the amount secured by bottomry) and
2.b.
in the freightage, which according to the ordinary and probable course of things he would
have earned but for the intervention of a peril insured against or other peril incident to the voyage
Charterer has insurable interest in the ship to the extent that he is liable to be damnified by its loss.
Barratry: Any willful misconduct on the part of the masters or crew, in pursuance of some unlawful
or fraudulent purpose, without the consent of the owners and to the prejudice of the owners interest.
Jettison: Intentional casting overboard of any part of a venture exposed to a peril, whether it be of
the cargo, or the ships furniture or tackle, in the hope of saving the rest of the venture.
Insurable Interest in Marine Insurance: Determined when one will sustain loss from the destruction
of the subject matter or derive benefit from its preservation.
Charter Party: Contract by virtue of which the owner or the agent of a vessel binds himself to
transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of
which the owner or the agent of the vessel for the transportation of goods or persons from one port

to another.
Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of a ship borrows
money for the use, equipment or repair of the vessel for a definite term, and pledges the ship as a
security for repayment, with maritime or extraordinary interest on the account of the maritime risks
to be borne by the lender. It is stipulated in such a contract that if the ship be lost in the course of
the specific voyage or during a specified limited time caused by any of the perils enumerated in the
contract, the lender shall resolutely lose his money.
Loan on Respondentia: Contract akin to that of mortgage made on the goods on board the ship, and
which are to be sold or exchanged in the course of the voyage. The goods serve as the principal
security.
Freightage: Signifies all the benefits derived by the owner, carriage of his own goods, or those of
others.
Concealment: In marine insurance, information or the belief or expectation of a 3rd person, in
reference to a material fact is material.

n Concealment of the following merely exonerates the insurer from the resulting loss
therefrom:
1.a.
2.b.
3.c.
4.d.
5.e.

national character of the insured

liability of the thing insured to capture and detention
liability to seizure from breach of foreign laws of trade
want of necessary documents
use of false and simulated papers

Implied Warranties:
1.a.
that the ship is seaworthy complied with if the ship is seaworthy at the time of
commencement of risk, except: (a) insurance for a specified length of time at the commencement
of every voyage it undertakes during that time; (b) cargo to be transshipped at indeterminate port
each vessel upon which cargo is shipped is seaworthy at the commencement of each particular
voyage
2.b.
that the vessel shall not engage in illegal venture
3.c.
that the vessel shall not deviate from the course of the voyage insured
4.d.
where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that
the ship will carry the requisite documents to show such nationality or neutrality and that it will not
carry any documents which may cast reasonable suspicion thereon
Seaworthiness depends on:
1.a.
2.b.
3.c.

nature of the ship

nature of the voyage
nature of the service

n Seaworthiness of the vessel is required only at the commencement of the risk

n Exceptions:
1.a.
2.b.
3.c.

in a Time Policy commencement of every voyage that must be undertaken

in a Cargo Policy commencement of each particular voyage
in a Voyage Policy commencement of each portion of the voyage

Deviation
1.a.
2.b.
3.c.

a departure from the course of the voyage insured

unreasonable delay in pursuing the voyage
commencement of an entirely different voyage

When is Deviation proper?

1.a.
when caused by circumstances over which neither the master not the owner of the ship has
any control
2.b.
when necessary to comply with a warranty or to avoid a peril whether it is insured against or
not
3.c.
when made in good faith for the purpose of saving human life or relieving another vessel in
distress
4.d.
when made in good faith and upon reasonable grounds of belief in its necessity to avoid a
peril
Loss
1.a.

Actual Total Loss

n a total destruction of the thing insured

n the irretrievable loss of the thing by sinking or by being broken up
n any damage to the thing which renders it valueless tot he owner for which he held it
n any other event which effectively deprives the owner of possession, at the port of
destination, of the thing insured
1.b.

Constructive Total Loss gives to the person insured the right to abandon

Average any extraordinary or additional expense incurred during the voyage for the preservation
of the vessel, cargo, or both and all damages to the vessel and cargo from the time it is loaded and
the voyage commenced until it ends and the cargo unloaded
General Average an expense or damage suffered deliberately in order to save the vessel, its cargo,
or both from the real or known risk
Abandonment act of the insured by which, after a constructive total loss, he declares the
relinquishment to the insured of his interest in the thing insured (where the cause of loss is a peril
insured against)

(a)

more than thereof in value is actually lost or would have been expended to recover it

from the peril

(b)

it is injured to such an extent as to reduce its value by more than

(c)
if the thing insured is the ship and the voyage cannot be lawfully performed without
incurring an expense of more than of the whole, or a risk which a prudent man would not
undertake under the circumstances
(d)

if the thing insured is cargo or freightage, and the voyage cannot be performed on

another ship procured by the master within a reasonable time and with reasonable diligence
to forward the cargo without incurring an expense or a risk as stated above

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:
1.a.
2.b.
3.c.
4.d.

must be total and conditional

made within a reasonable time
explicit notice
coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

1.a.
2.b.

insured must have interest at risk

there must be no fraud on the insureds part

Notice of Abandonment:
1.a.
notice)
2.b.
3.c.
4.d.

may be oral or in writing (if oral, written notice must be submitted within 7 days from oral
must be explicit
must specify the particular cause for abandonment
need not be accompanied by proof of interest or loss

Acceptance of Abandonment
1.a.
2.b.
3.c.

may be express or implied (i.e. silence for unreasonable length of time)

conclusive upon the parties and admits the loss and sufficiency of abandonment
irrevocable, unless the ground on which it is made is proved to be unfounded

If insurer refuses to accept a valid abandonment liable as upon actual total loss
Upon actual abandonment
1.a.
2.b.

freightage earned before loss belongs to the insurer of freightage

freightage earned after loss belongs to insurer of ship

Co-insurance: form of insurance in which the person who insures his property for less than the
entire value is understood to be his own insurer for the difference which exists between the true
value of the property and the amount of insurance
Co-insurance applies only where the:
1.a.
2.b.

insurance taken is less than the actual value of the thing insured
loss is partial

Primage increase in freightage

1.24. Fire Insurance

Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the place
where it was intended to burn and ought to be in) and not that caused by friendly fire (fire
which burns in a place where it is intended to burn).
Scope of Fire Insurance:
1.a.
2.b.
3.c.
4.d.

fire
lightning
windstorms
tornado

5.e.
6.f.

earthquake
other allied risks

When does alteration in the use or condition entitle the insurer to rescind the contract?
1.a.
2.b.
3.c.

such alteration violates a provision in the policy

it was made without the insurers consent
it is done within the insureds control, and it increases the risk of loss or damage

Rules:
1.a.
policy shall not protect the insured from injury consequent upon his negligent use or
management of fire, so long as it is confined to the place where it ought to be
2.b.
if it escapes, even though the insured was negligent, the insurer is liable
3.c.
even though a fire may remain in its proper place, it may become hostile if it by accident,
becomes so extensive as to be beyond control
Options of the Insurer
1.a.
purchase the property at appraised valuation
2.b.
restore the property damaged contract of insurance is discharged and parties enter into a
new contract of insurance
1.25. Casualty Insurance: Any injury that is intended, unexpected and unusual, even though it
results from an act or even which was intelligently done.
Insurer is Liable for death/injury to insured:
1.a.
by his own hand while insane
2.b.
by taking poison by mistake
3.c.
by overdoes of drugs administered or taken by mistake, by ignorance or material
pathological conditions
4.d.
by unexpected bacterial infection consequent upon doing acts, even though such acts were
intentionally done
5.e.
by unprovoked violence of others
Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

1.a.
motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose name
such vehicle is registered with the LTO
2.b.
land transport operator or one who is the owner of a motor vehicle or vehicles being used for
conveying passengers for compensation (including school buses)
No Fault Indemnity Clause: The insurance company shall pay any claim for death or bodily injuries
sustained by a passenger or 3rd party without the necessity of proving fault or negligence of any kind
subject to certain conditions. This does not apply to property damage.
1.26. Suretyship an agreement whereby the surety guarantees the performance of the principal or
obligor of an obligation or undertaking in favor of a 3rd party called the obligee
1.27. Life Insurance: an insurance in human life and insurance appertaining thereto or connected
therewith may be payable:
1.a.
on the death of the insured
2.b.
on his surviving a specified period
3.c.
otherwise, contingently on the continuance or cessation of life

(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:
1.a.
Whole Life or Ordinary Policies here, the insured agrees to pay annual, semi-annual or
quarterly premiums while he lives. The insurer agrees to pay the face value of the policy upon the
death of the insured.
2.b.
Limited Payment Life Policy premiums paid only for a specified period of years.
3.c.
Term Policy insurers liability arises only upon the death of the insured within the agreed
term as period. If the latter survives the period, the contract terminates and the insurer is not liable
4.d.
Endowment Policy insurer agrees to pay a certain sum to the insured if the latter outlives a
designated period; if he dies before that time, the proceeds are paid to the beneficiary
5.e.
Life Annuity debtor binds himself to pay an annual pension or income during the life of one
or more persons in consideration of a capital consisting of money or other property, whose ownership
is transferred to him with the burden of income
1.28. The Business of Insurance
1.a.
Life or Endowment Policies

Grace Period 30 days for the payment of any premium due after the first premium has been
paid
Period of Incontestability after the lapse of 2 years from the date of issue or date of approval
of last reinstatement
Reinstatement of Policy within 3 years from the date of default of premium, upon:
1.a.
2.b.

production of evidence of insurability, and

payment of all overdue premiums and any indebtedness to the company upon said policy

Exceptions:
1.a.
2.b.

if cash surrender value has been paid

if period of extension has expired

1.b.

Claims Settlement

Unfair Claims Settlement Practices:

(a)

knowingly misrepresenting to claimants pertinent facts or policy provisions relating to

coverage at issue
(b)

failing to acknowledge with reasonable promptness pertinent communications with

respect to claims arising under its policies

(c)

failing to adopt or implement reasonable standards for the prompt investigation of

claims arising under its policies

(d)

no attempt in good faith to effectuate prompt, fair and equitable settlement of claims

submitted in which liability has become reasonably clear

(e)

compelling policy holders to institute suits to recover the amount due under its policies

by offering with no justifiable reason an amount substantially less than that ultimately
recovered in suits brought by them

Proceeds of Life Insurance payable within 60 days after:

(a)

presentation of claims, and

(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the ceiling
prescribed by the Monetary Board unless based on the ground that the rate is fraudulent)
Proceeds of Policies other than Life payable:
(a)

upon proof of loss

(b) upon ascertainment of loss or damage (if not made within 60 days of proof of loss,
payable in 90 days)
1.c.

Power of Commissioner to Suspend/Revoke License

(a)

if insurance contract is in unsound condition

(b)

if it has failed to comply with the provisions of law or regulations obligatory upon it

(c)

its conditions or methods of business s such as to render its proceedings hazardous to

the public or to its policy holders

(d)

that its paid up capital stock, or its available cash assets, or its security deposits, as the

case may be, is impaired or deficient

(e)

that the margin of solvency required of each company is deficient

Insurance Agent any person who for compensation solicits or obtains insurance on behalf of
any insurance company or transacts for a person other than himself an application for a policy
or contract of insurance to or from such company or offers or assumes to act in negotiating of
such insurance. He must be first licensed as such before doing any acts as insurance agent.
Insurance Broker any person for any compensation, commission or any other thing of value,
acts, or aids in any manner in soliciting, negotiating or procuring the making of any insurance
contract or in placing risk or taking out insurance, on behalf of an insured other than himself.
A license is required.
WAREHOUSE RECEIPTS LAW
1.1.

Warehouse a building or place where goods are deposited and stored for profit.

1.2.

Warehouseman person lawfully engaged in the business of storing goods for profit.

Only a warehouseman may issue warehouse receipts.

1.3.
Warehouse Receipt written acknowledgment by a warehouseman that he has received and
holds certain goods therein described in store for the person to whom it is issued.
1.4.

Non-negotiable Receipt receipt deliverable to a specified person.

1.5.

Negotiable Receipt receipt deliverable to order or to bearer.

1.6.
1.a.
2.b.
3.c.

Essential Terms which MUST be embodied in a Warehouse Receipt:

location of the warehouse
date of the issue of the receipt
consecutive number of the receipt

4.d.
statement whether the goods received will be delivered to bearer, or a specified person, or
his order
5.e.
rate of storage charges
6.f.
description of the goods or packages containing them for identification purposes
7.g.
signature of the warehouseman
8.h.
statement of the amount of advances made and of liabilities incurred for which the
warehouseman claims as lien
1.7.
Effect of omission of any of the essential terms:
1.a.
The validity of the warehouse receipt is not affected.
2.b.
The warehouseman shall be held liable for damages to those injured by his omission.
3.c.
The negotiability of the warehouse receipt is not affected.
4.d.
The issuance of a warehouse receipt in the form provided by the law is merely permissive
and directory and not mandatory in the sense that if the requirements are not observed, then the
goods delivered for storage become ordinary deposits.
1.8.
Terms which may be inserted in a Warehouse Receipt: Any other terms except (a) those
contrary to the provisions of this Act; (b) those that would impair a warehousemans obligation to
exercise that degree of care in the safekeeping of the goods entrusted to him
1.9.
Marks to be made on a warehouse receipt:
1.a.
A non-negotiable receipt must be clearly marked non-negotiable or not negotiable,
otherwise, the holder of the receipt who purchased it for value and who supposed it to be negotiable,
may treat it as negotiable.
2.b.
Duplicate receipts must be so marked, otherwise, the warehouseman is held liable for all
damages suffered by a holder believing the same to be the original.
1.10. Warranties of a warehouseman as to duplicate receipts:
1.a.
The duplicate is an accurate copy of the original receipt.
2.b.
Such original receipt is uncancelled at the date of the issue of the duplicate.
1.11. Effects of alteration on the liability of the warehouseman:
1.a.
If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent
or not, authorized or not, the warehouseman is liable on the altered receipt according to its original
tenor.
2.b.
If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable according to the
terms of the altered receipt.
3.c.
If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the warehouseman is
liable on the altered receipt according to its original tenor.
4.d.
If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman is liable:

(1)

to the purchaser of the receipt for value and without notice of the alteration according to

the tenor of the altered receipt

(2)

to the alterer, according to the terms of the original receipt

(3) to subsequent purchasers with notice of the alteration, according to the terms of the
original receipt
1.12. Effects of misdescription of goods:
1.a.
A warehouseman is under the obligation to deliver the identical property stored with him and
if he fails to do so, he is liable directly to the owner.

2.b.
As against a bona fide purchaser of a warehouse receipt, the warehouseman is estopped
from denying that he has received the goods described in the receipt.
3.c.
If the description consists merely of marks or label upon the goods or upon the packages
containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in
the marks or labels.
1.13. Principal Obligations of a Warehouseman:
1.a.
To take care of the goods entrusted to his safekeeping
General Rule: A warehouseman is required to exercise such degree of care which a reasonable
careful owner would exercise over similar goods of his own. He shall be liable for any loss or injury to
the goods caused by his failure to exercise such care.
Exception: He shall not be liable for any loss or injury which could not have been avoided by the
exercise of such care.
Exception to the Exception: He may limit his liability to an agreed value of the property received in
case of loss. He cannot stipulate that he will not be responsible for any loss caused by his negligence.
1.b.
To deliver the goods to the holder of the receipt or the depositor upon demand, provided
demand is accompanied with:

(1)

an offer to satisfy the warehousemans lien;

(2)

an offer to surrender the negotiable receipt properly endorsed. If the receipt is non-

negotiable, any person lawfully entitled to the possession of the goods may be entitled to
delivery without surrender of the receipt.
(3) a readiness and willingness to sign an acknowledgment that the goods have been
delivered if such is requested by the warehouseman.
1.14. Persons to whom goods must be delivered:
1.A.
Persons lawfully entitled to the possession of the goods or his agent:

a. persons to whom a competent court has ordered the delivery of the goods
(1)

where a negotiable instrument has been lost or destroyed, the court may order delivery

to a person upon satisfactory proof of such loss or destruction and upon proper posting of a
bond to protect the warehouseman from any liability or expense which he may incur by
reason of the original receipt remaining outstanding.
(2)

where more than one person claims title or possession of the goods the warehouseman

may require all claimants to interplead. The court will then order delivery to the person
having a better right.
1.b.
an attaching creditor Goods, while in the possession of the warehouseman and covered by
a negotiable receipt, cannot be attached or levied upon under an execution unless:

(I)

the negotiable receipt is first surrendered to the warehouseman, or

(ii)

its negotiation is enjoined, or

(iii) the receipt is impounded by the court

c. to the purchaser in case of sale of the goods by the warehouseman to enforce his lien

1.d.

to the purchaser where perishable or hazardous goods are sold at private or public sale

1.B.
1.a.
2.b.

If goods are covered by a non-negotiable receipt:

a person entitled to the delivery by the terms of the receipt, or
one who has written authority from letter a

1.C.
If goods are covered by a negotiable receipt, a person in possession of the receipt, the terms
of which the goods are deliverable:
1.a.
to him or order
2.b.
to bearer
3.c.
indorsed to him
4.d.
indorsed in blank by the person whom delivery was promised
1.15. When is there Misdelivery?

When the warehouseman delivers the goods to a person who is not in fact lawfully entitled to
the possession of the goods because:
1.a.
2.b.

(1)

the person does not fall under letter B or C above; or

the person falls under letter B or C but prior to delivery, the warehouseman had either:

been requested by the person lawfully entitled to the delivery not to make such delivery,

or
(2)

had information that the delivery about to be made was to one not lawfully entitled to

the possession of the goods

1.16. Effects of Misdelivery:

The warehouseman shall be liable for conversion to all having a right to property or
possession of the goods.
1.17. What happens if there is proper delivery or partial delivery but the warehouseman fails to
cancel the receipt or record on the receipt of such partial delivery?
1.a.
If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he
fails to take the receipt and cancel it, then he is still liable to one who purchases for value and in
good faith such receipt.
2.b.
If he makes partial delivery of the goods but fails to record the partial delivery on the receipt
then he may still be held liable for the entire receipt to one who purchases for value and in good faith
such receipt.
1.18. Lawful excuses for refusal to deliver goods:
1.a.
The warehouseman can refuse to deliver the goods if he has acquired title or right to the
possession of the goods:

(1)

directly or indirectly from a transfer made by the depositor at the time of the deposit for

storage or subsequent thereto; or

(2)

from the warehousemans lien

1.b.
If someone other than the depositor or person claiming under the depositor has a claim to
the title or possession of the goods and the warehouseman has information of such claim, the
warehouseman shall be excused from liability for refusing to deliver the goods either to the depositor
or person claiming under him until he has had a reasonable time to ascertain the validity of the

adverse claim or to bring legal proceedings to compel all claimants to interplead.

1.c.
The warehouseman will not be required to deliver the goods if such had been lost. But this is
without prejudice to liabilities which may be incurred by him due to such loss.
1.d.
The warehouseman having a valid lien against the person demanding the goods may refuse
to deliver the goods to him until the lien is satisfied.
1.e.
If goods have been lawfully sold or disposed of because of their perishable or hazardous
nature, the warehouseman shall not be liable for failure to deliver the goods.
1.19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming
under him on the ground that adverse title to the goods belongs to a third person.
1.20. Rules as regards Co-mingling of Deposited Goods:
General Rule: A warehouseman may not co-mingle goods belonging to different depositors or
belonging to the same depositor for which separate receipts had been issued.
Exception: A warehouseman may co-mingle fungible goods of the same kind and grade provided he
is authorized by agreement or by custom.
1.21. Effect of Co-mingling of Goods:
1.a.
The different owners become co-owners of the whole mass.
2.b.
The warehouseman shall be severally liable to each depositor for the care and redelivery of
his share of such mass to the same extent and under the same circumstances as if the goods had
been kept separate.
1.22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)

Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of
preliminary injunction and serve the same on the depositor before he has a chance to
negotiate the receipt. Once enjoined, there will be no longer a danger that a 3rd person will
be prejudiced so the goods may now be attached, levied upon, or that the vendors lien or the
right of stoppage in transit be exercised.
1.23. Warehousemans Lien
Extent of Warehousemans Lien:

A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands
for:
1.a.
all lawful charges for storage and preservation of the goods
2.b.
all lawful claims for money advances, interest, insurance, transportation, labor, weighing,
cooperating and other charges and expenses in relation to such goods
3.c.
all reasonable charges and expenses for notice and advertisements of sale and for sale of the
goods where default has been made in satisfying the warehouse lien
Goods Subject to lien:
1.a.
goods belonging to the depositor who is liable to the warehouseman as debtor whenever
such goods are deposited and
2.b.
goods belonging to other persons stored by the depositor who is liable to the warehouseman
as debtor with authority to make a valid pledge
How is a lien enforced?
1.a.

by refusing to deliver the goods until the lien is satisfied

2.b.
by causing the extrajudicial sale of the property and applying the proceeds to the value of
the lien
3.c.
by filing a civil action for unpaid charges or by way of counterclaim in an action to recover
the property from him
How is a lien lost?
1.a.
when the warehouseman voluntarily surrenders possession of the goods without requiring
payment of his lien; or
2.b.
when the warehouseman wrongfully refuses to deliver the goods when a demand is made
with which he is bound to comply
1.24. Negotiation and Transfer of Receipts
How do we negotiate a receipt deliverable to order?
1.a.
2.b.

by indorsing it in blank thereby making it deliverable to bearer or

by special indorsement which would require further indorsements for further negotiations.

In both cases, the indorsements must be coupled with delivery.

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation. Physical delivery of the instrument will suffice.
But if the instrument is indorsed specially, the bearer character of the receipt is destroyed
and for further negotiation, there will be a need for indorsement.
Who may negotiate warehouse receipts?
1.a.
2.b.

the owner of the receipt, or

the person to whom possession of the receipt was entrusted to by the owner

Rights acquired by a person to whom the receipt has been negotiated:

1.a.
the title of the person negotiating the receipt over the goods covered by the receipt
2.b.
the title of the person (depositor or owner) to whose order by the terms of the receipt the
goods were to be delivered
3.c.
the direct obligation of the warehouseman to hold possession of the goods for him, as if the
warehouseman directly contracted with him
May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right. That is why
they are called non negotiable receipts. But they may be transferred or assigned by delivery.
Rights of a person to whom a non negotiable receipt has been transferred:
1.a.
2.b.
3.c.

the title to the goods as against the transferor

the right to notify the warehouseman of the transfer thereof and
the right thereafter to acquire the obligation of the warehouseman to hold the goods for him

Distinction between a non negotiable receipt from a negotiable receipt with regard to attachment or
execution upon goods:

Non-negotiable Receipt

Negotiable Receipt

Prior to notification of the warehouseman by the The goods cannot be attached or levied under an
transferor or transferee, the warehouseman is not execution unless the receipt be first surrendered

bound to the transferee whose right may be

to the warehouseman or its negotiation enjoined.
defeated by a levy of an attachment or execution
upon the goods by the creditor of the transferor
or by a notification to such warehouseman of the
subsequent sale of the goods.
Rights of a person to whom a negotiable receipt has been transferred, not indorsed:
1.a.
the right to the goods as against the transferor
2.b.
the right to compel the transferor to indorse the receipt. But if the intention of the parties is
that the receipt should merely be transferred, the transferee has no right to require the transferor to
indorse the receipt.

Note: Negotiation takes effect as of the time when the indorsement is actually made.
Warranties of a person negotiating or transferring a receipt:
1.a.
2.b.
3.c.
4.d.

the receipt is genuine

he has a legal right to negotiate or transfer it
he has knowledge that would impair the validity or worth of the receipt and
he has a right to transfer the title to the goods and that the goods are merchantable

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the
debt from a person does not warrant the genuineness of the receipt not the quality or quantity of the
goods therein described.
It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has
been issued to require the negotiation of the receipt to him, otherwise his failure will have the same
effect as an express authorization on his part to the seller, mortgagor, or pledgor in possession of
such receipt to make any subsequent negotiation. The subsequent purchaser must have taken the
receipt in good faith and for value.
A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he
purchases from the owners agent within the actual or apparent scope of his authority. In sum,
negotiation is valid despite having been made in breach of trust.
Distinctions between a negotiable instrument and a negotiable warehouse receipt:

Negotiable Instrument

When a negotiable instrument is altered

deliberately, it becomes null and void.

Negotiable Warehouse Receipt

When a warehouse receipt is altered, it is still

valid but it may be enforced only in accordance
with its original tenor.
If a negotiable instrument is originally payable to If a warehouse receipt, payable to bearer, is
bearer, it will always remain so payable
indorsed specially, it will be converted into a
regardless of the way it is indorsed, whether
receipt deliverable to order and can only be
specially or in blank.
negotiated further by indorsement and delivery.
A holder in due course may be able to obtain a An indorsee even if a holder in due course
title better than that which the party who
obtains only such title as the person negotiating
negotiated the instrument to him had.
has over the goods.
The indorsement of a negotiable instrument has a The indorsement of a warehouse receipt amounts
double effect. It is at the same time a
merely to a conveyance by the indorser.
conveyance of the instrument and a contract the Accordingly, an indorser of a receipt shall not be
indorser has with the indorsee that on certain
liable to the holder if, for example, the
conditions, the indorser will pay the instrument if warehouseman fails to deliver the goods because

the party primarily liable fails to do so.

they were lost due to his fault or negligence.

GENERAL BONDED WAREHOUSE LAW

Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling must:
1.a.
obtain prior license from the Bureau of Commerce
2.b.
file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against
which bond depositors may sue directly
3.c.
open to the public, no discrimination allowed
4.d.
liable for double market value should he accept goods in excess of the capacity of warehouse
if goods are damaged or destroyed
Note: for palay and corn license, a bond with the National Grains Authority is required; also an
insurance cover is required.

Uniform Currency Law

1.1.
1.a.
2.b.

Obligations Null and Void

obligations payable in gold/foreign currency
obligations payable in Philippine currency but measured in gold/foreign currency

1.2.
Exempt Transactions
1.a.
government to government transactions or with international banking institutions
2.b.
transactions affecting high priority economic projects
3.c.
forward exchange transactions between banks
4.d.
import and export and other international banking, financial, investment and industrial
transactions
1.3.

Merchants and Commercial Transactions

Classes of Investments:
1.a.
Permitted one allowed without need of prior authority from the Philippine Government. If
registered status, invest up to extent as not to affect its registered status. If enterprise not
registered, investment not to exceed 40%.
2.b.
Permissible invest in excess of 40% in unregistered enterprise but with prior approval of
BOI
3.c.
Pioneer Area (a) involves manufacturing, processing, production of product not produced
at all/produced in non-commercial scale; (b) uses a design, scheme, formula that is new and untried
in the Phils.; (c) agricultural activities/services essential to the attainment of food sufficiency; (d)
produces non-conventional fuels/utilizes non-conventional sources of energy (all others are nonpioneer)
1.4.
1.a.
2.b.
3.c.

Absolutely Disqualified to become Merchants

serving penalty of civil interdiction
insolvent
absolutely disqualified by special laws

1.5.
1.a.
2.b.
3.c.
4.d.
5.e.

Relatively Disqualified
judicial and prosecuting officials in active service
administrative, economic, military chiefs
government collection agents and custodian of funds
stock and commercial brokers
by special laws cannot trade in specified territories

1.6.
Books a Merchant must keep
1.a.
book of inventories and balances, statement of assets, liabilities and capital
2.b.
journal of day to day operations
3.c.
ledger for classifying accounts
4.d.
copying book for letters and telegrams; if juridical person, include book of minutes and stock
and transfer book
1.7.
1.a.
2.b.
3.c.
4.d.

Probative Value of Merchants Book

evidence against merchants themselves
in case of conflicts between 2 books that which s properly kept prevails
if one keeps books and the other does not and cannot explain why, the former prevails
if both books are properly kept and there is a conflict, other proofs can be resorted to

1.8.
Commercial Contracts by Correspondence are perfected from the moment the offeree
accepts the offer, even before knowledge of said acceptance by the offeror. This does not apply to
deposit, guaranty, sales, loan, agency, partnership.
1.9.
Joint Account Partnership business arrangement whereby 2 or more persons interest
themselves in the business of another by making contributions thereto and participating in the
results thereof
1.a.
only one member is ostensible, others are silent
2.b.
no common name
3.c.
only ostensible partners can sue/be sued
4.d.
no juridical personality

Transportation Law
1.1.
Contract of Transportation contract whereby a certain person or association of persons
obligate themselves to transport persons, things, news, from one place to another for a fixed price
1.2.
Parties to the Contract of Transportation:
1.a.
Shipper one who gives rise to the contract of transportation by agreeing to deliver the
things or news to be transported, or to present his own person or those of other or others in the case
of transportation of passengers
2.b.
Carrier/Conductor one who binds himself to transport persons, things, or news, as the case
may be, or one employed in or engaged in the business of carrying goods for others for hire
1.3.
Common Carrier person, corporation, firm, association engaged in the business of carrying
or transporting passengers, goods or both, by land, water, air, for compensation, offering services to
the public; must exercise extraordinary diligence

Private Carrier not engaged in the business of carrying; no public employment; undertakes
to deliver goods/passengers for compensation; requires only ordinary diligence
4. Requisites of Caso Fortuito
1.a.
2.b.
3.c.
4.d.

event independent of human will

occurrence makes it impossible for debtor to perform in normal manner
debtor free from aggravation/participation
impossible to foresee or avoid

1.5.

Contributory negligence does not entitle passengers to recover moral/exemplary damages.

1.6.

Bill of Lading written acknowledgment of receipt of goods and agreement to transport them

to a specific place to a person named or his carrier

It is not indispensable to the creation of a contract of carriage. The contract itself arises from
the moment goods are delivered by shipper to carrier and the carrier agrees to carry them.
The function of the Bill of Lading: the legal basis of the contract between the shipper and
carrier shall be the bills of lading, by the contents of which all disputes which may arise with
regard to their execution and fulfillment shall be decided, no exceptions being admissible
other than forgery or material errors in the drafting thereof.
Carriers responsibility starts from the moment he receives unconditionally the merchandise
personally or through an agent and lasts until he delivers them actually or constructively to
the consignee or his agent.
Mere delay in the delivery of goods to consignee does not give right to refuse goods only
breach of contract, ergo damages. If delay is unreasonable, then he may refuse to accept
and make carrier liable for conversion.
1.7.
Vessels those engaged in navigation, whether coastwise or on the high seas, including
floating docks, pontoons, dredges, scows and any other floating apparatus destined for the services
of the industry or maritime commerce
1.8.
1.a.
2.b.
3.c.
4.d.

Persons Participating in Maritime Commerce:

ship owner and/or ship agent
captain or master
other officers of the vessel
supercargo

1.9.
Liability of Ship owners and Ship agents:
1.a.
civil liability for the acts of the captain
2.b.
civil liability for contracts entered into by the captain to repair, equip and provision the
vessel, provided that the amount claimed was invested for the benefit of the vessel
3.c.
civil liability for indemnities in favor of 3rd persons which may arise from the conduct of the
captain in the care of the goods which the vessel carried, as well as for the safety of the passengers
transported
Ship owner/ship agent not liable for the obligations contracted by the captain if the latter exceeds
his powers and privileges inherent in his position of those which may have been conferred upon him
by the former. However, if the amount claimed were made use of for the benefit of the vessel, the
ship owner or ship agent is liable.
1.10. Doctrine of Limited Liability liability of shipowners is limited to amount of interest in said
vessel because of the real and hypothecary nature of maritime law such that where the vessel is
entirely lost, the obligation is extinguished.

Exceptions: (1) vessel is not abandoned

(2)

claims under workmens compensation

(3)

injury/damage due to shipowners fault

(4)

vessel is insured

The doctrine also applies for claims due to death or injuries to passengers, aside from claims for

goods.
In abandoning the vessel, there is no procedure to be followed. There is neither a prescriptive
period within which the ship owner can make the abandonment. He may do so for so long as he is
not estopped from invoking the same or do acts inconsistent with abandonment.
1.11. Roles of the Captain:
1.a.
general agent of the ship owner
2.b.
technical director of the vessels
3.c.
represents the government of the country under whose flag he navigates
1.12. Loan on Bottomry made by shipowner/ship agent guaranteed by vessel itself, repayable
upon arrival at destination
1.13. Loan In Respondentia taken on security of the cargo repayable upon the safe arrival at cargo
destination
1.14. Accidents and Damages in Maritime Commerce:
1.a.
Averages
2.b.
Arrivals Under Stress
3.c.
Collisions
4.d.
Shipwrecks
1.15. Average:
1.a.
all extraordinary or accidental expenses which may be incurred during the voyage for the
preservation of the vessel or cargo or both
2.b.
all damages or deterioration which the vessel may suffer from the time it puts to sea at the
port of departure until it casts anchor at the port of destination, and those suffered by the
merchandise from the time they are loaded in the port of shipment until they are unloaded in the
port of their consignment
1.16. Simple Average expenses/damages caused to the vessel/cargo not inured to common
benefit and profit of all the persons interested in the vessel and her cargo; borne by respective
owners
1.17. General Average expenses/damages deliberately caused in order to save the vessel, its
cargo or both from a real and known risk

Requisites:
1.a.
2.b.
3.c.
4.d.

deliberately incurred
intended to save vessel and cargo or both
from real and known risk
there is success

1.18. Formalities for Incurring Gross Average:

1.a.
there must be an assembly of the sailing mate and other officers with the captain including
those with interests in the cargo
2.b.
there must be a resolution of the captain
3.c.
the resolution shall be entered in the log book, with the reasons and motives and the votes
for and against the resolution
4.d.
the minutes shall be signed by the parties
5.e.
within 24 hours upon arrival at the first port the captain makes, he shall deliver one copy of
these minutes to the maritime judicial authority thereat

1.19. Arrivals under Stress arrival of the vessel at a port not of destination on account of (a) lack
of provisions; (b) well-founded fear of seizure; (c) by reason of accident of the sea disabling it to
navigate

When Not Lawful:

1.a.
2.b.
3.c.
4.d.

lack of provisions due to negligence to carry according to usage and customs

risk of enemy not well known or manifest
defect of vessel due to improper repair
malice, negligence, lack of foresight or skill of captain

1.20. Collision impact of 2 vessels both of which are moving

1.21. Allision striking of a moving vessel against one that is stationary
1.22. Cases of Collision:
1.a.
due to the fault, negligence or lack of skill of the captain, sailing mate or the complement of
the vessel ship owner liable for the losses and damages (Culpable Fault)
2.b.
due to fortuitous event or force majeure each vessel and its cargo shall bear its own
damages (Fortuitous)
3.c.
it cannot be determined which of the 2 vessels caused the collision each vessel shall suffer
its own damages, and both shall be solidarily responsible for the losses and damages occasioned to
their cargoes (Inscrutable Fault)
1.23. Error in Extremis sudden movement made by a faultless vessel during the 3rd zone of
collision with another vessel which is at fault, even if the said movement is wrong, no responsibility
will fall on said vessel
1.24. Shipwreck denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by
the waves, by running against another vessel or thing at sea or on coast where the vessel is
rendered incapable of navigation
1.25. Salvage the compensation allowed to persons by whose voluntary assistance a ship at sea
or her cargo or both have been saved in whole or in part from an impending peril, or such property
recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture; a service which one
person renders to the owner of a ship or goods by his own labor, preserving the goods or ship which
the owner or those entrusted with the care of them either abandoned in distress at sea or are unable
to protect and secure; a permit is required to engage in the salvage business
1.26. Derelict a ship or cargo which is abandoned and deserted at sea by those who are in charge
of it, without any hope of recovering it, or without any intention of returning it
1.27. Elements of a Valid Salvage:
1.a.
a marine peril
2.b.
service voluntarily rendered when not required as an existing duty or from special contract
3.c.
success, in whole or in part, or that the services rendered contributed to such success
1.28. Contract of Towage contract whereby a vessel usually motorized pulls another from one
place to another for compensation. It is a contract of services.

1.29. Difference between Towage and Salvage:

Salvage

Towage

crew of salvaging ship is entitled to salvage, and crew of the towing ship does not have any
can look to the salvaged vessel for its share
interest or rights with the remuneration pursuant

salvor takes possession and may retain

possession until he is paid
court has power to reduce the amount of
remuneration if unconscionable

to the contract
tower has no possessory lien; only an action for
recovery of sum of money
court has no power to change amount in towage
even if unconscionable

Carriage of Goods by Sea Act

1.1.
1.a.
2.b.
3.c.
4.d.

When Applicable:
contracts for the carriage of goods
by sea
to and from Philippine ports
in foreign trade

1.2.
Notice of Loss or damage must be given in writing to the carrier or his agent at the port of
discharge or at the time of the removal of the goods into the custody of the person entitled to
delivery. If the loss or damage is not apparent, the notice must be given within 3 days of delivery.
However, the carrier shall be discharged from all liability in respect of loss or damage of goods unless
suit is brought within 1 year after delivery of the goods or the date when the goods should have been
delivered. Notice of loss, if not given, that fact shall not affect or prejudice the right of the shipper to
bring suit within the 1 year prescriptive period.

Warsaw Convention
1.1.
1.a.
2.b.

When Applicable:
international transport by air
transport of persons, baggage, or goods

1.2.
Liabilities under the Convention:
1.a.
damage sustained in the event of the death or wounding of a passenger taking place on
board the aircraft or in the course of any of the operations of embarking or disembarking
2.b.
loss or damage to any check baggage or goods sustained during the transport by air
3.c.
delay in the transport by air of passengers, baggage, or goods
Enumeration of causes of action as above stated is not an exclusive list. (Northwest Airlines vs.
Cancer)
1.3.
Meaning of Transport by Air period during which the baggage or goods are in charge of the
carrier, whether in an airport or on board an aircraft, or in the case of landing outside an airport, in
any place whatsoever
1.4.
1.a.
2.b.
3.c.
4.d.

Action for damages must be brought at the option of the plaintiff, either:
before the court of the domicile of the carrier;
court of principal place of business of carrier;
court where he has a place of business through which the contract has been made;
before the court at the place of destination

1.5.
1.a.
2.b.
3.c.

Convention provides for a limitation of liability:

for each passenger limited to 125,000 francs
for goods and checked in baggage limited to 250 francs per kilogram
for hand carry limited to 5,000 francs per passenger

When can you not avail of this limitation?

(1)

willful misconduct

(2)

default amounting to willful misconduct

(3)

accepting passengers without ticket

(4)

accepting goods without airway bill or baggage without baggage chec

1.6.
The right to damages shall be extinguished if an action is not brought within 2 years from the
date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or
from the date on which the transportation stopped.
1.7.

Notice requirement: damage to baggage : within 3 days from receipt

damage to goods: within 7 days from receipt

delay: within 21 days from receipt
Failure to file written notice, no action shall lie against the carrier, save in the case of fraud on his
part.

1.8.

Notice Requirements:

COGSA

loss/damage apparent
loss/damage not
apparent
damage of baggage

Code of Commerce

Warsaw Convention

protest at time of receipt protest at time of receipt

of goods
of goods
protest within 3 days
protest within 24 hours
from delivery
after receipt
protest within 3 days
from receipt
within 7 days from
receipt
within 21 days from
receipt

damage of goods
delay
Public Service Act

1.1.
Every person that may own, operate, manage, control in the Philippines, for
hire/compensation with general/limited clientele whether permanent, occasional, accidental, and
done for a general business purpose any common carrier, shipyard, electric light, heat and power
and public utility.
1.2.
Public Utility business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation, telephone
or telegraph service.
1.3.
Prior Operator Rule before permitting a new operator to invade the territory of another
already established, the prior operator must be given an opportunity to extend its service to meet
the public needs in the matter of transportation.
1.4.
Prior Applicant Rule presupposes a situation where two interested persons apply for a CPC
in the same community over which no person has yet been granted a CPC to operate. If both
applicants equal, then the applicant who applied first will be given the CPC.

1.5.

Distinctions between CPCs and CPCNs

Certificate of Public Convenience

any authorization to operate a public service

issued by the appropriate government agency

Certificate of Public Convenience and Necessity

issued by the appropriate government agency to

a public service to which any political

subdivision has granted a franchise

an authorization issued by the proper government an authorization issued by the proper government
agency for the operation of public services for agency for the operation of public services for
which no franchise, either municipal or
which a franchise is required by law
legislative is required by law
1.6.
Requirements of CPC and franchise:
1.a.
2.b.
3.c.

Filipino citizenship
financial capacity
public convenience

Corporation Law
1.1.
Doctrine of Corporate Opportunity a director is made to account to his corporation, gains
and profits from transactions entered into by him/another competing corporation in which he has
substantial interest, which should have been a transaction undertaken by the corporation. This s a
breach of fiduciary relationship.
1.2.
Doctrine of Piercing the Veil of Corporate Entity it is to disregard for justifiable reasons by
the state the fiction of juridical personality of the corporation separate and distinct from the persons
composing it
1.3.

De Jure Corporation corporation formed with all the requirements of law

1.4.
De Facto Corporation corporation defectively formed from a bona fide attempt to
incorporate under the existing law and exercises corporate powers
1.5.
Corporation by Estoppel a group of persons which holds itself out as a corporation and
enters into a contract with 3rd persons on the strength of such appearance cannot be permitted to
deny its existence in an action under said contract
1.6.
Corporation by Prescription body not lawfully organized as a corporation but has been
recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex.
Roman Catholic)
1.7.
Trust Fund Doctrine the subscribed capital stock of the corporation is a trust fund for the
payment of debts of the corporation which the creditors have the right to look up to satisfy their
credits. Corporations may not dissipate this and the creditors may sue the stockholders directly for
their unpaid subscriptions
1.8.
Voting Shares
1.a.
Founders Shares given rights and privileges not enjoyed by owners of other stocks; right to
vote/be voted in the election of directors shall not exceed 5 years

Non-Voting Shares
1.a.
Preferred Shares issued only with par value; given preference in distribution of assets in
liquidation and in payment of dividends and other preferences stated in the articles of incorporation
2.b.
Redeemable Shares expressly provided in articles; have to be purchased/taken up upon
expiration of period of said shares purchased whether or not there is unrestricted retained earnings
3.c.
Treasury Stocks stocks previously issued and fully paid for and reacquired by the
corporation through lawful means (purchase, donation, etc.)
1.9.
1.a.
2.b.

Exceptions where holders of non-voting shares may vote:

amendments of articles of incorporation
adoption/amendment of by-laws

3.c.
4.d.
5.e.
6.f.
7.g.
8.h.

increase/decrease of bonded indebtedness

increase/decrease of capital stock
sale/disposition of all/substantially all corporate property
merger/consolidation of corporation
investment of funds in another corporation/another business purpose
corporate dissolution

1.10. Preferred Cumulative Participating Share of Stock share entitling its holder to preference in
the payment of dividends ahead of common stockholders and to be paid the dividends ahead of
common stockholders and to be paid the dividends due for prior years and to participate further with
common stockholders in dividend declarations
1.11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock stock deposited
with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions
usually payment of full subscription price
1.12. Over-issued Stock stock issued in excess of authorized capital stock; null and void
1.13. Watered Stock stock issued gratuitously, money/property less than par value, services less
than par value, dividends where no surplus profits exist
1.14. Certificate of Stock written acknowledgment by the corporation of the stockholders interest
in the corporation. It is the personal property and may be mortgaged/pledged. Transfer binds the
corporation when it is recorded in the corporate books. A stockholder who does not pay his
subscription is not entitled to the issue of a stock certificate. The total par value of the stocks
subscribed by him should first be paid.
1.15. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in
corporate books to bind third parties because corporate books only cover absolute transfers. But the
pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the
corporate name.
1.16. Methods of Collection of Unpaid Subscription
1.a.
call, delinquency and sale at public auction of delinquent shares
2.b.
ordinary civil action
3.c.
collection from cash dividends and other amounts due to stockholders if allowed by bylaws/agreed to by him
1.17. A corporation can reacquire stocks in the following cases:
1.a.
eliminate fractional shares
2.b.
corporate indebtedness arising from unpaid subscriptions
3.c.
purchase delinquent shares
4.d.
exercise of appraisal right
1.18. Right of Appraisal
1.a.
amending articles, changing, restricting, enlarging stockholders rights/extending, shortening
corporate life
2.b.
sale/disposition of all/substantially all of corporate assets
3.c.
merger and consolidation
4.d.
investment of funds in another corporation/for a different purpose
1.19. Grounds for Rejection of Registration
1.a.
not in prescribed form
2.b.
purpose illegal, inimical

3.c.
4.d.

treasurers affidavit false

non-compliance with required Filipino stock ownership

1.20. Corporation must organize within 2 years from issuance of certificate of incorporation.

How to organize?
1.a.
2.b.
3.c.

adoption of by-laws
election of Board of Directors
election of officers

But from issuance of certificate, it acquires juridical personality

1.21. Merger one corporation absorbs the other and remains in existence while the other is
dissolved
1.22. Consolidation a new corporation is created and the consolidating corporations are
extinguished
1.23. Theory of General Capacity a corporation is said to hold such powers as are not
prohibited/withheld from it by general law
1.24. Theory of Special Capacity the corporation cannot exercise powers except those
expressly/impliedly given
1.25. Concession Theory a group of persons wanting to create a corporation will have to execute
documents and comply with requirements set by the state before being given corporate personality;
merely a privilege; state may provide causes for which the privilege may be withdrawn
1.26. Acts requiring majority vote of stockholder:
1.a.
filing of issue value of no par value share
2.b.
adoption, amendment, repeal of by-laws
3.c.
compensation and other per diems for directors
1.27. Where similar acts have been approved by the directors as a matter of general practice,
custom and policy, the general manager may bind the company even without formal authorization of
the board of directors
1.28. Powers of stockholders:
1.a.
a direct participation in management where his vote is needed to approve certain
corporate actions
2.b.
indirect participation in management to vote or remove directors
3.c.
proprietary rights
4.d.
remedial rights
1.29. Voting Trust Agreement an agreement between a group of stockholders and trustee for a
term not exceeding 5 years in which control over the stocks is lodged in the trustee. The purpose is
for controlling the voting.
1.a.
in writing, notarized and filed with the SEC and the corporation
2.b.
period not exceeding 5 years
3.c.
cannot be entered into to circumvent the laws against monopolies, illegal combinations in
restraint of trade in fraud
1.30. Cumulative Voting the number of votes that a shareholders number of shares multiplied by
the number of directors may give all said votes to one candidate or he may distribute them as he

may deem fit. Cumulative voting is a matter of right in a stock corporation. In a non-stock
corporation, it cannot be utilized unless allowed by the by-laws/articles
1.31. The power of removal of directors that may be exercised with or without cause cannot apply
to the director representing the minority shareholders. He may only be removed with cause.
1.32. General Rule: If surplus profits exceed the requirements the corporation shall declare
dividends. This is compulsory if the surplus is equal/or more than the paid-up capital.

Exceptions:
1.a.
2.b.
3.c.

justified by approved expansion projects

prohibited by creditor to declare dividends
retention is necessary under existing circumstances

1.33. Business Judgment Rule decisions made by a corporations management body shall not be
interfered with even by the courts unless such acts are oppressive/unconscionable as to violate the
rights of the minority
1.34. Individual Suit one brought to assert a right of a stockholder peculiar to himself
1.35. Representative Suit brought by the stockholder in his own behalf and in behalf of other
stockholders similarly situated, having common cause against the corporation
1.36. Derivative Suit brought by a stockholder for and in behalf of the corporation to
protect/vindicate corporate rights after he has exhausted intra-corporate remedies

Requisites:
1.a.
2.b.
3.c.

cause of action in favor of the corporation

refusal of corporation to sue
injury to the corporation

Although corporations dissolved have 3 years to wind up, they can convey their properties to a
trustee who can continue the suit beyond the 3 year period. The lawyer who handled the case in the
trial court may be considered as trustee for the dissolved corporation with respect to the matter in
litigation only even if no appointment was extended to him. (Selano vs. CA)
In a case filed before dissolution, it may continue even beyond the 3 year period until final
determination of litigation. Otherwise, the corporation in liquidation would lose what justly belongs
to them/be exempt from payment of obligations because of a technicality.
1.37. Foreign Corporations
1.a.
Doing Business continuity of commercial dealings incident to prosecution of purpose and
object of the organization. Isolated, occasional or casual transactions do not amount to engaging in
business. But where the isolated act is not incidental/casual but indicates the foreign corporations
intention to do other business, said single act constitutes engaging in business in the Philippines
2.b.
Instances when unlicensed foreign corporations can sue:

(1)

isolated transactions

(2)

action to protect good name, goodwill, and reputation of a foreign corporation

(3)

contracts provide that Phil. Courts will be venue to controversies

(4) license subsequently granted enables foreign corporation to sue on contracts executed
before the grant of the license

(5)

recovery of misdelivered property

(6)

where the unlicensed foreign corporation has a domestic corporation

1.38. Religious Corporations

1.a.
Corporation Sole special form of corporation; associated with the clergy and consists of 1
person only and his successors; incorporated by law giving them legal capacity and advantage
2.b.
Close Corporations one whose articles provide that its shares shall not be held by more
than 20 persons; its issued stock shall be subject to one or more restrictions on transfer and shall not
be listed in any stock exchange/make public offering
3.c.
Non-stock Corporation one where no part of its income is distributable to its members and
shall be used in furtherance of the purpose of which it was organized
1.39. SEC Jurisdiction
1.a.
original and exclusive jurisdiction

(1)

fraudulent devices and schemes employed by directors detrimental to public interest

(2)

intra-corporate disputes and with the state in relation to their franchise and right to exist

as such
(3)

controversies in the election, appointment of directors, trustees, etc.

(4)

petition to be declared in a state of suspension of payments

1.b.

Grounds for Suspension/Revocation of Certificate of Registration

(1)

fraud in procuring registration

(2)

serious misrepresentation as to objectives of corporation

(3)

refusal to comply with lawful order of SEC

(4)

continuous inoperation for at least 5 years

(5)

failure to file by-laws within the required period

(6)

failure to file reports

(7)

other similar grounds

Revised Securities Act

(Material on the Securities Regulation Code of 2000 to follow)

1.1.
General Rule: All securities before being offered for sale/actual sale to the public must first
be registered and have the proper permit.

Exception:
1.a.
2.b.

exempt securities
securities emanating from exempt transactions

1.2.
1.a.
2.b.
3.c.
4.d.

Exempt Securities
issued by the government subdivisions/instrumentalities
issued by foreign government which the Philippines has diplomatic relations
issued by receiver/trustee of an insolvent approved by the court
issued by building and loan association

5.e.
issued by receiver/trustee of an insolvent approved by the court
6.f.
policy of insurance issued by insurance corporation supervised by the insurance commission
7.g.
security/right/interest in real property including subdivision lot/condominium supervised by
the Ministry of Human Settlements
8.h.
pension plans regulated by BIR/Insurance Commission
1.3.
1.a.
2.b.
3.c.
4.d.
5.e.
6.f.

Exempt Transactions
judicial sale by execution, etc. in insolvency
sale of pledged property/foreclosed property to liquidate an obligation
isolated transactions on securities done by owner/agent
stock transfers emanating from mergers and consolidations
pre-incorporation subscription
securities issued by public service operator to broaden equity base

1.4.
1.a.
2.b.
3.c.
4.d.
5.e.

Grounds for Rejection of Registration

application incomplete/untruthful/omits to state a material fact
issuer/registrant insolvent, violated code/ SEC rules, engages in fraudulent transactions
issuers business not sound
officer, director, stockholders of issuers is disqualified
issue would prejudice the public

1.5.
1.a.
2.b.
3.c.
4.d.
5.e.

Grounds for Revocation

issuer insolvent
violated of Code/SEC rules
fraudulent transaction
dishonesty by issuer/misrepresented prospectus
does not conduct business in accordance with law

1.6.
1.a.
2.b.
3.c.
4.d.
5.e.
6.f.

Acts Prohibited
manipulation of security prices
manipulation of deceptive devices
artificial measures of price control
fraudulent transactions
insider trading
false prospectus, communications, reports

Secrecy if Back Deposits

1.1.
Deposits in banks, including government banks, may not be inquired into by any person,
except:
1.a.
if depositor agrees in writing
2.b.
impeachment cases
3.c.
by court order in cases of bribery and dereliction of duty against public officials
4.d.
deposit is subject of litigation
5.e.
anti-graft cases
6.f.
general and special examination of bank order of the Monetary Board of bank fraud or
serious irregularity
7.g.
re-examination made by an independent auditor hired by a bank to conduct its regular trust

Laws on Intellectual Creation

Copyright

1.1.
What Works are not Protected:
1.a.
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; news of the
day or other miscellaneous facts, having the character of mere items of press information, or any
official text of a legislative, administrative or legal nature as well as any official translation thereof
2.b.
works of the government
3.c.
statutes, rules, and regulations of government agencies and offices
4.d.
speeches, lectures, sermons, addresses and dissertations, pronounced or rendered in courts
of justices or nay administrative agencies in deliberative assemblies and meetings of public
character
1.2.
Fair Use of a Copyrighted Work is not Infringement
1.a.
for criticism, comment, news reporting, teaching, research, scholarship, and similar purposes
2.b.
decompilation: the reproduction of the code and translation of the forms of the computer
program with other programs
1.3.
Factors to Consider in Determining Fair Use:
1.a.
purpose and character of the use, including whether such use is of a commercial nature or
for no profit or educational purposes
2.b.
nature of the copyrighted work
3.c.
amount and substantiality of the portion used in relation to the copyrighted work as a whole
4.d.
effect of use upon the potential market for a value of the copyrighted work
1.4.
Terms of the Protection
1.a.
copyrighted work: lifetime of creator plus 50 years after death (to be computed on the
1st day of January of the year following the death)
2.b.
performances not incorporated in recordings: 50 years from end of year in which the
performance took place
3.c.
sound or image and sound recordings and performances incorporated therein: 50 years from
end of the year in which the recording took place
4.d.
broadcasts: 20 years from the date the broadcast took place
1.5.
Remedies for Infringement
1.a.
injunction
2.b.
actual damages, including legal costs and other expenses, as he may have incurred due to
the infringement as well as the profits the infringer may have made due to such infringement
3.c.
impounding of articles during pendency of the action
4.d.
destruction of all infringing copies and/or devices
5.e.
moral and exemplary damages
1.6.
Criminal Penalties
1.a.
imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense
2.b.
imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to P500,000
for the 2nd offense
3.c.
imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to P1,000,000 for the
3rd/subsequent offenses

IN ALL CASES, subsidiary imprisonment in cases of insolvency

1.7.
1.a.
2.b.

Presumptions:
Presumption of copyright in the work of other subject matter to which the action related
Plaintiff is presumed to be the owner of the copyright

3.c.
The natural person whose name is indicated on a work in the usual manner as the author
shall, in the absence of proof to the contrary, be presumed to be the author of the work. This is
applicable even if the name is a pseudonym, where the pseudonym leaves no doubt as to the
identity of the author.
1.8.
arose.

Prescription: No damages may be recovered after 4 years from time the cause of action

Patents
1.1.
Patentable Inventions any technical solution of a problem in any field o human activity that
is new, involve an inventive step and is industrially applicable shall be patentable. It may be or may
relate to as product, or process or an improvement of any of the foregoing.
1.2.
Non-Patentable Inventions
1.a.
discoveries, scientific theories and mathematical methods
2.b.
schemes, rules and methods of performing mental acts, playing games or doing business,
and programs for computers
3.c.
methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human or animal body

Exception: products and composition for use in any of these methods

1.d.
plant varieties or animal breeds or essentially biological process for the production of plants
and animals

Exception: micro-organisms and non-biological and micro-biological processes

1.e.
2.f.

aesthetic creations
contrary to public order or morality

1.3.
1.a.
2.b.
3.c.

Requisites of Patentability
new, novelty
involves an inventive step;
is industrially applicable

1.4.

Novelty

The novelty requirement in the Code is absolute. Thus, an invention is not considered new if
it forms part of a prior art. A prior art consists of:
1.a.
anything which has been made available to the public anywhere in the world before the filing
date or the priority date of the application, or
2.b.
the whole contents of an application for a patent, utility model, or industrial design
registration, published in the IPO gazette, filed or effective in the Philippines, with a filing or priority
date that is earlier than the filing or priority date of the application, provided that the application
which has validly claimed the filing date of an earlier application (priority date) is prior art with effect
as of the filing date of such earlier application, and provided further, that the applicant and the
inventor identified in both applications are not one and the same
1.5.
Inventive Step an invention involves an inventive step, if having regard to the prior art, it is
not obvious to a person skilled in the art at the time of the filing date of priority date of the
application claiming the invention
1.6.

Industrial Applicability an invention is considered industrially applicable if it can be

produced and used in the industry

1.7.
The First-to-File System if 2 or more persons have made the invention separately and
independently of each other, the right to the patent belongs to the person who filed an application
for such invention, or where 2 or more applications are filed for the same invention, the right of the
patent belongs to the person who has the earliest filing date or the earliest priority date

Under this system, the patent is granted to the inventor who filed his patent application
earlier than others thus simplifying the determination of who is entitled to own the patent.
The First-to-File System increases the rights of the inventor by:
1.a.
guaranteeing the confidentiality of the application prior to its publication
2.b.
giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
3.c.
expanding the rights of the inventor to institute cancellation proceedings for the duration of
the term of the patent. Cancellation proceedings may be filed at any time during the term of the
patent.

Under this system, the applicant declared by final court order as having the right to the
patent may:
1.a.
2.b.
3.c.
4.d.

prosecute the application as his own application in place of the original applicant
file a new patent application in respect of the same invention
request that the application be refused or
seek the cancellation of the patent, if one has already been issued

1.8.

What is the difference between novelty in patents and originality in copyright?

Novelty in Patents even if you do not know of any previous creation, as long as a patent on
the same creation has already been published anywhere in the world, you cannot claim
novelty. No access tot he other creation is no defense.
Originality in Copyright even if there is same creation, as long as you do not copy your own
creation, it is still considered an original creation. No access to the previous creation is a
defense.
1.9.

Non-Prejudicial Disclosure

The disclosure of information contained in the application during the 12 months preceding the
filing date or the priority date of the application shall not prejudice the applicant on the
ground of lack of novelty if such disclosure was made by (a) inventor; (b) a patent office and
the information was contained
1.10. Term of Patent 20 years from the filing date of the application
1.11. Grounds for Compulsory Licensing:
1.a.
national emergency or other circumstances of extreme urgency
2.b.
where public interest, national security, health or the development of other vital sectors of
the national economy as determined by the appropriate agency of the government so requires
3.c.
where a judicial or administrative body has determined that the manner of exploitation by
the owner of the patent or his licensee is anti-competitive
4.d.
in case of public non-commercial use of the patent by the patentee, without satisfactory

reason
5.e.
if not being worked in the Philippines on a commercial scale
1.12. In case of Compulsory Licensing of Patents involving Semi-conductor Technology, the license
may be granted only in case of public non-commercial use or to remedy a practice determined after
judicial or administrative process to be anti-competitive
1.13. Utility Models an invention qualifies for registration as a utility model if it is new and
industrially applicable

no inventive step required for registration

no search and examination required
1.14. Term Protection 7 years after the filing date of application without possibility of renewal
1.15. Industrial Design any composition of lines or colors or any 3 dimensional form, whether or
not associated with lines or colors

Industrial Designs essentially dictated by technical or functional considerations to obtain a

technical result or those that are contrary to public order, health or morals shall not be
protected
1.16. Term of Protection 5 years from filing date of application, renewable for not more than 2
consecutive periods of 5 years each

Insolvency Law

1.1.

Distinguish Suspension of Payment and Insolvency

Suspension of Payment

debtor has enough assets to meet liabilities but

cannot meet them as they fall due
always initiated by debtor

Insolvency

debtor has more liabilities than assets

initiated by creditors/other persons if involuntary;
initiated by debtor if voluntary

1.2.
Fraudulent Preference any act of insolvent which gives rise/has tendency to give preference
to a creditor to the assets of the insolvent prejudicial to the right of other creditors of said insolvent
1.3.
1.a.

Effect on Actions Upon Adjudication of Insolvency

suits pending in court

(1)

secured obligations suspended until assignee appointed

(2)

unsecured obligations terminated except to fix amount of obligation

(3)

foreclosure suits pending continue

1.b.

suit not yet filed cannot be filed anymore, but claims may be presented to assignee

1.4.
1.a.
2.b.
3.c.
4.d.
5.e.
6.f.

Debts and Obligations not Affected by Discharge of Insolvent

assessments due to national and local government
debts due to fraud/embezzlement
debts in which he is bound solidarily
alimony
corporate debts
debts not included in the schedule submitted by debtor

Chattel Mortgage Law

1.1.
The law primarily governs chattel mortgage. Provisions on pledge of NCC in so far as not in
conflict with CML also govern chattel mortgages.
1.2.

Chattel Mortgage may be rescinded for being in fraud of creditors.

1.3.

Growing fruits are covered by chattel mortgage but they may not be pledged.

1.4.
Machinery placed on plant or building owned by another can be the object of chattel
mortgage.
1.5.

General Rule: Chattel Mortgage cannot cover debts subsequently contracted.

1.6.
Rules: Chattel Mortgage cannot cover debts subsequently contracted
1.a.
registered in place where mortgagor resides and where property (chattel) is located. If
mortgagor resides abroad, register in place where property is located.
2.b.
Motor Vehicles: register also in Land Transportation Office
3.c.
Shares of Stock: place of domicile of corporation and shareholder. No need for notation in
books of corporation
4.d.
Vessels: Phil. Coastguard
1.7.
1.a.
2.b.

To be valid against 3rdpersons:

affidavit of good faith
contract must be registered

1.8.

General Rule: In Chattel Mortgage, there is recovery of deficiency judgment.

Exception: when Recto Law applies

1.9.

Requisites of CML:
1.a.
constituted to secure the fulfillment of principal obligation
2.b.
mortgagor is absolute owner of the thing mortgaged
3.c.
persons constituting the mortgage have the free disposal of the property and in the absence
thereof, they be legally authorized for the purpose
4.d.
recorded to bind 3rd persons

1.10. Formal Requisites of CM:

1.a.
2.b.
3.c.
4.d.

substantial compliance with form in Sec. 5 of CML

signed by at least 2 witnesses
must contain an affidavit of good faith
certificate of oath (notarial acknowledgment)

1.11. Affidavit of Good Faith where the parties severally swear that the mortgage is made for the
purpose of securing the obligation specified and for no other purpose and that the same is a just and
valid obligation and not one entered into for fraud

property given in CM must be described to enable the parties or any other person after
reasonable inquiry and investigation to identify it
1.12. Future property may not be covered by CM but when such property is a:
1.a.
renewal of, or in substitution for goods on hand when the mortgage was executed, or
2.b.
purchased with proceeds (not of your own money) of said goods, said property may be
covered by CM
1.13. Criminal Acts removal of chattel to another city or province without written consent of
mortgagee, selling property already pledged, or mortgaged without written consent of mortgagee

1.14. A chattel mortgage may be foreclosed judicially or extra-judicially, in the latter case, before a
notary or sheriff, or creditor or mortgagee when stipulated, even without need of notice (when
mortgagee forecloses)

15. Pactum Commissorium applies to Chattel Mortgage.