2010 PRE-BAR NOTES IN

COMMERCIAL LAW
( This is a compilation of my review notes and lectures for 2010 Bar Examination in
Commercial Law. Feel free to use this as an additional reading for your preparation. But as
the law on Sales says CAVEAT EMPTOR. God bless and Good Luck. Through GOD's mercy and
grace we will achieve what we aspire for.)

LETTERS OF CREDIT
 Doctrine of Independence - the obligation of the bank to pay the beneficiary does not defend
upon the fulfillment of the contract
 The bank has the right to be reimbursed from the applicant of the letter of credit
 Parties
 Applicant - buyer/importer/obligor
 Seller - beneficiary/exporter/seller
 Issuing bank
 Correspondent bank -
 Advising - does not guarantee authenticity of LC
 Paying - agent of issuing bank
 Confirming - lends credence to LC by lesser known bank
 Negotiating
 Doctrine of strict compliance
 Conforms strictly to the agreement of the LC
 Stipulate to be submitted
 Fraud exception rule - exception to the independence of contract
 Does not pertain to the performance of the contract
 Elements
 There is fraud
 Not pertain to the performance of contract
 Unless enjoined will suffer irreparable injury
 Remedy: reimbursement on law on contract
 Is the bank liable as surety? No.
 Kinds of LC
 Commercial LC
 Standby LC - non-sale; contract of loan; consessionaire agreement
 Confirmed LC / unconfirmed LC - w/ confirming bank
 irrevocable LC/ revocable LC - cannot be amended without consent of beneficiary
TRUST RECEIPT LAW
 It is a loan and a surety
 Instances when no criminal prosecution
 When the entrustee is already the owner of goods
 Novation/ compromise
 Cancellation of draft
 loss of the goods without fault of entrustee
 Instances when no civil prosecution
  Not trust receipt
 Fulfillment of the term
 Delivery
 Return? Not extinguish unless paid
 Non-receipt of goods
 Compromise
 Can the goods be mortgage? No. entrustee cannot mortgage. Must have free disposal thereof
CHATTEL MORTGAGE
 Accessory contract to secure the principal obligation
 Unrecorded chattel mortgage is valid with contracting parties
 Registration
 Exceed 500k - place where the property is situated
 Over machinery
 Transported from place - movable property
 Attached to the ground
 Right of redemption in chattel mortgage? none
 Right of redemption
 Extrajudicial foreclosure of real estate mortgage
 Execution sale
 Judicial foreclosure of real estate mortgage
 Right available: equity of redemption
 Within 30 days from default
 Mortgagor pay deficiency? Yes.
 Mortgage not entitle to deficiency
 Stipulation
 Third party mortgage
 Remedies
 Money claims - given up mortgage
 Foreclosure - extra-judicial or judicially
 Real estate mortgage, pledge and anti-chresis - may secure future loan
 Chattel mortgage - secure existing loan
 Except amendment to secure future loan
BANKING LAWS
 Powers of banks
 Accept drafts and issue letter of credit
 Discount promissory notes, bill of exchange and other evidence of indebtedness
 Accept deposit
 Buying and selling foreign exchange
 Accept bonds
 Extends credit
 Purchase real estate
 Limitation to grant loans
 Single borrowers limit (SBL)
 Amount of loan on bank not exceed 25% of the net worth capital
 Secured by warehouse receipt or other documents of title
 Loans limitation on DORSI
  Grant loans on his own shares
 Loan of real estate must not exceed 75% of the book value of real property
 Modes of acquiring real property
 Business
 Dacion
 Execution
 Mortgage
 Limitation on ownership share
 Corporation - 40% aggregate share
 Individual - 40% (filipino)
ANIT-MONEY LAUNDERING LAW
 Covered transaction
 Suspicious transaction
 Justifiable source
 Client not identified
 Transaction not commensurate to financial capacity of client
 Deviates from usual profile
 Doing unlawful activity
FOREIGN CURRENCY DEPOSIT
 Exempt from court order (garnishment)
 Examined only on:
 Money laundering
 One invoking exception is not the owner
 Equitable consideration
 Estate tax - maybe examined
 Escheat - cannot be examined
PDIC LAW
 Only deposits
 Not covered transaction:
 Trust fund
 Money placement
 Investment products
 Fictitious, unfounded deposits
 Unlawful and unsound banking practice after consultation with BSP
 Unlawful activity
 Elements
 Bank receipt deposit
 Closure of bank
 Filed claim within 24 months
 Remedy for failure to file claim - cannot recover with PDIC but can enforce claim
with the bank during liquidation proceeding
 Rules applicable
 Individual accounts insured separately to joint accounts
 In case of joint accounts, divided equally unless otherwise stipulated
 Joint account with a corporation, account belongs with a corporation
 interest on joint account added and insured up to 500k
 Foreign currency - covered
 Deposit outside the country - not covered
 In trust fund - beneficiary can claim
TRUTH IN LENDING ACT
 Require banks/creditor to disclose to borrower true cost of credit
 No hidden charge
 Information included
 Delivery price
 Amount of down payment
 Difference between 1 and 2
 Itemized charges
 Finance charge
 Total amount finance
 Unpaid interest on outstanding balance
 Violation of TLA is not necessarily void
 Effects
 Charges not disclosed need not be paid
 Can be recovered if paid
 Fined for imposition of hidden charge
CORPORATE REHABILITATION
 Technically insolvent
 Venue subject to agreement of the parties or where principal office is located
WAREHOUSE RECEPIT LAW
 While on hands of warehouseman cannot be garnish unless
 Negotiated
 Impounded by court
 Enjoined by court
 Right of the holder superior to unpaid vendor
 Negotiated by indorsement and delivery - negotiable warehouse receipt payable to order
 Negotiated by delivery - negotiable warehouse receipt payable to bearer
CORPORATION CODE
 Piercing the veil of corporate fiction
 Allow the state to disregard the notion of corporation personality of the person
composing it
 Disregard for certain justifiable reason
 Justify wrong
 Defend crime
 Defeat public convenience
 Alter-ego instrumentality
 controlled by another
 End objective
 To make the corporation liable for debts of stockholder who cannot pierce the
corporate fiction
 Can the property of the corporation be transferred to controlling stockholder? No
 Can fierce corporate fiction if the other stockholder is nominal stockholder? No.
 Trust fund doctrine
  Exception
 Reduction of capital stock
 Dissolution/liquidation
 Damages
 Under civil code, in case of libel, the aggrieved person may file damages
 Corporation - moral damages
 Destroy the reputation of the corporation or goodwill
 Causal connection between the two
 Corporate officers
 Personally liable
 Consenting to patently unlawful act
 Bad faith in conducting affairs of corporation
 Issuance of watered stock
 Knowing of such issuance of watered stock
 Binds himself solidarily
 In case of closure and no assets of the corporation, the president and other officers can be held
liable
 The liability determined by corporation code otherwise not liable
 Termination of corporate officer failed to notify DOLE unlawful? Personally liable? No law
declaring lack of notice is unlawful
 Minutes of board meeting
 Not all the board officer not signed the minutes of the meeting? No probative value. No
law requiring minutes to be signed.
 Vacancy
 The board an fill up board vacancy for following causes
 Expiration of term
 Increase in seat
 Removal
 Transfer of shares
 Recorded in books of the corporation
 Death of stockholder, heirs not automatically becomes transferee unless transferred in the
books of registration
 Without payment of tax on transfer of share - criminally liable
 Lien in membership share in non-stock in case of non-payment of dues? No. cannot treat
the share as chattel mortgage in pledge
 Can corporation refuse to transfer share to bank? No.
 Sale of delinquent stock - 6 months limitation
 Not applicable in non-stock corporation
 Close corporation
 Not exceeding 20 stockholders
 Not available for listing
 Restriction in transfer
 Right of first refusal against foreigner? No. foreigner can assign right in favor of filipino.
 Doctrine of corporate negligence
 Hospital is liable foe negligence of doctors
 Doctor liable for not supervising its doctor
 Derivative suit
 Intra-corporate controversy not in the nature of derivative suit - dismiss
 Filed by minority stockholder in behalf of corporation
 Exhaustion of remedies unless the wrongdoer is directors
 Must be stockholder at the time of the suit
SECURITIES REGULATION CODE
 Tender offer - the acquirer must pay the same rate, terms and condition to other shares bought
 Indirect acquisition - required to tender offer provided the person owns at least 35% of the
public corp.
 Investment contract is a security - registered before sold
 Example: multi-layering
 Checks - not securities if payment of obligation to be able to obtain funds to the public - must
be registered
CASE: Cease and decease order; restraining the voting of proxies
 Instances for issuance of CDO
 Prevent fraud or injury to investing public
 Issue CDPO when about to commit act in violation of SRC
 Issued to prevent grave and irreparable damage operate as fraud against the public
 Can CDO be issued ex-parte? Yes
 The CDO is erroneous. Not specified which of the instances was violated
 CDO signed by only one member of the SEC is void
 When is SEC exercise validation by proxy? When proxy will be used in election of
directors
 Non-election purpose - SEC
 Intra-corporate controversy
 Recognizable by RTC
 Action in any of the following cases:\
 Devise, scheme by board of directors to defraud public
 Issues and controversy among directors and stockholders, stockholders and
corporations and state
 Election, termination of officers
 Derivative suit
 Election of corporate suit
 Can RTC order holding of special stockholder's meeting? Yes
 Test of intra-corporate controversy
 Relationship test - stockholder, director or corporation
 Nature of controversy - controversy pertain to the enforcement of the rights and
obligation of stockholder under the corporation
INSURANCE
 Health care agreement subject to documentary stamp tax ? No. not in the nature of
insurance policy.