MERCANTILE LAW PRE-WEEYup BoC Page 1 of 33 COMM LAW PRE-WeEK LETTERS OF CREDIT Qi: What Is the nature of letters of credit? ters of credit are those issued by one merchant to another, or for the purpose of |: Le _ ssaction. [Art. 567, Code of Commerce] ‘attending to a commercial tran letter of credit is sui generis, but to understand it as a secured transaction, it is appropriately viewed as an original undertaking by the Issuer (usually a bank) to substitute its financial Strength for that of another (the applicant) with the undertaking to be conditioned on the presentation ofa draft or a demand for payment by the beneficlary. [Transfield Philippines, Pre v. Luzon Hydo Corporation Australia, et al. (2004)] 2: What are the essential conditions of letters of credit? A2: The essential conditions of letters of credit shall be: 1 To be issued in favor of a determined person and rot to order. 2. Tobe limited to a fixed and specified amount, or to one oF more undetermined amounts, but all within a maximum the limit of which must be stated exactly. “Those which do not have one of these conditions shall be considered as mere letters of recommendation. [Art. 568, Code of Commerce] NEGOTIABLE INSTRUMENTS 3: What are the requisites of a negotiable instrument? {A3: An instrument to be negotiable must conform to the following requirements: + itmust be In writing and signed by the maker or drawer; 2. Must contain an unconditional promise or order to pay a sum certain In money; 3, Must be payable on demand, or at a fixed or determinable future time; 4. Must be payable to order or to bearer; and 5. Where the instrument is addressed to a drawee, he must be named or otherwise Indicated therein with reasonable certainty. (Sec. 1, Negotiable Instruments Law] Q4: What constitutes a holder in due course? ‘A4: Aholder in due course is a holder who has taken the instrument under the following ‘complete and regular upon its face; 2. Thathe became the holder of it before It was overdue, and without notice that it had been previously dishonored, is such was the fact; 3, Thathe took it In good faith and for value; 4. Thatat the time it was negotiated to him he had no notice of any Infirmity in the instrument or defect in the title of the person negotiating it. (Sec. 52, NIL]Qa” uPBoC Page 2 of 33 COMM LAW PRE-WEEK Q5: What Is the effect of a forged signature? jthout authority of the person whose signature it and no right to retain the instrument, or to give a st any party thereto, can be acquired t whom it is sought to enforce such thority. [Sec. 23, NIL] AS: When a signature is forged or made wi purports to be, it is wholly inoperative, discharge therefor, or to enforce payment thereof again: through or under such signature, unless the party agains right is precluded from setting up the forgery or want of aut Section 23 does not avoid the instrument but only the forged signature. Rights and obligations ‘may therefore exist by virtue of such instrument. [Campos] charge it to the drawer’s account. The 1e drawee is in a superior position to detect a ‘and is expected to know and compare it. Inc. v. Far East Bank and Trust Company and If payment is made, the drawee cannot traditional justification for the result is that th forgery because he has the maker's signature. [Samsung Construction Company Philippines, A, (2004)] In cases involving a forged check, where the drawer's signature is forged, the «lrawer can recover from the drawee bank. The drawee may recover from the recipient of payment, such as the collecting bank, under a forged indorsement. [Associated Bank v. CA, (1996)] Q6: What Is the Liability of an accommodation party? 'AG: An accommodation party is one who has signed the Instrument as maker, drawer, Srindorser, without recelving value therefor, and for the purpose of lending his fame to some other person. Such a person is lable on the Instrument to a holder for Jatue, notwithstanding such holder atthe time ofthe taking of the instrument knew him to be only an accommodation party. [Sec. 29, NIL] acceptor, Q7: What Is a check? f exchange drawn on a bank payable on demand. Except as provisions of the NIL applicable to a bill of exchange payable on k. (Sec. 185, NIL} AT: Acheck isa Bilt of otherwise provided, the demand apply to a checl 8: What Is the effect of an Incomplete Instrument which Is undelivered? sn incomplete instrument has not been delivered, It wilt not, if completed and theut authority, be a valid contract In the hands of any holder, as against ‘ose signature was placed thereon before delivery. (Sec. 15, NIL] AB: Where ar negotiated, wit any person wht se exists and not even a holder in due course can recover on the ase, areal defen: : iasees fat it is not a valid contract in the hands of any holder. instrument, for the law Is specific th [campos]ee up BoC Page 3 of 32 COMM LAW PRE-WEEK a9; What are the omissions not affecting negotlabitity? ‘ag: The validity and negotiable character ofan instrument are not affected Py the fact that ~ 4, Itisnot dated; or 5. Does not specify the value given, or that any value has been given therefore; or J Does not specify the place where i is drawn or the place where it payable; or 4, Bearsa seal; oF 5. Designates particular kind of current money in which payment isto be made But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. [Sec. 6, NIL] Q10: Who Is deemed a holder in due course? Alo: Every holder Is deemed prima facie to be a holder in due course; but when it ta ghown that the ttle of any person who has negotiated the instrument was defective, the arden Ison the holder to prove that he or some person undet whom he claims acquired the tile a: holder in due course. But the last mentioned rule does not apply in favor of pa ta recipe bound on the instrument prior to the acquisition of such defective ttle [Sec. 59, NIL] QUI: What Is the lability of an acceptor? [As The acceptor by accepting the instrument engages that he will pay It according fo the tenor of his acceptance; and admits: ore ne existence of the drawer, the genuineness of hs signature and his capacity and authority to draw the instrument, and 2. The existence of the payee and his then capacity to indorse. Q12: What constitutes negotiation? ‘Az: An instrument is negotiated when it s transferred from one person to another in such na pr as to constitute the transferee the holder thereof f payable to bearer Its negotiated by detivery if payable to order, itis negotiated by the indorsement ofthe holder and completed by delivery. [Sec. 30, NIL] ‘Acheck that is payable to specified payee an order instrument. However, under Sectlon Sih af te NL, 9 check payable toa specified payee may nevertheless be considered a5 2 eee ot nstrument if itis payable othe order ofa fictitious or non-existing person, and such pare twin tothe person making itso payable. If the payee Is not the Intended rect ent of the proceeds of the check, the payee is considered a fictitious optand the check Is @ Bearer Instrument. [Philpine National Bank v. Rodrigue (2008)] 13: What are the rights of a holder In due course? indue course holds the instrument free from any defect of title of prior ‘defences available to prior parties among themselves, and may instrument forthe full amount thereof against all parties liable Al3: Aholder parties, and free from enforce payment of the thereon. [Sec.57, NIL] ther than a holder in due course, a negotiable instrument is ds of any holder o! — ' asf it were non-negotiable. (Sec.58, NIL] subject to the same defence:a yp BOC Page 4 of 32 COMM LAW PRE-WEEK id: What are the Uabilities of a maker? {AV4: The maker of a negotiable instrument, by making it, engages that he will pay it ‘according to its tenor, and admits the existence of a payee and his then capacity to Indorse. [Sec. 60, NiL} The tiability of the maker is primary and unconditional. One who has signed an instrument as a maker is presumed to have acted with care and to have signed the instrument with full knowledge of its contents, unless there is fraud. [Campos] Q15: What are the liabilities of a general indorser? [AIS: Every indorser who indorses without qualification warrants to all subsequent holders in due course: 1. That the instrument is genuine and in all respects what it purports to be; 2. Thathe has good title to it; 3. That all prior parties had capacity to contract; 4. That the instrument is, at the time of his indorsement, valid and subsisting. in addition, he engages that on due presentment it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings cn dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. ‘The warranty that the instrument is genuine and in all respects what it purports to be covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser willbe liable for the amount indicated In the negotiable instrument even if a previous indorsement was forged. [Allied Banking Corp. v. Lim Sio Wan, et al, (2008)) Q15: What are the effects of alteration of an instrument? [AN6: Where a negotiable instrument is materially altered without the assent of the parties liable thereon, itis avolded, except as against a party who has himself made, authorized, or ‘aesented to the alteration and subsequent indorsers. But when an instrument has been a sterally altered and is in the hands of aholder in due course not a party to the MMteration, he may enforce payment thereof according tots tenor. [Sec. 124, NIL] INSURANCE Q16: What is the Insurable Interest in property insurance? |AN6: Generally, a person has an insurable interest property when he sustain such a relation ar respect to It that he has a reasonable expectation of benefit to be derived from its wt iued existence, oF of Loss o ili from its destruction. Its immaterial whether the cori nas title to or possession ofthe property, so long as he would sustain a loss by irs ret tlon. A mere naked expectation, which may be frustrated by the happening of some ‘ntervening event, isnot an insurable interest incurable interest in property may consist in: ting interest 1 Ane merest founded on anexstngintees a me tetancy coupled with aneistingnteestin tat ou of which the expectancy arsesyr ypa0C Page 5 of 32 COMM LAW PRE-WEEK gi7: What Is casualty insurance? Aav7: Casualty insurance i insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling ‘exclusively within the scope of other types of insurance such as fire or marine, It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance (Sec. 176) The world “casualty” Is generally used in legal contexts to mean either an “accident” or an event that results from a sudden, unexpected or unusual cause. Since Sec. 176 deals with loss or liability arising from “accident or mishap," itis not difficult to envision a coverege that runs the gamut of human activity or endeavor. Q18: What is the rule for payment of claims where there is overinsurance by double insurance? |A18: Where over-insurance results from double insurance, the severai policies are not necessarily void. The Code delineates the rights and liabilities both of the insured and the several insurers. The insured may not, of course, receive more than his loss. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts (Sec. 96). Under Sec. 96, the principle of contribution is enunciated, ‘which requires insurers to contribute ratably to the loss or damage in proportion to the ‘amount for which they may be liable under the contract, unless there is a common provision referred to as “excess clause.” The insured is given the right to choose as to whom among the insurers he would go after first. However, ifthe policy is an unvalued one, then he can claim the amount of the loss from only one insurer and let all the other insurers settle their pro rata ‘contributions among themselves. It must be noted that the insured who has been fully Indemnified for his loss by one or more insurers cannot file subsequent claims against the others. He can only claim up to the full amount of his loss under the “principle of indemnity. 19: What Is the right of the insurer to rescind a contract of life Insurance; incontestability clause [A19: The incontestability clause provides that after the policy has been in force for a given {ength of time (2 or 3 years), the insurer shall not be able to contest it as to staternents contained in the application. 20: What is the insurable interest of mortgagee and mortgagor? |A0: Both the mortgagor and mortgagee have each separate and distinct insurable interest AZO. mortgaged property and that they may take out separate policies with the same or ae ent insurance companies. Consequently, insurance taken by one on his own name only citer inure to the benefit of the other. Thus, a mortgagor has an insurable interest equal to does jue ofthe mortgaged property and a mortgagee, ony tothe extent of the debt secured by the mortgage. ficiary in a life insurance poli 21: Does the designated bene! Policy need to have cat able Interest in the life of the Insured?, J yp80¢ Page 6 of 32 COMM LAW PRE-WeeK, _azteitdepends. I the owner of the policy and the insured is one and the same, the designated beneficiary need not have an insurable interest in the life of such insured. However, if the ‘owner of the policy took out an insurance on the life of another, the beneficiary needs to have insurable interest in the tife of such insured. 22: How Is the beneficary designated? Inlife insurance, the insured indicated the beneficiary who will get the proceeds upon the death of the insured. Unless the insured expressly waives, in the policy, his right to change the beneficiary, the insured retains such right. Where there are several and only one of them was irrevocably designated, the others may be changed. The beneficiary need not have any insurable interest in the life of the insured. As such, the insured may designate even a stranger. Insurance, as a matter of fac, is considered no different from a civit donation, founded on the liberality of the insured in so far as the beneficiary is concerned. Q23: What is a warranty with respect to an insurance contract? ‘A23: Warranty has been defined as a “statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whatever the insurer was in fact prejudiced by such untruth or non- fulfilment, renders the policy voidable by the insurer, wholly irrespective of the materiality of such statement or promise. The definition is inadequate, forit only defines warranty from the perspective of the insurer. Warranties may work in favor of both the insured and the insurer. Statements or promises agreed upon by both parties to the insurance contract which are contained in the contract itself or incorporated by proper reference constitute warranties. The subject matter of these ‘warranties may differ— some may be material to the risk insured against, but somie may be trivial. For as long as both parties agree that a particular fact or promise shall become part of the contract, such fact or promise shall constitute warranties. Q24: What are the Implied warranties in marine insurance? Aza: 1, Seaworthiness of the vessel 2. Improper deviation 3, Proper documentation 4. Not to engage in an illegal venture 25: What is the significance of the payment of premium? |A25: The payment of the premium, being the undertaking performed by the insured in return 26. Tincarers assumption of the risk, is essential othe formation of the contract of to ace. Thus, payment of the premium isthe foundation of ite insurance policy. The policy shall not fake effect unless the ist premium is pai. 26: Is double Insurance prohibited? insurance is not prohibited under the law, unless the policy contains a stipulation hich case other insurance voids the policy I there is double insurance, and ce clause, and loss occurs, each ofthe insurers will be liable only up to ‘A26: Double to the contrary in wt there is no other insuran«| up BOC Page 7 of 32 COMM LAW PRE-WEEK tne face value oftheir respective policies and the insured has the option of choosing the order by which he will claim from the insurers. Q27: What is a proper deviation? ywing circumstances: |A27: A deviation is proper under the follo nich neither the mas 1. When caused by circumstances over w/ has any control 2. When necessary to comply with a warranty, insured against 3. When made in good faith, an ster nor the owner of the ship, ‘orto avoid a peril, whether or not the peritis upon reasonable grounds of belief in its necessity to avold a peril 4, Tuien made in good faith, for the purpose of saving human ife or relieving another vessel in distress. jose? Q28: What is the duty of Insured to discl municate to the other, in good faith, all ‘ontract, and as to which he makes No ing. There is, however, n> obligation Jed to disclose, except ini answer to .ct of insurance must com hich are material to the c has no means of ascertainir iat there Is no ne ‘A28; Each party to a contra facts within his knowledge w! warranty, and which the other to disclose everything. Sec. 30 provides th inquiries, the following: 1. Those which the other kno 3. Those which, in the exercise of ordinary care, the other ought to knows, former has no reason to suppose him ignorant; 3, Those of which the other waives communication; 3 pose wich prove or tend to disprove the existence ofa risk excluded BY 2 We rranty, and which are not otherwise material; and 5, Those which relate toa risk excepted from the policy and which are not otherwise material TRANSPORTATION 5 the Doctrine of Limited Liability? and of which the 29: What I ‘A29+ Also called the “no vesse, no liability doctrine,” it provides thatthe lability of hp 2s is imited to ship nes interest over the vessel. Consequently, n case of loss, the SiNP ower jab i also extinguished, [Monarch Insurance v. CA (2000). This is also referred to othe real and hypothecary nature of maritime Law. lication of this rule admits the following exception: 1e vessel is attributable to the actual fault or negligence of the ‘To ensure the seaworthiness of the vessel [Aboltiz Shipping Corp. v. However, the appli 1. When the sinking of the ‘shipowner or its failure Court of Appeals (2008); a. pana and provisioning of the vessel beore the loss ofthe vessel, (At, 586, Code of Commerce]: he vessel is insured, the proceeds will go to the persons entitled to 3, Insurance proceeds. ft! ‘claim from the shipowner; Ivasquer CA (1985); 1 eater Compensation cases (row Emporees Compensation under he Labor [Oching v. San Diego (1946) een 5, There sno total loss: and| up BOC Page 8 of 32 COMM LAW! PRE-WEEK 6. Incases of private carriers. Q30: What is a bill of lading? the master of a vessel or other authorized agent rom the shipper, to be transported on fand to be delivered there to the 'A30: A written acknowledgement, signed by ofthe carrier, that he has reczived the described goods the expressed terms to the described place of destination, designated consignee or parties [70 Am. Jur. 24 924), itis not, however, indispensable for the creation of a contract of carriage. [Cia. Maritima v. Ins. Co. of North America (1964)}. In the absence ofa bill of lading, disputes shall be determined by the legal proofs which the parties may present in support of their respective claims, "according to the general provisions parablished in the Cade of Commerce for commercial contracts art. 354, Code of Commerce]. 31: What Is the difference between an On Board Bill of Lading and Received for Shipment Bill of Lading? |A3t: An on board bill of tading is one in which itis stated #2, the goods have been received on board the vessel which is to carry the goods, whereas © received for shipment bill of lading or poah which itis stated thatthe goods have been received for shipment with or without specifying the vessel by which the goods are to be shipped. Received for shipment bills of rsd are isued whenever conditions are not normal and there is insufficiency of shipping space, An on board bill of lading i issued when the igoods have been actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its way. It's, tre tere, understandable that a party toa maritime contar! would require an on board bill of ijtng because of ts apparent guaranty of certainty of shipping as well as the seaworthiness Ute vessel which isto carry the goods. [Magellan ‘Manufacturing Marketing Corp. v. CA 990] 932: What Is the legal consequence that arises when 2 shipper receives the bill of lading without objection? that a shipper who receives abil of lading without objection after an ae gnd permits the carrer to act on ity proceeding with the shipment is presumed to have accepted it as correct stating the contract and to have assented it its term. aresurte apples with particular force where ashipper accoPts 2 bill of lading with full nee and acceptance under such circumstances makes Ita Einding xnoviledge of ts con rowley ageton Manufacturing Marketing CO. ¥.CA (1990 ‘A32ilt has been held ‘opportunity to inspect 933: Can a bill of lading be considered a contract, and hence subject to the Parol Evidence Rule? [ng3: Yes, abl of lading operates both 282 receipt and as a contract. sont ater ge goods sacs the parts, which nudes te pecan Reset FOU. dene cegnt rates or charges, and stipules rights and obligations assumed by the ation aed E25 a contract, tis the taw between he paries who are bound by its terme and condi provided that these are Ot Contrary to law, moras, good customs, public order iat pabae policy. [Magellan ‘Manufacturing Marketing Corp. v. CA (1991)} publicCOMM LAW PRE-WEEK up BOC Page 9 of 32 34: What is a common carrier? ‘on carriers as persons, Corporations, firm ‘omm‘ ssengers or goods or both, 'A34: Articte 1732 of the New Civil Code defines c or associations engaged in the business of carrying, transporting Pas By tang, water, or ar for compensation offering their services to the Pubic. The concept of common carriers contemplated under Artic\ that the said concept corresponds to the concept of “publi Act results in the application of the following rules or principles: le 1732 of the Civil Coce and the fact, ic service” under the Public Service whose principal business activity is the ‘The provision makes no distinction between one ‘does such carrying only as an ancillary carrying of persons or goods or both, and one who activity (in local Idiom as “a sideline”) ction between a person or enterprise Article 1732 also carefully avoids making any distin Fheduled basis and one offering such offering transportation service on a regular or sc! sional, episodic or unscheduled basis. i farrier offering its services to the “general service on an occa: rnd one who offers services or solicits Neither does Article 1732 distinguish between a c: public”, ie., the general community or population, ar Business only from a narrow segment of the general population 4. A person or entity is a common carrer and has the obligations of the common carrier onthe ial Code even if he did not secure a Certificate of Public Convenience [De Guzman vs. Court of Appeals (1988). oe Chil Code does not provide that the transportation should be by motor vehicle [First Philippine Industrial Corporation vs. Court of Appeals (1996)} A person of entity may be a common carrier even if he has no fixed and publicly known sorte maintains no terminals, and isues no tickets [Asia Lighterage and Shipping Inc. vs. Court of Appeals (2003)] Jed in the business of public transportation for the provision of Jr. vs. Court of Appeals (1996)]. Apperson need not be engag the civil Code on common carriers to apply to them [Fabre ‘mon carrier even if the operator does not own the vehicle or . The carrier can also be a com sae sr that he or she operates [Cebu Salvage Corporation vs. Philippine Home Assurance Corporation (2007)] the true test for 2 common carrie Is not the quantity or extent of the business actualy ree rue or the number and character of the conveyances used Inthe activity, but whether rane toking isa pat ofthe actity engaged in by the caries that he has held out tothe tea nie as his business or occupation If the undertaking a single transaction, nt 2 sere ive general business or occupation engage in, as advertised and held out fo the aro pul, the inavial or the ent rendering such services a private, not 9 common general re question must be determined by the character ofthe business actualy cl on ca iret not by any secret intention or ental reservation it may entertainer asset when by ne eth the duties and obligations thatthe law imposes [Spouses Perena vs. Spouses Nicolas (2012)).” 35: How Is tlabllity apportioned when both vessels are at fault fora collision? provides that ifthe collision is imputable to both vessels, each one shall |A35: Article 827 At oten shall be solid Aes its own damages, and both shall be solidarily responsible for the to Sage nother words, when it comes tothe damages to thelr respecte i e occasioned to t! vessels, the los Shipowners and ship agen ses rest where they falls. With respect to damages to the cargoes, the t ts of the vessels involved in the collision are liable to the shipper rs.| up BOC Page 10 of 32 COMM LAW PRE-WEEK ‘The liability is joint and several; there will be no apportionment of liability and each shipowner or ship agent is liable for the whole damage or injury [Aquino and Hernandez (2016)} tn The Government of the Philippine Islanos vs. Philippine Steamship Co. (1923), the Supreme Court ruled that although the negligence on the part of the mate of an incoming vessel preceded the negligence on the part of the mate of the ‘outgoing vessel by an appreciable length of time, the first vessel cannot on that account be absolved of responsibility. It is also in the same case that the Court held that only the owner of one vessel was made lable for the toss of the cargoes belonging to the government. Although Articte 827 provides for solidary liability for the loss of the cargoes, one vessel was totally lost and was therefore subject to the doctrine of timited liability. Hence, the burden of responding to the loss fell on the oviner of the other ship. 36: Is the defense of due dillgence available to a common carrier? ‘A36: No. The liability of the common carriers for the death of or injuries to passengers ‘through the negligence or willful acts of the former's employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common cartiers, does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees [Article 1759, Civil Code}. ‘The reasons for this rute are: (1) the special undertaking of the carrier requires that it furnish its passenger that full measure of protection afforded by the exercise of the high degree of care prescribed by the law, inter alia from violence and insults at the hands of strangers and other passengers, but above all, from the acts of the carrier's own servants charged with the passenger's safety; (2) said liability ofthe carrier for the servant's violation of duty to passengers, is the result of the formers confiding in the servant's hands the performance of his contract to safely transport the passenger, delegating therewith the duty of protecting the passenger with the utmost care prescribed by lav; and (3) as between the carrier and the passenger, the former must bear the risk of wrongful acts or negligence of the carrier's, employees against passengers, since it, and not the passengers, has power to select and remove them [Maranan vs. Perez (1967)] Q37: What Is the liability of a common car r for loss? 437: {treme baggage arein the custody ofthe common carers Ff tcnpena-c ae rap cee to ‘ezporsibty ofthe common carler sts rom the time the osods wns aoa in the possession of, and recelved by the carrier for transportation until the cemne ne nse sctally or constructively, by the carer to the consignee: arte tree are elvered, receive them [Article 1736, il Code, lt ering nfl force apa e310 temporarily unloaded or stored in transit, unless the shipper or owney han eeneh they are fight of stoppage in transit [Article 1737, Chil Code), has made use of the Ifthe shipper or owner merely contributed tothe loss, destruction or d goods, the proximate cause thereof being the negligence of the commer son of the shall be liable in damages, which however, shall be equitably reducea rear ene latter Code}. luced [Article 1741, Civitup BOC Page Nl of 32 COMM LAW PRE-WeEK Astiputation between the common carrier and the shipper oF owner limiting the liability ofthe former for the loss, destruction, or deterioration of the goods to a degree less than ° extraordinary diligence shall be valid, provided it be: (a) in writing, signed by the shipper or ‘owner; (b) supported by a valuable consideration other than the service rendered by the ane cartier; and (c) reasonable, just and not contrary to public policy [Articte 1744, Civit ‘ode! ‘onsidered unreasonable, unjust and Any of the following or similar stipulations shall be ported at the risk of the owner or shipper; contrary to public policy: (a) that the goods are trans {b) that the common carrier vil not be fable for any loss, destruction, or deterioration ofthe {good; (c) that the common carrier need not observe any diligence in the custody of he dens: (d) that the common carrier shall exercise a degree of diligence less than that of a good father CP tamily, or of a man of ordinary prudence inthe vigilance over the movables transported (c) that the common carrier shall not be responsible for the ‘acts or omission of his or its employees; (f) that the common carrier's liability for acts committed By thieves, of robbers ano ae not out with grave orresistibe treat, violence or forces eispensed with ‘iminished; () that the common carrier is nat responsible forthe loss, destruct, OF Geterieraticn of goods on account of the defective condition ofthe car, vehicle, ship, airplane senor equipment used inthe contract of carriage [Article 1745, Chil Code] A stipulation that the common carir's ability is timited tothe value of the goods appearing appeal of tading, unless the shipper or owner declares a greater value, is binging [article 1749, Chil Code], Likewise, a contract fixing the sum that may be recovered PY the owner or shipper for the loss, destruction, or deterioration af the goods is also. valid, provided itis sri peable and just under the circumstances, and has been fairly and freely ‘agrezd upon [article 1750, Civil Code. ‘The taw of the country to whic ‘common cartier for their loss, h the goods are to be transported shall govern the liability of the destruction or deterioration [Article 1753, Civil Code]. in the personal custody of the passengers bound to observe ordinary diligence, The baggage are regarded as Common Cond the common carriers shal be responsible for them as depositaries, provided mecessary aig given to them, orto their employees of the baggage brought by the anak gers anal thaton the part of thefts they take the precautions Whe said common passenger aed relative tothe care and vglance of ther baggage [Article 1998, Ci Code]. (2) ifthe baggage ore. ‘Common carriers are ‘te responsibility of the common carers shall include the Los of, or inury tothe baggage of rae spongers caused by he servants or employees of common carers 25 well as strangers te passenar passengers are constrained to rely onthe vigilance ofthe common caries shall The foe red n determining the degre of care require of him [Article 2000, Chil Code] beconsithe common carrier not abe for compensation if he ossis due othe acts ofthe drrger his family, servants of visitors, orthe loss arses from the character of the things brought into the common cartier [Article 20024 sme actota tit orobber, who has entered the common cartier not deemed force majeure Thteas itis done withthe use of arms of through an irresistible force [Article 2001, Civit Code]. urls near canot re himself esponsityby posting notices tothe eect that he is not liable for the baggage post me ‘the passenger. Any stipulation between the ne tr andthe passenger whereby the responsibilty ofthe former a5, S appressed or diminished shall be void [Articte 2003] set foreh by law a common carrier presumed to be negligent? 38: When is) a up BOC Page 12 of 32 COMM LAW PRE-WEEK A38: (1) As to goods ifthe goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law [Article 1735, Civil Code]. However, the presumption of negligence does not attach when the loss, destruction, or deterioration of the goods, Is due te any of the following causes only: (a) flood, storm, earthquake, lightning, or other natural disaster or calamity; (b) act of the public enemy in war, whether international or civil; c) act of omission of the shipper or owner of the goods; (d) the character of the goods or defects in the packing or in the containers; or (e) order or act of competent public authority, [Article 1734, Chill Code} (2) As to passengers Ifa passenger dies or is injured, common carriers are presumed to have been at feult or to have acted negligently, unless they prove that they observed extraordinary diligence [Article 1756, Civit Codel, inflicted by strangers or co- 939: When Is a common carrier liable for inju passengers? ‘A39: A common carrier is responsible for injuries suffered by a passenger on account of the ‘willful acts oF negligence of other passengers or of strangers, if the common carrier's ‘employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission [Article 1763, Civil Codel. Q40: What is the prescriptive period for filing an action in court against a carrier on account of loss or damage? ‘AAO: The general rules under the Civil Code on extinctive prescription apply. Thus, action for damages must be fled in court: 1. Within 6 years, i a bill of lading was not issued [Art. 1145, Civil Code]. 2. Within 10 years, fa bill of lading was issued [Art. 146, Civil Code) For filing claims by the consignee against the carrier on account of dama: Qu mage found upon ‘opening the packages, a claim, on account of damage found upon o ‘must be made against the carrer: Pon opening the packages, 1. Within 24 hours, if the indications of the damage cannot be ase of the packages (i.e, latent damage); or ertained from the exterior 2. At the time of receipt, if the indications damage can be damage) [Article 366, Code of Commerce], $0 ascertained (.e., patent {file a claim bars recovery [Aquino (2011). ‘ery of goods. Failure to Q41: What are the requirements for convenience? granting a cei icate of public Aa: 1. The applicant must be a citizen of the Philippines, or retin Ftc nen eee 8 orton or ogame Ym cor nized under the laws of the the/ UP BOC Page 13 of 32 COMM LAV/ PRE-WeeK Philippines, at least 60 per centum of its stock or paid-up capital must Belong entirely to citizens of the Philippines; 2. The applicant must be finan: meeting the responsibilities incident to its operation; and 4. The anblicant must prove that the operation of the public service proposed and the srthoteation to do business will promote the public interest in a Proper and suliable aerate urvierstocd that there must be proper notice and hearing Befor2 (he PSC can exercise its power to Issue a CPC. [KMU vs. Garcia 0994)) cially capable of undertaking the proposed! service ang 42: What is the kabit system? sho has been granted a certificate of ‘vehicles to operate under such franchise fariably recognized as being contrary to ‘A42: It is an arrangement whereby 2 person wl convenience allows another person who owns motor for a fee [Lita Enterprises, Inc. v. !AC (1984)]. It is inve publie policy and therefore void and inexistent under Art. 1409. This, for the safety of Passengers and the public, the registered owner of the vehicle is Nok ‘allowed to prove that caethe’ person has become the owner so that he may be thereby relieved of responsibility [Lim v. CA (2002). However, one who has availed of the kabit system is not precluded from filing for Harmon Dgsinst another who caused the injury, as the policy against the Kable systein will not be azjeated by giving such person standing to sue. [Lim v CA (2002)] CORPORATION LAW 943: How is the nationality of a corporation determined? |Aa3? Two tests are applicable—the Controt Test and the Grandfather Rule \g shares outstanding must satisfy the vs. “preferred” because voting rights may ea, The testis whether it's voting or non-voting so it depends upon the itled to.) This test basically requires that a corporation, when observant Fights a0 ratio, wil be treated as a complete Philippine national. In other words, 2 legal aes created vnereby the corporations considered as completely Filipino, So from 2. car etakes Into account the relative ratio of shares, its converted into one that is lipino or not Filipino). ss: Gamboa v. Teves instructs that alt vo! snot a question of “commor Control Tes 60/40 ratio. (Note: I be accorded to prefer rights the share is ent anal binary (either Fit Grandfather Rute: This test applies only when) the nationality requirement requires more Granaatne Rig overs and even when the nationality requirements 60% Filing tran ship, when the equity oarnership isn gowot The courts determine the actual mix of foreign-national ownership and even if Under this rule, Under anne nationality restrictions no egal fetion seeated hereby the ently is treated as completely Fillpine- nat are the elements of a corporation? 44: WI Aaa: ; ; fats an artificial Beng: tig ereated by operation f 28Vi UP BOC 3. There is a right of succession; and Page 14 of 32 COMM LAW PRE-Wee,. 4. It possesses powers expressly conferred by Law or incidental to its existence. Q45: Distinguish stock from non-stock corporations. [Stock 1. Have capital stock divided into shares; u 2. Are authorized to distribute to the holders of such shares dividends or allotments of surplus profits on the basis of the shares hela, 3. Implied: For profit I Capital stock divided into shares with 7 qaeeeens|INONe and Ee No such characteristic No part of income is distributable as idends to its members or trustees; Any profit may obtain as an incident to its operations shall, when necessary or proper, be used for the furtherance of the purpose or purposes; and Has a purpose as per Sec. 8 that is not for profit a = authority to distribute dividends _ Stockholders and directors must act May act by mail or other similar means, if provided in by-taws. meetings in person or by proxy ‘Cumulative voting required by law ‘Cumulative voting only available if provided in. AO! or BL. _ 15 director max except in merger or May be more than 15 consolidated banks Term of director 1 year 7 “Term is 3 years, 1/3 of the directors must be elected annually ‘Meetings must be in city or municipality of principal office, preferably in principal office. ‘May be wherever within the Philippines ‘One class must always have complete voting Right to vote of all shares may be denied. Free transfer of shares. Therefore, membership is not personal to the stockholder. rights — Nope, unless Articles or by-laws allow it. This is because membership is personal. Transfer cannot be made without consent of the corporation. = Proxy can be denied, ai 4 ‘May always vote by prox ‘Upon transfer of share, seller no longer part of corporation. Transfer may only be subject to restrictions noted down in AO}, BL, and stock certificate, not more onerous than right ‘Membership may be terminated according to causes pr led in by-laws, of first refusal. = Residual Assets to be distributed to stockholder. 2. Dissolution in a 1 .ccordance with the Code. Distributive rights must be spelled out in AOl or approved by 2/3 members. Generally, not allowed to participate in properties, Procedure is different. Properties to be transferred to other charitable corporations. Donations to nan-stock conditioned on return upon clissolution shall be retured....upon dissolution.UP BOC Page 15 of 32 Q46: Distinguish stock from close corporations. [Stock Has an AOI with a general template | Close Must provide 1. Not to be held by more than a certain COMM LAW PRE-WeeK number of Stockholders, not to exceed | 20 2. Transfer restrictions allovied 3. Shall not be listed, and shall not publicly offer Further, a corporation which is nct a close corp. cannot own more than 75% of the outstanding capital stock NNo limit to number of corporators allowed by authorized shares May istin Philippine Stock Exchange (PSE) In general, all Businesses may be carried out by corporation ‘Not more than 20, according to AO! May not list on PSE_ ~ - Mining, Oil, Stock Exchange, Banks Insurance, Public Utility, Educational, Public Interest cannot be organized as close corp. | Powers exercised by board, elected by stockholders ‘Stockholders may manage affairs directly, subject to the same rights and liabilities of directors. Pre-emptive right subject to Sec. 39 imitations ‘No limit to pre-emptive rights. Thus, includes sale of treasury shares and for acquisition of properties, ‘Appraisal right must be for reasons listed in the code need for URE, so long as the corporation would not thereby become insolvent. Dissolution must comply with all the requirements, ‘SEC may not regulate if purpose not illegal ‘Any stockholder may petition for dissolution for stated grounds. ‘SEC may intervene in management of corp. case of deadlocks. No classification of directors BOD elects directors May classify directors Sholders, as directors, directly elect officers, provided by AO! ‘Must have unrestricted retained earning No need for URE to acquire shares ff ordered by SEC in intra-corporate deadlock (URE) to buy own shares No arbitration in case of intra-corporate deadlock ‘Arbitration allowed, 47: When is it proper to pierce the vell of corporate fiction? AAT: 17 ere tne liability belonds fo the corp but plaintif seeks to hold individual stockholder accou the entity is shiel intended by t protect fraud) or to circumvé catable. Mere controlling interest not enough, The most potent testis ts rove that ing used to commit fraud, Note the following badges of fraud, s) oreo oe {d to further an end subversive of justice; b) or for purposes that could not Rave been, he law that created it) or to defeat public convenience; d) justify wrong, ¢) 1) or defend crime; 9) oF to perpetuate fraud or confuse legitimate ssusy P) ‘ant the law or perpetuate deception. JUP BOC Page 16 of 32 COMM LAW PREWeey In this connection, jurisprudence seems to point to another aspect whereby the directors ay held liable in piercing the vel. In such cases, the courts use a two-step analysis whereby they Justily the piercing of the vei but also invoke Sec. 31 ofthe Corp. Code to impute individual ” ability on the directors. 2. Where the liability is pe dhe seeks to evade it by hitting behind a corporate vehicle. This was the scenario exhibited in Palacio v. Fely. Calingasan’s driver here was held criminally and civilly able for reckless imprudence. Sensing that his driver would be unable to pay up and hence his subsidiary liability would be triggered, he organized a corporation and transferred ownership of the vehicle to it. However, the Court ‘saw through the veil and ultimately held Calingasan liable. 3. The instrumentality or alter ego rule. This particular analysis has its own set of rules, namely: (i) Control, not mere majority or complete stock control, but complete domination, not only of ances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (i) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and (ii) The aforesaid control and breach of duty must proximately cause the injury 0° unjust loss complained of. ‘The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation.” [Concept Builders v. NLRC (1996) ‘The same case laid down some badges or telltale signs indicative of fraud: (i) Stock ownership by one or common ownership of both corporations; i) Identity of directors and officers; (ii) The manner of keeping corporate books and records; and (Iv) Methods of conducting the business. 4, Successor corporation rule. This applies in instances where a corporation feigns dissolution or cessation but really continues in existence organized under another name. Fats application ofthe rule figures prominently in labor cases where the prior entity seeks fo evade its obligations to its [aborers. Some tell tale signs exhibited in Clapzrolsv. CIR Ipctude: () consecutive date of cessation and commencement of subsequent entiy; (i) ‘ownership and control by former controlling stockholder; and (ii) turnover of assets. On cunstner hand, in Livesey v Binswanger, the court pointed tothe following: () same cers i same office; (i) continuation of the business ete however the case of SME Bank v. De Guzman which reverse the rating in Nr Jamployes, bt tele forthe payment of separation pay under the lan. Te buyer in ect rn ie other hand, snot obliged to absor the employees affected by the sale, nor good a ne payment theca. The mest thatitmay ofr reasons of publ oly isa osteo ge preference the qualified separated personne of the seling frmCOMM LAW PRE-WeeK UP BOC Page 17 of 32 re transferred to ihe selling corporation a In contrast with asset sales, in which the assets of ee ane shareholder level. Because the another entity, the transaction in stock sales takes place atthe shareic er Nur! ticouse the corporation possesses a personality separate and distinct fom that ft AeA in the composition of its shareholders will not affect its ex ion continues to be the employer of its Thus, notwithstanding the stock sale, the corporati caiman the i Furth People and continues to be able forthe payment of their ust caitts, Pure moor Corporation or its new majority shareholders ae nat entitled t lawful CIs cospon employees absent a just or authorized cause.” In sum, good fait Gisputes applies only for asset sales. Q48: Can a corporation be entitled to moral damages? ‘A48: In Filipinas Broadcasting v. AGO the Court enunciated: "The Court of Appeals cites ‘Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if ‘besmirched, may also be a ground for the award of moral damages is an obiter dictum. Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff {sa natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce lence of actual damages as a condition precedent to the recovery of some darnages. In this ase, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.” From this ruling it can be gleaned that the question of w/n a corporation is entitied to moral damages isnot answerable by ahard and ast rule, The analysis varies from case to cate avy special attention that must be focused on the legal basis relied upon Q49: What is a de facto corporation? ‘849: For alntents and purposes, ade facto corporation st save for the feature that its existence may be challenged by theta unde eg rporation proceeding ln such proceeding, the eyes defense sto prove lec ee garam 'o rove such, then the QW action is cismissed the defense orga oe dee ts able treated a5 defacto and maybe dissolved after ue prosceais merit then itis There are thre elements of ade facto corporation: a valiaty incorporated 2)colorable compliance withthe egal rein cn 2 CoFPOration may be Corporate powers good fat. [Malabang v. Bento i9¢9) "ments; and 3) user of Q50; What Is a corporation by estoppel? ASO: Under the codal provision, thee ae tw elements imu i act a5 a corpratin art) tnowledg hati is without autre" an assumption to eure that hee ms Bathe amt fre een A third implied .. FishiruP BOC Page 18 of 32 COMM LAW PRE-WeeK (1999)] The estopped entity is thus precluded from raising as a defense that it lacked corpo Personality and the parties involved are liable as general partners for all debts, liabilities, ond damages as a result ofthe transaction, The application of this remedial vehicle turns upon a consideration of the factual mitieu which may vary from case to case. Note that the rule on corporation by estoppel cuts both ways—when the corporation s estopped from denying its corporate existence to evade liability; and when the third party is estopped from denying corporate existence after having dealt with it, knowing fult well its defect, in order to evade liability. Q51: What are the instances when even non-voting shares may vote? ASI: 1, Amendment of AOL; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation of other corporations; 7. Investment of corporate funds in a corporation or business in accordance with the Corp. Code 8. Corporate dissolution Q52: In what instances may a stock corporation acquire its own shares? AS2: 1. Toeliminate fractional shares arising out of stock dividends; 2. Tocollect or compromise an inclebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; 3, To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of the Corp. Code 44, Incase of redeemable shares, regardless ofthe existence of unrestricted retained earnings: 5, To effect a decrease of capital stock; &._ In close corporations, in case ofa deadlock in the management ofthe business, regardless of the existence of unrestricted retained earnings. (53: When is the appraisal right available? AS3: ‘R53: amendment in the AOI thathas the effect of changing or restricting shareholders fights; or changing the corporate tem a peumbrance or othe dispositions ofall or substantially al ofthe corporate property or assets 3. Investment of corpo" primary purpose. 44, Merger or consolidations fate funds in another corporation or in a purpose other than theUP BOC Page 19 of 32 COW ! LAW PRE-WeEK 5. Ina close corporation, a stockholder may, for any reason, compel the ‘poration to purchase his shares when the corporation has sufficient assets in its Bs to cover its debts and liabilities exclusive of capital stock (Sec. 105) 54: Distinguish the different scenarios where the corporatio: may Invest in another business. AS4: such a case, only 1. The investment isin pursuit ofthe primary purpose board approval is necessary of the corporation. 2. Investment in another business beyond scope ofits primary or ancillarurposes (no general grant of power to invest in other corps). Essentially, this woule @ an ultra vires act. For the transaction to push through, there must first be an amenc)_ ent to the AOlin either of the following tenors: (a general grant of power to the corpo. tion fo invest in other corps; or (i) a secondary purpose which relates to the prospectiv transaction. Thereafter, SH/member approval will be required in accordance with < c. 42; and Investment in another business in pursuit of a secondary purpose. It w: ‘ld fall squarely under Sec. 42. ated. The first Note the bright line between secondary purpose and one totally unre >AOl. would trigger Sec. 42 while the second would first require amendment of t 55: What is an ultra vires act? How does it differ from an ille, al act? |AS5: In determining whether an corporate act is ultra vires or intra vires, tt Code provides that no corporation under this Code shall possess or exercise any corporat: vowers except . those conferred by this Code or by its articles of incorporation and except sh as are dental to the exercise of the powers so conferred. necessary or it Some jurisprudentialtests/doctrines that lay the parameters f intra vires/_ tra vires act ‘ahether or not a logical and necessary relation exists between the act quc tioned and the corporate purpose expressed inthe charter” [NPC v. Vera, (i)" there areh ever certain fof the scope ofthe powers e essiy conferred if Corporate acts that may be performed ou are ccessary to promote the interest or welfare ofthe corporation” [F_v. Acoje Mining] they are ‘The term ultra vires should be distinguished from an illegal act forthe forn is merely roe wate which may be enforced by performance, ratification, or estoppel ile the later is wold and cannot be validated. Itbeing merely voidable, an ultra vires act ca_ be enforced or volated if there are equitable grounds for taking such action. Here tis fi hat the resolution tatlpeld at least on the ground of estoppel. [RPv. Acoje Mining] qs6: Discuss the remedies that may be avalled of when a corpc ation commits ultra vires acts. AS6: 1 Satin judgment offre BL Quo warranto proceedings bs Jec may suspend of revoke certificate of regstat