Commercial Law - branch of private law which governs rights and
obligations, relations in commercial transactions.
Commercial Transaction is the habitual exchange of values/goods for
the prosecution of gain.
Nego:
G.R. Obligations be paid in Philippine Currency and no person can be
compelled to accept a Negotiable Instrument, like check, as payment of
obligation because Negotiable Instruments do not have legal tender
power, but only as substitute for money, But Negotiable Instrument is
valid to exercise a right to redeem - it suspends the prescriptive period.
Accommodation party - signs as maker, drawer, acceptor, indorser,
without receiving value for his signature, merely lends his name, as
surety. Payment by Accommodation party does not discharge the
Negotiable Instruments unless the Accommodated Party, if
principal/primarily liable, pays.
Forgery - VIP Rules: G.R. - when a signature is forged or even if
genuine, if made without his consent, that signature is wholly
inoperative, and holder has no right to retain, discharge, enforce the
Negotiable Instrument against the forged signature.
Forgery applies only to signatures. Forgery is a real/absolute defense of
person whose signature is forged because he did not give his consent.
While Alteration is the change of material particulars of Negotiable
Instrument, amount, date, interest but not the serial number of check.
In forgery, cut-off rule applicable if Negotiable Instrument is pay to order
- because the last Holder/Payee did not acquire valid title from the
original Payee - that original Payees Indorsement is necessary to
transfer the instrument to the next payee. However, when Negotiable
Instrument is payable to bearer, and the signature of Maker/Drawer is
genuine - not forged, but signature of original Payee is forged, the last
holder/payee can enforce the negotiable instrument against the
Maker/Drawer because indorsement is not necessary in a Negotiable
Instrument payable to bearer.
G.R. - Holder of Negotiable Instrument is presumed as Holder In Due
Course (holder in good faith/for value, complete/regular on its face, not
overdue, not aware of defect/infirmity) Personal defense (like lack of
consideration) can be interposed by party liable, like Maker/Drawer
against Holder Not In Due Course. But real defense, like forgery,c an be
interposed only by the forged signatory against any party.
BP22 - anti-bouncing checks law: Law punishes mere issuance of
bad/worthless checks.
Elements of BP22 -
1. Making/Drawing of check issued for “account or for value’
2. Drawer had knowledge of insufficient funds
3. Check was dishonored (Dishonored against insufficiency of funds,
closed account or stop payment)
Requirements - BP22
1. Check be issued to apply on account or for value
2. Notice of Dishonor in writing/received by Drawer required (SC) to
give him sufficient time to pay/settle check within 5 days to establish
“knowledge”
Estafa/Swindling in bouncing checks - RPC, Art 315, 2d -
Elements - Deceit and Damage
1. Offended party suffered damage
2. Drawer postdated/issued check prior or simultaneous with the
fraudulent act
3. The false pretense of Drawer induced Payee to part with his
money/property. Drawer’s failure to pay/settle bounced check within
3 days from Notice of Dishonour, establishes Deceit/ or “knowledge
of insufficiency of funds”
Venue - BP22/Estafa on bounced checks - city/municipality where
offense was in part committed.
Banking Laws: RA 8791; 7653; 7721; 9194 - 9160; etc
The relationship between bank and depositor is debtor-creditor - simple
loan - so the bank as creditor has a right to set-off the bank deposits of
its debtor-depositor for its unpaid obligations to the Bank. If bank is
unable to pay deposits, the bank is not liable for Estafa.
If Monetary Board/ Banko Sentral ng Pilipinas finds that Bank is unable
to pay liability; has insufficiency realizable assets, or cannot continue
without incurring more losses, Monetary Board can “Close Now and
Hear Later” (no prior hearing), by appointing a Receiver (PDIC), to
determine within 90 days whether Rehabilitation is possible or be
permitted to resume business. If rehabilitation is not possible, Receiver
shall proceed with Liquidation - that the assets under
receivership/liquidation deemed in custodia legis in hands of receiver.
But Monetary Board may appointer Conservator (one year) to
rescue/restore the bank but this is not pre-condition to Receivership.
Where Bank is under receivership, Bank cannot do new business,
sell/lease/mortgage its properties because appointment of Receiver
operates to suspend authority of Bank over its property - equivalent to
Injunction to restrain bank from intermeddling with property of bank - all
depositors/creditors are on equal footing - appointment of receiver does
not dissolve Bank. The exclusive juris of Liquidator pertains only to the
adjudication of claims against the Bank and distribution of remaining
assets of bank following the rule on prioritisation of claims. PDIC, as
receiver, shall be liable up to a maximum of Php 500,000 - per
depositor, regardless of the Branch or nature of the account (whether
time, demand, savings deposit). Any bank balance not covered by
PDIC, like Bonds, Investment Account, etc, be pursued in the liquidation
proceedings. When Bank is insolvent and closed by Monetary Board, it
is not liable to pay interests on deposits from date of closure (Bank
Holiday)
G.R. Escalation clauses/increase of interest in Bank loans - void (due to
lack of consent)
Bank Secrecy Law - BSL - That bank deposits, including Bonds,
Investment, Trust Accounts, may not be examined, inquired, looked into,
disclosed to anybody except: written permission; impeachment;
independent Audit/exam by Monetary Board; BIR commissioner inquiry
into bank deposit of decedent to determine gross estate and compro of
tax liabilities., unclaimed balance account. But court order necessary in
case of bribery/graft by public office, including spouse, relatives; deposit
is subject of litigation; unexplained wealth cases (including Plunder; SC);
danger of bank fraud; and AMLA cases, upon court order, except in
cases of kidnapping, illegal drugs, hijacking; terrorism, arson, murder
(KDHTAM) Plunder included. Garnishment does not violate bank
secrecy law. Foreign currency deposits are also confidential, except
upon written permission - also exempt from garnishment, attachment, or
court order - Exception: in Salvacion case - where foreign national raped
a minor.
Redemption of real estate mortgage: whether judicial or extrajudicial -
one year from registration of sale with Registry of Deed. But if
mortgagee is Bank and mortgagor is a corporation/partnership - 3
months after foreclosure or before registration with Registry of Deed,
whichever is earlier. Banks should dispose/sell property/collateral within
5 years.
Corporation
Corporation - artificial being created by operation of law (concession
theory) having right of succession powers, attributes, property,
authorized or incident… It has continuity of existence regardless of
death with one of stockholders. The theory of legal fiction applies but if
legal corporate fiction is used a shield to confuse legitimate issues,
abused, or used as a cloak or dummy for illegal/wrongful purposes,
justify a wrong or defend a crime, courts may pierce corporate veil, so
that corporate officers be made personally liable for their wrongful acts.
Corporation maybe private or public. Or corporation going public
(registration with stock exchange)
Formation/incorporation/organization - Articles of Incorporation signed
by 5 to 15 incorporators (merged/consolidated, up to 21 incorporators)
who must be natural persons, except rural banks.
Corporate powers exercised by Board of Directors/Trustees (not the
President) to be elected from among stockholders/members who must
hold office for one year (except in non-stock corporation) must own at
least one share which should stand in his name in corporate books and
if he ceases to be owner, he ceases as Board of Directors, or he maybe
removed without cause by 2/3 stockholders. In case of death,
resignation, incapacity, vacancy be filled up by Board of Directors. In
case of removal and expiration of term by stockholders vote.
Ultra Vires acts of Board of Directors/Officers ratifiable but ultra vires
acts of corporation (outside its purpose or acting as Corporate beyond
its term) amendment of articles of incorporation necessary. Election of
board of directors/trustees - stockholder should own stocks registered in
his name in corporate books, be present or by proxy/Voting Trust
Agreement. No delinquent stocks (declared as such by Board of
Directors) be voted. Shares not recorded in corporate books is
invalid/inexistent, cannot vote. Transfers of stocks to be valid, must be
1. delivered indorsed to a specific person or with Special Power of
Attorney
2. recorded in corporate books,to bind 3rd persons except
uncertificated stocks.
Exceptions to right to vote by others not as owner: Mortgagee, if allowed
by Mortgagor; Executor; Voting Trust Agreement, PCGG, for shares of
stocks registered in the name of private persons, but which 1. have
been sequestered by government, PCGG, as a conservator and not as
owner, is allowed to vote or be voted as Board of Directors or as
Nominee Director if proven that 1. shares were purchased with coco
levy funds (public funds) affected with public interest, or 2. if shares are
ill-gotten, or 3. if there is imminent danger of dissipation of private
corporate assets.
Corporation has power to acquire its own shares as treasury shares for
legitimate purpose provided corporation has unrestricted retained
earnings except redeemable shares.
Appraisal right is the right of a stockholder to dissent to Corporate Board
action/s and be paid on the appraised value of his shares. To exercise
appraisal right, stockholder be present/proxy to dissent to corporate
actions that require stockholders vote, but not for action that do not
require stockholders vote.
Dividends - shares of stockholders from profits of corporation.
Declaration of dividends is discretionary upon Board. However,
Corporation must declare/pay dividends if surplus profits exceed 100%
of paid up capital. Cash dividends to delinquent stockholders be applied
to unpaid subscriptions.
Trust Fund Doctrine - that the capital stock, property, subscribed
receivables, other assets of the corporation are regarded as Equity in
Trust for payment of corporate creditors - as a fund to which the
creditors have a right to look for the satisfaction of their claims…
The SC said that revocation/rescission of subscription contract results in
the unauthorized distributed of capital assets of corporation which
results in the premature liquidation of a corporation without the benefit of
prior dissolution, thereby violating the Trust Fund Doctrine.
Voting Trust Agreement (VTA) - where one or more stockholders create
VTA to confer upon the trustee, right to vote and other rights pertaining
to the stocks for a period not exceeding 5 years.
Doctrine of Corporate Opportunity - officers take advantage of business
opportunity/commit fraud/gross negligence.
Foreign Corporation - formed/organized outside Philippines and whose
laws allow Filipino to do business in its own state. For Foreign
corporation to do or engage in business, SEC license is required so that
it can maintain or intervene in any action, suit or proceeding before any
court/administrative body.
Foreign corporation without license can be sued but cannot sue. But
Foreign corporation not doing business may sue.
Doing business is the continuity of commercial dealings (continuity test)
and includes a single act if such act (like participating in bidding) is in
accord with the purpose/object of the Foreign corporation. Substance
Test applied if Foreign corporation continues its business in Philippines.
Exceptions (SC) to the rule rule that Foreign corporations doing
business without license, cannot sue are: Estoppel; know of no license;
unfair competition; infringement; isolated transactions; obtained license
later.
Dissolution - termination of corporate existence. It precedes liquidation.
Modes - 1. Voluntary 2. Involuntary 3. Shortening/expiration of term.
Corporate Liquidation - takes place after dissolution/expiration of
corporate term - continues for 3 years as a body corporate for winding
up (prosecuting/defending suits) to settle and close its affairs; to
dispose/distribute assets but not for continuing tis business. If 3 years
expired, the trustee/lawyer/Board of Directors may continue
liquidate/distribute/suits.
RTC jurisdiction - intra-corporate disputes now transferred from SEC to
RTC, such as Petition for rehabilitation of distressed corporation be
approved by Board of Directors/Stockholders; Petition for suspension of
payments; Petition for dissolution; Petition for rehabilitation/appointment
of rehabiliation receiver; Petition to create/appoint management
committee; Petition for declaration of insolvency. When a corporation
files a Petition for Rehabilitation the court will suspend all claims against
the corporation provided that the serious situation test is complied (that
there is an imminent danger of dissipation of corporate assets of
paralyzation of business operations). Once a corporation files a petition
for corporate rehabilitation with suspension of payments due to technical
insolvency, the appointment of interim receiver is automatic. When RTC
appoints a Rehabilitation receiver or management committee, it
suspends all actions/claims against the corporation in order to exercise
its powers free from any judicial/extrajudicial interference so that all
assets/property are held in trust/ in custodia legis for the equal benefit of
creditors/stockholders. However, the corporation may foreclose/redeem
its property during receivership/liquidation because such is not a claim
or action against the corporation. The purpose of appointing receiver is
to restore/rescue the corporation. The legal personality of the
corporation continues even during receivership and until liquidation, up
to 3 years. After 3 years of winding up/liquidation. all other actions
maybe continued thru a trustee/legal counsel/Board of Directors.
In merger - corporations combine assets/liability and one of the
combining corporations continues the combined business and the other
corporations are dissolved. Consolidation, a new corporation is created.
In both cases, the obligations of constituent corporations are absorbed
by the surviving corporation or the new corporation.
Board of Director/Board of Trustee member must be personally present
during Board meetings - Quorum required. But
teleconferencing/videoconferencing in Board of Directors/Trustees
meeting now allowed under RA 8792.
Transportation/Common Carriers:
Certificate/franchise/Licensee/CPCN not required to incur
liability/responsible of Extraordinary Diligence of Common Carriers
Extraordinary Diligence/utmost diligence - a common carriers is bound
to transport cargo/passengers safely using utmost diligence/
extraordinary diligence.
GR. In the carriage of goods, common carrier is presumed at
fault/negligent/liable for Loss, Damage, Liability unless due to following:
Flood Earthquake, natural disaster, force majeure, hijacking,
acts/omission of owner of goods; nature/defects of goods, improper
packing etc, and provided these are the only and proximate cause of
Loss, Damage and Liability and there is not contributory negligence of
Common carrier. Liability in the carriage of goods start from the moment
goods are received unconditionally and lasts when goods are delivered
to the place of destination or delivered to consignee/agent. In the
carriage of persons, utmost diligence is a statutory obligation of common
carrier, where victims need not prove the common carrier’s negligence
because the law raises the presumption of common carrier negligence-
presumed at fault unless controverted by common carrier or proven that
the proximate cause of loss, death, injury is fortuitous event or natural
disaster (does not include fire)
Bareboat/Demise charter is lease of the vessel and crew/equipment
which makes the Demise charterer liable as common carrier (Extra
ordinary diligence required) and the owner of vessel liable as a private
carrier - only ordinary diligence required. Whereas, in
affreightment/Time charter/voyage charter, the vessel owner as
common carrier should exercise extraordinary diligence/utmost diligence
- presumed negligent but charterer is only a private carrier.
Limited Liability rule - a written slip limiting the liability of common carrier
which appears/specified in bill of lading, contracts, receipt, fixing sum to
be recovered in case of loss, damage and liability unless 1. wilfull
misconduct; 2. gross negligence; 3. bad faith/fraud 4. owner of goods
declared higher value.
maritime transactions are real and hypothecary in nature - that the
liability of vessel owner is limited to the value of the vessel sinks or if
vessel owner exercises right of abandonment due damage of more than
1/4.
General Average - is the damage/expense incurred which resulted in
saving the vessel and inured to the benefit of all. particular average -
only cargo or vessel is saved - any expense/damage did not inure to the
benefit of all but only to a particular cargo/vessel. Others are not liable.
Insurance - agreement for consideration, to indemnify another against
Loss, Damage and Liability arising from unknown/contingent event
(includes suretyship) following the cognition theory.
Insurance policy - is a written instrument in which contract of insurance
is set forth. Even without insurance policy, contract is valid.
Requisites: Contract (consent, object, consideration) plus insurable
interest; premium; risk of loss; assumption of risk;
insurance policies are contracts uberrimae fides - contract of utmost
good faith - disclose all material facts.
Parties - insurer and insured. Beneficiary is not a party - maybe
revocable/irrevocable
Insured may designate anyone as beneficiary in life insurance, even
without insurable interest but not in property insurance.
Insurable interest - is the relation, connection, concern in a
person/property that the insured will derive pecuniary benefit/advantage
from its preservation and suffers pecuniary loss.
A person has insurable interest in his life, his spouse, child, person on
whom he depends for education/support etc. In life insurance, insurable
interest must exist only at time of perfection of the contract.
In property insurance insurable interest must exist when insurance takes
effect and when loss occurs, but need not exist in the meantime.
beneficiary in property insurance should have insurable interest.
Insurable interest in property may consist in 1. an existing interest 2. an
inchoate interest founded on existing interest 3. an expectancy. Creditor
cannot insure property of his debtor; son cannot insure property of
parents.
Concealment - neglect to communicate that which a party knows and
ought to communicate must be material. In case of concealment,
contract is voidable at the option of insurer.
Rule in concealment and misrepresentation - if discovered before the
loss/death, insurer can cancel policy, premium be returned. If insured
died within 2 years from date of contract or last reinstatement of
insurance insurer can rescind/refuse to pay (incontestability clause)
However, if insured died after 2 years, Insurer cannot exercise right to
rescind - insurer liable. Except: 1. Non-payment of premium 2. No
insurable interest 3. cause of death excepted 4. fraud 5. no proof death
VIP provision: Incontestability clause concept - in life insurance, in case
of concealment, insurance is null/void except when insured died after
the 2 year period from date of contract or from the last date of
reinstatement. insurer cannot refuse to pay proceeds or rescind
insurance contract on ground of concealment/misrepresentation -
insurer is liable. In case of concealment; the insurer is not liable even if
the insured dies of another cause. Concealment in Marine insurance is
stricter because the fact concealed must be the proximate cause of the
loss/damage, to make Marine insurer liable. However in Healthcare or
health insurance, the fact of concealment can only be used as an
affirmative defense to be established by the insurer. If concealment is
one of the exclusions/exceptions in the health insurance contract,
insurer can refuse to pay or is not liable.
Insurer is entitled to the payment of premium (no premium no insurance
policy - cash/carry provision)
Insurer still liable in the following cases (SC) even if premium is not
actually paid or premium not received:
1. acknowledgment of receipt of premium
2. in case of life/industrial life policy when grace period provision
applies
3. when partial payment of premium was accepted by insurer
4. if parties agreed on credit/term payment of premium or on
installment
5. if insurance agent received premium payment but did not remit to
head office
6. if check payment was issued to insurance agent before the loss-
death provided check has sufficient funds.
Comprehensive motor vehicle insurance policy refers to a contract of
insurance against liability for death, bodily injuries of passengers or 3rd
party liability for death/injury arising from motor vehicle accidents.
No fault indemnity clause - any claim for death/injury arising from
vehicular accidents shall be paid without proving fault or negligence.
Just submit - police report, death certificate, medical certificate.
Here insurance claims shall be made against the insurer of the vehicle
in which the occupant is riding.
Notice of loss be made within reasonable time - Notice of claim - within
6 months - file suit - claim within one year from date of denial.
Intellectual Property Code - RA 8293
Intellectual property - is an intangible, incorporeal right granted by law to
inventor, author, artist, etc, with exclusive privilege of producing,
selling/transferring
coverage - copyrights; trademarks/service marks; patents; industrial/lay-
out designs
The intellectual property office shall exercise/implement rules/laws
under RA 8293
The intellectual property office shall exercise/implement rules/laws
under RA 8293.
All countries/signatories to international conventions (Paris convention)
treaty/agreement (GATT, ASEAN, WTO) relating to intellectual property.
Reciprocity rule/reverse reciprocity rule applies to all nationals of
signatories to international treaties/conventions.
Copyright consists in exclusive right of owner to print, publish, copy,
distribute, sell et.
1. Works protected - books, letters, paintings, photographic works,
literary/artistic/scientific etc
2. The copyright for a work is acquired by an intellectual creator from
the moment of creation, even in absence of registration and deposit
with National Library/ Supreme Court
3. Copyright is Separate/Distinct from the property work. If the work is
the result of his contract as employee, copyright belongs to the
Employer. In case a person commissioned the work, he shall own
the work (like painting) but the copyright shall remain with the
painter/artist.
4. Works protected - original works; writings; paintings; letters;
drawings; musical composition; photographic works; computer
programs; Lectures; Books; literary/artistic work, derivatives
5. But the format, mechanics of TV shows; news of the day; text of
laws/statutes; works of the government; speeches; court decisions;
rules/regulations, etc are not copyrightable/not protected.
6. Fair use of copyright shall not constitute infringement of copyright,
such as, uses for following information purposes; for research; for
educational; for government libraries; for teaching, etc.
7. Infringement of copyright is the trespass on a private domain
owned/occupied by the owner of copyright. It is also referred to as
intellectual piracy which cause injury to the author/owner of
copyright. It is also called plagiarism.
8. Test - copying produces an injurious effect as to diminish the value
of the work.
Trademarks/Service marks - any visible or distinctive mark/sign to
identify
1. Trademarks/service marks are acquired through registration with the
IPO
2. First registrant - rule in prioritization/preference. Continuous non use
of the mark for 3 years, after which, IPO may allow registration of
said trademark by another applicant, excpt
3. Trademark/right shall belong to the user of the mark, applies only to
goods specified in the certificate and does include unlrelated goods
following doctrine of related goods.
4. Holistic test is applied where the entirety of the mark was copied to
cause confusion. While
5. The Dominancy test was applied where it focused on the similarity of
dominant features of the trademark so as to confuse the public.
Life/duration of trademark is 10 years, renewable 10 years provided
registrant declares actual use on the 5th year.
Patents Elements - novelty, originality, precedence, usefulness
1. First to file/register rule - right to the patent belongs to the applicant
who has earliest filing, even if filed in another country with reciprocity
rights/same priv, considered as filed.
2. Rights of patentee - to restrain/prevent/prohibit the use, sale, making
of the invention. Non-patent holder, eve if first inventor without
registration, cannot sue for injunction because patent was not issued
to him. He can sue for cancellation of patent because the invention
forms part of prior art.
3. The person who commissions the work shall own the patent, unless
otherwise provided
4. In case employee made the invention during his employment, not
part of his duties,
5. Patent belongs to the employee. Otherwise the employer, if its the
result of his assigned duties
6. kinds of patent licensing, voluntary licensing and compulsory
licensing
7. Voluntary licensing - owner of patent exploits the invention or by his
transfer/sale to 3rd persons
8. Compulsory licensing - the state allows other applicants to exploit
the invention in favor of another if it is vital to the economy, defense,
 health. where public interest so requires, the government may
exploit the invention even without consent of the patentee.
9. SC ruled that there is infringement of patent, applying the doctrine of
equivalents - where minor modifications/similar materials, same
result. Also applied the rule on literal infringement, where there is
exact identity of materials/process used.
Term - 20 years without renewal. Utility model, 7 years without renewal
takes effect on date of publication IPO gazette of grant
Remedies of patentee - infringement; injunction; criminal action for
repetition of infringement.
Securities Regulations Code - RA 8799 - also called the blue sky law
Purpose - to protect the public investors from fraudulent schemes of
unscrupulous promoters who sell worthless certificate which is nothing
more than a square of the blue sky.
The administration of RA 8799 to protect investing public, is the SEC
which regulates trading of securities by requiring registration of issuers,
brokers, dealers, the securities regulation of margins
Securities are investment contracts which should be registered with
SEC for protection of investors.
Issuer - the owner, maker or originator, obligor, creator of the security,
maybe a corporation, partnership
Insider trading is prohibited - where a person has a relationship with the
issuer of the security which gives him access of facts of special
significance which is not generally available. Such “insider”/person is
prohibited to engage in buying/selling/trading such kind of securities.
Tender Offer - is a publicly announced intention of a prospective buyer
to acquire substantial amount of securities of a listed corporation by
making a tender offer.
Exchange - an organized marketplace for trading of securities, such as
the PSE
Over the counter markets - trading of unregistered/unlisted securities
Uncertificated security - security evidenced by electronic or similar
records
Manipulative and prohibited practices - wash sale/short sale - no change
in ownership
Margin trading - trading of security on credit. The broker
advances/extends credit to the customer for a free/interest to buy more
securities and complete the transaction.
Actions be brought within 2 years after the discovery of violation and
within 5 years after such violation. If aggrieved by Commission’s order,
appeal by petition for review with CA.
Other special/related Mercantile laws and commercial documents not
considered as negotiable instruments (NI)
1. Letter of Credit (LC) - financial engagement by Bank to pay Seller
under its conditions for the seller present B/L/WR to the bank. Letter
of Credit is independent from the contract of sale between buyer and
seller following the independence rule (where the contract of sale is
separate and distinct from the Letter of Credit, not a negotiable
instrument).
2. Bill of Lading (BL) - contract and receipt of goods issued by
Common Carrier, not a Negotiable Instrument.
3. Others are: Credit cards; Postal Money order; Treasury Warrant;
Debit memo; Certificate of stocks; Trust Receipts; warehouse
receipts.
Bulk Sales Law (BSL) covers: transaction/s on 1. sale, transfer,
mortgage, assignment of all/substantially all of the fixtures, equipments,
goods/merchandise, materials used in the business of seller which
renders him incapable of continuing his business/trade. Other assets not
directly used in the business/trade of seller is not covered by BSL.
Failure to comply with BSL makes the transaction. Fraudulent and Void.
Sanctions for violation of BSL - imprisonment, 6 months to 5 years or
fine or both. Buyer, transferee, mortgagee not criminally liable unless
aware by indispensable cooperation or bad faith.
Warehouse Receipts (WR) Law - Act no 2137
The law applies to warehouse receipts issued by a warehouse manager,
lawfully engage in business storing goods in a warehouse - written
contracts/acknowledgment by a warehouse manager that he has
received and holds certain goods for deposit, described in warehouse
receipt - warehouse manager note should file claim for interpleader.
General Bonded Warehouse Act - GBWA - Act # 3893 amended by RA
247 - to protect depositors by giving them direct recourse against the
bond.
Chattel Mortgage (CM) Law - Act 1508 - contract where personal
property is recorded in Chattel Mortgage Register where property is
located as security and bind 3rd persons - does not include after
incurred obligations. Mortgagor retains possession of property
mortgaged, unlike in Pledge, where pledgee retains possession of
personal property. Affld of good faith required for 3rd persons.
No redemption right - only equity of redemption
G.R. there is recovery of deficiency because collateral is not for
satisfaction of principal obligation except when mortgaged chattel is
subject of sale on installment - Recto Law.
Real Estate mortgage (REM) - debtor secures to the creditor the
fulfillment of principal obligation, subjecting as security immovable
property or real rights which obligation shall be satisfied with the
proceeds of sale.
Remedies in case of Real Estate Mortgage:
A. If mortgagor is alive
1. Foreclosure/sale or
2. Ordinary action for collection provided Real Estate
Mortgage waived
B. If mortgagor died
1. by Judicial foreclosure - here,there is right to claim
deficiency from his Estate; or
2. by Extrajudicial foreclosure - just rely on the mortgage and
foreclose the same with no right to claim for deficiency in case proceeds
deficient/insufficient. Right to redeem - real estate mortgage: whether
judicial/extrajudicial - one year - 3 months. A creditor/mortgagee cannot
extrajudicially foreclose mortgage unless authority to foreclose is
attached to Deed of Mortgage or a Special Power of Attorney
authorizing extrajudicial foreclosure of real property. A mortgage liability
is usually limited to the amount mentioned in the contract but where
parties intended that the mortgage property shall also answer for future
loans, same is valid/binding provided such intention is stipulated in the
Dragnet Clause or Blanket Mortgage Clause (a clause which is
specifically phrased to Subsume all debts, past, present and future,
enabling parties to provide continuous dealings on the property without
need of new security or collateral.
Trust Receipt Agreement (TRA) a commercial document under PD 115
is a security transaction to aid importers/buyers to finance their business
by utilizing as collateral the goods bought/imported. The financier/Bank,
becomes the entrustor/owner of goods while importer/trader/borrower,
becomes entrustee. In case of failure of entrustee to turnover sales
proceeds or the goods to the entrustor, estafa is committed because of
dishonesty/abuse of trust. Also, in case of loss of goods, the entrustee
bears the loss, as exception to “res permit domino”. If the goods covered
by TRA were not sole but instead, delivered/transferred to another
person, the entrustee still liable (estafa). Entrustee/borrower should not
mortgage/pledge the goods because he is not the absolute owner. But
anyone who anyone who acquires the goods subject of the Trust
Receipt Agreement, acquires good title, but the Entrustee is still liable
for Estafa.
The SC ruled that Letters of Credit and Trust Receipts are not
Negotiable Instruments although Drafts Issued with the Letters of Credit
are Negotiable Instruments.
Latest SC rulings to remember (Corporation, Revised Securities Act;
Insurance, Transportation/Common Carrier; Banking Laws/ Negotiable
Instrument; Intellectual Property
Corporation:
1. Corporate powers exercised by Board of Directors - that Board of
Directors not personally liable for official acts, unless bad faith -
gross negligence - illegal - possession of corporate property; - courts
may pierce corporate veil.
2. Petition for rehabilitation or suspension of payments if technically
insolvent (corporation has sufficient assets but foresees impossibility
of meeting when due than SEC appoints Interim receiver and
suspends all actions against corporation; prohibiting debtor from
making payments, selling encumbering, transferring - disposing
assets, except in normal course of business.
3. RA 8799 transferred jurisdiction of SEC to RTC - intra corporate
disputes. If not intracorporate, it must be referred to SEC with
specialized knowledge/expertise on sale of securities, following the
doctrine of primary jurisdiction. If complaint is criminal, SEC should
indorse to DOJ for preliminary investigation. If SEC appointed
Management Committee or Rehabilitation Receiver, does not divest
RTC of its exclusive jurisdiction inorder to suspend all actions/claims
of pecuniary nature against the corporation to rescue/restore.
4. Also, where corporation is threatened with bankruptcy, taken over by
Rehabilitation Receiver, all creditors stand on equal footing until
liquidation/distribution/winding up. Right of creditors to foreclose
property of corporation mortgaged to creditor shall be made after
rehabilitation period during liquidation. Preferential right of secured
creditors shall apply during liquidation. Grounds to appoint receiver-
imminent danger; paralyzation a “stay order” defers all
actions/claims against the corporation seeking rehabilitation from
date of issuance until dismissal of petition or termination of
rehabilitation proceedings - the “stay order” includes all claims
against the corporation without distinction whether secured or non-
secured.
That a corporation is technically insolvent to qualify for petition for
rehabilitation, if a corporation is unable to pay its obligations beyond one
year. Appointment of Interim Receiver becomes automatic. Purpose of
rehabilitation is to enable the corporation to restore/gain new lease on
life and allows creditors to be paid their claims from its earnings during
rehabilitation because rehabilitation contemplates a continuance of
corporate life - that rehabilitation contemplates continuance of corporate
life, to restore-reinstate corporation to former position.
5. Sc reiterated the Doctrine of Corporate Opportunity under sec 31 and
holds corporate-officers liable for gross negligence/bad faith in directing
affairs of corporation which resulted in damage/injury to its stockholders,
members, corporation, etc. Unless corporate officers exceeded their
authority, corporate officers as a general rule are not personally liable
for official acts because corporation is by legal fiction has separate
distinct personality from officers.
6. That mere interlocking of directors does not warrant “piercing”, the
test is “complete control or domination” not only of finances but of policy
and business practices.
7. Under the doctrine of apparent authority, the principal/corporation is
liable only as to 3rd persons if they were led to believe by the conduct of
the principal that such authority exists although none is given.
8. That the stock corporation’s recourse on unpaid subscription is not
applicable to non-stock corporation - the right of non-stock corporation
to expel a (deceased) member thru forfeiture of member’s share be
established in the by-laws.
9. In the absence of authority from board of directors, no person not
even its officers, can validly bind the corporation.
10. Dismissal of corporate officers is always a corporate act and an
intra-corporate controversy - that corporate officers are those included in
the by-laws - his removal is an intra corporate dispute cognizable by
SEC on its investigatory/regulatory powers. Election of BOD/officers is
within jurisdiction of RTC but exercise of stockholders rights to vote on
matters other than election of BOD/officers is SEC jurisdiction.
11. Corporate officers are those as such in the by-laws are
elected/appointed by BOD/stockholders, but not for ordinary employees
who are generally employed by managing officer not by the action of
Board of Directors.
12. Corporate officers tenure is that period during which he actually
holds office, which maybe shorter or longer or in case of holdover. BOD
have term of one year. Holdover is not part of his term.
13. Where 60% of capital stock outstanding and entitled to vote are
owned by citizens of Philippines, such corporation is considered as
Philippine National.
14. That since PLDT shares were declared in favor of the Republic, it
includes all dividends/interests accruing thereto as owner. Transfer of
shares not recorded in books is valid only as to parties although
owner/transferor has right to dividends without prejudice to the right of
the transferee.
15. Heirs do not automatically become stockholders - the stocks must
first be distributed to the heirs in estate proceedings and transfer of
stocks be recorded in the books. During the interim period, the heirs
stand as equitable owners - the executor/administrator appointed by
court is vested with legal title to the stocks.
16. A corporation that buys the assets of another corporation will not be
liable for debts of selling corporation provided good faith and adequate
consideration present - where selling corporation is incapable of
continuing business. However, in case of Merger/Consolidation, all
liabilities of dissolved corporation are assumed by surviving/new
corporation.
In merger - one of the corporation survives In consolidation , new
corporation formed - both assume all liabilities/assets.
17. Stock Certificate - tangible evidence of ownership of shares of
stocks - its presence/absence does not affect right of registered owner
to dispose his certificate - delivery of indorsed stock certificate is
sufficient to transfer ownership and absence of DS or DA is not fatal flaw
to render transfer invalid. To bind 3rd person and right to vote/be vote as
Board of Directors, transfer be recorded in the corporate books.
18. Failure to file by laws within prescribed period does not ipso facto
lose its corporate powers.
Revised Securities Code - RA 8799 - Blue Sky Law
1. Intracorporate disputes transferred to RTC as special commercial
court.Existence of intracorporate dispute is determined by
Relationship test and Nature of Controversy test. An heir not
registered as stockholder fails in the relationship test.
2. Checks are not securities because they cannot be rolled over even if
it is a certificate of indebtedness - not enumerated as a security under
RSA.
3. During the receivership period, BP 22 (criminal aspect) is not a claim
that can be suspended because it is not a claim pecuniary in nature
against corporation. However, the civil aspect of the bounced check is
suspended, as a claim of pecuniary nature against the corporation.
4. Margin Trading is trading on credit that a bank that engages in
securities trading should register with SEC - failure is criminal in nature -
not incorporate - SEC than DOJ
Insurance
1. Right of subrogation attaches to insurer upon payment to insured
than against the wrongdoer. Right of subrogation accrues to the
insurer upon payment to the insured. In case of loss of the
vessel/goods. The insured is given option to choose between
abandonment of the thing insured or claim for total loss when the
cause of loss is the peril insured.
2. Double interest - imposition of 2x interest - 12 x 2 = 24/year until
claim is fully paid.
3. Excepted risks like NPA causing fire be proven by insurer, otherwise
insurer liable.
4. License be secured from the insurance commission aside from
license as insurance agent/broker
5. Notice of loss, claim within reasonable time, condition precedent,
imperative - opportunity to examine.
6. SC reiterated that insurance instrument is the instrument where a
person has a relation/connection/concern in it such that such person
will derive pecuniary benefit/advantage from the preservation of the
property insured and will suffer pecuniary loss/damage from its
destruction/loss by the happening of the event insured.
7. Where insurance contract provides for indemnity against liability to
3rd persons the liability of the insurer is direct and such 3rd persons
can directly sue the insurer up to the extent specified in the
agreement, not beyond that amount.
Transportation Law: Common Carrier
1. Extraordinary diligence/utmost diligence in carriage of persons -
goods.
2. When passenger unceremoniously bumped off, damage - exemplary
- moral - Common Carrier bad faith.
3. Doctrine of limited liability - vessel totally lost, no vessel to abandon
so abandonment not required because total loss results in the
extinction of all liability for damages following the hypothecary nature
in marine carriers - $500/package unless shipper declares higher
value.
4. Airline issuing ticket - with connecting flight - liable for exemplary
with legal interest - 12%
5. Doctrine of Last Clear Chance - last clear opportunity to avoid loss
but failed. In case of collision, doctrines applies
6. Demise/bareboat - Common Carrier/Lessee liable in case of Loss,
Damage, Liability, Extraordinary diligence required. Owner of
Common Carrier/Lessor liable only as a private carrier, ordinary
 diligence required. But not in affraightment, time/voyage charter -
owner of common carrier, liable
7. Bill of lading - a receipt issued by common carrier that the cargo is in
good condition
8. uninsured vessel sank before chattel mortgage could be foreclosed
by bank, vessel suffers loss
9. in maritime law jurisprudence, the handling of cargo is mainly the
arrastre operators principal work such as loading, handling, stowage,
custody, care and discharge of such goods. However the cargoes
while being unloaded still remain under the custody of common
carrier - common carrier still principal liable to the cargo owner by
exercising extraordinary diligence. unless otherwise agreed between
the common carrier and arrastre operator, common carrier remains
liable to the cargo owner. To overcome the presumption of
negligence, common carrier must establish by adequate proof that it
exercised extraordinary diligence over the goods.
10. Death of passenger in the course of transporting her gives rise to the
common carrier liability unless overcome by a showing common
carrier exercised utmost diligence or that the accident was caused
by a fire, earthquake. That common carriers are liable for the death
of its passengers thru the negligence or willful acts of employees
even if such employees acted beyond the scope of their authority or
in violation of common carriers orders.

Banking laws and Negotiable Instrument law:

1. the appointment of receiver of banks is vested exclusively with
monetary board. CA has appellate jurisdiction over final judgments,
orders, resolutions, awards of the BSP in administrative cases
involving directors, officers of banks quasi banks as affirmed by BSP
circular
2. a certificate of deposit is an interest-bearing time deposit due at a
future time a written acknowledgment of bank of receipt of money for
deposit which bank promises to pay to deposit or his order
3. A managers check stands on same footing as certified check
4. SC reiterated the fiduciary duty of banks, to exercise extra-ordinary
diligence to protect depositors/creditors
5. where drawee bank pays a person other than the person named
therein, it cannot charge the drawers acct the effect of crossing a
check serves as warning that it could not be converted to cash but
only for deposit otherwise he is holder not in due course
6. Collecting bank is an indorser which suffers the loss because it has
duty to ascertain genuineness of prior indorsements - it assumes the
warranty of the indorser.
7. The BSP even without notice and hearing or the “close now and
hear later” rule is to prevent unwarranted dissipation of bank assets
as exercise of police power for protection of public interest
8. when maker dishonors the instrument, holder has right of recourse
against secondarily liable persons, like indorser, for recovery - the
relation between payee and the collecting bank is one of agencym
not debtor/creditor relationship.
9. if instrument is payable to 2 or more payees/indorsers, not partners,
all must indorse, except authorized.
10. if signatures are genuine, bank has duty to pay
11. material alteration only applies to changes in date, sum, time, place;
currency - but not the serial number of a check.

Intellectual property
1. while the rome convention gives broadcasting organizations the right
to authorize/prohibit the re broadcasting of its broadcast, this
copyright protection does not extend to cable re-transmission
2. that intellectual property right/franchise maybe withdrawn by the
state anytime
3. it is the element of “likelihood of confusion” that is the gravamen of
trademark infringement cases applying the dominancy and holistic
tests.
4. where accused exerted efforts to make products look genuine to
deceive public, there is infringement of trademark
5. where there is cloud of san miguel’s exclusive right relating to the
mark/work “ginebra”, there is no infringement of trademark.
6. In trademark, what the law punishes is the act of giving one’s goods
the general appearance that it would likely mislead buyers, that such
goods rightfully belong to the complainant.

CORPORATION LAW
Corporation -
• artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly
authorized by law or incident to its existence.
• It has continuity of existence regardless of death of stockholders.
• The theory of legal fiction applies that the corporation has separate
and distinct personality from its stockholders/board/officers.
• UNLESS the legal fiction is abused/ used as a cloak for
illegal/wrongful purposes, where courts may PIERCE
CORPORATE VEIL. If proven, corp. veil will be pierced by court and
corporate officers shall be made personally liable.
Doctrine of Apparent Authority - the principal is bound by the acts
of his agent with the apparent authority which he knowingly permits
the agent to assume, or which he holds to the agent out to the public
as possessing. The question in every case is whether the principal has
by his voluntary act placed the agent with business usages and the
nature of the particular business is justified in presuming that such
agent has authority to perform the particular act in question.
Business Judgement Rule - GR: Courts will not interfere in the
decisions made by the Board of Directors as regards the internal
affairs of the corporation.
Exception: Unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of rights of the
minority.
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 a breach of fiduciary relationship.
Corporation may be private or public.
• Private, when formed or organized by general law for private
purpose.
• Public, when formed or organized for public purpose/interest,
created by special law or act of congress. Substantial ownership
or transfer to the government of shares of stock of private corporation
or takeover of a private corporation by the government like PCGG,
does not convert the private corporation into public corporation or vice
versa.
Formation/Incorporation/Organization
• 5-15 incorporators who must be natural persons. 50 years max.
Php5,000 minimum paid up capital.
• Minimum paid-up capital: 25%. 25% subscribed/paid-up. Except: rural
banks, can be formed by juridical persons.
De jure - requirements complied with.
De facto failed to comply with some provision.
Corporate existence maybe inquired into by the state through quo
warranto proceeding.
Corporation by estoppel - act as corporation. Lacks corporate
personality.
Non-use of corporate charter
• failure to organize (elect officers) and commence business within
2yrs. from incorporation automatically dissolves the corporation.
• If it commenced business but is continuously inoperative for 5
continuous years., such is a ground for suspension/revocation thru
quo warranto proceedings.
Corporate powers:
• are exercised by the board of directors/trustees (not the president) to
be elected from among stockholders/members who must hold office
for 1 year (except in non-stock corporation).
• Must own at least 1 share which should stand in his name in
corporate books and if he ceases as owner, he ceases as board of
director/trustee.
• He may be removed without cause by 2/3 stockholders and vacancy
maybe filled up stockholders, except in case of death, resignation,
incapacity, vacancy be filled up by board of directors.
• But expiration of term, removal be filled up by election of
stockholders.
• Majority of Board of Directors/Trustee be residents of Phil.
• Acts of the President which were not delegated by the BOD and not
ratified by the BOD, are ultra vires acts of the president makes
president personally liable, exempting corporation from any liability
arising from ultra vires acts.
• Ultra vires acts of the BOD/officers are ratifiable but ultra vires acts of
the corporation are not ratifiable.
Election of BOD/T
• Stockholders should own stocks in his name in corporate books, be
personally present or by proxy.
• No delinquent stocks be voted.
• Right to vote is an inherent/incidental right and cannot be deprived of
right to vote whether his shares are class A, B, C except preferred or
redeemable shares.
• Transfer of shares not recorded in corporate of books
invalid/inexistent, cannot vote.
• Transfer of stocks to be valid must be
1. certified be delivered/indorsed to a specific person or with
SPA;
2. recorded in corporate books to bind 3rd persons. (But stocks
transferred thru the stock exchange is uncertificated allowed.)
Exceptions: In some cases, the SC held that shareholders of stocks
registered in the name of private persons which have been sequestered
by government, PCGG, as a CONSERVATOR and not as OWNER is
allowed to vote or be voted as BOD or as nominee director because
they were purchased with coco levy funds (public funds) affected with
public interest or if shares are ill-gotten or if there is imminent danger of
dissipation of private corporate assets sequestration is proper PCGG
takeover is proper.
Other exceptions on right to vote other than as Registered Owner.
• Pledgees /mortgagees, assignee, proxy, if authorized by
pledgor/mortgagor/owner
• Trustees in VTA, may vote stocks owned by trustor/owner or be voted
as BOD
• Executors, receivers, administrators without need of proxy - appointed
by court
Compensation of BOD/T/Officers - reasonable per diems only - except
by 2/3 vote of stockholders, yearly compensation shall not exceed 10%
of net income (NI) before income tax.
Liability of BOD/T/Officers - jointly-severally liable for unlawful acts/or
negligence.
Minority stockholder/BOD or even a single stockholder may sue for and
in behalf of corporation in a derivative suit and a real party in interest is
the corporation and not the stockholder or minority
Contracts between corporation with interlocking directors shall be valid if
fair/reasonable, except in cases of fraud. If interest of interlocking
director is only NOMINAL (20% or less) valid if fair/reasonable.
SC reiterated that corporate powers be exercised by the BOD unless
delegated in the bylaws to an EXECUTIVE COMMITTEE (3 members of
BOD) who cannot act as BOD on the following:
• On filling up vacancies in the BOD (death, resignation, incapacity)
• Amendment/repeal of AOI/BL or Board resolution
• Distribution of dividends
• Approval of any action which requires stockholders approval
If not denied in the AOI, stockholders enjoy PRE-EMPTIVE rights to
subscribe to all issues of corporation
Corporation has power to acquire its own shares for legitimate purpose
provided corporation has UNRESTRICTED RETAINED EARNINGS to
pay dissenting stockholders who exercise right of appraisal
Treasury shares (no right to dividends/vote) not retired, maybe re-
issued, resold to stockholders
Investing corporate funds in another corporation even outside its primary
purpose if approved by BOD and ratified by stockholders, is valid,
provided that ANY DISSENTING STOCKHOLDER is entitled to exercise
right of appraisal. However, (if investment is reasonably necessary to
accomplish its primary purpose, approval/ratified by 2/3 vote of
stockholders not required-only the BOD approval required.)
Corporations are prohibited from retaining surplus profits in excess of
100% paid up except:
1. When justified by corporate expansion;
2. When retention is necessary for contingencies;
3. Loan agreement.
Any surplus profits in excess of 100% should be declared as dividends
to stockholders.
Dividends are shares of stockholders from profits of corporation.
Rule: Corporations shall declare/pay dividends if surplus profits exceed
100% of paid up capital. Cash dividends to delinquent stockholders shall
be applied to unpaid subscription. Cash dividend declaration require
BOD approval only. But stock dividend declaration need approval of
BOD and 2/3 vote of stockholders.
Stock dividends are not subject to income tax because they are not
income realized until redeemed by corporation.
By laws (BL) be submitted to SEC within 1month from receipt of
Certificate of Incorporation (COI) or be submitted simultaneously with
AOI. BL is a code to govern the corporate contract between corporation
and stockholders/officers.
Contents; meetings; quorum; proxies; qualify/duties BOD/Officers;
election of officers; stock certificate
Voting Trust Agreement: where one or more stockholders create a
voting trust to confer upon the trustee right to vote and other rights
pertaining to the stocks for a period not exceeding 5yrs.
The certificate of stock covered by the VTA shall be noted in corporate
books and new certificate be issued in the name of TRUSTEE, who can
be voted as BOD. While effects is same as proxy, a proxy cannot be
voted as BOD.
Gen. Rule: To vote/be voted as BOD, he must own and stand in his
name at least 1 share of stock.
Except:
• Shares sequestered by government/PCGG because public funds
were used to acquire same which landed in private persons;
• By virtue of a VTA;
• Pledgee/Mortgagee, if allowed;
• Nominee director
Rescission/revocation of subscription contract results in the
unauthorized distribution of capital assets of the corporation which
results in the premature liquidation of a corporation without the benefit of
prior dissolution, thereby violating the Trust Fund Doctrine,
Rescission/Revocation is not one of the 3 grounds to distribute assets of
the corporation
1. amendment of articles of incorporation to reduce/dissolution and
eventual liquidation;
2. purchase of redeemable shares even without unrestricted retained
earnings)
Certificate of stocks (must be fully paid) are evidence of ownership of
stocks in the corporations personal property transferable by special
indorsement with Deed of Assignment or SPA and record in the stock/
transfer books - SC said that the corporate secretary cannot be
compelled by mandamus to transfer/register/ issue new stock certificate
to the transferee/ buyer if said stocks were not recorded in the corporate
books. Only registered owner of share of stocks can exercise to vote,
right to be voted as board of directors. Right to dividends if not declared
is delinquent, right of appraisal and pre-emptive right (to all issues-in
proportion) if not denied in the articles of incorporation.
Subscribed stocks not yet fully paid and not declared as delinquent are
still considered as stockholders and entitled to all risk as stockholders
such as right to vote, dividends etc.
Non-stock corporation - one where no part of its income is distributable
as dividends. That any profit obtained as an incident to its operations
shall be used for furtherance of its purpose/s such as religious,
charitable, cultural, professional, scientific, etc.
Membership in a non-stock corporation is personal, cannot be
transferred. Board of Trustees (exercise corporate power) are elected by
members.
Board of Trustees be at least 5 not more than 15.
Special Corporations
1) Educational ( if public schools are established by special law but
private schools shall be established as non-stock in accordance with
CCP, except family-administered pre-schools;
2) Religious Corporation
a. Corporation sole ( consist of only one person ( bishop, archbishop,
minister, rabbi, presiding elder of a religious sect) and
b. Religious societies;
3) Close Corporation whose articles of incorporation provide that stocks
be held by specific number not to exceed 20; stocks be subject to
restrictions; shall not list in any stock exchange. Close corporation are
usually family corporation, who manage/operate business affairs - are
personally liable for corporate torts.
Board of directors meetings are informal which may not be personally
attended unlike meetings of Board of Directors of stock corporation.
Foreign corporation - to do business or to transact business. LICENSE
from the SEC is required so that it will be permitted to MAINTAIN or
INTERVENE in any action, suit or proceeding before any
court/administrative body.
Foreign corporation without license can be sued but cannot sue.
Transacting business - continuity of commercial dealings and includes a
single act (like participating in a bidding) is in accord with the
purpose/objective of the foreign corporation.
Exceptions to the rule that Foreign Corporation without license cannot
sue are:
a.) Foreign corporation may sue the local corporation which obtained
benefits from its dealings with the foreign corporation - ESTOPPEL;
b.) If complainant KNEW that said foreign corporation had no license
and still transacted with the foreign corporation;
c.) If foreign corporation was a mere assignee of machine/equipments
unaccompanied by active use/operation;
d.) Cases of violation of intellectual property rights - infringement of
trademark/copyright; unfair competition
e.) When a license was obtained later to cure the defect;
f.) Isolated transaction, outside of the object/purpose/s of the foreign
corporation.
Doing business - soliciting orders; service contract: accepting
representative/distributors for a/c of foreign corporation; any which imply
a continuity of commercial dealings and prosecution of commercial gain
EXCEPT:
a. Mere investment of foreign corporation as stockholder in a domestic
corporation;
b. Foreign corporation having a nominee director/officer to represent its
interests in a domestic corporation;
c. Appointing a representative/distributor which transacts business in its
own and for its own account.
A LICENSE (from SEC) which was obtained later CURES the defect of
"no license business" (SC)
Methods of dissolution:
1) Voluntary - no creditors affected - 2/3 vote of stockholders/Board of
directors;
2) Involuntary - filing of complaint by creditors/stockholders- RTC
3) amendment of articles of incorporation
Corporate liquidation - takes place after dissolution/expiration of
corporate term and continues for 3 years as a body corporate for
winding up (prosecuting/defending suits) to settle and close its affairs; to
dispose/distribute assets BUT NOT FOR CONTINUING ITS BUSINESS.
If 3 years has expired the TRUSTEE/LAWYER/BOD may continue to
complete the liquidation/distribution of assets;
RTC jurisdiction - Petition for rehabilitation of a distressed corporation
be approved by board of directors/stockholders; petition for suspension
of payments; dissolution; appointment of rehabilitation receiver;
appointment of management committee; petition for declaration of
insolvency; fraudulent schemes.
Prior to the appointment of receiver/management committee, it must be
shown (by audit) that the corporation is in danger of dissipation of
assets, serious paralyzation, business being diverted.
The appointment of a REHABILITATION RECEIVER or management
committee SUSPENDS all actions/claims against the corporation and all
assets/property are held in trust/ in custodia Legis for the equal benefit
of creditor/stockholders.
Corporation may foreclose/redeem property during
receivership/liquidation because such is not a claim or action against the
corporation. The purpose of appointing receiver is to restore/rescue the
corporation; secured creditors are given preference only during the
liquidation/distribution of assets of the distressed corporation. The legal
personality continues even during receivership until liquidation. After the
3-year period of winding up, all other actions may be continued through
a Trustee/ legal counsel/ Board of Director.
In merger, 2 or more corporations combine assets/liabilities and one of
the combining corporations continues the combined business and the
others are dissolved. In consolidation, a new corporation is created.
CASES:
Ever Electrical, 672 - Corporate officers should not be held solidarily
liable with the corporation for separation pays because of the "doctrine
of legal fiction". Corporate officers are those elected or appointed by
board of directors and are given that character by the corporation code,
Section 25 which enumerates corporate officers as President, Secretary,
Treasurer and other officers provided by the by-laws.
Park Hotel, 680 - Section 32 of the Corporation Code provides that
directors are personally liable for corporate debs if he willfully and
knowingly VOTES for assents to patently unlawful acts of the
corporation are personally liable if guilty of gross negligence or bad faith
in directing the affairs of the corporation.
Sto. Tomas vs. Salac, 685 - Liability of corporate officers is not
automatic. It must be proven that they were remiss in directing the
affairs of the corporation, like sponsoring or tolerating illegal activities.
Sarona vs. NLRC, 663; Ramirez vs. Mar, 672 - That the corporate mask
may be removed/pierced when the corporation is used as an alter ego of
another corporation, defeat of public convenience, evasion of
obligations/taxes, justify wrong, alter ego cases, that 2 or more
corporations are owned, controlled and conducted by the same parties.
Prince Transport, 639 - The doctrine of piercing the veil is necessary
when the 2 business enterprises are owned, conducted and controlled
by the same parties, that those who seek to pierce must clearly
establish the above grounds.
United Coconut Planters Bank, 672 - The corporation is liable to
innocent 3rd persons where it permits its officers to perform acts holding
him out to the public as clothed with apparent authority.
Salenga vs. CA, 664; Ellice Corporation, 686; Dizon Copper Silver
Mines, 677 - Corporations can only exercise its powers and transact
business through its board of directors or through officers or agents
validly authorized or delegated to him by board of directors or by-laws.
Marc II Marketing, 662; Londonlo vs. BLO Research, 639 - Corporate
officers are not personally liable for officials acts unless shown that they
exceeded their authority. Corporate officers are those given that
authority under corporate by-laws. Dismissal of corporate officers,
controversies in the election, or appointment of directors, officers, are
intra-corporate disputes.
Barba vs. LCU, 686 - Corporate officers are those mentioned in the by-
laws such as chairman, president, vice, secretary, treasurer and others
are mere employees.
Alert Security Agency, 657 - in exceptional cases, the courts can pierce
and disregard corporate fiction to make officers solidarily liable for
corporate acts.
Continental Corporation, 659 - Personal liability attaches when the
corporate officers are guilty of bad faith, for gross negligence in directing
the affairs of the corporation.
Crisologo, 686 - Debts incurred like entering into a Trust Receipt
Agreement by the corporate officers are not their direct liability but of the
corporation.
Matling Individual Commercial Corporation, 633 -Board of directors has
no power to create other corporate officers without first amending the
corporate by-laws so as to include newly - created additional corporate
officers. Dismissal of corporate GM is an intracorporate dispute.
Gulfo vs. Ancheta, 678 - 2 Tests in the determination of intracorporate
dispute.
1.) Relationship Test;
2.) Nature of the controversy test
Go vs. Distinction, 671 - An intracorporate dispute pertains to the
following:
1. between corporation and public;
2. between corporation and the state, on its franchise, permit or
license;
3. between corporation and stockholders, members/officers;
4. among stockholders, members among themselves.
Marquez vs. FEBTC, 639 - A subsidiary and its parent company are
separate and distinct persons and their liabilities are confined to its own
business.
Steelcase Inc, 670 - the appointment of a distributor by a foreign
corporation is NOT doing business unless it is under the full control of
the foreign corporation which must secure a SEC license "to sue".
Where the foreign corporation is doing business without license, it
cannot sue - EXCEPT when the distributor derived some benefits from
their contractual arrangements, it is ESTOPPED from challenging the
personality of the foreign corporation by entering into a contract.
Majority of Stockholders of Ruby Corporation vs. Lim, 650 - Additional
issuance of shares from the unissued capital stock requires only board
resolution and not stockholders approval. Pre-emptive right of minority
stockholders be respected even if falling within the exceptions.
Gamboa vs. Teves, 652 - "Capital" refers to shares of stocks entitled to
vote in the election of Board of Directors such as common shares,
whether voting or non-voting and preferred shares non voting. To allow
all kinds of shares to elect Board of Directors would result in the object
surrender of our telephone; public utilities to foreigners amounting to a
clear abdication of the states constitutional duty to limit control of public
utilities.
Hacienda Luisita, 658 - That farmers who were issued certificate of
stock in the Hacienda Luisita Corporayion do not own the lands but as
farmer-beneficiaries, they acquire an equitable interest in the assets,
including the agricultural lands of the corporation.
Juno vs. NLRC, 670 - As a rule, a corporation that buys the assets of
another corporation will not be liable for debts of the selling corporation
provided it acted in good faith and paid adequate consideration.
EXCEPT:
1. when buyer agrees to assume the debts;
2. when the transaction amounts to a merger or consolidation;
3. when the buying corporation is merely a continuation of the selling
corporation;
4. when the selling corporation enters into a fraudulent transaction to
escape liability/obligation.
Cosco Phil, 686 - The power to sue is lodged in the board that exercises
corporate powers. Physical acts like signing of documents shall be
performed by natural persons authorized by the board of directors or by-
laws.
ON CORPORATE REHABILITATION:
FRIA (Financial Rehabilitation & Insolvency Act) provides for special
court proceedings for all kinds of persons.
Phil. Scout Agency, 679 - that the suspension of claims against the
distressed corporation is to enable the corporation to exercise powers
free fro judicial/extra judicial interference that might unduly prevent
resources.
Wonder Book Corp, 676 - Rehabilitation contemplates continuance of
corporate life. In an effort to restore/rescue the ailing corporation by
preserving a floundering business as going concern-not yet dissolved.
Town & country, 682; Express Investment 687; Export Development,
687 - Corporate rehabilitation contemplates continuance of business in
the hope of eventual return to solvency.- a stay order or appointment of
receiver/Management Committee is necessary to suspend all claims
against distressed corporation. = all assets held in trust for corporate
creditors.
Advent Capital vs. Alcantara, 664 - Rehabilitation proceedings are
summary and non-adversarial and do not contemplate adjudication of
claims that must be threshed in ordinary court proceedings.
Under the Rules of Procedure on Corporate Rehabilitation,
REHABILITATION means restoration of the debtor to a position of
successful operation and solvency-purpose is to restore-rescue an ailing
corporation - that is continuance is economically feasible so that
creditors can recover from the rehabilitation Plan by conserving and
administering the remaining assets of an insolvent corporation. P.D.
902- as amended by R.A. 8799 (Revised SEC Code) provides that upon
the appointment of management Committee, rehabilitation receiver,
board of body, ALL ACTIONS for claims including pending claims,
execution, against the corporation under rehabilitation shall be
suspended that all assets are held in trust for equal benefit of creditors-
that petitions for rehabilitation are now transferred to the RTC.
Panlilio vs. RTC, Manila, 641; Asiatrust Bank, 650; Umale vs. ASB, 652
- Corporate rehabilitation connotes restoration of the debtor to a
successful operation and solvency. Criminal proceedings against
corporate officers should not be suspended because it has no bearing
on the pending rehabilitation. Purpose of rehabilitation is to enable the
corporation to have a NEW LEASE on life and allow creditors to be paid
their claims and to benefit debtors creditors, employees and the
economy. In general Board of Directors and corporate officers ARE NOT
ipso facto deprived of their control so as to recover its property from
errant lessee - not a claim against the corporation.
BPI Family Savings Bank, 653 - Petition for REHABILITATION is a
SPECIAL PROCEEDING, summary and non adversarial in
nature (Motion for Reconsideration and Motion for New Trial prohibited
pleading) the period of appeal is 30 days since a record of appeal is
required.
Molina vs. Pacific Plans, 655 - All pending actions including execution of
judgment SUSPENDED until termination of rehabilitation proceedings -
the purpose of appointing REHABILITATION RECEIVER is to protect
interest of creditors and investors.
SECURITIES REGULATIONS CODE (R.A. 8799)
Purpose: to protect the public investors from fraudulent schemes of
unscrupulous promoters who sell worthless certificates which is nothing
more than a square of the blue sky.
The administration of R.A. 8799 to protect investing public, is the SEC
which regulates trading of securities by requiring registration of Issuers,
brokers, dealers, the securities, registration of margins.
Securities: are investment contracts which should be registered with
SEC for protection of investors.
Issuer: the owner, maker or originator, obligor, creator of the security,
maybe a corporation or partnership.
Insider Trading is prohibited: where a person has a relationship with the
issuer of the security which gives him access of facts of special
significance which is not generally available. Such “insider”/person is
prohibited to engage in buying/selling/trading such kind of securities.
Tender Offer: is a publicly announced intention of a prospective buyer to
acquire substantial amount of securities of a listed corporation, by
making a Tender Offer.
Exchange: an organized marketplace for trading of securities, such as
the PSE.
Over the Counter Markets: trading of unregistered/unlisted securities.
Uncertificated Security: security evidenced by electronic or similar
records.
Manipulative & prohibited practices; wash sale/short sale: no change in
ownership.
Margin Trading: trading of security on credit. The broker
advances/extends credit to the customer for a fee/interest to buy more
securities and complete transaction.
Actions be brought within 2yrs, after the discovery of violation and within
5yrs. after such violation. If aggrieved by Commissioner’s order, appeal
by petition for review with CA.
Intra-corporate disputes transferred to RTC as special commercial court.
Existence of intra-corporate is determined by RELATIONSHIP test and
NATURE OF CONTROVERSY test. An heir not registered as
stockholder fails in the relationship test.
Checks are not securities because they cannot be rolled over even if it is
a certificate of indebtedness - not enumerated as a security under RSA.
During the receivership period, BP 22 (criminal aspect) is not a claim
that can be suspended because it is not a claim pecuniary in nature
against corporation. However, the civil aspect of the bounced check is
suspended, as a claim of pecuniary nature against the corporation.
Margin trading - is trading on credit that a bank that engages in
securities trading should register with SEC failure is criminal in nature
not intra-corporate, SEC then DOJ.
BANKING LAWS
Functions of BSP:
1. Supervision of Banks;
2. Monetary Policies;
3. Central Monetary authority;
4. Government Banker;
5. Supervise Banks;
6. Custodian of Bank reserves;
7. Regulate money supply;
8. Issue currency.
To engage in banking as in lending funds obtained from the public in the
form of deposits, it must be authorized by the Monetary Board/Bangko
Sentral ng Pilipinas. Function of Banks: deposit and loan function.
Classification of Banks:
1. Universal; Commercial;
2. Thrift (savings bank);
3. rural;
4. cooperative banks,
5. Islamic banks.
Kinds of deposit:
1. Demand (use of checks);
2. savings;
3. NOW Account - negotiable order of withdrawal accounts are interest-
bearing deposit accounts payable to specific persons, on demand
like checks, savings, time deposits.
To comply with “nationality” requirements in VOTING, specifically in
foreign-owned banks as stockholder, the Control test doctrine is applied
where the citizenship of corporate stockholder in a bank shall follow the
citizenship of the controlling stockholders, 60-40 (old rule is the
grandfather doctrine).
Minors, 7yrs, can open savings/time deposit accounts. Also, married
women without husbands consent.
Banks cannot directly engage in insurance business as insurer but a
Universal Bank can invest.
General Rule: (CCP) only natural persons can be INCORPORATORS.
But, Rural Banks may have juridical persons as incorporators such as
cooperative association, Filipino controlled domestic banks. Also, in
case of merger/consolidated banks. Board of Directors may exceed 15
(CCP) or up to 21.
Foreigners can be members of Board of Directors depending on the
foreign equity of a foreign bank/investor.
Some important SC Rulings/Decisions to remember:
SC reiterarted/emphasized the duty of banks to comply with FIDUCIARY
DUTY. Utmost diligence to protect depositors-creditors. Banking is
impressed with public interest and its fiduciary character requires high
standards of integrity performance.
That the bank is liable for wrongful acts of officers done in good faith in
the interest of the bank but not for acts outside the scope of authority.
Public rely on the trust worthiness of bank officers.
That withdrawals be authorized by depositor to credit amount of checks
deposited.
Drawee banks to return checks for clearing to the collecting bank within
24hours.
That bank did not violate its fiduciary duty when it closed the account of
a depositor who frequently draws check against insufficient
funds/bounced checks.
The relationship between banks and depositor is debtor-creditor, simple
loan. So, the bank as creditor has a right to set off the bank deposits of
its debtor-depositor for its unpaid obligations to the bank.
General Rule: Escalation clause - increase of interest in bank loans
without consent of borrower-void, except.
DOSRI loans to board of directors, officers, stockholders and related
interest is allowed provided loan does not exceed unencumbered bank
deposits or book value of paid-up capital. Total bank loans to DOSRI
should not exceed 20% of banks total networth. Waiver of bank secrecy
law by DOSRI borrower is required.
Banks should appoint at least two (2) independent directors (no relation,
involvement in Bank)
When the Monetary Board/Bangko Sentral ng Pilipinas finds that bank is
in a state of continuing liability or unwillingness to maintain condition of
liquidity, Monetary Board may appoint a CONSERVATOR (one year) to
rescue/restore, but such designation is not a pre-condition to the
designation of RECEIVER. In case bank is unable to pay liabilities, has
insufficient realizable assets, or cannot continue without incurring more
losses, Monetary Board shall “CLOSE NOW and HEAR LATER” (no
prior hearing, police power) by appointing a RECEIVER (PDIC) to
determine within 90days whether REHABILITATION is possible or be
permitted to resume business, subject to Monetary Board approval. But,
stockholders of bank may Petition for certiorari (grave abuse of
discretion) within 10days from receipt of Bangko Sentral ng
Pilipinas/Monetary Board notice of bank closure. If rehabilitation is not
possible, Receiver shall proceed with LIQUIDATION- that the assets
under receivership/liquidation deemed in CUSTODIA LEGIS in hands of
Reciever.
The bank under receivership cannot do new business, sell, lease,
mortgage its properties because appointment of Receiver operates to
suspend authority of bank over its property, such authority reposed in
the Receiver as Administrator/Board of Trustee is equivalent to an
INJUNCTION to restrain bank from intermeddling with property of
banks. Receiver shall administer property of closed bank for benefit of
creditors/depositors who are on equal footing during receivership.
Appointment of receiver does not dissolve the bank but
Receiver/Liquidator may foreclose, may sue/be sued through
liquidator/receiver to prevent multiplicity of suits.
If rescue/restoration of bank under Receivership is not possible,
Liquidation shall take place. Liquidation shall distribute remaining assets
of bank. Secured creditors/depositors have preference.
The exclusive jurisdiction of LIQUIDATOR pertains only to adjudication
of claims against the bank and distribution of remaining assets of bank
following the rule on prioritization of claims.
The stockholders of ‘closed” bank can petition for certiorari (grave abuse
of discretion) within 10days from receipt of Board of the Monetary Board
order of receivership, liquidation or conservatorship.
Closed bank is not liable to pay interest on deposits from date of closure
(Bank Holiday) - when bank announces suspension of payments of
deposits and interest to depositors for more that 10days? But interest on
Bangko Sentral ng Pilipinas loans still demandable from closed bank to
be settled during liquidation/distribution.
PDIC (insurer of Time, Demand, Savings deposit of all banks) as
statutory receiver, shall be liable to pay maximum of Php500, 000. 00-
per depositor, regardless of the branch or nature of the account
(whether time, demand, savings deposit). Any bank balance not covered
by PDIC, like bonds, investment account, time deposit savings deposit
over Php500, 000. 00, be pursued in liquidation proceedings.
Depositor with time, demand, savings account of closed bank should file
claim on his insured deposit (max P500, 000. 00) within 18 months after
closure, otherwise file same/inetervene in the liquidation proceedings
after the 18months period.
For purposes of claiming from ‘closed” bank, there must be ACTUAL
deposit place in bank and not MERE CHECKS (which bounced later) to
support the time deposit certificate.
Law on Secrecy - That bank deposit including bonds, investment, trust
accounts may not be examined/inquired/looked into/disclose to anybody
EXCEPT:
1. written permission;
2. impeachment;
3. independent audit;
4. examination by monetary board;
5. unclaimed balance for 10years;
6. AMLC cases. EXCEPT:
1. Kidnapping;
2. Illegal Drugs;
3. Hijacking;
4. Terrorism;
5. Arson;
6. Murder
Bank commission may inquire into bank deposit of decedent to
determine gross estate and compromise of tax liability. However, court
order necessary in cases of bribery/graft by public officer, including
spouse, relatives, deposit is subject of litigation; unexplained wealth
cases (including Plunder which involves unexplained wealth-Pres.
Estrada case, including other transferees of unexplained wealth);
danger of bank fraud. Except in cases of kidnapping, illegal drugs,
hijacking, terrorism, arson, murder.

Garnishment of bank deposits does not violate bank secrecy law.

Anti-Money Laundering Act (AMLA): one who transacts, facilitates, fails

to disclose transactions involving unlawful/suspicious activity, daily
transactions exceeding P500,000.00 - liable. Court order necessary
except in cases involving Kidnapping, illegal drugs, hijacking, terrorism,
arson, murder) where court order is not required. Only the CA can issue
FREEZE ORDER (20days) or extend same on deposits in re AMLA.

Foreign currency deposits are confidential except UPON WRITTEN

PERMISSION are also exempt from garnishment, attachment of court
order. Intengan vs. CA, 377 scra. Except in Salvacion case, 278 scra,
foreign currency deposit of foreign can be garnished - rape case.

Redemption of real estate mortgage whether judicial or extrajudicial-

one year from registration of sale with the Register of Deeds. But if
mortgagee is bank and mortgagor is a corporation/partnership - 3
months after foreclosure or before registration with the Register of
Deeds whichever is earlier. Banks should dispose/sell property/collateral
within 5 years.

A mortgage liability is usually limited to the amount mentioned in the

contract but where parties intended that the mortgage property shall
also answer for future loans, same is valid/binding provided such
intention is provided in the Dragnet Clause or Blanket Mortgage Clause,
where real property is collateral for loans and the mortgage contract
provides a clause which is specifically phrased to SUBSUME all debts,
past and future, enabling parties to provide continuous dealings on the
property without need of new security or collateral. The mortgage of
VESSEL obtains a PREFFERED STATUS pursuant to PD 1521, Ship
Mortgage Decree of 1978. When a vessel SANK (not insured) before a
chattel mortgage is foreclosed by bank, the loss shall be borne by
Vessel owners. But if chattel is foreclosed by bank, said bank shall bear
the loss.
NEGOTIABLE INSTRUMENTS LAW
Elements of Negotiable Instruments:
1. Signed;
2. unconditional promise/order to pay sum certain in money;
3. payable on demand, FDFT;
4. payable to order or to bearer;
5. drawee be named with reasonable certainty.
General Classification of Negotiable instrument:
1. Negotiable Promissory Note- 2 parties (maker-payee)
2. Negotiable Bill of exchange- 3 parties (drawer-drawee-payee)
Brief Liability of parties: (memorize)
1. Drawer - admits existence of payee/ capacity to indorse.
2. Drawee/Acceptor - admits genuineness of drawer’s signature.
3. Indorser warrants prior indorsements etc.
4. Maker - engages to pay promissory note.
5. Accommodation Party - signs as maker, drawer, acceptor, indorser
without receiving value for his signature, merely lends his
name-surety.
NCC provides that obligations shall be paid in Philippine currency and
no person can be compelled to accept a check (Negotiable Instrument)
as payment of obligation because checks/Negotiable Instrument do not
have legal tender power, but only as substitute for money but negotiable
instrument is valid to exercise a right to redeem. SC said that the tender
of a check (even a personal check) to exercise right to redeem is valid
because the check was not issued to pay an obligation but to exercise a
right under the law (right to redeem) suspends prescriptive period.
When is Negotiable Instrument payable to bearer?
1. When expressed as payable to bearer;
2. When payable to a fictitious, nonexistent person (tarzan);
3. Payee does not purport to be the name of a person (pay to cash);
4. When the only or last indorsement is an indorsement in blank.
5. Here, indorsement is not necessary, unlike order instrument.
When Negotiable Instrument is PAYABLE OUT OF A PARTICULAR
FUND: It is not unconditional, therefore not negotiable. But when
REIMBURSABLE out of a particular fund-it is unconditional; considered
as a Negotiable Instrument.
Negotiable Instrument be issued for a valuable consideration:
Consideration is presumed. Lack of consideration; illegal consideration;
insufficient consideration are personal defenses of party liable (not to
pay) against a holder not in due course. An Accommodation Party (signs
as Maker, Drawer, Indorser without receiving value therefore but to lend
his name to somebody) is liable to a holder for value despite knowledge
of being an Accommodation Party.
Date of Negotiable Instrument is not essential because Holder may
insert true date of issue/ deemed payable on demand. Date is important
only to determine whether Negotiable instrument is overdue or not.
Ante/post dating allowed.
Forgery: When a signature is FORGED or even if genuine if made
without consent that signature is WHOLLY INOPERATIVE, and the
holder has no right to retain; discharge, enforce, unless forged signatory
is precluded from setting up defense of forgery/want of
authority/estoppel/gross negligence/waiver. This rule in forgery apply
only to signature as against any holder, Holder in Due Course/Holder
Not in Due Course, as real defense of forged signatory.
However, the rule in alteration applies to other material particulars of the
Negotiable Instrument, like amount/interest/dates which changes the
effect of the Negotiable Instrument. If the alteration is material, it is
avoided as against the party who did not consent to the alteration is not
liable as a personal defense. But if the ALTERED NEGOTIABLE
INSTRUMENT is in the hands of a Holder in Due Course, he may
enforce it in accordance with its original tenor. This rule in alteration
does not apply to the alteration of serial number of a check (SC).
Effect of Forgery: When a Negotiable Instrument is payable to ORDER
and signature of maker/drawer is forged, the last holder/payee, cannot
enforce the negotiable instrument against the maker/drawer because
that signature is wholly inoperative or null/void against maker/drawer.
Also, if the signature of maker/drawer is genuine but the signature of the
original payee (if payable to order) was forged by indorser and
subsequently indorsed further, the last holder/payee cannot enforce the
negotiable instrument against the maker/drawer and the original payee,
as prior parties, even if their signatures are genuine because
indorsement is necessary, applying the CUT-OFF RULE. That the last
holder/payee did not have the right to retain, enforce, discharge the
negotiable instrument and did not acquire a valid title from the original
payee whose signature was forged because indorsement is necessary,
hence, the signature of original payee of negotiable instrument that is
payable to order was forged. Also, it is void/wholly inoperative as real
defense of any party prior to the forgery. The remedy of the last
holder/payee is to proceed against his immediate indorser/s or parties
subsequent to the forged indorsement.
Effect of forgery continued: However, if the negotiable instrument is
payable to bearer (When is Negotiable Instrument payable to bearer?
When expressed as payable to bearer; When payable to a fictitious,
nonexistent person (tarzan); Payee does not purport to be the name of
the name of a person (pay to cash); When the only or last indorsement
is an indorsement in blank. Here, indorsement is not necessary, unlike
order instrument. Refer also to sec. 9), genuinely signed by
maker/drawer but the signature of payee as bearer is forged the last
holder/payee can enforce the negotiable instrument against the
maker/drawer because indorsement is not necessary in bearer
negotiable instrument.
Rules in Forgery:
1. Applies only to signatures. Forgery is a real/absolute defense of
person whose signature is forged because he did not give his
consent. While alteration is the change of material particulars of
negotiable instrument, amount, date, interest but not for the serial
number of check.
2. CUT OFF RULE because the last holder/payee did not acquire a
valid title from the original payee because his indorsement is
necessary to transfer the instrument to the next payee.
3. When a negotiable instrument is payable to bearer and the signature
of maker/drawer is genuine not forged, but signature of original
payee is forged, the last holder/payee can enforce the negotiable
instrument against the maker/drawer because indorsement is not
necessary in a negotiable instrument payable to bearer.
Cashier’s/Manager’s checks are good as cash (SC). If a check is
certified it is equity to acceptance because the bank issuing it continue?
its total resources and not the account of the depositor as PN of bank.
Negotiation - is the transfer of the Negotiable Instrument from one
person to another. If payable to bearer, negotiation is by delivery; if
payable to order, negotiation is by indorsement completed by delivery.
Indorsement be written on the negotiable indorsement or upon
allonge/attached paper. Kinds: special, blank, restrictive, qualified and
conditional.
General Rule: Holder of negotiable instrument is presumed as Holder in
Due Course (holder in good faith and for value, complete/regular on its
face, not overdue, not aware of defect/infirmity). A personal defense
(like lack of consideration) can be interposed by the party liable, like
maker, if the holder is not a holder in due course. However, real
defenses (like forgery) can be invoked against ANY PARTY whether
holder in due course or not.
Presentment for payment (sec. 70), for acceptance (sec. 143).
Presentment for payment is made by holder of negotiable instrument
necessary to charge Drawer and Indorsers as persons secondarily liable
whether or not negotiable instrument is dishonoured by principal for non-
payment. Holder has right of recourse against all parties secondarily
liable, such as Drawer/Indorsers provided Notice of Dishonor is given=
with exceptions.
Discharge of Negotiable Instrument:
1. By payment of principal;
2. Payment of accommodated party, if principal;
3. Intentional cancellation by holder;
4. Any other act;
5. Novation;
6. Prescription;
7. Principal becomes holder;
8. Renunciation.
But payment by a party secondarily liable, like indorser, does not
discharge the negotiable instrument.
Bill of Exchange (not an assignment of funds in the hands of drawee)
Payee has no right against drawee unless accepted/cleared. Bill of
exchange may be treated as Negotiable Promissory Note if drawer and
drawee are the same or drawee is fictitious. Checks are special ___.
When presentment for acceptance of Bill of Exchange required:
1. When bill of exchange payable after sight/ fix maturity;
2. When presentment for acceptance expressed;
3. When bill of exchange drawn payable elsewhere (sec. 43)

Protest same as Notice of Dishonor, made by notary, respectable
resident of place of dishonour. Acceptance for honor, payment for
honor, bills in a set- discuss.
BP 22, anti-money laundering checks law - not unconstitutional because
what the law punishes is not the non-payment of debts but the mere
issuance of worthless/bad checks.
BP 22 elements:
1. Check issued to apply on account/for value;
2. Knowledge of insufficiency of funds and check bounced for DAIF,
closed account;
3. Stop payment without valid reason
4. Fails to maintain funds for 90days.
BP 22 requirements:
1. That the check is issued to apply on account or for value;
2. Written Notice of dishonour is required in order to give the drawer
sufficient time to pay/ settle check within 5days, otherwise,
“knowledge of insufficiency of funds” is established
(EXCEPTIONS, estoppel/did not receive notice of dishonour/ check was
issued to comply with warranty/ guaranty requirement/ that check was
issued only to show drawers commitment of partners share in a
partnership agreement/ check was merely issued to facilitate collection
in a consignment, business etc.)
In short, these checks were not issued for value or a/c. Here, the drawer
of bounced check is not liable under BP 22 but is still civilly liable. Deceit
is not an element in BP 22.
Estafa/Swindling in bouncing checks, PRC, Art. 315, 2d, elements:
1. Fraud/deceit, and damage by postdating/issuing of check prior or
simultaneous with the false pretence or fraudulent knowledge of
insufficient funds to cover check. Failure to pay/ settle bounced
check within 3days from notice of dishonour establishes DECEIT/or
knowledge of insufficient funds.
Crime of Estafa under RPC, 315,2d, is committed by the Drawer/Issuer
who deceives the offender party/payee into parting with his
property/cash by flashing his check that the efficient cause of the
defraudation is the issuance of the bad check that the payee/offended
party was induced to part with his property/cash because of the check,
which bounced later. The element of deceit to constitute estafa must be
the efficient cause of the defraudation. There is no estafa if check was
issued in payment of a pre-existing obligation. If a crime of estafa is
established. Offender can be prosecuted also under BP 22 - No
jeopardy.
Venue: Shall be instituted and tried in the city/municipality where offense
was in part committed, a transitory or continuing crime.
Credit card, letter of credit, Bill of Lading, PMO are not negotiable
instrument.
Letter of credit - financial engagement by bank to pay seller under it
conditions for the seller present Bill of Lading/Warehouse Receipt to the
bank. Letter of credit is independent from the contract of sale between
buyer and seller following the independence rule (where the contract of
sale is separate and distinct from the letter of credit).
Bill of Lading - contract and receipt of goods issued by common carrier.
Characteristics of Negotiable Instrument:
1. Accumulation (indorsement) of contracts;
2. Substitute for money, not legal tender.
SOME IMPORTANT SC RULINGS TO REMEMBER:
Gonzales vs. PCIB, 644 scra: Accommodation Party - is one who signs
the negotiable instrument as maker, drawer, acceptor, indorser without
solidary liable.
Dinovs. Judal-Loot, 618 scra and PCIB vs. Balmaceda, 658 scra:
Crossed Checks- are negotiable instruments with 2 parallel lines across
its corner. Effects: it may not be encashed but deposited, may be
negotiated once to one who has act? with bank, it serves as warning to
the holder that the check is issued for a definite purpose. Payee must
inquire if he received the check pursuant to that purpose, otherwise, he
is a holder not in due course.
Mitra vs. People, 623 scra: Check is a negotiable instrument that serves
as a substitute for money and as a convenient form of payment in
financial transactions.
Equitable Bank vs. Tan, 628 scra: The purpose for the issuance of
check has no legal connection with the date of the check.
Cayanan, 658 scra: In fact a check is presumed issued for a valuable
consideration (right, interest, profit, benefit)
SMC vs. Puzon, 631 scra: Delivery of a check to a party entitled to it is
for the purpose of giving effect thereto and non-delivery does not render
the check as non-negotiable.
Pantaleon vs. American Express, 629 scra: Credit cards are not
negotiable instruments because it is only a device to obtain credit. It
involves 3 contracts: sales contract; loan agreement; promise to pay to a
specific person.
In Firaza vs. People, 518 scra: SC said that in case of Estafa on
bounced checks, payment/settlement/compromise on the bounced
check does not acquit/obliterate the criminal liability (6yrs. to 30yrs.
imprisonment) but merely extinguishes the civil liability.
Metrobank vs. Cablizo, 510 scra: This is a clear case of MATERIAL
ALTERATION. The Drawer, issued payable to CASH, was deposited for
payment to Westmont Bank, as Collecting Bank. The amount was
altered to P91,000.00 and date was altered to Nov. 24. Metrobank
cleared the amount of P91, 000. 00 and deducted the amount of P90,
000. 00 but bank refused alleging that Westmont Bank, the collecting
bank-indorser should bear the loss as indorser. SC reiterated the duty of
banks to exercise the highest degree of fidelity/ UTMOST DILIGENCE
to its clients/depositor and ordered Metrobank to credit the amount of
P90,000.00 without prejudice to an action by Metrobank against
Westmont Bank, the collecting bank, as the last indorser that when the
instrument materially altered and in hands of holder in due course, it
may enforce payment according to ORIGINAL TENOR. That payment
made under a materially altered instrument is not payment done in
accordance with the drawers order.
Gonzales vs. RCBC, 508 scra: This is a case of IRREGULAR
INDORSEMENT of a check, wherein the SC ruled that RCBC as
irregular indorser and collecting bank, by making annotation as qualified
indorsement should bear the loss because RCBC by indorsing the
check to the US Bank warrants all prior indorsement (sect. 66). Also,
RCBC as indorser which caused the defect cannot have a recourse
against prior indorsers/Gonzales in good faith RCBC’s recourse should
be against the drawee bank.
In Allied Bank vs. CA, 494 scra: SC ruled that while indorsers are
secondarily liable, indorser becomes primarily liable in case Drawer fails
to pay/dishonors negotiable instrument. In a similar case, Tuason vs.
Heirs of Ramos, 463 scra, the SC reiterated that if a check issued by
drawer was indorsed by the original payee, Tuason, as indorser to
Ramos as indorsee, if check is dishonoured, the holder/indorsee can
sue the indorser Tuason even without impleading the drawer Santos, as
a prerequisite.
In Citibank vs. Sabeninno, 504 scra and in Equitable PCI vs. Ong, 502
scra: The SC emphasized that managers checks are drawn by the bank
Manager upon the funds of the bank itself and regarded as cash. Also, a
crossed check cannot be presented to the drawee bank for payment in
cash because it is only intended for deposit which in turn will be paid by
the drawee bank.
In Nuguid vs. Nicdao, 502 scra: SC reiterated that the gravamen of BP
22 is the act of making, drawing, issuing a worthless check or one
dishonoured for non-payment and drawer failed to satisfy or make
arrangements for its payment within 5days from date of Notice of
Dishonor.
In International Corporation Bank vs. CA, 501 scra: The SC reiterated
an earlier ruling that alteration in the serial number of various checks
issued by the DepEd in the total amount of Php1, 447M, does not
constitute material alteration and therefore drawee bank PNB had no
right to dishonour the checks or return them to them to the collecting
bank. International Corp. Bank, which had already paid the payees.
Material alteration alters the effect of the instrument or an unauthorized
change which modifies the obligation of a party. Also, CB circular 580,
provides that dishonoured checks must be returned by the drawee bank
to the collecting bank within 24hrs. otherwise it is considered as cleared.
In Miranda vs. PDIC, 501 scra: Where 2 cashiers’ checks worth
Php5.5M were issued by an insolvent Bank to a depositor, is in bad faith
because the bank is fully aware that it was already insolvent. Therefore
the 2 cashiers’ check of Php5.5M did not constitute an assignment of
funds on favor of the payee because bank had no funds at the time of its
issue. If the bank was not insolvent at that time the drawing of the
cashiers’ checks is equity to assignment of funds of the bank in favor of
a payee/depositor.
In Tan vs. People, 500 scra: The SC emphasized the elements of BP 22
and for the presumption to arise, the prosecution must prove the
following:
1. Check is presented within 90days from date of check;
2. Drawer receives notice of dishonour;
3. Drawer fails to pay/arrange payment within 5 banking days after
receipt of notice of dishonour.
However, the basic elements to prove that there is a prima facie case,
are:
1. A person makes/draws a check to apply on account or for value with
knowledge of insufficiency funds;
2. Check is dishonoured for insufficient funds;
3. Ordered “stop payment” without valid reason; or
4. Having sufficient funds or credit but fails to maintain funds/credit
within 90days from date and dishonoured by the bank.
1. the offender postdated or issued a check in payment of an obligation
contracted at the time of issuance meaning the efficient cause of
defraudation should be PRIOR OR SIMULTANEOUS with the act of
fraud;
2. That at the time of issuance of the check, offender had no
funds/insufficient funds/closed accounts;
3. Payee was defrauded.
The facts show that the case issued by accused were intended as
payments for items obtained from complainant - that complainant could
not have parted with her goods in exchange for bum checks.
In another case, Ongson vs. People, 466 scra: The SC reiterated the
elements of BP 22 and the presumption of consideration in the issuance
of checks. That there is prima facie presumption of knowledge of
insufficiency of funds if notice of dishonour was given and the drawer did
not pay or arrange payment within 5 days from notice of dishonour.
Further, the SC said courts are vested with the discretion to impose the
penalty.
In Villaluz vs. Ligon, 468 scra: The SC said that what is punished under
BP 22 is not the failure to pay an obligation but the issuance of bum
checks or checks dishonoured for insufficiency of funds.

Alferez vs. People, 641 scra: SC emphasized the elements of BP 22 as
1. Making, drawing, issuance of a check TO APPLY ON ACCOUNT or
FOR VALUE;
2. Knowledge of insufficiency of funds;
3. Subsequent dishonour of check by drawee for DAIF or for “stop
payment”.
That Notice of Dishonor is important to establish “knowledge” receipts
for registered letters and return receipts do not by themselves prove
receipt of Notice of Dishonor, they must be authenticated to serve as
proof of receipt of Notice of Dishonor. If acquitted, drawer still civilly
liable.
People vs. Moutaner, 656 scra: Whereas, in ESTAFA for bouncing
checks under art. 315, 2d of the RPC, elements are:
1. Postdating/issuance of check in payment of obligation contracted at
the time check was issued;
2. Insufficiency of funds to cover check;
3. Damage to the payee.
Roco vs. Contreras, 462 scra: That the gravamen of the offense under
BP 22 is the act of issuing a worthless check that is dishonoured and is
payment within 5 days from date of dishonour, is a valid defense.
In the case of Maregomen vs. People, 459 scra: The SC said that a
written Notice of Dishonor should be given to the drawer, Maregomen,
who was authorized by the corporation to issue and sign checks in the
name of the corporation. When the checks bounced, Maregomen was
charged for violation of BP 22. Her defense was, she did not receive a
notice of dishonour and that she is a mere employee of the corporation
and did not have sufficient knowledge on funds of the corporation. SC
said that a mere oral notice of dishonour is insufficient for conviction
under the law. The law provides that where there are no sufficient funds
with drawee bank, such fact shall always be explicitly stated in the
notice of dishonour that the drawer should be notified in writing of the
fact of dishonour. Willy Sia vs. People, 426 scra. Also the SC reiterated
the importance of notice of dishonour. Even if a notice of dishonour was
sent by registered mail if it was not proven that the drawer recorded the
registered notice of dishonour the returned registered receipts do not
prove by itself.

Failure to settle bounced check within 3 days from receipt of Notice of

Dishonor gives rise to a prima facie evidence of deceit, which is an
element of estafa constituting false pretense or fraudulent act.

In Oriel Magno vs. CA, 210 scra: It was proven that the check was
merely issued as a WARRANTY DEPOSIT for the lease of
EQUIPMENTS - therefore, the BP 22 case was dismissed for lack of an
important element of

To apply on account or for value. Also, in the case of IDOS vs. CA, 296
scra, where check was issued as an assurance for a share in the
partnership business which failed, the SC said that the check was not
issued for value or for an account but as an assurance for a share or
interest in the partnership agreement - drawer acquitted.

Villanueva vs. Nite, 496 scra: A payee-holder of a check cannot sue the
drawee bank if it dishonours a check. No privity. Instead the payee
should sue the drawer-maker of the check.

In Arceo vs. People, 495 scra and in Wong vs. CA, 351: SC said that the
90 days period is not a necessary element of BP22, if it was proven that
at the time that the check was drawn there was no sufficient funds of the
drawer in the bank. Also, the notice of the lawyer to make good the
check within 3 days (instead of 5 days) is not fatal because the drawer
was given more than sufficient time (drawer asked the payee, 7 times,
not to deposit the check) to settle/arrange payment. Also SC said that
loss of the check is not material. Refer also to Ting vs. CA, 344 scra.

In Saguigit vs. People, 494 scra and in Domagsang vs. CA, 347 scra:
SC said that the BP 22 requires that for the act to be punished, the
accused be notified in writing of the fact of dishonour of the check in
order to give him time to pay/settle the check within 5 days from notice
of dishonour.

Chua vs. People, 484 scra and also in People vs. Hernando, 317 scra:
There is ESTAFA, art. 315, 2d, in this case. The SC said that the
defense of accused that said checks were merely issued as collateral
and for accommodation was not considered because the following
elements of estafa are present –
INSURANCE
ELEMENTS: COC-II-ER-AR-S-P
1. Consent, object, consideration
2. Insurable interest
3. Exposure of risk insured against
4. Assumption of risk
5. Scheme of distributing loss
6. Payment of premium
Insurance is –
• an agreement
• for a consideration
• to indemnify another against LOSS, DESTRUCTION, OR LIABILITY
• arising from an unknown or contingent event
A past event may be covered by MARINE INSURANCE, provided that
the loss of vessel in the past could not be known by ordinary means of
communication.
Characteristics: R-I-A-U-C
1. Risk-distributing (contribution of all to a certain fund will be used for
the payment of insurance of one – insurance fund)
2. Contract of indemnity (exchange of value for value – aleatory or
uncertain) ** waging contract depends on chance
3. Contract of adhesion (fine print rule, policy already approved by the
commission; generally construed in favor of the insured)
4. Uberrimae Fides contract (utmost good faith contract; disclose
facts)
5. Consensual contract (perfected from the time of meeting of minds
with respect to object, cause, or consideration)
In insurance, the insurer is the OFFEROR because the insured is the
one who applies. If there is no policy given, then there is no acceptance
by the insurance company or the insured, there is no meeting of the
minds.
INSURABLE INTEREST
The relationship with a person or interest to benefit from the person or
the thing insured.
• protect the person or the thing because of the PECUNIARY BENEFIT
and to prevent PECUNIARY LOSS
• every interest in property, real or personal, of such nature that a
contemplated peril might directly damnify the insured
• Generally , mistress cannot be insured by a married man. However, if
he derives pecuniary interest from such mistress (support), it is the
designation only as a spouse that is void. He can still insure the life of
the mistress.
• Illegitimate child can be insured because the law does not distinguish
what kind of child should be insurable. (sec. 6)The insurer must be
registered under the laws of the Philippines through the insurance
commissioner.
• for regulation purposes
• for the fine print rule
WHO/WHAT MAY NOT BE INSURED:
• Public enemy
• Paramour
• Wager (any chance or ticket in a lottery drawing a prize)
INSURABLE INTEREST IN LIFE AND HEALTH: (sec. 10) (Family,
depend – E/S, debtor, other dependents)
1. Of himself, his spouse, and of his children
2. Of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest
3. Or anyone who has legal obligations to him for the payment of
money or respecting property or services of which death or illness
might delay or prevent the performance;
4. Of any person whose life any estate or interest vested in him
depends.
The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right(sec. 11):
IRREVOCABLE BENEFICIARY
A beneficiary in a life insurance policy or segregated fund contract
whose compensation cannot be changed without his or her consent.
The interest of the beneficiary in the insurance policy will be
FORFEITED if he wilfully brings about or causes the death of the
insured, whether he is the principal, accomplice, or accessory to the
crime. With this, the nearest relative of the insured shall receive the
proceeds of the insurance as long as that person is not disqualified.
An insurable interest in property consist in (sec. 14):
1. An existing interest;
2. An inchoate interest founded on an existing interest;
3. An expectancy coupled with an existing interest from which the
expectancy arises.
A carrier or depository has insurable interest to the thing he holds to the
extent of his liability only.
The interest in the property insured must exist when the insurance takes
effect (e.g. when claiming under the insurance) and when the loss
occurred. It may not exist in the meantime (if the insurance is not yet for
claiming or when the risk insured against has not yet happened) (sec.
19).
The interest in the life or health of a person insured must exist when the
insurance takes effect (when claiming) but need not exist thereafter or
when the loss occurs.
In case of property insurance, a change in interest in any part of a thing
insured, unaccompanied by a corresponding change 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
(sec. 20).
- if there is change in the interest in the thing without change in the
interest in the insurance (policy), the insurance is deemed
suspended. It will continue when the interest in the thing and interest
in the insurance is vested in the same person.
A change in interest in the thing insured after the loss does not affect the
right of the insured to indemnity for the loss.
If the insured dies, such death does not avoid insurance and his interest
in the insurance passes to the person taking his interest in the thing
insured.
DEVICES TO CONTROL THE RISKS used by the insurer:
1. Concealment (a neglect to communicate that which a party knows
or ought to communicate)
2. Warranties (additional contracts: riders; a promise not to do
something after the execution of the contract)
3. Misrepresentation ( when all the facts fail to correspond with the
represented assertions or stipulations)
4. Exceptions (placed in the policy itself)
5. Those which are not placed in the policy as the risk insured
against. (if a particular risk is not the one insured against, e.g. fire,
it cannot be covered by the insurance policy)
CONCEALMENT and MISREPRESENTATION
• The fact that there is concealment, whether intentional or not, the
insurer can RESCIND the contract. (sec. 27)
Exceptions: (sec. 30)
1. Those which the other knows;
2. Those which the other ought to know in the exercise of ordinary
care, and of which the former has no reason to suppose him
ignorant;
3. Those of which the other waives communication;
4. Those which prove or tend to prove the existence of a risk
excluded by a warranty and which are not material;
5. Those which relate to a risk exempted from the policy and which
are not material.
Generally, if there is concealment or misrepresentation, the contract
(policy) is VOID.
- Because there is deceit or fraud in obtaining the consent of the
insurer with the conditions of the policy.
- The insurer is entitled to rescind the contract.
CANCELLATION VS. RESCISSION
Cancellation
• insurance for a certain period, the premium paid within the unexpired
period
• where the property is insured for more than its value
• the interest was not exposed to the peril insured against
• void ab initio – no insurable interest
• contract is voidable (fraud or misrepresentation of insurer)
Rescission
• premium should be returned
• there is fraud, concealment, misrepresentation in obtaining the
insurance policy
• no return of premium
• right to rescind should be exercised prior to the commencement of an
action in the contract (before any claim is made)
The right to rescind granted by law to the insurer is waived by the
acceptance of premium payments despite the knowledge of the ground
for rescission.
THE FACT CONCEALED NEED NOT BE THE CAUSE OF THE LOSS
OR DEATH.
INCONTESTABILITY CLAUSE
If the concealment or misrepresentation has been discovered after 2
years from the time the policy was enforced (executed), insurer
INSURER CANNOT RESCIND the policy. The 2-year period is enough
for him to investigate.
The incontestability clause is applicable only in life or industrial life
insurance, except when EXPRESSLY applied in non-life insurance.
In life and industrial life insurance – the computation for incontestability
clause will be from the date of reinstatement which starts on the date of
payment. (example: 6-months grace period, and the insured paid
premium on the 4th months, the computation starts from the 4th month)
In non-life insurance (health or casualty or medical insurance), if there is
no clear stipulation in the contract regarding concealment, the rule on
concealment from the code should be followed; if there are stipulations
against concealment as exception, the insurer is NOT liable.
Concealment is only an affirmative defense in not paying the insured if
there is no express stipulation against it. The contract cannot be
rescinded automatically by the insurer.
The non-payment of premium does not affect the incontestability rule, if
the policy has been issued and payment has already been
acknowledged.
Incontestability clause cannot be invoked when:
1. failure to pay premium – no premium no pay
2. material concealment found within 2 years from the enforcement of
the policy
3. there is no insurable interest (void ab initio)
4. no proof of death
5. willful act (to expose the subject to the risk insured against)
6. exempted risk
MATERIALITY OF CONCEALED FACT
-Determined by the probable and reasonable influence of the facts upon
the insurer in forming his estimate of the disadvantages of the proposed
contract or in making his inquiries.
Each party in the contract is bound to know all the general causes which
are open to his inquiry which may affect the material perils
contemplated.
The right to information of material facts may be waived, either by the
terms of the insurance of by neglect of the other party to make inquiry as
to such facts.
POLICY – the contract of insurance
Cover notes – temporary insurance issued pending the issuance of
insurance policy which usually lasts for 60 days. It may be extended with
the written approval of the commissioner if he determines that such
extension is not contrary to any provision of the insurance code.
The mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy
and the thing insured (sec. 58).
OPEN POLICY – a policy in which the value of the thing insured is not
agreed upon, but is left to be ascertained in case of loss. (the value of
the thing at the time of the loss)
VALUED POLICY – a policy which expresses on its face an agreement
that the thing insured shall be valued at a specific sum. (the value of the
thing stated in the policy)
RUNNING POLICY – a policy which contemplates successive
insurances, and which provides that the object of the policy may be from
time to time defined by additional statements or indorsements. (insured
shall make inventory of the properties every now and then to the insurer)
The commencement of an action under the insurance should not be less
that one year from the time when the cause of action accrues (refusal of
the insurer to pay the insured), otherwise, the agreement as to the time
is void (sec 64).
Grounds for RESCISSION of Policy:
1. non-payment of premium
2. conviction of a crime arising out of acts increasing then hazard
insured against
3. discovery of fraud or material misrepresentation
4. discovery of willful or reckless acts or omissions increasing the
hazard insured against
5. physical changes (material alteration) to the property insured which
result in the property becoming uninsurable
6. determination by the commissioner that the continuation of the
policy would violate the code or would place the insurer in violation
of the code
7. Breach of warranty.
** As long as the activity does not change the risk, the insurer is still
liable.
CASH AND CARRY PROVISION
“No premium, No insurance”,
EXCEPTIONS:
1. In life or in industrial life insurance – because there is a grace
period in which the insured has already been entitled to the
insurance without having paid the premiums for the agreed period.
2. In case of temporary receipt or acknowledgment of premium by the
insurer (even if there is actually no payment yet) through the
principle of ESTOPPEL. However, the insured is not exempt from
payment of the proceeds of insurance.
- if there is credit: for as long as the insured paid within the period
stipulated, and the insured paid even after the loss, the insurer
is liable.
- If the insurer willingly accepted the payment even after loss, the
insurer is liable.
3. If the payment was given to the agent of the insurer, the act of the
agent is the act of the principal. The insurer is still liable.
4. The insurer is liable as long as the check has sufficient funds.
Insurance by installment – If the insured paid a part of the insurance,
and the property has been damaged or lost before the completion of
premium, the insurer should pay the insured, but the insured is still liable
to pay the proceeds of the insurance. CAN A POLICY BE
TRANSFERRED?
LIFE insurance – can always be transferred even without the consent of
the insurer.
PROPERTY insurance
- could only be transferred with the consent of the insurer.
- insurable interest must exist at the time of execution and risk, but
may not exist in the mean time; suspended until the insurable
interest and the policy is vested in the same person.
PROXIMATE CAUSE – cause which was uninterrupted by any event,
without which, the injury would not have occurred.
** With FIRE INSURANCE – as ling as fire is the proximate cause,
whatever the immediate cause is, the insurer is still liable.
WARRANTIES
- These are promises written in the insurance, wherein the insured
and the insurer signed, and appended the same in the policy.
- If there is breach, the insurer may rescind the policy.
- If there is insurer’s knowledge of breach of contract by the insured,
and he did not take action, and the insured still received insurance
money, the insurer is ESTOPPED from the return of such money.
FIRE INSURANCE
- Proximate cause of loss should be fire
- May include fire caused by natural disaster.
- Property must be consumed by fire, or when the reason for loss or
damage is caused by trying to save the property (water damages or
 theft), or when the wall of the house collapsed to another
infrastructure because of the fire… there is a right to claim from the
insurer.
- If the proximate cause is excepted from the liabilities stipulated in the
policy, the insurer is not liable for the loss (example: explosion)
- FRIENDLY FIRE: the fire is on that place where it is supposed to
burn. If the fire escapes from where it is supposed to burn, it
becomes HOSTILE fire.
THE INSURER IS STILL LIABLE EVEN IF THE IMMEDIATE CAUSE
OF THE LOSS IS NOT THE PERIL INSURED, AS LONG AS THE
PROXIMATE CAUSE IS THAT PERIL INSURED.
MARINE INSURANCE
- Covers all risks in the shipment or navigation of a vessel, including
the goods shipped, profits, and the ship itself.
- CHARTERER (lessee) has insurable interest with the freightage of
the goods.
- Owner of the VESSEL has insurable interest with the vessel itself
and the goods
- Owner of the GOODS has insurable interest with the goods
themselves.
- INSURABLE:
- PERILS OF THE SHIP : ordinary wear and tear of the ship, ordinary
occurrences in the voyage
- PERILS OF THE SEA: unexpected and inevitable circumstances and
casualties due to the violence of the sea (INCH MARIE CLAUSE)
Implied warranty of sea worthiness – ship is reasonably fit to perform
service and must be able to encounter the ordinary perils of the voyage.
It is not limited to the physical structure of the vessel, but must be laden
with the proper equipment, machinery, crew members, and food for
passengers.
Implied warranties of the ship:
1. Warranty of seaworthiness
2. Warranty that the vessel will not deviate from the route
3. Warranty that the vessel will not engage in illegal papers
4. Warranty that the vessel has the proper documents
IN THE ABSENCE OF ANY STIPULATION, ONLY THE PERILS OF
THE SEA IS INSURED, UNLESS “ALL-RISK POLICY” IS
STIPULATED.
ALL-RISK POLICY – exempting clauses arte important; concealment
will not vitiate the contract except when such concealment is the cause
of damage or loss.
BAREBOAT or DEMISE charter
- charterer: ship becomes common carrier
- the real owner: becomes private carrier, tasked to observe diligence
of a good father of a family
VOYAGE OR TIME CHARTER- AFREIGHTMENT
- the owner of the vessel is the common carrier
- (extraordinary diligence)
- shipper is a private carrier
I Theft Clause – if there is theft clause and the vehicle is unlawfully taken,
NSURABLE INTEREST IN MARINE INSURANCE:
Shipper – cargo, expected profits
Charterer – the ship and the goods
Ship-owner – the ship itself
RESPONSIBILITY OF THE SHIPPER
- should look for a seaworthy ship
- INSURER should investigate first the seaworthiness of the ship
before paying the claimant.
CONCEALMENT IN MARINE INSURANCE
- opinion of 3rd persons are material and must be disclosed (example:
Pag-asa report, Engineer of the ship report on the machine of the
ship)
- if due to concealment, there was loss or damage, that us the only
time that the insurer may rescind the contract
- CANNOT RESCIND contract with the following grounds: o National
character of the ship o Falsified or simulated documents o Illegal
goods/contraband
GENERAL AVERAGE LOSS – damages and expenses incurred for the
salvation of the cargo or ship from a real or known risk everybody
benefits!
PARTICULAR AVERAGE LOSS – damages and expenses incurred not
for the common benefit of all but only for particular or certain persons.
CONSTRUCTIVE TOTAL LOSS
- if the owner of the vessel would spend more than ¾ of the value of
the vessel to save it, or if the injury reduced the value of the thing
insured for more than ¾.
- the owner should abandon everything to the insurer, so the insurer
would look for something to salvage from it. The insurer will pay the
value of the vessel.
- Need to notify the insurer immediately, must be made within
reasonable time after receipt of reliable information of the loss
HOW ABANDONMENT IS MADE:
1. notice (generally in writing) to the insurer
2. notice should be made explicitly stating the cause of abandonment
3. if oral notice is made, there should be a written notice within 7 days
from the oral notice
VEHICLE INSURANCE
Comprehensive insurance for vehicles – all risk insurance
No fault indemnity clause – right to claim without proving fault or
negligence; made on the vehicle within which the injured is riding at the
time of the accident; indemnity not exceeding PhP 5,000; proof for claim
– medical cert, or death cert, or police report of the accident.
3 party suit against insurer – depends on the policy (sometimes, the
person at fault pays first, then the insurer pays afterwards)
Compulsory 3 rd party liability - the purpose is to give financial
assistance to victims of motor vehicle accidents or their dependents
Compulsory motor vehicle liability insurance
- contract of insurance against liability for death or bodily injuries of
passengers or 3rd parties arising from motor vehicle accidents
PROCESS UNDER COMPULSORY 3RD PARTY LIABILITY
1. File notice of claim within 6 months from date of accident. Include
cert. of physician.
2. Prescriptive period- action should be filed in:
• a. Insurance commission – less than Php 100,000 claim
• b. RTC – more that Php 100,000 claim within 1 year from denial
of claim (with stipulation) or 10 years (without stipulation)
3. If there is agreement, the insurer should make payment within 5
days of Compulsory 3rd party liability;
4. If there is no agreement, insurer shall pay “no fault indemnity”
without prejudice to pursue claim further. The insurer has the right
of subrogation to sue for recovery against the vehicle at fault.
Authorized drivers clause – driver should be duly licensed or with
permission, even if the license is fake. - Expired license of the driver (not
the insured himself) is not authorized driver.
insurer is liable under the clause and authorized driver clause DOES
NOT APPLY. Insured can recover even if thief has no license.
OVER INSURANCE – same property insured for greater value; insured
is entitled to ratable return of premium proportioned to the amount by
which the aggregate sum insured exceeds the insurable value of the
thing at risk.
DOUBLE INSURANCE – 2 or more insurance, same property, not
exceeding value of property
RE-INSURANCE – taken by the original insurer to insure his liability
SETTLEMENT OF CLAIMS:
1. Notice of loss given within reasonable time: so that the insurer will
have ample time to investigate on the loss/ destruction/ death.
2. Notice of claim to the insurer should be given within 6 months after
notice of loss. Submission of evidence of loss.
3. Insurer should pay
 • a. NON-LIFE – 30 days after proof of loss is received by the
insurer, and the loss/ damage has been ascertained through
agreement or arbitration;
• b. NON-LIFE – 90 days after receipt of proof of loss, and the
ascertainment had not been made within 60 days after such
receipt;
• c. LIFE INSURANCE – immediately upon maturity of policy
(except when payable in installments or as an annuity, they are
payable as they become due) ;
• d. LIFE INSURANCE - within 60 days from filing of proof of
death.
DOUBLE INTEREST DOCTRINE – The insurer must pay immediately
upon maturity, otherwise, the insurer pays: (12% interest per annum x 2)
of the principal + other damages at 6% per annum
WHEN DOES THE CAUSE OF ACTION ACCRUE?
- upon final denial of the claim
- MR filed in the insurance company does not affect the prescriptive
period.
** When the insurer pays, there is the right of subrogation. The insurer
steps into the shoes of the insured. Need not be stipulated.
** Subrogation does not apply in:
- LIFE insurance
- inevitable, hijacking is regarded as fortuitous event because common
or when the insurer released the wrong doer
- or when he pays for a risk which is not covered by the policy
- or when he pays more than the value of the insurance.
TRANSPORTATION
Background / Introduction: Article XII Sections 11, 17, 18, 19
Section 11 – No franchise for operation of public utility shall be granted
except to citizens, corporation, partnership – 60-40 equity
= to operate public utility (PU), franchise (CPN-CPCN) is needed, but
not ownership
CPC – franchise granted by government agency concerned
CPCN – franchise from Congress
Section 17 – In case of national emergency when public interest
requires, State may during emergency temporarily TAKEOVER the
operation of private owned public utilities or business affected with
public interest.
Section 18 – State may in the interest of national welfare or defense
operate - establish vital industries upon payment of just compensation,
transfer to public ownership, public utilities to be operated by the State
Section 19 – State shall regulate/prohibit monopolies (Gamboa vs Teves
– corporation as PU-BOD-election)
Under the POLICE POWER of the State, it may regulate a business
affected with public interest since the primary character of public utility is
public service or use – to protect public and promote safety welfare
Public service does not mean WHOLE PUBLIC or all the people in a
certain area
Public Utility – is business / service engaged in regularly supplying the
public with some commodity – service of public conseq (?) such as
transpo, electric, water, telecomm, railroad, airports, seapotys, iceplants,
warehouses
Transportation – is the movement of goods or persons from one place to
another by land, water, air railway
Governing laws = Art. 1732-1763 NCC; Code of Commerce; COGSA;
Warsaw Convention Treaty, Agency rules
1732 – Common Carrier (CC) – a person, corporation, firm, association
engaged in business of carrying passengers or goods or both by land,
water, air for compensation and offering service to public = with or
without CPC or CPCN; kabit system; whether it is an ancillary regular or
episodic, unscheduled activity or whether it offers service to the public or
segment of the community
CARRIAGE OF GOODS – Liability of Common Carrier starts from the
time common carrier receives unconditionally the goods and ends until
goods are delivered to the place of destination or constructively
delivered to the consignee/agent
Diligence required – exercise of EXTRAORDINARY DILIGENCE –
raises instantly a presumption of negligence – fault unless common
carrier observed extraordinary diligence (EOD) or loss, damage, liability
(LLD) is caused by:
1. flood, storm, earthquake, lightning, natural disaster or calamity
2. act or omission of shipper
3. character of goods or defects in packaging
4. act of public enemy in war
5. order or act of competent authority.
That the above exception/s is/are the only proximate cause of the loss,
damage, liability. But even with the presence of above exception, CC is
still obliged to exercise due diligence to prevent or minimize the loss,
damage, liability before, during and after the fortuitous event or natural
disaster
HIJACKING –
General Rule: It does not exempt common carrier from liability because
it is not one of the above-mentioned exception.
However, if the hijacking is beyond the control of common carrier
because of grave and irresistible force which cannot be foreseen or is
carriers are not absolute insurers against risk of travel.
Fire is not considered as natural disaster or fortuitous event.
LIMITED LIABILITY RULE – valid – pursuant to Warsaw Convention
Treaty (check-in baggage - $20/k or hand carry $400/passenger)
provided the limited liability is written in the bill of lading, ticket , contract.
EXCEPTIONS TO THE LIMITED LIABILITY RULE
1. Willful misconduct
2. Concurrent fault/negligence, bad faith, discourtesy
3. Higher value declared
4. Charter party
5. LLR is not expressed / written in the ticket, bill of lading, or contract
(Best Evidence: Bill of Lading, receipt, ticket, contract)
CONTAINERIZATION SYSTEM – is designed to facilitate expeditious
and economical loading of cargoes where common carrier does not
participate in counting goods for loading and common carrier merely
issues bill of lading based on shippers declaration
CARRIAGE OF PASSENGERS/PERSONS
Article 1755 – Common Carrier is bound to carry passengers safely as
far as human care and foresight can provide, using UTMOST
DILIGENCE with due regard for all circumstances.
When does carriage of passengers begin and end? – From the time
passengers BOARDS AND ALIGHTS OR ARRIVES AT PORT OF
DESTINATION OR UNTIL HE LEAVES THE PREMISES WITH HIS
BAGGAGES/CHILDREN OR even when he leaves the premises but
returns within reasonable time to retrieve baggage. Common Carrier is
vested with public interest and therefore exhorted to carry passengers
using utmost diligence/UD. In case passenger is injured or does not
reach destination safely, common carrier is presumed at fault except in
case of fortuitous event (FE/ND)
DOCTRINE OF LAST CLEAR CHANCE – sometimes referred to as
SUPERVENING NEGLIGENCE – that where both parties are negligent
or is impossible to determine whose fault, the one who had the last clear
chance/opportunity to AVOID the impending harm and failed to do so, is
chargeable with the consequence LLD – SC