CODE OF COMMERCE

COMMERCE - branch of human activity; purpose is to bring products to the consumer through operations habitually and with intent of gain

- bringing products from the manufacturers to the consumers

COMMERCIAL LAW - branch of private law which regulates the juridical relations arising from commercial acts

CHARACTERISTICS OF COMMERCIAL LAW:

1. universal

2. uniform

3. equitable

4. customary

5. progressive

PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:

1. merchants; book of merchants and general provision of contracts

2. joint account association

3. commercial barter

4. transfers of non-negotiable credits

5. commercial contracts of overland transportation

6. letters of credit

7. maritime commerce

OTHERS:

1. Characteristics of Commerce:

a. habituality

b. rapidity - if period is fixed, debtor in delay without need of demand; if contract does not fix period, 10 days

c. intent to join

3. Merchant:

a. Individuals - legal capacity, or subject to parental authority, habitually engaged in commerce

b. Juridical Persons - commercial and industrial company organized in accordance with law, habitually engaged in business

4. General Rule:

Minors cannot engage in commerce Exceptions:

a. to continue business of deceased parents through guardian

b. court authorizes guardian to place minor and property in business

c. minor is an alien and his national law allows him to be a merchant

5. Which persons are not allowed to engage in commerce?

a. suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion temporal)

b. those judicially declared insolvent until they can obtain their discharge

c. prohibited by Constitution and special laws

6. Aliens

a. capacitated under his national law to engage in business

b. engaged in the business in the Philippines not reserved for the Filipinos

c. after securing license and BOI certificate

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

8. BOI Certificate must be obtained by:

a. alien

b. foreign firm

9. Meaning of Philippine National

a. citizen

b. domestic corporation wholly owned and organized by Filipinos in the Philippines

c. Filipino corporation where Filipino capital entitled to vote is at least 60%

10. Query: If a corporation is a shareholder of another corporation, how do you determine whether the latter corporation is a Filipino national?

Answer: The following must concur -

a. At least 60% of the outstanding capital stock and entitled to vote of both corporations are held by citizens of the Philippines

b. At least 60% of the Board of Directors of both corporations are Filipinos

11. Tenor of BOI Certificate

a. Business or activity to be engaged is consistent with the Investment Priorities Plan

b. Business will contribute to the sound and balanced development of the national economy in a self-sustaining basis

c. Business will not conflict with the Constitution and local laws

d. Business is not adequately exploited by Filipino nationals

e. No danger of monopolies/combinations in restraint of trade

12. Basic Principles/Conditions laid down by BOI

a. resident agent of foreign firm is a Filipino citizen

b. establishment of office in the Philippines

c. bringing assets tot he Philippine office as capital

d. complete set of accounting records

13. Merger and Consolidation subject to BOI requirements for the issuance of certificate:

When merger and consolidation result in ownership and control of non-Filipino nationals over more than 40% of the capital of a consolidated corporation.

14. SEC License issued upon compliance with the following requirements:

a. proof of compliance with principle of reciprocity

b. BOI certificate

c. Applicant for license gives required information articles of incorporation by-laws names and addresses of resident agents

principal place of business in the Philippines

d. proof of solvency

e. deposit acceptable securities to protect future creditors

LETTERS OF CREDIT

1. Kinds:

a. Commercial Letters of Credit

b. Traveler’s Letters of Credit

2. No protest required in case of dishonor.

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

4. Limited to a fixed account.

BULK SALES LAW

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

2. The law covers all transactions, whether done in good faith or not, or whether or not the seller is in a state of insolvency, that fall within the description of what is a “bulk sale”.

3. Types of transactions which are treated as “bulk sales”:

a. Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade;

b. Sale transfer, mortgage or assignments of all, or substantially all, of the business of the vendor, mortgagor, transferor, or assignor;

c. Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor, transferor, or assignor.

4. Only creditors at the time of the sale in violation of the law are within the protection of the laws and creditors subsequent to the sale are not covered.

5. Even if the transaction falls within the definition of “bulk sale”, the following are not deemed covered by the law:

a. If the vendor, mortgagor, transferor or assignor produces and delivers a written waiver of the provisions of the law from his creditors as shown by verified statements;

b. The law does not apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under process.

6. Obligations when transaction is a bulk sale:

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

names and addresses of all creditors to whom said vendor or mortgagor may be indebted;

amount of indebtedness due or owing to each of said creditors

b. The vendor must apply the purchase money to the pro-rata payment of bona fide claims of the creditors as shown in the verified statement.

c. The seller, at least 10 days before the sale, shall:

make a full detailed inventory of the goods, merchandise, etc., cost price of each article to be included in the sale

notify every creditor at least 10 days before transferring possession of the goods, of the price, terms and conditions of the sale

d. The purpose of going through the transaction must not be nominal.

7. Consequences of Violation of Requirements under #6 above stated:

a. When 6(a) above is not complied with, the sale itself is void; the seller will be criminally liable.

b. When 6(b) above is not complied with, the sale itself is also void; seller is also criminally liable.

c. When 6(c) is not complied with, the sale is not void; no criminal and civil consequences on the seller.

d. When 6(d) is not complied with, the transaction itself is void and seller will be criminally liable. The transaction is void not here not because of the Bulk Sales Law but of the

common law principle that if the price in a sale is nominal, it is not real, making the contract void.

RETAIL TRADE NATIONALIZATION LAW

&RETAIL TRADE LIBERALIZATION ACT OF 2000 (R.A. 8762)

Note: Certain doctrines under the Retail Trade Nationalization Law are still applicable under the

Retail Trade Liberalization Act. R.A. 8762 repealed R.A. No. 1180, or the Retail Trade Nationalization Law.

1. Retail Trade - any act, occupation, or calling of habitually selling direct to the general public, merchandise, commodities, or goods for consumption

Jurisprudence has held that the term “retail” should be associated with and limited to goods for personal, family or household use, consumption and utilization.

The Retail Trade Nationalization Law refers to “consumption goods” or “consumer goods” which directly satisfy human wants and desires and are needed for home and daily life.

Excluded from the law are those goods which are considered generally raw material used in the manufacture of other goods, or if not, as one of the component raw material, or at least as elements utilized in the process of production and manufacturing.

2. Liberal policy of R.A. 8762: to promote consumer welfare in attracting, promoting and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector; to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector n the interest of empowering the Filipino consumer through lower prices, higher quality goods, better services and wider choices.

2. Elements of What Constitutes Retail Trade:

a. The seller habitually engages in selling;

b. The sale is direct to the general public; and

c. The object of the sale is limited to merchandise, commodities or goods for consumption.

3. Consumer goods vs. non-consumer goods:

a. The act uses the same phrase “merchandise, commodities or goods for consumption” in defining retail trade as found in the old law. The Court interpreted the old law to exclude from its coverage merchandise and goods which are not “consumer goods.”

i. Consumer goods are limited to goods for personal, family or household use, consumption and utilization. Balmaceda v. Union Carbide Philippines, Inc.

ii.A manufacturer which sells rubber products to the government, assembly plants, industrial and commercial enterprises engaged in manufacturing and sale of essential commodities is not engaged in retail business, but its sales to its own officers and employees would be considered retail trade. Goodyear Tire and Rubber Co. v. Reyes; B.F. Goodrich v. Reyes, Sr.

b. consumer goods therefore did not depend entirely on the nature of the goods, but also required an element the purpose or use for which the goods are bought.

c. Producer goods such as tools and raw materials and intermediate goods are excluded from the coverage. Marsman & Co., Inc. v. First Coconut Central Co., Inc.

4. Exempted Transactions. Restrictions of the Act shall not apply to:

a. Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or produced by him if his capital does not exceed P100,000.00;

b. Sales by a farmer or agriculturist selling the products of his farm, regardless of capital;

c. Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital, provided that the restaurant is incidental to the hotel business;

d. Sales to the general public, through a single outlet owned by a manufacturer or products manufactured, processed or assembled in the Philippines, irrespective of capitalization;

e. Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture goods which are in turn sold by them; or

f. Sales to the government and/or its agencies and government-owned and controlled corporations.

5. Rights of former natural-born Filipinos:

a. A natural-born citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of retail trade under the Act.

b. Natural-born Filipino citizens are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their citizenship.

6. Four categories of Retail Trade Enterprises, for purposes of determining who are qualified to INVEST in retail trade in the Philippines:

a. Category A – Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than US$2,500,000.00;

b. Category B – Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of US$2,500,000.00, but less than US$7,500,000.00, provided that in no case shall the investments for establishing a store be less than the equivalent in Philippine Pesos of US$30,000.00;

c. Category C – Enterprises with a paid-up capital of the equivalent in Philippine pesos of US$7,500,000.00 or more, provided that in no case shall the investments for establishing a store be less than the equivalent in Philippine Pesos of US$30,000.00; and

d. Category D – Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine Pesos of US$250,000.00 per store.

i. High-end or luxury goods: goods not necessary for life maintenance and whose demand is generated by the higher income groups (e.g., jewelry, designer clothing, footwear, electronics, sporting goods).

7. How Aliens may invest in retail trade. Act provides for following rules on who may INVEST or ENGAGE in retail trade enterprises in the Philippines:

a. Citizens of the Philippines, natural-born citizens who have lost their Philippine citizenship but who reside in the Philippines, and domestic partnerships, associations, and corporations which are wholly-owned by Filipino citizens, may engage directly, or invest wholly in local enterprises that will engage in all forms of retail trade in all categories provided;

b. Other than in exempted transactions, alien individuals, foreign partnerships, associations and corporations and foreign-owned domestic partnerships, associations and corporations may not invest in retail trade enterprises under Category A (paid-up capital equivalent in Pesos of less than $2.5M) which are reserved exclusively for Filipino citizens, natural-born citizens who have lost their Phil citizenship but who reside in Philippines, and corporations wholly owned by Filipino citizens.

c. Foreign-owned domestic partnerships, associations and corps may, upon registration with the SEC and DTI, or in case of foreign-owned single proprietorships, with the DTI, may invest in retail trade enterprises as follows:

i. Under Category B:

1. limited to not more than 60% of total equity of such retail enterprise within the first 2 years after the effectivity of the Act (or up to March, 2002); and

2. may wholly own such retail enterprises 2 years after effectivity of Act (i.e., beginning April 2002);

provided that the investments for establishing a store is less than the equivalent in Philippine Pesos of US$30,000.00;

ii.Under Category C: may wholly own, provided that investments for establishing a store is not less than the equivalent in Philippine Pesos of US$30,000.00; and

iii. Under Category D: may wholly own.

8. For purposes of investment, a mere investor need not organize a corporation, partnership, or association under Philippine laws before it may invest.

9. Apply grandfather rule to determine whether an entity is deemed “foreign-owned” to qualify to engage in retail activities under Categories B, C, and D.

a. For purposes of investments, SEC rule: shares belonging to corporations or partnerships at least 60% of the capital of which his owned by Filipino citizens shall be considered as of Philippine nationality, but if percentage of Fil ownership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.

b. While a corp with 60% Filipino and 40% foreign equity ownership is considered a Philippine national for purposes of investment, it is not qualified to invest in or enter a joint-venture agreement with corporations or partnerships, the ownership of which under the Constitution or special laws are limited to Filipino citizens only.

10. Foreign Retailers

a. Implementing Rules and Regulations: an individual who is not a Filipino citizen, or a corporation, partnership, association or entity that is not wholly-owned by Filipinos, engaged in retail trade.

This definition seems to include even a domestic partnership or corporation which is not wholly owned by Filipinos. When owning entity is a corporation, apply grandfather rule.

b. Prequalification requirements before foreign retailer may engage or invest in a retail store, all of the ff must concur:

i. Minimum net worth of

1. US$200,000,000 of the registrant corporation for Categories B and C; and

2. US$50,000,000 net worth of registrant corp for Category D.

ii.Five (5) retailing branches or franchises in operation anywhere around the world unless such retailer has at least one (1) store capitalized at a minimum of US$25,000,000;

iii. Five (5) year track record in retailing; and

iv. Nationals from, or juridical entities formed or incorporated in countries which allow the entity of Filipino retailers shall be allowed to engage in retail trade in Phils.

11. Promotion of locally manufactured products:

a. For 10 years after effectivity of Act, at least 30% of the aggregate cost of the stock inventory of foreign retailers under Category B and C, and 10% for Category D shall be made in the Philippines.

12. Prohibited activities of qualified foreign retailers: Not allowed to engage in certain retailing activities outside their accredited store through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retail activities. Detailed list of prohibited activities shall be formulated by DTI.

13. Anti-Dummy Law applies: Filipinos may not permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Fil corps. See below.

ANTI-DUMMY ACT

1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations.

Criminal sanctions are imposed on the president, manager, board member or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.

2. Disqualified aliens cannot intervene in the management, operation, administration or control of the business reserved to Filipinos whether as an officer, employee or laborer, with or without remuneration, except when:

a. alien takes part in technical aspects;

b. provided that no Filipino can do such technical work; and

c. with express authority from the President, upon the recommendation of the department head concerned.

3. By way of exception, the following may participate in management:

a. Aliens may be elected to the Board of Directors to the extent of their allowable share in the capital of the corporation (in partially nationalized industries).

b. A registered enterprise may employ foreign nationals in supervisory, technical, and advisory positions for a period of 5 years subject to extension.

c. Where majority of stocks of a pioneer enterprise is owned by foreign investors, the following positions may be held by foreign nationals: president treasurer general manager equivalent positions

4. A Filipino common-law wife of an alien is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; however, allowing her common-law alien husband to take part in the management of the retail business would be a violation of the law.

5. What doing business means:

a. soliciting orders, purchases, service contracts;

b. opening offices whether called liaison offices or branches;

c. appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the country for a period totaling 180 days or more;

d. participating in the management or supervision or control of any domestic firm, entity or corporation in the Philippines;

e. any other act or acts that imply continuity in commercial dealings

6. When commissioned merchants/investors or commercial brokers act in their own name in selling foreign products, the foreign firm manufacturing these products is not doing business in the Philippines.

7. When a local corporation or person acts in the name of a foreign firm, the latter is doing business in the Philippines.

8. The following are NOT doing business:

a. mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business;

b. exercise of rights as such investor;

c. having a nominee director or officer to represent interests in such corporation;

d. appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own accounts.

TRUST RECEIPTS LAW

1. Purpose:

a. to encourage use of and to promote transactions based on trust receipts;

b. to regulate the use of trust receipts

2. Definition: A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods, documents or instruments to the possession of the former upon the ENTRUSTEE’S promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.3. Trust receipts are denominated in Philippine currency or acceptable and eligible

foreign currency.

4. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE.

5. Risk of loss is borne by the ENTRUSTEE.

6. Pending the duration of the trust agreement, the ENTRUSTER’S security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE.

7. Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER for the value thereof.

NEGOTIABLE INSTRUMENTS LAW

1. Negotiable Instruments - written contracts for the payment of money; by its form, intended as a substitute for money and intended to pass from hand to hand, to give the holder in due course the right to hold the same and collect the sum due.

2. Characteristics of Negotiable Instruments:

a. negotiability - right of transferee to hold the instrument and collect the sum due

b. accumulation of secondary contracts - instrument is negotiated from person to person

3. Difference between Negotiable Instruments from Non-Negotiable Instruments:

Negotiable Instruments Non-negotiable Instruments

Contains all the requisites of Sec. 1 of the NIL

does not contain all the requisites of Sec. 1 of the NIL

Transferred by negotiation transferred by assignment

Holder in due course may have better rights than transferor

transferee acquires rights only of his transferor

Prior parties warrant payment prior parties merely warrant legality of title

Transferee has right of recourse against intermediate parties

transferee has no right of recourse

4. Difference between Negotiable Instruments and Negotiable Documents of Title

Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediate parties who are secondarily liable

no secondary liability of intermediate parties

Holder in due course may have rights better than transferor

transferee merely steps into the shoes of the transferor

Subject is money subject is goods

Instrument itself is property of value instrument is merely evidence of title; thing of value are the goods mentioned in the document

5. Promissory Note - unconditional promise to pay in writing made by one person to anther, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to maker’s own order, it is not complete until indorsed by him. (Sec. 184 NIL)

Parties:

a. maker

b. payee

6. Bill of Exchange - unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL)

Parties:

a. drawer

b. payee

c. drawee/ acceptor

7. Check - bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)

8. Difference between Promissory Note and Bill of Exchange

Promissory Note Bill of Exchange

Unconditional promise unconditional order

Involves 2 parties involves 3 parties

Maker primarily liable drawer only secondarily liable

only 1 presentment - for payment generally 2 presentments - for acceptance and for payment

9. Distinctions between a Check and Bill of Exchange

CHECK BOE

- always drawn upon a bank or banker - may or may not be drawn against a bank

- always payable on demand - may be payable on demand or at a fixed or determinable future time

- not necessary that it be presented for acceptance

- necessary that it be presented for acceptance

- drawn on a deposit - not drawn on a deposit

- the death of a drawer of a check, with knowledge by the banks, revokes the authority of the banker to pay

- the death of the drawer of the ordinary bill of exchange does not revoke the authority of the banker to pay

- must be presented for payment within a reasonable time after its issue (6 months)

- may be presented for payment within a reasonable time after its last negotiation.

10. Distinctions between a Promissory Note and Check

PN CHECK

- there are two (2) parties, the maker and the payee

- there are three (3) parties, the drawer, the drawee bank and the payee

- may be drawn against any person, not necessarily a bank

- always drawn against a bank

- may be payable on demand or at a fixed or determinable future time

-always payable on demand

- a promise to pay - an order to pay

11. Other Forms of Negotiable Instruments:

a. certificates of deposits

b. trade acceptances

c. bonds in the nature of promissory notes

d. drafts which are bills of exchange drawn by 1 bank to another

e. letters of credit

12. Trust Receipt - a security transaction intended to aid in the financing of importers and retailers who do not have sufficient funds to finance their transaction and acquire credit except to use as collateral the merchandise imported

13. Requisites of a Negotiable Note (PN): (SUDO)It must:

a. be in writing signed by the drawer

b. contains an unconditional promise or order to pay a sum certain in money

c. be payable on demand or at a fixed determinable future time

d. be payable to order or to bearer (Sec. 1 NIL)

14. Requisites of a Negotiable Bill (BOE): (SUDOC)It must:

a. be in writing signed by the drawer

b. contains an unconditional promise or order to pay a sum certain in money

c. be payable on demand or at a fixed determinable future time

d. be payable to order or to bearer

e. the drawee must be named or otherwise indicated with reasonable certainty (Sec. 1 NIL)

Notes on Section 1:

In order to be negotiable, there must be a writing of some kind, else there would be nothing to be negotiated or passed from hand to hand. The writing may be in ink, print or pencil. It may be upon parchment, cloth, leather or any other substitute of paper.

It must be signed by the maker or drawer. It may consist of mere initials or even numbers, but the holder must prove that what is written is intended as a signature of the person sought to be charged.

The Bill must contain an order, something more than the mere asking of a favor.

Sum payable must be in money only. It cannot be made payable in goods, wares, or merchandise or in property.

A drawee’s name may be filled in under Section 14 of the NIL

15. Determination of negotiability

a. by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof

b. by considering the whole instrument

c. by what appears on the face of the instrument and not elsewhere

*In determining is the instrument is negotiable, only the instrument itself and no other, must be examined and compared with the requirements stated in Sec. 1.

If it appears on the instrument that it lacks one of the requirements, it is not negotiable and the provisions of the NIL do not govern the instrument. The requirement lacking cannot be supplied by using a separate instrument in which that requirement which is lacking appears.

16. Sum is certain even if it is to be paid with:

a. interest

b. in installments

c. in installments with acceleration clause

d. with exchange

e. costs of collection or attorney’s fees (Sec. 2 NIL)

17. General Rule: The promise or order should not depend on a contingent event. If it is conditional, it is non-negotiable.

Exceptions:

a. indication of particular fund from which the acceptor disburses himself after payment

b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)

But an order or promise to pay out of a particular fund is not unconditional

Notes on Section 3

The particular fund indicated should not be the direct source of payment, else it becomes unconditional and therefore non-negotiable. The fund should only be the source of reimbursement.

A statement of the transaction does not destroy the negotiability of the instrument.

Exception: Where the promise to pay or order is made subject to the terms and conditions of the transaction stated.

18. Instrument is payable upon a determinable future time if:

a. there is a fixed period after sight/date

b. on or before a specified date/fixed determinable future time

c. on or at a fixed date after the occurrence of an event certain to happen though the exact date is not certain (Sec. 4 NIL)

Notes on Section 4

If the instrument is payable upon a contingency, the happening of the event does not cure the defect (still non-negotiable)

19. General Rule: If some other act is required other than the payment of money, it is non-negotiable.

Exceptions:

a. sale of collateral securities

b. confession of judgment

c. waives benefit of law

d. gives option to the holder to require something to be done in lieu of money (Sec. 5 NIL)

Notes on Section 5

Limitation on the provision, it cannot require something illegal.

There are two kinds of judgements by confession: a) cognovit actionem b) relicta verificatione

Confessions of judgement in the Philippines are void as against public policy.

If the choice lies with the debtor, the instrument is rendered non-negotiable.

20. The validity and negotiability of an instrument is not affected by the fact that:

a. it is not dated

b. does not specify the value given or that any had been given

c. does not specify the place where it is drawn or payable

d. bears a seal

e. designates the kind of current money in which payment is to be made (Sec. 6 NIL)

21. Instrument is payable upon demand if:

a. it is expressed to be so payable on sight or upon presentation

b. no period of payment is stipulated

c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)

Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to the person so issuing, accepting, or indorsing it, payable on demand.

Notes on Section 7

- if the time for payment is left blank (as opposed to being omitted), it may properly be considered as an incomplete instrument and fall under the provisions of Sec. 14, 15, or 16 depending on how the instrument is delivered.

22. Instrument is payable to order:

where it is drawn payable to the order of a specified person or

to a specified person or his order

It may be drawn payable to the order of:

a. a payee who is not a maker, drawer, or drawee

b. the drawer or maker

c. the drawee

d. two or more payees jointly

e. one or some of several payees

f. the holder of an office for the time being (Sec. 8 NIL)

Notes on Section 8

The payee must be named or otherwise indicated therein with reasonable certainty.

If there is no payee, there would be no one to indorse the instrument payable to order. Therefore useless to be considered negotiable.

Joint payees in indicated by the conjunction “and”. To negotiate, all must indorse.

Being several payees is indicated by the conjunction “or”.

23. Instrument is payable to bearer :

a. when it is expressed to be so payable

b. when payable to the person named or bearer

c. payable to order of fictitious or non-existent person and this fact was known to drawer

d. name of payee not name of any person

e. only and last indorsement is an indorsement in blank (Sec. 9 NIL)

Notes on Section 9

“fictitious person” is not limited to persons having no legal existence. An existing person may be considered fictitious depending on the intention of the maker or the drawer.

“fictitious person” means a person who has no right to the instrument because the maker or drawer of it so intended. He was not intended to be the payee.

where the instrument is drawn, made or prepared by an agent, the knowledge or intent of the signer of the instrument is controlling.

Where the agent has no authority to execute the instrument, the intent of the principal is controlling

24. The date may be inserted in an instrument when:

a. an instrument expressed to be payable at a fixed period after date is issued undated

b. where acceptance of an instrument payable at a fixed period after sight is undated (Sec. 13 NIL)

Effects:

any holder may insert the true date of issuance or acceptance

the insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course

as to the holder in due course, the date inserted (even if it be the wrong date) is regarded as the true date.

25. Subsequent Holder in Due Course not affected by the following deficiencies:

a. incomplete but delivered instrument (Sec. 14 NIL)

b. complete but undelivered (Sec. 16 NIL)

c. complete and delivered issued without consideration or a consideration consisting of a promise which was not fulfilled (Sec 28 NIL)

26. Holder in Due Course Affected by Abnormality/Deficiency:

a. incomplete and undelivered instrument (Sec. 15 NIL)

b. maker/drawer’s signature forged (Sec. 23 NIL)

27. Incomplete but Delivered Instrument:

1. Where an instrument is wanting in any material particular:

a. Holder has prima facie authority to fill up the blanks therein.

b. It must be filled up strictly in accordance with the authority given and within a reasonable time.

c. If negotiated to a holder in due course, it is valid and effectual for all purposes as though it was filled up strictly in accordance with the authority given and within reasonable time. (Sec. 14 NIL)

2. Where only a signature on a blank paper was delivered:

a. It was delivered by the person making it in order that it may be converted into a negotiable instrument

b. The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)

Notes on Section 14

if the instrument is wanting in any material particular, mere possession of the instrument is enough to presume prima facie authority to fill it up.

material particular may be an omission which will render the instrument non-negotiable (e.g. name of payee), an omission which will not render the instrument non-negotiable (e.g. date)

in the case of the signature in blank, delivery with intent to convert it into a negotiable instrument is required. Mere possession is not enough.

28. Incomplete and Undelivered Instrument:

General Rule: Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder against any person who signed before delivery. (Sec. 15 NIL)

Notes on Section 15

it is a real defense. It can be interposed against a holder in due course.

delivery is not conclusively presumed where the instrument is incomplete

defense of the maker is to prove non-delivery of the incomplete instrument.

29. Complete but Undelivered:

General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for the purpose of giving effect thereto. .

a. If between immediate parties and remote parties not holders in due course, to be effectual there must be authorized delivery by the party making, drawing, accepting or indorsing. Delivery may be shown to be conditional or for a special purpose only

b. If the holder is a holder in due course, all prior deliveries are conclusively presumed valid

c. If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until the contrary is proven (Sec. 16 NIL)

Rules on delivery of negotiable instruments:

1) delivery is essential to the validity of any negotiable instrument

2) as between immediate parties or those in like cases, delivery must be with intention of passing title

3) an instrument signed but not completed by the drawer or maker and retained by him is invalid as to him for want of delivery even in the hands of a holder in due course

4) but there is prima facie presumption of delivery of an instrument signed but not completed by the drawer or maker and retained by him if it is in the hands of a holder in due course. This may be rebutted by proof of non-delivery.

5) an instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due course, delivery to the agent or custodian is sufficient delivery to bind the maker or drawer.

6) If an instrument is completed and is found in the possession of another, there is prima facie evidence of delivery and if it be a holder in due course, there is conclusive presumption of delivery.

7) delivery may be conditional or for a special purpose but such do not affect the rights of a holder in due course.

30. General rule: a person whose signature does not appear on the instrument is not liable. Exception:

a. one who signs in a trade or assumed name (Sec. 18)

b. a duly authorized agent (Sec. 19)

c. a forger (Sec. 23)

31. General rule: an agent is not liable on the instrument if he were duly authorized to sign for or on behalf of a principal.

Requisites:

a. he must be duly authorized

b. he must add words to his signature indicating that he signs as an agent

c. he must disclose his principal (Sec. 20 NIL)

Notes on Section 20

if an agent does not disclose his principal, the agent is personally liable on the instrument.

32. Per Procuration - operates as notice that the agent has a limited authority to sign.

Effects:

the principal in only bound if the agent acted within the limits of the authority given

the person who takes the instrument is bound to inquire into the extent and nature of the authority given. (Sec. 21 NIL)

33. General rule: Infants and corporations incur no liability by their indorsement or assignment of an instrument. (Sec. 22 NIL)

Effects:

no liability attached to the infant or the corporation

the instrument is still valid and the indorsee acquires title

34. General rule: a signature which is forged or made without authority is wholly inoperative.

Effects:

a. no right to retain

b. no right to give a discharge

c. no right to enforce payment can be acquired. (Sec. 23 NIL)

Exception:

the party against whom it is sought to be enforced is precluded from setting up the forgery or want of authority.

Notes on Section 23

Section 23 applies only to forged signatures or signatures made without authority

Alterations such as to amounts or like fall under section 124

Forms of forgery are

a) fraud in factum

b) duress amounting to fraud

c) fraudulent impersonation

Only the signature forged or made without authority is inoperative , the instrument or other signatures which are genuine are affected

The instrument can be enforced by holders to whose title the forged signature is not necessary

Persons who are precluded from setting up the forgery are

a) those who warrant or admit the genuineness of the signature

b) those who are estopped.

Persons who are precluded by warranting are

a) indorsers

b) persons negotiating by delivery

c) acceptors.

drawee bank is conclusively presumed to know the signature of its drawer

if endorser’s signature is forged, loss will be borne by the forger and parties subsequent thereto

drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank.

Where the payee’s signature is forged, payments made by the drawee bank to collecting bank is ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. Drawee bank may recover from collecting bank who may in turn recover from the person depositing.

Rules on liabilities of parties on a forged instrumentIn a PN

a party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder

a party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held liable by a holder in due course provided that it was mechanically complete before the forgery

a maker whose signature was forged cannot be held liable by any holder

In a BOE

the drawer’s account cannot be charged by the drawee where the drawee paid

the drawer has no right to recover from the collecting bank the drawee bank can recover from the collecting bank

the payee can recover from the drawer

the payee can recover from the recipient of the payment, such as the collecting bank

the payee cannot collect from the drawee bank

the collecting bank bears the loss but can recover from the person to whom it paid

if payable to bearer, the rules are the same as in PN.

if the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the forger

if the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or the recipient of the proceeds, absent any act of negligence on their part.

35. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. (Sec. 24 NIL)

Effects:

every person whose signature appears thereon is a party for value

presumption is disputable

36. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. (Sec. 26 NIL)

37. Effect of want of consideration:

a. Absence or failure of consideration may be set up against a holder not a holder in due course (personal defense)

b. Partial failure of consideration is a defense pro tanto (Sec 28 NIL)

Notes on Section 28

absence of consideration is where no consideration was intended to pass.

failure of consideration implies that consideration was intended but that it failed to pass

the defense of want of consideration is ineffective against a holder in due course

a drawee who accepts the bill cannot allege want of consideration against the drawer

38. An accommodation party is one who signs the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for the purpose of lending his name to some other person.

Effects: an accommodation party is liable to the holder for value notwithstanding that

such holder knew that of the accommodation. (Sec. 28 NIL)

Notes on Section 28

the accommodated party cannot recover from the accommodation party

want of consideration cannot be interposed by the accommodation party

an accommodation maker may seek reimbursement from a co-maker even in the absence of any provision in the NIL; the deficiency is supplied by the New Civil Code.

he may do this even without first proceeding against the debtor provided:

a. he paid by virtue of judicial demand

b. principal debtor is insolvent

39. An instrument is negotiated when:

a. it is transferred from one person to another

b. that the transfer must be in a manner as to constitute the transferee a holder

For a bearer instrument - by delivery

For payable to order - by indorsement and delivery (Sec. 30 NIL)

40. Indorsement to be valid must be:

a. written

b. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)

Notes on Section 31

the paper attached with the indorsement is an allonge

an allonge must be attached so that it becomes a part of the instrument, it cannot be simply pinned or clipped to it.

41. Kinds of Indorsements:

a. Special (Sec. 34) is one which specifies the person to whom or to whose order, the instrument is to be payable and the indorsement of such indorsee is necessary to the further negotiation of the instrument.

b. Blank (Sec. 35) is one which specifies no indorsee and an instrument so indorsed is payable to bearer and may be negotiated by delivery.

c. Restrictive (Sec. 36) is one which prohibits further negotiation, constitutes the indorsee the agent of the indorser or vests the title in the indorsee in trust for or to the use of some other persons.

d. Qualified (Sec. 38) is one which constitutes the indorser a mere assignor of the title to the instrument.

e. Conditional (Sec. 39 NIL) is one where the indorsement is subject to the happening of a contingent event, that is an event that may or may not happen, or a past event unknown to the parties.

42. Effects of indorsing an instrument originally payable to bearer:

it may further be negotiated by delivery

the person indorsing is liable as indorser to such persons as to make title through his indorsement (Sec. 40 NIL)

Notes on Section 40

Section 40 applies only to instruments originally payable to bearer

It cannot apply where the instrument is payable to bearer because the only or last indorsement is in blank

43. A holder may strike out any indorsement which is not necessary to his title.

Effects:

An indorser whose indorsement is struck out is discharged

All indorsers subsequent to such indorser who has been discharged are likewise relieved. (Sec. 48 NIL)

44. Effects of a transfer without endorsement:

the transferee acquires such title as the transferor had

the transferee acquires the right to have the indorsement of the transferor

negotiation takes effect as of the time the indorsement is actually made (Sec. 49 NIL)

45. Rights of a holder:

a holder may sue in his own name

a holder may receive payment.

Effects:

if in due course it discharges the instrument (Sec. 51 NIL)

46. Requisites for a Holder in Due Course (HDC):

a. receives the instrument complete and regular on its face

b. became a holder before it was overdue and had no notice that it had been previously dishonored if such was the fact

c. takes the instrument for value and in good faith

d. at time he took the instrument, no notice of infirmity in instrument or defect in the title of the person negotiating it (Sec. 52 NIL)

Notes on Section 52

every holder is presumed to be a HDC (Sec. 59)

the person who questions such has the burden of proof to prove otherwise

if one of the requisites are lacking, the holder is not HDC

an instrument is considered complete and regular on its face if

a) the omission is immaterial

b) the alteration on the instrument was not apparent on its face

an instrument is overdue after the date of maturity.

on the date of maturity, the instrument is not overdue and the holder is a HDC acquisition of the transferee or indorsee must be in good faith

good faith means lack of knowledge or notice of defect or infirmity

47. A holder is not a HDC where an instrument payable on demand is negotiated at an unreasonable length of time after its issue (Sec. 53 NIL)

48. Rights of a HDC:

holds the instrument free from any defect of title of prior parties

free from defenses available to prior parties among themselves (personal/ equitable defenses)

may enforce payment of the instrument for the full amount against all parties liable(Sec. 57 NIL)

Notes on Section 57

Personal or equitable defenses are those which grow out of the agreement or conduct of a particular person in regard to the instrument which renders it inequitable for him through legal title to enforce it. Can be set up against holders not HDC

Legal or real defenses are those which attach to the instrument itself and can be set up against the whole world, including a HDC.

Personal Defenses Real Defenses

1. absence or failure of consideration Alteration

3. want of delivery of complete instrument Want of delivery of incomplete instrument

4. insertion of wrong date where payable at a fixed period after date and issued undated; or at a fixed period after sight and acceptance is undated

Duress amounting to forgery

5. filling up the blanks contrary to authority given or not within reasonable time

Fraud in factum or in esse contractus

6. fraud in inducement Minority

7. acquisition of the instrument by force, duress or fear

Marriage in case of a wife

8. acquisition of the instrument by unlawful means

Insanity where the insane person has a guardian appointed by the court

8. acquisition of the instrument for an illegal consideration

Ultra vires acts of a corporation where its charter or by statue, it is prohibited from issuing commercial paper

9. negotiation in breach of faith Want of authority of agent

10. negotiation under circumstances amounting to fraud

Execution of instrument between public enemies

11. Mistake Illegality of contract made by statue

12. intoxication Forgery12. ultra vires acts of corporations

13. want of authority of the agent where he has apparent authority

14. illegality of contract where form or consideration is illegal

15. insanity where there is no notice of insanity

49. A instrument not in the hands of a HDC is subject to the same defenses as if it were non-negotiable.

Exception: Holder acquiring from holder in due course

He derived his title from a holder in due course

He himself was not a party to any fraud or illegality affecting the instrument

Real defenses can be interposed against him (he is safe only from personal defenses) (Sec. 58 NIL)

Rights of a holder not a HDC

may sue in his own name

may receive payment and if it is in due course, the instrument is discharged

holds the instrument subject to the same defenses as if it were non-negotiable

if he derives his title through a HDC and is not a party to any fraud or illegality thereto, has all the rights of such HDC

50. General rule: every holder is deemed prima facie to be a holder in due course.

Exception:

where it is shown that the title of any person who has negotiated the instrument is defective, the burden is on the holder to prove that he is a HDC or that a person under whom he claims is a HDC (Sec. 59 NIL)

51. A maker is primarily liable:

Effects of making the instrument, the maker:

a. engages to pay according to tenor of instrument

b. admits existence of payee and his capacity to indorse (Sec. 60 NIL)

Notes on Section 60

a maker’s liability is primarily and unconditional

one who has signed as such is presumed to have acted with care and to have signed with full knowledge of its contents, unless fraud is proved

the payee’s interest is only to see to it that the note is paid according to its terms when two or more makers sign jointly, each is individually liable for the full

amount even if one did not receive the value given

the maker is precluded from setting up the defense that

a) the payee is fictional,

b) that the payee was insane, a minor or a corporation acting ultra vires

52. A drawer is secondarily liable

Effects of drawing the instrument, the drawer:

a. admits the existence of the payee,

b. the capacity of such payee to indorse

c. engages that on due presentment, the instrument will be accepted or paid or both according to its tenor.

If the instrument is dishonored, and the necessary proceedings on dishonor duly taken

a. the drawer will pay the amount thereof to the holder

b. will pay to any subsequent indorser who may be compelled to pay it. (Sec. 61 NIL)

Notes on Section 61

a drawer may insert an express stipulation to negative or limit his liability

53. An acceptor is primarily liable

By accepting the instrument, an acceptor:

engages that he will pay according to the tenor of his acceptance

admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument

the existence of the payee and his then capacity indorse

54. Irregular Indorser - a person not otherwise a party to an instrument places his signature in blank before delivery is liable as an indorser in the following manner:

a. if payable to order of a third person – liable to the payee and to all subsequent parties

b. if payable to order of the maker or drawer – liable to all parties subsequent to the maker or drawer

c. if payable to bearer – liable to all parties subsequent to the maker or drawer

d. if signs for an accommodation party – liable to all parties subsequent to the payee (Sec. 64 NIL)

55. Warranties where negotiating by delivery or qualified endorsement:

a. the instrument is genuine and in all respect what it purports to be

b. the indorser has good title to it

c. all prior parties had the capacity to contract

d. indorser has no knowledge of any fact that would impair the validity or the value of the instrument.

Limitations of warranties:

-if by delivery – extends only to immediate transferee

-warranty of capacity to contract does not apply to persons negotiating public or corporate securities (Sec. 65 NIL)

Notes on Section 65

a qualified indorser is one who indorses without recourse or sans recourse

recourse - resort to a person secondarily liable after default of person primarily liable

a qualified indorser cannot raise the defense of

a) forgery

b) defect of his title or that it is void

c) the incapacity of the maker, drawer or previous indorsers.

a qualified Indorsement makes the indorser mere assignor of title of instrument, relieves him of general obligation to pay if instrument is dishonored, but he is still liable for the warranties arising from instrument only up to warranties of general indorser

the warranty is to the capacity of prior parties at the time the instrument was negotiated. Subsequent incapacity does not breach the warranty.

lack of knowledge of the indorser as to any fact that would impair the validity or the value of the instrument must be subsisting all throughout.

a person Negotiating by Delivery warrants same as those of qualified indorser and extends to immediate transferees only

56. Warranties of a general indorser:

a. the instrument is genuine and in all respect what it purports to be

b. the he has good title to it

c. all prior parties had the capacity to contract

d. that the instrument at the time of his indorsement was valid and subsisting (Sec. 66 NIL)

In addition:

engages that the instrument will be accepted or paid or both according to its tenor on due presentment

engages to pay the amount thereof if it be dishonored and the necessary proceedings on dishonor are taken

Notes on Section 66

the indorser under Section 66 warrants the solvency of a prior party

the indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant of that fact or not.

warranties extend in favor of

a) a HDC

b) persons who derive their title from HDC

c) immediate transferees even if not HDC

the indorser does not warrant the genuineness of the drawer’s signature

general indorser is only secondarily liable

57. General rule: Presentment for payment is not necessary to charge persons primarily liable on the instrument. Presentment for payment is necessary to charge the drawer and indorsers. (Sec 70 NIL)

Notes on Section 70

presentation for payment – production of a BOE to the drawee for his acceptance, or to a drawee or acceptor for payment. Also presentment of a PN to the party liable for payment of the same.

consists of

a) a personal demand for payment at a proper place

b) the bill or note must be ready to be exhibited if required and surrendered upon payment.

parties primarily liable – persons by the terms of the instrument are absolutely required to pay the same. E.g maker and acceptors. They can be sued directly.

if payable at the special place, and the person liable is willing to pay there at maturity, such willingness and ability is equivalent to tender of payment.

presentment is necessary to charge persons secondarily liable otherwise they are discharged

Acts needed to charge persons secondarily liable:

a) presentment for payment/acceptance

b) dishonor by non-payment/non-acceptance

c) notice of dishonor to secondary parties

Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment by the drawee b) protest for non-payment by the acceptor for honor

58. Proper presentment:

a. by the holder or an authorized person

b. at a reasonable hour on a business day

c. at a proper place

d. to the person primarily liable or if absent to any person found at the place where presentment is made (sec. 72 NIL)

Notes on Section 72

only the holder or one authorized by him has the right to make presentment for payment

presentment cannot be made on a Sunday or holiday

presentment for payment is made to the maker, or acceptor. Not to the person secondarily liable.

if the instrument is payable on demand –

a) if it is a note – presentment must be made within reasonable time after issue

b) if it is a bill - presentment must be made within reasonable time after last negotiation.

59. Presentment not required to charge the drawer:

a. he has no right to expect

b. he has no right to require

that the drawee or acceptor will pay (Sec 79 NIL)

60. Presentment not required to charge the indorser where:

a. the instrument was made or accepted for his accommodation

b. he has no reason to expect that the instrument will be paid if presented (Sec. 80 NIL)

61. General rule: Presentment for payment necessary to charge persons secondarily liable otherwise they are discharged:

Exception:

Section 79 and 80

Notes on Section 79 and 80

only the drawer or indorser are not discharged. All other parties secondarily liable are discharged.

62. Presentment for payment excused if:

a. after due diligence, presentment cannot be made

b. presentment is waived

c. the drawee is a fictitious person (Sec 82 NIL)

Notes on Section 82

what is excused is the failure to make presentment. There is no need to make any presentment versus under section 81 (delay in presentment) presentment for payment is still required after the cause of delay has ceased.

63. Summary of rules as to presentment for payment:

a. presentment not necessary to charge persons primarily liable

b. necessary to charge persons secondarily liable except:

the drawer under Sec. 79

the indorser under Sec. 80

when excused under Sec. 82

when the instrument has been dishonored by non-acceptance under Sec. 83

64. How dishonored by non-acceptance:

the instrument was duly presented but payment is refused or cannot be obtained

presentment is excused and the instrument is overdue and unpaid (Sec. 83 NIL)

65. Effects of dishonor by non-payment:

an immediate right of recourse to all parties secondarily liable accrues to the holder. (Sec. 84 NIL)

Notes on Section 84

parties cease to be secondarily liable and become principal debtors.

Liability becomes the same as that of the original obligors.

66. Requisites for payment in due course:

a. made at or after the maturity of the instrument

b. to the holder

c. in good faith

d. without notice of any defect in the holder’s title (sec. 88 NIL)

Notes on Section 88

payment must be made to the possessor of the instrument

possession of the note by the maker is presumptive evidence that it has been paid

67. Notice of Dishonor may be given:

a. by or on behalf or the holder

b. by or on behalf of any party who:

is a party to the instrument and might be compelled to pay the instrument

to a holder who having taken it up would have a right of reimbursement from the party to whom notice is given. (Sec. 90 NIL)

68. Notice:

a. may be written or oral (Sec. 96)

b. written notice need not be signed or may be supplemented by verbal communication (Sec. 95)

c. may be by personal delivery or by mail (Sec. 96)

69. Notice may be waived either expressly or implied:

a. before the time of giving notice has arrived

b. after the omission to give due notice (Sec. 109 NIL)

70. Protest may be waived:

Effects:

deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)

Notes on Section 111

Where notice is waived, presentment is not waived

Where presentment is waived, notice is also waived

Where protest is waived, notice and presentment is waived

71. Notice of Dishonor - given by the holder to the parties secondarily liable, drawer and each indorser, that the instrument was dishonored by non-acceptance or non-payment by the drawee/maker

General rule: Any drawer or indorser to whom such notice is not given is discharged.

Exceptions:

a. Waiver (Sec. 109)

b. Notice is dispensed (Sec. 112)

c. Not necessary to Drawer (Sec. 114)

d. Not necessary to Indorser (Sec. 115)

- if notice is delayed, delay may be excused (Sec. 113)

72. Instances when Notice of Dishonor Not Necessary to Drawer

a. drawer and drawee same person

b. drawee is a fictitious/incapacitated person

c. drawer is the person to whom presentment for payment is made

d. drawer has no right to expect that the drawee will accept/pay the instrument (Sec. 114 NIL)

73. Instances when Notice Not Required to Indorser

a. drawee was a fictitious/incapacitated person and the indorser was aware of such at the time of indorsement

b. indorser is the person to whom instrument was presented for payment

c. instrument made/accepted for his accommodation (Sec. 115 NIL)

74. Omission to give notice of dishonor by non-acceptance does not prejudice a HDC (Sec. 117 NIL)

75. Protest only necessary for a foreign bill of exchange. Protest for other negotiable instruments is optional. (Sec. 118 NIL)

76. Causes of Discharge of the Instrument

a. payment by the debtor

b. payment by accommodated party

c. intentional cancellation by holder of instrument

d. any other act discharging a simple monetary obligation

e. debtor becomes holder of the instrument at/after maturity in his own right ( Sec 119 NIL)

Notes on Section 119

discharge of the instrument discharges all the parties thereto

payment must be in due course, and by the principal debtor or on his behalf

if payment is not made by the principal debtor, payment only cancels the liability of the payor and those obligated after him but does not discharge the instrument.

payment by an accommodation party does not discharge the instrument.

77. Discharge of Secondary Parties:

a. any act discharging the instrument

b. cancellation of indorser’s signature by indorsers

c. discharge of prior party

d. tender of payment by prior party

e. release of principal debtor

f. extension of payment by the holder/postponement of right to enforce without assent of secondary parties and without reservation of right of recourse against secondary parties (Sec 120 NIL)

78. Rights of a party secondarily liable who pays:

the instrument is not discharged

the party is remitted to his former rights as to all prior parties

the party may strike out his own and all subsequent indorsements

the party may negotiate the instrument again

Exception:

an instrument cannot be renegotiated where it is payable to order of a 3rd person and has been paid by the drawer

and instrument cannot be renegotiated where is was made or accepted for accommodation and it has been paid by the party accommodated.

78. Renunciation by a holder discharges an instrument when:

a. it is absolute and unconditional

b. made in favor of a person primarily liable

c. made at or after maturity of the instrument

d. in writing or the instrument is delivered up to the person primarily liable (Sec. 122 NIL)

Notes on Section 122

if renounced in favor of a party secondarily liable, only he is exonerated from liability and all parties subsequent to him

discharge by novation is allowed

79. General rule: When materially altered, without the consent of all parties liable, the instrument is avoided except as against:

a. the party who has made the alteration

b. the party who authorized or assented to the alteration.

c. subsequent indorsers

Exception:

if in the hands of a HDC, may be enforced according to its original tenor

Notes on Section 124

there is no distinction between fraudulent and innocent alteration

80. Material Alteration – an alternation is said to be material if it alters the effect of the instrument.

Under Section 125 the following changes are considered material alterations:

a. dates

b. the sum payable

c. time and place of payment

d. number or relations of the parties

e. medium or currency for payment

f. adding a place of payment where no place is specified

g. any other which alters the affect of the instrument

81. Instances where a BOE may be treated as a PN:

a. where the drawer and the drawee are one and the same

b. where the drawee is a fictitious person

c. where the drawee has no capacity to contract (Sec. 130 NIL)

The holder has the option to treat it as a BOE or a PN

82. Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)

Acceptance may be:

a. actual

b. constructive

c. general (Sec. 140)

d. qualified (Sec. 141)

Requisites of actual acceptance:

in writing

signed by the drawee

must not express that the drawee will perform his promise by any other means than payment of money

communicated or delivered to the holder

87. A holder has the right:

a. require that acceptance be written on the bill and if refused, treat it as if dishonored (Sec. 133)

b. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142)

88. Constructive Acceptance:

a. where the drawee to whom the bill has been delivered destroys it

b. the drawee refuses within 24 hrs after such delivery or within such time as is given, to return the bill accepted or not. (Sec. 137 NIL)

Notes on Section 137

drawee becomes primarily liable as an acceptor.

mere retention is equivalent to acceptance

89. When presentment for acceptance is necessary:

a. if necessary to fix the maturity of the bill

b. if it is expressly stipulated that it shall be presented for acceptance

c. if the bill is drawn payable elsewhere than the residence or place of business of the drawee (Sec. 143 NIL)

Notes on Section 143

Presentment is the production of a BOE to the drawee for his acceptance

presentment is necessary to make parties liable.

90. Summary on presentment for acceptance of Bills of Exchange:

a. to make the drawee primarily liable and for the accrual of secondary liability (Sec. 144)

b. necessary to fix maturity date, where bill expressly stipulates presentment, bill payable other than place of drawee (Sec. 143)

c. when presentment is excused: drawee is dead, hides, is fictitious, incapacitated person, after due diligence presentment cannot be made, presentment is refused on another ground although presentment is irregular (Sec. 148)

91. General rule: Protest is required only for foreign bills

Exception:

inland bills and notes may also be protested if desired

Protest is required:

a. where the foreign bill is dishonored by non acceptance

b. where the foreign bill is dishonored by non-payment

c. where the bill has been accepted for honor, it must be protested for non-payment before it is presented for payment to the acceptor for honor

d. where the bill contains a referee in case of need, it must be protested for non payment before presentment for payment to the referee in case of need (Sec. 152)

Notes on Section 152

Protest - formal statement in writing made by a notary under his seal of office at the request of the holder, in which it is declared that the same was presented for payment or acceptance (as the case may be) and such was refused.

it means all steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser

required when the instrument is a foreign bill of exchange.

it must be made on the same date of dishonor, by a notary/respectable citizen of the place in the presence of 2 credible witnesses so recourse to secondary parties

92. Acceptance for Honor (Sec. 161 NIL)– an acceptance of a bill made by a stranger to it before maturirty, where the drawee of the bill has:

a. refused to accept it

b. and the bill has been protested for non-acceptance

c. or where the bill has been protested for better security

Requisites for acceptance for honor:

the bill must have been previously protested a) for non-acceptance b) or for better security

the bill is not overdue at the time of the acceptance for honor

the acceptor for honor must be a stranger to the bill

the holder must give his consent

Notes on Acceptance for Honor

Purpose: to save the credit of the parties to the instrument or some party to it as the drawer, drawee, or indorser or somebody else.

Acceptor for honor is liable to the holder and to all the parties to the bill subsequent to the party for whose honor he has accepted (Sec. 164)

93. How acceptance for honor is made:

a. in writing and indicated that it is an acceptance for honor

b. signed by the person making the acceptance (Sec. 162 NIL)

94. Payment for Honor - payment made through a notarial act of honor of a party liable/stranger to the bill after bill has been dishonored by non-payment by the acceptor and protested for non-payment by the holder

Requisites:

a. protest for non-payment

b. any person may pay supra protest Form for payment of honor:

a. payment must be attested by notarial act appended to the protest, or form an extension to it.

b. notarial act of honor must be based on a declaration by the payer for honor

95. Bills in Set - bill of exchange drawn in several parts, each part of the set being numbered and containing a reference to the other parts, the whole of the parts just constituting one bill (Sec 178 NIL)

INSURANCE LAW

1. Laws applicable to insurance in the order of priority:

a. Insurance Code

b. Civil Code

c. General Principles prevailing on the subject in the US

2. Contract of Insurance - an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown contingent event

3. Contract of Suretyship - deemed to be an insurance contract within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business

4. Definition of “doing an insurance business”:

a. making or proposing to make, as insurer, any insurance contract;

b. making or proposing to make as a surety, any contract of suretyship as a vocation and not merely incidental to any other legitimate business or activity of the surety;

c. doing reinsurance business;

d. doing or proposing to do any business in the substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Code.

5. Requisites of Insurance:

a. existence of an insurable interest;

b. risk of loss;

c. assumption of risk;

d. scheme to distribute losses; and

e. payment of premiums

Note: If only a, b, and c are present, it is not a contract of insurance but a risk shifting device.

6. Characteristics of an insurance contract:

a. consensual

b. voluntary

c. aleatory - depends upon some contingent event; however, it is not a wagering nor a gambling contract

d. executed as to the insured after payment of the premium

e. executory as to insurer - not executed until payment for a loss

f. personal - each party takes into account the character, credit and the conduct of the other

g. conditional - liability is based on the happening of the event insured against

7. Parties to a contract of Insurance:

a. insurer - party who assumes the risk or undertakes to indemnify the insured or to pay a certain sum on the happening of a specified contingency

b. insured - person in whose favor the contract is operative, and who is indemnified against, or is to receive a certain sum upon the happening of a specified contingency

c. beneficiary - may or may not be the same as the insured

What perils may be insured?

(a) any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest; or

(b) any contingent or unknown event, whether past or future, which may create a liability against the person insured.

8. Every person has an insurable interest in the life and health of:

a. himself, his spouse and his children

b. any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest

c. any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might prevent the performance or delay it

d. any person upon whose life any estate or any interest vested in him depends

9. Insurable Interest in Property may consist of:

a. an existing interest

b. an inchoate interest, founded on an existing interest

c. an expectancy, coupled with an existing interest out of which the expectancy arises

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

10. Instances when Insurable Interest must exist:

a. Interest in Property insured must exist when the insurance takes effect and when the loss occurs, but need not exist in the meantime.

b. Interest in the Life or Health of a Person Insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

c. Beneficiaries of Life Insurance need not have insurable interest in the life of the insured.

d. Beneficiaries of Property Insurance must have insurable interest in the property insured.

Category Insurable Interest in Life Insurance

Insurable Interest in Property

1. basis may be based on pecuniary interest, affinity, or consanguinity

based purely on pecuniary interest

2. when interest must exist at the time the policy takes effect EXCEPT: life insurance taken by the creditor on the life of the debtor wherein interest must also exist at the time of the loss

at the time the policy takes effect and at the time of the loss

3. amount of insurable interest

no limit EXCEPT: if insurable interest is based on creditor-debtor relationship (only to the extent of the credit or debt)

limited to the actual value of damage/injury/loss

11. General Rule:

A change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.

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

b. when the change in interest results after the occurrence of an injury which results in a loss

c. a change of interest in one or more several distinct things, separately insured by one policy

d. a change in the interest by will or succession on the death of the insured (interest passes to the heirs)

e. a transfer of interest by one of several partners, joint owners in common who are jointly insured to the others (even though it has been agreed that the insurance shall seize upon the alienation of the thing insured)

12. Revocation of Beneficiaries

General Rule: Insurance contracts are revocable.

Exception: Any person who is forbidden to receive any donation under Article 739 of the Civil Code cannot be named beneficiary of a life insurance policy by the person who cannot make the donation to him.

The following donations shall be void:

a. those made between persons who were guilty of adultery or concubinage at the time of the donation;

b. those made by persons found guilty of the same criminal offense, in consideration thereof;

c. those made to a public officer or his wife, descendants, ascendants, by reason of his office.

Other Pertinent Provisions on Revocation:

(a) The termination of a subsequent marriage shall allow the innocent spouse to revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable.

(b) After the finality of the decree of legal separation, the innocent spouse may revoke the donations as well as the designation of the latter as a beneficiary in any insurance policy, even if such designation is irrevocable. The revocation of or change in the designation shall take effect upon written notification thereof to the insured. The action to revoke the donation under this article must be brought within 5 years from the time the decree of legal separation has become final.

(c) The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

13. Concealment - a neglect to communicate that which the party knows or ought to communicate General Rule: The insured is not required to communicate the nature (or kind)

or the amount of his insurable interest in the life or property insured to the insurer.

Exception:

a. When the insurer makes inquiry from the insured of the nature or amount of the latter’s insurable interest, whether in life or property insurance;

b. insurance policy must specify the interest of the insured in the property insured, if he is not the absolute owner thereof.

A concealment, whether intentional or not, entitles the injured party to rescind a contract of insurance.

Requisites:

(a) the party concealing must have knowledge of the facts concealed;

(b) the facts concealed must be material to the risk;

(c) the party is duty bound to disclose such fact to the other;

(d) the party concealing makes no warranty as to the facts concealed;

(e) the other party has no other means of ascertaining the facts concealed.

Note: An insured need not die of the very disease he failed to reveal to the insurer. It is sufficient that the non-revelation has misled the insurer in forming his estimate of the disadvantages of the proposed policy or in making his inquiries in order to entitle the insurance company to avoid the contract.

Note: The insured is under an obligation to disclose not only such material facts as are known to him, but also those known to his agent where:

a. it was the duty of the agent to acquire and communicate information of the facts in question;

b. it was possible for the agent, in the exercise of reasonable diligence, to have made the communication before the making of the insurance contract.

Failure on the part of the insured to disclose such facts known to his agent, or wholly due to the fault of the agent, will avoid the policy, despite the good faith of the insured.

14. Neither party to the insurance contract is bound to communicate information on the following matters except in answer to the inquiries of the other:

a. those of which the other knows;

b. that which, in the exercise of ordinary care, the other ought to know and of which the former has no reason to suppose his ignorance, i.e. political situation, general usages of trade;

c. those of which the other waives communication;

d. those which prove or tend to prove the existence of the risk excluded by a warranty and which are not otherwise material;

e. those which relate to a risk excepted from the policy and which are not otherwise material.

Neither party is bound to communicate his mere opinion, even upon inquiry, because such opinion would add nothing to the appraisal of the application.

Waiver of material facts may be:

(a) by the terms of the insurance; or

(b) by the neglect to make inquiry as to such facts, where they are distinctly implied in other facts which information is communicated

Materiality is to be determined not by the events but solely upon the probable and reasonable influence of the facts on the party to whom the communication is due in forming his estimate of the disadvantages of the proposed contract or in making his inquiries.

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

15. Representation

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

It may be made orally or in writing.

It may be made at the time of, or before, the issuance of the policy.

It may be altered or withdrawn before the insurance is effected, but not afterwards.

A representation cannot qualify an express provision in a contract of insurance but it may qualify an implied warranty.

A representation as to the future is to be deemed a promise unless it appears that it was merely a statement of belief or an expectation. (must be susceptible of present, actual knowledge)

The statement of an erroneous opinion, belief or information, or of an unfulfilled intention, will not avoid the contract of insurance, unless fraudulent.

Right to rescind because of false representation:

a. must be exercised previous to the commencement of an action on the contract (the action referred to is that to collect a claim on the contract)

b. misrepresentation, whether intentional or not, gives the right to rescind

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

Exceptions:

(a) absence of insurable risk

(b) cause of loss is an unexpected risk

(c) fraud

(d) non-payment of premium(e) violation of conditions relating to naval or military services

(f) failure to comply with conditions subsequent to the occurrence of the loss

16. Warranties:

General Rule: Non-performance of a promissory warranty avoids a contract of insurance.

Exceptions:

a. when before the time for performance of the promissory warranty, a loss insured against occurs;

b. when before the time of the performance of the warranty, the act becomes unlawful;

c. when before the time of the performance of the warranty, said performance becomes impossible.

A statement or a promise set forth in the policy or by reference incorporated therein, the non-fulfillment of which in any respect and without reference to whether the insurer was in fact prejudiced by such non-fulfillment, renders the policy voidable by the insurer, wholly irrespective of the materiality of such statement or promise.

Warranty Representation

part of the insurance contract collateral inducement

always written on the policy maybe oral or written

conclusively presumed material materiality must be proved

must be strictly complied with requires substantial truth

made by the insured may be made by insurer or insured

Note: If there is a breach of warranty, even if the cause of the loss is a different risk, the insurer is entitled to rescind the contract of insurance.

Breach must refer to a material warranty, whether intentional or not.

17. Policy

What is a Rider? It is an additional provision in a policy not part of the body of the printed form.

A rider, clause, warranty or endorsement to be binding must be pasted or attached to the policy and its descriptive titles or name must be mentioned and written on the policy’s blank spaces

If the rider is pasted or attached at the time the policy is issued the signature of the insured is not necessary to make it binding.

If the rider is executed after the original policy was issued, it must be counter-signed by the insured to be binding unless the rider was applied for by the insured himself.

The form of the application, rider, clause, warranty or endorsement must be approved by the Insurance Commissioner.

In case of inconsistency, the rider prevails over the printed clause it covers.

Cover Note: written memorandum of the most important terms of a preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy.

General Rule: Cover notes bind insurer temporarily pending the issuance of the policy.

Exception: Where it is merely an acknowledgment on behalf of the company that the latter’s branch office had received from the applicant the insurance premium and accepted the application subject for processing by the insurance company and that the latter will either approve or reject the same.

Kinds of Policies:

a. Open - the value of the thing insured is not agreed upon, but is left to be ascertained at the time of the loss

b. Valued - expresses on its face an agreement that the thing insured shall be valued at a specific sum

c. Running - contemplates successive insurance which provides that the object of the policy may be from time to time defined especially as to the subject of insurance by additional statements or endorsements

Note: If an amount is written on the face of an open policy, it is merely a determination of the maximum limit of recovery and not as the value of the policy.

Category Open Policy Valued Policy

what needs to be proven in order to be able to claim

value of property upon loss no need for proof of value of property upon loss

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

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

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

Grounds for Cancellation of a Policy by the Insurer:

For Policies Other than Life:

(1) prior notice of the cancellation to insured

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

(a) non-payment of premiums

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

(c) discovery of fraud or material misrepresentation

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

(e) physical changes in the property insured which results in the property becoming uninsurable

(f) determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code

(3) notice must be in writing

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

(5) notice must state the ground relied upon and that upon written request of the insured, the insurer will furnish facts on which the cancellation is based

Renewal of the Policies Other than Life:

Insurer must mail or deliver to the insured notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages within 45 days before the policy ends. Otherwise, insured entitled to renew the policy upon payment of the premium due on the effective date of the renewal.

18. Premium

General Rule: No policy is binding until the premium thereof has been paid.

Exceptions:

(a) in case of life or industrial life policy, whenever the grace period applies

(b) in case of estoppel

Insurer is entitled to payment of premiums as soon as the thing insured is exposed to the perils insured against.

When insurer entitled to Return of Premiums

a. when the contract is voidable on account of fraud or misrepresentation of the insurer;

b. when on account of facts, the existence of which the insured was ignorant without his fault

c. when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy

d. when the insured has become a public enemy and the policy automatically canceled (on the ground of equity)

e. in case of over-insurance by several insurers (ratable return of premiums, proportioned to the amount by which the aggregate sum insured in all policies exceed the insurable value of the thing at risk)

19. Loss

When Insurer is Liable:

a. where the peril insured against was the proximate cause, although a peril not contemplated by the contract may have been the remote cause or even the immediate cause of the loss

b. where the thing insured is rescued from the peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession in whole or in part

c. where loss is caused by efforts to rescue the thing insured from a peril insured against

d. insurer is not exonerated by a loss caused by simple negligence of the insured if the proximate cause of the loss is a peril insured against

e. loss, the immediate cause of which is a peril insured against except when the proximate cause is an excepted peril

When Insurer Not Liable:

a. where the peril insured against was only a remote cause

b. where the peril is specifically excepted, a loss which would not have occurred but for such peril is thereby excepted

c. loss caused by the connivance of the insured

d. loss caused by the willful act of insured

e. loss caused by insured’s negligence, if it amounts to bad faith

General Rule: The insurer is not liable for a loss caused by the willful act of the insured.

Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committed suicide after the policy has been in force for a period of 2 years from the date of its issue or last reinstatement. If insured kills himself within a period of 2 years, insurer is not liable.

Exception to Exception: If suicide is committed in a state of insanity, regardless of the time of commission, the insurer is liable.

20. Double Insurance - exists where the same person is insured by several insurers separately in respect to the same subject and interest

Requisites: a. person insured must be the same

b. existence of several insurers

c. subject matter insured must be the same

d. interest the same

e. risk insured against also the same

Over Insurance Double Insurance

may be only one insurer must be 2 or more insurers

insurance covers more than the value of insurable interest

insurance may or may not exceed the value of insurable interest

The Code prohibits double insurance without the consent of the insurer.

Liability of Insurer: Insurance taken from each insurer---------------------------------- x value of property received = liability of insurer total insurance

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

The original insured cannot recover from this insurance unless there is a specific grant, or assignment of, the reinsurance contract in favor of the insured, or a manifest intention of the contracting parties to the reinsurance contract to favor the insured.

General Rule: The insurer who obtains reinsurance must communicate:

a. all the representations of the original insured; and

b. all the knowledge and information he possesses, whether previously or subsequently acquired which are material to the risk

Exception: under automatic reinsurance treaties when two or more insurance companies agree in advance that each will reinsure a part of any line of insurance taken by the other. (in this instance, the contract is self-executing and the obligation attaches automatically on acceptance of a risk by the reinsured.)

Reinsurance Double Insurance

1. insurer becomes the insured

2. subject matter is the insured risk or liability

3. different risks and interests of insured

4. there must be consent of original

5. one who is original insured has no interest in the contract of reinsurance which is independent of the original contract of insurance

1. insurer remains the insurer

2. subject matter is property

3. the same interest and risk are insured

4. insured has to give his consent

5. insured is the party in interest in all contracts

22. Marine Insurance: insures against perils of the sea, not of the ship

Perils of the Sea Perils of the Ship

covered by marine insurance not covered by marine insurance

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

damage or losses resulting from:

1. natural and inevitable action of the sea

2. ordinary wear and tear of a ship, or

3. negligent failure of the ship owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions

Owner of the Ship has Insurable Interest:

a. in the ship even if it has been chartered by one who promises to pay him in value in case of loss (insurer is liable for what insured cannot recover from the charterer), even when hypothecated by bottomry (only the excess of its value over the amount secured by bottomry) and

b. in the freightage, which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage

Charterer has insurable interest in the ship to the extent that he is liable to be damnified by its loss.

Barratry:

Any willful misconduct on the part of the masters or crew, in pursuance of some unlawful or fraudulent purpose, without the consent of the owners and to the prejudice of the owner’s interest.

Jettison:

Intentional casting overboard of any part of a venture exposed to a peril, whether it be of the cargo, or the ship’s furniture or tackle, in the hope of saving the rest of the venture.

Insurable Interest in Marine Insurance:

Determined when one will sustain loss from the destruction of the subject matter or derive benefit from its preservation.

Charter Party:

Contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of which the owner or the agent of the vessel for the transportation of goods or persons from one port to another.

Loan on Bottomry:

Contract in the nature of a mortgage whereby the owner of a ship borrows money for the use, equipment or repair of the vessel for a definite term, and pledges the ship as a security for repayment, with maritime or extraordinary interest on the account of the maritime risks to be borne by the lender. It is stipulated in such a contract that if the ship be lost in the course of the specific voyage or during a specified limited time caused by any of the perils enumerated in the contract, the lender shall resolutely lose his money.

Loan on Respondentia:

Contract akin to that of mortgage made on the goods on board the ship, and which are to be sold or exchanged in the course of the voyage. The goods serve as the principal security.

Freightage:

Signifies all the benefits derived by the owner, carriage of his own goods, or those of others.

Concealment: In marine insurance, information or the belief or expectation of a 3rd

person, in reference to a material fact is material.

Concealment of the following merely exonerates the insurer from the resulting loss therefrom:

a. national character of the insured

b. liability of the thing insured to capture and detention

c. liability to seizure from breach of foreign laws of trade

d. want of necessary documents

e. use of false and simulated papers

Implied Warranties:

a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of commencement of risk, except:

(a) insurance for a specified length of time - at the commencement of

every voyage it undertakes during that time;

(b) cargo to be transshipped at indeterminate port - each vessel upon which cargo is shipped is seaworthy at the commencement of each particular voyage

b. that the vessel shall not engage in illegal venture

c. that the vessel shall not deviate from the course of the voyage insured

d. where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which may cast reasonable suspicion thereon

Seaworthiness depends on:

a. nature of the ship

b. nature of the voyage

c. nature of the service

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

Exceptions:

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

b. in a Cargo Policy - commencement of each particular voyage

c. in a Voyage Policy - commencement of each portion of the voyage

Deviation

a. a departure from the course of the voyage insured

b. unreasonable delay in pursuing the voyage

c. commencement of an entirely different voyage

When is Deviation proper?

a. when caused by circumstances over which neither the master not the owner of the ship has any control

b. when necessary to comply with a warranty or to avoid a peril whether it is insured against or not

c. when made in good faith for the purpose of saving human life or relieving another vessel in distress

d. when made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril

Loss

a. Actual Total Loss

a total destruction of the thing insured

the irretrievable loss of the thing by sinking or by being broken up

any damage to the thing which renders it valueless tot he owner for which he held it

any other event which effectively deprives the owner of possession, at the port of destination, of the thing insured

b. Constructive Total Loss - gives to the person insured the right to abandon

Average - any extraordinary or additional expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded

General Average - an expense or damage suffered deliberately in order to save the vessel, its cargo, or both from the real or known risk

Abandonment - act of the insured by which, after a constructive total loss, he declares the relinquishment to the insured of his interest in the thing insured (where the cause of loss is a peril insured against)

(a) more than ¾ thereof in value is actually lost or would have been expended to recover it from the peril

(b) it is injured to such an extent as to reduce its value by more than ¾

(c) if the thing insured is the ship and the voyage cannot be lawfully performed without incurring an expense of more than ¾ of the whole, or a risk which a prudent man would not undertake under the circumstances

(d) if the thing insured is cargo or freightage, and the voyage cannot be performed on another ship procured by the master within a reasonable time and with reasonable diligence to forward the cargo without incurring an expense or a risk as stated above

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:

a. must be total and conditional

b. made within a reasonable time

c. explicit notice

d. coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

a. insured must have interest at risk

b. there must be no fraud on the insured’s part

Notice of Abandonment:

a. may be oral or in writing (if oral, written notice must be submitted within 7 days from oral notice)

b. must be explicit

c. must specify the particular cause for abandonment

d. need not be accompanied by proof of interest or loss

Acceptance of Abandonment

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

b. conclusive upon the parties and admits the loss and sufficiency of abandonment

c. irrevocable, unless the ground on which it is made is proved to be unfounded

If insurer refuses to accept a valid abandonment - liable as upon actual total loss

Upon actual abandonment

a. freightage earned before loss - belongs to the insurer of freightage

b. freightage earned after loss - belongs to insurer of ship

Co-insurance:

form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance

Co-insurance applies only where the:

a. insurance taken is less than the actual value of the thing insured

b. loss is partial

Primage - increase in freightage

23. Fire Insurance

Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the place where it was intended to burn and ought to be in) and not that caused by friendly fire (fire which burns in a place where it is intended to burn).

Scope of Fire Insurance:

a. fire

b. lightning

c. windstorms

d. tornado

e. earthquake

f. other allied risks

When does alteration in the use or condition entitle the insurer to rescind the contract?

a. such alteration violates a provision in the policy

b. it was made without the insurer’s consent

c. it is done within the insured’s control, and it increases the risk of loss or damage

Rules:

a. policy shall not protect the insured from injury consequent upon his negligent use or management of fire, so long as it is confined to the place where it ought to be

b. if it escapes, even though the insured was negligent, the insurer is liable

c. even though a fire may remain in its proper place, it may become hostile if it by accident, becomes so extensive as to be beyond control

Options of the Insurer

a. purchase the property at appraised valuation

b. restore the property damaged - contract of insurance is discharged and parties enter into a new contract of insurance

24. Casualty Insurance:

Any injury that is intended, unexpected and unusual, even though it results from an act or even which was intelligently done.

Insurer is Liable for death/injury to insured:

a. by his own hand while insane

b. by taking poison by mistake

c. by overdoes of drugs administered or taken by mistake, by ignorance or material pathological conditions

d. by unexpected bacterial infection consequent upon doing acts, even though such acts were intentionally done

e. by unprovoked violence of others

Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

a. motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose name such vehicle is registered with the LTO

b. land transport operator or one who is the owner of a motor vehicle or vehicles being used for conveying passengers for compensation (including school buses)

No Fault Indemnity Clause:

The insurance company shall pay any claim for death or bodily injuries sustained by a passenger or 3rd party without the necessity of proving fault or negligence of any kind subject to certain conditions. This does not apply to property damage. It is in the nature of preliminary indemnity pending final determination as to which party is at fault or negligent.

The following are the rules on claims under the said provisions:

(1) claim shall be made upon the insurer of the vehicle on which he is riding, embarking or disembarking;

(2) if claimant is not a passenger, he shall claim for the person who is directly at fault;

(3) this is subject to final determination as to the party who is negligent or who is at fault;

(4) payment is subject to reimbursement from the party at fault or negligent.

25. Suretyship - an agreement whereby the surety guarantees the performance of the principal or obligor of an obligation or undertaking in favor of a 3 rd party called the obligee

26. Life Insurance:

an insurance in human life and insurance appertaining thereto or connected therewith may be payable:

a. on the death of the insured

b. on his surviving a specified period

c. otherwise, contingently on the continuance or cessation of life (b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:

a. Whole Life or Ordinary Policies - here, the insured agrees to pay annual, semi-annual or quarterly premiums while he lives. The insurer agrees to pay the face value of the policy upon the death of the insured.

b. Limited Payment Life Policy - premiums paid only for a specified period of years.

c. Term Policy - insurer’s liability arises only upon the death of the insured within the agreed term as period. If the latter survives the period, the contract terminates and the insurer is not liable

d. Endowment Policy - insurer agrees to pay a certain sum to the insured if the latter outlives a designated period; if he dies before that time, the proceeds are paid to the beneficiary

e. Life Annuity - debtor binds himself to pay an annual pension or income during the life of one or more persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him with the burden of income

27. The Business of Insurance

a. Life or Endowment Policies

Grace Period - 30 days for the payment of any premium due after the first premium has been paid

Period of Incontestability - after the lapse of 2 years from the date of issue or date of approval of last reinstatement

Reinstatement of Policy - within 3 years from the date of default of premium, upon:

a. production of evidence of insurability, and

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

Exceptions:

a. if cash surrender value has been paid

b. if period of extension has expired

b. Claims Settlement

Unfair Claims Settlement Practices:

(a) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue

(b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies

(c) failing to adopt or implement reasonable standards for the prompt investigation of claims arising under its policies

(d) no attempt in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear

(e) compelling policy holders to institute suits to recover the amount due under its policies by offering with no justifiable reason an amount substantially less than that ultimately recovered in suits brought by them

Proceeds of Life Insurance - payable within 60 days after:

(a) presentation of claims, and

(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the ceiling prescribed by the Monetary Board unless based on the ground that the rate is fraudulent)

Proceeds of Policies other than Life - payable:

(a) upon proof of loss

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

c. Power of Commissioner to Suspend/Revoke License

(a) if insurance contract is in unsound condition(b) if it has failed to comply with the provisions of law or regulations obligatory

upon it

(c) its conditions or methods of business is such as to render its proceedings hazardous to the public or to its policy holders

(d) that its paid up capital stock, or its available cash assets, or its security deposits, as the case may be, is impaired or deficient

(e) that the margin of solvency required of each company is deficient

Insurance Agent

- any person who for compensation solicits or obtains insurance on behalf of any insurance company or transacts for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in

negotiating of such insurance. He must be first licensed as such before doing any acts as insurance agent.

Insurance Broker

- any person for any compensation, commission or any other thing of value, acts, or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. A license is required.

PHILIPPINE DEPOSIT INSURANCE CORPORATION

1. The PDIC is tasked to insure the deposits of all banks which are entitled to the benefits of insurance under RA 3591.

2. The Board of Directors is composed of the governor of the Central Bank and two appointees of the President who must be Filipino citizens and must be confirmed by the Commission on Appointments.

3. The members of the Board of Directors shall be ineligible during the time they are in office and for a period of two years thereafter to hold any office, position or employment in any insured bank, except that this restriction shall not apply to any member who has served the full term for which he was appointed.

4. No member of the Board of Directors shall be an officer or director of any insured bank; and before entering upon his duties as member of the Board of Directors he shall certify under oath that he has complied with this requirement and such certification shall be filed with the Secretary of the Board of Directors.

5. Any vacancy in the Board created by the death, resignation, or removal of an appointive member shall be filled by the appointment of new member to complete the unexpired period of the term of the member concerned.

6. Powers of the Board:

a. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its responsibilities;

b. To direct the management, operations and administration of the Corporation;

c. To appoint, fix the remunerations and remove all officers and employees of the Corporation, subject to the Civil Service Law; and

d. To authorize such expenditures by the Corporation as are in the interest of the effective administration and operation of the Corporation.

7. Any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposit.

8. Any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligation payable only at such branch.

9. Any bank or banking institution which is engaged in the business of receiving deposits may insure its deposit liabilities with the Corporation.

10. The factors to be considered by the Board of Directors for the approval of the application:

a. the financial history and condition of the Bank,

b. the adequacy of its capital structure,

c. its future earning prospects,

d. the general character of its management,

e. the convenience and needs of the community to be served by the Bank and

f. whether or not its corporate powers are consistent with the purposes of the Act.

11. The Board of Directors must also determine that the bank’s assets in excess of its capital requirements are adequate to enable it to meet all its liabilities to depositors and other creditors as shown by the books of the bank.

12. The assessment rate shall be determined by the Board of Directors but shall not exceed one-twelfth of one per centum per annum. The semiannual assessment for each insured bank shall be in the amount of the product of one-half (1/2) the assessment rate multiplied by the assessment base.

13. Although the assessment base shall be the amount of the liability of the bank for deposits, without any deduction for indebtedness of depositors, the bank may

(1) deduct

(ii) from the deposit balance due to an insured bank the deposit balance due from such insured bank (other than trust funds deposited by it in such bank) which is subject to an immediate withdrawal; and

(iii) cash items as determined by either of the following methods, at the option of the bank:

(a) by multiplying by 2 the total of the cash items forwarded for collection on the assessment base days (being the days on which the average deposits are computed) and cash items held for clearings at the close of business on said days, which are in the process of collection and which the bank has paid in the regular course of business or credited to deposit accounts; or

(b) by deducting the total of cash items forwarded for collection on the assessment base days and cash items held for clearing at the close of business on said days, which are in the process of collection and which the bank has paid in the regular course of business or credited to deposit accounts, plus such uncollected items paid or credited on preceding days which are in the process of collection: Provided, That the Board of Directors may define the terms "cash items", "process of collection", and "uncollected items" and shall fix the maximum period for which any such item may be deducted; and

(2) may exclude from its assessment base

(i) drafts drawn by it on deposit accounts in other banks which are issued in the regular course of business; and the amount of devices or authorizations issued by it for cash letters received, directing that its deposit account in the sending bank be charged with the amount thereof; and

(ii) cash funds which are received and held solely for the purpose of securing a liability to the bank but not in an amount in excess of such liability, and which are not subject to withdrawal by the obligor and are carried in a special non-interest bearing account designated to properly show their purpose.

1. Each insured bank, as a condition to the right to make any such deduction or exclusion in determining its assessment base, shall maintain such records as will readily permit verification of the correctness thereof.

2. The insured bank must file a certified statement:

i. on or before the 15th of July of each year, showing for the 6 months ending on the preceding June 30 the amount of the assessment base and the amount of the semiannual assessment due to the Corporation for the period ending on the following December thirty-one and pay to the Corporation the amount of the semiannual assessment it is required to certify.

ii. on or before the 15th day of January of each year, each insured bank shall file a similar certified statement for the six months ending on the preceding December thirty-one and shall pay to the Corporation the amount of the semiannual assessment for the period ending on the following June thirty which it is required to certify.

3. Any insured bank which fails to file any certified statement required to be filed by it in connection with determining the amount of any assessment payable by the bank to the PDIC may be compelled to file such statement by mandatory injunction or other appropriate remedy in a suit brought for such purpose by the PDIC against the bank and any officer or officers thereof in any court of the Philippines of competent jurisdiction in which such bank is located.

4. The PDIC, in a suit brought in any court of competent jurisdiction, shall be entitled to recover from any insured bank the amount of any unpaid assessment lawfully payable by such insured bank to the PDIC, whether or not such bank shall have filed any such certified statement and whether or not suit shall have been brought to compel the bank to file any such statement.

5. No action or proceeding shall be brought for recovery of any assessment due to the PDIC or for the recovering of any amount paid to the PDIC in excess of the amount due to it, unless such action or proceeding shall have been brought within five years after the right accrued for which the claim is made, except where the insured bank has made or filed with the PDIC a false or fraudulent certified statement with the intent of evade, in a whole or in part, the payment of assessment, in which case the claim shall not have been deemed to have accrued until the discovery by the PDIC that the certified statement is false fraudulent.

6. Should any insured bank fail or refuse to pay any assessment required to be paid and should the bank not correct such failure or refusal within thirty days after written notice has been given by the PDIC to an officer of the bank, stating that the bank has failed or refused to pay as required by law the insured status of such bank shall be terminated by the Board of Directors.

7. The remedies provided in this subsection and in the two preceding subsections shall not be construed as limiting any other remedies against an insured bank but shall be in addition thereto.

8. Termination of Status as an insured bank:

(a) Any insured bank may, upon not less than ninety days, written notice to the Corporation, and to the Development Bank of the Philippines if it owns or holds as pledges any preferred stock, capital notes, or debentures of such bank, terminate its status as an insured bank.

(b) By the PDIC:

When the Board finds that an insured bank or its directors or trustees have

o continued unsafe or unsound practices in conducting the business of the bank

o have knowingly or negligently permitted any of its officers or agents to violate any provisions of any law or regulation to which the insured bank is subject,

The Board shall first give to the Central Bank a statement with respect to such practices or violations for the purpose of securing the correction thereof and shall give a copy thereof to the bank.

Unless such correction shall be made within 120 days or such shorter period of time as the Central Bank shall require, the Board, if it shall determine to proceed further, shall give to the bank not less than 30 days' written notice of

intention to determine the status of the bank as an insured bank, and shall fix a time and place for a hearing before the Board or before a person designated by it to conduct such hearing, at which evidence may be produced, and upon such evidence the Board shall make written findings which shall be conclusive.

Unless the bank shall appear at the hearing, it shall be deemed to have consented to the termination of its status as an insured bank.

If the Board shall find that any unsafe or unsound practice or violation specified in such notice has been established and has not been corrected within the time above prescribed in which to make such correction, the Board may order that the insured status of the bank be terminated.

The Corporation may publish notice of such termination and the bank shall give notice of such termination to each of the depositors at his last address of record on the books of the bank.

After the termination of the insured status of any bank, the insured deposits of each depositor in the bank on the date of such termination, less all subsequent withdrawals from any deposits of such depositor, shall continue for a period of two years to be insured, and the bank shall continue to pay to the Corporation assessments as in the case of an insured bank during such period.

9. The PDIC, upon the payment of any depositor shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment, but such depositor shall retain his claim for any uninsured portion of his deposit.

10. The PDIC may withhold payment of the insured deposit in a closed bank as may be required to provide for the payment of any liability of the depositor as a stockholder of the closed bank, or of any liability of the depositor to the closed bank or its receiver, which is not offset against the claim due from such bank, pending the determination and payment of such liability by such depositor or any other person liable therefor.

11. After the PDIC has given at least 3 months notice to the depositor, he must claim his insured deposit from the PDIC within 18 months after the Central Bank or proper court shall have ordered the conversion of the assets of the closed bank into money. Otherwise, all rights of the depositor against the PDIC with respect to the insured deposit shall be barred, and all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC may have become subrogated, shall thereupon revert to the depositor.

12. All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt from taxation.

13. Acts by the insured bank which need consent from the PDIC:

(1) merge or consolidate with any noninsured bank or institution or convert into a noninsured bank or institution

(2) assume liability to pay any deposits made in, or similar liabilities of, any noninsured bank or institution

(3) transfer assets to any noninsured bank or institution in consideration of the assumption of liabilities for any portion of the deposits made in such insured bank.

TRANSPORTATION LAW

1. Contract of Transportation - contract whereby a certain person or association of persons obligate themselves to transport persons, things, news, from one place to another for a fixed price

2. Parties to the Contract of Transportation:

a. Shipper - one who gives rise to the contract of transportation by agreeing to deliver the things or news to be transported, or to present his own person or those of other or others in the case of transportation of passengers

b. Carrier/Conductor - one who binds himself to transport persons, things, or news, as the case may be, or one employed in or engaged in the business of carrying goods for others for hire

c. Consignee – the party to whom the carrier is to deliver the things being transported; one to whom the carrier may lawfully make delivery in accordance with its contract of carriage (shipper and consignee may be the same person)

3. Common Carrier - person, corporation, firm, association engaged in the business of carrying or transporting passengers, goods or both, by land, water, air, for compensation, offering services to the public; must exercise extraordinary diligence

Private Carrier - not engaged in the business of carrying; no public employment; undertakes to deliver goods/passengers for compensation; requires only ordinary diligence

A common carrier is PRESUMED negligent when there is a breach of its contract. It has to prove it exercised EOD in order to escape liability.

4. Requisites of Caso Fortuitoa. event independent of human will

b. occurrence makes it impossible for debtor to perform in normal manner

c. debtor free from aggravation/participation

d. impossible to foresee or avoid5. Contributory negligence does not entitle passengers to recover moral/exemplary

damages.

6. Bill of Lading - written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or his carrier

It is not indispensable to the creation of a contract of carriage. The contract itself arises from the moment goods are delivered by shipper to carrier and the carrier agrees to carry them.

The function of the Bill of Lading: the legal basis of the contract between the shipper and carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided, no exceptions being admissible other than forgery or material errors in the drafting thereof.

Carrier’s responsibility starts from the moment he receives unconditionally the merchandise personally or through an agent and lasts until he delivers them actually or constructively to the consignee or his agent.

Mere delay in the delivery of goods to consignee does not give right to refuse goods - only breach of contract, ergo damages. If delay is unreasonable, then he may refuse to accept and make carrier liable for conversion.

7. Vessels - those engaged in navigation, whether coastwise or on the high seas, including floating docks, pontoons, dredges, scows and any other floating apparatus destined for the services of the industry or maritime commerce

8. Persons Participating in Maritime Commerce:

a. ship owner and/or ship agent

b. captain or master

c. other officers of the vessel

d. supercargo (a person designated by the owner of goods to accompany the goods on the vessel where the goods are loaded. He is NOT an employee of the carrier nor a part of the crew but is a passenger.)

9. Liability of Ship owners and Ship agents:

a. civil liability for the acts of the captain

b. civil liability for contracts entered into by the captain to repair, equip and provision the vessel, provided that the amount claimed was invested for the benefit of the vessel

c. civil liability for indemnities in favor of 3rd persons which may arise from the conduct of the captain in the care of the goods which the vessel carried, as well as for the safety of the passengers transported

Ship owner/ship agent not liable for the obligations contracted by the captain if the latter exceeds his powers and privileges inherent in his position of those which may have been conferred upon him by the former. However, if the amount

claimed were made use of for the benefit of the vessel, the ship owner or ship agent is liable.

10. Doctrine of Limited Liability - liability of shipowners is limited to amount of interest in said vessel because of the real and hypothecary nature of maritime law such that where the vessel is entirely lost, the obligation is extinguished.

Exceptions: (1) vessel is not abandoned

(2) claims under workmen’s compensation

(3) injury/damage due to shipowner’s fault

(4) vessel is insured

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

In abandoning the vessel, there is no procedure to be followed. There is neither a prescriptive period within which the ship owner can make the abandonment. He may do so for so long as he is not estopped from invoking the same or do acts inconsistent with abandonment.

11. Roles of the Captain:

a. general agent of the ship owner

b. technical director of the vessels

c. represents the government of the country under whose flag he navigates

12. Loan on Bottomry - made by shipowner/ship agent guaranteed by vessel itself, repayable upon arrival at destination

13. Loan In Respondentia - taken on security of the cargo repayable upon the safe arrival at cargo destination

14. Accidents and Damages in Maritime Commerce:

a. Averages

b. Arrivals Under Stress

c. Collisions

d. Shipwrecks

15. Average:

a. all extraordinary or accidental expenses which may be incurred during the voyage for the preservation of the vessel or cargo or both

b. all damages or deterioration which the vessel may suffer from the time it puts to sea at the port of departure until it casts anchor at the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment

16. Simple Average - expenses/damages caused to the vessel/cargo not inured to common benefit and profit of all the persons interested in the vessel and her cargo; borne by respective owners

17. General Average - expenses/damages deliberately caused in order to save the vessel, its cargo or both from a real and known risk

Requisites:

a. deliberately incurred

b. intended to save vessel and cargo or both

c. from real and known risk

d. there is success

18. Formalities for Incurring Gross Average:

a. there must be an assembly of the sailing mate and other officers with the captain including those with interests in the cargo

b. there must be a resolution of the captain

c. the resolution shall be entered in the log book, with the reasons and motives and the votes for and against the resolution

d. the minutes shall be signed by the parties

e. within 24 hours upon arrival at the first port the captain makes, he shall deliver one copy of these minutes to the maritime judicial authority thereat

19. Arrivals under Stress - arrival of the vessel at a port not of destination on account of

(a) lack of provisions;

(b) well-founded fear of seizure;

(c) by reason of accident of the sea disabling it to navigate

When Not Lawful:

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

b. risk of enemy not well known or manifest

c. defect of vessel due to improper repair

d. malice, negligence, lack of foresight or skill of captain

20. Collision - impact of 2 vessels both of which are moving

21. Allision - striking of a moving vessel against one that is stationary

22. Cases of Collision:

a. due to the fault, negligence or lack of skill of the captain, sailing mate or the complement of the vessel - ship owner liable for the losses and damages (Culpable Fault)

b. due to fortuitous event or force majeure - each vessel and its cargo shall bear its own damages (Fortuitous)

c. it cannot be determined which of the 2 vessels caused the collision - each vessel shall suffer its own damages, and both shall be solidarily responsible for the losses and damages occasioned to their cargoes (Inscrutable Fault)

23. Error in Extremis - sudden movement made by a faultless vessel during the 3rd

zone of collision with another vessel which is at fault, even if the said movement is wrong, no responsibility will fall on said vessel

24. Shipwreck - denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by the waves, by running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation

25. Salvage - the compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending peril, or such property recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture; a service which one person renders to the owner of a ship or goods by his own labor, preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect and secure; a permit is required to engage in the salvage business

26. Derelict - a ship or cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning it

27. Elements of a Valid Salvage:

a. a marine peril

b. service voluntarily rendered when not required as an existing duty or from special contract

c. success, in whole or in part, or that the services rendered contributed to such success

28. Contract of Towage - contract whereby a vessel usually motorized pulls another from one place to another for compensation. It is a contract of services.

29. Difference between Towage and Salvage:

Salvage Towage

crew of salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share

crew of the towing ship does not have any interest or rights with the remuneration pursuant to the contract

salvor takes possession and may retain possession until he is paid

Tower has no possessory lien; only an action for recovery of sum of money

court has power to reduce the amount of remuneration if unconscionable

Court has no power to change amount in towage even if unconscionable

CARRIAGE OF GOODS BY SEA ACT

1. When Applicable:

a. contracts for the carriage of goodsb. by seac. to and from Philippine portsd. in foreign trade

2. Notice of Loss or damage must be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery.

If the loss or damage is not apparent, the notice must be given within 3 days of delivery. However, the carrier shall be discharged from all liability in respect of loss or damage of goods unless suit is brought within 1 year after delivery of the goods or the date when the goods should have been delivered.

Notice of loss, if not given, that fact shall not affect or prejudice the right of the shipper to bring suit within the 1 year prescriptive period.

WARSAW CONVENTION

1. When Applicable:

a. international transport by air

b. transport of persons, baggage, or goods

2. Liabilities under the Convention:

a. damage sustained in the event of the death or wounding of a passenger taking place on board the aircraft or in the course of any of the operations of embarking or disembarking

b. loss or damage to any check baggage or goods sustained during the transport by air

c. delay in the transport by air of passengers, baggage, or goods

Enumeration of causes of action as above stated is not an exclusive list. (Northwest Airlines vs. Cancer)

3. Meaning of Transport by Air - period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or in the case of landing outside an airport, in any place whatsoever

4. Action for damages must be brought at the option of the plaintiff, either:

a. before the court of the domicile of the carrier;

b. court of principal place of business of carrier;

c. court where he has a place of business through which the contract has been made;

d. before the court at the place of destination

5. Convention provides for a limitation of liability:

a. for each passenger - limited to 125,000 francs

b. for goods and checked in baggage - limited to 250 francs per kilogram

c. for hand carry - limited to 5,000 francs per passenger

When can you not avail of this limitation?

(1) willful misconduct

(2) default amounting to willful misconduct

(3) accepting passengers without ticket

(4) accepting goods without airway bill or baggage without baggage check

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

7. Notice requirement:

damage to baggage : within 3 days from receipt damage to goods: within 7 days from receipt delay: within 21 days from receipt

Failure to file written notice, no action shall lie against the carrier, save in the case of fraud on his part.

8. Notice Requirements:

COGSA Code of Commerce Warsaw Convention

loss/damage apparent protest at time of receipt of goods

Protest at time of receipt of goods

loss/damage not apparent

protest within 3 days from delivery

Protest within 24 hours after receipt

damage of baggage protest within 3 days from receipt

damage of goods within 7 days from receipt

delay within 21 days from receipt

PUBLIC SERVICE ACT

1. Every person that may own, operate, manage, control in the Philippines, for hire/compensation with general/limited clientele whether permanent, occasional, accidental, and done for a general business purpose any common carrier, shipyard, electric light, heat and power and public utility.

2. Public Utility

- business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.

3. Prior Operator Rule

- before permitting a new operator to invade the territory of another already established, the prior operator must be given an opportunity to extend its service to meet the public needs in the matter of transportation.

4. Prior Applicant Rule

- presupposes a situation where two interested persons apply for a CPC in the same community over which no person has yet been granted a CPC to operate. If both applicants equal, then the applicant who applied first will be given the CPC.

5. Distinctions between CPCs and CPCNs

Certificate of Public Convenience Certificate of Public Convenience and Necessity

any authorization to operate a public service issued by the appropriate government agency

Issued by the appropriate government agency to a public service to which any political subdivision has granted a franchise

an authorization issued by the proper government agency for the operation of public services for which no franchise, either municipal or legislative is required by law

an authorization issued by the proper government agency for the operation of public services for which a franchise is required by law

*However, PAL v. CAB (G.R. No. 119528, March 26, 1997) blurred the distinction between the CPC and CPCN. The Court ruled that convenience and necessity must be construed together. Further, it is the law which determines the requisites for issuance of such certification and not the title indicating the certificate.

6. Requirements of CPC and franchise:

a. Filipino citizenship

b. financial capacity

c. public convenience

CORPORATION LAW

1. Doctrine of Corporate Opportunity

- a director is made to account to his corporation, gains and profits from transactions entered into by him/another competing corporation in which he has substantial interest, which should have been a transaction undertaken by the corporation. This is a breach of fiduciary relationship.

2. Doctrine of Separate Juridical Personality

– a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and in general, from the people comprising it; and that obligations incurred by the corporation, acting through its directors, officers and employees are its sole liabilities.

3. Doctrine of Piercing the Veil of Corporate Entity

- it is to disregard for justifiable reasons by the state the fiction of juridical personality of the corporation separate and distinct from the persons composing it

4. De Jure Corporation

- corporation formed with all the requirements of law

5. De Facto Corporation

- corporation defectively formed from a bona fide attempt to incorporate under the existing law and exercises corporate powers

6. Corporation by Estoppel

- a group of persons which holds itself out as a corporation and enters into a contract with 3rd persons on the strength of such appearance cannot be permitted to deny its existence in an action under said contract

7. Corporation by Prescription

- body not lawfully organized as a corporation but has been recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex. Roman Catholic)

8. Trust Fund Doctrine

- the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions

9. Voting Shares

a. Founders Shares

- given rights and privileges not enjoyed by owners of other stocks; right to vote/be voted in the election of directors shall not exceed 5 years

Non-Voting Shares

a. Preferred Shares

- issued only with par value; given preference in distribution of assets in liquidation and in payment of dividends and other preferences stated in the articles of incorporation

b. Redeemable Shares

- expressly provided in articles; have to be purchased/taken up upon expiration of period of said shares purchased whether or not there is unrestricted retained earnings

c. Treasury Stocks

- stocks previously issued and fully paid for and reacquired by the corporation through lawful means (purchase, donation, etc.)

10. Exceptions where holders of non-voting shares may vote:

a. amendments of articles of incorporation

b. adoption/amendment of by-laws

c. increase/decrease of bonded indebtedness

d. increase/decrease of capital stock

e. sale/disposition of all/substantially all corporate property

f. merger/consolidation of corporation

g. investment of funds in another corporation/another business purpose

h. corporate dissolution

11. Preferred Cumulative Participating Share of Stock

- share entitling its holder to preference in the payment of dividends ahead of common stockholders and to be paid the dividends ahead of common stockholders and to be paid the dividends due for prior years and to participate further with common stockholders in dividend declarations

12. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock

- stock deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions - usually payment of full subscription price

13. Over-issued Stock

- stock issued in excess of authorized capital stock; null and void

Watered Stock

- stock issued gratuitously, money/property less than par value, services less than par value, dividends where no surplus profits exist

14. Certificate of Stock

written acknowledgment by the corporation of the stockholder’s interest in the corporation. It is the personal property and may be mortgaged/pledged.

Transfer binds the corporation when it is recorded in the corporate books.

A stockholder who does not pay his subscription is not entitled to the issue of a stock certificate.

The total par value of the stocks subscribed by him should first be paid.

15. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in corporate books to bind third parties because corporate books only cover absolute transfers. But the pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the corporate name.

16. Methods of Collection of Unpaid Subscription

a. call, delinquency and sale at public auction of delinquent shares

b. ordinary civil action

c. collection from cash dividends and other amounts due to stockholders if allowed by by-laws/agreed to by him

17. A corporation can reacquire stocks in the following cases:

a. eliminate fractional shares

b. corporate indebtedness arising from unpaid subscriptions

c. purchase delinquent shares

d. exercise of appraisal right

18. Right of Appraisal

a. amending articles, changing, restricting, enlarging stockholder’s rights/extending, shortening corporate life

b. sale/disposition of all/substantially all of corporate assets

c. merger and consolidation

d. investment of funds in another corporation/for a different purpose

19. Grounds for Rejection of Registration

a. not in prescribed form

b. purpose illegal, inimical

c. treasurer’s affidavit false

d. non-compliance with required Filipino stock ownership

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

How to organize?

a. adoption of by-laws

b. election of Board of Directors

c. election of officers

But from issuance of certificate, it acquires juridical personality

22. Merger

- one corporation absorbs the other and remains in existence while the other is dissolved

23. Consolidation

- a new corporation is created and the consolidating corporations are extinguished

24. Theory of General Capacity

- a corporation is said to hold such powers as are not prohibited/withheld from it by general law

25. Theory of Special Capacity

- the corporation cannot exercise powers except those expressly/impliedly given

26. Concession Theory

- a group of persons wanting to create a corporation will have to execute documents and comply with requirements set by the state before being given corporate personality; merely a privilege; state may provide causes for which the privilege may be withdrawn

27. Votes required in different transactions:

Provision Subject Matter Votes required Written Notice Required?

Appraisal Right?

16 Amendment of AoI Majority BoD, 2/3 stockholders

No, written assent sufficient

Yes

24 Election of Directors or Trustees

Majority stockholders Yes

28 Removal of directors or trustees

2/3 stockholders Yes

29 Filling up vacancy in BoD not due to removal

Majority BoD If no BoD quorum, majority of

stockholders

30 Granting of compensation to directors

Majority stockholders Yes

32, 34 Ratify dealings or disloyalty of director

2/3 stockholders YesSilent for 34

37 Extend or Shorten Corporate Term

Majority BoD, 2/3 stockholders

Yes Yes – extension

No – shortening 38 Increase/Decrease

Capital Stock, Increase Bonded Indebtedness

Majority BoD, 2/3 stockholders

Yes Yes

40 Sale or Disposition of Assets

Majority BoD, 2/3 stockholders

Yes Yes

42 Invest funds in another corporation

Majority BoD, 2/3 stockholders

Yes Yes

43 Declaration of Stock Dividends

Majority BoD, 2/3 stockholders

Yes

43 Declaration of Cash dividends

Majority BoD Yes

44 Enter into management Majority BoD Yes

contract Stockholders’ required vote (2/3 or majority) depends on

certain conditions46 Adoption of By-Laws Majority stockholders48 Delegate to BoD power

to amend repeal or adopt by-laws

2/3 stockholders

48 Revocation of Power to amend/repeal or adopt by-laws

Majority stockholders

48 Amendment of By-Laws

Majority BoD/stockholders

Yes Yes

77 Merger or consolidation (approval or amendment of plan)

Majority of BoD of each Corporation, 2/3

stockholders

Yes Yes

95 Plan of distribution of assets for NSCs

Majority BoD, 2/3 members

Yes

118, 119 Voluntary dissolution Majority BoD, 2.3 stockholders

Yes

28. Where similar acts have been approved by the directors as a matter of general practice, custom and policy, the general manager may bind the company even without formal authorization of the board of directors

29. Powers of stockholders:

a. a direct participation in management - where his vote is needed to approve certain corporate actions

b. indirect participation in management to vote or remove directors

c. proprietary rights

d. remedial rights

30. Voting Trust Agreement

- an agreement between a group of stockholders and trustee for a term not exceeding 5 years in which control over the stocks is lodged in the trustee. The purpose is for controlling the voting.

a. in writing, notarized and filed with the SEC and the corporation

b. period not exceeding 5 years

c. cannot be entered into to circumvent the laws against monopolies, illegal combinations in restraint of trade in fraud

31. Cumulative Voting

the number of votes that a shareholder’s number of shares multiplied by the number of directors may give all said votes to one candidate or he may distribute them as he may deem fit.

Cumulative voting is a matter of right in a stock corporation.

In a non-stock corporation, it cannot be utilized unless allowed by the by-laws/articles

32. The power of removal of directors that may be exercised with or without cause cannot apply to the director representing the minority shareholders. He may only be removed with cause.

33. General Rule: If surplus profits exceed the requirements the corporation shall declare dividends. This is compulsory if the surplus is equal/or more than the paid-up capital.

Exceptions:

a. justified by approved expansion projects

b. prohibited by creditor to declare dividends

c. retention is necessary under existing circumstances

34. Business Judgment Rule

- decisions made by a corporation’s management body shall not be interfered with even by the courts unless such acts are oppressive/unconscionable as to violate the rights of the minority

35. Individual Suit

- one brought to assert a right of a stockholder peculiar to himself

36. Representative Suit

- brought by the stockholder in his own behalf and in behalf of other stockholders similarly situated, having common cause against the corporation

37. Derivative Suit

- brought by a stockholder for and in behalf of the corporation to protect/vindicate corporate rights after he has exhausted intra-corporate remedies Requisites:

a. cause of action in favor of the corporation

b. refusal of corporation to sue

c. injury to the corporation

Although corporations dissolved have 3 years to wind up, they can convey their properties to a trustee who can continue the suit beyond the 3 year period. The lawyer who handled the case in the trial court may be considered as trustee for the dissolved corporation with respect to the matter in litigation only even if no appointment was extended to him. (Selano vs. CA)

In a case filed before dissolution, it may continue even beyond the 3 year period until final determination of litigation. Otherwise, the corporation in liquidation would lose what justly belongs to them/be exempt from payment of obligations because of a technicality.

38. Foreign Corporations

a. Doing Business, generally - continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business.

But where the isolated act is not incidental/casual but indicates the foreign corporation’s intention to do other business, said single act constitutes engaging in business in the Philippines.

b. “Doing business” includes (Foreign Investment Act of 1991):

1. Soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches;

2. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more;

3. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and

4. Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose or object of the business organization.

a. “Doing business” does NOT include:

1. Mere investment as a shareholder by a foreign entity in a domestic corporation duly registered to do business, and/or the exercise of rights as such investor;

2. Having a nominee director or officer to represent its interests in such corporation; and

3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;

4. The publication of a general advertisement through any print or broadcast media;

5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

7. Collecting information in the Philippines; and

8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

c. Instances when unlicensed foreign corporations can sue:

(1) isolated transactions

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

(3) contracts provide that Phil. Courts will be venue to controversies

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

(5) recovery of misdelivered property

(6) where the unlicensed foreign corporation has a domestic corporation

39. Religious Corporations

a. Corporation Sole

- special form of corporation; associated with the clergy and consists of 1 person only and his successors; incorporated by law giving them legal capacity and advantage

b. Close Corporations

- one whose articles provide that its shares shall not be held by more than 20 persons; its issued stock shall be subject to one or more restrictions on transfer and shall not be listed in any stock exchange/make public offering

c. Non-stock Corporation

- one where no part of its income is distributable to its members and shall be used in furtherance of the purpose of which it was organized

40. SEC Jurisdiction

a. original and exclusive jurisdiction

(1) fraudulent devices and schemes employed by directors detrimental to public interest

(2) intra-corporate disputes and with the state in relation to their franchise and right to exist as such

(3) controversies in the election, appointment of directors, trustees, etc.

(4) petition to be declared in a state of suspension of payments

b. Grounds for Suspension/Revocation of Certificate of Registration

(1) fraud in procuring registration

(2) serious misrepresentation as to objectives of corporation

(3) refusal to comply with lawful order of SEC

(4) continuous inoperation for at least 5 years .

(5) failure to file by-laws within the required period

(6) failure to file reports

(7) other similar grounds

REVISED SECURITIES ACT

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

Exception:

a. exempt securities

b. securities emanating from exempt transactions

2. Exempt Securities

a. issued by the government subdivisions/instrumentalities

b. issued by foreign government which the Philippines has diplomatic relations

c. issued by receiver/trustee of an insolvent approved by the court

d. issued by building and loan association

e. issued by receiver/trustee of an insolvent approved by the court

f. policy of insurance issued by insurance corporation supervised by the insurance commission

g. security/right/interest in real property including subdivision lot/condominium supervised by the Ministry of Human Settlements

h. pension plans regulated by BIR/Insurance Commission

3. Exempt Transactions

a. judicial sale by execution, etc. in insolvency

b. sale of pledged property/foreclosed property to liquidate an obligation

c. isolated transactions on securities done by owner/agent

d. stock transfers emanating from mergers and consolidations

e. pre-incorporation subscription

f. securities issued by public service operator to broaden equity base

4. Grounds for Rejection of Registration

a. application incomplete/untruthful/omits to state a material fact

b. issuer/registrant insolvent, violated code/ SEC rules, engages in fraudulent transactions

c. issuer’s business not sound

d. officer, director, stockholders of issuers is disqualified

e. issue would prejudice the public

5. Grounds for Revocation

a. issuer insolvent

b. violated of Code/SEC rules

c. fraudulent transaction

d. dishonesty by issuer/misrepresented prospectus

e. does not conduct business in accordance with law

6. Acts Prohibited

a. manipulation of security prices

b. manipulation of deceptive devices

c. artificial measures of price control

d. fraudulent transactions

e. insider trading

f. false prospectus, communications, reports

SECURITIES REGULATION CODE OF 2000(For a memory aid of the IRR of the Securities Regulation Code, see Appendix A )

1. Purpose of the law:

encourage the widest participation of ownership in enterprises;

protect investors, ensure full and fair disclosure about securities;

minimize, if not totally eliminate, insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market.

2. Powers and Functions of the SEC (Sec 5):

Have jurisdiction and supervision over all entities who are the grantees of primary franchises and/or a license or permit issued by the Government;

Formulate, amend, or repeal policies and recommendations concerning the securities market; advise Congress and other government agencies and propose legislation and amendments;

Handle registration statements, and registration and licensing applications;

Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;

Impose sanctions for the violation of laws and IRR;

Deputize any and all enforcement agencies of the Government, civil or military as well as any private institutions,

Issue cease and desist orders to prevent fraud or injury to the investing public;

Punish for contempt, both direct and indirect;

Compel the officers of any registered corporation or association to call meetings of stockholders or members;

Issue subpoena duces tecum and summon witnesses to appear in any proceedings, order the examination, search and seizure of all documents,

Suspend, or revoke , after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations;

3. However, the SEC’s jurisdiction over all cases enumerated under Section 5 of PD No. 902-A (intracorporate disputes) has been transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court.

4. Definitions

a. Securities:

i. are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture

ii.evidenced by a certificate, contract, instrument, whether written or electronic in character.

b. An “issuer” is an originator, maker, obligor, or creator of the security.

c. A “broker” is a person engaged in the business of buying and selling securities for the account of others.

d. A “registration statement” is the application for the registration of securities required to be filed with the SEC.

e. A “Prospectus” is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the SEC.

f. An “Underwriter” is a person who guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company.

g. A “dealer” means any person who buys and sells securities for his/her own account in the ordinary course of business.

5. All securities must first have a registration statement duly filed with the SEC before they may be sold or offered for sale or distribution within the Philippines. Prior to any sale, information on the securities shall be made available to each prospective purchaser.

6. Securities exempt from registration (Sec. 9):

a. Those issued or guaranteed by the Government of the Philippines, or by any political subdivision, agency, or instrumentality;

b. Those issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations (on the basis of reciprocity);

c. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body;

d. The sale of any security, or its derivatives, which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue;

e. Any security issued by a bank (except its own shares of stock).

7. How does one partake of an exemption?

Apply for an exemption by filing with the SEC a notice identifying the exemption;

pay to the SEC a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities.

8. Registration of Securities—Procedure (Sec. 12):

Filing : The issuer must file in the main office of the SEC,

1. a sworn registration statement with respect to such securities,

2. the registration statement must include any prospectus which may be required

Signature : The registration statement shall be signed by the issuer’s executive officer, its principal operating officer, its principal financial officer, its comptroller, principal accounting officer, its corporate secretary or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation.

Fees : Upon filing, the issuer shall pay a fee of not more than 1/10 of 1% of the maximum aggregate price at which such securities are proposed to be offered.

Publication : Notice of the filing of the registration statement shall be immediately published by the issuer, at its own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive weeks, reciting:

that a registration statement for the sale of such security has been filed,

that the aforesaid registration statement, as well as the papers attached thereto are open to inspection;

copies, photostatic or otherwise, shall be furnished to interested parties at such reasonable charge as the SEC may prescribe.

Order : Within forty-five (45) days after the date of filing, the SEC shall declare the registration statement effective or rejected,

Entry of Order : The SEC will enter an order declaring the registration statement to be.

Oath by the issuer : Upon effectivity of the registration statement, the issuer shall state under oath in every prospectus that all registration requirements have been met and that all information are true and correct as represented by the issuer or the one making the statement.

9. A registration statement may be withdrawn by the issuer only with the consent of the SEC.

10. Suspension of Registration (Sec. 15):

The SEC may suspend registration if the issuer refuses to furnish information required by the SEC in order to enable it to ascertain whether the registration of such security should be revoked if it finds that:

a. the information contained in the registration statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect,

b. or the sale or offering for sale of the security registered may work or tend to work a fraud. The SEC may also suspend the right to sell and offer for sale such security pending further investigation.

Any sale of the security when the registration is suspended shall be void.

Upon issuance of an order of suspension, the SEC shall conduct a hearing. If it determines that the sale of any security should be revoked, it shall issue an order prohibiting the sale of such security.

11. Regulation of Pre-Need Plans (Sec. 16):

a. “Pre-Need Plans” are contracts which

1. provide for the performance of future services or the payment of future monetary considerations at the time of actual need,

2. for which planholders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the SEC may from time to time approve.

b. Before any pre-need plan is sold or offered for sale to the public, they must:

be registered;

persons involved in the sale of pre-need plans must be licensed;

there must be disclosures to prospective plan holders;

provide for uniform accounting system, reports and record keeping with respect to such plans,

impose capital, bonding and other financial responsibility;

and establish trust funds for the payment of benefits under such plans.

12. Reportorial Requirements; Periodic and Other Reports of Issuers (Sec. 17):

Every issuer shall file with the SEC:

Within 135 days, after the end of the issuer’s fiscal year, an annual report which shall include, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified public accountant, and a management discussion and analysis of results of operations; and

Other periodical reports for interim fiscal periods and current reports on significant developments of the issuer

12. Protection of Shareholder Interests;

a. Proxy Solicitations (Sec. 20):

ii.must be in writing,

iii. signed by the stockholder or his duly authorized representative,

iv. filed before the scheduled meeting with the corporate secretary.

The proxy shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than 5 years at one time.

b. Transactions of Directors, Officers and Principal Stockholders (Sec. 23): Every person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security, or who is a director or an officer of the issuer of such security, shall file:

i. statement with the SEC and, if such security is listed for trading on an Exchange, also with the Exchange, of the amount of all equity securities of such issuer of which he is the beneficial owner,

ii.and within 10 days after the close of each calendar month, if there is a change in ownership during such month, a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.

c. It shall be unlawful for any such beneficial owner, director, or officer, directly or indirectly, to sell any equity security of such issuer if the person selling the security or his principal:

i. Does not own the security sold; or

ii. If owning the security, does not deliver it against such sale within 20 days, or does not within 5 days after such sale, deposit it in the mails or other usual channels of transportation.

13. Prohibitions on Fraud, Manipulation and Insider Trading

a. An “Insider” means:

i. the issuer;

ii.a director or officer (or person performing similar functions) of, or a person controlling the issuer;

iii. a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public;

iv. a government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or

v.a person who learns such information by a communication from any of the foregoing insiders.

14. Manipulation of Security Prices; Devices and Practices (Sec. 24):

a. It shall be unlawful for any person, directly or indirectly:

i. To create a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market:

ii.To effect, alone or with others, a series of transactions in securities that:

1. Raises their price to induce the purchase of a security,

2. Depresses their price to induce the sale of a security,

3. Creates active trading to induce such a purchase or sale through manipulative devices

iii. To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations

iv. To make false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange.

v.To effect any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by this Code.

15. Fraudulent Transactions (Sec. 26):

a. It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to:

i. Obtain money or property by means of any untrue statement of a material fact

ii.Engage in any act, transaction, practice or course of business, which operates as a fraud or deceit upon any person.

b. Insider’s Duty to Disclose When Trading (Sec. 27):

i. It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public, unless:

ii.The insider proves that the information was not gained from such relationship; or

iii. If the other party selling to or buying from the insider (or his agent) is identified, and the insider proves:

1. that he disclosed the information to the other party, or

2. that he had reason to believe that the other party otherwise is also in possession of the information.

c. It shall be unlawful for any insider to communicate material non-public information about the issuer or the security to any person who, by virtue of the communication, becomes an insider, where the insider communicating the information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in possession of such information. Information is “material non-public” if:

i. It has not been generally disclosed to the public and would likely affect the market price of the security; or

ii.would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.

16. Regulation of Securities Market Professionals

a. An “associated person of a broker or dealer” is an employee who, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial.

b. A “Salesman” is a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities.

17. Registration of Brokers, Dealers, Salesmen and Associated Persons (Sec. 28):

No person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer unless registered as such with the SEC.

18. The qualifications of Brokers, Dealers, Salesmen and Associated Persons (hereinafter, the applicant for registration) are the following:

a. If a natural person, the applicant must satisfactorily pass a written examination;

b. In the case of a broker or dealer, the applicant satisfy a minimum net capital as prescribed by the SEC, and provide a bond or other security

c. If located outside of the Philippines, the applicant must file a written consent to service of process upon the SEC.

19. Transactions and Responsibility of Brokers and Dealers (Sec. 30):

No broker or dealer shall deal in or otherwise buy or sell, for its own account or for the account of customers, when:

a) The securities listed on the Exchange and dealt, are issued by a corporation,

b) When such corporation’s stockholder, director, associated person or salesman is at the time holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller, secretary or any office of trust and responsibility, or is a controlling person of the issuer.

20. Exchanges and Other Securities Trading Markets

a. Segregation and Limitation of Functions of Members, Brokers and Dealers (Sec. 34): It shall be unlawful for any member-broker of an Exchange to effect any transaction on such Exchange for its own account, the account of an

associated person, or an account with respect to which it or an associated person exercises investment discretion.

However, the following shall not be unlawful:

i. Any transaction by a member-broker acting in the capacity of a market maker; ii.Any transaction reasonably necessary to carry on an odd-lot transactions;

iii. Any transaction to offset a transaction made in error; and

iv. Any other transaction of a similar nature as may be defined by the SEC.

b. Powers with Respect to Exchanges and Other Trading Market (Sec. 36):

The SEC is authorized (provided there is notice and an opportunity for hearing):

i. To summarily suspend trading in any listed security on any Exchange or other trading market for a period not exceeding thirty (30) days or,

ii.with the approval of the President of the Philippines, summarily to suspend all trading on any securities Exchange or other trading market for a period of more than thirty (30) but not exceeding ninety (90) days;

iii. to determine the number, size and location of stock Exchanges, other trading markets and commodity Exchanges and other similar organizations

iv. to establish or facilitate the establishment of trust funds which shall be contributed by Exchanges, brokers, dealers, underwriters, transfer agents, salesmen and other persons transacting in securities, for the purpose of compensating investors for the extraordinary losses or damage they may suffer due to business failure or fraud or mismanagement of the persons with whom they transact,

v.take custody and management of the fund itself as well as investments in and disbursements from the funds

21. Registration, Responsibilities and Oversight of Self-Regulatory Organizations (Sec. 40):

i. The SEC, after making an appropriate request in writing to a self-regulatory organization, to effect specified changes in its rules and practices only after due notice and hearing that such changes are necessary.

ii.The SEC, after due notice and hearing, is authorized, in the public interest and to protect investors if it finds that a self-regulatory organization has willfully violated or is unable to comply with any provision of this Code to suspend, impose limitations, expel any member, or to remove a member from office.

22. Acquisition and Transfer of Securities and Settlement of Transactions in Securities

a. A “Clearing Agency” is any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions.

b. “Exchange” is an organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities.

23. Uncertificated Securities (Sec. 43):

A corporation whose securities are registered pursuant to this Code or listed on a securities Exchange may:

a. If approved by a Board resolution and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all of its shares in the form of uncertificated securities.

b. If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name.

24. Evidentiary Value of Clearing Agency Record (Sec. 44.):

a. The official records and book entries of a clearing agency shall constitute the best evidence of such transactions between the clearing agency and its participants and members.

b. But this is without prejudice to the right of participants’ or members’ clients to prove their rights, title and entitlement with respect to the book-entry security holdings of the participants or members held on behalf of the clients.

25. Restrictions on Borrowings by Members, Brokers, and Dealers (Sec. 49):

It shall be unlawful for any registered broker or dealer, or member of an Exchange, directly or indirectly:

a. To permit an aggregate indebtedness to exceed the percentage of the net capital (exclusive of fixed assets and value of Exchange membership) employed in the business, but not exceeding 2,000%.

b. To encumber or arrange to encumber any security carried for the account of any customer under circumstances:

c. that will permit the commingling of his securities, without his written consent, with the securities of any customer;

d. that will permit such securities to be commingled with the securities of any person other than a bona fide customer; or

e. that will permit such securities to be encumbered, or subjected to any lien or claim for a sum in excess of the aggregate indebtedness of such customers in respect of such securities.

f. To lend or arrange for the lending of any security carried for the account of any customer without the written consent of such customer or in contravention of the SEC’s IRRs.

26. General Provisions

a. Civil Liabilities

(Sec. 56)

(Sec. 57)

For Fraud in Connection With Securities Transactions (Sec. 58)

For Manipulation of Security Prices (Sec. 59)

With Respect to Commodity Futures Contracts and Pre-need Plans (Sec. 60)

On Account of Insider Trading (Sec. 61)

b. Limitation of Actions (Sec. 62):

For actions which arise

i. On Account of False Registration Statement

ii.Arising in Connection With Prospectus, Communications and Reports Such action must be brought within two (2) years after the discovery of the

untrue statement or the omission

c. Actions arising from any other provision of this Code must be brought:

within two (2) years after the discovery of the facts constituting the cause of action and within five (5) years after such cause of action accrued.

d. Cease and Desist Orders by the SEC.

i. General rule: Whenever it shall appear that any person has engaged or is about to engage in any act or practice which would violate this Code, the SEC may issue an order to such person to desist from committing such act or practice.

ii.Exception: The SEC cannot charge any person with a violation of the rules of an Exchange or other self regulatory organization unless it appears to the SEC that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person.

iii. Exception to the exception: If the SEC makes a finding that there is a reasonable likelihood of continuing, further or future violations by such person, then an ex-parte cease and desist order for a maximum period of ten (10) days can be issued, enjoining the violation and compelling compliance with such provision.

e. Settlement Offers (Sec. 55):

Procedure:

i. Parties being investigated and/or charged may propose in writing an offer of settlement with the SEC.

ii.Upon receipt of such offer of settlement, the SEC may consider the offer based on timing, the nature of the investigation or proceeding, and the public interest.

f. Power of the SEC with regard to Special Accounting Rules (Sec. 68):

i. the authority to make, amend, and rescind such accounting rules and regulations as may be necessary to carry out the provisions of this Code,

ii.prescribe the form or forms in which required information shall be set forth, the items or details to be shown in the balance sheet and income statement, and the methods to be followed in the preparation of accounts, appraisal or valuation of assets and liabilities,

g. Judicial Review of SEC Orders (Sec. 70):

Any person aggrieved by an order of the SEC may appeal the order to the Court of Appeals by petition for review in accordance with the pertinent provisions of the Rules of Court.

h. Validity of Contracts (Sec. 71):

i. Any condition, stipulation, provision which binds any person to waive compliance with any provision of this Code or IRR, as well as the waiver itself, shall be void.

ii.Every contract made in violation of any provision of this Code or IRR, the performance of which involves the violation of, or the continuance of any violation of, any provision of this Code r IRR, shall be void

GENERAL BANKING LAW OF 2000

1. Classifications of Banks:

(d) Universal banks; 

(e) Commercial banks;

(f) Thrift banks, composed of:

i. Savings and mortgage banks,

ii. Stock savings and loan associations, and

iii. Private development banks, as defined in the Republic Act No. 7906 (hereafter the “Thrift Banks Act”);

(g) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");

(h) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code"); 

(i) Islamic banks as defined in Republic Act No. 6848, otherwise known as the “Charter of Al Amanah Islamic Investment Bank of the Philippines”; and 

(j) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas

2. Authority of the Central Bank

a. The issuance of rules of, conduct or the establishment standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; 

b. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board;   

c. Overseeing to ascertain that laws and regulations are complied with; 

d. Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; 

e. Inquiring into the solvency and liquidity of the institution (2-D); or 

f. Enforcing prompt corrective action.

3. Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations.

4. Except as otherwise provided in the Rural Banks Act, no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any

private bank, save in cases where such service is incident to financial assistance provided by the government or a government owned or controlled corporation to the bank or unless otherwise provided under existing laws.

5. The banking industry is hereby declared as indispensable to the national interest and any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National Labor Relations Commission for compulsory arbitration. However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same.

6. Powers of a Universal Bank

a. Exercise powers of an investment bank

b. Invest in equities of allied (financial or non-financial) and non-allied enterprises

c. Can own up to 100% of the equity in a thrift bank, a rural bank or a financial allied or non-allied enterprise

d. Powers as may be necessary to carry on the business of commercial banking such as

i. Accepting drafts and negotiating promissory notes

ii.Discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt

iii. Accepting or creating demand deposits

iv. Receiving other types of deposits and deposit substitutes

v.Buying and selling foreign exchange and gold or silver bullion

vi. Acquiring marketable bonds and other debt securities

vii. Extending credit

7. The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets, which may include contingent accounts.

8. Limit on Loans, Credit Accommodations and Guarantees: not exceed 20% of the net worth of the bank. But may be increased by an additional 10% provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods, fully covered by insurance.

9. Loans and other credit accommodations against real estate shall not exceed 75% of the appraised value of the appraised value of the respective real estate security, plus

60% of the appraised value of the insured improvements and such loans may be made to the owners of the real estate and his assignees (same rule for security of chattels and intangible properties)

10. A borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to such reasonable terms and conditions as maybe agreed upon between the bank and its borrower.

11. A bank shall not directly engage in insurance business as the insurer.

12. Prohibited transactions of a director, offer, employee or agent of the bank:

(b) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person;

(c) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the provisions of existing laws shall prevail;

(d) Accept gifts, fees, or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank;

(e) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or

(f) Outsource inherent banking functions.

13. Prohibited transactions of a borrower:

Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank;

Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof;

Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or

Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application.

14. The Bangko Sentral shall have full authority to regulate the use of electronic devices, such as computers, and processes for recording, storing and transmitting

information or data in connection with the operations of a bank; quasi-bank or trust entity, including the delivery of services and products to customers by such entity.

15. Every bank, quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as maybe prescribed by the BSP.

16. The financial statements must be published in English or Filipino at least once every quarter in a newspaper of general circulation in the city or province of the principal office (if none, in a newspaper published in Metro Manila or in the nearest city or province).

17. No person, association, or corporation unless duly authorized to engage in the business of a bank, quasi-bank, trust entity, or savings and loan association as defined in this Act, or other banking laws, shall advertise or hold itself out as being engaged in the business of such bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or words “bank,” “banking,” “banker,” “quasi-bank,” “quasi-banking,” “quasi-banker,” “savings and loan association,” “trust corporation,” “trust company” or words of similar import or transact in any manner the business of any such bank, corporation or association.

 18. Cessation of Banking Business

a. Voluntary Liquidation – written notice sent to Monetary Board who has right to intervene before liquidation is undertaken to protect interests of creditors.

b. Receivership and involuntary liquidation – grounds and procedure under New Central Bank Act but petitioner is required to post a bond in favor of Bangko Sentral

19. Conduct of offshore banking is governed by PD 1034 (Offshore Banking System Decree)

20. Within 7 years from effectivity of Act (year 2007), a foreign bank may acquire up to 100% of the voting stock of only 1 bank organized under Philippine laws.

21. Only a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behoof of others.  For purposes of this Act, such a corporation shall be referred to as a trust entity.

22. Powers of a Trust Entity:

Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any trust consistent with law;

Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or other incompetent person, and as receiver and depositary of any moneys paid into court by parties to

any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court;

Act as the executor of any will when it is named the executor thereof;

Act as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there is no will;

Accept and execute any trust for the holding, management, and administration of any estate, real or personal, and the rents, issues and profits thereof; and

Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board.

23. Before transacting trust business, trust entity is required to deposit security of at least 500,000 pesos.

24. Within 3 years from effectivity of this Act (2003), BSP shall pahse out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance an Guaranty Corporation.

THE NEW CENTRAL BANK ACT

1. The BSP

The central monetary authority (the Bangko Sentral ng Pilipinas) established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.

Responsibility of the BSP:

a) provide policy directions in the areas of money, banking, and credit.

b) supervision over the operations of banks

c) exercise such regulatory powers as provided in this Act and other pertinent laws

Primary objective:

a) maintain price stability conducive to a balanced and sustainable growth of the economy

b) promote and maintain monetary stability and the convertibility of the peso.

2. The Monetary Board

The powers and functions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board which is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.

The seven (7) members are: the Governor of the Bangko Sentral, a member of the Cabinet to be designated by the President of the Philippines and five (5) members who shall come from the private sector.

No member of the Monetary Board may be reappointed more than once.

Any vacancy in the Monetary Board shall be filled by the appointment of a new member to complete the unexpired period of the term of the member concerned.

The President may remove any member of the Monetary Board for any of the following reasons:

a) the member falls under the enumeration of disqualifications

b) if he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such incapacity has lasted for more than 6 months

c) the member is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of the BSP

d) the member no longer possesses the qualifications specified in this Act.

3. Operations of the Bangko Sentral

The Bangko Sentral shall have the authority to request from government offices and instrumentalities, or government-owned or controlled corporations, any data which it may require for the proper discharge of its functions and responsibilities.

The Bangko Sentral through the Governor or in his absence, a duly authorized representative shall have the power to issue a subpoena for the production of the books and records for the aforesaid purpose.

Appointment of Conservator:

a) Whenever, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors,

b) The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank.

c) The conservator should be competent and knowledgeable in bank operations and management. The conservatorship shall not exceed one (1) year.

d) The conservator shall receive; the Monetary Board may appoint a conservator connected with the Bangko Sentral, in which case he shall not be entitled to

receive any remuneration or emolument; the expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned.

e) The Monetary Board shall terminate the conservatorship:

1) when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary

2) when it is determined that the continuance in business of the institution would involve probable loss to its depositors or creditors

In these cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution:

(a) is unable to pay its liabilities as they become due in the ordinary course of business

Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has willfully violated a cease and desist order that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution;

The actions of the Monetary Board regarding rehabilitation and liquidation shall be final and executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

The Bangko Sentral shall publish a general balance sheet showing the volume and composition of its assets and liabilities as of the last working day of the month within sixty (60) days after the end of each month except for the month of December, which shall be submitted within ninety (90) days after the end hereof.

4. The Auditor

The Chairman of the Commission on Audit shall act as the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a representative who shall be the auditor of the Bangko Sentral.

5. Currency

The unit of monetary value in the Philippines is the "peso," which is represented by the sign "P."

The Bangko Sentral shall have the sole power and authority to issue currency, within the territory of the Philippines.

The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and seizures in accordance with law, for the purpose of maintaining the integrity of the currency.

Notes and coins issued by the Bangko Sentral shall be liabilities of the Bangko Sentral and may be issued only against, and in amounts not exceeding, the assets of the Bangko Sentral. Said notes and coins shall be a first and paramount lien on all assets of the Bangko Sentral.

The Bangko Sentral's holdings of its own notes and coins shall not be considered as part of its currency issue and, accordingly, shall not form part of the assets or liabilities of the Bangko Sentral.

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private

Unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.

Rules on Retirement of Old Notes and Coins:

a) The Bangko Sentral may call in for replacement notes of any series or denomination which are more than five (5) years old and coins which are more than (10) years old.

b) Notes and coins called in for replacement in accordance with this provision shall remain legal tender for a period of one (1) year from the date of call.

c) After this period, they shall cease to be legal tender but during the following year, or for such longer period as the Monetary Board may determine, they may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the Bangko Sentral for this purpose.

d) After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized.

e) The Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.

6. Demand Deposits

The term "demand deposits" means all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks.

Only banks duly authorized to do so may accept funds or create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under this Act.

Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor:

Provided, however, That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.

7. Guiding Principles of Monetary Administration by the Bangko Sentral

Action When Abnormal Movements Occur in the Monetary Aggregates, Credit, or Price Level:

(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act; and

(b) submit to the President of the Philippines and the Congress, and make public, a detailed report which shall include, as a minimum, a description and analysis of:

(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;

(2) the extent to which the changes in the monetary aggregates, in credit, or in prices have been reflected in changes in the level of domestic output, employment, wages and economic activity in general, and the nature and significance of any such changes; and

(3) the measures which the Monetary Board has taken and the other monetary, fiscal or administrative measures which it recommends to be adopted.

In order to maintain the international stability and convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies.

The following are situations which are considered threats to the stability of the Peso:

a) whenever the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate to meet prospective net demands on the Bangko Sentral for foreign currencies, or

b) whenever the international reserve appears to be in imminent danger of falling to such a level, or

c) whenever the international reserve is falling as a result of payments or remittances abroad which, in the opinion of the Monetary Board, are contrary to the national welfare,

Action When the International Stability of the Peso Is Threatened

(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act; and

(b) submit to the President of the Philippines and to Congress a detailed report of the circumstances of the situation

If the resultant actions fails, the Monetary Board shall propose to the President, with appropriate notice of the Congress, such additional action as it deems necessary to restore equilibrium in the international balance of payments of the Philippines.

8. Rules on Foreign Exchange Holdings of the Banks:

a) the Monetary Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus holdings of foreign exchange.

b) such transfers may be required for all foreign currencies or for only certain of such currencies, according to the decision of the Monetary Board

c) the transfers shall be made at the rates established under the provisions of this Act

NOTE: The Monetary Board may, whenever warranted, determine the net assets and net liabilities of banks

8. Rules on Issue and Negotiation of Bangko Sentral Obligations:

1) Issuance of such certificates of indebtedness shall be made only in cases of extraordinary movement in price levels.

2) Said evidences of indebtedness may be issued directly against the international reserve of the Bangko Sentral or against the securities which it has acquired or may be issued without relation to specific types of assets of the Bangko Sentral.

3) The Monetary Board shall determine the interest rates, maturities and other characteristics of said obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in gold or foreign currencies.

4) The evidences of indebtedness of the Bangko Sentral may be acquired by the Bangko Sentral before their maturity, either through purchases in the open

market or through redemptions at par and by lot if the Bangko Sentral has reserved the right to make such redemptions.

5) The evidences of indebtedness acquired or redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately retired and cancelled.

9. Bank Reserves

All banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities:

Provided, That the Monetary Board may, at its discretion, also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for deposit substitutes.

The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with remaining maturities of two (2) years or more, as well as interbank borrowings.

Since the requirement to maintain bank reserves is imposed primarily to control the volume of money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances.

10. BSP as the Banker of the Government

Functions of the Bangko Sentral:

a) shall act as a banker of the Government, its political subdivisions and instrumentalities.

b) shall represent the Government in all dealings, negotiations and transactions with the International Monetary Fund

c) may be authorized by the Government to represent it in dealings with other foreign or international financial institutions

d) shall be the official depository of the Government

e) shall open a general cash account for Treasurer of the Philippines, in which liquid funds of the Government shall be deposited; transfers of funds from this account to other accounts shall be made only upon order of Treasurer of the Philippines

The Bangko Sentral may engage the services of other government-owned and controlled banks and of other domestic banks for operations in localities at home or abroad in which the Bangko Sentral does not have offices or agencies adequately equipped to perform said operations:

Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the services of foreign banking and financial institutions.

The issue of securities representing obligations of the Government, its political subdivisions or instrumentalities, may be made through the Bangko Sentral

Provided, however, That the Bangko Sentral shall not guarantee the placement of said securities, and shall not subscribe to their issue except to replace its maturing holdings of securities with the same type as the maturing securities.

11. BSP as the Financial Advisor of the Government

The Government, through the Secretary of Finance, shall request the opinion, in writing, of the Monetary Board on the monetary implications of the following actions:

a) Before undertaking any credit operation abroad

b) Before any credit operation abroad is undertaken by all political subdivisions and instrumentalities of the Government.

c) Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates borrowing within the Philippines

12. Privileges and Prohibitions

The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

The exemption authorized in the preceding paragraph shall apply:

a) to all property of the Bangko Sentral,

b) to the resources, receipts, expenditures, profits and income of the Bangko Sentral,

c) to all contracts, deeds, documents and transactions related to the conduct of the business of the Bangko Sentral

Said exemptions shall apply only to such taxes, fees, charges and assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral

Foreign loans and other obligations of the Bangko Sentral shall be exempt, both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral.

The importation and exportation by the Bangko Sentral of notes and coins, and of gold and other metals to be used for purposes authorized under this Act, and the importation of all equipment needed for bank note production, minting of coins, metal refining and other security printing operations shall be fully exempt from all customs duties and consular fees and from all other taxes, assessments and charges related to such importation or exportation.

Appointments in the Bangko Sentral, except as to those which are policy-determining, primarily confidential or highly technical in nature, shall be made only according to the Civil Service Law and regulations

Officers and employees of the Bangko Sentral, including all members of the Monetary Board, shall not engage directly or indirectly in partisan activities or take part in any election except to vote.

The Bangko Sentral shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

The Bangko Sentral shall not engage in development banking or financing: Provided, however, That outstanding loans obtained or extended for development financing shall not be affected by the prohibition

13. Transitory Provisions

Within a period of three (3) years but in no case longer than five (5) years from the approval of this Act, the Bangko Sentral shall phase out all fiscal agency functions transfer the same to the Department of Finance.

The Bangko Sentral shall, within a period of five (5) years from the effectivity of this Act, phase out its regulatory powers over finance companies without quasi-banking functions and other institutions performing similar functions as provided in existing laws, the same to be assumed by the Securities and Exchange Commission. .

No preferential or priority right shall be given to or enjoyed by any personnel for appointment to any position in the new staffing pattern, nor shall any personnel be considered as having prior or vested rights with respect to retention in the Bangko Sentral or in any position which may be created in the new staffing pattern, even if he should be the incumbent of a similar position prior to organization.

All powers, duties and functions vested by law in the Central Bank of the Philippines not inconsistent with the provisions of this Act shall be deemed transferred to the Bangko Sentral ng Pilipinas. All references to the Central Bank of the Philippines in any law or special charters shall be deemed to refer to the Bangko Sentral.

SECRECY OF BANK DEPOSITS

1. Deposits in banks, including government banks, may not be inquired into by any person, except:

a. if depositor agrees in writing

b. impeachment cases

c. by court order in cases of bribery and dereliction of duty against public officials

d. deposit is subject of litigation

e. anti-graft cases

f. general and special examination of bank order of the Monetary Board of bank fraud or serious irregularity

g. re-examination made by an independent auditor hired by a bank to conduct its regular trust

UNIFORM CURRENCY LAW

1. Obligations Null and Void

a. obligations payable in gold/foreign currency

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

2. Exempt Transactions

a. government to government transactions or with international banking institutions

b. transactions affecting high priority economic projects

c. forward exchange transactions between banks

d. import and export and other international banking, financial, investment and industrial transactions

3. Merchants and Commercial Transactions

Classes of Investments:

a. Permitted - one allowed without need of prior authority from the Philippine Government.

If registered status, invest up to extent as not to affect its registered status.

If enterprise not registered, investment not to exceed 40%.

b. Permissible - invest in excess of 40% in unregistered enterprise but with prior approval of BOI

c. Pioneer Area –

(a) involves manufacturing, processing, production of product not produced at all/produced in non-commercial scale;

(b) uses a design, scheme, formula that is new and untried in the Phils.;

(c) agricultural activities/services essential to the attainment of food sufficiency;

(d) produces non-conventional fuels/utilizes non-conventional sources of energy (all others are non-pioneer)

4. Absolutely Disqualified to become Merchants

a. serving penalty of civil interdiction

b. insolvent

c. absolutely disqualified by special laws

5. Relatively Disqualified

a. judicial and prosecuting officials in active service

b. administrative, economic, military chiefs

c. government collection agents and custodian of funds

d. stock and commercial brokers

e. by special laws cannot trade in specified territories

6. Books a Merchant must keep

a. book of inventories and balances, statement of assets, liabilities and capital

b. journal of day to day operations

c. ledger for classifying accounts

d. copying book for letters and telegrams; if juridical person, include book of minutes and stock and transfer book

7. Probative Value of Merchant’s Book

a. evidence against merchants themselves

b. in case of conflicts between 2 books - that which s properly kept prevails

c. if one keeps books and the other does not and cannot explain why, the former prevails

d. if both books are properly kept and there is a conflict, other proofs can be resorted to

8. Commercial Contracts by Correspondence are perfected from the moment the offeree accepts the offer, even before knowledge of said acceptance by the offeror. This does not apply to deposit, guaranty, sales, loan, agency, partnership.

9. Joint Account Partnership - business arrangement whereby 2 or more persons interest themselves in the business of another by making contributions thereto and participating in the results thereof

a. only one member is ostensible, others are silent

b. no common name

c. only ostensible partners can sue/be sued

d. no juridical personality

INSOLVENCY LAW

1. Distinguish Suspension of Payment and Insolvency

Suspension of Payment Insolvency

debtor has enough assets to meet liabilities but cannot meet them as they fall due

Debtor has more liabilities than assets

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

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

3. Effect on Actions Upon Adjudication of Insolvency

a. suits pending in court

(1) secured obligations suspended until assignee appointed

(2) unsecured obligations terminated except to fix amount of obligation

(3) foreclosure suits pending continue

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

4. Debts and Obligations not Affected by Discharge of Insolvent

a. assessments due to national and local government

b. debts due to fraud/embezzlement

c. debts in which he is bound solidarily

d. alimony

e. corporate debts

f. debts not included in the schedule submitted by debtor

TRUTH IN LENDING ACT (R.A. No. 3765)

1. This is an act to require the disclosure of finance charges in connection with extensions of credit.

2. The policy of the State is to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy.

3. The creditor is required to furnish to the debtor a clear statement in writing setting forth the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

A final judgment rendered in any criminal proceeding under this Act to the effect that a defendant has wilfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto.

PRICE TAGS LAW

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

JOINT ACCOUNTS

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

2. Joint accounts do not adopt a firm name.

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

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

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

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

Only a warehouseman may issue warehouse receipts.

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

4. Non-negotiable Receipt - receipt deliverable to a specified person.

5. Negotiable Receipt - receipt deliverable to order or to bearer.

6. Essential Terms which MUST be embodied in a Warehouse Receipt:

a. location of the warehouse

b. date of the issue of the receipt

c. consecutive number of the receipt

d. statement whether the goods received will be delivered to bearer, or a specified person, or his order

e. rate of storage charges

f. description of the goods or packages containing them for identification purposes

g. signature of the warehouseman

h. statement of the amount of advances made and of liabilities incurred for which the warehouseman claims as lien

7. Effect of omission of any of the essential terms:

a. The validity of the warehouse receipt is not affected.

b. The warehouseman shall be held liable for damages to those injured by his omission.

c. The negotiability of the warehouse receipt is not affected.

d. The issuance of a warehouse receipt in the form provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements are not observed, then the goods delivered for storage become ordinary deposits.

8. Terms which may be inserted in a Warehouse Receipt:

Any other terms except (a) those contrary to the provisions of this Act; (b) those that would impair a warehouseman’s obligation to exercise that degree of care in the safekeeping of the goods entrusted to him.

9. Marks to be made on a warehouse receipt:

a. A non-negotiable receipt must be clearly marked non-negotiable or not negotiable, otherwise, the holder of the receipt who purchased it for value and who supposed it to be negotiable, may treat it as negotiable.

b. Duplicate receipts must be so marked, otherwise, the warehouseman is held liable for all damages suffered by a holder believing the same to be the original.

10. Warranties of a warehouseman as to duplicate receipts:

a. The duplicate is an accurate copy of the original receipt.

b. Such original receipt is uncancelled at the date of the issue of the duplicate.

11. Effects of alteration on the liability of the warehouseman:

a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor.

b. If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable according to the terms of the altered receipt.

c. If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the warehouseman is liable on the altered receipt according to its original tenor.

d. If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman is liable:

(1) to the purchaser of the receipt for value and without notice of the alteration according to the tenor of the altered receipt

(2) to the alterer, according to the terms of the original receipt

(3) to subsequent purchasers with notice of the alteration, according to the terms of the original receipt

12. Effects of misdescription of goods:

a. A warehouseman is under the obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner.

b. As against a bona fide purchaser of a warehouse receipt, the warehouseman is estopped from denying that he has received the goods described in the receipt.

c. If the description consists merely of marks or label upon the goods or upon the packages containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels.

13. Principal Obligations of a Warehouseman:

a. To take care of the goods entrusted to his safekeeping

General Rule: A warehouseman is required to exercise such degree of care which a reasonable careful owner would exercise over similar goods of his own. He shall be liable for any loss or injury to the goods caused by his failure to exercise such care.

Exception: He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care.

Exception to the Exception: He may limit his liability to an agreed value of the property received in case of loss. He cannot stipulate that he will not be responsible for any loss caused by his negligence.

b. To deliver the goods to the holder of the receipt or the depositor upon demand, provided demand is accompanied with:

(1) an offer to satisfy the warehouseman’s lien;

(2) an offer to surrender the negotiable receipt properly endorsed. If the receipt is non-negotiable, any person lawfully entitled to the possession of the goods may be entitled to delivery without surrender of the receipt.

(3) a readiness and willingness to sign an acknowledgment that the goods have been delivered if such is requested by the warehouseman.

14. Persons to whom goods must be delivered:

A. Persons lawfully entitled to the possession of the goods or his agent:

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

(1) where a negotiable instrument has been lost or destroyed, the court may order delivery to a person upon satisfactory proof of such loss or destruction and upon proper posting of a bond to protect the warehouseman from any liability or expense which he may incur by reason of the original receipt remaining outstanding.

(2) where more than one person claims title or possession of the goods the warehouseman may require all claimants to interplead. The court will then order delivery to the person having a better right.

b. an attaching creditor - Goods, while in the possession of the warehouseman and covered by a negotiable receipt, cannot be attached or levied upon under an execution unless:

(I) the negotiable receipt is first surrendered to the warehouseman, or

(ii) its negotiation is enjoined, or

(iii) the receipt is impounded by the court c. to the purchaser in case of sale of the goods by the warehouseman to enforce his lien

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

B. If goods are covered by a non-negotiable receipt:

a. a person entitled to the delivery by the terms of the receipt, or

b. one who has written authority from letter a

C. If goods are covered by a negotiable receipt, a person in possession of the receipt, the terms of which the goods are deliverable:

a. to him or order

b. to bearer

c. indorsed to him

d. indorsed in blank by the person whom delivery was promised

15. When is there Misdelivery?

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

a. the person does not fall under letter B or C above; orb. the person falls under letter B or C but prior to delivery, the warehouseman had

either:

(1) been requested by the person lawfully entitled to the delivery not to make such delivery, or

(2) had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods

16. Effects of Misdelivery:

The warehouseman shall be liable for conversion to all having a right to property or possession of the goods.

17. What happens if there is proper delivery or partial delivery but the warehouseman fails to cancel the receipt or record on the receipt of such partial delivery?

a. If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he fails to take the receipt and cancel it, then he is still liable to one who purchases for value and in good faith such receipt.

b. If he makes partial delivery of the goods but fails to record the partial delivery on the receipt then he may still be held liable for the entire receipt to one who purchases for value and in good faith such receipt.

18. Lawful excuses for refusal to deliver goods:

a. The warehouseman can refuse to deliver the goods if he has acquired title or right to the possession of the goods:

(1) directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto; or

(2) from the warehouseman’s lien

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

until he has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead.

c. The warehouseman will not be required to deliver the goods if such had been lost. But this is without prejudice to liabilities which may be incurred by him due to such loss.

d. The warehouseman having a valid lien against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

e. If goods have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not be liable for failure to deliver the goods.

19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming under him on the ground that adverse title to the goods belongs to a third person.

20. Rules as regards Co-mingling of Deposited Goods:

General Rule: A warehouseman may not co-mingle goods belonging to different depositors or belonging to the same depositor for which separate receipts had been issued.

Exception: A warehouseman may co-mingle fungible goods of the same kind and grade provided he is authorized by agreement or by custom.

21. Effect of Co-mingling of Goods:

a. The different owners become co-owners of the whole mass.

b. The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate.

22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)

Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of preliminary injunction and serve the same on the depositor before he has a chance to negotiate the receipt.

Once enjoined, there will be no longer a danger that a 3rd person will be prejudiced so the goods may now be attached, levied upon, or that the vendor’s lien or the right of stoppage in transit be exercised.

23. Warehouseman’s Lien

Extent of Warehouseman’s Lien:

A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands for:

a. all lawful charges for storage and preservation of the goods

b. all lawful claims for money advances, interest, insurance, transportation, labor, weighing, cooperating and other charges and expenses in relation to such goods

c. all reasonable charges and expenses for notice and advertisements of sale and for sale of the goods where default has been made in satisfying the warehouse lien

Goods Subject to lien:

a. goods belonging to the depositor who is liable to the warehouseman as debtor whenever such goods are deposited and

b. goods belonging to other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?

a. by refusing to deliver the goods until the lien is satisfied

b. by causing the extrajudicial sale of the property and applying the proceeds to the value of the lien

c. by filing a civil action for unpaid charges or by way of counterclaim in an action to recover the property from him

How is a lien lost?

a. when the warehouseman voluntarily surrenders possession of the goods without requiring payment of his lien; or

b. when the warehouseman wrongfully refuses to deliver the goods when a demand is made with which he is bound to comply

24. Negotiation and Transfer of Receipts

How do we negotiate a receipt deliverable to order?

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

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

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

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation. Physical delivery of the instrument will suffice.

But if the instrument is indorsed specially, the bearer character of the receipt is destroyed and for further negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?

a. the owner of the receipt, or

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

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

a. the title of the person negotiating the receipt over the goods covered by the receipt

b. the title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to be delivered

c. the direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him

May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right. That is why they are called non negotiable receipts. But they may be transferred or assigned by delivery.

Rights of a person to whom a non negotiable receipt has been transferred:

a. the title to the goods as against the transferor

b. the right to notify the warehouseman of the transfer thereof and

c. the right thereafter to acquire the obligation of the warehouseman to hold the goods for him

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

Non-negotiable Receipt Negotiable Receipt

Prior to notification of the warehouseman by the transferor or transferee, the warehouseman is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such warehouseman of the subsequent sale of the goods.

The goods cannot be attached or levied under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined.

Rights of a person to whom a negotiable receipt has been transferred, not indorsed:

a. the right to the goods as against the transferor

b. the right to compel the transferor to indorse the receipt. But if the intention of the parties is that the receipt should merely be transferred, the transferee has no right to require the transferor to indorse the receipt.

Note: Negotiation takes effect as of the time when the indorsement is actually made.

Warranties of a person negotiating or transferring a receipt:

a. the receipt is genuine

b. he has a legal right to negotiate or transfer it

c. he has knowledge that would impair the validity or worth of the receipt and

d. he has a right to transfer the title to the goods and that the goods are merchantable

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the debt from a person does not warrant the genuineness of the receipt not the quality or quantity of the goods therein described.

It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has been issued to require the negotiation of the receipt to him, otherwise his failure will have the same effect as an express authorization on his part to the seller, mortgagor, or pledgor in possession of such receipt to make any subsequent negotiation. The subsequent purchaser must have taken the receipt in good faith and for value.

A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he purchases from the owner’s agent within the actual or apparent scope of his authority. In sum, negotiation is valid despite having been made in breach of trust.

Distinctions between a negotiable instrument and a negotiable warehouse receipt:

Negotiable Instrument Negotiable Warehouse Receipt

When a negotiable instrument is altered deliberately, it becomes null and void.

When a warehouse receipt is altered, it is still valid but it may be enforced only in accordance with its original tenor.

If a negotiable instrument is originally payable to bearer, it will always remain so payable regardless of the way it is indorsed, whether

If a warehouse receipt, payable to bearer, is indorsed specially, it will be converted into a receipt deliverable to order and can only be

specially or in blank. negotiated further by indorsement and delivery.

A holder in due course may be able to obtain a title better than that which the party who negotiated the instrument to him had.

An indorsee even if a holder in due course obtains only such title as the person negotiating has over the goods.

The indorsement of a negotiable instrument has a double effect. It is at the same time a conveyance of the instrument and a contract the indorser has with the indorsee that on certain conditions, the indorser will pay the instrument if the party primarily liable fails to do so.

The indorsement of a warehouse receipt amounts merely to a conveyance by the indorser. Accordingly, an indorser of a receipt shall not be liable to the holder if, for example, the warehouseman fails to deliver the goods because they were lost due to his fault or negligence.

GENERAL BONDED WAREHOUSE LAW

Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling must:

a. obtain prior license from the Bureau of Commerce

b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against which bond depositors may sue directly

c. open to the public, no discrimination allowed

d. liable for double market value should he accept goods in excess of the capacity of warehouse if goods are damaged or destroyed

Note: for palay and corn license, a bond with the National Grains Authority is required; also an insurance cover is required.

LAWS ON INTELLECTUAL CREATION

Copyright

1. What Works are not Protected:

a. any idea, procedure, system, method or operation, concept, principle, discovery, or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; news of the day or other miscellaneous facts, having the character of mere items of press information, or any official text of a legislative, administrative or legal nature as well as any official translation thereof

b. works of the government

c. statutes, rules, and regulations of government agencies and offices

d. speeches, lectures, sermons, addresses and dissertations, pronounced or rendered in courts of justices or nay administrative agencies in deliberative assemblies and meetings of public character

2. Fair Use of a Copyrighted Work is not Infringement

a. for criticism, comment, news reporting, teaching, research, scholarship, and similar purposes

b. decompilation: the reproduction of the code and translation of the forms of the computer program with other programs

3. Factors to Consider in Determining Fair Use:

a. purpose and character of the use, including whether such use is of a commercial nature or for no profit or educational purposes

b. nature of the copyrighted work

c. amount and substantiality of the portion used in relation to the copyrighted work as a whole

d. effect of use upon the potential market for a value of the copyrighted work

4. Terms of the Protection

a. copyrighted work:

lifetime of creator plus 50 years after death (to be computed on the 1st day of January of the year following the death)

b. performances not incorporated in recordings:

50 years from end of year in which the performance took place

c. sound or image and sound recordings and performances incorporated therein:

50 years from end of the year in which the recording took place

d. broadcasts:

20 years from the date the broadcast took place

5. Remedies for Infringement

a. injunction

b. actual damages, including legal costs and other expenses, as he may have incurred due to the infringement as well as the profits the infringer may have made due to such infringement

c. impounding of articles during pendency of the action

d. destruction of all infringing copies and/or devices

e. moral and exemplary damages

6. Criminal Penalties

a. imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense

b. imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to P500,000 for the 2nd offense

c. imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to P1,000,000 for the 3rd/subsequent offenses

IN ALL CASES, subsidiary imprisonment in cases of insolvency

7. Presumptions:

a. Presumption of copyright in the work of other subject matter to which the action related

b. Plaintiff is presumed to be the owner of the copyright

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

8. Prescription:

No damages may be recovered after 4 years from time the cause of action arose.

Patents

1. Patentable Inventions - any technical solution of a problem in any field o human activity that is new, involve an inventive step and is industrially applicable shall be patentable. It may be or may relate to as product, or process or an improvement of any of the foregoing.

2. Non-Patentable Inventions

a. discoveries, scientific theories and mathematical methods

b. schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers

c. methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body

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

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

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

e. aesthetic creations

f. contrary to public order or morality

3. Requisites of Patentability

a. new, novelty

b. involves an inventive step;

c. is industrially applicable

4. Novelty

The novelty requirement in the Code is absolute. Thus, an invention is not considered new if it forms part of a prior art.

A prior art consists of:

a. anything which has been made available to the public anywhere in the world before the filing date or the priority date of the application, or

b. the whole contents of an application for a patent, utility model, or industrial design registration, published in the IPO gazette, filed or effective in the Philippines, with a filing or priority date that is earlier than the filing or priority date of the application, provided that the application which has validly claimed the filing date of an earlier application (priority date) is prior art with effect as of the filing date of such earlier application, and provided further, that the applicant and the inventor identified in both applications are not one and the same

5. Inventive Step

- an invention involves an inventive step, if having regard to the prior art, it is not obvious to a person skilled in the art at the time of the filing date of priority date of the application claiming the invention

6. Industrial Applicability - an invention is considered industrially applicable if it can be produced and used in the industry

7. The First-to-File System

- if 2 or more persons have made the invention separately and independently of each other, the right to the patent belongs to the person who filed an application for such invention, or where 2 or more applications are filed for the same invention, the right of the patent belongs to the person who has the earliest filing date or the earliest priority date Under this system, the patent is granted to the inventor who filed his patent application earlier than others thus simplifying the determination of who is entitled to own the patent. The First-to-File System increases the rights of the inventor by:

a. guaranteeing the confidentiality of the application prior to its publication

b. giving the inventor inchoate rights against an infringer after the publication of the application and before the grant of the patent and

c. expanding the rights of the inventor to institute cancellation proceedings for the duration of the term of the patent. Cancellation proceedings may be filed at any time during the term of the patent.

Under this system, the applicant declared by final court order as having the right to the patent may:

a. prosecute the application as his own application in place of the original applicant

b. file a new patent application in respect of the same invention

c. request that the application be refused or

d. seek the cancellation of the patent, if one has already been issued

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

Novelty in Patents

- even if you do not know of any previous creation, as long as a patent on the same creation has already been published anywhere in the world, you cannot claim novelty. No access tot he other creation is no defense. Originality in Copyright

- even if there is same creation, as long as you do not copy your own creation, it is still considered an original creation. No access to the previous creation is a defense.

9. Non-Prejudicial Disclosure

The disclosure of information contained in the application during the 12 months preceding the filing date or the priority date of the application shall not prejudice the applicant on the ground of lack of novelty if such disclosure was made by (a) inventor; (b) a patent office and the information was contained

10. Term of Patent

- 20 years from the filing date of the application

11. Grounds for Compulsory Licensing:

a. national emergency or other circumstances of extreme urgency

b. where public interest, national security, health or the development of other vital sectors of the national economy as determined by the appropriate agency of the government so requires

c. where a judicial or administrative body has determined that the manner of exploitation by the owner of the patent or his licensee is anti-competitive

d. in case of public non-commercial use of the patent by the patentee, without satisfactory reason

e. if not being worked in the Philippines on a commercial scale

12. In case of Compulsory Licensing of Patents involving Semi-conductor Technology, the license may be granted only in case of public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive

13. Utility Models - an invention qualifies for registration as a utility model if it is new and industrially applicable

- no inventive step required for registration - no search and examination required

14. Term Protection - 7 years after the filing date of application without possibility of renewal

15. Industrial Design

- any composition of lines or colors or any 3 dimensional form, whether or not associated with lines or colors Industrial Designs essentially dictated by technical or functional considerations to obtain a technical result or those that are contrary to public order, health or morals shall not be protected

16. Term of Protection - 5 years from filing date of application, renewable for not more than 2 consecutive periods of 5 years each

Chattel Mortgage Law

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

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

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

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

5. General Rule: Chattel Mortgage cannot cover debts subsequently contracted.

6. Rules:

Chattel Mortgage cannot cover debts subsequently contracted

a. registered in place where mortgagor resides and where property (chattel) is located. If mortgagor resides abroad, register in place where property is located.

b. Motor Vehicles: register also in Land Transportation Office

c. Shares of Stock: place of domicile of corporation and shareholder. No need for notation in books of corporation

d. Vessels: Phil. Coastguard

7. To be valid against 3rd persons:

a. affidavit of good faith

b. contract must be registered

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

Exception: when Recto Law applies

9. Requisites of CML:

a. constituted to secure the fulfillment of principal obligation

b. mortgagor is absolute owner of the thing mortgaged

c. persons constituting the mortgage have the free disposal of the property and in the absence thereof, they be legally authorized for the purpose

d. recorded to bind 3rd persons

10. Formal Requisites of CM:

a. substantial compliance with form in Sec. 5 of CML

b. signed by at least 2 witnesses

c. must contain an affidavit of good faith

d. certificate of oath (notarial acknowledgment)

11. Affidavit of Good Faith

- where the parties severally swear that the mortgage is made for the purpose of securing the obligation specified and for no other purpose and that the same is a just and valid obligation and not one entered into for fraud - property given in CM must be described to enable the parties or any other person after reasonable inquiry and investigation to identify it

12. Future property may not be covered by CM but when such property is a:

a. renewal of, or in substitution for goods on hand when the mortgage was executed, or

b. purchased with proceeds (not of your own money) of said goods, said property may be covered by CM

13. Criminal Acts - removal of chattel to another city or province without written consent of mortgagee, selling property already pledged, or mortgaged without written consent of mortgagee

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

15. Pactum Commissorium applies to Chattel Mortgage.