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Commercial law
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NEGOTIABLE INSTRUMENTS
LAW
(Act No. 2031, June 2, 1911)
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.
Negotiable
instruments
produce the effect of payment
only when they have been
encashed or through the fault of
the creditor have been impaired.
(Article 1249, NCC)
Principal
Features
and
Characteristics
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
Requisites of Negotiability
An instrument to be negotiable
must conform to the following
requirements:
a. It must be in writing and
signed by maker or drawer;
b.
Must
contain
an
unconditional promise or order
to pay a sum certain in money;
c. Must be payable on demand,
or at a fixed or determinable
future time;
d. Must be payable to the order
or to bearer; and
e. Where the instrument is
addressed to a drawee, he must
be named or otherwise
indicated
therein
with
reasonable certainty.
*For a Promissory Note to be
negotiable, requisites a,b,c and, d
must be met.
*For a bill of exchange to be
negotiable,
all
the
above
requisites must be met.
Purpose of Negotiability. To allow
bills and notes the effect which
money, in the form of government
bills or notes, supplies in the
commercial world.
The validity and negotiable
character of a negotiable
instrument are NOT affected by
the fact that:
1. It is not dated;
2. It does not specify the place
where it is drawn or where it is
payable;
3. It bears a seal;
Page 1
4. It designates a particular
kind of current money in which
payment is to be made (Sec. 6)
Kinds
of
Instruments:
Negotiable
A. PROMISSORY
NOTE
unconditional promise to pay
in writing made by one person
to another, 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 makers own order, it
is not complete until indorse by
him. (Sec. 184 NIL)
Parties:
a. Maker one who makes a
promise
and
sign
the
instrument
b. Payee one to whom the
promise is made or
the
instrument is payable.
FORMS OF PROMISSORY
NOTE
1. Due bill, an instrument
whereby
one
person
acknowledges his indebtedness
to another and promises to pay
a sum certain in money.
2. Bonds, which are in the
nature of PN.
3. Certificate of Deposit
issued by banks payable to
depositor or his order, or to
bearer
BAR OPERATIONS 2011
B.
Page 2
Nonnegotiable
Instruments
Does
not
Contains all the
contain all the
requisites
of
requisites
of
Sec. 1 of the
Sec. 1 of the
NIL
NIL
Transferred by Transferred by
negotiation
assignment
Holder in due Transferee
course
may acquires rights
have
better only of his
rights
than transferor
transferor
Prior parties
Prior parties
merely
warrant
warrant
payment
legality of title
Transferee has
right
of Transferee has
recourse
no right of
against
recourse
intermediate
parties
Negotiable
Instruments
Negotiable
Documents of
Title
Does
not
Have requisites
contain
of Sec. 1 of the
requisites of
NIL
Sec. 1 of NIL
Page 3
Have right of
recourse
against
intermediate
parties who are
secondarily
liable
Holder in due
course
may
have
rights
better
than
transferor
Subject
is
money
Instrument
itself
property
value
No secondary
liability
of
intermediate
parties
Transferee
merely steps
into the shoes
of
the
transferor
Subject
is
goods
Instrument is
merely
evidence
of
is title; thing of
of value are the
goods
mentioned in
the document
Promissory
Note
Unconditional
promise
Involves
2
parties
Maker
primarily liable
Bill of
Exchange
Unconditional
order
Involves
3
parties
Drawer only
secondarily
liable
Only
1 Generally
2
presentment - presentments
for payment
for
acceptance
and
for
payment
Check
Always
drawn
upon
a
bank
or
banker
Always
payable on
demand
BOE
- May or may not be
drawn against a
bank
- May be payable on
demand or at a fixed
or
determinable
future time
Not - Necessary that it be
necessary
presented
for
that it be acceptance
presented
for
acceptance
- Drawn on - Not drawn on a
a deposit
deposit
- The death - The death of the
of a drawer drawer
of
the
of a check, ordinary bill of
with
exchange does not
knowledge
by
the
banks,
revokes the
authority of
the banker
pay
- Must be - May be presented
presented
for payment within a
for
reasonable
time
payment
after
its
last
within
a negotiation.
reasonable
time after
its issue (6
months)
PN
CHECK
- There are two - There are three
Page 4
Factors
that
affect
the
determination of negotiability of
instruments:
a. Whole instrument;
b. What appears on the face of
the instrument;
c. Requisites enumerated in
Sec.1 of NIL; and
d. Should contain words or
terms of negotiability.
(Gopenco, Commercial law Bar
Reviewer, cited in Aquino p. 23)
In
determining
the
negotiability
of
an
instrument, the instrument
in its entirety and what
appears on its face must be
considered. It must comply
with the requirements of
Sec.1 of NIL. ( Caltex Phils. V.
CA, 212 SCRA 448)
The acceptance of a bill of
exchange is not important in
the determination of its
negotiability. The nature of
acceptance is important only
on the determination of the
kind of liabilities of the
parties involved. (PBCOM v.
Aruego, 102 SCRA 530)
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
Page 5
MEANING OF
REQUISITES:
PARTICULAR
a. UNCONDITIONAL PROMISE
OR ORDER
- Where the promise or
order is made to depend on a
contingent event, it is conditional,
and makes the instrument nonnegotiable.
The conditional nature of the
promise or order is not effected
by:
a. An indication of a particular
fund from which the acceptor
reimburses himself after
paying the holder;
BAR OPERATIONS 2011
b. A
statement
of
the
transaction which gives rise
to the instrument.
b. CERTAINTY OF SUM
- The sum is certain if the amount
fixed.
- The certainty is HOWEVER NOT
affected although to be paid:
1. with interests;
2. by stated installments;
3. by stated installments with
acceleration clause;
4. with exchange;
5. with cost of collection or
attorneys fees.
Escalation Clause an
agreement pertaining to a loan or
increased in the event that the
applicable maximum rate of
interest is increased by law or by
the Monetary Board.
De-escalation Clause an
agreement pertaining to a loan or
forbearance of money, goods or
credits may stipulate that the rate
of interest agreed upon may be
reduced in the event that the
applicable maximum rate of
interest is decreased by law or by
the Monetary Board.
The
presence
of
escalation clause or a
escalation clause or both in
instrument does not affect
negotiable character of
instrument.
an
dethe
the
the
Page 6
Acceleration clause - it is a
provision that upon default in
payment of any installment or of
interest, the whole shall become
due.
c. PAYABLE IN MONEY
General Rule: If some other
act besides payment of money
is promised or ordered, the
instrument becomes nonnegotiable.
Exceptions:
a. Authorizes the sale of
collateral
securities
on
default;
b. Authorizes confession of
judgment on default;
c. Waives the benefit of law
intended to protect the
debtor;
d. Allows the creditor the
option to require something
to be done in lieu of money.
d. PAYABLE ON DEMAND
An instrument is payable on
demand:
a. Where it is expressed to be
payable on demand, at sight
or on presentation;
b. Where no period of payment
is stated;
c. Where the instrument has
been issued, accepted or
indorsed after maturity.
e. DETERMINABLE FUTURE
TIME
- Future time is determinable in
the following cases:
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determine
when
the
interest starts to run.
3. Antedating or postdating an
instrument does not affect
validity or negotiability, unless
done for an illegal or
fraudulent purpose.
REAL DEFENSES Those that
attach to the instrument itself and
are available against all holders,
whether in due course or not.
(WAD FIMMU WIFE)
1. Want of delivery of
incomplete instrument;
2. Alteration;
3. Duress amounting to
forgery;
4. Fraud in factum or fraud
in esse contractus;
5. Insanity where the insane
person has a guardian
appointed by the court;
6. Minority;
7. Marriage in the case of a
wife;
8. Ultra vires acts of a
corporation; where the
corporation is absolutely
prohibited by its charter
or statute from issuing
any commercial paper
under any circumstances;
9. Want of authority of
agent;
10. Illegality of contract
where it is the contract or
instrument itself which is
expressly made illegal by
statute;
11. Forgery;
Page 8
12. Execution
instrument
public enemies
of
between
PERSONAL
DEFENSES/
EQUITABLE DEFENSES Those
which are available only against a
person not a holder in due course
or a subsequent holder who
stands in privity with him.
(W2A4F2I4N2MU)
1. Want of delivery of
complete instrument;
2. Want of authority of
agent where he has
apparent authority.
3. Absence or failure of
consideration, partial or
total;
4. Acquisition
of
the
instrument
by
force,
duress or fear;
5. Acquisition
of
the
instrument by unlawful
means;
6. Acquisition
of
the
instrument for an illegal
consideration;
7. Filling up of blank
contrary to authority
given or not within
reasonable time, where
the
instrument
is
delivered;
8. Fraud in inducement;
9. Insertion of wrong date in
an instrument, where it is
payable at a fixed period
after date and it is issued
undated or where it is
payable at a fixed period
BAR OPERATIONS 2011
Incomplete
but
Delivered
Instrument: (Sec.14)
(2004 & 2005 Bar Exam)
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 purpose 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
Rule: Sec. 14 applies if there is a
signature on the instrument for
the purpose of giving effect
thereto.
Rule: If no signature, refer to Sec.
15 or 23.
Page 10
Page 11
c.
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.
Rules on Interpretation
Instruments:
of
Exception:
- The party against whom it is
sought to be enforced is
precluded from setting up
the forgery or want of
authority. (Sec.23)
Forgery refers to both a signature
which has been forged or made
without authority. Thus, Section
23 is not limited to counterfeit
signatures since it also applies to
genuine ones.
* A person whose signature is
forged as maker, drawer, payee or
indorsee of a note or check was
never a party to the instrument.
Since his signature does not
appear in the instrument, he
cannot be held liable thereon by
anyone. (Gempsaw v. CA 218 SCRA
682)
CUT-OFF RULE:
General Rule: Parties prior to the
forged signature are cut-off from
the parties after the forgery in the
sense that prior parties cannot be
held liable and can raise the
defense of forgery. The holder can
only enforce the instrument
against parties who became such
after forgery.
Exception: When the prior parties
are precluded from setting up the
defense of forgery either because
of
their
warranties,
representation or negligence.
(Gempsaw v. CA)
Page 14
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
drawee bank is conclusively
presumed to
know
the
signature of its drawer
if endorsers 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 payees 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 instrument:
In 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
Page 15
In a BOE
- The drawers 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, absence any act of
negligence on their part.
Every negotiable instrument is
deemed prima facie to have been
issued
for
a
valuable
consideration. (Sec. 24)
Effects:
BAR OPERATIONS 2011
- Every
person
whose
signature appears thereon is
a party for value
- Presumption is disputable
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)
Absence of Consideration:
(1995 and 1996 Bar
Exam)
Effect of want of consideration:
a. Personal defense to the
prejudice of a party and
available against any person
not holder in due course.
b. Partial
failure
of
consideration is a defense
pro tanto, whether the
failure is an asceratained
and
liquidated
amount
otherwise. (Sec 29)
Notes on Section 28
Absence of consideration is
where no consideration was
intended to pass.
Failure
of
consideration
implies that consideration was
intended by that it failed to
pass
The defense of want of
consideration is ineffective
against a holder in due course
Page 16
2. Against
the
Coaccommodation Party to the
use of some other persons
where
a
solidary
accommodation maker paid to
the bank the balance due on a
promissory note, he may seek
contribution from the other
solidary
accommodation
maker, in the absence of a
contrary agreement between
them. This rights springs from
an implied promise between
the accommodation makers to
share equally the burdens
resulting from their execution
of the note. They are joint
guarantors of the principal
debtor. (Sadaya v. Sevilla).
A solidary accommodation maker
may:
a. demand from the principal
debtor reimbursement of the
amount which he paid on the
promissory note and
b.
c. demand contribution from his
co-accommodation
maker,
without first directing his
action against the principal
debtor, PROVIDED that:
b.1. he made the payment
by virtue of a judicial
demand, or
b.2. the principal debtor is
insolvent.
NEGOTIATION
An instrument is
when:
negotiated
Page 18
A. SPECIALspecifies
the
person to whom or to whose
order, the instrument is to
be payable. (Sec. 34)
Page 19
Page 20
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
A holder may strike out any
indorsement which is not
necessary to his title. (Sec. 48)
Effects:
- An
indorser
whose
indorsement is struck out is
discharged
- All indorsers subsequent to
such indorser who has been
discharged
are
likewise
relieved
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)
WHO IS A HOLDER IN DUE
COURSE?
Every holder is deemed
prima facie to be a holder in due
course; but when it is shown that
the title of any person who has
negotiated the instrument was
defective, the burden is on the
Page 21
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.
An instrument not in the
hands of a HDC is subject to the
same defenses as if it were nonnegotiable.
Exception:
to
the
instrument
irrespective of the parties
and is predicated on the
principle
that the right
sought to be enforced has
never existed or has ceased
to exist.
- A real defense is available
against
ALL
HOLDERS,
whether in due course or
not.
2. Personal or Equitable
Defenses
- a personal or equitable is a
defense growing out of an
agreement or conduct of a
particular person in regard
to an instrument which
renders it inequitable for
him although owner of it, to
enforce it against the
defendant.
Personal
Defenses
1. Absence or
failure of
consideration
2. Want of
delivery of
complete
instrument
3. Insertion of
wrong date
where payable
at a fixed period
after date and
issued undated;
or at a fixed
Real Defenses
Alteration
Want of
delivery of
incomplete
instrument
Duress
amounting to
forgery
period after
sight and
acceptance is
undated
4. Filling up the
blanks contrary
to authority
given or not
within
reasonable time
5. Fraud in
inducement
6. Acquisition
of the
instrument by
force, duress or
fear
Fraud in factum
or in esse
contractus
Minority
Marriage in
case of a wife
Insanity where
7. Acquisition
the insane
of the
person has a
instrument by
guardian
unlawful means appointed by
the court
Ultra vires acts
of a corporation
where its
8. Acquisition of
charter or by
the instrument
statue, it is
for an illegal
prohibited from
consideration
issuing
commercial
paper
9. Negotiation Want of
in breach of
authority of
faith
agent
10. Negotiation
Execution of
under
instrument
circumstances
between public
amounting to
enemies
fraud
Illegality of
11. Mistake
contract made
Page 24
by statue
12. Intoxication Forgery
13. Ultra vires
acts of
corporations
14. Want of
authority of the
agent where he
has apparent
authority
15. Illegality of
contract where
form or
consideration is
illegal
16. Insanity
where there is
no notice of
insanity
LIABILITIES OF PARTIES:
1. 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 makers 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
BAR OPERATIONS 2011
Page 25
Notes on Section 61
A drawer may insert an
express stipulation to negative
or limit his liability
3. 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
4. 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)
BAR OPERATIONS 2011
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
Page 27
Page 28
b. He has no reason to
expect
that
the
instrument will be paid if
presented (Sec. 80)
Notes on Section 79 and 80
Only the drawer or indorser
are not discharged. All other
parties secondarily liable are
discharged.
Presentment for payment is
dispensed with if:
a. After
due
diligence,
presentment cannot be
made
b. Presentment is waived
c. The drawee is a fictitious
person (Sec 82)
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.
Other
instances
where
presentment for payment is not
required:
1. in order to charge the
drawer, where he has no right
to expect or require that the
drawee or acceptor will pay the
instrument;
2. in order to charge an
indorser, where the instrument
was made or accepted for his
accommodation and he has no
right to expect that the
Page 29
Page 30
c.
d.
e.
f.
Cancellation
of
indorsers
signature by indorsers
Discharge of prior party
Tender of payment by prior
party
Release of principal debtor
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)
HOLDER.
the
Page 32
enforce
payment
thereof
according to its original tenor
regardless of whether the
alteration was innocent or
fraudulent.
CHANGES
that
constitute
MATERIAL ALTERATIONS
1. The date;
2. The sum payable, either for
principal or interest;
3. The time or place of payment;
4. The number or the relations of
the parties;
5. The medium or currency in
which payment is to be made;
6. Or which adds a place of
payment where no place of
payment is specified; or
7. Any other change or addition
which alters the effect of the
instrument in any respect. (Sec.
125)
A serial number is an item
which is not an essential
requisite for negotiability
under Sec. 1 of NIL, and
which does not affect the
right of the parties, hence
its alteration is not
material. (PNB v. CA, 256
SCRA 491) (199 BEQ)
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
BAR OPERATIONS 2011
c. Local an acceptance
to pay only at a
particular place;
d. Qualified as to time
e. The acceptance of
some
or
more
drawees but NOT
ALL.
B. General Acceptance:
An acceptance to pay at a
particular place is a general
acceptance unless it is expressly
states that the bill is to be paid
there only and not elsewhere.
C. Qualified Acceptance if in
express terms varies the effect of
the bill as drawn.
Kinds
of
Qualified
Acceptance:
a. Conditional one
which makes payment
by
the
acceptor
dependent
on
the
fulfillment
of
a
condition
therein
stated;
b. Partial an acceptance
to pay part only of the
amount for which the
bill is drawn;
- Effect
of
taking
qualified acceptance:
- Where a qualified
acceptance is taken
THE DRAWER and
INDORSERS
are
discharged
from
liability on the bill
unless
they
have
expressly or impliedly
authorized the holder
to
take
qualified
acceptance
or
subsequently assents
thereto.
Page 35
PRESENTMENT
For Acceptance (Sec. 143)
For Payment ( Sec. 70)
( 2000 & 2003 BEQ)
acceptance
IS
and NO PRESENTMENT
payment is necessary.
for
10.
Bank Notes
- Are promissory notes of
the issuing bank payable
to bearer on demand and
intended to circulate as
money. They are regarded
as cash and pass from
hand to hand without any
evidence of titled in the
holder than that which
arises form possession.
However, they are not
money.
Classes of Bonds:
1. Mortgage bonds;
2. Equipment Bonds;
3. Collateral trust bonds;
4. Guaranteed bonds;
5. Debentures; and
6. Income bonds;
7. Convertible bonds;
8. Redeemable Bonds;
9. Registered Bonds; and
- Coupon Bonds those
which are attached a
sheet of dated, numbered
and similarly printed
coupons
which
the
bondholder may cut off
when due or thereafter.
Such coupons may be
served and deposited in a
bank, negotiated before
the maturity of the
interest they represent,
and transferred just like
any commercial paper.
They are negotiable if it
the requisites in Section 1,
NIL are complied with.
11.
Due Bills
- is an instrument
whereby one person
acknowledges
his
indebtedness to another.
b.
c.
d.
e.
a
corporation is an artificial
creature without any existence
until it has received the
imprimatur of the state acting
according to law, through the SEC.
(Tayag vs. Benguet Consolidated,
Inc., 26 SCRA 242)
2. Theory of corporate enterprise
or economic unit the corporation
is not merely an artificial being,
but more of an aggregation of
persons doing business, or an
underlying
business
unit.
BAR OPERATIONS 2011
5. AS TO EXISTENCE OF SHARES
OF STOCK
a.
Stock corporation a
corporation
(1)
whose
capital stock is divided into
shares and (2) which is
authorized to distribute to
shareholders dividends or
allotments of the surplus
profits on the basis of the
shares held. (Sec. 3)
b. Non-stock corporation
does not issue stocks nor
distribute dividends to their
members.
6. AS TO RELATIONSHIP OF
CONTROL AND MANAGEMENT
a. Holding Corporation - it is
one which controls another
as a subsidiary by the power
to elect management. It is
one that holds stocks in
other
companies
for
purposes of control rather
than for mere investment.
b. Subsidiary Corporation one which is so related to
another corporation that the
majority of its directors can
be elected directly or
indirectly by such other
corporation. (The
Corporation Code of the
Philippines Annotated,
Hector de Leon, 2002 ed.)
c. Affiliates - company which is
subject to common control
of
a
mother
holding
company and operated as
part of the system.
Page 43
d.
7. AS
TO
PLACE
OF
INCORPORATION
a. Domestic corporation- a
corporation
formed,
organized, or existing under
Philippine laws.
b. Foreign corporation a
corporation
formed,
organized, or existing under
any laws other than those of
the Philippines. (Sec. 123)
C. NATIONALITY
CORPORATION
OF
DOMICILE
TEST
determined
by
the
nationality of the controlling
stockholders or members.
This test is applied in times
of war. Also known as the
WARTIME TEST.
D. CORPORATE
PERSONALITY
JURIDICAL
I. Doctrine
of
Separate
Personality
A corporation has a juridical
personality
separate
and
distinct from that of its
stockholders or members.
Used
for
purposes
of
convenience and to subserve
the ends of justice.
Consequences/significance:
1. Liability for acts or contracts
obligations incurred by a
corporation, acting through
its authorized agents are its
sole liabilities. (Creese vs. CA,
93 SCRA 483)
2. Right to bring actions may
bring civil and criminal
actions in its own name in
the same manner as natural
persons. (Art. 46, Civil Code)
Page 44
property
conveyed to or acquired by
the corporation is in law the
property of the corporation
itself as a distinct legal entity
and not that of the
stockholders or members.
(Art. 44(3), Civil Code)
4. Acquisition of court of
jurisdiction service of
summons may be made on
the
president,
general
manager,
corporate
secretary, treasurer or inhouse counsel. (Sec. 11, Rule
14, Rules of Court).
5. Changes
in
individual
membership remains
unchanged and unaffected in
its identity by changes in its
individual membership. (The
Corporation Code of the
Philippines
Annotated,
Hector de Leon, 2002 ed.)
6. Entitlement to constitutional
guaranties:
a. Due process (Albert vs.
University Publishing, 13
SCRA 84)
b. Equal protection of the
law (Smith, Bell & Co. vs.
Natividad, 40 Phil. 136)
c. Protection
against
unreasonable
searches
and seizures. (Stonehill vs.
Diokno, 20 SCRA 383)
A corporation is not entitled
to invoke the right against
self-incrimination. (Bataan
Shipyard vs. PCGG)
BAR OPERATIONS 2011
corporation
will
be
considered as a mere
associations of persons, such
that liability will attach
directly to the officers and
the stockholders (Umali vs.
Court of Appeals, 189 SCRA
529, 542 [1990]). It is an
equitable doctrine developed
to address situations where
the
separate
corporate
personality of a corporation
is abused or used for
wrongful purposes.
Grounds for Application of
the Doctrine (2006 Bar
Examination)
The doctrine of piercing the
veil of corporate entity will
apply when the corporations
separate juridical personality
is used:
1. to
defeat
public
convenience;
2. to justify wrong, protect
fraud, or defend crime;
3. as a shield to confuse the
legitimate issue;
4. where the corporation is
the mere alter ego or
business conduit of a
person; or
5. where the corporation is
so
organized
and
controlled and its affairs
are so conducted as to
make
it
merely an
instrumentality, agency,
conduit or adjunct of
another
corporation
BAR OPERATIONS 2011
Incorporators
are
required to be not less
than five (5) but not more
than fifteen (15).
ii. Residency
requirement
(2006 Bar Examination)
Majority
of
the
incorporators are required
to be residents of the
Philippines.
iii. Qualifications
All incorporators:
a. must be natural
persons
b. must be of legal age
2. Minimum Capital Stock and
subscription requirement
i. Subscription requirement
All incorporators must
subscribe to at least one
(1) share of stock of the
corporation
being
organized.
ii. Capital Stock, minimum
subscription
The law requires that the
total capital stock to be
subscribed at the time of
incorporation should at
least be twenty five
percent (25%) of the
authorized capital stock
of the corporation being
organized.
3. Corporate Term
Fifty (50) years from the
date of incorporation
unless sooner dissolved
participating
preferred shares a share
which allows the holder to
receive the
stipulated
dividends at a preferred
rate only. The holder shall
not share in the dividends
distributed to common
shares.
REDEEMABLE SHARES are
those which permit the issuing
corporation to redeem or
purchase its own shares.
Limitations:
i. Redeemable
shares
may be issued only
when
expressly
provided for in the
articles
of
incorporation;
ii. Terms and conditions
affecting said shares
must be stated both in
the
articles
of
incorporation and in
the certificates of stock
BAR OPERATIONS 2011
representing
such
shares;
iii. Redeemable
shares
may be deprived of
voting rights in the
articles
of
incorporation, unless
otherwise provided in
the Code.
iv. Redeemable
shares
may be redeemed,
regardless
of
the
existence
of
unrestricted retained
earnings (Sec. 8), and
provided further that
the corporation has,
after such redemption,
sufficient assets in its
books
to
absorb
corporate debts and
liabilities.
TREASURY SHARES are
shares that have been earlier
issued as fully paid and have
thereafter been acquired by
the corporation by purchase,
donation, redemption or
through some lawful means
(Sec. 9). When treasury
shares are sold below its par
or issued value, there can be
no watering of stock because
watering
of
stock
contemplates an original
issuance of shares.
PAR VALUE SHARES are
shares with a value fixed in
the certificates of stock and
the articles of incorporation.
Page 48
Ways to become a
Stockholder
of
a
Corporation:
a. Subscription contract
with the corporation;
b. Purchase or acquisition
of shares from existing
stockholders; and
c. Purchase of treasury
shares
from
the
corporation
SUBSCRIPTIO
N
Refers
to
unissued shares
Corporation
still to be form
or already in
existence
The subscriber
can exercise all
his right as a
stockholder
even before full
payment of the
subscription
Corporate
creditors may
proceed against
the subscriber
for his unpaid
subscription in
case
the
corporate asset
are
not
sufficient
to
satisfy
their
PURCHASE
OF SHARES
Refers
to
issued
shares
The
corporation
is already in
existence
The
purchaser
can
only
exercise his
right upon
full
payment of
the
purchase
price
Corporate
creditor
cannot
proceed
against the
purchaser
for
the
balance of
the
purchase
price
Page 49
claims
Subscriber may
not be legally
released from
the payment of
his
unpaid
subscription
unless
no
creditors would
be prejudiced
and all the
stockholders
agree thereto
Subscription
may be in any
form,
not
covered by the
statute
of
frauds.
because of
the lack of
privity
of
contract
between
them
The
corporation
can rescind
or
cancel
the contract
in case of
non
fulfillment
by
the
buyer.
Purchase of
shares
is
covered by
the statute
of frauds in
case
of
purchases
amounting
to
more
than
Php
500.00
of
Subscription
a. Pre
incorporation
subscription
b. Post
incorporation
Subscription
c. Conditional Subscription
d. Absolute Subscription
e. Subscription with a special
term
3. Pre
incorporation
Subscription Agreements
One entered into before
incorporation.
Pre
incorporation subscription
constitutes
a
binding
contract
among
the
subscribers.
NOTE: It shall be irrevocable
for a period of at least six (6)
years from the date of
subscription unless:
a. All of the other
subscribers consent to
the revocation, or
b. The incorporation fails
to materialize
It shall likewise be
irrevocable after the
submission of the articles
of incorporation to the
SEC.
UNDERWRITING
AGREEMENT between a
corporation and a third
person,
termed
the
underwriter
is
an
agreement by which the
latter agrees, for a certain
compensation, to purchase a
stipulated amount of stocks
or bonds, specified in the
underwriting agreement, if
Page 50
d.
e.
f.
g.
corporation is to be
located, which must be
within the Philippines;
The term for which the
corporation is to exist;
The
number
of
directors or trustees,
which shall not be less
than 5 nor more than
15;
The
names,
nationalities
and
residences of persons
who shall act as
director or trustees
until the first regular
directors or trustees
are duly elected and
qualified in accordance
with the Code;
If it be a stock
corporation,
the
amount
of
its
authorized
capital
stock in lawful money
of the Philippines, the
number of shares into
which it is divided, and
in case the share are
par value shares, the
par value of each, the
names,
nationalities
and residences of the
original
subscribers,
and
the
amount
subscribed and paid by
each
on
his
subscription, and if
some or all of the
shares are without par
value, such fact must be
stated;
h. If it be a non stock
corporation,
the
amount of its capital,
the
names,
nationalities
and
residences
of
the
contributors and the
amount contributed by
each; and
i. Such other matters as
are not inconsistent
with law and which the
incorporators
may
deem necessary and
convenient.
vii. Adoption and Form: File with
the Securities and Exchange
Commission
articles
of
incorporation in any of the
official languages duly signed
and acknowledged by all of the
incorporators.
viii. Amendment
a. Majority vote of BOD /
trustees and vote or
written assent of 2/3
outstanding capital stock,
without prejudice to the
appraisal
right
of
dissenting stockholders.
b. Amendments take effect
upon approval by SEC or
from the date of filing with
SEC if not acted upon
within 6 months from date
of filing for a cause not
attributable
to
the
corporation.
ix. Grounds for Rejection or
Disapproval (Sec. 17)
a. That the articles of
incorporation or any
Page 52
of
directors
or
9. Adoption of By Laws
i. Definition: Meant to be an
intramural document to
govern the relationship
between and among the
BAR OPERATIONS 2011
ii.
iii.
iv.
members of a corporate
family
Effect as to Outsiders: Does
not bind outsiders
Requisites for Validity
a. By law provisions
cannot contravene law
b. By law provisions
cannot contravene the
charter
c. By laws must be
reasonable and cannot
discriminate.
Basic Content (Sec. 47)
a. The time, place and
manner of calling and
conducting regular or
special meetings of the
directors or trustees;
b. The time and manner of
calling and conducting
regular
or
special
meetings
of
the
stockholders or members;
c. The required quorum in
meetings of stockholders
or members and the
manner of voting therein;
d. The form for proxies of
stockholders
and
members and the manner
of voting them;
e. The qualifications, duties
and compensation of
directors or trustees,
officers and employees;
f. The time for holding the
annual
election
of
directors or trustees and
the mode or manner of
giving notice thereof;
Page 53
wont
approve if it prejudices
corporate creditors.
Since this is not an
inherent power, there must
be strict compliance with
requirements in Sec. 38
and
Amendment
provisions in Sec. 16
NO right of appraisal
i. Increase
would
defeat very purpose of
raising capital
ii. Decrease
there
already is return of
part of investments
ALSO, investing into a
corporation comes with
expectations of possible
increase / decrease of
shares
BAR OPERATIONS 2011
Ways
of
Increasing
(Decreasing) Capital Stock
1. By
increasing
(decreasing) the no. of
shares authorized to be
issued without increasing
(decreasing) the par value
thereof
2. By
increasing
(decreasing) the par value
of each share without
increasing (decreasing)
the no. thereof
3. By
increasing
(decreasing) both the no.
of shares authorized to be
issued and the par value
thereof (The Corporation
Code
of
the
Phil.
Annotated by Hector de
Leon, 2006 ed)
Methods to Replenish Capital
1. Additional subscription to
shares of stock of the
corporation
by
stockholders
or
by
investors;
2. Advances
by
the
stockholders
to
the
corporation; or
3. Payment
of
unpaid
subscription
by
the
stockholders.
c. Incur, create, or increase
bonded indebtedness
CORPORATE
BOND:
an
obligation to pay a definite
sum of money at a future
time at a fixed rate of interest
SEC Opinion (1987): only
covers indebtedness of
Page 55
corporation secured by
real / personal property
Majority of BOD, 2/3 of
capital stock
Needs SEC approval
Corporation must have
minimum net worth of P
25M and must have been
operating for at least 3
years
Unlike
normal
indebtedness, which does
not require 2/3 approval:
i. Usually
very
large
amount
ii. Usually with first lien on
important assets
iii. Usually long period of
time
NO right of appraisal
i. Would drain financial
resources
ii. Regardless, corporations
creditors
always
have
priority over assets
d. Sell, dispose, lease, encumber
all or substantially all of
corporate assets
Majority of BOD, 2/3
capital stock
Enterprise
level
transaction: Although there
is no effect in relationship
between
State
and
Corporation, its just as if
there is resetting to
starting point of business
life
Compare:
2. A corporate resolution of
the board of directors
declaring the payment of a
portion or all such
earnings
to
the
stockholders
(The
Corporation Code of the
Phil. Annotated by Hector
de Leon, 2006 ed)
GENERAL
RULE:
Stock
corporation cannot retain
surplus profits in excess of
100% of paid up capital
stock except: (2001 Bar
Examination)
1. Justified by definite
corporate
expansion
projects
/
programs
approved
by
BOD
2. Loan agreement, where
creditor has to first consent
before corporation
can
declare dividends
3. Special circumstances
h. Enter into management
contract
with
another
corporation (not with an
individual or a partnershipwithin
general
powers)
whereby one corporation
undertakes to manage all or
substantially all of the
business of the other
corporation for a period not
longer than 5 years for any
one term.
MANAGEMENT CONTRACT:
is an agreement whereby a
corporation undertakes to
manage or operate all or
substantially all of the
BAR OPERATIONS 2011
business
of
another
corporation, whether such
contracts are called service
contracts,
operating
agreements or otherwise
(Sec. 44)
GENERAL RULE: There shall
be no management contract
with another corporation
unless:
Majority of BOD
Stockholders
owning
majority shares in BOTH
managing and managed
corporation EXCEPT where
2/3 votes needed :if a
stockholder/s in both
managing and managed
corporation owns more
than 1/3 of outstanding
voting capital stock of
managing corporation OR
majority
of
BOD
in
managing corporation is
also majority of BOD in
managed corporation
The management contract
must not be longer than 5
years
i. ULTRA VIRES ACTS are acts
which are beyond the
conferred powers of a
corporation or the purposes
or objects for which it is
created as defined by the law
of its organization. (Republic
vs. Acoje Mining Co., Inc. 7
SCRAS 361)
An act done by a corporation
outside of the express and
Page 58
ACTS
AND
ILLEGAL ACTS
Unlawful;
against
law,
morals, public
policy,
and
public order
Cannot
be
ratified
Can bind the Cannot
bind
parties
if the parties
wholly
or
partly
executed
TEST whether or not a
corporation may perform an
act: consider the logical and
necessary relation between the
act questioned and the corporate
purpose expressed by law or in
Page 59
1. Redemption of redeemable
shares (Sec. 8)
2. In close corporation, when
there should be a deadlock and
the SEC orders the payment of the
appraised
value
of
the
stockholders share. (Sec. 104)
H. STOCKHOLDERS
MEMBERS
AND
RIGHTS OF STOCKHOLDERS
(Pandect of Commercial Law and
Jurisprudence, Justice Jose Vitug,
1997 ed.)
1. RIGHTS OF A STOCKHOLDER
a. Managerial Rights
b. Proprietary Rights
c. Pre emptive Rights
d. Remedial Rights
e. Appraisal Rights
f. Inspection Rights
2. MANAGERIAL RIGHTS
a. Voting rights; and
b. Right to remove directors
LIMITATIONS
on
the
stockholders RIGHT TO VOTE
a. Where the articles of
incorporation provides for
classification
of
shares
pursuant to Sec. 6, non
voting shares are not entitled
to vote except as provided
for in the last paragraph of
Sec. 6;
BAR OPERATIONS 2011
b. Preferred or redeemable
shares may be deprived of
the right to vote unless
otherwise provided in the
Code;
c Fractional shares of stock
cannot be voted;
d. Treasury shares have no
voting rights as long as they
remain in the treasury;
e. Holders of stock declared
delinquent by the BOD for
unpaid subscription are not
entitled to vote or to a
representation
at
any
stockholders meeting; and
f. A transferee of stock cannot
vote if his transfer is not
registered in the stock and
transfer
book
of
the
coporation.
3. PROPRIETARY RIGHTS
a. Right to dividends;
b. Right to issuance of stock
certificate for fully paid
shares;
c. Proportionate participation
in the distribution of assets
in liquidation;
d. Corporate
Books
and
Records inspection rights
Limitations:
i. The
right
must
be
exercised
during
reasonable
hours
on
business days;
ii.The person demanding the
right has not improperly
used nay information
obtained through any
previous examination of
Page 61
1. An amendment to the
articles of incorporation that
has the effect of
2. Sale, encumbrance or other
dispositions of all or
substantially all of the
corporate property or assets
3. Merger or consolidation
4. Investment of corporate
funds in another corporation
or in a purpose other than
the primary purpose (Sec.
42)
GENERAL RULE: A dissenting
stockholder
who
demands
payment of his shares is no longer
allowed to withdraw from his
decision EXCEPT when:
1. The corporation consents to
the withdrawal
2. The proposed corporate
action is abandoned or
rescinded
by
the
corporation
3. The proposed corporate
action is disapproved by the
SEC where its approval is
necessary
4. The
Commission
determines
that
such
stockholder is not entitled
to appraisal right.
f. Right to recover stocks
unlawfully sold for delinquent
payment of subscription
g. Preemptive right is the
shareholders
preferential
right to subscribe to all issues
or dispositions of shares of
any class in proportion to their
present stockholdings.
Page 62
Purpose: to enable
shareholder to retain
proportionate control in
corporation and to retain
equity in the surplus.
the
his
the
his
Pertains
to
unsubscribed
portion of the
authorized
capital stock.
A right that
may
be
claimed
RIGHT OF
FIRST
REFUSAL
Arises only by
virtue
of
contractual
stipulations
but is also
granted under
the provisions
on
Close
Corporation
Exercisable
against
another
stockholder of
the
corporation of
his shares of
stock
Page 63
against
the
corporation
4. REMEDIAL RIGHTS
a. Individual suit a suit
instituted by a shareholder
for his own behalf against
the corporation;
b. Representative suit a suit
filed by a shareholder in his
behalf and in behalf likewise
of
other
stockholders
similarly situated and with a
common cause against the
corporation; and
c. Derivative suit (2009, 2006,
2005,
2004
Bar
Examination) a suit filed
in behalf of the corporation
by its shareholders (not
creditors whose remedies
are merely subsidiary such
as accion subrogatoria and
accion pauliana) upon a
cause of action belonging to
the corporation, but not duly
pursued by it, against any
person or against the
directors, officers and/or
controlling shareholders of
the corporation.
Requisites:
i. An existing cause of
action in favor of the
corporation
ii. The
stockholder/member
must first make a
demand
upon
the
corporation or the
management to sue
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6. STOCKHOLDERS
MEMBERS MEETING
OR
WHEN:
1. REGULAR - held on the date
fixed in the by-laws or if not
fixed on any date in April; and
2. SPECIAL - held at any time
deemed necessary or as so
provided in the by-laws.
WHERE:
WHERE:
In
the
city
or
municipality where the principal
office of the corporation is
located, and if practicable, in the
principal office of the corporation.
However, in the case of non-stock
corporations, the by-laws may
provide that meetings may be
held at any place even outside the
principal place of the corporation.
(Sec. 93)
I. BOARD OF
TRUSTEES
DIRECTORS
1. BOARD OF DIRECTORS OR
TRUSTEES AS REPOSITORY
OF CORPORATE POWERS
GENERAL RULE: The corporate
powers of the corporation
shall be exercised, all business
conducted and all property of
such corporation controlled
and held by the board of
directors or trustees. (Sec. 23)
BAR OPERATIONS 2011
EXCEPTIONS:
1. In case of an Executive
Committee duly authorized
in the by-laws;
2. In case of a contracted
manager which may be an
individual, a partnership, or
another corporation. Note:
In case the contracted
manager
is
another
corporation, the special rule
in Sec. 44 applies.
3. In case of close corporations,
the
stockholders
may
manage the business of the
corporation instead by a
board of directors, if the
articles of incorporation so
provide.
The power to purchase real
property is vested in the board of
directors or trustees. While a
corporation may appoint agents
to negotiate for the purchase of
real property needed by the
corporation, the final say will
have to be with the board, whose
approval
will
finalize
the
transaction. A corporation can
only exercise its powers and
transact its business through its
board of directors and through its
officers
and
agents
when
authorized by a board resolution
or by its by-laws. (Spouses
Constantine Firme vs. Bukal
Enterprises and Development
Corporation, G.R. No. 146608,
October, 23, 2003)
Page 65
LIMITATIONS ON POWERS OF
BOARD
OR
DIRECTORS/TRUSTEES
1. Limitations imposed by the
Constitution, statutes, articles of
incorporation or by-laws.
2. Cannot perform constituent or
those involving fundamental
changes in the corporation
requiring
the
approval
of
stockholders or members.
3. Cannot exercise powers not
possessed by the corporation.
(The Corporation Code of the
Philippines Annotated, Hector
de Leon, 2002 ed.)
NATURE OF POWERS OF BOARD
OF DIRECTORS/TRUSTEES (The
Corporation
Code
of
the
Philippines Annotated, Hector
de Leon, 2002 ed.)
a. Under the Theory of Original
Power, the powers of the
board of directors or trustees
are
ORIGINAL
and
UNDELEGATED.
The
stockholders or members do
not confer, nor can they
revoke those powers.
b. They are DERIVATIVE only
in the sense of being received
from the State in the act of
incorporation.
2. TENURE, QUALIFICATIONS
AND DISQUALIFICATIONS
OF DIRECTORS
Qualifications:
1. For a stock corporation,
ownership of at least 1 share
capital
stock
of
the
corporation in his own name,
and if he ceases to own at
least one share in his own
name,
he
automatically
ceases to be a director. (Sec.
23)
For
a
non-stock
corporation, only members
of the corporation can be
elected to seat in the Board of
Trustees.
In order to be eligible as a
director, what is material is
the legal title to, not
beneficial ownership of the
stocks appearing on the
books of the corporation
2. A
majority
of
the
directors/trustees must be
residents of the Philippines.
(Sec. 23)
3. He must not have been
convicted by final judgment
of an offense punishable by
imprisonment for a period
exceeding 6 years or a
violation of the Corporation
Code, committed within five
years from the date of his
election. (Sec. 27)
4. Only natural persons can be
elected directors/trustees.
In
case
of
corporate
stockholders or members,
their representation in the
board can be achieved by
making
their
individual
Page 66
representatives trustees of
the shares or membership to
make
them
stockholders/members
of
record.
5. Other qualifications as may
be prescribed in the by-laws
of the corporation.
6. Must be of legal age
Disqualifications
Directors,
Trustees
Officers
of
or
By ballot if requested by
any voting stockholder or
member
c. Stock Corporations
Methods of Voting on the
Election of Directors
g. STRAIGHT VOTING Every
stockholder through this
method, may vote such
number of shares for as
many persons as there are
directors.
h. CUMULATIVE VOTING
i. Every stockholder is
entitled to such number
of votes that his number
of shares multiplied by
the total number of
directors to be elected
will bring. He may give all
such votes
to one
candidate (CUMULATIVE
VOTING
FOR
ONE
CANDIDATE) or he may
distribute them among as
many candidates as he
sees fit (CUMULATIVE
VOTING
BY
DISTRIBUTION). (Sec. 24)
ii. A
minority
director
elected
through
cumulative voting cannot
be
removed
without
cause. (Sec. 28)
iii. A PROXY is a written
instrument, signed by the
stockholder or member
(as principal) and filed
before the scheduled
meeting
with
the
corporate secretary, and
given to another person
Page 67
laws
provide
otherwise
e. Adjournment of Meeting for
Elections
May adjourn from day to
day or from time to time
But NOT sine die or
indefinitely if quorum is
not met (majority of
stockholders or members
are not present).
NOTE: Proposed amendment to
by laws stipulating permanent
director even without election is
contrary to law. (Grace Christian
High School vs. CA)
4. REMOVAL OF DIRECTORS
OR TRUSTEES
a. How may be removed
i. 2/3 vote of stockholders
or members entitled to
vote
ii. During
a
regular
meeting or a special
meeting called by the
secretary upon:
Page 68
DOCTRINE OF
CORPORATE
OPPORTUNIT
Y
Cover
same
subject which
is
business
opportunity
Applicable to
directors,
trustees and
officers
DISLOYALTY
OF A
DIRECTOR
Cover same
subject which
is
business
opportunity
Only
applicable to
DIRECTORS
and not to
officers
Allows
RATIFICATIO
N
of
a
transaction by
a
self
dealing
director
by
the vote of
stockholders
representing
2/3 of the
outstanding
capital stock.
stock corporations
corporations
8. BUSINESS JUDGMENT RULE
Business judgment rule exists
to protect and promote the full
and
free
exercise
of
managerial power granted to
directors. The rule is a a
presumption that in making a
business
decision,
the
Page 70
directors of a corporation
acted on an informed basis, in
good faith and in the honest
belief that the action taken
was in the best interest of the
company. (Smith vs. Van
Gorkam)
9. DUTY OF DILIGENCE
a. Violations of Duty of
Diligence
i. Willfully and knowingly
vote for or assent to
patently unlawful acts of
the corporation
ii. Guilty of gross negligence
or bad faith in directing
the
affairs
of
the
corporation
iii. Acquire any personal
or pecuniary interest in
conflict with their duty as
director or trustee
iv. He consents to the
issuance
of
watered
stocks or who, having
knowledge thereof, does
not forthwith file with the
corporate secretary his
written objection thereto;
(Tramat Mercantile Inc. vs
CA)
v. He agrees to hold himself
personally and solidarily
liable
with
the
corporation; or (Tramat
Mercantile Inc. vs. CA)
vi. He is made, by specific
provision of law, to
personally answer for his
Page 71
a.
By self dealing
directors
with
the
corporation
Contracts
between
the
corporation and one or more
of its directors or trustees or
officers are VOIDABLE at the
option of the corporation but
VALID if the following are
present:
i. Presence of director /
trustee in the board
meeting which approved
contract was not necessary
to constitute a quorum.
ii. Vote of director or trustee
not necessary for approval
of contract
iii. Contract is fair and
reasonable
under
the
circumstances
iv. In case of an officer,
contract
has
been
previously authorized by
board of directors.
NOTE: If directors presence
was required to meet the
quorum (1st requisite) and I
his vote was necessary for
approval of the contract (2nd
requisite), the contract may
still be valid if it is RATIFIED
by 2/3 of stockholders or
members in a meeting called
for that purpose.
b.
Between corporation
with interlocking directors
Contract between two or
more corporations with a
common director/s may
be valid
However, to be valid, it
must
be
fair
and
reasonable
A contract between the
corporations
with
interlocking directors is
VOID if there is fraud
If the interest of the
interlocking director in
one
corporation
is
SUBSTANTIAL (meaning
stockholdings
exceed
20% of the outstanding
capital stock) and his
interest
is
merely
NOMINAL, contract shall
be treated as under the
provisions of Self
Dealings (voidable but
may be ratified), insofar
as the corporation where
he has a nominal interest
is concerned.
NOTE: Corporate officers are not
permitted to use their position of
trust and confidence to further
their private interests.
The
doctrine
of
CORPORATE
OPPORTUNITY
is
precisely
recognition by the courts that the
fiduciary standards could not be
upheld where the fiduciary was
acting for two entities with
competing interest. (Gokongwei Jr.
vs. SEC)
Page 72
majority of number of
Page 73
directors or trustees as
fixed in the AOI
For corporate act to be
valid, there must be a
quorum and the act must
be approved by majority of
directors
or
trustees
PRESENT
For election of officers
majority of ALL members
of the board of directors or
board of trustees, whether
all members are present or
not.
f. Director or Trustees cannot
ATTEND or VOTE by proxy at
board meetings.
POWERS
OF
CORPORATE
OFFICERS
a. Rule on Corporate Officers
power to bind the corporation
An officers power as an
agent of the corporation
must be sought from the
statute, charter, by laws
or in a delegation of
authority from such officer,
from the acts of the board
of
directors
formally
expressed or implied from
a habit or custom of doing
business
b. When Corporation bound by
the act of its President.
In the absence of a charter
or by law provision to the
contrary, the president is
presumed to have the
authority to act within the
BAR OPERATIONS 2011
CORPORATE
EMPLOYEE
Employed by
the action of
the managing
officer of the
corporation
NLRC
has
jurisdiction in
case of labor
dispute
J. CAPITAL AFFAIRS
2. CERTIFICATE OF STOCKS
The document evidencing the
ownership of shares of stocks by a
Page 74
SHARES OF
STOCK
or
or secured to
be paid in by
the
stockholders
upon which the
corporation is
to conduct its
operation. It is
the property of
the
corporation
itself
(monetary
value).
right
which
the
stockholder
has in the
management
of
the
corporation,
and its surplus
profits,
and
upon
a
dissolution, in
all of its assets
remaining
after payment
of corporate
debts.
SHARES OF
STOCK
Unit of interest
in
a
corporation
CERTIFICATE
OF STOCK
Evidence
of
the
holders
ownership of
the stock and
of his right as
a shareholder
Incorporeal or Concrete and
intangible
tangible
property
May be issued May be issued
by
the only if the
corporation
subscription is
even if the fully paid.
subscription is
not fully paid.
b. Negotiability
Page 75
REQUIREMENTS
FOR
TRANSFER OF STOCK
a. In case of shares covered by
a
certificate,
the
indorsement of the owner or
his agent coupled with
delivery is essential
b. Where no certificate has
been issued or for some
reason it is not in the
possession
of
the
stockholder, it may be
transferred by means of a
deed of assignment duly
recorded in the books of the
corporation
c. To be valid against the
corporation
and
third
persons, the transfer must
be recorded in the stock and
transfer book
d. The transferee must present
the indorsed certificate to
the corporate secretary who
shall effect the transfer in
the corporate books, issue a
new stock certificate in favor
of the transferee and cancel
the former certificate.
Only absolute transfers need be
registered.
The
pledge
or
mortgage itself need not be
recorded in the stock and transfer
book, but a chattel mortgage must
comply with the Chattel Mortgage
Law, and a pledge would require
the shares to be placed in the
possession
of
the
creditor/pledgee. The agreement
BAR OPERATIONS 2011
DELINQUENT
2.
3.
4.
5.
6.
7.
REHABILITAT
ION
Connotes
a
reopening or
reorganization
Contemplates a
continuance of
corporate life
in an effort to
restore
the
corporation to
its
former
successful
operation
OTHER COPORATIONS
1. CLOSE CORPORATION
A
special kind of
stock
corporation:
1.
whose
articles
of
incorporation should provide
that:
a.
the
number
of
stockholders
shall
not
exceed 20;
b. issued
stocks
are
subject
to
transfer
restrictions, with a right of
preemption in favor of the
BAR OPERATIONS 2011
stockholders
or
the
corporation; and
c.
the corporation shall
not be listed in the stock
exchange or its stocks
should not be publicly
offered; AND
2. Whose at least 2/3 of the
voting stocks or voting rights
should not be owned or
controlled
by
another
corporation which is not a
close corporation. (Sec. 96)
Characteristics:
1. Stockholders may act as
directors without need of
election and therefore are
liable as directors;
2. Stockholders
who
are
involved in the management
of the corporation are liable
in the same manner as
directors are.
3. Quorum may be greater than
mere majority;
4. Transfers of stocks to others,
which would increase the
number of stockholders to
more than the maximum are
invalid;
5. Corporate actuations may be
binding even without a
formal board meeting, if the
stockholder had knowledge
or ratified the informal
action of the others;
6. Preemptive right extends to
all stock issues;
7. Deadlocks in board are
settled by the SEC, on the
written petition by any
stockholder; and
Page 82
ORDINARY
STOCK
CORPORATI
ON
Its articles of
incorporatio
n need only
contain the
general
matters
enumerated
in Sec. 14 of
the Code.
CLOSE
CORPORATIO
N
Its
articles
must contain
the
special
matters
prescribed by
Sec. 97, aside
from
the
general
matters in Sec.
Its status as
an ordinary
stock
corporation
is
not
affected by
the
ownership of
its
voting
stock
or
voting rights.
Its
articles
cannot
classify
its
directors.
Business of
the
corporation
is managed
by the board
of directors.
The
corporate
officers and
employees
are elected
by a majority
vote of all the
members of
the board of
directors.
14. Failure to
do
so
precludes a de
jure
close
corporation
status.
2/3
of
its
voting stock or
voting rights
must not be
owned
or
controlled by
another
corporation
which is not a
close
corporation.
Its articles may
classify
its
directors.
Business of the
corporation
may
be
managed
by
the
stockholders if
the articles so
provide,
but
they are liable
as directors.
Its articles may
provide
that
any or all of
the corporate
officers
or
employees
may be elected
or appointed
by
the
stockholders.
Page 83
The
preemptive right
is subject to
the
exceptions
found in Sec.
39.
The appraisal
right may be
exercised by
a stockholder
only in the
cases
provided in
Secs. 81 and
42 of the
Code.
Except
as
regards
redeemable
shares, the
purchase by
the
corporation
of its own
stock must
always
be
made from
the
unrestricted
retained
earnings.
Arbitration
of
intracorporate
deadlock by
the SEC is not
a remedy in
case
the
The
preemptive right
is subject to no
exceptions
unless denied
in the articles
The appraisal
right may be
exercised and
compelled
against
the
corporation by
a stockholder
for any reason.
In case of an
arbitration of
an
intracorporate
deadlock
by
the SEC, the
corporation
may
be
ordered
to
purchase
its
own
shares
from
the
stockholders
regardless of
the availability
of unrestricted
retained
earnings.
Arbitration of
intracorporate
deadlock
by
the SEC is an
available
remedy in case
directors or
stockholders
are
so
divided
respecting
the
management
of
the
corporation.
the directors
or
stockholders
are so divided
respecting the
management
of
the
corporation.
STOCK
CORPORATIONS
A corporation organized for an
eleemosynary purpose, and no
part of whose income is, during
its existence, distributable as
dividends to its members,
trustees, or officers, subject to the
Page 84
Eleemosynary
purposes:
charitable, religious, educational,
professional,
cultural,
recreational, fraternal, literary,
scientific, social, civic service, or
similar purposes, like trade,
industry, agricultural. (Sec. 88)
They are governed by the same
rules established for stock
corporations,
whenever
pertinent, subject, however, to a
number of special features.
1. To be entitled to 1 vote
unless otherwise provided
in the articles or by-laws
2. To vote by proxy unless
otherwise provided in the
articles or by-laws
3. To transfer membership if
allowed by the articles or
by-laws
4. To be elected as trustee
RIGHTS OF MEMBERS
STOCK
Has
capital
stock divided
into shares
and
with
authority to
distribute
dividends to
its
stockholders
Stockholders
may transfer
their shares
NON-STOCK
Does not have
shares
and
may
not
distribute
profits to its
members
Members
cannot
transfer their
membership
unless
allowed
by
the articles or
by-laws
Cumulative
Cumulative
voting
is voting
not
available in available
the election unless
Page 85
of directors
otherwise
provided in
the articles or
by-laws
Directors
Trustees may
cannot
exceed 15 in
exceed 15 in number
number
The term of a The term of a
director is 1 trustee is 3
year
years; 1/3 of
the
Board
shall
be
elected
annually
Stockholders Members may
may vote by be deprived of
proxy
the right to
vote by proxy
in the articles
or by-laws
Officers are Officers may
elected by the be
directly
Board
of elected by the
Directors
members
unless
otherwise
provided in
the articles or
by-laws
Stockholders Members may
and directors be allowed by
must act in a the by-laws to
meeting,
vote by mail
except where or
other
a
mere similar means
written
assent
is
sufficient or a
formal
meeting
unnecessary
BAR OPERATIONS 2011
Governed by
the provisions
on non-stock
corporations
and
suppletorily
by
the
EDUCATIONA
L
CORPORATIO
N
A
special
corporation
which may a
stock or nonstock
Governed by
special
laws
and by the
general
provisions of
the
Corporation
provisions on
stock
corporations
The number
of board of
trustees may
be more than
15
The term of
office of the
board
of
trustees shall
be 3 years
Code
The number of
the board of
trustees should
not be less
than 5 but not
more than 15.
The term of
office of the
board
of
trustees shall
be 5 years
2. RELIGIOUS CORPORATION
A corporation composed entirely
of spiritual persons and which is
organized for the furtherance of a
religion or for perpetuating the
rights of the church or for the
administration of church or
religious work or property. It is
different from an ordinary nonstock corporation organized for
religious purposes.
Kinds:
a) CORPORATION SOLE
- A special form of
corporation, usually associated
with the clergy, consisting of
one person only and his
successors, who is incorporated
by law to give some legal
capacities and advantages; and
b) RELIGIOUS SOCIETIES
- A non-stock corporation
governed by a board but with
religious
purposes.
It
is
incorporated by an aggregate of
Page 87
7. Engage
in
business
unauthorized by SEC;
8. Acting as dummy of a foreign
corporation; and
9. Not licensed to do business in
the Philippines. (Sec. 134)
TEST
OF
DOING
OR
TRANSACTING BUSINESS IN
THE PHILIPPINES:
The Corporation Code does not
define the phrase doing or
transacting business.
A. Jurisprudential Test (Philippine
Corporate Law, Cesar Villanueva,
2001 ed.)
1. Twin characterization test
a) Whether the foreign
corporation is maintaining or
continuing in the Philippines
the body or substance of the
business for which it was
organized or whether it has
substantially retired from it
and turned it over another
(Substance Test); and
b) Whether there is continuity
of commercial dealings and
arrangements, contemplating
to
some
extent
the
performance of acts or works
or the exercise of some
functions normally incident to
and in progressive prosecution
of, the purpose and object of its
organization (Continuity Test).
2. Contract Test
Whether the contracts entered
into by the foreign corporation,
or by an agent acting under the
control and direction of the
foreign
corporation,
are
BAR OPERATIONS 2011
consummated
Philippines.
in
M. MERGER
CONSOLIDATION
MERGER
One or more
existing
corporations
are absorbed
by
another
corporation
which survives
(A + B = A or B)
Parties called
constituent
corporations
Absorbed
corporation
dissolved
without
liquidation of
assets
Absorbing
corporation
acquires
all
assets
and
assumes
liabilities of the
absorbed
corporation
regardless
WON creditors
consented
Stockholders of
the
AND
CONSOLIDATI
ON
Union of 2 or
more
corporations
to form a new
corporation
called
a
consolidated
corporation (A
+ B = C)
Same
All constituent
corporation
are dissolved
without
liquidation of
assets;
consolidated
corporation
survives
Consolidated
corporation
acquires
all
assets
and
assumes
liabilities
f
constituent
corporations
regardless of
WON creditors
consented
Stockholders
Page 89
absorbed
of constituent
corporation
corporations
becomes
becomes
stockholders of stockholders
absorbing
of consolidated
corporation
corporation
PROCEDURE:
a. The board of directors or
trustees of each corporation
shall approve a plan of merger
or consolidation
b. The plan shall be submitted
for
approval
by
the
stockholders or members of
each of such corporation at
separate corporate meetings
duly called for the purpose
c. The articles of merger or
consolidation shall be executed
by each of the constituent
corporations
d. Submission to the SEC for
approval
e. The SEC may or may not
conduct a hearing
f. Issuance of certificate of
merger or consolidation by the
SEC
EFFECTS OF MERGER
CONSOLIDATION (Sec. 80)
OR
There
is
automatic
assumption of
liabilities
There
is
continuance of
the enterprise
and of the
stockholders
Title to the
assets
are
transferred by
operation
of
law
The
constituent
corporations
are
automatically
dissolved
involved
Purchasing
corporation
is
not
generally
liable for the
debts
and
liabilities of
the
selling
corporation
The selling
corporation
ordinarily
contemplates
a liquidation
of
the
enterprise
Transfer of
title is by
virtue
of
contract
The selling
corporation
is
not
dissolved by
the
mere
transfer of all
its property
TYPES
OF
ACQUISITIONS
(Philippine Corporate Law, Cesar
Villanueva, 2001 ed.)
a. ASSETS-ONLY LEVEL
The purchaser is interested only
in the raw assets and properties
of the business. He is not
interested in the entity of the
corporate owner of the assets nor
of the goodwill and other factors
relating to the business itself.
Page 91
recovery is
commensurate to the loss. It is
an
investment
in
life
insurance secured by the
insured as a measure of
economic security for him
during his lifetime and for his
beneficiary upon his death
except one secured by the
creditor on the life of the
debtor.
PERSONAL contract - insurer
contracts with reference to the
character of the insured and vice
versa.
EXECUTORY & CONDITIONAL
on part of the insurer.
It is one of PERFECT GOOD
FAITH
Contract of ADHESION
insurance companies manage
to impose upon the insured
prepared contracts, which the
insured
cannot
change.
Consequently, they are to
construed as follows:
(a) In case there is no doubt as
to the terms of the
insurance contract, it is to
be construed in its plain,
Page 92
- It is necessary because
its absence renders the
contract void.
IN WHAT DOES A PERSON HAVE
INSURABLE INTEREST IN (LIFE)
1. Himself, his spouse and of
his children.
2. Any person on whom he
depends wholly or in fact for
education or support or in
whom he has pecuniary
interest.
3. Any person under legal
obligation to him for the
payment
of
money,
respecting
property
or
services of which death or
illness might delay or
prevent performance.
4. Any person upon whose life,
any estate or interest vested
in him depends.
WHEN MUST INSURABLE
INTEREST IN LIFE EXIST
- Insurable interest in life
must exist at the time of
the effectivity of the policy
and need not exist at the
time of the death of the
insured as life insurance is
not a contract of indemnity.
It is meant to give
financial security to the
insured
or
his
beneficiaries (Sec. 19).
However, insurable interest
of a creditor on the life of
the debtor must exist only at
the time of effectivity but
Page 93
Note:
- Expectancy must be founded
on an actual right to the thing
or a valid contract for it;
- A carrier or depository of any
kind has insurable interest in
the thing held by him such to
the extent of his liability but
not to exceed the value thereof
(Sec. 13, 14, and 15).
- But, a mere contingent or
expectant
interest
in
anything, not founded on
contract or actual right to
the thing is not insurable
as there is no insurable
interest (Sec. 16).
INCHOATE RIGHT The right to
lay claim on the fun is dependent
on the solvency of the insurer and
is subject to all other obligations
of the company arising from its
insurance contracts. Thus, the
respondents interest is merely
inchoate.
Being
a
mere
expectancy, it has no attribute of
property. At this time, it is
nonexistent and may never exist.
Hence, it would be premature to
make the security deposit
answerable for CISCOs present
obligation to Del Monte Motors.
(Republic of the Philippines v. Del
Monte Motors, Inc., Oct.9, 2006 G.R.
No. 156956)
INSURABLE INTEREST IN BANK
DEPOSITS
BAR EXAM; 2000 (VIII - b)
Page 94
INSURABLE
INTEREST
IN
PROPERTY
Must exist at
the time the
policy takes
effect and
when the
loss occurs
Limited to
actual value
of interest in
property
insured.
An
expectation
of a benefit
to be derived
from
the
continued
existence of
the property
insured must
have a legal
basis.
Page 95
The
beneficiary
need
not
have
an
insurable
interest over
the life of the
insured
if
the insured
himself
secured the
policy.
However, if
the
life
insurance
was
obtained by
the
beneficiary,
the
latter
must have
insurable
interest over
the life of the
insured.
The
beneficiary
must have
insurable
interest over
the
thing
insured.
CHANGE OF INTEREST IN
PROPERTY INSURED (Transfer
or Sale of Insured Property)
(1994 & 2000 Bar Exams)
A change of interest in any
part of a thing insured
unaccompanied
by
a
corresponding change of interest
in the insurance suspends the
insurance to an equivalent extent,
until the interests in the thing and
the interest in the insurance are
vested in the same person. (Sec.
20)
BAR OPERATIONS 2011
Exceptions: 1) change of
interest after the loss; 2) change
of interest in one or more of
several things separately insured;
3) change of interest by will or
succession; and 4) transfer of
interest by a partner, joint owner,
or common owner, to another
partner, joint owner or common
owner.
Bar Exam (1980):
Q: A insures his house for P 10,
000 commencing January 1,
1952. On February 15, 1952, A
sells the house to B for P15,000
without
endorsing
or
transferring the fire policy to B.
On April 20, 1952, the house is
completely
destroyed
on
account of the accidental fire.
Can A or B collect the proceeds
of the policy from the insurer?
Explain and give reasons for
your answer. (1952, 1959, 1980
Bar)
A: Neither A, the seller, nor B, the
buyer, can collect under the
policy. A transfer of interest in
property without any transfer of
interest
in
the
insurance
suspends the latter until the
interest in the property and in the
insurance is vested in the same
person. A has transferred his
interest in the object of the
insurance (the house) to B
without a transfer of his interest
in the insurance to B. As the
interests in the object and in the
Page 96
Page 97
Page 100
BENEFICIARIES IN LIFE
INSURANCE
Anyone, except who are
prohibited by law to receive
donations from the insured.
Note Art. 739 of the Civil
Code, hence the following
cannot be designated as
beneficiaries.
Those
made
between
persons guilty of adultery or
concubinage at the time of
the designation.
Those guilty of the same
criminal
offense
in
consideration thereof.
BAR EXAM (2008)
Q: On January 1, 2000, Antonio
Rivera secured a life insurance
from SOS Insurance Corp. for
P1 Million with Gemma Rivera,
his adopted daughter, as the
beneficiary. Antonio Rivera
died on March 4, 2005 and in
the police investigation, it was
ascertained that Gemma Rivera
participated as an accessory in
the killing of Antonio Rivera.
Can SOS Insurance Corp. avoid
liability by setting up as a
defense the participation of
Gemma Rivera in the killing of
Antonio Rivera? Discuss with
reasons.
A: Sec. 12: 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
BAR OPERATIONS 2011
Under
the
law,
the
beneficiary designated in a life
Page 101
IRREVOCABLE BENEFICIARY IN
A LIFE INSURANCE CONTRACT
The beneficiary has a vested
right that cannot be taken away
without his consent. In fact should
the insured discontinue payment
of the premium, the beneficiary
may continue paying. Neither can
the insured get a loan or obtain
the cash surrender value of the
policy without his consent (Nario
vs. Philamlife, 20 SCRA 434).
Note: Where the wife and minor
children were named irrevocable
beneficiaries, wife dies, the
husband seeks to change the
beneficiaries with the consent of
the children. The consent is not
valid due to minority. (Philamlife
vs. Pineda, 170 SCRA 416)
BAR EXAM; 2005 (NO. IX -1)
Q: What are the effects of an
irrevocable designation of a
beneficiary
under
the
Insurance Code? Explain.
A: The irrevocable beneficiary has
a vested interest in the policy,
including its incident such as the
policy loan and cash surrender
value. (Grogorio v. Sun Life
Assurance Company of Canada,
48 Phil. 53 [1925])
2005 BAR EXAM (NO. IX- 2)
Q: Jacob obtained a life
insurance policy for P1 Million
designating irrevocably Diwata,
a friend, as his beneficiary.
Jacob, however, changed his
BAR OPERATIONS 2011
as
concealment
requires
knowledge of the fact
concealed by the party
charged with concealment.
(b)
Fact/s material to the
contract it must be of
BAR OPERATIONS 2011
an
intentional
fraudulent
omission on the part of the one
insured
to
communicate
information on a matter
proving or tending to prove
falsity of a warranty entitles
the insurer to rescind. (Sec. 29)
1996, 1997, and 2001 BAR
EXAMS
Sun Life Assurance Co. of
Canada vs. CA, June 22, 1995
Robert Bacani was issued life
insurance non-medical policy for
P100,000.00 with his mother as
beneficiary. In his application, he
concealed his confinement at the
Lung Center of the Philippines
for certain illness. He died of a
plane crash.
The insurance
company refused to pay for
breach
of
the
insurance
contract.RTC and CA granted the
claim of the beneficiary because
the concealed facts were not
Page 105
OF
Page 106
proceeds
without
question as to validity or
the policy.
REQUISITES
OF
INCONTESTABILITY CLAUSE
(1) It is a life insurance
policy;
(2) It is payable on the death
of the insured;
(3) It has been in force
during the lifetime of the
insured for at least two
years from date of
issue/or
last
reinstatement.
WHAT DEFENSES ARE NOT
BARRED
BY
INCONTESTABILITY
EVEN
AFTER THE LAPSE OF 2 YEARS?
(1) non-payment
of
premiums;
(2) lack of insurable interest;
(3) that the cause of death
was excepted or not
covered by the terms of
the policy;
(4) that the fraud was of a
particular vicious type
such as:
a. policy was taken in
furtherance
of
a
scheme to murder the
insured;
b. where the insured
substituted another for
the
medical
examination;
the
insured makes erroneous
statements;
2. In
concealment
and
misrepresentation both give
the insurer the right to
rescind the contract of
insurance;
3. The
materiality
of
concealment
and
representation
are
determined by the same
rules;
4. Whether the concealment
or
representation
is
intentional or not, the
injured party can rescind;
5. Since insurance contracts
are of utmost good faith
Page 108
a certification of the
President, Vice-President
or General Manager of the
insurer that the risks
involved
and
the
extension do not violate
the code.
(4) Insurance companies may
impose
a
deposit
premium equivalent to at
least
25%
of
the
estimated premium but in
no
case
less
than
Php500.00.
IS PAYMENT OF A PREMIUM
PAYMENT FOR THE COVER
NOTE NECESSARY TO BE
PROTECTED AGAINST RISK
INSURED AGAINST?
Cover note held to be
binding despite the absence of a
premium
payment
for
its
issuance. No separate premiums
are intended or required to be
paid on a cover note because they
do not contain particulars of
the property insured that
would serve as the basis for the
computation of premiums
such being the case no premium
can be fixed. The cover notes
should not be treated as a
separate policy but should be
integrated in the regular policy
subsequently issued so that
premiums on the regular policy
should include that for the cover
note (Pacific Timber vs. CA, 112
SCRA 199);
BAR EXAM; 2009 (IV)
BAR OPERATIONS 2011
Page 111
OPEN POLICY
Proof of value
of the thing
after the loss
is
not
necessary.
Insured must
prove
the
value of the
thing insured.
Parties have
conclusively
stipulated that
the property
insured
is
valued at a
specified sum.
Value is not
agreed but left
to
be
ascertained
upon loss.
VALUED
POLICY
Alpha
Express a statement in
a policy of a matter
relating to the person or
thing insured or to the
risk as a fact (Section 71)
and where the assertion
or promise is clearly set
forth in the policy or
incorporated therein by
reference. They can be
affirmative or promissory
warranties;
An express warranty
made at or before the
Page 114
May be oral or
written in another
statement
Must be
substantially true
Page 115
Presumed
material
Must be shown to
be so
Breach
of
warranty is
a breach of
the contract
itself
Misrepresentation
is a ground to
rescind the
contract
PREMIUM
The agreed price for
assuming and carrying the
risk.
WHEN
IS
THE
INSURER
ENTITLED TO A PREMIUM?
The insurer is entitled to the
payment of a premium as soon as
the thing insured is exposed to
the peril insured against.
Notwithstanding any agreement
to the contrary, no policy or
contract of insurance issued by an
insurance company is valid and
binding unless and until the
premium is paid except in:
(1) In case of life or industrial
life (life insurance policy
where the premium is
payable
monthly
or
oftener) whenever the
grace period applies (Sec.
77);
(2) When the insurer makes
a
written
acknowledgement of the
receipt of premium, such
is conclusive evidence of
the payment of the
premium to make it
binding notwithstanding
any stipulation therein
BAR OPERATIONS 2011
Page 118
(b)
If there are concurrent
causes (those happening
together) with no excluded
perils, there if liability if one
of the causes is an insured
peril, the others may be
ignored;
(c)
If there are concurrent
causes with an excepted
peril (insured peril operate
together to produce the
loss) the claim will be
outside the scope of the
policy;
(d)
But if the results of the
operation of the insured
peril
can
be
clearly
separated from the effects of
the excepted peril, the
insurer is liable;
(e)
Where a number of
causes operate one from the
other, the original cause
happens to be a peril, the
insurer is liable.
TRANSFER OF CLAIMS
An agreement not to
transfer the claim of the insured
after the loss happens is VOID if
MADE BEFORE THE LOSS except
as otherwise provided in case of
life insurance (Sec. 33).
This means that the insured
has an absolute right to transfer
his claim against the insurer
AFTER THE LOSS occurs, what is
prohibited is a transfer prior to
the loss.
This is so because such
stipulation after the loss occurs
Page 120
SUFFICIENT
is
the
BEST
EVIDENCE which he has in his
power at that time (Sec. 89).
WHEN ARE DEFECTS IN THE
NOTICE OR PROOF LOSS
DEEMED WAIVED BY THE
INSURER
When the insurer fails to
specify to the insured any
defect which the insured
can remedy without delay.
When the insurer denies
liability on a ground other
than that defect in the notice
or proof of loss.
WHEN IS DELAY IN THE GIVING
OF NOTICE WAIVED
1. If it is caused by any act of
the insurer.
2. If the insurer omits to make
an objection promptly and
specifically on that ground.
despite delay, the insurer
does not object (Sec. 91).
WHAT
HAPPENS
AFTER
PAYMENT BY THE INSURER
SUBSEQUENT TO GIVING OF
NOTICE OF LOSS
In property insurance, after
the insured has received payment
from the insurer of the loss
covered by the policy, the
insurance
company
is
SUBROGATED to the rights of the
insured against the wrongdoer or
the person who has violated the
contract. The right of subrogation
Page 121
REQUISITES
OF
DOUBLE
INSURANCE:
1. Same
person
is
insured;
2. There
are
several
insurers;
3. Subject insured is the
same;
4. Interest insured is the
same;
5. Risk of peril insured
against is the same;
There is prohibition TO
PREVENT
OVERINSURANCE,
thus
preventing fraud.
2008 BAR EXAM:
Q: Terrazas de Patio Verde, a
condominium building, has a
value of P50 Million. The owner
insured the building against
fire with three (3) insurance
companies for the following
amounts: Northern Insurance
Corp. 20M,Sounthern Insurance
Corp.30M, Eastern Insurance
Corp.50M.
a. Is the owner's taking of
insurance for the building
with three (3) insurers
valid? Discuss.
b. The building was totally
razed by fire. If the owner
decides to claim from
Eastern Insurance Corp.
only P50 Million, will the
claim prosper? Explain.
A: (a). Taking out insurance
covering the same property, same
insurable interest and same risk
Page 122
EFFECTS OF OVER-INSURANCE
BY DOUBLE INSURANCE
1. Insured, unless the policy
otherwise provide, may
claim payment from the
insurers in such order as he
may select up to the amount
for which the insurers are
severally liable under their
respective contracts.
2. Where the policy under
which the insured claims is a
valued policy, the insured
must give credit as against
the valuation for any sum
received by him under any
policy without regard to the
actual value of the subject
matter insured.
3. Where the policy under
which the insured claims is
an unvalued policy, he must
give credit, as against the
full insurable value, for any
sum received by him under
the policy.
4. Where the insured receives
any sum in excess of the
valuation in case of a valued
policy or the insurable value
in case of an unvalued
policy, he must hold such
sum in trust for the insurers,
according to their right of
contribution among them;
5. In relation paragraph (4)
Each insurer is bound, as
between himself and the
other insurers to contribute
ratably to the loss in
proportion to the amount
for which it is liable under
Page 123
his
contract.
ALSO
REFERRED TO AS THE
PRINCIPLE
OF
CONTRIBUTION WHICH
HAS
ALREADY
BEEN
INCOPORATED IN ALMOST
ALL POLICIES that should
there be other insurances
covering the same property,
the liability of the company
would be limited to its
ratable proportion of the
loss or damage (Also known
as
CONTRIBUTION
CLAUSE).
TEST TO DETERMINE
EXISTENCE OF DOUBLE
INSURANCE
Whether the insured, in case of
happening of the risk, can directly
benefited by recovering on both
policies? If yes there is double
insurance.
IS DOUBLE INSURANCE VALID?
- It depends, if there is
prohibition in the policy then
it is not valid, but if there is no
prohibition, it is valid
provided it must follow the
provisions of the law.
DOUBLE
OVER
INSURANCE
INSURANCE
There must be One insurer is
two or more sufficient.
insurers.
The
total The value must
amount of the always be in
policies need excess of the
not exceed the insurable
BAR OPERATIONS 2011
value of
insurable
interest.
the interest;
REINSURANCE
Occurs when an insurer
procures a 3RD person to insure
him against loss or liability by
reason of such original insurance
(Sec. 95).
WHEN IS REINSURANCE
COMPULSORY?
1. When a non-life insurer
insured in any one risk or
hazard an amount exceeding
20% of its net worth, the
insurer needs reinsurance of
the excess over such limit
(Sec. 215 (1)).
2. When a foreign insurance
company withdraws from
the Philippines, it should
cause its primary liabilities
under policies insuring
residents of the Philippines
to be reinsured by another
company authorized to
transact
an
insurance
business in the Philippines.
DOUBLE INSURANCE VS.
REINSURANCE
DOUBLE
REINSURANC
INSURANCE
E
Insurer remains Insurer
an insurer
becomes the
insured
Subject matter is Subject matter
property
is the insurers
risk or liability
Same
interest Different
Page 124
and
risk
is interest
insured
with risk
another
insured
and
are
bottomry or respondentia
interest and all other kind of
property
and
interests
therein, in respect to,
appertaining to or in
connection with any and all
risks or perils of navigation,
transit or transportation or
while
being
assembled,
packed,
crated,
baled,
compressed, or similarly
prepared for shipment or
while awaiting shipment or
during any delays, storage,
transshipment or reshipment
incident thereto;
(b) Person or property in
connection
with
or
appertaining
to
marine,
island marine, transit or
transportation
insurance,
including liability for loss or
in connection with the
construction,
repair,
operation, maintenance, use
of the subject matter of the
insurance. (But not including
life insurance, or surety bonds
nor insurance against loss by
reason of bodily injury to any
person arising out of the
ownership, maintenance, use
of automobiles);
(c)
Precious
stones,
jewels, jewelry, precious
metals whether in the course
of
transportation
or
otherwise;
Page 125
(d)
Bridges, tunnels or
other instrumentalities of
transportation
and
communications (excluding
buildings, their furniture and
furnishings, fixed contents,
and supplies held in storage),
piers, wharves, docks, slips,
and other aids to navigation
and transportation including
dry docks, marine railways,
dams
and
appurtenant
facilities for the control of
waterways.
AND Marine Protection
and Indemnity Insurance
meaning insurance against,
or against legal liability of
the insured for loss, damage
or expense incident to
ownership,
operation,
chartering,
maintenance,
use, repair, or construction
of any vessel, craft or
instrumentality in use in
ocean or island waterways,
including liability of the
insured for personal injury,
illness or death or for loss
or damage to the property
of another person (Sec. 99).
WHAT RISKS ARE INSURED
AGAINST?
- The basic risk insured
against is commonly
known as PERILS OF THE
SEA.
WHAT ARE NOT COVERED?
BAR OPERATIONS 2011
MARINE
INSURANCE
Opinion
or
belief of a 3RD
person or own
judgment
of
the insured is
not
material
and need not
be
communicated
(Sec. 35)
A
causal
connection
between
the
fact concealed
and cause of
loss is not
necessary for
the insurer to
rescind;
Belief
or
expectation of
3RD person in
reference to a
material fact is
material
and
has
to
be
communicated;
The
concealment of
any
of
the
matters stated
in section 110
merely
exonerates the
insurer
from
loss, if the
results
from
the
fact
concealed;
REPRESENTATION IN MARINE
INSURANCE:
If the representation is
intentionally false in any
material respect, or, in
respect of any fact on
which the character and
nature of the risk depends,
the insurer may rescind
(Section 111). But the
eventual falsity of a
representation as to an
expectation does not in the
absence of fraud avoid the
contract (Sec. 112).
WHAT ARE THE IMPLIED
WARRANTIES IN MARINE
INSURANCE? 2000 BAR EXAM
(IX b)
1. In every contract of
marine insurance upon a
ship or freight, freightage or
upon anything which is the
subject
of
marine
insurance, there is an
implied warranty that the
ship is sea worthy (Sec. 113).
A ship is sea worthy when
it is reasonably fit to
perform the service and
encounter the ordinary
perils of the voyage,
contemplated by the
parties (Sec. 114). Note
that it is relative and is
made to depend on the
circumstances.
Page 129
Page 132
[when
not
applicable] The doctrine of
limited liability under Article 587
of the Code of Commerce is not
applicable to the present case.
This rule does not apply to
situations in which the loss or the
injury is due to the concurrent
negligence of the ship owner and
the captain. It has already been
established that the sinking of the
M/V Central Bohol had been
caused by the fault or negligence
of the Ship Captain and the crew,
as shown by the improper
stowage of the cargo logs. Closer
supervision on the part of the
ship owner could have prevented
this fatal miscalculation. As such,
the ship owner was equally
negligent. It cannot escape
liability by virtue of the limited
liability rule. (Central Shipping
Company, Inc. v. Insurance
Company of North America, Sept.
20, 2004, G.R. No. 150751)
particular
portion
thereof
separately valued by the policy, or
otherwise separately insured and
recover a total loss when the
cause of loss is a peril insured
against if:
HOW NOTICE OF
ABANDONMENT IS MADE
2005 BAR EXAM (N0. X - 1- b)
EFFECTS OF ABANDONMENT
(1) It is equivalent to a transfer
by the insured of his interest
to the insurer, with all the
chances of recovery and
indemnity (Sec. 146) Note
though, if the insurer pays
for a loss as if it were an
actual total loss, he is
entitled to whatever may
remain of the thing insured,
Page 134
MEASURE OF INDEMNITY IN
MARINE INSURANCE
IF THE POLICY IS VALUED;
1. A valuation in the policy of
marine insurance is exclusive
between the parties thereto in the
adjustment of either a partial or
total loss, if the insured has some
interest at risk and there is no
fraud on his part. If there is fraud
in valuation, it entitles the insurer
to rescind as it is an exception as to
conclusiveness (Sec. 156);
2.
If however, hyphotecated by
the bottomry or respondentia
before insurance and without
knowledge of the person securing
it he may show the real value;
3.
An insurer is liable upon a
partial loss only for such
proportion of the amount insured
by him as the loss bears to the
whole interest of the insured (Sec.
157). The effect is that the insured
is deemed a co-insurer if the value
of the insurance is less than the
value of the property. This applies
even in the absence of a stipulation
in the contract and is also known
as the average clause.
The two requisites for the
application of the average clause:
a.
b.
In insurance, it is defined
the active principle of
official
recognizances, bonds or
undertakings issued by any
company under Act No. 536,
as amended by act no. 2206
Page 139
(Government transactions
by authorized companies)
LIABILITY OF THE SURETY
It is joint and several
(solidary) with the obligor but
limited to the amount of the bond
and determined strictly by the
terms of the contract in relation
to the principal contract between
obligor obligee (Sec. 176).
IS A SURETYSHIP CONTRACT
VALID AND BINDING WHERE
THE PREMIUM HAS NOT YET
BEEN PAID?
Generally, payment of the
premium
is
a
condition
precedent. Hence the bond is not
valid. An exception is when it is
issued and accepted by the
obligor, it is valid despite non
payment of the premium (Sec.
177).
SURETY vs. GUARANTY
SURETY
GUARANTY
Assumes
liability as a
regular party
to
the
agreement.
Primarily
liable.
Guarantors
liability
depends on an
independent
agreement to
pay if primary
debtor fails to
pay
Secondarily
liable.
NON-NECESSITY OF A DEMAND
ON THE SURETY Demand on
the surety is not necessary before
bringing the suit against them. On
this point, it may be worth
mentioning that a surety is not
even entitled, as a matter of right,
to be given notice of the
principals default. (Intra-Strata
Assurance Corporation, Et Al. v.
Republic of the Philippines, Etc.,
Jul. 9, 2008 G.R. No. 156571)
LIFE INSURANCE
Is insurance on human
lives
and
insurance
appertaining thereto or
connected therewith (Sec.
179)
WHEN IS IT PAYABLE
An insurance upon life may be
made payable upon:
(a) death of the person; or
(b) his
surviving
a
specified period; or
(c) otherwise, contingently
on the continuance or
cessation of life;
COMMON KINDS:
WHOLE
LIFE/ORDINARY
LIFE/STRAIGHT
LIFE:
premiums are payable for life
and the insurer agrees to pay
the face value upon the death
of the insured.
Page 140
installments, while in
annuity, annuitant pays a
single premium;
(3) In life insurance, there is
lump sum payment upon
death, while in annuity,
annuities are paid until
death;
WHAT RISKS ARE COVERED?
(1) Generally - all causes of
death are covered unless
excluded by law, by policy
or public policy.
(2) Suicide, if committed after
the policy has been in
force for a period of two
years from date of issue
or last reinstatement
unless policy provides a
shorter period but it is
nevertheless
compensable
if
committed in the state of
insanity regardless of
date of commission (Sec.
180-A)
IS A LIFE INSURANCE POLICY
TRANSFERABLE
OR
ASSIGNABLE? Yes, it may pass by
transfer, will or succession to any
person, whether he has insurable
interest or not. (Sec. 181)
IS NOTICE TO THE INSURER OR
TRANSFER
OR
BEQUEST
REQUIRED? It is not necessary to
preserve the validity of the policy
unless thereby expressly required
(Sec. 181)
Page 141
(2)
(3)
(4)
(5)
MOTOR
(1993 &
of
(3) consignee
Common
Private
Carrier
Carrier
As to Availability
Holds himself
out for all
people
indiscriminat
ely
Contracts
with
particular
individuals
or groups
only
As to require Diligence
Extraordinary Ordinary
Diligence
Diligence
As to regulation
Subject
to Not subject
state
to
state
regulation
regulation
Stipulation limiting
liability
Parties may Parties may
agree
on limit
the
limiting the carriers
carriers
liability,
liability
provided it
except when is
not
provided by contrary to
law
morals
or
good
customs
Exempting circumstances
Prove
Caso
extraordinary forfuito, Art.
diligence and 1174 NCC
Art.1734,NCC
Presumption of
Negligence
There is a
No
presumption presumptio
of fault or
n of fault or
negligence
Negligence
Governing law
Page 146
Law
Common
Carriers
on Law
on
obligations
and
contracts
(2002 Bar exams)
Test for a common carrier:
1. He must be engaged in the
business of carrying goods for
others as a public employment,
and must hold himself out as
ready to engage in the
transportation of goods for
persons
generally
as
a
business, and not a casual
occupation.
2. He must undertake to carry
goods of the kind to which his
business is confined.
3. He must undertake to carry by
the methods by which his
business is conducted, and
over his established roads.
4. The transportation must be for
hire.
The true test is whether the given
undertaking is a part of the
business engaged in by the carrier
which he has held out to the
general public as his occupation
rather than the quantity or extent
of
the
business
actually
transacted, or the no. and
character of the conveyances used
in the employment (the test is
therefore the character of the
business actually carried on by
the carrier.
Characteristics
carriers:
BAR OPERATIONS 2011
of
common
(1)
The
common
carrier
undertakes to carry for all people
indifferently;
(2) The common carrier cannot
lawfully decline to accept a
particular class of goods for
carriage to the prejudice of the
traffic in those goods
Exception : for some sufficient
reason, where the discrimination
in such goods is reasonable and
necessary (substantial grounds)
(3) No monopoly is favored - the
Commission has the power to say
what
is
a
reasonable
compensation to the utility and to
make reasonable rules and
regulations for the convenience of
the traveling public and to
enforce them
(4) Public convenience - for the
best interests of the public
The
law
prohibits
unreasonable discrimination
by common carriers.-- The law
requires common carriers to
carry for all persons, either
passengers or property, for
exactly the same charge for a like
or contemporaneous service in
the transportation of like kind of
traffic under substantially similar
circumstances or conditions. The
law prohibits common carriers
(CC) from subjecting any person,
etc. or locality, or any kind of
traffic, to any undue or
unreasonable
prejudice
or
discrimination whatsoever.
Page 147
Page 150
Page 152
known as CONTRACT OF
ADHESION , being drafted only
by one party , usually the
corporation , and the only
participation of the other party
(passenger ) is the signing of his
signature his adhesion thereto
calls for greater strictness and
vigilance on the part of the court
of justice with the view of
protecting the weaker party from
abuses . Such contract if enforced
will be subversive of public good ,
thus placing the common carrier
at a decided advantage over those
who may have legitimate claims
against it. The said condition is
therefore
unenforceable,
as
contrary to public policy- to make
the court accessible to all those
who have need of their services.
Moral
damages
are
not
recoverable on breach of
contract of carriage in view of
ART.2219-20
NCC
.
EXCEPTIONS1. Where the mishap results in
the death of a passenger;
Because the common carrier
becomes subject to the rule
in ART.2206 NCC entitles the
spouse,
descendants,
ascendants
to
moral
damages for mental anguish
as a result of the death of the
deceased.
2. 2.Where it is proved that
carrier was guilty of fraud or
bad faith EVEN if death does
not result.
Page 155
Art. 349.
A contract of
transportation by land or
waterways of any kind shall be
considered commercial:
1.
When it involves
merchandise or any object of
commerce.
2. When, no matter what its
object may be, the carrier is a
merchant or is customarily
[habitually]
engaged
in
transportation for the public.
Requisites for a contract of
transportation by land or water to
be commercial :
(1)
transportation
of
merchandise
is
always
commercial
(2) transportation of person
or news is commercial only when
the CC is a merchant or is
habitually
engaged
in
transportation for the public
* principal requirement : the
CC is a merchant or is habitually
engaged in transportation for the
public; the object carried is of
little importance
Effect of Civil Code on the
provisions of the Code of
Commerce
on
Overland
Transportation
The NCC does not expressly
repeal the provisions of the
Code of Commerce on
overland transportation.
Instead, it makes such
provisions suppletory to the
provisions of the NCC on
common carriers
BAR OPERATIONS 2011
Bill of Lading
Bill of leading constitute the
legal evidence of the
contract
between
the
shipper and the carrier by
the contents of which the
disputes which may arise
regarding their execution
and performance shall be
decided, no exception being
admissible other than those
of falsity and material error
in the drafting.
valuation
unless
the
shipper declares a higher
value and pays a higher
rate of freight is valid.
However, the carrier
cannot limit its liability
for injury to, or loss of,
good shipped where
such injury or loss was
caused by its own
negligence.
Recovery of Damages from
carriers for carriage of
goods:
(1) Inter-island if goods
arrived in damaged condition:
If damage is apparent,
the shipper must file a
claim immediately.
If damage is Not
apparent he should file
a claim within 24 hours
from delivery.
The filing of claim is a
condition precedent for
recovery.
If the claim is filed, but
the carrier refuses to
pay:
Enforce
carriers
liability in court by
filing a case:
Within 6 years, if
no bill of lading
has been issued,
or
Within 10 years, if
a bill of lading has
been issued.
Page 159
Upon discharge of
goods, if the damage is
apparent claim should
be filed immediately;
If damage is not
apparent, claim should
be filed within 3 days
from delivery.
When may a consignee of
goods abandon the goods
and recover the value
thereof from the carrier?
AIR TRANSPORTATION
The nature of an airlines contract
of carriage partakes of two types,
namely: a contract to deliver a
cargo or merchandise to its
destination, and a contract to
transport passengers to their
destination.( British Airways vs.
CA, 285 SCRA 450)
3. Loan
of
bottomry/respondentia
4. contract of transportations
passengers
5. Marine insurance
VESSELS (in general)extends to
everything floating in and on the
water, built in the form of vessel
and
used
for
navigation
regardless of form, right or
motive power.
MERCHANT VESSELS- engaged in
the transportation of passengers
and freight from one port to
another or from one place to
another.
*Are vessels real or personal
property?
PERSONAL- but they partake to a
certain extent, of the nature and
conditions of real property, on
account of their value and
importance of the world of
commerce.
CHARACTERISTICS
OF
MARITIME TRANSACTIONS:
1. Real- similar to transactions
over real property with respect
to effectivity against third
persons, which are done
through
registration.
The
evidence of real nature is
shown by:
the limitation of the
liability of the agents to
the actual value of the
vessel and the freight
money and
BAR OPERATIONS 2011
Equitable Insurance
(June 8, 2000)
vs.
CA,
3. proof
of
damage
and
impossibility of the repair of
the vessel;
4. order for the sale of vessel at
public auction.
RULES FOR THE SALE OF
VESSEL AT PUBLIC AUCTION:
1. articles of the vessel shall be
appraised after making an
inventory
2. posting of the order of the
auction
3. announcement
4. auction shall be held on the day
fixed
5. Observance
of
special
provisions, governing the sale
of the vessel while it is on the
foreign country.
2 METHODS OF SALE:
1. judicial
2. voluntary
*EFFECT OF REGISTRATION OF
VOLUNTARY SALE
- if it take place while the vessel
is on a voyage, the preferred &
hypothecary nature of the
credit subsists against the
vessel until after its return to
the port of registry and 3
months after the inscription of
the sale in the registry of
vessels or after the return, so
as to prevent the possibility of
fraud upon creditors through
voluntary sale.
PARTICIPANTS IN MARITIME
COMMERCE:
Page 165
NATURE OF POSITION:
1. General agent of the ship
owner
2. Technical Director of the vessel
3. Representative
of
the
Government of the country
under whose flag he navigates
QUALIFICATIONS:
1. Filipino citizen
2. Legal capacity to contract
3. Must have passed the required
physical, mental examination
required for licensing him as
such
INHERENT POWERS OF THE
CAPTAIN:
1. appoint crew in the absence of
ship agent
2. command and direct crew
3. impose
correctional
punishment on those who
while on board vessel fail to
comply with his orders or are
wanting in discipline
4. make contracts for the charter
of vessel in the absence of ship
agent
5. supply, equip, and provision
the vessel
6. order repair of vessel to enable
it to continue its voyage
SOURCES
OF
FUNDS
TO
COMPLY WITH THE INHERENT
POWERS OF THE CAPTAIN:
1. from the consignee of the
vessel
2. from the consignee of the cargo
3. by drawing on the ship agent
Page 167
4. by a loan on bottomry
5. by sale of part of the cargo
DUTIES OF THE CAPTAIN:
1. bring on board the proper
certificate and document and a
copy of the Code of Commerce
2. keep a logbook, accounting
book and freight book
3. examine before the voyage
4. stay on board during the
loading and unloading of the
cargo
5. be on deck while leaving or
entering the port
6. seeks protest, arrival under
stress and in case of shipwreck
7. follow instruction of and
render accounting to the ship
agent
8. save the vessel lost in case of
wreck
9. hold in custody properties left
by deceased by passengers and
crew members
10. comply
with
the
requirements
of
customs,
health, etc. at the port of arrival
LIABILITIES OF THE SHIP
AGENT/SHIP OWNER FOR ACTS
DONE
BY
THE
CAPTAIN
TOWARDS PASSENGERS AND
CARGOES
MAKING
THEM
SOLIDARILY LIABLE TO THE
LATTER:
1. damages to vessel and to cargo
due to lack of skill and
negligence
2. theft and robbery of the crew
3. losses and fines in violation of
laws
BAR OPERATIONS 2011
Page 168
and
DUTIES:
1. provide himself with maps,
and
charts
with
astronomical
tables
necessary for the discharge
of his duties
2. keep the Binnacle book
3. Change the course of the
voyage on consultation with
captain and the officers of
the boat, following the
decision of the captain in
case of disagreements.
4. Responsible for all the
damages caused to the
vessel or to the cargo by
reason of his negligence
2. Second mate
- takes command of the vessel in
case of the
inability or
disqualification of the captain
and the sailing mate, assuming
in such case their powers and
responsibilities and duties
DUTIES:
1. preserve the hull and rigging
of the vessel
2. arrange well the cargo
3. discipline the crew
4. assign work to crew
members
5. Inventory the rigging and
equipment of the vessel, if
laid up.
3. Engineers
Page 169
2. repeated
insubordination,
want of discipline
3. repeated
incapacity
and
negligence
4. habitual drunkenness
5. physical incapacity
6. desertion
CAUSES OF REVOCATION OF
VOYAGE:
1. war
2. blockade
3. prohibition to receive cargo at
destination
4. embargo
5. inability of the vessel to
navigate
RULES IN CASE OF DEATH OF A
SEAMAN: The seaman's heirs are
entitled to the payment as
follows:
1. if death is natural:
a. compensation up to time
of death if engaged on
voyage
b. if by voyage- half of
amount if death occurs on
voyage out; and full if on
voyage in
c. if by shares- none if
before departure; full if
after departure
2. if death is due to defense of
vessel- full payment
3. if captured in defense of vesselfull payment
4. if captured due to carelessnesswages up to the date of the
capture
Page 170
Embargo
- a proclamation or order of the
State usually issued in time of
war/ threatened hostilities
prohibiting the departure
ships/ goods from some or all
the ports of such State until
further order
Blockade
- a sort of circumvallation of
place by all foreign connections
and correspondence is as far as
human power can affect it to be
cut-off
SUPERCARGOES
- person
who
discharge
administrative duties assigned
to him by ship agent or
shippers, keeping an account
and record of transaction as
required in the accounting
book of the captain
B.CHARTER PARTY
- Contract by virtue of which the
owner or agent binds himself
to transport merchandise or
persons of a fixed price. It may
either
be
contract
of
affreightment
(time
and
Voyage Charter) and bareboat
or demise charter.
CLASSES OF CHARTER PARTY
1. As to extent of vessel hired
a. total- whole of the vessel is
chartered
Page 171
Deadfreight
A cargo not loaded is considered
as deadfreight, which covers the
amount paid by or recoverable
from the charterer for the portion
of the ships capacity the latter
contracted for but failed to
occupy.
GOODS TRANSFERRED MAY BE:
1. sold by captain to necessary
repairs
2. jettisoned for the common
safety
3. loss
by
reason
of
shipwreck/stranding
4. seized by pirates/enemies
5. suffer
deterioration/diminutions
6. increase by natural cause and
weight or size
RIGHTS AND OBLIGATIONS OF
CHARTER PARTY:
A. Of the ship owner or ship agent
1. If the vessel is chartered
wholly not to accept cargo
from others;
2. To observe represented
capacity;
3. To
unload
cargo
clandestinely placed;
4. To substitute another vessel
if load is less than 3/5 of
capacity;
5. To leave the port if the
charter does not bring the
cargo within the lay days
and extra lay days allowed;
6. To place in a vessel in a good
condition to navigate;
BAR OPERATIONS 2011
Page 173
EXCEPTIONS:
1. loss due to inherent defect
2. loss due to the barratry on the
part of the captain
3. loss due to the fault or malice
of the borrower
4. that the vessel is engaged in
contraband
5. that the cargo loaded on the
vessel be different from that
agreed upon
Bottomry/reponden Simple
tia
loan
Marine risk
Duly
established Not
existence of a marine risk neces
is necessary
sary
Form and manner
Must be executed in Formal
accordance with the requisi
form
and
manner tes of
prescribed by the code an
of commerce
ordina
ry
contra
ct will
suffice
Registry of Vessels
Must be recorded in No such
the registry of Vessel registratio
to be binding to third n
is
persons
required
Preference
Preference
is Preferenc
extended to the last e
is
lender
extended
to the first
lender
Page 174
contribute
Numbers of interests involved
Only
one Several interests
interest
is involved
involved
Share in the damage/expense
100% share
In proportion to
the value of the
owners
property saved
Right to recover
No
There may be
reimbursement reimbursement
Requisites of Gross or General
average
1. Common danger
that both the ship and
the cargo, after has
been
loaded,
are
subject to the voyage,
or in the port of loading
or unloading
that the danger arises
from the accidents of
the sea, dispositions of
the authority or faults
of men, provided that
the
circumstances
producing the peril
should be ascertained
and imminent or may
rationally be said to be
certain and imminent.
2.Deliberate Sacrifice
Gen. rule: sacrifice is made
through the jettison of the cargo
or part of the shipis thrown
overboard DURING THE VOYAGE.
Exceptions:
a. where the sinking of a vessel
is necessary to extinguish a
BAR OPERATIONS 2011
, lack of
foresight,
lack
of
skill
Cases of collision:
1. Due to the fault, negligence or
lack of skill of the captain, sailing
mate or the complement of the
vessel--under 826, the ship owner
shall be liable for the losses and
damages
2. Due to the fault of both vessels -> under 827, each vessel shall
suffer its own losses, but as
regards the owners of the
cargoes, both vessels shall be
jointly and severally liable
3. Where it cannot be determined
which of the 2 vessels is at fault -->
under 828, each vessel shall suffer
its own losses, and both shall also
be solidarily responsible for the
losses and damages caused to
their cargoes
4. Collision due to fortuitous event
or force majeure --> under 830,
each vessel shall bear its own
damages
5. Where two vessels collide with
each other without their fault but
by reason of the fault of a third
vessel --> under 831, the owner of
the third vessel causing the
collision shall be liable for the
losses and damages 6. a vessel
which is properly anchored and
moored may collide with those
nearby by reason of a storm or
other cause of force majeure -->
under 832, the vessel run into
shall suffer its own damages and
expenses
Page 177
To provide carrier an
opportunity to look for the lost
goods
- To discover who was at fault
-In case of transshipment, to
determine, when and where
damage occurred.
Code of Commerce: Art. 366
apparent - protest at time of
receipt
non-apparent - within 24 hours
after receipt
WARSAW: Art. 26
in case of damage of:
baggage - within 3 days from
receipt
goods - within 7 days
in case of delay: within 14 days
from receipt
Prescriptive period
the carrier and the agent
shall be discharged form
liability in respect of loss or
damage unless suit is
brought within 1 year from:
(1) in case of damaged goods: from
the time delivery of the goods was
made
(2) in case of non-delivery (i.e., lost
goods): from the date the goods
should have been delivered
Loss or damage as applied to the
COGSA contemplates a situation
where no delivery at all times was
made by the shipper of the goods
because the same had perished,
gone out of commerce, or
Page 181
they should be
disregarded; and
2.) when the benefits of
limited liability have been
waived when the air
carrier failed to raise
timely objections during
the trial when questions
and answers regarding the
actual claims and damages
sustained by the
passenger were asked.
(British Airways vs. CA,
G.R. No. 121824 January
29, 1998)
B. Provision on limiting
liability
The Convention's provisions
do not "regulate or exclude the
following areas:
1.) liability
for
other
breaches of contract by
the carrier;
2.) misconduct
of
its
officers and employees; or
3.) for some particular or
exceptional
type
of
damage.
(Northwest
Airlines vs. CA, G.R. No.
120334 January 20,
1998)
Varying views as regards
misconduct:
1st View Outside WC
Coverage
The Warsaw Convention
denies to the carrier availment
Page 186
C. On limitation of time to
file action
Article 29. (1) The right to
damages shall be
extinguished if an action is
not brought within two
years, reckoned 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 carriage
stopped.
(2) The method of calculating
the period of limitation shall
be determined by the law of
the court to which the case is
submitted.
The two (2)-year limitation
incorporated in Art. 29 as an
absolute bar to suit and not to
be made subject to the various
tolling provisions of the laws
of the forum. This therefore
forecloses the application of
our own rules on interruption
of prescriptive periods. Article
29, par. (2), was intended only
to let local laws determine
whether an action had been
commenced within the two
(2)-year
period.
(United
Airlines vs. Uy, G.R. No.
127768 November 19, 1999)
Prescription of action
covered
by
Warsaw
convention
distinguished
from those arising from
torts:
Page 187
Respondent's
complaint
reveals that he is suing on two
(2) causes of action: (a) the
shabby
and
humiliating
treatment he received from
petitioner's employees at the
San Francisco Airport which
caused
him
extreme
embarrassment and social
humiliation; and, (b) the
slashing of his luggage and the
loss of his personal effects
amounting to US $5,310.00.
While his second cause of
action an action for
damages arising from theft or
damage to property or goods
is well within the bounds of
the Warsaw Convention, his
first cause of action an
action for damages arising
from the misconduct of the
airline employees and the
violation of respondent's rights
as passenger clearly is not.
Consequently, insofar as the
first cause of action is
concerned,
respondent's
failure to file his complaint
within the two (2)-year
limitation of the Warsaw
Convention does not bar his
action since petitioner airline
may still be held liable for
breach of other provisions of
the Civil Code which prescribe
a
different
period
or
procedure for instituting the
action, specifically, Art. 1146
thereof which prescribes four
(4) years for filing an action
BAR OPERATIONS 2011
JURISDICTION
Page 192
Page 193
commission.
(Sec.16(n)of
Public Service Act)
2. The holder is a mere
dummy.
3. The
operator
ceased
operation and placed his
buses on storage; or
4. The operator abandons
totally
the
service.
(Manzanal v. Ausejo, No. L31056, August 4, 1988).
Unlawful Acts of Public Utility
Companies
1. Engagement
in
public
service business without
first securing the proper
certificate
2. Providing or maintaining
unsafe,
improper
or
inadequate
service
as
determined by the proper
authority
3. Committing any act of
unreasonable and unjust
preferential treatment to
any
particular
person,
corporation or entity as
determined by the proper
authority
4. Refusing or neglecting to
carry public mail upon
request (Secs.18 &19).
Prior Old Operator Rule
Before permitting a new
operator to invade the territory of
another already established with
a CPC, the prior operator must
first be given the opportunity to
extend its service in order to meet
public needs in the matter of
transportation. It means that a
BAR OPERATIONS 2011
Page 194
September
5,
2002),
or
otherwise stated, to privatelyowned vehicles.
A sale, lease or financial
lease that is not registered with
the LTO does not bind third
persons who are aggrieved in
tortuous incidents, for the latter
need only to rely on the public
registration of a motor vehicle as
conclusive evidence of ownership.
A lease is an encumbrance in
contemplation of law, which
needs to be registered in order for
it to bind third parties (PCI
Leasing Corp and Finance Inc. v.
UCPB General Insurance Co., Inc.
G.R. No. 162267, 4 July 2008).
Registered
Owner
had
Recourse
against
Vendee/
Transferee
A registered owner who has
already sold or transferred a
vehicle has a recourse to a thirdparty complaint, in the same
action brought against him to
recover for the damage or injury
done, against the vendee or
transferee
of
the
vehicle
(Villanueva v. Domingo, 438
SCRA 485, 2004).
Kabit System( 2005 Bar exams)
It is an arrangement
whereby a person who has been
granted a certificate of public
convenience allows other persons
who own motor vehicles to
operate under such license, for a
fee or percentage of such
BAR OPERATIONS 2011
protecting
the
riding
public.(Lim v. C.A. G.R. No
125817, 16 January 2002)
4. Application of Article 1412
of the NCC or in pari delicto
rule. The registered owner
cannot recover from the
actual owner and the latter
cannot obtain transfer of the
vehicle to himself, both
being in pari delicto. (Teja
Marketing Vs. IAC)
5. For the better protection of
the
public,
both
the
registered owner and the
actual owner are jointly and
severally liable with the
driver
(Zamboanga
Transporatation Co. v. C.A,
29 November 1969)
6. The determining factor
which negates the existence
of Kabit system is the
possession of the franchise
to operate and not the
issuance of one SS I.D.
Number for both bus line
(Baliwag Transit V. C.A, 7
January 1987)
Requisites
for
the
Inapplicability of the Kabit
System
1. When neither of the parties
to the pernicious Kabit
system is being held liable
for damages.
2. When the case arose from
the negligence of another
vehicle using the public road
to which no representation
or misrepresentation as
BAR OPERATIONS 2011
1. A trust receipt is a
commercial document whereby
the bank releases the goods in the
possession of the entrustee but
retains ownership thereof while
the entrustee shall sell the goods
and apply the proceeds for the full
payment of the liability to the
bank.
TRUST RECEIPTS
Page 203
Page 209
authorized
custom.
by
agreement
or
receipt
(b)Material
if
it
substantially changes the tenor of
the receipt (c) Authorized if it is
made with the authority of the
holder and the warehouseman
(d)Unauthorized if it is made
without the authority of the
holder and warehouseman. This
may be material or immaterial (e)
Fraudulent if it is made with
malice or bad faith by the holder
with intent to defraud subsequent
holders (f)
Without
fraudulent intent if its is made
without malice or bad faith
creditor/mortgagee to extrajudicially
foreclose
and
designating the said party as the
attorney-in-fact of the mortgagor
to cause the same and to sell the
subject property at a foreclosure
sale by an insertion into or
attachment to the real estate
mortgage.
1.1 When a debt is secured by a
real estate mortgage, the creditor
has two options: (a) to foreclose,
or (b) file an ordinary action to
collect. If he avails of the option to
foreclose, he is still allowed to
bring a claim for any deficiency.
On the other hand, if he avails of
the option to file an ordinary
action, he abandons or waives his
mortgage lien, without prejudice
to his levying on the same
property but subject to the rights
of other creditors, if any.
1.2 When the mortgagor files a
criminal case for violation of BP
Blg 22 against the mortgage
debtor, he is deemed to have
already availed himself of the
remedy of a collection suit, and
following the rule on alternative
remedies, he is barred from
subsequently resorting to an
action for foreclosure.
1.3 A mortgage contract is, by
nature, indivisible. The debtor
who has paid cannot ask for a
proportionate extinguishment of
the mortgage as long as the debt
is not completely satisfied.
Page 217
the
juridical
mortgagor
to
set
aside
foreclosure
in
the
same
proceedings, it is the better rule
to actually allow the mortgagors
active participation.
8.2 The obligation of the court
to issue a writ of possession in
favor of the purchaser in an
extrajudicial foreclosure sale
ceases to be ministerial once it is
shown that there is a third party
in possession of the property who
is claiming a right adverse to that
of the mortgagor and that such
third party is a stranger to the
foreclosure proceedings in which
the ex-parte writ of possession
was applied for.
8.3 As a limitation on the right
to possession, a writ of possession
may be legally issued only if the
debtor is in possession and no
third person has intervened.
8.4 Order granting a writ of
possession under Act 3135 is a
final order. Hence, it is
appealable. In expropriation, it is
interlocutory.
9. Grounds for the proper
annulment of the foreclosure sale
are the following: (a) there was
fraud, collusion, accident, mutual
mistake, breach of trust or
misconduct by the purchaser (b)
the sale was not fairly and
regularly conducted (c) price was
inadequate and the inadequacy
BAR OPERATIONS 2011
Page 222
1. Receivership
ensues
whenever the Monetary Board
finds that a bank or quasi-bank:
(a) Is unable to pay its liabilities
as they become due in the
ordinary course of business BUT:
Shall not include inability to
pay caused by extraordinary
demands induced by financial
panic in the banking community
(b) Has insufficient realizable
assets to meet its liabilities (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;
1.1 In which cases, the Monetary
Board may summarily and
without need for prior hearing,
forbid the institution from doing
business in the Philippines and
designate the PDIC as receiver of
the banking institution.
1.2 There is no requirement that
a hearing be first conducted
before a banking institution may
be placed under receivership. The
appointment of a receiver may be
made by the Monetary Board
without notice and hearing but its
action is subject to judicial
inquiry( Rural Bank of Buhi v.
Court of Appeals,162 SCRA 288)
Page 223
RA 337
associations,
and
private
development banks which are
governed primarily by the Thrift
Banks Act.3
(d) Rural
banks-these
are
mandated to make needed credit
available and readily accessible in
the rural areas on reasonable
terms and which are governed
primarily by the Rural Banks Act
of 1992.4
(e) Cooperative banks-these are
banks organized primarily to
make financial and credit services
available to cooperative banks
and are governed primarily by the
Cooperative Code.5
(f) Islamic banks-these are
banks whose business dealings
and activities are subject to the
basic principles and rulings of
Islamic Sharia, such as the Al
Amanah Islamic Investment Bank
of the Philippines which was
created by the Republic Act No.
6848; and
(g) Other
classifications
of
banks as determined by the
Monetary Board.
Incorporation and Organization of
Banks
1. The minimum conditions
that a prospective bank must
RA 7906
RA 7353
5 RA 6938
3
4
Page 228
7
6
Page 229
4. An elective or appointive
public official cannot serve as an
officer of a private bank , 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 governmentowned or controlled corporation
to the bank or unless otherwise
provided under existing laws.
1. Single
Borrower
Limit
Rules13- these rules regulate the
total amount of loans, credit
accommodations and guarantees
that may be extended by a bank to
any
person,
partnership,
association, corporation or other
entity.
12
10
13
Page 230
2.6 The
amount
of
the
borrowing is limited to the
amount equivalent to their
unencumbered deposits and book
value of their paid in capital
contribution, unless they are: (a)
secured by assets considered by
the Monetary Board as non risk
(b) under a fringe benefit plan
approved by the BSP, or is (c)
extended by a cooperative bank
to its cooperative stockholders;
2.7 Should there be a violation
of the DOSRI rules, after due
notice to the board of directors of
the bank, the office of any bank
director or officer who violated
the rules may be declared vacant
and the director or officer shall be
subject to the penal provisions of
NCBA.
17
Page 232
2.8 Loans,
credit
accommodations or guarantees
extended by a bank to DOSRI are
also termed as Insider Lending.
Bank
Deposits
and
Bank
Responsibility to Depositors
1. As to nature, all kinds of
deposits whether fixed or current
are to be treated as loans and are
to be covered by the law on
loan.18
1.1 They are also considered in
the nature of irregular deposits,
they are really loans because they
earn interest.19 Considering a
deposit involves the delivery of a
thing for safekeeping with the
obligation to return the very same
thing upon demand20 and a loan is
a contract whereby one of the
parties delivers to another money
or other consumable thing upon
the condition that the same
amount of the same kind and
quality shall be paid.21
1.2 Banks may use the money
deposited with them as money
deposited in banks, whether fixed,
savings and current, are really
loans to a bank because the bank
can use the same for its ordinary
23
Page 233
26
29
27
30
Page 234
33
34
38
Page 235
DETERMINATION
OF
THE
AMOUNT DUE THE DEPOSITOR
Page 237
the
Philippines
including
investments in bonds issued by
the Government or its political
subdivisions
and
instrumentalities by any person,
government official, bureau or
office40; and
(b) The disclosure by any
official or employee of any
banking institution to any
unauthorized person of any
information concerning said
deposits.
Note that the law is
applicable to trust accounts or an
account that has been set up as an
inter vivos or testamentary trust
as Section 2 has been held to
cover not only money that has
been deposited but also to money
which has been invested although
no creditor-debtor relationship is
created between the bank and the
client.41
The law does not apply to
money market placements as they
are not deposits, rather, they are
trades in short term negotiable
instruments such as securities or
treasury bills.
3)
What
disclosures
or
inquiries into deposits are not
prohibited?
a) Upon written permission of
the depositor;
b) In cases of impeachment;
Sec. 2, RA 1405.
Ejercito vs. Sandiganbayan, GR Nos. 157294-95, November
30, 2006
40
41
39
Sec. 1, RA 1405.
Page 239
42
43
46
47
Page 240
48
49
51
Page 241
Prevailing jurisprudence is
that the ensuing relationship
between the bank renting out the
safety deposit box and the client
with respect to the contents of the
box is that of bailor-bailee, the
bailment being for hire and
mutual benefit. The bank would
be liable for loss of the contents of
the box if it is guilty of fraud,
negligence
or
delay
or
contravention of the tenor of the
agreement.52
NOTE: Without order of a court of
competent jurisdiction, disclose
to any authorized 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
prevail53.
7) Would the examination of the
bank deposits of another person
in connection with an inquiry into
illegally acquired property of the
defendant in anti-graft cases
violate the law?
The permitted inquiry into
illegally acquired property in antigraft cases extends to instances
where such property is concealed
by being held by or recorded in
the name of other persons.
52
53
Sec. 8, RA 6426.
Page 242
10)
Will
an
unlawful
examination of a bank account
render
the
information
obtained inadmissible?
Page 243
c) Condemnation or seizure of
products subject of the offense;
d) Forfeiture of properties used in
the commission of the offense;
e) Imposition of administrative
fines;
f) Cancellation of permit, license,
authority or registration;
g) Withholding of permit, license,
authority or registration;
h) Assessment of damages;
- Must be recovered within
four (4) years from the time
the cause of action arose
(Sec. 226)
i) Censure;
j) Analogous
penalties
or
sanctions (Sec. 10.2 [b])
REVERSE RECIPROCITY OF
FOREIGN LAWS
makes
reciprocally
enforceable on nationals of a
foreign state within Philippine
jurisdiction
all
conditions,
restrictions,
limitations,
diminutions, requirements or
penalties that may be imposed by
such foreign state on a Filipino
national
seeking
intellectual
property protection in that
country. (Section 231)
ELEMENTS
OF
UNFAIR
COMPETITION
(1) confusing similarity in the
general appearance of the
goods; and
(2) intent to deceive the public
and defraud a competitor.
The confusing similarity may or
may not result from similarity in
the marks, but may result from
other
external
factors
in the packaging or presentation
of the goods. The intent to deceive
and defraud may be inferred from
the similarity of the appearance of
the goods as offered for sale to
the public. Actual fraudulent
intent need not be shown (In-NOut Burger vs. Sehwani GR No.
179127)
ADMINISTRATIVE PENALTIES
IMPOSED FOR VIOLATIONS OF
LAWS INVOLVING IPR
a) Cease and desist order (CDO);
b) Acceptance
of
voluntary
assurance compliance (VAC) or
voluntary
assurance
of
discontinuance (VAD);
BAR OPERATIONS 2011
LAW ON PATENTS
Page 244
if
invention not part of his
regular duties even if he
uses the time, facilities
and materials of the
employer; OR
The employer if the
invention is the result of
the performance of his
regularly assigned duties
unless agreed otherwise.
Right to Priority
-an application for patent filed by
any person who has previously
applied for the same invention in
another country which by treaty,
convention, or law affords similar
privileges to Filipino citizens,
shall be considered as filed as of
the date of filing the foreign
application
Requisites:
BAR OPERATIONS 2011
Q - X Corporation commissioned
W to paint the Mayon Volcano on
the lobby of the new building of X
Corp. for a price of P1M. Who
owns the painting? Who owns the
copyright of the painting?
A - X Corporation owns the
painting but the copyright
belongs to W unless there is a
written
stipulation to
the
contrary. (Sec.178.4)
LAW ON TRADEMARKS
d) Is identical with a
registered mark belonging to a
different proprietor or a mark
with an earlier filing or priority
date, in respect of:
(i)
The same goods
or services, or
(ii)
Closely
related
goods or services, or
(iii)
If
it
nearly
resembles such a mark as
to be likely to deceive or
cause confusion;
e) Be
identical
with
or
confusingly similar to an
internationally
well-known
mark,
whether
or
not
registered in the Philippines,
provided that:
i. If the internationally wellknown
mark
is
not
registered in the Philippines,
the
application
for
registration of the mark can
be rejected only if the goods
or services specified in the
application are similar to
those of the internationally
well-known mark;
ii. If the internationally wellknown mark is registered in
the
Philippines,
the
application for registration
of the mark can be refused
even if the goods or services
specified in the application
are not identical or similar
to
those
of
the
internationally well-known
mark.
f) Is likely to mislead the
public;
Page 249
CANCELLATION
OF
TRADEMARK OR TRADENAME
1. Who may file?
- any person who believes
that he is and will be
damaged by the registration
of a mark
2. Where to file?
- BLA
3. Grounds:
a) Mark becomes generic for
goods for which it is
registered;
b) Abandonment of the
mark;
c) Registration
obtained
fraudulently or contrary
to provisions of RA 8293;
d) Mark used by, or with
permission of, registrant;
e) Non-use
within
the
Philippines
for
3
uninterrupted years or
longer.
-may be excused if
caused
by
circumstances arising
independently of the
will of the trademark
owner, such as military
coup,
or
political
changes that impede
commerce
DOCTRINE OF SECONDARY
MEANING
- When a mark has become
distinctive of the applicants
goods in commerce and, in the
mind of the public, indicates a
single source of consumers, it
may be registered.
Page 250
WHAT
CONSTITUTES
AN
INFRINGEMENT
-Under RA 8293, any person
shall, without the consent of the
owner of the registered mark:
1) Use in commerce any
reproduction,
counterfeit,
copy, or colorable imitation
of a registered mark or the
same
container
or
a
dominant feature thereof in
connection with the sale,
offering
for
sale,
distribution, advertising any
goods or services including
other preparatory steps
necessary to carry out the
sale of any goods or services
on or in connection with
which such use is likely to
cause confusion, or to cause
mistake, or to deceive; or
2) Reproduce, counterfeit, copy
or colorably imitate a
registered mark or a
dominant feature thereof
and
apply
such
reproduction,
counterfeit,
copy, or colorable imitation
to labels, signs, prints,
packages,
wrappers,
receptacles,
or
advertisements intended to
be used in commerce upon
or in connection with the
sale, offering for sale,
distribution, or advertising
of goods or services on, or in
connection with which such
use is likely to cause
confusion, or to cause
BAR OPERATIONS 2011
infringement is a form of
unfair competition
REMEDIES AVAILABLE IN CASE
OF INFRINGEMENT OF A
REGISTERED MARK
a) Sue for damages (Sec.
156.1);
b) Have the infringing goods
impounded (Sec. 156.2);
c) Ask for double damages
(Sec. 156.3)
d) Ask for injunction (156.4)
e) Have the infringing goods
disposed of outside the
channels of commerce
(Sec. 157.1)
f) Have the infringing goods
destroyed (Sec. 157.1)
g) File criminal action (Sec.
170);
h) Administrative Sanctions
UNFAIR COMPETITION
-any person who shall
employ deception or any other
means contrary to good faith by
which he shall pass off the goods
manufactured by him or in which
he deals, or his business, or
services for those of the one
having established such goodwill,
or who shall commit any acts
calculated to produce said result,
shall be guilty of unfair
competition.
How Committed
a) Making ones goods appear
as the goods of another;
b) Use of artifice or device to
induce the false belief that
BAR OPERATIONS 2011
those of
in
the
to good
discredit
Page 252
expressed,
explained,
illustrated, or embodied in a
work;
2) News of the day and mere
items of press information;
3) Any official text of a
legislative, administrative or
legal nature, as well as any
official translation thereof.
(Sec. 175)
4) Any work of the Government
of the Philippines. (Sec. 176)
-prior approval of the
government agency or office
wherein the work is created
shall be necessary for
exploitation of such work for
profit. Such agency or office,
may, among other things,
impose as a condition the
payment of royalties
5) Pleadings;
6) Decisions of courts and
tribunals.
-this pertains to the
original decisions not to the
SCRA published in volumes
since these are protected
under derivative works.
RIGHTS OF AN AUTHOR
A. Economic Rights (Sec.
177)
-exclusive right to carry out,
authorize or prevent the
following acts
1. Reproduction of the work or
substantial portion of the
work
2. Dramatization, translation,
adaptation,
abridgement,
BAR OPERATIONS 2011
3.
4.
5.
6.
7.
arrangement
or
other
transformation of the work;
The first public distribution
of the original and each copy
of the work by sale or other
forms
of
transfer
of
ownership;
Rental of the original or a
copy of an audiovisual or
cinematographic work;
Public display of the original
or copy of the work;
Public performance of the
work; and
Other communication to the
public of the work
6. Anonymous
and
pseudonymous works the
publishers shall be deemed
the representative of the
author unless:
a. the contrary appears
b. the pseudonyms or
adopted name leaves no
doubt as to the authors
identity or
c. If the author discloses
his identity
7. Collective works the
contributor is deemed to
have waived his right unless
he expressly reserves it.
(Sec. 196)
Collective Work a work
created by two or more
persons at the initiative and
under the direction of
another
with
the
understanding that it will be
disclosed by the latter under
his own name and that the
contributions of natural
persons
will
not
be
identified. (Sec. 171.2)
8. In case of transfers, the
transferee shall own one or
more or all the economic
rights transferred provided:
a. The assignment, if inter
vivos, be in writing
b. The assignment be filed
with the National Library
upon payment of the
prescribed fee.
LIMITATIONS TO THE RIGHTS
ON COPYRIGHT
Page 256
1) Private
performance,
private and personal use
applicable only when a work
has been lawfully made
accessible to the public.
Personal Use
-making
a
single
reproduction,
adaptation,
arrangement
or
other
transformation of anothers
work exclusively for ones own
individual use Private Use
-making a reproduction,
adaptation
or
other
transformation of it, in a single
person as in the case of
personal use but also for a
common purpose by a specific
circle of persons only.
2) Fair Use of a Copyrighted
Work
Fair Use - a privilege in
persons other than the owner of
the copyright to use the
copyrighted material in a
reasonable manner without its
consent, notwithstanding the
monopoly granted to the owner
by the copyright.
-the doctrine of fair use is
meant
to
balance
the
monopolies enjoyed by the
copyright owner with interests
of the public and of society.
CRITERIA
TO
DETERMINE
WHETHER USE IS FAIR OR NOT
a) Purpose and the character of
the use
b) Nature of the copyrighted
work
BAR OPERATIONS 2011
Page 257
5)
Reprographic
Reproduction by Libraries
-any library or archive
whose activities are not for
profit may, without the
authorization of the author
of copyright owner, make a
single copy of the work by
reprographic reproduction.
6)
Reproduction of
Computer Programs
-allowed on the ff. conditions:
a)
only
one
copy is made;
b)lawful owner made the
copy;
c)purpose of which the
reproduction is made is legal
like:
use to which the
program is made and for
which it was purchased
demand the reproduction
of a copy; or
the reproduction of a
copy is necessary to
guarantee against loss or
destruction (Sec. 189.1)
7) Importation for Personal
Purposes
Requisites:
a)
Copies of the work
are not available in the
Philippines and:
i. not more than one copy at
one time is imported for strict
individual use;
ii.
importation is by
authority and for the use of
Philippine Government; or
BAR OPERATIONS 2011
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