Corcor 2

Maam Zarah Villanueva-Castro notes
Notes of Bogs Quitain in

Commercial Law Review
November 24, 2007 Article XII: Section 16. The Congress
shall not, except by general law,
We will start with corpo, then nego provide for the formation,
etc. organization, or regulation of private
corporations. Government-owned or
- cases underscored are for controlled corporations may be
digests and recitations. created or established by special
- Old students need not submit charters in the interest of the common
digests. good and subject to the test of
Grading system: economic viability. (1987 constitution)
30% - midterms Q: How does it limit?

30% - finals
40% - class standing and attendance. A: As a rule, congress cannot enact
laws to create private corporations. It
Mr. Quitain dont be absent ha. You must be a general law.
now know that Im very particular with
attendance. Pwede ka lang umabsent
Q: Do we have that law?
pag kinasal ka. Alam naten na sa Mayo
pa yun.
A: Yes. The commercial code of the
Philippines.
I. CORPORATION
LAW Q: Does it have the attribute of a
general enabling law?
A: Yes, it applies to all private

Sec. 2. Corporation defined. - A corporations; even future companies.
corporation is an artificial being
created by operation of law, having
- the objective is to eliminate
the right of succession and the
corrupt practices.
powers, attributes and properties
expressly authorized by law or incident
to its existence. EXCEPTION: GOCCs may be created
by special laws, provided the majority
of the shareholdings must pertain to
- Based on the statutory
the state.
definition, you can identify four
attributes:
Note: GOCCs are still private
corporations.
1. artificial being
Attribute no. 1:
2. created by operation of law
1. ARTIFICIAL BEINGS
3. having the right of succession
Q: Is a private corporation a person?

4. has the powers, attributes and
properties expressly authorized
by law or incident to its A: Yes.
existence.
Q: What kind?
Let me focus on attribute no. 2:
A: Artificial
2. CREATED BY OPERATION OF LAW:
1 These notes are meant to be shared to all who may benefit from it, provided,
that THE USER SHALL NOT IN ANY MANNER WHATSOEVER DELETE, DIMINISH, OR
OTHERWISE REFUSE TO GIVE CREDIT TO THE PERSON WHO MADE THIS. Whoever
does such ungrateful and dastardly acts shall most definitely suffer the consequences
under the law of Karma.
Pedro A. Quitain III
- unlike human beings,
corporations do not have Equal Protection Clause:
external manifestations.
- It has a personality separate Section 1: .. nor shall any person be
and distinct from the people denied the equal protection of the
compromising it. laws. (1987 constitution)
- Generic term for members are - application of laws may vary

CORPORATORS. when the subject matter of the
law have substantial
Eg. A,B,C and D formed corporation distinctions. Eg. Franchise tax.
XYZ. A, B, C and D have a separate
existence with XYZ corporation. XYZ Right against unreasonable searches
may be taxed separately and must and seizures:
respect the law.
Section 2. The right of the people to
Residence and Nationality: be secure in their persons, houses,
papers, and effects against
unreasonable searches and seizures of
Residence determined by what
whatever nature and for any purpose
appears as the location of its principal
shall be inviolable, and no search
office.
warrant or warrant of arrest shall
issue except upon probable cause to
important in determining venue
be determined personally by the judge
of actions.
after examination under oath or
affirmation of the complainant and the
CONSTITUTIONAL LIMITATIONS:
witnesses he may produce, and
particularly describing the place to be
- they are guaranteed by the
searched and the persons or things to
constitution except those which
be seized.
are not applicable to it.
Due process clause: CASE: Stonehill v. Diokno
Section 1. No person shall be deprived - our government officers have no

of life, liberty, or property without due right to search, without a search
process of law, nor shall any person warrant.
be denied the equal protection of the
laws. (1987 constitution) THERE ARE CERTAIN
CONSTITUTIONAL GUARANTEES
- life and property are applicable to WHICH DO NOT EXTEND TO
corporations but liberty is not. Puwede CORPORATIONS:
mo bang ikulong ang isang
korporasyon? ngek! The right against self incrimination:
Due process mandates that the state CASE: Bataan Shipyard v. PCGG
cannot take away its life without it
being afforded hearing; otherwise, the Facts: The PCGG investigated Bataan.
decision may be questioned. Public funds allegedly were used. Pres.
Aquino required the corporation to
Eg. Non compliance of reportorial submit books of record. BASECO
requirements of a private corporation; refused to submit. It alleged that it
the corporation must first render has a right against self incrimination.
notice and hearing: PD 902-A; the
state cannot deprive due process on
the private corporation.
Issue: Whether or not it may apply to
corporations? Art. 2217. Moral damages include
physical suffering, mental anguish,
Held: No fright, serious anxiety, besmirched
reputation, wounded feelings, moral
Rationale: The guarantee does not shock, social humiliation, and similar
extend. injury. Though incapable of pecuniary
computation, moral damages may be
recovered if they are the proximate
1. By nature, self
result of the defendant's wrongful act
incrimination does not
for omission.
apply to corporations
because the corporation
These are all mental sufferings.
does not have the
faculty.
General rule: No. Corporation is an
2. Being creatures of the
artificial person.
state, the state has that
Exception: Besmirched reputation
reserved power or right
(Jardin Davies; Philippine Broadcasting
to investigate how its
Center v. Agoo)
franchise is doing. It will
defeat police power.
Doctrine of Corporate Entity: A
corporation has a personality which is
3. The denial does not separate and distinct from the
result to the physical corporation and other corporations. A
intrusion of the premises corporation may engage into
of the corporation. transactions which are personal to the
corporations. Creditors may only go
CRIMINAL LIABILITY after properties pertaining to the
corporation.
- no criminal liability falls against
a private corporation. A Taxation the income of the
corporation has no mind. corporation is taxable. It does not
Incarceration or imprisonment include income of the corporators.
may not apply to corporations.
It may apply to the responsible Property they may not be considered
officers. as a property of the corporators.
- corporators are not part
owners, nor co-owners of the
property.
ARGUMENT: BP 22
CASE: Magsaysay-Labrador v. CA
Q: An officer of the corporation signs a
check in his capacity as an officer. The Facts: Petitioner is the spouse of the
check was not honored. Can he use late Senator Magsaysay. The senator
the separate personality? donated a land to SUBIC during his
lifetime. The surviving spouse
A: No. It is used in the commission of discovered about the donation. She
a crime. questioned the donation stating that it
came from their conjugal funds.
RECOVERY OF DAMAGES: During pending of the action,
stockholders of SUBIC, sisters of the
Actual or compensatory: no problem. senator, filed a motion to intervene. As
stockholders of the corporation, their
Q: what about moral damages? potential shares may be affected.
A: according to the civil code:
Issue: Whether or not they have an CASE: Times Transportation Company
interest v. NLRC
Held: No Facts: During the time of sale of Times

Transportation Company with
Rationale: The stockholders are not MEMCOR, it had a pending labor case
real parties in interest. Only the on illegal dismissal.
corporation may move for the action.
They are separate and distinct. Their Issue: Whether or not the doctrine of
interest is not sufficient for them to piercing the corporate veil may be
participate in the proceedings. Only availed of.
the corporation has an interest. There
interest is only inchoate, conditional or Held: Yes
speculative.
Rationale: MEMCOR was created by
DOCTRINE OF PIERCING THE VEIL OF Times. The stockholders were the
A CORPORATE ENTITY same. The property, the facilities of
Times now belong to MEMCOR. The
- if a corporator takes advantage over all manager of MEMCOR is the
of the separate personality the daughter of one of the stockholders of
the corporation becomes liable. Times.
- Used in order for the primary
corporation to escape liability. INSTRUMENTALITY RULE
CASE: Concept Builders v. NLRC - When one corporation is so

organized and controlled and its
Facts: Concept Builders hired affairs are conducted so that it
respondents which they later is in fact a mere instrument or
dismissed. The respondents claimed adjunct of another corporation.
that their dismissal was illegal.
Concept Builders hired new TEST: CONTROL in stocks, policies,
employees. A favorable ruling was practices and finances.
given to the respondents which - must be shown when the
became final and executory. When the complaint took place.
sheriff went to Concept builders, a
different company, HPPI, was already in the absence of fraud, wrong
occupying the premises. or irregularity, there is no duty
of the court to pierce the veil.
Issue: Whether or not the doctrine of
piercing the veil may be availed of. CASE: Luxuria Homes v. CA
Held: Yes - no fraud; no application of

piercing.
Rationale: Concept builders was
responsible in building HPPI. The Facts: X was engaged by Y to develop
property, and its officers were the a property which Y owned. Eventually,
same. The person, who has been Y created a company, Luxuria Homes,
attending the reportorial requirements and donated the property to Luxuria. X
for Concept Builders was the same and Ys relationship turned sour. This
person incorporating HPPI. To pierce resulted with X breaching the contract.
the veil, there must be supporting Y did not pay X for his professional
evidence. The court decided that HPPI services. X filed a case impleading
and Concept Builders are the same. Luxuria Homes and Y liable. The
They were jointly and severally liable. contention of X is that Luxuria Homes
is an alter ego of Y.
Sec. 2 and Sec. 45 of the corporation
Issue: Whether or not the doctrine of code:
piercing the corporate veil may be
availed of.
Sec. 2. Corporation defined. - A
Held: No corporation is an artificial being
created by operation of law, having
Rationale: There was no fraud or the right of succession and the
wrongdoing. Luxuria Homes was not powers, attributes and properties
considered an alter ego of Y. Luxuria expressly authorized by law or incident
Homes was created when X and Ys to its existence.
relationship was still good. X was one
of the signatories when the Sec. 45. Ultra vires acts of
corporation was created. corporations. - No corporation under
this Code shall possess or exercise any
Y alone should be held liable because corporate powers except those
he engaged the services of Mr. Y and conferred by this Code or by its
Luxuria Homes. articles of incorporation and except
such as are necessary or incidental to
NOTE: Concept builders and Times the exercise of the powers so
Transportation Cases: conferred. (n)
Q: Prospectively, what happens to Q: How are corporations classified?

these companies? Are they dissolved A: Private corporations are classified
automatically? into stock or non stock corporations.
A: No. Their separate personalities are Q: What is a stock corporation?

still maintained. No abrogation as long A: It is allowed during its lifetime to
as they engage in legitimate distribute earnings among its
transactions. incorporators.
Attribute no. 3: Right of succession:
- corporation exists despite the

Sec. 3. Classes of corporations. -
death, incapacity and
Corporations formed or organized
incapability of one of the
under this Code may be stock or non-
corporators. Unlike,
stock corporations. Corporations which
partnership.
have capital stock divided into shares
and are authorized to distribute to the
Attribute no. 4: creature of property,
holders of such shares dividends or
attributes and personality.
allotments of the surplus profits on the
basis of the shares held are stock
- necessary for the corporation to
corporations. All other corporations
be able to accomplish its
are non-stock corporations.
purpose.
Q: What is a non-stock corporation?

ULTRA VIRES DOCTRINE A: not allowed to distribute to its
members not engaged in profit making
- alien to the purpose of the activities. Eg. Charitable, educational,
business. religious, etc or any of its
combinations.
DOCTRINE OF LIMITED CAPACITY
Sec. 87. Definition. - For the De facto colorable compliance;
purposes of this Code, a non-stock defectively incorporated.
corporation is one where no part of its
income is distributable as dividends to Sec. 20. De facto corporations. -
its members, trustees, or officers, The due incorporation of any
subject to the provisions of this Code corporation claiming in good faith to
on dissolution: Provided, That any be a corporation under this Code, and
profit which a non-stock corporation its right to exercise corporate powers,
may obtain as an incident to its shall not be inquired into collaterally in
operations shall, whenever necessary any private suit to which such
or proper, be used for the furtherance corporation may be a party. Such
of the purpose or purposes for which inquiry may be made by the Solicitor
the corporation was organized, subject General in a quo warranto proceeding.
to the provisions of this Title.
The provisions governing stock Q: If a corporation is defectively

corporation, when pertinent, shall be incorporated, what is the remedy of
applicable to non-stock corporations, the state?
except as may be covered by specific A: The state may always challenge the
provisions of this Title. (n) legality of the corporation.
the main difference is in the - until there is a challenge, the

dissolution. de facto corporation has all the
powers of a de jure.
Foreign Corporations registered in - De facto is comparable to
accordance with the foreign laws. voidable contracts. They are
valid until challenged.
Domestic Corporations registered in
accordance with Philippine Laws. ASSIGNMENT for Dec. 1: Recitation
starting with corporation by estoppel
the difference is important in up to corporate powers.
determining the capacity to do
business in the Philippines. The December 1, 2007
foreign corporation needs a
license. Q: What is the doctrine of corporation
by estoppel?
Sec. 123. Definition and rights of A: Group of persons acting as a
foreign corporations. - For the corporation, knowing it to be without
purposes of this Code, a foreign authority.
corporation is one formed, organized
or existing under any laws other than
those of the Philippines and whose
laws allow Filipino citizens and
corporations to do business in its own Sec. 21. Corporation by estoppel. -
country or state. It shall have the right All persons who assume to act as a
to transact business in the Philippines corporation knowing it to be without
after it shall have obtained a license to authority to do so shall be liable as
transact business in this country in general partners for all debts,
accordance with this Code and a liabilities and damages incurred or
certificate of authority from the arising as a result thereof: Provided,
appropriate government agency. (n) however, That when any such
ostensible corporation is sued on any
According to status: transaction entered by it as a
corporation or on any tort committed
De Jure substantial compliance by it as such, it shall not be allowed to
use as a defense its lack of corporate Quest breached the obligation.
personality. Philippine Fishing Gear filed a case
against Lim, Yao and Chua, since there
On who assumes an obligation to an was no corporation existing. Trial court
ostensible corporation as such, cannot ruled in favor of PFGI. Lim appealed to
resist performance thereof on the the CA, stating that he was not part of
ground that there was in fact no the deal.
corporation.
Issue: Whether or not Lim is liable
Q: Does it create a status?
A: No. Held: Yes
Q: Is it a de jure corporation? Rationale: He benefited by the use of

A: No. the fishnets. Lim Tong Lim was one of
those who strongly opposed against
Q: Is it a de facto? the writ of attachment. It showed that
A: No. he benefited. He is likewise liable due
to corporation by estoppel.
Q: What is the doctrine of estoppel?
A: Previous conduct, acts or Q: Give us the concept of holding or
representations relied upon on good parent corporation and subsidiary:
faith by third persons. A: Holding has management over
the subsidiary.Subsidiary controlled
Q: Whose previous conduct are we by the parent corporation.
talking about?
A: Those who represented themselves Q: What about open and close?
as a corporation. A: Open those formed to openly
accept outsiders or stockholders or
Q: Who may be liable? investors. Close those whose shares
A: The osetensible corporation; there of stock are held by limited number of
is no corporation to talk about. persons like the family or other
closely-knit group.
Q: A, B, and C were sued by Mr.
Mamba. A, B, and C claimed that there basic requirement is to submit
is no corporation, therefore, no with the SEC the AI
corporate liability. This being the special corporations dont need
reality, can A, B, and C use the to submit with the AI because
defense. they draw their existence from
A: They cannot. Corporation by the charter/special laws.
estoppel.
Q: Enumerate the content of the AI.
Q: Are they liable as general partners? A: Name, purpose clause, location,
A: Yes. Sec. 21 expressly provides term, NNR of incorporators, number of
that gen. partners are liable up to the directors, NNR of directors,
extent of their property. Sec. 21 capitalization in stock, capitalization in
requires active representation. non stock, other matters.
CASE: Lim Tong Lim v. CA

Sec. 14. Contents of the articles of
Facts: Lim Tong Lim, Chua and Yao incorporation. - All corporations
were into commercial fishing. They organized under this code shall file
have been doing business under the with the Securities and Exchange
name Ocean Quest. They entered into Commission articles of incorporation in
a contract with the Philippine Fishing any of the official languages duly
Gear, both by Chua and Yao. Ocean signed and acknowledged by all of the
incorporators, containing substantially directors or trustees are
the following matters, except as duly elected and
otherwise prescribed by this Code or qualified in accordance
by special law: with this Code;
1. The name of the 8. If it be a stock

corporation; corporation, the amount
of its authorized capital
2. The specific purpose stock in lawful money of
or purposes for which the Philippines, the
the corporation is being number of shares into
incorporated. Where a which it is divided, and
corporation has more in case the share are
than one stated par value shares, the
purpose, the articles of par value of each, the
incorporation shall state names, nationalities and
which is the primary residences of the
purpose and which original subscribers, and
is/are he secondary the amount subscribed
purpose or purposes: and paid by each on his
Provided, That a non- subscription, and if
stock corporation may some or all of the
not include a purpose shares are without par
which would change or value, such fact must be
contradict its nature as stated;
such;
9. If it be a non-stock
3. The place where the corporation, the amount
principal office of the of its capital, the
corporation is to be names, nationalities and
located, which must be residences of the
within the Philippines; contributors and the
amount contributed by
4. The term for which each; and
the corporation is to
exist; 10. Such other matters
as are not inconsistent
5. The names, with law and which the
nationalities and incorporators may deem
residences of the necessary and
incorporators; convenient.
6. The number of
directors or trustees, they are imbued with public
which shall not be less interest.
than five (5) nor more
than fifteen (15); Q: What do you mean by deceptively
and confusingly similar?
7. The names, A: The name is closely similar that
nationalities and creates confusion or deception with
residences of persons the public.
who shall act as
directors or trustees Q: Identical?
until the first regular A: exactly the same.
CASE: Ang Mga Kaanib sa Iglesio ng
Dios Kay Kristo Hesus, Haligi at Rationale: The SC ruled that it did not
Saligan ng Katotohanan sa Bansang achieve exclusive use. Lyceum of
Pilipinas (IDKJ-HSK) v. Iglesia ng Dios Baguio has been using the name, 17
kay Cristo Jesus, Haligi at Sungay ng years before Lyceum of the Philippines
Katotohanan (IDCJ-HSK) was registered.
Facts: IDCJ-HSK is a non stock Maam: Mr. Quitain!

corporation registered in 1936. Mr. Quitain: Yes Maam.
Sometime in 1976, Eli Soriano
disassociated, together with others, Q: What is the importance of the
from the corporation. He started a new purpose of the corporation?
corporation called IDKJ-HSK. IDCJ filed A: It states the objective of the
a complaint with the SEC, to compel corporation.
IDKJ to change its name. During the
pendency of the case, Soriano filed a Q: And?
petition to change its name to Ang A: For the stockholder, it tells him of
mga Kaanib sa Iglesia ng Dios kay the risk of his investment. For the
Kristo Hesus, Haligi at Saligan ng board, to know their authority to act.
Katotohanan. IDCJ filed another And for other people, to know the
complaint with the SEC, because the general authority of the management.
name is confusingly similar to theirs.
Soriano filed a motion to dismiss which Q: How many purposes do we have?
was denied. SEC ruled in favor of IDCJ. A: Two. Primary and secondary.
Issue: 1. Whether or not the name is Q: How many primary purposes may
confusingly similar. we have?
2. Whether or not HSK is a A: one or more.
generic word.
Q: How many secondary purposes may
Held: 1. Yes 2. No we have?
A: one or more.
Rationale:
1. Under the reasonable care and Q: What is the limitation of the
observation test, it is similar. secondary purpose?
2. A contrary ruling would A: it must not be contrary to law and
encourage other corporations must not deviate from the primary
to adopt verbatim and register purpose. It must be in line with the
an exisiting and protected primary purpose.
corporate name, to the
detriment of the public. Q: It may be lawfully combined?
A: Yes Maam.
CASE: Lyceum of the Philippines v. CA
Q: What is the principal office of the
Facts: Lyceum of the Philippines filed a corporation?
case against Lyceum of Baguio by A: it is the residence of the
using the word Lyceum and all other corporation.
schools using it. Lyceum of Baguio
claimed that Lyceum is a generic term Q: What is its purpose?
for school. A: for the issuance of summons;
venue for .
Issue: Whether or not the action may
prosper. Q: What action?
A: personal actions maam. And lastly,
Held: No for taxes.
Q: By analogy, that is correct, what
Q: How long may a corporation exist? Im asking is , if there is a time when
A: 50 years. the corporation allows a corporation to
extend despite delay of registration?
Q: May they extend? A: Yes Maam. As stated in the
A: Yes mam. doctrine of relation.
Q: How? Q: What is the doctrine of relation?

A: by amending the articles of A: When the cause of delay is due to
incorporation. fortuitous event or due to the fault or
negligence of the SEC, the corporation
Q: How many extensions are they may be allowed to extend despite the
allowed? delay.
A: infinite maam
Maam: Yes class, it is deemed
Q: How many years does it cover? registered on the due date. Sit down,
A: 50 years also maam. Mr. Quitain.
Maam: Class, take note of the time Q: Who are corporators?

when to file for extension. It is within A: all persons who who compose the
5 years of the expiration of the term. corporation at any given time.
You cannot file before or after that
period. Q: Who are incorporators?
A: It is applied only to those
Sec. 11. Corporate term. - A mentioned in the articles of
corporation shall exist for a period not incorporation as originally forming the
exceeding fifty (50) years from the corporation and signatories of the AI.
date of incorporation unless sooner
dissolved or unless said period is
extended. The corporate term as
originally stated in the articles of
incorporation may be extended for Q: What are the qualifications of an
periods not exceeding fifty (50) years incorporator?
in any single instance by an A: 1. Natural person
amendment of the articles of 2. not less than 5 but not more
incorporation, in accordance with this than 15
Code; Provided, That no extension can 3. legal age
be made earlier than five (5) years 4. majority are residents of the
prior to the original or subsequent Philippines.
expiry date(s) unless there are 5. Each must own or subscribe to
justifiable reasons for an earlier at least one share.
extension as may be determined by
the Securities and Exchange Q: Once an incorporator, always an
Commission. incorporator?
A: yes.
Q: Is there a chance where the SEC Q: What do you call the capitalization
does not punish the corporation for not requirement in non stock corporations?
filing an extension? A: contribution
A: Yes maam.
Q: What are authorized capital stocks?
Q: When? A: It is the amount fixed in the articles
A: Corporation by prescription. of incorporation to be subscribed and
paid by the stockholders.
Q: What is the trust fund doctrine? voting powers for a period of 5
A: the payment of debts of the years.
corporation which the creditors have
the right to look up to satisfy their
credits and which the corporation may Sec. 6. Classification of shares. -
dissipate. The shares of stock of stock
corporations may be divided into
Q: What is the difference between classes or series of shares, or both,
voting and non-voting shares? any of which classes or series of
A: (Maam explains) there are matters shares may have such rights,
which may be decided by the privileges or restrictions as may be
stockholders and by the board. stated in the articles of incorporation:
Provided, That no share may be
Q: What are these substantial deprived of voting rights except those
changes? classified and issued as "preferred" or
"redeemable" shares, unless otherwise
A: 1. Amendment of the articles of provided in this Code: Provided,
incorporation; further, That there shall always be a
2. Adoption and amendment of by- class or series of shares which have
laws; complete voting rights. Any or all of
3. Sale, lease, exchange, mortgage, the shares or series of shares may
pledge or other disposition of all or have a par value or have no par value
substantially all of the corporate as may be provided for in the articles
property; of incorporation: Provided, however,
4. Incurring, creating or increasing That banks, trust companies,
bonded indebtedness; insurance companies, public utilities,
5. Increase or decrease of capital and building and loan associations
stock; 6. Merger or consolidation of shall not be permitted to issue no-par
the corporation with another value shares of stock.
corporation or other corporations;
7. Investment of corporate funds in Preferred shares of stock issued by
another corporation or business in any corporation may be given
accordance with this Code; and preference in the distribution of the
8. Dissolution of the corporation. assets of the corporation in case of
liquidation and in the distribution of
management contracts may not dividends, or such other preferences
be voted by non-voting shares. as may be stated in the articles of
incorporation which are not violative of
Q: What is the difference between the provisions of this Code: Provided,
common and preferred shares? That preferred shares of stock may be
A: Preferred shares have preferences issued only with a stated par value.
like: a. distribution of dividends. B. The board of directors, where
distribution of assets. authorized in the articles of
incorporation, may fix the terms and
there is nothing that prohibits conditions of preferred shares of stock
the corporation from giving or any series thereof: Provided, That
additional preferences. such terms and conditions shall be
Redeemable shares may also effective upon the filing of a certificate
be preferred shares. thereof with the Securities and
Sec. 6 only preferred or Exchange Commission.
redeemable shares may be
deprived of voting rights. Shares of capital stock issued without
Sec. 7 founders shares may par value shall be deemed fully paid
be accorded the exclusive and non-assessable and the holder of
such shares shall not be liable to the
corporation or to its creditors in corporation or other
respect thereto: Provided; That shares corporations;
without par value may not be issued
for a consideration less than the value 7. Investment of
of five (P5.00) pesos per share: corporate funds in
Provided, further, That the entire another corporation or
consideration received by the business in accordance
corporation for its no-par value shares with this Code; and
shall be treated as capital and shall
not be available for distribution as 8. Dissolution of the
dividends. corporation.
A corporation may, furthermore, Except as provided in the immediately

classify its shares for the purpose of preceding paragraph, the vote
insuring compliance with constitutional necessary to approve a particular
or legal requirements. corporate act as provided in this Code
shall be deemed to refer only to stocks
Except as otherwise provided in the with voting rights.
articles of incorporation and stated in
the certificate of stock, each share Sec. 7. Founders' shares. -
shall be equal in all respects to every Founders' shares classified as such in
other share. the articles of incorporation may be
given certain rights and privileges not
Where the articles of incorporation enjoyed by the owners of other stocks,
provide for non-voting shares in the provided that where the exclusive
cases allowed by this Code, the right to vote and be voted for in the
holders of such shares shall election of directors is granted, it must
nevertheless be entitled to vote on the be for a limited period not to exceed
following matters: five (5) years subject to the approval
of the Securities and Exchange
1. Amendment of the Commission. The five-year period shall
articles of incorporation; commence from the date of the
aforesaid approval by the Securities
2. Adoption and and Exchange Commission.
amendment of by-laws;
as a rule common stocks may
3. Sale, lease, be deprived of voting rights.
exchange, mortgage, Exception: founders shares
pledge or other sec. 7
disposition of all or
substantially all of the Q: Distinguish par value from non par
corporate property; value shares.
A:
4. Incurring, creating or advantages
increasing bonded Par value 1. Minimum
indebtedness; price in the
AI.
5. Increase or decrease 2. public can
of capital stock; readily
calculate.
6. Merger or Non par value 1. the price is
consolidation of the not fixed in
corporation with another the AI.
2. it may be
adjusted by
the situation. Q: How much is 25% of P250k or the
subscription paid?
Q: What are those institutions who A: P6,250.00
must issue par value shares?
A: 1. banks Q: What are the general powers of the
2.trust companies board of directors?
3. insurance companies A: Sec. 23: a.) exercise of corporate
4. public utilities powers; b.) conduct all businesses of
5. building and loan associations the corporation.; 3.) control and hold
all properties.
Q: What are treasury shares?
A: Earlier issued as fully paid, and
have thereafter been reacquired by the Sec. 23. The board of directors or
corporation by purchase, donation and trustees. - Unless otherwise provided
redemption. in this Code, the corporate powers of
all corporations formed under this
Q: What are redeemable shares? Code shall be exercised, all business
A: Permit the issuing corporation to conducted and all property of such
redeem or purchase its own shares. corporations controlled and held by
the board of directors or trustees to be
Q: Do we include in the computation of elected from among the holders of
the outstanding capital stock the stocks, or where there is no stock,
treasury shares? from among the members of the
A: No. By legal definition, it is different corporation, who shall hold office for
from the outstanding capital stock. one (1) year until their successors are
OCS- fully paid; controlled by people elected and qualified.
other than the corporation.
Treasury corporation has control. Every director must own at least one
(1) share of the capital stock of the
Sec. 9. Treasury shares. - Treasury corporation of which he is a director,
shares are shares of stock which have which share shall stand in his name on
been issued and fully paid for, but the books of the corporation. Any
subsequently reacquired by the issuing director who ceases to be the owner of
corporation by purchase, redemption, at least one (1) share of the capital
donation or through some other lawful stock of the corporation of which he is
means. Such shares may again be a director shall thereby cease to be a
disposed of for a reasonable price director. Trustees of non-stock
fixed by the board of directors. corporations must be members
thereof. a majority of the directors or
treasury stocks are like second trustees of all corporations organized
hand shares. under this Code must be residents of
the Philippines.
Notes: Maams lecture:
Q: What is the business judgment
For example, you have an authorized rule?
capital stock (AKS) of P1M, valued at A: The power vested in the Board of
P10 per share, which brings us to the Directors may not be questioned and is
conclusion that you have 100,000 considered absolute as long as they
shares. act in accordance with their best
judgment.
Q: How much is 25% or the authorized
capital stock which must be Q: Is that power absolute?
subscribed? A: No. There are limitations:
A: P250k 1. constitution
2. those which may be acted by he may cumulate said shares and give
the stockholders one candidate as many votes as the
3. the act is not covered by the number of directors to be elected
power possessed by the multiplied by the number of his shares
corporation. shall equal, or he may distribute them
on the same principle among as many
have a list of those acts which candidates as he shall see fit:
the Stockholders can decide. Provided, That the total number of
votes cast by him shall not exceed the
Q: How are they chosen? number of shares owned by him as
A: They are chosen in an election in a shown in the books of the corporation
meeting called for the same purpose. multiplied by the whole number of
directors to be elected: Provided,
CASE: Grace Christian Highschool v. however, That no delinquent stock
CA shall be voted. Unless otherwise
provided in the articles of
- directors must be voted by the incorporation or in the by-laws,
stockholders voting at large. members of corporations which have
no capital stock may cast as many
Facts: Grace Christian Highschool was votes as there are trustees to be
a member of the homeownwers elected but may not cast more than
association. In the by-laws, 1 seat is one vote for one candidate.
reserved for GCH in the board of Candidates receiving the highest
trustees. It was questioned. number of votes shall be declared
elected. Any meeting of the
Issue: Whether or not the provision is stockholders or members called for an
invalid. election may adjourn from day to day
Held: Yes or from time to time but not sine die
Rationale: It is contrary to law. Based or indefinitely if, for any reason, no
on sec. 24. No matter how long it is election is held, or if there not present
practiced. or represented by proxy, at the
meeting, the owners of a majority of
the outstanding capital stock, or if
Sec. 24. Election of directors or there be no capital stock, a majority of
trustees. - At all elections of directors the member entitled to vote.
or trustees, there must be present,
either in person or by representative Q: In the election of directors, in a
authorized to act by written proxy, the stock corporation, how may you vote?
owners of a majority of the A: It depends upon the number of
outstanding capital stock, or if there shares. In a non stock, its by the
be no capital stock, a majority of the number of members.
members entitled to vote. The election
must be by ballot if requested by any Eg. 10 shares -> there are 5 directors
voting stockholder or member. In Q: How would you distribute the
stock corporations, every stockholder votes?
entitled to vote shall have the right to A: 10 x 5 = 50 votes
vote in person or by proxy the number
of shares of stock standing, at the Cumulative voting is available only in
time fixed in the by-laws, in his own stock corporations:
name on the stock books of the
corporation, or where the by-laws are Example: 50 votes
silent, at the time of the election; and
said stockholder may vote such A = 10 D = 10
number of shares for as many persons B = 10 E=5
as there are directors to be elected or C = 10 F=5
Sec. 25. Corporate officers,
A = 20 D=0 quorum. - Immediately after their
B = 30 E=0 election, the directors of a corporation
C=0 F=0 must formally organize by the election
of a president, who shall be a director,
as long as the total number of a treasurer who may or may not be a
votes is 50. director, a secretary who shall be a
Q: How long will the directors serve resident and citizen of the Philippines,
the office? and such other officers as may be
A: Gen. Rule: 1 year provided for in the by-laws. Any two
Exception: when no successor is (2) or more positions may be held
elected. concurrently by the same person,
except that no one shall act as
Q: Do they have compensation? president and secretary or as
A: None. Only allowed is per diem. president and treasurer at the same
time. The directors or trustees and
Sec. 30. Compensation of officers to be elected shall perform the
directors. - In the absence of any duties enjoined on them by law and
provision in the by-laws fixing their the by-laws of the corporation. Unless
compensation, the directors shall not the articles of incorporation or the by-
receive any compensation, as such laws provide for a greater majority, a
directors, except for reasonable pre majority of the number of directors or
diems: Provided, however, That any trustees as fixed in the articles of
such compensation other than per incorporation shall constitute a quorum
diems may be granted to directors by for the transaction of corporate
the vote of the stockholders business, and every decision of at
representing at least a majority of the least a majority of the directors or
outstanding capital stock at a regular trustees present at a meeting at which
or special stockholders' meeting. In no there is a quorum shall be valid as a
case shall the total yearly corporate act, except for the election
compensation of directors, as such of officers which shall require the vote
directors, exceed ten (10%) percent of of a majority of all the members of the
the net income before income tax of board.
the corporation during the preceding
year Q: Aside from removal under section
28, what are the other possibilities of
Q: What is the evil being avoided? removal?
A: 1. abuse; 2. conflict of interest. A:
1. Increase in the number of directors.
recall sec.23 they have 2. Expiration of term of office.
control of the powers of the
corporation. Q: Who has the power to remove?
A: Stockholders.
Q: Are there exceptions?
A: Yes Q: What is the requirement to remove
directors?
Q: What is the quorum requirement? A:
A: majority of the number of directors 1.) 2/3 of the
or trustees. plus 1 stockholders
representing at least
Q: What if 2 of the 10 directors 2/3 of the
resigned? What is the quorum? Outstanding Capital
A: the quorum is still 6. the basis is stock or 2/3 of the
the number of directors in the AI. (sec. members entitled to
25) vote.
2.) At a regular or
special meeting after Q: Can the officers act on behalf of the
the proper notice is corporation?
given. A: Yes. Only within his authority.
3.) Gen. rule: Does not
require just cause. Q: What is the difference between
Exception: cumulative directors and officers?
voting/ minority directors. A: Directors in terms of hierarchy, it
only Stockholders can decide is the policy making body.
removal! Officers it implements the policies.
Due to trust and confidence
(fiduciary in nature) Assignment next meeting: Dec. 8
Up to corporate meetings.
Sec. 29. Vacancies in the office of
director or trustee. - Any vacancy Dec. 8 no classes: feast of the
occurring in the board of directors or Immaculate conception.
trustees other than by removal by the
stockholders or members or by December 15, 2007 8-5 pm
expiration of term, may be filled by (lecture)
the vote of at least a majority of the
remaining directors or trustees, if still Corporate officers:
constituting a quorum; otherwise, said 1. law
vacancies must be filled by the 2. other officers elected by the
stockholders in a regular or special BOD
meeting called for that purpose. A 3. by laws
director or trustee so elected to fill a
vacancy shall be elected only or the Intra corporate contest RTC where
unexpired term of his predecessor in the principal office of the corporation is
office. located.
The TEST: to know you are a corporate

A directorship or trusteeship to be
officer, your appointment is subject to
filled by reason of an increase in the
the board.
number of directors or trustees shall
be filled only by an election at a
if corporate -> RTC
regular or at a special meeting of
stockholders or members duly called if not corporate -> NLRC
for the purpose, or in the same
meeting authorizing the increase of Q: How do we draw the line between
directors or trustees if so stated in the officers and directors?
notice of the meeting. A: Directors, officers and trustees ->
cognizable by RTC -> intra corporate.
Q: What are the requirements for Both are powerful hierarchies.
minority directors?
A: 2/3 vote; just cause Gen. Rule: Corporate powers are
exercised by the board; officers must
Q: Who are the corporate officers? be authorized by the board.
A: Statutory: Exception: Conduct of the officer is:
1. President 1. allowed by by-laws
2. treasurer 2. acted previously with authority.
3. Secretary
Not Statutory: Effect if no authority: personal liability
4. other officers as may be to the officer.
appointed by the by laws.
5. appointment by the board of Q: How may ratification be done?
directors.
A: Expressly; Impliedly when there its agent having an apparent
are no objections. authority; when this person
enter into a transaction with a
Q: What is the effect? person in good faith, the
A: It makes the act a corporate act. corporation is liable.
if you are an officer, you may - The doctrine is more of an
ask for a resolution to ratify exception than a general rule.
such act.
Q: What if there is no board resolution Sec. 31 of the corporation code
to give authority or to ratify? (express) enumerates when the directors,
A: Jurisprudence has developed the trustees and officers are liable.
doctrine of apparent authority.
Sec. 31. Liability of directors,
CASES: Lapulapu v. CA; Inter- Asia; trustees or officers. - Directors or
Hydro resources corp; Peoples Air trustees who willfully and knowingly
cargo. vote for or assent to patently unlawful
acts of the corporation or who are
CASE: Peoples Air Cargo v. CA guilty of gross negligence or bad faith
in directing the affairs of the
Facts: Cargo business; they needed a corporation or acquire any personal or
feasibility study for their licensing; pecuniary interest in conflict with their
they hired the services of Mr. Sao. duty as such directors or trustees shall
This was thru the acts of the be liable jointly and severally for all
president, Mr. Punzalan. The Board did damages resulting therefrom suffered
not object. They secured a license. by the corporation, its stockholders or
After the feasibility study, Punzalan members and other persons.
hired Sao, again without board
authority, to give trainings and When a director, trustee or officer
seminars. When Mr. Sao asked for attempts to acquire or acquires, in
compensation, the corporation did not violation of his duty, any interest
grant it. Their reason, there was no adverse to the corporation in respect
board resolution. of any matter which has been reposed
in him in confidence, as to which
Issue: whether or not the corporation equity imposes a disability upon him
itself is liable. to deal in his own behalf, he shall be
Held: Yes liable as a trustee for the corporation
and must account for the profits which
Rationale: Although there is no board otherwise would have accrued to the
resolution, the attendant corporation.
circumstances show that there was
implied ratification. The corporation did Q: Can this persons hide behind the
not object and was benefited from the corporation, that they are doing
lectures and seminars of Mr. Sao. corporate officers, to exempt them
Furthermore, Mr. Punzalan has been from criminal liability?
clothed with authority due to the firs
engagement he had with Mr. Sao. Mr.
Sao was in good faith. Doctrine of A: No. Sec. 31 enumerates:
apparent authority is applicable. 1. bad faith
2. negligence.
3. consented to the act.
DOCTRINE OF APPARENT 4. issuance of watered shares.
AUTHORITY 5. by express provision of the law.
- where the corporation Self-dealing Transactions
knowingly permits its officer or
A self dealing director is on voidable, at the option of such
who enters into a contract with corporation, unless all the following
his own corporation; within his conditions are present:
own personal capacity.
An interlocking director if 1. That the presence of
he is elected a director of 2 or such director or trustee
more corporation. The code in the board meeting in
does not prohibit this. Except, which the contract was
when the 2 corporations enter approved was not
into a contract they must necessary to constitute
submit the legal requirements, a quorum for such
if not, they may be invalidated. meeting;
Eg.
2. That the vote of such
X corp. -> on of its directors is Mr. A. director or trustee was
The corporation was looking for a nor necessary for the
space where it can expand its approval of the
corporation. A offered to X for a contract;
reasonable price his property. A lease
period of 5 years. (contract of lease) 3. That the contract is
fair and reasonable
Q: What kind of transaction? under the
A: Self dealing contract circumstances; and
Q: Why use the term self-dealing?

4. That in case of an
A: A corporation has no mind, the
officer, the contract has
board decides. Its like entering a deal
been previously
with yourself.
authorized by the board
of directors.
Q: Assuming the board approves.
Whats the status of the contract?
A: Voidable. Valid until set aside. Where any of the first two conditions
set forth in the preceding paragraph is
Q: What requirements do we need so absent, in the case of a contract with a
that it will not be voidable? director or trustee, such contract may
A: Legal requirements. be ratified by the vote of the
stockholders representing at least
Q: What are these legal requirements? two-thirds (2/3) of the outstanding
A: Sec. 32: capital stock or of at least two-thirds
1. The presence of the director (2/3) of the members in a meeting
concerned is not necessary to called for the purpose: Provided, That
constitute a quorum. full disclosure of the adverse interest
2. the vote of the director of the directors or trustees involved is
concerned is not necessary. made at such meeting: Provided,
3. contract must be fair and however, That the contract is fair and
reasonable. reasonable under the circumstances.
4. he must be previously
authorized by the board. Maam: The others are self
explanatory, let me focus on number
1.
Sec. 32. Dealings of directors,
Condition number 1: Presence of A
trustees or officers with the
is not necessary to constitute a
corporation. - A contract of the
quorum:
corporation with one or more of its
directors or trustees or officers is
Q: What is the quorum if there are 10 Q: What if 6 voted, one of them was
directors? Mr. A?
A: 6 is the quorum. A: Valid
Q: Example, if in December 2007 Q: What if 5 voted and one of them

meeting, there were 8 present. Mr A was Mr. A?
was one of them. Do we have a A: Voidable
quorum?
A: Yes. Q: What is an interlocking director?
A: One who is voted a director or a
Q: Did we satisfy the first condition? trustee of 2 corporations.
A: Yes. Even without A, there is still a
quorum. CASE: Gokongwei v. SEC
Another illustration: Facts: The amendment of the by-laws

of SMC suggests that a director who is
7 directors one of the 7 is Mr. A acting as a director of another
corporation must be disqualified.
Q: Would we satisfy the 1st condition? Gokongwei is a director of Robina
A: Yes. Marketing Corporation.
Another illustration: Issue: whether or not the by-laws is

valid.
6 directors- mr. A was absent
Q: Do we satisfy? Held: No.
A: Yes.
Rationale: The by-law is valid, by the
Illustration: 6 directors Mr. A was fact that the 2 corporations are
one of them. competitors. You cannot be effected to
be loyal to both. This situation could
Q: Is there a quorum? create prejudicial consequences. It will
A: Yes. lead to abuse.
Q: Do we satisfy? Sec. 33 as long as there is no fraud,

A: No. a contract is valid. The contract cannot
be invalidated on the ground alone
Q: Is the contract binding? that they have the same directors.
A: Yes. But we must consider that it Requirements:
may be set aside. 1. no fraud.
2. fair and reasonable.
3. stockholding is nominal in one
and substantial in one. ->this
Condition Number 2: Vote of A is must be scrutinized under legal
not necessary for approval requirements.
purposes.
Sec. 33. Contracts between
Illustration: Out of 10 directors, 8 corporations with interlocking
were present. 7 voted for the contract. directors. - Except in cases of fraud,
Mr. A was one of the 7. 5 is the and provided the contract is fair and
majority vote. reasonable under the circumstances, a
contract between two or more
Q: Did we satisfy condition number 2? corporations having interlocking
A: Yes. directors shall not be invalidated on
that ground alone: Provided, That if
the interest of the interlocking director
in one corporation is substantial and the profits he has. Remittance of all
his interest in the other corporation or profits earned for all transactions.
corporations is merely nominal, he
shall be subject to the provisions of Q: What is an executive committee?
the preceding section insofar as the A: Functions of the board may be
latter corporation or corporations are delegated to the EC for purposes of
concerned. expediency. Creation of this committee
needs an inclusion in the by-laws.
Stockholdings exceeding twenty Mere resolution is not sufficient.
(20%) percent of the outstanding
capital stock shall be considered Q: Are there exceptions?
substantial for purposes of interlocking A: Yes. Sec. 35.
directors.
Sec. 35. Executive committee. -
- both substantial -> fair and The by-laws of a corporation may
reasonable; no fraud. create an executive committee,
Illustration: composed of not less than three
X Corp Y Corp Do we Status members of the board, to be
(%) (%) apply appointed by the board. Said
sec. 32? committee may act, by majority vote
12 14 No Both
of all its members, on such specific
nominal
10 18 No Both matters within the competence of the
Nominal board, as may be delegated to it in the
19 20 No Both by-laws or on a majority vote of the
Nominal board, except with respect to: (1)
32 24 No Both
Substantial
approval of any action for which
40 58 No Both shareholders' approval is also
Substantial required; (2) the filing of vacancies in
69 70 No Both the board; (3) the amendment or
Substantial
repeal of by-laws or the adoption of
69 20 Yes stockholding
is nominal new by-laws; (4) the amendment or
in one and repeal of any resolution of the board
substantial which by its express terms is not so
in one amendable or repealable; and (5) a
is nominal
distribution of cash dividends to the
in one and shareholders.
substantial
in one CORPORATE POWERS
is nominal
in one and - remember the doctrine of
substantial limited capacity.
in one - Express, implied, and
Sec. 33 (interlocking directors) states incidental.
that sec. 32 must be applied.
Ultravires act: the corporation may be
Q: Why was reference made to sec. precluded from taking a business
32? opportunity because the by laws do
A: It is analogous to a self dealing not said so. (sec. 36 and sec. 45)
transaction.
Sec. 45. Ultra vires acts of
Q: Doctrine of corporate opportunity? corporations. - No corporation under
A; A director who makes use of his this Code shall possess or exercise any
office, at the expense and with the corporate powers except those
facilities of the corporation. The conferred by this Code or by its
director becomes accountable for all articles of incorporation and except
such as are necessary or incidental to property, including
the exercise of the powers so securities and bonds of
conferred. (n) other corporations, as
the transaction of the
Sec. 36. Corporate powers and lawful business of the
capacity. - Every corporation corporation may
incorporated under this Code has the reasonably and
power and capacity: necessarily require,
subject to the
1. To sue and be sued in limitations prescribed by
its corporate name; law and the
Constitution;
2. Of succession by its
corporate name for the 8. To enter into merger
period of time stated in or consolidation with
the articles of other corporations as
incorporation and the provided in this Code;
certificate of
incorporation; 9. To make reasonable
donations, including
3. To adopt and use a those for the public
corporate seal; welfare or for hospital,
charitable, cultural,
scientific, civic, or
4. To amend its articles
similar purposes:
of incorporation in
Provided, That no
accordance with the
corporation, domestic or
provisions of this Code;
foreign, shall give
donations in aid of any
5. To adopt by-laws, not political party or
contrary to law, morals, candidate or for
or public policy, and to purposes of partisan
amend or repeal the political activity;
same in accordance with
this Code;
10. To establish
pension, retirement, and
6. In case of stock other plans for the
corporations, to issue or benefit of its directors,
sell stocks to trustees, officers and
subscribers and to sell employees; and
stocks to subscribers
and to sell treasury
11. To exercise such
stocks in accordance
other powers as may be
with the provisions of
essential or necessary
this Code; and to admit
to carry out its purpose
members to the
or purposes as stated in
corporation if it be a
the articles of
non-stock corporation;
incorporation.
7. To purchase, receive,
Q: What are implied powers?
take or grant, hold,
A: Those which are needed to
convey, sell, lease,
implement the express powers.
pledge, mortgage and
otherwise deal with such
POWER TO SUE AND BE SUED:
real and personal
addressee in the post office with
Q: Do we see in the powers that a postage prepaid, or served personally:
corporation can engage the services of Provided, That in case of extension of
a lawyer? corporate term, any dissenting
A: No. Because it is already implied. stockholder may exercise his appraisal
right under the conditions provided in
in case of meetings, if it is this code. (n)
within the city, you dont need
to amend the articles of Sec. 38. Power to increase or
incorporation to change decrease capital stock; incur,
address. create or increase bonded
Same with directors, if change indebtedness. - No corporation shall
of director, no need. If increase increase or decrease its capital stock
in number, yes. or incur, create or increase any
Q: What is the process for approval? bonded indebtedness unless approved
A: by a majority vote of the board of
1. Resolution by at least majority directors and, at a stockholder's
of the BOD meeting duly called for the purpose,
2. note or written assent of the SH two-thirds (2/3) of the outstanding
representing at least 2/3 OCS capital stock shall favor the increase
3. submission and filing of or diminution of the capital stock, or
amendments. the incurring, creating or increasing of
any bonded indebtedness. Written
Q: Is this enough? notice of the proposed increase or
A: No. SEC approval is needed. diminution of the capital stock or of
the incurring, creating, or increasing
Q: What do you mean by implied of any bonded indebtedness and of the
approval? time and place of the stockholder's
A: Inaction of the SEC for 6 months. It meeting at which the proposed
is considered approved starting from increase or diminution of the capital
the day it was submitted. stock or the incurring or increasing of
any bonded indebtedness is to be
Q: Are there changes in the AI which considered, must be addressed to
require SH meeting? each stockholder at his place of
A: Yes. Sec 37 and 38. Written consent residence as shown on the books of
is not enough. the corporation and deposited to the
addressee in the post office with
Sec. 37. Power to extend or postage prepaid, or served personally.
shorten corporate term. - A private
corporation may extend or shorten its A certificate in duplicate must be
term as stated in the articles of signed by a majority of the directors of
incorporation when approved by a the corporation and countersigned by
majority vote of the board of directors the chairman and the secretary of the
or trustees and ratified at a meeting stockholders' meeting, setting forth:
by the stockholders representing at
least two-thirds (2/3) of the (1) That the
outstanding capital stock or by at least requirements of this
two-thirds (2/3) of the members in section have been
case of non-stock corporations. complied with;
Written notice of the proposed action
and of the time and place of the
(2) The amount of the
meeting shall be addressed to each
increase or diminution
stockholder or member at his place of
of the capital stock;
residence as shown on the books of
the corporation and deposited to the
(3) If an increase of the One of the duplicate certificates shall
capital stock, the be kept on file in the office of the
amount of capital stock corporation and the other shall be filed
or number of shares of with the Securities and Exchange
no-par stock thereof Commission and attached to the
actually subscribed, the original articles of incorporation. From
names, nationalities and and after approval by the Securities
residences of the and Exchange Commission and the
persons subscribing, the issuance by the Commission of its
amount of capital stock certificate of filing, the capital stock
or number of no-par shall stand increased or decreased and
stock subscribed by the incurring, creating or increasing of
each, and the amount any bonded indebtedness authorized,
paid by each on his as the certificate of filing may declare:
subscription in cash or Provided, That the Securities and
property, or the amount Exchange Commission shall not accept
of capital stock or for filing any certificate of increase of
number of shares of no- capital stock unless accompanied by
par stock allotted to the sworn statement of the treasurer
each stock-holder if of the corporation lawfully holding
such increase is for the office at the time of the filing of the
purpose of making certificate, showing that at least
effective stock dividend twenty-five (25%) percent of such
therefor authorized; increased capital stock has been
subscribed and that at least twenty-
(4) Any bonded five (25%) percent of the amount
indebtedness to be subscribed has been paid either in
incurred, created or actual cash to the corporation or that
increased; there has been transferred to the
corporation property the valuation of
(5) The actual which is equal to twenty-five (25%)
indebtedness of the percent of the subscription: Provided,
corporation on the day further, That no decrease of the
of the meeting; capital stock shall be approved by the
Commission if its effect shall prejudice
the rights of corporate creditors.
(6) The amount of stock
represented at the
meeting; and Non-stock corporations may incur or
create bonded indebtedness, or
increase the same, with the approval
(7) The vote authorizing
by a majority vote of the board of
the increase or
trustees and of at least two-thirds
diminution of the capital
(2/3) of the members in a meeting
stock, or the incurring,
duly called for the purpose.
creating or increasing of
any bonded
indebtedness. Bonds issued by a corporation shall be
registered with the Securities and
Exchange Commission, which shall
Any increase or decrease in the capital
have the authority to determine the
stock or the incurring, creating or
sufficiency of the terms thereof. (17a)
increasing of any bonded indebtedness
shall require prior approval of the
Securities and Exchange Commission. Q: Under Sec. 38 when a corporation
increases its capital stock, is there a
legal requirement?
A: Yes. 25% of 25% subscribed stocks served personally: Provided, That any
have been paid. dissenting stockholder may exercise
his appraisal right under the conditions
Illustration: 1,000,000 shares were provided in this Code.
increased to 2,000,000 shares. There
is an increase of 1,000,000 shares. A sale or other disposition shall be
Treasurer says that 25% of 25% have deemed to cover substantially all the
already been paid. If all the corporate property and assets if
subscription have already been paid, thereby the corporation would be
no need to increase. rendered incapable of continuing the
business or accomplishing the purpose
Incur, create, increase bonded for which it was incorporated.
indebtedness
After such authorization or approval
Bond look at the terms of the loan. by the stockholders or members, the
- if it is an important asset of the board of directors or trustees may,
corporation, approval of the nevertheless, in its discretion,
BOD is needed. abandon such sale, lease, exchange,
mortgage, pledge or other disposition
Disposition all or substantially all of of property and assets, subject to the
the assets of the corporation. Sec. 40 rights of third parties under any
contract relating thereto, without
further action or approval by the
Sec. 40. Sale or other disposition stockholders or members.
of assets. - Subject to the provisions
of existing laws on illegal combinations Nothing in this section is intended to
and monopolies, a corporation may, restrict the power of any corporation,
by a majority vote of its board of without the authorization by the
directors or trustees, sell, lease, stockholders or members, to sell,
exchange, mortgage, pledge or lease, exchange, mortgage, pledge or
otherwise dispose of all or otherwise dispose of any of its
substantially all of its property and property and assets if the same is
assets, including its goodwill, upon necessary in the usual and regular
such terms and conditions and for course of business of said corporation
such consideration, which may be or if the proceeds of the sale or other
money, stocks, bonds or other disposition of such property and assets
instruments for the payment of money be appropriated for the conduct of its
or other property or consideration, as remaining business.
its board of directors or trustees may
deem expedient, when authorized by
In non-stock corporations where there
the vote of the stockholders
are no members with voting rights,
representing at least two-thirds (2/3)
the vote of at least a majority of the
of the outstanding capital stock, or in
trustees in office will be sufficient
case of non-stock corporation, by the
authorization for the corporation to
vote of at least to two-thirds (2/3) of
enter into any transaction authorized
the members, in a stockholder's or
by this section. (28 1/2a)
member's meeting duly called for the
purpose. Written notice of the
proposed action and of the time and Pre emptive right power to
place of the meeting shall be withhold the right.
addressed to each stockholder or - stockholders right
member at his place of residence as - right of first refusal in sales.
shown on the books of the corporation - It is a property right which is
and deposited to the addressee in the transferable.
post office with postage prepaid, or
- This applies only when there is 2. authorization 2/3 SH OCS or
increase of shares. 2/3 members.
3.
CASE: Dee v. SEC as long as the corporation
exist; no substantial assets
- when a corporation has issued, may be sold or dispersed.
it is deemed to offer all its If the sale is in the ordinary
shares. course, the requirements of
sec.40 is not necessary.
Gen. Rule: SH may exercise pre
emptive right. TEST:
Exception: Sec. 39 corporation may
deny: 1. ALL quantitative test
1. Whenever the articles or any 2. SUBSTANTIALLY ALL
amendment thereto denies pre qualitative test
emptive right.
2. where shares are issued to pay Illustration:
indebtedness.
3. to comply with public offering Q: Corp. X is a printing press. It has a
requirement. high tech machine which constitutes
4. in the articles, there is no pre 30% of all the assets of the
emptive right. corporation. If X corp. were to sell the
Presumption: there is pre emptive machine, is X corp. required to satisfy
right. the conditions of sec. 40?
Sec. 39. Power to deny pre- A: Yes. If by reason of the sale, X

emptive right. - All stockholders of a corp. incurs delay in job orders, then
stock corporation shall enjoy pre- they will need to satisfy the conditions
emptive right to subscribe to all issues of sec. 40.
or disposition of shares of any class, in
proportion to their respective sale must not result to
shareholdings, unless such right is monopoly or restraint of trade.
denied by the articles of incorporation Acquisition of Corporate Shares
or an amendment thereto: Provided,
That such pre-emptive right shall not Corporation is allowed to reacquire:
extend to shares to be issued in
compliance with laws requiring stock 1. to eliminate fractional shares
offerings or minimum stock ownership less than one share.
by the public; or to shares to be 2. payment of indebtedness.
issued in good faith with the approval 3. pay dissenting SH.
of the stockholders representing two- 4. redeem redeemable shares.
thirds (2/3) of the outstanding capital
stock, in exchange for property Trust Fund Doctrine
needed for corporate purposes or in
payment of a previously contracted Investment
debt.
Gen. Rule in relation to the primary
if you are denied pre emptive business of the corporation, it does not
right, you may exercise your need sec. 40.
right of appraisal.
Exception: if the corporation invests in
Sec. 40 all or substantially all any of its secondary purposes, sec. 40
Requirements: applies.
1. Majority vote BOD
Declaration of Dividends Sec. 43
- declaration during the lifetime - requires approval of the board

of the corporation. majority
- Cannot be done within its
pleasure. Why? presence of Declaration of stock dividends
unrestricted retained earnings.
- Restricted earnings capitalize. - SH approval; 2/3 OCS
Sec. 43. Power to declare Q: May non-voting shares vote on the

dividends. - The board of directors of matter?
a stock corporation may declare A: No
dividends out of the unrestricted
retained earnings which shall be Cash Dividends Stock Dividends
payable in cash, in property, or in - the - additional
stock to all stockholders on the basis corporation shares for
of outstanding stock held by them: becomes the SH.
Provided, That any cash dividends due indebted to - The
on delinquent stock shall first be the SH. corporation
applied to the unpaid balance on the - Becomes pays for
subscription plus costs and expenses, the the
while stock dividends shall be withheld absolute dividends
from the delinquent stockholder until property of from the
his unpaid subscription is fully paid: the SH retained
Provided, further, That no stock - We can use earnings.
dividend shall be issued without the it for his - Unrestricte
approval of stockholders representing personal d retained
not less than two-thirds (2/3) of the needs. earnings
outstanding capital stock at a regular - The are
or special meeting duly called for the moment present.
purpose. (16a) they are - Sec.23
declared legal
Stock corporations are prohibited from they requiremen
retaining surplus profits in excess of become t approval
one hundred (100%) percent of their the of
paid-in capital stock, except: (1) when property of Stockholde
justified by definite corporate the SH. r 2/3 OCS.
expansion projects or programs - Unrestricte
approved by the board of directors; or d Retained
(2) when the corporation is prohibited Earnings.
under any loan agreement with any
financial institution or creditor,
whether local or foreign, from Q: Are delinquent SH entitled to
declaring dividends without its/his dividends?
consent, and such consent has not yet A: Yes
been secured; or (3) when it can be
clearly shown that such retention is
necessary under special circumstances
obtaining in the corporation, such as
when there is need for special reserve
for probable contingencies. (n)
Subscription
Subscriptio
Dividend Declaration n
- For other corporate powers look
at sec. 36.
Subscribe Corporation
r Creditor
debtor Sec. 44. Power to enter into
management contract. - No
corporation shall conclude a
management contract with another
Undertakes to
corporation unless such contract shall
pay the price of
have been approved by the board of
the shares
directors and by stockholders owning
covered by his
at least the majority of the
subscription
outstanding capital stock, or by at
least a majority of the members in the
case of a non-stock corporation, of
both the managing and the managed
corporation, at a meeting duly called
for the purpose: Provided, That (1)
Cash
where a stockholder or stockholders
Dividends
representing the same interest of both
the managing and the managed
corporations own or control more than
Corporation Subscriber - one-third (1/3) of the total
- debtor creditor outstanding capital stock entitled to
vote of the managing corporation; or
(2) where a majority of the members
offsetting is permissible since of the board of directors of the
they are mutual creditors and managing corporation also constitute a
debtors only in cash majority of the members of the board
dividends. of directors of the managed
corporation, then the management
Q: Is it the same in stock dividends? contract must be approved by the
A: No. They are not mutual Creditors stockholders of the managed
and debtors. Refer to sec. 43. corporation owning at least two-thirds
(2/3) of the total outstanding capital
Gen. Rule: Declaration of dividends is stock entitled to vote, or by at least
not voluntary. two-thirds (2/3) of the members in
Exception: When the profits already the case of a non-stock corporation.
reached 100% of the capital. No management contract shall be
Contingent liability cant declare entered into for a period longer than
dividend. five years for any one term.
Eg. There is a pending case wherein
the corporation owes P20M to its The provisions of the next preceding
consumers. paragraph shall apply to any contract
whereby a corporation undertakes to
Management Contracts Sec. 44 manage or operate all or substantially
all of the business of another
- a contract where a corporation corporation, whether such contracts
allows another corporation to are called service contracts, operating
manage substantially all its agreements or otherwise: Provided,
affairs. Exception: interlocking however, That such service contracts
directors. or operating agreements which relate
- Required approval of the SH to the exploration, development,
- Does not totally divest BOD of exploitation or utilization of natural
its powers. resources may be entered into for
such periods as may be provided by securities and bonds of
the pertinent laws or regulations. (n) other corporations, as
the transaction of the
Sec. 36. Corporate powers and lawful business of the
capacity. - Every corporation corporation may
incorporated under this Code has the reasonably and
power and capacity: necessarily require,
subject to the
1. To sue and be sued in limitations prescribed by
its corporate name; law and the
Constitution;
2. Of succession by its
corporate name for the 8. To enter into merger
period of time stated in or consolidation with
the articles of other corporations as
incorporation and the provided in this Code;
certificate of
incorporation; 9. To make reasonable
donations, including
3. To adopt and use a those for the public
corporate seal; welfare or for hospital,
charitable, cultural,
scientific, civic, or
4. To amend its articles
similar purposes:
of incorporation in
Provided, That no
accordance with the
corporation, domestic or
provisions of this Code;
foreign, shall give
donations in aid of any
5. To adopt by-laws, not political party or
contrary to law, morals, candidate or for
or public policy, and to purposes of partisan
amend or repeal the political activity;
same in accordance with
this Code;
10. To establish
pension, retirement, and
6. In case of stock other plans for the
corporations, to issue or benefit of its directors,
sell stocks to trustees, officers and
subscribers and to sell employees; and
stocks to subscribers
and to sell treasury
11. To exercise such
stocks in accordance
other powers as may be
with the provisions of
essential or necessary
this Code; and to admit
to carry out its purpose
members to the
or purposes as stated in
corporation if it be a
the articles of
non-stock corporation;
incorporation.
7. To purchase, receive,
CORPORATE BY-LAWS AND THE
take or grant, hold,
POWER TO AMEND THE SAME
convey, sell, lease,
pledge, mortgage and
Q: What is the difference between the
otherwise deal with such
by-laws and the AI?
real and personal
A: By-laws:
property, including
1. internal affairs thereof, duly certified to by a majority
2. relationship between and of the directors or trustees
among the SH, directors and countersigned by the secretary of the
trustees. corporation, shall be filed with the
Securities and Exchange Commission
AI: which shall be attached to the original
1. external affairs articles of incorporation.
2. relationship of the corporation
with the state and the general Notwithstanding the provisions of the
public. preceding paragraph, by-laws may be
adopted and filed prior to
Q: Are there other differences? incorporation; in such case, such by-
A: Yes. As to Corporate existence. laws shall be approved and signed by
all the incorporators and submitted to
Q: Why? the Securities and Exchange
A: Submission of AI leads to acquiring Commission, together with the articles
corporate existence. Submission of AI of incorporation.
is a condition precedent. The
submission is condition subsequent In all cases, by-laws shall be effective
thereof, for the corporation to continue only upon the issuance by the
its existence. Securities and Exchange Commission
of a certification that the by-laws are
Q: Are there others? not inconsistent with this Code.
A: Yes. Amendment of AI will always
have a concurrence with SH and
The Securities and Exchange
directors. By-laws dont need
Commission shall not accept for filing
concurrence. Only SH. Exception:
the by-laws or any amendment
Close Corporations.
thereto of any bank, banking
institution, building and loan
Q: What is the period given by sec. 46
association, trust company, insurance
to submit by laws?
company, public utility, educational
A: 30 days from receipt of registration.
institution or other special
corporations governed by special laws,
unless accompanied by a certificate of
Sec. 46. Adoption of by-laws. - the appropriate government agency to
Every corporation formed under this the effect that such by-laws or
Code must, within one (1) month after amendments are in accordance with
receipt of official notice of the issuance law. (20a)
of its certificate of incorporation by the
Securities and Exchange Commission,
CASE: Loyola Grand Villas
adopt a code of by-laws for its
government not inconsistent with this
- despite the word must in
Code. For the adoption of by-laws by
sec.46, it is not mandatory. It
the corporation the affirmative vote of
must be harmonized with other
the stockholders representing at least
laws like PD 902-A.
a majority of the outstanding capital
- disenfranchisement on non
stock, or of at least a majority of the
submission of by-laws, there
members in case of non-stock
must be due process.
corporations, shall be necessary. The
by-laws shall be signed by the
CASE: Sawajaan-Safali v. CA (June 8,
stockholders or members voting for
2005)
them and shall be kept in the principal
office of the corporation, subject to
- SC ruled that a corporation
the inspection of the stockholders or
without by laws does not ipso
members during office hours. A copy
facto lose its corporate powers.
However, as to status, a Notice of any meeting may be waived,
corporation may be regarded as expressly or impliedly, by any
a de facto corporation. stockholder or member.
CASE: China Banking Corporation v. Whenever, for any cause, there is no

CA person authorized to call a meeting,
the Secretaries and Exchange
Facts: Mr. Calapacha applied a loan Commission, upon petition of a
with China Bank to secure his stockholder or member on a showing
payment. He pledged his shares with of good cause therefor, may issue an
valley golf. There was default on his order to the petitioning stockholder or
part. China Bank was forced to member directing him to call a
foreclose the pledge. China Bank meeting of the corporation by giving
became the highest bidder. When the proper notice required by this Code or
bank requested for transfer, the by the by-laws. The petitioning
secretary of valley golf refused, since stockholder or member shall preside
Calapacha still owed them membership thereat until at least a majority of the
dues. It is in their by laws that they stockholders or members present have
will attach the shares of Calapacha been chosen one of their number as
back to Valley Golf. presiding officer. (24, 26)
Issue: Should China Bank be affected? Sec. 51. Place and time of
Held: No meetings of stockholders or
Rationale: Provisions of by laws do not members. - Stockholders' or
bind third persons unless it is shown members' meetings, whether regular
that they were aware of it. or special, shall be held in the city or
municipality where the principal office
of the corporation is located, and if
CORPORATE MEETINGS practicable in the principal office of the
corporation: Provided, That Metro
Sec. 50. Regular and special Manila shall, for purposes of this
meetings of stockholders or section, be considered a city or
members. - Regular meetings of municipality.
stockholders or members shall be held
annually on a date fixed in the by- Notice of meetings shall be in writing,
laws, or if not so fixed, on any date in and the time and place thereof stated
April of every year as determined by therein.
the board of directors or trustees:
Provided, That written notice of
All proceedings had and any business
regular meetings shall be sent to all
transacted at any meeting of the
stockholders or members of record at
stockholders or members, if within the
least two (2) weeks prior to the
powers or authority of the corporation,
meeting, unless a different period is
shall be valid even if the meeting be
required by the by-laws.
improperly held or called, provided all
the stockholders or members of the
Special meetings of stockholders or corporation are present or duly
members shall be held at any time represented at the meeting place of
deemed necessary or as provided in meeting is the city or municipality
the by-laws: Provided, however, That where the principal office is located.
at least one (1) week written notice
shall be sent to all stockholders or Q: Can the by laws provide for another
members, unless otherwise provided place?
in the by-laws. A: No.
Q: Can the articles provide for any Agreement between SH
other place? and another person you
A: No. Refer to Sec. 51. call trustee by virtue of
which the SH transfers
Q: Principal office is at LB, Laguna, his voting rights to the
they went to EK to hold a meeting. Is trustee. You cannot
this possible? transfer unless title to
A: No. EK is at Sta. Rosa. The proper the share is also
place is still anywhere in LB. transferred.
Q: The principal office is at Pasig City. Q: What could be the reason why SH
They want to hold their meeting at the undergoes this Trust relation?
Manila Hotel. Is it possible? A:
A: Yes. Metro Manila is treated as one 1. management of the affairs of
city. the corporation.
2. dispose of your shares but also
Q: Are non-voting SH given notice of re acquire.
meeting? 3. secure the performance of your
A: Yes. obligation.
Q: What are shares that are escrow? - the one wholl be holding the
A: Held by 3rd party and may only be title is the trustee.
released if a condition is fulfilled. - For directorship purposes, the
one who is elected director.
Q: How about unpaid but not
delinquent? CASE: Dee v. CA
A: Sec. 72 provides that they have the
rights of a regular SH. Facts: A case was filed to a
corporation. The summons was served
Sec. 72. Rights of unpaid shares. - to one of its directors. However, he
Holders of subscribed shares not fully already entered a voting trust
paid which are not delinquent shall agreement in favor of DBP.
have all the rights of a stockholder.
Issue: Was the service of summons
Q: What about sequestered shares? proper?
A: Those which are with the PCGG. Held: No.
PCGG is an administrative body. Rationale: He already seized being a
director. He already lost legal title.
Gen. Rule: PCGG cannot vote since
voting is an act of dominion. SUBSCRIPTION CONTRACTS:
Exception: Prima facie showing that it
is public funds. Q: How do you become a SH?
A:
CASE: COCOFED 1. subscription unissued shares
2. by purchase of treasury shares
the pledgee may be a proxy for him 3. purchase of shares of a SH
to have a voting right. Proxy coupled - in subscription, the statutes in
with interest. CC apply in provisions
regarding subscriptions.
Proxy is a device which is highly - Its like second hand sales.
revocable.
Subscription:
Voting Trust Agreement 1. pre-incorporation before
not revocable. existence.
2. post incorporation after representative shall file with
existence. the corporation an affidavit in
triplicate setting forth, if
Pre incorporation subscription possible, the circumstances as
agreement: a contract where problems to how the certificate was lost,
usually arise. stolen or destroyed, the
number of shares represented
Q: A corporation cannot be a party by such certificate, the serial
because it is not yet existing. Who are number of the certificate and
the parties? the name of the corporation
A: By implication. Sec. 61. Proscribes which issued the same. He
revocation of subscription agreement shall also submit such other
within a period of 6 months. information and evidence which
he may deem necessary;
Sec. 61. Pre-incorporation
subscription. - A subscription for 2. After verifying the affidavit
shares of stock of a corporation still to and other information and
be formed shall be irrevocable for a evidence with the books of the
period of at least six (6) months from corporation, said corporation
the date of subscription, unless all of shall publish a notice in a
the other subscribers consent to the newspaper of general
revocation, or unless the incorporation circulation published in the
of said corporation fails to materialize place where the corporation
within said period or within a longer has its principal office, once a
period as may be stipulated in the week for three (3) consecutive
contract of subscription: Provided, weeks at the expense of the
That no pre-incorporation subscription registered owner of the
may be revoked after the submission certificate of stock which has
of the articles of incorporation to the been lost, stolen or destroyed.
Securities and Exchange Commission. The notice shall state the name
of said corporation, the name
Q: Remedies? of the registered owner and the
A: serial number of said
1. delinquency sale certificate, and the number of
2. specific performance shares represented by such
3. ? certificate, and that after the
expiration of one (1) year from
Note: certificate of stock is not a the date of the last publication,
negotiable instrument. if no contest has been
Transfer of share may be transferred presented to said corporation
coupled with delivery. regarding said certificate of
It does not represent credit. stock, the right to make such
contest shall be barred and
said corporation shall cancel in
Sec. 73. Lost or destroyed its books the certificate of stock
certificates. - The following which has been lost, stolen or
procedure shall be followed for the destroyed and issue in lieu
issuance by a corporation of new thereof new certificate of stock,
certificates of stock in lieu of those unless the registered owner
which have been lost, stolen or files a bond or other security in
destroyed: lieu thereof as may be
required, effective for a period
of one (1) year, for such
1. The registered owner of a
amount and in such form and
certificate of stock in a
with such sureties as may be
corporation or his legal
satisfactory to the board of
directors, in which case a new Q: Why is it called a derivative suit?
certificate may be issued even A: It derives the Cause of Action from
before the expiration of the one the corporation.
(1) year period provided
herein: Provided, That if a Q: Is it found in the Corporation code?
contest has been presented to A: No. It is not mentioned but by
said corporation or if an action analogy sec. 31.
is pending in court regarding
the ownership of said certificate Sec. 31. Liability of directors,
of stock which has been lost, trustees or officers. - Directors or
stolen or destroyed, the trustees who willfully and knowingly
issuance of the new certificate vote for or assent to patently unlawful
of stock in lieu thereof shall be acts of the corporation or who are
suspended until the final guilty of gross negligence or bad faith
decision by the court regarding in directing the affairs of the
the ownership of said certificate corporation or acquire any personal or
of stock which has been lost, pecuniary interest in conflict with their
stolen or destroyed. duty as such directors or trustees shall
be liable jointly and severally for all
Except in case of fraud, bad faith, or damages resulting therefrom suffered
negligence on the part of the by the corporation, its stockholders or
corporation and its officers, no action members and other persons.
may be brought against any
corporation which shall have issued When a director, trustee or officer
certificate of stock in lieu of those lost, attempts to acquire or acquires, in
stolen or destroyed pursuant to the violation of his duty, any interest
procedure above-described. adverse to the corporation in respect
of any matter which has been reposed
Q: What are those books of records? in him in confidence, as to which
A: equity imposes a disability upon him
1. minutes books to deal in his own behalf, he shall be
2. business transactions. liable as a trustee for the corporation
3. stock and transfer books. and must account for the profits which
otherwise would have accrued to the
Q: Why do we have the right to corporation.
inspection?
A: to allow the SH to prevent abuses. The SH must be:
Q: What are its limitations? 1. one of record

A: 2. ?
1. within reasonable hours. 3. not a harassment
2. it must be in good faith. 4. appraisal right is not an
available remedy.
Derivative suit
a remedy available to MERGER AND CONSOLIDATION
concerned SH whenever
their directors, officers Merger 2 or more corporations
are negligent with their combining. The corporations are
duties. dissolved with the exception of the
A derivative suit may be surviving corporation.
brought to the RTC.
It is the corporations Consolidation 2 or more corporation
cause of action. It must combined. Both are dissolved and
be impleaded as a party. there is a new corporation.
together with any amendment, shall
Procedure: Sec. 77 be considered as the agreement of
merger or consolidation.
1. Board majority
2. 2/3 of the OCS SH CASE: Associated Bank v. SEC
3. approval of the SEC
- SEC approval is necessary for
Sec. 77. Stockholder's or the merger and consolidation to
member's approval. - Upon approval take effect.
by majority vote of each of the board
of directors or trustees of the Q: What are the effects?
constituent corporations of the plan of A: refer to sec. 80
merger or consolidation, the same
shall be submitted for approval by the
stockholders or members of each of
such corporations at separate Sec. 80. Effects or merger or
corporate meetings duly called for the consolidation. - The merger or
purpose. Notice of such meetings shall consolidation shall have the following
be given to all stockholders or effects:
members of the respective
corporations, at least two (2) weeks 1. The constituent corporations shall
prior to the date of the meeting, either become a single corporation which, in
personally or by registered mail. Said case of merger, shall be the surviving
notice shall state the purpose of the corporation designated in the plan of
meeting and shall include a copy or a merger; and, in case of consolidation,
summary of the plan of merger or shall be the consolidated corporation
consolidation. The affirmative vote of designated in the plan of
stockholders representing at least consolidation;
two-thirds (2/3) of the outstanding 2. The separate existence of the
capital stock of each corporation in the constituent corporations shall cease,
case of stock corporations or at least except that of the surviving or the
two-thirds (2/3) of the members in consolidated corporation;
the case of non-stock corporations 3. The surviving or the consolidated
shall be necessary for the approval of corporation shall possess all the rights,
such plan. Any dissenting stockholder privileges, immunities and powers and
in stock corporations may exercise his shall be subject to all the duties and
appraisal right in accordance with the liabilities of a corporation organized
Code: Provided, That if after the under this Code;
approval by the stockholders of such 4. The surviving or the consolidated
plan, the board of directors decides to corporation shall thereupon and
abandon the plan, the appraisal right thereafter possess all the rights,
shall be extinguished. privileges, immunities and franchises
of each of the constituent
Any amendment to the plan of merger corporations; and all property, real or
or consolidation may be made, personal, and all receivables due on
provided such amendment is approved whatever account, including
by majority vote of the respective subscriptions to shares and other
boards of directors or trustees of all choses in action, and all and every
the constituent corporations and other interest of, or belonging to, or
ratified by the affirmative vote of due to each constituent corporation,
stockholders representing at least shall be deemed transferred to and
two-thirds (2/3) of the outstanding vested in such surviving or
capital stock or of two-thirds (2/3) of consolidated corporation without
the members of each of the further act or deed; and
constituent corporations. Such plan,
5. The surviving or consolidated approved by the stockholders, the
corporation shall be responsible and withdrawing stockholder and the
liable for all the liabilities and corporation cannot agree on the fair
obligations of each of the constituent value of the shares, it shall be
corporations in the same manner as if determined and appraised by three (3)
such surviving or consolidated disinterested persons, one of whom
corporation had itself incurred such shall be named by the stockholder,
liabilities or obligations; and any another by the corporation, and the
pending claim, action or proceeding third by the two thus chosen. The
brought by or against any of such findings of the majority of the
constituent corporations may be appraisers shall be final, and their
prosecuted by or against the surviving award shall be paid by the corporation
or consolidated corporation. The rights within thirty (30) days after such
of creditors or liens upon the property award is made: Provided, That no
of any of such constituent corporations payment shall be made to any
shall not be impaired by such merger dissenting stockholder unless the
or consolidation. corporation has unrestricted retained
earnings in its books to cover such
Q: X corp and Y corp merged. Y is payment: and Provided, further, That
indebted to another corporation. Is upon payment by the corporation of
this allowed? the agreed or awarded price, the
A: Yes. Except: stockholder shall forthwith transfer his
1. bulk sales shares to the corporation. (n)
2. piercing the veil
3. by stipulation of the parties. Sec. 83. Effect of demand and
4. sale amounts to merger or termination of right. - From the
consolidation. time of demand for payment of the
fair value of a stockholder's shares
APPRAISAL RIGHT until either the abandonment of the
corporate action involved or the
Sec. 82. How right is exercised. - purchase of the said shares by the
The appraisal right may be exercised corporation, all rights accruing to such
by any stockholder who shall have shares, including voting and dividend
voted against the proposed corporate rights, shall be suspended in
action, by making a written demand accordance with the provisions of this
on the corporation within thirty (30) Code, except the right of such
days after the date on which the vote stockholder to receive payment of the
was taken for payment of the fair fair value thereof: Provided, That if
value of his shares: Provided, That the dissenting stockholder is not paid
failure to make the demand within the value of his shares within 30 days
such period shall be deemed a waiver after the award, his voting and
of the appraisal right. If the proposed dividend rights shall immediately be
corporate action is implemented or restored. (n)
affected, the corporation shall pay to
such stockholder, upon surrender of Sec. 84. When right to payment
the certificate or certificates of stock ceases. - No demand for payment
representing his shares, the fair value under this Title may be withdrawn
thereof as of the day prior to the date unless the corporation consents
on which the vote was taken, thereto. If, however, such demand for
excluding any appreciation or payment is withdrawn with the
depreciation in anticipation of such consent of the corporation, or if the
corporate action. proposed corporate action is
abandoned or rescinded by the
If within a period of sixty (60) days corporation or disapproved by the
from the date the corporate action was Securities and Exchange Commission
where such approval is necessary, or if
the Securities and Exchange
Commission determines that such
stockholder is not entitled to the January 12, 2007
appraisal right, then the right of said NON STOCK CORPORATIONS
stockholder to be paid the fair value of
his shares shall cease, his status as a Sec. 51. Place and time of
stockholder shall thereupon be meetings of stockholders or
restored, and all dividend distributions members. - Stockholders' or
which would have accrued on his members' meetings, whether regular
shares shall be paid to him. (n) or special, shall be held in the city or
municipality where the principal office
Sec. 85. Who bears costs of of the corporation is located, and if
appraisal. - The costs and expenses practicable in the principal office of the
of appraisal shall be borne by the corporation: Provided, That Metro
corporation, unless the fair value Manila shall, for purposes of this
ascertained by the appraisers is section, be considered a city or
approximately the same as the price municipality.
which the corporation may have
offered to pay the stockholder, in Notice of meetings shall be in writing,
which case they shall be borne by the and the time and place thereof stated
latter. In the case of an action to therein.
recover such fair value, all costs and
expenses shall be assessed against All proceedings had and any business
the corporation, unless the refusal of transacted at any meeting of the
the stockholder to receive payment stockholders or members, if within the
was unjustified. (n) powers or authority of the corporation,
shall be valid even if the meeting be
Sec. 86. Notation on certificates; improperly held or called, provided all
rights of transferee. - Within ten the stockholders or members of the
(10) days after demanding payment corporation are present or duly
for his shares, a dissenting represented at the meeting.
stockholder shall submit the
certificates of stock representing his Sec. 93. Place of meetings. - The
shares to the corporation for notation by-laws may provide that the
thereon that such shares are members of a non-stock corporation
dissenting shares. His failure to do so may hold their regular or special
shall, at the option of the corporation, meetings at any place even outside
terminate his rights under this Title. If the place where the principal office of
shares represented by the certificates the corporation is located: Provided,
bearing such notation are transferred, That proper notice is sent to all
and the certificates consequently members indicating the date, time and
canceled, the rights of the transferor place of the meeting: and Provided,
as a dissenting stockholder under this further, That the place of meeting
Title shall cease and the transferee shall be within the Philippines.
shall have all the rights of a regular
stockholder; and all dividend Q: Is there a conflict between sec. 51
distributions which would have and sec. 93?
accrued on such shares shall be paid A: Yes
to the transferee.
Q: Where?
Assignment for next year: A: Sec. 93 special laws for non stock
corporations.
Corpo until NIL.
Q: is there an occasion when sec. 51 is A: 89 is applicable to nonstick. If the
applicable to non stock corporations? by laws is silent, apply the general rule
A: When the law so provides. which is sec. 58.
Q: How is NS corp formed? What is the

Sec. 58. Proxies. - Stockholders and reason in denying proxy voting?
members may vote in person or by A: There must be camaraderie. There
proxy in all meetings of stockholders must be personal attendance in NS
or members. Proxies shall in writing, corp. Thats why proxy is denied.
signed by the stockholder or member
and filed before the scheduled meeting Q: What is in sec. 94?
with the corporate secretary. Unless A: Rules of distribution.
otherwise provided in the proxy, it
shall be valid only for the meeting for Q: Enumerate
which it is intended. No proxy shall be A:
valid and effective for a period longer 1. creditors
than five (5) years at any one time. 2. assets subject to return
(n) 3. assets subject to use
4. remainder distribution to
Sec. 89. Right to vote. - The right of members.
the members of any class or classes to
vote may be limited, broadened or Q: Again!
denied to the extent specified in the A:
articles of incorporation or the by- 1. creditors
laws. Unless so limited, broadened or 2. donated properties
denied, each member, regardless of a. return to the donor
class, shall be entitled to one vote. b. turn over to similar institutions.
3. all other properties
Unless otherwise provided in the members.
articles of incorporation or the by- this pre supposes that the
laws, a member may vote by proxy in corporation has already been
accordance with the provisions of this dissolved.
Code. (n)
Voting by mail or other similar means Sec. 94. Rules of distribution. - In

by members of non-stock corporations case dissolution of a non-stock
may be authorized by the by-laws of corporation in accordance with the
non-stock corporations with the provisions of this Code, its assets shall
approval of, and under such conditions be applied and distributed as follows:
which may be prescribed by, the
Securities and Exchange Commission. 1. All liabilities and
obligations of the
Q: Is there a conflict between 58 and corporation shall be
89? paid, satisfied and
A: Yes. discharged, or adequate
provision shall be made
Q: Distinguish the conflict: therefore;
A: 58 allows the use of proxy
whether stock or non-stock. 2. Assets held by the
89 allows the removal of proxy in corporation upon a
non stock if stated in the by laws. condition requiring
return, transfer or
Q: How do we reconcile? conveyance, and which
condition occurs by
reason of the
dissolution, shall be Q: Will it be legally permissible for a
returned, transferred or non stock corporation to be converted
conveyed in accordance to a stock corporation by mere
with such requirements; amendment of the AI?
A: No. Because they will have
3. Assets received and pecuniary interest to the properties of
held by the corporation the corporation during its lifetime. It
subject to limitations may also be a fraud to creditors. The
permitting their use only donated properties may be treated as
for charitable, religious, capital stock of the stock corporations.
benevolent, educational Q: How do we convert?
or similar purposes, but A: dissolve first. 2.3 vote. Any
not held upon a amendment that changes their voting
condition requiring rights, it could be a basis for appraisal
return, transfer or right. (sec.81)
conveyance by reason of
the dissolution, shall be CLOSE CORPORATIONS
transferred or conveyed
to one or more Q: What are corporations that cannot
corporations, societies be assigned as a closed corporation?
or organizations A: except mining or oil companies,
engaged in activities in stock exchanges, banks, insurance
the Philippines companies, public utilities, educational
substantially similar to institutions and corporations declared
those of the dissolving to be vested with public interest.
corporation according to
a plan of distribution Q: What are the provisions that need
adopted pursuant to this to appear in the AI?
Chapter; A:
1. limitation of
4. Assets other than memberships.
those mentioned in the 2. prohibition of trading or
preceding paragraphs, if listing in stock
any, shall be distributed exchange.
in accordance with the 3. there must be restriction
provisions of the articles in the transfer of shares.
of incorporation or the
by-laws, to the extent Q: What is option restriction?
that the articles of A: ?
incorporation or the by-
laws, determine the Q: What is consent restriction?
distributive rights of A: Shares cannot be transferred
members, or any class without board approval.
or classes of members,
or provide for CASE: San Juan Mills
distribution; and
- the mere ownership of a single
SH if almost all the shares of
5. In any other case, assets may be
the corporation is not a
distributed to such persons, societies,
presumption that the
organizations or corporations, whether
corporation is a closed
or not organized for profit, as may be
corporation. The determinative
specified in a plan of distribution
factor is the AI.
adopted pursuant to this Chapter.
remember sec. 23 and sec. 97
CORPORATE
DISSOLUTION/LIQUIDATION Q: What if there was no receiver
appointed? What is the remedy?
- extinguishment of franchise A: Trace where the corporate assets
- cessation of existence are.
2 main classes of dissolution: CASE: Pepsi Cola v CA
1. voluntary - the fact that the corporation

2. involuntary has already ceased to be a
it is only the state that could corporation, doesnt prohibit or
give its life and only the state extinguish its liability.
can take it away.
Concept of trustee
Voluntary dissolution can happen - interpreted in its generic sense.
whether there are creditors or none. - Either in writing or expressly.
Some authors would consider
shortening of a term as a voluntary CASE: Gelano v. CA; Koreano v. CA
dissolution. Dissolution takes effect
immediately in voluntary dissolution. Facts: The corporation filed a case
In shortening of corporate term it against Gelano. The corporation won,
must wait for the term to expire. however, when a writ of execution was
filed, the Gelano spouses claimed that
Winding Up the corporation had already ceased to
- mandatory for the protection of exist, the shortened period had
the creditors. already expired. Corporation did not
- Co ownership of assets appoint any trustee during the 3 year
according to its stocks. period.
Q: What is the period? Issue: Whether or not Gelanos claim

A: 3 years mandatory is correct.
Held: No
Q: Does it have a personality during Rationale: The court said that we
the 3 year period? cannot identify a trustee. It is the
A: Yes. Only for limited purposes. counsel of the corporation, as far as
Those which are related to winding up. this case is concerned, the corporation
impliedly appointed a counsel.
Q: What if the cases push thru even
after winding up? REHABILITATION
A: Gen. rule: It will be abated because
the corporation ceases to exist. - corporations would rather take
rehabilitation.
Q: What will the corporation do? - To make the corporation
A: Appoint a trustee. He is a trustee of financially viable.
the beneficiary. He must be appointed
within the 3 year period. CASE: Philippine Veterans Bank v.
Vega (June 28, 2001)
Q: If the corporation is not inclined to
appoint a trustee and the three year PD 902-A
period is about to expire. What is the
remedy? Grounds:
A: The court will appoint a receiver. 1. imminent danger
The court appoints it unlike in a 2. wastage of assets
trustee where the corporation
appoints.
3. paralization of business any domestic business, firm, entity or
prejudicial to the interest of the corporation in the Philippines; and any
SH. other act or acts that imply a
4. ? continuity of commercial dealings or
arrangements, and contemplate to
that extent the performance of acts or
stay order affects all creditors; works, or the exercise of some of the
including guarantors as long as functions normally incident to, and in
these guarantors do not agree progressive prosecution of, commercial
to be solidarily liable. gain or of the purpose and object of
All claims are affected whether the business organization: Provided,
secured or not. however, That the phrase "doing
business: shall not be deemed to
- stay order withholds only the include mere investment as a
enforcement of your claim. shareholder by a foreign entity in
- Those claims which are stayed domestic corporations duly registered
are those which are pecuniary to do business, and/or the exercise of
in nature. * not controlling. rights as such investor; nor having a
- Nowadays, it involves all nominee director or officer to
claims, pecuniary or actions. represent its interests in such
corporation; nor appointing a
FOREIGN CORPORATIONS representative or distributor domiciled
in the Philippines which transacts
-formed not in the laws of the business in its own name and for its
Philippines; laws of another own account;
state; whose laws permit
Filipino citizens to do business if business is isolated, no
in its own country. license is required.
- It is necessary for them to Designation of a resident agent
secure a license. is required.
Q: Why?
A: for monitoring and taxation Effects of being issued a license:
purposes.
1. the corporation may now
Q: What do we mean by doing engage business.
business? 2. may sue or be sued in the
A: It is not defined in the corporation Philippine courts.
code. Jurisprudence tells us:
1. maintainance of a body in the Domestication of the corporation:
Philippines. - intramural issues.
2. intent to continue such - Right of inspection law of the
business in the Philippines. state of origin.
RA 7042 memorize
Q: If corporation has no license, can it
Sec. 3(d) The praise "doing business" do business in the Philippines?
shall include soliciting orders, service A: Yes. But you cannot sue and you
contracts, opening offices, whether may be sued.
called "liaison" offices or branches;
appointing representatives or CASE: Hope Insurance v. CA
distributors domiciled in the Philippines remedy
or who in any calendar year stay in the
country for a period or periods - court explained that though at
totalling one hundred eighty (180) the time the transaction
days or more; participating in the entered into, the foreign
management, supervision or control of company had no capacity, if at
the time it filed in court it -B acquires title to credit. B has
already secured license, it the right to demand from A
already has the right to sue. when it becomes mature.
THIS IS THE REMEDY. Hypo: A and B have issues. B already
CASE: Ericks v. CA transferred the credit to C. C is a
remote party as to A. C is presumed to
Facts: A corporation organized in be a HIDC.
Singapore; it did not have license in
the Philippines. It gave credit terms to - there is no due course holding
its customers. One of its customers did in assignment.
not pay. Eriks filed a case. Respondent - Medium of exchange.
moved to dismiss due to Eriks lack of
license. Q: What are the important characters
of a NI?
Issue: WON the action is dismissible. A:
Held: Yes 1. able to pass from hand to hand
Rationale: Same as Home Insurance. 2. accumulating secondary
Eriks sued again, this time with contracts.
license. Res Judicata does not set in 3. ?
because the trial was not on the
merits. Eg.
II. NEGOTIABLE A-B-C-D-E

Principal
INTRUMENTS LAW (ACT Obligor
NO.2031)
Q: Can E go against A directly?
A: No. Because there are secondary
- Patterned after the negotiable
contracts. There are subsequent
instruments act of the US.
parties.
- Code of commerce article 442-
556 were repealed by the NIL
Q: What are these requirements for
with the exception of crossed
negotiability?
checks.
A: Sec. 1 of NIL. (WUPPA)
- Facilitate commercial
Section 1. Form of negotiable
transactions and promote free
instruments. - An instrument to be
flow of credit.
negotiable must conform to the
- NI are substitutes for money
following requirements:
but are not legal tender.
(a) It must be in writing
- Legal tender pertains to those
and signed by the
bonds, notes calculated by the
maker or drawer;
Central Bank.
- NI has no legal tender power. It
(b) Must contain an
is only when it is encashed.
unconditional promise
- Non negotiable instruments
or order to pay a sum
may also be substitute for
certain in money;
money.
- Title of commercial papers may
(c) Must be payable on
be acquired thru due course.
demand, or at a fixed
or determinable future
Eg.
time;
A---------- B------- C
(d) Must be payable to
Principal order or to bearer; and
Obligor
(e) Where the it is not a recital of the previous
instrument is addressed agreement but only connects it
to a drawee, he must with the previous agreement.
be named or otherwise
indicated therein with The Principle we follow:
reasonable certainty. negotiability is to be judged by
the statements appearing on its
Element no.1 (a) It must be in writing face. If you have to look at
and signed by the maker or drawer other contracts outside the
instrument then negotiability is
Q: Why should it be in writing? destroyed.
A: It is a contract.
Reason: third parties must be
Q: Why must it be signed? protected because they are not privy
A: The signature is a guarantee. to the instrument.
Determine whether the following

Assignment: instrument is negotiable:
No meeting this Saturday. We will I promise to pay Mr. B P100,000.00,

meet on Wednesday 4-9pm. Please out of the sale of my motorcycle.
read Negotiable instruments Law and not negotiable. It is subject to the
memorize sec. 60 by heart. condition of the sale of the motorcycle.
January 23, 2008 Sec. 2: Certainty of the Sum payable.
written instrument Sec. 2. What constitutes certainty as

tangible evidence to sum. - The sum payable is a sum
for negotiability certain within the meaning of this Act,
although it is to be paid:
signature (a) with interest; or
- best evidence for their
accountability. (b) by stated installments; or
Element no. 2 (b) Must contain an (c) by stated installments, with

unconditional promise or order to pay a provision that, upon default
a sum certain in money in payment of any installment
or of interest, the whole shall
- if there are other acts other become due; or
than payment of money, then
the instrument is non- (d) with exchange, whether at
negotiable. a fixed rate or at the current
- If the option lies with the rate; or
holder, even if he performs
other acts, it is still negotiable. (e) with costs of collection or
- Mere recital of the transaction an attorney's fee, in case
which gives rise to the payment shall not be made at
instrument. maturity.
- No creation of debt if there is
no obligation. - engage payment of the sum
payable as well as the interest.
Eg. I promise to pay B or order xxx - If there is stipulation to pay by
subject to the retainership agreement installments, it does not
we executed in May 2007. destroy the negotiability, as
long as the installments are demand.
stated.
Notes:
STATED:
1. amount of each installment. Sec. 7 states that it must be:
2. maturity date of each
installment. 1. expressed
2. no maturity date silent.
Determine whether the following Sec. 4. Determinable future time;
instruments are negotiable: what constitutes. - An instrument is
payable at a determinable future time,
1. I promise to pay Mr. B within the meaning of this Act, which
P100,000.00 in 4 installments. is expressed to be payable:
--> not negotiable. Amount of (a) At a fixed period after date
the installment must be stated. or sight; or
2. I promise to pay Mr. B
P100,000.00 in 4 equal (b) On or before a fixed or
installments. not negotiable. determinable future time
The information lacks when it specified therein; or
will mature.
3. I promise to pay Mr. B or order, (c) On or at a fixed period after
P100,000.00 in 4 equal monthly the occurrence of a specified
installments beginning July 7, event which is certain to
2007. negotiable. It is happen, though the time of
determinable. happening be uncertain.
An instrument payable upon a
Acceleration clause: contingency is not negotiable, and the
- provision which renders the happening of the event does not cure
instrument due and the defect.
demandable when default is
incurred. Sec. 4 states that it must be:
- It does not destroy the
negotiability. 1. fixed period
2. fixed time.
Attorneys fees:
- it does not render the The more difficult to explain and
instrument non-negotiable. understand is determinable future
time:
Element no. 3 (c) Must be payable on
demand, or at a fixed or determinable Q: What comprises determinable
future time future time?
A: An instrument is payable at a
Sec. 7. When payable on demand. - determinable future time, within the
An instrument is payable on meaning of this Act, which is
demand: expressed to be payable:
(a) When it is so expressed to (a) At a fixed period after date
be payable on demand, or at or sight; or
sight, or on presentation; or
(b) On or before a fixed or
(b) In which no time for determinable future time
payment is expressed. specified therein; or
Where an instrument is issued,
accepted, or indorsed when overdue, (c) On or at a fixed period after
it is, as regards the person so issuing, the occurrence of a specified
accepting, or indorsing it, payable on event which is certain to
happen, though the time of or protection of the obligor; or
happening be uncertain.
Eg. I promise to pay Mr. A or order, 10 (d) gives the holder an election
days after it is issued. Issued Jan. 1, to require something to be
2008. done in lieu of payment of
money.
But nothing in this section shall
validate any provision or stipulation
Q: What else constitutes determinable otherwise illegal.
future time?
A: Payable on Christmas day, 2008. Sec. 5: negotiability is not affected:
- the exact date of happening is 1. authority on the part of the

not stated but upon a certain holder to sell collateral
event to happen. securities.
- Period does not destroy 2. confessions of judgments the
negotiability. obligor bargains away his day
- On or after an event, not before in court. Just disregard this
the period. portion.
3. waiver of benefit.
Section 4 are your words of 4. election to require payment.
negotiability.
ABCDEF
Eg. Maker
1. pay to B to B and no other.

X
2. pay to B or order. to B or at
Presentment is hereby
his command. waived
3. Pay to B or bearer to B or
anyone who is a holder.
Q: In example no. 1, it was assigned

to C. How would A treat C?
A: He could treat C in the same way
that he is expected to treat B.
NEGOTIATION:
Sec. 5. Additional provisions not
affecting negotiability. - An instrument Rule: on his face
which contains an order or promise to
do any act in addition to the payment Sec. 8. When payable to order. - The
of money is not negotiable. But the instrument is payable to order where
negotiable character of an instrument it is drawn payable to the order of a
otherwise negotiable is not affected by specified person or to him or his order.
a provision which: It may be drawn payable to the order
(a) authorizes the sale of of:
collateral securities in case the (a) A payee who is not maker,
instrument be not paid at drawer, or drawee; or
maturity; or
(b) The drawer or maker; or
(b) authorizes a confession of
judgment if the instrument be (c) The drawee; or
not paid at maturity; or
(d) Two or more payees jointly;
(c) waives the benefit of any or
law intended for the advantage
(e) One or some of several 2. conditional or unconditional
payees; or 3. general, qualified or unqualified
4. restrictive or unrestrictive
(f) The holder of an office for
the time being. I. Special or Blank: signature
Where the instrument is payable to is the essence of the
order, the payee must be named or instrument.
otherwise indicated therein with
reasonable certainty. 1. Special
This makes it special
1. payable to order: Pay to C sgd. A
I promise to pay B or order XXX

(sgd) A
payee 2. Blank
A ------------ B ------- C
maker Indorsement if only the signature appears
Plus delivery. if C would like to negotiate it
further than all he has to do is
indorsement alone is not to deliver it.
sufficient.
If the note is payable to a ISSUE: how further negotiation would
specified person, the only take effect.
recourse is indorsement plus II. Conditional or unconditional
delivery.
1. Unconditional
payee
A ------------ B ------- C ---- D
Pay to C sgd. A
maker Indorsement
Plus delivery
Q: How would C negotiate it further to

D?
A: It depends on how it was indorsed
to C by B. this is unconditional because
if blank indorsement, mere there was no condition.
delivery is sufficient.
If special indorsement; 2. Conditional
Indorsement plus delivery.
Pay to C sgd. A
- this rule will surely not apply if Provided C
it is a bearer instrument. Gets a passing %
- An order instrument may be In COLR
converted to bearer, but a
bearer instrument may not be
converted to an order.
- ONCE A BEARER ALWAYS A Q: Does it affect the promise of A to
BEARER. pay B because of the condition?
A: No. Because A remains obligated
and it does not affect Bs claim over A.
Different Categories of indorsement: ISSUE: How indorsement produces it

effects.
1. special or blank
III. Qualified or Unqualified Sec. 66. Liability of general indorser. -
Every indorser who indorses without
1. Qualified qualification, warrants to all
subsequent holders in due course:
Q: What is involved here? (a) The matters and things
A: The liability of indorser. mentioned in subdivisions (a),
(b), and (c) of the next
as far as liability is concerned preceding section; and
there are only 2 types of
indorsers. (b) That the instrument is, at
the time of his indorsement,
Sec. 65. Warranty where negotiation valid and subsisting;
by delivery and so forth. Every And, in addition, he engages that, on
person negotiating an instrument by due presentment, it shall be accepted
delivery or by a qualified indorsement or paid, or both, as the case may be,
warrants: according to its tenor, and that if it be
(a) That the instrument is dishonored and the necessary
genuine and in all respects proceedings on dishonor be duly
what it purports to be; taken, he will pay the amount thereof
to the holder, or to any subsequent
(b) That he has a good title to indorser who may be compelled to pay
it; it.
(c) That all prior parties had

capacity to contract; additional paragraph is called
secondary liability.
(d) That he has no knowledge
of any fact which would impair general indorser engages
the validity of the instrument or
payment
render it valueless.
But when the negotiation is by
delivery only, the warranty extends in
ISSUE: Liability of indorsers.
favor of no holder other than the
immediate transferee.
IV. Restrictive or Unrestrictive:
The provisions of subdivision (c) of
1. Restrictive:
this section do not apply to a person
negotiating public or corporation
- we are restricting the rights of
securities other than bills and notes.
the indorsee.
a qualified indorser has no
Rights of the indorsee:
engagement to pay.
You have no recourse against a a. title to the credit
qualified indorser. b. to sue
Qualified indorsement is not c. negotiate further
presumed. Words to that effect d. enforce payment
are the following:
without recourse; sans recourse; 3 modes of restrictive indorsement:
without secondary engagement.
a. prohibits further negotiation.
Liability of Mr. B is under sec. 65. b. Create agency between the
indorser and the indorsee.
2. Unqualified Indorser or General c. Trust relationship.
Indorser.
(d) When the name of the

payee does not purport to be
the name of any
person; or
(e) When the only or last

Examples indorsement is an indorsement
in blank.
Pay to C only sgd. A
I promise to pay B or bearer xxx

(sgd) A
Delivery Delivery Delivery

Limitation: he lost the right to further A ---- B ------- C ---- D --- E
negotiate it. Maker original
Payee
Pay to C for sgd. A
Collection purposes Q: If C indorses it, does it matter?
A: No. Because it is an original bearer
instrument.
Delivery Delivery Delivery

A ---- B ------- C ---- D --- E
Limitation: C only has legal title; Maker original
beneficial title is still with B. Payee
liability only to the immediate
indorser.
Pay to C sgd A
In trust for X
Sec. 40. Indorsement of instrument
payable to bearer. - Where an
instrument, payable to bearer, is
indorsed specially, it may nevertheless
be further negotiated by delivery; but
Limitation: no beneficial title; only the person indorsing specially is liable
legal title. as indorser to only such holders as
make title through his indorsement.
2. Payable to bearer:
Sec. 9. When payable to bearer. - The if they indorsed it, it is still

instrument is payable to bearer. However, they may be
bearer: liable under sec. 66.
(a) When it is expressed to be
so payable; or Eg. Payable to order:
(b) When it is payable to a payee

person named therein or A ------------ B ------- C
bearer; or maker delivery
(c) When it is payable to the Q: Did C acquire title?

order of a fictitious or non- A: Yes. But only as assignee and not
existing person, and such fact by negotiation.
was known to the person
making it so payable; or A ------------ B ------- C
Payer is the holder as
Q: Why do you want indorsement? long as he has
A: to be a Holder in due course possession.
The moment he parts,
Sec. 49. Transfer without he ceases to be a holder.
indorsement; effect of. - Where the
holder of an instrument payable to his
order transfers it for value without
indorsing it, the transfer vests in the
transferee such title as the transferor Sec. 52. What constitutes a holder in
had therein, and the transferee due course. - A holder in due course is
acquires in addition, the right to have a holder who has taken the instrument
the indorsement of the transferor. But under the following conditions:
for the purpose of determining (a) That it is complete and
whether the transferee is a holder in regular upon its face;
due course, the negotiation takes
effect as of the time when the (b) That he became the holder
indorsement is actually made. of it before it was overdue, and
without notice that it has been
Q: If Mr. C succeeded in securing the previously dishonored, if such
indorsement. He knew that there was was the fact;
fraud at the time it was indorsed. Will
he still be a HIDC? (c) That he took it in good faith
and for value;
A: No. He already has notice of
infirmity. (d) That at the time it was
negotiated to him, he had no
Sec. 48: Striking out an indorsement. notice of any infirmity in the
instrument or defect in the title
Eg. Original bearer was indorsed. of the person negotiating it.
Eventually to third parties. The remedy
is to strike out the indorsement. * in sales good faith; innocent
purchaser. It all boils down to
Sec. 48. Striking out indorsement. - innocence; good faith.
The holder may at any time strike out
any indorsement which is not Assignment:
necessary to his title. The indorser
whose indorsement is struck out, and Memorize by heart: secs. 52, 60, 61,
all indorsers subsequent to him, are 62, 65, 66; Holders up to defense.
thereby relieved from liability on the
instrument. June 26, 2008
According to Maam: Bayaran mo Sec. 52. What constitutes a holder in

muna ako bago ko strike out and due course. - A holder in due course is
indorsement para secured ang a holder who has taken the instrument
obligation. under the following conditions:
(a) That it is complete and
CONCEPT OF HOLDERS: regular upon its face;
Holder (b) That he became the holder

of it before it was overdue, and
in possession of the without notice that it has been
instrument. previously dishonored, if such
was the fact;
(c) That he took it in good faith A: It is when a person derives its title
and for value; from a HIDC despite the fact that he
knows an infirmity, as long as, he does
(d) That at the time it was not participate in the wrong doing. He
negotiated to him, he had no is protected by the shelter rule.
notice of any infirmity in the
instrument or defect in the title Q: Why is it important to be a HIDC?
of the person negotiating it. A: Personal defenses will not be
availed of the indorsers.
Q: The instrument was previously
dishonored. You did not know. Are you Eg.
still a HIDC? infirmity
A: Yes A ---- B ------- C ---- D --- E
HIDC
Q: What is a holder for value?
A: for value and consideration. if D acquires instrument from
C; he is benefited by the
Q: Why is it impossible that you cant shelter rule.
be a HIDC if youre not a holder for
value? Q: Is there still a difference between C
A: Because it is irregular that a person and D?
would give his credit without any A: Yes. The fact that he is not a HIDC.
consideration.
Q: What?
Q: What is the difference between A: He cannot provide a shelter rule for
infirmity and defect? E.
A: infirmities not apparent on the
face of the instrument. LIABILITIES OF PARTIES
Eg. Forgery; insertion of wrong date;
sum payable, not the real amount. Q: Who are the parties liable?
Defect it means you have no right to A: Those who are potentially liable.
the credit since it is apparent on its
face. Q: They are liable to whom?
Eg. Force, duress, fraud etc A: The one who has the right to have
possession of the instrument.
Mr. Quitain!
Promissory Note Bill of Exchange
Q: What is the presumption? Maker sec. 60 Drawer (61)
A: Sec. 59. Who is deemed holder in Indorsers: Acceptor (62)
due course. - Every holder is deemed Qualified (65)
prima facie to be a holder in due General (66)
course; but when it is shown that the Persons Indorsers
title of any person who has negotiated Negotiation by Qualified (65)
the instrument was defective, the delivery. (65) General (66)
burden is on the holder to prove that Persons
he or some person under whom he Negotiation by
claims acquired the title as holder in delivery. (65)
due course. But the last-mentioned
rule does not apply in favor of a party Q: Recite verbatim sections 60-62 and
who became bound on the instrument sections 65-66.
prior to the acquisition of such
defective title. A: Sec. 60. Liability of maker. - The
maker of a negotiable instrument, by
Q: What is the shelter rule? making it, engages that he will pay it
according to its tenor, and admits the
existence of the payee and his then favor of no holder other than the
capacity to indorse. immediate transferee.
Sec. 61. Liability of drawer. - The The provisions of subdivision (c) of

drawer by drawing the instrument this section do not apply to a person
admits the existence of the payee and negotiating public or corporation
his then capacity to indorse; and securities other than bills and notes.
engages that, on due presentment,
the instrument will be accepted or Sec. 66. Liability of general indorser. -
paid, or both, according to its tenor, Every indorser who indorses without
and that if it be dishonored and the qualification, warrants to all
necessary proceedings on dishonor be subsequent holders in due course:
duly taken, he will pay the amount (a) The matters and things
thereof to the holder or to any mentioned in subdivisions (a),
subsequent indorser who may be (b), and (c) of the next
compelled to pay it. But the drawer preceding section; and
may insert in the instrument an
express stipulation negativing or (b) That the instrument is, at
limiting his own liability to the holder. the time of his indorsement,
valid and subsisting;
Sec. 62. Liability of acceptor. - The And, in addition, he engages that, on
acceptor, by accepting the instrument, due presentment, it shall be accepted
engages that he will pay it according or paid, or both, as the case may be,
to the tenor of his acceptance and according to its tenor, and that if it be
admits: dishonored and the necessary
(a) The existence of the proceedings on dishonor be duly
drawer, the genuineness of his taken, he will pay the amount thereof
signature, and his capacity and to the holder, or to any subsequent
authority to draw the indorser who may be compelled to pay
instrument; and it.
(b) The existence of the payee Q: What are the categories of liability?
and his then capacity to A: warranties and engagement to pay
indorse. (primary and secondary)
Sec. 65. Warranty where negotiation
by delivery and so forth. Every Q: What do you mean by warranty?
person negotiating an instrument by A: You make representations.
delivery or by a qualified indorsement
warrants: Q: Can we conclude that warranties
(a) That the instrument is are common?
genuine and in all respects A: Yes. Common to all parties that are
what it purports to be; potentially liable.
(b) That he has a good title to Q: Does the maker have a warranty?
it; A: Yes. Admission of existence of the
payee and his capacity to indorse.
(c) That all prior parties had
capacity to contract; Q: Qualified indorsers?
A: (a) That the instrument is genuine
(d) That he has no knowledge and in all respects what it purports to
of any fact which would impair be;
render it valueless. (b) That he has a good title to it;
But when the negotiation is by
delivery only, the warranty extends in (c) That all prior parties had capacity
to contract; Q: What is the concept of primary and
secondary liability?
(d) That he has no knowledge of any A: Secondary liability occurs when
fact which would impair the validity of there is dishonor and proceedings of
the instrument or render it valueless. dishonor. These are conditions
But when the negotiation is by delivery precedent.
only, the warranty extends in favor of
no holder other than the immediate DEFENSES:
transferee.
Q: Why is liability related to defenses?
Q: General Indorsers? A: Liability of the party depends on the
A: (a) The matters and things availability of defenses.
mentioned in subdivisions (a), (b), and
(c) of the next preceding section; and Q: Who are interested?
A: Those who are potentially liable.
(b) That the instrument is, at the time
of his indorsement, valid and Q: What are the 2 classes of defenses?
subsisting; A: Personal and Real
And, in addition, he engages that, on
due presentment, it shall be accepted Q: What is the difference?
or paid, or both, as the case may be, A: Personal defenses from the acts
according to its tenor, and that if it be of the parties.
dishonored and the necessary Real defenses from the instrument
proceedings on dishonor be duly itself.
taken, he will pay the amount thereof
to the holder, or to any subsequent Personal defense
indorser who may be compelled to pay weak defense
it. absence of due course
holding on the part of
Q: Drawer? the creditor.
A: The drawer by drawing the Equitable defense.
instrument admits the existence of the
payee and his then capacity to For personal defenses: Code
indorse; and engages that, on due (FINCFADRTMIA)
presentment, the instrument will be For real defenses: Code
accepted or paid, or both, according to (MIFIMUFIVWPD)
its tenor, and that if it be dishonored
and the necessary proceedings on Refer to Sundiangs book.
dishonor be duly taken, he will pay the
amount thereof to the holder or to any Eg. Promissory note
subsequent indorser who may be
compelled to pay it. But the drawer A ---- B ------- C ---- D --- E
may insert in the instrument an Maker holder
express stipulation negativing or (signature
limiting his own liability to the holder. Forged)
Q: Acceptor? Q: Can A raise the defense of forgery

A: (a) The existence of the drawer, the against E?
genuineness of his signature, and his A: Yes
capacity and authority to draw the
instrument; and Q: What if the instrument is payable to
bearer?
(b) The existence of the payee and his A: Yes. A is still not liable.
then capacity to indorse.
Q: Could E hold B, C and D liable?
A: No longer. Only to the immediate A: No. Sec. 13 and 14 clearly states
party. that innocent holders may not be
prejudiced.
Eg.
Q: What if B changed the date?
A ---- B ------- C ---- D --- E A: Then a real defense of material
(minor) alteration is available.
Q: Is the defense of minority available Q: Does E still have a remedy?

to A? A: He may go after the subsequent
A: Yes. parties since it is captured by in all
respects what it purports to be.
Q: Can E go after B, C, D? Q: Can a holder not in due course go
A: Yes. Because they warrant that all after prior general indorsers?
parties have capacity to contract. A: No decision yet. But authorities
would say that holders not in due
Q: Will it matter if they did not know? course may go after general indorsers.
A: No.
Q: What if B placed a larger sum of
Q: Would it matter if they were money in a promissory note?
qualified? A: A has a personal defense as to E.
A: No. Because qualified indorsers Not available to HIDC.
warrant the same.
Assignment:
Q: If it is bearer instrument?
A: The same thing. D is liable to E.C is 1. for forgery read the
liable to D. B is liable to C. following cases:
a. Associated Bank v. CA
Q: eg. b. Republic v. Andrada
No date c. Gempesaw v. CA
d. Illusorio v. CA
10 days after date e. Samsung construction v. Far
I promise to pay B or
east Bank.
Order XXXX
Sgd. A 2. Finish reading:
a. Negotiable Instruments
b. Warehouse receipts Law
c. Letters of Credit.
if it was issued June 1, 2007 d. Trust receipts.
=> June 11, 2007.
By As acts it gives B the Midterms on Sat 11-1pm
authority to compel A to place a
date. Lecture
February 10,2008
Q: What if B abused his authority and 2:30 pm
placed May 25, 2007?
A: A has the defense of delivery of FORGERY:
incomplete instrument. There is abuse Promissory Note
of authority.
A---- B ----- C -- D --- E F
Q; Will A be able to avail of this Maker holder
defense, since presumption of HIDC is
present? - it will be available whether you
are a HIDC or not.
drawer
Q: Would it matter if it was payable to (genuine)
bearer?
A: No. Regardless of the status of X (drawee/acceptor)
being a bearer, it is of no moment as
long as the infirmity is of the signature Q: Can X use the defense of forgery?
of the maker. A: Yes. Sec. 62. He doesnt admit the
signature of the payee.
Q: What is the remedy if the persons - by accepting the instrument,
negotiated it by delivery? the acceptor is not precluded
A: His recourse is to go after E; the from raising forgery of the
immediate party. payees signature as a defense.
Cut-off rule: CASES: Associated Bank v. CA;

Gempesaw v. CA; Republic v. Ebrada.
- parties prior to the forged
indorsement; their liability is Q: X didnt know the forgery. Who
cut-off. bears the loss?
- Applies only if the forged A: The payment by X is erroneous. No
instrument is necessary to the authority. The drawee bank suffers the
vesting of title. loss.
Exception: If there is negligence on
Bill of Exchange: the part of the drawer, there is
comparative negligence.
A ---- B ----- C ----D ---E F
drawer Q: What is the remedy of X?
A: Go after the collecting bank. X
could go after F.
X (drawee/acceptor)
Q: What is Fs remedy?
Q: if payable to order, can X refuse A: Go after prior indorsers.
payment to the holder on the ground
that the drawers signature is forged? Case: Associated Bank v. CA
A: No. Because there was already
acceptance. Drawer: Province of Tarlac
Drawee: PNB
Q: if payable to bearer, in the same Collecting Bank: Associated Bank
situation. Payee: Concepcion Hospital
A: the same answer. (sec. 62)
Facts: The checks were made payable
Sec. 62. Liability of acceptor. - The to Concepcion Hospital. A certain
acceptor, by accepting the instrument, Pangilinan, who was previously an
engages that he will pay it according employee of Hospital, the province of
to the tenor of his acceptance and Tarlac still gave the checks to
admits: Pangilinan. Pangilinan forged the
(a) The existence of the drawer, the instrument and credited it to his
genuineness of his signature, and his account. PNB accepted.
capacity and authority to draw the Issue: Could PNB debit it from the
instrument; and account of the drawer?
Held: Yes
(b) The existence of the payee and his Rationale: The province of Tarlac is
then capacity to indorse without fault. Its agent should not
have entrusted its checks with Mr.
forged Pangilinan. To that extent, the
A ---- B ----- C ----D ---E F
province of Tarlac should share in the b. qualified
loss. 3. Persons 3. Indorsers
negotiating by a. general
Case: Gempesaw v. CA delivery. b. qualified
4. Persons
Facts: Gempesaw issued checks for negotiating by
her suppliers. She entrusted it to her delivery.
long time secretary. Her secretary
forged the instrument. Liability:
Issue: Was there negligence in the
part of Gempesaw? a.) Warranties -
Held: Yes common to all.
Rationale: There was negligence on b.) Engagement to
Gempesaw. She should share in the pay
loss.
PN maker (primary)
Illustration: General Indorser (secondary)
BEX acceptor (primary)
Who bears the Drawer (secondary)
loss? General Indorser (secondary)
Drawer v. drawee drawee
Drawee v. Collecting bank QI
collecting bank PNBD no warranties
MATERIAL ALTERATION: Q: If the holder is going after an

indorser who breached his warranty is
- partial real defense the holder here bound by the laws of
- at the time the alteration was presentment and dishonor?
produced, the instrument was A: No. Only necessary for secondary
complete in all respects. liability.
- Differentiate this from sec. 14
contemplates a case where the Note: Sec. 65- warranties
instrument is materially
incomplete. Sec. 65. Warranty where negotiation
by delivery and so forth. Every
Eg. person negotiating an instrument by
delivery or by a qualified indorsement
100k 200k(altered) warrants:
A ---- B ----- C ----D ---E (a) That the instrument is
genuine and in all respects
Q: Who could raise the defense? what it purports to be;
A: Parties before the alteration A
(b) That he has a good title to
Q: Could A invoke the defense against it;
E?
A: Yes. Only partial real defense. (c) That all prior parties had
capacity to contract;
Q: What if E is a HIDC?
A: He could invoke but still hell be (d) That he has no knowledge
liable partially. Up to the original tenor. of any fact which would impair
Promissory Note Bill of Exchange render it valueless.
1. Maker 1. Acceptor But when the negotiation is by
2.Indorsers 2. Drawer delivery only, the warranty extends in
a. general favor of no holder other than the
immediate transferee. residence or place of business
of the drawee.
The provisions of subdivision (c) of In no other case is presentment for
this section do not apply to a person acceptance necessary in order to
negotiating public or corporation render any party to the bill liable.
securities other than bills and notes.
Q: Qualified acceptance? Could E take
Q: Does sec. 65 require presentment? it?
A: No. A: Yes. Parties who are secondarily
liable are discharged.
Q: Does sec. 65 require dishonor
proceedings? Q: Could E opt not to take it?
A: No. A: Yes. He could it as a dishonor on
the part of X.
Presentment of dishonor is only
relevant to general indorser and Q: Can E now go after the drawer and
drawer. indorsers?
A: Yes. They engage that on due
Eg. presentment it will be accepted
according to its tenor. (sec. 62 and 66)
A ---- B ----- C ----D ---E
Sec. 62. Liability of acceptor. - The
E will only present to A acceptor, by accepting the instrument,
engages that he will pay it according
BEX to the tenor of his acceptance and
admits:
A ---- B ----- C ----D ---E (a) The existence of the drawer, the
genuineness of his signature, and his
drawer
capacity and authority to draw the
instrument; and
X (drawee/acceptor)
(b) The existence of the payee and his
then capacity to indorse
Purpose of presentment:
1. obtain acceptance sec. 143 Sec. 66. Liability of general indorser. -

2. obtain deposit Every indorser who indorses without
qualification, warrants to all
Sec. 143. When presentment for subsequent holders in due course:
acceptance must be made. - (a) The matters and things
Presentment for acceptance must be mentioned in subdivisions (a),
made: (b), and (c) of the next
(a) Where the bill is payable preceding section; and
after sight, or in any other
case, where presentment for (b) That the instrument is, at
acceptance is necessary in the time of his indorsement,
order to fix the maturity of the valid and subsisting;
instrument; or And, in addition, he engages that, on
due presentment, it shall be accepted
(b) Where the bill expressly or paid, or both, as the case may be,
stipulates that it shall be according to its tenor, and that if it be
presented for acceptance; or dishonored and the necessary
proceedings on dishonor be duly
(c) Where the bill is drawn taken, he will pay the amount thereof
payable elsewhere than at the to the holder, or to any subsequent
indorser who may be compelled to pay
it. Sec. 88. What constitutes payment in
due course. - Payment is made in due
Take note of the special rules: course when it is made at or after the
Both makers- special agency or to maturity of the payment to the holder
both. thereof in good faith and without
notice that his title is defective.
Sec. 81- excuses the fact of Discharge there must be intentional
delay. discharge.
Sec. 82 cases where
presentment is excused. If it is 1. deliberate tearing off
excused the instrument is now 2. cross out of signature
not accepted. The drawee is a 3. PNBD becomes the
ficititious person. holder confusion or
merger of rights.
Sec. 81. When delay in making
presentment is excused. - Delay in Sec. 120. When persons secondarily
making presentment for payment is liable on the instrument are
excused when the delay is caused by discharged. - A person secondarily
circumstances beyond the control of liable on the instrument is discharged:
the holder and not imputable to his (a) By any act which discharges
default, misconduct, or negligence. the instrument;
When the cause of delay ceases to
operate, presentment must be made (b) By the intentional
with reasonable diligence. cancellation of his signature by
the holder;
Sec. 82. When presentment for
payment is excused. - Presentment for (c) By the discharge of a prior
payment is excused: party;
(a) Where, after the exercise of
reasonable diligence, (d) By a valid tender or
presentment, as required by payment made by a prior
this Act, cannot be made; party;
(b) Where the drawee is a (e) By a release of the principal

fictitious person; debtor unless the holder's right
of recourse against the party
(c) By waiver of presentment, secondarily liable is expressly
express or implied. reserved;
Q: When is an instrument deemed (f) By any agreement binding

dishonor? upon the holder to extend the
A: 1. refund 2. excused time of payment or to postpone
the holder's right to enforce the
DISCHARGE: instrument unless made with
the assent of the party
- broad sense means secondarily liable or unless the
extinguishment of liability. right of recourse against such
- Could affect the instrument party is expressly reserved.
itself or a party liable.
- Carries with it discharge of all CHECKS:
parties liable.
- Provisions of sec. 119 - special form of bill of exchange
- specie of BEX
Payment in due course sec. 88 - payable to order or bearer
- payable on demand
- the purpose of the check is for not liable to the holder unless and
payment until it accepts or certifies the check.
- the death of the drawer or
depositor automatically revokes
the authority of the bank.
checks must be presented c. crossed check
within reasonable time after
issued.
BEX may be presented //
immediately after it is issued.
Kinds:
1. Cashier
2. Certified check
3. crossed check - deposit it to your account
before it is cleared.
a. Casher/ managers check - To ensure payment to the
payee.
- good as cash - May only be deposited not
- the bank itself is both the encashed.
drawer and the drawee - It has been issued for a definite
- the bank effectively commits its purpose.
property, assetsetc..
- operates as an assignment of Assignment:
funds.
1. Warehouse receipts secs. 2,
b. certified checks 4, 5, 8, 9, 18, 25, 26, 27, 37,
38, 39, 41, 42, 43, 44, 45.
- it bears upon its face that bank 2. Letters of credit
will pay it upon presentment. 3. Trust receipts
- Certification is equivalent to 4. Transportation laws
acceptance.
- Liability of acceptance arises. February 16, 2008
- The drawer cannot issue stop
payment order. (sec. 188) Warehouse Reciepts Law
- Operates as an assignment of
funds to the credit of the
Act no. 2137
drawer (sec. 189)
- It allows persons not well
acquainted with each other to Protection: Sec. 41
transact business.
1. title to the goods
Sec. 188. Effect where the holder of 2. direct obligation from the WHM
check procures it to be certified. - 3. sec. 25 cannot be defeated
Where the holder of a check procures by levy, attachment of the
it to be accepted or certified, the goods
drawer and all indorsers are 4. sec. 49 stoppage in transitu;
discharged from liability thereon. unpaid seller
Sec. 189. When check operates as an Non negotiable

assignment. - A check of itself does
not operate as an assignment of any W----D----A
part of the funds to the credit of the
drawer with the bank, and the bank is Q: Would A acquire title to the goods?
A: Yes. Sec. 42 6. copy of the purchase
agreement
Q: What is your personality as far as
the warehouseman is concerned?
A: Mere assignee (no direct obligation eg. X Bank -- seller (beneficiary)
to the warehouseman) only right to
notify (sec. 42)
prior notification, the title may

be defeated by levy,
attachment or execution upon A
the courts. (buyer/
The title to the goods may also Importer)
be defeated by acquisition of 3rd
persons and there are no
notifications.
3 Relationships:
The good thing about
negotiation is that you dont
1. Buyer and seller
have to inform the
2. X Bank and seller
warehouseman.
3. X bank and buyer
If delivered:
CASE: BPI v. De Reli
1. negotiates (I + D; D)
Facts: De reli opened LOC to BPI seller
2. assigns/ transfers (DOA; DOT)
presented all the documents when
shipment arrived, buyer realized that it
you are still answerable to
was not the same. He refused to
warranties under sec. 44
reimburse the bank.
Q: What if the receipt was forged?
Issue: Is the contention tenable?
A: A can go after D. (sec. 44)
Held: No
Rationale: There is independence of
Q: What if it were stolen?
contracts.
A: Sec. 44. He warrants he has title to
the goods.
CASE: Transfield v. Luzon Hydro
Corporation
WAREHOUSEMANS LIEN
Facts: Standby letters of credit is to
Q: How does he enforce?
secure the performance of an
A: p. 154 old Sundiang book
obligation. Luzon engaged Transfield.
Luzon wants construction of HYDRO
LETTERS OF CREDIT electrical plant but with a time table.
The contract allows extension of time
Q: What is a letter of credit? provided it is force majeure. Luzon
A: compelled Transfield to open standby
LOC. While the project was on going,
Q: What are the usual documents in a Transfield asked for extension because
letter of credit? of force majeure. Luzon refused since
A: it is unmeritorious. While the
1. bill of lading arbitration was pending, Luzon called
2. invoices for the LOC.
3. quantity analysis
4. description of goods Issue: Whether or not Transfields
5. insurance policies contention is tenable?
Held: No
Rationale: The standby letters of credit
is already available. Delay, whether or Q: What about pipeline
not fortuitous, there was already concessionaires, are they common
delay. The purpose is to secure the carriers?
obligation. Independence of contracts. A: Yes. As stated in the case of First
The banks contract is independent. Philippine Industrial corp. v. CA.
TRUST RECEIPTS LAW Q: What distinguishes common

carriers from an ordinary carrier?
A:
Q: What is a trust receipt? 1. It exercises extraordinary
A: the bank release the goods to the diligence.
entrustee upon presentation of 2. there is presumption of
document. The security interest of the negligence.
bank follows the goods.
CASE: Tatad v. Sec. Garcia
Q: What are the entrustees
obligations? Issue: Is it legally permissible for a
A: common carrier to be owned by
1. sell the goods foreign nationals but operated by
2. if not sold, return the goods. Filipinos?
The trust receipt law is not a violation Held: Yes

of the constitutional guarantee of non- Rationale: Only requirement in that it
payment of debt. may only be operated by Filipino
nationals.
TRANSPORTATION LAW
ZVC: Mr Quitain!
Q: What is a common carrier? Q: What is the Registered Owner Rule?
A: Art. 1732. Common carriers are A: It pertains to the rule that whoever
persons, corporations, firms or is registered in the LTFRB as the owner
associations engaged in the business of the vehicle is primarily liable.
of carrying or transporting passengers
or goods or both, by land, water, or Q: What is the objective?
air, for compensation, offering their A: To know who is the party liable in
services to the public. cases where there is negligence.
Q: Is a travel agency a common Q: What is the reason?
carrier? A: To expedite compensation for the
A: No. They only expedite the travel. aggrieved party.
Q: Are towage services common Q: Is there a remedy for the registered
carriers? owner?
A: No. They only load or unload. A: After compensation, he may go
after the party who incurred such
CASE: De Guzman v. CA negligence.
- 1732 does not distinguish Q: Is there an instance where he is
- Even ancillary in nature precluded?
A: Under the kabit system, he is
CASE: It Sian precluded because both the owner and
the driver are in pari delicto.
- even if they have no common
routes they are still common
carriers.
A:
Q: Distinguish private and common

carriers:
Common Private Carriers (2) Act of the public enemy in
Carrier war, whether international or
civil;
1. holds himself 1. contracts with
out for all people particular (3) Act of omission of the
indiscriminately individuals or shipper or owner of the goods;
groups only
(4) The character of the goods
2. extraordinary 2. ordinary or defects in the packing or in
diligence is diligence is the containers;
required required
(5) Order or act of competent
3. subject to State 3. not subject to public authority.
regulation State regulation
Art. 1735. In all cases other than
those mentioned in Nos. 1, 2, 3, 4,
4. parties may not 4. parties may and 5 of the preceding article, if the
agree on limiting limit the carriers goods are lost, destroyed or
the carriers liability provided deteriorated, common carriers are
liability except it is not contrary presumed to have been at fault or to
when provided by to law, morals or have acted negligently, unless they
law good customs prove that they observed
extraordinary diligence as required in
5. exempting 5. general Article 1733.
circumstance; exempting
prove circumstance; CASE: Camanlong v. Eastern Shipping
extraordinary caso fortuito, Art. Lines
diligence and Art. 1174 NCC
1733, NCC - Fire is attributable to the Civil
Code. The tank was defective.
6. there is 6. no presumption
presumption of of fault or CASE: Compaa Maritima v. CA
fault or negligence negligence
Facts: The shipment consists of heavy
equipments. The shippers however did
not represent the actual weight of its
ZVC: Ok. You may sit down. shipment. The payloader was
damaged.
Q: Vigilance over goods?
A: Art. 1734. Common carriers are Issue: Whether or not the shipping
responsible for the loss, destruction, or company is at fault.
deterioration of the goods, unless the Held: Yes.
same is due to any of the following Rationale: It should have inquired on
causes only: the actual weight and not rely on the
(1) Flood, storm, earthquake, representations of the shipper.
lightning, or other natural
disaster or calamity; NOTE: Article 1734 is only relevant to
carriage of goods.
Q: Are parties allowed to stipulate that (6) That the common carrier's
there is a lesser liability? liability for acts committed by
A: Yes. But only the liability is thieves, or of robbers who do
reduced. not act with grave or irresistible
threat, violence or force, is
dispensed with or diminished;
Art. 1744. A stipulation between the
common carrier and the shipper or (7) That the common carrier is
owner limiting the liability of the not responsible for the loss,
former for the loss, destruction, or destruction, or deterioration of
deterioration of the goods to a degree goods on account of the
less than extraordinary diligence shall defective condition of the car,
be valid, provided it be: vehicle, ship, airplane or other
equipment used in the contract
(1) In writing, signed by the of carriage.
shipper or owner;
Art. 1746. An agreement limiting the
(2) Supported by a valuable common carrier's liability may be
consideration other than the annulled by the shipper or owner if the
service rendered by the common carrier refused to carry the
common carrier; and goods unless the former agreed to
such stipulation.
(3) Reasonable, just and not
contrary to public policy. Q: In cases of robbers, may the
common carrier exempt itself from
liability?
Art. 1745. Any of the following or
A: It depends. If it is no longer under
similar stipulations shall be considered
the control of the carrier.
unreasonable, unjust and contrary to
public policy:
Q: Are carriers liable for the loss or
(1) That the goods are
destruction of goods?
transported at the risk of the
A: Yes. Under art. 1745, even spare
owner or shipper;
parts must not be defective.
(2) That the common carrier 1747 carrier may be
will not be liable for any loss,
precluded from taking
destruction, or deterioration of
advantage of stipulations
the goods;
limiting his liability when he
incurs delay.
(3) That the common carrier
need not observe any diligence
in the custody of the goods;
Art. 1747. If the common carrier,
without just cause, delays the
(4) That the common carrier transportation of the goods or changes
shall exercise a degree of the stipulated or usual route, the
diligence less than that of a contract limiting the common carrier's
good father of a family, or of a liability cannot be availed of in case of
man of ordinary prudence in the loss, destruction, or deterioration
the vigilance over the movables of the goods.
transported;
as common carriers, you
(5) That the common carrier cannot discriminate goods as
shall not be responsible for the long as you can carry it; only
acts or omission of his or its for legitimate excuses.
employees;
Held: Yes
Rationale: 1759. The passenger or the
victim already presented himself within
the premises of the carrier.
Refusal of goods: When legal?
Art. 1759. Common carriers are liable
1. packaging is for the death of or injuries to
defective/improper packaging passengers through the negligence or
2. by nature the goods are illegal wilful acts of the former's employees,
3. goods are dangerous although such employees may have
4. goods are injurious to health acted beyond the scope of their
5. over loading will not result authority or in violation of the orders
of the common carriers.
Q: To whom delivery should be made?
A: This liability of the common carriers
1. shipper does not cease upon proof that they
2. consignee exercised all the diligence of a good
father of a family in the selection and
Relativity Principle stipulations made supervision of their employees.
for 3rd persons.
CASE: Sealand Service v. IAC

Q: How long does it last?
A: It is stated in the case of La
- the consignee by the time he
mallorca.
assents to the stipulation, he
becomes legally bound by the
CASE: La Mallorca v. CA
agreement.
- Either expressly or impliedly
Facts: The means of transportation is a
- Agent of the consignee
passenger bus. The family alighted the
situation pour atrui
bus. The father went back to get the
bayong. The 4 year old child followed
Contract of carriage of passengers:
him. The passenger bus accelerated
and killed the child.
- the law requires utmost
diligence as far as human care
Issue: Whether or not the contract of
and foresight can provide.
carriage ceased to exist.
- Part of extraordinary diligence
Held: NO
is the conduct of its members.
Rationale: At the time the incident
- Commences only from the time
happened there was still contract of
the passenger presents himself
carriage. It exists until such a time
to the premises of the carrier.
when the passenger has already safely
alighted or collected its baggages.
CASE: LRT v. Navidad
CASE: Aboitiz Shipping v. CA
Facts: Navidad bought a token and
was waiting for the arrival of the train.
Facts: The passenger went back an
Navidad had an altercation with the
hour later to get his baggage. The
security guard, as a result, Navidad
crane while unloading, directly hit the
fell on the rails as the train was
passenger. He died.
coming. Navidad died.
Issue: Whether or not Aboitiz is liable.
Issue: Whether or not LRT is liable
Held: Yes.
since the victim did not yet board the
Rationale: The victim is still a
train.
passenger within the ambit of the
court. In La mallora, the capacity of CASE: Bachelor Express v. CA
the ship with the bus is different.
Facts: A passenger bus was traveling
Liability for conduct of employees and when a passenger stabbed another
agent: passenger. The other passengers
became hysterical, the driver sped up.
Article 1750 carriers are liable Passengers alighted through the
although they may have acted beyond window and 2 of them died.
the scope of their duties.
Issue: Whether or not the contention
CASE: Paranan v. Perez of the carrier is tenable.
Facts: Taxicab driver stabbed the Held: NO

passenger. Rationale: It was still within the control
of the employee of the carrier.
Issue: Whether or not the carrier is
liable. CASE: Pilapil v. CA
Held: Yes Facts: A tambay threw a stone at the

bus. A passenger was hit when the
Rationale: Art. 1759. Common carriers glass shattered due to the stone.
are liable for the death of or injuries to Passenger filed a case against the
passengers through the negligence or carrier.
wilful acts of the former's employees,
although such employees may have Issue: Whether or not the carrier is
acted beyond the scope of their liable.
authority or in violation of the orders
of the common carriers. Held: NO
Rationale: It is beyond the control of
This liability of the common carriers the carrier. Carrier is not an insurer of
does not cease upon proof that they all the risks.
exercised all the diligence of a good
father of a family in the selection and NOTE:
supervision of their employees.
Baggages it depends if it was
Conduct of 3 persons:
rd checked in or not.
if hand carried; carrier is liable only
Art. 1763 the carrier is answerable as a depositary.
for the conduct of 3rd parties only if his as a depositary. Ordinary diligence
own employees and agents exercise is required.
ordinary diligence. when checked in
- Extra ordinary Diligence
- Principles of common carriers
Art. 1763. A common carrier is arise
responsible for injuries suffered by a
passenger on account of the wilful acts
or negligence of other passengers or Q: Why is it ED?
of strangers, if the common carrier's A: due to public interest
employees through the exercise of the
diligence of a good father of a family Q: How do you exercise ED?
could have prevented or stopped the A: Ship sea worthiness
act or omission. Aircraft airworthiness
Motor vehicle road worthiness
Sea worthiness
= contract with carrier
1. fitness of the vessel
2. cargo worthy Effect of negligence of shipper or
3. whether fit for high seas passenger:
4. adequately equipped
5. adequate supplies
6. competent master and Art. 1741. If the shipper or owner
sufficient number of crew merely contributed to the loss,
members. destruction or deterioration of the
goods, the proximate cause thereof
Roadworthiness being the negligence of the common
carrier, the latter shall be liable in
1. properly maintained damages, which however, shall be
2. observe traffic regulations. equitably reduced.
Airworthiness Art. 1761. The passenger must

observe the diligence of a good father
RA 775 of a family to avoid injury to himself.
ASSIGNMENT FINISH
Art. 1762. The contributory negligence
TRANSPORTATION LAW
of the passenger does not bar
recovery of damages for his death or
February 23, 2008
injuries, if the proximate cause thereof
is the negligence of the common
PERIODS
carrier, but the amount of damages
shall be equitably reduced.
- pertinent periods in which to
file a case where cause of
action is breach of contract of Doctrine of comparative negligence:
carriage.
- Cause of action is contractual in - if the accident was caused by
character. plaintiffs own negligence, no
- Culpa contractual civil in liability is imposed. If caused by
character defendant is only defendants negligence, and
the carrier. plaintiffs negligence merely
contributed to his injury,
Conduct of carrier: damages are apportioned.
- Contributory negligence on the
- also bring about after causes of part of the passenger is not a
action. Ie. Reckless driver defense that will excuse the
- criminal liability subsidiary carrier from liability. It will only
liability arise only when mitigate such liability.
accused driver is found at fault. - To become a successful
- Culpa aquiliana proper defense, the act of the carrier is
defendants: both driver and the proximate cause. The loss,
carrier there should be no fault on the
part of the shipper.
For com rev- cause of action is breach
of contract of carriage. Payment of freight:
proper defendant The consignee to whom shipments

was made, may not defer the payment
- carrier alone
of the expenses and transportation
charges of the goods they received
Why? No contract with driver = only
after the lapse of 24 hours following
agent of principal.
their delivery, and in case of delay in
this payment, the carrier may demand cordage and sails, food, water, fuel
the judicial sale of the goods and lights, and other necessary or
transported in an amount necessary to proper stores and implements for the
cover the cost of transportation and voyage. (ICP)
the expenses incurred. (374 code of
commerce)
the goods transported shall be Delsan Transport
especially found to answer for the cost
of transportation and for the expenses - mere certificate of
and fees incurred for them during their seaworthiness is not sufficient
conveyance and until moment of their to negate the presumption of
delivery. (375 code of commerce) negligence.
- Seaworthiness is a question of
Liability of demurrage: fact.
- compensation for the detention Seawothiness ability to withstand the

of the vessel beyond the time hazards of the voyage.
agreed for the loading and
unloading of the goods. 1. within its cargo
- Compensated because of delay. 2. space facilities to reserve the
goods
EXTRA ORDINARY DILIGENCE IN 3. storage
CARRIAGE BY SEA 4. leakage
5. within the vessel is property
- seaworthiness of the vessel equipped and manned.
Sec. 3. (1) The carrier shall be bound Seaworthy of a particular voyage

before and at the beginning of the but not with other voyages.
voyage to exercise due diligence to
Captains and masters of vessels must
(a) Make the ship seaworthy; be Filipinos, having legal capacity to
bind themselves in accordance with
(b) Properly man,equip, and supply this code and must prove that they
the ship; have the skill, capacity and
qualifications reguired to command
(c) Make the holds, refrigerating and and direct the vessel, as established
cooling chambers, and all other parts by marine laws, ordinances or
of the ship in which goods are carried, regulations, or by those of navigation,
fit and safe for their reception, and that they are not disqualified
carriage, and preservation. according to the same for the
discharge of the duties of that
(2) The carrier shall properly and position.
carefully load, handle, stow, carry,
keep, care for,and discharge the goods If the owner of a vessel desires to be
carried. (COGSA) the captain, thereof, and does not
have the legal qualifications,
Sec. 116. A warranty of seaworthiness thereafter, he shall limit himself to the
extends not only to the condition of financial administration of the vessel
the structure of the ship itself, but and shall intrust her navigation to the
requires that it be properly laden, and person possessing the qualifications
provided with a competent master, a required by said ordinances and
sufficient number of competent regulations.(art.609 code of
officers and seamen, and the requisite commerce)
appurtenances and equipment, such
as ballasts, cables and anchors, - qualifications of the captain:
a. citizenship CASE: Japan Airlines v. Michaels
b. required expertise (8/25/05)
Facts: Petitioner failed to pass the

interview for the shorepass. Instead of
staying in Manila Hotel, they stayed in
CASE: standard vacuum v. Luzon a rest house. Petitioner sued for
(April 18, 1956) breach of contract.
- the ship captain has no license; Held: The airline has no duty to inquire
thus, he is incompetent, Hence; into the veracity of the details the
the ship is not properly petitioner entered into their travel
manned. papers. Power to admit or not an alien
is a sovereign act which cannot be
Rule on deviation and transshipment: interfered with even by the airlines. It
is beyond the ambit of the contract of
if there is an agreement between the carriage.
shipper and the carrier, as to the road
over which the conveyance is to be Airworthiness:
made, the carrier may not change the
result, unless, it be by reason of force - the aircraft and its engines and
majeure; and should he do so without propellers as well as its
this cause, he shall be liable for all the accessions and equipments are
losses which the goods he transports of proper design and
may suffer from any other cause, constructions safe for air
resides paying the sum which may navigation, consistent with
have been stipulated for such case. accepted engineering aircrafts
service.
When on account of said cause of force
majeure, the carrier had to take BILL OF LADING AND OTHER
another route which produced an FORMALITIES
increase in transportation charges, he
shall be reimbursed for such increase Bill of lading
upon formal proof thereof. (359 CC) - a written acknowledgment of
receipt of goods and agreement
EXTRAORDINARY DILIGENCE IN to transport them to a specific
CARRIAGE BY LAND place to a person named or to
his order.
1. Traffic rules and regulations (RA
4136) Classes of bill of lading:
2. Condition of motor vehicle.
1. On board
- if violation of traffic rules has
been committed, presumption: - states that the goods have
does not observe due diligence. been received on board the
specified vessel that will carry
EXTRAORDINARY DILIGENCE IN them.
CARRIAGE BY AIR
2. Received Shipment
Singapore airlines case:
- states that the goods have
- liable for moral damages due to been received for shipment
disrespectful conduct of its with or without specifying the
employees. vessel on which they are to be
shipped.
1. contract between
NATURE OF BILL OF LADING carrier and shipper
2. proof of receipt of the
The legal evidence of the contract goods
between the shipper and the carrier 3. document of title.
shall be the bills of lading.
- of which disputes may arise 1. As a contract:
regarding their execution and
performance shall be guided, A. Basic stipulations in a bill of
no exceptions being admissible lading:
other than those of falsity and
material error in the drafting. 350 CC:
- After the contract has been
complied with, it shall be The shipper, as well as the carrier of
returned to the carrier and by merchandise of goods may mutually
virtue of the exchange of this demand that a bill of lading be made;
title with the thing transported stating:
the respective actions and
obligations shall be considered 4. name, surname,
cancelled, unless the same act residence of shipper.
the claim which the parties may 5. name, surname,
wish to reserve be reduced to residence of carrier;
writing. 6. name, surname,
- In case the consignee, upon residence of the person
receiving the goods cannot to whom or to whose
return the bill of ladings, order the goods are to
because of its loss or any other be sent or whether they
cause, he must give the latter a are to be delivered to
receipt for the goods delivered, the bearer of said bills.
this receipt producing the same 7. description of the
effects as the return of the bill goods, with statement
of lading. of their kind, weight,
and of the external
709 CC: marks or signs of the
packages in which they
Bill of lading are contained;
8. cost of transportation
- proof as between all those 9. date on which shipment
interested in the cargo and is mad;
between the latter and the 10. place of delivery to the
underwriters, proof to the carrier
contrary being reserved by the 11. place and time at which
latter. delivery to the
- SEC.3(4) Such a bill of lading consignee shall be
shall be prima facie evidence of made;
the receipt by the carrier of the 12. indemnity to be paid by
goods as therein described in the carrier in case of
accordance with paragraphs (3) delay if there should be
(a), (b), and (c), of this any agreement on this
section: (The rest of the matter.
provision is not applicable to
the Philippines). COGSA 707 CC:
3 important factors: - 4 true copies of the original bill

of lading, all of which shall be
signed by the captain and by A: he immediately acquires the
the shipper. obligation from carrier to hold the
goods and take care of it as if he
708 CC: directly contracted with the common
carrier.
- the bill of lading is issued to the
bearer and sent to the If only assigned:
consignees, shall be
transferable by actual delivery - to acquire only right to
of the instrument and those to substitute the original holder
order by indorsement. prior notice.
- In their case, the person to - 3rd party has a greater right.
whom the BOL is transferred
shall acquire all the rights and If purely a warehouseman, contract is
actions of the assignor or merely a deposit.
indorser with regard to the
merchandise mentioned. In a BOL contract is one of carriage.
710 CC Q: Is consignee a party to the contract

of carriage?
- should the bill of lading not A: No. His consent is not even
agree, and there should be necessary to perfect such contract.
observed any correction or
erasure, any of them, those - stipulation for benefit of
possessed by the shipper or consignee = a stipulation pour
consignee signed by the captain atrui.
shall be proof against the
captain or ship agent in favor of 713 CC
the consignee; and there
possessed by the captain or - if a new BOL is demanded of
ship agent shall be proof the captain before delivering
against the shipper or the cargo:
consignee in favor of the
captain and shipagent. - captain is obliged to issue it.
711 CC - Provided: security for the value

of the cargo is given to his
- failure to present BOL satisfaction.
- holder shall be liable for the
cost of the warehousing and 714 CC
other expenses arising
therefrom. Death of captain, or discontinuance
in his position:
712 CC - shipper may demand the new
captain ratification of the first
- Captain cannot himself change the bills of lading provided:
destination of merchandise.
a. all copies previously issued be
returned
b. it should appear from an
Q: Where will he be more protected? examination of the cargo that
A: if he acquired BOL by negotiation they are a contract.
Q: Why? 716 CC
if several parties should present bills of
lading issued to bearer or to order,
indorse in their favor demanding the
same merchandise, the captain shall
prefer in delivering the same, the
person presenting the copy first
issued; exception: when the said copy B. Prohibited Stipulations (Article
was issued on account of the loss of 1745, NCC)
the first one and both are presented
by different persons. Art. 1745. Any of the following or
- In such case, as well as where similar stipulations shall be considered
only the second or subsequent unreasonable, unjust and contrary to
copies issued without that proof public policy:
are presented, the captain shall
apply to the judge or court, so (1) That the goods are
that it may order the deposit of transported at the risk of the
the merchandise, and that owner or shipper;
through its mediation it may be
delivered to the proper person. (2) That the common carrier
will not be liable for any loss,
717 CC destruction, or deterioration of
the goods;
Delivery of the bill of lading
- effect of the cancellation of all need not observe any diligence
the provisional receipts of prior in the custody of the goods;
date given by the captain or his
sub alterns for partial deliveries
of the cargo which may have
shall exercise a degree of
been made.
diligence less than that of a
good father of a family, or of a
718 CC
man of ordinary prudence in
the vigilance over the movables
- After delivery of cargo, BOL
transported;
shall be returned to the captain
the receipt for the
merchandise. (5) That the common carrier
shall not be responsible for the
acts or omission of his or its
Sec. 4(5) Neither the carrier nor the employees;
ship shall in any event be or become
liable for any loss or damage to or in
(6) That the common carrier's
connection with the transportation of
liability for acts committed by
goods in an amount exceeding $500
thieves, or of robbers who do
per package of lawful money of the
not act with grave or irresistible
United States, or in case of goods not
threat, violence or force, is
shipped in packages, per customary
dispensed with or diminished;
freight unit, or the equivalent of that
sum in other currency, unless the
nature and value of such goods have (7) That the common carrier is
been declared by the shipper before not responsible for the loss,
shipment and inserted in the bill of destruction, or deterioration of
lading. This declaration, if embodied in goods on account of the
the bill of lading, shall be prima facie defective condition of the car,
evidence, but shall not be conclusive vehicle, ship, airplane or other
on the carrier.(COGSA)
equipment used in the contract warehouseman or other bailee to
of carriage. deliver the goods to bearer, to a
specified person or order of a specified
2. As a document of title: person or which contains words of like
import, has placed upon it the words
"not negotiable," "non-negotiable" or
Art. 1508. A negotiable document of the like, such document may
title may be negotiated by delivery: nevertheless be negotiated by the
holder and is a negotiable document of
title within the meaning of this Title.
(1) Where by the terms of the
But nothing in this Title contained shall
document the carrier,
be construed as limiting or defining the
warehouseman or other bailee
effect upon the obligations of the
issuing the same undertakes to
carrier, warehouseman, or other bailee
deliver the goods to the bearer;
issuing a document of title or placing
or
thereon the words "not negotiable,"
"non-negotiable," or the like. (n)
(2) Where by the terms of the
document the carrier,
Art. 1513. A person to whom a
warehouseman or other bailee
negotiable document of title has been
issuing the same undertakes to
duly negotiated acquires thereby:
deliver the goods to the order
(1) Such title to the goods as
of a specified person, and such
the person negotiating the
person or a subsequent
document to him had or had
endorsee of the document has
ability to convey to a purchaser
indorsed it in blank or to the
in good faith for value and also
bearer.
such title to the goods as the
person to whose order the
Where by the terms of a negotiable goods were to be delivered by
document of title the goods are the terms of the document had
deliverable to bearer or where a or had ability to convey to a
negotiable document of title has been purchaser in good faith for
indorsed in blank or to bearer, any value; and
holder may indorse the same to
himself or to any specified person, and
(2) The direct obligation of the
in such case the document shall
bailee issuing the document to
thereafter be negotiated only by the
hold possession of the goods
endorsement of such endorsee. (n)
for him according to the terms
of the document as fully as if
Art. 1509. A negotiable document of such bailee had contracted
title may be negotiated by the directly with him. (n)
endorsement of the person to whose
order the goods are by the terms of
Art. 1515. Where a negotiable
the document deliverable. Such
document of title is transferred for
endorsement may be in blank, to
value by delivery, and the
bearer or to a specified person. If
endorsement of the transferor is
indorsed to a specified person, it may
essential for negotiation, the
be again negotiated by the
transferee acquires a right against the
endorsement of such person in blank,
transferor to compel him to endorse
to bearer or to another specified
the document unless a contrary
person. Subsequent negotiations may
intention appears. The negotiation
be made in like manner. (n)
shall take effect as of the time when
the endorsement is actually made. (n)
Art. 1510. If a document of title which
contains an undertaking by a carrier,
3. As to receipt.
- shipowner is answerable to the
conduct of the captain.
RELEVANT PROVISIONS IN THE - Carrier is answerable to breach
WARSAW CONVENTION of contract of carriage as far as
shipper, consignee or
passengers are concerned.
MARITIME LAW Q: if captain was negligent and goods
are lost against whom would liability
- system of laws which be enforce?
particularly relates to the affairs A: carrier ship owners are
and business of the sea, ship answerable to the conduct of his
and their crew, and the employees.
navigation and the maritime = extraordinary diligence required.
conveyance of persons and
properties. shipowner could excuse himself
from liability if ship would
LIMITED LIABILITY RULE perish completely.
- loss of the vessel will Q: If part of ship is still surviving what

extinguish the liability of the would shipowner do?
ship-owner or ship agent to 3 rd A: Liability of owner limited to the
parties. value of the ship if there is a surviving
- Limited to the value of the ship. part, liability would only be limited up
to the surviving part. But ship owner
Q: Whose liability is affected by the can be totally excused from liability if
rule? he abandons that part.
A: owner of the ship and ship agent.
Q: If in the course of the voyage the
Ship agent person/ entity in charge vessel collided with another ship,
of providing the vessel and that which would the ship owner be excused from
represents the ship at whatever part it liability?
may be found. A:
- if vessel is totally lost YES
Liability contemplated: - if partly lost only to the part
lost
587 liability for losses or injuries to
third parties may have suffered arising CASE: Luzon Stevedoring v. CA
from the acts of the captain in the
handling of goods transported. - abandonment is a requirement
for total extinguishment of
837 liability arise from collision liability in cases where there is
a partial loss. In case of total
643 capture/ shipwreck of the vessel. loss, abandonment is no longer
required because there is
Limited liability rule works to the nothing to abandon.
advantage of ship owner or ship agent. - Such rule should not be
subjected to abuse.
Q: Why?
A: origin dates back to the medieval Exceptions:
times because of the attendant risks.
1. ship owner is also at fault
537 liability of captains conduct in
handling of goods also those of - ship owner is equally negligent
passengers. as that of his agent.
- Eg. Ship owner tolerated the - to the extent it is collected/
negligence of the ship captain. collectible.
- Concurrently negligent. - Liability will survive
CASE: Monarch Insurance v. CA
CASE: Delta Shipping Co. (Dec. 20, - rule not obsolete by the
2004) advancement of modern
technology which considerably
- doctrine of limited liability does lessened maritime risk.
not apply where loss occurred
due to the concurrent CONDITIONS OF VESSELS: SPECIAL
negligence of the ship owner RULES
and the captain.
- Ship owner allowed improper 1. acquired by any of the lawful
stowage of cargo of logs thus means found in the civil code.
ship was lost. prescription
2. intellectual creations design
2. When vessel is insured 3. Prescription: acquisitive
possession of ship period: 3
CASE: Bianco v. Lacerna (Oct. 29, years.
1941)
ship is movable property
- whatever loss ship owner have a real property by stipulation
will be indemnified by the estoppel
insurance company. 3 years good faith in part of
- Liability will survive up to the possessor
proceeds of insurance which 10 years ordinary
shipowner starts to get. prescription.
3. Liability is pursuant to 4. Ship captain
workmens compensation act: service for 25 years-
retirement.
CASE: Aboitiz v. San Diego (77 Phil Possession only as
130) employee of the ship
owner.
- crew was injured or died
- extend financial assistance to Q: May the ship captain be an owner
those workers who may have of the ship through acquisitive
suffered injuries in the prescription?
performance of their duties or A: No. The law requires more than
who died thereof as a possession. Open, continuous,
consequence of their duties. exclusive, adverse, notorious
- Liability survives even if there possession. (OCEAN)
is total loss of the ship.
- Liability is not strictly maritime Persons involved in maritime
in character as contemplated in commerce:
articles 587m 643, 837.
- It is in the nature of a labor 1. ship owner
claim. 2. ship agent
3. ship captain
4. Freightage incurred even prior - subject to qualification in code
to voyage: of commerce:
a. Filipino
b. Capacity to contract transfer is a contract of
c. Qualified under existing affreightment.
maritime and navigation laws
and regulations. Q: When will a situation arise where
d. Not suffer from any the shipowner is liable?
disqualifications. A: When there is a defect or
e. Officer/executive officer as far unseaworthiness was concealed by the
as the complainant is owner.
concerned.
Article 658 the validity of the charter
Legal capacity to contract: party is not affected when the ship
captain did not follow the instructions
- by nature of functions, captain of the owner.
has independent powers which
he cannot exercise without any Q: Can the ship charterer sub charter?
such capacity. A: Yes. As long as he is not restricted.
Powers of the ship captain (621,612 of Loan on Ordinary

the code of commerce) Bottomry/Respondentia Loan
Must have collateral No
1. contract/ appoint the crew collateral
2. propose crew members needed
3. enjoin shipowner from In writing- private/public Need not
employing ather persons be in
4. he is in command of the vessel writing
5. can impose rules and Must be registered to bind Need not
regulations; conduct and third parties be
behavior of crew members. registered
6. can charter vessel subject to. Loss of collateral It does
extinguishes the loan as a not
February 25, 2008 special class general rule. extinguish
9-5pm (kahit may rally!) The preference is The
accorded to the last preference
Q: What happens if the captain is not lender is
capable of his work? accorded
A: The pilot becomes the master pro to the first
hac vice. lender.
Charter party contract by which the Q: Could you secure loan of

entire ship or some principal part bottomry/respondentia for any
thereof is let by the owner to another transaction?
person for a specified period of time or A: No. It must be for the use, repair of
use. ship/cargo.
a.) contract of affreightment Art. 731 Code of commerce

hire your vessel for a particular
voyage but you, mr.shipowner, - Gen. rule: If a vessel/cargo is
are still the master. Voyage or lost during the voyage the
time charter. lender is barred to collect.
b.) Demise or bareboat the - Exception: If it is the fault of
charterer mans the vessel with the borrower, it will not excuse
his own people and becomes him of liability. Ie. Barratry of
the owner pro hac vice. the captain, breach of trust,
Anything short of a complete contraband.
1. exposure of ship or cargo to

common danger;
2. for common safety, part of the
Loan may be regarded as simple loan vessel or of the cargo is
when: deliberately sacrificed.
3. sacrifice must be successful.
Art. 726,727 and 729
Art. 813
- deliberations made between the
726 where the amount of loan is captain, crews and other
larger than the value of the object, parties.
due to the fraud employed by the - There must be a resolution
borrower liability survives as to the from the captain, if the captain
surplus. Surplus will be repaid as if it was in bad faith, the supposed
were a simple loan. share of the other party will be
borne by the captain.
727 If the proceeds of the loan have
not been used for the purpose to Article 811: Cases where there is
which the loan was contracted. general average:
729 the property or thing have never 1. the redemption of

been exposed to maritime risk. vessel/cargoes from
enemies/pirates;
735 such loan should not be used on 2. goods jettisoned to lighten the
salaries of the employees and vessel
expected profits due to crew members. 3. cables or masts are abandoned
4. expenses of removing or
AVERAGE: transferring a portion of cargo
to lighten the vessel.
- includes all damages and 5. Damages in opening the vessel
expenses which are caused in to drain her.
order to save the vessel, its 6. expenses of curing and
cargo, or both at the same time maintaining the members of
from a real and known risk. the crew.
7. wages of crews held by the
Kinds: pirates
8. detention of the vessel to avoid
1. Simple/ particular the owner damages.
of the property who suffers loss
cannot claim reimbursement Q: Does the sacrifice need to be
from others. The owner of the incurred during the voyage?
goods which gave rise to the A: No. Article 817
expense or suffered the 1. sinking of vessel is necessary to
damage shall bear the loss. extinguish a fire in the port.
2. General/ gross The one who 2. goods are needed to be
suffered a loss would have the transferred because there is a
right to claim storm and the same is
reimbursement/indemnification necessary to facilitate port
from those benefited of the entry.
sacrifice made, or from those
who are interested in the COLLISION:
success of the voyage.
- impact or sudden contact
Requisites: between 2 moving vessels.
Doctrine of error in extremis:

- if a sudden movement was
Doctrine of Inscrutable fault: made by a faultless vessel
during the 3rd zone of collision,
- in a collision, the vessel at fault with another vessel which is at
shall indemnify the damages fault during the 2nd zone, even
sustained or losses incurred if such sudden movement is
and if both vessels were at wrong, no responsibility is
fault, each shall suffer its own attributable to the faultless
damages and both shall be vessel.
solidarily liable.
- Where fault is established but it Arrival under stress:
cannot be determined which of
the 2 vessels were at fault, - arrival of the vessel at the
both shall be presumed to have nearest and most convenient
been at fault. part, if during the voyage, the
vessel cannot continue the trip
Doctrine of last clear chance: to the port of destination due
to:
- where parties are equally
negligent, but one them has a. lack of provisions
the last clear chance or b. well-founded fear of seizure,
opportunity to prevent the privateers or pirates and
impending danger, he, who c. by reason of any accident of
failed to do so, shall suffer the the sea disabling it to navigate.
consequential damages.
INSURANCE
CASE: Tiu v. Arriesgado
- any ambiguity will be resolved
- the doctrine of last clear chance in the favor of the insured.
has no application in a collision - Aleatory contracts happening
of vessels in maritime of a contingent event.
commerce. It only applies to - Purpose is to compensate the
motor vehicles, where both insured for the actual damage
vehicles are at fault, and the he has incurred.
suit is between owners of - Contract of indemnity
colliding vehicles; and not in - According to our friend Golum
suits between passengers and life is my precious
owners. - Contract of utmost good faith.
Principle of subrogation
3 zones: - when the insurer pays the
insured, the insurer steps in the
1. first zone time up to the shoes of the insured.
moment when risk of collision - Operation of law
begins.
2. second zone time between contracts of insurance are
moment when risk of collision consensual they are perfected
begins up to the moment it by the meeting of minds of the
becomes practically certain. insurer and insured.
3. third zone time when collision
is certain up to the time of Cognition principle
impact.
- the moment the original owner, unless otherwise
acknowledgment is provided for in the policy.
communicated to the offeror.
Insurable interest: connection with the
CASE: Enriquez v. Sun Life Insurance thing insured that he derives pecuniary
benefit from it being preserved or from
Facts: Application was made to Sun the happening of event.
Life. The office was at Canada. The
Canada office accepted it and if insurable interest is not
transmitted it to the Manila office. required, then the order in this
Enriquez died before it was world would be destruction.
communicated to him.
Life and Property insurance:
Issue: Whether or not the contract
was perfected. Property Life
Held: No. Must exist at the Must exist at the
Rationale: The cognition principle time of the time the policy is
teaches us that only upon happening of the taken.
communication to the offeror is the lost. Exception:
contract perfected. creditor insures
the life of the
Parties: debtor .
Exception to the
Sec. 3. Any contingent or unknown exception: the
event, whether past or future, which debt must not yet
may damnify a person having an be extinguished.
insurable interest, or create a liability Extent of the Incapable of
against him, may be insured against, damage to the pecuniary
subject to the provisions of this property. estimation.
chapter. The consent of the husband is Exception:
not necessary for the validity of an creditor limit is
insurance policy taken out by a the amount of the
married woman on her life or that of obligation.
her children. Anyone who has Anyone may be a
Any minor of the age of insurable interest beneficiary
eighteen years or more, may, in the property. subject to Art.
notwithstanding such minority, 2012 of the civil
contract for life, health and accident code; another life
insurance, with any insurance is insured.
company duly authorized to do
business in the Philippines, provided
Art. 2012. Any person who is
the insurance is taken on his own life
forbidden from receiving any donation
and the beneficiary appointed is the
under Article 739 cannot be named
minor's estate or the minor's father,
beneficiary of a life insurance policy by
mother, husband, wife, child, brother
the person who cannot make any
or sister.The married woman or the
donation to him, according to said
minor herein allowed to take out an
article. Civil code
insurance policy may exercise all the
rights and privileges of an owner
under a policy.
Art. 739. The following donations shall
All rights, title and interest in
be void:
the policy of insurance taken out by
an original owner on the life or health
of a minor shall automatically vest in (1) Those made between
the minor upon the death of the persons who were guilty of
adultery or concubinage at the Mortgage:
time of the donation;
(2) Those made between

persons found guilty of the
same criminal offense, in
consideration thereof;
(3) Those made to a public

officer or his wife, descedants A- mortgagor 2M
and ascendants, by reason of B- mortgagee 1M
his office. Separate and distinct policies.
Exception: if mortgagor procures a
policy then designates a mortgagee a
In the case referred to in No. 1, the
beneficiary.
action for declaration of nullity may be
If at the time of the loss, the
brought by the spouse of the donor or
obligation has been paid, B cannot
donee; and the guilt of the donor and
recover because he has no insurable
donee may be proved by
interest.
preponderance of evidence in the
Q: Who gets the proceeds?
same action.(civil code)
A: Mortgagee because he did not
cease to become a party to the
Property Insurance:
contract.
ABfire policy (1yr repurchase)
- if mortgagor fails to pay the
premium, he remains to be a
L_____________________________I
party.
Policy was event of loss
Taken
Relativity principle:
Exceptions:
Art. 1311. Contracts take effect only
between the parties, their assigns and
1. life insurance
heirs, except in case where the rights
2. the transfer to a co-
and obligations arising from the
owner of an undivided
contract are not transmissible by their
interest
nature, or by stipulation or by
a. if stranger fire policy is
provision of law. The heir is not liable
partially suspended.
beyond the value of the property he
b. If co-owner no suspension
received from the decedent.
3. transfer by will or
If a contract should contain some
succession.
stipulation in favor of a third person,
he may demand its fulfillment
A owns the warehouse. He transferred
provided he communicated his
the policy to B. A died and one of his
acceptance to the obligor before its
heirs is B. B now owns the warehouse.
revocation. A mere incidental benefit
The policy is not suspended.
or interest of a person is not sufficient.
The contracting parties must have
4. divisible in character.
clearly and deliberately conferred a
5. sec. 57
favor upon a third person. (1257a)
(civil code)
Sec. 57. A policy may be so framed
that it will inure to the benefit of
whomsoever, during the continuance
of the risk, may become the owner of
the interest insured.
Effect of insurance attained by disadvantages of the proposed
mortgage: contract, or in making his inquiries.
1. mortgagee can collect - the concealment must not be

the proceeds. contributory to the death or
2. mortgagor has no right illness. The same is true with
to collect the balance of representation.
the proceeds. - You may change representation
Eg. 500k he got 1M. Who gets the when the policy is not issued.
500k extra? None Exception: Waiver fault of the
insurer.
3. Insurer pays the insured
mortgagee. Remedies:
4. Insurer as a subrogee,
may pursue the Misrepresentation/Concealment
mortgagor. Recission; when an action to the policy
5. payment by the insurer is commenced. Insured files a
does not relieve the complaint for payment of insurance
mortgagor of his loan proceeds. As he may raise
obligation. misrepresentation or concealment as
an answer.
Concept of MRI: Mortgage Redemption
Insurance Exception: Statutory incontestability
clause:
- Life insurance procured by the
mortgage or designating the - applicable only to life insurance
mortgagee as beneficiary up to payable upon the death of the
the extent of the mortgage insured.
indebtedness it protects both - They cannot contest after two
parties, when the mortgagor years.
dies, the policy pays the - His death has already sealed
mortgagee, hence relieving his his lips.
heirs from liability.
Warranties:
Devices to control risk and loss:
- has something to do with the
1. concealment consent contract.
2. representation consent - Matters that would affect the
3. warranty actual performance of the
4. exclusions/exceptions obligation.
excluded from the coverage.
5. conditions usually procedural Policy:
measures.
There is no requisite that it be put into
Concealment neglect to writing.
communicate vital information.
Sec. 51. A policy of insurance must
Representation wrong information specify:
(a) The parties between whom
Sec. 31. Materiality is to be the contract is made;
determined not by the event, but
solely by the probable and reasonable (b) The amount to be insured
influence of the facts upon the party to except in the cases of open or
whom the communication is due, in running policies;
forming his estimate of the
(c) The premium, or if the
insurance is of a character Premium:
where the exact premium is
only determinable upon the Sec. 77. An insurer is entitled to
termination of the contract, a payment of the premium as soon as
statement of the basis and the thing insured is exposed to the
rates upon which the final peril insured against. Notwithstanding
premium is to be determined; any agreement to the contrary, no
policy or contract of insurance issued
(d) The property or life by an insurance company is valid and
insured; binding unless and until the premium
thereof has been paid, except in the
(e) The interest of the insured case of a life or an industrial life policy
in property insured, if he is not whenever the grace period provision
the absolute owner thereof; applies.
(f) The risks insured against; Cash and carry rule

and - no policy of insurance is binding
upon the insurer.
(g) The period during which the - There is perfected contract of
insurance is to continue. insurance; until such time that
the insured has performed the
1. Open determined at the time prestation, the insurer will not
of loss; maximum recoverable. perform its premium.
2. valued there is valuation;
from the start, there was Exceptions:
already an amount.
3. running automatic 1. life and industrial life whenever
adjustment; to avoid over or the grace period applies and at
under insurance. the time of loss, the grace
period is not yet over.
Cover notes: 2. Sec. 78 whenever in the
policy itself there is an express
- insurance policies that provide acknowledgment by the insurer
temporary protection pending in the policy that premiums
the issuance of the main policy. have already been paid.
- Preliminary protection. 3. Makati Tuscany case
- Automatically superseded when installment.
the main policy is issued. 4. CASE: UCPB v. Masagana
- Masagana used to insure from
CASE: Pacific Timber v. CA UCPB fire insurance policies.
When the deadline of the
- no need to pay separate payment came, the premium
premium; the policy is already was not paid. A fire broke out.
binding; the validity is for 60 - SC ruled on sec. 77
days whether or not premium - Masagana file MR
has already been paid. - SC ruled that the 60-90 day
credit term is already a
a policy being a written practice. The fire occurred
contract must be included in during the 60-90 days.
the pleading. Masagana relied in good faith.
10 year period exception: The SC reversed due to
they may stipulate as long as it estoppel.
is more than one year.
Sec. 78. An acknowledgment in a Sec. 81. A person insured is entitled to

policy or contract of insurance or return of the premium when the
the receipt of premium is contract is voidable, on account of
conclusive evidence of its fraud or misrepresentation of the
payment, so far as to make the insurer, or of his agent, or on account
policy binding, notwithstanding any of facts, the existence of which the
stipulation therein that it shall not insured was ignorant without his fault;
be binding until the premium is or when by any default of the insured
actually paid. other than actual fraud, the insurer
never incurred any liability under the
Sec. 79. A person insured is policy.
entitled to a return of premium, as
follows: Sec. 82. In case of an over-insurance
by several insurers, the insured is
(a) To the whole premium if no entitled to a ratable return of the
part of his interest in the thing premium, proportioned to the amount
insured be exposed to any of by which the aggregate sum insured in
the perils insured against; all the policies exceeds the insurable
value of the thing at risk.
(b) Where the insurance is
made for a definite Beneficiaries:
period of time and the
insured surrenders his Q: Can the beneficiary sue the insurer
policy, to such portion if he is not paid?
of the premium as A: Yes
corresponds with the
unexpired time, at a when you insure the life of a
pro rata rate, unless a person and you are a
short period rate has beneficiary, you must have
been agreed upon and insurable interest.
appears on the face of
the policy, after Sec. 10. Every person has an
deducting from the insurable interest in the life and
whole premium any health:
claim for loss or (a) Of himself, of his spouse
damage under the and of his children;
policy which has
previously accrued; (b) Of any person on whom he
Provided, That no depends wholly or in part for
holder of a life education or support, or in
insurance policy may whom he has a pecuniary
avail himself of the interest;
privileges of this
paragraph without
(c) Of any person under a legal
sufficient cause as
obligation to him for the
otherwise provided by
payment of money, or
law.
respecting property or services,
of which death or illness might
Sec. 80. If a peril insured against has
delay or prevent the
existed, and the insurer has been
performance; and
liable for any period, however short,
the insured is not entitled to return of
premiums, so far as that particular (d) Of any person upon whose
risk is concerned. life any estate or interest
vested in him depends.
Q: Whenever a beneficiary is In the case referred to in No. 1, the
designated, may it be revoked? action for declaration of nullity may be
A: Gen. rule: Yes, except if it is brought by the spouse of the donor or
expressly stated that it is irrevocable. donee; and the guilt of the donor and
donee may be proved by
Exception to the exception: preponderance of evidence in the
same action.(civil code)
Art. 43 Family code of the Philippines.
Article 1236 beneficiary may
Art. 43. The termination of the continue to pay premiums. Exception
subsequent marriage referred to in the interested in the fulfillment of the
preceding Article shall produce the obligation.
following effects:
Art. 1236. The creditor is not bound to
(4) The innocent spouse may revoke accept payment or performance by a
the designation of the other spouse third person who has no interest in the
who acted in bad faith as beneficiary fulfillment of the obligation, unless
in any insurance policy, even if such there is a stipulation to the contrary.
designation be stipulated as
irrevocable; and Whoever pays for another may
demand from the debtor what he has
when you insure your life, you paid, except that if he paid without the
may designate as a beneficiary knowledge or against the will of the
anyone you want. debtor, he can recover only insofar as
Exception: the payment has been beneficial to
the debtor. (1158a)
Art. 2012. Any person who is March 1, 2008

forbidden from receiving any donation
under Article 739 cannot be named Q: When is there reinsurance?
beneficiary of a life insurance policy by A: When a person is insured by several
the person who cannot make any insurers. The insurer becomes the
donation to him, according to said insured.
article. Civil code
Q: Is there a risk?
A: Yes. The insurer becomes the
insured by another insurer; therefore
Art. 739. The following donations shall
the new insurer has liability.
be void:
Q: Is it the same as double insurance?
(1) Those made between A: No. they have different insurable
persons who were guilty of interests.
adultery or concubinage at the
time of the donation; Q: Is there a privity of contract
between original insured and
(2) Those made between reinsurer?
persons found guilty of the A: None. Article 1311 of the civil code
same criminal offense, in is the general rule.
consideration thereof;
Art. 1311. Contracts take effect only
(3) Those made to a public between the parties, their assigns and
officer or his wife, descedants heirs, except in case where the rights
and ascendants, by reason of and obligations arising from the
his office. contract are not transmissible by their
nature, or by stipulation or by
provision of law. The heir is not liable Sec. 275. Every foreign
beyond the value of the property he insurance company desiring to
received from the decedent. If a withdraw from the Philippines shall,
contract should contain some prior to such withdrawal, discharge its
stipulation in favor of a third person, liabilities to policyholders and creditors
he may demand its fulfillment in this country. In case of its policies
provided he communicated his insuring residents of the Philippines, it
acceptance to the obligor before its shall cause the primary liabilities
revocation. under such policies to be reinsured
and assumed by another insurance
A mere incidental benefit or interest of company authorized to transact
a person is not sufficient. The business in the Philippines. In the case
contracting parties must have clearly of such policies as are subject to
and deliberately conferred a favor cancellation by the withdrawing
upon a third person company, it may cancel such policies
pursuant to the terms thereof in lieu
Q: In case of loss, who will the original of such reinsurance and assumption of
insured go after? liabilities.
A: The original insurer.
Q: What is the scope of marine
look at secs. 215, 275 of the insurance?
ICP A: Maritime risks. Notice that the
objects are those which are mobile.
- whenever the risk exceeds 20%
of the net worth. Sec. 99. Marine Insurance includes:
- Foreign insurers are required to (1) Insurance against loss of or
post their primary liabilities for damage to:
Philippine residents.
(a) Vessels, craft,
aircraft, vehicles, goods,
Sec. 215. No insurance company other
freights, cargoes,
than life, whether foreign or domestic,
merchandise, effects,
shall retain any risk on any one
disbursements, profits,
subject of insurance in an amount
moneys, securities,
exceeding twenty per centum of its
choses in action,
net worth. For purposes of this
evidences of debts,
section, the term "subject of
valuable papers,
insurance" shall include all properties
bottomry, and
or risks insured by the same insurer
respondentia interests
that customarily are considered by
and all other kinds of
non-life company underwriters to be
property and interests
subject to loss or damage from the
therein, in respect to,
same occurrence of any hazard
appertaining to or in
insured against.
connection with any and
Reinsurance ceded as
all risks or perils of
authorized under the succeeding title
navigation, transit or
shall be deducted in determining the
transportation, or while
risk retained. As to surety risk,
being assembled,
deduction shall also be made of the
packed, crated, baled,
amount assumed by any other
compressed or similarly
company authorized to transact surety
prepared for shipment
business and the value of any security
or while awaiting
mortgage, pledged, or held subject to
shipment, or during any
the surety's control and for the
delays, storage,
surety's protection.
transhipment, or
reshipment incident A: Shipowners, cargo owners,
thereto, including war charterers.
risks, marine builder's Sec. 100. The owner of a ship has in
risks, and all personal all cases an insurable interest in it,
property floater risks; even when it has been chartered by
one who covenants to pay him its
(b) Person or property value in case of loss: Provided, That
in connection with or in this case the insurer shall be liable
appertaining to a for only that part of the loss which the
marine, inland marine, insured cannot recover from the
transit or transportation charterer.
insurance, including
liability for loss of or
damage arising out of or
in connection with the
construction, repair,
operation, maintenance M/V Quitain
or use of the subject
matter of such Shipowner insurable interest is full
insurance (but not value of 5M.
including life insurance
or surety bonds nor Q: If there is a mortgage, how much
insurance against loss may he insure?
by reason of bodily A: Still P5M
injury to any person
arising out of ownership, Q: Let us assume that the account of
maintenance, or use of the bottomry loan is P2M. Would that
automobiles); affect his insurable interest in the
vessel?
(c) Precious stones, A: It will extinguish. Principle of
jewels, jewelry, precious indemnity.
metals, whether in
course of transportation the actual potential damage is
or otherwise; only up to 3M. (sec. 101)
Sec. 14 any inchoate interest,
(c) Bridges, tunnels and expected right may be insured
other instrumentalities for unexpected perils.
of transportation and
communication Sec. 101. The insurable interest of the
(excluding buildings, owner of the ship hypothecated by
their furniture and bottomry is only the excess of its
furnishings, fixed value over the amount secured by
contents and supplies bottomry.
held in storage); piers,
wharves, docks and Sec. 14. An insurable interest in
slips, and other aids to property may consist in:
navigation and (a) An existing interest;
transportation, (b) An inchoate interest
including dry docks and founded on an existing
marine railways, dams interest; or
and appurtenant (c) An expectancy, coupled
facilities for the control with an existing interest in that
of waterways. out of which the expectancy
arises.
Q: Who are those who are interested?
Q: How do you differentiate 3. Voyage Policy no
concealment from marine and general transshipment.Commencement
insurance? of each stage, the ship must be
A: the applicability of the opinions of seaworthy.
3rd persons.
Q: What is more strict? Sec. 115. An implied warranty of

A: Marine. Because 3rd persons seaworthiness is complied with if the
opinions are considered. ship be seaworthy at the time of the of
commencement of the risk, except in
Q: What are the warranties? the following cases:
A: Sea worthiness, documents of
neutrality, improper deviation etc (a) When the insurance is
made for a specified length of
Sec. 113 warranty applies upon time, the implied warranty is
anything that is potentially covered by not complied with unless the
marine policy. ship be seaworthy at the
commencement of every
voyage it undertakes during
Sec. 113. In every marine insurance that time;
upon a ship or freight, or freightage, (b) When the insurance is upon the
or upon any thing which is the subject cargo which, by the terms of the
of marine insurance, a warranty is policy, description of the voyage, or
implied that the ship is seaworthy. established custom of the trade, is to
be transhipped at an intermediate
port, the implied warranty is not
CASE: Roque v. IAC complied with unless each vessel upon
which the cargo is shipped, or
- It is the obligation of the cargo transhipped, be seaworthy at the
owner to look for a common commencement of each particular
carrier which keeps its vessel in voyage
seaworthy condition. The
shipper of the cargo may not Deviation:
have control over the vessel,
but it has full control of the Q: When proper?
common carrier it will choose to A: Sec. 124
transport its goods.
Sec. 124. A deviation is proper:
General Rule:
- the seaworthiness starts from (a) When caused by
the commencement of the circumstances over which
voyage or the commencement neither the master nor the
of the risk. owner of the ship has any
control;
Exceptions:
(b) When necessary to comply
1. Time Policy the
with a warranty, or to avoid a
commencement of each voyage
peril, whether or not the peril is
the vessel must be seaworthy.
insured against;
(sec. 115)
2. Cargo Policy transshipment
(c) When made in good faith,
2 vessels (sec.115). At the
and upon reasonable grounds
commencement of each
of belief in its necessity to
segment, pertaining to each
avoid a peril; or
vessel must be seaworthy.
(d) When made in good faith, total loss thereof, when the cause of
for the purpose of saving the loss is a peril insured against:
human life or relieving another
vessel in distress. (a) If more than three-fourths
thereof in value is actually lost,
or would have to be expended
Q: When may you claim to the to recover it from the peril;
insurer?
A: Upon Loss. (b) If it is injured to such an
extent as to reduce its value
Q: 10,000 mungo, half of it became more than three-fourths;
togue. May he claim for the total
amount? (c) If the thing insured is a
A: No. Only 50% ship, and the contemplated
voyage cannot be lawfully
Q: Actual or total loss? performed without incurring
A: Sec. 130 either an expense to the
insured of more than three-
Sec. 130. An actual total loss is cause fourths the value of the thing
by: abandoned or a risk which a
prudent man would not take
(a) A total destruction of the under the circumstances; or
thing insured;
(d) If the thing insured, being
(b) The irretrievable loss of the cargo or freightage, and the
thing by sinking, or by being voyage cannot be performed,
broken up; nor another ship procured by
the master, within a reasonable
(c) Any damage to the thing time and with reasonable
which renders it valueless to diligence, to forward the cargo,
the owner for the purpose for without incurring the like
which he held it; or expense or risk mentioned in
the preceding sub-paragraph.
(d) Any other event which But freightage cannot in any
effectively deprives the owner case be abandoned unless the
of the possession, at the port ship is also abandoned.
of destination, of the thing
insured.
Requisites of valid abandonment:
Sec. 138. Abandonment, in marine

Constructive total loss: insurance, is the act of the insured by
which, after a constructive total loss,
Sec. 131. A constructive total loss is he declares the relinquishment to the
one which gives to a person insured a insurer of his interest in the thing
right to abandon, under Section one insured.
hundred thirty-nine.
Sec. 139. A person insured by a
Sec. 139. A person insured by a contract of marine insurance may
contract of marine insurance may abandon the thing insured, or any
abandon the thing insured, or any particular portion thereof separately
particular portion thereof separately valued by the policy, or otherwise
valued by the policy, or otherwise separately insured, and recover for a
separately insured, and recover for a
total loss thereof, when the cause of was then in fact no total loss, the
the loss is a peril insured against: abandonment becomes ineffectual.
(a) If more than three-fourths Sec. 143. Abandonment is made by

thereof in value is actually lost, giving notice thereof to the insurer,
or would have to be expended which may be done orally, or in
to recover it from the peril; writing; Provided, That if the notice be
done orally, a written notice of such
(b) If it is injured to such an abandonment shall be submitted
extent as to reduce its value within seven days from such oral
more than three-fourths; notice.
(c) If the thing insured is a Sec. 144. A notice of abandonment

ship, and the contemplated must be explicit, and must specify the
voyage cannot be lawfully particular cause of the abandonment,
performed without incurring but need state only enough to show
either an expense to the that there is probable cause therefor,
insured of more than three- and need not be accompanied with
fourths the value of the thing proof of interest or of loss.
abandoned or a risk which a
prudent man would not take
under the circumstances; or
CTL + abandonment = actual total loss
(d) If the thing insured, being
cargo or freightage, and the General Average:
voyage cannot be performed,
nor another ship procured by Article 812; 859; 732 code of
the master, within a reasonable commerce
time and with reasonable
diligence, to forward the cargo, Requisites:
without incurring the like
expense or risk mentioned in 1. there must be common danger
the preceding sub-paragraph. 2. part of the vessel or cargo was
But freightage cannot in any sacrificed deliberately.
case be abandoned unless the 3. the sacrifice must be for the
ship is also abandoned. common safety or for the
benefit of all.
Sec. 140. An abandonment must be 4. it must be made by the master
neither partial nor conditional. upon his authority.
5. it must be successful.
6. it must be necessary.
Sec. 141. An abandonment must be
made within a reasonable time after
Those who have insurable interest:
receipt of reliable information of the
loss, but where the information is of a
1. shipowner
doubtful character, the insured is
2. charterer
entitled to a reasonable time to make
3. other cargo owners
inquiry.
4. lenders in respondentia and
bottomry (732)
Sec. 142. Where the information upon 5. Insurer
which an abandonment has been
made proves incorrect, or the thing Partial Average:
insured was so far restored when the
abandonment was made that there
Sec. 157. A marine insurer is liable
upon a partial loss, only for such
proportion of the amount insured by Exception to the 2 year period:
him as the loss bears to the value of insanity.
the whole interest of the insured in the
property insured. ZVC: Mr. Quitain!
Q: What is the compulsory motor
vehicle liability insurance?
Fire Insurance: A: sec. 374
Q: What kind of fire? Sec. 374. It shall be unlawful for any

A: Hostile fire land transportation operator or owner
of a motor vehicle to operate the same
Q: How many kinds of fire do we in the public highways unless there is
have? in force in relation thereto a policy of
A: Hostile and friendly. insurance or guaranty in cash or
surety bond issued in accordance with
Warranty: Alteration the provisions of this chapter to
indemnify the death, bodily injury,
Co insurance: and/or damage to property of a third-
party or passenger, as the case may
Requirements: be, arising from the use thereof. (As
amended by Presidential Decree No.
1. under insured 1455 and 1814).
2. partial loss was suffered
Q: What is the purpose?

A: to give immediate financial
assistance to the victim.
amount of insurance => 300,000 Q: Is the victim required to prove if

amount of loss => 300,000 the owner is at fault before claiming
insurance?
amount of insurance (300,000) x amt of loss A: Not anymore. This is automatic.
amount of loss (300,000)
No fault clause:
= 180,000
Sec. 378. Any claim for death or injury
Q: What about the 120,000? to any passenger or third party
A: bahala na! pursuant to the provisions of this
chapter shall be paid without the
Q: What is casualty insurance? necessity of proving fault or
A: arising from accident or immoral negligence of any kind; Provided, That
acts. for purposes of this section:
Life insurance: (i) The total indemnity in

respect of any person shall not
- valued policy exceed five thousand pesos;
Q: suicide?
(ii) The following proofs of loss,
A: If committed 2 years after the
when submitted under oath,
policy, the insurer is liable.
shall be sufficient evidence to
substantiate the claim:
Q: May they shorten the period of 2
years?
A: Yes. But they cannot extend.
(a) Police report of
accident; and
(b) Death certificate and (c) failing to adopt and
evidence sufficient to implement reasonable
establish the proper standards for the prompt
payee; or investigation of claims arising
under its policies;
(c) Medical report and
evidence of medical or (d) not attempting in good faith
hospital disbursement in to effectuate prompt, fair and
respect of which refund equitable settlement of claims
is claimed; submitted in which liability has
become reasonably clear; or
(iii) Claim may be made (e) compelling policyholders to

against one motor vehicle only. institute suits to recover
In the case of an occupant of a amounts due under its policies
vehicle, claim shall lie against by offering without justifiable
the insurer of the vehicle in reason substantially less than
which the occupant is riding, the amounts ultimately
mounting or dismounting from. recovered in suits brought by
In any other case, claim shall them.
lie against the insurer of the
directly offending vehicle. In all (2) Evidence as to numbers and types
cases, the right of the party of valid and justifiable complaints to
paying the claim to recover the Commissioner against an
against the owner of the insurance company, and the
vehicle responsible for the Commissioner's complaint experience
accident shall be maintained. with other insurance companies
writing similar lines of insurance shall
Periods: be admissible in evidence in an
administrative or judicial proceeding
Sec. 241. (1) No insurance company brought under this section.
doing business in the Philippines shall
refuse, without just cause, to pay or (3) If it is found, after notice and an
settle claims arising under coverages opportunity to be heard, that an
provided by its policies, nor shall any insurance company has violated this
such company engage in unfair claim section, each instance of non-
settlement practices. Any of the compliance with paragraph (1) may be
following acts by an insurance treated as a separate violation of this
company, if committed without just section and shall be considered
cause and performed with such sufficient cause for the suspension or
frequency as to indicate a general revocation of the company's certificate
business practice, shall constitute of authority.
unfair claim settlement practices:
Sec. 242. The proceeds of a life
(a) knowingly misrepresenting insurance policy shall be paid
to claimants pertinent facts or immediately upon maturity of the
policy provisions relating to policy, unless such proceeds are made
coverage at issue; payable in installments or as an
annuity, in which case the
(b) failing to acknowledge with installments, or annuities shall be paid
reasonable promptness as they become due: Provided,
pertinent communications with however, That in the case of a policy
respect to claims arising under maturing by the death of the insured,
its policies; the proceeds thereof shall be paid
within sixty days after presentation of damages which shall consist of
the claim and filing of the proof of the attorney's fees and other expenses
death of the insured. Refusal or failure incurred by the insured person by
to pay the claim within the time reason of such unreasonable denial or
prescribed herein will entitle the withholding of payment plus interest
beneficiary to collect interest on the of twice the ceiling prescribed by the
proceeds of the policy for the duration Monetary Board of the amount of the
of the delay at the rate of twice the claim due the insured, from the date
ceiling prescribed by the Monetary following the time prescribed in
Board, unless such failure or refusal to section two hundred forty-two or in
pay is based on the ground that the section two hundred forty-three, as
claim is fraudulent. the case may be, until the claim is
fully satisfied; Provided, That the
The proceeds of the policy maturing failure to pay any such claim within
by the death of the insured payable to the time prescribed in said sections
the beneficiary shall include the shall be considered prima facie
discounted value of all premiums paid evidence of unreasonable delay in
in advance of their due dates, but are payment.
not due and payable at maturity.
Sec. 243. The amount of any loss or

damage for which an insurer may be Assignment:
liable, under any policy other than life
insurance policy, shall be paid within 1. Banking Laws
thirty days after proof loss is received 2. Truth in Lending act
by the insurer and ascertainment of 3. PDIC
the loss or damage is made either by 4. Anti money laundering
agreement between the insured and 5. Secrecy
the insurer or by arbitration; but if 6. FCDA
such ascertainment is not had or made 7. DOSRI
within sixty days after such receipt by
the insurer of the proof of loss, then
the loss or damage shall be paid March 8, 2008
within ninety days after such receipt.
Refusal or failure to pay the loss or BANKING LAWS
damage within the time prescribed
herein will entitle the assured to Banks
collect interest on the proceeds of the
policy for the duration of the delay at 3.1. "Banks" shall refer to entities
the rate of twice the ceiling prescribed engaged in the lending of funds
by the Monetary Board, unless such obtained in the form of
failure or refusal to pay is based on deposits.
the ground that the claim is
fraudulent.
engaged in the lending
Sec. 244. In case of any litigation for of funds obtained from
the enforcement of any policy or the public in the form of
contract of insurance, it shall be the deposits.
duty of the Commissioner or the Entities created for
Court, as the case may be, to make a safekeeping.
finding as to whether the payment of Active instruments for
the claim of the insured has been business and commerce.
unreasonably denied or withheld; and Extraordinary diligence.
in the affirmative case, the insurance Entities imbued with
company shall be adjudged to pay public interest the
state may always 2. That the purpose or
interfere. purposes of the
Sec. 22. GBL corporation are patently
unconstitutional, illegal,
in case of strike and lockout immoral, or contrary to
government rules and
Sec. 22. Strikes and Lockouts. - The regulations;
banking industry is hereby declared as
indispensable to the national interest 3. That the Treasurer's
and, notwithstanding the provisions of Affidavit concerning the
any law to the contrary, any strike or amount of capital stock
lockout involving banks, if unsettled subscribed and/or paid
after seven (7) calendar days shall be if false;
reported by the Bangko Sentral to the
Secretary of Labor who may assume 4. That the percentage
jurisdiction over the dispute or decide of ownership of the
it or certify the same to the National capital stock to be
Labor Relations Commission for owned by citizens of the
compulsory arbitration. However, the Philippines has not been
President of the Philippines may at any complied with as
time intervene and assume jurisdiction required by existing
over such labor dispute in order to laws or the Constitution.
settle or terminate the same.
No articles of incorporation or
Sec. 17 of the corporation code amendment to articles of incorporation
of banks, banking and quasi-banking
before a bank may be allowed to institutions, building and loan
operate, registration with the SEC, and associations, trust companies and
favorable recommendation of the other financial intermediaries,
Central Bank is needed. insurance companies, public utilities,
educational institutions, and other
corporations governed by special laws
Sec. 17. Grounds when articles of shall be accepted or approved by the
incorporation or amendment may Commission unless accompanied by a
be rejected or disapproved. - The favorable recommendation of the
Securities and Exchange Commission appropriate government agency to the
may reject the articles of incorporation effect that such articles or amendment
or disapprove any amendment thereto is in accordance with law.
if the same is not in compliance with
the requirements of this Code: Sec. 64 GBL
Provided, That the Commission shall
give the incorporators a reasonable no institution or entity if not
time within which to correct or modify engaged in the banking business may
the objectionable portions of the not use the word bank.
articles or amendment. The following
are grounds for such rejection or Sec. 64. Unauthorized Advertisement
disapproval: or Business Representation. No
person, association, or corporation
1. That the articles of unless duly authorized to engage in
incorporation or any the business of a bank, quasi-bank,
amendment thereto is trust entity, or savings and loan
not substantially in association as defined in this Act, or
accordance with the other banking laws, shall advertise or
form prescribed herein; hold itself out as being engaged in the
business of such bank, quasi-bank,
trust entity, or association, or use in cooperatives primarily to provide
connection with its business title, the financial and credit services to
word or words bank, banking, cooperatives. The term "cooperative
banker, quasi-bank, quasi- bank" shall include cooperative rural
banking, quasi-banker, savings banks. A cooperative bank may
and loan association, trust perform the following functions;
corporation, trust company or
words of similar import or transact in (1) To carry on banking and credit
any manner the business of any such services for the cooperatives;
bank, corporation or association.
(2) To receive financial aid or loans
- banks are not allowed to be from the Government and the Central
closed corporations. Bank of the Philippines for and in
behalf of the cooperative banks and
Different classifications: primary cooperatives and their
federations engaged in business and
As to capitalization: to supervise the lending and collection
of loans;
1. Universal Banks
(3) To mobilize savings of its members
- broader powers for the benefit of the cooperative
- investment house selling movement;
securities
- underwriting guaranteeing (4) To act as a balancing medium for
securities. the surplus funds of cooperatives and
- Engaged in non allied activities: their federations;
a. productive activities in
agriculture. (5) To discount bills and promissory
b. Mining, quarrying notes issued and drawn by
c. Manufacturing cooperatives;
d. Other activities which may be
allowed by the Monetary Board. (6) To issue negotiable instruments to
facilitate the activities of cooperatives;
service of investment house
accept demand deposit. (7) To issue debentures subject to the
approval of and under conditions and
2. Commercial Banks guarantees to be prescribed by the
Government;
- general powers of banks.
- Accept demand deposits (8) To borrow money from banks and
(checking accounts) other financial institutions within the
- Deposit substitutes or foreign limit to be prescribed by the Central
exchange. Bank; and
3. Cooperative Banks (9) To carry out all other functions as

may be prescribed by the Authority:
RA 6938 for an entity to be Provided, That the performance of any
considered a cooperative bank, banking function shall be subject to
majority of the shares may be owned prior approval by the Central Bank of
or controlled by cooperatives. the Philippines.
4. Rural Banks:
Section 100. Definition, Classification
and Functions. - A cooperative bank is
- to meet the normal monetary
one organized by the majority shares
requirements of those
of which is owned and controlled by
fishermen, farmers in the
province. Pay implications withdrawals from
- Wholly nationalized. account of decedent are permitted as
long as its for hospitalization and
5. Thrift Banks funeral expense. (5% or P200,000.00)
- those who need short term Joint accounts

capital survivorship agreement
- in order to meet the joint depositors permit
requirement credit for Filipino each other to withdraw
entrepreneurs. the full amount during
their lifetime; upon the
2 Important functions of a bank: death of the other, the
survivor gets the whole
1. deposit amount.
2. loan
CASE: Vitug v. CA
I. Deposit
Facts: Challenged that the survivorship
- voluntary creditor- debtor agreement runs counter to the
relationship. prohibition of the family code
- There is passing of ownership. regarding donations.
- Contractual in character (the
party must be capacitated) Issue: Whether or not it violates the
family code
Exception: PD 734 minors, at least 7 Held: No
years of age, are qualified in their own
right but only with savings and time Rationale: Family Code only pertains to
deposits. inter vivos donations. Survivorship
agreement refers to mortis causa.
- receive interest
- demand deposits may only be our laws consider these
availed if youre capacitated deposits very important thats
- it is actually a simple loan why it must be treated with
(mutuum) utmost diligence thats why we
- may be used as a ground for have the bank secrecy law.
estafa because of creditor-
debtor relationship. BANK SECRECY LAWS
- Compensate debts by
application of deposits. - any officer may not disclose the
deposits. It is beyond
Corporations examination and scrutiny.
minimum capitalization Exceptions:
requirements.
Upon SEC approval of AI 1. necessary to dispose of an
impeachment case.
Gen. Rule: Central Bank does not 2. court order bribery;
permit anonymous accounts or the use dereliction of duty case
of fictitious names. involving public officials.
3. subject matter of the
Exception: litigation.
4. written permission of the
1. foreign currency deposits depositor.
2. and/or account (look at mem 5. garnishment proceedings.
aid)
6. unclaimed balances act. a. ransom money
dormant accounts 10 years b. robbery invested in insurance
or more the state may file company.
escheat proceedings.
7. Anti Graft and Corrupt Gen. Rule: The council needs court
Practices Act. order.
8. in determining the gross Exceptions:
estate NIRC
1. kidnapping

foreign currency deposit act 2. violations of the dangerous
sec. 3 drugs act
- when there is a written 3. destructive arson
permission 4. murder
- this is beyond garnishment.
However: Q: Are there measures that would
prevent money laundering?
CASE: Salvacion v. DBP A: Reportorial requirements of
companies. (Insurance, Investment
Facts: Petitioner was a minor. She was houses, banks)
repeatedly abused by a foreigner
named Bartelli. Karen Salvacion won. Transaction in cash
The sheriff tried to locate assets of
Bartelli. He found a deposit at China - involving a total amount of
Bank. China Bank refused because of more than 500thousand pesos
FCDA. within a single banking date.
- Safe harbour provision no
Issue: Whether or not it may be administration proceeding or
garnished. criminal proceeding shall lie.
Held: Yes - Even if it doesnt reach 500k
when the transaction is
Rationale: They went to the intrinsic suspicious.
and extrinsic validity of the law. It was
found out that it was meant for foreign Conclusion:
lenders and foreign investors. They
concluded that these are the only ones - no court order in predicate
protected by the act. Bartelli is neither crime
a lender nor an investor. This would - transaction in cash 500k or
create great injustice to Karen the withdrawal is suspicious.
Salvacion. The SC cited Art. 10 of the
Civil code.
PHILIPPINE DEPOSIT INSURANCE
AMLA is also an exception: COMMISSION
To conclude there are two exceptions: - Mandatory for banks to insure

all kinds of deposit.
1. written permission - Pay premiums to the PDIC
2. AMLA - Closure and insolvency problem
- Fire is not covered
ANTI-MONEY LAUNDERING ACT - Notwithstanding nonpayment of
premiums, the PDIC cannot
- governed by AML council deny compensation; but its
- when there is already an order subject to threshold of 250k
coming from the competent - All types of deposit are to be
court that there is an AML case. added.
- Illegitimate sources
- Insurable amount is not of the you may still recover from the
obligation. liquidators.
Deposit 300k
Loan 200k II. Loan Function of Banks:
100 k PDIC
- lending of funds to the public
Eg. - grant loans and credits only for
the time the operations are
X Bank being financed.
A- depositor - Sec. 39, 40, 52, 55.2 of the
GBL
Savings deposit 200k - Terms and conditions are
Time deposit 500k subject to BSP regulations.
Demand deposit 300k
1,100,000.00 Sec. 39. Grant and Purpose of Loans
and Other Credit Accommodations. - A
out of 1.1M only 250 k may be bank shall grant loans and other credit
covered. accommodations only in amounts and
for the periods of time essential for
Q: What will happen to 850 k? the effective completion of the
A: He may collect it from the liquidator operations to be financed. Such grant
or receiver. of loans and other credit
accommodations shall be consistent
Q: What if the deposits are maintained with safe and sound banking practices.
by A in several branches?
A: Still the same. The branches dont The purpose of all loans and other
enjoy separate personality. credit accommodations shall be stated
in the application and in the contract
Q: What if there are deposits held by A between the bank and the borrower. If
for the benefit of another person? the bank finds that the proceeds of the
A: It will not be included from the loan or other credit accommodation
personal account. have been employed, without its
approval, for purposes other than
Joint account = A and B those agreed upon with the bank, it
shall have the right to terminate the
A= 300k + 300k = 600k loan or other credit accommodation
only 250k will be covered by and demand immediate repayment of
the PDIC the obligation. .
A and B = 500k Sec. 40. Requirement for Grant Of

only 250k will be covered by Loans or 0ther Credit
the PDIC Accommodations. - Before granting a
A = 125k B = 125k loan or other credit accommodation, a
bank must ascertain that the debtor is
Q: What if B is a corporation? capable of fulfilling his commitments
A: Presumption is the corporation. to the bank.
if the account is held by a Toward this end, a bank may demand

juridical person and a natural from its credit applicants a statement
person, the insured deposit is of their assets and liabilities and of
assumed to belong to the their income and expenditures and
juridical person. such information as may be prescribed
Failure to claim for 2 years to by law or by rules and regulations of
the PDIC bars the claim. But the Monetary Board to enable the
bank to properly evaluate the credit
application which includes the Sec. 55.2. No borrower of a bank shall -
corresponding financial statements (a) Fraudulently overvalue property
submitted for taxation purposes to the offered as security for a loan or
Bureau of Internal Revenue. Should other credit accommodation
such statements prove to be false or from the bank;
incorrect in any material detail, the
bank may terminate any loan or other (b) Furnish false or make
credit accommodation granted on the misrepresentation or
basis of said statements and shall suppression of material facts
have the right to demand immediate for the purpose of obtaining,
repayment or liquidation of the renewing, or increasing a loan
obligation. or other credit accommodation
or extending the period
In formulating rules and regulations thereof;
under this Section, the Monetary (c) Attempt to defraud the said bank
Board shall recognize the peculiar in the event of a court action
characteristics of micro financing, such to recover a loan or other
as cash flow-based lending to the credit accommodation; or
basic sectors that are not covered. (d) Offer any director, officer,
employee or agent of a bank any gift,
fee, commission, or any other form of
Sec. 52. Acquisition of Real Estate by compensation in order to influence
Way of Satisfaction of Claims. such persons into approving a loan or
Notwithstanding the limitations of the other credit accommodation
preceding Section, a bank may
acquire, hold or convey real property DOSRI
under the following circumstances:
- directors, officers, stockholders
and related interests.
52.1. Such as shall be mortgaged to
- The restrictions are meant to
it in good faith by way of
protect the public from the
security for debts;
DOSRI.
52.2. Such as shall be conveyed to
Requisites:
it in satisfaction of debts
previously contracted in the
1. Written approval of the majority
course of its dealings; or
of all the directors.
2. Approval must be entered into
52.3. Such as it shall purchase at
the records of the bank.
sales under judgments,
3. copy of the entry must be
decrees, mortgages, or trust
furnished to the Central Bank.
deeds held by it and such as it
4. the terms should not be less
shall purchase to secure debts
favorable to the bank.
due it.
- it should be at par to those
Any real property acquired or held
extended to the borrowers.
under the circumstances enumerated
- Unencumbered deposit (arms
in the above paragraph shall be
length rule)
disposed of by the bank within a
period of five (5) years or as may be
Restrictions apply if:
prescribed by the Monetary Board:
Provided, however, That the bank
1. DOSRI borrower
may, after said period, continue to
2. DOSRI guarantor
hold the property for its own use,
3. DOSRI advances salary or
subject to the limitations of the
increases indebtedness.
preceding Section.
The Monetary Board may regulate the
amount of loans, credit
accommodations and guarantees that
Related interests may be extended, directly or
sec. 36 GBL indirectly, by a bank to its directors,
the power to define officers, stockholders and their related
Related interests rest interests, as well as investments of
with the Monetary such bank in enterprises owned or
Board. controlled by said directors, officers,
Circular no. 423-2004 of stockholders and their related
the Central Bank. interests. However, the outstanding
loans, credit accommodations and
Sec. 36. Restriction on Bank Exposure guarantees which a bank may extend
to Directors, Officers, Stockholders to each of its stockholders, directors,
and Their Related Interests. - No or officers and their related interests,
director or officer of any bank shall, shall be limited to an amount
directly or indirectly, for himself or as equivalent to their respective
the representative or agent of others, unencumbered deposits and book
borrow from such bank nor shall he value of their paid-in capital
become a guarantor, endorser or contribution in the bank: Provided,
surety for loans from such bank to however, That loans, credit
others, or in any manner be an obligor accommodations and guarantees
or incur any contractual liability to the secured by assets considered as non-
bank except with the written approval risk by the Monetary Board shall be
of the majority of all the directors of excluded from such limit: Provided,
the bank, excluding the director further, That loans, credit
concerned: Provided, That such accommodations and advances to
written approval shall not be required officers in the form of fringe benefits
for loans, other credit granted in accordance with rules as
accommodations and advances may be prescribed by the Monetary
granted to officers under a fringe Board shall not be subject to the
benefit plan approved by the Bangko individual limit.
Sentral. The required approval shall The Monetary Board shall define the
be entered upon the records of the term related interests.
bank and a copy of such entry shall be The limit on loans, credit
transmitted forthwith to the accommodations and guarantees
appropriate supervising and examining prescribed herein shall not apply to
department of the Bangko Sentral. loans, credit accommodations and
guarantees extended by a cooperative
Dealings of a bank with any of its bank to its cooperative shareholders.
directors, officers or stockholders and
their related interests shall be upon
1. Spouse/ Relative within
terms not less favorable to the bank
the 1st degree
than those offered to others.
(consanguinity or
affinity) adoption is
After due notice to the board of
included.
directors of the bank, the office of any
bank director or officer who violates 2. Collateral
the provisions of this Section may be 3. Interlocking directors
declared vacant and the director or 4. Stockholder of more
officer shall be subject to the penal than 30% of a
provisions of the New Central Bank corporation.
Act.
TRUTH IN LENDING ACT
- the creditor must fully disclose be made to the title-holder of the
all details regarding the chattels and intangible properties.
transaction.
- Eg. Interest charges;
processing fee.
- Cash price, amount to be Single borrowers limit rule:
credited as down payment,
total amount to be financed. Gen. rule: the total amount should not
exceed 20% of the net worth of the
CASE: Arcilla v. DBP bank threshold is now 25%.
Exception: Emergency for the general
- the failure of the person to public.
reveal, it does not make the
contract unenforceable, it only
35.1. Except as the Monetary Board
forbids the creditor from
may otherwise prescribe for reasons of
claiming the added charges.
national interest, the total amount of
loans, credit accommodations and
The loan amount would depend on the
guarantees as may be defined by the
collateral:
Monetary Board that may be extended
by a bank to any person, partnership,
If real property
association, corporation or other entity
75%
shall at no time exceed twenty percent
In addition, 60% for
(20%) of the net worth of such bank.
improvements made.
The basis for determining compliance
with single borrower limit is the total
If chattel
credit
- 75%
Foreclosure of mortgage (Sec. 47,
Sec. 37. Loans and Other Credit GBL)
Accommodations Against Real Estate.
Except as the Monetary Board may 1. Redemption period for natural
otherwise prescribe, loans and other persons the mortgagor or
credit accommodations against real debtor, who is a natural
estate shall not exceed seventy-five person, whose real property
percent (75%) of the appraised value has been sold for the full or
of the respective real estate security, partial payment of his
plus sixty percent (60%) of the obligation shall have the right
appraised value of the insured within one year after the sale
improvements, and such loans may be of the real estate, to redeem
made to the owner of the real estate the property. The one- year
or to his assignees. redemption period should be
counted from the date of the
Sec. 38. Loans And Other Credit registration of the certificate of
Accommodations on Security of sale with the Register of
Chattels and Intangible Properties. - Deeds.
Except as the Monetary Board may 2. Redemption period for judicial
otherwise prescribe, loans and other persons a juridical person
credit accommodations on security of whose property has been sold
chattels and intangible properties such pursuant to an extra-judicial
as, but not limited to, patents, foreclosure, shall have the
trademarks, trade names, and right to redeem the property
copyrights shall not exceed seventy- but not after the registration of
five percent (75%) of the appraised the certificate of foreclosure
value of the security, an such loans sale with the proper Register
and other credit accommodation may of Deeds which in no case shall
be more that three (3) months Liquidity Problems:
after foreclosure whichever is
earlier. 1. Granting the bank concern an
emergency loan not
exceeding 50% (sec. 50 NCBA)
Sec. 47. Foreclosure of Real Estate 2. Conservatorship (Sec. 29
Mortgage. - In the event of NCBA) period is 1 year.
foreclosure, whether judicially or
extra-judicially, of any mortgage on a. reorganization of management
real estate which is security for any b. collect all monies and debts
loan or other credit accommodation c. all act is necessary to restore
granted, the mortgagor or debtor its viability.
whose real property has been sold for d. Previous management acts are
the full or partial payment of his note yet perfected.
obligation shall have the right within
one year after the sale of the real CASE: First Philippine International
estate, to redeem the property by Bank
paying the amount due under the
mortgage deed, with interest thereon - the power to revoke does not
at rate specified in the mortgage, and extend to perfected contracts.
all the costs and expenses incurred by
the bank or institution from the sale Q: When terminated?
and custody of said property less the A: When the monetary board does it
income derived therefrom. However, proper upon report of the conservator.
the purchaser at the auction sale
concerned whether in a judicial or 3. Receivership (Sec. 30 NCBA)
extra-judicial foreclosure shall have
the right to enter upon and take - if conservatorship is a failure.
possession of such property - It attempts to make the bank
immediately after the date of the viable again.
confirmation of the auction sale and - There is no requirement to
administer the same in accordance undergo conservatorship first.
with law. Any petition in court to - The statutory receiver is the
enjoin or restrain the conduct of PDIC.
foreclosure proceedings instituted
pursuant to this provision shall be SECTION 50. Exclusive Issue
given due course only upon the filing Power. The Bangko Sentral shall
by the petitioner of a bond in an have the sole power and
amount fixed by the court conditioned authority to issue currency, within the
that he will pay all the damages which territory of the Philippines. No other
the bank may suffer by the enjoining person or entity, public or
or the restraint of the foreclosure private, may put into circulation notes,
proceeding. coins or any other object or document
which, in the opinion of the
Monetary Board, might circulate as
Bank regulations: currency, nor reproduce or imitate the
facsimiles of Bangko Sentral
- thru examination consistent to notes without prior authority from the
the regulations as long as it Bangko Sentral.
operates in a safe and sound The Monetary Board may issue such
manner. regulations as it may deem advisable
- Purpose: to enable for the CB in order to prevent
to determine if the bank is still the circulation of foreign currency or of
competent. currency substitutes as well as to
prevent the reproduction of
facsimiles of Bangko Sentral notes. to exceed two-thirds (2/3) of the
The Bangko Sentral shall have the salary of the president of the
authority to investigate, make arrests, institution in one (1) year, payable in
conduct searches and twelve (12) equal monthly payments:
seizures in accordance with law, for Provided, That, if at any time within
the purpose of maintaining the one-year period, the
integrity of the currency. conservatorship is terminated on the
Violation of this provision or any ground that the institution can operate
regulation issued by the Bangko on its own, the conservator
Sentral pursuant thereto shall shall receive the balance of the
constitute an offense punishable by remuneration which he would have
imprisonment of not less than five (5) received up to the end of the year;
years but not more than ten but if the conservatorship is
(10) years. In case the Revised Penal terminated on other grounds, the
Code provides for a greater penalty, conservator shall not be entitled to
then that penalty shall be such
imposed. remaining balance. The Monetary
Board may appoint a conservator
SECTION 29. Appointment of connected with the Bangko
Conservator. Whenever, on the Sentral, in which case he shall not be
basis of a report submitted entitled to receive any remuneration
by the appropriate supervising or or emolument from the
examining department, the Monetary Bangko Sentral during the
Board finds that a bank or a conservatorship. The expenses
quasi-bank is in a state of continuing attendant to the conservatorship shall
inability or unwillingness to maintain a be
condition of liquidity borne by the bank or quasi-bank
deemed adequate to protect the concerned.
interest of depositors and creditors, The Monetary Board shall terminate
the Monetary Board may appoint a the conservatorship when it is satisfied
conservator with such powers as the that the institution
Monetary Board shall deem necessary can continue to operate on its own and
to take charge of the the conservatorship is no longer
assets, liabilities, and the necessary. The
management thereof, reorganize the conservatorship shall likewise be
management, collect all monies and terminated should the Monetary
debts due said institution, and Board, on the basis of the report of
exercise all powers necessary to the conservator or of its own findings,
restore its viability. The conservator determine that the continuance in
shall report and be responsible to the business of the institution would
Monetary Board and shall have the involve probable loss to its depositors
power to overrule or revoke or creditors, in which case the
the actions of the previous provisions of Section 30 shall
management and board of directors of apply.
the bank or quasi-bank. SECTION 30. Proceedings in
The conservator should be competent Receivership and Liquidation.
and knowledgeable in bank operations Whenever, upon report of
and management. the head of the supervising or
The conservatorship shall not exceed examining department, the Monetary
one (1) year. Board finds that a bank or quasibank:
The conservator shall receive (a) is unable to pay its liabilities as
remuneration to be fixed by the they become due in the ordinary
Monetary Board in an amount not course of business: Provided,
That this shall not include inability to shall be subject to prior approval of
pay caused by extraordinary demands the Monetary Board.
induced by If the receiver determines that the
financial panic in the banking institution cannot be rehabilitated or
community; permitted to resume
(b) by the Bangko Sentral, to meet its business in accordance with the next
liabilities; or preceding paragraph, the Monetary
(c) cannot continue in business Board shall notify in writing
without involving probable losses to its the board of directors of its findings
depositors or creditors; or and direct the receiver to proceed with
(d) has willfully violated a cease and the liquidation of the
desist order under Section 37 that has institution. The receiver shall:
become final, involving 1. file ex parte with the proper
acts or transactions which amount to regional trial court, and without
fraud or a dissipation of the assets of requirement of prior notice or any
the institution; in other action, a petition for assistance
which cases, the Monetary Board may in the liquidation of the institution
summarily and without need for prior pursuant to a
hearing forbid the liquidation plan adopted by the
institution from doing business in the Philippine Deposit Insurance
Philippines and designate the Corporation for general
Philippine Deposit application to all closed banks. In case
Insurance Corporation as receiver of of quasi-banks, the liquidation plan
the banking institution. shall be adopted
For a quasi-bank, any person of by the Monetary Board. Upon
recognized competence in banking or acquiring jurisdiction, the court shall,
finance may be designed upon motion by the
as receiver. receiver after due notice, adjudicate
The receiver shall immediately gather disputed claims against the institution,
and take charge of all the assets and assist the
liabilities of the enforcement of individual liabilities of
institution, administer the same for the stockholders, directors and
the benefit of its creditors, and officers, and decide on
exercise the general powers of a other issues as may be material to
receiver under the Revised Rules of implement the liquidation plan
Court but shall not, with the exception adopted. The receiver shall
of administrative pay the cost of the proceedings from
expenditures, pay or commit any act the assets of the institution.
that will involve the transfer or 2. convert the assets of the
disposition of any asset of the institutions to money, dispose of the
institution: Provided, That the receiver same to creditors and other
may deposit or place the funds of the parties, for the purpose of paying the
institution in nonspeculative debts of such institution in accordance
investments. The receiver shall with the rules on
determine as soon as possible, but not concurrence and preference of credit
later than ninety under the Civil Code of the Philippines
(90) days from take over, whether the and he may, in
institution may be rehabilitated or the name of the institution, and with
otherwise placed in such a the assistance of counsel as he may
condition so that it may be permitted retain, institute such
to resume business with safety to its actions as may be necessary to collect
depositors and creditors and and recover accounts and assets of, or
the general public: Provided, That any defend any
determination for the resumption of
business of the institution
100 These notes are meant to be shared to all who may benefit from it,
provided, that THE USER SHALL NOT IN ANY MANNER WHATSOEVER DELETE,
DIMINISH, OR OTHERWISE REFUSE TO GIVE CREDIT TO THE PERSON WHO MADE
THIS. Whoever does such ungrateful and dastardly acts shall most definitely suffer
the consequences under the law of Karma.
action against, the institution. The but would tend to defeat the
assets of an institution under very purpose of the law when it
receivership or liquidation invested the Monetary Board
shall be deemed in custodia legis in with such authority.
the hands of the receiver and shall,
from the moment the Consequences of closure:
institution was placed under such
receivership or liquidation, be exempt 1. stoppage of business
from any order of 2. exemption of assets
garnishment, levy, attachment, or from garnishment, levy
execution. or attachment.
The actions of the Monetary Board
taken under this section or under CASE: Lipana v. DBP
Section 29 of this Act shall
be final and executory, and may not - Sec. 30 of the new central bank
be restrained or set aside by the court act provides that the assets of
except on petition for an institution under
certiorari on the ground that the receivership or liguidation shall
action taken was in excess of be deemed in custodia legis in
jurisdiction or with such grave abuse the hands of the receiver and
of shall, from the moment the
discretion as to amount to lack or institution was placed under
excess of jurisdiction. The petition for such receivership or liquidation,
certiorari may only be filed by be exempt from any order of
the stockholders of record garnishment, levy attachment
representing the majority of the or execution.
capital stock within ten (10) days from
receipt 3. no preference over
by the board of directors of the claims.
institution of the order directing
receivership, liquidation or
conservatorship. The designation of a CASE: Fidelity Savings and Mortgage
conservator under Section 29 of this Bank v. Cenzon
Act or the appointment of a
receiver under this section shall be - an insolvent bank that was
vested exclusively with the Monetary closed by the BSP is not liable
Board. Furthermore, the to pay interests on deposits.
designation of a conservator is not a
precondition to the designation of a 4. exempt from paying
receiver. interests.
CENTRAL BANK:
CLOSE NOW HEAR LATER! - not only insolvency but also the
status of its directors. (fit and
CASE: Rural Bank of Lucena v. Arca/ proper rule they may
Central Bank v. CA disqualify those who are unfit)
- Police power public interest
- No prior hearing is necessary in - Government officers
appointing a receiver and in disqualification takes place
closing the bank. It is enough whether you are full time or
that subsequent judicial review part time.
is provided for. Indeed, to - Teleconferencing now allowed.
require such previous hearing submit to guidelines of the
would not only be impractical SEC.
- Independent director not an
officer of the bank or its Banko Sentral ng Pilipinas:
affiliates or subsidiaries.
- In subsidiary up to 50% THE BANGKO SENTRAL
- In equity 40% SECTION 1. Declaration of Policy.
The State shall maintain a central
monetary authority
Sec.11. Foreign Stockholdings
that shall function and operate as an
Foreign individuals and non-bank
independent and accountable body
corporations may own or control up to
corporate in the discharge of
forty percent (40%) of the voting
its mandated responsibilities
stock of a domestic bank. This rule
concerning money, banking and credit.
shall apply to Filipinos and domestic
In line with this policy, and
non-bank corporations.
considering its unique functions and
responsibilities, the central monetary
The percentage of foreign-owned
authority established under
voting stocks in a bank shall be
this Act, while being a government-
determined by the citizenship of the
owned corporation, shall enjoy fiscal
individual stockholders in that bank.
and administrative autonomy.
The citizenship of the corporation
SECTION 2. Creation of the
which is a stockholder in a bank shall
Bangko Sentral. There is hereby
follow the citizenship of the controlling
established an independent
stockholders of the corporation,
central monetary authority, which
irrespective of the place of
shall be a body corporate known as
incorporation.
the Bangko Sentral ng Pilipinas,
hereafter referred to as the Bangko
Eg. Sentral.
The capital of the Bangko Sentral shall
1, 000,000 voting shares be Fifty billion pesos
(P50,000,000,000), to be fully
400k Filipinos subscribed by the Government of the
400k foreign Republic, hereafter referred to as the
200k Y corp ( 60% Filipino and 40% Government, Ten billion
foreign therefore it is a Filipino corp.) pesos (P10,000,000,000) of which
shall be fully paid for by the
there is a special law in banks; Government upon the effectivity of
do not confuse this with the this
corporation code. Act and the balance to be paid for
The citizenship of the bank within a period of two (2) years from
depends on the citizenship of the effectivity of this Act in such
the controlling stockholder. manner and form as the Government,
through the Secretary of Finance and
Eg. the Secretary of Budget
and Management, may thereafter
1, 000,000 voting shares determine.
SECTION 3. Responsibility and
200k foreign Primary Objective. The Bangko
800k Filipino (400k ang kay Dax the Sentral shall provide
pogi Maliwat and 400k sa Y corp policy directions in the areas of
where Dax owns 50% of the stocks.) money, banking, and credit. It shall
have supervision over the
No single stockholder may own operations of banks and exercise such
more than 50% of the voting regulatory powers as provided in this
shares. In this case Dax owns Act and other pertinent
at least 60%.
laws over the operations of finance Bangko Sentral shall be exercised by
companies and non-bank financial the Bangko Sentral Monetary Board,
institutions performing quasibanking hereafter referred to as the
functions, hereafter referred to as Monetary Board, composed of seven
quasi-banks, and institutions (7) members appointed by the
performing similar functions. President of the Philippines for a
The primary objective of the Bangko term of six (6) years.
Sentral is to maintain price stability The seven (7) members are:
conducive to a (a) the Governor of the Bangko
balanced and sustainable growth of Sentral, who shall be the Chairman of
the economy. It shall also promote the Monetary Board. The
and maintain monetary stability Governor of the Bangko Sentral shall
and the convertibility of the peso. be head of a department and his
SECTION 4. Place of Business. appointment shall be
The Bangko Sentral shall have its subject to confirmation by the
principal place of Commission on Appointments.
business in Metro Manila, but may Whenever the Governor is
maintain branches, agencies and unable to attend a meeting of the
correspondents in such other Board, he shall designate a Deputy
places as the proper conduct of its Governor to act as his
business may require. alternate: Provided, That in such
SECTION 5. Corporate Powers. event, the Monetary Board shall
The Bangko Sentral is hereby designate one of its
authorized to adopt, alter, members as acting Chairman;
and use a corporate seal which shall (b) a member of the Cabinet to be
be judicially noticed; to enter into designated by the President of the
contracts; to lease or own real Philippines. Whenever the
and personal property, and to sell or designated Cabinet Member is unable
otherwise dispose of the same; to sue to attend a meeting of the Board, he
and be sued; and otherwise shall designate
to do and perform any and all things an Undersecretary in his Department
that may be necessary or proper to to attend as his alternate; and
carry out the purposes of this (c) five (5) members who shall come
Act. from the private sector, all of whom
The Bangko Sentral may acquire and shall serve full-time:
hold such assets and incur such Provided, however, That of the
liabilities in connection members first appointed under the
with its operations authorized by the provisions of this
provisions of this Act, or as are subsection, three (3) shall have a term
essential to the proper conduct of of six (6) years, and the other two (2),
such operations. three (3) years.
The Bangko Sentral may compromise, No member of the Monetary Board
condone or release, in whole or in may be reappointed more than once.
part, any claim of or SECTION 7. Vacancies. Any
settled liability to the Bangko Sentral, vacancy in the Monetary Board
regardless of the amount involved, created by the death,
under such terms and resignation, or removal of any
conditions as may be prescribed by member shall be filled by the
the Monetary Board to protect the appointment of a new member to
interests of the Bangko Sentral. complete
ARTICLE II. THE MONETARY the unexpired period of the term of
BOARD the member concerned.
SECTION 6. Composition of the SECTION 8. Qualifications. The
Monetary Board. The powers and members of the Monetary Board must
functions of the be natural-born
citizens of the Philippines, at least (b) If he is physically or mentally
thirty-five (35) years of age, with the incapacitated that he cannot properly
exception of the Governor who discharge his duties and
should at least be forty (40) years of responsibilities and such incapacity
age, of good moral character, of has lasted for more than six (6)
unquestionable integrity, of known months; or
probity and patriotism, and with (c) If the member is guilty of acts or
recognized competence in social and operations which are of fraudulent or
economic disciplines. illegal character or
SECTION 9. Disqualifications. In which are manifestly opposed to the
addition to the disqualifications aims and interests of the Bangko
imposed by Republic Act Sentral; or
No. 6713, a member of the Monetary (d) If the member no longer possesses
Board is disqualified from being a the qualifications specified in Section 8
director, officer, employee, of this
consultant, lawyer, agent or SECTION 11. Meetings. The
stockholder of any bank, quasi-bank Monetary Board shall meet at least
or any other institution which is once a week. The Board
subject may be called to a meeting by the
to supervision or examination by the Governor of the Bangko Sentral or by
Bangko Sentral, in which case such two (2) other members of the
member shall resign from, and Board.
divest himself of any and all interests The presence of four (4) members
in such institution before assumption shall constitute a quorum: Provided,
of office as member of the That in all cases the
Monetary Board. Governor or his duly designated
The members of the Monetary Board alternate shall be among the four (4).
coming from the private sector shall Unless otherwise provided in this Act,
not hold any other all decisions of the Monetary Board
public office or public employment shall require the
during their tenure. concurrence of at least four (4)
No person shall be a member of the members.
Monetary Board if he has been The Bangko Sentral shall maintain and
connected directly with any preserve a complete record of the
multilateral banking or financial proceedings and
institution or has a substantial interest deliberations of the Monetary Board,
in any private bank in the including the tapes and transcripts of
Philippines, within one (1) year prior the stenographic notes,
to his appointment; likewise, no either in their original form or in
member of the Monetary Board microfilm.
shall be employed in any such SECTION 12. Attendance of the
institution within two (2) years after Deputy Governors. The Deputy
the expiration of his term except Governors may attend
when he serves as an official the meetings of the Monetary Board
representative of the Philippine with the right to be heard.
Government to such institution. SECTION 13. Salary. The salary of
SECTION 10. Removal. The the Governor and the members of the
President may remove any member of Monetary Board
the Monetary Board for from the private sector shall be fixed
any of the following reasons: by the President of the Philippines at a
(a) If the member is subsequently sum commensurate to the
disqualified under the provisions of importance and responsibility attached
Section 8 of this Act; or to the position.
SECTION 14. Withdrawal of subject to the Board's approval, shall
Persons Having a Personal be instituted as an integral component
Interest. In addition to the of the Bangko
requirements of Republic Act No. Sentral's human resource
6713, any member of the Monetary development program: Provided, That
Board with personal or pecuniary the Monetary Board shall
interest in any matter in the agenda of make its own system conform as
the Monetary Board shall disclose his closely as possible with the principles
interest to the Board and provided for under
shall retire from the meeting when the Republic Act No. 6758: Provided,
matter is taken up. The decision taken however, That compensation and
on the matter shall be wage structure of
made public. The minutes shall reflect employees whose positions fall under
the disclosure made and the salary grade 19 and below shall be in
retirement of the member accordance with
concerned from the meeting. the rates prescribed under Republic
SECTION 15. Exercise of Authority. Act No. 6758.
In the exercise of its authority, the On the recommendation of the
Monetary Board Governor, appoint, fix the
shall: remunerations and other
(a) issue rules and regulations it emoluments, and remove personnel of
considers necessary for the effective the Bangko Sentral, subject to
discharge of the pertinent civil service
responsibilities and exercise of the laws: Provided, That the Monetary
powers vested upon the Monetary Board shall have exclusive and final
Board and the Bangko authority to promote,
Sentral. The rules and regulations transfer, assign, or reassign personnel
issued shall be reported to the of the Bangko Sentral and these
President and the personnel actions are
Congress within fifteen (15) days from deemed made in the interest of the
the date of their issuance; service and not disciplinary: Provided,
(b) direct the management, further, That the
operations, and administration of the Monetary Board may delegate such
Bangko Sentral, reorganize its authority to the Governor under such
personnel, and issue such rules and guidelines as it may
regulations as it may deem necessary determine.
or convenient for (d) adopt an annual budget for and
this purpose. The legal units of the authorize such expenditures by the
Bangko Sentral shall be under the Bangko Sentral as are in
exclusive supervision the interest of the effective
and control of the Monetary Board; administration and operations of
(c) establish a human resource (e) the Bangko Sentral in accordance
management system which shall with applicable laws and regulations;
govern the selection, hiring, and
appointment, transfer, promotion, or (f) indemnify its members and other
dismissal of all personnel. Such officials of the Bangko Sentral,
system shall aim to including personnel of the
establish professionalism and departments performing supervision
excellence at all levels of the Bangko and examination functions against all
Sentral in accordance costs and
with sound principles of management. expenses reasonably incurred by such
A compensation structure, based on persons in connection with any civil or
job evaluation studies and wage criminal action,
surveys and
suit or proceedings to which he may resolutions of the Monetary Board, or
be, or is, made a party by reason of about the confidential operations of
the performance of the Bangko Sentral, unless
his functions or duties, unless he is the disclosure is in connection with the
finally adjudged in such action or performance of official functions with
proceeding to be liable the Bangko Sentral, or is
for negligence or misconduct. with prior authorization of the
In the event of a settlement or Monetary Board or the Governor; or
compromise, indemnification shall be (2) the use of such information for
provided only in personal gain or to the detriment of
connection with such matters covered the Government, the Bangko Sentral
by the settlement as to which the or third parties: Provided,
Bangko Sentral is however, That any data or information
advised by external counsel that the required to be submitted to the
person to be indemnified did not President and/or the Congress, or
commit any negligence to be published under the provisions of
or misconduct. this Act shall not be considered
The costs and expenses incurred in confidential.
defending the aforementioned action, ARTICLE III. THE GOVERNOR AND
suit or DEPUTY GOVERNORS OF THE
proceeding may be paid by the BANGKO
Bangko Sentral in advance of the final SENTRAL
disposition of such SECTION 17. Powers and Duties of
action, suit or proceeding upon receipt the Governor. The Governor shall
of an undertaking by or on behalf of be the chief
the member, executive officer of the Bangko
officer, or employee to repay the Sentral. His powers and duties shall be
amount advanced should it ultimately to:
be determined by the (a) prepare the agenda for the
Monetary Board that he is not entitled meetings of the Monetary Board and
to be indemnified as provided in this to submit for the
subsection. consideration of the Board the policies
SECTION 16. Responsibility. and measures which he believes to be
Members of the Monetary Board, necessary to
officials, examiners, and carry out the purposes and provisions
employees of the Bangko Sentral who of this Act;
willfully violate this Act or who are (b) execute and administer the
guilty of negligence, abuses or policies and measures approved by the
acts of malfeasance or misfeasance or Monetary Board;
fail to exercise extraordinary diligence (c) direct and supervise the operations
in the performance of his and internal administration of the
duties shall be held liable for any loss Bangko Sentral. The
or injury suffered by the Bangko Governor may delegate certain of his
Sentral or other banking administrative responsibilities to other
institutions as a result of such officers or may
violation, negligence, abuse, assign specific tasks or responsibilities
malfeasance, misfeasance or failure to to any full-time member of the
exercise extraordinary diligence. Monetary Board
Similar responsibility shall apply to without additional remuneration or
members, officers, and employees of allowance whenever he may deem fit
the Bangko Sentral for: or subject to such
(1) the disclosure of any information rules and regulations as the Monetary
of a confidential nature, or any Board may prescribe;
information on the discussions or
(d) appoint and fix the remunerations The signature of the Governor may be
and other emoluments of personnel in facsimile whenever appropriate;
below the rank of a (c) represent the Bangko Sentral,
department head in accordance with either personally or through counsel,
the position and compensation plans including private counsel,
approved by the as may be authorized by the Monetary
Monetary Board, as well as to impose Board, in any legal proceedings, action
disciplinary measures upon personnel or specialized
of the Bangko legal studies; and
Sentral, subject to the provisions of (d) delegate his power to represent
Section 15(c) of this Act: Provided, the Bangko Sentral, as provided in
That removal of subsections (a), (b) and
personnel shall be with the approval of (c) of this section, to other officers
the Monetary Board; upon his own responsibility: Provided,
(e) render opinions, decisions, or however, That in
rulings, which shall be final and order to preserve the integrity and the
executory until reversed or prestige of his office, the Governor of
modified by the Monetary Board, on the Bangko
matters regarding application or Sentral may choose not to participate
enforcement of laws in preliminary discussions with any
pertaining to institutions supervised by multilateral banking
the Bangko Sentral and laws or financial institution on any
pertaining to quasibanks, negotiations for the Government
as well as regulations, policies or within or outside the
instructions issued by the Monetary Philippines. During the negotiations,
Board, and the he may instead be represented by a
implementation thereof; and permanent
(f) exercise such other powers as may negotiator.
be vested in him by the Monetary SECTION 19. Authority of the
Board. Governor in Emergencies. In
SECTION 18. Representation of case of emergencies where
the Monetary Board and the time is sufficient to call a meeting of
Bangko Sentral. The the Monetary Board, the Governor of
Governor of the Bangko Sentral shall the Bangko Sentral, with the
be the principal representative of the concurrence of two (2) other members
Monetary Board and of the of the Monetary Board, may decide
Bangko Sentral and, in such capacity any matter or take any action
and in accordance with the within the authority of the Board.
instructions of the Monetary Board, he The Governor shall submit a report to
shall be empowered to: the President and Congress within
(a) represent the Monetary Board and seventy-two (72)
the Bangko Sentral in all dealings with hours after the action has been taken.
other offices, At the soonest possible time, the
agencies and instrumentalities of the Governor shall call a meeting of the
Government and all other persons or Monetary Board to submit
entities, public or his action for ratification.
private, whether domestic, foreign or SECTION 20. Outside Interests of
international; the Governor and the Full-time
(b) sign contracts entered into by the Members of the Board.
Bangko Sentral, notes and securities The Governor of the Bangko Sentral
issued by the Bangko and the full-time members of the
Sentral, all reports, balance sheets, Board shall limit their
profit and loss statements, professional activities to those
correspondence and other pertaining directly to their positions
documents of the Bangko Sentral. with the Bangko Sentral.
Accordingly, they may not accept any
other employment, whether public or Lets have a look back at banking
private, remunerated or ad laws:
honorem, with the exception of
positions in eleemosynary, civic, 2 important points:
cultural or religious organizations or
whenever, by designation of the 1. 40% foreign equity is applicable
President, the Governor or the full- only to the aggregate shares
time member is tasked to represent in:
the interest of the Government or a. foreign individuals
other government agencies in matters b. foreign non bank
connected with or affecting the institutions.
economy or the financial system of the
country. Foreign banks may do business:
SECTION 21. Deputy Governors.
The Governor of the Bangko Sentral, 1. acquisition of stocks in
with the approval of domestic banks not greater
the Monetary Board, shall appoint not than 60%.
more than three (3) Deputy Governors - the 40% does not apply to
who shall perform duties foreign banks.
as may be assigned to them by the - They may acquire 60% of
Governor and the Board. voting stocks of an existing
In the absence of the Governor, a bank.
Deputy Governor designated by the - 60% subsidiary
Governor shall act as - 7 years from effectivity date of
chief executive of the Bangko Sentral the GBL they may acquire up
and shall exercise the powers and to 100% but they have to
perform the duties of the secure permission from
Governor. Whenever the Government Monetary Board and it must be
is unable to attend meetings of from an existing bank. (only
government boards or councils in one bank).
which he is an ex officio member
pursuant to provisions of special laws, 2. Joint accounts
a Deputy Governor as may be
designated by the Governor shall be - if you have several joint
vested with authority to participate accounts, with different people,
and exercise the right to vote in the accounts will be added.
such meetings. PDIC may only give you up to
250k, as stated in the new law.
Assignment:
CHATTEL MORTGAGE
Chattel Mortgage Law
Bulk Sales Law - accessory contract
Law on Intellectual Property - cannot stand by itself without a
Act 3135 principal obligation.
Securities Regulations Code - Payment of a loan; security of
Insolvency an obligation.
- Movable property.
Special class Sunday, March 9
Pledge Chattel Mortgage
(1:00pm)
Real contract Accessory
not perfected until contract
Schedule:
delivery
1. Special class: March 17,
The property is The property is
Monday (6-9pm)
taken by the retained by the
2. Final exam: March 25, 6pm
pledge. mortgagor.
In case of death, Deficiency
the pledge closes recovery is Affidavit of good faith
the pledge and no permitted.
deficiency is Exception is AFFIDAVIT OF GOOD FAITH
recovered. RECTO LAW.
We, the undersigned MORTGAGOR
AND MORTGAGEE hereby jointly and
Art. 1484. In a contract of sale of severally swear that we executed the
personal property the price of which is foregoing Chattel Mortgage in order
payable in installments, the vendor to secure the indebtedness therein
may exercise any of the following and for no other purpose or purposes
remedies: contrary to law.
(1) Exact fulfillment of the

obligation, should the vendee intended to secure the
fail to pay; obligation therein.
Registration is important
(2) Cancel the sale, should the to bind third persons: if
vendee's failure to pay cover vessels inscript to the
two or more installments; Phil. Coastguard. If
motorvehicle to the
(3) Foreclose the chattel LTO, if shares of stocks
mortgage on the thing sold, if Register of deeds
one has been constituted, where the principal
should the vendee's failure to office of the corporation
pay cover two or more is located.
installments. In this case, he
shall have no further action Q: What if the mortgage was not
against the purchaser to registered but 3rd party knows about
recover any unpaid balance of it? May he honor the mortgage?
the price. Any agreement to A: He should. Because the purpose of
the contrary shall be void. registration is to make him aware.
(1454-A-a)
BULK SALES LAW (ACT
3952)
CASE: Cruz v. Phil. Investment
- Protect the creditors affecting
- Recto law may also apply to sale, mortgage which is in bulk.
secured mortgage. - Purpose is to prevent
- Apply to surety, guarantor etc.. merchants from escaping from
their creditors by selling their
Q: May a mortgaged property be assets in bulk.
mortgaged again? - The one making the sale here is
A: Yes. Because it is an act of mandated to make disclosures
dominion on the part of the to the portion.
mortgagee.
Transactions covered:
Q: What is the subject of a chattel
mortgage? 1. sales
A: personal property: shares of stocks, 2. transfer
growing crops, even real property 3. all or substantially all of the
treated as personal property but not equipments in a business.
binding to third persons. 4. mortgage
5. chattels which merchants use
6. assignments [b] Examine
applications for the
Q: What are you obliged to do if youre registration of marks,
the one selling? geographic indication,
A: You must prepare a sworn integrated circuits;
statement. A list of all your debts.
[c] Register technology
Q: What are the cases when the transfer arrangements
formalities do not apply? and settle disputes
A: involving technology
1. The creditor waives. transfer payments
2. ordinary course of business. covered by the
3. sales effected by provisions of Part II,
executors/administrators Chapter IX on Voluntary
receivers. Licensing and develop
and implement
the fact that the claim is strategies to promote
immaterial, you dont need to and facilitate technology
disclose. transfer;
INTELLECTUAL [d] Promote the use of

patent information as a
PROPERTY CODE tool for technology
development;
- Subject matter is intellectual
[e] Publish regularly in
property
its own publication the
- Incorporeal property; intangible
patents, marks, utility
property.
models and industrial
- Patents inventions
designs, issued and
- Copyright artistic and literary
approved, and the
works
technology transfer
- Trademarks signs which are
arrangements
visible.
registered;
- Intellectual property office
sec. 5
1. transfer technology [f] Administratively
2. inventions and investments. adjudicate contested
proceedings affecting
Sec. 5. Functions of the Intellectual intellectual property
Property Office (IPO). - rights; and
5.1. To administer and
implement the State policies [g] Coordinate with
declared in this Act, there is other government
hereby created the Intellectual agencies and the private
Property Office (IPO) which sector efforts to
shall have the following formulate and
functions: implement plans and
[a] Examine policies to strengthen
applications for grant of the protection of
letters patent for intellectual property
inventions and register rights in the country.
utility models and
industrial designs; 5.2. The Office shall have
custody of all records, books,
drawings, specifications, (h) Original ornamental
documents, and other papers designs or models for
and things relating to articles of manufacture,
intellectual property rights whether or not
applications filed with the registrable as an
Office. industrial design, and
other works of applied
art;
Notice: nothing is written about (i) Illustrations, maps,
copyright. plans, sketches, charts
and three-dimensional
COPYRIGHTS works relative to
geography, topography,
Why? Sec. 172.1 architecture or science;
(j) Drawings or plastic
- original compositions, the works of a scientific or
moment they are created the technical character;
copyright belongs to the owner. (k) Photographic works
No need to register. including works
produced by a process
172.1 Literary and artistic works, analogous to
hereinafter referred to as "works", are photography; lantern
original intellectual creations in the slides;
literary and artistic domain protected (l) Audiovisual works
from the moment of their creation and and cinematographic
shall include in particular: works and works
produced by a process
(a) Books, pamphlets, analogous to
articles and other cinematography or any
writings; process for making
(b) Periodicals and audio-visual recordings;
newspapers; (m) Pictorial illustrations
(c) Lectures, sermons, and advertisements;
addresses, dissertations (n) Computer programs;
prepared for oral and
delivery, whether or not (o) Other literary,
reduced in writing or scholarly, scientific and
other material form; artistic works.
(d) Letters; 172.2. Works are protected by the
(e) Dramatic or sole fact of their creation, irrespective
dramatico-musical of their mode or form of expression,
compositions; as well as of their content, quality and
choreographic works or purpose. (Sec. 2, P. D. No. 49a)
entertainment in dumb
shows; Follow the requirements of sec. 191
(f) Musical 2 copies of your work to the National
compositions, with or Library or Supreme Court Library.
without words;
(g) Works of drawing, Sec. 191. Registration and Deposit
painting, architecture, with National Library and the Supreme
sculpture, engraving, Court Library.- After the first public
lithography or other dissemination of performance by
works of art; models or authority of the copyright owner of a
designs for works of art; work falling under Subsections 172.1,
172.2 and 172.3 of this Act, there
shall, for the purpose of completing years after his death. This rule also
the records of the National Library and applies to posthumous works. (Sec.
the Supreme Court Library, within 21, First Sentence, P. D. No. 49a)
three (3) weeks, be registered and
deposited with it, by personal delivery 213.2. In case of works of joint
or by registered mail, two (2) authorship, the economic rights
complete copies or reproductions of shall be protected during the
the work in such form as the directors life of the last surviving author
of said libraries may prescribe. A and for fifty (50) years after his
certificate of deposit shall be issued death. (Sec. 21, Second
for which the prescribed fee shall be Sentence, P.D. No. 49)
collected and the copyright owner 213.3. In case of anonymous
shall be exempt from making or pseudonymous works, the
additional deposit of the works with copyright shall be protected for
the National Library and the Supreme fifty (50) years from the date
Court Library under other laws. If, on which the work was first
within three (3) weeks after receipt by lawfully published: Provided,
the copyright owner of a written That where, before the
demand from the directors for such expiration of the said period,
deposit, the required copies or the author's identity is revealed
reproductions are not delivered and or is no longer in doubt, the
the fee is not paid, the copyright provisions of Subsections 213.1
owner shall be liable to pay a fine and 213.2 shall apply, as the
equivalent to the required fee per case may be: Provided, further,
month of delay and to pay to the That such works if not
National Library and the Supreme published before shall be
Court Library the amount of the retail protected for fifty (50) years
price of the best edition of the work. counted from the making of the
Only the above mentioned classes of work. (Sec. 23, P. D. No. 49)
work shall be accepted for deposit by 213.4. In case of works of
the National Library and the Supreme applied art the protection shall
Court Library. (Sec. 26, P. D. No. 49a) be for a period of twenty-five
(25) years from the date of
making. (Sec. 24(B), P. D. No.
49a)
Q: What is the scope of copyright? 213.5. In case of photographic
A: Literary and artistic works. It also works, the protection shall be
includes derivative works. for fifty (50) years from
publication of the work and, if
Q: Who enjoys the protection? unpublished, fifty (50) years
A: the author. from the making. (Sec. 24(C),
P. D. 49a)
Q: Pag namatay? 213.6. In case of audio-visual
A: Heirs and assignees. works including those produced
by process analogous to
Duration: lifetime of the author and up photography or any process for
to 50 years thereafter. (sec. 213 and making audio-visual recordings,
214) the term shall be fifty (50)
years from date of publication
Sec. 213. Term of Protection. - 213.1. and, if unpublished, from the
Subject to the provisions of date of making. (Sec. 24(C), P.
Subsections 213.2 to 213.5, the D. No. 49a)
copyright in works under Sections 172 Sec. 214. Calculation of Term. - The
and 173 shall be protected during the term of protection subsequent to the
life of the author and for fifty (50 death of the author provided in the
preceding Section shall run from the belong to the author of the
date of his death or of publication, but work;
such terms shall always be deemed to 178.2. In the case of works of
begin on the first day of January of the joint authorship, the co-authors
year following the event which gave shall be the original owners of
rise to them. (Sec. 25, P. D. No. 49) the copyright and in the
absence of agreement, their
Q: What rule do we apply on dual rights shall be governed by the
authorship? rules on co-ownership. If,
A: Rule on co-ownership however, a work of joint
if the work is divisible in authorship consists of parts
character; authors are already that can be used separately
identified. and the author of each part can
be identified, the author of
In the course of employment: each part shall be the original
owner of the copyright in the
1. if it forms part of his duties part that he has created;
the publisher has the copyright. 178.3. In the case of work
2. if outside the copyright created by an author during
belongs to the author. and in the course of his
employment, the copyright
Commissioned work: shall belong to:
(a) The employee, if the
Eg. Painting creation of the object of
copyright is not a part of
- the painting belongs to the one his regular duties even if
who commissioned but the the employee uses the
copyright belongs to the painter time, facilities and
unless there is a contrary materials of the
stipulation. employer.
(b) The employer, if the
Scripts: work is the result of the
performance of his
- copyright belongs to the regularly-assigned
scriptwriter. duties, unless there is
an agreement, express
Private communications or implied, to the
contrary.
- letters belong to the addressee 178.4. In the case of a work-
but the copyright belongs to commissioned by a person
the author. other than an employer of the
author and who pays for it and
Psuedonyms and anonymous the work is made in pursuance
of the commission, the person
who so commissioned the work
Sec. 178. Rules on Copyright shall have ownership of work,
Ownership. - Copyright ownership but the copyright thereto shall
shall be governed by the following remain with the creator, unless
rules: there is a written stipulation to
the contrary;
178.1. Subject to the 178.5. In the case of
provisions of this section, in the audiovisual work, the copyright
case of original literary and shall belong to the producer,
artistic works, copyright shall the author of the scenario, the
composer of the music, the film
director, and the author of the - Public display exception
work so adapted. However, works of art sec. 184 C
subject to contrary or other - Public performance
stipulations among the
creators, the producers shall II. Moral rights
exercise the copyright to an
extent required for the Works that may be protected by
exhibition of the work in any copyright.
manner, except for the right to
collect performing license fees
for the performance of musical
compositions, with or without
words, which are incorporated
into the work; and
178.6. In respect of letters, the Sec. 172. Literary and Artistic Works.
copyright shall belong to the -
writer subject to the provisions
of Article 723 of the Civil Code.
172.1 Literary and artistic
(Sec. 6, P. D. No. 49a)
works, hereinafter referred to
Sec. 179. Anonymous and
as "works", are original
Pseudonymous Works. - For purposes
intellectual creations in the
of this Act, the publishers shall be
literary and artistic domain
deemed to represent the authors of
protected from the moment of
articles and other writings published
their creation and shall include
without the names of the authors or
in particular:
under pseudonyms, unless the
(a) Books, pamphlets,
contrary appears, or the pseudonyms
articles and other
or adopted name leaves no doubts as
writings;
to the authors identity, or if the
(b) Periodicals and
author of the anonymous works
newspapers;
discloses his identity. (Sec. 7, P. D.
(c) Lectures, sermons,
49)
addresses, dissertations
- the work to be protected must
prepared for oral
be expressed in a tangible
delivery, whether or not
medium.
reduced in writing or
other material form;
If youre the copyright holder, you
(d) Letters;
have rights:
(e) Dramatic or
dramatico-musical
1. economic
compositions;
2. moral
choreographic works or
entertainment in dumb
I. Economic rights
shows;
(f) Musical
Rental:
compositions, with or
without words;
- in the nature of audio visual or
(g) Works of drawing,
cinematographic movies.
painting, architecture,
- Irrespective of the transfer of
sculpture, engraving,
ownership, rental rights remain
lithography or other
with the author.
works of art; models or
- For profit making purposes
designs for works of art;
- Exists where the lending takes
(h) Original ornamental
place.
designs or models for
articles of manufacture,
whether or not literary or artistic works;
registrable as an and
industrial design, and (b) Collections of
other works of applied literary, scholarly or
art; artistic works, and
(i) Illustrations, maps, compilations of data and
plans, sketches, charts other materials which
and three-dimensional are original by reason of
works relative to the selection or
geography, topography, coordination or
architecture or science; arrangement of their
(j) Drawings or plastic contents. (Sec. 2, [P]
works of a scientific or and [Q], P. D. No. 49)
technical character; 173.2. The works referred to in
(k) Photographic works paragraphs (a) and (b) of
including works Subsection 173.1 shall be
produced by a process protected as a new works:
analogous to Provided however, That such
photography; lantern new work shall not affect the
slides; force of any subsisting
(l) Audiovisual works copyright upon the original
and cinematographic works employed or any part
works and works thereof, or be construed to
produced by a process imply any right to such use of
analogous to the original works, or to secure
cinematography or any or extend copyright in such
process for making original works. (Sec. 8, P. D.
audio-visual recordings; 49; Art. 10, TRIPS)
(m) Pictorial illustrations
and advertisements; Sec. 184. Limitations on Copyright. -
(n) Computer programs;
and 184.1. Notwithstanding the
(o) Other literary, provisions of Chapter V, the
scholarly, scientific and following acts shall not
artistic works. constitute infringement of
172.2. Works are protected by copyright:
the sole fact of their creation, (a) the recitation or
irrespective of their mode or performance of a work,
form of expression, as well as once it has been lawfully
of their content, quality and made accessible to the
purpose. (Sec. 2, P. D. No. public, if done privately
49a) and free of charge or if
made strictly for a
Sec. 173. Derivative Works. - charitable or religious
institution or society;
173.1. The following derivative (Sec. 10(1), P. D. No.
works shall also be protected 49)
by copyright: (b) The making of
(a) Dramatizations, quotations from a
translations, published work if they
adaptations, are compatible with fair
abridgments, use and only to the
arrangements, and extent justified for the
other alterations of purpose, including
quotations from
newspaper articles and (f) The recording made
periodicals in the form in schools, universities,
of press summaries: or educational
Provided, That the institutions of a work
source and the name of included in a broadcast
the author, if appearing for the use of such
on the work, are schools, universities or
mentioned; (Sec. 11, educational institutions:
Third Par., P. D. No. 49) Provided, That such
(c) The reproduction or recording must be
communication to the deleted within a
public by mass media of reasonable period after
articles on current they were first
political, social, broadcast: Provided,
economic, scientific or further, That such
religious topic, lectures, recording may not be
addresses and other made from audiovisual
works of the same works which are part of
nature, which are the general cinema
delivered in public if repertoire of feature
such use is for films except for brief
information purposes excerpts of the work;
and has not been (g) The making of
expressly reserved: ephemeral recordings by
Provided, That the a broadcasting
source is clearly organization by means
indicated; (Sec. 11, P. of its own facilities and
D. No. 49) for use in its own
(d) The reproduction broadcast;
and communication to (h) The use made of a
the public of literary, work by or under the
scientific or artistic direction or control of
works as part of reports the Government, by the
of current events by National Library or by
means of photography, educational, scientific or
cinematography or professional institutions
broadcasting to the where such use is in the
extent necessary for the public interest and is
purpose; (Sec. 12, P. D. compatible with fair
No. 49) use;
(e) The inclusion of a (i) The public
work in a publication, performance or the
broadcast, or other communication to the
communication to the public of a work, in a
public, sound recording place where no
or film, if such inclusion admission fee is charged
is made by way of in respect of such public
illustration for teaching performance or
purposes and is communication, by a
compatible with fair club or institution for
use: Provided, That the charitable or educational
source and of the name purpose only, whose
of the author, if aim is not profit making,
appearing in the work, subject to such other
are mentioned; limitations as may be
provided in the nature, as well as any official
Regulations; (n) translation thereof. (n)
(j) Public display of the
original or a copy of the
work not made by CASE: Joaquin v. Drilon
means of a film, slide,
television image or - the game procedure of the
otherwise on screen or show Its a Date may not be
by means of any other copyrighted.
device or process:
Provided, That either Sec. 194: Breach of contract
the work has been
published, or, that - specific performance will not lie
original or the copy against an author under a
displayed has been sold, contract to produce a work.
given away or otherwise Sec. 194. Breach of Contract. - An
transferred to another author cannot be compelled to
person by the author or perform his contract to create a work
his successor in title; or for the publication of his work
and already in existence. However, he may
(k) Any use made of a be held liable for damages for breach
work for the purpose of of such contract. (Sec. 35, P. D. No.
any judicial proceedings 49)
or for the giving of
professional advice by a CASE: Habana v. Robles July 19,
legal practitioner. 1999
184.2. The provisions of this
section shall be interpreted in - subject matter is a college
such a way as to allow the textbook.
work to be used in a manner - They found that there is
which does not conflict with the substantial reproduction.
normal exploitation of the work - SC does not require
and does not unreasonably reproduction of the entire work
prejudice the right holder's but if so much is taken, that
legitimate interest. the value of the original work
has been diminished, there are
Sec. 175 work which are beyond injurious effects to the author.
copyright. - TEST: Whether to an injurious
effect the original work is
impaired.
Sec. 175. Unprotected Subject Matter.
- Notwithstanding the provisions of TRADEMARKS
Sections 172 and 173, no protection
shall extend, under this law, to any - product or service
idea, procedure, system method or - any visible sign that is capable
operation, concept, principle, of distinguishing the goods or
discovery or mere data as such, even services of an enterprise.
if they are expressed, explained, - Visible 121.1 no trademark
illustrated or embodied in a work; which is sound and odor.
news of the day and other
miscellaneous facts having the 121.1. "Mark" means any visible sign
character of mere items of press capable of distinguishing the goods
information; or any official text of a (trademark) or services (service mark)
legislative, administrative or legal of an enterprise and shall include a
stamped or marked container of President of the
goods; (Sec. 38, R. A. No. 166a) Philippines, during the
life of his widow, if any,
Collective mark except by written
use to indicate the origin consent of the widow;
or quality of goods or (d) Is identical with a
services of an enterprise registered mark
with a common mark. belonging to a different
Basic functions: proprietor or a mark
with an earlier filing or
1. distinguishing function priority date, in respect
2. origin or source of:
3. advertising (i) The same
goods or
Trademark requires registration services, or
(122, IPC) (ii) Closely
Prior use is not a requirement. related goods or
Subsequent use is an essential services, or
requirement within 3 years (iii) If it nearly
from filing date you must resembles such a
declare that the registered mark as to be
trademark has been used. likely to deceive
(151) or cause
Within 1 year from the 5th confusion;
anniversary date. (145) (e) Is identical with, or
confusingly similar to, or
Mark that cannot be registered: constitutes a translation
of a mark which is
123.1. A mark cannot be registered if considered by the
it: competent authority of
(a) Consists of immoral, the Philippines to be
deceptive or scandalous well-known
matter, or matter which internationally and in
may disparage or falsely the Philippines, whether
suggest a connection or not it is registered
with persons, living or here, as being already
dead, institutions, the mark of a person
beliefs, or national other than the applicant
symbols, or bring them for registration, and
into contempt or used for identical or
disrepute; similar goods or
(b) Consists of the flag services: Provided, That
or coat of arms or other in determining whether
insignia of the a mark is well-known,
Philippines or any of its account shall be taken
political subdivisions, or of the knowledge of the
of any foreign nation, or relevant sector of the
any simulation thereof; public, rather than of
(c) Consists of a name, the public at large,
portrait or signature including knowledge in
identifying a particular the Philippines which
living individual except has been obtained as a
by his written consent, result of the promotion
or the name, signature, of the mark;
or portrait of a deceased
(f) Is identical with, or production of the goods
confusingly similar to, or or rendering of the
constitutes a translation services, or other
of a mark considered characteristics of the
well-known in goods or services;
accordance with the (k) Consists of shapes
preceding paragraph, that may be
which is registered in necessitated by
the Philippines with technical factors or by
respect to goods or the nature of the goods
services which are not themselves or factors
similar to those with that affect their intrinsic
respect to which value;
registration is applied (l) Consists of color
for: Provided, That use alone, unless defined by
of the mark in relation a given form; or
to those goods or (m) Is contrary to public
services would indicate order or morality.
a connection between 123.2. As regards signs or
those goods or services, devices mentioned in
and the owner of the paragraphs (j), (k), and (l),
registered mark: nothing shall prevent the
Provided further, That registration of any such sign or
the interests of the device which has become
owner of the registered distinctive in relation to the
mark are likely to be goods for which registration is
damaged by such use; requested as a result of the use
(g) Is likely to mislead that have been made of it in
the public, particularly commerce in the Philippines.
as to the nature, The Office may accept as prima
quality, characteristics facie evidence that the mark
or geographical origin of has become distinctive, as used
the goods or services; in connection with the
(h) Consists exclusively applicants goods or services in
of signs that are generic commerce, proof of
for the goods or services substantially exclusive and
that they seek to continuous use thereof by the
identify; applicant in commerce in the
(i) Consists exclusively Philippines for five (5) years
of signs or of indications before the date on which the
that have become claim of distinctiveness is
customary or usual to made.
designate the goods or 123.3. The nature of the goods
services in everyday to which the mark is applied
language or in bona fide will not constitute an obstacle
and established trade to registration. (Sec. 4, R. A.
practice; No. 166a)
(j) Consists exclusively
of signs or of indications CASE: Mighty Corporation and La
that may serve in trade Campana v. ENJ Galleon Corporation
to designate the kind,
quality, quantity, Facts: ENJ was distributing wine with a
intended purpose, Galleon mark. Mighty, on the other
value, geographical hand, was distributing matches and
origin, time or cigarettes with a galleon as a symbol.
- Generic terms cannot be
Issue: Whether or not there was registered. Exception: doctrine
infringement of secondary meaning.
Held: No
Infringement
Rationale: The wine had additional
trees while the cigarette has a large - actual use is not necessary.
rooster. The packaging is also
different. 155.1. Use in commerce any
reproduction, counterfeit, copy, or
CASE: McDonalds Corp. v. LC Big Mak colorable imitation of a registered
mark or the same container or a
Facts: Both corporations were engaged dominant feature thereof in connection
in the business of fast food. Mcdonalds with the sale, offering for sale,
has a double decker sandwich called distribution, advertising of any goods
BIG Mac. LC also has a double decker or services including other preparatory
sandwich called BIG Mak. steps necessary to carry out the sale
of any goods or services on or in
Issue: Whether or not there was connection with which such use is
infringement likely to cause confusion, or to cause
Held: Yes mistake, or to deceive; or
Rationale: There was already a 155.2. Reproduce, counterfeit, copy or

colorable imitation on LCs part. colorably imitate a registered mark or
a dominant feature thereof and apply
Dominancy Test: such reproduction, counterfeit, copy or
colorable imitation to labels, signs,
155.1. Use in commerce any prints, packages, wrappers,
reproduction, counterfeit, copy, or receptacles or advertisements
colorable imitation of a registered intended to be used in commerce upon
mark or the same container or a or in connection with the sale, offering
dominant feature thereof in connection for sale, distribution, or advertising of
with the sale, offering for sale, goods or services on or in connection
distribution, advertising of any goods with which such use is likely to cause
or services including other preparatory confusion, or to cause mistake, or to
steps necessary to carry out the sale deceive, shall be liable in a civil action
of any goods or services on or in for infringement by the registrant for
connection with which such use is the remedies hereinafter set forth:
likely to cause confusion, or to cause Provided, That the infringement takes
mistake, or to deceive; or place at the moment any of the acts
stated in Subsection 155.1 or this
subsection are committed regardless
Note: for injunction purposes, the of whether there is actual sale of
petitioner need not prove that there is goods or services using the infringing
confusion. material. (Sec. 22, R. A. No 166a)
Doctrine of Dilution:
Remedies:
- there is a likelihood that the
superior product may be 1. injunction
tarnished by the junior user; 2. criminal action
the good will and reputation 3. throw the goods
may be tarnished.
Assignment:
Next meeting is on March 17, 6pm. the Office may require him to
- patents submit said authority. (Sec. 13,
- Securities Regulations Code R. A. No. 165a)
- Extrajudicial foreclosure of Real
Estate Mortgage Sec. 29
- Insolvency
- when 2 or more individuals
Special class 6-9 pm March 17, (inventors) separately,
2008 independently of each other,
the first to file shall have the
PATENTS patent.
- After 20 years, you invention is
Requirements: now for public use. (sec.54)
1. new novelty not part of

any prior act Sec. 29. First to File Rule. - If two (2)
2. industrially applicable or more persons have made the
3. technical solution to any invention separately and
problem in any field of human independently of each other, the right
activity. to the patent shall belong to the
person who filed an application for
such invention, or where two or more
applications are filed for the same
invention, to the applicant who has
Sec. 32 IPC the earliest filing date or, the earliest
- code does not strictly require priority date. (3rd Sentence, Sec. 10,
that if the invention is a R. A. No. 165a.)
machine, you dont need to
bring it to the IPO. Description Sec. 54. Term of Patent. - The term of
is sufficient. a patent shall be twenty (20) years
- The patent is with the inventor; from the filing date of the application.
- if he dies, his heirs, or his (Sec. 21, R. A. No. 165a)
assignees may secure patent
protection.
1. Novelty
Sec. 32. The Application. - - not locally or internationally

available.
32.1. The patent application - Exception: sec. 25 doctrine of
shall be in Filipino or English non prejudicial disclosure
and shall contain the following:
(a) A request for the Sec. 25. Non-Prejudicial Disclosure. -
grant of a patent; 25.1. The disclosure of
(b) A description of the information contained in the
invention; application during the twelve
(c) Drawings necessary (12) months preceding the
for the understanding of filing date or the priority date
the invention; of the application shall not
(d) One or more claims; prejudice the applicant on the
and ground of lack of novelty if
(e) An abstract. such disclosure was made by:
32.2. No patent may be (a) The inventor;
granted unless the application (b) A patent office and
identifies the inventor. If the the information was
applicant is not the inventor, contained (a) in another
application filed by the under Section 71 of this Act in relation
inventor and should not to the invention claimed in the
have been disclosed by published patent application, as if a
the office, or (b) in an patent had been granted for that
application filed without invention: Provided, That the said
the knowledge or person had:
consent of the inventor
by a third party which 46.1. Actual knowledge that
obtained the information the invention that he was using
directly or indirectly was the subject matter of a
from the inventor; or published application; or
(c) A third party which 46.2. Received written notice
obtained the information that the invention that he was
directly or indirectly using was the subject matter of
from the inventor. a published application being
25.2. For the purposes of identified in the said notice by
Subsection 25.1, "inventor" its serial number: Provided,
also means any person who, at That the action may not be
the filing date of application, filed until after the grant of a
had the right to the patent. (n) patent on the published
application and within four (4)
years from the commission of
the acts complained of. (n)
Rights Sec. 72
you may restrain, prohibit or - limitation for infringements

prevent, from using, - acts which do not constitute
manufacturing, selling your infringement of patent.
invention by any person. - The moment the product is sold
You may transfer, or assign the in the market, you cannot
rights of your patent. prevent anyone from buying it.
- Use is for experimental
Sec. 46 purposes.
Sec. 72. Limitations of Patent Rights. -
- even if the application is The owner of a patent has no right to
pending, you already have the prevent third parties from performing,
rights which are protected the without his authorization, the acts
moment it is filed. referred to in Section 71 hereof in the
- Due to sec. 76 following circumstances:
- If a persona has actual 72.1 Using a patented product
knowledge that there is which has been put on the
pending application, he uses market in the Philippines by the
the invention, he may be sued owner of the product, or with
for infringement. his express consent, insofar as
- What gives the protection is the such use is performed after
actual knowledge. that product has been so put
on the said market;
72.2. Where the act is done
Sec. 46. Rights Conferred by a Patent privately and on a non-
Application After Publication. - The commercial scale or for a non-
applicant shall have all the rights of a commercial purpose: Provided,
patentee under Section 76 against any That it does not significantly
person who, without his authorization, prejudice the economic
exercised any of the rights conferred
interests of the owner of the diagnostic methods practiced
patent; on the human or animal body.
72.3. Where the act consists of This provision shall not apply to
making or using exclusively for products and composition for
the purpose of experiments use in any of these methods;
that relate to the subject 22.4. Plant varieties or animal
matter of the patented breeds or essentially biological
invention; process for the production of
72.4. Where the act consists of plants or animals. This
the preparation for individual provision shall not apply to
cases, in a pharmacy or by a micro-organisms and non-
medical professional, of a biological and microbiological
medicine in accordance with a processes.
medical prescription or acts Provisions under this
concerning the medicine so subsection shall not
prepared; preclude Congress to
72.5. Where the invention is consider the enactment
used in any ship, vessel, of a law providing sui
aircraft, or land vehicle of any generis protection of
other country entering the plant varieties and
territory of the Philippines animal breeds and a
temporarily or accidentally: system of community
Provided, That such invention is intellectual rights
used exclusively for the needs protection:
of the ship, vessel, aircraft, or 22.5. Aesthetic creations; and
land vehicle and not used for 22.6. Anything which is
the manufacturing of anything contrary to public order or
to be sold within the morality. (Sec. 8, R. A. No.
Philippines. (Secs. 38 and 39, 165a)
R. A. No. 165a)
Sec. 76 what consists infringement?

Sec. 22
Sec. 76. Civil Action for Infringement.
- those that are beyond patent -
protections. 76.1. The making, using,
- Any method for the treatment offering for sale, selling, or
of human and animal body is importing a patented product
beyond patent. or a product obtained directly
or indirectly from a patented
Sec. 22. Non-Patentable Inventions. - process, or the use of a
The following shall be excluded from patented process without the
patent protection: authorization of the patentee
constitutes patent
22.1. Discoveries, scientific infringement.
theories and mathematical 76.2. Any patentee, or anyone
methods; possessing any right, title or
22.2. Schemes, rules and interest in and to the patented
methods of performing mental invention, whose rights have
acts, playing games or doing been infringed, may bring a
business, and programs for civil action before a court of
computers; competent jurisdiction, to
22.3 Methods for treatment of recover from the infringer such
the human or animal body by damages sustained thereby,
surgery or therapy and plus attorneys fees and other
expenses of litigation, and to Requisites:
secure an injunction for the
protection of his rights. 1. the owners are not the same.
76.3. If the damages are 2. the product must be
inadequate or cannot be readily substantially the same.
ascertained with reasonable 3. it must produce substantially
certainty, the court may award the same results.
by way of damages a sum
equivalent to reasonable CASE: Smith Kline and Beckmen Corp
royalty. v. CA
76.4. The court may, according
to the circumstances of the Facts: Smith Kline had earlier secured
case, award damages in a sum a patent for an invention regarding
above the amount found as methyl 5 which is an active ingredient
actual damages sustained: fighting gastro intestinal disease in
Provided, That the award does animals. Smithkline filed a case
not exceed three (3) times the against TempoPharma because it only
amount of such actual substituted Methyl 5 with
damages. embethezole.
76.5. The court may, in its
discretion, order that the Issue: WON the doctrine of equivalents
infringing goods, materials and is applicable
implements predominantly Held: No
used in the infringement be
disposed of outside the Rationale: The requisites are it must
channels of commerce or be substantially the same, and will
destroyed, without yield substantially the same results. It
compensation. was not proven by petitioner that
76.6. Anyone who actively Methyl 5 is the same with
induces the infringement of a embethazole.
patent or provides the infringer
with a component of a patented Q: How can ones invention be
product or of a product exploited?
produced because of a A: Voluntary and involuntary.
patented process knowing it to
be especially adopted for Involuntary/Compulsory government
infringing the patented patents it.
invention and not suitable for Voluntary inventor files it.
substantial non-infringing use
shall be liable as a contributory Compulsory:
infringer and shall be jointly
and severally liable with the 1. national emergency
infringer. (Sec. 42, R. A. No. 2. public interest
165a) 3. anti competitive
4. non commercial use is not
satisfied.
Doctrine of equivalents
Exception: sec. 100
A legal concept which allows a patent
owner to claim infringement, even if Sec. 100. Terms and Conditions of
the Claims of said patent are not Compulsory License. - The basic terms
literally infringed, due to the very and conditions including the rate of
similar nature of the infringing royalties of a compulsory license shall
behavior. be fixed by the Director of Legal
Affairs subject to the following - The licensee should be allowed
conditions: continued access for
100.1. The scope and duration improvements.
of such license shall be limited - If arbitration is stipulated, the
to the purpose for which it was governing law is the Philippine
authorized; Arbitration law.
100.2. The license shall be - The licensor pays for the
non-exclusive; process.
100.3. The license shall be
non-assignable, except with Sec. 88. Mandatory Provisions. - The
that part of the enterprise or following provisions shall be included
business with which the in voluntary license contracts:
invention is being exploited; 88.1. That the laws of the
100.4. Use of the subject Philippines shall govern the
matter of the license shall be interpretation of the same and
devoted predominantly for the in the event of litigation, the
supply of the Philippine market: venue shall be the proper court
Provided, That this limitation in the place where the licensee
shall not apply where the grant has its principal office;
of the license is based on the 88.2. Continued access to
ground that the patentees improvements in techniques
manner of exploiting the patent and processes related to the
is determined by judicial or technology shall be made
administrative process, to be available during the period of
anti-competitive. the technology transfer
100.5. The license may be arrangement;
terminated upon proper 88.3. In the event the
showing that circumstances technology transfer
which led to its grant have arrangement shall provide for
ceased to exist and are unlikely arbitration, the Procedure of
to recur: Provided, That Arbitration of the Arbitration
adequate protection shall be Law of the Philippines or the
afforded to the legitimate Arbitration Rules of the United
interest of the licensee; and Nations Commission on
100.6. The patentee shall be International Trade Law
paid adequate remuneration (UNCITRAL) or the Rules of
taking into account the Conciliation and Arbitration of
economic value of the grant or the International Chamber of
authorization, except that in Commerce (ICC) shall apply
cases where the license was and the venue of arbitration
granted to remedy a practice shall be the Philippines or any
which was determined after neutral country; and
judicial or administrative 88.4. The Philippine taxes on
process, to be anti-competitive, all payments relating to the
the need to correct the anti- technology transfer
competitive practice may be arrangement shall be borne by
taken into account in fixing the the licensor. (n)
amount of remuneration. (Sec.
35-B, R. A. No. 165a)
REAL ESTATE MORTGAGE
In case of voluntary licensing sec. 88
(REPUBLIC ACT 3135)
- transfer technology
arrangements or contracts - special law which allows
- Philippine laws will govern extrajudicial foreclosure of REM
- there is a stipulation in the REM
or a SPA is attached in the REM 1. Suspension of payments
contract for the act to be valid. 2. Insolvency proceedings
- Apply to the office of the COC.
- Basic requirement: posting of Suspension of Insolvency
notices: Payments Proceedings
1. sufficient 1. Neither cash
1. 3 public places where the assets but he nor property os
property is located. foresees the sufficient value.
2. if 2 areas, either of the areas. impossibility of
meeting his debts
Period of foreclosure as they fall due.
- the mortgagor may bid in the 2. purpose is to 2. purpose is to
foreclosure unless he is delay. pay (discharge)
restricted. 3. at the end of 3. possible for
the proceedings some creditors to
the amount is the receive less.
Period of redemption 1 year same.
- 1 year from or after the date of RTC where the natural person
registration. has resided for the past 6
- Exception: if the mortgagee is a months.
juridical person and the RTC where the juridical person
mortgagor is a bank, the is located.
redemption period is in no case Action in Rem publication is
more than 3 months.
mandatory.
Inventory of assets and
- the fact that the price is
property.
inadequate would not be valid
to its validity.
Suspension of payments
- Posting of notice is jurisdictional
- If the court may find that there
requirements.
is sufficiency court may issue
a stay order.
CASE:
- Vote necessary for the debtors
proposal schedule 2/3 of the
- the certificate of posting may
be dispensed with if the sheriff creditors who represent 3/5 of
himself would testify that he the liabilities.
has already posted it.
- During redemption, the highest Q: Who will be binded?
bidder does not automatically A: all the creditors mentioned in the
come into possession until the schedule and duly summoned.
redemption period is through.
- No discretion is left to the trial Petitions of this nature may be
court regarding any question to filed with the RTC where the
the validity of the writ shall be juridical person is located.
determined in another case.
(sec. 8; Act 3135) Insolvency proceedings
Voluntary Involuntary
INSOLVENCY LAW OF 1. debtor applies 1. creditor applies
1956 2. number of 2. number of
creditors does not creditors at
Divided to two major parts: matter. least 3
3. acts of 3. acts of (c) Fractional undivided
insolvency is not insolvency is interests in oil, gas or other mineral
necessary. necessary to rights;
preserve the
property. (d) Derivatives like option and
warrants;
Acts of insolvency:
(e) Certificates of assignments,
1. concealing certificates of participation, trust
2. absconding certificates, voting trust certificates or
3. absence similar instruments;
4. selling property
(f) Proprietary or non
just like suspension of proprietary membership certificates
payments, the court may issue incorporations; and
stay order.
(g) Other instruments as may
Discharge: in the future be determined by the
Commission.
- certain cases where discharge
is not applicable sec. 68 and
3.2 Issuer is the originator,
sec. 59
maker, obligor, or creator of the
- additional: corporate debts
security.
3.3 Broker is a person engaged in

the business of buying and selling
securities for the account of others.
SECURITIES chan robles virtual law library
REGULATION CODE
3.4 Dealer means any person who
buys and sells securities for his/her
Be familiar with the definitions and
own account in the ordinary course of
concepts:
business.
SEC. 3. Definition of Terms.
3.5. Associated person of a broker or
dealer is an employee thereof who,
3.1. Securities are shares,
directly exercises control of
participation or interests in a
supervisory authority, but does not
corporation or in a commercial
include a salesman, or an agent or a
enterprise or profit-making venture
person whose functions are solely
and evidenced by a certificate,
clerical or ministerial.
contract, instrument, whether written
or electronic in character. It includes:
3.6. Clearing Agency is any person
(a) Shares of stock, bonds,
who acts as intermediary in making
debentures, notes, evidences of
deliveries upon payment to effect
indebtedness, asset-backed securities;
settlement in securities transactions.
(b) Investment contracts, 3.7. Exchange is an organized

certificates of interest or participation marketplace or facility that brings
in a profit sharing agreement, together buyers and sellers and
certificates of deposit for a future executes trades of securities and/or
subscription; commodities.
3.8. Insider means: (a) the issuer;
(b) a director or officer (or person
performing similar functions) of, or a 3.14. Uncertificated security is a
person controlling the issuer; (c) a security evidenced by electronic or
person whose relationship or former similar records.
relationship to the issuer gives or gave
him access to material information 3.15. Underwriter is a person who
about the issuer or the security that is guarantees on a firm commitment
not generally available to the public; and/or declared best effort basis the
(d) a government employee, or distribution and sale of securities of
director, or officer of an exchange, any kind by another company.
clearing agency and/or self-regulatory
organization who has access to
material information about an issuer
or a security that is not generally Transfer of jurisdiction:
available to the public; or (e) a person
who learns such information by a SEC. 5. Powers and Functions
communication from any of the of the Commission.- 5.1. The
foregoing insiders. Commission shall act with
transparency and shall have the
3.9. Pre-Need Plans are contracts powers and functions provided by this
which provide for the performance of Code, Presidential Decree No. 902-A,
future services or the payment of the Corporation Code, the Investment
future monetary considerations at the Houses Law, the Financing Company
time of actual need, for which Act and other existing laws. Pursuant
planholders pay in cash or installment thereto the Commission shall have,
at stated prices, with or without among others, the following powers
interest or insurance coverage and and functions:
includes life, pension, education, (a) Have jurisdiction and
interment, and other plans which the supervision over all corporations,
Commission may from time to time partnerships or associations who are
approve. the grantees of primary franchises
and/or a license or permit issued by
3.10. Promoter is a person who, the Government; chan robles virtual
acting alone or with others, takes law library
initiative in founding and organizing
the business or enterprise of the (b) Formulate policies and
issuer and receives consideration recommendations on issues
therefor. concerning the securities market,
advise Congress and other
3.11. Prospectus is the document government agencies on all aspects of
made by or on behalf of an issuer, the securities market and propose
underwriter or dealer to sell or offer legislation and amendments thereto;
securities for sale to the public
through a registration statement filed (c) Approve, reject, suspend, revoke
with the Commission. or require amendments to registration
statements, and registration and
3.12. Registration statement is the licensing applications;
application for the registration of
securities required to be filed with the (d) Regulate, investigate or supervise
Commission. the activities of persons to ensure
compliance;
3.13. Salesman is a natural person,
employed as such or as an agent, by a (e) Supervise, monitor, suspend or
dealer, issuer or broker to buy and sell take over the activities of exchanges,
securities. clearing agencies and other SROs;
(f) Impose sanctions for the violation (n) Exercise such other powers as may
of laws and the rules, regulations and be provided by law as well as those
orders issued pursuant thereto; which may be implied from, or which
are necessary or incidental to the
(g) Prepare, approve, amend or repeal carrying out of, the express powers
rules, regulations and orders, and granted the Commission to achieve
issue opinions and provide guidance the objectives and purposes of these
on and supervise compliance with such laws.
rules, regulations and orders; 5.2. The Commissions jurisdiction
over all cases enumerated under
(h) Enlist the aid and support of Section 5 of Presidential Decree No.
and/or deputize any and all 902-A is hereby transferred to the
enforcement agencies of the Courts of general jurisdiction or the
Government, civil or military as well as appropriate Regional Trial Court:
any private institution, corporation, Provided, that the Supreme Court in
firm, association or person in the the exercise of its authority may
implementation of its powers and designate the Regional Trial Court
functions under this Code; branches that shall exercise
jurisdiction over these cases. The
(i) Issue cease and desist orders to Commission shall retain jurisdiction
prevent fraud or injury to the investing over pending cases involving intra-
public; corporate disputes submitted for final
resolution which should be resolved
(j) Punish for contempt of the within one (1) year from the
Commission, both direct and indirect, enactment of this Code. The
in accordance with the pertinent Commission shall retain jurisdiction
provisions of and penalties prescribed over pending suspension of
by the Rules of Court; payments/rehabilitation cases filed as
of 30 June 2000 until finally disposed.
(k) Compel the officers of any CASE: Yuhico v. Quiambao
registered corporation or association
to call meetings of stockholders or Facts: The respondent sought
members thereof under its nullification of the election of their
supervision; officers. They went to the RTC. Their
main prayer is the nullification of the
(l) Issue subpoena duces tecum and present election, if granted, they
summon witnesses to appear in any requested the court to order a special
proceedings of the Commission and in SH meeting. The court granted.
appropriate cases, order the
examination, search and seizure of all Issue: WON the RTC has jurisdiction to
documents, papers, files and records, order the special SH meeting.
tax returns, and books of accounts of Held: Yes.
any entity or person under
investigation as may be necessary for Rationale: The RTC has power to grant
the proper disposition of the cases reliefs incidental to the main relief.
before it, subject to the provisions of This includes the authority to issue
existing laws; orders incidental to carry out the
expressed powers granted to it.
(m) Suspend, or revoke, after proper
notice and hearing the franchise or - the moment the case becomes
certificate of registration of adversarial, this is the moment
corporations, partnerships or the RTC exercises jurisdiction
associations, upon any of the grounds and grant reliefs.
provided by law; and
- Take note: full disclosure of require compliance with the form and
information affecting securities content of disclosures the Commission
transaction. may prescribe.
CASE: Baviera v. Paglinawan (c) Certificates issued by a receiver or

by a trustee in bankruptcy duly
- foreign securities solicited approved by the proper adjudicatory
and distributed. body.
Facts: Standard Charter Bank solicited (d) Any security or its derivatives the
from the residents Global mutual funds sale or transfer of which, by law, is
(securities) which were not registered under the supervision and regulation
with the SEC. All remittances were of the Office of the Insurance
directly diverted to SCB Hongkong. Commission, Housing and Land Use
Petitioner filed a complaint directly Regulatory Board, or the Bureau of
with the DOJ. Internal Revenue.
Issue: WON, it is the proper (e) Any security issued by a bank

procedure. except its own shares of stock.
Held: No 9.2. The Commission may, by
rule or regulation after public hearing,
Rationale: The proper procedure under add to the foregoing any class of
the SRC is to file a criminal complaint securities if it finds that the
with the SEC. If the SEC finds that enforcement of this Code with respect
there is probable cause, the SEC refers to such securities is not necessary in
it to the DOJ which in turn refers it to the public interest and for the
the regular courts. (DOCTRINE OF protection of investors.
PRIMARY JURISDICTION)
- common denominator the
- Registration is the policy. issuer is someone whom the
public could trust.
Watch out sa Finals! SEC. 10. Exempt Transactions.
- 10.1. The requirement of registration
SEC. 9. Exempt Securities. - under Subsection 8.1. shall not apply
to the sale of any security in any of
9.1. The requirement of the following transactions:
registration under Subsection 8.1 shall (a) At any judicial sale, or sale
not as a general rule apply to any of by an executor, administrator,
the following classes of securities: guardian or receiver or trustee in
insolvency or bankruptcy.
(a) Any security issued or
guaranteed by the Government of the (b) By or for the account of a pledge
Philippines, or by any political holder, or mortgagee or any other
subdivision or agency thereof, or by similar lien holder selling or offering
any person controlled or supervised for sale or delivery in the ordinary
by, and acting as an instrumentality of course of business and not for the
said Government. purpose of avoiding the provisions of
this Code, to liquidate a bona fide
(b) Any security issued or guaranteed debt, a security pledged in good faith
by the government of any country as security for such debt.
with which the Philippines maintains
diplomatic relations, or by any state, (c) An isolated transaction in which
province or political subdivision any security is sold, offered for sale,
thereof on the basis of reciprocity: subscription or delivery by the owner
Provided, That the Commission may thereof, or by his representative for
the owners account, such sale or offer upon customers orders, on any
for sale, subscription or delivery not registered Exchange or other trading
being made in the course of repeated market.
and successive transactions of a like
character by such owner, or on his (i) Subscriptions for shares of the
account by such representative and capital stock of a corporation prior to
such owner or representative not the incorporation thereof or in
being the underwriter of such security. pursuance of an increase in its
authorized capital stock under the
(d) The distribution by a corporation, Corporation Code, when no expense is
actively engaged in the business incurred, or no commission,
authorized by its articles of compensation or remuneration is paid
incorporation, of securities to its or given in connection with the sale or
stockholders or other security holders disposition of such securities, and only
as a stock dividend or other when the purpose for soliciting, giving
distribution out of surplus. or taking of such subscriptions is to
comply with the requirements of such
(e) The sale of capital stock of a law as to the percentage of the capital
corporation to its own stockholders stock of a corporation which should be
exclusively, where no commission or subscribed before it can be registered
other remuneration is paid or given and duly incorporated, or its
directly or indirectly in connection with authorized capital increased.
the sale of such capital stock.
(j) The exchange of securities by the
(f) The issuance of bonds or notes issuer with its existing security holders
secured by mortgage upon real estate exclusively, where no commission or
or tangible personal property, where other remuneration is paid or given
the entire mortgage together with all directly or indirectly for soliciting such
the bonds or notes secured thereby exchange.
are sold to a single purchaser at a
single sale. (k) The sale of securities by an issuer
to fewer than twenty (20) persons in
(g) The issue and delivery of any the Philippines during any twelve-
security in exchange for any other month period.
security of the same issuer pursuant
to a right of conversion entitling the (l) The sale of securities to any
holder of the security surrendered in number of the following qualified
exchange to make such conversion: buyers:
Provided, That the security so (i) Bank; chan robles virtual
surrendered has been registered under law library
this Code or was, when sold, exempt
from the provisions of this Code, and (ii) Registered investment house;
that the security issued and delivered
in exchange, if sold at the conversion (iii) Insurance company;
price, would at the time of such
conversion fall within the class of (iv) Pension fund or retirement plan
securities entitled to registration under maintained by the Government of the
this Code. Upon such conversion the Philippines or any political subdivision
par value of the security surrendered thereof or managed by a bank or other
in such exchange shall be deemed the persons authorized by the Bangko
price at which the securities issued Sentral to engage in trust functions;
and delivered in such exchange are
sold. (v) Investment company; or
(h) Brokers transactions, executed (vi) Such other person as the
Commission may by rule determine as Commission may by rule determine as
qualified buyers, on the basis of such qualified buyers, on the basis of such
factors as financial sophistication, net factors as financial sophistication, net
worth, knowledge, and experience in worth, knowledge, and experience in
financial and business matters, or financial and business matters, or
amount of assets under management. amount of assets under management.
10.2. The Commission may exempt Q: What is an insider?

other transactions, if it finds that the A:
requirements of registration under this 3.8. Insider means: (a) the
Code is not necessary in the public issuer; (b) a director or officer (or
interest or for the protection of the person performing similar functions)
investors such as by reason of the of, or a person controlling the issuer;
small amount involved or the limited (c) a person whose relationship or
character of the public offering. former relationship to the issuer gives
or gave him access to material
10.3. Any person applying for an information about the issuer or the
exemption under this Section, shall file security that is not generally available
with the Commission a notice to the public; (d) a government
identifying the exemption relied upon employee, or director, or officer of an
on such form and at such time as the exchange, clearing agency and/or self-
Commission by rule may prescribe and regulatory organization who has
with such notice shall pay to the access to material information about
Commission a fee equivalent to one- an issuer or a security that is not
tenth (1/10) of one percent (1%) of generally available to the public; or
the maximum aggregate price or (e) a person who learns such
issued value of the securities. information by a communication from
any of the foregoing insiders.
- securities themselves are not
exempt but the transaction
makes registration Q: What is insider trading?
unnecessary. A:
SEC. 27. Insiders Duty to
Qualified buyers: (BRIPIS) Disclose When Trading. - 27.1. It
shall be unlawful for an insider to sell
The sale of securities to any or buy a security of the issuer, while in
number of the following qualified possession of material information
buyers: with respect to the issuer or the
(i) Bank; chan robles virtual security that is not generally available
law library to the public, unless: (a) The insider
proves that the information was not
(ii) Registered investment house; gained from such relationship; or (b)
If the other party selling to or buying
(iii) Insurance company; from the insider (or his agent) is
identified, the insider proves: (i) that
(iv) Pension fund or retirement plan he disclosed the information to the
maintained by the Government of the other party, or (ii) that he had reason
Philippines or any political subdivision to believe that the other party
thereof or managed by a bank or other otherwise is also in possession of the
persons authorized by the Bangko information. A purchase or sale of a
Sentral to engage in trust functions; security of the issuer made by an
insider defined in Subsection 3.8, or
(v) Investment company; or such insiders spouse or relatives by
affinity or consanguinity within the
(vi) Such other person as the second degree, legitimate or common-
law, shall be presumed to have been with assets of at least Fifty Million
effected while in possession of Pesos (P50,000,000.00) and having
material non-public information if two hundred (200) or more
transacted after such information stockholders with at least one hundred
came into existence but prior to (100) shares each or who intends to
dissemination of such information to acquire at least thirty per cent (30%)
the public and the lapse of a of such equity over a period of twelve
reasonable time for the market to (12) months shall make a tender offer
absorb such information: Provided, to stockholders by filing with the
however, That this presumption shall Commission a declaration to that
be rebutted upon a showing by the effect; and furnish the issuer, a
purchaser or seller that he was not statement containing such of the
aware of the material non-public information required in Section 17 of
information at the time of the this Code as the Commission may
purchase or sale. prescribe. Such person or group of
persons shall publish all requests or
Tender offer: invitations for tender, or materials
making a tender offer or requesting or
27.4. (a) It shall be unlawful inviting letters of such a security.
where a tender offer has commenced Copies of any additional material
or is about to commence for: soliciting or requesting such tender
(i) Any person (other than the offers subsequent to the initial
tender offeror) who is in possession of solicitation or request shall contain
material non-public information such information as the Commission
relating to such tender offer, to buy or may prescribe, and shall be filed with
sell the securities of the issuer that the Commission and sent to the issuer
are sought or to be sought by such not later than the time copies of such
tender offer if such person knows or materials are first published or sent or
has reason to believe that the given to security holders.
information is non-public and has been
acquired directly or indirectly from the (b) Any solicitation or
tender offeror, those acting on its recommendation to the holders of
behalf, the issuer of the securities such a security to accept or reject a
sought or to be sought by such tender tender offer or request or invitation for
offer, or any insider of such issuer; tenders shall be made in accordance
and with such rules and regulations as the
(ii) Any tender offeror, those Commission may prescribe.
acting on its behalf, the issuer of the
securities sought or to be sought by (c) Securities deposited pursuant to a
such tender offer, and any insider of tender offer or request or invitation for
such issuer to communicate material tenders may be withdrawn by or on
non-public information relating to the behalf of the depositor at any time
tender offer to any other person where throughout the period that the tender
such communication is likely to result offer remains open and if the
in a violation of Subsection 27.4 (a)(i). securities deposited have not been
previously accepted for payment, and
In relation with section 19: at any time after sixty (60) days from
the date of the original tender offer or
SEC. 19. Tender Offers. 19.1. request or invitation, except as the
(a) Any person or group of persons Commission may otherwise prescribe.
acting in concert who intends to
acquire at least fifteen per cent (15%) (d) Where the securities offered
of any class of any equity security of a exceed that which a person or group
listed corporation or of any class of of persons is bound or willing to take
any equity security of a corporation up and pay for, the securities that are
subject of the tender offer shall be transactions SEC has
taken up as nearly as may be pro rata, jurisdiction.
disregarding fractions, according to
the number of securities deposited by CASE: CEMCO Holdings v. National Life
each depositor. The provisions of this Insurance Company (2007 case) this
subsection shall also apply to may be asked in the bar.
securities deposited within ten (10)
days after notice of an increase in the Facts: UCC controls both UCHC and
consideration offered to security CEMCO. CEMCO bought the two
holders, as described in paragraph (e) controlling shares of UCHC. As a
of this subsection, is first published or result, CEMCO is now the lone
sent or given to security holders. shareholder of UCC.
(e) Where any person varies the terms Issue: Who has jurisdiction?
of a tender offer or request or Held: SEC
invitation for tenders before the
expiration thereof by increasing the Issue no. 2: WON mandatory tender
consideration offered to holders of offer applies
such securities, such person shall pay
the increased consideration to each Held: Yes
security holder whose securities are Rationale: MTO regulates activities of
taken up and paid for whether or not unlisted companies whatever methods
such securities have been taken up by for a public company may be obtained,
such person before the variation of the either directly or indirectly, MTO
tender offer or request or invitation. applies.
19.2. It shall be unlawful for any Coverage for final exams (March 25,
person to make any untrue statement 2008, 6-9pm): Checks SRC
of a material fact or omit to state any
material fact necessary in order to
make the statements made, in the
light of the circumstances under which
they are made, not misleading, or to
engage in any fraudulent, deceptive,
or manipulative acts or practices, in
connection with any tender offer or
request or invitation for tenders, or
any solicitation of security holders in
opposition to or in favor of any such
offer, request, or invitation. The
Commission shall, for the purposes of
this subsection, define and prescribe
means reasonably designed to
prevent, such acts and practices as
are fraudulent, deceptive, or
manipulative.
- protection of minority
shareholders the opportunity to
sell their shares at the same
price as the majority
stockholder.
- Mandatory tender offer applies
even in cases of indirect

Corcor 2

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corcor 2

Uploaded by

Copyright:

Available Formats

Maam Zarah Villanueva-Castro notes

Notes of Bogs Quitain in

30% - midterms Q: How does it limit?

A: Yes, it applies to all private

Q: Is a private corporation a person?

- Generic term for members are - application of laws may vary

Due process clause: CASE: Stonehill v. Diokno

Section 1. No person shall be deprived - our government officers have no

Held: No Facts: During the time of sale of Times

CASE: Concept Builders v. NLRC - When one corporation is so

Held: Yes - no fraud; no application of

Q: Prospectively, what happens to Q: How are corporations classified?

A: No. Their separate personalities are Q: What is a stock corporation?

- corporation exists despite the

Q: What is a non-stock corporation?

The provisions governing stock Q: If a corporation is defectively

the main difference is in the - until there is a challenge, the

Q: Is it a de jure corporation? Rationale: He benefited by the use of

CASE: Lim Tong Lim v. CA

1. The name of the 8. If it be a stock

Facts: IDCJ-HSK is a non stock Maam: Mr. Quitain!

Q: How? Q: What is the doctrine of relation?

Maam: Class, take note of the time Q: Who are corporators?

A corporation may, furthermore, Except as provided in the immediately

The TEST: to know you are a corporate

Q: Why use the term self-dealing?

Q: Example, if in December 2007 Q: What if 5 voted and one of them

Another illustration: Facts: The amendment of the by-laws

Another illustration: Issue: whether or not the by-laws is

Q: Do we satisfy? Sec. 33 as long as there is no fraud,

Sec. 39. Power to deny pre- A: Yes. If by reason of the sale, X

- declaration during the lifetime - requires approval of the board

Sec. 43. Power to declare Q: May non-voting shares vote on the

CASE: China Banking Corporation v. Whenever, for any cause, there is no

Q: What are its limitations? 1. one of record

Q: How is NS corp formed? What is the

Voting by mail or other similar means Sec. 94. Rules of distribution. - In

2 main classes of dissolution: CASE: Pepsi Cola v CA

1. voluntary - the fact that the corporation

Q: What is the period? Issue: Whether or not Gelanos claim

II. NEGOTIABLE A-B-C-D-E

Determine whether the following

No meeting this Saturday. We will I promise to pay Mr. B P100,000.00,

January 23, 2008 Sec. 2: Certainty of the Sum payable.

written instrument Sec. 2. What constitutes certainty as

Element no. 2 (b) Must contain an (c) by stated installments, with

- the exact date of happening is 1. authority on the part of the

1. pay to B to B and no other.

Q: In example no. 1, it was assigned

1. payable to order: Pay to C sgd. A

I promise to pay B or order XXX

Q: How would C negotiate it further to

Different Categories of indorsement: ISSUE: How indorsement produces it

(c) That all prior parties had

(d) When the name of the

(e) When the only or last

I promise to pay B or bearer xxx

Delivery Delivery Delivery

Delivery Delivery Delivery

Sec. 9. When payable to bearer. - The if they indorsed it, it is still

(b) When it is payable to a payee

(c) When it is payable to the Q: Did C acquire title?

According to Maam: Bayaran mo Sec. 52. What constitutes a holder in