Commercial Law Review

Dean Eduardo Abella

CHATTEL MORTGAGE Mortgage an accessory contract, collateral or security for an obligation Other securities pledge, antichresis, surety, guarantee They are valid only if there is a principal contract. Basic Principles 1.) Accessory Contract only exists if there is a principal contract 2.) Mortgage is the owner of thing mortgaged 3.) Mortgage extinguished if the principal obligation is extinguished May be constituted over personal property, it is called a chattel mortgage. It may also be constituted over real property, in which case it is called a real estate mortgage Chattel Mortgage Real Estate Mortgage 1.) Personal 1.) Real 2.) Existing valid 2.) May secure even obligation future obligation Includes voidable, unenforceable, rescissible and natural obligations 3.) May be foreclosed 3.) May be foreclosed extra judicially judicially or extra judicially 4.) No right of 4.) Right of redemption redemption provided under law In Jurisprudence: In one case there was a house that was subject to a chattel mortgage. The reason was that the land belonged to one person and the house to another. The Court ruled that as between the parties there is a valid chattel mortgage as under NCC 1159, stipulations of parties valid between themselves. However, it is not binding on other persons. Collateral issue: The register of deeds was not justified in refusing to record chattel mortgage over the house, it is a ministerial duty on the part of the register Q: May personal property also be classified as real? A: Yes, but it is binding only as between the parties While registration may be notice to world, it is still not in accordance with law. CHATTEL MORTGAGE LAW (ACT NO. 1508) This act is considered repealed by the New Civil Code. The ratio is that pactum commissorium is void and the Chattel Mortgage Law considers a Chattel Mortgage as a conditional sale which becomes absolute upon default Chattel Mortgage is defined in the NCC as a contract whereby personal property is recorded in the chattel mortgage registry as security for the performance of an obligation. CM is to be recorded in the Register of Deeds of the City or Province where the mortgagor resides. Note: There is no Register of Deeds in Municipalities. Chattel Mortgage Law requires deed of mortgage including an affidavit of good faith.

Affidavit of good faith is a sword declaration of both the mortgagor and the mortgagee that they executed the chattel mortgage in good faith to secure a valid obligation and not for the purpose of fraud. Q: If an affidavit of good faith is omitted is there a valid chattel mortgage? A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of registration. If there is no affidavit, it is not binding on third persons. Affidavit of good faith may be demanded. Q: What if mortgagor and property are in different locations? A: Register first in the city or province where the mortgagor resides then where the property is found. If object is motor vehicle it should be registered with the LTO. It should be first registered with register of deeds. After, which, register with the LTO. Practical: Bring two copies, first to Register of Deeds then have him stamp the copy. Bring the second copy to the LTO. Mortgagor may or may not be the principal debtor. A problem arises when the principal debtor defaults. REMEDIES OF THE CREDITOR: 1.) Sue for specific performance abandons mortgage by suing the principal debtor. If suit is brought, mortgagor may demand release of mortgage. 2.) Foreclose the mortgage under the Chattel Mortgage Law Q: What is absolutely necessary in order for the creditor to foreclose? A: Possession of the thing mortgaged before foreclosure as a practical necessity. Mortgagee should demand delivery of thing mortgaged. If concealed, file for replevin. Q: How do you initiate foreclosure of CM? A: Mortgagee prepares petition for foreclosure of CM. Q: To whom is petition given? A: To the sheriff or a notary public Sheriff or notary public, after the receipt of the petition, prepares notice of auction sale. 1.) Post in at least 3 public places (City Hall, Hall of Justice, Public Market, Baranggay Hall, Health Center etc.) 2.) Send copy of notice at least 10 days before the auction sale Q: If somebody took the posted notice, will proceeding be invalidated? A: No, it will not, posting is enough. Q: How do you go about payment of highest bid? A: If bidder is a third person, he delivers the money to the sheriff or notary. If the bidder is the mortgagee, he need not remit it to sheriff. Whoever is the highest bidder gets certificate of sale from sheriff or notary. Q: If there is deficiency, may deficiency be recovered?

Commercial Law Review

Dean Eduardo Abella

A: It depends. If covered by the Recto Law, no. If not, deficiency may be recovered from principal debtor. For Recto Law to be applied, mortgage must be constituted over the object of the installment sale. Hypothetical Q: Mortgagor did not see necessity of recording release of mortgage. Went to get a second loan from mortgagee. He merely returned the release of mortgage, is the mortgage revived? A: No, obligation it secured is already extinguished REAL ESTATE MORTGAGE (ACT 3135) Created right to foreclose Real Estate Mortgage ExtraJudicially. Referred to the Code of Civil Procedure. Q: What is required for mortgagee to foreclose the REM extra-judicially? A: Mortgagor must expressly authorize the mortgagee to sell in case of default in deed of mortgage or other instrument. According to the Supreme Court, there must be an express provision giving authority to the mortgagee to sell. Mere reference to Act 3135 is insufficient. Example In case of default, the bank shall be authorized to sell, as it is hereby authorized to sell.. Extrajudicial foreclosure proceedings out of court, yet sheriff should not accept the petition unless there is payment of court fees. Q: How is it initiated? A: Prepare a verified petition to foreclose the REM. The sheriff or a notary public may handle this. The mortgagee himself may do it, but it is often the sheriff or notary public. Steps in Foreclosure: 1) Post notice of auction sale in at least 3 public places in City or Province where the property is located 2) Case publication of notice in newspaper of general circulation once a week for 2 consecutive weeks. In notice, make sure property is correctly described in the notice as published. In notice as posted, it is not fatal to make a mistake. Reason: notice as published is notice to the whole world. Q: Is there a need to send notice to mortgagor? A: No, publication is notice to the whole world, it includes the mortgagor. Get an affidavit of publication from the publisher Q: May mortgagor and mortgagee stipulate the postponement of the auction sale? A: Yes, there is no prohibition. However, in case of postponement, the notice requirements should be complied with again as in the case of Nepomuceno Productions vs PNB There is no longer any requirement of having at least 2 bidders.

Sheriff or notary issues the certificate of sale which should be registered in the registry of deeds. Right of redemption may be exercised within 1 year from the registration of the certificate of sale. 1 year is 365 days, it does not matter if it is a leap year. Act 3135 created a right, however, you must still follow Rule 39 under the Rules of Court In the General Banking Act of 2000, there is a shorter period provided. Only a 90-day period of redemption if mortgagor is a juridical entity and the mortgagee is a bank. 90 days of registration of title, whichever comes first. Redemption is a right and not a duty, it may not be forced on the mortgagor. Q: May right of redemption be expressly waived? A: No, no waiver may be made during the period o redemption. Waiver may be done by not exercising the right. Q: Since right, is it transferrable? A: It is transferrable either by onerous or gratuitous title. Redemption is a real right over real property. The right may be inherited by succession. Q: Who are entitled to redeem? A: Mortgagor, successors-in-interest, judgment creditor. Any one of them may exercise the right of redemption. Redemption is exercised by making a valid tender of the redemption price within the period of redemption. Redemption price if there is a special law that created the mortgage and there is an indication of redemption price, then follow that. If it is a bank, it depends on the law. If another person: 1.) Bid price 2.) 1% interest per month on the bid price 3.) Taxes and charges paid by the highest bidder 4.) 1% interest per month on the taxes and charges paid The Supreme Court construed this as 12% per annum. There must be a valid tender of the full amount, which must be in legal tender. If tender refused, the remedy is specific performance. The amount may not be consigned because for consignation to be allowed, there must be a debt due. When redemption period expires, there are two ways of getting title to the property. 1.) Sheriff or notary public issue a final certificate of sale 2.) Property registration decree, affidavit of nonredemption. You need to have it notarized. 3.) Pay taxes to BIR DSTs and CGT/Withholding Tax

Commercial Law Review

Dean Eduardo Abella

Q: When should the taxes be paid? A: Expiry of redemption period DST paid by the 5th day of the month following the end of the period. CGT/Withholding Tax 30 days from expiration of the redemption period. The tax base used to be the bid price. Now it is Bid price or Market Value in tax declaration or BIR valuation, whichever is the highest. Case: Person borrowed from bank. Parents executed a Real Estate Mortgage. Borrower issued post-dated checks. The checks were dishonored. The bank sued the borrower for BP22. Remedies for bank are as follows: 1.) Civil Collection 2.) BP22 3.) Foreclosure Filing of BP22 is an abandonment of the mortgage. If buyer of mortgaged land already owns the land and the prior owner does not want to leave, file an ex parte Petition for Issuance of Writ of Possession. Practical Matters: Attach all certified true copies of documents in the petition title, deed of mortgage, final certificate of sale, BIR clearance (tax clearance, certificate authorizing registration) General Rule: The issuance of the writ is ministerial. But if filed before the end of the redemption period, a bond is required. Exception: If there is another person with a better right. Ex. Lessee New buyer in good faith doctrine: Looking at certificate of title is no longer enough; you must look at the right of the person in actual possession of the property. Failure to do so does not qualify one as a buyer in good faith. Practical Matters: When Register of Deeds issues Certificate of Title, he issues at least 2, the original and the owners copy. There are at least 2 because co-owners may each want a copy of the certificate of title. In which case, the co-owners duplicate should be prepared with the original. If you are buying from co-owners, you must get all other copies so that they may be annotated. Remedy or the issuance of the writ of possession is the same in extrajudicial foreclosure, judicial foreclosure and execution sale. There is no remedy if a third party has a better right. Q: Can PDCs be used as chattel mortgaged property? A: Legally, yes. DOCUMENTS OF TITLE Bailee acknowledges good and his undertaking to deliver these goods Ex. Bills of lading, Warehouse Receipts, Quedan

Bill of Lading is issued by a common carrier under the Code of Commerce. A Warehouse Receipt is issued by a Warehouseman (under the Warehouse Receipts Act and the General Bonded Warehouse Act). A bill of lading for a truck is called a waybill, while for an airline it is called an air waybill. The Code of Commerce requires the following to be printed on Bills of Lading 1.) Complete name and address of consigner. 2.) Complete name and address of consignee 3.) Description of goods including marks and markings ex. Numbers on crates 4.) Amount of fare Q: Are printed stipulations on Bill of Lading binding on the shipper even if the shipper does not sign? A: Yes, a contract is perfected by mere consent. Here, consent is implied. There is no consent if print is too small that the shipper could not have read it as in the Shewaram Case. Q: If common carrier issues a Bill of Lading, is there a conclusive presumption that the Common Carrier got the goods? A: No, it is only a disputable presumption. Threefold Role of a Bill of Lading 1.) Receipt 2.) Contract 3.) Stand for the goods mentioned therein (Symbol) Document of Title It may be negotiable or non-negotiable. Negotiable if it is to order or to bearer, these are the words of negotiability. It may be negotiable by delivery or indorsement. A document of title may be indorsed in blank or by special indorsement. In documents of title, if a bearer bill is specially indorsed, transferee who wants to further negotiate it has to indorse and deliver it as opposed to NIL where the indorsement of a bearer bill has no effect. GENERAL BONDED WAREHOUSE ACT Wareousing an annual license is required. A bond must be posted before the issuance of a license. A warehouse receipt is negotiable or non-negotiable. If a warehouseman issues more than one copy of a warehouse receipt, he should indicate on copies that they are merely copies and not the original. If he fails to indicate as copy, if person is in good faith and got the receipt for value, he would be entitled to the goods as if his warehouse receipt were original. As a consequence of negotiation of the warehouse receipt, the transferee acquires the direct obligation to receive goods from the warehouseman. However, the right is conditioned upon the following: 1.) Person claiming the goods must first satisfy the liens of the warehouseman. 2.) He must surrender the original to the warehouseman.

Commercial Law Review

Dean Eduardo Abella

3.) He must sign the receipt. Liens of the Warehouseman: 1.) Storage fees 2.) Cost of packaging 3.) Premium for additional insurance coverage Q: What is the nature of the warehousemans lien? A: It is a possessory lien, so if the goods are released, the lien is gone. Q: What should warehouseman do with the original receipt? A: Cancel it If warehouseman fails to cancel it and the receipt falls into the hands of someone in good faith and who got it for value, warehouseman is liable to the person. Q: May goods covered by a document of title be levied upon on attachment for execution? A; Yes. TRUTH IN LENDING ACT Purpose: To enable persons borrowing money or buying goods on installment or credit to know the actual cost in money. Prior to consummation, person lending money or selling on credit/installment should deliver written statement showing breakdown of charges. Note that this is already after a meeting of the minds. Under Section 4 of the Truth in Lending Act, there ust be a Disclosure Statement. History: When cost of money had gone beyond a profitable rate the interest was also subject to the usury law. Due to this banks thought of other ways to make money, (Ex. Processing fee, application fee, appraisal fee) hence the need for the Truth in Lending Act. A disclosure statement must contain the following 1.) Cash Price less downpayment = amount to be financed 2.) Payable in XX installments 3.) Total amount to be paid in installments 4.) Total Cost 5.) Plus other charges The BSP is charged with the implementation of the Truth in Lending Act. Violation of the Act is a crime, penalty is fine of P100 to P2000 and imprisonment of at least 1 month but not more than 5 years. Case: Solidbank extended a credit line of P200k to a client. Credit Line when bank sets aside a certain amount for client that client may draw on at any time. SC did not allow Solidbank to collect amount because the additional charges were not indicated in the promissory notes. In 2009, there was another case where the fees were included in the promissory notes but there was no delivery of disclosure statements, collection still not allowed.

BULK SALES LAW Purpose to protect creditors from fraudulent schemes of their debtors Acts covered: Sale, assignment, mortgage, or other forms of transfer. 1.) All or substantially all of the stocks of goods other than in the ordinary course of business 2.) Of the business or businesses themselves 3.) Sale of fixtures and equipment used in the conduct of business Not every sale is covered. Ordinary course of business is not covered ex. If all goods sold while engaged in the wholesale business. Requirements: 1.) At least 10 days before intended transaction, person intending to make it should inform his creditors in writing 2.) To prospective transferees, must deliver sworn statement stating full names and addresses of creditors including amount due them 3.) Furnish Bureau of Commerce/Bureau of Domestic Trade a copy of the sworn statement Transfer without compliance with requirements is void, the buyer is considered a trustee. Exceptions: 1.) Judicial sales (execution, assignee in insolvency) 2.) Sales or transfers of property exempt from execution 3.) Sale by manufacturer of his own products SC: Sale of a foundry shop (Horseshoe maker/metal fabricator) SECRECY OF BANK DEPOSITS RA1405 Purpose: to encourage people with money to deposit in bank to promote national economy. Reserve Requirements: 1.) Highest Checking 2.) Medium- Savings 3.) Low Time Deposit Q: How does BSP use reserve requirements to manage money supply? Why is there a need to manage money supply? A: If there is a lot of money in circulation, prices would go up The reserve requirement is also there in order for the BSP to have money to lend to banks. It is illegal for a bank officer or employee to disclose any information regarding bank deposits and government securities. Exceptions: 1.) Written authority from depositor himself Self explanatory 2.) In case of impeachment ex. Clarissa Ocampo 3.) Court order in case of bribery, dereliction of duty of public officer, violation of Anti-graft and Corrupt Practices Act Graft Cases

Commercial Law Review

Dean Eduardo Abella

4.) Where deposit is the subject matter of litigation Must be read literally Exceptions in other laws: 1.) Examination of books of banks by the BSP 2.) Independent auditors they are not bank employees/officers 3.) Order from CA, violation of Anti Money Laundering Act/Anti Graft and Corrupt Practices Act Secrecy strengthened by General Banking Act of 2000, banks should have employees on permanent basis. GENERAL BANKING ACT OF 2000 Banks are entities authorized by the Monetary Board to accept deposits and lend money. Types of Banks: 1.) Universal Banks 2.) Commercial Banks 3.) Thrift Banks (Savings and Mortgage, Private Development Bank, Stock Savings and Loan Associations) 4.) Cooperative Bank 5.) Rural Bank 6.) Islamic Bank Universal Bank Actually a commercial bank, but also authorized by Monetary Board to engage in the business of an investment house. Commercial Bank As a matter of right, only commercial banks should accept deposits in checking accounts/current accounts/commercial accounts/demand deposit 1.) May issue letters of credit 2.) Lend money 3.) Trading of government securities 4.) Foreign transactions 5.) Safety deposit box Q: What is an investment house? A; It has 2 major functions 1.) Rediscounting of receivables one entity goes to an Investment House and as collateral pledges its receivables. (ex. Business sells on credit and needs capital again, so it borrows from an Investment House) 2.) Underwriting for securities (ex. In corporation that needs more capital that cant be rais ed from stockholders securities only if 20 or more persons) Get SEC approval first, then have them sold by securities underwriters Thrift Bank 3 Kinds: 1.) Savings and mortgage - To lend money to those that want to construct houses. For small depositors (small amounts of money). Banks prefer big depositors as maintenance costs are the same 2.) Private development bank organized for development of community. If it needs additional capital, it may invite DBP to invest with it. To recognize it, check corporate name, it always has development in its name.

3.) Stock savings and loan associations Theres also a non-stock but not bank. If non-stock no ACS. If stock, may accept deposits from general public, if non-stock only from limited clientele (ex. AFPLSAI restricted only to AFP, PNP and family members; MESALA, Meralco employees including the Lopez group) Many corporations have savings and loan associations and a credit union. Cooperative Bank No individual stockholders, all are cooperatives. Under cooperative office, but bank under the BSP. Rural Banks Provides services to farmers/tenants or simply stated, in rural areas. It is recognizable by Rural in its corporate name. Islamic Banks No interest because it is considered immoral, but there may be profit sharing. Under the law, only corporations under supervision of the Monetary Board may use Bank or Banking in corporate name. Banks are prohibited from engaging in the business of insurance as an insurer. All banks should be organized as a stock corporation and comply with the requirements of the Monetary Board for licensing. Before a corporation can be organized, it must go through bank. After requirements submitted to the Monetary Board and completed, endorsement by Monetary Board to SEC, which then has a ministerial duty to register it. There is paid-up capital required by the Monetary Board. There is a period increase in paid-up capital in order for banks to be more stable. Q: How many directors may a bank have? A: 5-15, odd or even, no law obliges the BOD number to be odd. If consolidated, it may have a maximum of 21. There must be two independent directors who are neither officers nor employees of the bank. Directors and officers not just anybody may be a director or officer. There is the fit and proper rule. Fit and proper rule Monetary Board came out with qualifications. Must be a college grad. Quorum in meetings GBA allows meeting via tele- or video-conferencing Q: In what enterprises may a Universal Bank invest? A: Equities of both allied and non-allied enterprises. If commercial bank, it may invest only in allied enterprises. Allied affiliated ex. Lopez Group, Ayala Group Q: May a Universal Bank own another Universal Bank? A: Yes, but only another one for 100%. It may also own 1 of each Commercial and Rural. When shares are listed in the Stock Exchange, they are readily disposable. Long-term investments are real properties.

Commercial Law Review

Dean Eduardo Abella

Q: if Universal Bank invests allied or non-allied, what is the limit? A: Equivalent to 50% of net worth but only up to 25% in a single enterprise Commercial bank limit is 35% of equity, but still with a maximum of 25% per industry. Lending limits single borrower limit, max amount that may be lent to any borrower (individual, partnership and corporation) 20% of net worth but may be increased by 10% goods. First 20% must be secured by real property, 10% must be secured by good easily marketable such as Bills of Lading, Trust Receipts and Warehouse Receipts. General Rule is money should be secured by real estate, 10% is for liquidity. Bank should not acquire treasury shares of its own Treasury Shares shares already issued by a corporation but which shares a corporation reacquires in its own name. Subscribed and Issued Shares no difference between them in terms of rights If a bank acquires treasury shares, they should be gotten rid of in 6 months. Q: May bank extend loans to directors, officers, stockholders and related interests? A: Yes, subject to single borrowers limit but with the approval of majority of the Board of Directors without the vote of the borrowing director. Borrower is not counted for quorum and approval. Ex. 5 Members of the Board of Directors and one of them is the borrower. The quorum is 3, and the vote required is 2. Loans may be secured by Real Property, however, according to Section 37 the max amount that may be loaned out is 75% of the appraised value of the land. If it has improvements, the value loaned is not to exceed 60% of the appraised value of improvements. Improvements must be insured. Under the General Banking Act, bank should cause to be published at least every quarter their financial statements. Clearing house Bangko Sentral Lending facility for purpose of collecting checks drawn on one bank but deposited in another. Ex. BPI Katipunan depositor deposited checks from other banks such as Metrobank and Allied Bank. Clearing house is where banks swap checks they received drawn on other banks. Physically there is no cash involved, but transactions recorded. Under present rules if within 24 hours a bank dishonors check, check should be returned or else considered cleared. Bank cannot declare dividends if clearing house account are overdrawn. There is only movement of cash if clearing house account is overdrawn.

PDIC In 60s to the 70s, there were so many bank closures. In order to restore faith in banking, the PDIC was created. The PDIC insures only deposits in savings, current or time accounts, not any other investments even if made with or through a bank. It excludes money market transactions. Q: Why are money market placements not insured in PDIC? A: They are not deposits but investments. Money Market Placements transactions through bank but bank is not borrower. Borrowers are other corporations that need to borrow for a short time. Reason for Money Market Placements is that normal loans take time. Bank is an intermediary between the borrower and lender in the Money Market Placement. Money Market Placement is lending to another person. Advanced is that in case of bank closure, you make get Promissory Note by borrower. PDIC The amount insured P500k per person per bank in the Philippines, whether in Philippine or foreign currency. If it is a foreign currency deposit unit, indemnity amount in pesos on the day the bank is ordered closed. When a bank is ordered closed, all deposits of a person in different accounts In different banks will be collated. In the present law, joint accounts are insured separately. So it is P500k per sole account per bank, and a total of P500k for all joint accounts combined per bank. A joint account is an account in the name of 2 or more persons. It is indicated by the words and/or (survivorship account, each can withdraw on his own) and and (all depositors required to sign withdrawal slip). Under the law, deposits in joint account are presumed coowned in equal parts unless the contrary is proved. Example 1: Sir Sir + Wife Joint Account Sir + GF Joint Account Amount Recoverable by Sir Example 2: Sir Sir + Wife Joint Account Sir + GF1 Joint Account Sir + GF2 Joint Account Amount Recoverable by Sir 490k 500k 500k 990k

490k 500k 500k 500k 990k

Commercial Law Review

Dean Eduardo Abella

New Central Bank Act Reason for the creation of the Bangko Sentral ng Pilipinas was the bankruptcy of the Central Bank created in 1948. The Bangko Sentral has a corporate existence and is controlled by a board, the Monetary Board. The Monetary Board is composed of 7 members: 1.) BSP Governor 2.) Cabinet Member depends on the President who to send, currently it is DTI Secretary 3.) 5 Full time members from the private sector reason is so that the BSP will not become a dumping ground of political lame ducks. Private sector representatives need not necessarily be from privately owned private corporations. They may come from GOCCs such as the DBP, SSS, GSIS but the appointment is staggered. The BSP Governor has a term of 6 years, except when it is to fill a vacancy for an unexpired term. Full time directors are also appointed for a 6-year term. They may be re-appointed once for a total term of 12 years. Prohibition to Join Private Banks - Within the period of 2 years from separation from the Monetary Board, neither the governor nor the full time directors may serve in any capacity under corporations under the supervision of the Monetary Board (banks, quasi-banks and investment houses), except if he would be representing the interest of the Philippine Government. The Monetary Board is obliged to meet every other week because it has to closely monitor the prices and take action. In every meeting, there should be a quorum of at least 4. To pass a resolution, at least 4 members should concur. If the Governor cannot attend, he should send a Deputy Governor. If Secretary cant attend, he should send an Undersecretary. Functions of the BSP 1.) Supervision of the banking system 2.) Manages currency and money supply 3.) Gold purchasing Q; What is money? A: Any medium of exchange, anything could be money Money vs Currency Currency is defined by law as notes and coins issued by the BSP and are in circulation. Currency has 2 qualifications: 1.) Issued by the SP 2.) In circulation, meaning out of the BSP vaults TRIVIA: BSP prints the notes and mints the coins. Production is local but materials are imported. Notes are not paper; they are cloth. The cost of materials is very high. The currency is called Peso. Sign now is simply the capital letter P. There are 2 other countries that use Peso; they are Argentina and Mexico. Part of Peso is called a Centavo. A note contains 2 sets of serial numbers; they are located at the upper left and lower right. They also have 2 signatures

on them, one belongs to the Philippine President, the other belongs to the BSP Governor. The life of a note is estimated at 5 years, but in Metro Manila it is merely 1 year. If estimated life is over, it is withdrawn and demonetized, it loses the character of money. Q: May a damaged note be replaced or accepted for deposit? A: Yes, it may, but it must fulfill the following requirements: 1.) If damaged, there must be at least 3/5 of the note present. 2.) It must have at least one set of complete serial numbers 3.) It must have at least one signature present 4.) There must be no intentional defacement (Its a crime). BSP issued a circular for bank not to accept for deposit or replacement notes showing intentional defacement. Coins have a much longer existence. Damaged coins may also be replaced if there is no sign of filing, clipping or perforation; the reason for this is that the metal content would be diminished. Ideally, the amount stated is the total cost of making coins, however, Philippine coins are worth more than their stated value. In case of possession of damages coins, the possessor is presumed to have caused the damage. The year in front of the coin is the year it was minted. Q: What is legal tender? A: Legal tender is currency in such quantity prescribed by law to be accepted in payment of obligations. All Philippine notes are legal tender for all obligations. However, coins are legal tender only up to a certain amount. A Monetary Board circular changed the amount of what may e legal tender for coins. All centavo coins are legal tender up to P100 while all Peso coins are legal tender up to P1000. Contrast this with the law that states that for coins worth 10 centavos or less they are legal tender only up to P20, while coins worth 25 centavos and up are legal tender only up to P50. CODE OF COMMERCE The Code of Commerce deals with merchants Q: Who is a merchant? A: Could be a natural or juridical person If a natural person: 1.) At least 18 years of age 2.) With the capacity to contract 3.) Regularly engaged in commerce Commerce buying and selling If a juridical person partnerships and stock corporations 1.) Organized according to law 2.) Regularly engaged in commerce Regularly- requires habituality, does not require a certain volume of sales or buying.

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Dean Eduardo Abella

LETTERS OF CREDIT A letter/correspondence addressed by a merchant to another to enable a person named in the letter to attend to a commercial transaction. Q: How many parties are there? A: There are 3. The sender who is a merchant, the addressee who is also a merchant, and the person name in the letter who may or may not be a merchant. Requirements of Code of Commerce for a Letter of Credit: 1.) Person to whom credit is to be extended to is named. 2.) The amount or maximum amount of credit extended to the person shall be stated. If the requirements are not met, it is called a letter of recommendation. A letter of credit cannot be in negotiable for. Q: Why is there a need to specificy the beneficiary? Why not just bearer or order? A: Because of obligations to each other. Kinds: 1.) Domestic all parties in the same country; good for 6 months 2.) Foreign different countries; good for 12 months MODERN LETTERS OF CREDIT Bank credit facility to enable persons to have a commercial transaction where buyer would be assured of delivery and the seller assured of payment. Commercial banks as a general rule are allowed to issue letters of credit, but Monetary Board may allow other banks to issue Letters of Credit.

When a document has the same stipulations as a promissory note along with undertakings present in a trust receipt, then it is still considered a trust receipt. In banks, the transaction is often called an L/C-T/R line because of the interrelation of the 2 transactions. FOREIGN INESTMENTS ACT Its purpose is to entice foreign investments in order to bring in more foreign currency. It was formerly illegal for transactions to be paid in foreign currency or in relation to foreign currency. Foreigners may own 100% of any export enterprise. A foreigner may own 100% of a domestic market enterprise so long as it is not covered by Negative List A & B Negative List A activities reserved by the Constitution or other special laws to Filipinos such as advertising, public service. Negative List B any activity relating to ammunition, ordinance, repair and maintenance of armaments without prior approval of the Secretary of National Defense. A foreigner may also own 100% of a domestic market enterprise if the foreigner will make an investment worth $200k or equivalent but not in areas where there are health related risks ex. Bars, beer houses, massage parlors, sauna baths, dancing halls. Q: What if the investment is not $200k? A: It is okay but only activities that are certified by the DOST as new and no less than 50 Filipino employees are hired. The investment must also be no less than $100k. Land Ownership Formerly natural born Filipinos (ex. Naturalized in another country) allowed to acquire urban properties of not more than 5000 square kilometers or rural land of not more than 3 hectares. If both spouses are formerly natural born Filipinos, their total lands must not exceed the above-stated land areas. Also, the land acquired must be in different locations. To be considered Filipino, domestic corporations must be at least 60% owned by Filipinos. If it is a foreign corporation, it must be 100% Filipino owned. WARSAW CONVENTION It has two purposes: 1.) Uniform documents for international air travel. 2.) To fix the liabilities for international air carriers. The signatories are referred to as high contracting parties, the Philippines was not an original party. The following documents must be uniform: 1.) Passenger Ticket 2.) Baggage Check 3.) Air Waybill Baggage Check it is the white strip of paper with adhesive attached to the baggage

TRUST RECEIPTS In this transaction there are 2 parties, the entruster and the entrustee. The entruster has a security interest over the goods. Q: What are the undertakings of the entrustee? A: To sell the goods and from the proceeds, remit the amount owing to the entruster within the period stipulated. If the amount owed cannot be remitted, to return the goods within the period. The proceeds mentioned include the profits as long as there is still an amount owing to the entruster. Trust receipts are issued to guarantee debts due to failure to pay the amount bank advanced in the Letter of Credit. Returning the goods does not extinguish the obligation to pay the amount. However, the bank may dispose of the goods. The proceeds of such sale will be credited to the debt owing in the Trust Receipt. Trust receipts may be between individuals The PD regulating trust receipts was made to protect the banking system. The PD requires the entrustee to insure the goods against all risks.

Commercial Law Review

Dean Eduardo Abella

Air Waybill Bill of lading issued by an air carrier. Air travel is considered international if the port of origin is in one country and the port of destination is another country. Air travel is also considered international if the port of origin is in one country, there is a stopover in another country, and the port of destination is the original country. This often occurred when there were multiple colonies (ex UK stopover Hong Kong). Original indemnity used to be fixed in Swiss Francs, this was later changed to US Dollars. The indemnities are the following: 1.) Death of a passenger - $100k 2.) Physical injuries - $100k maximum, dependent upon the severity of the injury. Indemnity in case of check-in articles the maximum is $1/kilogram. The value must be proven to be at least $1/kilogram, otherwise it is only value you can prove. To get the full amount you must: 1.) Declare the value 2.) Pay fare according to the value Indemnity in case of hand-carried articles: Max amount is $1000 regardless of weight and actual value. COMMON CARRIERS A common carrier is a person natural or juridical who is regularly engaged in the transportation of goods, passengers or both, offering its services to the public for a fee. 1.) Transporting goods, passengers or both. 2.) Offering service to the public 3.) For a fee The common carrier is at liberty to transport what they want. Q: What is the public? A: It is not necessarily the general public; it may merely be a narrow segment of the public. Ex. A school bus operator is a common carrier. A pipeline is also considered a common carrier, it transports fuel, its clients are Shell and Caltex. Q: Do you need a motor vehicle? A: No. The diligence required of a common carrier is extraordinary diligence. Extraordinary diligence is to be exercised when the goods are unconditionally placed at the disposal of the common carrier, until the goods shall have been delivered to the consignee or until consignee has been informed of arrival of the goods and given a reasonable opportunity to claim the goods. Reasonable opportunity circumstances. is dependent upon the

An exception is when the shipper exercises the right of stoppage in transitu. Q: In case of stoppage in transit, what is the relationship of the common carrier to the shipper? A: The common carrier is merely a bailee, the diligence required is now only that of a good father of a family. Exception to the exception if the shipper asks for delivery back to himself. Q: Is the common carrier an insurer of the goods? A: No, the common carrier is not an insurer against all risks related to transportation. There are 5 occasions that a common carrier may avoid liability in case of loss or damage of goods: 1.) When the proximate and only cause is a storm, earthquake, lightning, or other natural calamity. 2.) When the proximate and only cause is an act of a public enemy in times of war, whether civil or international. 3.) When the proximate and only cause is the character of goods or a defect in the container or packaging. 4.) When the proximate and only cause is the act or omission of the shipper himself. 5.) When the proximate and only cause is the order of a competent public authority. To invoke the exceptions there must be no unnecessary delay in the prosecution of the voyage. The carrier should not have committed an improper deviation. The diligence required is still extraordinary diligence. Q: If not one of these five occurred, may the carrier excuse itself from liability? A: Yes it may, but it is the obligation of the Common Carrier to prove that under the circumstances it exercised extraordinary diligence. The burden of proof is on the common carrier. Q: If one of these five occurred, is there a chance to recover from the common carrier? A: Yes, but the burden of proof is on the shipper to prove that there is failure to exercise the required standard of care, still extraordinary diligence. Q: May a common carrier and shipper validly stipulate on a standard of care less than extraordinary? A: Yes, but it must conform to the following requirements: 1.) Must be in writing and signed by both parties 2.) It must be supported by consideration other than to transport (ex. Discount) 3.) The stipulated standard of care must not be less than that of a good father of a family. 4.) If there are other stipulations, they must be fair and reasonable. There are 2 prestations in a bilateral contract to transport. With respect to the carrier its prestation is the promise of the shipper to pay the fare. With respect of the shipper, it is the promise of the carrier to transport the goods. Standards of Care: 1.) Utmost diligence of a very cautious person

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2.) Extraordinary diligence 3.) Good father of a family There is no name for the standard of care in between extraordinary diligence and that of a good father of family. The shipper also has the obligation to minimize damage to itself. With respect to the transportation of person, the standard of care required is the utmost diligence of a very cautious person. Q: When does it start? A: When the carrier agrees to take in the person as a passenger. Q: May the passenger and the carrier stipulate a lower standard of care? A: No Q: Is a common carrier insurer against all risks? A: No, it is not. In case of mechanical defects, the common carrier is always liable. If a common carrier violates a traffic rule, it is always liable. The common carrier shall be liable for acts or omission of its employees although said employees may have acted without or in excess of their authority. There is no exception to this. For acts or omissions of other passengers or third persons, if the common carrier could have prevent death or injury by merely exercising the diligence of a good father of a family and it failed to do so, the carrier is liable. Q: When may a common carrier be liable for moral damages? A: In the following instances: 1.) Death of passengers in favor of the heirs 2.) When passenger suffers physical injuries 3.) When the common carrier acts in bad faith A common carrier is liable for moral damages against a waitlisted passenger whose number is called, given a boarding pass, allowed to proceed to the pre-departure area but not allowed to board. CARRIAGE OF GOODS BY SEA ACT The COGSA is a law of American origin, it was made part of our laws during the American occupation. In case of conflict between the Code of Commerce and the COGSA, the former prevails due to specific provision in the COGSA. It is applicable in shipment of goods by seas from another country. COGSA wont apply if: 1.) Not covered by BL 2.) Livestock 3.) If transportation on the deck is agreed upon Time for claim if there is loss or damage:

1.) If apparent the claim should be filed immediately with the carrier 2.) When the loss or damage is not apparent, then within 3 days. If the claim is denied, the claim should be filed in court within 1 year from the delivery of the common carrier to the arrastre. When the arrastre receives the goods, it inspects the goods and lists the defects in the tally sheet. If there are defects found, they are formalized in the Bad Order Form. Q: Is the filing of a claim with the common carrier a condition precedent to recover from the carrier by complaint. A: No, it is not required. This is different from the Code of Commerce where the claim with the Common Carrier is a condition precedent. Q: When goods are insured, when should the claim by the insurer be filed? A: Also within one year, the insurer merely steps into the rights of the insured. If goods not damaged in tally sheet or bad order form but the goods upon turnover by the arrastre are damaged, the suit should be against the arrastre. Q: If suing arrastere operator, what is the basis? A: The basis is quasi-delict since there is no pre-existing contractual relation between the arrastre and the consignee. Q: If the goods are insured but no claim is made by the insured against the insurer within 1 year from delivery of goods, is the claim against the insurer barred after one year? A: No. In case there is no annotation on the tally sheet and the customs broker got clearance, the broker also offered to transport the goods, if there is any damage, the suit should be brought against the broker. The ruling is that a customs broker who offers to transport goods to client as part of services qualifies as a common carrier. Q: In case of missing goods, when should the claim be filed? A: Within one year from the last day when the carrier would have delivered to goods to the arrastre operator. ADMIRALTY Not every watercraft is a vessel, it has to have the following qualifications: 1.) It must not be a mere accessory to another watercraft (ex. Lifeboats) 2.) It must be registered with the MARINA 3.) It must be used to transport goods, passengers or both 4.) It is seagoing Q: Who may own a vessel? A: Anybody If a vessel is owned by more than one person, there is a disputable presumption that a partnership exists. Hypothecary rule the limited liability of shipowner. It is the value of the vessel, plus earned freightage plus insurance, if any.

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Q: Who participates in admiralty? A: Those involved in navigation (crew) and housekeeping (compliment) The crew consists of the following: 1.) Captain 2.) Mates (1st, 2nd, 3rd etc.) 3.) Engineers. The title captain is used to refer to the commanding officer of a ship that goes abroad. The title master is used to refer to the commanding officer of a ship that is engaged in local/inter-island travel. A ship captain has three roles: 1.) Represent the owner of the vessel 2.) Technical director of the vessel 3.) Represents the country where the vessel is registered. Contracts in Admiraly: 1.) Charter party 2.) Bottomry 3.) Respondentia 4.) Marine Insurance Q: What is a charter party? A: A contract of lease over a vessel There are different kinds of charter parties: 1.) Bareboat/demise 2.) Affreightment 3.) Time-charter 4.) Voyage-charter A bareboat charter is one where the lessor provides only the vessel, without crew, stores (things you eat), provisions (water and fuel). Time charter lease for a specific term of the vessel, with stores and provisions. Voyage charter- lease of a vessel for a voyage or series of voyages, with stores and provisions. According to the Supreme Court, the true charter is the bareboat charter. The time and voyage charter are merely subtypes of affreightment, which is a contract of carriage. Ship agent - Corporation representing the owner in every port where vessel may make a call or stop. The ship agent is in charge of provisioning the vessel. Q: What will the liability of a ship agent be for procurement of provions? A: Different from mere agent, a mere agent is liable if he discloses his principal and acts within the authority given him. A ship agent is solidarily liable with the ship owner for contracts entered into for provisions of the vessel. In admiraly there is also a husbanding agent Q: Who is the husbanding agent? A: Agent in charge of freightage and settlement of averages Q: What are averages?

A: In admiralty, they refer to damages Types of averages: 1.) Gross/General Average 2.) Specific/Particular Average General averages are damages suffered by vessel or owners of cargo that shall benefit not only the ship-owner but also the owners of the other cargo. Specific averages are those that do not benefit anyone. Procedure for general average: 1.) Captain calls meeting with representatives of owners of cargo 2.) They make a decision to throw away certain cargo 3.) If the decision is urgent captain may choose, choosing from the largest and of least value proceeding to the smallest of the most value Supercargoes representatives of owners. They sell cargo for the owner. Generally, they are only able to use profits to buy goods. If they have a special power of attorney, they may use capital to buy goods. Bottomry Loan taken by ship-owner secured on the vessel. If the vessel sinks, the creditor loses the right to collect the obligation to pay is extinguished. If loan exceeds the value of the vessel, the excess is an ordinary loan. Respondentia loan taken by cargo owner, secured by the cargo. If loan exceeds the value of the cargo, the excess is an ordinary loan. Marine Insurance over vessel or freightage, cargoes or profits expected from cargo. Accidents in Admiralty: 1.) Collision 2.) Arrival under stress 3.) Shipwreck Collision Impact of two or more moving vessels Allision impact of one stationary and one moving vessel Q: Is the owner of a barge a party to a contract of carriage? A: No the owner is not a party, unless the barge is selfpropelled. The contracting party is the owner of the towing vessel. Three zones of time in Collision: 1.) First time anytime danger of collision appears. 2.) Second time from time the danger appears until it becomes a practical certainty. 3.) Third time from the time it becomes a practical certainty to impact. Arrival under stress a vessel is forced to sail to the nearest port. Examples are the following: 1.) Natural calamity along route. 2.) To avoid pirates 3.) Loss of provisions 4.) Accident that renders the vessel incapable of prosecuting the voyage. Q: What is the obligation of ship captain in arrival under stress?

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A: The captain must execute a maritime protest a sworn statement where the captain relates what transpired. If theres a collision of two vessels and it cant be determined who is at fault, each bears his own loss. This is the Doctrine of Inscrutable Fault. However, both ship-owners are solidarily liable for the damage to all cargoes. INTELLECTUAL PROPERTY CODE Repealed and compiled different laws on patent, copyright, trade names, service names, service marks. Administered by the Intellectual Property Office. The head is the Director-General who must be at least 35 years of age and a lawyer. The term of the Director-General is 5 years, eligible for a single re-appointment. However, the first Director-General appointed has a term of 7 years without reappointment. Kinds of Intellectual Properties: 1.) Patents 2.) Copyrights 3.) Industrial designs 4.) Layout/Topography of integrated circuits 5.) Geographic indication 6.) Trade related aspects of Intellectual Property Rights Industrial designs combination of lines, colors or lines and colors. Lines need not be straight. Geographic indication indicated by geography, ex. Guimaras Mangoes, Bangus Dagupan. Patent issued for an invention, it has to comply with the following requirements: 1.) New 2.) Involve an inventive step 3.) Capable of industrial application Q: When is it new? A: When it is not part of a prior art. Something merely newly discovered cant be patented, except for micro-organisms. Capable of industrial application development of new or existing industry. could lead to

If not contrary to law, but contrary to morals it may not be patented but may still be mass-produced. Not patentable: 1.) Mere ideas 2.) Concepts 3.) Mathematical solutions 4.) Surgical Procedures (but gadgets procedures may be patented)

for

these

TRADE NAMES AND TRADEMARKS Trade name name a person uses to identify his products and uses them to identify his product from others. (ex. Del Monte) Trademarks sign or emblem used to distinguish products from others Business name Name that a person uses to identify his place of business (ex. Highland Construction Supply). Business Names Law if using a business name different from true name, you register with the DTI, Bureau of Domestic Trade. There is a need for a public record of who owns business in order to know who to sue. This is needed for signs or printed documents. Service name name person uses to identify service (ex. Good Year Servitek, Rapide) Trade names and Marks include service name and mark Basic rule if trade name or mark already registered in name of a person, no other person may use a similar or confusingly similar name or mark on connection with a similar or closely related product. Ex. You cant use Del Monte in connection with foodstuff but you can use it for underwear. Trade name may at the same time be trademark. Ex. The way Selecta is written is a trademark. Doctrine of colorable imitation under this doctrine, there is colorable imitation when a person gives his product an appearance that is similar or confusingly similar in appearance to the product of another calculated to make the ordinary buyer believe that his product is the same as the product of another. Q: Who is an ordinary buyer? A: Buyer relying on general appearance including color and color combination. Doctrine arose out of dispute with Del Monte bottles. Bottles of Del Monte are patented. One case involved the Sunshine brand of ketchup that used the bottles of Del Monte because the owner of Sunshine could not afford to make his own bottles. The manufacturer replaced the labels of the bottles but the labels had the same color combination. Add to this the fact that the bottles had markings that they were products of Del Monte. It was not ordinary buyers that were misled but also those that read the labels. Beer na Beer Case

Patent good for 20 years from date of filing of application. People entitled to patents: 1.) Inventor if 2 or more persons work on an invention together, in absence of agreement to the contrary they are co-owners. If they work independently of each other, they are subject to the first to file rule. 2.) Employer if the employer purposely hired another to work on an invention. 3.) Employee if hired to do something else, even if worked on it during work hours. Not all inventions may be patented. They cant be patented if they are contrary to law, morals, or public order.

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In the 70s, Asia Brewery created Beer na Beer that had the same taste as San Miguel, but Asia Brewery also used the same shape of bottles. The Supreme Court held that there was no unfair competition, applying the holistic test. The bottle taken as a whole could not be mistaken for San Miguel. Doctrine of Secondary Meaning When a name has been used so long and so exclusively to identify a product that whenever the name is mentioned, reference is readily made to said product, although the name is not registered because it is no registrable, no other person may use that name in connection with a similar or closely related product. Q: What words may not be registered? A: Generic, descriptive, immoral, geographic names, and misdecriptive words. Names of deceased Presidents may not be used without the consent of the widow. Ex. Ang Tibay shoes never registered but used for such a long time that the Doctrine of Secondary Meaning is applied. Tests to Determine Infringment: 1.) Dominancy test to determine if there is possible confusion between products, look into the dominant features. 2.) Holistic test consider other factors. Even if there is similarity, there is likelihood that they will not be confused with each other. Example of Dominancy Test 1.) Converse vs Custombuilt both shoes use the same star logo 2.) Alaska All Purpose Milk vs Alacta Infant Preparation not likely to be confused with each other ue to different purposes. One if infant formula, the other is cows milk. Trademarks may be registered before use. COPYRIGHT Intellectual Creation Examples of copyright: 1.) Computer programs 2.) Books 3.) Movies (stories and soundtrack) 4.) Musical compositions (lyrics and melody) 5.) Compilations (even of those already done) 6.) Adaptations Owners of copyrights 1.) Intellectual creator if 2 or more persons, co-owners unless there is an agreement to the contrary. There is no first to file doctrine due to impossibility of making the same intellectual creation. 2.) Employer if person hired to do intellectual creation, unless there is an agreement to the contrary. 3.) Employee if person is hired to do another thing, even if done during work hours. If person commissioned another to do intellectual creation (example, mural maker), in absence of agreement to the contrary, finished work belongs to the owner, but copyright belongs to person commissioned.

Term of copyright from moment of creation, the entire lifetime of the creator up to 50 years from death. The 50year period starts the first day of the year following the death of the copyright holder. If a person wants copyright protected, within thirty (30) days of becoming public, register the work. Copyright is one property and the copyrighted work is another property. Copyright cant be attached while it belongs to the intellectual creator. However, when transferred to another, it may be levied. This is different from patent which can be attached even if owned by the intellectual creator. A copyright is an economic right, however the owner also has moral rights. Economic rights: 1.) Right to produce or license the right to produce 2.) Right to make versions of the copyrighted work 3.) Right to the translations of copyrighted work Computer Programs doctrine of fair use. One legitimate computer program per computer. Moral Rights: 1.) Right to state how authorship is to be presented 2.) In there are errors, rectification of the errors. Q: Whom do our intellectual property laws protect? A: The following: 1.) Citizens, nationals 2.) Residents with an effective establishment 3.) Residents of a country that participated in an international convention where the Philippines also participated. 4.) Citizens of countries that offer reciprocal rights to Filipinos. Not all forms of copying constitute infringement of copyright. Ex. Copying for personal use. In case of lawyers or professionals the quoting of authorities. Libraries with old books may reproduce these books so long as they are no longer being published. However, this is only for library use and not for resale. Remedies available to copyright holder: 1.) Civil case for injunction plus actual damages 2.) Criminal prosecution in copyrights, the first infringement is sufficient ground for prosecution vs patents where prosecution may be had only on the second infringement. Law provides for the destruction of printed materials, plates and stencils. Q: May foreign corporation not registered with the SEC as a foreign corporation sue in our courts for the protection of intellectual property rights? A: Yes, Philippines is part of Paris Convention for Protection of Intellectual Property Rights.