Beruflich Dokumente
Kultur Dokumente
JUN 28
Posted by Magz
1.
Negotiable Instruments written contracts for the payment of money; by its form,
intended as a substitute for money and intended to pass from hand to hand, to give the holder in
due course the right to hold the same and collect the sum due.
2.
a.
negotiability right of transferee to hold the instrument and collect the sum due
b.
3.
4.
Negotiable Instruments
Non-negotiable Instruments
Transferred by negotiation
transferred by assignment
Negotiable Instruments
Subject is money
subject is goods
5.
Promissory Note unconditional promise to pay in writing made by one person to anther,
signed by the maker, engaging to pay on demand or a fixed determinable future time a sum
certain in money to order or bearer. When the note is drawn to makers own order, it is not
complete until indorse by him. (Sec. 184 NIL)
Parties:
1.
2.
maker
payee
6.
Bill of Exchange unconditional order in writing addressed by one person to another, signed
by the person giving it, requiring the person to whom it is addressed to pay on demand or at a
fixed or determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL)
Parties:
1.
2.
3.
drawer
payee
drawee/ acceptor
7.
Check bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
8.
9.
Promissory Note
Bill of Exchange
Unconditional promise
unconditional order
Involves 2 parties
involves 3 parties
CHECK
BOE
- drawn on a deposit
PN
CHECK
- a promise to pay
- an order to pay
certificates of deposits
b.
trade acceptances
c.
d.
e.
letters of credit
12. Trust Receipt a security transaction intended to aid in the financing of importers and
retailers who do not have sufficient funds to finance their transaction and acquire credit except to
use as collateral the merchandise imported
13. Requisites of a Negotiable Note (PN): (SUDO)
It must:
a.
b.
c.
d.
be payable to order or to bearer (Sec. 1 NIL)
14. Requisites of a Negotiable Bill (BOE): (SUDOC)
It must:
1.
2.
3.
4.
5.
Notes on Section 1:
-
In order to be negotiable, there must be a writing of some kind, else there would be
nothing to be negotiated or passed from hand to hand. The writing may be in ink, print or pencil.
It may be upon parchment, cloth, leather or any other substitute of paper.
It must be signed by the maker or drawer. It may consist of mere initials or even numbers,
but the holder must prove that what is written is intended as a signature of the person sought to
be charged.
-
The Bill must contain an order, something more than the mere asking of a favor.
Sum payable must be in money only. It cannot be made payable in goods, wares, or
merchandise or in property.
-
interest
b.
in installments
c.
d.
with exchange
e.
17. General Rule: The promise or order should not depend on a contingent event. If it is
conditional, it is non-negotiable.
Exceptions:
a.
indication of particular fund from which the acceptor disburses himself after payment
b.
statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)
A statement of the transaction does not destroy the negotiability of the instrument.
Exception: Where the promise to pay or order is made subject to the terms and conditions of the
transaction stated.
18. Instrument is payable upon a determinable future time if:
a.
b.
c.
on or at a fixed date after the occurrence of an event certain to happen though the exact
b.
confession of judgment
c.
d.
gives option to the holder to require something to be done in lieu of money (Sec. 5 NIL)
Notes of Section 5
If the choice lies with the debtor, the instrument is rendered non-negotiable.
20. The validity and negotiability of an instrument is not affected by the fact that:
1.
it is not dated
2.
does not specify the value given or that any had been given
3.
does not specify the place where it is drawn or payable
4.
bears a seal
5.
designates the kind of current money in which payment is to be made (Sec. 6 NIL)
21. Instrument is payable upon demand if:
a.
b.
c.
Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to the person
so issuing, accepting, or indorsing it, payable on demand.
Notes on Section 7
- if the time for payment is left blank (as opposed to being omitted), it may properly be
considered as an incomplete instrument and fall under the provisions of Sec. 14, 15, or 16
depending on how the instrument is delivered.
22. Instrument is payable to order:
-
2.
3.
4.
5.
6.
(Sec. 8 NIL)
Notes on Section 8
-
The payee must be named or otherwise indicated therein with reasonable certainty.
If there is no payee, there would be no one to indorse the instrument payable to order.
Therefore useless to be considered negotiable.
-
Joint payees in indicated by the conjunction and. To negotiate, all must indorse.
b.
c.
payable to order of fictitious or non-existent person and this fact was known to drawer
d.
e.
fictitious person is not limited to persons having no legal existence. An existing person
may be considered fictitious depending on the intention of the maker or the drawer.
-
fictitious person means a person who has no right to the instrument because the maker
where the instrument is drawn, made or prepared by an agent, the knowledge or intent of
Where the agent has no authority to execute the instrument, the intent of the principal is
controlling
24. The date may be inserted in an instrument when:
1.
an instrument expressed to be payable at a fixed period after date is issued undated
2.
where acceptance of an instrument payable at a fixed period after sight is undated (Sec. 13
NIL)
Effects:
-
the insertion of a wrong date does not avoid the instrument in the hands of a subsequent
as to the holder in due course, the date inserted (even if it be the wrong date) is regarded
b.
c.
complete and delivered issued without consideration or a consideration consisting of a
promise which was not fulfilled (Sec 28 NIL)
26. Holder in Due Course Affected by Abnormality/Deficiency:
a.
b.
b.
It must be filled up strictly in accordance with the authority given and within a reasonable
time.
c.
If negotiated to a holder in due course, it is valid and effectual for all purpose as though it
was filled up strictly in accordance with the authority given and within reasonable time. (Sec. 14
NIL)
2. Where only a signature on a blank paper was delivered:
1.
It was delivered by the person making it in order that it may be converted into a negotiable
instrument
2.
The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)
Notes on Section 14
-
material particular may be an omission which will render the instrument non-negotiable
(e.g. name of payee), an omission which will not render the instrument non-negotiable (e.g. date)
-
in the case of the signature in blank, delivery with intent to convert it into a negotiable
If the holder is a holder in due course, all prior deliveries conclusively presumed valid
c.
If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until
the contrary is proven (Sec. 16 NIL)
Rules on delivery of negotiable instruments:
1)
2)
as between immediate parties or those is like cases, delivery must be with intention of
passing title
3)
an instrument signed but not completed by the drawer or maker and retained by him is
invalid as to him for want of delivery even in the hands of a holder in due course
4)
but there is prima facie presumption of delivery of an instrument signed but not completed
by the drawer or maker and retained by him if it is in the hands of a holder in due course. This
may be rebutted by proof of non-delivery.
5) an instrument entrusted to another who wrongfully completes it and negotiates it to a holder
in due course, delivery to the agent or custodian is sufficient delivery to bind the maker or
drawer.
6)
If an instrument is completed and is found in the possession of another, there is prima facie
31. General rule: an agent is not liable on the instrument if he were duly authorized to sign for
or on behalf of a principal.
Requisites:
1.
2.
3.
Notes on Section 20
-
if an agent does not disclose his principal, the agent is personally liable on the instrument.
32. Per Procuration operates as notice that the agent has a limited authority to sign.
10
Effects:
-
the principal in only bound if the agent acted within the limits of the authority given
the person who takes the instrument is bound to inquire into the extent and nature of the
33. General rule: Infants and corporations incur no liability by their indorsement or assignment
of an instrument. (Sec. 22 NIL)
Effects:
-
34. General rule: a signature which is forged or made without authority is wholly inoperative.
Effects:
1.
2.
3.
no right to retain
no right to give a discharge
no right to enforce payment can be acquired.
(Sec. 23 NIL)
Exception:
the party against whom it is sought to be enforced is precluded from setting up the forgery
or want of authority.
Notes on Section 23
-
impersonation
-
Only the signature forged or made without authority is inoperative, the instrument or
11
The instrument can be enforced by holders to whose title the forged signature is not
necessary
-
Persons who are precluded from setting up the forgery are a) those who warrant or admit
delivery c) acceptors.
-
if endorsers signature is forged, loss will be borne by the forger and parties subsequent
thereto
drawee bank is not conclusively presumed to know the signature of the indorser. The
responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank.
Where the payees signature is forged, payments made by the drawee bank to collecting
bank is ineffective. No debtor/creditor relationship is created. An agency to collect is created
between the person depositing and the collecting bank. Drawee bank may recover from collecting
bank who may in turn recover from the person depositing.
Rules on liabilities of parties on a forged instrument
In a PN
a party whose indorsement is forged on a note payable to order and all parties prior to him
including the maker cannot be held liable by any holder
a party whose indorsement is forged on a note originally payable to bearer and all parties
prior to him including the maker may be held liable by a holder in due course provided that it was
mechanically complete before the forgery
-
a maker whose signature was forged cannot be held liable by any holder
In a BOE
-
the drawers account cannot be charged by the drawee where the drawee paid
12
the payee can recover from the recipient of the payment, such as the collecting bank
the collecting bank bears the loss but can recover from the person to whom it paid
if the drawee has accepted the bill, the drawee bears the loss and his remedy is to go
after the forger
if the drawee has not accepted the bill but has paid it, the drawee cannot recover from
the drawer or the recipient of the proceeds, absence any act of negligence on their part.
35. Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration. (Sec. 24 NIL)
Effects:
-
presumption is disputable
36. Where value has at any time been given for the instrument, the holder is deemed a holder
for value in respect to all parties who become such prior to that time. (Sec. 26 NIL)
Absence or failure of consideration may be set up against a holder not a holder in due course
(personal defense)
2.
Partial failure of consideration is a defense pro tanto (Sec 28 NIL)
Notes on Section 28
13
failure of consideration implies that consideration was intended by that it failed to pass
a drawee who accepts the bill cannot allege want of consideration against the drawer
38. An accommodation party is one who signs the instrument as maker, drawer, acceptor, or
indorser without receiving value therefor and for the purpose of lending his name to some other
person.
Effects:
an accommodation party is liable to the holder for value notwithstanding that such holder
knew that of the accommodation. (Sec. 28 NIL)
Notes on Section 28
-
an accommodation maker may seek reimbursement from a co-maker even in the absence
of any provision in the NIL; the deficiency is supplied by the New Civil Code.
-
he may do this even without first proceeding against the debtor provided:
a.
b.
14
written
on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31
-
the person indorsing is liable as indorser to such persons as to make title through his
It cannot apply where the instrument is payable to bearer because the only or last
indorsement is in blank.
43. A holder may strike out any indorsement which is not necessary to his title.
Effects:
-
All indorsers subsequent to such indorser who has been discharged are likewise relieved.
(Sec. 48 NIL)
44. Effects of a transfer without endorsement:
-
15
the transferee acquires the right to have the indorsement of the transferor
negotiation takes effect as of the time the indorsement is actually made (Sec. 49 NIL)
Effects:
-
b.
became a holder before it was overdue and had no notice that it had been previously
dishonored if such was the fact
c.
d.
at time he took the instrument, no notice of infirmity in instrument or defect in the title of
the person who questions such has the burden of proof to prove otherwise
immaterial b) the alteration on the instrument was not apparent on its face
-
on the date of maturity, the instrument is not overdue and the holder is a HDC
16
holds the instrument free from any defect of title of prior parties
free from defenses available to prior parties among themselves (personal/ equitable
defenses)
-
may enforce payment of the instrument for the full amount against all parties liable(Sec.
57 NIL)
Notes on Section 57
Personal or equitable defenses are those which grow out of the agreement or conduct of a
particular person in regard to the instrument which renders it inequitable for him through legal
title to enforce it. Can be set up against holders not HDC
-
Legal or real defenses are those which attach to the instrument itself and can be set up
Personal Defenses
Real Defenses
Alteration
5. fraud in inducement
Minority
illegal consideration
1.
Mistake
12. intoxication
49. A instrument not in the hands of a HDC is subject to the same defenses as if it were nonnegotiable.
Exception:
a holder who derives his title through a HDC and is not a party to any fraud or illegality
affecting the instrument, has all the rights of such HDC in respect to all parties prior. (Sec. 58 NIL)
if he derives his title through a HDC and is not a party to any fraud or illegality thereto,
18
50. General rule: every holder is deemed prima facie to be a holder in due course.
Exception:
-
where it is shown that the title of any person who has negotiated the instrument is
defective, the burden is on the holder to prove that he is a HDC or that a person under whom he
claims is a HDC (Sec. 59 NIL)
b.
one who has signed as such is presumed to have acted with care and to have signed with
the payees interest is only to see to it that the note is paid according to its terms
when two or more makers sign jointly, each is individually liable for the full amount even if
one did not receive the value given
the maker is precluded from setting up the defense of a) the payee is fictional, b) that the
payee was insane, a minor or a corporation acting ultra vires
If the instrument is dishonored, and the necessary proceedings on dishonor duly taken
19
1.
2.
Notes on Section 61
-
admits the existence of the drawer, the genuineness of his signature and his capacity and
authority to draw the instrument
-
54. Irregular Indorser a person not otherwise a party to an instrument places his signature in
blank before delivery is liable as an indorser in the following manner:
1.
if payable to order of a third person liable to the payee and to all subsequent parties
2.
if payable to order of the maker or drawer liable to all parties subsequent to the maker or
drawer
3.
if payable to bearer liable to all parties subsequent to the maker or drawer
4.
if signs for an accommodation party liable to all parties subsequent to the payee (Sec. 64 NIL)
55. Warranties where negotiating by delivery or qualified endorsement:
1.
the instrument is genuine and in all respect what it purports to be
2.
the indorser has good title to it
3.
all prior parties had the capacity to contract
4.
indorser has no knowledge of any fact that would impair the validity or the value of the
instrument.
Limitations of warranties:
-if by delivery extends only to immediate transferee
-warranty of capacity to contract does not apply to persons negotiating public or corporate
securities (Sec. 65 NIL)
Notes on Section 65
-
recourse resort to a person secondarily liable after default of person primarily liable
a qualified indorser cannot raise the defense of a) forgery b) defect of his title or that it is
20
a qualified Indorsement makes the indorser mere assignor of title of instrument, relieves
him of general obligation to pay if instrument is dishonored, but he is still liable for the warranties
arising from instrument only up to warranties of general indorser
the warranty is to the capacity of prior parties at the time the instrument was negotiated.
Subsequent incapacity does not breach the warranty.
lack of knowledge of the indorser as to any fact that would impair the validity or the value
of the instrument must be subsisting all throughout.
a person Negotiating by Delivery warrants same as those of qualified indorser and extends
to immediate transferees only
56. Warranties of a general indorser:
1.
the instrument is genuine and in all respect what it purports to be
2.
the he has good title to it
3.
all prior parties had the capacity to contract
4.
that the instrument at the time of his indorsement was valid and subsisting (Sec. 66 NIL)
In addition:
engages that the instrument will be accepted or paid or both according to its tenor on due
presentment
engages to pay the amount thereof if it be dishonored and the necessary proceedings on
dishonor are taken
Notes on Section 66
-
the indorser warrants that the instrument is valid and subsisting regardless of whether he
is ignorant of that fact or not.
warranties extend in favor of a) a HDC b) persons who derive their title from HDC c)
immediate transferees even if not HDC
-
the indorser does not warrant the genuineness of the drawers signature
57. General rule: Presentment for payment is not necessary to charge persons primarily liable on
the instrument. Presentment for payment is necessary to charge the drawer and indorsers. (Sec 70
NIL)
21
Notes on Section 70
presentation for payment production of a BOE to the drawee for his acceptance, or to a
drawee or acceptor for payment. Also presentment of a PN to the party liable for payment of the
same.
-
consists of a) a personal demand for payment at a proper place b) the bill or note must be
parties primarily liable persons by the terms of the instrument are absolutely required to
pay the same. E.g maker and acceptors. They can be sued directly.
-
if payable at the special place, and the person liable is willing to pay there at maturity,
discharged
-
Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment
only the holder or one authorized by him has the right to make presentment for payment
presentment for payment is made to the maker, or acceptor. Not to the person secondarily
liable.
if the instrument is payable on demand a) if it is a note presentment must be made
within reasonable time after issue b) if it is a bill presentment must be made within reasonable
time after last negotiation.
59. Presentment not required to charge the drawer:
22
1.
2.
61. General rule: Presentment for payment necessary to charge persons secondarily liable
otherwise they are discharged:
Exception:
-
Section 79 and 80
Notes on Section 79 and 80
only the drawer or indorser are not discharged. All other parties secondarily liable are
discharged.
62. Presentment for payment excused if:
a.
b.
presentment is waived
c.
what is excused is the failure to make presentment. There is no need to make any
presentment versus under section 81 (delay in presentment) presentment for payment is still
required after the cause of delay has ceased.
23
the instrument was duly presented but payment is refused or cannot be obtained
presentment is excused and the instrument is overdue and unpaid (Sec. 83 NIL)
possession of the note by the maker is presumptive evidence that it has been paid
24
to a holder who having taken it up would have a right of reimbursement from the party to
deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)
Notes on Section 111
71. Notice of Dishonor given by the holder to the parties secondarily liable, drawer and each
indorser, that the instrument was dishonored by non-acceptance or non-payment by the
drawee/maker
General rule: Any drawer or indorser to whom such notice is not given is discharged.
Exceptions:
1.
2.
3.
4.
b.
25
c.
d.
NIL)
drawer has no right to expect that the drawee will accept/pay the instrument (Sec. 114
drawee was a fictitious/incapacitated person and the indorser was aware of such at the
time of indorsement
b.
c.
74. Omission to give notice of dishonor by non-acceptance doe not prejudice a HDC (Sec. 117
NIL)
75. Protest only necessary for a foreign bill of exchange. Protest for other negotiable instruments
is optional. (Sec. 118 NIL)
76. Causes of Discharge of the Instrument
a.
b.
c.
d.
e.
debtor becomes holder of the instrument at/after maturity in his own right ( Sec 119 NIL)
Notes on Section 119
payment must be in due course, and by the principal debtor or on his behalf
if payment is not made by the principal debtor, payment only cancels the liability of the
payor and those obligated after him but does not discharge the instrument.
-
26
a.
b.
c.
d.
e.
f.
extension of payment by the holder/postponement of right to enforce without assent of
secondary parties and without reservation of right of recourse against secondary parties (Sec 120
NIL)
78. Rights of a party secondarily liable who pays:
-
the party may strike out his own and all subsequent indorsements
Exception:
-
and instrument cannot be renegotiated where is was made or accepted for accommodation
if renounced in favor of a party secondarily liable, only he is exonerated from liability and
27
79. General rule: When materially altered, without the consent of all parties liable, the
instrument is avoided except as against:
1.
2.
3.
Exception:
-
80. Material Alteration an alternation is said to be material if it alters the effect of the
instrument.
Under Section 125 the following changes are considered material alterations:
1.
2.
3.
4.
5.
6.
7.
dates
the sum payable
time and place of payment
number or relations of the parties
medium or currency for payment
adding a place of payment where no place is specified
any other which alters the affect of the instrument
82. Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an
act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it.
(Sec. 132 NIL)
Acceptance may be:
1.
actual
2.
constructive
3.
general (Sec. 140)
4.
qualified (Sec. 141)
28
in writing
must not express the drawee will perform his promise by any other means than payment of
money
-
to make the drawee primarily liable and for the accrual of secondary liability (Sec. 144)
b.
necessary to fix maturity date, where bill expressly stipulates presentment, bill payable
other than place of drawee (Sec. 143)
29
c.
after due diligence presentment cannot be made, presentment is refused on another ground
although presentment is irregular (Sec. 148)
1.
Exception:
-
Protest is required:
1.
where the foreign bill is dishonored by non acceptance
2.
where the foreign bill is dishonored by non-payment
3.
where the bill has been accepted for honor, it must be protested for non-payment before it is
presented for payment to the acceptor for honor
4.
where the bill contains a referee in case of need, it must be protested for non payment before
presentment for payment to the referee in case of need (Sec. 152)
Notes on Section 152
-
Protest formal statement in writing made by a notary under his seal of office at the
request of the holder, in which it is declare that the some was presented for payment or
acceptance (as the case may be) and such was refused.
it means all steps or acts accompanying the dishonor of a bill or note necessary to charge
an indorser
-
it must be made on the same date of dishonor, by a notary/respectable citizen of the place
Acceptance for Honor (Sec. 161 NIL) an acceptance of a bill made by a stranger to it before
maturirty, where the drawee of the bill has:
1.
refused to accept it
2.
and the bill has been protested for non-acceptance
3.
or where the bill has been protested for better security
the bill must have been previously protested a) for non-acceptance b) or for better
security
-
the bill is not overdue at the time of the acceptance for honor
30
Purpose: to save the credit of the parties to the instrument or some party to it as the
Acceptor for honor is liable to the holder and to all the parties to the bill subsequent to
3.
Payment for Honor payment made through a notarial act of honor of a party liable/stranger
to the bill after bill has been dishonored by non-payment by the acceptor and protested for nonpayment by the holder
Requisites:
a.
b.
4.
Bills in Set bill of exchange drawn in several parts, each part of the set being numbered and
containing a reference to the other parts, the whole of the parts just constituting one bill (Sec
178 NIL)
Source:
Commercial Law Memory Aid
Negotiable Instruments Law
Ateneo Central Bar Operations 2001
Posted in Commercial Law, Negotiable Instruments Law
3 Comments
31
CODE OF COMMERCE
COMMERCE branch of human activity; purpose is to bring products to the consumer through
operations habitually and with intent of gain
COMMERCIAL LAW branch of private law which regulates the juridical relations arising from
commercial acts
CHARACTERISTICS OF COMMERCIAL LAW:
1.
1.
universal
2.
2.
uniform
3.
3.
equitable
4.
4.
customary
5.
5.
progressive
1.
2.
3.
4.
5.
6.
7.
OTHERS:
1.
1.
1.
1.
1.
2.
1.
2.
32
Exceptions:
1.
a.
to continue business of deceased parents through guardian
2.
b.
court authorizes guardian to place minor and property in business
3.
c.
minor is an alien and his national law allows him to be a merchant
1.
5.
Which persons are not allowed to engage in commerce?
1.
a.
suffering accessory penalty of civil interdiction (reclusion
perpetua and reclusion temporal)
2.
b.
those judicially declared insolvent until they can obtain their discharge
3.
c.
prohibited by Constitution and special laws
1.
6.
Aliens
1.
a.
capacitated under his national law to engage in business
2.
b.
engaged in the business in the Philippines not reserved for the Filipinos
3.
c.
after securing license and BOI certificate
1.
7.
Family Code: Either spouse may engage in business; when objected to by the other,
court will look into valid grounds, i.e. serious and moral grounds
1.
8.
BOI Certificate must be obtained by:
1.
a.
alien
2.
b.
foreign firm
1.
9.
Meaning of Philippine National
1.
a.
citizen
2.
b.
domestic corporation wholly owned and organized by Filipinos in the Philippines
3.
c.
Filipino corporation where Filipino capital entitled to vote is at least 60%
1.
10. Query: If a corporation is a shareholder of another corporation, how do you determine
whether the latter corporation is a Filipino national?
Answer: The following must concur 1.
a.
At least 60% of the outstanding capital stock and entitled to vote of both corporations
are held by citizens of the Philippines
2.
b.
At least 60% of the Board of Directors of both corporations are Filipinos
1.
11. Tenor of BOI Certificate
1.
a.
Business or activity to be engaged is consistent with the Investment Priorities
Plan
2.
b.
Business will contribute to the sound and balanced development of the national
economy in a self-sustaining basis
3.
c.
Business will not conflict with the Constitution and local laws
4.
d.
Business is not adequately exploited by Filipino nationals
5.
e.
No danger of monopolies/combinations in restraint of trade
1.
12. Basic Principles/Conditions laid down by BOI
1.
a.
resident agent of foreign firm is a Filipino citizen
2.
b.
establishment of office in the Philippines
3.
c.
bringing assets tot he Philippine office as capital
4.
d.
complete set of accounting records
1.
13. Merger and Consolidation subject to BOI requirements for the issuance of certificate:
33
When merger and consolidation result in ownership and control of non-Filipino nationals over more
than 40% of the capital of a consolidated corporation.
1.
14. SEC License issued upon compliance with the following requirements:
1.
a.
proof of compliance with principle of reciprocity
2.
b.
BOI certificate
3.
c.
Applicant for license gives required information
n articles of incorporation
n by-laws
n names and addresses of resident agents
n principal place of business in the Philippines
1.
2.
d.
e.
proof of solvency
deposit acceptable securities to protect future creditors
2.
1.
2.
3.
34
3.
c.
manufacturer or processor selling to industrial or commercial users or consumers
who use the produce to render service to the general public or to produce or manufacture
goods which are sold by them to the public;
4.
d.
hotel owners or keepers of restaurants included or incidental to the hotel
business;
5.
e.
sale by a manufacturer or processor to the Government or its agencies, including
government owned and controlled corporations.
1.
5.
Query: How to determine citizenship of shares of the corporation when they are not
held directly by individuals, but in turn held by another entity?
1.
The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to
enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are imposed
on the president, manager, board member or persons in charge of the violating entity and
causing the latter to forfeit its privileges, rights and franchises.
1.
2.
Disqualified aliens cannot intervene in the management, operation, administration or
control of the business reserved to Filipinos whether as an officer, employee or laborer, with or
without remuneration, except when:
1.
a.
alien takes part in technical aspects;
2.
b.
provided that no Filipino can do such technical work; and
3.
c.
with express authority from the President, upon the recommendation of the
department head concerned.
1.
3.
By way of exception, the following may participate in management:
35
1.
a.
Aliens may be elected to the Board of Directors to the extent of their allowable
share in the capital of the corporation (in partially nationalized industries).
2.
b.
A registered enterprise may employ foreign nationals in supervisory, technical,
and advisory positions for a period of 5 years subject to extension.
3.
c.
Where majority of stocks of a pioneer enterprise is owned by foreign investors,
the following positions may be held by foreign nationals:
n president
n treasurer
n general manager
n equivalent positions
1.
1.
1.
1.
1.
2.
4.
A Filipino common-law wife of an alien is not barred from engaging in the retail business
provided she uses capital exclusively derived from her paraphernal properties; however, allowing
her common-law alien husband to take part in the management of the retail business would be a
violation of the law.
5.
What doing business means:
1.
a.
soliciting orders, purchases, service contracts;
2.
b.
opening offices whether called liaison offices or branches;
3.
c.
appointing representatives or distributors who are domiciled in the Philippines or
who in any calendar year stay in the country for a period totaling 180 days or more;
4.
d.
participating in the management or supervision or control of any domestic firm,
entity or corporation in the Philippines;
5.
e.
any other act or acts that imply continuity in commercial dealings
6.
When commissioned merchants/investors or commercial brokers act in their own name
in selling foreign products, the foreign firm manufacturing these products is not doing business
in the Philippines.
7.
When a local corporation or person acts in the name of a foreign firm, the latter is doing
business in the Philippines.
8.
The following are NOT doing business:
1.
a.
mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business;
2.
b.
exercise of rights as such investor;
3.
c.
having a nominee director or officer to represent interests in such corporation;
4.
d.
appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own accounts.
1.
Purpose:
1.
a.
to encourage use of and to promote transactions based on trust receipts;
2.
b.
to regulate the use of trust receipts
2.
Definition:
36
A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the
latter releases the goods, documents or instruments tot he possession of the former upon the
ENTRUSTEES promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc.
WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING
TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.
1.
1.
1.
1.
1.
3.
Trust receipts are denominated in Philippine currency or acceptable and eligible foreign
currency.
4.
ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by
the ENTRUSTEE.
5.
Risk of loss is borne by the ENTRUSTEE.
6.
Pending the duration of the trust agreement, the ENTRUSTERS security interest cannot
be prejudiced by claims of creditors of the ENTRUSTEE.
7.
Loss of goods pending the dispossession shall not extinguish the obligation to the
ENTRUSTER for the value thereof.
LETTERS OF CREDIT
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
2.
2.
3.
4.
Kinds:
a.
Commercial Letters of Credit
b.
Travelers Letters of Credit
No protest required in case of dishonor.
Issued to definite persons and not to order, thus, non-negotiable.
Limited to a fixed account.
37
3.
c.
Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures
and equipment used in the business of the vendor, mortgagor, transferor, or assignor.
1.
4.
Only creditors at the time of the sale in violation of the law are within the protection of
the laws and creditors subsequent to the sale are not covered.
1.
5.
Even if the transaction falls within the definition of bulk sale, the following are not
deemed covered by the law:
1.
a.
If the vendor, mortgagor, transferor or assignor produces and delivers a written
waiver of the provisions of the law from his creditors as shown by verified statements;
2.
b.
The law does not apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process.
1.
6.
Obligations when transaction is a bulk sale:
1.
a.
The vendor must deliver to such vendee a written statement of:
n names and addresses of all creditors to whom said vendor or mortgagor may be indebted;
n amount of indebtedness due or owing to each of said creditors
1.
b.
The vendor must apply the purchase money to the pro-rata payment of bona fide claims
of the creditors as shown in the verified statement.
2.
c.
The seller, at least 10 days before the sale, shall:
n make a full detailed inventory of the goods, merchandise, etc., cost price of each article to be
included in the sale
n notify every creditor at least 10 days before transferring possession of the goods, of the price,
terms and conditions of the sale
1.
1.
1.
1.
1.
7.
1.
INSURANCE LAW
1.
Laws applicable to insurance in the order of priority:
1.
a.
Insurance Code
2.
b.
Civil Code
3.
c.
General Principles prevailing on the subject in the US
2.
Contract of Insurance an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown contingent event.
3.
Contract of Suretyship deemed to be an insurance contract within the meaning of the
Insurance Code, only if made by a surety who or which, as such, is doing an insurance business
4.
Definition of doing an insurance business:
38
1.
2.
1.
1.
a.
making or proposing to make, as insurer, any insurance contract;
b.
making or proposing to make as a surety, any contract of suretyship as a vocation
and not merely incidental to any other legitimate business or activity of the surety;
3.
c.
doing reinsurance business;
4.
d.
doing or proposing to do any business in the substance equivalent to any of the
foregoing in a manner designed to evade the provisions of the Insurance Code.
5.
Requisites of Insurance:
1.
a.
existence of an insurable interest;
2.
b.
risk of loss;
3.
c.
assumption of risk;
4.
d.
scheme to distribute losses; and
5.
e.
payment of premiums
Note: If only a, b, and c are present, it is not a contract of insurance but a risk shifting device.
6.
1.
2.
3.
4.
5.
6.
1.
7.
7.
1.
2.
3.
(a) any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest; or
(b) any contingent or unknown event, whether past or future, which may create a liability
against the person insured.
1.
8.
1.
2.
Every person has an insurable interest in the life and health of:
a.
himself, his spouse and his children
b.
any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest
39
3.
1.
c.
any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might prevent the performance
or delay it
4.
d.
any person upon whose life any estate or any interest vested in him depends
9.
Insurable Interest in Property may consist of:
1.
a.
an existing interest
2.
b.
an inchoate interest, founded on an existing interest
3.
c.
an expectancy, coupled with an existing interest out of which the expectancy
arises
Definition of Insurable Interest in Property: Interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured.
1.
Category
1. basis
3. amount of insurable
interest
no limit EXCEPT: if
insurable interest is based on
creditor-debtor relationship
(only to the extent of the
credit or debt)
40
1.
11. General Rule: A change of interest in any part of a thing insured unaccompanied by a
corresponding change in interest in the insurance suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the insurance are vested in the same
person.
Exception: Any person who is forbidden to receive any donation under Article 739 of the Civil
Code cannot be named beneficiary of a life insurance policy by the person who cannot make the
donation to him.
After the finality of the decree of legal separation, the innocent spouse may revoke the
donations as well as the designation of the latter as a beneficiary in any insurance policy, even if
such designation is irrevocable. The revocation of or change in the designation shall take effect
upon written notification thereof to the insured. The action to revoke the donation under this
article must be brought within 5 years from the time the decree of legal separation has become
final.
(c)
The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the
insured, in which event, the nearest relative of the insured shall receive the proceeds of said
insurance if not otherwise disqualified.
41
1.
General Rule: The insured is not required to communicate the nature (or kind) or the amount
insurance.
Requisites:
1.
(a)
(b)
(c)
(d)
(e)
the other party has no other means of ascertaining the facts concealed.
Note: An insured need not die of the very disease he failed to reveal to the insurer. It is
sufficient that the non-revelation has misled the insurer in forming his estimate of the
disadvantages of the proposed policy or in making his inquiries in order to entitle the insurance
company to avoid the contract.
Note: The insured is under an obligation to disclose not only such material facts as are known
n Failure on the part of the insured to disclose such facts known to his agent, or wholly due to
the fault of the agent, will avoid the policy, despite the good faith of the insured.
1.
15. Neither party to the insurance contract is bound to communicate information on the
following matters except in answer to the inquiries of the other:
1.
a.
those of which the other knows;
42
2.
b.
that which, in the exercise of ordinary care, the other ought to know and of
which the former has no reason to suppose his ignorance, i.e. political situation, general
usages of trade;
3.
c.
those of which the other waives communication;
4.
d.
those which prove or tend to prove the existence of the risk excluded by a
warranty and which are not otherwise material;
5.
e.
those which relate to a risk excepted from the policy and which are not
otherwise material.
Neither party is bound to communicate his mere opinion, even upon inquiry, because such
opinion would add nothing to the appraisal of the application.
Waiver of material facts may be:
(a)
(b)
by the neglect to make inquiry as to such facts, where they are distinctly implied in other
Materiality is to be determined not by the events but solely upon the probable and reasonable
influence of the facts on the party to whom the communication is due in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries.
Concealment, whether intentional or not, entitles the other party to rescind the contract.
1.
16. Representation
It is a factual statement made by the insured at the time of, or prior to, the issuance of the
policy, to give information to the insurer and otherwise induce him to enter into the insurance
contract.
1.
a.
must be exercised previous to the commencement of an action on the contract (the
action referred to is that to collect a claim on the contract)
2.
b.
misrepresentation, whether intentional or not, gives the right to rescind
Incontestable Clause: After a policy of life insurance made payable on the death of the
insuredshall have been in force during the lifetime of the insured for a period of 2 years from
the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void
43
(b)
(c)
fraud
(d)
non-payment of premium
(e)
(f)
17. Warranties:
General Rule: Non-performance of a promissory warranty avoids a contract of insurance.
Exceptions:
1.
a.
when before the time for performance of the promissory warranty, a loss insured against
occurs;
2.
b.
when before the time of the performance of the warranty, the act becomes unlawful;
3.
c.
when before the time of the performance of the warranty, said performance becomes
impossible.
A statement or a promise set forth in the policy or by reference incorporated therein, the nonfulfillment of which in any respect and without reference to whether the insurer was in fact
prejudiced by such non-fulfillment, renders the policy voidable by the insurer, wholly
irrespective of the materiality of such statement or promise.
Warranty
Representation
collateral inducement
1.
Note: If there is a breach of warranty, even if the cause of the loss is a different risk, the
insurer is entitled to rescind the contract of insurance.
Breach must refer to a material warranty, whether intentional or not.
18. Policy
What is a Rider? It is an additional provision in a policy not part of the body of the printed
form.
44
Cover Note: written memorandum of the most important terms of a preliminary contract of
insurance, intended to give temporary protection pending the investigation of the risk by the
insurer, or until the issuance of a formal policy.
General Rule: Cover notes bind insurer temporarily pending the issuance of the policy.
Exception: Where it is merely an acknowledgment on behalf of the company that the latters
branch office had received from the applicant the insurance premium and accepted the
application subject for processing by the insurance company and that the latter will either
approve or reject the same.
Kinds of Policies:
1.
a.
Open the value of the thing insured is not agreed upon, but is left to be ascertained at
the time of the loss
2.
b.
Valued expresses on its face an agreement that the thing insured shall be valued at a
specific sum
3.
c.
Running contemplates successive insurance which provides that the object of the policy
may be from time to time defined especially as to the subject of insurance by additional
statements or endorsements
n Note: If an amount is written on the face of an open policy, it is merely a determination of the
maximum limit of recovery and not as the value of the policy.
Category
Open Policy
Valued Policy
value of property is to be
ascertained upon loss
Period for commencing an action against the policy: Within 1 year from the time the cause of
action accrues, i.e., from the time of rejection of the claim by the insurer. Any condition,
stipulation, or agreement limiting the time to less than 1 year is void.
Grounds for Cancellation of a Policy by the Insurer:
(2)
notice must be based on the ff. occurrences after effective date of the policy
(a)
non-payment of premiums
(b)
conviction of a crime arising out of acts increasing the hazard insured against
(c)
(d)
discovery of willful or reckless acts or omissions increasing the hazard insured against
45
(e)
physical changes in the property insured which results in the property becoming uninsurable
(f)
determination by the Commissioner that the continuation of the policy would violate or
would place the insurer in violation of the Insurance Code
(3)
(4)
it must be mailed or delivered to the insured at the address shown in the policy
(5) notice must state the ground relied upon and that upon written request of the insured, the
insurer will furnish facts on which the cancellation is based
Insurer must mail or deliver to the insured notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages within 45 days before
the policy ends. Otherwise, insured entitled to renew the policy upon payment of the premium
due on
1.
(b)
1.
2.
3.
4.
5.
1.
in case of estoppel
Insurer is entitled to payment of premiums as soon as the thing insured is exposed to the perils
insured against.
When insurer entitled to Return of Premiums
a.
when the contract is voidable on account of fraud or misrepresentation of the insurer;
b.
when on account of facts, the existence of which the insured was ignorant without his
fault
c.
when by any default of the insured other than actual fraud, the insurer never incurred
any liability under the policy
d.
when the insured has become a public enemy and the policy automatically canceled (on
the ground of equity)
e.
in case of over-insurance by several insurers (ratable return of premiums, proportioned
to the amount by which the aggregate sum insured in all policies exceed the insurable value of
the thing at risk)
20. Loss
When Insurer is Liable:
1.
a.
where the peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been the remote cause or even the immediate cause of
the loss
2.
b.
where the thing insured is rescued from the peril insured against that would otherwise
have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession in whole or in part
46
3.
4.
c.
where loss is caused by efforts to rescue the thing insured from a peril insured against
d.
insurer is not exonerated by a loss caused by simple negligence of the insured if the
proximate cause of the loss is a peril insured against
5.
e.
loss, the immediate cause of which is a peril insured against except when the proximate
cause is an excepted peril
a.
where the peril insured against was only a remote cause
b.
where the peril is specifically excepted, a loss which would not have occurred but for
such peril is thereby excepted
3.
c.
loss caused by the connivance of the insured
4.
d.
loss caused by the willful act of insured
5.
e.
loss caused by insureds negligence, if it amounts to bad faith
General Rule: The insurer is not liable for a loss caused by the willful act of the insured.
Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committed suicide
after the policy has been in force for a period of 2 years from the date of its issue or last
reinstatement. If insured kills himself within a period of 2 years, insurer is not liable.
Exception to Exception: If suicide is committed in a state of insanity, regardless of the time of
b.
c.
d.
e.
Over Insurance
Double Insurance
The Code prohibits double insurance without the consent of the insurer.
Liability of Insurer:
Insurance taken
from each insurer
- x
1.
22. Reinsurance: A process by which an insurer procures a third person to insure him against
loss or liability by reason of such original insurance.
47
The original insured cannot recover from this insurance unless there is a specific grant, or
assignment of, the reinsurance contract in favor of the insured, or a manifest intention of the
contracting parties to the reinsurance contract to favor the insured.
1.
2.
Reinsurance
Double Insurance
1.
2.
1.
insurer becomes the insured
2.
subject matter is the insured
risk or liability
3. 3.
different risks and interests of
insured
4. 4.
there must be consent of
original
5. 5.
one who is original insured has
no interest in the contract of
reinsurance which is independent of
the original contract of insurance
6. 1.
insurer remains the insurer
7. 2.
subject matter is property
8. 3.
the same interest and risk are
insured
9. 4.
insured has to give his consent
10. 5.
insured is the party in interest
in all contracts
1.
23. Marine Insurance: insures against perils of the sea, not of the ship
1.
a.
in the ship even if it has been chartered by one who promises to pay him in value in case
of loss (insurer is liable for what insured cannot recover from the charterer), even when
hypothecated by bottomry (only the excess of its value over the amount secured by bottomry)
and
2.
b.
in the freightage, which according to the ordinary and probable course of things he
would have earned but for the intervention of a peril insured against or other peril incident to
the voyage
Charterer has insurable interest in the ship to the extent that he is liable to be damnified by its
loss.
Barratry: Any willful misconduct on the part of the masters or crew, in pursuance of some
unlawful or fraudulent purpose, without the consent of the owners and to the prejudice of the
owners interest.
Jettison: Intentional casting overboard of any part of a venture exposed to a peril, whether it
be of the cargo, or the ships furniture or tackle, in the hope of saving the rest of the venture.
Insurable Interest in Marine Insurance: Determined when one will sustain loss from the
transport merchandise or persons for a fixed price. It has also been defined as a contract by
virtue of which the owner or the agent of the vessel for the transportation of goods or persons
from one port to another.
Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of a ship borrows
money for the use, equipment or repair of the vessel for a definite term, and pledges the ship as
a security for repayment, with maritime or extraordinary interest on the account of the
maritime risks to be borne by the lender. It is stipulated in such a contract that if the ship be
lost in the course of the specific voyage or during a specified limited time caused by any of the
perils enumerated in the contract, the lender shall resolutely lose his money.
Loan on Respondentia: Contract akin to that of mortgage made on the goods on board the
ship, and which are to be sold or exchanged in the course of the voyage. The goods serve as the
principal security.
Freightage: Signifies all the benefits derived by the owner, carriage of his own goods, or those
of others.
Concealment: In marine insurance, information or the belief or expectation of a 3 rd person, in
reference to a material fact is material.
n Concealment of the following merely exonerates the insurer from the resulting loss therefrom:
1.
2.
3.
4.
5.
a.
b.
c.
d.
e.
49
Implied Warranties:
1.
a.
that the ship is seaworthy complied with if the ship is seaworthy at the time of
commencement of risk, except: (a) insurance for a specified length of time at the
commencement of every voyage it undertakes during that time; (b) cargo to be transshipped at
indeterminate port each vessel upon which cargo is shipped is seaworthy at the
commencement of each particular voyage
2.
b.
that the vessel shall not engage in illegal venture
3.
c.
that the vessel shall not deviate from the course of the voyage insured
4.
d.
where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to show such nationality or neutrality and that it
will not carry any documents which may cast reasonable suspicion thereon
a.
b.
c.
a.
in a Time Policy commencement of every voyage that must be undertaken
b.
in a Cargo Policy commencement of each particular voyage
c.
in a Voyage Policy commencement of each portion of the voyage
Deviation
1.
2.
3.
a.
b.
c.
When
1.
a.
when caused by circumstances over which neither the master not the owner of the ship
has any control
2.
b.
when necessary to comply with a warranty or to avoid a peril whether it is insured
against or not
3.
c.
when made in good faith for the purpose of saving human life or relieving another vessel
in distress
4.
d.
when made in good faith and upon reasonable grounds of belief in its necessity to avoid
a peril
Loss
1.
a.
50
n any other event which effectively deprives the owner of possession, at the port of destination,
of the thing insured
1.
b.
Constructive Total Loss gives to the person insured the right to abandon
Average any extraordinary or additional expense incurred during the voyage for the
preservation of the vessel, cargo, or both and all damages to the vessel and cargo from the time
it is loaded and the voyage commenced until it ends and the cargo unloaded
General Average an expense or damage suffered deliberately in order to save the vessel, its
(a) more than thereof in value is actually lost or would have been expended to recover it from
the peril
(b)
(c)
if the thing insured is the ship and the voyage cannot be lawfully performed without
incurring an expense of more than of the whole, or a risk which a prudent man would not
undertake under the circumstances
(d) if the thing insured is cargo or freightage, and the voyage cannot be performed on another
ship procured by the master within a reasonable time and with reasonable diligence to forward
the cargo without incurring an expense or a risk as stated above
1.
2.
3.
4.
a.
must be total and conditional
b.
made within a reasonable time
c.
explicit notice
d.
coupled with actual abandonment
Requisites for Valid Valuation in the Valued Marine Policy:
1.
2.
a.
insured must have interest at risk
b.
there must be no fraud on the insureds part
Notice of Abandonment:
1.
a.
may be oral or in writing (if oral, written notice must be submitted within 7 days from
oral notice)
2.
b.
must be explicit
3.
c.
must specify the particular cause for abandonment
4.
d.
need not be accompanied by proof of interest or loss
Acceptance of Abandonment
1.
2.
a.
b.
51
3.
c.
irrevocable, unless the ground on which it is made is proved to be unfounded
If insurer refuses to accept a valid abandonment liable as upon actual total loss
Upon actual abandonment
1.
2.
a.
freightage earned before loss belongs to the insurer of freightage
b.
freightage earned after loss belongs to insurer of ship
Co-insurance: form of insurance in which the person who insures his property for less than the
entire value is understood to be his own insurer for the difference which exists between the true
value of the property and the amount of insurance
Co-insurance applies only where the:
1.
2.
a.
insurance taken is less than the actual value of the thing insured
b.
loss is partial
Primage increase in freightage
1.
Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the place where it
was intended to burn and ought to be in) and not that caused by friendly fire (fire which burns in
a place where it is intended to burn).
1.
2.
3.
4.
5.
6.
a.
b.
c.
d.
e.
f.
When
1.
2.
3.
a.
such alteration violates a provision in the policy
b.
it was made without the insurers consent
c.
it is done within the insureds control, and it increases the risk of loss or damage
Rules:
fire
lightning
windstorms
tornado
earthquake
other allied risks
does alteration in the use or condition entitle the insurer to rescind the contract?
1.
a.
policy shall not protect the insured from injury consequent upon his negligent use or
management of fire, so long as it is confined to the place where it ought to be
2.
b.
if it escapes, even though the insured was negligent, the insurer is liable
3.
c.
even though a fire may remain in its proper place, it may become hostile if it by
accident, becomes so extensive as to be beyond control
a.
purchase the property at appraised valuation
b.
restore the property damaged contract of insurance is discharged and parties enter
into a new contract of insurance
1.
25. Casualty Insurance: Any injury that is intended, unexpected and unusual, even though it
results from an act or even which was intelligently done.
a.
b.
52
3.
c.
by overdoes of drugs administered or taken by mistake, by ignorance or material
pathological conditions
4.
d.
by unexpected bacterial infection consequent upon doing acts, even though such acts
were intentionally done
5.
e.
by unprovoked violence of others
a.
motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose
name such vehicle is registered with the LTO
2.
b.
land transport operator or one who is the owner of a motor vehicle or vehicles being
used for conveying passengers for compensation (including school buses)
No Fault Indemnity Clause: The insurance company shall pay any claim for death or bodily
injuries sustained by a passenger or 3rd party without the necessity of proving fault or negligence
of any kind subject to certain conditions. This does not apply to property damage.
1.
26. Suretyship an agreement whereby the surety guarantees the performance of the
principal or obligor of an obligation or undertaking in favor of a 3 rd party called the obligee
1.
27. Life Insurance: an insurance in human life and insurance appertaining thereto or
connected therewith may be payable:
1.
a.
on the death of the insured
2.
b.
on his surviving a specified period
3.
c.
otherwise, contingently on the continuance or cessation of life
1.
2.
3.
4.
5.
1.
Grace Period 30 days for the payment of any premium due after the first premium has been paid
53
Period of Incontestability after the lapse of 2 years from the date of issue or date of approval of
last reinstatement
Reinstatement of Policy within 3 years from the date of default of premium, upon:
1.
2.
a.
b.
Exceptions:
1.
2.
1.
a.
b.
b.
coverage at issue
(b)
failing to adopt or implement reasonable standards for the prompt investigation of claims
no attempt in good faith to effectuate prompt, fair and equitable settlement of claims
compelling policy holders to institute suits to recover the amount due under its policies by
offering with no justifiable reason an amount substantially less than that ultimately recovered in
suits brought by them
Proceeds of Life Insurance payable within 60 days after:
(a)
(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the ceiling
prescribed by the Monetary Board unless based on the ground that the rate is fraudulent)
Proceeds of Policies other than Life payable:
(a)
(b) upon ascertainment of loss or damage (if not made within 60 days of proof of loss, payable in
90 days)
54
1.
c.
(a)
(b)
if it has failed to comply with the provisions of law or regulations obligatory upon it
(c)
its conditions or methods of business s such as to render its proceedings hazardous to the
public or to its policy holders
(d) that its paid up capital stock, or its available cash assets, or its security deposits, as the case
may be, is impaired or deficient
(e)
Insurance Agent any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transacts for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in negotiating of such
insurance. He must be first licensed as such before doing any acts as insurance agent.
Insurance Broker any person for any compensation, commission or any other thing of value, acts,
or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract
or in placing risk or taking out insurance, on behalf of an insured other than himself. A license is
required.
WAREHOUSE RECEIPTS LAW
1.
1.
1.
Warehouse a building or place where goods are deposited and stored for profit.
2.
Warehouseman person lawfully engaged in the business of storing goods for profit.
Only a warehouseman may issue warehouse receipts.
1.
3.
Warehouse Receipt written acknowledgment by a warehouseman that he has received
and holds certain goods therein described in store for the person to whom it is issued.
1.
4.
Non-negotiable Receipt receipt deliverable to a specified person.
1.
5.
Negotiable Receipt receipt deliverable to order or to bearer.
1.
6.
Essential Terms which MUST be embodied in a Warehouse Receipt:
1.
a.
location of the warehouse
2.
b.
date of the issue of the receipt
3.
c.
consecutive number of the receipt
4.
d.
statement whether the goods received will be delivered to bearer, or a specified
person, or his order
5.
e.
rate of storage charges
6.
f.
description of the goods or packages containing them for identification
purposes
7.
g.
signature of the warehouseman
8.
h.
statement of the amount of advances made and of liabilities incurred for which
the warehouseman claims as lien
55
1.
1.
1.
1.
1.
(1)
7.
1.
2.
to the purchaser of the receipt for value and without notice of the alteration according to
(3) to subsequent purchasers with notice of the alteration, according to the terms of the original
receipt
1.
56
3.
1.
c.
If the description consists merely of marks or label upon the goods or upon the
packages containing them, the warehouseman is not liable even if the goods are not of
the kind as indicated in the marks or labels.
13. Principal Obligations of a Warehouseman:
1.
a.
To take care of the goods entrusted to his safekeeping
General Rule: A warehouseman is required to exercise such degree of care which a reasonable
careful owner would exercise over similar goods of his own. He shall be liable for any loss or
injury to the goods caused by his failure to exercise such care.
Exception: He shall not be liable for any loss or injury which could not have been avoided by
received in case of loss. He cannot stipulate that he will not be responsible for any loss caused
by his negligence.
1.
b.
To deliver the goods to the holder of the receipt or the depositor upon demand,
provided demand is accompanied with:
(1)
(2)
an offer to surrender the negotiable receipt properly endorsed. If the receipt is non-
negotiable, any person lawfully entitled to the possession of the goods may be entitled to delivery
without surrender of the receipt.
(3) a readiness and willingness to sign an acknowledgment that the goods have been delivered if
such is requested by the warehouseman.
1.
a. persons to whom a competent court has ordered the delivery of the goods
(1)
where a negotiable instrument has been lost or destroyed, the court may order delivery to a
person upon satisfactory proof of such loss or destruction and upon proper posting of a bond to
protect the warehouseman from any liability or expense which he may incur by reason of the
original receipt remaining outstanding.
(2)
where more than one person claims title or possession of the goods the warehouseman may
require all claimants to interplead. The court will then order delivery to the person having a
better right.
1.
(I)
b.
an attaching creditor Goods, while in the possession of the warehouseman and covered
by a negotiable receipt, cannot be attached or levied upon under an execution unless:
57
(ii)
d.
B.
1.
2.
1.
C.
terms
1.
2.
3.
4.
1.
15.
to the purchaser where perishable or hazardous goods are sold at private or public sale
If goods are covered by a non-negotiable receipt:
a.
a person entitled to the delivery by the terms of the receipt, or
b.
one who has written authority from letter a
If goods are covered by a negotiable receipt, a person in possession of the receipt, the
of which the goods are deliverable:
a.
to him or order
b.
to bearer
c.
indorsed to him
d.
indorsed in blank by the person whom delivery was promised
When is there Misdelivery?
When the warehouseman delivers the goods to a person who is not in fact lawfully entitled to the
possession of the goods because:
1.
2.
(1)
a.
b.
been requested by the person lawfully entitled to the delivery not to make such delivery, or
(2) had information that the delivery about to be made was to one not lawfully entitled to the
possession of the goods
1.
The warehouseman shall be liable for conversion to all having a right to property or possession of
the goods.
1.
17. What happens if there is proper delivery or partial delivery but the warehouseman fails to
cancel the receipt or record on the receipt of such partial delivery?
1.
a.
If goods covered by a negotiable warehouse receipt are delivered by a
warehouseman but he fails to take the receipt and cancel it, then he is still liable to one
who purchases for value and in good faith such receipt.
2.
b.
If he makes partial delivery of the goods but fails to record the partial delivery
on the receipt then he may still be held liable for the entire receipt to one who purchases
for value and in good faith such receipt.
1.
18. Lawful excuses for refusal to deliver goods:
1.
a.
The warehouseman can refuse to deliver the goods if he has acquired title or
right to the possession of the goods:
58
(1)
directly or indirectly from a transfer made by the depositor at the time of the deposit for
1.
b.
If someone other than the depositor or person claiming under the depositor has a claim
to the title or possession of the goods and the warehouseman has information of such claim, the
warehouseman shall be excused from liability for refusing to deliver the goods either to the
depositor or person claiming under him until he has had a reasonable time to ascertain the
validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead.
c.
The warehouseman will not be required to deliver the goods if such had been lost. But
this is without prejudice to liabilities which may be incurred by him due to such loss.
d.
The warehouseman having a valid lien against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.
e.
If goods have been lawfully sold or disposed of because of their perishable or hazardous
nature, the warehouseman shall not be liable for failure to deliver the goods.
19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming
under him on the ground that adverse title to the goods belongs to a third person.
20. Rules as regards Co-mingling of Deposited Goods:
General Rule: A warehouseman may not co-mingle goods belonging to different depositors or
belonging to the same depositor for which separate receipts had been issued.
Exception: A warehouseman may co-mingle fungible goods of the same kind and grade
1.
1.
1.
1.
Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of
preliminary injunction and serve the same on the depositor before he has a chance to negotiate
the receipt. Once enjoined, there will be no longer a danger that a 3rd person will be prejudiced
so the goods may now be attached, levied upon, or that the vendors lien or the right of stoppage
in transit be exercised.
1.
23. Warehousemans Lien
a.
all lawful charges for storage and preservation of the goods
b.
all lawful claims for money advances, interest, insurance, transportation, labor,
weighing, cooperating and other charges and expenses in relation to such goods
3.
c.
all reasonable charges and expenses for notice and advertisements of sale and for sale of
the goods where default has been made in satisfying the warehouse lien
59
1.
a.
goods belonging to the depositor who is liable to the warehouseman as debtor whenever
such goods are deposited and
2.
b.
goods belonging to other persons stored by the depositor who is liable to the
warehouseman as debtor with authority to make a valid pledge
a.
by refusing to deliver the goods until the lien is satisfied
b.
by causing the extrajudicial sale of the property and applying the proceeds to the value
of the lien
3.
c.
by filing a civil action for unpaid charges or by way of counterclaim in an action to
recover the property from him
a.
when the warehouseman voluntarily surrenders possession of the goods without requiring
payment of his lien; or
2.
b.
when the warehouseman wrongfully refuses to deliver the goods when a demand is made
with which he is bound to comply
1.
24. Negotiation and Transfer of Receipts
a.
by indorsing it in blank thereby making it deliverable to bearer or
b.
by special indorsement which would require further indorsements for further
negotiations.
There is no need to indorse for negotiation. Physical delivery of the instrument will suffice. But if
the instrument is indorsed specially, the bearer character of the receipt is destroyed and for
further negotiation, there will be a need for indorsement.
1.
2.
a.
the owner of the receipt, or
b.
the person to whom possession of the receipt was entrusted to by the owner
Rights acquired by a person to whom the receipt has been negotiated:
1.
2.
a.
the title of the person negotiating the receipt over the goods covered by the receipt
b.
the title of the person (depositor or owner) to whose order by the terms of the receipt
the goods were to be delivered
3.
c.
the direct obligation of the warehouseman to hold possession of the goods for him, as if
the warehouseman directly contracted with him
No, even if the receipt is indorsed, the transferee acquires no additional right. That is why they
are called non negotiable receipts. But they may be transferred or assigned by delivery.
60
1.
2.
3.
Non-negotiable Receipt
Negotiable Receipt
1.
2.
Rights of a person to whom a negotiable receipt has been transferred, not indorsed:
a.
the right to the goods as against the transferor
b.
the right to compel the transferor to indorse the receipt. But if the intention of the
parties is that the receipt should merely be transferred, the transferee has no right to require
the transferor to indorse the receipt.
Note: Negotiation takes effect as of the time when the indorsement is actually made.
1.
2.
3.
4.
a.
the receipt is genuine
b.
he has a legal right to negotiate or transfer it
c.
he has knowledge that would impair the validity or worth of the receipt and
d.
he has a right to transfer the title to the goods and that the goods are merchantable
A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of
the debt from a person does not warrant the genuineness of the receipt not the quality or
quantity of the goods therein described.
It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt
has been issued to require the negotiation of the receipt to him, otherwise his failure will have
the same effect as an express authorization on his part to the seller, mortgagor, or pledgor in
possession of such receipt to make any subsequent negotiation. The subsequent purchaser must
have taken the receipt in good faith and for value.
A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he
purchases from the owners agent within the actual or apparent scope of his authority. In sum,
negotiation is valid despite having been made in breach of trust.
Distinctions between a negotiable instrument and a negotiable warehouse receipt:
61
Negotiable Instrument
Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling must:
1.
2.
a.
obtain prior license from the Bureau of Commerce
b.
file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against
which bond depositors may sue directly
3.
c.
open to the public, no discrimination allowed
4.
d.
liable for double market value should he accept goods in excess of the capacity of
warehouse if goods are damaged or destroyed
Note: for palay and corn license, a bond with the National Grains Authority is required; also an
insurance cover is required.
1.
1.
1.
1.
2.
2.
1.
62
1.
2.
3.
1.
1.
1.
1.
1.
1.
Classes of Investments:
a.
Permitted one allowed without need of prior authority from the Philippine
Government. If registered status, invest up to extent as not to affect its registered status. If
enterprise not registered, investment not to exceed 40%.
b.
Permissible invest in excess of 40% in unregistered enterprise but with prior approval of
BOI
c.
Pioneer Area (a) involves manufacturing, processing, production of product not
produced at all/produced in non-commercial scale; (b) uses a design, scheme, formula that is
new and untried in the Phils.; (c) agricultural activities/services essential to the attainment of
food sufficiency; (d) produces non-conventional fuels/utilizes non-conventional sources of
energy (all others are non-pioneer)
4.
Absolutely Disqualified to become Merchants
1.
a.
serving penalty of civil interdiction
2.
b.
insolvent
3.
c.
absolutely disqualified by special laws
5.
Relatively Disqualified
1.
a.
judicial and prosecuting officials in active service
2.
b.
administrative, economic, military chiefs
3.
c.
government collection agents and custodian of funds
4.
d.
stock and commercial brokers
5.
e.
by special laws cannot trade in specified territories
6.
Books a Merchant must keep
1.
a.
book of inventories and balances, statement of assets, liabilities and capital
2.
b.
journal of day to day operations
3.
c.
ledger for classifying accounts
4.
d.
copying book for letters and telegrams; if juridical person, include book of
minutes and stock and transfer book
7.
Probative Value of Merchants Book
1.
a.
evidence against merchants themselves
2.
b.
in case of conflicts between 2 books that which s properly kept prevails
3.
c.
if one keeps books and the other does not and cannot explain why, the former
prevails
4.
d.
if both books are properly kept and there is a conflict, other proofs can be
resorted to
8.
Commercial Contracts by Correspondence are perfected from the moment the offeree
accepts the offer, even before knowledge of said acceptance by the offeror. This does not apply
to deposit, guaranty, sales, loan, agency, partnership.
9.
Joint Account Partnership business arrangement whereby 2 or more persons interest
themselves in the business of another by making contributions thereto and participating in the
results thereof
1.
a.
only one member is ostensible, others are silent
2.
b.
no common name
3.
c.
only ostensible partners can sue/be sued
4.
d.
no juridical personality
63
Transportation Law
1.
1.
Contract of Transportation contract whereby a certain person or association of persons
obligate themselves to transport persons, things, news, from one place to another for a fixed
price
1.
2.
Parties to the Contract of Transportation:
1.
a.
Shipper one who gives rise to the contract of transportation by agreeing to
deliver the things or news to be transported, or to present his own person or those of
other or others in the case of transportation of passengers
2.
b.
Carrier/Conductor one who binds himself to transport persons, things, or news,
as the case may be, or one employed in or engaged in the business of carrying goods for
others for hire
1.
3.
Common Carrier person, corporation, firm, association engaged in the business of
carrying or transporting passengers, goods or both, by land, water, air, for compensation,
offering services to the public; must exercise extraordinary diligence
Private Carrier not engaged in the business of carrying; no public employment; undertakes to
deliver goods/passengers for compensation; requires only ordinary diligence
4. Requisites of Caso Fortuito
1.
2.
3.
4.
1.
a.
event independent of human will
b.
occurrence makes it impossible for debtor to perform in normal manner
c.
debtor free from aggravation/participation
d.
impossible to foresee or avoid
5.
Contributory negligence does not entitle passengers to recover moral/exemplary
damages.
1.
6.
Bill of Lading written acknowledgment of receipt of goods and agreement to transport
them to a specific place to a person named or his carrier
It is not indispensable to the creation of a contract of carriage. The contract itself arises from the
moment goods are delivered by shipper to carrier and the carrier agrees to carry them.
The function of the Bill of Lading: the legal basis of the contract between the shipper and carrier
shall be the bills of lading, by the contents of which all disputes which may arise with regard to
their execution and fulfillment shall be decided, no exceptions being admissible other than
forgery or material errors in the drafting thereof.
Carriers responsibility starts from the moment he receives unconditionally the merchandise
personally or through an agent and lasts until he delivers them actually or constructively to the
consignee or his agent.
Mere delay in the delivery of goods to consignee does not give right to refuse goods only breach
of contract, ergo damages. If delay is unreasonable, then he may refuse to accept and make
carrier liable for conversion.
64
1.
7.
Vessels those engaged in navigation, whether coastwise or on the high seas, including
floating docks, pontoons, dredges, scows and any other floating apparatus destined for the
services of the industry or maritime commerce
1.
8.
Persons Participating in Maritime Commerce:
1.
a.
ship owner and/or ship agent
2.
b.
captain or master
3.
c.
other officers of the vessel
4.
d.
supercargo
1.
9.
Liability of Ship owners and Ship agents:
1.
a.
civil liability for the acts of the captain
2.
b.
civil liability for contracts entered into by the captain to repair, equip and
provision the vessel, provided that the amount claimed was invested for the benefit of
the vessel
3.
c.
civil liability for indemnities in favor of 3 rd persons which may arise from the
conduct of the captain in the care of the goods which the vessel carried, as well as for
the safety of the passengers transported
Ship owner/ship agent not liable for the obligations contracted by the captain if the latter
exceeds his powers and privileges inherent in his position of those which may have been
conferred upon him by the former. However, if the amount claimed were made use of for the
benefit of the vessel, the ship owner or ship agent is liable.
1.
10. Doctrine of Limited Liability liability of shipowners is limited to amount of interest in
said vessel because of the real and hypothecary nature of maritime law such that where the
vessel is entirely lost, the obligation is extinguished.
(3)
(4)
vessel is insured
The doctrine also applies for claims due to death or injuries to passengers, aside from claims
for goods.
In abandoning the vessel, there is no procedure to be followed. There is neither a prescriptive
period within which the ship owner can make the abandonment. He may do so for so long as he
is not estopped from invoking the same or do acts inconsistent with abandonment.
1.
11. Roles of the Captain:
1.
a.
general agent of the ship owner
2.
b.
technical director of the vessels
3.
c.
represents the government of the country under whose flag he navigates
1.
12. Loan on Bottomry made by shipowner/ship agent guaranteed by vessel itself, repayable
upon arrival at destination
65
1.
13.
cargo
1.
14.
1.
2.
3.
4.
1.
15.
1.
Loan In Respondentia taken on security of the cargo repayable upon the safe arrival at
destination
Accidents and Damages in Maritime Commerce:
a.
Averages
b.
Arrivals Under Stress
c.
Collisions
d.
Shipwrecks
Average:
a.
all extraordinary or accidental expenses which may be incurred during the
voyage for the preservation of the vessel or cargo or both
2.
b.
all damages or deterioration which the vessel may suffer from the time it puts to
sea at the port of departure until it casts anchor at the port of destination, and those
suffered by the merchandise from the time they are loaded in the port of shipment until
they are unloaded in the port of their consignment
1.
16. Simple Average expenses/damages caused to the vessel/cargo not inured to common
benefit and profit of all the persons interested in the vessel and her cargo; borne by respective
owners
1.
17. General Average expenses/damages deliberately caused in order to save the vessel, its
cargo or both from a real and known risk
Requisites:
1.
2.
3.
4.
1.
a.
deliberately incurred
b.
intended to save vessel and cargo or both
c.
from real and known risk
d.
there is success
18. Formalities for Incurring Gross Average:
1.
a.
there must be an assembly of the sailing mate and other officers with the
captain including those with interests in the cargo
2.
b.
there must be a resolution of the captain
3.
c.
the resolution shall be entered in the log book, with the reasons and motives and
the votes for and against the resolution
4.
d.
the minutes shall be signed by the parties
5.
e.
within 24 hours upon arrival at the first port the captain makes, he shall deliver
one copy of these minutes to the maritime judicial authority thereat
1.
19. Arrivals under Stress arrival of the vessel at a port not of destination on account of (a)
lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of the sea disabling
it to navigate
a.
b.
c.
66
4.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
d.
malice, negligence, lack of foresight or skill of captain
20. Collision impact of 2 vessels both of which are moving
21. Allision striking of a moving vessel against one that is stationary
22. Cases of Collision:
1.
a.
due to the fault, negligence or lack of skill of the captain, sailing mate or the
complement of the vessel ship owner liable for the losses and damages (Culpable Fault)
2.
b.
due to fortuitous event or force majeure each vessel and its cargo shall bear its
own damages (Fortuitous)
3.
c.
it cannot be determined which of the 2 vessels caused the collision each vessel
shall suffer its own damages, and both shall be solidarily responsible for the losses and
damages occasioned to their cargoes (Inscrutable Fault)
23. Error in Extremis sudden movement made by a faultless vessel during the 3 rd zone of
collision with another vessel which is at fault, even if the said movement is wrong, no
responsibility will fall on said vessel
24. Shipwreck denotes all types of loss/ wreck of a vessel at sea either by being swallowed
up by the waves, by running against another vessel or thing at sea or on coast where the vessel
is rendered incapable of navigation
25. Salvage the compensation allowed to persons by whose voluntary assistance a ship at sea
or her cargo or both have been saved in whole or in part from an impending peril, or such
property recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture; a
service which one person renders to the owner of a ship or goods by his own labor, preserving
the goods or ship which the owner or those entrusted with the care of them either abandoned in
distress at sea or are unable to protect and secure; a permit is required to engage in the salvage
business
26. Derelict a ship or cargo which is abandoned and deserted at sea by those who are in
charge of it, without any hope of recovering it, or without any intention of returning it
27. Elements of a Valid Salvage:
1.
a.
a marine peril
2.
b.
service voluntarily rendered when not required as an existing duty or from
special contract
3.
c.
success, in whole or in part, or that the services rendered contributed to such
success
28. Contract of Towage contract whereby a vessel usually motorized pulls another from one
place to another for compensation. It is a contract of services.
29. Difference between Towage and Salvage:
Salvage
Towage
Enumeration of causes of action as above stated is not an exclusive list. (Northwest Airlines vs.
Cancer)
1.
3.
Meaning of Transport by Air period during which the baggage or goods are in charge of
the carrier, whether in an airport or on board an aircraft, or in the case of landing outside an
airport, in any place whatsoever
1.
4.
Action for damages must be brought at the option of the plaintiff, either:
1.
a.
before the court of the domicile of the carrier;
2.
b.
court of principal place of business of carrier;
3.
c.
court where he has a place of business through which the contract has been
made;
4.
d.
before the court at the place of destination
1.
5.
Convention provides for a limitation of liability:
1.
a.
for each passenger limited to 125,000 francs
2.
b.
for goods and checked in baggage limited to 250 francs per kilogram
3.
c.
for hand carry limited to 5,000 francs per passenger
68
(1)
willful misconduct
(2)
(3)
(4)
1.
6.
The right to damages shall be extinguished if an action is not brought within 2 years
from the date of arrival at the destination, or from the date on which the aircraft ought to have
arrived, or from the date on which the transportation stopped.
1.
7.
Notice requirement: damage to baggage : within 3 days from receipt
1.
Failure to file written notice, no action shall lie against the carrier, save in the case of fraud on
his part.
8.
Notice Requirements:
COGSA
Code of Commerce
loss/damage
apparent
protest at time of
receipt of goods
protest at time of
receipt of goods
loss/damage not
apparent
protest within 24
hours after receipt
Warsaw Convention
damage of baggage
damage of goods
delay
69
1.
3.
Prior Operator Rule before permitting a new operator to invade the territory of another
already established, the prior operator must be given an opportunity to extend its service to
meet the public needs in the matter of transportation.
1.
4.
Prior Applicant Rule presupposes a situation where two interested persons apply for a
CPC in the same community over which no person has yet been granted a CPC to operate. If
both applicants equal, then the applicant who applied first will be given the CPC.
1.
5.
Distinctions between CPCs and CPCNs
1.
6.
1.
2.
3.
Corporation Law
1.
1.
Doctrine of Corporate Opportunity a director is made to account to his corporation,
gains and profits from transactions entered into by him/another competing corporation in which
he has substantial interest, which should have been a transaction undertaken by the
corporation. This s a breach of fiduciary relationship.
1.
2.
Doctrine of Piercing the Veil of Corporate Entity it is to disregard for justifiable reasons
by the state the fiction of juridical personality of the corporation separate and distinct from the
persons composing it
1.
3.
De Jure Corporation corporation formed with all the requirements of law
1.
4.
De Facto Corporation corporation defectively formed from a bona fide attempt to
incorporate under the existing law and exercises corporate powers
1.
5.
Corporation by Estoppel a group of persons which holds itself out as a corporation and
enters into a contract with 3rd persons on the strength of such appearance cannot be permitted
to deny its existence in an action under said contract
1.
6.
Corporation by Prescription body not lawfully organized as a corporation but has been
recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex.
Roman Catholic)
1.
7.
Trust Fund Doctrine the subscribed capital stock of the corporation is a trust fund for
the payment of debts of the corporation which the creditors have the right to look up to satisfy
their credits. Corporations may not dissipate this and the creditors may sue the stockholders
directly for their unpaid subscriptions
1.
8.
Voting Shares
70
1.
a.
Founders Shares given rights and privileges not enjoyed by owners of other
stocks; right to vote/be voted in the election of directors shall not exceed 5 years
Non-Voting Shares
1.
a.
Preferred Shares issued only with par value; given preference in distribution of assets
in liquidation and in payment of dividends and other preferences stated in the articles of
incorporation
2.
b.
Redeemable Shares expressly provided in articles; have to be purchased/taken up upon
expiration of period of said shares purchased whether or not there is unrestricted retained
earnings
3.
c.
Treasury Stocks stocks previously issued and fully paid for and reacquired by the
corporation through lawful means (purchase, donation, etc.)
1.
9.
Exceptions where holders of non-voting shares may vote:
1.
a.
amendments of articles of incorporation
2.
b.
adoption/amendment of by-laws
3.
c.
increase/decrease of bonded indebtedness
4.
d.
increase/decrease of capital stock
5.
e.
sale/disposition of all/substantially all corporate property
6.
f.
merger/consolidation of corporation
7.
g.
investment of funds in another corporation/another business purpose
8.
h.
corporate dissolution
1.
10. Preferred Cumulative Participating Share of Stock share entitling its holder to preference
in the payment of dividends ahead of common stockholders and to be paid the dividends ahead
of common stockholders and to be paid the dividends due for prior years and to participate
further with common stockholders in dividend declarations
1.
11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock stock
deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain
conditions usually payment of full subscription price
1.
12. Over-issued Stock stock issued in excess of authorized capital stock; null and void
1.
13. Watered Stock stock issued gratuitously, money/property less than par value, services
less than par value, dividends where no surplus profits exist
1.
14. Certificate of Stock written acknowledgment by the corporation of the stockholders
interest in the corporation. It is the personal property and may be mortgaged/pledged.
Transfer binds the corporation when it is recorded in the corporate books. A stockholder who
does not pay his subscription is not entitled to the issue of a stock certificate. The total par
value of the stocks subscribed by him should first be paid.
1.
15. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered
in corporate books to bind third parties because corporate books only cover absolute transfers.
But the pledgee/mortgagee may not have voting rights unless stated in the contract and
registered in the corporate name.
1.
16. Methods of Collection of Unpaid Subscription
1.
a.
call, delinquency and sale at public auction of delinquent shares
2.
b.
ordinary civil action
3.
c.
collection from cash dividends and other amounts due to stockholders if allowed
by by-laws/agreed to by him
71
1.
1.
1.
1.
How to organize?
1.
a.
adoption of by-laws
2.
b.
election of Board of Directors
3.
c.
election of officers
But from issuance of certificate, it acquires juridical personality
1.
1.
1.
1.
1.
1.
1.
1.
21. Merger one corporation absorbs the other and remains in existence while the other is
dissolved
22. Consolidation a new corporation is created and the consolidating corporations are
extinguished
23. Theory of General Capacity a corporation is said to hold such powers as are not
prohibited/withheld from it by general law
24. Theory of Special Capacity the corporation cannot exercise powers except those
expressly/impliedly given
25. Concession Theory a group of persons wanting to create a corporation will have to
execute documents and comply with requirements set by the state before being given corporate
personality; merely a privilege; state may provide causes for which the privilege may be
withdrawn
26. Acts requiring majority vote of stockholder:
1.
a.
filing of issue value of no par value share
2.
b.
adoption, amendment, repeal of by-laws
3.
c.
compensation and other per diems for directors
27. Where similar acts have been approved by the directors as a matter of general practice,
custom and policy, the general manager may bind the company even without formal
authorization of the board of directors
28. Powers of stockholders:
72
1.
1.
1.
1.
1.
a.
a direct participation in management where his vote is needed to approve
certain corporate actions
2.
b.
indirect participation in management to vote or remove directors
3.
c.
proprietary rights
4.
d.
remedial rights
29. Voting Trust Agreement an agreement between a group of stockholders and trustee for a
term not exceeding 5 years in which control over the stocks is lodged in the trustee. The
purpose is for controlling the voting.
1.
a.
in writing, notarized and filed with the SEC and the corporation
2.
b.
period not exceeding 5 years
3.
c.
cannot be entered into to circumvent the laws against monopolies, illegal
combinations in restraint of trade in fraud
30. Cumulative Voting the number of votes that a shareholders number of shares multiplied
by the number of directors may give all said votes to one candidate or he may distribute them as
he may deem fit. Cumulative voting is a matter of right in a stock corporation. In a non-stock
corporation, it cannot be utilized unless allowed by the by-laws/articles
31. The power of removal of directors that may be exercised with or without cause cannot
apply to the director representing the minority shareholders. He may only be removed with
cause.
32. General Rule: If surplus profits exceed the requirements the corporation shall declare
dividends. This is compulsory if the surplus is equal/or more than the paid-up capital.
Exceptions:
1.
2.
3.
1.
a.
justified by approved expansion projects
b.
prohibited by creditor to declare dividends
c.
retention is necessary under existing circumstances
33. Business Judgment Rule decisions made by a corporations management body shall not
be interfered with even by the courts unless such acts are oppressive/unconscionable as to
violate the rights of the minority
1.
34. Individual Suit one brought to assert a right of a stockholder peculiar to himself
1.
35. Representative Suit brought by the stockholder in his own behalf and in behalf of other
stockholders similarly situated, having common cause against the corporation
1.
36. Derivative Suit brought by a stockholder for and in behalf of the corporation to
protect/vindicate corporate rights after he has exhausted intra-corporate remedies
Requisites:
1.
2.
3.
a.
cause of action in favor of the corporation
b.
refusal of corporation to sue
c.
injury to the corporation
Although corporations dissolved have 3 years to wind up, they can convey their properties to a
trustee who can continue the suit beyond the 3 year period. The lawyer who handled the case
73
in the trial court may be considered as trustee for the dissolved corporation with respect to the
matter in litigation only even if no appointment was extended to him. (Selano vs. CA)
In a case filed before dissolution, it may continue even beyond the 3 year period until final
determination of litigation. Otherwise, the corporation in liquidation would lose what justly
belongs to them/be exempt from payment of obligations because of a technicality.
1.
37. Foreign Corporations
1.
a.
Doing Business continuity of commercial dealings incident to prosecution of
purpose and object of the organization. Isolated, occasional or casual transactions do not
amount to engaging in business. But where the isolated act is not incidental/casual but
indicates the foreign corporations intention to do other business, said single act
constitutes engaging in business in the Philippines
2.
b.
Instances when unlicensed foreign corporations can sue:
(1)
isolated transactions
(2)
(3)
(4) license subsequently granted enables foreign corporation to sue on contracts executed
before the grant of the license
(5)
(6)
1.
1.
(1)
(2) intra-corporate disputes and with the state in relation to their franchise and right to exist as
such
(3)
74
(4)
1.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
a.
b.
2.
1.
2.
3.
4.
5.
6.
7.
1.
8.
3.
1.
2.
3.
4.
5.
6.
exempt securities
securities emanating from exempt transactions
Exempt Securities
a.
issued by the government subdivisions/instrumentalities
b.
issued by foreign government which the Philippines has diplomatic relations
c.
issued by receiver/trustee of an insolvent approved by the court
d.
issued by building and loan association
e.
issued by receiver/trustee of an insolvent approved by the court
f.
policy of insurance issued by insurance corporation supervised by the insurance
commission
g.
security/right/interest in real property including subdivision lot/condominium
supervised by the Ministry of Human Settlements
h.
pension plans regulated by BIR/Insurance Commission
Exempt Transactions
a.
judicial sale by execution, etc. in insolvency
b.
sale of pledged property/foreclosed property to liquidate an obligation
c.
isolated transactions on securities done by owner/agent
d.
stock transfers emanating from mergers and consolidations
e.
pre-incorporation subscription
f.
securities issued by public service operator to broaden equity base
75
1.
1.
1.
4.
1.
2.
3.
4.
5.
5.
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
6.
76
4.
1.
2.
1.
2.
1.
3.
1.
2.
3.
1.
4.
4.
1.
2.
3.
1.
1.
4.
5.
1.
2.
3.
4.
5.
6.
1.
2.
3.
d.
speeches, lectures, sermons, addresses and dissertations, pronounced or
rendered in courts of justices or nay administrative agencies in deliberative assemblies
and meetings of public character
Fair Use of a Copyrighted Work is not Infringement
a.
for criticism, comment, news reporting, teaching, research, scholarship, and
similar purposes
b.
decompilation: the reproduction of the code and translation of the forms of the
computer program with other programs
Factors to Consider in Determining Fair Use:
a.
purpose and character of the use, including whether such use is of a commercial
nature or for no profit or educational purposes
b.
nature of the copyrighted work
c.
amount and substantiality of the portion used in relation to the copyrighted
work as a whole
d.
effect of use upon the potential market for a value of the copyrighted work
Terms of the Protection
a.
copyrighted work: lifetime of creator plus 50 years after death (to be computed
st
on the 1 day of January of the year following the death)
b.
performances not incorporated in recordings: 50 years from end of year in
which the performance took place
c.
sound or image and sound recordings and performances incorporated therein: 50
years from end of the year in which the recording took place
d.
broadcasts: 20 years from the date the broadcast took place
Remedies for Infringement
a.
injunction
b.
actual damages, including legal costs and other expenses, as he may have
incurred due to the infringement as well as the profits the infringer may have made due
to such infringement
c.
impounding of articles during pendency of the action
d.
destruction of all infringing copies and/or devices
e.
moral and exemplary damages
Criminal Penalties
a.
imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first
offense
b.
imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to
P500,000 for the 2nd offense
c.
imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to P1,000,000
rd
for the 3 /subsequent offenses
7.
1.
Presumptions:
a.
Presumption of copyright in the work of other subject matter to which the
action related
77
2.
3.
1.
8.
arose.
b.
Plaintiff is presumed to be the owner of the copyright
c.
The natural person whose name is indicated on a work in the usual manner as
the author shall, in the absence of proof to the contrary, be presumed to be the author of
the work. This is applicable even if the name is a pseudonym, where the pseudonym
leaves no doubt as to the identity of the author.
Prescription: No damages may be recovered after 4 years from time the cause of action
Patents
1.
1.
Patentable Inventions any technical solution of a problem in any field o human activity
that is new, involve an inventive step and is industrially applicable shall be patentable. It may
be or may relate to as product, or process or an improvement of any of the foregoing.
1.
2.
Non-Patentable Inventions
1.
a.
discoveries, scientific theories and mathematical methods
2.
b.
schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers
3.
c.
methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body
Exception: products and composition for use in any of these methods
1.
d.
plant varieties or animal breeds or essentially biological process for the production of
plants and animals
1.
e.
f.
3.
1.
2.
3.
4.
aesthetic creations
contrary to public order or morality
Requisites of Patentability
a.
new, novelty
b.
involves an inventive step;
c.
is industrially applicable
Novelty
The novelty requirement in the Code is absolute. Thus, an invention is not considered new if it
forms part of a prior art. A prior art consists of:
1.
a.
anything which has been made available to the public anywhere in the world before the
filing date or the priority date of the application, or
2.
b.
the whole contents of an application for a patent, utility model, or industrial design
registration, published in the IPO gazette, filed or effective in the Philippines, with a filing or
priority date that is earlier than the filing or priority date of the application, provided that the
application which has validly claimed the filing date of an earlier application (priority date) is
prior art with effect as of the filing date of such earlier application, and provided further, that
the applicant and the inventor identified in both applications are not one and the same
78
1.
5.
Inventive Step an invention involves an inventive step, if having regard to the prior art,
it is not obvious to a person skilled in the art at the time of the filing date of priority date of the
application claiming the invention
1.
6.
Industrial Applicability an invention is considered industrially applicable if it can be
produced and used in the industry
1.
7.
The First-to-File System if 2 or more persons have made the invention separately and
independently of each other, the right to the patent belongs to the person who filed an
application for such invention, or where 2 or more applications are filed for the same invention,
the right of the patent belongs to the person who has the earliest filing date or the earliest
priority date
Under this system, the patent is granted to the inventor who filed his patent application earlier
than others thus simplifying the determination of who is entitled to own the patent.
The First-to-File System increases the rights of the inventor by:
1.
2.
a.
guaranteeing the confidentiality of the application prior to its publication
b.
giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
3.
c.
expanding the rights of the inventor to institute cancellation proceedings for the
duration of the term of the patent. Cancellation proceedings may be filed at any time during
the term of the patent.
Under this system, the applicant declared by final court order as having the right to the patent
may:
1.
2.
3.
4.
1.
a.
b.
c.
d.
8.
prosecute the application as his own application in place of the original applicant
file a new patent application in respect of the same invention
request that the application be refused or
seek the cancellation of the patent, if one has already been issued
What is the difference between novelty in patents and originality in copyright?
Novelty in Patents even if you do not know of any previous creation, as long as a patent on the
same creation has already been published anywhere in the world, you cannot claim novelty. No
access tot he other creation is no defense.
Originality in Copyright even if there is same creation, as long as you do not copy your own
creation, it is still considered an original creation. No access to the previous creation is a
defense.
1.
9.
Non-Prejudicial Disclosure
The disclosure of information contained in the application during the 12 months preceding the
filing date or the priority date of the application shall not prejudice the applicant on the ground
79
of lack of novelty if such disclosure was made by (a) inventor; (b) a patent office and the
information was contained
1.
1.
10. Term of Patent 20 years from the filing date of the application
11. Grounds for Compulsory Licensing:
1.
a.
national emergency or other circumstances of extreme urgency
2.
b.
where public interest, national security, health or the development of other
vital sectors of the national economy as determined by the appropriate agency of the
government so requires
3.
c.
where a judicial or administrative body has determined that the manner of
exploitation by the owner of the patent or his licensee is anti-competitive
4.
d.
in case of public non-commercial use of the patent by the patentee, without
satisfactory reason
5.
e.
if not being worked in the Philippines on a commercial scale
1.
12. In case of Compulsory Licensing of Patents involving Semi-conductor Technology, the
license may be granted only in case of public non-commercial use or to remedy a practice
determined after judicial or administrative process to be anti-competitive
1.
13. Utility Models an invention qualifies for registration as a utility model if it is new and
industrially applicable
14. Term Protection 7 years after the filing date of application without possibility of renewal
15. Industrial Design any composition of lines or colors or any 3 dimensional form, whether
or not associated with lines or colors
16. Term of Protection 5 years from filing date of application, renewable for not more than 2
consecutive periods of 5 years each
Insolvency Law
1.
1.
Distinguish Suspension of Payment and Insolvency
Suspension of Payment
Insolvency
80
1.
2.
Fraudulent Preference any act of insolvent which gives rise/has tendency to give
preference to a creditor to the assets of the insolvent prejudicial to the right of other creditors
of said insolvent
1.
3.
Effect on Actions Upon Adjudication of Insolvency
1.
a.
suits pending in court
(1)
(2)
(3)
1.
1.
b.
4.
1.
2.
3.
4.
5.
6.
suit not yet filed cannot be filed anymore, but claims may be presented to assignee
Debts and Obligations not Affected by Discharge of Insolvent
a.
assessments due to national and local government
b.
debts due to fraud/embezzlement
c.
debts in which he is bound solidarily
d.
alimony
e.
corporate debts
f.
debts not included in the schedule submitted by debtor
81
3.
c.
persons constituting the mortgage have the free disposal of the property and in
the absence thereof, they be legally authorized for the purpose
4.
d.
recorded to bind 3rd persons
1.
10. Formal Requisites of CM:
1.
a.
substantial compliance with form in Sec. 5 of CML
2.
b.
signed by at least 2 witnesses
3.
c.
must contain an affidavit of good faith
4.
d.
certificate of oath (notarial acknowledgment)
1.
11. Affidavit of Good Faith where the parties severally swear that the mortgage is made for
the purpose of securing the obligation specified and for no other purpose and that the same is a
just and valid obligation and not one entered into for fraud
- property given in CM must be described to enable the parties or any other person after
reasonable inquiry and investigation to identify it
1.
12. Future property may not be covered by CM but when such property is a:
1.
a.
renewal of, or in substitution for goods on hand when the mortgage was
executed, or
2.
b.
purchased with proceeds (not of your own money) of said goods, said property
may be covered by CM
1.
13. Criminal Acts removal of chattel to another city or province without written consent of
mortgagee, selling property already pledged, or mortgaged without written consent of
mortgagee
1.
14. A chattel mortgage may be foreclosed judicially or extra-judicially, in the latter case,
before a notary or sheriff, or creditor or mortgagee when stipulated, even without need of
notice (when mortgagee forecloses)
Reference:
Commercial Law Memory Aid
Ateneo Central Bar Operations 2001
Posted in Commercial Law
2 Comments
Tags: Commercial Law Reviewer - Ateneo
Addendum to Sectrans
DEC 19
Posted by Magz
ADDENDUM TO SECTRANS
82
third persons not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property
in case of pledge, the thing pledged must be delivered to the creditor or to a third
person by common agreement
83
6.
7.
8.
PLEDGE
MORTGAGE
Constituted on movables
Constituted on immovables
rd
rd
rd
84
2.
3.
4.
1.
2.
3.
3.
4.
5.
6.
7.
when several things are pledged or mortgaged, all of them are liable for the totality of
the debt. Creditor does not have to divide his action by distributing the debt, among the various
things pledged or mortgaged
the debtors heir who has paid a part of the debt cannot ask for the proportionate
extinction of the pledge or mortgage nor can the creditors heir who has received his share of
the debt return the pledge or cancel the mortgages if the debt is not yet completely satisfied
EXCEPTIONS to the rule of INDIVISIBILITY:
where each one of several things guarantees determinate portion of credit
where only portion of loan was released
where there was failure of consideration
rule that real property, consisting of several lots should be sold separately, applies to sales in
execution, and not to foreclosure of mortgages
the mere embodiment of a real estate mortgage and a chattel mortgage in one document does
not have the effect of fusing both securities into an indivisible whole
contract of pledge or mortgage may secure all kinds of obligation, be they pure or subject to a
suspensive or resolutory condition
a promise to constitute pledge or mortgage creates no real right, only a personal right biding
upon the parties, only right of action to compel the fulfillment of the promise but there is no
pledge or mortgage yet
under RPC, estafa is committed by a person who, pretending to be the owner of any real
property, shall convey, sell, encumber or mortgage the same knowing that the real property is
encumbered shall dispose of the same as unencumbered. It is essential that fraud or deceit be
practiced upon the vendee at the time of the sale.
all movables within commerce of men may be pledged as long as susceptible of possession
incorporeal right, evidenced by:
negotiable instruments;
bills of lading;
shares of stock;
bonds;
warehouse receipts ;and
similar documents
may be pledged. The instruments pledged shall be delivered to the creditor and if negotiable,
must be indorsed.
85
4.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
5.
6.
7.
8.
9.
pledge shall take effect against 3rd persons only if the ff appears in a public instrument:
description of the thing pledged
date of the pledge
shall take care of the thing pledged with the diligence of a good father of a family.
has the right to the reimbursement of the expenses made for its preservation is liable for its
loss or deterioration by reason of fraud, negligence, delay or violation of the terms of the
contract, and not due to fortuitous event
may bring the actions which pertain to the owner of the thing in order to recover it from, or
defend it against a 3rd person
cannot use the thing without the authority of the owner, and if he should do so, or misuse the
thing, the owner may ask that it be judicially or extra-judicially deposited.
may use the thing if it is necessary for the preservation of the thing
may either claim another thing in pledge or demand immediate payment of the principal
obligation if he is deceived on the substance or quality of the thing.
cannot deposit the thing pledged with a third person, unless there is a stipulation authorizing
him to do so
is responsible for the acts of his agents or employees with respect to the thing pledged.
has no right to use the thing or to appropriate the fruits without the authority of the owner
can apply the fruits, income , dividends or interest earned or produced by the thing pledged to
the payment of the interest, and thereafter to the principal of his credit. Unless there is
stipulation to the contrary, the interest and earnings of the right pledged and in case of animals,
their offsprings are included in the pledge.
may cause public sale of the thing pledged if, without fault on his part, there is danger of
destruction, impairment or diminution in value of the thing. The proceeds of the auction shall be
a security for the principal obligation.
has the responsibility for flaws of the thing pledged.
cannot ask for the return of the thing against the will of the creditor, unless and until he has
paid the debt and its interest, with expenses in a proper case
is allowed to substitute the thing which is in danger of destruction or impairment without any
fault on the part of the pledgee, with another thing of the same kind and quality
may require that the thing be deposited with a 3rd person if through the negligence or willful
act of the pledgee the thing is in danger of being lost or impaired
thing pledged may be alienated by the pledgor or owner only if with the consent of the
pledgee. Ownership of the thing pledged is transmitted to the vendee or transferee as soon as
the pledgee consents to the alienation, butt he latter shall continue in possession
contract of pledge gives right to the creditor to retain the thing in his possession or in that of a
third person to whim it has been delivered, until the debt is paid
creditor :
pledgee:
pledgor :
Extinguishment of Pledge
If the thing pledged is returned by the pledgee to the pledgor or owner, pledge is extinguished
86
A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to
extinguish. For t his purpose, neither the acceptance by the pledgor o owner, nor the return of
the thing pledged is necessary, the pledgee becoming a depositary.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or
owner, there is prima facie presumption that the thing has been returned by the pledgee
If the thing is in the possession of 3rd person who has received it from the pledgor or owner
after the constitution of the pledge, there is prima facie presumption that the thing has been
returned by the pledgee.
The pledgee may appropriate the thing if after the first and second auctions, the thing
is not sold.
Pledgor or owner shall have a better right if he should offer the same terms as the
highest bidder
Pledgee may also bid, but his offer shall not be valid if he is the only bidder. All bids at
the public auction shall ofer to pay the purchase price at once. BIDS MUST BE FOR CASH. If any
other bid is accepted, the pledgee is deemed to have received the purchase price, as far as the
pledgor or owner is concerned.
Effect of the Sale of the Thing Pledged
1.
extinguishes the principal obligation whether the price of the sale is more or less than the
amount due
2.
if the price is more than amount due, the debtor is not entitled to the excess unless the
contrary is provided
3.
if the price of the sale is less, neither is the creditor entitled to recover the deficiency.
Contrary stipulation is void.
After public auction, the pledgee shall promptly advise the pledgor or owner of the result.
Any third person who has any right in the thing may satisfy the principal obligation as soon as
the latter becomes due and demandable.
The right of choice given to the pledgee as to which of the things pledged he shall cause to be
sold is limited only by stipulation. After sufficient property has been sold to satisfy the
obligation plus interest and expenses, no more shall be sold.
A 3rd person who is not a party to the principal obligation may secure the latter by pledging his
own property. He has the same as a guarantor and he cannot be prejudiced by any waiver of
defense by the principal obligor
Legal Pledges:
1.
Necessary expenses shall be refunded to every possessor, but only possessor in good faith may
retain the thing until he has been reimbursed.
Useful expenses shall be refunded only to the possessor I n good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
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amount of the expenses or of paying the increase in value which the thing may have acquired and
by reason thereof (art 546)
1.
He who has executed work upon a movable has a right to retain it by way of pledge until he is
paid. (art 1731)
2.
The agent may retain the things which are the objects of agency until the principal effects the
reimbursement and pays the indemnity. (art 1914)
3.
The laborers wages shall be a lien on the goods manufactured or the work done (art 1707).
Special Laws apply to pawnshops and establishment which are engaged in making loans secured by
pledges. Provisions of the Civil Code shall apply subsidiarily.
REAL MORTGAGE (Arts. 2124-2131) It is a contract whereby the debtor secures to the creditor
the fulfillment of a principal obligation, specially subjecting to such security immovable property
or real rights over immovable property in case the principal obligation is not complied with at the
time stipulated.
Objects of Real Mortgage
1.
immovables
2.
alienable real rights in accordance with the laws, imposed upon immovables
* future property cannot be object of mortgage.
Important Points:
1.
As a general rule, the mortgagor retains possession of the property he may deliver said
property to the mortgagee without altering the nature of the contract of mortgage.
2.
It is not an essential requisite that the principal of the credit bears interest, or that the
interest as compensation for the use of the principal and the enjoyment of its fruits be in the
form of a certain percent thereof.
Kinds of Mortgage:
1.
voluntary
2.
legal
3.
equitable one which, although it lacks the proper formalities of a mortgage shows the
intention of the parties to make the property as a security for a debt
(provisions governing equitable mortgage arts 1365, 1450, 1454, 1602, 1603, 1604 and 1607).
Essential Requisites of Mortgage
1.
constituted to secure the fulfillment of a principal obligation
2.
pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged
3.
the persons constituting the pledge or mortgage have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose
4.
cannot exist without a valid obligation
5.
when the principal obligation becomes due, the thing in which the pledge or mortgage consists
may be alienated for the payment to the creditor.
6.
appears in a public document duly recorded in the Registry of Property to be validly constituted
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*legal mortgage the persons in whose favor the law establishes a mortgage have on other right
than to demand the execution and the recording of the document in which the mortgage is
formalized.
Incidents of Registration of Mortgage
1.
Mortgagee entitled to registration of mortgage as a matter of right
2.
Proceedings for registration do not determine validity of mortgage or its effect
3.
Registration is without prejudice to better right of third parties
4.
Mortgage deed once duly registered forms part of the records for the registration of the
property mortgaged
5.
Mortgage by surviving spouse of his/her undivided share of conjugal property can be registered.
Effect of Invalidity of Mortgage on principal obligation:
1.
principal obligation remains valid
2.
mortgage deed remains as evidence of a personal obligation
Effect of Mortgage:
1.
creates real rights, a lien inseparable from the property mortgaged, enforceable against the
whole world
2.
creates merely an encumbrance
Extent of Mortgage
a. the natural accessions
b.to the improvements,
1.
2.
c. growing fruits
the rents or income not yet received when the obligation becomes due,
e. to the amount of the indemnity granted or owing to the proprietor from the insurers of the
property,
1.
f. in virtue of expropriation for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the possession of the mortgagor, or
it passes into the hands of a third person.
Important Points:
1.
Stipulation in mortgage contract including after-acquired properties is valid.
2.
Attachment of lien is retroactive
3.
Stipulation is necessary for mortgage to secure future advancements
Mortgage is a continuing security until the full amount of advances are paid.
4.
Mortgage credit may be alienated or assigned to a third person, in whole or in part, with the
formalities required by law.
a. Alienation or assignment is valid even if not registered. Registration is necessary only to affect
3rd persons.
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5.
Creditor may claim from a 3rd person in possession of the property the payment of the part of
the credit secured by the property
6.
Stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
both should be distinguished from execution sale which is governed by Rule 39 of the Rules of
Court
Judicial Foreclosure (governed by Rule 68 of Rules of Court)
1.
May be availed of by bringing an action in the proper court which has jurisdiction over the area
wherein the real property involved or apportion thereof is situated
2.
If the court finds the complaint to be well-founded, it shall order the mortgagor to pay the
amount due with interest and other charges within a period of not less than 90 days nor more
than 120 days from the entry of judgment.
3.
If the mortgagor fails to pay at time directed, the court, upon motion, shall order the property
to be sold to the highest bidder at a public auction.
4.
Upon confirmation of the sale by the court, also upon motion, it shall operates to divest the
rights of all parties to the action and to vest their rights to the purchaser subject to such rights
of redemption as may be allowed by law
5.
Before the confirmation, the court retains control of the proceedings.
6.
The proceeds of the sale shall be applied to the payment of the:
a. Costs of the sale;
b.Amount due the mortgagee;
1.
90
3.
4.
5.
6.
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1.
2.
3.
remedy of mortgagee to obtain possession is to bring a civil action either to recover possession
as a preliminary step to the sale or to obtain judicial foreclosure.
Right of Redemption
1.
may be exercised within 1 year from and after the date of registration of the certificate of sale
with the appropriate Registry of Deeds.
2.
if no redemption is made within prescribed period, the purchaser has the absolute right to a
writ of possession which is the final process to consummate extrajudicial foreclosure
3.
effect of seasonable redemption is not to recover ownership which was never lost but the
elimination from his title the lien created by the levy or attachment.
4.
sale by the mortgagor to a 3rd person during redemption period transfers only the right to
redeem the property and the right to possess, use and enjoy the same during said period.
5.
if sale to a 3rd person is not registered and made without the consent of the mortagee, buyer
was not validly substituted as a debtor thus has no right to redeem
6.
if extrajudicial foreclosure if effected with fraud, it is null nad void ab initio.
CHATTEL MORTGAGE (Arts. 2140-2141) It is a contract by virtue of which a personal property is
recorded in the Chattel Mortgage Register as security for the performance of an obligation.
Note: If the movable, instead of being recorded is delivered to the creditor, it is pledge and
not chattel mortgage.
CHATTEL MORTGAGE
PLEDGE
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3.
After the sale at public auction, the right of redemption is no longer available to the
mortgagor.
- No deficiency judgment can be asked and any agreement to the contrary shall be void
3.
exempt property:
1.
2.
3.
present property
family home (Arts 152, 153 & 155, NCC)
right to receive support as well as money or property obtained by such support shall not be
levied upon on attachment or execution (Art 205, NCC)
4.
Sec 13, Rule 39, Rules of Court
5.
Sec 118, the public Land Act,( CA No. 141, as amended)
1.
future property
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- a debtor who obtains a discharge from his debts on account of insolvency, is not liable for the
unsatisfied claims of his creditors with said property (Secs. 68 & 69, Insolvency Law, Act No. 1956
1.
2.
3.
if there is co-ownership, and one of the co-owners is the insolvent debtor, his undivided share
or interest in the property shall be possessed by the assignee in insolvency proceedings because
it is part of his assets
5.
property held by the insolvent debtor as a trustee of an express or implied trust, shall be
excluded from the insolvency proceedings.
Classification of Credits
1. Special preferred credits (Arts 2241 & 2242 of NCC)
a. considered as mortgages or pledges of real or personal property or liens within the purview of
legal provisions governing insolvency
b.taxes due to the State shall first be satisfied
2. Ordinary preferred credits (Art 2244)
- preferred in the order given by law
3. Common credits (Art 2245)
-
credits of any other kind or class, or by any other right or title not comprised in Arts 2241-2244
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4.
If there are 2 or more credits with respect to the same specific real property or real rights,
they shall be satisfied pro rata, after the payment of the taxes and assessment of the taxes and
assessments upon the immovable property or real right.
5.
The excess, if any, after the payment of the credits which enjoy preference with respect to
specific property, real or personal, shall be added to the free property which the debtor may
have, for the payment of other credits.
6.
Those credits which do not enjoy any preference with respect to specific property, and those
which enjoy preference, as to the amount not paid, shall be satisfied according to the following
rules:
common credits referred to in Art 2245 shall be paid pro rata regardless of dates.
Reference:
Security Transactions Memory Aid
Ateneo Central Bar Operations 2001
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