CODE OF COMMERCE

COMMERCE - branch of human activity; purpose is to bring products to the consumer

through operations habitually and with intent of gain
- bringing products from the manufacturers to the consumers
COMMERCIAL LAW - branch of private law which regulates the juridical relations
arising from commercial acts
CHARACTERISTICS OF COMMERCIAL LAW:
1. universal
2. uniform
3. equitable
4. customary
5. progressive
PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:
1. merchants; book of merchants and general provision of contracts
2. joint account association
3. commercial barter
4. transfers of non-negotiable credits
5. commercial contracts of overland transportation
6. letters of credit
7. maritime commerce
OTHERS:
1. Characteristics of Commerce:
a. habituality
b. rapidity - if period is fixed, debtor in delay without need of demand; if contract
does not fix period, 10 days
c. intent to join
3. Merchant:

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

commerce
b. Juridical Persons - commercial and industrial company organized in accordance
with law, habitually engaged in business
4. General Rule:
Minors cannot engage in commerce
Exceptions:
a. to continue business of deceased parents through guardian
b. court authorizes guardian to place minor and property in business
c. minor is an alien and his national law allows him to be a merchant
5. Which persons are not allowed to engage in commerce?
a. suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion
temporal)
b. those judicially declared insolvent until they can obtain their discharge
c. prohibited by Constitution and special laws
6. Aliens
a. capacitated under his national law to engage in business
b. engaged in the business in the Philippines not reserved for the Filipinos
c. after securing license and BOI certificate
7. Family Code: Either spouse may engage in business; when objected to by the
other, court will look into valid grounds, i.e. serious and moral grounds
8. BOI Certificate must be obtained by:
a. alien
b. foreign firm
9. Meaning of Philippine National
a. citizen
b. domestic corporation wholly owned and organized by Filipinos in the Philippines
c. Filipino corporation where Filipino capital entitled to vote is at least 60%

10. Query: If a corporation is a shareholder of another corporation, how do you

determine whether the latter corporation is a Filipino national?
Answer: The following must concur a. At least 60% of the outstanding capital stock and entitled to vote of both
corporations are held by citizens of the Philippines
b. At least 60% of the Board of Directors of both corporations are Filipinos
11. Tenor of BOI Certificate
a. Business or activity to be engaged is consistent with the Investment Priorities
Plan
b. Business will contribute to the sound and balanced development of the national
economy in a self-sustaining basis
c. Business will not conflict with the Constitution and local laws
d. Business is not adequately exploited by Filipino nationals
e. No danger of monopolies/combinations in restraint of trade
12. Basic Principles/Conditions laid down by BOI
a. resident agent of foreign firm is a Filipino citizen
b. establishment of office in the Philippines
c. bringing assets tot he Philippine office as capital
d. complete set of accounting records
13. Merger and Consolidation subject to BOI requirements for the issuance of
certificate:
When merger and consolidation result in ownership and control of non-Filipino nationals
over more than 40% of the capital of a consolidated corporation.
14. SEC License issued upon compliance with the following requirements:
a. proof of compliance with principle of reciprocity
b. BOI certificate
c. Applicant for license gives required information
articles of incorporation
by-laws

names and addresses of resident agents

principal place of business in the Philippines

d. proof of solvency
e. deposit acceptable securities to protect future creditors

LETTERS OF CREDIT
1. Kinds:
a. Commercial Letters of Credit
b. Travelers Letters of Credit
2. No protest required in case of dishonor.
3. Issued to definite persons and not to order, thus, non-negotiable.
4. Limited to a fixed account.

BULK SALES LAW

1. Purpose: meant to protect creditors of businessmen against preferential or
fraudulent transfers
2. The law covers all transactions, whether done in good faith or not, or whether or not
the seller is in a state of insolvency, that fall within the description of what is a bulk
sale.
3. Types of transactions which are treated as bulk sales:
a. Sale, transfer, mortgage or assignments of a stock of goods, wares,
merchandise, provisions, or materials otherwise than in the ordinary course of
trade;
b. Sale transfer, mortgage or assignments of all, or substantially all, of the business
of the vendor, mortgagor, transferor, or assignor;
c. Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures
and equipment used in the business of the vendor, mortgagor, transferor, or
assignor.
4. Only creditors at the time of the sale in violation of the law are within the protection of
the laws and creditors subsequent to the sale are not covered.

5. Even if the transaction falls within the definition of bulk sale, the following
are not deemed covered by the law:
a. If the vendor, mortgagor, transferor or assignor produces and delivers a written
waiver of the provisions of the law from his creditors as shown by verified
statements;
b. The law does not apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process.
6. Obligations when transaction is a bulk sale:
a. The vendor must deliver to such vendee a written statement of:
names and addresses of all creditors to whom said vendor or mortgagor may
be indebted;
amount of indebtedness due or owing to each of said creditors
b. The vendor must apply the purchase money to the pro-rata payment of bona fide
claims of the creditors as shown in the verified statement.
c. The seller, at least 10 days before the sale, shall:
make a full detailed inventory of the goods, merchandise, etc., cost price of
each article to be included in the sale
notify every creditor at least 10 days before transferring possession of the
goods, of the price, terms and conditions of the sale
d. The purpose of going through the transaction must not be nominal.
7. Consequences of Violation of Requirements under #6 above stated:
a. When 6(a) above is not complied with, the sale itself is void; the seller will be
criminally liable.
b. When 6(b) above is not complied with, the sale itself is also void; seller is also
criminally liable.
c. When 6(c) is not complied with, the sale is not void; no criminal and civil
consequences on the seller.
d. When 6(d) is not complied with, the transaction itself is void and seller will be
criminally liable.
The transaction is void not here not because of the Bulk Sales Law but of the
common law principle that if the price in a sale is nominal, it is not real,
making the contract void.

RETAIL TRADE NATIONALIZATION LAW

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

Certain doctrines under the Retail Trade Nationalization Law are still applicable under the
Retail Trade Liberalization Act.
R.A. 8762 repealed R.A. No. 1180, or the Retail Trade Nationalization Law.

1. Retail Trade - any act, occupation, or calling of habitually selling direct to the general
public, merchandise, commodities, or goods for consumption
Jurisprudence has held that the term retail should be associated with and limited
to goods for personal, family or household use, consumption and utilization.
The Retail Trade Nationalization Law refers to consumption goods or consumer
goods which directly satisfy human wants and desires and are needed for home and
daily life.
Excluded from the law are those goods which are considered generally raw material
used in the manufacture of other goods, or if not, as one of the component raw material,
or at least as elements utilized in the process of production and manufacturing.
2. Liberal policy of R.A. 8762: to promote consumer welfare in attracting, promoting
and welcoming productive investments that will bring down prices for the Filipino
consumer, create more jobs, promote tourism, assist small manufacturers, stimulate
economic growth and enable Philippine goods and services to become globally
competitive through the liberalization of the retail trade sector; to encourage Filipino
and foreign investors to forge an efficient and competitive retail trade sector n the
interest of empowering the Filipino consumer through lower prices, higher quality
goods, better services and wider choices.
2. Elements of What Constitutes Retail Trade:
a. The seller habitually engages in selling;
b. The sale is direct to the general public; and
c. The object of the sale is limited to merchandise, commodities or goods for
consumption.
3. Consumer goods vs. non-consumer goods:
a. The act uses the same phrase merchandise, commodities or goods for
consumption in defining retail trade as found in the old law. The Court
interpreted the old law to exclude from its coverage merchandise and goods
which are not consumer goods.

i. Consumer goods are limited to goods for personal, family or household use,
consumption and utilization. Balmaceda v. Union Carbide Philippines, Inc.
ii. A manufacturer which sells rubber products to the government, assembly
plants, industrial and commercial enterprises engaged in manufacturing and
sale of essential commodities is not engaged in retail business, but its sales to
its own officers and employees would be considered retail trade. Goodyear
Tire and Rubber Co. v. Reyes; B.F. Goodrich v. Reyes, Sr.
b. consumer goods therefore did not depend entirely on the nature of the goods,
but also required an element the purpose or use for which the goods are bought.
c. Producer goods such as tools and raw materials and intermediate goods are
excluded from the coverage. Marsman & Co., Inc. v. First Coconut Central Co.,
Inc.

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

a. Sales by a manufacturer, processor, laborer, or worker, to the general
public the products manufactured, processed or produced by him if his
capital does not exceed P100,000.00;
b. Sales by a farmer or agriculturist selling the products of his farm,
regardless of capital;
c. Sales in restaurant operations by a hotel owner or inn-keeper irrespective
of the amount of capital, provided that the restaurant is incidental to the
hotel business;
d. Sales to the general public, through a single outlet owned by a
manufacturer or products manufactured, processed or assembled in the
Philippines, irrespective of capitalization;
e. Sales to industrial and commercial users or consumers who use the
products bought by them to render service to the general public and/or
produce or manufacture goods which are in turn sold by them; or
f.

Sales to the government and/or its agencies and government-owned and

controlled corporations.

5. Rights of former natural-born Filipinos:

a. A natural-born citizen of the Philippines who has lost his Philippine
citizenship but who resides in the Philippines shall be granted the same
rights as Filipino citizens for purposes of retail trade under the Act.
b. Natural-born Filipino citizens are those who are citizens of the Philippines
from birth without having to perform any act to acquire or perfect their
citizenship.

6. Four categories of Retail Trade Enterprises, for purposes of determining who

are qualified to INVEST in retail trade in the Philippines:
a. Category A Enterprises with paid-up capital of the equivalent in
Philippine Pesos of less than US$2,500,000.00;
b. Category B Enterprises with a minimum paid-up capital of the
equivalent in Philippine Pesos of US$2,500,000.00, but less than
US$7,500,000.00, provided that in no case shall the investments for
establishing a store be less than the equivalent in Philippine Pesos of
US$30,000.00;
c. Category C Enterprises with a paid-up capital of the equivalent in
Philippine pesos of US$7,500,000.00 or more, provided that in no case
shall the investments for establishing a store be less than the equivalent
in Philippine Pesos of US$30,000.00; and
d. Category D Enterprises specializing in high-end or luxury products with
a paid-up capital of the equivalent in Philippine Pesos of US$250,000.00
per store.
i. High-end or luxury goods: goods not necessary for life
maintenance and whose demand is generated by the higher
income groups (e.g., jewelry, designer clothing, footwear,
electronics, sporting goods).
7. How Aliens may invest in retail trade. Act provides for following rules on who may
INVEST or ENGAGE in retail trade enterprises in the Philippines:
a. Citizens of the Philippines, natural-born citizens who have lost their
Philippine citizenship but who reside in the Philippines, and domestic
partnerships, associations, and corporations which are wholly-owned by
Filipino citizens, may engage directly, or invest wholly in local enterprises
that will engage in all forms of retail trade in all categories provided;
b. Other than in exempted transactions, alien individuals, foreign
partnerships, associations and corporations and foreign-owned domestic
partnerships, associations and corporations may not invest in retail trade
enterprises under Category A (paid-up capital equivalent in Pesos of less
than $2.5M) which are reserved exclusively for Filipino citizens, naturalborn citizens who have lost their Phil citizenship but who reside in
Philippines, and corporations wholly owned by Filipino citizens.
c. Foreign-owned domestic partnerships, associations and corps may, upon
registration with the SEC and DTI, or in case of foreign-owned single
proprietorships, with the DTI, may invest in retail trade enterprises as
follows:
i. Under Category B:

1. limited to not more than 60% of total equity of such retail

enterprise within the first 2 years after the effectivity of the
Act (or up to March, 2002); and
2. may wholly own such retail enterprises 2 years after
effectivity of Act (i.e., beginning April 2002);
provided that the investments for establishing a store is less
than the equivalent in Philippine Pesos of US$30,000.00;
ii. Under Category C: may wholly own, provided that investments for
establishing a store is not less than the equivalent in Philippine
Pesos of US$30,000.00; and
iii.

Under Category D: may wholly own.

8. For purposes of investment, a mere investor need not organize a corporation,

partnership, or association under Philippine laws before it may invest.
9. Apply grandfather rule to determine whether an entity is deemed foreign-owned to
qualify to engage in retail activities under Categories B, C, and D.
a. For purposes of investments, SEC rule: shares belonging to corporations
or partnerships at least 60% of the capital of which his owned by Filipino
citizens shall be considered as of Philippine nationality, but if percentage
of Fil ownership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality.
b. While a corp with 60% Filipino and 40% foreign equity ownership is
considered a Philippine national for purposes of investment, it is not
qualified to invest in or enter a joint-venture agreement with corporations
or partnerships, the ownership of which under the Constitution or special
laws are limited to Filipino citizens only.
10. Foreign Retailers
a. Implementing Rules and Regulations: an individual who is not a
Filipino citizen, or a corporation, partnership, association or entity that is
not wholly-owned by Filipinos, engaged in retail trade.
This definition seems to include even a domestic partnership or corporation
which is not wholly owned by Filipinos. When owning entity is a corporation,
apply grandfather rule.
b. Prequalification requirements before foreign retailer may engage or
invest in a retail store, all of the ff must concur:
i. Minimum net worth of
1. US$200,000,000 of the
Categories B and C; and

registrant

corporation

for

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

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

Five (5) year track record in retailing; and

iv.
Nationals from, or juridical entities formed or incorporated
in countries which allow the entity of Filipino retailers shall be
allowed to engage in retail trade in Phils.
11. Promotion of locally manufactured products:
a. For 10 years after effectivity of Act, at least 30% of the aggregate cost of
the stock inventory of foreign retailers under Category B and C, and 10%
for Category D shall be made in the Philippines.
12. Prohibited activities of qualified foreign retailers: Not allowed to engage in
certain retailing activities outside their accredited store through the use of mobile or
rolling stores or carts, the use of sales representatives, door-to-door selling,
restaurants and sari-sari stores and such other similar retail activities. Detailed list of
prohibited activities shall be formulated by DTI.
13. Anti-Dummy Law applies: Filipinos may not permit aliens to use them as nominees
or dummies to enjoy privileges reserved for Filipinos or Fil corps. See below.

ANTI-DUMMY ACT
1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies
to enjoy privileges reserved for Filipinos or Filipino corporations.
Criminal sanctions are imposed on the president, manager, board member or persons in
charge of the violating entity and causing the latter to forfeit its privileges, rights and
franchises.
2. Disqualified aliens cannot intervene in the management, operation, administration or
control of the business reserved to Filipinos whether as an officer, employee or
laborer, with or without remuneration, except when:
a. alien takes part in technical aspects;
b. provided that no Filipino can do such technical work; and
c. with express authority from the President, upon the recommendation of the
department head concerned.
3. By way of exception, the following may participate in management:

a. Aliens may be elected to the Board of Directors to the extent of their allowable
share in the capital of the corporation (in partially nationalized industries).
b. A registered enterprise may employ foreign nationals in supervisory, technical,
and advisory positions for a period of 5 years subject to extension.
c. Where majority of stocks of a pioneer enterprise is owned by foreign investors,
the following positions may be held by foreign nationals:
president
treasurer
general manager
equivalent positions
4. A Filipino common-law wife of an alien is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal
properties; however, allowing her common-law alien husband to take part in the
management of the retail business would be a violation of the law.
5. What doing business means:
a. soliciting orders, purchases, service contracts;
b. opening offices whether called liaison offices or branches;
c. appointing representatives or distributors who are domiciled in the Philippines or
who in any calendar year stay in the country for a period totaling 180 days or
more;
d. participating in the management or supervision or control of any domestic firm,
entity or corporation in the Philippines;
e. any other act or acts that imply continuity in commercial dealings
6. When commissioned merchants/investors or commercial brokers act in their own
name in selling foreign products, the foreign firm manufacturing these products is not
doing business in the Philippines.
7. When a local corporation or person acts in the name of a foreign firm, the latter is
doing business in the Philippines.
8. The following are NOT doing business:
a. mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business;
b. exercise of rights as such investor;
c. having a nominee director or officer to represent interests in such corporation;

d. appointing a representative or distributor domiciled in the Philippines which

transacts business in its own name and for its own accounts.

TRUST RECEIPTS LAW

1. Purpose:
a. to encourage use of and to promote transactions based on trust receipts;
b. to regulate the use of trust receipts
2. Definition:
A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER
whereby the latter releases the goods, documents or instruments to the possession of
the former upon the 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.
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.

NEGOTIABLE INSTRUMENTS LAW

1. Negotiable Instruments - written contracts for the payment of money; by its form,
intended as a substitute for money and intended to pass from hand to hand, to give
the holder in due course the right to hold the same and collect the sum due.
2. Characteristics of Negotiable Instruments:
a. negotiability - right of transferee to hold the instrument and collect the sum due
b. accumulation of secondary contracts - instrument is negotiated from person to
person
3. Difference between Negotiable Instruments from Non-Negotiable Instruments:
Negotiable Instruments

Non-negotiable Instruments

Contains all the requisites of Sec. 1 of thedoes not contain all the requisites of Sec. 1
NIL
of the NIL
Transferred by negotiation

transferred by assignment

Holder in due course may have better rightstransferee

than transferor
transferor
Prior parties warrant payment

acquires

rights

only

of

his

prior parties merely warrant legality of title

Transferee has right of recourse againsttransferee has no right of recourse

intermediate parties
4. Difference between Negotiable Instruments and Negotiable Documents of Title
Negotiable Instruments
Have requisites of Sec. 1 of the NIL

Negotiable Documents of Title

does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediateno secondary liability of intermediate parties

parties who are secondarily liable
Holder in due course may have rights better than transferee merely steps into the shoes of the
transferor
transferor
Subject is money

subject is goods

Instrument itself is property of value

instrument is merely evidence of title; thing of

value are the goods mentioned in the document
5. Promissory Note - unconditional promise to pay in writing made by one person to
anther, signed by the maker, engaging to pay on demand or a fixed determinable
future time a sum certain in money to order or bearer. When the note is drawn to
makers own order, it is not complete until indorsed by him. (Sec. 184 NIL)
Parties:
a. maker
b. payee
6. Bill of Exchange - unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to
order or to bearer. (Sec. 126 NIL)
Parties:
a. drawer

b. payee
c. drawee/ acceptor
7. Check - bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
8. Difference between Promissory Note and Bill of Exchange
Promissory Note

Bill of Exchange

Unconditional promise

unconditional order

Involves 2 parties

involves 3 parties

Maker primarily liable

drawer only secondarily liable

only 1 presentment - for payment

generally 2 presentments - for acceptance and

for payment

9. Distinctions between a Check and Bill of Exchange

CHECK

BOE

- always drawn upon a bank or banker

- may or may not be drawn against a bank

- always payable on demand

- may be payable on demand or at a fixed or

determinable future time

- not necessary that

acceptance
- drawn on a deposit

it

be presented for - necessary that it be presented for acceptance

- not drawn on a deposit

- the death of a drawer of a check, with - the death of the drawer of the ordinary bill of
knowledge by the banks, revokes the authority of exchange does not revoke the authority of the
the banker to pay
banker to pay
- must be presented for payment within a- may be presented for payment within a
reasonable time after its issue (6 months)
reasonable time after its last negotiation.
10. Distinctions between a Promissory Note and Check
PN

CHECK

- there are two (2) parties, the maker and the- there are three (3) parties, the drawer, the
payee
drawee bank and the payee
- may be drawn against any person, not - always drawn against a bank
necessarily a bank

- may be payable on demand or at a fixed or-always payable on demand

determinable future time
- a promise to pay

- an order to pay

11. Other Forms of Negotiable Instruments:

a. certificates of deposits
b. trade acceptances
c. bonds in the nature of promissory notes
d. drafts which are bills of exchange drawn by 1 bank to another
e. letters of credit
12. Trust Receipt - a security transaction intended to aid in the financing of importers
and retailers who do not have sufficient funds to finance their transaction and acquire
credit except to use as collateral the merchandise imported
13. Requisites of a Negotiable Note (PN): (SUDO)
It must:
a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in money
c. be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer (Sec. 1 NIL)
14. Requisites of a Negotiable Bill (BOE): (SUDOC)
It must:
a.

be in writing signed by the drawer

b.

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

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

d.

be payable to order or to bearer

e. the drawee must be named or otherwise indicated with reasonable certainty

(Sec. 1 NIL)
Notes on Section 1:

In order to be negotiable, there must be a writing of some kind, else there would
be nothing to be negotiated or passed from hand to hand. The writing may be in

ink, print or pencil. It may be upon parchment, cloth, leather or any other
substitute of paper.
It must be signed by the maker or drawer. It may consist of mere initials or even
numbers, but the holder must prove that what is written is intended as a
signature of the person sought to be charged.

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

Sum payable must be in money only. It cannot be made payable in goods,

wares, or merchandise or in property.

A drawees name may be filled in under Section 14 of the NIL

15. Determination of negotiability

a. by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof
b. by considering the whole instrument
c. by what appears on the face of the instrument and not elsewhere
*In determining is the instrument is negotiable, only the instrument itself and no other,
must be examined and compared with the requirements stated in Sec. 1.
If it appears on the instrument that it lacks one of the requirements, it is not
negotiable and the provisions of the NIL do not govern the instrument. The
requirement lacking cannot be supplied by using a separate instrument in which that
requirement which is lacking appears.
16. Sum is certain even if it is to be paid with:
a. interest
b. in installments
c. in installments with acceleration clause
d. with exchange
e. costs of collection or attorneys fees (Sec. 2 NIL)
17. General Rule: The promise or order should not depend on a contingent event. If it
is conditional, it is non-negotiable.
Exceptions:
a. indication of particular fund from which the acceptor disburses himself after
payment
b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)

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

Notes on Section 3

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

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

instrument.

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

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

a. there is a fixed period after sight/date
b. on or before a specified date/fixed determinable future time
c. on or at a fixed date after the occurrence of an event certain to happen though
the exact date is not certain (Sec. 4 NIL)
Notes on Section 4

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

19. General Rule: If some other act is required other than the payment of money, it is
non-negotiable.
Exceptions:
a. sale of collateral securities
b. confession of judgment
c. waives benefit of law
d. gives option to the holder to require something to be done in lieu of money (Sec.
5 NIL)
Notes on Section 5

Limitation on the provision, it cannot require something illegal.

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

verificatione

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

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

20. The validity and negotiability of an instrument is not affected by the fact that:
a. it is not dated
b. does not specify the value given or that any had been given
c. does not specify the place where it is drawn or payable
d. bears a seal
e. designates the kind of current money in which payment is to be made (Sec. 6
NIL)
21. Instrument is payable upon demand if:
a. it is expressed to be so payable on sight or upon presentation
b. no period of payment is stipulated
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)
Where an instrument is issued, accepted or indorsed when overdue, it is, as regards
to the person so issuing, accepting, or indorsing it, payable on demand.
Notes on Section 7
- if the time for payment is left blank (as opposed to being omitted), it may properly
be considered as an incomplete instrument and fall under the provisions of Sec. 14,
15, or 16 depending on how the instrument is delivered.
22. Instrument is payable to order:

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

to a specified person or his order

It may be drawn payable to the order of:

a. a payee who is not a maker, drawer, or drawee
b. the drawer or maker
c. the drawee
d. two or more payees jointly

e. one or some of several payees

f.

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

Notes on Section 8

The payee must be named or otherwise indicated therein with reasonable

certainty.

If there is no payee, there would be no one to indorse the instrument payable to

order. Therefore useless to be considered negotiable.

Joint payees in indicated by the conjunction and.

indorse.

Being several payees is indicated by the conjunction or.

To negotiate, all must

23. Instrument is payable to bearer :

a. when it is expressed to be so payable
b. when payable to the person named or bearer
c. payable to order of fictitious or non-existent person and this fact was known to
drawer
d. name of payee not name of any person
e. only and last indorsement is an indorsement in blank (Sec. 9 NIL)
Notes on Section 9

fictitious person is not limited to persons having no legal existence. An

existing person may be considered fictitious depending on the intention of the
maker or the drawer.

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

where the instrument is drawn, made or prepared by an agent, the knowledge or

intent of the signer of the instrument is controlling.

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

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

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

b. where acceptance of an instrument payable at a fixed period after sight is

undated (Sec. 13 NIL)
Effects:

any holder may insert the true date of issuance or acceptance

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

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

25. Subsequent Holder in Due Course not affected by the following deficiencies:
a. incomplete but delivered instrument (Sec. 14 NIL)
b. complete but undelivered (Sec. 16 NIL)
c. complete and delivered issued without consideration or a consideration
consisting of a promise which was not fulfilled (Sec 28 NIL)
26. Holder in Due Course Affected by Abnormality/Deficiency:
a. incomplete and undelivered instrument (Sec. 15 NIL)
b. maker/drawers signature forged (Sec. 23 NIL)
27. Incomplete but Delivered Instrument:
1. Where an instrument is wanting in any material particular:
a. Holder has prima facie authority to fill up the blanks therein.
b. It must be filled up strictly in accordance with the authority given and within a
reasonable time.
c. If negotiated to a holder in due course, it is valid and effectual for all purposes as
though it was filled up strictly in accordance with the authority given and within
reasonable time. (Sec. 14 NIL)
2. Where only a signature on a blank paper was delivered:
a. It was delivered by the person making it in order that it may be converted into a
negotiable instrument
b. The holder has prima facie authority to fill it up as such for any amount. (Sec. 14
NIL)

Notes on Section 14

if the instrument is wanting in any material particular, mere possession of the

instrument is enough to presume prima facie authority to fill it up.

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

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

28. Incomplete and Undelivered Instrument:

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

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

delivery is not conclusively presumed where the instrument is incomplete

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

29. Complete but Undelivered:

General Rule: Every contract on a negotiable instrument is incomplete and
revocable until delivery for the purpose of giving effect thereto. .
a. If between immediate parties and remote parties not holders in due course, to be
effectual there must be authorized delivery by the party making, drawing,
accepting or indorsing. Delivery may be shown to be conditional or for a special
purpose only
b. If the holder is a holder in due course, all prior deliveries are conclusively
presumed valid
c. If instrument not in hands of drawer/maker, valid and intentional delivery is
presumed until the contrary is proven (Sec. 16 NIL)
Rules on delivery of negotiable instruments:
1) delivery is essential to the validity of any negotiable instrument
2) as between immediate parties or those in like cases, delivery must be with intention
of passing title

3) an instrument signed but not completed by the drawer or maker and retained by him
is invalid as to him for want of delivery even in the hands of a holder in due course
4) but there is prima facie presumption of delivery of an instrument signed but not
completed by the drawer or maker and retained by him if it is in the hands of a holder
in due course. This may be rebutted by proof of non-delivery.
5) an instrument entrusted to another who wrongfully completes it and negotiates it to a
holder in due course, delivery to the agent or custodian is sufficient delivery to bind
the maker or drawer.
6) If an instrument is completed and is found in the possession of another, there is
prima facie evidence of delivery and if it be a holder in due course, there is
conclusive presumption of delivery.
7) delivery may be conditional or for a special purpose but such do not affect the rights
of a holder in due course.
30. General rule: a person whose signature does not appear on the instrument is not
liable.
Exception:
a. one who signs in a trade or assumed name (Sec. 18)
b. a duly authorized agent (Sec. 19)
c. a forger (Sec. 23)
31. General rule: an agent is not liable on the instrument if he were duly authorized to
sign for or on behalf of a principal.
Requisites:
a. he must be duly authorized
b. he must add words to his signature indicating that he signs as an agent
c. he must disclose his principal (Sec. 20 NIL)
Notes on Section 20

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

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

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

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

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

no liability attached to the infant or the corporation

the instrument is still valid and the indorsee acquires title

34. General rule:

inoperative.

a signature which is forged or made without authority is wholly

Effects:
a. no right to retain
b. no right to give a discharge
c. no right to enforce payment can be acquired. (Sec. 23 NIL)
Exception:

the party against whom it is sought to be enforced is precluded from setting up

the forgery or want of authority.
Notes on Section 23

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

Alterations such as to amounts or like fall under section 124

Forms of forgery are

a) fraud in factum

b) duress amounting to fraud

c) fraudulent impersonation

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

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

Persons who are precluded from setting up the forgery are

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

b) those who are estopped.

Persons who are precluded by warranting are

a) indorsers

b) persons negotiating by delivery

c) acceptors.

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

if 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

the drawer has no right to recover from the collecting bank

the drawee bank can recover from the collecting bank

the payee can recover from the drawer

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

the payee cannot collect from the drawee bank

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

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

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

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

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

every person whose signature appears thereon is a party for value

presumption is disputable

36. Where value has at any time been given for the instrument, the holder is deemed a
holder for value in respect to all parties who become such prior to that time. (Sec. 26
NIL)
37. Effect of want of consideration:
a. Absence or failure of consideration may be set up against a holder not a holder in
due course (personal defense)
b. Partial failure of consideration is a defense pro tanto (Sec 28 NIL)
Notes on Section 28

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

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

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

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

38. An accommodation party is one who signs the instrument as maker, drawer,
acceptor, or indorser without receiving value therefor and for the purpose of lending
his name to some other person.
Effects:
an accommodation party is liable to the holder for value notwithstanding that
such holder knew that of the accommodation. (Sec. 28 NIL)
Notes on Section 28

the accommodated party cannot recover from the accommodation party

want of consideration cannot be interposed by the accommodation party

an accommodation maker may seek reimbursement from a co-maker even in the

absence of any provision in the NIL; the deficiency is supplied by the New Civil
Code.

he may do this even without first proceeding against the debtor provided:
a. he paid by virtue of judicial demand
b. principal debtor is insolvent

39. An instrument is negotiated when:

a. it is transferred from one person to another
b. that the transfer must be in a manner as to constitute the transferee a holder
For a bearer instrument - by delivery
For payable to order - by indorsement and delivery (Sec. 30 NIL)
40. Indorsement to be valid must be:
a. written
b. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31

the paper attached with the indorsement is an allonge

an allonge must be attached so that it becomes a part of the instrument, it cannot

be simply pinned or clipped to it.

41. Kinds of Indorsements:

a. Special (Sec. 34) is one which specifies the person to whom or to whose order,
the instrument is to be payable and the indorsement of such indorsee is
necessary to the further negotiation of the instrument.
b. Blank (Sec. 35) is one which specifies no indorsee and an instrument so
indorsed is payable to bearer and may be negotiated by delivery.
c. Restrictive (Sec. 36) is one which prohibits further negotiation, constitutes the
indorsee the agent of the indorser or vests the title in the indorsee in trust for or
to the use of some other persons.
d. Qualified (Sec. 38) is one which constitutes the indorser a mere assignor of the
title to the instrument.
e. Conditional (Sec. 39 NIL) is one where the indorsement is subject to the
happening of a contingent event, that is an event that may or may not happen, or
a past event unknown to the parties.
42. Effects of indorsing an instrument originally payable to bearer:

it may further be negotiated by delivery

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

Section 40 applies only to instruments originally payable to bearer

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

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

An indorser whose indorsement is struck out is discharged

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

44. Effects of a transfer without endorsement:

the transferee acquires such title as the transferor had

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

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

45. Rights of a holder:

a holder may sue in his own name

a holder may receive payment.

Effects:

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

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

a. receives the instrument complete and regular on its face
b. became a holder before it was overdue and had no notice that it had been
previously dishonored if such was the fact
c. takes the instrument for value and in good faith
d. at time he took the instrument, no notice of infirmity in instrument or defect in the
title of the person negotiating it (Sec. 52 NIL)
Notes on Section 52

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

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

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

an instrument is considered complete and regular on its face if

a) the omission is immaterial

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

an instrument is overdue after the date of maturity.

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

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

47. A holder is not a HDC where an instrument payable on demand is negotiated at an

unreasonable length of time after its issue (Sec. 53 NIL)

48. Rights of a HDC:

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

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

equitable defenses)

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

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

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

Real Defenses

1. absence or failure of consideration

Alteration

3. want of delivery of complete instrument

Want of delivery of incomplete instrument

4. insertion of wrong date where payable at Duress amounting to forgery

a fixed period after date and issued
undated; or at a fixed period after sight
and acceptance is undated
5. filling up the blanks contrary to authorityFraud in factum or in esse contractus
given or not within reasonable time
6. fraud in inducement

Minority

7. acquisition of the instrument by force,Marriage in case of a wife

duress or fear
8. acquisition of the instrument by unlawfulInsanity where the insane person has a
means
guardian appointed by the court
8. acquisition of the instrument for an illegalUltra vires acts of a corporation where its
consideration
charter or by statue, it is prohibited from
issuing commercial paper
9. negotiation in breach of faith
10.
negotiation
amounting to fraud

under

Want of authority of agent

circumstancesExecution of instrument
enemies

between public

11. Mistake

Illegality of contract made by statue

12. intoxication
12. ultra vires acts of corporations

Forgery

13. want of authority of the agent where he

has apparent authority
14. illegality of contract where form or
consideration is illegal
15. insanity where there is no notice of
insanity
49. A instrument not in the hands of a HDC is subject to the same defenses as if it were
non-negotiable.
Exception:
Holder acquiring from holder in due course

He derived his title from a holder in due course

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

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

Rights of a holder not a HDC

may sue in his own name

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

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

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

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

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

51. A maker is primarily liable:

Effects of making the instrument, the maker:

a. engages to pay according to tenor of instrument
b. admits existence of payee and his capacity to indorse (Sec. 60 NIL)
Notes on Section 60

a makers liability is primarily and unconditional

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

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 that

a) the payee is fictional,

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

52. A drawer is secondarily liable

Effects of drawing the instrument, the drawer:
a. admits the existence of the payee,
b. the capacity of such payee to indorse
c. engages that on due presentment, the instrument will be accepted or paid or both
according to its tenor.
If the instrument is dishonored, and the necessary proceedings on dishonor
duly taken
a. the drawer will pay the amount thereof to the holder
b. will pay to any subsequent indorser who may be compelled to pay it. (Sec. 61
NIL)
Notes on Section 61

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

53. An acceptor is primarily liable

By accepting the instrument, an acceptor:

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

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

the existence of the payee and his then capacity indorse

54. Irregular Indorser - a person not otherwise a party to an instrument places his
signature in blank before delivery is liable as an indorser in the following manner:
a. if payable to order of a third person liable to the payee and to all subsequent
parties
b. if payable to order of the maker or drawer liable to all parties subsequent to the
maker or drawer
c. if payable to bearer liable to all parties subsequent to the maker or drawer
d. if signs for an accommodation party liable to all parties subsequent to the
payee (Sec. 64 NIL)
55. Warranties where negotiating by delivery or qualified endorsement:
a. the instrument is genuine and in all respect what it purports to be
b. the indorser has good title to it
c. all prior parties had the capacity to contract
d. indorser has no knowledge of any fact that would impair the validity or the value
of the instrument.
Limitations of warranties:
-if by delivery extends only to immediate transferee
-warranty of capacity to contract does not apply to persons negotiating public or
corporate securities (Sec. 65 NIL)
Notes on Section 65

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

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

liable

a qualified indorser cannot raise the defense of

a) forgery

b) defect of his title or that it is void

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

a qualified Indorsement makes the indorser mere assignor of title of instrument,

relieves him of general obligation to pay if instrument is dishonored, but he is still
liable for the warranties arising from instrument only up to warranties of general
indorser

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

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

a person Negotiating by Delivery warrants same as those of qualified indorser

and extends to immediate transferees only

56. Warranties of a general indorser:

a.

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

b. the he has good title to it

c. all prior parties had the capacity to contract
d. that the instrument at the time of his indorsement was valid and subsisting (Sec.
66 NIL)
In addition:

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

engages to pay the amount thereof if it be dishonored and the necessary

proceedings on dishonor are taken
Notes on Section 66

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

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

warranties extend in favor of

a) a HDC

b) persons who derive their title from HDC

c) immediate transferees even if not HDC

the indorser does not warrant the genuineness of the drawers signature

general indorser is only secondarily liable

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

presentation for payment production of a BOE to the drawee for his

acceptance, or to a drawee or acceptor for payment. Also presentment of a PN
to the party liable for payment of the same.

consists of

a) a personal demand for payment at a proper place

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

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

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

presentment is necessary to charge persons secondarily liable otherwise they

are discharged

Acts needed to charge persons secondarily liable:

a) presentment for payment/acceptance

b) dishonor by non-payment/non-acceptance

c) notice of dishonor to secondary parties

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

58. Proper presentment:

a. by the holder or an authorized person

b. at a reasonable hour on a business day

c. at a proper place
d. to the person primarily liable or if absent to any person found at the place where
presentment is made (sec. 72 NIL)
Notes on Section 72

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

presentment cannot be made on a Sunday or holiday

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

if the instrument is payable on demand

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

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

negotiation.

59. Presentment not required to charge the drawer:

a. he has no right to expect
b. he has no right to require
that the drawee or acceptor will pay (Sec 79 NIL)
60. Presentment not required to charge the indorser where:
a. the instrument was made or accepted for his accommodation
b. he has no reason to expect that the instrument will be paid if presented (Sec. 80
NIL)
61. General rule: Presentment for payment necessary to charge persons secondarily
liable otherwise they are discharged:
Exception:

Section 79 and 80
Notes on Section 79 and 80

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

62. Presentment for payment excused if:

a. after due diligence, presentment cannot be made
b. presentment is waived
c. the drawee is a fictitious person (Sec 82 NIL)
Notes on Section 82

what is excused is the failure to make presentment. There is no need to make

any presentment versus under section 81 (delay in presentment) presentment for
payment is still required after the cause of delay has ceased.

63. Summary of rules as to presentment for payment:

a. presentment not necessary to charge persons primarily liable
b. necessary to charge persons secondarily liable except:

the drawer under Sec. 79

the indorser under Sec. 80

when excused under Sec. 82

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

64. How dishonored by non-acceptance:

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

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

65. Effects of dishonor by non-payment:

an immediate right of recourse to all parties secondarily liable accrues to the

holder. (Sec. 84 NIL)
Notes on Section 84

parties cease to be secondarily liable and become principal debtors.

Liability becomes the same as that of the original obligors.

66. Requisites for payment in due course:

a. made at or after the maturity of the instrument

b. to the holder
c. in good faith
d. without notice of any defect in the holders title (sec. 88 NIL)
Notes on Section 88

payment must be made to the possessor of the instrument

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

67. Notice of Dishonor may be given:

a. by or on behalf or the holder
b. by or on behalf of any party who:

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

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

68. Notice:
a. may be written or oral (Sec. 96)
b. written notice need not be signed or may be supplemented by verbal
communication (Sec. 95)
c. may be by personal delivery or by mail (Sec. 96)
69. Notice may be waived either expressly or implied:
a.

before the time of giving notice has arrived

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

70. Protest may be waived:
Effects:

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

Where notice is waived, presentment is not waived

Where presentment is waived, notice is also waived

Where protest is waived, notice and presentment is waived

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

Any drawer or indorser to whom such notice is not given is

Exceptions:
a. Waiver (Sec. 109)
b. Notice is dispensed (Sec. 112)
c. Not necessary to Drawer (Sec. 114)
d. Not necessary to Indorser (Sec. 115)
- if notice is delayed, delay may be excused (Sec. 113)
72. Instances when Notice of Dishonor Not Necessary to Drawer
a. drawer and drawee same person
b. drawee is a fictitious/incapacitated person
c. drawer is the person to whom presentment for payment is made
d. drawer has no right to expect that the drawee will accept/pay the instrument
(Sec. 114 NIL)
73. Instances when Notice Not Required to Indorser
a. drawee was a fictitious/incapacitated person and the indorser was aware of such
at the time of indorsement
b. indorser is the person to whom instrument was presented for payment
c. instrument made/accepted for his accommodation (Sec. 115 NIL)
74. Omission to give notice of dishonor by non-acceptance does not prejudice a HDC
(Sec. 117 NIL)
75. Protest only necessary for a foreign bill of exchange. Protest for other negotiable
instruments is optional. (Sec. 118 NIL)

76. Causes of Discharge of the Instrument

a. payment by the debtor
b. payment by accommodated party
c. intentional cancellation by holder of instrument
d. any other act discharging a simple monetary obligation
e. debtor becomes holder of the instrument at/after maturity in his own right ( Sec
119 NIL)
Notes on Section 119

discharge of the instrument discharges all the parties thereto

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

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

payment by an accommodation party does not discharge the instrument.

77. Discharge of Secondary Parties:

a. any act discharging the instrument
b. cancellation of indorsers signature by indorsers
c. discharge of prior party
d. tender of payment by prior party
e. release of principal debtor
f.

extension of payment by the holder/postponement of right to enforce without

assent of secondary parties and without reservation of right of recourse against
secondary parties (Sec 120 NIL)

78. Rights of a party secondarily liable who pays:

the instrument is not discharged

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

the party may strike out his own and all subsequent indorsements

the party may negotiate the instrument again

Exception:

an instrument cannot be renegotiated where it is payable to order of a 3 rd person

and has been paid by the drawer

and instrument cannot be renegotiated where is was made or accepted for

accommodation and it has been paid by the party accommodated.

78. Renunciation by a holder discharges an instrument when:

a. it is absolute and unconditional
b. made in favor of a person primarily liable
c. made at or after maturity of the instrument
d. in writing or the instrument is delivered up to the person primarily liable (Sec.
122 NIL)
Notes on Section 122

if renounced in favor of a party secondarily liable, only he is exonerated from

liability and all parties subsequent to him

discharge by novation is allowed

79. General rule: When materially altered, without the consent of all parties liable, the
instrument is avoided except as against:
a. the party who has made the alteration
b. the party who authorized or assented to the alteration.
c. subsequent indorsers
Exception:

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

Notes on Section 124

there is no distinction between fraudulent and innocent alteration

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

Under Section 125 the following changes are considered material alterations:
a. dates
b. the sum payable
c. time and place of payment
d. number or relations of the parties
e. medium or currency for payment
f.

adding a place of payment where no place is specified

g. any other which alters the affect of the instrument

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

where the drawer and the drawee are one and the same

b. where the drawee is a fictitious person

c. where the drawee has no capacity to contract (Sec. 130 NIL)
The holder has the option to treat it as a BOE or a PN
82. Acceptance is the signification by the drawee of his assent to the order of the
drawer. It is an act by which a person on whom the BOE is drawn assents to the
request of the drawer to pay it. (Sec. 132 NIL)
Acceptance may be:
a. actual
b. constructive
c. general (Sec. 140)
d. qualified (Sec. 141)
Requisites of actual acceptance:

in writing

signed by the drawee

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

communicated or delivered to the holder

87. A holder has the right:

a. require that acceptance be written on the bill and if refused, treat it as if
dishonored (Sec. 133)
b. refuse to accept a qualified acceptance and may treat it as dishonored (Sec.
142)
88. Constructive Acceptance:
a. where the drawee to whom the bill has been delivered destroys it
b. the drawee refuses within 24 hrs after such delivery or within such time as is
given, to return the bill accepted or not. (Sec. 137 NIL)
Notes on Section 137

drawee becomes primarily liable as an acceptor.

mere retention is equivalent to acceptance

89. When presentment for acceptance is necessary:

a. if necessary to fix the maturity of the bill
b. if it is expressly stipulated that it shall be presented for acceptance
c. if the bill is drawn payable elsewhere than the residence or place of business of
the drawee (Sec. 143 NIL)
Notes on Section 143

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

presentment is necessary to make parties liable.

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

a. to make the drawee primarily liable and for the accrual of secondary liability
(Sec. 144)
b. necessary to fix maturity date, where bill expressly stipulates presentment, bill
payable other than place of drawee (Sec. 143)
c. when presentment is excused:
drawee is dead, hides, is fictitious,
incapacitated person, after due diligence presentment cannot be made,
presentment is refused on another ground although presentment is irregular
(Sec. 148)

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

Exception:

inland bills and notes may also be protested if desired

Protest is required:
a. where the foreign bill is dishonored by non acceptance
b. where the foreign bill is dishonored by non-payment
c. where the bill has been accepted for honor, it must be protested for non-payment
before it is presented for payment to the acceptor for honor
d. where the bill contains a referee in case of need, it must be protested for non
payment before presentment for payment to the referee in case of need (Sec.
152)
Notes on Section 152

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

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

required when the instrument is a foreign bill of exchange.

it must be made on the same date of dishonor, by a notary/respectable citizen of

the place in the presence of 2 credible witnesses so recourse to secondary
parties

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

refused to accept it

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

c. or where the bill has been protested for better security
Requisites for acceptance for honor:

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

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

the acceptor for honor must be a stranger to the bill

the holder must give his consent

Notes on Acceptance for Honor

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

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

93. How acceptance for honor is made:

a. in writing and indicated that it is an acceptance for honor
b. signed by the person making the acceptance (Sec. 162 NIL)
94. Payment for Honor - payment made through a notarial act of honor of a party
liable/stranger to the bill after bill has been dishonored by non-payment by the
acceptor and protested for non-payment by the holder
Requisites:
a. protest for non-payment
b. any person may pay supra protest
Form for payment of honor:
a.

payment must be attested by notarial act appended to the protest, or form an

extension to it.

b. notarial act of honor must be based on a declaration by the payer for honor
95. Bills in Set - bill of exchange drawn in several parts, each part of the set being
numbered and containing a reference to the other parts, the whole of the parts
just constituting one bill (Sec 178 NIL)

INSURANCE LAW
1. Laws applicable to insurance in the order of priority:
a. Insurance Code
b. Civil Code
c. General Principles prevailing on the subject in the US

2. Contract of Insurance - an agreement whereby one undertakes for a consideration

to indemnify another against loss, damage or liability arising from an unknown
contingent event
3. Contract of Suretyship - deemed to be an insurance contract within the meaning of
the Insurance Code, only if made by a surety who or which, as such, is doing an
insurance business
4. Definition of doing an insurance business:
a. making or proposing to make, as insurer, any insurance contract;
b. making or proposing to make as a surety, any contract of suretyship as a
vocation and not merely incidental to any other legitimate business or activity of
the surety;
c. doing reinsurance business;
d. doing or proposing to do any business in the substance equivalent to any of the
foregoing in a manner designed to evade the provisions of the Insurance Code.
5. Requisites of Insurance:
a. existence of an insurable interest;
b. risk of loss;
c. assumption of risk;
d. scheme to distribute losses; and
e. payment of premiums

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

6. Characteristics of an insurance contract:

a. consensual
b. voluntary
c. aleatory - depends upon some contingent event; however, it is not a wagering nor
a gambling contract
d. executed as to the insured after payment of the premium
e. executory as to insurer - not executed until payment for a loss
f.

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

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

7. Parties to a contract of Insurance:
a. insurer - party who assumes the risk or undertakes to indemnify the insured or to
pay a certain sum on the happening of a specified contingency
b. insured - person in whose favor the contract is operative, and who is indemnified
against, or is to receive a certain sum upon the happening of a specified
contingency
c. beneficiary - may or may not be the same as the insured

What perils may be insured?

(a) any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest; or
(b) any contingent or unknown event, whether past or future, which may create a
liability against the person insured.

8. Every person has an insurable interest in the life and health of:
a. himself, his spouse and his children
b. any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest
c. any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might prevent the
performance or delay it
d. any person upon whose life any estate or any interest vested in him depends
9. Insurable Interest in Property may consist of:
a. an existing interest
b. an inchoate interest, founded on an existing interest
c. an expectancy, coupled with an existing interest out of which the expectancy
arises

Definition of Insurable Interest in Property: Interest in property, whether real or

personal, or any relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured.

10. Instances when Insurable Interest must exist:

a. Interest in Property insured must exist when the insurance takes effect and when
the loss occurs, but need not exist in the meantime.
b. Interest in the Life or Health of a Person Insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs.
c. Beneficiaries of Life Insurance need not have insurable interest in the life of the
insured.
d. Beneficiaries of Property Insurance must have insurable interest in the property
insured.
Category

Insurable Interest in Life

Insurable Interest in Property
Insurance
may be based on pecuniarybased purely on pecuniary
interest, affinity, or consanguinity interest

1. basis
2. when interest must exist

3.
amount
interest

of

at the time the policy takesat the time the policy takes effect
effect EXCEPT: life insuranceand at the time of the loss
taken by the creditor on the life
of the debtor wherein interest
must also exist at the time of the
loss

insurable no limit EXCEPT: if insurablelimited to the actual value of

interest is based on creditor-damage/injury/loss
debtor relationship (only to the
extent of the credit or debt)

11. General Rule:

A change of interest in any part of a thing insured unaccompanied by a
corresponding change in interest in the insurance suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person.
Exceptions:
a. In case of life, health, and accident insurance
b. when the change in interest results after the occurrence of an injury
which results in a loss
c. a change of interest in one or more several distinct things, separately
insured by one policy
d. a change in the interest by will or succession on the death of the
insured (interest passes to the heirs)
e. a transfer of interest by one of several partners, joint owners in
common who are jointly insured to the others (even though it has been

agreed that the insurance shall seize upon the alienation of the thing
insured)
12. Revocation of Beneficiaries

General Rule: Insurance contracts are revocable.

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

The following donations shall be void:

a. those made between persons who were guilty of adultery or concubinage at
the time of the donation;
b. those made by persons found guilty of the same criminal offense, in
consideration thereof;
c. those made to a public officer or his wife, descendants, ascendants, by
reason of his office.

Other Pertinent Provisions on Revocation:

(a) The termination of a subsequent marriage shall allow the innocent spouse to
revoke the designation of the other spouse who acted in bad faith as
beneficiary in any insurance policy, even if such designation be stipulated as
irrevocable.
(b) After the finality of the decree of legal separation, the innocent spouse may
revoke the donations as well as the designation of the latter as a beneficiary
in any insurance policy, even if such designation is irrevocable. The
revocation of or change in the designation shall take effect upon written
notification thereof to the insured. The action to revoke the donation under
this article must be brought within 5 years from the time the decree of legal
separation has become final.
(c) The interest of a beneficiary in a life insurance policy shall be forfeited when
the beneficiary is the principal, accomplice or accessory in willfully bringing
about the death of the insured, in which event, the nearest relative of the
insured shall receive the proceeds of said insurance if not otherwise
disqualified.

13. Concealment - a neglect to communicate that which the party knows or ought to
communicate
General Rule: The insured is not required to communicate the nature (or kind)
or the amount of his insurable interest in the life or property insured to the insurer.

Exception:

a. When the insurer makes inquiry from the insured of the nature or amount
of the latters insurable interest, whether in life or property insurance;
b. insurance policy must specify the interest of the insured in the property
insured, if he is not the absolute owner thereof.

A concealment, whether intentional or not, entitles the injured party to rescind a

contract of insurance.

Requisites:
(a) the party concealing must have knowledge of the facts concealed;
(b) the facts concealed must be material to the risk;
(c) the party is duty bound to disclose such fact to the other;
(d) the party concealing makes no warranty as to the facts concealed;
(e) the other party has no other means of ascertaining the facts concealed.

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

Note: The insured is under an obligation to disclose not only such material facts
as are known to him, but also those known to his agent where:
a. it was the duty of the agent to acquire and communicate information of the
facts in question;
b. it was possible for the agent, in the exercise of reasonable diligence, to have
made the communication before the making of the insurance contract.

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

14. Neither party to the insurance contract is bound to communicate information

on the following matters except in answer to the inquiries of the other:
a. those of which the other knows;
b. that which, in the exercise of ordinary care, the other ought to know and of which
the former has no reason to suppose his ignorance, i.e. political situation, general
usages of trade;
c. those of which the other waives communication;

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

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

Waiver of material facts may be:

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

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

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

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

It may be made orally or in writing.

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

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

A representation cannot qualify an express provision in a contract of insurance but it

may qualify an implied warranty.

A representation as to the future is to be deemed a promise unless it appears that it

was merely a statement of belief or an expectation. (must be susceptible of present,
actual knowledge)

The statement of an erroneous opinion, belief or information, or of an unfulfilled

intention, will not avoid the contract of insurance, unless fraudulent.

Right to rescind because of false representation:

a. must be exercised previous to the commencement of an action on the contract

(the action referred to is that to collect a claim on the contract)
b. misrepresentation, whether intentional or not, gives the right to rescind

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

Exceptions:
(a) absence of insurable risk
(b) cause of loss is an unexpected risk
(c) fraud
(d) non-payment of premium
(e) violation of conditions relating to naval or military services
(f) failure to comply with conditions subsequent to the occurrence of the
loss

16. Warranties:

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

insurance.

Exceptions:
a. when before the time for performance of the promissory warranty, a loss
insured against occurs;
b. when before the time of the performance of the warranty, the act becomes
unlawful;
c. when before the time of the performance of the warranty, said performance
becomes impossible.

A statement or a promise set forth in the policy or by reference incorporated

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

part of the insurance contract

Representation
collateral inducement

always written on the policy

maybe oral or written

conclusively presumed material

materiality must be proved

must be strictly complied with

requires substantial truth

made by the insured

may be made by insurer or insured

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

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

17. Policy

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

the printed form.

A rider, clause, warranty or endorsement to be binding must be pasted or

attached to the policy and its descriptive titles or name must be
mentioned and written on the policys blank spaces

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

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

The form of the application, rider, clause, warranty or endorsement must

be approved by the Insurance Commissioner.

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

covers.

Cover Note: written memorandum of the most important terms of a preliminary

contract of insurance, intended to give temporary protection pending the
investigation of the risk by the insurer, or until the issuance of a formal policy.

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

Exception: Where it is merely an acknowledgment on behalf of the company

that the 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:
a. Open - the value of the thing insured is not agreed upon, but is left to be
ascertained at the time of the loss
b. Valued - expresses on its face an agreement that the thing insured shall be
valued at a specific sum
c. Running - contemplates successive insurance which provides that the object
of the policy may be from time to time defined especially as to the subject of
insurance by additional statements or endorsements

Note: If an amount is written on the face of an open policy, it is merely a

determination of the maximum limit of recovery and not as the value of the
policy.
Category

Open Policy

what needs to be proven in value of property upon loss

order to be able to claim
determining value of loss

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

value of property is to bevalue of property upon loss is

ascertained upon loss
conclusively stipulated to a
specified amount

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

Grounds for Cancellation of a Policy by the Insurer:

For Policies Other than Life:
(1) prior notice of the cancellation to insured
(2) notice must be based on the ff. occurrences after effective date of the
policy
(a) non-payment of premiums
(b) conviction of a crime arising out of acts increasing the hazard
insured against
(c) discovery of fraud or material misrepresentation
(d) discovery of willful or reckless acts or omissions increasing the
hazard insured against

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

property becoming uninsurable
(f) determination by the Commissioner that the continuation of the
policy would violate or would place the insurer in violation of the
Insurance Code
(3) notice must be in writing
(4) it must be mailed or delivered to the insured at the address shown in
the policy
(5) notice must state the ground relied upon and that upon written request
of the insured, the insurer will furnish facts on which the cancellation is
based

Renewal of the Policies Other than Life:

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

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

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

applies
(b) in case of estoppel

Insurer is entitled to payment of premiums as soon as the thing insured is

exposed to the perils insured against.

When insurer entitled to Return of Premiums

a. when the contract is voidable on account of fraud or misrepresentation of the
insurer;
b. when on account of facts, the existence of which the insured was ignorant
without his fault
c. when by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy

d. when the insured has become a public enemy and the policy automatically
canceled (on the ground of equity)
e. in case of over-insurance by several insurers (ratable return of premiums,
proportioned to the amount by which the aggregate sum insured in all policies
exceed the insurable value of the thing at risk)
19. Loss

When Insurer is Liable:

a. where the peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been the remote cause or even the
immediate cause of the loss
b. where the thing insured is rescued from the peril insured against that would
otherwise have caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently deprives the
insured of its possession in whole or in part
c. where loss is caused by efforts to rescue the thing insured from a peril
insured against
d. insurer is not exonerated by a loss caused by simple negligence of the
insured if the proximate cause of the loss is a peril insured against
e. loss, the immediate cause of which is a peril insured against except when the
proximate cause is an excepted peril

When Insurer Not Liable:

a. where the peril insured against was only a remote cause
b. where the peril is specifically excepted, a loss which would not have occurred
but for such peril is thereby excepted
c. loss caused by the connivance of the insured
d. loss caused by the willful act of insured
e. loss caused by 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 commission, the insurer is liable.

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

Requisites:
a.

person insured must be the same

b. existence of several insurers

c. subject matter insured must be the same
d. interest the same
e. risk insured against also the same
Over Insurance
may be only one insurer

Double Insurance
must be 2 or more insurers

insurance covers more than the value of insurance may or may not exceed the value of
insurable interest
insurable interest

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

Liability of Insurer:

Insurance taken
from each insurer
---------------------------------total insurance

value of property received

= liability of insurer

21. Reinsurance: A process by which an insurer procures a third person to insure him
against loss or liability by reason of such original insurance.
The original insured cannot recover from this insurance unless there is a specific
grant, or assignment of, the reinsurance contract in favor of the insured, or a manifest
intention of the contracting parties to the reinsurance contract to favor the insured.

General Rule: The insurer who obtains reinsurance must communicate:

a. all the representations of the original insured; and

b. all the knowledge and information he possesses, whether

previously or subsequently acquired which are material to the
risk

Exception: under automatic reinsurance treaties when two or more insurance

companies agree in advance that each will reinsure a part of any line of insurance
taken by the other. (in this instance, the contract is self-executing and the
obligation attaches automatically on acceptance of a risk by the reinsured.)
Reinsurance

Double Insurance

1. insurer becomes the insured

1. insurer remains the insurer

2. subject matter is the insured risk or liability

2. subject matter is property

3. different risks and interests of insured

3. the same interest and risk are insured

4. there must be consent of original

4. insured has to give his consent

5. one who is original insured has no interest in5. insured is the party in interest in all contracts
the contract of reinsurance which is
independent of the original contract of
insurance
22. Marine Insurance: insures against perils of the sea, not of the ship
Perils of the Sea
covered by marine insurance

Perils of the Ship

not covered by marine insurance

denote nature accidents peculiar to the seadamage or losses resulting from:

which do not happen by intervention of man nor
are to be prevented by human prudence
1. natural and inevitable action of the sea
2. ordinary wear and tear of a ship, or
3. negligent failure of the ship owner to provide
the vessel with proper equipment to convey
the cargo under ordinary conditions

Owner of the Ship has Insurable Interest:

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

b. in the freightage, which according to the ordinary and probable course of

things he would have earned but for the intervention of a peril insured against
or other peril incident to the voyage

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

Barratry:

Any willful misconduct on the part of the masters or crew, in pursuance of some
unlawful or fraudulent purpose, without the consent of the owners and to the prejudice
of the 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 destruction of the subject matter
or derive benefit from its preservation.

Charter Party:

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

Loan on Bottomry:

Contract in the nature of a mortgage whereby the owner of a ship borrows

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

Loan on Respondentia:

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

Freightage:

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

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

person, in reference to a material fact is material.

Concealment of the following merely exonerates the insurer from the resulting
loss therefrom:
a. national character of the insured
b. liability of the thing insured to capture and detention
c. liability to seizure from breach of foreign laws of trade
d. want of necessary documents
e. use of false and simulated papers

Implied Warranties:
a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of
commencement of risk, except:
(a) insurance for a specified length of time - at the commencement of
every voyage it undertakes during that time;
(b) cargo to be transshipped at indeterminate port - each vessel upon
which cargo is shipped is seaworthy at the commencement of each
particular voyage
b. that the vessel shall not engage in illegal venture
c. that the vessel shall not deviate from the course of the voyage insured
d. where the nationality or neutrality of a ship or cargo is expressly warranted, it is
implied that the ship will carry the requisite documents to show such nationality
or neutrality and that it will not carry any documents which may cast reasonable
suspicion thereon

Seaworthiness depends on:

a. nature of the ship
b. nature of the voyage
c. nature of the service

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

Exceptions:
a. in a Time Policy - commencement of every voyage that must be
undertaken
b. in a Cargo Policy - commencement of each particular voyage
c. in a Voyage Policy - commencement of each portion of the voyage

Deviation
a. a departure from the course of the voyage insured
b. unreasonable delay in pursuing the voyage
c. commencement of an entirely different voyage

When is Deviation proper?

a. when caused by circumstances over which neither the master not the owner of
the ship has any control
b. when necessary to comply with a warranty or to avoid a peril whether it is
insured against or not
c. when made in good faith for the purpose of saving human life or relieving
another vessel in distress
d. when made in good faith and upon reasonable grounds of belief in its necessity
to avoid a peril

Loss
a. Actual Total Loss
a total destruction of the thing insured
the irretrievable loss of the thing by sinking or by being broken up
any damage to the thing which renders it valueless tot he owner for which he
held it
any other event which effectively deprives the owner of possession, at the
port of destination, of the thing insured
b. Constructive Total Loss - gives to the person insured the right to abandon

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

General Average - an expense or damage suffered deliberately in order to save

the vessel, its cargo, or both from the real or known risk

Abandonment - act of the insured by which, after a constructive total loss, he

declares the relinquishment to the insured of his interest in the thing insured (where
the cause of loss is a peril insured against)
(a) more than thereof in value is actually lost or would have been expended to
recover it from the peril
(b) it is injured to such an extent as to reduce its value by more than
(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

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:

a. must be total and conditional
b. made within a reasonable time
c. explicit notice
d. coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

a. insured must have interest at risk
b. there must be no fraud on the insureds part

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

b. must be explicit
c. must specify the particular cause for abandonment
d. need not be accompanied by proof of interest or loss

Acceptance of Abandonment
a. may be express or implied (i.e. silence for unreasonable length of time)
b. conclusive upon the parties and admits the loss and sufficiency of abandonment
c. irrevocable, unless the ground on which it is made is proved to be unfounded

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

Upon actual abandonment

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

Co-insurance:

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

Co-insurance applies only where the:

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

Primage - increase in freightage

23. Fire Insurance

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

Scope of Fire Insurance:

a. fire
b. lightning
c. windstorms

d. tornado
e. earthquake
f.

other allied risks

When does alteration in the use or condition entitle the insurer to rescind the
contract?
a. such alteration violates a provision in the policy
b. it was made without the insurers consent
c. it is done within the insureds control, and it increases the risk of loss or
damage

Rules:
a. policy shall not protect the insured from injury consequent upon his negligent
use or management of fire, so long as it is confined to the place where it ought
to be
b. if it escapes, even though the insured was negligent, the insurer is liable
c. even though a fire may remain in its proper place, it may become hostile if it by
accident, becomes so extensive as to be beyond control

Options of the Insurer

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

24. Casualty Insurance:

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

Insurer is Liable for death/injury to insured:

a. by his own hand while insane
b. by taking poison by mistake
c. by overdoes of drugs administered or taken by mistake, by ignorance or
material pathological conditions
d. by unexpected bacterial infection consequent upon doing acts, even though
such acts were intentionally done

e. by unprovoked violence of others

Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

a. motor vehicle owner or one who is the actual legal owner of a motor vehicle
in whose name such vehicle is registered with the LTO
b. land transport operator or one who is the owner of a motor vehicle or vehicles
being used for conveying passengers for compensation (including school
buses)

No Fault Indemnity Clause:

The insurance company shall pay any claim for death or bodily injuries
sustained by a passenger or 3rd party without the necessity of proving fault or
negligence of any kind subject to certain conditions. This does not apply to property
damage. It is in the nature of preliminary indemnity pending final determination as to
which party is at fault or negligent.
The following are the rules on claims under the said provisions:
(1) claim shall be made upon the insurer of the vehicle on which he is riding,
embarking or disembarking;
(2) if claimant is not a passenger, he shall claim for the person who is directly at
fault;
(3) this is subject to final determination as to the party who is negligent or who is
at fault;
(4) payment is subject to reimbursement from the party at fault or negligent.
25. Suretyship - an agreement whereby the surety guarantees the performance of the
principal or obligor of an obligation or undertaking in favor of a 3 rd party called the
obligee
26. Life Insurance:
an insurance in human life and insurance appertaining thereto or connected
therewith may be payable:
a. on the death of the insured
b. on his surviving a specified period
c. otherwise, contingently on the continuance or cessation of life
(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:

a. Whole Life or Ordinary Policies - here, the insured agrees to pay annual,
semi-annual or quarterly premiums while he lives. The insurer agrees to pay
the face value of the policy upon the death of the insured.
b. Limited Payment Life Policy - premiums paid only for a specified period of
years.
c. Term Policy - insurers liability arises only upon the death of the insured
within the agreed term as period. If the latter survives the period, the
contract terminates and the insurer is not liable
d. Endowment Policy - insurer agrees to pay a certain sum to the insured if
the latter outlives a designated period; if he dies before that time, the
proceeds are paid to the beneficiary
e. Life Annuity - debtor binds himself to pay an annual pension or income
during the life of one or more persons in consideration of a capital consisting
of money or other property, whose ownership is transferred to him with the
burden of income

27. The Business of Insurance

a. Life or Endowment Policies
Grace Period - 30 days for the payment of any premium due after the first
premium has been paid
Period of Incontestability - after the lapse of 2 years from the date of issue or
date of approval of last reinstatement
Reinstatement of Policy - within 3 years from the date of default of premium,
upon:
a. production of evidence of insurability, and
b. payment of all overdue premiums and any indebtedness to the company
upon said policy
Exceptions:
a. if cash surrender value has been paid
b. if period of extension has expired

b. Claims Settlement
Unfair Claims Settlement Practices:
(a) knowingly misrepresenting to claimants pertinent facts or policy provisions
relating to coverage at issue
(b) failing to acknowledge with reasonable promptness pertinent communications
with respect to claims arising under its policies
(c) failing to adopt or implement reasonable standards for the prompt
investigation of claims arising under its policies
(d) no attempt in good faith to effectuate prompt, fair and equitable settlement of
claims submitted in which liability has become reasonably clear
(e) compelling policy holders to institute suits to recover the amount due under its
policies by offering with no justifiable reason an amount substantially less than
that ultimately recovered in suits brought by them
Proceeds of Life Insurance - payable within 60 days after:
(a) presentation of claims, and
(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the
ceiling prescribed by the Monetary Board unless based on the ground that the
rate is fraudulent)
Proceeds of Policies other than Life - payable:
(a) upon proof of loss
(b) upon ascertainment of loss or damage (if not made within 60 days of proof of
loss, payable in 90 days)
c. Power of Commissioner to Suspend/Revoke License
(a) if insurance contract is in unsound condition
(b) if it has failed to comply with the provisions of law or regulations obligatory
upon it
(c) its conditions or methods of business is such as to render its proceedings
hazardous to the public or to its policy holders
(d) that its paid up capital stock, or its available cash assets, or its security
deposits, as the case may be, is impaired or deficient
(e) that the margin of solvency required of each company is deficient
Insurance Agent

- any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transacts for a person other than himself an application for a
policy or contract of insurance to or from such company or offers or assumes to act in
negotiating of such insurance. He must be first licensed as such before doing any acts
as insurance agent.
Insurance Broker
- any person for any compensation, commission or any other thing of value, acts, or
aids in any manner in soliciting, negotiating or procuring the making of any insurance
contract or in placing risk or taking out insurance, on behalf of an insured other than
himself. A license is required.

PHILIPPINE DEPOSIT INSURANCE CORPORATION

1. The PDIC is tasked to insure the deposits of all banks which are entitled to the
benefits of insurance under RA 3591.
2. The Board of Directors is composed of the governor of the Central Bank and two
appointees of the President who must be Filipino citizens and must be confirmed by
the Commission on Appointments.
3. The members of the Board of Directors shall be ineligible during the time they are in
office and for a period of two years thereafter to hold any office, position or
employment in any insured bank, except that this restriction shall not apply to any
member who has served the full term for which he was appointed.
4. No member of the Board of Directors shall be an officer or director of any insured
bank; and before entering upon his duties as member of the Board of Directors he
shall certify under oath that he has complied with this requirement and such
certification shall be filed with the Secretary of the Board of Directors.
5. Any vacancy in the Board created by the death, resignation, or removal of an
appointive member shall be filled by the appointment of new member to complete
the unexpired period of the term of the member concerned.
6. Powers of the Board:
a. To prepare and issue rules and regulations as it considers necessary for the
effective discharge of its responsibilities;
b. To direct the management, operations and administration of the Corporation;
c. To appoint, fix the remunerations and remove all officers and employees of
the Corporation, subject to the Civil Service Law; and
d. To authorize such expenditures by the Corporation as are in the interest of
the effective administration and operation of the Corporation.

7. Any obligation of a bank which is payable at the office of the bank located outside of
the Philippines shall not be a deposit for any of the purposes of this Act or included
as part of the total deposits or of the insured deposit.
8. Any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its
deposit obligation payable only at such branch.
9. Any bank or banking institution which is engaged in the business of receiving
deposits may insure its deposit liabilities with the Corporation.
10. The factors to be considered by the Board of Directors for the approval of the
application:
a. the financial history and condition of the Bank,
b. the adequacy of its capital structure,
c. its future earning prospects,
d. the general character of its management,
e. the convenience and needs of the community to be served by the Bank and
f.

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

11. The Board of Directors must also determine that the banks assets in excess of its
capital requirements are adequate to enable it to meet all its liabilities to depositors
and other creditors as shown by the books of the bank.
12. The assessment rate shall be determined by the Board of Directors but shall not
exceed one-twelfth of one per centum per annum. The semiannual assessment for
each insured bank shall be in the amount of the product of one-half (1/2) the
assessment rate multiplied by the assessment base.
13. Although the assessment base shall be the amount of the liability of the bank for
deposits, without any deduction for indebtedness of depositors, the bank may
(1) deduct
(ii)

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

(iii)

cash items as determined by either of the following methods, at the

option of the bank:
(a)

by multiplying by 2 the total of the cash items forwarded for

collection on the assessment base days (being the days on
which the average deposits are computed) and cash items

held for clearings at the close of business on said days,

which are in the process of collection and which the bank has
paid in the regular course of business or credited to deposit
accounts; or
(b)

by deducting the total of cash items forwarded for collection

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

(2) may exclude from its assessment base

(i)

drafts drawn by it on deposit accounts in other banks which are issued

in the regular course of business; and the amount of devices or
authorizations issued by it for cash letters received, directing that its
deposit account in the sending bank be charged with the amount
thereof; and

(ii)

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

1. Each insured bank, as a condition to the right to make any such deduction or
exclusion in determining its assessment base, shall maintain such records as will
readily permit verification of the correctness thereof.
2. The insured bank must file a certified statement:
i. on or before the 15th of July of each year, showing for the 6 months ending on the
preceding June 30 the amount of the assessment base and the amount of the
semiannual assessment due to the Corporation for the period ending on the
following December thirty-one and pay to the Corporation the amount of the
semiannual assessment it is required to certify.
ii. on or before the 15th day of January of each year, each insured bank shall file a
similar certified statement for the six months ending on the preceding December
thirty-one and shall pay to the Corporation the amount of the semiannual
assessment for the period ending on the following June thirty which it is required
to certify.
3. Any insured bank which fails to file any certified statement required to be filed by it in
connection with determining the amount of any assessment payable by the bank to

the PDIC may be compelled to file such statement by mandatory injunction or other
appropriate remedy in a suit brought for such purpose by the PDIC against the bank
and any officer or officers thereof in any court of the Philippines of competent
jurisdiction in which such bank is located.
4. The PDIC, in a suit brought in any court of competent jurisdiction, shall be entitled to
recover from any insured bank the amount of any unpaid assessment lawfully
payable by such insured bank to the PDIC, whether or not such bank shall have filed
any such certified statement and whether or not suit shall have been brought to
compel the bank to file any such statement.
5. No action or proceeding shall be brought for recovery of any assessment due to the
PDIC or for the recovering of any amount paid to the PDIC in excess of the amount
due to it, unless such action or proceeding shall have been brought within five years
after the right accrued for which the claim is made, except where the insured bank
has made or filed with the PDIC a false or fraudulent certified statement with the
intent of evade, in a whole or in part, the payment of assessment, in which case the
claim shall not have been deemed to have accrued until the discovery by the PDIC
that the certified statement is false fraudulent.
6. Should any insured bank fail or refuse to pay any assessment required to be paid
and should the bank not correct such failure or refusal within thirty days after written
notice has been given by the PDIC to an officer of the bank, stating that the bank has
failed or refused to pay as required by law the insured status of such bank shall be
terminated by the Board of Directors.
7. The remedies provided in this subsection and in the two preceding subsections shall
not be construed as limiting any other remedies against an insured bank but shall be
in addition thereto.
8. Termination of Status as an insured bank:
(a) Any insured bank may, upon not less than ninety days, written notice to the
Corporation, and to the Development Bank of the Philippines if it owns or holds
as pledges any preferred stock, capital notes, or debentures of such bank,
terminate its status as an insured bank.
(b) By the PDIC:

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

continued unsafe or unsound practices in conducting the business of the

bank

have knowingly or negligently permitted any of its officers or agents to

violate any provisions of any law or regulation to which the insured bank
is subject,

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

Unless such correction shall be made within 120 days or such shorter period
of time as the Central Bank shall require, the Board, if it shall determine to
proceed further, shall give to the bank not less than 30 days' written notice of
intention to determine the status of the bank as an insured bank, and shall fix
a time and place for a hearing before the Board or before a person
designated by it to conduct such hearing, at which evidence may be
produced, and upon such evidence the Board shall make written findings
which shall be conclusive.

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

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

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

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

9. The PDIC, upon the payment of any depositor shall be subrogated to all rights of the
depositor against the closed bank to the extent of such payment, but such depositor
shall retain his claim for any uninsured portion of his deposit.
10. The PDIC may withhold payment of the insured deposit in a closed bank as may be
required to provide for the payment of any liability of the depositor as a stockholder
of the closed bank, or of any liability of the depositor to the closed bank or its
receiver, which is not offset against the claim due from such bank, pending the
determination and payment of such liability by such depositor or any other person
liable therefor.
11. After the PDIC has given at least 3 months notice to the depositor, he must claim his
insured deposit from the PDIC within 18 months after the Central Bank or proper
court shall have ordered the conversion of the assets of the closed bank into money.
Otherwise, all rights of the depositor against the PDIC with respect to the insured
deposit shall be barred, and all rights of the depositor against the closed bank and its
shareholders or the receivership estate to which the PDIC may have become
subrogated, shall thereupon revert to the depositor.

12. All notes, debentures, bonds, or such obligations issued by the Corporation shall be
exempt from taxation.
13. Acts by the insured bank which need consent from the PDIC:
(1)

merge or consolidate with any noninsured bank or institution or convert into a

noninsured bank or institution

(2)

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

(3)

transfer assets to any noninsured bank or institution in consideration of the

assumption of liabilities for any portion of the deposits made in such insured
bank.

TRANSPORTATION LAW
1. Contract of Transportation - contract whereby a certain person or association of
persons obligate themselves to transport persons, things, news, from one place to
another for a fixed price
2. Parties to the Contract of Transportation:
a. Shipper - one who gives rise to the contract of transportation by agreeing to
deliver the things or news to be transported, or to present his own person or
those of other or others in the case of transportation of passengers
b. Carrier/Conductor - one who binds himself to transport persons, things, or
news, as the case may be, or one employed in or engaged in the business of
carrying goods for others for hire
c. Consignee the party to whom the carrier is to deliver the things being
transported; one to whom the carrier may lawfully make delivery in accordance
with its contract of carriage (shipper and consignee may be the same person)
3. Common Carrier - person, corporation, firm, association engaged in the business of
carrying or transporting passengers, goods or both, by land, water, air, for
compensation, offering services to the public; must exercise extraordinary diligence
Private Carrier - not engaged in the business of carrying; no public employment;
undertakes to deliver goods/passengers for compensation; requires only ordinary
diligence

A common carrier is PRESUMED negligent when there is a breach of its

contract. It has to prove it exercised EOD in order to escape liability.

4. Requisites of Caso Fortuito

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.
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.
7. Vessels - those engaged in navigation, whether coastwise or on the high seas,
including floating docks, pontoons, dredges, scows and any other floating apparatus
destined for the services of the industry or maritime commerce
8. Persons Participating in Maritime Commerce:
a. ship owner and/or ship agent
b. captain or master
c. other officers of the vessel
d. supercargo (a person designated by the owner of goods to accompany the goods
on the vessel where the goods are loaded. He is NOT an employee of the carrier
nor a part of the crew but is a passenger.)
9. Liability of Ship owners and Ship agents:
a. civil liability for the acts of the captain

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

10. Doctrine of Limited Liability - liability of shipowners is limited to amount of interest

in said vessel because of the real and hypothecary nature of maritime law such that
where the vessel is entirely lost, the obligation is extinguished.
Exceptions:
(1) vessel is not abandoned
(2) claims under workmens compensation
(3) injury/damage due to shipowners fault
(4) vessel is insured

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

In abandoning the vessel, there is no procedure to be followed. There is neither a

prescriptive period within which the ship owner can make the abandonment. He
may do so for so long as he is not estopped from invoking the same or do acts
inconsistent with abandonment.

11. Roles of the Captain:

a. general agent of the ship owner
b. technical director of the vessels
c. represents the government of the country under whose flag he navigates
12. Loan on Bottomry - made by shipowner/ship agent guaranteed by vessel itself,
repayable upon arrival at destination
13. Loan In Respondentia - taken on security of the cargo repayable upon the safe
arrival at cargo destination

14. Accidents and Damages in Maritime Commerce:

a. Averages
b. Arrivals Under Stress
c. Collisions
d. Shipwrecks
15. Average:
a. all extraordinary or accidental expenses which may be incurred during the
voyage for the preservation of the vessel or cargo or both
b. all damages or deterioration which the vessel may suffer from the time it puts to
sea at the port of departure until it casts anchor at the port of destination, and
those suffered by the merchandise from the time they are loaded in the port of
shipment until they are unloaded in the port of their consignment
16. Simple Average - expenses/damages caused to the vessel/cargo not inured to
common benefit and profit of all the persons interested in the vessel and her cargo;
borne by respective owners
17. General Average - expenses/damages deliberately caused in order to save the
vessel, its cargo or both from a real and known risk
Requisites:
a. deliberately incurred
b. intended to save vessel and cargo or both
c. from real and known risk
d. there is success
18. Formalities for Incurring Gross Average:
a. there must be an assembly of the sailing mate and other officers with the captain
including those with interests in the cargo
b. there must be a resolution of the captain
c. the resolution shall be entered in the log book, with the reasons and motives and
the votes for and against the resolution
d. the minutes shall be signed by the parties
e. within 24 hours upon arrival at the first port the captain makes, he shall deliver
one copy of these minutes to the maritime judicial authority thereat

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

lack of provisions;

(b)

well-founded fear of seizure;

(c)

by reason of accident of the sea disabling it to navigate

When Not Lawful:

a. lack of provisions due to negligence to carry according to usage and customs
b. risk of enemy not well known or manifest
c. defect of vessel due to improper repair
d. malice, negligence, lack of foresight or skill of captain
20. Collision - impact of 2 vessels both of which are moving
21. Allision - striking of a moving vessel against one that is stationary
22. Cases of Collision:
a. due to the fault, negligence or lack of skill of the captain, sailing mate or the
complement of the vessel - ship owner liable for the losses and damages
(Culpable Fault)
b. due to fortuitous event or force majeure - each vessel and its cargo shall bear its
own damages (Fortuitous)
c. it cannot be determined which of the 2 vessels caused the collision - each vessel
shall suffer its own damages, and both shall be solidarily responsible for the
losses and damages occasioned to their cargoes (Inscrutable Fault)
23. Error in Extremis - sudden movement made by a faultless vessel during the 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:
a. a marine peril
b. service voluntarily rendered when not required as an existing duty or from special
contract
c. success, in whole or in part, or that the services rendered contributed to such
success
28. Contract of Towage - contract whereby a vessel usually motorized pulls another
from one place to another for compensation. It is a contract of services.
29. Difference between Towage and Salvage:
Salvage

Towage

crew of salvaging ship is entitled to salvage, andcrew of the towing ship does not have any
can look to the salvaged vessel for its share
interest or rights with the remuneration pursuant
to the contract
salvor takes possession
possession until he is paid

and

may

retainTower has no possessory lien; only an action for

recovery of sum of money

court has power to reduce the amount of Court has no power to change amount in towage
remuneration if unconscionable
even if unconscionable

CARRIAGE OF GOODS BY SEA ACT

1. When Applicable:
a.
b.
c.
d.

contracts for the carriage of goods

by sea
to and from Philippine ports
in foreign trade

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

If the loss or damage is not apparent, the notice must be given within 3 days of delivery.
However, the carrier shall be discharged from all liability in respect of loss or damage of
goods unless suit is brought within 1 year after delivery of the goods or the date when
the goods should have been delivered.
Notice of loss, if not given, that fact shall not affect or prejudice the right of the shipper to
bring suit within the 1 year prescriptive period.

WARSAW CONVENTION
1. When Applicable:
a. international transport by air
b. transport of persons, baggage, or goods
2. Liabilities under the Convention:
a. damage sustained in the event of the death or wounding of a passenger taking
place on board the aircraft or in the course of any of the operations of embarking
or disembarking
b. loss or damage to any check baggage or goods sustained during the transport by
air
c. delay in the transport by air of passengers, baggage, or goods

Enumeration of causes of action as above stated is not an exclusive list. (Northwest

Airlines vs. Cancer)

3. Meaning of Transport by Air - period during which the baggage or goods are in
charge of the carrier, whether in an airport or on board an aircraft, or in the case of
landing outside an airport, in any place whatsoever
4. Action for damages must be brought at the option of the plaintiff, either:
a. before the court of the domicile of the carrier;
b. court of principal place of business of carrier;
c. court where he has a place of business through which the contract has been
made;
d. before the court at the place of destination
5. Convention provides for a limitation of liability:
a. for each passenger - limited to 125,000 francs
b. for goods and checked in baggage - limited to 250 francs per kilogram

c. for hand carry - limited to 5,000 francs per passenger

When can you not avail of this limitation?

(1) willful misconduct
(2) default amounting to willful misconduct
(3) accepting passengers without ticket
(4) accepting goods without airway bill or baggage without baggage check

6. The right to damages shall be extinguished if an action is not brought within 2 years
from the date of arrival at the destination, or from the date on which the aircraft ought
to have arrived, or from the date on which the transportation stopped.
7. Notice requirement:
damage to baggage : within 3 days from receipt
damage to goods: within 7 days from receipt
delay: within 21 days from receipt

Failure to file written notice, no action shall lie against the carrier, save in the case
of fraud on his part.

8. Notice Requirements:
COGSA

Code of Commerce

Warsaw Convention

loss/damage apparent protest at time of receiptProtest at time of receipt

of goods
of goods
loss/damage
apparent

not protest within 3 daysProtest within 24 hours

from delivery
after receipt

damage of baggage

protest within 3 days

from receipt

damage of goods

within 7
receipt

days

from

delay

within 21
receipt

days

from

PUBLIC SERVICE ACT

1. Every person that may own, operate, manage, control in the Philippines, for
hire/compensation with general/limited clientele whether permanent, occasional,
accidental, and done for a general business purpose any common carrier, shipyard,
electric light, heat and power and public utility.
2. Public Utility
- business or service engaged in regularly supplying the public with some commodity or
service of public consequence such as electricity, gas, water, transportation, telephone
or telegraph service.
3. Prior Operator Rule
- before permitting a new operator to invade the territory of another already established,
the prior operator must be given an opportunity to extend its service to meet the public
needs in the matter of transportation.
4. Prior Applicant Rule
- presupposes a situation where two interested persons apply for a CPC in the same
community over which no person has yet been granted a CPC to operate. If both
applicants equal, then the applicant who applied first will be given the CPC.

5. Distinctions between CPCs and CPCNs

Certificate of Public Convenience

Certificate of Public Convenience and

Necessity

any authorization to operate a public serviceIssued by the appropriate government agency to

issued by the appropriate government agency a
public service to which any political
subdivision has granted a franchise
an authorization issued by the properan authorization issued by the proper
government agency for the operation of publicgovernment agency for the operation of public
services for which no franchise, either municipal services for which a franchise is required by law
or legislative is required by law
*However, PAL v. CAB (G.R. No. 119528, March 26, 1997) blurred the distinction
between the CPC and CPCN. The Court ruled that convenience and necessity must be

construed together. Further, it is the law which determines the requisites for issuance of
such certification and not the title indicating the certificate.
6. Requirements of CPC and franchise:
a. Filipino citizenship
b. financial capacity
c. public convenience

CORPORATION LAW
1. Doctrine of Corporate Opportunity
- a director is made to account to his corporation, gains and profits from transactions
entered into by him/another competing corporation in which he has substantial interest,
which should have been a transaction undertaken by the corporation. This
is
a
breach of fiduciary relationship.
2. Doctrine of Separate Juridical Personality
a corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and in general, from the people comprising it; and that
obligations incurred by the corporation, acting through its directors, officers and
employees are its sole liabilities.
3. Doctrine of Piercing the Veil of Corporate Entity
- it is to disregard for justifiable reasons by the state the fiction of juridical personality of
the corporation separate and distinct from the persons composing it
4. De Jure Corporation
- corporation formed with all the requirements of law
5. De Facto Corporation
- corporation defectively formed from a bona fide attempt to incorporate under the
existing law and exercises corporate powers

6. Corporation by Estoppel
- a group of persons which holds itself out as a corporation and enters into a contract
with 3rd persons on the strength of such appearance cannot be permitted to deny its
existence in an action under said contract

7. Corporation by Prescription
- body not lawfully organized as a corporation but has been recognized by immemorial
usage as a corporation with rights and duties maintainable by law (ex. Roman Catholic)
8. Trust Fund Doctrine
- the subscribed capital stock of the corporation is a trust fund for the payment of debts
of the corporation which the creditors have the right to look up to satisfy their credits.
Corporations may not dissipate this and the creditors may sue the stockholders directly
for their unpaid subscriptions
9. Voting Shares
a. Founders Shares
- given rights and privileges not enjoyed by owners of other stocks; right to vote/be
voted in the election of directors shall not exceed 5 years
Non-Voting Shares
a. Preferred Shares
- issued only with par value; given preference in distribution of assets in liquidation
and in payment of dividends and other preferences stated in the articles of
incorporation
b. Redeemable Shares
- expressly provided in articles; have to be purchased/taken up upon expiration of
period of said shares purchased whether or not there is unrestricted retained
earnings
c. Treasury Stocks
- stocks previously issued and fully paid for and reacquired by the corporation
through lawful means (purchase, donation, etc.)
10. Exceptions where holders of non-voting shares may vote:
a. amendments of articles of incorporation
b. adoption/amendment of by-laws
c. increase/decrease of bonded indebtedness
d. increase/decrease of capital stock
e. sale/disposition of all/substantially all corporate property
f.

merger/consolidation of corporation

g. investment of funds in another corporation/another business purpose

h. corporate dissolution
11. Preferred Cumulative Participating Share of Stock
- share entitling its holder to preference in the payment of dividends ahead of common
stockholders and to be paid the dividends ahead of common stockholders and to be paid
the dividends due for prior years and to participate further with common stockholders in
dividend declarations
12. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock
- stock deposited with a 3rd person to be delivered to stockholder/assignor after
complying with certain conditions - usually payment of full subscription price
13. Over-issued Stock
- stock issued in excess of authorized capital stock; null and void
Watered Stock
- stock issued gratuitously, money/property less than par value, services less than par
value, dividends where no surplus profits exist
14. Certificate of Stock

written acknowledgment by the corporation of the 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.

15. Chattel mortgage of shares registered with the Registrar of Deeds need not be
registered in corporate books to bind third parties because corporate books only
cover absolute transfers. But the pledgee/mortgagee may not have voting rights
unless stated in the contract and registered in the corporate name.
16. Methods of Collection of Unpaid Subscription
a. call, delinquency and sale at public auction of delinquent shares
b. ordinary civil action

c. collection from cash dividends and other amounts due to stockholders if allowed
by by-laws/agreed to by him
17. A corporation can reacquire stocks in the following cases:
a. eliminate fractional shares
b. corporate indebtedness arising from unpaid subscriptions
c. purchase delinquent shares
d. exercise of appraisal right

18. Right of Appraisal

a. amending articles, changing, restricting, enlarging stockholders rights/extending,
shortening corporate life
b. sale/disposition of all/substantially all of corporate assets
c. merger and consolidation
d. investment of funds in another corporation/for a different purpose
19. Grounds for Rejection of Registration
a. not in prescribed form
b. purpose illegal, inimical
c. treasurers affidavit false
d. non-compliance with required Filipino stock ownership
20. Corporation must organize within 2 years from issuance of certificate of
incorporation.
How to organize?
a. adoption of by-laws
b. election of Board of Directors
c. election of officers
But from issuance of certificate, it acquires juridical personality

22. Merger
- one corporation absorbs the other and remains in existence while the other is
dissolved
23. Consolidation
- a new corporation is created and the consolidating corporations are extinguished
24. Theory of General Capacity
- a corporation is said to hold such powers as are not prohibited/withheld from it by
general law
25. Theory of Special Capacity
- the corporation cannot exercise powers except those expressly/impliedly given
26. Concession Theory
- a group of persons wanting to create a corporation will have to execute documents
and comply with requirements set by the state before being given corporate personality;
merely a privilege; state may provide causes for which the privilege may be withdrawn

27. Votes required in different transactions:

Provision

Subject Matter

Votes required

16

Amendment of AoI

24

Election of Directors or Majority stockholders

Trustees
Removal of directors or 2/3 stockholders
trustees

28

Majority BoD, 2/3

stockholders

Written Notice
Required?
No, written assent
sufficient

Yes

Filling up vacancy in
BoD not due to
removal

Majority BoD

If no BoD quorum,
majority of
stockholders

30

Granting of
compensation to
directors
Ratify dealings or
disloyalty of director
Extend or Shorten
Corporate Term

Majority stockholders

Yes

2/3 stockholders

Yes
Silent for 34
Yes

37

Majority BoD, 2/3

stockholders

Yes

Yes

29

32, 34

Appraisal Right?

Yes extension

38

Increase/Decrease
Capital Stock, Increase
Bonded Indebtedness

Majority BoD, 2/3

stockholders

Yes

No shortening
Yes

40

Sale or Disposition of
Assets
Invest funds in another
corporation

Majority BoD, 2/3

stockholders
Majority BoD, 2/3
stockholders

Yes

Yes

Yes

Yes

Declaration of Stock
Dividends
Declaration of Cash
dividends
Enter into management
contract

Majority BoD, 2/3

stockholders
Majority BoD

Yes

Majority BoD
Stockholders
required vote (2/3 or
majority) depends on
certain conditions
Adoption of By-Laws Majority stockholders
Delegate to BoD power 2/3 stockholders
to amend repeal or
adopt by-laws
Revocation of Power to Majority stockholders
amend/repeal or adopt
by-laws

Yes

48

Amendment of ByLaws

Majority
BoD/stockholders

Yes

Yes

77

Merger or
Majority of BoD of
consolidation (approval each Corporation, 2/3
or amendment of plan)
stockholders
Plan of distribution of
Majority BoD, 2/3
assets for NSCs
members
Voluntary dissolution
Majority BoD, 2.3
stockholders

Yes

Yes

42
43
43
44

46
48
48

95
118, 119

Yes

Yes
Yes

28. Where similar acts have been approved by the directors as a matter of general
practice, custom and policy, the general manager may bind the company even
without formal authorization of the board of directors
29. Powers of stockholders:
a. a direct participation in management - where his vote is needed to approve
certain corporate actions
b. indirect participation in management to vote or remove directors
c. proprietary rights
d. remedial rights
30. Voting Trust Agreement

- an agreement between a group of stockholders and trustee for a term not exceeding 5
years in which control over the stocks is lodged in the trustee. The purpose is for
controlling the voting.
a. in writing, notarized and filed with the SEC and the corporation
b. period not exceeding 5 years
c. cannot be entered into to circumvent the laws against monopolies, illegal
combinations in restraint of trade in fraud
31. Cumulative Voting

the number of votes that a 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 bylaws/articles

32. The power of removal of directors that may be exercised with or without cause
cannot apply to the director representing the minority shareholders. He may only be
removed with cause.
33. General Rule: If surplus profits exceed the requirements the corporation shall
declare dividends. This is compulsory if the surplus is equal/or more than the paidup capital.
Exceptions:
a. justified by approved expansion projects
b. prohibited by creditor to declare dividends
c. retention is necessary under existing circumstances
34. Business Judgment Rule
- decisions made by a 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
35. Individual Suit
- one brought to assert a right of a stockholder peculiar to himself
36. Representative Suit

- brought by the stockholder in his own behalf and in behalf of other stockholders
similarly situated, having common cause against the corporation
37. Derivative Suit
- brought by a stockholder for and in behalf of the corporation to protect/vindicate
corporate rights after he has exhausted intra-corporate remedies
Requisites:
a. cause of action in favor of the corporation
b. refusal of corporation to sue
c. injury to the corporation

Although corporations dissolved have 3 years to wind up, they can convey their
properties to a trustee who can continue the suit beyond the 3 year period. The
lawyer who handled the case in the trial court may be considered as trustee for the
dissolved corporation with respect to the matter in litigation only even if no
appointment was extended to him. (Selano vs. CA)

In a case filed before dissolution, it may continue even beyond the 3 year period until
final determination of litigation. Otherwise, the corporation in liquidation would lose
what justly belongs to them/be exempt from payment of obligations because of a
technicality.

38. Foreign Corporations

a. Doing Business, generally - continuity of commercial dealings incident to
prosecution of purpose and object of the organization. Isolated, occasional or
casual transactions do not amount to engaging in business.
But where the isolated act is not incidental/casual but indicates the foreign
corporations intention to do other business, said single act constitutes engaging in
business in the Philippines.
b. Doing business includes (Foreign Investment Act of 1991):
1. Soliciting orders, service contracts, opening offices, whether called liaison
offices or branches;
2. Appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totaling
one hundred eighty (180) days or more;
3. Participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and

4. Any other act or acts that imply a continuity of commercial dealings or

arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose or object of
the business organization.
a. Doing business does NOT include:
1. Mere investment as a shareholder by a foreign entity in a domestic
corporation duly registered to do business, and/or the exercise of rights as
such investor;
2. Having a nominee director or officer to represent its interests in such
corporation; and
3. Appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;
4. The publication of a general advertisement through any print or broadcast
media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which
are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar incidental
services.
c. Instances when unlicensed foreign corporations can sue:
(1) isolated transactions
(2) action to protect good name, goodwill, and reputation of a foreign corporation
(3) contracts provide that Phil. Courts will be venue to controversies
(4) license subsequently granted enables foreign corporation to sue on contracts
executed before the grant of the license
(5) recovery of misdelivered property
(6) where the unlicensed foreign corporation has a domestic corporation
39. Religious Corporations

a. Corporation Sole
- special form of corporation; associated with the clergy and consists of 1 person
only and his successors; incorporated by law giving them legal capacity and
advantage
b. Close Corporations
- one whose articles provide that its shares shall not be held by more than 20
persons; its issued stock shall be subject to one or more restrictions on transfer and
shall not be listed in any stock exchange/make public offering
c. Non-stock Corporation
- one where no part of its income is distributable to its members and shall be used in
furtherance of the purpose of which it was organized
40. SEC Jurisdiction
a. original and exclusive jurisdiction
(1) fraudulent devices and schemes employed by directors detrimental to public
interest
(2) intra-corporate disputes and with the state in relation to their franchise and
right to exist as such
(3) controversies in the election, appointment of directors, trustees, etc.
(4) petition to be declared in a state of suspension of payments
b. Grounds for Suspension/Revocation of Certificate of Registration
(1) fraud in procuring registration
(2) serious misrepresentation as to objectives of corporation
(3) refusal to comply with lawful order of SEC
(4) continuous inoperation for at least 5 years .
(5) failure to file by-laws within the required period
(6) failure to file reports
(7) other similar grounds

REVISED SECURITIES ACT

1. General Rule: All securities before being offered for sale/actual sale to the public
must first be registered and have the proper permit.
Exception:
a. exempt securities
b. securities emanating from exempt transactions
2. Exempt Securities
a. issued by the government subdivisions/instrumentalities
b. issued by foreign government which the Philippines has diplomatic relations
c. issued by receiver/trustee of an insolvent approved by the court
d. issued by building and loan association
e. issued by receiver/trustee of an insolvent approved by the court
f.

policy of insurance issued by insurance corporation supervised by the insurance

commission

g. security/right/interest in real property including subdivision lot/condominium

supervised by the Ministry of Human Settlements
h. pension plans regulated by BIR/Insurance Commission
3. Exempt Transactions
a. judicial sale by execution, etc. in insolvency
b. sale of pledged property/foreclosed property to liquidate an obligation
c. isolated transactions on securities done by owner/agent
d. stock transfers emanating from mergers and consolidations
e. pre-incorporation subscription
f.

securities issued by public service operator to broaden equity base

4. Grounds for Rejection of Registration

a. application incomplete/untruthful/omits to state a material fact
b. issuer/registrant insolvent, violated code/ SEC rules, engages in fraudulent
transactions
c. issuers business not sound

d. officer, director, stockholders of issuers is disqualified

e. issue would prejudice the public
5. Grounds for Revocation
a. issuer insolvent
b. violated of Code/SEC rules
c. fraudulent transaction
d. dishonesty by issuer/misrepresented prospectus
e. does not conduct business in accordance with law
6. Acts Prohibited
a. manipulation of security prices
b. manipulation of deceptive devices
c. artificial measures of price control
d. fraudulent transactions
e. insider trading
f.

false prospectus, communications, reports

SECURITIES REGULATION CODE OF 2000

(For a memory aid of the IRR of the Securities Regulation Code, see Appendix A )

1. Purpose of the law:

encourage the widest participation of ownership in enterprises;

protect investors, ensure full and fair disclosure about securities;

minimize, if not totally eliminate, insider trading and other fraudulent or

manipulative devices and practices which create distortions in the free market.

2. Powers and Functions of the SEC (Sec 5):

Have jurisdiction and supervision over all entities who are the grantees of primary
franchises and/or a license or permit issued by the Government;

Formulate, amend, or repeal policies and recommendations concerning the

securities market; advise Congress and other government agencies and propose
legislation and amendments;

Handle registration statements, and registration and licensing applications;

Supervise, monitor, suspend or take over the activities of exchanges, clearing

agencies and other SROs;

Impose sanctions for the violation of laws and IRR;

Deputize any and all enforcement agencies of the Government, civil or military as
well as any private institutions,

Issue cease and desist orders to prevent fraud or injury to the investing public;

Punish for contempt, both direct and indirect;

Compel the officers of any registered corporation or association to call meetings

of stockholders or members;

Issue subpoena duces tecum and summon witnesses to appear in any

proceedings, order the examination, search and seizure of all documents,

Suspend, or revoke, after proper notice and hearing, the franchise or certificate
of registration of corporations, partnerships or associations;

3. However, the SECs jurisdiction over all cases enumerated under Section 5 of PD
No. 902-A (intracorporate disputes) has been transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court.
4. Definitions
a. Securities:
i. are shares, participation or interests in a corporation or in a
commercial enterprise or profit-making venture
ii. evidenced by a certificate, contract, instrument, whether written or
electronic in character.
b. An issuer is an originator, maker, obligor, or creator of the security.
c.

A broker is a person engaged in the business of buying and selling

securities for the account of others.

d. A registration statement is the application for the registration of

securities required to be filed with the SEC.

e. A Prospectus is the document made by or on behalf of an issuer,

underwriter or dealer to sell or offer securities for sale to the public
through a registration statement filed with the SEC.
f.

An Underwriter is a person who guarantees on a firm commitment

and/or declared best effort basis the distribution and sale of securities of
any kind by another company.
g. A dealer means any person who buys and sells securities for his/her
own account in the ordinary course of business.
5. All securities must first have a registration statement duly filed with the SEC before
they may be sold or offered for sale or distribution within the Philippines. Prior to any
sale, information on the securities shall be made available to each prospective
purchaser.
6. Securities exempt from registration (Sec. 9):
a. Those issued or guaranteed by the Government of the Philippines, or
by any political subdivision, agency, or instrumentality;
b. Those issued or guaranteed by the government of any country with
which the Philippines maintains diplomatic relations (on the basis of
reciprocity);
c. Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body;
d. The sale of any security, or its derivatives, which, by law, is under the
supervision and regulation of the Office of the Insurance Commission,
Housing and Land Use Regulatory Board, or the Bureau of Internal
Revenue;
e. Any security issued by a bank (except its own shares of stock).
7. How does one partake of an exemption?

Apply for an exemption by filing with the SEC a notice identifying the exemption;

pay to the SEC a fee equivalent to one-tenth (1/10) of one percent (1%) of the
maximum aggregate price or issued value of the securities.

8. Registration of SecuritiesProcedure (Sec. 12):

Filing: The issuer must file in the main office of the SEC,
1. a sworn registration statement with respect to such securities,
2. the registration statement must include any prospectus which may be
required

Signature:
The registration statement shall be signed by the issuers
executive officer, its principal operating officer, its principal financial officer, its
comptroller, principal accounting officer, its corporate secretary or persons
performing similar functions accompanied by a duly verified resolution of the
board of directors of the issuer corporation.

Fees: Upon filing, the issuer shall pay a fee of not more than 1/10 of 1% of the
maximum aggregate price at which such securities are proposed to be offered.

Publication: Notice of the filing of the registration statement shall be

immediately published by the issuer, at its own expense, in two (2) newspapers
of general circulation in the Philippines, once a week for two (2) consecutive
weeks, reciting:
that a registration statement for the sale of such security has been filed,
that the aforesaid registration statement, as well as the papers attached thereto
are open to inspection;
copies, photostatic or otherwise, shall be furnished to interested parties at such
reasonable charge as the SEC may prescribe.

Order: Within forty-five (45) days after the date of filing, the SEC shall declare
the registration statement effective or rejected,

Entry of Order:
statement to be.

Oath by the issuer: Upon effectivity of the registration statement, the issuer
shall state under oath in every prospectus that all registration requirements have
been met and that all information are true and correct as represented by the
issuer or the one making the statement.

The SEC will enter an order declaring the registration

9. A registration statement may be withdrawn by the issuer only with the consent of the
SEC.
10. Suspension of Registration (Sec. 15):

The SEC may suspend registration if the issuer refuses to furnish information
required by the SEC in order to enable it to ascertain whether the registration of
such security should be revoked if it finds that:
a. the information contained in the registration statement filed is or has
become misleading, incorrect, inadequate or incomplete in any material
respect,
b. or the sale or offering for sale of the security registered may work or
tend to work a fraud. The SEC may also suspend the right to sell and
offer for sale such security pending further investigation.

Any sale of the security when the registration is suspended shall be void.

Upon issuance of an order of suspension, the SEC shall conduct a hearing. If it

determines that the sale of any security should be revoked, it shall issue an order
prohibiting the sale of such security.

11. Regulation of Pre-Need Plans (Sec. 16):

a. Pre-Need Plans are contracts which
1. provide for the performance of future services or the payment of future
monetary considerations at the time of actual need,
2. for which planholders pay in cash or installment at stated prices, with or
without interest or insurance coverage and includes life, pension, education,
interment, and other plans which the SEC may from time to time approve.
b. Before any pre-need plan is sold or offered for sale to the public, they must:

be registered;

persons involved in the sale of pre-need plans must be licensed;

there must be disclosures to prospective plan holders;

provide for uniform accounting system, reports and record keeping with
respect to such plans,

impose capital, bonding and other financial responsibility;

and establish trust funds for the payment of benefits under such plans.

12. Reportorial Requirements; Periodic and Other Reports of Issuers (Sec. 17):

Every issuer shall file with the SEC:

Within 135 days, after the end of the issuers fiscal year, an annual report
which shall include, a balance sheet, profit and loss statement and statement
of cash flows, for such last fiscal year, certified by an independent certified
public accountant, and a management discussion and analysis of results of
operations; and

Other periodical reports for interim fiscal periods and current reports on
significant developments of the issuer

12. Protection of Shareholder Interests;

a. Proxy Solicitations (Sec. 20):
ii. must be in writing,
iii.

signed by the stockholder or his duly authorized representative,

iv.

filed before the scheduled meeting with the corporate secretary.

b.

The proxy shall be valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period longer than 5 years
at one time.

Transactions of Directors, Officers and Principal Stockholders (Sec. 23):

Every person who is directly or indirectly the beneficial owner of more than 10%
of any class of any equity security, or who is a director or an officer of the issuer
of such security, shall file:
i. statement with the SEC and, if such security is listed for trading on an
Exchange, also with the Exchange, of the amount of all equity securities of
such issuer of which he is the beneficial owner,
ii. and within 10 days after the close of each calendar month, if there is a change
in ownership during such month, a statement indicating his ownership at the
close of the calendar month and such changes in his ownership as have
occurred during such calendar month.

c. It shall be unlawful for any such beneficial owner, director, or officer, directly or
indirectly, to sell any equity security of such issuer if the person selling the
security or his principal:
i. Does not own the security sold; or
ii. If owning the security, does not deliver it against such sale within 20 days, or
does not within 5 days after such sale, deposit it in the mails or other usual
channels of transportation.
13. Prohibitions on Fraud, Manipulation and Insider Trading
a. An Insider means:
i. the issuer;
ii. a director or officer (or person performing similar functions) of, or a person
controlling the issuer;
iii.
a person whose relationship or former relationship to the issuer gives or
gave him access to material information about the issuer or the security that is
not generally available to the public;

iv.
a government employee, or director, or officer of an exchange, clearing
agency and/or self-regulatory organization who has access to material
information about an issuer or a security that is not generally available to the
public; or
v.a person who learns such information by a communication from any of the
foregoing insiders.
14. Manipulation of Security Prices; Devices and Practices (Sec. 24):
a. It shall be unlawful for any person, directly or indirectly:
i. To create a false or misleading appearance of active trading in any listed
security traded in an Exchange or any other trading market:
ii. To effect, alone or with others, a series of transactions in securities that:
1. Raises their price to induce the purchase of a security,
2. Depresses their price to induce the sale of a security,
3. Creates active trading to induce such a purchase or sale through
manipulative devices
iii.
To circulate or disseminate information that the price of any security listed
in an Exchange will or is likely to rise or fall because of manipulative market
operations
iv.
To make false or misleading statements with respect to any material fact,
which he knew or had reasonable ground to believe was so false or misleading,
for the purpose of inducing the purchase or sale of any security listed or traded
in an Exchange.
v.To effect any series of transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing or stabilizing the price
of such security, unless otherwise allowed by this Code.
15. Fraudulent Transactions (Sec. 26):
a. It shall be unlawful for any person, directly or indirectly, in connection with
the purchase or sale of any securities to:
i. Obtain money or property by means of any untrue statement of a material fact
ii. Engage in any act, transaction, practice or course of business, which operates
as a fraud or deceit upon any person.
b. Insiders Duty to Disclose When Trading (Sec. 27):
i. It shall be unlawful for an insider to sell or buy a security of the issuer, while in
possession of material information with respect to the issuer or the security that
is not generally available to the public, unless:

ii. The insider proves that the information was not gained from such relationship;
or
iii.
If the other party selling to or buying from the insider (or his agent) is
identified, and the insider proves:
1. that he disclosed the information to the other party, or
2. that he had reason to believe that the other party otherwise is also in
possession of the information.
c. It shall be unlawful for any insider to communicate material non-public
information about the issuer or the security to any person who, by virtue of the
communication, becomes an insider, where the insider communicating the
information knows or has reason to believe that such person will likely buy or sell
a security of the issuer while in possession of such information. Information is
material non-public if:
i. It has not been generally disclosed to the public and would likely affect the
market price of the security; or
ii. would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy, sell or hold a
security.
16. Regulation of Securities Market Professionals
a. An associated person of a broker or dealer is an employee who, directly
exercises control of supervisory authority, but does not include a salesman, or an
agent or a person whose functions are solely clerical or ministerial.
b. A Salesman is a natural person, employed as such or as an agent, by a
dealer, issuer or broker to buy and sell securities.
17. Registration of Brokers, Dealers, Salesmen and Associated Persons (Sec. 28):

No person shall engage in the business of buying or selling securities

in the Philippines as a broker or dealer, or act as a salesman, or an
associated person of any broker or dealer unless registered as such
with the SEC.

18. The qualifications of Brokers, Dealers, Salesmen and Associated Persons

(hereinafter, the applicant for registration) are the following:
a. If a natural person, the applicant must satisfactorily pass a written examination;
b. In the case of a broker or dealer, the applicant satisfy a minimum net capital as
prescribed by the SEC, and provide a bond or other security

c. If located outside of the Philippines, the applicant must file a written consent to
service of process upon the SEC.
19. Transactions and Responsibility of Brokers and Dealers (Sec. 30):

No broker or dealer shall deal in or otherwise buy or sell, for its own account or
for the account of customers, when:
a) The securities listed on the Exchange and dealt, are issued by a corporation,
b) When such corporations stockholder, director, associated person or
salesman is at the time holding office in said issuer corporation as a director,
president, vice-president, manager, treasurer, comptroller, secretary or any
office of trust and responsibility, or is a controlling person of the issuer.

20. Exchanges and Other Securities Trading Markets

a. Segregation and Limitation of Functions of Members, Brokers and Dealers
(Sec. 34): It shall be unlawful for any member-broker of an Exchange to effect
any transaction on such Exchange for its own account, the account of an
associated person, or an account with respect to which it or an associated
person exercises investment discretion.
However, the following shall not be unlawful:
i. Any transaction by a member-broker acting in the capacity of a market maker;
ii. Any transaction reasonably necessary to carry on an odd-lot transactions;
iii.

Any transaction to offset a transaction made in error; and

iv.

Any other transaction of a similar nature as may be defined by the SEC.

b. Powers with Respect to Exchanges and Other Trading Market (Sec. 36):
The SEC is authorized (provided there is notice and an opportunity for
hearing):
i. To summarily suspend trading in any listed security on any Exchange or other
trading market for a period not exceeding thirty (30) days or,
ii. with the approval of the President of the Philippines, summarily to suspend all
trading on any securities Exchange or other trading market for a period of more
than thirty (30) but not exceeding ninety (90) days;
iii.
to determine the number, size and location of stock Exchanges, other
trading markets and commodity Exchanges and other similar organizations
iv.
to establish or facilitate the establishment of trust funds which shall be
contributed by Exchanges, brokers, dealers, underwriters, transfer agents,
salesmen and other persons transacting in securities, for the purpose of
compensating investors for the extraordinary losses or damage they may suffer

due to business failure or fraud or mismanagement of the persons with whom

they transact,
v.take custody and management of the fund itself as well as investments in and
disbursements from the funds
21. Registration, Responsibilities and Oversight of Self-Regulatory Organizations
(Sec. 40):
i. The SEC, after making an appropriate request in writing to a self-regulatory
organization, to effect specified changes in its rules and practices only after due
notice and hearing that such changes are necessary.
ii. The SEC, after due notice and hearing, is authorized, in the public interest and
to protect investors if it finds that a self-regulatory organization has willfully
violated or is unable to comply with any provision of this Code to suspend,
impose limitations, expel any member, or to remove a member from office.
22. Acquisition and Transfer of Securities and Settlement of Transactions in
Securities
a. A Clearing Agency is any person who acts as intermediary in making
deliveries upon payment to effect settlement in securities transactions.
b. Exchange is an organized marketplace or facility that brings together buyers
and sellers and executes trades of securities and/or commodities.
23. Uncertificated Securities (Sec. 43):
A corporation whose securities are registered pursuant to this Code or listed on a
securities Exchange may:
a. If approved by a Board resolution and agreed by a shareholder, investor or
securities intermediary, issue shares to, or record the transfer of some or all of its
shares in the form of uncertificated securities.
b. If so provided in its articles of incorporation and by-laws, issue all of the shares of
a particular class in the form of uncertificated securities and subject to a condition
that investors may not require the corporation to issue a certificate in respect of
any shares recorded in their name.
24. Evidentiary Value of Clearing Agency Record (Sec. 44.):
a. The official records and book entries of a clearing agency shall constitute the
best evidence of such transactions between the clearing agency and its
participants and members.
b. But this is without prejudice to the right of participants or members clients to
prove their rights, title and entitlement with respect to the book-entry security
holdings of the participants or members held on behalf of the clients.

25. Restrictions on Borrowings by Members, Brokers, and Dealers (Sec. 49):

It shall be unlawful for any registered broker or dealer, or member of an
Exchange, directly or indirectly:
a. To permit an aggregate indebtedness to exceed the percentage of the net capital
(exclusive of fixed assets and value of Exchange membership) employed in the
business, but not exceeding 2,000%.
b. To encumber or arrange to encumber any security carried for the account of any
customer under circumstances:
c. that will permit the commingling of his securities, without his written consent, with
the securities of any customer;
d. that will permit such securities to be commingled with the securities of any
person other than a bona fide customer; or
e. that will permit such securities to be encumbered, or subjected to any lien or
claim for a sum in excess of the aggregate indebtedness of such customers in
respect of such securities.
f.

To lend or arrange for the lending of any security carried for the account of any
customer without the written consent of such customer or in contravention of the
SECs IRRs.

26. General Provisions

a. Civil Liabilities

b.

(Sec. 56)

(Sec. 57)

For Fraud in Connection With Securities Transactions (Sec. 58)

For Manipulation of Security Prices (Sec. 59)

With Respect to Commodity Futures Contracts and Pre-need Plans (Sec. 60)

On Account of Insider Trading (Sec. 61)

Limitation of Actions (Sec. 62):

For actions which arise

i. On Account of False Registration Statement
ii. Arising in Connection With Prospectus, Communications and Reports

Such action must be brought within two (2) years after the discovery of the
untrue statement or the omission

c. Actions arising from any other provision of this Code must be brought:

within two (2) years after the discovery of the facts constituting the cause of
action and within five (5) years after such cause of action accrued.

d. Cease and Desist Orders by the SEC.

i. General rule:
Whenever it shall appear that any person has engaged or
is about to engage in any act or practice which would violate this Code, the
SEC may issue an order to such person to desist from committing such act or
practice.
ii. Exception: The SEC cannot charge any person with a violation of the rules of
an Exchange or other self regulatory organization unless it appears to the SEC
that such Exchange or other self-regulatory organization is unable or unwilling
to take action against such person.
iii.
Exception to the exception: If the SEC makes a finding that there is a
reasonable likelihood of continuing, further or future violations by such person,
then an ex-parte cease and desist order for a maximum period of ten (10) days
can be issued, enjoining the violation and compelling compliance with such
provision.
e. Settlement Offers (Sec. 55):
Procedure:
i. Parties being investigated and/or charged may propose in writing an offer of
settlement with the SEC.
ii. Upon receipt of such offer of settlement, the SEC may consider the offer based
on timing, the nature of the investigation or proceeding, and the public interest.
f.

Power of the SEC with regard to Special Accounting Rules (Sec. 68):
i. the authority to make, amend, and rescind such accounting rules and
regulations as may be necessary to carry out the provisions of this Code,
ii. prescribe the form or forms in which required information shall be set forth, the
items or details to be shown in the balance sheet and income statement, and
the methods to be followed in the preparation of accounts, appraisal or
valuation of assets and liabilities,

g. Judicial Review of SEC Orders (Sec. 70):

Any person aggrieved by an order of the SEC may appeal the order to the Court of
Appeals by petition for review in accordance with the pertinent provisions of the
Rules of Court.
h. Validity of Contracts (Sec. 71):
i. Any condition, stipulation, provision which binds any person to waive
compliance with any provision of this Code or IRR, as well as the waiver itself,
shall be void.
ii. Every contract made in violation of any provision of this Code or IRR, the
performance of which involves the violation of, or the continuance of any
violation of, any provision of this Code r IRR, shall be void

GENERAL BANKING LAW OF 2000

1. Classifications of Banks:
(d) Universal banks;
(e) Commercial banks;
(f) Thrift banks, composed of:
i. Savings and mortgage banks,
ii. Stock savings and loan associations, and
iii.
Private development banks, as defined in the Republic Act No. 7906
(hereafter the Thrift Banks Act);
(g) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks
Act");
(h) Cooperative banks, as defined in Republic Act No 6938 (hereafter the
"Cooperative Code");
(i) Islamic banks as defined in Republic Act No. 6848, otherwise known as the
Charter of Al Amanah Islamic Investment Bank of the Philippines; and
(j) Other classifications of banks as determined by the Monetary Board of the
Bangko Sentral ng Pilipinas
2. Authority of the Central Bank
a. The issuance of rules of, conduct or the establishment standards of operation
for uniform application to all institutions or functions covered, taking into
consideration the distinctive character of the operations of institutions and the

substantive similarities of specific functions to which such rules, modes or

standards are to be applied;
b. The conduct of examination to determine compliance with laws and regulations
if the circumstances so warrant as determined by the Monetary Board;
c. Overseeing to ascertain that laws and regulations are complied with;
d. Regular investigation which shall not be oftener than once a year from the last
date of examination to determine whether an institution is conducting its
business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;
e. Inquiring into the solvency and liquidity of the institution (2-D); or
f.

Enforcing prompt corrective action.

3. Foreign individuals and non-bank corporations may own or control up to 40% of the
voting stock of a domestic bank. This rule shall apply to Filipinos and domestic nonbank corporations.
4. Except as otherwise provided in the Rural Banks Act, no appointive or elective public
official whether full-time or part-time shall at the same time serve as officer of any
private bank, save in cases where such service is incident to financial assistance
provided by the government or a government owned or controlled corporation to the
bank or unless otherwise provided under existing laws.
5. The banking industry is hereby declared as indispensable to the national interest and
any strike or lockout involving banks, if unsettled after seven (7) calendar days shall
be reported by the Bangko Sentral to the secretary of Labor who may assume
jurisdiction over the dispute or decide it or certify the same to the National Labor
Relations Commission for compulsory arbitration. However, the President of the
Philippines may at any time intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same.
6. Powers of a Universal Bank
a. Exercise powers of an investment bank
b. Invest in equities of allied (financial or non-financial) and non-allied enterprises
c. Can own up to 100% of the equity in a thrift bank, a rural bank or a financial allied
or non-allied enterprise
d. Powers as may be necessary to carry on the business of commercial banking
such as
i. Accepting drafts and negotiating promissory notes
ii. Discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt

iii.

Accepting or creating demand deposits

iv.

Receiving other types of deposits and deposit substitutes

v.Buying and selling foreign exchange and gold or silver bullion

vi.

Acquiring marketable bonds and other debt securities

vii.

Extending credit

7. The Monetary Board shall prescribe the minimum ratio which the net worth of a bank
must bear to its total risk assets, which may include contingent accounts.
8. Limit on Loans, Credit Accommodations and Guarantees: not exceed 20% of the net
worth of the bank. But may be increased by an additional 10% provided the
additional liabilities of any borrower are adequately secured by trust receipts,
shipping documents, warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable goods, fully covered by
insurance.
9. Loans and other credit accommodations against real estate shall not exceed 75% of
the appraised value of the appraised value of the respective real estate security, plus
60% of the appraised value of the insured improvements and such loans may be
made to the owners of the real estate and his assignees (same rule for security of
chattels and intangible properties)
10. A borrower may at any time prior to the agreed maturity date prepay, in whole or in
part, the unpaid balance of any bank loan and other credit accommodation, subject
to such reasonable terms and conditions as maybe agreed upon between the bank
and its borrower.
11. A bank shall not directly engage in insurance business as the insurer.
12. Prohibited transactions of a director, offer, employee or agent of the bank:
(b) Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or causing
damage to, the bank or any person;
(c) Without order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in the
custody of the bank belonging to private individuals, corporations, or any
other entity: Provided, That with respect to bank deposits, the provisions of
existing laws shall prevail;
(d) Accept gifts, fees, or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation from
said bank;

(e) Overvalue or aid in overvaluing any security for the purpose of influencing in
any way the actions of the bank or any bank; or
(f) Outsource inherent banking functions.
13. Prohibited transactions of a borrower:

Fraudulently overvalue property offered as security for a loan or other credit

accommodation from the bank;

Furnish false or make misrepresentation or suppression of material facts for

the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;

Attempt to defraud the said bank in the event of a court action to recover a
loan or other credit accommodation; or

Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.

14. The Bangko Sentral shall have full authority to regulate the use of electronic devices,
such as computers, and processes for recording, storing and transmitting
information or data in connection with the operations of a bank; quasi-bank or trust
entity, including the delivery of services and products to customers by such entity.
15. Every bank, quasi-bank or trust entity shall submit to the appropriate supervising and
examining department of the Bangko Sentral financial statements in such form and
frequency as maybe prescribed by the BSP.
16. The financial statements must be published in English or Filipino at least once every
quarter in a newspaper of general circulation in the city or province of the principal
office (if none, in a newspaper published in Metro Manila or in the nearest city or
province).
17. No person, association, or corporation unless duly authorized to engage in the
business of a bank, quasi-bank, trust entity, or savings and loan association as
defined in this Act, or other banking laws, shall advertise or hold itself out as being
engaged in the business of such bank, quasi-bank, trust entity, or association, or
use in connection with its business title, the word or words bank, banking,
banker, quasi-bank, quasi-banking, quasi-banker, savings and loan
association, trust corporation, trust company or words of similar import or
transact in any manner the business of any such bank, corporation or association.
18. Cessation of Banking Business
a. Voluntary Liquidation written notice sent to Monetary Board who has right
to intervene before liquidation is undertaken to protect interests of creditors.

b. Receivership and involuntary liquidation grounds and procedure under

New Central Bank Act but petitioner is required to post a bond in favor of
Bangko Sentral
19. Conduct of offshore banking is governed by PD 1034 (Offshore Banking System
Decree)
20. Within 7 years from effectivity of Act (year 2007), a foreign bank may acquire up to
100% of the voting stock of only 1 bank organized under Philippine laws.
21. Only a stock corporation or a person duly authorized by the Monetary Board to
engage in trust business shall act as a trustee or administer any trust or hold
property in trust or on deposit for the use, benefit, or behoof of others. For purposes
of this Act, such a corporation shall be referred to as a trust entity.
22. Powers of a Trust Entity:

Act as trustee on any mortgage or bond issued by any municipality,

corporation, or any body politic and to accept and execute any trust
consistent with law;

Act under the order or appointment of any court as guardian, receiver,

trustee, or depositary of the estate of any minor or other incompetent person,
and as receiver and depositary of any moneys paid into court by parties to
any legal proceedings and of property of any kind which may be brought
under the jurisdiction of the court;

Act as the executor of any will when it is named the executor thereof;

Act as administrator of the estate of any deceased person, with the will
annexed, or as administrator of the estate of any deceased person when
there is no will;

Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and
profits thereof; and

Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board.

23. Before transacting trust business, trust entity is required to deposit security of at least
500,000 pesos.
24. Within 3 years from effectivity of this Act (2003), BSP shall pahse out and transfer its
supervising and regulatory powers over building and loan associations to the Home
Insurance an Guaranty Corporation.

THE NEW CENTRAL BANK ACT

1. The BSP

The central monetary authority (the Bangko Sentral ng Pilipinas) established under
this Act, while being a government-owned corporation, shall enjoy fiscal and
administrative autonomy.

Responsibility of the BSP:

a) provide policy directions in the areas of money, banking, and credit.
b) supervision over the operations of banks
c) exercise such regulatory powers as provided in this Act and other pertinent laws

Primary objective:
a) maintain price stability conducive to a balanced and sustainable growth of the
economy
b) promote and maintain monetary stability and the convertibility of the peso.

2. The Monetary Board

The powers and functions of the Bangko Sentral shall be exercised by the Bangko
Sentral Monetary Board, hereafter referred to as the Monetary Board which is
composed of seven (7) members appointed by the President of the Philippines for a
term of six (6) years.

The seven (7) members are: the Governor of the Bangko Sentral, a member of the
Cabinet to be designated by the President of the Philippines and five (5) members
who shall come from the private sector.

No member of the Monetary Board may be reappointed more than once.

Any vacancy in the Monetary Board shall be filled by the appointment of a new
member to complete the unexpired period of the term of the member concerned.

The President may remove any member of the Monetary Board for any of the
following reasons:
a) the member falls under the enumeration of disqualifications
b) if he is physically or mentally incapacitated that he cannot properly discharge his
duties and responsibilities and such incapacity has lasted for more than 6 months
c) the member is guilty of acts or operations which are of fraudulent or illegal
character or which are manifestly opposed to the aims and interests of the BSP

d) the member no longer possesses the qualifications specified in this Act.

3. Operations of the Bangko Sentral

The Bangko Sentral shall have the authority to request from government offices and
instrumentalities, or government-owned or controlled corporations, any data which it
may require for the proper discharge of its functions and responsibilities.

The Bangko Sentral through the Governor or in his absence, a duly authorized
representative shall have the power to issue a subpoena for the production of the
books and records for the aforesaid purpose.

Appointment of Conservator:
a) Whenever, the Monetary Board finds that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors,
b) The conservator shall report and be responsible to the Monetary Board and shall
have the power to overrule or revoke the actions of the previous management
and board of directors of the bank or quasi-bank.
c) The conservator should be competent and knowledgeable in bank operations
and management. The conservatorship shall not exceed one (1) year.
d) The conservator shall receive; the Monetary Board may appoint a conservator
connected with the Bangko Sentral, in which case he shall not be entitled to
receive any remuneration or emolument; the expenses attendant to the
conservatorship shall be borne by the bank or quasi-bank concerned.
e) The Monetary Board shall terminate the conservatorship:
1) when it is satisfied that the institution can continue to operate on its own and
the conservatorship is no longer necessary
2) when it is determined that the continuance in business of the institution would
involve probable loss to its depositors or creditors

In these cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution:
(a) is unable to pay its liabilities as they become due in the ordinary course of
business

Provided, That this shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet
its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the
institution;

The actions of the Monetary Board regarding rehabilitation and liquidation shall be
final and executory, and may not be restrained or set aside by the court except on
petition for certiorari on the ground that the action taken was in excess of jurisdiction
or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.
The petition for certiorari may only be filed by the stockholders of record representing
the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or
conservatorship.

The Bangko Sentral shall publish a general balance sheet showing the volume and
composition of its assets and liabilities as of the last working day of the month within
sixty (60) days after the end of each month except for the month of December, which
shall be submitted within ninety (90) days after the end hereof.

4. The Auditor

The Chairman of the Commission on Audit shall act as the ex officio auditor of the
Bangko Sentral and, as such, he is empowered and authorized to appoint a
representative who shall be the auditor of the Bangko Sentral.

5. Currency

The unit of monetary value in the Philippines is the "peso," which is represented by
the sign "P."

The Bangko Sentral shall have the sole power and authority to issue currency, within
the territory of the Philippines.

The Bangko Sentral shall have the authority to investigate, make arrests, conduct
searches and seizures in accordance with law, for the purpose of maintaining the
integrity of the currency.

Notes and coins issued by the Bangko Sentral shall be liabilities of the Bangko
Sentral and may be issued only against, and in amounts not exceeding, the assets of
the Bangko Sentral. Said notes and coins shall be a first and paramount lien on all
assets of the Bangko Sentral.

The Bangko Sentral's holdings of its own notes and coins shall not be considered as
part of its currency issue and, accordingly, shall not form part of the assets or
liabilities of the Bangko Sentral.

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private

Unless otherwise fixed by the Monetary Board, coins shall be legal tender in
amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five
centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less.

Rules on Retirement of Old Notes and Coins:

a) The Bangko Sentral may call in for replacement notes of any series or
denomination which are more than five (5) years old and coins which are more
than (10) years old.
b) Notes and coins called in for replacement in accordance with this provision shall
remain legal tender for a period of one (1) year from the date of call.
c) After this period, they shall cease to be legal tender but during the following year,
or for such longer period as the Monetary Board may determine, they may be
exchanged at par and without charge in the Bangko Sentral and by agents duly
authorized by the Bangko Sentral for this purpose.
d) After the expiration of this latter period, the notes and coins which have not been
exchanged shall cease to be a liability of the Bangko Sentral and shall be
demonetized.
e) The Bangko Sentral shall also demonetize all notes and coins which have been
called in and replaced.

6. Demand Deposits

The term "demand deposits" means all those liabilities of the Bangko Sentral and
of other banks which are denominated in Philippine currency and are subject to
payment in legal tender upon demand by the presentation of checks.

Only banks duly authorized to do so may accept funds or create liabilities payable in
pesos upon demand by the presentation of checks, and such operations shall be
subject to the control of the Monetary Board in accordance with the powers granted it
with respect thereto under this Act.

Checks representing demand deposits do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the
creditor:

Provided, however, That a check which has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to
the amount credited to his account.
7. Guiding Principles of Monetary Administration by the Bangko Sentral

Action When Abnormal Movements Occur in the Monetary Aggregates,

Credit, or Price Level:

(a) take such remedial measures as are appropriate and within the powers granted
to the Monetary Board and the Bangko Sentral under the provisions of this Act;
and
(b) submit to the President of the Philippines and the Congress, and make public, a
detailed report which shall include, as a minimum, a description and analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or in
prices have been reflected in changes in the level of domestic output,
employment, wages and economic activity in general, and the nature and
significance of any such changes; and
(3) the measures which the Monetary Board has taken and the other monetary,
fiscal or administrative measures which it recommends to be adopted.

In order to maintain the international stability and convertibility of the Philippine peso,
the Bangko Sentral shall maintain international reserves adequate to meet any
foreseeable net demands on the Bangko Sentral for foreign currencies.

The following are situations which are considered threats to the stability of the
Peso:
a) whenever the international reserve of the Bangko Sentral falls to a level which
the Monetary Board considers inadequate to meet prospective net demands on
the Bangko Sentral for foreign currencies, or
b) whenever the international reserve appears to be in imminent danger of falling to
such a level, or
c) whenever the international reserve is falling as a result of payments or
remittances abroad which, in the opinion of the Monetary Board, are contrary to
the national welfare,

Action When the International Stability of the Peso Is Threatened

(a) take such remedial measures as are appropriate and within the powers granted
to the Monetary Board and the Bangko Sentral under the provisions of this Act;
and
(b) submit to the President of the Philippines and to Congress a detailed report of
the circumstances of the situation

If the resultant actions fails, the Monetary Board shall propose to the President, with
appropriate notice of the Congress, such additional action as it deems necessary to
restore equilibrium in the international balance of payments of the Philippines.

8. Rules on Foreign Exchange Holdings of the Banks:

a) the Monetary Board may require the banks to sell to the Bangko Sentral or to
other banks all or part of their surplus holdings of foreign exchange.
b) such transfers may be required for all foreign currencies or for only certain of
such currencies, according to the decision of the Monetary Board
c) the transfers shall be made at the rates established under the provisions of this
Act
NOTE: The Monetary Board may, whenever warranted, determine the net assets
and net liabilities of banks
8. Rules on Issue and Negotiation of Bangko Sentral Obligations:
1) Issuance of such certificates of indebtedness shall be made only in cases of
extraordinary movement in price levels.
2) Said evidences of indebtedness may be issued directly against the international
reserve of the Bangko Sentral or against the securities which it has acquired or
may be issued without relation to specific types of assets of the Bangko Sentral.
3) The Monetary Board shall determine the interest rates, maturities and other
characteristics of said obligations of the Bangko Sentral, and may, if it deems it
advisable, denominate the obligations in gold or foreign currencies.
4) The evidences of indebtedness of the Bangko Sentral may be acquired by the
Bangko Sentral before their maturity, either through purchases in the open
market or through redemptions at par and by lot if the Bangko Sentral has
reserved the right to make such redemptions.
5) The evidences of indebtedness acquired or redeemed by the Bangko Sentral
shall not be included among its assets, and shall be immediately retired and
cancelled.
9. Bank Reserves

All banks operating in the Philippines shall be required to maintain reserves against
their deposit liabilities:

Provided, That the Monetary Board may, at its discretion, also require all banks and/or
quasi-banks to maintain reserves against funds held in trust and liabilities for deposit
substitutes.

The Monetary Board may exempt from reserve requirements deposits and deposit
substitutes with remaining maturities of two (2) years or more, as well as interbank
borrowings.

Since the requirement to maintain bank reserves is imposed primarily to control

the volume of money, the Bangko Sentral shall not pay interest on the reserves
maintained with it unless the Monetary Board decides otherwise as warranted by
circumstances.

10. BSP as the Banker of the Government

Functions of the Bangko Sentral:

a) shall act as a banker of the Government, its political subdivisions and

instrumentalities.
b) shall represent the Government in all dealings, negotiations and transactions with
the International Monetary Fund
c) may be authorized by the Government to represent it in dealings with other
foreign or international financial institutions
d) shall be the official depository of the Government
e) shall open a general cash account for Treasurer of the Philippines, in which liquid
funds of the Government shall be deposited; transfers of funds from this account
to other accounts shall be made only upon order of Treasurer of the Philippines

The Bangko Sentral may engage the services of other government-owned and
controlled banks and of other domestic banks for operations in localities at home or
abroad in which the Bangko Sentral does not have offices or agencies adequately
equipped to perform said operations:

Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral
may engage the services of foreign banking and financial institutions.

The issue of securities representing obligations of the Government, its political

subdivisions or instrumentalities, may be made through the Bangko Sentral

Provided, however, That the Bangko Sentral shall not guarantee the placement of said
securities, and shall not subscribe to their issue except to replace its maturing holdings
of securities with the same type as the maturing securities.

11. BSP as the Financial Advisor of the Government

The Government, through the Secretary of Finance, shall request the opinion, in
writing, of the Monetary Board on the monetary implications of the following actions:
a) Before undertaking any credit operation abroad
b) Before any credit operation abroad is undertaken by all political subdivisions and
instrumentalities of the Government.
c) Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines

12. Privileges and Prohibitions

The Bangko Sentral shall be exempt for a period of five (5) years from the approval
of this Act from all national, provincial, municipal and city taxes, fees, charges and
assessments.

The exemption authorized in the preceding paragraph shall apply:

a) to all property of the Bangko Sentral,
b) to the resources, receipts, expenditures, profits and income of the Bangko
Sentral,
c) to all contracts, deeds, documents and transactions related to the conduct of the
business of the Bangko Sentral

Said exemptions shall apply only to such taxes, fees, charges and assessments for
which the Bangko Sentral itself would otherwise be liable, and shall not apply to
taxes, fees, charges, or assessments payable by persons or other entities doing
business with the Bangko Sentral

Foreign loans and other obligations of the Bangko Sentral shall be exempt, both as
to principal and interest, from any and all taxes if the payment of such taxes has
been assumed by the Bangko Sentral.

The importation and exportation by the Bangko Sentral of notes and coins, and of
gold and other metals to be used for purposes authorized under this Act, and the
importation of all equipment needed for bank note production, minting of coins, metal
refining and other security printing operations shall be fully exempt from all customs
duties and consular fees and from all other taxes, assessments and charges related
to such importation or exportation.

Appointments in the Bangko Sentral, except as to those which are policydetermining, primarily confidential or highly technical in nature, shall be made only
according to the Civil Service Law and regulations

Officers and employees of the Bangko Sentral, including all members of the
Monetary Board, shall not engage directly or indirectly in partisan activities or take
part in any election except to vote.

The Bangko Sentral shall not acquire shares of any kind or accept them as collateral,
and shall not participate in the ownership or management of any enterprise, either
directly or indirectly.

The Bangko Sentral shall not engage in development banking or financing: Provided,
however, That outstanding loans obtained or extended for development financing
shall not be affected by the prohibition

13. Transitory Provisions

Within a period of three (3) years but in no case longer than five (5) years from the
approval of this Act, the Bangko Sentral shall phase out all fiscal agency functions
transfer the same to the Department of Finance.

The Bangko Sentral shall, within a period of five (5) years from the effectivity of this
Act, phase out its regulatory powers over finance companies without quasi-banking
functions and other institutions performing similar functions as provided in existing
laws, the same to be assumed by the Securities and Exchange Commission. .

No preferential or priority right shall be given to or enjoyed by any personnel for

appointment to any position in the new staffing pattern, nor shall any personnel be
considered as having prior or vested rights with respect to retention in the Bangko
Sentral or in any position which may be created in the new staffing pattern, even if he
should be the incumbent of a similar position prior to organization.

All powers, duties and functions vested by law in the Central Bank of the Philippines
not inconsistent with the provisions of this Act shall be deemed transferred to the
Bangko Sentral ng Pilipinas. All references to the Central Bank of the Philippines in
any law or special charters shall be deemed to refer to the Bangko Sentral.

SECRECY OF BANK DEPOSITS

1. Deposits in banks, including government banks, may not be inquired into by
any person, except:
a. if depositor agrees in writing
b. impeachment cases
c. by court order in cases of bribery and dereliction of duty against public officials
d. deposit is subject of litigation
e. anti-graft cases

f.

general and special examination of bank order of the Monetary Board of bank
fraud or serious irregularity

g. re-examination made by an independent auditor hired by a bank to conduct its

regular trust

UNIFORM CURRENCY LAW

1. Obligations Null and Void
a. obligations payable in gold/foreign currency
b. obligations payable in Philippine currency but measured in gold/foreign currency
2. Exempt Transactions
a. government to government transactions or with international banking institutions
b. transactions affecting high priority economic projects
c. forward exchange transactions between banks
d. import and export and other international banking, financial, investment and
industrial transactions
3. Merchants and Commercial Transactions

Classes of Investments:
a. Permitted - one allowed without need of prior authority from the Philippine
Government.
If registered status, invest up to extent as not to affect its registered status.
If enterprise not registered, investment not to exceed 40%.
b. Permissible - invest in excess of 40% in unregistered enterprise but with
prior approval of BOI
c. Pioneer Area
(a)

involves manufacturing, processing, production of product not produced at

all/produced in non-commercial scale;

(b)

uses a design, scheme, formula that is new and untried in the Phils.;

(c)

agricultural activities/services essential to the attainment of food sufficiency;

(d)

produces non-conventional fuels/utilizes non-conventional sources of

energy (all others are non-pioneer)

4. Absolutely Disqualified to become Merchants

a. serving penalty of civil interdiction
b. insolvent
c. absolutely disqualified by special laws
5. Relatively Disqualified
a. judicial and prosecuting officials in active service
b. administrative, economic, military chiefs
c. government collection agents and custodian of funds
d. stock and commercial brokers
e. by special laws cannot trade in specified territories
6. Books a Merchant must keep
a. book of inventories and balances, statement of assets, liabilities and capital
b. journal of day to day operations
c. ledger for classifying accounts
d. copying book for letters and telegrams; if juridical person, include book of minutes
and stock and transfer book
7. Probative Value of Merchants Book
a. evidence against merchants themselves
b. in case of conflicts between 2 books - that which s properly kept prevails
c. if one keeps books and the other does not and cannot explain why, the former
prevails
d. if both books are properly kept and there is a conflict, other proofs can be
resorted to
8. Commercial Contracts by Correspondence are perfected from the moment the
offeree accepts the offer, even before knowledge of said acceptance by the offeror.
This does not apply to deposit, guaranty, sales, loan, agency, partnership.

9. Joint Account Partnership - business arrangement whereby 2 or more persons

interest themselves in the business of another by making contributions thereto and
participating in the results thereof
a. only one member is ostensible, others are silent
b. no common name
c. only ostensible partners can sue/be sued
d. no juridical personality

INSOLVENCY LAW
1. Distinguish Suspension of Payment and Insolvency
Suspension of Payment

Insolvency

debtor has enough assets to meet liabilities but Debtor has more liabilities than assets
cannot meet them as they fall due
always initiated by debtor

Initiated by creditors/other persons if involuntary;

initiated by debtor if voluntary

2. Fraudulent Preference - any act of insolvent which gives rise/has tendency to give
preference to a creditor to the assets of the insolvent prejudicial to the right of other
creditors of said insolvent
3. Effect on Actions Upon Adjudication of Insolvency
a. suits pending in court
(1) secured obligations suspended until assignee appointed
(2) unsecured obligations terminated except to fix amount of obligation
(3) foreclosure suits pending continue
b. suit not yet filed - cannot be filed anymore, but claims may be presented to
assignee
4. Debts and Obligations not Affected by Discharge of Insolvent
a. assessments due to national and local government
b. debts due to fraud/embezzlement
c. debts in which he is bound solidarily
d. alimony

e. corporate debts
f.

debts not included in the schedule submitted by debtor

TRUTH IN LENDING ACT (R.A. No. 3765)

1. This is an act to require the disclosure of finance charges in connection with
extensions of credit.
2. The policy of the State is to protect its citizens from a lack of awareness of the true
cost of credit to the user by assuring a full disclosure of such cost with a view of
preventing the uninformed use of credit to the detriment of the national economy.
3. The creditor is required to furnish to the debtor a clear statement in writing
setting forth the following information:
(1)

the cash price or delivered price of the property or service to be acquired;

(2)

the amounts, if any, to be credited as down payment and/or trade-in;

(3)

the difference between the amounts set forth under clauses (1) and (2);

(4)

the charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension
of credit;

(5)

the total amount to be financed;

(6)

the finance charge expressed in terms of pesos and centavos; and

(7)

the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.

A final judgment rendered in any criminal proceeding under this Act to the effect that a
defendant has wilfully violated this Act shall be prima facie evidence against such
defendant in an action or proceeding brought by any other party against such defendant
under this Act as to all matters respecting which said judgment would be an estoppel as
between the parties thereto.

PRICE TAGS LAW

1. It requires articles of commerce sold at retail to bear prices.

JOINT ACCOUNTS

1. It exists when a merchant interests himself in the transaction of another merchant,

contributing thereto the amount of capital they may agree upon, and participating in
the favorable or unfavorable results thereof in the proportion they may determine.
2. Joint accounts do not adopt a firm name.
3. No suit may be maintained - investor and third persons dealing with the merchant
conducting business.
4. It is not subject to any formal requirement for validity; it may be oral.

WAREHOUSE RECEIPTS LAW

1. Warehouse - a building or place where goods are deposited and stored for profit.
2. Warehouseman - person lawfully engaged in the business of storing goods for
profit.

Only a warehouseman may issue warehouse receipts.

3. Warehouse Receipt - written acknowledgment by a warehouseman that he has

received and holds certain goods therein described in store for the person to whom it
is issued.
4. Non-negotiable Receipt - receipt deliverable to a specified person.
5. Negotiable Receipt - receipt deliverable to order or to bearer.
6. Essential Terms which MUST be embodied in a Warehouse Receipt:
a. location of the warehouse
b. date of the issue of the receipt
c. consecutive number of the receipt
d. statement whether the goods received will be delivered to bearer, or a specified
person, or his order
e. rate of storage charges
f.

description of the goods or packages containing them for identification purposes

g. signature of the warehouseman

h. statement of the amount of advances made and of liabilities incurred for which
the warehouseman claims as lien
7. Effect of omission of any of the essential terms:
a. The validity of the warehouse receipt is not affected.

b. The warehouseman shall be held liable for damages to those injured by his
omission.
c. The negotiability of the warehouse receipt is not affected.
d. The issuance of a warehouse receipt in the form provided by the law is merely
permissive and directory and not mandatory in the sense that if the requirements
are not observed, then the goods delivered for storage become ordinary deposits.
8. Terms which may be inserted in a Warehouse Receipt:
Any other terms except (a) those contrary to the provisions of this Act; (b) those that
would impair a warehousemans obligation to exercise that degree of care in the
safekeeping of the goods entrusted to him.
9. Marks to be made on a warehouse receipt:
a. A non-negotiable receipt must be clearly marked non-negotiable or not
negotiable, otherwise, the holder of the receipt who purchased it for value and
who supposed it to be negotiable, may treat it as negotiable.
b. Duplicate receipts must be so marked, otherwise, the warehouseman is held
liable for all damages suffered by a holder believing the same to be the original.
10. Warranties of a warehouseman as to duplicate receipts:
a. The duplicate is an accurate copy of the original receipt.
b. Such original receipt is uncancelled at the date of the issue of the duplicate.
11. Effects of alteration on the liability of the warehouseman:
a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether
fraudulent or not, authorized or not, the warehouseman is liable on the altered
receipt according to its original tenor.
b. If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable
according to the terms of the altered receipt.
c. If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the
warehouseman is liable on the altered receipt according to its original tenor.
d. If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman
is liable:
(1) to the purchaser of the receipt for value and without notice of the alteration
according to the tenor of the altered receipt
(2) to the alterer, according to the terms of the original receipt
(3) to subsequent purchasers with notice of the alteration, according to the terms
of the original receipt

12. Effects of misdescription of goods:

a. A warehouseman is under the obligation to deliver the identical property stored
with him and if he fails to do so, he is liable directly to the owner.
b. As against a bona fide purchaser of a warehouse receipt, the warehouseman is
estopped from denying that he has received the goods described in the receipt.
c. If the description consists merely of marks or label upon the goods or upon the
packages containing them, the warehouseman is not liable even if the goods are
not of the kind as indicated in the marks or labels.
13. Principal Obligations of a Warehouseman:
a. To take care of the goods entrusted to his safekeeping

General Rule: A warehouseman is required to exercise such degree of care

which a reasonable careful owner would exercise over similar goods of his
own. He shall be liable for any loss or injury to the goods caused by his
failure to exercise such care.

Exception: He shall not be liable for any loss or injury which could not have
been avoided by the exercise of such care.

Exception to the Exception: He may limit his liability to an agreed value of

the property received in case of loss. He cannot stipulate that he will not be
responsible for any loss caused by his negligence.

b. To deliver the goods to the holder of the receipt or the depositor upon
demand, provided demand is accompanied with:
(1) an offer to satisfy the warehousemans lien;
(2) an offer to surrender the negotiable receipt properly endorsed. If the receipt
is non-negotiable, any person lawfully entitled to the possession of the goods
may be entitled to delivery without surrender of the receipt.
(3) a readiness and willingness to sign an acknowledgment that the goods have
been delivered if such is requested by the warehouseman.
14. Persons to whom goods must be delivered:
A. Persons lawfully entitled to the possession of the goods or his agent:
a. persons to whom a competent court has ordered the delivery of the goods
(1) where a negotiable instrument has been lost or destroyed, the court may
order delivery to a person upon satisfactory proof of such loss or
destruction and upon proper posting of a bond to protect the

warehouseman from any liability or expense which he may incur by reason

of the original receipt remaining outstanding.
(2) where more than one person claims title or possession of the goods the
warehouseman may require all claimants to interplead. The court will then
order delivery to the person having a better right.
b. an attaching creditor - Goods, while in the possession of the warehouseman
and covered by a negotiable receipt, cannot be attached or levied upon under
an execution unless:
(I) the negotiable receipt is first surrendered to the warehouseman, or
(ii) its negotiation is enjoined, or
(iii) the receipt is impounded by the court
c. to the purchaser in case of sale of the goods by the warehouseman to enforce
his lien
d. to the purchaser where perishable or hazardous goods are sold at private or
public sale
B. If goods are covered by a non-negotiable receipt:
a. a person entitled to the delivery by the terms of the receipt, or
b. one who has written authority from letter a
C. If goods are covered by a negotiable receipt, a person in possession of the
receipt, the terms of which the goods are deliverable:
a. to him or order
b. to bearer
c. indorsed to him
d. indorsed in blank by the person whom delivery was promised
15. When is there Misdelivery?
When the warehouseman delivers the goods to a person who is not in fact lawfully
entitled to the possession of the goods because:
a. the person does not fall under letter B or C above; or
b. the person falls under letter B or C but prior to delivery, the warehouseman had
either:
(1) been requested by the person lawfully entitled to the delivery not to make
such delivery, or

(2) had information that the delivery about to be made was to one not lawfully
entitled to the possession of the goods
16. Effects of Misdelivery:
The warehouseman shall be liable for conversion to all having a right to property or
possession of the goods.
17. What happens if there is proper delivery or partial delivery but the
warehouseman fails to cancel the receipt or record on the receipt of such
partial delivery?
a. If goods covered by a negotiable warehouse receipt are delivered by a
warehouseman but he fails to take the receipt and cancel it, then he is still liable
to one who purchases for value and in good faith such receipt.
b. If he makes partial delivery of the goods but fails to record the partial delivery on
the receipt then he may still be held liable for the entire receipt to one who
purchases for value and in good faith such receipt.
18. Lawful excuses for refusal to deliver goods:
a. The warehouseman can refuse to deliver the goods if he has acquired title or
right to the possession of the goods:
(1) directly or indirectly from a transfer made by the depositor at the time of the
deposit for storage or subsequent thereto; or
(2) from the warehousemans lien
b. If someone other than the depositor or person claiming under the depositor has a
claim to the title or possession of the goods and the warehouseman has
information of such claim, the warehouseman shall be excused from liability for
refusing to deliver the goods either to the depositor or person claiming under him
until he has had a reasonable time to ascertain the validity of the adverse claim
or to bring legal proceedings to compel all claimants to interplead.
c. The warehouseman will not be required to deliver the goods if such had been
lost. But this is without prejudice to liabilities which may be incurred by him due
to such loss.
d. The warehouseman having a valid lien against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.
e. If goods have been lawfully sold or disposed of because of their perishable or
hazardous nature, the warehouseman shall not be liable for failure to deliver the
goods.

19. A warehouseman cannot refuse to deliver goods to the depositor or to a person

claiming under him on the ground that adverse title to the goods belongs to a third
person.
20. Rules as regards Co-mingling of Deposited Goods:

General Rule: A warehouseman may not co-mingle goods belonging to different

depositors or belonging to the same depositor for which separate receipts had
been issued.

Exception: A warehouseman may co-mingle fungible goods of the same kind

and grade provided he is authorized by agreement or by custom.
21. Effect of Co-mingling of Goods:
a. The different owners become co-owners of the whole mass.
b. The warehouseman shall be severally liable to each depositor for the care and
redelivery of his share of such mass to the same extent and under the same
circumstances as if the goods had been kept separate.
22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)
Creditors of the depositors, before negotiation, may protect themselves by
obtaining a writ of preliminary injunction and serve the same on the depositor before he
has a chance to negotiate the receipt.
Once enjoined, there will be no longer a danger that a 3 rd 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.
23. Warehousemans Lien

Extent of Warehousemans Lien:

A warehouseman shall have a lien on goods deposited or on the proceeds

thereof in his hands for:
a. all lawful charges for storage and preservation of the goods
b. all lawful claims for money advances, interest, insurance, transportation,
labor, weighing, cooperating and other charges and expenses in relation to
such goods
c. all reasonable charges and expenses for notice and advertisements of sale
and for sale of the goods where default has been made in satisfying the
warehouse lien

Goods Subject to lien:

a. goods belonging to the depositor who is liable to the warehouseman as debtor

whenever such goods are deposited and
b. goods belonging to other persons stored by the depositor who is liable to the
warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?

a. by refusing to deliver the goods until the lien is satisfied
b. by causing the extrajudicial sale of the property and applying the proceeds to
the value of the lien
c. by filing a civil action for unpaid charges or by way of counterclaim in an action
to recover the property from him

How is a lien lost?

a. when the warehouseman voluntarily surrenders possession of the goods
without requiring payment of his lien; or
b. when the warehouseman wrongfully refuses to deliver the goods when a
demand is made with which he is bound to comply

24. Negotiation and Transfer of Receipts

How do we negotiate a receipt deliverable to order?

a. by indorsing it in blank thereby making it deliverable to bearer or
b. by special indorsement - which would require further indorsements for further
negotiations.
In both cases, the indorsements must be coupled with delivery.

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation. Physical delivery of the instrument will
suffice.
But if the instrument is indorsed specially, the bearer character of the receipt is
destroyed and for further negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?

a. the owner of the receipt, or
b. the person to whom possession of the receipt was entrusted to by the owner

Rights acquired by a person to whom the receipt has been negotiated:

a. the title of the person negotiating the receipt over the goods covered by the
receipt
b. the title of the person (depositor or owner) to whose order by the terms of the
receipt the goods were to be delivered
c. the direct obligation of the warehouseman to hold possession of the goods for
him, as if the warehouseman directly contracted with him

May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right. That is
why they are called non negotiable receipts. But they may be transferred or assigned
by delivery.

Rights of a person to whom a non negotiable receipt has been transferred:

a. the title to the goods as against the transferor
b. the right to notify the warehouseman of the transfer thereof and
c. the right thereafter to acquire the obligation of the warehouseman to hold the
goods for him

Distinction between a non negotiable receipt from a negotiable receipt with

regard to attachment or execution upon goods:
Non-negotiable Receipt

Negotiable Receipt

Prior to notification of the warehouseman by theThe goods cannot be attached or levied under an
transferor or transferee, the warehouseman isexecution unless the receipt be first surrendered
not bound to the transferee whose right may beto the warehouseman or its negotiation enjoined.
defeated by a levy of an attachment or execution
upon the goods by the creditor of the transferor
or by a notification to such warehouseman of the
subsequent sale of the goods.
Rights of a person to whom a negotiable receipt has been transferred, not
indorsed:
a. the right to the goods as against the transferor
b. the right to compel the transferor to indorse the receipt. But if the intention of
the parties is that the receipt should merely be transferred, the transferee has
no right to require the transferor to indorse the receipt.
Note: Negotiation takes effect as of the time when the indorsement is actually
made.

Warranties of a person negotiating or transferring a receipt:

a. the receipt is genuine
b. he has a legal right to negotiate or transfer it
c. he has knowledge that would impair the validity or worth of the receipt and
d. he has a right to transfer the title to the goods and that the goods are
merchantable

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts
payment of the debt from a person does not warrant the genuineness of the
receipt not the quality or quantity of the goods therein described.

It is the duty of the purchaser, mortgagee or pledgee of goods for which a

negotiable receipt has been issued to require the negotiation of the receipt to him,
otherwise his failure will have the same effect as an express authorization on his
part to the seller, mortgagor, or pledgor in possession of such receipt to make any
subsequent negotiation. The subsequent purchaser must have taken the receipt
in good faith and for value.

A bona fide purchaser of a negotiable warehouse receipt acquires title to the

goods where he purchases from the 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:
Negotiable Instrument

When a negotiable instrument is

deliberately, it becomes null and void.

Negotiable Warehouse Receipt

alteredWhen a warehouse receipt is altered, it is still
valid but it may be enforced only in accordance
with its original tenor.

If a negotiable instrument is originally payable toIf a warehouse receipt, payable to bearer, is

bearer, it will always remain so payable indorsed specially, it will be converted into a
regardless of the way it is indorsed, whetherreceipt deliverable to order and can only be
specially or in blank.
negotiated further by indorsement and delivery.
A holder in due course may be able to obtain aAn indorsee even if a holder in due course
title better than that which the party who obtains only such title as the person negotiating
negotiated the instrument to him had.
has over the goods.
The indorsement of a negotiable instrument hasThe indorsement of a warehouse receipt
a double effect. It is at the same time aamounts merely to a conveyance by the indorser.
conveyance of the instrument and a contract theAccordingly, an indorser of a receipt shall not be
indorser has with the indorsee that on certainliable to the holder if, for example, the

conditions, the indorser will pay the instrument ifwarehouseman fails to deliver the goods
the party primarily liable fails to do so.
because they were lost due to his fault or
negligence.

GENERAL BONDED WAREHOUSE LAW

Any warehouseman receiving commodities for (a) storage; (b) milling; (c) comingling must:
a. obtain prior license from the Bureau of Commerce
b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse
against which bond depositors may sue directly
c. open to the public, no discrimination allowed
d. liable for double market value should he accept goods in excess of the capacity
of warehouse if goods are damaged or destroyed

Note: for palay and corn license, a bond with the National Grains Authority is
required; also an insurance cover is required.

LAWS ON INTELLECTUAL CREATION

Copyright
1. What Works are not Protected:
a. any idea, procedure, system, method or operation, concept, principle, discovery,
or mere data as such, even if they are expressed, explained, illustrated or
embodied in a work; news of the day or other miscellaneous facts, having the
character of mere items of press information, or any official text of a legislative,
administrative or legal nature as well as any official translation thereof
b. works of the government
c. statutes, rules, and regulations of government agencies and offices
d. speeches, lectures, sermons, addresses and dissertations, pronounced or
rendered in courts of justices or nay administrative agencies in deliberative
assemblies and meetings of public character
2. Fair Use of a Copyrighted Work is not Infringement
a. for criticism, comment, news reporting, teaching, research, scholarship, and
similar purposes
b. decompilation: the reproduction of the code and translation of the forms of the
computer program with other programs

3. Factors to Consider in Determining Fair Use:

a. purpose and character of the use, including whether such use is of a commercial
nature or for no profit or educational purposes
b. nature of the copyrighted work
c. amount and substantiality of the portion used in relation to the copyrighted work
as a whole
d. effect of use upon the potential market for a value of the copyrighted work

4. Terms of the Protection

a. copyrighted work:
lifetime of creator plus 50 years after death (to be computed on the 1 st day of
January of the year following the death)
b. performances not incorporated in recordings:
50 years from end of year in which the performance took place
c. sound or image and sound recordings and performances incorporated
therein:
50 years from end of the year in which the recording took place
d. broadcasts:
20 years from the date the broadcast took place
5. Remedies for Infringement
a. injunction
b. actual damages, including legal costs and other expenses, as he may have
incurred due to the infringement as well as the profits the infringer may have
made due to such infringement
c. impounding of articles during pendency of the action
d. destruction of all infringing copies and/or devices
e. moral and exemplary damages
6. Criminal Penalties

a. imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense
b. imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to
P500,000 for the 2nd offense
c. imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to
P1,000,000 for the 3rd/subsequent offenses
IN ALL CASES, subsidiary imprisonment in cases of insolvency
7. Presumptions:
a. Presumption of copyright in the work of other subject matter to which the action
related
b. Plaintiff is presumed to be the owner of the copyright
c. The natural person whose name is indicated on a work in the usual manner as
the author shall, in the absence of proof to the contrary, be presumed to be the
author of the work. This is applicable even if the name is a pseudonym, where
the pseudonym leaves no doubt as to the identity of the author.
8. Prescription:
No damages may be recovered after 4 years from time the cause of action arose.

Patents
1. Patentable Inventions - any technical solution of a problem in any field o human
activity that is new, involve an inventive step and is industrially applicable shall be
patentable. It may be or may relate to as product, or process or an improvement of
any of the foregoing.
2. Non-Patentable Inventions
a. discoveries, scientific theories and mathematical methods
b. schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers
c. methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body
Exception: products and composition for use in any of these methods
d. plant varieties or animal breeds or essentially biological process for the
production of plants and animals
Exception: micro-organisms and non-biological and micro-biological processes

e. aesthetic creations
f.

contrary to public order or morality

3. Requisites of Patentability
a. new, novelty
b. involves an inventive step;
c. is industrially applicable
4. Novelty
The novelty requirement in the Code is absolute. Thus, an invention is not
considered new if it forms part of a prior art.
A prior art consists of:
a. anything which has been made available to the public anywhere in the world before
the filing date or the priority date of the application, or
b. the whole contents of an application for a patent, utility model, or industrial design
registration, published in the IPO gazette, filed or effective in the Philippines, with a
filing or priority date that is earlier than the filing or priority date of the application,
provided that the application which has validly claimed the filing date of an earlier
application (priority date) is prior art with effect as of the filing date of such earlier
application, and provided further, that the applicant and the inventor identified in both
applications are not one and the same
5. Inventive Step
- an invention involves an inventive step, if having regard to the prior art, it is not obvious
to a person skilled in the art at the time of the filing date of priority date of the application
claiming the invention
6. Industrial Applicability - an invention is considered industrially applicable if it can
be produced and used in the industry
7. The First-to-File System
- if 2 or more persons have made the invention separately and independently of each
other, the right to the patent belongs to the person who filed an application for such
invention, or where 2 or more applications are filed for the same invention, the right of
the patent belongs to the person who has the earliest filing date or the earliest priority
date
Under this system, the patent is granted to the inventor who filed his patent
application earlier than others thus simplifying the determination of who is entitled to own
the patent.

The First-to-File System increases the rights of the inventor by:

a. guaranteeing the confidentiality of the application prior to its publication
b. giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
c. expanding the rights of the inventor to institute cancellation proceedings for the
duration of the term of the patent. Cancellation proceedings may be filed at any
time during the term of the patent.
Under this system, the applicant declared by final court order as having the right to
the patent may:
a. prosecute the application as his own application in place of the original applicant
b. file a new patent application in respect of the same invention
c. request that the application be refused or
d. seek the cancellation of the patent, if one has already been issued
8. What is the difference between novelty in patents and originality in copyright?
Novelty in Patents
- even if you do not know of any previous creation, as long as a patent on the same
creation has already been published anywhere in the world, you cannot claim novelty.
No access tot he other creation is no defense.
Originality in Copyright
- even if there is same creation, as long as you do not copy your own creation, it is still
considered an original creation. No access to the previous creation is a defense.
9. Non-Prejudicial Disclosure
The disclosure of information contained in the application during the 12 months
preceding the filing date or the priority date of the application shall not prejudice the
applicant on the ground of lack of novelty if such disclosure was made by (a) inventor;
(b) a patent office and the information was contained
10. Term of Patent
- 20 years from the filing date of the application
11. Grounds for Compulsory Licensing:
a. national emergency or other circumstances of extreme urgency

b. where public interest, national security, health or the development of other vital
sectors of the national economy as determined by the appropriate agency of the
government so requires
c. where a judicial or administrative body has determined that the manner of
exploitation by the owner of the patent or his licensee is anti-competitive
d. in case of public non-commercial use of the patent by the patentee, without
satisfactory reason
e. if not being worked in the Philippines on a commercial scale
12. In case of Compulsory Licensing of Patents involving Semi-conductor Technology,
the license may be granted only in case of public non-commercial use or to remedy a
practice determined after judicial or administrative process to be anti-competitive
13. Utility Models - an invention qualifies for registration as a utility model if it is new
and industrially applicable
- no inventive step required for registration
- no search and examination required
14. Term Protection - 7 years after the filing date of application without possibility of
renewal
15. Industrial Design
- any composition of lines or colors or any 3 dimensional form, whether or not associated
with lines or colors
Industrial Designs essentially dictated by technical or functional considerations to
obtain a technical result or those that are contrary to public order, health or morals shall
not be protected
16. Term of Protection - 5 years from filing date of application, renewable for not more
than 2 consecutive periods of 5 years each

Chattel Mortgage Law

1. The law primarily governs chattel mortgage. Provisions on pledge of NCC in so far
as not in conflict with CML also govern chattel mortgages.
2. Chattel Mortgage may be rescinded for being in fraud of creditors.
3. Growing fruits are covered by chattel mortgage but they may not be pledged.
4. Machinery placed on plant or building owned by another can be the object of chattel
mortgage.

5. General Rule: Chattel Mortgage cannot cover debts subsequently contracted.

6. Rules:
Chattel Mortgage cannot cover debts subsequently contracted
a. registered in place where mortgagor resides and where property (chattel) is
located. If mortgagor resides abroad, register in place where property is located.
b. Motor Vehicles: register also in Land Transportation Office
c. Shares of Stock: place of domicile of corporation and shareholder. No need for
notation in books of corporation
d. Vessels: Phil. Coastguard
7. To be valid against 3rd persons:
a. affidavit of good faith
b. contract must be registered
8. General Rule: In Chattel Mortgage, there is recovery of deficiency judgment.
Exception: when Recto Law applies
9. Requisites of CML:
a. constituted to secure the fulfillment of principal obligation
b. mortgagor is absolute owner of the thing mortgaged
c. persons constituting the mortgage have the free disposal of the property and in
the absence thereof, they be legally authorized for the purpose
d. recorded to bind 3rd persons
10. Formal Requisites of CM:
a. substantial compliance with form in Sec. 5 of CML
b. signed by at least 2 witnesses
c. must contain an affidavit of good faith
d. certificate of oath (notarial acknowledgment)
11. Affidavit of Good Faith

- where the parties severally swear that the mortgage is made for the purpose of
securing the obligation specified and for no other purpose and that the same is a just
and valid obligation and not one entered into for fraud
- property given in CM must be described to enable the parties or any other person
after reasonable inquiry and investigation to identify it
12. Future property may not be covered by CM but when such property is a:
a. renewal of, or in substitution for goods on hand when the mortgage was
executed, or
b. purchased with proceeds (not of your own money) of said goods, said property
may be covered by CM
13. Criminal Acts - removal of chattel to another city or province without written consent
of mortgagee, selling property already pledged, or mortgaged without written consent
of mortgagee
14. A chattel mortgage may be foreclosed judicially or extra-judicially, in the latter case,
before a notary or sheriff, or creditor or mortgagee when stipulated, even without
need of notice (when mortgagee forecloses)
15. Pactum Commissorium applies to Chattel Mortgage.