Beruflich Dokumente
Kultur Dokumente
Corporation Code
Maria Zarah Villanueva - Castro
CORPORATION CODE (BP BLG 68)
INTRODUCTION:
A. Historical Background
Effectivity: May 1, 1980
Article XII Section 16 of the 1987
Constitution: The Congress shall not,
except by general law, provide for the
formation, organization, or regulation of
private corporations. Government-owned
or controlled corporations may be created
or established by special charters in the
interest of the common good and subject
to the test of economic viability.
*Congress has limited powers in the
formation, creation and regulation of a
private corporation.
Purposes:
1. Uniformity
2. To avoid corruption
General Rule: Congress is prohibited to
enact a law directly forming a private
corporation.
Exception: GOCC may be created by
special charter.
*GOCC is a private corporation with regard
to function and in the meantime a public
corporation with regard to ownership.
Twin Conditions must be present in
forming a GOCC:
1. Interest in the common good
2. Subject to the test of economic
viability
- Means can survive alone in the
market; can generate income
which they can use for their
operating expenses
CONCEPT
AND
CORPORATION:
ATTRIBUTES
OF
5.
6.
7.
8.
Also
known
as
Principle
Perpetual Succession
Reason: To
more stable
make
the
of
corporation
OF
Corporate Name
Purpose: Identification
*Corporation can not adopt any name
or group of words at its pleasure
because of statutory limitation, viz.,
Sec. 18 of the Corporation Code
which provides that: No corporate
name may be allowed by the SEC if the
proposed name is identical or
deceptively or confusingly similar
to that of any existing corporation
or to any other name already
protected by law or is patently
deceptive, confusing or contrary
to existing laws. When a change in
the corporate name is approved, the
Commission shall issue an amended
Capitalization
Section 14(8) states that: If it be a
stock corporation, the amount of its
authorized capital stock in lawful
money of the Philippines, the number
of shares into which it is divided, and
in case the share are par value shares,
the par value of each, the names,
nationalities and residences of the
original subscribers, and the amount
subscribed and paid by each on his
subscription, and if some or all of the
shares are without par value, such fact
must be stated.
*It is required that at least 25% of the
subscribed capital must be paid and in
no case may be paid-up capital be less
than P5,000.
Authorized Capital Stock the
amount fixed in the articles of
incorporation to be subscribed and
paid by the stockholders of the
corporation.
*Shows the total number of shares
Subscribed Capital that portion of
the authorized capital stock that is
covered by subscription agreements
whether fully paid or not.
Paid-Up Capital the portion of the
authorized capital stock which has
been subscribed and actually paid.
Outstanding Capital Stock the
total shares of stock issued to
subscribers or stockholders, whether
or not fully or partially paid except
treasury shares so long as there is a
binding subscription agreement.
Shares of stock
Q: Why shares of stock?
A: Because there is a share on the
capitalization.
Economic Value:
1. expectancy on the share in the
profits
2. expectancy on the share of assets in
case of dissolution/liquidation.
Political Value:
1. vote
2. control in the management of the
corporation.
Doctrine of Equality of Shares
Except as otherwise provided in the
articles of incorporation and stated in
the certificate of stock, each share
shall be equal in all respects to every
other share.
- Provides that where the Article of
Incorporation do not provide for any
*Automatic
dissolution
is
not
contemplated under Section 22. (SEC
Opinion).
*Section 22 must be read in conjunction
with Sec 6(1) of PD 902-A which requires
that the corporation must be given the
opportunity to be heard in compliance
with the requirement of due process
before the revocation of its license.
CONTROL
AND
CORPORATION:
MANAGEMENT
OF
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every
stockholder may vote such number of
shares for as many persons as there
are directors to be elected.
2. Cumulative Voting for One
Candidate a stockholder is allowed
to concentrate his votes and give one
candidate as many votes as the
number of directors to be elected
multiplied by the number of his shares
shall equal.
*Example: X has 10 shares in his
name; there are 5 numbers of directors
to be elected. X has 50 votes (10x5)
available to him. X may opt to
concentrate all his 50 votes to a
particular candidate.
3.
Cumulative
Voting
by
Distribution a stockholder may
cumulate his shares by multiplying
also the number of his shares by the
number of directors to be elected and
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2. If compensation is granted to
directors
by
the
vote
of
the
stockholders representing at least a
majority of the outstanding capital
stock at a regular or special
stockholders meeting.
Limitation: In no case shall the total
yearly compensation of directors
exceed 10% of the net income before
income tax of the corporation during
the preceding year.
Reason: In order to avoid temptation
on the part of directors to abuse
powers by appropriating compensation
packages since they are in control of
corporate assets.
C. Corporate Officers
Concept of Corporate Officers
*Corporate powers reside on the Board
of Directors; decision/policymaking
resides on them. Implementation of
rules/policy lies on the corporate
officers
Categories:
1. Statutory Corporate Officers
President (must be a stockholder);
Secretary (must be a resident and
citizen of the Philippines); Treasurer
(must be a resident and citizen of the
Philippines).
2. As provided by the By-Laws
must be clearly stated in the By-Laws
that such office is a corporate office.
3. Those designated by the
Board of Directors provided the
Board of Directors is authorized to
do so by the By-Laws.
Validity and Binding Effect of Acts of
Corporate Officers
General Rule: No one, even corporate
officers can bind the corporation. It is
only the Board of Directors who has
the authority to bind the corporation.
Exceptions:
1. If the By-Laws provides that such act
is part of the function of such office;
2. If authorized by the Board of
Directors
Doctrine of Apparent Authority
Doctrine
of
Apparent
Authority/Doctrine of Estoppel If a
corporation, knowingly permits one of
its officers, or any other agent, to act
within the scope of an apparent
authority, it holds him out to the public
as possessing the power to do those
acts; and thus, the corporation will, as
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Self-Dealing Directors/Officers
Sec. 32 of the Corporation Code
states that: A contract of the
corporation with one or more of its
directors or trustees or officers is
voidable, at the option of such
corporation, unless all of the following
conditions are present: 1. That the
presence of such director or trustee in
the board meeting in which the
contract was approved was not
necessary to constitute a quorum for
such meeting; 2. That the vote of such
director or trustee was not necessary
for the approval of the contract; 3.
That the contract is fair and
reasonable under the circumstances;
and 4. That in case of an officer, the
contract
has
been
previously
authorized by the board of directors.
Where any of the first two conditions
set forth in the preceding paragraph is
absent, in the case of a contract with a
director or trustee, such contract may
be ratified by the vote of the
stockholders representing at least 2/3
of the outstanding capital stock or of
at least 2/3 of the members in a
meeting called for the purpose:
Provided, That full disclosure of the
adverse interest of the directors or
trustees involved is made at such
meeting: Provided, however, that the
contract is fair and reasonable under
the circumstances.
Example:
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Self-Dealing Directors/Officers
directors/officers
who
transact
business with their own corporation.
- This is not prohibited by law.
Interlocking Directors those who
have been elected as directors in 2 or
more different corporations.
- May be prohibited by the By-Laws
(Gokongwei case).
-Not prohibited by law however there
are consequences.
Contracts
involving
Inter-locking
Directors
Sec. 33 of the Corporation Code
provides that: Except in cases of
fraud, and provided the contract is fair
and
reasonable
under
the
circumstances, a contract between two
or
more
corporations
having
interlocking directors shall not be
invalidated on that ground alone:
Provided, That if the interest of the
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no
enforcement even at the suit of either
party.
3. Partly
executed
and
Partly
executory
contract
principle
against unjust enrichment shall apply.
B. Classes of Corporate Powers
1. Express
2. Implied
3. Incidental
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18
Extension/Shortening
of
Corporate
Term
Sec. 37 of the Corporation Code
states that: A private corporation may
extend or shorten its term as stated in
the articles of incorporation when
approved by a majority vote of the
board of directors or trustees and
ratified
at
a
meeting
by
the
stockholders representing at least 2/3
of the outstanding capital stock or by
at least 2/3 of the members in case of
non-stock corporation. Written notice
of the proposed action and of the time
and place of the meeting shall be
addressed to each stockholder or
member at his place of residence as
shown on the books of the corporation
and deposited to the addressee in the
post office with postage prepaid, or
served personally: Provided, That in
case of extension of corporate term,
any
dissenting
stockholder
may
exercise his appraisal right under the
conditions provided in this code.
Increase or Decrease of Capital Stock/
Incurrence, Creation or Increase of
Bonded Indebtedness
Sec. 38 of the Corporation Code
states that: No corporation shall
increase or decrease its capital stock
or incur, create or increase any bonded
indebtedness unless approved by a
majority vote of the board of directors
and, at a stockholders meeting duly
called for the purpose, 2/3 of the
outstanding capital stock shall favor
the increase or diminution of the
capital stock, or the incurring, creating
or
increasing
of
any
bonded
indebtedness. Written notice of the
proposed increase or diminution of the
capital stock or of the incurring,
creating, or increasing of any bonded
indebtedness and of the time and
place of the stockholders meeting at
which the proposed increase or
diminution of the capital stock or the
incurring or increasing of any bonded
indebtedness is to be considered ,
must be addressed to each stockholder
at his place of residence as shown on
the books of the corporation and
deposited to the addressee in the post
office with postage prepaid, or served
personally. xxx.
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21
STOCK
DIVIDENDS
Requires
stockholders
approval
The stockholders
receive stocks
No creditor-debtor
relationship
Requisites
for
declaration
cash/property dividends:
1. Board approval
2. Unrestricted Retained Earnings
of
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BY-LAWS
External affairs
Affects the status
of existence of the
corporation
Internal Affairs
Does not affect the
status
of
the
existence but has
impact
on
the
existence; failure to
submit is a ground
for
disenfranchisement
General Rule: joint
decision
Exception:
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CORPORATE MEETINGS:
A. Kinds of Corporate Meetings
Sec. 49 of the Corporation Code
provides that: Meetings of directors,
trustees, stockholders, or members may
be regular or special.
Kinds:
a. Stockholders/Members:
1. Regular meeting
2. Special meeting
b. Directors/Trustees:
1. Regular meeting
2. Special meeting
Sec. 50 of the Corporation Code
provides that: Regular meetings of
stockholders or members shall be held
annually on a date fixed in the by-laws, or
if not so fixed, on any date in April of
every year as determined by the board of
directors or trustees: Provided, That
written notice of regular meetings shall be
sent to all stockholders or members of
record at least 2 weeks prior to the
meeting, unless a different period is
required by the by-laws. Special meetings
of stockholders or members shall be held
at any time deemed necessary or as
provided in the by-laws: Provided,
however, That at least 1 week written
notice shall be sent to all stockholders or
members, unless otherwise provided in
the by-laws. Notice of any meeting may be
waived, expressly or impliedly, by any
stockholder or member. Whenever, for any
cause, there is no person authorized to
call a meeting, the SEC, upon petition of a
stockholder or member on a showing of
good cause therefor, may issue an order
to the petitioning stockholder or member
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26
A: NO.
Q: Even if there are proxies?
A: YES.
Q: Shares not yet fully paid but not
yet delinquent, are they entitled to
vote?
A: YES.
*Delinquent stock is not entitled to
vote and his presence would not be
taken for purposes of quorum.
*The only right remain is the right
to receive dividends subject to the
provision of Section 43.
2. Escrow Shares
*Escrow shares are not entitled to
vote before the fulfillment of the
condition imposed thereon.
3. Unpaid Shares
Sec. 72 of the Corporation
Code provides that: Holders of
subscribed shares not fully paid
which are not delinquent shall have
all the rights of a stockholder.
General Rule: The holder of
unpaid shares can exercise the
right to vote.
Exception: If it is provided in the
subscription contract that such
right cannot be exercised until the
subscription is fully paid.
4. Sequestered Shares
Q: What is the reason for
sequestration process?
A: For investigative purposes; To
avoid
wastage
dissipation
of
assets.
Q: Is PCGG authorized to vote for
the sequestered shares?
A: General Rule: No. PCGG
cannot vote for the sequestered
shares
because
being
a
conservator/administrator, it should
only perform acts of administration
and not acts of ownership.
Exception: If there is a strong
evidence that indeed the shares
have been purchased through
public funds.
Requisites:
1. Strong evidence or prima facie
evidence that the shares are illgotten.
2. There is an imminent danger
that
the
shares
will
be
dissipated.
Case: Transmiddle East v CA
Q: During the pendency of
sequestration process, are the
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VOTING TRUST
AGREEMENT
The
stockholder
ceases to be a
stockholder
of
record
Irrevocable
General Rule:
5
years
Exception:
If
coupled
with
interest
29
30
F.
Certificate of Stock
Certificate of Stock is a written
evidence of the shares of stock but it is
not the share itself.
*Does not represent credit.
Q: How important is a stock certificate?
31
32
33
for
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35
Effects:
1. All rights accruing to such shares shall
be suspended from the time of
demand for payment of the fair value
of the shares until either the
abandonment of the corporate action.
2. The dissenting stockholder shall be
entitled to receive payment of the fair
value of his shares as agreed upon
between him and the corporation or as
determined by the appraisers chosen
by them.
*Sec. 86. The dissenting stock can be sold
during the pendency of its payment.
Remedy in case appraisal right
cannot be exercised: Dispose the
shareholdings.
NON-STOCK CORPORATIONS:
A. Definition and Purposes of a Non-Stock
Corporation
Sec. 87 of the Corporation Code states
that: For the purposes of this Code, a
non-stock is one where no part of its
income is distributable as dividends to its
members, trustees, or officers, subject to
the provisions of this Code on dissolution:
Provided, That any profit which a nonstock corporation may obtain as an
incident to its operations shall, whenever
necessary or proper, be used for the
furtherance of the purpose or purposes for
which the corporation was organized,
subject to the provisions of this Title. The
provisions governing stock corporations,
when pertinent, shall be applicable to nonstock corporations, except as may be
covered by specific provisions of this
Title.
*Sec. 87 should be read in harmony with
Sec. 94.
*A Non-stock corporation is not precluded
from engaging in profit-business related.
Sec. 88 of the Corporation Code
provides that: Non-stock corporations
may be formed or organized for charitable,
religious,
educational,
professional,
cultural, fraternal, literary, scientific,
social, civic service, or similar purposes,
like trade, industry, agricultural and like
chambers, or any combination thereof,
subject to the special provisions of this
Title governing particular classes of nonstock corporations.
*The
purpose
of
a
non-stock
corporation is related to public welfare.
36
Stock Corporation
For profit
Board of directors
1 year subject to
hold-over principle
City or municipality
where the principal
office is located
Proxy is allowed
Election is vested
upon
Board
of
Directors
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Code
The appraisal right
may be exercised
by a stockholder
only in the cases
provided in Sections
81 and 42 of the
Corporation Code
Except as regards
redeemable shares,
the purchase by the
corporation of its
own
stock
must
always be made
from
the
unrestricted
retained earnings
Arbitration
of
intracorporate
deadlock by the
SEC is not a remedy
in case the directors
or stockholders are
so
divided
respecting
the
management of the
corporation.
Open Corporation
Its
articles
of
incorporation need
only contain the
general
matters
enumerated
in
Section 14 of the
Corporation Code
Its status as an
ordinary
stock
corporation is not
affected
by
the
ownership of its
voting
stock
or
voting rights
Its articles cannot
classify its directors
Business
of
the
corporation
is
managed by the
board of directors
The
corporate
officers
and
employees
are
elected
by
a
majority vote of all
the members of the
board of directors
The
pre-emptive
right is subject to
the
exceptions
found in Section 39
of the Corporation
Close Corporation
Its articles must
contain the special
matters prescribed
by Section 97 aside
from the general
matters in Section
14. Failure to do so
precludes a de jure
close
corporation
status
2/3 of its voting
stock
or
voting
rights must not be
owned or controlled
by
another
corporation which is
not
a
close
corporation
Its
articles
may
classify its directors
Business
of
the
corporation may be
managed by the
stockholders if the
articles so provide,
but they are liable
as directors
Its
articles
may
provide that any or
all of the corporate
officers
or
employees may be
elected
or
appointed by the
stockholders
The
pre-emptive
right is subject to no
exceptions
unless
denied
in
the
articles
*In
San
Juan
Structural
Steel
Fabricators v CA, the SC held that the
circumstance that around 99.86% of the
total share holding of petitioner belongs to
respondent would not justify classification
of the corporation as close.
B. Permissive Provisions in the Articles of
Incorporation
Sec. 97 of the Corporation Code
provides
that:
The
articles
of
incorporation of a close corporation may
provide: 1. For a classification of shares or
rights and the qualifications for owning or
holding the same and restrictions on their
transfers as may be stated therein,
subject to the provisions of the following
section; 2. For a classification of directors
into one or more classes, each of whom
may be voted for and elected solely by a
particular class of stock; and 3. For a
greater quorum or voting requirements in
meetings of stockholders or directors than
those provided in this Code. The articles of
incorporation of a close corporation may
provide that the business of the
corporation may provide that the business
of the corporation shall be managed by
39
Voluntary
dissolution
where
no
creditors are affected
Sec. 118 of the Corporation Code
provides that: If dissolution of a
corporation does not prejudice the
rights of any creditor having a claim
against it, the dissolution may be
effected by majority vote of the board
of directors or trustees, and by a
resolution duly adopted by the
affirmative vote of the stockholders
owning at least 2/3 of the outstanding
capital stock or of at least 2/3 of the
members of a meeting to be held upon
call of the directors or trustees after
publication of the notice of time, place
and object of the meeting for 3
consecutive weeks in a newspaper
published
in the place where the
principal office of said corporation is
located; and if no newspaper is
published in such place, then in a
newspaper of general circulation in the
Philippines, after sending such notice
to each stockholder or member either
by registered mail or by personal
delivery at least 30 days prior to said
meeting. A copy of the resolution
authorizing the dissolution shall be
certified by a majority of the board of
directors
or
trustees
and
countersigned by the secretary of the
corporation. The SEC shall thereupon
issue the certificate of dissolution.
Requisites:
1. A meeting must be held on the call
of the directors or trustees;
2. Notice of the meeting should be
given to the stockholders by
personal delivery or registered mail
40
3.
4.
5.
6.
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42
43
44
Applicable Laws:
1. Code of Commerce of Letters of Credit
Article 568 of the Code of Commerce
provides that: A letter of credit shall: 1.
Be issued in favor of a definite person and
not to orders; and 2. Be limited to a fixed
and specified amount or to one or more
undetermined amount but with maximum
limit stated exactly.
*Letter of credit is not a negotiable
instrument.
2. Customs, primarily those embodied in the
Uniform
Customs
and
Practice
for
Documentary Credits which was adopted
by
the
International
Chamber
of
Commerce
Parties to a Letter of Credit:
LETTERS OF CREDIT
Definition:
Q: What is a letter of credit?
A: Letters of Credit is an engagement by a
bank or other person made at the request of a
customer that the issuer will honor drafts or other
demands for payment upon compliance with the
conditions specified in the credit.
Example: importation of purchase of goods
Q: Are you applying a loan when you open a
letter of credit?
A: YES.
Reasons why businessmen open letter of
credit:
1. Lack of funds
2. Security purposes
3. Dont want to part his money until the
goods are received
Q: What are the relationships may arise in a
letter of credit?
A: General Rule: Three relationships they are: 1.
Buyer-seller (contract of sale); 2. Issuing bankbeneficiary; and 3. Issuing bank-buyer (contract
of loan)
Usual conditions imposed by the bank: 1.
Financial capacity; 2. collateral
45
46
47
48
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
49
to the
that the
to such
interest
50
51
52
53
54
55
OF
A. Requisites of negotiability
Sec. 1 of the Negotiable Instruments
Law provides that: An instrument to be
negotiable must conform to the following
requirements: (a) It must be in writing and
signed by the maker or drawer; (b) must
contain an unconditional promise or order
to pay a sum certain in money; (c) must
be payable on demand, or at a fixed or
determinable future time; (d) must be
payable to order or to bearer; and (e)
where the instrument is addressed to a
drawee, he must be named or otherwise
indicated
therein
with
reasonable
certainty.
Q: What principle do we follow in
determining the instrument as negotiable
or not?
A: Negotiability is shown on the face of
the instrument.
Requisites:
1. Must be in writing and signed by the
maker or drawer
Q: Why should it be in writing?
A: In order for the instrument to be
used for negotiation.
Rationale: For the achievement of the
purpose of the negotiable instrument
law.
*It must be signed by the maker or
drawer. Rationale: To be bound by the
contract.
2. Must contain an unconditional promise
or order to pay a sum certain in money
Rationale why the law requires
that the promise or order be
unconditional: Because no one will
accept the same if the transferee does
not know the certainty of the event
that will happen. Hence, uncertainty
56
a
to
With a Period
Certain
to
happen though
the
date
of
57
58
59
a
method
of
transferring
a
non-negotiable
instrument whereby the assignee is
merely placed in the position of the
assignor and acquires the instrument
subject to all defenses that might have
been set up against the original payee.
*If the instrument is a non-negotiable the
only transfer that can be made is by
assignment.
B. Concept of negotiation; distinguished from
assignment
Sec. 30 of the Negotiable Instrument
Law provides that: An instrument is
negotiated when it is transferred from one
person to another in such manner as to
constitute the transferee the holder
thereof. If payable to bearer, it is
negotiated by delivery; if payable to order,
it is negotiated by the indorsement of the
holder and completed by delivery.
Assignment
Pertains
to
contracts in general
Assignee takes the
instrument subject
to
the
defenses
obtaining
among
the original parties
Assignee steps into
the shoes of the
Negotiation
Pertains
to
negotiable
instruments
Holder
in
due
course takes it free
from
personal
defenses available
among the parties
Holder
in
due
course may acquire
60
Front
(Back) Pay to
C
b. Blank
Sec. 35 of the Negotiable
Instrument Law provides that:
The holder may convert a blank
indorsement
into
a
special
indorsement by writing over the
signature of the indorser in blank
any contract consistent with the
character of the indorsement.
*In
blank
indorsement,
only
delivery is necessary.
Example
Back
Front
(Back)
61
62
63
64
all
necessary details except
for
the
amount,
A
instructed B to fill the
instrument of the any
amount
but
upto
P50,000 only. B inserted
P80,000. B negotiated it
to C.
Q: Can C detect the infirmity upon its
face?
A: NO
4. Good faith
5. Holder for value
C. Presumption of due course holding
Sec. 59 of the Negotiable Instrument
Law
provides that: Every holder is
deemed prima facie to be a holder in due
65
A person derived
title from a holder
in due course
Holder
in
due
course to all prior
parties except to
the
person
who
negotiated
the
instrument to him
Always a holder in
due course to all
prior
parties.
Always
with
freedom
against
defenses
and
defective title
Shelter
rule
is Shelter rule is not
applicable
applicable
General Rule: Equitable defenses can be
interposed against a person not a holder
in due course.
Exception: Shelter rule, i. e., Section 58
of the Negotiable Instrument Law.
LIABILITY OF PARTIES:
Q: What is your understanding of parties liable?
When do you say a party is liable?
A: A person is liable when he in obligated to
perform a particular prestation.
Q: What are the liabilities of the parties according
to its nature?
A: 1. Warranties; 2. Engagement to pay
( primary; secondary)
A. Primary
and
distinguished
Distinction:
Primary Liability
The engagement of
a
party
to
an
instrument that on
its due date he will
accept or pay, or
both,
the
instrument to the
payee or to any one
to
whom
it
is
negotiated
according
to
its
tenor.
secondary
liability,
Secondary
Liability
An engagement by
a
party
to
an
instrument that on
its due presentment
it shall be accepted
or paid or both as
the case may be
according
to
its
tenor and that if it
be dishonored and
the
necessary
proceedings
on
dishonor be duly
66
Absolutely liable
Warranties
It is immaterial to
know whether the
person is primarily
or secondarily liable
Bill
of
Exchange
Primary
Acceptor
Secondary
General
Indorser
and
drawer
*If the holders cause of action is
primary
engagement,
due
presentment
and
dishonor
proceedings are irrelevant.
*If the holders cause of action is
breach
of
warranty,
due
presentment
and
dishonor
proceedings are irrelevant.
*If the holders cause of action is
secondary engagement to pay, due
presentment
and
dishonor
proceedings are relevant.
Q: Is liability on warranties
common to all?
A: YES.
Persons
that
had
no
engagement to pay:
1. Qualified Indorsers
2. Persons negotiating by delivery
Promissory Note
Maker (Sec. 60)
Bill of Exchange
Drawer (Sec. 61)
Acceptor
(Sec.
62)
Indorser
a. General
b. Qualified
Indorser
a. General
(Sec. 66)
b. Qualified
(Sec. 65)
Persons
Persons
negotiating
by negotiating
by
delivery
(Sec. delivery
65)
Q: Can the drawee be forced to be
held liable?
A: NO. As long as he do not
accepts the instrument.
*The drawee cannot be compelled
to
accept
the
negotiable
instrument.
*If the refusal amounted to tortious
act, the drawee may be held liable
but not based on contract.
1. Maker
Sec.
60
of
the
Negotiable
Instrument Law provides that: The
maker of a negotiable instrument, by
making it, engages that he will pay it
according to its tenor, and admits the
existence of the payee and his then
capacity to indorse.
*Maker is primarily liable
2. Drawer
Sec.
61
of
the
Negotiable
Instrument Law provides that: The
drawer by drawing the instrument
admits the existence of the payee and
his then capacity to indorse; and
engages that, on due presentment, the
instrument will be accepted or paid, or
both, according to its tenor, and that if
it be dishonored and the necessary
proceedings on dishonor be duly taken,
he will pay the amount thereof to the
holder or to any subsequent indorser
who may be compelled to pay it. But
the drawer may insert in the
instrument an express stipulation
negativing or limiting his own liability
to the holder.
*Due presentment means not only any
presentment but presentment in
accordance with law.
*Necessary proceedings on dishonor
means proceedings must be one within
accordance with law.
*Drawer is conditionally liable
a. Relationship with drawee
67
68
Personal Defense
Stronger defense
Those that attach to
the instrument itself
and are available
against all holders,
whether
in
due
course or not but
only by the parties
entitled
to
raise
them
(Absolute
defense)
Cannot be enforced
by
the
holder
because there is no
contract to enforce
Weakest defense
Those which are
available
only
against a person
not a holder in due
course
or
a
subsequent holder
who
stands
in
privity
with
him
(Equitable
defense)
Can be enforced
because there is an
existing
contract
but
subject
to
defense
The following are The following are
real defenses:
personal defences:
1. Material
1. Absence or
alteration
failure
of
2. Want
of
consideratio
delivery
of
n
incomplete
2. Want
of
instrument
delivery
of
3. Duress
complete
amounting
instrument
to forgery
3. Insertion of
4. Fraud
in
wrong date
factum
or
in
an
fraud in esse
instrument
contractus
4. Filling up of
5. Minority
blank
6. Insanity
contrary to
7. Ultra
vires
authority
acts
of
a
given or not
corporation
within
8. Want
of
reasonable
authority of
time
agent
5. Fraud
in
9. Illegality
inducement
10. Forgery
6. Duress
or
11. Prescription
fear
7. Illegal
consideratio
n
8. Negotiation
in breach of
faith
9. Mistake
10. Ante-dating
or
post
dating
for
illegal
or
fraudulent
purposes
11. Abuse
of
authority
12. Conditional
delivery
of
complete
instrument
Q: In a creditor-debtor relationship, who is
interested in the existence of a defense?
69
70
71
The amount
_______
The true date is June 1, 2008 maturity
10 days after
date will be June 11, 2008
The date inserted is May 25, 2008 the
maturity date will be June 4, 2008
ABCDE
If E is a holder in due course and A is
the maker, though both E and A are
innocent,
A
shall
suffer
the
consequence for he made possible to
the loss
If E is not a holder in due course and A
is the maker, E is not innocent but A is
innocent thus E cannot held A liable.
3. Filling up blanks beyond authority
(Abuse of Authority)
Sec.
14
of
the
Negotiable
Instrument Law states that: Where
the instrument is wanting in any
material particular, the person in
possession thereof has a prima facie
authority to complete it by filling up
the blanks therein. And a signature on
a blank paper delivered by the person
making the signature in order that the
paper may be converted into a
negotiable instrument operates as a
prima facie authority to fill it up as
such for any amount. In order,
however, that any such instrument
when completed may be enforced
against any person who became a
party thereto prior to its completion, it
must be filled up strictly in accordance
with the authority given and within a
reasonable time. But if any such
instrument,
after
completion,
is
negotiated to a holder in due course, it
is valid and effectual for all purposes in
his hands, and he may enforce it as if
it had been filled up strictly in
accordance with the authority given
and within a reasonable time.
The
is authority to fill the amount is upto
P50,000
only
___________
ABCDE
B inserted an amount of P80,000
Q: Is there a defense?
A: YES.
Q: Can it be used?
A: IT DEPENDS. Depending whether
the holder is a holder in due course or
not.
*If holder in due course the defense
cannot be raised.
*If holder not in due course he can use
it as a defense.
Reason: The holder not in due course
is not an innocent party as far as the
maker is concern thus the contract is
avoided.
Recourse: Go after the immediate
transferor in case of bearer instrument
or the indorsers in case of order
instrument.
4. Want of delivery of a complete
instrument
Sec.
16
of
the
Negotiable
Instrument Law states that: Every
contract on a negotiable instrument is
incomplete
and
revocable
until
delivery of the instrument for the
purpose of giving effect thereto. As
between immediate parties and as
regards a remote party other than a
holder in due course, the delivery, in
order to be effectual, must be made
either by or under the authority of the
party making, drawing, accepting, or
indorsing, as the case may be; and, in
such case, the delivery may be shown
to have been conditional, or for a
special purpose only, and not for the
purpose of transferring the property in
the instrument. But where the
instrument is in the hands of a holder
in due course, a valid delivery thereof
by all parties prior to him so as to
make them liable to him is conclusively
presumed. And where the instrument
is no longer in the possession of a
72
liable
and
parties
Secondarily Liable
Drawer
General Indorsers
Qualified Indorsers
73
74
75
bill
is
dishonored
by
nonacceptance: (a) When it is duly
presented for acceptance and such
an acceptance as is prescribed by
this Act is refused or can not be
obtained; or (b) When presentment
for acceptance is excused and the
bill is not accepted.
2. Who should give notice
a. Holder
Sec. 90 of the Negotiable
Instrument Law provides that:
The notice may be given by or on
behalf of the holder, or by or on
behalf of any party to the
instrument
who
might
be
compelled to pay it to the holder,
and who, upon taking it up, would
have a right to reimbursement
from the party to whom the notice
is given.
b. Agent
Sec. 91 of the Negotiable
Instrument Law states that:
Notice of dishonor may be given
by any agent either in his own
name or in the name of any party
entitled to given notice, whether
that party be his principal or not.
c. Party who may be compelled to pay
Sec. 90 of the Negotiable
Instrument Law provides that:
The notice may be given by or on
behalf of the holder, or by or on
behalf of any party to the
instrument
who
might
be
compelled to pay it to the holder,
and who, upon taking it up, would
have a right to reimbursement
from the party to whom the notice
is given.
3. Form of Notice
Sec.
96
of
the
Negotiable
Instrument Law states that: The
notice may be in writing or merely oral
and may be given in any terms which
sufficiently identify the instrument,
and indicate that it has been
dishonored by non-acceptance or nonpayment. It may in all cases be given
by delivering it personally or through
the mails.
4. To whom notice is given
a. Party secondarily liable or agent
Sec. 97 of the Negotiable
Instrument Law provides that:
Notice of dishonor may be given
76
77
inoperative
but
where
an
instrument
or
any
signature
thereon appears to have been
cancelled, the burden of proof lies
on the party who alleges that the
cancellation
was
made
unintentionally or under a mistake
or without authority.
3. Any
act
that
discharge
simple
contracts
*The law on Obligations and Contracts
will apply.
Article 1231 of the New Civil Code
provides
that:
Obligations
are
extinguished: (1) By payment or
performance: (2) By the loss of the
thing due: (3) By the condonation or
remission of the debt; (4) By the
confusion or merger of the rights of
creditor
and
debtor;
(5)
By
compensation; (6) By novation. Other
causes
of
extinguishment
of
obligations,
such
as
annulment,
rescission, fulfillment of a resolutory
condition,
and
prescription,
are
governed elsewhere in this Code.
*Although these ways discharge the
instrument as between immediate
parties, they will not do so in the
hands of a holder in due course.
4. Principal debtor becomes a holder
C. Discharge of persons secondarily liable
Sec.
120
of
the
Negotiable
Instrument Law provides that: A person
secondarily liable on the instrument is
discharged: (a) By any act which
discharges the instrument; (b) By the
intentional cancellation of his signature by
the holder; (c) By the discharge of a prior
party; (d) By a valid tender or payment
made by a prior party; (e) By a release of
the principal debtor unless the holder's
right of recourse against the party
secondarily liable is expressly reserved; (f)
By any agreement binding upon the holder
to extend the time of payment or to
postpone the holder's right to enforce the
instrument unless made with the assent of
the party secondarily liable or unless the
right of recourse against such party is
expressly reserved.
CHECKS:
A. Checks defined
Sec.
185
of
the
Negotiable
Instrument Law provides that: A check
78
Check
It is necessary that
a check is drawn on
a previous deposit.
Otherwise,
there
would
be
fraud.
Always bank as a
drawee, need not
be presented for
acceptance.
Exist
for
immediate
payment
Death of the drawer
of a check, with the
knowledge by the
bank, revokes the
authority
of
the
banker to pay.
Must be presented
for payment within
a reasonable time
after
its
issue.
Checks
become
stale after 6 months
from issue.
79
80
G. Pertinent
Philippine
Corporation rules
Clearing
House
Kinds:
1. Bill of Lading is a document that serves
as evidence of receipt of goods for
shipment issued by a common carrier.
2. Warehouse Receipt is a document of
title which is issued by a warehouseman.
3. Quedan is a warehouse receipt that
covers sugar.
4. Dock Warrant is a warrant given by
dock-owners to the owner of merchandise
DUTIES OF A WAREHOUSEMAN
Warehouseman means a person lawfully
engaged in the business of storing goods for
profit.
Duties:
1. Included in the business of receiving
commodity for storage (Sec. 2)
2. It includes entering into any contract or
transaction wherein:
a. the warehouseman is obligated to
return the very same commodity
delivered to him or to pay its value;
b. commodity delivered to him or to pay
its value;
81
Non-Negotiable
Warehouse
Receipt
82
Receipt
Negotiation (Sec.
41)
Title to the goods
of
the
person
negotiating
the
receipt and title of
the
person
to
whose order the
goods were to be
delivered.
Direct obligation of
the warehouseman
to hold possession
of the goods for
him as if the
warehouseman
directly contracted
with him (Sec. 41)
Negotiation defeats
the lien of the seller
of the goods. (Sec.
25)
Cannot unless in
proper circumstances
Transfer
or
Assignment
Title of the
goods, as against
the transferor
(merely steps
into the shoes)
Transferee
acquires title
The
title
is
conditional
Right to notify
the
warehouseman of
the transfer and
acquire the direct
obligation of the
warehouseman to
hold the goods
for him. (Sec. 42)
In case of double
sale or lien on the
supply,
before
notification, title
of the transferee
may
still
be
defeated
Can be subject to
such
Negotiation
by
Delivery
(Bearer
Receipt)
Sec. 37 of the Warehouse Receipt
Law provides that: A negotiable receipt
may be negotiated by delivery: (a)
Where, by terms of the receipt, the
warehouseman undertakes to deliver the
goods to the bearer, or (b)
Where, by
the
terms
of
the
receipt,
the
warehouseman undertakes to deliver the
goods to the order of a specified person,
and such person or a subsequent indorsee
of the receipt has indorsed it in blank or to
bearer.
Where, by the terms of a negotiable
receipt, the goods are deliverable to
bearer or where a negotiable receipt has
been indorsed in blank or to bearer, any
holder may indorse the same to himself or
to any other specified person, and, in such
case, the receipt shall thereafter be
negotiated only by the indorsement of
such indorsee.
*Sec. 37 (a) where, by terms of the
receipt, the warehouseman undertakes to
deliver the goods to the bearer;
negotiation takes place by mere delivery.
Example: Q: W, warehouseman, issued a
warehouse receipt to A or bearer. A wants
to negotiate it to B. How can A negotiate it
to B?
A: By delivery since it is a bearer
warehouse receipt.
Q: B wants to negotiate it to C, how can
negotiation be made? And C wants to
negotiate it further to D, how can C
negotiate it to D?
A: By delivery.
*Sec. 37 (b) where, by the terms of the
receipt, the warehouseman undertakes to
deliver the goods to the order of a
specified person, and such person or a
subsequent indorsee of the receipt has
indorsed it in blank or to bearer;
Indorsement is essential in transferring
title to the transferee and then delivery
Example: Q: W, warehouseman, issued a
warehouseman to A or order. A wants to
negotiate it to B, how can he effectively
negotiate it to B?
A: A must indorse and deliver it to B
Q: B wants to negotiate it further to C,
how can he do it?
A: It depends on what kind of indorsement
was made by A. If the indorsement made
by A was a special indorsement, then B
can negotiate it to C by indorsing the
warehouse receipt and coupled with
83
W A (depositor) B (buyer)
A negotiates the warehouse receipt to B
Q: Is A still liable to B?
A: YES. A is still liable to B. He is liable in
case of breach of warranties.
Recourse: In case there is breach of
warranty, the buyer can always go after
the depositor.
3. Sec. 45 of the Warehouse Receipt
Law states that: The indorsement of a
receipt shall not make the indorser liable
for any failure on the part of the
warehouseman or previous indorsers of
the receipt to fulfill their respective
obligations.
4. Sec. 49 of the Warehouse Receipt
Law states that: Where a negotiable
receipt has been issued for goods, no
seller's lien or right of stoppage in transitu
shall defeat the rights of any purchaser for
value in good faith to whom such receipt
has been negotiated, whether such
negotiation be prior or subsequent to the
notification to the warehouseman who
issued such receipt of the seller's claim to
a lien or right of stoppage in transitu. Nor
shall the warehouseman be obliged to
deliver or justified in delivering the goods
to an unpaid seller unless the receipt is
first surrendered for cancellation.
5. Sec. 25 of the Warehouse Receipt
Law states that: If goods are delivered
to a warehouseman by the owner or by a
person whose act in conveying the title to
them to a purchaser in good faith for value
would bind the owner, and a negotiable
receipt is issued for them, they can not
thereafter, while in the possession of the
warehouseman,
be
attached
by
garnishment or otherwise, or be levied
upon under an execution unless the
receipt be first surrendered to the
warehouseman
or
its
negotiation
enjoined. The warehouseman shall in no
case be compelled to deliver up the actual
possession of the goods until the receipt is
surrendered to him or impounded by the
court.
c. Negotiation by fraud, mistake or duress
Sec. 47 of the Warehouse Receipt
Law provides that: The validity of the
negotiation of a receipt is not impaired by
the fact that such negotiation was a
breach of duty on the part of the person
making the negotiation or by the fact that
the owner of the receipt was induced by
fraud, mistake or duress or to entrust the
possession or custody of the receipt to
84
OF
RECEIPTS
AND
EFFECTS
LIEN
AND
ITS
85
86
87
88
OF
THE
89
90
91
2.
3.
4.
5.
E. Right of Subrogation
*This principle is a normal incident of
indemnity property insurance as a legal
effect of payment; it inures to the insurer
without any formal assignment or any
express stipulation to that effect in the
policy. Said right is not dependent upon
nor does it grow out of any privity of
contract. Payment to the insured makes
the insurer an assignee in equity.
*The insurer can only recover from the
third person what the insured could have
recovered. Thus, there can be no recovery
if the insurer voluntarily paid even if the
loss is not covered by the policy.
*The insured can no longer recover from
the offending party what was paid to him
by the insurer but he can recover any
deficiency, that is, if his damages is more
than what was paid. The deficiency is not
covered by the right of subrogation.
Cases when there is no right of
subrogation:
92
93
94
95
As
to
measure
As to time
when
insurable
interest
must exist
As
to
expectation
of benefit to
Insurable
Interest
in
Property
Limited to
the actual
value
of
the
interest in
the
property.
The
insurable
interest
exists
when the
insurance
takes
effect and
when the
loss occurs
but
not
need exist
in
the
meantime.
There
must be a
legal
Insurable
Interest in
Life
General
Rule:
Insurable
Interest in
life
is
unlimited.
Exception:
In
life
insurance
effected by
a creditor
on the life
of
the
debtor.
General
Rule: It is
enough
that
the
insurable
interest
exists
at
the
time
the policy
takes effect
and
need
not exist at
the time of
the loss.
Exception:
Obligee
must have
insurable
interest at
the
time
the policy
took effect
and at the
time
of
loss.
The
expectation
of
the
be derived
basis.
benefit to
be derived
need
not
have
any
legal basis.
As to the The
General
beneficiary beneficiar
Rule: The
s interest
y
must beneficiary
have
need
not
insurable
have
interest
insurable
over
the interest
thing
over
the
insured.
life of the
The policy insured
if
is
still the insured
valid, only himself
the
secured the
designatio policy.
n
was Exception:
avoided
If the life
because
insurance
the
was
beneficiar
obtained
y has no by
the
insurable
beneficiary,
interest.
the
latter
must have
insurable
interest
over
the
life of the
insured.
Q: In case where the designated
beneficiary cannot claim the proceeds
due to the fact that such designation
was void, who can claim the proceeds?
A: Insured.
DEVICES
FOR
ASCERTAINING
CONTROLLING RISK AND LOSS:
AND
96
97
3.
4.
5.
6.
7.
C. Remedies
available
in
case
of
Concealment or False Representation
1. When rescission by the insurer
may be exercised
Sec. 48 of the Insurance Code
states that: Whenever a right to
rescind a contract of insurance is given
to the insurer by any provision of this
chapter, such right must be exercised
previous to the commencement of an
action on the contract.
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
two 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 rescindible by reason of the
fraudulent
concealment
or
misrepresentation of the insured or his
agent.
General Rule: Prescriptive period:
Any time before the commencement of
a court action on the contract.
Exception: In case of life insurance
made payable on the death of the
insured.
Q: How rescission is made?
A: By sending notice of cancellation or
rescission to the insured.
Even if there is a court action, the
insurer may raise concealment or
representation
as
an
affirmative
defense.
2. When
Life
insurance
policy
becomes incontestable
Sec. 48 of the Insurance Code
states that: Whenever a right to
rescind a contract of insurance is given
to the insurer by any provision of this
chapter, such right must be exercised
previous to the commencement of an
action on the contract.
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
two 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 rescindible by reason of the
fraudulent
concealment
or
misrepresentation of the insured or his
agent.
a. Requisites for incontestability
98
Representation
A
collateral
inducement
Need
not
be
written
Should
be
established to be
material
Requires only to be
substantially true
2. Kinds of Warranties
1. Express
2. Implied warranties that are
deemed included in the contract
although not expressly mentioned.
3. Affirmative
asserts
the
existence of a fact or condition at
the time it is made.
4. Promissory
the
insured
stipulates that certain facts or
conditions shall exists or thing shall
be done or omitted.
3. Time to which warranty refers
Sec. 68 of the Insurance Code
provides that: A warranty may relate
to the past, the present, the future, or
to any or all of these.
4. Effect of Breach
Sec. 74 of the Insurance Code
states that: The violation of a material
warranty, or other material provision of
a policy, on the part of either party
thereto, entitles the other to rescind.
99
100
101
102
103
Over-Insurance
When the amount of
the insurance
is
beyond the value of
the
insureds
insurable interest
104
Formula:
Insurance Policy
--------------------------- x Amount of loss
Total of Policy taken
X =
500000
--------- x 1M = 200,000
2.5M
Y =
1M
-------- x 1M = 400,000
2.5M
Z =
1M
-------- x 1M = 400,000
2.5M
105
Double Insurance
Involves
same
interest
Insurer remains in
such capacity
Insured in the 1st
contract is a party
in interest in the 2nd
contract
Subject
of
is
the
original
insurers risk
Consent of original
insured,
not
necessary
insurance
is
property
Insured has to give
his consent
106
overwhelming
power
which
cannot
be
guarded against
by the ordinary
exertion
of
human skill or
prudence,
as
distinguished
from the ordinary
wear and tear of
the voyage and
from
injuries
suffered by the
vessel
in
consequence of
her not being
unseaworthy.
Extraordinary
perils
3. From
the
negligent
failure
of
the
ships
owner
to
provide the
vessel with
the proper
equipment
to
convey
the
cargo
under
ordinary
conditions.
Usual
perils
attendant
to
navigation
*Only perils of the sea are assumed by
the insurer.
2. all risks marine insurance policy
means that all risks are covered unless
expressly excepted. The burden rests
on the insurer to prove that the loss is
caused by a risk that is excluded.
D. Insurable
interest
in
marine
insurance
1. Ship owners insurable interest
Sec. 100 of the Insurance Code
provides that: The owner of a ship has
in all cases an insurable interest in it,
even when it has been chartered by
one who covenants to pay him its
value in case of loss: Provided, That in
this case the insurer shall be liable for
only that part of the loss which the
insured cannot recover from the
charterer.
*The
insurable
interest
of
the
shipowner is over the value of the
vessel and over expected freightage.
Measurement: Ownership
*It does not matter whether the ship
was mortgaged or chartered.
a. Rule where vessel is chartered
Sec. 100 of the Insurance Code
states that: The owner of a ship
has in all cases an insurable
interest in it, even when it has
been chartered by one who
covenants to pay him its value in
case of loss: Provided, That in this
case the insurer shall be liable for
only that part of the loss which the
insured cannot recover from the
charterer.
107
108
109
110
111
112
Computation:
300,000
----------- x 300,000 = 180,000
500,000
If the loss is 500,000, the insured can recover the
whole 300,000 because there is a total loss and
not partial loss.
*In fire insurance, there has to be an express
stipulation to that effect.
FIRE INSURANCE:
A. Definition and scope of fire insurance
Sec. 167 of the Insurance Code
provides that: As used in this Code, the
term "fire insurance" shall include
insurance against loss by fire, lightning,
windstorm, tornado or earthquake and
other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies.
B. Risks or losses covered
Q: What are allied risks?
A: lightning, windstorm, tornado or
earthquake, tsunami.
Q: What are direct losses?
A: Direct losses are losses that pertain to
the physical destruction of the thing
insured.
Q: What are indirect losses?
A: Indirect losses pertain to consequential
losses.
Q: Are consequential losses compensable?
A: General Rule: NO in standard fire
policy
Except: If there is an agreement
*The liability of the insurer is to pay for
direct losses only
Friendly Fire fire that burns in a place
where it is supposed to burn.
Hostile Fire fire that escapes and burns
in a place where it is not supposed to be.
C. Effect of alteration in the thing
Sec. 168 of the Insurance Code
provides that: An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy made
without the consent of the insurer, by
means within the control of the insured,
and increasing the risks, entitles an
insurer to rescind a contract of fire
insurance.
Sec. 169 of the Insurance Code states
that: An alteration in the use or condition
of a thing insured from that to which it is
limited by the policy, which does not
113
114
Property
Insurance
Principal Contract
There
are
two
parties: insurer and
insured
Contract
of
indemnity
Insurer has no such
right; only right of
subrogation
May be cancelled
unilaterally either
by
insured
or
insurer on grounds
provided by law
No
need
of
acceptance by any
third party
Risk-distributing
device,
premium
paid as a ratable
contribution to a
common fund
LIFE INSURANCE:
A. Definition
Sec. 179 of
provides that:
115
Measure of indemnity
Sec. 183 of the Insurance Code states
that: Unless the interest of a person
insured is susceptible of exact pecuniary
measurement, the measure of indemnity
under a policy of insurance upon life or
health is the sum fixed in the policy.
General Rule: Life policy is always valued
Exception: If the creditor insured the life
of the debtor.
COMPULSORY
INSURANCE:
MOTOR
VEHICLE
LIABILITY
116
117
118
TRANSPORTATION LAW
PRELIMINARY CONSIDERATIONS:
A. Governing Laws
1. New Civil Code Primary law
2. Warsaw Convention for international
transportation by air
3. Code
of
Commerce
governs
suppletorily; it governs maritime
transaction
4. Carriage of Goods by Sea Act for
transportation
by
sea;
governs
suppletorily
5. Salvage Law
6. Public Service Act
7. Article XII Sec 11 on operation of public
convenience of the 1987 Philippine
Constitution
B. Concept of Public Utility & public
service
Sec. 13 (b) of the Public Service Act
provides that: The term 'public service'
includes every person that now or
hereafter may own, operate, manage, or
control in the Philippines, for hire or
compensation, with general or limited
clientele, whether permanent, occasional
or accidental, and done for general
business purposes, any common carrier,
railroad, street railway, traction railway,
sub-way motor vehicle, either for freight or
passenger, or both with or without fixed
route
and
whatever
may
be
its
classification, freight or carrier service of
any class, express service, steamboat, or
steamship line, pontines, ferries, and
water craft, engaged in the transportation
of passengers or freight or both, shipyard,
marine railway, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant,
canal, irrigation system, gas electric light,
heat and power, water supply and power,
petroleum, sewerage system, wire or
119
air
transportation
Q: What conditions must concur in the
grant of certificate of public convenience
and necessity?
A: 1. The grantee must be a citizen of the
Philippines or a corporation or entity 60%
of which is owned by such citizens; 2. The
grantee must have sufficient financial
capability to undertake the service; and 3.
The service will promote public interest
and convenience in a proper and suitable
manner.
*In Tatad v Garcia, the SC held that the
controlling factor is the citizenship of the
person operating a common carrier.
Guiding Principles:
1. Prior or Old Operator Rule the first
licensee will be protected in his
investment and will not be subjected
to ruinous competition.
*No certificate of public convenience
and necessity will be issued to other
operator as long as the prior operator
still in operation and can satisfy the
120
towage,
121
Arrastre
Stevedor
ing
122
123
124
125
126
*When
a
common
carrier
undertakes to convey goods, the
law implies a contract that they
shall be delivered at destination
within a reasonable time, in the
absence of any agreement as to
the time of delivery.
*Mercantile usage or practice
With
stipulation
Carrier
is
bound to fulfil
the
contract
and is liable
for any delay;
no
matter
from
what
cause it may
have arisen
Without
stipulation
1. Within
a
reasonable
time.
2. Carrier
is
bound
to
forward
them in the
first
shipment of
the same or
similar
goods
which
he
may make
to the point
of delivery
b. Consequences of delay
Article 1740 of the New Civil
Code provides that: If the
common carrier negligently incurs
in delay in transporting the goods,
a natural disaster shall not free
such carrier from responsibility.
Article 1747 of the New Civil
Code provides that: If the
common
carrier, without just
cause, delays the transportation of
the
goods
or
changes
the
stipulated or usual route, the
contract limiting the common
carrier's liability cannot be availed
of in case of the loss, destruction,
or deterioration of the goods.
Article 370 of the Code of
Commerce provides that: If a
period has been fixed for the
delivery of the goods, it must be
made within such time, and, for
failure to do so, the carrier shall
pay the indemnity stipulated in the
bill of lading, neither the shipper
nor the consignee being entitled to
anything else. If no indemnity has
been stipulated and the delay
exceeds the time fixed in the bill of
lading, the carrier shall be liable for
127
128
129
130
131
132
2.
3.
4.
5.
133
134
135
136
137
138
139
140
141
142
143
shippers
and
passengers,
an
examination of the vessel, in order
to ascertain whether it is watertight, with the rigging and engines
in good condition, and with the
equipment
required
for
good
navigation, preserving under his
responsibility a certificate of the
memorandum of his inspection,
signed by all those who may have
taken part therein. The experts
shall be appointed, one by the
captain of the vessel and another
by
those
who
request
its
examination, and in case of
disagreement a third shall be
appointed by the marine authority
of the port or by the authority
exercising his functions;
5. To remain constantly on board
the vessel with the crew while the
cargo is being taken on board and
to carefully watch the stowage
thereof; not to consent to the
loading of any merchandise or
matter of a dangerous character,
such as inflammable or explosive
substances,
without
the
precautions
which
are
recommended for their packing,
handling and isolation; not to
permit the carriage on deck of any
cargo which by reason of its
arrangement, volume, or weight
makes the work of the sailors
difficult, and which might endanger
the safety of the vessel; and if, on
account of the nature of the
merchandise, the special character
of the shipment, and principally the
favorable season in which it is
undertaken, merchandise may be
carried on deck, he must hear the
opinion of the officers of the vessel
and have the consent of the
shippers and of the ship agent;
6. To demand a pilot at the expense
of the vessel whenever required by
the navigation, and principally
when he has to enter a port, canal,
or river, or has to take a roadstead
or anchoring place with which
neither he nor the officers and crew
are acquainted;
7. To be on deck on reaching land
and to take command on entering
and
leaving
ports,
canals,
144
145
146
condition
to
navigate; to bring
cargo to nearest
neutral port in
case of war or
blockade
F. Loans on Bottomry and Respondentia
1. Definition
Article 719 of the Code of
Commerce states that: A loan in
which under any condition whatever,
the repayment of the sum loaned and
of the premium stipulated depends
upon the safe arrival in port of the
goods on which it is made, or of the
price they may receive in case of
accident, shall be considered a loan on
bottomry or respondentia.
Bottomry is a loan secured by the
shipowner or ship agent guaranteed by
the vessel itself and payable only upon
arrival of vessel at destination.
*Captain may enter into bottomry loan
provided there is justification, example
of which is, for immediate repairs.
Respondentia is a loan secured by
the owner of the cargo payable upon
safe arrival of cargo at destination.
Barratry is an act of the captain or
crew for fraudulent purposes.
2. Distinguished from ordinary loan
Ordinary
Loan
With or without
collateral
Any
property
may be used
as collateral
Absolutely
payable
Obligation
to
pay still exists
in the event
the
collateral
was lost
First lender is
the
first
priority
Need not be in
writing to be
enforceable
Bottomry/Respond
entia
Always with collateral
Property is limited to
vessel/cargo
Conditionally payable
Loan is extinguished
in the event that the
vessel/cargo was lost
Last lender is the first
priority
Need to be in writing
to be enforceable
147
148
149
150
151
152
Requisites:
1. The natural disaster must have
been the proximate and only cause
of the loss;
2. The common carrier must have
exercised due diligence to prevent
or minimize loss before, during and
after the occurrence of the natural
disaster;
3. The common carrier must not have
been guilty of delay; and
4. The captain must have made a
protest before the competent
authority at the first port he
touched within the 24 hours
following his arrival, and should
have ratified it within the same
period when he arrived at the port
of
destination,
proceeding
immediately with the proof of the
facts, without opening the hatches
until after this has been done.
Article 831 of the Code of
Commerce provides that: If a vessel
should be forced by a third vessel to
collide with another, the owner of the
third vessel shall indemnify the losses
and damages caused, the captain
thereof being civilly liable to said
owner.
*This is known as the Doctrine of
Proximate Cause
Article 832 of the Code of
Commerce states that: If by reason
of a storm or other cause of force
majeure, a vessel which is properly
anchored and moored should collide
with those nearby, causing them
damages, the injury occasioned shall
be considered as particular average of
the vessel run into.
4. Limited liability rule
*There must be no fault on the part of
the shipowner.
*The fault falls only with his crew.
Article 837 of the Code of
Commerce states that: The civil
liability incurred by the shipowners in
the case prescribed in this section,
shall be understood as limited to the
value of the vessel with all its
appurtenances and freightage.
I.
153
3. Expenses
Article 821 of the Code of
Commerce
provides
that:
The
expenses of an arrival under stress
shall always be for the account of the
shipowner or agent, but they shall not
be liable for the damages which may
be caused the shippers by reason of
the arrival, provided the latter is
legitimate. Otherwise, the ship agent
and the captain shall be jointly liable.
Article 822 of the Code of
Commerce provides that: If in order
to make repairs to the vessel or
because there is danger that the cargo
may suffer, it should be necessary to
unload, the captain must request the
authorization from the competent
judge or court for the removal, and
carry it out with the knowledge of the
person interested in the cargo, or his
representative, should there be any. In
a foreign port, it shall be the duty of
the Philippine Consul, where there is
one, to give the authorization. In the
first case, the expenses shall be for the
account of the ship agent or owner,
and in the second, they shall be
chargeable against the owners of the
merchandise for whose benefit the act
was performed. If the unloading should
take place for both reasons, the
expenses
shall
be
divided
proportionately between the value of
the vessel and that of the cargo.
4. Custody of Cargo
Article 823 of the Code of
Commerce
provides
that:
The
custody and preservation of the cargo
which has been unloaded shall be
intrusted to the captain, who shall be
responsible for the same, except in
cases of force majeure.
Article 824 of the Code of
Commerce states that: If the entire
cargo or part thereof should appear to
be damaged, or there should be
imminent
danger
of
its
being
damaged, the captain may request of
the competent judge or court, or of the
consul in a proper case, the sale of all
or of part of the former, and the
person taking cognizance of the matter
shall authorize it, after an examination
and
declaration
of
experts,
advertisements, and other formalities
required by the case, and an entry in
154
155
Salvage
1. Definition
Salvage - 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 or actual peril, shipwrecks,
derelicts or recapture
- Services one person render to the
owner of a ship or goods, by his own
labor, preserving the goods or the ship
which the owner or those entrusted
with the care of them have either
abandoned in distress at sea, or are
unable to protect or secure.
2. Rights and obligations of salvors
and owners (Salvage Law)
Salvors
Entitled
to
compensation for
services rendered
Acquires a lien
upon the property
salvaged until he
is compensated
Owners
He
does
not
renounce his right
to the derelict
Has a right to the
delivery of the
vessel or things
saved after the
salvage
is
accomplished,
provided he pays
or gives a bond
Should make a
claim
within
3
Entitled to half of
the deposit of the
derelict sold, if
after the lapse of
3 years no claim
was made
WARSAW CONVENTION:
Warsaw Convention is an agreement among
sovereign countries concerning the regulation in
a uniform manner of the conditions of
international transportation by air in respect of
the documents used for such transportation and
of the liability of the carrier.
Signed on October 12, 1929 in Warsaw,
Poland.
Purpose:
To
protect
the
emerging
air
transportation industry and to secure the
uniformity of recovery by the passengers.
Applicability: The transportation must be:
1. International transportation
2. Air transportation
3. Carriage of passengers, baggage or goods
*The Warsaw Convention shall also apply to
fortuitous events affecting transportation by
aircraft performed by an air transportation
enterprise.
*The Convention is likewise applicable to air
transportation by legal entities constituted under
public law of the High Contracting Parties.
*The Convention does not apply to transportation
performed under the terms of any international
postal convention.
International
Transportation
is
any
transportation in which the place of departure
and the place of destination are situated either:
1. Within the territories of two High
Contracting Parties regardless of whether
or not there be a break in the
transportation or transhipment; or
Controlling: Two territories must be High
Contracting Parties
*Also called as one way ticket
2. Within the territory of a single High
Contracting Parties, if there is an agreed
stopping place within a territory subject to
the sovereignty, mandate or authority of
156
157
158
between
different
kinds
of
159
160
161
162
Ownership of Banks:
163
to
maintain
liquidity
and
164
165
of
the
Bangko
A. Emergency Loan
Sec. 84 of the New Central Bank
Act states that: In periods of national
and/or local emergency or of imminent
financial panic which directly threaten
monetary and banking stability, the
Monetary Board may, by a vote of at
least five (5) of its members, authorize
the
Bangko
Sentral
to
grant
extraordinary loans or advances to
banking institutions secured by assets
as defined hereunder: Provided, That
while such loans or advances are
outstanding, the debtor institution
shall
not,
except
upon
prior
authorization by the Monetary Board,
expand the total volume of its loans or
investments.
The Monetary Board may, at its
discretion, likewise authorize the
Bangko Sentral to grant emergency
loans
or
advances
to
banking
institutions,
even
during
normal
periods, for the purpose of assisting a
bank in a precarious financial condition
or under serious financial pressures
brought by unforeseen events, or
events which, though foreseeable,
could not be prevented by the bank
concerned: Provided, however, That
the Monetary Board has ascertained
that the bank is not insolvent and has
the assets defined hereunder to secure
the advances: Provided, further, That a
concurrent vote of at least five (5)
members of the Monetary Board is
obtained.
The amount of any emergency loan or
advance shall not exceed the sum of
fifty percent (50%) of total deposits
and deposit substitutes of the banking
institution and shall be disbursed in
166
Bangko
Sentral
during
the
conservatorship.
The
expenses
attendant to the conservatorship shall
be borne by the bank or quasi-bank
concerned.
The Monetary Board shall terminate
the conservatorship when it is satisfied
that the institution can continue to
operate
on
its
own
and
the
conservatorship is no longer necessary.
The conservatorship shall likewise be
terminated should the Monetary Board,
on the basis of the report of the
conservator or of its own findings,
determine that the continuance in
business of the institution would
involve probable loss to its depositors
or creditors, in which case the
provisions of Section 30 shall apply.
*Experiencing liquidity problems only.
Powers of Conservator:
1. To take charge of the assets,
liabilities, and the management
thereof;
2. To reorganize the management of
the subject bank;
3. To collect all monies and debts due
said institutions; and
4. To exercise all powers necessary to
restore its viability
Except: Those already perfected
C. Appointment of Receiver
Sec. 30 of the New Central Bank
Act provides that: Whenever, upon
report of the head of the supervising or
examining department, the Monetary
Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as
they become due in the ordinary
course of business: 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 under Section 37 that has
become final, involving acts or
transactions which amount to fraud or
a dissipation of the assets of the
institution; in which cases, the
Monetary Board may summarily and
without need for prior hearing forbid
the institution from doing business in
the Philippines and designate the
Philippine
Deposit
Insurance
Corporation as receiver of the banking
institution.
167
168
169
170
171
172
173
174