BAR 2018 LAST MINUTE TIPS IN MERCANTILE LAW

BY PROF. SERGIO M. CENIZA

Corporation Law
Separate Personality Rule:
- As a general rule, a corporation has a separate and distinct personality
from those who represent it. Its officers are solidarily liable only when
exceptional circumstances exist, such as cases enumerated in Sec. 31
of the corporation code. (Pioneer Insurance Surety Corp. vs. Morning
Star Travel & Tours, Inc., et. al., G.R. No. 198436, July 08, 2015)
- The Doctrine of Separate Juridical Personality essentially states that a
corporation is vested by law with a personality separate and distinct from
the people comprising it. Ownership by a single or small group of
stockholders of nearly all of the capital stock of the corporation is not by
itself a sufficient ground to disregard the separate corporate personality.
Thus, obligations incurred by corporate officers, acting as corporate
agents, are direct accountabilities of the corporation they represent.
(Malixi v. Mexicali Philippines, G.R. No. 205061, [June 8, 2016] [Del
Castillo Case]))
Exception to the Separate Personality Rule
- The Court cited circumstances when a corporate officer can be jointly
and solidarily liable with the corporation:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation: -
a) vote for or assent to patently unlawful acts of the corporation;
b) act in bad faith or with gross negligence in directing the corporate
affairs;
c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
outside the object for which a corporation is created”. (University of
Mindanao, Inc. v. BSP, G.R. Nos. 194964-65, January 11, 2016)
- It is a question, therefore, in each case, of the logical relation of the act
to the corporate purpose expressed in the charter. If that act is one which
is lawful in itself, and not otherwise prohibited, is done for the purpose of
serving corporate ends, and is reasonably tributary to the promotion of
those ends, in a substantial, and not in a remote and fanciful, sense, it
may fairly be considered within charter powers. The test to be applied
is whether the act in question is in direct and immediate furtherance
of the corporation's business, fairly incident to the express powers
and reasonably necessary to their exercise. If so, the corporation has
the power to do it; otherwise, not (Magallanes Watercraft Association,
Inc., et. al. vs. Margarito Auguis, et. al., G.R. No. 211485, May 30, 2016)
Corporate officers
- Corporate officers are those officers of the corporation who are given that
character by the Corporation Code or by the corporation's by-laws. There
are three specific officers whom a corporation must have under Section
25 of the Corporation Code. These are the president, secretary and the
treasurer. A corporation may have such other officers as may be
provided for by its by-laws. The number of corporate officers is thus
limited by law and by the corporation's by-laws. (Real v. Sangu
Philippines, Inc., G.R. No. 168757, January 19, 2011[Del Castillo Case])
Two-tier test in determining the existence of intra-corporate controversy
- The two-tier tests in determining the existence of intra-corporate
controversy are the relationship test and the nature of the controversy
test.

2. When the director or officer has consented to the issuance of watered
stock or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto.
3. When a director, trustee or officer has contractually agreed or stipulated
to hold himself personally and solidarily liable with the corporation.
4. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
Thus, the separate personality rule may be disregarded, or the veil of
corporate fiction may be pierced attaching personal liability against responsible
person if the corporation's personality "is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws x x x. (Dutch Movers, Inc. v. Lequin, G.R. No. 210032, [April 25,
2017] [Del Castillo Case])
Consequence of the Separate Personality Rule
The “relationship test” requires that the controversy must arise out of
intra-corporate or partnership relations between any or all of the
parties and the corporation, partnership, or association of which they are
stockholders, members or associates, between any or all of them and the
corporation, partnership or association of which they are stockholders,
members or associates, respectively. (Vitaliano Aguirre II and Fidel
Aguirre vs. FQB+7, Inc., et. al., G.R. No. 170770, January 9, 2013)
Under the nature of the controversy test, the incidents of that relationship
must also be considered for the purpose of ascertaining whether the
controversy itself is intra-corporate. The controversy must not only be
rooted in the existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties' correlative rights and obligations
under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation. If the relationship and its incidents are
merely incidental to the controversy or if there will still be conflict even if
the relationship does not exist, then no intra-corporate controversy exists.
(Real v. Sangu Philippines, Inc., G.R. No. 168757, [January 19, 2011],
655 PHIL 68-92 [Del Castillo Case])

- The obligations incurred by corporate officers, acting as such corporate
agents, are not theirs but the direct accountabilities of the corporation
they represent. As such, they should not be generally held jointly and
solidarily liable with the corporation.
The general rule is grounded on the theory that a corporation has a legal
personality separate and distinct from the persons comprising it. To
warrant the piercing of the veil of corporate fiction, the officer's bad faith
or wrongdoing "must be established clearly and convincingly" as "bad
faith is never presumed."
(Harpoon Marine Services, Inc. and Jose Lido Rosit vs. Fernan Francisco, G.
R. No. 167751, March 2, 2011[Del Castillo Case])
Concept of an Ultra Vires Act of a Corporation
- Ultra vires actions are corporate acts that are outside those express
definitions under the law or articles of incorporation or those "committed
Certificate of Stocks
- A certificate of stock is a written instrument signed by the proper officer
of a corporation stating or acknowledging that the person named in the
document is the owner of a designated number of shares of its stock.
Transfer of Stocks
- Under Sec. 63 of the Corporation Code, certain minimum requisites must
be complied with for there to be a valid transfer of stocks, to wit:
1) there must be delivery of the stock certificate;
2) the certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and
3) to be valid against third parties, the transfer must be recorded in the
books of the corporation.
(See Anna Teng vs. SEC and Ting Ping Lay, G.R. No. 184332, Feb. 17,
2016)

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Derivative suit
- A derivative action is a suit by a shareholder to enforce a corporate cause
of action. Under the Corporation Code, where a corporation is an injured
party, its power to sue is lodged with its board of directors or trustees.
But an individual stockholder may be permitted to institute a derivative
suit on behalf of the corporation in order to protect or vindicate corporate
rights whenever the officials of the corporation refuse to sue, or are the
ones to be sued, or hold control of the corporation. In such actions, the
corporation is the real party-in-interest while the suing stockholder, on
behalf of the corporation, is only a nominal party.
Derivative suits presupposes that the corporation is the injured party and
the individual stockholder may file a derivative suit on behalf of the
corporation to protect or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or are the ones to be sued, or hold
control of the corporation. (BSP vs. Vicente Jose Campa, et. al., G.R. No.
185979, March 16, 2016)
Requirements for Derivative Suit
- Under Section 1, Rule 8 of A.M. No. 01-2-04-SC, otherwise known as the
Interim Rules of Procedure Governing Intra-Corporate Controversies
under Republic Act No. 8799, the following are required before a
derivative suit may be filed:
l) The person filing the suit must be a stockholder or member at
the time the acts or transactions subject of the action occurred and
the time the action was filed;
2) He must have exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he
desires;
3) No appraisal rights are available for the act or acts complained
of;
4) The suit is not a nuisance or harassment suit.
Stockholders‘ Right to Inspect
- The Corporation Code has granted to all stockholders the right to
inspect the corporate books and records, and in so doing has not
required any specific amount of interest for the exercise of the right
to inspect. (Terelay Investment and Dev. Corp. vs. Cecilia Teresita
Yulo, G.R. No. 160924, Aug. 05, 2015)
- Specifically, stockholders cannot be prevented from gaining access to
the:
1) records of all business transactions of the corporation; and
2) minutes of any meeting of stockholders or the board of directors,
including their various committees and subcommittees.
- The corporation carries the burden of proving the exceptions, to wit:
1) that the stockholder has improperly used information before;
2) lack of good faith; or
3) lack of legitimate purpose.
- An action for injunction filed by a corporation generally does not lie to
prevent the enforcement by a stockholder of his or her right to inspection.
The petition is a pre-emptive action unjustly intended to impede and
restrain the stockholders' rights. If a stockholder demands the inspection
of corporate books, the corporation could refuse to heed to such demand.
When the corporation, through its officers, denies the stockholders of
such right, the latter could then go to court and enforce their rights. It is
then that the corporation could set up its defenses and the reasons for
the denial of such right. Thus, the proper remedy available for the
enforcement of the right of inspection is undoubtedly the writ of
mandamus to be filed by the stockholders and not a petition for injunction
filed by the corporation. (Philippine Associated Smelting and Refining
Corp. vs. Pablito Lim et. al., G.R. No. 172948, October 05, 2016)
Appraisal Right
- A stockholder who dissents from certain corporate actions has the right
to demand payment of the fair value of his or her shares.
Clearly, the right of appraisal may be exercised when there is a
fundamental change in the charter or articles of incorporation
substantially prejudicing the rights of the stockholders. It does not vest
unless objectionable corporate action is taken. It serves the purpose of
enabling the dissenting stockholder to have his interests purchased and
to retire from the corporation. (Philip Turner, et. al. vs. Lorenzo Shipping
Corp., G.R. No. 157479, November 24, 2010)
Pre-emptive Right and Right of First Refusal
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- Pre-emptive right under Sec. 39 of the Corporation Code refers to the
right of a stockholder of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings. (China Banking Corp. vs. Miguel Lim, et. al., G.R. No.
165929, June 6, 2011)
On the other hand, right of first refusal is the right of a stockholder to
demand from other stockholder/s who may wish to sell or assign their
shares to first offer their shares to the corporation or to the other existing
stockholders of the corporation. Restrictions on the right to transfer
shares must appear in the articles of incorporation and in the by-laws as
well as in the certificate of stock; otherwise, the same shall not be binding
on any purchaser thereof in good faith. (Andaya v. Rural Bank of
Cabadbaran, Inc., G.R. No. 188769, August 3, 2016)
Merger
- Merger is a re-organization of two or more corporations that results in their
consolidating into a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the other surviving. To
put it another way, merger is the absorption of one or more corporations
by another existing corporation, which retains its identity and takes over
the rights, privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing corporation
continues its existence while the life or lives of the other corporation(s) is
or are terminated. (Bank of Commerce vs. Radio Phils. Network, Inc., et.
al., G.R. No. 195615, Apr. 21, 2014)
The merger does not become effective upon the agreement of the
constituent corporations. (Mindanao Savings and Loan Association, Inc.
vs. Willkom, G.R. No. 178618, October 11, 2010)
By law and jurisprudence, a merger becomes only effective upon
approval by the Securities and Exchange Commission (SEC) of the
articles of merger. (BPI vs. BPI Employees Union-Davao Chapter-
Federation of Unions in BPI Unibank, 627 SCRA 590)
Foreign Investment Act
Export Enterprise vs Domestic Market Enterprises under the Foreign
Investment Act
- Under Sec. 3 (f) of the FIA, a domestic market enterprise shall mean an
enterprise which produces goods for sale, or renders services to the
domestic market entirely or if exporting a portion of its output, fails to
consistently export at least sixty percent (60%) thereof.
On the other hand, Sec. 3 (e) of the FIA defines export enterprise as an
enterprise that exports sixty percent (60%) or more of its output or where
a trader purchases products domestically, exports sixty percent (60%) or
more of such purchases.
“Doing Business” in the Philippines
- Under the Foreign Investment Act, the phrase “doing business” shall
include:
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 and object of the business organization:
(Sec 3 [d] of the Foreign Investment Act)
- The term “doing business” does not include appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
(See the case of Steelcase, Inc. vs. Design International
Selections, Inc., G.R. No. 171995, April 18, 2012)
Securities Regulation Code
Rule on the sale of Securities
- Securities are shares, participation or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by
a certificate, contract, instrument, whether written or electronic in
character.
The law provides that no securities shall be sold or offered for sale
or distribution within the Philippines, without a registration
 statement duly filed with and approved by the Securities and
Exchange Commission. (Sec. 8.1, Securities Regulation Code)
Thus, if the business operation or the scheme constitutes an
investment contract that is a security under R.A. No. 8799, it must
be registered with the SEC before its sale or offer for sale or
distribution to the public. If such securities are not registered, the
offering to the public can be rightfully enjoined the SEC. (Power
Homes Unlimited Corp. vs. SEC, et.al, G.R. No.164182, Feb.26,
2008)
When is a business operation or a scheme deemed an investment contract?
- A business operation or a scheme deemed an an investment contract exist
when the following elements are present:
1) a contract, transaction, or scheme;
2) an investment of money;
3) investment is made in a common enterprise;
4) expectation of profits; and
5) profits arising primarily from the efforts of others
(adopted by the Supreme Court in the case of SEC vs.
Prosperity.Com, Inc., G.R. No. 164197, January 25, 2012)
Exempt Securities
1) Any security issued or guaranteed by the Government of the
Philippines, or by any political subdivision or agency thereof, or by
any person controlled or supervised by, and acting as an
instrumentality of said Government.
2) Any security issued or guaranteed by the government of any country
with which the Phils. maintains diplomatic relations on the basis of
reciprocity.
3) Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
4) Any security or its derivatives the sale or transfer of which, by law, is
under the supervision and regulation of the OIC, HLURB, or the BIR.
5) Any security issued by a bank except its own shares of stock.
(Sec. 9.1, SRC)
Exempt Transactions
1) At any judicial sale, or sale by an executor, administrator, guardian
or receiver or trustee in insolvency or bankruptcy.
2) By or for the account of a pledge holder, or mortgagee or any other
similar lien holder selling or offering for sale or delivery in the ordinary
course of business, to liquidate a bona fide debt, a security pledged
in good faith as security for such debt.
3) An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner thereof, or by his representative
for the owner’s account, such sale or offer for sale, subscription or
delivery not being made in the course of repeated and successive
transactions of a like character xxxx…
4) The distribution by a corporation, actively engaged in the business
authorized by its articles of incorporation, of securities to its
stockholders or other security holders as a stock dividend or other
distribution out of surplus.
5) The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or
given directly or indirectly in connection with the sale of such capital
stock.
6) The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, where the entire mortgage
together with all the bonds or notes secured thereby are sold to a
single purchaser at a single sale.
7) The issue and delivery of any security in exchange for any other
security of the same issuer pursuant to a right of conversion entitling
the holder of the security surrendered in exchange to make such
conversion.
8) Broker’s transactions, executed upon customer’s orders, on any
registered Exchange or other trading market.
9) Subscriptions for shares of the capital stock of a corporation prior to
the incorporation thereof or in pursuance of an increase in its
authorized capital stock under the Corporation Code
10) The exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other remuneration is
paid or given directly or indirectly for soliciting such exchange.
11) The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period.
12) The sale of securities to the qualified buyers
(Sec. 10. 1, SRC)
Tender Offer
- The tender offer is a public, open offer or invitation (usually announced in
a newspaper advertisement) by a prospective acquirer to
all stockholders of a publicly traded corporation (the target corporation) to
tender their stock for sale at a specified price during a specified time,
subject to the tendering of a minimum and maximum number of shares.
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Mandatory tender offer rule
- The mandatory tender offer rule provides that any person or group of
persons acting in concert, who intends to acquire thirty five percent (35%)
of the outstanding voting shares or such outstanding voting shares that are
sufficient to gain control of the board in a public company in one or more
transactions within a period of twelve (12) months, shall disclose such
intention and contemporaneously make a tender offer for the percentage
sought to all holders of such securities within the said period. (Rule 19.2.2,
2015 RIRR of the SRC)
Prohibited Acts when Trading with Securities
- Price Manipulation (Sec. 24)
These are fraudulent acts or series of fraudulent actions designed to alter
the true prices of security/ies through the malevolent pegging, fixing or
stabilizing of the price of such security.
- Engagement in Fraudulent Acts (Sec. 26)
These are unlawful acts done, directly or indirectly, in connection with the
purchase or sale of any securities by:
a) Employing any device, scheme, or artifice to defraud;
b) Obtaining money or property by means of any untrue statement of a
material fact of any omission to state a material fact necessary in
order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or
c) Engaging in any act, transaction, practice or course of business which
operates or would operate as a fraud or deceit upon any person.
- Insider Trading (Sec. 27)
Insider Trading is the selling or buying of a security of the issuer by an
insider while in possession of material information with respect to the
issuer or the security that is not generally available to the public.
Under the SRC, “Insider” means:
1) the issuer;
2) a director or officer (or person performing similar functions) of, or a
person controlling the issuer;
3) 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;
4) 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
5) a person who learns such information by a communication from any of
the foregoing insiders.
“Material Non-Public” information means:
1) It has not been generally disclosed to the public and would likely affect
the market price of the security after being disseminated to the public and
the lapse of a reasonable time for the market to absorb the information;
or
2) 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
Negotiable Instruments Law
Requisites of a Negotiable Instrument
- 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.
(Sec. 1, NIL)
- Fictitious-payee Rule
The fictitious-payee rule provides that when the payee is fictitious or not
intended to be the true recipient of the proceeds, the check is considered
as a bearer instrument.
 In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer bears the loss. When faced with a check payable to
a fictitious payee, it is treated as a bearer instrument that can be negotiated
by delivery. Thus, in case of controversy, the drawer of the check will bear
the loss. (PNB v. Sps. Rodriguez, G.R. No. 170325, September 26, 2008)
- Complete but undelivered instrument
An instrument when complete but undelivered, a presumption is raised that
when such instrument is no longer in the possession of the person who
signed it and it is complete in its terms, "a valid and intentional delivery by
him is presumed until the contrary is proved" (Ubas, Sr. v. Chan, G.R. No.
215910, February 6, 2017)
Accommodation Party
- An accommodation party is one who lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part
of the consideration for the instrument but assumes liability to the other
party or parties thereto. (Virata v. Ng Wee, G.R. Nos. 220926, July 5, 2017)
An accommodation party is one who meets all the following three
requisites, to wit
1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser;
2) he must not receive value therefor; and
3) he must sign for the purpose of lending his name or credit to some
other person.
(Virata v. Ng Wee, G.R. Nos. 220926, July 5, 2017)
Nature of the relationship between an accommodation party and the party
accommodated
- The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original
promisor and debtor from the beginning. The liability is immediate and
direct. (Fideliza Aglibot vs. Ingersol R. Santia, G.R. No. 185945, Dec. 5,
2012)
Rule on Forgery
- Under Sec. 23 of the NIL, when a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom
it is sought to enforce such right is precluded from setting up the forgery or
want of authority. (Sec. 23, NIL)
Holder in due course
- A holder in due course is a holder who has taken the instrument under the
following conditions:
1) That it is complete and regular upon its face;
2) That he became the holder of it before it was overdue, and without
notice that it has been previously dishonored, if such was the fact;
3) That he took it in good faith and for value;
4) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.
(Sec. 52, NIL)
Shelter Rule in Negotiable Instrument
- The shelter rule is the principle that provides that a person who does not
qualify as a holder in due course can, nonetheless, acquire the rights and
privileges of a holder in due course if he derives his title to the instrument
through a holder in due course. However, a person who previously held the
instrument cannot improve his position by later reacquiring it from a holder
in due course if the former holder was a party to fraud or illegal activity
affecting the instrument or had notice of a claim or defense against the
instrument. (Sec. 58, NIL)
Crossed check
- A crossed check is one where two parallel lines are drawn across its face
or across the corner thereof.
A check is crossed especially when the name of a particular banker or
company is written between the parallel lines drawn. It is crossed generally
when only the words "and company" are written at all between the parallel
lines.
Jurisprudence dictates that the effects of crossing a check are: (1) that
the check may not be encashed but only deposited in the bank; (2) that
the check may be negotiated only once — to one who has an account with
a bank; and (3) that the act of crossing the check serves as a warning to
CENIZA BAR NOTES 2018 Page 4
the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose. (BDO
Unibank, Inc. v. Lao, G.R. No. 227005, June 19, 2017)
A crossed check with the notation "account payee only" can only be
deposited in the named payee's account. It is gross negligence for a bank
to ignore this rule solely on the basis of a third party's oral representations
of having a good title thereto. (Equitable Banking Corp. v. Special Steel
Products, Inc., G.R. No. 175350, [June 13, 2012], 687 PHIL 197-220[Del
Castillo Case])
Rule on the liability of the drawee bank and the collecting bank for unauthorized
encashment of check
- The drawer of the check has a right of action against the drawee bank
for its failure to comply with its duty as the drawee bank. However,
the drawee bank, in turn, would have a right of action against the
collecting bank because of the falsity of its warranties as the
collecting bank.
Materially altered Negotiable Instrument
- A negotiable instrument is deemed materially altered when such
alteration changes:
1) The date;
2) The sum payable, either for principal or interest;
3) The time or place of payment;
4) The number or the relations of the parties;
5) The medium or currency in which payment is to be made;
6) Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect
of the instrument in any respect, is a material alteration.
(Sec. 125, NIL)
Effects of materially altered negotiable instrument
- Where a negotiable instrument is materially altered without the assent of
all parties liable thereon, it is avoided, except as against a party who has
himself made, authorized, or assented to the alteration and subsequent
indorsers.
But when an instrument has been materially altered and is in the hands
of a holder in due course, not a party to the alteration, he may enforce
payment thereof according to its original tenor.
(Sec. 124, NIL)
Thus, an alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other words,
a material alteration is one which changes the items which are required
to be stated under Section 1 of the Negotiable Instruments Law. (The
International Corporate Bank, Inc. vs. Court of Appeals and PNB, G.R.
NO. 129910, September 5, 2006)
Manager’s check.
- Jurisprudence defines a manager's check as a check drawn by the bank's
manager upon the bank itself and accepted in advance by the bank by
the act of its issuance. It is really the bank's own check and may be
treated as a promissory note with the bank as its maker. Consequently,
upon its purchase, the check becomes the primary obligation of the bank
and constitutes its written promise to pay the holder upon demand. It is
similar to a cashier's check both as to effect and use in that the bank
represents that the check is drawn against sufficient funds. (RCBC
Savings Bank vs. Noel Odrada, G.R. No. 219037, October 19, 2016)
The drawee bank of a manager's check may interpose personal defenses
of the purchaser of the manager's check if the holder is not a holder in
due course. In short, the purchaser of a manager's check may validly
countermand payment to a holder who is not a holder in due course.
Accordingly, the drawee bank may refuse to pay the manager's check by
interposing a personal defense of the purchaser.
(RCBC Savings Bank vs. Noel Odrada, G.R. No. 219037, October 19, 2016)
Discharged a negotiable instrument
- A negotiable instrument is discharged:
1) By payment in due course by or on behalf of the principal debtor;
2) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
3) By the intentional cancellation thereof by the holder;
 4) By any other act which will discharge a simple contract for the payment
of money;
5) When the principal debtor becomes the holder of the instrument at or
after maturity in his own right.
(Sec. 119, NIL)
Intellectual Property Law
Trademark
- A trademark as "any distinctive word, name, symbol, emblem, sign, or
device, or any combination thereof, adopted and used by a
manufacturer or merchant on his goods to identify and distinguish
them from those manufactured, sold, or dealt by others." (UFC Phils,
Inc. v. Barrio Fiesta Manufacturing Corp., G.R. No. 198889, January
20, 2016)
Tests to determine likelihood of confusion
- Jurisprudence has identified two tests in determining likelihood of
confusion. These are the dominancy test and the holistic tests.
The dominancy test considers the similarity of the prevalent or dominant
features of the competing trademarks that might cause confusion,
mistake, and deception in the mind of the purchasing public. More
consideration is given on the aural and visual impressions created by the
marks on the buyers of goods, giving little weight to factors like process,
quality, sales outlets, and market segments.
On the other hand, the holistic test considers the entirety of the marks as
applied to the products, including the labels and packaging, in
determining confusing similarity. The focus is not only on the
predominant words but also on the other features appearing on the
labels. (Seri Somboonsakdikul v. Orlane S.A., G.R. No. 188996,
February 1, 2017)
Acquisition of ownership over a trademark
- The ownership of a trademark is acquired by its registration and its
actual use by the manufacturer or distributor of the goods made
available to the purchasing public. (UFC Philippines, Inc. v. Barrio
Fiesta Manufacturing Corp., G.R. No. 198889, January 20, 2016 citing
Section 122 of R.A. No. 8293)
Extent of Protection given to Trademark Owners
- The scope of protection afforded to registered trademark owners is not
limited to protection from infringers with identical goods. The scope of
protection extends to protection from infringers with related goods, and
to market areas that are the normal expansion of business of the
registered trademark owners.
The registered trademark owner may use his mark on the same or similar
products, in different segments of the market, and at different price levels
depending on variations of the products for specific segments of the
market. The Court has recognized that the registered trademark owner
enjoys protection in product and market areas that are the normal
potential expansion of his business. (UFC Philippines, Inc. v. Barrio
Fiesta Manufacturing Corp., G.R. No. 198889, January 20, 2016)
Copyrightability of news
- The news footage is copyrightable.
News or the event itself is not copyrightable. However, an event can be
captured and presented in a specific medium. As recognized by this court
in Joaquin, television "involves a whole spectrum of visuals and effects,
video and audio." News coverage in television involves framing shots,
using images, graphics, and sound effects. It involves creative process
and originality. Television news footage is an expression of the news.
(ABS-CBN Corp. vs. Felipe Gozon, et. al. G.R. No. 195956, March 11,
2015)
Concept of Fair Use Doctrine
- Fair use is “a privilege to use the copyrighted material in a reasonable
manner without the consent of the copyright owner or as copying the
theme or ideas rather than their expression.” Fair use is an exception to
the copyright owner’s monopoly of the use of the work to avoid stifling
“the very creativity which that law is designed to foster.
The four-factor tests to determine fair use are as follows:
The four (4) factors to determine if there was fair use of a copyrighted
work are:
1) The purpose and character of the use, including whether such use
is of a commercial nature or is for non-profit educational purposes;
2) The nature of the copyrighted work;
CENIZA BAR NOTES 2018 Page 5
3) The amount and substantiality of the portion used in relation to
the copyrighted work as a whole; and
4) The effect of the use upon the potential market for or value of
the copyrighted work.
“Transformative test” used in determining fair use
The "transformative test" is the test that is generally used in reviewing the
purpose and character of the usage of the copyrighted work. The court will
look into whether the copy of the work adds "new expression, meaning or
message" to transform it into something else.
Copyright vs. Trade or Service Name
- By their very definitions, copyright and trade or service name are
different.
Copyright is the right to literary property as recognized and sanctioned
by positive law. It is an intangible, incorporeal right granted by statute to
the author or originator of certain literary or artistic productions, whereby
he is invested, for a limited period, with the sole and exclusive privilege
of multiplying copies of the same and publishing and selling them.
On the other hand, trade name is any designation which
a) is adopted and used by person to denominate goods which he
markets, or services which he renders, or business which he
conducts, or has come to be so used by other, and
b) through its association with such goods, services or business, has
acquired a special significance as the name thereof, and
c) the use of which for the purpose stated in (a) is prohibited neither by
legislative enactment nor by otherwise defined public policy.
(Fernando Juan vs. Roberto Juan and Laundromatic Corp. G.R.
No. 221732, August 23, 2017)
Insurance Law
Interpretation of Insurance Policy
- The terms of the insurance policy should be interpreted in their plain
ordinary and popular meaning. However, in case of ambiguity, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer. (Insular Life Assurance Co., Ltd. vs. Paz Khu, et. al., G.R.
No. 195176, April 18, 2016[Del Castillo Case] )
Double insurance
- Double Insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
(Malayan Insurance Co., Inc. vs. Phil. First Ins., Co., Inc., et al., G.R. No.
184300, July 11, 2012)
- Double insurance, unless prohibited in the policy, cannot be a ground for
the denial of an insurance claim. Under R.A. 10607, where the insured
in a policy other than life is over insured by double insurance, the insured,
unless the policy otherwise provides, may claim payment from the
insurers in such order as he may select, up to the amount for which the
insurers are severally liable under their respective contracts. (Section 96,
R.A. 10607)
Collateral Source Rule
- Under Collateral Source Rule, if an injured person receives compensation
for his injuries from a source wholly independent of the tortfeasor, the
payment should not be deducted from the damages which he would
otherwise collect from the tortfeasor.
In cases where the employee is both covered by hospitalization
insurance and a CBA stipulation on compensation for work-related injury,
the covered employees cannot recover from both. This rule is true even
if there is no express provision in the CBA barring claims for
hospitalization expenses already paid by other insurers,.
(Mitsubishi Motors Phil. Salaried Employees Union v. Mitsubishi Motors
Phil. Corp., G.R. No. 175773, June 17, 2013[Del Castillo Case])
Premium
- Just like any other contract, an insurance contract requires a cause or
consideration. The consideration is the premium, which must be paid at
the time and in the way and manner specified in the policy. If not so paid,
the policy will lapse and be forfeited by its own terms. (Jaime Gaisano vs.
Development Insurance and Surety Corporation, G.R. No. 190702,
February 27, 2017)
Exceptions Payment of Premium rule
- The Court summarized the exceptions as follows:
1) in case of life or industrial life policy, whenever the grace period
provision applies, as expressly provided by Section 77 itself;
2) where the insurer acknowledged in the policy or contract of
insurance itself the receipt of premium, even if premium has not
been actually paid, as expressly provided by Section 78 itself;
3) where the parties agreed that premium payment shall be in
installments and partial payment has been made at the time of loss
4) where the insurer granted the insured a credit term for the payment
of the premium, and loss occurs before the expiration of the term;
and
5) where the insurer is in estoppel as when it has consistently granted
a 60 to 90-day credit term for the payment of premiums.
(UCPB Gen. Ins. Co. vs. Masagana Telamart, G.R. No. 137172. April
4, 2001)
Constestability Period in Life Insurance
- Fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract." In the absence of proof of
such fraudulent intent, no right to rescind arises.
Under Section 48 of the Insurance Code, an insurer is given two years
– from the effectivity of a life insurance contract and while the insured
is alive – to discover or 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. After the two-year period
lapses, or when the insured dies within the period, the insurer must
make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to say that insurance
fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment
of bona fide takers of insurance and the public in general.
(Manila Bankers Life Insurance vs. Cresencia Aban, G.R. No.
175666, July 29, 2013[Del Castillo Case])
Banking Laws
Fit and Proper rule
- Fit and Proper Rule is a rule that provides that in order to maintain the
quality of bank management and afford better protection to depositors
and the public in general, the Monetary Board shall prescribe, pass
upon and review the qualifications and disqualifications of individuals
elected or appointed bank directors or officers and disqualify those
found unfit.
After due notice to the board of directors of the bank, the Monetary
Board may disqualify, suspend or remove any bank director or officer
who commits or omits an act which render him unfit for the position. In
determining whether an individual is fit and proper to hold the position
of a director or officer of a bank, regard shall be given to his integrity,
experience, education, training, and competence. (Section 16, R.A.
8791)
DOSRI Rule
- DOSRI stands for Directors, Officers, Stockholders and their Related
Interests.
The DOSRI rule provides that no director or officer of any bank shall,
directly or indirectly, for himself or as the representative or agent of
others, borrow from such bank nor shall he become a guarantor,
endorser or surety for loans from such bank to others, or in any manner
be an obligor or incur any contractual liability to the bank, except with
the written approval of the majority of all the directors of the bank,
excluding the director concerned.
The purpose of the rule is to ensure that all dealings of a bank with any
of its directors, officers or stockholders and their related interests shall
be upon terms not less favorable to the bank than those offered to
others.
In case of violation of the rule, the office of any bank director or officer
who violates may be declared vacant and the director or officer shall
CENIZA BAR NOTES 2018 Page 6
be subject to the penal sanctions under the New Central Bank Act.
(Section 36, R.A. 8791)
Universal bank vs. Commercial Bank.
- A commercial bank have, in addition to the general powers incident to
corporations, all powers as may be necessary to carry on the business
of commercial banking such as accepting drafts and issuing letters of
credit; discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit substitutes;
buying and selling foreign exchange and gold or silver bullion; acquiring
marketable bonds and other debt securities; and extending credit,
subject to such rules as the Monetary Board may promulgate. (Sec. 29.
R.A. 8791)
A universal bank shall have the authority to exercise, in addition to the
powers authorized for a commercial bank in Section 29, the powers of
an investment house as provided in existing laws and the power to
invest in non-allied enterprises as provided in this Act. (Sec. 23, R.A.
8791)
Conservatorship vs. Receivership
- A bank may be placed under conservatorship if the Monetary Board
finds that such 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. (Sec. 29. R.A. 7653)
On the other hand, the Monetary Board can place a bank under
receivership and liquidation if such bank:
1) is unable to pay its liabilities as they become due in the ordinary
course of business:
2) has insufficient realizable assets to meet its liabilities; or
3) cannot continue in business without involving probable losses to its
depositors or creditors; or
4) 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
(Sec. 30, R.A. 7653)
Consequence of a Bank Being Insolvent
- After the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the MB becomes the trustee of its assets
for the equal benefit of all the creditors, including depositors. The assets
of the insolvent banking institution are held in trust for the equal benefit
of all creditors, and after its insolvency, one cannot obtain an advantage
or a preference over another by an attachment, execution or otherwise.
Towards this end, the PDIC, as the statutory receiver/liquidator of the
bank, is mandated to immediately gather and take charge of all the assets
and liabilities of the institution and administer the same for the benefit of
its creditors.
As the fiduciary of the properties of a closed bank, the PDIC may
prosecute or defend the case by or against the said bank as a
representative party while the bank will remain as the real party in
interest.
(Balayan Bay Rural Bank, Inc., et. al., v. Nat’l Livelihood Dev. Corp., G.R. No.
194589, Sept. 21, 2015)
Exclusive Issue Power of the BSP
- Under the General Banking Act of 2000, BSP have the sole power and
authority to issue currency, within the territory of the Philippines. No other
person or entity, public or private, may put into circulation notes, coins or
any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the
facsimiles of BSP notes without prior authority from BSP. This is what is
called the “Exclusive Issue Power” of BSP. (Sec. 50, R.A. 7653)
Anti-Money Laundering Act
Freeze Order
- Under Sec. 10 of R.A. 9160, as amended, only the Court of Appeals may
issue a freeze order. The AMLC has no authority to freeze the monetary
instrument of one who is suspected of money laundering.
Safe Harbor Clause
- The Safe Harbor Clause provides that he concerned bank officers who
submitted covered and suspicious transaction reports to the AMLC will
 not be liable for violation of the Secrecy of Bank Deposits Law. "When
reporting covered or suspicious transactions to the AMLC, covered
institutions and their officers and employees shall not be deemed to have
violated Republic Act No. 1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791 and other similar laws,
Transportation Law
Common Carrier vs. private carrier
- A private carrier is one who, without making the activity a vocation, or
without holding himself or itself out to the public as ready to act for all
who may desire his or its services, undertakes, by special agreement in
a particular instance only, to transport goods or persons from one place
to another either gratuitously or for hire.
In contrast, a common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering such services
to the public.
(Sps. Teodoro and Nanette Perena vs. Sps. Nicolas and Teresita Zarate, PNR,
et. al., G.R. No. 157917, Aug. 19, 2012
True test if a transport carrier is a common carrier
- The true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the
conveyances used in the activity, but whether the undertaking is a part of
the activity engaged in by the carrier that he has held out to the general
public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in,
as advertised and held out to the general public, the individual or the
entity rendering such service is a private, not a common, carrier.
The question must be determined by the character of the business
actually carried on by the carrier, not by any secret intention or mental
reservation it may entertain or assert when charged with the duties and
obligations that the law imposes”. (Sps. Teodoro and Nanette Perena vs.
Sps. Nicolas and Teresita Zarate, PNR, et. al., G.R. No. 157917, Aug.
19, 2012)
Liability of common carrier for the death of its passenger caused by a co-
passenger
- The common carrier is not liable. Neither the law nor the nature of the
business of a transportation company makes it an insurer of the
passenger's safety, but that its liability for personal injuries sustained by
its passenger rests upon its negligence, its failure to exercise the degree
of diligence that the law requires”.
If the death of the passenger was neither caused by any defect in the
means of transport or in the method of transporting, or to the negligent or
willful acts of common carrier's employees, in their capacities as driver
and conductor, the common carrier is not liable.
(G.V. Florida Transport, Inc. vs. Heirs of Battung, Jr., et. al., G.R.
No. 208802, Oct. 14, 2015)
Contributory Negligence
- Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls
below the standard to which he is required to conform for his own
protection. (Sealoader Shipping Corp. vs. Grand Cement Mfg. Corp., et.
al., G.R. No. 167363 Dec. 15, 2010)
When the plaintiff's own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was
only contributory, the immediate and proximate cause of the injury being
the defendant's lack of due care, the plaintiff may recover damages, but
the courts shall mitigate the damages to be awarded. (Art. 2179, New
Civil Code)
Vicarious Liability in Transportation Law
- The principle of vicarious liability in transportation law presupposes that
when an injury is caused by the negligence of a servant or employee,
there instantly arises a presumption of law that there was negligence on
the part of the master or employer either in the selection of the servant
or employee (culpa in eligiendo) or in the supervision over him after the
selection (culpa vigilando), or both. (Mariano Mendoza and Elvira Lim vs.
Sps. Gabriel Gomez G.R. No. 160110, June 18, 2014)
Registered Owner Rule
- The Registered-Owner Rule states that the registration of motor vehicles
was necessary "not to make said registration the operative act by which
ownership in vehicles is transferred, but to permit the use and operation
of the vehicle upon any public highway. Its "main aim is to identify the
owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefor can
be fixed on a definite individual, the registered owner. (Caravan Travel
CENIZA BAR NOTES 2018 Page 7
and Tours International, Inc. vs. Ermilinda R. Abejar, G.R. No. 170631,
Feb 10, 2016)
Award of moral damages in cases of breach of contract of carriage
- Moral damages arising from breach of contract of carriage may be
awarded only in cases where:
1) an accident results in the death of a passenger; or
2) the carrier is guilty of fraud or bad faith
(Darines v. Quiñones, G.R. No. 206468, August 2, 2017 (Del Castillo Case)
citing Article 1764 in relation to Article 2206(3) and Article 2220 of the Civil
Code)
Bill of Lading
- A bill of lading is defined as "a written acknowledgment of the receipt of
goods and an agreement to transport and to deliver them at a specified
place to a person named or on his order." It may also be defined as an
instrument in writing, signed by a carrier or his agent, describing the freight
so as to identify it, stating the name of the consignor, the terms of the
contract of carriage, and agreeing or directing that the freight be delivered
to bearer, to order or to a specified person at a specified place. (Designer
Baskets, Inc. vs. Air Sea Transport, Inc. and Asia Cargo Container Lines,
Inc., G.R. No. 184513, March 09, 2016)
In maritime transportation, a bill of lading is issued by a common carrier as
a contract, receipt and symbol of the goods covered by it. (Eastern Shipping
Lines, Inc. vs. BPI/MS Insurance Corp., & Mitsui Sumitomo Insurance Co.,
Ltd., G.R. No. 182864, January 12, 2015 citing Lorenzo Shipping Corp. vs.
Chubb and Sons, Inc., G.R. No. 147724, 8 June 2004)
The general rule is that upon receipt of the goods, the consignee
surrenders the bill of lading to the carrier and their respective obligations
are considered canceled. The law, however, provides two exceptions
where the goods may be released without the surrender of the bill of lading
because the consignee can no longer return it. These exceptions are when
the bill of lading gets lost or for other cause. In either case, the consignee
must issue a receipt to the carrier upon the release of the goods. Such
receipt shall produce the same effect as the surrender of the bill of lading.
(Designer Baskets, Inc. vs. Air Sea Transport, Inc. and Asia Cargo
Container Lines, Inc., G.R. No. 184513, March 09, 2016)
Limited Liability rule in transportation law
- The limited liability rule in transportation law is the universal principle of
limited liability in all cases wherein the shipowner or agent may be properly
held liable for the negligent or illicit acts of the captain. These articles
precisely intend to limit the liability of the shipowner or agent to the value
of the vessel, its appurtenances and freightage earned in the voyage,
provided that the owner or agent abandons the vessel.
The doctrine of limited liability is not applicable to claims under POEA-SEC.
The liability of the shipowner or agent under the POEA-SEC has likewise
nothing to do with the provisions of the Code of Commerce regarding
maritime commerce. The death benefits granted under the POEA-SEC is
not due to the death of a passenger by or through the misconduct of the
captain or master of the ship; nor is it the liability for the loss of the ship as
result of collision; nor the liability for wages of the crew. It is a liability
created by contract between the seafarers and their employers, but
secured through the State's intervention as a matter of constitutional and
statutory duty to protect Filipino overseas workers and to secure for them
the best terms and conditions possible, in order to compensate the
seafarers' heirs and dependents in the event of death while engaged in the
performance of their work or employment.
COGSA Will the absence of notice of claim bar recovery?
a) Is there a? What is the effect if no action is made within the period?
b) What is the Package Limitation Rule under the COGSA? What is the
exception to the rule, if any?
- The provisions of COGSA shall become inapplicable from the time
the goods have been discharged from the ship and given to the custody
of the arrastre operator. (Insurance Company of North America vs. Asian
Terminals, Inc., G.R. No. 180784, February 15, 2012)
Notice of loss or damage on the goods under COGSA
- When there is loss or damage on the goods, notice must be given at the
time of the removal of the goods into the custody of the person entitled
to delivery thereof or if the loss or damage is not apparent, the notice
must be given within three days of delivery.
Under Section 3 (6) of the COGSA, notice of loss or damages must be
filed within three days of delivery.
Unless notice of loss or damage and the general nature of such loss or
damage 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 thereof under the contract of carriage, such
removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not
 apparent, the notice must be given within three days of delivery. (Section
3 (6) of COGSA)
However, the Supreme Court has ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Neither the
Civil Code nor the Code of Commerce states a specific prescriptive
period on the matter, the Carriage of Goods by Sea Act (COGSA) --
which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit -- may be applied
suppletorily to the case at bar. (Loadstar Shipping Co., Inc. v. Court of
Appeals, 373 Phil. 976)
Prescriptive Period for Filing an Action under COGSA
- It has long been settled that in case of loss or damage of cargoes, the one-
year prescriptive period under the COGSA applies. (Pioneer Insurance
and Surety Corp. vs. APL CO. PTE. Ltd., G.R. No. 226345, Aug. 02,
2017)
Under COGSA, the carrier and the ship shall be discharged from all
liability in respect of loss or damage if the suit is not brought within one
year after delivery of the goods or the date when the goods should have
been delivered. (Par. 6, Sec. 3, COGSA)
Package Limitation Rule under the COGSA
- The Package Limitation Rule under COGSA limits the carrier’s liability in
the absence of a shipper’s declaration of a higher value in the bill of
lading.
The exception to the Package Limitation Rule is when the nature and
value of such goods have been declared by the shipper before shipment
and inserted in the bill of lading. This declaration, if embodied in the bill
of lading, shall be prima facie evidence, but shall not be conclusive on
the carrier”. (Section 4[5], COGSA)
Liability of airline company for discourteous conduct of their employees towards
a passenger
- Passengers do not contract merely for transportation. They have a right
to be treated by the carrier's employees with kindness, respect, courtesy
and due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of
employees towards a passenger gives the latter an action for damages
against the carrier. (Air France v. Carrascoso, 653 Phil. 138 [2010])
Prescriptive Period for Filing an action under the Warsaw Convention
- The right to damages shall be extinguished if an action is not brought within
two (2) years, reckoned 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. (Art. 29, Warsaw Convention)
Letter of Credit
Letter of Credit
- Letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants to have
control of the goods before paying.
The three transactions involved in the issuance of a letter of credit are as
follows:
1) The transaction which constitutes the underlying transaction in a
letter of credit (e.i. contract of sale between the buyer and the seller).
The contract may require that the buyer obtain a letter of credit from
a third party acceptable to the seller.
2) The transaction involving the issuance of a letter of credit between
the buyer and the issuing bank. The buyer requests the issuing bank
to issue a letter of credit naming the seller as the beneficiary.
3) The transaction that takes place between the seller and the issuing
bank. The issuing bank issues the letter of credit for the benefit of the
seller.
(The Hongkong & Shanghai Banking Corp., Ltd. vs. National Steel
Corp., G.R. No. 183486, February 24, 2016 citing Bank of America,
NT & SA v. Court of Appeals)
Independence Principle in Letters of Credit
- Under the independence principle, an issuing bank assumes no liability or
responsibility "for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or superimposed
thereon. .." Thus, as long as the proper documents are presented, the
issuing bank has an obligation to pay even if the buyer should later on
CENIZA BAR NOTES 2018 Page 8
refuse payment. (The Hongkong & Shanghai Banking Corp., Limited v.
National Steel Corp., G.R. No. 183486, February 24, 2016)
Electronic Commerce Act
Principal Purpose of the E-Commerce Act
- The E-Commerce Act 2000 aims to facilitate domestic and international
dealings, transactions, arrangements agreements, contracts and
exchanges and storage of information through the utilization of electronic,
optical and similar medium, mode, instrumentality and technology to
recognize the authenticity and reliability of electronic documents related
to such activities and to promote the universal use of electronic
transaction in the government and general public. (Sec. 3, R. A. No.
8792)
Applicability
- The E-Commerce Act of 2000 applies to any kind of data message and
electronic document used in the context of commercial and non-
commercial activities to include domestic and international dealings,
transactions, arrangements, agreements contracts and exchanges and
storage of information. (Sec. 4, R. A. No. 8792)
Legal recognition of electronic data messages
- Under the E-Commerce Act, information shall not be denied legal effect,
validity or enforceability solely on the grounds that it is in the data
message purporting to give rise to such legal effect, or that it is merely
referred to in that electronic data message. (Sec. 6, R. A. No. 8792)
Legal effect of the use of electronic signatures
- An electronic signature on the electronic document shall be equivalent to
the signature of a person on a written document, if that signature is
proved by showing that a prescribed procedure, not alterable by the
parties interested in the electronic document is made. (Sec. 8, R. A. No.
8792)
TRUST RECEIPT LAW
Trust Receipt Transaction
- A trust receipt transaction is one where the entrustee has the obligation
to deliver to the entruster the price of the sale, or if the merchandise is
not sold, to return the merchandise to the entruster.
The obligations under the trust receipts are governed by a special law,
P.D. No. 115, and non-compliance have particular legal consequences.
Failure of the entrustee to turn over the proceeds of the sale of the
goods, covered by the trust receipt to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the
trust receipt shall be punishable as estafa under Article 315 (1) of the
Revised Penal Code, without need of proving intent to defraud. The
offense punished under P.D. No. 115 is in the nature of malum
prohibitum. Mere failure to deliver the proceeds of the sale or the
goods, if not sold, constitutes a criminal offense that causes prejudice
not only to another, but more to the public interest
(Security Bank Corporation vs. Great Wall Commercial Press
Company, Inc., et. al., G.R. No. 219345, January 30, 2017)
Foreclosure Rehabilitation and Insolvency Act (FRIA)
Concept of rehabilitation
- Restoration of the debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated. (Sec. 4[gg], FRIA)
The central issue in a rehabilitation proceeding is the feasibility of
continuing the operations of a distressed corporation, with a view of
restoring it to the state of solvency, through the adoption of a
workable rehabilitation plan. (MTV Klinika Health Spa, Inc. v. BDO
Leasing and Finance, Inc., G.R. No. 216123, July 24, 2017)
Thus, the basic issues in rehabilitation proceedings concern the
viability and desirability of continuing the business operations of the
distressed corporation, all with a view of effectively restoring it to a state
of solvency or to its former healthy financial condition. (Philippine Asset
Growth Two, Inc. v. Fastech Synergy Phils., Inc., G.R. No. 206528,
 June 28, 2016 and LBP v. Fastech Synergy Phils., Inc., G.R. No.
206150, Aug. 9, 2017)
Commencement Order
- The effectivity date of the Commencement Order shall be retroactive to
the date of filing of the petition for voluntary or involuntary proceedings.
(FRIA, Sec. 4[d])
Unless earlier lifted by the court, the Commencement Order shall be
effective for the duration of the rehabilitation proceedings for as long
as there is a substantial likelihood that the debtor will be successfully
rehabilitated. (FRIA, Sec. 21)
Contents of Commencement Order
The commencement order primarily contains: a declaration that the
debtor is under rehabilitation, the appointment of a rehabilitation
receiver, a directive for all creditors to file their verified notices of
claim, and an order staying claims against the debtor. (Allied Banking
Corp. v. Equitable PCI Bank, Inc., G.R. No. 191939, March 14, 2018)
Effects of the Issuance of Commencement Order
1) vest the rehabilitation receiver with all the powers and functions provided
under the law, such as the right to review and obtain records to which the
debtor's management and directors have access, including bank
accounts or whatever nature of the debtor subject to the approval by the
court of the performance bond filed by the rehabilitation receiver;
2) prohibit or otherwise serve as the legal basis rendering null and void the
results of any extrajudicial activity or process to seize property, sell
encumbered property, or otherwise attempt to collection or enforce a
claim against the debtor after commencement date;
3) serve as the legal basis for rendering null and void any setoff after the
commencement date of any debt owed to the debtor by any of the
debtor's creditors;
4) serve as the legal basis for rendering null and void the perfection of any
lien against the debtor's property after the commencement date; and
5) consolidate the resolution of all legal proceedings by and against the
debtor to the court. (Sec. 17, FRIA)
6) until the approval of the Rehabilitation Plan or dismissal of the petition,
whichever is earlier, the imposition of all taxes and fees due to the
national government or to LGUs shall be considered waived. (FRIA,
Sec. 19)
Rehabilitation Plan
- It is an action plan where the financial well-being and viability of an
insolvent debtor can be restored using various means as may be
approved by the court or creditors. (FRIA, Sec [ii])
- Objections to a Rehabilitation Plan may be made on the following:
1) Creditors' support was induced by fraud;
2) Documents or data relied upon in the Plan are materially false or
misleading; or
3) Plan is in fact not supported by the voting creditors.
(FRIA, Sec 66)
Cram-down Power of a Rehabilitation Court
- The court may approve a rehabilitation plan over the opposition of
creditors, holding a majority of the total liabilities of the debtor if, in its
judgment, the rehabilitation of the debtor is feasible and the opposition of
the creditors is manifestly unreasonable.
The court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the
owners, partners or stockholders of the insolvent debtor. (FRIA, Sec 68)
Such prerogative was carried over in the Rehabilitation Rules, which
maintains that the court may approve a rehabilitation plan over the
objection of the creditors if, in its judgment, the rehabilitation of the
debtors is feasible and the opposition of the creditors is manifestly
unreasonable. (Victorio-Aquino vs. Pacific Plans, Inc., 744 SCRA 480.
December 10, 2014)
Stay or Suspension Order
a) The issuance of a Stay or Suspension Order shall have the following
effects:
1) Suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
2) Suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor
CENIZA BAR NOTES 2018 Page 9
3) Prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
4) Prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided under the FRIA.
Cases where Stay or Suspension Order shall not apply
The Stay or Suspension Order shall not apply:
1) to cases already pending appeal in the Supreme Court as of
commencement date;
2) to cases pending or filed at a specialized court or quasi-judicial agency
which, upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the court;
3) to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or accommodation
mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary
for the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
4) to any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities
entrusted to the latter in the ordinary course of the latter's business
as well as any action of such securities market participant or the
appropriate regulatory agency or self-regulatory organization to pay
or settle such claims or liabilities;
5) to the actions of a licensed broker or dealer to sell pledged securities
of a debtor pursuant to a securities pledge or margin agreement for
the settlement of securities transactions in accordance with the
provisions of the Securities Regulation Code and its implementing
rules and regulations;
6) the clearing and settlement of financial transactions through the
facilities of a clearing agency or similar entities duly authorized,
registered and/or recognized by the BSP and the SEC as well as
any form of actions of such agencies or entities to reimburse
themselves for any transactions settled for the debtor; and
7) any criminal action against individual debtor or owner, partner, director
or officer of a debtor shall not be affected by any proceeding
commend under FRIA .
(Section 18, FRIA)
Contents of a liquidation Order
- The Liquidation Order shall contain the following:
1. Declare the debtor insolvent;
2. Order:
a) The liquidation of the debtor and in the case of a juridical debtor,
declare it as dissolved;
b) The sheriff to take possession and control of all the property of the
debtor, except those that may be exempt from execution;
c) The publication of the petition or motion in a newspaper of general
circulation once a week for 2 consecutive weeks;
d) The payments of any claims and conveyance of any property due
the debtor to the liquidator;
e) Creditors to file their claims with the liquidator within the period set
by the rules of procedure;
f) Prohibition of payments and the transfer of any property by the
debtor;
g) Authorizing the payment of administrative expenses as they
become due;
h) Stating that the debtor and creditors who are not petitioner/s may
submit the names of other nominees to the position of liquidator;
and
i) Setting the case for hearing for the election and appointment of the
liquidator, which date shall not be less than 30 days nor more than
45 days from the date of the last publication.
(FRIA, Sec. 112)
Good Luck!!!
SMC/ComBar2018
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