Beruflich Dokumente
Kultur Dokumente
1. Copyright and related rights Note: while registration of other intellectual properties
2. Trademarks and Service Marks are with the IPO, copyrighted works are still deposited
3. Patents with the National Library and the SC.
4. Geographical Indications
5. Layouts design COPYRIGHT
6. Protection of undisclosed Information -right over literary and artistic works which are original
7. Industrial Design intellectual creations in the literary and artistic domain
protected from the moment of creation.
Geographical Indications – indications which identify a
good as originating in the territory or a region or Work of Applied Art – is an artistic creation with
locality in that territory, where a given quality, utilitarian functions or incorporated in a useful article ,
reputation or other characteristics of the good is whether made by hand or produced on a industrial
essentially attributable to tis geographical origin. scale.
Trademark, Copyright and Patents: Note: Intellectual creation is one of the modes of
Trademark acquiring ownership under the CC.
Is any visible sign capable of distinguishing the goods
or services of an enterprise and shall include a Letters and other private communication in writing are
stamped or marked container of goods. owned by the person to whom they are addressed and
Trade name – means the name or designation delivered, but they cannot be published or
identifying of distinguishing enterprise. disseminated without the consent of the writer or his
heirs (copyright belongs to the author)
Copyright – literary and artistic works which are
original intellectual creations in the literary and artistic Who owns the copyright:
domain protected from the moment of creation. One creator – creator, his heirs or assigns own the
copyright
Patentable inventions – refer to any technical solution
of a problem in any field of human activity which is Joint Creation – co-authors shall be the original owner
new, involves inventive steps and is industrially of the copyright and in the absence of agreement,
applicable. their rights shall be governed by the rules on co-
ownership
Utility Model – tools of industrial product which of Exception: Work of Joint authorship consist of parts
practical utility. that can be used separately and the author of each
part can be identified , the author of each part shall be
Industrial Design – any composition of lines or colors the original owner of the copyright in the part that he
has created.
INTERNATIONAL LAW RELATED PROVISIONS
Reciprocity: Commissioned work: the person commissioning owns
Any person who is a national or who is domiciled or the work: ownership of copyright remains with the
has a real and effective industrial establishment in a creator unless there is a written stipulation to the
country which is contrary
1) A party to any convention, treaty relating to
IPR Audio visual work – producer for purposes of
2) Extends reciprocal rights to nationals of the exhibition
PHils laws shall be entitled to benefts to the
extent necessary to give effect to any Pseudonym and Anonymous work – unless the author
provisions of such convention is undisputably known , the publisher shall be
presumed to be the representative of the author.
National Treatment – Each member of the WTO
Agreement shall accord to nationals of the other Employers work during course of employment:
members no less favorable than that it accords its own -Employer – if the result of regular functions or duties
nationals with regard to the protection of intellectual but the employee owns it if it is not part of his duties.
property.
Duration of Copyright:
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Com. Law Review Sundiang (Chammy Diamond Notes)
Literary and Artistic Creation :- during the lifetime of e. recording made in school
the creator and for 50 years after his death. f. use of work by other under direction of the Govt.
(always start Jan 1st of the next year after death) g. Public performance or the communication where no
Anonymous work / pseudonymous work – 50 years admission is charged.
after first publication. h. Single copy reproduction of published work by
natural person exclusively for research and private
Work of Applied Art – 25 years study.
FAIR USE
UNPROTECTED WORKS: -Fair use of a copyrighted work for criticism, comment
-any idea , procedure, system, method or operation, , news reporting , teaching and similar purposes is not
concept, principle. an infringement of copyright.
-the format of a television game show is not subject to Factors to consider whether fair use or not:
a copyright. a. Purpose and character of the use
a. news of the day, press information b. Nature of copyrighted work
b. Any official text of a legislative , administrative or c. Amount and substantiality of the portions used
legal nature. d. Effect of the use upon the potential market of
c. Any work of the Govt of the Phils. the copyrighted work
a. There must be visible sign previously filed an application in the countries covered
b. It must be capable of distinguishing the goods by the reciprocity rule , the application is deemed filed
of an enterprise (Distinctiveness) as of the day the application was first filed in the
foreign country.
Collective Mark – any visible sign, capable of
distinguishing the origin of different enterprise which MARKS THAT CANNOT BE REGISTERED
use the sign under the control of the registered owner a. Immoral , deceptive or scandalous matter.
of the collective mark. b. Consist of flag or coat of arms of the Phils.
c. Name, portrait or identify of a particular living
Note: there is no need to register trade names in order individual except by his written consent
to secure protection for them. d. Identical with a registered mark with earlier
filing or priority date.
Functions of Trademark e. Generic terms of goods
a. To indicate the origin of goods f. Descriptive marks
b. To guarantee standard quality g. Customary design
c. To advertise the goods h. Color, shapes
believing that there is some connection 4. Broader – Unfair competition is broader than
between the plaintiff and defendant. Trademark infringement.
Test:
Dominancy test McJoy Case – actual use pertains to territorial
-focuses on the similarity of the prevalent features of jurisdiction of the PHils, not in certain region. Entity
the competing trademarks which might cause claims first use will be given preference.
confusion or deception, thus infringement.
-the question is whether the use of the marks involved PATENTS
is likely to cause confusion or mistake in the mind of -patentable inventions refer to any technical solution
the public or deceive purchasers . of a problem in any field of human activity which is
-the dominancy test is the controlling test. new, involves inventive step and is industrially
Exg. Mcjoy and Big Mac, Master Flavor and Master applicable.
Roast and Master Blend – there is infringement.
Novel – does not form part of prior art.
Holistic test -lost by revelation to public
Requires that the entirety of the marks in question be
considered in resolving confusing similarity. Prior art – which has been made available to the
-comparison of words is not the only determining public anywhere in the world before the filing date or
factor but also other features. the priority date of application.
Use of Identical Marks not necessarily Prohibited: Inventive step – having regard to prior art, it is not
The use of identical mark does not by itself lead to a obvious to a person skilled in the art.
legal conclusion that there is trademark infringement if
they are NOT used for identical , similar or related In case of Drugs and Medicines – no inventive steps if
goods. it results from:
Exg Shell for cigarettes was allowed. a. Mere discovery of a new form or new property
of a known substance which does not result in
Importation of Medicine the enhancement.
-there is no infringement of trademarks or tradenames b. Mere discovery of a new property
of imported or sold drugs and medicines which bears c. Mere use of known process unless such
marks that have not been tampered, unlawfully known process results in a new product that
modified. employs at least one new reactants.
a. The right to a patent belongs to the -although with some modification and change,
INVENTOR, HEIRS AND ASSIGNS performs substantially the same function to achieve
b. When two or more persons have jointly made substantially the same result.
an invention, the right to a patent shall belong -one device performs substantially the same as the
to them JOINTLY. prior invention, same results
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Com. Law Review Sundiang (Chammy Diamond Notes)
-such person must have a bonafide intention to use b. Limited to the value of the goods appearing in
the facilities of the carrier, sufficient fare and present the bill of lading unless the shipper declares
himself to the transportation place. greater value
-Carrier liable for sudden starting up or jerking, there c. A contract fixing the sum that may be
must be reasonable time to board for passengers. recovered by the owner or shipper in case of
loss
-A public utility bus, once it stops is in effect making a d. When a passenger is carried
continuous offer to bus riders. GRATUITOUSLY , a stipulation limiting the
carriers liability for negligence is valid but not
Termination for willful acts or gross negligence.
-after reaching his destination, safely alighted from the However, reduction of fare does not justify
carrier conveyance or has reasonable opportunity to any limitation of liability.
leave the carriers premises.
-a person walking along the station is considered a Carriage of Goods by Sea Act (COGSA)
passenger -goods to be shipped from a foreign port to the Phils,
the COGSA shall apply
LIABILITY FOR ACS OF EMPLOYEES AND -liability of the carrier is US500 per package in the
PASSENGERS absence of a shippers declaration of a higher value in
Common Carriers the bill of lading.
-are liable for the death of or injuries to passengers
through the negligence or willful acts of the formers Purpose of Limiting stipulation
employees , although they may have acted beyond -to protect common carrier, obliges shipper to notify
the scope of their authority or in violation of the orders the cc of the amount that the latter may be liable , in
of the common carriers. order for them to take appropriate measure.
-This liability does not cease upon proof that they
exercised all the diligence of a good father of a family REGISTERED OWNER RULE AND KABIT SYSTEM
in the selection and supervision of their employees. -the person who is the registered owner of a vehicle is
-the liability of the carrier for the personal violence of liable for any damages caused by the negligent
its employees extends only to those acts which the operation of the vehicle although the same was
carrier could foresee or avoid. already sold or conveyed to another person at the
-the carrier is not liable for acts of the employee not on time of the accident.
duty or in the line of duty. -the registered owner is liable subject to his right of
-A common carrier is responsible for injuries suffered recourse against the transferee or the buyer.
by a passenger on account of the willful acts or -Remedy Third Party Claim
negligence of other passenger or of strangers, if the
common carrier could have prevented or stopped the -the registered owner is also liable if the vehicle was
act. leased to another person.
-the registered owner is NOT LIABLE if the vehicle
STIPULATION REDUCING DILIGENCE OR was taken from his garage without his knowledge and
LIMITING LIABILITY consent.
Reduction of Diligence
Kabit System
Carriage of Goods -is an arrangement whereby a person who has been
-parties may stipulate that the diligence to be granted a certificate of public convenience allows
exercised by the common carrier be less than the other persons who own motor vehicles to operate
extraordinary diligence provided: them under his license.
a. writing -contrary to public policy, void and inexistent
b. valuable consideration
c. reasonable and not contrary to law May a jeepney under kabit system be levied by
creditors of the registered operators ? Yes, considered
-The parties cannot stipulate so as to totally exempt property of the registered owner
the carrier from exercising any degree of diligence
whatsoever; an cannot stipulate that a common carrier DRIVER AND THIRD PERSON
shall exercise diligence less than the diligence of a Passenger vs CC – contract of carriage
good father of a family. Passenger vs Driver – Culpa Criminal, Quasi Delict
-in case the liability of the driver and third person
Valid Stipulations concurs – their liability is joint and several.
a. Agreement limiting the common carrier liability
on account of strikes and riots Arrastre Operator
-legal relationship between the consignee and arrastre
operator is akin to a depositor and a warehouseman.
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Com. Law Review Sundiang (Chammy Diamond Notes)
-arraster operator and the common carrier are liable in -no claimant should be given preference over the
solidum for the proper delivery of the goods to the others by the simple expedient of having filed or
consignee. completed its action earlier than the rest.
-The ship owner or ship agent may exempt
PASSENGER BAGGAGES themselves from liability by abandoning the vessel
a. Baggage in possession of passenger with all her equipment and freightage , if there is
- Consider as necessary deposit insurance over the vessel.
- The common carrier shall be responsible for
the baggage as depositaries, provided that PROTEST
notice was given to them and the passenger Maritime protest is the written statement by the master
took the necessary precaution. of the vessel or any authorized officer, attested by
- In case of loss due to the fault of the proper officer, or a notary to the effect that damages
passenger the carrier will not be liable. has been suffered by the ship.
The act of a thief, or robber is not deemed
force majeure unless it is done with the use of Collision
arms or through an irresistible force. Doctrine of Inscrutable Fault
-the vessel at fault shall indemnify the damages
b. Baggage with the carrier sustained or losses incurred. And if both vessel were
-carrier is required to observe extraordinary diligence . at fault, Each shall suffer its own damages, and both
in case of loss or damaged the carrier is presumed shall be solidarily liable to others.
negligent. -where fault is established but it cannot be determined
which of the two vessel were at fault, both shall be
Successive Carrier deemed to have been at fault.
-the second carrier shall assume the obligation of the
first carrier but the second carrier has the right of Doctrine of Error in Extremis
action against the first carrier , if the latter is directly 3 zone of collision
responsible for the fault giving rise to the claim of the a. First zone – time up to the moment when risk
shipper or consignee. of collision begins
b. Second zone – risk of collision begins up to
MARITIME LAW practical certainty
-system of laws which particularly relates to the affairs c. Third zone – time when collision certain upon
and business of the sea, to ships, their crews and to the time of impact
navigation.
GENERAL VS PARTICULAR AVERAGE
LIMITED LIABILITY RULE General
-limits the liability of the shipowner to the value of the -includes all damages and expenses which are
vessel, earned freightage and proceeds of the deliberately caused in order to save the vessel, its
insurance, of any. NO VESEEL , NO LIABILITY cargo or both at the same time from real and known
-the total destruction of the vessel extinguishes the risk.
maritime lien.
Requisites:
When Applicable: a. Common danger to ship and cargoes
a. Civil liability for indemnities in favor of 3rd b. For common safety part of the vessel or cargo
person which arise from the conduct of the are sacrificed
captain c. From the expenses or damages caused,
b. Civil liability arising from collision follows the successful saving of the vessel
c. Unpaid wages of the captain an the crew and cargo
Exceptions d. The expenses or damages should have been
1. -when the injury to or death of a passenger is incurred or inflicted after taking legal steps
due to either to the fault of the SHIPOWNER, and authority.
or to the concurring negligence of the
SHIPOWNER and the CAPTAIN. Particular Averages
2. When vessel is insured -all the expenses and damages caused to the vessel
3. Workmens compensation claims or to her cargo which have not inured to the benefit
and common profit of all the person.
Note: Limited liability rules does not apply if the carrier
failed to overcome the presumption of negligence.
Ship owner is negligent. CHARTER PARTY
-is a contract by which with the entire ship, or some
principal part thereof is let by the owner to another
person for a specified period of time or use.
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Com. Law Review Sundiang (Chammy Diamond Notes)
Functions of Bill of Lading Damage of Injury for which the Carrier is Liable
a. Evidence of the existence of the contract of a. On board the aircraft
carriage of cargo b. In the course of embarking
b. Commercial document whereby , if negotiable c. Disembarking
ownership may be transferred by negotiation d. Delay
c. Receipt of cargo Check baggage or goods – during air transportation or
when there is delay.
Types of Bill of Lading
a. Onboard BOL- states that the goods have LIMIT OF LIABILTY OF CARRIER
been received on boar the specified vessel Carrier of Passengers – 250,000 francs
b. Received Shipment – states that the goods Exception: special contract , the carrier and passenger
have been received for shipment with or may agree to a higher limit of liability.
without specifying the vessel.
Carriage of registered baggage and cargo
LOANS AND BOTTOMRY AND RESPONDENTIA 250 franc per kilogram
Bottomry – loan secured by the shipowner or ship Exception: special declaration of value
agent guaranteed by the vessel itself and payable only
upon arrival of vessel at destination. Objects of which the passenger takes charge himself
-5000 franc per passenger
Respondentia – loan secure by the owner of the cargo
payable upon safe arrival of cargo at destination Jurisdiction
-where the carrier is domiciled, carriers principal
PRESCRIPTIVE PERIOD FOR CLAIMS business, court of destination
WITHIN THE PHILS
When to file claim with carrier PUBLIC SERVICE ACT
-claim must be filed by the shipper otherwise Conditions must concur in the grant of certificate of
barred. public convenience
-immediately if damage is apparent a. The grantee must be a citizen of the Phils. Or
--within 24 hours if damage is not apparent a corporation or entity 60% of which is owned
by such citizen
When to file case in court b. Must have sufficient financial capacity
-within 6 yrs if no BOL has been issued c. The service will promote public interest and
-within 10 years if BOL is issued convenience
Note: Overriding principle is public necessity, interest
UNDER COGSA and convenience
(from foreign port to Phils.)
Against Carrier -A certificate of public convenience is a mere license
-upon discharge of goods, if apparent or a privilege and being neither a franchise nor a
-if not apparent 3 days from delivery contract, if confers no vested or property right or
interest on the holder. However in its purely private
When to file case in court aspect, it has a value and may be considered property
-1 year from discharge, starts the delivery of the that can be levied upon
goods or the date the goods should have been
delivered. Certificate of Public Convenience (CPC)
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Com. Law Review Sundiang (Chammy Diamond Notes)
b. The right to notify the warehouseman of the 1. The contract of sale between the buyer and
transfer to him of such receipt thereby to the seller
acquire the direct obligation of the 2. The contract of the buyer with the issuing
warehouseman. bank
Note: Prior to the notification of the warehouseman by 3. The letter of credit proper
the transferee of non negotiable receipt, the right to
acquire the obligation of the warehouseman may be In the 2nd- the bank agrees to issue the letter of credit
defeated by levy of an attachment, or execution upon in favor of the seller subject to reimbursement or
the goods by the creditor. payment by the buyer of whatever is paid to the seller
plus proper consideration agreed upon by the parties.
Warehouseman’s Defenses for Non Delivery or
Misdelivery 3rd contract – the bank obligates itself to pay the seller
a. Loss without fault or to the order of the seller after presentation to the
b. Failure to satisfy bailees lien bank of tender of documents stipulated upon, which
c. Failure to surrender the negotiable instrument normally includes the document of title.
d. Lack of willingness to sign acknowledgment
e. Delivery to claimant with better right Independence Principle
f. Attachment or levy -the bank only deals with documents and not with
goods, services or obligation to which they relate.
Warehouseman’s Lien e.g the bank has no duty to verify whether what has
a. Lawful charges for storage and preservation been described in the letter of credit or drafts or
fo the goods; shipping documents actually tallies with what was
b. All lawful claims for money advanced interest, loaded aboard the ship
insurance
c. All reasonable charges and expenses of Fraud Exception
notice , advertisement etc. -under the independence principle , the applicant
Charges must be stated on the receipt otherwise no cannot enjoin the payment of the obligation of the
lien. issuing bank under the Letter of Credit based on any
irregularity or non performance of an obligation. The
Loss of Lien exception is when there is fraud or forgery in the
a. By surrendering possession underlying transaction or the tender document.
b. By refusing to deliver the goods when a
demand is made with which he is bound to Kinds of Letter of Credit
comply. a. Confirmed LC – the beneficiary stipulates the
Adverse Claimant – action to interplead obligation of the opening bank is also the
obligation of another bank
LETTER OF CREDIT b. Irrevocable LC – definite undertaking on the
-an engagement by a bank or other person made at part of the issuing bank, that the provisions for
the request of a customer that the issuer will honor payment , acceptance or negotiation in the
drafts or other demand for payment upon compliance credit will be dulyl fulfilled.
with the conditions specified in the credit. c. Revolving Letter of Credit – provides for
renewed credit
PARTIES d. Back to back LC – a credit with identical
3 parties documentary requirement and covering the
a. Buyer – procures the letter of credit and same merchandise as another LC.
obliges himself to reimburse the issuing bank e. Standy LC – security arrangement for the
upon receipt of the document of title. performance of certain obigations. It can be
b. The bank issuing the letter of credit known as drawn if another business transaction is not
issuing bank which undertakes to pay the performed. It may be issued in lieu of a
seller upon receipt of the draft and proper performance bond. E.g contractor failed to
document of title and to surrender the perform the secured obligation.
document to the buyer upon reimbursement ; -the beneficiary will prove that the obligor
c. The seller , who in compliance with the failed to perform the secured obligation.
contract of sale ships the goods to the buyer
and delivers the document of title and draft to
the issuing bank to recover payment TRUST RECEIPT LAW
A bank that issues a letter of credit has the right to ask
Independent Contracts: for reimbursement from the applicant buyer. This
3 distinct and independent contracts involved in a obligation can also be secured by Trust Receipts. The
letter of credit bank becomes the entruster of the goods while the
buyer importer is the entrustee . The goods will in
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Com. Law Review Sundiang (Chammy Diamond Notes)
effect be released by the bank to the buyer by the trade and the regular prosecution of the
delivery of the document of title. Buyer as entrustee is business;
obligated to sell the goods an to apply the proceeds b. The sale is of all or substantially all of the
thereof to the payment of the loan extended by the business or trade;
entruster bank. c. When the sale is of all or substantially all of
the fixtures and equipment used in business
Entrustee – buyer- holding possession
Entruster – bank –holding title Purpose:
It seeks to prevent the defrauding of creditors by the
A trust receipt is a security transaction intended to aid secret sale or disposal in bulk of all or substantially all
in financing importers or dealers in merchandise by of a merchant stock of goods.
allowing them to obtain delivery of goods under
certain covenants. Formalities:
a. Sworn statement of the vendor listing the
The entrustee may still be criminally liable under the names and addresses and amounts owing to
TRL even if the goods that were released by virtue of creditors
the trust receipt were not resold but were used as b. Sworn statement shall be furnished to buyer
spare parts or machineries. c. The seller is required to prepare an inventory
of stock to be sold
Obligations of Entruster (bank) d. The seller is required to notify the creditors of
-release the possession of the goods to the entrustee projected sale at least 10 days before such
upon the latters execution of TR sale.
Note: the entrustee is still liable to pay the entruster Effects of the Violation of BSL?
even if the goods were returned to the latter. Violation of BSL makes the sale in bulk valid between
the parties, void as to affected creditors.
*the entrustee in a TR who failed to account for the a) Sale in bulk is void as to creditors
proceeds of the goods sold or to return the goods, is b) Purchaser hold property in trust for seller
guilty of estafa. c) Purchaser is liable to sellers creditors for
-there is criminal liability on the part of the responsible properties forming part of bulk, and already
officers of corporation an juridical entites disposed by him
*the entrustee is not the owner of the property hence -a third person who is not a party to the principal
he cannot mortgaged it. (he does not have the free obligation , may mortgage his property to secure the
disposal of the property to be mortgaged) obligation of the debtor. It is not required he benefited.
Banks cannot rely merely on the title , they are Possession after Foreclosure
required to exercise highest diligence. They are -the mortgagor shall remain in possession of the Real
required to investigate the title of the property. Property after foreclosure. The winning bidder can file
for writ of possession before the expiration of the
-the registered mortgage follows the property even if redemption period.
there is a change of ownership.
-right of possession and disposal is not included. Right of Redemption – 1 year from date of certificate
-the first registered mortgagee has superior right over of sale is registered with the Registry of Deeds
junior mortgagee or attaching creditors. -there must be tender of the whole redemption price
plus interest.
After Acquired Properties
-the parties may stipulate that after acquired property Note: if the mortgagee is a bank or juridical entity , the
are automatically included in the mortgage. Thus the mortgagor can redeem the property within 3 months
parties may stipulate that all buildings, machineries from foreclosure but not later than the registration of
and equipment attached to the mortgaged property the certificate of sale.
shall be subject to the mortgage.
CHATTEL MORTGAGE
-the Deed of REM may expressly provide that it may -an accessory contract by virtue of which personal
secure future advancement. In the absence of property is recorded in the Chattel Mortgage Registry
stipulation, the general rule is that the mortgage must as security for the performance of an obligation.
be limited to the amount mentioned in the mortgage.
-shares of stock and movable properties
Foreclosure of Mortgage
a. Extrajudicial foreclosure Shares of stock – need not be registered in the stock
b. Judicial and transfer book .
c. Ordinary Execution sale -Machinery installed by the lessee on the leased
premises may be the subject of chattel mortgage. But
Ordinary execution under Rule 39 is the result of if installed by owner (immovable)
personal action for collection of debt or specific Buildings are real properties not subject to chattel
performance. This remedy is alternative to foreclosure mortgage
If the mortgagee opts to foreclose the real estate Exception: if considered by parties, but valid between
mortgage, either judicially or extrajudicially , he parties only on the basis of estoppel but not against
thereby waives the action for collection of the debt . 3rd person.
The fact that mortgaged property is sold in an amount Affidavit of Good faith
lesser in its actual market value is not a ground to -subscribed statement of chattel mortgage wherein
invalidate the sale so long as the price is not shocking parties severally swear that the mortgage is made for
to the conscience. the purpose of securing obligation specified condition,
for no other purpose the same is just and valid
-the mortgage creditor can recover deficiency obligation and one not entered for the purpose of
fraud.
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Com. Law Review Sundiang (Chammy Diamond Notes)
Suspension of Payments
-gives the mortgage a preferred status -the debtor has sufficient properties to cover all his
Even in the absence of the affidavit, the chattel debts but he foresees the impossibility of meeting his
mortgage is valid as between the parties. However, debts when they respectively fall due
not valid to 3rd person. -The purpose is to suspend or delay the payment of
-No right of redemption debts
** End of Credit ***
Deficiency after Foreclosure
-mortgagee can recover any deficiency GENERAL BANKING LAWS
Exception: RECTO law Banks
-required that banks are stock corporations and that is
RECTO LAW funds are obtained from the public meaning deposit of
In a contract of sale of personal property on 20 or more persons
installment basis ,the vendor ma exercise any of the -an investment company that is engaged in solely
following remedies investing , reinvesting or trading in securities is not
a. Exact fulfillment of the obligation engaged in banking. However an investment company
b. Cancel the sale which loans out the money of its customers , collects
c. Foreclose the chattel mortgage the interest and charges a commission to both the
lender and borrower is engaged in banking
When applicable:
-sale of property in installment Quasi bank
-applies to financial lease – with option to buy. Eg -entities engaged in the borrowing of funds through
mobile equipment with option to buy. the issuance , endorsement or assignment with
-remedies are alternative and not cumulative –the recourse or acceptance of deposit substitutes for
exercise of one bars the other purposes of relending or purchasing of receivables
e.g filing of collection case bars foreclosure and other obligations.
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Com. Law Review Sundiang (Chammy Diamond Notes)
-a banking corporation cannot be incorporated without a. Simple loan – the bank is the debtor while the
the authority from the BSP. The AOI shall be filed with depositor is the creditor
SEC but should accompanied by favorable -the bank can make use of the money deposited.
recommendation of the BSP. -3rd person who may have right to the money
deposited cannot hold the bank responsible unless
Classification of Banks there is a court order or garnishment.
1. Universal Banks – -officers of the bank cannot be held liable for estafa if
a. Power of commercial bank they authorized the use of the money deposited by the
b. Power of investment house depositor.
c. Power to invest in non allied enterprise -the bank has the right to compensation . it can set off
2. Commercial Banks the deposit with the indebtedness of the depositor that
-banks given such power necessary to engage in are due and demandable
commercial banking in addition to general corporate
powers (ie power to issue drafts, LC, demand deposits Depositors
etc.) - At least 7 yrs of age
- Able to read and write
3.Rural Banks - It should be savings or time deposit
-needed for credit available and readily accessible in -married women are allowed to open bank accounts
the rural areas for the purpose of promoting without the assistance of their husbands
comprehensive rural development
Kinds of Deposits
4.Thrift bank a. Demand deposits
-include savings and mortgage bank, private -liabilities of banks which are denominated in
development banks, and stock savings and loan the Philippine currency and are subject to
association payment in legal tender upon demand by
presentation of checks
5.Cooperative Banks
-provide financial, banking and credit services to -only a commercial and universal bank can
cooperative organization and their members accept
-cannot accept except upon approval of the
Distinction: MB
-only universal and commercial banks can create and
accept demand deposits without separate authority b. Saving Account
from the Monetary Board while other banks must -most common type
secure authority from the MB; -banks prohibited from accepting withdrawal without
-only universal bank may act as an investment house presenting passbook
-only universal bank and quasi bank may be involved -a bank is negligent if it allows the withdrawal without
in quasi banking functions. requiring the presentation of a passbook
-Public officers can be directors of Rural Banks- c. Negotiable Order of Withdrawal Accounts
prohibited to others (NOW)
-Incorporators of banks are natural persons, Rural -interest bearing deposit accounts that
banks which can be organized or established by combine the payable on demand feature of
cooperatives and corporations primarily organized to checks and investment feature of savings
hold equities , in rural banks account.
-A rural bank must be wholly owned by Filipinos while d. Time Deposit – account with fixed terms
other banks require 40% Filipino ownership of their e. Interest – Demand, savings, NOW accounts ,
voting stock. time deposits and deposit substitutes
-anonymous accounts are prohibited
Functions of Banks -joint accounts may be the subject of a survivorship
a.. Deposit Function agreement whereby the co-depositor agree to permit
b. Loan Function either of them to withdraw the whole deposit during
their lifetime and transferring the balance to the
Prohibited Acts survivor upon the death of one of them.
a. Banks are prohibited from engaging in
insurance business SECRECY OF BANK DEPOSITS
b. Outsourcing of function are generally Peso Deposit
prohibited -All deposit of whatever nature with bank or banking
institution in the Philippines including investment in
Deposit Function bonds are considered absolutely confidential and may
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not be examined, inquired or looked into by any b. Those exempt under the Rules on Civil
person, government , official , bureau or office. Procedure like provision for family for 4
months
Exception
1. Written permission of the depositor Deposit Insurance
2. Impeachment cases -All deposit of any bank are insured with the PDIC
3. Order of competent court where the money is Amounts:
subject of litigation -not exceed 500k.
4. Anti Graft and Corrupt Practices -if the depositor has 2 or more accounts with the same
5. Inquiry of Commissioner of BIR for purposes bank, the max coverage is 500k.
of determining net estate of a deceased -deposit in a branch outside the PHils is not covered.
depositor
6. Anti money laundering Council where there is a. Joint account (and /or) “or” “and” shall be
probable cause of money laundering and in insured separately form any individual
some instances even without court order account
7. Disclosure to the Treasurer of the Philippines b. Joint account belonging to juridical joined with
for dormant deposits for at least 10 years. natural shall be presumed to belong to the
8. Report of Anti Money Laundering Council juridical person.
covering suspicious transactions
9. Order of CA on terrorist cases under Human -Payment is made by the PDIC to the depositor
Security Act whenever the insured bank is closed on account of
insolvency. Upon ordered by the MB of the BSP.
Note: investigation of Ombudsman , 1405 will not -the claim must be filed within 2 years from actual
apply, must be subject of pending litigation. takeover by the receiver.
-if primary issue of litigation is specific performance –
1405 will not apply UNCLAIMED BALANCES
-information obtained illegally, exclusionary rule does -deposit that have become dormant for a period of 10
not apply – can still be used as evidence. years may be escheated in favor of the government
-report to Treasurer of the PHils, inform SolGen.
FOREIGN CURRENCY DEPOSIT -Publication
-the above enumerated exceptions do not apply to
foreign currency deposits. LOAN FUNCTION OF BANKS
Exceptions Basic Rules/ Restrictions
1. Written consent of depositor a. Shall grant loans only in amounts for the
2. Anti Money Laundering Act (authority of periods of time essential for the effective
AMLA with court order) completion of the operations to be financed
3. Under Human Security Act b. Shall be consistent with safe and sound
banking practices
Under the AMLA c. A must ascertain that the debtor is capable of
-may inquire into deposit upon order of the court when fulfilling his commitments to the bank
there is PROBABLE CAUSE that the deposit are Payments
related to the crime of unlawful activities . a. Amortization schedule
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Requisites: under NCBA only upon the filing by the petitioner of a bond in an
1. The borrower is a director or officer amount fixed by the court conditioned that he will pay
2. He contracts a loan or any financial all the damages which the bank may suffer by the
accommodation enjoining or the restraint of the foreclosure
3. The loan or financial accommodation is from proceeding.
a. His bank
b. A bank that is subsidiary Ownership of Banks
c. A bank in which a controlling proportion of Foreign Ownership
the shares is owned by the same interest a. Individual and Non banks
d. The loan or financial accommodation of Foreign Individual and non banking institution may
the director, officer is in excess of 5% of own or control up to 40% of the voting stock of
the capital and surplus of the lending bank domestic banks
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Grounds: Requisites:
-after probable cause in a hearing called for that a. Must be in writing and signed by the maker or
purpose that drawer
a. person is suspected of crime of terrorism b. Must contain an unconditional promise or
b. judicially declared outlawed order to pay a sum certain in money
c. Must be payable on demand or at fixed or
effective period – 30 days from the date of receipt of determinable future time.
the written order of the authorizing division of the CA d. Must be payable to order or bearer
e. When the instrument is addressed to a
Definition of Terrorism drawee, he must be named or otherwise
-committed by any person who commits an act indicated therein with reasonable certainty.
punishable under any of the following provisions of the WUPOA
RPC, creating a condition of widespread and
extraordinary fear and panic among the populace, in Assignee – no better right than the assignor
order to coerce government to give in to an unlawful -defenses can be raised to assignee can be raised to
demand. assignor
Meaning of Sequestration – shall be deemed as Iron Clad Rule – prohibits countermanding of payment
property held in trust by the bank for such person and of certified check but the holder must be a holder in
the government during the pendency of the due course.
investigation of the person suspected. Use or
disposition shall be subject to the order of the court. Incidents in the Life of A Negotiable Instruments
1. Preparation and signing
Authority of te AMLC to Investigate 2. Issue
-the AMLC is authorize to investigate any property or 3. Negotiation
funds that are in any way related to financing terrorism 4. Presentment for Acceptance
or acts of terrorism b) property or funds whom there is 5. Acceptance
probel cause to believe that such person or persons 6. Dishonor by non acceptance
are committing or financing terrorism. 7. Presentment for payment
8. Dishonor by non payment
-The AMLC is authorized to inquire into or examine 9. Notice of Dishonor
bank deposit and investment with any banking 10. Protest
institution WITHOUT A COURT ORDER 11. Discharge
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Distinguish Negotiability and Assignability If the obligor like maker is given the option to deliver
-one who takes an instrument by assignment takes something in lieu of money the instrument is non
the instrument subject to the defenses obtaining negotiable.
among the original parties, whereas a person, who e.g. “ promise to deliver 1,000 or a sack of rice” at his
takes the instrument by negotiation, takes it free from option.
personal defenses available among the parties.
If the instrument gives the HOLDER an election to
IN WRITING AND SIGNED BY THE MAKER OR require something to be done in lieu of payment , the
DRAWER
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OMISSIONS AND PROVISION THAT DO NOT intention to transfer title to the payee and
AFFECT NEGOTIABILITY recognize him as holder thereof
The validity and negotiable character of an instrument
are not affected by the fact that NEGOTIATION
1. It is not dated -if payable to bearer , it is negotiated by delivery
2. Does not specify the value given -if payable to order, it is negotiated by indorsement of
3. Does not specify the place where it is drawn the holder completed by delivery.
or the place where it is payable
4. Bears seal BEARER INS. ALWAYS A BEAR INS. –where an
5. Designates a particular fund of current money instrument , payable to bearer is indorsed specially, it
in which payment is to be made may nevertheless be further negotiated by delivery ,
6. Addressed to more than one drawee jointly but any person indorsing specially is liable as indorser
to only such holders as make title through his
When Date may be inserted by the holder? indorsement.
-when date is necessary in order to determine the
maturity date of the instrument INCOMPLETE NEGOTIATION OF ORDER
INSTRUMENT
Note: -where the holder of an instrument payable to his
Where the instrument is dated, such date is deemed order transfers if for value without indorsing it, the
prima facie to be the true date of the making, drawing, transfer vest in the transferee such title as the
acceptance or indorsement. transferor had therein and the transferee acquires in
addition , the right tot have the indorsement of the
ADDITIONAL PROVISIONS transferor
An instrument is negotiable even if the following are
present INDORSEMENT
a. Authorizes the sale of collateral securities in Indorsement should be placed
case instrument is not paid at maturity a. On the instrument itself
b. Separate piece of paper attached to the
b. Authorizes a confession of judgment instrument
c. Indorsement must be for the ENTIRE
c. Waives the benefit of any law intended for the INSTRUMENT . e.g 5,000 cannot be indorsed
advantage or protection of the obligor for less like 1,000. Exception : there was
previous payment
d. Gives the holder an election to require d. Disallows negotiation to two or more
something to be done in lieu of payment of indorsees severally
money e.g 20,000 note “ pay to jose, 15,000 and
pedro 5,000” is not considered negotiation,
TRANSFER AND NEGOTIATION although considered as assignment.
-if instrument is negotiable, transfer can be effected
through NEGOTIATION AND ASSIGNMENT Kinds of Indorsement
a. Blank indorsement – no indrosee is specified,
If the instrument is merely assigned the transfer does done by affixing indorsers signature
not become a holder and he merely steps into the b. Special Indorsement – designates the
shoes of the transferor. Any defense available against indorsee “ Pay to X “
the transferor is available against the transferee. E.g “
delivered without indorsement”. Note: A holder may convert a blank indorsement into a
special indorsement by writing over the signature of
ISSUANCE the indorser in blank any contract consistent with the
-Issue is the first delivery of the instrument complete in character of indorsement.
form to a person who takes it as a holder
c. Qualified Indorsement – constitutes the
a) Issuance to the payee is negotiation because indorser a mere assignor of title to the
the transfer constitutes the payee the holder instrument. It may be made by adding to the
of the instrument . indorser signature the words “ without
The payee may even be a HDC if he has recourse”
acquired the note from another holder or he
has not directly dealt with the maker thereof. d. Conditional Indorsement – the party required
to pay the instrument may disregard the
b) Delivery is the transfer of possession of the condition and make payment to the indorsee
instrument by the maker or drawer with the or his transferee whether the condition has
been fulfilled or not.
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Distinguish Real Defenses from Personal Defenses A holder in due course may enforce the instrument as
Real or absolute defenses attach to the instrument are if it had been strictly filled up in accordance with the
available against ALL HOLDERS. authority given.
Personal or equitable defenses are available only b. Complete but Undelivered Instrument
against the holder who stands in privity with the party Delivery is essential to the validity of any negotiable
who is entitled to set up or those who are not or do not instrument. If the instrument is in the hands of HDC ,
have the rights of a holder in due course. valid delivery to him is conclusively presumed
The defense of want of delivery of complete
FORGERY instrument is only a personal defense
Effects of Forgery?
-it is wholly inoperative and no right to retain the c. Incomplete Undelivered instrument
instrument or to give discharge therefor or enforce -real defense
payment unless the party is precluded from setting up
forgery or want of authority. UNDATED INSTRUMENT
-the insertion of a wrong date will not avoid the
Rules in Relation to Forgery instrument in the hands of subsequent holder in due
a. Only the forged signature is wholly inoperative course, but as to him the date so inserted is to be
not the instrument itself regarded as the true date.
b. Forgery of indorsement payable to order, it is
not only the person whose signature was Material Alteration
forged who would not be liable but also the -any alteration that changes the date, sum payable,
parties prior to such person. Payment under a time or place of payment number or relation of parties
forged instrument is not to the drawers order or medium of currency or which alters the effect of the
(Cut off rule) instrument.
c. There may be parties who may be precluded
from setting up forgery: Effect:
a. Those who warrants like acceptors, AVOIDS the instrument except as against the party
indorsers who made, authorized, or assented to the alteration
b. Those who ratified forgery an subsequent indorsers . HDC can enforce it
c. Those who were negligent according to its original tenor
holder need not claim payment from the person a. The check may not be encashed but only
primarily liable. deposited in the bank
b. The check may be negotiated only once
Protest c. Serves as a warning to the holder that the
-is a formal declaration drawn and signed by a notary check has been issued for a definite purpose.
that the foreign bill has been presented for acceptance
or payment and that the acceptance or payment is Memorandum Check
refused. -in the form of ordinary check, with the word
memorandum. That the maker or drawer engages to
pay the bonafide holder absolutely without any
condition concerning the presentment.
BILL IN SET
-it is only one bill that is composed of several parts, Travellers Check- purchased from bank, can be used
each part being numbered and containing a reference like cash upon second signature by purchaser. It has
to the other parts. characteristics of cashiers check.
DISCHARGE INSURANCE
a. By payment in due course by the principal
debtor Contract of insurance – is an agreement whereby one
b. By payment in due course by the party undertakes for a consideration to indemnify another
accommodated against loss, damage or liability arising from an
c. By the intentional cancellation by the holder unknown or contingent event.
d. Any other act which will discharge a simple
contract Mutual insurance companies – an entity owned by a
e. When the principal debtor becomes the holder policy holders that caters only to the insurance needs
of the instrument of the same policyholders . no capital stock and the
contributions of members are the only sources of
Payment in due Course funds.
-payment made after maturity
-to the holder in good faith CHARACTERISTICS
-without notice of any defect or infirmity a. Risk Distributing Device – distribute the risk of
economic loss among as many as possible to
CHECK those who are subject to the same kind of
-must be presented within a reasonable time after its risk.
issue or the drawer will be discharge
- a check on itself does not operate as an assignment b. Contract of Adhesion or Fine Print Rule –
of funds to the credit of the drawer with the bank, and terms of the contract do not result from mutual
the bank is not liable to the holder unless and until it negotiations between the parties as they are
accepts or certifies the check prescribed by the insurer in printed form to
which the insured may adhere. In case of
KINDS doubt, contract should be strictly interpreted
Cashiers check – drawn by the bank itself and is against the insurer.
accepted by its issuance. E.g managers check If terms are clear, courts are bound to adhere
to the insurance contract.
Certified Check – one drawn by a depositor upon
funds to his credit in a bank which a proper officer of c. Aleatory – the obligation of the insurer to pay
the bank certifies will be paid when duly presented for the proceeds of the insurance arises only
payment upon the happening of an event which is
uncertain.
Certification is equivalent to acceptance.
Where a check is accepted or certified, the drawer d. Contract of Indemnity – it means that the
and all indorsers are discharged from liability insured who has insurable interest over a
property is only entitle to recover the amount
Crossed Check of actual loss sustained and the burden is
Effects
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upon him to establish the amount of such 6. The 60 days period may be extended upon written
loss. approval of the Insurance Commission.
Life insurance is not a contract of indemnity . 7. The written approval of the Insurance Commission
There is no over insurance in life insurance. shall be dispensed upon the certification of the
There is over insurance only in property. president , vice Pres or GM of the insurer that the risk
involved have as not yet determined and the renewal
e. Uberrimae Fides Contract – is one of perfect is not contrary to the purpose of ICP.
good faith not for the insured alone, but
equally so for the insurer; that is contract of THE POLICY
utmost good faith. It requires the parties to the -is a written instrument where the terms and
contract of insurance to disclose conditions conditions of the contract of insurance are set forth.
affecting the risk of which he is aware of -the policy is not necessary for the perfection of the
material fact, which the applicant knows, and contract.
those , which he ought to know. -no policy of insurance shall be issued or delivered
unless in the form previously approved by the
f. Personal Contract – the insurer considers the Insurance Commission.
personal qualifications of the insurer in
approving the insurance application. Rider – an attachment to an insurance policy that
Note: Bank Assurance is partnership of the bank modifies the conditions of the policy by expanding or
and the insurance company. restricting its benefits or excluding certain conditions
from the coverage.
ELEMENTS OF INSURANCE -Riders should be countersigned by the insured
1. Existence of an insurable interest -the rider containing “ automatic increase clause “ one
2. Risk of loss that increases the coverage subject to the attainment
3. Assumption of risk of a certain age of the insured - is not a separate
4. Scheme to distribute losses contract.
5. Payment of premium
CANCELLATION OF NON LIFE POLICY
Considered as insurance business – a contract which Grounds:
a corporation in consideration of stipulated amount Cancellation by the insurer of an insurance policy
agrees at its own expense to defend physician against other than life requires:
suit for damages for malpractice. a. Prior notice to the insured
1. Non payment
PERFECTION 2. Conviction of a crime
3. Fraud or material misrepresentation
-is a consensual contract and is therefore perfected 4. Willful reckless acts
the moment there is a meeting of minds with respect 5. Physical changes in the property
to the object and the cause or consideration. 6. Violation of the Insurance Code.
-Cognition theory being followed
Requisites for Cancellation
-the insured is the one making the offer by submitting 1. Prior notice of cancellation to insured
an application to the insurer application. Thus, mere 2. Notice must be based on occurrence
submission of the application without the 3. Notice must be writing , mailed or delivered to
corresponding approval of the policy does not result in the insured
the perfection of the contract of insurance. 4. Notice must state the ground relied upon
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-does not give the insured absolute right to such b. Minors cannot enter into an insurance
reinstatement by the mere filing of an application. The contract.
insurer has the right to deny the reinstatement. c. Married women can enter into insurance
contracts without the assistance of their
TYPES OF INSURANCE CONTRACT husbands.
a. Life Insurance
1. Individual Life – insurance on human lives Beneficiary – a person designated to receive
2. Group life – a blanket policy covering a proceeds of policy when risk attaches.
number of individuals. Employees for a single
employer. Designation of Beneficiary.
3. Industrial Life – the premium are payable -When one insures his own life, he may designate any
either monthly or oftener. person as the beneficiary, whether or not the
beneficiary has an insurable interest in the life of the
b. Non Life Insurance insured.
1. Marine
2. Fire Exception: Cannot be designated
3. Casualty 1.Those made between person who were guilty of
adultery or concubinage at the time of donation
c. Contract of Suretyship
2.Those made between persons found guilty of the
PARTIES TO INSURANCE CONTRACT same criminal offense
Insurer – the person who undertakes to indemnify
another. 3.Those made to a public officer or his wife,
descendants or ascendants by reason of his office.
Insurers may only be partnership, associations or (conviction not a condition precedent)
corporations who are duly authorized by the Insurance
Commission to engage in insurance business. -a life insurance policy is no different from a donation
insofar as beneficiary is concerned. Founded on
Insurance Corporation liberality.
-it must have sufficient capital and assets required
under the IC. Note: designation of person mentioned is VOID but
-it must have a certificate of authority to operate the policy is binding. The estate will get the proceeds.
issued by the IC which should be renewed every year.
Foreign Insurance Corporation 2.If a person will insure the life of another payable to
-may be authorized by the Commission to engage in himself, he must have insurable interest on the life of
insurance business provided the person whose life he is insuring.
a. appointment of resident of the Philippines as
general agent. 3.In property insurance, the beneficiary must have
b. possess paid up unimpaired assets or capital not insurable interest on the property.
less that required by Domestic Corp.
c. it must deposit for the benefit and security of 4.The designation if REVOCABLE unless the right to
policyholders revoke is expressly waived in the policy. Family code
d. the investment should not exceed 20% of the net allows the innocent spouse to revoke the designation
worth of the FC. of the other spouse as irrevocable beneficiary after
legal separation.
INSURED
-the person with capacity to contract and having an A. The insured cannot assign the policy if the
insurable interest in the life or property of the insured. designation of the beneficiary is irrevocable.
The beneficiary has vested rights.
a. A public enemy may not be insured . A public B. If there is no WAIVER of the right to revoke
enemy is a nation, including the citizen or subject, with under , assignment of the policy may be
whom the Philippines is at war. deemed an implied revocation.
C. If the insured refuses to pay the premium, the
-With respect to the corporation, the nationality is designated irrevocable beneficiary may
determined by the controlling stockholders irrespective continue the policy by paying premiums that
of the place of incorporation. are due.
-the property insurance entered into before the war 5.If premiums are paid out of the conjugal funds, the
automatically loses its binding effect the moment the proceeds are considered conjugal.
insurer becomes a public enemy.
6.If the insured or beneficiary is a minor and the
amount involved does not exceed 50k , the father, in
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the absence of judicial guardian, or the mother, may the time of the loss; while in property insurance, it is
exercise the minors right under the policy, without the necessary that the insurable interest exist when the
need of a court authority. insurance takes effect and when the loss occurs but
need not exist in the meantime.
7.Teh designation of the illegitimate children as
beneficiaries in the deceased father insurance policy As to expectation of benefit to be derived – In life
is valid because no legal prescription exist in naming insurance, the expectation of the benefit to be derived
as beneficiaries the children of illicit relationships by need not have any legal basis; in property insurance,
the insured. there must be a legal basis.
B. What does insurable interest in property SC held that when the mortgagor secures the
consist? insurance, the mortgagee may be made beneficial
1)-insurable interest in property is any interest therein payee : as assignee of the policy, pledgee.
or liability in respect and may consist
a.existing interest Mortgagee
b inchoate interest -the mortgagee has an insurable interest in the
c.expectancy coupled with an existing mortgaged property to the extent of the debt secured,
interest. such interest continues until the mortgage debt is
extinguished.
2)-in general , a person has an insurable interest in
the property, if he derives pecuniary benefit or Standard or Union Mortgage Clause vs Open or Loss
advantage from its preservation or would suffer Payable Mortgage Clause.
pecuniary loss, damage or prejudice by its destruction
whether he has or has not title in or lien upon, or In standard mortgage clause the subsequent act of
possession of the property. the mortgagor cannot affect the rights of the
mortgagee
3)Existence of insurable interest is matter of public
policy. Open or Loss Payable mortgage clause – the
mortgagor does not cease to be a party to the contract
Insurable Interest in Property vs Insurable Interest in . here the mortgagee is only a beneficiary under the
life. contract, but not made a party to the contract itself.
As to extent – insurable interest in life is unlimited ,
insurable interest in property is limited to the value of When Interest retained by mortgagor
the interest therein. -where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable
As to time when insurable interest must exist – In life to the mortgagee or assign a policy of insurance to a
insurance, it is enough that the insurable interest exist mortgagee, the insurance is deemed to be upon the
at the time the policy takes effect and need not exist at interest of the mortgagor, who does not cease to be a
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Insurable Interest of the Beneficiary and Assignee of Gen. Rule: No insurance policy issued or renewed is
the Policy. valid and binding until actual payment of the premium.
a.Property Insurance – the beneficiary and the Any agreement to the contrary is void.
assignee must have insurable interest. Consent of the
insurer must be secured before the assignment. Exceptions: that the insurance policy is not valid and
binding until actual payment of premium.
Life Insurance – if the insured takes the insurance on
his own life, he can designate anybody who does not 1. In case of grace period
have insurable interest. If a third person takes the 2. There is an acknowledgment in the contract of
policy, the beneficiary must have insurable interest. IN policy that premium had already been paid.
case of assignment the assignee need not have 3. Payment of premium in installment agreed
insurable interest. upon by both parties and partial payment has
been made at the time of the loss.
Expectancy not insurable unless coupled with an 4. Where a credit term was agreed upon like the
interest in the thing from which it shall arise. agreement.
Exg. An owner of a business may insure against 5. Where parties are barred by estoppel.
contingency which may cause the loss of profits
resulting from the cessation or interruption of his Note: SC Held: where the insurer authorizes an
business. insurance agent to deliver the policy to the insured, it
is deemed to have authorized said agent to receive
Effect of Change of Interest in thing insured the premium in its behalf. The insurer is also bound
unaccompanied by a change of interest in insurance: by its agent acknowledgment of receipt of payment of
Exceptions: premium.
Gen Rule – a change of interest in any part of the
thing insured unaccompanied by a corresponding What is the effect of the payment of the premium by a
change of interest in the insurance suspends the post dated check?
insurance to an equivalent extent , until the interest in -the payment of a premium by a post dated check at a
the thing, and the interest in the insurance are vested stated maturity subsequent to the loss is insufficient to
in the same person. put the insurance into effect. Payment by means of
check, accepted by insurer, bearing a date prior to the
Exceptions: loss , assuming availability of funds, would be
a. In life , health and accident insurance sufficient even if it remains unencashed at the time of
b. Change of interest in the thing insured after the loss . The subsequent effect of encashment would
the occurrence of an injury retroact toe the date of the instrument and its
c. Separately insured by one policy acceptance by the creditor.
d. By will or succession or death
When the insured is Entitled to Return of Premium
Note: when there is an express prohibition against Paid
alienation in the policy, in case of alienation, the 1. Never exposed to the risk insured against
contract of insurance is not merely suspended but 2. Contract is voidable due to the fraud or
AVOIDED. misrepresentation
3. Insurer never incurred liability
RISK INSURED AGAINST 4. Insured surrenders
-the risk insured against maybe any contingency or 5. Contract is voidable because of existence of
unknown event the happening of which will damnify a facts of which the insured was ignorant
person having insurable interest or will create liability 6. Over insurance
against him. Even fortuitous event may be insured 7. Rescission is granted due to the insurers
against. breach of contract
Gen. Rule: A future event is the only event that can be Suretyship
covered by the insurance contract. -Premium is also necessary in order for the contract of
Exception: a past event may be covered by a marine suretyship or bond to be binding.
insurance – if the loss of the vessel in the past could Exception: where the oblige has accepted the bond it
not have been known by ordinary means of is bindng even if the premium has not been paid
communication. subject to the right of the insurer to recover the
premium from its principal.
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Exceptions Kinds:
-make more definite the coverage indicated by the 1 Affirmative and promissory
general description of the risk by excluding certain
specified risks . Test of Materiality
-is determined by the probable and reasonable
influence of the facts on the party on whom
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d. Loss caused by efforts to rescue the thing -it shall commence to run from the denial of the claim
from peril insured against and not from the resolution of the MR, otherwise it can
be used by the insured as a device to waste time until
The insurer is NOT liable: the evidence which may be used against him is
1. Loss by insured willful act or gross negligence destroyed.
2. Loss due to connivance of the insured
3. Loss where the excepted peril is the Note:
proximate cuase Notice of claim must be filed within 6 months from the
date of accident otherwise the claim shall be deemed
Liability of Insurer if insured was committing a felony waived. Action or suit must be brought in proper
Liabilities arising out of acts of negligence, which are cases, with the Commission or the courts within 1 year
also criminal, are also insurable on the ground that from the denial of the claim.
such acts are accidental.
Ex/ homicide through reckless imprudence, RIGHT OF SUBROGRATION
But liability consequences of deliberate criminal acts The principle of subrogation is a normal incident of
are not insurable. indemnity property insurance as a legal effect of
payment it inures to the insurer without any formal
NOTICE AND PROOF IN FIRE INSURANCE assignment or any express stipulation to that effect in
Notice – should be given without unnecessary delay , the policy. Payment to the insurer makes the insurer
otherwise, the insurer is exonerated. an assignee in equity.
-legal effect of payment
Proof – it is sufficient that the insured give the best -the insurer can only recover from the 3rd person what
evidence he has in his power to present and need not the insured could have recovered
submit proof that is necessary in court -the insured can no longer recover from the offending
Substantial compliance is deemed sufficient party what was paid to him by the insurer but he can
recover any deficiency. Deficiency not covered
Notice of Settlement – is a stipulation in a policy of
insurance requiring that the consent of the insurer Cases when there is no Right of Subrogation
must first be obtained before any payments by the a. The insured by his own act released the
person responsible for the loss in the settlement of the wrong doer , third person
claim against the insured can be made valid? b. The insurer pays the insured for a loss or risk
Yes, the purpose is to avoid collusion between the not covered by the policy
insured and the claimant. c. In life insurance
d. For recovery of loss in excess of insurance
CLAIM SETTLEMENT coverage
There should be due consideration to the nature of the d. Total deprivation of owner of possession of
ship, the voyage and the service to be performed. thing insured
f. There must be a violation of a material policy Registration of any vehicle will not be made or
provision renewed without complying with the requirements
Friendly Fire vs Hostile Fire -the protection may be complied with using any a)
Friendly fire – fire that burns in a place where it is insurance policy b) surety bond c) cash bond.
supposed to burn
Purpose of Third Party Liability:
Hostile Fire – fire that escapes and burns in a place -to give immediate financial assistance to victims of
where it is not supposed to be. It may start as a motor vehicle accidents and or their dependents
friendly fire but escapes from its original place and especially if they are poor regardless of the financial
becomes out of control capability of motor vehicle owners or operators
responsible for the accident sustained .
CASUALTY INSURANCE
-is an insurance covering loss or liability arising from NO FAULT CLAUSE
accident or mishap excluding those falling under other -the injured third party or passenger is given the
types of insurance such as fire or marine. option to file a claim for death or injury without the
necessity of proving fault or negligence of any kind
Intentional vs accidental under the ff; conditions;
-intentional as used in an accident policy excepting a. it shall not exceed 15,000k (check update)
international injuries inflicted by the insured or any b. proof of loss ie police report, death, medical report
other person implies the exercise of the “reasoning c. claim may be made against one motor vehicle only.
facilities, consciousness and volition”. Where a
provision of the policy excludes intentional injury, it is From whom should the injured recover?
the intention of the person inflicting the injury that is In the case of an occupant of a vehicle , claim shall lie
controlling. If the injuries suffered by the insured against the insurer of the vehicle in which the
clearly resulted from the intentional act of third person, occupant is riding, mounting or dismounting
the insurer is relieved from liability as stipulated
If not an occupant, claim shall lie against the insurer of
The term accident, and accidental as used in the directly offending vehicle.
insurance contracts , have not acquired any technical
meaning. They are construed by the courts in the In all cases, the right of the party paying the claim to
ordinary and common acceptation. Thus the term recover against the owner of the vehicle responsible
have taken to mean that which happens by chance or for the accident shall be maintained.
fortuitously, without intention or design, which is
unexpected, unusual and unforeseen. TIME TO FILE AND PROCESS CLAIM UNDER CTPL
Period to File Notice
THIRD PARTY LIABILITY -the written notice of claim must be presented within 6
-third party may directly sue the insurer upon the months from the date of accident otherwise deemed
occurrence of the loss. However, the insurer is not waive.
solidarily liable with the insured or the tortfeasor for
the latters obligation. If the insurer pays the third Prescriptive Period
person, the right of subrogation operates. -the action must be filed in court or IC within one 1
year from denial of the claim
If there is no stipulation in favor of third person, any
third person who might be injured may not sue the If there is an agreement – the insurance company
insurer. Only the insured can recover from the insurer. shall pay within 5 working days.
Liability of insurer if insured was committing a felony. If no agreement is reached – the insurance company
-liabilities arising out of acts of negligence, which are shall pay the “no fault” indemnity without prejudice to
also criminal, are also insurable on the ground that the claimant from pursuing his claim further, he shall
such acts are accidental. But the liability consequence not be required or compelled by the insurance
of deliberate criminal acts are not insurable. company to execute any quit claim or document.
for the indemnity against loss, a third person has no a) a suicide was committed after the policy has been
cause of action against the insurer. in force for a period of 2 years from the date of its
issue or its last reinstatement , unless the policy
Is the insurer solidarily liable with the insured? provides a shorter period.
No. the insurer liability is based on contract; that of the
insured is based on tort. The insurer’s liability is -suicide committed in a state of insanity; it shall make
limited for to the amount of the insurance coverage. the insurer liable regardless of the date of the
commission of the suicide.
May the proceeds of a third party liability insurance be
garnished? Kinds
Yes. In a third party liability insurance, the insurer a. Ordinary Life
assumes the obligation of paying the injured party to b. Limited Payment Policy- if outlives does not
whom the insured is liable. The insured acquired pay
interest in the insurance contract, which interest may c. Endowment Policy-if outlives , he is paid
be garnished just like any other credit. d. Term Insurance
-it is not necessary that summons may be served e. Industrial Life
upon the insurer, the writ of garnishment is enough.
VARIABLE CONTRACT
OTHER RULES CONCERNING MOTOR VEHICLES -any policy or contract on either a group or individual
Authorized Driver Clause basis issued y an insurance company providing for
-a stipulation in a motor vehicle insurance which benefits or other contractual payments or value
provides that the driver other than the insured owner, thereunder to vary so as to reflect investment results
must be duly licensed to drive the motor vehicle, of any segregated portfolio of investment.
otherwise the insurer is excused from liability.
POWER OF THE INSURANCE COMMISSIONER
That clause means that the insurer indemnifies the Concurrent Jurisdiction
insured owner against loss or damage to the car but -cases where the claim does not exceed 5m involving
limits the use of the insured vehicle to the insured liability arising from insurance contract, reinsurance,
himself or any person who drives on his order or with suretyship.
his permission.
-the insured need not prove he has a driver’s license -Primary and exclusive jurisdiction – claims for pre
at the time of the accident. need plans where the amount of benefits does not
-if the claimant was able to present a driver’s license exceed (100k) verify
the same is presumed to be genuine.
-a driver who holds an expired license is not an Does the IC have jurisdiction to decide the legality of a
authorized driver. contract of agency into between an insurance
company and its agents?
THEFT CLAUSE NO. the same is not covered by the term “doing or
-if the vehicle was unlawfully taken, the insurer is transacting insurance business” .
liable under the theft clause and the authorized driver
clause does not apply. REVOCATION OF CERTIFICATE OF AUTHORITY
-when the motor vehicle is unlawfully taken and -The certificate of Authority issued to the domestic or
wrongfully taken without the owners consent or foreign company by the IC may be revoked or
knowledge , such taking constitute theft and therefore suspended by the IC for any of the ff:
it is the theft clause and not the authorized driver 1) the company is in an unsound condition
clause that should apply. 2) that it has failed to comply with the provision of law
-this is also true when the employee of a repair shop or regulation
took the car that is being repaired for a joy ride. 3)method of business is hazardous to the public
4)Paid up capital is impaired
SURETYSHIP
-an agreement whereby the surety guarantees the **** End of Insurance ****
performance by another of an undertaking or an
obligation in favor of a 3rd party. BUSINESS ORGANIZATION
Obligation of the Directors , Officers etc. NO, mere ownership by a single stockholder or by
-the piercing the veil of corporate fiction, cannot be another corporation of all or nearly all the capital stock
used to support an action for the enforcement of the of the corporation does not justify the application of
personal obligation of the directors , officers and the doctrine. There must be other circumstance that
incorporations. must be present
-the SC rejected this move ruling that the doctrine The mere fact that a corporation owns all of the stock
cannot be applied to make the corporation liable for of another corporation, taken alone, is not sufficient to
the personal obligation of directors, officers or justify their being treated as one entity. If the
shareholders. subsidiary is used to perform legitimate functions , a
subsidiary’s separate existence shall be respected.
Circumstances that may be considered to justify the
application of the doctrine to make the parent What are the elements that must be present to justify
corporation liable for the obligation of its subsidiary? the piercing of veil of corporate fiction on the ground
that the corporation is a mere alter ego?
a. The parent corporation owns all or most of the
capital stock of the subsidiary Control
b. The parent and subsidiary corporation have a)not mere stock control but the complete domination
common directors or officers –not only of the finances, but of policy and business
c. The parent company finances the subsidiary practice in respect to the transaction attacked and
d. The parent company subscribed to all the must appear that the corporate entity at the time has “
capital stock of the subsidiary or otherwise no separate mind of its own”
cause of incorporation
e. The subsidiary has grossly inadequate capital b)Such control must have been used by the defendant
f. The subsidiary has substantially no business to commit a fraud or wrong to perpetuate the violation
except with the parent corporation of a statutory or other positive legal breach of duty.
g. The subsidiary is described as a department
or division of the parent corporation c)The said control and breach of duty must have
h. The parent corporation uses the property of proximately caused the injury or unjust loss
the subsidiary as its own. complained of.
i. The directors or executives of the subsidiary In one case, the corporation was considered mere
do not act independently in the interest of the alter ego of the other corp. because the stockholders
are the same, manager is the same, same customers,
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-the special or secondary franchise of a corp. a. The existence of a valid law, under which it
are vested in the corp. and may ordinarily be may be incorporated
conveyed or mortgaged under a general b. An attempt in good faith to incorporate
power granted to a corp. c. Use of corporate powers
-is subject to levy and sale on execution Note: Issuance of certificate of incorporation by the
SEC is a minimum requirement of continued good
HOW CREATED faith.
General Law - private corporation are generally -if there is substantial compliance, de jure corporation
created under the provisions of the Corp. Code. This results, only colorable compliance results in de facto
is done by filing the appropriate AOI with the SEC; the corporation.
life of the corporation starts from the issuance of the
Certificate of Incorporation Corporation by Estoppel
-a group of person which hold itself out as a corp and
Special Law - public corporation are created through enters into a contract with a 3rd person on the strength
special laws. Private corporation cannot be created by of such appearance cannot be permitted to deny its
special laws. existence in an action under said contract. This is
actually not a real corporation.
Exceptions – Government owned or controlled corp.
which are actually private corporations. -those who assume to act as a corporation knowing it
to be without authority to do so shall be liable as
RIGHT OF SUCCESSION general partners up to their personal properties.
-capacity to have continuity of existence despite the Those who were not aware of the defect are liable
changes on the person who compose it. Thus the only up to their investment.
personality continues despite the change of
stockholders members, board members or officers. SC Held: that all those who derived benefit from the
transaction made by the ostensible corporation ,
POWER, ATTRIBUTES AND PROPERTIES despite knowledge of its legal defects, may be held
THEORY OF LIMITED CAPACITY liable for contracts they impliedly assented to or took
-no corporation under this code, shall process or advantage of .
exercise any corporate powers, except those
conferred by law, its AOI , those implied from express Corporation by Prescription – corporation that was not
powers and those as are necessary or incidental to formally organized as such but has been duly
the exercise of the powers so conferred. The recognized by immemorial usage as a corporation,
corporations capacity is limited to such express, with rights and duties maintainable at law.
implied and incidental powers.
As to Existence of stocks
If the act of the corp is not one of those express, a. Stock Corporation – a corporation in which
implied or incidental powers, the act is ULTRA VIRES. capital stock is divided into shares and is
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-stockholders are persons who hold or own shares in 60% Foreign Equity
a stock corporation while members are those who Financing Corp.
compose the non stock corporation. Investment House
Authorize Capital Stock – the amount fixed in the d)it must not disturb vested rights , impair contract or
articles of incorporation to be subscribed and paid by property rights of stockholders or members
the stockholders of the corporation.
ADOPTION AND AMENDMENT
Subscribed Capital – that portion of the authorized Original By Laws:
capital stock that is covered by subscription -may accompany the AOI and SEC will approve it
agreements whether fully paid or not. together with.
-filed within (1) month from notice of issuance of
Paid Up Capital – the portion of the authorized capital certificate of incorporation
stock which has been subscribed and actually paid.
Note: Non –filing within one (1) month is a ground to
Outstanding Capital Stock – the total shares of stock forfeit franchise and will not result in automatic
issued to subscribers or stockholders , whether or not dissolution.
fully or partially paid except treasury shares so long as
there is a binding subscription agreement. Amendment
-may be made by:
Capital – properties and assets of the corporation that a. stockholders together with the board
are used for its business or operation. b. Board only
AMENDMENT OF ARTICLES OF INCORPORATION Stockholder together with the board : majority of board
Procedure : Majority vote of direction or trustees and plus majority of outstanding capital stock.
written assent of the stockholders representing 2/3 of
membership of non stock corporation. By the Board as delegated by 2/3 of outstanding
capital stock or 2/3 of members.
When Effective: Upon approval of SEC or if not acted
upon by SEC within 6 months from the date of filing BINDING EFFECT OF PROVISIONS OF BY LAWS
provided that delay cannot be attributed to eth As to the corporation and its components – binding
corporation. not only upon the corporation but also on its
stockholders , members and those having direction,
Congress – the passage of statues amending the management and control of its affairs.
Corporation Code or special laws may result in the
amendment of the AOI provided that no vested right is As to Third Person – not binding unless there is actual
impaired. knowledge. Third person are not even bound to
investigate the content because they are not bound to
WHEN CAN SEC SUSPEND OR CANEL know the By Laws which are merely provisions for the
CERTIFICATE OF REGISTRATION government of a corporation and notice to them will
a. Fraud in procuring registration not be presumed.
b. Serious misrepresentation
c. Lawful order The provisions in the By Laws enumerating the
d. Continuous inoperation for at least 5 years contract signatory is not binding on third persons who
e. Failure to file by laws within required period signed a contract with the corporation as represented
f. Failure to file reports by the Chairman who is not one of those enumerated.
g. Other similar grounds
POWERS OF A CORPORATION
BY LAWS KINDS
-relatively permanent and continuing rules of action Express – those expressly authorized by the Corp
adopted by the corporation for its own government Code and other laws, and its AOI or Charter.
and that of the individual composing it and those
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Implied Powers – those that can be inferred from or a) Executed contract – court will not set aside or
necessary for the exercise of the express powers. interfere with such contracts
b) Executory contracts – no enforcement even at
Incidental Powers – those that are incidental to the the suit of either party
existence of the corporation c) Part executed and part executory – principle
against unjust enrichment shall apply.
Note: There are express powers that are incidental
powers like the power to acquire properties. Distinguished from Acts that do not comply with
formalities.
EXPRESS POWERS UNDER THE CORPORATION If certain procedures or formalities are prescribed in
CODE. the AOI, or By laws and the same are not complied
General Powers with , the resulting act is not ultra vires act of the
1. Sue an be sued in its corporate name corporation.
2. Succession -the contract may even be valid to third person who
3. Adopt and use a corporate seal are not familiar with the By laws.
4. Amend AOI
5. Adopt, amend or repeal by laws Distinguished from Unauthorized Acts
6. For stock corporation – issue stocks to -the act may be within the powers of the corporation
subscribers and to sell treasury stocks; for but not within the powers of the particular officer. –
non stock corporations – admit members ultra vires acts of the officer.
7. Purchase , receive, take or grant hold convey, -hence if there is no written authority from the BOD to
sell, lease deal with real and personal sell the land in the form of a Resolution, the sale of the
property, pursuant to its lawful business. realty by an officer shall be void.
8. Enter into merger or consolidation
9. To make reasonable donation. Prohibited for EXERCISE OF POWERS
partisan political activity; Who may exercise the powers of the corporation?
10. To establish pension, retirement and other
plans for the benefit of directors, trustees, The BOD exercises the powers of the corporation.
officers and employees. The BOD without the concurrence of the stockholders
11. Other powers essentially necessary to carry may exercise the powers.
out its powers.
1)When not exercised by the board – the powers are
SPECIFIC POWERS not exercised by the board directly
a. Power to extent or shorten corporate term a. there is a management contract
b. Increase/ Decrease Corporate stock b. the powers of the board are delegated by majority
c. Incur Create Bonded Indebtedness vote
d. Deny pre emptive right c.to an executive committee
e. Sell, dispose, lease , encumber
f. Purchase or acquire own shares 2)What are the powers that cannot be exercised by or
g. Invest in another corporation cannot be delegated to the executive Committee?
h. Declare dividends
i. Enter into management contract The executive committee cannot exercise any of the
j. Amend the AOI following;
a. Approval of action requiring concurrence of
ULTRA VIRES ACT stockholders
Ultra Vires acts of the corporation b. Filing of vacancies in the board
-an ultra vires act is one committed outside the object c. Adoption, amendment or repeal of by laws
for which a corporation is created as defined by the d. Amendment or repeal of board resolution
law of its organization and therefore beyond the power e. Distribution of cash dividends
conferred upon it by law.
Notes: the executive committee is composed of at
Ultra Vires act vs illegal Act - the term ultra vires is least (3) members of the board and must be created
distinguished form an illegal ac for the former is under the by laws. It helps managing the affairs of the
merely voidable which may be enforced by corporation.
performance, ratification, or estoppel , while the latter
is void and cannot be validated. 3)Corporate officers like the President can also bind
the corporation. The authority of such individual to
bind the corporation is generally derived form
a. law
Effects of Ultra Vires Act. b. corporate by laws
c. authorization from the board
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2)A majority of the members of the board of directors Exception to the Exception:
of the managing corporation also constitute a majority a) Justified by definite corporate expansion
of the members of the board of the managed b) The corporation is prohibited under any loan
corporation agreement
c) For contingencies purposes.
i. To Amend the AOI
Dividends cannot be declared out of the capital .
2) Approval of the stockholders representing Exception: Wasting Asset Corporation
majority of the OCS is necessary together
with board approval in the following instances: The Trust Fund Doctrine will be violated if dividends
are declared out of capital except only in two
a) To enter into management contract instances.
b) To adopt, amend or repeal the by laws a) Liquidating dividends and
b) Dividends from investment in wasting asset
3) Without board resolution, the SH may: corporation
a) 2/3 of the OCS –Delegate to the board the
power to amend the by laws What can be included in URE?
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-URE shall only include accumulated profits and gains rendered incapable of continuing the business or
realized out of the normal and continuous operations accomplishing the purpose for which it was
of the company. incorporated.
a) not appropriated by its BOD for corporate
expansion project programs Effects on Creditors
b)not covered by a restriction for dividend declaration -buyer will not be liable for the debts of the transferee
under a loan agreement
c)not required for contingencies Exceptions;
a. Express assumption of liabilities
What items cannot be used for dividend distribution? b. Consolidation or merger
Unrealized foreign exchange gains c. Purchase was in fraud of creditors
Paid up surplus d. If the purchaser becomes a continuation of
Reduction surplus the seller
Can gain from sale of real property be considered INCREASE OR DECREASE OF CAPITAL
party of unrestricted retained earnings? What are the ways of increasing the capital stock?
Yes. But there must be surplus of profits. The 1. Increasing the number of shares and retaining
corporation cannot distribute gains from sale of real the par value
properties as dividends if the value of the remaining 2. Increasing the par value of existing shares
assets after distribution is less than the amount of without changing the number of shares
legal or stated capital and liabilities. 3. Increasing the number of shares and
increasing the par value
Can treasury shares be distributed by way of
dividends? What are the ways of decreasing the capital stock?
Yes, but only as property dividends . Treasury shares a. By decreasing the number of shares and
cannot be declared as stock dividend or cash dividend retaining the par value
because they are not considered part of earned or b. By decreasing the par value of existing shares
surplus profits without changing the number of shares
c. By decreasing the number of shares and
decreasing the par value.
; the BOD is the business manager of the corporation d. By board if remaining directors constitute a
and so long as its acts in GF its orders are not quorum
reviewable by the courts or the SEC.
Replacement of Hold Over Directors
WHEN DIRECTORS LIABLE The loss of right of the directors is automatic upon the
a) If he willfully and knowingly vote for and expiration of their term. If election is not held, the
assent to patently unlawful acts of the director whose term expired can continue to function
corporation in a holdover capacity
b) Is guilty of gross negligence or bad faith in
directing the affairs of the corporation The power of the remaining members of the board to
c) Will acquire any personal or pecuniary interest fill in a vacancy applies only if a director resigns
in conflict of duty before the expiration of his term
c) Cumulative Voting by Distribution-distribute -Hence, the law does not permit him to seize the
his vote to as many candidates as he shall opportunity even if he will use his own funds in the
see fit. venture.
REMOVAL AND VACANCIES IN THE BOARD *if the interest of the interlocking director in the
Requisites of Removal corporations are both substantial (exceeding 20% of
a) It must take place either at a regular meeting OCS)
or special meeting of the SH or members
called for the purpose Gen. Rule: a contract between two or more
b) There must be previous notice corporations having interlocking directors shall NOT
c) The removal must be by a vote of SH invalidated on that ground alone.
representing 2/3 of OCS or 2/3 of members
d) The director may be removed with or without Exception: if the contract is fraudulent or not fair and
cause unless he was elected by the minority reasonable.
in which case, it is required that there is cause
for removal If the interest of the interlocking director in one of the
corporations is nominal while substantial in the other
b)Filing of vacancies in the Board the contract shall be valid provided the following
10 By stockholders or members – if vacancy results conditions are present:
because of a. The presence of such director in the board
a. Removal meeting in which the contract was approved
b. Expiration of term was NOT necessary to constitute a quorum
c. The ground is other than removal or expiration for such meeting.
of term (death, resignation, abandonment0 b. That the vote of such director was not
where the remaining directors do not necessary for the approval of the contract.
constitute a quorum ; increase in the number c. That the contract is fair and reasonable under
of directors the circumstances
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Where any of the first two is absent , the contract can Provided that:
be ratified , by the vote of the stockholders Full disclosure of the adverse interest of the
representing at least 2/3 of the OCS or by the vote of directors involved is made on such meeting
the stockholders representing at least 2/3 of the The contract is fair and reasonable
members in a meeting called for the purpose
WHO ARE THE CORPORATE OFFICERS
Provided that: The corporate officers are the
1. Full disclosure of the adverse interest of the -President (who shall be the director),
directors involved is made on such meeting -Treasurer (who may or may not be a director),
2. The contract is fair and reasonable -Corporate Secretary (who shall be a resident and
citizen of the Philippines)
Are corporate agents such as directors , trustees or and such others officer as may be provided by law
officers solidarily liable with the corporation they
represent? Note: The By laws may provide that the BOD is
authorized to create corporate officers and appoint
As a Rule NO, acting as such corporate agents, are corresponding corporate officers.
not their but the direct accountabilities of the
corporation they represent. *When the defendant is a corporation, partnership, or
association, service of summon may be made on the
However, the following cases, solidarily personal President, Managing Partner, GM, Corporate
liabilities may be incurred: Secretary, Treasurer or IN house Counsel
a. Votes or assents to a patently unlawful acts
b. Act in bad faith or in gross negligence WHO CAN APPOINT AND REMOVE THE OFFICERS
c. Are guilty of conflict of interest The BOD shall appoint the officers , they may also
remove or discharge those that they appointed.
b)when a director has consented to the issuance of
watered stocks or who, TRUST FUND DOCTRINE
c)stipulated to hold himself personally and solidarily -The capital stock, property and other assets of the
liable with the corporation corporation are regarded as equity in trust for the
payment of the corporate creditors.
c)when a director, trustee or officer is made, by -the subscribed capital stock is a trust fud for the
specific provisions of law, personally liable for his payment of debts which the creditor have the right to
corporate actions. look up to satisfy their credits.
-Corporation may not dissipate this and the creditors
Who are self –dealing directors ? may sue stockholders directly for the unpaid
a) Self dealing directors – those who “personally subscription.
contract” with the corporation in which they
are directors . it is discouraged because the a)Money received for subscription of increase of
directors have fiduciary relationship with the authorized capital are not covered by the trust fund
corporation and there can be no real doctrine prior to the approval of such increase by the
bargaining where the same is acting on both SEC.
sides of the trade.
Give examples of cases where the trust fund doctrine
The contract between the corporation and the is violated
self dealing directors is VOIDABLE unless :
a. Where the corporation release or condones
-The presence of such director in the board payment of the unpaid subscription
meeting in which the contract was approved b. When there is payment of dividends without
was NOT necessary to constitute a quorum URE
for such meeting. c. When properties are transferred in fraud of
-That the vote of such director was not creditors
necessary for the approval of the contract. d. When properties are disposed or undue
-That the contract is fair and reasonable under preference is given to some creditors even if
the circumstances the corporation is insolvent.
-there was previous authorization by the
board of directors or trustees. The procedure for the distribution of capital assets
embodied in the Corporation Code, which allows the
-However, even if the requirements are not present. It distribution of corporate capital only in 3 instances
can be RATIFIED by a vote of the SH representing 2/3 a. Amendment of the AOI to reduce the
of OCS authorized capital stock
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How does one become a shareholder in a Cumulative – the shareholder is entitled to recover
corporation? dividends in arrears. While dividend declaration may
A person becomes a SH the moment he not be compelled, once it is declared , the shareholder
a. Enters into a subscription contract is entitled to the said arrears.
b. Purchases treasury shares form the
corporation Non Cumulative – not entitled to arrears only to
c. Acquires shares form existing shareholders present dividends
by sale or any other contract or acquires
shares by operation of law like succession Participating – participates with common shares after
receiving its dividends at preferred rate.
What are the Kinds of Subscription Contract? Non Participating – where there is no such participant.
Pre incorporation subscription
-entered into before the corporation and irrevocable Note: Preferred shares must have par value
for a period of 6 months unless all the subscribers
consent or if the corporation failed to materialize . It Preferred Shares – cannot have as its preference
cannot also be revoked after filing the AOI.. fixed demandable annual interest because they
represent investment to rather than debt.
Post Incorporation Subscription –entered into after -Preference do not give them lien upon the property
incorporation. nor make them creditors of the corporation.
-Preferred shares are not entitled to payment of
What are the valid consideration for subscription dividends as a matter of right.
agreements?
a. Cash The BOD cannot be given blanket authority to fix the
b. Property term, conditions and rights of preferred shares unless
c. Labor or services the guidelines are spelled out in the AOI
d. Prior corporate obligations
e. Amount transferred from URE to stated capital Redeemable Shares –are those which permit the
f. Outstanding shares in exchange for stocks issuing corporation to redeem or purchase its own
shares.
Note: PN or future services are not valid
considerations. Limitations on the issuance of redeemable shares:
a. Redeemable shares may be issued only when
SHARES OF STOCK expressly provided for in the AOI
-interest or right which an owner has in the b. The terms and conditions affecting said
management of the corporation and its surplus profits shares must be stated both in the AOI and in
on dissolution , all of its assets remaining after the the certificate of stock representing such
payment of its debt. The SH may own the share even share.
if he is not holding a certified stock. c. Redeemable shares may be deprived of
voting rights in the AOI
Distinction Shares of Stock vs Certificate of Stock d. The Corporation is required to maintain a
1. Unit of interest in a corporation sinking fund to answer for redemption price
2. It is an incorporeal or intangible property e. The Redeemable shares are deemed retired
3. It may be issued by the corporation even if the upon redemption
subscription is not fully paid f. URE is not necessary before shares can be
redeemed but there must be sufficient assets
Certificate of Stock to pay the creditors and to answer for
1. Evidence of the holders ownership o the stock operations.
and of this right as shareholder and up to the
extent specified therein
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(1)Both par value shares and no par value shares What are the limitation on the issuance of “no par
have issued values. .The issued value may be higher, value” shares?
but not lower than the par value. 1) No par value shares cannot have an issued
price of less than P5.
(2)The issued value of no par value shares may be
fixed in the AOI or fixed by the board. 2) The entire consideration for its issuance
constitutes capital so that no part of its should
Founders Share – which be given certain rights and be distributed as dividends
privileges not enjoyed by others. If the right is the
exclusive right to ote and be voted for a director, it 3) They cannot be issued as preferred shares
must be for a period not exceeding 5 years counted
from the approval of the SEC 4) They cannot be issued by banks, trust,
insurance corp.
Escrow Shares – shares subjected to an agreement
by virtue of which the shares are deposited by the
5) The AOI must state the fact that it issued no
grantor or his agent with a 3rd person to be held by the
par value shares
latter undtil the performance of a certain condition.
The beneficiary of the agreement is not yet a
stockholder until the performance of such condition 6) Once issued, they are deemed fully paid and
and is not therefore entitled to the right of a non assessable.
shareholder.
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e. Merger or consolidation
Proxy form
-in writing, signed by the SH or member and filed Rules for the exercise of Appraisal Right
before the scheduled meeting with the corporate a. The SH must be a dissenting SH
secretary. b. The SH must make a written demand on the
corp. within 30 days after vote was taken
Period of Validity c. The price to be paid is the FMV of the shares
-unless otherwise provided, it should be valid only for on the date before the vote was taken
the meeting for which it is intended. No proxy shall be d. The FMV shall be agreed upon , in case no
valid and effective for a long period than 5 years. agreement within 60 days, the FMV shall be
determined by a majority of 3 disinterested
VOTING TRUST person
One or more SH may create a voting trust for the e. The right of appraisal is extinguished when
purpose of conferring upon trustee or trustees the a. He withdraws the demand
right to vote and other rights pertaining to the shares b. The proposed action is abandoned
for a period not exceeding 5 years at anyone time. c. The SEC disapproves the action
However, the trustee can also be voted as directors
COLLECTION OF UNPAID SUBSCRIPTION
-if Trust is required for a loan agreement, period may
exceed 5 years but shall automatically expire upon full What are the REMEDIES of corporation to enforce
payment of the loan payment of stocks
b) Delinquent SH shall not be entitled to any of -The corp. code does not mandate the absorption of
the rights of a SH but he shall still be entitled the employees of the non surviving corp. The
to receive dividends absorption of the employees may be provided for in
c) Delinquent stocks shall be subject to the Merger Plan.
delinquency sale. -in the absence of stipulation, the surviving corp may
not be judicially compelled to absorb the employees of
Note: if the delinquent Sh is a directors , he shall the non surviving corporation
continue to be a director but he cannot run for re-
election. -SC Held: for purpose of applying the Union Shop
Clause
BOOKS -the absorbed employees of the non surviving corp.
Who is authorized to make entries in the stock and are considered new employees of the surviving
transfer book? corporation . hence, the Union Shop Agreement
The corp. secretary. Entries made by the Chairman or applies to the absorbed employees.
President are INVALID
PLAN OF MERGER
What is the probative value of the stock and transfer a. The BOD of each corp. shall draw up a plan of
book? merger or consolidation.
-is the best evidence of the transaction that must be b. Should be approved by majority vote of each
entered or stated therein. BOD and 2/3 OCS
c. Any amendment must be approved by
Right of Stockholders to Inspect Books majority vote
a. It must be exercised at reasonable hours d. Articles of Merger Or Articles of Consolidation
b. Has not improperly used any information he shall be executed by each of the constituent
secured through any previous examination corp.
c. Demand is made in good faith or for legitimate e. Four copies shall be submitted to the SEC for
purpose approval.
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b) When the corporation has commenced the permitted to complete the liquidation by continuing as
transaction of its business but subsequently trustees by legal implication
becomes continuously inoperative for a period
of at least 5 years, the certificate of LIQUIDATION
registration may be suspended or revoked. -process by which all the assets of the corporation are
Suspension and cancellation Is not automatic. converted into liquid assets (cash) in order to facilitate
Exception: Inoperation is beyond the control the payment of obligation to creditors , and the
of the corporation. remaining balance if any is to be distributed to the
stockholders.
DISSOLUTION
Dissolution of a Corporation MODES OF LIQUIDATION
-extinguishment of the franchise of a corporation and a) By the BOD
the termination of its corporate existence. b) Through a Trustee
c) By management committee or rehabilitation
Modes of Dissolution receiver
a) Voluntary Dissolution
b) Involuntary Dissolution FOREIGN CORPORATION
c) Shortening of Term -corporation formed, organized or existing under any
d) Expiration of Term other than those of the Philippines and whose allow
Filipino citizens and corporations to do business in its
Voluntary Dissolution where no creditors are affected: own country or state.
Voluntary Dissolution where creditors are affected
Dissolution by shortening corporate term Foreign Corporation –power to sue and be sued.
-this is done by amending the AOI. The amended
Articles shall be filed with SEC and the corp. is a) Suit by a Foreign Corporation – the F.C
deemed dissolved upon approval of the amended transacting business in the PHils. WITHOUT
Articles or upon expiration of the new term. LICENSE to do business shall not be
permitted to maintain or intervene in any
Involuntary Dissolution: action , suit or proceeding in any court or
-filing a verified complaint with SEC based on grounds administrative agency.
provided by law or rules including b) Suit Against a Foreign Corporation – Any FC
a) Failure to organize and commence business in transacting business in the Phils. Whether or
2 years not with a license may be used against before
b)Continuously inoperative for 5 years Phil courts or administrative tribunals on any
c) Failure to file by laws within 30 days from issue valid cause of action recognized under Phils
of Certificate of incorporation laws
d_Fraud in procuring Certificate of Registration
f. Serious Misrepresentation What constitutes DOING BUSINESS in the PHils.
g. Failure to file required reports. Continuity test – doing business implies continuity of
commercial dealings and arrangements, and
EFFECTS OF DISSOLUTION: performance of acts the purpose and object.
a) Results in the transfer of legal title to
properties in the SH who become co owners Substance Test – if it continuing the body or
thereof substance of the enterprise of business for which it
b) The corporation ceases as a body corporate was created
to continue business
c) The SH are not prevented from conveying Note: the two test are characterized as the “Twin
their respective shareholdings toward the Characterization Test”
creation of a new corp. to continue the
business of the old Isolated Transaction?
d) Reincorporation of Dissolved Corp. If single or isolated transaction is incidental and casual
e) The corporation continues as a body transaction, it cannot qualify as “doing business” since
corporate for 3 years for purposes of winding it lacks the element of continuity
up or liquidation ;
f) Upon the expiration of 3 year winding up However, where a single or isolated transaction is not
period, the corporation ceases to exist for all merely incidental or casual but indicates the FC
purposes. intention to do other business in the PHils. Said single
act constitutes “doing business” in the PHils.
LIQUIDATION AFTER THREE 3 YEARS
-if full liquidation can only be effected after the 3 years CONTRACT TEST of doing Business in the PHils.
period and there is no trustee, the directors may be
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Standards: - A non stock corp. is authorized to The By laws of religious corporation may provide that
terminate membership in accordance with the AOI. the member may be expelled or removed without prior
notice.
When Property Rights are Involved – Member ship
may involve property rights. Deprivation of such CORPORATION SOLE
property right should also be in accordance with the -Nationality – A corporation sole does not have any
provision of CC. nationality , the nationality is determined not by the
nationality of its head, but by the nationality of its
Lien – Non payment of dues may be a ground for head, but by the nationality of its members constituting
termination or suspension of membership. The the sect in the Phils.
Articles or By laws may provide that unpaid dues shall
constitute lien on the members share. Conversion to Corporation Aggregate – a corporation
sole may be converted to a corporation aggregate
Notice – the termination of membership to be valid , through amendment of its AOI. Concurrence of 2/3 of
should be reasonable notice to the member the members of the corporation sole.
concerned and must be given opportunity to be
heard.. Dissolution – by filing a verified declaration of
dissolution stating
Effect of Death of Member – Membership are personal a. Name of the corporation
and non transferable unless the AOI or by laws b. Reason for dissolution
provide otherwise. Deceased member are not to be c. Authorization for the dissolution by the
counted in determining he requisite vote in corporate particular religious denomination
matters or the requisite quorum. d. Names and addresses of the person who will
supervise the dissolution
CONVERSION
A non stock corporation cannot be converted into a SECURITIES REGULATION CODE
stock corporation through a mere amendment of its
AOI . This would violate Sec 87 which prohibits Jurisdiction of SEC
distribution of income as dividends to members. 1. Supervision over all corp, partnership and
associations
A non stock corporation can be converted into stock 2. Formulate policies and recommendation on
corporation only if the members dissolve it first and issues concerning securities market
then organize a stock corporation 3. Approve , suspend reject “ registration
statements”
A stock corporation may be converted into a non stock 4. Suspend revoke franchise and certificate of
corporation by mere amendment provided all the registration of corp, partnership an assco.
requirements are complied with . 5. Supervise activities and exchanges of clearing
agencies
ORDER OF DISTRIBUTION OF ASSETS (on
dissolution of non stock corp) Jurisdiction of the RTC
a) All its creditors shall be paid 1. Fraudulent deices and schemes
b) Assets held subject to return on dissolution, 2. Intra-corporate dispute
shall be delivered back to their givers 3. Controversies in election, appointment of
c) Assets held for charitable, religious purposes directors and trustees
shall be conveyed to one or more organization What are SECURITIES
engaged in similar activities -securities are shares , participation or intereset in a
d) All other assets shall be distributed to corporation or in a commercial enterprise or profit
members making venture evidenced by certificate , contract,
instrument whether written or electronic includes:
RELIGIOUS CORPORATION a. Shares of stock, bonds
Corporation Sole – special form of corporation usually b. investment contract
associated with the clergy and consist of one person c. fractional undivided interest
and his succesors who are incorporated by law to give d. derivatives like option and warrant
some legal capacities and advantages.
registration statement – is the application for the
Religious Societies – non stock corporation formed by registration of securities required to be filed with the
a religious society , group , diocese, or religious Commission
denomination
Investment Contract
-means of contract transaction or scheme whereby a
person invest his money in a common enterprise and
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Warrant – right to subscribe or purchase new shares b) The registration statement is on its face
or existing shares in a company on or before a incomplete or inaccurate
predetermined date. c) The issuer , any officer , director or controlling
person of the issuer has been convicted of
How does the SRC protects the public in investing moral turpitude.
securities?
a. The law requires full disclosure of information DEVICES AND PRACTICES ON MANIPULATION
to the public regarding the securities that are
being offered and the issuers including the 1) To create a false or misleading appearance of
filing of registration statements and the active trading.
approval of prospectus. a) Wash sale – by effecting any transaction in
b. –continuity duty of submit material information such security which involves no change in
to SEC beneficial ownership
c. Close monitoring of the securities b) Match orders – by entering an order or orders
d. Prohibiting and penalizing different fraudulent for the purchase or sale of such security with
acts the knowledge that a simultaneous order or
orders of substantially the same size, time
BASIC RULES REGARDING REGISTRATION OF and price.
SECURITIES
a)provides that securities shall not be sold or offered 2)To effect a series of transactions in securities
for sale or distribution within the Phil, without a
registration statement duly filed with and approved by 3)Create active trading to induce such a purchase or
the Commission. sale through manipulative devices .
b)full disclosure of information is given to the public . 4)To circulate information that price of securities will
likely rise or fall
EXEMPT SECURITIES
a) Any securities issued or guaranteed by the WHO IS AN INSIDER?
Government of the Philippines. -Insider means
b) Any security issued or guaranteed by the -the issuer
government of any country with which the -a director or officer or a person controlling the issuer
Phil. Maintains diplomatic relations -a person whose relationship or former relationship to
c) Certificate issued by a receiver or by a trustee the issuer gives him access to material information
in bankruptcy -a government employer who has access to material
d) Any security or its derivatives the sale or information about an issuer
transfer of which by law , supervision and -a person learns such information by communication
regulation of the office. from any of the foregoing insiders
e) Any security issued by a bank except its own
shares of stock DUTIES OF AN INSIDER when he is TRADING?
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-it shall be unlawful for an insider to sell or buy a a) when any person who intends to acquire 35%
security of the issuer , while in possession of material or more of equity shares in a public company.
information with respect to the issuer or the security
that Is not generally available to the public interest. b) Any person who intends to acquire 35% or
more of equity shares in a public company
-The insider proves that the information was not within a 12 month , period.
gained from such relationship;
-if the other party selling to or buying from the insider c) If any acquisition of even less than 35% but
is identified would result in ownership of over 50% of the
-that he disclosed the information to the other party total outstanding equity securities of a public
-that he ad reason to believe that the other party company.
otherwise is also in possession of the information
Exempt from Mandatory Tender Offer
PRESUMPTION 1) Purchase in connection with privatization
-a purchase of sale of a security of the issuer made by 2) Purchase in connection with corporate
an insider , shall be presumed to have been effected rehabilitation
while in possession of material non public information 3) Merger or consolidation
if transacted after such information came into
existence but prior to dissemination of such MARGIN TRADING
information to the public. -the customer purchases stock by advising only a
-That this presumption shall be rebutted upon a portion of the purchase price with the broker or
showing by the purchaser that the was not aware of extending credit or making loan for balance due.
the material public information at the time of the
purchase or sale. -the main purpose is to give the government an
effective method of reducing the aggregate amount of
MATERIAL NON PUBLIC INFORMATION the nations credit resources
-if it has not been generally disclosed to the public and
would likely affect the market price of the security after PROHIBITIONS
being disseminated to the public and the lapse of A) A broker shall not extend credit to a customer
reasonable time for the market to absorb the in an amount that exceeds 50% of the current
information; market value of the security at the time of the
b)would be considered by a reasonable person transaction.
important under the circumstance in determining his B) The margin maintained in a margin account of
course of action whether to buy or sell or hold a a customer shall not be less than 25% of the
security. current market value of all securities
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