Commercial Law Review Dean Eduardo Abella: Mortgage

Updated: 2 nd Sem, AY 2014-2015 by Katz Rivera (A2015)
Commercial Law Review

Dean Eduardo Abella
First and Second Semester 2012-2013
COMMERCIAL LAW REVIEW

DEAN EDUARDO ABELLA
MORTGAGE
Governing Laws
New Civil Code, Chattel Mortgage Law, Ship Mortgage Decree (passed
during Martial Law), Act 3135
Introduction
Under the NCC (Book V), there are accessory contracts securing principal
obligations (special contracts). These include pledge, mortgage
antichresis, guaranty, and suretyship.
Definition
NCC: An accessory contract whereby property is recorded (in the register
of deeds of the city and/or province) to secure fulfillment of any valid
obligation.
An accessory contract, collateral, or security for an obligation.
They are valid only if there is a principal contract.
The function of Register of Deeds is merely ministerial. If the documents
are correct and complete, RD has no discretion in disallowing the
recording of the mortgage.
Basic Principles
1) Accessory Contract- only exists if there is a principal contract.
2) Mortgagor is the owner of thing mortgaged; capacity to
mortgage.
3) Mortgage is extinguished if the principal obligation is
extinguished.
Scope: It may be constituted over:
(1) Personal Property (Chattel Mortgage)

(2) Real Property (Real Estate Mortgage)
REM
Real Property
Includes future
obligations
Includes voidable, unenforceable, rescissible, and
natural obligations
Foreclosure
Extrajudicial only
EJ or Judicial
EJ Foreclosure No right of redemption
Right of
redemption
Registration
Deed is recorded with the RD of the
city/province where the mortgagor
resides.
Return of excess Not required
Required
Claim for
No recovery under the Recto Law.
deficiency
(NCC Art 1484 on installment sale
of personal property where the
mortgage is constituted over the
object of sale to secure the
payment of the purchase price.
Object
Scope
CM
Personal Property
Valid and existing obligation
For Recto Law to apply, mortgage

must be constituted over the object
of the installment sale.
CHATTEL MORTGAGE
Definition of Chattel Mortgage in CML (Act No. 1508)
A conditional sale of personal property (CONSIDERED REPEALED WITH
THE EFFECTIVITY OF NCC)
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Deed of CM- requires Affidavit of Good Faith

Absence of AGF, binding on parties but not to third parties.
In Jurisprudence:
There was a house that was the subject of a chattel mortgage. The
reason was that the land belonged to one person and the house to
another. The Court ruled that as between the parties, there exists a valid
chattel mortgage. Under NCC Art 1159, stipulations of parties are valid
between themselves. However, they are not binding on third persons.
Doctrine: real property may be classified as personal property, but
valid only as between the parties.
Definition
Chattel mortgage is defined in the NCC as a contract whereby personal
property is recorded in the chattel mortgage registry as security for the
performance of an obligation.
Where to Register: Residence of the mortgagor
CM is to be recorded in the RD of the City/Province where the mortgagor
resides.
There is RD for cities and province, but not in municipalities.
Registration is required to serve as constructive notice to the world. It is
not for the validity of the mortgage.
Actual v. Constructive Notice
Actual notice- even if not registered, binding to the party notified.
Constructive notice- publication, registration, public instrument; binding to
the whole world.
Examples
A resides in QC, and borrowed money. As a collateral, he mortgaged a
bulldozer located in Malolos. Where should the CM be registered?
A: Recorded in BOTH the RDs of QC and Malolos.
If the mortgaged property is a motor vehicle registered in the LTO, or
shares of stock, you should still register in RD. Registration in RD is
constructive notice to the whole world.
Practical tip: bring two copies, first to RD then have him stamp the
copy. Bring the second copy to the LTO.
Form of Registration:
Affidavit of Good Faith- a sworn declaration of mortgagor or mortgagee

that they executed the mortgage in good faith to secure a valid obligation
and not for the purpose of fraud.
Mortgagor can be the principal debtor himself or a third person who
agreed to provide the security.
Q: If an affidavit of good faith is omitted, is there a valid chattel mortgage?
A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of
registration. If there is no affidavit, it is not binding on third persons.
Affidavit of good faith may be demanded.
Q: What if mortgagor and property are in different locations?
A: Register first in the city or province where the mortgagor resides then
where the property is found.
Mortgagor may or may not be the principal debtor.
Remedies in case of default:
1. Sue for specific performance if the obligation is for a sum of money.
In filing an action for specific performance, the mortgagee abandons the
mortgage by suing the principal debtor. If suit is brought, mortgagor may
demand release of mortgage. ; or
2. Foreclose the security/mortgage under the Chattel Mortgage Law
-ABSOLUTE REQUIREMENT: Creditor must possess the thing
mortgaged because it would be sold in a public auction.
Remedies are mutually exclusive; choose one.
Q: Who may handle the EJF?
A: Sheriff or Notary public
In chattel mortgage, foreclosure is always extrajudicial.
Procedures in Extrajudicial Foreclosure:
1. Mortgagee prepares the petition for Extrajudicial Foreclosure.
2. Sheriff or Notary Public, upon receipt of the petition, prepares a notice
of EJF of CM.
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3. Post notice in at least 2 public places and a copy should be sent to the
mortgagor before the auction sale. If you do not send a copy to the
mortgagor, procedure is void.
4. [Absolutely necessary] For there to be a valid auction sale, mortgagee
should have possession of the thing mortgaged.
5. If mortgagor does not want to give possession of the property,
mortgagee can go to court and file an action for replevin.
Highest bid would cover total clams.
If it exceeds the total amount of obligation, who gets the excess? The
mortgagor.
c.
Note: Just copy the wording/form of the law.
2. Mortgagee should prepare a verified petition to foreclose the REM

extra-judicially. File it with the office of clerk of court and pay court
fees.
a. Petition must correctly describe the mortgaged property.
b. It is out of court but court fees are required to be paid by
virtue of SC Circular issued March 2000.
c. Pay filing + recovery fees (4% for first P4,000, 2% for
excess).
Sirs joke: Rulings of SC are like an ugly womanNO APPEAL."
Deficiency cannot be recovered if the transaction is covered by Recto

Law.
Remember: the story of the DOM and the GRO.
REAL ESTATE MORTGAGE

Governing Law: Act 3135
It is a special law that created the right to foreclose REM extrajudicially.
In the deed of mortgage or separate instrument, the mortgagor must
expressly authorize the mortgagee to sell the property mortgaged in case
of default.
Dragnet or blanket clause
It is a stipulation that the REM secures not only a particular obligation of
the mortgagor but all his other obligations to the mortgagee.
Procedure in Extrajudicial Foreclosure of REM:
1. The Mortgagor must expressly authorize the mortgagee to sell the
mortgaged property in case of default, either in the deed of
mortgage or in a separate instrument.
a. Example: In case of default, the bank shall be authorized
to sell, as it is hereby authorized to sell..
b. INSUFFICIENT: Banks use printed deeds of REM with
the following provision: In case of default, the bank can
extrajudicially foreclose pursuant to Act No. 3135.
According to a SC Circular, mere reference to Act No.
3135 is not enough.
3. Notice of Auction sale to be prepared by the sheriff or notary

public.
a. Notice must be posted in at least 3 public places (hall of
justice, lobby of city hall, barangay halls, public market)
where the property is located.
b. Notice of Auction Sale must be published once a week for
two consecutive weeks in a newspaper of general
circulation. Check the notice as published. If there is error
in the description of property, call the attention of the
publisher.
c. Publication is very important! If there is error in published
notice, procedure can be invalidated.
d. No need to give notice of auction sale to mortgagor
because there is publication that serves as constructive
knowledge to the whole world.
How to prove; Ask for a Certificate of Notice or Affidavit of
Publication and a copy of issue of the newspaper.
4. Auction Sale- usually the mortgagor does not appear. If
mortgagor arrives, and the mortgagor/ee signed an agreement to
postpone the auction sale on another day. Is the agreement valid?
YES! If that designated day arrives and mortgagor does not arrive
without notice, mortgagee asks the sheriff to proceed with the
sale. Can the auction sale continue? NO, the process of notice +
posting + publishing must be repeated.
Three possible results of an auction sale:
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Dean Eduardo Abella
a. Bid exceeds the amount of the obligation; the excess is

returned to the mortgagor.
b. Bid is less than the amount of the obligation: the
deficiency is recoverable.
c. Mortgagor himself is the highest bidder: there is no need
for the amount of the bid to be delivered to the sheriff or
notary public.
Note: There is no longer any requirement of having at least two
bidders.
Remedy if highest bidder does not want to pay is to file an action
for specific performance.
5. Certificate of Sale- issued by sheriff or notary public.
What to do? Register ASAP with RD because the one-year right
of redemption commences within one year from the date of
registration.
6. Redemption
Nature: Right, not a duty; it may not be forced on the mortgagor.
It is a property right arising from property.
Real property; real rights
When is tender valid? If there is tender on the full amount

in legal tender; tender by check is allowed.
What is the redemption price?
a) If there is a special law that created the mortgage and there is
an indication of redemption, then follow that.
b) If it is a bank, it depends on the law. See GBL of 2000
c) If the mortgagee is a government financial institution, look at
the law which created it.
d) If another person:
a. Bid price
b. 1% interest per month on the bid price
c. Taxes and charges paid by the highest bidder
d. 1% interest per month on the taxes and charges paid.
(SC construed this as 12% per annum, which is
wrong according to Sir)
To whom must the amount be tendered?
Highest bidder or Sheriff/Notary Public conducting the auction,
whoever is less intimidating.
If tender is refused: the remedy is specific performance. The
amount may not be consigned because for consignation to be
allowed, there must be a debt due.
Practical tip: Pay managers check if the amount is substantial.

Redemption period:
GR: 1 year from registration of certificate of sale.
Exc: 90 days or before the registration of title over the property,
whichever comes first if the mortgagor is a juridical person and
the mortgagee is a bank (GBL of 2000).
Who exercises right of redemption:
a. Mortgagor
b. His successors-in-interest
c. Judgment creditor of mortgagor
How is it exercised?
There must be a valid tender of the redemption price within the
redemption period (1 year from registration of certificate of sale).
Q: Is the right of redemption waivable?

A: No. Express waivers within the period of redemption is not
allowed because it is contrary to public policy. HOWEVER, waiver
may be done by not exercising the right.
Q: Is the right of redemption transferable?
A: Yes, either onerously or gratuitously. Redemption is a real right
over real property. The right may be inherited by succession
(gratuitously).
Q: If you were the person redeeming, and the redemption
period was going to expire on Feb 9. However, you can only
produce the money on Feb 11. Can you go to court to file a TRO
to prevent the expiration of redemption period?
A: NO. The court can only issue a TRO to prevent the auction
sale on the following cases:
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a. If the issue being raised by petitioner is that obligation has

already been paid. Attach proof of full payment of obligation.
b. If the issue being raised is that the interest being charged by
respondent is excessive. To entitle petitioner the issuance of
TRO, petitioner should pay the principal and interest at the rate of
12% per annum.
7. Acquisition of Title
When to obtain title to the property? When the period of
redemption expired without anyone redeeming the property.
How?
a. Have the sheriff or notary public issue a Final Certificate of
Sale. Bring the title with annotation.
b. Execute an Affidavit of Non-Redemption, which is less
expensive than the first (allowed under the Property
Registration Decree).
c. Pay BIR the taxes upon the expiration of the redemption
period.
The BIR requires: (1) Certificate Authorizing Registration; and (2)
Tax Clearance Certificate.
a. DST- within 5 days from the month following the
expiration of the redemption period.
b. CGT/Withholding taxes- 30 days from expiration of
redemption period.
c. VAT
d. Transfer taxes of LGUs
What is the tax base?
Tax base- either the bid price or the market value appearing in the
tax declaration or the BIR valuation, whichever is highest.
Period to pay taxes is provided in the NIRC.
8. Possession of Property
File an ex parte motion for the issuance of writ of possession to
get possession of the property.
GR: Ministerial duty of the court BUT if filed before the end of the
redemption period, a bond is required.
Exc: not ministerial if there is another person with a better right
(i.e., Lessee)
Required: Good faith of applicant. The applicant must look into
the (a) TCT; and (b) rights of the current possessor to qualify as a
buyer in good faith. Otherwise, he will not have a right of
possession.
New buyer in good faith doctrine: Looking at certificate
of title is no longer enough. You must look at the right of the
person in actual possession of the property. Failure to do so does
not qualify one as a buyer in good faith.
(1) Get photocopy of TCT
(2) Verify with RD
(3) Go to property for ocular inspection.
Example
A borrowed from bank, executed a REM, and issued post-dated checks.
The bank sued A for BP 22.
Remedies of bank are:
1) Action for civil collection;
2) BP 22
3) Foreclosure
IMPORTANT: Filing of BP 22 is an abandonment of the mortgage.
Practical tip: Attach all certified true copies of documents in the petitiontitle, deed of mortgage, final certificate of sale or affidavit of nonredemption, BIR clearance (tax clearance, CAR), and local tax clearance
from treasurer.
Practical tip: When RD issues Certificate of Title, he issues at least 2
copies, the original and the owners copy. There are at least 2 because
co-owners may each want a copy of the certificate of title. If you are
buying from co-owners, you must get all other copies so that they may be
annotated.
Nature:

Dean Eduardo Abella
TRUTH IN LENDING ACT

Purpose of the Law
To let the person borrowing money or buying goods on credit or
installment know the actual cost in money of the credit.
History
When cost of money had gone beyond a profitable rate and the interest
was also subject to the usury law, banks thought of other ways to make
money. Banks started charging different fees to avoid the usury law. In
effect every move by the bank had a price (processing fee, application
fee, appraisal fee). Thus, the law obliges lenders to fully disclose all
charges before the consummation of the transaction.
Disclosure statement
It is that written statement required to be delivered before the
consummation of the transaction by the person lending money to the
debtor.
SC did not allow Solidbank to collect amount because the

additional charges were not indicated in the promissory notes.
In 2009, there was another case where the fees where included in
the promissory notes but there was no delivery of disclosure
statements. Collection was not allowed.
2. BPI v. YU (2010)- the stipulation on the financial charges was not
included in the disclosure statement. However, it was included in
the promissory note, which was signed at the same time as the
disclosure statement. SC allowed the charging of the financial
charges.
DOCUMENTS OF TITLE
Governing Laws
NCC on Sales, Code of Commerce, Warehouse Receipts Law
Contents of Disclosure Statement/ Breakdown of charges:

1) Cash price less down payment= amount to be financed
2) Payable in xx installments
3) Total amount to be paid in installments
4) Total cost
5) Other charges
Definition
An instrument or document or a sheet of paper wherein the bailee
acknowledges goods and undertakes the obligation to deliver such goods.
Regulating body
Monetary Board of the BSP is the body that oversees the implementation
of the law. Violation of the Act is a crime. Penalty is fine of P100 to P2000
and imprisonment of at least 1 month but not more than 5 years.
Difference with instruments under the NIL:

1) Coverage: NCC covers GOODS to be transported or safely kept.
NIL covers sums certain in money, except other properties that
may also be covered.
2) Modes of Indorsement: In DOTs, indorsements must be in BLANK
or SPECIALLY. In NIL, it may be blank, especially, conditional,
qualified, or restrictive.
2 cases:
1. Solidbank- Solidbank extended a credit line of P200k to a client,
not just as an ordinary loan but also as a standby source of funds
which earns no interest unless it is drawn. When the borrower
draws money, the credit diminishes and he pays only what is
actually received. But there were accumulated service fees, which
were not made available to the borrower.
Credit Line- when bank sets aside a certain amount for
client that client may draw on at any time.
When you have in your possession this documents, it shows ownership of

the goods.
Examples
Bill of Lading, Warehouse Receipt, Quedan (for rice, sugar, or tobacco)
Who issues D/Ts?
Common carriers- Bill of Lading
Warehouseman- Warehouse Receipt
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Forms of D/Ts
1) Negotiable; or
2) Non-negotiable form.
If there are words of negotiability (i.e., holder/ to bearer/possessor"), it is
negotiable.
Q: Whats the reason behind negotiability of documents of title?
A: To facilitate commercial transactions.
Q: How may a document of title be negotiated?
A: If considered an order document, the holder must indorse and deliver
If it is a bearer document, the holder may simply deliver.
Kinds of indorsement:
1. In blank; or
2. Specially (holder signs his name)
Q: What if it contains deliver to bearer but with a red stamp in big font it
is also indicated NON-NEGOTIABLE?
A: It is negotiable even if the bailee intends it to be non-negotiable, as
long as it contains words of negotiability.
How to Negotiate Documents of Title
1) To Order Instruments: Indorsement (Blank or Special) AND delivery;
2) To Bearer: delivery only
If originally to bearer, then specially indorsed and delivered, the transferee
must also negotiate by endorsement and delivery.
NOTE: Once it has been specially indorsed, negotiate by indorsement
and delivery all the time thereafter. EXCEPT if the last indorsement is in
blank, then just deliver it subsequently.
DIFFERENCE WITH NI: Indorsement in a bearer NI has no effect.
Rule: At any time that a document of title is specially indorsed and
delivered, the present holder who wants to further negotiate it, should
indorse and deliver.
If last indorsement is an indorsement in blank, the present holder can just
deliver.
BILL OF LADING
Governing Law: Code of Commerce
It is issued by a common carrier.
Kinds:
1) Bill of Lading- common carrier of goods by water
2) Waybill- by trucks on land
3) Airwaybill- by aircrafts and airlines
Form of BOL:
1. It must be printed.
2. It must contain the complete name and address of the printer.
3. It must contain the telephone number of the printer.
4. It must contain the TIN Number of the printer.
Are the printed stipulations in the bill of lading limiting liability of the
shipper valid? YES
Functions of bills of lading:
1. Serves as a receipt (after delivery of goods);
2. Serves as written contract; and
3. Stands for the goods mentioned therein.
Content of Bill of Lading (Code of Commerce):
1) Complete name and address of consignor/shipper (Usually
seller).
2) Complete name and address of consignee. (Buyer)
3) Complete name and address of the carrier/shippee (NCC).
(Common Carrier)
4) Complete description of goods including marks and markings,
e.g. number on crates, names in pomelo crate from Davao
5) Amount of fare
6) Stipulations on limited liability
Nature: Contract of Adhesion but it is not prohibited; it is only
interpreted against the party who cause the ambiguity.
Q: Are printed stipulations on Bill of Lading binding on the shipper even if
the shipper does not sign?
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A: GR: Yes. A contract is perfected by mere consent. Here, consent is

implied even if it is signed only by the carriers representative.
Exc: There is no consent if print is too small that the shipper could not
have read it as in the Shewaram Case.
A contract of carriage is a consensual contract.
Rules: If value of goods is greater than the amount stipulated, consignor
must: (1) declare true value; and (2) pay the fare corresponding to true
value.
Effect of Issuance of a B/L: Disputable presumption that the carrier
received the goods. It is not conclusive.
WAREHOUSE RECEIPT
Governing Law: General Bonded Warehouse Act governs the conduct
and business of warehousing.
Who issues WR? Warehouseman
Requirements for Issuance:
1. Annual license from DTI Director/Bureau of Customs
2. Bond must be posted before the issuance of a license to answer
for damages to goods suffered while the goods are in storage.
The bond is coterminous with the license (33 1/3%).
3. Insurance against fire over all the goods stored in the warehouse.
If the warehouseman issues more than 1 copy of a negotiable warehouse
receipt, he should indicate in the copy that it is merely a copy. Otherwise,
he is liable to a third person who received it in good faith and for value as
though the possessor is holding the original.
Q: Is there a prescribed minimum area for warehouses?
A: None.
Q: What is its difference with a customs-bonded Warehouse?
A: WH is licensed and bonded, while a customs-bonded WH is a facility
by importers of raw materials.
Negotiability of WH Receipts
A warehouse receipt is negotiable or non-negotiable.
Q: What is the effect of negotiation of warehouse receipt?
A: Through negotiation, the transferee acquires the direct right to deliver
the goods to him, provided the following conditions are met:
1. Person claiming the goods should satisfy first all the liens of the
warehouseman.
2. He must surrender the original warehouse receipt.
3. He must express willingness to sign the receipt upon delivery of the
goods to him.
Liens of the Warehouseman
Nature: Possessory and waivable by parting with the goods
1) Storage fees
2) Other arrangements with the depositor, e.g. premium and interest
for additional insurance coverage (additional because
warehouseman is only obliged to insure the goods against fire).
3) Cost of packaging and repackaging (though the latter is illegal).
Q: What if the original warehouse receipt is lost, what should the claimant
do?
A: Claimant shall have to go to court, prove his rights, then the court will
order the warehouseman to release the goods. Claimant may be required
to post bond.
In practice, claimant merely deposits bond and executes an
affidavit of loss.
Q: Whats the obligation of the warehouseman after getting back the
original warehouse receipt?
A: Warehouseman should cancel the original receipt so that it would not
fall in the hands of another in good faith and for value. If it falls in the
hands of a third person in good faith and for value, warehouseman is
liable to such third person.
Q: May goods covered by a document of title be levied upon an
attachment for execution?
A: Yes

Dean Eduardo Abella
BULK SALES LAW

Sir: This is not part of the coverage of the bar exams but very important in
practice.
Purpose of the Law: To protect creditors from fraudulent schemes of
their debtors.
Acts Covered and Regulated:
1. Covers actual sale but also assignment, mortgage or other forms of
transfer of all or substantially all stock of goods, wares, or merchandise
other than in the ordinary course of business.
2. Sale, assignment, mortgage, or other forms of transfer of all or
substantially all of the businesses of a person, the business/es
themselves.
3. Sale, assignment, mortgage, or other forms of transfer of all or
substantially all of fixtures and equipment used in the conduct of
business.
Why all or substantially all: These are extraordinary transfers
Note: Not every sale is covered. Sale in the ordinary course of business is
not covered, e.g. if all goods were sold while engaged in the wholesale
SECRECY OF BANK DEPOSITS ACT

(R.A. No. 1405)
Purpose: To encourage people with money to deposit in banks and
promote national economy.
Bank Secrecy Law
It is illegal for any bank officer or employee to disclose any information
relating to any deposit in current, checking or savings account, including
investments in government securities. Applicable only to peso accounts.
Exceptions:
1. When there is written authority from the depositor himself.
2. In cases of impeachment.
business.
Requirements: Must be strictly complied with. Otherwise, sale is void.
1. Notify all creditors in writing of the intended transfer at least 10
days before the intended transaction.
2. Deliver to the prospective transferees a sworn statement stating
the full names and addresses of creditors and the amounts due
them.
3. Furnish a copy to the Director of the Bureau of Commerce/Bureau
of Domestic Trade a copy of the sworn statement.
Note: Transfer without complying with the requirements is void (as far as
the defrauded creditors are concerned) even if the buyer acted in good
faith; in such case, the buyer is considered a trustee.
If no creditor complains, the transfer shall nonetheless be valid
between the transferor and the transferee.
Exemptions from Requirements:
1. Judicial sales (execution, assignee in insolvency)
2. Sales or transfers of property exempt from execution
3. Sale by manufacturer of his own products (produced by debtor
himself) in the ordinary course of business
4. Express written waiver by the creditors
SC: Sale of a foundry shop (Horseshoe maker/metal fabricator)
3. Court order in case of bribery, dereliction of duty of public
officials, or violation of anti-graft and corruption practices act.
4. Where the deposit is a subject matter of a litigation.
Exceptions on other special laws:
1. Anti-money Laundering Act
2. Upon examination of the books of banks by the BSP.
3. Examination of books by an independent auditor.
4. Unexplained wealth under the Anti-Graft and Corrupt Practices
Act
5. Upon inquiry by the CIR for the purpose of determining the net
estate of a deceased depositor
6. Dormant deposits for at least 10 years under the Unclaimed
Balances Act
7. Upon order of the CA, examination of law enforcement officers
in terrorism cases under the Human Security Act.
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Foreign currency deposits have absolute prohibition.

All deposits in banks are insured with the Philippine Deposit Insurance
Corporation (PDIC).
Money just kept at home is unproductive as far as the person and
economy is concerned.
Example
P1M- you decided to keep it at home for 1 year. The amount would not
change after a year. However, you lose because of inflation. The national
economy also lost.
Possible contributions to the economy:
1. When you deposit your P1M with a bank, it earned a 1% interest,
subject to 20% withholding tax.
2. Bank would lend your deposit, but not the entire amount.
3. Gross receipts tax paid to the BIR.
NEW CENTRAL BANK ACT

First CB- Central Bank of the Philippines (1948)
New CB- Bangko Sentral ng Pilipinas (1993)
Purpose of Law: Because of the bankruptcy of the Central Bank, the
BSP was created. It has a corporate existence and is managed by the
Monetary Board which has 7 members.
Member of the Monetary Board:
1. BSP Governor- after his/her term, cannot serve in any capacity in
any corporation supervised by the Monetary Board for 2 years
2. Cabinet Member- usually the Secretary of Finance, but during the
term of PGMA, she appointed the Secretary of Trade and
Industry.
3. Five full-time directors from the private sector-so that the BSP will
not become a dumping ground of political lame ducks. Private
sector representatives need not necessarily be form privately
owned corporations. They may come from GOCCs such as the

DBP, SSS, and GSIS, but the appointment is staggered for a 6year term.
Terms: 6 years; re-appointment allowed but only once for a total of 12
years.
Monetary Board- policy-making body
Quorum- 4 members
Resolutions of the Monetary Board must be approved by at least 4
members.
If BSP Governor cannot attend a meeting, he should send one of his
deputy governors. If the cabinet member cannot attend, he should send
one of his Undersecretaries.
Note: Monetary board has to meet at least every other week to closely
monitor the economy (esp. money supply).
Money
It has a universal definition: any medium of exchange. Anything can be
money.
Currency
Its definition is found in NCBA: It is the notes and coins (1) issued by the
BSP and (2) are in circulation.
The official name of our money is Peso but in our notes and
coins, what is indicated is Piso". There are 2 other countries that use
Peso: Argentina and Mexico.
P- official symbol
Centavo- a unit of a peso (c)
In circulation means outside the volts of BSP.
Legal tender
It is the currency in such quantity prescribed by law to be acceptable in
payment of all obligation.
Sir: Lahat ng notes issued by the BSP are legal tender."
All Philippine notes are legal tender for all obligations. However, coins are
legal tender only up to a certain amount.
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Dean Eduardo Abella
A Monetary Board Circular changed the amount of what may be legal

tender for coins. All centavo coins are legal tender up to P100 while all
one peso coins are legal tender up to P1000. Contrast this with the law
which states that for coins worth 10 centavos or less, they are legal tender
only up to P20, while coins worth 25 centavos are legal tender only up to
P50.
The life of a note is estimated to be 5 years, but in Metro Manila, it is
merely 1 year. If the estimated life is over, it is withdrawn and
demonetized, i.e. it loses the character of money.
The year in front of the coin is the year it was minted. The year at the back
is the year the BSP was established.
Money supply- It is the money in circulation, including foreign money.
Note: If there is too much money in circulation, there would be inflation. If
people have a lot of money to spend, they would buy a lot of things.
Demand exceeds supply, prices go up.
Inflation, to a certain extent, is good for the economy. 5% per annum.
Deflation is bad!
BSP- It is the bank of banks.
Every note is a liability of the Philippine government.

Q: What are required for the replacement of damaged notes?
A: (1) There must still be at least 3/5 of the note;
(2) At least 1 complete set of serial numbers;
(3) At least 1 signature left;
(4) No sign of intentional defacement.
Note: It is a crime to write on a note, for which you can go to jail.
Q: What are required for the replacement of damaged coins?
A: No sign of filing, clipping, or perforation.
Sir: "Actually coins can last forever."
TRIVIA
Coins are minted and notes are printed by the BSP.
Production is local but materials are imported. Notes are
not paper, they are cloth. The cost of producing our
currency is very high.
There are 2 sets of serial numbers in our notes: lower left
and upper right. The notes also have 2 signatures on them,
one belongs to the BSP Governor, and the other belongs to
In case of possession of damaged coins, the possessor is presumed to
have caused the damage.
Functions of BSP:
1. Manage money supply
2. Issuance of money and coins
3. Bank of banks- supervision over the banking system.
4. Buys precious metals
Reserve Requirement- percentage or a portion of deposit-liabilities of
banks which are needed to be deposited with BSP.
Time deposits- 20%
Savings- 23%
Checking accounts- 25%
Purposes of RR:
a. For servicing withdrawals.
b. Its a tool that BSP uses to manage money supply (notes and coins
in circulation).
Q: Why do you need to manage money supply?
A: To control prices because of law of supply and demand.
c.
So that the BSP would

rediscounting window facility.
have
money
available
for
Rediscounting facility- a bank borrows from the BSP using as collateral

its receivables from its borrowers.
Deposit-liabilities- everything deposited in a bank. Bank records it as
deposit-liabilities.
Inutang sa atin ng bangko ang mga deposits na yun."
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Dean Eduardo Abella
GENERAL BANKING ACT OF 2000

Bank- a corporation authorized by the Monetary Board to accept deposits
from the public and to grant loans.
Types of banks:
1. Universal banks
2. Commercial banks
3. Thrift banks
a. Savings and Mortgage Banks
b. Private Development Banks
c. Stock savings and Loan Associations
4. Cooperative banks
5. Rural banks
6. Islam Banks
Commercial Banks (KB)
Functions:
1. Banks which accept deposits subject to withdrawal by checks;
accepts deposits in checking accounts.
2. Opening of letters of credit
3. Engaged in allied enterprises
4. Exercise the powers of a corporation.
Checking/current account/demand deposits/commercial deposits- same
As a matter of right, only commercial banks should accept deposits in
checking/current/commercial accounts/demand deposits
1) May issue letters of credit
2) Lend money
3) Trading of government securities
4) Foreign transactions
5) Safety deposit box
Ownership of Other Banks
KB can own 100% of another KB. There is no limit on the number of

smaller banks it can own.
Why: To encourage merger or consolidation.
Commercial bank limit is 35% of equity, but still with a maximum of 25%
per industry.
Universal Banks
Nature: KB + Investment house
Licensed to engage in quasi-banking functions.
Quasi-banking= investment house
Investment house- a corporation licensed by the Monetary Board to
engage in rediscounting of receivables as well as underwriting of
securities.
Ex. of Investment House- SIHI
Rediscounting of receivables- one entity goes to an Investment
House and, as collateral, pledges its receivables. (Ex. Business sells on
credit and needs capital again, so it borrows from an investment house)
Underwriting of securities- committing on a firm basis to raise
the amount needed by another corporation. Get SEC approval first, then
have them sold by securities underwriters.
Functions and Powers:
1) To accept deposits subject to withdrawal by check.
2) To open letters of credit.
3) To engage in business of investment house.
4) To engage in allied or non-allied enterprises (Non-allied
enterprises have nothing to do with banking).
5) To sell life or non-life insurance policies
Example of non-allied enterprises: Universal banks can sell insurance
policies of any insurance company in which they own 5% of the equity.
Note: In the GBA, it is stated that banks cannot engage in the business of
selling insurance policies.
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Dean Eduardo Abella
BANCASSURANCE- activity of universal banks selling insurance policies

of insurance companies under present rules in which they own 5% of the
equities.
Sir: malaki ang kita ng nagtitinda ng insurance!
The law allows a universal bank to own 100% of another universal or
commercial bank.
Islamic Banks
Very different from banking practices that we know. In mainstream
banks, to attract deposits, these banks offer interests. However, interest is
immoral in Islam.
Note: There is only one, owned by the government; the DBP as a
controlling stockholder. (Al Amana Bank)
Controlling interest in stock corporations- at least 2/3 of the shares
Thrift Banks
Kinds:
a. Savings and Mortgage banks- retail banking; a bank that accepts
deposits from small depositors for purposes of home building. Any
amount would be acceptable.
Note: banks prefer big depositors as maintenance costs are the
same.
b. Private Development bank- a bank bigger than rural bank but
capitalized much less than savings and mortgage bank. Peculiarity: if
it needs additional capital, it can invite DBP to invest in it.
c. Stock savings and loan associations-Theres also a non-stock, but it is
not a bank. For non-stock, members contribute money which can be
withdrawn any time the member wants, corresponding to the
proportion contributed. Stock savings can accept deposits from the
general public. For non-stock, it can accept deposits from restricted
group of persons. (Example: AFPSLAI, restricted only to AFP, PNP,
and their family members; MESALA, for Meralco employees including
the Lopez group)
Cooperative Banks
Definition: It is set up and owned by cooperatives. There are no
individual stockholders; all are cooperatives. Under cooperative office, but
bank is under the BSP.
Rural Banks
Definition: They are organized to provide banking services in rural
communities.
Lending Money
Q: If I would like to borrow from a bank and I have a lot of collaterals to
offer, can I borrow any amount as long as I can secure it?
A: No! Single Borrowers Limit- 25%; limit which can be borrowed by a
natural or juridical entity from a bank
Q: What is the remedy for SBL?
A: Syndicated Loans where loans from several banks are obtained.
Loans must be secured by real property; however, according to Section
37, the maximum amount that may be lent is 75% of the appraised value
of the land. If it has improvements, improvements must be insured.
Exc: exempted loans
Q: You have a lot of shares in a bank that you can be elected as a
director. Can you elect yourself?
A: No, under the GBA of 2000 for anyone to be a bank director or officer,
that person must pass the fit and proper rule.
Note: The Monetary Board has issued a circular regarding the
qualifications to be a bank director. Must be a college graduate.
Note: GBA of 2000 strengthens the bank secrecy law by obliging banks to
hire employees on a permanent basis.
Q: May a director of a bank borrow from that bank?
A: Yes, requirements:
1. Comply with the requirements of the Corporation Code for a valid
contract between a director and the corporation to which he belongs to.
(Quorum without counting his presence, contract must be approved by
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Dean Eduardo Abella
majority of the quorum without counting his vote, and terms and
conditions must be fair and reasonable).
2. Director is also subject to the SBL.
Q: May an officer of a bank borrow from that bank?
A: Yes, under the same conditions as a director except: when the bank
already has a loan program for its officers. In such cases, all the director
has to do is to qualify under the said program.
Regulation of Banks
Under the law, only corporations under supervision of the Monetary Bank
may use Bank or Banking in their corporate names.
Banks should not acquire treasury shares of its own. If they do, they
should get rid of them in 6 months.
Under the GBA, a bank should publish their financial statements every
quarter.
Clearing House BSP Lending facility for the purpose of collecting
checks drawn on one bank but deposited in another. It is where banks
swap checks they received drawn on other banks. Physically, there is no
cash involved, but transactions recorded.
Ex. A depositor of BPI Katipunan deposited checks from other
banks such as Metrobank and Allied Bank.
Under present rules, if within 24 hours a bank dishonors a check, check
should be returned or else considered cleared.
BSP Circular: Banks should not engage in unsafe banking practices. The
Monetary Board can close or order the suspension of a banks license
when it engages in unsafe banking practices.
Close now, Investigate later
Banks cannot declare dividends if clearing house account is overdrawn.

There is only movement of cash if clearing house account is overdrawn.
Before any bank can put up a branch or install an ATM, it must first seek
approval from the Monetary Board.
PHILIPPINE DEPOSIT INSURANCE CODE
All banks should be organized as a stock corporation and comply with the
requirements of the Monetary Board for licensing. Before a corporation
can be organized, it must go through the MB. After the requirements are
submitted to the MB and completed, there must be endorsement by MB to
SEC, which then has a ministerial duty to register it.
There is paid-up capital required by the Monetary Board. There is a period
increase in paid-up capital in order for banks to be more stable.
Q: How many directors may a bank have?
A: 5-15; if consolidated, it may have a maximum of 21.
There must be two independent directors who are neither officers nor
employees of the bank.
Treasury Shares- shares already issued by a corporation but which
shares a corporation re-acquires in its own name.
Sir: This is not part of the coverage of the bar exam.

History
PDIC was created during the 1960s when a lot of banks were closing. To
restore faith in banking, the Uniform Currency Act was repealed and the
PDIC was created.
The law insures only deposit-liabilities of banks, not any other investments
even if made with or through a bank. It excludes money market
transactions, and marginal deposits.
Financial Market:
a) Money Market- a source of funds where repayment period is less
than 1 year.
b) Capital Market- a source of funds where repayment period is
more than 1 year but not exceeding 5 years.
c) Bond Market- repayment period is more than 5 years.
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Dean Eduardo Abella
Money market placements are transactions through bank but bank is not
a borrower. Borrowers are other corporations that need to borrow for a
short time. On the other hand, normal loans take time. Bank is an
intermediary between the borrower and lender in the Money Market
Placement.
Money market placements are not insured by the PDIC. Why? They are
not deposits but investments. There is no debtor-creditor relationship.
Maximum Indemnity
P500,000 per person per bank in the Philippines, whether in Philippine or
foreign currency. If it is a foreign currency deposit unit, indemnity amount
in pesos on the day the bank is ordered closed.
Joint accounts: deposits in the name of more than one person. The law
presumes that deposits in such account are owned equally by the
depositors. Joint accounts are now insured separately, subject to the
same (P500,000).
Kinds:
1) and- all depositors must sign withdrawal slip
2) and/or or or- Any of the depositors may do an over-the-counter
withdrawal
Examples:
Sir
JA of Sir + Wife
JA of Sir + GF
Amount recoverable
by Sir
Sir
JA of Sir + Wife
JA of Sir + GF1
JA of Sir + GF2
Amount recoverable
by Sir
P490k
P500k
P500k
(490k + 250k+
250k) P990k
P490k
P500k
P500k
P500k
P990k
LETTERS OF CREDIT
Definition:
A letter addressed by a merchant to another merchant to enable the
person named in the letter to attend to a commercial transaction.
Example:
A and B are both suppliers of dilis. A, who sells in Caloocan, was asked
by B, seller in QC, where he got his supplies of dilis. A answered from
Malabon. B then asked if he got it from sale or loan, A answered from
loan. B asked As help to also get dilis from the same supplier through a
loan. So A made a letter:
Dear Malabon Supplier, please extend credit to B for the dilis he will
get.
Beneficiary- B.
Parties Involved in L/C
Person writing the letter- should be a merchant
Person to whom the letter is addressed- should be a merchant
Person named in the letter- beneficiary (need not be a merchant)
Requirements to be a merchant for natural persons:
a) At lest 21 years old (now it is 18 y.o.)
b) With capacity to engage in commercial transactions and regularly
engage in such transactions
Requirements to be a merchant for juridical persons:
a) Organized according to law
b) SEC Certificate of Registration
c) Regularly engaged in commerce; involves habituality
Who issues L/Cs? Commercial banks as a general rule are allowed to
issue L/Cs, but the Monetary Board may allow other banks to issue L/C.
How do L/Cs work?
1) Buyer and seller are insecure
2) Buyer goes to the full service branch of a bank to open a L/C in
favor of the seller
3) Bank requires a marginal deposit (amount required by banks for
the purpose of opening L/C
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Dean Eduardo Abella
4) Bank remits the amount to the seller only after the seller presents
proof of delivery.
Requirements to be a L/C:
1. The name of the person to whom credit is extended shall be stated.
2. The amount of credit or maximum amount of credit to be extended to
the beneficiary should also be stated.
Note: If both requirements not met, only a letter of recommendation.
Code of Commerce, Article 568
The essential conditions of letters of credit shall be:
1. To be issued in favor of a determined person and not to order
2.
To be limited to a fixed and specified amount or to one or more
undetermined amounts, but all within a maximum, the limits of which must
be stated exactly.
Note: Those which do not have one of these conditions shall be
considered as mere letters of recommendation.
Kinds:
1. Domestic- when all the parties are in one country.
2. Foreign- when the parties are in different countries.
Who are liable to whom?
Maker becomes liable to the addressee.
The beneficiary becomes obliged to the maker.
A L/C cannot be issued in negotiable form. Must be issued to a named
person.
Example:
A has a supermarket in which he sells dried mangoes. Dried mangoes are
bought from a middle man (distributor). A wants to sell more for the same
price. So A went directly to the manufacturer, instead of the distributor. A
will ask manufacturer if he can pay through LOC + BPI Cebu. A will go to
BPI near him and will open a LOC. A deposits money with BPI (marginal
deposit; the amount required by a bank to be deposited with it for the
purpose of opening a LOC). BPI Manila will call BPI Cebu informing them
that a LOC was opened by A, and telling BPI Cebu to advise
manufacturer to ship the order of dried mangoes. Upon shipment to a

common carrier, money will be paid to manufacturer.
Bank earns from LOC thru service fees.
What is the benefit of L/Cs to banks?
Service fees and interest on advance
In a L/C, there are three principal contracts:
1. Contract of sale between buyer and seller
2. Application for L/C between buyer and bank
3. Contract to deliver D/T between seller and bank
For foreign LOCS, there are 4:
3 contracts + Contracts between correspondent banks
Doctrine of strict compliance: to enable the correspondent bank to
collect its LOC, it must strictly comply with the requirements of local
banks.
TRUST RECEIPTS
Example:
A is a merchant and has been dealing BPI which facilitates its
transactions. BPI tells A that he does not need to put up 100% marginal
deposit; 60% is enough. If A orders P300k worth of goods, A can now
deposit P180k, not the entire value. However, A has to pay interest
because in effect BPI will advance money for A.
Bank earns service fee + interest.
When bill of lading arrives in Manila, A first need to pay service fee +
amount advanced by BPI + interest before he can claim the goods. If A
cannot pay, A will have to sign trust receipt.
Trust Receipt Transaction
The entruster, who has security interest in those goods, entrust the goods
to the entrustee so the latter can sell the goods, and from the proceeds of
sale, the entrustee agrees to remit the amount owing to the entruster
within an agreed period. If the amount cannot be remitted within the
agreed period, entrustee will return the goods.
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Dean Eduardo Abella
Undertakings of entrustee:
1) To sell the goods and within the proceeds, remit the entire amount
owing to the entruster within the period stipulated. The proceeds
mentioned include profits as long as there is still an amount owing
to the entruster.
2) If goods were not sold, return the goods within the period
stipulated.
Theoretical owner of goods: entruster, because it advanced the amount of
the goods.
Effect of Returning Goods to Entrsuter
The entrustee has the option of returning all of the goods to the entruster
if the due date is near and the latter has not yet sold the goods to avoid
prosecution for estafa. In this event, the bank would be the one to sell the
goods and deduct the proceeds from the debt of the entrustee.
Note: Returning the goods does not extinguish the obligation
Why is there a need for the Trust Receipts Law?
The bankruptcy of banks became rampant because of their failure to
collect from borrowing importers who did not remit any amount to the
banks after they have claimed the goods. The P.D. regulating trust
receipts was made to protect the banking system.
Q: If goods were lost due to highjacking, fire, fortuitous events, etc, who
bears the loss? While the goods are in the hands of the entrustee, who
bears the loss?
A: The entrustee is obliged to insure the goods covered by the trust
receipts against all risks.
Q: To what extent shall the entrustee be obliged to remit to the entruster?
A: Only to the extent of the amount owing to the entruster.
If entrustee has remitted the entire amount owing to entruster, goods and
excess of proceeds belong to entrustee.
COMMON CARRIERS
Definition
Q: A, who has a supermarket, has the dried mangoes. B, a customer of

dried mangoes, bought dried mangoes which were contaminated. Who
can be sued?
A: Manufacturer! Rule on strict liability; but A is a necessary party.
Q: A (entrustee) sold defective goods to B. Who should B sue, the
entruster who is the theoretical owner of the goods or A who is the seller?
A: A, because he is the seller in the contract of sale. Therefore, it is he
who made the warranties under such contract.
Liability under the Trust Receipts Law
Under the PD on Trust Receipts, violations are punishable under Art. 315
of the Revised Penal Code, which makes the violator criminally liable.
Whatever stipulations may there be in a contract, if it contains the two
undertakings of the entrustee, then it is a trust receipt.
Q: A makes leather. B makes handbags and shoes. B came to A and
suggested an arrangement wherein A will deliver leather to B, B would
make it into handbags and shoes. The finished products would be sold by
A and B. Can there be a trust receipt transaction in this case?
A: Yes, expressly provided by law. Who owns the handbags and shoes? A
owns them!
In the absence of any agreement, the owner of the raw materials
is the owner of the finished product.
In banks, the transaction is often called an L/C-T/R line because of the
interrelation of the 2 transactions.
Credit Installment Sales
It is the use of Trust Receipts but is not a trust receipt by provision of law
because the buyer did not intend to sell the goods sold but to personally
use it.
Effect: No criminal liability, civil only.
It is a person or a group of persons who is regularly engaged in the
transportation of goods, or passengers, or both, offering its services to
the public for compensation.
A common carrier is free to choose what to transport.
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Dean Eduardo Abella
It may be goods only (LBC, JRS, etc), passengers only (city bus
operators, taxi cab operators, tricycle operators, etc), or both goods and
passengers (shipping companies and airlines).
The choice is with the carrier.
2) Common carriers transporting passengers should transport

them with utmost diligence of a very cautious person.
What is the public?

SC: Public could be just a narrow segment of the public, not necessarily
the general public.
When to exercise the standard of care

General rule is when the goods are unconditionally placed at the
disposal of the common carrier, and until the goods shall have been
delivered to the consignee or until the consignee has been informed of
arrival of the goods and given a reasonable opportunity to claim the
goods.
Example: Lechon delivered from Cebu via PAL. Upon arrival in
airport, it was transferred to the warehouse. Should PAL still exercise
extraordinary diligence upon arrival in warehouse of PAL? Yes.
Example:
Case involving pipeline operators: First Philippine Holdings set up a
pipeline from Batangas to Manila. It only had 2 customers: Shell and
Caltex. LGU attempted to impose tax on pipeline operator.
SC: carriage is synonymous with transportation so when you transport
goods form one point to another, that is carriage. If the services are
available to those who want to avail of it, then it qualifies as a common
carrier, even if it only has 2 customers at present.
Customs broker- a person who works for the release of the goods;
middleman; intermediary in dealing with Bureau of Customs.
Test: whether or not the services are available to those who want to
avail. If yes, it is a common carrier.
For compensation
UNTV has two buses plying the Monumento-Baclaran route and vice
versa. Public can avail of it if they want to. Is it a common carrier?
No, because there is no compensation.
Q: Transporting stranded passengers, charging P100/head. Does it
qualify as common carrier?
A: No, not regularly engaged in transportation of passengers. It is only a
private carrier.
A common carrier may at certain times be considered as private carrier.
Example: City buses chartered by a certain group on an agreed day.
Required standards of care
1) Common carriers transporting goods should transport them with
extraordinary diligence.
Transportation of goods
Exception: When the shipper exercises the right of stoppage in

transitu.
Q: In case of stoppage in transitu, what is the relationship of the common
carrier to the shipper?
A: The common carrier is merely a bailee where the diligence required is
only that of a good father of a family.
Exception to the exception: extraordinary diligence if the shipper
asks for delivery back to himself.
Q: Is the common carrier an insurer of the goods against all risk relating
to transportation?
A: No. Law provides 5 circumstances that may exempt common
carriers from liability:
1) When the proximate and only cause of loss of damage is storm,
lightning earthquake, or other natural calamity; or
2) When the proximate and only cause of loss of damage is an act of
public enemy in times of war, whether civil or international; or
3) When the proximate and only cause of loss of damage is an act or
omission of the shipper himself; or
4) When the proximate and only cause of loss of damage is the
character of the goods, or defect in the container or packaging; or
5) When the proximate and only cause of loss of damage is an order of
competent public authority.
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Dean Eduardo Abella
SC: Additional requirement: that the carrier did not incur unnecessary
delay in the prosecution of the voyage.
Note: The carrier should not have committed an improper deviation. If
deviation was proper, even if there was delay, carrier is not liable for the
damage.
Rules to remember:
1) If the loss or damage was in the occasion of any of the 5
circumstances, common carrier is still under obligation to prove
that the proximate and only cause was any of these 5
circumstances. Prove also that there was no unnecessary delay
in transporting.
2) If the cause is not one of the 5 circumstances, it does not make
the common carrier automatically liable. But burden of proof is
on common carrier to prove that he exercised extraordinary
diligence.
3) If proximate and only cause is one of 5, is there no chance that
the shipper can recover damages for the loss? There is still
chance for shipper to recover damages but burden of proof is on
shipper to prove that the common carrier failed to exercise
extraordinary diligence.
It is just a matter of shifting the burden of proof.
Q: May a common carrier and shipper stipulate a standard less than
extraordinary diligence?
A: Yes, under the following conditions:
1) Stipulation in writing and signed by both parties.
2) Supported by a consideration other than the promise to transport
Usual consideration: to give a discount to the fare.
3) Stipulated standard of care must not be less than that of a good father
of a family.
4) If there are other stipulations, they must be fair and reasonable.
In every bilateral contract, there are 2 considerations/prestations
(promise of one party to do something for the other). Carriage is a
bilateral contract. Therefore, there are 2 considerations:
1) With respect to the shipper, the promise of carrier to transport the
goods.
2) With respect to carrier, the promise of shipper to pay the fare.

Standards of care in order (from highest to least):
1) To transport passengers safely with utmost diligence of a very
cautious person.
2) Extraordinary diligence
3) No name- what can be stipulated
4) Diligence of a good father of a family.
Note: The shipper also has the obligation to minimize damage to itself.
Q: Should the common carrier be operating a motor vehicle?
A: No, not necessarily.
Example:
During bar exams, Espana was flooded. A man offered to carry you to be
transported to the other side of Espana for a fee. Is he a common
carrier?
Sir: "yan ang tunay na carrier kasi iccarry ka talaga nya papunta sa other
side!"
Competent Public Authority
SC: Customs police is not a competent public authority.
Character of the goods which may exempt common carrier from
liability:
Agricultural products that perish immediately, especially if you do
not know how to handle them. Ex. Lettuce, strawberries
Transportation of passengers
When to exercise the standard of care
When carrier agrees to take in the person as a passenger until that
person reaches his destination
Q: May the passenger and carrier validly stipulate any other standard of
care?
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Dean Eduardo Abella
A: No, with respect to the safety of passengers, there can be no

compromise.
Q: Is the common carrier an insurer against all risks?
A: No. BUT in case of mechanical defects or when a common carrier
violates a traffic rule, the common carrier is always liable.
There is no liability for mechanical defects in cases when it is (1)
newly installed; and (2) it came from a reputable distributor.
Liability for acts or omission of employees
The law expressly provides that the common carrier shall be liable for the
actions of its employees even if the latter have acted without or in excess
of their authority. No exceptions.
For acts and omissions of third persons or other passengers
If a passenger suffered injuries because of the acts of another passenger
or third persons, common carrier shall be liable if, simply by exercising
the diligence of a good father of a family, it could have prevented it.
When may a common carrier be made liable for moral damages?
1) When there is death of a passenger. Legal heirs (immediate
members of family; brothers and sisters excluded= only compulsory
heirs) may recover.
2) When there be physical injuries, in which case the injured passenger
is entitled to the damages, excluding members of family.
3) When the common carrier acts in bad faith. Ex. Fernando Lopez
case
4) When employees of common carrier were disrespectful to
passengers.
5) When common carrier commits discrimination against the passenger.
Ex. Paying for accommodation of some of the passengers.
To exercise the diligence of a good father of a family for his own safety.
Otherwise, he may be liable for contributory negligence which will result
in mitigating the liability or absolving the common carrier.
CARRIAGE OF GOODS BY SEA ACT (COGSA)

History
American law; made part of our laws during American occupation. At that
time, we already had our Code of Commerce.
By express provision in COGSA, in case of conflict with Code of
Commerce, COC shall prevail,
Scope
COGSA is applicable only to shipment of goods by sea coming from
another country into the Philippines. It must be covered by a Bill of
Lading.
It is not applicable to:
1) Shipment of goods agreed upon to be transported on the deck.
2) Shipment of livestock
3) Inter-island or coast-wise shipping.
Q: What law applies in case of loss or damage where the goods were
sent by ship from Manila to Cebu?
A: New Civil Code and COC (they go together)
Q: What law applies in shipment of goods by air coming from another
country to the Philippines?
A: Warsaw Convention, NCC, and COC
Note: Overbooking by less than 10% does not constitute bad faith. It is
an industry practice. if there is no bad faith, there is no basis for
awarding moral damages.
Q: What law applies in shipment of goods by see from Philippines to

another country?
A: Law of another country which received the goods.
Case: upgraded form business class to first class, sued Cathay Pacific.
No bad faith so no basis for moral damages. However, SC awarded
P5,000 for breach of contract.
Period to File Claims:

1. If there would be an apparent loss or damage, a claim should be filed
immediately with the carrier.
Obligation of the Passenger

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2. If the loss or damage is not apparent, the claim should be filed to the
carrier within 3 days from delivery.
Filing of claim with carrier is a condition precedent before you can file
complaint with court.
Actions of the Carrier on the Claim:

a) Settle it right away;
b) Not to act on it;
c) Reject the claim.
Q: The goods intended for you were insured. Unfortunately, there was
loss or damage. You filed a claim with insurer. If the insurer pays the
claim of the insured, what is the legal consequence?
A: Insurer is subrogated to the rights of the insured in running after the
common carrier. Insurer should also file claim against carrier within 1
year from delivery to arrastre operator because it merely steps into the
rights of the insured.
Remedy of consignee in case carrier rejects the claim: File complaint

in court.
Q: Within what period should a complaint be filed in court?
A: Within 1 year from delivery of goods to the arrastre operator.
When a vessel arrives in a Philippine port, the goods are not right
away released to the consignee. The goods are transferred to the
arrastre operator because customs duties must first be paid by the
consignee. Imported goods are examined by customs officers.
If there are no apparent signs of loss or damage, the arrastre operator
will sign the turnover documents (tally sheet). If there is a sign of loss or
damage, the crate will be opened and the arrastre operator will annotate
such loss or damage to the tally sheet. Arrastre operator will now
prepare a Bad Order (B.O.) Form.
Q: Suppose the shipment intended to you was not unloaded from the
vessel and you want to file a complaint in court, how would you reckon
the 1 year period?
A: Complaint shall be filed within 1 year from the last day when the
carrier had the last opportunity to deliver the goods to the arrastre
operator.
Example: If ship arrived on the port of Philippines on Feb 1, and
unloading was finished on Feb 5, and loading of goods to be delivered
on foreign country ended on Feb 9, and sailed from a Philippine port to
another foreign port on Feb 10, reckon the period on Feb 10.
Note: By express provision of COGSA, filing of claim with carrier is not
absolutely required before you can file a complaint with the court.
Under the Code of Commerce:
If there is apparent damage or loss, claim must be filed with carrier
immediately.
If not apparent, file claim within 24 hours from delivery.
Note: Although the period to file complaint against the carrier has
expired, it does not mean that the period of action against insurer has
expired. Its prescriptive period is based on policy or insurance code.
Q: What if the goods are not annotated as damaged in the tally sheet or
bad order form upon turnover to the arrastre, but the goods are damaged
upon turnover by the arrastre to the consignee?
A: The suit should be against the arrastre operator. It must be based on
quasi-delict because there was no pre-existing contractual relation
between the arrastre operator and the consignee.
Q: What if there is no damage annotation on the tally sheet, and the
customs broker received the goods from the arrastre operator, but upon
delivery by the customs broker to the consignee, there is damage which
is not annotated on the delivery receipt?
A: Sue the broker on the basis of breach of contract of carriage because
the customs broker is a common carrier. The ruling is that a customs
broker who offers to transport goods to client as part of services qualifies
as a common carrier.
Q: If the prescriptive period is about to expire, can the consignee extend
it by sending a demand letter to the carrier?
A: No, SC ruled that the provision under the NCC does not apply to
shipment of goods by sea from another country to the Philippines.
Note: An agreement to extend the prescriptive period is valid.
ADMIRALTY
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What is a vessel?
1. It must not be a mere accessory to another watercraft.
2. It must be registered with MARINA
3. It must be used to transport goods, passengers, or both.
4. It must be sea-going.
MMDA ferry- not sea-going, only river-going
Manila Bay is a sea!
Laguna de bay- lake
Who is a ship agent?

Ship agent is a corporation representing the ship owner, and is charged
in provisioning the ship vessel.
Example: If A owns a vessel, and it sails from Philippine port to
Hongkong port. When it leaves Phil port, it must have sufficient
provisions (fuel + water used in navigation). If it leaves, it should not
leave with incomplete provisions. Upon arrival of vessel in Hongkong, it
decides to go to Singapore. Would it be wise for A to hire an employee
whose function is to refill provisions? Of course not!
Water and food for human consumption are known as stores.
Participants in admiralty:
1) People involved in navigation (crew)
2) People involved in housekeeping of vessel (compliment)
Who are the members of the crew?
1) Captain- in charge of a vessel in foreign vessel
cf. Master- in charge of vessel in inter-island shipping
2) Mates- first mate, second mate
3) Engineers
3 roles of a captain:
a. Represents the owner of the vessel;
b. The technical director of the vessel; and
c. Represents the country where the vessel is registered.
Q: A is a Filipino captain who was hired by a Japaneseregistered vessel. Vessel is sailing in international waters or docked in
another country. What country does he represent?
A: Japan
Who may own a vessel?
An individual or group of individuals. Anyone of us.
If a vessel is owned by two or more persons, there arises a disputable
presumption that there is a partnership.
Hypothecary Rule or Limited Liability Rule
In order to encourage ownership of vessels and to promote national
economy, the liability of ship owner shall be limited to the value of vessel,
plus earned freightage, plus insurance, if any.
Husbanding agent
A corporation in charge of freightage and settlement of averages.
Example: Vessel leaves Phil port to HK. Upon arrival in HK,
decides to sail to SG. Vessel carried goods to be delivered in SG. Would
it be practical to hire a person whose function is to arrange goods for
shipment? Of course not! Hire a husbanding agent.
Averages- refers to damages suffered by vessel or certain cargoes.
Kinds of Averages:
1. Gross or general- one suffered by the vessel or cargoes which
benefits the owner of the vessel and other cargoes thereby obliging
those benefited to contribute pro-rata to the indemnity to be paid to the
ship owner or cargo owner.
Example: There is a vessel with cargoes. Vessel sailed and
encountered a storm. Remedy to prevent vessel from sinking- jettison
the cargoes on the deck and heaviest. Owner of vessel and other
cargoes would have to indemnify the owner of the jettisoned cargo.
Q: If despite cargo being jettisoned, vessel still sank, would the others be
obliged to contribute?
A: No, because there was no benefit.
2. Specific or particular- one suffered by the vessel alone, or owner of
cargo alone, benefitting no one. Therefore not entitled to indemnity,
except perhaps from insurance company, if any.
Procedure for General Average:
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1) Captain calls a meeting with the representatives of the owners of

cargo.
2) They make a decision to throw away certain cargo.
3) If the decision is urgent, the captain may choose from the largest
and of least value to the smallest and of the most value.
Special contracts in admiralty:
1) Charter party- a contract of lease over a vessel.
a) Bareboat charter or demise- lessor provides the lessee only the
vessel; no crew, no provisions, no stores. True charter
b) Time charter- contract of lease over the vessel for a stipulated
period. Lessor provides not only the vessel but also the crew,
stores, and provisions.
c) Voyage charter- a contract of lease over the vessel for a voyage
or series of voyages, lessor providing not only the vessel but
also the crew, stores, and provisions.
According to the SC, the true charter is the bareboat charter. The time
and voyage charter are contracts of affreightment, which is a contract of
carriage.
2) Loan on Bottomry- loan taken by shipowner secured by the vessel
and the condition of the loan is that if the vessel would sink, creditor
loses the right to collect. Only to the extent of the value of the vessel.
Only extinguished when vessel is lost.
3) Loan on Respondentia- loan taken by the cargo owner secured by
the cargo to the extent of the value of the cargo, and the condition of the
loan is that if the cargo gets lost during voyage, creditor loses right to
collect. If value of loan exceeds value of cargo, excess is an ordinary
loan.
4) Marine insurance- insurance over a vessel or freightage or
cargoes, and even expected profits from cargo arising from perils of the
sea.
Accidents in Admiralty
1) Collision- If two or more moving vessels strike each other or one
another.
As opposed to Allision which is the impact of a moving vessel
and one which is not moving.
2) Arrival under stress, or when a vessel is forced to sail to the nearest

port.
Examples:
a) Natural calamity along route
b) Avoidance of pirates/ privateers
c) Loss of provisions
d) Accident that renders the vessel incapable of prosecuting the
voyage.
3) Shipwreck- sinking of the vessel.
Q: What is the obligation of a ship captain in arrival under stress?
A: The captain must execute a MARITIME PROTEST- a sworn
statement where the captain relates what transpired.
Q: Is the owner of a barge a party to a contract of carriage?
A: No, he is not a party, unless the barge is self-propelled. The
contracting party is the owner of the towing vessel.
Three zones or divisions of time in collisions of vessel
a) First zone/division- anytime until the danger of collision appears.
b) Second zone/division- from the time of danger of collision
appeared until it becomes a practical certainty
c) Third zone/division- from the time it becomes a practical
certainty to the actual impact.
Doctrine of Inscrutable Fault
If in a collision, there is no certainty as to who is at fault, the judge should
dismiss the case. If cargoes on both vessels were damaged, the owners
of all damaged cargoes are entitled indemnity from owners of vessels.
Owners of vessels are solidarily liable.
WARSAW CONVENTION
Nature
Treaty; part of laws of the land
Definition
An agreement among sovereign nations for two purposes:
1) To have uniform documents in connection with international air
transportation.
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2) To fix liabilities of international air carriers.

Q: What are these documents made uniform by the Warsaw
Convention?
A: Passenger ticket, airway bill (bill of lading), baggage check
Q: How were the sovereign nations that participated in the convention
referred to?
A: High Contracting Parties; Philippines is not an original party to the
Warsaw Convention because at the time of convention, Philippines was
not yet a sovereign state and it did not yet have an aircraft.
PAL was only incorporated in 1954, flight was only Manila-Baguio.
Philippines is a party by accession to the convention.
Q: How come that it is the name of the convention?
A: Because it took place in Warsaw, Poland.
When do you say that transportation is international?
1) Where port of origin is in one country and the port of destination
is in another country.
2) Port of origin is in one country and port of destination is same
country, but there is an agreed stopping place in another country.
If the stopover was due to an emergency, it is not an
international flight.
3) Includes the movement of goods whether by land (bodega) or by

water to the aircraft.
Indemnities Agreed Upon in WC:
1) If someone dies, $100,000. Airline can opt to give more.
2) If someone sustains physical injuries, maximum indemnity is
$100,000. Amount depends on severity of injury.
3) Checked-in articles: maximum indemnity $1,000 per kilogram.
a. If value of article exceeds $1k/kg, you can only recover
such limit.
b. If value of article is less than the maximum limit you can
only recover the actual value.
4) Hand-carried articles: maximum indemnity $1,000 regardless of
weight and actual value. No proof required.
Why are liabilities fixed? Because of the different ways to asses
damages for injuries or loss of goods.
Passenger who wants to recover more than the limits should:
1) Declare true value; and
2) Pay fare corresponding to that true value.
PUBLIC SERVICE LAW
What for? For acquiring equipment to engage in PS or for settling

damage claims.
Who may render public service?

It may only be rendered by Filipino citizens or by corporations with 60%
ownership by Filipino citizens.
Who regulates PS?

Under the 1935 Constitution, it was the Public Service Commission.
At present, it is the various government offices: DOTC, LTFRB, CAB,
MARINA, LGUs (tricycles)
Grandfather Rule: Control test where the citizenship of the

corporation owning another is taken into consideration in determining the
60% Filipino ownership.
Requirements to engage in PS:
1) Filipino Citizenship
2) Willingness to engage in public service
3) Financial capacity
How to engage in public service

1) Application by petition;
2) Hearing
3) Issuance of a CPC.
Before anyone could engage in PS, he/she should apply first for
issuance of a certificate of public convenience, or CPCN.
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Certificate Public Convenience: written authority issued by government

regulator to enable a person to render public service.
Certificate of Public Convenience and Necessity: written authority
issued by government regulator to enable a person to render public
service for which a legislative franchise is required.
Present policy: franchises are not exclusive anymore. Public is better
served if there is competition, but not cut-throat competition.
Kabit System
When people want to engage in PS but do not qualify, they resort to this.
Not legal.
Sir: Basta kabit, hindi legal."
If a kabit unit was involved in an incident, the legitimate owner will be the
one sued. Legitimate owner cannot file a third party complaint against
the kabit operator.
FOREIGN INVESTMENTS ACT

*Was not discussed by Sir in class
Purpose of law: To encourage and entice foreign investments to bring in
more foreign currency. It was formerly illegal for transactions to be paid
in foreign currency or in relation to foreign currency.
Salient Features
Foreigners can own 100% of any enterprise related to exports so
long as it is not covered by Negative List A & B.
Negative List A- activities reserved by the Constitution or other
special laws to Filipinos. Ex. Advertising, public service, mass
media, retail trade
Negative List B- activities that are exclusively for Filipinos. Ex.
Those relating to ammunition and firearms (unless the Secretary
of National Defense consents), pyrotechnics, nightclubs,
beerhouses, steambaths, and massage parlors.
Inward Remittance: a foreigner may also own 100% of a

domestic market enterprise if the foreigner remits and makes an
investment worth $200k or equivalent but not in areas where
Example
A is owner of vehicles. B asked A for the former to drive the vehicles. A
agreed provided B pays a boundary of P1,500/day.
SC ruled that there is an employer-employee relationship between A and
B.
Some years later, B wants to retire. B has the right to ask for
retirement pay.
Prior Applicant Rule: If two or more persons apply to render the same
public service, the one who first filed the application should be granted
the authority.
Old Operator Code: If someone is already rendering the service, it must
first be allowed to offer to add the same service.
*Sir: They have no more relevance.
there are health related risks. Ex. Bars, beerhouses, massage
parlors, sauna baths, dancing halls.
EXCEPTION TO $200k REMITTANCE:
1) If the enterprise advances technology, as determined by
the DOST, and hires more than 50 Filipino employees.
The investment must also not be less than $100k; or
2) If the alien is a former natural-born Filipino, then he is
allowed to own urban properties with an area of 5,000
sqm. or rural properties up to 3 hectares. If both spouses
are formerly natural-born Filipinos, their total lands must
not exceed the above-stated land areas, and the land
acquired must be in different locations. The limit applies
to them jointly.
Filipino National:
a) Filipino citizen
b) Outstanding capital stock of domestic corporations must
be at least 60% owned by Filipinos.
c) Outstanding capital stock of foreign corporations must
be 100% Filipino owned.
d) Domestic corporation owned by another corporation,
60% of the outstanding capital stock of which is owned
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by Filipinos and 60% of the composition of the Board of

Directors are Filipinos.
Export Enterprises- no restriction; can be 100% foreign-owned
1) Those who engage in the manufacturing or processing of goods
60% of which are exported.
2) Those who buy from local manufacturers and exports 60% of
those goods bought.
Domestic Market Enterprises
General rule: no restriction
Exception: Negative list A & B
Not doing business in the Philippines
1) If an entity will merely invest in a domestic corporation; includes
the appointment of a nominee/representative who will represent
the foreign corporation in the domestic corporation.
2) If a foreign corporation will merely develop local distributors.
Foreigners not covered by Negative List must bring to the Philippines at
least $200k.
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INTELLECTUAL PROPERTY CODE

Governing Law: Intellectual Property Code. It is a compilation of old
laws on patent, copyright, trade marks, trade names, service names,
service marks.
The Code is administered by the Intellectual Property Office. The head is
the Director-General who must be at least 40 years of age and a lawyer.
The term of the Director-General is 5 years, eligible for a single reappointment. However, the first Director-General appointed has a term of
7 years without re-appointment.
Kinds of Intellectual Properties:
1. Patents
2. Copyright
3. Industrial Designs
4. Layout of Topography of Integrated Circuits
5. Trademarks and tradenames
6. Geographic Indication
7. Trade-related Aspects of Intellectual Property Rights (TRIPS)
PATENTS
Definition
It is issued upon an invention, granting the exclusive right to massproduce or license the mass production of the invention. It is the
protection given by law to an inventor.
Characteristics of Patentable Invention:
a) Must be new- not part of a prior art
b) Involves an inventive step- not simply discovered
c) Capable of industrial application- may be used in the
development of existing or a new industry; can be mass
produced.
Inventive Step
GR: It is not merely discovered but involved a process of trying this and
that until one find what works.
Ex. X tripped and fell on carabao grass, face first. He then discovered its
magical effect on pimples. This cannot be patented because it is merely
discovered without any inventive step. However, if X first tried guava
leaves, then malunggay leaves, then garlic, then chili, and flour to make
a paste to cure pimples, then the same involved an inventive step and is
thus patentable.
Exc: Microorganisms
e.g. Those that improve the digestive process or eat garbage.
Note: An invention that meets all 3 qualifications does not automatically
become patentable. Those contrary to law or morals are not patentable.
Ex. Substitute for shabu where a prohibited ingredient is used.
While the invention may not be patentable, it does not mean that it
cannot be mass-produced. For as long as the object is not prohibited by
law, it may be mass-produced.
What are not patentable inventions?
1) Those contrary to law
2) Those contrary to morals or public order, e.g. vibrator which
moves back and forth at different speeds. However, though
these may not be patentable, they may be mass produced
because their mass production is not prohibited by law.
3) Mere concepts or ideas, e.g. sound that makes people move
(sound propelled)
4) Mathematical Solutions
5) Surgical procedures, e.g. if A invents a gadget that makes the
surgical procedure on circumcision painless, the procedure is not
patentable but the gadget is.
How long is the duration of a patent?
20 years from the filing of the application
How soon does the applicant get the patent?
Sir: Only God knows
Q: What is the advantage of a patent on an invention?
A: The patent holder shall have the exclusive right to mass-produce or
license its mass production for 20 years, counted from date of filing of
application for patent.
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Note: If another person made use of the invention prior to the issuance of
application, the inventor has a right to collect royalties.
An inventor is entitled to protection the moment he created the work.
Who are entitled to a patent?
1) Inventor
2) Co-owners- if two or more persons worked on the invention
together, in the absence of an agreement to the contrary, they
become co-owners of the patent
3) If two or more persons worked on the invention independently of
one another, the one who first applied for patent gets it (First to
file rule)
4) Employer- If a person hired another purposely to work on an
invention, in the absence of any agreement to the contrary,
patent belongs to the employer.
Ex. Assignment of chemist was to work on a solution that
removes scars. Contract does not say anything
regarding ownership of the solution. In this case, the
patent belongs to the employer.
5) Employee-inventor- if a person hired another to do something
else, and in the process the employee invented something, the
patent belongs to the employee.
Note: Patent is a personal property different from the patented article.
You may dispose of the patent without disposing the patented article.
Sir: Magkahiwalay talaga sila!
Economic Advantage of a Patent
Only the inventor can mass-produce the patented article or can have the
license to do so.
The inventor can also license another to mass-produce the patented
article and receive royalties in consideration thereof. Royalty is based on
formula provided by law itself.
1) Voluntary- arises from an agreement between patent holder and

licensee.
The patent holder cannot just impose any kind of stipulation. Law
prohibits certain stipulations and the list is not exclusive. The list
includes the number of products to be produced, export limit on
the price of sale, and source of raw materials that must be
nominated by the holder.
Those prohibited are stipulations that make an applicant for a
licensee subject to the will of the patent holder. These are
prohibited because of the great moral ascendancy of the holder
over the applicant.
2) Compulsory- it is applied with the IPO under certain conditions:
a. Invention is regarding food or medicines;
b. While there is a demand for the product, the patent
holder is not mass-producing. Or if patent holder is
mass- producing, he cannot meet demand. Patent
Holder does not want to enter into licensing agreements
on reasonable terms.
Note: Whether licensing is voluntary or compulsory, patent holder is
entitled to royalties.
Remedies in Cases of Infringement
1) Civil case on injunction and claim for damages
a) Prove actual damages. This is not easy so just ask for
royalties.
b) Ask for royalties
2) Criminal prosecution if the infringement would be repeated
INFRINGEMENT
Unauthorized copying
Patent must be registered
UNFAIR COMPETITION
Copying a product of another and
passing them off as ones own. This is
a felony.
Product may not be patented
How do you know if an invention is already patented?

The patent symbol P and number are already in the invention itself (for
small products).
Kinds of Licensing:
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Not all unauthorized copying of a patented article is an infringement. The

following do not constitute infringement:
a) Personal and exclusive use
b) Use by government, BUT it must pay royalties
c) Research and Development
d) In case of compulsory licensing provided, licensee pays royalties
If using a business name different from the true name, you register with
the DTI, Bureau of Domestic Trade. There is a need for a public record of
who owns businesses in order to know whom to sue. This is needed for
signs or printed documents.
INDUSTRIAL DESIGN
What is a Trademark?
It is a sign, emblem, or mark that a person uses to identify and
distinguish his products from that of others.
Definition
It is the combination of lines or colors or both. The lines need not be
straight.
What is a Service name or Service mark?

It is the name, sign, emblem, or mark that is used to identify service (e.g.
Good Year Servitek, Rapide). It covers both things and services.
Ex. Design of Burberry, LV, United Colors of Benetton
What is the duration of protection?

10 years, with limitless renewals. However, after 5 years, the owner must
file an affidavit of use (Declaration of Actual Use) of the trademark or
trade name with the IPO over the past period.
Note: Under the IPC, the Declaration must be fild 3 years from
filing and 1 year from the fifth anniversary (124.2, 145).
LAYOUT OR TOPOGRAPHY OF INTEGRATED CIRCUITS

Definition
The pattern of a mother board is intellectual property.
Q: Why do you need to register trademarks or trade names?

A: To enjoin the use by others or to file a suit for infringement
GEOGRAPHIC INDICATION
Definition
Those indicated by place.
Ex. Sukang Davao, Dagupan Bangus, Ilocos Empanada
TRADE NAMES
Definition
The name that a person uses to identify his product and to distinguish his
product from the products of others.
Ex. Summit, Gatorade, C2
Note: Do not confuse trade name with business name. Trade name goes
with the product; business name is used to identify the place of business
(governed by Business Names Law and administered by another
government office).
Certain Rules:
Exclusivity: Where a trade name or trademark is already
registered in the name of one person, no other person may use
a similar or confusingly similar name or mark in connection with
similar or closely-related product.
o You cannot use Del Monte in connection with food
articles but you can use it for underwear/shoes.
Trade names may be trade marks at the same time, but both
must be registered to be protected.
o Selecta is a trade name and how it is written is a trade
mark
Trade names and marks include service name and mark
Taste is not protected
First to file system; prior use is not required
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Doctrine of Colorable Imitation

When a person gives his product an appearance that is similar or
confusingly similar to the appearance of the product of another,
calculated to make an ordinary buyer believe that his product is the same
as the product of another.
Converse v. Custombuilt- both shoes use the same star

logo.
2) HOLISTIC TEST- consider not just the prevalent features but
also other factors. Even if there is similarity, there is likelihood
that they will not be confused with each other.
Bottles of Del Monte are patented- This doctrine came out in the case
involving the word sunshine, which involved Del Monte and Sunshine
catsup. Sunshine used bottles of Del Monte because the owner of
Sunshine could not afford to make his own bottles. The manufacturer
replaced the labels of the bottles but the labels had the same color
combination. Add to this the fact that the bottles had markings that they
were products of Del Monte. It was not ordinary buyers that were misled
but also those that read the labels.
Doctrine of Secondary Meaning

When a name is used so long and so exclusively to identify a product,
that whenever the name is mentioned, reference is readily made to said
product, although the name is not registered because it is not registrable,
no other person may use that name in connection with a similar or
closely related product.
Beer na Beer Case- In the 70s, Asia Brewery created Beer na Beer that
had the same taste as San Miguel Pale Pilsen. Asia Brewery also used
the same shape of bottles. The Supreme Court held that there was no
unfair competition, applying the holistic test. The beer of AB could not be
mistaken for San Miguel because the prices of the former are cheaper.
Under jurisprudence, it is such a close or ingenious imitation as to be
calculated to deceive ordinary persons or such a resemblance to the
original as to deceive an ordinary purchaser giving such attention as a
purchaser usually gives, as to cause him to purchase the one supposing
it to be the other.
Q: Who is an ordinary buyer?
A: Buyer relying on the general appearance, images, and color
combinations of products.
Two Tests to Determine Infringement:
1) DOMINANCY TEST- when the prevalent features are likely to
confuse one product with another. To determine whether there is
possible confusion between products, look into the dominant
features (the likelihood that ordinary buyer will get confused).
Ex. Alaska All-Purpose Milk v Alacta Infant Preparationnot likely to be confused with each other because used
for different purposes. One is infant formula, the other is
cows milk.
You cannot register as a trademark the signature or portrait of a

deceased President of the Philippines without the consent of the widow.
Q: Why do we have this doctrine?
A: Because not all names are registrable, such as:
a) Geographic words or names;
b) Generic;
c) Descriptive;
d) Names, sign, or portrait of Past Presidents, UNLESS the widow
consents
e) Flags and simulations
f) Coat of arms and simulations
COPYRIGHT
The person who writes books, poetry, compose lyrics of a song, makes
the melody of a song, makes compilation, etc. is protected by the law.
Copyright is one property and the copyrighted work is another.

They will be dealt with separately.
There is copyright for the lyrics and another for the melody in
songs.
Adaptation of musical compositions are works patterned after the
works of others.
Patterns of TV and radio programs are not copyrightable.
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Q: Is registration required for protection?

A: No. It follows the first-to-use system, not the first-to-file because it will
be physically impossible to come up with the same work.
Note: Not every unauthorized copying of a protected work is an

infringement of the copyright. It is not infringement when you copy for
your personal use.
Q: Where does copyright begin?

A: It begins from the moment of creation and lasts for the lifetime of the
creator plus 50 more years from his death. 50-year period starts on the
first day of the year following the death of the creator.
Acts of copying that are not infringing

1) Personal use, one copy only (exclusive use)
2) Quotations of portions from books, with acknowledgment
(excerpts)
3) Fair use of legitimate computer programs, e.g. one computer,
one program
4) Libraries with old books may reproduce these books so long as
they are no longer being published. However, this is only for
library use and not for resale (exclusive).
5) Rebroadcasting, which is only a simultaneous broadcasting.
Who owns the copyright?

1) Intellectual creator
2) Co-owners- If two or more persons worked on the intellectual
creation, in the absence of any agreement to the contrary, they
become co-owners of the creation.
3) Employer- if a person hired another purposely to work on an
invention in the absence of any agreement to the contrary,
copyright belongs to employer.
Ex. Pixar, Dreamworks, Walt Disney
4) Employee- if a person hired another to do something else, and
that person may have worked in the intellectual creation during
his working hours, copyright belongs to employee.
5) When a person commissioned another to do a creation, in the
absence of an agreement to the contrary, the work belongs to
the commissioner while the copyright is owned by the person
commissioned.
Advantage of Copyright
Copyright cannot be attached while it belongs to the intellectual creator.
However, when transferred to another, it may be levied. This is different
from patent that can be attached even if owned by the intellectual
creator.
What are the rights of a copyright holder?
1) Moral rights- right of intellectual creator that his authorship be
recognized and how authorship should be presented. If there are errors,
he can demand rectification of the errors. These rights have no expiry
period.
2) Economic rights- to make other versions of your intellectual
creation, right to mass produce the work or license it, and the right to
translate.
Remedies in case of infringement

1) Civil case for injunction and in the same case, a claim for actual
damages.
2) Criminal prosecution wherein repetition of infringement is NOT
required. First offense is enough to sustain a criminal conviction.
Copyright in a movie:
1) Movie itself- producer
2) Story- script writer
3) Scenario
4) Soundtrack- composer
Who are protected by IP Law?
1) Citizens, nationals
2) Resident of the Philippines with an effective establishment
3) Residents of a country that participated in an international
convention where the Philippines is also a participant
4) Citizens of a country, though not a participant in an international
convention where the Philippines participated, yet it affords
similar protection to Filipinos (Reciprocity Rule).
Q: May a foreign corporation not registered with the SEC as a foreign
corporation sue for the protection of its intellectual property rights in our
courts?
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Dean Eduardo Abella
A: Yes, Philippines is part of Paris Convention for Protection of

Intellectual Property Rights. See Lacoste case.
32

Dean Eduardo Abella
INSURANCE
Definition
One wherein the insurer agrees to indemnify the insured against loss,
damage, or liability arising from an unknown or contingent event.
Parties
1) Insurer
2) Insured
If there are three parties, it is an Assurance.
Third party- Assurer
Q: Who may be an insurer?
A: A person insured by Insurance Commission a certificate of authority.
For licensing purposes, an individual is not allowed. Must be a
corporation.
In every policy, there must be a printed acknowledgment of premium

payment.
Kinds of Insurance:
1) Non-life Insurance- over property
2) Life Insurance- over human life
3) Micro Insurance- RA 10607; insurance coverage of an amount
that is not substantial
4) Fire Insurance- protection against loss or damage arising from
fire or the proximate cause is fire
5) Casualty Insurance
6) Marine Insurance
PROPERTY INSURANCE
Q: Who may be insured?

A: Anyone who has an insurable interest in the thing or life insured.
Insurable Interest in Property Insurance: Existing interest or an

expectancy founded on an existing interest
Ex. Existing interest- insurance over the mortgage property
Expectancy founded on an existing interest-
Insular life was previously organized as a limited partnership. Now it is a

mutual benefit company, where all insured are the members of that
company.
Q: When must insurable interest exist?

A: It must exist at the time insurance is taken AND at the time of loss,
thought at the mean time it need not exist.
Characteristics of an Insurance Contract:

1) It is a contract of indemnity, not a wagering contract.
Wagering contract- person expects to profit
Indemnity contract- person wants to be put back where
he was before the happening of the risk in which he was
insured against.
2) It is not a risk-shifting device (such as a contract of guaranty or
suretyship); it is a risk-distributing scheme.
Insurer has a paid-up capital. This would be invested so
there would be earnings. All insured would add up on the
capital but not everyone will have a claim. If A claims, the
indemnity to be paid would come from the capital (which
was contributed by everyone).
Generally speaking, the term of insurance coverage over property is 1

year.
Exceptions:
1) Short-term insurance coverage- when the insured would like to
insure his property for a period shorter than 1 year
2) Heirs bond- heirs are required to post a bond for 2 years to
answer for claims of excluded heirs or creditors.
Policy
The instrument embodied in the contract of insurance.
Kinds of Policy in Property Insurance

1. Open- parties simply agree on the maximum amount of the
insurance coverage; value of the thing will be determined at the
time of loss.
2. Running- one taken by merchants over their goods and what is
contemplated is successive insurance coverage.
Ex. Grocery goods- insurance coverage shall continue
over the replacements.
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Dean Eduardo Abella
LIFE INSURANCE
Insurable Interest in Life Insurance
1) On his own life- law presumes a person loves himself
2) On the life of his/her own spouse
3) Life of descendant/s
4) Life of another whom he depends on for support
5) Life of person obliged to give him money or obliged to perform a
obligation
6) Life of a person on whose life or estate depends on- Example is
in the case of a usufructuary (person who is to enjoy the fruits of
the property of another)
Ex. A is a very bright student. B learned that A is about to
quit law school because A cannot afford it. B offers the
rentals of his property for the next 5 years so A can finish
his law studies. A has an insurable interest on the life of
B.
Note: It is enough that the person has an insurable interest at the time
the insurance is taken.
In practice, if you are going to insure the life of the debtor, and the
promissory note is only for 10 years, the insurance policy will only be for
10 years.
Kinds of Life Insurance
1) Term Insurance- for a specific term; parties agree on a definite
period of insurance coverage.
a. Upon arrival of term, policy lapses and insured gets
nothing.
b. Endowment plans- upon arrival of term, and insured
survives, the insurer pays the face value of the policy to
the insured.
2) Ordinary life- term is for the lifetime of the insured; insured
remains insured for as long as he keeps on paying the premium.
Q: How does one get to be insured?
A: Anyone who wants to be insured must file an application with the
insurer.
Representations
These are the truthful matters stated in the application form. Those not
truthfully written are misrepresentations.
Concealment
The neglect or omission to communicate what one knows or ought to
communicate.
The misrepresentation or concealment of material facts on the insurance
coverage entitles the other party to rescind the insurance policy.
Q: Who determines materiality?
A: The law indirectly refers to the insurer. It states that materiality shall
be determined by the influence of the misrepresentation on the insurer.
Two-Year Contestability Period in Life Insurance
If the insurer would like to contest the insurability of the insured, the
insurer should do it within 2 years from the issuance of policy or date of
its last reinstatement.
Q: What if the Two-Year Period has already lapsed?
A: Generally, insurer cannot contest except if insured committed fraud of
the vicious type.
Ex. Of fraud of the vicious type- using urine sample of another
for the medical examination or asking a twin brother to go to your x-ray
procedure
When there is rescission, insurer should return whatever it received.
Q: How do you vary the printed stipulations in the policy?
A: If in the printed policy you cannot be insured, the insurer prepares a
strip of paper varying what is printed. This is called a rider.
For the rider to be valid, it must be signed by the officer and permanently
attached to the policy (glued).
In life insurance, every time premium is due, there is a one-month grace
period. If not paid during the grace period, policy lapses except if there is
an automatic premium loan clause in the policy.
Automatic Premium Loan Clause
It is a stipulation that to prevent life insurance policy from lapsing on
account of failure to pay premium during the grace period, insurer may
34

Dean Eduardo Abella
take out as a loan from accumulated cash value the amount necessary
to pay the accrued premium.
Person insures the same thing, same interest against the same risk with
more than one insurer.
If the insured died within the grace period although installment was not
yet paid, insurer still has to pay.
Re-Insurance
When insurer insures with a re-insurer
To keep the policy from lapsing, insured takes an amount from the cash
value (as a loan). If you cannot pay the loan, interest would just keep on
piling and would just be deducted in the claims.
Self Insurance
A person who owns property does not insure it with an insurer. In case of
loss, he bears the damage alone.
In life insurance, except for the first kind of term insurance, there are
living benefits (non-forfeiture values):
a) Cash Value- on the first 2 years, all of the premiums that insured
paid go to the insurer. However, starting on the third year, part of
the premium paid is set aside for the insured. Every year, the
proportion of the cash value on the premiums paid increases. At
the end of the 20th year, 20% of the premium paid is set aside.
b) Paid-up Insurance- the insured shall remain insured without
having to pay additional premium.
c) Extended term insurance- the insured will remain insured for the
face value of the policy without having to pay additional premium
only for a certain period.
Under Insurance
When a person insures property for an amount less than the value of his
insurable interest.
Over Insurance
When a person insures property greater than its value. The excess is
void.
Q: What is the effect of under insurance?

A: There is co-insurance
Q: When is there co-insurance?
A: (1) In cases of double insurance; and (2) when a person under
insures (he is insured and at the same time is self-insured).
Effect of under Insurance
When there is partial loss, insurers pay pro-rata. To get the claims from
each insurer, total all the insurance coverage, get relation of each
insured interest with the total, then divide by total amount insured.
Double Insurance
35

Commercial Law Review Dean Eduardo Abella: Mortgage

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Updated: 2 nd Sem, AY 2014-2015 by Katz Rivera (A2015)