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Art. 567
Commercial Law Review, C. Villanueva, 2004 ed.
3
Prudential Bank vs. CA, 216 SCRA 257
4
The Uniform Commercial Practice for Documentary Credits allow Letters of Credit to be
payable to order.
5
mode of payment
2
1.
2.
5.
6.
Paying bank bank on which the drafts are to be drawn, which may
be the opening bank or another bank not in the city of the beneficiary.
7.
letter
of
to the possession of the entrustee upon the latter's execution and delivery to
the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the
entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents
a) to sell the goods or procure their sale; or
b) to manufacture or process the goods with the purpose of ultimate
sale. In the case of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the entruster shall
retain its title over the goods whether in its original or processed form until
the entrustee has complied fully with his obligation under the trust receipt;
or
c) to load, unload, ship or tranship or otherwise deal with them in a
manner preliminary or necessary to their sale; or
2. In the case of instruments,
a) to sell or procure their sale or exchange; or
b) to deliver them to a principal; or
c) to effect the consummation of some transactions involving delivery
to a depository or register; or
d) toeffect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the
business of selling goods, documents or instruments for profit who, at the
outset of the transaction, has, as against the buyer, general property rights
in such goods, documents or instruments, or who sells the same to the
buyer on credit, retaining title or other interest as security for the payment
of the purchase price, does not constitute a trust receipt transaction and is
outside the purview and coverage of the Decree. 8
a. Loan/security feature
This is not a simple loan transaction between a creditor and debtorimporter.
8
Sec. 4
The law warrants the validity of the entrusters security interest as against
the creditors of the trust receipt agreement.
b. Ownership of the goods,
instruments under a trust receipt
documents
and
Goods are owned by the bank, and are only released to the importer
in trust after the grant of the loan. The bank acquires a security interest in
the goods as holder of a security title for the advances it made to the
entrustee.
Entrustee must deliver money or return unsold goods to entrustor
Bank is preferred over other creditors.
Bank is also not liable to buyer of goods as vendor
Purchaser from entrustee gets good title.
No particular form is required for trust receipt
2. Rights of the Entruster9
The entruster shall be entitled to the proceeds from the sale of the
goods, documents or instruments released under a trust receipt to the
entrustee to the extent of the amount owing to the entruster or as appears
in the trust receipt, or to the return of the goods, documents or instruments
in case of non-sale, and to the enforcement of all other rights conferred on
him in the trust receipt provided such are not contrary to the provisions of
this Decree.
The entruster may cancel the trust and take possession of the goods,
documents or instruments subject of the trust or of the proceeds realized
therefrom at any time upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust receipt or any other
agreement between the entruster and the entrustee, and the entruster in
possession of the goods, documents or instruments may, on or after default,
give notice to the entrustee of the intention to sell, and may, not less than
five days after serving or sending of such notice, sell the goods, documents
or instruments at public or private sale, and the entruster may, at a public
sale, become a purchaser. The proceeds of any such sale, whether public or
private, shall be applied (a) to the payment of the expenses thereof; (b) to
the payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments; (c) to the satisfaction of the entrustee's
indebtedness to the entruster. The entrustee shall receive any surplus but
shall be liable to the entruster for any deficiency. Notice of sale shall be
deemed sufficiently given if in writing, and either personally served on the
9
Entruster" shall refer to the person holding title over the goods, documents, or instruments
subject of a trust receipt transaction, and any successor in interest of such person.
or
for
loss
of
goods,
documents
or
Sec. 10
Sec. 13, last sen.
12
Prudential Bank vs. NLRC, 251 SCRA 421, 1995
Failure to turn over proceeds of the sale of goods or to return unsold goods is a public
nuisance to be abated by the imposition of penal sanctions (Tiomico vs. Court of Appeals,
1999)
The offense is malumprohibitum. There is no need to prove damage to the entrustor.
(Metropolitan Bank vs. Tonda, 2000), or intent to defraud (People vs. Cuervo, 1981)
Offense: estafa under Art 315 of the Revised Penal Code.
13
Negotiable instrument (NI)
A written contract for the payment of money which complies with the requirements of
Sec. 1 of the NIL, which by its form and on its face, is intended as a substitute for money and
passes from hand to hand as money, so as to give the holder in due course (HDC) the right
to hold the instrument free from defenses available to prior parties. (Reviewer on
Commercial Law, Professors Sundiang and Aquino)
14
Any kind of material that substitutes paper is sufficient.
11
With respect to the signature, it is enough that what the maker or drawer affixed shows his
intent to authenticate the writing. (Notes and Cases on Banks, Negotiable Instruments and
other Commercial Documents, Timoteo B. Aquino)
Signature, binding so long it is intended or adopted as the signature of the signer or made
with his authority.
No person liable on the instrument whose signature does not appear thereon.
One who signs in a trade or assumed name liable to same extent as if he had signed in his
own name. (Sec. 18, NIL)
Signature of party may be made by duly authorized agent; no particular form of
appointment necessary. (Sec. 19, NIL)
"In writing" - includes print; written or typed
15
Where the promise or order is made to depend on a contingent event, it is conditional, and
the instrument involved is non-negotiable. The happening of the event does not cure the
defect.
The unconditional nature of the promise or order is not affected by:
a) An indication of a particular fund out of which reimbursement is to be made, or a
particular account to be debited with the amount; or
b) A statement of the transaction which gives rise to the instrument
Where the promise or order is subject to the terms and conditions of the transaction stated,
the instrument is rendered non-negotiable. The NI must be burdened with the terms and
conditions of that agreement to destroy its negotiability. (Cesar Villanueva, Commercial Law
Review, 2004 ed.)
But an order or promise to pay out of a particular fund is NOT unconditional. (Sec. 3)
The dates of each installment must be fixed or at least determinable and the amount to be
paid for each installment.
A sum is certain if the amount to be unconditionally paid by the maker or drawee can be
determined on the face of the instrument and is not affected by the fact that the exact
amount is arrived at only after a mathematical computation. (Notes and Cases on Banks,
Negotiable Instruments and other Commercial Documents, Timoteo B. Aquino)
16
The instrument is payable to order where it is drawn payable to the order of a specified
person, or to him or his order. (Sec. 8)
The payee must be named or otherwise indicated therein with reasonable certainty.
The instrument may be made payable to the order of:
a. A payee who is not the maker, drawer or drawee
b. The drawer or maker
c. The drawee
d. 2 or more payees jointly
e. One or some of several payees
f. The holder of an office for a time being
Payable to Bearer
The instrument is payable to bearer:
a. When it is expressed to be so payable; or
b. When it is payable to a person named therein or to bearer; or
21
22
23
Sec. 14
Sec. 15
Sec. 16
10
b. Payment for interest is provided for interest runs from the date of
the instrument, if undated, from issue thereof.
c. Instrument undated consider date of issue.
d. Conflict between written and printed provisions written provisions
prevail.
e. When the instrument is so ambiguous that there is doubt whether it
is a bill or note, the holder may treat it as either at his election;
f. If one signs without indicating in what capacity he has affixed his
signature, he is considered an indorser.
g. If two or more persons sign We promise to pay, their liability is
joint (each liable for his part) but if they sign I promise to pay, the liability
is solidary (each can be compelled to comply with the entire obligation).24
4. Signature
a. Signing in trade name
One who signs in a trade or assumed name will be liable to the same
extent as if he had signed in his own name.25
b. Signature of agent
The signature of any party may be made by a duly authorized agent.
No particular form of appointment is necessary for this purpose; and the
authority of the agent may be established as in other cases of agency.26
Where the instrument contains or a person adds to his signature
words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent, or
as filling a representative character, without disclosing his principal, does
not exempt him from personal liability.27
c. Indorsement by minor or corporation
24
25
26
27
Sec.
Sec.
Sec.
Sec.
17
18
19
20
11
Sec. 22
Persons precluded from setting up defense of forgery
1. Those who warrant or admit the genuineness of the signature in question. This includes
indorsers, persons negotiating by delivery and acceptors.
2. Those who, by their acts, silence, or negligence, are estopped from setting up the defense
of forgery.
30
1 Agbayani, 1992 ed.
31
not instrument itself and the genuine signatures
32
Legal Effects:
1. No right to retain the instrument
2.To give a discharge therefore
3. To enforce payment thereof against any party thereto, can be acquired through or under
such signature
33
Sec. 23
34
Sec. 24
What constitutes value:
a. An antecedent or pre-existing debt
b. Value previously given
c. Lien arising from contract or by operation of law. (Sec. 27)
29
12
Sec. 29
Sec.30
37
Timoteo B. Aquino, Notes and Cases on Banks, Negotiable Instruments and other
Commercial Documents
Assignment may be effected whether the instrument is negotiable or non-negotiable.
(Sesbreo vs. CA, 222 SCRA 466)
38
Sec. 191
Steps:
1. Mechanical act of writing the instrument completely and in accordance with the
requirements of Section 1; and
2. The delivery of the complete instrument by the maker or drawer to the payee or holder
with the intention of giving effect to it. (The Law on Negotiable Instruments with Documents
of Title, Hector de Leon, 2000 ed.)
39
In both cases, delivery must be intended to give effect to the transfer of instrument.
(Development Bank vs. Sima Wei, 219 SCRA 736)
36
13
Sec. 49
allonge
42
Sec. 31
General rule: Indorsement must be of the entire instrument.
Exception: Where instrument has been paid in part, it may be indorsed as to the residue.
(Sec. 32)
43
Holder - a payee or endorsee of a bill or note who is in possession of it or the bearer
thereof. (Sec. 191)
44
A holder who has taken the instrument under the following conditions:
1 .Instrument is complete and regular upon its face;
2. Became a holder before it was overdue and without notice that it had been previously
dishonored;
3 For value and in good faith; and
4. At the time he took it, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it. (Sec. 52)
Every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in
Section 191 of the NIL. The weight of authority sustains the view that a payee may be a
holder in due course. Hence, the presumption that he is a prima facie holder in due course
applies in his favor. (Cely Yang vs. Court of Appeals, G.R. No. 138074, August 15, 2003)
45
Secs. 51 and 57
41
14
Sec. 80
Effect: There is an immediate right of recourse by the holder against persons secondarily
liable. However, notice of dishonor is generally required. (Sec. 84)
48
Sec. 89
49
Sec. 97
50
Sec. 90
47
17
c. Effect of notice
Immediate right of recourse against the drawer and indorsers accrues
to the holder and no presentment for payment is necessary.51
d. Form of notice
1. By bringing verbally or
2. By writing to the knowledge of the person liable the fact that a
specified instrument, upon proper proceedings taken, has not been
accepted or has not been paid, and that the party notified is expected to pay
it.
e. Waiver
Either before the time of giving notice, or after the omission to give
due notice. Waiver may be expressed or implied.52
As to who are affected by an express waiver depends on where the
waiver is written:
1.
If it appears in the body or on the face of the instrument, it
binds all parties; but
2.
If it is written above the signature of an indorser, it binds him
53
only.
f. Dispensation with notice
1. When party to be notified knows about the dishonor, actually or
constructively;54
2. If waived;55 and
3. When after due diligence, it cannot be given.56
g. Effect of failure to give notice
An omission to give notice of dishonor by non-acceptance does not
prejudice the rights of a holder in due course subsequent to the omission.57
12. Discharge of Negotiable Instrument
51
Sec. 151
Sec. 109
53
Sec. 110
54
Secs. 114-117
55
Sec. 109
56
Sec. 112
57
Sec. 117
52
18
58
The Law on Negotiable Instruments with Documents of Title, Hector de Leon, 2000 ed.
Sec. 120
60
In the following cases, the agreement to extend the time of payment does not discharge
a party secondarily liable:
a) where the extension of time is consented to by such party;
b) where the holder expressly reserves his right of recourse against such party.
Payment at or after maturity by a party secondarily liable does not discharge the instrument.
It only cancels his own liability and that of the parties subsequent to him. (Sec. 121)
Sec. 121
59
19
14. Acceptance
a. Definition
The signification by the drawee of his assent to the order of the
drawer.
It is the act by which the drawee manifests his consent to comply with
the request contained in the bill of exchange directed to him.
b. Manner
61
62
63
Sec. 122
Sec. 125
Sec. 124
20
Must be in writing and signed by the drawee and must not express
that the drawee will perform his promise by any other means than the
payment of money.64
The holder of the bill presenting the same for acceptance may require
that the acceptance be written on the bill, and if such request is refused,
may treat the bill as dishonored.65
c. Time for acceptance
The drawee is allowed twenty-four (24) hours after presentment in
which to decide whether or not he will accept the bill; the acceptance, if
given, dates as of the day of presentation.66
d. Rules governing acceptance
The holder of a bill presenting the same for acceptance may require
that the acceptance be written on the bill, and, if such request is refused,
may treat the bill as dishonored.67
Where an acceptance is written on a paper other than the bill itself, it
does not bind the acceptor except in favor of a person to whom it is shown
and who, on the faith thereof, receives the bill for value.68
An unconditional promise in writing to accept a bill before it is drawn
is deemed an actual acceptance in favor of every person who, upon the faith
thereof, receives the bill for value.69
Where a drawee to whom a bill is delivered for acceptance destroys
the same, or refuses within twenty-four hours after such delivery or within
such other period as the holder may allow, to return the bill accepted or
non-accepted to the holder, he will be deemed to have accepted the same. 70
A bill may be accepted before it has been signed by the drawer, or
while otherwise incomplete, or when it is overdue, or after it has been
dishonored by a previous refusal to accept, or by nonpayment. But when a
bill payable after sight is dishonored by non-acceptance and the drawee
subsequently accepts it, the holder, in the absence of any different
64
Sec. 132
Sec. 133
66
Sec. 136
67
Sec. 133
68
Sec. 134
69
Sec. 135
70
Sec. 137
65
21
agreement, is entitled to have the bill accepted as of the date of the first
presentment.71
An acceptance is either general or qualified. A general acceptance
assents without qualification to the order of the drawer. A qualified
acceptance in express terms varies the effect of the bill as drawn.72
An acceptance to pay at a particular place is a general acceptance
unless it expressly states that the bill is to be paid there only and not
elsewhere.73
An acceptance is qualified when it is:
(a) Conditional - which makes payment by the acceptor dependent on
the fulfillment of a condition therein stated;
(b) Partial - an acceptance to pay part only of the amount for which
the bill is drawn;
(c) Local - an acceptance to pay only at a particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but not of
all.74
The holder may refuse to take a qualified acceptance and if he does
not obtain an unqualified acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability on the bill unless they have expressly
or impliedly authorized the holder to take a qualified acceptance, or
subsequently assent thereto. When the drawer or an indorser receives
notice of a qualified acceptance, he must, within a reasonable time, express
his dissent to the holder or he will be deemed to have assented thereto.75
15. Presentment for Acceptance
a. Time/place/manner of presentment
a. Where the bill is payable after sight, or when it is necessary in
order to fix the maturity of the instrument;
b. Where the bill expressly stipulates that it shall be presented for
acceptance;
71
Sec.
Sec.
73
Sec.
74
Sec.
75
Sec.
72
138
139
140
141
142
22
76
Sec. 143
See sec. 144, last sen.
78
Sec. 149
79
A promise to pay money
80
Sec. 184
81
Sec. 185
82
Cesar Villanueva, Commercial Law Review, 2004 ed.
77
23
24
The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.
The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed
25
a. Marine89
Insurance against risks connected with navigation, to which a ship,
cargo, freightage, profits or other insurable interest in movable property,
may be exposed during a certain voyage or a fixed period of time. 90
b. Fire91
A contract by which the insurer for a consideration agrees to
indemnify the insured against loss of, or damage to, property by hostile fire,
including loss by lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension to fire insurance
policies or under separate policies.92
c. Casualty93
89
Coverage:
A.
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry
and respondentia, and interest in respect to all risks or perils of navigation;
2.Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course of
transportation or otherwise; and
4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether
he be the shipowner or not. (Roque v. IAC, 139 SCRA 596)
B. Marine Protection and Indemnity Insurance
90
Sec. 99
91
Prerequisites to recovery:
1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly
by the insurer
2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly
or impliedly by the insurer
It is very crucial to determine whether a marine vessel is covered by a marine insurance
or fire insurance. The determination is important for 2 reasons:
1. Rules on constructive total loss and abandonment applies only to marine insurance;
2. Rule on co-insurance applies primarily to marine insurance;
3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial
Law Reviewer, AguedoAgbayani, 1988 ed.)
92
Sec. 167
93
Classifications:
26
27
b. In Property
Every interest in property whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that the contemplated
peril might directly damnify the insured, which may consist in:
1. an existing interest;
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with an existing interest in that out of
which the expectancy arises.
98
General rule: There is no limit in the amount the insured can insure his life.
Exception: In a creditor-debtor relationship where the creditor insures the life of his
debtor, the limit of insurable interest is equal to the amount of the debt.
If at the time of the death of the debtor the whole debt has already been paid, the
creditor can no longer recover on the policy because the principle of indemnity applies.
28
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such
order as he may select, up to the amount for which the insurers are severally liable under their
respective contracts;
2. Where the policy under which the insured claims is a valued policy, the insured must give credit as
against the valuation for any sum received by him under any other policy without regard to the actual
value of the subject matter insured;
3. Where the policy under which the insured claims is an unvalued policy he must give credit, as
against the full insurable value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of
the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers,
according to their right of contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.
Additional or Other Insurance Clause
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage
of the property insured. It is lawful and specifically allowed under Sec. 75 which provides that (a)
policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid it.
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been double insurance.
100
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the property lost;
2. The insured is entitled to recover the amount of premium corresponding to the excess
in value of the property;
101
Sec. 93
29
What is being followed in insurance contracts is what is known as the cognition theory.
Thus, an acceptance made by letter shall not bind the person making the offer except from
the time it came to his knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil.
269)
103
Remedy: Insurer liable for damages (Tort Theory) in the amount of the face value of the
policy, w/c is given to the estate of the deceased applicant. (not to beneficiary because
contract not perfected. Also, no contractual liability also bec. no contact)
104
Effects of Delivery:
30
Actual delivery of the policy is not essential unless the parties have so
agreed in clear language. Constructive delivery may be sufficient.105
b. Premium Payment106
Consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
c. Non-Default Options in Life Insurance
a. Cash Surrender Value
The amount the insured, in case of default, after the payment of at
least three (3)full annual premiums, is entitled to receive if he surrenders
the policy and releases his claims upon it. It is the portion of reserve on a
life policy.
1) Where delivery is conditional Non-performance of Condition precedent prevents
contract from taking effect
2) Where delivery is unconditional Delivery corresponding terms of application
consummates the contract and policy delivered becomes final contract bet the
parties
3) Where premium still unpaid after unconditional delivery Policy will lapse if premium
unpaid at time and manner specified in the policy, in the absence of any clear
agreement that insurer will extend credit.
Individual life insurance contracts usually stipulate that:
1) Premium be paid and
2) Policy be delivered to the insured while he is alive and in good health. Concurrence of
both is necessary. (see Perez v CA case)
105
Vda. De Sindayen case
Whether or not policy was delivered after its issuance depends not upon manual possession
by the insured but rather upon the intention of the parties as manifested in their acts or
agreements.
Whether or not delivery to agent is delivery to insured is a question over w/c there has
been many conflicting opinions.
106
Basis of the right of the insurer to collect premiums: Assumption of risk.
General rule: No policy issued by an insurance company is valid and binding until actual
payment of premium. Any agreement to the contrary is void. (Sec. 77)
Exceptions:
1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium
in installments and partial payment has been made at the time of the loss. (Makati Tuscany
Condominium Corp. v. CA, 215 SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. MasaganaTelemart, 308 SCRA
259)
5. Where the parties are barred by estoppel. (id., 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if
the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any stipulation therein that it
shall not be binding until the premium is actually paid. (Sec. 78)
31
Nature of CSV:
Premium is uniform throughout lifetime of policy, so during the earlier
years of the policy, the premium charges will be more than the actual cost of
the protection against the risk in order to meet the higher cost of risk
during the latter years of the policy when the insured is older.107
The more premiums he has paid, the greater will be the CSV but the
value is always a lesser sum than the total amt. of premiums paid.
CSV is the amount company holds in trust for insured deliverable
upon demand. So long as the policy remains in force, the company has
practically no beneficial interest in it except as its custodian; this is the
practical, though not the legal, relation of the company to this fund.108
b. Extended Insurance
Depends on availability of CSV.109
Either stated or equal to the amount of the cash surrender value,
taken as a single premium, will purchase; the insured is given the right,
upon default, after the payment of at least three full annual premiums to
have the policy continued in force from the date of default for a time either
stated or equal to the amount as the net value of the policy taken as a single
premium, will purchase Also called term insurance, temporary
insurance or paid-up extended insurance
c. Paid-up Insurance
Amount of Insurance that the CSV, applied as a single premium, can
purchase.110
Better option if insured is still young and in good health because
unlike extended insurance, he may later reinstate policy if he wishes.
107
32
Policy
of
Life
Does not create a new contract, merely revives the old policy. Thus,
insurer cannot require higher premium than amount stipulated in the
contract.
Required by Insurance Code for every individual and industrial life
policy.
Not required that three (3) annual premiums have been paid.
Application for reinstatement must be filed during the insureds
lifetime.
e. Refund of Premiums113
111
Effect: Insurance continues in force for period covered by the payment. After period, if
insured still does not resume paying his premiums, policy lapses, unless there remains CSV.
112
Sec. 227 (j)
Requisites:
a) Exercised w/in 3 years from default
b) Insured must present evidence of insurability satisfactory to the company
c) Pay all back premiums and all his indebtedness to the insurance company
d) CSV has not been duly paid nor the extension period expired
Insurability does not mean that insured is in good health. Other factors affect
insurability like nature of work, age, etc.
113
There is no right to recovery of premiums in life insurancebecause it is not a divisible
contract. It is not an insurance forany single year, w/ a privilege of renewal from year to year
bypaying the annual premium. It is an entire contract of insurancefor life subject to
discontinuance
and
forfeiture
for
nonpayment of any of the stipulated premiums.
33
Sec 79
Exceptions:
a) Short period rate agreed upon and appears on face of policy (exception to pro rata
rate).
b) Life insurance (exception to applicability of this section).
c) When the contract is voidable because of fraud or misrepresentations of the insurer
or his agent (Sec. 81)
d) When the contract is voidable because of the existence of facts of w/c the insurer was
ignorant w/o his fault (ibid.);
e) When the insurer never incurred any liability under the policy because of default of
the insured other than actual fraud (ibid.);
f) When there is over insurance (Sec. 82);
g) When rescission is granted due to the insurers breach of contract
115
Requisites:
a. A party knows a fact which he neglects to communicate or disclose to the other.
b. Such party concealing is duty bound to disclose such fact to the other.
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related
to the concealed matter (Sec. 27).
Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the
concealment whether intentional or unintentional entitles the injured party to rescind the
contract of insurance.
Test of Materiality: Determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the advantages of the proposed contract, or in making his inquiries
(Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more
material the information required of the applicant concerning the previous conditions of
health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268).
The right to information of material facts may be waived, either by the terms of the
insurance or by neglect to make inquiries as to such facts where they are distinctly implied
in other facts of which information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid the policy even though they are untrue. Reason: The
insurer cannot rely on those statements. He must make further inquiry. (Philamcare Health
Systems vs. CA, G.R. No. 125678, March 18, 2002).
34
b. Misrepresentation/Omissions118
Factual statements made by the insured at the time of, or prior to, the
issuance of the policy to give information to the insurer and induce him to
enter into the insurance contract. They are considered an active form of
concealment.
c. Breach of Warranties
General rule:
Violation of material warranty or of a material provision of a policy
will entitle the other party to rescind the contract. (Sec. 74)
116
Sec. 26
Villanueva, Phil Commercial Law, 1998 Ed., p. 177
118
Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to deceive or
which he states positively as true without knowing it to be true and which has a tendency to
mislead.
c. Such fact in either case is material to the risk.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not afterwards.
e. It always refers to the date the contract goes into effect.
Kinds:
a. Affirmative affirmation of a fact when the contract begins; and
b. Promissory promise to be performed after policy was issued.
Effect of Misrepresentation: the injured party is entitled to rescind from the time when the
representation becomes false.
117
35
Exceptions:
a) Loss occurs before the time of performance of the warranty.
b) The performance becomes unlawful at the place of the contract.
c) Performance becomes impossible.119
Immaterial120
General rule: It will not avoid the policy.
Exception: When the policy expressly provides or declares that a
violation thereof will avoid it.121
Sec. 73
ex. Other insurance clause
121
Sec. 75
122
Under Sec. 88, insurer is exonerated if notice of loss is not given to the insurer by the
insured or by the person entitled to the benefit without unnecessary delay.
It has been held however that formal notice of loss is not necessary if insurer has actual
notice of loss already.
123
Proof of loss is distinct from notice of loss and intended to:
1. give the insurer information by which he may determine the extent of his liability
2. afford him a means of detecting any fraud that may have been practiced upon him.
120
36
Other provisions:
When a preliminary proof of loss is required by a policy, the insured is
not bound to give such proof as would be necessary in a court of justice; but
it is sufficient for him to give the best evidence which he has in his power at
the time.124
All defects in a notice of loss, or in preliminary proof thereof, which
the insured might remedy, and which the insurer omits to specify to him,
without unnecessary delay, as grounds of objection, are waived.125
Delay in the presentation to an insurer of notice or proof of loss is
waived if caused by any act of him, or if he omits to take objection promptly
and specifically upon that ground.126
If the policy requires, by way of preliminary proof of loss, the
certificate or testimony of a person other than the insured, it is sufficient for
the insured to use reasonable diligence to procure it, and in case of the
refusal of such person to give it, then to furnish reasonable evidence to the
insurer that such refusal was not induced by any just grounds of disbelief in
the facts necessary to be certified or testified.127
b. Guidelines on Claims Settlement
(1) Unfair Claims Settlement; Sanctions
Unfair claim settlement practices:
a) knowingly misrepresenting to claimants pertinent facts or policy
provisions relating to coverage at issue;
The law does not stipulate any requirement as to the form in which notice or proof of loss
must be given. However, according to De Leon, it is advisable to give the notice in writing for
the protection of the insured or his beneficiary. Notice may be an informal or provisional
claim containing a minimum of information as distinguished from a formal claim which
contains full details of the loss, computations of the amounts claimed, and supporting
evidence, together with a demand or request for payment
Nature of notice and proof of loss
Although they are in the form of conditions precedent, they are in the nature of
conditions subsequent the breach of which affects a right that has already accrued (before
the loss, insurers liability is contingent but with the happening of the loss, his liability
becomes properly fixed).
These conditions are intended merely for evidentiary purposes and do not form any part
of the conditions of liability and are construed with much less strictness than those
conditions that operate prior to loss.
124
Sec. 89
125
Sec. 90
126
Sec. 91
127
Sec. 92
37
38
F. Transportation Law132
1. Common Carriers
Persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public.133
a. Diligence Required of Common Carriers
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.134
Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
132
The articles mentioned are under the Civil Code
133
Art. 1732
The said article avoids any distinction between one whose principal business activity is
the carrying of persons or goods or both and one who does such carrying only as an ancillary
activity (sideline). It also avoids a distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis.
Neither does the law distinguish between a carrier offering its services to the general public
that is the general community or population and one who offers services or solicits business
only from a narrow segment of the general population.
A person or entity is a common carrier even if he did not secure a Certificate of Public
Convenience (De Guzman vs. CA, 168 SCRA 612).
It makes no distinction as to the means of transporting, as long as it is by land, water or air.
It does not provide that the transportation should be by motor vehicle. (First Philippine
Industrial Corporation vs. CA)
One is a common carrier even if he has no fixed and publicly known route, maintains no
terminals, and issues no tickets (Asia Lighterage Shipping, Inc. vs. CA).
134
Art. 1733
The law requires CC to exercise extra-ordinary diligence which means that they must
render service with the greatest skill and utmost foresight.The extra-ordinary diligence
required of carriers in thehandling of the goods of the shippers and consigneeslast from the
time the cargoes are loaded in thevessels until they are discharged and delivered to
theconsignees.
Rendition of service with the greatest skill and utmost foresight (Davao Stevedore Co. v.
Fernandez)
Coverage:
1. Vigilance over goods (Arts. 1734-1754); and
2. Safety of passengers (Arts. 1755-1763).
Passenger:
A person who has entered into a contract of carriage, express or implied, with the carrier.
They are entitled to extraordinary diligence from the common carrier.
The following are not considered passengers, and are entitled to ordinary diligence only:
a. One who has not yet boarded any part of a vehicle regardless of whether or not he has
purchased a ticket;
b. One who remains on a carrier for an unreasonable length of time after he has been
afforded every safe opportunity to alight;
c. One who has boarded by fraud, stealth, or deceit;
39
40
Under Art. 1165, par. 3, if the obligor incurs delay, he shall be responsible for any
fortuitous event until he has effected delivery.
Art. 1741
139
Art. 1736
140
Art. 1737
141
Art. 1738
41
142
Art. 1745
Art. 1750
144
Art. 1749
143
42
43
44
In the absence of a bill of lading, their respective claims may be determined by legal
proofs which each of the contracting parties may present in conformity with law.
156
Art. 358, Code of Commerce
157
Art. 353, 3rd.par., Code of Commerce
45
Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T.& Hernando,
R.P. 2004 ed. p.68
159
PAL vs. CA
160
These rules does not apply to misdelivery of goods. (Roldan vs. Lim Ponzo)
161
it may be oral or written
The filing of notice of claim is a condition precedent for recovery.
Purpose of notice: To inform the carrier that the shipment has been damaged, and it is
charged with liability therefore, and to give it an opportunity to make an investigation and
fix responsibility while the matter is fresh.
Shorter period may be stipulated by the parties because it merely affects the shippers
remedy and does not affect the liability of the carrier. (PHILAMGEN vs. Sweetlines, Inc.)
162
Articles mentioned are under the Code of Commerce
Maritime/admiralty law
It is the system of laws which particularly relates to the affairs and business of the sea, to
ships, their crews and navigation, and to maritime conveyance of persons and property.
(Notes and Cases on the Law on Transportation and Public Utilities, Aquino & Hernando,
citing Francisco, p.254)
46
a. Charter Parties163
(1) Bareboat/Demise Charter
The charterer provides crew, food and fuel. The charterer is liable as
if he were the owner, except when the cause arises from the unworthiness
of the vessel. The shipowner leases to the charterer the whole vessel,
transferring to the latter the entire command, possession and consequent
control over the vessels navigation, including the master and the crew, who
thereby become the charters servants. It transforms a common carrier into
a private carrier.164
(2) Time Charter165
- Vessel is chartered for a fixed period of time or duration of voyage.
(3) Voyage/Trip Charter166
- The vessel is leased for one or series of voyages usually for purposes
of transporting goods for charterer.
b. Liability of Shipowners and Shipping Agents
Shipowner167
Person who has possession, control and management of the vessel and
the consequent right to direct her navigation and receive freight earned and
Maritime laws apply only to maritime trade and sea voyages. (Pandect of Commercial Law
and Jurisprudence, Justice Jose Vitug, 1997 ed.)
Arrastre service is not maritime in character. It refers to a contract for the unloading of
goods from a vessel. (ICTSI vs. Prudential Guarantee, 320 SCRA 244)
163
Charter party
A contract by virtue of which the owner or agent binds himself to transport merchandise or
persons for a fixed price.
A contract by which an entire ship, or some principal part thereof is let/leased by the owner
to another person for a specified time or use. (Planters Products, Inc. vs. CA, 226 SCRA 476)
Parties:
1. Ship owner or ship agent
2. Charterer
164
The charterer becomes the owner of the vessel pro hac vice, just for that one particular
purpose only. Because the charterer is treated as owner pro hac vice, the charterer assumes
the customary rights and liabilities of the shipowner to third persons and is held liable for
the expense of the voyage and the wages of the seamen.
165
A kind of contract of Affreightment whereby the owner of the vessel leases part or all of its
space to haul goods for others.
The shipowner retains the possession, command and navigation of the ship, the
charterer merely having use of the space in the vessel in return for his payment of the
charter hired.
166
Ibid.
167
proprietario
47
naviero
Not a mere agent under civil law; he is solidarily liable with the ship owner.
170
Art. 586
171
Art. 618
172
Villanueva, Phil. Commercial Law, 1998 ed., pp. 28-31
173
Average - an extraordinary or accidental expense incurred during the voyage in order to
preserve the cargo, vessel or both, and all damages or deterioration suffered by the vessel
from departure to the port of destination, and to the cargo from the port of loading to the
port of consignment. (Art. 806)
The person whose property has been saved must contribute to reimburse the damage
caused or expense incurred if the situation constitutes general average.
174
Art. 811
Goods not covered by general average even if sacrificed:
1. Goods carried on deck. (Art.855)
2. Goods not recorded in the books or records of the vessel. (Art. 855 (2))
169
48
(2) Collisions
Impact of two vessels both of which are moving.175
d. Carriage of Goods by Sea Act176
(1) Application
The transportation must be:
1. Water/maritime transportation;
2. for the carriage of goods; and
3. overseas/international/foreign177
It can be applied in domestic sea transportation if agreed upon by the
parties.178
(2) Notice of Loss or Damage179
Patent damage: shipper should file a claim with the carrier
immediately upon delivery
Latent damage: shipper should file a claim with the carrier within
three days from delivery.180
(3) Period of Prescription
Action for loss or damage to the cargo should be brought within one
(1) year181 after:
3. Fuel for the vessel if there is more than sufficient fuel for the voyage. (Rule IX, YorkAntwerp Rule)
175
Allision- impact between a moving vessel and a stationary one.
176
C.A. No. 65
177
from foreign port to Philippine port
178
Clause paramount or paramount clause
179
Loss or Damage as applied to the COGSA contemplates a situation where no delivery at
all was made by the shipper of the goods because the same had perished, gone out of
commerce, or disappeared in such a way that their existence is unknown or they cannot be
recovered. Thus, it is inapplicable in case of misdelivery or conversion. (Ang vs. American
Steamship Agencies Inc.)and damage arising from delay or late delivery (Mitsui O.S.K. Lines
Ltd. vs. CA). In such instance the, Civil Code rules on prescription shall apply.
180
Sec. 3(6)
The filing of a notice of claim is not a condition precedent.
181
The one-year prescriptive period is suspended by:
1. The express agreement of the parties (Universal Shipping Lines, Inc. vs. IAC, 188 SCRA
170)
2. The filing of an action in court until it is dismissed. (Stevens & Co. vs. Nordeutscher
Lloyd, 6 SCRA 180)
The one-year period shall run from delivery of the last package and is not suspended by
extrajudicial demand. (Dole Phils.,Inc. vs. Maritime Co., 148 SCRA 118)
49
50
G. Corporation Law
or transshipment.
189
Art. 22, as amended by Guatemala Protocol, 1971; Alitalia vs. IAC
190
Under domestic law and jurisprudence, the attendance of gross negligence (given the
equivalent of fraud or bad faith) holds the common carrier liable for all damages which can
be reasonable attributed, although unforeseen, to the non-performance of the obligation,
including exemplary damages.
51
B.P. 68
Sec. 2
193
Sec. 20
Requisites:
1. The existence of a valid law under which it may be incorporated;
2. A bona fide attempt in good faith to incorporate under such law;
3. Actual use or exercise in good faith of corporate powers; and
4. Issuance of a certificate of incorporation by the SEC as a minimum requirement of
continued good faith.
The only difference between a de facto corporation and a de jure corporation is that a de
jure corporation can successfully resist a suit by a state brought to challenge its existence; a
de facto corporation cannot sustain its right to exist.
192
52
Sec. 21
e.g. Roman Catholic Church
196
Sec. 3
197
The Corporation Code of the Philippines Annotated, Hector de Leon, 2002 ed.
195
53
7. As to place of incorporation
a. Domestic corporation- a corporation formed, organized, or
existing under Philippine laws.
b. Foreign corporation a corporation formed, organized, or
existing under any laws other than those of the Philippines.198
c. Nationality of corporations
(1) Control test
Determined by the nationality of the controlling stockholders or
members. This test is applied in times of war. Also known as the wartime
test.
(2) Grandfather rule
Applied in determining the nationality of a corporation. It traces the
nationality of the stockholders of investor corporations so as to ascertain
the nationality of the corporation where the investment is made.199
The application of the test is limited however to resolving issues on
investments. By the Foreign Investments Act, the grandfather rule is merely
an ancillary rule to the main method of determining nationality, wherein
corporations that are 60% owned by Filipinos are automatically considered
as 100% Filipino-owned. Only when a corporation is less than
60% owned shall the grandfather rule be applied.
d. Corporate juridical personality
(1) Doctrine of separate juridical personality
198
Sec. 123
Ex: MV Corporation and AC Corporation have equal interest in XYZ Company. MV
Corporation is 60%
owned by Filipinos, while AC Corporation is 50% owned by Filipinos. By the grandfather rule,
MV Corporation would have a 30% Filipino interest in XYZ Company (60% of 50%), while AC
Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%). Hence, the
total Filipino interest is only 55%.
199
54
55
The Court held that in all cases of libel, corporations can be awarded
moral damages. The Court, through Justice Antonio Carpio said:
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the
award of moral damages. However, the Courts statement in
Mambulao that a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of
moral damages is an obiter dictum.
Nevertheless, AMECs claim for moral damages falls
under item 7 of Article 2219 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Article 2219(7)
does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can
validly complain for libel or any other form of defamation and
claim for moral damages.
Moreover, where the broadcast is libelous per se,
the law implies damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages. Neither in such a
case is the plaintiff required to introduce evidence of actual
damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus,
AMEC is entitled to moral damages.
(2) Doctrine of piercing the corporate veil
It means that while the corporation cannot be generally held liable
for acts or liabilities of its stockholders or members, and vice versa because
a corporation has a personality
separate
and
distinct
from
its
members
or
stockholders,
however,
the corporate existence is
disregarded under this doctrine when the corporation is formed or used for
illegitimate purposes, particularly, as a shield to perpetuate fraud, defeat
public convenience, justify wrong, evade a just and valid obligation or
defend a crime.
(a) Grounds for application of doctrine205
205
56
1.
The parent corporation owns all or most of the capital of the
subsidiary.
2. The parent and subsidiary corporations have common directors or
officers.
3. The parent company finances the subsidiary
4. The parent company subscribed to all the capital stock of the
subsidiary or otherwise causes its incorporation.
5. The subsidiary has grossly inadequate capital.
6.
The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by the
parent corporation.
7.
officers,
parent
referred
8.
own.
9.
The directors or executives of the subsidiary do no act
independently in the interest of the subsidiary but take their orders from
the parent corporation.
10. The
observed.206
formal
legal
requirements
of
Phil. National Bank v. Ritratto Group, Inc., 362 SCRA 216 [2001]
Such control must have been used by the defendant to commit a fraud or wrong to
perpetuate the violation of a statutory or other positive legal breach of duty, or a
dishonest and an unjust act in contravention of the plaintiffs legal right, and,
The said control and breach of duty must have proximately caused the injury or unjust
loss complained of. (PNB v. Andrada
Electric
&
Engineering Company, 381 SCRA 244
[2002], Child Learning Center Inc. v. Tagario (November 25, 2005)
207
57
e. Capital structure
(1)Number and qualifications of incorporators
1.
2.
3.
4.
5.
natural persons;
not less than 5 but not more than 15;
of legal age;
majority must be residents of the Philippines; and
each must own or subscribe to at least one share.
(2) Minimum
requirements
capital
stock
and
subscription
issued without
are entitled to a
its assets upon
affairs without
Those issued with par value, and preferences either with respect to
(a) assets after dissolution, (b) distribution of dividends, or both, and other
preferences.
3. Redeemable shares
Those which permit the issuing corporation to redeem or purchase its
own shares.
4. Treasury shares
Shares that have been earlier issued as fully paid and have thereafter
been acquired by the corporation by purchase, donation, and redemption or
through some lawful means.
5. Founders' share
Shares issued to organizers and promoters of a corporation in
consideration of some supposed right or property.
6. Voting shares
Shares with a right to vote.
7. Non-voting shares
Shares without right to vote.
8. Escrow stock
Deposited with a third person to be delivered to a stockholder or his
assign after complying with certain conditions, usually payment of full
subscription price.
9. Over-issued stock
Stock issued in excess of the authorized capital stock. It is also known
as spurious stock. Its issuance is considered null and void.
10. Watered stock
A stock issued not in exchange for its equivalent either in cash,
property, share, stock dividends, or services.
Water in the stock represents the difference between the fair
market value at the time of the issuance of the stock and the par or issued
value of said stock. Both par and no par stocks can thus be watered stocks.
11. Par value shares
Shares with a value fixed in the certificates of stock and the articles of
incorporation.
59
208
209
60
Sec. 60
A person agreed to take and pay for original and unissuedshares of a corp. formed or to
be formed
211
Under Sec 60 any contract for the acquisition of unissued stock in a corporation still to be
formed shall be deemed a subscription within the meaning of the Corporation Code.
Under Sec 61, a subscription for shares of stock of a corporation still to be formed shall be
irrevocable for a period of 6 mos. from the date of subscription, unless all of the other
subscriber consent to the revocation, or unless the incorporation of said corporation fails to
materialize within said period or within a longer period as may be stipulated in the contract
of subscription. However, no pre-incorporation subscription may be revoked after the
submission of the articles of incorporation to SEC
212
Sec. 61
61
name of corporation;
purpose/s, indicating the primary and secondary purposes;
place of principal office;
term of existence;
names, citizenship and residences of incorporators;
number, names, citizenship and residences of directors or trustees;
names, nationalities, and residences of the persons who shall act as
directors or trustees until the first regular ones are elected and
qualified;
8. if a stock corporation, the amount of its authorized capital stock,
number of shares and in case the shares are par value shares, the
par value of each share;
9. names, residences, number of shares, and the amounts subscribed
and paid by each of the original subscribers which shall not be less
than 25% of authorized capital stock;
213
Sec. 62
Where the consideration is other than actual cash, or consists of intangible property such
as patents of copyrights, the valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by the Securities and Exchange
Commission. Shares of stock shall not be issued in exchange for promissory notes or future
service (ibid)
62
Sec. 14
Sec. 18
63
By-laws - rules of action adopted by a corporation for its internal government and for the
regulation of conduct and prescribe the rights and duties of its stockholders or members
towards itself and among themselves in reference to the management of its affairs.
Functions:
a. Supplement the articles of incorporation
b. Provide for details not important enough to be stated in the articles of incorporation
c. Continuing rule for the government of the corporation and the individuals composing it
d. Define the rights and duties of corporate officers and directors/trustees and of
stockholders/members towards the corporation and among themselves
e. Source of authority for corporate officers and agents of the corporation
217
By-laws have no extra-corporate force and are not in the nature of legislative enactments
so far as third persons are concerned.
218
Power to amend or repeal by-laws or adopt new by-laws may be delegated by the 2/3 of
the outstanding capital stock or 2/3 of the members in the case of non-stock corporation
64
This power (Section 36(1)) is an incident to corporate existence. (De Leon 2006 at 319)
As a rule, suits are to be brought by or against the corporation in his own name.
Corporation de facto may sue or be sued but a corporation which has been dissolved
after the expiration of 3-year winding-up period ceases to exist de jure or de facto.
Under Sec. 36 of Corporation Code, in relation to Sec. 23, where a corporation is an
injured party, its power to sue is lodged with its Board of Directors. A minority stockholder
who is a member of the Board has no such power or authority to sue on the corporations
behalf. (Tam Wing Tak v. Makasiar,
350 SCRA 475 (2001); Shipside Inc. v. Court of Appeals, 352 SCRA 334 (2001); SSS v. COA,
384 SCRA 548 (2002); United Paragon Mining Corp v. CA, 2006)
Where the corporation is real party-in-interest, neither administrator or a project manager
could sign the certificate against forum-shopping without being duly authorized by
resolution of the Board of Directors (Esteban, Jr. v. Vda. De Onorio, 360 SCRA 230 [2001]),
nor the General Manager who has no authority to institute a suit on behalf of the corporation
even when the purpose is to protect corporate assets.(Central Cooperative Exchange Inc. v.
Enciso, 162 SCRA 706 [1988]).
When the power to sue is delegated by the by-laws to a particular officer, such officer
may appoint counsel to represent the corporation in a pre-trial hearing without need of a
formal board resolution. Citibank, N.A. v. Chua, 220 SCRA 75 (1993)
For counsel to sign the certification for the corporation, he must specifically be
authorized by the Board of Directors. (BP Leasing Corp. v. CA, 416 SCRA 4 (2003); Mariveles
Shipyard Corp. v. CA, 415 SCRA 573 (2003), Metro Drug Distribution Inc. v. Narciso,(2006 )
220
Sec. 36
Enumerates some of the express powers of corporations (many of which even if not
expressly provided for by law would constitute implied powers of every entity. (p. 794 of
CLVs CLR, 2007)
65
66
Sec. 39
A pre-emptive right is the shareholders right to subscribe to all issues or disposition of
shares or any class in proportion to his present stockholdings, the purpose being to enable
the shareholder to retain his proportionate control in the corporation and to retain his equity
in the retained earnings and also in the net assets in the event of dissolution. (Page 832 of
CLVs CLR, 2007)
Whenever a capital stock of a corporation is increased and new shares of stocks are
issued, the new issue must be offered first to the stockholders who are such at the rime the
increase was made in proportion to their existing shareholdings and on equal terms with
other holders of the original stocks before subscriptions are received from the general
public. For example, if a stockholder with pre-emptive right owns 20% of the outstanding
shares of the corporation, he may subscribe 20% of any shares of stock issued by the
corporation. This principle is known as the right of pre- emption or pre-emptive right of
stockholders (Page 355 of De Leon, 2006)
The rule [on pre-emption] aims to safeguard the right of stockholder to preserve
unaltered and unimpaired his proportionate influence and interest in the corporation and the
relative value of his holdings. (Page 356 of De Leon, 2006)
224
No ratificatory vote needed:
a. If it is necessary in the usual and regular course of business
b. if the proceeds of the sale or other disposition of such property and assets be
appropriated for the conduct of the remaining business
67
68
Special rules:
a.Where a corporation sold its real property, which is not being used
for business, at a gain, the income derived therefrom may be availed of for
dividend distribution.
b. Increase in the value of a fixed asset as a result of its revaluation is
not retained earnings. However, increase in the value of fixed assets as a
result of revaluation228 may be declared as cash or stock dividends
provided that the company:
i. Has sufficient income from operations from which the
depreciation on the appraisal increase was charged
ii. Has no deficit at the time the depreciation on the appraisal
increase was charged to operations; and
iii. Such depreciation on appraisal increase previously charged
to operations has not been impaired by losses.
c. Dividends can be declared out of the amount received in excess of
the par value of shares229 when:
i. Declared only as stock dividends and not cash;
ii.No creditors are prejudiced; and
iii. There is no impairment of capital.
d. Reduction surplus can be a source of dividends. Rule on paid-in
surplus is applicable.
a. Cash
b. Property
c. Stock
While cash dividends due on delinquent shares can be applied to the payment of the
unpaid balance, stock dividends cannot be applied as payment for unpaid subscription.
General Rule: Stock corporations are prohibited from retaining surplus profits in excess of
100% of their paid-in capital stock
Except:
a. When justified by definite corporate expansion projects approved by the board of
directors
b. When the corporation is prohibited under any loan agreement with any financial
institution or creditor from declaring dividends without its/his consent and such consent has
not yet been secured
c. When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is a need for special reserve
for probable contingencies.
228
Revaluation surplus
229
paid-in surplus
Unlike par value shares, when no par value shares are sold at a premium, the entire
consideration paid is considered capital; hence the same cannot be declared as dividends.
69
to
enter
into
management
Requisites:
a. Approved by majority of the Board, by majority of the stockholders,
of both the managed and managing corporation.
b. If a stockholder of the managed corporation owns more than 1/3 of
the managing corporation, the management contract must be approved by
at least 2/3 of the stockholders of the managed corporation.
(i) Ultra vires acts
An act which is beyond the conferred powers of a corporation or the
purposes or objects for which it is created as defined by the law of its
organization.232
230
70
71
72
not creditors whose remedies are merely subsidiary such as accionsubrogatoria and
accionpauliana
241
Requisites:
(i) An existing cause of action in favor of the corporation
(ii) The stockholder/member must first make a demand upon the corporation or the
management to sue unless such a demand would be futile
(iii) The stockholder/member must be such at the time of the objectionable acts or
transactions unless the transactions are continuously injurious
(iv) The action must be brought in the name of the corporation
The number of shares of the stockholder is immaterial since he is not suing in his own
behalf
The mere trustee of shares registered in his name cannot file a derivative suit for he is not
a stockholder in his own right. (Bitong vs. CA, 292 SCRA 304)
242
as principal
73
No proxy shall be valid and effective for a longer period than five
years at any one time.243
(b) Voting trust
An agreement whereby one or more stockholders transfer their shares
of stocks to a trustee, who thereby acquires for a period of time the voting
rights244over such shares; and in return, trust certificates are given to the
stockholder/s, which are transferable like stock certificates, subject,
however, to the trust agreement.245
(c) Cases
required
when
stockholders
action
is
i. By a majority vote
a. To enter into management contract if any of the two (2) instances
stated246 are absent;
b. To adopt, amend or repeal the by-laws.
ii. By a two-thirds vote
a. Power to extend or shorten corporate term;
b. Increase/Decrease Corporate Stock;
243
Sec. 58
The right to vote by proxy may be exercised in any of the following instances:
1. Election of the board of directors or trustees;
2. Voting in case of joint ownership of stock;
3. Voting by trustee under voting trust agreement;
4. Pledge or mortgage of shares;
5. As provided for in its by-laws.
Stockholders or members may attend and vote in their meetings by proxy (Sec. 58);
directors cannot do so. Directors must always act in person. (Sec. 25).
244
and/or any other rights
245
Limitations:
a. Cannot be entered into for a period exceeding 5 years at any one time except when it
is a condition in a loan agreement or for the purpose of circumventing the law against
monopolies and illegal combinations
b. The agreement must not be used for purposes of fraud
c. It must be in writing and notarized and specify the terms and conditions thereof
d. A certified copy of the agreement must be filed with the corporation and with the SEC
e. The agreement shall be subject to examination by any stockholder of the corporation
f. Unless expressly renewed, all rights granted in the agreement shall automatically
expire at the end of the agreed period
246
infra
74
A stockholder is allowed to concentrate his votes and give one candidate as many votes
as the number of directors to be elected multiplied by the number of his shares shall equal.
Cumulative voting is allowed for election of members of the Board in a stock corporation.
Members of the Board in a Non-stock Corporation shall not be votedcumulatively unless
specificallyprovided for in the By-laws.
The total number of votes cast by a stockholder shall not exceed thenumber of shares
owned by him asshown in the books of the corporation multiplied by the wholenumber of
directors to be elected.
Gives the minority an opportunity to elect a representative to theBOD. Cannot itself give
theminority control of corporate affairsbut may affect and limit the extent of majoritys
control.
Theoretically, this allows theminority block to dominate theelection of BOD. However,
theminority still needs the majority inorder to constitute a quorum.
By-laws cannot provide againstcumulative voting since this right ismandated in Sec. 24
(mandatory in astock corporation statutory right of SHs).
75
248
76
2. The
stockholder,
member,
director
or trustees demanding
the exercise of the rightis one who has not improperly used any
information secured through any previous examination of the records of
the corporation or any other corporation;
3. The demand must be accompanied with statement of the purpose of
the inspection, which must show good faith or legitimate purpose; and,
4. If the corporation or its officers contest such purpose or contend
that there is evil motive behind the inspection, the burden of proof iswith
the corporation or such officer to showthe same.
(d) Preemptive right
It is the shareholders preferential right to subscribe to all issues or
dispositions of shares of any class in proportion to their present
stockholdings.250
(e) Right to vote
Limitations on the right to vote;
1. Where the Articles of Incorporation provides for classification of
shares pursuant to Sec.6, non-voting shares are not entitled to vote except
as other provided in the said section.
2. Preferred or redeemable shares may be deprived of the right to
vote unless otherwiseprovided.
250
Purpose: to enable the shareholder to retain his proportionate control in the corporation
and to retain his equity in the surplus.
Extends to treasury shares in case of their reissuance.
If the shares preferentially offered to a stockholder are not subscribed or purchased by
him, it does not follow that said shares shall again be re-offered on a pro rata basis to
stockholders who already exercised their preemptive rights. There is no preemptive right
with respect to the share to be re-offered.
In case additional issues of originally authorized shares:
General rule: There is no preemptive right. This is on the theory that when a corporation
at its inception offers its first shares, it is presumed to have offered all of those which it is
authorized to issue.
Exception: When a corporation at its inception offers only a specified portion of its
authorized capital stock for subscription. If subsequently, it offers the remaining
unsubscribed portion, there would be preemptive right as to the remaining portion thus
offered for subscription.
When pre-emptive right not available:
a. When denied by the article of incorporation
b. Shares requiring stock offering or minimum stock ownership by the public
c. Shares to be issued in good faith with the approval of the stockholders representing
2/3 of the outstanding capital stock, in exchange for property needed for corporate purposes
or in payment of a previously contracted debt
77
251
78
Sec. 50
Sec. 53
256
Ibid.
Notice is required for both regular and special meetings but such notice may be waived,
expressly or impliedly.
257
Sec. 50
258
Sec. 52
255
79
259
responsible for corporate policies and the general management of the business and affairs
of the corporation
260
Sec. 23
261
Secs. 6, 42 & 43
262
Ibid.
263
Ibid.
80
punishable
by
2. Violation of this Code committed within five (5) years prior to the
date of his election or appointment.264
(3) Elections
(a) Cumulative voting
Allowed for election of members of the board in a stock corporation.
Members of the board in a non-stock corporation shall not be voted
cumulatively except if otherwise provided in the articles of incorporation or
by-laws.265
(b) Quorum
The owners of a majority of the outstanding capital stock, or if there
be no capital stock, a majority of the members entitled to vote.266
(4) Removal
By a vote of the stockholders holding or representing 2/3 of the
outstanding capital stock, or if the corporation be a non-stock corporation,
by a vote of 2/3of the members entitled to vote.267
(5) Filling of vacancies
May be filled by a vote of at leasta majority of the remaining directors
or trustees, if still constituting a quorum.
In the following cases, the stockholders or members shall fill the
vacancy:
264
Sec. 27
By-laws may provide for additional qualifications/disqualifications as long as such
additionalqualifications/disqualifications shall not modify requirements as prescribed in the
corporation code or be in conflict with such prescribed requirements.
265
See also cumulative voting under Stockholders and members, supra
266
Sec. 24, 1stsen.
267
with or without cause
Such removal shall take placeeither at a regular meeting or at aspecial meeting called for
the purposeof removal of Directors or Trustees, with previous notice of the time andplace of
such meeting, as well as theintention to propose such removal. If the officers refuse to call a
meeting toconsider the removal of the Director, itmay be called at the instance of
anystockholder or member, but with duenotice.
Removal without cause may not beused to deprive minority stockholdersor members of the
right of representation to which they may beentitled to under Section 24.
The board cannot remove a director ortrustee as member of the board.
81
268
269
Sec. 30
Sec. 34
82
270
Exceptions:
a. When the Corp Code expressly provides otherwise;
b. When the directors or officers acted with fraud, gross negligence or in bad faith; and
c. When directors or officers act against the corp. in conflict-of-interest situation
General rule: Directors cannot be held liable for mistakes or errors in the exercise of their
business judgment if they acted in good faith, with due care & prudence. Contracts intra
vires entered into by the board of directors are binding upon the corp. & courts will not
interfere.
Exception: If the contracts are so unconscionable & oppressive as to amount to a wanton
destruction of the rights of the minority.
Board of Directors has authority to modify theproposed terms of the contracts of
thecorporation for the purpose of making theterms more acceptable to the other
contractingpartiesThe test to be applied is whether theact in question is the direct and
immediatefurtherance of the corporations business, fairlyincidental to the express powers
andreasonably necessary to their exercise. If so,the corporation has the power to do
it;otherwise not. [Montelibano v. Bacolod MurciaMilling Co. (1962)
271
Phil. Stock Exchange, Inc. vs. Court of Appeals, 281 SCRA 232 (1997)
272
Sec. 31, 1st par.
83
Sec. 65
People vs. Tan Boon Kong, 54 Phil. 607 (1930); Sia vs. CA, 121 SCRA 655 (1983); Times,
Inc. vs. Reyes, 39 SCRA 303 (1971)
275
Cometa vs. CA
276
Strong v Repide, 1909
274
84
directors
with
the
85
Sec. 32
supra
280
Sec. 33
281
Sec. 35, 1stsen.
282
Ibid., 2ndsen.
279
86
ii. Notice
Must be sent to every director or trustee at least one (1) day prior to
the scheduled meeting, unless otherwise provided by the by-laws. A director
or trustee may waive this requirement, either expressly or impliedly.284
(b) Who presides
The president shall preside at all meetings of the directors or trustee
as well as of the stockholders or members, unless the by-laws provide
otherwise.285
(c) Quorum
Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as fixed in
the articles of incorporation.286
(d) Rules on abstention
When it comes time for directors to vote on an issue, a director may
vote "yes" or "no." If a director abstains from voting, that means the
director has not voted. An abstention is a non-vote, a decision not to make a
decision.287 The president votes on all motions, not just to break ties.
283
Sec. 53
Ibid.
285
Sec. 54
Some by-laws provide that the Chairman of the board of directors or trustees presides at
board meetings.
286
Sec. 25, 2nd par.
287
Robert's Rules of Order, 10th ed., p 43
284
87
An abstention may have the practical effect of a "no" vote since the
motion may fail for lack of sufficient "yes" votes. Unless a greater number is
called for in the articles or bylaws, a matter is deemed "approved" by the
board if at any meeting at which a quorum is present at least a majority of
the required quorum of directors votes in favor of the action.
For example, if five directors are present (out of five) and there is a
motion to close the pool each day at 8:00 p.m. (from the current 10:00 p.m.)
and two directors vote "yes," two directors vote "no," and one abstains, the
motion fails. The vote needed a majority of three yes votes to pass and it
only received two. Accordingly, the pool remains open to 10:00 p.m. each
night. Under limited circumstances, a director may change his/her vote or
the matter may be reconsidered at a later date.
When the chair calls for a vote, abstentions are not called for, only the
ayes and nays.288 The burden is on an abstaining director to speak up if
he/she wants to be recorded as an abstention. If the vote is called for and
one of the directors fails or refuses to indicate "yes," "no" or "abstain," and
the chair of the meeting deems the director to have voted "yes" and the
silent director does not object, the vote is counted as a "yes" vote.
Whenever a director believes he/she has a conflict of interest, the
director should abstain from voting on the issue and make sure his/her
abstention is noted in the minutes.289 The other reason a director might
abstain is that he/she believes there was insufficient information for making
a decision. Otherwise, directors should cast votes on all issues put before
them. Failure to do so could be deemed a breach of their fiduciary duties.
j. Capital affairs
(1) Certificate of stock
(a) Nature of the certificate
Evidences of ownership of stock in a corporation. They are
transferable in the manner provided for290 but the transfer shall bind the
parties only when recorded in the books of the corporation. Shares of stock
being personal property can also be pledged.
(b) Uncertificated shares
288
289
290
Ibid.
Ibid., p. 394
See Sec. 63
88
291
www.investorwords.com
See Sec. 63
293
Sec. 64
294
Nava v Peers Mktg Corp and FuaCun v Summers
295
The stock and transfer book is the best evidence of the transactions that must be entered
or stated therein. However, the entries are considered prima facie evidence only and may be
subject to proof to the contrary (Lanuza v. Court of Appeals, 454 SCRA 54)
292
89
90
security, running for a period of one (1) year for a sum and in such form and
with such sureties as may be satisfactory to the BOD. Provided, that if there
is a pending contest regarding the ownership of said certificates, the
issuance of new certificates shall be suspended until the final decision of the
court regarding theownership of the certificate of stock.298
(g) Situs of the shares of stock
Generally at the domicile of the owner.
For purposes of execution, attachment and garnishment, the situs of
shares of stock is the domicile of the corporation. For the purpose of
registering the chattel mortgage over the shares of stock, the situs of
shares shall be the province in which the corporation has its principal
business or office.
For purposes of taxation, it is the domicile of the corporation that is
generally controlling.
(2) Watered stocks
(a) Definition
Stocks issued gratuitously, money/property less than par value,
services less than par value, dividends where no surplus profits exist.
(b) Liability of directors for watered stocks
Any director or officer of a corporation consenting to the issuance of
stocks for a consideration less than its par or issued value or for a
consideration in any form other than cash, valued in excess of its fair value,
or who, having knowledge thereof, does not forthwith express his objection
in writing and file the same with the corporate secretary, shall be solidarily,
liable with the stockholder concerned to the corporation and its creditors
for the difference between the fair value received at the time of issuance of
the stock and the par or issued value of the same.299
(c) Trust fund doctrine for liability for watered
stocks
"It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to look for
298
Except in cases of fraud, bad faith, or negligence on the part of the corporation and its
officers, no action may be brought against the corp. which shall have issued certificates of
stock in lieu of those lost, stolen or destroyed pursuant to the above procedure.
299
Sec. 65
91
satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts.300A corporation has no power to release an original
subscriber to its capital stock form the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a
reduction of the capital stock and take place only in the manner and under
the conditions prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory regulations is
necessary.301"
Likewise, under Sec. 65 of the Corporation Code, no distinction is
made as to creditors whether they become such prior to or subsequent to
the issuance of the watered stock and fraud is not made an element. In any
event, Sec. 65 is by itself sufficient basis to hold a stockholder liable to any
corporate creditor.
The legal standing of corporate creditors against guilty stockholders
and officers for watered stock is clear in a situation when the corporation is
insolvent since then all corporate assets would be held for the satisfaction
of the claims of the creditors, before any distribution is made to the
stockholders. But when the corporation is still a "going concern" and the
watering of the stock does not actually render it insolvent, does Sec. 65
actually grant corporate creditors the legal standing to bring at that point a
suit against the involved stockholder and the guilty officers?
In the payment of property for subscribed shares, Sec. 62 of the
Corporation Code provides that "the valuation thereof shall initially be
determined incorporators or the board of directors subject to approval by
the Securities and Exchange Commission." In actual practice the watering
of stock is not supposed to happen because property consideration for
subscription is always evaluated by the Securities and Exchange
Commission which often conducts an examination of the involved properties
and appraisal reports are submitted to establish the fair value of such
properties. When the Securities and Exchange Commission approves the
valuation it may be difficult to sustain an assertion later on that there has
been watering of the shares.302
(3) Payment of balance of subscription
(a) Call by board of directors303
300
92
93
94
3. Certificate of stock
Otherwise, the same shall not bebinding on any purchaser in good
faith.
311
Sec. 98
Said restrictions shall not be moreonerous than granting the existing stockholders or the
corporation theoption to purchase the shares of thetransferring stockholder with such
reasonable terms, conditions or periodstated therein.
If upon the expiration of said period,the existing stockholders or the corporation fails to
exercise the optionto purchase, the transferringstockholder may sell his shares to any third
person.
312
Nava and FuaCun
Difficult to determine whether or not partial payments made should be applied as full
payment.
313
Must secure the consent of the corporation since the transfer contemplates a novation of
contract.
But cannot be forced upon the corporation
314
See Sec. 63
95
315
96
Sec. 119
PNB v. Court of First Instance of Rizal, Pasig, Br. XXI, 209 SCRA 294 (1992)
97
non-use of charter
automatic
323
Republic vs. Security Credit and Acceptance Corp., 19 SCRA 58 (1967)
324
P.D. 902-A
325
After the dissolution of the corporation, it continues to exist as a body corporate, but only
for the purpose of prosecuting and defending suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey its property and to distribute its assets, but
not for the purpose of continuing the business for which it was established.
322
98
trust, the 3-year limitation will not apply as long as the designation of
trustees is made within said period. The Board who cant finish liquidating
in time may let trustees take over the job.326
(c)
By
management
committee
or
rehabilitation receiver
Liquidation by a receiver who may have been appointed by the SEC
upon its decreeing the dissolution of the corporation. 3-year period does
not apply because the corporation is substituted by the receiver. However,
the mere appointment of a receiver, without anything more, does not result
in the dissolution of the corporation nor bar it from the exercise of its
corporate rights.
(d) Liquidation after three years
There is nothing in Sec. 122 which bars an action for the recovery of
the debts of the corporation against the liquidator thereof, after the lapse of
the said three-year period. Is immaterial that the present action was filed
after the expiration of the three years . . . for at the very least, andassuming
that judicial enforcement of taxes may not beinitiated after said three years
despite the fact that actualliquidation has not terminated and the one in
charge thereof is still holding the assets of the corporation, obviously for
the benefit of all the creditors thereof, the assessment aforementioned,
made within the three years, definitely established the Government as a
creditor of the corporation for whom the liquidator is supposed to hold
assets of the corporation.327
l. Other corporations
(1) Close corporations
326
Anytime during the 3 year period, the corporation is authorized and empowered to convey
all of its property to trustees for the benefit of shareholders and other persons in interest.
If the 3-year extended life has expired without a trustee or receiver having been
designated, the Board of Directors itself, following the rationale of the decision in Gelano,
may be permitted to so continue as trustees to complete liquidation; and in the absence of
a Board, those having pecuniary interest in the assets, including the shareholders and the
creditors of the corporation, acting for and in its behalf, might make proper representations
with the appropriate body for working out a final settlement of the corporate concerns.
(Clemente v. Court of Appeals, 242 SCRA 717 (1995))
In Gelano case, the counsel of the dissolved corporation was considered a trustee. In the
later case of Clemente v. Court of Appeals, the Board of Directors was permitted to complete
the corporate liquidation by continuing as trustees. Under Sec. 145 No right of remedy in
favor or against any corporation . . . shall be removed or impaired either by the subsequent
dissolution of said corporation or by any subsequent amendment or repeal of this Code or of
any part thereof. This provision safeguards the rights of a corporation which is dissolved
pending litigation. (Reburiano v. Court of Appeals, 301 SCRA 342 (1999); Knecht v. United
Cigarette Corp., 384 SCRA 48 (2002).
327
Republic v. Marsman Dev. Co., 44 SCRA 418 (1972)
99
Sec. 96
Special rules are provided for close corporations because it is essentially an incorporated
partnership. (The Corporation Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
329
100
Sec. 98
101
transfer of stock, the corporation may, at its option, refuse to register the
transfer of stock in the name of the transferee.
5. The provisions of subsection (4) shall not be applicable if the
transfer of stock, though contrary to subsections (1), (2) or (3), has been
consented to by all the stockholders of the close corporation, or if the close
corporation has amended its articles of incorporation in accordance with
this Title.
6. The term "transfer", as used in this section, is not limited to a
transfer for value.
7. The provisions of this section shall not impair any right which the
transferee may have to rescind the transfer or to recover under any
applicable warranty, express or implied.331
(d) When board meeting is unnecessary or
improperly held
Unless the by-laws provide otherwise, any action by the directors of a
close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is
signed by all the directors; or
2. All the stockholders have actual or implied knowledge of the action
and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the
express or implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
If a director's meeting is held without proper call or notice, an action
taken therein within the corporate powers is deemed ratified by a director
who failed to attend, unless hepromptly files his written objection with the
secretary of the corporation after having knowledge thereof. 332
(e) Preemptive right
The pre-emptive right of stockholders in close corporations shall
extend to all stock to be issued, including reissuance of treasury shares,
331
332
Sec. 99
Sec. 101
102
Sec. 102
Sec. 103
335
Sec. 104, 1st par.
Powers of the SEC in case of deadlock in close corporations:
1. Cancel or alter any provision in the articles of incorporation or bylaws
2. Cancel, alter or enjoin any resolution of the corporation
3. Direct or prohibit any act of the corporation
4. Require the purchase at their fair value of shares of any stockholder either by any
stockholder or by the corporation regardless of the availability of unrestricted retained
earnings.
5. Appoint a provisional director
6. Dissolve the corporation
7. Granting such other relief as the circumstances may warrant. (id.)
336
Sec. 87
334
103
Sec. 88
They are governed by the same rules established for stock corporations, whenever
pertinent, subject, however, to a number of special features.
338
Sec. 94
104
339
Republic vs. IglesianiKristo, cited in the case of Rafael Albano. Et al. vs. Court of Appeals,
et al., G.R. No. 144708, August 10, 2001
340
Roman Catholic Apostolic Church v. LRC, 1957
341
Sec. 123
The definition espouses the incorporation test and the reciprocity rule and is significant
for licensing purposes.
It is not permitted to transact or do business in the Philippines until it has secured a
license for that purpose from the SEC and a certificate of authority from the appropriate
government agency.
105
342
106
107
Sec. 127-128
Lorenzo Shipping Corp. v. Chubb & Sons, Inc., et al., 431 SCRA 266 (2004)
354
Ibid.
355
Foreign corporations, even unlicensed ones, can sue or be sued on a transaction or series
of transactions set apart from their common business in the sense that there is no intention
to engage in a progressive pursuit of the purpose and object of business transaction.
(EriksPte.Ltd vs. CA, 267 SCRA 567)
353
108
3. Failure to inform
resident agent;
356
Sec. 134
Merger or consolidation does not become effective by mere agreement of the constituent
corporations. The approval of the SEC is required.
358
Of course, there is an arrangementas to the shares of stocks that willbe issued to the
formerstockholders of the two (2)corporations which were merged.Said stockholders are
nowstockholders of the corporationwhich survives. The proportionbetween the two (2)
corporationswill be the basis of the shares of stocks that will be issued to thestockholders
under the survivingcorporation
357
109
under the new corporation is determined by the ration between the assets
of the two (2) corporations.359
(2) Constituent v. consolidated corporation
Two or more corporations may merge into a single corporation which
shall be one of the constituent corporations or may consolidate into a new
single corporation which shall be the consolidated corporation.360
(3) Plan of merger or consolidation
The board of directors or trustees of each corporation, party to the
merger or consolidation, shall approve a plan of merger or consolidation
setting forth the following:
1. The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying
the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of
the surviving corporation in case of merger; and, with respect to the
consolidated corporation in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations
organized under this Code; and
4. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.361
(4) Articles of merger or consolidation
After the approval by the stockholders or members, articles of merger
or articles of consolidation shall be executed by each of the constituent
corporations:
1) to be signed by the president or vice-president and
2) certified by the secretary or assistant secretary of each corporation
The articles of merger or consolidation shall set forth:
359
360
361
In a merger or consolidation:
1. Sale of assets is always involved
2. There is automatic assumption of liabilities
3. There is continuance of the enterprise and of the stockholders
4. Title to the assets are transferred by operation of law
5. The constituent corporations are automatically dissolved
Sec. 76
Ibid.
110
by
the
SECof
the
certificate
(7) Limitations
a. Should not create monopolies
b. Should not eliminate free and healthy competition
c. Act 3518, Sec 20 inhibits illegal combinations
(8) Effects
362
111
of
merger
and
Sec. 80
R.A. No. 8799
112
Sec. 2
Sec. 5
113
Ibid.
Sec. 8
114
executor,
administrator,
guardian/receiver
in
debt.
3. Sale on isolated transactions by owner.
4. Distribution of stock dividends.
5.
Sale of capital stock exclusively to stockholders where no
commission is paid.
6. The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, where the entire mortgage are sold to
a single purchaser at a single sale.
7. Issuance of security in exchange of any security from same issuer
pursuant to right of conversion.
8. Brokers transactions
9. Pre-incorporation subscription and subscription pursuant to an
increase of the ACS.
10. Exchange of securities by issuer with
exclusively
11. Sale to less than 20 persons during any 12- month period
12. Sale of securities to banks, registered investment house,
insurance companies, pension fund or retirement plan maintained by the
government or other persons authorized by the BSP to engage in trust
functions.370
4. Procedure for registration of securities
All securities required to be registered under Subsection 8.1 shall be
registered through the filing by the issuer in the main office of the
369
370
Sec. 9
Sec. 10
115
371
Sec. 12
117
372
Sec. 24
118
difference between the price of the shares sold and the lower price of the
shares bought to pay back the borrowed share.373
c. Fraudulent transactions
It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:
(1)Employ any device, scheme, or artifice to defraud;
(2) Obtain money or property by means of any untrue statement of a
material fact of any omission to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which
they were made, not misleading; or
(3) Engage in any act, transaction, practice or course of business
which operates or would operate as a fraud or deceit upon any person.374
d. Insider trading
The selling or buying of a security by an insider while in possession of
material non-public information with respect to the issuer or the security. It
is considered unlawful unless:
1. The insider proves that the information was not gained from such
relationship, or
2. If the other party selling to or buying from the insider 375is
identified, the insider proves:
a. that he disclosed the information to the other party, or
b. that he had reason to believe that the other party otherwise is
also in possession of the information.376
6. Protection of investors
a. Tender offer rule377
373
119
120
121
directly or indirectly from the tender offeror, those acting on its behalf, the
issuer of the securities sought or to be sought by such tender offer, or any
insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, 387 and any insider of
such issuer to communicatematerialnonpublicinformation relating to the
tender offer to any other person where such communication is likely to
result in a violation of Subsection 27.4 (a)(i).388
7. Civil liability
Civil Liabilities on Account of False Registration Statement.Any person acquiring a security, the registration statement of which
or any part thereof contains on its effectivity an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make such statements not misleading, and who suffers
damage, may sue and recover damages from the following enumerated
persons, unless it is proved that at the time of such acquisition he knew of
such untrue statement or omission:
(a) The issuer and every person who signed the registration
statement:
(b) Every person who was a director of, or any other person
performing similar functions, or a partner in, the issuer at the time of
the filing of the registration statement or any part, supplement or
amendment thereof with respect to which his liability is asserted;
(c) Every person who is named in the registration statement as
being or about to become a director of, or a person performing similar
functions, or a partner in, the issuer and whose written consent
thereto is filed with the registration statement;
(d) Every auditor or auditing firm named as having certified any
financial statements used in connection with the registration
statement or prospectus.
(e) Every person who, with his written consent, which shall be
filed with the registration statement, has been named as having
prepared or certified any part of the registration statement, or as
having prepared or certified any report or valuation which is used in
connection with the registration statement, with respect to the
387
shall include any securities convertible or exchangeable into such securities or any options
or rights in any of the foregoing securities
388
Sec. 27.4 (a)
122
Connection
With
Prospectus,
389
390
Sec. 56
Registration of securities
123
Any person who shall make or cause to be made any statement in any
report, or document filed pursuant to this Code or any rule or regulation
thereunder, which statement as at the time and in the light of the
circumstances under which it was made false or misleading with respect to
any material fact, shall be liable to any person who, not knowing that such
statement was false or misleading, and relying upon such statement shall
have purchased or sold a security at a price which was affected by such
statement, for damages caused by such reliance, unless the person sued
shall prove that he acted in good faith and had no knowledge that such
statement was false or misleading.391
Civil Liability of Fraud in Connection with Securities Transactions.
Any person who engages in any act or transaction in violation of
Sections 19.2,392 20393 or 26,394 or any rule or regulation of the Commission
thereunder, shall be liable to any other person who purchases or sells any
security, grants or refuses to grant any proxy, consent or authorization, or
accepts or declines an invitation for tender of a security, as the case may be,
for the damages sustained by such other person as a result of such act or
transaction.395
Sec. 57
It shall be lawful for any person to make any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made in the light of the
circumstances under which they are made, not mis-leading, or to engaged to any fraudulent,
deceptive or manipulative acts or practices, in connection with any tender offer or request or
invitation for tenders, or any solicitation for any security holders in opposition to or in favor
of any such favor of any such offer, request, or invitation. The Commission shall, for the
purposes of this subsection, define and prescribe means reasonably designed to prevent,
such acts and practices as are fraudulent, deceptive and manipulative.
393
On Proxies, supra
394
On Fraudulent transactions, supra
395
Sec. 58
396
On Manipulation of Security Prices, supra
397
Sec. 59
392
124
Commodity Futures Contracts. - No person shall offer, sell or enter into commodity futures
contracts except in accordance with the rules, regulations and orders the Commission may
prescribe in the public interest. The Commission shall promulgate rules and regulations
involving commodity futures contracts to protect investors to ensure the development of a
fair and transparent commodities market.
399
Pre-Need Plans. No person shall sell or offer for sale to the public any pre-need plan
except in accordance with rules and regulations which the Commission shall prescribe. Such
rules shall regulate the sale of pre-need plans by, among other things, requiring the
registration of pre-need plans, licensing persons involved in the sale of pre- need plans,
requiring disclosures to prospective plan holders, prescribing advertising guidelines,
providing for uniform accounting system, reports and recording keeping with respect to such
plans, imposing capital, bonding and other financial responsibility, and establishing trust
funds for the payment of benefits under such plans.
400
Sec. 60
401
supra
402
Id.,
403
Id.,
404
Id.,
125
405
Sec. 61
R.A. No. 7653
407
Sec. 1
408
Sec. 2
406
126
Primary objectives:
1. To maintain price stability conducive to a balanced and sustainable
growth of the economy.
1. To promote and maintain monetary stability and the convertibility
of the peso.
d. Monetary Board - Powers and functions
1. To adopt, alter and use a corporate seal which shall be judicially
noticed
2. To enter into contracts
3. To lease, own, sell property
4. To sue and be sued
5. To acquire and hold such assets and incur such liabilities in
connection with its operations or as are essential to the proper conduct of
operation
6. To compromise condone or release any claim of or settled liability
to the BSP
7. To do and perform such other necessary powers
e. How the BSP handles banks in distress
(1) Conservatorship
Whenever on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to protect the interest of
depositors and creditors; shall appoint a conservator.
(2) Closure
409
Sec. 3
127
410
Banco Filipino v. MB
Villanueva v. CA
Effects of appointment of receiver/ liquidation:
1. Suspension of operation
2. The assets under receivership or liquidation shall be deemed in custodialegis in the
hands of the receiver and shall be exempt from garnishment, levy, attachment or execution
(Sec. 30).
3. Bank is not liable to pay interest on deposits during the period of suspension of
operation (Overseas Bank v. CA)
4. The corporation retains its legal personality (Teal Motor Co. v CFI)
5. Deposits do not become preferred credits. (CB v. Morfe)
Grounds:
A. Under NCBA
1. Inability to pay liabilities as they become due in the ordinary course of business, but
not including inability to pay caused by extraordinary demands induced by financial panic in
the banking community;
2. Insufficiency of realizable assets to meet its liabilities;
3. Inability to continue business without involving probable losses to its depositors or
creditors; or
4. Willful violation of a cease and desist order that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution. (Sec. 30)
B. Under GBL
1. Notification to the BSP or public announcement of a bank holiday (Sec. 53, GBL)
2. Suspension of payment of deposit liabilities continuously for more than 30 days (Sec.
53, GBL)
3. Persistence in conducting business in an unsafe or unsound manner. (Sec. 56, GBL)
411
128
2.
A determination by the MB that the bank cannot be
412
rehabilitated.
f. How the BSP handles exchange crisis
(1) Legal tender power
Legal tender
All notes and coins issued by the BangkoSentral are fully guaranteed
by the Republic and shall be legal tender in the Philippines for all debts,
both public and private.413
Legal tender power of coins
1. 25 centavos and above: In amounts not exceeding P50.00
2. 10 centavos or less: In amounts not exceeding P20.00
BSP Authority to Replace
1. Notes for any series or denomination More than 5 years old
2. Coins More than 10 years old414
(2) Rate of exchange
The Monetary Board shall determine:
412
Grounds:
1. The condition of the bank is one of insolvency or that its continuance would involve
probable loss to its depositors and creditors.
2. A determination by the MB that the bank cannot be rehabilitated.
Procedure:
1. Receiver shall file ex parte, with the proper RTC, a petition for assistance in the
liquidation of the institution pursuant to a liquidation plan adopted by the PDIC for general
application to all closed banks. In case of quasi-banks, the liquidation plan shall be adopted
by the Monetary Board.
2. He shall convert the assets of the institution to money for the purpose of paying the
debts of the institution.(Sec. 30)
3. Payment shall be in accordance with the rules on concurrence and preference of
credits
413
Sec. 52
Rules:
1. Notes and coins called in for replacement shall remain legal tender for a period of one
year from the date of call.
2. After that period, they shall cease to be legal tender during the following year or for
such longer period as MB may determine.
3. After the expiration of this latter period, the notes and coins which have not been
exchanged shall cease to be a liability of BSP and shall be demonetized (Sec. 57).
414
129
415
130
Sec. 2
R.A. No. 3019; added by analogy in PNB vs. Gancayco
418
Sec. 6[f], NIRC
419
R.A. No. 9165
420
Sec. 11, R.A. No. 9160, as amended by Sec. 8 of R.A. No. 9194
421
Act No. 3936
417
131
132
Sec. 3
133
Sec 22
PCI Bank v. CA, 350 SCRA 446; PBCom v. CA
This applies only to cases where banks are acting in their fiduciary capacity, that is, as
depository of the deposits of their depositors. (Reyes v. CA)
While an innocent mortgagee is not expected to conduct an exhaustive investigation on the
history of the mortgagors title, in case of a banking institution, it must exercise due
diligence before entering into said contract, and cannot rely upon what is or is not annotated
on the title. Reason: Before a loan is approved, representatives are sent to the premises
offered as collaterals and investigate who the real owners are. (DBP vs. CA, 331 SCRA 267)
427
The business of a bank is one affected by public interest for which reason the bank should
guard against loss due to negligence and bad faith. It is expected to ascertain and verify the
identities of the persons it transacts business with. (UCPB vs. Ramos, G.R. No. 147800,
November 11, 2003, Callejo, J.)
Due diligence required of banks extend even to persons, or institutions like the GSIS,
regularly engaged in the business of lending money secured by real estate mortgages. (GSIS
vs. Eduardo Santiago, G.R. No. 155206. October 28, 2003)
428
Types of deposit accounts
1. Individual
134
1. As debtor-creditor
a. Savings
b. Time
c. Demand429
2. As lessor-lessee
a. Safety deposit boxes
3. As trustee-trustor
a. Trust account
4. Asbailee-bailor
a. Deposit strictly for safekeeping and for specific purposes
5. As agent-principal:
a. Deposit of check for collection
b. Deposit for specific purpose
c. Deposit for safekeeping
f. Stipulation on interests
Allowed provided it is within the limits or ceiling provided for by the
Act.
g. Grant of loans and security requirements
Before granting a loan, a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank.
2. Joint
a. And account
- Co-ownership
The signature of both co-depositors are required for withdrawals.
b. And/or account
Either one of the co-depositors may deposit and withdraw from the account without
the knowledge, consent and signature of the other. And upon the death of one, the survivor
may withdraw the entire balance on deposit.(Handbook on Bank Deposits, A. Viray, 1998
ed.)
It may be deemed a survivorship agreement depending on the intention of the parties;
aleatory contract supported by a lawful consideration which is valid unless when made as a
mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to
defeat the legitime of a forced heir. (Rivera v. Peoples Bank)
429
Characteristics:
a. In the nature of irregular deposits (Serrano vs. Central Bank, 96 SCRA 96)
135
Rules:
1. A bank may demand from its applicants a statement of their assets
and liabilities and of their income and expenditures and other information.
2. Should such statements prove to be false or incorrect, the bank
may terminate any loan granted on the basis of said statements and shall
have the right to demand immediate repayment or liquidation of
obligation.430
(1) Ratio of net worth to total risk assets
Risk-based capital
The minimum ratio prescribed by the Monetary Board which the net
worth of a bank must bear to its total risk assets which may include
contingent accounts.
However, the Monetary Board may require or suspend compliance
with such ratio whenever necessary for a maximum period of one year; that
such ratio shall be applied uniformly to banks of the same category.431
(2) Single borrowers limit
1. The total amount of loans extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed
20% of the net worth of such bank.
2. The total amount of loans may be increased by additional 10% of
the net worth of such bank provided the additional liabilities of any
borrower are adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or securing title
covering readily marketable, non-perishable goods which must be fully
covered by insurance.432
430
Sec. 40
Sec. 34
Effect of non-compliance with the prescribed minimum ratio:
1. Distribution of net profits may be limited or prohibited and MB may require that part or
all of the net profits be used to increase the capital accounts of the bank until the minimum
requirement has been met; or
2. Acquisition of major assets and making of new investments may be restricted, except:
purchases of evidence of indebtedness guaranteed by the Government (Sec. 34).
3. In case of a bank merger or consolidation, or when a bank is under rehabilitation under
a program approved by BSP, the MB may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or corporations under rehabilitation from full
compliance with the required capital ratio.
432
The prescribed ceiling shall include:
The direct liability of the maker or acceptor of paper discounted with or sold to such bank
and the liability of a general endorser, drawer or guarantor who obtains a loan or other
431
136
(3)
credit accommodation from or discount paper with or sells paper to such banks;
a. In the case of an individual who owns or controls a majority interest in a
corporation,
b. partnership, association or any other entity, the liabilities of the said entities to
the bank;
c. In a case of a corporation, all liabilities to such bank of all subsidiaries in which
such corporation owns or controls a majority interest; and
d. In the case of a partnership, association, or other entity, the liabilities of the member
thereof to such bank.
Exclusions from the limits:
a. Loans secured by obligations of the BangkoSentral or the Philippine Government;
b. Loans fully guaranteed by the government;
c. Loans covered by assignment of deposits maintained in the lending bank and held in
the Philippines;
d. Loans, credit accommodations and acceptances under letters of credit to the extent
covered by margin deposits; and
e. Other loans or credit accommodations which the MB may specify as non-risk items.
433
Who are covered (BSP Circular No. 170):
1. Directors Directors of the lending bank
2. Officers Either identified in the by-laws or are generally known as such
3. Stockholders those whose stockholdings, individually and/or together with any of the
following persons, amount to 2% or more of the total subscribed capital stock of the bank:
a. His spouse or relative within the first degree of affinity/consanguinity or relative by
legal adoption.
b. A partnership in which the stockholder or his spouse or any of his relatives
mentioned above is a general partner.
c. A co-owner with the stockholder or the stockholders spouse or relative mentioned
above of property/right/interest (mortgaged, pledged or assigned to secure the loan or credit
accommodations, except when the mortgage, pledge or assignment covers only said coowners undivided interest.
4. Related Interest
a. Spouse, relatives within first degree of consanguinity or affinity, or relative by legal
adoption of a DOS.
b. Partnerships of which a DOS or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a general partner.
c. Co-owner with the DOS or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of the property/interest/ right
mortgaged, pledged, assigned to secure the loans or credit accommodations, except when
the mortgage, pledge or assignment covers only said co-owners undivided interest.
d. Corporation with inter-locking directors.
e. Corporation wherein 20% of the capital stock is owned by the DOS and/or their
spouses or relatives mentioned above.
137
The written approval shall not be required for loans granted to officers
under a fringe benefit plan approved by the BangkoSentral.
b. Dealings of a bank with any of its DOSRI shall be upon terms not
less favorable to the bank than those offered to others.434
c. Loans extended to DOSRI shall be limited to an amount equivalent
to their respective unencumbered deposits and book value of their paid-in
capital contribution in the bank.435
d. The resolution approving the loan shall be entered in the records of
the bank and transmitted to the BSP
e. Waiver of secrecy of deposits of whatever nature in all banks in the
Philippines by the borrower. No waiver is required if the related interests
are the borrower
f. Information obtained from examination is strictly confidential.
h. Penalties for violations
(1) Fine, imprisonment
138
Shall be subject to Sections 34, 35, 36 and 37 436 of the New Central
Bank Act.437
(2) Suspension or removal of director or officer
If the offender is a director or officer of a bank, quasi-bank or trust
entity, the Monetary Board may also suspend or remove such director or
officer.
436
Section 34.Refusal to Make Reports or Permit Examination. - Any officer, owner, agent,
manager, director or officer-in-charge of any institution subject to the supervision or
examination by the BangkoSentral within the purview of this Act who, being required in
writing by the Monetary Board or by the head of the supervising and examining department
willfully refuses to file the required report or permit any lawful examination into the affairs of
such institution shall be punished by a fine of not less than Fifty thousand pesos (P50,000)
nor more than One hundred thousand pesos (P100,000) or by imprisonment of not less than
one (1) year nor more than five (5) years, or both, in the discretion of the court.
Section 35.False Statement. - The willful making of a false or misleading statement on a
material fact to the Monetary Board or to the examiners of the BangkoSentral shall be
punished by a fine of not less than One hundred thousand pesos (P100,000) nor more than
Two hundred thousand pesos (P200,000), or by imprisonment of not more than (5) years, or
both, at the discretion of the court.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. - Whenever a bank or quasi-bank, or whenever any
person or entity willfully violates this Act or other pertinent banking laws being enforced or
implemented by the BangkoSentral or any order, instruction, rule or regulation issued by the
Monetary Board, the person or persons responsible for such violation shall unless otherwise
provided in this Act be punished by a fine of not less than Fifty thousand pesos (P50,000) nor
more than Two hundred thousand pesos (P200,000) or by imprisonment of not less than two
(2) years nor more than ten (10) years, or both, at the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or
unsafe manner, the Board may, without prejudice to the penalties provided in the preceding
paragraph of this section and the administrative sanctions provided in Section 37 of this Act,
take action under Section 30 of this Act.
Section 37.Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this
Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their
directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and regulations; any
refusal to permit examination into the affairs of the institution; any willful making of a false
or misleading statement to the Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or
conducting business in an unsafe or unsound manner as may be determined by the
Monetary Board, the following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate,
but in no case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking
into consideration the attendant circumstances, such as the nature and gravity of the
violation or irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to BangkoSentralcredit facilities;
139
140
Sec. 3 (g), R.A. 9576 (April 29, 2009), amending Sec. 4 (g), R.A. 3591
Sec. 4
441
Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the BangkoSentral, to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be
designed as receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of
the institution, administer the same for the benefit of its creditors, and exercise the general
powers of a receiver under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may deposit or place
the funds of the institution in non-speculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from takeover, whether the institution
may be rehabilitated or otherwise placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors and the general public: Provided,
440
141
That any determination for the resumption of business of the institution shall be subject to
prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to
resume business in accordance with the next preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its findings and direct the receiver to proceed with
the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior
notice or any other action, a petition for assistance in the liquidation of the institution
pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation for
general application to all closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion by
the receiver after due notice, adjudicate disputed claims against the institution, assist the
enforcement of individual liabilities of the stockholders, directors and officers, and decide on
other issues as may be material to implement the liquidation plan adopted. The receiver
shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and
other parties, for the purpose of paying the debts of such institution in accordance with the
rules on concurrence and preference of credit under the Civil Code of the Philippines and he
may, in the name of the institution, and with the assistance of counsel as he may retain,
institute such actions as may be necessary to collect and recover accounts and assets of, or
defend any action against, the institution. The assets of an institution under receivership or
liquidation shall be deemed in custodialegis in the hands of the receiver and shall, from the
moment the institution was placed under such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act
shall be final and executory, and may not be restrained or set aside by the court except on
petition for certiorari on the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for
certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of
the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a
receiver under this section shall be vested exclusively with the Monetary Board.
Furthermore, the designation of a conservator is not a precondition to the designation of a
receiver.
142
Sec. 4 (f)
Under R.A. No. 9576
444
Ibid.
443
143
145
However, all rights of the depositor against the closed bank and its
shareholders or the receivership estate to which the Corporation may have
become subrogated, shall revert to the depositor. 446
i. Examination of banks and deposit
accounts
The Corporation shall have the power:
xxx
To conduct examination of banks with prior approval of the Monetary
Board: Provided, That no examination can be conducted within twelve
(12) months from the last examination date: Provided, however, That the
Corporation may, in coordination with the BangkoSentral, conduct a special
examination as the Board of Directors, by an affirmative vote of a majority
of all of its members, if there is a threatened or impending closure of a
bank; Provided, further, That, notwithstanding the provisions of Republic
Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic
Act No. 8791, and other laws, the Corporation and/or the BangkoSentral,
may inquire into or examine deposit accounts and all information related
thereto in case there is a finding of unsafe or unsound banking practice;
Provided, finally, That to avoid overlapping of efforts, the examination shall
maximize the efficient use of the relevant reports, information, and
findings of the BangkoSentral, which it shall make available to the
Corporation.447
ii. Prohibition against splitting of
deposits448
The penalty of prision mayor or a fine of not less than P50,000 but not
more than P2,000,000 or both shall be imposed upon any director, officer,
employee or agent of a bank for :
xxx
5) splitting of deposits or creation of fictitious loans or deposit
accounts.
xxx
446
Sec. 16 (e)
Sec. 8, 8th par., as amended by R.A. 9302, 12 August 2004, R.A. 9576, April 29, 2009
448
Splitting of deposits occurs whenever a deposit account with an outstanding balance of
more than the statutory maximum amount of insured deposit maintained under the name
of natural or juridical persons is broken down and transferred into two (2) or more accounts
in the name/s of natural or juridical persons or entities who have no beneficial ownership on
transferred deposits in their names within one hundred twenty (120) days immediately
preceding or during a bank- declared bank holiday, or immediately preceding a closure order
issued by the Monetary Board of the BangkoSentralngPilipinas for the purpose of availing of
the maximum deposit insurance coverage; (As added by R.A. 9302, 12 August 2004; as
amended by R.A. 9576, June 1, 2009)
447
146
449
Sec. 22
Topographies
451
Sec. 4.1
450
147
trademark
service mark
454
Kho v. CA, et al., 379 SCRA 410 [2002]
455
Sec. 21
453
148
456
Sec. 22
Sec. 28
458
Sec. 29
457
149
Sec. 30
Sec. 31
461
Sec. 61
460
150
Sec. 67
Sec. 71
151
Sec. 72
Sec. 73
466
Only the patentee or his successor-in-interest may file an action for infringement.
Moreover, there can be no infringement of a patent until a patent has been issued, since
whatever right one has to the invention covered by the patent arises alone from the grant of
patent. In short, a person or entity who has not been granted letter of patent over an
invention and has not acquired any rights or title thereto either as an assignee or a licensee,
has no cause of action for infringement because the right to maintain an infringement suit
465
152
153
Provided,That the award does not exceed three (3) times the amount of such
actual damages.
The court may, in its discretion, order that the infringing goods,
materials and implements predominantly used in the infringement be
disposed of outside the channels of commerce or destroyed, without
compensation.
Anyone who actively induces the infringement of a patent or provides
the infringer with a component of a patented product or of a product
produced because of a patented process knowing it to be especially adopted
for infringing the patented invention and not suitable for substantial noninfringing use shall be liable as a contributory infringer and shall be jointly
and severally liable with the infringer.469
2. Criminal Action
If infringement is repeated by the infringer or by anyone in
connivance with him after finality of the judgment of the court against the
infringer, the offenders shall, without prejudice to the institution of a civil
action for damages, be criminally liable therefor and, upon conviction, shall
suffer imprisonment for the period of not less than six (6) months but not
more than three (3) years and/or a fine of not less than One hundred
thousand pesos (P100,000) but not more than Three hundred thousand
pesos (P300,000), at the discretion of the court. The criminal action herein
provided shall prescribe in three (3) years from date of the commission of
the crime.470
(3) Prescriptive period
No damages can be recovered for acts of infringement committed
more than four (4) years before the institution of the action for
infringement.471
(4) Defenses in action for infringement
In an action for infringement, the defendant, in addition to other
defenses available to him, may show the invalidity of the patent, or any
469
470
471
Sec. 76
Sec. 84
Sec. 79
154
Any interested person may, upon payment of the required fee, petition to cancel the
patent or any claim thereof, or parts of the claim, on any of the following grounds:
(a) That what is claimed as the invention is not new or Patentable;
(b) That the patent does not disclose the invention in a manner sufficiently clear and
complete for it to be carried out by any person skilled in the art; or
(c) That the patent is contrary to public order or morality.
Where the grounds for cancellation relate to some of the claims or parts of the claim,
cancellation may be effected to such extent only.
473
Sec. 81
474
Sec. 85.
475
Sec. 88
155
3. Trademarks
a. Definitions of marks, collective marks, trade names
"Mark" means any visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an enterprise and shall include a
stamped or marked container of goods;
476
Sec. 97
Sec. 104
478
Sec. 105; Sec. 52, id.
477
156
name
or
designation
identifying
or
Sec. 40
Sec. 121
481
Sec. 122
480
157
482
Sec. 123.1
Sec. 124.2
484
Asia Brewery v. CA and San Miguel, 224 SCRA 437 [1993]
485
Del Monte Corporation, et al. v. CA, 181 SCRA 410 [1990]
483
159
Sec. 123.1(e)
Id.,(f)
supra
Sec. 147.2
Sec. 147
160
161
497
McDonalds Corporation v. L.C. Big Mak Burger, Inc., et al., 437 SCRA 10 [2004]
Mighty Corporation v. E. & J. Gallo Winery, 434 SCRA 473 [2004]
499
Sec. 156.1.
500
Sec. 158
498
162
k. Unfair competition501
A person who has identified in the mind of the public the goods he
manufactures or deals in, his business or services from those of others,
whether or not a registered mark is employed, has a property right in the
goodwill of the said goods, business or services so identified, which will be
protected in the same manner as other property rights.502
Any person who shall employ deception or any other means contrary
to good faith by which he shall pass off the goods manufactured by him or in
which he deals, or his business, or services for those of the one having
established such goodwill, or who shall commit any acts calculated to
produce said result, shall be guilty of unfair competition, and shall be
subject to an action therefor.503
In particular, and without in any way limiting the scope of protection
against unfair competition, the following shall be deemed guilty of unfair
competition:
(a) Any person, who is selling his goods and gives them the general
appearance of goods of another manufacturer or dealer, either as
to the goods themselves or in the wrapping of the packages in
which they are contained, or the devices or words thereon, or in
any other feature of their appearance, which would be likely to
501
163
504
505
506
Id., 3
Sec. 165.1
Id., 2 (a)
164
In addition to the grounds provided in Section 149, 507 the Court shall
cancel the registration of a collective mark if the person requesting the
cancellation proves that only the registered owner uses the mark, or that he
uses or permits its use in contravention of the agreements referred to in
Subsection 166.2 or that he uses or permits its use in a manner liable to
deceive trade circles or the public as to the origin or any other common
characteristics of the goods or services concerned.
The registration of a collective mark, or an application therefor shall
not be the subject of a license contract.508
n. Criminal penalties for infringement, unfair competition,
false designation of origin, and false description or
misrepresentation
A criminal penalty of imprisonment from two (2) years to five (5) years
and a fine ranging from Fifty thousand pesos (P50,000) to Two hundred
thousand pesos(P200,000), shall be imposed on any person who is found
guilty of committing any of the acts mentioned.509
4. Copyrights
a. Basic principles
Works are protected by the sole fact of their creation, irrespective of
their mode or form of expression, as well as of their content, quality and
purpose.510
507
Assignment and Transfer of Application and Registration. An application for registration of a mark, or its registration, may be assigned or
transferred with or without the transfer of the business using the mark. (n)
Such assignment or transfer shall, however, be null and void if it is liable to mislead the
public, particularly as regards the nature, source, manufacturing process, characteristics, or
suitability for their purpose, of the goods or services to which the mark is applied.
The assignment of the application for registration of a mark, or of its registration, shall be
in writing and require the signatures of the contracting parties. Transfers by mergers or
other forms of succession may be made by any document supporting such transfer.
Assignments and transfers of registration of marks shall be recorded at the Office on
payment of the prescribed fee; assignment and transfers of applications for registration
shall, on payment of the same fee, be provisionally recorded, and the mark, when
registered, shall be in the name of the assignee or transferee.
Assignments and transfers shall have no effect against third parties until they are
recorded at the Office.
508
Sec. 167
509
Sec. 170
510
Sec. 172.2
Protection extends only to the expression of an idea, not the idea itself.
165
511
512
513
(a)
(b)
(c)
(d)
Letters;
(e)
(f)
(g)
(h)
(i)
infra
Sec. 175
Sec. 181
166
choreographic
(j)
(k)
(l)
(o)
Sec. 172.1.
Sec. 173.1.
516
supra
517
Sec. 173.2.
515
167
Sec. 176.1
id., 2
Id., 3
Limitations on Copyright
Sec. 177
168
Letters and other private communications in writing are owned by the person to whom
they are addressed and delivered, but they cannot be published or disseminated without the
consent of the writer or his heirs. However, the court may authorize their publication or
dissemination if the public good or the interest of justice so requires.
524
Sec. 178
169
525
(e)
(f)
170
(k) Any use made of a work for the purpose of any judicial
proceedings or for the giving of professional advice by a legal
practitioner.
The provisions of this section shall be interpreted in such a way as to
allow the work to be used in a manner which does not conflict with the
normal exploitation of the work and does not unreasonably prejudice the
right holder's legitimate interest.526
(1) Doctrine of fair use
The fair use of a copyrighted work for criticism, comment, news
reporting, teaching including multiple copies for classroom use, scholarship,
research, and similar purposes is not an infringement of copyright.
Decompilation, which is understood here to be the reproduction of the code
and translation of the forms of the computer program to achieve the interoperability of an independently created computer program with other
programs may also constitute fair use. In determining whether the use
made of a work in any particular case is fair use, the factors to be
considered shall include:
526
Sec. 184
171
(a) The purpose and character of the use, including whether such
use is of a commercial nature or is for non-profit education
purposes;
(b) The nature of the copyrighted work;
(c) The amount and substantiality of the portion used in relation to
the copyrighted work as a whole; and
(d) The effect of the use upon the potential market for or value of the
copyrighted work.
The fact that a work is unpublished shall not by itself bar a finding of
fair use if such finding is made upon consideration of all the above
factors.527
(2) Copyright infringement
Infringement consists in the doing by any person, without the consent
of the owner of the copyright, of anything the sole right to do which is
conferred by statute on the owner of the copyright. The act of lifting from
anothers book substantial portions of discussions and examples and the
failure to acknowledge the same is an infringement of copyright. For there
to be substantial reproduction of a book it does not necessarily require that
the entire copyrighted work, or even a large portion of it, be copied. If so
much is taken that the value of the original work is substantially diminished,
there is an infringement of copyright and to an injurious extent, the work is
appropriated. It is no defense that the pirate did not know whether or not
he was infringing any copyright; he at least knew that what he was copying
was not his, and he copied at his peril. In cases of infringement, copying
alone is not what is prohibited. The copying must produce an injurious
effect.528
(a) Remedies
1. Civil Action
Any person infringing a right protected under this law shall be liable:
(a) To an injunction restraining such infringement. The court may
also order the defendant to desist from an infringement,
527
528
Sec. 185
Habana, et al., v. Robles, et al., 310 SCRA 511 [1999]
172
Sec. 216
Works Not Protected
173
531
Sec. 217
RA 9160, as amended by RA 9194
Anti-Money Laundering
- A crime whereby the proceeds of an unlawful activity are translated thereby
making them appear to have originated from legitimate sources.
532
174
See Sec. 9
175
176
12. hijacking
h. Anti-Money Laundering Council (AMLC)
Composition:
1. Governor of BangkoSentralngPilipinas as Chairman
2. Insurance Commissioner
3. Chairman of Security & Exchange Commissioner
AMLC is a collegial body where Chairman & members of AMLC are
entitled to one vote each.538
i. Functions
1. To require and receive covered or suspicious transaction reports
from covered institution
2. All covered transactions and suspicious transactions shall be
reported to AMLC within 5 working days from occurrence thereof, unless
the Supervising Authority prescribes a longer period not exceeding 10
working days.
3. To issue orders addressed to the appropriate supervising authority
or the covered institution to determine the true identity of the owner of any
monetary instrument or property subject of a covered transaction or
suspicious transaction report or request for assistance from a foreign state,
or believed by the council, on the basis of substantial evidence, to be in
whole or in part, wherever located representing, involving, or related to,
directly or indirectly, in any manner or by any means, the proceeds of an
unlawful activity.
4. To institute civil forfeiture proceedings and all other remedial
proceedings through the Office of the Solicitor General.
538
General Rule:
AMLC acts unanimously in discharge of functions.
Exception:
In case of incapacity, absence or disability, any member to discharge his functions, the
officer designated shall act in his stead.
General Rule:
Members of AMLC, Executive Director, all members of Secretariat, on detail, on secondment
shall not reveal in any manner any information by reason of their office
Exception:
Under any orders of the court, Congress, or any government offices authorized by law.
177
178
179
Sec. 3
Ibid.
Ibid.
Sec. 1 (k), Implementing Rules & Regulations of the Foreign Investments Act of 1991
180
Sec. 5
Sec. 6
181
Sec. 7
182
183