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Commercial Law - branch of private law which governs rights and determine within 90 days whether Rehabilitation is possible or be

obligations, relations in commercial transactions. permitted to resume business. If rehabilitation is not possible, Receiver
shall proceed with Liquidation - that the assets under
Commercial Transaction is the habitual exchange of values/goods for receivership/liquidation deemed in custodia legis in hands of receiver.
the prosecution of gain. But Monetary Board may appointer Conservator (one year) to
rescue/restore the bank but this is not pre-condition to Receivership.
Nego: Where Bank is under receivership, Bank cannot do new business,
G.R. Obligations be paid in Philippine Currency and no person can be sell/lease/mortgage its properties because appointment of Receiver
compelled to accept a Negotiable Instrument, like check, as payment of operates to suspend authority of Bank over its property - equivalent to
obligation because Negotiable Instruments do not have legal tender Injunction to restrain bank from intermeddling with property of bank - all
power, but only as substitute for money, But Negotiable Instrument is depositors/creditors are on equal footing - appointment of receiver does
valid to exercise a right to redeem - it suspends the prescriptive period. not dissolve Bank. The exclusive juris of Liquidator pertains only to the
adjudication of claims against the Bank and distribution of remaining
Accommodation party - signs as maker, drawer, acceptor, indorser, assets of bank following the rule on prioritisation of claims. PDIC, as
without receiving value for his signature, merely lends his name, as receiver, shall be liable up to a maximum of Php 500,000 - per
surety. Payment by Accommodation party does not discharge the depositor, regardless of the Branch or nature of the account (whether
Negotiable Instruments unless the Accommodated Party, if time, demand, savings deposit). Any bank balance not covered by
principal/primarily liable, pays. PDIC, like Bonds, Investment Account, etc, be pursued in the liquidation
proceedings. When Bank is insolvent and closed by Monetary Board, it
Forgery - VIP Rules: G.R. - when a signature is forged or even if is not liable to pay interests on deposits from date of closure (Bank
genuine, if made without his consent, that signature is wholly Holiday)
inoperative, and holder has no right to retain, discharge, enforce the
Negotiable Instrument against the forged signature. G.R. Escalation clauses/increase of interest in Bank loans - void (due to
lack of consent)
Forgery applies only to signatures. Forgery is a real/absolute defense of
person whose signature is forged because he did not give his consent. Bank Secrecy Law - BSL - That bank deposits, including Bonds,
While Alteration is the change of material particulars of Negotiable Investment, Trust Accounts, may not be examined, inquired, looked into,
Instrument, amount, date, interest but not the serial number of check. disclosed to anybody except: written permission; impeachment;
independent Audit/exam by Monetary Board; BIR commissioner inquiry
In forgery, cut-off rule applicable if Negotiable Instrument is pay to order into bank deposit of decedent to determine gross estate and compro of
- because the last Holder/Payee did not acquire valid title from the tax liabilities., unclaimed balance account. But court order necessary in
original Payee - that original Payees Indorsement is necessary to case of bribery/graft by public office, including spouse, relatives; deposit
transfer the instrument to the next payee. However, when Negotiable is subject of litigation; unexplained wealth cases (including Plunder; SC);
Instrument is payable to bearer, and the signature of Maker/Drawer is danger of bank fraud; and AMLA cases, upon court order, except in
genuine - not forged, but signature of original Payee is forged, the last cases of kidnapping, illegal drugs, hijacking; terrorism, arson, murder
holder/payee can enforce the negotiable instrument against the (KDHTAM) Plunder included. Garnishment does not violate bank
Maker/Drawer because indorsement is not necessary in a Negotiable secrecy law. Foreign currency deposits are also confidential, except
Instrument payable to bearer. upon written permission - also exempt from garnishment, attachment, or
court order - Exception: in Salvacion case - where foreign national raped
G.R. - Holder of Negotiable Instrument is presumed as Holder In Due a minor.
Course (holder in good faith/for value, complete/regular on its face, not
overdue, not aware of defect/infirmity) Personal defense (like lack of Redemption of real estate mortgage: whether judicial or extrajudicial -
consideration) can be interposed by party liable, like Maker/Drawer one year from registration of sale with Registry of Deed. But if
against Holder Not In Due Course. But real defense, like forgery,c an be mortgagee is Bank and mortgagor is a corporation/partnership - 3
interposed only by the forged signatory against any party. months after foreclosure or before registration with Registry of Deed,
whichever is earlier. Banks should dispose/sell property/collateral within
BP22 - anti-bouncing checks law: Law punishes mere issuance of 5 years.
bad/worthless checks.
Corporation
Elements of BP22 - Corporation - artificial being created by operation of law (concession
1. Making/Drawing of check issued for “account or for value’ theory) having right of succession powers, attributes, property,
2. Drawer had knowledge of insufficient funds authorized or incident… It has continuity of existence regardless of
3. Check was dishonored (Dishonored against insufficiency of funds, death with one of stockholders. The theory of legal fiction applies but if
closed account or stop payment) legal corporate fiction is used a shield to confuse legitimate issues,
abused, or used as a cloak or dummy for illegal/wrongful purposes,
Requirements - BP22 justify a wrong or defend a crime, courts may pierce corporate veil, so
1. Check be issued to apply on account or for value that corporate officers be made personally liable for their wrongful acts.
2. Notice of Dishonor in writing/received by Drawer required (SC) to
give him sufficient time to pay/settle check within 5 days to establish Corporation maybe private or public. Or corporation going public
“knowledge” (registration with stock exchange)
Formation/incorporation/organization - Articles of Incorporation signed
Estafa/Swindling in bouncing checks - RPC, Art 315, 2d - by 5 to 15 incorporators (merged/consolidated, up to 21 incorporators)
Elements - Deceit and Damage who must be natural persons, except rural banks.
1. Offended party suffered damage
2. Drawer postdated/issued check prior or simultaneous with the Corporate powers exercised by Board of Directors/Trustees (not the
fraudulent act President) to be elected from among stockholders/members who must
3. The false pretense of Drawer induced Payee to part with his hold office for one year (except in non-stock corporation) must own at
money/property. Drawer’s failure to pay/settle bounced check within least one share which should stand in his name in corporate books and
3 days from Notice of Dishonour, establishes Deceit/ or “knowledge if he ceases to be owner, he ceases as Board of Directors, or he maybe
of insufficiency of funds” removed without cause by 2/3 stockholders. In case of death,
resignation, incapacity, vacancy be filled up by Board of Directors. In
Venue - BP22/Estafa on bounced checks - city/municipality where case of removal and expiration of term by stockholders vote.
offense was in part committed.
Ultra Vires acts of Board of Directors/Officers ratifiable but ultra vires
Banking Laws: RA 8791; 7653; 7721; 9194 - 9160; etc acts of corporation (outside its purpose or acting as Corporate beyond
The relationship between bank and depositor is debtor-creditor - simple its term) amendment of articles of incorporation necessary. Election of
loan - so the bank as creditor has a right to set-off the bank deposits of board of directors/trustees - stockholder should own stocks registered in
its debtor-depositor for its unpaid obligations to the Bank. If bank is his name in corporate books, be present or by proxy/Voting Trust
unable to pay deposits, the bank is not liable for Estafa. Agreement. No delinquent stocks (declared as such by Board of
Directors) be voted. Shares not recorded in corporate books is
If Monetary Board/ Banko Sentral ng Pilipinas finds that Bank is unable invalid/inexistent, cannot vote. Transfers of stocks to be valid, must be
to pay liability; has insufficiency realizable assets, or cannot continue 1. delivered indorsed to a specific person or with Special Power of
without incurring more losses, Monetary Board can “Close Now and Attorney
Hear Later” (no prior hearing), by appointing a Receiver (PDIC), to
2. recorded in corporate books,to bind 3rd persons except for corporate rehabilitation with suspension of payments due to technical
uncertificated stocks. insolvency, the appointment of interim receiver is automatic. When RTC
appoints a Rehabilitation receiver or management committee, it
Exceptions to right to vote by others not as owner: Mortgagee, if allowed suspends all actions/claims against the corporation in order to exercise
by Mortgagor; Executor; Voting Trust Agreement, PCGG, for shares of its powers free from any judicial/extrajudicial interference so that all
stocks registered in the name of private persons, but which 1. have assets/property are held in trust/ in custodia legis for the equal benefit of
been sequestered by government, PCGG, as a conservator and not as creditors/stockholders. However, the corporation may foreclose/redeem
owner, is allowed to vote or be voted as Board of Directors or as its property during receivership/liquidation because such is not a claim
Nominee Director if proven that 1. shares were purchased with coco or action against the corporation. The purpose of appointing receiver is
levy funds (public funds) affected with public interest, or 2. if shares are to restore/rescue the corporation. The legal personality of the
ill-gotten, or 3. if there is imminent danger of dissipation of private corporation continues even during receivership and until liquidation, up
corporate assets. to 3 years. After 3 years of winding up/liquidation. all other actions
maybe continued thru a trustee/legal counsel/Board of Directors.
Corporation has power to acquire its own shares as treasury shares for
legitimate purpose provided corporation has unrestricted retained In merger - corporations combine assets/liability and one of the
earnings except redeemable shares. combining corporations continues the combined business and the other
corporations are dissolved. Consolidation, a new corporation is created.
Appraisal right is the right of a stockholder to dissent to Corporate Board In both cases, the obligations of constituent corporations are absorbed
action/s and be paid on the appraised value of his shares. To exercise by the surviving corporation or the new corporation.
appraisal right, stockholder be present/proxy to dissent to corporate
actions that require stockholders vote, but not for action that do not Board of Director/Board of Trustee member must be personally present
require stockholders vote. during Board meetings - Quorum required. But
teleconferencing/videoconferencing in Board of Directors/Trustees
Dividends - shares of stockholders from profits of corporation. meeting now allowed under RA 8792.
Declaration of dividends is discretionary upon Board. However,
Corporation must declare/pay dividends if surplus profits exceed 100% Transportation/Common Carriers:
of paid up capital. Cash dividends to delinquent stockholders be applied Certificate/franchise/Licensee/CPCN not required to incur
to unpaid subscriptions. liability/responsible of Extraordinary Diligence of Common Carriers

Trust Fund Doctrine - that the capital stock, property, subscribed Extraordinary Diligence/utmost diligence - a common carriers is bound
receivables, other assets of the corporation are regarded as Equity in to transport cargo/passengers safely using utmost diligence/
Trust for payment of corporate creditors - as a fund to which the extraordinary diligence.
creditors have a right to look for the satisfaction of their claims…
GR. In the carriage of goods, common carrier is presumed at
The SC said that revocation/rescission of subscription contract results in fault/negligent/liable for Loss, Damage, Liability unless due to following:
the unauthorized distributed of capital assets of corporation which Flood Earthquake, natural disaster, force majeure, hijacking,
results in the premature liquidation of a corporation without the benefit of acts/omission of owner of goods; nature/defects of goods, improper
prior dissolution, thereby violating the Trust Fund Doctrine. packing etc, and provided these are the only and proximate cause of
Loss, Damage and Liability and there is not contributory negligence of
Voting Trust Agreement (VTA) - where one or more stockholders create Common carrier. Liability in the carriage of goods start from the moment
VTA to confer upon the trustee, right to vote and other rights pertaining goods are received unconditionally and lasts when goods are delivered
to the stocks for a period not exceeding 5 years. to the place of destination or delivered to consignee/agent. In the
carriage of persons, utmost diligence is a statutory obligation of common
Doctrine of Corporate Opportunity - officers take advantage of business carrier, where victims need not prove the common carrier’s negligence
opportunity/commit fraud/gross negligence. because the law raises the presumption of common carrier negligence-
presumed at fault unless controverted by common carrier or proven that
Foreign Corporation - formed/organized outside Philippines and whose the proximate cause of loss, death, injury is fortuitous event or natural
laws allow Filipino to do business in its own state. For Foreign disaster (does not include fire)
corporation to do or engage in business, SEC license is required so that
it can maintain or intervene in any action, suit or proceeding before any Bareboat/Demise charter is lease of the vessel and crew/equipment
court/administrative body. which makes the Demise charterer liable as common carrier (Extra
ordinary diligence required) and the owner of vessel liable as a private
Foreign corporation without license can be sued but cannot sue. But carrier - only ordinary diligence required. Whereas, in
Foreign corporation not doing business may sue. affreightment/Time charter/voyage charter, the vessel owner as
common carrier should exercise extraordinary diligence/utmost diligence
Doing business is the continuity of commercial dealings (continuity test) - presumed negligent but charterer is only a private carrier.
and includes a single act if such act (like participating in bidding) is in
accord with the purpose/object of the Foreign corporation. Substance Limited Liability rule - a written slip limiting the liability of common carrier
Test applied if Foreign corporation continues its business in Philippines. which appears/specified in bill of lading, contracts, receipt, fixing sum to
Exceptions (SC) to the rule rule that Foreign corporations doing be recovered in case of loss, damage and liability unless 1. wilfull
business without license, cannot sue are: Estoppel; know of no license; misconduct; 2. gross negligence; 3. bad faith/fraud 4. owner of goods
unfair competition; infringement; isolated transactions; obtained license declared higher value.
later.
maritime transactions are real and hypothecary in nature - that the
Dissolution - termination of corporate existence. It precedes liquidation. liability of vessel owner is limited to the value of the vessel sinks or if
Modes - 1. Voluntary 2. Involuntary 3. Shortening/expiration of term. vessel owner exercises right of abandonment due damage of more than
1/4.
Corporate Liquidation - takes place after dissolution/expiration of
corporate term - continues for 3 years as a body corporate for winding General Average - is the damage/expense incurred which resulted in
up (prosecuting/defending suits) to settle and close its affairs; to saving the vessel and inured to the benefit of all. particular average -
dispose/distribute assets but not for continuing tis business. If 3 years only cargo or vessel is saved - any expense/damage did not inure to the
expired, the trustee/lawyer/Board of Directors may continue benefit of all but only to a particular cargo/vessel. Others are not liable.
liquidate/distribute/suits.
Insurance - agreement for consideration, to indemnify another against
RTC jurisdiction - intra-corporate disputes now transferred from SEC to Loss, Damage and Liability arising from unknown/contingent event
RTC, such as Petition for rehabilitation of distressed corporation be (includes suretyship) following the cognition theory.
approved by Board of Directors/Stockholders; Petition for suspension of
payments; Petition for dissolution; Petition for rehabilitation/appointment Insurance policy - is a written instrument in which contract of insurance
of rehabiliation receiver; Petition to create/appoint management is set forth. Even without insurance policy, contract is valid.
committee; Petition for declaration of insolvency. When a corporation
files a Petition for Rehabilitation the court will suspend all claims against Requisites: Contract (consent, object, consideration) plus insurable
the corporation provided that the serious situation test is complied (that interest; premium; risk of loss; assumption of risk;
there is an imminent danger of dissipation of corporate assets of
paralyzation of business operations). Once a corporation files a petition
insurance policies are contracts uberrimae fides - contract of utmost Intellectual property - is an intangible, incorporeal right granted by law to
good faith - disclose all material facts. inventor, author, artist, etc, with exclusive privilege of producing,
selling/transferring
Parties - insurer and insured. Beneficiary is not a party - maybe
revocable/irrevocable coverage - copyrights; trademarks/service marks; patents; industrial/lay-
out designs
Insured may designate anyone as beneficiary in life insurance, even
without insurable interest but not in property insurance. The intellectual property office shall exercise/implement rules/laws
under RA 8293
Insurable interest - is the relation, connection, concern in a
person/property that the insured will derive pecuniary benefit/advantage The intellectual property office shall exercise/implement rules/laws
from its preservation and suffers pecuniary loss. under RA 8293.

A person has insurable interest in his life, his spouse, child, person on All countries/signatories to international conventions (Paris convention)
whom he depends for education/support etc. In life insurance, insurable treaty/agreement (GATT, ASEAN, WTO) relating to intellectual property.
interest must exist only at time of perfection of the contract. Reciprocity rule/reverse reciprocity rule applies to all nationals of
signatories to international treaties/conventions.
In property insurance insurable interest must exist when insurance takes
effect and when loss occurs, but need not exist in the meantime. Copyright consists in exclusive right of owner to print, publish, copy,
beneficiary in property insurance should have insurable interest. distribute, sell et.
Insurable interest in property may consist in 1. an existing interest 2. an 1. Works protected - books, letters, paintings, photographic works,
inchoate interest founded on existing interest 3. an expectancy. Creditor literary/artistic/scientific etc
cannot insure property of his debtor; son cannot insure property of 2. The copyright for a work is acquired by an intellectual creator from
parents. the moment of creation, even in absence of registration and deposit
with National Library/ Supreme Court
Concealment - neglect to communicate that which a party knows and 3. Copyright is Separate/Distinct from the property work. If the work is
ought to communicate must be material. In case of concealment, the result of his contract as employee, copyright belongs to the
contract is voidable at the option of insurer. Employer. In case a person commissioned the work, he shall own
the work (like painting) but the copyright shall remain with the
Rule in concealment and misrepresentation - if discovered before the painter/artist.
loss/death, insurer can cancel policy, premium be returned. If insured 4. Works protected - original works; writings; paintings; letters;
died within 2 years from date of contract or last reinstatement of drawings; musical composition; photographic works; computer
insurance insurer can rescind/refuse to pay (incontestability clause) programs; Lectures; Books; literary/artistic work, derivatives
However, if insured died after 2 years, Insurer cannot exercise right to 5. But the format, mechanics of TV shows; news of the day; text of
rescind - insurer liable. Except: 1. Non-payment of premium 2. No laws/statutes; works of the government; speeches; court decisions;
insurable interest 3. cause of death excepted 4. fraud 5. no proof death rules/regulations, etc are not copyrightable/not protected.
6. Fair use of copyright shall not constitute infringement of copyright,
VIP provision: Incontestability clause concept - in life insurance, in case such as, uses for following information purposes; for research; for
of concealment, insurance is null/void except when insured died after educational; for government libraries; for teaching, etc.
the 2 year period from date of contract or from the last date of 7. Infringement of copyright is the trespass on a private domain
reinstatement. insurer cannot refuse to pay proceeds or rescind owned/occupied by the owner of copyright. It is also referred to as
insurance contract on ground of concealment/misrepresentation - intellectual piracy which cause injury to the author/owner of
insurer is liable. In case of concealment; the insurer is not liable even if copyright. It is also called plagiarism.
the insured dies of another cause. Concealment in Marine insurance is 8. Test - copying produces an injurious effect as to diminish the value
stricter because the fact concealed must be the proximate cause of the of the work.
loss/damage, to make Marine insurer liable. However in Healthcare or
health insurance, the fact of concealment can only be used as an Trademarks/Service marks - any visible or distinctive mark/sign to
affirmative defense to be established by the insurer. If concealment is identify
one of the exclusions/exceptions in the health insurance contract, 1. Trademarks/service marks are acquired through registration with the
insurer can refuse to pay or is not liable. IPO
2. First registrant - rule in prioritization/preference. Continuous non use
Insurer is entitled to the payment of premium (no premium no insurance of the mark for 3 years, after which, IPO may allow registration of
policy - cash/carry provision) said trademark by another applicant, excpt
3. Trademark/right shall belong to the user of the mark, applies only to
Insurer still liable in the following cases (SC) even if premium is not goods specified in the certificate and does include unlrelated goods
actually paid or premium not received: following doctrine of related goods.
1. acknowledgment of receipt of premium 4. Holistic test is applied where the entirety of the mark was copied to
2. in case of life/industrial life policy when grace period provision cause confusion. While
applies 5. The Dominancy test was applied where it focused on the similarity of
3. when partial payment of premium was accepted by insurer dominant features of the trademark so as to confuse the public.
4. if parties agreed on credit/term payment of premium or on Life/duration of trademark is 10 years, renewable 10 years provided
installment registrant declares actual use on the 5th year.
5. if insurance agent received premium payment but did not remit to
head office Patents Elements - novelty, originality, precedence, usefulness
6. if check payment was issued to insurance agent before the loss- 1. First to file/register rule - right to the patent belongs to the applicant
death provided check has sufficient funds. who has earliest filing, even if filed in another country with reciprocity
rights/same priv, considered as filed.
Comprehensive motor vehicle insurance policy refers to a contract of 2. Rights of patentee - to restrain/prevent/prohibit the use, sale, making
insurance against liability for death, bodily injuries of passengers or 3rd of the invention. Non-patent holder, eve if first inventor without
party liability for death/injury arising from motor vehicle accidents. registration, cannot sue for injunction because patent was not issued
to him. He can sue for cancellation of patent because the invention
No fault indemnity clause - any claim for death/injury arising from forms part of prior art.
vehicular accidents shall be paid without proving fault or negligence. 3. The person who commissions the work shall own the patent, unless
Just submit - police report, death certificate, medical certificate. otherwise provided
4. In case employee made the invention during his employment, not
Here insurance claims shall be made against the insurer of the vehicle part of his duties,
in which the occupant is riding. 5. Patent belongs to the employee. Otherwise the employer, if its the
result of his assigned duties
Notice of loss be made within reasonable time - Notice of claim - within 6. kinds of patent licensing, voluntary licensing and compulsory
6 months - file suit - claim within one year from date of denial. licensing
7. Voluntary licensing - owner of patent exploits the invention or by his
Intellectual Property Code - RA 8293 transfer/sale to 3rd persons
8. Compulsory licensing - the state allows other applicants to exploit
the invention in favor of another if it is vital to the economy, defense,
health. where public interest so requires, the government may received and holds certain goods for deposit, described in warehouse
exploit the invention even without consent of the patentee. receipt - warehouse manager note should file claim for interpleader.
9. SC ruled that there is infringement of patent, applying the doctrine of
equivalents - where minor modifications/similar materials, same General Bonded Warehouse Act - GBWA - Act # 3893 amended by RA
result. Also applied the rule on literal infringement, where there is 247 - to protect depositors by giving them direct recourse against the
exact identity of materials/process used. bond.

Term - 20 years without renewal. Utility model, 7 years without renewal Chattel Mortgage (CM) Law - Act 1508 - contract where personal
takes effect on date of publication IPO gazette of grant property is recorded in Chattel Mortgage Register where property is
Remedies of patentee - infringement; injunction; criminal action for located as security and bind 3rd persons - does not include after
repetition of infringement. incurred obligations. Mortgagor retains possession of property
mortgaged, unlike in Pledge, where pledgee retains possession of
Securities Regulations Code - RA 8799 - also called the blue sky law personal property. Affld of good faith required for 3rd persons.
Purpose - to protect the public investors from fraudulent schemes of
unscrupulous promoters who sell worthless certificate which is nothing No redemption right - only equity of redemption
more than a square of the blue sky.
G.R. there is recovery of deficiency because collateral is not for
The administration of RA 8799 to protect investing public, is the SEC satisfaction of principal obligation except when mortgaged chattel is
which regulates trading of securities by requiring registration of issuers, subject of sale on installment - Recto Law.
brokers, dealers, the securities regulation of margins
Real Estate mortgage (REM) - debtor secures to the creditor the
Securities are investment contracts which should be registered with fulfillment of principal obligation, subjecting as security immovable
SEC for protection of investors. property or real rights which obligation shall be satisfied with the
proceeds of sale.
Issuer - the owner, maker or originator, obligor, creator of the security,
maybe a corporation, partnership Remedies in case of Real Estate Mortgage:
A. If mortgagor is alive
Insider trading is prohibited - where a person has a relationship with the 1. Foreclosure/sale or
issuer of the security which gives him access of facts of special 2. Ordinary action for collection provided Real Estate
significance which is not generally available. Such “insider”/person is Mortgage waived
prohibited to engage in buying/selling/trading such kind of securities.
B. If mortgagor died
Tender Offer - is a publicly announced intention of a prospective buyer 1. by Judicial foreclosure - here,there is right to claim
to acquire substantial amount of securities of a listed corporation by deficiency from his Estate; or
making a tender offer. 2. by Extrajudicial foreclosure - just rely on the mortgage and
foreclose the same with no right to claim for deficiency in case proceeds
Exchange - an organized marketplace for trading of securities, such as deficient/insufficient. Right to redeem - real estate mortgage: whether
the PSE judicial/extrajudicial - one year - 3 months. A creditor/mortgagee cannot
extrajudicially foreclose mortgage unless authority to foreclose is
Over the counter markets - trading of unregistered/unlisted securities attached to Deed of Mortgage or a Special Power of Attorney
authorizing extrajudicial foreclosure of real property. A mortgage liability
Uncertificated security - security evidenced by electronic or similar is usually limited to the amount mentioned in the contract but where
records parties intended that the mortgage property shall also answer for future
loans, same is valid/binding provided such intention is stipulated in the
Manipulative and prohibited practices - wash sale/short sale - no change Dragnet Clause or Blanket Mortgage Clause (a clause which is
in ownership specifically phrased to Subsume all debts, past, present and future,
enabling parties to provide continuous dealings on the property without
Margin trading - trading of security on credit. The broker need of new security or collateral.
advances/extends credit to the customer for a free/interest to buy more
securities and complete the transaction. Trust Receipt Agreement (TRA) a commercial document under PD 115
is a security transaction to aid importers/buyers to finance their business
Actions be brought within 2 years after the discovery of violation and by utilizing as collateral the goods bought/imported. The financier/Bank,
within 5 years after such violation. If aggrieved by Commission’s order, becomes the entrustor/owner of goods while importer/trader/borrower,
appeal by petition for review with CA. becomes entrustee. In case of failure of entrustee to turnover sales
proceeds or the goods to the entrustor, estafa is committed because of
Other special/related Mercantile laws and commercial documents not dishonesty/abuse of trust. Also, in case of loss of goods, the entrustee
considered as negotiable instruments (NI) bears the loss, as exception to “res permit domino”. If the goods covered
by TRA were not sole but instead, delivered/transferred to another
1. Letter of Credit (LC) - financial engagement by Bank to pay Seller person, the entrustee still liable (estafa). Entrustee/borrower should not
under its conditions for the seller present B/L/WR to the bank. Letter mortgage/pledge the goods because he is not the absolute owner. But
of Credit is independent from the contract of sale between buyer and anyone who anyone who acquires the goods subject of the Trust
seller following the independence rule (where the contract of sale is Receipt Agreement, acquires good title, but the Entrustee is still liable
separate and distinct from the Letter of Credit, not a negotiable for Estafa.
instrument).
2. Bill of Lading (BL) - contract and receipt of goods issued by The SC ruled that Letters of Credit and Trust Receipts are not
Common Carrier, not a Negotiable Instrument. Negotiable Instruments although Drafts Issued with the Letters of Credit
3. Others are: Credit cards; Postal Money order; Treasury Warrant; are Negotiable Instruments.
Debit memo; Certificate of stocks; Trust Receipts; warehouse
receipts. Latest SC rulings to remember (Corporation, Revised Securities Act;
Insurance, Transportation/Common Carrier; Banking Laws/ Negotiable
Bulk Sales Law (BSL) covers: transaction/s on 1. sale, transfer, Instrument; Intellectual Property
mortgage, assignment of all/substantially all of the fixtures, equipments,
goods/merchandise, materials used in the business of seller which Corporation:
renders him incapable of continuing his business/trade. Other assets not 1. Corporate powers exercised by Board of Directors - that Board of
directly used in the business/trade of seller is not covered by BSL. Directors not personally liable for official acts, unless bad faith -
Failure to comply with BSL makes the transaction. Fraudulent and Void. gross negligence - illegal - possession of corporate property; - courts
Sanctions for violation of BSL - imprisonment, 6 months to 5 years or may pierce corporate veil.
fine or both. Buyer, transferee, mortgagee not criminally liable unless 2. Petition for rehabilitation or suspension of payments if technically
aware by indispensable cooperation or bad faith. insolvent (corporation has sufficient assets but foresees impossibility
of meeting when due than SEC appoints Interim receiver and
Warehouse Receipts (WR) Law - Act no 2137 suspends all actions against corporation; prohibiting debtor from
The law applies to warehouse receipts issued by a warehouse manager, making payments, selling encumbering, transferring - disposing
lawfully engage in business storing goods in a warehouse - written assets, except in normal course of business.
contracts/acknowledgment by a warehouse manager that he has
3. RA 8799 transferred jurisdiction of SEC to RTC - intra corporate stand as equitable owners - the executor/administrator appointed by
disputes. If not intracorporate, it must be referred to SEC with court is vested with legal title to the stocks.
specialized knowledge/expertise on sale of securities, following the
doctrine of primary jurisdiction. If complaint is criminal, SEC should 16. A corporation that buys the assets of another corporation will not be
indorse to DOJ for preliminary investigation. If SEC appointed liable for debts of selling corporation provided good faith and adequate
Management Committee or Rehabilitation Receiver, does not divest consideration present - where selling corporation is incapable of
RTC of its exclusive jurisdiction inorder to suspend all actions/claims continuing business. However, in case of Merger/Consolidation, all
of pecuniary nature against the corporation to rescue/restore. liabilities of dissolved corporation are assumed by surviving/new
4. Also, where corporation is threatened with bankruptcy, taken over by corporation.
Rehabilitation Receiver, all creditors stand on equal footing until
liquidation/distribution/winding up. Right of creditors to foreclose In merger - one of the corporation survives In consolidation , new
property of corporation mortgaged to creditor shall be made after corporation formed - both assume all liabilities/assets.
rehabilitation period during liquidation. Preferential right of secured
creditors shall apply during liquidation. Grounds to appoint receiver- 17. Stock Certificate - tangible evidence of ownership of shares of
imminent danger; paralyzation a “stay order” defers all stocks - its presence/absence does not affect right of registered owner
actions/claims against the corporation seeking rehabilitation from to dispose his certificate - delivery of indorsed stock certificate is
date of issuance until dismissal of petition or termination of sufficient to transfer ownership and absence of DS or DA is not fatal flaw
rehabilitation proceedings - the “stay order” includes all claims to render transfer invalid. To bind 3rd person and right to vote/be vote as
against the corporation without distinction whether secured or non- Board of Directors, transfer be recorded in the corporate books.
secured.
18. Failure to file by laws within prescribed period does not ipso facto
That a corporation is technically insolvent to qualify for petition for lose its corporate powers.
rehabilitation, if a corporation is unable to pay its obligations beyond one
year. Appointment of Interim Receiver becomes automatic. Purpose of Revised Securities Code - RA 8799 - Blue Sky Law
rehabilitation is to enable the corporation to restore/gain new lease on 1. Intracorporate disputes transferred to RTC as special commercial
life and allows creditors to be paid their claims from its earnings during court.Existence of intracorporate dispute is determined by
rehabilitation because rehabilitation contemplates a continuance of Relationship test and Nature of Controversy test. An heir not
corporate life - that rehabilitation contemplates continuance of corporate registered as stockholder fails in the relationship test.
life, to restore-reinstate corporation to former position. 2. Checks are not securities because they cannot be rolled over even if
it is a certificate of indebtedness - not enumerated as a security under
5. Sc reiterated the Doctrine of Corporate Opportunity under sec 31 and RSA.
holds corporate-officers liable for gross negligence/bad faith in directing
affairs of corporation which resulted in damage/injury to its stockholders, 3. During the receivership period, BP 22 (criminal aspect) is not a claim
members, corporation, etc. Unless corporate officers exceeded their that can be suspended because it is not a claim pecuniary in nature
authority, corporate officers as a general rule are not personally liable against corporation. However, the civil aspect of the bounced check is
for official acts because corporation is by legal fiction has separate suspended, as a claim of pecuniary nature against the corporation.
distinct personality from officers.
4. Margin Trading is trading on credit that a bank that engages in
6. That mere interlocking of directors does not warrant “piercing”, the securities trading should register with SEC - failure is criminal in nature -
test is “complete control or domination” not only of finances but of policy not incorporate - SEC than DOJ
and business practices.
Insurance
7. Under the doctrine of apparent authority, the principal/corporation is 1. Right of subrogation attaches to insurer upon payment to insured
liable only as to 3rd persons if they were led to believe by the conduct of than against the wrongdoer. Right of subrogation accrues to the
the principal that such authority exists although none is given. insurer upon payment to the insured. In case of loss of the
vessel/goods. The insured is given option to choose between
8. That the stock corporation’s recourse on unpaid subscription is not abandonment of the thing insured or claim for total loss when the
applicable to non-stock corporation - the right of non-stock corporation cause of loss is the peril insured.
to expel a (deceased) member thru forfeiture of member’s share be 2. Double interest - imposition of 2x interest - 12 x 2 = 24/year until
established in the by-laws. claim is fully paid.
3. Excepted risks like NPA causing fire be proven by insurer, otherwise
9. In the absence of authority from board of directors, no person not insurer liable.
even its officers, can validly bind the corporation. 4. License be secured from the insurance commission aside from
license as insurance agent/broker
10. Dismissal of corporate officers is always a corporate act and an 5. Notice of loss, claim within reasonable time, condition precedent,
intra-corporate controversy - that corporate officers are those included in imperative - opportunity to examine.
the by-laws - his removal is an intra corporate dispute cognizable by 6. SC reiterated that insurance instrument is the instrument where a
SEC on its investigatory/regulatory powers. Election of BOD/officers is person has a relation/connection/concern in it such that such person
within jurisdiction of RTC but exercise of stockholders rights to vote on will derive pecuniary benefit/advantage from the preservation of the
matters other than election of BOD/officers is SEC jurisdiction. property insured and will suffer pecuniary loss/damage from its
destruction/loss by the happening of the event insured.
11. Corporate officers are those as such in the by-laws are 7. Where insurance contract provides for indemnity against liability to
elected/appointed by BOD/stockholders, but not for ordinary employees 3rd persons the liability of the insurer is direct and such 3rd persons
who are generally employed by managing officer not by the action of can directly sue the insurer up to the extent specified in the
Board of Directors. agreement, not beyond that amount.

12. Corporate officers tenure is that period during which he actually Transportation Law: Common Carrier
holds office, which maybe shorter or longer or in case of holdover. BOD 1. Extraordinary diligence/utmost diligence in carriage of persons -
have term of one year. Holdover is not part of his term. goods.
2. When passenger unceremoniously bumped off, damage - exemplary
13. Where 60% of capital stock outstanding and entitled to vote are - moral - Common Carrier bad faith.
owned by citizens of Philippines, such corporation is considered as 3. Doctrine of limited liability - vessel totally lost, no vessel to abandon
Philippine National. so abandonment not required because total loss results in the
extinction of all liability for damages following the hypothecary nature
14. That since PLDT shares were declared in favor of the Republic, it in marine carriers - $500/package unless shipper declares higher
includes all dividends/interests accruing thereto as owner. Transfer of value.
shares not recorded in books is valid only as to parties although 4. Airline issuing ticket - with connecting flight - liable for exemplary
owner/transferor has right to dividends without prejudice to the right of with legal interest - 12%
the transferee. 5. Doctrine of Last Clear Chance - last clear opportunity to avoid loss
but failed. In case of collision, doctrines applies
15. Heirs do not automatically become stockholders - the stocks must 6. Demise/bareboat - Common Carrier/Lessee liable in case of Loss,
first be distributed to the heirs in estate proceedings and transfer of Damage, Liability, Extraordinary diligence required. Owner of
stocks be recorded in the books. During the interim period, the heirs Common Carrier/Lessor liable only as a private carrier, ordinary
diligence required. But not in affraightment, time/voyage charter -
owner of common carrier, liable
7. Bill of lading - a receipt issued by common carrier that the cargo is in
good condition
8. uninsured vessel sank before chattel mortgage could be foreclosed
by bank, vessel suffers loss
9. in maritime law jurisprudence, the handling of cargo is mainly the
arrastre operators principal work such as loading, handling, stowage,
custody, care and discharge of such goods. However the cargoes
while being unloaded still remain under the custody of common
carrier - common carrier still principal liable to the cargo owner by
exercising extraordinary diligence. unless otherwise agreed between
the common carrier and arrastre operator, common carrier remains
liable to the cargo owner. To overcome the presumption of
negligence, common carrier must establish by adequate proof that it
exercised extraordinary diligence over the goods.
10. Death of passenger in the course of transporting her gives rise to the
common carrier liability unless overcome by a showing common
carrier exercised utmost diligence or that the accident was caused
by a fire, earthquake. That common carriers are liable for the death
of its passengers thru the negligence or willful acts of employees
even if such employees acted beyond the scope of their authority or
in violation of common carriers orders.

Banking laws and Negotiable Instrument law:


1. the appointment of receiver of banks is vested exclusively with
monetary board. CA has appellate jurisdiction over final judgments,
orders, resolutions, awards of the BSP in administrative cases
involving directors, officers of banks quasi banks as affirmed by BSP
circular
2. a certificate of deposit is an interest-bearing time deposit due at a
future time a written acknowledgment of bank of receipt of money for
deposit which bank promises to pay to deposit or his order
3. A managers check stands on same footing as certified check
4. SC reiterated the fiduciary duty of banks, to exercise extra-ordinary
diligence to protect depositors/creditors
5. where drawee bank pays a person other than the person named
therein, it cannot charge the drawers acct the effect of crossing a
check serves as warning that it could not be converted to cash but
only for deposit otherwise he is holder not in due course
6. Collecting bank is an indorser which suffers the loss because it has
duty to ascertain genuineness of prior indorsements - it assumes the
warranty of the indorser.
7. The BSP even without notice and hearing or the “close now and
hear later” rule is to prevent unwarranted dissipation of bank assets
as exercise of police power for protection of public interest
8. when maker dishonors the instrument, holder has right of recourse
against secondarily liable persons, like indorser, for recovery - the
relation between payee and the collecting bank is one of agencym
not debtor/creditor relationship.
9. if instrument is payable to 2 or more payees/indorsers, not partners,
all must indorse, except authorized.
10. if signatures are genuine, bank has duty to pay
11. material alteration only applies to changes in date, sum, time, place;
currency - but not the serial number of a check.

Intellectual property
1. while the rome convention gives broadcasting organizations the right
to authorize/prohibit the re broadcasting of its broadcast, this
copyright protection does not extend to cable re-transmission
2. that intellectual property right/franchise maybe withdrawn by the
state anytime
3. it is the element of “likelihood of confusion” that is the gravamen of
trademark infringement cases applying the dominancy and holistic
tests.
4. where accused exerted efforts to make products look genuine to
deceive public, there is infringement of trademark
5. where there is cloud of san miguel’s exclusive right relating to the
mark/work “ginebra”, there is no infringement of trademark.
6. In trademark, what the law punishes is the act of giving one’s goods
the general appearance that it would likely mislead buyers, that such
goods rightfully belong to the complainant.
• Majority of Board of Directors/Trustee be residents of Phil.
• Acts of the President which were not delegated by the BOD and not
CORPORATION LAW ratified by the BOD, are ultra vires acts of the president makes
president personally liable, exempting corporation from any liability
Corporation - arising from ultra vires acts.
• artificial being created by operation of law, having the right of • Ultra vires acts of the BOD/officers are ratifiable but ultra vires acts of
succession and the powers, attributes and properties expressly the corporation are not ratifiable.
authorized by law or incident to its existence.
• It has continuity of existence regardless of death of stockholders. Election of BOD/T
• The theory of legal fiction applies that the corporation has separate • Stockholders should own stocks in his name in corporate books, be
and distinct personality from its stockholders/board/officers. personally present or by proxy.
• UNLESS the legal fiction is abused/ used as a cloak for • No delinquent stocks be voted.
illegal/wrongful purposes, where courts may PIERCE
• Right to vote is an inherent/incidental right and cannot be deprived of
CORPORATE VEIL. If proven, corp. veil will be pierced by court and right to vote whether his shares are class A, B, C except preferred or
corporate officers shall be made personally liable. redeemable shares.
Doctrine of Apparent Authority - the principal is bound by the acts • Transfer of shares not recorded in corporate of books
of his agent with the apparent authority which he knowingly permits invalid/inexistent, cannot vote.
the agent to assume, or which he holds to the agent out to the public • Transfer of stocks to be valid must be
as possessing. The question in every case is whether the principal has 1. certified be delivered/indorsed to a specific person or with
by his voluntary act placed the agent with business usages and the SPA;
nature of the particular business is justified in presuming that such 2. recorded in corporate books to bind 3rd persons. (But stocks
agent has authority to perform the particular act in question. transferred thru the stock exchange is uncertificated allowed.)

Business Judgement Rule - GR: Courts will not interfere in the Exceptions: In some cases, the SC held that shareholders of stocks
decisions made by the Board of Directors as regards the internal registered in the name of private persons which have been sequestered
affairs of the corporation. by government, PCGG, as a CONSERVATOR and not as OWNER is
allowed to vote or be voted as BOD or as nominee director because
Exception: Unless such contracts are so unconscionable and they were purchased with coco levy funds (public funds) affected with
oppressive as to amount to a wanton destruction of rights of the public interest or if shares are ill-gotten or if there is imminent danger of
minority. dissipation of private corporate assets sequestration is proper PCGG
takeover is proper.
Doctrine of Corporate Opportunity - a director is made to account
to his corporation, gains and profits from transactions entered into Other exceptions on right to vote other than as Registered Owner.
by him/another competing corporation in which he has substantial • Pledgees /mortgagees, assignee, proxy, if authorized by
interest, which should have been a transaction undertaken by the pledgor/mortgagor/owner
corporation. This a breach of fiduciary relationship. • Trustees in VTA, may vote stocks owned by trustor/owner or be voted
as BOD
Corporation may be private or public. • Executors, receivers, administrators without need of proxy - appointed
• Private, when formed or organized by general law for private by court
purpose.
• Public, when formed or organized for public purpose/interest, Compensation of BOD/T/Officers - reasonable per diems only - except
created by special law or act of congress. Substantial ownership by 2/3 vote of stockholders, yearly compensation shall not exceed 10%
or transfer to the government of shares of stock of private corporation of net income (NI) before income tax.
or takeover of a private corporation by the government like PCGG,
does not convert the private corporation into public corporation or vice Liability of BOD/T/Officers - jointly-severally liable for unlawful acts/or
versa. negligence.

Formation/Incorporation/Organization Minority stockholder/BOD or even a single stockholder may sue for and
• 5-15 incorporators who must be natural persons. 50 years max. in behalf of corporation in a derivative suit and a real party in interest is
Php5,000 minimum paid up capital. the corporation and not the stockholder or minority
• Minimum paid-up capital: 25%. 25% subscribed/paid-up. Except: rural
Contracts between corporation with interlocking directors shall be valid if
banks, can be formed by juridical persons.
fair/reasonable, except in cases of fraud. If interest of interlocking
director is only NOMINAL (20% or less) valid if fair/reasonable.
De jure - requirements complied with.
De facto failed to comply with some provision.
SC reiterated that corporate powers be exercised by the BOD unless
Corporate existence maybe inquired into by the state through quo
delegated in the bylaws to an EXECUTIVE COMMITTEE (3 members of
warranto proceeding.
BOD) who cannot act as BOD on the following:
Corporation by estoppel - act as corporation. Lacks corporate • On filling up vacancies in the BOD (death, resignation, incapacity)
personality. • Amendment/repeal of AOI/BL or Board resolution
• Distribution of dividends
Non-use of corporate charter • Approval of any action which requires stockholders approval
• failure to organize (elect officers) and commence business within
2yrs. from incorporation automatically dissolves the corporation. If not denied in the AOI, stockholders enjoy PRE-EMPTIVE rights to
• If it commenced business but is continuously inoperative for 5 subscribe to all issues of corporation
continuous years., such is a ground for suspension/revocation thru
quo warranto proceedings. Corporation has power to acquire its own shares for legitimate purpose
provided corporation has UNRESTRICTED RETAINED EARNINGS to
Corporate powers: pay dissenting stockholders who exercise right of appraisal
• are exercised by the board of directors/trustees (not the president) to
be elected from among stockholders/members who must hold office Treasury shares (no right to dividends/vote) not retired, maybe re-
for 1 year (except in non-stock corporation). issued, resold to stockholders
• Must own at least 1 share which should stand in his name in
Investing corporate funds in another corporation even outside its primary
corporate books and if he ceases as owner, he ceases as board of
purpose if approved by BOD and ratified by stockholders, is valid,
director/trustee.
provided that ANY DISSENTING STOCKHOLDER is entitled to exercise
• He may be removed without cause by 2/3 stockholders and vacancy right of appraisal. However, (if investment is reasonably necessary to
maybe filled up stockholders, except in case of death, resignation, accomplish its primary purpose, approval/ratified by 2/3 vote of
incapacity, vacancy be filled up by board of directors. stockholders not required-only the BOD approval required.)
• But expiration of term, removal be filled up by election of
stockholders.
Corporations are prohibited from retaining surplus profits in excess of Special Corporations
100% paid up except: 1) Educational ( if public schools are established by special law but
1. When justified by corporate expansion; private schools shall be established as non-stock in accordance with
2. When retention is necessary for contingencies; CCP, except family-administered pre-schools;
3. Loan agreement.
2) Religious Corporation
Any surplus profits in excess of 100% should be declared as dividends a. Corporation sole ( consist of only one person ( bishop, archbishop,
to stockholders. minister, rabbi, presiding elder of a religious sect) and
b. Religious societies;
Dividends are shares of stockholders from profits of corporation.
3) Close Corporation whose articles of incorporation provide that stocks
Rule: Corporations shall declare/pay dividends if surplus profits exceed be held by specific number not to exceed 20; stocks be subject to
100% of paid up capital. Cash dividends to delinquent stockholders shall restrictions; shall not list in any stock exchange. Close corporation are
be applied to unpaid subscription. Cash dividend declaration require usually family corporation, who manage/operate business affairs - are
BOD approval only. But stock dividend declaration need approval of personally liable for corporate torts.
BOD and 2/3 vote of stockholders.
Board of directors meetings are informal which may not be personally
Stock dividends are not subject to income tax because they are not attended unlike meetings of Board of Directors of stock corporation.
income realized until redeemed by corporation.
Foreign corporation - to do business or to transact business. LICENSE
By laws (BL) be submitted to SEC within 1month from receipt of from the SEC is required so that it will be permitted to MAINTAIN or
Certificate of Incorporation (COI) or be submitted simultaneously with INTERVENE in any action, suit or proceeding before any
AOI. BL is a code to govern the corporate contract between corporation court/administrative body.
and stockholders/officers.
Foreign corporation without license can be sued but cannot sue.
Contents; meetings; quorum; proxies; qualify/duties BOD/Officers;
election of officers; stock certificate Transacting business - continuity of commercial dealings and includes a
single act (like participating in a bidding) is in accord with the
Voting Trust Agreement: where one or more stockholders create a purpose/objective of the foreign corporation.
voting trust to confer upon the trustee right to vote and other rights
pertaining to the stocks for a period not exceeding 5yrs. Exceptions to the rule that Foreign Corporation without license cannot
sue are:
The certificate of stock covered by the VTA shall be noted in corporate a.) Foreign corporation may sue the local corporation which obtained
books and new certificate be issued in the name of TRUSTEE, who can benefits from its dealings with the foreign corporation - ESTOPPEL;
be voted as BOD. While effects is same as proxy, a proxy cannot be b.) If complainant KNEW that said foreign corporation had no license
voted as BOD. and still transacted with the foreign corporation;
c.) If foreign corporation was a mere assignee of machine/equipments
Gen. Rule: To vote/be voted as BOD, he must own and stand in his unaccompanied by active use/operation;
name at least 1 share of stock. d.) Cases of violation of intellectual property rights - infringement of
Except: trademark/copyright; unfair competition
• Shares sequestered by government/PCGG because public funds e.) When a license was obtained later to cure the defect;
were used to acquire same which landed in private persons; f.) Isolated transaction, outside of the object/purpose/s of the foreign
corporation.
• By virtue of a VTA;
• Pledgee/Mortgagee, if allowed; Doing business - soliciting orders; service contract: accepting
• Nominee director representative/distributors for a/c of foreign corporation; any which imply
a continuity of commercial dealings and prosecution of commercial gain
Rescission/revocation of subscription contract results in the EXCEPT:
unauthorized distribution of capital assets of the corporation which a. Mere investment of foreign corporation as stockholder in a domestic
results in the premature liquidation of a corporation without the benefit of corporation;
prior dissolution, thereby violating the Trust Fund Doctrine, b. Foreign corporation having a nominee director/officer to represent its
Rescission/Revocation is not one of the 3 grounds to distribute assets of interests in a domestic corporation;
the corporation c. Appointing a representative/distributor which transacts business in its
1. amendment of articles of incorporation to reduce/dissolution and own and for its own account.
eventual liquidation;
2. purchase of redeemable shares even without unrestricted retained A LICENSE (from SEC) which was obtained later CURES the defect of
earnings) "no license business" (SC)

Certificate of stocks (must be fully paid) are evidence of ownership of Methods of dissolution:
stocks in the corporations personal property transferable by special 1) Voluntary - no creditors affected - 2/3 vote of stockholders/Board of
indorsement with Deed of Assignment or SPA and record in the stock/ directors;
transfer books - SC said that the corporate secretary cannot be 2) Involuntary - filing of complaint by creditors/stockholders- RTC
compelled by mandamus to transfer/register/ issue new stock certificate 3) amendment of articles of incorporation
to the transferee/ buyer if said stocks were not recorded in the corporate
books. Only registered owner of share of stocks can exercise to vote, Corporate liquidation - takes place after dissolution/expiration of
right to be voted as board of directors. Right to dividends if not declared corporate term and continues for 3 years as a body corporate for
is delinquent, right of appraisal and pre-emptive right (to all issues-in winding up (prosecuting/defending suits) to settle and close its affairs; to
proportion) if not denied in the articles of incorporation. dispose/distribute assets BUT NOT FOR CONTINUING ITS BUSINESS.
If 3 years has expired the TRUSTEE/LAWYER/BOD may continue to
Subscribed stocks not yet fully paid and not declared as delinquent are complete the liquidation/distribution of assets;
still considered as stockholders and entitled to all risk as stockholders
such as right to vote, dividends etc. RTC jurisdiction - Petition for rehabilitation of a distressed corporation
be approved by board of directors/stockholders; petition for suspension
Non-stock corporation - one where no part of its income is distributable of payments; dissolution; appointment of rehabilitation receiver;
as dividends. That any profit obtained as an incident to its operations appointment of management committee; petition for declaration of
shall be used for furtherance of its purpose/s such as religious, insolvency; fraudulent schemes.
charitable, cultural, professional, scientific, etc.
Prior to the appointment of receiver/management committee, it must be
Membership in a non-stock corporation is personal, cannot be shown (by audit) that the corporation is in danger of dissipation of
transferred. Board of Trustees (exercise corporate power) are elected by assets, serious paralyzation, business being diverted.
members.
The appointment of a REHABILITATION RECEIVER or management
Board of Trustees be at least 5 not more than 15. committee SUSPENDS all actions/claims against the corporation and all
assets/property are held in trust/ in custodia Legis for the equal benefit Gulfo vs. Ancheta, 678 - 2 Tests in the determination of intracorporate
of creditor/stockholders. dispute.
1.) Relationship Test;
Corporation may foreclose/redeem property during 2.) Nature of the controversy test
receivership/liquidation because such is not a claim or action against the
corporation. The purpose of appointing receiver is to restore/rescue the Go vs. Distinction, 671 - An intracorporate dispute pertains to the
corporation; secured creditors are given preference only during the following:
liquidation/distribution of assets of the distressed corporation. The legal 1. between corporation and public;
personality continues even during receivership until liquidation. After the 2. between corporation and the state, on its franchise, permit or
3-year period of winding up, all other actions may be continued through license;
a Trustee/ legal counsel/ Board of Director. 3. between corporation and stockholders, members/officers;
4. among stockholders, members among themselves.
In merger, 2 or more corporations combine assets/liabilities and one of
the combining corporations continues the combined business and the Marquez vs. FEBTC, 639 - A subsidiary and its parent company are
others are dissolved. In consolidation, a new corporation is created. separate and distinct persons and their liabilities are confined to its own
business.
CASES:
Steelcase Inc, 670 - the appointment of a distributor by a foreign
Ever Electrical, 672 - Corporate officers should not be held solidarily corporation is NOT doing business unless it is under the full control of
liable with the corporation for separation pays because of the "doctrine the foreign corporation which must secure a SEC license "to sue".
of legal fiction". Corporate officers are those elected or appointed by
board of directors and are given that character by the corporation code, Where the foreign corporation is doing business without license, it
Section 25 which enumerates corporate officers as President, Secretary, cannot sue - EXCEPT when the distributor derived some benefits from
Treasurer and other officers provided by the by-laws. their contractual arrangements, it is ESTOPPED from challenging the
personality of the foreign corporation by entering into a contract.
Park Hotel, 680 - Section 32 of the Corporation Code provides that
directors are personally liable for corporate debs if he willfully and Majority of Stockholders of Ruby Corporation vs. Lim, 650 - Additional
knowingly VOTES for assents to patently unlawful acts of the issuance of shares from the unissued capital stock requires only board
corporation are personally liable if guilty of gross negligence or bad faith resolution and not stockholders approval. Pre-emptive right of minority
in directing the affairs of the corporation. stockholders be respected even if falling within the exceptions.

Sto. Tomas vs. Salac, 685 - Liability of corporate officers is not Gamboa vs. Teves, 652 - "Capital" refers to shares of stocks entitled to
automatic. It must be proven that they were remiss in directing the vote in the election of Board of Directors such as common shares,
affairs of the corporation, like sponsoring or tolerating illegal activities. whether voting or non-voting and preferred shares non voting. To allow
all kinds of shares to elect Board of Directors would result in the object
Sarona vs. NLRC, 663; Ramirez vs. Mar, 672 - That the corporate mask surrender of our telephone; public utilities to foreigners amounting to a
may be removed/pierced when the corporation is used as an alter ego of clear abdication of the states constitutional duty to limit control of public
another corporation, defeat of public convenience, evasion of utilities.
obligations/taxes, justify wrong, alter ego cases, that 2 or more
corporations are owned, controlled and conducted by the same parties. Hacienda Luisita, 658 - That farmers who were issued certificate of
stock in the Hacienda Luisita Corporayion do not own the lands but as
Prince Transport, 639 - The doctrine of piercing the veil is necessary farmer-beneficiaries, they acquire an equitable interest in the assets,
when the 2 business enterprises are owned, conducted and controlled including the agricultural lands of the corporation.
by the same parties, that those who seek to pierce must clearly
establish the above grounds. Juno vs. NLRC, 670 - As a rule, a corporation that buys the assets of
another corporation will not be liable for debts of the selling corporation
United Coconut Planters Bank, 672 - The corporation is liable to provided it acted in good faith and paid adequate consideration.
innocent 3rd persons where it permits its officers to perform acts holding EXCEPT:
him out to the public as clothed with apparent authority. 1. when buyer agrees to assume the debts;
2. when the transaction amounts to a merger or consolidation;
Salenga vs. CA, 664; Ellice Corporation, 686; Dizon Copper Silver 3. when the buying corporation is merely a continuation of the selling
Mines, 677 - Corporations can only exercise its powers and transact corporation;
business through its board of directors or through officers or agents 4. when the selling corporation enters into a fraudulent transaction to
validly authorized or delegated to him by board of directors or by-laws. escape liability/obligation.

Marc II Marketing, 662; Londonlo vs. BLO Research, 639 - Corporate Cosco Phil, 686 - The power to sue is lodged in the board that exercises
officers are not personally liable for officials acts unless shown that they corporate powers. Physical acts like signing of documents shall be
exceeded their authority. Corporate officers are those given that performed by natural persons authorized by the board of directors or by-
authority under corporate by-laws. Dismissal of corporate officers, laws.
controversies in the election, or appointment of directors, officers, are
intra-corporate disputes. ON CORPORATE REHABILITATION:

Barba vs. LCU, 686 - Corporate officers are those mentioned in the by- FRIA (Financial Rehabilitation & Insolvency Act) provides for special
laws such as chairman, president, vice, secretary, treasurer and others court proceedings for all kinds of persons.
are mere employees.
Phil. Scout Agency, 679 - that the suspension of claims against the
Alert Security Agency, 657 - in exceptional cases, the courts can pierce distressed corporation is to enable the corporation to exercise powers
and disregard corporate fiction to make officers solidarily liable for free fro judicial/extra judicial interference that might unduly prevent
corporate acts. resources.

Continental Corporation, 659 - Personal liability attaches when the Wonder Book Corp, 676 - Rehabilitation contemplates continuance of
corporate officers are guilty of bad faith, for gross negligence in directing corporate life. In an effort to restore/rescue the ailing corporation by
the affairs of the corporation. preserving a floundering business as going concern-not yet dissolved.

Crisologo, 686 - Debts incurred like entering into a Trust Receipt Town & country, 682; Express Investment 687; Export Development,
Agreement by the corporate officers are not their direct liability but of the 687 - Corporate rehabilitation contemplates continuance of business in
corporation. the hope of eventual return to solvency.- a stay order or appointment of
receiver/Management Committee is necessary to suspend all claims
Matling Individual Commercial Corporation, 633 -Board of directors has against distressed corporation. = all assets held in trust for corporate
no power to create other corporate officers without first amending the creditors.
corporate by-laws so as to include newly - created additional corporate
officers. Dismissal of corporate GM is an intracorporate dispute. Advent Capital vs. Alcantara, 664 - Rehabilitation proceedings are
summary and non-adversarial and do not contemplate adjudication of
claims that must be threshed in ordinary court proceedings.
Under the Rules of Procedure on Corporate Rehabilitation, SECURITIES REGULATIONS CODE (R.A. 8799)
REHABILITATION means restoration of the debtor to a position of
successful operation and solvency-purpose is to restore-rescue an ailing Purpose: to protect the public investors from fraudulent schemes of
corporation - that is continuance is economically feasible so that unscrupulous promoters who sell worthless certificates which is nothing
creditors can recover from the rehabilitation Plan by conserving and more than a square of the blue sky.
administering the remaining assets of an insolvent corporation. P.D.
902- as amended by R.A. 8799 (Revised SEC Code) provides that upon The administration of R.A. 8799 to protect investing public, is the SEC
the appointment of management Committee, rehabilitation receiver, which regulates trading of securities by requiring registration of Issuers,
board of body, ALL ACTIONS for claims including pending claims, brokers, dealers, the securities, registration of margins.
execution, against the corporation under rehabilitation shall be
suspended that all assets are held in trust for equal benefit of creditors- Securities: are investment contracts which should be registered with
that petitions for rehabilitation are now transferred to the RTC. SEC for protection of investors.
Panlilio vs. RTC, Manila, 641; Asiatrust Bank, 650; Umale vs. ASB, 652 Issuer: the owner, maker or originator, obligor, creator of the security,
- Corporate rehabilitation connotes restoration of the debtor to a maybe a corporation or partnership.
successful operation and solvency. Criminal proceedings against
corporate officers should not be suspended because it has no bearing Insider Trading is prohibited: where a person has a relationship with the
on the pending rehabilitation. Purpose of rehabilitation is to enable the issuer of the security which gives him access of facts of special
corporation to have a NEW LEASE on life and allow creditors to be paid significance which is not generally available. Such “insider”/person is
their claims and to benefit debtors creditors, employees and the prohibited to engage in buying/selling/trading such kind of securities.
economy. In general Board of Directors and corporate officers ARE NOT
ipso facto deprived of their control so as to recover its property from Tender Offer: is a publicly announced intention of a prospective buyer to
errant lessee - not a claim against the corporation. acquire substantial amount of securities of a listed corporation, by
making a Tender Offer.
BPI Family Savings Bank, 653 - Petition for REHABILITATION is a
SPECIAL PROCEEDING, summary and non adversarial in Exchange: an organized marketplace for trading of securities, such as
nature (Motion for Reconsideration and Motion for New Trial prohibited the PSE.
pleading) the period of appeal is 30 days since a record of appeal is
required. Over the Counter Markets: trading of unregistered/unlisted securities.
Molina vs. Pacific Plans, 655 - All pending actions including execution of Uncertificated Security: security evidenced by electronic or similar
judgment SUSPENDED until termination of rehabilitation proceedings - records.
the purpose of appointing REHABILITATION RECEIVER is to protect
interest of creditors and investors. Manipulative & prohibited practices; wash sale/short sale: no change in
ownership.

Margin Trading: trading of security on credit. The broker


advances/extends credit to the customer for a fee/interest to buy more
securities and complete transaction.

Actions be brought within 2yrs, after the discovery of violation and within
5yrs. after such violation. If aggrieved by Commissioner’s order, appeal
by petition for review with CA.

Intra-corporate disputes transferred to RTC as special commercial court.


Existence of intra-corporate is determined by RELATIONSHIP test and
NATURE OF CONTROVERSY test. An heir not registered as
stockholder fails in the relationship test.

Checks are not securities because they cannot be rolled over even if it is
a certificate of indebtedness - not enumerated as a security under RSA.

During the receivership period, BP 22 (criminal aspect) is not a claim


that can be suspended because it is not a claim pecuniary in nature
against corporation. However, the civil aspect of the bounced check is
suspended, as a claim of pecuniary nature against the corporation.

Margin trading - is trading on credit that a bank that engages in


securities trading should register with SEC failure is criminal in nature
not intra-corporate, SEC then DOJ.
BANKING LAWS Banks should appoint at least two (2) independent directors (no relation,
involvement in Bank)
Functions of BSP:
1. Supervision of Banks; When the Monetary Board/Bangko Sentral ng Pilipinas finds that bank is
2. Monetary Policies; in a state of continuing liability or unwillingness to maintain condition of
3. Central Monetary authority; liquidity, Monetary Board may appoint a CONSERVATOR (one year) to
4. Government Banker; rescue/restore, but such designation is not a pre-condition to the
5. Supervise Banks; designation of RECEIVER. In case bank is unable to pay liabilities, has
6. Custodian of Bank reserves; insufficient realizable assets, or cannot continue without incurring more
7. Regulate money supply; losses, Monetary Board shall “CLOSE NOW and HEAR LATER” (no
8. Issue currency. prior hearing, police power) by appointing a RECEIVER (PDIC) to
determine within 90days whether REHABILITATION is possible or be
To engage in banking as in lending funds obtained from the public in the permitted to resume business, subject to Monetary Board approval. But,
form of deposits, it must be authorized by the Monetary Board/Bangko stockholders of bank may Petition for certiorari (grave abuse of
Sentral ng Pilipinas. Function of Banks: deposit and loan function. discretion) within 10days from receipt of Bangko Sentral ng
Pilipinas/Monetary Board notice of bank closure. If rehabilitation is not
Classification of Banks: possible, Receiver shall proceed with LIQUIDATION- that the assets
1. Universal; Commercial; under receivership/liquidation deemed in CUSTODIA LEGIS in hands of
2. Thrift (savings bank); Reciever.
3. rural;
4. cooperative banks, The bank under receivership cannot do new business, sell, lease,
5. Islamic banks. mortgage its properties because appointment of Receiver operates to
suspend authority of bank over its property, such authority reposed in
Kinds of deposit: the Receiver as Administrator/Board of Trustee is equivalent to an
1. Demand (use of checks); INJUNCTION to restrain bank from intermeddling with property of
2. savings; banks. Receiver shall administer property of closed bank for benefit of
3. NOW Account - negotiable order of withdrawal accounts are interest- creditors/depositors who are on equal footing during receivership.
bearing deposit accounts payable to specific persons, on demand
like checks, savings, time deposits. Appointment of receiver does not dissolve the bank but
Receiver/Liquidator may foreclose, may sue/be sued through
To comply with “nationality” requirements in VOTING, specifically in liquidator/receiver to prevent multiplicity of suits.
foreign-owned banks as stockholder, the Control test doctrine is applied
where the citizenship of corporate stockholder in a bank shall follow the If rescue/restoration of bank under Receivership is not possible,
citizenship of the controlling stockholders, 60-40 (old rule is the Liquidation shall take place. Liquidation shall distribute remaining assets
grandfather doctrine). of bank. Secured creditors/depositors have preference.

Minors, 7yrs, can open savings/time deposit accounts. Also, married The exclusive jurisdiction of LIQUIDATOR pertains only to adjudication
women without husbands consent. of claims against the bank and distribution of remaining assets of bank
following the rule on prioritization of claims.
Banks cannot directly engage in insurance business as insurer but a
Universal Bank can invest. The stockholders of ‘closed” bank can petition for certiorari (grave abuse
of discretion) within 10days from receipt of Board of the Monetary Board
General Rule: (CCP) only natural persons can be INCORPORATORS. order of receivership, liquidation or conservatorship.
But, Rural Banks may have juridical persons as incorporators such as
cooperative association, Filipino controlled domestic banks. Also, in Closed bank is not liable to pay interest on deposits from date of closure
case of merger/consolidated banks. Board of Directors may exceed 15 (Bank Holiday) - when bank announces suspension of payments of
(CCP) or up to 21. deposits and interest to depositors for more that 10days? But interest on
Bangko Sentral ng Pilipinas loans still demandable from closed bank to
Foreigners can be members of Board of Directors depending on the be settled during liquidation/distribution.
foreign equity of a foreign bank/investor.
PDIC (insurer of Time, Demand, Savings deposit of all banks) as
Some important SC Rulings/Decisions to remember: statutory receiver, shall be liable to pay maximum of Php500, 000. 00-
per depositor, regardless of the branch or nature of the account
SC reiterarted/emphasized the duty of banks to comply with FIDUCIARY (whether time, demand, savings deposit). Any bank balance not covered
DUTY. Utmost diligence to protect depositors-creditors. Banking is by PDIC, like bonds, investment account, time deposit savings deposit
impressed with public interest and its fiduciary character requires high over Php500, 000. 00, be pursued in liquidation proceedings.
standards of integrity performance.
Depositor with time, demand, savings account of closed bank should file
That the bank is liable for wrongful acts of officers done in good faith in claim on his insured deposit (max P500, 000. 00) within 18 months after
the interest of the bank but not for acts outside the scope of authority. closure, otherwise file same/inetervene in the liquidation proceedings
Public rely on the trust worthiness of bank officers. after the 18months period.

That withdrawals be authorized by depositor to credit amount of checks For purposes of claiming from ‘closed” bank, there must be ACTUAL
deposited. deposit place in bank and not MERE CHECKS (which bounced later) to
support the time deposit certificate.
Drawee banks to return checks for clearing to the collecting bank within
24hours. Law on Secrecy - That bank deposit including bonds, investment, trust
accounts may not be examined/inquired/looked into/disclose to anybody
That bank did not violate its fiduciary duty when it closed the account of EXCEPT:
a depositor who frequently draws check against insufficient 1. written permission;
funds/bounced checks. 2. impeachment;
3. independent audit;
The relationship between banks and depositor is debtor-creditor, simple 4. examination by monetary board;
loan. So, the bank as creditor has a right to set off the bank deposits of 5. unclaimed balance for 10years;
its debtor-depositor for its unpaid obligations to the bank. 6. AMLC cases. EXCEPT:
General Rule: Escalation clause - increase of interest in bank loans 1. Kidnapping;
without consent of borrower-void, except. 2. Illegal Drugs;
3. Hijacking;
DOSRI loans to board of directors, officers, stockholders and related 4. Terrorism;
interest is allowed provided loan does not exceed unencumbered bank 5. Arson;
deposits or book value of paid-up capital. Total bank loans to DOSRI 6. Murder
should not exceed 20% of banks total networth. Waiver of bank secrecy
law by DOSRI borrower is required. Bank commission may inquire into bank deposit of decedent to
determine gross estate and compromise of tax liability. However, court
order necessary in cases of bribery/graft by public officer, including
spouse, relatives, deposit is subject of litigation; unexplained wealth
cases (including Plunder which involves unexplained wealth-Pres.
Estrada case, including other transferees of unexplained wealth);
danger of bank fraud. Except in cases of kidnapping, illegal drugs,
hijacking, terrorism, arson, murder.

Garnishment of bank deposits does not violate bank secrecy law.

Anti-Money Laundering Act (AMLA): one who transacts, facilitates, fails


to disclose transactions involving unlawful/suspicious activity, daily
transactions exceeding P500,000.00 - liable. Court order necessary
except in cases involving Kidnapping, illegal drugs, hijacking, terrorism,
arson, murder) where court order is not required. Only the CA can issue
FREEZE ORDER (20days) or extend same on deposits in re AMLA.

Foreign currency deposits are confidential except UPON WRITTEN


PERMISSION are also exempt from garnishment, attachment of court
order. Intengan vs. CA, 377 scra. Except in Salvacion case, 278 scra,
foreign currency deposit of foreign can be garnished - rape case.

Redemption of real estate mortgage whether judicial or extrajudicial-


one year from registration of sale with the Register of Deeds. But if
mortgagee is bank and mortgagor is a corporation/partnership - 3
months after foreclosure or before registration with the Register of
Deeds whichever is earlier. Banks should dispose/sell property/collateral
within 5 years.

A mortgage liability is usually limited to the amount mentioned in the


contract but where parties intended that the mortgage property shall
also answer for future loans, same is valid/binding provided such
intention is provided in the Dragnet Clause or Blanket Mortgage Clause,
where real property is collateral for loans and the mortgage contract
provides a clause which is specifically phrased to SUBSUME all debts,
past and future, enabling parties to provide continuous dealings on the
property without need of new security or collateral. The mortgage of
VESSEL obtains a PREFFERED STATUS pursuant to PD 1521, Ship
Mortgage Decree of 1978. When a vessel SANK (not insured) before a
chattel mortgage is foreclosed by bank, the loss shall be borne by
Vessel owners. But if chattel is foreclosed by bank, said bank shall bear
the loss.
NEGOTIABLE INSTRUMENTS LAW holder/payee did not have the right to retain, enforce, discharge the
negotiable instrument and did not acquire a valid title from the original
Elements of Negotiable Instruments: payee whose signature was forged because indorsement is necessary,
1. Signed; hence, the signature of original payee of negotiable instrument that is
2. unconditional promise/order to pay sum certain in money; payable to order was forged. Also, it is void/wholly inoperative as real
3. payable on demand, FDFT; defense of any party prior to the forgery. The remedy of the last
4. payable to order or to bearer; holder/payee is to proceed against his immediate indorser/s or parties
5. drawee be named with reasonable certainty. subsequent to the forged indorsement.

General Classification of Negotiable instrument: Effect of forgery continued: However, if the negotiable instrument is
1. Negotiable Promissory Note- 2 parties (maker-payee) payable to bearer (When is Negotiable Instrument payable to bearer?
2. Negotiable Bill of exchange- 3 parties (drawer-drawee-payee) When expressed as payable to bearer; When payable to a fictitious,
nonexistent person (tarzan); Payee does not purport to be the name of
Brief Liability of parties: (memorize) the name of a person (pay to cash); When the only or last indorsement
1. Drawer - admits existence of payee/ capacity to indorse. is an indorsement in blank. Here, indorsement is not necessary, unlike
2. Drawee/Acceptor - admits genuineness of drawer’s signature. order instrument. Refer also to sec. 9), genuinely signed by
3. Indorser warrants prior indorsements etc. maker/drawer but the signature of payee as bearer is forged the last
4. Maker - engages to pay promissory note. holder/payee can enforce the negotiable instrument against the
5. Accommodation Party - signs as maker, drawer, acceptor, indorser maker/drawer because indorsement is not necessary in bearer
without receiving value for his signature, merely lends his negotiable instrument.
name-surety.
Rules in Forgery:
NCC provides that obligations shall be paid in Philippine currency and 1. Applies only to signatures. Forgery is a real/absolute defense of
no person can be compelled to accept a check (Negotiable Instrument) person whose signature is forged because he did not give his
as payment of obligation because checks/Negotiable Instrument do not consent. While alteration is the change of material particulars of
have legal tender power, but only as substitute for money but negotiable negotiable instrument, amount, date, interest but not for the serial
instrument is valid to exercise a right to redeem. SC said that the tender number of check.
of a check (even a personal check) to exercise right to redeem is valid 2. CUT OFF RULE because the last holder/payee did not acquire a
because the check was not issued to pay an obligation but to exercise a valid title from the original payee because his indorsement is
right under the law (right to redeem) suspends prescriptive period. necessary to transfer the instrument to the next payee.
3. When a negotiable instrument is payable to bearer and the signature
When is Negotiable Instrument payable to bearer? of maker/drawer is genuine not forged, but signature of original
1. When expressed as payable to bearer; payee is forged, the last holder/payee can enforce the negotiable
2. When payable to a fictitious, nonexistent person (tarzan); instrument against the maker/drawer because indorsement is not
3. Payee does not purport to be the name of a person (pay to cash); necessary in a negotiable instrument payable to bearer.
4. When the only or last indorsement is an indorsement in blank.
5. Here, indorsement is not necessary, unlike order instrument. Cashier’s/Manager’s checks are good as cash (SC). If a check is
certified it is equity to acceptance because the bank issuing it continue?
When Negotiable Instrument is PAYABLE OUT OF A PARTICULAR its total resources and not the account of the depositor as PN of bank.
FUND: It is not unconditional, therefore not negotiable. But when
REIMBURSABLE out of a particular fund-it is unconditional; considered Negotiation - is the transfer of the Negotiable Instrument from one
as a Negotiable Instrument. person to another. If payable to bearer, negotiation is by delivery; if
payable to order, negotiation is by indorsement completed by delivery.
Negotiable Instrument be issued for a valuable consideration: Indorsement be written on the negotiable indorsement or upon
Consideration is presumed. Lack of consideration; illegal consideration; allonge/attached paper. Kinds: special, blank, restrictive, qualified and
insufficient consideration are personal defenses of party liable (not to conditional.
pay) against a holder not in due course. An Accommodation Party (signs
as Maker, Drawer, Indorser without receiving value therefore but to lend General Rule: Holder of negotiable instrument is presumed as Holder in
his name to somebody) is liable to a holder for value despite knowledge Due Course (holder in good faith and for value, complete/regular on its
of being an Accommodation Party. face, not overdue, not aware of defect/infirmity). A personal defense
(like lack of consideration) can be interposed by the party liable, like
Date of Negotiable Instrument is not essential because Holder may maker, if the holder is not a holder in due course. However, real
insert true date of issue/ deemed payable on demand. Date is important defenses (like forgery) can be invoked against ANY PARTY whether
only to determine whether Negotiable instrument is overdue or not. holder in due course or not.
Ante/post dating allowed.
Presentment for payment (sec. 70), for acceptance (sec. 143).
Forgery: When a signature is FORGED or even if genuine if made Presentment for payment is made by holder of negotiable instrument
without consent that signature is WHOLLY INOPERATIVE, and the necessary to charge Drawer and Indorsers as persons secondarily liable
holder has no right to retain; discharge, enforce, unless forged signatory whether or not negotiable instrument is dishonoured by principal for non-
is precluded from setting up defense of forgery/want of payment. Holder has right of recourse against all parties secondarily
authority/estoppel/gross negligence/waiver. This rule in forgery apply liable, such as Drawer/Indorsers provided Notice of Dishonor is given=
only to signature as against any holder, Holder in Due Course/Holder with exceptions.
Not in Due Course, as real defense of forged signatory.
Discharge of Negotiable Instrument:
However, the rule in alteration applies to other material particulars of the 1. By payment of principal;
Negotiable Instrument, like amount/interest/dates which changes the 2. Payment of accommodated party, if principal;
effect of the Negotiable Instrument. If the alteration is material, it is 3. Intentional cancellation by holder;
avoided as against the party who did not consent to the alteration is not 4. Any other act;
liable as a personal defense. But if the ALTERED NEGOTIABLE 5. Novation;
INSTRUMENT is in the hands of a Holder in Due Course, he may 6. Prescription;
enforce it in accordance with its original tenor. This rule in alteration 7. Principal becomes holder;
does not apply to the alteration of serial number of a check (SC). 8. Renunciation.
But payment by a party secondarily liable, like indorser, does not
Effect of Forgery: When a Negotiable Instrument is payable to ORDER discharge the negotiable instrument.
and signature of maker/drawer is forged, the last holder/payee, cannot
enforce the negotiable instrument against the maker/drawer because Bill of Exchange (not an assignment of funds in the hands of drawee)
that signature is wholly inoperative or null/void against maker/drawer. Payee has no right against drawee unless accepted/cleared. Bill of
exchange may be treated as Negotiable Promissory Note if drawer and
Also, if the signature of maker/drawer is genuine but the signature of the drawee are the same or drawee is fictitious. Checks are special ___.
original payee (if payable to order) was forged by indorser and
subsequently indorsed further, the last holder/payee cannot enforce the When presentment for acceptance of Bill of Exchange required:
negotiable instrument against the maker/drawer and the original payee, 1. When bill of exchange payable after sight/ fix maturity;
as prior parties, even if their signatures are genuine because 2. When presentment for acceptance expressed;
indorsement is necessary, applying the CUT-OFF RULE. That the last 3. When bill of exchange drawn payable elsewhere (sec. 43)
Mitra vs. People, 623 scra: Check is a negotiable instrument that serves
Protest same as Notice of Dishonor, made by notary, respectable as a substitute for money and as a convenient form of payment in
resident of place of dishonour. Acceptance for honor, payment for financial transactions.
honor, bills in a set- discuss.
Equitable Bank vs. Tan, 628 scra: The purpose for the issuance of
BP 22, anti-money laundering checks law - not unconstitutional because check has no legal connection with the date of the check.
what the law punishes is not the non-payment of debts but the mere
issuance of worthless/bad checks. Cayanan, 658 scra: In fact a check is presumed issued for a valuable
consideration (right, interest, profit, benefit)
BP 22 elements:
1. Check issued to apply on account/for value; SMC vs. Puzon, 631 scra: Delivery of a check to a party entitled to it is
2. Knowledge of insufficiency of funds and check bounced for DAIF, for the purpose of giving effect thereto and non-delivery does not render
closed account; the check as non-negotiable.
3. Stop payment without valid reason
4. Fails to maintain funds for 90days. Pantaleon vs. American Express, 629 scra: Credit cards are not
negotiable instruments because it is only a device to obtain credit. It
BP 22 requirements: involves 3 contracts: sales contract; loan agreement; promise to pay to a
1. That the check is issued to apply on account or for value; specific person.
2. Written Notice of dishonour is required in order to give the drawer
sufficient time to pay/ settle check within 5days, otherwise, In Firaza vs. People, 518 scra: SC said that in case of Estafa on
“knowledge of insufficiency of funds” is established bounced checks, payment/settlement/compromise on the bounced
check does not acquit/obliterate the criminal liability (6yrs. to 30yrs.
(EXCEPTIONS, estoppel/did not receive notice of dishonour/ check was imprisonment) but merely extinguishes the civil liability.
issued to comply with warranty/ guaranty requirement/ that check was
issued only to show drawers commitment of partners share in a Metrobank vs. Cablizo, 510 scra: This is a clear case of MATERIAL
partnership agreement/ check was merely issued to facilitate collection ALTERATION. The Drawer, issued payable to CASH, was deposited for
in a consignment, business etc.) payment to Westmont Bank, as Collecting Bank. The amount was
altered to P91,000.00 and date was altered to Nov. 24. Metrobank
In short, these checks were not issued for value or a/c. Here, the drawer cleared the amount of P91, 000. 00 and deducted the amount of P90,
of bounced check is not liable under BP 22 but is still civilly liable. Deceit 000. 00 but bank refused alleging that Westmont Bank, the collecting
is not an element in BP 22. bank-indorser should bear the loss as indorser. SC reiterated the duty of
banks to exercise the highest degree of fidelity/ UTMOST DILIGENCE
Estafa/Swindling in bouncing checks, PRC, Art. 315, 2d, elements: to its clients/depositor and ordered Metrobank to credit the amount of
1. Fraud/deceit, and damage by postdating/issuing of check prior or P90,000.00 without prejudice to an action by Metrobank against
simultaneous with the false pretence or fraudulent knowledge of Westmont Bank, the collecting bank, as the last indorser that when the
insufficient funds to cover check. Failure to pay/ settle bounced instrument materially altered and in hands of holder in due course, it
check within 3days from notice of dishonour establishes DECEIT/or may enforce payment according to ORIGINAL TENOR. That payment
knowledge of insufficient funds. made under a materially altered instrument is not payment done in
accordance with the drawers order.
Crime of Estafa under RPC, 315,2d, is committed by the Drawer/Issuer
who deceives the offender party/payee into parting with his Gonzales vs. RCBC, 508 scra: This is a case of IRREGULAR
property/cash by flashing his check that the efficient cause of the INDORSEMENT of a check, wherein the SC ruled that RCBC as
defraudation is the issuance of the bad check that the payee/offended irregular indorser and collecting bank, by making annotation as qualified
party was induced to part with his property/cash because of the check, indorsement should bear the loss because RCBC by indorsing the
which bounced later. The element of deceit to constitute estafa must be check to the US Bank warrants all prior indorsement (sect. 66). Also,
the efficient cause of the defraudation. There is no estafa if check was RCBC as indorser which caused the defect cannot have a recourse
issued in payment of a pre-existing obligation. If a crime of estafa is against prior indorsers/Gonzales in good faith RCBC’s recourse should
established. Offender can be prosecuted also under BP 22 - No be against the drawee bank.
jeopardy.
In Allied Bank vs. CA, 494 scra: SC ruled that while indorsers are
Venue: Shall be instituted and tried in the city/municipality where offense secondarily liable, indorser becomes primarily liable in case Drawer fails
was in part committed, a transitory or continuing crime. to pay/dishonors negotiable instrument. In a similar case, Tuason vs.
Heirs of Ramos, 463 scra, the SC reiterated that if a check issued by
Credit card, letter of credit, Bill of Lading, PMO are not negotiable drawer was indorsed by the original payee, Tuason, as indorser to
instrument. Ramos as indorsee, if check is dishonoured, the holder/indorsee can
sue the indorser Tuason even without impleading the drawer Santos, as
Letter of credit - financial engagement by bank to pay seller under it a prerequisite.
conditions for the seller present Bill of Lading/Warehouse Receipt to the
bank. Letter of credit is independent from the contract of sale between In Citibank vs. Sabeninno, 504 scra and in Equitable PCI vs. Ong, 502
buyer and seller following the independence rule (where the contract of scra: The SC emphasized that managers checks are drawn by the bank
sale is separate and distinct from the letter of credit). Manager upon the funds of the bank itself and regarded as cash. Also, a
crossed check cannot be presented to the drawee bank for payment in
Bill of Lading - contract and receipt of goods issued by common carrier. cash because it is only intended for deposit which in turn will be paid by
the drawee bank.
Characteristics of Negotiable Instrument:
1. Accumulation (indorsement) of contracts; In Nuguid vs. Nicdao, 502 scra: SC reiterated that the gravamen of BP
2. Substitute for money, not legal tender. 22 is the act of making, drawing, issuing a worthless check or one
dishonoured for non-payment and drawer failed to satisfy or make
SOME IMPORTANT SC RULINGS TO REMEMBER: arrangements for its payment within 5days from date of Notice of
Dishonor.
Gonzales vs. PCIB, 644 scra: Accommodation Party - is one who signs
the negotiable instrument as maker, drawer, acceptor, indorser without In International Corporation Bank vs. CA, 501 scra: The SC reiterated
solidary liable. an earlier ruling that alteration in the serial number of various checks
issued by the DepEd in the total amount of Php1, 447M, does not
Dinovs. Judal-Loot, 618 scra and PCIB vs. Balmaceda, 658 scra: constitute material alteration and therefore drawee bank PNB had no
Crossed Checks- are negotiable instruments with 2 parallel lines across right to dishonour the checks or return them to them to the collecting
its corner. Effects: it may not be encashed but deposited, may be bank. International Corp. Bank, which had already paid the payees.
negotiated once to one who has act? with bank, it serves as warning to Material alteration alters the effect of the instrument or an unauthorized
the holder that the check is issued for a definite purpose. Payee must change which modifies the obligation of a party. Also, CB circular 580,
inquire if he received the check pursuant to that purpose, otherwise, he provides that dishonoured checks must be returned by the drawee bank
is a holder not in due course. to the collecting bank within 24hrs. otherwise it is considered as cleared.

In Miranda vs. PDIC, 501 scra: Where 2 cashiers’ checks worth


Php5.5M were issued by an insolvent Bank to a depositor, is in bad faith
because the bank is fully aware that it was already insolvent. Therefore 1. the offender postdated or issued a check in payment of an obligation
the 2 cashiers’ check of Php5.5M did not constitute an assignment of contracted at the time of issuance meaning the efficient cause of
funds on favor of the payee because bank had no funds at the time of its defraudation should be PRIOR OR SIMULTANEOUS with the act of
issue. If the bank was not insolvent at that time the drawing of the fraud;
cashiers’ checks is equity to assignment of funds of the bank in favor of 2. That at the time of issuance of the check, offender had no
a payee/depositor. funds/insufficient funds/closed accounts;
3. Payee was defrauded.
In Tan vs. People, 500 scra: The SC emphasized the elements of BP 22
and for the presumption to arise, the prosecution must prove the The facts show that the case issued by accused were intended as
following: payments for items obtained from complainant - that complainant could
1. Check is presented within 90days from date of check; not have parted with her goods in exchange for bum checks.
2. Drawer receives notice of dishonour;
3. Drawer fails to pay/arrange payment within 5 banking days after In another case, Ongson vs. People, 466 scra: The SC reiterated the
receipt of notice of dishonour. elements of BP 22 and the presumption of consideration in the issuance
of checks. That there is prima facie presumption of knowledge of
However, the basic elements to prove that there is a prima facie case, insufficiency of funds if notice of dishonour was given and the drawer did
are: not pay or arrange payment within 5 days from notice of dishonour.
1. A person makes/draws a check to apply on account or for value with Further, the SC said courts are vested with the discretion to impose the
knowledge of insufficiency funds; penalty.
2. Check is dishonoured for insufficient funds;
3. Ordered “stop payment” without valid reason; or In Villaluz vs. Ligon, 468 scra: The SC said that what is punished under
4. Having sufficient funds or credit but fails to maintain funds/credit BP 22 is not the failure to pay an obligation but the issuance of bum
within 90days from date and dishonoured by the bank. checks or checks dishonoured for insufficiency of funds.

Alferez vs. People, 641 scra: SC emphasized the elements of BP 22 as Roco vs. Contreras, 462 scra: That the gravamen of the offense under
1. Making, drawing, issuance of a check TO APPLY ON ACCOUNT or BP 22 is the act of issuing a worthless check that is dishonoured and is
FOR VALUE; payment within 5 days from date of dishonour, is a valid defense.
2. Knowledge of insufficiency of funds;
3. Subsequent dishonour of check by drawee for DAIF or for “stop In the case of Maregomen vs. People, 459 scra: The SC said that a
payment”. written Notice of Dishonor should be given to the drawer, Maregomen,
who was authorized by the corporation to issue and sign checks in the
That Notice of Dishonor is important to establish “knowledge” receipts name of the corporation. When the checks bounced, Maregomen was
for registered letters and return receipts do not by themselves prove charged for violation of BP 22. Her defense was, she did not receive a
receipt of Notice of Dishonor, they must be authenticated to serve as notice of dishonour and that she is a mere employee of the corporation
proof of receipt of Notice of Dishonor. If acquitted, drawer still civilly and did not have sufficient knowledge on funds of the corporation. SC
liable. said that a mere oral notice of dishonour is insufficient for conviction
under the law. The law provides that where there are no sufficient funds
with drawee bank, such fact shall always be explicitly stated in the
People vs. Moutaner, 656 scra: Whereas, in ESTAFA for bouncing notice of dishonour that the drawer should be notified in writing of the
checks under art. 315, 2d of the RPC, elements are: fact of dishonour. Willy Sia vs. People, 426 scra. Also the SC reiterated
1. Postdating/issuance of check in payment of obligation contracted at the importance of notice of dishonour. Even if a notice of dishonour was
the time check was issued; sent by registered mail if it was not proven that the drawer recorded the
2. Insufficiency of funds to cover check; registered notice of dishonour the returned registered receipts do not
3. Damage to the payee. prove by itself.

Failure to settle bounced check within 3 days from receipt of Notice of


Dishonor gives rise to a prima facie evidence of deceit, which is an
element of estafa constituting false pretense or fraudulent act.

In Oriel Magno vs. CA, 210 scra: It was proven that the check was
merely issued as a WARRANTY DEPOSIT for the lease of
EQUIPMENTS - therefore, the BP 22 case was dismissed for lack of an
important element of

To apply on account or for value. Also, in the case of IDOS vs. CA, 296
scra, where check was issued as an assurance for a share in the
partnership business which failed, the SC said that the check was not
issued for value or for an account but as an assurance for a share or
interest in the partnership agreement - drawer acquitted.

Villanueva vs. Nite, 496 scra: A payee-holder of a check cannot sue the
drawee bank if it dishonours a check. No privity. Instead the payee
should sue the drawer-maker of the check.

In Arceo vs. People, 495 scra and in Wong vs. CA, 351: SC said that the
90 days period is not a necessary element of BP22, if it was proven that
at the time that the check was drawn there was no sufficient funds of the
drawer in the bank. Also, the notice of the lawyer to make good the
check within 3 days (instead of 5 days) is not fatal because the drawer
was given more than sufficient time (drawer asked the payee, 7 times,
not to deposit the check) to settle/arrange payment. Also SC said that
loss of the check is not material. Refer also to Ting vs. CA, 344 scra.

In Saguigit vs. People, 494 scra and in Domagsang vs. CA, 347 scra:
SC said that the BP 22 requires that for the act to be punished, the
accused be notified in writing of the fact of dishonour of the check in
order to give him time to pay/settle the check within 5 days from notice
of dishonour.

Chua vs. People, 484 scra and also in People vs. Hernando, 317 scra:
There is ESTAFA, art. 315, 2d, in this case. The SC said that the
defense of accused that said checks were merely issued as collateral
and for accommodation was not considered because the following
elements of estafa are present –
INSURANCE crime. With this, the nearest relative of the insured shall receive the
proceeds of the insurance as long as that person is not disqualified.
ELEMENTS: COC-II-ER-AR-S-P
1. Consent, object, consideration An insurable interest in property consist in (sec. 14):
2. Insurable interest 1. An existing interest;
3. Exposure of risk insured against 2. An inchoate interest founded on an existing interest;
4. Assumption of risk 3. An expectancy coupled with an existing interest from which the
5. Scheme of distributing loss expectancy arises.
6. Payment of premium
A carrier or depository has insurable interest to the thing he holds to the
Insurance is – extent of his liability only.
• an agreement
The interest in the property insured must exist when the insurance takes
• for a consideration
effect (e.g. when claiming under the insurance) and when the loss
• to indemnify another against LOSS, DESTRUCTION, OR LIABILITY occurred. It may not exist in the meantime (if the insurance is not yet for
• arising from an unknown or contingent event claiming or when the risk insured against has not yet happened) (sec.
19).
A past event may be covered by MARINE INSURANCE, provided that
the loss of vessel in the past could not be known by ordinary means of The interest in the life or health of a person insured must exist when the
communication. insurance takes effect (when claiming) but need not exist thereafter or
when the loss occurs.
Characteristics: R-I-A-U-C
1. Risk-distributing (contribution of all to a certain fund will be used for In case of property insurance, a change in interest in any part of a thing
the payment of insurance of one – insurance fund) insured, unaccompanied by a corresponding change in the insurance,
2. Contract of indemnity (exchange of value for value – aleatory or suspends the insurance to an equivalent extent, until the interest in the
uncertain) ** waging contract depends on chance thing and the interest in the insurance are vested in the same person
3. Contract of adhesion (fine print rule, policy already approved by the (sec. 20).
commission; generally construed in favor of the insured) - if there is change in the interest in the thing without change in the
4. Uberrimae Fides contract (utmost good faith contract; disclose
facts) interest in the insurance (policy), the insurance is deemed
5. Consensual contract (perfected from the time of meeting of minds suspended. It will continue when the interest in the thing and interest
with respect to object, cause, or consideration) in the insurance is vested in the same person.

In insurance, the insurer is the OFFEROR because the insured is the A change in interest in the thing insured after the loss does not affect the
one who applies. If there is no policy given, then there is no acceptance right of the insured to indemnity for the loss.
by the insurance company or the insured, there is no meeting of the
minds. If the insured dies, such death does not avoid insurance and his interest
in the insurance passes to the person taking his interest in the thing
INSURABLE INTEREST insured.
The relationship with a person or interest to benefit from the person or
the thing insured. DEVICES TO CONTROL THE RISKS used by the insurer:
1. Concealment (a neglect to communicate that which a party knows
• protect the person or the thing because of the PECUNIARY BENEFIT or ought to communicate)
and to prevent PECUNIARY LOSS
2. Warranties (additional contracts: riders; a promise not to do
• every interest in property, real or personal, of such nature that a something after the execution of the contract)
contemplated peril might directly damnify the insured 3. Misrepresentation ( when all the facts fail to correspond with the
• Generally , mistress cannot be insured by a married man. However, if represented assertions or stipulations)
he derives pecuniary interest from such mistress (support), it is the 4. Exceptions (placed in the policy itself)
designation only as a spouse that is void. He can still insure the life of 5. Those which are not placed in the policy as the risk insured
the mistress. against. (if a particular risk is not the one insured against, e.g. fire,
• Illegitimate child can be insured because the law does not distinguish it cannot be covered by the insurance policy)
what kind of child should be insurable. (sec. 6)The insurer must be
registered under the laws of the Philippines through the insurance CONCEALMENT and MISREPRESENTATION
commissioner. • The fact that there is concealment, whether intentional or not, the
• for regulation purposes insurer can RESCIND the contract. (sec. 27)
• for the fine print rule
Exceptions: (sec. 30)
WHO/WHAT MAY NOT BE INSURED: 1. Those which the other knows;
2. Those which the other ought to know in the exercise of ordinary
• Public enemy care, and of which the former has no reason to suppose him
• Paramour ignorant;
• Wager (any chance or ticket in a lottery drawing a prize) 3. Those of which the other waives communication;
4. Those which prove or tend to prove the existence of a risk
INSURABLE INTEREST IN LIFE AND HEALTH: (sec. 10) (Family, excluded by a warranty and which are not material;
depend – E/S, debtor, other dependents) 5. Those which relate to a risk exempted from the policy and which
1. Of himself, his spouse, and of his children are not material.
2. Of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest Generally, if there is concealment or misrepresentation, the contract
3. Or anyone who has legal obligations to him for the payment of (policy) is VOID.
money or respecting property or services of which death or illness - Because there is deceit or fraud in obtaining the consent of the
might delay or prevent the performance;
insurer with the conditions of the policy.
4. Of any person whose life any estate or interest vested in him
depends. - The insurer is entitled to rescind the contract.

The insured shall have the right to change the beneficiary he designated CANCELLATION VS. RESCISSION
in the policy, unless he has expressly waived this right(sec. 11):
Cancellation
IRREVOCABLE BENEFICIARY • insurance for a certain period, the premium paid within the unexpired
A beneficiary in a life insurance policy or segregated fund contract period
whose compensation cannot be changed without his or her consent. • where the property is insured for more than its value
• the interest was not exposed to the peril insured against
The interest of the beneficiary in the insurance policy will be
FORFEITED if he wilfully brings about or causes the death of the • void ab initio – no insurable interest
insured, whether he is the principal, accomplice, or accessory to the • contract is voidable (fraud or misrepresentation of insurer)
Rescission RUNNING POLICY – a policy which contemplates successive
• premium should be returned insurances, and which provides that the object of the policy may be from
time to time defined by additional statements or indorsements. (insured
• there is fraud, concealment, misrepresentation in obtaining the
insurance policy shall make inventory of the properties every now and then to the insurer)
• no return of premium The commencement of an action under the insurance should not be less
• right to rescind should be exercised prior to the commencement of an that one year from the time when the cause of action accrues (refusal of
action in the contract (before any claim is made) the insurer to pay the insured), otherwise, the agreement as to the time
is void (sec 64).
The right to rescind granted by law to the insurer is waived by the
acceptance of premium payments despite the knowledge of the ground Grounds for RESCISSION of Policy:
for rescission. 1. non-payment of premium
2. conviction of a crime arising out of acts increasing then hazard
THE FACT CONCEALED NEED NOT BE THE CAUSE OF THE LOSS insured against
OR DEATH. 3. discovery of fraud or material misrepresentation
4. discovery of willful or reckless acts or omissions increasing the
INCONTESTABILITY CLAUSE hazard insured against
If the concealment or misrepresentation has been discovered after 2 5. physical changes (material alteration) to the property insured which
years from the time the policy was enforced (executed), insurer result in the property becoming uninsurable
INSURER CANNOT RESCIND the policy. The 2-year period is enough 6. determination by the commissioner that the continuation of the
for him to investigate. policy would violate the code or would place the insurer in violation
of the code
The incontestability clause is applicable only in life or industrial life 7. Breach of warranty.
insurance, except when EXPRESSLY applied in non-life insurance. ** As long as the activity does not change the risk, the insurer is still
liable.
In life and industrial life insurance – the computation for incontestability
clause will be from the date of reinstatement which starts on the date of CASH AND CARRY PROVISION
payment. (example: 6-months grace period, and the insured paid “No premium, No insurance”,
premium on the 4th months, the computation starts from the 4th month)
EXCEPTIONS:
In non-life insurance (health or casualty or medical insurance), if there is 1. In life or in industrial life insurance – because there is a grace
no clear stipulation in the contract regarding concealment, the rule on period in which the insured has already been entitled to the
concealment from the code should be followed; if there are stipulations insurance without having paid the premiums for the agreed period.
against concealment as exception, the insurer is NOT liable. 2. In case of temporary receipt or acknowledgment of premium by the
insurer (even if there is actually no payment yet) through the
Concealment is only an affirmative defense in not paying the insured if principle of ESTOPPEL. However, the insured is not exempt from
there is no express stipulation against it. The contract cannot be payment of the proceeds of insurance.
rescinded automatically by the insurer. - if there is credit: for as long as the insured paid within the period
The non-payment of premium does not affect the incontestability rule, if stipulated, and the insured paid even after the loss, the insurer
the policy has been issued and payment has already been is liable.
acknowledged. - If the insurer willingly accepted the payment even after loss, the
insurer is liable.
Incontestability clause cannot be invoked when: 3. If the payment was given to the agent of the insurer, the act of the
1. failure to pay premium – no premium no pay agent is the act of the principal. The insurer is still liable.
2. material concealment found within 2 years from the enforcement of 4. The insurer is liable as long as the check has sufficient funds.
the policy
3. there is no insurable interest (void ab initio) Insurance by installment – If the insured paid a part of the insurance,
4. no proof of death and the property has been damaged or lost before the completion of
5. willful act (to expose the subject to the risk insured against) premium, the insurer should pay the insured, but the insured is still liable
6. exempted risk to pay the proceeds of the insurance. CAN A POLICY BE
TRANSFERRED?
MATERIALITY OF CONCEALED FACT
-Determined by the probable and reasonable influence of the facts upon LIFE insurance – can always be transferred even without the consent of
the insurer in forming his estimate of the disadvantages of the proposed the insurer.
contract or in making his inquiries.
PROPERTY insurance
Each party in the contract is bound to know all the general causes which - could only be transferred with the consent of the insurer.
are open to his inquiry which may affect the material perils
contemplated.
- insurable interest must exist at the time of execution and risk, but
may not exist in the mean time; suspended until the insurable
The right to information of material facts may be waived, either by the interest and the policy is vested in the same person.
terms of the insurance of by neglect of the other party to make inquiry as
to such facts. PROXIMATE CAUSE – cause which was uninterrupted by any event,
without which, the injury would not have occurred.
POLICY – the contract of insurance
** With FIRE INSURANCE – as ling as fire is the proximate cause,
Cover notes – temporary insurance issued pending the issuance of whatever the immediate cause is, the insurer is still liable.
insurance policy which usually lasts for 60 days. It may be extended with
the written approval of the commissioner if he determines that such WARRANTIES
extension is not contrary to any provision of the insurance code. - These are promises written in the insurance, wherein the insured
and the insurer signed, and appended the same in the policy.
The mere transfer of a thing insured does not transfer the policy, but - If there is breach, the insurer may rescind the policy.
suspends it until the same person becomes the owner of both the policy
and the thing insured (sec. 58). - If there is insurer’s knowledge of breach of contract by the insured,
and he did not take action, and the insured still received insurance
OPEN POLICY – a policy in which the value of the thing insured is not money, the insurer is ESTOPPED from the return of such money.
agreed upon, but is left to be ascertained in case of loss. (the value of
the thing at the time of the loss) FIRE INSURANCE
- Proximate cause of loss should be fire
VALUED POLICY – a policy which expresses on its face an agreement - May include fire caused by natural disaster.
that the thing insured shall be valued at a specific sum. (the value of the
thing stated in the policy) - Property must be consumed by fire, or when the reason for loss or
damage is caused by trying to save the property (water damages or
theft), or when the wall of the house collapsed to another - CANNOT RESCIND contract with the following grounds: o National
infrastructure because of the fire… there is a right to claim from the character of the ship o Falsified or simulated documents o Illegal
insurer. goods/contraband
- If the proximate cause is excepted from the liabilities stipulated in the
policy, the insurer is not liable for the loss (example: explosion) GENERAL AVERAGE LOSS – damages and expenses incurred for the
- FRIENDLY FIRE: the fire is on that place where it is supposed to salvation of the cargo or ship from a real or known risk everybody
burn. If the fire escapes from where it is supposed to burn, it benefits!
becomes HOSTILE fire.
PARTICULAR AVERAGE LOSS – damages and expenses incurred not
THE INSURER IS STILL LIABLE EVEN IF THE IMMEDIATE CAUSE for the common benefit of all but only for particular or certain persons.
OF THE LOSS IS NOT THE PERIL INSURED, AS LONG AS THE
PROXIMATE CAUSE IS THAT PERIL INSURED. CONSTRUCTIVE TOTAL LOSS
- if the owner of the vessel would spend more than ¾ of the value of
the vessel to save it, or if the injury reduced the value of the thing
MARINE INSURANCE insured for more than ¾.
- Covers all risks in the shipment or navigation of a vessel, including - the owner should abandon everything to the insurer, so the insurer
the goods shipped, profits, and the ship itself. would look for something to salvage from it. The insurer will pay the
- CHARTERER (lessee) has insurable interest with the freightage of value of the vessel.
the goods. - Need to notify the insurer immediately, must be made within
- Owner of the VESSEL has insurable interest with the vessel itself reasonable time after receipt of reliable information of the loss
and the goods
HOW ABANDONMENT IS MADE:
- Owner of the GOODS has insurable interest with the goods 1. notice (generally in writing) to the insurer
themselves. 2. notice should be made explicitly stating the cause of abandonment
3. if oral notice is made, there should be a written notice within 7 days
- INSURABLE: from the oral notice
- PERILS OF THE SHIP : ordinary wear and tear of the ship, ordinary
occurrences in the voyage VEHICLE INSURANCE
- PERILS OF THE SEA: unexpected and inevitable circumstances and Comprehensive insurance for vehicles – all risk insurance
casualties due to the violence of the sea (INCH MARIE CLAUSE)
No fault indemnity clause – right to claim without proving fault or
negligence; made on the vehicle within which the injured is riding at the
Implied warranty of sea worthiness – ship is reasonably fit to perform
time of the accident; indemnity not exceeding PhP 5,000; proof for claim
service and must be able to encounter the ordinary perils of the voyage.
– medical cert, or death cert, or police report of the accident.
It is not limited to the physical structure of the vessel, but must be laden
with the proper equipment, machinery, crew members, and food for
3 party suit against insurer – depends on the policy (sometimes, the
passengers.
person at fault pays first, then the insurer pays afterwards)
Implied warranties of the ship:
Compulsory 3 rd party liability - the purpose is to give financial
1. Warranty of seaworthiness
assistance to victims of motor vehicle accidents or their dependents
2. Warranty that the vessel will not deviate from the route
3. Warranty that the vessel will not engage in illegal papers
Compulsory motor vehicle liability insurance
4. Warranty that the vessel has the proper documents
- contract of insurance against liability for death or bodily injuries of
IN THE ABSENCE OF ANY STIPULATION, ONLY THE PERILS OF passengers or 3rd parties arising from motor vehicle accidents
THE SEA IS INSURED, UNLESS “ALL-RISK POLICY” IS
STIPULATED. PROCESS UNDER COMPULSORY 3RD PARTY LIABILITY
1. File notice of claim within 6 months from date of accident. Include
ALL-RISK POLICY – exempting clauses arte important; concealment cert. of physician.
will not vitiate the contract except when such concealment is the cause 2. Prescriptive period- action should be filed in:
of damage or loss. • a. Insurance commission – less than Php 100,000 claim
• b. RTC – more that Php 100,000 claim within 1 year from denial
BAREBOAT or DEMISE charter of claim (with stipulation) or 10 years (without stipulation)
- charterer: ship becomes common carrier 3. If there is agreement, the insurer should make payment within 5
- the real owner: becomes private carrier, tasked to observe diligence days of Compulsory 3rd party liability;
4. If there is no agreement, insurer shall pay “no fault indemnity”
of a good father of a family
without prejudice to pursue claim further. The insurer has the right
of subrogation to sue for recovery against the vehicle at fault.
VOYAGE OR TIME CHARTER- AFREIGHTMENT
- the owner of the vessel is the common carrier Authorized drivers clause – driver should be duly licensed or with
- (extraordinary diligence) permission, even if the license is fake. - Expired license of the driver (not
- shipper is a private carrier the insured himself) is not authorized driver.
I Theft Clause – if there is theft clause and the vehicle is unlawfully taken,
NSURABLE INTEREST IN MARINE INSURANCE: insurer is liable under the clause and authorized driver clause DOES
Shipper – cargo, expected profits NOT APPLY. Insured can recover even if thief has no license.
Charterer – the ship and the goods
Ship-owner – the ship itself OVER INSURANCE – same property insured for greater value; insured
is entitled to ratable return of premium proportioned to the amount by
RESPONSIBILITY OF THE SHIPPER which the aggregate sum insured exceeds the insurable value of the
- should look for a seaworthy ship thing at risk.
- INSURER should investigate first the seaworthiness of the ship
before paying the claimant. DOUBLE INSURANCE – 2 or more insurance, same property, not
exceeding value of property
CONCEALMENT IN MARINE INSURANCE
RE-INSURANCE – taken by the original insurer to insure his liability
- opinion of 3rd persons are material and must be disclosed (example:
Pag-asa report, Engineer of the ship report on the machine of the SETTLEMENT OF CLAIMS:
ship) 1. Notice of loss given within reasonable time: so that the insurer will
- if due to concealment, there was loss or damage, that us the only have ample time to investigate on the loss/ destruction/ death.
time that the insurer may rescind the contract 2. Notice of claim to the insurer should be given within 6 months after
notice of loss. Submission of evidence of loss.
3. Insurer should pay
• a. NON-LIFE – 30 days after proof of loss is received by the goods are delivered to the place of destination or constructively
insurer, and the loss/ damage has been ascertained through delivered to the consignee/agent
agreement or arbitration;
Diligence required – exercise of EXTRAORDINARY DILIGENCE –
• b. NON-LIFE – 90 days after receipt of proof of loss, and the
ascertainment had not been made within 60 days after such raises instantly a presumption of negligence – fault unless common
receipt; carrier observed extraordinary diligence (EOD) or loss, damage, liability
(LLD) is caused by:
• c. LIFE INSURANCE – immediately upon maturity of policy
(except when payable in installments or as an annuity, they are
1. flood, storm, earthquake, lightning, natural disaster or calamity
payable as they become due) ;
2. act or omission of shipper
• d. LIFE INSURANCE - within 60 days from filing of proof of 3. character of goods or defects in packaging
death. 4. act of public enemy in war
5. order or act of competent authority.
DOUBLE INTEREST DOCTRINE – The insurer must pay immediately
upon maturity, otherwise, the insurer pays: (12% interest per annum x 2) That the above exception/s is/are the only proximate cause of the loss,
of the principal + other damages at 6% per annum damage, liability. But even with the presence of above exception, CC is
still obliged to exercise due diligence to prevent or minimize the loss,
WHEN DOES THE CAUSE OF ACTION ACCRUE? damage, liability before, during and after the fortuitous event or natural
- upon final denial of the claim disaster
- MR filed in the insurance company does not affect the prescriptive
period. HIJACKING –

** When the insurer pays, there is the right of subrogation. The insurer General Rule: It does not exempt common carrier from liability because
steps into the shoes of the insured. Need not be stipulated. it is not one of the above-mentioned exception.

** Subrogation does not apply in: However, if the hijacking is beyond the control of common carrier
- LIFE insurance because of grave and irresistible force which cannot be foreseen or is
- inevitable, hijacking is regarded as fortuitous event because common
or when the insurer released the wrong doer
carriers are not absolute insurers against risk of travel.
- or when he pays for a risk which is not covered by the policy
- or when he pays more than the value of the insurance. Fire is not considered as natural disaster or fortuitous event.

TRANSPORTATION LIMITED LIABILITY RULE – valid – pursuant to Warsaw Convention


Treaty (check-in baggage - $20/k or hand carry $400/passenger)
Background / Introduction: Article XII Sections 11, 17, 18, 19 provided the limited liability is written in the bill of lading, ticket , contract.

Section 11 – No franchise for operation of public utility shall be granted EXCEPTIONS TO THE LIMITED LIABILITY RULE
except to citizens, corporation, partnership – 60-40 equity 1. Willful misconduct
= to operate public utility (PU), franchise (CPN-CPCN) is needed, but 2. Concurrent fault/negligence, bad faith, discourtesy
not ownership 3. Higher value declared
4. Charter party
CPC – franchise granted by government agency concerned 5. LLR is not expressed / written in the ticket, bill of lading, or contract
CPCN – franchise from Congress (Best Evidence: Bill of Lading, receipt, ticket, contract)

Section 17 – In case of national emergency when public interest CONTAINERIZATION SYSTEM – is designed to facilitate expeditious
requires, State may during emergency temporarily TAKEOVER the and economical loading of cargoes where common carrier does not
operation of private owned public utilities or business affected with participate in counting goods for loading and common carrier merely
public interest. issues bill of lading based on shippers declaration

Section 18 – State may in the interest of national welfare or defense CARRIAGE OF PASSENGERS/PERSONS
operate - establish vital industries upon payment of just compensation,
transfer to public ownership, public utilities to be operated by the State Article 1755 – Common Carrier is bound to carry passengers safely as
far as human care and foresight can provide, using UTMOST
Section 19 – State shall regulate/prohibit monopolies (Gamboa vs Teves DILIGENCE with due regard for all circumstances.
– corporation as PU-BOD-election)
When does carriage of passengers begin and end? – From the time
Under the POLICE POWER of the State, it may regulate a business passengers BOARDS AND ALIGHTS OR ARRIVES AT PORT OF
affected with public interest since the primary character of public utility is DESTINATION OR UNTIL HE LEAVES THE PREMISES WITH HIS
public service or use – to protect public and promote safety welfare BAGGAGES/CHILDREN OR even when he leaves the premises but
returns within reasonable time to retrieve baggage. Common Carrier is
Public service does not mean WHOLE PUBLIC or all the people in a vested with public interest and therefore exhorted to carry passengers
certain area using utmost diligence/UD. In case passenger is injured or does not
reach destination safely, common carrier is presumed at fault except in
Public Utility – is business / service engaged in regularly supplying the case of fortuitous event (FE/ND)
public with some commodity – service of public conseq (?) such as
transpo, electric, water, telecomm, railroad, airports, seapotys, iceplants, DOCTRINE OF LAST CLEAR CHANCE – sometimes referred to as
warehouses SUPERVENING NEGLIGENCE – that where both parties are negligent
or is impossible to determine whose fault, the one who had the last clear
Transportation – is the movement of goods or persons from one place to chance/opportunity to AVOID the impending harm and failed to do so, is
another by land, water, air railway chargeable with the consequence LLD – SC

Governing laws = Art. 1732-1763 NCC; Code of Commerce; COGSA;


Warsaw Convention Treaty, Agency rules

1732 – Common Carrier (CC) – a person, corporation, firm, association


engaged in business of carrying passengers or goods or both by land,
water, air for compensation and offering service to public = with or
without CPC or CPCN; kabit system; whether it is an ancillary regular or
episodic, unscheduled activity or whether it offers service to the public or
segment of the community

CARRIAGE OF GOODS – Liability of Common Carrier starts from the


time common carrier receives unconditionally the goods and ends until