1 COMMERCIAL LAW REQUISITES

COMMERCIAL LAW

COMPILATION OF REQUISITES

CENTRALIZED BAR OPERATIONS

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SAN BEDA COLLEGE ALABANG

CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE 2018 – 2019

CATRIONA JANELLE GAYATIN

CHAIRPERSON

JEREKKO CADORNA
VICE CHAIRPERSON FOR ACADEMICS

RODEL CADORNIGA, JR.

VICE CHAIRPERSON FOR ACADEMIC OPERATIONS

EMMANUEL JOSEL JOVELLANOS

VICE CHAIRPERSON FOR HOTEL OPERATIONS

CHRISTIAN BOY BENEDICT TIANGCO

EXECUTIVE OFFICER FOR HOTEL OPERATIONS

KATREENA FRANCES MONJE

VICE CHAIRPERSON FOR FINANCE

MARYLL ANN RAGPALA

VICE CHAIRPERSON FOR COMMUNICATIONS

GIULIA INGRID CALUB

VICE CHAIRPERSON FOR RECRUITMENT AND MEMBERSHIP

JOHN ELI ZURIEL BITONG

VICE CHAIRPERSON FOR ELECTRONIC DATA PROCESSING

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THIS COMPILATION WAS ARRANGED WITH THE HELP OF THE:

CENTRALIZED BAR OPERATIONS DEPUTIES FOR ACADEMICS 2018 – 2019

MA. SAMANTHA EBUÑA

HAFSHA DARWIZA GURO

GABRIEL LUIS LACSON

THAT IN ALL THINGS, GOD MAY BE GLORIFIED!

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LETTERS OF CREDIT
Letters of Credit; essential conditions (Art. 568, Code of Commerce)

1. Issued in favor of a definite person and not to order.

Note: The Uniform Commercial Practice for Documentary Credits allows letters of
credit to be payable to order
2. Limited to a fixed or specified amount, or to one or more amounts, but with a
maximum stated limit

Parties to a letter of credit

1. Applicant/buyer/importer – procures the letter of credit, purchases the goods

and obliges himself to reimburse the issuing bank upon receipt of the documents
title
2. Issuing bank – one which, whether a paying bank or not, issues a letter of credit
and undertakes to pay the seller upon receipt of the draft and proper
documents of title from the seller and to surrender them to the buyer upon
reimbursement
3. Beneficiary/seller/exporter – in whose favor the instrument is executed. One who
delivers the documents of title and draft to the issuing bank to recover payment.

Additional parties

1. Advising/notifying bank – the correspondent bank (agent) of the issuing bank

through which it advises the beneficiary of the LC
2. Confirming bank – bank which, upon the request of the beneficiary, confirms the
LC issued
3. Paying bank – bank on which the drafts are to be drawn which may be the
issuing bank or another bank not in the city of the beneficiary
4. Negotiating bank – bank in the city of the beneficiary which buys or discounts
the drafts contemplated by the LC, if such draft is to be drawn on the opening
bank not in the city of the beneficiary

Stages of letters of credit

1. Contract of sale between buyer and seller

2. Application for LC by the buyer with the bank
3. Issuance of LC by the bank
4. Shipping of goods by the seller
5. Execution of draft and tender of documents by the seller
6. Redemption of draft (payment) and obtaining of documents by the issuing bank

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7. Reimbursement to the bank and obtaining of documents by the buyer

TRUST RECEIPTS LAW

Form and contents (Sec. 5, Trust Receipts Law)

Need not be in any particular form, but it must substantially contain

1. A description of the goods, documents, or instruments subject of the trust receipt

2. The total invoice value of the goods and the amount of the draft to be paid by
the entrustee
3. An undertaking or a commitment of the entrustee:
a. To hold in trust for the entruster the goods, documents, or instruments therein
described
b. To dispose of them in the manner provided for in the trust receipt
c. To turn over the proceeds of the sale of the goods, documents, or instruments
to the entruster to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return the goods, documents or instruments
in the event of their non-sale within the period specified therein.

Parties to a TR Transaction

1. Entruster
a. Lender/financier
b. Person holding title over the goods, documents or instruments subject of a
trust receipt transaction; releases possession of the goods upon execution of
trust receipt
c. The entruster in a trust receipt is not the owner of the goods but merely a
holder of security title. If in the trust receipt the entruster bank is made to
appear as owner, it was an artificial expedient, more of fiction than fact
2. Entrustee
a. Borrower/buyer/importer
b. Person to whom the goods are delivered for sale or processing in trust, with
the obligation to return the proceeds of sale of the goods themselves to the
entruster
c. The owner of the goods purchased. In fact, the law imposes on him the risk of
loss of the goods under the doctrine of res perit domino
3. Seller of the goods – Not strictly and actually a party to the trust receipt
transaction; but a party to the contract of sale with the
buyer/importer(entrustee)

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NEGOTIABLE INSTRUMENTS LAW

Negotiable Instrument (Sec. 1, NIL)

1. Must be in writing and signed by the maker or drawer

2. Must contain an unconditional promise or order to pay a sum certain in money
3. Must be payable on demand, or at a fixed or determinable future time
4. Must be payable to order or to bearer
5. When the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty

Functions of a Negotiable Instrument

1. Operates as a substitute for money

2. Medium of exchange
3. Credit instrument that increases credit circulation
4. Increases purchasing power in circulation
5. Proof of a transaction

Holder in due course (Sec. 52, NIL)

A holder in due course is a holder who has taken the instrument under the following
conditions:

1. That the instrument is complete and regular upon its face

2. The he became the holder of it before it was overdue and without notice that it
has been previously dishonored, if such was the fact
3. That he took it in good faith and for value
4. That at the moment it was negotiated to him, he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it

Rights of a Holder in Due Course (NIL, Sec. 51, 57)

1. May sue in the instrument in his own name (even when he holds the instrument
merely in a representative capacity such as a holder for collection only or a
pledge of a note)
2. May receive payment and if payment is in due course, the instrument is
discharged
3. Holds the instrument free from any defect of title of prior parties and free from
personal defenses available to parties among themselves
4. May enforce payment of the instrument for the full amount thereof against all
parties liable thereon

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Protest (Sec. 153, 154)

1. Must be made by:

a. A notary public; or
b. Any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses
2. Must be annexed to the bill, or must contain a copy thereof
3. Must be under the hand and seal of the notary making it
4. Must specify:
a. The time and place of presentment
b. The fact that presentment was made and the manner thereof
c. The cause or reason for protesting the bill; and
d. The demand and the answer given, if any or the fact that the drawee or
acceptor could not be found

Acceptance for Honor (Acceptance Supra Protest) (Sec. 161, 162)

1. The bill must have been protested for dishonor by non-acceptance or for better
security
2. The acceptor for honor must be a stranger to the bill
3. The holder must consent to the acceptance for honor
4. Bill must not be overdue
5. Must follow the following formalities
a. Must be in writing
b. Must indicate that it is an acceptance for honor
c. Signed by the acceptor for honor
d. Must contain an express or implied promise to pay money
e. The accepted bill for honor must delivered to the holder

Payment for honor (Sec. 171, 172, 173)

1. The bill has been dishonored by non-payment

2. It has been protested for non-payment
3. Payment supra protest is made by any person, even by a party thereto
4. The payment is attested by a notarial act of honor which must be appended to
the protest or form an extension of it; and
5. The notarial act must be based on the declaration made by the payor for honor
or his agent of his intention to pay the bill for honor and for whose honor he pays

Payment in due course (Sec. 88)

1. Payment must be made at or after maturity

2. Payment must be made to the holder; and

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3. Payment must be made in good faith and without notice that the holder’s title is
defective

Intentional cancellation

1. Intentionally done
2. By the holder thereof
3. By writing the word “cancelled” or “paid” on the face of the instrument; or if the
instrument is torn up, burned, mutilated, or destroyed

Renunciation by Holder (Sec. 122)

1. Absolute and unconditional

2. Made in favor of the person primarily liable
3. Made at or after maturity
4. Unless the instrument is delivered, it must be expressly provided in writing

INSURANCE
Elements

1. Payment of premium
2. Assumption of risk
3. Risk of loss
4. Insurable interest
5. Scheme to distribute the losses

Other elements of a valid contract of insurance

1. Consent of the contracting parties

2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established
4. Insurable interest

Right of Subrogation

1. The insurance involved is property insurance

2. The insured received indemnity from the insurer for the loss
3. There is a loss or injury arising from the risk insured against covered by the loss

Requisites for a Natural Person to be insured

1. He must be competent to make a contract

2. He must possess an insurable interest in the subject of the insurance

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3. He must not be a public enemy

Lottery; elements

1. Consideration
2. Prizes
3. Chance

Four primary concerns of the parties to an insurance contract

1. Determine if loss occurs, and if so, the amount thereof (condition)

2. Control of risk to guard against increase of risk (warranties and conditions)
3. Correct estimation of risk which enables insurer to determine if he will approve
the policy application and if so at what premium rate (concealment and
representation); and
4. Precise delimitation of the risk which determines the extent of the contingent
duty to pay undertaken by the insurer (exception)

Concealment

1. The party concealing is duty bound to disclose the fact (a material fact) which
he neglects to communicate or disclose to the other
2. The other party has no means of ascertaining the fact concealed
3. Such party concealing makes no warranty as to the fact concealed
4. A party knows such fact which he neglects to communicate or disclose to the
other party
5. Such concealment must take place at the time the contract is entered into and
not afterwards

False representation (Misrepresentation)

1. The insured stated a fact which is untrue

2. Such fact was stated with knowledge that it is untrue and with intent to deceive
or which he states positively as true without knowing it to be true and which has
a tendency to mislead
3. Such fact in either case is material to the risk

Incontestability; Requisites

1. It must be a life insurance policy

2. It must be payable on the death of the insured
3. It must be in force during the lifetime of the insured for at least two (2) years from
its date of issue or of its last reinstatement

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Contents of a Policy of Insurance (Sec. 51, Insurance Code)

1. Rate of premium
2. Risk insured against
3. Amount of insurance, except in open or running policies
4. Parties
5. Property or the life insured
6. Interest of the insured in the property if he is not the absolute owner
7. Duration of the insurance

Papers attached to the policy; requisites (Sec. 232, 50)

1. No rider, clause, warranty, or endorsement shall be attached to, printed, or

stamped upon such policy, certificate, or contract unless the form of such
application, rider, clause, warranty, or endorsement has been approved by the
Commissioner
2. The rider, clause, warranty, or endorsement is attached to the policy
3. If not applied for by the insured or owner, the rider, clause, warranty, or
endorsement shall be countersigned by the insured
4. The descriptive title or name of the rider, clause, warranty, or endorsement is
mentioned and written on the blank spaces provided in the original printed
policy form

Insurance by an Agent or Trustee (Sec. 54)

1. Agent must be authorized

2. Must act within the scope of his authority
3. Indicate by appropriate words the he is acting in a representative capacity
4. Must disclose his principal

Cancellation of Non-life Policy (Sec. 65)

1. Notice must be in writing, mailed, or delivered to the insured at the address

shown in the policy
2. Notice must be based on the occurrence after the effective date of the policy
of one or more of the grounds mentioned
3. Prior notice of cancellation to the insured
4. Notice must state the grounds relied upon and upon request of the insured to
furnish facts on which cancellation is made

Recovery in case of loss

1. Interest must be properly covered by the policy

2. There must be loss
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3. Insured must have insurable interest in the subject matter

4. The loss must be proximately caused by the peril proving that the loss comes
within the exception

Double Insurance

1. Two or more insurers insuring separately

2. Same insured person
3. Same risk or peril insured against
4. Same interest insured
5. Same subject matter

MARINE INSURANCE

Abandonment (Sec. 140)

1. The abandonment must be neither partial nor conditional

2. The notice of abandonment must be explicit and must specify the particular
cause of the abandonment
3. It must be made by giving notice thereof to the insurer which may be done orally
or in writing
4. It must be factual
5. There must be an actual relinquishment by the person insured of his interest in the
thing insured
6. There must be a constructive total loss
7. It must be made within a reasonable time after receipt of reliable information of
the loss

Right to claim general average contribution

1. Common danger to the vessel or cargo

2. Part of the vessel or cargo was sacrificed deliberately
3. Sacrifice must be for the common safety or for the benefit of all
4. Sacrifice must be made by the master or upon his authority
5. It must be successful (resulted in the saving of the vessel or cargo)
6. It must not be caused by any fault of the party asking the contribution
7. It must be necessary

FIRE INSURANCE

Alteration as a special ground for rescission by insurer (Sec. 170, 171)

1. The alteration is made without the consent of the insurer

2. Such use or condition as limited by the policy is altered

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3. The use or condition of the thing is specifically limited or stipulated in the policy
4. There must be a violation of a provision of the policy
5. The alteration increases the risk
6. The alteration is made by means within the control of the insured

TRANSPORTATION LAW
Tests in determining whether a party is a common carrier

1. It must be engaged in the business of carrying goods for others as a public

employment and must hold itself out as ready to engage in the transportation of
goods generally as a business and not as a casual occupation
2. It must undertake to carry goods of the kind to which the business is confined
3. It must undertake to carry by the method by which his business is conducted and
over its established roads
4. The transportation must be for hire (FPIC vs CA, GR. No. 125948, 29 December
1998)

Primary obligations of a common carrier in the carriage of goods

1. Duty to deliver the goods to the proper person

2. Duty to accept the goods
3. Duty to seasonably deliver the goods to the destination
4. Duty to transport the goods safely to the agreed destination
5. Duty to exercise extraordinary diligence

Stipulations fixing the limit of recovery (Art. 1750 NCC)

1. It is reasonable and just under the circumstances

2. It is fairly and freely agreed upon

DEFENSES OF A COMMON CARRIER IN THE CARRIAGE OF GOODS

Defense of Force Majeure

1. It must be impossible to foresee the event which constitutes the caso fortuito or if
it can be foreseen, it must be impossible to avoid
2. The cause of the unforeseen and unexpected occurrence, or of the failure of
the debtor to comply with his obligation must be independent of human will
3. The occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner

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4. The obligor must be free from any participation in or the aggravation of the injury
resulting to the creditor (Servando vs Philippine Steam Navigation GR No. L-
36481-2, 23 October 1982)
5. The natural disaster must be the proximate and only cause of the loss
6. The common carrier must exercise due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster
7. The common carrier has not negligently incurred in delay in transporting the
goods (Art. 1740, NCC)

Acts of Public Enemy (Art. 1739)

1. Must be the proximate and only cause of the loss

2. Exercise of due diligence to prevent or minimize the loss before, during, or after
the act causing the loss, deterioration or destruction of the goods
3. The existence of an actual state of war.

OBLIGATIONS OF A COMMON CARRIER IN THE CARRIAGE OF PASSENGERS

Primary obligations of a common carrier in the carriage of passengers

1. Duty to take care of the passenger’s baggage

2. Duty to observe utmost diligence to the passenger
3. Duty to accept passengers without discrimination
4. Duty to transport the passenger safely to the agreed destination
5. Duty to seasonably bring the passenger to the destination

Common carrier’s liability for hand-carried baggage or necessary deposit

1. Notice was given to the common carrier, or to their employees, of the baggage
brought by the passengers; and
2. Passenger took the precautions which the common carrier advised relative to
the care and vigilance of their baggage

EXTRAORDINARY DILIGENCE

Res Ipsa Loquitor

1. The accident is of a kind which ordinarily does not occur in the absence of
someone’s negligence
2. It is caused by an instrumentality within the exclusive control of the defendant or
defendants
3. The possibility of contributing conduct which would make the plaintiff responsible
is eliminated

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Seaworthiness

1. The fitness of the vessel itself to withstand the rigors or vicissitudes of the voyage
2. Fitness of the vessel to store the cargoes and accommodate passengers to be
transported
3. That the vessel is adequately equipped and properly manned with a sufficient
number of competent officers and crew

Extraordinary diligence in air transportation

1. Make sure that the aircraft is airworthy

2. That the vessel has a competent captain and crew
3. That the captain and his crew exercise extraordinary diligence in operating the
aircraft

MARITIME COMMERCE

Charter Party

1. Consent of the contracting parties

2. Existing vessel which should be placed at the disposition of the shipper
3. Freight
4. Compliance with Art. 562 of the Code of Commerce (Drawn in duplicate, signed
by the parties, and containing the mandatory conditions in such contract)

ACCIDENTS IN MARITIME COMMERCE

Gross or General Average

1. Common danger
2. Deliberate sacrifice
3. Success
4. Proper formalities and legal steps
a. Procedure for recovery
b. Assembly and deliberation
c. Resolution of the captain
d. Entry of the resolution in the logbook
e. Detailed minutes
f. Delivery of the minutes to the maritime judicial authority of the first port, within
24 hours from arrival
g. Ratification by captain under oath

SALVAGE LAW

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Valid salvage claim

1. Valid object of salvage

2. Object must have been exposed to marine peril (not perils of the ship)
3. Services voluntarily rendered when not required as an existing duty or from
special contract
4. Services are successful, total, or partial

CORPORATION LAW
Attributes of a Corporation

1. It enjoys the right of succession

2. It is created by operation of law
3. It is an artificial being with separate and distinct personality
4. It has the powers, attributes, and properties expressly authorized by law or
incident to its existence

Fraud; lifting the veil of corporate personality

1. There must have been fraud or evil motive in the affected transaction and the
mere proof of control of the corporation by itself would not authorize the
piercing
2. The main action should seek for the enforcement of pecuniary claims pertaining
to the corporation against corporate officers or stockholders, or vice-versa
3. The corporate entity has been used in the perpetration of the fraud or in
justification of wrong, or to escape personal liability
Note: There is always an element of malice or evil motive in fraud cases

Alter ego cases; lifting the veil of corporate personality; factors in determining when a
subsidiary may be treated as a mere instrumentality of the parent corporation

1. The parent corporation owns all or most of the capital stock of the subsidiary
2. The parent and subsidiary corporations have common directors or officers
3. The parent corporation finances the subsidiary
4. The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation
5. The subsidiary has grossly inadequate capital
6. The parent corporation pays the salaries and other expenses or losses of the
subsidiary
7. The subsidiary has substantially no business except with the parent corporation or
no assets except those conveyed to or by the parent corporation

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8. In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or
its business or financial responsibility is referred to as the parent corporation’s own
9. The parent corporation uses the property of the subsidiary of its own
10. The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corporation
11. The formal legal requirements of the subsidiary are not observed. (PNB vs Ritratto
Group Inc. GR No. 142616, 31 July 2001)

Alter ego cases; probative factors

1. Stock ownership by one or common ownership of both corporations

2. Identity of directors and officers
3. The manner of keeping corporate books and records
4. Methods of conducting the business

De facto corporations; requisites

1. A valid law under which the corporation is organized

2. A bona fide attempt in good faith to incorporate
3. An assumption of corporate powers
Note: If after the corporation, the incorporators discovered that they have not
complied substantially with the law and still continued transacting business as a
corporation, without doing anything to correct the defect, the privilege of de
facto existence can no longer be invoked

FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION

Steps in the creation of a corporation (Sec. 3[1] SRC, Sec. 14, 15, 17 Corporation Code)

1. Promotion
2. Incorporation
a. Drafting and execution of Articles of Incorporation by the incorporators and
other documents required for registration of the corporation. The person
chosen as temporary treasurer pending incorporation must also execute:
- An affidavit certifying compliance with subscription and paid up
requirements as to capital stock.
b. Filing with the SEC of the Articles of Incorporation together with:
- Treasurer’s affidavit
- In case the corporation is governed by special law, a favorable
recommendation of the appropriate government agency that such
Articles of Incorporation is in accordance with law
c. Payment of filing and publication fees

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d. Issuance by the SEC of the certificate of incorporation

3. Formal organization and commencement of the transaction of business
a. Adoption of By-Laws and filing of the same with the SEC;
b. Election of Board of Directors/Trustees, and officers;
c. Establishment of principal office;
d. Providing for subscription and payment of capital stock

Contents of Articles of Incorporation (Sec 14, Corporation Code)

1. Corporate Name
2. Purpose
3. Principal Office
4. Term
5. Names, Nationalities, and Residences of the Incorporators
6. Number of Directors or Trustees
7. Names, Nationalities, and Residences of persons who shall act as Directors or
Trustees until the first regular directors or trustees are duly elected
8. If it be a stock corporation, the amount of its authorized capital stock in lawful
money of the Philippines, the number of shares and in case of par value shares,
the par value of each. If shares are without par value, such fact must be stated.
9. Names, Nationalities, and Residences of the original subscribers, and the amount
subscribed and paid by each
10. If it be a non-stock corporation, the amount of capital, the names, nationalities,
and residences of the contributors and the amount contributed by each
11. Other matters which may be deemed necessary of convenient

Component of a Corporation

1. Corporators – those who compose a corporation, whether as stockholders or

members
2. Incorporators – those mentioned in the Articles of Incorporation as originally
forming and composing the corporation, having signed the Articles of
Incorporation and acknowledged the same before a Notary Public. They have
no powers beyond those vested in them by the statute
3. Stockholders
4. Members – corporators of a non-stock corporation

Number and Qualifications of Incorporators

1. Not less than five (5) but not more than fifteen (15) (Exception: only one (1)
incorporator in a corporation sole)
2. Majority must be residents of the Philippines

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3. Each must own or subscribe to at least one share of the capital stock of the
corporation
4. Of legal age
5. Natural person not suffering from any legal incapacity

Removal of Board Members; Requisites (Sec. 28, Corporation Code)

1. The removal should take place at a regular or special meeting duly called for
the purpose
2. The director or trustee can only be removed by a vote of the stockholders
representing at least 2/3 of the outstanding capital stock or 2/3 of the members
entitled to vote in case of non-stock corporations
3. There must be a previous notice to stockholders or members of the corporation
of the intention to propose such removal at the meeting
4. The removal without cause may not be used to deprive minority stockholders or
members of the right of representation to which they may be entitled under Sec.
24 of the Code;
5. The special meeting of the stockholders or members of a corporation for the
purpose of removal must be called by the secretary on order of the president or
on the written demand of the stockholders representing or holding at least a
majority of the outstanding capital stock or majority of the members entitled to
vote

Mandatory corporate officers (Sec. 25, CC)

1. President
2. Treasurer
3. Secretary

Other Corporate Officers (Sec. 63, CC)

1. Vice- President
2. Assistant Secretary

CORPORATE POWERS

To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
deal with real and personal property, securities and bonds; General power;
Requirements

1. Reasonably necessarily required by the transaction of the lawful business of the

corporation
2. Subject to limitations prescribed by law and the Constitution

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Increasing/Decreasing capital stock; Specific power; Requirements (Sec. 38, CC)

1. Prior written notice of the proposed increase or decrease of the capital stock
indicating the time and place of meeting addressed to each stockholder must
be made either by mail or personal service;
2. In case of decrease in capital stock, the same must not prejudice the right of the
creditors
3. Approval by the majority vote of the board of directors
4. Filing of the certificate with the SEC
5. A certificate in duplicate signed by a majority of the directors of the corporation,
countersigned by the chairman and the secretary of the stockholders meeting
6. Approval thereof by the SEC
7. Ratification by the stockholders holding or representing at least two-thirds (2/3) of
the outstanding capital stock at a meeting duly called for that purpose
8. In case of increase in capital stock, there must be a Treasurer’s Affidavit showing
that at least 25% of the approved increase in the capital must be subscribed and
that at least 25% of the amount subscribed must be paid either in cash or
property

Sale, disposition, lease, or encumbrance of all or substantially all of corporate assets;

specific power; requirements

1. Prior written notice of the proposed action indicating the time and place of
meeting addressed to each stockholder must be made either by mail or
personal service
2. Approval by the majority vote of the board of directors
3. Ratification by the stockholders holding or representing at least two-thirds (2/3) of
the outstanding capital stock at a meeting duly called for that purpose
4. Any dissenting stockholder shall have the option to exercise his appraisal right
5. The sale of the assets shall be subject to the provisions of existing laws on illegal
combinations and monopolies and the Bulk Sales Law

Power to acquire own shares; Specific Power; Conditions (Sec. 41, CC)

1. That its capital is not impaired

2. That it be for a legitimate and proper corporate purpose
3. That there shall be unrestricted retained earnings
4. That the corporation acts in good faith and without prejudice to the rights of
creditors and stockholders

Investment of corporate funds to pursue primary purpose; specific power; requisites

1. Approval of the Majority of the Board

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Invest corporate funds in another corporation or business or for any other purpose other
than the primary purpose; specific power; requisites (Sec. 42, CC)

1. Resolution by the majority of the board of directors or trustees

2. Ratification by the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of the members in case of non-stock
corporation
3. Prior written notice of the proposed investment and the time and place of the
meeting shall be made, addressed to each stockholder or member by mail or by
personal service
4. Any dissenting stockholder shall have appraisal right
5. The ratification must be made at a meeting duly called for the purpose

Power to declare dividends out of unrestricted retained earnings; specific power;

Requirements (Sec. 43, CC)

1. Unrestricted retained earnings

2. Resolution of the board

Power to enter into management contract; specific power; Requirements (Sec. 44, CC)

1. Approval by a majority of the quorum of the board of directors;

2. Ratification by the stockholders owning at least majority of the outstanding
capital stock or the members of both the managing and the managed
corporations, at a meeting duly called for the purpose
3. Approval by the stockholders of the managed corporation owning at least two-
thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least
two-thirds (2/3) of the members in the case of a non-stock corporation:
a. Where a stockholder/s representing the same interest of both the managing
and the managed corporations own or control more than one third (1/3) of
the total outstanding capital stock entitled to vote of the managing
corporation (interlocking stockholders); or
b. Where a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of
directors of the managed corporation (interlocking directors)
4. The period must not be longer than five (5) years for any one (1) term

Content of By-Laws

1. Time, place and manner of calling and conducting regular or special meetings
of the directors or trustees
2. Time and manner of calling and conducting regular or special meetings of the
stockholders or members

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3. The required quorum in meetings of stockholders or members and the manner of

voting therein
4. The form of proxies of stockholders and members and the manner of voting them
5. The qualification, duties, and compensation of directors, trustees, officers and
employees
6. The time for holding the annual election of directors or trustees and the mode or
manner of giving notice
7. The manner of election or appointment and the term of office of all officers other
than directors or trustees
8. The penalties for violation of the by-laws
9. In the case of stock corporations, the manner of issuing certificates
10. Such other matters as may be necessary for the proper or convenient
transaction of its corporate business

Validity of By-Laws

1. Must not be contrary to law nor with the Corporation Code

2. Must not be contrary to morals and public policy
3. Must not impair obligations and contracts
4. Must be general and uniform in their operation and not directed against
particular individuals
5. Must be consistent with the charter or articles of incorporation
6. Must be reasonable, not arbitrary or oppressive

Merger and Consolidation; Procedure

1. Approval of plan – The Board of each corporation shall draw up a plan of

merger or consolidation containing:
a. Names of constituent corporations;
b. Terms and mode of carrying the merger or consolidation
c. Statement of changes in the AOI of the surviving corporation; or statements
to be set forth in the AOI of the consolidated corporation; and
d. Other provisions
2. Submission to stockholders or members for approval – the plan of merger or
consolidation shall be approved by vote of stockholders representing at least 2/3
of the outstanding capital stock, or members in case of non-stock corporation
3. Execution of formal contract – Articles of Merger or Consolidation shall be
executed by each of the constitution corporations, signed by the President or
Vice-President and certified by the secretary or assistant secretary setting forth:
a. Plan of merger or consolidation
b. Number of shares outstanding or members; and

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c. As to each corporation, the number of shares or members voting for and

against such plan
4. Submission to SEC for approval – Four (4) copies of the Articles of Merger or
Consolidation (together with favorable recommendation of a pertinent
government agency in certain cases) shall be submitted to the SEC for approval
5. Conduct of hearing by SEC – It, upon investigation, the SEC has reason to believe
that the proposed merger or consolidation is contrary or inconsistent with the
provisions of this Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard
6. Issuance of certificate of the SEC – the SEC shall issue a certificate of merger if it
is satisfied that the merger or consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and existing laws

RIGHTS OF SHAREHOLDERS OR MEMBERS

Board Meetings; Requirements (Sec. 50 – 51, CC)

1. Meeting of the directors or trustees duly assembled as a Board

2. Presence of the required quorum
3. Decision of the majority of the quorum, or in other case, a majority of the entire
Board
4. Meeting at the place, time, and manner provided in the by-laws

Stockholder’s/Member’s Meeting; Requirements (Sec. 50-51, CC)

1. It must be held at the proper place

2. It must be held at the stated date and at the appointed time or at a reasonable
time thereafter
3. It must be called by the proper person
4. The person or persons designated in the by-laws have authority to call
stockholders or members meeting
5. In the absence of such provision in the by-laws, it may be called by a director or
trustee or by an officer entrusted with the management of the corporation
6. A stockholder or member may make the call on order of the SEC whenever for
any cause, there is no person authorized to call a meeting
7. The special meeting for the removal of directors or trustees may be called by the
secretary or by a stockholder or member
8. There must be previous notice
9. There must be a quorum

Notice of meetings; Requisites

1. Must be issued by one who has authority to issue it

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2. Must be in writing
3. Must state date, time and place unless otherwise provided in the By-laws
4. Must state business to be transacted thereat
5. Must be send at a certain time before schedule
6. Notice must comply with any other requirements prescribed by law or corporate
by-laws

Sequestered shares; two-tiered test to determine whether the PCGG may vote
sequestered shares

1. Whether there is prima facie evidence showing that the said shares are ill-gotten
and thus belong to the state; and
2. Whether there is an immediate danger of dissipation thus necessitating their
continued sequestration and voting by the PCGG while the main issue is pending
with the Sandiganbayan (Republic vs Sandiganbayan GR No. 107789, 30 April
2003)

Right to appoint proxy; Requirements

1. It shall be filed before the scheduled meeting with the corporate secretary
2. No proxy shall be valid and effective for a period longer than five (5) years at
any one time
3. It shall be signed by the stockholder or member concerned
4. Proxies shall be in writing
5. Unless otherwise provided in the proxy, it shall be valid only for the meeting which
it was intended

Books required to be kept by a corporation

1. Book of all business transactions

2. Book of all minutes of all meetings of stockholders or members
3. Books of minutes of all meetings of directors of trustees
4. Stock and transfer book, in case of stock corporations

Corporate records required by the SEC to be kept and/or registered

1. Books of account
2. List of stockholders or members
3. Financial records

Corporate records required by the SEC to be kept and/or registered; Requirements

1. Records must be kept at the principal office of the corporation

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2. Any director, trustee, stockholders or member shall have the right to inspect the
records of all business transaction and the minutes of any meetings
3. The stockholder may demand a copy of the excerpts of the records or minutes
4. The refusal to allow such right to inspect and to demand such copy shall subject
the erring officer or agent to civil and criminal liabilities and if such refusal is by
virtue of a resolution or order of the board of directors or trustees, the liability shall
be imposed upon the directors or trustees who voted for the adoption of such
resolution or order

Derivative Suit; Requisites

1. Party bringing the suit should be a shareholder as of the time of the act or
transaction complained of
2. Exhaustion of intra-corporate remedies
3. Cause of action actually devolves on the corporation
4. Appraisal rights not available
5. Not a nuisance or harassment suit

Additional requisites of Derivative suits

A stockholder or member may bring an action in the name of the corporation or

association as the case may be, provided that

1. He was a stockholder or member at the time the acts or transactions subject of

the action occurred and at the time the action was filed
2. He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the relief
he desires
3. No appraisal rights are available for the acts complained of
4. The suit is not a nuisance or harassment suit

SUBSCRIPTION CONTRACT

Subscription agreements; considerations

1. Cash actually received

2. Property, tangible or intangible, actually received and necessary or convenient
for its use and lawful purposes
3. Amount transferred from unrestricted retained earnings to stated capital
4. Labor or services actually rendered to the corporation
5. Previously incurred corporate indebtedness

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 25 COMMERCIAL LAW REQUISITES

6. Outstanding shares in exchange for stocks in the event for reclassification or

conversion

Property, tangible or intangible, actually received and necessary or convenient for its
use and lawful purposes; Requisites

1. It must be subject to a fair valuation equal to the par or issued value of the stock
issued;
2. The property is actually received by the corporation
3. The valuation thereof shall initially be determined by the incorporators or board
of directors
4. The valuation is subject to the approval by the SEC
5. The property is necessary or convenient for its use and lawful purposes

Delinquency Sale; Procedure

1. Resolution. The board shall issue a resolution ordering the sale of delinquent
stock. It must contain;
a. Amount due on each subscription
b. All accrued interest
c. Date, time and place of the sale
2. Notice. Notice of said sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally or by registered mail
3. Publication. The notice shall furthermore be published once a week for two (2)
weeks in a newspaper of general circulation in the province or city where the
principal office of the corporation is located
4. Sale. The delinquent stock shall be sold at the public auction to be held not less
than thirty (30) days nor more than sixty (6) days from the date the stocks
become delinquent; It may be cancelled by:
a. Payment on or before date of the sale
b. Order of the board to that effect
5. Transfer. The stock so purchased shall be transferred to such purchaser in the
books of the corporation and a certificate for such stock shall be issued in his
favor.
6. Credit remainder. The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of a
certificate of stock covering the same

Requisites for a valid call/ resolution or formal declaration of the board that the unpaid
subscriptions are due and payable

1. Must be made in the manner prescribed by law

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2. Must be made by the board of directors

3. Must operate uniformly upon all the shareholders

Certificate of Stock; requisites for issuance

1. The certificate must be signed by the president or vice-president, countersigned

by the secretary or assistant secretary
2. The certificate must be sealed with the seal of the corporation
3. The certificate must be delivered
4. The par value, as to par value shares or full subscription as to no par value shares
must first be fully paid
5. The original certificate must be surrendered where the person requesting the
issuance of a certificate is a transferee from the stockholder

Stock transfer; Requirements for validity

1. There must be delivery of the certificate

2. The share must be indorsed by the owner or his agent
3. To be valid to the corporation and third persons, the transfer must be duly
recorded in the books of the corporation

Lost and destroyed certificate of stock; procedure for issuance of new certificate

1. Affidavit. The registered owner shall execute and file an affidavit regarding the
share and the circumstances regarding its loss
2. Verification. The corporation shall verify the affidavit and other information and
evidence with the books of the corporation
3. Publication. The corporation shall publish a notice in a newspaper of general
circulation published in the place where the corporation has its principal office,
one a week for 3 consecutive weeks at the expense of the registered owner of
the certificate of stock which has been lost, stolen or destroyed
4. One year waiting period. There shall be a waiting period of one year from the
date of the last publication during which a contest can be interposed
5. Contest. If the contest has been presented to said corporation or if an action is
pending in court regarding the ownership of said certificate of stock which has
been lost, stolen, or destroyed, the issuance of the new certificate of stock shall
be suspended until the final decision of the court regarding the ownership of said
certificate of stock
6. Replacement. If there is no contest within the one year waiting period, the
corporation shall then replace the certificate. The replacement of share can
only be made before the expiration of the one year waiting period.

NON-STOCK CORPORATION

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Termination of membership in a non-stock corporation; requirements (Calatagan Golf

Club vs Clemente, Jr. GR No. 165443, 16 April 2009)

1. Reasonable notice to the member concerned

2. Fair opportunity to be heard

Restrictions on the right to transfer shares; requirements for validity (Sec. 98, CC)

1. They must appear in the articles of incorporation, by laws, and certificate of

stock, otherwise they shall not be binding on any purchaser in good faith
2. They shall not be more onerous than granting the existing stockholders or the
corporation the option to purchase the shares of transferring stockholders with
such reasonable terms, conditions, or period stated therein.

CORPORATE DISSOLUTION AND LIQUIDATION

Steps in corporate dissolution

1. Termination of corporate existence

2. Winding up of its affairs, payment of its debts, and distribution of its assets among
shareholders or members and other persons interested

Voluntary dissolution where no creditors are affected

1. A meeting must be held on the call of directors or trustees

2. Notice of meeting should be given to the stockholders by personal delivery or
registered mail at least thirty (30) days prior to the meeting
3. The notice of meeting should also be published for three (3) consecutive weeks
in a newspaper published in the place
4. The resolution to dissolve must be approved by the majority of directors/trustees
and approved by the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of members
5. A copy of the resolution shall be certified by the majority of the Board of
Directors or trustees and countersigned by the secretary
6. The signed and countersigned copy will be filed with the SEC
7. The SEC will issue the certificate of dissolution

Voluntary dissolution where creditors are affected

1. Approval of the stockholders representing at least two-thirds (2/3) of the

outstanding capital stock or two-thirds (2/3) of members in a meeting called for
that purpose

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2. Filing of a petition with the SEC signed by majority of directors or trustees or other
officers having management of its affairs verified by President or Secretary or
Director
3. If the petition is sufficient in form and substance, the SEC shall issue an order fixing
a hearing date for objections
4. A copy of the order shall be published at least once a week for three (3)
consecutive weeks in a newspaper of general circulation or there is no
newspaper. Posting for three consecutive weeks in three public places
5. Objections must be filed no less than thirty (30) days nor more than sixty (60) days
after the entry of the order
6. After the expiration of the time to file objections, a hearing shall be conducted
upon prior five (5) day notice to hear objections
7. Judgment shall be rendered dissolving the corporation and directing the
disposition of assets, the judgment may include appointment of a receiver.

Involuntary dissolution; procedure (Sec. 121, CC)

1. Filing a verified complaint

2. Proper notice
3. Hearing on the grounds provided for by existing laws, rules and regulations

FOREIGN CORPORATIONS

Doing business; Jurisprudential tests (Agilent Technologies Singapore, Ltd. Vs Integrated

Silicon, GR No. 154618, 14 April 2004)

1. Substance test – whether the foreign corporation is maintaining or continuing in

the Philippines the body or substance of the business for which it was organized
or whether it has substantially retired from it and turned it over to another
2. Continuity test – whether there is continuity of commercial dealings and
arrangements, contemplating to some extent the performance of acts or works
or the exercise of some functions normally incident to and in progressive
prosecution of the purpose and object of its organization

Revocation of License; Procedure (Sec. 135, CC)

1. The SEC shall issue a corresponding certificate of revocation, furnishing a copy

thereof to the appropriate government agency in the proper case
2. The SEC shall also mail to the corporation at its registered office in the Philippines
a notice of such revocation accompanied by a copy of the certificate of
revocation

Withdrawal of license; requisites (Sec. 136, CC)

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1. All claims which have accrued in the Philippines have been paid, compromised
or settled
2. All taxes, imposts, assessment and penalties, if any, lawfully due to the Philippine
government or any of its agencies or political subdivisions have been paid
3. The petition for withdrawal of license has been published once a week for three
consecutive weeks in a newspaper of general circulation in the Philippines

Intra-corporate dispute; elements

1. Status or relationship of the parties – controversy must pertain to any of the

following relationships: (1) between the corporation and the public; (2) between
the corporation and the State in so far as its franchise, permit or license to
operate is concerned; (3) between the corporation and its stockholders,
members or officers; and (4) among the stockholders themselves.
2. Nature of the question – intrinsic connection with the regulation or the internal
affairs of the corporation

LAW ON INTELLECTUAL PROPERTY

Patentability; Requisites (Sec. 22, 23, 26, 27, Intellectual Property Code)

1. Any technical solution of a problem in any field of human activity

2. Inventive step
3. Novelty
4. Industrial applicability
5. Patentable subject matter

Steps in determining the presence of infringement

1. Determine if there is literal infringement. If there is, defendant is liable

2. If there is no literal infringement, the doctrine of equivalents should be applied

Elements of infringement (Societe Des Produits Nestle, S.A. v. Dy, Jr. GR No. 172275. 9
August 2010)

1. Registration of trademark in IPO

2. Trademark is reproduced, copied, counterfeited or colorably imitated
3. It is used in connection with the sale, or it is offering for sale or advertising of
goods, services or business or applied to labels, signs, wrappers, etc. intended to
be used in connection with such goods, services or business
4. There is, in the use or application, a likelihood of confusion
5. Lack of consent on the part of the registered owner or their assignee

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Creation of Copyrightable Work; Requisites

1. Originality
a. The work is an independent creation of the author
b. It must not be copied
c. It must involve some intellectual effort
2. Expression – the work must be embodied in a medium sufficiently permanent or
stable to permit it to be perceived, or otherwise communicated for a period of
more than transitory duration

Droit de suite (Right to proceeds in subsequent transfers)

1. Sale or lease
2. Of an original work
3. Of painting or sculpture, or of the original manuscript of a writer or composer
4. Subsequent to the first disposition thereof by the author

BANKING LAWS
Organization of a Bank or Quasi-bank; Conditions (Sec. 8, GBL)

1. The entity is a stock corporation

2. Its funds are obtained from the public, which shall mean 20 or more persons
3. The minimum capital requirements prescribed by the Monetary Board are
satisfied

Trust entities; requirements (Sec. 83, 84, GBL)

1. A trust entity must register its articles of incorporation and by-laws together with a
certificate of authority issued by the Bangko Sentral
2. Before transacting trust business, every trust entity shall deposit with the Bangko
Sentral as security for the faithful performance of its trust duties, cash or securities
approved by the Monetary Board in an amount equal to not less than five
hundred thousand pesos (P500 000.00) or such higher amount as may be fixed
by the Monetary Board.

Placing an institution under conservatorship; Requisites (Sec. 30, NCBA)

1. There must be a report submitted by the appropriate supervising or examining

department of the Bangko Sentral
2. There must be a finding by the Monetary Board based on the report that a bank
or quasi-bank is in a state of continuing inability or unwillingness to maintain a

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condition of liquidity deemed adequate to protect that interest of depositors

and creditors
3. The Board of Directors must be informed in writing of the order of the Monetary
Board directing conservatorship

Placing an institution under receivership; requisites (Sec. 30, NCBA)

1. Report of the head of the supervising department involving the bank

2. Finding of the Monetary Board of the existence of any of the grounds for
receivership
3. Decision of the Monetary Board to forbid the institution from doing business,
which decision may be done summarily and without need of prior hearing
4. Notice in writing to the Board of Directors informing the institution of the order of
the Monetary Board directing receivership

Mandatory requirements for bank closure

1. Examination by the appropriate BSP department as to the condition of the bank

2. Examination showing that the condition of the bank is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or
creditors
3. Director shall inform the MB in writing of such fact
4. If the MB shall find the statement of the department to be true, it shall appoint a
receiver of the assets and liabilities of the bank
5. Within 60 days, the MB shall determine and confirm if the bank is insolvent, and if
public interest requires, shall order the liquidation of the bank

Liquidation; Procedure (Sec. 30, NCBA)

1. Receiver shall file ex parte, with the proper RTC, a petition for assistance in the
liquidation of the institution pursuant to a liquidation plan adopted by the PDIC
for general application to all closed banks. In case of quasi-banks, the liquidation
plan shall be adopted by the Monetary Board
2. Receiver shall convert the assets of the institution to money for the purpose of
paying the debts of the institution
3. Payment shall be in accordance with the rules on concurrence and preference
of credits

ANTI-MONEY LAUNDERING ACT

Three (3) basic steps in money laundering

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1. Placement – the launderer inserts the dirty money into a legitimate financial
institution usually in the form of cash bank deposits
2. Layering – involves sending money through various financial transactions to
change its form and make it more difficult to follow. It may consist of bank-to-
bank transfers, changing currency, or purchasing high value items. This is the
most complex step.
3. Integration – the money re-enters mainstream economy in legitimate-looking
form, appearing to have come from some legitimate transactions. It may involve
a final bank transfer into the account of a local business in which the launderer is
“investing” in exchange for a cut of the profits or the sale of high value items
bought during the layering stage

FINANCIAL REHABILITATION AND INSOLVENCY

ACT
Cram Down Power of Rehabilitation Court

1. Approval despite opposition

2. Binding effect of the approved plan

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 33 COMMERCIAL LAW REQUISITES

SOURCES:
San Beda College of Law 2016 Memory Aid on Commercial Law

University of Sto. Tomas 2011 Golden Notes Mercantile Law

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