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JacintoJimenez Corp(MergerstoSpecialCorp),Banking,SecReg,Transpo(FINALS)

CORPCODEcontinued MERGERSANDCONSOLIDATIONS Ina Merger,oneormorecorporationsareabsorbedby another corporation, who will emerge as the surviving corporation. While a Consolidation, you form a new corporation which will then absorb 2 or more existing corporations. Youmusthaveaplanofmergerorconsolidation,which mustbeapprovedbyatleast2/3ofthestockholdersof the corporations affected and by majority of the directors.AndtheresaprintedformforthatintheSEC, which you will fill up. After that has been approved, what you will submit to the SEC will be Articles of Merger. The merger or consolidation will not be effectiveunlessitsapprovedbytheSEC. Theresultofthemergeristhattheseparateexistenceof the corporation will not survive, it will end, and the surviving corporation will acquire all the rights, privileges, powers, also obligations of the absorbed corporation.LikewhenPhilippineGuaranty,acorporate insurancecompanyoftheAyalas,wasmergedwithFGU InsuranceCorp.Well,FGUInsuranceacquiredaportfolio ofbusinessesandPhilippineGuarantybecameliablefor thepoliciesissuedbyPhilippineGuaranty. There was a case where Chester _____ guaranteed a loan of somebody in Pacific Bank. Pacific Bank was merged with Far East Bank and the load was not paid andhewasincludedinthesuit.Hearguedthatheisno liabletoFarEastBankbecauseheboundhimselfinfavor of Pacific Bank. But the court said, Pacific Bank was absorbedbyFarEastBank.Therefore,FarEastBankcan runafterhimforhisguaranty. Or this case where Philman Bank was merged with Associated Bank. A promissory note was signed. It was mentioned that the payee was Philman Bank. And Associated Bank sued, and the debtor says he is not liable.Thecourtsaidnobecausealthoughthenoteisin favor of Philman Bank, Philman Bank was absorbed by Associated Bank as the surviving bank, therefore, AssociatedBankcouldsue. LikewhathappenedwhenapparentlyPCIBankprinteda lotofbankforms.SowhenitwasabsorbedbyEquitable Bank,yougothere,youwanttoapplyforatelegraphic transfer,orabankdraft,youstillfillupaformwiththe name PCI Bank. But Equitable Bank will service the ordersofthecustomers. APPRAISAL Appraisal. A dissenting stockholder can ask that he be bought out. In certain cases where the stockholders approvalisrequiredandhedoesnotagree.Forexample, anamendmentofthearticleswhichaffectstherightsof the stockholders. They created preferred shares, and a stockholderwhoownscommonsharesobjectedtothat. Or if they will extend the corporate life. Or they will shorten the corporate life. Or they will sell, mortgage, encumberallorsubstantiallyalloftheproperties.Orthe corporation entered into a merger or consolidation. Or the corporation will engage in a different line of business. Also in closed corporations. As a rule, the corporation must have unrestricted retained earnings. Otherwise, a stockholdercannotcompelittobuyhimoutotherwise, thatwillviolatethetrustfunddoctrinebecauseineffect you are returning the stockholders subscription. But in the case of a closed corporation, a stockholder can ask anytimetobeboughtoutevenifthereisnounrestricted retainedearnings. Ifastockholderdoesnotagree,within30daysafterthe act for which the objection was taken, he must make a written demand. Otherwise, he waives his appraisal right. Oncehemakesademand,allhisrightsasastockholder are suspended. He cannot vote, he cannot receive dividends,hecannotinspect.Theonlyrightremainingis therighttobepaidforhisshares. Thevaluewillbebasedonthevalueofthesharesonthe day before the matter for which he was objecting was approvedtoinsulatethevaluefromtheinfluenceofthe actiontaken.Thatswhyitsthevaluebeforetheaction wasapproved. Ifthestockholderandthecorporationcantagree,they will each appoint an arbitrator, and the two will then choose the third, and they will decide. The cost will be shouldered by the corporation. But if the price determinedbythearbitratorsisclosetotheofferofthe corporation,itisitthestockholderwhowillshoulderthe expenses because the arbitration became necessary becauseofhisunreasonabledemand. The stockholder must be paid within 30 days after the arbitrators fixed the price. If not, his rights as a stockholderwillberevived. The right to be paid will cease if he withdrew his demand and the corporation consented to it. Or if the proposed action was abandoned. Or the SEC disapproved the proposed action. Or the SEC decided thatthestockholderisnotentitledtoappraisalrights. NONSTOCKCORPORATIONS

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The law mentions the different purposes for which you canformanonstockcorporation. 1. Charitable. You have Hospicio de San Jose, Tahanan Walang Hagdanan. You have that _____Village. 2. Religious.Well,thisisoneofthewaysbywhich a religious sect can provide for the management of its properties, by forming a nonstockcorporation. 3. Educational. Sectarian schools are usually organizedasnonprofitcorporations. 4. Professional. You may have voluntary bar associations, being formed by lawyers, or the accountants have that _____. Architects, engineers may form their own national organization. 5. Cultural. Some people may form a nonprofit organizationtopreserveculturalheritage. 6. Fraternals(?) and fraternities have been incorporated. 7. Literary. A group of writers may form a non profitorganization. 8. Scientific. You may have an association of anthropologists,psychologists. 9. Social.IthinkinPangasinantheyhavethisClub Pangasinense. In Batangas they have this KampondePakakak(?soundslikethat).Every year they have a party where they have a rigudon. In Iloilo, they used to have this ____. In Pampanga, they have that mancomunidad Pampangea. 10. CivicService.LikeRotary,Lions,_____. 11. Organizations for trade and industry. Like Philippine Chamber of Commerce, Makati BusinessClub. And they may limit or deny the right to vote. Like for example, country clubs usually have different types of members.Forexample,theyhavehonorarymembers.If the President plays golf, he is automatically made an honorarymemberofcountryclubs,sohecanplaygolfat any country club. Like Baguio Country Club, they make, whoever is President, or the mayor of Baguio City, honorary members. So they can play golf there. In ManilaGolfandCountryClub,Ithinksomeambassadors, Ambassador Thomas, and those from other countries, are honorary members. So they can play golf at the Manila Golf and Country Club. Some country clubs also havethisthingthatthosewhoownaproprietaryshare have regular members. Sometimes they call them associate members or paying members. These are peopledonothaveaproprietarysharebutareallowed tomakeuseofthefacilitiesbyridingontheprivilegesof someone who has a proprietary share who will allow thatthispersonbeallowedtomakeuseofthefacilities for the person who has the proprietary share. And country clubs like that because there are more people from whom they can collect monthly dues. It is quite expensivetomaintainacountryclub.Butthentheywill usually provide that only those who have proprietary sharescanvote.Honorarymembersandtheseassociate memberscannotvote. Proxy voting is allowed, but the bylaws may prohibit proxyvoting.Infact,thelawprovidesthatyoucanallow votingbyemail.Byothermeans! Membershipisnottransferrablebecauseitispersonal. For example, somebody owns proprietary shares in Baguio Country Club. He died, and his son inherited it. The son owns the proprietary share but he is not a memberofBaguioCountryClub.Hehastoapplytobea member. Unless he is approved, he cannot enter the place and make use of the facilities, like play golf there orstaythere.Ifheownsashare,hecanpledgeit,hecan mortgage it, he can sell it, but he cannot play there unless he is approved because he may be somebody whohasanabrasivepersonalityandnobodywouldwant toassociatewithhim. Terminationofmembership mustbeinthemanner,and for causes provided for in the articles and the bylaws. For example, I dont know whatever happened to that but the Manila Yacht Club. A big event, their annual regatta. There was a member who was organizing a competingregattainSubic.AndIthinktheManilaYacht Clubexpelledhimbecauseofthat.Idontknow,hefiled acasebutIdontknowwhateverhappenedtothat. <Lotsofkwentoaboutgolf> You have this _____ Yan, he was playing golf in Manila Golf and Country Club. He missed his putt and he slapped his caddy, because he said he was distracted. Thenhechallengedthe caddyto afight. Hindihosir. Hindi,lumabanka,lumabanka.Sotheothermembers in the golf course reported him and he was suspended. He said, ______ Ill sue you for damages! He filed a caseintheRTC,moraldamages25millionpesos.Atthat time, the SEC had jurisdiction over intercorporate controversies.Itfiledamotiontodismiss,nojurisdiction. Thecourtsaid,Quisumbingwasthelawyer,beingavery prominentlawyer,apparentlyhedoesnotkeepabreast of laws. So the RTC dismissed the case. Quisumbing re filed it in the SEC. But he did not read the bylaws of Manila Golf and Country Club. Theres a provision there that if you want to question your suspension or expulsion, you must first exhaust intracorporate remedies by appealing to the members to reverse the decision of the board. And I said he did not do that before going to the SEC. So a condition precedent has notbeenfulfilled.Thecomplaintdoesnotstateacause of action. But the hearing officer dismissed the case on thegroundthattheSEChadnojurisdiction,itshouldbe litigatedintheRTC.SowhatdidQuisumbingdo?Instead of appealing, he filed a motion to reconsider the

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dismissal by the RTC. That was many months after the dismissal.Thedismissalhadbecomefinal.Butthejudge reconsidered. In fact, that judge was later on dismissed during the reorganization of the judiciary. I filed a petition in the CA, the court granted it. It said, no the casecannotberevived.Quisumbingthenwentuptothe SCarguingestoppel.Isaidno,IsaidintheRTCithasno jurisdiction,butintheSECIdidnotmovetodismisson the ground that it had no jurisdiction, it was for lack of causeofaction.Ifthehearingofficerdismissedforlack of jurisdiction, I have nothing to do with the dismissal. Quisumbing said you should have appealed. I said, why will I appeal, the dismissal was favorable to the defendant. He said, well, counsel should inform us where we should litigate. I said, no youre the plaintiff. Thats your problem, thats not the problem of defendant. So the court denied this appeal. _____ Yan lostface.Hequietlysoldhisproprietaryshare,henever showed his face again. <Kwento lang din pala ata to. Glorystorynisirhehe> There was this case where a prominent and respected businessman in Cebu applied for membership in a countryclubandtherulessaythattheapplicationmust be unanimously approved by members of the board. And voting is by secret balloting, they dont have to explainwhytheyaredisapproving.Hismembershipwas disapprovedbecauseonemembercastanegativevote. He sued for damages, and the court held the directors liableforabuseoftheirright.Hewasahighlyrespected prominent member of the community and yet they arbitrarilydeniedhisapplication. CLOSECORPORATIONS Theres a provision here on close corporations. Most of the corporations in the Philippines are family corporations.Theleadingtreatiseonthisisthe2volume work of Professor ONiel on closed corporations. And Professor______,hewastakingpostgraduatestudiesin Harvard,hewroteapaperonclosecorporations.Ithink thatwaspublishedinalawjournal. A closed corporation has a peculiar definition. I mentioned that because in one case, Justice ____ said thatthecorporationwasaclosecorporationbecauseit was a wholly owned subsidiary of a holding company. WRONG! The law provides that for a corporation to be close, the Articles must contain certain features. For example: 1. It says there cannot be more than 20 stockholders. 2. There must be a restriction on the disposition oftheshares.Forexample,youwanttocancel yourshares,youmustfirstofferittotheother stockholders. 3. Theresaprohibitionagainstlistinginthestock exchange. Your Articles of Incorporation can also provide for classificationofshares.Forexample,youhave3families. Each one will own 1/3. You can say, the first family will ownclassAshares;thesecondfamily,classB;thethird family, class C shares. And there will be 3 directors. 3 from class A shares, 3 from class B shares, and 3 from class C shares. Then you can provide for example, the presidentmustcomefromoneoftheclassofshares,the GeneralManagerfromanother,andtheTreasurerfrom another,andeveryyearwewillrotatethepositions.You can provide that you need majority for a quorum for theboardandstockholdersmeeting.Eachfamilywillbe granted a veto power. Otherwise, if 2 families, both together,theycangetanythingapproved.Andsothat otherfamilywillbeattheirmercy. Theycanoptinsteadforthestockholderstobetheones tomanagethecorporation,insteadoftheboard.Inthe certificates, the stockholders will have the same rights, powers, liabilities, and obligations as the directors in a corporation. And they dont need to hold stockholders meetings, or directors meetings, and they can just sign paperminutes,withoutholdingdirectorsmeetings. The law says that you can have board action without a meeting if the directors consent to that or the stockholdersknowthatiswhatishappeningandtheydo not object, or the directors are used to doing that and nobodyobjects. Hereinaclosecorporation,astockholdercanasktobe bought out at any time, even if there are not unrestrictedretainedearnings. Thiswasaskedbefore.Whataretheremediesavailable in case of deadlocks in a close corporation? Theres a long list here. That the parties can ask the SEC to arbitrate, and the SEC in the arbitration has a milieu of options: 1. It can cancel or amend a provision in the ArticlesofBylaws,orstockholdersagreement. For example, he can do away with this super majority. 2. Cancel, amend or enjoin any resolution or actionofthedirectorsorstockholders. 3. Directorprohibitanactofthecorporation,its directors,stockholders 4. Require a purchase of shares of stockholders to buy out. In fact, Professor ONiel recommends that when you have a close corporation, it is advisable that you put a buy outprovision,incaseofcontinuousdeadlock. Usually, the problem is, everybody has his pride. I will buy you out! No, I will buy you out! For example PCI Bank. Gokongwei and Lopez did not get along. Either one is willing to sell out to the other. But they agreed theywontsellouttheirsharestoEquitableBank.ONiel

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hassaidforexample,youhaveaprovisionthatincaseof continuing deadlock, you will buy out the one who is willing to pay the highest price. The one whos offer to buyoutwillprevail. 5. Thendissolvethecorporation. 6. Provideaprovisionaldirector. That is a very dangerous step. That provisional director knows that he is the swing vote. Whichever side he favors will win. His stomach becomes bigger than his head. So its not a good idea, having a provisional director. SPECIALCORPORATIONS EducationalCorporations The law deals with special corporations such as educational corporations. The SEC said if its a school going up to the college level, they will refer that to the CHED. If you will not cover college level, up to high school only, it will be referred to the Department of Education. And the members of the board must come in multiples of55,10,15. UnlesstheBylawsprovideotherwise,thetermwillbe5 years. Remember you only have 1/5 to be elected to provide for continuity in the policies and management. But usually they provide that they are all elected every year. ReligiousCorporations You have religious corporations. There are different waystomanagethepropertiesofreligiouscorporations. In fact, corporations originated in the middle ages to managethetemporalitiesoftheCatholicChurch. 1. Bycreatinganonprofit,nonstockcorporation 2. By corporation sole. One person. The archibishop, bishop, a head of a religious sect incorporateshimself. He files an affidavit, it will indicate that he is the archbishop or head of the religious sect and that he wantstobecomeacorporationsoleandthattherulesof his religious sect allow him to become a corporation sole. And that he is charged with the administration of thepropertiesandhemustindicatehowthesuccessoris chosen in case there is a vacancy. The place where the officeislocated. The Roman Catholic Archbishop of Manila is a corporation sole. So when Cardinal Sin died, and Archbishop Rosales was appointed as the new archbishop, he took over as corporation sole. He need not incorporate himself because the corporation has a separatepersonalityfromtheincumbentarchbishop. Iglesianikristoisincorporatedasacorporationsole. <Gibberish kwento about some guy usually assigned to takecareofreligiouscorporations> The court said in that Roman Catholic Administrator of Davao that the corporation sole is merely an administratoroftheproperties.Recently,thecourtsaid that a corporation sole that administers the properties of a religious sect can be converted into a religious aggregate. The acquisition and disposition of properties of the religiouscorporation,corporationsole,willbebasedon theinternalrulesandregulationsofthereligioussect.If they have no rules governing the matter, to buy and disposeofrealpropertyortomortgageit,apetitionwill havetobefiledwiththeRTCforcourtapproval. 3. Youhavethisreligiousaggregate. You have a religious order, they have to form a corporation to manage its properties so it will submit Articles of Incorporation which will indicate that it is a religiousorder.Andthatatleast2/3ofitsmembershave agreed to incorporate, that the corporation is in accordancewiththeinternalrulesofdiscipline,andthat theywanttoincorporatetoadministertheirproperties. Andtheplacewheretheprincipalofficeislocated. TheRecollectsusedtobethesinglebiggeststockholder ofSanMiguelCorporation.Idontknowwhetherthats still true. And in fact I think they also hold substantial shares in Bank of the Philippine Islands. I remember whenDean_____wasthedeanoftheCollegeofLawof San Sebastian College, he was boasting that he would earnmorethanP1Mayearinperdiemsbecausehesthe dean of the college of law, whom the Recollects ask to sit in the board in the corporations where they have enoughsharestogetaseatintheboard. DISSOLUTIONOFCORPORATIONS Well, the methods of dissolution of a corporation are foundinsections118,119,120. VOLUNTARYDISSOLUTION Insection118,wherethedissolutionisvoluntary,itmust be must be approved by a majority of the Board of directorsandatleast2/3ofthestockholders. Insection118,nocreditorsshouldbeprejudiced.So,the boardandstaffmustfilearesolutionforthedissolution

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ofthecorporation.ThatwillbesubmittedtotheSEC.If there are creditors who are affected, then the petition shouldbesignedfordissolvingthecorporationandthen the SEC will set that for hearing and issue and order to those who may be affected and who submitted objections.Andthatorderwillbepublishedonceaweek for 3 consecutive weeks in a newspaper of general circulation and it will be posted also for 3 weeks in 3 public places. After that, the commission will conduct a hearingandfindoutifonthebasisofobjectionthereisa basis of denying the dissolution, granting the dissolution. The third one involves amending the articles in shortening the corporate term: that is the simplest and fastestwayofdissolvingacorporation. Like when Ford Philippines decided to dissolve their subsidiary, they simply amended the articles. Ford shall existuntilDecember13,1978.TheSECrequiredthatit mustbepublishedinanewspaperofgeneralcirculation, and the SEC and BIR signed the memorandum of agreement. SEC will not allow corporate dissolution unlessthereisataxclearancefirstfromtheBIR.BIRwill takeitssweettimemakingtheexamination,wellthisis thelastchancetoassessthatcorporationfortaxes. The voluntary dissolution will not be effective unless approved by the SEC. The court has said that a memorandum of agreement does not apply to involuntarydissolution. Inacaseofabankthatwasorderedtobeliquidatedby the Monetary Board, the BIR was objecting the liquidation because there is no tax clearance. This was written in the memorandum for agreement .The court said that it only applies to voluntary dissolution. And preciselythebankisinsolventwhyinsistinsqueezingit fortaxes. INVOLUNTARYDISSOLUTION Involuntary dissolution, it may be filed with the SEC for violationsofcertainprovisionsoftheCorporationCode. Like not doing business, not operating for at least 5 years without reason, not starting operations within 2 years without reason, and other violations of the corporationcodewhicharepunishablewithdissolution. AlsoinP.D.902Aforthedissolutionofthecorporation forcertaininfractionsoraminoritystockholdermayask dissolution because majority is mismanaging or dissipatingitsassets. Thecourtsaidthatinvoluntarydissolutionisaharshand drasticpenalty.Itislikeimposingadeathpenaltyupona corporation. Therefore, if there is still some way of savingacorporation,thatshouldnotbesanctioned. Remember that the old case of El Hogar Filipino, the court said you do not dissolve the building of a loan associationbecauseitfailedtosellrealpropertywithin5 years as mandated by law. It should be advertised or broughttobrokersifyoucannotfindbuyersoritcould not hold annual stockholder meeting nor was there a quorum (I think he meant this should not be sufficient groundfordissolution). Butinanothercase,therewasthiscorporationengaging in banking activities without authorization from the monetary board, SC felt it was a serious infraction because it would violate public interest. The court orderedthedissolutionofthatcorporation. PROCEDURETODISSOLVE There are 3 ways of providing for the mechanics for dissolving. AftertheSEChasapproveddissolution,well,Actionfor dissolution of the corporation should be filed with SEC not with the RTC. You will notice, the provisions on dissolutionofcorporationsinRule66:Quowarrantoare nolongerfoundinrulesofcourt.Inthepreviousrulesof court, the provisions on quo warranto included the dissolution of corporations. In the 1997 Rules there are no longer any provisions on the dissolution of corporationsbecauseyouwillbefilingitwiththeSEC. Now, the corporation can continue to exist for 3 years after the SEC has approved its dissolution. Now, 3year periodforitscontinuationofitsexistence,thecourtsaid it should be counted from approval of dissolution, becausethedissolutionisdefectiveuntiltheSECorders ofthedissolution. Corporation exists only for purposes of winding up. It ceasestobeagoingconcern.Itwasaskedinabarexam whereinthecorporationcouldnotrenewitscontractof leasebecauseitwasnolongeragoingconcern. Now,thereare3waysformechanicsfordissolution: 1. Director themselves may take care of winding uptheaffairs. 2. Theymayappointtrustee. 3. Ifthecourtappointedareceiver,receivermay takecareofwindinguptheaffairs. Theruleisthatifdirectorsaretheoneswhodecidedto take care of the liquidation, after 3 years, for pending cases,whethertheyareplaintiffordefendant,that(the cases)mustbeabatedordismissed.Butifitisatrustee, then claims against corporation may be filed within the applicableprescriptiveperiod.Ifitisawrittencontractit shouldbewithintenyears. Thecourthasgonearoundtherulethatafterthe3years with the directors winding up, and with pending cases

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thatareabated,thecourthascraftedremediesforthat (meaning a remedy for the case to continue after the threeyearsinsteadofitabatement). In one case, the court said, when Ford Philippines decided to dissolve, the board passed resolution appointingAtty.RicardoRomuloastrustee.Solegaltitle overthepropertyvestedinhimtopayoffcreditorsand then distribute the rest to the stockholders. Now, the court has said that if the directors did not appoint anyone as trustees, then they should be DEEMED as trustees,sothatthecaseshallnotbeabateddespitethe lapseof3years. Inanothercase,thecourtsaidthatthelawyerhandling the case should be deemed to be the trustee. So the casescancontinuethatshowtheyworkedaroundthat. ForeignCorporations A corporation is an artificial person. It only exists because it was given that privilege by the law of the country wherein it was organized. And therefore lets say the corporation was created under the laws of Japan, then its corporate existence is only because of the laws of Japan. So if that corporation wants to participate in the economic processes in another country, it must get authorization in that other country to operate in that other country. How? By getting a licensetodobusiness. Inthedefinitionofforeigncorporationhere(Philippines) thelawincludedelementofreciprocity,itscountrymust also allow Filipino Corporations to do business in that country. For example, a corporation organized in Delaware, it wantstodobusinesshere,itmustsubmitacertification from Secretary of the State of Delaware (because he is thecustodianofthelaws)certifyingthatunderthelaws of Delaware the Philippine Corporations are also authorizedtodobusinessinDelaware. The Foreign Corporations will be required to deposit securitieswithSECtoanswerforclaimsofcreditorsifit mostly decides that it will withdraw and every year it is requiredtoputupadditionalsecuritiesequalto2%ofits grosssalesinexcessofP5Million.Itisnowcommonfor acorporationtoearnbillionsofpesos,sothisisahefty amount,soforeigncorporationsareacaptivemarketfor treasury bills. That is what they will post as securities. They buy treasury bills, deposit them with SEC and just keeprenewingthem. FOREIGN COPORATIONS ON BEING SERVED AND IT RESIDENTAGENTS The Foreign Corporation must appoint a resident agent to receive summonses. You will recall that if a corporation has a resident agent, summons should be served on the resident agent not on the officers of the corporation. More recently, that case, the resident agent, may be a law office, an accounting office, a partnership, an economic corporation, but if it is an individual, he must be of good moral character and of sound financial standing.Idontknowwhytheyrequiresoundfinancial standing,(whenhisroleis)hewilljustreceivesummons. Theforeigncorporationwillberequiredtosubmittothe SEC an undertaking that if there is no resident agent then summons may be served upon SEC. It is up to the SEC to transmit the papers. If it is an insurance company, the summons may be served upon insurance commissioner(undertheinsurancecode). If it is a Foreign Bank, under the General Banking law summonsmaybeserveduponthesuperintendentofthe banks. If there are no resident agents but it has officers here: country manager, then the summons may be served to thecountrymanageralsoasidefromtheSEC. FOREIGN CORPORATIONS DOING/ NOT DOING BUSINESS,W/orW/OLICENSE Therewasthiscasewhereaforeigncorporationsigneda contract but it did not have license to do business. The other party breached the contract. Foreign corporation appliedforalicenseandthensuedtheotherparty.The otherparty(defendant)arguedthatthecontractisvoid becausewhenitsigned,theForeigncorporationhadno licensetodobusiness.SCsaidno,legislaturehasdefined sanctions upon a foreign corporation doing business withoutlicense: 1. Denial of access to courts and administrative agencies 2. Criminalprosecutionofofficerswhoarehere. The court has said that those are adequate sanctions. Thereisnoprovisionthatsayscontractsenteredintoby themwillbedeclaredvoid. Thelawsaysthatwhentheforeigncorporationis doing businesswithoutalicenseitcannotsue. Now,herearetherules: 1) Ifaforeigncorporationisnotdoingbusiness,it cansue.Itdoesnotneedalicense.Ifitisdoing business,itshouldgetalicense. 2) If it is not doing business, it cannot be sued because our courts cannot acquire jurisdiction overit.

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Therewasthiscase,theJusticecameoutwiththisobiter dictum that since a foreign corporation not doing businesscansue,bythesamecomparativereasoning,it should be allowed to be sued. NO. When it sues it voluntarilysubmitstothejurisdictionofthecourts.Butif it is not doing business here our courts cannot acquire jurisdictionoverit,soitcannotbesued. BUTifitisdoingbusinessherewhetheritislicensedor not,itcanbesued.Ifitisnotdoingbusinesshere,our courts cannot acquire jurisdiction over it the remedy is fileanactionquasiinremifithasassetshere. Inacase,ourclientwroteTonyRomaCorporationofUS, it said that they are interested of getting a franchise of Tony Roma restaurants in the Philippines. The Tony Romahassaidthatitwillconsideryourapplication,we requireasapolicythatyoudeposit$10Ktobeusedfor the expenses to be incurred in evaluating of your application. Well our client said We are willing to deposit $10,000 but we want that a provision in the contractthatontheoccasionthatitdisapprovesofour application they will return the money. It was signed. The problem is where do they get the ribs? There is a strong lobby here by hog raisers. You cannot import pork. There is this Monterey farms which is the biggest piggeryhere.Theygetsamples,theygettestedandthey get the results. There was no word from Tony Roma afterquitesometime,theysentaletter,sayingthatwe regrettoinformyouthatwehavedecidedtoterminate negotiations with you. Our client said fine, but in accordance with our contract we are asking for our refundofourdeposit.Theyrefused,Iwrotealetterof demand. They refused, the VP for Legal advised them no, they were probably thinking what can that Filipino Corporation do it cannot sue here for $10K its prohibited.So,Ifiledacaseandattacheditstrademark. When they found out that the trademark has been attached and the court was going to auction it, they wouldnotwanttolosetheirtrademark.Intheend,they paiduparound$25,000,$10kforinterestplusattysfees for damages and they had to pay the lawyer they had hiredallbecauseofthatstubbornvicepresidentoflegal toldthemnottopaytherefund. You have that Atlantic Mutual Insurance Company case which paid an importer of goods here, it (Atlantic) is a foreign insurance company and then it sued under the principleofsubrogation.Nowitisaforeigncorporation organizedunderthelawsofNewJersey,nowthecourt said,undertherules,youmustplaceallegationsshowing thatyouhavelegalcapacitytosue.Youhavetoindicate whether you are not doing business or you are doing businesswithalicense.Thequashalofthis,the(foreign) company insisted that the judge was wrong and they wereright.Theyrefusedtocomply.ThecourtusedRule 17 the court dismissed the case for not complying with theorder.SCaffirmeddismissal.Insteadofjusttryingto prove that the judge was wrong and that they were right,theycouldhaveeasilyamendedthecomplaint. There is this other case wherein a student here ate at Crocodile Farm. He said that the food there was very fantastic.HeaskedthevaletdriveroftheCrocodileFarm toparkhispajero.ThePajerowasstolen.SoIfiledacase against the restaurant. The judge motu proprio dismissedthecasebecausehesaidthatthecomplaintis notverified.Well,thejudgeiswrong,ifIfileanMR,he willdenyit.IfIappealtotheSChewillbereversed.But itwilltaketime.SoIjustamendeditandcomplied.Then the court admitted it. During the PreTrial, Crocodile Farm settled. They paid for the lost Pajero. If I did not amend the complaint, wed still be litigating the case untilnow. In the Meryll Lynch case, there was a custom in Meryll Lynch that it was trading on margin. So he (a person tradingwithMeryllLynch)incurredlosses,Ithinkhewas trading in stocks and commodities. Merryl Lynch asked him to pay, he refused. He was sued. His defense, they are a business operating without a license. SC said having benefited from your contract, Merryl Lynch renedered services to you under your contract, you are now estopped from claiming that they cannot sue you becauseMerrylLynchisdoingbusinesswithoutlicense. Thecourthasfollowedthisinsubsequentdecisionsbut you also have other decisions saying that if you contractedwithacorporationdoingbusinesswithouta license, it cannot sue. You have 2 lines of jurisprudence running side by side. The court should decide this once and for all in an en banc decision which is the correct rule.Rightnowwehavethosetwoconflictingrules. Thequestionthatoftenpropsupwithrespecttoforeign corporations is, is it doing business here? And volumes have been written on issues. I have one book, with decisions on whether the corporation is doing business ornot. AMERICAN DECISIONS ON CORPORATIONS DOING BUSINESSORNOTDOINGBUSINESS American courts would ask for what purpose are you askingwhetheryouaredoingbusinesswithoutalicense. 1) Is it for the purpose of finding out whether it can be sued? They are liberal (liberally construed). Minimal contact, that is sufficient to satisfy due process. American courts said that with modern methods of communication now, its very easy for office abroad to communicate with another office. So the Officecantakestepstodefend. 2) On the other hand, are you asking those questions to find out if officers here can be criminally prosecuted for violating the

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3) corporation code? That is penal so that must bestrictlyconstrued. Whether the corporation is a resident corporation and should be taxed under the Revenue Code as a Resident Corporation, or a ForeignCorporationthatisnotdoingbusiness here? If you are Foreign Corporation doing business here, you pay 32% tax on the gross income. But if you are a resident corporation you pay taxes just like a domestic corporation andyoumayclaimfordeductions.Thenifyou pay the tax of the revenue code which provides for the minimum income, even if you incur losses you have to pay the minimum incometax. *But our courts have not made distinctions whichAmericandecisionsapply. contractintheemploymentofthecooksisnotinpursuit ofitsprimarypurpose,sothatsnotdoingbusiness. Now,theforeigninvestment actsanditsIRR contained definitionofwhatisdoingbusiness. Doing business, includes soliciting orders. Soliciting orders means negotiating terms and conditions of contract, it does not mean advertising. In other words youarenegotiatingtermsofaspecificcontract. Service contractsopening offices appointing representatives or distributors, operating here, which stayhereforatleast180daysoftheyear. Appointing a distributor will be doing business if the distributorisanagentoftheforeigncompany.Butifitis notanagentoftheforeigncompanythenitisnotdoing business. In that Hahn case he was the distributor of BMW .The Court said that the set up was that if you want to buy BMW, you go to Hahn, he will forward that order in Bavaria,andtheniftheyapproveyourapplication,they will ship the car to you directly and you will give the paymentinBavariadirectly.SothecourtsaidthatHahn ismerelyanagentofBMW.Itisdoingbusinesshere. On the other hand if the distributor is independent. Usuallytheywillsaythattherelationshipwiththeclient isthatofbuyerandseller,andthereforethedistributor willhavetopayforwhatheorderedwhetherornothe isabletoresellit. Participating in managements, control in the corporation, any other act the shows continuity of commercial dealings or arrangements. Or exercise of functionsintheprogressivecourseforsufficientgainfor purposewhichthecorporationwasorganized. Thats why the court has said when somebody has submittedabidforaconstruction.Inwhich,itwilltake severalyearstofinish,thatsdoingbusinesshere.Mere passive investment in a corporation is not doing business. Publicationofgeneraladvertisementsyouadvertisein CNN,orReadersDigest,Time,NewsWEEkmagazines. Maintaining goods here to be processed, like Silicon Valley Companies, would send their electronic componentstobeprocessedandshippedback.Westill have our garment industry, American companies will send in the textiles that we make into finished dresses whichwouldthenbesentbackintheU.S.Sotheevenif theAmericancompanieswillbesendherethemachines tobeused,itisnotdoingbusinesshere.Becausenowin ourgarmentindustrywehavehighcostoflabor.

TO REITERATE: Is a foreign corporation doing business here? First, let me just draw in broad strokes the 3 principal guidelinesthatgodownthedefinitionofdoingbusiness theforeigninvestmentbankandthenlaterwelldiscuss jurisprudence. 1. The Foreign Corporation must be engaged in doing business here habitually. Because if its anisolatedtransaction,itsnotdoingbusiness. Remember that case of a Netherlands vessel, tramp vessel it has no regular schedule, it passed by here one time in 1963, then in 1964, the court said that it is an isolatedtransaction,notdoingbusinesshere. However, even if the transaction is isolated but it is indicativeofanintentiontodobusinesshere,itcouldbe sued. A Japanese corporation leased office space in Luneta Hotel and sent it officers here. The court said, while the transaction is isolated it is indicative of an intentiontostayhereandtohabituallyoperatehere,so itwillbesued. 2. Contractmustbeconsummatedhere. LikewisethatAvoncasethecourtsaidtheinsurerisnot doing business here because they are insurance contractsenteredintobyPhilippineinsurerswithforeign reinsurersareconsummatedabroad. 3. It must involve pursuit of primary purpose for whichthecorporationwasorganized. Now theres a case where a foreign shipping company, thatpassedbythePhilippineshiredacookforoneofits vessels. The court said, hiring a cook is not doing business because that is not in pursuit of its primary purpose. The primary purpose: transportation. Transportation of goods, so the court said that the

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Ourminimumwageisequivalentto$6aday.InChina$1 aday. Gathering information about the Philippines, performance in an auxiliary or isolated contract. For example, an American company sold machineries for a factoryhere.Sotheysentengineerstoinstallthemhere. They conducted training program to teach the employeestohowtouseanoperatethemachinesand how to maintain them. Those are isolated auxiliary services. connected to an isolated sale of the equipmentforthefactory.Sothatisnotdoingbusiness here. DOINGBUSINESS Thereareanumberofdecisionsondoingbusiness. The court said where a foreign corporation sold constructionequipmenttoalocalcompany,thatwasan isolatedtransaction.Soitsnotdoingbusiness. A foreign insurance company insured steel pipes importedbyconsigninghere,itwasnotdoingbusiness. Itisanisolatedtransaction. There is this case somebody bought goods from a corporation in Hong Kong. And there was a stipulation that delivery is to be made to a certain Philippine corporation in Hong Kong. And the parties acknowledged that delivery of the goods to that corporationwouldbeequivalenttodeliverytothebuyer here.Nowthebuyerdidnotpay,hewassuedanditwas maintained that the foreign corporation was doing this without a license. The SC said the contract was perfectedandconsummatedinHongKong.Youagreed, deliverywillbemadeinHK. This Stockweld Manufacturing. There was this obiter dictum,thatifaforeigncorporationgrantsalicensetoa Philippine corporation to manufacture its products under the license, it is doing business. It is an obiter dictum, but actually the contract there had already expired. Thats why the court said the case should be dismissed. But thats wrong except that in American jurisprudence,grantingacompanyinaforeigncountrya licenseorafranchisedoesnotmeanitsdoingbusiness. Like Mcdonalds Hamburger, Wendys, Burger King, Dunkin Donuts, Krispy Kreme. Those foreign companies arenotdoingbusinesshere. Thecourtsaidinadecisionthatthatiswrong.Likeinthe Leighton case, an American company asked it to manufacture sports jerseys. And then Leighton sued it. Court said, by buying jerseys here, it is doing business anditcanbesued. Just like those baseball caps, they are manufactured here, and shipped back. (It was doing business) Now that is wrong! That is why in a cardinal case decided by Justice Carpio said buying does not constitute doing business.Youdontmakeprofitsfrombuying!Youmake profitsfromselling,notfrombuying!Buyingisnotdoing business.Otherwise,nobodywillbuyanythingfromthe Philippines,ifyoubuy,youwillbedoingbusiness. FOREIGNINVESTMENTACT You have this Foreign Investment Act. The avowed policyofthisistoencourageforeigninvestments.Itlaid down ground rules for foreign investors to come here. WelltheForeignInvestmentActwasanamendmentby R.A.8179. The first important feature, the definition of what or whoisaPhilippinenational.Itincludesmanythings: 1. AFilipinocitizen 2. A domestic partnership or association wholly ownedbyFilipinos 3. A Philippine corporation organized here which isatleast60%Filipinoowned 4. Acorporationorganizedabroad,licensedtodo businesshereanditis100%Filipinoowned.So if a corporation is organized under Philippine laws, it is enough if 60% Filipino owned to be considered a Philippine national. But if it is organized abroad, it must be 100% Filipino owned. 5. Trustee of funds or pensions or retirement benefits,ifthetrusteeisaFilipinoandatleast 60%ofthefundswillbepaidtoFilipinos. 6. Where a corporation is owned by another corporation and at least 60% of the stocks entitled to vote are owned by Filipinos, it will be considered a Philippine National. So this repudiatesthesocalledgrandfatherrule! This is best explained by example. (Atty. Jimenez was drawingontheboard)HereitisaPhilippinecorporation. The capital is 100M. The capital is owned equally by 2 corporations. ABC Corporation owns 50M. XYZ Corporation owns 50M. ABC is 50% Filipino owned and 50% foreign owned. Under the grandfather rule, to determine if the 50% is owned by the Filipinos or foreigners,youtracethenationalityofthestockholders ofABC.Andwhatistheresult?Itshows50%ofthemare foreignersand50%areFilipinos.So25%ofthesharesare foreign owned and 25% are Filipino owned because you applythegrandfatherrule. XYZ, which owns 50%, is 60% Filipino owned and 40% foreign owned. So under the grandfather rule, you will say that this is therefore 30% Filipino and 20% foreign becauseyouappliedthegrandfatherrule.Youmadethe Filipinoownershipproportionaltothenationalityofthe stockholders. So what will happen? This will be 30%

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Filipino, 20% foreign. So what is the Philippine equity? 55%. What is the foreign equity? 45% So under the grandfather rule, it will be disqualified to engage in enterpriseswhichmustbe60%Filipinoownedbecauseif you prorate the foreign ownership with the Philippine ownership in the holding companies, the result will be Filipinoswillonlyown55%.Sotheyaredisqualified. Butunderthis,whichrepudiatedthegrandfatherrule,if this is 60% Filipino owned, this will be considered 100% Filipino. So this will be now 50% Filipino, this is 25% Filipino,75%Filipino.Itisqualifiedtoengagedinalineof business which is reserved for 60% Filipino owned. So under this law, you apply the grandfather rule if the Filipinoequityislessthan60%. Butifitis60%ormore,you dontapplygrandfatherruleanymore. And that is the case of FraPort. Because that is one of thelastdecisionsofJusticeQuisumbing.Heappliedthat inthisprovision.TheSupremeCourtappliedthat.Thatis why his argument about the AntiDummy Law in the FraPort Case, THAT IS WRONG! You do not apply the grandfather rule! They were invoking the grandfather ruleItdoesnotapplyanymore,becauseofthis! TheBOIissupposedtoprepare 2lists,whichwilldefine theareaswhereforeignerscannotinvest.Outsidethose areas,itsopentoforeigners. List A. It enumerates the areas of commercial activities reservedtotheFilipinosbytheConstitutionandspecific laws:publicutilities,exploitationofnaturalresources. List B. This is a restriction in the law. It enumerates the areaswhereforeignerscannotinvest. 1. Those which are defense related, like manufacture, distribution of firearms, ammunition,weapons 2. Commercial activities which have implications on public health and morals, like manufacture and sale of dangerous drugs. Shabu is not a prohibited drug, it is regulated. It can be allowed but subject to regulation. Gambling, nightclubs, bars, beerhouses, sauna baths, massageparlors. 3. Small and mediumsized domestic enterprises, with paidin capital of less than $200,000. In other words, foreigners should venture into areas where the capital required is more than $200,000.Wherethecapitalis$200,000orless, leavethattoFilipinos. Exception: If it is something that involes high andadvancedtechnology,likecomputers.Orif it will hire at least 50 employees, then the foreigner can engage in that if the required minimum capital is $100,000. That is the exceptiontothat. Outsideoftheseareas,itsallopentoforeigners. The law also provides that natural born Filipinos who became foreigner citizens can be stockholders in rural banks.Remember,ruralbanksaresupposedtobe100% Filipino. Now the Foreign Investment Act provides that naturalbornFilipinoscanbuysharesinruralbanks.Thrift banks,developmentbanks,financingcompanies. NaturalbornFilipinos(wetookthisupinConstitutional Law), who lost citizenship can acquire up to 5,000 squaremetersofurbanlandor3hectaresofruralland. Buttheymustbenotmorethan2lots,andtheyshould belocatedindifferentmunicipalitiesorcities. Let me just begin with the confidentiality of banking transactions.Ihaveanoutlineofthis,Illasktheofficeto reproducethis(Dowehavethisna?) SECRECTYOFBANKDEPOSITS First,letsstartwiththelawonsecrecyofbankdeposits. Thiscoversnotonlysavings,timedeposits,andcurrent accounts, but also investment in government bonds (treasury bills). They are completely confidential. In other words, it is not only the balance that is confidential. Even the existence of the account is confidential.Theexistenceshouldnotbedisclosed. The prohibition applies only to bank officers and employees. For example, a depositor is filling up a deposit slip. And he saw the passbook of another depositor, and he told other people, o, that depositor has so much in the bank. Hes not violating the law becauseheisnotabankemployee. This was sponsored by a certain Congressman Ramos. He explained that there is this common perception. There are many people in the rural areas with money stashed under the mattresses in their bed, or in the bamboopostintheirhome.Weshouldencouragethem to put them in a bank so that the money will circulate andbenefittheeconomy. Jinggoy Estrada was facing a plunder case in the Sandiganbayan.Hewasmaintainingtrustaccountswith Citibank. And that was being subpoenaed. And the question was, was he covered by this law? Justice CarpioMorales said yes because this law it covers deposits of whatever nature. Therefore, the court said that deposit here is no limited to savings accounts, time deposits and current deposits. It said that if you look into the reason behind the law, to encourage people to take their money out of their mattresses and bamboo posts and put them in the banks, that reason

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equally applies to the money placed in trust accounts. Therefore,thetrustaccountsarecoveredbythislaw. However,thereareexceptionstothis: 1. Depositorhasgivenhiswrittenconsent. Whenyouareformingacorporationandthetreasureris openinganaccount,hewillbeaskedtowaivesecrecyof bank deposits because the SEC will inspect whether its truethatyoudepositedsuchmoneyinthebank. 2. The examination is connected with an impeachmentcase 3. There is a court order in cases of bribery or derelictionofduty. In the case of Jinggoy Estrada, the court said that he is charged with plunder. Plunder is committed when a publicofficeramassesatleastP50Mthroughanyofthe underlying crimes mentioned there. The court said that in the case of Jinggoy Estrada, the underlying criminal acts are analogous to bribery. Therefore, the exception applies to the trust accounts with Citibank. I think it would have been simpler if Justic Carpio relied on the General Banking Law. Thats clearer that this confidentialitywillnotapplytofundsofpublicofficers. YouhavethatcaseofMelonBank.MelchorJavierJr.and hiswifehadarelativeabroadthissisterofthewife.To helpthem,shewouldnowandthensendthemmoney, $1,000,$2,000.Thebiggestamountthatshewouldsend would be $2,000. More than a trillion dollars are remittedeverydayintheUS,andbythelawofaverages, mistkesoccurin5%ofthem.Therewasgoingtobethis long weekend, it was Memorial Day, 3 days without office, people were looking forward to where they wouldspendtheirvacationforthenext3days.Andthen the bank committed a mistake and sent $1,000,000 instead of $1,000. Melchor Javier consulted a crooked lawyer, ____ Poblador tago mo! Hayaan mo siya maghabol! Poblador owned a piece of land in the Mojave Dessert. When you are going from Los Angeles toLasVegas,youwillpasstheMojaveDesert,theDeath Valley. I think the broker of Poblador, Paulino Marquez(?)soldthatpropertytohimandwithoutseeing the property, he bought it. Ay, lupa sa Amerika. He foundoutthatitwasdesertland.Hehadbeensellingit for 10 years, of course nobody would buy it. Now, Poblador said, O, make a Deed of Sale with my property.Hegotthemoney,depositeditinabankthen withdrew the money, bought shares of stock in a stock market,soldthesharesandgotbackthemoney,bought money market placements, sold the money market placements, got the money, transferred some to his partners. They were making it difficult to trace the money.Whenwesubpoenaedthebankaccount,theyall invoked secrecy of bank deposits. The court said, that does not apply. Under the law, if the money is the subjectmatteroflitigationconfidentialitydoesnotapply, and that is the situation here. Although the money was originallyreceivedbytheJaviers,havebeentransferred in the names of other persons, they still remain the subject matter of the law suits. And therefore, the accountscouldbesubpoenaed. We started litigating in 1976. Its now 2011. That is still the Supreme Court. Thats why this is a disgrace to our judiciary! 4. Subject matter of the suit. In the case of Jinggoy Estrada, the court also said, he is chargedwithplunder.Anditisallegedthathe acquired money illegally. So the funds in this trust account are the subject matter of the litigation. So this will also fall under that exceptionwhen the money is the subject matteroflitigation. And then in proceedings to settle the estate of a deceased. The court said, naturally, you have to collate all his properties. So his bank account would form part of the subject matter of the proceeding. That could be anexceptionagaintotherule. You have that case of Onate v. Abrogar (?). Sun Life boughtreasurybills,anditissuedacheck.Thesellerdid not deliver the treasury bills. Sun Life filed a case for specific performance. It now asked that the account where the seller deposited the check be subpoenaed. The court said that is not the subject matter of the litigation. The treasury bills constitute the subject matter.Youcannotsubpoenathebankaccount. Therewasacase,acustomerofUnionBankdepositeda checkinhisaccountinUnionBank.UnionBankbrought ittotheclearinghouse.ItwasdrawnagainstMetrobank. Buttheymadeamistakeinthecoveringdocument.They amounttheindicatedtherewaslessthanthefacevalue of the check. So the computer credited the account of UnionBankwiththereducedamount.WhenUnionBank realized that they had a mistake, they sued Metrobank to recover the difference. They asked that the account of the drawer of the check that was deposited be subpoenaed. But the court said the money in the account of the drawer is not the subject matter of the case.Whatyouareclaimingisthatyoumadeamistake andundervaluedthefacevalueofthecheck. In the earlier case of PNB v. ____ and Bank Filipino v. Purisima, the court said the antigraft law provides, in determining if the public officer amassed illgotten wealth, his bank account and the bank accounts of his family can be taken into consideration. And because of thattheSCsaidinthosetwocases,clearlytheantigraft law is creating an exception to the secrecy of bank deposits.Partlythathasbeenabandoned.

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The Ombudsman Act provides, the ombudsman can inquire into bank deposits in the course of an investigation the ombudsmad in conducting! And invoking that, ombudsman Desierto wanted to subpoena the bank accounts of Sec. Lagdameo. I think this was probably a case of the wrong person, at the wrong place, at the wrong time. The SC in effect here, reversedthe2cases(____andPurisima).Thecourtsaid no.Thereareseveralrequisitesbeforeyoucanexamine the bank account. They said, the ombudsman law providestheombudsmancanlookintothebankaccount inconnectionwithaninvestigation.Thecourtsaid,no. 1. Theremustbeacasealreadypendingincourt. 2. Theaccountmustbeidentified. 3. Theinspectionmustbelimitedtothepending case 4. The inspection should cover only the account identified. 5. The bank personnel of the account must be notifiedtobepresent. Thecourthasrepeatedlyheldthatabankaccountunder a _____ can be garnished. When this was being sponsored by Congressman Ramos, Congressman FerdinandMarcosinterpolatedhim.Whatistheeffectof this?Wouldthisprohibitgarnishmentofbankaccounts? No.TheSupremeCourtsaidthatotherwise,allyouhave to do is put your money in a bank and your creditors cannotattachit. Under the Revenue Code, Section 6(f) as amended recently by R.A. 10021, the commissioner of internal revenue can inquire into bank accounts in three instances: 1. If the depositor died and so he can inquire to determinewhatishiscorrectestate 2. Thetaxpayerappliedforacompromiseonthe groundthatheisnotfinanciallycapabletopay histaxes.Thecommissionercaninquireintohis bankdepositstofindoutifthatistrue 3. TheamendmentintroducedbyR.A.10021.The account of a specific taxpayer covered by requestforinformationfromataxauthorityof a foreign country made pursuant to an international convention or agreement to which the Philippines is a party. The commissioner can look into that. He can use theinformationhegetsforassessinghimtaxes underourowncode. Ifyoucanrecall,Ithinkthereisenoughintheworldwide movementtowaivethesecrecyofbankaccountsfortax evasion. Remember, Switzerland kept denying that the Nazis stashed money in Switzerland. But the Swiss believe that money has no smell. So they allowed the Nazis to deposit there the money they took from the Jews.Theykeptdenying.Whathappened?TheStateof NewYorkpassedalawprohibitingAmericanBanksfrom dealing with Swiss Banks. Then they yielded, ah yes. TheygaveinformationabouttheNazis. AndthenrecentlytheUnitedStateshavebeenpressing themabouthowAmericanswhoareevadingtheirtaxes by depositing their money in Switzerland. Now, what happened was a compromise. There was an American Law again that prohibit American banks from doing businesswiththem.Therewasacompromise.Theywill givethenamesofIthinkabout5,600taxpayers.Sonot alltaxpayers.ButthentheUSgovernmentsaid,wewere given the names of 5,600 taxpayers. We are not telling you who they are. Guess if you are in the list or not! If you guess wrongly and do not make a clean _____, we willrunafteryouifyouareinthelist.Soitslikeyoure playingpoker.Itsuptoyoutoguessifyouareinthelist ornot.Ifyouguesswrongly,toobadforyou. Theantimoneymaunderingcouncilcanalsoinquireinto bankdeposits,underthemoneylaunderinglaw. Under the antiterrorism law, the antiterrorism council canaskthecourtofappealstoauthorizeexaminationof deposits for commission of terrorism or conspiracy to committerrorism. The Philippine Deposit Insurance Corporation. Banko Sentralcanexaminedepositaccountsincaseoffinding ofunsafeorunsoundbankingpracticesbybanks. R.A. 6476, foreign currency deposits. It says all foreign currencydepositsareabsolutelyconfidential.Anditsays foreigncurrencydepositsareexemptfromattachment, garnishment or any order or process from any court, legislative body or investigative body. Exception: When thereiswrittenconsentofthedepositor. YouhavethatcasewhereabunchofAmericansbought a bank from the Marshall Islands. Bank of Marshall Islands. And then they opened their office in Oregon without authorization from the State of Oregon. They offeredhighinterestsoalotofpeopletransferredtheir money in their bank. And then these people fled to the Philippines and had the money sent by telegraphic transfer.TheyopenedadollaraccountwithHongKong ShanghaiBank.Andthentheysoldthedollarsforpesos andusedthemoneytobuytheCentralBankbills.Atthat time, the Central Bank floated the socalled ___ bills, noninterest bearing but discounted. If the face value is P1M, you shell out P600k, on maturity you get P1M. Thats what encouraged people to use their money to buy Central Bank bills in order to reduce the money circulation.AndtheseAmericansnowusedthemoneyto buy these Central Bank bills. When the State of Oregon found out what was happening, they closed that bank and proceeded to liquidate it. There was a statutory receiver and the court then issued an injunction

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prohibitinganydealings,transactions,withthetreasury bills.Theywerealwaysinthepossessionofthereceiver. So somebody came forward with the monetary board withaDeedofSale.Hesaid,IboughttheseCentralBank bills.Theyarenowmature.Imaskingforpayment.But Central Bank refused. They said, the State of Oregon is claimingthis.Infact,thebillsaretherewiththereceiver. So this fellow sued. The Central Bank filed a counterclaim for interpleader. It said, we dont know who to pay. Therefore, this fellow, Stanley _____, and ______ the order to interplead. Who is entitled? <The State of Oregon, retained in our office but they did not sign the traditional retainer agreement. Instead, they issuedadocumentappointingmeasAssistantAttorney General for the purpose of handling that case (yeeeeesssss!). Yes. When I met Atty. Coronel in court, he immediately saluted me because he was only a colonel, I was a general. > The mastermind pleaded guilty and agreed to cooperate to reduce his penalty. ButItookhisdeposition.Hewasservingsentenceatthe FederalPrisonintheMojaveDesertbecauseevenifyou escape,youllneversurvive.Milesandmilesandmilesof desert. And after I took his deposition, I asked him to signawaiverofsecrecyofbankdeposits.Ishowedthat to HSBC and they gave me all information about the bank deposits. And after we were chatting afterwards, when youre in jail its very tough. When nobody visits you during weekends. You will break down and cry. Anyway, he signed that waiver and I got the bank records and when the case was set for initial hearing, that Stanley _____ boarded to flight of Northwest Airlines in Seattle to fly to Manila to testify. He was never able to testify. While he was boarding the plane, he had a fatal heart attack. He never got to testify. Eventually,wewonthatcase,infactthatreachedupto the Court of Appeals. The decision was penned by JusticeSabioandnofurtherappealsweremade.Thats whathappenedtothecase. There was a case where some officers of Citibank formed,Ithinkaninvestmentmanagementcorporation and enticed customers of Citibank who have foreign currency deposits to close their accounts and transfer the money to their corporation. So Citibank filed a criminalcaseagainstthemforviolationoftheprovision on conflict of interest. And to prove that, an officer executedanaffidavitandattachedtherecordstoshow that the accounts of these foreign currency deposits were closed. For leverage purposes, one of the customerswastheirclosefriend.Theyaskedhimtofilea criminal case against the bank, violation of secrecy of bank deposits under R.A. 1405. Well, we argued in the fiscalsofficethatthisisthesubjectmatteroflitigation. Thats exempt. So the fiscal dismissed the case. They appealedtotheSecretaryofJustice.Weraisedthesame argument. The Secretary dismissed the appeal. They filedaPetitionforCertiorariintheCourtofAppeals.We raisedthesameargument,theCourtofAppealsdenied thepetition.ThatfellowappealedtotheSupremeCourt. Then Justice ____De Leon, Jr. penned the decision. He said, that brilliant lawyers appealing in this case have submittedexhaustiveargumentsonwhetherornotthe money involved here is the subject matter of litigation. But they all seem to have missed the point! This is a foreigncurrencydeposit,itisnotcoveredbyR.A.1405!It fallsundertheForeignCurrencyDepositLaw.Underthat law, there is only one exception: when there is written permission by the depositor. The rule under R.A. 1405 thatitisthesubjectmatterofthecase,itdoesnotapply! I said, we did not miss the point. We knew they were litigatingunderthewronglaw.SoIsaid,whyshouldwe educate them? Let them continue litigating under the wrong law until the crime prescribes. And that is what Justice De Leon said: unfortunately! The crime has prescribed!Therefore,thecasehastobedismissed. And likewise, there was this case where a father had a dollar account with Citibank. I dont know, somehow, the daughter was able to withdraw money from that account, and she opened an account with China Bank and transferred the money there. The father now sued to recover the money, and asked that the account in China Bank be subpoenaed. Of course China Bank opposed. But the court said that the money belongs to the father. So when he asked that the account be subpoenaed,itistheownerofthemoneywhoisasking that the bank account be subpoenaed. This is a case wheretheownerofthemoneyisgivingwrittenconsent for the disclosure. And therefore, the subpoena should be honored because that is his money. Time and again the court would say that when the money does not belong to the depositor, you cannot invoke the protectionofsecrecyofbankdeposits. Youhavethiscase,therewasthisfellowwhoopenedan and/or account. The other cosignatory was an employee of the company. That employee closed that accountandopenedanotheraccountinthesamebank, exclusively in her name where she transferred all the funds.Thecompanyfiledacaseandaskedthecourtto enjoin withdrawal of the account, but the employee argued that under the law, no writ can be enforced against her account because it is a foreign deposit. But the Court said no, you can not invoke that because the money there does not belong to you. You can not invoke the protection of the law if the money does not belongtoyou. Therewasthiscase,thefatherhadadollaraccountwith Citibank, and his daughter able to withdraw the money andopenanaccountinChinabankwherethefundswere transferred.Thecourtsaidthemoneyreallybelongsto the father, the father can inquire into that dollar account.

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There was this another case, the director of a foreign corporation fled to the Philippines, fraudulently deposited in a dollar account here funds belonging to the corporation. Court said he could be restrained to make the withdrawal because the money was fraudulently obtained, and unless he would be restrained he could abscond again with the money. So thecourtallowedtheinquiryintotheaccount. AndthenthereisthatSalvacioncase.Therewasatourist wholuredagirlwithadollandthenherapedthegirl.He managed to escape from the Makati city jail. I don't know if the rates have changed, but for P1800 pesos a day,youwillnotstayinjail,youstayintheofficeofthe jailwardenwherethereisairconandTV.Parentsfiledan action for damages and got a favorable judgment. The only property that could be found was a dollar account with Citibank. Citibank refused to honor the notice of garnishment stating that foreign accounts are exempt from garnishment. But the Court said, the reason behindtheprotectionofFCDS(foreigncurrencydeposit system) was to encourage foreigners to invest in the Philippines.Whenyouconsiderthatpurposeofthelaw, thissituationisnotincontemplationofthelaw.Thisisa case where a foreigner who committed a crime and escapedandtheonlyredressthatcouldbeobtainedwas the award of damages. To exempt his account from garnishmentwouldresultininjustice. Now, the exceptions I mentioned before, which would authorizeCommissionerofInternalRevenuestoinquire likewise applies to foreign currency deposits. Likewise, the power of AMLAC and PDIC and Antiterrorism Council to look into bank accounts also applies to foreigncurrencydeposits.IntheGBL,thereisacatchall provisionwhichsaysnodirectororemployeeofabank candisclosetoanyunauthorizedpersonanyinformation regardingfundsorpropertiesinthecustodyofthebank belongingtoprivateindividualsorcorporationswithout courtorder. Note that while 1405 and FCD basically talk about deposits, this one is a catch all provision, it covers all kinds of properties, trust funds, investment bond, propertiesinthesafetydepositbox. Now, that is why when Clarissa Ocampo disclosed that Joseph Estrada opened an investment bond did she violate the law? No, because (1) she disclosed to an authorized person Senate was conducting an impeachment trial, (2) it was upon an order of the Senate and (3) the funds belonged to a public officer, notaprivateindividual. That's why Justice CarpioMorales should have invoked thisinsteadinthecaseofJinggoythiswouldhavebeen clearlyapplicablebecausethiscoverstrustaccounts. And the exceptions in the NIRC which allows the Commissioner to look into bank deposits also applies here, also the AMLAC and PDIC. But NOT the Anti terrorismCouncil.WellCongressrushedtheenactment ofthatlaw,theyforgotthattheGBLalsohasprovisions onconfidentiality,thatiswhytheydidnotexemptthat underthelaw.(IthinkAntiterrorismCouncilcaninquire into foreign deposits under the FCDA, but not regular depositsunder theGBL?Notsurethough. I don't know whyJacksaidthe2conflictingthingsmerely10minutes apart). GENERALBANKINGLAW The law defines banks as entities engaged in lending of fundsobtainedintheformofdeposits. Quasi banks are entities that borrow funds through issuance or assignment of deposit substitutes for the purpose of relending them, like moneymarket placement that's a deposit substitutes. They are nothing more than promissory notes of a corporation, whichthebankresellstothepublic.Promissorynotesof SanMiguel,PLDT,Meralco. BankoSentralofthePhilippines(BSP)supervisesbanks, quasi banks and other financial institutions. No one can engage in banking or quasi banking without authority fromtheBSP. BSPcanexamineenterpriseswhicharewhollyowned,or majority owned by a bank. If a bank is the majority stockholderofaninsurancecompany,theBSPcanlook intothat. OrganizationofBanks Bankscanbeonlyorganizedasstockcorporationswith 20 or more stockholders, they must meet the minimum paidupcapital.Bankscanonlyissueparvaluesharesso thatitcantellrightawayifithasmettheminimumpaid upcapital. Banks cannot acquire its own shares except if shares were pledged or mortgaged as collateral to a loan and the bank foreclosed. But it has to be disposed within 6 months. In the old days, there were only old banks, in the 50s, whenMacapagalbecamePresident,theyliberalizedand many new banks came in. But these new banks were familyownedbanks.PeoplesaidMagtayonalangtayo ng sarili nating Banko, marami naman tayong negosyo, para doon nalang tayo uutang. What happened, if you notice the pattern, invariably, the banks that got into trouble are family owned banks! Now, a joint IMF and Central bank team was organized to study the banking systeminthePhilippinesandtheysubmittedthisRanish

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Report.Oneofitsrecommendationswastodispersethe ownership of Philippine banks because they said the banksintroublewerefamilyownedbanks.Theywould lend money to their own affiliates, so its not an arms lengthtransaction.Sotheysaid,disperseownershipso thatnotonefamilywillcontrol.Soadecreewasissued toimplementthat.Soapersonorafamilycanownonly up to 20% of the voting shares. When the banking law wasamendedtoallow10newforeignbankstocomein, it allowed the foreign banks to own up to 40% of the votingsharesofadomesticbank.Soaforeignbank,like Citibankownedupto40%ofsharesofFEATIwhichlater became CitiTrust but not Filipinos. Now, what happened when the new banking law was passed, Senator Ople inserted this in the bicameral conference committee,sonowFilipinoswereallowedtoownupto 40% of the voting shares of a bank. Thats what happened.(Labongkwentonisirno?Sanasinabinalang niya agad na Filipinos can own up to 40% of the voting shares.) BoardofDirectors Thebankshouldhave515directorsandatleast2must beindependentinotherwords,theymustbepersons other than officers or employees of the bank and its subsidiaries,affiliatesorrelatedinterest. But in case of bank merger or consolidation, the board can be enlarged up to 21 to accommodate some directorsofthebankthathasbeenabsorbed. The Monetary Board prescribes and reviews the qualifications of bank director and officers and the Board may disqualify or suspend or remove a bank officerordirectorifunfit. No appointee or elective official whether full or part timeofficialcanbeanofficerofprivatebankunless: 1. Incidental to financial assistance provided by the government or GOCC, example PDIC grantedemergencyloantoabank,itmayinsist that an officer of it be given a voting trust so thatitcansitintheboardandfindoutwhatis happeninginthatbank 2. Providedbylaw.Example,Developmentbank is required to invest in any rural bank that is being organized, to help the establishment of the rural bank. Officer of development bank cansitintheboardbecauseithasequityinthe ruralbank Monetary board may regulate the compensation and fringebenefitsoftheofficers. And they can conduct their meeting through tele/video conference. Universal Banks and Commercial Banks may open branches within the Philippines or outside the PhilippineswiththepriorapprovaloftheBSP. Abankanditsbranchesshallbetreatedasoneunit. CommercialBanks Commercial Banks, they are automatically allowed to accept opening of current accounts. Other banks, they cannot automatically accept. They have to get special authorization from Monetary Board to allow the opening of current accounts. Like savings banks, thrift banks. CB automatically allowed to engage in quasi banking. CB may invest in allied enterprises like investment houses, insurance companies, financing companies. Andapubliclylistedcommercialbankisallowedtoown up to 100% of the voting stock of another commercial bank. UniversalBanks Universalbanks,wellyousee,rememberthatwhenthe stock market crashed, around 5000 banks in the US became insolvent. Why? Because they speculated massivelyinstockmarket.ThatiswhywhenRoosevelt became President, they declared a Bank Holdiay, which was a euphemism for closing a bank. Now, because of that, the law was passed, prohibiting banks from engaging in investment banking being involved in the marketing of shares and bonds. Thats why Stanely Morganwasformed,whichwasaspinoffofJPMorgan, JPMorganremainedabankandStanelyMorganbecame investmentbank.Andthatlawremainedthereforalong longtime.Itwasjustafewyearsagothatwasrepealed. That's why, you see, there was a regulation of the SEC limiting the amount net instruments that banks could buy. The Chairman of the SEC lifted the ceiling, so the banks started to massively bought these debt instrumentsfromhousingmortgages. Before, we had the same provision. But then, they decided to allow investment banking which were called Universal Banks, which were patterned after Germany. Investment banks are automatically allowed to engage inquasibankingandinvestmentbanking. BankingLimitations Thiswasaskedinthebarbefore:Name2regulationson thelendingoperationsofbanks 1. Single borrowers limit limit as to the total amountofloansthatcanbegrantedbyabank toasingleborrower.

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The law says 20% of the net worth of the bank but the Monetary Board may increase it to 25% or in certain instances more than that, subject to certain conditions. Because if that one borrower goes belly up, it will pull downthebankwithit.Ourbankswerenotaffectedso much by that fiasco not because they were sturdy but because of their pawnshop mentality you have collateral, we will lend you money, so they did not buy those products. Only PNB, Allied Bank, Metrobank, BDO,buttheirexposurewasminimal.Now,theneedof San Miguel Corporation for working capital is so big. Even if you put all our banks together, their combined singleborrowerslimitwouldnotbesufficient.1bankin Thailand = 7 biggest banks in the Philippines combined. That's why the Monetary Board has been encouraging banks to merge. Remember that Metrobank immediatelyboughtSolidbank.Theywereboastingthat theywerethebiggestbank.ButBDOisclaimingthatits the biggest bank now. Anyway, because of their haste, theydidnotdotheirduediligenceproperly.Therewere too many skeletons in the closet of Solidbank. In computing single borrowers limit, if the loan is secured byobligationsoftheBSPorthegovernmentthatwould beexcluded.IfsecuredbytreasurybillsorCentralBank Bills, that is excluded from the single borrowers limit, becausetheperceptionisthatissafe.Loanscoveredby deposits,lettersofcredit. 2. Loans to directors, officers, stockholders and relatedinterest(DOSRI). They are not per se prohibited. They are merely regulated. There are procedural and substantive limitations. Procedural it must be approved by majority of directors, excluding the director borrowing. Usually, banks would have account officers who are authorizedtograntloansuptoacertainlimit.Butifitis a DOSRI loan, that should be approved by the board itself, excluding the borrowing director. It must be enteredinthebankrecords,andacopyofthatmustbe senttoBSP.Substantivetermsandconditionsshould bethesameasloanstooutsiders.Termsshouldnotbe more favorable. Secondly, the amount of loan that can begrantedwillbelimitedtotheunencumbereddeposit of the borrower and book value is paidin capital. If the unencumbereddepositis300kandthepaidincapitalis 200k,themostthatstockholdercanborrowis500k. Now, the SC has said that mere failure to comply with the requirement of approval of majority is sufficient to constitute violation. Violation of single requirement constitutes offense even if other requirements have beencompliedwith. 3. Amount that can be loaned on real estate mortgage. For land, it should not exceed 75%. The improvements like buildings, machines, factories60%.Forchattels75%. ForeclosurebyBanks IncaseofforeclosureofREM,buyercanimmediatelyask forawritofpossessionafterconfirmationofthesaleby the Court. Redemption period: Natural person? 1 year. Juridical person? Upon registration of certificate of sale or 3 months from foreclosure, whichever occurs first. Redemption price total amount due. For example, a mortgage secured two loans, and at the time of the foreclosure,onlythefirstloanwasdue,butatthetime of the redemption, the second loan was also due, redemptionpriceshouldincludedpayment.Interestrate shouldbetheonestatedinthedeedofmortgagenot the1%statedinRule39ofROC.Expensesofthesale.If therewasincomeearned,likerent,thatwillbededucted fromtheredemptionprice. InvestmentofBanksinCertainAssets Bank can acquire real estate and improvements for the useofthebankupto50%ofitscombinedcapital.There wasthiscasewhereabankexceededthisrequirement, sowhatdiditdo?Itplacedthetitleofoneofthebranch inthenameofsomebody.Andthenacontractoflease was supposedly signed by the branch leasing the property. There was a dispute. The registered owner wantedtoraisetherent.Banknotagreesotheyfileda casesayingthattheyactuallyownedtheland.Courtsaid you cannot maintain that suit. That arrangement is in violationofthelaw.Banksshouldbeengagedinlending it should be liquid. Not tied down to real estate properties. If it acquired real properties, if must be disposed in 5 years. Banksareallowedtoacquireinsomeinstances,likeifit was received in custody bonds, documents and valuable objects, acting as financial agent, make collections for customers, act as adviser, consultant, investmentmanagement,rentoutsafetydepositboxes. This was asked in the bar there was a stipulation providing that the bank will not be liable for loss of articlesinsafetydepositboxes.Courtsaidisnotvalid!It involvesfiducaiaryrelationship.Stipulationslikethatare void. There are 2 cases involving that already. In one case,thedepositorplacedtheOCTinthesafetydeposit box.Thentheywerelost.Inanothercase,herenteda safety deposit box and placed there his lifetime stamp collection. That box was in the lowest tier in the vault room. There was a flood and the water seeped in and reached tier. Stamp collection was ruined. Customer sued.Bankarguedthatthecontractprovidesthatitwill not be liable. Court said that is void because it involves fiduciaryrelationship.

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BankAssurance Banks cannot engage directly insurance. But there is bank assurance. They are allowed to sell insurance policiesasinsurersifinsurancecompanyistheiraffiliate or subsidiary. That is why the officers who would sell that should attend the seminar and pass the test the Insurance commissioner gives to insurance agents. This is an uncomfortable arrangement because there is a conflict of interest! For example, there is a customer asking the executed extrajudicial settlement of estate they want to withdraw the money left by their predecessor,thebankwillaskforanheirsbond,Rule71. You get your bond from our insurance company, otherwise we will not accept the heirs bond. That is whatishappening. ProhibitedTransactions Therearecertainprohibitionondirectorsandofficers: 1. Makefalseentriesorreport.Therearesomany reports required every week by the Monetary Board. Sale of foreign exchange, AMLAC reports,etc. 2. Participating in any fraudulent transactions. There was this case. A corrupt RD gave title covering 3 hectares in Las Pinas. That was subdivdedalreadyin1958.Hejustgaveatitle. Nothing to connect it with the previous title. Instead,hepresentedadeedofsalewherehe supposedly bought it for 400 pesos for sq. meter. Where in Metro Manila can you buy a lot like that?? And then, this fellow now obtained a loan. 60M pesos, mortgaged the property. After getting the 60M, he disappeared. There must have been collusion withtheofficerswhoapprovedtheloan.Those officers were replaced. In fact, that borrower mortgagor was in the line of minor construction work, paid up capital was 15k, howwashegivenaloanof60M? 3. Disclosing to unauthorized persons informationrelatingtofundsorpropertyinthe custody of the bank belonging to private personswithoutcourtorder. 4. Accepting remuneration to approve a loan kickback 5. Overvaluing security offered as security to the bank.Youhavecaseswhereloansaregranted based on mortgage of parcel of land, but that landisatthebottomofthesea!!Therewasthis case,thecorruptJudgeRuizinMakatibefore. Somebody filed a petition for mandamus for RD of QC to issue title. He granted it even thoughheisaMakatijudgeandthepropertyis supposedly in QC. This fellow got the title. He mortgaged it and disappeared. If you plot the land based on technical description, it is in Aklan.Oh.Andthen.(AndtheregoesSiragain. Stoppinginthemiddleofhisthoughts.) Outsourcing inherent banking functions you cannot outsource the approval of loans and thereceiptofdeposits.Employeesmaynotbe casual or for long probation periods when it involves bank deposits. In other words, you cannot get tellers from labor contracting agenciesandchangethemevery5months. Engaging in unsafe and unsound business practices. Like act or omission which would result in material loss or damage or danger to the bank, like that loan 60M not paid, Torrens title. Act or omission which result in loss of normal risk to depositors, creditors, stockholders. Act or omission, which would resultintheundueinjuryorevenunwarranted benefit or preference to any party through partiality, bad faith or gross negligence. This wasaskedintheBarexamsbefore.Ruralbank declaredthatitwashavingabankholiday.Tips were given in advance so some people were able to withdraw money. And then it was asked Was there a violation under the law? Yes. Giving unwarranted benefits to certain depositors by giving them this advance information.Enteringintocontractsmanifestly disadvantageoustobanks.

6.

7.

BankHoliday Bank or QB announced a bank holiday or suspend paymentformorethan3days,theMonetaryBoardmay summarily close it or place it under receivership or the PDIC.Thatswhathappened!Urbanbankservedonthe MonetaryBankanotice,wearedeclaringabankholiday! So the Monetary Board placed it under PDIC, and then they were questioning that receivership. But you were theonewhosaidyouwereclosing! LocalBranchesofForeignBanks Case of foreign banks, the law provides that the head officeshallfullyguaranteetheliabilitiesofthePhilippine branch.Therewasthiscasewheresomebodyobtaineda loan from Citibank, in dollars. He had a dollar account withthebranchofCitibankinGeneva,hedeportedand what Citibank did was to debit his account in Geneva. Remember the relationship between a bank and a depositoriscreditorandborrower.Now,hequestioned that. Citibank was arguing its the same juridical personality, same corporation. But the court said that

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under the law, the head office is required to guarantee the obligations of the branch here. Thats the only instance when the law ties up 2 offices of the same foreignbanktheheadofficeandthebranchhere.But you cannot apply that to a liability of a borrower of Citibank here with his bank account in Geneva because the accounting, that is treated as a separate account. Theyhaveseparateaccountingrecordsthere. InterestRates The court said that while interest rate ceiling is lifted, still,ifitisunconscionable,itwouldnotbevalid.Interest of 5 6% per month is considered unconscionable. Interest and penalties, together should not exceed for about 3% a month. Anything beyond that is unconscionable. SomeJurisprudence Banco Filipino Case: Majority opinion said closure violated due closes because Monetary Board closed even before examination completed. Justice something dissented,sayingthatwhileitwastruethatexamination has not yet been completed, but by that time it was sufficiently shown that it was insolvent. And also, the examinationwascompletedandtheresultsshowedthat indeed it was insolvent. That doctrine has been repudiated in the new General Banking Law, which provides that a bank can be closed even if the examination has not been completed if it is sufficiently shown that it is insolvent. In other words, if you are servedarottenegg,youdonthavetoeattheentireegg toknowitsrotten.(Forcedlaughteroftheclass) LegacyCase:Apetitionwasfiledtoenjoinsubmissionof the report of the examiners to the MB, in anticipation that it will result in the closure of the bank. It invoked that submission of that without giving the copy to the bank violated due process. Court said No, you are not entitledtothecopyofthereport.Itshouldbesubmitted totheMBforevaluation. BPI Family Bank Case: 3 depositors. Depositor A had an account.DepositorBgaveAcheck.Adepositedcheckto hisaccount.Wheredidthemoneytofunthecheckwith B gave come from? From an authorization to debit the accountofdepositorC.MoneyofCwascreditedtothe account of B who then issued a check to A, and that money from C was supposed to fund the check. C repudiatedthatdebitauthorizationsayingthatsignature was a forgery. So the bank debited account from A. Justice Nachura said You cannot do that because moneyisamediumofexchange.Moneyismoney.That cannotbedebitedfortheaccountofdepositorA.Jack saidIthinkitslikethis,ifrobbersholduppassengersin a jeepney, after, they went to the mall to buy stuff, victimscannotclaimmoneyfromthesellers.Ithinkitis inthatcontextthatyoushouldunderstandthatruling. People in the crime laboratory are invited by banks to give lectures so they can be forewarned about fraudulent schemes. We dont tell them everything we know, there may be an employee who is planning to defraud,andwewouldbeeducatinghim. Lifetime Marketing Case: They sells books published by time life. The sales representatives usually goes to offices, and then they offer these books and they are paid in installment. Now the sales representatives are supposed to collect payment and then deposit them in the account of Lifetime in BPI. 1 sales representative filled up a deposit slip in duplicate form and after teller had received the money and validated the 2 copies, he said,Ichangedmymind,Imgettingbackthemoney so the sale representative surrendered original of deposit slip. But he kept the duplicate. So when he returned to the office Oh, I deposited in the bank my collection ha, here is the copy of my deposit slip! And onthatbasis,employeewasabletoabscondwithmore than P1M. Court said bank was negligent! You should haveaskedfortheduplicatecopy.Thatenabledhimto misrepresent that he has actually deposited the collectionintheaccountofLifetimemarketing PanlilioCase:SheboughtcommercialpaperofCamella Homes, the company where Senator Villar was being linked.TherewasnewsthatAyalawasgoingtocomein and form a joint venture with Camella Homes. Panlilio asked Citibank to invest her funds in the commercial paper of Camella Homes. But Ayala pulled out, did not push through with joint venture. So the price of the commercial paper of Camella Homes plunged. She now suedCitibank.Courtsaid,Youtoldbanktoinvestyour money in the commercial paper of Camella homes. The risk was for your own account. That always happens theyblamethebank. Poblador Case: She alleged that she signed a trust agreement and asked Citibank to buy Benpress bonds. Remember their bonds plunged when they guaranteed the notes of Philtel. Benpress announced in would default on paying installment, so the price of Benpress bonds plunged. And she sued. Uninitiated lay person whoknewnothingaboutsophisticatedtransactions.SoI crossed examined her. You finished your MBA in a Frenchschool,thebestinEurope.YoupassedNYstock exchange examination for brokers 85%. And you see, shewasgivenalistofbondsavailable,andatthattime, Benpress bonds were floating and were not in the printedlist.ShewastheonewhowroteBenpressinthe list. She graduated from Assumption and they have a distinctivewritingstylepointylettersandlong. NEWCENTRALBANKACT

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It mentions that when a bank is in distress, the MB can place it under conservatorship, receivership and liquidation. So if the MB finds that a bank is unable to maintain a condition of liquidity to protect depositors, it may be placed under conservatorship. The conservator has power to overrule actions of previous management. Therewasthiscasewhereamortgagorfailedtopaythe loansomortgagewasforeclosed.Titlewasconsolidated and the redemption period expired. After that, mortgagor was able to raise funds and he wanted to redeem property, and the conservator allowed. Court said No. You can only revoke the previous acts of management if contract is defective, but if it does not applyifitisnot.Youcannotdothat,itwillviolatenon impairmentofcontracts. Conservatorship Conservatorship should not exceed one year. Within that period, MB should decide whether if it could be reopened or if it is beyond salvation and would now thereforebeliquidated. Receivership. Law does not require conservatorship first before receivership.Itcanbereceivershiprightaway. The difference is that in receivership, the bank is insolvent. In conservatorship, there is a liquidity problem. Bank can be placed under receivership if the MB finds that: 1. The bank cannot pay its debts when they becomedueintheordinarycourseofbusiness, provided that this does not included those caused by extraordinary demands induced by financialpanic 2. Ithasinsufficientrealizableassets 3. It cannot continue business without involving probablelossestoitsdepositorsorcreditors 4. Violatedceaseanddesistorder AlliedBankCase:TherewasthisGeneralBankbefore,it was liquidated and closed. Nobody wanted to infuse capital,buteventuallyLucioTanboughtanditrenamed itAlliedBank.Oldownersnowquestionedtheclosure, sayingthatitwasmerelyabankrun.CourtssaidNo,its morethanthat.Whathappenedwasyougrantedcredit without limit to your sister company Philfinance! You granted limitless credit to the point that you overdrew creditwithBSP.Thatwastheproblem. In all these steps, conservatorship, receivership or liquidation,thereisnomoreneedforapriorhearingand if the bank wants to question the closure, it can file a petition for certiorari within 10 days and filing must be approved by majority of stockholders, otherwise it will betimebarred. Longest period where a bank can be placed under receivership is 90 days. Within that time, it should be decided whether it can be rehabilitated or it could no longer be allowed to continue business. During that time,nooneisallowedtowithdrawfunds. Liquidation So if the MB finds that a bank cannot be rehabilitated, then it should direct the receiver to proceed with the liquidation. Receiver is usually PDIC. Or a person of recognizedcompetenceinbanking. SothereceiverwillfileanexpartepetitionwiththeRTC forassistancetoliquidatethebank. MBmayimposesanctionsevenuptoliquidationfor: 1. Willfulviolationofthearticlesorbylawsofthe bank 2. Delayinsubmissionofreports 3. Refusaltoallowexaminationofthebank 4. Willfully making false statements to MB or its examiners 5. Failuretocomplywithbanklaworanyorderor regulationorinstructionoftheMB 6. Commissionofirregularities 7. Conducting business in an unsafe or unsound manner MB may place officers or directors under preventive suspensionupto120days. If theres a cease and desist order, respondent has 5 days from receipt to question that, otherwise, it becomesfinal. Legaltender Allpapernotesarelegaltender.Inthecaseofcoins,10 and5centavocoinsarelegaltenderto20peso.Coinsin thedenominationof25centavos,1peso,5pesosand10 pesosarelegaltenderupto50pesos. BSP PrimaryfunctionofCentralBanksistopreventinflation. Itshallendeavortocontrolanyexpansionorcontraction in monetary aggregates. BSP has the duty to preserve the international value of the peso and to maintain its convertibilityintoothercurrenciesandforthatpurpose itcanmaintaininternationalreserves.

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BSP, to control inflation, it may buy and sell foreign currency.Ifratesaregoingup,itwillunloadsomeofits dollarholdingtopulldowntheprice. In times of exchange crisis or national emergency, with the concurrence of 5 members of the MB with the approval of the President, MB may suspend or restrict salesofforeignexchange.Thishappenedin1983.When the government sent telex messages to international lenders We are going on a stand still, we are stopping payment for foreign debts. And the MB ordered all bankstosurrenderalltheirdollarholdings,sotheysent a cable to banks in NY to transfer the money to the accountofBSPwiththeFederalReserveSystem,where ourBSPmaintainsaccount. BSP may subject all transactions to license. In the old days, you could not buy dollars unless you had a dollar quotafromtheImportControlCommission.Itwasone of the most corrupt, if not the most corrupt office. So President Macapagal, he abolished that and allowed purchaseofdollarstobelefttothemarketforces. It can require foreign exchange be sold. There was this Circular265,whichprovidedthatifyou,earndollars,you have to sell that within 5 banking days to a bank. So whathappenedwasthattherewouldbe2invoices,one which had a low price, that would be submitted to the government.TherewerecompaniesinHKthatoffered reinvoicingservices.Thatwouldbetherealinvoicewith therealpriceandthedifferencewouldbekeptinabank abroad. But now, its no longer required that you surrender,soexportersfreelydeposittheirdollarshere. At that time you were only allowed $500 if you were going abroad. How are you going to survive with just $500?Thatswhyeveryonewhogoesabroadhaddollars hiddenintheirsocksorshoes. MB determines foreign exchange policies. They may require banks to surrender their excess foreign exchangeiftheyseethatthebanksarespeculating. BSPmaybuyandsellreceivablesofbank.Youhavethis rediscounting window. This is one of the tools of the BSPinregulatingthemoneycirculation.Thelessmoney the BSP will give, increase rediscounting rate, the less moneybanswillhaveforrelending. BSP may extend loans to bank up to days without collateralprovidedliquid,forexamplethereisabankrun In times of national emergency or imminent financial panic or bank is under financial pressure, by vote of at least5ofitsmembers,MBmayextendemergencyloans tothebanks. Thentomaintainpricestabilityorpreventinflation,BSP may buy and sell debt instrument. In 1987, BSP floated the socalled Dioko Bills, which were noninterest bearing central bank bills, but they were sold at a discount.FacevaluewasP1MbutyoupayatP600K,on maturityyougetP1M. Reserverequirements This was asked in the bar last year. For example, MB saysreserverequirementis20%foreverypesodeposits inthebank.Thisiscomputedeveryday.Foreverypeso deposited to the bank, the bank must deposit 20 centavos with the BSP. So it will have 80 centavos available for lending. If MB increases the reserve requirementto25%,theywillonly75centavosperpeso available for lending. Before, they only applied that to savings, time and checking account. But they realized that because there were no reserve requirements for deposit substitutes, they also applied that. And then, trustfundswerenotsubjecttoreserverequirements,so bankswereencouragingpeopletoputtheirmoneyina trust fund, so the BSP wisened up and also imposed reserverequirementsfortrustfunds. So there was this case of a bank which was ordered to be closed. Depositor had advanced tip. She bought 2 cashier checks and deposited the checks in another bank. But MB was one step ahead they had a preventive measure. They suspended clearing privileges ofthebankssothatifanydepositorwouldwanttoget hismoneybeforeclosure,hewouldnotbeabletodoso. 2checksweredishonored.NowshesuedBSPandPDIC asreceiver.BSPmerelyactedasbankregulatorwhenit suspendedclearingprivileges. This Abacos case was asked few years ago. Manila Banking was placed under receivership. Officers sold parcel of land belonging to the bank and the receiver approved.Courtsaidthatthesaleisnotvalid.Sincethe bankwasunderreceivership,theofficersnolongerhad the right to dispose of property. Receiver is only an administrator. He could not approve acts of ownership. Heshouldpreservethepropertytopaycreditors. Overseas Bank of Manila was established by Emerito. Emeritoopenedanaccounttheiralso,hegotthemoney from the other accounts and transferred it to his own account, around P85M. That was closed. It eventually reopenedastheBankofCommerce.SCsaiddepositors couldnotdemandthattheybepaidinterestduringtime the bank was closed. For a bank to be able to pay interest it must earn something, and how else could it earnexceptfromlendingmoney,andsinceitcouldnot operate during the time it was closed, its obligation to payinterestisalsosuspended.JusticeCaguioacriticized that saying that obligation to pay interest is an obligation to pay money, which is generic. It will never gooutoffashion. SECURITIESREGULATIONCODE

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History Afterthestockmarketcrashed,theclassvaledictorianof Harvard drafted the law which created the Securities and Exchange Commission and also drafted the SecuritiesActwhichinitiatedthewayfortheregulation of securities operations. Of course, the stockbrokers fought the enactment of this Code and the U.S. Congress: that was strongest lobby ever mounted to oppose a bill. The law was passed. You see in common law,theyfollowedtheprinciplecaveatemptorinsale letthebuyerbeware!TheCivillawdoesnotfollowthat, thecontractingpartiesmustfollowthecontractingood faith. That idea of caveat emptor does not apply in securities.Itisembodiedinthelaw.Theremustbegood faith. The requirement is that there should be full disclosure.Andthelawappliesnotonlytotradinginthe stock market, even if sales and purchase of shares are doneinprivatetransactions,thelawwillapply. Thelawenumerateswhataresecurities? Itincludes: 1. Sharesofstock 2. Bonds 3. Notes by commercial papers of corporations soldasmoneymarketplacementswhichareto beregistered 4. Evidenceofindebtedness 5. Investmentcontracts 6. Certificates of interest or participation in a profitsharingagreement Now the court has said that foreign exchange trading transaction is an investment contract. Therefore, it is a security. Andthecourtalsosaidthatthispyramidingschemeisan investment contract. Im not talking about the pyramid whereyouhavethatguyoffering64%returnfromyour investment capital. NO. It is a scheme sometimes, I dont know if you have experienced this, in this supermarket or department store. Somebody there will show you, they have a scheme where if you put in so muchinvestment,andthenyoubringinotherinvestors, andforeveryinvestoryoubringinyougetacommission of the amount of investment that the people you brought in will give. And when you pool together your investment and the commission you get, it reaches a certain amount, that will be considered as a down paymentforthepurchaseofalot.Thatisaninvestment contract. The court said that an investment contract has 4 elements(Howeytest): a. Investmentofmoney b. InaCommonenterprise c. Withtheexpectationofprofits d. Primarilyfromtheeffortsofothers Example: You will get your commission from the moneythesepeopleyourecruitedputin.Andthey will do something like, the insurance companies in Canada,wheresomebodywillrecruitpeopletosell insurance policies and for every insurance policy that the people they recruited were able to sell, theywillgetacommission. 7. The court said that timesharing is a security thatmustberegistered. Say like, Baguio country club, the people will not stay there the whole year round. They would go there during summer or Christmas vacation, or semestral break from classes. But, most of the time,thecottagesareempty.So,theyofferthisto people who do not own proprietary shares: Time sharing. You can stay there, for example, 2 weeks. Now, those are securities therefore should be registered. They are doing that all over the world, where these clubhouses offer this socalled time sharing. 8. Thenfractionalundividedinterestinoil,gasor othermineralrights. Somebodyisdrainingforoilandthey(corporation) wanttogetaparticipation. 9. Derivatives The simplest definition I came across is it is a financial instrument whose value depends on the fluctuation of thevalueofanotherfinancialinstrument.Thatswhyit isaderivative.Thevalueisderivedfromthefluctuation ofthevalueofanotherfinancialinstrument. And a very simple illustration of that the ______. You bought$10,000tobedelivered60daysfromtodayand youagreed.Theprice,youwillpay44pesosperdollar.If onthatday,therateofexchangeis45pesosperdollar, youmadeagainat1pesoperdollarbecauseifyousell onthatday,youmakeaprofitofP1perdollar.Butifthe ratewentdownletssayat43pesosperdollarthenyou incurred a loss. Thats why it is a derivative. There is no limit to the variations it is up to the creativity of the human mind, like what happened to the Lehman Brothers. Thecourthassaidthatspottradinginforeignexchange is not a derivative; it is rather an extension of credit. In fact the Central Bank has said that to the SEC. Here is somebody who bought dollars today, buying at 10,000 dollars to day. What is the rate of exchange today? 43 pesos per dollar. Ok, that is the selling price. And the

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seller gives him 10 days credit to pay do he can pay within10days.Heisnotspeculatingondollarsbecause the price is already fixed today. Only, he is given an extensionofcredits,hewasgiven10daystopay.Thats why going back, it is considered as spot trading of foreign exchange. It is not speculation. So, thats not a derivative. Yourrightofpreemptionifyouareastockholder,thats asecurity.Youcansellthat. 10. Certificates of participation, voting trust certificates, proprietary membership certificates (e.g. country clubs: Manila Golf club) 11. Other instruments as may be determined by theSEC Certainsecuritiesareexemptfromregistration: 1. Securities issued or guaranteed by the government, like treasury bills, central bank bills 2. Securities Issued by foreign government with diplomatic relations with the Philippines, like thetreasurybillsoftheUnitedStates 3. Certificates issued by a receiver or trustee in bankruptcyproceedingstobeapprovedbythe court, like in liquidating the properties or estateofthebankrupt 4. Securities regulated by the Insurance Commission, like valuables, life insurance companieshavevaluables a. HLURB,Lots,condominiumunits b. BIR,likepensionplans 5. Securities issued by bank except its own shares,likewhenbankssellderivatives 6. SecuritiesaddedbytheSEC As you can see, securities that are exempt are either those issued by the government or where the transactionisregulatedbyanothergovernmentagency. ThatswhytheseneednotberegisteredattheSEC. Therearetransactionsthatareexempt: 1. Judicialsale,executionsale,foreclosuresale 2. Sale by executor, administrator, guardian, receiver, trustee in case of insolvency. Well, thatisregulatedandsupervisedbythecourt 3. Sale by pledgee or mortgagee who is foreclosingthepledgeormortgage 4. Isolated transactions, like declaration of stock dividends 5. Sale of the capital to the stockholders. The board offered for sale to the stockholders a portion of the authorized but unissued shares because the stockholders are already familiar withthefinancialconditionofthecorporation. 6. Theyaregiventheauditedfinancialstatement everyyear. Issuance of bonds or notes secured by a mortgage,wherethemortgage,togetherwith the bonds or notes, are sold to a single purchaserinasinglesale.

Forexample,Meralcofloatingbonds$500Msecuredby a mortgage in trust indenture over all its properties. What will happen, a bank or an investment house will buyallofthat,why?Becausethebankortheinvestment house is the underwriter. So when the bank or investment house buys that, that is an exempt transaction. And the underwriter will then turn around and sell those promissory notes or bonds in the secondarymarket,andsotheysellittothepublic. 7. Issuance of certificate of exchange or other securitiespursuanttoarightofconversion. For example, a corporation sold bonds and there is a provisionthatthebuyerhastheoptiontoexchangethat forsharesofstock,andthenheexercisedthat. 8. Brokerstransactionsinthestockmarket 9. Subscription for shares when you are incorporating or you are increasing the authorizedcapitalstock 10. Exchangeofsecuritiesbytheissuer. Like,SanMiguelCorporationofferedlastyeartoholders ofcommonsharesthattheycouldexchangetheirshares forpreferredshares.Thatwillbeexempt 11. Sales to less than 20 persons during the 12 month period this is considered as merely isolated. 12. Sales to banks, registered investment houses, insurance companies, pension funds, retirementfunds,investmentcompanies Transactionstothemareexempted,why?Becausethese peoplearesophisticatedinvestors.Theydonotneedthe protectionofSEC. PreneedPlans wereconsideredassecuritiesbutIthink their regulation is now transferred to the Insurance Commission. Grounds for refusing the registration or renewal or revokingareenumeratedinthelaw: 1. Whentheissuercorporationhasbeendeclared Insolvent; or has violated the Securities Code, IRRoranorderconnectedwiththeoffering(of securites); has been engaged in fraud, made false statements in the prospectus, failed to comply with the conditions for registration imposedbySEC

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2. 3. Theregistrationisinaccurateorincomplete Issuer or officer or controlling stockholder or underwriterwasconvictedofacrimeinvolving moralturpitudeorfraudorhasbeenenjoined. will have control over the mother company. The court said that he should also make a tender offer to the stockholdersofsubsidiary.Therulesshouldapplyevenif the control will be indirect, control over the subsidiary will be indirect because it is through the control of the mothercompanythatprincipalwillcontrolitssubsidiary. Short swing profit if a stockholder owned more than 10% of the shares or an officer or director of a corporation with assets of at least P50M and with at leastthe200stockholdersowning10Oshareseach,ora director, officer of such corporation bought and sold, sold and bought the shares of the corporation in less than 6 months, it cannot keep the profits. It will surrender the profits to the Corporation. Unless, it is a case of shares pledged or mortgaged and then foreclosed.Well,thisisreallyintendedtopreventinsider trading, because that influential stockholder would knowinsideinformationthatthepublicwouldnotknow. Thats why the law provides that the profits should accruetothecorporation. Law penalizes manipulation of prices and fraudulent transactions. Therearemanywaysthatmanipulationcanhappen: 1. Bycreatingfalseappearanceofactivetrading. 2. By effecting a transaction which involves no changeinthebeneficialownership. One places an order to buy shares with one broker for a certain volume, certain price, and the he goes to another broker, unless ordered by the SEC, same volume, sameprice. 3. By entering an order to purchase shares knowing that at the same time somebody will place a similar order to buy the same shares, samevolume,sameprice. Thats why, remember there was this Taurus Minerals before, the shares were listed in the stock market and the stockholders were trading >buying and selling amongst themselves. They were controlling the market raising the price little by little. The investors did not know any better so that when the price was going up, they started buying the shares. The stockholders unloaded their shares andthendisappeared.Taurusdidnothave anymoney. 4. To effect of series of transactions > to raise thepricetoinducebuyers,tothepresentprice to induce sale > to create active trading in order to induce people in buying shares. (like whathappenedtoTaurusMinerals) 5. To Circulate information that the price of the security is about to rise or fall because of manipulation

You have that case of Puerto Azul. Our office has a monopolyonpublicofferingsandtherewasalawoffice who wanted to break into the market. When you offer you will be asked Do you have a track record? What is yourexperienceinpublicofferings?So,they(lawfirm) offered to do the public offering of the Puerto Azul Shares for some shares for a bargain of P150,000. Ridiculouslylow!Buttheywerethinkingoklangyan at least may experience na tayo. They are saying that whentheyincurlossesthentheycansaythatWehave experience,wehavehandledpublicofferings.Now,the SEC approved the public offering. The Philippine Stock Exchange refused to list the shares. SEC ordered to list the shares. The corrupt justice of the CA affirmed the orderoftheSEC.SCreversedtherulingandsaidthat1) the Marcoses are claiming that they are the actual ownersoftheshares,notthePanlilioswhoweremerely dummies.2)Landisanavalreservation.Itwasdeclared asdisposablewhenitwastitledtoPuertoAzul.So,with thissituation,itisnotinthepublicinteresttoofferthe sharestothepublic.IthinkPuertoAzulisnowbankrupt. Theysaidthatonlythegolfcourseisopen,Idontknow ifthehotelalreadyclosed. ProtectionforStockholders Therearecertainprovisionstoprotectstockholdersand theiroffer. (CODAL) If person or group acquires at least 15% of the sharesofalistedcorporationorifthecorporationisnot listed15%ofthecorporationwithassetsofatleastP50M andhasatleast200stockholderswhoownatleast100 shares,whereintheywillacquire20%ofthesharesin12 months,theymustmakeatenderoffer.Inotherwords, theymustoffertobuythesharesofotherstockholder. Forexample,WilliamLinesAndGotong(WGAShipping Lines) and Aboitiz merged. And then Aboitiz said we arebuyingoutWilliamlinesandGotongWellofcourse theyhadtobuyforapremium.Theyhadtooffertobuy theshares(oftheotherstockholders)atthesameprice sothateverybodywillbenefitfromthisoffertobuysell shares with a premium. They say they will buy 30% but they were swamped with offers so the offers were for 60% then you pro rate so that everybody will benefit. You buy of the shares that every stockholder is offeringtosell.So,ifsomeoneoffering20,buy10. SChassaidthisshouldapplyevenifwhatisinvolvedisa position of indirect control. Here is a subsidiary owned by holding company. Somebody will buy shares of holding company, which when added with his own shares will make him own more than 30%. In effect, he

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6. Make a false statement with respect to a materialfact. A mining company announced we just discovered rich load of gold. Well that is untrue.Oranoilcompanyannouncesthat wejuststruckoil. To effect series of transactions> to fix the pricesofthesecurities. Well there was this case of the Hahn brothersinvolvedincommoditiestrading. But our law provides it also covered commodities trading. They wanted to control trading silver. So they massively bought silver on margin. When they reached the point that they could control thetrading,theycoulddictatetheirprice. Government will not allow that (dictating of the price), so it (Hahn brothers) unloaded its holding of silver within the market and so the price (of silver) collapsed. Since they traded on margin, they had to pay the commodities traders. They paid around 10B dollars> the Hahn Brothershadtoliquidatealotofbusiness toraisemoneytopay.Ithinktheyowned before Western Union for remittance of funds they sold that, also the Shakeys Pizzatheysoldthattoo. Fraudulent transactions > Employing any device to defraud, to obtain money by means of a false statement showing to engage in fraudordeceit. Favoriteinbarexams>INSIDERTRADING Thelawdefinesaninsider: 1) theissuerofthecorporation 2) the director, officer, or the controlling stockholder 3) A person whose relationship gives him access tomaterialinformation like a lawyer who attends the board meetingtodiscusscertainlegalissuesthat they may want to refer to him. So he foundoutoh,thiscorporationisgoingto expand its business, and they will declare 25%cashdividendSoheboughtshares. 4) Government employees like the SEC, or directorsorofficersofthestockexchange They just asses the material information. Well, I dont know whenever there are talks on the sales of shares. Government officials of the SEC always have a quota. They place them ( their purchase of securities) in the names of other people >theirdummies. 5) The person who learns the information from theforegoing: Like the lawyer who was present, he did notbuythesharesbuthetoldhisbrother hoy, kliente ko magdedeclare ng cash dividend, mag eexapand, tataas yan bumili ka na. So the brother is also an insider. Theinformationismaterial>ifitwillaffectthepriceof thesecurityifitisdisclosedoritwillbeconsideredbya personasimportantindecidingtobuy,sellorholdonto shares Forexample,themanagementofacorporationreceived a notice of strike, that is to be disclosed. Or mining corporationstruckaloadofgold,youwilldisclosethat. Both the SEC and Stock Market within 24 hours should makedisclosure. WhathappenedtotheInterfortbefore,thattherewere negotiations with a company in Malaysia for a joint venture.Everytimeaftertheofficerswouldcomefroma negotiating session with the counterparts in Malaysia, theywouldmassivelybuyshares.Theywereaccusedof insidertrading.Theydeniedtheywerepurchasingduring theirnegotiations.PhilippineStockExchangecontacted the Kuala Lumpur Stock Exchange, they said that the other gave their notice, we are negotiating with Interfort. Well that is material. But what happened, thatswhynobodyevergetscaughtininsidertrading,is that the Court issued an injunction and enjoined SEC fromproceedingfromfurtherinvestigation. Now, the classic case is Michael Wilkin. Drexcell back then was aggressive with its leverage buying out. It became arrogant, they were targeting in the corporate

7.

8.

9. Whatisinsidertrading? It is illegal for insider to buy or sell securities while in possession of material information not available to public, unless, he proves that information was not obtainedfrominsiderrelationship. There was this case in the U.S. where the corporation was going public so it prepared a prospectus. It was to beprinted.Now,atthetypecentertheprinter(theone who was typing/ printing the prospectus) saw it and knewnowthatthecorporationwasgoingpublic.So,he bought shares. The court said that he was not guilty insidertradingbecausehedidnotderivetheinformation fromaninsiderrelationship. Then the other part, if the party accused of insider trading proves that he disclosed information to the other party, or if he had reason to believe that other personisinpossessionoftheinformation.Thiswasthe big loophole Senator Roco placed in the law. Diba kagaguhanyun?IdidnottellhimbecauseIthoughthe alreadyknew.

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listinginthestockexchangewhosevaluewasnotbeing properlyappreciatedbytheU.S.laws,theywouldtarget them for a buy out. Thats why, its called leverage buy out, they would offer to buy the shares at a premium. Andsothehadtoborrowmoneyfrombankstobeable tobuy.Thenaftertheyhaveboughtthesharestheywill disposeofsomeofitspropertiestogetmoneyinorder to pay the loans. They became arrogant. Now, Michael Wilkin, was working with Drexell, bought shares in 26 corporationswhichweretargetedforabuyout.Andhe said No, I analyzed the financial statements and that this a good investment. Thats why I decided to buy. Buying for 26 times is too much of a coincidence. Eventually, he pleaded guilty. Sentenced to 10 years of imprisonment,releasedonparolafter5years.Hehadto surrender all the profits he made from insider trading more than 1 BILLION dollars. Eventually, Drexcell became bankrupt. They were high and mighty and arrogant. When they got into trouble they went knocking door to door begging for financial assistance. Nooneheededtheirappeal.Theyhadtobeliquidated. LIABILITIESANDPENALTIES If there is a court suit in registration of documents, the oneswhoboughtsharescanrunafter 1) Theissuer 2) Thecompany 3) Any person who signed the registration statement 4) Directors 5) Personabouttobenamedadirector 6) Externalauditor>likeSGV 7) Personwhowaspartintheregistration 8) Thestockholderswhohavesoldtheirshares 9) Theunderwriter Thatswhywhenweundertakeapublicoffering,ifthere is anything false in the registration statement, we can be sued. Thats why, a team of lawyers will conduct an audit.Thenfortheirdefense,wehaveconductedadue diligenceaudit,wereliedingoodfaithinthedocuments which were furnished to us. There must be a checklist showing what are the lawsuits pending, titles of property,etc. Then the person who committed fraud is liable, or manipulated prices is liable. And those insiders will be liable. But remember, after the stock securities was created,PresidentRooseveltappointedJosephKennedy to be the chairman of the SEC. people said ( on the appointment)"Ittakesathieftocatchathiefbecause that is where Joseph Kennedy got his pile money from bymanipulatingtheStockmarket. Contractwillbeunilaterallyvoidasagainsttheviolator. So there is what you call insider sold shares on credit. ThebuyercansayIrefusetopay.Butiftheshareswent up, he can say that the shares went up I will buy the shares > specific performance would be the delivery shares. Now, we have this Abacus Case where the, well when you trade in the market you have to sign a Customers Agreement. Remember, stockbrokers are covered by the AMLA Law. This customer now placed orders everyday to buy shares of stock. He bought in margin and he had 21 days to pay. He continued to order from the stockbroker even after the 21 day period. He never paid so his stockbroker sued him. Defense, you sold shares to me beyond the 21 day period. Were in pari delicto.Youcannotsue.Notealsothatthelawprovides that it is void to waive in advance the violations of the RegulationsCode.Courtsaidwemustmakeadistinction on the 21 day margin trading period. So orders made within 21 days are valid. It is only those orders placed after the 21 day period that the orders became void.> Itsonlythoseorderswherethestockbrokercannotsue forpayment. TRANSPORTATIONLAW Contract of carriage is governed principally by the Civil Code, in a suppletorily manner the Provision of the CodesofCommerce,COGSAandSalvageLaw. There is a distinction and common carrier and a private carrier. 1. Common carrier holds himself out as available toanyonewhowantstohireservices.Whilein thecaseofaprivatecarrier,itisonlyboundto perform the contract of carriage if it has a specificcontractwiththeotherparty.(Private carrier has specific contract with the other party.) 2. Private carrier is not bound to carry goods or passengers unless there is a contract. In the case of a Common carrier, it cannot refuse. That is why a taxi can be fined if it refuses to transportpassengers. Common carriers are regulated by an administrativeagencywhilePrivatecarriersare not.

3.

Art.17321definesacommoncarrier.

Art. 1732. Common carriers are persons, corporations, firmsorassociationsengagedinthebusinessofcarrying or transporting passengers or goods or both, by land, water,orair,forcompensation,offeringtheirservicesto thepublic.

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Now you have that De Guzman Case. This fellow was a businessmaninBaguiocity,nowandthen,hewouldgo downtomanilatotransportsomeofhisgoods.Hehada huge truck with a lot of empty spaces. He would offer his services to companies in Baguio. He offered to transportgoodstheymaywanttobringtoManila.Now he failed to deliver some goods and he claimed that he failed to do so because his truck was hijacked. The question now is on what basis will you determine his liability, as a common carrier or private carrier? The court said as a common carrier. First, to be a common carrier it is not required that it should be your primary vocation.Evenifthatismerelyasidelineandyourmain occupation is something else, you are still a common carrier.Themerefactthatyoucatertoalimitedclientele and you have no regularly scheduled trips does not detractfromthefactthatyouareacommoncarrierand must exercise extraordinary diligence. The mere fact that he was operating illegally because he had no certificate of public convenience, again, would not detract from his liability as a common carrier otherwise theresultwouldbeabsurd.Somebodyoperatinglegally would have to exercise extraordinary diligence while someone who is operating illegally will be required to exercise a lower degree of diligence, good father of a familyonly. Now, so common carriers are required to observe extraordinary diligence both in the transportation of goods and passengers. Since this involves a contract, defenses available in quasidelict are not applicable when the suit is based on breach of contract, like the Last Clear Chance rule. That is a defense in quasidelict, for example two buses collided and the issue is who between the two buses will be liable to the other bus. But if youre talking about the liability of the buses to theirownpassengers,thatwillnotbeavailable.Thebus company will say well the other bus had the last clear chancetopreventthecollisionalthoughIwasnegligent, NO that will not be allowed. The defense of due diligenceintheselectionandsupervisionofemployees that is a defense in quasidelict, not in a breach of contract.Likewise,thecourthassaidthatadefectinthe busorvesselorsparepartsdoNOTconstitutefortuitous event.Likeinthedefensethatwelltherewasacollision becausethebrakesfailed,thatisnotafortuitousevent. Or in a case where there was a crack in the steering knuckle, the court said extraordinary diligence demandedthatbeforeinstallingityoushouldmakesure thatitisingoodconditionevenifyouhavetoxraythe steering knuckle. There was somebody who bought a brand new tire, it burst and exploded. The court said that the common carrier should not have just assumed that simply because the tire was brand new it had no factory defect. It should have inspected the tire before installingit.Now,sincecommoncarriersarerequiredto exerciseextraordinarydiligence,itispresumedthatitis atfaultifgoodsarelostorpassengersareinjured. UnderArticle1734oftheCivilCode,commoncarriersare notresponsiblefortheloss,destructionordeterioration ofgoodsduetothefollowing: 1) Flood, storm, earthquake, lightning or other natural calamities, like a tsunami. These natural calamitiesarefortuitousevents. a) Buttheymustbetheonlycause i) if there is concurring negligence on the part of the carrier this will not be a defense. For example there was a case, a shipment of steel coils were loaded onboardavessel.Thevesselencountered a typhoon. Rain fall seeped inside the hatch so the steel coils all became rusty. The court said that the carrier is liable because while the typhoon is a naturally calamity, the steel coils would not have been rusty if the hatch was properly sealed. Likewise, when a vessel sank becausetherewasaholeinthehullofthe vessel. The vessel encountered a strong typhoon and there was a hole in the hull ofthevessel,itwasnotseaworthy.

b)

Cannotbeinvokediftherewasdelay. i) Likewise, if there is delay. Article 1274 of the Civil Code (provision said by sir but I think the provision he was referring to was Article 1740), if there is delay, the obligor cannot invoke that as a defense. There is this case where Maersk lines erroneously sent a shipment of pharmaceuticals to another destination. When they realized their mistake, they retrievedthepharmaceuticalproductsbut by the time they delivered the goods to the consignee 3 months have passed beyond what should have been the expected date of delivery. The consignee refused to accept the pharmaceutical products.Maersklinesarguedthatthebill of lading stipulated that the carrier does notundertaketodeliverthegoodswithin any specific time. But the court said that has to be given a reasonable interpretation. It does not mean that you can deliver the goods at any time at all. Still you must deliver them within a

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reasonable time frame and a delay of 3 monthsisnotreasonable. c) Before,duringandaftertheoccurrenceofthe fortuitous event, the carrier must have exercisedextraordinarydiligencetopreventor minimizethedamage. extraordinary diligence before, during and after to prevent or minimize the loss. They should have repacked the rice when they saw thatthebagshadholesontheside. b) On the other hand there was this case were equipmentwasimportedanditwasplacedina wooden crate. The flooring of the wooden crateconsistedofplanksofwood.Theplankin themiddlewasdefectivesoitgavewayandso theequipmentfellintothesea.Herethecourt saidthattheshippingcompanycannotbeheld liable because the defect was in the packing andtheplankinthemiddleofthefloorofthe crate was defective. The shipping company could not see that because it was controlling thecrate.

2)

ActofaPublicenemyinwar a) Whether national or civil. For example, under the laws of war, commercial vessels of the enemy and their cargoes can be seized as prizesofwar.

3)

Actoromissionofownerorshipperofthegoods. a) There was a case where someone shipped a pay loader. He declared that it weighed two and a half (2.5) tons but actually it weighed sevenandahalf(7.5)tons.Hewantedtocheat onthefreight.Whenthepayloaderwasbeing unloadeditwasobviousitweighedmuchmore so it fell into the sea. The carrier argued that theywerenotliableanditwasthefaultofthe owner, he under declared the weight. The court said, extraordinary diligence demands that the carrier should not have accepted the declaration blindly. The carrier should have made its own independent investigation. In fact it was obvious when the pay loader was being unloaded that it weighed much more because bumibigay na yung crane. So the fault of the owner would only mitigate the liability ofthecarrierbutwillnotexemptitcompletely fromliability.

5)

Orderoractofcompetentpublicauthority a) There was case where somebody bought the scrapsofironinMariveles,Ithinkthatisaduty freeport.Sohecharteredavessel.Thecaptain loaded the scrap iron onboard the vessel. The mayor arrived fuming with rage accompanied by his armed men and he ordered the captain to dump the scrap iron into Manila Bay. The captain obeyed. The buyer of the scrap iron suedthevessel.Vesselraisedthedefensethat itactedinobediencetotheorderofthemayor. The court said the order is not valid and thereforeyoucannotinvokethatasadefense. Jack: ButIthinkitsnotacaseoftheorderbeing valid, when the mayor arrived there with his armedgoonsandtellyoutodumpthescrapiron intotheManilaBay,thebetterparttofollowis discretion.

4)

Characterofthegoodsordefectinthepackingor container a) Well like fruits naturally ripen because you cannot prevent that. Now you have that SouthernLinescasewheresomebodybrought to Southern Lines bags of rice to be transported but the rice was not properly packed. The bags were loose and there were holes. The shipping company accepted them. There was spillage along the way. The court said the carrier was liable for the spillage because they knew that the rice was not properlypackedandyetitacceptedthericein that condition. Remember, exercise

In that De Guzman case, the court said well the goods were hijacked by armed robbers that is a fortuitous event therefore the carrier must not be held liable for that.Thecourtfurthersaidthatyoucaninferthatfrom Article1745whichprovidethatastipulationthatacarrier willnotbeliableforactsofrobberswhodonotactwith irresistible force is void. So from there you can infer, if the robbers acted with irresistible force the carrier will no longer be liable. The court said that is beyond what you can expect and demand of a common carrier. Quoting Cicero, who is attributed with that statement: interarmaslegissilent.Inthepresenceofweapons,the lawsaresilent. Butinanothercase,againtheownerofatrucksaidIm not liable, the truck was hijacked. But he said a brief

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one sentence statement. The court said it was not enough. He merely said the truck was hijacked without elaborating.Youmustshowthattherobbersactedwith irresistible force. He just said a general and broad statement,thetruckwashijacked. The court has said that fire is NOT a fortuitous event unlessitiscausedbylightingbecauseunlessitiscaused by lightning, fire is always traceable to human negligence. Therewasacasewheresomegoods,firebrokeoutina vessel.Ithadbeenburningforseveraldaysbutthecrew did not discover it earlier. As a result, some of the cargoes were damaged. The vessel was claiming it was not liable because it was a fortuitous event. The court saidno,thatistraceabletohumannegligenceanditwas notcausedbylightning. Extraordinary responsibility of the carrier begins from thetimethegoodsareplacedinitspossessionandends whenthegoodsaredeliveredactuallyorconstructively. So you have the case of Compania, a company was asking it to transport its shipment of hemp. But the watersnearthewharfwereshallow,sothevesselcould not back near the wharf. It sent lighters instead to pickup the hemp and then to bring them to be loaded onboard the vessel. The lighters capsized and sank and the hemp was lost. The question is: Is Compania liable forthelossofthehempasacommoncarrier?Thecourt saidYES.Althoughloadingthehemponthelighterswas preparatory to transferring the hemp to the vessel that ispartofthecontractofcarriage. Untiltheyaredeliveredactuallyorconstructively.There is this case where Caltex chartered an oil tanker to deliveroiltoitsstoragetankinIloilo.Theoilwasbeing pumpedthroughahosetothestoragetank.Thevessel started pumping the oil but then the hose got severed but the tanker was quite a distance from the shore so theydidnotnoticethat.Theyjustkeptpumpingtheoil. Meanwhile the oil which has already been pumped to the storage tank flowed back to the sea because the hosewassevered.Caltexsuedtheownerofthevessel. Theownerofthevesselarguedthatitwasnotliablefor theoilalreadypumpedintothestoragetank.Thecourt said look that should not be deemed received because while it is true you pumped into the storage tank it flowed back to the sea because the hose was severed. But the liability will end when the goods are actually or constructively delivered. If the consignee fails to claim the goods within a reasonable time, the liability of the carrier as a common carrier will end but it will now be liableasadepositary.Itwillnowberequiredtoobserve only due diligence of a good father of a family. The carrier is also liable even if for example the engine developed trouble they had to detour to a port for repairsandthenthecargoeswereunloadedandplaced inawarehouse,thecarrierremainsliable. BALOIS|FAYLONA|FERNANDEZ|GREGORIO|REYES|4B Iforgottomention,thecourthassaidthatevenifyoure limited to a clientele, youre still a common carrier. The courtsaidthataschoolbusserviceisacommoncarrier evenifitonlyservicescertainstudentsfromaschoolor a customs broker who after obtaining the release of goodsfromtheportareadeliversthemtothepremises ofitscustomer.Thedeliveryofthegoodsfromportarea to premises of customer is part of its services, it is a common carrier. The court also said that the transportation of oil through a pipeline is a contract carriage, although it is not being transported by means of a vehicle but through a pipe, it is still a contract of carriage. Now, the other year a student asked whether a funeral hearseisacommoncarrier?Isaidjustlookatthelicense plates. If the license plates are yellow, then it is a common carrier. If it is white and green, it is a private carrier. I think they (funeral hearse) are not considered ascommoncarrier. I remember, this was my subject in the 2nd year at that time, transportation. I had a classmate who said you know in their place the waters near the shore were shallow. So the boats could not go near. What would happen is that the boats would dock quite a distance from the shore and there were men who would wade toward the boat and pick up the passengers and place them on their shoulders and transport them to the shore. Thepassengers wouldlandwithouttheir clothes and shoes getting wet. Are they contract/common carriers? I dont know, I dont think that is what is contemplatedbythelaw. Now a stipulation limiting the liability must be reasonabletobevalid.Astipulationthatthecarrierwill notbeliableatallisvoid.Astipulationthatcarrierwould be limited only up to a certain amount is unreasonable andvoid.Whatisstipulationthatitwillbeliableonlyup to.. unless the owner declares a higher value and pays the corresponding freight so that is reasonable and valid. That is why the law enumerates what provisions areunreasonable: (1) Thatthegoodsaretransportedatthe riskoftheowner (2) Carrier will not be liable for any loss ordeterioration (3) Carrier need not observe any diligence (4) That the carrier shall exercise diligence less than that of a good fatherofthefamily. (a) NB: So that is the minimum benchmark allowed by the law,

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that the carrier must exercise at least diligence of a good father ofafamily (5) Thecarrierwillnotberesponsiblefor theactsofitsemployees (a) A stipulation limiting the liability of the carrier in delay due to strikesorriotsisVALID. Article 1753 lays down a conflict of law rule, the law of the country to which the goods are to be transported shallgoverntheliabilityofthecarrier.YouhaveLorenzo Shippingcase,ittransportedsteelpipesfromManilato Davao.Fromtherethesteelpipeswillbetransferredto a vessel going to America. The steel pipes became wet and rusty by the time they arrived in Davao. The steel pipesweretransferredtoavessel,AmericanPresidential Lines, which brought them to San Francisco. The recipient refused to take delivery when it saw that the steel pipes were rusty. Instead he filed a claim against the insurer. The insurance company paid and sued LorenzoShippingonthetheoryofsubrogation.Lorenzo Shipping argued that the steel pipes were delivered in San Francisco therefore its liability should be governed by the law of California and not by the Civil Code. The courtsaidNO,youdeliveredthesteelpipesfromManila toDavaosoyourresponsibilityasacarrierendedwhen you delivered the steel pipes to Davao and they were transferredtoavessel,AmericanPresidentialLines.The CivilCodewillapply. In the case of the baggage of passengers, if they are checkedin,thenthecarriermustobserveextraordinary diligence but if they are hand carried, then that will be considered a necessary deposit and the carrier will only berequiredtoobserveduediligenceofagoodfatherof afamily. COMMONCARRIER Commoncarriershouldexercise extraordinarydiligence inthesafetyofthepassengers.Andincaseofdeathor injury,itispresumedthatthecarrierisatfault. YouhavethatDangwacasewherethepassengerhailed abusofDangwainBenguet,thebusstoppedandheput his foot on the boarding platform. He has not yet steadiedhispositionwhenthedriversteppedonthegas and accelerated and so he fell down. The court said he couldsueforbreachofcontractbecausethemomenthe puthisfootontheboardingplatform,therewasalready aperfectedcontractofcarriage. YoualsohavethatcaseofLRT.Thatwasaskedinthebar exam before. Somebody went to the LRT station, bought a token, placed it in the turnstile and entered BALOIS|FAYLONA|FERNANDEZ|GREGORIO|REYES|4B andhewaswaitingforthetraintoarrive.Therewasan altercation and the security guard punched him and he fell down in the railroad tracks when the train was arrivingandhewasdecapitated.ThecourtsaidLRTwas liableforbreachofcontractbecausehewasthereinthe place wherehehadarighttobeandwhereheshouldbe waitingfortheridebecausehehadtobetheretobeable to board the train. Therefore, it was the duty of LRT to ensurehissafetywhilehewasthere.Whileitistruethat theonewhoassaultedhimwasnotanemployeeofLRT, butanemployeeofasecurityguardagencywhichhada contractwithit,stillLRTwasliablebecauseevenifthat personwasnotitsemployee,itwasobligedtoseetoit that the passenger will be safe there in that place, waitingfortheride. WhenisaContractofCarriageterminated? The court also said that the Contract of Carriage is not terminated even if a bus reaches its terminal until a passenger has had reasonable opportunity to leave the place. The court said in the _____ case decided in 1966. A provincial bus arrived in Quezon City. While the father waswaitingtoretrievetheirpiecesofluggagefromthe bus and the daughter was running around in the place andshewasrunoverbyanotherbusandwaskilled.The court said there was breach of the contract of carriage because you cannot expect the father to leave without having retrieved their pieces of luggage. And the contractofcarriageonlyterminatedaftertheyhavehad reasonableopportunitytoleave.Soasuitforbreachof contractcouldbefiled.

That was reiterated in the case involving Aboitiz Shipping. A family boarded a vessel of Aboitiz Shipping and their destination was the North Harbor. Well the vessel docked, the passengers disembarked first and they were waiting for their pieces of baggage to be unloaded. Aboitiz put several empty drums around the placewherethecranewouldbeunloadingthepiecesof baggage. But the father rushed anyway and he was struckontheheadbythecraneanddied.Thecourtsaid there was still a contract of carriage because again, naturally, he would pick up their pieces of baggage before leaving. And since the contract only ends after there has been reasonable opportunity to leave the destination,thefamilycouldsueforbreachofcontract. The fact that Aboitiz put there _____ drums is not sufficient. That is short of what is required by extraordinary diligence. The father may have been negligent in rushing to pick up their baggage, but a contributory negligence will only mitigate the liability of the shipping company but not exculpate it completely fromliability. LiabilityofCommonCarriers

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Common carriers are liable for the death or injuries to passengersthroughthe negligenceorwillfulactsofthe employees ofthecarriereveniftheymayhaveactedin violationoftheordersofthecommoncarriersorbeyond their authority. Here, due diligence in the selection and supervisionofemployeesisnotadefense. Thats why you have that _____ case where you have a taxidriverwhoassaultedandkilledapassenger,well,he couldsuethecommoncarrier. <Kwento about that taxi driver who was led to a dead end by his passengers. The driver said, kunin niyo na taxi ko, kunin niyo yung kinita ko, iwanan niyo lang ako ng pamasahe pauwi. Wag niyo lang ako sasaktan. The passengersaid,Boss,hindinamankamiholduppereh. Eh mestizo ka eh, yung boss namin bading nakursonadahanka> But you have that ______ case. There was a passenger who went to Tutuban station to take a train to Ilocos. Andtherewasasecurityguard.Hewasalreadypasthis tourofduty.Andhesawthispassenger.Thentheyhad an altercation before, there was a history of a personal grudgeandbecauseofthat,thepassengershothim.The court said the railroad is not liable because the guard was off duty and the killing had nothing to do with his being a passenger. That was the offshoot of a longstandingpersonalgrudge. Thecommoncarriercannotlimitoreliminateitsliability (inreferencetotheaboveprovision). The passenger must observe due diligence of a good father of a family to avoid injury to himself. Like you have that Necesito v. Paras case. He placed his elbow outside the window of the bus. The bus was speeding andtherewasanoncomingbusandhewassideswiped andhiselbowwassevered.Thecourtsaidhewasguilty of negligence in putting his elbow outside the window. But under the law, that will only mitigate the liability of the bus company but it will not exculpate him from liability. Acommoncarrierisresponsibleforinjuriessufferedbya passenger on account of willful acts or negligence of other passengers or of strangers if the bus could have prevented that by due diligence of a good father of a family. First, you have that case, this was asked when Justice Herrerawastheexaminer.NewYearwasapproaching,a passenger boarded a provincial bus. She was carrying a cardboardbox.Turnedout,therewerefireworksinside. Thefireworksexploded.Somepassengerswereinjured. Thecourtsaidthebuscompanycouldnotbeheldliable becauseithadnorighttoinspectthecardboardboxthe passenger was carrying because that would violate the righttoprivacyofthepassenger. Butthenthenextquestionintheexaminationwas,what wouldbetheruleinthecaseof airlinecompanies?Well, inthecaseofairlinecompanies,thelawgivesthemthe right to inspect baggage of passengers, and if a passenger refuses, then he could not be allowed to boardaplane. Ontheotherhand,youhavethatcaseofthisMaranaws. There was a child who was run over by a bus. And the police warned the bus company that there are reports that there will be a reprisal, take the necessary precautions.Butthebuscompanyignoredthewarning. At some point, some Maranaws boarded the bus and then after that ______ they ordered the bus driver to stop and they told the passengers to get off, and then pouredgasolineonthebusandsetitonfire.Theyshot thedriverwhowashitonthearm.Apassengerbecame sympathetic and he returned and interceded for the driver. He said, you know this fellow has not done anythingwrong,hesjustanhonestmantryingtoearna living.AndtheMaranawswereannoyedandtheyshot himandhewaskilled.Thecourtsaidhere,herethebus company should be held liable because I think the distinction between this and the first one about that womanwiththeboxoffireworksisthatheretherewas a warning and the bus company was already told, you bettertakeprecautionarymeasures.Butitignoredthe warning. The court said they should have frisked the passengers.Theyshouldevenhavegonetotheextent of installing a metal detector through which the passengerwillhavetopassbeforeboardingthebus. Thentherewasthis_______.Thebuswascruisingwhen a passenger ran amuck and assaulted the other passenger with a knife. The other passengers panicked, theytriedtoscrambleoutofthebusandthebusdidnot have doors. So the passenger just fell down and they were injured. The court said the carrier was liable. A passengerwasassaultingtheotheronewithaknifeand thedriverjustignoredthem.Hedidnotstopthebus,he justkeptondriving. But the court has said in the _____ case, this was also asked when Justice Herrera was examiner. A bus was cruising along the national highway, a bystander threw thisstonetowardsthebusandapassengerwasinjured. The court said that while a bus company must exercise extraordinary diligence, it is not an absolute insurer of the safety of the passengers. The bus has no control over bystanders along the highway. It could not have prevented the bystander from throwing a stone at the busthatwaspassingby.Itshouldnotbeheldliablefor that. DAMAGES

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First, you can sue for culpa contractual, or culpa aquiliana, quasidelict. If you are suing for breach of contract, its easier to prove your case. Theres a presumptionthatthecommoncarrierisatfault,andthe common carrier cannot raise the defense of due diligenceintheselectionandsupervisionofemployees. Butifyouaresuingonquasidelict,thatdefensewillbe available.Butyoucanrecovermoredamagesifyouare suingforquasidelictthaninbreachofcontract. Lets take first the case where somebody is suing for breachofcontract. Letssaythepassengerwasinjured,itcanrecover: 1. Medicalexpenses 2. Ifhewasincapacitatetowork,hecanrecover thelostincome 3. If the bus company unreasonably refused to pay his claim and he had to litigate, it may be orderedtopayattorneysfees ExemplaryDamages Withrespectto exemplarydamages, thecourtsaidthat exemplary damages are punitive. They are imposed to punish the person guilty of misconduct so you cannot imposeitonsomebodyelse. Remember,Roteav.Halili,______,youcannotholdthe employer liable for exemplary damages for the fault of the driver or conductor, unless you can show that the employer had some responsibility for that. Like, if you can prove that the employer had been hiring drivers withoutinvestigatingtoseeifheisqualified,theydont give him a driving test, they dont ask him to get clearance,theyknowthatthisfellowisrecklessandthey dont do anything. They do not take corrective measures. MoralDamages Moral damages can only be recovered when you are suing for breach of contract if there was bad faith or fraud,ortherewasdeath. But the court said that where the negligence is gross as tobe tantamounttobadfaith,moraldamagesshouldbe awarded. Therewasacase,itwasrainingheavily,thehighwaywas slippery, the driver was speeding. The passengers were already warning him, pleading with him to slow down. He just ignored the pleas of the passengers and there was an accident. The court said this was gross negligencetantamounttobadfaith. Death If the passenger was hospitalized before he died, the medicalexpensescanberecovered. Funeral expenses. What the Supreme Court has been doing is that if no proof of funeral expenses was presented,itistoawardP25,000astemperatedamages. Andevenincaseswhereproofoffuneralexpenseswas submitted, but the total is less that P25,000, it will still award P25,000 as temperate damages. But you will recall<Healwayspresumeswerecallsomething >,the Code Commission explained, temperate damages are awardedwhenbytheverynatureoftheactcomplained of, it is hard to determine pecuniarily the amount of damages. And the example given was damage to the goodwillofacorporation.OurSupremeCourthassaidin that Barza case, that Cotobato Timberland Case, where actual damages could have been proven but they were not proven, temperate damages cannot be awarded. Theresadifferencebetweenfailuretoprovetheactual damages and a situation where you cannot quantify pecuniarilythedamagesthatshouldbeawarded,thats when you fall back on temperate damages. But thats whatthecourthasbeendoing. Sincethereisdeath, moraldamagesshouldbeawarded. But again, the decisions are conflicting. Some decisions saymoraldamagescannotbeawardedbecausenobody couldtestifytoprovemoraldamages.Inothercases,the court would award moral damages as a matter of course, and I think that is the better rule because, remember, one of the presumptions in evidence that things have happened in accordance with the ordinary courseofnature.Intheordinarycourseofevents,when somebody dies, the immediate members of the family would suffer mental anguish. And so moral damages shouldnotberequiredtobeproven. Lostincomecanberecovered.YouhavethatDavilacase. The plane of PAL crashed along Mt. _____ in Mindoro. Andthecourtlaiddownaformula.LifeExpectancy(80) minustheactualageofthevictim.Ifheis60yearsold, 80 minus 60 is 20. Then you multiply that by his annual income, present his income tax return. Lets say P1M. That would be P20M. Then you get 2/3 of that. 1/3 is supposed to cover his personal expenses. And that is howtheindemnityforlostincomewouldbecomputed <LostIncome=(80actualage)xannualincome> You have that Padilla case, I handled that on appeal when I was with the Sigueon Reyna Law Office. The passengertherewasinthatsameflight(asinDavila)but whenthatwasassignedtomeonappeal,theDavilacase had already been decided. I said you cannot relitigate the question of whether or not PAL was at fault. PAL claimedthattherewasanatmosphericdisturbance,the communicationwiththecontroltowerwasnotpossible,

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but the court rejected that defense. So I said that the only thing I could do was to minimize the liability for damages. So I argued that the plane took off in Iloilo. Padilla was a chance passenger. He was rushing to return to Manila for his wedding. And it so happened thattherewasapassengerwhodidnotshowup.Sohe was accommodated. It was his widowed mother who suedfordamages.IsaidevenifPadillahadnotdiedthat motherwouldnothavereceivedhisentireincomeuntil theageof80.Themotherwouldhavediedaheadofthe son. And therefore, she should be allowed to recover only the income until her own life expectancy. In fact, she died while the case was pending. And I cited AmericanandEnglishdecisions.ButIleftSigueonReyna, I dont know what happened. Later on, I read in the SCRAthatapparentlytheCourtofAppealsaffirmedthe decision and it was appealed to the Supreme Court by another lawyer and he raised the same argument. But the Supreme Court said that those foreign decisions cannot be applied because our own civil code provides its the life expectancy of the deceased that should be usedincomputingindemnityforlostincome. Wesaid,thatifyouaresuingonbreachofcontract,you canonlyrecovermoraldamagesiftherewasbadfaithor fraud or death. But if you are suing on quasidelict, you canrecovermoredamages.Butthentheresatradeoff. Due diligence in the selection and supervision of employees will now be available as a defense. For example, under Art.2219, moral damages can be recovered if you are suing on quasidelict in the case of physical injuries. But if you are suing on breach of contract,youcannotrecovermoraldamagesforinjuries. AIRLINECASES These airline cases A set of jurisprudence. You have thiscasewhereapassengerwasdowngraded.Intheold days there were only 2 types of accommodations: first class and economy. Wala pa yung business class. And therehavebeencaseswhereapassengerhadconfirmed a first class reservation and he was downgraded to economy.Inthoseolddays,thingsweredifferent.Ifyou wereinthefirstclass,youhavetowearacoatandtie.In fact, they would have spare neckties there available if theresapassengerinthefirstclasssectionwhodoesnt have a necktie and they would lend him a necktie. But nowIseepeopleinshortpantsandtshirtsittinginthe firstclass. Thefirsttimethathappened,1965,Cuencav.Northwest Airlines. They were going to Tokyo and he was downgraded, first class to economy. He was awarded P25,000damages. Next, the case of Air France v. Carrascoso. Carrascoso wasflyingtoFrance.HetookAirFrance,itmadeastop overinBangkok,hehadafirstclassreservationandthen hewasorderedtogiveuphisseatandtotransfertothe economy section. He protested and he said, over my dead body! But when the women saw that there was this hullabaloo, they became scared and some of them startedcryingsoCarrascosotransferredtoeconomybut hesaid,Illsueyou!Andhesued.JusticeSanchezsaid that a common carrier is not only obliged to transport passengers safely, but also courteously. They said that thesameactthatconstitutesbreachofcontractcanalso be a tort so the court awarded moral and exemplary damages. And the court has always considered downgrading a passengerasabadgeofbadfaithandfraudandwould awardmoraldamages.Theyvesaidthatinanumberof cases. After that, you have the case of the Lopez family who had first class reservations in PanAm. They were all downgraded to the economy section. Fernando Lopez was there and he said no. Of course PanAm tried to denigrate the distinction between first class and economy.Thecourtsaidtheresnoneedtobelaborthe point. That distinction is obvious. Now you have the business class, I dont see any difference between business class and first class. Only that first class is nearer the pilots cockpit than the business class. But theres a difference in that the seats in business class andfirstclassarewider.Notlikeintheeconomy,theyre reallycramped.<kwentoaboutfirstclass> ThencamealongthecaseofZuluetav.PanAm.Zulueta usedtoliveinSanLorenza.Heandhiswife(____Albert, daughter of Gus Mariano Albert) and their daughter went to the United States. In those days, you did not have nonstop flights. If they are flying from the Unites StatestoManila,fromthemainland,theplanewillmake astopoveratHonoluluandGuamand_____Islandthen Manila. When the plane stopped at _____ Island, of course they asked the passengers to disembark, they cleaned the plane, and when the plane was now returning,Zuluetawasnowheretobefound.Theplane could not leave if your checked in baggage is inside. Theremightbeabombthere.Thatswhytheplanewill notleave.Iftheycannotfindyou,theywillunloadyour bag.Ithinkitsnoweasier.Iunderstandbagsnowhave abarcodesothatitseasierforthemnowtoidentify.So theplanewasabouttodepartandZuluetawasnowhere tobefound.Theysentthepolicetolookforhim.Hewas there in the beach, strolling. Are you Mr. Zulueta? The plane is about to leave, sir. He said, No, Im not Mr. Zulueta.Theneventually,hereturnedandthepilotsaid that he wanted to inspect his baggage. He said no. If youwillnotallow,Iwillleaveyoubehind.ThenIllsue you. And thats what happened. The suit was filed by Zulueta, his wife and daughter. According to Zulueta, what happened was that he had to answer the call of nature and then all the toilets in the terminal were

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occupied so he went to the beach. And that when he was located, he denied he was Zulueta because he said many years ago, when he was in Chicago, he was muggedbysomenegros.Thatwastheexplanation.And then he said that the pilot shouted at them, get these three monkeys out of here! And the court awarded moral damages, exemplary damages, etc. It was appealedtotheSupremeCourtandtheSupremeCourt affirmedthedecision. Andthenthecasewastransferredtothatlawofficeof Atty. Vicente Del Rosario. I, once upon a time, worked thereandtheyaskedifIcouldhelpindraftingamotion for reconsideration. I pointed out that Mrs. Zulueta compromised with PanAm and therefore, the court should no longer give any award of damages to Mrs. Zulueta. I said it was paraphernal property and cited jurisprudenceinLuisianawhichfollowstheCivilCode(it was a French colony) It is considered paraphernal property. But then the court, without alluding to the jurisprudence there, it said, no because this is conjugal property therefore, Mrs. Zulueta cannot bind the conjugal partnership in a compromise. I said_____ v. Manila Railroad. The court said there that the damages awarded to Mrs. ____ was paraphernal. The court said, nothatwasreferringtophysicalinjuries.Thisismental. Sothecourtdidnotreduceanyofthedamages. Thepilotwassayingthathereceivedreportsthatthere wasabombthatswhyhewasconcernedforthesafety of the passengers, he insisted on searching the bag of Mr.Zuluetabecausewhenhewaslocated,hedeniedhe wasZulueta.Andheseemedtobereluctanttoboardhis plane and during the flight, he and his wife were quarrelling. In fact, the moment they landed in Manila, theypartedways.Butthenthecourtdidnotbelievethe pilot and so the court denied the motion for reconsiderationandmaintainedtheawardfordamages. But then you have the case of Vasquez. He was that student who died a few years ago in that triathlon something<Ithinkitwasthatironmansomething>.He died while he was swimming. He and his wife went to Hong Kong, business class tickets. Another couple was with them. On the return trip, they said Mr. Vasquez, the business class is overbooked. You belong to the MarcoPoloClub.Youpay,Idontknowhowmuch,to be a member of the Marco Polo Club, you stay in a lounge for business class and first class passengers instead of the predeparture for economy passengers. Of course, in the lounge you have sandwiches, cookies, coffee, etc and you can board at leisure. The business loungeintheHongKongAirport,theresevenashower. <Jacks travel advice: always handcarry a pair of extra underwearjustincasetheycancelyourflight>Vasquez saidthatwearetravelingwithsomecompanions,itwill not look nice for us to move and abandon them here. But no, Mr. Vasquez, you are a member of Marco Polo that means you have priority in upgrading. He was transferredtofirstclassthenhesued.Thiswasaskedin the bar exam before. The Supreme Court said normally passengers sue because they were downgraded. In this case, a passenger sued because he was upgraded. The courtsaid,letuslookatthecontract.Thecontractwas to be transported business class, over his objections he wastransportedtofirstclass.Thatsbreachofcontract. The airline company could have just asked some other coupletotransfertothefirstclass. YouhavethatcasewhenIthinkPopePaulVIcamehere andsomanypeoplewereflockingtoManila.Therewas a governor in Catanduanes who boarded the flight of PAL.HesaidhewantedtogotoManila,butPALsaid,we are going to make a stopover in Naga City and all the seatsarefullybooked.WecanonlyflyyoutoNagaCity, wecannotbringyoutoManila.Heagreedbutwhenthey landed in Naga City, he refused to give up his seat and PALhadtobumpoffthatpassengerwiththatconfirmed seat. The passenger sued. The court said the fact that thegovernorrefusedtogiveupthatseatwhenthatwas confirmed is not an excuse. PAL was held liable for damages. In the United States, they have allowed airlines to overbook by 10% because experience shows in many casessomepassengersdonotshowup.Andwhenyou haveanemptyplaneseat,thatisincomelostforever.So they allow airlines to overbook up to 10%. Suppose everybody shows up, then the airline should ask for volunteerswhoarewillingtobeleftbehind.Theyllpay forthehotelandmeals,andtheyllgiveyousomething, like $300. If nobody is willing to give up his seat, then those who checked in last will be the ones who will be uprooted.ButourSupremeCourthasnotacceptedthat asanexcusefornotaccommodatingapassengerwitha confirmedreservation. Whenaretheairlinecompaniesliable? YouhavethatcaseofFernandez(Filipinosoprano)was supposedtosingtotheKingofMalaysiainKL.Shewas inFrankfurt,boughtatickettoflyviaSingaporeAirlines, from Frankfurt to Manila (she had to pick up her costume) Manila to KL. But because of increment weather,theplanewouldnotdepartandthescheduled departure would not allow her to get to Manila before she could proceed to KL. So, she just directly flew to Kuala Lumpur and instructed her mother to bring her costume. She was not able to practice her repertoire, and she was not satisfied with her performance. ( then he makes kwento about another singer but it is not importanttothelesson)Now,theSCsaidthesituation wasnotbeyondremedy.SingaporeAirlinescouldhave chosen alternative measure, there might have been another itinerary or a different time which could have enabled Fernandez to go to Manila before going to

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Kuala Lumpur. Like a flight to Hong Kong then go to Manila or from Frankfurt to Hong Kong, fly to Manila thenproceedtoKL.Ortheycouldhaveassignedanother airline company with a different schedule. So that FernandezwillhavetimetogotoManilabeforegoingto KL.SingaporeAirlineswasheldliablefordamages. The Savellano case: Savellano Family boarded flight of NorthwestinSeattletoreturntoManila.Enginecaught fire, so the captain said that they had to return to the airport. The flight was aborted, and the passengers were farmed out in different or subsequent flights of Northwest Airlines. Some passengers were accommodated in the later flight but with the same itinerary. The Savellanos family was accommodated in another flight with more round about and a longer itinerary. The family sued for damages, defense was that,well,they(family)wereaccommodatedonanother or subsequent flights but with a different itinerary. SC saidbutsomepassengerswereaccommodatedanother flightbutwiththesameitinerary,whatyou(Northwest Airline)did,wasyougaveSavellanoaflightwithalonger itineraryandmoreroundaboutwithouthisconsent.The courtsaid,theyareliablefordamages. The court said that an airline company is liable if the luggageofpassengerislostoritwassenttothewrong destination, or it was delayed. By the law on averages, about5piecesloluggagearelost,butmostofthetime theyarerecoveredwithin2weeksatthemost. For example, when you check in your luggage, the employeeatthecountermighthaveplacedwrongtagin luggage. So it was sent to the wrong destination, especially if the tag for two airports are very close to eachother,likeforLosAngelesitwouldbeLAXandfor LasVegasitmightbesomethingclosetothatlike,LAV. Soiftheemployeemadeamistake,itwillbesenttothe wrong airport. Or if you had to transfer planes, if you check in Northwest Airlines, you have a stop over in Narita,andyouaregoingtoLA,youwilltransferplanes in Narita, when they place tag in your luggage here in Manila, they would put LA, not Narita. But when the plane arrives in Narita, it (luggage) is transferred to a flightgoingtoLA,itisinthecourseofthetransferthat mistakecanbemadeandsenttoadifferentdestination In that case of PAL, where there was a stop over at Honolulu it off loaded pieces of baggage of the passengers to take in additional cargo and freight the Court said now, that is bad faith. Pal is liable for moral damages. Whenareairlinecompaniesnotliable? Nowontheotherhand,NorthwestKoreanAirlinessaid that they had to leave behind some pieces of luggage because weight and balance considerations for the safetyofthepublic.Theplanewouldbeoverweight In 1995, Mt. Pinatubo erupted and the lahar spread, someofititevenreachedVietnam.Now,therunwayof theairportwascoveredwithlahar.Theyhadtoclosethe airport for 2 weeks. Otherwise, if they allowed the planes to taxi on the runway, the engine would suck in thelahartheenginewouldberuined.Sothatwasclosed for 2 weeks. A passenger was stranded in Narita for 2 weeks. The passenger sued JAL. JAL should have provided me with hotel accommodations, and meals. The Court said, no. the delay was due to a fortuitous event. It is not the fault of JAL. JAL is not liable to providethehotelaccommodationsandmealsduringthe delay. Therewasanarrangementwhereinaperson(judgeata) would tour the city, stay in a hotel before they would leaveJapan.Whenthepassengerwantedashorttimeto stay in Narita, the immigration found discrepancies on hispassportandwasnotallowedtoleavetheairport.He suedJALfordamages.Thecourtsaidthatisasovereign act of an official of the immigration of Japan. Japan Airlines is not liable for that, it is not the obligation companiestoseetoitthatpassengerspassportsarein order. That is the responsibility of the passengers themselves ShortHistoryofWARSAWConvention France pushed for this, that is why official text is in French,althoughapprovedinPoland. LimitedLiability There is a provision in the Warsaw Convention that is limitingtheliabilityofairlinecompanies,butitsaidthat the limitation will not apply in case of dol (French word)orwhichIwouldspeculateissimilartodolo>In Criminal Law, wherein, the crime is either committed in dolo or culpa. In the English translation of the Warsaw Convention,dolwastranslatedtowillfulmisconduct. Thats why in the case of PAL where there was the offloading of the accompanying pieces of baggage of thepassengerssothatitcouldtakeinmorecargoes.The court said that it is oppressive and in bad faith. You cannotinvokethelimitedliabilityprovision. There was a UP professor who was invited to deliver a paperinaconferenceinRome.Hebookedaflightwith Alitaliaandheonlyhadonecopyofhispaper.Heplaced itinhissuitcasehedidnothavenyothercopywithhim. Thesuitcasewaslost.Hedidnothaveanyothercopy,so he was not able to attend conference and deliver the paper. He now sued Alitalia. SC said Alitalia cannot invokeprovisiononlimitedliabilitybecauseitwasguilty ofrecklessnesswhichresultedinthelossofluggage.

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You have that Luna case, where the airline company failed to deliver baggage on time. The passenger sued fordamages.Theairlinecompanyarguedthatpassenger didnotfileaclaimwithin14daysandthatisrequiredin Warsaw Convention. You file a claim within 14 days before you can sue. But SC said WARSAW Convention does not preclude suing, instead under the Civil Code whichdoesnotrequiresuchclaimwithinsuchaperiod, the plaintiff could still sue. But that is wrong because the underlying idea is to adopt uniform rules for international commercial airline aviation. Airline companies fly to many different countries, and if they will have to see to it that they comply with municipal laws, in every possible country where they will fly, internationalaviationwillbecomeanightmare. Inamuchlatercase,decisionwascorrect.Theconsignee sued. But the court said that you did not file a claim within14days,thatsbarred. Likewise, that case of Savellano. When they sued the Northwest Airline, they said that they had pieces of jewelry with their hand carry luggage worth P300k which were lost. Court said, Warsaw Convention, you should file claim within 3 days for hand carry luggage. Youdidnotfileclaim,BARRED. EXCEPTIONTOTHEPERIODFORFILINGCLAIMS When the action of passenger was for humiliating him, prescriptiveperiodinWarsawdoesnotapply. CASES WHEN THERE ARE DIFFERENT LEGS/DESTINATIONS You have another case, especially when you go to Europe they have so many companies with their own areasusingtheirairlines.ExampleonlyKLMfliesnow to Manila. From Manila you take KLM to Amsterdam, if you are going to Paris, you take Air France to Paris, Alitalia to Rome. Then if youre to Frankfurt then you takeLufthansa.ButitisKLMwhowouldissuethetickets fortheentireitinerary. TherewasacasewhereKLMwouldissuetheticketfor the entire itinerary and portion of it included a trip to Lourdes.FromBelgiumLourdes(withSABENAAirlines), the passenger was not accommodated who was supposed to fly that portion. The passenger sued KLM (notSABENAbecauseSabenadoesnothaveanofficein thePhilippines),KLMairlinessaidthatwehavenothing to do with that as that leg of the itinerary is with SABENAAirlines. The court held that KLM is liable under Warsaw convention. 1st remember, the Warsaw Convention applies to international flights. 2nd, the two countries mustbesignatoriesoftheWarsawConvention.Ifoneis asignatoryandtheothercountryisnotasignatory,you do not apply the Warsaw Convention. Court said, the Warsawconventionprovidesthataflightcoveredbythe conventions is a single operation, and therefore the company that issues the ticket is liable for everything that happens down the line during the itinerary even those portions (of the flight) that are covered by anotherairline. Thatiswrong.Itisonlyanagentofthe otherairlinecompanyinissuingtheticketforthelegto be flown by them. The Warsaw Convention itself explainswhatisthemeaningofsingleoperation.Itsays thatthemomentaportionoftheitineraryiscoveredby the International Warsaw Convention, then it will cover portions of the itinerary which may be domestic aviation.> For example, you took KLM and flew to Amsterdam, but then you are going to Spain. So you take Iberian Airlines from Amsterdam to Madrid, then fromMadrid,youdecidetogotoBarcelona,thatisnow domestic flight, but under the Warsaw, Convention, since the flight from Manila to Amsterdam and Madrid are covered by the Warsaw Convention, the Warsaw ConventionwillalsoapplyduringtheflightfromMadrid toBarcelonaalthoughitisadomesticflight.Thatisthe meaning of single operation. But the court has repeatedlyfollowedthatinterpretationintheKLMcase. PALissuedaticket,andaportionoftheitinerarywasto be flown by a foreign airline company. But the foreign airlinecompanydidnothonortheticketbecauseitwas not endorsed to it by PAL. So the passenger sued PAL. PAL argued that action is barred under Warsaw Convention because you must file within 2 years. Court said no that will not apply because your negligence did notoccurintheperformanceofthecontractofcarriage bytheairlinecompany,thenegligencecamebeforethe flightbecausetheotherairlinedidnothonoryouticket whenyoudidnotendorseit. Whenendorsingticketstoairlines,theyaremembersof theIATA.Thereisaclearinghousetherejustlikeabank. There was a news before that the clearing privileges of PAL in the IATA were suspended because they keep claiming from other airline companies for tickets endorsedtothembuttheyhavenotbeenpaying,when the other airlines asked them (PAL) for payment of the ticketswhichtheyendorsedtootherairlines. You have this Salvez case. He as a student studying in US. He wanted to go home during Christmas break. He boughtaroundtripticket:SanFrancisco,Narita,Manila. Manila, Narita San Francisco. The return trip was left openbuttwiceheconfirmedthedateofdeparture.On the scheduled date he went to the airport for his flight from San Francisco. The airline said, we cannot guarantee that your flight can be accommodated from Narita to Manila. You may be stranded in Narita, God knowshowlong.Sincehedidnothavemoney,hewas scaredtobestrandedinNaritaIndefinitelysohebacked out. He later on took a flight where it was guaranteed

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thathewouldbeaccommodatedfromNaritatoManila. Now,hesuedbecausewhydidtheysellthatseatagain when he confirmed it twice. Northwest Orient Airline arguedthatthePhilippinecourthasnojurisdiction. Under the Warsaw Convention, you can sue an airline companyin4places: 1. WhereyouboughttheticketSanFrancisco 2. Where the airline company was incorporated Minnesota 3. Where the airline company has its principal officeMinnesota 4. Whereisthepointofdestination. Northwest Orient Airline, argued using the reasoning in another case, that when you have round trip ticket, your destination is the same point of departure. But I said that doesnt apply because here the date of the departurewasopen.Soyoumustnotapplytherulingin theanothercase. In that case, somebody booked a roundtrip ticket from Montreal LA Montreal. The date of departure was left open.Theplanecrashedsothefamilysuedtheairlinein LA. Air Canada argued that this is a roundtrip ticket therefore you should sue in Canada. The court said no becausethedateofreturnwasleftopen.Soyoudonot apply that rule because what you have is merely the optiontoflyonwhatcertaindateyoumaychoose. And then Santos was suing on quasi delict, and in the caseofSpencerv.NorthwestOrientAirlines,itwasruled in US, that when you are suing under a tort, you dont applythatprovision.Infact,theSCsaidyoudontapply WarsawConventionifthegroundispublichumiliation. My other argument was that the Warsaw Convention was adopted in French language. And the rule in Statutory construction, in such a situation then it is French jurisprudence that should be consulted. And in theFrenchJurisprudence,theprincipalofficemeansany corporation where it has a branch office. Every branch office is considered and treated as principal office. NorthwestOrientAirlineshasanofficehere.ButSCdid notconsidertheseargumentsandstucktowordsofthe convention.Itdidnotmentionanythingatallaboutthe AmericanJurisprudencethatIcited. BillofLadinghasa3foldcharacter: 1. Contract 2. Receiptforthegoods 3. Symbol of the goods. If you are selling goods that are covered with a bill of lading, you can comply with obligation of delivering of the goodsbydeliveringbilloflading Animportantclassificationofabillofladingisacleanbill ofladingitmeansthattherewerenodamageswhenthe goodswerereceived.Soifthegoodsweredeliveredtoa consignee in a damaged condition, the common carrier wouldbebarredfromraisingthedefensethatthegoods werealreadydamagedwhentheyreceivedit. If package appears unfit for transportation, like it is defective.Thecarriercanrefusetoacceptthegoodsfor delivery. If the carrier suspects that the contents were mis declared,hecouldaskittobeopenedandinspected.If it turns out it is correct, owner of the goods shoulders theexpensesoftheinspection.IfitisWrong,thecarrier shoulderstheexpensesofinspection. There are several instances when consignee can refuse to take the delivery of the goods and claim instead damagesequaltothevalueofthegoods. 1. Art. 363 lets say somebody imported equipment with some components missing when the equipment was delivered. Without thosemissingcomponentstherestareuseless. Consigneecanrefusetotakedeliveryandclaim damagesequaltothevalueofequipment 2. Art. 365 if the goods were damaged and because of the damage, they are useless for thepurposeforwhichtheywereintended 3. Art. 371 if there is delay through the fault of carrier 4. Art. 366 if it is apparent from the external appearance of the package that there is damage, claim must be made immediately, otherwise, action will be barred. But if the damageisnotapparentthentheconsigneehas has 24 hours from receipt to make a claim. Otherwise,theactionwillbetimebarred. Therewasthiscase,wheretherewastheimportationof chemicals. It was obvious upon delivery that they were polluted. There was a change in the color of chemicals andnoclaimwasfiled.Thecourtsaidtheactionwould betimebarred. Under the COGSA (Carriage of Goods Sea Act) it is provided that the consignee can sue even if he did not file claim. The way to reconcile the rules is that COGSA applies to international shipping. And when it is interislandordomesticshippingyouapplyArt.366. But in one of the last decisions of Justice Henares, she applied Art. 366 to international shipping. Did not file claimwithinthe24hours,sotheactionisbarred. If the goods were transshipped, the ultimate shipping company would be liable. Lets say equipment was imported from Japan, loaded on Japanese vessel > the routefromTokyoManila,wastransshippedonavessel owned by Sulpicio Lines from Manila to Cebu. The

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equipment arrived in Cebu in a damaged condition. But the damage occurred while in the custody of Japanese vessel. Still it is Sulpicio lines that is liable to the consigneeandtheconsigneecansueSulpicioLines.That is without prejudice of Sulpicio Lines to get reimbursementfromJapanesevessel. The law has said that the consignee cannot defer paymentofexpenses,freightafter24hoursofreceiptof thedelivery.Ifthecarrierisnotpaid,thentheymayask that the goods be dissolved until enough is raised to coverthearrearsfortheexpensesandfreight. In one case, this was asked in the bar exam, where the contractprovidedthattheletterofcreditprovidedthat thereshouldbenotransshipment,andthentheshipping company issued a bill of lading which provided that there would be transshipment in one of the legs of the trip.Andthatwasindicatedinthebilloflading.Because of that, buyer refused to take delivery. Now, the seller sued the vessel. Court said you cannot sue the vessel because bill of lading provided that there would be transshipmentandyouacceptedthatwithoutobjection. The court said if the shipping company delivers the cargoes or equipment to the consignee even if bill of ladingwasnotpresentedbecauseitwassenttobankby letter of credit, the bank cannot sue the shipping company because it delivered the equipment to the correctconsignee. In one case, an exporter instructed the shipping company to deliver the goods to the buyer in Hong Kong, even if the bill of lading was not presented. The shippingcompanydidexactlythatbutbuyerdidnotpay. Theexporterisnowsuingtheshippingcompany.Scsaid it was your fault, you told the shipping company to deliverevenifbillofladingwasnotpresented. The court has said in the case of Stationery, that the supplies delivered did not meet specification in the contract so they refused to take delivery. Meanwhile, thevesselcouldnotleavebecauseitwasstuckwiththat cargo. The carriage piled up, the Court said, the consignee should be liable for that because contract of sale and contract of carriage are two separate and distinct contracts. If the seller breached his contract, well,thebuyerhasnorighttobreachhiscontracttothe carrier, and delay in taking the articles that he bought. Take the delivery then sue the sender for damages. Instead of holding the vessel and letting the carriage chargesaccumulate. In one case, no claim was filed but the manager of the claimsdepartmentoftheshippingcompanywaspresent whengoodswereunloadedandhesawthattheywere damaged. So the court said, even if the claim was not filed until after 2 days, there was no prejudice because theheadoftheclaimsdepartmentwastherewhenthe goods were released and goods may be subject to inspection. In the case of that steel pipes which were shipped by Lorenzo Shipping from Manila Davao, the American PresidentLinesfromDavaotoSanFrancisco.Whenthe steel pipes became rusty in the possession of Lorenzo Shipping.Itarguedthatitisnotliablebecausehedidnot file a notice until it received the steel pipes. The court said no, the delivery of the steel pipes was until Davao, your responsibility ended when you delivered that to Davao. Therefore, the period for filing a claim ran from receiptinDavao,notreceiptinSanFrancisco. Vessels are required to be registered with the Maritime IndustryAuthority. Therewasthiscasewhereanoiltankerwassoldbutthe sale was not registered. The seller had judgment creditor.Courtsaidjudgmentcreditorcouldlevyonthe oiltankerbecausesincethesalewasnotregistered,the salewouldnotbindthirdparties.Itwillbebindingonly betweentheparties. ShipOwnersandShippingAgents TherewasthisRussianvesselwhichwasdockingatthe wharf in the north harbor hired a harbor pilot. Now, what happened was that the pilot rammed against the pier. Government was running after the shipping company. They argued that they should not be held liable because it was the fault of the harbor pilot who wasnotamemberofthecrew.ButtheCourtsaideven iftheharborpilotwasnotpartofthecrew,thecaptain retainscontroloverthevessel.Whenhesawthatunless theharborchangecourseitwouldinevitablecollidewith thepier,heshouldhaveintervened. LiabilitiesofShipOwnersandShippingAgents 1. The Ship owner and Shipping agent are liable fortheactsofthecaptainundertheArt.586. 2. Under the same provision, they are liable for contractsenteredintobythecaptaintorepair, equipandtheprovisionthevessel. 3. Under Art. 587, they are liable to third parties for indemnities that arise because of the conductofthecaptaininthecareofthegoods. 4. UndertheprovisionoftheCivilCode,Art.2180, employer liable for the quasidelict committed by the employees under theory of negligence in the selection and supervision of the employees 5. Under Art. 826, they are liable in case of collisionduetothefaultofthecaptain. HypothecaryNatureofMaritimeCommerce;Exceptions

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You have this socalled real and hypothecary nature of maritime commerce, which is traceable to the ancient Roman times, which is in recognition of the hazardous natureofmaritimecommerce.Sothattheliabilitydoes not attach to the owner of the vessel but rather to the vessel, that is why its called real nature of maritime commerce so that if the vessel sinks, there is no more res to which the liability can attach. Thats why the liabilityoftheshipownerisextinguished.TheCourthas saidthatwhentheshipmentofcoprawaslostwhenthe vesselsank,theshipownercannotbeheldliable. Thereareexceptionstothat: 1. Shipownerisatfault. Ship owner himself must be at fault. If it was the ship captain who is at fault because he was negligent in maneuvering the vessel, the liability of ship owner is extinguished.Thisusuallytakesplacewhenthevesselis unseaworthy, like when the captain and crew are unlicensed, or the vessel was not adequately equipped withlifeboats,orifitwasoverloadedandtheshipowner was aware but still allowed to travel. Remember that holes in the hull make the vessel unseaworthy because of leaks. And that case of Cocacola, where a fishing vesselwasusedtotransport2,500casesofCocacola,it wasnotseaworthyasacargovessel. 2. If the vessel was insured, the proceeds of the insurance policy will take the place of the vessel. Thecourtsaidthatwhereseverallawsuitswerefiledto collectfromtheinsurancepolicy,theonewhogotafinal judgment first cannot collect and should wait until all lawsuits have been decided with finality, then the proceeds would have to be divided prorata among the successfulplaintiffsbecauseifyouwouldallowtheone withthefirstjudgmenttocollect,youwillendupwitha situation where he will be fully paid but the others get nothing. 3. Ifthevesselsinks,shipownersremainliablefor the repairs and provisioning of the vessel incurredbeforethelossofthevessel. ThesebooksstillsitethecaseofLiwanag.Butthatisno longerrelevant.Intheolddays,iftheemployeegetssick orinjuredordiesinthecourseoftheemployment,itis theemployerwhowillbeliable.Andthecourtexempted that from the hypothecary nature of maritime commerce.Buttoday,itisnolongertrue.Theclaimwill befiledwiththeEmployeesCompensationCommission. Sothesinkingofthevesselisirrelevant. CharterParties CharterPartiesessentiallyinvolvesaleaseofthevessel. CharterpartycamefromanItalianphraseCartaPartita whichliterallymeansadividedcontractbecausewhena charterpartywouldbedrawn,thetermsandconditions wouldbewrittentwiceonpaper,anditwillbetornupin themiddlethenonecopywillbegiventotheshipowner andtheothertothecharterer. IntheLitonjuacase,thecourtsaidthatthereare 3basic typesofCharterParties: 1. Bareboatcharters. Ship owner turns over the possession of the vessel to the charterer. It turns over the bare vessel. It is the charterer who undertakes to provide the crew, provisions and supplies during the term of the charter party.Thatswhythechartererbecomestheownerpro hac vice. For this occasion, he assumes all the rights, powers,obligationsandliabilitiesoftheshipowner.He may choose to retain the regular crew thats his judgment.Hewillbeliabletopaythesalariesofcaptain andcrew.Ifgoodsaredamagedorlost,hewillbeliable tothecargoowners.Ifthevesselgetsinacollisionandit isthefaultofthecaptain,hewillbetheoneliable.Ifhe does not pay, ship owner cannot run after the cargo owners, he cannot claim a lien on the cargoes because there is no privity of contract between him and the cargo owners because the charterer is the owner pro hac vice. If the vessel is a common carrier, if it is chartered by bareboat charter, it will become a private carrier. The liability of charter will be the diligence of goodfather,notextraordinarydiligence. 2. Time charter. Contract for the use of a vessel foraspecifiedperiodforthedurationofoneor morespecifiedvoyages. 3. Voyage charter. Contract of affreightment. Contractforthecarriageofgoodsfromoneor moreportsofloadingtooneormoreportsof unloading. In time charter and voyage charter, the ship owner retainscontrolofthevessel.Shipownerisliabletopay thecaptainandcrew,liableforlossordamageofgoods andliableincaseofcollision.Ifthecarrierisacommon carrier,itremainsacommoncarrier.Likeinthatcaseof Sulpiciolineswhereanoiltankerunderavoyagetanker with Caltex collided with a vessel of Sulpicio lines. The insurance figured that well, lets sue someone with deeper pockets Caltex. Court said that is a voyage charter, so Caltex is not liable, it is the owner who remainsliable. In a charter party with a private vessel, the stipulation that the ship owner will not be liable in case of loss or damageisvalid.Therefore,astipulationthatshipowner

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is not liable for negligence of captain is also valid. Likewise, stipulation that in a voyage charter that a private carrier will not be liable except for willful negligenceisvalid. GeneralandParticularAverage The enumerations of what constitute general or particular average are not exclusive, they are merely illustrative. Inparticularaverage,anexpenseisincurredordamage suffered which did not inure to the common benefit of all person interested in the voyage, like when fruits being transported became rotten. There was a case where a vessel rammed against a pier and ship owner wasclaiminggeneralaverage,hewantedcargoowners toshare.Courtsaidthatitisparticularaveragebecause it was the negligence of the captain why the vessel rammedanddamaged. Requisitesofgeneralaverage: 1. Commondanger.ThatsthiscaseofMagsaysay vs. Agan, where a vessel got stranded, and so there were expenses in order to refloat it and the ship owner wanted the cargo owners to share. The Court said No. There was no common danger. Weather was fair, there was no danger that the vessel would sink. Or for example, pirates intercepted vessel, and what didthecaptaindo?Hedunkedmoneyintothe ocean so pirates wont be able to get money. Thats not for the common benefit it is only forthebenefitoftheshipowner. 2. Partofthevesselorcargomustbedeliberately sacrificed. Vessel encountered a heavy typhoon,andsomassofcargowasbrokenand so the vessel was lightened. General average cannot be claimed because it was because of thetyphoonthatthemasswasbrokenandfell intothesea,itwasnotadeliberatesacrifice 3. Cargoandvesselmusthavebeensaved. 4. General average should have been incurred aftertakingthelegalsteps,thecaptainshould have consulted the officers and crew, if cargo owner happens to be on board he should be consulted,itshouldbeenteredinthelogbook. Thenaprotestshouldhavebeenmade. Protests 4instanceswhenprotestshouldbemade 1. Generalaverage. 2. Arrivalunderstress.Arrivata. 3. Shipwreck.Naufragio. 4. Collision. The Code of Commerce lays downs rules for apportioning liabilities in case of collision. This is a special type of tort, the maritime tort. You dont apply therulesofciviltortsintheCivilCode,likethelastclear chance,orthedoctrineofcomparativefault.Youdont applythatinmaritimecollision.Faultofoneisgreater? Thatisirrelevant.Theirliabilitywillbeequal.Diligencein selection and supervision of employees cannot be invokedasadefense. Rules: 1. Ifacollisionoccurredanditisthefaultofone vessel, it will bear its own loss, and it will be liableforthedamagestotheothervessel,and damagestothecargoesonboardbothvessels. 2. If both vessels were at fault. Each vessel will bearitsownloss.Bothwillbeliablejointlyand severally liable to the owners of cargo on board both vessels irrespective of degree of fault of the 2 vessels. In one case, collision occurred, one vessel was on the wrong route. Butthecourtsaidthattheothervesseldidnot take evasive action until it was too late. So collisionbecameinevitable. 3. If you cannot determine who was at fault, its the same rule as #2. This is the doctrine of inscrutable fault where you cannot determine whoisatfault 4. If 3 vessels collided, one vessel at fault, bears ownloss,andwillbeliableto2other,liableto allcargoownersonboardall,3vessels 5. If3ormorevesselswereproperlyboardedand anchored, but because of strong typhoon other natural calamity like tsunami, they collided, each will bear own loss, cargo owner bearsownlosses COGSA COGSAappliesintheinternationalcarriageofgoods. TherewasthisequipmentimportedfromJapan,brought here by Japanese vessel to Manila, and then it was transshipped from Manila to Cebu by Sulpicio lines. Goodsarrivedinadamagedcondition.Whileincustody ofSulpiciolines.COGSAwillapplybecauseitappliesuntil goodshavearrivedattheirfinaldestination. ThepartiesmaybestipulationbyagreethatCOGSAwill applyalthoughitismerelyinterislandshipping.Thiswill notbeagainstpublicpolicy. 2mainfeaturesofthelaw 1. 1yearprescriptiveperiodtofileacase. The law provides that it is not required that a claim be filedbeforeacasecanbefiled.Inotherwords,filingofa

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claim is not a condition precedent. Lets say cargoes were unloaded from Monday to Wednesday, you count the one year period from the last day of delivery Wednesday.Ifgoodsnotdelivered,youcountfromthe lastdaythatdeliverycouldhavebeenmade.Ifthevessel was here from Monday to Wednesday, you count the 1 year period from Wednesday. Court has said that the rule in Civil Code that written demand interrupts the running of the prescriptive period does not apply in COGSA.Thatwillnottollthe1yearperiodtofilethecase because public policy demands that disputes regarding transportation by sea should be decided expeditiously. Thereareconflictingdecisionsonwhathappensbecause many times, consignee does not run after the vessel, it files a claim with the insurance company. In one case, thecourtsaidthattheconsigneedidnotsuethevessel within one year, and so the insurance company can refuse to pay because he will be subrogated and the vesselcanraisethedefenseofprescription.Becausethe insurer cannot be indemnified by the wrongdoer because of the fault of the insured, it will be excused frompayingtheclaim.Inanothercase,Courtsaideven if claim was filed beyond 1 year, COGSA will not apply because it is based on a written contract, so the prescriptiveperiodis10years.Jack:Butthatiswrong. Andthenthe1yearperiodwillnotapplyin: a. Misdelivery.Goodsweredeliveredtothe wrong party. So in case he files the prescriptive period will be 10 years (writtencontract)or4years(quasidelict). b. Customers broker. If after obtaining the release of the goods, customs broker deliveredtothepremisesofthecustomer, COGSAwillnotapplybecausethecustoms broker did not own the vessel that was usedtotransportthegoodsbysea. c. Parties can agree to extend the 1 year period. Consignee filed a claim but the shippingcompanyaskedthemtoholdthe filingofthecase,wearelookingintoyour complaint and we are investigating and theconsigneeagreed. d. Delayinthedelivery.Somebodyimported sweaterstobesoldinthewinterbutthey weredeliveredafterwinter,sotheywere sold at a sale. Consignee sued. Court said COGSA applies only in cases of non deliveryordeliveryofgoodsinadamaged condition.Itdoesnotapplyiftherewasa delay in the delivery. In case of delay, whatappliesistheCivilCode10yearsor 4years. 2. Limitationoftheliabilityto$500perpackage. It refers to the carton not container van. However the $500willnotapplyifbillofladingindicatesthenatureof the goods and indicates a higher value. But the court said that it is the Bill of lading itself that must directly state that the value of the goods exceeds $500. In one case, the bill of lading stated that the letter of credit indicated that the goods were worth more than $500, andsothatexceptionwillnotapply. PublicServiceAct In the old days there was only 1 regulatory agency that provides all public utilites the Public Service Commission. It was supervising business entities that had assets worth billions of pesos. It was one of the mostcorruptgovernmentoffices.DuringMartialLaw,it wasabolishedandthenitsfunctionswerefarmedoutto different regulatory agencies Civil aeronautics board, LTFRB, Maritime Industry Authority, Energy Regulatory Commission,NTC,Maynilad. Old law included ice plants in the utilities which are regulatedbythePSC,butwhenPSCwasabolished,the supervision of ice plants was not assigned to any regulatory agency, so today, they are no longer regulated. Incaseoftricycles,itisthecitiesandmunicipalitieswho authorizetheiroperations. Public utilities must get a certificate of public convenience. TheCourthassaidthataforeigncorporationcanownan LRT system because it is not operating the LRT system. It is the government that is doing so. It is leasing. Ownership of the equipment does not make it a public utility. Likewise, the Court said that Petron is not a publicutility.Theywerearguingthatrefinementofoilis considered public utility. Court said that the law refers to domestically extracted oil, and what Petron was refining was imported oil, and it was not refining as a service for which it charges a fee it was refining for itself. Ontheotherhand,theCourthassaidthatashipyardis not a public utility even though decree said so because to be a public utility, it must render services to the public,anditwasnotrenderingservicestothepublic. As a rule, it is not required that one should have legislativefranchisetooperate.TheCourthassaidthat grant of aviation service Is without need of legislative franchisebecauseCongresshasdelegatedthatpowerto theCivilAeronauticsBoard. However, in the case of telecom, radio and tv, they are required to get legislative franchise. If a legislative franchise is required, what will be given to it is a CertificateofNecessityandPublicConvenience.Butifit

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is not required, it will be called simply Certificate of PublicConvenience. Usually the regulatory agencies are authorized to issue provisionalauthorities. In case of government corporations, whether they are GOCC or locally owned by local governments, they are not required to get a Certificate of Public Convenience like Philippine National Railway. Court said that Olongapo City could put up a power plant, but in their operations they will be regulated by the appropriate regulatoryagency. In the case of Pantranco, they were offering a service youcouldboardabusofPantrancoinPasayCityandget off in Samar. But the Court said when the bus would reach Sorsogon they loaded on a ferry which transported them to Samar. That involved interisland shipping, because you would be crossing open seas, so Pantracno should get Certificate of Public Convenience fromMARINAforinterislandshipping. Certainentitiesnotconsideredpublicutilities: 1. Warehouses. 2. Vehiclesdrawnbyanimals. 3. Bancas? 4. Tugboatsandlighters. 5. Tricycab To qualify to get a Certificate of Public Convenience, theyare3requisites: 1. Applicant is Filipino citizen or a corporation, partnership or association organized in Philippinesand60%ownedbyFilipinos 2. It must prove that service it is offering will promotepublicinterest 3. Financially capable to undertake the proposed serviceandanswerforliabilitiestothepublic PriorOperatorRule Before a new applicant will be allowed to operate, a prior operator should first be allowed to expand in service provided that the service is efficient. This is to preventruinouscompetition.ButtheCourtsaidthatthe merefactthatprofitwillbereduceddoesnotconstitute ruinous competition. Rather, the prior operator must prove that his profits would be reduced to such an extentthathewillnotgetafairreturn.Noonesucceed thereyet. Exceptionstotherule: 1. Old operator is actually operating less units that what he was authorized. Like when he was authorized to operate 20 taxicabs and he wasoperatingonly10. 2. 3. Old operator denies the need to expand service Prioroperatordidnotapplyuntilnewapplicant applied to meet increased demand. He must be alert and reading to meet the increased demandsforhisserviceanytimethereissucha need and not only wake up when new applicantcomesin Serviceisdeficient Old operator was given a chance to expand, buthefailedtodoso Oldoperatorhasabandonedservice If the routes are different even if there is partial overlapping. Edsa from Caloocan to Paranaque. New company Rizal to Muntinlupa, part of route covers Shaw Blvd. and Edsa. There would be partial overlapping along Edsa, but they cannot invoke prior operator rule because there is only partial overlapping.

4. 5. 6. 7.

Before, the Secretary of DOTC issued a circular, saying that whenever an application is filed to operate a common carrier by land, it should be presumed that thereisaneedfortheproposedservice,andtheburden should be on the oppositor to prove otherwise. The court said that that is void because under the law, it is the applicant who has the burden of proof and that regulation is shifting the burden of proof to the oppositor. RateFixing And there is a regulatory agency that fixes the rates to bechargedtothepublic.Usually,theyareauthorizedto grantaprovisionalincreasegoodfor30daysandwithin that period, it should conduct _____ to determine whetheritshouldbemadepermanentoritwillbelifted. Again the Secretary issued a circular saying that provincial buses can charge more or less than the rates fixed by the board provided the difference is not more than15%.Thecourtsaidthatisvoid.Thatisdelegatingto the provincial buses themselves what rate they will charge when under the law, it is the board that should fixthefarethattheyshouldcharge. Profits The court, citing an old decision of the United States made 12% as the fair rate of the return on investment. Thenin1964,thecourtapprovedtherulingofthePublic ServiceCommissionthatwouldusethepresentvalueof the properties being used to render public service on that basis. Thats why now and then the public service would have their properties appraised and they would ask for an adjustment because they said the appraisal

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showed that the value of the assets we are using was increased. Meralco claimed the income tax its paying as an expense for purposes of computing its profits. But the Supreme Court disallowed that. That is not an expense incurred in generating income. It is a tax on income. MeralcoinvokethepracticeoftheUnitedStatesbutthe courtsaidyoucannotinvokethatbecauseitisdifferent. In the United States, power plants had to pay taxes to the State government and also to the Federal government and if you add up what they are paying by way of taxes, the total would exceed the amount of taxesthatMeralcoispayingoverhere. Jurisdiction The court said that if a customer wants to be enlightenedastothecomponentsofthefare,likewhen you receive your Meralco bill or bill from Manila Water, the explanation there would be of different items composingthebill.Thecourtsaidthecasewasproperly filedintheRTCbecausethisdoesnotinvolveratefixing. Thecustomermerelywantsthemtoexplainwhatisthe meaning of this different items in your statement of account. Likewise, when a customer is suing for refund because he was overcharged, that should be litigated in the regularcourtsbecauseitdoesnotinvolveratefixing. Standardsformeasurement The public regulatory agencies can also fix appreciable standardsformeasurementoftheirservices.Taxisused to use mechanical meters and then they were required toswitchtoelectronicmeters.Now,theyarerequiredto havemetersthatissuereceiptstothecustomer. Service Thelawsaysthepublicregulatoryagencyhasthepower tocompelapublicservicetofurnishsafe,adequateand proper service. The court invoked that provision in the ruling that the Energy Regulatory Commission had jurisdiction to entertain a petition filed by a customer who claims that Meralco erroneously disconnected the serviceandshouldbeorderedtoreconnecttheservice. Therehavebeenmanydecisionsonthis.First,youhave thatoldPublicServiceOrderNo.1,whichisstillinforce. Before a public utility can disconnect a service, it must firstgivethecustomer73hournotice.Failuretocomply withthatwillentitlethecustomertodamages. Thecourtin_____said,thiswasaskedbefore,themere fact that a customer is disputing the correctness of the statement of account, it not the basis to prevent the publicutilityfromdisconnectingtheservice.Otherwise, public utilities will be at the mercy of customers only if thecustomersdisputethecorrectnessofthestatement of account, and the public utility will be constrained to continuerenderingtheservices. The case of the _____, the rule is different. It provides that the power company can immediately disconnect theserviceifitcatchesthecustomerinflagrantedelicto. But there was a case where the inspector of Meralco disconnected the service but the customer was not there. It was the household helper that was there. The court said, no. That is not in flagrante delicto. The customer was not there. It cannot be said that he was caughtinflagrantedelicto. Likewise, the law says a representative of the Energy Regulatory Commission OR a law enforcer must be presentduringtheinspectionconducted. There have been cases where Meralco claimed that the meter was running too slow and they billed the customerforunrecordedconsumptionofelectricity,and thecustomerwasdisputingthat.ThenMeralcoreplaced the meter. But the new meter registered the same amountofconsumption.Thecourtsaid,thefactthatthe consumption was the same after Meralco replaced the meterprovesthatitscontentionthatthefirstmeterwas running too slowly is incorrect and therefore, the customershouldnotbebilledforanydeficiency. CertificateofPublicConvenience Regulatory Agencies can suspend or revoke the certificate of public convenience. The pending investigation of the regulatory agency may suspend for not more than 30 days the authority to operate if it is necessary to avoid damage or inconvenience to the public. There was a time that this _____ Transit was still applying. EDSA every week there had been a major vehicular accident. And so the Land Transportation Commission, at that time that was the name of the regulatoryagency,suspendeditsoperationsfor30days. Section 17 (C.A. 89) mentions steps that the regulatory agency can take without need of prior notice and hearing. For example, it can investigate any complaint involving any public utility. The act of deciding to investigate. Or upon request of a customer, to test the appliance they use to measure the service. The customer complains,themeterisrunningtoofast.Theycangoto theEnergyRegulatoryBoardtohavethemetertested.

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Then, it can investigate any accident. In fact, public utilities are usually required to automatically report any majoraccident. Section20enumeratesmatterwhichrequireapproval. 1. Ratefixing 2. Toincreasethecapitalstock 3. To sell, mortgage, encumber lease, its certificate of public convenience and properties. <Thelistismorethanthis> The contract of sale is valid between the parties even without approval by the regulatory agency, but it will notbindtheregulatoryagencyandthirdparties.Butyou can get the approval later on. But the contract will be binding only between the parties. Thats why the court has said when the operator sold a certificate of public convenienceandunits,butithadnotyetbeenapproved by the regulatory board, a judgment creditor of the sellercanlevyonthepropertiesbecausethesaleisnot bindinguponhim. The _____ case, this was asked before, the court said, you see, when a certificate is issued, it will specify the units that will be allowed to be used. Thats why for instance,ifyoureplacetheunit,youwillhavetogetthe approval. For example, when we were handling the cases of a client that was engaged in the business of agricultural spraying for the banana plantations, now and then a plane would crash. The certificate for registration of the plane, to replace it, we will have to file a petition for authority to replace it with another unit. Thats why in the ___ case, somebody had a certificate of public convenience to ___ one interisland vessel,soldthecertificateofpublicconvenience.Butthe vessel was no longer seaworthy. So the court said, the certificate cannot be operated! So there is no valid subjectmatterforthesale.Thesaleisvoid. Youhavethiskabitsystemwherethecourtsaidthatthis isillegalbecauseyouwillallowthatsomeonewhodoes nothavefinancialcapacitytorendertheserviceswillbe allowed to operate in the name of someone who was given the certificate because he was found to be financiallyresponsible.Andtobetterprotectthepublic, the court said, the actual operator and the ostensible operator should be held jointly and severally liable to third parties, passengers, pedestrians who get injured. Buttheostensibleoperatorholdingthefranchisecanfile a crossclaim against the actual operator for reimbursement. On the other hand, there was a decision of Justice Escolinwheretheactualoperatorregisteredtheunitsin the name of the one who owns the franchise, and now wants to get back the units, so he sued. But the court said that what was done was illegal. Kabit System. And sincebothpartiesareatfault.Theyareinparidelicto.He who comes to court must come to court with clean hands. So the actual operator could not sue to recover theunits. There was case where the jeepney was bumped by a truck. It was bumped from behind and the jeepney operatorsued.Theownerofthetruckargued,itturned out the jeepney was being operated under the kabit systemandthatisanillegalarrangement,andtherefore theownerofthejeepneyshouldnotbeallowedtosue. Thecourtsaid,no.Thejurisprudenceinvolvingthekabit systemdealtwithresponsibilitytothirdparties.Thishad nothing to do with responsibility to third parties. Undisputedly,thetruckwasatfault.Andsosinceitisat fault,itshouldbeheldliablefordamages.Themerefact that the jeepney was being operated under the kabit System would not preclude the owner form suing the ownerofthetruckbecauseit(kabitsystem)hasnothing todowiththeliabilityoftheownerofthetruck.Thatis thelandmarkdoctrinebeinglaiddowninthiscase.Ifyou bumpakabitintherear,youwillbeliablefordamages The court has said that they cannot just cancel the certificateofpublicconvenienceofataxibecauseitwas used by a robbers for their getaway, in the absence of proof that the operator colluded with the robbers. Maybetheywerejustfleeingandtheystoppedthefirst taxi that came along and boarded it and forced the driver to drive them away. So its not enough that the taxi was used for a getaway. It must be proven that actuallytheownerconspiredwiththerobbers. Yougetallkindsofinsultsandcrazythingsthathappen. <story about a taxi hitting a police mobile. His defense was the police backed up on him. The court said, you want me to believe this cock and bull story?!> There wasthisstoryaboutanunwhoboardedataxi.Andthe driverkeptlookingattherearviewmirror.Shesaid,uh, whats the matter? You know, Ive always had this fantasythatanunwouldperformoralsexonme.The nunsaid,well,Icanaccommodateyou,butthereare2 conditions:youmustnotbeaCatholicandyoumustnot be married. Oh, Im not a Catholic and I'm not married.Sotheyparkedinthedarkandperformedthe deed.Andafteritwasallover,thedriverstartedcrying. Whats the matter? I feel guilty. I lied. Im a Catholic and I'm married. O, well, dont worry. My name is John.AndImonmywaytoacostumeparty.

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