CommLaw Compiled Reviewer

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013
Commercial Law Review Dean Eduardo Abella CHATTEL MORTGAGE Mortgage an accessory contract, collateral or security for an obligation Other securities pledge, antichresis, surety, guarantee They are valid only if there is a principal contract. Basic Principles 1.) Accessory Contract only exists if there is a principal contract 2.) Mortgage is the owner of thing mortgaged 3.) Mortgage extinguished if the principal obligation is extinguished May be constituted over personal property, it is called a chattel mortgage. It may also be constituted over real property, in which case it is called a real estate mortgage Chattel Mortgage Real Estate Mortgage 1.) Personal 1.) Real 2.) Existing valid 2.) May secure even obligation future obligation Includes voidable, unenforceable, rescissible and natural obligations 3.) May be foreclosed 3.) May be foreclosed extra judicially judicially or extra judicially 4.) No right of 4.) Right of redemption redemption provided under law In Jurisprudence: In one case there was a house that was subject to a chattel mortgage. The reason was that the land belonged to one person and the house to another. The Court ruled that as between the parties there is a valid chattel mortgage as under NCC 1159, stipulations of parties valid between themselves. However, it is not binding on other persons. Collateral issue: The register of deeds was not justified in refusing to record chattel mortgage over the house; it is a ministerial duty on the part of the register Q: May personal property also be classified as real? A: Yes, but it is binding only as between the parties While registration may be notice to world, it is still not in accordance with law.
CHATTEL MORTGAGE LAW ACT NO. 1508 This act is considered repealed by the New Civil Code The ratio is that pactum commissorium is void and the Chattel Mortgage Law considers a Chattel Mortgage as a conditional sale which becomes absolute upon default
Chattel Mortgage is defined in the NCC as a contract whereby personal property is recorded in the chattel mortgage registry as security for the performance of an obligation. CM is to be recorded in the Register of Deeds of the City or Province where the mortgagor resides. Note: There is no Register of Deeds in Municipalities. Chattel Mortgage Law requires deed of mortgage including an affidavit of good faith. Affidavit of good faith is a sword declaration of both the mortgagor and the mortgagee that they executed the chattel mortgage in good faith to secure a valid obligation and not for the purpose of fraud. Q: If an affidavit of good faith is omitted is there a valid chattel mortgage? A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of registration. If there is no affidavit, it is not binding on third persons. Affidavit of good faith may be demanded. Q: What if mortgagor and property are in different locations? A: Register first in the city or province where the mortgagor resides then where the property is found. If object is motor vehicle it should be registered with the LTO. It should be first registered with register of deeds. After, which, register with the LTO. Practical: Bring two copies, first to Register of Deeds then have him stamp the copy. Bring the second copy to the LTO. Mortgagor may or may not be the principal debtor. A problem arises when the principal debtor defaults. REMEDIES OF THE CREDITOR: 1.) Sue for specific performance abandons mortgage by suing the principal debtor. If suit is brought, mortgagor may demand release of mortgage. 2.) Foreclose the mortgage under the Chattel Mortgage Law
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Q: What is absolutely necessary in order for the creditor to foreclose? A: Possession of the thing mortgaged before foreclosure as a practical necessity. Mortgagee should demand delivery of thing mortgaged. If concealed, file for replevin. Q: How do you initiate foreclosure of CM? A: Mortgagee prepares petition for foreclosure of CM. Q: To whom is petition given? A: To the sheriff or a notary public Sheriff or notary public, after the receipt of the petition, prepares notice of auction sale. 1.) Post in at least 3 public places (City Hall, Hall of Justice, Public Market, Barangay Hall, Health Center etc.) 2.) Send copy of notice at least 10 days before the auction sale Q: If somebody took the posted notice, will proceeding be invalidated? A: No, it will not, posting is enough. Q: How do you go about payment of highest bid? A: If bidder is a third person, he delivers the money to the sheriff or notary. If the bidder is the mortgagee, he need not remit it to sheriff. Whoever is the highest bidder gets certificate of sale from sheriff or notary. Q: If there is deficiency, may deficiency be recovered? A: It depends. If covered by the Recto Law, no. If not, deficiency may be recovered from principal debtor. For Recto Law to be applied, mortgage must be constituted over the object of the installment sale. Hypothetical Q: Mortgagor did not see necessity of recording release of mortgage. Went to get a second loan from mortgagee. He merely returned the release of mortgage, is the mortgage revived? A: No, obligation it secured is already extinguished REAL ESTATE MORTGAGE ACT 3135 Created right to foreclose Real Estate Mortgage ExtraJudicially. Referred to the Code of Civil Procedure. Q: What is required for mortgagee to foreclose the REM extra-judicially? A: Mortgagor must expressly authorize the mortgagee to sell in case of default in deed of mortgage or other instrument. According to the Supreme Court, there must be an express provision giving authority to the mortgagee to sell. Mere reference to Act 3135 is insufficient.
Example In case of default, the bank shall be authorized to sell, as it is hereby authorized to sell. Extrajudicial foreclosure proceedings out of court, yet sheriff should not accept the petition unless there is payment of court fees. Q: How is it initiated? A: Prepare a verified petition to foreclose the REM. The sheriff or a notary public may handle this. The mortgagee himself may do it, but it is often the sheriff or notary public.
Steps in Foreclosure: 1) Post notice of auction sale in at least 3 public places in City or Province where the property is located 2) Case publication of notice in newspaper of general circulation once a week for 2 consecutive weeks. In notice, make sure property is correctly described in the notice as published. In notice as posted, it is not fatal to make a mistake. Reason: notice as published is notice to the whole world. Q: Is there a need to send notice to mortgagor? A: No, publication is notice to the whole world, it includes the mortgagor. Get an affidavit of publication from the publisher Q: May mortgagor and mortgagee stipulate the postponement of the auction sale? A: Yes, there is no prohibition. However, in case of postponement, the notice requirements should be complied with again as in the case of Nepomuceno Productions vs. PNB There is no longer any requirement of having at least 2 bidders. Sheriff or notary issues the certificate of sale that should be registered in the registry of deeds. Right of redemption may be exercised within 1 year from the registration of the certificate of sale. 1 year is 365 days; it does not matter if it is a leap year. Act 3135 created a right, however, you must still follow Rule 39 under the Rules of Court In the General Banking Act of 2000, there is a shorter period provided. Only a 90-day period of redemption if mortgagor is a juridical entity and the mortgagee is a bank. 90 days of registration of title, whichever comes first.
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Redemption is a right and not a duty; it may not be forced on the mortgagor. Q: May right of redemption be expressly waived? A: No, no waiver may be made during the period o redemption. Waiver may be done by not exercising the right. Q: Since right, is it transferrable? A: It is transferrable either by onerous or gratuitous title. Redemption is a real right over real property. The right may be inherited by succession.
The tax base used to be the bid price. Now it is Bid price or Market Value in tax declaration or BIR valuation, whichever is the highest. Case: Person borrowed from bank. Parents executed a Real Estate Mortgage. Borrower issued post-dated checks. The checks were dishonored. The bank sued the borrower for BP22. Remedies for bank are as follows: 1.) Civil Collection 2.) BP22 3.) Foreclosure Filing of BP22 is an abandonment of the mortgage. If buyer of mortgaged land already owns the land and the prior owner does not want to leave, file an ex parte Petition for Issuance of Writ of Possession. Practical Matters: Attach all certified true copies of documents in the petition title, deed of mortgage, final certificate of sale, BIR clearance (tax clearance, certificate authorizing registration) General Rule: The issuance of the writ is ministerial. But if filed before the end of the redemption period, a bond is required. Exception: If there is another person with a better right. Ex. Lessee New buyer in good faith doctrine: Looking at certificate of title is no longer enough; you must look at the right of the person in actual possession of the property. Failure to do so does not qualify one as a buyer in good faith. Practical Matters: When Register of Deeds issues Certificate of Title, he issues at least 2, the original and the owners copy. There are at least 2 because co-owners may each want a copy of the certificate of title. In which case, the coowners duplicate should be prepared with the original. If you are buying from co-owners, you must get all other copies so that they may be annotated. Remedy or the issuance of the writ of possession is the same in extrajudicial foreclosure, judicial foreclosure and execution sale. There is no remedy if a third party has a better right. Q: Can PDCs be used as chattel mortgaged property? A: Legally, yes. DOCUMENTS OF TITLE Bailee acknowledges good and his undertaking to deliver these goods Ex. Bills of lading, Warehouse Receipts, Quedan Bill of Lading is issued by a common carrier under the Code of Commerce. A Warehouse Receipt is issued by
Q: Who are entitled to redeem? A: Mortgagor, successors-in-interest, judgment creditor. Any one of them may exercise the right of redemption. Redemption is exercised by making a valid tender of the redemption price within the period of redemption. Redemption price if there is a special law that created the mortgage and there is an indication of redemption price, then follow that. If it is a bank, it depends on the law. If another person: 1.) Bid price 2.) 1% interest per month on the bid price 3.) Taxes and charges paid by the highest bidder 4.) 1% interest per month on the taxes and charges paid The Supreme Court construed this as 12% per annum. There must be a valid tender of the full amount, which must be in legal tender. If tender refused, the remedy is specific performance. The amount may not be consigned because for consignation to be allowed, there must be a debt due. When redemption period expires, there are two ways of getting title to the property. 1.) Sheriff or notary public issue a final certificate of sale 2.) Property registration decree, affidavit of nonredemption. You need to have it notarized. 3.) Pay taxes to BIR DSTs and CGT/Withholding Tax Q: When should the taxes be paid? A: Expiry of redemption period DST paid by the 5th day of the month following the end of the period. CGT/Withholding Tax 30 days from expiration of the redemption period.
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a Warehouseman (under the Warehouse Receipts Act and the General Bonded Warehouse Act). A bill of lading for a truck is called a waybill, while for an airline it is called an air waybill. The Code of Commerce requires the following to be printed on Bills of Lading 1.) Complete name and address of consigner. 2.) Complete name and address of consignee 3.) Description of goods including marks and markings ex. Numbers on crates 4.) Amount of fare
As a consequence of negotiation of the warehouse receipt, the transferee acquires the direct obligation to receive goods from the warehouseman. However, the right is conditioned upon the following: 1.) Person claiming the goods must first satisfy the liens of the warehouseman. 2.) He must surrender the original to the warehouseman. 3.) He must sign the receipt. Liens of the Warehouseman: 1.) Storage fees 2.) Cost of packaging 3.) Premium for additional insurance coverage Q: What is the nature of the warehousemans lien? A: It is a possessory lien, so if the goods are released, the lien is gone. Q: What should warehouseman do with the original receipt? A: Cancel it If warehouseman fails to cancel it and the receipt falls into the hands of someone in good faith and who got it for value, warehouseman is liable to the person. Q: May goods covered by a document of title be levied upon on attachment for execution? A: Yes.
Q: Are printed stipulations on Bill of Lading binding on the shipper even if the shipper does not sign? A: Yes, a contract is perfected by mere consent. Here, consent is implied. There is no consent if print is too small that the shipper could not have read it as in the Shewaram Case. Q: If common carrier issues a Bill of Lading, is there a conclusive presumption that the Common Carrier got the goods? A: No, it is only a disputable presumption. Threefold Role of a Bill of Lading 1.) Receipt 2.) Contract 3.) Stand for the goods (Symbol)
mentioned
therein
Document of Title It may be negotiable or non-negotiable. Negotiable if it is to order or to bearer, these are the words of negotiability. It may be negotiable by delivery or indorsement. A document of title may be indorsed in blank or by special indorsement. In documents of title, if a bearer bill is specially indorsed, transferee who wants to further negotiate it has to indorse and deliver it as opposed to NIL where the indorsement of a bearer bill has no effect. GENERAL BONDED WAREHOUSE ACT Warehousing an annual license is required. A bond must be posted before the issuance of a license. A warehouse receipt is negotiable or non-negotiable. If a warehouseman issues more than one copy of a warehouse receipt, he should indicate on copies that they are merely copies and not the original. If he fails to indicate as copy, if person is in good faith and got the receipt for value, he would be entitled to the goods as if his warehouse receipt were original.
TRUTH IN LENDING ACT Purpose: To enable persons borrowing money or buying goods on installment or credit to know the actual cost in money. Prior to consummation, person lending money or selling on credit/installment should deliver written statement showing breakdown of charges. Note that this is already after a meeting of the minds. Under Section 4 of the Truth in Lending Act, there must be a Disclosure Statement. History: When cost of money had gone beyond a profitable rate the interest was also subject to the usury law. Due to this banks thought of other ways to make money, (Ex. Processing fee, application fee, appraisal fee) hence the need for the Truth in Lending Act. A disclosure statement must contain the following 1.) Cash Price less down payment = amount to be financed 2.) Payable in XX installments 3.) Total amount to be paid in installments 4.) Total Cost 5.) Plus other charges The BSP is charged with the implementation of the Truth in Lending Act. Violation of the Act is a crime;
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penalty is fine of P100 to P2000 and imprisonment of at least 1 month but not more than 5 years. Case: Solidbank extended a credit line of P200k to a client. Credit Line when bank sets aside a certain amount for client that client may draw on at any time. SC did not allow Solidbank to collect amount because the additional charges were not indicated in the promissory notes. In 2009, there was another case where the fees were included in the promissory notes but there was no delivery of disclosure statements, collection still not allowed. BULK SALES LAW Purpose to protect creditors from fraudulent schemes of their debtors Acts covered: Sale, assignment, mortgage, or other forms of transfer. 1.) All or substantially all of the stocks of goods other than in the ordinary course of business 2.) Of the business or businesses themselves 3.) Sale of fixtures and equipment used in the conduct of business Not every sale is covered. Ordinary course of business is not covered ex. If all goods sold while engaged in the wholesale business. Requirements: 1.) At least 10 days before intended transaction, person intending to make it should inform his creditors in writing 2.) To prospective transferees, must deliver sworn statement stating full names and addresses of creditors including amount due them 3.) Furnish Bureau of Commerce/Bureau of Domestic Trade a copy of the sworn statement Transfer without compliance with requirements is void; the buyer is considered a trustee. Exceptions: 1.) Judicial sales (execution, assignee in insolvency) 2.) Sales or transfers of property exempt from execution 3.) Sale by manufacturer of his own products SC: Sale of a foundry shop (Horseshoe maker/metal fabricator) SECRECY OF BANK DEPOSITS RA1405 Purpose: to encourage people with money to deposit in bank to promote national economy.
Reserve Requirements: 1.) Highest Checking 2.) Medium- Savings 3.) Low Time Deposit Q: How does BSP use reserve requirements to manage money supply? Why is there a need to manage money supply? A: If there were a lot of money in circulation, prices would go up The reserve requirement is also there in order for the BSP to have money to lend to banks. It is illegal for a bank officer or employee to disclose any information regarding bank deposits and government securities. Exceptions: 1.) Written authority from depositor himself Self explanatory 2.) In case of impeachment ex. Clarissa Ocampo 3.) Court order in case of bribery, dereliction of duty of public officer, violation of Anti-graft and Corrupt Practices Act Graft Cases 4.) Where deposit is the subject matter of litigation Must be read literally Exceptions in other laws: 1.) Examination of books of banks by the BSP 2.) Independent auditors they are not bank employees/officers 3.) Order from CA, violation of Anti Money Laundering Act/Anti Graft and Corrupt Practices Act Secrecy strengthened by General Banking Act of 2000, banks should have employees on permanent basis. GENERAL BANKING ACT OF 2000 Banks are entities authorized by the Monetary Board to accept deposits and lend money. Types of Banks: 1.) Universal Banks 2.) Commercial Banks 3.) Thrift Banks (Savings and Mortgage, Private Development Bank, Stock Savings and Loan Associations) 4.) Cooperative Bank 5.) Rural Bank 6.) Islamic Bank Universal Bank Actually a commercial bank, but also authorized by Monetary Board to engage in the business of an investment house.
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Commercial Bank As a matter of right, only commercial banks should accept deposits in checking accounts/current accounts/commercial accounts/demand deposit 1.) May issue letters of credit 2.) Lend money 3.) Trading of government securities 4.) Foreign transactions 5.) Safety deposit box Q: What is an investment house? A: It has 2 major functions 1.) Rediscounting of receivables one entity goes to an Investment House and as collateral pledges its receivables. (Ex. Business sells on credit and needs capital again, so it borrows from an Investment House) 2.) Underwriting for securities (ex. In corporation that needs more capital that cant be raised from stockholders securities only if 20 or more persons) Get SEC approval first, then have them sold by securities underwriters Thrift Bank 3 Kinds: 1.) Savings and mortgage - To lend money to those that want to construct houses. For small depositors (small amounts of money). Banks prefer big depositors as maintenance costs are the same 2.) Private development bank organized for development of community. If it needs additional capital, it may invite DBP to invest with it. To recognize it, check corporate name, it always has development in its name. 3.) Stock savings and loan associations Theres also a non-stock but not bank. If non-stock no ACS. If stock, may accept deposits from general public, if non-stock only from limited clientele (ex. AFPLSAI restricted only to AFP, PNP and family members; MESALA, Meralco employees including the Lopez group) Many corporations have savings and loan associations and a credit union. Cooperative Bank No individual stockholders, all are cooperatives. Under cooperative office, but bank under the BSP. Rural Banks Provides services to farmers/tenants or simply stated, in rural areas. It is recognizable by Rural in its corporate name. Islamic Banks No interest because it is considered immoral, but there may be profit sharing. Under the law, only corporations under supervision of the Monetary Board may use Bank or Banking in corporate name.
Banks are prohibited from engaging in the business of insurance as an insurer. All banks should be organized as a stock corporation and comply with the requirements of the Monetary Board for licensing. Before a corporation can be organized, it must go through bank. After requirements submitted to the Monetary Board and completed, endorsement by Monetary Board to SEC, which then has a ministerial duty to register it. There is paid-up capital required by the Monetary Board. There is a period increase in paid-up capital in order for banks to be more stable. Q: How many directors may a bank have? A: 5-15, odd or even, no law obliges the BOD number to be odd. If consolidated, it may have a maximum of 21. There must be two independent directors who are neither officers nor employees of the bank. Directors and officers not just anybody may be a director or officer. There is the fit and proper rule. Fit and proper rule Monetary Board came out with qualifications. Must be a college grad. Quorum in meetings GBA allows meeting via tele- or video-conferencing Q: In what enterprises may a Universal Bank invest? A: Equities of both allied and non-allied enterprises. If commercial bank, it may invest only in allied enterprises. Allied affiliated ex. Lopez Group, Ayala Group Q: May a Universal Bank own another Universal Bank? A: Yes, but only another one for 100%. It may also own 1 of each Commercial and Rural. When shares are listed in the Stock Exchange, they are readily disposable. Long-term investments are real properties. Q: if Universal Bank invests allied or non-allied, what is the limit? A: Equivalent to 50% of net worth but only up to 25% in a single enterprise Commercial bank limit is 35% of equity, but still with a maximum of 25% per industry. Lending limits single borrower limit, max amount that may be lent to any borrower (individual, partnership and corporation) 20% of net worth but may be increased by 10% goods. First 20% must be secured by real property, 10% must be secured by good easily marketable such as Bills of Lading, Trust Receipts and Warehouse Receipts.
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General Rule is money should be secured by real estate, 10% is for liquidity. Bank should not acquire treasury shares of its own Treasury Shares shares already issued by a corporation but which shares a corporation reacquires in its own name. Subscribed and Issued Shares no difference between them in terms of rights If a bank acquires treasury shares, they should be gotten rid of in 6 months. Q: May bank extend loans to directors, officers, stockholders and related interests? A: Yes, subject to single borrowers limit but with the approval of majority of the Board of Directors without the vote of the borrowing director. Borrower is not counted for quorum and approval. Ex. 5 Members of the Board of Directors and one of them is the borrower. The quorum is 3, and the vote required is 2. Loans may be secured by Real Property; however, according to Section 37 the max amount that may be loaned out is 75% of the appraised value of the land. If it has improvements, the value loaned is not to exceed 60% of the appraised value of improvements. Improvements must be insured. Under the General Banking Act, bank should cause to be published at least every quarter their financial statements. Clearing house Bangko Sentral Lending facility for purpose of collecting checks drawn on one bank but deposited in another. Ex. BPI Katipunan depositor deposited checks from other banks such as Metrobank and Allied Bank. Clearing house is where banks swap checks they received drawn on other banks. Physically there is no cash involved, but transactions recorded. Under present rules if within 24 hours a bank dishonors check, check should be returned or else considered cleared. Bank cannot declare dividends if clearing house account are overdrawn. There is only movement of cash if clearing house account is overdrawn. PDIC In 60s to the 70s, there were so many bank closures. In order to restore faith in banking, the PDIC was created. The PDIC insures only deposits in savings, current or time accounts, not any other investments even if made
with or through a bank. It excludes money market transactions. Q: Why are money market placements not insured in PDIC? A: They are not deposits but investments. Money Market Placements transactions through bank but bank is not borrower. Borrowers are other corporations that need to borrow for a short time. Reason for Money Market Placements is that normal loans take time. Bank is an intermediary between the borrower and lender in the Money Market Placement. Money Market Placement is lending to another person. Advanced is that in case of bank closure, you make get Promissory Note by borrower. PDIC The amount insured P500k per person per bank in the Philippines, whether in Philippine or foreign currency. If it is a foreign currency deposit unit, indemnity amount in pesos on the day the bank is ordered closed. When a bank is ordered closed, all deposits of a person in different accounts in different banks will be collated. In the present law, joint accounts are insured separately. So it is P500k per sole account per bank, and a total of P500k for all joint accounts combined per bank. A joint account is an account in the name of 2 or more persons. It is indicated by the words and/or (survivorship account, each can withdraw on his own) and and (all depositors required to sign withdrawal slip). Under the law, deposits in joint account are presumed co-owned in equal parts unless the contrary is proved. Example 1: Sir Sir + Wife Joint Account Sir + GF Joint Account Amount Recoverable by Sir Example 2: Sir Sir + Wife Joint Account Sir + GF1 Joint Account Sir + GF2 Joint Account Amount Recoverable by Sir 490k 500k 500k 990k
490k 500k 500k 500k 990k
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New Central Bank Act Reason for the creation of the Bangko Sentral ng Pilipinas was the bankruptcy of the Central Bank created in 1948. The Bangko Sentral has a corporate existence and is controlled by a board, the Monetary Board. The Monetary Board is composed of 7 members: 1.) BSP Governor 2.) Cabinet Member depends on the President who to send, currently it is DTI Secretary 3.) 5 Full time members from the private sector reason is so that the BSP will not become a dumping ground of political lame ducks. Private sector representatives need not necessarily be from privately owned private corporations. They may come from GOCCs such as the DBP, SSS, GSIS but the appointment is staggered. The BSP Governor has a term of 6 years, except when it is to fill a vacancy for an unexpired term. Full time directors are also appointed for a 6-year term. They may be re-appointed once for a total term of 12 years. Prohibition to Join Private Banks - Within the period of 2 years from separation from the Monetary Board, neither the governor nor the full time directors may serve in any capacity under corporations under the supervision of the Monetary Board (banks, quasi-banks and investment houses), except if he would be representing the interest of the Philippine Government. The Monetary Board is obliged to meet every other week because it has to closely monitor the prices and take action. In every meeting, there should be a quorum of at least 4. To pass a resolution, at least 4 members should concur. If the Governor cannot attend, he should send a Deputy Governor. If Secretary cant attend, he should send an Undersecretary. Functions of the BSP 1.) Supervision of the banking system 2.) Manages currency and money supply 3.) Gold purchasing Q; What is money? A: Any medium of exchange, anything could be money Money vs. Currency Currency is defined by law as notes and coins issued by the BSP and are in circulation. Currency has 2 qualifications: 1.) Issued by the SP 2.) In circulation, meaning out of the BSP vaults TRIVIA BSP prints the notes and mints the coins. Production is local but materials are imported. Notes are not paper;
they are cloth. The cost of materials is very high. The currency is called Peso. Sign now is simply the capital letter P. There are 2 other countries that use Peso; they are Argentina and Mexico. Part of Peso is called a Centavo. The sign for a Centavo is the small letter c.
A note contains 2 sets of serial numbers; they are located at the upper left and lower right. They also have 2 signatures on them, one belongs to the Philippine President, and the other belongs to the BSP Governor. The life of a note is estimated at 5 years, but in Metro Manila it is merely 1 year. If estimated life is over, it is withdrawn and demonetized, it loses the character of money. Q: May a damaged note be replaced or accepted for deposit? A: Yes, it may, but it must fulfill the following requirements: 1.) If damaged, there must be at least 3/5 of the note present. 2.) It must have at least one set of complete serial numbers 3.) It must have at least one signature present 4.) There must be no intentional defacement (Its a crime). BSP issued a circular for bank not to accept for deposit or replacement notes showing intentional defacement. Coins have a much longer existence. Damaged coins may also be replaced if there is no sign of filing, clipping or perforation; the reason for this is that the metal content would be diminished. Ideally, the amount stated is the total cost of making coins, however, Philippine coins are worth more than their stated value. In case of possession of damages coins, the possessor is presumed to have caused the damage. The year in front of the coin is the year it was minted. Q: What is legal tender? A: Legal tender is currency in such quantity prescribed by law to be accepted in payment of obligations. All Philippine notes are legal tender for all obligations. However, coins are legal tender only up to a certain amount. A Monetary Board circular changed the amount of what may e legal tender for coins. All centavo coins are legal tender up to P100 while all Peso coins are legal tender up to P1000. Contrast this with the law that states that for coins worth 10 centavos or less they are legal tender only up to P20, while coins worth 25 centavos and up are legal tender only up to P50.
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CODE OF COMMERCE The Code of Commerce deals with merchants Q: Who is a merchant? A: Could be a natural or juridical person If a natural person: 1.) At least 18 years of age 2.) With the capacity to contract 3.) Regularly engaged in commerce Commerce buying and selling If a juridical person partnerships corporations 1.) Organized according to law 2.) Regularly engaged in commerce and stock
TRUST RECEIPTS In this transaction there are 2 parties, the entruster and the entrustee. The entruster has a security interest over the goods. Q: What are the undertakings of the entrustee? A: To sell the goods and from the proceeds, remit the amount owing to the entruster within the period stipulated. If the amount owed cannot be remitted, to return the goods within the period. The proceeds mentioned include the profits as long as there is still an amount owing to the entruster. Trust receipts are issued to guarantee debts due to failure to pay the amount bank advanced in the Letter of Credit. Returning the goods does not extinguish the obligation to pay the amount. However, the bank may dispose of the goods. The proceeds of such sale will be credited to the debt owing in the Trust Receipt. Trust receipts may be between individuals The PD regulating trust receipts was made to protect the banking system. The PD requires the entrustee to insure the goods against all risks. When a document has the same stipulations as a promissory note along with undertakings present in a trust receipt, then it is still considered a trust receipt. In banks, the transaction is often called an L/C-T/R line because of the interrelation of the 2 transactions. FOREIGN INESTMENTS ACT Its purpose is to entice foreign investments in order to bring in more foreign currency. It was formerly illegal for transactions to be paid in foreign currency or in relation to foreign currency. Foreigners may own 100% of any export enterprise. A foreigner may own 100% of a domestic market enterprise so long as it is not covered by Negative List A &B Negative List A activities reserved by the Constitution or other special laws to Filipinos such as advertising, public service. Negative List B any activity relating to ammunition, ordinance, repair and maintenance of armaments without prior approval of the Secretary of National Defense. A foreigner may also own 100% of a domestic market enterprise if the foreigner will make an investment worth $200k or equivalent but not in areas where there are health related risks ex. Bars, beer houses, massage parlors, sauna baths, dancing halls.
Regularly- requires habituality, does not require a certain volume of sales or buying. LETTERS OF CREDIT A letter/correspondence addressed by a merchant to another to enable a person named in the letter to attend to a commercial transaction. Q: How many parties are there? A: There are 3. The sender who is a merchant, the addressee who is also a merchant, and the person name in the letter who may or may not be a merchant. Requirements of Code of Commerce for a Letter of Credit: 1.) Person to whom credit is to be extended to is named. 2.) The amount or maximum amount of credit extended to the person shall be stated. If the requirements are not met, it is called a letter of recommendation. A letter of credit cannot be in negotiable for. Q: Why is there a need to specificy the beneficiary? Why not just bearer or order? A: Because of obligations to each other. Kinds: 1.) Domestic all parties in the same country; good for 6 months 2.) Foreign different countries; good for 12 months MODERN LETTERS OF CREDIT Bank credit facility to enable persons to have a commercial transaction where buyer would be assured of delivery and the seller assured of payment. Commercial banks as a general rule are allowed to issue letters of credit, but Monetary Board may allow other banks to issue Letters of Credit.
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Q: What if the investment is not $200k? A: It is okay but only activities that are certified by the DOST as new and no less than 50 Filipino employees are hired. The investment must also be no less than $100k. Land Ownership Formerly natural born Filipinos (ex. Naturalized in another country) allowed to acquire urban properties of not more than 5000 square kilometers or rural land of not more than 3 hectares. If both spouses are formerly natural born Filipinos, their total lands must not exceed the above-stated land areas. Also, the land acquired must be in different locations. To be considered Filipino, domestic corporations must be at least 60% owned by Filipinos. If it is a foreign corporation, it must be 100% Filipino owned. WARSAW CONVENTION It has two purposes: 1.) Uniform documents for international air travel. 2.) To fix the liabilities for international air carriers. The signatories are referred to as high contracting parties, the Philippines was not an original party. The following documents must be uniform: 1.) Passenger Ticket 2.) Baggage Check 3.) Air Waybill Baggage Check it is the white strip of paper with adhesive attached to the baggage Air Waybill Bill of lading issued by an air carrier. Air travel is considered international if the port of origin is in one country and the port of destination is another country. Air travel is also considered international if the port of origin is in one country, there is a stopover in another country, and the port of destination is the original country. This often occurred when there were multiple colonies (ex UK stopover Hong Kong). Original indemnity used to be fixed in Swiss Francs; this was later changed to US Dollars. The indemnities are the following: 1.) Death of a passenger - $100k 2.) Physical injuries - $100k maximum, dependent upon the severity of the injury. Indemnity in case of check-in articles the maximum is $1/kilogram. The value must be proven to be at least $1/kilogram; otherwise it is only value you can prove.
To get the full amount you must: 1.) Declare the value 2.) Pay fare according to the value Indemnity in case of hand-carried articles: Max amount is $1000 regardless of weight and actual value. COMMON CARRIERS A common carrier is a person natural or juridical who is regularly engaged in the transportation of goods, passengers or both, offering its services to the public for a fee. 1.) Transporting goods, passengers or both. 2.) Offering service to the public 3.) For a fee The common carrier is at liberty to transport what they want. Q: What is the public? A: It is not necessarily the general public; it may merely be a narrow segment of the public. Ex. A school bus operator is a common carrier. A pipeline is also considered a common carrier, it transports fuel, and its clients are Shell and Caltex. Q: Do you need a motor vehicle? A: No. The diligence required of a common extraordinary diligence. carrier is
Extraordinary diligence is to be exercised when the goods are unconditionally placed at the disposal of the common carrier, until the goods shall have been delivered to the consignee or until consignee has been informed of arrival of the goods and given a reasonable opportunity to claim the goods. Reasonable opportunity circumstances. is dependent upon the
An exception is when the shipper exercises the right of stoppage in transitu. Q: In case of stoppage in transit, what is the relationship of the common carrier to the shipper? A: The common carrier is merely a bailee, the diligence required is now only that of a good father of a family. Exception to the exception if the shipper asks for delivery back to himself. Q: Is the common carrier an insurer of the goods? A: No, the common carrier is not an insurer against all risks related to transportation.
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There are 5 occasions that a common carrier may avoid liability in case of loss or damage of goods: 1.) When the proximate and only cause is a storm, earthquake, lightning, or other natural calamity. 2.) When the proximate and only cause is an act of a public enemy in times of war, whether civil or international. 3.) When the proximate and only cause is the character of goods or a defect in the container or packaging. 4.) When the proximate and only cause is the act or omission of the shipper himself. 5.) When the proximate and only cause is the order of a competent public authority. To invoke the exceptions there must be no unnecessary delay in the prosecution of the voyage. The carrier should not have committed an improper deviation. The diligence required is still extraordinary diligence (However according to NCC1739 only Due Diligence). Q: If not one of these five occurred, might the carrier excuse itself from liability? A: Yes it may, but it is the obligation of the Common Carrier to prove that under the circumstances it exercised extraordinary diligence. The burden of proof is on the common carrier. Q: If one of these five occurred, is there a chance to recover from the common carrier? A: Yes, but the burden of proof is on the shipper to prove that there is failure to exercise the required standard of care, still extraordinary diligence. Q: May a common carrier and shipper validly stipulate on a standard of care less than extraordinary? A: Yes, but it must conform to the following requirements: 1.) Must be in writing and signed by both parties 2.) It must be supported by consideration other than to transport (ex. Discount) 3.) The stipulated standard of care must not be less than that of a good father of a family. 4.) If there are other stipulations, they must be fair and reasonable. There are 2 prestations in a bilateral contract to transport. With respect to the carrier its prestation is the promise of the shipper to pay the fare. With respect of the shipper, it is the promise of the carrier to transport the goods. Standards of Care: 1.) Utmost diligence of a very cautious person 2.) Extraordinary diligence 3.) Good father of a family There is no name for the standard of care in between extraordinary diligence and that of a good father of family.
The shipper also has the obligation to minimize damage to itself. With respect to the transportation of person, the standard of care required is the utmost diligence of a very cautious person. Q: When does it start? A: When the carrier agrees to take in the person as a passenger. Q: May the passenger and the carrier stipulate a lower standard of care? A: No Q: Is a common carrier insurer against all risks? A: No, it is not. In case of mechanical defects, the common carrier is always liable. If a common carrier violates a traffic rule, it is always liable. The common carrier shall be liable for acts or omission of its employees although said employees may have acted without or in excess of their authority. There is no exception to this. For acts or omissions of other passengers or third persons, if the common carrier could have prevent death or injury by merely exercising the diligence of a good father of a family and it failed to do so, the carrier is liable. Q: When may a common carrier be liable for moral damages? A: In the following instances: 1.) Death of passengers in favor of the heirs 2.) When passenger suffers physical injuries 3.) When the common carrier acts in bad faith A common carrier is liable for moral damages against a waitlisted passenger whose number is called, given a boarding pass, allowed to proceed to the pre-departure area but not allowed to board. CARRIAGE OF GOODS BY SEA ACT The COGSA is a law of American origin; it was made part of our laws during the American occupation. In case of conflict between the Code of Commerce and the COGSA, the former prevails due to specific provision in the COGSA. It is applicable in shipment of goods by seas from another country. COGSA wont apply if: 1.) Not covered by BL 2.) Livestock 3.) If transportation on the deck is agreed upon
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4.) It is seagoing Time for claim if there is loss or damage: 1.) If apparent the claim should be filed immediately with the carrier 2.) When the loss or damage is not apparent, then within 3 days. If the claim is denied, the claim should be filed in court within 1 year from the delivery of the common carrier to the arrastre. When the arrastre receives the goods, it inspects the goods and lists the defects in the tally sheet. If there are defects found, they are formalized in the Bad Order Form. Q: Is the filing of a claim with the common carrier a condition precedent to recover from the carrier by complaint. A: No, it is not required. This is different from the Code of Commerce where the claim with the Common Carrier is a condition precedent. Q: When goods are insured, when should the claim by the insurer be filed? A: Also within one year, the insurer merely steps into the rights of the insured. If goods not damaged in tally sheet or bad order form but the goods upon turnover by the arrastre are damaged, the suit should be against the arrastre. Q: If suing arrastre operator, what is the basis? A: The basis is quasi-delict since there is no preexisting contractual relation between the arrastre and the consignee. Q: If the goods are insured but no claim is made by the insured against the insurer within 1 year from delivery of goods, is the claim against the insurer barred after one year? A: No. In case there is no annotation on the tally sheet and the customs broker got clearance, the broker also offered to transport the goods, if there is any damage, the suit should be brought against the broker. The ruling is that a customs broker who offers to transport goods to client as part of services qualifies as a common carrier. Q: In case of missing goods, when should the claim be filed? A: Within one year from the last day when the carrier would have delivered to goods to the arrastre operator. ADMIRALTY Not every watercraft is a vessel, it has to have the following qualifications: 1.) It must not be a mere accessory to another watercraft (ex. Lifeboats) 2.) It must be registered with the MARINA 3.) It must be used to transport goods, passengers or both Q: Who may own a vessel? A: Anybody If a vessel is owned by more than one person, there is a disputable presumption that a partnership exists. Hypothecary rule the limited liability of shipowner. It is the value of the vessel, plus earned freightage plus insurance, if any. Q: Who participates in admiralty? A: Those involved in navigation housekeeping (compliment) The crew consists of the following: 1.) Captain 2.) Mates (1st, 2nd, 3rd etc.) 3.) Engineers. The title captain is used to refer to the commanding officer of a ship that goes abroad. The title master is used to refer to the commanding officer of a ship that is engaged in local/inter-island travel. A ship captain has three roles: 1.) Represent the owner of the vessel 2.) Technical director of the vessel 3.) Represents the country where the vessel is registered. Contracts in Admiralty: 1.) Charter party 2.) Bottomry 3.) Respondentia 4.) Marine Insurance Q: What is a charter party? A: A contract of lease over a vessel There are different kinds of charter parties: 1.) Bareboat/demise 2.) Affreightment 3.) Time-charter 4.) Voyage-charter A bareboat charter is one where the lessor provides only the vessel, without crew, stores (things you eat), provisions (water and fuel). Time charter lease for a specific term of the vessel, with stores and provisions. Voyage charter- lease of a vessel for a voyage or series of voyages, with stores and provisions. According to the Supreme Court, the true charter is the bareboat charter. The time and voyage charter are merely subtypes of affreightment, which is a contract of carriage.
(crew)
and
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Ship agent - Corporation representing the owner in every port where vessel may make a call or stop. The ship agent is in charge of provisioning the vessel. Q: What will the liability of a ship agent be for procurement of provions? A: Different from mere agent, a mere agent is liable if he discloses his principal and acts within the authority given him. A ship agent is solidarily liable with the ship owner for contracts entered into for provisions of the vessel. In admiraly there is also a husbanding agent Q: Who is the husbanding agent? A: Agent in charge of freightage and settlement of averages Q: What are averages? A: In admiralty, they refer to damages Types of averages: 1.) Gross/General Average 2.) Specific/Particular Average General averages are damages suffered by vessel or owners of cargo that shall benefit not only the shipowner but also the owners of the other cargo. Specific averages are those that do not benefit anyone. Procedure for general average: 1.) Captain calls meeting with representatives of owners of cargo 2.) They make a decision to throw away certain cargo 3.) If the decision is urgent captain may choose, choosing from the largest and of least value proceeding to the smallest of the most value Supercargoes representatives of owners. They sell cargo for the owner. Generally, they are only able to use profits to buy goods. If they have a special power of attorney, they may use capital to buy goods. Bottomry Loan taken by ship-owner secured on the vessel. If the vessel sinks, the creditor loses the right to collect the obligation to pay is extinguished. If loan exceeds the value of the vessel, the excess is an ordinary loan. Respondentia loan taken by cargo owner, secured by the cargo. If loan exceeds the value of the cargo, the excess is an ordinary loan. Marine Insurance over vessel or freightage, cargoes or profits expected from cargo. Accidents in Admiralty: 1.) Collision 2.) Arrival under stress 3.) Shipwreck
Collision Impact of two or more moving vessels Allision impact of one stationary and one moving vessel Q: Is the owner of a barge a party to a contract of carriage? A: No the owner is not a party, unless the barge is selfpropelled. The contracting party is the owner of the towing vessel. Three zones of time in Collision: 1.) First time anytime danger of collision appears. 2.) Second time from time the danger appears until it becomes a practical certainty. 3.) Third time from the time it becomes a practical certainty to impact. Arrival under stress a vessel is forced to sail to the nearest port. Examples are the following: 1.) Natural calamity along route. 2.) To avoid pirates 3.) Loss of provisions 4.) Accident that renders the vessel incapable of prosecuting the voyage. Q: What is the obligation of ship captain in arrival under stress? A: The captain must execute a maritime protest a sworn statement where the captain relates what transpired. If theres a collision of two vessels and it cant be determined who is at fault, each bears his own loss. This is the Doctrine of Inscrutable Fault. However, both ship-owners are solidarily liable for the damage to all cargoes. INTELLECTUAL PROPERTY CODE Repealed and compiled different laws on patent, copyright, trade names, service names, service marks. Administered by the Intellectual Property Office. The head is the Director-General who must be at least 35 years of age and a lawyer. The term of the DirectorGeneral is 5 years, eligible for a single re-appointment. However, the first Director-General appointed has a term of 7 years without re-appointment. Kinds of Intellectual Properties: 1.) Patents 2.) Copyrights 3.) Industrial designs 4.) Layout/Topography of integrated circuits 5.) Geographic indication 6.) Trade related aspects of Intellectual Property Rights Industrial designs combination of lines, colors or lines and colors. Lines need not be straight.
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Geographic indication indicated by geography, ex. Guimaras Mangoes, Bangus Dagupan. Patent issued for an invention, it has to comply with the following requirements: 1.) New 2.) Involve an inventive step 3.) Capable of industrial application Q: When is it new? A: When it is not part of a prior art. Something merely newly discovered cant be patented, except for micro-organisms. Capable of industrial application could lead to development of new or existing industry. Patent good for 20 years from date of filing of application. People entitled to patents: 1.) Inventor if 2 or more persons work on an invention together, in absence of agreement to the contrary they are co-owners. If they work independently of each other, they are subject to the first to file rule. 2.) Employer if the employer purposely hired another to work on an invention. 3.) Employee if hired to do something else, even if worked on it during work hours. Not all inventions may be patented. They cant be patented if they are contrary to law, morals, or public order. If not contrary to law, but contrary to morals it may not be patented but may still be mass-produced. Not patentable: 1.) Mere ideas 2.) Concepts 3.) Mathematical solutions 4.) Surgical Procedures (but gadgets for these procedures may be patented) TRADE NAMES AND TRADEMARKS Trade name name a person uses to identify his products and uses them to identify his product from others. (ex. Del Monte) Trademarks sign or emblem used to distinguish products from others Business name Name that a person uses to identify his place of business (ex. Highland Construction Supply). Business Names Law if using a business name different from true name, you register with the DTI, Bureau of Domestic Trade. There is a need for a public
record of who owns business in order to know who to sue. This is needed for signs or printed documents. Service name name person uses to identify service (ex. Good Year Servitek, Rapide) Trade names and Marks include service name and mark Basic rule if trade name or mark already registered in name of a person, no other person may use a similar or confusingly similar name or mark on connection with a similar or closely related product. Ex. You cant use Del Monte in connection with foodstuff but you can use it for underwear. Trade name may at the same time be trademark. Ex. The way Selecta is written is a trademark. Doctrine of colorable imitation under this doctrine, there is colorable imitation when a person gives his product an appearance that is similar or confusingly similar in appearance to the product of another calculated to make the ordinary buyer believe that his product is the same as the product of another. Q: Who is an ordinary buyer? A: Buyer relying on general appearance including color and color combination. Doctrine arose out of dispute with Del Monte bottles. Bottles of Del Monte are patented. One case involved the Sunshine brand of ketchup that used the bottles of Del Monte because the owner of Sunshine could not afford to make his own bottles. The manufacturer replaced the labels of the bottles but the labels had the same color combination. Add to this the fact that the bottles had markings that they were products of Del Monte. It was not ordinary buyers that were misled but also those that read the labels. Beer na Beer Case In the 70s, Asia Brewery created Beer na Beer that had the same taste as San Miguel, but Asia Brewery also used the same shape of bottles. The Supreme Court held that there was no unfair competition, applying the holistic test. The bottle taken as a whole could not be mistaken for San Miguel. Doctrine of Secondary Meaning When a name has been used so long and so exclusively to identify a product that whenever the name is mentioned, reference is readily made to said product, although the name is not registered because it is no registrable, no other person may use that name in connection with a similar or closely related product. Q: What words may not be registered? A: Generic, descriptive, immoral, geographic names, and misdecriptive words. Names of deceased
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Presidents may not be used without the consent of the widow. Ex. Ang Tibay shoes never registered but used for such a long time that the Doctrine of Secondary Meaning is applied. Tests to Determine Infringment: 1.) Dominancy test to determine if there is possible confusion between products, look into the dominant features. 2.) Holistic test consider other factors. Even if there is similarity, there is likelihood that they will not be confused with each other. Example of Dominancy Test 1.) Converse vs Custombuilt both shoes use the same star logo 2.) Alaska All Purpose Milk vs Alacta Infant Preparation not likely to be confused with each other ue to different purposes. One if infant formula, the other is cows milk. Trademarks may be registered before use. COPYRIGHT Intellectual Creation Examples of copyright: 1.) Computer programs 2.) Books 3.) Movies (stories and soundtrack) 4.) Musical compositions (lyrics and melody) 5.) Compilations (even of those already done) 6.) Adaptations Owners of copyrights 1.) Intellectual creator if 2 or more persons, coowners unless there is an agreement to the contrary. There is no first to file doctrine due to impossibility of making the same intellectual creation. 2.) Employer if person hired to do intellectual creation, unless there is an agreement to the contrary. 3.) Employee if person is hired to do another thing, even if done during work hours. If person commissioned another to do intellectual creation (example, mural maker), in absence of agreement to the contrary, finished work belongs to the owner, but copyright belongs to person commissioned. Term of copyright from moment of creation, the entire lifetime of the creator up to 50 years from death. The 50-year period starts the first day of the year following the death of the copyright holder. If a person wants copyright protected, within thirty (30) days of becoming public, register the work. Copyright is one property and the copyrighted work is another property.
Copyright cant be attached while it belongs to the intellectual creator. However, when transferred to another, it may be levied. This is different from patent which can be attached even if owned by the intellectual creator. A copyright is an economic right, however the owner also has moral rights. Economic rights: 1.) Right to produce or license the right to produce 2.) Right to make versions of the copyrighted work 3.) Right to the translations of copyrighted work Computer Programs doctrine of fair use. One legitimate computer program per computer. Moral Rights: 1.) Right to state how authorship is to be presented 2.) In there are errors, rectification of the errors. Q: Whom do our intellectual property laws protect? A: The following: 1.) Citizens, nationals 2.) Residents with an effective establishment 3.) Residents of a country that participated in an international convention where the Philippines also participated. 4.) Citizens of countries that offer reciprocal rights to Filipinos. Not all forms of copying constitute infringement of copyright. Ex. Copying for personal use. In case of lawyers or professionals the quoting of authorities. Libraries with old books may reproduce these books so long as they are no longer being published. However, this is only for library use and not for resale. Remedies available to copyright holder: 1.) Civil case for injunction plus actual damages 2.) Criminal prosecution in copyrights, the first infringement is sufficient ground for prosecution vs patents where prosecution may be had only on the second infringement. Law provides for the destruction of printed materials, plates and stencils. Q: May foreign corporation not registered with the SEC as a foreign corporation sue in our courts for the protection of intellectual property rights? A: Yes, Philippines is part of Paris Convention for Protection of Intellectual Property Rights. Rebroadcast simultaneous broadcasting.
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CORPORATION LAW The law defines a corporation as an artificial being, created by operation of law, having the powers conferred by law or incidental to its existence. It is a juridical person. In the Civil Code, a partnership is also considered a juridical person or an artificial being. However, a partnership and a corporation are only similar in the sense that they are both juridical persons. Partnership Corporation Manner of Creation Mere agreement of the Created by law or by parties except when the operation of law capital contribution is more than P3000 or when a partner contributes real property. In the second instance, an inventory of the real property is made in a public instrument. A limited partnership is also not created by mere agreement of the parties Name that may be used Any name as long as it is Corporation must always not similar or confusingly include the words similar to the name of corporation or another existing incorporated, which may partnership or corporation be fully spelled out or abbreviated Purpose Always for profit. It is May or may not be for found in the definition of profit (ex. Non-stock partnership itself corporations) Term of Existence Partners may agree on Cannot be for a term any term longer than 50 years Number of Organizers Minimum of 2 5 to 15 except in corporation sole Management Managed by all partners. Managed by a Board of Decisions made by Directors or Trustees partner/s owning except for corporations controlling interest sole or close corporations Amount of Capitalization No minimum amount P5000 minimum paid-up capital Right of Succession Does not exist in Expressly given to partnership corporations Extent of Liability Partners may be obliged Shareholder may not be to contribute to pay for obliged to contribute more partnership obligations than current participation except when the corporate veil is pierced Causes of Dissolution At will by withdrawal of Cannot be dissolved at will
any partner Sharing of Profits Shared according to the Dividends are always proagreement of the parties rated Nature Both a person and a Only a person, not a contract contract Relationship to Property Partners may validly claim Shareholders cant claim they are co-owners of to be co-owners of properties in the name of corporate property the partnership Organizers of a corporation are merely organizers; they become incorporators only upon signing of the Articles of Incorporation (AOI). Q: Who is an incorporator? A: A natural person among the organizers of the corporation who signs the AOI. Incorporators are also corporators, but may cease to be corporators in case of divestment of shares. However, once you are an incorporator, you are always an incorporator. The terms incorporator and corporator are applicable both stock and non-stock corporations. However, corporator for a stock corporation is called stock/shareholder while in a non-stock corporation corporator is called a member. to a a a
Stock Corporation (1) Authorized Capital Stock (ACS) divided into shares; (2) authorized to declare dividends from surplus. Non-stock Corporation Does not meet both qualifications. A non-stock corporation may have ACS but it may not be authorized to declare dividends. Q: How do you form a corporation? A: File the AOI and other pertinent documents with the SEC As a practical matter, think of a corporate name first and check whether it is available. If the name is not similar or confusingly similar to the name of an existing corporation, file the name with the SEC. This may be done by a verification slip. This can be procured online. Afterwards, pay the fee to reserve the name. Documents to be submitted to SEC: 1.) Name verification slip 2.) AOI 3.) Treasurers Affidavit 4.) Undertaking to change corporate name 5.) Registration Data Sheet 6.) By-laws (Optional, may be done at a later date) Q: What is the AOI? A: Prescribed document to be filed with the SEC for the purpose of incorporation
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Incorporators should be natural person with capacity to contract. Majority should be residents of the Philippines. Stipulations in the AOI: Article 1 Corporate Name 1.) Must not be similar or confusingly similar to the name of an existing corporation or partnership 2.) Should have the words corporation or incorporated whether fully spelled out or abbreviated The following cant be used as part of the corporate name: Philippine, Republic, National, State Article 2 Purposes Corporation can have only one primary purpose but any number of secondary purposes as long as they are compatible with the primary purpose and among themselves. Incompatible purpose if banking is primary purpose, cant be engaged in the business of insurance as an insurer. The primary purpose cannot be stated briefly. Article 3 Term of Corporation It may not be longer than 50 years. It may be extended for another 50 years before it expires without any limit as to the number of extensions. The extension may not be made earlier than 5 years before expiration of the term unless it is for justifiable reason. Term may be shortened, however, if the shortening of the term is for the purpose of dissolution, it requires prior BIR clearance. Article 4 Principal Place of Business According to the SEC, the full and exact address must be specified. Article 5 Full name, nationality and complete address of every incorporator, which must not be less than 5 but not more than 15. Only middle initial may be stated as an initial, the other names must be spelled out. Addresses of incorporators may not be a PO Box. Article 6 Part 1 - Number of directors, for stock corporations 5 to 15, for non-stock corporations a minimum of 5. No law requires an odd number of directors. Part 2 Full name, nationality, addresses of incorporating directors. Persons mentioned in the AOI as directors of the corporation. Incorporating directors must be subscribed to at least 1 share. Article 7 Part 1 Amount of ACS, number of shares representing stock, value assigned to every share
Part 2 Full name of the subscribers, nationality, number of shares subscribed, and value of every subscription. Total subscription must be at least 25% of ACS. ACS is always in Pesos. The ACS is the maximum amount that shall initially be capitalized. Shares are units of participation. Unless laws or regulations require a minimum amount of paid-up capital, incorporators can agree on any amount. The lowest par value is one centavo. Subscribers may include partnerships or corporations. Article 8 Names of subscribers, amount individually paid on their subscription, the total of which must be at least 25% of the total amount subscribed. It is not required that every subscriber pay at least 25%. Article 9 Name of the Treasurer Article 10 Provision applicable to corporations, the business of which is reserved for Filipinos. Other Matters: Shares may have no-par value they are issued for value of at least P5. All subscriptions to no-par value shares must always be paid in full. Payment for no-par value shares is always capital contributi on; it cant be used for the payment of dividends. Certain corporations cant issue no-par value shares. Examples are banks, insurance companies, trust companies, public utilities, building and loan associations. Article 7 for Non-stock Corporations Merely states names of donors or contributors, opposite their names is the amount contributed. By-laws may be filed with AOI, if not so filed it must be filed within 30 days from issuance of certificate of registration. If the by-laws are filed with the AOI, must be signed by all incorporators. If filed later, it need only be signed by a majority of the incorporators. Once a certificate of registration is issued, there is a new person in the eyes of the law. As a person, a corporation may enter into contracts and acquire property exclusively in its own name. It may sue and be sued exclusively in its own name. Piercing the Veil of Corporate Entity/Disregarding the Separate Corporate Personality: 1.) Even if a person has the controlling interest in a corporation, it does not follow that he is obliged to pay the obligations of the corporation.
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2.) Separate personality of the corporation may be set aside if there is clear and convincing evidence that the corporation was organized for tax evasion, to defeat the public convenience or commit fraud. 3.) If there is clear and convincing evidence that the corporation is merely an alter ego of the controlling stockholder, the corporate personality may also be set aside. 4.) In 2 corporations, if one may be said to be a mere instrumentality of the other. Contents of By-laws 1.) Meetings of stockholders or members 2.) Directors 3.) Officers 4.) Stock Certificates for stock corporations 5.) Corporate seal 6.) Amendments The by-laws are the house rules of the corporation. Meetings Corporation should have an annual meeting (called regular meeting). The date and time of the meeting is indicated in the by-laws. The venue of meetings is usually the principal office of the corporation but it may be held elsewhere in the city or municipality where the corporation has its principal office. By-laws also mention the agenda of annual meetings. The annual meeting is the most important as it is for the purpose of the election of directors for the following year. Special meetings upon call by president. Law requires a call. There must be a written notice at least 10 days before the scheduled meeting. In special notice, matter that is to be taken up must be stated. No other matter may be taken up without concurrence of all those present. Attendance in Meetings stockholders or members may attend in person or by proxy. In every meeting there must be a quorum at the start of the meeting. If there is no quorum at the start of the meeting, it must adjourn. If stockholders or members leave in the middle, there is no problem as quorum is reckoned at the start of the meeting. Quorum presence of stockholders in person or by proxy representing the majority of the outstanding shares. Stock dividends are not subscribed they are merely issued. Treasury shares are already subscribed or issued, they dont revert back to being unissued or unsubscribed shares if made into treasury shares.
Quorum in non-stock corporations presence in person or by proxy of at least a majority of the number of members. In corporations regarding quorum or voting, the number required for voting or quorum is always preceded by at least. Ex. At least a majority, at least 2/3 Practical matter, in non-stock corporations, put in the by-laws what constitutes a quorum in order for nonstock corporations to be able to operate even with little attendance. Proxy there are two meanings, the representative and his authority Rules on Proxy: A proxy arises from a contract of agency, both should have capacity to contract. Authority must be in writing, signed by the stockholder/member. Need not be in the form of a power of attorney. Signature in proxy form should match the specimen in the files of the corporate secretary. The proxy may be for only 1 meeting or longer period but not exceeding 5 years. Q: May proxy be revoked? A: Yes, except if it was issued pursuant to a contract, in which case, may not be revoked without the consent of the proxy. Revocation may be express or implied, it may be implied by personal attendance of the stockholder. In stock corporations, a Voting Trust Agreement may be entered into. In a VTA, the stockholder entrusts votes to voting trustee, term is for a maximum of 5 years. Proxy 1.) Available in both stock and nonstock corporations. 2.) Private instrument is sufficient 3.) Filed with the Corporate Sec Voting Trust Agreement 1.) Only in stock corporations 2.) Public instrument 3.) Filed with the SEC 4.) VTA entrusts stock certificates to trustee who in exchange delivers to the stockholder voting trust certificates
Directors must have all the qualifications provided in law and by-laws and none of the disqualifications in both. Under the Corporation Code, a Director must have the following qualifications: 1.) Own at least 1 share or be a member 2.) Not convicted of a crime punishable by imprisonment for a period exceeding 6 years or
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violation of the Corporation Code five years prior to election. Must own a share it is enough to subscribe Q: What kind of share? A: No distinction, but in practice, preferred shares are deprived of right to elect directors and be elected as directors. Qualifications: Banks fit and proper rule, special law may provide for other qualifications. Disqualifications classic example is Gokongwei who was the director of a company in competition with the other company where he was trying to be elected director. Directors are generally not entitled to regular compensation but may receive compensation if so provided in the by-laws or if they pass a resolution giving themselves compensation and ratified by at least 2/3 of the outstanding common shares. Law allows directors to receive reasonable per diems for attendance in meetings of the board. Law allows directors to receive share in profits but not more than 10% of last years profit prior to income tax. Q: What is the term of directors? A: Refer to by-laws, but according to law, one year. Q: May a director be removed? A: Yes, by stockholders or members with or without a valid reason. Exception: minority director may only be removed for a valid cause. SC: Any act of removing a director is always an intracorporate dispute. In stock corporations only cumulative voting this is to enable minority stockholders to have a representative in the Board of Directors. BOD sets the policies of the corporation. It meets monthly according to the Corporation Code but BL may provide otherwise. Quorum of BOD is majority of the members at the start of the meeting. Self-dealing Director Director may enter into contracts with corporation where he is a director under the following conditions: 1.) Proposal approved in meeting of board where there was a quorum without counting his presence. 2.) Proposal approved by a majority of the quorum without counting his vote. 3.) Terms and conditions must be fair and reasonable.
Officers of a Corporation 1.) President 2.) Treasurer 3.) Secretary President A director. May not be the treasurer and/or secretary Treasurer no requirements Secretary resident and citizen Incompatible offices Treasurer and Auditor Chief Accountant and Auditor BOD appoints or elects officers Q: What is term of office of officers? A: Refer to BL, normally coterminous with board that filled it up. Officer serves at pleasure of the BOD. Officer may also enter into contracts with corporation, however, they must follow the same requirements as the self-dealing director. BL may provide for additional offices. BOD may create more offices. Stock and Transfer Book of Stock Certificate It is a register where stock ownership is recorded. Should register stock and transfer book within thirty (30) days from issuance of certificate of registration. There is a penalty for failure to register. Q: What is a stock certificate? A: It is issued after full payment of subscription The present rule is that for a stock certificate to be issued to a stockholder, he must fully pay his subscription. The reason is that a subscription agreement is an indivisible contract. Procedure for lost certificate 1.) File an affidavit of loss with the corporate secretary 2.) Cause publication of notice of loss in newspaper of general circulation once a week for three consecutive weeks. 3.) Waiting period is 1 year from date of the last publication. However, a new stock certificate may be issued if the person who lost the stock certificate gives a bond for such amount and in such form satisfactory to the BOD. Shares are personal property hence they may be mortgaged or pledged. SC: in order to transfer shares of stock in a corporation, it is enough that the certificates have been indorsed.
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For a publicly listed corporation, shares may be transferred via an over the counter transaction Q: What is an over the counter transaction? A: Simply means listed in a stock exchange, but made directly between parties and not coursed through the stock exchange. In case of an over the counter transaction, parties themselves do the documentary work. If you do it through the broker you merely wait for the check. Corporate Seal Design, size, shape and configuration left with the BOD. Q: What is the use of a corporate seal? A: It is practically a paperweight, but real use in in making stock certificates. Amendments of AOI and BL AOI 2/3 vote of all OCS, common and preferred. BL At least a majority of OCS, common and preferred. If the by-laws are filed with the AOI, all incorporators must sign the BL. If filed after the AOI, at least a majority of incorporators must sign. Amendment copy verbatim, underscore amendments, then in parentheses the words as amended. The bond paper is letter size. SEC reviews the amended AOI, after approval, the SEC issues a certificate of filing of amended BL or AOI. When filed, has to be accompanied by directors certificate. This authenticates the amendment. Dividends only the BOD may declare dividends. Q: When may BOD declare dividends? A: Net profits after income tax, without any impairment or diminution of paid up/paid in capital Q: What impairs paid up capital? A: Losses No obligation to declare dividends reason, exercise of business judgment. No duty is conferred by the Corporation Code to declare dividends. It may not be compelled. SC: No court, not even the SC can order the BOD to declare dividends. Q: What form of dividends may be paid? A: Cash, properties or new shares. Q: What is required for distribution of cash dividends? A: Resolution of BOD, they also fix a day for distribution. Q: What about property dividends?
A: Board resolution can schedule it immediately, except when the property to be distributed are treasury shares, in which case BOD cant fix the date of distribu tion because it still needs ratification of outstanding common shares. Q: Why the need to ratify? A: When BOD declares stock dividends, investments of the stockholders become diluted Pre-emptive Rights Stockholders have pre-emptive rights to enable them to maintain or retain the present ratio of holdings before shares are issued to non-stockholders. Q: May pre-emptive right be waived? A: Yes Q: Transferred? A: Yes, by onerous or gratuitous title. Q: Are pre-emptive rights absolute? A: No, there are occasions where they do not exist. Q: When do they not exist? A: When so provided in the AOI or BL that they do not exist. Also, in Section 39 of the Corporation Code, there are instances where they do not exist. 1.) In compliance with the law (ex. To go public) 2.) In exchange for property needed for corporate purposes 3.) Payment of previously contracted debts Another exception is also a stock-option plan in favor of employees of the corporation. Watered stocks shares of stock issued by corporation but for which shares corporation did not get the full and fair value. Q: Who may bring the action to recover the difference between the full and fair value and the price paid? A: It may be brought by the creditor Q: Who are liable? A: The person who received the watered shares. The directors who did not object are also solidarily liable for the difference. They must have expressed their objection to the sale. Mere silence is not enough to exonerate oneself. Appraisal Right Right to demand payment of fair value of shares under certain conditions: 1.) There is a resolution of the board authorizing the following: a.) Limiting or restricting certain rights of the stockholder
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2.) 3.) 4.) 5.)
b.) Authorizing investment of corporate funds in another corporation c.) Authorizing sale or disposition of all or substantially all the assets of the corporation d.) Authorizing consolidation or merger The resolution is ratified by at least 2/3 of shares. Stockholders demanding payment of appraisal right should have voted against ratification. Demand payment of appraisal right within 30 days. Corporation should have sufficient surplus.
Show cause letter in certain cases Liabilities are paid from assets Liquidating dividend to the extent of return of capital, no tax, but any increase is taxable. Under the ROC, two years to file claim against estate. In case of dissolved corporations, 3 years. Within this period corporate property is transferred to trustee. In case of non-stock corporations, foundations, residual assets, escheated to government. Close Corporations Q: How would you know if closed corporation? A: Look at AOI. There is a stipulation that number of stockholders should not be more than 20 or shares of corporation should not be listed in any exchange or stipulation that if a stockholder intends to transfer to a non-stockholder, he should first offer to transfer these shares to a stockholder. Close corporations may be managed by the BOD or directly by stockholders. In case of deadlock, file with the RTC a petition for appointment of a provisional director. Provisional director should be someone who absolutely has no interest in the corporation. Must not own a share and may not be a creditor. Term for as long as there is a deadlock in the board. Stockholders may manage directly, no need for an annual meeting because principal matter is the election of directors. If there is a restriction on transferability of shares in close corporations, where should it appear? Three documents: 1.) AOI 2.) BL 3.) Stock certificates If restriction on transferability does not appear in stock certificates but transferee was not informed of restriction, restriction does not apply to him. Delinquency When there is a definite date, no demand needed for it to become delinquent. If down payment, balance is payable on call. Call is a demand, formal demand to pay balance under the Corporation Code. If not paid, becomes delinquent. Consequences of Delinquency 1.) Delinquent subscriber shall have no voting rights. 2.) Wont receive cash dividends, they are applied to unpaid subscription.
Q: What happens when corporation pays appraisal right? A: Corporation acquires shares, they become treasury shares. Fair value average of market value and book value Merger and Consolidation Merger two or more corporations unite, one survives, the other/s dissolve. Consolidation two or more corporations, a new one is created, the corporations dissolve. Q: Why do corporations merge or consolidate? A: To comply with the minimum paid-up capital requirements of government regulator or for better profits, business opportunities or better corporate image. Stages of Merger 1.) Informal talks 2.) Boards pass separate resolutions to approve merger 3.) Presented to stockholders for 2/3 vote ratification Dissolution of Corporations Causes: 1.) Expiration of the term 2.) When court orders dissolution on a finding that it is already insolvent or that it was organized purposely to commit fraud 3.) When SEC orders cancellation of certificate of registration for any of the following causes: a.) failure to file by-laws within 30 days from issuance of the certificate of registration b.) failure to organize within two years from issuance of certificate of registration c.) failure to carry out primary purpose for at least 5 years d.) failure to comply with SEC reportorial requirements GIS is filed within 30 days from date of annual meeting. AFS within 30 days from filing with SEC.
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3.) If property or stock dividend, they are withheld. Remedies of Corporation in Case of Delinquency: 1.) Sue to collect balance (RTC, intra-corporate dispute, regardless of value) 2.) Sell delinquent shares Corporation Sole if it intends to encumber or dispose real property, it must first obtain judicial approval. Domestic Corporation one organized on Philippines regardless of nationality of organizers the
Q: If investments in form of stock, what shares? A: Shares can be common or preferred, but preferred has variations. Ex Redeemable, convertible, cumulative, non-cumulative, participating, non-participating. When redeemable, corporation reserves the right to buy back shares after a certain period. Option is with the corporation. It cant be forced to buy back shares. Redemption is a right and not a duty. Convertible preferred shares becomes common after a certain period. Q: Can a corporation redeem if it has no surplus profits? A: Yes, it is not in violation of the trust fund doctrine. However, the corporation shouldnt redeem shares if as a consequence of redemption, it wont be able to carry out its primary purpose. Basic rules in enticing public 1.) Corporation should first register securities with the SEC even before causing the printing of marketing materials. 2.) To initiate registration of securities, the corporation files a registration statement with the SEC. Q: What is the purpose of prior registration with the SEC? A: To protect the public from being defrauded. SEC will first look into the financial status of a corporation. If investments are in the form of shares or equity participation, after SEC registration, corporation applies for listing with the PSE. However, registration with the SEC does not assure listing with the PSE. Q: What is an exchange? A: It is a market. Stock exchange corporation licensed by SEC to put up the business of trading securities. Trading means buying and selling. There are 3 participants in a market: 1.) Producer 2.) Buyer 3.) Seller/Intermediary What are the different financial markets? 1.) Money market 2.) Capital market 3.) Bond market 4.) Stock market Money Market a source of funds, payment period not more than a year Capital Market payment period is over a year but less than 5 years Bond Market payment period is more than 5 years
Foreign Corporation one organized in another country, even if organized by Filipinos. Foreign Corporation may engage in business in the Philippines if it meets the following requirements: 1.) Register with the SEC as a foreign corporation it must give certified true copies of all incorporation documents in country of origin. If not in English, with official translation in English. 2.) Inward remittance at the amount of prescribed capitalization. 3.) Appointment of a resident agent. In case of bidding, must already be registered as a foreign corporation. Securities Regulation Code It is the present law on securities Q: What are securities? A: Broadly defined as instruments evidencing an investment in a commercial enterprise Q: What are commercial enterprises? A: Stock corporations Q: In what form may persons invest in a commercial enterprise? A: Two Ways: 1.) Lending money 2.) Becoming part owner of enterprise If talking about public in relation to securities, more than 19, in other words, 20 or more. Investment in form of loan Q: What is the form of the instrument? A: Issue a promissory note. PNs are a form of security. If payment period is more than 5 years, it is still a PN, better known as a bond. Over 5 years is 5 years and a day. If bond secured by collateral, it is called a debenture. Q: What if investors come in as stockholders or part owners? A: Issue certificates of stock
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Stock Market Source of funds for equity participation Money market placements are made through a bank. A bank finds funds through time depositors (usually) and after getting their consent, the amount is loaned to the borrower. The bank is a mere intermediary. A corporation that is able to register shares with SEC may intend to raise funds from public by making an initial public offering (IPO). To do this, it applies for listing with the Stock Exchange. The SC held in the Puerto Azul case that the SEC may not compel the PSE to list a corporation. While SEC has supervision, it may not impose on the exchange. Purpose of Listing Shares with the Exchange There are corporations that want shares listed but do not want working capital. This is done primarily for the stockholders who want a facility where they can or buy shares right away. This is called registration by introduction. Since it is not easy to list shares with the Stock Exchange, some corporations resort to back door listing. While it may sound shady, this is legal. Q: How is it done? A: Look for a dormant corporation whose shares are listed in the stock exchange, acquire controlling interest in the corporation, at least 2/3 in order to vote for merger. The acquiring corporation merges with the dormant corporation, the dormant corporation survives. In the stock exchange, shares are often bought and sold through a broker. A broker is a corporation licensed by the SEC to buy and sell securities for their clients. Law says a person, however the SEC licenses only corporations, because if the broker is a natural person, there will be a problem when he dies. Q: What doe they call people who act on behalf of the broker? A: They are called persons associated with the broker. They are officers of the broker corporation. This does not include persons performing merely clerical functions. Salesmen persons manning the trading floor. The role of salesmen is merely clerical, hence they are not persons associated with the broker Licensing persons associated with broker may only use the license with a particular broker. If you move between brokers, you must get a new license. Salesmen also get a license, a license is issued to salesmen is also only for a specific broker. Dealer Q: Who is a dealer?
A: A corporation licensed by the SEC to buy and sell securities for its own account. Broker Always for a client Does not use its own money Always earns commission Dealer For itself/its own account Uses its own money May make profit or suffer loss
All participants except investors are licensed. Licensing is annual. Q: Do all securities require prior registration? A: No, because there are exempt securities. Exempt Securities: 1.) Those issued by the National Government or its political subdivision. -No need to register as purpose of registration is to protect public from being defrauded 2.) Securities issued by a foreign government with diplomatic ties with the Philippines. 3.) Securities issued by a receiver in insolvency. -No need to register because court will intervene 4.) Securities issued by a corporation under the supervision of the Insurance Commission, HLURB, BIR. 5.) Securities issued by banks aside from its own shares. -Buys and sells securities on a regular basis Exempt Securities no prior registration needed Exempt Transaction May require prior registration, but may apply for exemption Types of Transactions in Stock Exchange: 1.) Certificated 2.) Uncertificated If certificated, you cant sell immediately in the exchange because the certificate has to be cleared first it has to be verified. If you plan to buy and sell stocks, get uncertificated shares. It has multiple records, one with the broker, one with the salesman and one with the exchange. It is not totally paperless; there is a purchase confirmation for the buyer, and a sellers confirmation for the seller. Broker does not use its own money, they use money of the client. Eventually, buyer may ask broker to advance money. This is called margin trading, the broker pays part of the purchase price. In stock trading, shares are sold by lot. However, you can buy less than a lot, this is called an odd lot. Usually, odd lots are cheaper.
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Stock split one share is made into 2 or more shares. This is to enable small investors to acquires shares of the corporation. Reverse stock split many shares made into one. This is made for convenience so that number of stocks wont be that high, Short sales a personal sells shares he doesnt own at the time of sale while prices are high, and later buys the same shares when prices have gone down in order to deliver what he has sold. This is legal. Wash sales form of stock price manipulation Stock transactions are suspended in case of abrupt/drastic change in stock price. This is done pending investigation of cause of change. Blue-sky law any law relating to investments Insider Could be a stockholder, officer, director or employee who because of relation with corporation has information not available to public which information could influence the price of shares of the corporation. An insider need not necessarily be a member of a corporation but one who derives information from another. Q: Cant you deal directly with the seller if shares are listed with the stock exchange? A: Yes, you can. This is called an over the counter transaction. Advantages dont have to pay brokers commission, no stock transfer tax, only capital gains tax (5% for first 100,000, 10% for excess) Disadvantages parties prepare deed of sale themselves, theyll have to prepare tax returns and fill up clearances. Certificates may be fictitious. Tender offer it is made when a person or group of persons would like to acquire at least 15% of: 1.) A listed company 2.) Company not listed but a.) One with assets no less than P50M b.) One with at least 200 stockholders who hold at least 100 shares each 3.) 30% of any of the above corporations within a 12 month period Formal offered is filed with the SEC stating the number of shares of corporation that that persons or group of persons wants to acquire and the price of these shares plus the term of payment. Person maing offer can mak public its announcement. Pre-need Contracts under the Insurance Commission. It is a contract where a corporation, in consideration of the promise of a person to pay an agreed upon amount of money in cash or installments, as the case may be,
agrees to deliver to the latter an agreed upon amount of money or to render a particular service, upon the arrival of a period or the happening of an event. INSURANCE LAW Insurance is a contract where the person known as the insurer promises to indemnify a person known as the insured against damage, loss or liability from a contingent or unknown event. There are two parties in insurance, the insurer and the insured. However, there are 3 parties in certain cases such as a contract of assurance where the 3rd party is the assured. Assurance is also known as life insurance. Life Insurance - Often taken out by the insured for the benefit of the assured or beneficiary. A contract of insurance is a contract of indemnity, the insured should not expect to profit when the risk insured against takes place. The insured should not be put in a better place or situation. A contract of insurance is also an aleatory contract, which means that it includes an assumption of risk. It is not a wagering contract because in such contracts, there is an expectation of profit. A contract of insurance is also a risk-distributing scheme; it is not a risk-shifting device such as a guarantee. Insurance may be against loss, damage, liability or even all of them. Q: Who may be an insurer? A: Anyone to whom the Insurance Commission has issued a certificate of authority (a yearly license). According to regulations promulgated by the Insurance Commission, all insurers must now be corporations. The only exception is Insular Life which is not a partnership or a corporation but rather a mutual benefit company. Insurance Commission prescribes rules that set a minimum paid-up capital for insurers. For non-life insurance it must be P250M, for life insurance it must be P500M. By 2016, the minimum paid-up capital required for both is P1B. Q: Who may be insured? A: Only someone who has an insurable interest in the thing or life insured. There are 2 kinds of insurance 1.) Property or non-life 2.) Life Q: What is meant by insurable interest?
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A: A person who has such a relationship to the thing or life insured that he will benefit from its preservation, but shall be damnified with its loss or destruction.
Valued Parties agree on value of the thing insured. In case of loss, the indemnity shall be that agreed upon. Running Parties contemplate successive insurance coverage, but insurance coverage on some things, after they have been disposed of, shall also apply to the replacements. Ex. Grocery Q: What are the policies in life insurance? A: 2 kinds 1.) Term for a definite period 2.) Life for lifetime Term Insurance Parties agree on a period of insurance coverage, if insured survives the period, the policy terminates and the insured gets nothing. The premium is low because it does not have non-forfeiture values. Endowment kind of term insurance. Parties agree on a period of insurance coverage, if insured dies during the period the beneficiary receives the face value of the policy, but wont be insured thereafter. This is the most expensive as it is actually a type of forced savings. Life Policy insured for the rest of life, but the insured keeps on paying premiums. The insurance actually expires til the insured is 100 years old, by that time the insured is given the face value of the policy. There are variations of life insurance. 20 pay life is when the insured pays for the full premiums for 20 years while pay life at 65 is when the insured pays the premiums until the age of 65. Non-forfeiture values 1.) Cash value 2.) Paid-up insurance 3.) Extended term insurance Cash value the amount the insurer sets aside for the insured. Cash surrender value different from cash surrender value. After this is released, the insurance ceases. Paid-up insurance the non-forfeiture value is used to pay for insurance without paying for additional premiums. The insured is fully paid for the rest of his/her life but for a lower amount of insurance. Extended term insurance the insurance is extended only for a certain amount of time but for the original amount of insurance. The cash value may also be utilized by the insurer for a premium loan. Many insurers now offer participatory plans. The insured, although not a stockholder, receives a portion of the net profits of the insurer.
Insurable Interest in Property Insurance 1.) Existing interest 2.) Expectancy founded on an existing interest Ex. The owner may insure fruits of orchard owner. The buyer may also insure them 3.) May even be an inchoate right -only up to the extent of the interest/inchoate right
In Property Insurance, insurable interest must exist at 2 points: when the insurance is taken and when the loss occurs. Q: On whose life may a person have insurable interest? A: Oneself; spouse; descendants; another upon whom one depends for support; life of one who is obliged to pay him a sum of money; someone, the death of whom delays the performance of an obligation; or another upon whose life an estate depends. Q: If one is insuring a debtor, for how long is the insurance effective? A: Theoretically, there is no limit. Insurance is effective even after payment because insurable interest in life insurance should exist only when it is taken. However, in practice, it is only up to the end of the obligation. Q: What is meant by upon whose life an estate depends? A: An example is when the assignee insures the life of an assignor. Another example is in case of reserve troncal, the life if the reservista is insured. Q: How do you call the contract of insurance? A: The instrument is called the policy or in Spanish the Poliza de Seguro. The Insurance Commission requires that it be printed. The policies are usually the same as they have a prescribed form. Property Insurance may be paid in two ways 1.) Cash 2.) Replacement with another property of the same kind or quality Three Kinds of Policies in Property Insurance 1.) Open 2.) Valued 3.) Running Open Parties agree on a maximum amount of insurance coverage and premiums are based on that amount. However, the value of the thing shall be determined at the time of the loss. This is applicable to things the value of which fluctuates from time to time.
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Application Form Representations matters you truthfully state Misrepresentations if untruthful Concealments if one knows or ought to know and to communicate In case of misrepresentation or concealment a material fact entitles the other party to rescind the policy. Q: Who determines materiality? A: It is the insurer Law says materiality shall be determined by the influence that the misrepresentation or concealments would affect the assessment of risk. It need not be related to the cause of death. Q: Who may be beneficiary? A: Applicant may state anyone except those prohibited from receiving donations inter vivos. Beneficiary need not have insurable interest in the life of the insured. There are 2 Beneficiaries: 1.) Primary 2.) Contigent in case the primary can no longer receive the value In the absence of a qualified beneficiary, it pertains to the estate of the insured. Revocable or irrevocable beneficiary Irrevocable may be changed if with the written consent of the beneficiary. No need for consent in case of legal separation, innocent spouses privilege. Premiums Masagana Telamart Masagana procured insurance from an agent. It wasnt able to pay immediately because of the internal processing time of the check. One time, policy had already been delivered to Masagana, but before check was released to the agent fire broke and damaged the properties. Masagana tried to pay the insurer and the insurer accepted. The following day, it filed a claim, but the claim was rejected. However, the insurer rejected the claim because premium had not been paid hence the policy had not yet taken effect. Here, the SC considered the insurer in estoppel because it was regular procedure for the insured and insurer to pay at a date later than effectivity of the policy. There was a customary date of payment. Premiums are computed on an annual basis, because property insurance policies are on an annual basis. Except when the parties agree on a short term. Another exception to annual premium payment is heirs bond which is effective for two years.
Premiums in Life Insurance Premiums are also determined on an annual basis but the parties agree upon the manner of payment. Cheap insurance is industrial life insurance, the premiums are paid on a daily basis. In life insurance only, every time that premium is due, there is a one-month grace period. Q: What if you are unable to pay the premium within the grace period? A: The policy lapses and the insured is no longer insured. Q: Is there any feature in a policy that may prevent life insurance coverage from lapsing if premium is not paid within the grace period? A: Yes, if there is an automatic premium loan clause in the policy. The cash value is applied to the unpaid premiums. However, you still have to pay interest on that premium loan. Q: If the policy lapsed, and you want to be insured again, what are your options? 1.) Apply for a new policy. However, premiums will surely be higher because you have aged. 2.) Apply for reinstatement of the policy. File a formal request for reinstatement, subject to physical examination again. Then pay all accrued premiums and interest. Reinstatement is not a matter of right, but discretionary on the part of the insurer. If a policy lapses, the two-year contestability period starts running again from the time of reinstatement. Q: What is the Two-year Contestability Period? A: Within a period of two years from issuance of the policy or date of last reinstatement, the insurer may contest the insurability of the insured. After two years, the insurability of the insured becomes incontestable except when the insured had committed fraud of the vicious type. Mere concealment or misrepresentation is okay if the two-year period has already lapsed. However, fraud of the vicious type is an exception. Fraud of the vicious type An example is when the insured swaps his urine sample with that of another in order to pass the medical exam of the insurer. Basically, when you ask somebody else to take the medical exam for you. Overinsurance This is true only in property insurance. It cannot be true in life insurance, because human life is incapable of pecuniary estimation. It occurs when a person insures property for an amount greater than his/her insurable interest. Effect: the excess insurance coverage is void. Co-insurance
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Like co-ownership, but there are two possible scenarios. There is double insurance or the insured is underinsured. In case of underinsurance, the insurer is considered a self-insurer, hence the term co-insurance.
Double Insurance There is double insurance when the same thing, same interest, is insured against the same risk with more than one insurer. The companies with whom the insured procured insurance policies become co-insurers. In case of total loss, the co-insurers contribute a prorated amount. It becomes difficult when there is partial loss. Example Property of P2M, insured for P500K, selfinsured for P1.5M so insurer will bear of the loss. So in case of P100K damage, insurer will bear P25K only. To minimize losses, insurers also get insurance called reinsurance. In insurance company is bankrupt, can the beneficiary claim from the reinsurer? It cannot, because there was no privity of contract. However, the beneficiary may still file with the bankruptcy court because the claims against the reinsurer are part of the receivables of the corporation. The reinsurance will be part of the bulk of assets of the insurance and be distributed according to the Civil Code provisions on preference of credits Loss Loss in property insurance can be either total or partial. It is total when the thing is lost in its entirety. It is partial when only a part of the thing is lost Claim should be filed right away with the insurer. The claim must be accompanied by preliminary proof of such loss or damage whether it is a total or partial loss. When the claim is filed with the insurer, the claim will be referred to an independent third person known as the adjuster. Adjusters are also corporations licensed by the Insurance Commissioner. People in adjustment companies are engineers so that they can measure partial loss. Insurer has two ways of settling a claim in property insurance: 1.) Pay cash value as determined by adjuster 2.) Replace the thing that got lost or damaged with another similar thing. -common in motor vehicle insurance, where other insured abandoned the insured thing to the insurer. Insurer salvages parts from the vehicles left to replace those needed in the currently insured vehicle. However, replacement needs to be in good condition. Life Insurance
When the insured dies and the beneficiary files a claim, the beneficiary is usually asked to submit the following: 1.) Certified copy of the death certificate - to prove the fact of death 2.) Affidavit of at least two persons who know the insured shall state that the insured is the one who died 3.) Certified true copy of the birth certificate of the insured - in order to assure the insurer of the true age of the insured Q: What if the insurer later on learns that the insured is older than the age he reported? A: A misrepresentation as to age is material. If the twoyear contestability period has lapsed, the insurer is allowed by equity to adjust the amount of insurance indemnity based on the true age of the insured. The premium that the insured paid will be used to pay for an amount of insurance coverage corresponding to your true age. If the insured is younger, this has no effect. This applies only if the insured is actually older than his stated age. Different kinds of Insurance Fire Insurance strictly speaking, fire insurance includes earthquake insurance, but in practice the fire insurance excludes earthquake as a risk. Q: If you want to vary the policy, how do you vary it? A: On the policy, the insurer adds a rider. Q: What is a rider? A: In a policy, the rider is a strip of paper containing a stipulation varying what is printed. The rider is glued to the policy. An authorized representative of the insurer signs it. Kinds of Fire Friendly fire fire used for beneficial purposes. Hostile fire fire that damages property. When friendly fire goes out of control, it becomes hostile. If you are going to insure your house or structure, the insurer will normally insure it for acquisition or replacement cost. Higher premiums are paid for the replacement cost. Practical tip dont insure the foundation because it wont be destroyed by fire. In fire insurance, the insurer will not be liable to pay the indemnity if there was breach of a warranty. Affirmative warranty representations Promissory warranty undertakings ex. You will not bring into your house 2 tanks of LPG. Q: What if the house burns because of the insureds negligence?
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A: The insured may still recover. The insured may not recover if there was a breach of a promissory warranty or an intentional act to cause damage. Suretyship Suretyship per se is not a contract of insurance. It is a risk-shifting device, not a risk-distributing scheme. However, if suretyship is to be carried out by an insurer as part of its insurance business, it becomes a contract of insurance. A guarantee and suretyship company is not an insurer. It is only a contract of insurance if an insurer undertakes the business of suretyship. Examples of sureties bail bonds, performance bonds In case of court bonds, must have accreditation from the Supreme Court, renewed on a monthly basis. Casualty Insurance Commonly called accident insurance. The insurer agrees to pay indemnity to the insured when the insured loses certain body parts or in the case of accidental death. Q: What are the usual body parts for which indemnity is paid in case there be loss due to an accident? A: Eyes, arms, and legs. The full amount of insurance coverage is given for loss of both eyes, both arms or both legs. If you lose only one of each, indemnity shall only be . If you lose one arm and one leg, the indemnity is still . In the Philippines, we do not have insurance for individual body parts. Marine Insurance It is insurance over a vessel or over freightage, cargoes or expected profits from cargoes against loss, damage or liability from perils of the sea. Q: What is insurable interest of the ship-owner? A: Value of the vessel minus any loan on bottomry. Q: What is the insurable interest of the cargo owner? A: Value of the cargo less any loan on respondentia. Reason for deduction borrower loses his interest equal to the amount loaned because if the thing is destroyed, it need not pay. Perils of the Sea vs Perils of the Ship Sea risks related to navigation Ship dangers due to physical condition of the vessel or incompetence of the crew. In every contract of marine insurance, there is an implied warranty that the vessel is seaworthy.
Seaworthiness is a relative term. It may be seaworthy with respect to certain cases. There was a vessel that transported electronic cargo, but cargo did not function upon delivery. Found that where the electronics were located was full of holes. Losses they may be partial or total Total loss actual or constructive Constructive loss When loss or damage is more than or even though not more than , more than of the value shall be spent to restore it. In constructive total loss, insured entitled to recover as if there was actual total loss. However, the insured has to abandon the property insured to the insurer. Abandonment may be total or unconditional. Effect of deviation on liability of insurer If proper no effect. Insurer still liable If improper the insurer shall be relieved from liability When proper: 1.) To avoid natural calamity 2.) To avoid pirates 3.) To save human lives Insurer is subrogated to the rights of the insured when the insurer pays the indemnity. Insured signs the deed of subrogation. Not enough that the insurer show the deed of subrogation in pursuing the case, the insurer must also present contract of insurance. In marine insurance, the adjustment company and insurer must have absolutely no interest in each other. Authority of Insurance Commissioner is broadened, now it also has supervision of pre-need contracts. NEGOTIABLE INSTRUMENTS LAW Generally about money, except when the holder is given the right to demand a thing. There are 2, the promissory note and the bill of exchange Requisites of Negotiability of Notes and Bills: 1.) It must be in writing and signed by the maker or drawer; 2.) Must contain an unconditional promise or order to pay a sum certain in money; 3.) Must be payable on demand, or at a fixed or determinable future time; 4.) Must be payable to order or to bearer; and
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5.) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. In the Bill of Exchange, drawee is not an original party. He becomes a party only when he accepts, in which case he becomes the acceptor. Must contain an unconditional promise or order to pay Q: What is conditional? A: Future or uncertain even or a past even unknown to the parties. Kinds of Conditions 1) Suspensive 2) Resolutory If payment would be coming from a particular fund. An exception is the Bill of Exchange, where the acceptor may seek reimbursement from the drawer. Q: What is meant by payable on demand? A: When it is payable on demand as stated; when no date of payment is mentioned; payable on sight It may also be payable on a fixed or determinable future time. Ex. On or before. On or before is for the benefit of the debtor. What is improper is on or after. Payable to order or to bearer Example 1.) Pay to the order of Jose Cruz 2.) Pay to Jose or order 3.) Pay to the order of Jose Cruz and Pedro (joint) 4.) Pay to the order of Jose Cruz or Pedro Cruz (several) Bearer 1.) Pay to bearer 2.) Pay to Jose Cruz or bearer (not bearer (Jose Cruz) 3.) Pay to the order of Batman (Fictitious) 4.) Pay to the order of Adolf Hitler (Non-existing) 5.) Pay to the order of cash 6.) Last indorsement is blank Q: When is it a sum certain in money? A: A certain amount, but may include interest at a stipulated rate. If day when interest starts from is no indicated, it should be construed as date of issue of instrument. If date of issuance not indicated, still negotiable, it is not required for negotiability. To compute interest, holder may write true date of issue. If rate is not indicated, the legal rate is 12%/pa. If payment is pegged on value of foreign currency, it is still negotiable, still a sum certain.
It is still a sum certain even if payable in installments but the amount per installment must be stated as well as when the installment is payable. It may state equal monthly installments. If person defaulted on one installment, you may only ask for the payment of installment where the maker defaulted except when there is an acceleration clause. It is also a sum certain even if there is a proviso for the payment of costs of suit and attorneys fees. Negotiability is not affected by statement of the transaction that gave rise to the issuance of an instrument. If an instrument has blanks, the person to whom it was delivered has the implied authority to fill the blanks according to the true agreement of the parties. When person qualifies as a holder in due course, personal defenses may not be raised against him. An example is lack of consideration. What if a complete instrument is not delivered is the maker/drawer liable? Generally no. However, if it falls into the hands of someone who is a holder in due course, holder may still get full amount. Ante- and post-dating do not affect negotiability but could affect rights of holder and liabilities of maker or drawer. Modes of Negotiating an Instrument Negotiation is the transfer of an instrument as to constitute the transferee the holder thereof. There are two kinds of holders: 1.) Holder for value 2.) Holder in due course Negotiation Order : Indorsement and delivery Bearer: Delivery Q: What is an indorsement? A: Signing of the instrument Q: Where may it be made? A: On the instrument at the front, back or on the allonge. Q: What is an allonge? A: It is a piece of paper that is attached in a permanent manner to the instrument. Q: Why is the indorsement made at the back? A: So as not to confuse the signature of the indorser with that of the drawer or maker.
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There is a Monetary Board circular that no longer allows banks to accepts checks with more than one indorsement. Kinds of Indorsement: 1.) Blank 2.) Special 3.) Conditional 4.) Qualified 5.) Restrictive In Blank What the holder does is sign, adding no other words. Special When holder signs and includes the name of the transferee. The words of negotiability not required in special indorsement. Conditional Special ex. If she graduates from law school by 2013 Qualified the holder in addition to his signature adds without recourse the effect is there is no recourse if the instrument is dishonored. Restrictive also special ex pay Maria Cruz only pay Maria Cruz for collection only There is no limit to the number of indorsements on notes and bills. There is a right to presume the sequence of indorsements if there is a series of indorsements. However, this is disputable. Holder in Due Course A holder in due course is one who meets the qualifications set forth in Section 52 1.) Complete and regular upon its face 2.) Acquired in good faith and for value 3.) Acquired before overdue and without notice that it was previously dishonored 4.) At the time it was negotiated to him, there was no notice of infirmity of the instrument or defect in the title of the person negotiating it. If there are alterations it might not appear regular upon its face, it might be considered irregular. Crossed Check The purpose of crossing is to indicate that the check is not for encashment but for deposit into the account of the payee. According to the Supreme Court, a crossed check is only for deposit in the account of the payee, it is not intended for an over the counter encashment. It was intended for a particular purpose. La Suerte vs SIHI crossed check negotiated to SIHI, it was not considered a holder in due course.
Acquired in Good Faith and For Value Q: What is value? A: Anything that is sufficient consideration. Example is payment of goods or services. However, it should not be contrary to law, good customs, morals, public order or public policy. Even if a person is not a holder in due course, if a holder negotiated it to that person in due course, the holder has exactly the same rights as a holder in due course. A payee can never be a holder in due course. If the instrument is due today, if indorsed today it is not yet overdue. SC Rulings on forgeries: When what was forged was the signature of the drawer and the check was presented for over the counter encashment or deposit with the drawee bank, drawee bank suffers the loss. Drawee bank out to know the genuine signature of the depositor. Drawee bank committed a breach of contract with depositor. When what was forged was the signature of the payee, the drawee bank suffers the loss. The reason is that the drawee bank paid the wrong person due to failure to properly identify the payee, hence the drawee bank is negligent. If the payees signature is forged and the check is coursed through a collecting bank, the collecting bank suffers the loss. Persons liable on an instrument A person is liable on an instrument only if his/her signature appears on it (maker, drawer, acceptor, general indorser, irregular indorser, forger) Exceptions: 1.) Person negotiating by mere delivery The person who negotiated by mere delivery is liable to the person who he negotiated the instrument to (the immediate transferee) 2.) Person who was duly represented by his/her agent, subject to two conditions: that the agent discloses his principal and the agent acts within his authority. Q: How is a bill of exchange accepted? A: Holder of the instrument goes to the drawee, bringing the bill of exchange. There must be presentment of instrument for acceptance. Irregular indorser that person is not a party to the instrument but indorses the instrument Per Procuration signing authority but with limitation.
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Q: In case of promissory notes, do they need to be presented for acceptance? A: No, they are presented for payment. When drawee refuses to return or destroys the bill of exchange when presented for acceptance, it is deemed accepted. If the bill is dishonored, the holder should give notice of dishonor to all prior parties within a reasonable period. A party not notified shall be discharged. Q: What discharges an instrument? A: Payment in due course by the person primarily liable. Q: What is payment in due course? A: Payment made at or after maturity to the person entitled to receive payment. Payment may be made before maturity. Maker may negotiate it again. However, this is impractical. Q: Who is an accommodation party? A: One who signs the instrument either as a maker, drawer, acceptor or indorser without receiving value therefor and only for the purpose of lending his/her name. Q: Can payee with knowledge that a person is merely an accommodation party collect from such person? A: Yes, the law allows it. Discharge of a party may also occur by the intentional cancellation of the name of a party from the instrument. Note: Discharge of instrument is not equivalent to extinguishment of debt An instrument may also be discharged for the same reasons as the extinguishment of an obligation such as confusion or merger of rights of the creditor and debtor. Ex. When maker becomes the holder after maturity of the instrument. Only forgery may be set up as a defense against a holder in due course. However, the maker can still be liable if the forgery is ratified or due to estoppel. Dishonor There are domestic and foreign bills of exchange. A domestic bill of exchange is also called an inland bill of exchange. A bill of exchange is foreign when the parties are in different countries. When a domestic bill of exchange is dishonored, you send a notice of dishonor to the prior parties. If a foreign bill of exchange is dishonored you make a protest. Q: Who makes a protest?
A: It is made either by a notary public or a reputable member of the community in the presence of 2 or more persons. Q: How may a party secondarily liable be relieved from liability? 1.) Payment in due course by the person primarily liable 2.) By discharge of a prior party 3.) By striking out indorsement (this relieves not only the person whose name was stricken out but all those after him/her) 4.) Valid tender of payment by a prior party. Certified Check It is an ordinary check that has already been accepted by a bank with money set aside for it. Eventually, banks stopped the practice of certifying checks and just issued managers checks. The managers check is disadvantageous because in case of insolvency of the bank, the holder is considered an unsecured creditor. Bills in Set A bill of exchange prepared with more than one copy. It facilitates payment between persons on distant places. When one bill is lost, the other bills may take its place. 24-Hour Clearing Process A clearinghouse is a facility of the BSP for the convenient collection of checks drawn on different banks but deposited in another bank. At an agreed time, representatives of banks convene in a particular place in order to swap checks. The banks process the checks. Within 24 hours from receipt, the drawee bank must return these checks to clearing house if it intends to dishonor them. A BSP Circular provides that when a check is received from the clearinghouse and the check should be returned due to insufficiency of funds, the banks should dishonor the checks. This is the reason why overdrafts no longer occur.
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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

Commercial Law Review Dean Eduardo Abella First Semester 2012-2013

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