REMINDERS IN COMMERCIAL LAW

By

Justice Japar B. Dimaampao

CHATTEL MORTGAGE

1.

Covers only existing obligations and not future obligations

Remedies: 1)
execute another chattel mortgage
2)
amend the chattel mortgage

2.

ONLY personal properties may be the subject of chattel mortgage.

EXCEPTION: under the doctrine of estoppel, real property may be the
subject of chattel mortgage. This is valid only between parties.

3.

Future properties are not covered except stock in trade

4.

Absence of AFFIDAVIT of GOOD FAITH and REGISTRATION does not

affect the validity of the mortgage between the contracting parties.
The mortgage is not binding upon third persons. Knowledge of such
mortgage amounts to automatic registration.

5.

No recovery of deficiency in case of foreclosure sale under the

RECTO LAW (sale of personal property payable in installment). This
applies to the following:
a.
Foreclosure of the real estate mortgage as additional security;
b.
Additional security (motor vehicle).

6.

RATIONALE:
To protect underprivileged mortgagors against the
rapacity of the mortgagees.

Letter of credit
1.

Letter of Credit is an instrument issued by a bank on behalf of one of

its customers, authorizing an individual or a firm to draw drafts on the
bank or one of its correspondents for its account under certain
conditions of the credit.

2.

Distinct and Independent Contracts in a letter of credit:

a. Buyer/importer and seller/exporter;
b. Buyer/importer with the issuing bank; and
c. Bank promises to pay the seller pursuant to the terms and
conditions stated therein.

3.

Independence principle enunciates that:

a. Seller is assured of payment independent of any breach of the main
contract.
b. Banks involved deal only with the documents and are not charged
with the duty to ascertain the quantity and condition of the goods.

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3.

Perfection of Contract. Letters of credit are deemed perfected from

the time the correspondent bank makes payment to persons in whose
favor the letter of credit has been opened.

CODE OF COMMERCE
1.

Commerce is that branch of human activity, the purpose of which is to

bring products to the consumer by means of exchanges, or operations
which tend to supply and extend to him, habitually, with intent of gain
at the proper time and place and in good quality and quantity.

2.

Joint account is an arrangement whereby the third person makes an

investment in the business of another. It consists of contributions
made by persons who will share in the profits and losses. It has no
juridical personality.

3.

Commercial transaction is an agreement between two or more

merchants or non-merchants binding themselves to give or to do
something in commercial business.

4.

The theory of manifestation applies to the perfection of commercial

contracts governed by the Code of Commerce. Commercial contracts
are perfected from the time the acceptance is made.

securities regulation code

Definition. SECURITIES are shares, participation or interest in a corporation
or in a commercial enterprise or profit-making venture, and evidenced by a
certificate, contract, instrument, whether written or electronic in character,
and include debt, equity, derivatives and trust instruments
EXEMPT SECURITIES: GRAB
a. issued or guaranteed by the Government;
b. issued by Receiver or trustee or in a bankruptcy;
c. issued or guaranteed by the government of Any country with which
the Philippines has diplomatic relations;
d. Bank securities except its own shares of stock.
EXEMPT TRANSACTIONS: MIB
a. Merger or consolidation;
b. Isolated transactions;
c. Bank transactions.
INVESTMENT CONTRACT requires the concurrence of the following:
a. Investment in money
b. Common enterprise
c. Expectation of profits
d. Profits must arise from the efforts of others
e. Evidenced by contract or instrument.

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INSIDER includes issuer, director, officer, government employee or any

person who has material information about the securities not generally
available to the public.
MANIPULATED DEVICES
a. Short Sale seller is not a dealer in securities
b. Wash Sale sale of stocks or securities in stock trading resulting
in no change of beneficial ownership
c. Done Through Transaction refers to a transaction where the
buying-selling broker places the order through another broker for
the account of his client.
d. Over the Counter transactions made outside the stock
trade.

INTELLECTUAL PROPERTY LAW

Distinctions between Infringement and Unfair Competition
INFRINGEMENT
Unauthorized use of trademark

UNFAIR COMPETITION
Passing of ones good for
another
not Fraudulent intent required

Fraudulent
intent

required
Registration required
Goods must be of similar kind

Registration not required

Goods need not be of the
same kind

2 KINDS OF TESTS OF COLORABLE IMITATION:

1. Dominancy Test focuses on the similarity of prevalent
features of competing trademarks which might cause confusion or
deception.
2. Holistic Test mandates that the entirety of the marks in
question must be considered in determining confusing similarity.
SETTLED DOCTRINES
1. Doctrine of equivalents infringement takes place if a device
appropriates a prior invention using the same means, functions and
results.
2. Fair use principle no infringement of copyrights under the
following:
a. Criticism
b. Comments
c. News reporting
3. Theory of dilution infringement of trademarks takes place under
the following:
a. Use of identical or confusingly similar trademarks
b. Damage
c. Public is misled

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banking laws
POWERS OF MONETARY BOARD (BSP): RAMOS
a. Regulate foreign currency transactions;
b. Appointment of receiver or conservator;
c. Maintain stability of price;
d. Obtain information and data;
e. Supervise and examine banks.
Coins are considered legal tender up to the following maximum amounts:
1,000
P1.00; P5.00; P10.00
100 1 centavo; 5 centavos; 10 centavos; and 25 centavos
Receiver
90 days from take over to recommend rehabilitation or
resumption.
Conservator
1 year from take over
DOSRI can obtain loans and other financial accommodations upon
approval of the majority of directors provided that:
a. it does not exceed 5% of the capital and surplus of the bank;
b. waiver of secrecy of bank deposit law
Foreclosure of Real Estate Mortgage (extrajudicial or judicial).
a. Individual
1 year
b. Juridical
90 days

PHILIPPINE DEPOSIT INSURANCE CORPORATION (as

amended by RA 9302, and RA 9576)
Coverage: Deposits of all types such as savings, time, current, and
demand. SAFETY DEPOSIT BOX IS COVERED by a Contract of Bailment.
Amount Insured P500,000.00; and this may cover all types of deposit
made by one depositor. Exclude trust fund and money market placement.
Prescriptive Period: 2 years from the takeover by a receiver.

SECRECY OF BANK DEPOSITS

ALL DEPOSITS of whatever nature are confidential except in the following
cases BALIW-GERC
B RIBERY cases or dereliction of duty
A NTI GRAFT AND CORRUPT PRACTICES ACT
L ITIGATION (subject)
I MPEACHMENT cases
W AIVER
G ROSS ESTATE
E XAMINATION of suspicious deposits
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R EPORTING of suspicious transactions by covered institutions

C OMPROMISE tax liability on the ground of financial incapacity

PRIVATE CORPORATION LAW

1.

Close Corporation has the following characteristics:

a. Shares of stock not listed through local stock exchange
b. There are always restrictions on the transfer of the shares of stocks
c. Stockholders have the power to manage the corporate affairs
d. Their pre-emptive right admits of no exception
This is absolute under a close corporation.

2.

Corporation is NOT entitled to MORAL DAMAGES because as an

artificial being it cannot experience physical suffering or mental
anguish.
Exception: Libel, slander or defamation cases (Art. 2219 (7), Civil

Code)
3.

Stock vs. Non Stock Corporation

Stock issues capital stock; it distributes dividends.
Non-stock issues no capital stock; it does not distribute dividends
to the
members.

Government-owned or controlled corporation must be organized as

a stock or non-stock corporation. Manila International Airport
Authority (MIAA) is not organized as a stock or non-stock
corporation.

Reasons:
1. MIAA has capital stock but it is not divided into shares of stock.
MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
2. MIAA is not a non-stock corporation because it has members.
4.

De Facto vs. De Jure Corporation

DE FACTO Corporation exists only in fact; defectively formed
DE JURE Corporation exists in fact and in law; formed or organized
in accordance with law

5.

REQUISITES OF DE FACTO CORPORATOIN BALI

a. Bona fide attempt to incorporate
b. Actual exercise of corporate powers
c. Valid Law under which it is incorporated
d. Issuance of the certificate of incorporation

6.

Exceptions to the rule that corporation is created by law:

a. Corporation by Estoppel which arises on account of declaration,
act or admission of persons. These persons are liable as general
partners.

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b. Corporation by Prescription it is a corporation that exercises

corporate powers. There is that IMMEMORIAL USAGE of corporate
powers.
7.
Limitations on the issuance of no par value shares of stock:
BPI-TB
a. Corporations not allowed to issue no par value stocks:
B
Banks
P
Public Utility
I
Insurance Companies
T
Trust Companies
B
Building and loan associations
b. The consideration must not be less than P5.00/per share
c. The amount or the proceeds shall not be available for dividend
distribution
8.

Treasury stocks
a. not entitled to dividends
b. no voting rights
c. can be disposed of at a reasonable price

9.
Contracts entered into by promoters are mere continuing
offers. These are not binding upon the corporation.
These may be
approved or disapproved by the
corporation. Promoters are liable for
secret profits. They are not entitled to
compensation.
Remedies in case of mismanagement of corporate affairs: DRID
a. Dissolution
b. Receivership
c. Injunction
d. Derivative Suit
10.

Requisites of Derivative Suit: CRIES

a. Cause of action which may consist of breach of duty and fraud;
b. Refusal of the board to take an action;
c. Injury to the corporation;
d. Exhaustion of intra-corporate remedies except if the directors
against whom the action shall be filed are the controlling directors;
e. Stockholders on record.

11.

Ultra vires act may be ratified.

Conditions:
a. Not illegal or unconstitutional
b. Not prejudicial to the right of the state.
c. Not violative of the Trust Fund doctrine
d. Approved by all stockholders
Donation/contribution for partisan activity- ultra vires act

12.

Legal Effects/Consequences of ULTRA VIRES Acts:

a. Parties to the contract
If the contract is fully executed the principle of status quo
applies

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 If the contract is executory no recovery, no specific

performance
b. State ground for dissolution through a petition for a quo
warranto
c. Stockholders may file a derivative suit to prevent injury, and if
injury has already been sustained an action for damages may be
filed against those directors and officers who are responsible for
such ultra vires act.
13.

Corporate proposals requiring stockholders approval:

a. Majority:
CAMFEN:
C Compensation to stockholders
A Adoption of by-laws
M Management contract
F Filling of vacancies of Board
E Election of directors
N No par value of shares of stocks may be fixed with the
approval of the stockholders.
b. All the rest 2/3 votes

14.

By-laws must be valid

a. reasonable
b. not contrary to law

An amendment to the corporate by-law which renders a stockholder

ineligible to be director, if he be also director in a corporation whose business
is in competition with that of the other corporation, has been sustained as
VALID.
Reason:
This is based upon the principle that where the director is so employed
in the service of a rival company, he cannot serve both, but must betray one
or the other. Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty to loyalty
may well require that he disclose this information to a competitive rival.
15. Certificate of stock may be issued only upon full payment of
subscription
price
16.

WATERED STOCK one which is issued less than the par value
(TRICK: It shall be determined at the time of issuance NOT
discovery)

17.

Outline the steps in the consolidation/merger of corporations: PAF

a. There must be a Plan of merger or consolidation;
b. Approval of that plan by the Stockholders/directors of the involved
corporation;
c. Filing of the Articles of Incorporation of the merger and
consolidation with the SEC.

18.

Corporate Liquidation
MODES:
a. Board
b. Receiver
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c. Trustee
3-year liquidation period applies to the appointment of the
receiver or trustee. It may apply as long as the appointment or
designation is within the 3 year period. The corporate affairs may be
wound up beyond the 3 year period.
Decided Case:
The stockholders and the creditors of a corporation have the right to
file a petition for corporate liquidation in case the board fails to liquidate the
same and there is no such receiver or trustee appointed for that purpose.
19.

Statutory definition of DOING BUSINESS

RA 7042 (Foreign
Investment Act). The following acts constitute doing business that
will make the foreign corporation a resident foreign corporation:
ASAPO
A Appointment
or
designation
of
distributors/representatives. Here, the law requires that
the distributors or representatives must stay in the
Philippines for a period of 180 days or more
S Soliciting orders or service contracts
A Any act which may imply continuity of commercial dealings and
arrangements
P Participating in the management or control of the corporation
O Opening offices, branch offices, or liaison offices

20.

Decided Cases:
1. Test in determining whether the corporation is doing business
or not It is the intention to continue the body or substance of
the business of the foreign corporation, and not by the number of
business activities or transactions of such corporation. If this is not in
line with the business of foreign corporation, corporation cannot be
considered as doing business.
2. An essential condition to be considered as doing business in
the Philippines is the actual performance of specific commercial acts
within the territory of the Philippines for the plain reason that the
Philippines has no jurisdiction over commercial acts performed in
foreign territories.

21.

Resident Foreign Corporation is required to secure a license

Consequence in case of non-compliance: It cannot sue but it can be
sued.
EXCEPTION: License can be dispensed with:
a. Where the action may involve the protection of copyright,
trademark, goodwill, or reputation of a foreign corporation.
b. If the defendants are estopped as they acknowledged having
received benefits under that representative agreement.

22.

Voting Trustee has all the rights over that shares of stock. The
term of the voting trust agreement is five (5) years.
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Exception:
The five (5) year term does not apply if it is made as a
condition in a loan contract.
23.

RIGHTS OF STOCKHOLDERS: VAMPIDACT

V Vote
A Appraisal Right
M Management
P Pre-emptive Right
I Inspect corporate books
D Dividend
A Asset
C Certificate of Stock (issuance)
T Transfer of shares of stock

24.

THREE FOLD DUTIES of the Directors, Officer and Trustee OLD

a. Obedience
b. Loyalty
c. Diligence

25.

POWERS OF THE BOARD

a. Express
b. Implied
c. Incidental

Implied vs. Incidental

IMPLIED POWERS powers which are REASONABLY necessary to carry
out the purpose of the corporation
INCIDENTAL POWERS powers which are INDISPENSABLY necessary to
carry out the purpose(s) of the corporation
RESIDUAL POWERS of the corporation are powers which may be exercised
by them relative to certain corporate proposals. Stockholders under such
power are not totally deprived of their power to participate in the
management of corporate affairs.
The residual powers may include: MIRIAM
M merger or consolidation
I
increase in capital stock
R removal of directors
I
incur/create bonded indebtedness
A amendment of the articles of incorporation
M management contract
26. Sale of all or substantially all corporate assets or properties
requires:
a. majority vote of the board;
b. 2/3 vote of the stockholders;
N/B:
2/3 vote of stockholders may be dispensed with:
if sale is made in the ordinary course of trade or business;

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 if proceeds shall be appropriated/used for the conduct of

remaining business
27. Power of the corporation to invest in another corporation or
business requires:
a. Majority vote of the board;
b. 2/3 vote of the stockholders
* Exception where 2/3 vote of stockholders is not required:
If the investment is necessary to carry out the primary purpose of
the corporation.
28.

Merger or Consolidation requires the following:

a. 2/3 vote of the stockholders
b. articles of merger/consolidation must be filed and approved by the
SEC

29.

Corporation is prohibited from retaining surplus profits in excess of

100% of the paid-up capital
EXCEPT:
PNP
P Corporate Projects, meaning the retention may be justified by
such corporate projects
N Necessary for probable contingencies
P Prohibited by loan with financial institutions, foreign or domestic

30.

REDEEMABLE SHARES may be issued only:

1. Articles of incorporation must allow the same
2. Regardless of unrestricted retained earnings (An exception to the
TRUST FUND DOCTRINE)
Unregistered retained earnings surplus profits which are not
allocated for managerial, legal or contractual purposes and it must be
free for dividend distribution.

31

Contracts between directors/officers or trustees and corporations are

valid provided that the vote of the board of directors is not necessary
for the approval of the contract and presence of the involved
directors/officers is not required to constitute a quorum. Otherwise,
the contract is voidable which is susceptible to ratification.

32.

Contracts entered between corporation and interlocking directors are

valid provided:
The contract must be fair and reasonable, otherwise they are
considered voidable.

33. RIGHTS OF HOLDERS OF NON-VOTING SHARES OF STOCK:

SAMIA
IDI
S Sale of all corporate assets
A Amendment to the Articles of Incorporation
M Merger/consolidation
I
Investment in another corporation
A Adoption of By-laws
I
Increase of Capital Stock
D Dissolution
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Incur/created bonded indebtedness

34.

EXECUTIVE COMMITTEE
Composition:
1. Not less than three members of the Board
2. It can only act on matters delegated by the Board
3. It may be created by the by-laws of the corporation
4. It cannot act on the so-called fundamental changes such as the
Filling of vacancies in the Board, Adoption/amendment of by-laws,
declaration of Cash dividend, Irrepealable resolutions of the Board
and those transactions requiring Stockholders approval. FACIS

35.

DOCTRINE OF CORPORATE PERSONALITY:

Corporation is a creation of law, therefore it has juridical personality,
to sue and be sued, to enter into a contract.
A corporation has a separate and distinct personality from that of its
stockholders/members.
The obligations and properties of the corporation may not be
considered properties/obligations of the stockholders.

36.

DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION:

Corporate entity may be pierced if there is a clear and unequivocal
proof that such corporation is formed for illegal or unlawful purpose.
In cases of: JAP CDD
J justify a wrong
A alter ego
P protect fraud
C to confuse legitimate issues
D to defend a crime
D to defeat public convenience

37.

Grandfather rule: it is a method or test used in determining the

nationality of a corporation that engages in the exploration,
development, utilization of natural resources. It also applies to public
utilities where the ownership is at least 60% Filipino.
Purpose: to prevent dilution of the requirement on Filipino ownership
in nationalized or partially-nationalized corporations. This rule has
been relaxed by the opinion of the Secretary of Justice dated 19
January 1989. It is enough that the investee-corporation is owned 60%
- owned by Filipinos.

38.

Doctrine of derivative suit CRIES

C Cause of action
R Refusal of the Board
I
Injury
E Exhaustion of intra corporate remedies except if the Directors
control the corporation
S Stockholders filing the same must be stockholders of record

39.

DOCTRINE OF CORPORATE OPPORTUNITY

Pointers to remember:
a. self-dealing director enters into a contract
b. such contract is considered corporate business opportunity
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c. profits derived therefrom must be accounted for and in behalf of

the corporation
d. the contracts are unenforceable as far the corporation is concerned
40. Doctrine of appraisal right: may be exercised on the following
cases: MISA
a. merger/consolidation
b. investment in another corporation
c. sale of all corporate assets/properties
d. amendment to the articles of incorporation which may include to
extend/shorten corporate term
41.

PRE-EMPTIVE RIGHT Right to invest; an optional right to subscribe

to the additional issues as well as the disposition of shares of stock. It
extends:
a. to all issues, including those subsequent issuance of unissued
shares of stock
b. to all dispositions of treasury shares of stock
PRE-EMPTIVE RIGHT may be denied in the following cases:
a. when the articles of incorporation provides
b. law requiring public ownership
c. in payment of a debt
d. in exchange for property

42.

DOCTRINE OF APPARENT AUTHORITY There is an agent-principal

relationship. The principal must be the corporation. The Agent may be
the Board or the Officers of the Corporation. Under this doctrine, third
persons may presume that the agent has the power to enter under
such contract. Abuse of authority or fraud may not be raised as a
defense in questioning such contract because such representation of
agent of the corporation must yield to the true representation of the
principal corporation.

43.

UNRESTRICTED RETAINED EARNINGS Surplus profits which are

not allocated for managerial, legal, contractual purposes and this must
be available for dividend distribution.

44.

TRUST FUND DOCTRINE the subscribed capital stock must be

considered as trust fund for the payment of the obligations of the
corporation

45.

BEST JUDGMENT RULE requires directors, officers, trustees to

exercise due prudence and care in the performance of their duties. In
this regard, corporate decisions must be arrived at according to their
best judgment or independent judgment.
Good faith is an
indispensable requisite.

46.

Corporation may acquire its own shares of stocks for legitimate

purposes such as: CPE
a. Collect or compromise indebtedness
b. Pay dissenting stockholders
c. Eliminate fractional shares

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47.

INTRA CORPORATE CONTROVERSIES which include election,

removal, or DISMISSAL of Vice-President, General Manager, or
corporate treasurer are now cognizable by the REGIONAL TRIAL
COURTS

NEGOTIABLE Instruments LAW

1.

Please memorize Sections 1 (requisites

instrument) and 52 (holder in due course)

2.

FEATURES OF NEGOTIABLE INSTRUMENTS:

a. Negotiability
b. Accumulation of secondary contracts

3.

Functions of a Negotiable Instrument

a. it serves as a substitute for money.
b. it facilitates business transactions.

4.

of

negotiable

DEFECTIVE INSTRUMENTS (Sec. 14, 15 and 16 NIL)

Summary of the Rules:
Probable Bar Questions: Sec. 15 or 16
The question is whether a holder can collect.
Remember that the HOLDER IS PRESUMED TO BE A
HOLDER IN DUE COURSE.
1. Sec. 15, he cannot collect because the contract is invalid in
the hands of any holder.
2. Common to all defective instruments (Sec. 14, 15, 16)
subsequent parties are liable.

5.
Holder in due course must acquire title to the instrument thru
negotiation.
Most PROBABLE BAR QUESTIONS:
1. Forged signature
indorsers
2. Materially altered
indorsers

wholly

instrument

INOPERATIVE

EXCEPT

EXCEPT

AVOIDED

6.

LETTER of CREDIT and trust receipts are not negotiable instruments.

However, drafts issued in connection with letters of credit are
negotiable instruments.

7.

RULES ON ACCOMMODATION PARTY:

a. Purpose:
To lend his name; no other purpose
b. Liability:is that of a surety
c. Remedy:
reimbursement from the accommodated party
d. Absence of consideration is not a defense
e. Liable to a holder for value

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f.

He must be a holder in due course minus knowledge of lack of

consideration
g. Without receiving value therefore refers to the amount in the
instrument. He may be considered as an accommodation party if
he receives value for purposes of lending his name.
8.

Bearer instrument vs. order instrument

Bearer instrument negotiated by delivery
Order instrument negotiated by indorsement completed by delivery

It the payee is not the intended recipient of the proceeds of the

check, the payee is considered a fictitious and the check is a bearer
instrument. In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss.
Exception: A showing of commercial bad faith on the part of the
drawee bank, or any transferee of the check. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is party to
the fraudulent scheme.

9.

10.

Ordinary check vs. memorandum check

Ordinary check presentment is required
Memorandum check the drawer is absolutely liable to the holder;
presentment is not required
REAL DEFENSES VS. PERSONAL DEFENSES
Real defenses enforceable against any holder even a holder in due
course
Personal defenses enforceable only against a holder who is not in
holder in due course.

11.

Fraud in factum vs. Fraud in inducement

Fraud in factum a real defense
Fraud in inducement a personal defense

12.

Presentment for payment and notice of dishonor are required to make

drawer and indorsers personally liable EXCEPT:
a. if the drawer or indorser has no right to expect that the instrument
will be paid upon presentment;
b. after the exercise of reasonable diligence;
c. waiver

13.

Facultative indorsement - is one which contains waiver of right

Restrictive indorsement - renders the instrument non-negotiable

14.

Rights of a holder in due course

a. right to sue
b. right to receive payment
c. right to hold the instrument free from defenses
d. right to enforce for the full amount thereof

15.

AVAL a written security instrument executed to secure the payment

of a bill of exchange. Drawer (guarantor) is regarded as AVALISTA

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DECIDED CASES/SETTLED RULES UNDER NIL

16. If the instrument is worded I/WE or either of us, the liability is
solidary
17.

P1,200,000.00 in figures vs. ONE MILLION TWO HUNDRED PESOS in

words, sum payable is P1,000,200.00 EXCEPTION: agreement
prevails because the agreement itself says P1,200,000.00

18.

Drawee bank is liable on a check bearing drawers forged signature

except if the drawer is guilty of gross negligence, in the following
cases: LUPA
a. failure to inform the drawee of the loss;
b. unauthorized payee
c. printing of checks without preventive measures
d. no accounting systems

19.

Holder of a crossed bank check must inquire into the indorsers title,
otherwise he is not qualified as a holder in due course
EFFECTS OF CROSSING CHECK: NOW
a. Not for encashment, but is for deposit
b. Negotiated only once
c. Warning

20.

COLLECTING BANK is liable on a check under these two cases:

a. Check bears the forged signature of the payee
b. Materially altered check

21.

DRAWEE BANK is liable under the following:

a. Check bearing the forged signature of the drawer;
b. Guilty of gross negligence

22.

EFFECTS OF FORGERY OF PAYEES SIGNATURE

a. Bearer instrument maker is still liable thereon
b. Guilty of gross negligence

23. MINOR-PAYEE is not liable on the instrument but the negotiation is

VALID.
24.

Treasury warrant is not a negotiable instrument because it is payable

out of a particular fund. Order to pay is therefore conditional.

25.
26.

Drawee is liable only upon ACCEPTANCE or CERTIFICATION

BEARER INSTRUMENT SPECIALLY INDORSED IS NEGOTIABLE BY
DELIVERY.
Reason: BEARER INSTRUMENT IS ALWAYS A BEARER INSTRUMENT

27.

Can a PAYEE qualify as HDC?

YES, if he has all the requisites of HDC

28.

Can a DRAWEE be a HDC?

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NO, because it acquires the instrument not through negotiation.

Payment thereof reduces the bill to a mere voucher.

INSURANCE
1.

PRINCIPLES
A Contract of Adhesion, because the ambiguity shall be liberally
construed in favor of the insured.
G Good faith
I Contract of Indemnity
P Personal Contract

Decided Case: Lessor cannot recover the proceeds of property insurance

secured by the lessee notwithstanding stipulation to that effect.
2.

Doing Insurance Business SIRA

a. Suretyship
b. Insurance Contract
c. Reinsurance
d. Any act equivalent to the last 3.

3.

Read Sec. 10 and 14. INSURABLE INTEREST

In life insurance the insurable interest must exist only upon
effectivity of that life insurance
In Property Insurance:
2 Conditions in order that there can be recovery:
a. That interest must exist: effectivity
b. loss

4.

BENEFICIARY
RULES:
a. He/she must be a qualified donee
b. Not a common law wife, because a common law wife is disqualified
c. Legal wife, the one entitled thereto
d. 1st wife, 2nd wife: if the 2nd wife is in good faith and not aware of
the existence of the first marriage, the court ruled 50/50% - 1 st wife
50%; 2nd wife 50%.
e. In property insurance, the beneficiary must have insurable interest
but in life insurance, the beneficiary need not have insurable
interest

5.

Probable bar question Sec. 26. CONCEALMENT

CONCEALMENT defined:
A neglect to communicate that which a party knows and ought to
communicate.
Requisites:
a.
The fact is known to that party
b.
Neglect to communicate
Concealment may be a ground for the rescission of a contract if the
same is material.
6.

MATERIALITY (Sec. 31)

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Materiality is not determined by the event, but it is the probable and

reasonable influence of the facts upon the person to whom the
communication is due.
7.

REPRESENTATION VS. WARRANTY

Representation it is made by both insured and insurer; mere
collateral inducement
WARRANTY it is made by the insured only; part of the contract

8.

2 YEAR CONTESTABILITY CLAUSE

applies only to life insurance, but it is optional in the case of property
insurance. (Life + 2 year effectivity)
Exception: it is still contestable even after the 2 year contestability
period
GROUNDS: VENN
a. vicious fraud
b. excepted risk
c. no insurable interest
d. non-payment
9.

PREMIUM
RULE: No premiums paid, no insurance, consequently, no recovery of
claims may be had
EXCEPTIONS:
a. acknowledgment of receipt of such premium
b. in the case of life and industrial life policies, because of the onemonth or 30-day grace period
c. installment payment
d. 60 to 90 day credit term
RETURN OF PREMIUMS
a. Surrender of policy
b. Voidable on account of insurers fraud or misrepresentation
c. Over insurance
d. Not exposed to the risk

10.

PERILS OF THE SEA VS. PERILS OF THE SHIP

Perils of the sea refer to the violent forces of nature, these are strong
winds and waves.
Perils of the ship refer to the inherent nature or structure of a vessel.
These are not covered by Marine Insurance.

11.

BOTTOMRY LOAN VS. RESPONDENTA

Bottomry Loan refers to vessels, reduces the insurable interest of the
owner.
Respondentia refers to cargoes and goods
12.

PROPER DEVIATION SWAN

S to save vessel under distress
W to comply with warranty
A to avoid peril
N neither the master nor the captain has control
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13.

CONSTRUCTIVE LOSS more than 2/3 of the value + factual loss +

notice to the insurer + abandonment

14.

DOUBLE INSURANCE
DIR IS
D Different insurers
I
the same insured
R the same risk
I
the same insurable interest
S the same subject matter

15.

FRIENDLY FIRE vs HOSTILE FIRE

Friendly fire is useful, not covered by fire insurance
Hostile fire is harmful, covered by fire insurance

16.

NO FAULT CLAUSE
Requisites: NO need to prove such negligence or fault
a.
Amount P5,000.00
b.
Police report
c.
Death or medical certificate

17.

AUTHORIZED DRIVERS CLAUSE does not apply to the

insured/owner of that car, even if he has a driver license or not, the
same does not apply. It only applies to a person authorized by the
insured.

18.

Expired License, he is not authorized driver, hence, no recovery

19.

INTERNATIONAL DRIVERS LICENSE is good only for 90 days

20.

INDEMNITY INSURANCE is a separate and distinct contract from that of

the liability of the owner of such car that may be based on tort
or damages whereas the liability of an insurer for indemnity
insurance is based on contract.

21.

SUICIDE CLAUSE
There can be recovery EXCEPT in one case, and that is if there
is NO SUICIDE CLAUSE and the insured is SANE and the life
insurance has been contested.

TRANSPORTATION LAW
1.

TESTS OF COMMON CARRIER:

a. Character business (part of business)
b. Public at large offers services to the public (nee not be
continuous)

2.

COMMON CARRIER vs. PRIVATE CARRIER

Common Carrier extra ordinary diligence may not be dispensed with
Private Carrier there may be stipulation exempting liability arising
from negligence

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3.

As to subject matter: Goods and cargoes the extraordinary

diligence shall begin or commence from the unconditional receipt of
goods and it ends or terminate from the actual or constructive delivery
of the goods to the consignee or agent.
Passengers extraordinary diligence shall commence from the time
he steps on the platform and as long as there is that intention to carry
such passenger and ends or terminates from the time he has safely
alighted and there is that reasonable opportunity to leave the premises
of the common carrier

4.

Common carriers are not liable under the ff. instance: PONEDO
P ublic enemy (act)
O rder of competent authority
N atural calamity
E xercised extra ordinary diligence
D efect in the packing
O mission of the shipper

5.
HIJACKING, EXPLOSION OF NEW TIRE, the common carrier is still
liable.
Exception in hijacking, if there is IRRESISTIBLE FORCE, common
carrier is relieved from liability
6.

REGISTERED OWNER AND BUYER OF A MOTOR VEHICLE are

solidarily liable even if the ownership has already been transferred;
the registered owner is still liable if there is no change of registration.

7.

MORAL DAMAGES may be recovered from the common carrier

in the ff. cases: DOH
D
O
H

Downgrading of the airline ticket

Overbooking, amounting to bad faith
Harsh treatment, discourteous act

8.

LIMITATION ON THE COMMON CARRIERS LIABILITY

Rules:
a. Passengers, no compromise, cannot be the subject of stipulation
b. Goods, can be the subject of compromise
Requisites:
1. Stipulation must be in writing
2. There must be consideration other than to transport goods.
This may include reduction of rates.
3. Reasonable

9.

BILL OF LADING
a. Commercial document
b. Receipt of goods
c. Evidence of the existence of the contract of carriage of goods
Rules:
a. no liability arising from negligence of the agent valid stipulation
b. unqualified limitation void stipulation
c. qualified liability valid stipulation

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Conditions: it must be fair and reasonable

10.

A Charter party may become a private carrier if:

a. it carries special cargo
b. it is chartered to a special person

11.

BAREBOAT OR DEMISE vs. AFFREIGHTMENT

BAREBOAT/DEMISE when the control, possession and navigation are
transferred to charterer, it is transformed into a private carrier.
AFFREIGHTMENT owner retains control and possession of the vessel

12.

CHARTER PARTY vs. CONTRACT OF LEASE

Charter Party the charterer may terminate the contract by paying
50% of the freightage; cannot be compelled to respect subsequent sale
of vessel
Contract of Lease a lessor cannot terminate the contract before the
expiration of the term; subsequent buyer must respect the lease.

13.

Collision vs. Allision

Collision this involves two moving vessels
Allision one of the vessels is stationary

14.

Error in extremis the last clear chance rule is not applicable.

This may occur under the following situation:
a. The faultless vessel is in the third zone of collision
b. the vessel at fault is in the second zone of collision

15.

Three Zones of Collision: BPI

a. All the time up to the moment when risk of collision may be said to
have Begun
b. From the moment the risk begins and the moment when it has
become of Practical certainty
c. When it has become of practical certainty to the moment of actual
contact or Impact

16. Arrivals under distress may occur under the following instances:
LAW
a. Lack of provisions
b. Accident in the sea
c. Well founded fear of seizure
17.

DOCTRINE OF INSCRUTABLE FAULT If the fault of the vessel

cannot be determined with certainty. Consequences:
a. Both vessels shall bear their own damages
b. Both vessels are liable solidarily to the owners of cargoes
If NONE is at fault, each vessel shall bear its own damage.

18.

DOCTRINE OF LIMITED LIABILITY the liability of the owner of the

vessel is co-extensive to the value of the vessel, equipment and the
freight.
Exceptions: WINDIR
a. Workmens Compensation Act
b. Injury
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c.
d.
e.
f.

Negligence
Death
Insured (vessel)
Repairs

19. Heirs of crew of the vessel have preferential right over the proceeds of
the vessel.
20.

Maritime protest
Conditions: CATA
a. It must be made in writing by the Captain/master
b. Accident, in the nature of collision or allision
c. Within Twenty hours
d. Lodged before competent Authority

21.

Jettison PSC
Conditions:
a. Proper formalities must be complied with
b. deliberate Sacrifice of goods
c. presence of Common danger

COGSA
1.
2.
3.
4.
5.
6.

These are goods coming from foreign country to Philippine ports.

Coverage: Loss/damage of goods
Period: 1 year from discharge of the goods
Notice is not required
Who will file: shipper; consignee; or INSURER in the event that it is
subrogated to the rights of the shipper or consignee.
Not Covered:
a. Misdeliveries
b. Conversions

PUBLIC SERVICE ACT

1.

Certificate of Public Convenience is not required for purposes of filing

an action for damages: PAPAI
P
Public markets
A Animal drawn vehicles
P Public utilities operated by the government
A Airships
I
Iceplants and warehouses

2.

Requirements CPP
a. Citizen or corporation 60% owned by citizens of the Philippines
b. Public necessity
c. Public interest

3.

Prior operator rule vs. prior applicant rule

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In case of conflict, prior operator rule prevails

4.

Prior operator rule: Requisites:

a. There must be offer to increase public service
b. There must be proof of satisfactory and efficient public service
Prior Applicant rule prior applicant is given special
treatment or preferential
right

WAREHOUSE RECEIPT LAW

1.
Warehouseman is bound to deliver the goods under the ff.
conditions:
a. Satisfy warehousemans lien
b. Surrender warehouse receipt
c. Acknowledge receipt of goods
Indorser of negotiable document is not liable for breach of
obligation of warehouseman.
2.

Negotiable receipt vs. Negotiable instrument

NR
refers to goods or article
bearer document may be converted into an order document
NI
involves the payment of a sum certain in money
bearer instrument is always a bearer instrument

TRUST RECEIPT
Failure to turn over to the entrustor the proceeds of the sale covered
by delivery trust receipt constitutes estafa. The Supreme Court said it is an
offense malum prohibitum. The purpose is to punish dishonesty and abuse
of confidence. Hence, the constitutional prohibition against imprisonment for
non-payment of debt is not applicable.
The entrustee is liable for loss of the goods because he is obligated to
insure the same. The doctrine of res perit domino does not apply. Transfer
of goods by the entrustee confers ownership upon the buyer. This is an
exception to the rule that no one can dispose of the thing which he does
not own.

TRUTH IN LENDING ACT

Coverage:
Sale on credit, installment, loan, lease with option to buy.
The
Supreme Court said it covers banks and non-bank financial intermediaries,
authorized to engage in quasi-banking activities.
Purpose:

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To protect
concealment

a debtor

from

the effects of

misrepresentation

or

Requirements: CARD
a.
b.
c.
d.

Cash price;
Amount credited if on installment;
Recital of finance charges;
Difference between cash and installment price

Consequences for Non-compliance:

a. Debtor may recover the interest payment
b. Creditor is liable to pay finance charges (double) and attorneys
fees

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