CommLaw Compiled Reviewer.docx

8/14/2019 CommLaw Compiled Reviewer.docx

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Commercial Law ReviewDean Eduardo AbellaFirst Semester 2012-2013

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Commercial Law ReviewDean Eduardo Abella

CHATTEL MORTGAGE

Mortgagean accessory contract, collateral or securityfor an obligation

Other securitiespledge, antichresis, surety, guarantee

They are valid only if there is a principal contract.

Basic Principles1.) Accessory Contract only exists if there is a

principal contract2.) Mortgage is the owner of thing mortgaged3.) Mortgage extinguished if the principal

obligation is extinguished

May be constituted over personal property, it is called achattel mortgage. It may also be constituted over realproperty, in which case it is called a real estate

mortgage

Chattel Mortgage Real Estate Mortgage1.) Personal 1.) Real2.) Existing validobligation

2.) May secure evenfuture obligation

Includes voidable, unenforceable, rescissible andnatural obligations3.) May be foreclosedextra judicially

3.) May be foreclosedjudicially or extrajudicially

4.) No right ofredemption

4.) Right of redemptionprovided under law

In Jurisprudence:In one case there was a house that was subject to achattel mortgage. The reason was that the landbelonged to one person and the house to another. TheCourt ruled that as between the parties there is a validchattel mortgage as under NCC 1159, stipulations ofparties valid between themselves. However, it is notbinding on other persons.

Collateral issue: The register of deeds was not justifiedin refusing to record chattel mortgage over the house; itis 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 inaccordance with law.

CHATTEL MORTGAGE LAWACT NO. 1508This act is considered repealed by the New Civil Code

The ratio is that pactum commissorium is void and theChattel Mortgage Law considers a Chattel Mortgage asa conditional sale which becomes absolute upon default

Chattel Mortgage is defined in the NCC as a contractwhereby personal property is recorded in the chattelmortgage registry as security for the performance of anobligation.

CM is to be recorded in the Register of Deeds of theCity or Province where the mortgagor resides.Note: There is no Register of Deeds in Municipalities.

Chattel Mortgage Law requires deed of mortgageincluding an affidavit of good faith.

Affidavit of good faith is a sword declaration of both themortgagor and the mortgagee that they executed thechattel mortgage in good faith to secure a validobligation and not for the purpose of fraud.

Q:If an affidavit of good faith is omitted is there a validchattel mortgage?A: Yes, general ObliCon rule. Affidavit of good faith isfor purposes of registration. If there is no affidavit, it isnot binding on third persons. Affidavit of good faith maybe demanded.

Q: What if mortgagor and property are in differentlocations?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 theLTO. It should be first registered with register of deeds.After, which, register with the LTO.

Practical: Bring two copies, first to Register of Deedsthen have him stamp the copy. Bring the second copy tothe 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 isbrought, mortgagor may demand release ofmortgage.

2.) Foreclose the mortgage under the ChattelMortgage Law


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Q:What is absolutely necessary in order for the creditorto foreclose?A: Possession of the thing mortgaged beforeforeclosure as a practical necessity. Mortgagee shoulddemand delivery of thing mortgaged. If concealed, filefor 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 publicSheriff or notary public, after the receipt of the petition,prepares notice of auction sale.

1.) Post in at least 3 public places (City Hall, Hallof Justice, Public Market, Barangay Hall,Health Center etc.)

2.) Send copy of notice at least 10 days before theauction sale

Q: If somebody took the posted notice, will proceedingbe 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 tothe sheriff or notary. If the bidder is the mortgagee, heneed not remit it to sheriff.

Whoever is the highest bidder gets certificate of salefrom 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 ofrecording release of mortgage. Went to get a secondloan from mortgagee. He merely returned the release ofmortgage, is the mortgage revived?

A: No, obligation it secured is already extinguished

REAL ESTATE MORTGAGEACT 3135Created right to foreclose Real Estate Mortgage Extra-Judicially. Referred to the Code of Civil Procedure.

Q: What is required for mortgagee to foreclose the REMextra-judicially?A: Mortgagor must expressly authorize the mortgageeto sell in case of default in deed of mortgage or otherinstrument.

According to the Supreme Court, there must be anexpress provision giving authority to the mortgagee tosell. Mere reference to Act 3135 is insufficient.

Example In case of default, the bank shall beauthorized to sell, as it is hereby authorized to sell.

Extrajudicial foreclosure proceedings out of court, yetsheriff should not accept the petition unless there ispayment of court fees.

Q:How is it initiated?A:Prepare a verified petition to foreclose the REM. Thesheriff or a notary public may handle this. Themortgagee himself may do it, but it is often the sheriff ornotary public.

Steps in Foreclosure:1) Post notice of auction sale in at least 3 public

places in City or Province where the property islocated

2) Case publication of notice in newspaper ofgeneral circulation once a week for 2consecutive weeks.

In notice, make sure property is correctly described inthe notice as published. In notice as posted, it is notfatal to make a mistake.

Reason: notice as published is notice to the wholeworld.

Q: Is there a need to send notice to mortgagor?A: No, publication is notice to the whole world, itincludes the mortgagor.

Get an affidavit of publication from the publisher

Q: May mortgagor and mortgagee stipulate thepostponement of the auction sale?

A: Yes, there is no prohibition. However, in case ofpostponement, the notice requirements should becomplied with again as in the case of NepomucenoProductions vs. PNB

There is no longer any requirement of having at least 2bidders.

Sheriff or notary issues the certificate of sale that shouldbe registered in the registry of deeds.

Right of redemption may be exercised within 1 yearfrom the registration of the certificate of sale. 1 year is365 days; it does not matter if it is a leap year.

Act 3135 created a right, however, you must still followRule 39 under the Rules of Court

In the General Banking Act of 2000, there is a shorterperiod provided. Only a 90-day period of redemption ifmortgagor is a juridical entity and the mortgagee is abank. 90 days of registration of title, whichever comesfirst.


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Redemption is a right and not a duty; it may not beforced on the mortgagor.

Q: May right of redemption be expressly waived?A: No, no waiver may be made during the period oredemption. Waiver may be done by not exercising theright.

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 rightmay be inherited by succession.

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 theredemption price within the period of redemption.

Redemption priceif there is a special law that createdthe mortgage and there is an indication of redemptionprice, then follow that.

If it is a bank, it depends on the law.

If another person:1.) Bid price2.) 1% interest per month on the bid price3.) Taxes and charges paid by the highest bidder4.) 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, whichmust be in legal tender.

If tender refused, the remedy is specific performance.The amount may not be consigned because forconsignation to be allowed, there must be a debt due.

When redemption period expires, there are two ways ofgetting title to the property.

1.) Sheriff or notary public issue a final certificateof sale

2.) Property registration decree, affidavit of non-redemption. You need to have it notarized.

3.) Pay taxes to BIRDSTs and CGT/WithholdingTax

Q: When should the taxes be paid?A: Expiry of redemption period

DST paid by the 5th day of the month following theend of the period.

CGT/Withholding Tax 30 days from expiration of theredemption period.

The tax base used to be the bid price. Now it is Bid priceor Market Value in tax declaration or BIR valuation,whichever is the highest.

Case: Person borrowed from bank. Parents executed aReal Estate Mortgage. Borrower issued post-dated

checks. The checks were dishonored. The bank suedthe borrower for BP22.Remedies for bank are as follows:

1.) Civil Collection2.) BP223.) Foreclosure

Filing of BP22 is an abandonment of the mortgage.If buyer of mortgaged land already owns the land andthe prior owner does not want to leave, file an ex partePetition for Issuance of Writ of Possession.

Practical Matters: Attach all certified true copies ofdocuments in the petitiontitle, deed of mortgage, finalcertificate of sale, BIR clearance (tax clearance,

certificate authorizing registration)

General Rule: The issuance of the writ is ministerial. Butif filed before the end of the redemption period, a bondis required.

Exception: If there is another person with a better right.Ex. Lessee

New buyer in good faith doctrine: Looking at certificateof title is no longer enough; you must look at the right ofthe person in actual possession of the property. Failureto 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 andthe owners copy.

There are at least 2 because co-owners may each wanta copy of the certificate of title. In which case, the co-owners duplicate should be prepared with the original. Ifyou are buying from co-owners, you must get all othercopies so that they may be annotated.

Remedy or the issuance of the writ of possession is thesame in extrajudicial foreclosure, judicial foreclosureand execution sale. There is no remedy if a third partyhas a better right.

Q: Can PDCs be used as chattel mortgaged property?A: Legally, yes.

DOCUMENTS OF TITLEBailee acknowledges good and his undertaking todeliver these goodsEx. Bills of lading, Warehouse Receipts, Quedan

Bill of Lading is issued by a common carrier under theCode of Commerce. A Warehouse Receipt is issued by


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a Warehouseman (under the Warehouse Receipts Actand the General Bonded Warehouse Act).

A bill of lading for a truck is called a waybill, while for anairline it is called an air waybill.

The Code of Commerce requires the following to be

printed on Bills of Lading1.) Complete name and address of consigner.2.) Complete name and address of consignee3.) Description of goods including marks and

markings ex. Numbers on crates4.) Amount of fare

Q: Are printed stipulations on Bill of Lading binding onthe 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 aconclusive presumption that the Common Carrier gotthe goods?A: No, it is only a disputable presumption.

Threefold Role of a Bill of Lading1.) Receipt2.) Contract3.) Stand for the goods mentioned therein

(Symbol)

Document of TitleIt may be negotiable or non-negotiable. Negotiable if it is

to order or to bearer, these are the words ofnegotiability. It may be negotiable by delivery orindorsement. A document of title may be indorsed inblank or by special indorsement.

In documents of title, if a bearer bill is speciallyindorsed, transferee who wants to further negotiate ithas to indorse and deliver it as opposed to NIL wherethe indorsement of a bearer bill has no effect.

GENERAL BONDED WAREHOUSE ACTWarehousing an annual license is required. A bondmust 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 awarehouse receipt, he should indicate on copies thatthey are merely copies and not the original. If he fails toindicate as copy, if person is in good faith and got thereceipt for value, he would be entitled to the goods as ifhis warehouse receipt were original.

As a consequence of negotiation of the warehousereceipt, the transferee acquires the direct obligation toreceive 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 thewarehouseman.3.) He must sign the receipt.

Liens of the Warehouseman:1.) Storage fees2.) Cost of packaging3.) 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 originalreceipt?

A: Cancel it

If warehouseman fails to cancel it and the receipt fallsinto the hands of someone in good faith and who got itfor value, warehouseman is liable to the person.

Q: May goods covered by a document of title be leviedupon on attachment for execution?A: Yes.

TRUTH IN LENDING ACTPurpose: To enable persons borrowing money or buyinggoods on installment or credit to know the actual cost inmoney.

Prior to consummation, person lending money or sellingon credit/installment should deliver written statementshowing breakdown of charges. Note that this is alreadyafter a meeting of the minds.

Under Section 4 of the Truth in Lending Act, there mustbe a Disclosure Statement.

History: When cost of money had gone beyond aprofitable rate the interest was also subject to the usurylaw. Due to this banks thought of other ways to makemoney, (Ex. Processing fee, application fee, appraisalfee) hence the need for the Truth in Lending Act.

A disclosure statement must contain the following1.) Cash Price less down payment = amount to be

financed2.) Payable in XX installments3.) Total amount to be paid in installments4.) Total Cost5.) Plus other charges

The BSP is charged with the implementation of theTruth in Lending Act. Violation of the Act is a crime;


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penalty is fine of P100 to P2000 and imprisonment of atleast 1 month but not more than 5 years.

Case: Solidbank extended a credit line of P200k to aclient.

Credit Linewhen bank sets aside a certain amount for

client that client may draw on at any time.

SC did not allow Solidbank to collect amount becausethe additional charges were not indicated in thepromissory notes.

In 2009, there was another case where the fees wereincluded in the promissory notes but there was nodelivery of disclosure statements, collection still notallowed.

BULK SALES LAWPurpose to protect creditors from fraudulent schemesof their debtors

Acts covered:Sale, assignment, mortgage, or other forms of transfer.

1.) All or substantially all of the stocks of goodsother than in the ordinary course of business

2.) Of the business or businesses themselves3.) Sale of fixtures and equipment used in the

conduct of business

Not every sale is covered. Ordinary course of businessis not covered ex. If all goods sold while engaged in thewholesale business.

Requirements:1.) At least 10 days before intended transaction,

person intending to make it should inform his

creditors in writing2.) To prospective transferees, must deliver sworn

statement stating full names and addresses ofcreditors including amount due them

3.) Furnish Bureau of Commerce/Bureau ofDomestic 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

execution3.) Sale by manufacturer of his own products

SC: Sale of a foundry shop (Horseshoe maker/metalfabricator)

SECRECY OF BANK DEPOSITS RA1405Purpose: to encourage people with money to deposit inbank to promote national economy.

Reserve Requirements:1.) HighestChecking2.) Medium- Savings3.) LowTime Deposit

Q:How does BSP use reserve requirements to managemoney supply? Why is there a need to manage money

supply?A: If there were a lot of money in circulation, priceswould go up

The reserve requirement is also there in order for theBSP to have money to lend to banks.

It is illegal for a bank officer or employee to disclose anyinformation regarding bank deposits and governmentsecurities.

Exceptions:1.) Written authority from depositor himself Self

explanatory2.) In case of impeachment ex. Clarissa

Ocampo3.) Court order in case of bribery, dereliction of

duty of public officer, violation of Anti-graft andCorrupt Practices ActGraft Cases

4.) Where deposit is the subject matter of litigationMust be read literally

Exceptions in other laws:1.) Examination of books of banks by the BSP2.) Independent auditors they are not bank

employees/officers3.) Order from CA, violation of Anti Money

Laundering Act/Anti Graft and CorruptPractices Act

Secrecy strengthened by General Banking Act of 2000,banks should have employees on permanent basis.

GENERAL BANKING ACT OF 2000Banks are entities authorized by the Monetary Board toaccept deposits and lend money.

Types of Banks:1.) Universal Banks2.) Commercial Banks3.) Thrift Banks (Savings and Mortgage, Private

Development Bank, Stock Savings and LoanAssociations)

4.) Cooperative Bank5.) Rural Bank6.) Islamic Bank

Universal BankActually a commercial bank, but also authorized byMonetary Board to engage in the business of aninvestment house.


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Commercial BankAs a matter of right, only commercial banks shouldaccept deposits in checking accounts/currentaccounts/commercial accounts/demand deposit

1.) May issue letters of credit2.) Lend money3.) Trading of government securities

4.) Foreign transactions5.) Safety deposit box

Q: What is an investment house?A: It has 2 major functions

1.) Rediscounting of receivablesone entity goesto an Investment House and as collateralpledges its receivables. (Ex. Business sells oncredit and needs capital again, so it borrowsfrom an Investment House)

2.) Underwriting for securities (ex. In corporationthat needs more capital that cant be raisedfrom stockholders securities only if 20 ormore persons) Get SEC approval first, thenhave them sold by securities underwriters

Thrift Bank3 Kinds:

1.) Savings and mortgage - To lend money tothose that want to construct houses. For smalldepositors (small amounts of money). Banksprefer big depositors as maintenance costs arethe same

2.) Private development bank organized fordevelopment of community. If it needsadditional capital, it may invite DBP to investwith it. To recognize it, check corporate name,it always has development in its name.

3.) Stock savings and loan associationsTheresalso a non-stock but not bank. If non-stock no

ACS. If stock, may accept deposits fromgeneral public, if non-stock only from limitedclientele (ex. AFPLSAI restricted only to AFP,PNP and family members; MESALA, Meralcoemployees including the Lopez group) Manycorporations have savings and loanassociations and a credit union.

Cooperative BankNo individual stockholders, all are cooperatives. Undercooperative office, but bank under the BSP.

Rural BanksProvides services to farmers/tenants or simply stated, inrural areas. It is recognizable by Rural in its corporatename.

Islamic BanksNo interest because it is considered immoral, but theremay be profit sharing.

Under the law, only corporations under supervision ofthe Monetary Board may use Bank or Banking incorporate name.

Banks are prohibited from engaging in the business ofinsurance as an insurer.

All banks should be organized as a stock corporationand comply with the requirements of the MonetaryBoard for licensing. Before a corporation can beorganized, it must go through bank. After requirements

submitted to the Monetary Board and completed,endorsement by Monetary Board to SEC, which thenhas a ministerial duty to register it.

There is paid-up capital required by the MonetaryBoard. There is a period increase in paid-up capital inorder 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 tobe odd. If consolidated, it may have a maximum of 21.

There must be two independent directors who areneither officers nor employees of the bank.

Directors and officers not just anybody may be adirector or officer. There is the fit and proper rule.

Fit and proper rule Monetary Board came out withqualifications. Must be a college grad.

Quorum in meetings GBA allows meeting via tele- orvideo-conferencing

Q: In what enterprises may a Universal Bank invest?A: Equities of both allied and non-allied enterprises. Ifcommercial bank, it may invest only in allied enterprises.

Alliedaffiliated 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 own1 of eachCommercial and Rural.

When shares are listed in the Stock Exchange, they arereadily disposable. Long-term investments are realproperties.

Q: if Universal Bank invests allied or non-allied, what isthe limit?A: Equivalent to 50% of net worth but only up to 25% ina single enterprise

Commercial bank limit is 35% of equity, but still with amaximum of 25% per industry.

Lending limits single borrower limit, max amount thatmay be lent to any borrower (individual, partnership andcorporation)

20% of net worth but may be increased by 10% goods.First 20% must be secured by real property, 10% mustbe secured by good easily marketable such as Bills ofLading, Trust Receipts and Warehouse Receipts.


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General Rule is money should be secured by realestate, 10% is for liquidity.

Bank should not acquire treasury shares of its ownTreasury Shares shares already issued by acorporation but which shares a corporation reacquires inits own name.

Subscribed and Issued Shares no difference betweenthem in terms of rights

If a bank acquires treasury shares, they should begotten 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 theapproval of majority of the Board of Directors without thevote of the borrowing director. Borrower is not countedfor quorum and approval.

Ex. 5 Members of the Board of Directors and one of

them is the borrower. The quorum is 3, and the voterequired is 2.

Loans may be secured by Real Property; however,according to Section 37 the max amount that may beloaned out is 75% of the appraised value of the land. If ithas improvements, the value loaned is not to exceed60% of the appraised value of improvements.Improvements must be insured.

Under the General Banking Act, bank should cause tobe published at least every quarter their financialstatements.

Clearing house Bangko Sentral Lending facility for

purpose of collecting checks drawn on one bank butdeposited in another.

Ex. BPI Katipunan depositor deposited checks fromother banks such as Metrobank and Allied Bank.

Clearing house is where banks swap checks theyreceived drawn on other banks. Physically there is nocash involved, but transactions recorded.

Under present rules if within 24 hours a bank dishonorscheck, check should be returned or else consideredcleared.

Bank cannot declare dividends if clearing house accountare overdrawn. There is only movement of cash ifclearing house account is overdrawn.

PDICIn 60s to the 70s, there were so many bank closures. Inorder to restore faith in banking, the PDIC was created.

The PDIC insures only deposits in savings, current ortime accounts, not any other investments even if made

with or through a bank. It excludes money markettransactions.

Q: Why are money market placements not insured inPDIC?A:They are not deposits but investments.

Money Market Placements transactions through bankbut bank is not borrower. Borrowers are othercorporations that need to borrow for a short time.

Reason for Money Market Placements is that normalloans take time. Bank is an intermediary between theborrower 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 getPromissory Note by borrower.

PDICThe amount insured P500k per person per bankin the Philippines, whether in Philippine or foreigncurrency.

If it is a foreign currency deposit unit, indemnity amountin pesos on the day the bank is ordered closed.

When a bank is ordered closed, all deposits of a personin different accounts in different banks will be collated.In the present law, joint accounts are insuredseparately. So it is P500k per sole account per bank,and a total of P500k for all joint accounts combined perbank.

A joint account is an account in the name of 2 or morepersons. 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 presumedco-owned in equal parts unless the contrary is proved.

Example 1:

Sir 490kSir + Wife JointAccount

500k

Sir + GF JointAccount

500k

AmountRecoverable by Sir

990k

Example 2:

Sir 490kSir + Wife JointAccount

500k

Sir + GF1 JointAccount

500k

Sir + GF2 JointAccount

500k

AmountRecoverable by Sir

990k


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New Central Bank ActReason for the creation of the Bangko Sentral ngPilipinas was the bankruptcy of the Central Bankcreated in 1948. The Bangko Sentral has a corporateexistence and is controlled by a board, the MonetaryBoard.

The Monetary Board is composed of 7 members:1.) BSP Governor2.) Cabinet Member depends on the President

who to send, currently it is DTI Secretary3.) 5 Full time members from the private sector

reason is so that the BSP will not become adumping ground of political lame ducks.

Private sector representatives need not necessarily befrom privately owned private corporations. They maycome from GOCCs such as the DBP, SSS, GSIS butthe appointment is staggered.

The BSP Governor has a term of 6 years, except whenit is to fill a vacancy for an unexpired term. Full time

directors are also appointed for a 6-year term. They maybe re-appointed once for a total term of 12 years.

Prohibition to Join Private Banks - Within the periodof 2 years from separation from the Monetary Board,neither the governor nor the full time directors mayserve in any capacity under corporations under thesupervision of the Monetary Board (banks, quasi-banksand investment houses), except if he would berepresenting the interest of the Philippine Government.

The Monetary Board is obliged to meet every otherweek because it has to closely monitor the prices andtake action.

In every meeting, there should be a quorum of at least4. To pass a resolution, at least 4 members shouldconcur. If the Governor cannot attend, he should send aDeputy Governor. If Secretary cant attend, he shouldsend an Undersecretary.

Functions of the BSP

1.) Supervision of the banking system2.) Manages currency and money supply3.) Gold purchasing

Q; What is money?A:Any medium of exchange, anything could be money

Money vs. CurrencyCurrency is defined by law as notes and coins issued bythe BSP and are in circulation.

Currency has 2 qualifications:1.) Issued by the SP2.) In circulation, meaning out of the BSP vaults

TRIVIABSP prints the notes and mints the coins. Production islocal 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 thecapital letter P. There are 2 other countries that usePeso; they are Argentina and Mexico. Part of Peso iscalled a Centavo. The sign for a Centavo is the smallletter c.

A note contains 2 sets of serial numbers; they arelocated at the upper left and lower right. They also have2 signatures on them, one belongs to the PhilippinePresident, and the other belongs to the BSP Governor.

The life of a note is estimated at 5 years, but in MetroManila it is merely 1 year. If estimated life is over, it iswithdrawn and demonetized, it loses the character ofmoney.

Q: May a damaged note be replaced or accepted fordeposit?A: Yes, it may, but it must fulfill the followingrequirements:

1.) If damaged, there must be at least 3/5 of thenote present.

2.) It must have at least one set of complete serialnumbers

3.) It must have at least one signature present4.) There must be no intentional defacement (Its a

crime).

BSP issued a circular for bank not to accept for depositor replacement notes showing intentional defacement.

Coins have a much longer existence. Damaged coinsmay also be replaced if there is no sign of filing, clippingor perforation; the reason for this is that the metalcontent would be diminished. Ideally, the amount stated

is the total cost of making coins, however, Philippinecoins are worth more than their stated value.

In case of possession of damages coins, the possessoris 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 prescribedby 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 certainamount.

A Monetary Board circular changed the amount of whatmay e legal tender for coins. All centavo coins are legaltender up to P100 while all Peso coins are legal tenderup to P1000. Contrast this with the law that states thatfor coins worth 10 centavos or less they are legal tenderonly up to P20, while coins worth 25 centavos and upare legal tender only up to P50.


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CODE OF COMMERCEThe 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 age2.) With the capacity to contract3.) Regularly engaged in commerce

Commercebuying and selling

If a juridical person partnerships and stockcorporations

1.) Organized according to law2.) Regularly engaged in commerce

Regularly- requires habituality, does not require acertain volume of sales or buying.

LETTERS OF CREDIT

A letter/correspondence addressed by a merchant toanother to enable a person named in the letter to attendto a commercial transaction.

Q:How many parties are there?A: There are 3. The sender who is a merchant, theaddressee who is also a merchant, and the personname in the letter who may or may not be a merchant.

Requirements of Code of Commerce for a Letter ofCredit:

1.) Person to whom credit is to be extended to isnamed.

2.) The amount or maximum amount of creditextended to the person shall be stated.

If the requirements are not met, it is called a letter ofrecommendation. A letter of credit cannot be innegotiable 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 months2.) Foreign different countries; good for 12

months

MODERN LETTERS OF CREDITBank credit facility to enable persons to have acommercial transaction where buyer would be assuredof delivery and the seller assured of payment.

Commercial banks as a general rule are allowed toissue letters of credit, but Monetary Board may allowother banks to issue Letters of Credit.

TRUST RECEIPTSIn this transaction there are 2 parties, the entruster andthe entrustee. The entruster has a security interest overthe 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 periodstipulated. If the amount owed cannot be remitted, toreturn the goods within the period. The proceedsmentioned include the profits as long as there is still anamount owing to the entruster.

Trust receipts are issued to guarantee debts due tofailure to pay the amount bank advanced in the Letter ofCredit.

Returning the goods does not extinguish the obligationto pay the amount. However, the bank may dispose ofthe goods. The proceeds of such sale will be credited tothe debt owing in the Trust Receipt.

Trust receipts may be between individuals

The PD regulating trust receipts was made to protectthe banking system. The PD requires the entrustee toinsure the goods against all risks.

When a document has the same stipulations as apromissory note along with undertakings present in atrust receipt, then it is still considered a trust receipt.

In banks, the transaction is often called an L/C-T/R linebecause of the interrelation of the 2 transactions.

FOREIGN INESTMENTS ACTIts purpose is to entice foreign investments in order to

bring in more foreign currency.

It was formerly illegal for transactions to be paid inforeign currency or in relation to foreign currency.

Foreigners may own 100% of any export enterprise.

A foreigner may own 100% of a domestic marketenterprise so long as it is not covered by Negative List A& B

Negative List A activities reserved by the Constitutionor other special laws to Filipinos such as advertising,public service.

Negative List B any activity relating to ammunition,ordinance, repair and maintenance of armamentswithout prior approval of the Secretary of NationalDefense.

A foreigner may also own 100% of a domestic marketenterprise if the foreigner will make an investment worth$200k or equivalent but not in areas where there arehealth related risks ex. Bars, beer houses, massageparlors, sauna baths, dancing halls.


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Q:What if the investment is not $200k?A: It is okay but only activities that are certified by theDOST as new and no less than 50 Filipino employeesare hired. The investment must also be no less than$100k.

Land Ownership

Formerly natural born Filipinos (ex. Naturalized inanother country) allowed to acquire urban properties ofnot more than 5000 square kilometers or rural land ofnot more than 3 hectares. If both spouses are formerlynatural born Filipinos, their total lands must not exceedthe above-stated land areas.

Also, the land acquired must be in different locations.

To be considered Filipino, domestic corporations mustbe at least 60% owned by Filipinos. If it is a foreigncorporation, it must be 100% Filipino owned.

WARSAW CONVENTIONIt 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 contractingparties, the Philippines was not an original party.

The following documents must be uniform:1.) Passenger Ticket2.) Baggage Check3.) Air Waybill

Baggage Check it is the white strip of paper withadhesive attached to the baggage

Air WaybillBill of lading issued by an air carrier.

Air travel is considered international if the port of originis in one country and the port of destination is anothercountry.

Air travel is also considered international if the port oforigin is in one country, there is a stopover in anothercountry, and the port of destination is the originalcountry. This often occurred when there were multiplecolonies (ex UKstopoverHong Kong).

Original indemnity used to be fixed in Swiss Francs; thiswas later changed to US Dollars.

The indemnities are the following:1.) Death of a passenger - $100k2.) 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 value2.) Pay fare according to the value

Indemnity in case of hand-carried articles:Max amount is $1000 regardless of weight and actualvalue.

COMMON CARRIERSA common carrier is a person natural or juridical who isregularly engaged in the transportation of goods,passengers or both, offering its services to the public fora fee.

1.) Transporting goods, passengers or both.2.) Offering service to the public3.) For a fee

The common carrier is at liberty to transport what theywant.

Q: What is the public?

A: It is not necessarily the general public; it may merelybe a narrow segment of the public. Ex. A school busoperator is a common carrier.

A pipeline is also considered a common carrier, ittransports fuel, and its clients are Shell and Caltex.

Q:Do you need a motor vehicle?A: No.

The diligence required of a common carrier isextraordinary diligence.

Extraordinary diligence is to be exercised when thegoods are unconditionally placed at the disposal of the

common carrier, until the goods shall have beendelivered to the consignee or until consignee has beeninformed of arrival of the goods and given a reasonableopportunity to claim the goods.

Reasonable opportunity is dependent upon thecircumstances.

An exception is when the shipper exercises the right ofstoppage in transitu.

Q: In case of stoppage in transit, what is the relationshipof the common carrier to the shipper?A: The common carrier is merely a bailee, the diligencerequired is now only that of a good father of a family.

Exception to the exception if the shipper asks fordelivery back to himself.

Q: Is the common carrier an insurer of the goods?A: No, the common carrier is not an insurer against allrisks related to transportation.


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There are 5 occasions that a common carrier may avoidliability 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 actof a public enemy in times of war, whether civilor international.

3.) When the proximate and only cause is thecharacter of goods or a defect in the containeror packaging.

4.) When the proximate and only cause is the actor omission of the shipper himself.

5.) When the proximate and only cause is theorder of a competent public authority.

To invoke the exceptions there must be no unnecessarydelay in the prosecution of the voyage. The carriershould not have committed an improper deviation. Thediligence 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 CommonCarrier to prove that under the circumstances itexercised extraordinary diligence. The burden of proof ison the common carrier.

Q: If one of these five occurred, is there a chance torecover from the common carrier?A: Yes, but the burden of proof is on the shipper toprove that there is failure to exercise the requiredstandard of care, still extraordinary diligence.

Q:May a common carrier and shipper validly stipulateon 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 parties2.) 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 totransport. With respect to the carrier its prestation is thepromise of the shipper to pay the fare. With respect ofthe shipper, it is the promise of the carrier to transportthe goods.

Standards of Care:1.) Utmost diligence of a very cautious person2.) Extraordinary diligence3.) Good father of a family

There is no name for the standard of care in betweenextraordinary diligence and that of a good father offamily.

The shipper also has the obligation to minimize damageto itself.With respect to the transportation of person, thestandard of care required is the utmost diligence of avery cautious person.

Q: When does it start?

A:When the carrier agrees to take in the person as apassenger.

Q:May the passenger and the carrier stipulate a lowerstandard 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 isalways 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 haveacted without or in excess of their authority. There is noexception to this.

For acts or omissions of other passengers or thirdpersons, if the common carrier could have preventdeath or injury by merely exercising the diligence of agood father of a family and it failed to do so, the carrieris liable.

Q: When may a common carrier be liable for moraldamages?A: In the following instances:

1.) Death of passengersin favor of the heirs2.) When passenger suffers physical injuries

3.) When the common carrier acts in bad faith

A common carrier is liable for moral damages against awaitlisted passenger whose number is called, given aboarding pass, allowed to proceed to the pre-departurearea but not allowed to board.

CARRIAGE OF GOODS BY SEA ACTThe COGSA is a law of American origin; it was madepart of our laws during the American occupation.

In case of conflict between the Code of Commerce andthe COGSA, the former prevails due to specificprovision in the COGSA.

It is applicable in shipment of goods by seas fromanother country.

COGSA wont apply if:1.) Not covered by BL2.) Livestock3.) If transportation on the deck is agreed upon


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Time for claim if there is loss or damage:1.) If apparent the claim should be filed

immediately with the carrier2.) When the loss or damage is not apparent, then

within 3 days.

If the claim is denied, the claim should be filed in courtwithin 1 year from the delivery of the common carrier tothe arrastre. When the arrastre receives the goods, itinspects the goods and lists the defects in the tallysheet. If there are defects found, they are formalized inthe Bad Order Form.

Q: Is the filing of a claim with the common carrier acondition precedent to recover from the carrier bycomplaint.A: No, it is not required. This is different from the Codeof Commerce where the claim with the Common Carrieris a condition precedent.

Q: When goods are insured, when should the claim bythe insurer be filed?A: Also within one year, the insurer merely steps intothe rights of the insured.

If goods not damaged in tally sheet or bad order formbut the goods upon turnover by the arrastre aredamaged, 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 pre-existing contractual relation between the arrastre andthe consignee.

Q:If the goods are insured but no claim is made by the

insured against the insurer within 1 year from delivery ofgoods, is the claim against the insurer barred after oneyear?A: No.

In case there is no annotation on the tally sheet and thecustoms broker got clearance, the broker also offered totransport the goods, if there is any damage, the suitshould be brought against the broker. The ruling is thata customs broker who offers to transport goods to clientas part of services qualifies as a common carrier.

Q: In case of missing goods, when should the claim befiled?A: Within one year from the last day when the carrierwould have delivered to goods to the arrastre operator.

ADMIRALTYNot every watercraft is a vessel, it has to have thefollowing qualifications:

1.) It must not be a mere accessory to anotherwatercraft (ex. Lifeboats)

2.) It must be registered with the MARINA3.) It must be used to transport goods, passengers

or both

4.) It is seagoing

Q: Who may own a vessel?A:Anybody

If a vessel is owned by more than one person, there is adisputable presumption that a partnership exists.

Hypothecary rulethe limited liability of shipowner. It isthe value of the vessel, plus earned freightage plusinsurance, if any.

Q:Who participates in admiralty?A: Those involved in navigation (crew) andhousekeeping (compliment)

The crew consists of the following:1.) Captain2.) 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 isused to refer to the commanding officer of a ship that isengaged in local/inter-island travel.

A ship captain has three roles:1.) Represent the owner of the vessel2.) Technical director of the vessel3.) Represents the country where the vessel is

registered.

Contracts in Admiralty:1.) Charter party2.) Bottomry3.) Respondentia4.) 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/demise2.) Affreightment3.) Time-charter4.) Voyage-charter

A bareboat charter is one where the lessor providesonly 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 seriesof voyages, with stores and provisions.

According to the Supreme Court, the true charter is thebareboat charter. The time and voyage charter aremerely subtypes of affreightment, which is a contract ofcarriage.


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Ship agent - Corporation representing the owner inevery port where vessel may make a call or stop. Theship agent is in charge of provisioning the vessel.

Q: What will the liability of a ship agent be forprocurement of provions?A: Different from mere agent, a mere agent is liable if he

discloses his principal and acts within the authoritygiven him. A ship agent is solidarily liable with the shipowner for contracts entered into for provisions of thevessel.

In admiraly there is also a husbanding agent

Q: Who is the husbanding agent?A: Agent in charge of freightage and settlement ofaverages

Q:What are averages?A: In admiralty, they refer to damages

Types of averages:

1.) Gross/General Average2.) Specific/Particular Average

General averages are damages suffered by vessel orowners of cargo that shall benefit not only the ship-owner 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 cargo2.) They make a decision to throw away certain

cargo3.) If the decision is urgent captain may choose,

choosing from the largest and of least valueproceeding to the smallest of the most value

Supercargoes representatives of owners. They sellcargo for the owner. Generally, they are only able to useprofits to buy goods. If they have a special power ofattorney, they may use capital to buy goods.

Bottomry Loan taken by ship-owner secured on thevessel. If the vessel sinks, the creditor loses the right tocollect the obligation to pay is extinguished. If loanexceeds the value of the vessel, the excess is anordinary loan.

Respondentialoan taken by cargo owner, secured bythe cargo. If loan exceeds the value of the cargo, theexcess is an ordinary loan.

Marine Insurance over vessel or freightage, cargoesor profits expected from cargo.

Accidents in Admiralty:1.) Collision2.) Arrival under stress3.) Shipwreck

CollisionImpact of two or more moving vesselsAllision impact of one stationary and one movingvessel

Q: Is the owner of a barge a party to a contract ofcarriage?A: No the owner is not a party, unless the barge is self-

propelled. The contracting party is the owner of thetowing 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 thenearest port. Examples are the following:

1.) Natural calamity along route.2.) To avoid pirates

3.) Loss of provisions4.) Accident that renders the vessel incapable of

prosecuting the voyage.

Q:What is the obligation of ship captain in arrival understress?A: The captain must execute a maritime protest asworn statement where the captain relates whattranspired.

If theres a collision of two vessels and it cant bedetermined who is at fault, each bears his own loss.This is the Doctrine of Inscrutable Fault. However, bothship-owners are solidarily liable for the damage to allcargoes.

INTELLECTUAL PROPERTY CODERepealed and compiled different laws on patent,copyright, trade names, service names, service marks.

Administered by the Intellectual Property Office. Thehead is the Director-General who must be at least 35years of age and a lawyer. The term of the Director-General is 5 years, eligible for a single re-appointment.However, the first Director-General appointed has aterm of 7 years without re-appointment.

Kinds of Intellectual Properties:1.) Patents2.) Copyrights3.) Industrial designs4.) Layout/Topography of integrated circuits5.) Geographic indication6.) Trade related aspects of Intellectual Property

Rights

Industrial designscombination of lines, colors or linesand 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 withthe following requirements:

1.) New2.) 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 todevelopment of new or existing industry.

Patent good for 20 years from date of filing ofapplication.

People entitled to patents:

1.) Inventor if 2 or more persons work on aninvention together, in absence of agreement tothe contrary they are co-owners. If they workindependently of each other, they are subjectto the first to file rule.

2.) Employer if the employer purposely hiredanother to work on an invention.

3.) Employeeif hired to do something else, evenif worked on it during work hours.

Not all inventions may be patented. They cant bepatented if they are contrary to law, morals, or publicorder.

If not contrary to law, but contrary to morals it may not

be patented but may still be mass-produced.

Not patentable:1.) Mere ideas2.) Concepts3.) Mathematical solutions4.) Surgical Procedures (but gadgets for these

procedures may be patented)

TRADE NAMES AND TRADEMARKSTrade name name a person uses to identify hisproducts and uses them to identify his product fromothers. (ex. Del Monte)

Trademarks sign or emblem used to distinguishproducts from others

Business name Name that a person uses to identifyhis place of business (ex. Highland ConstructionSupply).

Business Names Law if using a business namedifferent 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 tosue. 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 ruleif trade name or mark already registered inname of a person, no other person may use a similar orconfusingly similar name or mark on connection with asimilar or closely related product.

Ex. You cant use Del Monte in connection with foodstuffbut 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 hisproduct an appearance that is similar or confusingly

similar in appearance to the product of anothercalculated to make the ordinary buyer believe that hisproduct is the same as the product of another.

Q: Who is an ordinary buyer?A:Buyer relying on general appearance including colorand color combination.

Doctrine arose out of dispute with Del Monte bottles.

Bottles of Del Monte are patented. One case involvedthe Sunshine brand of ketchup that used the bottles ofDel Monte because the owner of Sunshine could notafford to make his own bottles. The manufacturerreplaced the labels of the bottles but the labels had the

same color combination. Add to this the fact that thebottles had markings that they were products of DelMonte. It was not ordinary buyers that were misled butalso those that read the labels.

Beer na Beer CaseIn the 70s, Asia Brewery created Beer na Beer that hadthe same taste as San Miguel, but Asia Brewery alsoused the same shape of bottles. The Supreme Courtheld that there was no unfair competition, applying theholistic test. The bottle taken as a whole could not bemistaken for San Miguel.

Doctrine of Secondary MeaningWhen a name has been used so long and so exclusivelyto identify a product that whenever the name ismentioned, reference is readily made to said product,although the name is not registered because it is noregistrable, no other person may use that name inconnection 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 thewidow.

Ex. Ang Tibay shoes never registered but used for sucha long time that the Doctrine of Secondary Meaning isapplied.

Tests to Determine Infringment:1.) Dominancy test to determine if there ispossible confusion between products, look intothe dominant features.

2.) Holistic test consider other factors. Even ifthere is similarity, there is likelihood that theywill not be confused with each other.

Example of Dominancy Test1.) Converse vs Custombuiltboth shoes use the

same star logo2.) Alaska All Purpose Milk vs Alacta Infant

Preparation not likely to be confused witheach other ue to different purposes. One ifinfant formula, the other is cows milk.

Trademarks may be registered before use.

COPYRIGHTIntellectual CreationExamples of copyright:

1.) Computer programs2.) Books3.) Movies (stories and soundtrack)4.) Musical compositions (lyrics and melody)5.) Compilations (even of those already done)6.) Adaptations

Owners of copyrights1.) Intellectual creator if 2 or more persons, co-

owners unless there is an agreement to thecontrary. There is no first to file doctrine due toimpossibility of making the same intellectualcreation.

2.) Employer if person hired to do intellectualcreation, unless there is an agreement to thecontrary.

3.) Employee if person is hired to do anotherthing, even if done during work hours.

If person commissioned another to do intellectualcreation (example, mural maker), in absence ofagreement to the contrary, finished work belongs to theowner, but copyright belongs to person commissioned.

Term of copyrightfrom moment of creation, the entirelifetime of the creator up to 50 years from death. The50-year period starts the first day of the year followingthe 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 isanother property.

Copyright cant be attached while it belongs to theintellectual creator. However, when transferred toanother, it may be levied. This is different from patentwhich can be attached even if owned by the intellectualcreator.

A copyright is an economic right, however the owneralso has moral rights.

Economic rights:1.) Right to produce or license the right to produce2.) Right to make versions of the copyrighted work3.) Right to the translations of copyrighted work

Computer Programs doctrine of fair use. Onelegitimate computer program per computer.

Moral Rights:1.) Right to state how authorship is to be

presented2.) In there are errors, rectification of the errors.

Q:Whom do our intellectual property laws protect?A: The following:

1.) Citizens, nationals2.) Residents with an effective establishment3.) Residents of a country that participated in an

international convention where the Philippinesalso participated.

4.) Citizens of countries that offer reciprocal rightsto Filipinos.

Not all forms of copying constitute infringement ofcopyright. Ex. Copying for personal use.

In case of lawyers or professionals the quoting of

authorities.

Libraries with old books may reproduce these books solong 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 damages2.) Criminal prosecution in copyrights, the first

infringement is sufficient ground forprosecution vs patents where prosecution maybe 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 SECas a foreign corporation sue in our courts for theprotection of intellectual property rights?A: Yes, Philippines is part of Paris Convention forProtection of Intellectual Property Rights.

Rebroadcastsimultaneous broadcasting.


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CORPORATION LAWThe law defines a corporation as an artificial being,created by operation of law, having the powersconferred by law or incidental to its existence. It is ajuridical person.

In the Civil Code, a partnership is also considered a

juridical person or an artificial being. However, apartnership and a corporation are only similar in thesense that they are both juridical persons.

Partnership CorporationManner of Creation

Mere agreement of theparties except when thecapital contribution is morethan P3000 or when apartner contributes realproperty. In the secondinstance, an inventory ofthe real property is madein a public instrument. A

limited partnership is alsonot created by mereagreement of the parties

Created by law or byoperation of law

Name that may be usedAny name as long as it isnot similar or confusinglysimilar to the name ofanother existingpartnership or corporation

Corporation must alwaysinclude the wordscorporation orincorporated, which maybe fully spelled out orabbreviated

PurposeAlways for profit. It isfound in the definition ofpartnership itself

May or may not be forprofit (ex. Non-stockcorporations)

Term of ExistencePartners may agree onany term

Cannot be for a termlonger than 50 years

Number of OrganizersMinimum of 2 5 to 15 except in

corporation soleManagement

Managed by all partners.Decisions made bypartner/s owningcontrolling interest

Managed by a Board ofDirectors or Trusteesexcept for corporationssole or close corporations

Amount of CapitalizationNo minimum amount P5000 minimum paid-up

capitalRight of Succession

Does not exist inpartnership

Expressly given tocorporations

Extent of LiabilityPartners may be obligedto contribute to pay forpartnership obligations

Shareholder may not beobliged to contribute morethan current participationexcept when the corporateveil is pierced

Causes of DissolutionAt will by withdrawal of Cannot be dissolved at will

any partnerSharing of Profits

Shared according to theagreement of the parties

Dividends are always pro-rated

NatureBoth a person and acontract

Only a person, not acontract

Relationship to PropertyPartners may validly claimthey are co-owners ofproperties in the name ofthe partnership

Shareholders cant claimto be co-owners ofcorporate property

Organizers of a corporation are merely organizers; theybecome incorporators only upon signing of the Articlesof Incorporation (AOI).

Q: Who is an incorporator?A: A natural person among the organizers of thecorporation who signs the AOI.

Incorporators are also corporators, but may cease to becorporators in case of divestment of shares. However,once you are an incorporator, you are always anincorporator.

The terms incorporator and corporator are applicable toboth stock and non-stock corporations. However, acorporator for a stock corporation is called astock/shareholder while in a non-stock corporation acorporator is called a member.

Stock Corporation(1) Authorized Capital Stock (ACS)divided into shares; (2) authorized to declare dividendsfrom surplus.

Non-stock Corporation Does not meet bothqualifications. A non-stock corporation may have ACSbut it may not be authorized to declare dividends.

Q: How do you form a corporation?A: File the AOI and other pertinent documents with theSEC

As a practical matter, think of a corporate name first andcheck whether it is available. If the name is not similaror confusingly similar to the name of an existingcorporation, file the name with the SEC. This may bedone 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 slip2.) AOI3.) Treasurers Affidavit4.) Undertaking to change corporate name5.) Registration Data Sheet6.) 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 thepurpose of incorporation


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Incorporators should be natural person with capacity tocontract. Majority should be residents of the Philippines.

Stipulations in the AOI:Article 1Corporate Name

1.) Must not be similar or confusingly similar to thename of an existing corporation or partnership

2.) Should have the words corporation orincorporated whether fully spelled out orabbreviated

The following cant be used as part of the corporatename: Philippine, Republic, National, State

Article 2PurposesCorporation can have only one primary purpose but anynumber of secondary purposes as long as they arecompatible with the primary purpose and amongthemselves.

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 3Term of CorporationIt may not be longer than 50 years. It may be extendedfor another 50 years before it expires without any limitas to the number of extensions. The extension may notbe made earlier than 5 years before expiration of theterm unless it is for justifiable reason.

Term may be shortened, however, if the shortening ofthe term is for the purpose of dissolution, it requiresprior BIR clearance.

Article 4Principal Place of BusinessAccording to the SEC, the full and exact address mustbe specified.

Article 5Full name, nationality and complete addressof every incorporator, which must not be less than 5 butnot more than 15. Only middle initial may be stated asan initial, the other names must be spelled out.Addresses of incorporators may not be a PO Box.

Article 6Part 1 - Number of directors, for stock corporations 5 to15, for non-stock corporations a minimum of 5. No lawrequires an odd number of directors.

Part 2 Full name, nationality, addresses ofincorporating directors. Persons mentioned in the AOIas directors of the corporation. Incorporating directorsmust be subscribed to at least 1 share.

Article 7Part 1Amount of ACS, number of shares representingstock, value assigned to every share

Part 2 Full name of the subscribers, nationality,number of shares subscribed, and value of everysubscription. Total subscription must be at least 25% ofACS.

ACS is always in Pesos. The ACS is the maximumamount that shall initially be capitalized.

Shares are units of participation. Unless laws orregulations require a minimum amount of paid-upcapital, 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 individuallypaid on their subscription, the total of which must be atleast 25% of the total amount subscribed. It is notrequired that every subscriber pay at least 25%.

Article 9Name of the Treasurer

Article 10 Provision applicable to corporations, thebusiness of which is reserved for Filipinos.

Other Matters:Shares may have no-par value they are issued forvalue of at least P5. All subscriptions to no-par valueshares must always be paid in full. Payment for no-parvalue shares is always capital contribution; it cant beused for the payment of dividends. Certain corporationscant 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 isthe amount contributed.

By-laws may be filed with AOI, if not so filed it must befiled within 30 days from issuance of certificate ofregistration.

If the by-laws are filed with the AOI, must be signed byall incorporators. If filed later, it need only be signed bya majority of the incorporators.

Once a certificate of registration is issued, there is anew person in the eyes of the law. As a person, acorporation may enter into contracts and acquireproperty exclusively in its own name. It may sue and besued exclusively in its own name.

Piercing the Veil of Corporate Entity/Disregarding theSeparate Corporate Personality:

1.) Even if a person has the controlling interest ina corporation, it does not follow that he isobliged to pay the obligations of thecorporation.


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2.) Separate personality of the corporation may beset aside if there is clear and convincingevidence that the corporation was organizedfor tax evasion, to defeat the publicconvenience or commit fraud.

3.) If there is clear and convincing evidence thatthe corporation is merely an alter ego of the

controlling stockholder, the corporatepersonality 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-laws1.) Meetings of stockholders or members2.) Directors3.) Officers4.) Stock Certificates for stock corporations5.) Corporate seal6.) Amendments

The by-laws are the house rules of the corporation.

MeetingsCorporation should have an annual meeting(called regular meeting). The date and time of themeeting is indicated in the by-laws.

The venue of meetings is usually the principal office ofthe corporation but it may be held elsewhere in the cityor municipality where the corporation has its principaloffice.

By-laws also mention the agenda of annual meetings.The annual meeting is the most important as it is for thepurpose of the election of directors for the followingyear.

Special meetings upon call by president. Law requires a

call. There must be a written notice at least 10 daysbefore the scheduled meeting. In special notice, matterthat is to be taken up must be stated. No other mattermay be taken up without concurrence of all thosepresent.

Attendance in Meetingsstockholders or members mayattend in person or by proxy. In every meeting theremust be a quorum at the start of the meeting. If there isno quorum at the start of the meeting, it must adjourn. Ifstockholders or members leave in the middle, there isno problem as quorum is reckoned at the start of themeeting.

Quorum presence of stockholders in person or byproxy representing the majority of the outstandingshares.

Stock dividends are not subscribed they are merelyissued.

Treasury shares are already subscribed or issued, theydont revert back to being unissued or unsubscribedshares if made into treasury shares.

Quorum in non-stock corporationspresence in personor by proxy of at least a majority of the number ofmembers.

In corporations regarding quorum or voting, the numberrequired for voting or quorum is always preceded by atleast. Ex. At least a majority, at least 2/3

Practical matter, in non-stock corporations, put in theby-laws what constitutes a quorum in order for non-stock corporations to be able to operate even with littleattendance.

Proxythere are two meanings, the representative andhis authority

Rules on Proxy:A proxy arises from a contract of agency, both shouldhave capacity to contract. Authority must be in writing,signed by the stockholder/member. Need not be in theform of a power of attorney. Signature in proxy formshould match the specimen in the files of the corporate

secretary. The proxy may be for only 1 meeting orlonger period but not exceeding 5 years.

Q: May proxy be revoked?A: Yes, except if it was issued pursuant to a contract, inwhich case, may not be revoked without the consent ofthe proxy. Revocation may be express or implied, it maybe implied by personal attendance of the stockholder.

In stock corporations, a Voting Trust Agreement may beentered into. In a VTA, the stockholder entrusts votes tovoting trustee, term is for a maximum of 5 years.

Proxy Voting Trust Agreement1.) Available in both

stock and non-stockcorporations.

2.) Privateinstrument issufficient

3.) Filed with theCorporate Sec

1.) Only in stock

corporations2.) Public

instrument3.) Filed with the

SEC4.) VTA entrusts

stockcertificates totrustee who inexchangedelivers to thestockholdervoting trustcertificates

Directors must have all the qualifications provided inlaw and by-laws and none of the disqualifications inboth.

Under the Corporation Code, a Director must have thefollowing qualifications:

1.) Own at least 1 share or be a member2.) 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 yearsprior 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 asdirectors.

Qualifications:Banksfit and proper rule, special law may provide forother qualifications.

Disqualifications classic example is Gokongwei whowas the director of a company in competition with theother company where he was trying to be electeddirector.

Directors are generally not entitled to regularcompensation but may receive compensation if soprovided in the by-laws or if they pass a resolution

giving themselves compensation and ratified by at least2/3 of the outstanding common shares.

Law allows directors to receive reasonable per diems forattendance in meetings of the board. Law allowsdirectors to receive share in profits but not more than10% 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 avalid reason. Exception: minority director may only beremoved for a valid cause.

SC: Any act of removing a director is always an intra-corporate dispute.

In stock corporations onlycumulative votingthis is toenable minority stockholders to have a representative inthe Board of Directors.

BOD sets the policies of the corporation. It meetsmonthly according to the Corporation Code but BL mayprovide otherwise. Quorum of BOD is majority of themembers at the start of the meeting.

Self-dealing DirectorDirector may enter into contractswith corporation where he is a director under thefollowing conditions:

1.) Proposal approved in meeting of board wherethere was a quorum without counting hispresence.

2.) Proposal approved by a majority of the quorumwithout counting his vote.

3.) Terms and conditions must be fair andreasonable.

Officers of a Corporation1.) President2.) Treasurer3.) Secretary

PresidentA director. May not be the treasurer and/orsecretary

Treasurerno requirements

Secretaryresident and citizen

Incompatible officesTreasurer and AuditorChief Accountant and Auditor

BOD appoints or elects officers

Q: What is term of office of officers?A: Refer to BL, normally coterminous with board thatfilled it up. Officer serves at pleasure of the BOD.

Officer may also enter into contracts with corporation,however, they must follow the same requirements asthe self-dealing director.

BL may provide for additional offices. BOD may createmore offices.

Stock and Transfer Book of Stock CertificateIt 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 isa 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 beissued to a stockholder, he must fully pay hissubscription. The reason is that a subscriptionagreement is an indivisible contract.

Procedure for lost certificate1.) File an affidavit of loss with the corporate

secretary2.) Cause publication of notice of loss in

newspaper of general circulation once a weekfor three consecutive weeks.

3.) Waiting period is 1 year from date of the lastpublication. However, a new stock certificatemay be issued if the person who lost the stockcertificate gives a bond for such amount and insuch form satisfactory to the BOD.

Shares are personal property hence they may bemortgaged 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 betransferred via an over the counter transaction

Q: What is an over the counter transaction?A: Simply means listed in a stock exchange, but madedirectly between parties and not coursed through thestock exchange. In case of an over the counter

transaction, parties themselves do the documentarywork. If you do it through the broker you merely wait forthe check.

Corporate SealDesign, 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 inmaking stock certificates.

Amendments of AOI and BL

AOI2/3 vote of all OCS, common and preferred.BLAt least a majority of OCS, common and preferred.

If the by-laws are filed with the AOI, all incorporatorsmust sign the BL. If filed after the AOI, at least amajority of incorporators must sign.

Amendmentcopy verbatim, underscore amendments,then in parentheses the words as amended. The bondpaper is letter size.

SEC reviews the amended AOI, after approval, the SECissues a certificate of filing of amended BL or AOI.

When filed, has to be accompanied by directorscertificate. This authenticates the amendment.

Dividendsonly the BOD may declare dividends.

Q: When may BOD declare dividends?A: Net profits after income tax, without any impairmentor diminution of paid up/paid in capital

Q: What impairs paid up capital?A: Losses

No obligation to declare dividends reason, exercise ofbusiness judgment. No duty is conferred by theCorporation Code to declare dividends. It may not becompelled.

SC: No court, not even the SC can order the BOD todeclare 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, exceptwhen the property to be distributed are treasury shares,in which case BOD cant fix the date of distributionbecause it still needs ratification of outstanding commonshares.

Q: Why the need to ratify?

A: When BOD declares stock dividends, investments ofthe stockholders become diluted

Pre-emptive RightsStockholders have pre-emptive rights to enable them tomaintain or retain the present ratio of holdings beforeshares 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 notexist.

Also, in Section 39 of the Corporation Code, there areinstances where they do not exist.

1.) In compliance with the law (ex. To go public)2.) In exchange for property needed for corporate

purposes3.) Payment of previously contracted debts

Another exception is also a stock-option plan in favor ofemployees of the corporation.

Watered stocksshares of stock issued by corporationbut for which shares corporation did not get the full andfair value.

Q: Who may bring the action to recover the differencebetween 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. Thedirectors who did not object are also solidarily liable forthe difference. They must have expressed theirobjection to the sale. Mere silence is not enough toexonerate oneself.

Appraisal RightRight to demand payment of fair value of shares undercertain conditions:

1.) There is a resolution of the board authorizingthe following:a.) Limiting or restricting certain rights of the

stockholder


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b.) Authorizing investment of corporate fundsin another corporation

c.) Authorizing sale or disposition of all orsubstantially all the assets of thecorporation

d.) Authorizing consolidation or merger2.) The resolution is ratified by at least 2/3 of

shares.3.) Stockholders demanding payment of appraisalright should have voted against ratification.

4.) Demand payment of appraisal right within 30days.

5.) Corporation should have sufficient surplus.

Q: What happens when corporation pays appraisalright?A: Corporation acquires shares, they become treasuryshares.

Fair valueaverage of market value and book value

Merger and Consolidation

Merger two or more corporations unite, one survives,the other/s dissolve.

Consolidationtwo or more corporations, a new one iscreated, the corporations dissolve.

Q: Why do corporations merge or consolidate?A: To comply with the minimum paid-up capitalrequirements of government regulator or for betterprofits, business opportunities or better corporateimage.

Stages of Merger1.) Informal talks2.) Boards pass separate resolutions to approve

merger3.) Presented to stockholders for 2/3 vote

ratification

Dissolution of CorporationsCauses:

1.) Expiration of the term2.) When court orders dissolution on a finding that

it is already insolvent or that it was organizedpurposely to commit fraud

3.) When SEC orders cancellation of certificate ofregistration for any of the following causes:a.) failure to file by-laws within 30 days from

issuance of the certificate of registrationb.) failure to organize within two years from

issuance of certificate of registrationc.) failure to carry out primary purpose for at

least 5 yearsd.) 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.

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. Incase of dissolved corporations, 3 years. Within thisperiod corporate property is transferred to trustee.

In case of non-stock corporations, foundations, residualassets, escheated to government.

Close CorporationsQ: How would you know if closed corporation?A: Look at AOI. There is a stipulation that number ofstockholders should not be more than 20 or shares ofcorporation should not be listed in any exchange orstipulation that if a stockholder intends to transfer to anon-stockholder, he should first offer to transfer theseshares to a stockholder.

Close corporations may be managed by the BOD ordirectly by stockholders. In case of deadlock, file withthe RTC a petition for appointment of a provisionaldirector.

Provisional director should be someone whoabsolutely has no interest in the corporation. Must notown a share and may not be a creditor.

Termfor as long as there is a deadlock in the board.

Stockholders may manage directly, no need for anannual meeting because principal matter is the electionof directors.

If there is a restriction on transferability of shares inclose corporations, where should it appear?Three documents:

1.) AOI2.) BL3.) Stock certificates

If restriction on transferability does not appear in stockcertificates but transferee was not informed ofrestriction, restriction does not apply to him.

DelinquencyWhen there is a definite date, no demand needed for itto become delinquent.

If down payment, balance is payable on call. Call is ademand, formal demand to pay balance under theCorporation Code. If not paid, becomes delinquent.

Consequences of Delinquency1.) Delinquent subscriber shall have no voting

rights.2.) Wont receive cash dividends, they are applied

to unpaid subscription.


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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 disposereal property, it must first obtain judicial approval.

Domestic Corporation one organized on thePhilippines regardless of nationality of organizers

Foreign Corporationone organized in another country,even if organized by Filipinos.

Foreign Corporation may engage in business in thePhilippines if it meets the following requirements:

1.) Register with the SEC as a foreign corporation it must give certified true copies of allincorporation documents in country of origin. Ifnot 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 aforeign corporation.

Securities Regulation CodeIt is the present law on securities

Q: What are securities?A: Broadly defined as instruments evidencing aninvestment in a commercial enterprise

Q: What are commercial enterprises?A: