UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW

Bar Operations 2008

COMMERCIAL LAW

Bar Operations Head Academics Head Subject Head

Arianne Reyes Henry Aguda Henry AgudaTere Licaros Ryan Balisacan

Subject Committee Information Management Committee

Lynn Ramos * Johaira Wahab Ruby Alberto * Dianne Capco Chino Baybay [Head * !imoun !alinas [Deputy * Rania Joya [Design " Lay#out * Ludee $ulido [Documentations * Linus %adamba * Des %ayoralgo * Jillian De Dumo * %i&e 'campo * Abel %aglan(ue * )dan %arri R* Ca+ete * Carmie Rome Cargo

Commercial Law

TABL

O! CO"T "TS

C#IMI"AL LA$ I

TABLI% II% III% I+% +% +I% +II%

O! CO"T "TS& '' ()*

Corporation Law "egotiable Instruments Law Insurance Code Transportation Law ),& Code of Commerce )** Ban-ing Law ).* Intellectual /ropert0 Law &).

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CO#/O#ATIO" LA$

COMM #CIAL LA$

CORPORATION LAWa.THE CORPORATION CODE OF THE PHILIPPINES (BATAS PAMBANSA BLG. 68)

)as the powers, attributes and properties expressly authorized by law or incident to its existence as it is a $ere creature of the law, it can exercise only such powers as the law $ay choose to grant it, either expressly or i$pliedly

.-..A).a#ta%e$ !( the C!rp!rate Or%a#"/at"!#$ !) 'eparate "uridical personality + personality separate and distinct fro$ individual stoc%holders and $e$bers 2) ,i$ited liability to investors + stoc%holders are liable only to the extent of their contribution -eneral rule .here a corporation buys all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still $aintain their separate corporate entities, one will not answer for the debts of the other. /0ell v 1acific 2ar$s (!3 'C4A 5!3), 0ov. 2*, !6738 9xceptions o :f there is an express assu$ption of liabilities; o &here is a consolidation or $erger; o :f the purchase was in fraud of creditors; o :f the purchaser beco$es a continuation of the seller; o :f there are unpaid subscriptions (stoc%holder is liable for the unpaid balance). *) 2ree transferability of units of ownership + stoc%holders hold their shares as personal property with rights to dispose, assign or encu$ber the$ as they $ay desire (!"#) 5) Centralized (2)) 1urpose clause confers as well as li$its the powers which a corporation $ay exercise A corporation only has such powers as are expressly granted to it by law and by its AF:, those which $ay be incidental to such conferred powers (53), those reasonably necessary to acco$plish its purposes ('ection *7 (!!), and those which $ay be incident to its existence (2). 4easons for purpose clause o so that a stoc%holder conte$plating an invest$ent will %now what lines of business his $oney is to be ris%ed o

COMM #CIAL LA$so that $anage$ent will %now what lines of business it is authorized to act o so that anyone who transacts with the corporation $ay ascertain whether a transaction he is entering is one with the general authority of the $anage$ent Cnder 'ec !5(2) a corporation can have as $any purposes as it wants provided o AF: specify the corporation(s pri$ary and secondary purposes which need not be related to each other o Corporation for which special provisions are $ade can only have the purpose peculiar to the$ o 1urposes $ust be lawful :f purpose is lawful, '9C is not authorized to in@uire whether corporation has hidden $otives and $anda$us will lie to co$pel it to issue certificate 1D 6B2GA, 'ec "(h) gives '9C, after consultation with AF:, 09DA, or other appropriate govern$ent agency, the power to refuse or deny the application for registration of any corporation if its establish$ent, organization, operation will not be consistent with the declared national econo$ic policies A corporation may not be formed for the purpose of practicing a profession

*.

14:0C:1A, F22:C9 ercise his appraisal right (!#,)

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CO#/O#ATIO" LA$3. :0CF41F4A&F4' A0D D:49C&F4'; 0Cception: /ducational nonstock corporations E trustees may not e>ceed %( penses o 6n the strict sense) it refers to that portion of the net assets paid by the stockholders as consideration for the shares issued to them) which is utili?ed for the prosecution of the business of the corporation (4e =eon) >. &49A'C494G:0 &4C'& &he person elected by the subscribers as &reasurer of the corporation at the ti$e of the incorporation, who is na$ed as such in the AF: and who has been authorized to receive for and in the na$e and for the benefit of the corporation, all subscriptions, fees, contributions or donations paid or given by the subscribers or $e$bers &49A'C494(' A22:DAE:& &he sworn state$ent of the &reasurer elected by the subscribers stating at least 23M of the authorized capital stoc% of the corporation has been subscribed and that at least 23M of the total subscription has been fully paid to hi$ in actual cash and#or property, the fair valuation of which is e@ual to at least 23M of the said subscription, such paidGup capital being not less than 3,BBB.BB (!5) F&)94 istence =imit: personal liability 0omplication: when the corporation did not come about Against whom will estoppel lieJ Iho committed the active misrepresentationJ Ihere a person convinces other parties to invest money for the formation of a corporation) but which has never duly incorporated) there can be no resulting partnership among them) and the mere passive investors cannot be held liable to share in the losses suffered by the business enterprise (3ioneer 'urety v 0A) %&+&) Ihen applicable: % 3ersons assuming to act as corp are liable as gen partners; $ #rd party who had dealt with an unincorporated association as a corp may be precluded from denying its corporate e>istence on a suit brought by the alleged corp E person deemed to have admitted the e>istence of the corp # alleged corp that has entered into a contract by virtue of which it has received advantages and benefits istence of a corp) #rd party can sue them as gen partners #rd party is not estopped from asserting their liability because he had recogni?ed the corporation1s e>istence *atio: They cannot profit by their own misrepresentation press) 6nc v 0A)

7. E((e't$ !( #!#=+$e !( 'harterF'!#t"#+!+$ "#!perat"!# ( 22)!. 0onGuser for 2 years (nonGuse of charter)G when the corporation does not for$ally organize and co$$ence the transaction of its business or the construction of its wor%s within 2 years fro$ the date of its incorporation, its corporate powers cease and the corporation shall be dee$ed dissolved (auto$atic) 2or$al organization + $ay consist in the election of new board of directors or trustees and corporate officer Co$$ence$ent of business + $ay ta%e the for$ of contracting for lease or sale of properties to be used as business site of the corporation and other preparatory acts geared towards fulfill$ent of the purpose for which the corporation was established 0onGuser for 3 years (continuous inoperation)G when the corporation has co$$enced the transaction of its business but subse@uently beco$es continuously inoperative for a period of at least 3 years. &he sa$e shall be a ground for the suspension or revocation of its corporate franchise or Certificate of :ncorporation (not auto$atic). 0otice and hearing before '9C is re@uired. 9xception cause or nonGuse or operation was due to causes beyond the control of the corporation as deter$ined by '9C (ex. istence of corporation thus the corporation could not have been a party to it press resolution of the board and may be implied from the acts of responsible officers of the corporation

:n the absence of any express or i$plied agree$ent to the contrary, the *rd situation will be presu$ed and the pro$oter will be considered personally liable for the contracts. &hus, the corp.(s adoption or ratification of the contract will not release the pro$oter fro$ personal liability unless a novation was intended. (.ells vs. 2ay U 9gan Co., !5* -a. >*2, ?> '.9 ?>*, !6!3) />ception: Ouaker v ) Convicted by final "udg$ent of an offense punishable by i$prison$ent for a period exceeding six (7) years, or Eiolation of this Code co$$itted within five (3) years prior to the date of his election or appoint$ent AyGlaws $ay provide for additional @ualifications#dis@ualifications as long as such additional @ualifications#dis@ualifications shall not $odify re@uire$ents as prescribed in the corporation $age 22 o0 355

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CO#/O#ATIO" LA$code or be in conflict with such prescribed re@uire$ents (!8,(()) -ote: To sit on the 9:4 is not a vested right :wnership of shares does not automatically equate to a seat in the 9:4 6n widely-held corporations) '/0 mandates the presence of at least $ or $5P of its board si?e) whichever is lesser) independent directors ('ecurities *egulation 0ode) !#+ and @uidelines on the -omination and /lection of 6ndependent 4irectors) 7emo 0irc -o %") $55$)

COMM #CIAL LA$corporation $ultiplied by the whole nu$ber of directors to be elected o -ives the $inority an opportunity to elect a representative to the AFD. Cannot itself give the $inority control of corporate affairs but $ay affect and li$it the extent of $a"ority(s control o Theoretically) this allows the minority block to dominate the election of 9:4 tent of shares) and (#) the participation of the '< in the HTA a. , $

COMM #CIAL LA$The trustee can1t dispose of the block of shares; receive dividends 0an only vote The '< can revoke the HTA on the ground of breach of fiduciary obligations 'tatus of transferee and transferor a. Eoting trustee is only a share owner vested with apparent legal title for the sole purpose of voting upon stoc%s that he does not own b. &ransferring stoc%holder retains the right of inspection of corporate boo%s which he can exercise concurrently with the voting trustee 1owers and rights of voting trustees 4ight to vote and other rights pertaining to the shares in their na$es sub"ect to ter$s and conditions of and for the period specified in the agree$ent Eote in person or by proxy unless agree$ent provides otherwise 4ights of inspection of corporate boo%s and records ,egal title holder + @ualified to be a director &he clear intent is that in order to be eligible as director, what is $aterial is the legal title to, not the beneficial ownership of, the stoc% as a/appearing on the boo%s of a corporation. &herefore, a director who executes a voting trust agree$ent over all his shares, re$ains only a beneficial owner, and therefore is auto$atically dis@ualified fro$ his directorship. (,ee v. CA, !662) ,i$itations on voting trust agree$ents should not exceed 3 years except if a condition in a loan agree$ent, shall auto$atically expire upon full pay$ent of the loan $ust not be for purposes of circu$venting the law against $onopolies and illegal co$binations in restraint of trade $ust not be used for purposes of fraud $ust be in writing, notarized, specify the ter$s and conditions thereof certified copy $ust be filed with corporation and '9C otherwise unenforceable agree$ent is sub"ect to exa$ination by stoc%holder shall auto$atically expire at the end of the agreed period vote in person or by proxy unless agree$ent provides otherwise rights of inspection of corporate boo%s and records

a.

b. c. d.

a.

b.

c. d. e. f. g. h. i.

4istinction between pro>y and voting trustLe%a& t"t&e Re.!'a,"&"t?

Pr!A? 0o legal title 4evocable unless coupled with interest

3TA Ac@uires legal title :rrevocable if validly executed AC& ') can revo%e if there(s a breach of fiduciary

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CO#/O#ATIO" LA$Pr!A?EAte#t !( p!:er

COMM #CIAL LA$3TA obligation 0ot li$ited to any particular $eeting

Whe# t! .!te Capacit, to $e a "irector

Can only act at a specified stoc%holder(s or $e$ber(s $eeting Absence of the owner 0an1t be voted as a director) unless he is also a '< of record (owns other shares) Hoting rights Csually shorter but can(t exceed 3 years

)u$-ect .atter D+rat"!#

9ven when owner is present 0an be voted as a director 0onsidered as the '< of record in the books of the corp 'hares R voting rights Csually longer but can(t exceed 3 years except in loan agree$ents

Nat& I#.e$t2e#t L De.Jt C!rp . A@+"#! ( 588) Aat"a%, a 2ilGA$ corp, owed $oney to 10A. :ts oil $ills were also $ortgaged to other ban%s. &hey further borrowed $oney fro$ 0:DC, a wholly owned subsidiary of 10A, to pay off the $ortgages. :n return, 0:DC got preferred shares, convertible into co$$on shares. Aat"a% executed a !st $ortgage on all its properties to 10A in exchange for a credit facility etc. 0ext, a Eoting &rust Agree$ent was executed in favor of 0:DC by ')s representing 7BM of Aat"a%. 1eriod of 3 years, irrevocable. During this ti$e, all dividends to be paid to ')s. .hen Aat"a% beca$e insolvent, 10A foreclosed the $ortgaged properties. .hen Aat"a% failed to redee$, it transferred ownership to 0:DC. Aat"a% later sued 0:DC, as%ing for the turnGover of all the assets and in the alternative, as%ed for receivership. )eld T4eceiver is appointed if applicant has interest in property. Aut title of properties is now with 0:DC. TAat"a% did not i$pugn validity of the foreclosure sales. Also, no evidence that prop is in danger of loss, re$oval or $aterial in"ury if receiver not appointed. .hat was assigned to 0:DC was only power to vote shares of stoc% of Aat"a%. 'uch power includes authority to execute any agree$ent or doc necessary to express consent or assent to any $atter by ')s. Eoting trust did not provide for transfer of assets. .hat was stipulated to be returned were only certifs of stoc%. Eoting trust transfers only voting or other rights pertaining to shares or control over the stoc%. -.- POOLING AND 3OTING AGREEEMENTS Agree$ent between 2 or $ore stoc%holders to vote their shares in the sa$e way There must be a valuable consideration for each party Csually relate to election of directors 1arties often provide for arbitration in case of disagree$ent. -ote: arbitrator is not like a trustee The former has no voting rights Ealid as long as they do not li$it the discretion of the AFD in the $anage$ent of corporate affairs or wor% any fraud 100% UP L AW , $

against stoc%holders not party to the contract. Thus) it is void if it provides that directors) once elected) should vote for certain persons as officers (7cOuade v 'toneham) $"# -N #$# (%)) /G0/3T6:-: 0lose corps may provide that a HTA can interfere with discretion of the 9:4 Does not involve a transfer of stoc%s but is $erely a private agree$ent -o transfer of ownership and voting rights Agree$ents by stoc%holders in close corporations (!BB) o Agree$ents by and a$ong stoc%holders executed before the for$ation and organization of a close corporation, signed by all stoc%holders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and a$ong such stoc%holders, if such be their intent, to the extent that such agree$ents are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agree$ents are contained, except those re@uired by this &itle to be e$bodied in said articles of incorporation. o An agree$ent between two or $ore stoc%holders, if in writing and signed by the parties thereto, $ay provide that in exercising any voting rights, the shares held by the$ shall be voted as therein provided, or as they $ay agree, or as deter$ined in accordance with a procedure agreed upon by the$. o 0o provision in any written agree$ent signed by the stoc%holders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to $a%e the$ partners a$ong the$selves. o A written agree$ent a$ong so$e or all of the stoc%holders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors 1rovided, &hat such agree$ent shall i$pose on the stoc%holders who are parties thereto the liabilities for $anagerial acts i$posed by this Code on directors. o &o the extent that the stoc%holders are actively engaged in the $anage$ent or operation of the business and affairs of a close corporation, the stoc%holders shall be held to strict fiduciary duties to each other and a$ong the$selves. 'aid stoc%holders shall be personally liable for corporate torts unless the corporation has obtained reasonably ade@uate liability insurance. TRUSTEE POOLING AND 3OTING AGREEMENTS

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CO#/O#ATIO" LA$1rincipal agent + &rusteeG beneficiary &he only li$it to his authority $ust be for benefit of trustee (fiduciary obligation) ception: when required by the by-laws 0o certificate of stoc% shall be issued to a subscriber until the full a$ount of his subscription, together with the interest and expenses (in case of delin@uent shares) if any is due, has been paid. (75) 0o shares of stoc% against which the corporation holds any unpaid clai$ shall be transferable in the boo%s of the corporation (7*). Attributes of a subscription contract: unconditional (obligation to pay must not be sub2ect to any contingencies) and indivisible (as to the amount and transferabilitySFua 0un v 'ummers) %&$#)

6. I$$+a#'e !( Cert"("'ateA certificate of stoc% is the best evidence of the rights and status of a ') (although not a condition precedent to the ac@uisition of such rights), and is convenient for the purposes of transfer (Ca$pos). Contents of a certificate certifies that the person na$ed is a holder or owner of a stated nu$ber of shares %ind of shares issued date of issuance par value, if par value shares signed by the proper officer of the corp. (usually the pres., and the sec.) bears the corporate seal

0. E((e't !( De&"#@+e#'?a) Any cash dividends due on delin@uent stoc% shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stoc% dividends shall be withheld fro$ the delin@uent stoc%holder until his unpaid subscription is fully paid. (5*) b) 0o delin@uent stoc% shall be o voted for or o be entitled to vote or to o representation at any stoc%holderRs $eeting, o nor shall the holder thereof be entitled to any of the rights of a stoc%holder (>!) 9xcept the right to dividends in accordance with the provisions of this Code, until and unless he pays the a$ount due on his subscription with accrued interest, and the costs and expenses of advertise$ent, if any. 0ote that the provision on dividends pertain to delin@uent stoc% hence a call $ust have been $ade 'toc% dividends on delin@uent shares are not applied but are included in delin@uency sale wherein it is li@uidated

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FverGissue of shares occurs when certificates are issued for $ore than the nu$ber of shares authorized by the articles. Any share certificate w#c represents an overGissue would be void. 0o rights or liabilities can arise therefro$ in favor or against the holders and bona fide purchasers would have the right to da$ages for $isrepresentation against the corp. but can(t ac@uire the rights of stoc%holders. @eneral rule: entire subscription must be paid first before the certificates of stock can be issued 3artial payments are to be applied pro rata to each share of stock subscribed (-ava v 3eers 7ktg 0orp and Fua 0un v 'ummers)

/>ception: in the 9alta?ar v =ingayen @ulf /lectric 3ower 0o case) it was the practice of the corp to issue certificates of stock to its individual ') 7ay be issued as property dividends provided that the retained earnings has not been subsequently impaired by losses ATrust Fund doctrineD + the re@uire$ent of unrestricted retained earnings is because subscription to the capital of a corporation constitute a fund to which creditors have a right to loo% for the satisfaction of their clai$s (1hil. &rust Co. v. 4ivera, !62*) ,egiti$ate purpose includes , $

Chapter CI3 AMENDMENTS OF CHARTER . A2e#)2e#t !( the Art"'&e$ !( I#'!rp!rat"!#9 Ge#era&&?

!.! 1rocedure for a$end$ent of articles of incorporation (!7) a) &he a$end$ent $ust be for a legiti$ate purpose; and $ust be approved by a $a"ority vote of the Aoard; and vote (in a $eeting) or $ere written assent (no $eeting) of 2#* of the - . . / $age 47 o0 355

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CO#/O#ATIO" LA$outstanding stoc%, or in case of a nonGstoc% corporation, by the $e$bers of the corporation. Fnce the a$end$ent is approved, dissenting stoc%holders $ay exercise their rights of appraisal if it involved di$inishing of substantial rights previously granted or creating a new set of shares with priority rights. b) &he original and a$ended articles together shall contain all provisions re@uired by law to be set out in the articles of incorporation. 'uch articles, as a$ended shall be indicated by underscoring the change or changes $ade c) A copy thereof duly certified under oath by the corporate secretary and a $a"ority of the directors or trustees stating the fact that said a$end$ent or a$end$ents have been duly approved by the re@uired vote of the stoc%holders or $e$bers, shall be sub$itted to the 'ecurities and 9xchange Co$$ission. d) &he a$end$ent of the Articles of :ncorporation will be effective only upon approval of the '9C; but should no action be ta%en by the '9C within 7 $onths fro$ the date of filing, then auto$atically, the a$end$ent is dee$ed effective, provided that delay is not attributable to the corporation.

COMM #CIAL LA$chair$an and the secretary of the stoc%holdersR $eeting, setting forth a) &hat the re@uire$ents of voting and notice have been co$plied with; b) &he a$ount of the increase or di$inution of the capital stoc%; c) :f an increase of the capital stoc%, the a$ount of capital stoc% or nu$ber of shares of noGpar stoc% thereof actually subscribed, the na$es, nationalities and residences of the persons subscribing, the a$ount of capital stoc% or nu$ber of noGpar stoc% subscribed by each, and the a$ount paid by each on his subscription in cash or property, or the a$ount of capital stoc% or nu$ber of shares of noGpar stoc% allotted to each stoc%Gholder if such increase is for the purpose of $a%ing effective stoc% dividend therefor authorized; d) &he a$ount of stoc% represented at the $eeting; and e) &he vote authorizing the increase or di$inution of the capital stoc% Fne of the duplicate certificates shall be %ept on file in the office of the corporation and the other shall be filed with the 'ecurities and 9xchange Co$$ission and attached to the original articles of incorporation.

!.2 -rounds for disapproving a$end$ent (!>) &he '9C $ay disapprove any a$end$ent thereto if the sa$e is not in co$pliance with the re@uire$ents of this Code &he '9C shall give the incorporators a reasonable ti$e within which to correct or $odify the ob"ectionable portions of the articles or a$end$ent. &he following are grounds for such disapproval a) A$end$ent is not substantially with the for$ prescribed b) 1urpose or purposes is#are patently unconstitutional, illegal, i$$oral, contrary to govern$ent rules and regulations c) &reasurer(s Affidavit concerning the a$ount of capital stoc% subscribed and#or paid is false d) 1ercentage re@uire$ent of ownership by 2ilipino citizens as re@uired by the Constitution not co$plied with

Approval of '/0 Any increase or decrease in the capital shall re@uire prior approval of the 'ecurities and 9xchange Co$$ission. Decrease of capital stoc% 0o decrease of the capital stoc% shall be approved by the Co$$ission if its effect shall pre"udice the rights of corporate creditors /ffectivity 2ro$ and after approval by the 'ecurities and 9xchange Co$$ission and the issuance by the Co$$ission of its certificate of filing, the capital stoc% shall stand increased or decreased Treasurer1s Affidavit: &he 'ecurities and 9xchange Co$$ission shall not accept for filing any certificate of increase of capital stoc% unless acco$panied by the sworn state$ent of the treasurer of the corporation lawfully holding office at the ti$e of the filing of the certificate, showing that at least twentyGfive (23M) percent of such increased capital stoc% (should be understood as proposed increaseGCa$pos) has been subscribed and that at least twentyGfive (23M) percent of the a$ount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is e@ual to twentyGfive (23M) percent of the subscription Appraisal right (?!Y!) Appraisal right $ay be exercised where the increase in capital stoc% results in the creation of shares with preferences superior to those of existing ones.

*. Spe'"a& A2e#)2e#t$*. I#'rea$e !r )e'rea$e !( 'ap"ta& $t!'4 (;-8) Approval and Hoting *equirement a) Approved by a $a"ority vote of the board of directors b) &woGthirds (2#*) of the outstanding capital stoc% shall favor the increase or di$inution of the capital stoc% at a $eeting duly called for the purpose 0ertificate of Filing A certificate in duplicate $ust be signed by a $a"ority of the directors of the corporation and countersigned by the

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CO#/O#ATIO" LA$-ote: 3roposing amendments is a way of easing out the minority stockholders because it compels them to e>ercise their appraisal rights *.* Re)+'t"!# !( 'ap"t a& $t!'4 Although the re@uire$ents in 'ection *? have been $et, no reduction of capital stoc% will be approved by the '9C if it will pre"udice the rights of corporate creditors. &here can be no reduction of capital stoc% which will in effect release the stoc%holders fro$ the pay$ent of the balance of their subscription if it will adversely affect the right of he creditors in collecting their clai$s (3hil Trust 0o vs *ivera (%&$#) Appraisal 4ight=Although 'ection *? does not grant the appraisal right in case of reduction of capital stoc%, when it has the effect of altering the rights of any stoc%holder or class of stoc%holders, the appraisal right $ay be exercised under section ?! (!) (Ca$pos) 9xcept by decrease of capital stoc% and as otherwise allowed by this Coded, no corporation shall distribute any of he assets or property except upon lawful dissolution and after pay$ent of all its debts and liabilities. (!22) o Ca$pos=:t see$s that under the exception, a reduction surplus $ay be distributed as dividends to the stoc%holders, as long as '9C approval has been obtained and the rights of creditors is not pre"udiced. b)

COMM #CIAL LA$indorsed by the owner or his attorneyGinGfact or other person legally authorized to $a%e the transfer R+ra& Ba#4 !( Sa&"#a$ . CA Cle$ente, 1resident of 4ural Aan% of 'alinas and owner of shares in said corporation executed a 'pecial 1ower of Attorney to his wife (false prospectus, co$$unications, reports), 3? (fraud in connection with securities transactions), 36 ($anipulation of prices), 7B (co$$odity futures contracts and preGneed plans) and 7! (insider trading) shall be brought before the 4&C, which shall have exclusive "urisdiction to hear and decide such suits. &he Court is hereby authorized to award da$ages in an a$ount not exceeding triple the a$ount of the transaction plus actual da$ages. 9xe$plary da$ages $ay also be awarded in cases of bad faith, fraud, $alevolence or wantonness in the violation of this Code, and rules and regulations pro$ulgated hereunder. &he Court is also authorized to award attorney(s fees not exceeding *BM of the award. 8.* Per$!#$ &"a,&e t! pa? &he persons specified in 'ections 37, 3>, 3?, 36, 7B and 7! hereof shall be "ointly and severally liable fo he pay$ent of da$ages. )owever, any person who beco$es liable for the pay$ent of such da$ages $ay recover contribution fro$ any other person who, if sued separately, would have been liable to $a%e the sa$e pay$ent, unless the for$er was guilty of fraudulent representation and the latter was not. All persons, including the issuer, held liable under the provisions of 'ections 37, 3>, 3?, 36, 7B and 7! shall contribute e@ually to the total liability ad"udged herein. :n no case shall the principal stoc%holders, directors and other officers, recover their contribution to the liability fro$ the issuer. )owever, the right of the issuer to recover fro$ the guilty parties the a$ount it has contributed shall not be pre"udiced.

7. L"2"tat"!# !( A't"!#$ (Se'. 6*)0o action shall be $aintained to enforce any liability created under 'ection 37 (false registration state$ent) or 3> (false prospectus. Co$$unications, reports) unless brought within 2 years after the )"$'!.er? of the untrue state$ent or the o$ission. :f the action is to enforce a liability created under 'ubsection 3>.!(a) (registration of securities), unless brought within 2 years after the ."!&at"!# upon which it is based. :n no event shall any such action be brought to enforce a liability created under 'ection 37 or 'ubsection 3>.! (a) $ore than 3 years after the security was bona fide !((ere) t! the p+,&"', or under 'ubsection 3>.! (b) (sale based on false prospectus,

5. N!#=:a".er !( Pr!."$"!#$- . . / $age 88 o0 355

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CO#/O#ATIO" LA$

COMM #CIAL LA$

Any condition, stipulation, provision binding any person to waive co$pliance with any provision of this Code or of any rule of an 9xchange as well as the waiver itself, shal be void.

*6. Pe#a&t"e$Any person who violates any of the provisions of this Code or any person who, in a registration state$ent $a%es any untrue state$ent of a $aterial fact or o$its to state any $aterial fact re@uired to be stated therein or necessary to $a%e the state$ents therein not $isleading, shall, upon conviction, suffer a fine of not less than 13B,BBB.BB nor $ore than 13,BBB,BBB.BB or i$prison$ent of not less than > years nor $ore than 2! years, or both in the discretion of the court.

:f the offender is a corporation, partnership or association or other "uridical entity, the penalty $ay be i$posed upon such "uridical entity and upon the officer or officers of the corporation, partnership, association or entity responsible for the violation. :f such officer is an alien, he shall in addition to the penalties prescribed, be deported.

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COMM #CIAL LA$haphazardly or lightly. 0or should it be brushed aside in order to $eet the necessities in a single case -. L"(e !( a Ne%!t"a,&e I#$tr+2e#t

"egotiable Instruments Law 3Act "o% ),&(4C5apter I% I"T#O62CTIO". The Ne%!t"a,&e I#$tr+2e#t .ritten contract for the pay$ent of $oney, by its for$ intended as substitute for $oney and intended to pass fro$ hand to hand to give the )DC the right to hold the sa$e and collect the su$ due. :nstru$ents are negotiable when they confor$ to all the re@uire$ents prescribed by the 0:, (Act $5#%) 5# February %&%%). Although considered as $ediu$ for pay$ent of obligations, negotiable instru$ents are not legal tender ('ec "5) -ew 0entral 9ank Act) * A ,"(#); 0egotiable instru$ents shall produce the effect of pay$ent only when they have been encashed or when through the fault of the creditor they have been i$paired. (Art %$8&) 00) AC& a C)9CP which has been cleared and credited to the account of the creditor shall be e@uivalent to a delivery to the creditor of cash. Ne%!t"a,&e Contains all the re@uisites of 'ec. ! of the 0:, &ransferred by negotiation )DC $ay have better rights than transferor 1rior parties warrant pay$ent &ransferee has right of recourse against inter$ediate parties N!#=#e%!t"a,&e Does not contain all the re@uisites of 'ec. ! of the 0:, &ransferred by assign$ent &ransferee ac@uires rights only of his transferor 1rior parties $erely warrant legality of title &ransferee has no right of recourse

!. 2. *. 5. 3. 7. >. ?. 6. !B.

issue negotiation present$ent for acceptance in certain bills acceptance dishonor by or acceptance present$ent for pay$ent dishonor by nonpay$ent notice of dishonor protest in certain cases discharge

0. M"#)$ !( Ne%!t"a,&e I#$tr+2e#t$ 0. . Pr!2"$$!r? #!te G a promise to pay $oney unconditional pro$ise in writing $ade by one person to another signed by the $a%er engaging to pay on de$and, or at a fixed or deter$inable future ti$e a su$ certain in $oney to order or to bearer where a note is drawn to the $a%er(s own order, not co$plete until indorsed by hi$ ('ec %+8) -6=). 0.*. B"&& !( eA'ha#%e G an order $ade by one person to another to pay $oney to a third person. unconditional order in writing addressed by one person to another signed by the person giving it re@uiring the person to who$ it is addressed to pay on de$and or at a fixed or deter$inable future ti$e a su$ certain in $oney to order or to bearer ('ec %$") -6=). Che'4 bill of exchange drawn on a bank payable on de$and. Pr!2"$$!r? N!te Cnconditional pro$ise :nvolves 2 parties 7+ NI() I#)!r$e2e#t !( ,earer "#$t. o .here an instru$ent payable to bearer is indorsed specially, it $ay nevertheless be further negotiated by delivery o 1erson indorsing specially liable as indorser to only such holders as $a%e title through his indorse$ent

&he indorsee was a )DC, having ta%en the instru$ent under the following conditions (!) it is co$plete and regular upon its face; (2) it beca$e the holder thereof before it was overdue; (*) it too% the sa$e in good faith and for value; and (5) when it was negotiated to the indorsee, the latter had no notice of any infir$ity in the instru$ent or defect in the title of the previous indorser.

)DC is one who has ta%en the instru$ent under the following conditions

>.

-. . That "t "$ '!2p&ete a#) re%+&ar +p!# "t$ (a'e1.

?.

CFisting at the time of the transfer D:')F0F4 a. 0onGacceptance i. Fccurs when drawee refuses to accept the order of the drawer as stated in the bill ii. Applicable only to bills of exchange iii. 2+ NI() TRADE G a draft or bill of exchange with a definite $aturity, drawn by a seller on a buyer for the purchase price of goods, bearing across its face the acceptance of the buyer; always states upon its face the transaction fro$ which it arose. BANMERTS a''epta#'e G a negotiable ti$e draft or bill of exchange drawn on and accepted by a co$$ercial ban%.

COMM #CIAL LA$

De2a#) )ra(t$ have not been presented either for acceptance or for pay$ent, thus the ban% never had any chance of accepting or re"ecting the$; as such, these cannot be sub"ect of escheat. Ca$h"erT$ 'he'4 is the substantial e@uivalent of a certified chec% and is thus sub"ect to escheat. Te&e%raph"' tra#$(er$ are li%ewise sub"ect to escheat because upon $a%ing pay$ent co$plete the transaction insofar as he is concerned, though insofar as the re$itting ban% is concerned, the contract is executory until the credit is established. PAL 3. CA ( 556)

c.

d.

*.1. CHECMS < a''epta#'e a#) 'ert"("'at"!# !. Definition A chec% is an instru$ent in the for$ and nature of a A9, but an unli%e an ordinary bill, always payable on de$and and always drawn on a ban%. 2. Pinds a. Ca$h"erT$ !r 2a#a%erT$ G drawn by a ban% on itself and its issuance has the effect of acceptance; since the drawer and drawee are the sa$e, the holder $ay treat it is either a A9 or 10. ,. Me2!ra#)+2 'he'4 G where the word Q$e$orandu$Q or Q$e$oQ is written across its face, signifying that the drawer will pay the holder absolutely, without need of present$ent. '. Tra.e&erT$ 'he'4 G upon which the holderRs signature $ust appear twice GG first when it is issued, and again when it is cashed. ). Cr!$$e) + when the na$e of a particular ban%er or a co$pany is written between the parallel lines drawn. STATE IN3ESTMENT HOUSE 3. IAC Crossed chec% should put the payee on in@uiry to ascertain the holders( title to the chec% or the nature of his possession. 2ailing this, the payee is declared guilty of gross negligence to the effect that the holder of the chec% is not a holder in good faith. 9ffects of a crossed chec% '#+ the chec% $ay not be encashed but only deposited in the ban%; '2+ the chec% $ay be negotiated only once + to one who has an account with the ban%; and 'c+ the act serves as a warning to the holder that the chec% has been issued for a definite purpose so that he $ust in@uire if he has received the chec% pursuant to that purpose, otherwise, he is not a )DC. BATAAN CIGAR L CIGARETTE FACTORB9 INC. .. CA &he negotiability of a chec% is not affected by its being crossed, whether specially or generally. :t $ay legally be negotiated as long as the one who encashes the chec% with the drawee ban% is another ban%, or if it is especially crossed, by the ban% $entioned between the parallel lines. RP .. PNB ( 56 )

A chec%, whether a $anagerRs chec% or ordinary chec%, and an offer of a chec% in pay$ent of a debt is #!t a .a&") te#)er !( pa?2e#t and $ay be refused receipt by the obligee or creditor. &he issuance of the chec% to a person authorized to receive it operates to release the "udg$ent debtor fro$ any further obligations on the "udg$ent.

INTERNATIONAL CORPORATE BANM . GUECO (*66 ) A $anager(s chec% is one drawn by the ban%(s $anager upon the ban% itself. :t is si$ilar to a cashier(s chec% both as to effect and use. A cashier(s chec% is a chec% of the ban%(s cashier on his own or another chec%. :n effect, it is a bill of exchange drawn by the cashier of a ban% upon the ban% itself, and a''epte) in advance by the act of its issuance. :t is really the ban%(s own chec% and $ay be treated as a pro$issory note with the ban% as a $a%er. &he chec% beco$es the pri$ary obligation of the ban% which issues it and constitutes its written pro$ise to pay upon de$and. The 2ere "$$+a#'e !( "t "$ '!#$")ere) a# a''epta#'e there!(. :f treated as pro$issory note, the drawer would be the $a%er and in which case the holder need not prove present$ent for pay$ent or present the bill to the drawee for acceptance EPCIB . ONG (*666) A $anager(s chec% is an order of the ban% to pay, drawn upon itself, co$$itting in effect its total resources, integrity and honor behind its issuance. Ay its peculiar character and general use in co$$erce, a 2a#a%erJ$ 'he'4 is regarded substantially to be a$ %!!) a$ the 2!#e? "t repre$e#t$. *. Clearing a. C&ear"#% G chec% collection process ,. C&ear"#% h!+$e G where representatives of different ban%s $eet every afternoon of every business day to receive the envelopes containing chec%s drawn against the ban% he represents for exa$ination and clearance. 5. Certification a.Definition

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COMM #CIAL LA$the rule enunciated under 'ection 7*6 of the Central Aan% Act to the effect Jthat a chec% which has been cleared and credited to the account of the creditor shall be e@uivalent to a delivery to the creditor in cash in an a$ount e@ual to the a$ount credited to his accountK shall apply in this case x x x.

an agree$ent by which a ban% pro$ises to pay the chec% at any ti$e it is presented for pay$ent ii. .hen chec% certified by ban% on which it is drawn, e@uivalent to acceptance b. 4e@uisites for a Ealid Certification i. 7+ NI() Whe# EA'+$e) ()ec8 />9+ NI() Aill $ay be treated as dishonored by nonG acceptance a. .here the drawee is (!) dead, (2) absconded, (*) fictitious, (5) does not have capacity to contract by bill. b. .here, after the exercise of reasonable diligence, present$ent can not be $ade. c. .here, although present$ent has been irregular, acceptance has been refused on so$e other ground. i ii

b.

*.

c.

0.-. Pre$e#t2e#t (!r Pa?2e#t . IN GENERAL

5.

a. NECESSARB in order to charge the drawer and indorsers()ec8 7*+ NI() ,. NOT #e'e$$ar? i. to charge the person pri$arily liable on the instru$ent ()ec8 7*+ NI() ii. to charge the )ra:er where he has no right to expect or re@uire that the drawee or acceptor will pay the instru$ent. ()ec8 70+ NI() iii. to charge an "#)!r$er where the instru$ent was $ade or accepted for his acco$$odation and he has no reason to expect that the instru$ent will be paid if presented. ()ec8 9*+ NI() iv. 9xcused .here, after the exercise of reasonable diligence, present$ent cannot be $ade; 2) .here the drawee is a fictitious person; 3) Ay waiver of present$ent, express or i$plied. v. when a bill is dishonored by nonacceptance + i$$ediate right to recourse accrues to holder ('ec. !3!, 0:,) 1) vi. in case of waiver of protest, whether in the case of a foreign bill of exchange or other 0: + dee$ed to be a waiver not only of a for$al protest but also of present$ent and notice of dishonor. ()ec8 ///+ NI()

3.

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COMM #CIAL LA$PAPA . A.U. 3ALENCIA ( 558)

*. Date a#) t"2e !( pre$e#t2e#t a. ,ear"#% ("Ae) 2at+r"t? F #!t pa?a,&e !# )e2a#) + on the day it falls due if day of $aturity falls on 'unday or a holiday, the instru$ents falling due or beco$ing payable on 'aturday are to be presented for pay$ent on the next succeeding business day ('ec +() -6=) ,. pa?a,&e !# )e2a#) + within a reasonable ti$e after its issue, at the option of the holder, $ay be presented for pay$ent before twelve oRcloc% noon on 'aturday when that entire day is not a holiday ('ec +() -6=) '. )e2a#) ,"&& !( eA'ha#%e + within a reasonable ti$e after the last negotiation. ('ec ,%) -6=) (-:T/: though reasonable time from last negotiation) it may be unreasonable time from issuance thus holder may not be B, !55, 0:,) ). failure to give notice of dishonor :. certification of chec% at instance of holder I. reac@uisition by prior party !. where instru$ent negotiated bac% to a prior party, such party $ay reissue and further negotiate, but not entitled to enforce pay$ent vs. any intervening party to who$ he was personally liable

11

Su!!e te& A%e/$%ic 6 CuPI. CRRAFFT6 i%te%ti$%#" C#%ce""#ti$%, Pri$r P#rt0 #%& I% tru/e%t .i ch#r!e, Certi8ic#ti$%, Re"e# e, Re#cGui iti$%, #%0 A!ree/e%t, F#i"ure t$ /#Ce &ue 9re e%t/e%t, F#i"ure t$ !i:e %$tice $8 &i h$%$r, :#"i& Te%&er $8 9#0/e%t.100% UP L AW , $ B A R ' $ ! - . . / $age 122 o0 355

" 1OTIABL*.*. De,e#t+re$!.

I"ST#2M "TS LA$

COMM #CIAL LA$of the goods, or any other person who$soever. b. &he independent nature of the letter of credit $ay be (a) independence in toto where the credit is independent fro$ the "ustification aspect and is a separate obligation fro$ the underlying agree$ent li%e for instance a typical standby; or (b) independence $ay be only as to the "ustification aspect li%e in a co$$ercial letter of credit or repay$ent standby, which is identical with the sa$e obligations under the underlying agree$ent. :n both cases the pay$ent $ay be en"oined if in the light of the purpose of the credit the pay$ent of the credit would constitute fraudulent abuse of the credit. (&ransfield vs. ,uzon )ydro) 1ertinent C!)e !( C!22er'e provisions a. Art 167. ,etters of credit G issued by one $erchant to another for the purpose of attending to a co$$ercial transaction. b. Art 168. &he essential conditions of letter of credit shall be i issued in favor of a definite person, and not to order. ii li$ited to a fixed and specified a$ount, or to one or $ore undeter$ined a$ount, but all within a $axi$u$ the li$it of which has to be stated exactly. -ote: Those which do not have any of these last circumstances shall be considered as mere letters of recommendation c. Art 165. &he drawer of a letter of credit shall be liable to the person on who$ it was issued, for the a$ount paid by virtue thereof, within the $axi$u$ fixed therein. ,etters of credit $ay not be protested even if not be paid; bearer cannot ac@uire any right of action by reason of nonGpay$ent against the person who issued it. &he person paying has right to de$and the proof of the identity of the person in whose favor the letter of credit was issued. d. Art 176. &he drawer of a letter of credit $ay annul it, infor$ing the bearer and the person to who$ it is addressed e. Art 17 . &he bearer of a letter or credit shall pay the a$ount received to the drawer without delay. 'hould he not do so, an action involving execution $ay be brought to recover it, with legal interest and the current exchange in the place where it is repaid. f. Art 17*. :f the bearer of a letter of credit does not $a%e use thereof within the (!) period agreed upon with the drawer, or in default of a period fixed, (2) within 7 $onths, counted fro$ its date, in any point in the 1hilippines, and within !2 $onths anywhere outside thereof, it shall be void in fact and in law. BPI .. DE RENB FABRIC ( 576)

2.

si$ilar to bonds except that they are usually for a shorter te$ and $ay or $ay not be acco$panied by a $ortgage. they are often issued on the general credit of the issuer corporation Dra(t$ a#) Letter$ !( Cre)"t

-.

-. . Dra(t$ a#) Letter$ !( Cre)"t G &he draft and the letter of credit are generally used together to effect pay$ent in international transactions. -.*. Dra(t a for$ of A9 generally used to facilitate the transactions between persons physically re$ote fro$ each other. -.-. Letter$ !( Cre)"t !. one person re@uests so$e other person to advance $oney or give credit to a third person, and pro$ises that he will repay the sa$e to the person $a%ing the advance$ent, or accept bills drawn upon hi$self for the li%e a$ount. 2. $ust be issued in favor of a definite person, and not to order. *. under our law, a letter of credit cannot be a negotiable instru$ent because (a) it $ay not contain the words of negotiability; (b) $ay be issued for an undeter$ined a$ount. 'ee Art 37? Code of Co$$erce. 5. J:0D9190D90C9 14:0C:1,9K Credits, by their nature, are separate transactions fro$ the sales or other contract(s) on which they $ay be based and ban%s are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Conse@uently, the underta%ing of a ban% to pay, accept and pay draft(s) or negotiate and#or fulfill any other obligation under the credit is not sub"ect to clai$s or defenses by the applicant resulting fro$ his relationships with the issuing ban% or the beneficiary. A beneficiary can in no case avail hi$self of the contractual relationships existing between the ban%s or between the applicant and the issuing ban%. a. &hus, the engage$ent of the issuing ban% is to pay the seller or beneficiary of the credit once the draft and the re@uired docu$ents are presented to it. &his principle assures the seller or the beneficiary of pro$pt pay$ent independent of any breach of the $ain contract and precludes the issuing ban% fro$ deter$ining whether the $ain contract is actually acco$plished or not. Cnder this principle, ban%s assu$e no liability or responsibility for the for$, sufficiency, accuracy, genuineness, falsification or legal effect of any docu$ents, or for the general and#or particular conditions stipulated in the docu$ents or superi$posed thereon, nor do they assu$e any liability or responsibility for the description, @uantity, weight, @uality, condition, pac%ing, delivery, value or existence of the goods represented by any docu$ents, or for the good faith or acts and#or o$issions, solvency, perfor$ance or standing of the consignor, the carriers, or the insurers 100% UP L AW , $ B A R ' $ !

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COMM #CIAL LA$A. or $hare 'ert"("'ate is the custo$ary and convenient evidence of the holder(s interest in the corporation which issues it. A. not a 0:, but is included in the ter$ JsecuritiesK bec does not contain any pro$ise or order to pay $oney; C. described as Huasi2Ne%otia$le bec oftenti$es, by application of the principles of estoppel, and to effectuate the ends of "ustice and the intention of the parties, the courts decree a better title to the transferee than actually existed in his transferor, and is the sa$e as would be reached if the certificate were negotiable. D. .hen the shareholder signs the bac% of certificates of stoc% without filling in the blan%s (for the na$e of the transferee and attorneyG inGfact) and the certificate is delivered to another, the latter appears to be the owner thereof. A bona fide purchaser of value without notice, will be protected in his ac@uisition, although such third person has diverted the certificate fro$ the purpose for which he was entrusted therewith. (1rinciple of E$t!ppe&) 9. &he sa$e rule is applicable if the certificate is in bearer for$. 2. &he rule is applicable where the certificate is lost or stolen while signed in blan%. 9ven a purchaser in good faith cannot ac@uire title as against the true owner. (S) -. At co$$on law, stoc% certificates are given the attributes of negotiability only where the owner thereof has entrusted the wrongdoer with the possession of such certificate and clothed hi$ with apparent ownership thereof. SANTAMARIA . HONGMONG L SHANGHAI BANM ( 51 ) 1laintiff, in failing to ta%e the necessary precaution upon delivering the certificate of stoc% to her bro%er, was chargeable with negligence in the transaction which resulted to her own pre"udice, and as such, she is estopped fro$ asserting title to it as against the defendant ban%. A certificate of stoc%, indorsed in blan%, is dee$ed @uasiGnegotiable, and as such the transferee thereof is "ustified in believing that it belongs to the holder and transferor. DE LOS SANTOS9 M'GRATH ( 511) Although a stoc% certificate is so$eti$es regarded as @uasiGnegotiable, in the sense that it $ay be transferred by endorse$ent, coupled with delivery it is well settled that the instru$ent is nonG negotiable, because the holder thereof ta%es it without pre"udice to such rights or defense as the registered owner or credit $ay have under the law, except in so far as such rights or defenses are sub"ect tot eh li$itations i$posed by the principles governing estoppel. CAPCO .. MACASAET ( 556) Certificates of stoc%s are considered as @uasiG negotiable instru$ents. .hen the owner or shareholder signs the printed for$ of sale or assign$ent at the bac% of every stoc% certificates without filling in the blan%s provided for the na$e of the transferee as well as for the na$e of the attorneyGinGfact, the said owner or shareholder, in effect, confers on another all the indicia of ownership of the said stoc% certificates. - . . / $age 124 o0 355

&he co$pany and its officers cannot shift the burden of loss to the ban% because of the ter$s of their Co$$ercial ,etter of Credit Agree$ent with the ban% provides that latter shall not be responsible for the any difference in character or condition of the property. 2urther$ore, the ban% was able to prove the existence of a custo$ in international ban%ing and financing circles negating any duty of the ban% to verify whether what has been described in letters of credits or drafts or shipping docu$ents actually tallies with what was loaded aboard ship. Aan%s, in providing financing in international business transactions do not deal with the property to be exported or shipped to the i$porter, but deal only with docu$ents. LEE . CA (*66*) ON HBDRO (*660) Can the beneficiary invo%e the independence principleS Hes. &o say that the independence principle $ay only be invo%ed by the issuing ban%s would render nugatory the purpose for which the letters of credit are used in co$$ercial transactions. As it is, the independence doctrine wor%s to the benefit of both the issuing ban% and the beneficiary. Cert"("'ate !( St!'4

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COMM #CIAL LA$person, then it should be indorsed by such person, either specially or in blan%. *. :f the goods are deliverable to bearer, or the docu$ent has been indorsed in blan%, then negotiation $ay be by $ere delivery. 1.0. R"%ht$ !( a H!&)er . Whe# (ree (r!2 per$!#a& )e(e#$e a. Cnder Art /=/9 Ci'il Co"e, a holder of a negotiable docu$ent of title in good faith, for value and without notice is placed on the sa$e level as a )DC of a negotiable instru$ent + i.e., personal defenses enu$erated in said article are not available against hi$. 1ersonal defenses include negotiation was a breach of duty on the part of the person $a%ing the negotiation, owner of the docu$ent was deprived of the possession of the sa$e by loss, theft, fraud, accident, $ista%e, duress or conversion. b. 0ote Art !3!?(s conflict with Art !3!2. (see p 6!3) *. What t"t&e a'@+"re) (0F&9 see Arts !3!*, !3!5 and !3!6 Civil Code) a. A person to who$ a negotiable docu$ent of title has been duly negotiated ac@uires the t"t&e of the person 09-F&:A&:0- it as well as the title of the F4:-:0A, AA:,F4 or depositor of the goods. ex. if the original bailor had no authority fro$ such owner to deposit the goods, then the holder of the negotiable docu$ent, even if the negotiation to hi$ was valid, cannot ac@uire title to the goods; A0D even if the original bailor had authority, if the negotiation to the present holder(s transferor was not valid, such holder, even if in good faith and for value, does not ac@uire any right to the goods. the holder(s re$edy if any, is against his transferor and#or the guilty party. i &hus, if the original bailor or depositor of the goods was not the owner thereof or had no authority fro$ such owner to deposit the goods, then the holder of the negotiable docu$ent, even if the negotiation to hi$ was valid, cannot ac@uire title to the goods. ii Fn the other hand, even if the original bailor or depositor was the owner or had authority fro$ the owner, if the negotiation to the present holder(s transferor was not valid, such holder, even if in good faith and for value, does not ac@uire any right to the goods. iii :n both cases, the holder(s re$edy if any, is against his transferor and#or the guilty party. b. &he person to who$ the docu$ent has been negotiated ac@uires the !,&"%at"!# of the ,a"&ee t! 2a4e )e&".er? to hi$, as if they had contracted directly with each other. i Ay issuing a negotiable docu$ent of title, such bailee had given in advance his consent to hold the goods for any person to who$ such docu$ent is negotiated. - . . / $age 125 o0 355

0.

Ne%!t"a,&e D!'+2e#t$ !( T"t&e

1. . I# Ge#era& !. as distinguished fro$ negotiable instru$ents, refer to goods and not to $oney; the sale of goods covered is effected by the transfer of said docu$ent 2. not governed by the 0:, but by the Civil Code. *. includes any bill of lading, doc% warrant, J@uedanK, or warehouse receipt or order for the delivery of goods, or any other docu$ent used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the docu$ent to transfer or receive, either by indorse$ent or by delivery, goods represented by such docu$ent. 5. Docu$ents of title negotiable when goods represented thereby are deliverable to a specified person , to order or to bearer. 3. valuable in co$$erce because it facilitates the sale and delivery of goods. 1.*. M"#)$ !. Wareh!+$e re'e"pt$ an agree$ent by a warehouse$an to store goods and deliver the$ to a na$ed person or his order or to bearer. 2. B"&& !( La)"#% a si$ilar contract by a carrier to ship goods and deliver the$ to the person na$ed therein or his order or to bearer; negotiable bill of lading is useful not only as evidence of the receipt of the goods by the carrier but as evidencing title to goods covered by it. :t also facilitates the purchase of goods by one person fro$ another who is physically re$ote and probably un%nown to hi$. a. JstraightK bill where the goods are to be delivered to a specified person, it is not negotiable and is called a JstraightK bill. Ftherwise, it is referred to as an JorderK bill. *. Certificate of Deposita receipt of a ban% for certain su$ of $oney received upon deposit; generally fra$ed in such 2F4< as to constitute a pro$issory note, payable to the depositor, or to the depositor or order, or to bearer. a. it is ta%en when depositor does not need his $oney for so$e extended period of ti$e and wants it to earn interest; $ore of an invest$ent paper than a co$$ercial paper because it is not attendant to a co$$ercial transaction the way a chec% or a pro$issory note is. b. it is negotiable if it $eets all the re@uire$ents of 'ec ! 0:,

1.-. Ne%!t"at"!# = sa$e as those used in 0:s; to orderXdelivery Z indorse$ent, to bearer X delivery !. &he $eans of negotiating a docu$ent of title are the sa$e as those used in negotiable instru$ents. 2. :f by the ter$s of the docu$ent, the goods are deliverable to the order of a specified

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I"ST#2M "TS LA$:f docu$ent nonGnegotiable, notice of any transfer should be given to the bailee otherwise bailee or any other person other than the transferor not bound &hus, the transferee(s rights $ay be defeated by a levy of attach$ent on the goods or by a notification to the bailee of a sale of the goods to another purchaser. A sale of the goods without the docu$ent will not pre"udice a subse@uent purchaser who ta%es the docu$ent in good faith and for value. &he bailee(s delivery to the legal holder of the docu$ent would relieve hi$ of any further responsibility for the goods.

COMM #CIAL LA$

iii

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1.1. L"a,"&"t? !( I#)!r$er !. &he indorse$ent of a negotiable docu$ent of title carries with it certain i$plied warranties by the indorser. 2. As to the )!'+2e#t, his warranty covers its genuineness, his legal right to negotiate it and his lac% of %nowledge of any fact which would i$pair its validity. *. As to the %!!)$, he warrants that he has the right to transfer title thereto and that they are $erchantable. 5. )owever, unli%e the indorser of a 0: who is liable if the pri$ary party fails to pay, the indorser of a negotiable docu$ent of title is not liable for the failure of the bailee to fulfill his obligation to deliver the goods. ROMAN . ASIA BANMING CORP. ( 5**) A warehouse receipt $ust be interpreted according to its evident intent and it is obvious that the deposit evidenced by the receipt in this case was intended to be $ade sub"ect to the order of the depositor and therefore negotiable. &he indorse$ent in blan% of the receipt with its delivery which too% place on the date of the issuance of the receipt de$onstrate the intent to $a%e the receipt negotiable. 2urther$ore, the receipt was not $ar%ed JnonGnegotiable.K SIB CONG BIENG .. HSBC :f the owner of the goods per$its another to have the possession or custody of negotiable warehouse receipts running to the order of the latter, or to bearer, it is a representation of title upon which bona fide purchasers for value are entitled to reply, despite breaches of trust or violations of agree$ent on the part of the apparent owner.

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Insurance Code 3/6 (:;,4C5apter I% I"T#O62CTIO"

Ger'"! .$. S+#&"(e Fa't$< Fn Ianuary !6!B, the 'un ,ife assurance Co., of Canada issued a 2BGyear endow$ent policy on the life of )ilario -ercio. &he insurance co$pany agreed to insure the life of -ercio for 12, BBB, to be paid to hi$ on 2ebruary !, !6*B, or if the insured should die before said date, then to his wife, should she survive hi$; otherwise, to the executors, ad$inistrators, or assigns of the insured. &he policy did not include any provision reserving to the insured the right too change the beneficiary. .hen the policy was issued, Andrea ^ialcita was the lawful wife of )ilario. :n !6!6, she was convicted of adultery. :n !62B, a decree of divorce was issued in a civil case co$pletely dissolving the bonds of $atri$ony between -ercio and ^ialcita. :n !622, 2ercio for$ally notified 'un ,ife that he had revo%ed his donation in favor of ^ialcita, and that he had designated in her stead his present wife, Adela -arcia de -ercio, as the beneficiary of the policy. -ercio re@uested 'un ,ife to eli$inate ^ialcita as beneficiary. &his the insurance co$pany has refuse to do and still refuses to do. He&)< &he Code of Co$$erce, the Civil Code or the :nsurance Act does not contain any provision either per$itting or prohibiting the insured to change the beneficiary. .e $ust perforce conclude that whether the case be considered in the light of the Code of Co$$erce, the Civil Code, or the :nsurance Act, the deficiencies in the law will have to be supple$ented by the general principles prevailing on the sub"ect. &o that end, we have gathered the rules which follow fro$ the best considered A$erican authorities. :n adopting these rules, we do so with the purpose of having the 1hilippine ,aw of :nsurance confor$ as nearly as possible to the $odern ,aw of :nsurance as found in the Cnited 'tates. &he beneficiary has an absolute vested interest in the policy fro$ the date of its issuance and delivery. 'o when a policy of life insurance is ta%en out by the husband in which the wife is na$ed the beneficiary, she has a subsisting interest in the policy. .hen 4A *?7, otherwise %nown as the Civil Code of the 1hilippines, too% effect on August *B, !63B, those provisions of the old Civil Code on insurance were also expressly repealed. 1residential Decree ] 7!2, as a$ended, which ordained and instituted the :nsurance Code of the 1hilippines, was pro$ulgated on Dece$ber !?, !6>5 during the period of $artial law. :t repealed Act ] 252>, as a$ended. Aefore 1residential Decree 7!2, a$end$ents to the Act were $ade by 1Ds ] 7*, !2*, *!>. 1residential Decree ] !57B, consolidated all insurance laws into a single code %nown as the :nsurance Code of !6>?. Aasically, it reenacted 1residential Decree ] 7!2, as a$ended. :t has been a$ended by 1residential Decree ] !?!5 and Aatas 1a$bansa Alg. ?>5.

. La:$ !# I#$+ra#'e . . S!+r'e$ !( I#$+ra#'e La: "# the Ph"&"pp"#e$ During the 'panish period, all the provisions concerning insurance in the 1hilippines were found in &itle > of Aoo% 2 and 'ection * of &itle * of Aoo% * of the Code of Co$$erce, and in Chapters 2 and 5 of &itle !2 of Aoo% 5 of the old Civil Code of !??6. .hen Act ] 252>, enacted on Dece$ber !!, !6!5, otherwise %nown as the :nsurance Act, too% effect on Iuly ! !6!3 during the A$erican 4egi$e, the provisions of the Code of Co$$erce on insurance were expressly repealed. A#% G"!4 .$. Spr"#%("e&)$ Fa't$< Ang -io% insured the contents of his warehouse with three insurance co$panies for 7BP. &he warehouse and its contents were destroyed by fire while the policies were in force. &he plaintiff instituted action in the C2: of B. 36. 2our special defenses were interposed by the insurer, one being planted on a violation of warranty 2 fixing the a$ount of hazardous goods which $ight be stored in the insured building. 'ecurely pasted on the left hand $argin of the policy reading in part as follows J:t is agreed that during the currency of this policy no hazardous goods be stored in the buildingV exceeding in all * percent of the total value of the whole $erchandise contained in said warehouse.K He&)< &he rider or slip containing said warranty 2 attached to the policy in @uestion and referred to therein as $a%ing part of the two for$s provided in said 'ection 73 of the :nsurance ,aw. &he law says that every express warranty $ust be Jcontained in the policy itself.K &he word Jcontained,K according to the dictionaries, $eans included, enclosed, e$braced, co$prehended etc. .hen therefore, the courts spea% of a rider attached to the policy, and thus e$bodied therein, or of a warranty incorporated into the policy, it is believed that the phrase Kcontained in the policy itselfK $ust necessarily include such ride and warranty. As to the alternative relating to Janother instru$entK as here used could not $ean a $ere slip of paper li%e a rider, but so$ething a%in to the policy itself. &he word instru$ent has a well defined definition in California, and as used in the Codes invariably $eans so$e written paper or instru$ent signed and delivered by one person to another, transferring the title to, or giving a lien, on property, or giving a right to debt or duty. &he rider, warranty 2, is contained in the policy itself, because by the contract agreed to by the parties is $ade to for$ part of the sa$e, but is not another instru$ent signed by the insured and referred to in the policy as for$ing a part of it. &he rider is therefore valid and binding. 100% UP L AW , $

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:nsurance Code of !6>? &he law on insurance is contained now in the :nsurance Code of !6>? (1D ] !57B, as a$ended) and special laws and partly, in the pertinent provisions of the Civil Code. &he :nsurance Code pri$arily governs the different types of insurance contracts and those engaged in insurance business in the 1hilippines. :t too% effect on Iune !!, !6>?, the date of its pro$ulgation Jwithout pre"udice, however, to the effectivity dates of various laws, decrees and executive orders which have so far a$ended the provisions of the :nsurance Code of the 1hilippines (1D 7!2)K Civil Code &he provisions of the Civil Code dealing on insurance are found in articles >*6 and 2B!2 (void donations), Article 2B!! (applicability of the Civil Code), Articles 2B2!G2B2> (life annuity contracts), Article 2!?7 (co$pulsory $otor vehicle liability insurance), and Article 22B> (right of subrogation). 'pecial laws &he :nsurance Code of !6>? (1D !57B) &he 4evised -overn$ent 'ervice :nsurance Act of !6>> (1D !!57, as a$ended), with respect to insurance of govern$ent e$ployees &he 'ocial 'ecurity Act of !635 (4A !!7!, as a$ended) with respect to insurance of e$ployees in private e$ploy$ent Fthers + insofar as the Civil Code is concerned, the Code of Co$$erce is considered a special law 4A 737 (as a$ended by 1D 253), %nown as the J1roperty :nsurance ,aw,K dealing with govern$ent property 4A 5?6? (as a$ended by 4A 3>37) providing life, disability and accident insurance coverage to barangay officials 9F 23B (Iuly 23, !6?>) increases, integrates and rationalizes the insurance benefits of barangay official sunder 4A 5?6? and $e$bers of 'angguniang 1anlalawigan, 'angguniang 1anlungsod, and 'angguniang Aayan under 1D !!5>. &he insurance benefits are extended by the -':'. 4A *36! (as a$ended) establishes the 1hilippine Deposit :nsurance Corporation which insures the deposits of all ban%s which are entitled to the benefits of insurance under this Act

. De("#"t"!#$ . . Se't"!# *9 I#$+ra#'e C!)e'ec. 2. .henever used in this Code, the following ter$s shall have the respective $eanings hereinafter set forth or indicated, unless the context otherwise re@uires (!) A Qcontract of insuranceQ is an agree$ent whereby one underta%es for a consideration to inde$nify another against loss, da$age or liability arising fro$ an un%nown or contingent event. A contract of suretyship shall be dee$ed to be an insurance contract, within the $eaning of this Code, only if $ade by a surety who or which, as such, is doing an insurance business as hereinafter provided. (2) &he ter$ Qdoing an insurance businessQ or Qtransacting an insurance businessQ, within the $eaning of this Code, shall include (a) $a%ing or proposing to $a%e, as insurer, any insurance contract; (b) $a%ing or proposing to $a%e, as surety, any contract of suretyship as a vocation and not as $erely incidental to any other legiti$ate business or activity of the surety; (c) doing any %ind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the $eaning of this Code; (d) doing or proposing to do any business in substance e@uivalent to any of the foregoing in a $anner designed to evade the provisions of this Code. :n the application of the provisions of this Code the fact that no profit is derived fro$ the $a%ing of insurance contracts, agree$ents or transactions or that no separate or direct consideration is received therefore, shall not be dee$ed conclusive to show that the $a%ing thereof does not constitute the doing or transacting of an insurance business. (*) As used in this code, the ter$ QCo$$issionerQ $eans the Q:nsurance Co$$issionerQ.

.*. HC!#tra't !( I#$+ra#'eI An agree$ent by which one party (insurer) for a consideration (pre$iu$) paid by the other party (insured), pro$ises to pay $oney or its e@uivalent or to do so$e act valuable to the latter (or his no$inee), upon the happening of a loss, da$age, liability, or disability arising fro$ an un%nown or contingent event.

Wh"te G!&) Mar"#e Ser."'e$ .$. P"!#eer (*661) An insurance contract is a contract is a contract of inde$nity wherein one underta%es for a consideration to inde$nify another against loss, da$age, or liability arising fro$ an un%nown or contingent event. 4egulation by the state through a license or certification of authority is necessary since a contract of insurance involves public interest.

C5apter II TH CO"T#ACT O! I"S2#A"C100% UP L AW , $ B A R ' $ !

.-. HD!"#% a# I#$+ra#'e B+$"#e$$I@eneral *ule: An insurance business consists of underta%ing, for a consideration, to inde$nify - . . / $age 128 o0 355

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COMM #CIAL LA$insurance, $ay be re@uired by law in certain circu$stances such as for $otor vehicles, or e$ployees (,abor Code Art. !7?G!?5) or as a condition to granting a license to conduct a business or calling affecting public safety or welfare 'ocial insurance for $e$bers of -':' and for e$ployees of the private sector covered by the ''' is also established by law

another against loss, da$age or liability arising fro$ an un%nown or contingent event 'upplementary *ule: &he fact that an establish$ent is not for$ally designated as one of insurance does not preclude its being dee$ed to be engaged in an insurance business if it underta%es any of the following (even if not for profit or for any independent consideration) > which provides that Jno policy or contract of insurance issued by an insurance co$pany is valid and binding unless and until the pre$iu$ thereof has been paidK` T",a? . CA Fa't$< 2ortune ,ife issued a fire insurance policy in favor of &ibay on a bldg in > applies. 'ince acceptance of partial pay$ent is not $entioned a$ong the exceptions provided in 'ec >> and >? of the :nsurance Code, no policy of insurance can ever pretend to be efficacious until pre$iu$ has been fully paid. G &he policy contained a condition w#c said that J&he policy including any renewal thereof is not in force until the pre$iu$ has been fully paid x x xK Clearly, the 1olicy provides for pay$ent of pre$iu$ in full. BissentF (673T) &he insurance coverage should beco$e effective fro$ the day that the partial pay$ent is accepted by the insurer, any stipulation in the policy to the contrary notwithstanding. 1artial pay$ent is enough to establish the "uridical relation between the two parties. &he law does not re@uire a specific a$ount of pre$iu$ pay$ent in order to create the "uridical tie. - . . / $age 140 o0 355

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COMM #CIAL LA$that the fire too% place before the tender of pre$iu$ pay$ent under the renewed policy. (0ote &his is a $otion for reconsideration fro$ previous 'C decision declaring that there was no renewal of the policy and that CC1A not liable) I$$+e< .F0 'ec >> of the :nsurance Code $ust be strictly applied despite its practice of granting a 7BG6B day credit ter$ for pay$ent of pre$iu$ He&)< 0F &here are exceptions to 'ec >> a.) &he first is provided by 'ec. >> itself and that is, in case of a life or industrial life policy whenever the grace period applies b.) 'ec >? An ac%nowledg$ent in a policy or contract of insurance of the receipt of pre$iu$ is conclusive evidence of its pay$ent, so far as to $a%e the policy binding, notwithstanding any stipulation therein that it shall not be binding until pre$iu$ is actually paid. c.) 'ec. >>$ay not apply if the parties have agreed to the pay$ent in install$ents of the pre$iu$ and partial pay$ent has been $ade at the ti$e of the loss. d.) &he insurer $ay grant credit extension for the pay$ent of the pre$iu$ e.) :t would be un"ust and ine@uitable if recovery on the policy would not be per$itted against CC1A, w#c consistently granted the 7BG6B day credit ter$ for the pay$ent of the pre$iu$s despite its full awareness of 'ec. >>. 9stoppel bars it fro$ ta%ing refuge under the action, since *6 cannot be na$ed beneficiary of a life insurance policyK Art. >*6 declares void donations $ade between persons who are guilty of adultery or concubinage at the ti$e of the donation. )ence, Carponia is dis@ualified fro$ being na$ed a beneficiary. 3)a. )e C!#$+e%ra . GSIS 2AC&' Iose Consuegra contracted two $arriages, to Diaz and Aerdin. After his death, the proceeds of his life insurance w# the -':' went to Aerdin. )owever, he was also entitled to retire$ent benefits to which he did not designate any beneficiary. :''C9 .F0 Aerdin should be considered the sole beneficiary of the retire$ent benefits being the beneficiary of the life insurance policy )9,D 0F. ,ife :nsurance and retire$ent insurance are separate and distinct funds. ,ife :nsurance is paid to whoever is na$ed the beneficiary and $ay not necessarily be the heir of the insured. 4etire$ent benefits on the other hand, are pri$arily intended for the benefit of the ee + to provide for his old age, incapacity, etc. :f the ee reaches the age retire$ent, he gets the benefits even to the exclusion of the beneficiary na$ed in the policy. &he beneficiary of the retire$ent insurance can only clai$ the proceeds of the retire$ent insurance if the ee dies before retire$ent. :2 there is no beneficiary designated in the policy, benefits will accrue to the estate, hence Diaz is also entitled to the retire$ent benefits. De& 3a& . De& 3a&

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COMM #CIAL LA$subrogation to the insurer to the extent of the insurance $oney paid. c. Change of creditor + pay$ent of the insurance to the $ortgagee due to loss does not extinguish the principal obligation but only changes the creditor. &he $ortgagee can(t clai$ both the insurance and the debt. :nsurance ta%en out by $ortgagor a. 2or his own benefit, as owner + proceeds won(t go to the $ortgagee who has no greater right than unsecured creditors. b. 2or the $ortgagee(s benefit + loss is payable to the $ortgagee (usual practice), to the extent of the credit. Cpon pay$ent of the proceeds to the extent of the credit, the debt is extinguished. &he $ortgagee can be $ade the beneficial payee by !. Aeco$ing the assignee of the policy with insurer(s consent; 2. Aeco$ing the $ere pledge without such consent; *. A rider (3B), $a%ing the policy payable to the . &he provisions of this chapter apply as well to a $odification of a contract of insurance as to its original for$ation. N% . A$"a# Cr+$a)er$ Fa't$< &he insured applied for a 2BGyear endow$ent insurance on his life and na$ed his wife as beneficiary. Cpon application he gave infor$ation regarding a previous operation (that a tu$or was ta%en out). :nsured died of liver cancer. &he insurer denied the clai$ of the beneficiary clai$ing $isrepresentation since the operation which the insured undertoo% was for Jpeptic ulcerK and not re$oval of a tu$or. Rat"!< Conceal$ent exist where the insured had %nowledge of a fact $aterial to the ris%, and honesty, good faith and fair dealing re@uires that he should co$$unicate it to the insurer, but he intentionally withhold the sa$e. &he insured infor$ed the $edical exa$iner that the tu$or he was operated on was associated with ulcer of the sto$ach. :n the absence of evidence that the insured had sufficient $edical %nowledge as to enable hi$ to distinguish between Jpeptic ulcerK and tu$orK his state$ent was an expression $ade in good faith of his belief as to the nature of his ail$ent and operation. :f the operation and ail$ent of the insured had such an i$portant bearing on the assu$ption of ris% by the insurer, it should have $ade further in@uires on the $atter or re@uired copies of the hospital records before approving the application. As provided by 'ection *2 where the right to $aterial infor$ation $ay be waived JVby neglect to $a%e in@uires as to such facts where they are distinctly i$plied in other facts of which infor$ation is co$$unicatedK 100% UP L AW , $ B A R ' $ !

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COMM #CIAL LA$Rat"!< &he insurer is dee$ed estopped fro$ clai$ing that the insured is dis@ualified. 'he did not conceal nor $isrepresent her age and the insurance corporation has been given sufficient infor$ation to %now that the insured is over 7B years of age, yet they continued to accept the pre$iu$ pay$ent and issued her the policy. Ne: L"(e E#terpr"$e . C!+rt !( Appea&$ Fa't$< &he insured contracted * insurance policies fro$ * different insurance co$panies for the stoc%sGinGtrade of 0ew ,ife 9nterprises. :t was undisputed that the plaintiff failed to indicate any coGinsurance in any of the three policies. .hen the building occupied by the insured enterprise was gutted and the stoc%sGinGtrade insured against were burned, the plaintiff filed clai$s with the * insurers which were all denied. &he reason was that the insured violated the ter$s of policy in relation to coGinsurance. Rat"!< &he ter$s of the contract are clear and una$biguous. &he insured is specifically re@uired to disclose to the insurer any other insurance and its particulars which he $ay have effected on the sa$e sub"ect. &he excuse of the plaintiff that the agent of the insurance co$pany was aware of the other insurers or that he failed to read the ter$s of the policies cannot be accepted when the words and language of the docu$ents are clear and plain or readily understandable by an ordinary reader. &here is absolute no roo$ for interpretation or construction and the courts are not allowed to $a%e contracts for the parties. &he parties $ust abide by the ter$s of the contract because such ter$s constitute the $easure of the insurer(s liability and co$pliance therewith is a condition precedent to the insured(s right to recovery fro$ the insurer. A2er"'a# H!2e . CA Fa't$< &he insured too% out a fire insurance policy to cover the stoc%sGinGtrade of his business fro$ the plaintiff insurer. .hen a fire gutted the business, he filed a clai$ against plaintiff insurer and several other insurance co$panies for which he also had a policy for the sa$e stoc%sGinGtrade. &he plaintiff insurer refused pay$ent clai$ing that the insured violated the policy in several instances + for our purposes the violation was the failure of the insured to disclose coGinsurance. )owever, during trial, the trial court found that although the insured failed to disclose coG insurance, the loss ad"uster of the insurance co$pany had previous %nowledge of the coG insurance prior to the clai$. Rat"!< &he insurer is estopped fro$ clai$ing exe$ption fro$ liability due to the violation of the policy on nonGdisclosure. :t cannot be said that petitioner was deceived by respondent by the latter(s nonGdisclosure of the other insurance contracts when petitioner actually had prior %nowledge as petitioner(s loss ad"uster had %nown all along of the other existing insurance contracts. &he loss ad"uster being an e$ployee of petitioner is dee$ed a representative of the latter whose awareness of the other insurance contracts binds the petitioner and thus there was no violation of the Jother insuranceK clause by the respondent and petitioner is liable to pay its share of the loss.

other insurance upon the sa$e property, the total absence of such notices nullifies the policy. E%+ara$ . Great Ea$ter# Fa't$< &he insured applied for a life insurance policy with defendant and na$ed beneficiary his $otherGinGlaw, the petitioner in the case. :nsured falsely answered @uestions on the application for$ regarding his health and $edical history. Also, when he the insurance co$pany(s physician conducted a physical exa$ination, another person pretending to be the insured was presented. :nsured died of intestinal occlusion. Rat"!< &he insured per$itted fraud to be co$$itted against the insurance co$pany in the fact that he allowed a healthy and robust person to substitute in his place since he %new that he was in bad health. :t is i$$aterial the cause of death since at the ti$e he applied for the insurance on his life he was affected by a $alady that would have been sufficient cause for the re"ection of his application by the insurance co$pany. &he contract of insurance is null and void because it is false, fraudulent and illegal. Great Pa'"("' L"(e . CA ( 555) Fa't$< A group life insurance was executed between -re1a,ife and DA1 for $ortgagors of DA1 to the a$ount of debt to DA1. &he insured in this case was one such $ortgagor to DA1. -re1a,ife granted insurance and a couple of $onths later, insured died of J$assive cerebral he$orrhageK. Cpon DA1(s clai$ -re1a,ife denied clai$ing nonGdisclosure of insured that he was suffering fro$ hypertension at the ti$e of application for the insurance based on the testi$ony of a doctor who declared that the cause of death was Jpossible hypertension several years agoK Rat"!< -re1a,ife failed to establish that the insured concealed a $aterial fact as the $edical findings were not conclusive since the doctor who gave the testi$ony did not conduct an autopsy on the insured nor had he any %nowledge of insured(s previous hospital confine$ents. &he death certificate only stated that hypertension as Jpossible cause of deathK. Conceal$ent exist where the assured had %nowledge of a fact $aterial to the ris%, and honesty, good faith and fair dealing re@uires that he should co$$unicate it to the assurer, but he intentionally withholds the sa$e. 2raudulent intent on the part of the insured $ust be established to entitle the insurer to rescind the contract. :n the case of individual life or endow$ent insurance, the policy shall contain in substance the following conditions (b) A provision that the policy shall be incontestable after it shall have been in force during the lifeti$e of the insured for a period of two years fro$ its date of issue as shown in the policy, or date of approval of last reinstate$ent, except for nonGpay$ent of pre$iu$ and except for violation of the conditions of the policy relating to $ilitary or naval service in ti$e of war.

1. RESCISSION1. . Gr!+#)$ !. Conceal$ent 2. 2alse representation + $isrepresentation *. Areach of .arranty 1.*. Whe# I#$+rer M+$t EAer'"$e R"%ht t! Re$'"#)< N!#=L"(e P!&"'? . &hat the a't"!# :a$ #!t ,r!+%ht :"th"# the t"2e $pe'"("e). Ar%e#te . We$t C!a$t L"(e I#$. C!. Fa't$< &he insured spouses signed an application for "oint insurance which was accepted by the insurer. &he wife died of cerebral apoplexy a couple of $onth after the effectivity of the policy. .hen the husband filed a clai$, the insurer denied the clai$ due to fraud and $isrepresentation of the insured. :t appeared that the answers the spouses gave in their $edical exa$inations with regard to their health and previous illnesses and $edical attendance were untrue. Rat"!< &he spouses were guilty of conceal$ent. As to the issue of the application of section 5> (now sec. 5?) on the ti$e the insurer $ust exercise the right to rescind, the court held that a failure to exercise the right of rescission cannot pre"udice any defense to the action which the conceal$ent $ay furnish. .here any of the $aterial - . . / $age 162 o0 355

Thi 1# c$:ere& i% 1**(, 1**), 1**?, 1**1, #%& 1*(?. T#Ce %$te $8 the , 0e#r 9eri$& #%& the te $8 i u#%ce #%& their re"e:#%ce.100% UP L AW , $

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CO6contract Always written on the face of the policy, actually or by reference 2. A state$ent in a policy, which i$ports that it is intended to do or not to do a thing which $aterially affects the ris%, is a warranty that such act or o$ission shall ta%e place. 'ection >2 refers to pro$issory warranty. Areach of pro$ises or agree$ents as to future acts will not avoid a policy unless the pro$ises are $aterial to the ris%. 9xpress warranties regarding the person, thing, or ris% $ust refer to a state$ent of fact. :f it is a $ere belief, it will not constitute a warranty as far as the policy is concerned, but $erely a warranty that the state$ent is his honest opinion or "udg$ent.

IIIarranties are either affirmative or promissory and e>pressed or implied E so it comes in pairs you can have an implied affirmative warranty or an e>pressed affirmative warranty IIA warranty is presumed to be affirmative unless the contrary intention appears

'ec. 7?. A warranty $ay relate to the past, the present, the future, or to any or all of these. 'ec. 76. 0o particular for$ of words is necessary to create a warranty.

6.-. Warra#t"e$ . Repre$e#tat"!# WARRANTB Considered part of the 100% UP L AW REPRESENTATION Collateral induce$ent , $

'ec. >*. .hen, before the ti$e arrives for the perfor$ance of a warranty relating to the future, a loss insured against happens, or perfor$ance beco$es unlawful at the place of the contract, or i$possible, the o$ission to fulfill the warranty does not avoid the policy.

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COMM #CIAL LA$'ec. !76. An alteration in the use or condition of a thing insured fro$ that to which it is li$ited by the policy, which does not increase the ris%, does not affect a contract of fire insurance. Re@+"$"te$ A&terat"!# t! E#t"t&e I#$+rer t! Re$'"#)< !. &he +$e !r '!#)"t"!# !( the th"#% "$ $pe'"("'a&&? &"2"te) !r $t"p+&ate) in the policy. 2. 'uch use or condition as li$ited by the policy is a&tere). *. &he a&terat"!# "$ 2a)e :"th!+t the '!#$e#t !( the "#$+rer 5. &he a&terat"!# "$ 2a)e ,? 2ea#$ :"th"# the '!#tr!& !( the "#$+re) 3. &he a&terat"!# "#'rea$e$ the r"$4. I#'rea$e !( R"$4 !r Ha/ar) "# Ge#era& :ncrease of hazard ta%es place whenever the insured property is put to so$e new use, and the new use increases the chance of loss. 1re$ise 9very insurance policy is $ade in reference to the conditions surrounding the sub"ect $atter of the ris% and the pre$iu$ is fixed with reference thereto. &here is thus an i$plied pro$ise or underta%ing on the part of the insured that he will not change the pre$ises or the character of the business carried there, or to be carried on there, so as to increase the ris% of loss by fire. Ge#era& R+&e< :nsurer is not liable if there was an increase in the ris% or hazard. &here is increase in hazard when the new use increases the chance of loss. &he increase of the ris% of loss $ust in all cases be of a substantial character. EA'ept"!#$< (Alterations which will not warrant the avoidance of the policy) !. &he use of the property is changed but it did not in any way increased the ris% of loss 2. &he use of $aterials prohibited fro$ being used as per the policy if such $aterials are necessary or ordinarily used in the insured(s business. *. :ncrease in ris%s brought about by the underta%ing of necessary repairs in the pre$ises 5. :ncrease in ris%s due to negligent acts te$porarily endangering the property, or te$porary acts or conditions which have ceased prior to the occurrence of the loss. 3. Alteration $ade by accident or without the %nowledge of the insured. Oualifier )owever, the acts of the insured(s tenants which cause alterations are dee$ed presu$ptively %nown to the insured. EA'ept"!# t! the eA'ept"!#< Cnder 'ection >3, the breach of an i$$aterial provision will not avoid the policy, but the insurer is given the right to insert ter$s which, if viola