Professional Documents
Culture Documents
Return of Excess
Claim
for
Deficiency
Not required
- No recovery under the Recto
Law
(NCC 1484 on installment sale
of personal property where the
mortgage is constituted over the
object of sale to secure the
payment of the purchase price).
For Recto Law to be applied,
mortgage must be constituted
over the object of the installment
sale.
Required
Foreclosure
EJ Foreclosure
Registration
CM
REM
Personal property
Real property
Existing and valid obligations;
Includes future obligations
Includes voidable, unenforceable, rescissible and natural
obligations
Extrajudicial only
EJ or Judicial
No right of redemption
Right of Redemption
RD of mortgagors residence +
location of property + LTO
(motor vehicles)
CHATTEL MORTGAGE
Governing Law: Act No. 1508
CHATTEL MORTGAGE LAW
ACT NO. 1508
This act is considered repealed by the New Civil Code.
The ratio is that pactum commissorium is void and the Chattel Mortgage Law
considers a Chattel Mortgage as a conditional sale which becomes absolute
upon default
In Jurisprudence:
In one case there was a house that was subject to a chattel mortgage. The
reason was that the land belonged to one person and the house to another.
The Court ruled that as between the parties there is a valid chattel mortgage
as under NCC 1159, stipulations of parties valid between themselves.
However, it is not binding on other persons.
Collateral issue: The register of deeds was not justified in refusing to record
chattel mortgage over the house; it is a ministerial duty on the part of the
register
Q: May personal property also be classified as real?
A: Yes, but it is binding only as between the parties
If object is motor vehicle it should be registered with the LTO. It should be first
registered with register of deeds. After, which, register with the LTO.
Practical: Bring two copies, first to Register of Deeds then have him stamp the
copy. Bring the second copy to the LTO.
Mortgagor may or may not be the principal debtor.
While registration may be notice to world, it is still not in accordance with law.
A problem arises when the principal debtor defaults.
Definition
- Chattel Mortgage is defined in the NCC as a contract whereby personal
property is recorded in the chattel mortgage registry as security for the
performance of an obligation.
Where to Register: Residence of the mortgagor
CM is to be recorded in the Register of Deeds of the City or Province where
the mortgagor resides.
Note: There is no Register of Deeds in Municipalities.
Why: Because it can be easily moved
Nature of Requirement:
Not for the validity of the mortgage
But for Constructive Notice to the world
TRIVIA: Forms of Construction Notice:
Public Instrument, Publication, Registration
Form of Registration: Affidavit of Good Faith
- It is a sworn declaration of both the mortgagor and mortgagee that they
executed the mortgage in good faith to secure a valid obligation and not for the
purpose of fraud
- IF LACKING:
a) the mortgage is still valid between the parties
b) it is invalid as to third persons because the mortgage cannot be registered
without the affidavit
Q: If an affidavit of good faith is omitted is there a valid chattel mortgage?
A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of
registration. If there is no affidavit, it is not binding on third persons. Affidavit of
good faith may be demanded.
Q: What if mortgagor and property are in different locations?
A: Register first in the city or province where the mortgagor resides then where
the property is found.
- If sold to a third party, the latter delivers the amount of the bid to
S/NP
d. Certificate of Sale
- Whoever is the highest bidder gets certificate of sale from
sheriff or notary.
Hypothetical Q: Mortgagor did not see necessity of recording release of
mortgage. Went to get a second loan from mortgagee. He merely returned the
release of mortgage, is the mortgage revived?
A: No, obligation it secured is already extinguished
4.
6.
Auction Sale
- Q: If there is a written agreement between the mortgagor and
mortgagee to postpone the auction sale, is it valid? YES, because it is
not contrary to law, morals, good customs, public order or policy.
However, in case of postponement, the notice requirements should
be complied with again as in the case of Nepomuceno Productions
vs. PNB.
- Three possible results of an auction sale
a. Bid exceeds the amount of the obligation: the excess is
returned to the mortgagor
b.
c.
8.
Certificate of Sale
- By whom issued: sheriff or np
- What to do: Register ASAP with RD BEC the one-year Right of
Redemption commences within one year from the date of registration
Redemption
- Nature: Right, Not a Duty; it may not be forced on the mortgagor
- It is a property right arising from property
- Real property
- Real rights
Acquisition of Title
- When to obtain title to the property: When the period of redemption
expired without anyone redeeming the property
- How: 2 ways
a. Have the Sheriff/NP issue a Final Certificate of Sale
b. Execute an Affidavit of Non-Redemption, which is less
expensive than the first
c. Pay BIR the taxes upon the expiration of the redemption
period
- Why do it: The BIR requires: (1) certificate authorizing registration
and (2) the tax clearance certificate
a. DST within five days from the month following the expiry of
the redemption period
b. CGT / Withholding Taxes 30 days from expiration of the
redemption period
c. VAT
d. Transfer Taxes of LGUs
- Pay the amount of taxes to the LGU
Case: Person borrowed from bank. Parents executed a Real Estate Mortgage.
Borrower issued post-dated checks. The checks were dishonored. The bank
sued the borrower for BP22.
Remedies for bank are as follows:
1.) Civil Collection
2.) BP22
3.) Foreclosure
Filing of BP22 is an abandonment of the mortgage.
If buyer of mortgaged land already owns the land and the prior owner does not
want to leave, file an ex parte Petition for Issuance of Writ of Possession.
Practical Matters: Attach all certified true copies of documents in the petition
title, deed of mortgage, final certificate of sale, BIR clearance (tax clearance,
certificate authorizing registration)
DOCUMENT OF TITLE
Governing Laws:
NCC (Sales)
Code of Commerce
Warehouse Receipts Act
Definition
It is an instrument or document where the bailee acknowledges goods and
contains an undertaking to deliver the goods
- DIFF with Instrument under the Negotiable Instruments Law
1) Coverage: NCC covers GOODS to be transported or safely kept.
NIL covers sums certain in money, except other properties that may
also be covered.
2) Modes of Endorsement
- In DTs, endorsements must be IN BLACK or ESPECIALLY
- In NIs, it may be blank, especially, conditional, qualified, or
restrictive
Examples of Documents of Title
- Bill of Lading, issued by common carriers (Code of Commerce)
- Warehouse Receipt, issue by warehousemen (under the Warehouse
Receipts Act and the General Bonded Warehouse Act).
- Quedan, a warehouse receipt that covers rice, sugar, or tobacco
Who issues DTs:
Common carriers
Warehousemen
Forms of DTs to facilitate trade
1. Negotiable IF it contains words of negotiability, i.e. to order, to bearer,
or those with equivalent words or phrases (e.g. holder, possessor)
2. Non-Negotiable
What if it contains deliver to bearer with a red stamp in big font of
NON-NEGOTIABLE: It is negotiable even if the bailee intends it to
be non-negotiable, as long as it contains words of negotiability.
How to Negotiate Documents of Title
1. To Order Instruments: Indorsement (Blank or Special) and Delivery
2. To Bearer: Delivery
BILL OF LADING
Governing Law: Code of Commerce
Kinds:
Bill of Lading Common carrier of goods by water
Waybill by trucks on land
Airwaybill by aircrafts, airlines
Formal Requirements
1. It must be printed
2. It must contain the complete name and address of the printer
3. It must contain the telephone number of the printer.
4. It must contain the TIN Number of the printer.
Content of B/L (Code of Commerce)
1.) Complete name and address of consignor/shipper.
2.) Complete name and address of consignee.
3.) Complete name and address of the carrier/shipee (NCC).
4.) Complete description of goods including marks and markings, e.g.
Numbers on crates, Names in pomelo crate from Davao
5.) Amount of fare
6.) Stipulations on limited liability
- Nature: Contract of Adhesion but it is not prohibited; it is only
interpreted against the party who cause the ambiguity
Q: Are printed stipulations on Bill of Lading binding on the shipper
even if the shipper does not sign?
A: GR: Yes, a contract is perfected by mere consent. Here, consent is
implied even if it is signed only by the carriers representative.
EXCEPTION: There is no consent if print is too small that the shipper
could not have read it as in the Shewaram Case.
WAREHOUSE RECEIPT
Governing Law: GENERAL BONDED WAREHOUSE ACT governs the
conduct and business of warehousing
Who issues WR: Warehouseman.
Requirements for Issuance
1. Annual license from DTI Director.
2. Bond must be posted before the issuance of a license, to answer for
damages to goods suffered while the goods are in storage. The bond
is coterminous with the license.
3. Insurance against fire over all the goods stored in the warehouse.
Is there a prescribed minimum area for warehouses? NONE.
What is its difference with a Customs-Bonded Warehouse: WH is licensed and
bonded, while a customs-bonded WH is a facility by importers of raw materials.
History: When cost of money had gone beyond a profitable rate and the
interest was also subject to the usury law, banks thought of other ways to
make money. Banks started charging different fees to avoid the usury law. In
effect, every move by the bank had a price (Processing fee, application fee,
appraisal fee). Thus, the law obliges lenders to fully disclose all charges
before the consummation of the transaction.
Note: Not every sale is covered. Sales in the ordinary course of business is
not covered, e.g. If all goods were sold while engaged in the wholesale
business.
Requirements: Must be strictly complied with; OTHERWISE, Void sale
1. Notify the creditors in writing of the intended transfer at least 10 days
before the intended transaction
2. Deliver to the prospective transferees, a sworn statement stating the
full names and addresses of creditors and the amounts due them.
3. Furnish a copy to the Director of the Bureau of Commerce/Bureau of
Domestic Trade a copy of the sworn statement
Note: Transfer without compliance with requirements is void even if the
buyer acted in GF; the buyer is considered a trustee.
Exemptions from Requirements:
1. Judicial sales (execution, assignee in insolvency)
2. Sales or transfers of property exempt from execution
3. Sale by manufacturer of his own products
4. Written waiver by the creditors
SC: Sale of a foundry shop (Horseshoe maker/metal fabricator)
Commercial Bank
Definition: It is not defined in law. The law only identifies its powers and
functions:
1) To accept deposits subject to withdrawal by check.
However, the BSP may license other banks to accept similar deposits
2) To open letters of credit.
MB licensed savings bank to do the same, e.g Ph Business Bank
3) To engage in allied enterprises
4) To exercise the powers of a corporation
Universal Bank
Nature: Actually a commercial bank, but also authorized by Monetary Board to
engage in the business of an investment house.
Functions and Powers:
1) To accept deposits subject to withdrawal by check.
2) To open letters of credit.
3) To engage in business of investment house
4) To engage in allied or non-allied enterprises. Non-allied enterprises
have nothing to do with banking.
5) To sell life or non-life insurance policies cross-selling with
insurance companies where bank owns 5% of outstanding shares
Definition of an Investment House
Q: What is an investment house?
A: It is a quasi-bank with two major functions:
1.) Rediscounting of receivables one entity goes to an Investment
House and as collateral pledges its receivables. (Ex. Business sells
on credit and needs capital again, so it borrows from an Investment
House)
2.) Underwriting for securities where a corporation offers to the market
securities for sale with certain commitments (ex. In corporation that
needs more capital that cant be raised from stockholders securities
only if 20 or more persons) Get SEC approval first, then have them
sold by securities underwriters
UB can own 100% of just one other UB or KB. There is no limit on the number
of smaller banks it can own.
Q: if Universal Bank invests allied or non-allied, what is the limit?
A: Equivalent to 50% of net worth but only up to 25% in a single enterprise
Thrift Bank
Kinds:
1. Savings and mortgage - To lend money to those that want to
construct houses. For small depositors (small amounts of money).
Banks prefer big depositors as maintenance costs are the same
2. Private development bank organized for development of
community. If it needs additional capital, it may invite DBP to invest
with it. To recognize it, check corporate name, it always has
development in its name.
3. Stock savings and loan associations Theres also a non-stock but
not bank. If non-stock no ACS. If stock, may accept deposits from
general public, if non-stock only from limited clientele (ex. AFPLSAI
restricted only to AFP, PNP and family members; MESALA, Meralco
employees including the Lopez group) Many corporations have
savings and loan associations and a credit union.
Cooperative Bank
What: It is one set up and owned by cooperatives. There are no individual
stockholders, all are cooperatives. Under cooperative office, but bank under
the BSP.
Rural Bank
What: It is organized to provide banking services in rural communities, to
farmers/tenants or simply stated, in rural areas. It is recognizable by Rural in
its corporate name.
Islamic Banks
Note: There is only one, owned by the government of the DBP as a controlling
SH.
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LENDING MONEY
All banks should be organized as a stock corporation and comply with the
requirements of the Monetary Board for licensing. Before a corporation can be
organized, it must go through bank. After requirements submitted to the
Monetary Board and completed, endorsement by Monetary Board to SEC,
which then has a ministerial duty to register it.
What is the amount of the SBL: 20% of net worth of the bank but may be
increased by 10% of its net worth provided that the additional liabilities of any
borrower are adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or securing title
covering readily marketable, non-perishable goods which must be fully covered
by insurance.
For banks to open branches and ATMs, it must first obtain a permit from the
MB.
Banks should have employees on permanent basis.
There must be two independent directors who are neither officers nor
employees of the bank.
Do the SBL and DOSRI include legitimate interests only? No, it includes
illegitimate interests.
Directors and officers not just anybody may be a director or officer. There is
the fit and proper rule.
What is the remedy for SBL: Syndicated Loans where loans from several
banks are obtained.
Fit and proper rule Monetary Board came out with qualifications.
Must be a college grad.
REGULATION OF BANKS
Under the law, only corporations under supervision of the Monetary Board may
use Bank or Banking in corporate name.
Banks are prohibited from directly engaging in the business of insurance as an
insurer BUT UB can sell insurance policies of insurance companies which it
may own.
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Ex. BPI Katipunan depositor deposited checks from other banks such as
Metrobank and Allied Bank.
Clearing house is where banks swap checks they received drawn on other
banks. Physically there is no cash involved, but transactions recorded.
Under present rules, if within 24 hours a bank dishonors check, check should
be returned or else considered cleared.
Bank cannot declare dividends if clearing house account are overdrawn. There
is only movement of cash if clearing house account is overdrawn.
PHILIPPINE DEPOSIT
INSURANCE CODE
History
In the 1960s to the 70s, there were so many bank closures leading to the loss
of the publics confidence. To restore faith in banking that is vital to the
economy, the Uniform Currency Act was repealed and the PDIC was created.
What is insured: Savings, current, time deposits (credit-debtor relationship).
The PDIC insures only deposits in savings, current or time accounts, not any
other investments even if made with or through a bank. It excludes money
market transactions, and marginal deposits (amount required to open a L/C).
Q: Why are money market placements not insured in PDIC?
A: They are not deposits but investments. There is no debtor-creditor
relationship.
Money Market Placements transactions through bank but bank is
not borrower. Borrowers are other corporations that need to borrow
for a short time. Reason for Money Market Placements is that normal
loans take time. Bank is an intermediary between the borrower and
lender in the Money Market Placement.
It is lending to another person. Advanced is that in case of bank
closure, you make get Promissory Note by borrower.
490k
500k
500k
990k
490k
500k
500k
500k
990k
What is the maximum indemnity: P500k per person per bank in the
Philippines, whether in Philippine or foreign currency. If it is a foreign currency
deposit unit, indemnity amount in pesos on the day the bank is ordered closed.
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All Philippine notes are legal tender for all obligations. However, coins are
legal tender only up to a certain amount.
A Monetary Board Circular changed the amount of what may be legal tender
for coins. All centavo coins are legal tender up to P100 while all one peso
coins are legal tender up to P1000. Contrast this with the law that states that
for coins worth 10 centavos or less, they are legal tender only up to P20, while
coins worth 25 centavos and up are legal tender only up to P50.
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LETTER OF CREDIT
Q: Why is there a need to specificy the beneficiary? Why not just bearer or
order?
A: Because of obligations to each other.
Kinds:
1.) Domestic all parties in the same country; good for 6 months
2.) Foreign different countries; good for 12 months
Who issues L/Cs: Commercial banks as a general rule are allowed to issue
letters of credit, but Monetary Board may allow other banks to issue Letters of
Credit.
How do L/Cs work
1. Buyer and seller are insecure
2. Buyer goes to the full service branch of a bank to open a L/C in favor
of the seller
3. Bank requires a marginal deposit, the amount required by banks of
the purpose of opening L/C
4. Bank remits the amount to the seller only after the seller presents
proof of delivery
Example
BPI QC requests BPI Cebu to open a L/C in favor of a seller in Cebu.
BPI Cebu communicates to the Cebuano seller to ship the goods and upon
proof of such delivery, BPI Cebu will pay him. Shipper thus ships the goods
and the shipping company issues a bill of lading. If the goods are delivered to
the common carrier and it issues a B/L, it is considered as delivery to the
buyer.
BPI Cebu gets the B/L from the seller, pays the seller, forwards the B/L to BPI
Manila.
Buyer pays BPI Manila, claims the B/L, and receives the goods under the B/L
from the carrier.
What is the benefit of L/Cs to banks
Service fees and interest on advance.
Example: Purchase price is P200k. The marginal deposit required is
P120k, from which the bank advances P80k to the seller. Interest on
the P80k advanced by the bank is payable by the buyer to the bank.
What is a Letter of Credit Trust Receipt Line
A trust receipt is a receipt with undertakings. In lieu of a 100% marginal
deposit, the buyer has the option to execute a Trust Receipt in addition to the
marginal deposit. Under the Trust Receipt, the bank releases the B/L to
15
enable the buyer to acquire the goods which he would sell and either (a) use
the proceeds thereof in paying the bank within a stipulated period, and/or (b)
return the goods unsold.
What are TRUST RECEIPTS
- A trust receipt is a receipt with undertakings.
- In a trust receipt transaction, the entruster, who has security interests over
the goods, entrusts those goods to the entrustee so that the entrustee may sell
those goods and remit the proceeds of the sale within the stipulated period. If
the amount owing to the entruster has not been met within the period, the
entrustee is to return the goods not sold.
- Trust receipts are issued to guarantee debts due to failure to pay the amount
bank advanced in the Letter of Credit.
Undertakings of the Entrustee
1. To sell the goods and from the proceeds of the sale, remit the amount
owing to the entruster within the period stipulated. The proceeds
mentioned include the profits as long as there is still an amount owing
to the entrustee.
2. If the amount owed cannot be remitted, to return the goods within the
period.
Parties to a T/R
- Entrustee
- Entruster, who has security interests over the goods, e.g. holder of a B/L
which is a document of title
SC: In a TR, the entruster is the theoretical owner of the goods as he
advanced the full payment of the goods.
Note: Trust receipts may be between individuals
Effect of Returning Goods to Entruster
- The entrustee has the option of returning all of the goods to the entruster if
the due date is near and he has not sold the goods to avoid a prosecution for
estafa. In this event, the bank would be the one to sell the goods and deduct
the proceeds from the debt of the entrustee.
- Returning the goods does not extinguish the obligation to pay the amount
advanced by the bank.
Why is there a need for the Trust Receipts Law:
The bankruptcy of bank became rampant from their failure to collect from
borrowing importers who did not remit any amount to the banks after they have
claimed the goods. The P.D. regulating trust receipts was made to protect the
banking system. The PD requires the entrustee to insure the goods against all
risks.
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COMMON CARRIERS
Definition: A common carrier is a person natural or juridical who is regularly
engaged in the transportation of goods, passengers or both, offering its
services to the public for a fee.
Elements
1.) Transporting goods, passengers or both.
2.) Offering service to the public
3.) For a fee
The common carrier is at liberty to transport what they want.
Q: What is the public?
A: It is not necessarily the general public; it may merely be a narrow segment
of the public, e.g. school bus operator is a common carrier; pipeline is also
considered a common carrier, transporting fuel, and its clients are Shell and
Caltex.
Q: Do you need a motor vehicle?
A: No.
Importance of Classification: The diligence required of a common carrier is
extraordinary diligence.
CARRIAGE OF GOODS
When to exercise ED:
General Rule: Extraordinary diligence is to be exercised when
the goods are unconditionally placed at the disposal of the common carrier,
until the goods shall have been delivered to the consignee or
until consignee has been informed of arrival of the goods and given a
reasonable opportunity to claim the goods.
Reasonable opportunity is dependent upon the circumstances.
Exception: When the shipper exercises the right of stoppage in transitu.
Q: In case of stoppage in transit, what is the relationship of the common carrier
to the shipper?
A: The common carrier is merely a bailee, where the diligence required is only
that of a good father of a family.
Exception to the exception: Eordinary Diligence if the shipper asks for delivery
back to himself.
Q: Is the common carrier an insurer of the goods?
A: No, the common carrier is not an insurer against all risks related to
transportation.
When may the CC avoid liability for loss or damage to goods:
1.) When the proximate and only cause is a storm, earthquake, lightning,
or other natural calamity.
2.) When the proximate and only cause is an act of a public enemy in
times of war, whether civil or international.
3.) When the proximate and only cause is the character of goods or a
defect in the container or packaging.
4.) When the proximate and only cause is the act or omission of the
shipper himself.
5.) When the proximate and only cause is the order of a competent
public authority.
REQD: There must be no unnecessary delay in the prosecution of the
voyage. The carrier should not have committed an improper deviation.
The diligence required is still extraordinary diligence (BUT, according to
NCC 1739, it is only Due Diligence).
Q: If not one of these five occurred, might the carrier excuse itself from
liability?
A: Yes it may, but it is the obligation of the Common Carrier to prove that
under the circumstances, it exercised extraordinary diligence. The burden of
proof is on the common carrier.
Q: If one of these five occurred, is there a chance to recover from the common
carrier?
A: Yes, but the burden of proof is on the shipper to prove that there is failure to
exercise the required standard of care, still extraordinary diligence.
Q: May a common carrier and shipper validly stipulate on a standard of care
less than extraordinary?
A: Yes, but it must conform to the following requirements:
1.) Must be in writing and signed by both parties
2.) It must be supported by consideration other than to transport (ex.
Discount)
3.) The stipulated standard of care must not be less than that of a good
father of a family.
4.) If there are other stipulations, they must be fair and reasonable.
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inspects the goods and lists the defects in the tally sheet. If there are
defects found, they are formalized in the Bad Order Form.
Q: Is the filing of a claim with the common carrier a condition precedent to
recover from the carrier by complaint in court?
A: Under COGSA, no, it is not required. But under the Code of Commerce, it
is a condition precedent and thus constitutes the cause of action.
Q: When goods are insured and turned over to the arrestre operator and loss
or damage is determined, where and when should the claim by the insurer be
filed?
A: Claim of the consignee must be filed with the insurer also within one year
from delivery to the arrestre operator. The insurer merely subrogates and
steps into the rights of the insured.
Q: If the insurer did not act on the claim of the insured until after 1y, can it
involve prescription?
A: No. Prescription between the insurer and the insured is as stated in the
insurance policy or Insurance Code.
Q: What if the goods are not annotated as damaged in the tally sheet or bad
order form upon turnover to the arratre, but the goods are damaged upon
turnover by the arrastre to the consignee?
A: The suit should be against the arrastre on the basis of quasi-delict since
there is no pre-existing contractual relation between the arrastre and the
consignee.
Q: If the goods are insured but no claim is made by the insured against the
insurer within 1 year from delivery of goods, is the claim against the insurer
barred after one year?
A: No.
Q: What if there is no damage annotation on the tally sheet, and the customs
broker received the goods from the arrastre, but upon delivery by the customs
broker to the consigee, there is damage which is not annotated on the delivery
receipt?
A: Sue the broker on the basis of breach of contract of carriage, because the
customs broker is a common carrier. The ruling is that a customs broker who
offers to transport goods to client as part of services qualifies as a common
carrier.
Q: In case of missing goods, or, if the vessel arrives but the goods are not offloaded, when should the claim be filed?
A: Within one year from the last day when the carrier had the last chance to
deliver the goods to the arrastre operator, e.g. before the ship sails to another
port.
Q: If the prescriptive period is about to expire, can the consignee extend it by
sending a Demand Letter to the carrier?
A: No.
ADMIRALTY
Qualifications to be a Vessel: Not every watercraft is a vessel; it has to have
the following qualifications:
1.) It must not be a mere accessory to another watercraft (ex. Lifeboats)
2.) It must be registered with the MARINA
3.) It must be used to transport goods, passengers or both
4.) It is seagoing
Q: Who may own a vessel?
A: Anybody. If a vessel is owned by more than one person, there is a
disputable presumption that a partnership exists.
Hypothecary Rule
The limited liability of a shipowner.
It is the value of the vessel, plus
earned freightage plus
insurance, if any.
Q: Who participates in admiralty?
A: Those involved in navigation (crew) and housekeeping (compliment)
Crew of a Vessel:
1.) Captain
The title captain is used to refer to the commanding officer of a ship
that goes abroad.
The title master is used to refer to the commanding officer of a ship
that is engaged in local/inter-island travel.
A ship captain has three roles:
a. Represent the owner of the vessel
b. Be the technical director of the vessel
c. Represent the country where the vessel is registered.
2.) Mates (1st, 2nd, 3rd etc.)
3.) Engineers.
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Contracts in Admiralty:
1.) Charter party
2.) Bottomry
3.) Respondentia
4.) Marine Insurance
Charter Party
Definition: A contract of lease over a vessel
Kinds:
1.) Bareboat/demise, where the lessor provides only the vessel, without
crew, stores (things you eat), provisions (water and fuel).
2.) Affreightment
3.) Time-charter, or a lease for a specific term of the vessel, with stores
and provisions
4.) Voyage-charter, or a lease of a vessel for a voyage or series of
voyages, with stores and provisions.
According to the Supreme Court, the true charter is the bareboat charter.
The time and voyage charter are merely subtypes of affreightment, which is a
contract of carriage.
Ship Agent: Corporation representing the owner in every port where the
vessel may make a call or stop. The ship agent is in charge of provisioning the
vessel.
Q: What will be the liability of a ship agent for procurement of provisions?
A: A ship agent is solidarily liable with the ship owner for contracts entered into
for provisions of the vessel. This liability is different from that of a mere agent,
who is not liable if he discloses his principal and acts within the authority given
him.
Bottomry: Loan taken by the ship-owner secured by the vessel. If the vessel
sinks, the creditor loses the right to collect and the obligation to pay is
extinguished. If loan exceeds the value of the vessel, the excess is an
ordinary loan.
Respondentia: Loan taken by the cargo owner and secured by the cargo. If
loan exceeds the value of the cargo, the excess is an ordinary loan.
Marine Insurance: Insurance over the vessel or freightage, cargoes or profits
expected from cargo.
Accidents in Admiralty:
1.) Collision, or the impact of two or more moving vessels
As opposed to Allision,
the impact of one stationary and one moving vessel
2.) Arrival under stress, or when a vessel is forced to sail to the nearest
port.
Q: What is the obligation of a ship captain in arrival under
stress?
A: The captain must execute a MARITIME PROTEST, a
sworn statement where the captain relates what transpired.
Examples:
a. Natural calamity along route.
b. Avoidance of pirates
c. Loss of provisions
d. Accident that renders the
prosecuting the voyage
vessel
incapable
of
3.) Shipwreck
Q: Is the owner of a barge a party to a contract of carriage?
20
Why are liabilities fixed: Because of the different ways to assess damages
for injuries or loss of goods
WARSAW CONVENTION
What: It is an agreement among sovereign nations for:
1.) Having uniform documents in international air transportation,
2.) Fixing the liabilities for international air carriers.
21
PUBLIC SERVICE
Who may render public service
Only
- Ph citizens or
- Corporations with 60% ownership by Ph citizens
22
Filipino Corporations:
a. Domestic corporations must be at least 60% owned by
Filipinos.
b. Foreign corporations must be 100% Filipino owned.
23
PATENTS
What is a patent: It is issued upon an invention, granting the exclusive right to
mass produce or license the mass production of the invention.
What are patentable inventions?
1. New
2. Involves an inventive step
3. Capable of industrial application
What is NEW:
It is new if it is not part of prior art and if it is a different technology.
eg. Heat-operated microphone
What is an INVENTIVE STEP:
GR: It involves an inventive step if it is not just newly discovered but
involved a process of trying this and that until one finds what works.
eg. X tripped and fell on carabao grass, face first and discovered its
magical effect on pimples. This cannot be patented because it is merely
discovered without any inventive step. BUT IF X first tried guava leaves,
then malunggay leaves, then garlic, then chili, and then flour to make a
paste to cure pimples, then such involved an inventive step and is thus
patentable.
E: Microorganisms
eg Those which improve the digestive process or eat garbage.
What is INDUSTRIAL APPLICATION:
The invention develops a new industry or an existing one for mass
production of the invention. It could lead to development of new or
existing industry.
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How long is the duration of a patent: 20y from the filing of the application
How soon does the applicant get the patent: Only god knows
What are the KINDS OF LICENSING
1. VOLUNTARY, or by agreement between the patent holder and the
licensee
Can the holder just impose anything? No, there are prohibited
stipulations and the list is not exclusive. The list includes the number
of products produced; prohibition on export; limit on the price of sale;
source of raw materials, which must be a person nominated by the
holder; hiring of employees which must be recommended by the
holder; any other. These are prohibited because of the great moral
ascendancy of the holder over the applicant
What is the right of a patent holder in the license:
ROYALTIES. These are not in any amount because the IPO
prescribes the amount and computation
NOTE: Patent and the patented article are two different properties
that must be dealt with separately.
2.
COMPULSORY
How: A person applies with the IPO for a license to mass produce a
patented article.
Proceedings are then held before the
IPO. The licensee would still be liable for royalties
When:
UNFAIR COMPETITION
Copying a product of another and passing
them off as ones own. This is a felony.
Product may not be patented
INDUSTRIAL DESIGN
What are INDUSTRIAL DESIGNS:
It is a combination of lines, or of colors, or of lines and colors. Lines need not
be straight.
eg Shirts with stripes; floral designs; Burberry and Luis Vuitton
LAYOUT OR TOPOGRAPHY
OF INTEGRATED CIRCUITS
What: The pattern of a mother board is intellectual property.
TRADE NAMES
What is a TRADE NAME:
The name that a person gives to his products to identify them and to
distinguish them from the products of others.
How is it different from a BUSINESS NAME: A business name is
the name that a person uses to identify his place of business.
It is governed by the Business Names Law. If using a business name
different from true name, you register with the DTI, Bureau of
Domestic Trade. There is a need for a public record of who owns
businesses in order to know who to sue. This is needed for signs or
printed documents.
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What is a TRADEMARK
It is a sign, emblem, or mark that a person uses to identify and distinguish his
products from that of others.
What is a SERVICE NAME
It is the name, sign, emblem, or mark that is used to identify service (eg. Good
Year Servitek, Rapide). It covers both things and services.
What is the DURATION OF PROTECTION: 10y, with limitless renewals. But
after five years, the owner must file an affidavit of use (Declaration of Actual
Use) of the Trademark or Trade name with the IPO over the past period.
Mj: Under the IPC, the Declaration must be filed 3y from filing and 1y
from the fifth anniversary (124.2, 145).
Why do you need to register Trademarks or Trade names
To enjoin the use by others or to file a suit for infringement
Certain Rules
Exclusivity: Once a TM or TN is registered in the name of a person,
no other person may use a similar or confusingly similar name or
mark in connection with a similar or closely-related product.
eg. You cant use Del Monte in connection with foodstuff but
you can use it for underwear.
Trade names may be trade marks at the same time, but both must be
registered to be protected. eg Selecta is a trade name and how it is
packaged is a trade mark
Trade names and Marks include service name and mark
Taste is not protected.
First to File System; prior use is not required
Examples:
1. Bottles of Del Monte are patented. One case involved the Sunshine
brand of ketchup that used the bottles of Del Monte because the
owner of Sunshine could not afford to make his own bottles. The
manufacturer replaced the labels of the bottles but the labels had the
same color combination. Add to this the fact that the bottles had
markings that they were products of Del Monte. It was not ordinary
buyers that were misled but also those that read the labels.
2.
Beer na Beer Case. In the 70s, Asia Brewery created Beer na Beer
(Beer housen) that had the same taste as San Miguel (pale pilsen),
but Asia Brewery also used the same shape of bottles. The Supreme
Court held that there was no unfair competition, applying the holistic
test. The beer of AB could not be mistaken for San Miguel because
the prices of the former are cheaper.
TWO TESTS TO DETERMINE INFRINGEMENT:
1.) DOMINANCY TEST when the prevalent features are likely
to confuse one product with another. To determine whether
there is possible confusion between products, look into the
dominant features.
2.) HOLISTIC TEST consider not just the prevalent features
but also other factors. Even if there is similarity, there is
likelihood that they will not be confused with each other.
Example of Dominancy Test
1.) Converse vs Custombuilt both shoes use the same star
logo
2.) Alaska All Purpose Milk vs Alacta Infant Preparation not
likely to be confused with each other because each is used
for different purposes. One if infant formula, the other is
cows milk.
Examples of NOT CLOSELY-RELATED PRODUCTS
Del Monte in shoes.
Esso in cigarettes.
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Why do we have this doctrine: Because not all names are registrable.
Geographic words or names
Generic
Descriptive
Names, sign, or portrait of Past Presidents, UNLESS the widow
consents
Flags and simulations
Coat of arms and simulations
COPYRIGHT
Scope of Copyright
Other intellectual creations, such as books, musical compositions, adaptations,
song lyrics, melodies, photos, computer programs, and slogans.
NOTE!
Copyright is one property and the copyrighted work is another
property.
There is copyright for the lyrics and another for the melody in
songs.
Adaptation of musical compositions are works patterned after the
works of others
Patterns of TV and radio programs are not copyrightable
Who owns copyright
1. Intellectual creator
2. Co-creators IF 2 or more persons created the same, UNLESS there is
an agreement to the contrary. There is no first to file doctrine due to
impossibility of making the same intellectual creation.
3. Employer IF the person is hired to do intellectual creation, UNLESS
there is an agreement to the contrary.
4. Employee IF he is hired to do another thing, even though done during
work hours.
5. Commissioned person: If a person is commissioned to create
intellectual property, the work belongs to the commissioner while the
person commissioned owns the copyright, UNLESS there is an
agreement to the contrary
Is registration required for protection? NO.
system, NOT the first-to-file.
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1.
2.
3.
4.
Citizens, nationals
Residents with an effective establishment
Residents of a country that participated in an international convention
where the Philippines also participated.
Citizens of countries that offer reciprocal rights to Filipinos.
28
INSURANCE LAW
What is INSURANCE
Insurance is a contract whereby one person, known as the insurer, agrees to
indemnify another person, known as the insured, against loss, damage, or
liability arising from an unknown or contingent event.
What is an ASSURANCE: It is a life insurance initiated by the
beneficiary himself.
Who are the PARTIES TO AN INSURANCE
1. Insured
2. Insurer
3. Assured
What are the CHARACTERISTICS of an Insurance
1. Aleatory contract. It involves the assumption of risks
2. Indemnity contract. It is not a wagering contract where one invests
and hopes to profit. In insurance, one invests to be restored to the
same status prior to the risk happening. The insured does not expect
to profit.
3. Risk-distributing. It is not a risk-shifting device as guarantees or
suretyships.
Insured does not expect to profit:
ex A new car is insured against theft so that in case of loss, the insurer
gives the insured money to acquire another car.
In life, the money is given not to buy another person but to divert and
assuage the feeling of loss
What is REINSURANCE
The insurer insures the same risk with another. eg Your life is insured with A
for P10M. Then A finds out that you are entering politics, and thus the
chances of dying increased. A thus goes to B to reinsure your life for P6M.
Thus, when you die, A pays only P4M from his own funds, while B pays for
P6M.
Q: If the insurance company is bankrupt, can the beneficiary claim
from the reinsurer? It cannot, because there was no privity of
contract. However, the beneficiary may still file with the bankruptcy
court because the claims against the reinsurer are part of the
receivables of the corporation. The reinsurance will be part of the bulk
of assets of the insurance and be distributed according to the Civil
Code provisions on preference of credits
Oneself
Spouse
Descendants
One who is obliged to pay him a sum of money or whose death may
delay the performance of an obligation, eg Debtors, obligors
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Can the insurer rescind the policy at any time? NO. 2y!
What is the CONTESTABILITY PERIOD?
As a general rule, the insurer is entitled to rescind the policy only within
two years from the last reinstatement or from issuance of the policy.
OTHERWISE, after the two-year period, the insurer can no longer contest
the insurability of the insured.
PROPERTY INSURANCE
What is OVER-INSURANCE
In PROPERTY insurance, the property is insured for a value over the value of
the insurable interest. It is a void insurance as to the excess.
eg Property is P800 worth but is insured for P1M.
Why only in property insurance: Life is incapable of pecuniary
estimation. BUT IN PRACTICE, earning capacity is taken into
consideration in determining the policies.
What is the VALUE OF THE PROPERTY? Acquisition cost and
replacement costs, estimated at the value of the property at present.
What is UNDER-INSURANCE
In PROPERTY INSURANCE, a person insures his property for an amount less
than the value of his insurable interest. This is valid.
eg Property is worth P1M but the fire insurance taken is only for
P400k.
What is the effect in case of loss:
In case of total loss, the insurer pays the amount insured in full.
In case of partial loss, the insurer only pays the amount insured
in proportion to the total value of the thing insured
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What is CO-INSURANCE
It is similar to co-ownership and exists only in practice. It can arise in two
situations: in double insurance and in under insurance (full and partial loss).
DOUBLE INSURANCE: When the same thing and the same interest
are insured against the same risk with more than one insurer. There
are thus two or more insurers who apportions the indemnity to the
extent of the amount agreed upon under the policy. It is valid as long
as the total insurance coverage is within the insurable interest.
3.
x Amount of Loss
or P200k
or P120k
or P80k.
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LIFE INSURANCE
What is Life Insurance: It is the policy where the insurer agrees to pay the
indemnity in case the insured dies. It includes casualty insurance, which also
insures against death, whether natural or accidental
What are the KINDS OF POLICIES IN LIFE INSURANCE
1. TERM, or when the insurance coverage is for a definite period agreed
upon at the beginning. The parties agree on a period of insurance
coverage. The premium is low because it does not have nonforfeiture values.
a. If the insured survives, the policy expires.
b. As a general rule, the surviving insured does not get
anything.
c. The exception is a contract of ENDOWMENT, where the
insured will receive the face value of the policy if he survives
the expiration of the term but he is no longer insured. If he
dies within the term, the amount will be paid to his
beneficiary.
2.
Example: In Year 1, the premium of P20k is paid and the insured survives. In
Y2, P20k is paid and the insured survives. At this point, the P40k paid goes
down the drain if the insured survives because of the overriding commissions
of salesmen. The case value begins to accumulate on the third year. Thus, in
Y3, from the premium of P20k, the cash value is P1k and the rest goes down
the drain. In Y4, the cash value is now P2k, and so on. The longer you pay
premium, the more goes to the cash value, such that in Y20, 80% of the
premium paid is cash value.
What is its advantage: if you need money but you want to remain insured, you
can first surrender the policy and borrow the cash value. If you are unable to
pay, interests are charged.
What is CASH SURRENDER VALUE
If the policy is returned and the premium is no longer to be paid.
insurance ceases.
The
b) PAID-UP INSURANCE
When: The insured, without having to pay additional premium, is insured for
the rest of his life at an amount corresponding to the cash value, and no longer
at the original amount. The insured is fully paid for the rest of his/her life but
for a lower amount of insurance.
Example: Insurance is originally for P1M, but now, he is insured only for P600k
to be paid from his cash value.
c) EXTENDED TERM INSURANCE
When: When the insured is no longer paying an additional amount but is still
insured at the same price, but only for a specified duration.
Example: The insured is originally insured for P1M, for 21y5m. If he dies, the
beneficiaries get the amount in full. If he survives, the policy lapses.
What is the nature of these non-forfeiture values? They are alternative.
Normally, the policy stipulates that upon failure to pay the premium, the
insurance would be converted into paid-up or extended.
NOTE: Many insurers now offer participatory plans. The insured, although not
a stockholder, receives a portion of the net profits of the insurer.
a) CASH VALUE
When: From the third year of premium payment, part of every premium
payment made by the insured is set aside by the insurer for the insured. Every
year, the rate of case value increases.
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Exceptions:
o SHORT-TERM RATES, where the insurance is for a period less than
1y, thus the rate is on a short-term rate.
o HEIRS BOND, where the premium is computed and paid on an
annual basis but for two-years worth. This is in line with the
requirement in the Rules of Court to answer for the claims of creditors
and excluded heirs in extrajudical settlements.
Note: The more premiums are paid, the higher the amounts because
of high administrative costs.
When do you pay the premiums? Every time a premium is due in a
life insurance policy, there is a ONE-MONTH GRACE PERIOD. If the
same is not paid, the amount is deducted from the insurance.
Why is there a grace period? Insurers do not want their
policies to lapse.
What if the insured fails to pay after 1m?
1. IF there is an AUTOMATIC PREMIUM LOAN CLAUSE, the
accumulated cash value would cover the unpaid premium as a
loan.
Example: Premium is due on Dec. 15, 2012. It remains
outstanding until January 22. The policy could have lapsed
already but the accumulated cash value was used as a loan to
pay for the premium. If the insured dies, the insurer pays the
policy less the amount of the loan and the interests.
2. IF there is no such clause, the policy lapses.
What are the options of the insured when the policy lapses?
33
o
o
Guilty of adultery. BUT One may designate his kabit who is single
and who he sees only during lunch because there is no adultery and
no cohabitation.
Government officers
34
A: The insured may still recover. It is only when the insured breaches a
promissory warranty or intentionally acts to cause damage that he may not
recover.
What is casualty insurance? Where the insurer pays indemnity upon the
death of the insured or upon the loss of certain body parties due to an
accident. It is generally used only for loss of body parts but it now includes
accidental death.
What is the scope of protection: Indemnities are added with additional
premium.
What are compensable body parts? Either eye; Either arm; Either Leg
The full amount of insurance coverage is given for loss of both eyes, both
arms, or both legs. If you lose only one of each, indemnity shall only be . If
you lose one arm and one leg, the indemnity is still .
In the Philippines, we do not have insurance for individual body parts.
MARINE INSURANCE
What are the Kinds of Fire
1. Friendly fire, used for beneficial purposes.
2. Hostile fire, damages property. When friendly fire goes out of
control, it becomes hostile.
What is the amount of insurance: If you are going to insure your house or
structure, the insurer will normally insure it for acquisition or replacement cost.
Higher premiums are paid for the replacement cost.
TIP: Do not insure the foundation because it would not be destroyed
by fire.
When is the insurer not liable: In fire insurance, the insurer will not be liable
to pay the indemnity if there was breach of a warranty.
- Affirmative warranty representations
- Promissory warranty undertakings ex. You will not bring into
your house two tanks of LPG.
Q: What if the house burns because of the insureds negligence?
35
What happens when the insurer pays the insured? When the insurer pays
the indemnity, he is subrogated to the rights of the insured and can run after
the person/s who cause the loss or damage.
TIP: If you are counsel for the insurer and you file a claim based on
the subrogation, present a DEED OF SUBROGATION and a COPY
OF THE INSURANCE POLICY. The deed of subrogation proves the
subrogation but not the contract of insurance. Thus, prove the latter
with the best proof: policy.
NOTE:
In marine insurance, the adjustment company and insurer must have
absolutely no interest in each other.
SURETYSHIP
What is Suretyship: As a general rule, it is not a contract of insurance but a
risk-shifting device. EXCEPT! Suretyship is part of the insurance business IF it
is carried out by an insurer.
Examples of sureties: bail bonds, performance bonds; surety bond;
fidelity bond.
In case of court bonds, must have accreditation from the Supreme Court,
renewed on a monthly basis.
36
NEGOTIABLE INSTRUMENTS
LAW
Applicability of the Law:
It is an obsolete law but there are still provisions which are still in practice.
Thus, it must be read it with the Civil Code.
1.
2.
3.
4.
5.
b. BILLS OF EXCHANGE
It must be in writing and signed by the drawer
It must contain an unconditional order to pay a sum certain in money
It must be payable on demand, or at a fixed, or determinable future
time
It must be payable to order or bearer
The drawee must be named or indicated therein with reasonable
certainty
1 Requirement:
IN WRITING AND SIGNED
ND
37
nd
38
th
3.
If the instrument is already completed but not yet delivered, and it falls
into the hands of a holder in due course, then the HDC is protected
and his rights are not subject to personal defenses EXCEPT Forgery.
39
What is NEGOTIATION
Negotiation is the transfer of an instrument as to constitute the transferee the
holder thereof.
What are the MODES OF NEGOTIATING AN INSTRUMENT
1. ORDER: Indorsement and Deliver
2. BEARER: Delivery
What is an INDORSEMENT
It is negotiation through the signature of the person who has the right over the
instrument or document.
Where is the indorsement placed? The law is silent.
- It is customary to be made at the back so as not to confuse the
endorsers signature with that of the maker or drawer, especially in
cases of PNs stating I promise to pay and there are two signatures
appear, the result being the two signatures treated as co-makers.
- It may also be made in an ALLONGE, or a separate sheet of paper
attached to the instrument where the indorsements can be made.
40
If there are alterations it might not appear regular upon its face, it
might be considered irregular.
nd
th
3 : BEFORE OVERDUE
41
3.
4.
Negotiation
Presentment for Payment
Why: Presentment of acceptance is not an assurance of payment.
Thus, there are also two possibilities here.
- Payment by the drawee
- Dishonor by non-payment
5.
Payment/Discharge
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2.
3.
4.
If the payee negotiates both bills to different persons with different interests,
the drawer is liable only to the one whose bill is first accepted by the drawee.
The remedy of the other holder is against the payee.
Certified Check
It is an ordinary check that has already been accepted by a bank with money
set aside for it.
Eventually, banks stopped the practice of certifying checks and just issued
managers checks. The managers check is disadvantageous because in case
of insolvency of the bank, the holder is considered an unsecured creditor.
Bills in Set
A bill of exchange prepared with more than one copy. It facilitates payment
between persons on distant places. When one bill is lost, the other bills may
take its place.
24-Hour Clearing Process
A clearinghouse is a facility of the BSP for the convenient collection of checks
drawn on different banks but deposited in another bank.
43
44
CORPORATION LAW
What is a CORPORATION
A corporation is an artificial being, created by operation of law, having the right
of succession and the powers and attributes which are expressly conferred by
law or incidental to its existence. It is a juridical person.
Two Kinds of Persons
1. Natural
2. Juridical artificial beings that include the State, political
subdivisions, partnerships and corporations
PARTNERSHIP
CORPORATION
Manner of Creation
GR: By mere agreement of the parties. Need
- By law
not be in writing
- By operation of law
E:
- Pship Agreement must be in writing IF the
capital contribution exceeds P3000
- Pship Agreement must be in a public
instrument IF real property is contributed
regardless of amount. OTHERWISE, the pship
agreement is void
- A limited partnership is also not created by
mere agreement of the parties
Re: GOCCs
- GR: Created by law
- E: GOCCs created under the Corporation
Code (PNCC, CDCP)
45
FORMATION OF A CORPORATION
How to form a corporation (non/stock): File the AOI and other documents
required with SEC. (This can now be done online)
PRACTICAL MATTER: Dont make the documents of incorporation
first.
1. Check first the availability of the corporate name. Check the
telephone directory for similarity in name. If none exists, reserve
the name with the SEC (30d for P40, 60d for P80) where the
proposed name is pre-approved by SEC. SEC issues a Name
Verification Slip. Never lose it! Payment of the reservation fee
is stamped thereon.
2. Accomplish the AOI (in letter size). The forms are available in
SEC.
3. Submit the Treasurers Affidavit. It is not required that there be
authority to inspect the deposit and back certificate of deposit.
4. Include an Undertaking to Change the Corporate Name because
words can be spelled differently, and thus it must first be
determined whether there would be a similarity or confusing
similarity with existing names.
5. Registration Date Sheet form is available
Documents to be submitted to SEC:
1.) Name verification slip
2.) AOI
3.) Treasurers Affidavit
4.) Undertaking to change corporate name
5.) Registration Data Sheet
6.) By-laws (Optional, may be done at a later date)
What are the other requirements for Non-Stock Corporations
6. Modus Operandi, a short write-up on how it would be operating
46
47
eg Original par value of SMC shares was P10 each. In the 1980s,
the par value of P10 was split into P5 each. It has no effect on the
investor because he has the same amount of shares.
Rationale: In the stock market, you buy shares by lots (ODD LOT if
you buy less than a lot) for a minimum price. By splitting the shares
into shares with smaller values, then small investors are
accommodated by splitting the shares into more affordable shares.
eg Lot of 1000 shares would have a lesser price.
o What is a REVERSE STOCK SPLIT: Ayala Corp., the oldest Ph
corporation aside from UST, has an original par value of P1.
Subsequently, they combined 50 shares into 1 share. It also has no
effect on the holdings because the value of the shares is the same. Its
purpose is only for convenience.
o Is subscription required in ACS: Yes, At least 25% of the ACS must
be subscribed and 25% of such subscription must be paid-up
NOTE: Shares may have NO-PAR VALUE they are issued for value
of at least P5. All subscriptions to no-par value shares must always be
paid in full. Payment for no-par value shares is always capital
contribution; it cannot be used for the payment of dividends. Certain
corporations cant issue no-par value shares. Examples are banks,
insurance companies, trust companies, public utilities, building and loan
associations.
o FULL NAME OF THE SUBSCRIBERS, NATIONALITY, NUMBER OF
SHARES SUBSCRIBED, AND VALUE OF EVERY SUBSCRIPTION
o VALUE OF EVERY SUBSCRIPTION: Total of all subscription must be
25% of the ACS.
o SUBSCRIBERS.
It includes the non-incorporators
It is not limited to natural persons. Thus, they may be partnerships
or corporations, e.g. subsidiary and sister companies
There is no limit as to the number of subscribers
NON-STOCK CORPORATIONS
ARTICLE 7 NAMES OF CONTRIBUTORS OR DONORS AND
AMOUNT INDIVIDUALLY CONTRIBUTED TO THE CORP.
o In non-stock corporations, amount given is not paid-up but contributions
or donations.
o The contributors or donors must receive nothing in exchange of their
contributions
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For Rule 2, there must be evidence that the decisions were made
by the controlling SH alone.
What is the INSTRUMENTALITY RULE (Rule 4)
eg. Case of Concept Builders, Inc. A manufacturing corporation
(principal) was organized for the production of pipes. It organized a
subsidiary, CBI, for a construction business. The principal then
incurred liabilities to its laborers, who sued the principal and obtained
a favorable decision. The principal corporation had no properties and
thus the laborers levied on the properties of CBI. According to the
SC, CBI is only a subsidiary of the judgment debtor. The fact alone
that the principal and subsidiarys BOD comprise of the same
persons does not justify the piercing of corp. entity. The fact alone
that all but one of the officers of both is the same does not justify
the piercing of corp. entity. The fact alone that both share the same
office does not justify the piercing of corp. entity. BUT when these
circumstances are taken together, then it appears that CBI is a
mere instrumentality of the principal as it has no mind of its own.
Piercing must be the last resort and only when there is clear and
convincing evidence.
What are the rules regarding the doctrine of piercing the corp. veil
1. Mere ownership of the controlling interest of a stockholder does not
necessarily oblige him to pay the debts of the insolvent corp.
2. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that the corp. is only an alter
ego of the controlling stockholder.
3. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that the corporation was
purposely organized for fraud or tax evasion or to defeat public
convenience.
4. The separate personality of the corporation may be disregarded if
there is clear and convincing evidence that of two corporations, one is
a mere instrumentality of the other.
How to reconcile numbers 1 and 2: Evidence required for either is
different!
49
CORPORATION BY-LAWS
It can be filed with the AOI and other incorporation documents, in which
case, it must be signed by all of the incorporators
If it is not filed with the AOI, then if must be filed within one month from
the issuance of the Cert. of Reg., and in which case, it may be signed by
at least the majority of the incorporators
What doe the By-laws contain
1. Meetings of stockholders or members
2. Directors
3. Officers
4. Stock Certificates for stock corporations
5. Corporate seal
6. Amendments of the AOI and BLs
*You can add others but these six are mandatory!
1.
MEETINGS
a. ANNUAL OR REGULAR MEETINGS
b. SPECIAL MEETINGS
These are called by the president.
MANDATORY: WRITTEN NOTICE of the Date and Matters to be
taken up BECAUSE the SHs are not aware of the same. Law
requires a call. There must be a written notice at least 10 days
before the scheduled meeting.
Importance of Notice on Agenda: No other matter can be taken
up without the consent of all present
c. VENUE OF MEETINGS
Meetings are held in the principal office or, if it is not big enough,
then elsewhere in the city or municipality of the principal office
Practical Note: Bring the proxy (written authority) with him. Go to the
corp. and present the written authority to the corp. secretary before
the meeting. The corsec will compare the signature thereon with the
signature of the SH in the corp.s specimen card to verify its
genuineness.
Are proxies revocable? YES, proxies may be revoked, expressly or
impliedly, at ANYTIME, UNLESS the proxy is issued pursuant to a
contract (eg Loan secured by shares)
EXPRESS REVOCATION: When the SH himself attends the meeting
after informing the proxy.
IMPLIED REVOCATION: When the SH, without telling the proxy,
attends the meeting himself
What is the TERM OF PROXY:
- Proxies are valid just for one meeting, as stated in the proxy itself.
- If proxies are issued for a PERIOD, the period must not exceed five
years, renewable upon expiration for another five years.
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o
o
o
o
o
o
Proxy
1. Available in both stock and non-stock
corporations.
2. Private instrument is sufficient
3. Filed with the Corporate Secretary
4. No delivery of stock certificate to the
proxy
1.
2.
3.
4.
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2.
DIRECTORS
Who can be a director? A director must have all the qualifications provided in
law and by-laws and none of the disqualifications provided in the law and BLs.
What are the QUALIFICATIONS OF A DIRECTOR (CORP. CODE)
1. He must own at least one share (stock) or be a member (non-stock)
If the director whose term expires is reelected, his new term would be five
years.
When are there VACANCIES IN THE BOARD
Death, Resignation, Incapacity, or Removal
How to FILL VACANCIES DUE TO DEATH, RESIGNATION,
INCAPACITY: There are two ways. The expensive way is to call a
special SHs meeting. The inexpensive way is for the directors
themselves to fill the vacancy IF the remaining directors still constitute
a quorum.
What is the FUNCTIONS OF THE BOD: BOD sets the policies of the
corporation, which is implemented by the officers.
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3.
OFFICERS
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4.
STOCK CERTIFICATES
5.
6.
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CORPORATE SHARES
What are PREFERRED SHARES: Shares which enjoy priority or preference
over common stocks
eg Preference in the distribution of dividends or assets. (Preference
in dividends normally includes preference in assets)
4.
5.
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DIVIDENDS
What are DIVIDENDS: These are earnings of the corporation.
Who can DECLARE DIVIDENDS: Only the BOD and only when they are
acting as such (and not as an executive committee), and only when there is
surplus profits.
When to declare dividends: Only when the corporation has surplus profits.
NOTE: According to the SC, no court can order the corporation to
declare dividends, which is an exercise of business judgment. No law
requires the declaration of dividends BUT the corp. should not retain
earnings in excess of 100% of its paid up capital.
SURPLUS v. EXCESS: Surplus is what is outside the hand when it
touches a boob. Excess is the other boob.
Re: Treasury Shares: These are issued by the corp. but later on
reacquired in its own name, as when its prices are down. It can
be used as property dividends BUT it must be ratified by 2/3 of
the outstanding common shares. It is not distributed as stock
dividends because stock dividends are distributed from the
unissued shares.
Stock Dividends Distribution requires Declaration by the BOD and
Ratification by 2/3 of the outstanding common stocks. Vote of the
preferred shares are not included because they are not affected.
*Why is ratification required: Common SHs will suffer a dilution of their
investments.
What are WATERED STOCKS: These are shares of stock that are issued by
the corporation, but for which shares, the corporation did not get the full fair
value.
What are SURPLUS PROFITS: It is net profits after income tax, without any
impairment or diminution of paid-up capital.
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4.
5.
What is the FAIR VALUE OF THE SHARES: It can either be the par value
(which remains constant), or book value or market value (which fluctuates).
(Charles: Average of market value and book value)
What is the BOOK VALUE:
Total Assets
Less: Total Liabilities
----------------------------------------Net Worth
Number of Shares
-----------------------------------------Book Value
TREASURY SHARES
When do shares become treasury shares:
When the corporation eliminates fractional shares in dividends, as when
the shares have a value of less than one whole share
When the corporation bids for its own shares in delinquency sale
Do treasury shares have rights: NO, treasury shares have no voting rights or
right to receive dividends because the corporation itself cannot vote or receive
dividends.
What is the NATURE OF TREASURY SHARES: These are assets of the
corporation.
Is it good for a stockholder that a corporation has treasury shares: YES
DELINQUENCY SHARES
When are shares delinquent: When the corporation calls for payment of the
unpaid subscription and the SH fails to pay
What are UNPAID SUBSCRIPTIONS: If the SH is unpaid on the
entire amount of subscription. There cannot be an unpaid amount on
the total number of shares BECAUSE subscriptions are indivisible.
What is a CALL: Demand for payment
What are the REMEDIES OF A CORP. AGAINST DELINQUENCY
1. Bring an action for specific performance to collect the unpaid amount
(which is an intra-corporate dispute)
2. Sell the delinquent shares in a public auction (in a delinquency sale). This
remedy is unique as the bid is only for the amount demanded by the
corporation for the least number of shares the bidder is willing to receive
for said amount
a. eg Value of delinquency shares is P100k covering 100 shares.
Bidder A bids P100k for 100 shares. Bidder B bids for P100k for
75 shares. Bidder C bids for P100k for 50 shares. Bidder C
wins. The difference between the value of the 50 shares won by
C and the value of the other 50 shares belongs to the delinquent
subscriber.
b. What if there is no bidder: The corp. may bid if it has sufficient
surplus.
NOTES:
When there is a definite date, no demand needed for it to become
delinquent.
If down payment, balance is payable on call. Call is a demand, formal
demand to pay balance under the Corporation Code. If not paid, becomes
delinquent.
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Consequences of Delinquency
1.) Delinquent subscriber shall have no voting rights.
2.) Wont receive cash dividends, they are applied to unpaid subscription.
3.) If property or stock dividend, they are withheld.
1.
2.
3.
4.
5.
6.
7.
8.
9.
OF
THE
ARTICLES
OF
MERGER
OR
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DISSOLUTION OF CORPORATIONS
What are the CAUSES OF DISSOLUTION
1. Expiration of the term
2. Cancellation of the Certificate of Registration of the Corporation by
SEC for the following reasons
a. Failure to file the by-laws within thirty days from the issuance
of the cert. of reg.
b. Failure to organize within two years from the issuance of the
cert. of reg.
c. Failure to carry out its primary purpose for at least five years
d. Failure to comply with the reportorial requirements of SEC
3. Order of Dissolution by the court upon finding that it is insolvent or
organized purposely to commit fraud
NOTES:
Liquidating dividend to the extent of return of capital, no tax, but any increase
is taxable.
Under the ROC, two years to file claim against estate. In case of dissolved
corporations, 3 years. Within this period corporate property is transferred to
trustee.
NOTES:
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
What happens upon dissolution: WINDING UP OR LIQUIDATION
PROCESS
How long is the winding up process: Only god knows
How are the assets liquidated: The claims would be paid from the
residual assets.
How are RESIDUAL ASSETS DISTRIBUTED
o Stock: Distribute first to the preferred SHs with preference as
to assets. If the assets are insufficient, they are pro-rated
among the preferred SHs, and then to the common SHs.
o Foundation: Residual assets are normally escheated to the
govt as a condition by the BIR for its tax exemption.
o Non-Stock: Members share in the residual asset.
What are LIQUIDATING DIVIDENDS: What the SHs receive as their share in
the residual assets of the dissolving corporation.
What is the INCOME OF THE CORP.: Excess of the return of capital, and not
the mere return of capital.
What are DIVIDENDS: These are fruits, but not natural, industrial, or civil fruits
(under property) but classified as other fruits.
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CORPORATION SOLE
What is a CORPORATION SOLE: It is a corporation organized by one
person, who is the head of a religious sect or denomination.
eg Catholic Church, Iglesia ni Kristo, Lutherans, Mormons. El Shaddai
is not a corporation sole because its preaching is the same as the
Catholic Church.
What is unique about it: There is no board of directors. THUS, to protect its
members, any disposition or encumbrance of real property requires judicial
approval.
EDUCATIONAL CORPORATIONS
What are ECs: It could be a stock or non-stock corp. Before, under the
Education Act of 1982, all must be organized as a non-stock corporation. But
such requirement did not apply to previous corporations because of vested
rights.
Stock Educational Corporations: FEU; Ph Womens University; CEU;
University of Pangasinan; NU; MAPUA; Univ. of Manila
Non-Stock ECs: Sectarian schools
What is unique about it: The law provides that:
- its BOD must be in multiples of five
- the term of the directors is five years, BUT the term of the first batch
is the agreed term that must be staggered and thus such terms
expire one after another
CLOSE CORPORATIONS
How do you know if a corporation is close: If the AOI provides that:
the number of shareholders should not exceed twenty, or
the shares should never be listed in any exchange, or
in case any shareholder would transfer his shares, then he must first
offer to transfer the same to the other shareholders under the same
terms and conditions that he would offer to non-shareholders. The
offer must have a term (and not an open term), eg 30d only to
acquire the shares of the SH.
Where must these conditions appear to bind the transferees: The limit on
the transferability of shares must appear in the AOI, the by-laws, and the
stock certificate. If restriction on transferability does not appear in stock
certificates but transferee was not informed of restriction, restriction does not
apply to him.
Who MANAGES A CLOSE CORPORATION:
BOD
o If there is a deadlock, a Petition for Appointment of a Provisional
Director must be filed in court.
o Who is a PROVISIONAL DIRECTOR: He is appointed by the
court to sit in the BOD of a close corporation to resolved a
deadlock therein. The provisional director need not comply with
the qualifications of the BOD.
o Who may be appointed a provisional director: One who has
absolutely no interest in the corp. He must not own a share and
may not be a creditor.
o What is the term of the provisional director: As long as he is
needed
Directly by the SHs themselves
o There is no need for an annual meeting because the most
important agenda thereof is the election of the BOD anyway
because none.
OTHER NOTES
Domestic Corporation one organized on the Philippines regardless of
nationality of organizers
Foreign Corporation one organized in another country, even if organized by
Filipinos.
Foreign Corporation may engage in business in the Philippines if it meets the
following requirements:
1.) Register with the SEC as a foreign corporation it must give certified
true copies of all incorporation documents in country of origin. If not in
English, with official translation in English.
2.) Inward remittance at the amount of prescribed capitalization.
3.) Appointment of a resident agent.
In case of bidding, must already be registered as a foreign corporation.
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When redeemable, corporation reserves the right to buy back shares after a
certain period. Option is with the corporation. It cant be forced to buy back
shares. Redemption is a right and not a duty.
THUS, if you want to buy or sell shares, you can transact in a matter
of seconds. Where there is no market and you need eggs, you would
have to look for people who sell eggs.
3.
4.
5.
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What are EXEMPT TRANSACTIONS: May require prior registration, but may
apply for exemption. Its types are Certificated or Uncertificated
UNCERTIFICATED
- When securities bought are sold as soon
as the prices go up
- These are paperless securities, where
ownership is evidenced by electronic
records only. Records are also kept by the
PSE, the broker, and the salesman, thus, it
is not entirely paperless
- The broker prepares a PURCHASE
CONFIRMATION
or
SALE
CONFIRMATION, showing the number of
shares bought or sold, the price, and
from/to
what
company
it
was
purchased/sold, and the commission
- Easier to sell
CERTIFICATED
- When securities are bought or sold to
build up stock ownership; it is a long-term
plan
- Stock ownership is covered by
certificates of stock
- It takes longer to sell because certificated
stock ownership cannot be sold right away
as the broker must have these certificates
validated first (which takes 5 days)
PERSONS ASSOCIATED
WITH BROKER
Acts for clients always
Earns commissions
Does not invest its own money
DEALER
Acts for its own account, for itself
Males profits and suffers loss
Invests its own money
Who are SALESMEN: Persons representing stock brokers inside the trading
floor of the PSE and accepting orders for buying or selling from clients of the
broker. They also get a license, but a license is issued to salesmen is also
only for a specific broker
Note: All transactions in the PSE are conducted through the telephone
Note: The trading hours of the PSE is from 0930-1200, 1300-1530. It is
the time when you can buy or sell shares through the exchange
Note: Where do you find brokers? In their offices!
Note: All participants except investors are licensed. Licensing is annual.
2.
The salesman, who has a cubicle in the PSE, then makes a post of
the shares that a client wants to buy or sell, in the computer of the
PSE. Orders to buy are then matched with orders to sell. Once they
are matched, the orders are removed in the computer.
Q: If shares are listed in the PSE, can you still sell directly to the buyer or buy
directly from the seller? YES, OVER-THE-COUNTER TRANSACTIONS are
allowed! It is the buying or selling of shares listed in the PSE but made directly
between the parties and no longer coursed through the exchange.
ADVANTAGE:
- The buyer does not have to pay the brokers commission and stock
transfer tax, and the seller only pays CGT (if there is gain) and DST.
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Capital Market payment period is over a year but less than 5 years
Bond Market payment period is more than 5 years
Stock Market Source of funds for equity participation
Money market placements are made through a bank. A bank finds funds
through time depositors (usually) and after getting their consent, the amount is
loaned to the borrower. The bank is a mere intermediary.
Licensing persons associated with broker may only use the license with a
particular broker. If you move between brokers, you must get a new license.
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OPEN: The price paid for the very first transaction of the day
It then merges with the doorman corporation and in the merger, it is the
doorman corporation that survives.
Example: Case of Urban Development Bank and EI Bank. Urban
Bank was a universal bank whose shares are listed. UB, however,
could no longer comply with the increased paid up capital requirement
of the BSP and it thus downgraded to a commercial bank. The result
was a bank run and holiday; it never reopened until the EI Bank
wanted its own shares to be listed and thus acquired and merged with
UDB. UDB was the surviving corp. but its name was changed to
Export and Industry Bank.
CLOSE: The price paid for the last transaction of the day
LOW: The lowest price in between the trading hours
What are CLASS A and CLASS B SHARES: Class B shares are more
expensive BUT they are exactly the same and identical shares. They are
classified to comply with the citizenship requirement of the Constitution and
only for the purpose of monitoring stock ownership.
eg MERALCO, which is engaged in public service, classified its
shares into Class A and B. Class A shares comprise 60% and are
allowed only for Filipinos. Class B shares comprise 40% and are sold
to aliens. Class B shares are more expensive because there are less
of it and thus the law of supply and demand.
FINAL NOTE: 09178012694. Text Sir for questions and, most importantly,
when we pass the Bar
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