Commercial Law Pre-Week Discussions by Atty. Ella Escalante Take note of the following intellectual property cases: Republic Gas Corporation vs. Petron Corporation, et. al. GR No. 194062 June 17, 2013 Facts Petron is the registered owner of the trademark GASUL and GASUL cylinders used for its LPG products. Shell is the authorized user of the tradename, trademarks, symbols or designs of its principal, Shell. International Petroleum Company Limited, including the marks SHELLANE and SHELL device in connection with the production, sale and distribution of SHELLANE LPGs. The LPG Dealers Association received reports that certain entities were engaged in the unauthorized refilling, sale and distribution of LPG cylinders bearing registered trade names and trademarks of Petron and Shell. The National Bureau of Investigation acted upon the letter-complaint of Petron and Shell and conducted an undercover operation wherein several NBI agents posed as customers of these LPG refillers, including Republic Gas Corporation (REGASCO). After the agents had their empty LPG containers refilled by REGASCO, they were able to obtain a warrant to search REGASCO’s premises and confiscate several empty and filled SHELLANE and GASUL cylinders. After searching the premises of REGASCO, they were able to seize several empty and filled Shellane and Gasul cylinders as well as other allied paraphernalia. The NBI lodged a complaint in the Department of Justice against the private respondents for alleged violations of Sections 155 and 168 of Republic Act (RA) No. 8293, otherwise known as the Intellectual Property Code of the Philippines. The Department of Justice dismissed the complaint contending that refilling of the marked cylinders does not constitute an offense in itself and the consumers knew that cylinders did not come from Petron nor Shell after being re-filled by REGASCO. On appeal, the Secretary of the Department of Justice affirmed the prosecutor’s dismissal of the complaint. In this case, the end-users know fully well that the contents of their cylinders are not those produced by complainants. And the reason is quite simple – it is an independent refilling station. Dispensing with the filing of a motion for reconsideration, Petron and Shell sought recourse to the CA through a petition for certiorari. As GRANTED, the DOJ Resolution was reversed and set aside. REGASCO filed a Motion for Reconsideration but it was denied. Hence, the Instant Petition for Review on Certiorari was filed with the Supreme Court.
Issue • Whether probable cause exists to hold petitioners liable for the crimes of trademark infringement and unfair competition as defined and penalized under Sections 155 and 168, in relation to Section 170 of Republic Act (R.A.) No. 8293. Held Yes. The Court found REGASCO liable not only for trademark infringement as defined under Section 155.1 but also unfair competition under Section 168.3 of R.A. No. 8293. Section 155. Remedies; Infringement. – Any person who shall, without the consent of the owner of the registered mark: (155.1) Use in commerce any reproduction, counterfeit, copy or colorable imitation of a registered mark of the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; Trademark infringement, which consists of the unauthorized use of a container bearing a registered trademark in connection with the sale, distribution or advertising of goods and services which is likely to cause confusion, mistake or deception among the buyers or consumers, was present in this case as REGASCO refilled the marked containers without Petron and Shell’s consent. Unfair Competition Section 168.3. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall be deemed guilty of unfair competition: (a) Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or The deceit exists when REGASCO refilled and sold its LPG containers bearing the registered marks of Petron and Shell. The Court observed that the consumers may be misled into believing that the LPGs contained in the cylinders bearing the marks GASUL and SHELLANE are those goods or products of REGASCO when, in fact, they are not. Well-Known Mark and the Theory of Dilution YKK Corporation vs. Ernesto Yu Keping The theory of dilution of mark is not a new concept, in fact, this theory has been recognized by no less than the Supreme Court in this jurisdiction. In the case of LEVI STRAUSS & CO., V5. CLINTON APPARELLE, INC. , the Supreme Court explained:
"Trademark dilution is the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of: (1) competition between the owner of the famous mark and other parties; or (2) likelihood of confusion, mistake or deception. Subject to the principles of equity, the owner of a famous mark is entitled to an injunction "against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark." “This is intended to protect famous marks from subsequent uses that blur distinctiveness of the mark or tarnish or disparage it” INSURANCE POP Test to determine whether there is an insurance contract: 1. Principal 2. Object 3. Purpose Are HMOs engaged in the insurance business? Look into the purpose so you’ll be able to determine if it is engaged in the insurance business or not. They are not. The do not insure risks. They are only obliged to pay their clients in health matters, even if such person is healthy. Characteristics of an insurance contract: 1. Personal – generally, insured and insurer are the ones privy to the contract 2. Indemnity contract – only concerning property insurance, as insured claims the actual value of the loss incurred; exception is when the creditor can insure the life of the debtor but only to the extent of the debt. 3. Voluntary (except CMVLI) 4. Risk-distributing device Parties 1. Insurer 2. Insured – except public enemies (only in times of war) 3. Beneficiary 2 Rules concerning beneficiaries: 1. Insurance over one’s own life – the beneficiary can be any one the insured can designate, except those prohibited under Article 739 NCC. Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action. 2. Insurance over another person’s life – the designation of the said person as insured should be coupled with insurable interest. Designation of Illegitimate child is allowed to claim proceeds if he is designated as the beneficiary of the insured. Cognition Theory as to the perfection of insurance contracts – when the insurer had knowledge of the approval of the policy by the applicant insured, the policy becomes effective. Revocable vs. Irrevocable designation of beneficiary (Effects) Irrevocable designation of the beneficiary – revocation needs consent of the insured; insured cannot take out a loan and cannot take the cash surrender value nor add beneficiaries without concurrence of the insured. Insurable Interest In Property Inchoate interest or expectancy of acquisition is not a ground for insurable interest to exist. There must be existing interest at the time of the application of a policy, as well as during the time of loss. Mortgage in Relation to Insurable Interest Does the mortgagor have insurable interest over the property of the insured? How about the mortgagee? Both yes. Will there be double insurance at that instance? No. For double insurance to happen, there must be the same insured, same property is the source of the same insurable interest, although there are different insurers. Here, there are two different persons being insured, the mortgagor and the mortgagee. Problem: SMART insured the life of its CEO. The CEO subsequently retired. After a few months from retirement, the CEO died. At this point, can SMART claim the proceeds of the life insurance on the life of the CEO? Yes. SMART has insurable interest on the life of the CEO at the time the policy was taken. It need not exist at the time of the loss. Property Insurance Interest must exist at the time the policy was taken as well as at the time of the loss. There must be a basis for insurable interest.
Beneficiary must always have insurable interest over the property so as to secure a policy. Cash-and-Carry Provision No premium payment, no policy becomes effective. The payment of premium is a must before a contract of insurance becomes effective. Exceptions (ALICE) 1. Acknowledgement of receipt of payment of premiums 2. Life/Accident policy – whenever the grace period applies 3. Installment payments on premium was agreed upon 4. Credit extension was agreed upon by the parties; now should not exceed 90 days 5. Estoppel Problems: Payment using a post-dated check with the check being dated prior to the loss : The policy is deemed to be effective and the insured is covered at the time of the loss. Payment using a post-dated check with the check being dated after the loss : The Policy is not effective yet, hence, the insured cannot claim indemnity for the loss. If the Check bounced : The insured promised to replenish the money, but the loss occurred prior to the deposit of such money, the policy is not in effect. When can there be return of premiums? (possible MCQ) Sec. 79. A person insured is entitled to a return of premium, as follows: (a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; (b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law. Sec. 80. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned. Sec. 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.
Sec. 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. Risk Control Devices 1. Concealment 2. Representation 3. Warranties 4. Exceptions 5. Conditions Concealment – good faith is never a defense; cause of death need not be the fact concealed in life insurance; test to determine materiality is determined by the probable influence the fact concealed may have to the insurer as to deciding whether or not to agree to issue a policy to the insured for the premium agreed upon. Incontestability Clause When the policy had been in force for two years since the date of effectivity or from the date of reinstatement, the insurer can no longer say that the policy is voidable due to concealment. Defenses not barred by the Incontestability Clause: MVP - PPIE 1. Military service prohibition 2. Vicious fraud 3. Prescription has set in 4. Proof of death 5. Payment of premium has not been done 6. Insurable interest is lacking at the time of loss 7. Excepted risk is the cause of death/injur/loss Reinsurance – the insurer seeks to be insured in the process of insuring a policy. (Insurer is being insured by another insurer, thus there cannot be double insurance since the insurer’s interest is different from the insured.) For what losses will the insurer be liable? 1. When the proximate cause of the loss is the risk insured against 2. When the immediate cause is a risk insured against, except when the proximate cause of he loss is an excepted risk 3. Loss is caused by negligence of the insured, except if the negligence is willful or gross. 4. Losses are those for which the insured shall not be liable as per stipulation 5. Connivance between the insurer/agent and the insured Marine insurance Perils of the sea – hazards of navigation in the sea Perils of the ship – hazards incurred by the ordinary wear and tear of the vessel All-risk Policy – both perils of the sea and perils of the ship are covered.
Seaworthiness - For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Constructive Loss – the threshold is that more than ¾ (76% at least) of the value shall be lost or damaged beyond salvage. CMVLI – No-Fault Clause is no PhP15,000.00. (No need to prove injury, the person injured can make the claim immediately, and need not sign a quitclaim.) Authorized Driver’s Clause – if the person driving is other than the owner of the vehicle, the driver must be licensed to drive and authorized by the owner. What is the authorized driver clause? It indemnifies the insured owner against loss or damage to the car but limits the use of the insured vehicle to: 1. The insured himself; or 2. Any person who drives on his order or with his permission. (Villacorta v. Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980) What is the main purpose of an authorized driver clause Its main purpose is to require a person other than the insured, who drives the car on the insured’s order, such as, his regular driver, or with his permission, such as a friend or member of the family or the employees of a car service or repair shop to be duly licensed drivers and have no disqualification to drive a motor vehicle. (Villacorta v. Insurance Commission, G.R. No. L-54171, Oct. 28, 1980) Can a person who committed suicide be covered by his/her life insurance? Yes, if the insurance is already more than 2 years old (incontestability clause). However, in the instance when the incontestability clause has not yet taken effect, the suicide victim can still be covered if the suicide was done under a state of insanity. Sec. 180-A. The insurer in a life insurance contract shall be liable in case of suicides only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission. NIL
Parties in general to a negotiable instrument Maker Payee Drawer Indorse General Rule: Persons who sign in the NI are liable thereon based on the nature of the signature them make. How is a NI indorsed? (ABC) 1. Allonge – a separate instrument whereby the person signing thereon agrees to indorse. 2. Bearer instrument is delivered with intent to negotiate 3. Constructive acceptance Grounds which preclude those signing the instrument from denying liability thereon (FAT) 1. Forgery precluded by being raised as a defense by the signatory 2. Agent is signing on behalf of his principal 3. Trade/Assumed name is used in signing, and such person is generally known by that name. Rescue Doctrines/Sections of the NIL MEMORIZE AND MASTER SECTION 1 NIL Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. Incomplete and Undelivered
Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. Complete and Delivered/Complete but Undelivered Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Holder in Due Course Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Sec. 53. When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Shelter Rule Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. What Constitutes Material Alteration? Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. Sec. 125. What constitutes a material alteration. - Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.
Requisites of Negotiability – Section 1 An instrument is negotiable if it complies with the requisites of Section 1 NI (for brevity). Promissory Note – unconditional promise to pay in writing made by one person to anther, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to maker’s own order, it is not complete until indorse by him. (Sec. 184 NIL) Parties: 1. maker 2. payee Bill of Exchange – unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL) Parties: 1. drawer
2. payee 3. drawee/ acceptor Negotiable Instruments
Non-negotiable Instruments
Contains all the requisites of Sec. 1 of the NIL
does not contain all the requisites of Sec. 1 of the NIL
Transferred by negotiation
transferred by assignment
Holder in due course may have better rights than transferor
transferee acquires rights only of his transferor
Prior parties warrant payment
prior parties merely warrant legality of title
Transferee has right of recourse against intermediate parties
transferee has no right of recourse
Requisites of a Negotiable Note (PN): (SUDO) It must: a. be in writing signed by the drawer b. contains an unconditional promise or order to pay a sum certain in money c. be payable on demand or at a fixed determinable future time d. be payable to order or to bearer (Sec. 1 NIL) Requisites of a Negotiable Bill (BOE): (SUDOC) It must: a. be in writing signed by the drawer b. contains an unconditional promise or order to pay a sum certain in money c. be payable on demand or at a fixed determinable future time d. be payable to order or to bearer e. the drawee must be named or otherwise indicated with reasonable certainty (Sec. 1 NIL) In order to be negotiable, there must be a writing of some kind, else there would be nothing to be negotiated or passed from hand to hand. The writing may be in ink, print or pencil. It may be upon parchment, cloth, leather or any other substitute of paper. It must be signed by the maker or drawer. It may consist of mere initials or even numbers, but the holder must prove that what is written is intended as a signature of the person sought to be charged. The Bill must contain an order, something more than the mere asking of a favor. Sum payable must be in money only. It cannot be made payable in goods, wares, or merchandise or in property.
-
A drawee’s name may be filled in under Section 14 of the NIL
Determination of negotiability -
by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof by considering the whole instrument by what appears on the face of the instrument and not elsewhere
*In determining is the instrument is negotiable, only the instrument itself and no other, must be examined and compared with the requirements stated in Sec. 1. If it appears on the instrument that it lacks one of the requirements, it is not negotiable and the provisions of the NIL do not govern the instrument. The requirement lacking cannot be supplied by using a separate instrument in which that requirement which is lacking appears. CHECK
BOE
- always drawn upon a bank or banker
- may or may not be drawn against a bank
- always payable on demand
- may be payable on demand or at a fixed or determinable future time
- not necessary that it be presented for acceptance
- necessary that it be presented for acceptance
- drawn on a deposit
- not drawn on a deposit
- the death of a drawer of a check, with knowledge by the banks, revokes the authority of the banker pay
- the death of the drawer of the ordinary bill of exchange does not
- must be presented for payment within a reasonable time after its issue (6 months)
- may be presented for payment within a reasonable time after its last negotiation.
Fictitious Payee Rule A non-living or non-existing person is named as payee. Jurisprudence held that EVEN IF THE PAYEE INDICATED THEREIN IS A PERSON KNOWN, but such fact was unknown to him and his being named as payee was without his authority, the designation of the payee is still considered as a fictitious payee. Periods or events that are certain to happen: 1. Death 2. Season Holder in Due Course
EVERYONE IS PRESUMED to be a holder in due course. (General Rule yan!) Sec. 59: Every holder is presumed prima facie to be a holder in due course Exception: “but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course.” Exception to the exception: “But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.” Crossed Check Effects: 1. check may not be encashed but only deposited in bank 2. may be negotiated only once, to one who has an acct. with a bank 3. warning to holder that check has been issued for a definite purpose so that he must inquire if he received check pursuant to such purpose, otherwise not HDC Kinds: 1. general (no word between lines, or “co” between lines) 2. special (name of bank appearing between parallel lines)
Subsequent Holder in Due Course not affected by the following deficiencies: a. incomplete but delivered instrument (Sec. 14 NIL) b. complete but undelivered (Sec. 16 NIL) c. complete and delivered issued without consideration or a consideration consisting of a promise which was not fulfilled (Sec 28 NIL) Holder in Due Course Affected by Abnormality/Deficiency: a. incomplete and undelivered instrument (Sec. 15 NIL) b. maker/drawer’s signature forged (Sec. 23 NIL) Incomplete but Delivered Instrument: 1. Where an instrument is wanting in any material particular: a. Holder has prima facie authority to fill up the blanks therein. b. It must be filled up strictly in accordance with the authority given and within a reasonable time. c. If negotiated to a holder in due course, it is valid and effectual for all purpose as though it was filled up strictly in accordance with the authority given and within reasonable time. (Sec. 14 NIL) 2. Where only a signature on a blank paper was delivered: It was delivered by the person making it in order that it may be converted into a negotiable instrument The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)
Notes on Section 14 if the instrument is wanting in material particular, mere possession of the instrument is enough to presume prima facie authority to fill it up. material particular may be an omission which will render the instrument nonnegotiable (e.g. name of payee), an omission which will not render the instrument non-negotiable (e.g. date) in the case of the signature in blank, delivery with intent to convert it into a negotiable instrument is required. Mere possession is not enough. Incomplete and Undelivered Instrument: General Rule: Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder against any person who signed before delivery. (Sec. 15 NIL) Notes -
on Section 15 it is a real defense. It can be interposed against a holder in due course. delivery is not conclusively presumed where the instrument is incomplete defense of the maker is to prove non-delivery of the incomplete instrument.
Complete but Undelivered: General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for the purpose of giving effect thereto. a. If between immediate parties and remote parties not holder in due course, to be effectual there must be authorized delivery by the party making, drawing, accepting or indorsing. Delivery may be shown to be conditional or for a special purpose only b. If the holder is a holder in due course, all prior deliveries conclusively presumed valid c. If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until the contrary is proven (Sec. 16 NIL)
General rule: a signature which is forged or made without authority is wholly inoperative. Effects: 1. no right to retain 2. no right to give a discharge 3. no right to enforce payment can be acquired. (Sec. 23 NIL) Exception: the party against whom it is sought to be enforced is precluded from setting up the forgery or want of authority. Notes on Section 23 Section 23 applies only to forged signatures or signatures made without authority Alterations such as to amounts or like fall under section 124
Forms of forgery are a) fraud in factum b) duress amounting to fraud c) fraudulent impersonation Only the signature forged or made without authority is inoperative, the instrument or other signatures which are genuine are affected The instrument can be enforced by holders to whose title the forged signature is not necessary Persons who are precluded from setting up the forgery are a) those who warrant or admit the genuineness of the signature b) those who are estopped. Persons who are precluded by warranting are a) indorsers b) persons negotiating by delivery c) acceptors. drawee bank is conclusively presumed to know the signature of its drawer if endorser’s signature is forged, loss will be borne by the forger and parties subsequent thereto drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank. Where the payee’s signature is forged, payments made by the drawee bank to collecting bank is ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. Drawee bank may recover from collecting bank who may in turn recover from the person depositing. Rules on liabilities of parties on a forged instrument In a PN a party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder a party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held liable by a holder in due course provided that it was mechanically complete before the forgery a maker whose signature was forged cannot be held liable by any holder In a BOE the drawer’s account cannot be charged by the drawee where the drawee paid the drawer has no right to recover from the collecting bank the drawee bank can recover from the collecting bank the payee can recover from the drawer the payee can recover from the recipient of the payment, such as the collecting bank the payee cannot collect from the drawee bank the collecting bank bears the loss but can recover from the person to whom it paid if payable to bearer, the rules are the same as in PN. if the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the forger if the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or the recipient of the proceeds, absence any act of negligence on their part.
Warranties of a general indorser: 1. the instrument is genuine and in all respect what it purports to be 2. the he has good title to it 3. all prior parties had the capacity to contract 4. that the instrument at the time of his indorsement was valid and subsisting (Sec. 66 NIL) In addition: engages that the instrument will be accepted or paid or both according to its tenor on due presentment engages to pay the amount thereof if it be dishonored and the necessary proceedings on dishonor are taken Notes on Section 66 the indorser under Section 66 warrants the solvency of a prior party the indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant of that fact or not. warranties extend in favor of a) a HDC b) persons who derive their title from HDC c) immediate transferees even if not HDC the indorser does not warrant the genuineness of the drawer’s signature general indorser is only secondarily liable CUT OFF RULE : the transaction is effectively interrupted upon the happening of the forgery. Parties affixing their signature prior to the forgery cannot be liable to parties who get hold of that instrument after the forgery. FORGERY: real (lack of consent): 1. forged 2. made without authority of person whose signature it purports to be. General Rule: 1. wholly inoperative 2. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be acquired through or under such signature (unless forged signature unnecessary to holder’s title) Exception: unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of authority precluded: 1. parties who make certain warranties, like a general indorser or acceptor 2. estopped/negligent parties
Personal Defenses
Real Defenses
1. absence or failure of consideration
Alteration
2. want of delivery of complete instrument
Want of delivery of incomplete instrument
3. insertion of wrong date where
Duress amounting to forgery
payable at a fixed period after date and issued undated; or at a fixed period after sight and acceptance is undated 4. filling up the blanks contrary to authority given or not within reasonable time
Fraud in factum or in esse contractus
5. fraud in inducement
Minority
6. acquisition of the instrument by force, duress or fear
Marriage in case of a wife
7. acquisition of the instrument by unlawful means
Insanity where the insane person has a guardian appointed by the court
8. acquisition of the instrument for an illegal consideration
Ultra vires acts of a corporation where its charter or by statue, it is prohibited from issuing commercial paper
9. negotiation in breach of faith
Want of authority of agent
10. negotiation under circumstances amounting to fraud
Execution of instrument between public enemies
1.
Mistake
12. intoxication
Illegality of contract made by statue Forgery
13. ultra vires acts of corporations 14. want of authority of the agent where he has apparent authority 15. illegality of contract where form or consideration is illegal 16. insanity where there is no notice of insanity INDORSEMENT OF BEARER INSTRUMENT - Where an instrument payable to bearer is indorsed specially, it may nevertheless be further negotiated by delivery - Person indorsing specially liable as indorser to only such holders as make title through his indorsement An instrument is negotiated when: 1. it is transferred from one person to another 2. that the transfer must be in a manner as to constitute the transferee a holder For a bearer instrument – by delivery For payable to order – by indorsement and delivery (Sec. 30 NIL)
Indorsement to be must be: 1. written 2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL) Notes on Section 31 the paper attached with the indorsement is an allonge an allonge must be attached so that it becomes a part of the instrument, it cannot be simply pinned or clipped to it. Kinds 1. 2. 3. 4. 5.
of Indorsements: Special (Sec. 34) Blank (Sec. 35) Restrictive (Sec. 36) Qualified (Sec. 38) Conditional (Sec. 39 NIL)
Effects of indorsing an instrument originally payable to bearer: it may further be negotiated by delivery the person indorsing is liable as indorser to such persons as to make title through his indorsement (Sec. 40 NIL) Notes on Section 40 Section 40 applies only to instruments originally payable to bearer It cannot apply where the instrument is payable to bearer because the only or last indorsement is in blank. A holder may strike out any indorsement which is not necessary to his title. Effects: An indorser whose indorsement is struck out is discharged All indorsers subsequent to such indorser who has been discharged are likewise relieved. (Sec. 48 NIL) Effects of a transfer without endorsement: the transferee acquires such title as the transferor had the transferee acquires the right to have the indorsement of the transferor negotiation takes effect as of the time the indorsement is actually made (Sec. 49 NIL) Restrictive indorsement - prohibits further negotiation of instrument, - constitutes indorsee as agent of indorser, or - vests title in indorsee in trust for another Rights of indorsee in restrictive ind.: 1. receive payment of inst. 2. Bring any action thereon that indorser could bring 3. Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of first indorsee under restrictive indorsement
Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL) Acceptance may be: 1. actual 2. constructive 3. general (Sec. 140) 4. qualified (Sec. 141) Requisites of actual acceptance: in writing signed by the drawee must not express the drawee will perform his promise by any other means than payment of money communicated or delivered to the holder A holder has the right: 1. require that acceptance be written on the bill and if refused, treat it as if dishonored (Sec. 133) 2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142) Constructive Acceptance: 1. where the drawee to whom the bill has been delivered destroys it 2. the drawee refuses within 24 hrs after such delivery or within such time as is given, to return the bill accepted or not. (Sec. 137 NIL) Notes on Section 137 drawee becomes primarily liable as an acceptor. mere retention is equivalent to acceptance When presentment for acceptance is necessary: 1. if necessary to fix the maturity of the bill 2. if it is expressly stipulated that it shall be presented for acceptance 3. if the bill is drawn payable elsewhere than the residence or place of business of the drawee (Sec. 143 NIL) Notes on Section 143 Presentment is the production of a BOE to the drawee for his acceptance in on order case is presentment necessary to make parties liable. ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHiLIPPINE NATIONAL BANK G.R. No. 107382. January 31, 1996 A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never aparty and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee’s indorsement. *** The exception to the general rule in Section 23 is where “a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority.” Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. *** The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer’s instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer’s order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer’s (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. *** If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. *** In cases involving a forged check, where the drawer’s signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawer’s signature since the latter is its customer. *** In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. ***
A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. *** The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. Material Alteration Material Alteration – an alternation is said to be material if it alters the effect of the instrument. Under Section 125 the following changes are considered material alterations: 1. dates 2. the sum payable 3. time and place of payment 4. number or relations of the parties 5. medium or currency for payment 6. adding a place of payment where no place is specified 7. any other which alters the affect of the instrument Instances where a BOE may be treated as a PN: 1. where the drawer and the drawee are one and the same 2. where the drawee is a fictitious person 3. where the drawee has no capacity to contract (Sec. 130 NIL) The holder has the option to treat it as a BOE or a PN Accommodation Party An accommodation party is one who signs the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for the purpose of lending his name to some other person. Effects: an accommodation party is liable to the holder for value notwithstanding that such holder knew that of the accommodation. (Sec. 28 NIL) Notes on Section 28 the accommodated party cannot recover from the accommodation party want of consideration cannot be interposed by the accommodation party an accommodation maker may seek reimbursement from a co-maker even in the absence of any provision in the NIL; the deficiency is supplied by the New Civil Code. he may do this even without first proceeding against the debtor provided: a. he paid by virtue of judicial demand b. principal debtor is insolvent
May a NI be discharged when there is payment by an accommodated party? (NOTE: ACCOMMODATED party) No. The NIL states that payment must be made by an accommodating party. Can a payee be a holder in due course? Yes, so long as Section 52 NIL is complied with. How about a drawee? A Drawee cannot be a holder in due course since he receives it through ACCEPTANCE or PRESENTMENT, not through NEGOTIATION.
TRANSPORTATION LAWS Common Carrier vs. Private carrier Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. The distinction between a “common or public carrier” and a “private or special carrier” lies in the character of the business, such that if the undertaking is a single transaction, not a part of a general business or occupation, although involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier.
Charter Party may be a private or common carrier depending upon what kind of charter it undertakes. Bare-bottom – private carrier or owner pro hac vice Affreightment – common carrier Diligence – Extraordinary diligence – passenger carriage - Ordinary Diligence – carriage of goods It is an ordinary presumption that a carrier is negligent when the cargo is damaged or lost, or when a passenger is injured or killed. Art. 1735 . In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. Reason: As to when and how goods were damaged in transit is a matter peculiarly within the knowledge of the carrier and its employees.
When does carriage start and end? PERFECTION • 1. Contract of carriage of passengers Contract to carry – an agreement to carry a passenger at a future date. This contract is consensual and is therefore perfected by mere consent. 2. Contract of carriage or of common carriage itself a. real contract b. for not until the facilities of the carrier are actually used can the carrier be said to have already assumed the obligation of the carrier. Carriage of goods Where the carrier agrees to accept and transport the goods at a future date, such is consensual. However, by the act of delivery of the goods, that is, “when the goods are unconditionally placed in the possession and control of the carrier, and upon their receipt by the carrier for transportation, the contract of carriage is perfected.” Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. Art. 1737. The common carrier's duty to observe extraordinary diligence over the goods remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transitu. Art. 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. Can a lesser degree of diligence be agreed upon? For carriage of passengers, no. For carriage of goods, allowed. Concurrent causes of action that may arise in case of a contract of transportation. Concurrent cause is an intervening cause which merely cooperated with the primary cause and which did not break the chain of causation. • The joint tortfeasors are solidarily liable.
Defenses raised by common carriers: a. Natural disaster/calamity b. Act of public enemy in war c. Act or omission of shipper or owner of the goods d. Character of the goods or defects in the packing or in the containers e. Order or act of a competent authority f. Exercise of extraordinary diligence
DOCTRINE OF LIMITED LIABILITY (HYPOTHECARY RULE) Cases where applicable: 1. Art. 587 – civil liability for indemnities to third persons 2. Art. 590 – indemnities from negligent acts of the captain (not the shipowner or ship agent) 3. Art. 837 – collision 4. Art. 643 – liability for wages of the captain and the crew and for advances made by the ship agent if the vessel is lost by shipwreck or capture GENERAL RULE: The liability of shipowner and ship agent is limited to the amount of interest in said vessel such that where vessel is entirely lost, the obligation is extinguished. (Luzon Stevedoring v. Escano, 156 SCRA 169) The interest extends to: 1) the vessel itself; 2) equipments; 3) freightage; and 4) insurance proceeds. (Chua v. IAC, 166 SCRA 183) EXCEPTIONS: 1. Claims under Workmen’s Compensation (Abueg vs. San Diego 77 Phil 730); 2. Injury or damage due to shipowner or to the concurring negligence of the shipowner and the captain; 3. The vessel is insured (Vasquez vs. CA 138 SCRA 553). 4. Expenses for repair on vessel completed before loss; 5. In case there is no total loss and the vessel is not abandoned; 6. Collision between two negligent vessels Abandonment of the vessel is necessary to limit the liability of the shipowner. The only instance were abandonment is dispensed with is when the vessel is entirely lost (Luzon Stevedoring vs. CA 156 SCRA 169). RIGHT OF SHIPOWNER OR SHIP AGENT TO ABANDON VESSEL Instances: 1. In case of civil liability from indemnities to third persons (Art. 587);
2.
In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687); and 3. In case of constructive loss of the vessel (Sec. 138, Insurance Code).
SHIPOWNER OR SHIP AGENT
CONSIGNEE
What may be abandoned Vessel
Goods shipped
Instances 1. In case of civil liability from 1. Partial non-delivery, where the indemnities to third persons (Art. 587); goods are useless without the others (Art. 363); 2. Sec. 138, Insurance Code; 2. Goods are rendered useless for sale 3. In case of leakage of at least ¾ of the or consumption for the purposes for contents of a cargo containing liquids which they are properly destined (Art. (Art. 687) 365); and 3. In case of delay through the fault of the carrier (Art. 371). Effects Transfer of ownership of the vessel from Transfer of ownership on the goods the shipowner to the shippers or insurer. from the shipper to the carrier. 2. In case of (2), the insurer must pay the Carrier should pay the shipper the insured as if there was actual total loss market value of the goods at the point of the vessel. of destination. 1.
COLLISION Impact of two vessels both of which are moving.
Allision Impact between a moving vessel and a stationary one.
Nautical Rules to Determine Negligence 1. When two vessels are about to enter a port, the farther one must allow the nearer to enter first; if they collide, the fault is presumed to be imputable to the one who arrived later, unless it can be proved that there was no fault on its part. 2. When two vessels meet, the smaller should give the right of way to the larger
one. 3. A vessel leaving port should leave the way clear for another which may be entering the same port. 4. The vessel which leaves later is presumed to have collided against one which has left earlier. 5. There is a presumption against the vessel which sets sail in the night. 6. There is a presumption against the vessel with spread sails which collides with another which is at anchor and cannot move, even when the crew of the latter has received word to lift anchor, when there was not sufficient time to do so or there was fear of a greater damage or other legitimate reason. 7. There is a presumption against an improperly moored vessel. 8. There is a presumption against a vessel which has no buoys to indicate the location of its anchors to prevent damage to vessels which may approach it. 9. Vessels must have “proper look-outs” or persons trained as such and who have no other duty aside therefrom. (Smith Bell v. CA) Nautical Rules as to Sailing Vessel and Steamship 1. Where a steamship and a sailing vessel are approaching each other from opposite directions, or on intersecting lines, the steamship from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to be able to adopt such timely means of precaution as will necessarily prevent the two boats from coming in contact. 2. The sailing vessel is required to keep her course unless the circumstances require otherwise.
Zones of Time in the Collision of Vessels 1.
First zone – all time up to the moment when risk of collision begins. No rule is as yet applicable for none is necessary.
2.
Second zone – time between moment when risk of collision begins and moment it becomes a practical certainty. It is in this period where conduct of the vessels is primordial. It is in this zone that vessels must strictly observe nautical rules, unless a departure therefrom becomes necessary to avoid imminent danger.
3.
Third zone – time when collision is certain and time of impact. An error in this zone would no longer be legally consequential. Error in Extremis - sudden movement made by a faultless vessel during the third zone of collision with another vessel which is at fault during the 2nd zone. Even if such sudden movement is wrong, no responsibility will fall on said faultless vessel. (Urrutia and Co. v. Baco River Plantation Co., 26 PHIL 632)
Cases Covered By Collision and Allision 1. One vessel at fault Vessel at fault is liable for damage caused to innocent vessel as well as damages suffered by the owners of cargo of both vessels. (Art. 826) 2. Both vessels at fault Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable. (Art. 827) 3. Vessel at fault not known Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable. (Art. 828) Doctrine of Inscrutable Fault – In case of collision where it cannot be determined which between the two vessels was at fault, both vessels bear their respective damage, but both should be solidarily liable for damage to the cargo of both vessels. 4. Third vessel at fault The third vessel will be liable for losses and damages. (Art. 831) 5. Fortuitous event/force majeure No liability. Each bears its own loss. (Art. 830) o The doctrine of res ipsa loquitur applies in case a moving vessel strikes a stationary object, such as a bridge post, dock, or navigational aid. (Far Eastern Shipping v. CA, Luzon Stevedoring vs. CA) o Even if the cause of action against the common carrier is based on quasi-delict, the defense of due diligence in the selection and supervision of employees is unavailing in case of a maritime tort resulting in collision. It is not a civil tort governed by the Civil Code but a maritime one governed by Arts. 826-839 of the Code of Commerce. (Manila Steamship vs. Insa Abdulhaman) Doctrine of Last Clear Chance and Rule on Contributory Negligence cannot be applied in collision cases because of Art.827 of the Code of Commerce. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed.) Registered Owner Rule: The registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by third persons caused by the operation of said vehicle, even though the same had been transferred to a third person. Reason: It would be easy for him, by collusion with others or otherwise, to transfer the responsibility by proving that a third person is the actual and real owner.
Corporation Law (Singit lang) 2/3 Vote vs. Majority Vote in Corporation Code The following are the matters to be voted upon by the stockholders wherein only MAJORITY VOTE is required: (CAMFEN) 1. Compensation of Directors 2. Amend/Adopt by-laws 3. Management contract will be entered into 4. Fill up vacancies 5. Election of members of the Board of Directors 6. No-par Value Stock is going to be issued.
