Commercial Law Special Lecture Justice Japar B. Dimaampao November 15, 2017
CORPORATE REHABILITATION (NB: FRIA) Powers of Rehabilitation Receivers: (WERPA)
Tip: Bulk – Corpo, Nego, Insurance Insider Trading (LODI) L – learns material information O – not generally open to the public D – director I – Insurer Other manipulative trading devices: (DOMS) D – Done - through transaction (
W – with approval of the court to sue and recover properties E – evaluate the existing assets and liabilities R – recommend the appointment of management committee P – prohibit the sale or transfer of property (preserve) A – accept and incorporate amendments
Rehabilitation – Rehabilitation – restoration of the debtor to a condition of a successful operation
O – Over the counter transaction (outside the stock trading) M – market jiggling/rigging (matching) – recall wash sale transactions (not a dealer in securities) S- Short sale transactions (no transfer of beneficial ownership)
Application: (SPC) Sole Proprietorship Partnership Corporation Purpose: (REM)
AMLA
R – restore
Notable Predicate Crimes: (PETMALU)
E – economically feasible status
P- Piracy on the high seas E – extortion and robbery T – Terrorism M – murder A – Arson L – laws of other countries that penalize the same offenses U – unlawful possession, manufacture, of explosives and firearms
M – so creditors can claim more if it continues as a going concern Rehabilitation – applies to SPC Liquidation – applies to IPC (individual, partnership, corporation) Suspension of Payment – applies to the individual Nature of rehabilitation, liquidation, and suspension of payments – in rem; summary; non-adversarial Only affidavits are presented.
Only clarificatory hearings are conducted.
Commencement Order – it embodies the so called stay or suspension order.
Other purposes: Equitable purpose – to effectively distribute the assets among creditors Rehabilitative purpose – fresh start for the debtor corporation
__________ Purposes of Liquidation: (CoPaDi)
Co – convert assets to cash Pa – pay creditors Di – distribute surplus Purpose of Suspension of payments – to discharge the debtor
Common attribute of rehabilitation, liquidation, and suspension of payments – INSVOLVENCY Expanded definition of insolvency: The debtor has more assets than liabilities, yet he foresees the impossibility of paying his obligations Equality is equity – all creditors shall stand on equal footing. Principle of pari passu – (“equal footing”) – no creditor is given an advantage or preference. No one can be paid ahead of others.
Q: In case rehabilitation fails, may a petition for liquidation be filed? A: YES. Q: If the liquidation fails, can he file for dissolution? A: YES. See: Viva Shipping vs. Keppel
(General Rule: suspended)
All
proceedings
are
Exceptions to the suspension order: (SSS MB FC)
S – Supreme Court S – subject to the discretion of the rehab court (specialized court or quasi judi agency) S – surety, persons solidarily liable, party or accommodation mortgagors, issuer of LoC M – claim of client of market securities participant B – claim of license brokers F – settlement of financial transactions through the facilities of a clearing agency C – (Panlilio case) – criminal actions When rehabilitation may be converted to liquidation proceedings: (MR FB INN)
M – motion of the debtor R – recommendation of the receiver that the proceedings be converted F – failure of rehabilitation B – bad faith on the part of the creditor or debtor I – insolvent debtor N – rehabilitatoin plan is not confirmed (1year period) N – no substantial likelihood that the debtor will be successfully rehabilitated. Three modes of rehabilitation: (COP) Court supervised – to seek court approval (2/3; requirement – 50%) Pre-negotiation
Out of court rehabilitation agreement (OCRA) – 67% (secured creditors) – 75% – 85%
business resulting in prejudice to the corporation. U – Ultra vires act – outside the express, implied, or incidental powers
PRIVATE CORPORATIONS
Narra Nickel Mining Case – control test; grandfather rule
What are the requisites for the ratification of UVAs? (WARNS) W – act must be wholly executed
60% Filipino ownership A – approved by all stockholders Control Test – atleast 60% of the ownership is owned by Filipinos. This is the liberal test. You need not test the ownership further. GFR – it is strict. There is a need to trace the ownership. If the Filipino ownership is less than 60%, apply the GFR. Apply the GFR in corporate layering. *Gamboa vs. Teves – “capital” = vot ing rights (common shares) NB: The full beneficial ownership of 60% of the OCS. Concepts and Principles: (LUMMP) L - liability of DOT – (BAG) bad faith; if they assent; gross negligence; (PILA) – personal interest over the transaction; issuance of watered shares of stock; when there is law holding them liable; agreement
A – apparent authority – (CBA) – corporation is bound by a contract, entered into by the director with apparent authority. B – business judgement rule – (NAB) – shall not be liable for acts, decisions, made in the exercise of their business judgments. C – corporate opportunity – self dealing director takes advantage of a
R – rights of third persons must not be prejudiced N – not illegal, immoral S – State rights must not be involved Trust Fund Doctrine – capital assets of the corp shall be regarded as equity in trust in favor the creditors. What does it require? Since it intends to protect creditors, it requires UREs. (Sec. 41 – corp. can only acquire its own shares of stock if there are UREs; Sec. 43 – before declaration of dividends; Sec. 82 – Payment of fair value of shares to the dissenting stockholders) – these all involve disbursements of corporate funds. M – merger M – moral damages
The corporation is not entitled to moral damages, except in cases of libel or slander. P – piercing the veil of corporate fiction (DDFA – CFI)
D – defeat public convenience D – defend a crime F – protect fraud A – alter ego Control to commit fraud resulting in injury (CFI)
Instances when AR may be exercised: (MISA) What requires stockholders: (CAMFENA)
majority
vote
of
the
M – merger or consolidation I – investment
C – grant of compensation A – adoption of by-laws M – management contract (if the contract does not involve interlocking directors, only a majority vote) F – filling of vacancies in the Board (stockholders or remaining members of the board. Stockholders - (removal, expiration, increase not constituting a quorum). Board (death, incapacity, abandonment, legal disqualification) E – election of directors N – fixing of value of no-par value
S – sale of all assets A – amendment in the AoI that authorize restrictions or preferences.
DERIVATIVE SUIT (CRIES)
C – cause of action R – refusal of the Board I – the refusal results in injury E – exhaustion of intracorporate remedies, except if the directors control the corporation S – stockholder on record must file the suit (one stockholder) will suffice
A – amendment or repeal of by-laws
Preemptive Right vs. Appraisal Right
Preemptive Right – increase in ACS, subsequent issuance; disposition of treasury shares of stock. Instances when PR may be denied: (EPAL)
E – in exchange of property needed for corporate business P – in contracted debt
payment
of
previously
A – denied by the AoI L – law Appraisal Right – the right to dissent and demand the fair value of the shares.
NB: Liabilities and properties may be transferred in cases of mergers or consolidations.
Close Corporations Corporation”) (PASS)
(“Going
Private
P – preemptive right shall extend to all stocks to be issues, and can only be restricted through the AoI (S102) A – AoI may provide that stockholders may manage the corporation S – shares are held by not more than 20 persons S – shares of stock not listed through the local stock exchange It is also called a “ de facto partnership with a corporate shell ”
NEGOTIABLE INSTRUMENTS LAW “corporate shell” – corporate structure
(SHARP) S - Samsung Construction vs. Far East Bank - re: forgery - the one who forged the check was an EE of the bank.
CORPORATE DISSOLUTION
Modes: Voluntary and Involuntary Voluntary - file for extension; shorten the corporate term Involuntary: (LIFE)
The general rule is that the DWEE bank is liable on a forged check because the DWEE bank has the specific signatures, unless the DWR is negligent. In this case, the DWEE is liable as there was no showing of Samsung’s negligence.
L - legislative dissolution I - illegal act
SC: ERs (Samsung) do not possess the gift of cognition as to the evil that work in the hearts and minds of the EE.
F - failure to organize; inoperation E - expiration of corporate term
Acts constituting “doing of business” (ABCD)
A - actual performance of commercial acts or transactions
H – HSBC vs. CIR - re: electronic messages - these are not negotiable instruments.
specific
(Mere importations or exportations will not suffice. There must be ACTUAL transactions involved.)
B - business test - it must have the intention to continue its business here
A - Ariza vs. Express Savings Bank – the 24-hr clearing period does not apply to materially altered checks.
R – PNB vs. Rodriguez - fictitious payee rule - who will bear the loss? The DWR or DWEE?
Generally, the DWR bears the loss. C - contract test - contracts must be perfected here in the PH
By way of an exception, the DWEE is liable if it is guilty of commercial fraud.
D - continuity of commercial dealings and arrangements
P - ________ S14 - incomplete, delivered instruments - knowledge of defect does not make one a HDIC
Frequently Asked Questions in the Bar Exams Sec. 2 - NB: maturity date; amount
Sec. 3 - “reimburse out of my account” - the instrument is still negotiable.
That particular fund or account is just a source of reimbursement. Not a primary source of payment. Sec. 4 (C) - “after” - it must be certain to happen Sec. 5 (D) - “or” (alternative obligation) – it is not negotiable because it gives the holder the right to elect, or he is given an option.
S47 rel. to S36 - the indorsement that may restrict further indorsement
Sec. 52 – HOLDER IN DUE COURSE (8 requisites)
1. Holder of a complete instrument 2. Regular on its face 3. Became the holder before it became overdue. 4. No notice of previous or prior dishonor
Order Instrument Instrument (BI)
(OI)
vs.
Bearer
Order Instrument - words of negotiability are “or order,” “to the order of.”
May be converted to a BI (Sec 9e), when the only or last indorsement is in blank.
Bearer Instrument – “bearer” “Possessor”
5. Good faith 6. For value 7. No notice of defective title 8. No notice of any infirmity
NB: Payee – may be a HIDC Acceptor – can never be a HIDC.
“Holder”
A bearer instrument is always a bearer instrument even if it is specially indorsed. Sec. 40
Q: Promissory note payable to Bearer – BR specifically indorsed it to A
Rights of a HIDC (S51, S57) (SCED) Sue
Collect Enforce payment of the full amount Hold the instrument free from personal defenses
Can A negotiate it to B by delivery? A: YES. A bearer instrument is always a bearer instrument, even if it is specially indorsed. In case the instrument was not originally payable to bearer, not apply the above answer.
Only a HIDC can exercise these rights. Except S58 (the Shelter Rule) The holder subrogation.
in
S58
is
a
HIDC
by
CROSSED CHECKS The effects of crossing a check: (WON)
Failure of consideration Insertion of wrong date
W - serves as a warning to the holder that the check has been issued for a definite purpose
Defective title Incomplete, delivered (S14) Lack of delivery (S16)
O - it may ne negotiated only ONCE to a person with an account in the bank.
N - not for encashment, but for deposit.
Absence of consideration
REAL (can be interposed against the whole world)
(FILIAM or FAMILI) Q: Is a holder of a CC, considered a HIDC? A: Inquiry must be made into the title of the indorser of the check. Failure to make an inquiry amounts to bad faith, and therefore negates being a HIDC.
Forged signature Incomplete AND undelivered Lack of authority on the part of an agent Insanity Alteration (must be material)
If the check is an ordinary check, the above case will not apply. In this case, the holder will be presumed to be a HIDC. Inquiry is not necessary.
LIABILITIES
Minority
Q: DWR signature was forged. The forger deposited the check with collecting bank, and there was encashment Discuss the liabilites of the CB and the DWEE.
Primary - maker of a PN; DWEE Secondary - DWR; indorser Accommodation Party - liable as surety, therefore, it insures the payment of an obligation.
A: The DWEE bank is liable. The CB does not warrant the genuineness of the signture. The DWEE must know the signature of its depositors.
A DWEE becomes liable upon acceptance. Q: The payee ’s signature was forged. The forger deposited the check with the collecting bank, and there was encashment.
DEFENSES PERSONAL (it against a HIDC) (FIDILA)
cannot
be
interposed
Discuss the liabilities. A: The CB is liable. When the CB cleared it, it became an indorser (S66). It warrants the genuineness of the instrument. When it
clears a check, the CB warrants that all prior indorsements are genuine.
IED; no notice to the IED of the payment; excepted risk) M - Heirs of Maramag vs Maramag
Likewise, if the check is materially altered, liability falls on the CB. As its indorser, it warrants the genuineness of the instrument.
The claimant is an illegitimate child. SC: IC qualifies as a beneficiary. An IC is entitled to such proceeds. The Code applies. (S53)
INSURANCE Premiums
Sec. 48 - Sunlife of Canada vs. Sibya As IER, the company can assail the policy, provided the IED is still alive. NB: “During the lifetime.”
CASH AND CARRY RULE - pay the premiums, claim the funds Exceptions (ALICE) - S77
Acknowledgement Life insurance
Here, the IED did not disclose her kidney problems, and died 3 days thereafter.
Industrial life Credit extension of not more than 90d
SC: There is fraud. But the IER cannot assail the policy because it must be made during the lifetime of the IED.
Estoppel
Insurable Interest
(Sir has a slightly different opinion about this, but this is the rule we follow)
Insurable interest in life - must exist at the time of effectivity of the life insurance.
Insurance Business (IB)
If it principally renders service, it is not engaged in an IB.
Insurable interest in property - must exist at the time of effectivity and when the loss occurs.
Cases: (ALM)
NB: NEW PROVISIONS – S11 and S12
A – Fortune Medicare vs. Amorin – health care agreements, like insurance contracts, must be liberally construed in favor of the subscriber, and against the provider.
BENEFICIARIES
L - Loadstar Shipping vs. Malayan - the rule on subrogation under Art 2207 of NCC applies. (Exceptions to the rule of subrogation - life insurance; omission of the
GR: designation - revocable If the IED dies without changing the designation, it becomes irrevocable.
Q: If the IED was willfully killed by the BEN, who shall be entitled to the proceeds? A: (OPE or POE) O - other BEN
O - other insurance clause N - no fault clause A - authorized driver’s clause A - all-risk clause
P - based on the policy E - estate
CASE:
MATERIALITY (S31)
Not determined by the event. It is determined from the probable and reasonable influence of the facts upon whom the communication is made.
Double Insurance vs. Reinsurance
DI - different IERS, same risk insured, same IED REI - IER becomes the reinsured
MARINE INSURANCE
Ordinary negligence is an insurable risk. This is impliedly included. Q: What is considered as an implied excluded risk? A: Gross negligence
SUICIDE CLAUSE (S183)
GR: If there is a SC, in all cases, there must be recovery. Exceptions: No insurance clause Sane Contested
S126 - “proper deviation” S141 - “constructive loss”
BANKING (PLACARDD)
Proper deviation (SWAN)
S - to save human lives or a vessel in distress
P - powers of the BSP (exercised through the MB. It has the power to appt a conservator (1 year) or a receiver (90 days)).
W - comply with warranty A - avoid peril N - neither the master or owner has control over such deviation
L - legal relationship (debtor-creditor) safety deposit box (bailor-bailee)
Constructive Loss
A - apparent authority “More than 3/4 of the value has been lost”
There has to be an abandonment that is unconditional.
C - close now, hear later scheme (applies in receivership) - cannot be interfered with by courts, unless there is grave abuse
(ONAA)
A - account (DOSRI)
R - redemption
Instances when the common carrier is not liable:
D - deposit substitutes BDO vs. RP - “public” - borrowing of funds from 20 or more individual or corporate lenders
D - highest degree of diligence
(PONDO)
P - public enemy O - act of the owner N - natural calamity D - defect in the packing
BANK SECRECY
O - order of competent authority
(BALIWAG-RTC) B - bribery
Extraordinary Diligence ; when observed.
A - anti graft L - subject of litigation
Beginning: board
“reasonable
opportunity”
I - impeachment
End: reasonable opportunity to alight.
to
W - written waiver Three-fold function of a Bill of Lading
A - AMLA cases (Hijacking; Drugs)
Kidnapping;
Murder;
Arson;
(PRC)
P - proof
G - gross estate
R - receipt C - contract
R – reporting requirements imposed on covered institutions as to the suspicious accounts T – Ten (10) years dormant
Affreightment Chartered Party - still a common carrier. The owner has not surrendered the management and control.
C - compromise in tax cases AMLA
Requirements of Maritime Protest
Note:
(CoMA-24)
Freeze Orders
Collision
Covered transactions (amount - more than 500k)
Must be moving
Suspicious transactions (no justification, no corresponding client)
TRANSPORTATION
Competent authority Competent authority
Determination of liability of common carriers
Limited liability – the liability of the owner of the vessel is co-extensive with the value of the vessel, equipment, and freight (except workmen’s compensation claims, insured vessel, negligence, death, repairs, and injury)
I - independence principle (seller is assured of payment; banks deal only with the documents; banks are under no duty to ascertain the condition or quality of the goods) F - fraud exception principle – fraud as an exception to the independence principle S - strict compliance rule – compliance with documentary requirements
Inscrutable fault – negligence or fault cannot be determined with certainty
TRUST RECEIPTS (SHIP)
Error in extremis – (NB: zones of collision) begins; becomes a practical certainty; actual impact (BPI)
S - obligation to sell the goods (do not apply the principle of nemo dat quod non habet here) H - hold the goods for and in behalf
COGSA (Claims)
I - insured (exemption from the application of res perit domino)
C - cause of action (loss of goods or destruction of goods. Conversions or misdeliveries are not covered)
P - proceeds
O - file within 1 year from the delivery or from the date it should have been delivered
TESTS OF REPUTABILITY (AM No. 10-310) – Whether a mark is well-known. (CRITERIA)
G - must pertain to goods from a foreign country
C - commercial value
INTELLECTUAL PROPERTY LAW
R - registration I - image
S - filed by the shipper or consignee
T - trade share E - extent of the use
A - against the shipper
R - record of successful protection
(Notice of loss is necessary only in coastwise shipping)
I - inherent distinction of the mark A - geographical area
LETTER OF CREDIT
(IFS)
TESTS OF RELATEDNESS (CCP-BANK)
C - class of products to which the goods belong
E - doctrine of equivalence (AIMM appropriation of a prior invention; through the incorporation of innovative mark; through the same means and functions)
P - purpose
D – Dilution theory – trademarks are infringed in cases where it is confusingly similar with other marks, it causes damage, and it misleads the public.
B - business
SRC
C - channel of market
A - attributes
(SEC vs Prosperity.Com, Corp, 2012)
N - nature of the goods
Provides for the Howey Test in determining whether a particular transaction is an investment contract
K - kind or quality (Taiwan Kolin Corporation Electronics, 2015)
vs.
Kolin
(COMES)
C - common enterprise O - others efforts as source of profits Infringement - unauthorized use; similarity of goods; fraud not necessary; registration required
M - investment of money E - expectation of profits S - based on scheme
Unfair competition - passing off of one’s goods as his own; intent to defraud; may involve different kinds of goods; registration no required
TENDER OFFER RULE
Intent to company Pre-disclosure doctrine - once you disclose, the matter becomes accessible and open to all.
acquire
shares
in
a
public
Exempt Securities and Exempt Transactions
Holistic Test - entirety
SECURITIES (GRAB) Dominance Test - prevalent features
TRANSACTIONS (UBER – LEO – BPI ) (GRAB) (FED)
G - those issued by the government F - fair use principle News items are not copyrightable, but once it is captured, it becomes copyrightable.
R - issued by receiver in insolvency
Generally, there are no copyrights involved in comments, criticisms, and news reports.
A - issued by any country with which we have diplomatic relations B - bank securities
(UBER)
U - unpaid subscription B - broker’s transaction E - exchange of securities with other securities without consideration R - right of conversion has been exercised in the exchange of securities
(Ang driver ng Grab at Uber ay si LEO)
L - sale to less than 20 persons within a 12 month period E – executor at a judicial sale O - other transactions declared exempt.
(Leo has to secure a loan with BPI to buy more cars for Grab and Uber) B - bank transactions P - Shares issued prior to incorporation I - isolated transactions -END-
