UST LAW PRE-WEEK LAW PRE-WEEK NOTES 2018 DOCTRINE OF STRICT COMPLIANC COMPLIANCE E v. INDEPENDENCE INDEPENDENC E PRINCIPLE
LETTERS OF CREDIT
Basis A letter of credit is any arrangement, however named or described, whereby a bank acting upon the request of its client (applicant) or on its own behalf, agrees to pay another, against stipulated documents provided the terms of the credit are complied with. Principle
It is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have in control of the goods before paying. The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract of sale of the goods and to reduce the risk of nonperformance of an obligation in a non-sale setting. (Transfield Philippines, Inc. v. Luzon Hydro Corp., GR. No. 146717, November 22, 2004)
KINDS OF LETTER OF CREDIT COMMERCIAL L/C Involves the payment of money under a contract sale. of sale.
Payable upon the presentation by the seller-beneficiary seller-beneficiary of documents that show he has taken affirmative steps to comply with with the sales agreement
Consequence of the Doctrine
STANDBY L/C Involves non-sale transactions. Payable upon certification by the beneficiary of the nonapplicant’s the performance performance of agreement. The documents that accompany the beneficiary's draft must show that the applicant has not performed the undertaking. (Transfield Philippines, Inc. v. Luzon Hydro Corp., supra)
Payment to the Beneficiary
THREE (3) DISTINCT BUT INTERTWINED CONTRACTS IN A LETTER OF CREDIT TRANSACTION TRANSACTIO N (2002, 2008 BAR) 1.
2.
3.
Between the applicant/buyer/importer/account party and the beneficiary/seller/expor beneficiary/seller/exporter ter – The applicant is the one who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title while the beneficiary is the one who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment for the goods. The relationship relationship between them is governed by the law on sales if it is a commercial L/C but if it is a standby letter of credit it is governed by the law on obligations and contract. contract. Between the issuing bank and the beneficiary/ seller/exporter – The issuing bank is the one that issues the letter of credit and u ndertakes ndertakes to pay the beneficiary upon strict compliance of the latter to the requirements set forth in the letter of credit. On the other hand, the beneficiary surrenders document of title to the bank in compliance with the terms of the L/C. Their relationship is governed by the terms of the L/C. Between the issuing bank and the applicant/ buyer/importer – The applicant obliges himself to reimburse the issuing bank upon receipt of the documents of title. Their relationship is governed by the terms of the application and agreement for the issuance of the L/C by the bank.
Doctrine of Strict Compliance Documents tendered by the seller or beneficiary must strictly conform conform to the terms of the letter of credit. A correspondent bank which departs from what has been stipulated and acts on its own risk may not thereafter be able to recover.
Beneficiary cannot draw on the letter of credit if he did not comply with its terms and conditions.
Doctrine of Independence Relationship of the buyer and the bank is separate and distinct from the relationship of the buyer and seller in the main contract. Assures the seller or beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Banks deal with documents not goods. The beneficiary, upon tender of the required documents, may draw on the LC, irrespective of whether the contract underlying the LC has been fulfilled or not. XPN: Fraud Exception Principle.
FRAUD EXCEPTION PRINCIPLE The Exception to th e Independence Principle (2010 Bar) "Fraud exception" exists when the beneficiary, for the purpose of d rawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, implication, material representations of fact that to his knowledge are untrue. The principle provides that the untruthfulness of a certificate accompanying accompanying a demand for payment under a standby letter of credit may qualify as fraud sufficient to support an injunction against payment. The beneficiary may be enjoined from collecting on the letter of credit. Injunction should not be granted unless: a) b)
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There is clear proof of fraud; The fraud constitutes fraudulent abuse of the independent independent purpose of the letter of credit and
MERCANTILE LAW
c)
not only fraud in the performance performance of the obligation or contract supporting the letter of credit; a nd Irreparable Irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged. (transfield v. Luzon hydro corp., supra)
KINDS OF BANK Notifying/Advisi ng Bank
Confirming Bank
Negotiating Bank
issuing or confirming bank). If the party primarily liable on the L/C refuses to honor the draft, the negotiating bank has the right to proceed against the drawer thereof.
ROLE Convey to the seller the existence of the letter of credit.
LIABILITY Does not incur any obligation more than just notifying the seller/beneficia ry of the opening of the L/C after it has Warrants determined its the apparent apparent authority. It authenticity does not of the LC. guarantee the (Bank of genuineness genuineness or America NT due execution of execution of & SA v. CA, the L/C. It is not G.R. No. liable for 105395, damages even if December the L/C turns 10, 1993) out to be spurious provided the spurious character is not apparent on the face of the instrument. Lends Assumes a credence to direct the L/C obligation to the issued by a seller and its lesserliability is a known primary one as bank. if the correspondent bank itself had issued the letter of credit. Buys or Depends on the discounts stage of the drafts negotiation, contemplate thus: d by the letter of 1. Before credit. negotiation – No liability with respect to the seller. Merely suggests its willingness to negotiate.
Paying Bank
Undertakes to encash the drafts drawn by the exporter
TRUST RECEIPT LAWS A Trust Receipt (TR) – any transaction between the entruster and the entrustee, whereby the entruster who owns or holds absolute title or security interest over specified goods, documents or instruments (GDI) releases the same to the possession of the entrustee , who in turn binds himself to the GDI with the obligation to turn over the proceeds to the entruster to the extent of the entrustee’s entrustee’s obligation, or if unsold, to return the GDI to the e ntruster. ntruster.
LOAN/SECURITY FEATURE Two features of a trust receipt transaction transaction 1.
2.
Loan feature feature - is brought about by the fact that the entruster financed the importation or purchase of the goods under TR. (Sps. Vintola v. IBAA, G.R. No. 73271, May 29, 1987) Security feature feature - property interest in the GDI to secure performance of some obligation of the entrustee or of some third persons to the entruster. (Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, G.R. No. 137232, June 29, 2005)
OWNERSHIP OF THE GOODS, DOCUMENTS, AND INSTRUMENTS UNDER A TRUST RECEIPT Real owner of the articles subject of the Trust Receipt transaction The real owner of the articles subject of the TR is the entrustee who binds himself to hold the designated GDI. The entruster merely holds a security interest. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. (Rosario thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, supra)
2. After negotiation – A contractual relationship will then arise, making the bank liable. As holder, it has the right to payment from the bank primarily liable on the draft (either the
NOTE: The entrustee cannot mortgage the goods because one of the requisites of a valid mortgage is that the mortgagor must be the absolute owner of the property mortgaged or must have free disposal thereof. Entrustee is not the absolute owner of of the goods under trust receipt nor has free disposal thereof. (DBP v. Prudential Bank, G.R. No. 143772, November 22, 2005)
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UST LAW PRE-WEEK LAW PRE-WEEK NOTES 2018 THE PRINCIPLE OF RES PERIT DOMINO
TRANSACTIONS NOT CONSIDERED AS A TRUST RECEIPT
Res perit domino is not a valid defense against an entruster in cases of loss or destruction of the GDI secured by a TR.For the principle of res perit domino to apply, the entruster must be the owner of the goods at the time of the loss. A TR is a security agreement, pursuant to which a bank acquires a ‘security interest’ in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. If under a trust receipt transaction, the entruster is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants. wants. Thus, the ownership of the goods remaining with the entrustee, he cannot be relieved of the obligation to pay his/her loan in case of loss or destruction. (Rosario Textile Mills v. Home Bankers Association, supra)
1.
2.
3.
Loss of GDI which are the subject of a TR, pending their disposition, disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his o bligation to the e ntruster for the value thereof.(Sec. thereof.(Sec. 10, P.D. 11 5)
4.
NOTE: In case of loss, the entrustee may not be criminally prosecuted but the civil obligation is NOT extinguished. VALIDITY OF SECURITY INTEREST AS AGAINST THE CREDITORS OF THE ENTRUSTEE/INNOCENT PURCHASERS FOR VALUE
A sale by a person in the business of selling for profit who retains general property rights in the GDI. Where the seller retains title or other interest as security for the payment of the purchase price. (Sec. 4, P.D. 115) If the entrustee is already the owner or in possession of the goods before delivery of the loan and execution of the trust receipt transaction, the transaction transaction shall be considered a simple loan even loan even though the parties may have denominated the agreement as one of TR. To be in the nature of TR, the entruster should ha ve financed the acquisition or importation of the goods. The funds should have been delivered before or simultaneously with delivery of the goods. (Colinares v. CA, G.R. No. 90828, September 5, 2000; Consolidated Bank and Trust Corporation v. CA, G.R. No. 114286, April 19, 2001) When both parties enter into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee. The goods were never intended by the entrustee for resale or for the manufacture of items to be sold. (Ng v. People; Land Bank v. Perez; Hur Tin Yang v. People; 2007 Bar)
WAREHOUSEMAN’S LIEN A warehouseman may refuse delivery of the subject goods because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. thereof. In other words, the lien may be lost where the warehouseman warehouseman surrenders the possession of the goods without requiring payment of his lien, because a warehouseman’s lien is possessory in nature .(PNB v. Judge Se , G.R. No. 119231, April 18, 1996)
The entruster's security interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the TR agreement . (Sec. 12, P.D. 115) To a certain extent, such interest becomes becomes a "lien" on the goods because the entruster's advances will have to be settled first before the entrustee can consolidate his ownership over the goods. (Prudential Bank v. NLRC, G.R. No. 1995)
Instances when a warehouseman may lose his lien 1. 2.
NOTE: Only a purchaser for value and in good faith can defeat the security interest of the entruster. ESTAFA IN TRUST RECEIPT TRANSACTIONS
By surrendering possession thereof, or Where a valid demand by the lawful holder of the receipts for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse.
Estafa is deemed committed if the entrustee:
NEGOTIABLE INSTRUMENTS LAW
1. Fails to turn over the proceeds of the sale of the GDI covered by the TR transaction to the extent of the amount owing to the entruster; or 2. Fails to return the GDI if they were not sold or disposed of in accordance with the terms of the trust receipt. (Sec. 13, PD 115)
REQUISITES OF NEGOTIABILITY (WUPOA) 1.
Note: P.D. 115 does not violate the constitutional prohibition against imprisonment for non-payment of a debt. What is being punished is the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. It does not seek to enforce payment of the loan. (People v. Nitafan, G.R. No. 81559, April 6, 1992)
2.
Q: Is lack of intent to defraud a bar to the prosecution of these acts or omissions? (2006 Bar)
3.
It must be in Writing and signed by the maker or drawer; Must contain an Unconditional promise or order to pay a sum certain in money;
NOTE: An indication of particular fund out of which reimbursement reimbursement is to be made or a particular account account to be debited with the amount does not make the instrument non-negotiable. But an order or promise to pay out of a particular fund is conditional.
4. 5.
A: NO. The mere failure to account or return gives rise to the crime which is malum prohibitum. prohibitum. There is no requirement to prove intent to defraud. (Ching v. Secretary of Justice, G.R. No. 164317, February 6, 2006 )
Must be Payable on demand, or at a fixed or determinable determinable future time; Must be payable to Order or to bearer; and Where the instrument is Addressed to a drawee, he must be named or otherwise indicated therein with reasonable reasonable certainty. (NIL, ( NIL, Sec.1) Sec.1)
Rules of construction in case of ambiguities in a Negotiable Instrument
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MERCANTILE LAW 1. 2.
3. 4. 5. 6. 7.
Words prevail over figures. If date from which interest is to run is unspecified, interest runs from the date of the instrument; instrument; if undated, from the issue thereof. If undated, instrument is considered considered dated a s of the time it was issued. Written provisions prevail over printed. If there is doubt whether it is a bill or note, the holder may treat it as either at his election. When not clear in what capacity it was signed, deemed signed as an indorser. When two or more persons signed a negotiable instrument stating stating "I promise to pay," in case of liability, they shall be deemed to be jointly and NIL) severally liable. (Sec. ( Sec. 17, NIL)
September 26, 2008)
GR: In case of controversy, the drawer is liable and the drawee bank is absolved from liability. XPN: When there is commercial bad faith, whereby the drawee bank acts dishonestly and is a party to the fraudulent scheme. The check is deemed payable to order, and consequently, the drawee bank bears the loss. (Ibid) (Ibid) KINDS OF NEGOTIABLE INSTRUMENT 1.
PAYMENT BY INSTALLMENT Payment by installment is certain if the dates of each installment are fixed and the amount to be paid for each installment is stated. (Sundiang stated. (Sundiang Sr. & Aquino, 2009)
2.
NOTE: A sum is certain within the contemplation of Section 1(b) of the NIL if the amount that is to be unconditionally paid by the maker or drawee can be determined on the face of the instrument even if it requires mathematical computation. ( Sundiang Sr. & Aquino, 2014)
3.
PROMISSORY NOTE v . BILL OF EXCHANGE
PAYABLE TO ORDER
When can you treat a bill of exchange as a promissory note? note? (2015 BAR)
The instrument is payable to order where it is drawn payable to the order of a specified person or to him or to his order. It may be drawn payable to the order of: 1. 2. 3. 4. 5. 6.
1. 2. 3.
A Payee who is not a maker, drawer, or drawee; The Drawer or maker; The Drawee; Two or more payees Jointly; One or some of Several payees; or The Holder of an office for the time being. (Sec. 8, NIL)
4.
Who are the parties to a negotiable instrument? What are their liabilities? In a promissory note there are two parties.
PAYABLE TO BEARER (ENaF PaLa)
2. 3.
4. 5.
Where in a bill the drawer and the drawee are the same person (NIL, Sec. 130) The drawee is a fictitious fictitious person (NIL, Sec. 130) The drawee does not have the capacity to contract (NIL, Sec. 130) Whether the instrument is so ambiguous that there is doubt whether it is a bi ll or a note, the holder may treat it either at his election (NIL, Sec. 17[e])
PARTIES TO A NEGOTIABLE INSTRUMENT
An order instrument is negotiated by indorsement completed by delivery (Sec. 30, NIL). NIL). If an order instrument is not indorsed, the negotiation is incomplete and the instrument is in effect, merely assigned. The transferee acquires the right to have the indorsement of the transferor. It is only at the time of indorsement that negotiation takes effect and the transferee acquires all the rights of a holder. (Dimaampao & Dumlao-Escalante, 2014)
1.
Promissory notes (PN) – An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.(NIL, bearer. (NIL, Sec. 184) Bill of exchange (BOE) – An 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.(NIL, bearer. (NIL, Sec. 126) Check – A bill of exchange drawn on a bank payable on demand. (NIL, Sec. 185)
The maker who makes the promise and signs the instrument instrument and is primarily liable for the payment of the obligation; obligation; The payee to whom payment is originally payable.
In a bill of exchange there are four p arties.
When it is Expressed to be so payable; (e.g. ( e.g. I promise to pay to bearer P10,000.00) When it is payable to a person Named therein or bearer; (e.g. ( e.g. Pay Pay to P or bearer P10,000.00) When it is payable to the order of a Fictitious person or non-existing person, and such fact was known to the person making it so payable; ( e.g. Pay e.g. Pay to John Doe or order) When the name of the Payee does not purport to be the name of any person; (Pay to cash) When the only or the Last indorsement is an indorsement indorsement in blank (NIL, Sec 9).
The drawer who issues and draws the bill and whose liability to pay is only secondary, except when drawee refused to accept; can limit his liability by putting “without recourse”; The drawee upon whom the bill is drawn may not be held liable until he becomes acceptor;
NOTE: A bill of exchange exchange may be addressed to two or more drawees jointly, whether partners or not; but not to two or more drawees in the alternative or in succession. succession. (Sec. 128, NIL)
FICTITIOUS-PAYEE RULE
The fictitious-payee rule contemplates that the payee is fictitious or not intended to be true recipient of the proceeds. The check is considered a bearer instrument negotiable by delivery alone. The underlying theory is that the maker of the check knew that the f ictitious payee cannot indorse the instrument so that he must have intended for it to be negotiated by mere delivery. (PNB v. Rodriguez, G.R. No. 170325,
The payee to whom payment is originally payable; and The acceptor who is the drawee drawee who accepts the bill.
COMPLETION AND DELIVERY INCOMPLETE BUT DELIVERED (Sec. 14)
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UST LAW PRE-WEEK NOTES 2018 Where the instrument is wanting in any material particular (e.g. a signature in blank paper delivered by the person making the signature in order that it may be converted into a negotiable instrument), the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. (NIL, Sec. 14)
NOTE: The defense of want of delivery of a complete instrument is only a personal defense which means that it is only available against a holder NOT in due course.
In order 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 reasonable time.
If the instrument is in the possession of an HIDC, valid delivery is conclusively presumed .
Presumption as to delivery
If the instrument is in the possession of a party other than an HIDC, possession of such party constitutes only prima facie presumption of delivery.
NOTE: Persons negotiating after its completion are liable because of their warranties.
FORGERY
If 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 reasonable time. (ibid)
It is the counterfeit making or fraudulent alteration of any writing. It happens when a signature is affixed by one who does not claim to act as an agent and who has no authority to bind the person whose signature he has forged.
INCOMPLETE AND UNDELIVERED (Sec. 15)
Forgery in a negotiable instrument does not avoid the instrument but only the forged signature . The signature is wholly inoperative. In other words, rights may still exist and be enforced by virtue of such instrument as to those signatures thereto are found to be genuine.
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. (NIL, Sec. 15)
Persons precluded from setting up the defense of forgery (2010 BAR)
NOTE: Persons, whose signature was placed thereon after delivery , are liable because of their warranties.
1.
Q: PN makes a promissory note for P5, 000.00, but leaves the name of the payee in blank because he wanted to verify its correct spelling first. He mindlessly left the note on top of his desk at the end of the workday. When he returned the following morning, the note was missing. It turned up later when X presented it to PN for payment. Before X, T who turned out to have filched the note from PN’s office, had endorsed the note after inserting his o wn name in the blank space as the payee. PN dishonored the note, contending that he did not authorize its completion and delivery. But X said he had no participation in, or knowledge about the pilferage and alteration of the note and therefore he enjoys the rights of a holder in due course under the Negotiable Instruments Law. Who is correct and why?
2. 3.
Those who admit/warrant the genuineness of the signature, such as indorsers, persons negotiating by delivery and acceptor; (NIL, Sec 56) Those who by their acts, silence, or negligence, are estopped from claiming forgery; A holder of a bearer instrument who subsequently negotiates such instrument with a prior forged indorsement - forged indorsement is not necessary to his title it being a bearer instrument .(NIL, Sec. 48)
CUT-OFF PRINCIPLE In order instruments, parties prior to forgery are relieved or cut-off of liability. They cannot be held liable by any holder, including a holder in due course.
Legal consequences when a bank honors a forged check:
A: The instrument is incomplete and undelivered. PN is correct in dishonoring the said instrument. Sec. 15 provides that where a n 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. Thus, X contention has no merit, since under this section it is a real defense that can be interposed against any holder even a holder in due course.
COMPLETE BUT UNDELIVERED (Sec. 16) It is incomplete and revocable until delivery of the instrument for the purpose of giving it effect (NIL, Sec. 16).Delivery is essential to the validity of any negotiable instrument. (Sundiang Sr. & Aquino, 2009)
Where a debtor who drew two checks payable to his creditor never delivered the checks to his creditor and a third party was able to collect the proceeds of the checks by forging the endorsement of the creditor as payee, the creditor has no cause of action against anyone on the basis of the checks, since the payee acquires no interest in the check until its delivery to him. (Development Bank of Rizal v. Sim Wei, G.R. No. 85419, March 9, 1993)
Drawer's signature is forged, then the drawee bank is liable because the bank is bound to know the signature of its customers. It is also in a superior position to detect the forgery because it has a specimen of the signature of the maker. Lastly, by accepting the instrument, it becomes an acceptor who admits the genuineness of the drawer’s signature. Payee’s signature is forged, then drawee bank is liable because it owes to the drawer-depositor an absolute and contractual duty to pay the check only to the person to whom it is made payable. Indorser’s signature is forged, drawee bank bears the loss as it is under strict liability to pay the check to the order of the payee. Payment under forged indorsement is not to the drawer’s order. Hence, if the drawee bank pays a check bearing forged signature of indorser, it does so at its own peril. However, the drawee bank may pass the liability to the collecting bank who cannot interpose the defense of forgery. The collecting bank is an indorser who warrants that the instrument is genuine and in all respect what it purports to be
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MERCANTILE LAW GR: Every holder is deemed prima facie to be an HIDC.
(NIL, Sec. 16). The collecting bank had no right to be paid by the drawee bank since the forged indorsement is inoperative. The collecting bank my ultimately recover from the forger.
XPN: When it is shown that the title of any person who has negotiated the instrument was defective. But this is only as regards a party who became such after the acquisition of the defective title.
Q: Ofelia Camacho Cheah accommodated a friend’s friend to deposit and encash a check issued by the Bank of America. The check was deposited to Ofelia’s account in PNB. A US dollar denominated check is normally subject to a 15-day clearing period. However, 12 days after the check’s deposit, the bank informed Ofelia that the check was cleared and credited to her account. Hence, Ofelia immediately withdrew the check ’s amount and the accommodated friend was able to take entire amount. It was only days after said withdrawal that PNB was informed by its correspondent bank of the insufficiency of funds to which the check was drawn. At that time, it was too late to recover the money withdrawn. Is PNB liable for the money lost on the said transaction?
SHELTER PRINCIPLE or HOLDER IN DUE COURSE BY SUBROGATION Under the "shelter principle," the HIDC, by negotiating the instrument, to a party not a HIDC, transfers all his rights as such holder to the latter who acquires the right to enforce the instrument as if he was a HIDC. The principle applies to a "sheltered" holder who is not a party to any fraud or illegality impairing the validity of the instrument. (NIL, Sec. 58)
DEFENSES AGAINST THE HOLDER 1.
A: Yes. The payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice. Jurisprudence provides that when the bank allowed the withdrawal of the value of a check prior to its clearing, before the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk that the check would be cleared and paid out. (PNB v. Spouses Cheah, G.R. No. 170895 & 170892, April 25, 2012, Del Castillo, J.)
2.
Real or Absolute Defenses (IM In Ultra. AFForD PODIF)
ACCOMODATION PARTY
1. 2.
Requisites to be an accommodation party (SNoL) 1. 2. 3.
3.
Accommodation party must Sign as maker, drawer, acceptor or indorser No value is received by the accommodation party from the accommodated party The purpose is to Lend the name. (NIL, Sec. 29)
4. 5. 6. 7. 8. 9.
An accommodation party cannot set up lack of consideration against any holder, even as to one who is not a holder in due course.
10.
11. 12.
Holder for value may recover from an accommodation party notwithstanding his knowledge that the accommodation party is only signing as such.
13.
1. 2.
3. 4.
HOLDER IN DUE COURSE (HIDC)
5.
A holder in due course is a holder who has taken the instrument under the following conditions(COFI):
6.
7.
3. 4.
Incomplete and undelivered instrument Minority (available only to the minor) Incapacity as far as incapacitated persons are concerned Ultra–vires acts of a corporation Want of Authority, apparent and real Fraudulent alteration Forgery Duress amounting to Forgery Prescription Other infirmities appearing on the face of the instrument Discharge in insolvency Illegal Contract Fraud in Factum or Esse Contractus
Personal or Equitable Defenses (InnocentS 2 ADD FUn In Fraud)
NOTE: It does not mean, however, that one cannot be an accommodation party merely because he has received some consideration for the use of his name. The phrase “without receiving value therefor” only means that no value has been received “for the instrument” and not “for lending his name.”
1. 2.
Real or Absolute Defenses – those that are attached to the instrument itself and are available against all parties, both immediate and remote, including holders in due course. Personal or Equitable Defenses – defenses which are only available against a holder not in due course. Those which grow out of the agreement or conduct of a particular person which renders it inequitable for him, though holding the legal title, to enforce it against the party sought to be made liable.
That is Complete and regular upon its face; Became the holder before it was Overdue, and without notice that it has been previously dishonored, if such was the fact; Took it in good Faith and for value; and At the time it was negotiated to him, he had no notice of any Infirmity in the i nstrument or defect in the title of the person negotiating it. (NIL, Sec. 52)
8. 9. 10.
Innocent alteration or spoliation Discharge of party Secondarily liable by discharge of prior party. Set-off between immediate parties Filling up of blanks not in accordance with the Authority given Acquisition of instrument by Duress or force and fear; unlawful means or for an illegal consideration Discharge by payment or renunciation or release before maturity Failure or absence of consideration. Undelivered complete instrument Insertion of a wrong date Fraud in inducement or simple fraud LIABILITIES OF PARTIES
Parties primarily liable (MAC) 1. 2. 3.
A holder in due course holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof.
M aker – of a promissory note; Acceptor – of a bill of exchange; and C ertifier of a check
Parties secondarily liable 1. Drawer of a bill
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UST LAW PRE-WEEK NOTES 2018 2.
Indorser of a note or a bill
He has the same warranties as a qualified indorser. but unlike a qualified indorser, a person negotiating by mere delivery is liable only to his immediate transferee . (NIL, par. 2, Sec. 65)
Negotiable instrument should be presented for payment to the party primarily liable. (NIL, Sec. 72[d])
PRIMARILY LIABLE Unconditionally bound
Absolutely required to pay the instrument upon maturity
NOTE: Person negotiating by mere delivery and a qualified indorser’s secondary liability is limited. They are only liable as to their warranties.
SECONDARILY LIABLE Conditionally bound Undertakes to pay only after the ff. conditions have been fulfilled: 1. Due presentment for payment or a cceptance to primary party; (NIL, Sec. 143) 2. Dishonor by such party; (NIL, Sec.70) 3. Taking of proceedings required by law. (NIL, Sec.152)
DISCHARGE OF NEGOTIABLE INSTRUMENT a. b.
c. d. e.
WARRANTIES DRAWER a. b.
c.
Requisites of payment in due course
The existence of payee and his then capacity to indorse; That the instrument will be accepted or paid upon due presentment by the party primarily liable according to its tenor; and That if dishonored, he will pay the party entitled to be paid. (NIL, Sec. 61)
1. 2. 3.
e.
Reasonable time as applied to presentment
Instrument is genunine; He had good title to it ; All prior parties had capacity to contract; Instrument, at the time of indorsement, was valid and subsisting; and On due presentment, it shall be accepted or paid, or both according to its tenor
Reasonable time is relative. Regard is to be had to the facts of each case, usage of business and trade, and the nature of the instrument. With respect to checks, current banking practice dictates that the check becomes stale if it is not presented for payment within 6 months (180 days) from issuance.
If the instrument is dishonored and the necessary proceedings on dishonor be duly taken, he will pay the holder. (NIL, Sec. 66)
NOTICE OF DISHONOR It is a notice given by the holder to the parties secondarily liable , that the instrument was dishonored by non-payment or non-acceptance by the drawee/maker.
IRREGULAR INDORSER He is not a party to the instrument but he places his signature in blank before delivery. He is not a party but he becomes one because of his signature in the instrument. a. b.
c.
NOTE: Persons primarily liable need not be given notice of dishonor because they are the ones who dishonored the instrument.
In an order instrument, liable to the payee and all subsequent parties If bearer instrument or payable to order of maker or drawer, liable to all parties subsequent to the maker or drawer If he signs for accommodation of the payee, liable to all parties subsequent to payee. (NIL, Sec. 64)
Instances when notice of dishonor is NOT necessary 1. 2. 3.
NOTE: The maker, general and qualified indorser, are absolutely liable in the instrument.
4.
QUALIFIED INDORSER
5.
a. b. c. d.
It is made at or after the date of Maturity; To the Holder thereof; and In Good faith and without notice that holder’s title is defective.(NIL, Sec. 88)
The term “in good faith” refers to the maker or acceptor and not to the holder.
GENERAL INDORSER a. b. c. d.
By payment in due course by or on behalf of the principal debtor; By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; By the intentional cancellation thereof by the holder; By any other act which will discharge a simple contract for the payment of money; a nd When the principal debtor becomes the holder of the instrument at or after maturity in his own right.(Sec. 119, NIL)
6.
Instrument is genuine; He has good title to it; Capacity to contract of all prior parties; and; No knowledge of any fact which would impair the validity of the instrument. (NIL, Sec.65)
Waiver of notice (NIL, Sec. 109) Waiver of protest (NIL, Sec. 111) When notice is di spensed with when after exercise of reasonable diligence, notice cannot be given or does not reach the parties sought to be charged (NIL, Sec. 112) When notice need not be given to the drawer (NIL, Sec. 114) When notice need not be given to the indorser (NIL, Sec. 115) Where due notice of dishonor by non-acceptance has been given (notice of dishonor by non-payment not necessary)(NIL, Sec. 116.)
ACCEPTANCE It is a signification by the drawee of his assent to the order of the drawer. (NIL, Sec. 132)
NOTE: He is liable to all parties who derive their title through his indorsement.
Requisites of acceptance:
PERSONS NEGOTIATING BY DELIVERY
1.
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GR: It must be in writing
MERCANTILE LAW XPN: Constructive acceptance and to a foreign bill payable in another state unless the other state requires for written acceptance. 2. 3. 4.
Presentment for Acceptance
Signed by the drawee; Must express a promise to pay money; and Delivered to the holder.
Pursuant to Philippine Clearing House Corporation Memorandum Circular No. 15-460A effective January 4, 2016, the following shall no longer be eligible or acceptable for clearing:
Upon acceptance, the bill, in effect b ecomes a note. The drawee who thereby becomes an acceptor assumes the liability of the maker (who has primary liability) and the drawer, that of the first indorser.
a.
Constructive acceptance The drawee is deemed to have accepted the instrument: 1. If he destroys the same; 2. Refuses within 24 hours after delivery or within such other period as the holder may allow; 3. To return the bill accepted or not accepted to the holder. (Sec. 137)
Drawee
Payability
Function
Presentment for Payment
Discharge of Liability
Effect of the Death of the Drawer
CHECKS
BOE
Always drawn on a bank or banker against a previous deposit of funds Always payable on demand
May or may not be drawn on a bank and need not be drawn against a deposit
Ordinarily intended for immediate payment Must be presented for payment within a reasonable time after its issue(NIL, Sec.186) When a check is accepted or certified, the drawer & indorsers are discharged from liability thereon (NIL, Sec. 188) Death of the drawer of a check with the knowledge of the bank revokes the authority of the bank to pay.
Must be presented for acceptance in certain cases (NIL, Sec. 143)
What is the effect of erasure or alteration on checks?
NOTE: Before delivery or notification, acceptor may revoke or cancel his acceptance.
BASIS
Need not be presented for acceptance (NIL, Sec. 185)
b.
Any check that shows or indicates on its face erasure or alteration regardless of any signature or initials that appear to indicate authorization of the alteration or erasure; or Does not indicate the date, payee, amount payable in figures, amount payable in words, or signature of the drawer.
MANAGER’S CHECK The Supreme Court held in various decisions that a manager’s check is as good as cash . A manager’s check is a check drawn by the bank against itself. It is deemed pre-accepted by the bank from the moment of issuance. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay. By issuing it, the bank in effect commits its total resources, integrity and honor behind the check. (Metrobank and Trust Company v. Chiok, GR No. 172652,November 26, 2014, 2015 BAR )
Either payable on demand or at a fixed or determinable future time (NIL, Sec.4) Intended for circulation as instrument of credit
CROSS CHECK A cross check is done by writing two (2) parallel lines on the left top portion of the check.
Effects of crosschecking: a. That the check may not be encashed but only deposited in the bank; b. That the check may be negotiated only once - to one who has an account with a bank; and c. That the act of crossing the check serves as a warning to the holder that the check has been issued for definite purpose so that he must inquire if he has received the check pursuant to the purpose. Otherwise, he is not an HIDC. (SIHI v. IAC, G.R. No. 72764, July 13, 1989)
Must be presented for payment within a reasonable time after its last negotiation (NIL, Sec. 171)
They remain liable despite acceptance (NIL, Sec. 84)
INSURANCE LAW CONCEPT OF INSURANCE Q: What is a Contract of Insurance? A: It is an agreement whereby one undertakes for a consideration to indemnify another against the loss, damage or liability arising from an unknown or contingent event (IC, Sec. 2[a]).
Death of the drawer of an ordinary bill does not revoke the authority of the drawee to pay.
Q: May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Philippines? Explain. A: YES. A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business under the Insurance Code of the Philippines. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war. Such member of the MILF or
8
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UST LAW PRE-WEEK NOTES 2018 the Abu Sayyaf is not a citizen or national of another country, but of the Philippines. Elements of an Insurance Contract
3.
1.
4.
2.
3.
4. 5.
Scheme to distribute losses – Such assumption of risk is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk. Payment of premium – As consideration for the insurer’s promise, the insured makes a ratable contribution called “premium,” to a general insurance fund. Existence of insurable interest – The insured possesses an interest of some kind susceptible of pecuniary estimation, known as “insurable interest.” Assumption of Risk – The insurer assumes that risk of loss for a consideration. Risk of loss – The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated peril.
Q: A marine insurance policy on a cargo states that “the insurer shall be liable for losses incident to perils of the sea”. During the voyage, seawater entered the compartment where the cargo was stored due to the defective drainpipe of the ship. The insured filed an action on the policy for recovery of the damages caused to the cargo. May the insured recover damages? (1998 BAR) A: NO. The proximate cause of the damage to the cargo insured was the defective drainpipe of the ship. This is peril of the ship, and not peril of the sea. The defect in the drainpipe was the result of the ordinary use of the ship. To recover under a marine insurance policy, the proximate cause of the loss or damage must be peril of the sea.
PARTIES TO AN INSURANCE CONTRACT 1.
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
Insurer – party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured on the happening of a specified contingency or event. The term “insurer” no longer includes “individuals” under RA 10607 .
2.
Insured – person in whose favor the contract is operative and is indemnified. The insured is not always the person to whom the proceeds are paid.
3.
Assured/Beneficiary – a person designated by the terms of the policy to receive the proceeds of the insurance. He may be the i nsured or a third party i n the contract for whose benefit the policy is issued and to whom the loss is payable.
That the ship shall carry the necessary documents to show nationality or neutrality and that it will not carry document which will cast reasonable suspicion thereon; That the ship shall not carry contraband , especially if it is making voyage through belligerent waters.
No fault indemnity clause (1994 BAR) It is a clause where the insurer is required to pay a third party injured or killed in an accident without the necessity of proving fault or negligence on the part of the insured. There is a stipulated maximum amount to be recovered.
Theft clause There is theft if the vehicle is taken with intent to gain without the consent of the insured-owner. Thus, there is theft even if:
MARINE INSURANCE
1. 2.
GR: In the usual form of a marine policy, the risks insured against are only “ perils of the sea” . XPN: When the insurance is an “all risk policy” and thus covers even “ perils of the ship” .
3.
XPN to XPN: When the risks are expressly excepted by the “all ri sk policy”.
The vehicle is returned; The vehicle was stolen by the driver of the insured ( Alpha Insurance and Surety Company v. Castor, G.R. 198174, September 2, 2013); (2014 BAR) The vehicle was taken to the owner of a repair shop for the purpose of repair a nd in order to attach accessories.(Paramount Insurance v. Spouses Remondeulaz, G.R. No.173773,November28, 2012)
“Perils of the sea or perils of navigation” (1998 Bar)
INSURABLE INTEREST
It includes only those casualties due to the (WiN): 1. Unusual violence or extraordinary action of WInd and wave, or 2. Other extraordinary causes connected with Navigation. (De Leon, 2010)
BASIS
LIFE GR: Every person has an unlimited insurable interest in his own life
PROPERTY
As to extent
XPN: Where life insurance is taken out by a creditor on the life of the debtor, insurable interest is limited to the amount of debt. (See discussion on
Limited to the actual value of the property
“Perils of the ship” It is a loss which, in the ordinary course of events, results from the (NON): 1. Natural and inevitable action of the sea; 2. Ordinary wear and tear of the ship; 3. Negligent failure of the ship’s owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.
WARRANTIES IMPLIED IN MARINE INSURANCE (2000 BAR) 1. 2.
That the ship is seaworthy to make the voyage and/or to take in certain cargoes; That the ship shall not deviate from the voyage insured;
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MERCANTILE LAW If the designated beneficiaries are disqualified by law to receive the proceeds, the policy remains valid and binding but the proceeds will be given to the estate of the insured.
MortgagorMortgagee)
When must insurab le interest exist
Must exist at the time the policy takes effect and need not exist thereafter (IC, Sec. 19).
GR: Must exist both at the time the policy takes effect and the time of loss, but need not exist in the period in between.(Sec. 19)
CHANGE IN BENEFICIARY GR: The insured shall have the right to change the beneficiary he designated in the policy. XPN: If the insured expressly waived this right in the said policy.
XPN: Secs. 21-24; 25
As to the benefici ary’s interest
The beneficiary need not have insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
NOTE: In the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable . (IC, Sec. 11) Effects of Irrevocable Designation of a Beneficiary: a.
The beneficiary must have insurable interest over the thing insured.
b.
c.
d.
e.
INSURABLE INTEREST IN LIFE
The beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary. (Gercio v. Sun Life Assurance of Canada, 48 Phil. 53, 28 September 1925) A new beneficiary cannot be added to the irrevocably designated beneficiary for this would in effect reduce the latter’s vested rights. (Go v. Redfern, 72 Phil. 71, 25 April 1941) The irrevocably designated beneficiary may obtain a policy loan to the extent stated in the schedule of values attached to the policy. The insured cannot take the cash surrender value assign or even borrow on said policy without the consent of the beneficiary. The insured cannot assign the policy if the designation of the beneficiary is irrevocable. The irrevocable beneficiary has a vested right. (Sundiang Sr. & Aquino, 2014)
INSURABLE INTEREST IN PROPERTY 1.
2.
Insurance upon one’s life – are those taken out by the insured upon his own life (IC, Section 10[a]) for the benefit of himself, or of his estate, in case it matures only at his death, for the benefit of third person who may be designated as beneficiary.
Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that contemplated peril might directly damnify the insured, is insurable interest. (IC, Sec. 13)
Insurance upon life of another – are those taken out by the insured upon the life of another. Where a person names himself beneficiary in a policy he takes on the life of another, he must have insurable interest in the life of the latter (De Leon, 2010). This class includes the following: a. b.
c.
d.
GR: Insurable interest must exist both at the time the insurance contract takes effect and at the time of loss. XPNS: 1. A change in interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss. (IC, Sec. 21) 2. A change of interest in one or more several distinct things, separately insured by one policy , does not avoid the insurance as to the others. (IC, Sec. 22) 3. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured. (IC, Sec. 23) 4. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured. (IC, Sec. 24)
His spouse and of his children. Any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance. Of any person upon whose life any estate or interest vested in him depends (IC, Sec. 10).
Persons prohibited from being designated as beneficiaries (1998 BAR) 1.
Those made between persons who were guilty of adultery or concubinage at the time of designation.
MORTGAGOR-MORTGAGEE Each has an insurable interest in the property mortgaged and this interest is separate and distinct from the other. Therefore, insurance taken by one in his name only and in his favor alone does not inure to the benefit of the other. The same is not open to objection that there is double insurance (RCBC vs. CA, 289 G.R. Nos. 128833-34, 128866, April 20, 1998; IC, Sec. 8).
NOTE: There need not be a finding of guilt in a criminal action. 2. 3.
Those made between persons found guilty of the same criminal offense, in consideration thereof. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
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2.
Mortgagor –As owner, has an insurable interest to the extent of its value even though the mortgage debt equals such value. Mortgagee –Has an insurable interest in the mortgaged property to the extent of the debt secured; such interest continues until the mortgage debt is extinguished. (Sundiang Sr. & Aquino, 2014)
In case the insured is overinsured by double insurance, the insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts.[IC, Sec. 94 (a)]Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. [IC, Sec. 94 (e)]
Insurable interest on the LIFE of a debtor Section 10 (c) of the Insurance Code is specific that every person has an insurable interest over the life and health of any person under a legal obligation to him for the payment of money.
“OTHER INSURANCE CLAUSE” The insurer may insert an “other insurance clause” which will prohibit double insurance. The rationale is to prevent the danger that the insured will over i nsure his property and thus avert the possibility of perpetration of fraud. It is lawful and specifically allowed under Sec. 75 of the I nsurance Code which provides that “a policy may declare that a violation or a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it. ”
Q: X borrowed from CCC Bank. She mortgaged her house and lot in favor of the bank. X insured her house. The bank also got the house insured. a. b. c.
Is this double insurance? Explain your answer. Is this legally valid? Explain your answer. In case of damage, can X and CCC bank separately claim for the insurance proceeds? (2012 BAR)
CO-INSURANCE and RE-INSURANCE. (1994 BAR) Co-insurance is the percentage in the value of the insured property which the insured himself assumes or undertakes to act as insurer to the extent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only fo r such proportion of the loss or damage as the amount of insurance bears to the designated percentage of the full value of the property insured.
A: a.
b.
c.
NO, there is no double insurance. Double insurance exists where the same person is insured by several insurers separately with respect to the same subject and interest. YES, X and CCC Bank can both insure the house as they have different insurable interests therein. X, the borrower-mortgagor, has an insurable interest in the house being the owner thereof while CCC Bank, the lender, also has an insurable interest in the house as mortgagee thereof. YES. If X obtained an open policy then she could claim an amount corresponding to the extent of the damage based on the value of the house determined as of the date the damaged occurred, but not to exceed the face value of the insurance policy; however, if she obtained a valued policy then she could claim an amount corresponding to the extent of the damage based on the agreed upon valuation of the house.
Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him against liability by reason of such original insurance. Basically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured. PERFECTION OF THE INSURANCE CONTRACT The contract of i nsurance is perfected when the assent or consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Mere offer or proposal is not contemplated (De Lim v. Sun Life Assurance Co., G.R. No. L-15774, November 29, 1920).
As for CCC Bank, it could claim an amount corresponding to the extent of the damage but not to exceed the amount of the loan it extended to X or so much thereof as ma y remain unpaid.
Cognition Theory - acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge.
DOUBLE INSURANCE AND OVERINSURANCE PREMIUM PAYMENT DOUBLE INSURANCE
OVER INSURANCE “Cash and carry” rule
There may be no over insurance as when the sum total of the amounts of the policies issued does not exceed the insurable interest of the insured.
When the amount of the insurance is beyond the value of the insured’s insurable interest.
There are two or more insurers insuring the same subject matter.
There may be only one insurer , with whom the insured takes insurance beyond the value of his insurable interest.
GR: No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid. Any agreement to the contrary is void. XPN: A policy is valid and binding even when there is non-payment of premium: 1.
Double insurance is valid . What is prohibited is for the insured to recover more than his interest or value of the property pursuant to the “principle of indemnity”.
2.
In double insurance, the insurers are considered as c oinsurers. Each one is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. This is known as the “principle of contribution” or “contribution clause”
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In case of life or industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy (IC, Sec. 77 ). When there is acknowledgment in a policy of a receipt of premium, which the law declares to be conclusive evidence of payment, even if there is stipulation therein that it shall not be binding until the premium is actually paid. This is without
MERCANTILE LAW prejudice however to right of insurer to collect corresponding premium (Sec. 77, ibid).
4.
CONCEALMENT
Section 77 of the Insurance Code in effect allows waiver by the insurer of the condition prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. (Makati Tuscany Condominium Corp. vs. Court of Appeals G.R. No. 95546, November 6, 1992)
Concealment is a neglect to communicate that which a party knows and ought to communicate. Requisites of concealment: 1. 2.
3.
4.
5. 6.
When there is an agreement allowing the insured to pay the premium in installments and partial payment has been made at the time of loss (Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, Nov. 6, 1992) When there is an agreement to grant the insured credit extension for the payment of the premium. (Art. 1306, NCC), and loss occurs before the expiration of the credit term ( UCPB General Insurance v. Masagana Telemart, G.R. No. 137172, Apr. 4, 20012006, 2007 Bar). When estoppel bars the insurer to invoke nonrecovery on the policy. When the public interest so requires, as determined by the Insurance Commissioner
3. 4. 5.
Non-payment of the first premium prevents the contract from becoming binding notwithstanding the acceptance of the application or the issuance of the policy, unless waived.
If there is concealment, the remedy of the insurer is rescission since concealment vitiates the contract of insurance. Good faith is not a defense in concealment. Concealment, whether intentional or unintentional entitles the injured party to rescind the contract of insurance.(IC, Sec. 27)
With respect to subsequent premiums, non-payment does not affect the validity of the contracts unless, by express stipulation, it is provided that the policy shall i n that event be suspended or shall lapse. (De Leon, 2010)
MISREPRESENTATION Misrepresentation is an oral or written statement of a fact or condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to assume the risk.
Payment by post-dated check A postdated check bearing a date prior to the loss, assuming availability of the funds thereof, would be sufficient even if it remains unencashed at the time of the loss, constitutes valid payment of premium. The subsequent effects of encashment would retroact to the date of the instrument and its acceptance by the creditor. (2007 BAR)
Requisites of misrepresentation: 1. 2.
REFUND OF PREMIUM 3.
Insured entitled to recover the whole or entire premiums paid: (2000 Bar)
2.
3.
4.
5.
2. 3.
The insured stated a fact which is untrue; Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead; and Such fact in either case is material to the risk.
TEST OF MATERIALITY (2000 BAR)
When no part of the thing insured has been exposed to any of the perils i nsured against (IC, Sec. 80); When the contract is voidable because of the fraud or misrepresentations of the insurer or his agent (IC, Sec. 82); When the insurance is voidable because of the existence of facts of which the insured was ignorant without his fault (IC, Sec. 82); When the insurer never incurred any liability under the policy because of the default of the insured other than actual fraud (IC, Sec. 82); or When rescission is granted due to insurer’s breach of contract (IC, Sec. 74).
It is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. (IC, Sec. 31)
INCONTESTABILITY CLAUSE After the policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent (IC, Sec. 48).
Insured is not entitled to return of premiums paid 1.
A party knows a fact which he neglects to communicate or disclose to the other party; Such party concealing is duty bound to disclose such fact to the other; Such party concealing makes no warranty as to the fact concealed; The other party has no means of ascertaining the fact concealed; and The fact must be material
Matters relating to the health of the insured are material and relevant to the approval of the issuance of the life insurance policy as these definitely affect the insurer’s action to the application. It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer , as it is sufficient that his nondisclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. (Sunlife Assurance Company of Canada v. CA, G.R. No. 105135, June 22, 1995 ; 2001 BAR)
Non-payment of premium
1.
If contract is illegal and the parties are in pari delicto.
If the peril insured against has existed, and the insurer has been liable for any period, the peril being entire and indivisible (IC, Sec. 81); In life insurance policies (IC, Sec. 80 [b]); If the policy is annulled, rescinded or if a claim is denied by reason of fraud(IC, Sec. 82);or
Defenses not barred by incontestability clause 1.
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That the person taking the insurance lacked insurable interest as required by law;
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5. 6.
7.
transport, for a fee, 100 sacks of rice from Manila to Tarlac. However, AM failed to deliver the cargo because its truck was hijacked when the driver stopped in Bulacan to visit his girlfriend.
That the cause of the death of the insured is an excepted risk; That the premiums have not been paid (IC, Secs. 77, 233[b], 236[b]); That the conditions of the policy relating to military or naval service have been violated (IC, Secs. 233[b], 234[b]); That the fraud is of a particularly vicious type; That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has ha ppened(IC, Secs. 233 [b], 234 [b]); or That the action was not brought within the time specified (IC, Sec. 63).
May Reynaldo hold AM liable as a common carrier? A: YES. The fact that AM Trucking operates only two trucks for hire on a selective basis, caters only to a few customers, does not make regular or scheduled trips, and does not have a certificate of public convenience are of no moment. The law does not distinguish between one whose principal business activity is the carrying of persons or goods or both and anyone who does such carrying only as an ancillary activity; between a person or enterprise offering transportation service on a regular or scheduled basis and one on an occasional, episodic or unscheduled basis; and between a carrier offering its services to the general public and one who offers services or solicits business only from a narrow segment of the general population. (De Guzman v. CA, G.R. No. L-47822 December 27, 1988)
PRESCRIPTION OF ACTIONS If there is no stipulation or the stipulation is void, the insured may bring the action within 10 years in case the contract is written. Parties may validly agree that an action on the policy should be brought within a limited period of time, provided such period is not less than 1 year from the time the cause of action accrues. If the period agreed upon is less than 1 ye ar from the time the cause of action accrues, such agreement is void . (IC, Sec. 63) a.
b.
Q: Spouses Dante and Leona Cruz lodged a Complaint against Sun Holidays, Inc. with the RTC for damages arising from the death of their son who perished with his wife while on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort owned by Sun Holidays.
The stipulated prescriptive period shall begin to run from the date of the insurer’s rejection of the claim filed by the insured or beneficiary and not from the time of loss. In case the claim was de nied by the insurer but the insured filed a petition for reconsideration, the prescriptive period should be counted from the date the claim was denied at the first instance and not from the denial of the reconsideration.(Sun Life Office, Ltd. vs. CA, supra)
Spouses contended that as a common carrier, it was guilty of negligence in allowing M/B Coco Beach to sail notwithstanding storm warning bulletins issued by PAGASA. Sun Holidays denied being a common carrier, alleging that its boats are not available to the general public as they only ferry resort guests and crew members.
SUBROGATION If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.(NCC, Art. 2207)
Is Sun Holidays liable as a common carrier? A: YES. Sun Holiday’s ferry services are so intertwined with its main business as to be properly considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by its having its own Coco Beach boats. A nd the tour packages it offers, which include the ferry services, may be availed of by anyone who can afford to pay the same. These services are thus available to the public. (Spouses Dante Cruz v. Sun Holidays, G.R. No. 1 8312, June 29, 2010)
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the i nsurance company of the insurance claim. (Malayan Insurance Co., Inc., vs. Alberto, et al., G.R. No. 194320, February 1, 2012)
EXTRAORDINARY DILIGENCE Carriage of Goods
Transport of Passengers Commencement Commences from the moment the person: Commences from the 1. Purchases the ticket time the goods are from the carrier; unconditionally placed in 2. Presents himself at the possession of and the proper place and in a received by the carrier proper manner to be for transportation. (CC, transported; and Art. 1736) 3. With the intent to board the conveyance. Duration 1. GR: Continues until the 1. All persons who goods are delivered, remain on the premises actually or a reasonable time after constructively, by the leaving the conveyance carrier to the consignee are to be deemed or to the person who has passengers, and what is a right to receive them, a reasonable time or a and even when they are reasonable delay within temporarily unloaded or this rule is to be
TRANSPORTATION LAW
COMMON CARRIERS A common carrier is a person engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering services to the public. ( Art. 1732, NCC )
Q: AM Trucking, a small company, operates two trucks for hire on a selective basis. It caters only to a few customers, and its trucks do not make regular or scheduled trips. It does not have a certificate of public convenience. On one occasion, Reynaldo contracted AM to
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MERCANTILE LAW stored in transit. (CC, Art. 1737)
XPN: The shipper or owner had made use of the right or stoppage in transit. (Ibid.) 2. Continues 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 been given a reasonable opportunity thereafter to remove them or otherwise dispose of them. (CC, Art. 1738)
determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for (La his departure. Mallorca v. CA, G.R. No. L 21486, May 14, 1966)
the other vehicle at fault Culpa Contractual; Direct and primary
Against the common carrier at fault
2. Carrier-passenger relationship continues until the passenger has been landed at the port of destination and has left the vessel-owner’s premises. The victim’s presence in a vessel after 1 hour from his disembarkation is not enough in order to absolve the carrier from liability in his death. (Aboitiz Shipping Corp. v. CA, GR No. 84458, November 6, 1989)
VIGILANCE OVER GOODS GR: The common carrier is presumed to have been at fault or to have acted negligently when the goods transported are lost, destroyed, or deteriorated. (Art. 1735, NCC) XPNs: When the same is due to any of the following causes only : (FA2 – C O)
CONTINUING-OFFER RULE
1.
Fortuitous events (flood, storm, earthquake, lightning, or other natural disaster or calamity). Provided, the following conditions are present: a. Natural disaster was the proximate and only cause; b. Carrier exercised due diligence to prevent or minimize loss before, during, and after the occurrence of the natural disaster; and c. The common carrier has not negligently incurred delay in transporting the goods. (Art. 1739-1740, NCC)
2.
Act of the public enemy in war, whether international or civil, provided: a. Act was the proximate and only cause; and b. Carrier exercised due diligence to prevent or minimize loss before, during, and after the act. (Art. 1739-1740, NCC)
3.
Act or omission of the shipper or owner of the goods, provided: a. If proximate and only cause – exempting b. If contributory negligence – mitigating
4.
The Character of the goods or defects in the packing or in the containers; provided, carrier exercised due diligence to forestall or pre vent loss. (Art 1742, NCC)
It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus, to stop their conveyances for a reasonable length of time in order to afford passengers an opportunity to board and enter, and they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their conveyances while they are doing so. (Dangwa v. CA, G.R. No. 95582, October 7, 1991)
CAUSES OF ACTION FOR FAILURE TO OBSERVE DILIGENCE REQUIRED PERSON WHO HAS CAUSE OF ACTION Third person who suffered damages Shipper of the goods damaged Heir/s of the deceased passengers or the passenger himself for the injuries sustained by him
CAUSE OF ACTION OF THE INJURED PASSENGER OR HIS HEIRS, IF THE PASSENGER DIES:
BASIS OF CAUSE OF ACTION AGAINST THE COMMON CARRIER Tort (extra-contractual negligence) Breach of the contract of carriage (Culpa Contractual) Breach of the contract of carriage (Culpa Contractual)
If the fact of improper packing is known to the carrier or its servants, or apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved from responsibility for loss or injury resulting therefrom. (Southern Lines Inc., v. CA, GR No. L16629, January 31, 1962)
BASIS OF CAUSE OF ACTION
Culpa criminal 5.
Against the negligent driver
Against the carrier and driver operating
The liability of the common carrier and his driver as well as the operator of the other vehicle and his driver is joint and several. (J. Dimaampao, citing Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004)
If the driver is convicted and it turns out that he is the heirs/ insolvent , passengers may run after the employer of the driver, pursuant to the employer’s subsidiary liability under Article 103, in relation to Arts. 100 and 102, RPC. Tort
Order or act of competent authority; provided, the authority is with power to issue the order. (Art. 1743, NCC) If the officer acts without legal process, the common carrier will be held liable. (Ganzon v. CA, GR No. L-48757, May 30, 1988)
In all cases other than those enumerated above, there is presumption of negligence even if there is an agreement limiting the liability of the common carrier in the vigilance over the goods. (NCC, Art. 1752)
Shipper’s Load and Count
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a good father of a family in the selection and supervision of their employees. (NCC, Art. 1759)
Acts of co-passengers or strangers A common carrier is responsible for injuries suffered by a passenger on account of the WILLFUL ACTS OR NEGLIGENCE of other passengers or of strangers, if the carrier’s employees through the exercise of the diligence of a good father of a family would have prevented or stopped the act or omission. (NCC, Art. 1763)
DELAY IN THE DELIVERY OF GOODS The carrier shall be liable for damages immediately and proximately resulting from such neglect of duty. (Ibid; Art. 1170, NCC)
Acts of criminals
In the absence of a special contract, a carrier is not an insurer against delay in the transportation of goods. The effects of delay are the following: a.
b. c. d.
GR: A common carrier is NOT absolved from liability committed by thieves or robbers.
Excusable delay in carriage merely suspends and generally does not terminate the contract of carriage. The carrier shall be made liable when vessel or vehicle is unreasonably delayed. Carrier remains duty bound to exercise extraordinary diligence. Natural disaster shall not free the carrier from responsibility. (Dimaampao & Dumlao-Escalante, 2014)
XPN: Where such thieves or robbers acted with grave or irresistible threat, violence, or f orce. NOTE: Hijacking is considered as force majeure where three of the five hold-uppers were armed with firearms and the robbers not only took away the truck and its cargo but also kidnapped the driver and his helper. (De Guzman v. CA, G.R. No. L -47822, December 22, 1988) EXTENT OF LIABILITY FOR DAMAGES
CONTRIBUTORY NEGLIGENCE Kinds of damages that may be recovered in case of death of a passenger
IN CARRIAGE OF GOODS: If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable for damages, which however, shall be equitably reduced. (NCC, Art. 1741)
1. 2. 3. 4. 5. 6.
IN PASSENGERS: Contributory negligence is the failure of a person who has been exposed to injury by the fault or negligence of another, to use such degree of care for his safety and protection an ordinarily prudent man would use under the circumstances. (Martin, 1989, citing Rakes v. Atlantic Gulf Co., G.R. No. 1719, January 23, 1907)
7.
An indemnity for the Death of the victim; An indemnity for loss of Earning capacity of the deceased; Moral damages; Exemplary damages; Attorney's fees and expenses of litigation; Interest in proper cases (Briñas v. People, G.R. No. L30309, November 25, 1983); and Hospital and funeral expenses
In case of death of a passenger, the common carrier is liable to pay P50, 000 as indemnity for the life of a passenger. (Victory Liner v. Gammad, G.R. No. 159636, November 25, 2004)
NOTE: Contributory negligence on the part of the passenger does NOT justify the common carrier’s exemption from liability. (Martin, 1989) It will only mitigate the liability of the common carrier. (J. Dimaampao)
Carrier is NOT liable for exemplary damages where there is no proof that it acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
STIPULATIONS LIMITING LIABILITY
MORAL DAMAGES
Even if there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is still disputably presumed to have been negligent in case of its loss, destruction or deterioration. (NCC, Art. 1752)
GR: Moral damages are NOT recoverable for breach of contract of carriage in view of Articles 2219-20 of the Civil Code.
A contract fixing a sum that may be recovered for the loss, destruction, and deterioration is binding provided it is:
a.
a. b.
XPNs:
b.
Just and reasonable under the circumstances; and Has been fairly and freely agreed upon.
Where the mishap results in the death of the passenger; and Where it is proved that the common carrier was guilty of fraud or bad faith, even if death does not result. (Darnes v. Quiñones, G.R. No. 206468, August 2, 2017, Del Castillo, J.)
LIABILITIES OF THE COMMON CARRIER BILL OF LADING Acts of its employees It is a written acknowledgment of receipt of goods and agreement to transport them to a specific place and to a named person or to his order. (Unsworth Transport International [Phils] v. CA, G.R. No. 166520, July 26, 2010; 1992, 1998 Bar )
Common carriers are liable for the death of or injuries to passengers through the NEGLIGENCE OR WILLFUL ACTS of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. The liability of the common carriers does NOT cease upon proof that they exercised all the d iligence of
Parties to a bill of lading 1.
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Shipper; and
MERCANTILE LAW 2.
Doctrine of inscrutable fault
Carrier
NOTE: A consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the contract by reason of either:
In collision of vessel, where fault is established but it cannot be determined which of the two vessels were at fault, both shall be deemed to have been at fault.
Doctrine of limited liability a) b)
c)
the relationship of agency between the consignee and the shipper/ consignor; the unequivocal acceptance of the bill of lading delivered to the consignee, with f ull knowledge of its contents; or availment of the stipulation pour autrui, i.e., when the consignee, a third per son, demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee’s favor, specifically the delivery of the goods/cargoes shipped.
It is also called the “no vessel, no liability doctrine” , it provides that liability of ship owner is limited to ship owner’s interest over the vessel. In case of loss, the ship owner’s liability is also extinguished. Limited liability likewise extends to ship’s appurtenances, equipment, freightage, and insurance proceeds. This can be availed only by the shipowner and the shipping agent.
Instances where doctrine of limited liability shall NOT apply 1.
(MOF Company, Inc., v. Shin Yang Brokerage Corporation, G.R. No. 172822, December 18, 2009, Del Castillo, J.)
2.
THREE-FOLD CHARACTER OF A BILL OF LADING 1.
2.
3.
As a receipt , it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value. As a contract , it names the contracting parties, which include the consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties. (Phoenix Assurance Co., Ltd. v. United States Lines, G.R. No. L-24033, F eb. 22, 1968) As a document of title , it regulates the relations between a carrier and a holder of the same.
3. 4. 5. 6.
ACCIDENTS AND DAMAGES IN MARITIME COMMERCE Accidents in maritime commerce (CASA) 1. 2. 3. 4.
CHARTER PARTY A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use in consideration of the payment of freight. (Caltex v. Sulpicio Lines, G.R. No. 131166, September 30, 1999)
GENERAL AVERAGE Damages or expenses deliberately caused in order to save the vessel, its cargo or both from real and known risk.
1. Bareboat or demise - The ship owner gives possession of the entire vessel to the charterer. In turn, the charterer supplies, equips, and mans the vessel. The charterer is the owner pro hac vice.
Both the ship and cargo are subject to the same danger There is a deliberate sacrifice of part of the vessel, cargo, or both Damage or expenses incurred to the vessel, its cargo, or both, redounded to the benefit of the respective owners. All those who have benefited shall satisfy the average.
Negligence of the charterer gives rise to its liability to others. The charterer assumes the rights and liabilities of the owner to third parties who deal with the vessel. 2. Contract of affreightment - owner of the vessel leases a part or all of its space to haul goods for others Charterer is not regarded as owner. Ship owner retains ownership over the vessel. Ship owner remains liable and carrier must answer for any breach of duty. It can either be:
b.
Collision Averages Shipwreck; and Arrival under stress
General average vs. Particular average
CLASSES OF CHARTER PARTY
a.
Repairs and provisioning of the vessel before the loss of the vessel; (CC, Art. 586) Insurance proceeds. If the vessel is insured, the proceeds will go to the persons entitled to claim from the shipowner; (Vasquez vs. CA, G.R. No. L42926, Sept. 13, 1985) Claims of the crew under the Workmen’s Compensation Act; When the shipowner is guilty of fault or negligence; When the vessel is not abandoned; and When vessel is not seaworthy.
Time charter – Vessel is chartered for a particular time or d uration. While the ship owner still retains possession and control of the vessel, the charterer has the right to use all vessel’s facilities and designate vessel’s destination. Voyage charter – Vessel is chartered for a carriage of goods from one or more ports of loading to one or more ports of unloading. An owner who retains possession of the ship remains liable as carrier and must answer for loss or non-delivery of the goods received for transportation. (Cebu Salvage Corp. v. Philippine Home Assurance Corp., G.R. No. 150403, January 25, 2007)
PARTICULAR AVERAGE Damages or expenses caused to the vessel or cargo that did not inure to the common benefit, and borne by respective owners. No common danger to both the vessel and the cargo Expenses and damages are not deliberately made Did not inure to common benefit and profit of all persons interested in the vessel and her cargo. Only the owner of the goods benefiting from the damage shall bear the expense of average.
Requisites of general average (CD-PS) 1. 2. 3. 4.
Common danger present; Deliberate sacrifice of part of the vessel or cargo; Successful saving of vessel and/or cargo; and Proper procedure and legal steps. a. b.
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Assembly to be called by captain of all the cargo owners and other officers of the vessel; Deliberation;
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f.
Resolution of the captain; Entry of resolution in the logbook; Delivery of the minutes of the meeting to the maritime judicial authority of the first port of arrival within 24 hours fr om arrival; and Ratification by captain under oath. (Dimaampao & Dumlao-Escalante, 2014)
The suit for loss or damage should be brought within one year from: 1. 2.
NOTE: The one-year period is computed from the delivery of goods to the operator and not to the consignee. The parties may agree to extend the one-year period to file a case under the COGSA. (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, G.R. No. 74125, July 31, 1990)
Persons liable for the amount o f loss In general average: All persons having an interest in the vessel and cargo therein at the time of the occurrence of the average shall contribute. (Art. 812, CC) In particular average: The owner of the things which gave rise to the expenses or suffered the damage shall bear the simple or particular averages. (Art. 810, CC)
The prescriptive period for an action against a broker is ten (10) years and not one year under the COGSA, since the broker is not a carrier, charterer or holder of the bill of lading. (Reyma Brokerage Inc. v. Philippine Home Assurance Corporation, G.R. No. 93464, October 7, 1991)
Rules on collision of vessels a.
b.
c.
Delivery of the goods, in case of damage; or The date when the goods should have been delivered, in case of loss.
Collision refers to the contact of two moving vessels. If one vessel is moving while the other is stationary, this is known as allision. The vessel at fault shall indemnify the damages sustained or losses incurred. ( Art. 826, Code of Commerce) If both vessels are at fault, each shall be solidarily liable for losses or damages to the cargoes. ( Arts. 827 – 828, Code of Commerce)
Instances where there is NO liability under COGSA (FDUD)
In this situation, the common carrier operating the vessel is precluded from interposing the defense of due diligence in the selection and supervision of its employees in an action against it by a shipper of the other colliding vessel.
Procedure and prescriptive period for filing maritime claims in coastwise carriage and international carriage
1. 2. 3. 4.
Q: Two vessels figured in a collision resulting in considerable loss of cargo. The damaged vessels were safely conducted to a port. Kim, a passenger and Ruby, a shipper who suffered damage to his cargo, did not file maritime protest. Can Kim and Ruby successfully maintain an action to recover losses and damages arising from the collision? (2007 BAR)
If the nature or value of goods knowingly and f raudulently misstated by shipper; If damage resulted from Dangerous nature of shipment loaded without consent of carrier; If Unseaworthiness not due to negligence; and If Deviation was to save life or property at sea.
Coastwise
International
(within the Philippines)
(foreign port to Philippines)
NOTICE OF DAMAGE (FILING OF CLA IM) Condition precedent before filing case in court
A: Ruby, the shipper can successfully maintain an action to recover losses and damages arising from the collision notwithstanding his failure to file a maritime protest since the filing thereof is required only on the part of Kim, who, being a passenger of the vessel at the time of the collision, was expected to know the circumstances of the collision. Kim's failure to file a maritime protest will therefore prevent him from successfully maintaining an action to recover his losses and damages. (CC, Art 836)
When damage to goods is apparent, the shipper must immediately file his claim with the carrier
CARRIAGE OF GOODS BY SEA ACT (COGSA) If not apparent, the shipper must file his claim within 24 hours from delivery
COGSA applies in terms of loss or damage of goods transported: 1. 2.
To and from P hilippine ports in foreign trade; and To domestic trade when there is a paramount clause in the contract.
Within 6 years if no bill of lading has been issued; or
Amount of the carrier’s liability under the COGSA
2.
When the damage is apparent, the claim should be filed immediately upon discharge of the goods
When damage is not apparent clam should be filed within 3 days from delivery
FILING OF CASE IN COURT (FILING OF ACTION)
COGSA applies only in case of non-delivery or damage, and not to misdelivery or conversion of goods. (Ang v. American Steamship Agencies, Inc., G.R. No. L-22491, January 27, 1967)
1.
NOT a condition precedent before filing
Within 10 years, if a bill of lading has been issued
The liability limit is set at $500 per package or customary freight unless the nature and value of such goods is declared by the shipper. Shipper and carrier may agree on another maximum amount, but not more than amount of damage actually sustained.
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Shipper has 1 year form date of delivery (delivered but damaged goods), or the date when the vessel left port, or from the date of delivery to the arrastre (non-delivery or loss) within to file his case in court.
MERCANTILE LAW realm of Warsaw Convention . A cause of action based on tort did not bring the case outside the sphere of the Warsaw Convention. (Lhuiller v. British Airways, GR No. 171092, March 15, 2010)
NOTE: The one-year prescriptive period does not apply to misdelivery or conversion.
THE CORPORATION CODE (BP BLG. 68)
Doctrine of combined or connecting services The carrier which delivered the goods to the consignee shall assume the obligations, rights and actions of those who preceded him in the conveyance of the goods. The shipper or consignee should proceed against the one who executed the contract or against the others who received the goods without reservation. But even if there is reservation, they are not exempted from liabilities that they may have incurred by reason of their own acts. (CC, Art. 373)
Attributes of a Corporation [ALS – PAPI] It is an Artificial being It is created by operation of Law It enjoys the right of Succession It has the Powers, Attributes and Properties expressly authorized by law or Incident to its existence. (Sec. 2, CC) 1. 2. 3. 4.
Remedy: The carrier may then file a third-party complaint against the one who is really responsible. The carrier is an indispensable party. But the shipper or consignee may sue all of them as alternative defendants.
Distinguish the following classes of corporation. As to existence of stocks
WARSAW CONVENTION The WC applies to all i nternational carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking. (WC, Art. 1[1])
Limitations to the liability of air carriers 1.
Carriage of persons – 250,000 francs for each passenger. Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability.
STOCK CORPORATION
NON-STOCK CORPORATION
It has capital stock divided into shares and is authorized to distribute to the holders of such shares dividends or allotment of the surplus profits on basis of the share held. (CC, Sec. 3)
All others are non-stock corporation One where no part of its income is distributable as dividends to its members, trustees, or officers. Any profit which it may obtain as an incident to operations shall, whenever necessary or proper, be used for furtherance of the purpose or purposes for which the corporation was organized. (CC, Sec. 87)
NOTE: By special contract, the carrier and the passenger may agree to a higher limit of liability. (Alitalia v. IAC, G.R. No. 71929, D ecember 4, 1990) 2.
3.
Carriage of registered baggage and of cargo –250 francs per kilogram unless the passenger or consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the case so requires. Objects which the passenger takes charge himself – 5,000 francs per passenger.
As to how it is created and its function
Carrier is NOT entitled to the foregoing limit if the damage is caused by willful misconduct or default on its part . (WC, Art. 25) Where the loss of the baggage of a passenger was due to the fault or recklessness of an airline company, the limitation on the liability of airline companies under the Warsaw Convention is not applicable. (Alitalia v. IAC, G.R. No. 71929, December 4, 1990)
FILING OF CLAIM GR: Claim for damages must be brought within 2 years reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the carriage stopped, otherwise, right to damages shall be extinguished.
PRIVATE CORPORATION
PUBLIC CORPORATION
Formed for some private purpose, benefit or end
Formed for the government of a portion of the State for the general good or welfare
If NOT created for political or public purpose although whole or substantially the whole interest in the corporation belongs to the State
If the corporation is created for political or public purpose connected with the administration of government
As to legal status
XPN: Where delaying tactics were employed by airline itself to deny the passenger time to file his complaint. (United Airlines v. Uy, G.R. No. 127768, November 19, 1999)
DE JURE CORPORATIO N
DE FACTO CORPORATION
CORPORATIO N BY ESTOPPEL
NOTE: The allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the
Organized in accordance
A Corporation where there
1. All persons who assume to
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exists a flaw in its incorporation.
Requisites:
NOTE: If there is substantial compliance, a de jure corporation results. (Dimaampao and Escalante, 2017 )
1.
2.
Organized under a valid Law. Attempt in good faith to form a corporation according to the requiremen ts of the law (Colorable Compliance)
NOTE: Issuance of Certificate of Incorporati on by SEC is a minimum requiremen t for the formation of the corporation in good faith. (Sundiang Sr. & Aquino, 2009)
3.
Use of corporate Powers The corporation must have performed the acts which are peculiar to a corporation like entering into a subscriptio n agreement, adopting by-laws, and electing directors (Actual User)
act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result. 2. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation (CC, Sec. 21)
church. It may be formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church.
Where there is no third person involved and the conflict arises only among those assuming the form of a corporation who know that the corporation has not been registered, there is NO corporation by estoppel. (Lozano v. Judge Delos Santos, G. R. No. 125221, June 19, 1997)
This rule is used to ascertain the Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities as provided for under the Constitution and other nationalization laws, where corporate shareholders are present in the situation, by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate shareholder.
NOTEL A corporation sole does not have any nationality but for purposes of applying nationalization laws, nationality is determined not by the nationality of its presiding elder but by the nationality of its members, constituting the sect in the Philippines.
NATIONALITY OF CORPORATIONS How is the nationality of a corporation determined? In Philippine jurisdiction, the nationality of a corporation is primarily governed by the Place of Incorporation Test . This means that a corporation is considered a national of the country where it is incorporated regardless of the nationality of the controlling stockholders. (Sec. 123, CC) In certain instances, however, the nationality of the corporation is determined by the Control Test . Nationality of the corporation is determined by the nationality of the controlling stockholders. This test is applied during: war; for wholly or partly nationalized activities.
Grandfather Rule
In other words, by ascertaining the nationality of the controlling stockholders of the investing-corporation. If the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership. (SEC Opinion, 27 October 2011); (Dimaampao and Escalante, 2017)
What does “capital” mean in this constitutional provision, “Section 11, Article XII of the Constitution: No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. ”? For purposes of determining compliance [with the constitutional or statutory ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote . (Roy III v. Herbosa, G.R. No. 207246, April 18, 2017, EN BANC)
Corporation Sole
Illustration:
One established for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or
1)
ABC Corporation
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MERCANTILE LAW (public utility)
XYZ Corp. (60%)
Filipinos (60%)
Foreigner (40%)
Non-voting Preferred Shares – 100 (20% Filipino; 80% Foreign)
ABC Corporation is complaint. For purposes of determining compliance, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote. (Roy III v. Herbosa, G.R. No. 207246, April 18, 2017, EN BANC)
Foreigners (40%)
Under the Control Test, ABC Corporation is compliant with the foreign equity limitation. XYZ Corp. shall be considered as wholly Filipino owned . Hence, both ABC and XYZ Corp. are considered as Philippine nationals. The application of the grandfather rule is not necessary anymore.
NOTE: In case of mixed shares issued by the corporation, it need not be 60% or more ALL THE WAY or in EVERY CLASS OF SHARES issued, as long as the two requirements mentioned above is complied with.
2)
In the illustration above 80% of the voting shares and 60% of the outstanding capital stock is Filipino owned, hence compliant with the constitutional requirement.
ABC Corporation (public utility)
DOCTRINE OF SEPARATE JURIDICAL PERSONALITY XYZ Corp. (60%)
Filipinos (50%)
Foreigner (40%)
The doctrine of corporate juridical personality states that a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. (Francisco v. Mallen Jr. G.R. No. 173169, September 22, 2010)
Foreigners (50%)
ABC Corp. is not compliant. Since the Filipino equity in the investing-corporation is less than 60%, it cannot be considered as Philippine national. Hence, you apply the grandfather rule, where only the shares that correspond to the percentage owned by the Filipinos must be registered as such, and the rest are foreign owned.
Significance of the doctrine of separate personality 1.
A corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. (Cease vs. CA, G.R. No. L33172, October 18, 1979)
Only 50% of the 60%equity of the investing corporation shall be considered as owned by Filipino nationals. 3)
Narra Nickel Case
ABC Corporation (public utility)
XYZ Corp. (60%)
Filipinos (60%)
2.
Foreigner (40%)
Foreigners (40%)
3.
Although on its face, XYZ Corp. may be considered as Philippine national, since there is doubt as to the Filipino equity, you apply the grandfather rule, where only the shares that correspond to the percentage owned by the Filipinos must be registered as such, and the rest are foreign owned.
Right to acquire and possess property – property conveyed to or acquired by the corporation is in law the property of the corporation itself as a distinct legal entity and not that of the stockholders or members. (Art. 44[3], Civil Code)
NOTE: The interest of the stockholders over the properties are merely inchoate. (Saw vs. CA, G.R. No. 90580, April 8, 1991; 1996, 2000 Bar ) 4.
Acquisition of jurisdiction – service of summons may be made only on the president, general manager, corporate secretary, treasurer or inhouse counsel. (Rules of Court, Rule 14, Sec. 11)
5.
Changes in individual membership – corporation remains unchanged and unaffected in its identity by changes in its individual membership or ownership of its stocks.
In the example above, only 60% of the 60% (36%) shares of the investing corporation shall be of Filipino equity. Hence ABC Corp. is not compliant. 4) ABC Corp. – 300 outstanding capital stock
Right to bring actions – may bring civil and criminal actions in its own name in the same manner as natural persons. (Art. 46, Civil Code)
NOTE: Rights belonging to the corporation cannot be invoked by the stockholders (or directors and officers) even if the latter owns substantial majority of the shares of the shares in that corporation and rights of the stockholders, directors and officers cannot be invoked by the corporation. (Stonehill vs. Diokno, G.R. 19550, June 19, 1967)
In the case of Narra Nickel Mining v. Redmont (2014), the Filipino subscriptions were not paid by them but allegedly financed by foreign nationals. Hence the Supreme Court applied in this case the grandfather rule, since there is doubt as to the ownership of the shares owned by Filipinos.
Liability for acts or contracts – As a general rule, the obligation of the corporation is not the liability of the stockholders, officers or directors. (1992, 1996, 2010 Bar)
Common shares – 100 (100% Filipino owned) Voting Preferred Shares – 100 (60% Filipino; 40% Foreign
LIABILITY OF CORPORATION
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UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 As to tort. A corporation may be held accountable for tort when the act was committed by the officer or agent under the express direction or authority from the stockholders or members acting as a body or generally from the directors as the governing body.
fiction that these corporations are distinct entities and shall treat them as one. (Vicmar D evelopment Corp. v. Camilo Elarcosa, et al., G.R. No. 202215, December 09, 2015, Del Castillo, J.) 4.
As to crime. If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be a rrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine; (forfeiture; revocation). Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. (Ching v. Secretary of Justice, G.R. No. 164317, February 6, 200 6)
ALTER EGO THEORY/INSTRUMENTALITY THEORY This theory espouses that the corporate entity is a mere farce as it is the alter ego, business conduit or instrumentality of a person or another entity. This contemplates of: 1.
RECOVERY OF MORAL DAMAGES GR: A juridical person is, as a general rule, not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock
2.
XPNs: 1.
2.
The Objective test where the end result in piercing the veil of corporate fiction is to make the stockholders liable for debts and obligations of the Corporation not to make the Corporation liable for the debts and obligations of the stockholders. (Umali v CA, G.R. No. 89561, September 13, 1990)
Article 2219 paragraph 7 of the Civil Code expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. This provision does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as the corporation can validly complain for libel or any other form of defamation and claim for moral damages. (Filipinas Broadcasting Network, Inc. v. AMEC-BCCM, G.R. No. 141994, January 17, 2005) When the corporation has a reputation that is debased, resulting in its humiliation in the business realm. (Manila Electric Company v. T.E.A.M. Electronics Corporation, et. al., G.R. No. 131723, December 13, 2007)
3.
Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own (Instrumentality or Control test ); Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; (Fraud test ) and The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of ( Harm test ).(PNB v. Hydro Resources Contractors Corp., G.R. Nos. 167530, 167561,and 167603 693 SCRA 294 March 13, 2013)
CORPORATE NAME The SEC shall not approve the proposed corporate name if: 1. There is already a prior right over the use of such corporate name; and 2. The proposed name is either: a) b)
DOCTRINE OF PIERCING THE CORPORATE VEIL The Doctrine of Piercing the Corporate Veil is the doctrine that allows the State to disregard for certain justifiable reasons the notion that a corporation has a personality separate and distinct from the persons composing it.
c)
identical, or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or patently deceptive, confusing or contrary to existing law. (Industrial Refractories Corporation of the Philippines v. CA, et al., G. R. No. 122174, October 3, 2002)
PRINCIPLE OF PRIORITY OF ADOPTION Tests in determining the applicability of the Doctrine of Piercing the Corporate Veil (ECAO) 1.
2.
3.
Priority of adoption determines the right to the exclusive use of a corporate name with freedom from infringement. Further, to determine whether a given corporate name is “identical” or “confusingly or deceptively similar” with another entity’s corporate name, the corporate names must be evaluated in their entirety. (Lyceum of the Philippines v. CA, G.R. No. 101897, March 5, 1993)
When the corporation is used to defeat public convenience as when the corporate fiction is used as a vehicle f or the evasion of an existing obligation; (Equity Cases) In fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; (Control Test ) In Alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Timoteo H. Sarona v. National Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280, January 18, 2012)
DOCTRINE OF SECONDARY MEANING It is the doctrine which states that a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long a nd so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product. (Philippine Nut Industry, Inc. v. Standard Brands. Inc. G.R. No.L-23035, July 31, 1975)
Where it appears that business enterprises are owned, conducted and controlled by the same parties, law and equity will disregard the legal
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MERCANTILE LAW BY-LAWS
3.
Requisites for valid by-laws (CoMorO-RAG) 1. 2. 3. 4. 5. 6.
4. 5.
Must be consistent with the COrporation Code, other pertinent laws and regulations; Must not be contrary to MORals and public policy; Must not impair Obligations and contracts or property rights of stockholders; Must be Reasonable; Must be consistent with the charter or AOI; Must be of General application and not directed against a particular individual.
6. 7.
8. 9.
Incur, create or increase bonded indebtedness (Sec. 38, CC); and Deny pre-emptive rights (Sec. 39, CC); Sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property, assets, and goodwill (Sec. 40); Purchase or acquire own shares (Sec. 41, CC); Invest in another corporation or business or for any purpose other than the primary purpose (Sec. 42, CC); Declare dividends (Sec. 43,CC); Enter into management contract (Sec. 44, CC);
ULTRA VIRES ACTS NOTE: Thirds persons are not bound by the provisions of the by-laws of a corporation, unless they have knowledge or notice of the by-laws at the time the contract was executed. (China Banking Corp. v. CA, G.R. No. 117604, March 26, 1997)
An ultra vires act refers to an act outside or beyond express, implied and incidental corporate powers. The concept also includes those acts that may ostensibly be within such powers but are, by general or special laws, either proscribed or declared illegal. (Rural Bank of Milaor v. Ocefemia, G.R. No. 137686, February 8, 2000)
Effect of non-filing of the by-laws within the required period
GR: Acts which are clearly beyond the scope of the corporation’s authority are null and void and cannot be given any effect. (Gancayco v. City Government of Quezon City, 658 SCRA 853, October 11, 2011)
Failure to submit the by-laws within 30 days from incorporation does not automatically dissolve the corporation. It is merely a ground for suspension or revocation of its charter after proper notice and hearing, under Section 6(I) of PD 902-A. The corporation is, at the very least, a de facto corporation whose existence may not be collaterally attacked. (Sawadjaan v. CA, G.R. No. 142284, June 8, 2005)
XPN: Stockholders ratify the ultra vires acts. For valid ratification, all the stockholders must give their consent to such ratification; the rights of the State are not involved; the creditors are not prejudiced; and the act or contracts must be wholly executed. (Dimaampao and Escalante, 2017)
CORPORATE POWERS Express or general powers of a corporation (Theory of General Capacity)
DOCTRINE OF APPARENT AUTHORITY(2015 BAR) If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.
A corporation has no power except those expressly conferred upon it by the Corporation Code and those that are implied or incidental to its existence. Every corporation has the following general powers: (SuSuCo-ABS-PEDRO) 1. 2. 3. 4. 5. 6.
7.
8. 9.
To SUe and be sued; Of Succession; To adopt and use of Corporate seal; To amend its Articles of Incorporation; To adopt its By-laws; For Stock corporations: issue and sell stocks to subscribers and treasury stocks; for non-stock corporations: admit members; To Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and personal property, securities and bonds; To Enter into merger or consolidation; To make reasonable Donations for public welfare, hospital, charitable, cultural, scientific, civic or similar purposes, provided that no donation is given to any: a. b. c.
Apparent authority is derived not merely from practice. Its existence may be ascertained through: 1.
2.
The general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or The acquiescence in his acts of a particular nature, with actual or constructive notice thereof, within or beyond the scope of his ordinary powers.
It is not the quantity of similar acts which establishes apparent authority but the vesting of a corporate officer with the power to bind the corporation. (Advance Paper Corp. v. Arma Traders Cor.p, GR No. 176897, December 11, 2013)
TRUST FUND DOCTRINE
Political party, Candidate and Partisan political activity.
The subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits, and which the corporation may not dissipate. The creditors may sue the stockholders directly for the latter’s unpaid subscription.
10. To establish pension, Retirement, and other plans for the benefit of its directors, trustees, officers and employees – basis of which is the Labor code; 11. To exercise Other powers essential or necessary to carry out its p urposes. (CC, Sec. 36)
Exceptions to the trust fund doctrine Specific powers of a corporation (Theory of Specific Capacity).
The Code allows distribution of corporate capital only in these instances:
The specific powers of a corporation are the following: 1. 1. 2.
Extend or shorten corporate term (Sec. 37, CC); Increase or decrease capital stock (Sec. 38, CC);
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Amendment of the AOI to reduce authorized capital stock;
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 2.
3. 4.
5. 6. 7.
in the board should be filled up by the vote of the stockholders of Greenville Corporation. Greenville Corporation's directors defended the legality of their action, claiming as well that Stockholder X's derivative suit was improper.
Purchase of redeemable shares by the corporation regardless of existence of unrestricted retained earnings; Dissolution and eventual liquidation of the corporation; Dividends from investments in wasting asset corporation (one solely or principally engaged in the exploitation of “wasting assets,” distributing net proceeds from exploitation of their holdings, such as mines, oil wells, without allowance or deduction for depletion); In close corporation, where there is a deadlock (Sec. 104, CC) Purchase own shares of stock Payment for the fair value of the shares of dissenting stockholders. (Dimaampao and Escalante, 2017)
Rule on the issues raised. (2013 BAR) The remaining directors of the corporation’s Board, even if still constituting a quorum, cannot elect another director to fill in a vacancy caused by the resignation of a hold-over director. Section 23 of the CC means that the term of the members of the board of directors shall be only for one year; their term expires one year after election to the office. The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is holding the succeeding term. With the expiration of term of office, a vacancy resulted which, by the terms of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose. His resignation as a hold-over director did not change the nature of the vacancy; the vacancy due to the expiration of the term had been created long before his resignation. (Valle Verde Country Club, Inc., et al., v. Africa, G.R. No. 151969, September 4, 2009)
BUSINESS JUDGMENT RULE Contracts intra vires entered into by the board of directors are binding upon the corporation beyond the interference of courts. The courts are barred from intruding into business judgments of corporations, when the same are made in good faith. (Ong v Tiu, G.R. No. 144476. April 8, 2003)
NOTE: The director/trustee or officer is personally and solidary liable if he: 1.
2.
3.
4.
5.
6.
7.
Willfully and knowingly votes for or assent to patently unlawful acts of the corporation (Sec. 31, CC); Is guilty of gross negligence or bad faith in directing the affairs of the corporation (Sec. 31, CC); Acquires any personal or pecuniary interest in conflict with his duty as such director or trustee (Sec. 31,CC); Acquires a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such of Corporate corporation(Doctrine Opportunity)(Sec. 34,CC); Consents to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; Contractually agrees or stipulates to hold himself personally and solidarily liable with the Corporation; Is made, by specific provision of law, personally liable for his corporate action. (MAM Realty Development Corp. v. NLRC, 244 SCRA 797, June 2, 1995 in Dimaampao and Escalante, 2017)
The derivative suit was improper. In a derivative suit, the corporation, not the i ndividual stockholder, must be the aggrieved party and that the stockholder is suing on behalf of the corporation. What stockholder X is asserting is his individual right as a stockholder to elect the two directors. The case partake more of an election contest under the rules on intra-corporate controversy. (Legaspi Towers 300, Inc. v. Muer, G.R. No. 170783, June 18, 2012)
CONTRACTS Briefly discuss the doctrine opportunity. (2005 BAR)
of
corporate
Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation. (CC, Sec. 34) However, if such act is ratified by a vote of the stockholders representing at least 2/3 of the outstanding capital stock, the director is excused from remitting the profit realized. (ibid)
BOARD OF DIRECTORS/TRUSTEES/OFFICERS In the November 2010 stockholders’ meeting of Greenville Corporation, 8 directors were elected to the board. The directors assumed their posts in January 2011. Since no stockholders' meeting was held in November 2011, the 8 directors served in a holdover capacity and thus continued discharging their powers.
Chito Santos is a director of both Platinum Corporation (PLATINUM) and KWIK Silver Corporation (KWIK). He owns 1% of the outstanding capital stock of PLATINUM and 40% of KWIK. PLATINUM plans to enter into a contract with KWIK that will make both companies earn very substantial profits. The contract is presented at the respective board meetings of PLATINUM and KWIK.
In June 2012, 2 of Greenville Corporation's directors – Director A and Director B – resigned from the board. Relying on Section 29 of the Corporation Code, the remaining 6 directors elected 2 new directors to fill in the vacancy caused by the resignation of Directors A and B.
1.
2.
Stockholder X questioned the election of the new directors, initially, through a letter-complaint addressed to the board, and later (when his lettercomplaint went unheeded), through a derivative suit filed with the court. He claimed that the vacancy
1.
23
In order that the contract will not be voidable, what conditions will have to be complied with? Explain. If these conditions are not met, how may this contract be ratified? Explain. (1995 BAR) At the meeting of the Board of Directors of PLATINUM to approve the contract, Chito Santos would have to make sure that:
MERCANTILE LAW a)
b) c)
His presence as director at the meeting is not necessary to constitute a quorum for such meeting; His vote is not necessary for the approval of the contract; and The contract is fair and reasonable under the circumstances.
At the meeting of the Board of Directors of KWIK to approve the contract, Chito would have to make sure that: a) There is no fraud involved; and b) The contract is fair and reasonable under the circumstances. 2.
If the conditions relating to quorum and required number of votes are not met, the contract must be ratified by the vote of stockholders representing at least 2/3 of the outstanding capital stock in a meeting called for the purpose. Furthermore, the adverse interest of Chito in the contract must be disclosed and the contract is fair a nd reasonable.
2.
Proprietary rights a. To transfer stock in the corporate book ( Sec. 63); b. To receive dividends when declared (Sec. 43); c. To the issuance of certificate of stock or other evidence of stock ownership ( Sec. 64); d. To participate in the distribution of corporate assets upon dissolution (Sec. 118, 119); e. To pre-emption in the issue of shares (Sec. 39).
3.
Remedial rights a. To inspect corporate books (Sec. 74); b. To recover stock unlawfully sold for delinquent payment of subscription (Sec. 69); c. To be furnished with most recent financial statements or reports of the corporation’s operation (Sec. 74, 75); d. To bring suits (derivative suit, individual suit, and representative suit); e. To demand payment in the exercise of appraisal right (Secs. 41, 81). VOTING TRUST AGREEMENT
Explain the contracts between corporations with interlocking directors.
A VTA is an agreement whereby one or more stockholders transfer their shares of stocks to a trustee, who thereby acquires for a period of time the voting rights (and/or any other specific rights) over such shares; and in return, trust certificates are given to the stockholder/s, which are transferable like stock certificates, subject, to the trust agreement.
A contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone. Provided that: 1. 2. 3.
Contract is not fraudulent; Contract is fair and reasonable under the circumstances; and If the interest of the interlocking director in one corporation or corporations is merely nominal (not exceeding 20% of the outstanding capital stock), he shall be subject to the provisions of Sec. 32 insofar as the latter corporation or corporations are concerned. (CC, Sec. 33)
Its principal purpose is to acquire control of the corporation. It is the trustee of the shares who acquires legal title to the shares under the voting trust agreement and thus entitled to the right to vote and the right to be elected in the board of directors while the trustor -stockholder has the beneficial title which includes the right to receive dividends. (Lee v. CA, G.R. No. 93695, February 4, 1992)
EXECUTIVE COMMITTEE Corporate powers are exercised only by the board, except when delegated to an executive committee. What are the corporate powers that may not be delegated?
RIGHT OF APPRAISAL (2007 Bar) It refers to the right of the stockholder to demand payment of the fair value of his shares, after dissenting from a proposed corporate action involving a fundamental change in the charter or articles of incorporation in the cases provided by law. (De Leon, 2010)
The executive committee by a vote of majority may exercise such powers as may be delegated to it. However, the following cannot be delegated: a) b) c) d)
e)
NOTE: Upon demand, all rights pertaining to a stockholder shall be deemed suspended .
Approval of any action for which shareholders’ approval is also required; Filling of vacancies in the board; Adopt, amend or repeal by- laws; Amend or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and Distribution of cash dividends to the shareholders. (Sec. 35, CC)
The corporation need not pay the value of the shares of a dissenting stockholder if at the time of the demand, the corporation has no unrestricted retained earnings. No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares of stocks of the withdrawing stockholders. The fact that the Corporation subsequent to the demand for payment and during the pendency of the collection case posted surplus profit did not cure the prematurity of the cause of action. (Philip Turner, et al., v. Lorenzo Shipping Corp., G.R. No. 157479, November 24, 2010)
STOCKHOLDERS AND MEMBERS Rights of a stockholder and member (1996 BAR) 1.
Management Right: a. To attend and vote in person or by proxy at a stockholders’ meetings (Secs. 50, 58); b. To elect and remove directors (Secs. 24, 28); c. To approve certain corporate acts (Sec. 58); d. To adopt and amend or repeal the by-laws or adopt new by-laws (Secs. 46, 48); e. To compel the calling of the meetings ( Sec. 50); f. To enter into a voting trust agreement (Sec. 59); g. To have the corporation voluntarily dissolved (Secs. 118, 119).
PRE-EMPTIVE RIGHT It is the preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings. (CC, Sec. 39) Its purpose is to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus.
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UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 REMEDIAL RIGHTS
1.
Actions that the stockholders or members can bring 2. 1.
2.
3.
Derivative suit – suit by a shareholder to enforce a corporate cause of action on behalf of the corporation in order to protect or vindicate its rights when its officials refuse to sue, or are the ones to be sued, or hold control of it. (Forest Hills Golf and Country Club, Inc. v. Fil- Estate Properties, Inc., G.R. No. 206649, July 20, 2016, Del Castillo, J.) Individual suit – an action brought by a stockholder against the corporation for direct violation of his contractual rights as such individual stockholder, such as the right to vote and be voted for, the right to share in the declared dividends, the right to inspect corporate books and records, and others. Representative suit – one brought by a person in his own behalf and on behalf of all similarly situated.
The termination of the corporate existence at least as far as the r ight to go on doing ordinary business is concerned; The winding up of its affairs, the payment of its debts, and the distribution of its assets among the shareholders or members and other persons interested. After winding up, the existence of the corporation is terminated for all purposes.
Intra-corporate disputes remain even when the corporation is dissolved. The dissolution of the corporation simply prohibits it from continuing its business. However, despite such dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not automatically convert the parties into total strangers or change their intra-corporate relationships. Neither does it change or terminate existing causes of action, which arose because of the corporate ties between the parties. (Aguirre II v. FQB+7, Inc., et al., G.R. No. 170770, January 9, 2013, Del Castillo, J.)
Requisites for the existence of a derivative suit. (C SENA)
How are corporations dissolved? 1.
2.
Corporate cause of action: the cause of action must devolve upon the corporation itself; the wrongdoing or harm having been caused to the corporation and not to the particular stockholder brining the suit (Reyes v. Hon. RTC of Makati Br. 142, G.R. No. 165744, August 11, 20 08); Stockholder: the party bringing the suit must be a stockholder a. b.
a) b) c) d)
VOLUNTARY DISSOLUTION
At the time the acts or transactions subject of the action occurred and at the time the action was filed
a)
b)
NOTE: if the cause of action is continuing in nature, the only requisite is that the party is a stockholder at the time the action was filed. (Dean Divina’s Lecture, April 29, 2015)
c) d)
3.
4. 5.
Voluntarily; Involuntarily; By shortening corporate term; and Expiration of the term. (dimaampao and escalante, 2017)
Exhaustion of all intra-corporate remedies available under the AOI, By-Laws, laws or rules governing the corporation or partnership to obtain the relief he desires; Not a Nuisance or Harassment suit; Appraisal right is not available(Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, cited in Anthony S. Yu, et al., v. Joseph S. Yukayguan, et al., G.R. No. 177549, June 18, 2009)
e)
By the vote of the BOD/ BOT and the stockholders/ members where no creditors are affected (CC, Sec. 118); By the judgment of the SEC after hearing of petition for voluntary dissolution, where creditors are affected (CC, Sec. 119); By amending the AOI to shorten the corporate term (CC, Sec. 120); In case of a corporation sole, by submitting to the SEC a verified declaration of the dissolution for approval (CC, Sec. 115); Merger or consolidation
INVOLUNTARY DISSOLUTION a) b) c)
NOTE: A derivative suit is an intra-corporate controversy hence under the jurisdiction of the RTC acting as a special commercial court.
d)
WATERED STOCK
e)
A watered stock is a stock issued in exchange for cash, property, share, stock dividends, or services lesser than its par value or issued value. (CC, Sec. 65)
By expiration of corporate term provided for in the AOI (CC, Sec. 11); By legislative enactment By failure to formally organize and commence the transaction of its business within 2 years from the date of incorporation (CC, Sec. 22); By order of the SEC on grounds under existing laws (CC, Sec. 121); Judicial decree on Quo Warranto Proceeding (CC, Sec. 20).
LIQUIDATION Process by which all the assets of the corporation are converted into liquid assets (cash) in order to facilitate the payment of obligations to creditors and the remaining balance if any is to be distributed to the stockholders. (Sundiang Sr. & Aquino, 2014)
Watered stocks can either be par or no par value shares. The watered stocks refer only to original issue of stocks but not to a subsequent transfer of such stocks by the corporation, for then it would no longer be an “issue” but a sale thereof .(De Leon, 2010, citing Rochelle Roofing Co. v. Burley, 115 NE 478)Hence, treasury shares are not subject to the prohibition on the issuance of watered stocks.
Methods of liquidation 1. 2.
DISSOLUTION It is the extinguishment of the franchise of a corporation and the termination of its corporate existence. (Sundiang Sr. & Aquino, 2009)
3.
Two legal steps in corporate dissolution
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By the corporation itself or its board of directors or trustees (CC , Sec. 122 [1]); By a trustee to whom the assets of the corporation had been conveyed. (CC, Sec. 122[2]) (Board of Liquidators v. Kalaw, G.R. No. L-18805, Aug. 14, 1967); By a management committee or rehabilitation receiver appointed by SEC. (CC, Sec. 119)
MERCANTILE LAW Corporate life does not cease to exist immediately upon dissolution
rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. (Sec. 23, Rule 4, Interim Rules of Procedure on Corporate Rehabilitation)
It shall continue as a body corporate for 3 years from the time of dissolution, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. (Dimaampao and Escalante, 2017)
This provision, which is currently incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater longterm benefit of all stakeholders. Otherwise stated, it forces the creditors to a ccept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. (BPI v. Sarabia Manor Hotel, G.R. no. 175844, July 29, 2013)
CONVEYANCE TO A TRUSTEE WITHIN THE 3-YEAR PERIOD At anytime during the 3-year period for liquidation, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of its stockholders, members, creditors and other persons in interest.
NON-STOCK CORPORATION It is one where no part of its income is distributable as dividends to its members, trustees or officers. Any profit which it may obtain as an incident to its operations shall whenever necessary or proper, be used in furtherance of the purpose or purposes for which it was organized. (CC, Sec. 87)
From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests i n the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. (par. [2], Sec. 122, CC)
Characteristics of a non-stock corporation 1. 2.
Meaning of trustee The word “trustee” as used in the law must be understood in its general concept. It has been held that a counsel who prosecuted and defended the interest of a corporation and who in fact appeared in behalf of the corporation before and after its dissolution by amendment of its articles of incorporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditors and stockholders. The appointment of said counsel can be considered a substantial compliance. (Gelano v. CA , G.R. No. L- 39050, February 24, 1981)
3.
CORPORATE REHABILITATION
7.
4. 5.
6.
REHABILITATION It refers to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated.[Sec. 4(gg), FRIA]
8.
It does not have capital stock divided into shares; No part of its income during its existence is distributable as dividends to its members, trustees, or officers; As a general rule, it is not empowered to engage in business with the object of making income or profits directly or indirectly. However, it is not prohibited to make income or profits as an incident to its operation (CC, Sec. 87); There is non-transferability of membership (CC, Sec. 90); The right to vote of members may be limited, broadened, or even denied in the AOI or the bylaws (CC, Sec. 89); Non-stock corporations may, through their articles of incorporation or their by-laws designate their governing boards by any name other than as BOT (CC, Sec. 138); By-laws may provide that the members may hold their meetings at any place even outside the place where the principal office of the corporation is located, provided that such place is within the Philippines (CC, Sec. 93). A non-stock corporation is not allowed to distribute any of its assets or any incidental income or profit made by the corporation during its existence; Non-availability of conversion into stock corporation. (SEC Opinion, February 24, 1989)
FOREIGN CORPORATIONS What is the nature of rehabilitation proceedings? A foreign corporation is one, formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or State. (CC, Sec. 123)
Rehabilitation proceedings are summary and nonadversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings.
Discuss the underlying reason in requiring foreign corporation to obtain license to do business in the Philippines.
The jurisdiction of the rehabilitation court is over claims against the debtor that is under rehabilitation, not over claims by the debtor against its own debtors or against third parties. The corporation under rehabilitation must file a separate action against its debtors/insurers to recover whatever claim it may have against them. (Steel Corp. v. Mapfre Insular Insurance Corp., G.R. No. 201199, October 16, 2013, in Divina, 2014)
The purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of the courts. A foreign corporation doing business in the Philippines with a license may sue and can be sued in the Philippines. If it is doing business without a license, it cannot sue but may be sued in the Philippines. ( Sec. 133, CC )
CRAM-DOWN CLAUSE Section 23. Approval of the Rehabilitation Plan. – The court may approve a rehabilitation plan over the opposition of creditors, holding a majority of the total liabilities of the debtor if, in its judgment, the
26
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 A foreign corporation not doing business, but merely transacts in an isolated transaction or on a cause of action entirely independent of its business transaction, need not obtain a license and may sue and be s ued in our courts.
under the control and direction of the foreign corporation, are consummated in the Philippines.
NOTE: Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. (B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., G. R. No. 147905, May 28, 2007)
If a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in a suit brought before Philippine courts. (Agilent Technologies Singapore [Pte.] Ltd. V. Integrated Silicon Technology Philippines Corporation, G.R. No. 154618, 14 April 2004, in Dimaampao and Escalante, 2017)
Test for determining if an unlicensed foreign corporation is doing business in the Philippines (2002 BAR) The test is whether or not the unlicensed foreign corporation has performed an act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business corporation.
DOCTRINE OF DOING BUSINESS Meaning of “doing business in the Philippines” under the Foreign Investment Act of 1991 (FIA) (1998, 2016 BAR) The phrase "doing business in the Philippines" under the FIA include: 1.
2.
3.
A foreign corporation which is not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts
Soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines; Onewho in any calendar year stay in the country for a period or periods totalling 180 days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the P hilippines; and Any other act or acts t hat imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization
Only when that foreign corporation is “transacting” or “doing business” in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus, a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license which bars a foreign corporation from access to our courts. (Aboitiz Shipping Corp. v. Insurance Co. of North America, G.R. No. 168402, August 6, 2008, in Divina, 2010) Any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts . In other words, although a f oreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines. (Columbia Pictures v. CA, G.R. No. 110 318, August 28, 1996)
NOTE: Passive equity investment shall not be construed as doing business. XPN: The phrase "doing business: shall NOT be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. (2016 Bar)
MERGER AND CONSOLIDATION
Jurisdictional tests of “doing or transacting business in the Philippines” for foreign cor porations 1.
a.
b.
2.
GR: Where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor.
Twin Characterization Test Continuity Test – Doing business implies a continuity of commercial dealings and arrangements, and contemplates to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization. Subsequent Test – a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized (Sundiang Sr. & Aquino, 2009)
XPNs: 1. 2. 3. 4.
Contract Test - Whether the contracts entered into by the foreign corporation, or by an agent acting
Where the purchaser expressly or impliedly agrees to assume such debts; Where the transaction amounts to a consolidation or merger of the corporations; Where the purchasing corporation is merely a continuation of the selling corporation; and Where the transaction is entered into fraudulently to escape liability for such debts. (Edward J. Nell Co. v. Pacific Farms, Inc., G.R. No. L-20850, November 29, 1965)
The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall
27
MERCANTILE LAW not render the latter liable to the liabilities of the transferor. If any of the above-cited exceptions are present, then the transferee corporation shall assume the liabilities of the transferor.
venture claims which have really no basis, and sell shares or interests therein to investors. The SRC also serves to protect investors, promote investor confidence, and stabilize the financial markets.
The legal basis of the last in the four (4) exceptions to the Nell Doctrine, where the purchasing corporation is merely a continuation of the selling corporation, is challenging to determine. Dean Cesar Villanueva explained that this exception contemplates the “business-enterprise transfer .” In such transfer, th e transferee corporation’s interest goes beyond the assets of the transferor’s assets and its desires to acquire the latter’s business enterprise, including its goodwill.
SECURITIES REQUIRED TO BE REGISTERED Securities are shares, participation or interests in a corporation or in a commercial enterprise or profitmaking venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: (DO DIET) 1.
Debt instruments – bonds, debentures, notes, evidence of indebtedness, asset-backed securities Other instruments as may in the future be determined by the SEC. Derivatives– options and warrants I nvestments instruments – Investment contracts, fractional undivided interests in oil, gas, or other mineral rights E quity instruments – Shares of stock, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription, proprietary or non-proprietary membership certificates in corporations. T rust instruments – Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments. (SRC, Sec. 3;1996 BAR )
Section 40 suitably reflects the business-enterprise transfer under the exception of the Nell Doctrine because the purchasing or transferee corporation necessarily continued the business of the selling or transferor corporation. Given that the transferee corporation acquired not only the assets but also the business of the transferor corporation, then the liabilities of the latter are inevitably assigned to the former. Section 40 refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. The sale under this provision does not contemplate an ordinary sale of all corporate assets; the transfer must be of such degree that the transferor corporation is rendered incapable of continuing its business or its corporate purpose.
2.
The purpose of the business-enterprise transfer is to protect the creditors of the business by allowing them a remedy against the new owner of the assets and business enterprise. Otherwise, creditors would be left “holding the bag,” because they may not be able to recover from the transferor who has “disappeared with the loot,” or against the transferee who can claim that he is a purchaser in g ood faith and for value. Based on the foregoing, as the exception of the Nell doctrine relates to the protection of the creditors of the transferor corporation, and does not depend on any deceit committed by the transferee corporation, then fraud is certainly not an element of the business enterprise doctrine. Indeed, the transferee corporation may inherit the liabilities of the transferor despite the lack of fraud due to the continuity of the latter’s business. (Y-I Leisure Philippines, Inc. v. Yu, G.R. No. 207161, September 18, 2015)
Test on determining whether or not it is a security: Does it represent a share, participation, or interest in a commercial enterprise or any profit making venture? If yes, then, it is a security. If it is a security, then, it cannot be sold, or offered for sale or distribution within the Philippines without a registration statement duly filed with and approved by the SEC. (Divina, 2014)
What is meant by a de facto merger ? Discuss (2016 BAR)
In Securities Law, what is a shortswing transaction?
3. 4.
5.
6.
Requirement before securities are sold or offered for sale or distribution within the Philippines They are required to be registered with and approved by the SEC . Registration also includes the disclosure to SEC of all m aterial and relevant information about the issuer of the security. Prior to the sale, the information on the securities, in such form and with such substance as the SEC may prescribe, shall be made available to each prospective purchaser. (SRC, Sec. 8)
A shortswing is a transaction where a person buys securities and sells or disposes of the same within a period of six months.
De facto merger means that a corporation called the acquiring corporation acquired the assets and liabilities of another corporation in exchange for equivalent value of shares of stock of the acquiring corporation.
PROHIBITIONS ON FRAUD, MANIPULATIONS AND INSIDER TRADING
NOTE: There is no such thing as de facto merger in the present Corporation Code.
Explain the manipulation of security prices. (2001 BAR)
A merger does not become effective upon the mere agreement of the constituent corporations. All the requirements specified in the law must be complied with in order for merger to take effect. Section 79 of the Corporation Code further provides that the merger shall be effective only upon the issuance by the SEC of a certificate of merger.(Bank of Commerce v. Radio Philippines Network Inc., G.R. No. 195615, April 21, 2014)
The price of securities should be dictated by market forces. It cannot be pegged or stabilized. The following acts are considered as manipulation of security prices and are therefore prohibited: 1.
SECURITIES REGULATION CODE
Transactions intended to create a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market: a.
The SRC is the law that regulates securities (its issuance, distribution and sale) and the person who deals with such securities. It is enacted to protect the public from unscrupulous promoters, who stake business or
b.
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Wash Sale – is a transaction in which there is no genuine change in the beneficial (or actual) ownership of a security; Matched Sale – is a change of ownership in the securities by entering an order for the purchase or sale of a security with the
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c.
2.
knowledge that a simultaneous order of substantially the same size, time, and price, for the sale or purchase of any such security, has or will be entered by or for the same or different parties; Similar transactions where there is no change of beneficial ownership.
security traded in an exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Code or by rules of the Commission.
INSIDER TRADING A purchase or sale made by a n insider, or such insider’s spouse or his relative by aff inity or consanguinity within the second degree, legitimate or common-law, shall be presumed to be effected while in possession of material non-public information if transacted after such information came into existence but prior to the public dissemination of such information, and lapse of reasonable time for the market to absorb such information. (Bar 2015)
Effecting a series of transactions that will raise or depress the price of securities to induce the purchase or sale of securities respectively, or creating active trading to induce transactions through manipulative devices: a.
b.
c.
d.
e.
f.
g.
h.
Marking the close – buying and selling of securities at the close of the market in an effort to alter the closing price of these securities. Painting the tape – engaging in a series of transactions effected by brokers in securities that are reported publicly to give the impression or illusion of activity or price movement in a security, which may trick investors into trading in these securities because of the alleged trading volume or indications of interest. Squeezing the float – refers to taking advantage of a shortage of securities in the market by controlling the demand side and exploiting market congestion during such shortages in a way to create artificial prices. This prevents the actual market from determining the price of these securities. Hype and dump – engaging in buying activity at increasingly higher prices and then selling securities in the market at the higher prices. Boiler room operations – refers to activities that involve the use of high pressure sale tactics such as direct mail offers or telephone follow-ups to investors to promote purchase and sale of securities wherein there is misrepresentation in these securities. This is a fraudulent transaction that tricks investors into trading in a fake market. Daisy chain – refers to a series of purchase and sales of the same issue at successively higher prices by the same group of people with the purpose of manipulating prices are drawing unsuspecting investors into the market leaving them defrauded of their money and securities. Front-Running – is the pr ohibited practice of a broker-dealer executing its proprietary order before the customer’s order for the same security. This violates the fiduciary responsibility by the broker-dealer to its customer accounts as well as placing the customer’s order first. Churning – involves the excessive trading of securities by a broker- dealer in a customer’s discretionary account in order to generate commissions, without regard to the customer’s investment objective.
Material non-public information (1995 BAR) 1.
2.
Information about the issuer or the security has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or Would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security. (SRC, Sec. 27.2)
Definition of “fact of special significance ”, in insider trading (1991 BAR) It is, in addition to being material, such fact as would likely, on being made generally available, to affect the market price of a security to a significant extent, or which a reasonable person would consider as especially important under the circumstances in determining his course of action in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability. (RSA, Sec. 30 [c])
TENDER OFFER RULE(2016, 2010, 2002 BAR) Tender offer means a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. It is also an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect their minority shareholders against any scheme that dilutes the share value of any investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them opportunity to sell their shares at the same price as those of the majority shareholders. (CEMCO HOLDINGS, INC. v. National Life Insurance Company, Inc. G.R. No. 171815, August 7, 2007)
MANDATORY TENDER OFFER (2002 BAR) Tender offer is required to be made when:
3.
4.
5.
Circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or f all because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of that security for the purpose of inducing the purchase or sale of such security. To make false or misleading statement with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of a ny security listed or traded in an Exchange. To effect, either alone or with others, any series of transactions for the purchase and/or sale of any
29
1.
Any person or group of persons acting in concert, who intends to acquire fifteen percent (15%) of equity securities in a public company in one or more transactions within a period of twelve (12) months.
2.
Any person or group of persons acting in concert, who intends to acquire thirty five percent (35%) of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company in one or more transactions within a period of twelve (12) months.
MERCANTILE LAW
3.
If the tender offer is oversubscribed, the aggregate amount of securities to be acquired at the close of such tender offer shall be proportionately distributed across selling shareholders with whom the acquirer may have been in private negotiations and other shareholders. For purposes of SRC R ule 19.2.2, the last sale that meets the threshold shall not be consummated until the closing and completion of the tender offer
c.
NOTE: If the acquisition is made through the Exchange trading system tender offer is not required provided after acquisition through the Exchange trading system, they fail to acquire their target of thirty five percent (35%) or such outstanding voting shares that is sufficient to gain control of the board.
It is the RTC and not the Sandiganbayan which has jurisdiction over cases which do not involve a sequestration-related incident but an intra-corporate controversy. Issues regarding the propriety of the election of a party as a Director and his authority to act in that capacity should be determined only by the RTC pursuant to the pertinent law on jurisdiction because they do not concern the recovery of ill-gotten wealth.
d.
The venue for actions involving intra-corporate controversies is now under the jurisdiction of the RTC acting as a special commercial court. (Sec. 5, A.M. NO. 01-2-04-SC)
Any person or group of persons acting in concert, who intends to acquire thirty five percent (35%) of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company directly from one or more stockholders.
TESTS TO DETERMINE INTRA-CORPORATE CONTROVERSY 1.
The sale of shares pursuant to the private transaction or block sale shall not be completed prior to the closing and completion of the tender offer. 4.
2.
Any acquisition that would result in ownership of over fifty percent (50%) of the total outstanding equity securities of a public company.
NOTE: Tender offer shall be made at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be required to accept all securities tendered. (2015 SRC Rules, Sec. 19.2)
THE NEW CENTRAL BANK ACT (NCBA, R.A. 7653) BANGKO SENTRAL NG PILIPINAS Responsibilities (1992, 1998 BAR) (PSR)
The mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or “any type of acquisition.” The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of shares. Control may be effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. (Cemco Holdings v. National Life Insurance Company, G.R. No. 171815, August 7, 2007)
1. 2. 3.
To provide Policy directions in the areas of money, banking, and credit; To Supervise bank operations; and To Regulate the operations of finance companies and non-bank financial institutions performing quasi-banking functions, and similar institutions. (NCBA, Sec. 3)
GROUNDS FOR CLOSURE OF A BANK OR A QUASI-BANK 1.
2.
3.
INTRA-CORPORATE CONTROVERSIES An intra-corporate controversy has been regarded in its broad sense to pertain to disputes that involve any of the following relationships:
b.
Relationship Test – No doubt exists that the parties were members of the same association, but this conclusion must still be supplemented by the controversy test before it may be considered as an intra-corporate dispute. Controversy Test – The dispute must be rooted in the existence of an intra-corporate relationship, and must refer to the enforcement of the parties’ correlative rights and obligations under the Corporation Code, as well as the internal and intracorporate regulatory rules of the corporation, in order to be an intra-corporate dispute (Gulfo v. Ancheta, G.R. No. 175301, August 15, 2012).
BANKING LAWS
Coverage of the application of tender offer
a.
between the corporation, partnership or association and its stockholders, partners, members or officers; and among the stockholders, partners or associates, themselves.
4.
between the corporation, partnership or association and the public; between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned;
5. 6.
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Cash Flow test – Inability to pay liabilities as they become due in the ordinary course of business (NCBA, Sec. 30 [a], 1997 Bar ) Balance sheet test – Insufficiency of realizable assets to meet i ts liabilities (NCBA, Sec 30 [b], 1997 Bar ) Inability to continue business without involving probable losses to its depositors and creditors (NCBA, Sec 30 [c], 1997 Bar ) Willful violation of a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to f raud or a dissipation of the assets (NCBA, Sec 30 [d], 1997 Bar ) Notification to the BSP or public announcement of a bank holiday (GBL, Sec 53) Suspension of payment of its deposit liabilities continuously for more than 30 days (GBL, Sec 53)
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Persisting in conducting its business in an unsafe or unsound manner (GBL, Sec 56)
deprive a corporation and its corporate officers of the power to recover its unlawfully detained property. (Umale v. ASB Realty Corporation, G.R. No. 181126, June 15, 2011, Del Castillo, J.) A receiver (and a conservator) can only perform acts of administration and not acts of dominion. The receiver cannot approve an option to purchase real property. He has only the authority to administer the same for the benefit of its creditors. (Abacus Real Estate Development Center, Inc. v. Manila Banking Corp, G.R. No. 162270, April 6, 2005) Conservatorship shall not exceed 1 year.
CLOSE-NOW-HEAR-LATER DOCTRINE It is to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public. No prior hearing is necessary in appointing a receiver and in closing the bank. It is enough that subsequent judicial review is provided for. The remedy is subsequent. Injunction does not lie against BSP i n the exercise of the power and function. However, the closure and liquidation of a bank, which is considered an exercise of police power may be the subject of judicial inquiry. The order of closure (receivership or conservatorship) may be assailed: a. b. c.
by the stockholders representing at least majority of the outstanding capital stock; within ten days from receipt by the board of directors of the order; and through a petition for certiorari on the g round that the action taken by the BSP was in excess of jurisdiction or with grave abuse of discretion as to amount to lack of jurisdiction.
NOTE: It is only the BSP who can place the banks under conservatorship or receivership, courts are not vested with such power. CONSERVATOR
When appointed
Powers and Function
Appointed if the bank is in the state of illiquidity or the bank fails or refuses to maintain a state of liquidity adequate to protect its depositors and creditors. The bank still has more assets than its liabilities but its assets are not liquid or not in cash.
To restore the bank into a state of liquidity and to take charge of the assets, liabilities, and the management of the bank.
RECEIVER Appointed if the bank is already insolvent which means that its liabilities are greater than its assets.
Duration
NOTE: For banks, the receiver would be the Philippine Deposit Insurance Corporation; for quasi-banks, it could be any person of recognized competence in banking or finance. (NCBA, Sec. 30) To rehabilitate the bank and hold and administer its assets for the benefit of its creditors.
NOTE: When the Monetary Board is satisfied that the bank can continue to operate on its own, conservatorship shall be terminated. Otherwise, the bank shall be placed in receivership. (Dimaampao, 2017)
The bank may be placed under receivership for a maximum period of 90 days from take over
NOTE: Designation of conservator is not a precondition to the designation or receiver. (Sec. 31) Powers of a conservator do not extend to the revocation of valid and perfected contracts The law merely gives the conservator power to revoke contracts that are deemed to be defective – void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of the bank’s board.
LIQUIDATION Acts of liquidation are those which constitute the conversion of the assets of the banking institution to money or the sale, assignment or disposition of the same to creditors and other parties for the purpose of paying debts of such institution. (Banco Filipino v. Central Bank, G.R. No. 70054, December 11, 1991)
Appointment of receiver operates to suspend the authority of the bank and its officers over its properties and effects.
If the receiver determines that the institution can no longer be rehabilitated, the Monetary Board shall notify the board of directors and direct the receiver to proceed with its liquidation.
NOTE: Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto
Liquidator of a distressed bank can prosecute and defend suits against the bank Prosecution of suits, collection and the foreclosure of mortgages against debtors of the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. (Banco Filipino v. Central Bank, ibid.)
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MERCANTILE LAW FILING OF THE CLAIMS AGAINST THE INSOLVENT BANK
INSTANCES WHERE EXAMINATION OR DISCLOSURE OF INFORMATION ABOUT DEPOSITS CAN BE ALLOWED (1990-1992, 1994, 1995, 1997, 1998, 2000, 2001, 2004-2006 BAR)
All claims against the insolvent bank should be filed in the liquidation proceeding. It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. (Ong v. CA, G.R. No. 112830, February 1, 1996)
1. 2. 3.
NOTE: Where it is the bank that files a claim against another person or legal entity, the claim should be filed in the regular courts.
4.
Upon written consent of the depositor (RA 1405, Sec. 2) In cases of impeachment (ibid.) Upon order of competent court in cases of bribery or dereliction of duty of public officials (ibid.) In cases where the money deposited or invested is the subject matter of the litigation (ibid.)
STAY ORDER a. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the assets of the insolvent bank are held in trust for the equal benefit of all creditors. One cannot obtain an advantage or preference over another by attachment, execution or otherwise. The final judgment against the bank should be stayed as to e xecute the judgment would unduly deplete the assets of the banks to the obvious prejudice of other depositors and creditors. (Lipana v. Development Bank of Rizal, G.R. No. L-73884, September 24, 1987)
b.
c.
RATIONALE: The reason behind the indiscriminate suspension or stay order in relation to the creditors’ claim is to expedite the rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company. It also recognizes the assets of a corporation under rehabilitation held under trust for the equal benefit of all creditors under the doctrine equality is equity , whereby all the creditors ought to stand on equal footing, and not one of them should be paid ahead of others. (2006 BAR)
5.
Upon order of the Commissioner of Internal Revenue: a. A decedent to determine his estate; b. Any taxpayer who has filed for an application for compromise of his tax liability; or c. A specific taxpayer upon request for tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a party. (NIRC, Sec. 6 [f])
6.
In case of dormant accounts/deposits for at least 10 years under the Unclaimed Balances Act ( Act No. 3936, Sec. 2) Presidential Commission on Good Government (PCGG) may require the production of bank records material to its investigation (Opinion of the Secretary of Justice, February 27, 1987) The PDIC and the BSP may examine deposit accounts and all information related to them in case of a finding of unsafe or unsound banking practices (RA 3591, as amended, Sec. 8) With court order:
LAW ON SECRECY OF BANK DEPOSITS (R.A. 1405, AS AMENDED) PROHIBITED ACTS 1.
2.
Examination/inquiry/looking into all deposits of whatever nature with banks or banking institutions in the Philippines (including investment in bonds issued by the government) by any person, government official or office. (RA 1405, Sec. 2) Disclosure by any official or employee of any banking institution to any unauthorized person of any information concerning said deposit. (RA 1405, Sec. 3)
7.
8.
9.
However, non-bank official or employee is not covered by the prohibition. Neither is disclosure by a bank official or employee of information about bank deposit in favor of a co-employee in the course of the performance of his duties covered by the prohibition.
In an action filed by the bank to recover the money transmitted by mistake, necessarily, an inquiry into the whereabouts of the amount extends to whatever is concealed by being held or recorded in the name of the persons other than the one responsible for the illegal acquisition. ( 1992 Bar) In a case of plunder, itnecessarily involves an inquiry into the whereabouts of the amount purportedly acquired illegally. (Ejercito v. Sandiganbayan, supra) In a special proceeding to settle the estate of deceased depositor, his bank deposits may be inquired into, since his bank deposits are subject matter of the case, because all of his assets are supposed to be collated. (Sy v. RTC of Iloilo, 93 O.G. 54072)
a.
b.
NOTE: Confidentiality granted by RA 1405 does NOT extend to Letters of Credit a nd Trust Receipts.
In cases of unexplained wealth under Sec. 8 of the Anti-Graft and Corrupt Practices Act (PNB v . Gancayco, L-18343, September 30, 1965) The Anti-Money Laundering Council (AMLC) may inquire into any deposit with any bank in case of violation of RA 9160 or the AMLA if there is probable cause that it is related to an unlawful activity (RA 9160, as amended, Sec. 11)
DEPOSITS COVERED 1. 2.
3.
10. Without court order: If the AMLC determines that a particular deposit or investment with any banking institution is related to the following (HK-MADS):
All deposits of whatever nature with banks or banking institutions found i n the Philippines; Investments in bonds issued by the Philippine government, its branches, and institutions (R.A. 1405, Sec. 2); and Trust accounts (Ejercito v. Sandiganbayan, G.R. No. 157294-95, November 30, 2006)
a. b. c. d. e. f.
32
Hijacking, K idnapping, Murder, Destructive Arson, Violation of the Dangerous Drugs Act; or Acts of Terrorism or in violation of Human Security Act.
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 NOTE: Ombudsman cannot inspect an account as there is yet no pending litigation before any court of competent authority. Mere investigation of Ombudsman is not e nough, inspection during an investigation merely amounts to a fishing expedition. (Marquez v. Desierto, G.R. No. 135822, June 27, 2001)
3.
FOREIGN CURRENCY DEPOSIT ACT (R.A. 6426, AS AMENDED) GR: Foreign currency deposits cannot be inquired or looked into. All foreign currency deposits are absolutely confidential. (RA 6426, Sec. 8)
him. (China Banking Corp. v. CA, G.R. No. 140687, December 18, 2006) The exemption from court process of foreign currency deposits under RA 6426 cannot be invoked by a foreign transient who raped a minor, escaped and was held liable for damages to the victim. The garnishment of his foreign currency deposit should be allowed to prevent an injustice and for equitable grounds. The law was enacted to encourage foreign currency deposit and not to benefit a wrongdoer. (Salvacion v. Central Bank of the Philippines, G.R. No. 94723, August 21, 1997)
GARNISHMENT OF DEPOSITS, INCLUDING FOREIGN DEPOSITS
XPNs: Based on law: 1. 2.
2.
The depositor has given his written permission (ibid.) The Commissioner of Internal Revenue is authorized to inquire into bank deposits of the following: ii. a. A decedent to determine his estate; b. Any taxpayer who has filed for an application for compromise of his tax liability; or c. A specific taxpayer upon request for tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a party. (NIRC, Sec. 6 [f])
b.
4.
With respect to foreign deposits, they shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (RA 6426, Sec 8)
XPN: The garnishment of a foreign currency deposit should be allowed to prevent injustice and for e quitable grounds. (Salvacion v. Central Bank, supra.)
AMLC may inquire into any deposit with a ba nk or financial institution, upon order of any competent court based on an ex parte application, in case of violation of RA 9160 if there is probable cause that it is related to an unlawful activity. (RA 9160, Sec. 11) AMLC can investigate: a.
3.
The prohibition against examination or inquiry does not preclude its being garnished for satisfaction of judgment. The disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of judgment creditor. (PCIB v. CA, G.R. No. 84526, January 28, 1991)
GENERAL BANKING LAW OF 2000 (R.A. No. 8791) Banks are entities engaged in the lending of funds obtained from the public in the form of deposits. Quasi-banks are entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of re-lending or purchasing of receivables and other obligations. (GBL, Sec 4)
any property of funds related to financing terrorism; or property or funds of any person if there is probable cause to believe he is committing or attempting or conspiring to commit terrorism or financing terrorism. (RA 10168, Sec. 10)
NOTE: Unlike banks, quasi-banks do not accept deposits. Neither are funds obtained insured with the PDIC.
Upon ex parte application by a law enforcer authorized by the Anti-Terrorism Council, the justices of the CA designated as special court to handle anti-terrorism cases may authorize the examination of deposits in a financial institution upon finding probable cause of the commission of terrorism or conspiracy to commit terrorism. (RA 9372, Sec. 27-28) PDIC and BSP may examine deposit accounts and all information related to them in case of a finding of unsafe or unsound banking practices.(RA 3591, as amended, Sec. 8)
Ownership of a bank Individuals and non-bank corporations, whether foreign or Filipino, may own or control up to 40% of the voting stock of a domestic bank. In case of foreign individuals, the 40% requirement refers to the AGGREGATE shares held by foreigners in one corporation.
Based on jurisprudence: 1.
2.
RATIONALE: The prohibition under the Constitution applies since a bank is a “nationalized activity”.
Where the funds deposited in a joint foreign currency savings account belonged exclusively to one of the depositors and were held in trust for him by the other depositor and the other depositor unilaterally closed the joint account and transferred the funds to her personal account, the latter cannot invoke the exemption from court processes under RA 6426 because she is not the owner of the deposit in the account. (Van Twest v. CA, G.R. No. 106253, February 10, 1994) A father who sued his daughter for illegally withdrawing funds from his foreign currency deposit and transferring to another bank in the name of her sister, can inquire into the deposit of the sister, because the money d eposited belongs to
NOTE: An entire family may own an entire bank, provided, not one of them own more than 40% of the capital stock of the corporation. Instances where the 40% limit does not apply to corporations: 1. 2.
3.
33
In case of a wholly owned thrift bank subsidiary of universal bank If the shares of the stockholder-corporation are listed in the stock exchange, it can own up to 60% of a bank. If the stockholder-corporation is in existence for at least 10 years.
MERCANTILE LAW NOTE: The privilege provided in Nos. 1 & 2 can be exercised only once. Meaning, it can have 60% ownership of ONLY ONE bank.
RESTRICTIONS ON BANK EXPOSURE TO DOSRI (DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS) (2002 BAR)
CLASSIFICATIONS OF BANKS (2002, 2010 BAR) 1.
2.
3.
4.
5.
6.
7.
No director or officer of any banking institution shall, either directly or indirectly, for himself or as the representative or agent of other:
Universal banks – Primarily governed by the GBL. They can exercise the powers of an investment house and invest in non-allied enterprises and have the highest capitalization. Commercial banks – Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house. It may only invest in allied enterprises. Thrift banks– These are a) Savings and mortgage banks; b) Stock savings and loan associations; and c) Private development banks, which are primarily governed by the Thrift Banks Act. (RA 7906) Rural banks – These are mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of 1 992.(RA 7353) Cooperative banks – Banks whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code.(RA 6938) Islamic banks–Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari’ a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848. Other classification of banks as determined by the Monetary Board of the BSP.
1. 2. 3.
The prohibition above will NOT apply if the following requirements are present:
Approval requirement - Loan must be approved by the majority of all the directors not including the director concerned. Reportorial requirements - Loan must be entered in the books of the corporation (GBL, Sec. 36)and Central Bank must be informed of prior to the transaction. Ceiling requirement - The amount of the loan shall not exceed the book value of the paid-in contribution and the amount of the unencumbered deposits. ( Go v. BSP, G.R. No. 178429, October 23, 2009) NOTE: “Stockholder” within the purview of the DOSRI prohibition means one who owns at least 1% of the bank , NOT at least 1 share in the bank. “Related Interest” – relatives of the director, officer or stockholder within the 1st degree of affinity or consanguinity.
DIRECTORS 1. 2. 3. 4.
Borrow any of the deposits of funds of such banks; Become a guarantor, indorser, or surety for loans from such bank to others; or In any manner be an obligor for money borrowed from the bank or loaned by it. (sec. 83)
Composition: 5 to 15 At least 2 directors shall be independent Foreigners may become directors to the extent of foreign participation in the e quity of the bank In case of bank merger or consolidation. Directors shall not exceed 21.
Arms-length rule It provides that any dealings of a bank with any of its DOSRI shall be up on terms not less favorable to the bank than those offered to others.(GBL, Sec. 36 [2])
Acquisition of real estate
Effect of non-compliance with the foregoing requirement
For its own use : Total investment in real estate and improvements, including equipment, for the own use of the bank shall not exceed50% of combined capital account .
Violation of DOSRI is a crime and carries with it penal sanction. It does not make the transaction void but only renders the responsible officers and directors criminally liable. (Republic v. Sandiganbayan, G.R. No. 166859, 169203, 180702, April 12, 2011)
For satisfaction of debt : Real property acquired by bank because of a mortgage, conveyance in satisfaction of debt, or under judgement shall be disposed within 5 years. (Sec. 52)
A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by a fraudulent loan application. DOSRI cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability or their circumvention of the law. The prohibition under the law covers loan by a bank director or officer which are made directly, indirectly, for himself or as the representative or agent of others. At the same time, he is liable for estafa through falsification of commercial documents. The bank money which came to his possession as a result of the fraudulent loan application was not his. He remained bank’s fiduciary with respect to that money, which makes it capable of misappropriation or conversion in his hands (Soriano v. People of the Philippines, et al., G.R. No. 162336, February 1, 2010, Del Castillo, J.)
SINGLE BORROWER’S LIMIT
GR: Single borrower’s limit – The total amount of loans, credit accommodations and guarantees that the bank could grant to one (1) borrower should at no time exceed 25% of the bank’s net worth. (GBL, Sec 35.1) (2002, 2015 BAR) XPNS: a. As the Monetary Board may otherwise prescribe for reasons of national interest; and b. Deposits of rural banks with GOCC financial institutions like LBP, DBP, and PNB. NOTE: An additional 10% is allowed if the loan is secured by a trust receipt, shipping documents, warehouse receipts and other similar d ocuments which must be fully covered by an insurance.
Other limitations imposed upon banks with r espect to its loan function 1.
34
Loans and other credit accommodations secured by REM shall not exceed 75% of the appraised value of
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018
2.
3.
the real estate security plus 60% of the appraised value of the insured improvements. (GBL, Sec. 37) Chattel mortgage/intangible property such as patents, trademarks, etc. shall not exceed 75% of the appraised value of the security. (GBL, Sec. 38) Loans being contractual, the period of payment may be subject to stipulation by the parties. In the case of amortization, the amortization schedule has no fixed period as it depends on the project to be financed such that if it was capable of raising revenues, it should be at least once a year with a grace period of 3 years if the project to be financed is not that profitable which could be deferred up to 5 years if the project was not capable of raising revenues. (GBL, Sec. 44)
4.
5.
SPECIAL LAWS ANTI-MONEY LAUNDERING ACT (R.A. 9160, AS AMENDED BY RA 9194, 10167, 10365)
6.
Money laundering is committed by any person who, knowing that any monetary instrument or property represents, involves, or relates to the proceeds of any unlawful activity: a. b.
c.
d. e.
f.
7.
transacts said monetary instrument or property; converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or property; conceals or disguises the true nature, source, location, disposition, movement or ownership of or rights with respect to said monetary instrument or property; attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b) or (c); aids, abets, assists in or counsels the commission of the money laundering offenses referred to in paragraphs (a), (b) or (c) above; and performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraphs (a), (b) or (c) above.
FREEZING OF MONEY INSTRUMENTOR PROPERTY Upon a verified ex parte petition by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) hereof, the Court of Appeals may issue a freeze order which shall be effective immediately, and which shall not exceed six (6) months depending upon the circumstances of the case. If there is no case filed against a person whose account has been frozen within the period determined by the court, the freeze order shall be deemed ipso facto lifted.
Money laundering is also committed by any covered person who, knowing that a covered or suspicious transaction is required under this A ct to be reported to the Anti-Money Laundering Council (AMLC), fails to do so. (Sec. 4, RA 10365, amending Sec. 4, RA 9160)
NOTE: It is solely the CA which has the a uthority to issue a freeze order. It also has the exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis-à-vis accounts and deposits related to moneylaundering activities. (Republic v. Cabrini Green & Ramos, G.R. No. 154522, May 5, 2006)
COVERED AND SUSPICIOUS TRANSACTIONS COVERED
SUSPICIOUS
'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five hundred thousand pesos (Ph 500,000.00) within one (1) banking day. (RA 9160, Sec. 3 [b])
'Suspicious transaction' is a transaction with a covered institution, regardless of the amount involved, where any of the following circumstances exist:
A person whose account has been frozen may file a motion to lift the freeze order and the court must resolve this motion before the expiration of the freeze order.
NOTE: No court shall issue a temporary restraining order or a writ of injunction against any freeze order, except the Supreme Court. (Sec. 8, RA 10365, amending RA 9160)
(J I C S D U A) 1.
2. 3.
the business or financial capacity of the client; Taking into account all known circumstances, it may be perceived that the client's transaction is Structured in order to avoid being the subject of reporting requirements under the Act; Any circumstances relating to the transaction which is observed to Deviate from the profile of the client and/or the client's past transactions with the covered institution; The transactions are in a way related to an Unlawful activity or offense under this Act that is about to be, is being or has been committed; or Any transaction that is similar or Analogous to any of the foregoing." (RA 9160, Sec. 3[b-1])
AUTHORITY TO INQUIRE INTO BANK DEPOSITS
There is no underlying legal or trade obligation, purpose or economic Justification; The client is not properly Identified; The amount involved is not Commensurate with
The AMLC may inquire into or examine any particular deposit or investment, including related accounts, with any banking institution or non-bank financial institution provided: 1. 2. 3.
35
It is upon order of any competent court; Based on an ex parte application; and In cases of violations of this Act, when it has been established that there is probable cause that the
MERCANTILE LAW NOTE: No contract shall be denied validity or enforceability on the sole ground that it is in the form of an electronic data message or electronic document, or that any or all of the elements required under existing laws for the formation of contracts is expressed, demonstrated and proved by means of electronic data messages or electronic documents. (Ibid.)
deposits or investments, including related a ccounts involved, are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof. The inquiry conducted by the AMLC i s not violative of The Law on Secrecy of Bank Deposits or Ra 1405, as amended; Foreign Currency Deposit Act or RA No. 6426, as amended; General Banking Laws or RA 8791; and other similar laws.
XPN: When the parties otherwise agree. Electronic transactions made through networking among banks
The Court of Appeals shall act on the application to inquire into or examine any deposit or investment with any banking institution or non-bank financial institution within twenty-four (24) hours from filing of the application.
Electronic transactions made through networking among banks, or linkages thereof with other entities or networks, and vice versa, shall be deemed consummated upon the actual dispensing of cash or the debit of one account and the corresponding credit to another. [Sec 16 (2), RA 8792]
NOTE: In case there is a pending case for forfeiture pending before the Regional Trial Court, application for bank inquiry order may be ma de on such court. Cases where no court order shall be required in order for the AMLC to inquire into deposit, investment or related accounts
NOTE: The obligation of one bank, entity, or person similarly situated to another arising therefrom shall be considered absolute and shall not be subjected to the process of preference of credits. (Ibid.)
XPNs: No need of court order in cases of (KHDAM)
Choice of security methods
1. 2. 3. 4. 5.
K idnapping, Hijacking, Drugs- violation of Dangerous Drugs Act, Arson, Murder. (Sec. 11 R.A. 9160, as a mended)
The parties to a ny electronic transaction shall be free to determine the type of level of electronic data message and electronic document security needed, and to select and use or implement appropriate technological methods that will suit their need. Sec. 24, RA 8792)
SAFE HARBOR PROVISION
FINANCIAL REHABILITATION AND INSOLVENCY ACT (R.A. 10142)
No administrative, criminal or civil proceedings, shall lie against any person for having made a COVERED transaction report or a SUSPICIOUS transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law.(Sec. 9[c], R.A. 9160, as amended; Rule IX, 2016 Revised Implementing Rules and Regulations of Republic Act No. 9160, as amended)
REHABILITATION Rehabilitation refers to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if its immediately liquidated. (Dimaampao, 2017)
ELECTRONIC COMMERCE ACT OF 2000 (R.A. NO. 8792) AND A.M. NO. 01-7-01-SC OR THE RULES ON ELECTRONIC EVIDENCE
Q: Can a distressed corporation file a petition for corporate rehabilitation after the dismissal of its earlier petition for liquidation? Explain.
Electronic document A: YES. The dismissal of a petition for liquidation does not preclude the distressed corporation from filing a petition for corporate rehabilitation. The dismissal of the petition for liquidation implies that corporation may still be restored to successful operation and solvency. (Dimaampao, 2017)
This refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically. [Sec. 5(f), RA 8792]
Q: Can the corporation file a petition for rehabilitation first, and after it is dismissed, file a petition for liquidation?
It includes digitally signed documents and any print-out or output, readable by sight or other means, which accurately reflects the electronic data message or electronic document. [Sec. 1(h), Rule 2, A.M. No. 01-7-01SC]
A: YES. The dismissal of a petition for rehabilitation connotes that the corporation can no longer be restored. Ergo, it can file a petition for liquidation. (Dimaampao, 2017)
NOTE: For purposes of the Rules on Electronic Evidence, the term "electronic document" may be used interchangeably with "electronic data message."
Q: Explain the phrase “equality is equity” in corporate rehabilitation proceedings.
A: “Equality is Equity” means that once the corporation is taken over by a receiver, all the creditors stand on equal footing and no one may be paid ahead of the others. This is consistent with the “pari passu” principle in that all assets of a corporation under rehabilitation receivership are held in trust for the benefit of all creditors, precluding one from obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. (Dimaampao, 2017)
FORMATION OF VALIDITY OF ELECTRONIC CONTRACTS GR: The elements required under existing laws for the formation of contracts, i.e. offer and acceptance, may be expressed in, demonstrated and proved by means of electronic data messages or electronic documents. [Sec 16 (1), RA 8792]
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2.
In a broad sense, it is equivalent to winding up, that is, the comprehensive process of settling accounts, ascertaining and adjusting debts, collecting assets and paying off claims. It is a declaration by the trial court of the corporation’s insolvency so that its creditors may be able to file their claims in the settlement of corporation’s debts and obligations. (Pacific Banking Corporation Employees Organization v. CA, G.R. No. 109373, March 20, 1995 )
3.
An industrial design is not considered new if it differs from prior designs only in minor respects that can be mistaken as such prior designs by an ordinary observer. (World Intellectual Property Organization, 2004)
INTELECTUAL PROPERTY LAW Coverage of intellectual property rights 1. 2. 3. 4. 5. 6. 7.
DOCTRINE OF EXHAUSTION
Copyright and Related Rights; Trademarks and Service Marks; Geographic indications; Industrial designs; Patents; Layout designs (Topographies) of Integrated Circuits; Protection of Undisclosed Information (TRIPS).
Distinctions copyright
among
trademark,
INTELLECTUAL PROPERTIES
Trademarks and Service Marks
Patents
Copyright and Related Rights
patent,
Also known as the doctrine of first sale, provides that the patent holder has control of the first sale of his invention. He has the opportunity to receive the full consideration for his invention from his sale. Hence, he exhausts his rights in the f uture control of his invention. It espouses that the patentee who has already sold his invention and has received all the royalty and consideration for the same will be deemed to have released the invention from his monopoly. The invention thus becomes open to the use of the purchaser without further restriction (Adams v. Burke, 84 U.S. 17, 1873).
and
DEFINITION
GR: Patent rights are exhausted by first sale in the Philippines (Domestic exhaustion).
Any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. Any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable. It may be, or may relate to, a product, or process, or an improvement of any of the foregoing. Axists over original and derivative intellectual creations in the literary and artistic domain protected from the moment of their creation.
XPN: On drugs and medicines: first sale in any jurisdiction exhausts the rights of the owner thereof (International exhaustion). (R.A. 9502) NON-PATENTABLE INVENTIONS 1.
2. 3. 4.
5.
PATENTS
6.
Improvement – enhancement or modification of any of the foregoing subject to patentability criteria.
7.
Criteria for Patentability: 1. 2.
3.
8.
Novelty – An invention shall not be considered new if it forms part of a prior art.(Sec. 23, IPC ) Inventive Step –if, having regard to prior art, it is not obvious to a person skilled in the art at the time of the filing date or pr iority date of the application claiming the invention. Industrially Applicable – An invention that can be produced and used in any industry. (IPC, Sec. 27 )
Plant varieties or animal breeds or essentially biological process for the production of plants or animals. This provision shall not apply to microorganisms and non-biological and microbiological processes Aesthetic creations Discoveries, scientific theories and mathematical methods Schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers Anything which is contrary to public order or morality (IPC as amended by R.A. 9502, Sec. 22). Methods for treatment of the human or animal body In the case of drugs and medicines, mere discovery of a new form or new property of a known substance which does not result in the enhancement of the efficacy of that substance Computer programs are not patentable but are copyrightable. However, they can be patentable if they are part of a process ( e.g. business process with a step involving the use of a computer program).
OWNERSHIP OF PATENT
1. Inventor , his heirs, or assigns (IPC, Sec 28); 2. Joint invention – Jointly by the inventors (IPC, Sec.
Coverage of patents: 1.
Utility Model – An invention qualifies for registration as a utility model if it is new and industrially applicable. (Sec. 109, IPC ) Industrial Design – any composition of lines or colors or any three-dimensional form, whether or not associated with lines or colors, provided that such composition or form gives a special appearance to and can serve as pattern for an industrial product or handicraft. It must be new or ornamental. (Sec. 112, 113 IPC )
28); 3. Two or more persons invented separately and independently of each other – To the person who filed an application; 4. Two or more applications are filed – the applicant who has the earliest filing date or, the earliest priority date. (First-to-file rule)(IPC, Sec. 29).
Invention – any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable. It may be, or may relate to, a product , or process, or an improvement of any of the foregoing. (Sec. 21, IPC )
37
MERCANTILE LAW 5. 6.
If made pursuant to a commission – person who commissions the work shall own the patent, unless otherwise provided in the contract. If made pursuant to an employment – In case the employee made the invention in the course of his employment contract, the patent shall belong to:
3.
The employee , if the i nventive activity is not a part of his regular duties even if the employee uses the time, facilities and materials of the employer; The employer , if the inventive activity is the result of the performance of his regularlyassigned duties, unless there is an agreement, express or implied, to the contrary (IPC, Sec. 30).
5. 6.
a.
b.
4.
7.
LIMITATIONS OF PATENT RIGHTS 1.
2.
3.
4.
5.
Parallel imporation – In case of drugs and medicine, the owner of a patent has NO RIGHT to prevent third parties from making, using, offering for sale, importing a patented product, when it has been introduced in the Philippines or anywhere else in the world by the patent owner, or by any party authorized to use the invention. Prior user - Person other than the applicant, who in good faith, started using the invention in the Philippines, or undertaken serious preparations to use the same, before the f iling date or priority date of the application shall have the right to continue the use thereof, but this right shall only be transferred or assigned further with his enterprise or business. Where the act is done privately and on a noncommercial scale or for a non-commercial purpose(IPC, Sec. 72.2). Exclusively for experimental use of the invention for scientific purposes or educational purposes. ( IPC, Sec. 72.3). Use by Government – a Government agency or third person authorized by the Government may exploit the invention even without agreement of the patent owner where: a.
b.
c.
d.
e.
PATENT INFRINGEMENT Literal Infringement - Resort must be had, in the first instance, to the words of the claim. If accused matter clearly falls within the claim, infringement is made out and that is the end of it. To determine whether the particular item falls within the literal meaning of the patent claims, the Court must juxtapose the claims of the patent and the accused product within the overall context of the claims and specifications, to determine whether there is exactly identity of all material elements (Godines v. The Honorable Court of Appeals, G.R. No. 97343, September 13, 1993). Doctrine of Equivalents – There is infringement when a device appropriates a prior invention by incorporating its innovative concept and, despite some modification and change, performs substantially the same f unction in substantially the same way to a chieve substantially the same result. (Ibid.). The doctrine of equivalents thus requires satisfaction of the function-means-and-result test, the patentee having the burden to show that all three components of such equivalency test are met (Smithkline Beckman Corporation v. CA, G.R. No. 126627, August 14, 2003).
The public interest, in particular, national security, nutrition, health or the development of other sectors, as determined by the appropriate agency of the government, so requires; or A judicial or administrative body has determined that the manner of exploitation, by the owner of the patent or his licensee, is anti- competitive; or In the case of drugs and medicines, there is a national emergency or other circumstance of extreme urgency requiring the use of the invention; or In the case of drugs and medicines, there is a public non-commercial use of the patent by the patentee, without satisfactory reason; or In the case of drugs and medicines, the demand for the patented article in the Philippines is not being met to an adequate extent and on reasonable terms, as determined by the Secretary of the Department of Health.
Meaning of “equivalent device” : It is such as a mechanic of ordinary skill in construction of similar machinery, having the forms, specifications and machine before him, could substitute in the place of the mechanism described without the exercise of the inventive faculty.
Doctrine of file wrapper estoppel: It balances the doctrine of equivalents. Patentee is precluded from claiming as part of patented product that which he had to excise or modify in order to avoid patent office rejection, and he may omit any additions that he was compelled to add by patent office regulations. Contributory Infringement Anyone who actively induces the infringement of a patent or provides the infringer with a component of a patented product or of a product produced because of a patented process knowing it to be especially adopted for infringing the patented invention and not suitable for substantial non-infringing use shall be liable as a contributory infringer and shall be jointly and severally liable with the i nfringer (Sec. 76.6, IPC).
The use by the Government, or third person authorized by the Government, shall be subject, where applicable, to the following provisions: 1.
2.
If the demand for the patented article in the Philippines is not being met to an adequate extent and on reasonable terms as determined by the Secretary of Health, the right holder shall be informed promptly; The scope and duration of such use shall be limited to the purpose for which it was authorized; Such use shall be non-exclusive; The right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; and The existence of a national emergency or other circumstances of extreme urgency, in the case of drugs and medicines shall be subject to the determination of the President of the Philippines for the purpose of determining the need for such use or other exploitation, which shall be immediately executory.
DEFENSES IN ACTION FOR INFRINGMENT
In situations of national emergency or other circumstances of extreme urgency , the right holder shall be notified as soon as reasonably practicable; In the case of public non-commercial use of the patent by the patentee, without satisfactory reason, the right holder shall be informed promptly;
1. 2.
Invalidity of the patent (IPC, Sec. 81); Any of the grounds for cancellation of patents: a.
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That what is claimed as the invention is not new or patentable
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 b.
c.
3.
That the patent does not disclose the invention in a manner sufficiently clear and complete for it to be carried out by any person skilled in the art; or That the patent is contrary to public order or morality (IPC, Sec. 61).
4.
Identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date, in respect of: a. b. c.
Prescription
TRADEMARK
The same goods or services, or Closely related goods or services, or If it nearly resembles such a mark as to be likely to deceive or cause confusion;
The law does not prohibit or enjoin every similarity. The similarity must be such that the ordinary purchaser will be deceived into the belief that the goods are those of another
Mark means any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods.
Only the owner of the trademark, trade name or service mark used to distinguish his goods, business or ser vice from the goods, business or service of others is entitled to register the same. An exclusive distributor does not acquire any proprietary interest in the principal's trademark and cannot register it in his own name unless it is has been validly assigned to him.(Superior Commercial Enterprises, Inc. v. Kunnan Enterprises, G.R. No. 169974, April 20, 2010)
Is identical with an internationally well-known mark, whether or not it is registered here, used for identical or similar goods or services; 6. Is identical with an internationally well-known mark which is registered in the Philippines with respect to non-similar goods or services. Provided , that the interests of the owner of the registered mark are likely to be damaged by such use; 7. Is likely to mislead the public as to the nature, quality, characteristics or geographical origin of the goods or services; 8. Consists exclusively of signs that are generic for the goods or services that they seek to identify; 9. Consists exclusively of signs that have become customary or usual to designate the goods or services in everyday language and established trade practice; 10. Consists exclusively that may serve in trade to designate the kind, quality, quantity, intended purpose, value, geographical origin, time or production of the goods or rendering of the services, or other characteristics of the goods or services; 11. Consists of shapes that may be necessitated by technical factors or by the nature of the goods themselves or factors that affect their intrinsic value; 12. Consists of color alone, unless defined by a given form; or 13. Is contrary to public order or morality (IPC, Sec. 123).
ACQUISITION OF TRADE NAME
WELL-KNOWN MARKS
Ownership of a mark or trade name may be acquired not necessarily by registration but by adoption and use in trade or commerce. As between actual use of a mark without registration, and registration of the mark without actual use thereof, the former prevails over the latter. (Shangri-la Hotel Management Ltd. v. Developers Group of companies, March 31, 2006 G.R. No. 159938). A trade name need not be registered with the IPO before an infringement suit may be filed by its owner against the owner of an infringing trademark. All that is required is that the trade name is previously used in trade or commerce in the Philippines. (Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc., G.R. No. 169504, March 3, 2010).
A mark cannot be registered if it is identical with, or confusingly similar to, or constitutes a translation of a mark which is considered by the competent authority of the Philippines to be well-known internationally and in the Philippines, whether or not it is registered here, as being already the mark of a person other than the applicant for registration, and used for identical or similar goods or services : Provided , That in determining whether a mark is well-known, account shall be taken of the knowledge of the relevant sector of the public, rather than of the public at large, including knowledge in the Philippines which has been obtained as a result of the promotion of the mark;
5.
Collective mark means any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark. Trade name means the name or designation identifying or distinguishing an enterprise (IPC, Sec. 121.1, 121.2, 121.3). ACQUISITION OF OWNERSHIP OF A MARK The rights in a mark shall be acquired through registration made validly in accordance with the provisions of the IP Code. Actual prior use in commerce in the Philippines has been abolished as a condition for the registration of trademark.
A mark cannot be registered if it is identical with, or confusingly similar to, or constitutes a translation of a mark considered well-known in accordance with the preceding paragraph, which is registered in the Philippines with respect to goods or services which are NOT similar to those with respect to which registration is applied for : Provided ,
NON-REGISTRABLE MARKS 1.
2.
3.
Consists of immoral , deceptive or scandalous matter or falsely suggest a connection with persons, institutions, beliefs, or national symbols; Consists of the flag or coat of arms or other insignia of the Philippines or any of its political subdivisions, or of any foreign nation; Consists of a name, portrait or signature identifying a particular living individual except by his written consent , or the name, signature, or portrait of a deceased President of the Philippines, during the life of his widow except by written consent of the widow;
1.
2.
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That use of the mark in relation to those goods or services would indicate a connection between those goods or services, and the owner of the registered mark : and That the interests of the owner of the registered mark are likely to be damaged by such use ( Sec. 123.IPC ).
MERCANTILE LAW REGISTRATION OF A MARK
Unauthorized use of a trademark.
A certificate of registration of a mark shall be prima facie evidence of the validity of the registration, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in connection with the goods or services and those that are related thereto specified in the certificate (IPC, Sec. 138).
Fraudulent intent is unnecessary. GR: Prior registration of the trademark is a prerequisite to the action.
A certificate of registration shall remain in force for ten (10) years, provided that the registrant shall file a declaration of actual use and evidence to that effect, or shall show valid reasons based on the existence of obstacles to such use, as prescribed by the Regulations, within one (1) year from the fifth anniversary of the d ate of the registration of the mark. Otherwise, the mark shall be removed from the Register by the Office. (IPC, Sec. 145)
XPN: Well-known marks
SIMILARITY BETWEEN THE TWO: The similarity lies in both their ability to disrupt fair competition amongst business enterprises and other businesses. They can also create confusion, mistake, and deception as to the minds of the consumers with regard to the source or identity of their products or services due to its similarity in appearance or packaging.
TESTS TO DETERMINE CONFUSING SIMILARITY BETWEEN MARKS
COPYRIGHT A right over literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of creation (IPC, Sec. 171.1).
DOMINANCY TEST – it focuses on the similarity of the prevalent features of the competing marks. If the competing trademark contains the main or essential or dominant features of another, and confusion and deception are likely to result, infringement takes place. Duplication or imitation is not necessary; nor is it necessary that the infringing label should suggest an effort to imitate. The question is whether the use of marks involved is likely to cause of confusion or mistake in the mind of the public or deceive purchasers. (2012 BAR)
Principle of automatic protection: Works are protected by the sole fact of their creation irrespective of their content, quality or purpose. Such rights are conferred from the moment of creation. (IPC, Sec. 172.2) Elements of copyrightability 1.
HOLISTIC TEST – Confusing similarity is to be determined on the basis of visual, aural, connotative comparisons and overall impressions engendered by the marks in controversy as they are encountered in the marketplace. The trademarks in their entirety as they appear in their respective labels are considered in relation to the goods to which they are attached.
2.
The dominancy test only relies on visual comparisons between two trademarks whereas the totality or holistic test relies not only on the visual but also on the aural and connotative comparisons and overall impressions between the two trademarks (Societe Des Produits Nestl, S.A. v. CA, G.R. No. 112012, Apr. 4, 2001).
1.
c.
d.
Books, pamphlets, articles and other writings Lectures, sermons, addresses, dissertations prepared for Oral delivery, whether or not reduced in writing or other material form c. Letters d. Dramatic, choreographic works e. Musical compositions f. Works of Art g. Periodicals and Newspapers h. Works relative to Geography, topography, architecture or science i. Works of Applied art j. Works of a Scientific or technical character k. Photographic works l. Audiovisual works and cinematographic works m. Pictorial illustrations and advertisements n. Computer programs; and o. Other literary, scholarly, scientific and artistic works (IPC, Sec. 172.1).
The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated by the infringer; The infringing mark or trade name is used in connection with the sale, offering for sale, or advertising of any goods, business or services; or the infringing mark or trade name is applied to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used upon or in connection with such goods, business or services; The use or application of the infringing mark or trade name is likely to cause confusion or mistake or to deceive purchasers or others as to the goods or services themselves or as to the source or origin of such goods or services or the identity of such business; and It is without the consent of the trademark or trade name owner or the assignee thereof
2.
Derivative Works a.
b.
TRADEMARK INFRINGEMENT vs. UNFAIR COMPETITION TRADEMARK INFRINGEMENT
Literary and Artistic Works a. b.
Elements of trademark infringement:
b.
Originality – Must have been created by the author’s own skill, labor, and judgment without directly copying or evasively imitating the work of another Expression – Must be embodied in a medium sufficiently permanent or stable to permit it to be perceived, reproduced or communicated for a period more than a transitory duration.
COPYRIGHTABLE WORKS
TRADEMARK INFRINGEMENT AND REMEDIES
a.
The passing off of one’s goods as those of another. Fraudulent intent is essential. Registration is not necessary(Del Monte Corp. v. CA, G.R. No. 78325, January 23, 1990).
UNFAIR COMPETITION
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Dramatizations, translations, adaptations, abridgements, arrangements, and other alterations of literary or artistic works; Collections of literary, scholarly, or artistic works and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents (IPC, Sec. 173).
UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 Derivative works shall be protected as new works, provided that such new work shall not affect the force of any subsisting copyright upon the original works employed or any part thereof, or be construed to imply any right to such use of the original works, or to secure or extend copyright in such original works (IPC, Sec. 173.2).
1996, also cited in Copyright Law of the Philippines by D. Funa). In every sale or lease of an original work of painting or sculpture or of the original manuscript of a writer or composer, subsequent to the first disposition thereof by the author, the author or his heirs shall have an inalienable right to participate in the gross proceeds of the sale or lease to the extent of five percent (5%) (Sec. 200, IPC ).
NON-COPYRIGHTABLE WORKS 1. 2. 3.
4. 5.
6. 7. 8. 9.
Idea, procedure, system, method or operation, concept, principle, discovery or mere data as such News of the day and other items of press information Any official text of a legislative, administrative or legal nature, as well as any official translation thereof Pleadings Decisions of courts and tribunals – this refers to original decisions and not to annotated decisions such as the SCRA or SCAD as these already fall under the classification of derivative works, hence copyrightable Any work of the government of the Philippines TV programs, format of TV programs (Joaquin v. Drilon, G.R. No. 108946, Jan. 28, 1999) Systems of bookkeeping; and Statutes.
Must carry rule It is limitation on copyright which obligates operators to carry the signals of local channels within their respective systems. This is to give the people wider access to more sources of news, information, education, sports event and entertainment programs other than those provided for by mass media and afforded television programs to attain a well informed, wellversed and culturally refined citizenry and enhance their socio-economic growth (ABS-CBN Broadcasting Corporation v. Philippine Multimedia System, G.R. No. 175769-70, Jan. 19, 2009). The rule mandates that the local television (TV) broadcast signals of an authorized TV broadcast station, such as the GMA Network, Inc., should be carried in full by the cable antenna television (CATV) operator, without alteration or deletion. In this case, the Central CATV, Inc. was found not to have violated the mustcarry rule when it solicited and showed advertisements in its cable television system. Such solicitation and showing of advertisements did not constitute an infringement of the “television and broadcast markets” under Section 2 of E.O. No. 205 (GMA Network, Inc. v. Central CATV, Inc., G.R No. 176694, July 18, 2014).
RIGHTS OF COPYRIGHT OWNER 1.
Economic rights – The right to carry out, authorize or prevent the f ollowing acts: a. b.
c.
d. e. f. g. 2.
Reproduction of the work or substantial portion thereof Carry-out derivative work (dramatization, translation, adaptation, abridgement, arrangement or other transformation of the work) First distribution of the original and each copy of the work by sale or other forms of transfer of ownership Rental right Public display Public performance Other communications to the public.
OWNERSHIP OF COPYRIGHT 1. 2.
3.
Moral rights – For reasons of professionalism and propriety, the author has the right: a. b. c.
d.
4.
To require that the authorship of the works be attributed to him (attribution right) To make any alterations of his work prior to, or to withhold it from publication To preserve integrity of work , object to any distortion, mutilation or other modification which would be prejudicial to his honor or reputation; and To restrain the use of his name with respect to any work not of his own creation or in a distorted version of his work (IPC, Sec.193).
5.
6.
NATURE AND TERM OF MORAL RIGHTS : These are personal rights independent from the economic rights. Being a personal right, it can only be given to a natural person. Hence, even if he has licensed or assigned his economic rights, he continues to enjoy the abovementioned moral rights (Amador, 2007). The rights of an author shall last during the lifetime of the author and IN PERPETUITY after his death.
7.
Original and literary artistic works – author Joint authorship – co-authors, but if work of joint authorship consists of parts that can be used separately, then the author of each part shall be the original owner of the copyright in the part that he has created (IPC, Sec. 178.2). Audiovisual work – Producer, the author of the scenario, the composer of the music, the film director, and the author of the work so adapted Anonymous and Pseudonymous works – publishers shall be deemed to represent the authors of articles and other writings published without the names of the authors or under pseudonyms, unless the contrary appears, or the pseudonyms or adopted name leaves no doubt as to the author's identity, or if the author of the anonymous works discloses his identity (IPC, Sec. 179). Commissioned work – The person who commissioned the work shall own the work but the copyright thereto shall remain with the creator, unless there is a written stipulation to the contrary (IPC, Sec. 178.4). Collective works – When an author contributes to a collective work, his right to have his contribution attributed to him is deemed waived unless he expressly reserves it. (IPC, Sec. 196). In the course of employment – a.
b. 3.
Droit de suite or “art proceeds right” is the artist’s resale right , which requires that a percentage of the resale price of an artistic work is paid to the author. The right is exercisable even after the author’s death, provided the work is still in copyright (David Bainbridge, Intellectual Property, 3 rd Ed., p. 220
8.
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The employee , if not a part of his regular duties even if the employee uses the time, facilities and materials of the employer. The employer , if the work is the result of the performance of his regularly-assigned duties, unless there is an agreement, express or implied, to the contrary. ( IPC, Sec. 178.3).
Letters – the writer subject to the provisions of Article 723 of the Civil Code. ( IPC, Sec. 178.6).
MERCANTILE LAW LIMITATIONS ON COPYRIGHT DOCTRINE OF FAIR USE “Fair use” permits a secondary use that “serves the copyright objective of stimulating productive thought and public instruction without excessively diminishing the incentives for creativity”. The fair use of a copyrighted work for criticism, comment, news reporting, teaching including limited number of copies for classroom use, scholarship, research, and similar purposes is not an infringement of copyright.
NOTE: The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made upon consideration of several factors (IPC, Sec. 182.2). If you copy to the extent that you reduce the marketability of the book, it is no longer fair use. Substantial reproduction: It is not necessarily required that the entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the value of the original work is substantially diminished, there is an infringement of copyright and to an injurious extent, the work is appropriated. It is no defense that the pirate did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In cases of infringement, copying alone is not what is prohibited. The copying must produce an “injurious effect” (Habana v. Robles, G.R. No. 131522, July 19, 1999). COPYRIGHT INFRIGEMENT Q: In an action for damages on account of an infringement of a copyright, the defendant (the alleged pirate) raised the defense that he was unaware that what he had copied was a copyright material. Would this defense be valid? (1997 BAR) A:NO. In copyright infringement, intent is irrelevant. A person may consciously or unconsciously copy or infringe a copyrighted material and still be held liable for such act. A person infringes a right protected under this Act when one: a. b.
c.
Directly commits an infringement; Benefits from the infringing activity of another person who commits an infringement if the person benefiting has been given notice of the infringing activity and has the right and ability to control the activities of the other person; With knowledge of infringing activity, induces, causes or materially contributes to the infringing conduct of another (IPC,Sec. 216, as amended by R.A. No. 10372).
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UST LAW PRE-WEEK NOTES 2018 MERCANTILE LAW RECENT CASES delivered in good condition, the consignee may reject those in damaged condition and accept merely those which are in good condition. But if the consignee is able to prove that it is impossible to use those goods which were delivered in good condition without the others, then the entire shipment may be rejected. To reiterate, the nature of damage must be such that the goods are rendered useless for sale, consumption or intended purpose for the consignee to be able to validly reject them.
NEGOTIABLE INSTRUMENTS LAW COMPLETION AND DELIVERY
Evangelista v. Screenex Inc., G.R. No. 211564, November 20, 2017
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. Hence, the delivery of the checks, despite the subsequent failure to encash them within a period of 10 years or more, had the effect of payment. Debtor is considered discharged from his obligation to pay and can no longer be pronounced civilly liable for the amounts indicated thereon.
If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to pay only the difference between its price on that day and its depreciated value.
Q: In an action for damages for breach of contract of carriage, may the driver and the owner/operator both be held liable for damages? A: NO. Only the operator (or the carrier) breached the contract of carriage. It is only the carrier which was the party to the contract of carriage and since the cause of action is based on a breach of a contract of carriage, the liability of carrier is direct as the contract is between him and the passenger. The driver cannot be made liable as he is not a party to the contract of carriage.
LIABILITY OF BANKS
Sanico and Castro v. Colipano, G.R. No. 209969, September 27, 2017
BDO v. Engr. Lao, G.R. No. 227005, June 19, 2017
In cases of unauthorized payment of checks to a person other than the payee named therein, the drawee bank may be held liable to the drawer. The drawer in turn may seek reimbursement from the collecting bank.
CORPORATION LAW Although the rule on the sequence of recovery of a forged or lacking endorsement check has been deeply engrained in jurisprudence, exceptional circumstances would justify it simplification. In this case, drawer was allowed to collect directly from collecting bank even if there was no privity of contract between them (instead from the drawee bank with whom it has a contractual relationship) since drawee bank was not made a party to the appeal.
PIERCING THE VEIL
Piercing the veil of corporate fiction is allowed, and responsible persons may be impleaded, and be held solidarily liable even after final judgment and on execution, provided that such persons deliberately used the corporate vehicle to unjustly evade the judgment obligation, or resorted to fraud, bad faith, or malice in evading their obligation. In this case, petitioners were impleaded from the inception of this case. They had ample opportunity to debunk the claim that they illegally dismissed respondents, and that they should be held personally liable for having controlled DMI and actively participated in its management, and for having used it to evade legal obligations to respondents.
INSURANCE LAW
Oriental Assurance Corp. v. Ong, G.R. No. 189524, October 11, 2017
The fact that insurer is not a party to the shipment contract does not mean that it cannot be bound by their provisions. The insurer is subrogated to the rights of the consignee simply upon its payment of the insurance claim. As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise those rights that the consignee may have against the wrongdoer who caused the damage. And since the right of action of the consignee is subject to a precedent condition, such as the 15-day period filing of claim to the shipper, necessarily a suit by the insurer is subject to the same precedent condition.
TRANSPORTATION LAW
Dutch Movers Inc. and Lee et. al v. Lequin et. al, G.R. No. 210032, April, 25, 2017
Loadstar Shipping Co. v. Malayan Insurance Co., G.R. No. 185565, April 26, 2017
I/AME Litton and Co. Inc. v. Litton and Co., G.R. No. 191525, December 13, 2017 The piercing of the corporate veil is premised on the fact that the corporation concerned must have been properly served with summons or properly subjected to the jurisdiction of the court a quo. Corollary thereto, it cannot be subjected to a writ of execution meant for another in violation of its right to due process. There exists, however, an exception to this rule : if it is shown "by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings.”
In domestic shipments,if the goods are delivered but arrived at the destination in damaged condition, the remedies to be pursued by the consignee depend on the extent of damage on the goods.
The resistance of the Court to offend the right to due process of a corporation that is a non-party in a main case, may disintegrate not only when its director, officer, shareholder, trustee or member is a party to the main case, but when it finds facts which show
If the goods are rendered useless for sale, consumption or for the intended purpose, the consignee may reject the goods and demand the payment of such goods at their market price on that day. In case the damaged portion of the goods can be segregated from those
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MERCANTILE LAW
that piercing of the corporate veil is merited. Thus, as the Court has already ruled, a party whose corporation is vulnerable to piercing of its corporate veil cannot argue violation of due process.
Q: Are violations of Sec. 31 and 34 of the Corporation Code carry with it criminal liability?
The mere fact that the corporation involved is a nonprofit corporation does not by itself preclude a court from applying the equitable remedy of piercing the corporate veil. The equitable character of the remedy permits a court to look to the substance of the organization, and its decision is not controlled by the statutory framework under which the corporation was formed and operated. While it may appear to b e impossible for a person to exercise ownership control over a non-stock, not-for-profit corporation, a person can be held personally liable under the alter ego theory if the evidence shows that the person controlling the corporation did in fact exercise control, even though there was no stock ownership.
A: NO. A scrutiny of the provisions of the code providing specific liability for its violation bolsters this answer. Giving a broad and flexible interpretation to the term "penalized" in Section 144 only has utility if there are provisions in the Corporation Code that specify consequences other than "penal" or "criminal" for violation of, or non-compliance with, the tenets of the Code. Section 22 imposes the penalty of involuntary dissolution for non-use of corporate charter. Sections 22, 31, 34, 65, 66, and 67, provide for civil or pecuniary liabilities for the acts covered therein but what is significant is the fact that, of all these provisions that provide for consequences other than penal, only Section 74 expressly states that a violation thereof is likewise considered an offense under Section 144. If indeed Section 144 automatically imposes penal sanctions on violations of provisions for which no criminal penalty was imposed, then such language in Section 74 defining a violation thereof as an offense would have been superfluous. There would be no need for legislators to clarify that, aside f rom civil liability, violators of Section 7 4 are exposed to criminal liability as well. The lack of specific language imposing criminal liability in Sections 31 and 34 shows legislative intent to limit the consequences of their violation to the civil liabilities mentioned therein. Had it been the intention of the drafters of the law to define Sections 31 and 34 as offenses, they could have easily included similar language as that found in Section 74.
Reverse Piercing of the Corporate Veil - in a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate insider. In a reverse piercing action, however, the p laintiff seeks to reach the assets of a corporation and make the corporation liable for the debt of the shareholders. It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant. In contrast, in insider reverse piercing , the controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets.
Moreover, The Corporation Code was intended as a regulatory measure, not primarily as a penal statute. Sections 31 to 34 in particular were intended to impose exacting standards of fidelity on corporate officers and directors but without unduly impeding them in the discharge of their work with concerns of litigation. Considering the object and policy of the Corporation Code to encourage the use of the corporate entity as a vehicle for economic growth, we cannot espouse a strict construction of Sections 31 and 34 as penal offenses in relation to Section 144 in the absence of unambiguous statutory language and legislative intent to that effect.
PROPIETARY RIGHTS OF A STOCKHOLDER RIGHT TO INSPECT
Ient and Schulze v. Tullet Prebon (Phils.) Inc., G.R. No. 189518, January 11, 2017
Roque v. People, G.R. No. 211108, June 7, 2017
In any case, the revocation of a corporation's Certificate of Registration does not automatically warrant the extinction of the corporation itself such that i ts rights and liabilities are likewise altogether extinguished. The termination of the life of a juridical entity does not, by itself, cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. Thus, the revocation of BMTODA's registration does not automatically strip off Ongjoco of his right to examine pertinent documents and records relating to such association.
OTHER CORPORATIONS
Lim v. Mo ldex Land Inc., G.R. No. 206038, January 25, 2017
For stock corporations, the quorum is based on the number of outstanding voting stocks while for nonstock corporations, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum.
MEETINGS Q: King sought to annul the stockholder’s meeting wherein a new set of Board of Director were duly elected. His ground, among others, is that the notice of meeting failed to state the object and purpose thereof as required by its corporate by-laws. Is King’s contention correct?
The basis in determining the presence of quorum in non-stock corporations is the numerical equivalent of all members who are entitled to vote , unless some other basis is provided by the By-Laws of the corporation. The qualification "with voting rights" simply recognizes the power of a non-stock corporation to limit or deny the right to vote of any of its members. When the by-laws declare that quorum shall constitute majority of the “members in good standing”, it is a mere qualification as to which members shall be counted for quorum purposes. Delinquent members, are stripped of voting rights.
A: NO. Under the corporate by laws, a notice for special meeting shall state the object and purpose thereof. However, the meeting being assailed is not a special meeting but an annual regular meeting. The agenda for the meeting which includes the election of new board of directors was the standard order of business in a regular annual meeting of stockholders of the corporation. (Lao v. Lim, G.R. No. 201306, Aug. 9, 2017)
Likewise, quorum may be different from voting rights depending on the by-laws of the non-stock corporation. For example, if there are 100 members in a non-stock corporation, 60 of which are members in good standing,
PENAL PROVISIONS
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UST B AR OPERATIONS ACADEMICS COMMITTEE 2018
UST LAW PRE-WEEK NOTES 2018 then the presence of 50% plus 1 of those members in good standing will constitute a quorum. Thus, 31 members in good standing will suffice in order to consider a meeting valid as regards the presence of quorum. The 31 members will naturally have to exercise their voting rights. It is in this instance when the number of voting rights each member is entitled to becomes significant. If 29 out of the 31 members are entitled to 1 vote each, another member (known as A) is entitled to 20 votes and the remaining member (known as B) is entitled to 15 votes, then the total number of voting rights of all 31 members is 64. Thus, majority of the 64 total voting rights, which is 33 (50% plus 1), is necessary to pass a valid act. A ssuming that only A and B concurred in approving a specific undertaking, then their 35 combined votes are more than sufficient to authorize such act.
Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still be rehabilitated or not. As expressly stated in the aforecited provision, once the receiver determines that rehabilitation is no longer feasible, the MB is simply obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with liquidation.
SPECIAL LAWS ANTI-MONEY LAUNDERING ACT
SECURITIES REGULATION CODE
The court receiving the application for inquiry order cannot simply take the AMLC's word that probable cause exists that the deposits or investments are re lated to an unlawful activity. It will have to exercise its own determinative function in order to be convinced of such fact. For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to show specific facts and circumstances that provide a link between an unlawful activity or a money laundering offense, on the one hand, and the account or monetary instrument or property sought to be examined on the other hand.
JURISDICTION
Dy Teban Trading Inc. v. Dy, G.R. No. 185647, July 26, 2017
Q: After finding that the action filed before the RTC acting as Special Commercial Court is not an intracorporate dispute but a civil action for injunction, is the RTC divested of jurisdiction? A: NO. The fact that a particular branch which has been designated as a Special Commercial Court does not shed the RTC's general jurisdiction over ordinary civil cases under the imprimatur of statutory law, (BP) 129. To restate, the designation of Special Commercial Courts was merely intended as a procedural tool to expedite the resolution of commercial cases in line with the court's exercise of jurisdiction. The RTC'sgeneral jurisdiction over ordinary civil cases is therefore not abdicated by an internal rule streamlining court procedure.
FINANCIAL REHABILITATION AND INSOLVENCY ACT
Metrobank v. Liberty Corrugated, G.R. No. 184317, January 25, 2017
The phrase “any debtor who foresees the impossibility of meeting its debts” in the law must not be applied in its literal sense, such that debtors whose debt has matured cannot anymore file a petition for rehabilitation.
Oca v. Custodio, G.R. No. 199825, July 26, 2017 A corporation that may seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this debt. The condition that triggers rehabilitation proceedings is not the maturation of a corporation's debts but the inability of the debtor to pay these.
In intra-corporate controversies, all orders of the trial court are immediately executory : “Section 4. Executory nature of decisions and orders - All decisions and orders issued under these Rules shall immediately be executory except the awards for moral damages, exemplary damages and attorney's fees, if any. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal. ”
BIR v. Lepanto Ceramics, Inc., G.R. No. 224764, April 24, 2017
Under Sec. 16 of FRIA, one of the claims suspended upon the issuance of Commencement Order are (deemed to include a Stay or Suspension Order), “claims of the government, whether national or local, including taxes, tariffs and customs duties ”.
Questioning the trial court orders does not stay its enforcement or implementation. There is no showing that the trial court orders were restrained by the appellate court. Hence failure to comply with such orders may render a person liable for contempt of court.
The acts of sending a notice of informal conference and a Formal Letter of Demand are part and parcel of the entire process for the assessment and collection of deficiency taxes from a delinquent taxpayer- an action or proceeding for the enforcement of a claim which should have been suspended pursuant to the Commencement Order. Unmistakably, foregoing acts of BIR are in clear defiance of the Commencement Order.
BANKING LAWS NEW CENTRAL BANK ACT
Republic v. Bolante, G.R. No. 186717, April 17, 2017
Cu v. Small Business Guarantee and Finance Corp., G.R. No. 211222, August 7, 2017
Criminal case for BP 22 against the bank officers should be dismissed due to the order for receivership. The closure of the bank, placing it under receivership per Monetary Board Orders and the filing of the petition for assistance in the liquidation proceedings effectively suspended the demandabililty of the loan, thus the BP 22 case cannot proceed and was properly dismissed. Apex Bancrights Holdings Inc. v. BSP and PDIC , G.R. No. 214866, October 2, 2017
People v. Mateo, G.R. No. 210612, October 9, 2017
The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the
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