COMMERCIAL LAW REVIEWDEAN EDUARDO ABELLA

Commercial Law Review Dean Eduardo Abella First and Second Semester 2012-2013Updated: 2nd Sem, AY 2014-2015 Commercial Law Review Updated: 2nd Sem, AY 2014-2015 by Katz Rivera (A2015)Dean Eduardo AbellaFirst and Second Semester 2012-2013

KGR (A2015)

1

MORTGAGE

Governing LawsNew Civil Code, Chattel Mortgage Law, Ship Mortgage Decree (passed during Martial Law), Act 3135

IntroductionUnder the NCC (Book V), there are accessory contracts securing principal obligations (special contracts). These include pledge, mortgage antichresis, guaranty, and suretyship.

DefinitionNCC: An accessory contractwhereby property is recorded (in the register of deeds of the city and/or province) to secure fulfillment of any valid obligation.

An accessory contract, collateral, or security for an obligation.

They are valid only if there is a principal contract.

The function of Register of Deeds is merely ministerial. If the documents are correct andcomplete, RD has no discretionin disallowing the recording of the mortgage.

Basic Principles1) Accessory Contract- only exists if there is a principal contract.2) Mortgagor is the owner of thing mortgaged; capacity to mortgage.3) Mortgage is extinguished if the principal obligation is extinguished.

Scope: It may be constituted over:(1) Personal Property (Chattel Mortgage)(2) Real Property (Real Estate Mortgage)

CMREM

ObjectPersonal PropertyReal Property

ScopeValid and existing obligationIncludes future obligations

Includes voidable, unenforceable, rescissible, and natural obligations

ForeclosureExtrajudicial onlyEJ or Judicial

EJ ForeclosureNo right of redemptionRight of redemption

RegistrationDeed is recorded with the RD of the city/province where the mortgagor resides.

Return of excessNot requiredRequired

Claim for deficiencyNo recovery under the Recto Law. (NCC Art 1484 on installment sale of personal property where the mortgage is constituted over the object of sale to secure the payment of the purchase price.

For Recto Law to apply, mortgage must be constituted over the object of the installment sale.

CHATTEL MORTGAGE

Definition of Chattel Mortgage in CML (Act No. 1508)A conditional sale of personal property (CONSIDERED REPEALED WITH THE EFFECTIVITY OF NCC)

In Jurisprudence:There was a house that was the subject of a chattel mortgage. The reason was that the land belonged to one person and the house to another. The Court ruled that as between the parties, there exists a valid chattel mortgage. Under NCC Art 1159, stipulations of parties are valid between themselves. However, they are not binding on third persons.Doctrine: real property may be classified as personal property, but valid only as between the parties.

DefinitionChattel mortgage is defined in the NCC as a contract whereby personal property is recorded in the chattel mortgage registry as security for the performance of an obligation.

Where to Register: Residence of the mortgagorCM is to be recorded in the RD of the City/Province where the mortgagor resides.There is RD for cities andprovince, but not in municipalities.Registration is required to serve as constructive notice to the world. It is not for the validity of the mortgage.

Actual v. Constructive NoticeActual notice- even if not registered, binding to the party notified.Constructive notice- publication, registration, public instrument; binding to the whole world.

ExamplesA resides in QC, and borrowed money. As a collateral, he mortgaged a bulldozer located in Malolos. Where should the CM be registered?A: Recorded in BOTH the RDs of QC and Malolos.

If the mortgaged property is a motor vehicle registered in the LTO, or shares of stock, you should still register in RD. Registration in RD is constructive notice to the whole world.Practical tip: bring two copies, first to RD then have him stamp the copy. Bring the second copy to the LTO.

Form of Registration:Deed of CM- requires Affidavit of Good Faith Absence of AGF, binding on parties but not to third parties.Affidavit of Good Faith- a sworn declaration of mortgagor or mortgagee that they executed the mortgage in goodfaith to secure a valid obligation and not for the purpose of fraud.

Mortgagor can be the principal debtor himself or a third person who agreed to provide the security.

Q: If an affidavit of good faith is omitted, is there a valid chattel mortgage?A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of registration. If there is no affidavit, it is not binding on third persons. Affidavit of good faith may be demanded.

Q: What if mortgagor and property are in different locations?A: Register first in the city or province where the mortgagor resides then where the property is found.

Mortgagor may or may not be the principal debtor.

Remedies in case of default: 1. Sue for specific performance if the obligation is for a sum of money. In filing an action for specific performance, the mortgagee abandons the mortgage by suing the principal debtor. If suit is brought, mortgagor may demand release of mortgage. ; or 2. Foreclose the security/mortgage under the Chattel Mortgage Law-ABSOLUTE REQUIREMENT: Creditor must possess the thing mortgaged because it would be sold in a public auction.

Remedies are mutually exclusive; choose one.

Q: Who may handle the EJF? A: Sheriff or Notary public

In chattel mortgage, foreclosure is always extrajudicial.

Procedures in Extrajudicial Foreclosure:1. Mortgagee prepares the petition for Extrajudicial Foreclosure.2. Sheriff or Notary Public,upon receipt of the petition, prepares a notice of EJF of CM.3. Post notice in at least 2 public places and a copy should be sent to the mortgagor before the auction sale. If you do not send a copy to the mortgagor, procedure is void.4. [Absolutely necessary] For there to be a valid auction sale, mortgagee should have possession of the thing mortgaged.5. If mortgagor does not want to give possession of the property, mortgagee can go to court and file an action for replevin.

Highest bid would cover total clams. If it exceeds the total amount of obligation, who gets the excess? The mortgagor.

Deficiency cannot be recovered if the transaction is covered by Recto Law.Remember: the story of the DOM and the GRO.

REAL ESTATE MORTGAGE

Governing Law: Act 3135It is a special law that createdthe rightto foreclose REM extrajudicially.In the deed of mortgage or separate instrument, the mortgagor must expressly authorize the mortgagee to sell the property mortgaged in case of default.

Dragnet or blanket clauseIt is a stipulation that the REM secures not only a particular obligation of the mortgagor but all his other obligations to the mortgagee.

Procedure in Extrajudicial Foreclosure of REM:1. The Mortgagor must expressly authorize the mortgagee to sell the mortgaged property in case of default, either in the deed of mortgage or in a separate instrument.a. Example: In case of default, the bank shall be authorized to sell, as it is hereby authorized to sell..b. INSUFFICIENT: Banks use printed deeds of REM with the following provision: In case of default, the bank can extrajudicially foreclose pursuant to Act No. 3135. According to a SC Circular, mere reference to Act No. 3135 is not enough.c. Note: Just copy the wording/form of the law.

2. Mortgagee should prepare a verified petition to foreclose the REM extra-judicially. File it with the office of clerk of courtand pay court fees.a. Petition must correctly describe the mortgaged property.b. It is out of court but court fees are required to be paid by virtue of SC Circular issued March 2000.c. Pay filing + recovery fees (4% for first P4,000, 2% for excess).

Sirs joke: Rulings of SC are like an ugly womanNO APPEAL."

3. Notice of Auction saleto be prepared by the sheriff or notary public. a. Notice must be posted in at least 3 public places(hall of justice, lobby of city hall, barangay halls, public market) where the property is located.b. Notice of Auction Sale must be published once a week for two consecutive weeks in a newspaper of general circulation. Check the notice as published. If there is error in the description of property, call the attention of the publisher.c. Publication is very important! If there is error in published notice, procedure can be invalidated.d. No need to give notice of auction sale to mortgagor because there is publicationthat serves as constructive knowledge to the whole world.

How to prove; Ask for a Certificate of Notice or Affidavit of Publication and a copy of issue of the newspaper.

4. Auction Sale- usually the mortgagor does not appear. If mortgagor arrives, and the mortgagor/ee signed an agreement to postpone the auction sale on another day. Is the agreement valid? YES! If that designated day arrives and mortgagor does not arrive without notice, mortgagee asks the sheriff to proceed with the sale. Can the auction sale continue? NO, the process of notice + posting + publishingmust be repeated.

Three possible results of an auction sale:a. Bid exceeds the amount of the obligation; the excess is returned to the mortgagor.b. Bid is less than the amount of the obligation: the deficiency is recoverable.c. Mortgagor himself is the highest bidder: there is no need for the amount of the bid to be delivered to the sheriff or notary public.

Note: There is no longer any requirement of having at least two bidders.

Remedy if highest bidder does not want to pay is to file an action for specific performance.

5. Certificate of Sale- issued by sheriff or notary public.What to do? Register ASAP with RD because the one-year right of redemption commences within one year from the date of registration.

6. RedemptionNature: Right, not a duty; it may not be forced on the mortgagor. It is a property right arising from property.Real property; real rights

Practical tip: Pay managers check if the amount is substantial.

Redemption period: GR: 1 year from registration of certificate of sale.Exc: 90 days or before the registration of title over the property, whichever comes first if the mortgagor is a juridical person and the mortgagee is a bank (GBL of 2000).

Who exercises right of redemption:a. Mortgagorb. His successors-in-interestc. Judgment creditor of mortgagor

How is it exercised?There must be a valid tender of the redemption price within the redemption period (1 year from registration of certificate of sale).When is tender valid? If there is tender on the full amount in legal tender; tender by check is allowed.

What is the redemption price?a) If there is a special law that created the mortgage and there is an indication of redemption, then follow that.b) If it is a bank, it depends on the law. See GBL of 2000c) If the mortgagee is a government financial institution, look at the law which created it.d) If another person:a. Bid priceb. 1% interest per month on the bid pricec. Taxes and charges paid by the highest bidderd. 1% interest per month on the taxes and charges paid. (SC construed this as 12% per annum, which is wrong according to Sir)

To whom must the amount be tendered?Highest bidder or Sheriff/Notary Public conducting the auction, whoever is less intimidating.

If tender is refused: the remedy is specific performance. The amount may not be consigned because for consignation to be allowed, there must be a debt due.

Q: Is the right of redemption waivable?A: No. Express waivers within the period of redemption is not allowed because it is contrary to public policy. HOWEVER, waiver may be done by not exercising the right.

Q: Is the right of redemption transferable?A: Yes, either onerously or gratuitously. Redemption is a real right over real property. The right may be inherited by succession (gratuitously).

Q: If you were the person redeeming, and the redemption periodwas going to expire on Feb 9. However, you can only produce the money on Feb 11. Can you go to court to file a TRO to prevent the expiration of redemption period? A: NO. The court can only issue a TRO to prevent the auction sale on the following cases:a. If the issue being raised by petitioner is that obligation has already been paid. Attach proof of full payment of obligation.b. If the issue being raised is that the interest being charged by respondent is excessive. To entitle petitioner the issuance of TRO, petitioner should pay the principal and interest at the rate of 12% per annum.

7. Acquisition of TitleWhen to obtain title to the property? When the period of redemption expired without anyone redeeming the property.

How?a. Have the sheriff or notary public issue a Final Certificate of Sale. Bring the title with annotation.b. Execute an Affidavit of Non-Redemption, which is less expensive than the first (allowed under the Property Registration Decree).c. Pay BIR the taxes upon the expiration of the redemption period.

The BIR requires: (1) Certificate Authorizing Registration; and (2) Tax Clearance Certificate.a. DST- within 5 days from the month following the expiration of the redemption period.b. CGT/Withholding taxes- 30 days from expiration of redemption period.c. VATd. Transfer taxes of LGUs

What is the tax base?Tax base- either the bid price or the market value appearing in the tax declaration or the BIR valuation, whichever is highest. Period to pay taxes is provided in the NIRC.

8. Possession of PropertyFile an ex parte motion for the issuance of writ of possession to get possession of the property.

Nature: GR: Ministerial duty of the court BUT if filed before the end of the redemption period, a bond is required.Exc: not ministerial if there is another person with a better right (i.e., Lessee)

Required: Good faith of applicant. The applicant must look into the (a) TCT; and (b) rights of the current possessor to qualify as a buyer in good faith. Otherwise, he will not have a right of possession.New buyer in good faith doctrine: Looking at certificate of title is no longer enough. You must look at the right of the person in actual possession of the property. Failure to do so does not qualify one as a buyer in good faith.(1) Get photocopy of TCT(2) Verify with RD(3) Go to property for ocular inspection.

ExampleA borrowed from bank, executed a REM, and issued post-dated checks. The bank sued A for BP 22.Remedies of bank are:1) Action for civil collection;2) BP 223) ForeclosureIMPORTANT: Filing of BP 22 is an abandonment of the mortgage.

Practical tip: Attach all certified true copies of documents in the petition- title, deed of mortgage, final certificate of sale or affidavit of non-redemption, BIR clearance (tax clearance, CAR), and local tax clearance from treasurer.

Practical tip: When RD issues Certificate of Title, he issues at least 2 copies, the original and the owners copy. There are at least 2 because co-owners may each want a copy of the certificate of title. If you are buying from co-owners, you must get all other copies so that they may be annotated.

TRUTH IN LENDING ACT

Purpose of the LawTo let the person borrowing money or buying goods on credit or installment know the actual cost in money of the credit.

HistoryWhen cost of money had gone beyond a profitable rate and the interest was also subject to the usury law, banks thought of other ways to make money. Banks started charging different fees to avoid the usury law. In effect every move by the bank had a price (processing fee, application fee, appraisal fee). Thus, the law obliges lenders to fully disclose all charges before the consummation of the transaction.

Disclosure statementIt is that written statement required to be delivered before the consummation of the transaction by the person lending money to the debtor.

Contents of Disclosure Statement/ Breakdown of charges:1) Cash price less down payment= amount to be financed2) Payable in xx installments3) Total amount to be paid in installments 4) Total cost5) Other charges

Regulating bodyMonetary Board of the BSP is the body that oversees the implementation of the law. Violation of the Act is a crime. Penalty is fine of P100 to P2000 and imprisonment of at least 1 month but not more than 5 years.

2 cases:1. Solidbank- Solidbank extended a credit line of P200k to a client, not just as an ordinary loan but also as a standby source of funds which earns no interest unless it is drawn. When the borrower draws money, the credit diminishes and he pays only what is actually received. But there were accumulated service fees, which were not made available to the borrower.Credit Line- when bank sets aside a certain amount for client that client may draw on at any time.SC did not allow Solidbank to collect amount because the additional charges were not indicated in the promissory notes.

In 2009, there was another case where the fees where included in the promissory notes but there was no delivery of disclosure statements. Collection was not allowed.

2. BPI v. YU (2010)- the stipulation on the financial charges was not included in the disclosure statement. However, it was included in the promissory note, which was signed at the same time as the disclosure statement. SC allowed the charging of the financial charges.

DOCUMENTS OF TITLE

Governing LawsNCC on Sales, Code of Commerce, Warehouse Receipts Law

DefinitionAn instrument or document or a sheet of paper wherein the bailee acknowledges goods and undertakes the obligation to deliver such goods.

When you have in your possession this documents, it shows ownership of the goods.

Difference with instruments under the NIL:1) Coverage: NCC covers GOODS to be transported or safely kept. NIL covers sums certain in money, except other properties that may also be covered.2) Modes of Indorsement: In DOTs, indorsements must be in BLANK or SPECIALLY. In NIL, it may be blank, especially, conditional, qualified, or restrictive.

ExamplesBill of Lading, Warehouse Receipt, Quedan (for rice, sugar, or tobacco)

Who issues D/Ts?Common carriers- Bill of LadingWarehouseman- Warehouse Receipt

Forms of D/Ts1) Negotiable; or 2) Non-negotiable form.

If there are words of negotiability (i.e., holder/ to bearer/possessor"), it is negotiable.

Q:Whats the reason behind negotiability of documents of title? A: To facilitate commercial transactions.

Q: How may a document of title be negotiated?A: If considered anorder document, the holder must indorse and deliverIf it is a bearer document, the holder may simply deliver.

Kinds of indorsement:1. In blank; or2. Specially (holder signs his name)

Q: What if it contains deliver to bearer but with a red stamp in big font it is also indicated NON-NEGOTIABLE?A: It is negotiable even if the bailee intends it to be non-negotiable, as long as it contains words of negotiability.

How to Negotiate Documents of Title1) To Order Instruments: Indorsement (Blank or Special) AND delivery;2) To Bearer: delivery only

If originally to bearer, then specially indorsed and delivered, the transferee must also negotiate by endorsement and delivery.NOTE: Once it has been specially indorsed, negotiate by indorsement and delivery all the time thereafter. EXCEPT if the last indorsement is in blank, then just deliver it subsequently.

DIFFERENCE WITH NI: Indorsement in a bearer NI has no effect.

Rule: At any time that a document of title is specially indorsed and delivered, the present holder who wants to further negotiate it, should indorse and deliver. If last indorsement is an indorsement in blank, the present holder can just deliver.BILL OF LADING

Governing Law: Code of Commerce

It is issued by a common carrier.

Kinds:1) Bill of Lading- common carrier of goods by water2) Waybill- by trucks on land3) Airwaybill- by aircrafts and airlines

Form of BOL:1. It must be printed.2. It must contain the complete name and address of the printer.3. It must contain the telephone number of the printer.4. It must contain the TIN Number of the printer.

Are the printed stipulations in the bill of lading limiting liability of the shipper valid?YES

Functions of bills of lading:1. Serves as a receipt (after delivery of goods);2. Serves as written contract; and3. Stands for the goods mentioned therein.

Content of Bill of Lading (Code of Commerce):1) Complete name and address of consignor/shipper (Usually seller).2) Complete name and address of consignee. (Buyer)3) Complete name and address of the carrier/shippee (NCC). (Common Carrier)4) Complete description of goods including marks and markings, e.g. number on crates, names in pomelo crate from Davao5) Amount of fare6) Stipulations on limited liabilityNature: Contract of Adhesion but it is not prohibited; it is only interpreted against the party who cause the ambiguity.

Q: Are printed stipulations on Bill of Lading binding on the shipper even if the shipper does not sign?A: GR: Yes. A contract is perfected by mere consent. Here, consent is implied even if it is signed only by the carriers representative. Exc: There is no consent if print is too small that the shipper could not have read it as in the Shewaram Case.

A contract of carriage is a consensual contract.Rules: If value of goods is greater than the amount stipulated, consignor must: (1) declare true value; and (2) pay the fare corresponding to true value.

Effect of Issuance of a B/L: Disputable presumption that the carrier received the goods. It is not conclusive.

WAREHOUSE RECEIPT

Governing Law: General Bonded Warehouse Act governs the conduct and business of warehousing.

Who issues WR? Warehouseman

Requirements for Issuance:1. Annual license from DTI Director/Bureau of Customs2. Bond must be posted before the issuance of a license to answer for damages to goods suffered while the goods are in storage. The bond is coterminous with the license (33 1/3%).3. Insurance against fire over all the goods stored in the warehouse.

If the warehouseman issues more than 1 copy of a negotiable warehouse receipt, he should indicate in the copy that it is merely a copy. Otherwise, he is liable to a third person who received it in good faith and for value as though the possessor is holding the original.

Q: Is there a prescribed minimum area for warehouses? A: None.

Q: What is its difference with a customs-bonded Warehouse?A: WH is licensed and bonded, while a customs-bonded WH is a facility by importers of raw materials.

Negotiability of WH ReceiptsA warehouse receipt is negotiable or non-negotiable.

Q: What is the effect of negotiation of warehouse receipt?A: Through negotiation,thetransfereeacquires the direct right to deliver the goods to him, provided the following conditions are met:1. Person claiming the goods should satisfy first all the liens of the warehouseman.2. He must surrender the original warehouse receipt.3. He must express willingness to sign the receipt upon delivery of the goods to him.

Liens of the WarehousemanNature: Possessory and waivable by parting with the goods1) Storage fees2) Other arrangements with the depositor, e.g. premium and interest for additional insurance coverage (additional because warehouseman is only obliged to insure the goods against fire).3) Cost of packaging and repackaging (though the latter is illegal).

Q: What if the original warehouse receipt is lost, what should the claimant do?A: Claimant shall have to go to court, prove his rights, then the court will order the warehouseman to release the goods. Claimant may be required to post bond. In practice, claimant merely deposits bond and executes an affidavit of loss.

Q: Whats the obligation of the warehouseman after getting back the original warehouse receipt? A: Warehouseman should cancel the original receipt so that it would not fall in the hands of anotherin good faith and for value.If it falls in the hands of a third person in good faith and for value, warehouseman is liable to such third person.

Q: May goods covered by a document of title be levied upon an attachment for execution?A: Yes

BULK SALES LAW

Sir: This is not part of the coverage of the bar exams but very important in practice.

Purpose of the Law: To protect creditors from fraudulent schemes of their debtors.

Acts Covered and Regulated:1. Covers actual sale but also assignment, mortgage or other forms of transfer of all or substantially all stock of goods, wares, or merchandise other than in the ordinary course of business.2. Sale, assignment, mortgage, or other forms of transfer of all or substantially all of the businesses of a person, the business/es themselves. 3. Sale, assignment, mortgage, or other forms of transfer of all or substantially all of fixtures and equipment used in the conduct of business.

Why all or substantially all: These are extraordinary transfers

Note: Not every sale is covered. Sale in the ordinary course of business is not covered, e.g. if all goods were sold while engaged in the wholesale business.

Requirements: Must be strictly complied with. Otherwise, sale is void.1. Notify all creditors in writing of the intended transfer at least 10 days before the intended transaction.2. Deliver to the prospective transferees a sworn statement stating the full names and addresses of creditors and the amounts due them.3. Furnish a copy to the Director of the Bureau of Commerce/Bureau of Domestic Trade a copy of the sworn statement.

Note: Transfer without complying with the requirements is void (as far as the defrauded creditors are concerned) even if the buyer acted in good faith; in such case, the buyer is considered a trustee.If no creditor complains, the transfer shall nonetheless be valid between the transferor and the transferee.

Exemptions from Requirements:1. Judicial sales (execution, assignee in insolvency)2. Sales or transfers of property exempt from execution3. Sale by manufacturer of his own products (produced by debtor himself) in the ordinary course of business4. Express written waiver by the creditors

SC: Sale of a foundry shop (Horseshoe maker/metal fabricator)

SECRECY OF BANK DEPOSITS ACT(R.A. No. 1405)

Purpose: To encourage people with money to deposit in banks and promote national economy.

Bank Secrecy LawIt is illegal for anybank officer or employeeto disclose any information relating to any deposit in current, checking or savings account, including investments in government securities. Applicable only to peso accounts. Exceptions:1. When there is written authority from the depositor himself.2. In cases of impeachment.3. Court order in case of bribery, dereliction of duty of public officials, or violationof anti-graft and corruption practices act.4. Where the deposit is a subject matter of a litigation.

Exceptions on other special laws:1. Anti-money Laundering Act2. Upon examination of the books of banks by the BSP.3. Examination of books by an independent auditor.4. Unexplained wealth under the Anti-Graft and Corrupt Practices Act5. Upon inquiry by the CIR for the purpose of determining the net estate of a deceased depositor6. Dormant deposits for at least 10 yearsunder the Unclaimed Balances Act7. Upon order of the CA, examination of law enforcement officers in terrorism cases under the Human Security Act.

Foreign currency deposits have absolute prohibition.

All deposits in banks are insured with the PhilippineDeposit Insurance Corporation (PDIC).Money just kept at home is unproductive as far as the person and economy is concerned.

Example P1M- you decided to keep it at home for 1 year. The amount would not change after a year. However, you lose because of inflation. The national economy also lost.

Possible contributions to the economy:1. When you deposit your P1M with a bank, it earned a 1% interest, subject to 20% withholding tax.2. Bank would lend your deposit, but not the entire amount. 3. Gross receipts tax paid to the BIR.

NEW CENTRAL BANK ACT

First CB-Central Bank of the Philippines (1948)New CB- Bangko Sentral ng Pilipinas (1993)

Purpose of Law: Because of the bankruptcy of the Central Bank, the BSP was created. It has a corporate existence and is managed by the Monetary Board which has 7 members.

Member of the Monetary Board: 1. BSP Governor- after his/her term, cannot serve in any capacity in any corporation supervised by the Monetary Board for 2 years2. Cabinet Member- usually the Secretary of Finance, but during the term of PGMA, she appointed the Secretary of Trade and Industry.3. Five full-time directors from the private sector-so that the BSP will not become a dumping ground of political lame ducks. Private sector representatives need not necessarily be form privately owned corporations. They may come from GOCCs such as the DBP, SSS, and GSIS, but the appointment is staggered for a 6-year term.

Terms: 6 years; re-appointment allowed but only once for a total of 12 years.

Monetary Board- policy-making bodyQuorum- 4 membersResolutions of the Monetary Board must be approved by at least 4 members.If BSP Governor cannot attend a meeting, he should send one of his deputy governors. If the cabinet member cannot attend, he should send one of his Undersecretaries.

Note: Monetary board has to meet at least every other weekto closely monitor the economy (esp. money supply).

MoneyIt has a universal definition: any medium of exchange. Anything can be money.

CurrencyIts definition is found in NCBA: It is the notes and coins (1) issued by the BSP and (2) are in circulation.The official name of our money is Peso but in our notes and coins, what is indicated is Piso". There are 2 other countries that use Peso: Argentina and Mexico.

P- official symbolCentavo- a unit of a peso (c)

In circulation means outside the volts of BSP.

Legal tenderIt is the currency in such quantity prescribed by law to beacceptable in payment of all obligation.Sir: Lahat ng notes issued by the BSP are legal tender."

All Philippine notes are legal tender for all obligations. However, coins are legal tender only up to a certain amount.

A Monetary Board Circular changed the amount of what may be legal tender for coins. All centavo coins are legal tender up to P100 while all one peso coins are legal tender up to P1000. Contrast this with the law which states that for coins worth 10 centavos or less, they are legal tender only up to P20, while coins worth 25 centavos are legal tender only up to P50.

The life of a note is estimated to be 5 years, but in Metro Manila, it is merely 1 year. If the estimated life is over, it is withdrawn and demonetized, i.e. it loses the character of money.

Every note is a liability of the Philippine government.

Q: What are required for the replacement of damaged notes?A: (1)There must still be at least 3/5 of the note; (2) At least 1 complete set of serial numbers; (3) At least 1 signature left; (4) No sign of intentional defacement.

Note: It is a crime to write on a note,for which you can go to jail.

Q: What are required for the replacement of damaged coins?A: No sign of filing, clipping, or perforation.Sir: "Actually coins can last forever."

TRIVIACoins are minted and notes are printed by the BSP. Production is local but materials are imported. Notes are not paper, they are cloth. The cost of producing our currency is very high.

There are 2 sets of serial numbers in our notes: lower left and upper right. The notes also have 2 signatures on them, one belongs to the BSP Governor, and the other belongs to the President of the Philippines.

In case of possession of damaged coins, the possessor is presumed to have caused the damage.

The year in front of the coin is the year it was minted. The year at the back is the year the BSP was established.

Money supply- It is the money in circulation, including foreign money.

Note: If there is too much money in circulation, there would be inflation. If people have a lot of money to spend, they would buy a lot of things. Demand exceeds supply, prices go up.Inflation, to a certain extent, is good for the economy. 5% perannum. Deflation is bad!

BSP- It is the bank of banks.

Functions of BSP:1. Manage money supply2. Issuance of money and coins3. Bank of banks- supervision over the banking system.4. Buys precious metals

Reserve Requirement- percentage or a portion of deposit-liabilities of banks which are neededto be deposited with BSP. Time deposits- 20% Savings- 23% Checking accounts- 25%

Purposes of RR:a. For servicing withdrawals.b. Its a tool that BSP uses to manage money supply(notes and coins in circulation).Q: Why do you need to manage money supply? A: Tocontrol prices because of law of supply and demand.

c. So that the BSP would have money available for rediscountingwindow facility.

Rediscounting facility- a bank borrows from the BSP using as collateral its receivables from its borrowers.

Deposit-liabilities- everything deposited in a bank. Bank records it as deposit-liabilities. Inutang sa atin ng bangko ang mga deposits na yun."

GENERAL BANKING ACT OF 2000

Bank- a corporation authorized by the Monetary Board to accept deposits from the public and to grant loans.

Types of banks:1. Universal banks2. Commercial banks3. Thrift banks a. Savings and Mortgage Banks b. Private Development Banks c. Stock savings and Loan Associations4. Cooperative banks5. Rural banks6. Islam Banks

Commercial Banks (KB)

Functions:1. Banks which accept deposits subject to withdrawal by checks; accepts deposits in checking accounts.2. Openingof letters of credit3. Engaged in allied enterprises4. Exercise the powers of a corporation.

Checking/current account/demand deposits/commercial deposits- same

As a matter of right, only commercial banks should accept deposits in checking/current/commercial accounts/demand deposits1) May issue letters of credit2) Lend money3) Trading of government securities4) Foreign transactions5) Safety deposit box

Ownership of Other BanksKB can own 100% of another KB. There is no limit on the number of smaller banks it can own.Why: To encourage merger or consolidation.

Commercial bank limit is 35% of equity, but still with a maximum of 25% per industry.

Universal Banks

Nature: KB + Investment houseLicensed to engage in quasi-banking functions. Quasi-banking= investment house

Investment house- a corporation licensed by the Monetary Board to engage in rediscounting of receivables as well as underwriting of securities.Ex. of Investment House- SIHI

Rediscounting of receivables- one entity goes to an Investment House and, as collateral, pledges its receivables. (Ex. Business sells on credit and needs capital again, so it borrows from an investment house)Underwriting of securities- committing on a firm basis to raise the amount needed by another corporation. Get SEC approval first, then have them sold by securities underwriters.

Functions and Powers:1) To accept deposits subject to withdrawal by check.2) To open letters of credit.3) To engage in business of investment house.4) To engage in allied or non-allied enterprises (Non-allied enterprises have nothing to do with banking).5) To sell life or non-life insurance policies

Example of non-allied enterprises: Universal banks can sell insurance policies of any insurance company in which they own 5% of the equity.Note: In the GBA, it is stated that banks cannot engage in the business of selling insurance policies.

BANCASSURANCE- activity of universal banks selling insurance policies of insurance companies under present rules in which they own 5% of the equities. Sir: malaki ang kita ng nagtitinda ng insurance!

The law allows a universal bank to own 100% of another universal or commercial bank.

Thrift Banks

Kinds:a. Savings and Mortgage banks- retail banking; a bank that accepts deposits from small depositors for purposes of home building. Any amount would be acceptable.Note: banks prefer big depositors as maintenance costs are the same.b. Private Development bank- a bank bigger than rural bank but capitalized much less than savings and mortgage bank. Peculiarity:if it needs additional capital, it can invite DBP to invest in it.c. Stock savings and loan associations-Theres also a non-stock, but it is not a bank. For non-stock,members contribute money which can be withdrawnany time the member wants, corresponding to the proportion contributed. Stock savings can accept deposits from the general public. For non-stock, it can accept deposits from restricted group of persons. (Example: AFPSLAI, restricted only to AFP, PNP, and their family members; MESALA, for Meralco employees including the Lopez group)

Cooperative Banks

Definition: It is set up and owned by cooperatives. There are no individual stockholders; all are cooperatives. Under cooperative office, but bank is under the BSP.

Rural Banks

Definition: They are organized to provide banking services in rural communities.

Islamic Banks

Very different from banking practices that we know. Inmainstream banks, to attract deposits, these banks offer interests. However, interestis immoral in Islam.

Note: There is only one, owned by the government; the DBP as a controlling stockholder. (Al Amana Bank)

Controlling interest in stock corporations- at least 2/3 of the shares

Lending MoneyQ:If Iwould like to borrow from a bank and I have a lot of collaterals to offer, can I borrow any amount as long as I can secure it?A: No! Single Borrowers Limit- 25%; limit which can be borrowed by a natural or juridical entity from a bank

Q: What is the remedy for SBL?A: Syndicated Loans where loans from several banks are obtained.

Loans must be secured by real property; however, according to Section 37, the maximum amount that may be lent is 75% of the appraised value of the land. If it has improvements, improvements must be insured.Exc: exempted loans

Q: You have a lotof shares in a bank that you can be elected as a director. Can you elect yourself?A: No, under the GBAof 2000for anyone to be a bank director or officer, that person must pass the fit and proper rule.Note: The Monetary Board has issued a circular regardingthe qualifications to be a bank director. Must be a college graduate.

Note: GBA of 2000 strengthens the bank secrecy law by obliging banks to hire employees on a permanent basis.

Q: May a director of a bank borrow from that bank?A: Yes, requirements:1. Comply with the requirements of the Corporation Code for a valid contract between a director and the corporation to which he belongs to. (Quorum without counting his presence, contract must be approved by majority of the quorum without counting his vote, and terms and conditions must be fair and reasonable).2. Director is also subject to the SBL.

Q: May an officer of a bank borrow from that bank?A: Yes, under the same conditions as a director except: when the bank already has a loan program for its officers. In such cases, all the director has to do is to qualify under the said program.

Regulation of BanksUnder the law, only corporations under supervision of the Monetary Bank may use Bank or Banking in their corporate names.

BSP Circular: Banks should not engage in unsafe banking practices. The Monetary Board can close or order the suspension of a banks license when it engages in unsafe banking practices.Close now, Investigate later

Before any bank can put up a branch or install an ATM, it must first seek approval from the Monetary Board.

All banks should be organized as a stock corporation and comply with the requirements of the Monetary Board for licensing. Before a corporation can be organized, it must go through the MB. After the requirements are submitted to the MB and completed, there must be endorsement by MB to SEC, which then has a ministerial duty to register it.

There is paid-up capital required by the Monetary Board. There is a period increase in paid-up capital in order for banks to be more stable.

Q: How many directors may a bank have?A: 5-15; if consolidated, it may have a maximum of 21.

There must be two independent directors who are neither officers nor employees of the bank.

Treasury Shares- shares already issued by a corporation but which shares a corporation re-acquires in its own name.Banks should not acquire treasury shares of its own. If they do, they should get rid of them in 6 months.

Under the GBA, a bank should publish their financial statements every quarter.

Clearing House BSP Lending facility for the purpose of collecting checks drawn on one bank but deposited in another. It is where banks swap checks they received drawn on other banks. Physically, there is no cash involved, but transactions recorded. Ex. A depositor of BPI Katipunan deposited checks from other banks such as Metrobank and Allied Bank.

Under present rules, if within 24 hours a bank dishonors a check, check should be returned or else considered cleared.

Banks cannot declare dividends if clearing house account is overdrawn. There is only movement of cash if clearing house account is overdrawn.

PHILIPPINE DEPOSIT INSURANCE CODE

Sir: This is not part of the coverage of the bar exam.

HistoryPDIC was created during the 1960s when a lot of banks were closing. To restore faith in banking, the Uniform Currency Act was repealed and the PDIC was created.

The law insures only deposit-liabilities of banks, not any other investments even if made with or through a bank. It excludes money market transactions, and marginal deposits.

Financial Market:a) Money Market- a source of funds where repayment period is less than 1 year.b) Capital Market- a source of funds where repayment period is more than 1 year but not exceeding 5 years.c) Bond Market- repayment period is more than 5 years.

Money market placements are transactions through bank but bank is not a borrower. Borrowers are other corporations that need to borrow for a short time. On the other hand, normal loans take time. Bank is an intermediary between the borrower and lender in the Money Market Placement.

Money market placements are not insured by the PDIC. Why? They are not deposits but investments. There is no debtor-creditor relationship.

Maximum IndemnityP500,000 per person per bank in the Philippines, whether in Philippine or foreign currency. If it is a foreign currency deposit unit, indemnity amount in pesos on the day the bank is ordered closed.

Joint accounts: deposits in the name of more than one person. The law presumes that deposits in such account are owned equally by the depositors. Joint accounts are now insured separately, subject to the same (P500,000). Kinds: 1) and- all depositors must sign withdrawal slip2) and/or or or- Any of the depositors may do an over-the-counter withdrawal

Examples:SirP490k

JA of Sir + WifeP500k

JA of Sir + GFP500k

Amount recoverable by Sir(490k + 250k+ 250k) P990k

SirP490k

JA of Sir + WifeP500k

JA of Sir + GF1P500k

JA of Sir + GF2P500k

Amount recoverable by SirP990k

LETTERS OF CREDIT

Definition: A letteraddressed by a merchant to another merchant to enable the person named in the letter toattend to a commercial transaction.

Example:A and B are both suppliers of dilis. A, who sells in Caloocan, was asked by B, seller in QC, where he got his supplies of dilis. A answered from Malabon. B then asked if he got it from sale or loan, A answered from loan. B asked As help to also get dilis from the same supplier through a loan. So A made a letter: Dear Malabon Supplier, please extend credit to B for the dilis he will get.

Beneficiary- B.

Parties Involved in L/CPerson writing the letter- should be a merchantPerson towhom the letter is addressed- should be a merchantPerson named in the letter- beneficiary (need not be a merchant)

Requirements to be a merchant for natural persons:a) At lest 21 years old (now it is 18 y.o.)b) With capacity to engage in commercial transactions and regularly engage in such transactions

Requirements to be a merchant for juridical persons:a) Organized according to lawb) SEC Certificate of Registrationc) Regularly engaged in commerce; involves habituality

Who issues L/Cs? Commercial banks as a general rule are allowed to issue L/Cs, but the Monetary Board may allow other banks to issue L/C.

How do L/Cs work?1) Buyer and seller are insecure2) Buyer goes to the full service branch of a bank to open a L/C in favor of the seller3) Bank requires a marginal deposit (amount required by banks for the purpose of opening L/C4) Bank remits the amount to the seller only after the seller presents proof of delivery.

Requirements to be a L/C:1. The name of the person to whom credit is extended shall be stated.2. The amount of credit or maximum amount of credit to be extended to the beneficiaryshould also be stated.Note: If both requirementsnot met, only a letter of recommendation.

Code of Commerce, Article 568The essential conditions of letters of credit shall be:1. To be issued in favor of a determined person and not to order2. To be limited to a fixed and specified amount or to one or more undetermined amounts, but all within a maximum, the limits of which must be stated exactly.Note: Those which do not have one of these conditions shall be considered as mere letters of recommendation.

Kinds:1. Domestic- when all the parties are in one country.2. Foreign- when the parties are in different countries.

Who are liable to whom?Maker becomes liable to the addressee.The beneficiary becomes obliged to the maker. A L/C cannot be issued in negotiable form. Must be issued to a named person.

Example:A has asupermarket in which he sells dried mangoes. Dried mangoes are bought from a middle man (distributor). A wants to sell more for the same price. So A went directly to the manufacturer, instead of the distributor. A will ask manufacturer ifhe can pay through LOC+ BPI Cebu. A will go to BPI near him and will open a LOC. A deposits money with BPI (marginal deposit; the amount required by a bank to be deposited with it for the purpose of opening a LOC). BPI Manila will call BPI Cebu informing them that a LOC was opened by A, and telling BPI Cebu to advise manufacturer to ship the order of dried mangoes. Upon shipment to a common carrier, money will be paid to manufacturer. Bank earns from LOC thru service fees.

What is the benefit of L/Cs to banks?Service fees and interest on advance

In a L/C, there are three principal contracts:1. Contract of sale between buyer and seller2. Application for L/C between buyer and bank3. Contract to deliver D/T between seller and bank

For foreign LOCS, there are 4:3 contracts +Contracts between correspondent banks

Doctrine of strict compliance: to enable the correspondent bank to collect its LOC, it must strictly comply with the requirements of local banks.

TRUST RECEIPTS

Example:A is a merchant and has been dealing BPI which facilitates its transactions. BPI tells A that he does not need to put up 100% marginal deposit;60% is enough.If A orders P300k worth of goods, A can now deposit P180k, not the entire value. However, A has to pay interest because in effect BPI will advance money for A. Bank earns service fee + interest.When bill of lading arrives in Manila, Afirstneed to pay service fee + amount advanced by BPI + interest before he can claim the goods. If A cannot pay, A will have to sign trust receipt.

Trust Receipt TransactionThe entruster, who has security interest in those goods, entrust the goods to the entrustee so the latter can sell the goods, and from the proceeds of sale, the entrustee agrees to remit the amount owing to the entruster within an agreed period. If the amount cannot be remitted within the agreed period, entrustee will return the goods.Undertakings of entrustee: 1) To sell the goods and within the proceeds, remit the entireamount owing to the entruster within the period stipulated. The proceeds mentioned include profits as long as there is still an amount owing to the entruster.2) If goods were not sold, return the goods within the period stipulated.

Theoretical ownerof goods: entruster, because it advanced the amount of the goods.

Effect of Returning Goods to EntrsuterThe entrustee has the option of returning all of the goods to the entruster if the due date is near and the latter has not yet sold the goods to avoid prosecution for estafa. In this event, the bank would be the one to sell the goods and deduct the proceeds from the debt of the entrustee.Note: Returning the goods does not extinguish the obligation

Why is there a need for the Trust Receipts Law?The bankruptcy of banks became rampant because of their failure to collect from borrowing importers who did not remit any amount to the banks after they have claimed the goods. The P.D. regulating trust receipts was made to protect the banking system.

Q: If goods were lost due to highjacking, fire, fortuitous events, etc, who bears the loss? While the goods are in the hands of the entrustee, who bears theloss?A: The entrustee is obliged to insure the goods covered by the trust receipts against all risks.

Q: To what extent shall the entrustee be obliged to remit to the entruster?A: Only to the extent of the amount owing to the entruster.

If entrustee has remitted the entire amount owing to entruster, goods and excess of proceeds belong to entrustee.

Q: A, who has a supermarket, has the dried mangoes. B, a customer of dried mangoes, bought dried mangoes which were contaminated. Who can be sued? A: Manufacturer! Rule on strict liability; but A is a necessary party.

Q: A (entrustee) sold defective goods to B. Who should B sue, the entruster who is the theoretical owner of the goods or A who is the seller?A: A, because he is the seller in the contract of sale. Therefore, it is he who made the warranties under such contract.

Liability under the Trust Receipts LawUnder the PD on Trust Receipts, violations are punishable under Art.315 of the Revised Penal Code, which makes the violator criminally liable.

Whatever stipulations may there be in a contract, if it contains the two undertakings of the entrustee, then it is a trust receipt.

Q: A makes leather. B makes handbags and shoes. B came to A and suggested an arrangement wherein A will deliver leather to B, B would make it into handbags and shoes. The finished products would be sold by A and B. Can there be a trust receipt transaction in this case?A: Yes, expressly provided by law. Who owns the handbags and shoes? A owns them!In the absence of any agreement, the owner of the raw materials is the owner of the finished product.

In banks, the transaction is often called an L/C-T/R line because of the interrelation of the 2 transactions.

Credit Installment SalesIt is the use of Trust Receipts but is not a trust receipt by provision of law because the buyer did not intend to sell the goods sold but to personally use it.Effect: No criminal liability, civil only.COMMON CARRIERS

DefinitionIt is a person or a group of persons who is regularly engaged in the transportation of goods, or passengers, or both, offering its services to the public for compensation.

A common carrier is free to choose what to transport.It may be goods only (LBC, JRS, etc), passengers only (city bus operators, taxi cab operators, tricycle operators, etc), or both goods and passengers (shipping companies and airlines).The choice is with the carrier.

What is the public?SC: Public could be just a narrow segment of the public, not necessarily the general public.

Example:Case involving pipeline operators: First Philippine Holdings set up a pipeline from Batangas to Manila. It only had 2 customers: Shell and Caltex. LGU attempted to impose tax on pipeline operator.SC: carriage is synonymous with transportation so when you transport goods form one point to another, that is carriage.If the services are available to those who want to avail of it, then it qualifies as a common carrier, even if it only has 2 customers at present.

Customs broker- a person who works for the release of the goods; middleman; intermediary in dealing with Bureau of Customs.

Test: whether or not the services are available to those who want to avail. If yes, it is a common carrier.

For compensationUNTV has two busesplying theMonumento-Baclaran route and vice versa. Public can avail of it if they want to. Is it a common carrier?No, because there is no compensation.

Q: Transporting stranded passengers, charging P100/head. Does it qualify as common carrier?A: No, not regularly engaged in transportation of passengers. It is only a private carrier.

A common carrier may at certain times be considered as private carrier.Example: City buses chartered by a certain group on an agreed day.

Required standards of care1) Common carriers transporting goods should transport them with extraordinary diligence.2) Common carriers transporting passengers should transport themwith utmost diligence of a very cautious person.

Transportation of goods

When to exercise the standard of careGeneral rule is when the goods are unconditionally placed at the disposal of the common carrier, and until the goods shall have been delivered to the consignee or until the consignee has been informed of arrival of the goods and given a reasonable opportunity to claim the goods. Example: Lechon delivered from Cebu via PAL. Upon arrival in airport, it was transferred to the warehouse. Should PAL still exercise extraordinary diligence upon arrival in warehouse of PAL? Yes.

Exception: When the shipper exercises the right of stoppage in transitu.Q: In case of stoppage in transitu, what is the relationship of the common carrier to the shipper?A: The common carrier is merely a bailee where the diligence required is only that of a good father of a family.

Exception to the exception: extraordinary diligence if the shipper asks for delivery back to himself.

Q:Is the common carrier an insurer of the goods against all risk relating to transportation?A:No. Law provides 5 circumstances that may exempt common carriersfrom liability:1) When the proximate and only cause of loss of damage is storm, lightning earthquake, or other natural calamity; or2) When the proximate and only cause of loss of damage isan act of public enemy in times of war, whether civil or international; or3)When the proximate and only cause of loss of damage is an act or omission of the shipper himself; or4)When the proximate and only cause of loss of damage is the character of the goods, or defect in the container or packaging; or5) When the proximate and only cause of loss of damage isan order of competent public authority.

SC: Additional requirement: that the carrier did not incur unnecessary delay in the prosecution of the voyage.Note: The carrier should not have committed an improper deviation. If deviation was proper, even if therewas delay, carrier is not liable for the damage.

Rules to remember:1) If the loss or damage was in the occasion of any of the 5 circumstances, common carrier is still under obligation to prove that the proximate and only cause was any of these 5 circumstances. Prove also that there was no unnecessary delay in transporting.

2) If the cause is not one of the 5 circumstances, it does not make the common carrier automatically liable. But burden of proof is on common carrier to prove thathe exercised extraordinary diligence.

3) If proximate and only cause is one of 5, is there no chance that the shipper can recover damages for the loss? There is still chance for shipper to recover damages but burden of proof is on shipper to prove that the common carrier failed to exercise extraordinary diligence.

It is just a matter of shifting the burden of proof.

Q: May a common carrier and shipper stipulate a standard less than extraordinary diligence?A: Yes, under the following conditions:1) Stipulation in writing and signed by both parties.2) Supported by a consideration other than the promise to transport Usual consideration: to give a discount to the fare.3) Stipulated standard of care must not be less than that of a good father of a family.4) If there are other stipulations, they must be fair and reasonable.

In every bilateral contract, there are 2 considerations/prestations (promise of one party to do something for the other). Carriage is a bilateral contract. Therefore, there are 2 considerations:1) With respect to the shipper, the promise of carrier to transport the goods. 2) With respect to carrier, the promise of shipper to pay the fare.

Standards of care in order (from highest to least):1) To transport passengers safely with utmost diligence of a very cautious person.2) Extraordinary diligence3) No name- what can be stipulated4) Diligence of a good father of afamily.

Note: The shipper also has the obligation to minimize damage to itself.

Q: Should the common carrier be operating a motor vehicle?A: No, not necessarily.

Example: During bar exams, Espana was flooded. A man offered to carry you to be transported to the other side of Espanafor a fee. Is he a common carrier?Sir: "yan ang tunay na carrier kasi iccarry ka talaga nya papunta sa other side!"

Competent Public AuthoritySC:Customs police is not a competent public authority.

Character ofthe goods which may exempt common carrier from liability:Agricultural products that perish immediately, especially if you do notknow how to handle them. Ex. Lettuce, strawberries

Transportation of passengers

When to exercise the standard of careWhen carrier agrees to take in the person as a passengeruntil that person reaches his destination

Q: May the passenger and carrier validly stipulate any other standardof care?A: No, with respect to the safety of passengers, there can be no compromise.

Q:Is the common carrier an insurer againstall risks?A: No.BUT in case of mechanical defects or when a common carrier violates a traffic rule, the common carrier is always liable. There is no liability for mechanical defects in cases when it is (1) newly installed; and (2) it came from a reputable distributor.

Liability for acts or omission of employeesThe law expressly provides that the common carrier shall be liable for the actions of its employees even if the latter have acted without or in excess of their authority. No exceptions.

For acts and omissions of third persons or other passengersIf a passenger suffered injuries because of the acts of another passenger or third persons, common carrier shall be liable if, simply by exercising the diligence of a good father of a family, it could have prevented it.

When may a common carrierbe made liable for moral damages?1) When there is death of a passenger. Legal heirs (immediate members of family; brothers and sisters excluded= only compulsory heirs)may recover.2) When there be physical injuries, in which case the injured passenger is entitled to the damages, excluding members of family.3) When the common carrier acts in bad faith. Ex. Fernando Lopez case4) Whenemployees of common carrier were disrespectful to passengers.5) When common carriercommits discrimination against the passenger. Ex. Paying for accommodation of some of the passengers.

Note: Overbooking by less than 10% does not constitute bad faith. It is an industry practice. if there is no bad faith, there is no basis for awarding moral damages.

Case: upgraded form business class to first class, sued Cathay Pacific. No bad faith so no basis for moral damages. However, SC awarded P5,000 for breach of contract.

Obligation of the PassengerTo exercise the diligence of a good father of a family for his own safety. Otherwise, he may be liable for contributory negligence which will result in mitigating the liability or absolving the common carrier.

CARRIAGE OF GOODS BY SEA ACT (COGSA)

HistoryAmerican law; made part of our laws during American occupation. At that time, we already had our Code of Commerce.

Byexpress provision in COGSA, in case of conflict with Code of Commerce, COC shall prevail,

ScopeCOGSA is applicable only to shipment of goods by sea coming from another country into the Philippines. It must be covered by a Bill of Lading.It is not applicable to:1) Shipment of goods agreed upon to be transported on the deck.2) Shipment of livestock3) Inter-island or coast-wise shipping.

Q: What law applies in case of loss or damage where the goods were sent by ship from Manila to Cebu? A: New Civil Code and COC (they go together)

Q: What law applies in shipment of goods by air coming from another country to the Philippines? A: Warsaw Convention, NCC, and COC

Q: What law applies in shipment of goods by see from Philippines to another country? A: Law of another country which received the goods.

Period to File Claims:1. If there would be an apparent loss or damage, a claim should be filed immediately with the carrier.2. If the loss or damage is not apparent, the claim should be filed to the carrier within 3 days from delivery.

Actions of the Carrier on the Claim:a) Settle it right away;b) Not to act on it; c) Reject the claim.

Remedy of consignee in case carrier rejects the claim: File complaint in court.

Q: Withinwhat period should a complaint be filed in court?A: Within 1 year from delivery of goods to the arrastre operator. When a vessel arrives in a Philippine port, the goods are not right away released to the consignee. The goods are transferred to the arrastre operator because customs duties must first be paidby the consignee. Imported goods are examined by customs officers. If there are no apparent signs of loss or damage, the arrastre operator will sign the turnover documents (tally sheet). If there is a sign of loss or damage, the crate will be openedand the arrastre operator will annotate such loss or damage to the tally sheet.Arrastre operator will now prepare a Bad Order (B.O.) Form.

Q: Suppose the shipment intended to you was not unloaded from the vesseland you want to file a complaint in court, how would you reckon the 1 year period?A: Complaint shall be filed within 1 year from the last day when the carrier had the last opportunity to deliver the goods to the arrastre operator. Example: If ship arrived onthe port of Philippines on Feb 1, and unloading was finished on Feb 5, and loading of goods to be delivered on foreign country ended on Feb 9, and sailed from a Philippine port to another foreign port on Feb 10, reckon the period on Feb 10.

Note: By express provision of COGSA, filing of claim with carrier is not absolutely required before you can file a complaint with the court.

Under the Code of Commerce:If there is apparent damage or loss, claim must be filed with carrier immediately.If not apparent, file claim within 24 hoursfrom delivery.Filing of claim with carrier is a condition precedent before you can file complaint with court.

Q: The goods intended for you were insured. Unfortunately, there was loss or damage. You filed a claim with insurer. If the insurer pays the claim of the insured, what is the legal consequence?A: Insurer is subrogated to the rights of the insured in running after the common carrier.Insurer should also file claim against carrier within 1 year from delivery to arrastre operator because it merely steps into the rights of the insured.Note: Althoughthe period to file complaint against the carrier has expired, it does not mean that the period of action against insurer has expired. Its prescriptive period is based on policy or insurance code.

Q: What if the goods are not annotated as damaged in the tally sheet or bad order form upon turnover to the arrastre, but the goods are damaged upon turnover by the arrastre to the consignee?A: The suit should be against the arrastre operator. It must be based on quasi-delict because there was no pre-existing contractual relation between the arrastre operator and the consignee.

Q: What if there is no damage annotation on the tally sheet, and the customs broker received the goods from the arrastre operator, but upon delivery by the customs broker to the consignee, there is damage which is not annotated on the delivery receipt?A: Sue the broker on the basis of breach of contract of carriage because the customs broker is a common carrier. The ruling is that a customs broker who offers to transport goods to client as part of services qualifies as a common carrier.

Q: If the prescriptive period is about to expire, can the consignee extend it by sending a demand letter to the carrier?A: No, SC ruled that the provision under the NCC does not apply to shipment of goods by sea from another country to the Philippines.

Note: An agreement to extend the prescriptive period is valid.

ADMIRALTY

What is a vessel?1. It must not be a mere accessory to another watercraft.2. It must be registered with MARINA3. It must be used to transport goods, passengers, or both.4. It must be sea-going.

MMDA ferry- not sea-going, only river-goingManila Bay is a sea!Laguna de bay- lake

Participants in admiralty:1) People involved in navigation (crew)2) People involved in housekeeping of vessel (compliment) Who are the members of the crew?1) Captain- in charge of a vessel in foreign vessel cf. Master- in charge of vessel in inter-island shipping2) Mates- first mate, second mate3) Engineers

3 roles of a captain: a. Represents the owner of the vessel; b. The technical director of the vessel; and c. Represents the country where the vessel is registered.

Q:A is a Filipino captain who was hired by a Japanese-registeredvessel. Vessel is sailing in international waters or docked in another country. What country does he represent?A: Japan

Who may own a vessel?An individual or group of individuals. Anyone of us.If a vessel is owned by twoor more persons, there arises a disputable presumption that there is a partnership.

Hypothecary Rule orLimited Liability RuleIn order to encourage ownership of vessels and to promote national economy, the liability of ship owner shall be limited to the value of vessel, plus earned freightage, plus insurance, if any.

Who is a ship agent?Ship agent is a corporation representing the ship owner, and is charged in provisioning the ship vessel.Example: If A owns a vessel, and it sails from Philippine port to Hongkong port. When it leaves Phil port, it must have sufficient provisions (fuel + water used in navigation). If it leaves, it should not leave with incomplete provisions. Upon arrival of vessel in Hongkong, it decides to go toSingapore. Would it be wise for A to hire an employee whose function is to refill provisions? Of course not! Water and food for human consumption are known as stores.

Husbanding agentAcorporation in chargeof freightage and settlement of averages.Example: Vessel leaves Phil port to HK. Upon arrival in HK, decides to sail to SG. Vesselcarried goods to be delivered in SG. Would it be practical to hire a person whose function is to arrange goods for shipment? Of course not! Hire a husbanding agent.

Averages- refers to damages suffered by vessel or certain cargoes.

Kinds of Averages:1. Gross or general- one suffered by the vessel or cargoes which benefits the owner of the vessel and other cargoes thereby obliging those benefited to contribute pro-rata to the indemnity to be paid to the ship owner or cargo owner. Example: There is a vesselwith cargoes. Vessel sailed and encountered a storm. Remedy to prevent vessel from sinking- jettison the cargoeson the deck and heaviest. Owner of vessel and other cargoes would have to indemnify the owner of the jettisoned cargo.

Q: If despite cargo being jettisoned, vessel still sank, would the others be obliged to contribute? A: No, because there was no benefit.

2. Specific or particular- one suffered by the vessel alone, or owner of cargo alone, benefitting no one. Therefore not entitled to indemnity, except perhaps from insurance company, if any.

Procedure for General Average:1) Captain calls a meeting with the representatives of the owners of cargo.2) They make a decision to throw away certain cargo.3) If the decision is urgent, the captain may choose from the largest and of least value to the smallest and of the most value.

Special contracts in admiralty:1) Charter party- a contract of lease over a vessel.a) Bareboat charter or demise- lessor provides the lessee only the vessel; no crew, no provisions, no stores. True charterb) Time charter- contract of lease over the vessel for a stipulated period. Lessor provides not only the vessel but also the crew, stores, and provisions.c) Voyage charter- a contract of lease over the vessel for a voyage or series of voyages, lessor providing not only the vessel but also the crew, stores, and provisions. According to the SC, the true charter is the bareboat charter. The time and voyage charter are contracts of affreightment, which is a contract of carriage.

2) Loan on Bottomry- loan taken by shipowner secured by the vessel and the condition of the loan is that if the vessel would sink, creditor loses the right to collect. Only to the extent of the value of the vessel. Only extinguished when vessel is lost.3) Loan on Respondentia- loan taken by the cargo owner secured by the cargo to the extent of the value of the cargo, and the condition of the loan is that if the cargo gets lost during voyage, creditor loses right to collect. If value of loan exceeds value of cargo, excess is an ordinary loan.4) Marine insurance- insurance over a vessel or freightage or cargoes,and even expected profits from cargo arising from perils of the sea.

Accidents in Admiralty1) Collision- If two or more moving vesselsstrike each other or one another.As opposed to Allision which is the impact of a moving vessel and one which is not moving.

2) Arrival under stress, or when a vessel is forced to sail to the nearest port.Examples: a) Natural calamity along routeb) Avoidance of pirates/ privateers c) Loss of provisionsd) Accident that renders the vessel incapable of prosecuting the voyage.3) Shipwreck- sinking of the vessel.

Q: What is the obligation of a ship captain in arrival under stress?A: The captain must execute a MARITIME PROTEST- a sworn statement where the captain relates what transpired.

Q: Is the owner of a barge a party to a contract of carriage?A: No, he is not a party, unless the barge is self-propelled. The contracting party is the owner of the towing vessel.

Three zones or divisions of time in collisions of vessela) First zone/division- anytime until the danger of collision appears.b) Second zone/division- from the time of danger of collision appeared until it becomes a practical certaintyc) Third zone/division- from the time it becomes a practical certainty to the actual impact.

Doctrine of Inscrutable FaultIf in a collision, there is no certainty as to who is at fault, the judge should dismiss the case. If cargoes on both vessels were damaged, the owners of all damaged cargoes are entitled indemnity from owners of vessels. Owners of vessels are solidarily liable.WARSAW CONVENTION

NatureTreaty; part of laws of the land

DefinitionAn agreement among sovereign nations for two purposes:1) To have uniform documents inconnection with international air transportation.2) To fix liabilities of international air carriers.

Q: What are these documents made uniform by the Warsaw Convention?A: Passenger ticket, airway bill (bill of lading), baggage check

Q: How were the sovereign nations thatparticipated in the convention referred to?A: High Contracting Parties; Philippines is not an original party to the Warsaw Convention because at the time of convention, Philippines was not yet a sovereign state and it did not yet have an aircraft. PAL was only incorporated in 1954, flight was only Manila-Baguio. Philippines is a party by accession to the convention.

Q: How come that it is the name of the convention?A: Because it took place in Warsaw, Poland.

When do you say that transportation is international?1) Where port of origin is in one country and the port of destination is in another country.2) Port of origin is in one country and port of destination is same country, but there is an agreed stopping place in another country.If the stopover was due to an emergency, it is not an international flight.3) Includes the movement of goods whether by land (bodega) or by water to the aircraft.

Indemnities Agreed Upon in WC:1) If someone dies, $100,000. Airline can opt to give more.2) If someone sustains physical injuries, maximum indemnity is $100,000.Amount depends on severity of injury.3) Checked-in articles: maximum indemnity$1,000 per kilogram.a. If value of article exceeds $1k/kg, you can onlyrecover such limit.b. If value of article is less than the maximum limit you can only recover the actual value.4) Hand-carried articles: maximum indemnity $1,000 regardless of weight and actual value.No proof required.

Why are liabilities fixed? Because of the different ways to asses damages for injuries or loss of goods.

Passenger who wants to recover more than the limits should:1) Declare true value; and2) Pay fare corresponding to that true value.

PUBLIC SERVICE LAW

Who may render public service?It may only be rendered by Filipino citizens or by corporations with 60% ownership by Filipino citizens.Grandfather Rule: Control test where the citizenship of the corporation owning another is taken into consideration in determining the 60% Filipino ownership.

Requirements to engage in PS:1) Filipino Citizenship2) Willingness to engage in public service3) Financial capacity What for? For acquiring equipment to engage in PS or for settling damage claims.

Who regulates PS?Under the 1935 Constitution, it was the Public Service Commission. At present, it is the various government offices: DOTC, LTFRB, CAB, MARINA, LGUs (tricycles)

How to engage in public service1) Application by petition;2) Hearing3) Issuance of a CPC.

Before anyone could engage in PS, he/she should apply first for issuance of a certificate of public convenience, or CPCN.

Certificate Public Convenience: written authority issued by government regulator to enable a person to render public service.

Certificate of Public Convenience and Necessity: written authority issued by government regulator to enable a person to render public servicefor which a legislative franchise is required.

Present policy: franchises are not exclusive anymore. Public is better served if there is competition, but not cut-throat competition.

Kabit SystemWhen people want to engage in PS but do not qualify, they resort to this. Not legal.Sir: Basta kabit, hindi legal."

If a kabit unit was involved in an incident, the legitimate owner will be the one sued. Legitimate owner cannot file a third party complaint against the kabit operator.

ExampleA is owner of vehicles. B asked A for the former to drive the vehicles. A agreed provided B pays a boundary of P1,500/day.SC ruled that there is an employer-employee relationship between A and B. Some years later, B wants to retire. B has the right to ask for retirement pay.

Prior Applicant Rule: If two or more persons apply to render the same public service, the one who first filed the application should be granted the authority.Old Operator Code: If someone is already rendering the service, it must first be allowed to offer to add the same service.

*Sir: They have no more relevance.FOREIGN INVESTMENTS ACT*Was not discussed by Sir in class

Purpose of law: To encourage and entice foreign investments to bring in more foreign currency. It was formerly illegal for transactions to be paid in foreign currency or in relation to foreign currency.

Salient Features Foreigners can own 100% of any enterprise related to exports so long as it is not covered by Negative List A & B. Negative List A- activities reserved by the Constitution or other special laws to Filipinos. Ex. Advertising, public service, mass media, retail trade Negative List B- activities that are exclusively for Filipinos. Ex. Those relating to ammunition and firearms (unless the Secretary of National Defense consents), pyrotechnics, nightclubs, beerhouses, steambaths, and massage parlors.

Inward Remittance: a foreigner may also own 100% of a domestic market enterprise if the foreigner remits and makes an investment worth $200k or equivalent but not in areas where there are health related risks. Ex. Bars, beerhouses, massage parlors, sauna baths, dancing halls.EXCEPTION TO $200k REMITTANCE:1) If the enterprise advances technology, as determined by the DOST, and hires more than 50 Filipino employees. The investment must also not be less than $100k; or2) If the alien is a former natural-born Filipino, then he is allowed to own urban properties with an area of 5,000 sqm. or rural properties up to 3 hectares. If both spouses are formerly natural-born Filipinos, their total lands must not exceed the above-stated land areas, and the land acquired must be in different locations. The limit applies to them jointly.

Filipino National:a) Filipino citizenb) Outstanding capital stock of domestic corporations must be at least 60% owned by Filipinos.c) Outstanding capital stock of foreign corporations must be 100% Filipino owned. d) Domestic corporation owned by another corporation, 60% of the outstanding capital stock of which is owned by Filipinos and 60% of the composition of the Board of Directors are Filipinos.

Export Enterprises- no restriction; can be 100% foreign-owned1) Those who engage in the manufacturing or processing of goods 60% of which are exported.2) Those who buy from local manufacturers and exports 60% of those goods bought.

Domestic Market EnterprisesGeneral rule: no restrictionException: Negative list A & B

Not doing business in the Philippines1) If an entity will merely invest in a domestic corporation; includes the appointment of a nominee/representative who will represent the foreign corporation in the domestic corporation.2) If a foreign corporation will merely develop local distributors.

Foreigners not covered by Negative List must bring to the Philippines at least $200k.

INTELLECTUAL PROPERTY CODE

Governing Law: Intellectual Property Code. It is a compilation of old laws on patent, copyright, trade marks, trade names, service names, service marks.

The Code is administered by the Intellectual Property Office. The head is the Director-General who must be at least 40 years of age and a lawyer. The term of the Director-General is 5 years, eligible for a single re-appointment. However, the first Director-General appointed has a term of 7 years without re-appointment.

Kinds of Intellectual Properties:1. Patents2. Copyright3. Industrial Designs4. Layout of Topography of Integrated Circuits5. Trademarks and tradenames6. Geographic Indication7. Trade-related Aspects of Intellectual Property Rights (TRIPS)

PATENTS

DefinitionIt is issued upon an invention, granting the exclusive right to mass-produce or license the mass production of the invention. It is the protection given by law to an inventor.

Characteristics of Patentable Invention:a) Must be new- not part of a prior artb) Involves an inventive step- not simply discoveredc) Capable of industrial application- may be used in the development of existing or a new industry; can be mass produced.

Inventive StepGR: It is not merely discovered but involved a process of trying this and that until one find what works.

Ex. X tripped and fell on carabao grass, face first. He then discovered its magical effect on pimples. This cannot be patented because it is merely discovered without any inventive step. However, if X first tried guava leaves, then malunggay leaves, then garlic, then chili, and flour to make a paste to cure pimples, then the same involved an inventive step and is thus patentable.

Exc: Microorganismse.g. Those that improve the digestive process or eat garbage.

Note: An invention that meets all 3 qualifications does not automatically become patentable. Those contrary to law or morals are not patentable.Ex. Substitute for shabu where a prohibited ingredient is used.

While the invention may not be patentable, it does not mean that it cannot be mass-produced. For as long as the object is not prohibited by law, it may be mass-produced.

What are not patentable inventions?1) Those contrary to law2) Those contrary to morals or public order, e.g. vibrator which moves back and forth at different speeds. However, though these may not be patentable, they may be mass produced because their mass production is not prohibited by law.3) Mere concepts or ideas, e.g. sound that makes people move (sound propelled)4) Mathematical Solutions5) Surgical procedures, e.g. if A invents a gadget that makes the surgical procedure on circumcision painless, the procedure is not patentable but the gadget is.

How long is the duration of a patent?20 years from the filing of the application

How soon does the applicant get the patent?Sir: Only God knows

Q: What is the advantage of a patent on an invention?A: The patent holder shall have the exclusive right to mass-produce or license its mass production for 20 years, counted from date of filing of application for patent.

Note: If another person made use of the invention prior to the issuance of application, the inventor has a right to collect royalties.

An inventor is entitled to protection the moment he created the work.

Who are entitled to a patent?1) Inventor2) Co-owners- if two or more persons worked on the invention together, in the absence of an agreement to the contrary, they become co-owners of the patent3) If two or more persons worked on the invention independently of one another, the one who first applied for patent gets it (First to file rule)4) Employer- If a person hired another purposely to work on an invention, in the absence of any agreement to the contrary, patent belongs to the employer.Ex. Assignment of chemist was to work on a solution that removes scars. Contract does not say anything regarding ownership of the solution. In this case, the patent belongs to the employer.5) Employee-inventor- if a person hired another to do something else, and in the process the employee invented something, the patent belongs to the employee.

Note: Patent is a personal property different from the patented article. You may dispose of the patent without disposing the patented article.Sir: Magkahiwalay talaga sila!

Economic Advantage of a PatentOnly the inventor can mass-produce the patented article or can have the license to do so. The inventor can also license another to mass-produce the patented article and receive royalties in consideration thereof. Royalty is based on formula provided by law itself.

How do you know if an invention is already patented?The patent symbol P and number are already in the invention itself (for small products).

Kinds of Licensing:1) Voluntary- arises from an agreement between patent holder and licensee. The patent holder cannot just impose any kind of stipulation. Law prohibits certain stipulations and the list is not exclusive. The list includes the number of products to be produced, export limit on the price of sale, and source of raw materials that must be nominated by the holder.Those prohibited are stipulations that make an applicant for a licensee subject to the will of the patent holder. These are prohibited because of the great moral ascendancy of the holder over the applicant.2) Compulsory- it is applied with the IPO under certain conditions:a. Invention is regarding food or medicines;b. While there is a demand for the product, the patent holder is not mass-producing. Or if patent holderis mass- producing, he cannot meet demand. Patent Holder does not want to enter into licensing agreements on reasonable terms.

Note: Whether licensing is voluntary or compulsory, patent holder is entitled to royalties.

Remedies in Cases of Infringement1) Civil case on injunction and claim for damagesa) Prove actual damages. This is not easy so just ask for royalties.b) Ask for royalties2) Criminal prosecution if the infringement would be repeated

INFRINGEMENTUNFAIR COMPETITION

Unauthorized copyingCopying a product of another and passing them off as ones own. This is a felony.

Patent must be registeredProduct may not be patented

Not all unauthorized copying of a patented article is an infringement. The following do not constitute infringement:a) Personal and exclusive useb) Use by government, BUT it must pay royaltiesc) Research and Developmentd) In case of compulsory licensing provided, licensee pays royalties

INDUSTRIAL DESIGN

DefinitionIt is the combination of lines or colors or both. The lines need not be straight.

Ex. Design of Burberry, LV, United Colors of Benetton

LAYOUT OR TOPOGRAPHY OF INTEGRATED CIRCUITS

DefinitionThe pattern of a mother board is intellectual property.

GEOGRAPHIC INDICATION

DefinitionThose indicated by place.Ex. Sukang Davao, Dagupan Bangus, Ilocos Empanada

TRADE NAMES

DefinitionThe name that a person uses to identify his product and to distinguish his product from the products of others.Ex. Summit, Gatorade, C2

Note: Do not confuse trade name with business name. Trade name goes with the product; business name is used to identify the place of business (governed by Business Names Law and administered by another government office).

If using a business name different from the true name, you register with the DTI, Bureau of Domestic Trade. There is a need for a public record of who owns businesses in order to know whom to sue. This is needed for signs or printed documents.

What is a Trademark?It is a sign, emblem, or mark that a person uses to identify and distinguish his products from that of others.

What is a Service name or Service mark?It is the name, sign, emblem, or mark that is used to identify service (e.g. Good Year Servitek, Rapide). It covers both things and services.

What is the duration of protection?10 years, with limitless renewals. However, after 5 years, the owner must file an affidavit of use (Declaration of Actual Use) of the trademark or trade name with the IPO over the past period.Note: Under the IPC, the Declaration must be fild 3 years from filing and 1 year from the fifth anniversary (124.2, 145).

Q: Why do you need to register trademarks or trade names?A: To enjoin the use by others or to file a suit for infringement

Certain Rules: Exclusivity: Where a trade name or trademark is already registered in the name of one person, no other person may use a similar or confusingly similar name or mark in connection with similar or closely-related product. You cannot use Del Monte in connection with food articles but you can use it for underwear/shoes. Trade names may be trade marks at the same time, but both must be registered to be protected. Selecta is a trade name and how it is written is a trade mark Trade names and marks include service name and mark Taste is not protected First to file system; prior use is not required

Doctrine of Colorable ImitationWhen a person gives his product an appearance that is similar or confusingly similar to the appearance of the product of another, calculated to make an ordinary buyer believe that his product is the same as the product of another.

Bottles of Del Monte are patented- This doctrine came out in the case involving the word sunshine, which involved Del Monte and Sunshine catsup. Sunshine used bottles of Del Monte because the owner of Sunshine could not afford to make his own bottles. The manufacturer replaced the labels of the bottles but the labels had the same color combination. Add to this the fact that the bottles had markings that they were products of Del Monte. It was not ordinary buyers that were misled but also those that read the labels.

Beer na Beer Case- In the 70s, Asia Brewery created Beer na Beer that had the same taste as San Miguel Pale Pilsen. Asia Brewery also used the same shape of bottles. The Supreme Court held th