Commercial Law Reviewer – AteneoDec 20

Posted by Magz

CODE OF COMMERCE

COMMERCE – branch of human activity; purpose is to bring products to the consumer through operations habitually and with intent of gain

COMMERCIAL LAW – branch of private law which regulates the juridical relations arising from commercial acts

CHARACTERISTICS OF COMMERCIAL LAW:

1. 1.       universal2. 2.       uniform

3. 3.       equitable

4. 4.       customary

5. 5.       progressive

 

PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:

1. 1.       merchants; book of merchants and general provision of contracts2. 2.       joint account association

3. 3.       commercial barter

4. 4.       transfers of non-negotiable credits

5. 5.       commercial contracts of overland transportation

6. 6.       letters of credit

7. 7.       maritime commerce

OTHERS:

1. 1.       Commerce – bringing products from the manufacturers to the consumers

1. 2.       Characteristics of Commerce:

1. a.       habituality

2. b.       rapidity – if period is fixed, debtor in delay without need of demand; if contract does not fix period, 10 days

3. c.       intent to join

1. 3.       Merchant:

1. a.       Individuals – legal capacity, 21 years, or subject to parental authority, habitually engaged in commerce

2. b.       Juridical Persons – commercial and industrial company organized in accordance with law, habitually engaged in business

1. 4.       General Rule:  Minors cannot engage in commerce

       Exceptions:

1. a.       to continue business of deceased parents through guardian2. b.       court authorizes guardian to place minor and property in business

3. c.       minor is an alien and his national law allows him to be a merchant

1. 5.       Which persons are not allowed to engage in commerce?

1. a.       suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion temporal)

2. b.       those judicially declared insolvent until they can obtain their discharge

3. c.       prohibited by Constitution and special laws

1. 6.       Aliens

1. a.       capacitated under his national law to engage in business

2. b.       engaged in the business in the Philippines not reserved for the Filipinos

3. c.       after securing license and BOI certificate

1. 7.       Family Code:  Either spouse may engage in business; when objected to by the other, court will look into valid grounds, i.e. serious and moral grounds

1. 8.       BOI Certificate must be obtained by:

1. a.       alien

2. b.       foreign firm

1. 9.       Meaning of Philippine National

1. a.       citizen

2. b.       domestic corporation wholly owned and organized by Filipinos in the Philippines

3. c.       Filipino corporation where Filipino capital entitled to vote is at least 60%

1. 10.   Query:  If a corporation is a shareholder of another corporation, how do you determine whether the latter corporation is a Filipino national?

Answer:  The following must concur -

1. a.       At least  60% of the outstanding capital stock and entitled to vote of both corporations are held by citizens of the Philippines

2. b.       At least 60% of the Board of Directors of both corporations are Filipinos

1. 11.   Tenor of BOI Certificate

1. a.       Business or activity to be engaged is consistent with the Investment Priorities Plan

2. b.       Business will contribute to the sound and balanced development of the national economy in a self-sustaining basis

3. c.       Business will not conflict with the Constitution and local laws

4. d.       Business is not adequately exploited by Filipino nationals

5. e.       No danger of monopolies/combinations in restraint of trade

1. 12.   Basic Principles/Conditions laid down by BOI

1. a.       resident agent of foreign firm is a Filipino citizen

2. b.       establishment of office in the Philippines

3. c.       bringing assets tot he Philippine office as capital

4. d.       complete set of accounting records

1. 13.   Merger and Consolidation subject to BOI requirements for the issuance of certificate:

When merger and consolidation result in ownership and control of non-Filipino nationals over more than 40% of the capital of a consolidated corporation.

1. 14.   SEC License issued upon compliance with the following requirements: 1. a.       proof of compliance with principle of reciprocity

2. b.       BOI certificate

3. c.       Applicant for license gives required information

n  articles of incorporation

n  by-laws

n  names and addresses of resident agents

n  principal place of business in the Philippines

1. d.       proof of solvency2. e.       deposit acceptable securities to protect future creditors

RETAIL TRADE NATIONALIZATION LAW

(Note: Material on the Retail Trade Liberalization Law will not be included in this reviewer.   Supplement to follow)

1. 1.       Retail Trade – any act, occupation, or calling of habitually selling direct to the general public, merchandise, commodities, or goods for consumption

Jurisprudence has held that the term “retail” should be associated with and limited to goods for personal, family or household use, consumption and utilization.  The Retail Trade Nationalization Law refers to “consumption goods” or “consumer goods” which directly satisfy human wants and desires and are needed for home and daily life.  Excluded from the law are those goods which are considered generally raw material used in the manufacture of other goods, or if not, as one of the component raw material, or at least as elements utilized in the process of production and manufacturing.

1. 2.       Elements of What Constitutes Retail Trade: 1. a.       The seller habitually engages in selling;

2. b.       The sale is direct to the general public; and

3. c.       The object of the sale is limited to merchandise, commodities or goods for consumption.

1. 3.       General Rule: After 1964, only Filipinos or corporations whose capital is 100% Filipino may engage in retail trade.

1. 4.       Exceptions, that is, instances when aliens may engage in retail trade in the Philippines:

1. a.       manufacturer or processor if capital does not exceed P5,000.00;

2. b.       farmer or agriculturist when selling his products;

3. c.       manufacturer or processor selling to industrial or commercial users or consumers who use the produce to render service to the general public or to produce or manufacture goods which are sold by them to the public;

4. d.       hotel owners or keepers of restaurants included or incidental to the hotel business;

5. e.       sale by a manufacturer or processor to the Government or its agencies, including government owned and controlled corporations.

1. 5.       Query:   How to determine citizenship of shares of the corporation when they are not held directly by individuals, but in turn held by another entity?

Answer:  apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as Philippine nationality, but 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.  Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos.  But, if let’s say, 50% of the capital stock belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens.

However, while a corporation with 60% Filipino and 40% foreign equity ownership is considered a Philippine national for purposes of investment, it is not qualified to invest in or enter into a joint venture agreement with corporations or partnerships, the capital or ownership of which under the Constitution or other special laws are limited to Filipino citizens only.  Hence, for purposes of the law, whatever the percentage of Filipino  ownership in the owning corporation, the foreign ownership would always render a portion of its holding in the company as foreign equity and would disqualify the corporation to engage in retail trade.

ANTI-DUMMY ACT

1. 1.       The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations.  Criminal sanctions are imposed on the president, manager, board member or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.

1. 2.       Disqualified aliens cannot intervene in the management, operation, administration or control of the business reserved to Filipinos whether as an officer, employee or laborer, with or without remuneration, except when:

1. a.       alien takes part in technical aspects;

2. b.       provided that no Filipino can do such technical work; and

3. c.       with express authority from the President, upon the recommendation of the department head concerned.

1. 3.       By way of exception, the following may participate in management:

1. a.       Aliens may be elected to the Board of Directors to the extent of their allowable share in the capital of the corporation (in partially nationalized industries).

2. b.       A registered enterprise may employ foreign nationals in supervisory, technical, and advisory positions for a period of 5 years subject to extension.

3. c.       Where majority of stocks of a pioneer enterprise is owned by foreign investors, the following positions may be held by foreign nationals:

n  president

n  treasurer

n  general manager

n  equivalent positions

1. 4.       A Filipino common-law wife of an alien is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; however, allowing her common-law alien husband to take part in the management of the retail business would be a violation of the law.

1. 5.       What doing business means:

1. a.       soliciting orders, purchases, service contracts;

2. b.       opening offices whether called liaison offices or branches;

3. c.       appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the country for a period totaling 180 days or more;

4. d.       participating in the management or supervision or control of any domestic firm, entity or corporation in the Philippines;

5. e.       any other act or acts that imply continuity in commercial dealings

1. 6.       When commissioned merchants/investors or commercial brokers act in their own name in selling foreign products, the foreign firm manufacturing these products is not doing business in the Philippines.

1. 7.       When a local corporation or person acts in the name of a foreign firm, the latter is doing business in the Philippines.

1. 8.       The following are NOT doing business:

1. a.       mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business;

2. b.       exercise of rights as such investor;

3. c.       having a nominee director or officer to represent interests in such corporation;

4. d.       appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own accounts.

2. 1.       Purpose:

1. a.       to encourage use of and to promote transactions based on trust receipts;

2. b.       to regulate the use of trust receipts

TRUST RECEIPTS LAW

1. 2.       Definition:

A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods, documents or instruments tot he possession of the former upon the ENTRUSTEE’S promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.

1. 3.       Trust receipts are denominated in Philippine currency or acceptable and eligible foreign currency.

1. 4.       ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE.

1. 5.       Risk of loss is borne by the ENTRUSTEE.

1. 6.       Pending the duration of the trust agreement, the ENTRUSTER’S security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE.

1. 7.       Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER  for the value thereof.

 LETTERS OF CREDIT

1. 1.       Kinds: 1. a.       Commercial Letters of Credit

2. b.       Traveler’s Letters of Credit

1. 2.       No protest required in case of dishonor.

1. 3.       Issued to definite persons and not to order, thus, non-negotiable.

1. 4.       Limited to a fixed account.

 PRICE TAGS LAW

1. 1.       It requires articles of commerce sold at retail to bear prices.

JOINT ACCOUNTS

1. 1.       It exists when a merchant interests himself in the transaction of another merchant, contributing thereto the amount of capital they may agree upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

1. 2.       Joint accounts do not adopt a firm name.

1. 3.       No suit may be maintained – investor and third persons dealing with the merchant conducting business.

1. 4.       It is not subject to any formal requirement for validity; it may be oral.

 BULK SALES LAW

1. 1.       Purpose: meant to protect creditors of businessmen against preferential or fraudulent transfers

1. 2.       The law covers all transactions, whether done in good faith or not, or whether or not the seller is in a state of insolvency, that fall within the description of what is a “bulk sale.”

1. 3.       Types of transactions which are treated as “bulk sales”:

1. a.       Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade;

2. b.       Sale transfer, mortgage or assignments of all, or substantially all, of the business of the vendor, mortgagor, transferor, or assignor;

3. c.       Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor, transferor, or assignor.

1. 4.       Only creditors at the time of the sale in violation of the law are within the protection of the laws and creditors subsequent to the sale are not covered.

1. 5.       Even if the transaction falls within the definition of “bulk sale”, the following are not deemed covered by the law:

1. a.       If the vendor, mortgagor, transferor or assignor produces and delivers a written waiver of the provisions of the law from his creditors as shown by verified statements;

2. b.       The law does not apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under process.

1. 6.       Obligations when transaction is a bulk sale:

1. a.       The vendor must deliver to such vendee a written statement of:

n  names and addresses of all creditors to whom said vendor or mortgagor may be indebted;

n  amount of indebtedness due or owing to each of said creditors

1. b.       The vendor must apply the purchase money to the pro-rata payment of bona fide claims of the creditors as shown in the verified statement.

2. c.       The seller, at least 10 days before the sale, shall:

n  make a full detailed inventory of the goods, merchandise, etc., cost price of each article to be included in the sale

n  notify every creditor at least 10 days before transferring possession of the goods, of the price, terms and conditions of the sale

1. 7.       Consequences of Violation of Requirements under #6 above stated: 1. a.       When 6(a) above is not complied with, the sale itself is void; the seller will

be criminally liable.

2. b.       When 6(b) above is not complied with, the sale itself is also void; seller is also criminally liable.

3. c.       When 6(c) is not complied with, the sale is not void; no criminal liability on the seller.

 WAREHOUSE RECEIPTS LAW

1. 1.       Warehouse – a building or place where goods are deposited and stored for profit.

1. 2.       Warehouseman – person lawfully engaged in the business of storing goods for profit.

Only  a warehouseman may issue warehouse receipts.

1. 3.       Warehouse Receipt – written acknowledgment by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued.

1. 4.       Non-negotiable Receipt – receipt deliverable to a specified person.

1. 5.       Negotiable Receipt – receipt deliverable to order or to bearer.

1. 6.       Essential Terms which MUST be embodied in a Warehouse Receipt:

1. a.       location of the warehouse

2. b.       date of the issue of the receipt

3. c.       consecutive number of the receipt

4. d.       statement whether the goods received will be delivered to bearer, or a specified person, or his order

5. e.       rate of storage charges

6. f.         description of the goods or packages containing them for identification purposes

7. g.       signature of the warehouseman

8. h.       statement of the amount of advances made and of liabilities incurred for which the warehouseman claims as lien

1. 7.       Effect of omission of any of the essential terms:

1. a.       The validity of the warehouse receipt is not affected.

2. b.       The warehouseman shall be held liable for damages to those injured by his omission.

3. c.       The negotiability of the warehouse receipt is not affected.

4. d.       The issuance of a warehouse receipt in the form provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements are not observed, then the goods delivered for storage become ordinary deposits.

1. 8.       Terms which may be inserted in a Warehouse Receipt:  Any other terms except (a) those contrary to the provisions of this Act; (b) those that would impair a warehouseman’s obligation to exercise that degree of care in the safekeeping of the goods entrusted to him

1. 9.       Marks to be made on a warehouse receipt:

1. a.       A non-negotiable receipt must be clearly marked non-negotiable or not negotiable, otherwise, the holder of the receipt who purchased it for value and who supposed it to be negotiable, may treat it as negotiable.

2. b.       Duplicate receipts must be so marked, otherwise, the warehouseman is held liable for all damages suffered by a holder believing the same to be the original.

1. 10.   Warranties of a warehouseman as to duplicate receipts:

1. a.       The duplicate is an accurate copy of the original receipt.

2. b.       Such original receipt is uncancelled at the date of the issue of the duplicate.

1. 11.   Effects of alteration on the liability of the warehouseman:

1. a.       If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor.

2. b.       If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable according to the terms of the altered receipt.

3. c.       If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the warehouseman is liable on the altered receipt according to its original tenor.

4. d.       If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman is liable:

(1)    to the purchaser of the receipt for value and without notice of the alteration according to the tenor of the altered receipt

(2)    to the alterer, according to the terms of the original receipt

(3)    to subsequent purchasers with notice of the alteration, according to the terms of the original receipt

1. 12.   Effects of misdescription of goods: 1. a.       A warehouseman is under the obligation to deliver the identical property

stored with him and if he fails to do so, he is liable directly to the owner.

2. b.       As against a bona fide purchaser of a warehouse receipt, the warehouseman is estopped from denying that he has received the goods described in the receipt.

3. c.       If the description consists merely of marks or label upon the goods or upon the packages containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels.

1. 13.   Principal Obligations of a Warehouseman:

1. a.       To take care of the goods entrusted to his safekeeping

General Rule:  A warehouseman is required to exercise such degree of care which a reasonable careful owner would exercise over similar goods of his own.  He shall be liable for any loss or injury to the goods caused by his failure to exercise such care.

Exception:  He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care.

Exception to the Exception:  He may limit his liability to an agreed value of the property received in case of loss. He cannot stipulate that he will not be responsible for any loss caused by his negligence.

1. b.       To deliver the goods to the holder of the receipt or the depositor upon demand, provided demand is accompanied with:

(1)    an offer to satisfy the warehouseman’s lien;

(2)    an offer to surrender the negotiable receipt properly endorsed.  If the receipt is non-negotiable, any person lawfully entitled to the possession of the goods may be entitled to delivery without surrender of the receipt.

(3)    a readiness and willingness to sign an acknowledgment that the goods have been delivered if such is requested by the warehouseman.

1. 14.   Persons to whom goods must be delivered: 1. A.      Persons lawfully entitled to the possession of the goods or his agent:

a.  persons to whom a competent court has ordered the delivery of the goods

(1)    where a negotiable instrument has been lost or destroyed, the court may order delivery to a person upon satisfactory proof of such loss or destruction and upon proper posting of a bond to protect the warehouseman from any liability or expense which he may incur by reason of the original receipt remaining outstanding.

(2)    where more than one person claims title or possession of the goods the warehouseman may require all claimants to interplead.  The court will then order delivery to the person having a better right.

1. b.       an attaching creditor – Goods, while in the possession of the warehouseman and covered by a negotiable receipt, cannot be attached or levied upon under an execution unless:

(I)      the negotiable receipt is first surrendered to the warehouseman, or

(ii)     its negotiation is enjoined, or

(iii)   the receipt is impounded by the court

c.  to the purchaser in case of sale of the goods by the warehouseman to enforce his lien

1. d.       to the purchaser where perishable or hazardous goods are sold at private or public sale

1. B.      If goods are covered by a non-negotiable receipt:

1. a.       a person entitled to the delivery by the terms of the receipt, or

2. b.       one who has written authority from letter a

1. C.      If goods are covered by a negotiable receipt, a person in possession of the receipt, the terms of which the goods are deliverable:

1. a.       to him or order

2. b.       to bearer

3. c.       indorsed to him

4. d.       indorsed in blank by the person whom delivery was promised

1. 15.   When is there Misdelivery?

When the warehouseman delivers the goods to a person who is not in fact lawfully entitled to the possession of the goods because:

1. a.       the person does not fall under letter B or C above; or2. b.       the person falls under letter B or C but prior to delivery, the warehouseman had

either:

(1)    been requested by the person lawfully entitled to the delivery not to make such delivery, or

(2)    had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods

1. 16.   Effects of Misdelivery:

The warehouseman shall be liable for conversion to all having a right to property or possession of the goods.

1. 17.   What happens if there is proper delivery or partial delivery but the warehouseman fails to cancel the receipt or record on the receipt of such partial delivery?

1. a.       If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he fails to take the receipt and cancel it, then he is still liable to one who purchases for value and in good faith such receipt.

2. b.       If he makes partial delivery of the goods but fails to record the partial delivery on the receipt then he may still be held liable for the entire receipt to one who purchases for value and in good faith such receipt.

1. 18.   Lawful excuses for refusal to deliver goods:

1. a.       The warehouseman can refuse to deliver the goods if he has acquired title or right to the possession of the goods:

(1)    directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto; or

(2)    from the warehouseman’s lien

1. b.       If someone other than the depositor or person claiming under the depositor has a claim to the title or possession of the goods and the warehouseman has information of such claim, the warehouseman shall be excused from liability for refusing to deliver the goods either to the depositor or person claiming under him until he has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead.

1. c.       The warehouseman will not be required to deliver the goods if such had been lost.  But this is without prejudice to liabilities which may be incurred by him due to such loss.

1. d.       The warehouseman having a valid lien against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

1. e.       If goods have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not be liable for failure to deliver the goods.

1. 19.   A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming under him on the ground that adverse title to the goods belongs to a third person.

1. 20.   Rules as regards Co-mingling of Deposited Goods:

General Rule:  A warehouseman may not co-mingle goods belonging to different depositors or belonging to the same depositor for which separate receipts had been issued.

Exception:  A warehouseman may co-mingle fungible goods of the same kind and grade provided he is authorized by agreement or by custom.

1. 21.   Effect of Co-mingling of Goods:

1. a.       The different owners become co-owners of the whole mass.

2. b.       The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate.

1. 22.   Remedies of a Creditor:  (the debtor being the owner of the negotiable receipt)

Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of preliminary injunction and serve the same on the depositor before he has a chance to negotiate the receipt.  Once enjoined, there will be no longer a danger that a 3rd person will be prejudiced so the goods may now be attached, levied upon, or that the vendor’s lien or the right of stoppage in transit be exercised.

1. 23.   Warehouseman’s Lien

Extent of Warehouseman’s Lien:

A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands for:

1. a.       all lawful charges for storage and preservation of the goods2. b.       all lawful claims for money advances, interest, insurance, transportation, labor,

weighing, cooperating and other charges and expenses in relation to such goods

3. c.       all reasonable charges and expenses for notice and advertisements of sale and for sale of the goods where default has been made in satisfying the warehouse lien

Goods Subject to lien:

1. a.       goods belonging to the depositor who is liable to the warehouseman as debtor whenever such goods are deposited and

2. b.       goods belonging to other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?

1. a.       by refusing to deliver the goods until the lien is satisfied

2. b.       by causing the extrajudicial sale of the property and applying the proceeds to the value of the lien

3. c.       by filing a civil action for unpaid charges or by way of counterclaim in an action to recover the property from him

How is a lien lost?

1. a.       when the warehouseman voluntarily surrenders possession of the goods without requiring payment of his lien; or

2. b.       when the warehouseman wrongfully refuses to deliver the goods when a demand is made with which he is bound to comply

1. 24.   Negotiation and Transfer of Receipts

How do we negotiate a receipt deliverable to order?

1. a.       by indorsing it in blank thereby making it deliverable to bearer or

2. b.       by special indorsement – which would require further indorsements for further negotiations.

In both cases, the indorsements must be coupled with delivery.

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation.  Physical delivery of the instrument will suffice.  But if the instrument is indorsed specially, the bearer character of the receipt is destroyed and for further negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?

1. a.       the owner of the receipt, or

2. b.       the person to whom possession of the receipt was entrusted to by the owner

Rights acquired by a person to whom the receipt has been negotiated:

1. a.       the title of the person negotiating the receipt over the goods covered by the receipt

2. b.       the title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to be delivered

3. c.       the direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him

May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right.  That is why they are called non negotiable receipts.  But they may be transferred or assigned by delivery.

Rights of a person to whom a non negotiable receipt has been transferred:

1. a.       the title to the goods as against the transferor

2. b.       the right to notify the warehouseman of the transfer thereof and

3. c.       the right thereafter to acquire the obligation of the warehouseman to hold the goods for him

Distinction between a non negotiable receipt from a negotiable receipt with regard to attachment or execution upon goods:

Non-negotiable Receipt Negotiable ReceiptPrior to notification of the warehouseman by the transferor or transferee, the warehouseman is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such warehouseman of the subsequent sale of the goods.

The goods cannot be attached or levied under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined.

Rights of a person to whom a negotiable receipt has been transferred, not indorsed:

1. a.       the right to the goods as against the transferor

2. b.       the right to compel the transferor to indorse the receipt.  But if the intention of the parties is that the receipt should merely be transferred, the transferee has no right to require the transferor to indorse the receipt.

Note:  Negotiation takes effect as of the time when the indorsement is actually made.

Warranties of a person negotiating or transferring a receipt:

1. a.       the receipt is genuine

2. b.       he has a legal right to negotiate or transfer it

3. c.       he has knowledge that would impair the validity or worth of the receipt and

4. d.       he has a right to transfer the title to the goods and that the goods are merchantable

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the debt from a person does not warrant the genuineness of the receipt not the quality or quantity of the goods therein described.

It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has been issued to require the negotiation of the receipt to him, otherwise his failure will have the same effect as an express authorization on his part to the seller, mortgagor, or pledgor in possession of such receipt to make any subsequent negotiation.  The subsequent purchaser must have taken the receipt in good faith and for value.

A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he purchases from the owner’s agent within the actual or apparent scope of his authority.  In sum, negotiation is valid despite having been made in breach of trust.

Distinctions between a negotiable instrument and a negotiable warehouse receipt:

Negotiable Instrument Negotiable Warehouse ReceiptWhen a negotiable instrument is altered deliberately, it becomes null and void.

When a warehouse receipt is altered, it is still valid but it may be enforced only in accordance with its original tenor.

If a negotiable instrument is originally payable to bearer, it will always remain so payable regardless of the way it is indorsed, whether specially or in blank.

If a warehouse receipt, payable to bearer, is indorsed specially, it will be converted into a receipt deliverable to order and can only be negotiated further by indorsement and delivery.

A holder in due course may be able to obtain a title better than that which the party who negotiated the instrument to him had.

An indorsee even if a holder in due course obtains only such title as the person negotiating has over the goods.

The indorsement of a negotiable instrument has a double effect.  It is at the same time a conveyance of the instrument and a contract the indorser has with the indorsee that on certain conditions, the indorser will pay the instrument if the party primarily liable fails to do so.

The indorsement of a warehouse receipt amounts merely to a conveyance by the indorser.  Accordingly, an indorser of a receipt shall not be liable to the holder if, for example, the warehouseman fails to deliver the goods because they were lost due to his fault or negligence.

 GENERAL BONDED WAREHOUSE LAW

Any warehouseman receiving commodities for (a)  storage; (b) milling; (c) co-mingling must:

1. a.       obtain prior license from the Bureau of Commerce

2. b.       file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against which bond depositors may sue directly

3. c.       open to the public, no discrimination allowed

4. d.       liable for double market value should he accept goods in excess of the capacity of warehouse if goods are damaged or destroyed

Note:  for palay and corn license, a bond with the National Grains Authority is required; also an insurance cover is required.

 Uniform Currency Law

1. 1.       Obligations Null and Void 1. a.       obligations payable in gold/foreign currency

2. b.       obligations payable in Philippine currency but measured in gold/foreign currency

1. 2.       Exempt Transactions

1. a.       government to government transactions or with international banking institutions

2. b.       transactions affecting high priority economic projects

3. c.       forward exchange transactions between banks

4. d.       import and export and other international banking, financial, investment and industrial transactions

1. 3.       Merchants and Commercial Transactions

Classes of Investments:

1. a.       Permitted – one allowed without need of prior authority from the Philippine Government.  If registered status, invest up to extent as not to affect its registered status.  If enterprise not registered, investment not to exceed 40%.

2. b.       Permissible – invest in excess of 40% in unregistered enterprise but with prior approval of BOI

3. c.       Pioneer Area – (a)  involves manufacturing, processing, production of product not produced at all/produced in non-commercial scale; (b)  uses a design, scheme, formula that is new and untried in the Phils.; (c) agricultural activities/services essential to the attainment of food sufficiency; (d) produces non-conventional fuels/utilizes non-conventional sources of energy (all others are non-pioneer)

1. 4.       Absolutely Disqualified to become Merchants

1. a.       serving penalty of civil interdiction

2. b.       insolvent

3. c.       absolutely disqualified by special laws

1. 5.       Relatively Disqualified

1. a.       judicial and prosecuting officials in active service

2. b.       administrative, economic, military chiefs

3. c.       government collection agents and custodian of funds

4. d.       stock and commercial brokers

5. e.       by special laws cannot trade in specified territories

1. 6.       Books a Merchant must keep

1. a.       book of inventories and balances, statement of assets, liabilities and capital

2. b.       journal of day to day operations

3. c.       ledger for classifying accounts

4. d.       copying book for letters and telegrams; if juridical person, include book of minutes and stock and transfer book

1. 7.       Probative Value of Merchant’s Book

1. a.       evidence against merchants themselves

2. b.       in case of conflicts between 2 books – that which s properly kept prevails

3. c.       if one keeps books and the other does not and cannot explain why, the former prevails

4. d.       if both books are properly kept and there is a conflict, other proofs can be resorted to

1. 8.       Commercial Contracts by Correspondence are perfected from the moment the offeree accepts the offer, even before knowledge of said acceptance by the offeror.  This does not apply to deposit, guaranty, sales, loan, agency, partnership.

1. 9.       Joint Account Partnership – business arrangement whereby 2 or more persons interest themselves in the business of another by making contributions thereto and participating in the results thereof

1. a.       only one member is ostensible, others are silent

2. b.       no common name

3. c.       only ostensible partners can sue/be sued

4. d.       no juridical personality

Transportation Law

1. 1.       Contract of Transportation – contract whereby a certain person or association of persons obligate themselves to transport persons, things, news, from one place to another for a fixed price

1. 2.       Parties to the Contract of Transportation:

1. a.       Shipper – one who gives rise to the contract of transportation by agreeing to deliver the things or news to be transported, or to present his own person or those of other or others in the case of transportation of passengers

2. b.       Carrier/Conductor – one who binds himself to transport persons, things, or news, as the case may be, or one employed in or engaged in the business of carrying goods for others for hire

1. 3.       Common Carrier – person, corporation, firm, association engaged in the business of carrying or transporting passengers, goods or both, by land, water, air, for compensation, offering services to the public; must exercise extraordinary diligence

Private Carrier – not engaged in the business of carrying; no public employment; undertakes to deliver goods/passengers for compensation; requires only ordinary diligence

4.  Requisites of Caso Fortuito

1. a.       event independent of human will2. b.       occurrence makes it impossible for debtor to perform in normal manner

3. c.       debtor free from aggravation/participation

4. d.       impossible to foresee or avoid

1. 5.       Contributory negligence does not entitle passengers to recover moral/exemplary damages.

1. 6.       Bill of Lading – written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or his carrier

It is not indispensable to the creation of a contract of carriage.  The contract itself arises from the moment goods are delivered by shipper to carrier and the carrier agrees to carry them.

The function of the Bill of Lading:  the legal basis of the contract between the shipper and carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided, no exceptions being admissible other than forgery or material errors in the drafting thereof.

Carrier’s responsibility starts from the moment he receives unconditionally the merchandise personally or through an agent and lasts until he delivers them actually or constructively to the consignee or his agent.

Mere delay in the delivery of goods to consignee does not give right to refuse goods – only breach of contract, ergo damages.  If delay is unreasonable, then he may refuse to accept and make carrier liable for conversion.

1. 7.       Vessels – those engaged in navigation, whether coastwise or on the high seas, including floating docks, pontoons, dredges, scows and any other floating apparatus destined for the services of the industry or maritime commerce

1. 8.       Persons Participating in Maritime Commerce:

1. a.       ship owner and/or ship agent

2. b.       captain or master

3. c.       other officers of the vessel

4. d.       supercargo

1. 9.       Liability of Ship owners and Ship agents:

1. a.       civil liability for the acts of the captain

2. b.       civil liability for contracts entered into by the captain to repair, equip and provision the vessel, provided that the amount claimed was invested for the benefit of the vessel

3. c.       civil liability for indemnities in favor of 3rd persons which may arise from the conduct of the captain in the care of the goods which the vessel carried, as well as for the safety of the passengers transported

Ship owner/ship agent not liable for the obligations contracted by the captain if the latter exceeds his powers and privileges inherent in his position of those which may have been conferred upon him by the former.  However, if the amount claimed were made use of for the benefit of the vessel, the ship owner or ship agent is liable.

1. 10.   Doctrine of Limited Liability – liability of shipowners is limited to amount of interest in said vessel because of the real and hypothecary nature of maritime law such that where the vessel is entirely lost, the obligation is extinguished.

Exceptions:  (1)  vessel is not abandoned

(2)    claims under workmen’s compensation

(3)    injury/damage due to shipowner’s fault

(4)    vessel is insured

The doctrine also applies for claims due to death or injuries to passengers, aside from claims for goods.

In abandoning the vessel, there is no procedure to be followed.  There is neither a prescriptive period within which the ship owner can make the abandonment.  He may do

so for so long as he is not estopped from invoking the same or do acts inconsistent with abandonment.

1. 11.   Roles of the Captain:

1. a.       general agent of the ship owner

2. b.       technical director of the vessels

3. c.       represents the government of the country under whose flag he navigates

1. 12.   Loan on Bottomry – made by shipowner/ship agent guaranteed by vessel itself, repayable upon arrival at destination

1. 13.   Loan In Respondentia – taken on security of the cargo repayable upon the safe arrival at cargo destination

1. 14.   Accidents and Damages in Maritime Commerce:

1. a.       Averages

2. b.       Arrivals Under Stress

3. c.       Collisions

4. d.       Shipwrecks

1. 15.   Average:

1. a.       all extraordinary or accidental expenses which may be incurred during the voyage for the preservation of the vessel or cargo or both

2. b.       all damages or deterioration which the vessel may suffer from the time it puts to sea at the port of departure until it casts anchor at the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment

1. 16.   Simple Average – expenses/damages caused to the vessel/cargo not inured to common benefit and profit of all the persons interested in the vessel and her cargo; borne by respective owners

1. 17.   General Average – expenses/damages deliberately caused in order to save the vessel, its cargo or both from a real and known risk

Requisites:

1. a.       deliberately incurred2. b.       intended to save vessel and cargo or both

3. c.       from real and known risk

4. d.       there is success

1. 18.   Formalities for Incurring Gross Average:

1. a.       there must be an assembly of the sailing mate and other officers with the captain including those with interests in the cargo

2. b.       there must be a resolution of the captain

3. c.       the resolution shall be entered in the log book, with the reasons and motives and the votes for and against the resolution

4. d.       the minutes shall be signed by the parties

5. e.       within 24 hours upon arrival at the first port the captain makes, he shall deliver one copy of these minutes to the maritime judicial authority thereat

1. 19.   Arrivals under Stress – arrival of the vessel at a port not of destination on account of (a) lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of the sea disabling it to navigate

When Not Lawful:

1. a.       lack of provisions due to negligence to carry according to usage and customs2. b.       risk of enemy not well known or manifest

3. c.       defect of vessel due to improper repair

4. d.       malice, negligence, lack of foresight or skill of captain

1. 20.   Collision – impact of 2 vessels both of which are moving

1. 21.   Allision – striking of a moving vessel against one that is stationary

1. 22.   Cases of Collision:

1. a.       due to the fault, negligence or lack of skill of the captain, sailing mate or the complement of the vessel – ship owner liable for the losses and damages (Culpable Fault)

2. b.       due to fortuitous event or force majeure – each vessel and its cargo shall bear its own damages (Fortuitous)

3. c.       it cannot be determined which of the 2 vessels caused the collision – each vessel shall suffer its own damages, and both shall be solidarily responsible for the losses and damages occasioned to their cargoes (Inscrutable Fault)

1. 23.   Error in Extremis – sudden movement made by a faultless vessel during the 3rd zone of collision with another vessel which is at fault, even if the said movement is wrong, no responsibility will fall on said vessel

1. 24.   Shipwreck – denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by the waves, by running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation

1. 25.   Salvage – the compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending peril, or such property recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture; a service which one person renders to the owner of a ship or goods by his own labor, preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect and secure; a permit is required to engage in the salvage business

1. 26.   Derelict – a ship or cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning it

1. 27.   Elements of a Valid Salvage:

1. a.       a marine peril

2. b.       service voluntarily rendered when not required as an existing duty or from special contract

3. c.       success, in whole or in part, or that the services rendered contributed to such success

1. 28.   Contract of Towage – contract whereby a vessel usually motorized pulls another from one place to another for compensation.  It is a contract of services.

1. 29.   Difference between Towage and Salvage:

Salvage Towagecrew of salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share

crew of the towing ship does not have any interest or rights with the remuneration pursuant to the contract

salvor takes possession and may retain possession until he is paid

tower has no possessory lien; only an action for recovery of sum of money

court has power to reduce the amount of remuneration if unconscionable

court has no power to change amount in towage even if unconscionable

 Carriage of Goods by Sea Act

1. 1.       When Applicable: 1. a.       contracts for the carriage of goods

2. b.       by sea

3. c.       to and from Philippine ports

4. d.       in foreign trade

1. 2.       Notice of Loss or damage must be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery.  If the loss or damage is not apparent, the notice must be given within 3 days of delivery.  However, the carrier shall be discharged from all liability in respect of loss or damage of goods unless suit is brought within 1 year after delivery of the goods or the date when the goods should have been delivered.  Notice of loss, if not given, that fact shall not affect or prejudice the right of the shipper to bring suit within the 1 year prescriptive period.

 Warsaw Convention

1. 1.       When Applicable: 1. a.       international transport by air

2. b.       transport of persons, baggage, or goods

1. 2.       Liabilities under the Convention:

1. a.       damage sustained in the event of the death or wounding of a passenger taking place on board the aircraft or in the course of any of the operations of embarking or disembarking

2. b.       loss or damage to any check baggage or goods sustained during the transport by air

3. c.       delay in the transport by air of passengers, baggage, or goods

Enumeration of causes of action as above stated is not an exclusive list. (Northwest Airlines vs. Cancer)

1. 3.       Meaning of Transport by Air – period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or in the case of landing outside an airport, in any place whatsoever

1. 4.       Action for damages must be brought at the option of the plaintiff, either:

1. a.       before the court of the domicile of the carrier;

2. b.       court of principal place of business of carrier;

3. c.       court where he has a place of business through which the contract has been made;

4. d.       before the court at the place of destination

1. 5.       Convention provides for a limitation of liability:

1. a.       for each passenger – limited to 125,000 francs

2. b.       for goods and checked in baggage – limited to 250 francs per kilogram

3. c.       for hand carry – limited to 5,000 francs per passenger

When can you not avail of this limitation?

(1)    willful misconduct

(2)    default amounting to willful misconduct

(3)    accepting passengers without ticket

(4)    accepting goods without airway bill or baggage without baggage chec

1. 6.       The right to damages shall be extinguished if an action is not brought within 2 years 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 transportation stopped.

1. 7.       Notice requirement:  damage to baggage :  within 3 days from receipt

damage to goods:  within 7 days from receipt

delay:  within 21 days from receipt

Failure to file written notice, no action shall lie against the carrier, save in the case of fraud on his part.

1. 8.       Notice Requirements:

  COGSA Code of Commerce Warsaw Conventionloss/damage apparent protest at time of

receipt of goodsprotest at time of receipt of goods

 

loss/damage not apparent

protest within 3 days from delivery

protest within 24 hours after receipt

 

damage of baggage     protest within 3 days from receipt

damage of goods     within 7 days from receipt

delay     within 21 days from receipt

 Public Service Act

1. 1.       Every person that may own, operate, manage, control in the Philippines, for hire/compensation with general/limited clientele whether permanent, occasional, accidental, and done for a general business purpose any common carrier, shipyard, electric light, heat and power and public utility.

1. 2.       Public Utility – business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.

1. 3.       Prior Operator Rule – before permitting a new operator to invade the territory of another already established, the prior operator must be given an opportunity to extend its service to meet the public needs in the matter of transportation.

1. 4.       Prior Applicant Rule – presupposes a situation where two interested persons apply for a CPC in the same community over which no person has yet been granted a CPC to operate.  If both applicants equal, then the applicant who applied first will be given the CPC.

1. 5.       Distinctions between CPCs and CPCNs

Certificate of Public Convenience Certificate of Public Convenience and Necessity

any authorization to operate a public service issued by the appropriate government agency

issued by the appropriate government agency to a  public service to which any political subdivision has granted a franchise

an authorization issued by the proper government agency for the operation of public services for which no franchise, either municipal or legislative is required by law

an authorization issued by the proper government agency for the operation of public services for which a franchise is required by law

1. 6.       Requirements of CPC and franchise:

1. a.       Filipino citizenship

2. b.       financial capacity

3. c.       public convenience

 Corporation Law

1. 1.       Doctrine of Corporate Opportunity – a director is made to account to his corporation, gains and profits from transactions entered into by him/another competing corporation in which he has substantial interest, which should have been a transaction undertaken by the corporation.  This s a breach of fiduciary relationship.

1. 2.       Doctrine of Piercing the Veil of Corporate Entity – it is to disregard for justifiable reasons by the state the fiction of juridical personality of the corporation separate and distinct from the persons composing it

1. 3.       De Jure Corporation – corporation formed with all the requirements of law

1. 4.       De Facto Corporation – corporation defectively formed from a bona fide attempt to incorporate under the existing law and exercises corporate powers

1. 5.       Corporation by Estoppel – a group of persons which holds itself out as a corporation and enters into a contract with 3rd persons on the strength of such appearance cannot be permitted to deny its existence in an action under said contract

1. 6.       Corporation by Prescription – body not lawfully organized as a corporation but has been recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex. Roman Catholic)

1. 7.       Trust Fund Doctrine – 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.  Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions

1. 8.       Voting Shares

1. a.       Founders Shares – given rights and privileges not enjoyed by owners of other stocks; right to vote/be voted in the election of directors shall not exceed 5 years

Non-Voting Shares

1. a.       Preferred Shares – issued only with par value; given preference in distribution of assets in liquidation and in payment of dividends and other preferences stated in the articles of incorporation

2. b.       Redeemable Shares – expressly provided in articles; have to be purchased/taken up upon expiration of period of said shares purchased whether or not there is unrestricted retained earnings

3. c.       Treasury Stocks – stocks previously issued and fully paid for and reacquired by the corporation through lawful means (purchase, donation, etc.)

1. 9.       Exceptions where holders of non-voting shares may vote:

1. a.       amendments of articles of incorporation

2. b.       adoption/amendment of by-laws

3. c.       increase/decrease of bonded indebtedness

4. d.       increase/decrease of capital stock

5. e.       sale/disposition of all/substantially all corporate property

6. f.         merger/consolidation of corporation

7. g.       investment of funds in another corporation/another business purpose

8. h.       corporate dissolution

1. 10.   Preferred Cumulative Participating Share of Stock – share entitling its holder to preference in the payment of dividends ahead of common stockholders and to be paid the dividends ahead of common stockholders and to be paid the dividends due for prior years and to participate further with common stockholders in dividend declarations

1. 11.   Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock – stock deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions – usually payment of full subscription price

1. 12.   Over-issued Stock – stock issued in excess of authorized capital stock; null and void

1. 13.   Watered Stock – stock issued gratuitously, money/property less than par value, services less than par value, dividends where no surplus profits exist

1. 14.   Certificate of Stock – written acknowledgment by the corporation of the stockholder’s interest in the corporation.  It is the personal property and may be mortgaged/pledged.  Transfer binds the corporation when it is recorded in the corporate books.  A stockholder who does not pay his subscription is not entitled to the issue of a stock certificate.  The total par value of the stocks subscribed by him should first be paid.

1. 15.   Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in corporate books to bind third parties because corporate books only cover absolute transfers.  But the pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the corporate name.

1. 16.   Methods of Collection of Unpaid Subscription

1. a.       call, delinquency and sale at public auction of delinquent shares

2. b.       ordinary civil action

3. c.       collection from cash dividends and other amounts due to stockholders if allowed by by-laws/agreed to by him

1. 17.   A corporation can reacquire stocks in the following cases:

1. a.       eliminate fractional shares

2. b.       corporate indebtedness arising from unpaid subscriptions

3. c.       purchase delinquent shares

4. d.       exercise of appraisal right

1. 18.   Right of Appraisal

1. a.       amending articles, changing, restricting, enlarging stockholder’s rights/extending, shortening corporate life

2. b.       sale/disposition of all/substantially all of corporate assets

3. c.       merger and consolidation

4. d.       investment of funds in another corporation/for a different purpose

1. 19.   Grounds for Rejection of Registration

1. a.       not in prescribed form

2. b.       purpose illegal, inimical

3. c.       treasurer’s affidavit false

4. d.       non-compliance with required Filipino stock ownership

1. 20.   Corporation must organize within 2 years from issuance of certificate of incorporation.

     How to organize?

1. a.       adoption of by-laws2. b.       election of Board of Directors

3. c.       election of officers

But from issuance of certificate, it acquires juridical personality

1. 21.   Merger – one corporation absorbs the other and remains in existence while the other is dissolved

1. 22.   Consolidation – a new corporation is created and the consolidating corporations are extinguished

1. 23.   Theory of General Capacity – a corporation is said to hold such powers as are not prohibited/withheld from it by general law

1. 24.   Theory of Special Capacity – the corporation cannot exercise powers except those expressly/impliedly given

1. 25.   Concession Theory – a group of persons wanting to create a corporation will have to execute documents and comply with requirements set by the state before being given corporate personality; merely a privilege; state may provide causes for which the privilege may be withdrawn

1. 26.   Acts requiring majority vote of stockholder:

1. a.       filing of issue value of no par value share

2. b.       adoption, amendment, repeal of by-laws

3. c.       compensation and other per diems for directors

1. 27.   Where similar acts have been approved by the directors as a matter of general practice, custom and policy, the general manager may bind the company even without formal authorization of the board of directors

1. 28.   Powers of stockholders:

1. a.       a direct participation in management – where his vote is needed to approve certain corporate actions

2. b.       indirect participation in management to vote or remove directors

3. c.       proprietary rights

4. d.       remedial rights

1. 29.   Voting Trust Agreement – an agreement between a group of stockholders and trustee for a term not exceeding 5 years in which control over the stocks is lodged in the trustee.  The purpose is for controlling the voting.

1. a.       in writing, notarized and filed with the SEC and the corporation

2. b.       period not exceeding 5 years

3. c.       cannot be entered into to circumvent the laws against monopolies, illegal combinations in restraint of trade in fraud

1. 30.   Cumulative Voting – the number of votes that a shareholder’s number of shares multiplied by the number of directors may give all said votes to one candidate or he may distribute them as he may deem fit.  Cumulative voting is a matter of right in a stock corporation.  In a non-stock corporation, it cannot be utilized unless allowed by the by-laws/articles

1. 31.   The power of removal of directors that may be exercised with or without cause cannot apply to the director representing the minority shareholders.  He may only be removed with cause.

1. 32.   General Rule:  If surplus profits exceed the requirements the corporation shall declare dividends.  This is compulsory if the surplus is equal/or more than the paid-up capital.

Exceptions:

1. a.       justified by approved expansion projects2. b.       prohibited by creditor to declare dividends

3. c.       retention is necessary under existing circumstances

1. 33.   Business Judgment Rule – decisions made by a corporation’s management body shall not be interfered with even by the courts unless such acts are oppressive/unconscionable as to violate the rights of the minority

1. 34.   Individual Suit – one brought to assert a right of a stockholder peculiar to himself

1. 35.   Representative Suit – brought by the stockholder in his own behalf and in behalf of other stockholders similarly situated, having common cause against the corporation

1. 36.   Derivative Suit – brought by a stockholder for and in behalf of the corporation to protect/vindicate corporate rights after he has exhausted intra-corporate remedies

Requisites:

1. a.       cause of action in favor of the corporation2. b.       refusal of corporation to sue

3. c.       injury to the corporation

Although corporations dissolved have 3 years to wind up, they can convey their properties to a trustee who can continue the suit beyond the 3 year period.  The lawyer who handled the case in the trial court may be considered as trustee for the dissolved corporation with respect to the matter in litigation only even if no appointment was extended to him. (Selano vs. CA)

In a case filed before dissolution, it may continue even beyond the 3 year period until final determination of litigation.  Otherwise, the corporation in liquidation would lose what justly belongs to them/be exempt from payment of obligations because of a technicality.

1. 37.   Foreign Corporations

1. a.       Doing Business – continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business.  But where the isolated act is

not incidental/casual but indicates the foreign corporation’s intention to do other business, said single act constitutes engaging in business in the Philippines

2. b.       Instances when unlicensed foreign corporations can sue:

(1)    isolated transactions

(2)    action to protect good name, goodwill, and reputation of a foreign corporation

(3)    contracts provide that Phil. Courts will be venue to controversies

(4)    license subsequently granted enables foreign corporation to sue on contracts executed before the grant of the license

(5)    recovery of misdelivered property

(6)    where the unlicensed foreign corporation has a domestic corporation

1. 38.   Religious Corporations 1. a.       Corporation Sole – special form of corporation; associated with the clergy

and consists of 1 person only and his successors; incorporated by law giving them legal capacity and advantage

2. b.       Close Corporations – one whose articles provide that its shares shall not be held by more than 20 persons; its issued stock shall be subject to one or more restrictions on transfer and shall not be listed in any stock exchange/make public offering

3. c.       Non-stock Corporation – one where no part of its income is distributable to its members and shall be used in furtherance of the purpose of which it was organized

1. 39.   SEC Jurisdiction

1. a.       original and exclusive jurisdiction

(1)    fraudulent devices and schemes employed by directors detrimental to public interest

(2)    intra-corporate disputes and with the state in relation to their franchise and right to exist as such

(3)    controversies in the election, appointment of directors, trustees, etc.

(4)    petition to be declared in a state of suspension of payments

1. b.       Grounds for Suspension/Revocation of Certificate of Registration

(1)    fraud in procuring registration

(2)    serious misrepresentation as to objectives of corporation

(3)    refusal to comply with lawful order of SEC

(4)    continuous inoperation for at least 5 years

(5)    failure to file by-laws within the required period

(6)    failure to file reports

(7)    other similar grounds

Revised Securities Act

(Material on the Securities Regulation Code of 2000 to follow)

1. 1.       General Rule:  All securities before being offered for sale/actual sale to the public must first be registered and have the proper permit.

Exception:

1. a.       exempt securities2. b.       securities emanating from exempt transactions

1. 2.       Exempt Securities

1. a.       issued by the government subdivisions/instrumentalities

2. b.       issued by foreign government which the Philippines has diplomatic relations

3. c.       issued by receiver/trustee of an insolvent approved by the court

4. d.       issued by building and loan association

5. e.       issued by receiver/trustee of an insolvent approved by the court

6. f.         policy of insurance issued by insurance corporation supervised by the insurance commission

7. g.       security/right/interest in real property including subdivision lot/condominium supervised by the Ministry of Human Settlements

8. h.       pension plans regulated by BIR/Insurance Commission

1. 3.       Exempt Transactions

1. a.       judicial sale by execution, etc. in insolvency

2. b.       sale of pledged property/foreclosed property to liquidate an obligation

3. c.       isolated transactions on securities done by owner/agent

4. d.       stock transfers emanating from mergers and consolidations

5. e.       pre-incorporation subscription

6. f.         securities issued by public service operator to broaden equity base

1. 4.       Grounds for Rejection of Registration

1. a.       application incomplete/untruthful/omits to state a material fact

2. b.       issuer/registrant insolvent, violated code/ SEC rules, engages in fraudulent transactions

3. c.       issuer’s business not sound

4. d.       officer, director, stockholders of issuers is disqualified

5. e.       issue would prejudice the public

1. 5.       Grounds for Revocation

1. a.       issuer insolvent

2. b.       violated of Code/SEC rules

3. c.       fraudulent transaction

4. d.       dishonesty by issuer/misrepresented prospectus

5. e.       does not conduct business in accordance with law

1. 6.       Acts Prohibited

1. a.       manipulation of security prices

2. b.       manipulation of deceptive devices

3. c.       artificial measures of price control

4. d.       fraudulent transactions

5. e.       insider trading

6. f.         false prospectus, communications, reports

 Secrecy if Back Deposits

1. 1.       Deposits in banks, including government banks, may not be inquired into by any person, except:

1. a.       if depositor agrees in writing

2. b.       impeachment cases

3. c.       by court order in cases of bribery and dereliction of duty against public officials

4. d.       deposit is subject of litigation

5. e.       anti-graft cases

6. f.         general and special examination of bank order of the Monetary Board of bank fraud or serious irregularity

7. g.       re-examination made by an independent auditor hired by a bank to conduct its regular trust

Laws on Intellectual Creation

Copyright

1. 1.       What Works are not Protected: 1. a.       any idea, procedure, system, method or operation, concept, principle,

discovery, or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; news of the day or other miscellaneous facts, having the character of mere items of press information, or any official text of a legislative, administrative or legal nature as well as any official translation thereof

2. b.       works of the government

3. c.       statutes, rules, and regulations of government agencies and offices

4. d.       speeches, lectures, sermons, addresses and dissertations, pronounced or rendered in courts of justices or nay administrative agencies in deliberative assemblies and meetings of public character

1. 2.       Fair Use of a Copyrighted Work is not Infringement

1. a.       for criticism, comment, news reporting, teaching, research, scholarship, and similar purposes

2. b.       decompilation:  the reproduction of the code and translation of the forms of the computer program with other programs

1. 3.       Factors to Consider in Determining Fair Use:

1. a.       purpose and character of the use, including whether such  use is of a commercial nature or for no profit or educational purposes

2. b.       nature of the copyrighted work

3. c.       amount and substantiality of the portion used in relation to the copyrighted work as a whole

4. d.       effect of use upon the potential market for a value of the copyrighted work

1. 4.       Terms of the Protection

1. a.       copyrighted work:  lifetime of creator plus 50 years after death (to be computed on the 1st day of January of the year following the death)

2. b.       performances not incorporated in recordings:  50 years from end of year in which the performance took place

3. c.       sound or image and sound recordings and performances incorporated therein:  50 years from end of the year in which the recording took place

4. d.       broadcasts:  20 years from the date the broadcast took place

1. 5.       Remedies for Infringement

1. a.       injunction

2. b.       actual damages, including legal costs and other expenses, as he may have incurred due to the infringement as well as the profits the infringer may have made due to such infringement

3. c.       impounding of articles during pendency of the action

4. d.       destruction of all infringing copies and/or devices

5. e.       moral and exemplary damages

1. 6.       Criminal Penalties

1. a.       imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense

2. b.       imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to P500,000 for the 2nd offense

3. c.       imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to P1,000,000 for the 3rd/subsequent offenses

IN ALL CASES, subsidiary imprisonment in cases of insolvency

1. 7.       Presumptions: 1. a.       Presumption of copyright in the work of other subject matter to which the

action related

2. b.       Plaintiff is presumed to be the owner of the copyright

3. c.       The natural person whose name is indicated on a work in the usual manner as the author shall, in the absence of proof to the contrary, be presumed to be the author of the work.  This is applicable even if the name is a pseudonym, where the pseudonym leaves no doubt as to the identity of the author.

1. 8.       Prescription:  No damages may be recovered after 4 years from time the cause of action arose.

 Patents

1. 1.       Patentable Inventions – any technical solution of a problem in any field o human activity that is new, involve an inventive step and is industrially applicable shall be patentable.  It may be or may relate to as product, or process or an improvement of any of the foregoing.

1. 2.       Non-Patentable Inventions

1. a.       discoveries, scientific theories and mathematical methods

2. b.       schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers

3. c.       methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body

Exception:  products and composition for use in any of these methods

1. d.       plant varieties or animal breeds or essentially biological process for the production of plants and animals

Exception:  micro-organisms and non-biological and micro-biological processes

1. e.       aesthetic creations2. f.         contrary to public order or morality

1. 3.       Requisites of Patentability

1. a.       new, novelty

2. b.       involves an inventive step;

3. c.       is industrially applicable

1. 4.       Novelty

The novelty requirement in the Code is absolute.  Thus, an invention is not considered new if it forms part of a prior art.  A prior art consists of:

1. a.       anything which has been made available to the public anywhere in the world before the filing date or the priority date of the application, or

2. b.       the whole contents of an application for a patent, utility model, or industrial design registration, published in the IPO gazette, filed or effective in the Philippines, with a filing or priority date that is earlier than the filing or priority date of the application, provided that the application which has validly claimed the filing date of an earlier application (priority date) is prior art with effect as of the filing date of such earlier application, and provided further, that the applicant and the inventor identified in both applications are not one and the same

1. 5.       Inventive Step – an invention involves an inventive step, if having regard to the prior art, it is not obvious to a person skilled in the art at the time of the filing date of priority date of the application claiming the invention

1. 6.       Industrial Applicability – an invention is considered industrially applicable if it can be produced and used in the industry

1. 7.       The First-to-File System – if 2 or more persons have made the invention separately and independently of each other, the right to the patent belongs to the person who filed an application for such invention, or where 2 or more applications are filed for the same invention, the right of the patent belongs to the person who has the earliest filing date or the earliest priority date

Under this system, the patent is granted to the inventor who filed his patent application earlier than others thus simplifying the determination of who is entitled to own the patent.

The First-to-File System increases the rights of the inventor by:

1. a.       guaranteeing the confidentiality of the application prior to its publication2. b.       giving the inventor inchoate rights against an infringer after the publication of the

application and before the grant of the patent and

3. c.       expanding the rights of the inventor to institute cancellation proceedings for the duration of the term of the patent.  Cancellation proceedings may be filed at any time during the term of the patent.

Under this system, the applicant declared by final court order as having the right to the patent may:

1. a.       prosecute the application as his own application in place of the original applicant2. b.       file a new patent application in respect of the same invention

3. c.       request that the application be refused or

4. d.       seek the cancellation of the patent, if one has already been issued

1. 8.       What is the difference between novelty in patents and originality in copyright?

Novelty in Patents – even if you do not know of any previous creation, as long as a patent on the same creation has already been published anywhere in the world, you cannot claim novelty.  No access tot he other creation is no defense.

Originality in Copyright – even if there is same creation, as long as you do not copy your own creation, it is still considered an original creation.  No access to the previous creation is a defense.

1. 9.       Non-Prejudicial Disclosure

The disclosure of information contained in the application during the 12 months preceding the filing date or the priority date of the application shall not prejudice the applicant on the ground of lack of novelty if such disclosure was made by (a) inventor; (b) a patent office and the information was contained

1. 10.   Term of Patent – 20 years from the filing date of the application

1. 11.   Grounds for Compulsory Licensing:

1. a.       national emergency or other circumstances of extreme urgency

2. b.       where public interest, national security, health or the development of other vital sectors of the national economy as determined by the appropriate agency of the government so requires

3. c.       where a judicial or administrative body has determined that the manner of exploitation by the owner of the patent or his licensee is anti-competitive

4. d.       in case of public non-commercial use of the patent by the patentee, without satisfactory reason

5. e.       if not being worked in the Philippines on a commercial scale

1. 12.   In case of Compulsory Licensing of Patents involving Semi-conductor Technology, the license may be granted only in case of public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive

1. 13.   Utility Models – an invention qualifies for registration as a utility model if it is new and industrially applicable

- no inventive step required for registration

- no search and examination required

1. 14.   Term Protection – 7 years after the filing date of application without possibility of renewal

1. 15.   Industrial Design – any composition of lines or colors or any 3 dimensional form, whether or not associated with lines or colors

Industrial Designs essentially dictated by technical or functional considerations to obtain a technical result or those that are contrary to public order, health or morals shall not be protected

1. 16.   Term of Protection – 5 years from filing date of application, renewable for not more than 2 consecutive periods of 5 years each

 Insolvency Law

1. 1.       Distinguish Suspension of Payment and Insolvency

Suspension of Payment Insolvencydebtor has enough assets to meet liabilities but cannot meet them as they fall due

debtor has more liabilities than assets

always initiated by debtor initiated by creditors/other persons if involuntary; initiated by debtor if voluntary

1. 2.       Fraudulent Preference – any act of insolvent which gives rise/has tendency to give preference to a creditor to the assets of the insolvent prejudicial to the right of other creditors of said insolvent

1. 3.       Effect on Actions Upon Adjudication of Insolvency

1. a.       suits pending in court

(1)    secured obligations suspended until assignee appointed

(2)    unsecured obligations terminated except to fix amount of obligation

(3)    foreclosure suits pending continue

1. b.       suit not yet filed – cannot be filed anymore, but claims may be presented to assignee

1. 4.       Debts and Obligations not Affected by Discharge of Insolvent

1. a.       assessments due to national and local government

2. b.       debts due to fraud/embezzlement

3. c.       debts in which he is bound solidarily

4. d.       alimony

5. e.       corporate debts

6. f.         debts not included in the schedule submitted by debtor

Chattel Mortgage Law

1. 1.       The law primarily governs chattel mortgage.  Provisions on pledge of NCC in so far as not in conflict with CML also govern chattel mortgages.

1. 2.       Chattel Mortgage may be rescinded for being in fraud of creditors.

1. 3.       Growing fruits are covered by chattel mortgage but they may not be pledged.

1. 4.       Machinery placed on plant or building owned by another can be the object of chattel mortgage.

1. 5.       General Rule:  Chattel Mortgage cannot cover debts subsequently contracted.

1. 6.       Rules:  Chattel Mortgage cannot cover debts subsequently contracted

1. a.       registered in place where mortgagor resides and where property (chattel) is located.  If mortgagor resides abroad, register in place where property is located.

2. b.       Motor Vehicles:  register also in Land Transportation Office

3. c.       Shares of Stock:  place of domicile of corporation and shareholder.  No need for notation in books of corporation

4. d.       Vessels:  Phil. Coastguard

1. 7.       To be valid against 3rdpersons:

1. a.       affidavit of good faith

2. b.       contract must be registered

1. 8.       General Rule:  In Chattel Mortgage, there is recovery of deficiency judgment.

  Exception:  when Recto Law applies

1. 9.       Requisites of CML: 1. a.       constituted to secure the fulfillment of principal obligation

2. b.       mortgagor is absolute owner of the thing mortgaged

3. c.       persons constituting the mortgage have the free disposal of the property and in the absence thereof, they be legally authorized for the purpose

4. d.       recorded to bind 3rd persons

1. 10.   Formal Requisites of CM:

1. a.       substantial compliance with form in Sec. 5 of CML

2. b.       signed by at least 2 witnesses

3. c.       must contain an affidavit of good faith

4. d.       certificate of oath (notarial acknowledgment)

1. 11.   Affidavit of Good Faith – where the parties severally swear that the mortgage is made for the purpose of securing the obligation specified and for no other purpose and that the same is a just and valid obligation and not one entered into for fraud

- property given in CM must be described to enable the parties or any other person after reasonable inquiry and investigation to identify it

1. 12.   Future property may not be covered by CM but when such property is a: 1. a.       renewal of, or in substitution for goods on hand when the mortgage was

executed, or

2. b.       purchased with proceeds (not of your own money) of said goods, said property may be covered by CM

1. 13.   Criminal Acts – removal of chattel to another city or province without written consent of mortgagee, selling property already pledged, or mortgaged without written consent of mortgagee

1. 14.   A chattel mortgage may be foreclosed judicially or extra-judicially, in the latter case, before a notary or sheriff, or creditor or mortgagee when stipulated, even without need of notice (when mortgagee forecloses)

15.  Pactum Commissorium applies to Chattel Mortgage.