Code of Commerce

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.       universal

2. 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 contracts

2. 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 guardian

2. 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 solvency

2. 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 ACT1. 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 LAW1. 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 CREDIT1. 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 LAW1. 1.       It requires articles of commerce sold at retail to bear prices.

JOINT ACCOUNTS1. 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 LAW1. 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.

 INSURANCE LAW1. 1.       Laws applicable to insurance in the order of priority:

1. a.       Insurance Code

2. b.       Civil Code

3. c.       General Principles prevailing on the subject in the US

1. 2.       Contract of Insurance – an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an

unknown contingent event.

1. 3.       Contract of Suretyship – deemed to be an insurance contract within the

meaning of the Insurance Code, only if made by a surety who or which, as such, is

doing an insurance business

1. 4.       Definition of “doing an insurance business”:

1. a.       making or proposing to make, as insurer, any insurance contract;

2. b.       making or proposing to make as a surety, any contract of suretyship as a

vocation and not merely incidental to any other legitimate business or activity of

the surety;

3. c.       doing reinsurance business;

4. d.       doing or proposing to do any business in the substance equivalent to any

of the foregoing in a manner designed to evade the provisions of the Insurance

Code.

1. 5.       Requisites of Insurance:

1. a.       existence of an insurable interest;

2. b.       risk of loss;

3. c.       assumption of risk;

4. d.       scheme to distribute losses; and

5. e.       payment of premiums

Note:  If only a, b, and c are present, it is not a contract of insurance but a risk shifting

device.

1. 6.       Characteristics of an insurance contract:

1. a.       consensual

2. b.       voluntary

3. c.       aleatory – depends upon some contingent event; however, it is not a

wagering nor a gambling contract

4. d.       executed as to the insured after payment of the premium

5. e.       executory as to insurer – not executed until payment for a loss

6. f.         personal – each party takes into account the character, credit and the

conduct of the other

7. g.       conditional – liability is based on the happening of the event insured

against

1. 7.       Parties to a contract of Insurance:

1. a.       insurer – party who assumes the risk or undertakes to indemnify the

insured or to pay a certain sum on the happening  of a specified contingency

2. b.       insured – person in whose favor the contract is operative, and who is

indemnified against, or is to receive a certain sum upon the happening of a

specified contingency

3. c.       beneficiary – may or may not be the same as the insured

What perils may be insured?

(a)    any contingent or unknown event, whether past or future, which may damnify a

person having an insurable interest; or

(b)    any contingent or unknown event, whether past or future, which may create a

liability against the person insured.

1. 8.       Every person has an insurable interest in the life and health of:

1. a.       himself, his spouse and his children

2. b.       any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest

3. c.       any person under a legal obligation to him for the payment of money, or

respecting property or services, of which death or illness might prevent the

performance or delay it

4. d.       any person upon whose life any estate or any interest vested in him

depends

1. 9.       Insurable Interest in Property may consist of:

1. a.       an existing interest

2. b.       an inchoate interest, founded on an existing interest

3. c.       an expectancy, coupled with an existing interest out of which the

expectancy arises

Definition of Insurable Interest in Property: Interest in property, whether real or

personal, or any relation thereto, or liability in respect thereof, of such nature that a

contemplated peril might directly damnify the insured.

1. 10.   Instances when Insurable Interest must exist:

1. a.       Interest in Property insured must exist when the insurance takes effect

and when the loss occurs, but need not exist in the meantime.

2. b.       Interest in the Life or Health of a Person Insured must exist when the

insurance takes effect, but need not exist thereafter or when the loss occurs.

3. c.       Beneficiaries of Life Insurance need not have insurable interest in the life

of the insured.

4. d.       Beneficiaries of Property Insurance must have insurable interest in the

property insured.

Category

Insurable Interest in

Life Insurance

Insurable Interest in

Property

1.  basis

may be based on pecuniary interest, affinity, or consanguinity

based purely on pecuniary interest

2.  when interest must exist

at the time the policy takes effect EXCEPT:  life insurance taken by the creditor on the life of the debtor wherein interest must also exist at the time of the loss

at the time the policy takes effect and at the time of the loss

3.  amount of insurable interest

no limit EXCEPT:  if insurable interest is based on creditor-debtor relationship (only to the extent of the credit or debt)

limited to the actual value of damage/injury/loss

1. 11.   General Rule:  A change of interest in any part of a thing insured

unaccompanied by a corresponding change in interest in the insurance suspends the

insurance to an equivalent extent, until the interest in the thing and the interest in the

insurance are vested in the same person.

  Exceptions:  a.  In case of life, health, and accident insurance1. b.       when the change in interest results after the occurrence of an injury which

results in a loss

2. c.       a change of interest in one or more several distinct things, separately insured by

one policy

3. d.       a change in the interest by will or succession on the death of the insured

(interest passes to the heirs)

4. e.       a transfer of interest by one of several partners, joint owners in common who

are jointly insured to the others (even though it has been agreed that the insurance

shall seize upon the alienation of the thing insured)

1. 12.   Revocation of Beneficiaries

General Rule:  Insurance contracts are revocable.

Exception:  Any person who is forbidden to receive any donation under Article 739 of

the Civil Code cannot be named beneficiary of a life insurance policy by the person

who cannot make the donation to him.

The following donations shall be void:

1. a.       those made between persons who were guilty of adultery or concubinage at the

time of the donation;

2. b.       those made by persons found guilty of the same criminal offense, in

consideration thereof;

3. c.       those made to a public officer or his wife, descendants, ascendants, by reason of

his office.

Other Pertinent Provisions on Revocation:

(a)    The termination of a subsequent marriage shall allow the innocent spouse to

revoke the designation of the other spouse who acted in bad faith as beneficiary in any

insurance policy, even if such designation be stipulated as irrevocable.

(b)    After the finality of the decree of legal separation, the innocent spouse may revoke

the donations as well as the designation of the latter as a beneficiary in any insurance

policy, even if such designation is irrevocable.  The revocation of or change in the

designation shall take effect upon written notification thereof to the insured.  The action

to revoke the donation under this article must be brought within 5 years from the time

the decree of legal separation has become final.

(c)     The interest of a beneficiary in a life insurance policy shall be forfeited when the

beneficiary is the principal, accomplice or accessory in willfully bringing about the death

of the insured, in which event, the nearest relative of the insured shall receive the

proceeds of said insurance if not otherwise disqualified.

1. 13.   Suspension – a change of interest in any part of a thing insured unaccompanied

by a corresponding change of interest in the insurance suspends the insurance to an

equivalent extent until the interest in the thing and the interest in the insurance are

vested in the same person.

1. 14.   Concealment – a neglect to communicate that which the party knows or ought to

communicate

General Rule:  The insured is not required to communicate the nature (or kind) or the

amount of his insurable interest in the life or property insured to the insurer.

Exception:  a.  When the insurer makes inquiry from the insured of the nature or

amount of the latter’s insurable interest, whether in life or property insurance;

1. b.       insurance policy must specify the interest of the insured in the property insured,

if he is not the absolute owner thereof.

A concealment, whether intentional or not, entitles the injured party to rescind a

contract of insurance.

Requisites:

(a)    the party concealing must have knowledge of the facts concealed;

(b)    the facts concealed must be material to the risk;

(c)     the party is duty bound to disclose such fact to the other;

(d)    the party concealing makes no warranty as to the facts concealed;

(e)    the other party has no other means of ascertaining the facts concealed.

Note:  An insured need not die of the very disease he failed to reveal to the insurer.  It

is sufficient that the non-revelation has misled the insurer in forming his estimate of

the disadvantages of the proposed policy or in making his inquiries in order to entitle

the insurance company to avoid the contract.

Note:  The insured is under an obligation to disclose not only such material facts as are

known to him, but also those known to his agent where:

1. a.       it was the duty of the agent to acquire and communicate information of the

facts in question;

2. b.       it was possible for the agent, in the exercise of reasonable diligence, to have

made the communication before the making of the insurance contract.

n  Failure on the part of the insured to disclose such facts known to his agent, or wholly

due to the fault of the agent, will avoid the policy, despite the good faith of the insured.

1. 15.   Neither party to the insurance contract is bound to communicate information on

the following matters except in answer to the inquiries of the other:

1. a.       those of which the other knows;

2. b.       that which, in the exercise of ordinary care, the other ought to know and

of which the former has no reason to suppose his ignorance, i.e. political

situation, general usages of trade;

3. c.       those of which the other waives communication;

4. d.       those which prove or tend to prove the existence of the risk excluded by a

warranty and which are not otherwise material;

5. e.       those which relate to a risk excepted from the policy and which are not

otherwise material.

Neither party is bound to communicate his mere opinion, even upon inquiry, because

such opinion would add nothing to the appraisal of the application.

Waiver of material facts may be:

(a)    by the terms of the insurance; or

(b)    by the neglect to make inquiry as to such facts, where they are distinctly implied

in other facts which information is communicated

Materiality is to be determined not by the events but solely upon the probable and

reasonable influence of the facts on the party to whom the communication is due in

forming his estimate of the disadvantages of the proposed contract or in making his

inquiries.

Concealment, whether intentional or not, entitles the other party to rescind the

contract.

1. 16.   Representation

It is a factual statement made by the insured at the time of, or prior to, the issuance of

the policy, to give information to the insurer and otherwise induce him to enter into the

insurance contract.

It may be made orally or in writing.

It may be made at the time of, or before, the issuance of the policy.

It may be altered or withdrawn before the insurance is effected, but not afterwards.

A representation cannot qualify an express provision in a contract of insurance but it

may qualify an implied warranty.

A representation as to the future is to be deemed a promise unless it appears that it

was merely a statement of belief or an expectation.  (must be susceptible of present,

actual knowledge)

The statement of an erroneous opinion, belief or information, or of an unfulfilled

intention, will not avoid the contract of insurance, unless fraudulent.

Right to rescind because of false representation:

1. a.       must be exercised previous to the commencement of an action on the contract

(the action referred to is that to collect a claim on the contract)

2. b.       misrepresentation, whether intentional or not, gives the right to rescind

Incontestable Clause:  After a policy of life insurance made payable on the death of

the insuredshall have been in force during the lifetime of the insured for a period of 2

years from the date of its issue or of its last reinstatement, the insurer cannot prove

that the policy is void ab initio or is rescindable by reason of the fraudulent

concealment or misrepresentation of the insured or his agent.

Exceptions:  (a)  absence of insurable risk

(b)    cause of loss is an unexpected risk

(c)     fraud

(d)    non-payment of premium

(e)    violation of conditions relating to naval or military services

(f)      failure to comply with conditions subsequent to the occurrence of the loss

1. 17.   Warranties:

General Rule: Non-performance of a promissory warranty avoids a contract of

insurance.

Exceptions:

1. a.       when before the time for performance of the promissory warranty, a loss

insured against occurs;

2. b.       when before the time of the performance of the warranty, the act becomes

unlawful;

3. c.       when before the time of the performance of the warranty, said performance

becomes impossible.

A statement or a promise set forth in the policy or by reference incorporated therein,

the non-fulfillment of which in any respect and without reference to whether the

insurer was in fact prejudiced by such non-fulfillment, renders the policy voidable by

the insurer, wholly irrespective of the materiality of such statement or promise.

Warranty Representation

part of the insurance contract collateral inducement

always written on the policy maybe oral or written

conclusively presumed material materiality must be proved

must be strictly complied with requires substantial truth

made by the insured may be made by insurer or insured

Note:  If there is a breach of warranty, even if the cause of the loss is a different risk,

the insurer is entitled to rescind the contract of insurance.

Breach must refer to a material warranty, whether intentional or not.

1. 18.   Policy

What is a Rider?  It is an additional provision in a policy not part of the body of the

printed form.

Cover Note: written memorandum of the most important terms of a preliminary

contract of insurance, intended to give temporary protection pending the investigation

of the risk by the insurer, or until the issuance of a formal policy.

General Rule: Cover notes bind insurer temporarily pending the issuance of the policy.

Exception:  Where it is merely an acknowledgment on behalf of the company that the

latter’s branch office had received from the applicant the insurance premium and

accepted the application subject for processing by the insurance company and that

the latter will either approve or reject the same.

Kinds of Policies:

1. a.       Open – the value of the thing insured is not agreed upon, but is left to be

ascertained at the time of the loss

2. b.       Valued – expresses on its face an agreement that the thing insured shall be

valued at a specific sum

3. c.       Running – contemplates successive insurance which provides that the object of

the policy may be from time to time defined especially as to the subject of insurance

by additional statements or endorsements

n  Note:  If an amount is written on the face of an open policy, it is merely a

determination of the maximum limit of recovery and not as the value of the policy.

Category Open Policy Valued Policy

what needs to be proven in order to be able to claim value of property upon loss

no need for proof of value of property upon loss

determining value of lossvalue of property is to be ascertained upon loss

value of property upon loss is conclusively stipulated to a specified amount

Period for commencing an action against the policy:  Within 1 year from the time the

cause of action accrues, i.e., from the time of rejection of the claim by the insurer. 

Any condition, stipulation, or agreement limiting the time to less than 1 year is void.

Grounds for Cancellation of a Policy by the Insurer:

For Policies Other than Life:

(1)    prior notice of the cancellation to insured

(2)    notice must be based on the ff. occurrences after effective date of the policy

(a)    non-payment of premiums

(b)    conviction of a crime arising out of acts increasing the hazard insured against

(c)     discovery of fraud or material misrepresentation

(d)    discovery of willful or reckless acts or omissions increasing the hazard insured

against

(e)    physical changes in the property insured which results in the property becoming

uninsurable

(f)      determination by the Commissioner that the continuation of the policy would

violate or would place the insurer in violation of the Insurance Code

(3)    notice must be in writing

(4)    it must be mailed or delivered to the insured at the address shown in the policy

(5)    notice must state the ground relied upon and that upon written request of the

insured, the insurer will furnish facts on which the cancellation is based

Renewal of the Policies Other than Life:

Insurer must mail or deliver to the insured notice of its intention not to renew the policy

or to condition its renewal upon reduction of limits or elimination of coverages within 45

days before the policy ends.  Otherwise, insured entitled to renew the policy upon

payment of the premium due on the effective date of the renewal.1. 19.   Premium

General Rule: No policy is binding until the premium thereof has been paid.

Exceptions:  (a)  in case of life or industrial life policy, whenever the grace period

applies

(b)    in case of estoppel

Insurer is entitled to payment of premiums as soon as the thing insured is exposed to

the perils insured against.

When insurer entitled to Return of Premiums

1. a.       when the contract is voidable on account of fraud or misrepresentation of the

insurer;

2. b.       when on account of facts, the existence of which the insured was ignorant

without his fault

3. c.       when by any default of the insured other than actual fraud, the insurer never

incurred any liability under the policy

4. d.       when the insured has become a public enemy and the policy automatically

canceled (on the ground of equity)

5. e.       in case of over-insurance by several insurers (ratable return of premiums,

proportioned to the amount by which the aggregate sum insured in all policies exceed

the insurable value of the thing at risk)

1. 20.   Loss

When Insurer is Liable:

1. a.       where the peril insured against was the proximate cause, although a peril not

contemplated by the contract may have been the remote cause or even the

immediate cause of the loss

2. b.       where the thing insured is rescued from the peril insured against that would

otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to

a peril not insured against, which permanently deprives the insured of its possession

in whole or in part

3. c.       where loss is caused by efforts to rescue the thing insured from a peril insured

against

4. d.       insurer is not exonerated by a loss caused by simple negligence of the insured if

the proximate cause of the loss is a peril insured against

5. e.       loss, the immediate cause of which is a peril insured against except when the

proximate cause is an excepted peril

When Insurer Not Liable:

1. a.       where the peril insured against was only a remote cause

2. b.       where the peril is specifically excepted, a loss which would not have occurred

but for such peril is thereby excepted

3. c.       loss caused by the connivance of the insured

4. d.       loss caused by the willful act of insured

5. e.       loss caused by insured’s negligence, if it amounts to bad faith

General Rule: The insurer is not liable for a loss caused by the willful act of the

insured.

Exception:  Suicide Clause in Life Insurance: Insurer liable in case insured committed

suicide after the policy has been in force for a period of 2 years from the date of its

issue or last reinstatement.  If insured kills himself within a period of 2 years, insurer is

not liable.

Exception to Exception:  If suicide is committed in a state of insanity, regardless of the

time of commission, the insurer is liable.

1. 21.   Double Insurance – exists where the same person is insured by several insurers

separately in respect to the same subject and interest

Requisites:  a.    person insured must be the same

1. b.       existence of several insurers

2. c.       subject matter insured must be the same

3. d.       interest the same

4. e.       risk insured against also the same

Over Insurance Double Insurance

may be only one insurer must be 2 or more insurers

insurance covers more than the value of insurable interest

insurance may or may not exceed the value of insurable interest

The Code prohibits double insurance without the consent of the insurer.

Liability of Insurer:

Insurance taken

from each insurer

———————————-   x      value of property received      =   liability of insurer total

insurance

1. 22.   Reinsurance:  A process by which an insurer procures a third person to insure him

against loss or liability by reason of such original insurance.

The original insured cannot recover from this insurance unless there is a specific grant,

or assignment of, the reinsurance contract in favor of the insured, or a manifest

intention of the contracting parties to the reinsurance contract to favor the insured.

General Rule:  The insurer who obtains reinsurance must communicate:

1. a.       all the representations of the original insured; and

2. b.       all the knowledge and information he possesses, whether previously or

subsequently acquired which are material to the risk

Exception:  under automatic reinsurance treaties

Reinsurance Double Insurance

1. 1.       insurer becomes the insured

2. 2.       subject matter is the insured

risk or liability

3. 3.       different risks and interests of

insured

4. 4.       there must be consent of

original

5. 5.       one who is original insured has

no interest in the contract of

reinsurance which is independent of

the original contract of insurance

6. 1.       insurer remains the insurer

7. 2.       subject matter is property

8. 3.       the same interest and risk are

insured

9. 4.       insured has to give his consent

10. 5.       insured is the party in interest

in all contracts

1. 23.   Marine Insurance:  insures against perils of the sea, not of the ship

Perils of the Sea Perils of the Ship

covered by marine insurance not covered by marine insurance

denote nature accidents peculiar to the sea which do not happen by intervention of man nor are to be prevented by human prudence

damage or losses resulting from:

1. 1.       natural and inevitable action of

the sea

2. 2.       ordinary wear and tear of a

ship, or

3. 3.       negligent failure of the ship

owner to provide the vessel with

proper equipment to convey the

cargo under ordinary conditions

Owner of the Ship has Insurable Interest:

1. a.       in the ship even if it has been chartered by one who promises to pay him in

value in case of loss (insurer is liable for what insured cannot recover from the

charterer), even when hypothecated by bottomry (only the excess of its value over the

amount secured by bottomry) and

2. b.       in the freightage, which according to the ordinary and probable course of things

he would have earned but for the intervention of a peril insured against or other peril

incident to the voyage

Charterer has insurable interest in the ship to the extent that he is liable to be

damnified by its loss.

Barratry:  Any willful misconduct on the part of the masters or crew, in pursuance of

some unlawful or fraudulent purpose, without the consent of the owners and to the

prejudice of the owner’s interest.

Jettison:  Intentional casting overboard of any part of a venture exposed to a peril,

whether it be of the cargo, or the ship’s furniture or tackle, in the hope of saving the

rest of the venture.

Insurable Interest in Marine Insurance:  Determined when one will sustain loss from

the destruction of the subject matter or derive benefit from its preservation.

Charter Party:  Contract by virtue of which the owner or the agent of a vessel binds

himself to transport merchandise or persons for a fixed price.  It has also been defined

as a contract by virtue of which the owner or the agent of the vessel for the

transportation of goods or persons from one port to another.

Loan on Bottomry:  Contract in the nature of a mortgage whereby the owner of a ship

borrows money for the use, equipment or repair of the vessel for a definite term, and

pledges the ship as a security for repayment, with maritime or extraordinary interest

on the account of the maritime risks to be borne by the lender.  It is stipulated in such

a contract that if the ship be lost in the course of the specific voyage or during a

specified limited time caused by any of the perils enumerated in the contract, the

lender shall resolutely lose his money.

Loan on Respondentia:  Contract akin to that of mortgage made on the goods on

board the ship, and which are to be sold or exchanged in the course of the voyage. 

The goods serve as the principal security.

Freightage:  Signifies all the benefits derived by the owner, carriage of his own goods,

or those of others.

Concealment:  In marine insurance, information or the belief or expectation of a

3rd person, in reference to a material fact is material.

n  Concealment of the following merely exonerates the insurer from the resulting loss

therefrom:

1. a.       national character of the insured

2. b.       liability of the thing insured to capture and detention

3. c.       liability to seizure from breach of foreign laws of trade

4. d.       want of necessary documents

5. e.       use of false and simulated papers

Implied Warranties:

1. a.       that the ship is seaworthy – complied with if the ship is seaworthy at the time of

commencement of risk, except:  (a)  insurance for a specified length of time – at the

commencement of every voyage it undertakes during that time; (b) cargo to be

transshipped at indeterminate port – each vessel upon which cargo is shipped is

seaworthy at the commencement of each particular voyage

2. b.       that the vessel shall not engage in illegal venture

3. c.       that the vessel shall not deviate from the course of the voyage insured

4. d.       where the nationality or neutrality of a ship or cargo is expressly warranted, it is

implied that the ship will carry the requisite documents to show such nationality or

neutrality and that it will not carry any documents which may cast reasonable

suspicion thereon

Seaworthiness depends on:

1. a.       nature of the ship

2. b.       nature of the voyage

3. c.       nature of the service

n  Seaworthiness of the vessel is required only at the commencement of the risk

n  Exceptions:

1. a.       in a Time Policy – commencement of every voyage that must be undertaken

2. b.       in a Cargo Policy – commencement of each particular voyage

3. c.       in a Voyage Policy – commencement of each portion of the voyage

Deviation

1. a.       a departure from the course of the voyage insured

2. b.       unreasonable delay in pursuing the voyage

3. c.       commencement of an entirely different voyage

When is Deviation proper?

1. a.       when caused by circumstances over which neither the master not the owner of

the ship has any control

2. b.       when necessary to comply with a warranty or to avoid a peril whether it is

insured against or not

3. c.       when made in good faith for the purpose of saving human life or relieving

another vessel in distress

4. d.       when made in good faith and upon reasonable grounds of belief in its necessity

to avoid a peril

Loss

1. a.       Actual Total Loss

n  a total destruction of the thing insured

n  the irretrievable loss of the thing by sinking or by being broken up

n  any damage to the thing which renders it valueless tot he owner for which he held it

n  any other event which effectively deprives the owner of possession, at the port of

destination, of the thing insured

1. b.       Constructive Total Loss – gives to the person insured the right to abandon

Average – any extraordinary or additional expense incurred during the voyage for the

preservation of the vessel, cargo, or both and all damages to the vessel and cargo

from the time it is loaded and the voyage commenced until it ends and the cargo

unloaded

General Average – an expense or damage suffered deliberately in order to save the

vessel, its cargo, or both from the real or known risk

Abandonment – act of the insured by which, after a constructive total loss, he declares

the relinquishment to the insured of his interest in the thing insured (where the cause

of loss is a peril insured against)

(a)    more than ¾ thereof in value is actually lost or would have been expended to

recover it from the peril

(b)    it is injured to such an extent as to reduce its value by more than ¾

(c)     if the thing insured is the ship and the voyage cannot be lawfully performed

without incurring an expense of more than ¾ of the whole, or a risk which a prudent

man would not undertake under the circumstances

(d)    if the thing insured is cargo or freightage, and the voyage cannot be performed on

another ship procured by the master within a reasonable time and with reasonable

diligence to forward the cargo without incurring an expense or a risk as stated above

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:

1. a.       must be total and conditional

2. b.       made within a reasonable time

3. c.       explicit notice

4. d.       coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

1. a.       insured must have interest at risk

2. b.       there must be no fraud on the insured’s part

Notice of Abandonment:

1. a.       may be oral or in writing (if oral, written notice must be submitted within 7 days

from oral notice)

2. b.       must be explicit

3. c.       must specify the particular cause for abandonment

4. d.       need not be accompanied by proof of interest or loss

Acceptance of Abandonment

1. a.       may be express or implied (i.e. silence for unreasonable length of time)

2. b.       conclusive upon the parties and admits the loss and sufficiency of abandonment

3. c.       irrevocable, unless the ground on which it is made is proved to be unfounded

If insurer refuses to accept a valid abandonment – liable as upon actual total loss

Upon actual abandonment

1. a.       freightage earned before loss – belongs to the insurer of freightage

2. b.       freightage earned after loss – belongs to insurer of ship

Co-insurance:  form of insurance in which the person who insures his property for less

than the entire value is understood to be his own insurer for the difference which

exists between the true value of the property and the amount of insurance

Co-insurance applies only where the:

1. a.       insurance taken is less than the actual value of the thing insured

2. b.       loss is partial

Primage – increase in freightage

1. 24.   Fire Insurance

Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the

place where it was intended to burn and ought to be in) and not that caused by friendly

fire (fire which burns in a place where it is intended to burn).

Scope of Fire Insurance:

1. a.       fire

2. b.       lightning

3. c.       windstorms

4. d.       tornado

5. e.       earthquake

6. f.         other allied risks

When does alteration in the use or condition entitle the insurer to rescind the

contract?

1. a.       such alteration violates a provision in the policy

2. b.       it was made without the insurer’s consent

3. c.       it is done within the insured’s control, and it increases the risk of loss or damage

Rules:

1. a.       policy shall not protect the insured from injury consequent upon his negligent

use or management of fire, so long as it is confined to the place where it ought to be

2. b.       if it escapes, even though the insured was negligent, the insurer is liable

3. c.       even though a fire may remain in its proper place, it may become hostile if it by

accident, becomes so extensive as to be beyond control

Options of the Insurer

1. a.       purchase the property at appraised valuation

2. b.       restore the property damaged – contract of insurance is discharged and parties

enter into a new contract of insurance

1. 25.   Casualty Insurance:  Any injury that is intended, unexpected and unusual, even

though it results from an act or even which was intelligently done.

Insurer is Liable for death/injury to insured:

1. a.       by his own hand while insane

2. b.       by taking poison by mistake

3. c.       by overdoes of drugs administered or taken by mistake, by ignorance or

material pathological conditions

4. d.       by unexpected bacterial infection consequent upon doing acts, even though

such acts were intentionally done

5. e.       by unprovoked violence of others

Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

1. a.       motor vehicle owner or one who is the actual legal owner of a motor vehicle in

whose name such vehicle is registered with the LTO

2. b.       land transport operator or one who is the owner of a motor vehicle or vehicles

being used for conveying passengers for compensation (including school buses)

No Fault Indemnity Clause:  The insurance company shall pay any claim for death or

bodily injuries sustained by a passenger or 3rd party without the necessity of proving

fault or negligence of any kind subject to certain conditions.  This does not apply to

property damage.

1. 26.   Suretyship – an agreement whereby the surety guarantees the performance of

the principal or obligor of an obligation or undertaking in favor of a 3rd party called the

obligee

1. 27.   Life Insurance:  an insurance in human life and insurance appertaining thereto or

connected therewith may be payable:

1. a.       on the death of the insured

2. b.       on his surviving a specified period

3. c.       otherwise, contingently on the continuance or cessation of life

(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:

1. a.       Whole Life or Ordinary Policies – here, the insured agrees to pay annual, semi-

annual or quarterly premiums while he lives.  The insurer agrees to pay the face value

of the policy upon the death of the insured.

2. b.       Limited Payment Life Policy – premiums paid only for a specified period of years.

3. c.       Term Policy – insurer’s liability arises only upon the death of the insured within

the agreed term as period.  If the latter survives the period, the contract terminates

and the insurer is not liable

4. d.       Endowment Policy – insurer agrees to pay a certain sum to the insured if the

latter outlives a designated period; if he dies before that time, the proceeds are paid

to the beneficiary

5. e.       Life Annuity – debtor binds himself to pay an annual pension or income during

the life of one or more persons in consideration of a capital consisting of money or

other property, whose ownership is transferred to him with the burden of income

1. 28.   The Business of Insurance

1. a.       Life or Endowment Policies

Grace Period – 30 days for the payment of any premium due after the first premium has

been paid

Period of Incontestability – after the lapse of 2 years from the date of issue or date of

approval of last reinstatement

Reinstatement of Policy – within 3 years from the date of default of premium, upon:

1. a.       production of evidence of insurability, and

2. b.       payment of all overdue premiums and any indebtedness to the company upon

said policy

Exceptions:

1. a.       if cash surrender value has been paid

2. b.       if period of extension has expired

1. b.       Claims Settlement

Unfair Claims Settlement Practices:

(a)    knowingly misrepresenting to claimants pertinent facts or policy provisions relating

to coverage at issue

(b)    failing to acknowledge with reasonable promptness pertinent communications with

respect to claims arising under its policies

(c)     failing to adopt or implement reasonable standards for the prompt investigation of

claims arising under its policies

(d)    no attempt in good faith to effectuate prompt, fair and equitable settlement of

claims submitted in which liability has become reasonably clear

(e)    compelling policy holders to institute suits to recover the amount due under its

policies by offering with no justifiable reason an amount substantially less than that

ultimately recovered in suits brought by them

Proceeds of Life Insurance – payable within 60 days after:

(a)    presentation of claims, and

(b)    filing of proof of death (upon failure to pay interest, at the rate of 2 times the

ceiling prescribed by the Monetary Board unless based on the ground that the rate is

fraudulent)

Proceeds of Policies other than Life – payable:

(a)    upon proof of loss

(b)    upon ascertainment of loss or damage (if not made within 60 days of proof of loss,

payable in 90 days)

1. c.       Power of Commissioner to Suspend/Revoke License

(a)    if insurance contract is in unsound condition

(b)    if it has failed to comply with the provisions of law or regulations obligatory upon it

(c)     its conditions or methods of business s such as to render its proceedings

hazardous to the public or to its policy holders

(d)    that its paid up capital stock, or its available cash assets, or its security deposits,

as the case may be, is impaired or deficient

(e)    that the margin of solvency required of each company is deficient

Insurance Agent – any person who for compensation solicits or obtains insurance on

behalf of any insurance company or transacts for a person other than himself an

application for a policy or contract of insurance to or from such company or offers or

assumes to act in negotiating of such insurance.  He must be first licensed as such

before doing any acts as insurance agent.

Insurance Broker – any person for any compensation, commission or any other thing of

value, acts, or aids in any manner in soliciting, negotiating or procuring the making of

any insurance contract or in placing risk or taking out insurance, on behalf of an insured

other than himself.  A license is required.

 WAREHOUSE RECEIPTS LAW1. 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; or

2. 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 goods

2. 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 Receipt

Prior 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 Receipt

When 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 Law1. 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 Law1. 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 will

2. 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 incurred

2. 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 customs

2. 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 Towage

crew 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 Act1. 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 Convention1. 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

Convention

loss/damage apparent

protest at time of receipt of goods

protest at time of receipt of goods

loss/damage not apparent

protest within 3 days from delivery

protest within 24 hours after receipt

damage of baggageprotest within 3 days from receipt

damage of goodswithin 7 days from receipt

delaywithin 21 days from receipt

 Public Service Act1. 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

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

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 Law1. 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 Shares1. 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-laws

2. 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 projects

2. 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 corporation

2. 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 securities

2. 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 Deposits1. 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

Copyright1. 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.

 Patents1. 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 creations

2. 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 publication

2. 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

applicant

2. 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 Insolvency

debtor has enough assets to meet liabilities but cannot meet them as they fall due debtor has more liabilities than assets

always initiated by debtorinitiated 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 Law1. 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 applies1. 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.

Reference:

Commercial Law Memory Aid

Ateneo Central Bar Operations 2001