2014 mercantile quick reviewer (1)

8/10/2019 2014 Mercantile Quick Reviewer (1)

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2014 Mercantile Law Quick ReviewerCovers 81 Specific Topics

Corporation Law (B !8"

6 questions

1. By-laws; validity; qualifications of BOD members

B#$lawsare rules and ordinances made by a corporation for its own

government; to regulate the conduct and define the duties of thestocholders or members towards the corporation and among

themselves. !hey are rules and regulations or private laws

enacted by the corporation to regulate" govern and control itsown actions" affairs and concerns and its stocholders or

member and directors and officers with relation thereto andamong themselves in their relation to it.

%ali&it#;

#f adopted subsequent to incorporation$

#t must be adopted within one %1& month after receipt ofofficial notice of the issuance of its certificate of incorporation by

the '(); with an affirmative vote of the stocholdersrepresenting at least a ma*ority of the outstanding capital stoc"or of at least a ma*ority of the members in case of non-stoc

corporations.

+ copy thereof" duly certified to by a ma*ority of the directors or

trustees countersigned by the secretary of the corporation" mustbe filed with the '() which shall be attached to the original

articles of incorporation.

)ertification of the appropriate government agency concerned tothe effect that such by-laws or amendments are in accordancewith law.


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'irectors Trustees; qualifications

Directors must own at least one %1& share. !rustees must be

members ma*ority of whom must be residents.

Disqualifications:

)onviction by final *udgment of an offense punishable period

e,ceeding si, %6& years" or a violation of this )ode committedwithin five %& years prior to the date of election or appointment.

Other disqualifications under applicable special laws.

!hose which may be included in the by-laws

2) Separate *uri&ical personalit# of Corporations

Corporate +ntit#!he corporation is possessed with a personality separate and distinct

from the individual stocholders or members.

,) iercin- t.e corporate veil

)ontrol must have been used by the defendant to commit fraud or

wrong.

questions

1) /ntra$corporate Controvers#

/TR$CRRT+ CTR%+RS/+S (Sec) 3 56 of ' 702$"

#ntra-corporate controversies include those of corporations" partnerships andassociations.

(lements of intra-corporate controversies$

1. +n intra-corporate relationship$

a. Between and among the stocholders" members" associates of acorporation" partnership or association;

b. Between them and the corporation" partnership or association;or

c. Between the corporation" partnership or association and the

'tate.. !he controversy must arise out of said relationship.


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!he dispute among the parties must be intrinsically connected with theregulation of the corporation. #f the nature of the controversy involves

matters that are purely civil in character necessarily the case does notinvolve an intra-corporate controversy.

!he factor which decides whether the action is within the *urisdiction of the

'pecial )ommercial )ourts is that the controversy arose out of an intra-corporate relation between and among the parties.

!he filing of the civil/intra-corporate case before the '() does not precludethe simultaneous and concomitant filing of a criminal action before the

regular courts; such that" a fraudulent act may give rise to liability forviolation of the rules and regulations of the '() cogni0able by the '() itself"

as well as criminal liability for violation of the evised 2enal )ode cogni0able

by the regular courts" both charges to be filed and proceeded independently"and may be simultaneously" with the other.

2) 'eclaration of 'ivi&en&s

Dividends can only be declared out of unrestricted retained earnings.

3eneral rule$ 'toc corporations are prohibited from retaining surplus profits

in e,cess of 1445 of their paid-in capital stoc.

(,ceptions$

1. hen *ustified by definite corporate e,pansion pro*ects or programsapproved by the board of directors; or

. hen the corporation is prohibited under any loan agreement with

any financial institution or creditor" whether local or foreign" fromdeclaring dividends without its/his consent" and such consent has not

yet been secured; or

7. hen it can be clearly shown that such retention is necessary underspecial circumstances obtaining in the corporation" such as when there

is need for special reserve for probable contingencies.

!he *udgment of the board of directors in the matter of declaring dividendsis conclusive e,cept when they act in bad faith" or for a dishonest purpose or

act fraudulently" oppressively" unreasonably or un*ustly or abuse ofdiscretion can be shown so as to impair the rights of the complaining

stocholders to their *ust proportion of corporate profits.

Directors are not liable for declaration of dividend contrary to law" unless

attended with bad faith" gross negligence or willful and nowing assent.


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!he essential test of bad faith is to determine if the policy of the directors isdictated by their personal interest rather than the corporate welfare.

,) Sale an& Transfer of Certificates of Stock

SL+ ' TRS+R C+RT//CT+S STC9S

Only )lose )orporations are required to sub*ect their shares to specified

restrictions.

:eneral rule$ estrictions or preferences must be contained in thearticles of incorporation and in all stoc certificates to be issued by the

corporation.

+;ception$ #n close corporations" such restrictions and preferences mustalso be embodied in the by-laws.

TRS+R CL


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7 questions1) /nterlockin- 'irectors

'ec. 77. )ontracts between corporations with interlocing directors. -

(,cept in cases of fraud" and provided the contract is fair and reasonable

under the circumstances" a contract between two or more corporationshaving interlocing directors shall not be invalidated on that ground alone$

2rovided" !hat if the interest of the interlocing director in one corporation issubstantial and his interest in the other corporation or corporations is merely

nominal" he shall be sub*ect to the provisions of the preceding section

insofar as the latter corporation or corporations are concerned.'tocholdings e,ceeding twenty %45& percent of the outstanding capital

stoc shall be considered substantial for purposes of interlocing directors.

+ director who owns a substantial interest in one corporation dealing with

another where he has a nominal interest is a regarded as a self-dealingdirector in so far as the latter corporation is concerned.

2) /ncorporation re=uire>ents

2rocess of incorporation$

1. Drafting the articles of incorporation

. 2reparation and submission of additional and supporting documents

7. 9iling with the '()

:. 'ubsequent issuance of certificate of incorporation

)ontents of the articles of incorporation

1. 8ame

. 2urpose

7. 2rincipal office

:. !erm

. #ncorporators

6. 8umber of directors/trustees

. 8ames" nationalities and residences of directors/trustees


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14. 'uch other matters not inconsistent with law and which the incorporatormay deem necessary and convenient

11. !reasurer>s certificate

CRRT+ M+

+ corporation has an e,clusive right to the use of its name" which may beprotected by in*unction upon a principle similar to that upon which persons

are protected in the use of trademars and trade names.

#n determining the e,istence of confusing similarity in corporate names" thetest is whether the similarity is such as to mislead a person using ordinary

care and discrimination. 2roof of actual confusion need not be shown. #tsuffices that confusion is probably or liely to occur.


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/CRRTRS+ny number of natural persons not less than five %& but not more than

fifteen %1&" all of legal age and a ma*ority of whom are residents of the2hilippines" may form a private corporation for any lawful purpose or

purposes. (ach of the incorporators of a stoc corporation must own or be a

subscriber to at least one %1& share of the capital stoc of the corporation.

3eneral rule$ Only natural persons can be incorporators.

(,ception$ )ooperatives and corporations primarily organi0ed to holdequities in rural bans.

T?+ '/R+CTRSATR


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this )ode committed within five %& years prior to the date of electionor appointment.

. Other disqualifications under applicable special laws.

+ by-laws may validly provide that no person may be elected as director

unless he owns a specified number of shares required for the directoratequalification.

#t may liewise disqualify a stocholder from being elected into office if he

has a substantial interest in a competitor corporation to avoid any possible

adverse effects of conflicting interest of a director.

#n order to be eligible as a director" what is material is the legal title to" not

beneficial ownership" of the stoc as appearing on the boos of the

corporation.

#f no election is conducted or no qualified candidate is elected" the

incumbent director shall continue to act as such in a hold over capacity untilthe election is held and a qualified candidate is so elected.

C/TL/T/

ut.oriDe& capital @ the ma,imum amount fi,ed in the articles to be

subscribed and paid-in or secured to be paid by the subscribers.

Su5scri5e& capital stock@ the total number of shares and its total value

for which there are contracts for their acquisition or subscription.

'tocs shall not be issued for a consideration less than the par or issued

price thereof.

'tocs shall not be issued in e,change of promissory notes or future

services.

Shares of stock and their classification

'hares of stoc designate the interest or right which the stocholder has inthe management of the corporation" and in the surplus profits and" in case of

distribution" in all assets remaining after the payment of its debts.

'toc certificate is a document or instrument evidencing the interest of a

stocholder in the corporation.


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(,cept as otherwise provided in the articles of incorporation and stated inthe certificate of stoc" each share shall be equal in all respects to every

other share.

Purpose of classification$1. !o specify and define the rights and privileges of the stocholders.

. 9or regulation and control of the issuance of sale of corporatesecurities for the protection of purchasers and stocholders.

7. +s a management control device.

:. !o comply with statutory requirements.

. !o better insure return on investment.

6. 9or fle,ibility in price.

Common and preferred shares

Co>>on stock@ a stoc which entitles its owner to an equal pro-ratadivision of profits" if there be any" but without any preference or advantage

in that respect over any other stocholder or class of stocholders.

referre& stock@ a stoc that gives the holder a preference over theholder of common stocs with respect to the payment of dividends and/or

with respect to distribution of capital upon liquidation.

2referred shares are presumed to be non-participating.


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Limitations on preferred stock:

1. Aust be issued with a stated par value; and

. !he preferences must be stated in the articles of incorporation andin the certificate of stoc" otherwise" each share shall be" in all respect"

equal to every other share.

articipatin- preferre& s.ares@ the holders thereof are still given theright to participate with the common stocholders in dividends beyond their

stated preference.

Cu>ulative preferre& s.are @ those that entitle the owner thereof to

payment not only of current dividends but also bac dividends not previouslypaid whether or not" during the past years" dividends were declared or paid.

#n absence of e,press stipulation" preferred shares are presumed to be non-cumulative.

on$cu>ulative preferre& s.ares@ those which grant the holders of such

shares only to the payment of current dividends but not bac dividends"

when and if dividends are paid" to the e,tent agreed upon before any otherstocholders are paid the same.

!ypes$

1. 'iscretionar# &ivi&en& t#pe@ gives the holder of such shares theright to have dividends paid thereon in a particular year depending

on the *udgment or discretion of the board of directors.

. Man&ator# if earne& t#pe@ impose a positive duty on directors to

declare dividends every year when profits are earned.

7. +arne& cu>ulative or &ivi&en& cre&it@ gives the holder thereofthe right to arrears in dividends if there were profits earned during the

previous years but dividends were not declared.

Par and no par value shares - those whose values are fi,ed in the articlesof incorporation which cannot be issued nor sold by the corporation at less

than par.


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o par value s.ares@ those whose issued price are not stated in the

certificate of stoc but which may be fi,ed in the articles of incorporation" orby the board of directors when so authori0ed by the said articles or by the

by-laws" or in the absence thereof" by the stocholders themselves.

Limitations of no par value shares:

1. 'uch shares" once issued" are deemed fully paid and thus" non

assessable;

. !he consideration for its issuance should not be less than 2.44;

7. !he entire consideration for its issuance constitutes capital" hence"

not available for dividend declaration;

:. !hey cannot be issued as preferred stoc; and

. !hey cannot be issued by bans" trust companies" insurancecompanies" public utilities and building and loan associations.

Voting and non-voting shares

%otin- s.ares@ gives the holder thereof the right to vote and participate in

the management of the corporation through the e,ercise of such right" eitherat the election of the board of directors" or in any manner requiring the

stocholders approval.

on$votin- s.ares@ do not grant the holder thereof the right to vote

e,cept under the penultimate paragraph of 'ec. 6.

8on-voting shares shall nevertheless be entitled to vote on the

following matters$1. +mendment of the articles of incorporation;

. +doption and amendment of by-laws;

7. 'ale" lease" e,change" mortgage" pledge or other disposition

of all or substantially all of the corporate property;

:. #ncurring" creating or increasing bonded indebtedness;

. #ncrease or decrease of capital stoc;

6. Aerger or consolidation of the corporation with another

corporation or other corporations;


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. #nvestment of corporate funds in another corporation orbusiness in accordance with this )ode; and


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'ec. 1. Ainimum capital stoc required of stoc corporations. - 'toccorporations incorporated under this )ode shall not be required to have any

minimum authori0ed capital stoc e,cept as otherwise specifically providedfor by special law" and sub*ect to the provisions of the following section.

'ec. 17. +mount of capital stoc to be subscribed and paid for the purposesof incorporation. - +t least twenty-five percent %5& of the authori0ed

capital stoc as stated in the articles of incorporation must be subscribed at

the time of incorporation" and at least twenty-five %5& per cent of thetotal subscription must be paid upon subscription" the balance to be payable

on a date or dates fi,ed in the contract of subscription without need of call"or in the absence of a fi,ed date or dates" upon call for payment by the

board of directors$ 2rovided" however" !hat in no case shall the paid-up

capital be less than five !housand %2"444.44& pesos.

,) 'erivative SuitsE re=uisites

'uits that stocholders may bring against erring directors or officers$

1. /n&ivi&ual or personal suit@ one brought by the shareholders fordirect in*ury to his rights" such as denial of his right to inspect

corporate boos and records or pre-emptive right;

. Representative of class suit- ; and

7. 'erivative suit@ an action based on in*ury to the corporation @ toenforce a corporate right @ wherein the corporation is *oined as a

necessary party" and recovery is in favor of the corporation.

#n a derivative suit" the in*ury complained of is primarily to the corporation"

so that the suit for the damages claimed should be by the corporation rather

than by the stocholders. !he stocholders may not directly claim thosedamages for themselves for that would result in the appropriation by" and

the distribution among them of part of the corporate assets before thedissolution of the corporation and the liquidation of its debts and liabilities.

RulesE re=uire>ents an& proce&ureso that a derivative suit may proceed

or prosper$

1. !he party bringing the action should be a stocholder as of the timethe act or transaction complained of too place" or whose shares have

evolved upon him since by operation of law. !his rule" however" does

not apply if such act or transaction continues and is in*urious to the


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stocholder or affects him specifically in some other way. !he numberof shares is immaterial.

. ?e has tried to e,haust intra-corporate remedies" i.e. he has made

a demand on the board of directors for the appropriate relief but thelatter had failed or refused to heed his plea. Demand" however" is notrequired if the company is under the complete control of the directors

who are the very ones to be sued %or where it becomes obvious that ademand upon them would have been futile and useless& since the law

does not require a litigant to perform useless acts.

7. !he stocholder bringing the suit must allege in his complaint that

he is suing on a derivative cause of action on behalf of the corporationand all other stocholders similarly situated" otherwise" the case is

dismissible.

:. !he corporation should be made a party" either as party-plaintiff or

defendant" in order to mae the court>s *udgment binding upon it.

. +ny benefit or damages recovered shall pertain to the corporation.

4) 'oin- 5usiness in t.e .ilippines of orei-n Corporation

:eneral rule$ +ny foreign corporation lawfully doing business in the

2hilippines shall be bound by all laws" rules and regulations applicable todomestic corporations of the same class.

+;ceptions$

1. aws which provide for the creation" formation" organi0ation ordissolution of corporations; or

. aws which fi, the relations" liabilities" responsibilities" or duties of

stocholders" members or officers of a corporation to each other or to

the corporation.


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#ntra-corporate or internal matters not affecting creditors or the public ingeneral are governed not by 2hilippine laws but the law under which the

foreign corporation was formed or organi0ed.

equirements and procedure for the $ithdra$al of foreign

corporations$

1. 9iling of a petition for withdrawal of license;

. +ll claims which have accrued in the 2hilippines have been paid"

compromised or settled;

7. +ll ta,es" imposts" assessments and penalties" if any" lawfully due to

the 2hilippine 3overnment or any of its agencies or politicalsubdivisions have been paid;

:. 2ublication of the petition for withdrawal once a wee for 7

consecutive wees in a newspaper of general circulation in the

2hilippines; and

. #ssuance of the certificate of withdrawal by the '().

questions1) Sole roprietors.ip $ here the business enterprise is not endowed

with a separate *uridical personality" is less saddled with the many

requirements and regulations to which corporations are oftensub*ected to by law" rules and regulations.

2) Bulk Sales F 'ale" transfer" mortgage or assignment ofAll, or

substantially allgoods"business" or fi,tures and equipment used inthe business of the vendor" mortgage" transferor" or assignor otherwise

than in the ordinary course of trade.


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+;e>pte& transaction

o hen accompanied with written waiver by all the

seller/mortgagor>s creditors

o !he law does not apply to e,ecutors" administrators" receivers"

assignees in insolvency" or public officers" acting under legal

process.o 'ale or mortgage is made in the ordinary course of business.

o 'ale by assignee in insolvency or those beyond the right of

creditors

o 'ale of properties e,empt from the attachment or e,ecution.

1. 'e acto Corporation $ those which e,ist by virtue of an irregularityor defect in the organi0ation or constitution or from some other

omission to comply with the conditions precedent by whichcorporations de *ure are created" but there was colorable compliance

with the requirements of the law under which they might be lawfully

incorporated for the purposes and powers assumed" and user of therights claimed to be conferred by law.

,) ower to invest corporate fun&s for ot.er purpose

+ corporation may invest its fund in any other corporation or businessor for any purpose other than the primary purpose for which it was

organi0ed when approved by a ma*ority of the Board and ratified by

the /7 of the outstanding stocholders at a stocholders> or members>meeting duly called for the purpose.

ritten notice of the purposed investment and the time and place of

the meeting shall be addressed to each stocholder or member at hisplace or residence as shown on the boos of the corporation and

deposited to the addressee in the post office with postage prepaid" or

served personally.

4) %ali&it# of Corporate cts

a. :eneral rule$ !o have a valid corporate act" the decision of at

least a ma*ority of the directors or trustees present at a meetingat which there is a quorum is required.


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b. +;ception!he election of corporate officers requires the voteof a ma*ority of all the members.

c. :eneral rule$ #ndividual directors cannot bind the corporation

by their individual acts. +;ceptions

i. By delegation of authority;

ii. here e,pressly conferred; or

iii. here the officer or agent is clothed with actual orapparent authority.

3) %oluntar# 'issolution

Dissolution signifies the e,tinguishment of a corporation>s franchise

and the termination of its corporate e,istence for business purpose.

!ypes of voluntary dissolutions$

Coluntary Dissolution here 8o )reditors +ffected @ when no

creditors are involved or would not be pre*udiced by the dissolution

of a corporation" and thereby the tenets of the trust fund doctrine

would not be adversely affected" only a '() application fordissolution is required.

Coluntary Dissolution here )reditors +ffected @ #f there are

creditors involved or who may be pre*udiced" there is a need to file

a formal petition for dissolution with the '(). !he proceedings arequasi-*udicial in nature and conducted to ensure that the rights of

the creditors are fully protected. #n such proceedings" the '() isnot mandated to dissolve the corporation" especially when it would

be detrimental to the interests of the creditors" who may wish torehabilitate the operations of the corporation to ensure that it would

be able to pay-off all of its debts.

Dissolution by 'hortening )orporate !erm - + voluntary dissolution

may be effected by amending the articles of incorporation to

shorten the corporate term. !herefor" the procedure outlined underthe law for the amendment of the articles of incorporation should

also be complied with" and the application filed with '().


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Dissolution by (,piration of )orporate !erm @ hen the corporate

life of the corporation as stated in its articles of incorporation isallowed to e,pire" without e,tension. !he corporation is deemed

dissolved by such e,piration without need of further action on thepart of the corporation or the 'tate.

!) Gin&in- up perio& of a Corporation

d. :eneral rulehen a corporation is dissolved" it ceases to be a

*uridical entity and can no longer pursue the business for which

it is incorporated.

e. +;ception$ !he corporation will continue as a body corporate for

another period of , #earsfrom the time it is dissolved for the

purpose of winding up its affairs and the liquidation of its assets.

H) B' F lia5ilities an& corporate acts

!o the e,tent that the stocholders are actively engaged in themanagement or operation of the business and affairs of a close

corporation" the stocholders shall be held to strict fiduciary

duties to each other and among themselves. 'aid stocholdersshall be personally liable for corporate torts unless the

corporation has obtained reasonably adequate liability insurance.

8) Lia5ilities of Stock.ol&ersE 'irectorsE fficers

!o pay the corporation the balance of his unpaid subscriptions;

!o pay interest on his unpaid subscription if required by the by-laws or

by the contract of subscription;

!o answer to creditors for the unpaid portion of their subscription;

!o answer the waterE in their stocs;

!o be liable" as general partners" for all debts" liabilities and damages

of ostensible corporations; and

#n case of a close corporation" to be personally liable for corporate

torts when they actively participate in the management of the

corporation.


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7) 'elin=uent Stock.ol&er

:eneral rule8o delinquent stoc shall not be entitled to$

1. Be voted for or to vote;

. epresentation at any stocholderFs meeting; or

7. +ny of the rights of a stocholder.

+;ception$ Delinquent stocs are entitled to the right to

dividends %any cash dividends due on delinquent stocholders

shall first be applied to the unpaid balance on his subscription pluscost and e,penses" while stoc dividends shall be withheld until

his unpaid subscription is paid in full&.

10)


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Securities Re-ulation Co&e (R 8H77"

1. 'ecurities required to be registered

a) +;e>pt Securities%'ec. =&$

1. +ny security issued or guaranteed by the 3overnment of the2hilippines" or by any political subdivision or agency thereof"

or by any person controlled or supervised by" and acting as an

instrumentality of said 3overnment.

. +ny security issued or guaranteed by the government of anycountry with which the 2hilippines maintains diplomatic relations"

or by any state" province or political subdivision thereof on the

basis of reciprocity$ 2rovided" !hat the )ommission may requirecompliance with the form and content of disclosures the

)ommission may prescribe.

7. )ertificates issued by a receiver or by a trustee in banruptcyduly approved by the proper ad*udicatory body.

:. +ny security or its derivatives the sale or transfer of which" bylaw" is under the supervision and regulation of the Office of the

#nsurance )ommission" ?GB" or B#.. +ny security issued by a ban e,cept its own shares of stoc.

a) +;e>pt Transactions

1. +ny *udicial sale" or sale by an e,ecutor" administrator"

guardian or receiver or trustee in insolvency or banruptcy.

. By or for the account of a pledge holder" or mortgagee or anyother similar lien holder selling or offering for sale or delivery in

the ordinary course of business and not for the purpose ofavoiding the provisions the ')" to liquidate a bona fide debt" asecurity pledged in good faith as security for such debt.

7. +n isolated transaction in which any security is sold" offeredfor sale" subscription or delivery by the owner thereof" or by his

representative for the owner>s account" such sale or offer forsale" subscription or delivery not being made in the course of

repeated and successive transactions of a lie character by such


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owner" or on his account by such representative and such owneror representative not being the underwriter of such security.

:. !he distribution by a corporation" actively engaged in the

business authori0ed by its articles of incorporation" of securities

to its stocholders or other security holders as a stoc dividendor other distribution out of surplus.

. !he sale of capital stoc of a corporation to its own

stocholders e,clusively" where no commission or other

remuneration is paid or given directly or indirectly in connectionwith the sale of such capital stoc.

6. !he issuance of bonds or notes secured by mortgage upon

real estate or tangible personal property" where the entire

mortgage together with all the bonds or notes secured therebyare sold to a single purchaser at a single sale.

. !he issue and delivery of any security in e,change for any

other security of the same issuer pursuant to a right ofconversion entitling the holder of the security surrendered in

e,change to mae such conversion$ 2rovided" !hat the security

so surrendered has been registered under the ') or was" whensold" e,empt from the provisions of the ')" and that the

security issued and delivered in e,change" if sold at theconversion price" would at the time of such conversion fall within

the class of securities entitled to registration under the ').Gpon such conversion the par value of the security surrenderedin such e,change shall be deemed the price at which the

securities issued and delivered in such e,change are sold.

s transactions" e,ecuted upon customer>s orders" on

any registered (,change or other trading maret.

=. 'ubscriptions for shares of the capital stoc of a corporationprior to the incorporation thereof or in pursuance of an increase

in its authori0ed capital stoc under the )orporation )ode" whenno e,pense is incurred" or no commission" compensation orremuneration is paid or given in connection with the sale or

disposition of such securities" and only when the purpose forsoliciting" giving or taing of such subscriptions is to comply with

the requirements of such law as to the percentage of the capitalstoc of a corporation which should be subscribed before it can


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be registered and duly incorporated" or its authori0ed capitalincreased.

14. !he e,change of securities by the issuer with its e,isting

security holders e,clusively" where no commission or other

remuneration is paid or given directly or indirectly for solicitingsuch e,change.

11. !he sale of securities by an issuer to fewer than 4 persons

in the 2hilippines during any twelve-month period.

1. !he sale of securities to any number of the following

qualified buyers$a. Ban;

b. egistered investment house;

c. #nsurance company;d. 2ension fund or retirement plan maintained by the

3overnment of the 2hilippines or any political subdivisionthereof or managed by a ban or other persons authori0ed

by the Bango 'entral to engage in trust functions;e. #nvestment company; or

f. 'uch other person as the )ommission may by rule

determine as qualified buyers" on the basis of such factorsas financial sophistication" net worth" nowledge" and

e,perience in financial and business matters" or amount ofassets under management.

2) ro.i5itions on rau&E Manipulation an& /nsi&er Tra&in-

a) Manipulation of Securit# rices5) S.ort Sales- sale of securities which the vendor does not own

%illegal unless done in accordance with the rules and regulations

of the '()& %!7 rule&.

c) /nsi&er Tra&in- $ !he act of an insider of buying or sellingsecurities of the issuer while in possession of material

information with respect thereto that is not generally available tothe public %illegal unless e,empted&.


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,) rotection of /nvestors:. !ender Offer ule

Ten&er ffers@ a publicly announced intention by the purchaser to

acquire a certain bloc of equities of a company through open maret

purchases or private negotiations.

+ tender offer is required of any person or group of persons acting inconcert who intend to acquire$

1. +t least 15 of any class of any equity security of a listedcorporation or of any class of any equity security of a corporation

with assets of at least 24A and having 44 or more stocholderswith at least 144 shares each; or

. +t least 745 of such equity over a period of 1 months.

e-otia5le /nstru>ents Law (ct 20,1"

questions

1) cco>>o&ation art#

+n acco>>o&ation part#is one who has signed the instrument

as maer" drawer" acceptor" or indorser" without receiving value therefor"

and for the purpose of lending his name to some other person.

2) ?ol&er in 'ue Course

+ holder in due course is a holder who has taen the instrument

under the following conditions$

1) !hat the instrument is complete and regular upon its face.2) !hat he has become a holder of it before it was overdue and

without notice that it had been previously dishonored" if suchwere the case.,) !hat he has taen it in good faith and for value.

4) !hat at the time of its negotiation to him" he had no notice ofany infirmity in the instrument or defect in the title of the person

negotiating it.


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6 questions1) Crosse& C.eck

+ chec which in addition to the usual contents of an ordinary chec

contains also the name of a certain baner or business entity through

whom it must be presented for payment.

7 questions

1. iabilities of 2rior and 'ubsequent 2arties in 9orgery

ri>ar# Lia5le@ maer" drawee" acceptor" and certifier of checs.

Secon&ar# Lia5le@ drawer" indorsers" and acceptors for honor.

ot lia5le@ drawee %until he accepts it&.

. #ncomplete and Delivered #nstruments

here an inco>plete instru>enthas not been delivered" it will not"

if completed and negotiated without authority" be a valid contract inthe hands of any holder" as against any person whose signature was

placed thereon before delivery.

7. e-otia5le /nstru>ents" equisites

#t is a written contract for the payment of money which by its form

and and on its face" is intended as a substitute for money and passes

from hand to hand as money" so as to give the holder in due course the

right to hold the instrument free from personal defenses available to prior

parties.

Re=uisites

1) #t must be in writing and signed by the maer or drawer.2) Aust contain an unconditional promise or order to pay a sum

certain in money.


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,) Aust be payable on demand" or at a fi,ed or determinable futuretime.

4) Aust be payable to order or to bearer.3) hen the instrument is addressed to a drawee" he must be

named or otherwise indicated therein with reasonable certainty.

questions1) Lia5ilit# of 'rawee Bank in C.ecks

+ drawee does not become liable until he accepts the bill or unless

he certifies the chec. #t is only from the moment the drawee accepts the

bill or certifies the chec that the drawee becomes primarily liable. ?e

becomes liable to the holder by his unconditional acceptance.

2) Bearer /nstru>ent

+ negotiable instrument payable to bearerE or to cash"E rather

than to an identifiable payee.

,) Lia5ilities of >aker an& in&orsers

#rregular #ndorser$ ?e is liable as a general indorser because he

indorses without qualification.

3eneral #ndorser$

1) !he matters and things mentioned in 'ec. 6.

2) !hat the instrument is" at the time of his indorsement" valid andsubsisting.


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/nsurance Law

questions1. )oncealment

Conceal>entis a neglect to communicate that which a party nows andought to communicate. %'ec. 6&

equisites$

1. + party nows a fact %a material fact& which he neglects to

communicate or disclose to the other party;

. 'uch party concealing is duty bound to disclose such fact to the

other;

7. 'uch party concealing maes no warranty as to the fact concealed

and;:. !he other party has no means of ascertaining the fact concealed.

. !he fact must be material

2) Material Conceal>ent

Aatters that must be disclosed even in the absence of inquiry$

1. !hose material to the contract

. !hose which the other has no means of ascertaining7. !hose as to which the party with the duty to

communicate maes no warranty

"It is well settled that the insured need not die of the disease he failed

to disclose to the insurer. It is sufficient that his nondisclosure misled

the insurer in forming his estimate of the risks of the proposed

insurance policy or in making inquiries.


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,) /ncontesta5ilit# Clause

!he insurer has two years from the date of issuance of the insurance

contract or of its last reinstatement within which to contest the policy"

whether or not" the insured still lives within such period. +fter two years"

the defenses of concealment or misrepresentation" no matter how patent

or well founded" no longer lie.

equisites$

1. #t must be a ife insurance policyF

. #t must be 2ayable on the death of the insured; and7. #t must be in force during the life time of the insured for at least

years from its date of issue or of its last reinstatement.!he period of two years may be shortened but it cannot be

e,tended by stipulation.

7 questions1. #nsurable #nterest $ ife vs 2roperty #nsurance

Life /nsurance

1. #t is a contract of investment.

. +lways regarded as valued policy7. Aay be transferred or assigned to any person even if he has no

insurable interest.

:. !he consent of the insurer is not essential to the validity of theassignment of a life policy unless e,pressly required.

. #nsurable interest in the life or health of the person insured neednot e,ist after the insurance taes effect or when loss occurs.

6. #nsurable interest need not have any legal basis.

. )ontingency that is contemplated is a certain event" the onlyuncertainty being the time when it will tae place.


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11. !he beneficiary is under no obligation to prove actualfinancial loss as a result of the death of the insured in order to

collect the insurance.

ropert# /nsurance

1. #t is a contract of indemnity.. Aay be open or valued.

7. !he transferee or assignee must have an insurable interest in the

thing insured.:. )onsent" in the absence of waiver by the insurer" is essential in

the assignment of the policy. #nsurable interest in the property insured must e,ist not only

when the insurance taes effect but also when the loss occurs.6. #nsurable interest must have a legal basis

. !he contingency insured against may or may not occur.


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7. +ccident vs 'uicide

cci&ent vs) Suici&e

cci&ent

!hat which happens by chance or fortuitously" without intention or

design which is une,pected" unusual and unforeseen.

Suici&e

illful e,posure to needless peril which are e,cepted ris. #t is

intentional and implies the e,ercise of reasoning faculties" consciousness and

volition.

#nsurer liable in case of suicide$

1. !he suicide is committed after the policy has been in force for a

period of years from the date of its issue or of its last

reinstatement.

. !he suicide is committed after a shorter period provided in the

policy although within the year period

7. !he suicide is committed in the state of insanity regardless of

the date of commission" unless suicide is an e,cepted ris. (Sec.

#$A!

!he insurer is not liable if it can show that the policy was obtained with the

intention to commit suicide even in the absence of any suicide e,clusion in

the policy.

questions

1) /rrevoca5le Beneficiar#

+ person who insures his own life may designate his beneficiary

revocable or irrevocably. 9or the designation to be irrevocable" the insuredshould e,pressly state the irrevocable designation in the policy itself %'ec.

11" #nsurance )ode&.

#f the designation of the beneficiary is irrevoca5leE #nsured cannot$

1. +ssign the policy


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. !ae the cash surrender value of the policy

7. +llow his creditors to attach or e,ecute on the policy;

:. +dd new beneficiary; or

. )hange the irrevocable designation to revocable" even though

the change is *ust and reasonable.

2) u5lic +ne>#

+ public enemy cannot be insured. By public enemy is meant any citi0en or

*uridical entity of the country with which the 2hilippines may be at war.

,) a#>ent of re>iu>

:eneral Rule 8O insurance policy issued or renewal is valid and

binding until actual payment of the premium. +ny agreement to the

contrary is void H'ec. I.

+;ceptions

1. #n case of life and industrial life whenever the grace period provision

applies.

. here there is an acnowledgment in the contract or policy of

insurance that the premium has already been paid.

7. here there is an agreement to grant the insured credit e,tension

for the payment of the premium despite full awareness of 'ec.

:. here there is an agreement allowing the insured to pay premium

in installment and partial payment has been made at the time of the

loss.

. here the parties are barred by estoppels.


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4) ssi-n>ent of olic# in Life /nsurance

#n those instances where the insured can assign his policy" his assignee may

be any person" whether or not he %the assignee& has an insurable interest in

the life of the insured. + life insurance is a property right within the capacity

of its owner to dispose of" lie his other properties.

. ,r&art# Lia5ilit#

)laimants/ victims may be a passengerE or a 7rdpartyE. !he insured

may be the party at fault as against claims of third parties or the victim of

the contingent event.

!hird 2arty- any person other than a passenger as defined in this

sections and shall also e,clude a member of the household" or a member ofthe family within the second degree of consanguinity or affinity" of a motor

vehicle owner or land transportation operator" as liewise defined herein" or

his employee in respect of death" bodily in*ury" or damage to property

arising out of and in the course of employment. %'ec. 77" HcI" #nsurance

)ode&

!) ut.oriDe& 'river Clause

#t indemnifies the insured owner against loss or damage to the car but limitsthe use of the insured vehicle to$

1. !he insured himself; or

. +ny person who drives on his order or with his permission.

H) Marine /nsurance eril of t.e Sea vs eril of t.e S.ip

includes only those casualties due to the$

1. Gnusual violence; or

. (,traordinary action of wind and wave; or

7. Other e,traordinary causes connected with navigation.


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erils of t.e S.ipE a loss which in the ordinary course of events"

results from the$

1. 8atural and inevitable action of the sea;

. Ordinary wear and tear of the ship; or

7. 8egligent failure of the ship>s owner to provide the vessel with

proper equipment to convey the cargo under ordinary conditions.

Bankin- Laws

questions

1) Secrec# of Bank 'eposit e;ceptionsE -arnis.>ent

2eso Deposits

!he following are the deposits covered by + 1:4$

1. +ll deposits of whatever nature with bans or baning

institutions found in the 2hilippines; or

. #nvestments in bonds issued by the 2hilippine government" itsbranches" and institutions. (Sec. %, &.A. '$!

7. !rust accounts are included in the scope of the law.

:R!hey are considered absolutely confidential and may not be

e,amined" inquired or looed into by any person" government official"bureau or office (Ibid.!.

+;ceptions

1. Gpon written consent of the depositor. (Sec. %, &A'$&

. #n cases of impeachment. (ibid.!7. Gpon order of competent court in cases of bribery or

dereliction of duty of public officials. (ibid.!:. Gpon order of competent court in cases where themoney deposited or invested is the sub*ect matter of

the litigation. (ibid.!. Gpon order of the )ommissioner of #nternal evenue in

respect of the ban deposits of a decedent for the

purpose of determining such decedent>s gross estate.(Sec. )*+*, -I&!


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6. Gpon the order of the )ommissioner of #nternalevenue in respect of ban deposits of a ta,payer who

has filed an application for compromise of his ta,liability by reason of financial incapacity to pay his ta,

liability. (ibid.!

. !he )ommissioner of #nternal evenue is authori0ed toinquire into ban deposits of a specific ta,payer upon

request for ta, information from a foreign ta, authoritypursuant to an international convention or agreement

on ta, matters to which the 2hilippines is a party.

(ibid.!


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9oreign )urrency Deposits %+ 6:6&

:R+ll foreign currency deposits are absolutely confidential. %'ec. s limit @ !he total amount of loans" credit

accommodations and guarantees that the ban could grant should at notime e,ceed 5 of the ban>s net worth. (Sec ., 536!

@

a. +s the Aonetary Board may otherwise prescribe for reasons ofnational interest


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b. Deposits of rural bans with government-owned or controlledfinancial institutions lie B2" DB2" and 28B.

!he total amount of loans" credit accommodations and guarantees

prescribed in %a& may be increased by an additional 145 of the net

worth of such ban provided that additional liabilities areadequately secured by trust receipt" shipping documents"warehouse receipts and other similar documents which must be

fully covered by an insurance. (Sec. .%, 536!

oans and other credit accommodations secured by (A shall not

e,ceed 5 of the appraised value of the real estate security plus

645 of the appraised value of the insured improvements (Sec. 1,536!

)A/intangible property such as patents" trademars" etc. shall note,ceed 5 of the appraised value of the security (Sec. #, 536!

oans being contractual" the period of payment may be sub*ect to

stipulation by the parties. #n the case of amorti0ation" theamorti0ation schedule has no fi,ed period as it depends on the

pro*ect to be financed such that if it was capable of raising

revenues" it should be at least once a year with a grace period of 7years if the pro*ect to be financed is not that profitable which could

be deferred up to years if the pro*ect was not capable of raisingrevenues. (Sec. '', 536!

oans granted to 'SR/$

a. 'irectorb. fficer

c. Stocholder" having at least 15 ownership over the band. Related /nterests" such as DO'>s spouses" their relatives

within the first degree whether by consanguinity or affinity"partnership whereby DO' is a partner or a corporation where DO'

owns at least 45.

questions

1) Classification of Banks

1)


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2) Co>>ercial 5anks - Ordinary bans governed by the 3B whichhave a lower capitali0ation requirement than universal bans and can

neither e,ercise the powers of an investment house nor invest in non-allied enterprises.

,) T.rift 5anks@ !hese are a& 'avings and mortgage bans; b& 'toc

savings and loan associations; and c& 2rivate development bans"which are primarily governed by the !hrift Bans +ct (&.A. 19$)!.

4) Rural 5anks@ these are mandated to mae needed credit availableand readily accessible in the rural areas on reasonable terms and

which are primarily governed by the ural Bans +ct of 1== (&A

1!.3) Cooperative 5anks@ bans whose ma*ority shares are owned and

controlled by cooperatives primarily to provide financial and creditservices to cooperatives. #t shall include cooperative rural bans. !hey

are governed primarily by the )ooperative )ode (&A )9#!.

!) /sla>ic 5anks@ Bans whose business dealings and activities aresub*ect to the basic principles and rulings of #slamic 'hari> a" such as

the +l +manah #slamic #nvestment Ban of the 2hilippines which wascreated by + 6


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1. Baner of the government @ the B'2 shall be the official depositoryof the 3overnment and shall represent it in all monetary fund dealings

(Secs. $: ), -3A!

. )ustodian of eserves. (Secs. )':)), 9', $, -3A!

7. 9inancial +dvisor of the government (Secs. %:%'!@ Gnder +rticle

C##" 'ec. 4 of the 1=


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!he duties of the receiver are the following$

1. !he receiver shall immediately gather and tae charge of allthe assets and liabilities of the institution;

. +dminister the same for the benefit of the creditors" ande,ercise the general powers of a receiver under the evisedules of )ourt;

7. 'hall not" with the e,ception of administrative e,penditures"pay or commit any act that will involve the transfer or

disposition of any asset of the institution$ 2rovided that the

receiver may deposit or place the funds of the institution innon-speculative investments;

:. ithin =4 days from the tae-over" the receiver shalldetermine whether the institution may be rehabilitated or

otherwise placed in such a condition that it may be permittedto resume business with safety to its depositors and creditors

and the general public;

. #f the receiver determines that the institution cannot berehabilitated or permitted to resume business" then the

Aonetary Board shall notify in writing the board of directors ofthe institution of its findings and direct the receiver to

proceed with liquidation of the institution. (Sec $, -3A!.

3) Trut. in Len&in- ct

'isclosure Re=uire>ent

!he law assures full responsibility by requiring the lender to give the

borrower all the details regarding the transaction. Gnder 'ec. :" any creditor

shall furnish to each person to whom credit is e,tended" prior to theconsummation of the transaction" a clear statement in writing setting forth"to the e,tent applicable and in accordance with rules and regulations

prescribed by the Board" the following information$

1. !he cash price or delivered price of the property or service to be

acquired;


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7 questions1) Tra&e>ark /nfrin-e>ent

!he person without the owner>s consent" use in commerce any

reproduction" counterfeit" copy or colorable imitation of a registered

mar or the same container or a dominant feature thereof in

connection with the sale" offering for sale of any goods or services on

or in connection with which such use is liely to cause confusion" or to

cause mistae or to deceive.

questions1. Cop#ri-.tis an intangible incorporeal right to certain literary"

scholarly" scientific and artistic productions granted by statute to theauthor or creator of the wor" and giving him" his heirs and assigns

copyright or economic rights" which shall consist of the e,clusive right

to carry out" authori0e or prevent the following acts$

a.& eproduction of the wor or substantial portion of the wor;b.& Dramati0ation" translation" adaptation" abridgment" arrangement

or other transformation of the wor;

c.& !he first public distribution of the original and each copy of thewor by sale or other forms or transfer of ownership;

d.& ental of the original or a copy of an audio visual orcinematographic wor" a wor embodied in a sound recording" a

computer program" a compilation of data and other materials or

a musical wor in graphic form" irrespective of the ownership ofthe original or the copy which is the sub*ect of the rental;

e.& 2ublic display of the original or a copy of the wor;f.& 2ublic performance of the wor; and

g.& Other communication to the public of the wor. %'ec. 1"

+ent of atents

!he tests to determine infringement are

%a& iteral infringement" and%b& !he doctrine of equivalents.

#n using literal infringement as a test" resort must be had" in the

first instance" to the words of the claim. #f accused matter clearly

falls under the claim" infringement is made out and that is the end


41/53


42/53

function in substantially the same way to achieve substantiallythe same result %'mith vs. )+" :4= ')+ 77&.

!he doctrine of equivalents requires satisfaction of the function-

mean-and-result test" the patentee having the burden to show

that all three components of such equivalency test are met%#bid.&.

,) Ri-.ts over inventions

) irst to ile Rule F Sec 27

#f two %& or more persons have made the invention separately

and independently of each other" the right to the patent shall belongto the person who filed an application for such invention" or where

two or more applications are filed for the same invention" to theapplicant who has the earliest filing date or" the earliest priority

date. %7rd sentence" 'ec. 14" .+. 8o. 16a.&

B) /nventions Create& ursuant to a Co>>ission $ 'ec. 74.

74.1. !he person who commissions the wor shall own the

patent" unless otherwise provided in the contract.

74.. #n case the employee made the invention in the courseof his employment contract" the patent shall belong to$

%a& !he employee" if the inventive activity is not a part ofhis regular duties even if the employee uses the time" facilities and

materials of the employer.

%b& !he employer" if the invention is the result of the

performance of his regularly-assigned duties" unless there is anagreement" e,press or implied" to the contrary.

C) Ri-.t of riorit# $ 'ec. 71.

+n application for patent filed by any person who has previously appliedfor the same invention in another country which by treaty" convention" or

law affords similar privileges to 9ilipino citi0ens" shall be considered as filedas of the date of filing the foreign application$ 2rovided" !hat$


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%a& the local application e,pressly claims priority;

%b& it is filed within twelve %1& months from the date the earliestforeign application was filed; and

%c& a certified copy of the foreign application together with an (nglishtranslation is filed within si, %6& months from the date of filing in the

2hilippines. %'ec. 1" .+. 8o. 16a&

:. !est of Dominancy in !rademar

sia Brewer# v) C an& San Mi-uelE 224 SCR 4,H 177,6

#nfringement is determined by the test of dominancyE rather

than by differences or variations in the details of one trademarand of another. 'imilarity in si0e" form and color" while relevant"

is not conclusive. #f the competing trademar contains the mainor essential or dominant features of another" and confusion is

liely to result" infringement taes place.

Societe 'es ro&uits estleE S)) v) C (2001"

!he totality or holistic test is contrary to the elementary

postulate of the law on trademars and unfair competition thatconfusing similarity is to be determined on the basis of visual"aural" connotative comparisons and overall impressions

engendered by the mars in controversy as they are ncounteredin the maretplace. !he totality or holistic test only relies on

visual comparisons between two trademars whereas the

dominancy test relies not only on the visual but also on theaural and connotative comparisons and overall impressions

between the two trademars.


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Mc'onal&Js Corporation v) L)C) Bi- Mak Bur-erE /nc)E et al)E4,H SCR 10 20046

!his )ourt" ,,," has relied on the dominancy test rather than the

holistic test. !he dominancy test considers the dominant featuresin the competing mars in determining whether they are

confusingly similar. Gnder the dominancy test" courts givegreater weight to the similarity of the appearance of the product

arising from the adoption of the dominant features of the

registered mar" disregarding minor differences. )ourts willconsider more the aural and visual impressions created by the

mars in the public mind" giving little weight to factors lieprices" quality" sales outlets and maret segments.

Mc'onal&Js Corp v MCIK astfoo& Corp (200H"

+pplying the dominancy test to the instant case" the )ourt findsthat herein petitioner>s A)DO8+D>'E and respondent>s

A+)JOKE mars are confusingly similar with each other such

that an ordinary purchaser can conclude an association orrelation between the mars. !o begin with" both mars use the

corporate AE design logo and the prefi,es AcE and/or AacE asdominant features. !he first letter AE in both mars puts

emphasis on the prefi,es AcE and/or AacE by the similar wayin which they are depicted i.e. in an arch-lie" capitali0ed andstyli0ed manner. 9or sure" it is the prefi, Ac"E an abbreviation of

Aac"E which visually and aurally catches the attention of theconsuming public. Cerily" the word A+)JOKE attracts attention

the same way as did AcDonalds"E Aac9ries"E Ac'paghetti"E

AcDo"E Big AacE and the rest of the A)DO8+D>' marswhich all use the prefi,es Ac and/or Aac. Besides and most

importantly" both trademars are used in the sale of fastfoodproducts. #ndisputably" the respondent>s trademar application

for the A+)JOK L D(C#)(E trademar covers goods under)lasses = and 74 of the #nternational )lassification of 3oods"namely" fried chicen" chicen barbeque" burgers" fries"

spaghetti" etc. iewise" the petitioner>s trademar registrationfor the A)DO8+D>' mars in the 2hilippines covers goods

which are similar if not identical to those covered by therespondent>s application.


45/53

Transportation Law

questions

1) Li>ite& Lia5ilit# Rule :eneral vera-e Loss

!he e,clusively real and hypothecary nature of maritime law operates

to limit the liability of the ship-owner to the value of the vessel" earned

freightage and proceeds of the insurance" if any 8o Cessel" 8o iability"E

rule. !he total destruction of the vessel e,tinguishes maritime lien as there

is no longer any res to which it can attach.

!he limited liability rule" however" is not without e,ceptions" namely$

%1& where the in*ury or death to a passenger is due either to the fault of the

ship-owner" or to the concurring negligence of the ship-owner and the

captain; %& where the vessel is insured; and %7& in wormenFs compensation

claims.

: questions1) rescription of Clai>s in C:S

Gnder 'ection 7%6& of the )O3'+" the carrier is discharged from

liability for loss or damage to the cargo Munless the suit is brought within oneyear after delivery of the goods or the date when the goods should have

been delivered. Jurisprudence" however" recogni0ed the validity of an

agreement between the carrier and the shipper/consignee e,tending the

one-year period to file a claim.

7 questions

1) 'octrine of /nscruta5le ault

here fault is established and it cannot be determined which vessel is at

fault" both shall be deemed to be at fault. (ach vessel shall also suffer its

own losses and both shall be solidarily liable for losses or damages on the

cargoes.


46/53

Special Laws

< questions

Letters of Cre&it- are those issued by one merchant to another or

for the purpose of attending to commercial transaction.

a) Ri-.ts an& o5li-ations of parties

!here are at least three parties to a letter of credit$

(1" Bu#erA+;porterAccount art# Fone who procures the letter of credit andobliges himself to reimburse the issuing ban upon receipt of documents of title.

(2" /ssuin- Bank Fthe ban which undertaes$

%a& !o pay the seller upon receipt of the draft and proper documents of title; and%b& !o surrender the documents to the buyer upon reimbursement.

!he obligation of the issuing ban to pay the seller is direct" primary" absolute"

definite and solidary with the buyer" in the absence of stipulation in the letter ofcredit

(," SellerA/>porterABeneficiar# Fone who ships the goods to the buyer in

compliance with a contract of sale and delivers the documents of title and draft tothe issuing ban to recover payment.

Depending on the transaction" the number of parties to the letter of credit may be

increased. !hus" the different types of correspondent bans$

&visin-Aotif#in- Bank F the ban which conveys to the seller the e,istence

of the credit. !he ban assumes no liability e,cept to notify and/or transmit to the

seller the e,istence of the letter of credit. + notifying ban is not a privy to the

contract of sale between the buyer and the seller" its relationship is only with thatof the issuing ban and not with the beneficiary to whom he assumes no liability.!he ban may suggest to the seller its willingness to negotiate" but this fact alone

does not imply that the notifying ban promises to accept the draft drawn under

the documentary credit


47/53

Confir>in- Bank@ the ban which lends credence to the letter of credit issuedby a lesser nown issuing ban. !he ban assumes a direct obligation to the seller

and its liability is a primary one as if the ban itself had issued the letter of credit

e-otiatin- Bank@ the ban which discounts the draft presented by the seller.

!he ban buys or discounts a draft under the letter of credit. #ts liability is

dependent upon the stage of the negotiation. #f before negotiation" it has no

liability with respect to the seller but after negotiation" a contractual relationshipwill then prevail between the negotiating ban and the seller.

a#in- Bank@ the ban which undertaes to encash the drafts drawn by theseller.

5) 'octrine of in&epen&ence

!he principle of in&epen&ence assures the seller or the beneficiary of prompt

payment independent of any breach of the main contract and precludes the issuingban from determining whether the main contract is actually accomplished or not.

Gnder this principle" bans assume no liability or responsibility for the form"

sufficiency" accuracy" genuineness" falsification or legal effect of any documents" orfor the general and/or particular conditions stipulated in the documents or

superimposed thereon" nor do they assume any liability or responsibility for the

description" quantity" weight" quality" condition" pacing" delivery" value ore,istence of the goods represented by any documents" or for the good faith or acts

and/or omissions" solvency" performance or standing of the consignor" the carriers"or the insurers of the goods" or any other person whomsoever.

c) 'octrine of Strict Co>pliance

!he settled rule in commercial transactions involving letters of credit requires that

the documents tendered by the seller must strictly conform to the terms of the

letter of credit. Otherwise" the issuing ban or the concerned correspondent banis not obliged to perform its undertaing under the contract.


48/53


49/53

entruster; and %6& observe all other terms and conditions of the trust receipt not

contrary to the provisions of this Decree. %'ec. =" 2D 11&

Lia5ilit# of t.e +ntrustee

!he ris of loss shall be borne by the entrustee. oss of goods" documents orinstruments which are the sub*ect of a trust receipt" pending their disposition"

irrespective of whether or not it was due to the fault or negligence of the

entrustee" shall not e,tinguish his obligation to the entruster for the value thereof.

%'ec. 14" 2D 11&

c) Re>e&ies vaila5le

Q$ hat are the remedies available to the entruster against the entrusteeN

S$ #f the entrustee did not comply with his obligations" he shall have the

following liability$

+& )riminal liability for ('!+9+ under both the ! and the 2);

B& iable for D+A+3(' under +rt. 77 of the 8))" without need of proving intent

to defraud because it is malum prohibitum %2rudential Ban vs. #+)" 3 :


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nown as the evised 2enal )ode. #f the violation or offense is committed by a

corporation" partnership" association or other *uridical entities" the penalty

provided for in this Decree shall be imposed upon the directors" officers"

employees or other officials or persons therein responsible for the offense" without

pre*udice to the civil liabilities arising from the criminal offense. %'ec. 17" 2D 11&

#n order that the respondents Mmay be validly prosecuted for estafa under +rticle

71" paragraph 1%b& of the evised 2enal )ode"7in relation with 'ection 17 of the

!rust eceipts aw" the following elements must be established$

%a& !hey received the sub*ect goods in trust or under the obligation to sell the

same and to remit the proceeds thereof to Hthe trustorI" or to return the goods if

not sold;

%b& !hey misappropriated or converted the goods and/or the proceeds of the sale;

%c& !hey performed such acts with abuse of confidence to the damage and

pre*udice of Aetroban; and

%d& Demand was made on them by Hthe trustorI for the remittance of the proceedsor the return of the unsold goods.M %and Ban of the 2hilippines vs. amberto

2ere0" 3 166


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14. Other entities administering or otherwise dealing in currency" commodities or

financial derivatives based thereon" valuable ob*ects" cash substitutes" and other

similar monetary instruments or property supervised or regulated by '(). %'ec.7"

.+. =164" as amended&

5) Covere& Transactions

!hese are single transactions in cash or other equivalent monetary instrument

involving a total amount in e,cess of 44"444.44 within 1 baning day.

ote !hese transactions are required to be reported to the +ntiAoney

aundering )ouncil.

c) Suspicious Transactions

!ransactions regardless of amount" where any of the following circumstancese,ists$

1. 8o underlying legal or trade obligation" purpose or economic *ustification;

. )lient not properly identified;

8ote$ 8umbered peso and foreign currency non-checing accounts are allowed as

long as the client is properly nown or identified. %ule =.1.g of +=1=: asamended&

7. +mount involved is not commensurate with the business or financial capacity of

the client;

:. )lient>s transaction may be perceived to be structured in order to avoid being

the sub*ect of reporting under the +A+;

. !ransaction which is observed to deviate from the profile of the client or the

client>s past transaction with the covered institution;

6. !ransaction is in any way related to an unlawful activity" money laundering

activity or offense under +A that is about to be" is being or has been committed;or

. +nalogous transactions.

&) es


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!hese refer to any act or omission or series or combination thereof involving or

having direct relation to the following$

1. Pidnapping for ransom;

. Drug trafficing and related offenses under the )omprehensive DangerousDrugs +ct of 44;

7. 3raft and corrupt practices;:. 2lunder;

. obbery and (,tortion;

6. Jueteng and Aasiao;. 2iracy %in the high seas" inland 2hilippine waters and aiding and abetting pirates

and brigands&


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) C%+R+' TRSCT/S

+ny sale" transfer" mortgage" or assignment1. of goods other than in ordinary course of business

. of all or substantially all of business

7. of all or substantially all of fi,tures and equipments

B) BL/:T/ %+'R

Duty of seller to perform the following when transaction is within the coverage of

law$1. Aae sworn statement of listing of creditors

. Delivery of sworn statement to buyer7. +pply the proceeds pro-rata to claims of creditors shown in verified statement

:. ritten advance disclosure to creditors

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