***Jon Jamora*** [Notes on Negotiable Instruments Law (Atty. Gapuz)]

“Substitute for Money”- No person can be compelled to accept…

Excess of allowable coins (considered as goods)

“All negotiable instruments are contracts”- However, NOT all contracts are negotiable

instruments- See sec. 1; basic elements; elements are

concurring meaning that the absence or defect of one makes it non-negotiable

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

“Increases the number of commercial transactions”

“Easier to transfer”Negotiable Instrument Other contractsMuch simpler to use:

- transfer by indorsement

Transfer requires execution of a separate document

- (eg. Separate deed or contract)

Negotiable Instruments can be transferred in its entirety

“Negotiation”- Transfer from one person to another

“Allonge”- Additional space for indorsements

“Right of recourse against all parties”

- Unlike in contracts, transferee acquires?

Sec 52; holder in due course; see presumption

Ex. Mr. A owned a 10M Forbes property; then property was foreclosed; Mr A issued a check and offered it to the bank; the Lower Court ruled that the bank cannot be compelled to accept the check

- SC -> the check should be accepted; he was not paying but was merely exercising his right to redeem;

- Submission of check suspends the prescriptive period (365 days)

“Can accumulate several contracts”

If 10Billion is in circulation, how much is negotiable in circulation?

- 100BEx. (for one transaction); eg cash on installment (1M)

- Issue check- Then execute a promissory note- At some point require post dated checks

[Different phases of NI]

“Issue” (1st Stage)

General Classification:1. Negotiable promissory note2. Negotiable Bill of exchange

Promissory Note (2 parties)

Bill of exchange (3 parties)

- Maker- payee

-Drawer (makes an order for the Drawee to pay)- Payee

Is issuing check for 10M Japanese yen payable to order/bearer a negotiable instrument?

- Yes“Payable in a sum certain in money”

- Payable in foreign currency (of a country with whom we have diplomatic relations); BUT settled in Philippine peso

If payable in 50% per annum, is it non negotiable?- No; It is not void; SC -> it may be reduced

to a fair and reasonable rate

“Usury Law”

- Cf. Negotiable instrument which is only a promise to pay; not yet “giver - receiver” (usurious interest)?

Are documents of title, warehouse receipts, bills of lading negotiable?

- No; not payable in a sum certain in money

Payable after 30 days from Typhoon Yolanda, is it negotiable?

- Yes; “after”

Payable 10 years after passing the bar, negotiable?- No. There is no certainty.

Payable 5 years after Enrile dies, negotiable?- Yes.

“Conditional Indorsement”- Not render instrument non negotiable; it is

only an indorsement; it is a separate contract between the (indorser and the indorsee) and not as to the maker

“Payable on demand”

If the date is not indicated, is it payable on demand?- Yes. It is payable on demand.

“Without the words payable to order/bearer”- The instrument is non negotiable; BUT it is

still a contract

“Transfer of Negotiable Instruments”Promissory Note Bill of exchangeIndorsement +delivery

Delivery

“Payable to the Order of a fictitious person (or nonexistent person)”

- Eg. To the order of “Superman” or “Tarzan”- Rationale for being a bearer instrument; how

can “Tarzan” indorse it if he is nonexistent

“When addressed to a drawee, he must be ascertained with reasonable certainty”

- For Bill of exchange; so that the last indorser will know where to go

“Negotiation” (2nd Stage)

“Restrictive Indorsement”- Cf. holder in due course not being aware of

any defect

- Ex. “X only”

“Pay to A sans recourse”- Without recourse; in the event the principal

dishonors; you have no recourse against me (indorser)

“Conditional Indorsement”

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

“Forgery”- Simulation of individual’s signature- The signature is wholly inoperative

Person whose signature is forged is not liable; rationale; he did not give his consent

Can’t proceed against forged signatory; only on parties prior to holder

“Cut off Rule”

“Presentment” (3rd stage)- Sec. 70 (for payment)- Sec. 143 (for acceptance); when required

Sec. 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers.

Sec. 143. When presentment for acceptance must be made. - Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

“All negotiable instruments can be presented for payment outright”

“Presentment”- Physical production of instrument by holder

to the principal- Purpose of presentment; to charge persons

secondarily liable since can’t charge drawer/maker

“Non-presentment”- Relieves all parties

Upon presentment it either: Dishonored (or) Paid

“Notice of Dishonor”- Addressed to payee- To show knowledge of insufficiency of

funds

“If foreign Bill of exchange”- “Protest”; same effect as a notice of

dishonor

“Discharge” of Negotiable Instruments (last stage)

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.

“Payment”- Payment by the principal- Cf sec. 60-69 (liabilities of different parties)

Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places

thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:

(a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.Sec. 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or by a qualified indorsement warrants:

(a) That the instrument is genuine and in all respects what it purports to be;

(b) That he has a good title to it;

(c) That all prior parties had capacity to contract;

(d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course:

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid and subsisting;And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

Sec. 67. Liability of indorser where paper negotiable by delivery. — Where a person places his

indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser.

Sec. 68. Order in which indorsers are liable. - As respect one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. robles virtual law library

Sec. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent.

“Accommodated party & Accommodation party”

“Prescription”Check Negotiable Instrument6 months 10 years

“Renunciation”

Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.

SM gift certificate; negotiable?- Non negotiable; not a sum payable certain in

money

M as maker issues a BDO check for 5M; from A -> B -> C; Can C as holder sue the bank?

- No; no privity with bank (unless it accepts or clears the check)

“Acceptance”- Upon acceptance; the drawer becomes

primarily liable

“Illegal Consideration; is it a real defense?”- No; only personal defense against a holder

who is NOT a holder in due course

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

Instrument is for 100k; holder filled up for 1Million; eventually got to a holder in due course; may he collect 1million?- Yes

"Real defense"- a defense even aginst a holder in due course (see sec. 15)

Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

"Sec. 23" (supra)- even if the signature is genuine; it may be a defense if the signature was made without consent(?)

"Sections 60 to 69" (liabilities of parties) (supra)

“Acceptor”

Cleared vs Not cleared

Ex. BDO --------- BPI (indorser); check was cleared- Collecting bank should know signature of its

clients (it warrants the same)

Sec. 143 (supra); Bill of Exchange; Acceptance; see instances

Check made by M for 10million; PRB certified the check; can X the holder run after M?

- No; upon being certified the amount was deducted from M’s account.

-Check made by M for 10million; “to the order of X”; “100 days after sight”; then the check was accepted 1 July 2013; when X came back to the PRB bank it was already closed; can X go after the M?- Yes; M is still liable since the bank has not

debited the amount from M’s account; here there is a need for presentment

“Notice of dishonor”- In any form; but better if in writing; for

purpose of being received and being accepted

- Parties secondarily liable; drawer and indorsers; after notice; they become primarily liable

“Protest”- For foreign bills of exchange; done by

notary public in behalf of payee

“Relevance of Notice of Dishonor/Protest”- To establish knowledge or deceit

“Modes of discharging a Negotiable Instrument”- See Sec. 119 (supra)

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers.

But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.

“Sec. 124; Alteration”- Simulation of any material particular (except

signature)

Instrument made by X for 10 million; from X -> A -> B -> C; amount was changed to 70 million; X did not assent; is he liable to a holder in due course?

- He is liable for the original tenor of 10million to the holder in due course

“BP22” (1979)

- Prior to 1979 there were a lot of cases involving bouncing checks; only Estafa was available back then; but then “deceit” is hard to prove as a state of mind so the bouncing checks law was made

“Estafa; Elements”- Damage- Deceit- Prior/simultaneous to false pretense

(scenario 1) Check issued on 1 January 2013 for 5Million; for payment of a car; car delivered on 5 January; on 15 January the check was dishonored; notices were made; maker ignored notices and it was not settled within 5 days

- Here deceit is already established (for estafa)

Can a case for BP 22 still be filed?- Yes; it is not a violation of double jeopardy- BP22 and estafa are separate; sanctions are

different

(scenario 2) transaction again involving a car; 1 January car delivered; 5 January issued check post dated on “January 15”; Notice of dishonor was ignored due to closed account; can you file both a case for estafa and BP 22?

- Only BP22; the check was issued for a PRE-EXISTING obligation

“Issuing a check to facilitate collection”- No BP 22

Check issued in Pasay; bounced in Paranaque; what is the venue?

- Since it is a continuing offense; it can be in any city or municipality where the offense was committed

***Jon Jamora*** [Notes on Insurance Law (Atty. Gapuz) ]

“Insurable Interest”

X’s girl friend pays for his education; btw X is a married man; does X have insurable interest in his girl friend?

- Yes; pecuniary interest

X however cannot designate his girl friend as a beneficiary; see void donations

Art. 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;

(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action.

X insured the life of Y (his wife); they were annulled on January; Y died on August; Can X claim the proceeds?- Yes; interest in life; need only exist at the time of the execution of the contract (not in death)

"See insurable interest in property insurance"

Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and 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.

“Irrevocable beneficiary”

“Law does not distinguish between legitimate/legitimate child”

Life insurance Property InsuranceBeneficiary need not have insurable interest over the life of the insured (if insured himself secured policy)

Beneficiary must have insurable interest in the property

X procured an insurance policy over a house and lot worth 20Million on 1 January; X designated himself as beneficiary; on 1 July X sold property to Y; on 1 November property burned down; Who is entitled to the proceeds of the policy?

- Neither X nor Y is entitled- As to X; as of the time of the loss there was

no more insurable interest- As to Y; not privy to contract

X obtained a loan from Y; to secure the obligation, he mortgaged his property to Y; defaulted; property

burned down on 1 November; who has insurable interest?

- X as mortgagor is still the owner and is still entitled to the proceeds

- Despite default; X still has the right to redeem the property; he still has insurable interest; there is an “existing interest”

“Inchoate interest”- No right to insure

“Inchoate vs Existing Interest”

Debtor defaulted; can the creditor insure the property of the debtor?

- No; there is no existing interest; debtor may however insure the life of the debtor

Can a stock holder of a corporation insure the property of the corporation?

- No; no existing interest

“Concealment”

“May rescind if there is a failure to disclose material facts”

The insured concealed the fact that he had cancer; he then died of a heart attack; can the insurer rescind?

- Yes; there was concealment

“Sec. 48 Incontestability”

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two 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 rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

An insurance policy on life was procured; insured however concealed a material fact; insured died 2 and a half years after; is the insurer liable?

- Yes; the policy was enforced for 2 years from its issue

What if he died within the 2 year period; died of cancer; can insurer rescind?

- Yes.

“Cancellation vs Rescission”

“Third Party Libility” (p152)

***Jon Jamora*** [Notes on Corporation Law (Atty. Gapuz) ]

“Corporation” (p177)- Artificial being with separate and distinct

personality- Created by operation of law- Has the right to succession- Has powers conferred by law or incidental

to its existence(ALSP)

“Doctrine of Legal Fiction” (p173)- Acts through agents

Corporation Partnership (p189)Liable up to contribution Liable up to personal

properties (if common fund exhausted)

Has right to succession Dissolves (when a general partner dies)

More formal (existence commences from issuance of certificate of incorporation)

Created by mere agreement

At least 5 but not more than 15 incorporators

At least 2 persons

To become a stock holder (subscribe to capital stock)

To become a partner (contribute money/property/industry)

Incorporators must be natural persons

- Exception: Rural banks

Must be natural persons- Cf. “joint

ventures” (p171) which corporations may enter

“Advantages” (p192)(LLC - TCS)

Considerations if an undertaking should be under a corporation

- Is it big business?- Does it involve a lot of capital

“Disadvantages”- Complicated- Costly- Greater governmental control

- Management and control different from ownership

- Stock holders have little voice in management

“Types of Corporations”

[Non-stock] (p188)- Profit used for furtherance of purpose

[Private corporations] (p186)- Created under general law- Artificial being- Has right of succession (it is perpetual)- Has powers, attributes, properties

o Conferred by law (p204)o “Upon certificate of incorporation”

it has: Incidental powers Implied powers

“Doctrine of Concession”- Upon issuance of the certificate of

incorporation by the SEC; it is given the right to exist

- The state concedes that the corporation is a juridical person

“Doctrine of Apparent Authority”

- Even if the act is outside the scope of those pertaining to the person acting for the corporation; the corporation is liable; provided:

o The corporation led another to believe in Good Faith that the act was authorized

o The corporation benefited

“Business Judgment Rule” (p222)- As to questions of policy and management;

the Board of Directors is the business manager of the corporation

- As long as the Board acts in Good Faith; neither the courts nor the SEC may review its orders

“Piercing the veil of corporate entity” (p178)- Purpose; to hold persons liable

(PD-WC)

“Only courts can pierce”- Instances:

o Used to justify a wrong

o Used to protect fraudo Used to defend a crimeo Used as an alter ego (CUP)o Used to evade obligations to

employeeso Used to circumvent the lawo Used to perpetuate deception

“Doctrine of corporate opportunity” (p255)

Ex. Corporation into real estate; directors acquired vast pieces of land; when the value of the lands went up; directors sold to a number of corporations including the one they were in…

- SC -> any profit obtained must be refunded to the corporation (unless it is ratified)

“Nationality of the corporation” (p174)- Place of incorporation

o Cf. foreign corporations; reciprocity (p266); requirement of obtaining a license

“Control Test”- For public utilities; must be either:

o Filipino Citizeno Partnership/Association/

Corporation with 60% Philippine equity

“Cf. foreign investments negative list” (p195)

“Classification of corporations” (p185)

[Private][Public]

“Sequestration” -> Can the PCGG use shares to elect directors?

- (old jurisprudence); can’t, only conservators of public funds

- (recent rulings); Yes; can elect directors by using such shares since public funds were used to buy the corporation

Did the same convert the corporation into a public corporation? (p275)

- No. Originally formed as a private corporation; it remains the same

“Going Public” (p188)- Shares offered to public via the stock

exchange

“Upon Issuance of the certificate of Incorporation, the corporation is…”

- De Jure (p186)o When it becomes De Facto; when a

corporation commences and organizes, it must do so with its By Laws; if it fails to adopt its By Laws…

There is a flaw in its organization; hence, De Facto

“Did not organize/commence”- Deemed dissolved (p261)

What is the status of the corporation if there is non-operation or inoperation for 5 years?

- It is still De Jure since it is only a ground for revocation

“Corporate Term” (p199)- Up to 50 years; may extend its term 5 years

prior to expiration

What if the corporation did not extend its term but it still continued, what is its status?

- Corporation by estoppels (p186)

“Contents of the Articles of Incorporation” (p197)

“Contents of By Laws” (sec. 47)- Manner of issuing stocks- Penalties- manner of holding meetings

o Board of Directorso Stock Holders

- Electiono Timeo Noticeso Manner of appointment etc.

“Positions of officers must be in the By Laws”- If not; they are only employees (they are

however protected under the Labor Laws unlike the officers)

“Charter”- If public -> Law- If private -> Articles of Incorporation

“Incidental Powers” (p205)

When Ultra Vires? (p206)

- Ex. Declaring stock dividends without 2/3s of the stockholders representing outstanding capital stock

“Stock Holder’s resolution” (p214)- Needed for declaring stock dividends

If only a board resolution was made for declaring stock dividends, it is?

- Still Ultra Vires- Although it is Ultra Vires; it may be subject

to ratification

What if the term was about to expire but the corporation contracted new business for 10 more years?

- Transacting beyond the prescriptive period not subject to ratification

- Ultra vires acts of the corporation cannot be ratified (only ultra vires acts of officers)

- Remedy; amend articles of incorporation

“Capital Stock” (p200)- See requirements; for incorporation

Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.

“Must state citizenship”- Capital equity requirements

“A subscriber is entitled to everything”- General rule: eg. Entitlement to dividends

(all rights or a stock holder) (p255)o Exception: if declared delinquent

(or upon call)

Can you withdraw your subscription if it is declared delinquent?

- No; it would violate the trust fund doctrine which includes subscriptions receivable (p232)

- Subscriptions cannot be revoked; if it were allowed it would amount to premature liquidation without prior distribution

- Only pre incorporation subscriptions may be revoked (p238);

o If the corporation fails to materialize; all subscribers consent

“Subscriptions form part of the corporation’s assets”

[Types of Shares] (p238)- [Redeemable]; for investment; for a certain

period of time; after such period, corporation shall redeem and pay stock holder back; not a violation of the trust fund doctrine

- [Preferred]- [Redeemable & Preferred]; non-voting; not

participate in the election of directors

[Treasury shares] (p240)- Bought back by the corporation from the

stock holders for whom it was issuedo To eliminate fractional shareso In exercise of appraisal right;

(exception to trust fund doctrine)

Assets of the corporation are not dissipated by:- Redemption of redeemable shares- Buying back of treasury shares

Gamboa vs Teves (G.R. No. 176579)- PLDT which operates a public utility has

common/ preferred/ redeemable shares; as a public utility it must be at least 60% Filipino

- Foreigners had many preferred/redeemable shares; if their shares were considered for voting in directors; the corporation would practically be 70% foreign

- SC -> only common shares are considered for electing members of the board

What if common but non-voting?- It is invalid; said shares allowed to vote

“If an individual has a small number of shares, he may use a voting trust agreement to be elected to the board” (p252)

What if an individual subscribed to 10,000 shares but paid only 30% of it; is he entitled to vote?

- Yes

“Effects of delinquency” (p256)

“Instances when non-voting shares may vote” (p242)- see Sec. 6 (ABBC SMID)

1. Amendment of the articles of incorporation;2. Adoption and amendment of by-laws;3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;4. Incurring, creating or increasing bonded indebtedness;5. Increase or decrease of capital stock;6. Merger or consolidation of the corporation with another corporation or other corporations;7. Investment of corporate funds in another corporation or business in accordance with this Code; and8. Dissolution of the corporation.

“Instances where concurrence of stock holder’s are needed”

- Merger/consolidation; Sec. 77- Amendment of the articles of incorporation;

Sec. 16- Removal of a Director; Sec. 28- Ratification; Self dealing

(directors/trustees/officers); Sec. 32- Ratification; Disloyalty; Sec. 34- Extending or shortening corporate term; Sec.

37

[Types of Dividends] (p213)- Cash / Property- Stock

“When dividends must be declared” Ex. 300,000 less 100,000 = 200,000 profit

- When it exceeds 100 percent of the paid up capital; the declaration of dividends is mandatory; or else the corporation will be penalized by the BIR

- If it is less than 100 percent; the declaration of dividends is discretionary on the Board of Directors

o Exceptions: (p214)o [Corporate expansion]; which must

be justified by showing a prior board resolution; Ex. Project feasibility studies

o Where [under a loan agreement] the corporation cannot declare dividends until it has paid off the loan

o [Contingencies] (special reserve)

“Bardahl Doctrine”- Funds are needed for a certain cycle of

business- Operating cycle; 6yrs; a particular cycle

needs a certain amount of funds; eg. A publishing company not declaring dividends; BIR assessed the said company for undeclared dividends

o Said fund needed for contingencies such as the national elections were publishing companies are subjected to a larger amount of expenses

“Petitioner relies on the so-called "Bardahl" formula, which allowed retention, as working capital reserve, sufficient amounts of liquid assets to carry the company through one operating cycle. The "Bardahl"17 formula was developed to measure corporate liquidity. The formula requires an examination of whether the taxpayer has sufficient liquid assets to pay all of its current liabilities and any extraordinary expenses reasonably anticipated, plus enough to operate the business during one operating cycle. Operating cycle is the period of time it takes to convert cash into raw materials, raw materials into inventory, and inventory into sales, including the time it takes to collect payment for thesales.” (Cyanamid vs CA G.R. No. 108067)

Stock Holder’s Approval Board ApprovalEven if only [1 stock holder] concurs; it is sufficient as long the percentage requirement is met (eg 2/3s of outstanding capital stock)

A quorum is needed (majority)

- Unless a greater number is given in the By Laws

- A single stock holder with 60% shareholdings cannot approve an act

Can be made by proxy Physical attendance of the director is required

“Meetings” (p230)

“Teleconferencing Act” (p231)

“The board may delegate its power to an executive committee” (p208)

What can’t be delegated? (p208)

“Management Contract”

***Jon Jamora*** [Corporation Law Exam (Atty. Gapuz)]

[Essay portion]

“Joma, a member of the Board of Directors for a term of 1 year; sold all 500,000 of his shares to Katkat”

Is Joma still a member of the Board?- No. Joma lost his right to be a member of

the board when he lost his [qualifying share]; The sale of the shares of stock resulted in the transfer of rights from the seller to the buyer;

Can Katkat vote on such shares?- Yes; she is already a stock holder

Can Katkat sit in the Board?- No; to be part of the board; she must either

be elected or appointedo If she were appointed; there must

have been a vacancy + a quorum; if there is no longer any quorum; filling up the vacancy must be through the stock holders

If Joma returns, will he be allowed to sit in the board?

- No; he lost his right to sit in the board

If the government sequestered all the shares of a private corporation, is the corporation converted into a public corporation?

- No; a corporation is formed under genral law

- On the other hand public corporations are formed by congress

- Despite transfer of shares; it is still a private corporation

What legal advice would you give your client if he is contemplating the rescission of his subscription contract?

- Rescission of the subscription contract is not allowed; it violates the trust fund doctrine as it leads to premature liquidation without prior distribution

- If the corporation has unrestricted retained earnings, he may avail of his appraisal right

“The president of a hotel and restaurant corporation invested in an insurance company; income was realized; is the same ultra vires?”

- Yes; the act is not with in the objectives of the corporation; a concurrence of 2/3s of stock holders representing outstanding capital stock is required; here only the president was involved

Is the same a ground to pierce the veil of corporate entity?

- It is not a ground to pierce the veil under the doctrine of apparent authority and the business judgment rule.

[MCQs]

To be voted for in the board, one can be a:a. Subscriberb. Registered ownerc. Court appointed executord. Holder of a certificate of stocke. [Any of the above]

Cash dividends [must] be declared if the surplus exceeds…

a. 25% of Capital stockb. [100% of paid up; cash dividends]c. 25% of Authorized capital stockd. None of the abovee. Any of the above

- 100% of the paid up capital; when it exceeds 100% it is [mandatory] to declare cash dividends

o If it is less than 100%; it is only [discretionary]

The SEC issued a certificate of incorporation to X corporation; X corporation then failed to submit its By Laws; what is the status of the corporation?

a. De jureb. [De facto]c. Estoppelsd. inexistent- [De facto]; there is a flaw in the

organization; without the By Laws there is no provision on meetings and elections (can’t elect members of the board)

“Corporate powers are exercised by the …”a. President

b. Chairmanc. [Board of directors]d. 2/3s of ….

***END***

***Jon Jamora*** [Notes on Corporation Law [Continuation] (Atty. Gapuz) ]

[Non-stock Corporations] (p272)- No stocks

“Right to vote” (p272)- See stock corporations; voting pertains to

common shares- See voting trust agreements; which are

considered as securities (p252)

What is a non-stock corporation’s capital?- Membership…

o Feeso Dueso Contributions

“Formed for eleemosynary purposes”- For charity (“limos”)

“Charitable”

“Religious corporations” (p276)- Corporation Sole- Society

“Corporation Sole”- Organized by a single individual; only one

incorporator; presiding elder o The corporation sole is the

exception to the requirement that a corporation must at least have 5 incorporators

- Administrator of all the assets

Does it violate the Constitutional provision on nationality/equity requirements for the acquisition of land? (p277)

- No. Determination of the nationality depends on the membership of the sect; the members of the sect must at least be 60% Filipino

“The presiding elder can register lands in his name”

“Rule of succession”

- The successors in office of any presiding elder shall become the corporation sole on their accession to office

“Can he as administrator (and registered owner) sell the assets?”

- Court approval is needed to sell such assets; he can’t just exercise acts of dominion

[Educational Institutions]- Shall be formed as non-stock; (back then)

some were stock corporations

Non-stock ->Stock Stock-> Non-stockdisallowed allowed

“Non-stock corporations are not supposed to declare dividends”

- Dividends are shares of the stock holder in the profits of the corporation

So a Non-stock corporation has no profits or income?- It has income

“Any income derived must be used for the furtherance of the purpose or the objectives of the corporation”

- Eg. If it is an educational institutions, for education; income of schools are exempted from income tax

o “Income generated outside of the purpose”; subjected to income tax

“Purpose”- Must be geared toward eleemosynary

purposes

[Closed Corporations]- Stock corporations- Membership limited to 20 persons- Eg. Restricted to members of a family

“Must be clearly indicated in the Articles of Incorporation that it is a close corporation”

“Can only transfer within certain degrees of affinity or consanguinity”

“Board meetings”- Informally done; eg. Resolutions are just

signed

[Condominium Corporations]- Non-stock

- An owner of a condominium is automatically a member

o if the condo is sold; the buyer is automatically a member

- contributions are comprised of fees and dues

“Inchoate right in all common areas”

“Membership in a Non-stock corporation”- personal; the doctrine of succession does not

applyo eg. The heirs cannot automatically

takeover the position of a deceased member (unlike in stock corporations; where the heirs may do so post estate proceedings)

exception: if provided for in the Articles of Incorporation or the By Laws (heirs can take over)

“Members in a non-stock corporation do not have the same voting rights”

- depends on the type of shares

“Term of Trustees”- maybe 1, 2, 3, 4, or 5 years (unlike in stock

corporations)

“Filling up of vacancies”- to fill up vacancies, a quorum is required

[Foreign Corporations]- Under the Foreign Investments code foreign

corporations are allowed to operate in our country

o Requirement; a license to do business issued by the SEC

“Importance of a license”- To allow the foreign corporation to

sue/maintain a suit/ and to intervene

“Doing business”- Pertains to a continuity of commercial

dealings- On the appointment of a distributor

o 2 types of distributors one where the foreign

corporation has control and supervision over the distributor; a license to do business is required; considered doing business

when the distributor is an independent entity which buys/distributes products for its own account; license NOT required; considered NOT doing business

- Service contracts with a local corporation; considered doing business

“Isolated Transactions”- A single transaction- If it is within the purpose/objectives of the

foreign corporation; a license is required

At one instance a Japanese manufacturer of cars sold appliances/cell phones/computers. Is this an isolated transaction?

- Yes. Not doing business since the same is not within the purpose of the corporation

“NAIA 3 terminal Case”- Foreign corporations were bidders; offered a

good bid; competitors questioned the same arguing that they had no license and that they should be disqualified

o SC -> there is an intention to do business; must secure a license

“Case/suit involving intellectual property rights”- Where the country of the owner of the

intellectual property is a signatory of International Trade Agreements (eg. GATT/ WTO )

- Exception to the requirement of securing a license (to maintain a suit); owner can sue anywhere for the violation of his intellectual property rights even without a license

What if a foreign corporation sued without a license, then it procured a license. Did getting a license cure the defect?

- (old cases); no- (recent jurisprudence); securing a license

after or during litigation cures the “lo license” defect

“Participating in the management of a corporation”- Constitutes doing business

A foreign corporation owned substantial shares in a local corporation; foreign corporation had a nominee director in the board; in case of an intra corporate

dispute between the foreign corporation and the local corporation. Is it doing business? Is a license required?

- No; under the Foreign investments act, having a nominee director is not doing business

- Even without the said nominee director’s permission; can do business

A foreign corporation sued a local corporation for not declaring dividends; local corporation’s defense: foreign corporation has no license. Is a license needed?

- No; there is no need for a licenseo Unless its representative is a

president/vice president (in management)

“Other Exceptions; [Estoppel]”- When the local corporation benefits from a

transaction with a foreign corporation; it is estopped from claiming that a foreign corporation has no license

***Jon Jamora*** [Notes on Insolvency (Atty. Gapuz)]

When a corporation becomes insolvent and is in a financial crisis along with being muddled by law suits, what are its options?

- Petitions for:o Suspension of paymentso Involuntary dissolutiono Rehabilitation

Receivership Management committee

- Merger/consolidation (in the SEC)

From the corporation’s perspective- Consider that “creditors have priority” in

liquidationo So the corporation must act quickly

before the creditors

Consider [Suspension of payments]- where all actions against the corporation are

suspended at whatever stage

o the suspended actions pertain to the civil aspect

except actions pertaining to the criminal aspect; eg estafa against the officers

“Upon suspension, the corporation’s assets are in custodia legis”

Which are not suspended if any?- Assets in favor of the corporation

“Freeze order”

From the side of the creditors- file for a petition for [involuntary

dissolution]; as creditors are given priority in liquidation

“Merger/Consolidation”- is an option as assets are combined

Merger ConsolidationSurviving corporation takes over

A new corporation is made

Suit involving dismissed employees due to merger/consolidation; can the dismissed employees file a claim against the surviving/new corporation?

- SC-> No; employees are neither assets nor liabilities of the corporation (even if there is a Collective Bargaining Agreement)

o UNLESS; the employees are included in the plan of merger/consolidation

“Procedure on approval of a plan of merger/consolidation”

- Must be approved by :o Majority of the Board of each

concerned corporationo 2/3s of the outstanding capital

stock- Articles of merger/consolidation must be

submitted to the SEC

“Liquidation”- 3 year winding up period; for liquidation- If full liquidation can only be done beyond

the 3 year period and there is no trustee; the directors may complete liquidation as trustees

- Modes (via):o Board of directors

o Trusteeo Management committee or a

rehabilitation receiver[Insolvency Law]

- Purpose; to compel the presentment of all debts and to secure a complete discharge from the said debts (at the time of filing)

o Scope; [prior transactions]; debts contracted prior to the insolvency proceeding

o What isn’t covered; [after incurred debts]

“A corporation may also file for insolvency which will bring about the same effect”

For corporations and partnerships- It would be better to file a suspension of

payments first

“Transfer of Jurisdiction from the SEC to the Special commercial courts” (cases involving )

- Fraudulent devices and schemes employed by directors detrimental to public interest

- Intra corporate dispute - Controversies in election, appointment of

directors/trustees- Petition to be declared in state of suspension

of payments- Appointment of rehabilitation

receiver/management committee

“Intra corporate controversy”- Controversy by and among stock holders- 2 tests:

o [Relationship test]; (any of the following is sufficient to confer jurisdiction); consider the relationship between :

corporation and the public corporation and its Stock

holders corporation and the State

concerning its franchise/permit/license

among stock holderso [Nature of Controversy test];

incidents of the relationship must also be considered; The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation

Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists.

Eg. Nonpayment (to the corporate officer). Is it an intra corporate controversy?

- No; it has nothing to do with the corporate purpose or objectives; it is only a collection case

What remained under the Jurisdiction of the SEC?- Suspension/revocation of

franchise/certificate of registration; after proper notice and hearing

- Securities Market

***Jon Jamora*** [Notes on the Securities Regulations Code (Atty. Gapuz)]

“Blue Sky Law”- The Securities Act; jurisdiction over all

problems regarding securities- Purpose; to protect the public from

unscrupulous distributors/sellers “not even a square in the blue sky”; to sell the blue sky meaning [worthless securities]

“Securities”- Investment contracts evidenced by

certificates/ contracts/ Voting Trust Agreements/ negotiable promissory notes/ bonds (but not checks)

- One of the most common securities are [shares of stock]

- Securities are required to be registered

“The issuer must also be registered”

“Brokers / Dealers”- Required to have a paid up capital of at least

10 million- Must be registered

“Margin Trading”- Purchase of securities by an investor using

the credit of the broker to pay for part of the securities

- Prohibition; broker or dealer shall not extend credit to a customer in the amount exceeding

50% of the current market value (Bargain Trading)

“Insider Trading”

“Insider” - Employee- Officer- Someone knowing particular information

[not available to the public]; (prohibited from trading said security); eg. Accountants

“How penalized”- damages

Ex. (under a different jurisdiction where insider trading is punishable by death); A mining engineer manipulated the inventory of the mining corporation. Shares went up and the engineer became rich.

- The engineer is an [insider]

“Wash Sale”- Effecting any transaction which involves no

change in the beneficial ownership

“Manipulation of the market but no beneficial transfer occurs”

- No actual transfer of ownership occurs; punishable

“Short Sale”

“Securities exempted from the requirement of registration”

- Those issued by the Governmento Eg. BSP/ SSS/ GOCCs

- Those issued by Foreign governments with whom we have diplomatic relations

- Those sold by executors appointed by a court

- Banks

Individual seeks to buy shares from a corporation; but all shares fully subscribed; the individual can make a [tender offer] to the public; so that the stock holders can consider if they might want to sell over their shares

[Tender offer]- A publicly announced intention by a person

acting alone or with other persons to acquire equity securities of a public company

“Issuance of a certificate of stock”- Upon issuance, shares deemed fully paid

o Unless if the Articles of incorporation allow for partial payments

“Uncertified securities”- security evidenced by electronic or similar

records

Ex. Bought shares today; can you participate tomorrow even without a stock certificate?

- Yes. Uncertified securities are electronically evidenced.

“Over the counter trading”- [off exchange trading]; between 2 parties

without the supervision of an exchange- small time; allowed provided it is registered

"Stock Exchange"- big time

“Violations of the act”- Filing a claim for damages

o 2 years from discoveryo 5 years from the date of violation

***Jon Jamora*** [Notes on the various Banking Laws (Atty. Gapuz)]

“Banking Laws”- Foreign Currency Deposit Act (RA 6426)- Uniform Value to Philippine coin and

Currency (RA 529; amended by RA 8183)- Anti Money Laundering Act (RA 9160)- Unclaimed Balances Act (PD 679)- General Banking Law (RA 8791) - Law on Secrecy of Bank Deposits (RA

1405)- Philippine Deposit Insurance Corporation

(RA 3591)- Banko Sentral Act (RA 7653)

[New Central Bank Act]- “Banko Sentral ng Pilipinas”; created by

special law- Central monetary authority

[General Banking Law]- 3 responsibilities of the BSP; The BSP shall

provide for policies on:o Money

o Bankingo Credit

“Policy on Money”- On legal tender

o Coins as legal tender 25 centavos and below

(up to 100 pesos) 1 peso and above (up to

1000 pesos) [Circular 537; Series of 2006]

o If not coins; no maximum

“Policies on Banking”- On private banks

Must comply with the Corporation Code

Can only be formed as [Stock] corporations; can only issue shares with par

- General rule: on incorporation; incorporators must be natural persons

o Exception; Rural Banks

“Classification of Banks”- Universal - Commercial- Rural- Thrift- Cooperative- Islamic- Other

“Thrift Banks”- Savings banks; eg. Private Development

Banks/mortgage banks; (ex. BPI)

“Universal Banks” (p302)- Higher classification of banks- Can engage in off shore banking; banking

outside the Philippines; can even engage in the trade of Gold and Silver

“Banks have the highest capitalization requirements”- To maintain banking operations (to meet

capitalization requirements); a lot of banks merge

“The BSP determines when a bank is financially able”

- Banks must be regularly audited- Banks must have liquidity

“The Monetary Board has power to close a bank and appoint a conservator”

- If there is proof that it must be closed; that it is for the protection of the public

“A certain number of deposits must be remitted to the BSP as a reserve”

- Purpose; to maintain credit

“Fit and Proper Rule” (p327)- All officers must comply with requirements

set by the BSP

Ex. certain people hold substantial shares but they can’t sit as a corporate officer in the bank; reason: non compliance with the fit and proper rule

"Limits on the number of the Board of Directors"- at least 5 and a maximum of 15 members- at least 2 independent directors;[independent director]; one who is not a president/officer; someone not related to the bank

An independent director shall mean a person who –

1. Is not or has not been an officer or employee of the bank/quasi-bank/trust entity, its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election;

2. Is not a director or officer of the related companies of the institution’s majority stockholder;

3. Is not a majority stockholder of the institution, any of its related companies, or of its majority shareholders;

4. Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any director, officer or majority shareholder of the bank/quasi-bank/trust entity or any of its related companies;

5. Is not acting as a nominee or representative of any director or substantial shareholder of the bank/quasi-bank/trust entity, any of its related companies or any of its substantial shareholders; and

6. Is not retained as professional adviser, consultant, agent or counsel of the institution, any of its related companies or any of its substantial shareholders, either in his personal capacity or through his firm; is independent of management and free from any business or other relationship, has not engaged and does not engage in any transaction with the institution or with any of its related companies or

with any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and could not materially interfere with or influence the exercise of his judgment.

How does the BSP maintain price stability?- Requirement to remit a certain amount as

reserves in case of inflation or recession- Buying and selling of Gold; eg When there

isn’t much money, gold can be traded in the international market; purpose: [maintaining price stability]

Inflation RecessionToo much money in circulation(eg. Due to OFW remittances / good business)

- Effect: higher prices

Not much money in circulation

“The BSP also extends loans to banks”- When a bank is in financial distress; at

minimum (or no) interest; for short periods

“Capital Requirements of Banks”

“Liberalization of foreign Banks”

“Capital Equity Requirement”- For capital equity requirements; must be

60% Filipino; cf. with control test- But despite the equity requirement; it does

not mean that a bank is a local corporation; cf. with [place of incorporation test]

“Fiduciary Duty of Banks”- Statutory requirement as to the diligence

required; [Fiduciary Diligence]; for the protection of depositors and creditors

- Possible MCQ question (diligence required):a. Utmost diligenceb. [Fiduciary diligence]c. Extra ordinary diligenced. Diligence of a good father of the family

- Fiduciary diligence was institutionalized in our Banking Laws for the protection of the public in making deposits as it is imbued with public interest; prior to this; many banks closed down due to poor management

“2 functions of major banks”- Loans- Deposits

“A large number of transfer certificates of title were under the custody of a bank; due to loans made collaterals were required; originals of the titles were given; what is the degree of diligence as to the titles?”

- SC-> the titles must be taken cared of with the highest degree of diligence

- Even if the bank’s officer is negligent in handling the same; the bank is liable (and not the officer) to the depositor

“Lease of safety deposit; 2 sets of keys; one for the person availing; the other, for the bank; to open the same requires both; If the contents were lost, is the bank liable for the same?”

- Yes; the bailee bailor relationship does not apply; even if the bank has only one key; the safety deposit box is within the premises of the bank; cf. with “Fiduciary Duty”

A time deposit was made; when it matured; bank failed to pay the depositor due to funds not being available; can you file an estafa case against the officer of the bank?

- No; not liable for estafa; [Creditor – Debtor Relationship]; it is a loan only

“Types of Deposits” (p306)- Time deposit- Savings Deposit- Demand Deposits

“See rule in depositors”- Minors- Married women

“Demand Deposits”- Liabilities of banks in Philippine Peso are

subject to payment of legal tender; demandable by presentation of check/s

What is DOSRI? (p318)- Directors, officers, stock holders, and related

interests- [DOSRI Rule]; restrictions on borrowing by

DOSRI; loan must not exceed the borrower’s encumbered deposits with banks

Ex. 2Million; 1 Million encumbered; have paid up capital with bank of 100K; can apply for a loan not

exceeding 1,100,000; plus the borrower must sign a waiver (see confidentiality of bank deposits)

[Philippine Deposit Insurance Corporation] (p340)- Types of deposits insured:

o Savingso Demando Time deposits

A certain bank was closed by the BSP through the Monetary Board; will the PDIC take over?

- The PDIC does not take over; its only duty is to act as a receiver of the insured deposits; within 90 days if it cannot be restored; liquidate

“Maximum limit; extent of liability to depositor; per capacity”

- Up to 500,000 only- What about the recovery of the excess if

any?o Must submit evidence/documents

on the excess amount; during the liquidation proceedings;

“Usually a depositor can get only up to maximum of 20%”

- If funds are still available; it is spread out to the different banks (depositors); preferably Universal or commercial banks

“Other banks have packages as well; covered by insurance but NOT by the PDIC; usually between banks and sister banks”

“The PDIC is only an insurer”- Acts as a receiver and liquidator for the

distribution of remaining deposits

“There must be an [actual deposit] for the entitlement to 500,000; and not just an issued deposit”

A or B; joint account; for 1 million; how much is covered by the insurance?

- Still 500,000

Survivorship agreement; involving 1million; how much can be claimed?

- If the bank is [NOT closed]; with the said Survivorship Agreement; and one of the “and/or” dies; 1million will automatically go to the survivor

- If the bank is [closed]; 500,000 only

[Law on Secrecy of Deposits] (RA 1405)- Confidentiality rule

o General rule; no person can inquire/examine your deposits

Exceptions: Upon written

permission (of the depositor)

Cases of Impeachment

By court order“Written permission”

- Eg. In writing a SALN by government employees; a waiver is made; Ex. DOSRI borrowers etc.

“Impeachment”- No need for a court order to look into the

account; Ex. Corona

“Court Order”- [Necessary] in the following cases:

o Dereliction/ corruption/ grafto Plundero AMLA (p343); law when in

suspicion that illegally dirty money is allowed to be examined; it is reported to the AMLA council

- When [NOT needed]; cases involving:o Kidnappingo Hi jackingo Illegal drugso Murdero Arson

(KH-DMA)

“Salvacion vs Central Bank” (GR 94723)- Salvacion a minor; detained and raped by

Bartelli an American tourist; salvacion and her parents obtained a favorable judgment in the civil case for damages; bartelli maintained a US dollar account with China Banking Corporation; Salvacion sought garnishment to satisfy the judgment; CBC refused citing the Foreign Currency Deposit Act

o SC-> The Foreign Currency Deposit Act does not protect the foreign currency deposit of an alien transient under the peculiar circumstances [kidnapping]

“Other exceptions; BIR commissioner in examining deposits”

- [Deposit of a decedent]; heirs can’t withdraw money from the bank without paying the estate tax due; BIR can inquire into said deposit without violating secrecy; for the purpose of determining the correct estate tax

- Deposit of a Taxpayer involving a [compromise of tax liability]; the BIR will look into the deposit if the tax payer really has no money to pay the full amount of the tax

o Eg. If the Tax payer seeks a compromise of his tax liability involving 1million; but it is found that he is a billionaire; why will there be a compromise?

[Unclaimed Balances Law]- Dormant deposits for more than 10 years

o Ex. Marcos Cronies having money in the bank; went to the US during people power; return after 10 years; the millions of pesos in the banks were under escheat proceedings; Cronies argued that the Banks in disclosing such information was a violation of secrecy

SC-> Under the Unclaimed Balances Act; for purposes of escheat; the same is allowed

‘Disclosure of certain information about bank deposits which have been dormant for at least ten years, to the Treasurer of the Philippine in a sworn statement, a copy of which is posted in the bank premises. (Sec. 2, Unclaimed Balances Law (Act No. 3926, as amended)’

“Under the Foreign Currency Deposit Act; there is only one exception”

- Only a written permission; Ex. Corona impeachment; deposit concerning foreign currency should not be disclosed since unless a written permission is made

[Uniform Currency Law]- (Old Law; RA 529); obligations requiring

payment must be in Philippine Peso- (New Law; RA 8183); may agree that

payment be made in a foreign currency

The Philippines borrowed from the ADB; payable in 20 years; when it finally matures; what is the

applicable exchange rate? The [time of execution] of the contract or the [time of payment] of the loan?

- Under the Uniform Currency act; time of payment

[Truth in Lending Act]- Due to the function of banks in extending

loans; all banks/ lenders/ creditors MUST disclose [true value] of loan/credit

- Credit transactions covered:o Loans/ mortgageso Contracts of sale; contract to sello Lease

“Must provide exact value of credit”- Which includes the following details:

o Principalo Interesto Chargeso Down paymento penalty o atty’s feeso Amount financed

“Escalation Clause”- Imposition of increased interest; but no

specific rate as to interest is given; void stipulation; but the obligation is not void; apply legal rate

Ex. A lender imposes interest for 50% per annum; borrower files complaint

- SC-> Unconscionable interest; rate of interest must be reduced to a reasonable rate; (contract not revoked; rate on reduced)

***Jon Jamora*** [Notes on Credit Transactions (Atty. Gapuz)]

[Trust receipts Law]- Punishes dishonest parties from abusing the

trust and confidence of the entruster- Usually engaged in by financial institutions;

purpose: to finance traders/importers

Ex. Cars imported from JPN; lacking financially; ask for assistance; given a good credit line; assistance was granted

100 vehicles; cost 10million; not enough money; contracted with a bank for financing; provided they enter into a Trust Receipt Agreement

- The Bank is the entruster; lender; [legal owner by legal fiction] of the cars to be

imported; it is a security as the bank has [security interest]

- The trader on the other hand is the [entrustee]; required to remit sales proceeds (or inventories in case of failure to sell) to the entruster

- When the cars arrive; they should be sold; the proceeds then should be turned over to the entruster

In this scenario, the only proceeds to be turned over is worth 10 million; 100 cars would definitely cost more than 10 million

“Turning over the proceeds to another without the bank knowing would constitute estafa”

“If proceeds can’t be turned over (eg. Failure to sell a sufficient amount)”

- Must turn over inventories; failure to turn over the inventories constitutes estafa

Conflagration within an area; 20 cars all burned; who shall bear the loss?

- (At first sight); res perit domino; the bank; the owner shall bear the loss BUT

- [as an exception] the entrustee shall bear the loss; by express provisions of the law (sec. 10)

In a consignment of goods; a contract is needed to pursue a case of estafa; that in entrusting goods and in case of eventual failure, estafa will prosper; usually post dated checks are put in issue but only a BP 22 case will prosper; it is better to have a trust receipt agreement for estafa to proper

[Letters of Credit]- Special arrangement of traders; for

facilitating transactions

A car importer bought from JPN; although the importer has money; the seller may have doubts in the importer’s capacity to pay

- Parties should resort to a letter of credit

The buy goes to a bank to procure a letter of credit; the buyer must explain that there is a contract of sale; apply for a letter of credit; the conditions must be stated (those contained in the contract of sale)

- If the whole thing is delivered (the cars); the bank issues a letter of credit

- Advice corresponding JPN bank of the said issue of Letter of Credit along with drafts

- Seller must show; that he delivered and shipped goods; show Bill of Lading and that all 100 cars were shipped out

Upon arrival only 90 cars were up to the standards agreed on; 10 were second hand cars; can the buyer stop the letter of credit from paying the seller?

- No; letter of credit is a [separate] and distinct contract from the contract of sale; follow the [independence rule]

o It will become a case between buyer and seller for breach of contract

Can the seller sue the Bank?- No. no privity of contract

Can the buyer sue the seller?- Yes; even without a license

Can the seller sue the buyer without a license?- [foreign corporation contemplating to sue]

Needs a license to do business; rationale; the fact that the letter of credit was made; that he be paid on the account of the letter of credit

- Buyer on the other hand [filed an actual case in court]; there is a waiver on the part of the buyer to question the foreign corporation’s (buyer’s) license

[Warehouse Receipts Law]- There is a duty to preserve goods; since fees

are charged

“Duty to identify goods”- Some goods can’t be commingled

“Warehouse Man”- Issuer of ware house receipt

“A” stores rice; A however has a lot of creditors; part of the rice was claimed by other creditors; creditors want to attach

“A” then issued 10 ware house receipts; designated payable to claimants C D E F…. or payable to order of bearer

- They become negotiable warehouse receipts; it NOT a [negotiable instrument]; not payable in a sum certain in money

Can the creditors attach?

- No; since the ware house receipts are negotiable

- Claimants should have the warehouse receipts surrendered to them or the warehouse man; only then can it be enjoined

Between the creditors, who has a better right?- [1st person giving notice]; eg. State that “I

own 1000 cavans”

What if the claims were simultaneously made without notice?

- Ware house man should file an action for interpleader

“Ware house man’s lien over the goods”- Has a lien; since there are charges and fees

A sports car was stored; worth 1 million; many claimants appeared; ½ of the amount is the value of the lien; how can the ware house man collect the lien?

- The ware house man can sell the car

[General Bonded Warehouse Law]- There are selected ware houses required to

be bonded- It is better to store goods in a bonded ware

house; better protection- Characteristics unique to a Bonded ware

house (compared to a ware house)o Required to post a bond 33 1/3 %

of the market value of maximum quantity of goods to be received

o Depositor can proceed against the bond

[Chattel Mortgage]- A mortgagor uses personal property to

secure his compliance with an obligation

Can a building be the subject of a chattel mortgage?- Yes; granted that the parties agreed and

considered the building as chattel

‘Mortgagor should not surrender possession of the chattel”

- If the movable is delivered; it is a pledge

“Requisites of a chattel mortgage”- involves personal property- registration; necessary for validity- affidavit of good faith; to swear under oath

that the mortgage is made for the purpose of

securing the obligation; that the contract is valid and not for the purposes of fraud

[Real Estate Mortgage]Real Estate Mortgage Chattel MortgageReal property (immovables)

Personal property

Mortgagor may alienate property without consent of the mortgagee

Mortgagor CANNOT alienate without consent of the mortgageeAffidavit of good faith required

“Requirements”- contract- required to submit title of immovable; can’t

deliver an immovable- registration with the registry of deeds where

the property lies

“3rd parties may accommodate you”

“3 remedies of the mortgagee”- Judicial foreclosure- Extra judicial foreclosure- waiver of the real estate mortgage; [filing an

ordinary action]

Judicial foreclosure Extra-Judicial Foreclosure

Court intervention No court interventionDecisions; appealable Not appealable;

immediately executoryThere is [equity] of redemption

- except for banks which provides for a right of redemption

Right of redemption

120 day period from order of foreclosure

- for redemption of banking institutions; 1 year from confirmation of the sale

Within 1 year from date of registration of the certificate of sale

Debtor Liable for deficiency

NOT liable for deficiency; just rely on REM

In a Real Estate Mortgage; a parcel of land was used as security; worth 10 million; maximum amount of the loan = 75% of the appraised value of the land; appraised house as well (improvement) only 60%;

default; indebted for 10 Million; Sold for 5 million; is the debtor liable for the deficiency? Sold for 15 million, is the debtor entitled to the excess?

If property is subjected to a typhoon; value depreciated; may consider abandoning the REM and file an ordinary action to go after the debtor’s other properties

[Extra Judicial foreclosure] – not automatic; must be approved and authorized to sell at public auction; applied for with the executive judge

- if there is no approval; must resort to Judicial Foreclosure

“REM; what if the owner dies?”- choose between pursuing the REM or filing

a claim in the estate- if the deceased has a lot of properties;

consider running after the estate

“REM may include a dragnet clause”- [dragnet clause]; one that secures all debts

whether past/ present/ future; operates as a convenience to borrowers as it makes funds available without having to execute other documents (and fees)

“In a chattel mortgage, can you have a dragnet clause?”

- No; an affidavit of good faith is necessary; used only for a specific loan

“Chattel mortgage; Debtor as to the excess”- ENTITLED

“Chattel mortgage; Creditor as to deficiency”- Generally; entitled to any deficiency

o Exception; Creditor opting for foreclosure of a Chattel mortgage; concerning a sale payable in installments; no longer entitled; he shall have no further action against the purchaser (NCC 1484) [Recto Law]; rationale; to prevent mortgagees from seizing and buying mortgaged property at low price and then bringing suit against the mortgagor for a deficiency judgment; [when the Recto law does not apply]; when what is involved is NOT a SALE

A loan for 1 million was obtained; to secure the loan, a chattel mortgage was entered into with the bank;

sports car used as security; payment to be done in 4 installments; defaulted on 3rd payment; foreclosed; sold on public auction

Sold for 1 million; entitled to excess?- Debtor not liable for excess

Sold for 700,000; liable for deficiency?- [1st issue]; is it a sale of a movable on

installments?o If covered by [Recto Law]; debtor

no longer liable for deficiencyo If NOT covered by Recto Law;

debtor liable for Deficiency

6 Million loan; car as security under chattel mortgage; sold at 3 million, debtor liable for deficiency?

- Yes; not covered by Recto Law

If sold for 10 million, debtor entitled to excess?- Yes

[Pledge]Pledge Chattel MortgageDelivery is NECESSARY (pledge has right to possession)

Delivery NOT necessary

Registration NOT necessary

Registration in the chattel mortgage register is necessary

Debtor NOT entitled to excess

- UNLESS agreed on

- OR in case of a legal pledge (where there is no definite period for payment of the principal obligation; demand must be made for pledge to sell at public auction)

Debtor ENTITLED to excess

Creditor CANT recover deficiency

Creditor may recover any deficiency

- EXCEPT if the chattel mortgage is a security for the purchase of personal

property in installments (was it entered into for purchasing personal property)

Affidavit of good faith necessary

In a pledge; upon default, thing pledged sold on public auction; is the debtor liable for the deficiency?

- No; similar to a pawnshop; you surrender possession of the thing

[Antichresis]- Requires the delivery of the security;

creditor given possession- Creditor acquires only the right to receive

the income/fruits of an immovable property; Ex. Commercial building; delivered for purpose of applying fruits to the principal

“In case of default, there is no foreclosure”- Property cannot be appropriated- Remedy; file an action for specific

performance

“Usury law; already abrogated”

“See truth in lending act”

“There must be an appraisal of the property”- To forestall usury

[Bulk Sales Law] - Envisioned since there is a tendency of

debtors to defraud creditors- Selling all or substantially all assets directly

used in businesso Cf. with sale of substantially all

corporate assets; requirement of concurrence 2/3s of the stock holders representing outstanding capital stock

- To effect a valid sale; must inform creditors of intention to sell substantially all assets

o Notice to creditors; required- There must be:

o A list of creditorso An inventory of properties to be

soldo Date of sale

“Effect of violation”- Sale as to innocent buyers; the sale is valid- Sale as to affected creditors; void

“Transfers exempt from Bulk Sales Law”- When declared insolvent; next step

liquidation

***Jon Jamora*** [Notes on Intellectual Property Law (Atty. Gapuz)]

[Intellectual Property]- Involves an expression of what is in the

mind

“Rights are granted under the statute”- Eg. Covers intellectual property like

[Copyright]o Intangible property that can’t be

seen; (but the product can be seen)o Covers person expresses something

related to Literary works Artistic works Scientific wokrs

“Covers mainly”- [Patents]- [Trade Marks]- [Copyrights]- Covers even; [Undisclosed Information]; a

secret; revelation of which will damage an enterprise

“Covers not only Philippine Nationals”- Under the Paris convention; signatories of

the said treaty are protected- Controversy as to municipal laws vs

international agreementso SC-> international laws do not

reign over municipal laws on equal footing

“Reciprocity Rule” (p498)

“TRIPS and other international treaties”- All signatories must include in their

Municipal Laws provisions of the treaties; this led to the amendment of the Intellectual Property Code

If there were prohibitions in the Municipal Law- Cf. reverse reciprocity; the same should also

be applied to our…

“The Constitution provides for the protection of scientists/inventors”

“Intellectual property is an expression of the mind”- Must be expressed in some form to be

protected

[Copyright]

“Created from the moment of creation”- Need not be registered

“Provide/submit a copy of your works to the National Library/SC for better protection”

- It constitutes evidence that you won the copyright

“Should not be interchanged with Trademarks or Patents”

“As author”- Own copyright from the moment of creation

“It takes longer to secure a trademark or patent”- Which is why some opt for copyright

Pearl and Dean vs SM (GR 148222)- Involved light boxes; Pearl filed an

infringement case against SM- SC-> Light boxes are not copyrightable;

P&Ds copyright was only limited to the drawings of the light boxes (prints or pictorial illustrations)

What works are protected?- Original works- Derivative works

Lampshade; with dancing lady as stand; is it a product of an artistic mind or utilitarian purpose?

- It is an artistic work rather than an invention or utility model

Photocopy boos in recto; book alike; can you be accused of infringement?

- No; under the [Fair Use Rule]; no profit was made; only for personal use for a limited time; for research and educational purpose

What if mass produced the book and sold it to your whole class?

- Yes; there is infringement; generated profit

“With the ownership of the copyright; there is the right to…”

- Exploit the sameo Sello Distributeo Copy

[Fair Use] (p509)

[Infringement] (p510)- Trespass on intellectual property;

intellectual piracy

“A” wrote a science book; B another author made another science book; B substantially copied A’s book; when A found out he filed an infringement of copyright case against B; was there infringement of copyright?

- Yes; it was economically injurious to A; A lost a lot; instead of earning the value of his science book diminished

o [Tests for infringement] Injurious effect Diminish the value? Copying substantial

portions

“Duration of a copyright”- During the lifetime of the creator and 50

years after his death

“Are letters copyrightable?” - Yes (p503); see separate and distinct rule

“Theory of separation of the right and the work” [separate and distinct rule]

- The work can be transferred but the copyright still belongs to the owner

“Ownership of the copyright”- [Employee’s work during the course of

employment] (p502)- [Commissioned work] (p501); person

commissioning owns the work while the creator owns the copyright; unless a written stipulation to the contrary is made

As to commissioned worksPatents CopyrightPerson commissioning owns patent

Creator owns copyright

“Venue of infringement cases”- Filing; with the IPO legal affairs/department

o Where to Appeal; director of the IPO

- Administrative penalties; cease and desist; fines; forfeiture

[Trademarks]- A sign, symbol, logo, to distinguish or

determine the origin of the product

[1st user rule]- abandoned

[1st registrant Rule]

“There must be actual use after registration” (p514)- must file a declaration of actual use with

evidence within 3 years from filing dateo if not; registration may be

cancelled; (the IPO can grant it to another applicant)

Infringement Unfair CompetitionUnauthorized use of trademark

Passing off of one’s goods as those of anotherFraudulent intent essential

Prior registration of trademark essential; a prerequisite to filingSame class of goods/services involved

Different classes of goods/services MAY be involved

“Infringement”- must be registered

“Unfair competition”- need not be registered- enough that another was defrauded- passed product as similar

Shangrila Case- Shang Resto vs Shang Hotel; Shang hotels

put up a branch in the Philippines much later than Shang Resto; Shang Resto argues that it is the 1st registrant; Shang Hotel contended that it had prior use of trademark back then as it has many hotels worldwide (registered in the country of origin); who has a better right?

- Shang Hotel; reciprocity rule; all nationals signatories are protected as well in our country

“Registration in the country of origin”

- Protected as well here; under reciprocity

Section 131. Priority Right. - 131.1. An application for registration of a mark filed in the Philippines by a person referred to in Section 3, and who previously duly filed an application for registration of the same mark in one of those countries, shall be considered as filed as of the day the application was first filed in the foreign country.

131.2. No registration of a mark in the Philippines by a person described in this section shall be granted until such mark has been registered in the country of origin of the applicant.

131.3. Nothing in this section shall entitle the owner of a registration granted under this section to sue for acts committed prior to the date on which his mark was registered in this country: Provided, That, notwithstanding the foregoing, the owner of a well-known mark as defined in Section 123.1(e) of this Act, that is not registered in the Philippines, may, against an identical or confusingly similar mark, oppose its registration, or petition the cancellation of its registration or sue for unfair competition, without prejudice to availing himself of other remedies provided for under the law.

131.4. In like manner and subject to the same conditions and requirements, the right provided in this section may be based upon a subsequent regularly filed application in the same foreign country: Provided, That any foreign application filed prior to such subsequent application has been withdrawn, abandoned, or otherwise disposed of, without having been laid open to public inspection and without leaving any rights outstanding, and has not served, nor thereafter shall serve, as a basis for claiming a right of priority. (Sec. 37, R.A. No. 166a)

Is making Jollibee shirts an infringement of of Jollibee’s trademark?

- No infringement; food isn’t involved; follow the [doctrine of related goods] (p522); in the registration of a trademark; must state what products for which a trademark will be used; t-shirts are unrelated

What if a monkey is portrayed similar to Jollibee; same color scheme and style; then sell food; is there infringement?

- There is confusing similarity; although not exact; consider the dominant features [dominancy test] (p519)

- Same line of business; related goods

Esso case- Involved cigarettes and petroleum- SC-> doctrine of related goods; cigarettes

are different from petroleum products

“Tie up the dominancy test with the doctrine of related goods”

[Holistic Test] (p520)

Dominancy Test Holistic TestFocus on the main dominant features

Incorporated in the code; controlling

Relies on visual/ aural/ connotative/ over all impressions between the 2 trademarks

Entirety of marks considered; to determine confusing similarity

Rely on visual comparison

“Duration of trademark”- 10 years; subject to indefinite renewal for

periods of 10 years each

“What can’t be registered?” (p515)

“Doctrine of Secondary Use”- Although engaged in food; not napkins;

secondary use of trademark

[Remedies]- [action for damages]- [injunction]- [impounding]- [double damages]- [destruction of infringing material]- [criminal action]- [Administrative sanctions]

[Patents] (p529)- [Invention]; technical solution of a problem

in any field of human activity-- [Novelty]; not part of prior art- [Inventive step]; if regarding a prior act; it is

not obvious to a person skilled in the art at the time of filing or priority date

- [Industrially applicable]; can be produced and used in any industry

Duration- 20 years from the filing date of application

[Utility model]- [new]- [industrially applicable]- No inventive step

Duration- 7 years from filing date of application; non

renewable

[Industrial Design]- [new]- No inventive step- Not industrially applicable

Duration- 5 years from filing date of application- Renewable for not more than consecutive

periods of 5 years each

Patentable inventions (p531)

Novelty

Involves an inventive step- Invent something as originator; exert effort

to research

Prior Art (p529)- Already available to the public

Must be [industrially applicable] (p530)

“improving process”; Ex. Cell phones; not patentable; already prior art; not really invent anything new; still a cellular phone

[Cancellation of patent]- Effect; termination of rights covered by

patent- Grounds

o Invention is not new/patentableo Insufficient disclosureo Contrary to public order/morals

- Remedy when the case at hand can’t be a case for infringement; eg when there no registration yet

Make medicines on cancer; not register with the IPO; can the government compel you to release formula?

- The government may allow somebody to manufacture the said medicine without your consent for instances like national emergency

If there is no national emergency?

- Payment of just compensation

Section 93. Grounds for Compulsory Licensing. - The Director of Legal Affairs may grant a license to exploit a patented invention, even without the agreement of the patent owner, in favor of any person who has shown his capability to exploit the invention, under any of the following circumstances:

93.1. National emergency or other circumstances of extreme urgency;

93.2. Where the public interest, in particular, national security, nutrition, health or the development of other vital sectors of the national economy as determined by the appropriate agency of the Government, so requires; or

93.3. 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; or

93.4. In case of public non-commercial use of the patent by the patentee, without satisfactory reason;

93.5. If the patented invention is not being worked in the Philippines on a commercial scale, although capable of being worked, without satisfactory reason: Provided, That the importation of the patented article shall constitute working or using the patent. (Secs. 34, 34-A, 34-B, R.A. No. 165a)

[Compulsory Licensing] (p536)

Voluntary Licensing (p538)

Doctrine of equivalents (p536)

Registration of Patent

Remedies- [persons with no patent]

o Prosecute application of his owno File new patent applicationo Request that application be refusedo Seek cancellation of a patent

- [remedies of true inventor; deprived of patent through fraud];

o Substitutiono Cancel patent; with damages

- [remedies for patent infringement]o Action for damages plus attys feeso Injunctiono Disposal/destruction

o Criminal action for repetition of infringement