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C O M M E R C I AL L AW MEMORY AID

CODE OF COMMERCE

COMMERCE - branch of human activity; purpose is to bring products to the consumerthrough operations habitually and with intent of gain

COMMERCIAL LAW - branch of private law which regulates the juridical relations arisingfrom commercial acts

CHARACTERISTICS OF COMMERCIAL LAW:1. universal2. uniform3. equitable4. customary5. progressive

PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:1. merchants; book of merchants and general provision of contracts2. joint account association3. commercial barter4. transfers of non-negotiable credits5. commercial contracts of overland transportation6. letters of credit7. maritime commerce

OTHERS:1. Commerce - bringing products from the manufacturers to the consumers

2. Characteristics of Commerce:a. habitualityb. rapidity - if period is fixed, debtor in delay without need of demand; if contract does

not fix period, 10 daysc. intent to join

3. Merchant:a. Individuals - legal capacity, 21 years, or subject to parental authority, habitually

engaged in commerceb. Juridical Persons - commercial and industrial company organized in accordance

with law, habitually engaged in business

4. General Rule: Minors cannot engage in commerceExceptions:a. to continue business of deceased parents through guardianb. court authorizes guardian to place minor and property in businessc. minor is an alien and his national law allows him to be a merchant

5. Which persons are not allowed to engage in commerce?a. suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion

temporal)b. those judicially declared insolvent until they can obtain their dischargec. prohibited by Constitution and special laws

6. Aliensa. capacitated under his national law to engage in businessb. engaged in the business in the Philippines not reserved for the Filipinosc. after securing license and BOI certificate

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

8. BOI Certificate must be obtained by:a. alien


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b. foreign firm

9. Meaning of Philippine Nationala. citizenb. domestic corporation wholly owned and organized by Filipinos in the Philippinesc. Filipino corporation where Filipino capital entitled to vote is at least 60%

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

Answer: The following must concur -a. At least 60% of the outstanding capital stock and entitled to vote of both

corporations are held by citizens of the Philippinesb. At least 60% of the Board of Directors of both corporations are Filipinos

11. Tenor of BOI Certificatea. Business or activity to be engaged is consistent with the Investment Priorities Planb. Business will contribute to the sound and balanced development of the national

economy in a self-sustaining basisc. Business will not conflict with the Constitution and local lawsd. Business is not adequately exploited by Filipino nationalse. No danger of monopolies/combinations in restraint of trade

12. Basic Principles/Conditions laid down by BOIa. resident agent of foreign firm is a Filipino citizenb. establishment of office in the Philippinesc. bringing assets tot he Philippine office as capitald. complete set of accounting records

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

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

14. SEC License issued upon compliance with the following requirements:a. proof of compliance with principle of reciprocityb. BOI certificatec. Applicant for license gives required information

articles of incorporation by-laws names and addresses of resident agents principal place of business in the Philippines

d. proof of solvencye. deposit acceptable securities to protect future creditors

RETAIL TRADE NATIONALIZATION LAW

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

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

Jurisprudence has held that the term retail should be associated with and limitedto goods for personal, family or household use, consumption and utilization. The RetailTrade Nationalization Law refers to consumption goods or consumer goods whichdirectly satisfy human wants and desires and are needed for home and daily life. Excludedfrom the law are those goods which are considered generally raw material used in themanufacture of other goods, or if not, as one of the component raw material, or at least aselements utilized in the process of production and manufacturing.

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


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b. The sale is direct to the general public; andc. The object of the sale is limited to merchandise, commodities or goods for

consumption.

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

4. Exceptions, that is, instances when aliens may engage in retail trade in the Philippines:a. manufacturer or processor if capital does not exceed P5,000.00;b. farmer or agriculturist when selling his products;c. manufacturer or processor selling to industrial or commercial users or consumers

who use the produce to render service to the general public or to produce ormanufacture goods which are sold by them to the public;

d. hotel owners or keepers of restaurants included or incidental to the hotel business;e. sale by a manufacturer or processor to the Government or its agencies, including

government owned and controlled corporations

5. Query: How to determine citizenship of shares of the corporation when they are notheld directly by individuals, but in turn held by another entity?Answer: apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital ofwhich is owned by Filipino citizens shall be considered as Philippine nationality, but if thepercentage of Filipino ownership in the corporation or partnership is less than 60%, onlythe number of shares corresponding to such percentage shall be counted as of Philippinenationality. Thus, if 100,000 shares are registered in the name of a corporation orpartnership at least 60% of the capital stock or capital respectively, of which belong toFilipino citizens, all of the said shares shall be recorded as owned by Filipinos. But, if letssay, 50% of the capital stock belongs to Filipino citizens, only 50,000 shares shall becounted as owned by Filipinos and the other 50,000 shares shall be recorded as belongingto aliens.

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

ANTI-DUMMY ACT

1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to

enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions areimposed on the president, manager, board member or persons in charge of theviolating entity and causing the latter to forfeit its privileges, rights and franchises.

2. Disqualified aliens cannot intervene in the management, operation, administration orcontrol of the business reserved to Filipinos whether as an officer, employee or laborer,with or without remuneration, except when:a. alien takes part in technical aspects;b. provided that no Filipino can do such technical work; andc. with express authority from the President, upon the recommendation of the

department head concerned.

3. By way of exception, the following may participate in management:a. Aliens may be elected to the Board of Directors to the extent of their allowable

share in the capital of the corporation (in partially nationalized industries).b. A registered enterprise may employ foreign nationals in supervisory, technical, and

advisory positions for a period of 5 years subject to extension.c. Where majority of stocks of a pioneer enterprise is owned by foreign investors, the

following positions may be held by foreign nationals: president


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treasurer general manager equivalent positions

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

5. What doing business means:a. soliciting orders, purchases, service contracts;b. opening offices whether called liaison offices or branches;c. appointing representatives or distributors who are domiciled in the Philippines or

who in any calendar year stay in the country for a period totaling 180 days or more;d. participating in the management or supervision or control of any domestic firm,

entity or corporation in the Philippines;e. any other act or acts that imply continuity in commercial dealings

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

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

8. The following are NOT doing business:a. mere investment as a shareholder by a foreign entity in domestic corporations duly

registered to do business;b. exercise of rights as such investor;c. having a nominee director or officer to represent interests in such corporation;

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

TRUST RECEIPTS LAW1. Purpose:

a. to encourage use of and to promote transactions based on trust receipts;b. to regulate the use of trust receipts

2. Definition:A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER

whereby the latter releases the goods, documents or instruments tot he possession of theformer upon the ENTRUSTEES promise to hold said goods in trust for the ENTRUSTER,

and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDSTHEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return thegoods if UNSOLD, or for other purposes.

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

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

5. Risk of loss is borne by the ENTRUSTEE.

6. Pending the duration of the trust agreement, the ENTRUSTERS security interestcannot be prejudiced by claims of creditors of the ENTRUSTEE.

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

LETTERS OF CREDIT


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

2. No protest required in case of dishonor.

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

4. Limited to a fixed account.

PRICE TAGS LAW

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

JOINT ACCOUNTS

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

2. Joint accounts do not adopt a firm name.

3. No suit may be maintained - investor and third persons dealing with the merchantconducting business.

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

BULK SALES LAW

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

transfers

2. The law covers all transactions, whether done in good faith or not, or whether or notthe seller is in a state of insolvency, that fall within the description of what is a bulksale.

3. Types of transactions which are treated as bulk sales:a. Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise,

provisions, or materials otherwise than in the ordinary course of trade;b. Sale transfer, mortgage or assignments of all, or substantially all, of the business of

the vendor, mortgagor, transferor, or assignor;c. Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and

equipment used in the business of the vendor, mortgagor, transferor, or assignor.

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

5. Even if the transaction falls within the definition of bulk sale, the following are notdeemed covered by the law:a. If the vendor, mortgagor, transferor or assignor produces and delivers a written

waiver of the provisions of the law from his creditors as shown by verifiedstatements;

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

6. Obligations when transaction is a bulk sale:a. The vendor must deliver to such vendee a written statement of:

names and addresses of all creditors to whom said vendor or mortgagormay be indebted; amount of indebtedness due or owing to each of said creditors

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


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c. The seller, at least 10 days before the sale, shall: make a full detailed inventory of the goods, merchandise, etc., cost price ofeach article to be included in the sale notify every creditor at least 10 days before transferring possession of thegoods, of the price, terms and conditions of the sale

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

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

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

INSURANCE LAW

1. Laws applicable to insurance in the order of priority:a. Insurance Codeb. Civil Codec. General Principles prevailing on the subject in the US

2. Contract of Insurance - an agreement whereby one undertakes for a consideration toindemnify another against loss, damage or liability arising from an unknown contingentevent

3. Contract of Suretyship - deemed to be an insurance contract within the meaning of theInsurance Code, only if made by a surety who or which, as such, is doing an insurancebusiness

4. Definition of doing an insurance business:a. making or proposing to make, as insurer, any insurance contract;

b. making or proposing to make as a surety, any contract of suretyship as a vocationand not merely incidental to any other legitimate business or activity of the surety;

c. doing reinsurance business;d. doing or proposing to do any business in the substance equivalent to any of the

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

5. Requisites of Insurance:a. existence of an insurable interest;b. risk of loss;c. assumption of risk;d. scheme to distribute losses; ande. payment of premiums Note: If only a, b, and c are present, it is not a contract of insurance but a risk

shifting device.

6. Characteristics of an insurance contract:a. consensualb. voluntaryc. aleatory - depends upon some contingent event; however, it is not a wagering nor a

gambling contractd. executed as to the insured after payment of the premiume. executory as to insurer - not executed until payment for a lossf. personal - each party takes into account the character, credit and the conduct of the

otherg. conditional - liability is based on the happening of the event insured against

7. Parties to a contract of Insurance:a. insurer - party who assumes the risk or undertakes to indemnify the insured or to

pay a certain sum on the happening of a specified contingency


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b. insured - person in whose favor the contract is operative, and who is indemnifiedagainst, or is to receive a certain sum upon the happening of a specifiedcontingency

c. beneficiary - may or may not be the same as the insured

What perils may be insured?(a) any contingent or unknown event, whether past or future, which may

damnify a person having an insurable interest; or(b) any contingent or unknown event, whether past or future, which may create

a liability against the person insured.

8. Every person has an insurable interest in the life and health of:a. himself, his spouse and his childrenb. any person on whom he depends wholly or in part for education or support, or in

whom he has a pecuniary interestc. any person under a legal obligation to him for the payment of money, or respecting

property or services, of which death or illness might prevent the performance ordelay it

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

9. Insurable Interest in Property may consist of:a. an existing interestb. an inchoate interest, founded on an existing interestc. an expectancy, coupled with an existing interest out of which the expectancy arises

Definition of Insurable Interest in Property: Interest in property, whether real orpersonal, or any relation thereto, or liability in respect thereof, of such nature that acontemplated peril might directly damnify the insured.

10. Instances when Insurable Interest must exist:

a. Interest in Property insured must exist when the insurance takes effect and whenthe loss occurs, but need not exist in the meantime.

b. Interest in the Life or Health of a Person Insured must exist when the insurancetakes effect, but need not exist thereafter or when the loss occurs.

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

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

Category Insurable Interest in LifeInsurance

Insurable Interest inProperty

1. basis may be based on pecuniary

interest, affinity, or consanguinity

based purely on pecuniary

interest

2. when interest must exist at the time the policy takeseffect EXCEPT: lifeinsurance taken by thecreditor on the life of thedebtor wherein interest mustalso exist at the time of theloss

at the time the policy takeseffect and at the time of theloss

3. amount of insurableinterest

no limit EXCEPT: if insurableinterest is based on creditor-debtor relationship (only to

the extent of the credit ordebt)

limited to the actual value ofdamage/injury/loss

11. General Rule: A change of interest in any part of a thing insured unaccompaniedby a corresponding change in interest in the insurance suspends the insurance to anequivalent extent, until the interest in the thing and the interest in the insurance arevested in the same person.Exceptions: a. In case of life, health, and accident insurance


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b. when the change in interest results after the occurrence of an injurywhich results in a loss

c. a change of interest in one or more several distinct things, separatelyinsured by one policy

d. a change in the interest by will or succession on the death of the insured(interest passes to the heirs)

e. a transfer of interest by one of several partners, joint owners in commonwho are jointly insured to the others (even though it has been agreed thatthe insurance shall seize upon the alienation of the thing insured)

12. Revocation of Beneficiaries General Rule: Insurance contracts are revocable. Exception: Any person who is forbidden to receive any donation under Article 739

of the Civil Code cannot be named beneficiary of a life insurance policy by theperson who cannot make the donation to him.

The following donations shall be void:a. those made between persons who were guilty of adultery or concubinage at the

time of the donation;

b. those made by persons found guilty of the same criminal offense, inconsideration thereof;

c. those made to a public officer or his wife, descendants, ascendants, by reasonof his office.

Other Pertinent Provisions on Revocation:(a) The termination of a subsequent marriage shall allow the innocent spouse to

revoke the designation of the other spouse who acted in bad faith as beneficiaryin any insurance policy, even if such designation be stipulated as irrevocable.

(b) After the finality of the decree of legal separation, the innocent spouse mayrevoke the donations as well as the designation of the latter as a beneficiary inany insurance policy, even if such designation is irrevocable. The revocation ofor change in the designation shall take effect upon written notification thereof to

the insured. The action to revoke the donation under this article must bebrought within 5 years from the time the decree of legal separation has becomefinal.

(c) The interest of a beneficiary in a life insurance policy shall be forfeited whenthe beneficiary is the principal, accomplice or accessory in willfully bringingabout the death of the insured, in which event, the nearest relative of theinsured shall receive the proceeds of said insurance if not otherwisedisqualified.

13. Suspension - a change of interest in any part of a thing insured unaccompanied bya corresponding change of interest in the insurance suspends the insurance to anequivalent extent until the interest in the thing and the interest in the insurance are

vested in the same person.

14. Concealment - a neglect to communicate that which the party knows or ought tocommunicate General Rule: The insured is not required to communicate the nature (or kind) or

the amount of his insurable interest in the life or property insured to the insurer. Exception: a. When the insurer makes inquiry from the insured of the nature or

amount of the latters insurable interest, whether in life or property insurance;b. insurance policy must specify the interest of the insured in the

property insured, if he is not the absolute owner thereof. A concealment, whether intentional or not, entitles the injured party torescind a contract of insurance.

Requisites:(a) the party concealing must have knowledge of the facts concealed;(b) the facts concealed must be material to the risk;(c) the party is duty bound to disclose such fact to the other;(d) the party concealing makes no warranty as to the facts concealed;(e) the other party has no other means of ascertaining the facts concealed.


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Note: An insured need not die of the very disease he failed to reveal to the insurer.It is sufficient that the non-revelation has misled the insurer in forming his estimateof the disadvantages of the proposed policy or in making his inquiries in order toentitle the insurance company to avoid the contract.

Note: The insured is under an obligation to disclose not only such material facts asare known to him, but also those known to his agent where:

a. it was the duty of the agent to acquire and communicate information of the factsin question;

b. it was possible for the agent, in the exercise of reasonable diligence, to havemade the communication before the making of the insurance contract. Failure on the part of the insured to disclose such facts known to his agent,or wholly due to the fault of the agent, will avoid the policy, despite the goodfaith of the insured.

15. Neither party to the insurance contract is bound to communicate information on thefollowing matters except in answer to the inquiries of the other:a. those of which the other knows;b. that which, in the exercise of ordinary care, the other ought to know and of which

the former has no reason to suppose his ignorance, i.e. political situation, generalusages of trade;

c. those of which the other waives communication;d. those which prove or tend to prove the existence of the risk excluded by a warranty

and which are not otherwise material;e. those which relate to a risk excepted from the policy and which are not otherwise

material.

Neither party is bound to communicate his mere opinion, even upon inquiry,because such opinion would add nothing to the appraisal of the application.

Waiver of material facts may be:(a) by the terms of the insurance; or

(b) by the neglect to make inquiry as to such facts, where they are distinctlyimplied in other facts which information is communicated

Materiality is to be determined not by the events but solely upon the probable andreasonable influence of the facts on the party to whom the communication is due informing his estimate of the disadvantages of the proposed contract or in making hisinquiries.

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

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

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

insurance contract.

It may be made orally or in writing. It may be made at the time of, or before, the issuance of the policy. It may be altered or withdrawn before the insurance is effected, but not afterwards. A representation cannot qualify an express provision in a contract of insurance butit may qualify an implied warranty. A representation as to the future is to be deemed a promise unless it appears that itwas merely a statement of belief or an expectation. (must be susceptible of present,actual knowledge) The statement of an erroneous opinion, belief or information, or of an unfulfilledintention, will not avoid the contract of insurance, unless fraudulent.

Right to rescind because of false representation:a. must be exercised previous to the commencement of an action on the contract (the

action referred to is that to collect a claim on the contract)b. misrepresentation, whether intentional or not, gives the right to rescind

Incontestable Clause: After a policy oflife insurance madepayable on the death ofthe insuredshall have been in force during the lifetime of the insured for a period of 2years from the date of its issue or of its last reinstatement, the insurer cannot prove that


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the policy is void ab initio or is rescindable by reason of the fraudulent concealment ormisrepresentation of the insured or his agent. Exceptions: (a) absence of insurable risk

(b) cause of loss is an unexpected risk(c) fraud(d) non-payment of premium(e) violation of conditions relating to naval or military services(f) failure to comply with conditions subsequent to the occurrence of the

loss

17. Warranties:

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

Exceptions:a. when before the time for performance of the promissory warranty, a loss insured

against occurs;b. when before the time of the performance of the warranty, the act becomes

unlawful;c. when before the time of the performance of the warranty, said performance

becomes impossible.

A statement or a promise set forth in the policy or by reference incorporated therein,the non-fulfillment of which in any respect and without reference to whether theinsurer was in fact prejudiced by such non-fulfillment, renders the policy voidable bythe insurer, wholly irrespective of the materiality of such statement or promise.

Warranty Representationpart of the insurance contract collateral inducementalways written on the policy maybe oral or written

conclusively presumed material materiality must be provedmust be strictly complied with requires substantial truthmade by the insured may be made by insurer or insured

Note: If there is a breach of warranty, even if the cause of the loss is adifferent risk, the insurer is entitled to rescind the contract of insurance. Breach must refer to a material warranty, whether intentional or not.

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

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

contract of insurance, intended to give temporary protection pending theinvestigation of the risk by the insurer, or until the issuance of a formal policy.

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

Exception: Where it is merely an acknowledgment on behalf of the company thatthe latters branch office had received from the applicant the insurance premiumand accepted the application subject for processing by the insurance company andthat the latter will either approve or reject the same.

Kinds of Policies:a. Open - the value of the thing insured is not agreed upon, but is left to be

ascertained at the time of the lossb. Valued - expresses on its face an agreement that the thing insured shall be

valued at a specific sumc. Running - contemplates successive insurance which provides that the object of

the policy may be from time to time defined especially as to the subject ofinsurance by additional statements or endorsements Note: If an amount is written on the face of an open policy, it is merely adetermination of the maximum limit of recovery and not as the value of thepolicy.


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Category Open Policy Valued Policywhat needs to be proven inorder to be able to claim

value of property upon loss no need for proof of value ofproperty upon loss

determining value of loss value of property is to beascertained upon loss

value of property upon loss isconclusively stipulated to aspecified amount

Period for commencing an action against the policy: Within 1 year from thetime the cause of action accrues, i.e., from the time of rejection of the claim bythe insurer. Any condition, stipulation, or agreement limiting the time to lessthan 1 year is void. Grounds for Cancellation of a Policy by the Insurer:For Policies Other than Life:

(1) prior notice of the cancellation to insured(2) notice must be based on the ff. occurrences after effective date of

the policy(a) non-payment of premiums(b) conviction of a crime arising out of acts increasing the hazard

insured against(c) discovery of fraud or material misrepresentation(d) discovery of willful or reckless acts or omissions increasing

the hazard insured against(e) physical changes in the property insured which results in the

property becoming uninsurable(f) determination by the Commissioner that the continuation of the policy

would violate or would place the insurer in violation of the InsuranceCode

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

the policy

(5) notice must state the ground relied upon and that upon writtenrequest of the insured, the insurer will furnish facts on which thecancellation is based

Renewal of the Policies Other than Life:Insurer must mail or deliver to the insured notice of its intention not to renew the

policy or to condition its renewal upon reduction of limits or elimination of coverageswithin 45 days before the policy ends. Otherwise, insured entitled to renew thepolicy upon payment of the premium due on the effective date of the renewal.

19. Premium General Rule: No policy is binding until the premium thereof has been paid. Exceptions: (a) in case of life or industrial life policy, whenever the grace period

applies(b) in case of estoppel

Insurer is entitled to payment of premiums as soon as the thing insured is exposedto the perils insured against.

When insurer entitled to Return of Premiumsa. when the contract is voidable on account of fraud or misrepresentation of the

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

without his faultc. when by any default of the insured other than actual fraud, the insurer never

incurred any liability under the policyd. when the insured has become a public enemy and the policy automatically

canceled (on the ground of equity)e. in case of over-insurance by several insurers (ratable return of premiums,

proportioned to the amount by which the aggregate sum insured in all policiesexceed the insurable value of the thing at risk)

20. Loss When Insurer is Liable:


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a. where the peril insured against was the proximate cause, although a peril notcontemplated by the contract may have been the remote cause or even theimmediate cause of the loss

b. where the thing insured is rescued from the peril insured against that wouldotherwise have caused a loss, if, in the course of such rescue, the thing isexposed to a peril not insured against, which permanently deprives the insuredof its possession in whole or in part

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

d. insurer is not exonerated by a loss caused by simple negligence of the insured ifthe proximate cause of the loss is a peril insured against

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

When Insurer Not Liable:a. where the peril insured against was only a remote causeb. where the peril is specifically excepted, a loss which would not have occurred but

for such peril is thereby excepted

c. loss caused by the connivance of the insuredd. loss caused by the willful act of insurede. loss caused by insureds negligence, if it amounts to bad faith

General Rule: The insurer is not liable for a loss caused by the willful act ofthe insured. Exception: Suicide Clause in Life Insurance: Insurer liable in case insuredcommitted suicide after the policy has been in force for a period of 2 years from thedate of its issue or last reinstatement. If insured kills himself within a period of 2years, insurer is not liable. Exception to Exception: If suicide is committed in a state of insanity,regardless of the time of commission, the insurer is liable.

21. Double Insurance - exists where the same person is insured by several insurersseparately in respect to the same subject and interest

Requisites: a. person insured must be the sameb. existence of several insurersc. subject matter insured must be the samed. interest the samee. risk insured against also the same


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Over Insurance Double Insurancemay be only one insurer must be 2 or more insurersinsurance covers more than the value ofinsurable interest

insurance may or may not exceed the value ofinsurable interest

The Code prohibits double insurance without the consent of the insurer. Liability of Insurer:

Insurance takenfrom each insurer

---------------------------------- x value of property received = liability of insurertotal insurance

22. Reinsurance: A process by which an insurer procures a third person to insure himagainst loss or liability by reason of such original insurance.

The original insured cannot recover from this insurance unless there is a specificgrant, or assignment of, the reinsurance contract in favor of the insured, or a manifestintention of the contracting parties to the reinsurance contract to favor the insured.

General Rule: The insurer who obtains reinsurance must communicate:a. all the representations of the original insured; andb. all the knowledge and information he possesses, whether

previously or subsequently acquired which are material to the risk Exception: under automatic reinsurance treaties

Reinsurance Double Insurance1. insurer becomes the insured

2. subject matter is the insured risk or liability3. different risks and interests of insured4. there must be consent of original5. one who is original insured has no interest

in the contract of reinsurance which isindependent of the original contract ofinsurance

1. insurer remains the insurer

2. subject matter is property3. the same interest and risk are insured4. insured has to give his consent5. insured is the party in interest in all

contracts

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

Perils of the Sea Perils of the Shipcovered by marine insurance not covered by marine insurance

denote nature accidents peculiar to the seawhich do not happen by intervention of mannor are to be prevented by human prudence

damage or losses resulting from:1. natural and inevitable action of the sea2. ordinary wear and tear of a ship, or3. negligent failure of the ship owner to

provide the vessel with proper equipmentto convey the cargo under ordinaryconditions

Owner of the Ship has Insurable Interest:a. in the ship even if it has been chartered by one who promises to pay him in value

in case of loss (insurer is liable for what insured cannot recover from thecharterer), even when hypothecated by bottomry (only the excess of its value

over the amount secured by bottomry) andb. in the freightage, which according to the ordinary and probable course of things

he would have earned but for the intervention of a peril insured against or otherperil incident to the voyage

Charterer has insurable interest in the ship to the extent that he is liable to bedamnified by its loss.


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Barratry: Any willful misconduct on the part of the masters or crew, in pursuance ofsome unlawful or fraudulent purpose, without the consent of the owners and to theprejudice of the owners interest.

Jettison: Intentional casting overboard of any part of a venture exposed to a peril,whether it be of the cargo, or the ships furniture or tackle, in the hope of saving the

rest of the venture.

Insurable Interest in Marine Insurance: Determined when one will sustain loss fromthe destruction of the subject matter or derive benefit from its preservation.

Charter Party: Contract by virtue of which the owner or the agent of a vessel bindshimself to transport merchandise or persons for a fixed price. It has also beendefined as a contract by virtue of which the owner or the agent of the vessel for thetransportation of goods or persons from one port to another.

Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of aship borrows money for the use, equipment or repair of the vessel for a definite term,

and pledges the ship as a security for repayment, with maritime or extraordinaryinterest on the account of the maritime risks to be borne by the lender. It isstipulated in such a contract that if the ship be lost in the course of the specificvoyage or during a specified limited time caused by any of the perils enumerated inthe contract, the lender shall resolutely lose his money.

Loan on Respondentia: Contract akin to that of mortgage made on the goods onboard the ship, and which are to be sold or exchanged in the course of the voyage.The goods serve as the principal security.

Freightage: Signifies all the benefits derived by the owner, carriage of his owngoods, or those of others.

Concealment: In marine insurance, information or the belief or expectation of a 3rd

person, in reference to a material fact is material. Concealment of the following merely exonerates the insurer from theresulting loss therefrom:a. national character of the insuredb. liability of the thing insured to capture and detentionc. liability to seizure from breach of foreign laws of traded. want of necessary documentse. use of false and simulated papers

Implied Warranties:

a. that the ship is seaworthy - complied with if the ship is seaworthy at the time ofcommencement of risk, except: (a) insurance for a specified length of time - atthe commencement of every voyage it undertakes during that time; (b) cargo tobe transshipped at indeterminate port - each vessel upon which cargo is shippedis seaworthy at the commencement of each particular voyage

b. that the vessel shall not engage in illegal venturec. that the vessel shall not deviate from the course of the voyage insuredd. where the nationality or neutrality of a ship or cargo is expressly warranted, it is

implied that the ship will carry the requisite documents to show such nationality orneutrality and that it will not carry any documents which may cast reasonablesuspicion thereon

Seaworthiness depends on:a. nature of the shipb. nature of the voyagec. nature of the service

Seaworthiness of the vessel is required only at the commencement of therisk Exceptions:


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a. in a Time Policy - commencement of every voyage that must be undertakenb. in a Cargo Policy - commencement of each particular voyagec. in a Voyage Policy - commencement of each portion of the voyage

Deviationa. a departure from the course of the voyage insuredb. unreasonable delay in pursuing the voyagec. commencement of an entirely different voyage

When is Deviation proper?a. when caused by circumstances over which neither the master not the owner of the

ship has any controlb. when necessary to comply with a warranty or to avoid a peril whether it is insured

against or notc. when made in good faith for the purpose of saving human life or relieving another

vessel in distressd. when made in good faith and upon reasonable grounds of belief in its necessity to

avoid a peril

Lossa.Actual Total Loss

a total destruction of the thing insured the irretrievable loss of the thing by sinking or by being broken up any damage to the thing which renders it valueless tot he owner for whichhe held it any other event which effectively deprives the owner of possession, at theport of destination, of the thing insured

a. Constructive Total Loss - gives to the person insured the right to abandon Average - any extraordinary or additional expense incurred during the voyage forthe preservation of the vessel, cargo, or both and all damages to the vessel and cargo

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

General Average - an expense or damage suffered deliberately in order to save thevessel, its cargo, or both from the real or known risk

Abandonment - act of the insured by which, after a constructive total loss, hedeclares the relinquishment to the insured of his interest in the thing insured (wherethe cause of loss is a peril insured against)(a) more than thereof in value is actually lost or would have been expended

to recover it from the peril(b) it is injured to such an extent as to reduce its value by more than

(c) if the thing insured is the ship and the voyage cannot be lawfully performedwithout incurring an expense of more than of the whole, or a risk which aprudent man would not undertake under the circumstances

(d) if the thing insured is cargo or freightage, and the voyage cannot beperformed on another ship procured by the master within a reasonable time andwith reasonable diligence to forward the cargo without incurring an expense or arisk as stated above

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:a. must be total and conditional

b. made within a reasonable timec. explicit noticed. coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:a. insured must have interest at riskb. there must be no fraud on the insureds part


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Notice of Abandonment:a. may be oral or in writing (if oral, written notice must be submitted within 7 days

from oral notice)b. must be explicitc. must specify the particular cause for abandonmentd. need not be accompanied by proof of interest or loss

Acceptance of Abandonmenta. may be express or implied (i.e. silence for unreasonable length of time)b. conclusive upon the parties and admits the loss and sufficiency of abandonmentc. irrevocable, unless the ground on which it is made is proved to be unfounded

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

Upon actual abandonmenta. freightage earned before loss - belongs to the insurer of freightageb. freightage earned after loss - belongs to insurer of ship

Co-insurance: form of insurance in which the person who insures his property forless than the entire value is understood to be his own insurer for the difference whichexists between the true value of the property and the amount of insurance

Co-insurance applies only where the:a. insurance taken is less than the actual value of the thing insuredb. loss is partial

Primage - increase in freightage

24. Fire InsuranceInsurer is liable for loss or damage caused by hostile fire (fire that escapes from the

place where it was intended to burn and ought to be in) and not that caused by friendly fire(fire which burns in a place where it is intended to burn).

Scope of Fire Insurance:a. fireb. lightningc. windstormsd. tornadoe. earthquakef. other allied risks

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

contract?a. such alteration violates a provision in the policyb. it was made without the insurers consentc. it is done within the insureds control, and it increases the risk of loss or damage

Rules:a. policy shall not protect the insured from injury consequent upon his negligent use

or management of fire, so long as it is confined to the place where it ought to beb. if it escapes, even though the insured was negligent, the insurer is liablec. even though a fire may remain in its proper place, it may become hostile if it by

accident, becomes so extensive as to be beyond control

Options of the Insurera. purchase the property at appraised valuationb. restore the property damaged - contract of insurance is discharged and parties

enter into a new contract of insurance

25. Casualty Insurance: Any injury that is intended, unexpected and unusual, eventhough it results from an act or even which was intelligently done.


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Insurer is Liable for death/injury to insured:a. by his own hand while insaneb. by taking poison by mistakec. by overdoes of drugs administered or taken by mistake, by ignorance or material

pathological conditionsd. by unexpected bacterial infection consequent upon doing acts, even though

such acts were intentionally donee. by unprovoked violence of others

Compulsory Motor Vehicle Liability InsurancePersons subject to CMVLI:a. motor vehicle owner or one who is the actual legal owner of a motor vehicle in

whose name such vehicle is registered with the LTOb. land transport operator or one who is the owner of a motor vehicle or vehicles

being used for conveying passengers for compensation (including schoolbuses)

No Fault Indemnity Clause: The insurance company shall pay any claim fordeath or bodily injuries sustained by a passenger or 3rd party without the necessity ofproving fault or negligence of any kind subject to certain conditions. This does notapply to property damage.

26. Suretyship - an agreement whereby the surety guarantees the performance of theprincipal or obligor of an obligation or undertaking in favor of a 3 rd party called theobligee

27. Life Insurance: an insurance in human life and insurance appertaining thereto orconnected therewith may be payable:a. on the death of the insuredb. on his surviving a specified period

c. otherwise, contingently on the continuance or cessation of life(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:a. Whole Life or Ordinary Policies - here, the insured agrees to pay annual, semi-

annual or quarterly premiums while he lives. The insurer agrees to pay theface value of the policy upon the death of the insured.

b. Limited Payment Life Policy - premiums paid only for a specified period ofyears.

c. Term Policy - insurers liability arises only upon the death of the insured withinthe agreed term as period. If the latter survives the period, the contractterminates and the insurer is not liable

d. Endowment Policy - insurer agrees to pay a certain sum to the insured if thelatter outlives a designated period; if he dies before that time, the proceeds arepaid to the beneficiary

e. Life Annuity - debtor binds himself to pay an annual pension or income duringthe life of one or more persons in consideration of a capital consisting ofmoney or other property, whose ownership is transferred to him with theburden of income

28. The Business of Insurancea. Life or Endowment Policies

Grace Period - 30 days for the payment of any premium due after the firstpremium has been paid

Period of Incontestability - after the lapse of 2 years from the date of issue or dateof approval of last reinstatement

Reinstatement of Policy - within 3 years from the date of default of premium, upon:a. production of evidence of insurability, andb. payment of all overdue premiums and any indebtedness to the company upon

said policy


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Exceptions:a. if cash surrender value has been paidb. if period of extension has expired

b. Claims Settlement

Unfair Claims Settlement Practices:(a) knowingly misrepresenting to claimants pertinent facts or policy provisions

relating to coverage at issue(b) failing to acknowledge with reasonable promptness pertinent

communications with respect to claims arising under its policies(c) failing to adopt or implement reasonable standards for the prompt

investigation of claims arising under its policies(d) no attempt in good faith to effectuate prompt, fair and equitable settlement

of claims submitted in which liability has become reasonably clear(e) compelling policy holders to institute suits to recover the amount due under

its policies by offering with no justifiable reason an amount substantially lessthan that ultimately recovered in suits brought by them

Proceeds of Life Insurance - payable within 60 days after:(a) presentation of claims, and(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the

ceiling prescribed by the Monetary Board unless based on the ground that therate is fraudulent)

Proceeds of Policies other than Life - payable:(a) upon proof of loss(b) upon ascertainment of loss or damage (if not made within 60 days of proof

of loss, payable in 90 days)

c. Power of Commissioner to Suspend/Revoke License(a) if insurance contract is in unsound condition(b) if it has failed to comply with the provisions of law or regulations obligatory

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

hazardous to the public or to its policy holders(d) that its paid up capital stock, or its available cash assets, or its security

deposits, as the case may be, is impaired or deficient(e) that the margin of solvency required of each company is deficient

Insurance Agent - any person who for compensation solicits or obtains insurance on behalfof any insurance company or transacts for a person other than himself an application for a

policy or contract of insurance to or from such company or offers or assumes to act innegotiating of such insurance. He must be first licensed as such before doing any acts asinsurance agent.

Insurance Broker - any person for any compensation, commission or any other thing ofvalue, acts, or aids in any manner in soliciting, negotiating or procuring the making of anyinsurance contract or in placing risk or taking out insurance, on behalf of an insured otherthan himself. A license is required.

WAREHOUSE RECEIPTS LAW

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

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

Only a warehouseman may issue warehouse receipts.

3. Warehouse Receipt - written acknowledgment by a warehouseman that he hasreceived and holds certain goods therein described in store for the person to whom it isissued.


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

5. Negotiable Receipt - receipt deliverable to order or to bearer.

6. Essential Terms which MUST be embodied in a Warehouse Receipt:a. location of the warehouseb. date of the issue of the receiptc. consecutive number of the receiptd. statement whether the goods received will be delivered to bearer, or a specified

person, or his ordere. rate of storage chargesf. description of the goods or packages containing them for identification purposesg. signature of the warehousemanh. statement of the amount of advances made and of liabilities incurred for which the

warehouseman claims as lien

7. Effect of omission of any of the essential terms:a. The validity of the warehouse receipt is not affected.b. The warehouseman shall be held liable for damages to those injured by his

omission.c. The negotiability of the warehouse receipt is not affected.d. The issuance of a warehouse receipt in the form provided by the law is merely

permissive and directory and not mandatory in the sense that if the requirementsare not observed, then the goods delivered for storage become ordinary deposits.

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

9. Marks to be made on a warehouse receipt:a. A non-negotiable receipt must be clearly marked non-negotiable or not negotiable,

otherwise, the holder of the receipt who purchased it for value and who supposed itto be negotiable, may treat it as negotiable.

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

10. Warranties of a warehouseman as to duplicate receipts:a. The duplicate is an accurate copy of the original receipt.b. Such original receipt is uncancelled at the date of the issue of the duplicate.

11. Effects of alteration on the liability of the warehouseman:a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether

fraudulent or not, authorized or not, the warehouseman is liable on the alteredreceipt according to its original tenor.

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

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

d. If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman isliable:(1) to the purchaser of the receipt for value and without notice of the alteration

according to the tenor of the altered receipt(2) to the alterer, according to the terms of the original receipt(3) to subsequent purchasers with notice of the alteration, according to the

terms of the original receipt

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

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


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

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

13. Principal Obligations of a Warehouseman:a. To take care of the goods entrusted to his safekeeping

General Rule: A warehouseman is required to exercise such degree of carewhich a reasonable careful owner would exercise over similar goods of his own.He shall be liable for any loss or injury to the goods caused by his failure toexercise such care. Exception: He shall not be liable for any loss or injury which could not havebeen avoided by the exercise of such care. Exception to the Exception: He may limit his liability to an agreed value ofthe property received in case of loss. He cannot stipulate that he will not beresponsible for any loss caused by his negligence.

a. To deliver the goods to the holder of the receipt or the depositor upon demand,

provided demand is accompanied with:(1) an offer to satisfy the warehousemans lien;(2) an offer to surrender the negotiable receipt properly endorsed. If the receipt

is non-negotiable, any person lawfully entitled to the possession of the goodsmay be entitled to delivery without surrender of the receipt.

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

14. Persons to whom goods must be delivered:A. Persons lawfully entitled to the possession of the goods or his agent:a. persons to whom a competent court has ordered the delivery of the goods

(1) where a negotiable instrument has been lost or destroyed, the court may

order delivery to a person upon satisfactory proof of such loss or destructionand upon proper posting of a bond to protect the warehouseman from anyliability or expense which he may incur by reason of the original receiptremaining outstanding.

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

b. an attaching creditor - Goods, while in the possession of the warehouseman andcovered by a negotiable receipt, cannot be attached or levied upon under anexecution unless:(I) the negotiable receipt is first surrendered to the warehouseman, or(ii) its negotiation is enjoined, or

(iii) the receipt is impounded by the courtc. to the purchaser in case of sale of the goods by the warehouseman to enforce hislien

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

B. If goods are covered by a non-negotiable receipt:a. a person entitled to the delivery by the terms of the receipt, orb. one who has written authority from letter a

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

a. to him or orderb. to bearerc. indorsed to himd. indorsed in blank by the person whom delivery was promised

15. When is there Misdelivery?When the warehouseman delivers the goods to a person who is not in fact lawfully

entitled to the possession of the goods because:


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

either:(1) been requested by the person lawfully entitled to the delivery not to make

such delivery, or(2) had information that the delivery about to be made was to one not lawfully

entitled to the possession of the goods

16. Effects of Misdelivery:The warehouseman shall be liable for conversion to all having a right to property or

possession of the goods.

17. What happens if there is proper delivery or partial delivery but the warehousemanfails to cancel the receipt or record on the receipt of such partial delivery?a. If goods covered by a negotiable warehouse receipt are delivered by a

warehouseman but he fails to take the receipt and cancel it, then he is still liable toone who purchases for value and in good faith such receipt.

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

18. Lawful excuses for refusal to deliver goods:a. The warehouseman can refuse to deliver the goods if he has acquired title or right

to the possession of the goods:(1) directly or indirectly from a transfer made by the depositor at the time of the

deposit for storage or subsequent thereto; or(2) from the warehousemans lien

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

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

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

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

19. A warehouseman cannot refuse to deliver goods to the depositor or to a personclaiming under him on the ground that adverse title to the goods belongs to a thirdperson.

20. Rules as regards Co-mingling of Deposited Goods: General Rule: A warehouseman may not co-mingle goods belonging to different

depositors or belonging to the same depositor for which separate receipts had beenissued.

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

21. Effect of Co-mingling of Goods:a. The different owners become co-owners of the whole mass.b. The warehouseman shall be severally liable to each depositor for the care and

redelivery of his share of such mass to the same extent and under the samecircumstances as if the goods had been kept separate.


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22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)Creditors of the depositors, before negotiation, may protect themselves by obtaining a

writ of preliminary injunction and serve the same on the depositor before he has a chanceto negotiate the receipt. Once enjoined, there will be no longer a danger that a 3rd personwill be prejudiced so the goods may now be attached, levied upon, or that the vendors lienor the right of stoppage in transit be exercised.

23. Warehousemans Lien Extent of Warehousemans Lien:A warehouseman shall have a lien on goods deposited or on the proceeds thereof

in his hands for:a. all lawful charges for storage and preservation of the goodsb. all lawful claims for money advances, interest, insurance, transportation, labor,

weighing, cooperating and other charges and expenses in relation to suchgoods

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

lien

Goods Subject to lien:a. goods belonging to the depositor who is liable to the warehouseman as debtor

whenever such goods are deposited andb. goods belonging to other persons stored by the depositor who is liable to the

warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?a. by refusing to deliver the goods until the lien is satisfiedb. by causing the extrajudicial sale of the property and applying the proceeds to the

value of the lien

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

How is a lien lost?a. when the warehouseman voluntarily surrenders possession of the goods without

requiring payment of his lien; orb. when the warehouseman wrongfully refuses to deliver the goods when a demand

is made with which he is bound to comply

24. Negotiation and Transfer of Receipts How do we negotiate a receipt deliverable to order?

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

b. by special indorsement - which would require further indorsements for furthernegotiations.

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

How do we negotiate a receipt deliverable to bearer?There is no need to indorse for negotiation. Physical delivery of the instrument will

suffice. But if the instrument is indorsed specially, the bearer character of the receipt isdestroyed and for further negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?a. the owner of the receipt, orb. the person to whom possession of the receipt was entrusted to by the owner

Rights acquired by a person to whom the receipt has been negotiated:a. the title of the person negotiating the receipt over the goods covered by the

receiptb. the title of the person (depositor or owner) to whose order by the terms of the

receipt the goods were to be deliveredc. the direct obligation of the warehouseman to hold possession of the goods for

him, as if the warehouseman directly contracted with him


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May non negotiable receipts be negotiated?No, even if the receipt is indorsed, the transferee acquires no additional right. That

is why they are called non negotiable receipts. But they may be transferred or assignedby delivery.

Rights of a person to whom a non negotiable receipt has been transferred:a. the title to the goods as against the transferorb. the right to notify the warehouseman of the transfer thereof andc. the right thereafter to acquire the obligation of the warehouseman to hold the

goods for him

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

Non-negotiable Receipt Negotiable ReceiptPrior to notification of the warehouseman bythe transferor or transferee, the

warehouseman is not bound to the transfereewhose right may be defeated by a levy of anattachment or execution upon the goods bythe creditor of the transferor or by anotification to such warehouseman of thesubsequent sale of the goods.

The goods cannot be attached or levied underan execution unless the receipt be first

surrendered to the warehouseman or itsnegotiation enjoined.

Rights of a person to whom a negotiable receipt has been transferred, notindorsed:a. the right to the goods as against the transferorb. the right to compel the transferor to indorse the receipt. But if the intention of the

parties is that the receipt should merely be transferred, the transferee has noright to require the transferor to indorse the receipt.

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

Warranties of a person negotiating or transferring a receipt:a. the receipt is genuineb. he has a legal right to negotiate or transfer itc. he has knowledge that would impair the validity or worth of the receipt andd. he has a right to transfer the title to the goods and that the goods are

merchantable

A holder for security of a receipt (mortgagee or pledgee) who in good faith acceptspayment of the debt from a person does not warrant the genuineness of the receipt

not the quality or quantity of the goods therein described.

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

A bona fide purchaser of a negotiable warehouse receipt acquires title to the goodswhere he purchases from the owners agent within the actual or apparent scope ofhis authority. In sum, negotiation is valid despite having been made in breach of

trust.

Distinctions between a negotiable instrument and a negotiable warehouse receipt:

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

When a warehouse receipt is altered, it is stillvalid but it may be enforced only inaccordance with its original tenor.


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If a negotiable instrument is originally payableto bearer, it will always remain so payableregardless of the way it is indorsed, whetherspecially or in blank.

If a warehouse receipt, payable to bearer, isindorsed specially, it will be converted into areceipt deliverable to order and can only benegotiated further by indorsement anddelivery.

A holder in due course may be able to obtain

a title better than that which the party whonegotiated the instrument to him had.

An indorsee even if a holder in due course

obtains only such title as the personnegotiating has over the goods.

The indorsement of a negotiable instrumenthas a double effect. It is at the same time aconveyance of the instrument and a contractthe indorser has with the indorsee that oncertain conditions, the indorser will pay theinstrument if the party primarily liable fails todo so.

The indorsement of a warehouse receiptamounts merely to a conveyance by theindorser. Accordingly, an indorser of a receiptshall not be liable to the holder if, for example,the warehouseman fails to deliver the goodsbecause they were lost due to his fault ornegligence.

GENERAL BONDED WAREHOUSE LAW

Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling must:a. obtain prior license from the Bureau of Commerceb. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse

against which bond depositors may sue directlyc. open to the public, no discrimination allowedd. liable for double market value should he accept goods in excess of the capacity of

warehouse if goods are damaged or destroyed

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

Uniform Currency Law

1. Obligations Null and Voida. obligations payable in gold/foreign currencyb. obligations payable in Philippine currency but measured in gold/foreign currency

2. Exempt Transactionsa. government to government transactions or with international banking institutionsb. transactions affecting high priority economic projectsc. forward exchange transactions between banksd. import and export and other international banking, financial, investment and

industrial transactions

3. Merchants and Commercial Transactions Classes of Investments:

a. Permitted - one allowed without need of prior authority from the PhilippineGovernment. If registered status, invest up to extent as not to affect itsregistered status. If enterprise not registered, investment not to exceed 40%.

b. Permissible - invest in excess of 40% in unregistered enterprise but with priorapproval of BOI

c. Pioneer Area - (a) involves manufacturing, processing, production of productnot produced at all/produced in non-commercial scale; (b) uses a design,scheme, formula that is new and untried in the Phils.; (c) agricultural

activities/services essential to the attainment of food sufficiency; (d) producesnon-conventional fuels/utilizes non-conventional sources of energy (all othersare non-pioneer)

4. Absolutely Disqualified to become Merchantsa. serving penalty of civil interdictionb. insolventc. absolutely disqualified by special laws


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5. Relatively Disqualifieda. judicial and prosecuting officials in active serviceb. administrative, economic, military chiefsc. government collection agents and custodian of fundsd. stock and commercial brokerse. by special laws cannot trade in specified territories

6. Books a Merchant must keepa. book of inventories and balances, statement of assets, liabilities and capitalb. journal of day to day operationsc. ledger for classifying accountsd. copying book for letters and telegrams; if juridical person, include book of minutes

and stock and transfer book

7. Probative Value of Merchants Booka. evidence against merchants themselves

b. in case of conflicts between 2 books - that which s properly kept prevailsc. if one keeps books and the other does not and cannot explain why, the formerprevails

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

8. Commercial Contracts by Correspondence are perfected from the moment the offereeaccepts the offer, even before knowledge of said acceptance by the offeror. This doesnot apply to deposit, guaranty, sales, loan, agency, partnership.

9. Joint Account Partnership - business arrangement whereby 2 or more persons interestthemselves in the business of another by making contributions thereto and participatingin the results thereofa. only one member is ostensible, others are silentb. no common namec. only ostensible partners can sue/be suedd. no juridical personality

TRANSPORTATION LAW

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

2. Parties to the Contract of Transportation:a. Shipper - one who gives rise to the contract of transportation by agreeing to deliver

the things or news to be transported, or to present his own person or those of otheror others in the case of transportation of passengers

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

3. Common Carrier - person, corporation, firm, association engaged in the business ofcarrying or transporting passengers, goods or both, by land, water, air, forcompensation, offering services to the public; must exercise extraordinary diligence

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

4. Requisites of Caso Fortuitoa. event independent of human willb. occurrence makes it impossible for debtor to perform in normal mannerc. debtor free from aggravation/participationd. impossible to foresee or avoid


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5. Contributory negligence does not entitle passengers to recover moral/exemplarydamages.

6. Bill of Lading - written acknowledgment of receipt of goods and agreement to transportthem to a specific place to a person named or his carrier

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

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

Carriers responsibility starts from the moment he receives unconditionally themerchandise personally or through an agent and lasts until he delivers them actually orconstructively to the consignee or his agent.

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

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

8. Persons Participating in Maritime Commerce:a. ship owner and/or ship agentb. captain or masterc. other officers of the vesseld. supercargo

9. Liability of Ship owners and Ship agents:

a. civil liability for the acts of the captainb. civil liability for contracts entered into by the captain to repair, equip and provision

the vessel, provided that the amount claimed was invested for the benefit of thevessel

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

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

10. Doctrine of Limited Liability - liability of shipowners is limited to amount of interest insaid vessel because of the real and hypothecary nature of maritime law such thatwhere the vessel is entirely lost, the obligation is extinguished.Exceptions: (1) vessel is not abandoned

(2) claims under workmens compensation(3) injury/damage due to shipowners fault(4) vessel is insured

The doctrine also applies for claims due to death or injuries to passengers,aside from claims for goods. In abandoning the vessel, there is no procedure to be followed. There isneither a prescriptive period within which the ship owner can make theabandonment. He may do so for so long as he is not estopped from invoking the

same or do acts inconsistent with abandonment.

11. Roles of the Captain:a. general agent of the ship ownerb. technical director of the vesselsc. represents the government of the country under whose flag he navigates


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

13. Loan In Respondentia - taken on security of the cargo repayable upon the safearrival at cargo destination

14. Accidents and Damages in Maritime Commerce:a. Averagesb. Arrivals Under Stressc. Collisionsd. Shipwrecks

15. Average:a. all extraordinary or accidental expenses which may be incurred during the voyage

for the preservation of the vessel or cargo or bothb. all damages or deterioration which the vessel may suffer from the time it puts to sea

at the port of departure until it casts anchor at the port of destination, and thosesuffered by the merchandise from the time they are loaded in the port of shipmentuntil they are unloaded in the port of their consignment

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

17. General Average - expenses/damages deliberately caused in order to save thevessel, its cargo or both from a real and known riskRequisites:a. deliberately incurredb. intended to save vessel and cargo or bothc. from real and known riskd. there is success

18. Formalities for Incurring Gross Average:a. there must be an assembly of the sailing mate and other officers with the captain

including those with interests in the cargob. there must be a resolution of the captainc. the resolution shall be entered in the log book, with the reasons and motives and

the votes for and against the resolutiond. the minutes shall be signed by the partiese. within 24 hours upon arrival at the first port the captain makes, he shall deliver one

copy of these minutes to the maritime judicial authority thereat

19. Arrivals under Stress - arrival of the vessel at a port not of destination on account of(a) lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of thesea disabling it to navigateWhen Not Lawful:a. lack of provisions due to negligence to carry according to usage and customsb. risk of enemy not well known or manifestc. defect of vessel due to improper repaird. malice, negligence, lack of foresight or skill of captain

20. Collision - impact of 2 vessels both of which are moving

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

22. Cases of Collision:a. due to the fault, negligence or lack of skill of the captain, sailing mate or the

complement of the vessel - ship owner liable for the losses and damages (CulpableFault)

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


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

23. Error in Extremis - sudden movement made by a faultless vessel during the 3rd zoneof collision with another vessel which is at fault, even if the said movement is wrong, noresponsibility will fall on said vessel

24. Shipwreck - denotes all types of loss/ wreck of a vessel at sea either by beingswallowed up by the waves, by running against another vessel or thing at sea or oncoast where the vessel is rendered incapable of navigation

25. Salvage - the compensation allowed to persons by whose voluntary assistance aship at sea or her cargo or both have been saved in whole or in part from an impendingperil, or such property recovered from actual peril or loss, in cases of shipwrecks,derelict or recapture; a service which one person renders to the owner of a ship orgoods by his own labor, preserving the goods or ship which the owner or thoseentrusted with the care of them either abandoned in distress at sea or are unable to

protect and secure; a permit is required to engage in the salvage business

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

27. Elements of a Valid Salvage:a. a marine perilb. service voluntarily rendered when not required as an existing duty or from special

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

success

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

29. Difference between Towage and Salvage:Salvage Towage

crew of salvaging ship is entitled to salvage,and can look to the salvaged vessel for itsshare

crew of the towing ship does not have anyinterest or rights with the remunerationpursuant to the contract

salvor takes possession and may retainpossession until he is paid

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

court has power to reduce the amount ofremuneration if unconscionable

court has no power to change amount intowage even if unconscionable

CARRIAGEOF GOODSBY SEA ACT

1. When Applicable:a. contracts for the carriage of goodsb. by seac. to and from Philippine portsd. in foreign trade

2. Notice of Loss or damage must be given in writing to the carrier or his agent at the portof discharge or at the time of the removal of the goods into the custody of the person

entitled to delivery. If the loss or damage is not apparent, the notice must be givenwithin 3 days of delivery. However, the carrier shall be discharged from all liability inrespect of loss or damage of goods unless suit is brought within 1 year after delivery ofthe goods or the date when the goods should have been delivered. Notice of loss, ifnot given, that fact shall not affect or prejudice the right of the shipper to bring suitwithin the 1 year prescriptive period.


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WARSAW CONVENTION

1. When Applicable:a. international transport by airb. transport of persons, baggage, or goods

2. Liabilities under the Convention:a. damage sustained in the event of the death or wounding of a passenger taking

place on board the aircraft or in the course of any of the operations of embarking ordisembarking

b. loss or damage to any check baggage or goods sustained during the transport byair

c. delay in the transport by air of passengers, baggag

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