effective memory aid for students of commercial law

8/11/2019 Effective Memory Aid for Students of Commercial Law

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CODE OF COMMERCE

COMMERCEbranch of human activity; purpose is to bring products to the consumer throughoperations habitually and with intent of gain

COMMERCIAL LAWbranch of private law which regulates the juridical relations arisingfrom commercial acts

CHARACTERISTICS OF COMMERCIAL LAW:

1. 1. universal2. 2. uniform

3. 3. equitable

4. 4. customary

5. 5. progressive

PORTIONS OF CODE OF COMMERCE STILL APPLICABLE:

1. 1. merchants; book of merchants and general provision of contracts

2. 2. joint account association

3. 3. commercial barter4. 4. transfers of non-negotiable credits

5. 5. commercial contracts of overland transportation6. 6. letters of credit

7. 7. maritime commerce

OTHERS:

1. 1. Commercebringing products from the manufacturers to the consumers

1. 2. Characteristics of Commerce:

1. a. habituality

2. b. rapidityif period is fixed, debtor in delay without need of demand; ifcontract does not fix period, 10 days

3. c. intent to join

1.

3. Merchant:1. a. Individualslegal capacity, 21 years, or subject to parental authority,

habitually engaged in commerce2. b. Juridical Personscommercial and industrial company organized in

accordance with law, habitually engaged in business

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


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Exceptions:

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

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

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

1. a. suffering accessory penalty of civil interdiction (reclusion perpetuaand

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

3. c. prohibited by Constitution and special laws

1. 6. Aliens

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

2. b. engaged in the business in the Philippines not reserved for the Filipinos3. c. after securing license and BOI certificate

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

1. 8. BOI Certificate must be obtained by:1. a. alien

2. b. foreign firm

1. 9. Meaning of Philippine National

1. a. citizen

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

Philippines3. c. Filipino corporation where Filipino capital entitled to vote is at least 60%

1. 10. Query: If a corporation is a shareholder of another corporation, how do you

determine whether the latter corporation is a Filipino national?

Answer: The following must concur -

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

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

1.

11. Tenor of BOI Certificate

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

Priorities Plan2. b. Business will contribute to the sound and balanced development of the

national economy in a self-sustaining basis

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

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


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

1. 12. Basic Principles/Conditions laid down by BOI1. a. resident agent of foreign firm is a Filipino citizen

2. b. establishment of office in the Philippines

3.

c. bringing assets tot he Philippine office as capital4. d. complete set of accounting records

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

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

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

2.

b. BOI certificate3. c. Applicant for license gives required information

n articles of incorporation

n by-laws

n names and addresses of resident agents

n principal place of business in the Philippines

1.

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

RETAIL TRADE NATIONALIZATION LAW

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

Supplement to follow)

1. 1. Retail Tradeany act, occupation, or calling of habitually selling direct to the

general public, merchandise, commodities, or goods for consumption

Jurisprudence has held that the term retail should be associated with and limited to goods forpersonal, family or household use, consumption and utilization. The Retail TradeNationalization Law refers to consumption goods or consumer goods which directly satisfy

human wants and desires and are needed for home and daily life. Excluded from the law are

those goods which are considered generally raw material used in the manufacture of other goods,or if not, as one of the component raw material, or at least as elements utilized in the process of

production and manufacturing.


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1. 2. Elements of What Constitutes Retail Trade:

1. a. The seller habitually engages in selling;

2. b. The sale is direct to the general public; and3. c. The object of the sale is limited to merchandise, commodities or goods for

consumption.

1. 3. General Rule: After 1964, only Filipinos or corporations whose capital is 100%

Filipino may engage in retail trade.

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

Philippines:

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

2. b. farmer or agriculturist when selling his products;3. c. manufacturer or processor selling to industrial or commercial users or

consumers who use the produce to render service to the general public or to

produce or manufacture goods which are sold by them to the public;

4.

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

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

1. 5. Query: How to determine citizenship of shares of the corporation when they arenot held directly by individuals, but in turn held by another entity?

Answer: apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by

Filipino citizens shall be considered as Philippine nationality, but if the percentage of Filipinoownership in the corporation or partnership is less than 60%, only the number of shares

corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000

shares are registered in the name of a corporation or partnership at least 60% of the capital stockor capital respectively, of which belong to Filipino citizens, all of the said shares shall be

recorded as owned by Filipinos. But, if lets say, 50% of the capital stock belongs to Filipino

citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares

shall be recorded as belonging to aliens.

However, while a corporation with 60% Filipino and 40% foreign equity ownership is

considered a Philippine national for purposes of investment, it is not qualified to invest in orenter into a joint venture agreement with corporations or partnerships, the capital or ownership of

which under the Constitution or other special laws are limited to Filipino citizens only. Hence,

for purposes of the law, whatever the percentage of Filipino ownership in the owningcorporation, the foreign ownership would always render a portion of its holding in the company

as foreign equity and would disqualify the corporation to engage in retail trade.

ANTI-DUMMY ACT


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

to enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are

imposed on the president, manager, board member or persons in charge of the violatingentity and causing the latter to forfeit its privileges, rights and franchises.

1.

2. Disqualified aliens cannot intervene in the management, operation, administrationor control of the business reserved to Filipinos whether as an officer, employee or

laborer, with or without remuneration, except when:

1. a. alien takes part in technical aspects;2. b. provided that no Filipino can do such technical work; and

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

department head concerned.

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

1. a. Aliens may be elected to the Board of Directors to the extent of their

allowable share in the capital of the corporation (in partially nationalized

industries).2. b. A registered enterprise may employ foreign nationals in supervisory,

technical, and advisory positions for a period of 5 years subject to extension.3. c. Where majority of stocks of a pioneer enterprise is owned by foreign

investors, the following positions may be held by foreign nationals:

n president

n treasurer

n general manager

n equivalent positions

1. 4. A Filipino common-law wife of an alien is not barred from engaging in the retail

business provided she uses capital exclusively derived from her paraphernal properties;

however, allowing her common-law alien husband to take part in the management of theretail business would be a violation of the law.

1. 5. What doing business means:

1. a. soliciting orders, purchases, service contracts;2. b. opening offices whether called liaison offices or branches;

3.

c. appointing representatives or distributors who are domiciled in thePhilippines or who in any calendar year stay in the country for a period totaling180 days or more;

4. d. participating in the management or supervision or control of any domestic

firm, entity or corporation in the Philippines;5. e. any other act or acts that imply continuity in commercial dealings


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1. 6. When commissioned merchants/investors or commercial brokers act in their own

name in selling foreign products, the foreign firm manufacturing these products is not

doing business in the Philippines.

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

doing business in the Philippines.

1. 8. The following are NOT doing business:

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

2. b. exercise of rights as such investor;

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

corporation;4. d. appointing a representative or distributor domiciled in the Philippines

which transacts business in its own name and for its own accounts.

2. 1. Purpose:

1.

a. to encourage use of and to promote transactions based on trust receipts;2. b. to regulate the use of trust receipts

TRUST RECEIPTS LAW

1. 2. Definition:

A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby

the latter releases the goods, documents or instruments tot he possession of the former upon theENTRUSTEES promise to hold said goods in trust for the ENTRUSTER, and to sell the goods,

etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE

EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, orfor other purposes.

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

foreign currency.

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

made by the ENTRUSTEE.

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

1.

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

1. 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. 1. Kinds:

1. a. Commercial Letters of Credit

2. b. Travelers Letters of Credit

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

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

1. 4. Limited to a fixed account.

PRICE TAGS LAW

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

JOINT ACCOUNTS

1.

1. It exists when a merchant interests himself in the transaction of another merchant,contributing thereto the amount of capital they may agree upon, and participating in the

favorable or unfavorable results thereof in the proportion they may determine.

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

1. 3. No suit may be maintainedinvestor and third persons dealing with the merchant

conducting business.

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

BULK SALES LAW

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

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

sale.

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

1. a. Sale, transfer, mortgage or assignments of a stock of goods, wares,

merchandise, provisions, or materials otherwise than in the ordinary course oftrade;

2. b. Sale transfer, mortgage or assignments of all, or substantially all, of the

business of the vendor, mortgagor, transferor, or assignor;

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

or assignor.


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1. 4. Only creditors at the time of the sale in violation of the law are within the

protection of the laws and creditors subsequent to the sale are not covered.

1. 5. Even if the transaction falls within the definition of bulk sale, the following are

not deemed covered by the law:

1.

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

statements;

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

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

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

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

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

1. b. The vendor must apply the purchase money to the pro-rata payment of bona fide

claims of the creditors as shown in the verified statement.

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

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

included in the sale

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

terms and conditions of the sale

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

be criminally liable.

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

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

the seller.

INSURANCE LAW

1.

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

a. Insurance Code

2. b. Civil Code

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

1. 2. Contract of Insurancean agreement whereby one undertakes for a considerationto indemnify another against loss, damage or liability arising from an unknown

contingent event.


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1. 3. Contract of Suretyshipdeemed to be an insurance contract within the meaning of

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

insurance business

1. 4. Definition of doing an insurance business:

1.

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

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

the surety;3. c. doing reinsurance business;

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

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

1. 5. Requisites of Insurance:

1. a. existence of an insurable interest;

2. b. risk of loss;

3.

c. assumption of risk;4. d. scheme to distribute losses; and

5. e. payment of premiums

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

device.

1. 6. Characteristics of an insurance contract:

1. a. consensual2. b. voluntary

3. c. aleatorydepends upon some contingent event; however, it is not a

wagering nor a gambling contract4.

d. executed as to the insured after payment of the premium5. e. executory as to insurernot executed until payment for a loss

6. f. personaleach party takes into account the character, credit and the

conduct of the other7. g. conditionalliability is based on the happening of the event insured against

1. 7. Parties to a contract of Insurance:1. a. insurerparty who assumes the risk or undertakes to indemnify the insured

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

2. b. insuredperson in whose favor the contract is operative, and who isindemnified against, or is to receive a certain sum upon the happening of a

specified contingency

3. c. beneficiarymay or may not be the same as the insured

What perils may be insured?


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

having an insurable interest; or

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

against the person insured.

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

1. a. himself, his spouse and his children

2. b. any person on whom he depends wholly or in part for education or support,or in whom he has a pecuniary interest

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

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

performance or delay it4. d. any person upon whose life any estate or any interest vested in him depends

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

1.

a. an existing interest2. b. an inchoate interest, founded on an existing interest

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

Definition of Insurable Interest in Property: Interest in property, whether real or personal,or any relation thereto, or liability in respect thereof, of such nature that a contemplated

peril might directly damnify the insured.

1.

10. Instances when Insurable Interest must exist:1. a. Interest in Property insured must exist when the insurance takes effect and

when the loss occurs, but need not exist in the meantime.2. b. Interest in the Life or Health of a Person Insured must exist when the

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

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

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

property insured.

Category Insurable Interest in Life

Insurance

Insurable Interest in Property

1. basis may be based on pecuniary

interest, affinity, orconsanguinity

based purely on pecuniary

interest

2. when interest must exist at the time the policy takes

effect EXCEPT: life insurancetaken by the creditor on the life

of the debtor wherein interest

at the time the policy takes

effect and at the time of the loss


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must also exist at the time of the

loss

3. amount of insurable interest no limit EXCEPT: if insurableinterest is based on creditor-

debtor relationship (only to the

extent of the credit or debt)

limited to the actual value ofdamage/injury/loss

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

by a corresponding change in interest in the insurance suspends the insurance to anequivalent extent, until the interest in the thing and the interest in the insurance are vested

in the same person.

Exceptions: a. In case of life, health, and accident insurance

1. b. when the change in interest results after the occurrence of an injury which results ina loss

2.

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

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

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

jointly insured to the others (even though it has been agreed that the insurance shall seizeupon the alienation of the thing insured)

1. 12. Revocation of Beneficiaries

General Rule: Insurance contracts are revocable.

Exception: Any person who is forbidden to receive any donation under Article 739 ofthe Civil Code cannot be named beneficiary of a life insurance policy by the person who

cannot make the donation to him.

The following donations shall be void:

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

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

thereof;

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

office.

Other Pertinent Provisions on Revocation:

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

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


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

donations as well as the designation of the latter as a beneficiary in any insurance policy, even if

such designation is irrevocable. The revocation of or change in the designation shall take effectupon written notification thereof to the insured. The action to revoke the donation under this

article must be brought within 5 years from the time the decree of legal separation has become

final.

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

beneficiary is the principal, accomplice or accessory in willfully bringing about the death of theinsured, in which event, the nearest relative of the insured shall receive the proceeds of said

insurance if not otherwise disqualified.

1. 13. Suspensiona change of interest in any part of a thing insured unaccompanied by acorresponding change of interest in the insurance suspends the insurance to an equivalent

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

same person.

1. 14. Concealmenta neglect to communicate that which the party knows or ought to

communicate

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

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

he is not the absolute owner thereof.

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

of insurance.

Requisites:

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

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

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

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

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

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

sufficient that the non-revelation has misled the insurer in forming his estimate of thedisadvantages of the proposed policy or in making his inquiries in order to entitle the

insurance company to avoid the contract.


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

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

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

question;

2.

b. it was possible for the agent, in the exercise of reasonable diligence, to have madethe communication before the making of the insurance contract.

n Failure on the part of the insured to disclose such facts known to his agent, or wholly due tothe fault of the agent, will avoid the policy, despite the good faith of the insured.

1. 15. Neither party to the insurance contract is bound to communicate information on thefollowing matters except in answer to the inquiries of the other:

1. a. those of which the other knows;

2. b. that which, in the exercise of ordinary care, the other ought to know and ofwhich the former has no reason to suppose his ignorance, i.e. political situation,

general usages of trade;3. c. those of which the other waives communication;

4. d. those which prove or tend to prove the existence of the risk excluded by awarranty and which are not otherwise material;

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

otherwise material.

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

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

Waiver of material facts may be:

(a) by the terms of the insurance; or

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

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

inquiries.

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

1.

16. Representation

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

to give information to the insurer and otherwise induce him to enter into the insurance contract.

It may be made orally or in writing.

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

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


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

qualify an implied warranty.

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

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

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

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

Incontestable Clause: After a policy of life insurancemadepayable on the death of the

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

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

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

1. 17. Warranties:

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

Exceptions:

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

against occurs;

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

unlawful;3.

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

becomes impossible.

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

non-fulfillment of which in any respect and without reference to whether the insurer wasin fact prejudiced by such non-fulfillment, renders the policy voidable by the insurer,

wholly irrespective of the materiality of such statement or promise.


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Warranty Representationpart of the insurance contract collateral inducement

always written on the policy maybe oral or writtenconclusively presumed material materiality must be proved

must be strictly complied with requires substantial truth

made by the insured may be made by insurer or insured

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

insurer is entitled to rescind the contract of insurance.

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

1. 18. Policy

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

printed form.

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

of insurance, intended to give temporary protection pending the investigation of the riskby the insurer, or until the issuance of a formal policy.

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

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

latters branch office had received from the applicant the insurance premium and

accepted the application subject for processing by the insurance company and that thelatter will either approve or reject the same.

Kinds of Policies:

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

ascertained at the time of the loss

2.

b. Valuedexpresses on its face an agreement that the thing insured shall be valuedat a specific sum3. c. Runningcontemplates successive insurance which provides that the object of the

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

additional statements or endorsements

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

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

Category Open Policy Valued 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 be

ascertained upon loss

value of property upon loss is

conclusively stipulated to aspecified amount

Period for commencing an action against the policy: Within 1 year from the time thecause of action accrues, i.e., from the time of rejection of the claim by the insurer. Any

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


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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 becominguninsurable

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

would place the insurer in violation of the Insurance Code

(3) notice must be in writing

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

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

insurer will furnish facts on which the cancellation is based

Renewal of the Policies Other than Life:

Insurer must mail or deliver to the insured notice of its intention not to renew the policy or tocondition its renewal upon reduction of limits or elimination of coverages within 45 days before

the policy ends. Otherwise, insured entitled to renew the policy upon payment of the premium

due on the effective date of the renewal.

1. 19. Premium

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

(b) in case of estoppel

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

perils insured against.

When insurer entitled to Return of Premiums


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

insurer;

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

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

incurred any liability under the policy4. d. when the insured has become a public enemy and the policy automatically canceled(on the ground of equity)

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

proportioned to the amount by which the aggregate sum insured in all policies exceed theinsurable value of the thing at risk)

1. 20. Loss

When Insurer is Liable:

1.

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

cause of the loss2. b. where the thing insured is rescued from the peril insured against that would

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

peril not insured against, which permanently deprives the insured of its possession inwhole or in part

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

against

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

5.

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

When Insurer Not Liable:

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

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

for such peril is thereby excepted3. c. loss caused by the connivance of the insured

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

5. e. 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 of the insured.

Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committedsuicide after the policy has been in force for a period of 2 years from the date of its issue

or last reinstatement. If insured kills himself within a period of 2 years, insurer is not

liable.

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

time of commission, the insurer is liable.


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1. 21. Double Insuranceexists where the same person is insured by several insurers

separately in respect to the same subject and interest

Requisites: a. person insured must be the same

1.

b. existence of several insurers2. c. subject matter insured must be the same

3. d. interest the same

4. e. risk insured against also the same

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

insurable interest

insurance may or may not exceed the value of

insurable interest

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

Liability of Insurer:

Insurance taken

from each insurer

- x value of property received = liability of insurer totalinsurance

1. 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 specific grant, orassignment of, the reinsurance contract in favor of the insured, or a manifest intention of the

contracting parties to the reinsurance contract to favor the insured.

General Rule: The insurer who obtains reinsurance must communicate:

1. a. all the representations of the original insured; and2. b. all the knowledge and information he possesses, whether previously or

subsequently acquired which are material to the risk

Exception: under automatic reinsurance treaties

Reinsurance Double Insurance1. 1. insurer becomes the insured

2. 2. subject matter is the insured riskor liability

3. 3. different risks and interests of

insured


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4. 4. there must be consent of original

5. 5. one who is original insured has no

interest in the contract of reinsurancewhich is independent of the original

contract of insurance

6.

1. insurer remains the insurer7. 2. subject matter is property8. 3. the same interest and risk are

insured

9. 4. insured has to give his consent10.5. insured is the party in interest in

all contracts

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

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

denote nature accidents peculiar to the seawhich do not happen by intervention of man nor

are to be prevented by human prudence

damage or losses resulting from:

1. 1. natural and inevitable action of thesea

2. 2. ordinary wear and tear of a ship,

or

3. 3. negligent failure of the ship ownerto provide the vessel with proper

equipment to convey the cargo under

ordinary conditions

Owner of the Ship has Insurable Interest:

1. a. in the ship even if it has been chartered by one who promises to pay him in value incase of loss (insurer is liable for what insured cannot recover from the charterer), even

when hypothecated by bottomry (only the excess of its value over the amount secured by

bottomry) and

2. b. in the freightage, which according to the ordinary and probable course of things hewould have earned but for the intervention of a peril insured against or other peril

incident to the voyage

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

by its loss.

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

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

prejudice of the owners interest.


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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 from the

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

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

himself to transport merchandise or persons for a fixed price. It has also been defined asa contract by virtue of which the owner or the agent of the vessel for the transportation of

goods or persons from one port to another.

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

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

pledges the ship as a security for repayment, with maritime or extraordinary interest onthe account of the maritime risks to be borne by the lender. It is stipulated in such a

contract that if the ship be lost in the course of the specific voyage or during a specifiedlimited time caused by any of the perils enumerated in the contract, the lender shall

resolutely lose his money.

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

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

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

rd

person, in reference to a material fact is material.

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

1. a. national character of the insured2. b. liability of the thing insured to capture and detention

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

4. d. want of necessary documents

5. e. use of false and simulated papers

Implied Warranties:

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

commencement of risk, except: (a) insurance for a specified length of timeat thecommencement of every voyage it undertakes during that time; (b) cargo to be

transshipped at indeterminate porteach vessel upon which cargo is shipped is

seaworthy at the commencement of each particular voyage

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


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

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

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

thereon

Seaworthiness depends on:

1. a. nature of the ship2. b. nature of the voyage

3. c. nature of the service

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

n Exceptions:

1.

a. in a Time Policycommencement of every voyage that must be undertaken2. b. in a Cargo Policycommencement of each particular voyage3. c. in a Voyage Policycommencement of each portion of the voyage

Deviation

1. a. a departure from the course of the voyage insured2. b. unreasonable delay in pursuing the voyage

3. c. commencement of an entirely different voyage

When is Deviation proper?

1. a. when caused by circumstances over which neither the master not the owner of theship has any control

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

against or not3. c. when made in good faith for the purpose of saving human life or relieving another

vessel in distress

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

avoid a peril

Loss

1. a. Actual Total Loss

n a total destruction of the thing insured

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

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


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

of the thing insured

1. b. Constructive Total Lossgives to the person insured the right to abandon

Averageany extraordinary or additional expense incurred during the voyage for thepreservation of the vessel, cargo, or both and all damages to the vessel and cargo from the

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

General Averagean expense or damage suffered deliberately in order to save the

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

Abandonmentact of the insured by which, after a constructive total loss, he declares the

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

is a peril insured against)

(a) more than thereof in value is actually lost or would have been expended to recover itfrom 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 performed without

incurring an expense of more than of the whole, or a risk which a prudent man would notundertake under the circumstances

(d) if the thing insured is cargo or freightage, and the voyage cannot be performed on anothership procured by the master within a reasonable time and with reasonable diligence to forward

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

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:

1. a. must be total and conditional

2. b. made within a reasonable time3. c. explicit notice

4. d. coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

1. a. insured must have interest at risk

2. b. there must be no fraud on the insureds part

Notice of Abandonment:


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

from oral notice)

2. b. must be explicit3. c. must specify the particular cause for abandonment

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

Acceptance of Abandonment

1. a. may be express or implied (i.e. silence for unreasonable length of time)2. b. conclusive upon the parties and admits the loss and sufficiency of abandonment

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

If insurer refuses to accept a valid abandonmentliable as upon actual total loss

Upon actual abandonment

1.

a. freightage earned before lossbelongs to the insurer of freightage2. b. freightage earned after lossbelongs to insurer of ship

Co-insurance: form of insurance in which the person who insures his property for lessthan the entire value is understood to be his own insurer for the difference which exists

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

Co-insurance applies only where the:

1. a. insurance taken is less than the actual value of the thing insured2. b. loss is partial

Primageincrease in freightage

1. 24. Fire Insurance

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

it was intended to burn and ought to be in) and not that caused by friendly fire (fire which burns

in a place where it is intended to burn).

Scope of Fire Insurance:

1.

a. fire2. b. lightning3. c. windstorms

4. d. tornado

5. e. earthquake6. f. other allied risks

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


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

2. b. it was made without the insurers consent

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

Rules:

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

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

2. b. if it escapes, even though the insured was negligent, the insurer is liable3. c. even though a fire may remain in its proper place, it may become hostile if it by

accident, becomes so extensive as to be beyond control

Options of the Insurer

1. a. purchase the property at appraised valuation2. b. restore the property damagedcontract of insurance is discharged and parties enter

into a new contract of insurance

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

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

Insurer is Liable for death/injury to insured:

1. a. by his own hand while insane

2. b. by taking poison by mistake3. c. by overdoes of drugs administered or taken by mistake, by ignorance or material

pathological conditions

4.

d. by unexpected bacterial infection consequent upon doing acts, even though suchacts were intentionally done

5. e. by unprovoked violence of others

Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

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

whose name such vehicle is registered with the LTO

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

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

No Fault Indemnity Clause: The insurance company shall pay any claim for death orbodily injuries sustained by a passenger or 3

rdparty without the necessity of proving fault

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

damage.


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1. 26. Suretyshipan agreement whereby the surety guarantees the performance of the

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

party called the

obligee

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

connected therewith may be payable:1. a. on the death of the insured

2. b. on his surviving a specified period

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

(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:

1. a. Whole Life or Ordinary Policieshere, the insured agrees to pay annual, semi-annual or quarterly premiums while he lives. The insurer agrees to pay the face value of

the policy upon the death of the insured.2. b. Limited Payment Life Policypremiums paid only for a specified period of years.3. c. Term Policyinsurers liability arises only upon the death of the insured within the

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

insurer is not liable4. d. Endowment Policyinsurer agrees to pay a certain sum to the insured if the latter

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

beneficiary

5. e. Life Annuitydebtor binds himself to pay an annual pension or income during thelife of one or more persons in consideration of a capital consisting of money or other

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

1.

28. The Business of Insurance

1. a. Life or Endowment Policies

Grace Period30 days for the payment of any premium due after the first premium has been

paid

Period of Incontestabilityafter the lapse of 2 years from the date of issue or date of approval of

last reinstatement

Reinstatement of Policywithin 3 years from the date of default of premium, upon:

1.

a. production of evidence of insurability, and

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

policy

Exceptions:

1. a. if cash surrender value has been paid


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2. b. if period of extension has expired

1. b. Claims Settlement

Unfair Claims Settlement Practices:

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

coverage at issue

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

to claims arising under its policies

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

arising under its policies

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

submitted in which liability has become reasonably clear

(e) compelling policy holders to institute suits to recover the amount due under its policies byoffering with no justifiable reason an amount substantially less than that ultimately recovered in

suits brought by them

Proceeds of Life Insurancepayable within 60 days after:

(a) presentation of claims, and

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

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

Proceeds of Policies other than Lifepayable:

(a) upon proof of loss

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

in 90 days)

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

(a) if insurance contract is in unsound condition

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

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

public or to its policy holders


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(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 Agentany person who for compensation solicits or obtains insurance on behalf ofany insurance company or transacts for a person other than himself an application for a policy or

contract of insurance to or from such company or offers or assumes to act in negotiating of such

insurance. He must be first licensed as such before doing any acts as insurance agent.

Insurance Brokerany person for any compensation, commission or any other thing of value,

acts, or aids in any manner in soliciting, negotiating or procuring the making of any insurancecontract or in placing risk or taking out insurance, on behalf of an insured other than himself. A

license is required.

WAREHOUSE RECEIPTS LAW

1. 1. Warehousea building or place where goods are deposited and stored for profit.

1. 2. Warehousemanperson lawfully engaged in the business of storing goods forprofit.

Only a warehouseman may issue warehouse receipts.

1. 3. Warehouse Receiptwritten acknowledgment by a warehouseman that he has

received and holds certain goods therein described in store for the person to whom it isissued.

1. 4. Non-negotiable Receiptreceipt deliverable to a specified person.

1. 5. Negotiable Receiptreceipt deliverable to order or to bearer.

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

1. a. location of the warehouse

2. b. date of the issue of the receipt3. c. consecutive number of the receipt

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

specified person, or his order

5.

e. rate of storage charges6. f. description of the goods or packages containing them for identification

purposes7. g. signature of the warehouseman

8. h. statement of the amount of advances made and of liabilities incurred for

which the warehouseman claims as lien

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


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

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

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

4. d. The issuance of a warehouse receipt in the form provided by the law is

merely permissive and directory and not mandatory in the sense that if therequirements are not observed, then the goods delivered for storage becomeordinary deposits.

1. 8. Terms which may be inserted in a Warehouse Receipt: Any other terms except (a)

those contrary to the provisions of this Act; (b) those that would impair a

warehousemans obligation to exercise thatdegree of care in the safekeeping of the goods

entrusted to him

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

1. a. A non-negotiable receipt must be clearly marked non-negotiable or not

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

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

1. 10. Warranties of a warehouseman as to duplicate receipts:1. a. The duplicate is an accurate copy of the original receipt.

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

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

1. a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed),

whether fraudulent or not, authorized or not, the warehouseman is liable on thealtered receipt according to its original tenor.2. b. If the alteration is MATERIAL but AUTHORIZED, the warehouseman is

liable according to the terms of the altered receipt.

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

tenor.

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

warehouseman is liable:

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

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

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

receipt

1. 12. Effects of misdescription of goods:


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1. a. A warehouseman is under the obligation to deliver the identical property

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

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

3. c. If the description consists merely of marks or label upon the goods or upon

the packages containing them, the warehouseman is not liable even if the goodsare not of the kind as indicated in the marks or labels.

1. 13. Principal Obligations of a Warehouseman:1. a. To take care of the goods entrusted to his safekeeping

General Rule: A warehouseman is required to exercise such degree of care which a

reasonable careful owner would exercise over similar goods of his own. He shall beliable for any loss or injury to the goods caused by his failure to exercise such care.

Exception: He shall not be liable for any loss or injury which could not have been

avoided by the exercise of such care.

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

caused by his negligence.

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

provided demand is accompanied with:

(1) an offer to satisfy the 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 goods may be entitled to

delivery without surrender of the receipt.

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

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

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

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

person upon satisfactory proof of such loss or destruction and upon proper posting of a bond toprotect the warehouseman from any liability or expense which he may incur by reason of the

original receipt remaining outstanding.

(2) where more than one person claims title or possession of the goods the warehouseman may

require all claimants to interplead. The court will then order delivery to the person having a

better right.


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1. b. an attaching creditorGoods, while in the possession of the warehouseman and

covered by a negotiable receipt, cannot be attached or levied upon under an execution

unless:

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

(ii) its negotiation is enjoined, or

(iii) the receipt is impounded by the court

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

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

sale

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

1.

a. a person entitled to the delivery by the terms of the receipt, or2. b. one who has written authority from letter a

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

the terms of which the goods are deliverable:

1. a. to him or order

2. b. to bearer3. c. indorsed to him

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

1. 15. When is there Misdelivery?

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

1. a. the person does not fall under letter B or C above; or

2. b. the person falls under letter B or C but prior to delivery, the warehouseman had

either:

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

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

possession of the goods

1. 16. Effects of Misdelivery:

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


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1. 17. What happens if there is proper delivery or partial delivery but the warehouseman

fails to cancel the receipt or record on the receipt of such partial delivery?

1. a. If goods covered by a negotiable warehouse receipt are delivered by awarehouseman but he fails to take the receipt and cancel it, then he is still liable to

one who purchases for value and in good faith such receipt.

2.

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

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

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

right to the possession of the goods:

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

storage or subsequent thereto; or

(2) from the warehousemans lien

1. b. If someone other than the depositor or person claiming under the depositor has a

claim to the title or possession of the goods and the warehouseman has information of

such claim, the warehouseman shall be excused from liability for refusing to deliver thegoods either to the depositor or person claiming under him until he has had a reasonabletime to ascertain the validity of the adverse claim or to bring legal proceedings to compel

all claimants to interplead.

1. c. The warehouseman will not be required to deliver the goods if such had been lost.

But this is without prejudice to liabilities which may be incurred by him due to such loss.

1. d. The warehouseman having a valid lien against the person demanding the goods

may refuse to deliver the goods to him until the lien is satisfied.

1. e. If goods have been lawfully sold or disposed of because of their perishable or

hazardous nature, the warehouseman shall not be liable for failure to deliver the goods.

1. 19. A warehouseman cannot refuse to deliver goods to the depositor or to a person

claiming under him on the ground that adverse title to the goods belongs to a third

person.

1.

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

General Rule: A warehouseman may not co-mingle goods belonging to different

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

Exception: A warehouseman may co-mingle fungible goods of the same kind and grade

provided he is authorized by agreement or by custom.


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

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

2. b. The warehouseman shall be severally liable to each depositor for the careand redelivery of his share of such mass to the same extent and under the same

circumstances as if the goods had been kept separate.

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

Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ ofpreliminary injunction and serve the same on the depositor before he has a chance to negotiate

the receipt. Once enjoined, there will be no longer a danger that a 3rd

person will be prejudiced

so the goods may now be attached, levied upon, or that the vendors lien or the right of stoppage

in transit be exercised.

1. 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:

1. a. all lawful charges for storage and preservation of the goods

2. b. all lawful claims for money advances, interest, insurance, transportation, labor,

weighing, cooperating and other charges and expenses in relation to such goods3. c. all reasonable charges and expenses for notice and advertisements of sale and for

sale of the goods where default has been made in satisfying the warehouse lien

Goods Subject to lien:

1. a. goods belonging to the depositor who is liable to the warehouseman as debtor

whenever such goods are deposited and

2. b. goods belonging to other persons stored by the depositor who is liable to the

warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?

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

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

value of the lien3.

c. by filing a civil action for unpaid charges or by way of counterclaim in an action to

recover the property from him

How is a lien lost?

1. a. when the warehouseman voluntarily surrenders possession of the goods without

requiring payment of his lien; or


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2. b. when the warehouseman wrongfully refuses to deliver the goods when a demand is

made with which he is bound to comply

1. 24. Negotiation and Transfer of Receipts

How do we negotiate a receipt deliverable to order?

1. a. by indorsing it in blank thereby making it deliverable to bearer or2. b. by special indorsementwhich would require further indorsements for further

negotiations.

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

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation. Physical delivery of the instrument will suffice. But

if the instrument is indorsed specially, the bearer character of the receipt is destroyed and forfurther negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?

1. a. the owner of the receipt, or2. b. the person to whom possession of the receipt was entrusted to by the owner

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

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

2.

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

3. c. the direct obligation of the warehouseman to hold possession of the goods for him,

as if the warehouseman directly contracted with him

May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right. That is why they

are called non negotiable receipts. But they may be transferred or assigned by delivery.

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

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

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

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

for him

Distinction between a non negotiable receipt from a negotiable receipt with regard to

attachment or execution upon goods:


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Non-negotiable Receipt Negotiable ReceiptPrior to notification of the warehouseman by the

transferor or transferee, the warehouseman isnot bound to the transferee whose right may be

defeated by a levy of an attachment or execution

upon the goods by the creditor of the transferoror by a notification to such warehouseman ofthe subsequent sale of the goods.

The goods cannot be attached or levied under an

execution unless the receipt be first surrenderedto the warehouseman or its negotiation enjoined.

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

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

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

require the transferor to indorse the receipt.

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

Warranties of a person negotiating or transferring a receipt:

1. a. the receipt is genuine2. b. he has a legal right to negotiate or transfer it

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

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

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts

payment of the debt from a person does not warrant the genuineness of the receipt not the

quality or quantity of the goods therein described.

It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiablereceipt has been issued to require the negotiation of the receipt to him, otherwise his

failure will have the same effect as an express authorization on his part to the seller,

mortgagor, or pledgor in possession of such receipt to make any subsequent negotiation.The subsequent purchaser must have taken the receipt in good faith and for value.

A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where

he purchases from the owners agent within the actual or apparent scope of his authority.In sum, negotiation is valid despite having been made in breach of trust.

Distinctions between a negotiable instrument and a negotiable warehouse receipt:

Negotiable Instrument Negotiable Warehouse ReceiptWhen a negotiable instrument is altered

deliberately, it becomes null and void.

When a warehouse receipt is altered, it is still

valid but it may be enforced only in accordance

with its original tenor.

If a negotiable instrument is originally payable If a warehouse receipt, payable to bearer, is


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to bearer, it will always remain so payable

regardless of the way it is indorsed, whether

specially or in blank.

indorsed specially, it will be converted into a

receipt deliverable to order and can only be

negotiated further by indorsement and delivery.A holder in due course may be able to obtain a

title better than that which the party who

negotiated the instrument to him had.

An indorsee even if a holder in due course

obtains only such title as the person negotiating

has over the goods.The indorsement of a negotiable instrument hasa double effect. It is at the same time a

conveyance of the instrument and a contract the

indorser has with the indorsee that on certainconditions, the indorser will pay the instrument

if the party primarily liable fails to do so.

The indorsement of a warehouse receiptamounts merely to a conveyance by the

indorser. Accordingly, an indorser of a receipt

shall not be liable to the holder if, for example,the warehouseman fails to deliver the goods

because they were lost due to his fault or

negligence.

GENERAL BONDED WAREHOUSE LAW

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

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

2. b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse

against which bond depositors may sue directly3. c. open to the public, no discrimination allowed

4. d. liable for double market value should he accept goods in excess of the capacity of

warehouse if goods are damaged or destroyed

Note: for palay and corn license, a bond with the National Grains Authority is required;

also an insurance cover is required.

Uniform Currency Law

1. 1. Obligations Null and Void

1. a. obligations payable in gold/foreign currency

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

1. 2. Exempt Transactions1. a. government to government transactions or with international banking

institutions

2.

b. transactions affecting high priority economic projects

3. c. forward exchange transactions between banks4. d. import and export and other international banking, financial, investment

and industrial transactions

1. 3. Merchants and Commercial Transactions


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Classes of Investments:

1. a. Permittedone allowed without need of prior authority from the PhilippineGovernment. If registered status, invest up to extent as not to affect its registered status.

If enterprise not registered, investment not to exceed 40%.

2.

b. Permissibleinvest in excess of 40% in unregistered enterprise but with priorapproval of BOI

3. c. Pioneer Area(a) involves manufacturing, processing, production of product not

produced at all/produced in non-commercial scale; (b) uses a design, scheme, formulathat is new and untried in the Phils.; (c) agricultural activities/services essential to the

attainment of food sufficiency; (d) produces non-conventional fuels/utilizes non-

conventional sources of energy (all others are non-pioneer)

1. 4. Absolutely Disqualified to become Merchants

1. a. serving penalty of civil interdiction

2. b. insolvent

3.

c. absolutely disqualified by special laws

1. 5. Relatively Disqualified1. a. judicial and prosecuting officials in active service

2. b. administrative, economic, military chiefs

3. c. government collection agents and custodian of funds4. d. stock and commercial brokers

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

1. 6. Books a Merchant must keep

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

2.

b. journal of day to day operations3.

c. ledger for classifying accounts4. d. copying book for letters and telegrams; if juridical person, include book of

minutes and stock and transfer book

1. 7. Probative Value of Merchants Book

1. a. evidence against merchants themselves

2. b. in case of conflicts between 2 booksthat which s properly kept prevails3. c. if one keeps books and the other does not and cannot explain why, the

former prevails

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

1. 8. Commercial Contracts by Correspondence are perfected from the moment theofferee accepts the offer, even before knowledge of said acceptance by the offeror. This

does not apply to deposit, guaranty, sales, loan, agency, partnership.


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1. 9. Joint Account Partnershipbusiness arrangement whereby 2 or more persons

interest themselves in the business of another by making contributions thereto and

participating in the results thereof1. a. only one member is ostensible, others are silent

2. b. no common name

3.

c. only ostensible partners can sue/be sued4. d. no juridical personality

Transportation Law

1. 1. Contract of Transportationcontract whereby a certain person or association of

persons obligate themselves to transport persons, things, news, from one place to another

for a fixed price

1. 2. Parties to the Contract of Transportation:1. a. Shipperone 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 thoseof other or others in the case of transportation of passengers

2. b. Carrier/Conductorone who binds himself to transport persons, things, ornews, as the case may be, or one employed in or engaged in the business of

carrying goods for others for hire

1. 3. Common Carrierperson, corporation, firm, association engaged in the business

of carrying or transporting passengers, goods or both, by land, water, air, for

compensation, offering services to the public; must exercise extraordinary diligence

Private Carriernot engaged in the business of carrying; no public employment; undertakes to

deliver goods/passengers for compensation; requires only ordinary diligence

4. Requisites of Caso Fortuito

1. a. event independent of human will

2. b. occurrence makes it impossible for debtor to perform in normal manner3. c. debtor free from aggravation/participation

4. d. impossible to foresee or avoid

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

1.

6. Bill of Ladingwritten acknowledgment of receipt of goods and agreement to

transport them to a specific place to a person named or his carrier

It is not indispensable to the creation of a contract of carriage. The contract itself arises from the

moment goods are delivered by shipper to carrier and the carrier agrees to carry them.


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The function of the Bill of Lading: the legal basis of the contract between the shipper and carrier

shall be the bills of lading, by the contents of which all disputes which may arise with regard to

their execution and fulfillment shall be decided, no exceptions being admissible other thanforgery or material errors in the drafting thereof.

Carriers responsibility starts from the moment he receives unconditionally the merchandisepersonally or through an agent and lasts until he delivers them actually or constructively to the

consignee or his agent.

Mere delay in the delivery of goods to consignee does not give right to refuse goodsonly

breach of contract, ergo damages. If delay is unreasonable, then he may refuse to accept and

make carrier liable for conversion.

1. 7. Vesselsthose 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

1. 8. Persons Participating in Maritime Commerce:1. a. ship owner and/or ship agent

2. b. captain or master

3. c. other officers of the vessel4. d. supercargo

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

1. a. civil liability for the acts of the captain2. b. civil liability for contracts entered into by the captain to repair, equip and

provision the vessel, provided that the amount claimed was invested for the

benefit of the vessel3.

c. civil liability for indemnities in favor of 3rd

persons which may arise from

the conduct of the captain in the care of the goods which the vessel carried, as

well as for the safety of the passengers transported

Ship owner/ship agent not liable for the obligations contracted by the captain if the latter

exceeds his powers and privileges inherent in his position of those which may have beenconferred upon him by the former. However, if the amount claimed were made use of for

the benefit of the vessel, the ship owner or ship agent is liable.

1. 10. Doctrine of Limited Liabilityliability of shipowners is limited to amount of

interest in said vessel because of the real and hypothecary nature of maritime law such

that where the vessel is entirely lost, the obligation is extinguished.

Exceptions: (1) vessel is not abandoned

(2) claims under workmens compensation

(3) injury/damage due to shipowners fault


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(4) vessel is insured

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

In abandoning the vessel, there is no procedure to be followed. There is neither a

prescriptive period within which the ship owner can make the abandonment. He may doso for so long as he is not estopped from invoking the same or do acts inconsistent with

abandonment.

1. 11. Roles of the Captain:

1. a. general agent of the ship owner

2. b. technical director of the vessels

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

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

1. 13. Loan In Respondentiataken on security of the cargo repayable upon the safearrival at cargo destination

1. 14. Accidents and Damages in Maritime Commerce:1. a. Averages

2. b. Arrivals Under Stress

3. c. Collisions

4. d. Shipwrecks

1. 15. Average:

1.

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

2. b. all damages or deterioration which the vessel may suffer from the time itputs to sea at the port of departure until it casts anchor at the port of destination,

and those suffered by the merchandise from the time they are loaded in the port of

shipment until they are unloaded in the port of their consignment

1. 16. Simple Averageexpenses/damages caused to the vessel/cargo not inured to

common benefit and profit of all the persons interested in the vessel and her cargo; borne

by respective owners

1.

17. General Averageexpenses/damag

effective memory aid for students of commercial law

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