BAR OPS 2004

REMINDERS IN COMMERCIAL LAW

By Justice Japar B. Dimaampao

CHATTEL MORTGAGE

1.Covers only existing obligations and not future obligations

Remedies:1)execute another chattel mortgage

2)amend the chattel mortgage

2.ONLY personal properties may be the subject of chattel mortgage. EXCEPTION: under the doctrine of estoppel, real property may be the subject of chattel mortgage. This is valid only between parties.

3.Future properties are not covered except stock in trade

4.Absence of AFFIDAVIT of GOOD FAITH and REGISTRATION does not affect the validity of the mortgage between the contracting parties. The mortgage is not binding upon third persons. Knowledge of such mortgage amounts to automatic registration.

5.No recovery of deficiency in case of foreclosure sale under the RECTO LAW (sale of personal property payable in installment). This applies to the following:

a. Foreclosure of the real estate mortgage as additional security;

b. Additional security (motor vehicle).

6.RATIONALE: To protect underprivileged mortgagors against the rapacity of the mortgagees.

Letter of credit

1.Letter of Credit is an instrument issued by a bank on behalf of one of its customers, authorizing an individual or a firm to draw drafts on the bank or one of its correspondents for its account under certain conditions of the credit.

2.Distinct and Independent Contracts in a letter of credit:

a.Buyer/importer and seller/exporter;

b.Buyer/importer with the issuing bank; and

c.Bank promises to pay the seller pursuant to the terms and conditions stated therein.

3.Independence principle enunciates that:

a.Seller is assured of payment independent of any breach of the main contract.

b. Banks involved deal only with the documents and are not charged with the duty to ascertain the quantity and condition of the goods.

3.Perfection of Contract. Letters of credit are deemed perfected from the time the correspondent bank makes payment to persons in whose favor the letter of credit has been opened.

CODE OF COMMERCE

1.Commerce is that branch of human activity, the purpose of which is to bring products to the consumer by means of exchanges, or operations which tend to supply and extend to him, habitually, with intent of gain at the proper time and place and in good quality and quantity.

2.Joint account is an arrangement whereby the third person makes an investment in the business of another. It consists of contributions made by persons who will share in the profits and losses. It has no juridical personality.

3.Commercial transaction is an agreement between two or more merchants or non-merchants binding themselves to give or to do something in commercial business.

4.The theory of manifestation applies to the perfection of commercial contracts governed by the Code of Commerce. Commercial contracts are perfected from the time the acceptance is made.

securities regulation code

Definition. SECURITIES are shares, participation or interest in a corporation or in a commercial enterprise or profit-making venture, and evidenced by a certificate, contract, instrument, whether written or electronic in character, and include debt, equity, derivatives and trust instruments

EXEMPT SECURITIES:GRAB

a.issued or guaranteed by the Government;

b.issued by Receiver or trustee or in a bankruptcy;

c.issued or guaranteed by the government of Any country with which the Philippines has diplomatic relations;

d.Bank securities except its own shares of stock.

EXEMPT TRANSACTIONS: MIB

a.Merger or consolidation;

b.Isolated transactions;

c.Bank transactions.

INVESTMENT CONTRACT requires the concurrence of the following:

a.Investment in money

b.Common enterprise

c.Expectation of profits

d.Profits must arise from the efforts of others

e.Evidenced by contract or instrument.

INSIDER includes issuer, director, officer, government employee or any person who has material information about the securities not generally available to the public.

MANIPULATED DEVICES

a.Short Sale seller is not a dealer in securities

b.Wash Sale sale of stocks or securities in stock trading resulting in no change of beneficial ownership

c.Done Through Transaction refers to a transaction where the buying-selling broker places the order through another broker for the account of his client.

d.Over the Counter transactions made outside the stock trade.

INTELLECTUAL PROPERTY LAW

Distinctions between Infringement and Unfair Competition

INFRINGEMENTUNFAIR COMPETITION

Unauthorized use of trademarkPassing of ones good for another

Fraudulent intent not requiredFraudulent intent required

Registration requiredRegistration not required

Goods must be of similar kindGoods need not be of the same kind

2 KINDS OF TESTS OF COLORABLE IMITATION:

1.Dominancy Test focuses on the similarity of prevalent features of competing trademarks which might cause confusion or deception.

2.Holistic Test mandates that the entirety of the marks in question must be considered in determining confusing similarity.

SETTLED DOCTRINES

1. Doctrine of equivalents infringement takes place if a device appropriates a prior invention using the same means, functions and results.

2. Fair use principle no infringement of copyrights under the following:

a.Criticism

b.Comments

c.News reporting

3. Theory of dilution infringement of trademarks takes place under the following:

a.Use of identical or confusingly similar trademarks

b.Damage

c.Public is misled

banking laws

POWERS OF MONETARY BOARD (BSP): RAMOS

a.Regulate foreign currency transactions;

b.Appointment of receiver or conservator;

c.Maintain stability of price;

d.Obtain information and data;

e.Supervise and examine banks.

Coins are considered legal tender up to the following maximum amounts:

1,000 P1.00; P5.00; P10.00

100 1 centavo; 5 centavos; 10 centavos; and 25 centavos

Receiver 90 days from take over to recommend rehabilitation or resumption.

Conservator 1 year from take over

DOSRI can obtain loans and other financial accommodations upon approval of the majority of directors provided that:

a.it does not exceed 5% of the capital and surplus of the bank;

b.waiver of secrecy of bank deposit law

Foreclosure of Real Estate Mortgage (extrajudicial or judicial).

a.Individual 1 year

b.Juridical 90 days

PHILIPPINE DEPOSIT INSURANCE CORPORATION (as amended by RA 9302, and RA 9576)

Coverage: Deposits of all types such as savings, time, current, and demand. SAFETY DEPOSIT BOX IS COVERED by a Contract of Bailment.

Amount Insured P500,000.00; and this may cover all types of deposit made by one depositor. Exclude trust fund and money market placement.

Prescriptive Period: 2 years from the takeover by a receiver.

SECRECY OF BANK DEPOSITS

ALL DEPOSITS of whatever nature are confidential except in the following cases BALIW-GERC

B RIBERY cases or dereliction of duty

A NTI GRAFT AND CORRUPT PRACTICES ACT

L ITIGATION (subject)

I MPEACHMENT cases

W AIVER

G ROSS ESTATE

E XAMINATION of suspicious deposits

R EPORTING of suspicious transactions by covered institutions

C OMPROMISE tax liability on the ground of financial incapacity

PRIVATE CORPORATION LAW

1.Close Corporation has the following characteristics:

a.Shares of stock not listed through local stock exchange

b.There are always restrictions on the transfer of the shares of stocks

c.Stockholders have the power to manage the corporate affairs

d.Their pre-emptive right admits of no exception

This is absolute under a close corporation.

2.Corporation is NOT entitled to MORAL DAMAGES because as an artificial being it cannot experience physical suffering or mental anguish.

Exception: Libel, slander or defamation cases (Art. 2219 (7), Civil Code)

3.Stock vs. Non Stock Corporation

Stock issues capital stock; it distributes dividends.

Non-stock issues no capital stock; it does not distribute dividends to the members.

Government-owned or controlled corporation must be organized as a stock or non-stock corporation. Manila International Airport Authority (MIAA) is not organized as a stock or non-stock corporation.

Reasons:

1. MIAA has capital stock but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

2.MIAA is not a non-stock corporation because it has members.

4.De Facto vs. De Jure Corporation

DE FACTO Corporation exists only in fact; defectively formed

DE JURE Corporation exists in fact and in law; formed or organized in accordance with law

5.REQUISITES OF DE FACTO CORPORATOIN BALI

a.Bona fide attempt to incorporate

b.Actual exercise of corporate powers

c.Valid Law under which it is incorporated

d.Issuance of the certificate of incorporation

6.Exceptions to the rule that corporation is created by law:

a.Corporation by Estoppel which arises on account of declaration, act or admission of persons. These persons are liable as general partners.

b.Corporation by Prescription it is a corporation that exercises corporate powers. There is that IMMEMORIAL USAGE of corporate powers.

7.Limitations on the issuance of no par value shares of stock: BPI-TB

a.Corporations not allowed to issue no par value stocks:

B Banks

P Public Utility

I Insurance Companies

T Trust Companies

B Building and loan associations

b.The consideration must not be less than P5.00/per share

c.The amount or the proceeds shall not be available for dividend distribution

8.Treasury stocks

a.not entitled to dividends

b.no voting rights

c.can be disposed of at a reasonable price

9.Contracts entered into by promoters are mere continuing offers. These are not binding upon the corporation. These may be approved or disapproved by the corporation. Promoters are liable for secret profits. They are not entitled to compensation.

Remedies in case of mismanagement of corporate affairs: DRID

a.Dissolution

b.Receivership

c.Injunction

d.Derivative Suit

10. Requisites of Derivative Suit: CRIES

a.Cause of action which may consist of breach of duty and fraud;

b.Refusal of the board to take an action;

c.Injury to the corporation;

d.Exhaustion of intra-corporate remedies except if the directors against whom the action shall be filed are the controlling directors;

e.Stockholders on record.

11.Ultra vires act may be ratified.

Conditions:

a.Not illegal or unconstitutional

b.Not prejudicial to the right of the state.

c.Not violative of the Trust Fund doctrine

d.Approved by all stockholders

Donation/contribution for partisan activity- ultra vires act

12.Legal Effects/Consequences of ULTRA VIRES Acts:

a.Parties to the contract

If the contract is fully executed the principle of status quo applies

If the contract is executory no recovery, no specific performance

b.State ground for dissolution through a petition for a quo warranto

c.Stockholders may file a derivative suit to prevent injury, and if injury has already been sustained an action for damages may be filed against those directors and officers who are responsible for such ultra vires act.

13.Corporate proposals requiring stockholders approval:

a.Majority:CAMFEN:

CCompensation to stockholders

A Adoption of by-laws

MManagement contract

FFilling of vacancies of Board

EElection of directors

NNo par value of shares of stocks may be fixed with the approval of the stockholders.

b.All the rest 2/3 votes

14.By-laws must be valid

a.reasonable

b.not contrary to law

An amendment to the corporate by-law which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as VALID.

Reason:

This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty to loyalty may well require that he disclose this information to a competitive rival.

15.Certificate of stock may be issued only upon full payment of subscription price

16.WATERED STOCK one which is issued less than the par value (TRICK: It shall be determined at the time of issuance NOT discovery)

17.Outline the steps in the consolidation/merger of corporations: PAF

a.There must be a Plan of merger or consolidation;

b.Approval of that plan by the Stockholders/directors of the involved corporation;

c.Filing of the Articles of Incorporation of the merger and consolidation with the SEC.

18.Corporate Liquidation

MODES:

a.Board

b.Receiver

c.Trustee

3-year liquidation period applies to the appointment of the receiver or trustee. It may apply as long as the appointment or designation is within the 3 year period. The corporate affairs may be wound up beyond the 3 year period.

Decided Case:

The stockholders and the creditors of a corporation have the right to file a petition for corporate liquidation in case the board fails to liquidate the same and there is no such receiver or trustee appointed for that purpose.

19.Statutory definition of DOING BUSINESS RA 7042 (Foreign Investment Act). The following acts constitute doing business that will make the foreign corporation a resident foreign corporation: ASAPO

A Appointment or designation of distributors/representatives. Here, the law requires that the distributors or representatives must stay in the Philippines for a period of 180 days or more

S Soliciting orders or service contracts

A Any act which may imply continuity of commercial dealings and arrangements

P Participating in the management or control of the corporation

O Opening offices, branch offices, or liaison offices

20.Decided Cases:

1. Test in determining whether the corporation is doing business or not It is the intention to continue the body or substance of the business of the foreign corporation, and not by the number of business activities or transactions of such corporation. If this is not in line with the business of foreign corporation, corporation cannot be considered as doing business.

2. An essential condition to be considered as doing business in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories.

21.Resident Foreign Corporation is required to secure a license

Consequence in case of non-compliance: It cannot sue but it can be sued.

EXCEPTION: License can be dispensed with:

a.Where the action may involve the protection of copyright, trademark, goodwill, or reputation of a foreign corporation.

b.If the defendants are estopped as they acknowledged having received benefits under that representative agreement.

22.Voting Trustee has all the rights over that shares of stock. The term of the voting trust agreement is five (5) years.

Exception:

The five (5) year term does not apply if it is made as a condition in a loan contract.

23.RIGHTS OF STOCKHOLDERS: VAMPIDACT

V Vote

A Appraisal Right

M Management

P Pre-emptive Right

I Inspect corporate books

D Dividend

A Asset

C Certificate of Stock (issuance)

T Transfer of shares of stock

24.THREE FOLD DUTIES of the Directors, Officer and Trustee OLD

a.Obedience

b.Loyalty

c.Diligence

25.POWERS OF THE BOARD

a.Express

b.Implied

c.Incidental

Implied vs. Incidental

IMPLIED POWERS powers which are REASONABLY necessary to carry out the purpose of the corporation

INCIDENTAL POWERS powers which are INDISPENSABLY necessary to carry out the purpose(s) of the corporation

RESIDUAL POWERS of the corporation are powers which may be exercised by them relative to certain corporate proposals. Stockholders under such power are not totally deprived of their power to participate in the management of corporate affairs.

The residual powers may include: MIRIAM

M merger or consolidation

Iincrease in capital stock

Rremoval of directors

Iincur/create bonded indebtedness

Aamendment of the articles of incorporation

Mmanagement contract

26.Sale of all or substantially all corporate assets or properties requires:

a.majority vote of the board;

b.2/3 vote of the stockholders;

N/B:2/3 vote of stockholders may be dispensed with:

if sale is made in the ordinary course of trade or business;

if proceeds shall be appropriated/used for the conduct of remaining business

27.Power of the corporation to invest in another corporation or business requires:

a.Majority vote of the board;

b.2/3 vote of the stockholders

* Exception where 2/3 vote of stockholders is not required:

If the investment is necessary to carry out the primary purpose of the corporation.

28.Merger or Consolidation requires the following:

a.2/3 vote of the stockholders

b.articles of merger/consolidation must be filed and approved by the SEC

29.Corporation is prohibited from retaining surplus profits in excess of 100% of the paid-up capital

EXCEPT: PNP

P Corporate Projects, meaning the retention may be justified by such corporate projects

N Necessary for probable contingencies

PProhibited by loan with financial institutions, foreign or domestic

30.REDEEMABLE SHARES may be issued only:

1.Articles of incorporation must allow the same

2.Regardless of unrestricted retained earnings (An exception to the TRUST FUND DOCTRINE)

Unregistered retained earnings surplus profits which are not allocated for managerial, legal or contractual purposes and it must be free for dividend distribution.

31Contracts between directors/officers or trustees and corporations are valid provided that the vote of the board of directors is not necessary for the approval of the contract and presence of the involved directors/officers is not required to constitute a quorum. Otherwise, the contract is voidable which is susceptible to ratification.

32.Contracts entered between corporation and interlocking directors are valid provided:

The contract must be fair and reasonable, otherwise they are considered voidable.

33.RIGHTS OF HOLDERS OF NON-VOTING SHARES OF STOCK: SAMIA IDI

SSale of all corporate assets

AAmendment to the Articles of Incorporation

MMerger/consolidation

IInvestment in another corporation

AAdoption of By-laws

IIncrease of Capital Stock

DDissolution

IIncur/created bonded indebtedness

34.EXECUTIVE COMMITTEE

Composition:

1.Not less than three members of the Board

2.It can only act on matters delegated by the Board

3.It may be created by the by-laws of the corporation

4.It cannot act on the so-called fundamental changes such as the Filling of vacancies in the Board, Adoption/amendment of by-laws, declaration of Cash dividend, Irrepealable resolutions of the Board and those transactions requiring Stockholders approval. FACIS

35.DOCTRINE OF CORPORATE PERSONALITY:

Corporation is a creation of law, therefore it has juridical personality, to sue and be sued, to enter into a contract.

A corporation has a separate and distinct personality from that of its stockholders/members.

The obligations and properties of the corporation may not be considered properties/obligations of the stockholders.

36.DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION: Corporate entity may be pierced if there is a clear and unequivocal proof that such corporation is formed for illegal or unlawful purpose.

In cases of:JAP CDD

J justify a wrong

A alter ego

P protect fraud

C to confuse legitimate issues

D to defend a crime

D to defeat public convenience

37.Grandfather rule: it is a method or test used in determining the nationality of a corporation that engages in the exploration, development, utilization of natural resources. It also applies to public utilities where the ownership is at least 60% Filipino.

Purpose: to prevent dilution of the requirement on Filipino ownership in nationalized or partially-nationalized corporations. This rule has been relaxed by the opinion of the Secretary of Justice dated 19 January 1989. It is enough that the investee-corporation is owned 60% - owned by Filipinos.

38.Doctrine of derivative suit CRIES

CCause of action

RRefusal of the Board

IInjury

EExhaustion of intra corporate remedies except if the Directors control the corporation

SStockholders filing the same must be stockholders of record

39.DOCTRINE OF CORPORATE OPPORTUNITY

Pointers to remember:

a.self-dealing director enters into a contract

b.such contract is considered corporate business opportunity

c.profits derived therefrom must be accounted for and in behalf of the corporation

d.the contracts are unenforceable as far the corporation is concerned

40.Doctrine of appraisal right: may be exercised on the following cases: MISA

a.merger/consolidation

b.investment in another corporation

c.sale of all corporate assets/properties

d.amendment to the articles of incorporation which may include to extend/shorten corporate term

41.PRE-EMPTIVE RIGHT Right to invest; an optional right to subscribe to the additional issues as well as the disposition of shares of stock. It extends:

a.to all issues, including those subsequent issuance of unissued shares of stock

b.to all dispositions of treasury shares of stock

PRE-EMPTIVE RIGHT may be denied in the following cases:

a.when the articles of incorporation provides

b.law requiring public ownership

c.in payment of a debt

d.in exchange for property

42.DOCTRINE OF APPARENT AUTHORITY There is an agent-principal relationship. The principal must be the corporation. The Agent may be the Board or the Officers of the Corporation. Under this doctrine, third persons may presume that the agent has the power to enter under such contract. Abuse of authority or fraud may not be raised as a defense in questioning such contract because such representation of agent of the corporation must yield to the true representation of the principal corporation.

43.UNRESTRICTED RETAINED EARNINGS Surplus profits which are not allocated for managerial, legal, contractual purposes and this must be available for dividend distribution.

44.TRUST FUND DOCTRINE the subscribed capital stock must be considered as trust fund for the payment of the obligations of the corporation

45.BEST JUDGMENT RULE requires directors, officers, trustees to exercise due prudence and care in the performance of their duties. In this regard, corporate decisions must be arrived at according to their best judgment or independent judgment. Good faith is an indispensable requisite.

46.Corporation may acquire its own shares of stocks for legitimate purposes such as: CPE

a.Collect or compromise indebtedness

b.Pay dissenting stockholders

c.Eliminate fractional shares

47.INTRA CORPORATE CONTROVERSIES which include election, removal, or DISMISSAL of Vice-President, General Manager, or corporate treasurer are now cognizable by the REGIONAL TRIAL COURTS

NEGOTIABLE Instruments LAW

1.Please memorize Sections 1 (requisites of a negotiable instrument) and 52 (holder in due course)

2.FEATURES OF NEGOTIABLE INSTRUMENTS:

a.Negotiability

b.Accumulation of secondary contracts

3.Functions of a Negotiable Instrument

a.it serves as a substitute for money.

b.it facilitates business transactions.

4. DEFECTIVE INSTRUMENTS (Sec. 14, 15 and 16 NIL)

Summary of the Rules:

Probable Bar Questions: Sec. 15 or 16

The question is whether a holder can collect.

Remember that the HOLDER IS PRESUMED TO BE A HOLDER IN DUE COURSE.

1.Sec. 15, he cannot collect because the contract is invalid in the hands of any holder.

2.Common to all defective instruments (Sec. 14, 15, 16) subsequent parties are liable.

5.Holder in due course must acquire title to the instrument thru negotiation.

Most PROBABLE BAR QUESTIONS:

1.Forged signature wholly INOPERATIVE EXCEPT indorsers

2.Materially altered instrument AVOIDED EXCEPT indorsers

6.LETTER of CREDIT and trust receipts are not negotiable instruments. However, drafts issued in connection with letters of credit are negotiable instruments.

7.RULES ON ACCOMMODATION PARTY:

a. Purpose:To lend his name; no other purpose

b.Liability:is that of a surety

c.Remedy:reimbursement from the accommodated party

d.Absence of consideration is not a defense

e.Liable to a holder for value

f.He must be a holder in due course minus knowledge of lack of consideration

g.Without receiving value therefore refers to the amount in the instrument. He may be considered as an accommodation party if he receives value for purposes of lending his name.

8.Bearer instrument vs. order instrument

Bearer instrument negotiated by delivery

Order instrument negotiated by indorsement completed by delivery

It the payee is not the intended recipient of the proceeds of the check, the payee is considered a fictitious and the check is a bearer instrument. In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.

Exception: A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check. Commercial bad faith is present if the transferee of the check acts dishonestly, and is party to the fraudulent scheme.

9.Ordinary check vs. memorandum check

Ordinary check presentment is required

Memorandum check the drawer is absolutely liable to the holder; presentment is not required

10.REAL DEFENSES VS. PERSONAL DEFENSES

Real defenses enforceable against any holder even a holder in due course

Personal defenses enforceable only against a holder who is not in holder in due course.

11.Fraud in factum vs. Fraud in inducement

Fraud in factum a real defense

Fraud in inducement a personal defense

12.Presentment for payment and notice of dishonor are required to make drawer and indorsers personally liable EXCEPT:

a.if the drawer or indorser has no right to expect that the instrument will be paid upon presentment;

b.after the exercise of reasonable diligence;

c.waiver

13.Facultative indorsement - is one which contains waiver of right

Restrictive indorsement - renders the instrument non-negotiable

14.Rights of a holder in due course

a.right to sue

b.right to receive payment

c.right to hold the instrument free from defenses

d.right to enforce for the full amount thereof

15.AVAL a written security instrument executed to secure the payment of a bill of exchange. Drawer (guarantor) is regarded as AVALISTA

DECIDED CASES/SETTLED RULES UNDER NIL

16.If the instrument is worded I/WE or either of us, the liability is solidary

17.P1,200,000.00 in figures vs. ONE MILLION TWO HUNDRED PESOS in words, sum payable is P1,000,200.00 EXCEPTION: agreement prevails because the agreement itself says P1,200,000.00

18.Drawee bank is liable on a check bearing drawers forged signature except if the drawer is guilty of gross negligence, in the following cases: LUPA

a.failure to inform the drawee of the loss;

b.unauthorized payee

c.printing of checks without preventive measures

d.no accounting systems

19.Holder of a crossed bank check must inquire into the indorsers title, otherwise he is not qualified as a holder in due course

EFFECTS OF CROSSING CHECK: NOW

a.Not for encashment, but is for deposit

b.Negotiated only once

c.Warning

20.COLLECTING BANK is liable on a check under these two cases:

a.Check bears the forged signature of the payee

b.Materially altered check

21.DRAWEE BANK is liable under the following:

a.Check bearing the forged signature of the drawer;

b.Guilty of gross negligence

22.EFFECTS OF FORGERY OF PAYEES SIGNATURE

a.Bearer instrument maker is still liable thereon

b.Guilty of gross negligence

23.MINOR-PAYEE is not liable on the instrument but the negotiation is VALID.

24.Treasury warrant is not a negotiable instrument because it is payable out of a particular fund. Order to pay is therefore conditional.

25.Drawee is liable only upon ACCEPTANCE or CERTIFICATION

26.BEARER INSTRUMENT SPECIALLY INDORSED IS NEGOTIABLE BY DELIVERY.

Reason: BEARER INSTRUMENT IS ALWAYS A BEARER INSTRUMENT

27.Can a PAYEE qualify as HDC?

YES, if he has all the requisites of HDC

28.Can a DRAWEE be a HDC?

NO, because it acquires the instrument not through negotiation. Payment thereof reduces the bill to a mere voucher.

INSURANCE

1.PRINCIPLES

A Contract of Adhesion, because the ambiguity shall be liberally construed in favor of the insured.

G Good faith

I Contract of Indemnity

P Personal Contract

Decided Case: Lessor cannot recover the proceeds of property insurance secured by the lessee notwithstanding stipulation to that effect.

2.Doing Insurance Business SIRA

a.Suretyship

b.Insurance Contract

c.Reinsurance

d.Any act equivalent to the last 3.

3.Read Sec. 10 and 14. INSURABLE INTEREST

In life insurance the insurable interest must exist only upon effectivity of that life insurance

In Property Insurance:

2 Conditions in order that there can be recovery:

a.That interest must exist: effectivity

b.loss

4.BENEFICIARY

RULES:

a.He/she must be a qualified donee

b.Not a common law wife, because a common law wife is disqualified

c.Legal wife, the one entitled thereto

d.1st wife, 2nd wife: if the 2nd wife is in good faith and not aware of the existence of the first marriage, the court ruled 50/50% - 1st wife 50%; 2nd wife 50%.

e.In property insurance, the beneficiary must have insurable interest but in life insurance, the beneficiary need not have insurable interest

5.Probable bar question Sec. 26. CONCEALMENT

CONCEALMENT defined:

A neglect to communicate that which a party knows and ought to communicate.

Requisites:

a. The fact is known to that party

b. Neglect to communicate

Concealment may be a ground for the rescission of a contract if the same is material.

6.MATERIALITY (Sec. 31)

Materiality is not determined by the event, but it is the probable and reasonable influence of the facts upon the person to whom the communication is due.

7.REPRESENTATION VS. WARRANTY

Representation it is made by both insured and insurer; mere collateral inducement

WARRANTY it is made by the insured only; part of the contract

8.2 YEAR CONTESTABILITY CLAUSE

applies only to life insurance, but it is optional in the case of property insurance. (Life + 2 year effectivity)

Exception: it is still contestable even after the 2 year contestability period

GROUNDS:VENN

a.vicious fraud

b.excepted risk

c.no insurable interest

d.non-payment

9.PREMIUM

RULE: No premiums paid, no insurance, consequently, no recovery of claims may be had

EXCEPTIONS:

a.acknowledgment of receipt of such premium

b.in the case of life and industrial life policies, because of the one-month or 30-day grace period

c.installment payment

d.60 to 90 day credit term

RETURN OF PREMIUMS

a.Surrender of policy

b.Voidable on account of insurers fraud or misrepresentation

c.Over insurance

d.Not exposed to the risk

10.PERILS OF THE SEA VS. PERILS OF THE SHIP

Perils of the sea refer to the violent forces of nature, these are strong winds and waves.

Perils of the ship refer to the inherent nature or structure of a vessel. These are not covered by Marine Insurance.

11.BOTTOMRY LOAN VS. RESPONDENTA

Bottomry Loan refers to vessels, reduces the insurable interest of the owner.

Respondentia refers to cargoes and goods

12.PROPER DEVIATION SWAN

S to save vessel under distress

W to comply with warranty

A to avoid peril

N neither the master nor the captain has control

13.CONSTRUCTIVE LOSS more than 2/3 of the value + factual loss + notice to the insurer + abandonment

14.DOUBLE INSURANCE DIR IS

DDifferent insurers

Ithe same insured

R the same risk

Ithe same insurable interest

Sthe same subject matter

15.FRIENDLY FIRE vs HOSTILE FIRE

Friendly fire is useful, not covered by fire insurance

Hostile fire is harmful, covered by fire insurance

16.NO FAULT CLAUSE

Requisites: NO need to prove such negligence or fault

a.Amount P5,000.00

b.Police report

c.Death or medical certificate

17.AUTHORIZED DRIVERS CLAUSE does not apply to the insured/owner of that car, even if he has a driver license or not, the same does not apply. It only applies to a person authorized by the insured.

18.Expired License, he is not authorized driver, hence, no recovery

19.INTERNATIONAL DRIVERS LICENSE is good only for 90 days

20.INDEMNITY INSURANCE is a separate and distinct contract from that of the liability of the owner of such car that may be based on tort or damages whereas the liability of an insurer for indemnity insurance is based on contract.

21.SUICIDE CLAUSE

There can be recovery EXCEPT in one case, and that is if there is NO SUICIDE CLAUSE and the insured is SANE and the life insurance has been contested.

TRANSPORTATION LAW

1.TESTS OF COMMON CARRIER:

a. Character business (part of business)

b.Public at large offers services to the public (nee not be continuous)

2.COMMON CARRIER vs. PRIVATE CARRIER

Common Carrier extra ordinary diligence may not be dispensed with

Private Carrier there may be stipulation exempting liability arising from negligence

3.As to subject matter: Goods and cargoes the extraordinary diligence shall begin or commence from the unconditional receipt of goods and it ends or terminate from the actual or constructive delivery of the goods to the consignee or agent.

Passengers extraordinary diligence shall commence from the time he steps on the platform and as long as there is that intention to carry such passenger and ends or terminates from the time he has safely alighted and there is that reasonable opportunity to leave the premises of the common carrier

4.Common carriers are not liable under the ff. instance: PONEDO

Public enemy (act)

Order of competent authority

Natural calamity

Exercised extra ordinary diligence

Defect in the packing

Omission of the shipper

5.HIJACKING, EXPLOSION OF NEW TIRE, the common carrier is still liable.

Exception in hijacking, if there is IRRESISTIBLE FORCE, common carrier is relieved from liability

6.REGISTERED OWNER AND BUYER OF A MOTOR VEHICLE are solidarily liable even if the ownership has already been transferred; the registered owner is still liable if there is no change of registration.

7.MORAL DAMAGES may be recovered from the common carrier in the ff. cases: DOH

DDowngrading of the airline ticket

OOverbooking, amounting to bad faith

HHarsh treatment, discourteous act

8.LIMITATION ON THE COMMON CARRIERS LIABILITY

Rules:

a.Passengers, no compromise, cannot be the subject of stipulation

b.Goods, can be the subject of compromise

Requisites:

1.Stipulation must be in writing

2.There must be consideration other than to transport goods. This may include reduction of rates.

3.Reasonable

9.BILL OF LADING

a. Commercial document

b.Receipt of goods

c.Evidence of the existence of the contract of carriage of goods

Rules:

a.no liability arising from negligence of the agent valid stipulation

b.unqualified limitation void stipulation

c.qualified liability valid stipulation

Conditions:it must be fair and reasonable

10.A Charter party may become a private carrier if:

a.it carries special cargo

b.it is chartered to a special person

11.BAREBOAT OR DEMISE vs. AFFREIGHTMENT

BAREBOAT/DEMISE when the control, possession and navigation are transferred to charterer, it is transformed into a private carrier.

AFFREIGHTMENT owner retains control and possession of the vessel

12.CHARTER PARTY vs. CONTRACT OF LEASE

Charter Party the charterer may terminate the contract by paying 50% of the freightage; cannot be compelled to respect subsequent sale of vessel

Contract of Lease a lessor cannot terminate the contract before the expiration of the term; subsequent buyer must respect the lease.

13.Collision vs. Allision

Collision this involves two moving vessels

Allision one of the vessels is stationary

14.Error in extremis the last clear chance rule is not applicable. This may occur under the following situation:

a.The faultless vessel is in the third zone of collision

b.the vessel at fault is in the second zone of collision

15.Three Zones of Collision: BPI

a.All the time up to the moment when risk of collision may be said to have Begun

b.From the moment the risk begins and the moment when it has become of Practical certainty

c.When it has become of practical certainty to the moment of actual contact or Impact

16.Arrivals under distress may occur under the following instances: LAW

a.Lack of provisions

b.Accident in the sea

c.Well founded fear of seizure

17.DOCTRINE OF INSCRUTABLE FAULT If the fault of the vessel cannot be determined with certainty. Consequences:

a.Both vessels shall bear their own damages

b.Both vessels are liable solidarily to the owners of cargoes

If NONE is at fault, each vessel shall bear its own damage.

18.DOCTRINE OF LIMITED LIABILITY the liability of the owner of the vessel is co-extensive to the value of the vessel, equipment and the freight.

Exceptions: WINDIR

a.Workmens Compensation Act

b.Injury

c.Negligence

d.Death

e.Insured (vessel)

f.Repairs

19.Heirs of crew of the vessel have preferential right over the proceeds of the vessel.

20.Maritime protest

Conditions:CATA

a. It must be made in writing by the Captain/master

b.Accident, in the nature of collision or allision

c.Within Twenty hours

d.Lodged before competent Authority

21.Jettison PSC

Conditions:

a.Proper formalities must be complied with

b.deliberate Sacrifice of goods

c. presence of Common danger

C O G S A

1.These are goods coming from foreign country to Philippine ports.

2.Coverage: Loss/damage of goods

3.Period: 1 year from discharge of the goods

4.Notice is not required

5.Who will file: shipper; consignee; or INSURER in the event that it is subrogated to the rights of the shipper or consignee.

6.Not Covered:

a.Misdeliveries

b.Conversions

PUBLIC SERVICE ACT

1.Certificate of Public Convenience is not required for purposes of filing an action for damages: PAPAI

P Public markets

A Animal drawn vehicles

P Public utilities operated by the government

A Airships

I Iceplants and warehouses

2.Requirements CPP

a.Citizen or corporation 60% owned by citizens of the Philippines

b.Public necessity

c.Public interest

3.Prior operator rule vs. prior applicant rule

In case of conflict, prior operator rule prevails

4.Prior operator rule: Requisites:

a.There must be offer to increase public service

b.There must be proof of satisfactory and efficient public service

Prior Applicant rule prior applicant is given special treatment or preferential right

WAREHOUSE RECEIPT LAW

1.Warehouseman is bound to deliver the goods under the ff. conditions:

a.Satisfy warehousemans lien

b.Surrender warehouse receipt

c.Acknowledge receipt of goods

Indorser of negotiable document is not liable for breach of obligation of warehouseman.

2.Negotiable receipt vs. Negotiable instrument

NR refers to goods or article

bearer document may be converted into an order document

NI involves the payment of a sum certain in money

bearer instrument is always a bearer instrument

TRUST RECEIPT

Failure to turn over to the entrustor the proceeds of the sale covered by delivery trust receipt constitutes estafa. The Supreme Court said it is an offense malum prohibitum. The purpose is to punish dishonesty and abuse of confidence. Hence, the constitutional prohibition against imprisonment for non-payment of debt is not applicable.

The entrustee is liable for loss of the goods because he is obligated to insure the same. The doctrine of res perit domino does not apply. Transfer of goods by the entrustee confers ownership upon the buyer. This is an exception to the rule that no one can dispose of the thing which he does not own.

TRUTH IN LENDING ACT

Coverage:

Sale on credit, installment, loan, lease with option to buy. The Supreme Court said it covers banks and non-bank financial intermediaries, authorized to engage in quasi-banking activities.

Purpose:

To protect a debtor from the effects of misrepresentation or concealment

Requirements: CARD

a.Cash price;

b.Amount credited if on installment;

c.Recital of finance charges;

d.Difference between cash and installment price

Consequences for Non-compliance:

a.Debtor may recover the interest payment

b.Creditor is liable to pay finance charges (double) and attorneys fees

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