2001 PRE-WEEK REVIEW NOTES

MERCANTILE LAW 1
By Abelardo T. Domondon2 HOW TO USE THESE NOTES: These notes n the !orm o! te"t#al mater als and re$resentat %e re% e& '#est ons &ere s$e( ally $re$ared by Pro!. Domondon !or the e"(l#s %e #se o! st#dents &ho attended the le(t#res he (ond#(ted !rom 2)-2* A#+#st 2)), s$onsored by PRIMUS -ana+ement .nl m ted Ser% (es/ In(./ held at the As an So( al Inst t#te/ In(. Other re% e&ees he has $ersonally a#thor 0ed may also #se these Notes. Reviewees attending the 2002 Ateneo Ba Review a e a!tho i"ed to !se these Notes# The $#r$ose o! these Notes s to test the st#dent1s ab l ty to ans&er hy$othet (al and $re% o#s bar '#est ons based on bas ( (on(e$ts as &ell as on sele(ted (ases de( ded by the S#$reme 2o#rt #$ to De(ember/ 2))). The '#est ons are re$resentat %e o! $robable '#est ons that may be as3ed n the 2)), Bar E"am nat ons n -er(ant le 4a&. There s an e"$anded treatment o! the $ro% s ons o! the Se(#r t es Re+#lat on 2ode 5R.A. No. 67889 &h (h shall be re!erred to as SR2/ and the Im$lement n+ R#les and Re+#lat ons o! the Se(#r t es Re+#lat on 2ode to be re!erred to as SR2 R#les. Th s s so be(a#se the $#bl shed re% e& mater als ha%e not yet n(l#ded th s s#b:e(t. The a#thor bel e%es that there &o#ld only be t&o bas ( '#est ons as3ed #nder the SR2 and the SR2 R#les. It s re(ommended that the reader sho#ld (o%er the s#++ested ans&ers &h le read n+ the '#est ons. Th s &o#ld !or(e h m or her to re(all the a$$l (able la& and :#r s$r#den(e. I! reader has t me/ the ans&ers sho#ld be &r tten on a +rade s(hool noteboo3 #s n+ the s +n $en ntended to be #sed d#r n+ the a(t#al e"am nat ons. Ea(h '#est on sho#ld be ans&ered only & th n a s$an o! n ne 589 m n#tes. A!ter&ards/ (he(3 yo#r ans&ers re!err n+ to the s#++ested ans&ers. DO NOT -E-ORI;E the s#++ested ans&ers. They &ere $#r$osely made to be len+thy to ser%e as e"$lanatory de% (es. Th s s so be(a#se yo# do not ha%e t me anymore to re!er ba(3 to yo#r re% e& mater als. Ta3e t me to read the notes and (omments as '#est ons may be dra&n !rom these areas nstead o! !rom the '#est ons sho&n on these notes. I! yo# st ll (o#ld not #nderstand the (on(e$ts a!ter read n+ these notes/ then re!er to yo#r re% e& mater als. The mater als are arran+ed n a((ordan(e & th the (o%era+e o! the e"am nat ons. The a(t#al bar '#est ons may not be arran+ed n th s se'#en(e I! $ressed !or t me the reader sho#ld read only those &h (h are mar3ed & th tr $le aster s3s <<</ b#t be s#re to read and ans&er all the '#est ons.
S "th Ed t on/ 2o$yr +ht 2)), by Abelardo T. Domondon. AB 5E(o9/ BS2 5A((t+9/ 44B/ -A 5E(o9/ 44-/ D24 52and9. 4a&yer/ 2PA and 2#stoms Bro3er. Pre-Bar Re% e&er n -er(ant le 4a&/ Remed al 4a&/ Ta"at on/ 4abor = So( al 4e+ slat on and 4e+al Eth (s = Pra(t (al E"er( ses.
, 2

$1% &O'E O( &OMMER&E $a% Me )hants and &o**e )ia+ T ansa)tions # A ti)+es 1 to ,-#
1# What is *eant ./ the theo / o0 *ani0estation 1 S.>>ESTED ANSWER? A theory n the $er!e(t on o! (ontra(ts &h (h re(o+n 0es that the (ontra(t s $er!e(ted at the t me &hen the a((e$tan(e s made by the o!!eree. 2# Mig!e+ is a.ove twent/2one /ea s o0 age3 not s!.4e)t to the a!tho it/ o0 his 0athe o *othe 3 and has the 0 ee dis5osition o0 his 5 o5e t/# He has a 2001 Me )edes Ben"3 a 2000 Po )he and a 2000 (o d E65edition# He so+d the Me )edes Ben" to 7eon3 *o tgages the Po )he to Mia3 and de+ive s the (o d E65edition to Ma a 0o sa+e to othe 5e sons# $a% Is Mig!e+ a *e )hant 1 $.% A e the t ansa)tions )ivi+ o )o**e )ia+ 1 $)% What 5a ti)!+a +aw o 5 ovisions wo!+d gove n s!)h t ansa)tions 1 S.>>ESTED ANSWERS? 5a9 - +#el s not a mer(hant. Altho#+h he has le+al (a$a( ty/ there s no sho& n+ that he s hab t#ally en+a+ed n (ommer(e. 5Art. ,/ 2ode o! 2ommer(e9. Wh le t s tr#e that he has had three 5*9 transa(t ons/ there s no le+al $res#m$t on yet o! hab t#al ty. Th s s so be(a#se he has not anno#n(ed h s ntent on to en+a+e n (ommer(e or to o$en an establ shment &h (h has !or ts ob:e(t some (ommer( al o$erat on/ thro#+h ( r(#lars/ ne&s$a$ers/ handb lls/ $osters e"h b ted to the $#bl (/ or n any other manner &hatsoe%er. 5Art. */ 2ode o! 2ommer(e9. 5b9/ 5(9 The transa(t ons are not (ommer( al n nat#re be(a#se the a(ts are not (onta ned n the $ro% s ons o! the 2ode o! 2ommer(e b#t those o! the 2 % l 2ode. The sale s +o%erned by the 2 % l 2ode $ro% s ons on sale/ that o! the (hattel mort+a+e by the $ro% s ons o! the 2 % l 2ode and the 2hattel -ort+a+e 4a& 5A(t ,@)6/ as amended9/ and the del %ery o! the Aord E"$ed t on !or sale s +o%erned by the 2 % l 2ode $ro% s ons on a+en(y. -# Pocholo, of legal age and otherwise qualified to engage in business seeks your advice on the books he should keep should he decide to engage in business. (a) What books should he keep and what should these books contain ? (b) Supposing that Pocholo, together with others decide to for a corporation which will engage in business. What books should the corporation keep and aintain ? S.>>ESTED ANSWER? 5a9 Po(holo sho#ld 3ee$ ,9 a boo3 o! n%entor es and balan(es/ &h (h sho& all h s assets and l ab l t es n(l#d n+ the d !!eren(e bet&een sa d assets and l ab l t esB 29 a :o#rnal/ a led+er/ *9 a boo3 or boo3s !or (o$ es o! letters and tele+rams/ and C9 other boo3s &h (h may be re'# red by s$e( al la&s 5Arts. **/ *7 2ode o! 2ommer(e9/ l 3e those re'# red #nder the Nat onal Internal Re%en#e 2ode/ the 2or$orat on 2ode and the Se(#r t es Re+#lat on 2ode. 5b9 The (or$orat on/ !ormed by Po(holo & th others/ s re'# red to 3ee$ the same boo3s as des(r bed abo%e. In add t on the (or$orat on s re'# red to 3ee$ ,9 a boo3 or boo3s o! m n#tes/ n &h (h shall be entered all resol#t ons re!err n+ to the $ro+ress and o$erat ons o! the ent ty/ a$$ro%ed at +eneral meet n+s or at least o! the board o! d re(tors 5Art. **/ 2ode o! 2ommer(e9. It s also re'# red to 3ee$ 29 a boo3 o! all meet n+s/ as &ell as *9 a sto(3 and trans!er boo3. 5Se(. 7C/ 2or$orat on 2ode9.

$.% 7ette s o0 & edit !nde the &ode o0 &o**e )e $A ti)+es 8,9 to 8923 in)+!sive%
:# What are the three distinct and independent contracts in a letter of credit ? S.>>ESTED ANSWER? The three d st n(t and nde$endent (ontra(ts are? a. The (ontra(t o! sale bet&een the b#yer and the sellerB b. The (ontra(t o! the b#yer & th the ss# n+ ban3/ and (. The letter o! (red t $ro$er n &h (h the ban3 $rom ses to $ay the seller $#rs#ant to the terms and (ond t ons stated there n. 5Ken+ D#a Pa$er Prod#(ts 2o./ In(. %. 2o#rt o! A$$eals/ et al./ 26E S2RA 2@79

NOTES AND 2O--ENTS? a. 7ia.i+it/ o0 a )on0i *ing .an; disting!ished 0 o* a noti0/ing .an;# A (on! rm n+ ban3 adds ts (red t to the letter o! (red t and there!ore s l able ! the o$en n+ m$orter !a ls to $ay the e"$orter &h le a not !y n+ ban3 be n+ merely one &ho + %es ad% (e as to the e" sten(e does not n(#r any s#(h l ab l ty.

$i% B!+; Sa+es 7aw $A)t -<82%

===8# !"# is the sole proprietor of a store engaged in the business of trading auto spare parts, both wholesale and retail. Scared by what he perceived as the political and econo ic instability besetting country, he decided to e igrate to $anada with his entire fa ily. %e liquidated all his assets including his auto spare parts business !lock stock and barrel# to his co padre for &S'(,)**,***.** which he planned to reinvest in $anada. +s he covered by the provisions of the ,ulk Sales -aw ? +n the affir ative, what ust be done by the parties so as to co ply with the law ? S.>>ESTED ANSWER? Fes. A sales s (ons dered as a sales n b#l3 #nder the B#l3 Sales A(t ! t s a? a. Sale/ trans!er/ or d s$os t on s other than n the ord nary (o#rse o! b#s nessB b. Sale o! all or s#bstant ally all o! the b#s nessB and (. Sale o! all or s#bstant ally all o! the ! "t#res and e'# $ments. S n(e the sale s (o%ered by the B#l3 Sales 4a&/ he m#st (om$ly & th the !ollo& n+ re'# rements n order to ma3e the sale %al d? a. Seller1s a!! da% t l st n+ all the names o! the (red tors/ the nat#re and amo#nt o! (red ts d#e themB b. Seller $re$ares an n%entory o! the sto(3s to be sold and n!orms all the (red tors ten 5,)9 days be!ore the sale or the $ro:e(ted sale n b#l3B and (. Nos. a = b are re+ stered & th the B#rea# o! Domest ( Trade. NOTES AND 2O--ENTS? === a. When a sa+e IS NOT )onside ed .!+; sa+e !nde the B!+; Sa+es 7aw: ,9 When the sale/ trans!er or d s$os t on s n the ord nary (o#rse o! b#s nessB 29 When there s a &a %er o! the $ro% s ons o! the B#l3 Sales 4a& o! all the (red torsB *9 When the sale/ trans!er or d s$os t on s by % rt#e o! a :#d ( al order. b. P! 5ose o0 B!+; Sa+es 7aw# To $re%ent se(ret or !ra#d#lent sale o! the b#s ness/ &h (h (o#ld lead to ts (los#re/ to the detr ment o! the (red tors. === (. E00e)ts o0 0ai+! e to o.se ve the e>!i e*ents: ,9 The sale s n#ll and %o dB 29 The $#r(haser holds the $ro$erty he bo#+ht n tr#st !or the sellerB *9 The $#r(haser s l able to the seller1s (red tors !or $ro$ert es he bo#+ht and already d s$osed o! by h mB and C9 The $#r(haser has the r +ht to demand !rom the seller the ret#rn o! the $#r(hase $r (e $l#s dama+es. ,# The shares of stock of .ldrin, +nc., engaged in the wholesale of paper products, is owned (**/ by 0ustin. %e decided to sell all of his shares of stock to 0a es and 0ero e. +s this a sale in bulk sub1ect to the ,ulk Sales .ct ? 23plain briefly. S.>>ESTED ANSWER? No/ be(a#se the transa(t on s a sale o! the shares o! sto(3 and not o! the b#s ness &h (h &o#ld res#lt to detr ment o! the (red tors. The b#s ness st ll (ont n#es and the (red tors may $ro(eed a+a nst the same (or$orat on &h (h o&ed them. There &as merely a (han+e n o&nersh $ o! the b#s ness.

$ii% The Wa eho!se Re)ei5ts 7aw $A)t 21-9 in e+ation to the ?ene a+ Bonded Wa eho!se A)t3 A)t -@<-%
9# "45 Warehouse, +nc. issued five ()) warehouse receipts (quedans) for sugar to 6ia 7herese 6erchandising which were substantially in the for and contains the ter s prescribed for negotiable warehouse receipts by Section 8 of .ct 9o. 8(:;. 7he five ()) quedans were subsequently negotiated and endorsed by 6ia 7herese to 6a. <egina, who used these quedans as security for loans obtained fro 0oy ,anking $orporation in the a ount of P:) illion. 7he quedans were endorsed by 6a. <egina to 0oy ,ank.

&pon failure of 6a. <egina to pay 0oy ,ank the ,ank now de anded fro "45 Warehouse, +nc. the release to it of the sugar covered by the five ()) quedans. "45 refused clai ing ownership because the check pay ent ade by 6ia 7herese of the sugar covered by the five ()) quedans bounced. .fter "45=s clai of ownership was dis issed, it now refuses to release the sugar until 0oy ,ank pays storage fees. +s "45 1ustified in refusing to release the sugar until the storage fees are paid ? S.>>ESTED ANSWER? Fes. A &areho#seman shall ha%e a l en on +oods de$os ted !or all la&!#l (har+es !or stora+e and $reser%at on o! the +oods 5Se(. 27/ Wareho#se Re(e $ts 4a&9. A &areho#seman need not del %er #nt l the l en s sat s! ed 5Se(. *,/ Wareho#se Re(e $ts 4a&9 and n a((ordan(e & th Se(. 28 o! the Wareho#se Re(e $ts 4a&/ the &areho#seman loses h s l en #$on +oods by s#rrender n+ $ossess on thereo!. In th s (ase/ GF;1s (la m !or stora+e !ees &as n(om$at ble & th ts (la m o! o&nersh $ hen(e t (o#ld not ha%e &a %ed ts r +ht to stora+e !ees. 5Ph l $$ ne Nat onal Ban3/ %. H#d+e Se/ Hr./ et al./ >.R. No. ,,82*,/ $rom. A$r l ,6/ ,88E9 NOTES AND 2O--ENTS? a. Wa eho!se e)ei5t3 de0ined# A &areho#se re(e $t s a &r tten a(3no&led+ment by the &areho#seman that he has re(e %ed +oods !rom the de$os tor and holds the same n tr#st !or h m. <<<b. Non2negotia.+e wa eho!se e)ei5t# de0ined# A re(e $t n &h (h t s stated that the +oods re(e %ed & ll be del %ered to the de$os tor or to any other s$e( ! ed $erson. 5Se(. C/ The Wareho#se Re(e $ts 4a&.9 A non-ne+ot able re(e $t shall ha%e $la nly $la(ed #$on ts !a(e by the ss# n+ &areho#seman/ Inon-ne+ot ableJ or Inot ne+ot able.J .$on !a l#re to do so/ a holder &ho $#r(hased t !or %al#e s#$$os n+ t to be ne+ot able/ may/ at h s o$t on treat s#(h re(e $t as m$os n+ #$on the &areho#seman the same l ab l t es he &o#ld ha%e n(#rred had the re(e $t been ne+ot able. 5Se(. 7/ The Wareho#se Re(e $ts 4a&.9 (. Negotia.+e wa eho!se e)ei5t3 de0ined# A re(e $t n &h (h t s stated that the +oods re(e %ed & ll be del %ered to the bearer or to the order o! any $erson named n s#(h re(e $t. 5Se(. @/ The Wareho#se Re(e $ts 4a&9 ===@# Patrick deposited with Warehouse $o pany for safekeeping (*,*** bags of ce ent. Warehouse $o pany issued a receipt e3pressly providing that the goods be delivered to the order of said Patrick. . onth after, Paolo, one of Patrick=s creditors obtained 1udg ent against Patrick for P)*,***.**. .cting upon a writ of e3ecution, the sheriff proceeded to levy on the ce ent and directed Warehouse $o pany to deliver to hi the deposited ce ent. a. What advice will you give Warehouse $o pany ? 23plain your answer briefly. b. .ssu ing that a week prior to the levy, Patrick sold the receipt to <oberto on the basis of which, <oberto filed a clai with the sheriff. Would <oberto, the buyer of the receipt, have better rights to the ce ent than Paolo, the creditor? 23plain your answers briefly. S.>>ESTED ANSWERS? a. I &o#ld ad% (e the Wareho#se 2om$any not to del %er the +oods to the sher !!/ other& se t may be held l able !or (on%ers on. It sho#ld del %er only to Patr (3/ the $erson &ho de$os ted the +oods and #$on $resentat on o! the &areho#se re(e $t. b. Fes/ be(a#se Roberto &o#ld be a $erson &ho has ste$$ed nto the shoes o! Patr (3 &ho made the de$os t. NOTES AND 2O--ENTS? <<< a. Instan)es whe e wa eho!se*en .o!nd o o.+igated to de+ive # A &areho#seman/ n the absen(e o! some la&!#l e"(#se $ro% ded by A(t No. 2,*7/ The Wareho#se Re(e $ts 4a&/ s bo#nd to del %er the +oods #$on a demand made e ther by the holder o! a re(e $t !or the +oods or by the de$os torB ! s#(h demand s a((om$an ed & th? ,9 An o!!er to sat s!y &areho#seman1s l enB 29 An o!!er to s#rrender the re(e $t/ ! ne+ot able/ & th s#(h ndorsements as &o#ld be ne(essary !or the ne+ot at on o! the re(e $tB and *9 A read ness and & ll n+ness to s +n/ &hen the +oods are del %ered/ an a(3no&led+ment that they ha%e been del %ered/ ! s#(h s +nat#re s re'#ested by the &areho#seman. In (ase the &areho#seman re!#ses or !a ls to del %er the +oods n (om$l an(e & th a demand by the holder or de$os tor so a((om$an ed/ the b#rden shall be #$on the &areho#seman to establ sh the e" sten(e o! a la&!#l e"(#se !or s#(h re!#sal. 5Se(. 6/ WR49

I0 the a.ove a e not 5 esent3 then the wa eho!se )o!+d +ega++/ e0!se to *a;e de+ive /# These a e the de0enses a wa eho!se*an )o!+d !se to 4!sti0/ his RE(USA7 to de+ive # <<< b. A!sti0i)ation o0 wa eho!se*an in *a;ing de+ive /# A &areho#seman s :#st ! ed n del %er n+ the +oods to one &ho s? ,9 The $erson la&!#lly ent tled to the $ossess on o! the +oods/ or h s a+entB 29 A $erson &ho s e ther h msel! ent tled to del %ery by the terms o! the non-ne+ot able re(e $t ss#ed !or the +oods/ or &ho has &r tten a#thor ty !rom the $erson so ent tled e ther ndorsed #$on the re(e $t or &r tten #$on another $a$erB or *9 A $erson n $ossess on o! a ne+ot able re(e $t by the terms o! &h (h the +oods are del %erable to h m or order/ or to the bearer/ or &h (h has been ndorsed to h m or n blan3 by the $erson to &hom del %ery &as $rom sed by the terms o! the re(e $t or by h s med ate or mmed ate ndorser. 5Se(. 8/ WR49 These *a/ .e !sed ./ the wa eho!se*an to de0end hi*se+0 WHB HE 'E7ICERE'# ===(. Wa eho!se +ia.+e 0o )onve sion I! he del %ers & tho#t a %al d ndorsement the +oods (o%ered by a ne+ot able &areho#se re(e $t del %erable to the de$os tor or h s order. ===d. Instan)es whe e +ia.+e 0o )onve sion even with indo se*ent o a!tho it/: The &areho#seman s also l able e%en & th ndorsement or & th a#thor ty/ he s l 3e& se l able/ ! $r or to del %ery he had e ther? ,9 been re'#ested/ by or on behal! o! the $erson la&!#lly ent tled to a r +ht o! $ro$erty or $ossess on n the +oods/ not to ma3e s#(h del %eryB or 29 Dad n!ormat on that the del %ery abo#t to be made &as to one not la&!#lly ent tled to the $ossess on o! the +oods. 5Se(. ,)/ WR49

$iii% P esidentia+ 'e) ee 118 on T !st Re)ei5ts

===<# %er inio opened a letter of credit with the ,ank of Philippine +slands for the i portation of certain equip ent. %e failed to pay and also failed to deliver the equip ent despite de and. %e now assails the constitutionality of P.>. 9o. ((), the 7rust <eceipts -aw on the ground that it constitutions i prison ent for non?pay ent of a debt. <ule on his contention. S.>>ESTED ANSWER? 2ontent on s bere!t o! mer t. P.D. No. ,,@/ s a de(larat on by the le+ slat %e a#thor ty to ma3e the a(t $#n shable #nder ts a#thor ty to $res(r be (erta n a(ts as $ern ( o#s and n m (al to $#bl ( &el!are #nder the e"er( se o! $ol (e $o&er. 5T om (o %. 2o#rt o! A$$eals/ et al./ >.R. No. ,22@*8/ $rom. -ar(h C/ ,8889 NOTES AND 2O--ENTS? a. T !st e)ei5t3 de0ined# A tr#st re(e $t s (ons dered as a se(#r ty transa(t on ntended to a d n ! nan( n+ m$orters and reta l dealers &ho do not ha%e s#!! ( ent !#nds or reso#r(es to ! nan(e the m$ortat on or $#r(hase o! mer(hand se &ho may not be able to a('# re (red t e"(e$t thro#+h #t l 0at on/ as (ollateral/ o! the mer(hand se m$orted or $#r(hased. The +oods are held as se(#r ty by the lend n+ nst t#t on !or the loan obl +at on. A letter o! (red t-tr#st re(e $t arran+ement s endo&ed & th ts o&n d st n(t %e !eat#res and (hara(ter st (s.. .nder that set-#$/ a ban3 e"tends a loan (o%ered by the letter o! (red t/ & th the tr#st re(e $t as a se(#r ty !or the loan. In other &ords/ the transa(t on n%ol%es a loan !eat#re re$resented by the letter o! (red t/ and a se(#r ty !eat#re &h (h s n the (o%er n+ tr#st re(e $t. 5Na(# %s. 2o#rt o! A$$eals/ et al./ >.R. ,)6E*6/ $rom. -ar(h ,,/ ,88C9 A#rther/ a tr#st re(e $t s a do(#ment n &h (h s e"$ressed a se(#r ty transa(t on &here#nder the lender/ ha% n+ no $r or t tle to the +oods on &h (h the loan s to be + %en and not ha% n+ $ossess on &h (h rema ns n the borro&er/ lends h s money to the borro&er on se(#r ty o! the +oods &h (h the borro&er s $r % le+ed to sell (lear o! the l en & th an a+reement to $ay all or $art o! the $ro(eeds o! the sale to the lender. It s a se(#r ty a+reement $#rs#ant to &h (h a ban3 a('# res a Ise(#r ty nterestJ n the +oods. It se(#res an ndebtedness and there (an be no s#(h th n+ as se(#r ty nterest that se(#res no obl +at on. 2learly/ a tr#st re(e $t $arta3es o! the nat#re o! a se(#r ty transa(t on. It (o#ld ne%er be a mere add t onal or s de do(#ment. Other& se/ a $arty to a tr#st re(e $t a+reement (o#ld eas ly rene+e on ts obl +at on there#nder/ #nderm n n+ the m$ortan(e and de!eat n+ & th m$#n ty the $#r$ose o! s#(h an nd s$ensable tool n (ommer( al transa(t ons. 52h n+ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,)6CC/ $rom. A$r l 27/ 2)))9

b. Cio+ation o0 T !st Re)ei5ts 7aw is ) i*ina+ in )ha a)te # Ret#rn o! the +oods ! #nsold merely e"t n+# shes the entr#stee1s (r m nal l ab l ty. De s st ll ( % lly l able !or the #n$a d loan. 5V ntola %. IBAA/ ,@8 S2RA ,C)9

$2% NE?OTIAB7E INSTRUMENTS 7AW $A)t No# 20-1%

===10# What are the requisites of a negotiable instru ent ? S.>>ESTED ANSWER? An nstr#ment to be ne+ot able m#st (on!orm to the !ollo& n+ re'# rements? a. It m#st be n &r t n+ and s +ned by the ma3er or dra&erB b. It m#st (onta n an #n(ond t onal $rom se or order to $ay a s#m (erta n n moneyB (. It m#st be $ayable to order to bearerB d. Where the nstr#ment s addressed to a dra&ee/ he m#st be named or other& se nd (ated there n & th reasonable (erta nty. 5Se(. ,/ N.I.4.9 NOTES AND 2O--ENTS? === ANA7BTI&A7 STEPS (OR SO7CIN? PROB7EMS INCO7CIN? NE?OTIABI7ITB O( INSTRUMENTS# NOTE? This a ea is one o0 the *ost 5o5!+a a eas !nde Negotia.+e Inst !*ents 7aw# The .a )andidate sho!+d *aste the ana+/ti)a+ ste5s: a. 7oo; 0o the DATE: ,9 I! dated. The date s prima facie the tr#e date o! the nstr#ment. Ne+ot ab l ty s not a!!e(ted. 29 I! ante2dated o 5ost2dated. Ne+ot ab l ty not a!!e(ted .N4ESS ante-dated or $ost-dated !or !ra#d#lent $#r$ose. *9 No date. Ne+ot able (hara(ter not a!!e(ted. C9 I! no date/ tr#e date may be nserted. a9 I! nstr#ment $ayable at ! "ed $er od a!ter date 5,9 Wron+ date s nserted 5a9 No e!!e(t on nstr#ment/ ! ! holder n d#e (o#rse 5b9 Instr#ment n%al d/ ! not holder n d#e (o#rse b. 7oo; 0o SIGNATURE o! ma3er 5PN9 or dra&er 5BE9. ,9 I! no s +nat#re/ not ne+ot able. 29 I! s +ned/ ne+ot able. (. 7oo; 0o UNCONDITIONAL PROMISE $PN% or UNCONDITIONAL ORDER $BE%# I! $resent/ ne+ot able ,9 2ond t onal and not ne+ot able/ ! $rom se or order de$ends #$on? a9 A !#t#re e%ent &h (h may or may not ha$$en b9 A $ast e%ent #n3no&n to the $art es 29 2ond t onal and not ne+ot able ! $rom se or order to $ay o#t o! a $art (#lar !#nd. E"am$le? KPay B or order P,)/))).)) o#t o! my money n yo#r hands.K Not ne+ot able be(a#se t s (ond t onal be n+ $ayable o#t o! a $art (#lar !#nd and no other. *9 .n(ond t onal and ne+ot able e%en ! nd (ates a $art (#lar !#nd o#t o! &h (h re mb#rsement s to be made or $art (#lar a((o#nt to be deb ted. E"am$le? KPay B or order P,)/))).)) and re mb#rse yo#rsel! o#t o! my money n yo#r hands.K Ne+ot able be(a#se there s no (ond t on as to so#r(e o! !#nds only & th res$e(t to re mb#rsement &h (h o((#rs a!ter the nstr#ment s $a d. C9 .n(ond t onal and ne+ot able ! de$endent #$on a !#t#re e%ent &h (h s (erta n to ha$$en e%en ! t me o! ha$$en n+ s not 3no&n. @9 .n(ond t onal and ne+ot able e%en ! statement o! the transa(t on s + %en. E"am$le? KI $rom se to $ay B or order P,/)))/))).)) n $ayment o! the ho#se I bo#+ht !rom h m on -ar(h ,7/ ,888.K E9 2ond t onal and not ne+ot able be(a#se '#al ! ed.

E"am$le? KI $rom se to $ay B or order P,/)))/ ))).)) s#b:e(t to the terms and (ond t ons o! the -ar(h ,7/ ,888 Deed o! Sale !or the sale o! h s ho#se.K d. Is the s!* CERTAIN IN MONEY L I! so/ ne+ot able ,9 Not ne+ot able/ ! not n money. E"am$le? KI $rom se to $ay B or order the e'# %alent o! P@)/))).)) n (arabaos.K 29 Ne+ot able e%en ! holder has ele(t on re'# re someth n+ to be done n l e# o! money. E"am$le? KTo 2? Pay to B or order P@)/))).)) or @) (a%ans o! r (e at the o$t on o! the holder.K *9 I! at the o$t on o! the dra&er/ not ne+ot able be(a#se t s (ond t onal. e. Is the inst !*ent 5a/a.+e ON DEMAND o AT A I!ED OR DETERMINA"LE UTURE TIME L I! so/ ne+ot able. ,9 I! not/ not ne+ot able. 29 Not ne+ot able/ ! $ayable on (ont n+en(y. Da$$en n+ o! the e%ent does not (#re the de!e(t. E"am$le? KPay to B or order P,))/))).))/ t&o 529 days a!ter he $asses the Bar.K Ne+ot able? *9 Payable on demand and ne+ot able &hen e"$ressed to be $ayable on demand/ at s +ht or $resentat on/ no t me !or $ayment s e"$ressed on the nstr#ment/ or &hen the nstr#ment s o%erd#e. C9 Payable at a determ nable !#t#re t me and ne+ot able ! $ayable at a ! "ed $er od a!ter date or s +ht/ on or be!ore a ! "ed or determ nable !#t#re t me s$e( ! ed there n/ or on or be!ore a ! "ed $er od a!ter o((#rren(e o! a (erta n e%ent tho#+h ha$$en n+ be #n(erta n. !. Is the inst !*ent 5a/a.+e TO ORDER o "EARER L I! so/ then ne+ot able. I! not/ not ne+ot able. +. I0 the inst !*ent is add essed to a d awee3 is he na*ed o othe wise indi)ated on the inst !*ent with easona.+e )e taint/ 1 I! so ne+ot able. I! not/ not ne+ot able. === SUMMARB O( CARIOUS SITUATIONS INCO7CIN? NE?OTIAB7E INSTRUMENTS# Another area that the reader sho#ld master? SUMMARB O( SITUATIONS a. In(om$lete nstr#ment ,9 Del %ered a9 W th !or+ery and alterat on b9 W tho#t !or+ery and alterat on 29 Not del %ered a9 W th !or+ery and alterat on b9 W tho#t !or+ery and alterat on a. 2om$lete nstr#ment ,9 Del %ered a9 W th !or+ery and alterat on b9 W tho#t !or+ery and alterat on 29 Not del %ered a9 W th !or+ery and alterat on b9 W tho#t !or+ery and alterat on === IN&OMP7ETE INSTRUMENT BUT 'E7ICERE'# a. Dolder has prima facie a#thor ty to ! ll #$ blan3s ,9 S +nat#re on blan3 $a$er del %ered by s +natory & th ntent on o! ma3 n+ t a ne+ot able nstr#ment/ prima facie a#thor ty to ! ll t #$ !or any amo#nt. 29 Party $r or to (om$let on bo#nd ! ! lled #$ a9 In a((ordan(e & th a#thor ty b9 W th n reasonable t me b. Irres$e(t %e o! (om$l an(e & th no. 29 abo%e $r or $art es st ll bo#nd b#t only to holder n d#e (o#rse. (. The r#les a$$ly &hether the nstr#ment s a $rom ssory note or b ll

o! e"(han+e/ &hether $ayable to bearer or order. === I77USTRATICE INSTRUMENTS# PROB7EMS: IN&OMP7ETE "UT 'E7ICERE'

102A# 6eg issued a negotiable pro issory note to -eon authori@ing -eon to fill up the a ount in blank up to P(*,***.**. -eon however, filled it up to P8),***.**. $ould -eon collect P8),***.** fro 6eg ? S.>>ESTED ANSWER? No/ be(a#se the nstr#ment &as not str (tly ! lled #$ n a((ordan(e & th the a#thor ty + %en. Supposing in the above proble , -eon negotiated the instru ent to 6ara who knows that 6egAs instructions was for -eon to fill it up to P(*,***.** only. $ould 6ara collect P8),***.** fro 6eg ? S.>>ESTED ANSWER? No/ be(a#se -ara s not a holder n d#e (o#rse. She 3ne& o! the nstr#mentMs n! rm ty &hen the nstr#ment &as ne+ot ated to her. -e+ (o#ld nter$ose the $ersonal de!ense o! &ant o! a#thor ty. Supposing further, in the above proble , that 6ara did not know of the lack of authority, ay 6ara collect the P8),***.** fro 6eg ? S.>>ESTED ANSWER? Fes/ be(a#se -ara s a holder n d#e (o#rse/ she not be n+ a&are o! any n! rm ty n the nstr#ment at the t me she too3 t. She may th#s en!or(e t as ! t had been ! lled #$ str (tly n a((ordan(e & th the a#thor ty + %en and & th n a reasonable t me. There s l 3e& se (on(l#s %e $res#m$t on o! del %ery. 11# .na a very busy businessperson does not have ti e to sign checks one by one. So, she signs several checks in blank and instructs ,eth, her personal assistant, to safekeep the checks and fill the out when and as required to pay her accounts as they fall due. ,eth fills out one of the checks by placing her na e as payee, fills in the a ount of P)*,***.**, endorses and delivers the check to $arlos who accepts it in good faith as pay ent for goods sold to ,eth. .na learns of the dishonesty foisted upon her by ,eth. .na was able to instruct the ,ank in ti e to dishonor the check. When $arlos encashes the check, it is dishonored. $an $arlos hold .na liable for the P)*,***.** value of the check ? 23plain briefly. S.>>ESTED ANSWER? Fes/ ass#m n+ that the 2arlos +a%e not (e o! d shonor to Ana. Th s s a (ase o! an n(om$lete nstr#ment b#t del %ered as t &as entr#sted to Beth/ Ana1s $ersonal ass stant. Th s s so be(a#se 2arlos s a holder n d#e (o#rse &ho does not ha%e any 3no&led+e o! the e"tent o! a#thor ty + %en to Beth/ that the (he(3 s !or the $ayments o! Ana1s a((o#nt only. -oreo%er #nder the do(tr ne o! (om$arat %e ne+l +en(e/ as bet&een Ana and 2arlos/ both nno(ent $art es/ t &as the ne+l +en(e o! Ana n entr#st n+ the (he(3 to Beth &h (h s the $ro" mate (a#se o! the loss. === IN&OMP7ETE INSTRUMENT NOT 'E7ICERE'# a. 2om$leted and del %ered with a#thor ty/ %al d. b. 2om$leted and del %ered witho!t a#thor ty ,9 Val d a+a nst $arty &hose s +nat#re &as $la(ed a0te del %ery l 3e ndorser. Reason? Indorser &arrants the nstr#ment s n all res$e(t &hat t $#r$orts to be. 29 Not %al d a+a nst $arty &hose s +nat#re &as $la(ed .e0o e del %ery/ ! not a holder n d#e (o#rse. Reason? Del %ery s essent al to %al d ty. Do&e%er/ & th res$e(t to a holder n d#e (o#rse/ there s prima facie $res#m$t on o! del %ery &h (h may be reb#tted. (. R#les a$$ly &hether ,9 Prom ssory note or b ll o! e"(han+e 29 Payable to bearer or order *9 W th or & tho#t !or+ery and mater al alterat on. === I77USTRATICE INSTRUMENT# PROB7EMS: IN&OMP7ETE NOT 'E7ICERE'

12# Pocholo signed a blank check and kept it in his safe. 7his was stolen by 2dwin who filled in the a ount and placed a fictitious person as payee signed the na e of the payee and indorsed the sa e to Paolo, Paolo to Patrick, Patrick to Sally, Sally to

0eddah, 0eddah to <hia. .ll of the subsequent indorsers as well as the holder were all holders in due course. 6ay <hia proceed against Pocholo in case of dishonor by the drawee bank ? S.>>ESTED ANSWER? No/ be(a#se there &as no %al d del %ery &h (h s essent al to the %al d ty o! the nstr#ment. &nder the sa e set of facts, if Pocholo as well as the drawee bank dishonors the check, ay <hia proceed against 0eddah ? S.>>ESTED ANSWER? Fes/ be(a#se Heddah as an ndorser &arrants that the nstr#ment s &hat t $#r$orts to be and ! t s d shonored and ne(essary $ro(eed n+s !or d shonor ta3en/ she shall $ay the holder/ Rh a. &nder the sa e set of facts, in case of dishonor by the drawee bank andBor Pocholo and the other indorsers, is 2dwin liable ? S.>>ESTED ANSWER? Fes/ be(a#se he &as res$ons ble !or the the!t/ the ! ll n+ #$ and s#bse'#ent ne+ot at on o! the nstr#ment. Supposing under the sa e set of facts, that the drawee bank upon presentation by <hia encashed the check and Pocholo now sues the bank, what defenses ay the drawee bank raise against Pocholo ? S.>>ESTED ANSWER? a. Rh a s a holder n d#e (o#rse/ there!ore there s a prima facie sho& n+ o! del %ery &h (h Po(holo m#st no& reb#t & th $roo! o! non-del %ery. b. Ne+l +en(e on Po(holoMs $art &h (h res#lted n the loss o! the (he(3. (. >ood !a th on the $art o! the ban3. ItMs obl +at on s to del %er on a +en# ne s +nat#re o! Po(holo. It s not obl +ated to 3no& the s +nat#re o! the $ayee as n th s (ase/ the $ayee d d not en(ash the (he(3/ hen(e no &ay o! dent !y n+. d. As bet&een t&o nno(ent $art es/ the one &ho made $oss ble the loss sho#ld be l able. Dere Po(holo made $oss ble the loss as he s +ned the blan3 (he(3 3no& n+ !#lly &ell that ! stolen/ t (o#ld be ne+ot ated. A#rthermore/ Po(holo sho#ld ha%e mmed ately ad% sed the ban3 to sto$ $ayment. e. .nder the abo%e $roblem/ ! the n(om$lete (he(3 &as del %ered by Po(holo to Ed& n !or sa!e3ee$ n+/ there s %al d del %ery. NOTE? The reader sho#ld sol%e the $roblem as ! there s an n(om$lete b#t del %ered nstr#ment/ 1-# <ochelle left her friend and class ate -ora inside her car. -ora stole a blank check which she found in <ochelleAs car, forged <ochelleAs signature and encashed the sa e with the &nion ,ank (the drawee?depository). +s the bank liable despite allegations that <ochelle was negligent ? S.>>ESTEDANSWER? Fes. Reasons? a. .nder the ( r(#mstan(es/ Ro(helle (o#ld not be (ons dered ne+l +ent as she (o#ld not ha%e e"$e(ted that 4ora &o#ld remo%e a (he(3 !rom her (he(3boo3. De had no reason to s#s$e(t that a (lassmate and !r end &o#ld brea(h her tr#st. b. A ban3 s bo#nd to 3no& the s +nat#res o! ts (l ents and ! t $ays on a !or+ed (he(3/ t s (ons dered as ha% n+ $a d o#t o! ts o&n !#nds. === &OMP7ETE AN' 'E7ICERE' INSTRUMENT# a. W tho#t !or+ery and alterat on/ all $art es bo#nd. b. W th !or+ed ndorsement andNor alterat on ,9 Order nstr#ments a9 Order $rom ssory note 5,9 Pr or $art es not bo#nd. Reason? Aor+ed s +nat#re &holly no$erat %e #nless esto$$el sets n/ then $r or $art es bo#nd. 529 S#bse'#ent $art es bo#nd Reason? Bo#nd on &arrant es o! ndorsers #nless other& se s$e( ! ed 5a9 Whether or not holder n d#e (o#rse 5b9 Only !or+ed s +nat#re s no$erat %e b9 Order b ll o! e"(han+e 5,9 Dra&ee (annot (har+e dra&erMs a((o#nt 5a9 I! (har+ed dra&er has r +ht to re(o%er 529 Dra&er has no r +ht a+a nst (olle(t n+ ban3 5*9 Dra&ee (an re(o%er !rom (olle(t n+ ban3 5C9 2olle(t n+ ban3 bears loss

,)

5a9 2an re(o%er !rom $erson t $a d 5@9 Payee (an re(o%er !rom 5a9 Dra&er 5b9 2olle(t n+ ban3 5(9 Payee (annot re(o%er !rom dra&ee 5E9 Dra&er not l able to the (olle(t n+ ban3 29 Bearer nstr#ments a9 Bearer $rom ssory note 5,9 Pr or $art es l able 529 Aor+ed s +natory not l able to $arty not holder n d#e (o#rse b9 Bearer b ll o! e"(han+e 5,9 Dra&ee ban3 l able === I77USTRATICE PROB7EM: RI?HTS O( PARTIES IN'ORSEMENT O( PROMISSIORB NOTE PAYA"LE TO ORDER # IN ORGED

1:# >ennis akes a pro issory note payable to the order of Cay, who indorses it to 6icky. So ehow, Dreddie obtains possession of the note and forging the signature of 6icky endorses it to .ngelo who then indorses it to ,ea. State the rights and liabilities of the parties. S.>>ESTED ANSWER? - (3y &hose ndorsement s !or+ed and the $art es $r or to h m n(l#d n+ the ma3er/ Denn s and the $ayee/ Kay (annot be held l able to the holder Bea/ &hether or not she s a holder n d#e (o#rse. Reasons? a. An order note (an be ne+ot ated only by ndorsement (om$leted by del %ery. A !or+ed ndorsement s &holly no$erat %e and does not trans!er any r +hts. b. No r +ht to reta n the note/ + %e d s(har+e there!ore/ or en!or(e $ayment (o#ld be a('# red #nder a !or+ed ndorsement. (. S n(e the $rede(essor o! the holder obta ned the note by !ra#d#lent and #nla&!#l means/ then there are no r +hts that are trans!erred. d. An+elo s l able to Bea be(a#se o! An+eloMs &arrant es as a +eneral ndorser that the nstr#ment s &hat t $#r$orts to be and that he shall $ay n (ase o! d shonor. === I77USTRATICE PROB7EM: RI?HTS O( PARTIES IN'ORSEMENT O( "ILL O( ED&HAN?E PABAB7E TO ORDER# IN ORGED

18# 7ina issued a check to 9ellie or order as the payee with 2astern ,ank as the drawee. Didel fraudulently obtains the check and forges 9ellieAs signature. Didel then deposits it in >aya ,ank ($ollecting ,ank). Western ,ank indorses the check to 2astern ,ank through the clearing house. Didel then withdraws fro >aya ,ank, the proceeds of the check. What are the rights of the parties ? S.>>ESTED ANSWER? a. Dra&erMs a((o#nt 5T naMMs9 (annot be (har+ed 5deb ted/ ded#(ted/ s#btra(ted or red#(ed9 by the dra&ee 5Eastern Ban39/ !or the amo#nt $a d/ and ! her a((o#nt s (har+ed/ T na (an re(o%er !rom Eastern Ban3. Reason? The de$os tory 5dra&ee Eastern Ban39 o&es to the de$os tor 5dra&er T na9/ an absol#te and (ontra(t#al d#ty to $ay the (he(3 only to the $erson to &hom made $ayable or #$on h s +en# ne ndorsement. The dra&er a#thor 0es and d re(ts the dra&ee to $ay only to the $ayee or to the order o! the $ayee not to another. b. Dra&ee 5Eastern Ban3Ms9 de!enses? Dra&er/ T na s $re(l#ded !rom ra s n+ the de!ense o! !or+ery d#e to esto$$el on a((o#nt o! ne+l +en(e/ !or e"am$le/ ! the $ayee Nell e ad% sed T na o! the loss/ b#t she 5T na9 d d not n!orm Eastern Ban3. (. Dra&er 5T na9 has no r +ht to re(o%er !rom the (olle(t n+ ban3 5Daya Ban39. Reasons? a9 D#ty o! (olle(t n+ ban3 to e"er( se (are n (olle(t n+ s tr#e only to the $#r$orted $ayee. b9 The dra&er does not s#!!er any dama+e (a#sed by the (olle(t n+ ban3 as he (an re(o%er !rom the dra&ee ban3 &h (h has no r +ht to (har+e the dra&erMs a((o#nt. d9 Dra&ee ban3 5Eastern Ban39 (an re(o%er !rom the (olle(t n+ ban3 5Daya Ban39. Reason? S n(e the (he(3 $assed thro#+h the (lear n+ ho#se/ the (olle(t n+ ban3 5Daya Ban39 m#st ha%e ndorsed the (he(3 to the dra&ee ban3 5Eastern Ban39/ there!ore t s l able on an ndorserMs &arranty o! +en# neness and l ab l ty to $ay n (ase o! d shonor.

,,

e9 2olle(t n+ ban3 5Daya Ban39 bears the loss b#t t (an re(o%er !rom the $erson to &hom t $a d the (he(3/ A del. !9 The $ayee 5Nell e9 (an st ll re(o%er !rom the dra&er 5T na9. Reason? She st ll reta ned her (la m as t &as not e"t n+# shed. E"(e$t on? The $ayee 5Nell e9 (annot re(o%er ! the (he(3 &as m$a red thro#+h her !a#lt. +9 The $ayee 5Nell e9 (an re(o%er !rom the (olle(t n+ ban3 5Daya Ban39. Reason? Possess on o! the !or+ed nstr#ment s #nla&!#l and money (olle(ted s held n tr#st !or r +ht!#l o&ners. 5Note? Th s s on the ass#m$t on that/ the dra&erMs a((o#nt &as (har+ed by the dra&ee ban3/ other& se the dra&er &o#ld be #n:#stly enr (hed9 h9 The $ayee 5Nell e9 (annot re(o%er !rom the dra&ee ban3 5Eastern Ban39. Reason? There s no $r % ty o! (ontra(t. . Dra&er 5T na9 s not l able to the (olle(t n+ ban3 5Daya Ban39. Reason? There s no $r % ty o! (ontra(t bet&een T na and Daya Ban3. === I77USTRATICE PROB7EM: RI?HTS O( PARTIES IN ORGED IN'ORSEMENT O( PROMISSORB NOTE PABAB7E TO "EARER# OR O( "EARER "ILL O( ED&HAN?E# 1,# 9ini akes a pro issory note payable to bearer. 7he bearer negotiates the note to . boy by ere delivery thence to <ay ond, thence to ,unny, thence to 9ellie. 7he instru ent was lost and Eeorge who found the note placed a signature purporting that of 9ellie and negotiates the note to -ina by ere delivery such that -ina is a holder in due course. 6ay -ina proceed against 9ini, <ay ond, ,unny and 9ellie ? S.>>ESTED ANSWER? Fes. Reason? Aor+ed ndorsement s not ne(essary to the t tle o! the holder/ 4 na/ be(a#se the nstr#ment s a bearer nstr#ment that $asses t tle by mere del %ery. Supposing -ina is not a holder in due course ay prior parties be held liable ? S.>>ESTED ANSWER? Fes/ b#t not a+a nst Nell e &hose s +nat#re &as !or+ed. Reason? Esto$$el. === &OMP7ETE BUT NOT 'E7ICERE' INSTRUMENT# a. Del %ery (om$letes the (ontra(t ,9 Bet&een mmed ate and remote $art es 29 Del %ery e!!e(t#al b. I! #nder a#thor ty ,9 To a holder n d#e (o#rse a9 Val d del %ery $res#med b9 Pr or $art es bo#nd 29 I! del %ery (ond t onal a9 Pr or $art es not bo#nd 19# .. Drancisco <ealty and >evelop ent $orporation (.D<>$) represented by its president .delia as well as %erby $o ercial and $onstruction $orporation (%$$$) represented by its president 0ai e entered into a contract with ES+S for the construction of housing units and land develop ent. ES+S partially paid on the contract the a ount of P)**,***.**. 0ai e discovered that fro the ES+S pay ent .delia had received and signed seven checks of various dates and a ounts drawn against +,.. and payable to %$$$ for co pleted and delivered work under the contract. .delia forged 0ai e=s signature without his knowledge or consent, at the dorsal portion of the said checks to ake it appear that %$$$ had indorsed the checks, and then deposited the checks in her +,.. savings account. .delia now clai s that she was authori@ed to sign 0ai e=s na e on the check by virtue of a $ertification e3ecuted by 0ai e in her favor giving her authority to collect all the receivables of %$$$ fro ES+S, including the questioned checks. Will the defense prosper ? S.>>ESTED ANSWER? No. Where any $erson s #nder obl +at on to ndorse n a re$resentat %e (a$a( ty/ he may ndorse n s#(h terms as to ne+at %e $ersonal l ab l ty. An a+ent/ &hen so s +n n+/ sho#ld nd (ate that he s merely s +n n+ n behal! o! the $r n( $al and m#st d s(lose the name o! h s $r n( $alB other& se he shall be held $ersonally l able. E%en ass#m n+ that Adel a &as a#thor 0ed by D222 to s +n Ha me1s name/ st ll/ Adel a/ d d not ndorse the nstr#ment n a((ordan(e & th la&. Instead o! s +n n+ Ha me1s name/ Adel a sho#ld ha%e s +ned her o&n name and e"$ressly nd (ated that she &as s +n n+

,2

as an a+ent o! D222. 5Aran( s(o %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,E*2)/ $rom. No%ember 28/ ,8889 1@# Fn 0une (G, (GH), 7riu ph -u ber $orporation opened a current account deposit with Security ,ank and authori@ed withdrawals on the basis of any of three signatures of 7riu ph=s president, treasurer and general anager appearing on the speci en signature cards. Fn 6arch 8:, (GH;, 7riu ph discovered that the door of its office was forced open, including that of the filing cabinet where its savings account passbook, check booklets and other bank docu ents were kept. 7his was not reported to the police, neither was Solid ,ank advised. Fn the sa e day of the burglary, 7riu ph ade three separate deposits totaling P:;I,))I.(*, and i ediately after said deposits, three (:) 7riu ph checks totaling P:**,***.** were successively presented to Solid ,ank for encash ent. 7hese were given due course following the standard bank procedure for verification of the check signatures and regularity of other particulars of the said check. 7riu ph now clai s that due to Solid ,ank=s gross and ine3cusable negligence in deter ining the forgery of the drawer=s signatures, the three checks which were all drawn against its current account were encashed by unauthori@ed persons. +t then de anded that Solid ,ank credits back its account the value of the checks it clai ed were wrongfully encashed. <ebuffed in its de and, 7riu ph sues Solid ,ank. Will the suit prosper ? S.>>ESTED ANSWER? No. The loss res#lted !rom Tr #m$h1s ne+l +en(e. .nder the abo%e ( r(#mstan(es a $r#dent and reasonable man &o#ld ha%e +one o%er the (he(3 boo3lets a!ter the b#r+lary and ha%e d s(o%ered that three (he(3s &ere m ss n+. The ban3 &o#ld ha%e been then mmed ately ad% sed. 5Se(#r ty Ban3 = Tr#st 2om$any %. Tr #m$h 4#mber and 2onstr#(t on 2or$orat on/ >.R. No. ,2EE8E/ $rom. Han#ary 2,/ ,8889 NOTES AND 2O--ENTS? The abo%e ( ted (ase &as de( ded as sho&n abo%e be(a#se o! Tr #m$h1s !a l#re to $ro%e !or+ery. It s the a#thor1s % e& that had Tr #m$h been able to $ro%e !or+ery/ the ban3 &o#ld ha%e been l able as sho&n by the !ollo& n+ d s(#ss on. a. &he);s with 0o ged indo se*ents sho!+d .e di00e entiated 0 o* )he);s .ea ing 0o ged signat! es o0 the d awe # 5Asso( ated Ban3 %. 2o#rt o! A$$eals/ et al./ and ts (om$an on (ase Ph l $$ ne Nat onal Ban3 %. 2o#rt o! A$$eals/ et al./ 2@2 S2RA E2)9 b. E00e)t o0 0o ged signat! e# When a s +nat#re s !or+ed or made & tho#t a#thor ty o! the $erson &hose s +nat#re t $#r$orts to be/ it is who++/ ino5e ative3 and no r +ht to reta n the nstr#ment/ or to + %e a d s(har+e there!or/ or to en!or(e $ayment a+a nst any $arty thereto/ (an be a('# red thro#+h or #nder s#(h s +nat#re !n+ess the 5a t/ against who* it is so!ght to en0o )e s!)h ight s $re(l#ded !rom sett n+ #$ the !or+ery or &ant o! a#thor ty. 5Se(. 2*/ Ne+ot able Instr#ments 4a&9 Se(. 2* does not a%o d the nstr#ment b#t only the !or+ed s +nat#re. Th#s/ a !or+ed ndorsement does not o$erate as the $ayee1s ndorsement. A 5e son *a/ .e .o!nd !nde a 0o ged signat! e . t he s $re(l#ded !rom sett n+ #$ the !or+ery or &ant o! a#thor ty. Part es &ho &arrant or adm t the +en# neness o! the s +nat#re n '#est on and those &ho/ by the r a(ts/ s len(e or ne+l +en(e are esto$$ed !rom sett n+ #$ the de!ense o! !or+ery are $re(l#ded !rom #s n+ th s de!ense. Indorsers/ $ersons ne+ot at n+ by del %er and a((e$tors are &arrantors o! the +en# neness o! the s +nat#res on the nstr#ment. In bearer nstr#ments/ the s +nat#re o! the $ayee or holder s not ne(essary to $ass t tle to the nstr#ment. Den(e/ &hen the ndorsement s a !or+ery/ only the $erson &hose s +nat#re s !or+ed (an ra sed the de!ense o! !or+ery e%en a+a nst a holder n d#e (o#rse. 5Asso( ated Ban3 %. 2o#rt o! A$$eals/ et al./ s$pra9 (. E00e)ts o0 a 0o ged indo se*ent on an inst !*ent 5a/a.+e to o de # ,9 Where the nstr#ment s $ayable to order at the t me o! the !or+ery/ the s +nat#re o! the r +ht!#l holder s essent al to trans!er t tle to the same nstr#ment. When the holder1s ndorsement s !or+ed all $art es $r or to the !or+ery may ra se the real de!ense o! !or+ery a+a nst all $art es s#bse'#ent thereto. 29 An ndorser o! an order nstr#ment &arrants Ithat the nstr#ment s +en# ne and n all res$e(ts &hat t $#r$orts to beB that he has +ood t tle to tB that all $r or $art es had (a$a( ty to (ontra(tB and that the nstr#ment s at the t me o! h s ndorsement %al d and s#bs st n+.J De (annot nter$ose the de!ense that s +nat#res $r or to h m are !or+ed. *9 A (olle(t n+ ban3 &here a (he(3 s de$os ted and &h (h ndorses the (he(3 #$on $resentment & th the dra&ee ban3 s a +narl ndorser &h (h &arrants the +en# neness o! the nstr#ment. So/ e%en ! the ndorsement on the (he(3 de$os ted by

,*

the ban31s (l ent s !or+ed/ the (olle(t n+ ban3 s bo#nd by ts &arrant es as an ndorser and (annot set #$ the de!ense o! !or+ery as a+a nst the dra&ee ban3. S n(e a !or+ed ndorsement s no$erat %e/ the (olle(t n+ ban3 had no r +ht to be $a d by the dra&ee ban3. The (olle(t n+ ban3 m#st ne(essar ly ret#rn the money to the dra&ee ban3 be(a#se t &as $a d &ron+!#lly. Th s l ab l ty s(heme o$erates & tho#t re+ard to !a#lt on the $art o! the (olle(t n+N$resent n+ ban3. E%en ! t &as not ne+l +ent/ t &o#ld st ll be l able to the dra&ee ban3 be(a#se o! h s ndorsement. C9 The (olle(t n+ ban3 or last endorser +enerally s#!!ers the loss be(a#se t has the d#ty to as(erta n the +en# neness o! all $r or endorsements (ons der n+ that the a(t o! $resent n+ the (he(3 !or $ayment to the dra&ee s an assert on that the $arty ma3 n+ the $resentment had done ts d#ty to as(erta n the +en# neness o! the endorsements. @9 -oreo%er/ the (olle(t n+ ban3 s made l able be(a#se t s $r %y to the de$os tor &ho ne+ot ated the (he(3. The ban3 3no&s h m/ h s address and h story be(a#se he s a (l ent. It has ta3en a r s3 on the de$os t. The ban3 s also n a better $os t on to dete(t !or+ery/ !ra#d or rre+#lar ty n the endorsement. E9 The dra&ee ban3 s not s m larly s t#ated as the (olle(t n+ ban3 be(a#se the dra&ee ban3 ma3es no &arranty as to the +en# neness o! the endorsements. The dra&ee ban31s d#ty s b#t to %er !y the +en# neness o! the dra&er1s s +nat#re and not o! the endorsement be(a#se the dra&er s ts (l ent. The dra&ee ban3 s #nder str (t l ab l ty to $ay the (he(3 to the order o! the $ayee. The dra&er1s nstr#(t ons are re!le(ted on the !a(e and by the terms o! the (he(3. Payment #nder a !or+ed endorsement s not to the dra&er1s order. When the dra&ee ban3 $ays a $erson other than the $ayee/ t does not (om$ly & th the terms o! the (he(3 and % olates ts d#ty to (har+e ts (#stomer1s 5the dra&er1s9 a((o#nt only !or $ro$erly $ayable tems. Where the dra&ee ban3 d d not $ay a holder or other $erson ent tled to re(e %e $ayment/ t has no r +ht to re mb#rsement !rom the dra&er. The +eneral r#le then s that the dra&ee ban3 may not deb t the dra&er1s a((o#nt and s not ent tled to ndemn ! (at on !rom the dra&er. The r s3 o! loss m#st $er!or(e !all on the dra&ee ban3. 79 The (ha n o! l ab l ty does not end & th the dra&ee ban3. Wh le the dra&ee ban3 may not deb t the dra&er1s a((o#nt/ t may +enerally $ass l ab l ty ba(3 thro#+h the (olle(t on (ha n to the $arty &ho too3 !rom the !or+er and. o! (o#rse/ to the !or+er h msel!/ ! a%a lable. The dra&ee ban3 (an see3 re mb#rsement or a ret#rn o! the amo#nt t $a d !rom the $resentorN(olle(t n+ ban3 or $erson. E%ent#ally/ the loss !alls on the $arty &ho too3 the (he(3 !rom the !or+er 5the (olle(t n+ ban39/ or on the !or+er h msel!. Den(e/ the dra&ee ban3 (an re(o%er the amo#nt $a d on the (he(3 bear n+ the !or+ed endorsement !rom the (olle(t n+ ban3. 69 A dra&ee ban3 has the d#ty to $rom$tly n!orm the $resentorN(olle(t n+ ban3 o! the !or+ery #$on d s(o%ery. I! the dra&ee ban3 delays n n!orm n+ the $resentorN(olle(t n+ ban3 o! the !or+ery/ thereby de$r % n+ sa d $resentorN(olle(t n+ ban3 o! the r +ht to re(o%er !rom the !or+er/ the dra&ee ban3 s deemed ne+l +ent and (an no lon+er re(o%er !rom the $resentorN(olle(t n+ ban3. 89 I! the dra&ee ban3 (an $ro%e a !a l#re by the (#stomerNdra&er to e"er( se ord nary (are that s#bstant ally (ontr b#ted to the ma3 n+ o! the !or+ed s +nat#re/ the dra&er s $re(l#ded !rom assert n+ the !or+ery as a de!ense. I! at the same t me the dra&ee ban3 &as also ne+l +ent to the $o nt o! s#bstant ally (ontr b#t n+ to the loss/ then s#(h loss !rom the !or+ery (an be a$$ort oned bet&een the ne+l +ent dra&er and the ne+l +ent ban3. 5Asso( ated Ban3/ s$pra9 d. 2:2ho! !+e de+eted sin)e 1<@0# .nder Se(t on C 5(9 o! 2.B. 2 r(#lar No. @6)/ tems bear n+ a !or+ed endorsement shall be ret#rned & th n t&enty-!o#r 52C9 ho#rs a!ter d s(o%ery o! the !or+ery b#t n no e%ent beyond the $er od ! "ed or $ro% ded by la& !or ! l n+ o! a le+al a(t on by the ret#rn n+ ban3. The 2entral Ban3 2 r(#lar &as n !or(e !or all ban3s #nt l H#ne ,86) &hen the Ph l $$ ne 2lear n+ Do#se 2or$orat on 5P2D29 &as set #$ and (ommen(ed o$erat ons. Se(t on 2* o! the P2D2 R#les deleted the re'# rement that tems bear n+ a !or+ed endorsement sho#ld be ret#rned & th n t&enty-!o#r 52C9 ho#rs. 5Asso( ated Ban3/ s$pra9 e. E00e)ts whe e the d awe Es signat! e was 0o ged# The dra&er (an re(o%er !rom the dra&ee ban3. No dra&ee ban3 has the r +ht to $ay a !or+ed (he(3. I! t does/ t shall ha%e

,C

to re(red t the amo#nt o! the (he(3 to the amo#nt o! the dra&er. The l ab l ty (ha n ends & th the dra&ee ban3 &hose res$ons b l ty t s to 3no& the dra&er1s s +nat#re s n(e the latter s ts (#stomer. 5Asso( ated Ban3/ s$pra9 1<# . check with serial nu ber ;?:JJJ?88:?:, dated .ugust ;, (GGG in the a ount of PG;,J)*.** was issued by K.K to K"K 6arketing drawn against >2 ,ank. the check clearly shows the na e of K.K printed on its face. Fn .ugust ((, (GGG, K"K 6arketing a client of K<K ,ank deposited the questioned check in its savings account in said bank. +n turn, K<K ,ank deposited the check with K4K ,ank which, in turn sent the check to >2 ,ank for clearing. >2 ,ank cleared the check as good and thereafter, K4K ,ank credited K<K ,ank=s account for the a ount stated in the check. %owever, on .ugust :*, (GGG, >2 ,ank returned the check to K4K ,ank and debited its account for the a ount covered by the check because there was a ! aterial alternation# of the check=s nu ber. K4K ,ank in turn debited K<K ,ank=s account, and sent the check back to >2 ,ank. >2 ,ank however returned the check to K4K ,ank. K<K ,ank could not debit K"K 6arketing=s account which was already closed. Was the alteration of the serial nu ber of the check a aterial alteration affecting the negotiability of the check ? S.>>ESTED ANSWER? No/ the alterat on o! the ser al n#mber s mmater al or nno(ent alterat on. The a!orement oned alterat on d d not (han+e the relat ons bet&een the $art es. the name o! the dra&er and the dra&ee &ere not altered. The ntended $ayee &as the same. The s#m o! money d#e to the $ayee rema ned the same. An nno(ent alterat on 5+enerally/ (han+es on tems other than those re'# red to be stated #nder Se(. ,/ N.I.4.9 and s$ol at on 5alterat ons done by a stran+er9 & ll not a%o d the nstr#ment/ b#t the holder may en!or(e t only a((ord n+ to ts or + nal tenor. 5V t#+ ( ted n Ph l $$ ne Nat onal Ban3 %. 2o#rt o! A$$eals/ et al./ 2@E S2RA C8,9 NOTES AND 2O--ENTS? a. Mate ia+ a+te ation# An alterat on s sa d to be mater al ! t alters the e!!e(t o! the nstr#ment. It means an #na#thor 0ed (han+e n an nstr#ment that $#r$orts to mod !y n any res$e(t the obl +at on o! a $arty or an #na#thor 0ed add t on o! &ords or n#mbers or other (han+e to an n(om$lete nstr#ment relat n+ to he obl +at on o! a $arty. In other &ords/ a mater al alterat on s one &h (h (han+es the tems &h (h are re'# red to be stated #nder Se(t on , o! the Ne+ot able Instr#ments 4a&. 5Ph l $$ ne Nat onal Ban3 %. 2o#rt o! A$$eals/ et al./ 2@E S2RA C8,9 b. The sa+a / )he); o0 a gove n*ent o00i)e o e*5+o/ee does not .e+ong to hi* .e0o e it is 5h/si)a++/ de+ive ed to hi*# .nt l that t me the (he(3 belon+s to the +o%ernment. .nder Se(. ,E o! the Ne+ot able Instr#ments 4a&/ e%ery (ontra(t on a ne+ot able nstr#ment s n(om$lete and re%o(able #nt l %e&i'er( o! the nstr#ment !or the $#r$ose o! + % n+ e!!e(t thereto. As ord nar ly #nderstood/ de+ive / means the trans!er o! the $ossess on o! the nstr#ment by the ma3er or dra&er )ith i*te*t to tra*sfer tit&e to the pa(ee a*% reco+*i,e him as the ho&%er thereof# 5De la V (tor a %s. B#r+os/ et al./ 2C@ S2RA *7C9 20# 7he "45 ,ank is willing to lend to your client the su of P(,)**,***.** payable in five ()) years with interest at (8/ per annu secured only by a surety bond. Suppose the bank requires your client to secure the signature of a person who is well?known to it before your client=s pro issory note can be accepted, what do you call that person and what are his liabilities ? S.>>ESTED ANSWER? De s an a((omodat on $arty and he s l able on the nstr#ment. NOTES AND 2O--ENTS? === a. A))o*odation 5a t/# One &ho has s +ned the nstr#ment as ma3er/ dra&er/ a((e$tor/ or ndorser/ & tho#t re(e % n+ %al#e there!or/ and !or the $#r$ose o! lend n+ h s name to some other $erson. S#(h a $erson s l able on the nstr#ment to a holder !or %al#e/ not& thstand n+ s#(h holder/ at the t me o! ta3 n+ the nstr#ment 3ne& h m to be only an a((omodat on $arty. 5Se(. 28/ N.I.4.9 b. A*.ig!o!s negotia.+e inst !*ents# Where a ne+ot able nstr#ment s so amb +#o#s that there s do#bt &hether t s a b ll or a note/ the holder may treat t e ther as a b ll o! e"(han+e or a $rom ssory note at h s ele(t on. 21# Fn various occasions <e edios, a sari?sari store owner purchased fro 6onrico 6art various erchandise, and paid for the with checks issued by .rturo and signed at the back by <e edios. When presented for pay ent these checks were

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dishonored because the drawerA= account was already closed. ,oth .rturo and <e edios were acquitted of estafa. 6ay <e edios be held liable for the a ount of the checks ? S.>>ESTED ANSWER? Fes. Where a s +nat#re s so $la(ed #$on a ne+ot able nstr#ment that t s not (lear n &hat (a$a( ty the $erson ma3 n+ the same ntended to s +n/ she s deemed to be an ndorser. Th#s/ as an ndorser/ Remed os en+a+es that #$on d#e $resentment/ the (he(3s are to be a((e$ted or $a d/ or both/ as the (ase may be and ! d shonored and the ne(essary $ro(eed n+s are ta3en/ she & ll $ay the amo#nt thereo! to the holder -onr (o -art. 5Sa$ era %. 2o#rt o! A$$eals/ et al./ >.R. No. ,26827/ $rom. Se$tember ,C/ ,8889 NOTES AND 2O--ENTS? a. &he);# A b ll o! e"(han+e dra&n on a ban3 $ayable on demand. 5Bataan 2 +ar and 2 +arette Aa(tory/ In(. %s. 2o#rt o! A$$eals/ et al. 2*) S2RA EC*B -oran %s. 2o#rt o! A$$eals/ et al./ 2*) S2RA 7889 === b. &he); %isti*+$ishe% from .i++ o0 e6)hange# A (he(3/ as d st n+# shed !rom an ord nary b ll o! e"(han+e/ s s#$$osed to be dra&n a+a nst a $re% o#s de$os t o! !#nds !or t s ord nar ly ntended !or mmed ate $ayment. A ban3 s #nder no obl +at on to ma3e $art $ayment on a (he(3 #$ to only the amo#nt o! the dra&er1s !#nd. 5-oran/ s#$ra9 There s an element o! (erta nty or ass#ran(e n an ord nary (he(3 that t & ll be $a d #$on $resentat on that s &hy t s $er(e %ed as a s#bst t#te !or (#rren(y n (ommer( al and ! nan( al transa(t ons. 5Tan %s. 2o#rt o! A$$eals/ et al./ 2*8 S2RA *,)9 22# Fn 0uly (:, (GGG, 7ocino Products $orporation (7P$), a fir engaged in the anufacture of longganisa, engaged one of its suppliers 6r. ,. .. ,oy, to deliver ),*** kilos of carabeef, starting Fctober (GGG. 7P$ issued two (8) crossed postdated checks both dated 6arch 8(, 8***. $heck no. (8:I) in the a ount of P8**,***.** and check no. HG(*(( in the a ount of P8)*,***.**, in pay ent of the ),*** kilos of carabeef. <elying on 6r. ,oy=s representation that he would co plete delivery within three onths fro >ece ber (GGG, 7P$ agreed to purchase an additional ;,*** kilos of carabeef despite 6r. ,oy=s failure to deliver. .gain 7P$ issued two (8) postdated crossed checks, check no. I)J;HG a ounting to PI:*,***.** payable on 6arch ), 8***, and check no. (*(((8 a ounting to PI:*,***.** payable on 6arch ;, 8***. 6r. ,oy sold all the four checks at a discount to +ndian Dore3, +nc. .s a result of 6r. ,oy=s failure to deliver the eat, 7P$ issued stop order pay ents on all the four checks on 6arch (, 8***. $ould +ndian Dore3, +nc. recover fro 7P$, the value of the four checks ? Why ? S.>>ESTED ANSWER? No/ be(a#se Ind an Aore"/ In(. s not a holder n d#e (o#rse. The (ross n+ o! the (he(3s sho#ld ha%e $#t Ind an on n'# ry and #$on t de%ol%es the d#ty to as(erta n -r. Boy1s t tle to the (he(3 or h s $ossess on. Aa l n+ n th s res$e(t/ Ind an s +# lty o! +ross ne+l +en(e and as s#(h s not a holder n d#e (o#rse. It (o#ld re(o%er !rom -r. Boy/ ts mmed ate ndorser. NOTES AND 2O--ENTS? a. Finds o0 )he);s# There are d !!erent 3 nds o! (he(3s amon+ &h (h are? -emorand#m (he(3/ (ash er1s (he(3/ tra%eller1s (he(3 and (rossed (he(3. === b. & ossed )he);# A (he(3 s a b ll o! e"(han+e dra&n on a ban3 $ayable on demand.. 2rossed (he(3 s one &here t&o $arallel l nes are dra&n a(ross ts !a(e or a(ross a (orner thereo!. It may be (rossed +enerally or s$e( ally. a (he(3 s (rossed s$e( ally &hen the name o! a $art (#lar ban3er or a (om$any s &r tten bet&een the $arallel l nes dra&n. It s (rossed +enerally &hen only the &ords Iand (om$anyJ are &r tten or noth n+ s &r tten bet&een the $arallel l nes. It may be ss#ed so that $resentment (an be made only by a ban3. === (. E00e)ts o0 ) ossing a )he);: ,9 The (he(3 may *ot be en(ashed b#t only de$os ted n the ban3B 29 The (he(3 may be ne+ot ated o*&( o*ce - to one &ho has an a((o#nt & th a ban3B and *9 The a(t o! (ross n+ the (he(3 ser%es as a )ar*i*+ to the holder that the (he(3 has been ss#ed for a %efi*ite p$rpose/ other& se stated the holder s not a holder n d#e (o#rse. 5Bataan 2 +ar and 2 +arette Aa(tory/ In(. %s. 2o#rt o! A$$eals/ et al./ 2*) S2RA EC*9 === d. Ho+de in d!e )o! se# Se(. @2 o! the Ne+ot able Instr#ments 4a& states that a holder n d#e (o#rse s a holder &ho has ta3en the nstr#ment #nder the !ollo& n+ (ond t ons? ,9 That t s (om$lete and re+#lar #$on ts !a(eB 29 That he be(ame a holder o! t be!ore t &as o%erd#e/ and & tho#t not (e that t had been $re% o#sly d shonored ! s#(h &as the !a(tB

,E

*9 That he too3 t n +ood !a th and !or %al#eB d9 That at the t me t &as ne+ot ated to h m he had no not (e o! any n! rm ty n the nstr#ment or de!e(t n the t tle o! the $erson ne+ot at n+ t Se(. @8 o! the same la& !#rther states that e%ery holder s deemed prima facie a holder n d#e (o#rse. Do&e%er/ &hen t s sho&n that the t tle o! any $erson &ho has ne+ot ated the nstr#ment &as de!e(t %e/ the b#rden s on the holder to $ro%e that he or some other $erson #nder &hom he (la ms/ a('# red the t tle as holder n d#e (o#rse. The d sad%anta+e o! a holder &ho s not a holder n d#e (o#rse s that the nstr#ment s s#b:e(t to de!enses as ! t &ere non-ne+ot able. 5Bataan 2 +ar and 2 +arette Aa(tory/ In(. %s. 2o#rt o! A$$eals/ et al./ 2*) S2RA EC*9 e. &ashie Es )he);# It s a $r mary obl +at on o! the ss# n+ ban3 and a((e$ted n ad%an(e by ts mere ss#an(e and/ by ts $e(#l ar (hara(ter and +eneral #se n the (ommer( al &orld s re+arded s#bstant ally to be as +ood as the money &h (h t re$resents. 5Tan %s. 2o#rt o! A$$eals/ et al./ 2*8 S2RA *,)9 2-# Fn .pril 8), (GG(, Licente invested in $+D$, a quasi?banking institution engaged in oney arket operations, the a ount of P)**,***.** to ature after one onth with interest at the rate of 8*.)/ for :8 days. &pon aturity $+D$ issued a check of P)(I,:G*.GI in favor of Licente representing the proceeds of his atured invest ent plus interest. When the check was deposited, ,P+ dishonored it with the annotations !Sub1ect to +nvestigation,# and took custody of the check pending investigation of several counterfeit checks drawn against $+D$=s checking account to trace the perpetrators of the forgery. $+D$ now asserts that since ,P+ accepted the check, it beco es pri arily liable for its pay ent. $onsequently, when ,P+ offset the value of the check against its losses fro the forged checks the check was dee ed paid. Durther ore $+D$ anchors its argu ents of pay ent on Sc. (:; of the 9egotiable +nstru ents -aw which states that, !Where a drawee to who a bill is delivered for acceptance destroys the sa e, or refuses within twenty?four hours after such delivery or such other period as the holder ay allow, to return the bill accepted or non?accepted to the holder, he will be dee ed to have accepted the sa e.# Was there effective pay ent to Licente ? S.>>ESTED ANSWER? No. It s (lear that a money mar3et transa(t on s one o! loan/ &h (h sho#ld ha%e been $a d !or n (ash. The del %ery o! a (he(3 $rod#(es only $ayment &hen t has been en(ashed or &hen thro#+h the !a#lt o! the (red tor t has been m$a red. A (he(3 s merely a s#bst t#te !or money. 52eb# Internat onal A nan(e 2or$orat on %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2*)*,/ $rom. O(tober ,2/ ,8889 2:# When is notice of dishonor *ot re-$ire% to be given to drawer ? S.>>ESTED ANSWER? a. Where the dra&er and the dra&ee are the same $ersonB b. When the dra&ee s a ! (t t o#s $erson or a $erson not ha% n+ (a$a( ty to (ontra(tB (. When the dra&er s the $erson to &hom the nstr#ment s $resented !or $aymentB d. Where the dra&er has no r +ht to e"$e(t or re'# re that the dra&ee or a((e$tor & ll honor the nstr#mentB e. Where the dra&er has (o#ntermanded $ayment. 5Se(. ,,C/ N.I.4.9

$-% Ins! an)e &ode $P#'# 1:,0%

===28# 0ere iah was a ost valued e ployee of Dortune 6anufacturing $orporation for the past twenty years. %e was insured by his e ployer with itself as the beneficiary. . co pany owned house at >as arinas Lillage was furnished for his use which was insured with the owner as the beneficiary. ,oth of the policies were up to >ece ber :(, 8**(. Fn 0une (), 8**( 0ere iah retired fro the co pany. .s part of his retire ent package, the title of the house at >as arinas Lillage was transferred to 0ere iahAs na e. Fn 0uly I, 8**(, the house was burned resulting to 0ere iahAs death. Who could recover on the insurance policies ? 23plain. S.>>ESTED ANSWER? Nobody (o#ld re(o%er on the ns#ran(e $ol (y (o%er n+ the ho#se. Aort#ne (o#ld not re(o%er on the $ol (y (o%er n+ the ho#se be(a#se t d d not ha%e any ns#rable nterest at the t me o! the loss on H#ly C/2)),. Th s s so be(a#se the o&nersh $ &as already trans!erred to Herem ah. Do&e%er there s no sho& n+ n the $roblem o! any (han+e n the ns#ran(e n Herem ah1s !a%or so h s he rs (o#ld not also re(o%er on the $ol (y.

,7

Aort#ne (o#ld re(o%er on the $ol (y (o%er n+ Herem ahMs l !e be(a#se ns#rable nterest on l !e need not e" st at the t me o! the death. NOTES AND 2O--ENTS? a. Ins! a.+e inte est s re'# red !or a $erson &ho ns#res the l !e o! another # E%ery $erson has an ns#rable nterest n the l !e and health? ,9 O! h msel!/ o! h s s$o#se and o! h s (h ldrenB 29 O! any $erson on &hom he de$ends &holly or n $art !or ed#(at on or s#$$ort/ or n &hom he has a $e(#n ary nterestB *9 O! any $erson #nder a le+al obl +at on to h m !or he $ayment o! money/ or res$e(t n+ $ro$erty or ser% (e/ o! &h (h death or llness m +ht delay or $re%ent the $er!orman(eB and C9 O! any $erson #$on &hose l !e any estate or nterest %ested n h m de$ends. 5Se(. ,)/ Ins#ran(e 2ode9 b. P! 5ose 0o e>!i e*ent o0 ins! a.+e inte est in +i0e# To remo%e the tem$tat on o! ns#r n+ a $ersonMs l !e and then 3 ll n+ h m to re(o%er the ns#ran(e $ro(eeds. <<< (. Ins! a.+e inte est in +i0e sho!+d e6ist at the t me o! ta3 n+ and NOT ne(essar ly at the t me o! death. d. Ins! a.+e inte est in 5 o5e t/ is re'# red !or a $erson &ho se(#res $ro$erty ns#ran(e# E%ery nterest n $ro$erty/ &hether real or $ersonal/ or any relat on thereto or l ab l ty n res$e(t thereo! o! s#(h nat#re that a (ontem$lated $er l m +ht d re(tly damn !y the ns#red. 5Se(. ,*/ Ins#ran(e 2ode9 <<< e. Ins! a.+e inte est in 5 o5e t/ *!st e6ist at the t me o! ta3 n+ AND at the t me o! loss. === !. Ins! a.+e inte est in +i0e %isti*+$ishe% from ins! a.+e inte est in 5 o5e t/# ,9 In ns#rable nterest n l !e m#st e" st at the t me o! ta3 n+ and need not e" st at the t me o! death WDI4E ns#rable nterest n $ro$erty m#st e" st both at the t me o! ta3 n+ and t me o! loss. 29 The bene! ( ary need not ha%e an ns#rable nterest n the l !e o! the ns#red WDI4E the bene! ( ary n $ro$erty ns#ran(e sho#ld ha%e an ns#rable nterest n the $ro$erty ns#red both at the t me o! ns#ran(e and at the t me o! loss. 2,# Fn Septe ber ;, (GGH, 6arion insured her own life na ing her boyfriend 0effrey as her irrevocable beneficiary. 7he insurance co panyAs physician conducted a physical e3a ination but was not able to detect the fact that 6arion was already in the advance stage of cancer. +n good faith 6arion did not disclose the fact that she previously consulted an oncologist because after the edical consultation, nu erous fortune tellers predicted that she will not die of cancer. Fn Septe ber 8, 8*** while 6arion was on her way to >e -a Salle &niversity to take the ,ar e3a s she was run over by a bulldo@er which caused her death on the spot. 0effrey now clai s the life insurance proceeds. >ecide. S.>>ESTED ANSWER? He!!rey (o#ld not re(o%er. There &as (on(ealment/ &h (h s a ne+le(t to (omm#n (ate that &h (h a $arty 3no&s and o#+ht to (omm#n (ate. The matter (on(ealed &as mater al and rele%ant to the a$$ro%al and ss#an(e o! the $ol (y/ t ha% n+ $robable and reasonable n!l#en(e #$on the ns#rer1s !orm n+ an est mate o! the d sad%anta+es o! the $ro$osed (ontra(t. >ood !a th s not a de!ense to (on(ealment/ as mater al ty o! the n!ormat on & thheld does not de$end on the state o! m nd o! the ns#red nor on the a(t#al or $hys (al e%ents &h (h ens#e. It s settled that the ns#red need not d e o! the d sease he had !a led to d s(lose to the ns#rer. It s s#!! ( ent that the non-d s(los#re m sled the ns#rer n !orm n+ h s est mates on the r s3s o! the $ro$osed ns#ran(e $ol (y or n ma3 n+ n'# r es. 5S#nl !e Ass#ran(e 2om$any o! 2anada %s. 2o#rt o! A$$eals/ et al./ 2C@ S2RA 2E69 In the abo%e $roblem/ the n(ontestab l ty (la#se does not ! nd a$$l (at on be(a#se the t&o year $er od has not yet la$sed. Supposing under the above set of facts that the insurance was secured on .ugust :(, (GGH, would your answer be the sa e ? S.>>ESTED ANSWER? No. S n(e the $ol (y s t&o years old/ the n(ontestab l ty (la#se has already set n &h (h de!eats the (on(ealment. NOTES AND 2O--ENTS? === a. In)ontesta.i+it/ )+a!se# A!ter a $ol (y o! l !e ns#ran(e made $ayable on the death o! the ns#red shall ha%e been n !or(e d#r n+ the l !et me o! the ns#red !or a $er od o! t&o years !rom the date o! ts ss#e or ts last re nstatement/ the ns#rer (annot $ro%e that the

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$ol (y s %o d a. i*itio or s res( ndable by reason o! the !ra#d#lent (on(ealment or m sre$resentat ons o! the ns#red or h s a+ent. 52nd $ar./ Se(. C6/ Ins#ran(e 2ode9 Wo!+d it *a;e an/ di00e en)e in /o! answe s to the a.ove i0 Ma ion was *a ied to ( an)is 1 What a.o!t i0 it was Ae00 e/ who was *a ied to 'anie+a 1 S.>>ESTED ANSWER? .nder the abo%e ( r(#mstan(es ! -ar on and He!!rey &ere marr ed to $ersons other than themsel%es/ then there (o#ld be no re(o%ery on the ns#ran(e $ol (y o! -ar on. He!!rey (o#ld not be a donee be(a#se o! the ll ( t relat onsh $ hen(e (annot be a bene! ( ary n l !e ns#ran(e. NOTES AND 2O--ENTS? &on)ea+*ent de0ined# A ne+le(t to (omm#n (ate that &h (h a $arty 3no&s and o#+ht to (omm#n (ate. 5Se(. 2E/ Ins#ran(e 2ode9 Note that ! the $arty does not 3no& he s s (3/ there s no (on(ealment. 29# EF4& applied for credit facilities and acco odations with <i@al ,ank. .s security for its credit facilities with <i@al ,ank, EF4& e3ecuted two real estate ortgages and two chattel ortgages in favor of <i@al ,ank, with were registered with the <egistry of >eeds. &nder the four ortgages, EF4& co itted itself to insure the ortgaged property with 6+$F, an insurance co pany approved by <i@al ,ank, and subsequently to endorse and deliver the insurance policies to <i@al ,ank. .lchester, 6+$F=s underwriter, fro who EF4& secured the insurance prepared the indorse ents but it turned out that the endorse ents do not bear the signature of any officer of EF4&. Who could recover on the insurance clai ? S.>>ESTED ANSWER? R 0al Ban3 (o#ld re(o%er #$ to the e"tent o! ts nterest on the mort+a+e. Wh le t s settled that a mort+a+or and a mort+a+ee ha%e se$arate and d st n(t ns#rable nterests n the same mort+a+ed $ro$erty/ s#(h that ea(h one o! them may ns#re the same $ro$erty !or h s o&n sole bene! t/ the ntent on o! the $art es sho#ld +o%ern. In the (ase at bar the endorsements made n !a%or o! R 0al Ban3/ (learly nd (ate that R 0al Ban3 s tr#ly the ent ty !or &hose bene! t the $ol ( es &ere (learly ntended. 5R 0al 2ommer( al Ban3 n+ 2or$orat on/ et al./ %. 2o#rt o! A$$eals/ et al./ and (om$an on (ases. 268 S2RA ,2829 2@# -ara obtained a loan of P)**,***.** fro .ngelina and as security she ortgaged her house worth P;)*,***.** to .ngelina. -ara insured the house against fire for P;)*,***.** with $roft +nsurance with the policy stating that any other insurances shall be declared otherwise all benefits under the policy shall be forfeited. .ngelina likewise insured the house, also against fire with <aider +nsurance in the a ount of P)**,***. 7he insurance policy also contained an !other insurance# clause. ,oth -ara and .ngelina did not advise their respective insurers of the e3istence of the other insurances. While both of the insurance policies were in force the house was burned. a) ,oth insurance co panies now disclai responsibility because of the violation of the !other insurance clause.# $ould they legally do so ? b) +n case, both -ara and .ngelina could recover, how uch would be the e3tent of their respective liabilities ? c) $ould -ara refuse to pay her obligation of P)**,***.** considering that the house was already burned ? <eason out your answers. S.>>ESTED ANSWERS? a. No. There s no % olat on o! the other ns#ran(e (la#se &here the mort+a+or and the mort+a+ee too3 se$arate ns#ran(es/ n % olat on o! the Iother ns#ran(e (la#seJ be(a#se the r ns#rable nterest s d !!erent. 5>ea+on a %s. 2o#rt o! A$$eals/ et al./ 2C, S2RA ,@29 b. 4ara (o#ld re(o%er P7@)/))).)) and An+el na/ P@))/))).))/ the e"tent o! the r res$e(t %e ns#rable nterests. Aor reasons see abo%e. (. No. Ra der Ins#ran(e ta3es the $la(e o! An+el na. In other &ords t s s#bro+ated to the nterest o! An+el na. NOTES AND 2O--ENTS? a. Othe ins! an)e 5 ohi.ition )+a!se# An ns#ran(e $ol (y (onta ns the !ollo& n+ (la#se? IThe ns#red shall + %e not (e to the 2om$any o! any ns#ran(e or ns#ran(es already e!!e(ted/ or &h (h may s#bse'#ently be e!!e(ted (o%er n+ any o! the $ro$erty or $ro$ert es hereby ns#red #nless s#(h not (e be + %en and the $art (#lars be stated there n be!ore the o((#rren(e o! the loss other& se all bene! ts #nder the $ol (y shall be deemed !or!e ted.J The (ond t on s a $ro% s on &h (h n%ar ably a$$ears n ! re ns#ran(e $ol ( es and s ntended to $re%ent an n(rease n the moral ha0ard. It s (ommonly 3no&n as the add t onal

,8

or Iother ns#ran(eJJ (la#se and has been #$held as %al d and as a &arranty that no other ns#ran(e e" sts. b. E00e)t o0 non2dis)+os! e# The non-d s(los#re o! the t&o ns#ran(es &o#ld not be !atal to re(o%ery. 5>ea+on a %s. 2o#rt o! A$$eals/ et al./ 2C, S2RA ,@29 Th s same e!!e(t also a$$l es to the (on(e$t o! do#ble ns#ran(e. (. The ationa+e .ehind the in)+!sion o0 Gothe ins! an)eH )+a!se in 0i e 5o+i)ies s to $re%ent o%er- ns#ran(e and th#s a%ert the $er$etrat on o! !ra#d. When a $ro$erty o&ner obta ns ns#ran(e $ol ( es !rom t&o or more ns#rers n a total amo#nt that e"(eeds the $ro$erty1s %al#e/ the ns#red may ha%e an nd#(ement to destroy the $ro$erty !or the $#r$ose o! (olle(t n+ the ns#ran(e. The $#bl ( as &ell as the ns#rer s nterested n $re%ent n+ as s t#at on n &h (h a ! re &o#ld be $ro! table to the ns#red. d. E00e)t o0 vio+ation# The % olat on o! the Iother ns#ran(eJ (la#se &o#ld a%o d the $ol (y. E6)e5tion: The other ns#ran(e m#st be #$on the same s#b:e(t matter/ the same nterest there n/ and the same r s3. There s no % olat on &here the mort+a+or and the mort+a+ee too3 se$arate ns#ran(es/ n % olat on o! the Iother ns#ran(e (la#seJ be(a#se the r ns#rable nterest s d !!erent. 5>ea+on a %s. 2o#rt o! A$$eals/ et al./ 2C, S2RA ,@29 e. 'o!.+e ins! an)e# A do#ble ns#ran(e e" sts &here the same $erson s ns#red by se%eral ns#rers se$arately n res$e(t o! the same s#b:e(t and nterest. The ns#rable nterests o! a mort+a+or and a mort+a+ee on the mort+a+ed $ol (y are se$arate and d st n(t hen(e there s no do#ble ns#ran(e ! the mort+a+or and the mort+a+ee ta3e o#t se$arate ns#ran(es. !. E00e)t o0 non2dis)+os! e# The non-d s(los#re o! the t&o ns#ran(es &o#ld not be !atal to re(o%ery. 5>ea+on a %s. 2o#rt o! A$$eals/ et al./ 2C, S2RA ,@29 Th s e!!e(t also a$$l es to the (on(e$t o! the other ns#ran(e $roh b t on. +. S!. ogation# I! the $la nt !!1s $ro$erty has been ns#red/ and he has re(e %ed ndemn ty !rom the ns#ran(e (om$any !or the n:#ry or loss ar s n+ o#r o! the &ron+ or brea(h o! (ontra(t (om$la ned o!/ the ns#ran(e (om$any shall be s#bro+ated to the r +hts o! the ns#red a+a nst the &ron+doer or the $erson &ho % olated he (ontra(t. 5Art (le 22)7/ 2 % l 2ode9 The r +ht o! s#bro+at on s not de$endent #$on/ nor does t +ro& o#t o!/ any $r % ty o! (ontra(t or #$on &r tten ass +nment o! (la m. It a((r#es s m$ly #$on $ayment o! the ns#ran(e (la m by the ns#rer. 52oast& se 4 +htera+e 2or$orat on %s. 2o#rt o! A$$eals/ et al./ 2C@ S2RA 78E9 2<# Erepalife and >,P entered into a contract of group life insurance with Erepalife agreeing to insure the lives of eligible housing loan ortgagors of >,P. Fn 9ove ber ((, (GH:, >r. -euterio, a housing debtor of >,P, applied for e bership in the group life insurance plan. +n his application. >r. -euterio stated that he never had high blood pressure, cancer, etc., and that to the best of his knowledge, he was in good health. 7hus, on 9ove ber (), (GH:, Erepalife issued the certificate on >r. -euterio=s insurance coverage to the e3tent of his >,P ortage indebtedness of PHJ,8**.**. 7he policy state that upon receipt of proof of debtor=s death during the ter s of the insurance, a death benefit in the a ount of PHJ,***.** shall be paid. +n the event of the debtor=s death before his indebtedness with the creditor shall have been fully paid, an a ount to pay the outstanding indebtedness shall first be paid to the $reditor and the balance of the su assured, if there is any shall then be paid to the beneficiaryBies designated by the debtor. +n .ugust J, (GHI, >r. -euterio died due to # assive cerebral he orrhage.# >,P sub itted a clai , on the ! ortgage rede ption insurance# but it was denied by Erepalife on the ground of non?disclosure that >r. -euterio was suffering fro hypertension, the cause of his death. .s a result of the non?pay ent insurance clai , which would have resulted to a full pay ent of the ortgage debt to >,P, >,P then foreclosed on the property. &pon being sued by >r. -euterio=s heirs for the insurance proceeds Erepalife now raises, the defense of conceal ent of >r. -euterio=s being hypertensive, and no showing of the e3act a ount of >r. -euterio=s outstanding indebtedness to >,P at the ti e of his death. $ould >r. -euterio=s heirs recover ? State your reasons. S.>>ESTED ANSWER? Fes. 2on(ealment o! the state o! health o! the ns#red mort+a+or as bas s !or re!#s n+ $ayment o! ns#ran(e (la ms sho#ld be establ shed by s#!! ( ent $roo! o! the real state o! health o! the ns#red. The ns#ran(e ta3en &as a l !e ns#ran(e $ol (y &h (h s a %al#ed $ol (y. .nless the nterest o! the $erson ns#red s s#s(e$t ble o! e"a(t $e(#n ary est mat on/ the meas#re o! ndemn ty #nder a $ol (y o! ns#ran(e #$on l !e or health s the s#m ! "ed n the $ol (y/ n th s (ase P6E/2)).)).

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S n(e DBP has already !ore(losed on the res dent al lot n sat s!a(t on o! Dr. 4e#ter o1s o#tstand n+ loan/ the ns#ran(e $ro(eeds shall n#re to the bene! t o! the he rs o! Dr. 4e#ter o. DBP sho#ld not #n:#stly enr (h tsel! by (olle(t n+ the ns#ran(e $ro(eeds a!ter t has !ore(losed the $ro$erty. 5>reat Pa( ! ( 4 !e Ass#ran(e 2or$orat on %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,*688/ $rom. O(tober ,*/ ,8889 NOTES AND 2O--ENTS? a. Ins! a.+e inte est in *o tgaged 5 o5e ties in G*o tgage ede*5tion ins! an)e#H The rat onale o! a +ro#$ ns#ran(e $ol (y o! mort+a+ors/ other& se 3no&n as the Imort+a+e redem$t on ns#ran(e/J s a de% (e !or the $rote(t on o! both the mort+a+ee and the mort+a+or. On the $art o! the mort+a+ee/ t has to enter nto s#(h !orm o! (ontra(t so that n the e%ent o! the #ne"$e(ted dem se o! the mort+a+or d#r n+ the s#bs sten(e o! the mort+a+e debt/ the $ro(eeds !rom s#(h ns#ran(e & ll be a$$l ed to the $ayment o! the mort+a+e debt/ thereby rel e% n+ the he rs o! the mort+a+or !rom $ay n+ the obl +at on. In a s m lar %e n/ am$le $rote(t on s + %en to the mort+a+or so that n the e%ent o! h s death/ the mort+a+e obl +at on & ll be e"t n+# shed by the a$$l (at on o! the ns#ran(e $ro(eeds to the mort+a+e ndebtedness. 2onse'#ently/ &here the mort+a+or $ays the ns#ran(e $rem #m #nder the +ro#$ ns#ran(e $ol (y/ ma3 n+ the loss $ayable to the mort+a+ee/ the ns#ran(e s on the mort+a+or1s nterest/ and the mort+a+or (ont n#es to be a $arty to the (ontra(t. In th s ty$e o! ns#ran(e/ the mort+a+ee s s m$ly an a$$o ntee o! the ns#ran(e !#nd/ s#(h loss O $ayable (la#se does not ma3e the mort+a+ee a $arty to the (ontra(t. Th s (o#ld be seen !rom the $ro% s ons o! Se(t on 6 o! the Ins#ran(e 2ode/ &h (h reads? I.nless the $ol (y $ro% des/ &here a mort+a+or o! $ro$erty e!!e(ts ns#ran(e n h s o&n name $ro% d n+ that the loss shall be $ayable to the mort+a+ee/ or ass +ns a $ol (y o! ns#ran(e to a mort+a+ee/ the ns#ran(e s deemed to be #$on the nterest o! the mort+a+or/ &ho does not (ease to be a $arty to the or + nal (ontra(t/ and any a(t o! h s/ $r or to the loss/ &h (h &o#ld other& se a%o d the ns#ran(e/ & ll ha%e the same e!!e(t/ altho#+h the $ro$erty s In the hands o! the mort+a+ee/ b#t any a(t &h (h/ #nder the (ontra(t o! ns#ran(e/ s to be $er!ormed by the mort+a+or/ may be $er!ormed by the mort+a+ee there n named/ & th the same e!!e(t as ! t had been $er!ormed by the mort+a+or.J 5>reat Pa( ! ( 4 !e Ass#ran(e 2or$orat on %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,*688/ $rom. O(tober ,*/ ,888 <<< b. Ins! a.+e in *o tgaged 5 o5e ties# The mort+a+or has an ns#rable nterest n the !#ll %al#e o! the mort+a+ed $ro$erty rres$e(t %e o! the amo#nt !or &h (h t s mort+a+ed. The mort+a+ee has an ns#rable nterest only #$ to the e"tent o! the (red t he has +ranted to the mort+a+or. === (. Mo tgaged 5 o5e ties# The mort+a+or and the mort+a+ee ha%e ea(h an nde$endent ns#rable nterest on the $ro$erty and both nterests may be (o%ered by one $ol (y or ea(h may ta3e o#t a se$arate $ol (y (o%er n+ h s nterest/ & ther at the same t me or at se$arate t mes. The mort+a+or1s ns#rable nterest (o%ers the !#ll %al#e o! the mort+a+ed $ro$erty/ e%en tho#+h the mort+a+e debt s e'# %alent to the !#ll %al#e o! the $ro$erty/ The mort+a+ee1s ns#rable nterest s to the e"tent o! the debt/ s n(e the $ro$erty s rel ed #$on as se(#r ty thereo!/ and n ns#r n+ he s not ns#r n+ the $ro$erty b#t h s nterest or l en thereon. D s ns#rable nterest s prima facie the %al#e mort+a+ed and e"tends only to the amo#nt o! the debt/ not e"(eed n+ the %al#e o! the mort+a+ed $ro$erty/ Th#s/ se$arate ns#ran(es (o%er n+ d !!erent ns#rable nterests may be obta ned by the mort+a+or and the mort+a+ee/ and th s &o#ld not % olate the Iother ns#ran(eJ (la#se n the $ol (y. 5>ea+on a %s. 2o#rt o! A$$eals/ et al./ 2C, S2RA ,@29 <<< d. E00e)t o0 )hange o0 inte est in 5 o5e t/# Any (han+e #na((om$an ed by a (han+e n ns#ran(e s#s$ends the ns#ran(e #nt l the nterest n the th n+ and the ns#ran(e s %ested n the same $erson. 5Se(. 2)/ Ins#ran(e 2ode9 -0# What da ages ay be recovered in arine insurance / S.>>ESTED ANSWER? Re(o%ery (o#ld be made only ! the dama+e &as (a#sed by $er ls o! the sea not ./ $er ls o! the sh $. De!e(ts o! the sh $ are $er ls o! the sh $. -1# What is eant by actual total loss in arine insurance ? S.>>ESTED ANSWER? An a(t#al total loss !or ns#ran(e $#r$oses s (a#sed by? a. A total destr#(t on o! the th n+ ns#redB b. The rretr e%able loss o! th n+ by s n3 n+ or by be n+ bro3en #$B (. Any dama+e to the th n+ &h (h renders t %al#eless to the o&ner !or the $#r$ose !or &h (h he held tB or

2,

d. Any other e%ent &h (h e!!e(t %ely de$r %es the o&ner o! the $ossess on/ at the $ort o! dest nat on/ o! the th n+ ns#red. 5Se(. ,*)/ Ins#ran(e 2ode9 NOTES AND 2O--ENTS? a. &onst !)tive tota+ +oss in *a ine ins! an)e# One &h (h + %es to a $erson a r +ht to abandon. 5Se(. ,*,/ Ins#ran(e 2ode9 b. Instan)es whe e the e is a )onst !)tive tota+ +oss o0 the thing ins! ed whi)h wo!+d entit+e an ins! ed to a.andon in *a ine ins! an)e: ,9 I! more than three-!o#rths o! ts %al#e s a(t#ally lost or &o#ld ha%e to be e"$ended to re(o%er t !rom the $er lB 29 I! t s n:#red to s#(h an e"tent as to red#(e ts %al#e more than three!o#rthsB *9 I! the th n+ ns#red/ s a sh $ and the (ontem$lated %oya+e (annot be la&!#lly $er!ormed & tho#t n(#rr n+ e ther an e"$ense to the ns#red o! more than three-!o#rths the %al#e o! the th n+ abandoned or a r s3 &h (h a $r#dent man &o#ld not ta3e #nder the ( r(#mstan(esB or C9 I! the th n+ ns#red/ be n+ (ar+o or !re +hta+e/ and the %oya+e (annot be $er!ormed nor another sh $ $ro(#red by the master/ & th n a reasonable t me and & th reasonable d l +en(e/ to !or&ard the (ar+o/ & tho#t n(#rr n+ the l 3e e"$ense or r s3. B#t !re +hta+e (annot n any (ase be abandoned #nless the sh $ s also abandoned. 5Se(. ,*8/ Ins#ran(e 2ode9 -2# Fn .pril (), (GG(, &$P, Eeneral +nsurance $o., +nc. issued five ()) insurance policies covering 6asagana 7ele art, +nc.=s various properties against fire, for the period 6ay 88, (GG( to 6ay 88, (GG8. +n 6arch &$P, decided not to renew the policies after its e3piration on 6ay 88, (GG8, and infor ed 6asagana=s broker, 5uellig +nsurance ,rokers, +nc. Fn .pril J, (GG8, &$P, gave written notice to 6asagana of the non?renewal of the policies at the address stated in the policies. Fn 0une (:, (GG8, fire ra@ed 6asagana=s property covered by the three insurance policies issued by &$P,. Fn 0uly (:, (GG8, 6asagana presented to &$P,=s cashier five ()) anager=s checks representing pre iu for the renewal of the policies fro 6ay 88, (GG8 to 6ay 88, (GG:. Fn 0uly (I, (GG8 6asagana filed with &$P, its for al clai for inde nification of the insured property ra@ed by fire. 9o notice of loss was filed by 6asagana under the policies prior to 0uly (I, (GG8. Fn the sa e day, 0uly (I, (GG8, &$P, returned to 6asagana the five ()) anager=s checks that it tendered, and at the sa e ti e re1ected 6asagana=s clai for the reasons (a) that the policies have e3pired, and (b) that the fire occurred on 0une (:, (GG8 before 6asagana=s tender of pre iu pay ent. $ould 6asagana recover ? S.>>ESTED ANSWER? No. The ns#ran(e la& $ro% des that/ no non-l !e ns#ran(e s %al d #nless the $rem #ms are a(t#ally $a d. Any a+reement to the (ontrary s %o d. The $art es may not a+ree e"$ressly or m$l edly on the e"tens on o! (red t or t me to $ay the $rem #m and (ons der the $ol (y b nd n+ be!ore a(t#al $ayment. 5.2PB >eneral Ins#ran(e 2o./ %. -asa+ana Telamart/ In(./ >.R. No. ,*7,72/ $rom. H#ne ,@/ ,8889 NOTES AND 2O--ENTS? Not& thstand n+ any a+reement to the (ontrary/ no $ol (y or (ontra(t o! ns#ran(e ss#ed by an ns#ran(e (om$any s %al d and b nd n+ #nless and #nt l the $rem #m thereo! has been $a d/ e"(e$t n the (ase o! a l !e or an nd#str al l !e $ol (y &hene%er the +ra(e $er od $ro% s on a$$l es. 52nd senten(e/ Se(. 77/ Ins#ran(e 2ode9 Please (om$are no. *2 ABOVE/ the .2PB (ase & th the (ase o! Amer (an Dome Ass#ran(e/ no. **/ BE4OW. --# +n (GG* .ntonio obtained a fire insurance fro . erican %o e .ssurance $o pany the stock in trade of his business, 6oonlight 2nterprises. 7he insurance was due to e3pire on 8) 6arch (GG*. Fn ) .pril (GG*, .ntonio issued a check in the a ount of P8,GH:.)* to . erican=s agent 0a es as pay ent for the renewal of the policy. +n turn, 0a es delivered to .ntonio <enewal $ertificate 9o. ***GG*I;. Fn J .pril (GG*, 6oonlight 2nterprises was co pletely ra@ed by fire with a total esti ated loss of between P I illion to P ) illion. 7he check was drawn against a 6anila bank and deposited in . erican=s $agayan de Fro bank account. 7he corresponding official receipt was issued on (* .pril (GG*. Subsequently, a new insurance policy, Policy 9o. 8*J?I8:IIGH?; , was issued, whereby . erican undertook to inde nify .ntonio for any da age or loss arising fro fire up to P8**,***.** for the period 8) 6arch (GG* to 8) 6arch (GG(. .ntonio then filed an insurance clai with . erican and four other co?insurers, na elyM Pioneer, Prudential, Dilipino and >o estic. . erican denied the clai raising

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the issue that there was no e3isting insurance contract as a result of non?pay ent of the pre iu . +t also contends that assu ing the e3istence of a contract, that .ntonio violated several provisions of the contract, a ong others, failure to notify . erican of any insurance already effected to cover the insured goods. $ould .ntonio recover ? S.>>ESTED ANSWER? Fes. There &as $ayment. The rene&al (ert ! (ate ss#ed to Anton o (onta ned the a(3no&led+ment that the $rem #m had been $a d. The (he(3 dra&n by Anton o n Amer (an1s !a%or and del %ered to ts a+ent &as honored &hen $resented and Amer (an !orth& th ss#ed ts o!! ( al re(e $t. Se(t on *)E o! the Ins#ran(e 2ode $ro% des that any ns#ran(e (om$any &h (h del %ers a $ol (y or (ontra(t o! ns#ran(e to an ns#ran(e a+ent or bro3er shall be deemed to ha%e a#thor 0ed s#(h a+ent or bro3er to re(e %e on ts behal! $ayments o! $rem #ms. Se(. 76 o! the same 2ode e"$l ( tly $ro% des/ IAn a(3no&led+ment n a $ol (y or (ontra(t o! ns#ran(e o! the re(e $t o! $rem #m s (on(l#s %e e% den(e o! ts $ayment/ so !ar as to ma3e the $ol (y b nd n+/ not& thstand n+ any st $#lat on there n that t shall not be b nd n+ #nt l the $rem #m s a(t#ally $a d.J Se(t on. 76 establ shes a le+al ! (t on o! $ayment and sho#ld be nter$reted as an e"(e$t on to Se(t on 77. 5Amer (an Dome Ass#ran(e 2om$any %. 2h#a/ >.R. No. ,*)CC2,/ $rom. H#ne 26/ ,8889 ===-:# +n (GH*, Pri itivo was insured with ,D -ife an +nsurance $orporation for P8*,***.**. Fn Fctober 8*, (GH;, he applied for an additional insurance coverage of P)*,***.**. %is wife paid P8,*;).** as pre iu s to the agent who issued a receipt indicating that the a ount was erely a !deposit#. 7he application for was lost, so Pri itivo acco plished another one. Fn 9ove ber (, (GH;, he underwent a physical e3a ination which he passed. .s is the procedure, all of Pri itivo=s papers were then sent to the 6anila office of ,D -ife an +nsurance $orporation which received the papers on 9ove ber 8;, (GH;. Fn >ece ber 8, (GH;, the insurer then approved the policy and issued the corresponding policy not knowing that in the eanti e, Pri itivo drowned and died on 9ove ber 8), (GH;. 7he insurer now disclai s liability on the additional P)*,***.** coverage because of failure to co ply with the following requisites stated in the application for for the perfection of the contract of insuranceM !7here shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the pre iu has been paid and the policy delivered to and accepted by eBus in person while +BWe, a Bare in good health.# +s Pri itivo=s beneficiary entitled to the proceeds additional P)*,***.** additional insurance which a ounts to P()*,***.** in view of a triple inde nity rider on the policy? 23plain briefly. S.>>ESTED ANSWER. Pr m t %o1s bene! ( ary s not ent tled to the ns#ran(e $ro(eeds !or the !ollo& n+ reasons? a. The ! l n+ o! the ns#ran(e a$$l (at on/ $ayment o! the $rem #m/ and s#bm ss on to the ns#rer/ &ere all s#b:e(t to the a((e$tan(e o! the ns#rer. There &as no a((e$tan(e by the ns#ran(e as o! the date &hen Pr m t %o d ed on No%ember 2@/ ,867. The (ond t ons m$osed by the ns#rer !or the $rote(t on o! the (ontra(t s not a $otestat %e or !a(#ltat %e (ond t on/ b#t s a s#s$ens %e one &hereby the a('# s t on o! r +hts de$ends #$on the ha$$en n+ o! an e%ent &h (h (onst t#tes the (ond t on. In th s (ase/ the s#s$ens %e (ond t on &as the $ol (y m#st ha%e been del %ered and a((e$ted by the a$$l (ant &h le he s n +ood health. There &as non-!#l! llment o! the (ond t on/ ho&e%er/ nasm#(h as the a$$l (ant &as already dead at the t me the $ol (y &as ss#ed. Den(e/ the non-!#l! llment o! the (ond t on res#lted n the non-$er!e(t on o! the (ontra(t. b9 A (ontra(t o! ns#ran(e/ l 3e other (ontra(ts/ m#st be assented to by both $art es e ther n $erson or by the r a+ents. So lon+ as an a$$l (at on !or ns#ran(e has not been e ther a((e$ted or re:e(ted/ t s merely an o!!er or $ro$osal to ma3e a (ontra(t. The (ontra(t/ to be b nd n+ !rom the date o! a$$l (at on/ m#st ha%e been a (om$leted (ontra(t/ one that lea%es noth n+ to be done/ noth n+ to be (om$leted/ noth n+ to be $assed #$on/ or determ ned/ be!ore t shall ta3e e!!e(t. There (an be no (ontra(t o! ns#ran(e #nless the m nds o! the $art es ha%e net n a+reement. (9 The ns#rer (annot be held !or +ross ne+l +en(e. It sho#ld be noted that an a$$l (at on s a mere o!!er &h (h re'# res the o%ert a(t o! the ns#rer !or t to r $en nto a (ontra(t. Delay n a(t n+ on the a$$l (at on does not (onst t#te a((e$tan(e e%en tho#+h the ns#red has !or&arded h s ! rst $rem #m & th h s a$$l (at on. The (or$orat on may not be

2*

$enal 0ed !or the delay n the $ro(ess n+ o! the a$$l (at on $a$ers. 5Pere0 %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,2*8/ $rom. Han#ary 26/ 2)))9 NOTES AND 2O--ENTSB a. When ins! an)e )ont a)t 5e 0e)ted# 2ontra(t o! ns#ran(e s $er!e(ted &here there s an o!!er to be (o%ered and the ns#ran(e has a((e$ted the o!!er absol#tely. b. Re>!isites 0o a )ont a)t o0 ins! an)e# Ins#ran(e s a (ontra(t &hereby/ !or a st $#lated (ons derat on/ one $arty #nderta3es to (om$ensate the other !or loss on a s$e( ! ed s#b:e(t by s$e( ! ed $er ls. A (ontra(t/ on the other hand/ s a meet n+ o! the m nds bet&een t&o $ersons &hereby one b nds h msel!/ & th res$e(t to the other to + %e someth n+ or to render some ser% (e. .nder Art (le ,*,6 o! the 2 % l 2ode/ there s no (ontra(t #nless the !ollo& n+ re'# s tes (on(#r? 5,9 2onsent o! the (ontra(t n+ $art esB 529 Ob:e(t (erta n &h (h s the s#b:e(t matter o! the (ontra(tB 5*9 2a#se o! the obl +at on &h (h s establ shed. 2onsent m#st be man !ested by the meet n+ o! the o!!er and the a((e$tan(e #$on the th n+ and the (a#se &h (h are to (onst t#te the (ontra(t. The o!!er m#st be (erta n and the a((e$tan(e absol#te. 5Pere0 %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,2*8/ $rom. Han#ary 26/ 2)))9 -8# . collision between a truck driven by Euiller o owned by the 9ational Dood .uthority (9D.) and a public utility 7a araw D" owned and operated by Lictor resulted to the death of five persons and in1ury to ten others, all of who were passengers of the D". Several cases were filed against Euiller o, 9D. and ES+S, 9D.=s insurer of the truck for death and in1uries, Lictor as well as his insurer. +t was found that Euiller o=s negligence was he pro3i ate cause of the accident. 9D., Euiller o, ES+S and the insurer of the D" were required to pay 1ointly and severally the heirs of the deceased passengers. 6ay the insurer be i pleaded directly by the victi s or their heirs ? +f so, could they be held solidarily liable ? 23plain your answers. S.>>ESTED ANSWER? Fes. It s no& establ shed that the n:#red or the he rs o! the % (t ms o! a %eh (#lar a(( dent may s#e d re(tly the ns#rer o! the %eh (le. Th s s so be(a#se (ommon (arr ers are re'# red to se(#re the 2om$#lsory -otor Veh (le 4 ab l ty Ins#ran(e 52-V4I9. Altho#+h the % (t ms or the r he rs may $ro(eed d re(tly a+a nst the ns#rer !or ndemn ty/ the th rd $arty l ab l ty s only #$ to the e"tent o! the ns#ran(e $ol (y and those re'# red by la&. Wh le t s tr#e that &here the ns#ran(e (ontra(t $ro% des !or ndemn ty a+a nst l ab l ty to th rd $ersons/ and s#(h th rd $ersons (an d re(tly s#e the ns#rer/ the d re(t l ab l ty o! the ndemn ty (ontra(ts a+a nst th rd $arty l ab l ty does not mean that the ns#rer (an be held l able i* so&i%$m & th the ns#red andNor the other $art es !o#nd at !a#lt. Th s s so be(a#se the l ab l ty o! the ns#rer s based on (ontra(tB that o! the ns#red (arr er or %eh (le o&ner s based #$on tort. The l ab l ty o! the ns#rer there!ore/ be n+ $r mary/ s not de$endent on the re(o%ery o! :#d+ment !rom the :#d+ment ns#red. 5>o%ernment Ser% (e Ins#ran(e System %. 2o#rt o! A$$eals/ et al./ >.R. No. ,),C*8/ $rom. H#ne 2,/ ,8889 -,# What is no fault insurance and what is the proof required in these cases ? S.>>ESED ANSWER? No need to $ro%e !a#lt or ne+l +en(e o! any 3 nd n order o! re(o%er. Proo!s o! loss shall be s#!! ( ent to s#bstant ate the (la m/ amon+ &h (h n(l#de a. Pol (e re$ort o! a(( dentB b. Death (ert ! (ate and e% den(e s#!! ( ent to establ sh the $ro$er $ayeeB or med (al re$ort and e% den(e o! med (al or hos$ tal d sb#rsement n res$e(t o! &h (h re!#nd s (la med. 5Se(. *76/ Ins#ran(e 2ode9 NOTES AND 2O--ENTS? a. &onditions 0o avai+*ent? ,9 Only !or (la ms !or death or n:#ry o! any $assen+er or th rd $arty. It does not n(l#de $ro$erty dama+eB 29 Total ndemn ty n res$e(t o! one $erson shall not e"(eed P@/))).))B *9 2la m may be made a+a nst one motor %eh (le only. In the (ase o! an o((#$ant ! a %eh (le/ (la m shall l e a+a nst the ns#rer o! the %eh (le n &h (h the o((#$ant s r d n+/ mo#nt n+ or d smo#nt n+ !rom. In any other (ase/ (la m shall be a+a nst the ns#rer o! the d re(tly o!!end n+ %eh (le. In all (ases/ the r +ht o! the $arty $ay n+ the (la m to re(o%er a+a nst the o&ner o! the %eh (le res$ons ble !or the a(( dent shall be ma nta ned. 5Se(. *76/ Ins#ran(e 2ode9

2C

-9# P es) i5tive 5e iod o0 one $1% /ea 0 o* e4e)tion o0 )+ai* stated in 5o+i)/ 0o 0i+ing s!it not s!s5ended ./ e>!est 0o e)onside ation o0 )+ai* denia+# 5S#n Ins#ran(e %. 2o#rt o! A$$eals/ et al./ ,8@ S2RA ,8*9 -@# 0oseph $hua bought and i ported fro 7aipei )* etric tons of >icalciu Phospate, Deed Erade. 7hese were contained in (,8)* bags shipped to the Philippines and insured by Dirst +nsurance $o., against all risks at the port of origin under a 6arine Policy with the notation, !$lai , if any, payable in &.S. $urrency at 6anila,# and sta ped at the lower left side of the policy as !$lai .gent,# S ith, ,ell and $o. .s a result of da ages suffered, 0oseph brought suit against S ith, ,ell as a result of its refusal to pay clai ing to be a ere settling or clai agent because it has not even taken part in the contract of insurance. 6ay S ith, ,ell be held liable ? 23plain. S.>>ESTED ANSWER? No. As a settl n+ a+ent a(t n+ & th n the s(o$e o! ts a#thor ty/ Sm th/ Bell (annot be held $ersonally l able andNor sol dar ly l able !or the obl +at ons o! ts d s(losed $r n( $al merely be(a#se there s alle+edly a need !or a s$eedy settlement o! the (la m. Sm th/ Bell (o#ld not be held l able be(a#se there s no $r % ty o! (ontra(t bet&een t and Hose$h/ the ns#red. There s sol dary l ab l ty only &hen the obl +at on e"$ressly so states or &hen the la& or the nat#re o! the obl +at on re'# res sol dar ty. A#rthermore/ Se(. ,8) o! the Ins#ran(e 2ode (lar ! es the role o! the res dent a+ent o! a !ore +n ns#ran(e (om$any to be merely the re$resentat %e tas3ed to re(e %e le+al $ro(esses on behal! o! ts $r n( $al and not to ans&er $ersonally !or any ns#ran(e (la ms. 5Sm th/ Bell = 2o./ In(. %. 2o#rt o! A$$eals/ et al./ 2E7 S2RA @*)9 -<# >istinguish one fro the otherM conceal ent, representation and warranty as used in insurance. S.>>ESTED ANSWER? a. In(l#s on n (ontra(t? The !a(ts (on(ealed are not $art o! the (ontra(tB re$resentat ons are mere (ollateral nd#(ements to the (ontra(tB those &arranted are $art o! the (ontra(t. b. Nat#re o! statements? 2on(ealment s ne+le(t to (omm#n (ateB re$resentat ons oral or &r tten statementB &arrant es may be e"$ress or m$l ed. (. E"tent? The !a(ts (on(ealed m#st be mater alB so also & th re$resentat ons/ &h le &arrant es are (on(l#s %ely $res#med mater al. d. 2onse'#en(es? 2on(ealment % t ates the (ontra(t and ent tles the ns#rer to res( nd/ e%en ! the death or loss &as d e to a (a#se not at all related to the (on(ealed matterB ! the re$resentat on s !alse on a mater al $o nt/ the n:#red $arty s ent tled to res( nd !rom the t me &hen the re$resentat on be(omes !alseB #$on brea(h o! a &arranty the ns#rer has the r +ht to res( nd. :0# Fn 6arch (:, (GH*, <i@al Surety N +nsurance $o pany issued Dire +nsurance Policy 9o. I);8; in favor of 7ransworld Cnitting 6ills, +nc. for P (,)**,***.** which a ount was increased to P(,)**,***.** for the period .ugust (I, (GH* to 6arch (:, (GH(. 7he coverage of the policy reads, included a ong others those, !333 contained andBor stored during the coverage of this Policy in the pre ises occupied by the for ing part of the buildings situated within own $o pound 333.# Fn 0anuary (8, (GH*, fire broke out in the co pound of 7ransworld. +t ra@ed the iddle portion of its four?span building and partly gutted the left and right sections thereof. . two?storey building that was behind the four?span building where fun and a use ent achines and spare parts were stored, was also destroyed by the fire. <i@al now refuses to pay contending that the fire insurance policy covered only the contents of the four?span building, and not the da age caused on the two?storey anne3 building. +s the contention correct ? S.>>ESTED ANSWER? No. R 0al s l able !or the dama+e (a#sed on the t&ostorey b# ld n+. The t&o storey-b# ld n+ &as already e" st n+ &hen the ! res ns#ran(e $ol (y (ontra(t &as entered nto. R 0al sho#ld ha%e s$e( ! (ally e"(l#ded sa d t&o-storey b# ld n+ !rom the (o%era+e o! the ! re ns#ran(e ! m nded to e"(l#de the same/ b#t t d d not. It &ent on to $ro% de s#(h ! re ns#ran(e $ol (y &h (h (o%ers the $rod#(ts/ ra& mater als and s#$$l es stored I n the $rem sesJ o! Trans&orld &h (h &as an nte+ral $art o! the !o#r-s$an b# ld n+. 5R 0al S#rety = Ins#ran(e 2om$any %. 2o#rt o! A$$eals/ et al./ $rom. H#ly ,6/ 2)))9 NOTES AND 2O--ENTS?

2@

a. Inte 5 etation o0 ins! an)e )ont a)ts# A st $#lat on as to the (o%era+e o! the ! re ns#ran(e $ol (y &h (h has (reated do#bt sho#ld be resol%ed a+a nst the ns#rer &hose la&yer or mana+ers &o#ld ha%e dra!ted the ! re ns#ran(e $ol (y. Th s s n a((ord & th the $ro% s ons o! Art (le ,*77 o! the Ne& 2 % l 2ode &h (h $ro% des that/ IThe nter$retat on o! obs(#re &ords or st $#lat ons n a (ontra(t shall not !a%or the $arty &ho (a#sed the obs(#r ty.J 5R 0al S#rety = Ins#ran(e 2om$any %. 2o#rt o! A$$eals/ et al./ $rom. H#ly ,6/ 2)))9

Phi+i55ine 'e5osit Ins! an)e &o 5o ation A)t $R#A# -8<1%3 as a*ended ./ P#'# No# 1<-9 and R#A# No# 9:00
:1# %orace aintains a P(*,***.** savings account, a P8*,***.** checking account, a P:*,***.** oney arket place ent and a PI*,***.** trust fund in a ediu si@e co ercial bank. State which of the four accounts are dee ed insured by the Philippine >eposit +nsurance $orporation. S.>>ESTED ANSWER? The P,)/))).)) sa% n+s a((o#nt and the P2)/))).)) (he(3 n+ a((o#nt are deemed ns#red by the Ph l $$ ne De$os t Ins#ran(e 2or$orat on. NOTES AND 2O--ENTS? A))o!nts )ove ed ./ P'I& !5 to P1003000#00 rres$e(t %e o! the nat#re and (hara(ter o! the de$os t.

$:% T ans5o tation 7aws $a% &o**on &a ie s $New &ivi+ &ode3 A ts# 19-2 to 19,,% $.% &o**e )ia+ &ont a)ts 0o T ans5o tation Ove +and $&ode o0 &o**e )e A ts# -:< to -9<%
:2# $hristine charters a vessel owned and operated by Star Shipping $o., a co on carrier, for the purpose of transporting two generators to $ebu. Star Shipping=s e ployees negligently stowed the two generators by failing to properly lash and secure the in the vessel=s hold. >uring the trip, a strong wind hits the vessel, causing severe da ages to the generators which slid in the hold and hit each other. When sued for da ages Star Shipping cites a stipulation in the charter agree ent e3e pting the co pany fro liability for loss or da age a rising fro the negligence of its agents. $hristine countered by stating that the afore entioned stipulation is against public policy and therefore, null and void. +s the stipulation valid ? Would you hold the shipping co pany liable ? S.>>ESTED ANSWER? Fes. The st $#lat on s %al d/ hen(e the sh $$ n+ (om$any s not l able. The $roh b t on a+a nst e"em$t n+ a (arr er !rom l ab l ty as a res#lt o! the a(ts or om ss ons o! ts em$loyees s a$$l (able only to (ommon (arr ers. A (ommon (arr er #nderta3 n+ to (arry a s$e( al (ar+o or (hartered to a s$e( al $erson be(omes a $r %ate (arr er hen(e not s#b:e(t to the abo%e $roh b t on. 5Dome Ins#ran(e 2o./ %. Amer (an Steamsh $ A+en( es/ 2* S2RA 2C9 :-# -oadstar received, fro a single consignee, on board its 6BL $herokee lawanit hardwood, tile wood asse blies and apitong ouldings with a total value of PJ,*J;,(;H.**, and insured for the sa e a ount with 6+$ against various risks, including !total loss by total loss of the vessel.# +t likewise carried passengers. 7he vessel, in turn was insured by PE.+ for PI illion. Fn 8* 9ove ber (GHI, the vessel sank off -i asawa +sland, allegedly as a result of a typhoon, resulting to total loss of the vessel and the cargo. 2vidence shows that the wind condition in the area where the vessel sank was oderate. 7he consignee ade a clai with -oadstar which was ignored. 6+$ then paid the consignee and the latter signed a subrogation receipt. 6+$ then filed suit against both -oadstar and PE.+. -oadstar raises the defense that it is not a co on carrier because it does not have a $P$9, that there was only one shipper consignee for a special cargo. +t likewise posits the application of the !li ited liability# theory, and that the clai was barred by prescription. <ule on the contentions. S.>>ESTED ANSWER? 4oadstar s a (ommon (arr er. t s not ne(essary that the (arr er be ss#ed a (ert ! (ate o! $#bl ( (on%en en(e/ and th s $#bl ( (hara(ter s not altered by

2E

the !a(t that the (arr a+e o! the +oods n '#est on &as $er od (/ o((as onal/ e$ sod ( or #ns(hed#led. The re(ords do not d s(lose that -NV 2hero3ee on the date n '#est on/ #ndertoo3 to (arry a s$e( al (ar+o or &as (hartered to a s$e( al $erson only. There &as no (harter $arty. A#rther/ the bare !a(t that the %essel &as (arry n+ a $art (#lar ty$e o! (ar+o !or one sh $$er/ &h (h a$$ears to be $#rely (o n( dental/ s not reason eno#+h to (on%ert the %essel !rom a (ommon (arr er to a $r %ate (arr er/ es$e( ally &here/ as n th s (ase/ t &as sho&n that the %essel &as also (arry n+ $assen+ers. The do(tr ne o! l m ted l ab l ty does not a$$ly &here there &as ne+l +en(e on the $art o! the %essel o&ner or a+ent. 4oadstar &as at !a#lt or ne+l +ent n not ma nta n n+ a sea&orthy %essel and n ha% n+ allo&ed ts %essel to sa l des$ te 3no&led+e o! an a$$roa(h n+ ty$hoon. In any e%ent/ t d d not s n3 be(a#se o! any storm that may be deemed as force ma0e$re/ nasm#(h as the & nd (ond t on n the area &here t san3 &as determ ned to be moderate. Pres(r $t on has not yet set n. Ne ther the 2 % l 2ode nor the 2ode o! 2ommer(e states a s$e( ! ( $er od on the matter/ hen(e the 2O>SA &h (h $ro% des !or a one-year $er od o! l m tat on on (la ms !or loss o!/ or dama+e to/ (ar+oes s#sta ned d#r n+ trans t/ may be a$$l ed s#$$letor ly to the (ase at bar. 54oadstar Sh $$ n+ 2o./ In(. %. 2o#rt o! A$$eals/ et al./ >.R. No. ,*,E2,/ $rom. Se$tember 26/ ,8889 NOTES AND 2O--ENTS? <<< a. &o**on )a ie # A $erson/ (or$orat on/ ! rm or asso( at on en+a+ed n the b#s ness o! (arry n+ OR trans$ort n+ $assen+ers or +oods or both/ by land/ &ater o! a r !or (om$ensat on/ o!!er n+ ts ser% (es to the $#bl (. 5Art. ,7*2/ 2 % l 2ode9 It s not ne(essary !or a trans$ort (om$any to ha%e a (ert ! (ate o! $#bl ( (on%en en(e and ne(ess ty be!ore t (o#ld be (ons dered as a (ommon (arr er. 5De >#0man %. 2o#rt o! A$$eals/ et al./ ,E6 S2RA E,29 b. No distin)tion .etween 5 in)i5a+ .!siness and Gside+ineH o00e ing o0 se vi)e to 5!.+i)# Art. ,7*2 o! the 2 % l 2ode ma3es no d st n(t on bet&een one &hose $r n( $al b#s ness a(t % ty s the (arry n+ o! $ersons or +oods or both/ and one &ho does s#(h (arry n+ only as an an( llary a(t % ty 5 n lo(al d om/ as Ia s del neJ9 It (are!#lly a%o ds ma3 n+ any d st n(t on bet&een a $erson or enter$r se o!!er n+ trans$ortat on ser% (e on a re+#lar or s(hed#led bas s and one o!!er n+ s#(h ser% (e on an o((as onal/ e$ sod ( or #ns(hed#led bas s. Ne ther does t d st n+# sh bet&een a (arr er o!!er n+ ts ser% (es to the I+eneral $#bl (/J .e./ the +eneral (omm#n ty or $o$#lat on/ and one &ho o!!ers ser% (es or sol ( ts b#s ness only !rom a narro& se+ment o! the +eneral $o$#lat on. 54oadstar Sh $$ n+ 2o./ In(. %. 2o#rt o! A$$eals/ et al./ >.R. No. ,*,E2,/ $rom. Se$tember 26/ ,8889 (. &o**on )a ie )eases to .e )o**on )a ie ! (hartered and be(omes a $r %ate (arr er. d. Bi++ o0 +ading de0ined# A &r tten a(3no&led+ment o! the re(e $t o! +oods and an a+reement to trans$ort and to del %er them at a s$e( ! ed $la(e to a $erson named there n or on h s order. === e. Two20o+d )ha a)te o0 I.i++ o0 +ading#I ,9 It s a re(e $t o! the +oods sh $$edB and 29 It s a (ontra(t by &h (h three $art es/ namely/ the sh $$er/ the (arr er and the (ons +nee #nderta3e s$e( ! ( res$ons b l t es and ass#me st $#lated obl +at ons. 5Ken+ D#a Pa$er Prod#(ts 2o./ In(. %. 2o#rt o! A$$eals/ et al./ 26E S2RA 2@79 On(e del %ered and a((e$ted t (onst t#tes a (ontra(t o! (arr a+e e%en tho#+h not s +ned. REASON? There s a(t#al and (onstr#(t %e not (e o! the (ontents + % n+ r se to the $res#m$t on that the same &as a $er!e(ted and b nd n+ (ontra(t. <<< !. Th ee ;inds o0 sti5!+ations *ade in .i++s o0 +ading ega ding +ia.i+it/# The ! rst s one e"em$t n+ the (arr er !rom any and all l ab l ty !or loss or dama+e o((as oned by ts o&n ne+l +en(e. The se(ond s one $ro% d n+ !or an #n'#al ! ed l m tat on o! s#(h l ab l ty to an a+reed %al#at on. The th rd s one l m t n+ the l ab l ty o! the (arr er to an a+reed %al#at on #nless the sh $$er de(lares a h +her %al#e and $ays a h +her rate o! !re +ht. A((ord n+ to an almost #n !orm &e +ht o! a#thor ty/ the ! rst and se(ond 3 nds o! st $#lat ons are n%al d as be n+ (ontrary to $#bl ( $ol (y/ b#t the th rd s %al d and en!or(eable. 54oadstar Sh $$ n+ 2o./ In(. %. 2o#rt o! A$$eals/ et al./ >.R. No. ,*,E2,/ $rom. Se$tember 26/ ,8889 <<< +. Sti5!+ations )onside ed !n easona.+e3 !n4!st and )ont a / to 5!.+i) 5o+i)/: ,9 That the +oods are trans$orted at the r s3 o! the o&ner or sh $$erB

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29 That the (ommon (arr er & ll not be l able !or any loss/ destr#(t on/ or deter orat oPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP JJJJJJJJJJJJ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ JJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPP JJJJJJJJJJJJJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PJJJPPPP JJJJJJJJJJJJJJJJJJJJ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPP JJJJJJJJJJJJJJJJJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP JJJJJOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPJJJJPPPP JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ JJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PJJJJJJJJJJJJJJJJJJJJJJJJJJJJ JJJJJJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP

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OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPP JJJJJJJJJJJJJJJJJJJ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPP JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ JJJJJJPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPlly de(lared on the !a(e o! the b ll o! lad n+ e%en ! no h +her !re +ht $ayment &as made. (. Whe e ti*e+/ 0i+ing o0 0o *a+ )+ai* dis5ensed with# Where the !a l#re to ! le the !ormal (la m & th n the $res(r $t %e $er od (ontem$lated n the a r &ayb ll &as lar+ely d#e to the (arr er1s o&n do n+/ the (onse'#en(e o! &h (h (annot / n all !a rness/ be attr b#ted to the $assen+er/ the same s to be d s$ensed & th. Th#s/ t &as not the $assen+er1s !a#lt that the letter o! demand !or dama+es (o#ld only be ! led/ a!ter months o! e"as$erat n+ !ollo&-#$ o! the (la m. I! there &as any !a l#re to ! le the !ormal (la m & th n the $res(r $t %e $er od/ th s &as lar+ely be(a#se o! the (arr er1s o&n do n+/ the (onse'#en(es o! &h (h (annot/ n all !a rness/ be attr b#ted to the $assen+er. E%en ! the (la m !or dama+es &as (ond t oned on the t mely ! l n+ o! a !ormal (la m/ #nder Art (le ,,6E o! the 2 % l 2ode 5The (ond t on shall be deemed !#l! lled &hen the obl +or %ol#ntar ly $re%ents ts !#l! llment.9/ that (ond t on &as deemed !#l! lled (ons der n+ that the (olle(t %e a(t on o! the (arr er1s $ersonnel n toss n+ aro#nd the (la m and lea% n+ t #nresol%ed !or an nde! n te $er od o! t me &as tantamo#nt to I%ol#ntar ly $re%ent n+ ts !#l! llment.J On +ro#nds o! e'# ty/ the ! l n+ o! the ba++a+e !re +ht (la m/ &h (h s#!! ( ently n!ormed the (arr er o! the dama+e s#sta ned by the (ar+o/ (onst t#ted s#bstant al (om$l an(e & th the re'# rement o! the (ontra(t !or the ! l n+ o! a !ormal (la m. 5Ph l $$ ne A rl nes/ In(./ %. 2o#rt o! A$$eals/ et al./ 2@@ S2RA C69 d. &a ie Es +ia.i+it/ 0o a)t!a+3 *o a+ and e6e*5+a / da*ages and atto ne/Es 0ees# The #ne"$la ned (a#se o! dama+e to the (ar+o (onst t#tes +ross (arelessness or ne+l +en(e &h (h by tsel! :#st ! es the a&ard o! dama+es. The #n$ro!ess onal nd !!eren(e o! the (arr er1s $ersonnel des$ te !#ll and a(t#al 3no&led+e o! the dama+e to the (ar+o/ :#st to be e"(#l$ated !rom l ab l ty on $#re te(hn (al ty and b#rea#(rat ( s#bter!#+e/ sma(3s o! & ll!#l m s(ond#(t and nsens t % ty to the r (#stomer1s $l +ht tantamo#nt to bad !a th and renders #n'#est onable the (arr er1s l ab l ty !or dama+es. 5Ph l $$ ne A rl nes/ In(. %. 2o#rt o! A$$eals/ et al./ 2@@ S2RA C69 80# Pasahero, a paying passenger, boarded a Lictory -iner bus bound for Flongapo. %e chose a seat at the front near the bus driver. Pasahero told the bus driver

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that he had valuable ite s in his bag which was placed near his feet. Since he had not slept 8I hours, he requested the driver to keep an eye on the bag should be do@e off during the trip. a. While Pasahero was asleep, another passenger took the bag away and alighted at Euagua, Pa panga. is Lictory -iner liable to Pasahero ? 23plain. b. Supposing that two ar ed en staged a hold?up while the bus was speeding along the 9orth 23pressway. Fne of the pointed a gun a Pasahero and stole not only his bag, but his wallet as well. +s Lictory -iner liable to Pasahero ? 23plain. c. 7here have been incidents of unknown persons throwing stones at passing vehicles fro the overpasses in the 9orth 23pressway. While the bus was traversing the superhighway, a stone hurled fro the Sto. >o ingo overpass s ashed the front windshield and hit Pasahero in the face. Pasahero lost an eye and suffered other in1uries. $an Pasahero hold the bus co pany liable for da ages ? 23plain # 5Bar? ,88*9 S.>>ESTED ANSWERS? a. Fes/ be(a#se the res$ons b l ty o! (ommon (arr ers n the (ase o! loss or dama+e to hand (arr ed ba++a+e s +o%erned by the r#le on ne(essary de$os ts. b. No. The hold-#$ s a force ma0e$re #nder the r#le on ne(essary de$os ts/ .be(a#se o! the #se o! arms hen(e the b#s (om$any &o#ld not be l able. (. Fes. V (tory 4 ner d d not e"er( se #tmost d l +en(e. 2ons der n+ the !ore 3no&led+e o! stone-thro& n+ n( dents/ t sho#ld ha%e #nderta3en the ne(essary $re(a#t ons to a%o d n:#ry to ts $ay n+ $assen+ers/ l 3e Pasahero. NOTES AND 2O-ENTS? The a(t o! a th e! or robber/ &ho has entered the hotel s not deemed force ma0e$re2 #nless t s done & th the #se o! arms or thro#+h an rres st ble !or(e. 5Art. 2)),/ 2 % l 2ode9 81# Sa boarded a passenger bus. .nother passenger, 2d, brought a gallon of gasoline placed in a plastic bag into the sa e bus where Sa was riding. 7he gasoline ignited and e3ploded causing in1ury to Sa who filed a civil suit for da ages against the bus co pany clai ing that 2d should have been sub1ected to inspection by the conductor. 7he bus co pany disclai ed liability resulting fro the e3plosion contending that it was unaware of the contents of the plastic bag and invoking the right of 2d to privacy. Should the bus co pany be held liable for da ages .? S.>>ESTED ANSWER? Fes/ !or brea(h o! the (ontra(t o! (arr a+e. The b#s (om$any s $res#med to ha%e been at !a#lt #nless t obser%ed e"traord nary d l +en(e. It s bo#nd to (arry Sam sa!ely as !ar as h#man (are and !ores +ht $ro% de. It s (lear that the +asol ne sho#ld ha%e smelled (ons der n+ that t &as $la(ed only n a $last ( ba+ and &o#ld ha%e been not (ed by the ra l&ay em$loyees and 3e$t n a sa!e $la(e. NOTES AND 2O--ENTS? ..P. 4a& 2enter s#++ests that n o%erland trans$ortat on the (ommon (arr er s not bo#nd nor em$o&ered to ma3e an e"am nat on o! the (ontents o! $a(3a+es or ba+s/ $art (#larly those hand(arr ed by $assen+ers. a. '!t/ o0 )o**on )a ie # A (ommon (arr er s bo#nd to (arry the $assen+ers sa!ely as !ar as h#man (are and !ores +ht (an $ro% de/ #s n+ the #tmost d l +en(e o! %ery (a#t o#s $ersons/ & th a d#e re+ard !or all the ( r(#mstan(es. 5Art. ,7@@/ 2 % l 2ode9 b. P es!*5tion o0 0a!+t# In (ase o! death o! or n:#r es to $assen+ers/ (ommon (arr ers are $res#med to ha%e been at !a#lt or to ha%e a(ted ne+l +ently/ #nless they $ro%e that they obser%ed e"traord nary d l +en(e as $res(r bed n art (les ,7** and ,7@@. 5Art. ,7@E/ 2 % l 2ode9 (. 'eg ee o0 )a e# 2ommon (arr ers/ !rom the nat#re o! the r b#s ness and !or reasons o! $#bl ( $ol (y/ are bo#nd to obser%e e"traord nary d l +en(e n the % + lan(e o%er the +oods and !or the sa!ety o! the $assen+ers trans$orted by them/ a((ord n+ to all the ( r(#mstan(es o! ea(h (ase. 5,st $ar./ Art. ,7**/ 2 % l 2ode9 +f it were an airline co pany involved in the above proble , would your answer be the sa e ? 23plain your answer briefly. S.>>ESTED ANSWER? Fes. The same reasons &o#ld be ad%an(ed as n the abo%e ans&er. A#rthermore/ n the (ase o! a r (arr ers/ t s not la&!#l to (arry !lammable mater als n $assen+er a r(ra!t/ and a rl ne (om$an es may o$en and n%est +ate s#s$ ( o#s $a(3a+es and (ar+oes. 5R.A. No. E2*@9 82# What is the nature of the relationship between a consignee and arrastre operator ? S.>>ESTED ANSWER? It s a3 n to that e" st n+ bet&een the (ons +nee or o&ner o! sh $$ed +oods and the (ommon (arr er/ or that bet&een a de$os tor and a &areho#seman.

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Th#s/ the arrastre o$erator sho#ld obser%e the same de+ree o! d l +en(e re'# red o! a (ommon (arr er and a &areho#seman as en#n( ated #nder Art (le ,7** o! the 2 % l 2ode and Se(t on * 5b9 o! the Wareho#se Re(e $ts 4a& res$e(t %ely. Be n+ the (#stod an o! the +oods d s(har+ed !rom a %essel/ an arrastre o$erator1s d#ty s to ta3e +ood (are o! the +oods and t#rn them o%er to the $arty ent tled to the r $ossess on. In the $er!orman(e o! ts :ob/ an arrastre o$erator s bo#nd by the mana+ement (ontra(t t had e"e(#ted & th the B#rea# o! 2#stoms. Do&e%er/ a mana+ement (ontra(t &h (h s a sort o! a st $#lat on po$r a$tr$i & th n the mean n+ o! Art (le ,*,, o! the 2 % l 2ode/ s also b nd n+ on a (ons +nee be(a#se t s n(or$orated n the +ate $ass and del %ery re(e $t &h (h m#st be $resented by the (ons +nee be!ore del %ery (an be e!!e(ted to t. Indeed/ #$on ta3 n+ del %ery o! the (ar+o/ a (ons +nee ta( tly a((e$ts the $ro% s ons o! the mana+ement (ontra(t/ n(l#d n+ those &h (h are ntended to l m t the l ab l ty o! one o! the (ontra(t n+ $art es/ the arrastre o$erator. 2onse'#ently/ the $ro% s on o! the mana+ement (ontra(t &h (h l m ts the arrastre o$erator1s l ab l ty ! nds a$$l (at on &here there s no sho& n+ o! a de(larat on by the (ons +nee o! a h +her %al#at on by sho& n+ the n%o (e o! the +oods entr#sted and the $ayment o! h +her arrastre !ees. 5S#mma Ins#ran(e 2or$orat on %. 2o#rt o! A$$eals/ et al./ 2@* S2RA ,7@9

$)% Ma iti*e &o**e )e $&ode o0 &o**e )e3 A ts# 89- to 9-,K a+so A ts# 8@028@: o0 &ode o0 &o**e )e3 as s!5e seded ./ R#A# ,10,K A ts# @0, to @:8 o0 the &ode o0 &o**e )e%K Pa ag a5h , o0 Se)tion - o0 &a iage o0 ?oods ./ Sea A)t $&o*# A)t ,8%
===8-# Fn >ece ber (G, (GH;, otor tanker 67 Lector left -i ay, ,ataan enroute for 6asbate loaded with petroleu products shipped by $alte3. Fn >ece ber 8*, (GH;, the passenger ship 6L >ona Pa@ owned and operated by Sulpicio -ines, +nc, left the port of 7acloban headed for 6anila with a co ple ent of )G crew and (,IG: anifested passengers. Fn >ece ber 8*, (GH; the two vessels collided in the open sea. .ll the crew e bers of >ona Pa@ died, and of the esti ated I,*** passengers (un anifested), only 8I survived. 7wo survived fro 67 Lector. 7he issues are whether $alte3, +nc, the charterer of 67 Lector is liable to the passengers, and whether Sulpicio -ines is the one liable for the passengers. S.>>ESTED ANSWER? No. 2alte" as the (harterer has no l ab l ty !or dama+es #nder Ph l $$ ne -ar t me la&s. It sho#ld be S#l$ ( o 4 nes &ho sho#ld be l able !or the death o! the $assen+ers. The res$e(t %e r +hts and d#t es o! a sh $$er and the (arr er de$ends not on &hether the (arr er s $#bl ( or $r %ate b#t on &hether the (ontra(t o! (arr a+e s a b ll o! lad n+ or e'# %alent sh $$ n+ do(#ments on the one hand/ or a (harter $arty or s m lar (ontra(t on the other. 2alte" and Ve(tor entered nto a (ontra(t o! a!!re +htment/ also 3no&n as a %oya+e (harter. I! the (harter s a (ontra(t o! a!!re +htment/ &h (h lea%es the +eneral o&ner n $ossess on o! the sh $ as o&ner !or the %oya+e/ the r +hts and the res$ons b l t es o! o&nersh $ rest on the o&ner. The (harterer s !ree !rom l ab l ty to th rd $ersons n res$e(t o! the sh $. 52alte" 5Ph l $$ nes9/ In(. %. S#l$ ( o 4 nes/ In(./ et al./ >.R. No. ,*,,EE/ $rom. Se$tember *)/ ,8889 On the other hand/ S#l$ ( o 4 nes be n+ a (ommon (arr er s l able !or a(t#al and (om$ensatory dama+es #nder Art (le 22)E n relat on to Art (le ,7EC o! the 2 % l 2ode !or deaths o! ts $assen+ers (a#sed by the brea(h o! the (ontra(t o! (arr a+e/ &h (h has been n(reased to P@)/))).)). The +eneral r#le s that moral dama+es are not re(o%ered n c$&pa co*tract$a& e"(e$t &hen the $resen(e o! bad !a th &as $ro%en. Do&e%er/ n brea(h o! (ontra(t o! (arr a+e/ moral dama+es may be re(o%ered &hen t res#lts n the death o! a $assen+er. Art (le 22*2 o! the 2 % l 2ode + %es the 2o#rt the d s(ret on to +rant e"em$lary dama+es n brea(h o! (ontra(t &hen the de!endant a(ted n a &anton/ !ra#d#lent and re(3less manner. The S#$reme 2o#rt too3 :#d ( al not (e o! the dread!#l re+#lar ty & th &h (h +r e%o#s -ar t me d sasters o((#r n o#r &aters & th mass %e loss o! l !e. One o! the ends o! la& and $#bl ( $ol (y / o! s$e( al m$ortan(e n an ar(h $ela+ ( state l 3e the Ph l $$ nes/ s the sa!e and rel able (arr a+e o! $eo$le and +oods by sea. To a(h e%e th s end/ an nstr#ment may be #sed &h (h s the +rant o! e"em$lary dama+es by the 2o#rt. 5S#l$ ( o 4 nes/ In(./ %s. 2o#rt o! A$$eals/ et al./2CE S2RA 2889 NOTES AND 2O--ENTS?

*C

a. &ha te 5a t/3 de0ined# A (harter $arty s a (ontra(t by &h (h an ent re sh $/ or some $r n( $al $art thereo!/ s let by the o&ner to another $erson !or a s$e( ! ed t me or #se. 52alte" 5Ph l $$ nes9/ In(. %. S#l$ ( o 4 nes/ In(./ et al./ >.R. No. ,*,,EE/ $rom. Se$tember *)/ ,8889 b. Finds o0 )ha te 5a t/ ag ee*ent# ,9 Dem se or bareboat. The (harterer mans the %essel & th h s o&n $eo$le and be(omes/ n e!!e(t/ the o&ner !or the %oya+e o! ser% (e st $#lated/ s#b:e(t to l ab l ty !or dama+es (a#sed by ne+l +en(e. 29 T me (harter/ *9 Voya+e (harter. The $art es nto a %oya+e (harter reta ns the (hara(ter o! the %essel as a (ommon (arr er. A (harter $arty a+reement does not t#rn a (ommon (arr er nto a $r %ate one. 52alte" 5Ph l $$ nes9/ In(. %. S#l$ ( o 4 nes/ In(./ et al./ >.R. No. ,*,,EE/ $rom. Se$tember *)/ ,8889 (. &ont a)t o0 a00 eight*ent3 de0ined# A (ontra(t o! a!!re +htment s one by &h (h the o&ner o! as sh $ or other %essel lets the &hole or $art o! her to a mer(hant or other $erson !or the (on%eyan(e o! +oods/ on a $art (#lar %oya+e/ n (ons derat on o! the $ayment o! !re +ht. 52alte" 5Ph l $$ nes9/ In(. %. S#l$ ( o 4 nes/ In(./ et al./ >.R. No. ,*,,EE/ $rom. Se$tember *)/ ,8889 d. Finds o0 )ont a)t o0 a00 eight*ent# A (ontra(t o! a!!re +htment may be e ther ,9 Ti*e )ha te / &here n the leased %essel s leased to the (harterer !or a ! "ed $er od o! t me/ or 29 Co/age )ha te / &here n the sh $ s leased !or a s n+le %oya+e. In both (ases/ the (harter $arty $ro% des !or the h re o! the %essel only/ e ther !or a determ nate $er od o! t me or !or a s n+le or (onse(#t %e %oya+e/ the sh $ o&ner to s#$$ly the sh $1s store/ $ay !or the &a+es o! the master o! the (re&/ de!ray the e"$enses !or the ma ntenan(e o! the sh $. === e. 'istin)tion .etween two ;inds o0 )ha te 5a ties $i#e# .a e.oat o de*ise% and )ont a)t o0 a00 eight*ent $vo/age )ha te % ,9 2ontrol o! %essel. .nder dem se or bareboat/ the (harterer & ll +enerally be re+arded as the o&ner !or the %oya+e or ser% (e st $#lated. The (harterer mans the %essel & th h s o&n $eo$le and be(omes the o&ner pro hac 'ice. The o&ner m#st (om$letely and e"(l#s %ely rel n'# sh $ossess on/ (ommand and na% +at on to the (harterer. .nder a (ontra(t o! a!!re +htment/ the +eneral o&ner reta ns $ossess on/ (ommand and na% +at on o! the sh $/ the (harterer merely ha% n+ #se o! the s$a(e n the %essel n ret#rn !or h s $ayment o! the (harter h re. 29 4 ab l ty. .nder dem se or bareboat (harter/ the (harterer s l able to others !or dama+es. .nder a (ontra(t o! a!!re +htment// the o&ner rema ns as (arr er and m#st ans&er !or any brea(h o! d#ty as to the (are/ load n+ and #nload n+ o! the (ar+o. Altho#+h a (harter $arty may trans!orm a (ommon (arr er nto a $r %ate one/ the same ho&e%er s not tr#e n a (ontra(t o! a!!re +htment on a((o#nt o! the d st n(t ons bet&een the t&o. 52oast& se 4 +htera+e 2or$orat on %/. 2o#rt o! A$$eals/ et al./ 2C@ S2RA 7)E9 !. Lones o0 ti*e in )o++ision: ,9 A rst ;one/ &h (h (o%ers all the t me #$ to the moment &hen the r s3 o! (oll s on be+ ns. 29 Se(ond ;one/ &h (h (o%ers the t me bet&een the moment &hen the r s3 o! (oll s on be+ ns and the moment &hen t be(omes a $ra(t (al (erta nty. *9 Th rd ;one/ &h (h (o%ers the t me &hen the (oll s on s (erta n and the t me o! m$a(t. +. 'o)t ine o0 ins) !ta.+e 0a!+t# Where !a#lt s establ shed b#t t (annot be determ ned &h (h o! the t&o %essels &as at !a#lt/ both shall be deemed to be at !a#lt. h. &o++ision )a!sed ./ sto * es!+ts to .oth vesse+s .ea ing own +oss# Th s des$ te both o! the (a$ta ns &ere ne+l +ent. 8:# What does general average or gross average include ? S.>>ESTED ANSWER? >eneral or +ross a%era+e n(l#des all dama+es and e"$enses &h (h are del berately (a#sed n order to sa%e the %essel/ ts (ar+o/ or both at the same t me/ !rom a real and 3no&n r s3. Where the !ormal t es $res(r bed #nder Art (les 6,* and 6,C o! the 2ode o! 2ommer(e n order to n(#r the e"$enses and (a#se the dama+e (orres$ond n+ to +ross a%era+e &ere not (om$l ed & th the (arr er (annot (la m !or (ontr b#t on !rom the (ons +nees

*@

!or add t onal !re +ht and sal%a+e (har+es. 5Ph l $$ ne Dome Ass#ran(e 2or$. %. 2o#rt o! A$$eals/ et al./ 2@7 S2RA EC89 ===88# What is eant by the doctrine of li ited liability or real and hypothecary nature of ariti e law ? When are he instances where this doctrine does not find any application ? S.>>ESTED ANSWER? The l ab l ty o! the sh $ o&ner or sh $ a+ent ar s n+ !rom the o$erat on o! a sh $ 5 n the trans$ortat on o! +oods and $assen+ers9 s (on! ned to the %essel/ e'# $ment/ and !re +ht/ or ns#ran(e/ ! any/ so that ! sh $ o&ner or sh $ a+ent abandons the sh $/ e'# $ment and !re +ht/ as &ell as ns#ran(e/ h s l ab l ty &o#ld be e"t n+# shed/ :#st as &ell ! """" """" """" """" relating to the anufacture, refining, storage, or transportation by special ethods of petroleu , as provided for in this .ct, is hereby declared to be of public utility.# +s P27<F9 a public utility ? Why? S.>>ESTED ANSWER? No. A I$#bl ( #t l tyJ #nder the 2onst t#t on and the P#bl ( Ser% (e A(t s one or+an 0ed I!or h re or (om$ensat onJ to ser%e the $#bl (/ &h (h s + %en the r +ht to demand ts ser% (e. PETRON s not en+a+ed n o l re! n n+ !or h re and (om$ensat on to $ro(ess the o l o! other $art es. 4 3e& se/ the a(t % t es (ons dered as I$#bl ( #t l tyJ #nder Se(t on 7 o! R.A. No. *67 re!er only to $etrole#m &h (h s nd +eno#s to the Ph l $$ nes. Den(e/ the re! n n+ o! $etrole#m $rod#(ts so#r(ed !rom abroad as s done by PETRON s not & th n the (ontem$lat on o! the la&. 5Ba+ats n+ %. 2omm ttee on Pr %at 0at on/ 2C, S2RA **C99 ,1# +s 2>S. -<7 +++, a public utility, such that 2>S. -<7 $orporation, -td., a foreign corporation could not own it ? S.>>ESTED ANSWER? No. What (onst t#tes a $#bl ( #t l ty s not the r o&nersh $ b#t the r #se to ser%e the $#bl (. Wh le a !ran(h se s needed to o$erate these !a( l t es to ser%e the $#bl (/ they do not by themsel%es (onst t#te a $#bl ( #t l ty. The 2onst t#t on/ n no #n(erta n terms/ re'# res a !ran(h se !or the o$erat on o! a $#bl ( #t l ty. Do&e%er/ t does not re'# re a !ran(h se be!ore one (an o&n the !a( l t es needed to o$erate a $#bl ( #t l ty so lon+ as t does not o$erate them to ser%e the $#bl (. In la&/ there s a (lear d st n(t on bet&een the Io$erat onJ o! a $#bl ( #t l ty and the Ko&nersh $K o! the !a( l t es and e'# $ment #sed to ser%e the $#bl (. The r +ht to o$erate a $#bl ( #t l ty may e" st nde$endently and se$arately !rom the o&nersh $ o! the !a( l t es thereo!. One (an o&n sa d !a( l t es & tho#t o$erat n+ them as a $#bl ( #t l ty or (on%ersely/ one may o$erate a $#bl ( #t l ty & tho#t o&n n+ the !a( l t es #sed to ser%e the $#bl (. The de%ot on o! $ro$erty to ser%e the $#bl ( may be done by the o&ner or by the $erson n (ontrol thereo! &ho may not ne(essar ly be the o&ner thereo!. The d (hotomy bet&een the o$erat on o! a $#bl ( #t l ty and the o&nersh $ o! the !a( l t es #sed to ser%e the $#bl ( (an be %ery &ell a$$re( ated &hen &e (ons der the trans$ortat on nd#stry. En!ran(h sed a rl ne and sh $$ n+ (om$an es may lease the r a r(ra!t and %essels nstead o! o&n n+ them themsel%es. 5Tatad/ et al./ %. >ar( a/ Hr./ et al./ 2C* S2RA C*E9 NOTES AND 2O--ENTS? a. B!i+d2o5e ate2t ans0e $BOT%# One &here the (ontra(tor #nderta3es the (onstr#(t on and ! nan( n+ o! an n!rastr#(t#re !a( l ty/ and o$erates and ma nta ns the same. The (ontra(tor o$erates the !a( l ty !or a ! "ed $er od d#r n+ &h (h t may re(o%er ts e"$enses and n%estment n the $ro:e(t $l#s a reasonable rate o! ret#rn thereon. A!ter the e"$ rat on o! the a+reed term/ the (ontra(tor trans!ers the o&nersh $ and o$erat on o! the $ro:e(t to the +o%ernment. The o&ner o! the n!rastr#(t#re !a( l ty m#st (om$ly & th the ( t 0ensh $ re'# rement o! the 2onst t#t on on the o$erat on o! a $#bl ( #t l ty. 5Tatad/ et al./ %. >ar( a/. Hr./ et al./ 2C* S2RA C*E9 b. B!i+d2and2t ans0e $BT%# The (ontra(tor #nderta3es the (onstr#(t on and ! nan( n+ o! the !a( l ty/ b#t a!ter (om$let on/ the o&nersh $ and o$erat on thereo! are t#rned o%er to the +o%ernment. The +o%ernment/ n t#rn/ shall $ay the (ontra(tor the total n%estment on the $ro:e(t n add t on to a reasonable rate o! ret#rn. Th s arran+ement may be

-AF SIRA DITOQQQ

*E

em$loyed n the (onstr#(t on o! any n!rastr#(t#re $ro:e(t n(l#d n+ (r t (al !a( l t es &h (h !or se(#r ty or strate+ ( reasons/ m#st be o$erated d re(tly by the +o%ernment. A l $ no o&nersh $ s not re'# red. 5Tatad/ et al./ %. >ar( a/ Hr./ et al./ 2C* S2RA C*E9 (. 'istin)tions .etween BOT and BT: a. BOT (ontra(tor o$eratesB BT +o%ernment o$erates. b. BOT (om$l an(e & th ( t 0ensh $ re'# rementB BT no. ,2# +s an international gateway facility (+ED) a telephone syste 1 S.>>ESTED ANSWER? No. It s not. An I>A system &h (h &o#ld med ate bet&een a domest ( tele$hone system and the transm tt n+ and (arry n+ !a( l t es o! an nternat onal (arr er. It & ll $erm t messa+es or + nat n+ !rom a $erson #s n+ P4DT1s domest ( tele$hone system to enter the transm tt n+ and (arry n+ !a( l t es o! an nternat onal (arr er and as &ell allo& messa+es n(om n+ !rom abroad thro#+h the nternat onal (arr er1s (arry n+ !a( l t es to enter the domest ( system. 5Ph l $$ ne 4on+ D stan(e Tele$hone 2om$any %. NT2/ et al./ 2C, S2RA C6E9 NOTES AND 2O--ENTS? a. Te+e)o**!ni)ations# 2omm#n (at on o%er d stan(e ma3 n+ no l m t n+ re!eren(e to the means or mode o! s#(h (omm#n (at on. When the stat#tory te"t s$ea3s o! Imessa+esJ/ there sho#ld be no d st n(t on bet&een %o (e or oral and data or /non-%o (e messa+es or transm ss ons. Vo (e messa+es do not tra%el % a & res 5(ables &hether s#bmar ne or #nder+ro#nd or/ aer al9 or any other med a -$a %o (e 5 .e./ as so#nd &a%es9B %o (e transm ss ons/ e"a(tly l 3e data 5or non-%o (e9 messa+es/ tra%el n the !orm o! ele(tron ( m$#lses thro#+h (ables 5or any other med a9 and are s m$ly (on%erted at the $o nt o! re(e$t on or dest nat on nto other !orms % s#ally or a#d bly $er(e$t ble by h#man be n+s 5Ph l $$ ne 4on+ D stan(e Tele$hone 2om$any %. NT2/ et al./ 2C, S2RA C6E9 ,-# What is the effect of failure to get approval of sale or ortgage of franchise ? S.>>ESTED ANSWER ?In o$erat n+ a tr#(3 & tho#t the trans!er thereo! ha% n+ been a$$ro%ed by the P#bl ( Ser% (e 2omm ss on 5no& 4TARB9/ the trans!eree a(ted merely as a+ent o! the re+ stered o&ner and sho#ld be res$ons ble to h m 5the re+ stered o&ner9 !or any dama+es he may (a#se the latter thro#+h h s ne+l +en(e. 5IFJ Trans t 2o./ In(. %s. N4R2/ et al./ >.R. 66,8@-8E/ Han#ary 27/ ,88C/ Th rd D % s on9 REASON? S n(e a !ran(h se s $ersonal n nat#re any trans!er or lease thereo! sho#ld be not ! ed to the P#bl ( Ser% (e 2omm ss on 54TARB9 so that the latter may ta3e $ro$er sa!e+#ards to $rote(t the nterest o! the $#bl (. O! (o#rse t !ollo&s that ! there are any dama+e (a#sed to the +eneral $#bl ( the re+ stered o&ner s d re(tly ans&erable and not the #nre+ stered trans!eree.

$8% &o 5o ation 7aw $a% The &o 5o ation &ode $BP B+g# ,@%
===,:# $ould a corporation recover oral da ages ? S.>>ESTED ANSWER?. A (or$orat on )o!+d not e)ove moral dama+es ar s n+ !rom $hys (al s#!!er n+ be(a#se a (or$orat on be n+ an art ! ( al $erson has no !eel n+s/ emot ons or senses/ hen(e t (annot e"$er en(e $hys (al s#!!er n+ or mental an+# sh. Do&e%er/ a (or$orat on )an e)ove moral dama+es. ar s n+ !rom dama+e to ts re$#tat on be(a#se t has a +ood re$#tat on that (o#ld be debased/ res#lt n+ to so( al h#m l at on. A (or$orat onMs +ood & ll s an asset &h (h (o#ld s#!!er n:#ry. ,8# What are the tests of corporate nationality ? S.>>ESTED ANSWER? The tests are the nat onal ty theory and the theory o! n(or$orat on. .nder the nat onal ty theory the ( t 0ensh $ o! the sto(3holders determ nes nat onal ty rres$e(t %e o! the $la(e o! n(or$orat on. .nder the theory o! n(or$orat on/ la(e o! n(or$orat on determ nes nat onal ty rres$e(t %e o! nat onal ty o! sto(3holders. ,,# When is the veil of corporate fiction pierced ? S.>>ESTED ANSWER? a. When the (or$orate ! (t on s #sed to de!eat $#bl ( (on%en en(e/ :#st !y &ron+/ $rote(t !ra#d/ or de!end (r me or &hen a (or$orat on s the mere alter e+o or b#s ness (ond# t o! a $erson. To d sre+ard the se$arate :#r d (al $ersonal ty o! a (or$orat on/ the &ron+-do n+ m#st be (learly and (on% n( n+ly/ establ shed. It (annot be $res#med. 5 F#/ et al %s. N4R2/ et al./ >.R.. Nos. ,,,6,)-,,/ H#ne ,E/ ,88@/ Th rd D % s on9

*7

b. When the ! (t on s #sed as a means o! $er$etrat n+ a !ra#d or an lle+al a(t or as a %eh (le !or the e%as on o! an e" st n+ obl +at on/ the ( r(#m%ent on o! stat#tes/ the a(h e%ement or $er!e(t on o! a mono$oly or +enerally the $er$etrat on o! 3na%ery or (r me/ the %e l & th &h (h the la& (o%ers and solates the (or$orat on !rom the members or sto(3holders &ho (om$osed t & ll be l !ted to allo& !or ts (ons derat on merely as an a++re+at on o! nd % d#als. (. To a%o d a :#d+ment (red tB to a%o d n(l#s on o! (or$orate assets as $art o! the estate o! a de(edentB to a%o d l ab l ty ar s n+ !rom debtB &hen made #se as a sh eld to $er$etrate !ra#d andNor (on!#se le+ t mate ss#esB or to $romote #n!a r ob:e(t %es or other& se to sh eld them. 5A rst Ph l $$ ne Internat onal Ban3/ et al./ %. 2o#rt o! A$$eals/ >.R. No. ,,@6C8/ Han#ary 2C/ ,88E/ Th rd D % s on ( t n+ %ar o#s (ases9 d. When the (or$orate ! (t on s #sed as a sh eld to !#rther an end s#b%ers %e o! :#st (eB or !or $#r$oses that (o#ld not ha%e been ntended by the la& that (reated tB or to de!eat $#bl ( (on%en en(e/ :#st !y &ron+/ $rote(t !ra#d/ or de!end (r meB or to $er$et#ate de(e$t onB or as an alter e+o/ ad:#n(t or b#s ness (ond# t !or the sole bene! t o! the sto(3holders. 5ARB 2onstr#(t on 2o. In(./ et al./ %. 2o#rt o! A$$eals/ et al.// >.R. No. ,2E@@C/ $rom. -ay *,/ 2)))9 e. T&o ent t es (annot be deemed se$arate and d st n(t &here there s a sho& n+ that one s merely the (ont n#at on o! the other/ as &here the se(ond (or$orat on merely (ont n#ed the o$erat ons o! the ! rst (or$orat on #nder the same o&ners/ the same b#s ness %ent#re/ at the same address/ and e%en (ont n#ed to h re the same em$loyees. 5A%on Dale >arments/ In(. %s. N4R2/ et al./ >.R. No. ,,78*2/ H#ly 2)/ ,88@/ Th rd D % s on9 !. The (or$orate mas3 may be l !ted and the (or$orate %e l may be $ er(ed &hen a (or$orat on s :#st b#t the alter e+o o! a $erson or o! another (or$orat on. Where bad+es o! !ra#d e" st/ &here $#bl ( (on%en en(e s de!eatedB &here a &ron+ s so#+ht to be :#st ! ed/ the (or$orate ! (t on or the not on o! le+al ent ty sho#ld (ome to na#+ht. 54 m %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2C7,@/ $rom. Han#ary 2C/ 2)))9 NOTES AND 2O--ENTS? a. &o 5o ate 0i)tion# R#d mentary s the r#le that a (or$orat on s n%ested by la& & th a $ersonal ty d st n(t and se$arate !rom ts sto(3holders or members. In the same %e n/ a (or$orat on by le+al ! (t on and (on%en en(e s an ent ty sh elded by a $rote(t %e mantle and mb#ed & th a (hara(ter al en to the $ersons (om$r s n+ t. It may not +enerally be held l able !or that o! the $ersons (om$os n+ t. It may not be held l able !or the $ersonal ndebtedness o! ts sto(3holders o! those o! the ent t es (onne(ted & th t. 54 m %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2C7,@/ $rom. Han#ary 2C/ 2)))9 ===b. Tests in dete *ining whethe to 5ie )e vei+ o0 )o 5o ate 5e sona+it/# ,9 2ontrol/ not mere ma:or ty or (om$lete sto(3 (ontrol/ b#t (om$lete dom nat on/ not only o! the ! nan(es/ b#t o! $ol (y and b#s ness $ra(t (e n res$e(t to the transa(t on atta(3ed so that the (or$orate ent ty as to th s transa(t on had at the t me no se$arate m nd/ & ll or e" sten(e o! ts o&nB 29 S#(h (ontrol m#st ha%e been #sed by the de!endant to (omm t !ra#d or &ron+/ to $er$et#ate the % olat on o! a stat#tory or other $os t %e le+al d#ty/ or d shonest and #n:#st a(t n (ontra%ent on o! $la nt !!1s le+al r +htB *9 The a!oresa d (ontrol and brea(h o! d#ty m#st $ro" mately $re%ent I$ er( n+ the (or$orate %e l.J -oreo%er/ to d sre+ard the se$arate :#r d (al $ersonal ty o! a (or$orat on/ the &ron+-do n+ m#st be (learly and (on% n( n+ly establ shed. It (annot be $res#med. 54 m %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2C7,@/ $rom. Han#ary 2C/ 2)))9 === (. Whe e no dis ega d o0 )o 5o ate 5e sona+it/# -ere o&nersh $ by a s n+le sto(3holder or by another (or$orat on o! all or nearly all o! the (a$ tal sto(3 o! a (or$orat on s not o! tsel! s#!! ( ent +ro#nd !or d sre+ard n+ the se$arate (or$orate $ersonal ty. 5S#n o %. N4R2/ ,27 S2RA *8)/*87-*86 ( ted n Santos %. N4R2/ et al./ >.R. No. ,),E88/ -ar(h ,*/ ,88EB 4 m %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2C7,@/ $rom. Han#ary 2C/ 2)))9 ,9# What is the effect of a change in corporate na e ? S.>>ESTED ANSWER? It does not ma3e a ne& (or$orat on/ &hether e!!e(ted by a s$e( al a(t or #nder a +eneral la&/ t has no e!!e(t on the dent ty o! the (or$orat on/ or on ts $ro$erty/ r +hts/ or l ab l t es. 5A%on Dale >arments/ In(. %s. N4R2/ et al./ >.R. No. ,,78*2/ H#ly 2)/ ,88@/ Th rd D % s on9 ,@# >efine an ultra vires act. S.>>ESTED ANSWER? It s an a(t &h (h re!ers to

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a. one &h (h s not & th n the (or$orate $o&ers (on!erred by the 2or$orat on 2ode or art (les o! n(or$orat on b. or not ne(essary or n( dental n the e"er( se o! the $o&ers so (on!erred. 54o$e0 Realty/ In(./ et al./ %s. Aonte(ha/ et al./ >.R. No. 7E6),/ A#+#st ,,/ ,88@/ Se(ond D % s on9 Pro% d n+ +rat# ty $ay !or ts em$loyees s one o! the e"$ress $o&ers o! the (or$orat on #nder the 2or$orat on 2ode. 5Ib d.9 NOTES AND 2O--ENTS? a. &onse>!en)es o0 ultra vires a)ts# An a(t o! a (or$orat on &h (h s e ther lle+al or o#ts de o! e"$ress/ m$l ed or n( dental $o&ers as so $ro% ded by la& or the (harter &o#ld be %o d #nder Art (le @ o! the 2 % l 2ode. The a(t s not s#s(e$t ble to rat ! (at on/ and an #na#thor 0ed a(t 5 ! & th n (or$orate $o&ers9 o! the board or a (or$orate o!! (er/ &o#ld only be #nen!or(eable (on!ormably & th Art (le ,C)* o! the 2 % l 2ode. 5R#ral Ban3 o! - laor/ 2amar nes S#r %. O(!em a/ et al./ >.R. No. ,*7E6E/ $rom. Aebr#ary 6/ 2)))9 ===,<# What is capital ? %ow is it differentiated with subscribed capital and stock dividends ? What is eant by the !trust fund doctrine# ? S.>>ESTED ANSWER? &a5ita+ re!ers to the %al#e o! the $ro$erty or assets o! a (or$orat on. The s!.s) i.ed )a5ita+ s the total amo#nt o! the (a$ tal that $ersons 5s#bs(r bers or shareholders9 ha%e a+reed to ta3e and $ay !or/ &h (h need not ne(essar ly be/ and (an be more than/ the $ar %al#e o! the shares. In ! ne/ t s the amo#nt that the (or$orat on re(e %es/ n(l#s %e o! the $rem #ms ! any/ n (ons derat on o! the or + nal ss#an(e o! the shares. In the (ase o! sto); dividends/ t s the amo#nt that the (or$orat on trans!ers !rom ts s#r$l#s $ro! t a((o#nt to ts (a$ tal a((o#nt. It s the same amo#nt that (an loosely be termed as the Itr#st !#ndJ o! the (or$orat on. The Mt !st 0!ndH do(tr ne (ons ders th s s#bs(r bed (a$ tal as a tr#st !#nd !or the $ayment o! the debts o! the (or$orat on/ to &h (h the (red tors may loo3 !or sat s!a(t on. .nt l the l '# dat on o! the (or$orat on/ no $art o! the s#bs(r bed (a$ tal may be ret#rned or released to the sto(3holder 5e"(e$t n the redem$t on o! redeemable shares9 & tho#t % olat n+ th s $r n( $le. Th#s/ d % dends m#st ne%er m$a r the s#bs(r bed (a$ talB s#bs(r $t on (omm tments (annot be (ondoned or rem ttedB nor an the (or$orat on b#y ts o&n shares #s n+ the s#bs(r bed (a$ tal as the (ons derat on there!ore. 5Nat onal Tele(omm#n (at ons 2omm ss on %. 2o#rt o! A$$eals/ et al./ >.R. No. ,278*7/ $rom. H#ly 26/ ,8889 Another %ar at on o! the Itr#st !#ndJ do(tr ne $os ts that any d str b#t on o! (or$orate assets as a (onse'#en(e o! (or$orate l '# dat on are (ons dered as held n tr#st by the re( $ ent sto(3holder !or the bene! t o! the (red tors o! the (or$ort on. ===90# State the rights of a stockholder. S.>>ESTED ANSWER? a. To %ote/ n(l#d n+ the r +ht to a$$o nt a $ro"yB b. To share n the $ro! ts o! the (or$orat on n(l#d n+ the r +ht to de(lare sto(3 d % dends/ b#t an #n$a d s#bs(r ber does not ha%e a r +ht to sto(3 d % dendsB (. To a $ro$ort onate share n the assets o! the (or$orat on #$on l '# dat onB d. The r +ht o! a$$ra salB e. The $reem$t %e r +ht to sharesB !. To ns$e(t (or$orate boo3s and re(ordsB +. To ele(t d re(tors and to be ele(ted as s#(hB h. S#(h other r +hts as may (ontra(t#ally be +ranted to the sto(3holders by the (or$orat on or by s$e( al la&. NOTES AND 2O--ENTS? === a. Sto);ho+de s o0 !n5aid s!.s) i5tions have a++ the a.ove ights o0 sto);ho+de s in)+!ding ight to vote# Do&e%er/ ! already de(lared del n'#ent/ and the (all !or the #n$a d s#bs(r $t on s ss#ed & th the e"$ rat on o! the del n'#ent s#bs(r ber loses all o! the abo%e r +hts. 91# &o 5o ate *e ge s ta;e e00e)t a0te SE& a55 ova+# 5Asso( ated Ban3 %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2*78*/ $rom. H#ne 28/ ,8869

92# What is eant by the doctrine of corporate opportunity ? S.>>ESTED ANSWER? 2or$orat on (o#ld $roh b t by r#les ele(t on o! d re(tor o! (om$et tor.

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NOTES AND 2O--ENTS? === a. 'is+o/a+t/ o0 di e)to # Where a d re(tor by % rt#e o! h s o!! (e/ a('# res !or h msel! a b#s ness o$$ort#n ty &h (h sho#ld belon+ to the (or$orat on thereby obta n n+ $ro! ts to (or$orat on1s $re:#d (e. PENA4TF? D re(tor m#st a((o#nt to the (or$orat on !or s#(h $ro! ts by re!#nd n+ the same e%en ! he r s3ed h s o&n !#nds n the %ent#re. WDEN NO REA.ND? I! the a(t s rat ! ed by 2N* %ote o! o#tstand n+ (a$ tal sto(3. 9-# Who is an !independent director# ? S.>>ESTED ANSWER? An nde$endent d re(tor means a $erson &ho/ a$art !rom h s !ees and sharehold n+s/ n nde$endent o! mana+ement and !ree !rom any b#s ness or other relat onsh $ &h (h (o#ld/ or (o#ld reasonably be $er(e %ed to/ mater ally nter!ere & th h s e"er( se o! nde$endent :#d+ment n (arry n+ o#r h s res$ons b l t es as a d re(tor n any (or$orat on re'# red to ma3e $er od ( re$orts to the SE2. 5SR2 R#le *6.,9 NOTES AND 2O--ENTS? An inde5endent di e)to in)+!des a*ong othe s a 5e son who: a. Is not a d re(tor or o!! (er o! the (or$orat on or o! ts related (om$an es or any o! ts s#bstant al shareholders 5other than as an nde$endent d re(tor o! any o! the !ore+o n+9B b. Is not a s#bstant al shareholder o! the (or$orat on or ts related (om$an es or any o! ts s#bstant al shareholdersB (. Is not a relat %e o! any d re(tor/ o!! (er or s#bstant al shareholder o! the (or$orat on/ any o! ts related (om$an es or any o! ts s#bstant al shareholders. Aor th s $#r$ose/ relat %es n(l#des s$o#se/ $arent/ (h ld/ brother/ s ster/ and the s$o#se o! s#(h (h ld/ brother or s sterB d. Is not a(t n+ as a nom nee or re$resentat %e o! any d re(tor or s#bstant al shareholder o! the (or$orat on/ any o! ts related (om$an es or any o! ts s#bstant al shareholdersB e. Das not been em$loyed n any e"e(#t %e (a$a( ty by that $#bl ( (om$any/ any o! ts related (om$an es or by any o! ts s#bstant al shareholders & th n the last ! %e 5@9 yearsB !. Is not reta ned as $ro!ess onal ad% ser/ by that $#bl ( (om$any/ any o! ts related (om$an es or any o! ts s#bstant al shareholders & th n the last ! %e 5@9 yearsB +9 Is not reta ned as $ro!ess onal ad% ser/ by that $#bl ( (om$any/ any o! ts related (om$an es or by any o! ts s#bstant al shareholders/ e ther $ersonally or thro#+h h s ! rmB or h9 Das not en+a+ed and does not en+a+e n any transa(t on & th the (or$orat on or & th any o! ts related (om$an es or & th any o! ts s#bstant al shareholders/ &hether by h msel! or & th other $ersons or thro#+h a ! rm o! &h (h he s a $artner or a (om$any o! &h (h he s a d re(tor or s#bstant al shareholder/ other than transa(t ons &h (h are (ond#(ted at arms len+th and are mmater al. 5SR2 R#le *6.,9 9:# What are the conditions for a corporation to invest its funds in another corporation or business or for any other purpose than that stated in its pri ary purpose ? S.>>ESTED ANSWER? a. A$$ro%al by a ma:or ty o! the Board o! D re(torsB b. Sa d a$$ro%al s rat ! ed by t&o-th rds o! the sto(3holders re$resent n+ the o#tstand n+ (a$ tal sto(3B (. Wr tten not (e o! the $ro$osed n%estment and the date/ t me and $la(e o! the sto(3holdersM meet n+ at &h (h s#(h $ro$osal & ll be ta3en #$ m#st be sent to ea(h sto(3holder. 5Se(. C2/ 2or$orat on 2ode9 I! the n%estment s n a((ord & th the $r n( $al $#r$oses only the a$$ro%al o! the Board o! D re(tors s re'# red. 98# Fn .ugust J, (GG;, the $ourt of .ppeals resolved to deny due course to a Petition for $ertiorari filed by ,. Savings ,ank, on the ground that !the $ertification on anti?foru shopping incorporated in the petition was signed not by the duly authori@ed representative of the petitioner as required under Supre e $ourt $ircular 9o. 8H?G(, but by its counsel, in contravention of said circular 3 3 3.# . 6otion for <econsideration was subsequently filed by ,. Savings ,ank which attached a $orporate Secretary=s $ertificate, dated .ugust (I, (GG; which showed that a 6ay 8(, (GG; <esolution authori@ed its lawyers to represent it in any action or proceeding before any court, tribunal or agencyP and to sign, e3ecute and deliver the $ertificate of 9on?foru Shopping, a ong others. 6ay the corporate lawyers e3ecute the $ertificate of 9on?foru shopping ? 23plain briefly. S.>>ESTED ANSWER? Fes. The Board Resol#t on &as s#!! ( ent to %est s#(h $ersons & th the a#thor ty to b nd the (or$orat on and &as s$e( ! ( eno#+h as to the a(ts they

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&ere em$o&ered to do. 5BA Sa% n+s Ban3 %. S a/ et al./ >.R. No. ,*,2,C/ $rom. H#ly 27/ 2)))9 NOTES AND 2O--ENTS? a. A )o 5o ation a)ts th o!gh its .oa d3 o00i)e s o agents# A (or$orat on e"er( ses the $o&ers e"$ressly (on!erred on t by the 2or$orat on 2ode and those that are m$l ed by or are n( dental to ts e" sten(e/ thro#+h ts board o! d re(tors andNor ts d#ly a#thor 0ed o!! (ers and a+ents. Phys (al a(ts/ l 3e s +n n+ o! do(#ments/ (an be $er!ormed only by nat#ral $ersons d#ly a#thor 0ed !or the $#r$ose by (or$orate byla&s or by s$e( ! ( a(t o! the board o! d re(tors. All a(ts & th n the $o&ers o! a (or$orat on may be $er!ormed by a+ents o! ts sele(t onB and e"(e$t so !ar as l m tat ons or restr (t ons &h (h may be m$osed by s$e( al (harter/ by-la&/ or stat#tory $ro% s ons/ the same +eneral $r n( $les o! la& &h (h +o%ern the relat on o! a+en(y !or a nat#ral $erson +o%ern the o!! (er or a+ent o! a (or$orat on/ o! &hate%er stat#s or ran3/ n res$e(t to h s $o&er to a(t !or the (or$orat onB and a+ents on(e a$$o nted/ or members a(t n+ n the r stead/ are s#b:e(t to the same r#les/ l ab l t es and n(a$a( t es as are a+ents o! nd % d#als and $r %ate $ersons. 5BA Sa% n+s Ban3 %. S a/ et al./ >.R. No. ,*,2,C/ $rom. H#ly 27/ 2)))9 b. &o 5o ate o00i)e s *a/ .ind the )o 5o ation# 2or$orate o!! (ers may a(t on s#(h matters as may be a#thor 0ed e ther e"$ressly by the Byla&s or Board Resol#t ons or m$l edly as s#(h as by +eneral $ra(t (e or $ol (y or as are m$l ed by e"$ress $o&ers. When o!! (ers are allo&ed to a(t n $art (#lar (ases/ the r a(ts (on!ormably there& th (an b nd the (om$any. Den(e/ a (or$orate o!! (er entr#sted & th +eneral mana+ement and (ontrol o! the b#s ness has the m$l ed a#thor ty to a(t or (ontra(t !or the (or$orat on &h (h may be ne(essary or a$$ro$r ate to (ond#(t the ord nary b#s ness. 5R#ral Ban3 o! - laor/ 2amar nes S#r %. O(!em a/ et al./ >.R. No. ,*7E6E/ $rom. Aebr#ary 6/ 2)))9 (. When a)ts o0 )o 5o ate o00i)e s 'O NOT .ind the )o 5o ation# I! the a(t o! (or$orate o!! (ers (omes & th n (or$orate $o&ers b#t t s not done & tho#t any e"$ress or m$l ed a#thor ty there!or !rom the by-la&s/ board resol#t ons or (or$orate $ra(t (es/ s#(h an a(t does not b nd the (or$orat on. 5R#ral Ban3 o! - laor/ 2amar nes S#r %. O(!em a/ et al./ >.R. No. ,*7E6E/ $rom. Aebr#ary 6/ 2)))9 Th s s s$e( ally tr#e &here the $arty & th &hom the (or$orate o!! (er (ontra(t s a&are o! the latter1s l m ts o! $o&ers/ n &h (h (ase as !ar as the (or$orat on s (on(erned/ the #na#thor 0ed a(t s de(lared %o d #nder Art (le ,686 o! the 2 % l 2ode/ altho#+h s#s(e$t ble to rat ! (at on by the (or$orate $r n( $al. Th s s so be(a#se any $erson deal n+ & th (or$orate boards and o!! (ers may be sa d to be (har+ed & th the 3no&led+e that the latter (an only a(t & th n the r res$e(t %e l m ts o! $o&er/ and he s $#t to not (e a((ord n+ly. Th#s/ t &o#ld +enerally behoo%e s#(h a $erson to loo3 nto the e"tent o! the a#thor ty o! (or$orate a+ents s n(e the on#s &o#ld ord nar ly be & th h m. 5I.i%#9 d. When UNAUTHORILE' a)ts o0 )o 5o ate o00i)e s BIN' the )o 5o ation# ,9 I0 ati0ied. The Board/ a(t n+ & th n ts (om$eten(e/ may rat !y the #na#thor 0ed a(t o! the (or$orate o!! (er. 5R#ral Ban3 o! - laor/ 2amar nes S#r %. O(!em a/ et al./ >.R. No. ,*7E6E/ $rom. Aebr#ary 6/ 2)))9 An a(t on o! the board o! d re(tors d#r n+ a meet n+/ &h (h &as lle+al !or la(3 o! not (e/ may be rat ! ed e ther e"$ressly/ by the a(t on o! the d re(tors n a s#bse'#ent le+al meet n+/ or m$l edly by the (or$orat on1s s#bse'#ent (o#rse o! (ond#(t. 54o$e0 Realty/ In(./ et al. %s. Aonten(ha/ et al./ >.R. No. 7E6),/ A#+#st ,,/ ,88@/ Se(ond D % s on9 29 Unde esto55e+. So/ too/ a (or$orat on may be held n esto$$el !rom deny n+ as a+a nst nno(ent th rd $ersons the a#thor ty o! ts o!! (ers or a+ents &ho ha%e been (lothed by t & th ostens ble or a$$arent a#thor ty. 5R#ral Ban3 o! - laor/ 2amar nes S#r %. O(!em a/ et al./ >.R. No. ,*7E6E/ $rom. Aebr#ary 6/ 2)))9 In both o! the abo%e nstan(es the a(t m#st not be an $&tra 'ires a(t. In order to be rat ! ed or en!or(eable #nder esto$$el/ the #na#thor 0ed a(t o! the (or$orate o!! (er m#st be & th n the a#thor 0ed (or$orate $o&ers. Other& se/ the a(t ! $&tra 'ires &o#ld be %o d an not be the so#r(e o! any r +hts and obl +at ons. O! (o#rse/ dama+es may be a&arded to the a++r e%ed $arty ! the (or$orat on or the (or$orate o!! (er m sled the other $arty nto bel e% n+ that the a(t s a %al d (or$orate a(t. Do not !or+et that there s a d st n(t on bet&een a %al d (or$orate a(t b#t the o!! (er s not a#thor 0ed to b nd the (or$orat on/ !rom one &here the a(t s not a %al d (or$orate a(t/ and ne ther s the o!! (er a#thor 0ed to b nd the (or$orat on. In the last nstan(e/ there s no (or$orate l ab l ty. ===e. Instan)es when )o 5o ate di e)to 3 t !stee o o00i)e *a/ .e he+d 5e sona++/ +ia.+e to the )o 5o ationM ,9 When he assents to a $atently #nla&!#l a(t o! the (or$orat onB

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29 When he a(ts n bad !a th or & th +ross ne+l +en(e n d re(t n+ the a!!a rs o! the (or$orat on/ or n (on!l (t & th the nterest o! the (or$orat on res#lt n+ n dama+es to the (or$orat on/ ts sto(3holders or other $ersonsB *9 When he (onsents to the ss#an(e o! &atered sto(3s or &ho/ ha% n+ 3no&led+e thereo!/ does not !orth& th ! le & th the (or$orate se(retary h s &r tten ob:e(t on theretoB C9 When he a+rees to hold h msel! $ersonally and sol dar ly l able & th the (or$orat onB or @9 When he s made/ by a s$e( ! ( $ro% s on o! la&/ to $ersonally ans&er !or the (or$orate a(t on. 5A2F 2onstr#(t on >ro#$/ In(./ et al. %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2**@6/ $rom. Aebr#ary ,/ 2))) ( t n+ Tramat -er(ant le/ In(. et al./ %. 2o#rt o! A$$eals/ et al./ 2*6 S2RA ,C9 !. When )o 5o ate o00i)e s +ia.+e# The +eneral r#le s that o!! (ers o! a (or$orat on are not $ersonally l able !or the r o!! ( al a(ts #nless t s sho&n that they ha%e e"(eeded the r a#thor ty. 5ARB 2onstr#(t on 2o./ In(./ et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2E@@C/ $rom. -ay *,/ 2)))9 9,. .re contracts entered into by a corporation with its directors, trustees, or officers valid ? S.>>ESTED ANSWER? The +eneral r#le s that a (ontra(t entered nto by a (or$orat on & th ts d re(tors/ tr#stees/ or o!! (ers s %o dable at (or$orat onMs o$t on. NOTES AND 2O--ENTS? ===a. The 0o++owing a e the instan)es whe e s!)h )ont a)ts ente ed ./ a )o 5o ation with its di e)to s3 t !stees3 o o00i)e s a e va+id? ,9 That the $resen(e o! s#(h d re(tor or tr#stee n the board meet n+ n &h (h the (ontra(t &as a$$ro%ed &as not ne(essary to (onst t#te a '#or#m !or s#(h meet n+B 29 That the %ote o! s#(h d re(tor or tr#stee &as not ne(essary !or the a$$ro%al o! the (ontra(tB *9 That the (ontra(t s !a r and reasonable #nder the ( r(#mstan(esB and C9 That n the (ase o! an o!! (er/ the (ontra(t has been $re% o#sly a#thor 0ed by the board. 5Se(. *2/ 2or$orat on 2ode9 Where any o! the ! rst t&o (ond t ons s absent/ n the (ase o! a (ontra(t & th a d re(tor or tr#stee/ s#(h (ontra(t may be rat ! ed by the %ote o! t&o-th rds 52N*9 o! the sto(3 o#tstand n+/ or o! t&o-th rds 52N*9 o! the sto(3holders $resent n a meet n+ (alled !or the $#r$ose? Pro% ded/ That !#ll d s(los#re o! the ad%erse nterest o! the tr#stee or d re(tor n%ol%ed s made at s#(h meet n+/ $ro% ded !#rther that the (ontra(t s !a r and reasonable #nder the ( r(#mstan(es. 5I.i%.9 99# >ico is the registered owner of Proprietary Fwnership $ertificate (PF$) 9o. *JJH in the $ebu $ountry $lub. Subsequently, he resigned as proprietary e ber of said club, which resignation was duly entered in the inutes of the eeting of the $lub=s ,oard of >irectors. >ico then transferred the >F$ to Earcia. +n a case filed by the spouses .tinon against >ico, the prevailing spouses levied on the >F$ and a schedule for public auction was set. Earcia then clai ed that the >F$ was his. %e further alleged that >ico is the anager of his (Earcia=s) business, and that the >F$ was erely used by >ico in order to assist hi in entertaining clients. Who has a better right to the >F$, the spouses .tinon or Earcia? 23plain. S.>>ESTED ANSWER? The s$o#ses At non ha%e a better r +ht. The trans!er &as not re(orded n the (or$orate boo3s/ hen(e t does not b nd other $art es. 5>ar( a %. Homoa#d/ et al./ >.R. No. ,**8E8/ $rom. Han#ary 2E/ 2)))9 NOTES AND 2O--ENTS? a. The o5e ative a)t whi)h dete *ines owne shi5 o0 sha es o0 sto);s# The trans!er o! shares o! sto(3s n (or$orate boo3s re'# re ndorsement on the shares. I! not so ndorsed/ $res#m$t on s that $erson &hose name a$$ears thereon s the o&ner. 5Ra0on %. Intermed ate A$$ellate 2o#rt/ 2)7 S2RA 2*C9 ===b. Re>!i e*ents 0o the iss!an)e o0 a 0o *a+ )e ti0i)ate o0 sto);# ,9 The (ert ! (ates m#st be s +ned by the $res dent or % (e-$res dent/ (o#nters +ned by the se(retary or ass stant se(retary/ and sealed & th the seal o! the (or$orat on. A mere ty$e&r tten statement ad% s n+ a sto(3holder o! the e"tent o! h s o&nersh $ n a (or$orat on & tho#t '#al ! (at on andNor a#thent (at on (annot be (ons dered as a !ormal (ert ! (ate o! sto(3.

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29 Del %ery o! the (ert ! (ate s an essent al element o! ts ss#an(e. Den(e/ there s no ss#an(e o! a sto(3 (ert ! (ate &here t s ne%er deta(hed !rom the sto(3 boo3s altho#+h blan3s there n are $ro$erly ! lled #$ o! the $erson &hose name s nserted there n has no (ontrol o%er the boo3s o! the (om$any. *9 The $ar %al#e/ as to $ar %al#e shares/ or the !#ll s#bs(r $t on as to no $ar %al#e shares/ m#st ! rst be !#lly $a d. C9 The or + nal (ert ! (ate m#st be s#rrendered &here the $erson re'#est n+ the ss#an(e o! a (ert ! (ate s a trans!eree !rom a sto(3holder. 5B ton+ %. 2o#rt o! A$$eals/ et al./ 28, S2RA @)*9 Sto(3 ss#ed & tho#t a#thor ty and n % olat on o! la& s %o d and (on!ers no r +hts on the $erson to &hom t s ss#ed and s#b:e(ts h m to no l ab l t es. Where there s an nherent la(3 o! $o&er n the (or$orat on to ss#e the sto(3/ ne ther the (or$orat on nor the $erson to &hom the sto(3 s ss#ed s esto$$ed to '#est on ts %al d ty s n(e an esto$$el (annot o$erate to (reate sto(3 &h (h #nder the la& (annot ha%e e" sten(e. 5B ton+ %. 2o#rt o! A$$eals/ et al./ 26, S2RA @)*9 <<< (. Re>!i e*ents 0o va+id t ans0e o0 sto);s: ,9 There m#st be a del %er o! the sto(3 (ert ! (ateB 29 The (ert ! (ate m#st be endorsed by the o&ner or h s attorney- n!a(t or other $ersons le+ally a#thor 0ed to ma3e the trans!erB and *9 To be %al d a+a nst th rd $art es/ the trans!er m#st be re(orded n the boo3s o! the (or$orat on. The r#le s that the endorsement o! the (ert ! (ate o! sto(3 by the o&ner or h s attorney- n-!a(t or any other $erson le+ally a#thor 0ed to ma3e the trans!er shall be s#!! ( ent to e!!e(t the trans!er o! shares only ! the same s (o#$led & th del %ery. The del %ery o! the sto(3 (ert ! (ate d#ly endorsed by the o&ner s the o$erat %e a(t o! trans!er o! shares !rom the la&!#l o&ner to the ne& trans!eree. 5B ton+/ %. 2o#rt o! A$$eals/ et al./ 26, S2RA @)*9 ===d. Reason wh/ atta)h*ent 5 evai+s ove !n e)o ded t ans0e # Se(. E* o! the 2or$orat on 2ode s e"$l ( t n ts $ro% s ons that INo trans!er/ ho&e%er/ shall be %al d/ e"(e$t as bet&een the $art es/ #nt l the trans!er s re(orded n the boo3s o! the (or$orat on sho& n+ the names o! the $art es to the transa(t on/ the date o! the trans!er/ the n#mber o! the (ert ! (ate or (ert ! (ates and the n#mber o! shares trans!erred.J The tr#e mean n+ o! the lan+#a+e s/ and the ob% o#s ntent on o! the le+ slat#re n #s n+ t &as/ that all trans!ers o! shares sho#ld be entered/ as here re'# red/ on the boo3s o! the (or$orat on. And t s e'#ally (lear that all trans!ers o! shares be so entered are n%al d as to atta(h n+ or e"e(#t on (red tors o! the ass +nors/ as &ell as to the (or$orat on and to s#bse'#ent $#r(hasers n +ood !a th/ and/ ndeed/ as to all $ersons nterested/ e"(e$t the $art es to s#(h trans!ers. All trans!ers not so entered on the boo3s o! the (or$orat on are absol#tely %o dB not be(a#se they are & tho#t not (e or !ra#d#lent n la& or !a(t/ b#t be(a#se they are made so %o d by stat#te. 5>ar( a %. Homo#ad/ et al./ >.R. No. ,**8E8/ $rom. Han#ary 2E/ 2))) ( t n+ .son %. D osom to9 ===9@# >istinguish cash dividends fro stock dividends. S.>>ESTED ANSWER? a. 2ash d % dends & thdra& assets !rom the (or$orat on n the !orm o! (ash 5money9 and near (ash WDI4E sto(3 d % dends do notB b. In (ash d % dends/ money s re(e %ed by the sto(3holders WDI4E n sto(3 d % dends shares o! sto(3 o! the (or$orat on are re(e %edB (. 2ash d % dends may be de(lared by the Board alone WDI4E sto(3 d % dend de(larat on re'# res the a$$ro%al o! at least t&o-th rds 52N*9 o! the o#tstand n+ (a$ tal sto(3 ent tled to %ote. NOTES AND 2O--ENTS? a. Si*i+a ities .etween )ash dividends and sto); dividends: ,9 Both m#st be de(lared !rom #nrestr (ted s#r$l#s. 29 Both m#st be de(lared by the Board o! D re(tors. b. 'ividend de)+a ation *a/ .e evo;ed ! the same &as rre+#larly de(lared/ s#(h as &hen the same s % olat %e o! the tr#st !#nd do(tr ne. Other& se t (an no lon+er be re%o3ed on(e the r +ht thereto has already %ested n the sto(3holders. Stated other& se/ re%o(at on may be had $r or to the de(larat on o! (ash d % dends and !or sto(3 d % dends $r or to the ss#an(e. ===@0# -itton 6ills, +nc. (-itton) entered into an agree ent with 2 pire Sales Philippines $orporation, as local agent of Eelhaar &nifor $o pany (Eelhaar), a

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corporation organi@ed under the laws of the &nited States, whereby -itton agreed to supply Eelhaar ;,;;* do@ens of soccer 1erseys. $onsidering this single transaction, is Eelhaar doing business in the Philippines? S.>>ESTED ANSWER? Fes. It s not really the !a(t that there s only a s n+le a(t done that s mater al to the (ons derat on o! &hether a !ore +n (or$orat on s do n+ b#s ness n the Ph l $$ nes. Where a s n+le a(t or transa(t on o! a !ore +n (or$orat on s not merely n( dental or (as#al b#t s o! s#(h (hara(ter as d st n(tly to nd (ate a $#r$ose on the $art o! the !ore +n (or$orat on to do other b#s ness n the state/ s#(h a(t & ll be (ons dered as (onst t#t n+ do n+ b#s ness. >elhaar1s a(t n $#r(has n+ so((er :erseys to be & th n the ord nary (o#rse o! b#s ness o! the (om$any (ons der n+ that t &as en+a+ed n the man#!a(t#re o! #n !orms. The a(ts noted abo%e are o! s#(h a (hara(ter as to nd (ate a $#r$ose to do b#s ness. 54 tton - lls/ In(. %. 2o#rt o! A$$eals/ et al./ >.R. No. 8C86)/ -ay ,@/ ,88E9 NOTES AND 2O--ENTS? a. 'oing .!siness# There s no +eneral r#le or +o%ern n+ $r n( $le Bla d do&n as to &hat (onst t#tes Ido n+J or Ien+a+ n+ nJ or Itransa(t n+J b#s ness n the Ph l $$ nes. Ea(h (ase m#st be :#d+ed n the l +ht o! ts $e(#l ar ( r(#mstan(es. Th#s/ t has o!ten been held that a s n+le a(t or transa(t on may be (ons dered as Ido n+ b#s nessJ &hen a (or$orat on $er!orms a(ts !or &h (h t &as (reated or e"er( ses some o! the !#n(t ons !or &h (h t &as or+an 0ed. The amo#nt or %ol#me o! the b#s ness s o! no moment/ !or e%en a s n+#lar a(t (annot be merely n( dental or (as#al ! t nd (ates the !ore +n (or$orat on1s ntent on to do b#s ness. 5D#t(h nson Ports Ph l $$ nes 4 m ted %. S#b ( Bay -etro$ol tan a#thor ty/ et al./ >.R. No. ,*,*E7/ $rom. A#+#st *,/ 2)))9 E6a*5+es: ,9 A !ore +n (or$orat on $er!orm n+ a(ts $#rs#ant to ts $r mary $#r$ose and !#n(t ons as re+ onalNarea head'#arters !or ts home o!! (e s (learly do n+ b#s ness n th s (o#ntry. 5>eor+ >rot:ahn >-BD = 2o. %s. Isnan / et al./ 2*@ S2RA 2,E9 29 Part ( $at n+ n the b dd n+ $ro(ess (onst t#tes Ido n+ b#s nessJ be(a#se t sho&s the !ore +n (or$orat on1s ntent on to en+a+e n b#s ness here. The b dd n+ !or the (on(ess on (ontra(t s b#t an e"er( se o! the (or$orat on1s reason !or (reat on or e" sten(e. Th#s/ t has been held that Ia !ore +n (om$any n% ted to b d !or IBRD and ADB nternat onal $ro:e(ts n the Ph l $$ nes & ll be (ons dered as do n+ b#s ness n the Ph l $$ nes !or &h (h a l (ense s re'# red.J In th s re+ard/ t s the $er!orman(e by a !ore +n (or$orat on o! the a(ts !or &h (h t &as (reated/ re+ardless o! %ol#me o! b#s ness/ that determ nes &hether a !ore +n (or$orat on needs a l (ense or not. 5D#t(h nson Ports Ph l $$ nes 4 m ted %. S#b ( Bay -etro$ol tan a#thor ty/ et al./ >.R. No. ,*,*E7/ $rom. A#+#st *,/ 2)))9 @02A O* 34 Ma( 56642 a 7Lease a*% De'e&opme*t A+reeme*t8 )as e9ec$te% .( UIG a*% S"MA $*%er )hich UIG sha&& &ease from petitio*er S"MA the "i*ictica* Go&f Co$rse a*% app$rte*a*t faci&ities thereto to .e tra*sforme% i*to a )or&% c&ass 5:;ho&e +o&f co$rse2 +o&f c&$.<resort2 commercia& to$rism a*% resi%e*tia& ce*ter# The co*tract i* perti*e*t part co*tai*s pre;termi*atio* c&a$ses# O* = March 566=2 S"MA se*t a &etter to UIG %ec&ari*+ the &atter i* %efa$&t of its co*tract$a& o.&i+atio*s to S"MA $*%er Sectio* 33#5 of the &ease a*% De'e&opme*t A+reeme*t a*% re-$ire% it to sho) ca$se )h( S"MA sho$&% *ot pre;termi*ate the a+reeme*t# UIG the* pai% the re*ta& arreara+es .$t the other o.&i+atio*s remai*e% $*satisfie%# O* : Septem.er 566=2 a &etter of pre;termi*atio* )as ser'e% .( S"MA re-$iri*+ UIG to 'acate the premises# O* 53 Septem.er 566=2 S"MA ser'e% the forma& *otice of c&os$re of S$.ic "a( Go&f Co$rse a*% took o'er possessio* of the s$.0ect premises# O* e'e* %ate2 UIG fi&e% a comp&ai*t a+ai*st S"MA for >I*0$*ctio* a*% Dama+es? )ith pra(er for a )rit of temporar( restrai*i*+ or%er a*% )rit of pre&imi*ar( i*0$*ctio*# Does UIG ha'e the capacit( to s$e/ S.>>ESTED ANSWERB Fes. SB-A s esto$$ed !rom '#est on n+ the (a$a( ty to s#e o! .I>. In enter n+ nto the 4DA & th .I>/ SB-A e!!e(t %ely re(o+n 0ed ts $ersonal ty and (a$a( ty to nst t#te the s# t be!ore the tr al (o#rt. It s (ommon $loy o! de!a#lt n+ lo(al (om$an es &h (h are s#ed by #nl (ensed !ore +n (om$an es not en+a+ed n b#s ness n the Ph l $$ nes to n%o3e la(3 o! (a$a( ty to s#e. 5S#b ( Bay -etro$ol tan A#thor ty/ et al./ %. .n %ersal Internat onal >ro#$ o! Ta &an/ et al./ >.R. No. ,*,E6)/ $rom. Se$tember ,C/ 2)))9 Th s do(tr ne o! esto$$el &as n t ated as early as ,82C n As a Ban3 n+ 2or$orat on %. Standard Prod#(ts and re terated n >eor+ >rot:ohn >-BD %. Isnan and 2omm#n (at on -ater als and Des +n %. 2A. NOTES AND 2O--ENTSB

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a. ?ene a+ !+e: Un+i)ensed 0o eign non2 esident )o 5o ations )annot 0i+e s!its n the Ph l $$ nes. Se(t on ,** o! the 2or$orat on 2ode s$e( ! (ally $ro% des that/ No !ore +n (or$orat on transa(t n+ b#s ness n the Ph l $$ nes & tho#t a l (ense/ or ts s#((essors or ass +ns/ shall be $erm tted to ma nta n or nter%ene n any a(t on/ s# t or $ro(eed n+ n any (o#rt or adm n strat %e a+en(y o! the Ph l $$ nes/ b#t s#(h (or$orat on may be s#ed or $ro(eeded a+a nst be!ore Ph l $$ ne (o#rts or adm n strat %e tr b#nals on any %al d (a#se o! a(t on re(o+n 0ed #nder Ph l $$ ne la&s. b. Howeve 3 0o eign )o 5o ations not +i)ensed to do b#s ness n the Ph l $$ nes may e"er( se the r +ht to ! le an a(t on n Ph l $$ ne (o#rts on an solated transa(t on. 5Ne& For3 -ar ne -ana+ers/ In(. %s. 2o#rt o! A$$eals/ >.R. ,,,6*7/ O(tober 2C/ ,88@9 (. The 5! 5ose 0o e>!i ing 0o eign 0i *s to o.tain +i)ense# The $r mary $#r$ose o! the l (ense re'# rement s to (om$el a !ore +n (or$orat on des r n+ to do b#s ness & th n the Ph l $$ nes to s#bm t tsel! to the :#r sd (t on o! the (o#rts o! the state and to enable the +o%ernment to e"er( se :#r sd (t on o%er them !or the re+#lat on o! the r a(t % t es n th s (o#ntry. I! a !ore +n (or$orat on o$erates a b#s ness n the Ph l $$ nes & tho#t a l (ense/ and th#s does not s#bm t tsel! to the Ph l $$ ne la&s/ t s only :#st that sa d !ore +n (or$orat on be not allo&ed to n%o3e them n o#r (o#rts &hen the need ar ses. It m#st re+ ster & th the SE2 and a$$o nt an a+ent !or ser% (e o! $ro(ess. W tho#t s#(h l (ense/ t (annot nst t#te a s# t n the Ph l $$ nes 5D#t(h nson Ports Ph l $$ nes 4 m ted %. S#b ( Bay -etro$ol tan A#thor ty/ et al./ >.R. No. ,*,*E7/ $rom. A#+#st *,/ 2)))9 d. E6)e5tion o instan)e whe e +i)ensing e>!i e*ent not a55+ied# Re'# rement !or !ore +n (or$orat ons to se(#re l (ense &as ne%er ntended to !a%or domest ( (or$orat ons &ho enter nto sol tary transa(t ons & th #n&ary !ore +n ! rms and then re$#d ate the r obl +at ons s m$ly be(a#se the latter are not l (ensed to do b#s ness n th s (o#ntry. 5Nat onal S#+ar Trad n+ 2or$orat on/ et al./ %s. 2o#rt o! A$$eals/ et al./ >.R. No. ,,)8,)/ H#ly ,7/ ,88@/ A rst D % s on9 A!ter (ontra(t n+ & th a !ore +n (or$orat on/ a domest ( ! rm s esto$$ed !rom deny n+ the !ormer1s (a$a( ty to s#e. Den(e/ n -err ll 4yn(h A#t#res %. 2A/ the S#$reme 2o#rt r#led that/ The r#le s that a $arty s esto$$ed to (hallen+e the $ersonal ty o! a (or$orat on a!ter ha% n+ a(3no&led+ed the same by enter n+ #nto a (ontra(t & th t. And the Rdo(tr ne o! esto$$el to deny (or$orate e" sten(e a$$l es to !ore +n as &ell as domest ( (or$orat ons/1 IOne &ho has dealt & th a (or$orat on o! !ore +n or + n as a (or$orate ent ty s esto$$ed to deny ts e" sten(e and (a$a( ty. The $r n( $le & ll be a$$l ed to $re%ent a $erson (ontra(t n+ & th a !ore +n (or$orat on !rom later ta3 n+ ad%anta+e o! ts non(om$l an(e & th the stat#tes/ (h e!ly n (ases &here s#(h $erson has re(e %ed the bene! ts o! the (ontra(t. " " " I5S#b ( Bay -etro$ol tan A#thor ty/ et al./ %. .n %ersal Internat onal >ro#$ o! Ta &an/ et al./ >.R. No. ,*,E6)/ $rom. Se$tember ,C/ 2)))9 @1# What act is constitutive of a dissolution of a corporation ? S.>>ESTED ANSWER? The mere ! l n+ o! the Art (les o! D ssol#t on & th the Se(#r t es and E"(han+e 2omm ss on/ & tho#t more/ s not eno#+h to s#$$ort the (on(l#s on that a(t#al d ssol#t on o! an ent ty too3 $la(e. Aor e"am$le/ there m#st be a sho& n+ that there &as ndeed an a(t#al (los#re and (essat on o! o$erat ons. 5A%on Dale >arments/ In(./ %s. N4R2/ et al./ >.R. No. ,,78*2/ H#ly 2)/ ,88@/ Th rd D % s on9 NOTES AND 2O--ENTS? === a. Th ee $-% /ea 5e iod a0te disso+!tion# A (or$orat on (ont n#es to be a body (or$orate !or three 5*9 years a!ter ts d ssol#t on !or $#r$oses o! $rose(#t n+ and de!end n+ s# ts by and a+a nst t and !or enabl n+ t to settle and (lose ts a!!a rs/ (#lm nat n+ n the d s$os t on and d str b#t on o! ts rema n n+ assets. It may/ d#r n+ the three 5*9 year term/ a$$o nt a tr#stee or a re(e %er &ho may a(t beyond that $er od. The term nat on o! the l !e o! a :#r d (al ent ty does not by tsel! (a#se e"t n(t on or d m n#t on o! the r +hts and l ab l t es o! s#(h ent ty./ nor those o! ts o&ners and (red tors. I! the three-year e"tended l !e has e"$ red & tho#t a tr#stee or re(e %er ha% n+ been e"$ressly des +nated by the (or$orat on & th n that $er od// the board o! d re(tors 5or tr#stees9 tsel!/ may be $erm tted to (ont n#e as Itr#steesJ by le+al m$l (at on to (om$lete the (or$orate l '# dat on. St ll n the absen(e o! a board o! d re(tors or tr#stees/ those ha% n+ any $e(#n ary nterest n the assets/ n(l#d n+ not only the shareholders b#t l 3e& se the (red tors o! the (or$orat on/ a(t n+ !or and ts behal!/ m +ht ma3e $ro$er re$resentat ons & th the Se(#r t es and E"(han+e 2omm ss on/ &h (h has $r mary and s#!! ( ent broad :#r sd (t on n matters o! th s nat#re/ !or &or3 n+ o#t a ! nal settlement o! the (or$orate (on(erns. 52lemente/ et al./ %s. 2o#rt o! A$$eals/ et al./ >.R. No. 62C)7/ -ar(h 27/ ,88@/ Th rd D % s on9

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<<< b. ? o!nds 0o invo+!nta / disso+!tion o0 a )o 5o ation !nde quo warranto 5 o)eedings: ,9 When the 2or$orat on has o!!ended a+a nst a $ro% s on or an a(t !or ts (reat on or rene&alB 29 When t has !or!e ted ts $r % le+es and !ran(h ses by non-#seB *9 When t has (omm tted or om tted an a(t &h (h amo#nts to a s#rrender o! ts (or$orate r +hts/ $r % le+e or !ran(h sesB C9 When t m s#sed a r +ht/ $r % le+e or !ran(h se (on!erred #$on t by la&/ or &hen t has e"er( sed a r +ht/ $r % le+e or !ran(h se n (ontra%ent on o! la&. 5Ph l $$ ne Nat onal Ban3 %s. 2AI/ et(./ 2)8 S2RA 28C9 @2# What is the cu ulative rule ? S.>>ESTED ANSWER? One (and date may be + %en as many %otes as the n#mber o! d re(tors to be ele(ted m#lt $l ed by the n#mber o! shares or d str b#te #nder the same $r n( $le amon+ as many (and dates as the %oter shall see ! t/ PROVIDED? the total n#mber o! %otes (ast shall not e"(eed the n#mber o! shares sho&n on the boo3s m#lt $l ed by the &hole n#mbers o! d re(tors to be %oted.

.# The Se)! ities Reg!+ation &ode $R#A# No# @9<<% E6)+!de: R!+es on &o 5o ate Reha.i+itation QQQ@-# What is the state policy that i pelled the enact ent of the Securities <egulation $ode ? S.>>ESTED ANSWER? The State $ol (y that m$elled the ena(tment o! the Se(#r t es Re+#lat on 2ode a. To establ sh a so( ally (ons( o#s/ !ree mar3et that re+#lates tsel!/ b. En(o#ra+e the & dest $art ( $at on o! o&nersh $ n enter$r ses/ (. Enhan(e the demo(rat 0at on o! &ealth/ d. Promote the de%elo$ment o! the (a$ tal mar3et/ e. Prote(t n%estors/ !. Ens#re !#ll and !a r d s(los#re abo#t se(#r t es/ +. - n m 0e ! not totally el m nate ns der trad n+ and other !ra#d#lent or man $#lat %e de% (es and $ra(t (es &h (h (reate d stort ons n the !ree mar3et. 5Se(. 2/ SR29 NOTES AND 2O--ENTS? The abo%e d s(#ss on may be #sed to ans&er the '#est ons What is the principal purpose of laws and regulations governing securities in the Philippines ? and What are the ain purposes of the Securities <egulation $ode ?
QQQ@:# What are the powers and functions of the Securities and 23change $o ission ? S.>>ESTED ANSWER? The 2omm ss on shall ha%e the $o&ers and !#n(t ons $ro% ded by the Se(#r t es Re+#lat on 2ode/ Pres dent al De(ree No. 8)2-A/ the 2or$orat on 2ode/ the In%estment Do#ses 4a&/ the A nan( n+ 2om$any A(t and other e" st n+ la&s. P#rs#ant thereto/ the 2omm ss on shall ha%e/ amon+ others/ the !ollo& n+ $o&ers and !#n(t ons? a9 Da%e :#r sd (t on and s#$er% s on o%er all (or$orat ons/ $artnersh $s or asso( at ons &ho are the +rantees o! $r mary !ran(h ses andNor a l (ense or $erm t ss#ed by the >o%ernment. b9 Aorm#late $ol ( es and re(ommendat ons on ss#es (on(ern n+ the Se(#r t es mar3et/ ad% se 2on+ress and other +o%ernment a+en( es on all as$e(ts o! the se(#r t es mar3et and $ro$ose le+ slat on and amendments theretoB (9 A$$ro%e/ re:e(t/ s#s$end/ re%o3e or re'# re amendments to re+ strat on statements/ and re+ strat on and l (ens n+ a$$l (at onsB d9 Re+#late/ n%est +ate or s#$er% se the a(t % t es o! $ersons to ens#re (om$l an(eB e9 S#$er% se/ mon tor/ s#s$end or ta3e o%er the a(t % t es o! e"(han+es/ (lear n+ a+en( es and other SROsB !9 Im$ose san(t ons !or the % olat on o! la&s and the r#les/ re+#lat ons and orders ss#ed $#rs#ant theretoB +9 Pre$are/ a$$ro%e/ amend or re$eal r#les/ re+#lat ons and orders/ and ss#e o$ n ons and $ro% de +# dan(e on and s#$er% se (om$l an(e & th s#(h r#les/ re+#lat ons and ordersB h9 Enl st the a d and s#$$ort o! andNor de$#t 0e any and all en!or(ement a+en( es o! the >o%ernment/ ( % l or m l tary as &ell as any $r %ate nst t#t on/ (or$orat on/ ! rm/ asso( at on or $erson n the m$lementat on o! ts $o&ers and !#n(t ons #nder th s 2odeB 9 Iss#e (ease and des st orders to $re%ent !ra#d or n:#ry to the n%est n+ $#bl (B

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:9 P#n sh !or (ontem$t o! the 2omm ss on/ both d re(t and nd re(t/ n a((ordan(e & th the $ert nent $ro% s ons o! and $enalt es $res(r bed by the R#les o! 2o#rtB 39 2om$el the o!! (ers o! any re+ stered (or$orat on or asso( at on to (all meet n+s o! sto(3holders or members thereo! #nder ts s#$er% s onB l9 Iss#e s$.poe*a %$ces tec$m and s#mmon & tnesses to a$$ear n any $ro(eed n+s o! the 2omm ss on and n a$$ro$r ate (ases/ order the e"am nat on/ sear(h and se 0#re o! all do(#ments/ $a$ers/ ! les and re(ords/ ta" ret#rns/ and boo3s o! a((o#nts o! any ent ty or $erson #nder n%est +at on as may be ne(essary !or the $ro$er d s$os t on o! the (ases be!ore t/ s#b:e(t to the $ro% s ons o! e" st n+ la&sB m9 S#s$end/ or re%o3e/ a!ter $ro$er not (e and hear n+ the !ran(h se or (ert ! (ate o! re+ strat on o! (or$orat ons/ $artnersh $s or asso( at ons/ #$on any o! the +ro#nds $ro% ded by la&B and n9 E"er( se s#(h other $o&ers as may be $ro% ded by la& as &ell as those &h (h may be m$l ed !rom/ or &h (h are ne(essary or n( dental to the (arry n+ o#t o!/ the e"$ress $o&ers +ranted the 2omm ss on to a(h e%e the ob:e(t %es and $#r$oses o! these la&s. 5Se(. @.,/ SR29 ===@8# What is the 1urisdiction of the S2$ over intracorporate controversies ? S.>>ESTED ANSWER? The 2omm ss on1s :#r sd (t on o%er all (ases en#merated #nder Se(t on @ o! Pres dent al De(ree No 8)2-A &as trans!erred to the 2o#rts o! +eneral :#r sd (t on or the a$$ro$r ate Re+ onal Tr al 2o#rt. 5Se(. @.2 SR29 @,# What are the civil cases involving corporations, partnerships, or associations relations which fall within the 1urisdiction of the regular courts ? S.>>ESTED ANSWER? These are the ( % l (ases n%ol% n+ the !ollo& n+? a. De% (es or s(hemes em$loyed by/ or any a(t o!/ the board o! d re(tors/ b#s ness asso( ates/ o!! (ers or $artners/ amo#nt n+ to !ra#d or m sre$resentat on &h (h may be detr mental to the nterest o! the $#bl ( andNor o! the sto(3holders/ $artners/ or members o! any (or$orat on/ $artnersh $/ or asso( at onB b. 2ontro%ers es ar s n+ o#t o! ntra-(or$orate/ $artnersh $/ or asso( at on relat ons bet&een and amon+ sto(3holders/ members/ or asso( atesB and bet&een/ any or all o! them and the (or$orat on/ $artnersh $/ or asso( at on o! &h (h they are sto(3holders/ members/ or asso( ates/ res$e(t %elyB (. 2ontro%ers es n the ele(t on or a$$o ntment o! d re(tors/ tr#stees/ o!! (ers/ or mana+ers o! (or$orat ons/ $artnersh $s/ or asso( at onsB d. Der %at %e s# tsB and e. Ins$e(t on o! (or$orate boo3s. 5Se(. ,/ R#le ,/ Inter m R#les o! Pro(ed#re >o%ern n+ Intra(or$orate 2ontro%ers es #nder R.A. No. 67889 @9# What are the tests to deter ine whether a controversy is intracorporate or not ? S.>>ESTED ANSWER? Se(. @ 5b9 o! P.D. No. 8)2-A does not de! ne &hat an ntra-(or$orate (ontro%ersy s/ b#t (ase la& has !ash oned t&o tests? The AIRST test #ses the en#merat on n Se(. @ 5b9 o! the relat onsh $s to determ ne :#r sd (t on/ to & t? ,9 Those bet&een and amon+ sto(3holders and membersB 29 Those bet&een and amon+ sto(3holders and members/ on one hand/ and the (or$orat on/ on the other handB and *9 Those bet&een the (or$orat on and the State b#t only nso!ar as ts !ran(h se or r +ht to e" st as an ent ty s (on(erned. The SE2OND test/ !o(#ses on the nat#re o! the (ontro%ersy tsel!. Re(ent de( s ons o! the S#$reme 2o#rt (ons der not only the s#b:e(t o! the r (ontro%ersy b#t also the stat#s o! the $art es. 5Pas(#al/ et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,*6@C2/ $rom. A#+#st 2@/ 2)))9 NOTES AND 2O--ENTS? a. No )o 5o ate e+ation &here a (or$orate o!! (er holds n tr#st !or another $erson h s (or$orate nterests. Th#s/ &here a sto(3holder1s $ro$ert es are be n+ l t +ated/ there &o#ld be no (or$orate relat on &here t s alle+ed that #$on the death o! the sto(3holder/ h s he r be(ame a (o-o&ner o! the estate le!t by h m n(l#d n+ h s (or$orate nterests. 5Pas(#al/ s$pra9 b. S!5e viso / a!tho it/ o0 SE& ove )o 5o ate ends &here the $ro$erty has been (om$letely d ssol%ed. 5Pas(#al/ s$pra9 ===@@# 23plain the concept of a derivative suit.

C7

S.>>ESTED ANSWER? An nd % d#al s $erm tted to nst t#te a der %at %e s# t a. on behal! o! the (or$orat on b. &here n he holds sto(3 n order (. to $rote(t or % nd (ate (or$orate r +hts/ d. )he*e'er the officia&s of the corporatio* ref$se to s$e2 or are the ones to be s#ed or hold the (ontrol o! the (or$orat on. In s#(h a(t ons/ the s# n+ sto(3holder s re+arded as the nom nal $arty/ )ith the corporatio* as the rea& part( i* i*terest# 5>amboa %. V (tor ano/ 8) S2RA C)/ C7 ( ted n A rst Ph l $$ ne Internat onal Ban3 / et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,@6C8/ Han#ary 2C/ ,88E9 NOTES AND 2O--ENTS? a. Nat! e o0 de ivative s!it# Where (or$orate d re(tors are +# lty o! a brea(h o! tr#st/ not o! mere error o! :#d+ment or ab#se o! d s(ret on/ and ntra-(or$orate remedy s !#t le or #seless/ a sto(3holder may nst t#te a s# t n behal! o! h msel! and other sto(3holders and !or the bene! t o! the (or$orat on/ to br n+ abo#t a redress o! the &ron+ n!l (ted d re(tly #$on the (or$orat on and nd re(tly #$on the sto(3holders. The sto(3holder1s r +ht to nst t#te a der %at %e s# t s not based on any e"$ress $ro% s on o! the 2or$orat on 2ode b#t s m$l edly re(o+n 0ed &hen the la& ma3es (or$orate d re(tors or o!! (ers l able !or dama+es s#!!ered by the (or$orat on and s sto(3holders !or % olat on o! the r ! d#( ary d#t es. In e!!e(t/ the s# t s an a(t on !or s$e( ! ( $er!orman(e o! an obl +at on o&ed by the (or$orat on to the sto(3holders to ass st ts r +hts o! a(t on &here the (or$orat on has been $#t n de!a#lt by the &ron+!#l re!#sal o! the d re(tors or mana+ement to ma3e s# table meas#res !or ts $rote(t on. b. Basis o0 de ivative s!it# The bas s o! a sto(3holder1s s# t s al&ays one o! e'# ty. Do&e%er/ t (annot $ros$er & tho#t ! rst (om$ly n+ & th the le+al re'# rements !or ts nst t#t on/ The mo st m$ortant o! these s the bona ! de o&nersh $ by a sto(3holder o! a sto(3 n h s o&n r +ht at the t me o! the transa(t on (om$la ned o! &h (h n%ests h m & th stand n+ to nst t#te a der %at %e a(t on !or the bene! t o! the (or$orat on. ===(. Re>!isites o0 a de ivative s!it# A sto(3holder or member may br n+ an a(t on n the name o! a (or$orat on or asso( at on/ as the (ase may be/ $ro% ded/ that? ,9 De &as a sto(3holder or member at the t me the a(ts or transa(t ons s#b:e(t o! the a(t on o((#rred and at the t me the a(t on &as ! ledB 29 De e"erted all reasonable e!!orts/ and alle+es the same & th $art (#lar ty n the (om$la nt/ to e"ha#st all remed es a%a lable #nder the art (les o! n(or$orat on/ by-la&s/ la&s or r#les +o%ern n+ the (or$orat on or $artnersh $ to obta n the rel e! he des resB *9 No a$$ra sal r +hts are a%a lable !or the a(t or a(ts (om$la ned o!B and C9 The s# t s not a n# san(e or harassment s# t. 5Se(. ,/ R#le 6/ Inter m R#les o! Pro(ed#re >o%ern n+ Intra-2or$orate 2ontro%ers es #nder R.A. No. 67889 <<< @<# What is a public co pany ? S.>>ESTED ANSWER? Any (or$orat on a9 & th a (lass o! e'# ty se(#r t es l sted on an E"(han+e or b9 & th assets n e"(ess o! A !ty - ll on Pesos 5P@)/)))/))).))9 and ha% n+ t&o h#ndred 52))9 or more holders/ at least t&o h#ndred 52))9 o! &h (h are hold n+ at least one h#ndred 5,))9 shares o! a (lass o! ts e'# ty se(#r t es. 5SR2 R#le *.,. 9 <<< <0# What is a Self <egulatory Frgani@ation or S<F ? S.>>ESTED ANSWER? An or+an 0ed E"(han+e/ re+ stered (lear n+ a+en(y and any or+an 0at on or asso( at on re+ stered as an SRO #nder the $ro% s ons o! the Se(#r t es Re+#lat on 2ode to en!or(e (om$l an(e & th rele%ant $ro% s ons o! the 2ode and r#les and re+#lat ons ado$ted there#nder/ and mandated to ma3e and en!or(e ts o&n r#les/ &h (h ha%e been a$$ro%ed by the Se(#r t es and E"(han+e 2omm ss on/ by the r members andNor $art ( $ants. 5SR2 R#le *.,.:9 <1# What is an 23change ? S.>>ESTED ANSWER? IE"(han+eJ s an or+an 0ed mar3et-$la(e or !a( l ty that br n+s to+ether b#yers and sellers and e"e(#tes trades o! se(#r t es andNor (ommod t es. 5 Se(. *.7 SR29 <2# What is a fraudulent transaction ?

C6

S.>>ESTED ANSWER? The $#r(hase o! sale o! any se(#r t es to en+a+e n any a(t/ transa(t on/ $ra(t (e/ or (o#rse o! b#s ness &h (h o$erates or &o#ld o$erate as a !ra#d or de(e t #$on any $erson. Ara#d here s a3 n to bad !a th &h (h m$l es a (ons( o#s and ntent onal des +n to do a &ron+!#l a(t !or a d shonest $#r$ose or moral obl '# tyB t s #nl 3e that o! the ne+at %e dea o! ne+l +en(e n that !ra#d or bad !a th (ontem$lates a state o! m nd a!! rmat %e o$erat n+ & th !#rt %e ob:e(t %es. 5Se(#r t es and E"(han+e 2omm ss on %s. 2o#rt o! A$$eals/ et al./ >.R. Nos. ,)EC2@ = ,)EC*,-*2/ H#ly 2,/ ,88@/ Th rd D % s on9 === <-# What are considered as anipulative practices relative to securities trading ? S.>>ESTED ANSWER? It shall be #nla&!#l !or any $erson a(t n+ !or h msel! or thro#+h a dealer or bro3er/ d re(tly or nd re(tly? a9 To (reate a !alse or m slead n+ a$$earan(e o! a(t %e trad n+ n any l sted se(#r ty traded n an E"(han+e or any other trad n+ mar3et? 5 9 By e!!e(t n+ any transa(t on n s#(h se(#r ty &h (h n%ol%es no (han+e n the bene! ( al o&nersh $ thereo!B 5 9 By enter n+ an order or orders !or the $#r(hase or sale o! s#(h se(#r ty & th the 3no&led+e that a s m#ltaneo#s order or orders o! s#bstant ally the same s 0e/ t me or $r 0e/ !or the sale or $#r(hase o! any s#(h se(#r ty/ has or & ll be entered by or !or the same or d !!erent $art esB or 5 9 By $er!orm n+ s m lar a(ts &here there s no (han+e n bene! ( al o&nersh $. b9 To e!!e(t/ alone or & th others/ a ser es o! transa(t ons n se(#r t es that? 5 9 Ra ses the r $r (e to nd#(e the $#r(hase o! a se(#r ty/ &hether o! the same or a d !!erent (lass o! the same ss#er or o! a (ontroll n+/ (ontrolled/ or (ommonly (ontrolled (om$any by othersB 5 9 De$resses the r $r (e to nd#(e the sale o! a se(#r ty/ &hether o! the same or a d !!erent (lass/ o! the same ss#er or o! a (ontroll n+/ (ontrolled/ or (ommonly (ontrolled (om$any by othersB or 5 9 2reates a(t %e trad n+ to nd#(e s#(h a $#r(hase or sale thro#+h man $#lat %e de% (es s#(h as mar3 n+ the (lose/ $a nt n+ the ta$e/ s'#ee0 n+ the !loat/ hy$e and d#m$/ bo ler room o$erat ons and s#(h other s m lar de% (es. (9 To ( r(#late or d ssem nate n!ormat on that the $r (e o! any se(#r ty l sted n an E"(han+e & ll or s l 3ely to r se or !all be(a#se o! man $#lat %e mar3et o$erat ons o! any one or more $ersons (ond#(ted !or the $#r$ose o! ra s n+ or de$ress n+ the $r (e o! the se(#r ty !or the $#r$ose o! nd#( n+ the $#r(hase or sale o! s#(h se(#r ty. d9 To ma3e !alse or m slead n+ statement & th res$e(t to any mater al !a(t/ &h (h he 3ne& or had reasonable +ro#nd to bel e%e &as so !alse or m slead n+/ !or the $#r$ose o! nd#( n+ the $#r(hase or sale o! any se(#r ty l sted or traded n an E"(han+e. e9 To e!!e(t/ e ther alone or others/ any ser es o! transa(t ons !or the $#r(hase andNor sale o! any se(#r ty traded n an E"(han+e !or the $#r$ose o! $e++ n+/ ! " n+ or stab l 0 n+ the $r (e o! s#(h se(#r tyB #nless other& se allo&ed by the Se(#r t es Re+#lat on 2ode or by r#les o! the SE2. 5SR2 R#le 2C.,/ arran+ement and re&ord n+ s#$$l ed9 === <:# What are so e of the non?e3clusive e3a ples of types of prohibited conduct considered as anipulation of stock arket prices ? >efine each. S.>>ESTED ANSWER? a. Painting the ta5e. En+a+ n+ n a ser es o! transa(t ons n se(#r t es that are re$orted $#bl (ly to + %e the m$ress on o! a(t % ty or $r (e mo%ement n a se(#r ty. SSR2 R#le 2C., 5b9 ,.@ 5a9T b. Ma ;ing the )+ose. B#y n+ and sell n+ se(#r t es at the (lose o! the mar3et n an e!!ort to alter the (los n+ $r (e o! the se(#r ty. SSR2 R#le 2C., 5b9 ,.@ 5b9T (. I*5 o5e *at)hed o de s. En+a+ n+ n transa(t ons &here both the b#y and sell orders are entered at the same t me & th the same $r (e and '#ant ty by d !!erent b#t (oll#d n+ $art es. SSR2 R#le 2C., 5b9 ,.@ 5(9T d. H/5e and d!*5. En+a+ n+ n b#y n+ a(t % ty at n(reas n+ly h +her $r (es and then sell n+ se(#r t es n the mar3et at the h +her $r (es. SSR2 R#le 2C., 5b9 ,.@ 5d9T e. Wash sa+es# En+a+ n+ n transa(t ons n &h (h there s no +en# ne (han+e n a(t#al o&nersh $ o! a se(#r ty. SSR2 R#le 2C., 5b9 ,.@ 5e9T !. S>!ee"ing the 0+oat# Ta3 n+ ad%anta+e o! a shorta+e o! se(#r t es n the mar3et by (ontroll n+ the demand s de and e"$lo t n+ mar3et (on+est on d#r n+ s#(h shorta+es n a &ay as to (reate art ! ( al $r (es. SSR2 R#le 2C., 5b9 ,.@ 5!9T

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+. D ssem nat n+ !alse or m slead n+ mar3et n!ormat on thro#+h med a/ n(l#d n+ the nternet/ or any other means to mo%e the $r (e o! a se(#r ty n a d re(t on that s !a%orable to a $os t on held or a transa(t on. SSR2 R#le 2C., 5b9 ,.@ 5+9T === <8# Who is an insider ? S.>>ESTED ANSWER? a. The ss#erB b. A d re(tor or o!! (er o!/ or a $erson (ontroll n+/ (ontrolled by/ or #nder (ommon (ontrol & th/ the ss#er/ (. A $erson &hose relat onsh $ or !ormer relat onsh $ o the ss#er + %es or +a%e h m a((ess to a !a(t o! s$e( al s +n ! (an(e abo#t the ss#er or the se(#r ty that s not +enerally a%a lable/ or d. A $erson &ho learns s#(h a !a(t !rom any o! the !ore+o n+ ns ders & th 3no&led+e that the $erson !rom &hom he learns the !a(t s s#(h an ns der. 5Se(. *.6/ SR29 <,# Who is a pro oter ? S.>>ESTED ANSWER? IPromoterJ s a $erson &ho/ a(t n+ alone or & th others/ ta3es n t at %e n !o#nd n+ and or+an 0 n+ the b#s ness or enter$r se o! the ss#er and re(e %es (ons derat on there!or. 5 Se( *.,) SR29 <9# Who is an underwriter ? S.>>ESTED ANSWER? I.nder&r terJ s a $erson &ho +#arantees on a ! rm (omm tment and Nor de(lared best e!!ort bas s the d str b#t on and sale o! se(#r t es o! any 3 nd by another (om$any. 5 Se(. *.,@/ SR29 <@# What is a prospectus? S.>>ESTED ANSWER? IPros$e(t#sJ s the do(#ment made by or on behal! o! an ss#er/ #nder&r ter or dealer to sell or o!!er se(#r t es !or sale to the $#bl ( thro#+h a re+ strat on statement ! led & th the 2omm ss on. 5Se(. *.,, SR29 <<# Who is a broker? S.>>ESTED ANSWER? IBro3erJ s a $erson en+a+ed n the b#s ness o! b#y n+ and sell n+ se(#r t es !or the a((o#nt o! others. 5Se(. *.* SR29 100# Who is a dealer? S.>>ESTED ANSWER? IDealerJ means any $erson &ho b#ys and sells se(#r t es !or h sNher o&n a((o#nt n the ord nary (o#rse o! b#s ness. 5Se(. *.C SR29 101# What is a Kfact of special significanceK ? S.>>ESTED ANSWER? a. One &h (h n add t on to be n+ mater al/ &o#ld be l 3ely to a!!e(t the mar3et $r (e o! a se(#r ty to a s +n ! (ant e"tent on be n+ made +enerally a%a lable b. One &h (h a reasonable $erson &o#ld (ons der es$e( ally m$ortant #nder the ( r(#mstan(es n determ n n+ h s (o#rse o! a(t on n the l +ht o! s#(h !a(tors as the de+ree o! ts s$e( ! ( ty/ the e"tent o! ts d !!eren(e !rom n!ormat on +enerally a%a lable $re% o#sly and s nat#re and rel ab l ty. <<< 102# What are securities ? S.>>ESTED ANSWER? These are shares/ $art ( $at on or nterests n a (or$orat on or n a (ommer( al enter$r se or $ro! t-ma3 n+ %ent#re and e% den(ed by a (ert ! (ate/ (ontra(t/ nstr#ment/ &hether &r tten or ele(tron ( n (hara(ter. 5,st $ar./ Se(. *.,/ SR29 10-# Eive e3a ples of securities ? S.>>ESTED ANSWER? a9 Shares o! sto(3/ bonds/ debent#res/ notes/ e% den(es o! ndebtedness/ assetba(3ed se(#r t esB b9 In%estment (ontra(ts/ (ert ! (ates o! nterest or $art ( $at on n a $ro! t shar n+ a+reement/ (ert ! (ates o! de$os t !or a !#t#re s#bs(r $t onB (9 Ara(t onal #nd % ded nterests n o l/ +as or other m neral r +htsB d9 Der %at %es l 3e o$t on and &arrantsB e9 2ert ! (ates o! ass +nments/ (ert ! (ates o! $art ( $at on/ tr#st (ert ! (ates/ %ot n+ tr#st (ert ! (ates or s m lar nstr#mentsB !9 Pro$r etary or non$ro$r etary membersh $ (ert ! (ates n (or$orat onsB and

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+9 Other nstr#ments as may n the !#t#re be determ ned by the 2omm ss on. 5Se(. *., SR29 10:# What are over?the?counter securities ? These are se(#r t es sold & tho#t $ass n+ thro#+h the sto(3 e"(han+e. NOTES AND 2O--ENTS? Ove 2the2)o!nte *a ;ets# -ar3ets made or (reated !or the $#r(hase and sale o! se(#r t es other than on a sto(3 e"(han+e. <<< 108# What is eant by the registration require ent for securities ? S.>>ESTED ANSWER? The re'# rement that se(#r t es shall not be sold or o!!ered !or sale or d str b#t on & th n the Ph l $$ nes/ & tho#t a re+ strat on statement d#ly ! led & th and a$$ro%ed by the SE2. Pr or to s#(h sale/ n!ormat on on the se(#r t es/ n s#(h !orm and & th s#(h s#bstan(e as the SE2 may $res(r be/ shall be made a%a lable to ea(h $ros$e(t %e $#r(haser. 5Se(. 6.,/ SR29 <<< 10,# What are e3e pt securities ? S.>>ESTED ANSWER? Those that do not re'# re re+ strat on e ther be(a#se la& tsel! e"em$ts them there!rom or the Se(#r t es and E"(han+e 2omm ss on ! nds that en!or(ement o! the re+ strat on re'# rement s not ne(essary n the $#bl ( nterest and !or $rote(t on o! the n%estors by reason o! the amo#nt n%ol%ed or the l m ted (hara(ter o! $#bl ( o!!er n+. the the the the

<<< 109# Eive e3a ples of e3e pt securities. S.>>ESTED ANSWER? a9 Any se(#r ty ss#ed or +#aranteed by the >o%ernment o! the Ph l $$ nes/ or by any $ol t (al s#bd % s on or a+en(y thereo!/ or by any $erson (ontrolled or s#$er% sed by/ and a(t n+ as an nstr#mental ty o! sa d >o%ernment. b9 Any se(#r ty ss#ed or +#aranteed by the +o%ernment or any (o#ntry & th &h (h the Ph l $$ nes ma nta ns d $lomat ( relat ons/ or by any state/ $ro% n(e or $ol t (al s#bd % s on thereo! on the bas s o! re( $ro( ty? Pro'i%e%/ That the 2omm ss on may re'# re (om$l an(e & th the !orm and (ontent o! d s(los#res the 2omm ss on may $res(r be. (9 2ert ! (ates ss#ed by a re(e %er or by a tr#stee n ban3r#$t(y d#ly a$$ro%ed by the $ro$er ad:#d (atory body. d9 Any se(#r ty or ts der %at %es the sale or trans!er o! &h (h/ by la&/ s #nder the s#$er% s on and re+#lat on o! the O!! (e o! the Ins#ran(e 2omm ss on/ Do#s n+ and 4and .se Re+#latory Board/ or the B#rea# o! Internal Re%en#e. e9 Any se(#r ty ss#ed by a ban3 e"(e$t ts o&n shares o! sto(3. 5Se(. 8., SR29 The 2omm ss on may/ by r#le or re+#lat on a!ter $#bl ( hear n+/ add to the !ore+o n+ any (lass o! se(#r t es ! t ! nds that the en!or(ement o! th s 2ode & th res$e(t to s#(h se(#r t es s not ne(essary n the $#bl ( nterest and !or the $rote(t on o! n%estors. 5Se(. 8.2 SR29 === 10@# What transactions are e3e pt ? S.>>ESTED ANSWER? Sale o! any se(#r ty n any o! the !ollo& n+ transa(t ons? a9 At any :#d ( al sale/ or sale by an e"e(#tor/ adm n strator/ +#ard an or re(e %er or tr#stee n nsol%en(y or ban3r#$t(y. b9 By or !or the a((o#nt o! a $led+e holder/ or mort+a+ee or any other s m lar l en holder sell n+ or o!!er n+ !or sale or del %ery n the ord nary (o#rse o! b#s ness and not !or the $#r$ose o! a%o d n+ the $ro% s ons o! th s 2ode/ to l '# date a .o*a fi%e debt/ a se(#r ty $led+ed n +ood !a th as se(#r ty !or s#(h debt. (9 An solated transa(t on n &h (h any se(#r ty s sold/ o!!ered !or sale/ s#bs(r $t on or del %ery by the o&ner thereo!/ or by h s re$resentat %e !or the o&ner1s a((o#nt/ s#(h sale or o!!er !or sale s#bs(r $t on or del %ery not be n+ made n the (o#rse o! re$eated and s#((ess %e transa(t ons o! a l 3e (hara(ter by s#(h o&ner/ or on h s a((o#nt by s#(h re$resentat %e and s#(h o&ner or re$resentat %e not be n+ the #nder&r ter o! s#(h se(#r ty. d9 The d str b#t on by a (or$orat on/ a(t %ely en+a+ed n the b#s ness a#thor 0ed by ts art (les o! n(or$orat on/ o! se(#r t es to ts sto(3holders or other se(#r ty holders as a sto(3 d % dend or other d str b#t on o#t o! s#r$l#s. e9 The sale o! (a$ tal sto(3 o! a (or$orat on to ts o&n sto(3holders e"(l#s %ely/ &here no (omm ss on or other rem#nerat on s $a d or + %en d re(tly or nd re(tly n (onne(t on & th the sale o! s#(h (a$ tal sto(3. !9 The ss#an(e o! bonds or notes se(#red by mort+a+e #$on real estate or tan+ ble $ersonal $ro$erty/ &here the ent re mort+a+e to+ether & th all the bonds or notes se(#red thereby are sold to a s n+le $#r(haser at a s n+le sale.

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+9 The ss#e and del %ery o! any se(#r ty n e"(han+e !or any other se(#r ty o! the same ss#er $#rs#ant to a r +ht o! (on%ers on ent tl n+ the holder o! the se(#r ty s#rrendered n e"(han+e to ma3e s#(h (on%ers on? Pro'i%e%/ That the se(#r ty so s#rrendered has been re+ stered #nder th s 2ode or &as/ &hen sold/ e"em$t !rom the $ro% s on o! th s 2ode/ and that the se(#r ty ss#ed and del %ered n e"(han+e/ ! sold at the (on%ers on $r (e/ &o#ld at the t me o! s#(h (on%ers on !all & th n the (lass o! se(#r t es ent tled to re+ strat on #nder th s 2ode. .$on s#(h (on%ers on the $ar %al#e (han+e shall be deemed the $r (e at &h (h the se(#r t es ss#ed and del %ered n s#(h e"(han+e are sold. h9 Bro3er1s transa(t ons/ e"e(#ted #$on (#stomer1s orders/ or any re+ stered E"(han+e or other trad n+ mar3et. 9 S#bs(r $t ons !or shares o! the (a$ tal sto(3 o! a (or$orat on $r or to the n(or$orat on thereo! or n $#rs#an(e o! an n(rease n ts a#thor 0ed (a$ tal sto(3 #nder the 2or$orat on 2ode/ &hen no e"$ense s n(#rred/ or no (omm ss on/ (om$ensat on or rem#nerat on s $a d or + %en n (onne(t on & th the sale or d s$os t on o! s#(h se(#r t es/ and only &hen the $#r$ose !or sol ( t n+/ + % n+ or ta3 n+ o! s#(h s#bs(r $t on s to (om$ly & th the re'# rements o! s#(h la& as to the $er(enta+e o! the (a$ tal sto(3 o! a (or$orat on &h (h sho#ld be s#bs(r bed be!ore t (an be re+ stered and d#ly n(or$orated/ or ts a#thor 0ed (a$ tal n(reased. :9 The e"(han+e o! se(#r t es by the ss#er & th ts e" st n+ se(#r ty holders e"(l#s %ely/ &here no (omm ss on or other rem#nerat on s $a d or + %en d re(tly or nd re(tly !or sol ( t n+ s#(h e"(han+e. 39 The sale o! se(#r t es by an ss#er to !e&er than t&enty 52)9 $ersons n the Ph l $$ nes d#r n+ the t&el%e-month $er od. l9 The sale o! se(#r t es to any n#mber o! the !ollo& n+ '#al ! ed b#yers? 5 9 Ban3B 5 9 Re+ stered n%estment ho#seB 5 9 Ins#ran(e (om$anyB 5 %9 Pens on !#nd or ret rement $lan ma nta ned by the >o%ernment o! the Ph l $$ nes or any $ol t (al s#bd % s on thereo! or mana+ed by a ban3 or other $ersons a#thor 0ed by the Ban+3o Sentral to en+a+e n tr#st !#n(t ons. 5%9 In%estment (om$anyB or 5% 9 S#(h other $erson as the 2omm ss on may by r#le determ ne as '#al ! ed b#yers/ on the bas s o! s#(h !a(tors as ! nan( al so$h st (at on/ net &orth/ 3no&led+e/ and e"$er en(e n ! nan( al and b#s ness matters/ or amo#nt o! assets #nder mana+ement. 5Se(. ,)., SR29 === 10<# What are the grounds for S2$ to re1ect and revoke registration of securities ? S.>>ESTED ANSWER? I! SE2 ! nds that? 5a9 The ss#er? 5 9 Das been :#d ( ally de(lared nsol%entB 5 9 Das % olated any o! the $ro% s ons o! the Se(#r t es Re+#lat on 2ode/ the r#les $rom#l+ated $#rs#ant thereto/ or any order o! the SE2 o! &h (h the ss#er has not (e n (onne(t on & th the o!!er n+ !or &h (h a re+ strat on statement has been ! ledB 5 9 Das been or s en+a+ed or s abo#t to en+a+e n !ra#d#lent transa(t onsB 5 %9 Das made any !alse or m slead n+ re$resentat on o! mater al !a(ts n any $ros$e(t#s (on(ern n+ the ss#er or ts se(#r t esB 5%9 Das !a led to (om$ly & th any re'# rement that the SE2 may m$ose as a (ond t on !or re+ strat on o! the se(#r ty !or &h (h the re+ strat on statement has been ! ledB or 5b9 The re+ strat on statement s on ts !a(e n(om$lete or na((#rate n any mater al res$e(t or n(l#des any #ntr#e statement o! a mater al !a(t or om ts to state a mater al !a(t re'# red to be stated there n or ne(essary to ma3e the statements there n not m slead n+B or 5(9 The ss#er/ any o!! (er/ d re(tor or (ontroll n+ $erson o! the ss#er/ or $erson $er!orm n+ s m lar !#n(t ons/ or any #nder&r ter has been (on% (ted/ by a (om$etent :#d ( al or adm n strat %e body/ #$on $lea o! +# lty/ or other& se/ o! an o!!ense n%ol% n+ moral t#r$ t#de andNor !ra#d or s en:o ned or restra ned by the SE2 or other (om$etent :#d ( al or adm n strat %e body !or % olat ons o! se(#r t es/ (ommod t es/ and other related la&s. 5Se(. ,*/ SR2 arran+ement and re&ord n+ s#$$l ed9 === 110# What are the grounds for suspension of the registration of securities ? S.>>ESTED ANSWER?

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a. The SE2 may also s#s$end the r +ht to sell and o!!er !or sale s#(h se(#r ty $end n+ !#rther n%est +at on/ by enter n+ an order s$e( !y n+ the +ro#nds !or s#(h a(t on/ and by not !y n+ the ss#er/ #nder&r ter/ dealer or bro3er 3no&n as $art ( $at n+ n s#(h o!!er n+. b. The SE2 may also s#s$end #$on a re!#sal o! the ss#er #$on order o! the SE2 to !#rn sh s#(h !#rther n!ormat on as may n ts :#d+ment be ne(essary to enable the SE2 to as(erta n &hether the re+ strat on o! s#(h se(#r ty sho#ld be re%o3ed? ,9 I! at any t me/ the n!ormat on (onta ned n the re+ strat on statement ! led s or has be(ome a9 m slead n+/ b9 n(orre(t/ (9 nade'#ate or n(om$lete n any mater al res$e(t/ or 29 the sale or o!!er n+ !or sale o! the se(#r ty re+ stered there#nder may &or3 or tend to &or3 a !ra#d/ .$on the ss#an(e o! any s#(h order and not ! (at on to the ss#er/ #nder&r ter/ dealer or bro3er 3no&n as $art ( $at n+ n s#(h o!!er n+/ no !#rther o!!er or sale o! any s#(h se(#r ty shall be made #nt l the same s l !ted or set as de by the 2omm ss on. Other& se/ s#(h sale shall be %o d. 5Se(. ,@ SR2 n#mber n+ and arran+ement s#$$l ed9 111# What is a co odity futures contract ? S.>>ESTED ANSWER? 2ommod ty !#t#res (ontra(t means a (ontra(t $ro% d n+ !or the ma3 n+ or ta3 n+ del %ery at a $res(r bed t me n the !#t#re o! a s$e( ! ( '#ant ty and '#al ty o! a (ommod ty or the (ash %al#e thereo!/ &h (h s (#stomar ly o!!set $r or to the del %ery date/ and n(l#des standard 0ed (ontra(ts ha% n+ the nd ( a o! (ommod t es !#t#res/ (ommod ty o$t ons and (ommod ty le%era+e/ or mar+ n (ontra(ts. 5 SR2 R#le ,,.,.,9 112# What is a co odity ? S.>>ESTED ANSWER? 2ommod ty means any +oods/ art (les/ ser% (es/ r +hts and nterests/ n(l#d n+ any +ro#$ or nde" o! any o! the !ore+o n+/ n &h (h (ommod ty nterests (ontra(ts are $resently or n the !#t#re dealt n. 5 SR2 R#le ,,.,.29 11-# What is a forward contract in co odity transactions ? S.>>ESTED ANSWER? Th s s a (ontra(t bet&een a b#yer and a seller &hereby the b#yer s obl +ated to ta3e del %ery and the seller s obl +ed to ma3e del %ery o! a ! "ed amo#nt o! an #nderly n+ (ommod ty at a $re-determ ned $r (e and date. Payment n !#ll s d#e at the t me o! del %ery. 5 SR2 R#le ,,.,.*9 11-# What is a derivative ? S.>>ESTED ANSWER? W th res$e(t to e'# ty se(#r t es a ! nan( al nstr#ment/ n(l#d n+ o$t ons and &arrants/ &hose %al#e de$ends on the nterest n or $er!orman(e o! an #nderly n+ se(#r ty/ b#t does not re'# re any n%estment o! $r n( $al n the #nderly n+ se(#r ty. 5SR2 R#le *.,.,.29 11:# What are options ? S.>>ESTED ANSWER? These are (ontra(ts that + %e the b#yer the r +ht/ b#t not the obl +at on/ to b#y or sell an #nderly n+ se(#r ty at a $redeterm ned $r (e/ (alled the e"er( se or str 3e $r (e/ on or be!ore a $redeterm ned date/ (alled the e"$ ry date/ &h (h (an only be e"tended n a((ordan(e & th E"(han+e r#les. 5SR2 R#le *.,.,.2.a9 118# What is a strike price ? S.>>ESTED ANSWER? The $redeterm ned b#y n+ or sell n+ $r (e o! an #nderly n+ se(#r ty #nder an o$t on. 5SR2 R#le *.,.,.2a9 11,# What is an e3piry date ? S.>>ESTED ANSWER? The $redeterm ned date !or b#y n+ or sell n+ an #nderly n+ se(#r ty #nder an o$t on. 5SR2 R#le *.,.,.2a9 119# What are the different kinds of options ? S.>>ESTED ANSWER? A (all o$t on and a $#t o$t on. 11@# What are call options ? S.>>ESTED ANSWER? A (ontra(t that + %es the b#yer the r +ht/ b#t not the obl +at on to b#y an #nderly n+ se(#r ty at a $redeterm ned $r (e on or be!ore a $redeterm ned date. 5SR2 R#le *.,.,.2.a.b.9

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11<# What are put options ? S.>>ESTED ANSWER? A (ontra(t that + %es the seller the r +ht/ b#t not the obl +at on to sell an #nderly n+ se(#r ty at a $redeterm ned $r (e on or be!ore a $redeterm ned date. 5SR2 R#le *.,.,.2.a.b.9 120# What is eant by a straddle ? S.>>ESTED ANSWER? Straddle n%ol%es the $#r(hase o! an e'#al n#mber o! $#t o$t ons and (all o$t ons on the same #nderly n+ se(#r ty at the same str 3e $r (e and mat#r ty date. Ea(h o$t on may be e"er( sed se$arately/ altho#+h the (omb nat on o! o$t ons s #s#ally bo#+ht and sold as a #n t. 5 SR2 R#le 2@.,.29 121# What is a block sale ? S.>>ESTED ANSWER? A blo(3 sale shall mean a mat(hed trade that does not +o thro#+h the a#tomated order mat(h n+ system o! an E"(han+e trad n+ system b#t nstead has been $re-arran+ed by and amon+ the Bro3er Dealer1s (l ents and s then entered as a done deal d re(tly nto the trad n+ system. 5 SR2 R#le *).2-6.29 ===122# What are $hinese Walls ? S.>>ESTED ANSWER? The $ro$er se+re+at on o! !#n(t ons & th n a ! rm by any Bro3er Dealer &h (h ass#mes more than one !#n(t on &hether as a dealer/ ad% ser/ or #nder&r ter/ or &h (h en+a+es n mar3et ma3 n+ transa(t ons to $re%ent? a. the !lo& o! n!ormat on bet&een the d !!erent $arts o! ts or+an 0at on &h (h $er!orm ea(h !#n(t onB and b. any (on!l (t o! nterest &h (h may res#lt. A Bro3er Dealer shall at all t mes ens#re that ts trad n+ !#n(t ons and ba(3-o!! (e settlement !#n(t ons are $ro$erly se+re+ated and shall establ sh &r tten $ro(ed#res to ens#re (om$l an(e & th th s R#le. 5 SR2 R#le *C.,-*/ arran+ement s#$$l ed9 NOTES AND 2O--ENTS? a. In0o *ation de0ined. In!ormat on? ,9 o! a s$e( ! ( nat#re &h (h has not been made $#bl (B and 29 relat n+ to one or more $#bl ( (om$an es or any se(#r t es o! a $#bl ( (om$anyB and *9 &h (h/ ! t &ere made $#bl (/ &o#ld l 3ely a!!e(t the mar3et $r (e o! the se(#r t es. 5 SR2 R#le *C.,-*9

)# Ban;ing 7aws $i% The New &ent a+ Ban; A)t $R#A# 9,8-% $Basi)s%
12-# What are the responsibilities of the ,angko Sentral ng Pilipinas ? S.>>ESTED ANSWER? a. To $ro% de $ol (y d re(t ons n the areas o! money/ ban3 n+ and (red t. b. To s#$er% se o$erat ons o! ban3s and e"er( se s#(h re+#latory $o&ers as $ro% ded n the 2entral Ban3 A(t and other $ert nent la&s o%er the o$erat ons o! ! nan(e (om$an es and non-ban3 ! nan( al nst t#t ons $er!orm n+ '#as -ban3 n+ transa(t ons/ s#(h as '#as -ban3s and nst t#t ons $er!orm n+ s m lar !#n(t ons. NOTES AND 2O--ENTS? === a. P i*a / o.4e)tive o0 the ,angko Sentral ng Pilipinas# To ma nta n $r (e stab l ty (ond#( %e to a balan(ed and s#sta nable +ro&th o! the e(onomy. It shall also $romote and ma nta n stab l ty and (on%ert b l ty o! the $eso. b. The nat! e o0 the ,angko Sentral ng Pilipinas. It s the (entral monetary a#thor ty that !#n(t ons and o$erates as an nde$endent and a((o#ntable body (or$orate n the d s(har+e o! ts mandated res$ons b l t es (on(ern n+ money ban3 n+ and (red t. Wh le be n+ a +o%ernment-o&ned (or$orat on/ t en:oys ! s(al and adm n strat %e a#tonomy. (. &o 5o ate 5owe s o0 the ,angko Sentral ng Pilipinas ,9 Ado$t/ alter and #se a (or$orate seal 29 Enter nto (ontra(ts *9 4ease or o&n real and $ersonal $ro$erty C9 Sell or other& se d s$ose o! $ro$erty @9 S#e and be s#ed E9 Per!orm all ne(essary and $ro$er a(ts

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79 A('# re and hold s#(h assets n (onne(t on & th ts o$erat ons 69 In(#r s#(h l ab l t es n (onne(t on & th ts o$erat ons 89 2om$rom se/ (ondone or release any (la m or settled l ab l ty as $res(r bed by -onetary Board 12:# What is eant by legal tender ? S.>>ESTED ANSWER? Notes and (o ns ss#ed by the "a*+ko Se*tra& *+ Pi&ipi*as !#lly +#aranteed by the >o%ernment o! the Re$#bl ( o! the Ph l $$ nes and a((e$ted !or the $ayment o! all debts/ both $#bl ( and $r %ate. NOTES AND 2O--ENTS? a. &oins as +ega+ tende : .nless other& se ! "ed by the -onetary Board/ (o ns shall be le+al tender n amo#nts ,9 not e"(eed n+ P@).)) !or denom nat ons o! T&enty-! %e (enta%os and abo%e/ and n amo#nts 29 not e"(eed n+ P2).)) !or denom nat ons o! Ten (enta%os or less. 5Se(. @2/ Ne& 2entral Ban3 A(t9 b. &he);s not +ega+ tende # 2he(3s re$resent n+ demand de$os ts do not ha%e le+al tender $o&er and the r a((e$tan(e n the $ayment o! debts/ both $#bl ( and $r %ate/ s at the o$t on o! the (red tor/ Pro% ded/ ho&e%er/ That a (he(3 &h (h has been (leared and (red ted to the a((o#nt o! the (red tor shall be e'# %alent to a del %ery to the (red tor o! (ash n an amo#nt e'#al to the amo#nt (red ted to h s a((o#nt. 5Se(. E)/ Ne& 2entral Ban3 A(t9 ===128# What are the instru ents of ,angko Sentral action in order to achieve the pri ary ob1ective of price stability ? S.>>ESTED ANSWER? a. In +eneral the -onetary Board shall rely on ts moral n!l#en(e. b. It may also rely on the $o&ers +ranted t !or the mana+ement o! monetary a++re+ates l 3e? ,9 O$erat ons n +old and !ore +n e"(han+e a.9 P#r(hase and sales o! +oldB b9 P#r(hase and sales o! !ore +n e"(han+eB (9 A('# s t on o! n(on%ert ble (#rren( esB d9 Determ nat on o! the e"(han+e rate $ol (y o! the (o#ntryB e9 >rant and re(e %e loans !rom !ore +n ban3s and other !ore +n or nternat onal ent t esB 29 .se o! (red t $ol (y a9 .se o! red s(o#nts/ d s(o#nts/ loans and ad%an(es b9 >rant emer+en(y loans and ad%an(es *9 En+a+e n o$en mar3et o$erat ons l 3e $#r(hases and sales o! se(#r t es. 12,# Who is a conservator ? S.>>ESTED ANSWER? The $erson a$$o nted by the -onetary Board to ta3e (har+e o! the assets/ l ab l t es/ and the mana+ement o! a ban3 or a '#as -ban3 &h (h s n a state o! (ont n# n+ nab l ty or #n& ll n+ness to ma nta n a (ond t on o! l '# d ty deemed ade'#ate to $rote(t the nterest o! de$os tors and (red tors/ reor+an 0e the mana+ement thereo!/ (olle(t all mon es and debts d#e sa d nst t#t on/ and e"er( se all $o&ers ne(essary to restore ts % ab l ty. 5Se(. 28/ Ne& 2entral Ban3 A(t9 NOTES AND 2O--ENTS? a. Powe s o0 .an; )onse vato # Wh le the 2entral Ban3 la& + %es %ast and !ar rea(h n+ $o&ers to the (onser%ator o! a ban3/ t m#st be $o nted o#t that s#(h $o&ers m#st be related to the I5$reser%at on o!9 the assets o! the ban3/ 5the reor+an 0at on o!9 the mana+ement thereo! and 5the restorat on o!9 ts % ab l ty.J S#(h $o&ers/ enormo#s and e"tens %e as they are/ (annot e"tend to the post;facto re$#d at on o! $er!e(ted transa(t ons other& se they &o#ld n!r n+e a+a nst the non- m$a rment (la#se o! the 2onst t#t on. The ban3 (onser%ator merely ta3es the $la(e o! the ban31s board o! d re(tors. What the sa d board (annot do - s#(h as re$#d at n+ a (ontra(t %al dly entered nto #nder the do(tr ne o! m$l ed a#thor ty - the (onser%ator (annot do e ther. D s a#thor ty &o#ld be only to br n+ (o#rt a(t ons to assa l s#(h (ontra(ts. The $o&er o! a (onser%ator to re%o3e (ontra(ts/ e"tends only to those &h (h #nder e" st n+ la& are deemed to be de!e(t %e- .e. %o d/ %o dable/ #nen!or(eable or res( ss ble. 5A rst Ph l $$ ne Internat onal Ban3/ et al./ %. 2o#rt o! A$$eals/ et al./ Han#ary 2C/ ,88E/ Th rd D % s on9 b. 7i>!idation )o! t has 4! isdi)tion to ad4!di)ate a++ dis5!ted )+ai*s against the inso+vent .an;# The -onetary Board1s order !or the l '# dat on o! an nsol%ent ban3 shall be m$lemented thro#+h the ! l n+ by the Sol ( tor >eneral !or the 2entral Ban3 o! a

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$et t on & th the Re+ onal Tr al 2o#rt. Sa d 2o#rt shall ha%e :#r sd (t on to ad:#d (ate all d s$#ted (la ms a+a nst the nsol%ent ban3 and en!or(e nd % d#al l ab l t es o! the sto(3holders and do all that s ne(essary to $reser%e the assets o! s#(h nst t#t on and to m$lement the l '# dat on $lan a$$ro%ed by the -onetary Board. The rat onale beh nd :#d ( al l '# dat on s to $re%ent m#lt $l ( ty o! a(t ons a+a nst the nsol%ent ban3. It s a $ra+mat ( arran+ement des +ned to establ sh d#e $ro(ess and orderl ness n the l '# dat on o! the ban3/ to ob% ate the $rol !erat on o! l t +at on and to a%o d n:#st (e and arb trar ness. A#rthermore/ t s not ne(essary that a (la m be n t ally d s$#ted n a (o#rt or a+en(y be!ore t s ! led & th the l '# dat on (o#rt. 5On+ %. 2o#rt o! A$$eals/ >.R. No. ,,26*)/ Aebr#ary ,/ ,88E/ A rst D % s on9 (. Re>!i e*ents .e0o e Moneta / Boa d )an de)+a e .an; inso+vent3 )+ose3 o 0o .id it 0 o* doing .!siness in the Phi+i55ines: ,9 E"am nat on by De$artment o! S#$er% s on on (ond t on o! the ban3B 29 E"am nat on sho&s that the ban3 s nsol%ent/ or the (ont n#an(e o! ts b#s ness &o#ld n%ol%e $robable loss to (red tors or de$os torsB *9 The De$artment o! S#$er% s on re$orts to the -onetary Board ts ! nd n+s n &r t n+B C9 The -onetary Board determ nes the %era( ty o! the re$ort and a$$o nts a re(e %er to ta3e (har+e o! the ban3Ms assets and l ab l t esB @9 W th n s "ty 5E)9 days the -onetary Board shall determ ne and (on! rm ! the ban3 s nsol%ent. I! so/ and $#bl ( nterest re'# res t orders he l '# dat on o! the ban3.

$ii% ?ene a+ Ban;ing 7aw o0 20003 R#A# No# @9<1 $Basi)s%

129# $anlas and 6anosca agreed to do business together. 7o raise capital, $anlas authori@ed 6anosca to ortgage two parcels of land belonging to hi and to his wife, -ater, $anlas agreed to sell the parcels to 6anosca for a total consideration of PH)*,***.**, P)**,***.** of which is payable within one week and P:**,***.** to serve as $anlas= invest ent in the business. $anlas then delivered the titles to 6anosca. %owever, the PIJ*,***.** check given by 6anosca to $anlas as part of the consideration bounced. -ater with the help of i postors posing as the spouses $anlas, 6anosca was able to ortgage the parcels of land for P(**,***.** to a certain .tty. 6agno and later for P)**,***.** to the .sian Saving=s ,ank. +t turned out that the ,ank did not require the i postors to present a single identification card. 7he ,ank erely relied upon their representatives on the basis of residence certificates bearing signatures which tended to atch the signatures affi3ed on a previous deed of ortgage to a certain .tty. 6agno covering the sa e parcels of land in question. Dor non?pay ent of the loan, the ,ank foreclosed on the ortgaged property. $anlas contested foreclosure on the ground of 6anosca=s lack of authority to constitute the ortgage. Fn the other hand, the ,ank alleged that $anlas was negligent in entrusting the owner=s 7$7 to 6anosca which provided hi with the opportunity to perpetuate the fraud. Durther ore, on two occasions, $anlas allowed 6anosca to introduce hi ($anlas) a -eonardo to the bank e ployees. Dinally, after the loan was finally approved, $anlas acco panied 6anosca to the bank when the loan was released. .t that ti e, a anager=s check for P8**,***.** was issued in the na e of Fscar 6otorworks which $anlas ad its he owns and operates. &nder the above circu stances, is the ortgage null and void, and who shall bear the loss? S.>>ESTED ANSWERB The mort+a+e s n#ll and %o d and the Ban3 sho#ld bear the loss. The ban3 d d not obser%e the re'# s te d l +en(e n as(erta n n+ the dent ty o! the m$ostors. The de+ree o! d l +en(e re'# red o! ban3s s more than that o! a +ood !ather o! a !am lyB n 3ee$ n+ & th the r res$ons b l ty to e"er( se the ne(essary (are and $r#den(e n deal n+ e%en on a re+ stered or t tled $ro$erty. The b#s ness o! a ban3 s a!!e(ted & th $#bl ( nterest/ hold n+ n tr#st the money o! the de$os tors/ &h (h ban3 de$os ts the ban3 sho#ld +#ard a+a nst loss d#e to ne+l +en(e or bad !a th/ by reason o! &h (h the ban3 &o#ld be den ed the $rote(t %e mantle o! the land re+ strat on la&/ a((orded only to $#r(hasers or mort+a+ees !or %al#e and n +ood !a th. 52anlas/ et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,2,E)/ $rom. Aebr#ary 26/ 2)))9 Ass#m n+ that 2anlas &as ne+l +ent n + % n+ -anos(a the o$$ort#n ty to $er$etrate the !ra#d by entr#st n+ to latter the o&ner1s (o$y o! the trans!er (ert ! (ates o! t tle o! s#b:e(t

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$ar(els o! land/ t (annot be den ed that the ban3 had the last (lear (han(e to $re%ent the !ra#d/ by the s m$le e"$ed ent o! !a th!#lly (om$ly n+ & th the re'# rements !or ban3s to as(erta n the dent ty o! the $ersons transa(t n+ & th them. 52anlas/ et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,2,E)/ $rom. Aebr#ary 26/ 2)))9 .nder the do(tr ne o! last (lear (han(e/ &h (h s a$$l (able here/ the res$ondent ban3 m#st s#!!er the res#lt n+ loss. In essen(e/ the do(tr ne o! last (lear (han(e s to the e!!e(t that &here both $art es are ne+l +ent b#t the ne+l +ent a(t o! one s a$$re( ably later n $o nt o! t me than that o! the other/ or &here t s m$oss ble to determ ne &hose !a#lt or ne+l +en(e bro#+ht abo#t the o((#rren(e o! the n( dent/ the one &ho had the last (lear o$$ort#n ty to a%o d the m$end n+ harm b#t !a led to do so/ s (har+eable & th the (onse'#en(e ar s n+ there!rom. Stated d !!erently/ the r#le s that the ante(edent ne+l +en(e o! a $erson does not $re(l#de re(o%ery o! dama+es (a#sed by the s#$er%en n+ ne+l +en(e o! the latter/ &ho had the last !a r (han(e to $re%ent the m$end n+ harm by the e"er( se o! d#e d l +en(e. 52anlas/ et al./ %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,2,E)/ $rom. Aebr#ary 26/ 2)))9 By the nat#re o! ts !#n(t ons/ a ban3 s #nder obl +at on to treat the a((o#nts o! ts de$os tors I& th met (#lo#s (are/ al&ays ha% n+ n m nd the ! d#( ary nat#re o! the r relat onsh $.J As s#(h/ n deal n+ & th ts de$os tors/ a ban3 sho#ld e"er( se ts !#n(t ons not only & th the d l +en(e o! a +ood !ather o! a !am ly b#t t sho#ld do so & th the h +hest de+ree o! (are. 5Ban3 o! the Ph l $$ ne Islands/ %. 2o#rt o! A$$eals/ >.R. No. ,,2*82/ $rom. Aebr#ary 28/ 2)))9 12@# Fn Septe ber :, (GH;, 9api@a deposited in his Doreign $urrency >eposit &nit (D$>&) Savings .ccount with the ,ank, a 6anager=s check dated .ugust (;, (GHI, payable to !cash# in the a ount of '8,)**.** and duly endorsed by 9api@a on the dorsal side. 7he owner of the check was a certain $han who 9api@a acco odated for the purpose of clearing the check. 9api@a agreed to deliver to $han a signed blank withdrawal slip with the understanding that as soon as the check is cleared, both of the would go to the ,ank to withdraw the a ount of the check upon 9api@a=s presentation to the ,ank of his passbook. 7his is so because, the ,anks= rules which are printed on the depositor=s passbook requires presentation to the ,ank of () a duly filled?up withdrawal slip, and 8) in all instance whether the withdrawal is ade by the depositor personally, or in certain e3ceptional instances where the ,ank allows it, withdrawal by another person upon the depositor=s written authority duly authenticated. 7he passbook further shows that deposits of checks and si ilar ite s shall be sub1ect to collection only and credited to the account only upon receipt of the notice of final pay ent. Fn Fctober 8:, (GHI, one Eayon, 0r., using the signed blank withdrawal slip given by 9api@a to $han, was able to withdraw '8,)I(.J; fro the depositor=s account. 9otably, the withdrawal slips shows that the a ount was payable to <o an and .gnes, and duly initialed by the ,ank=s branch assistant anager 7eresita. Fn 9ove ber 8*, (GHI, the ,ank received a co unication fro the foreign bank that the check deposited by 9api@a was a counterfeit check. Fn .ugust (8, (GHJ, the ,ank sued 9api@a praying for the return of the a ount of P8,)**.** plus interest. 7he ,ank asserts that 9api@a should be held liable as an indorser when he affi3ed his signature at the dorsal side of the check, and that by signing the withdrawal slip, 9api@a presented the opportunity for the withdrawal of the a ount in question. +s the depositor 9api@a liable? 23plain briefly. S.>>ESTED ANSWERB No Na$ 0a sho#ld not be held l able on the bas s o! h s ndorsement. Ord nar ly Na$ 0a may be held l able as an ndorser o! the (he(3 or e%en as an a((ommodat on $arty. Do&e%er/ to hold Na$ 0a l able !or the amo#nt o! the (he(3 he de$os ted by the str (t a$$l (at on o! the la& and & tho#t (ons der n+ the attend n+ ( r(#mstan(es n the (ase &o#ld res#lt n an n:#st (e and n the eros on o! the $#bl ( tr#st n the ban3 n+ system. The nterest o! :#st (e th#s demands loo3 n+ nto the e%ents that led to the en(ashment o! the (he(3. 5Ban3 o! Ph l $$ ne Islands %. 2o#rt o! A$$eals/ >.R. No. ,,2*82/ $rom. Aebr#ary 28/ 2)))9 The Ban3 &as ne+l +ent n allo& n+ & thdra&al $r or to (learan(e o! the (he(3. By de$os t n+ the (he(3 & th Ban3/ Na$ 0a &as/ n a &ay/ merely des +nat n+ the Ban3 as the (olle(t n+ ban3. Th s s n (onsonan(e & th the r#le that a ne+ot able nstr#ment s#(h as a (he(3/ &hether a mana+er1s (he(3 or ord nary (he(3/ s not le+al tender. The (olle(t n+ ban3 or last endorser +enerally s#!!ers the loss be(a#se t has the d#ty to as(erta n the +en# neness o! all $r or endorsements (ons der n+ that the a(t o! $resent n+ the (he(3 !or $ayment to the dra&ee s an assert on that the $arty ma3 n+ the $resentment has done ts d#ty to as(erta n the +en# neness o! the endorsements.J The r#le ! nds more mean n+ n th s (ase &here the (he(3 n%ol%ed s dra&n on a !ore +n ban3 and there!ore (olle(t on s more d !! (#lt than &hen the

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dra&ee ban3 s a lo(al one e%en tho#+h the (he(3 n '#est on s a mana+erM1 (he(3. 5Ban3 o! Ph l $$ ne Islands %. 2o#rt o! A$$eals/ >.R. No. ,,2*82/ $rom. Aebr#ary 28/ 2)))9 It &as l 3e& se ne+l +ent n allo& n+ & thdra&al des$ te non-$resentat on o! the $assboo3. Wh le t s tr#e that Na$ 0a1s ha% n+ s +ned a blan3 & thdra&al sl $ set n mot on the e%ents that res#lted n the & thdra&al and en(ashment o! the (o#nter!e t (he(3/ the ne+l +en(e o! the Ban31s $ersonnel &as the $ro" mate (a#se o! the loss that the Ban3 s#sta ned. Pro" mate (a#se/ &h (h s determ ned by a m "ed (ons derat on o! lo+ (/ (ommon sense/ $ol (y and $re(edent/ s Ithat (a#se/ &h (h/ n nat#ral and (ont n#o#s se'#en(e/ #nbro3en by any e!! ( ent nter%en n+ (a#se/ $rod#(es the n:#ry/ and & tho#t &h (h the res#lt &o#ld not ha%e o((#rred.J The $ro" mate (a#se o! the & thdra&al and e%ent#al loss o! the amo#nt o! U2/@)).)) on the Ban31s $art &as ts $ersonnel1s ne+l +en(e n allo& n+ s#(h & thdra&al n d sre+ard o! ts o&n r#les and the (lear n+ re'# rement n the ban3 n+ system. In so do n+/ the Ban3 ass#med the r s3 o! n(#rr n+ a loss on a((o#nt o! a !or+ed or (o#nter!e t !ore +n (he(3 and hen(e/ t sho#ld s#!!er the res#lt n+ dama+e. 55Ban3 o! Ph l $$ ne Islands %. 2o#rt o! A$$eals/ >.R. No. ,,2*82/ $rom. Aebr#ary 28/ 2)))9 12<# -eticia opened a savings and current account with Prudential ,ank, with auto atic transfer of funds fro the savings account to the current account. Fn 0une (, (GHH, she deposited in her savings account a check drawn against P$+, in the a ount of P:),8;(.J*. Fn 0une 8(, (GHH, she had P:),GG:.IH in her saving=s account and P;;J.G: in her current account or a total deposit of P:J,;;*.I(. -eticia then issued a Prudential ,ank check in the a ount of P((,)**.** postdated 0une 8*, (GHH in favor of ,elen , who endorsed it to -huiller. When the latter deposited the check in his account with P$+,, it was dishonored for being drawn against insufficient funds. When -huiller=s secretary infor ed ,elen of the dishonor, the latter told the for er to redeposit it. Surprised by the dishonor, -eticia was told by the officer?in?charge of the ,ank that he had debited P:**.** penalty fro her current account for the dishonor of the check. -eticia later found out that the a ount of P:),8;(.J* which she had deposited was credited to her savings account only on 0une 8G, (GGH, or 8: days after she redeposited it. 7hus, when -huiller redeposited the P((,)**.** check on 0une 8I, (GHH, it was cleared on 0une 8;, (GHH. Sued for da ages, the ,ank defends by saying that -eticia did not suffer any da age as a result of the dishonor. +t acted in good faith, and the dishonor was an honest istake and the ,ank 6anager and the other e ployees profusely apologi@ed to -eticia for the error. 7hey also offered to ake restitution and apologies to ,elen and -huiller. +s the ,ank liable? S.>>ESTED ANSWERB Fes. It d shonored the (he(3 ss#ed by 4et ( a &ho t#rned o#t to ha%e s#!! ( ent !#nds & th the Ban3. The Ban31s ne+l +en(e &as the res#lt o! la(3 o! d#e (are and (a#t on re'# red o! mana+ers and em$loyees o! a ! rm en+a+ed n so sens t %e and demand n+ b#s ness as ban3 n+. IA ban3 s #nder obl +at on to treat the a((o#nts o! ts de$os tors & th met (#lo#s (are &hether s#(h a((o#nt (ons sts only o! a !e& h#ndred $esos or o! m ll ons o! $esos. Res$ons b l ty ar s n+ !rom ne+l +en(e n the $er!orman(e o! e%ery 3 nd o! obl +at on s demandable. Wh le $et t oner1s ne+l +en(e n th s (ase may not ha%e been attended & th mal (e and bad !a th/ ne%ertheless/ t (a#sed ser o#s an" ety/ embarrassment and h#m l at on.J 5Pr#dent al Ban3 %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2@@*E/ $rom. -ar(h ,E/ 2))) ( t n+ Ph l $$ ne Nat onal Ban3 %. 2o#rt o! A$$eals/ >.R. No. ,2E,@2/ $rom. Se$tember 26/ ,8889 NOTES AND 2O--ENTS? a. Ban; is +ia.+e 0o e oneo!s dishono o0 )he);s# Ban3 are res$ons ble !or the r em$loyees1 m sta3es n d shonor o! (he(3s. The ! d#( ary nat#re o! relat onsh $ bet&een ban3s and de$os tors demand the a&ard o! moral dama+es !or m sta3es (omm tted by the !ormer1s em$loyees that res#lt n d shonor o! (he(3s. In S me" Internat onal 5-an la9/ In(. %. 2o#rt o! A$$eals/ ,6* S2RA *E)/ *E7 5,88)9 and Ban3 o! Ph l $$ ne Islands %. IA2/ et al./ 2)E S2RA C)6/ C,2-C,* 5,8829/ S#$reme 2o#rt had o((as on to stress the ! d#( ary nat#re o! the relat onsh $ bet&een a ban3 and ts de$os tors and the e"tent o! d l +en(e e"$e(ted o! the !ormer n handl n+ the a((o#nts entr#sted to ts (are/ th#s? IIn e%ery (ase/ the de$os tor e"$e(ts the ban3 to treat h s a((o#nt & th the #tmost ! del ty/ &hether s#(h a((o#nt (ons sts only o! a !e& h#ndred $esos or o! m ll ons. The ban3 m#st re(ord e%ery s n+le transa(t on a((#rately/ do&n to the last (enta%o/ and as $rom$tly as $oss ble. Th s has to be done ! the a((o#nt s to re!le(t at any + %en t me the amo#nt o! money the de$os tor (an d s$ose o! as he sees ! t/ (on! dent that the ban3 & ll del %er t as and to &home%er he d re(ts. A bl#nder on the $art o! the ban3/ s#(h as the d shonor o! a (he(3 & tho#t +ood reason/ (an (a#se the de$os tor not a l ttle embarrassment ! not also ! nan( al loss and $erha$s e%en ( % l and (r m nal l t +at on.

@6

The $o nt s that as a b#s ness a!!e(ted & th $#bl ( nterest and be(a#se o! the nat#re o! ts !#n(t ons/ the ban3 s #nder obl +at on to treat the a((o#nts o! ts de$os tors & th met (#lo#s (are/ al&ays ha% n+ n m nd the ! d#( ary nat#re o! the r relat onsh $. " " ".J 5Pr#dent al Ban3 %. 2o#rt o! A$$eals/ et al./ >.R. No. ,2@@*E/ $rom. -ar(h ,E/ 2))) ( t n+ S me" Internat onal 5-an la9/ In(. %. 2o#rt o! A$$eals/ ,6* S2RA *E)/ *E7 5,88)9 and Ban3 o! Ph l $$ ne Islands %. IA2/ et al./ 2)E S2RA C)6/ C,2-C,* 5,8829 1-0# What are so e of the prohibited transactions of a borrower of a bank ? S.>>ESTED ANSWER? No borro&er o! a ban3 shall? a9 Ara#d#lently o%er%al#e $ro$erty o!!ered as se(#r ty !or a loan or other (red t a((ommodat on !rom the ban3B b9 A#rn sh !alse or ma3e re$resentat on or s#$$ress on o! mater al !a(ts !or the $#r$ose o! obta n n+/ rene& n+/ n(reas n+ a loan or other (red t a((ommodat on or e"tend n+ the $er od thereo!B (9 Attem$t to de!ra#d the sa d ban3 n the e%ent o! a (o#rt a(t on to re(o%er a loan or other (red t a((ommodat onB or d9 O!!er any d re(tor/ o!! (er/ em$loyee or a+ent o! a ban3 any + !t/ !ee/ (omm ss on/ or any other !orm o! (om$ensat on n order to n!l#en(e s#(h $ersons nto a$$ro% n+ a loan or other (red t a((ommodat on a$$l (at on. 5Se(. @@.2/ R.A. No. 678,9 <<<1-1# >istinguish between equity of rede ption and the right of rede ption. S.>>ESTED ANSWER? The e'# ty o! redem$t on s d !!erent !rom and sho#ld be (on!#sed & th the r +ht o! redem$t on. The r +ht o! redem$t on n relat on to a mort+a+e O#nderstood n the sense o! a $rero+at %e to rea('# re mort+a+ed $ro$erty a!ter re+ strat on o! the !ore(los#re sale O e" sts only n the (ase o! the e"tra:#d ( al !ore(los#re o! the mort+a+e. No s#(h r +ht s re(o+n 0ed n a :#d ( al !ore(los#re e"(e$t only &here the mort+a+ee s a ban3 or ban3 n+ nst t#t on. The $er od to e"er( se the r +ht o! redem$t on s & th n one 5,9 year !rom the re+ strat on o! the sher !!1s (ert ! (ate o! !ore(los#re sale. Where no r +ht o! redem$t on e" sts n (ase o! a :#d ( al !ore(los#re be(a#se the mort+a+ee s not a ban3 or a ban3 n+ nst t#t on/ the !ore(los#re sale &hen (on! rmed by an order o! the (o#rt shall o$erate to d %est the r +hts o! all $art es to the a(t on and to %est the r r +hts n the $#r(haser. There then e" sts only &hat s s m$ly 3no&n as the e'# ty o! redem$t on. Th s s s m$ly the r +ht o! the de!endant mort+a+or to e"t n+# sh the mort+a+e and reta n o&nersh $ o! the $ro$erty by $ay n+ the se(#red debt & th n the 8)-day $er od a!ter the :#d+ment be(omes ! nal/ n a((ordan(e & th R#le E6 o! the R#les o! 2o#rt/ or e%en a!ter the !ore(los#re sale/ b#t $r or to (on! rmat on. 5D#erta Alba Resort/ In(. %. 2o#rt o! A$$eals/ et al./ >.R. No. ,26@E7/ $rom. Se$tember ,/ 2)))9 NOTES AND 2O--ENTS? a. Right o0 *o tgago to edee*# In the e%ent o! !ore(los#re by a ban3/ &hether :#d ( ally or e"tra:#d ( ally/ o! any mort+a+e on real estate &h (h s se(#r ty !or any loan or other (red t a((ommodat on +ranted/ the mort+a+or or debtor &hose real $ro$erty has been sold !or the !#ll or $art al $ayment o! h s obl +at on shall ha%e the r +ht & th n one year a!ter the sale o! the real estate/ to redeem the $ro$erty by $ay n+ the amo#nt d#e #nder the mort+a+e deed & th nterest thereon at the rate s$e( ! ed n the mort+a+e/ and all the (osts and e"$enses n(#rred by the ban3 or nst t#t on !rom the sale and (#stody o! sa d $ro$erty less the n(ome der %ed there!rom. Do&e%er/ the $#r(haser at the a#(t on sale (on(erned &hether n a :#d ( al or e"tra:#d ( al !ore(los#re shall ha%e the r +ht to enter #$on and ta3e $ossess on o! s#(h $ro$erty mmed ately a!ter the date o! the (on! rmat on o! the a#(t on sale and adm n ster the same n a((ordan(e & th la&. Any $et t on n (o#rt to en:o n or restra n the (ond#(t o! !ore(los#re $ro(eed n+s nst t#ted $#rs#ant to th s $ro% s on shall be + %en d#e (o#rse only #$on the ! l n+ by the $et t oner o! a bond n an amo#nt ! "ed by the (o#rt (ond t oned that he & ll $ay all the dama+es &h (h the ban3 may s#!!er by the en:o n n+ or the restra nt o! the !ore(los#re $ro(eed n+. Not& thstand n+ A(t *,*@/ :#r d (al $ersons &hose $ro$erty s be n+ sold $#rs#ant to an e"tra:#d ( al !ore(los#re shall ha%e the r +ht to redeem the $ro$erty n a((ordan(e & th th s $ro% s on #nt l/ b#t not a!ter/ the re+ strat on o! the (ert ! (ate o! !ore(los#re sale & th the a$$l (able Re+ ster o! Deeds &h (h n no (ase shall be more than three 5*9 months a!ter !ore(los#re/ &h (he%er s earl er. O&ners o! $ro$erty that has been sold n a !ore(los#re sale $r or to the e!!e(t % ty o! the >eneral ban3 n+ 4a& o! 2))) shall reta n the r redem$t on r +hts #nt l the r e"$ rat on. 5Se(. C7/ R.A. No. 678,/ arran+ement s#$$l ed9

@8

b. Instan)es when a .an; *a/ a)>!i e ea+ estate# A)>!isition o0 ea+ estate ./ wa/ o0 satis0a)tion o0 )+ai*s#2 A ban3 may a('# re/ hold or (on%ey real $ro$erty #nder the !ollo& n+ ( r(#mstan(es? ,9 S#(h as shall be mort+a+ed to t n +ood !a th by &ay o! se(#r ty !or debtsB 29 S#(h as shall be (on%eyed to t n sat s!a(t on o! debts $re% o#sly (ontra(ted n the (o#rse o! ts deal n+sB or *9 S#(h as t shall $#r(hase at sales #nder :#d+ments/ de(rees/ mort+a+es/ or tr#st deeds held by t and s#(h as t shall $#r(hase to se(#re debts d#e t. Any other real $ro$erty a('# red or held #nder the ( r(#mstan(es en#merated n the abo%e $ara+ra$h shall be d s$osed o! by the ban3 & th n a $er od o! ! %e 5@9 years or as may be $res(r bed by the -onetary BoardB $ro% ded/ ho&e%er/ that the ban3 may/ a!ter sa d $er od/ (ont n#e to hold the $ro$erty !or ts o&n #se s#b:e(t to the l m tat ons on (e l n+s on n%estment n real estate. 5Se(. @2/ R.A. No. 678,9 (. 7i*itation o )ei+ing on .an; invest*ents in ea+ estate# Any ban3 may a('# re real estate as shall be ne(essary !or ts o&n #se n the (ond#(t o! ts b#s ness? $ro% ded/ ho&e%er/ That the total n%estment n s#(h real estate and m$ro%ements thereo!/ n(l#d n+ ban3 e'# $ment/ shall not e"(eed ! !ty $er(ent 5@)V9 o! (omb ned (a$ tal a((o#nts? $ro% ded/ !#rther/ That the e'# ty n%estment o! a ban3 n another (or$orat on en+a+ed $r mar ly n real estate shall be (ons dered as $art o! the ban31s total n%estment n real estate/ #nless other& se $ro% ded by the -onetary Board. 5Se(. @,/ R.A. No. 678,9

$iii% 7aw on Se) e)/ o0 Ban; 'e5osits $R#A# 1:083 as a*ended%

===1-2# What are the e3ceptions or instances when bank deposits into ? S.>>ESTED ANSWER? a. Where the e"am nat on s made n the (o#rse o! a s$e( al or +eneral e"am nat on o! a ban3 and s s$e( ! (ally a#thor 0ed by the -onetary Board a!ter be n+ sat s! ed that there s reasonable +ro#nd to bel e%e that a ban3 !ra#d or ser o#s rre+#lar ty has been or s be n+ (omm tted and that t s ne(essary to loo3 nto the de$os t to establ sh s#(h !ra#d or rre+#lar tyB b. When the e"am nat on s made by an nde$endent a#d tor h red by the ban3 to (ond#(t ts re+#lar a#d t $ro% ded that the e"am nat on s !or a#d t $#r$oses only and the res#lts thereo! shall be !or the e"(l#s %e #se o! the ban3B (. .$on &r tten $erm ss on o! the de$os torB d. In (ases o! m$ea(hment/ e. .$on order o! a (om$etent (o#rt n (ases o! br bery or derel (t on o! d#ty o! $#bl ( o!! ( alsB !. In (ases &here the money s de$os ted or n%ested s the s#b:e(t matter o! the l t +at on. 5Se(. 2/ R.A. No. ,C)@/ as amended by P.D. No. ,7829 +. Where the B#rea# o! Internal Re%en#e ma3es an n'# ry nto the de$os ts o! a de(eased de$os tor !or the $#r$ose o! determ n n+ h s +ross estateB h. Where there s a BIR n'# ry nto the de$os ts o! a ta"$ayer &ho s enter n+ nto a (om$rom se & th the BIR $rem sed #$on ! nan( al d !! (#lt es to $ay. . In'# ry #nder the Ant ->ra!t and 2orr#$t Pra(t (es A(t nto K lle+allyK or Knot le+ t matelyK a('# red $ro$erty. NOTES AND 2O--ENTS? === a. What is )onside ed as s!.4e)t to the 7aw on Se) e)/ o0 Ban; 'e5osits: ,9 All de$os ts o! &hate%er nat#re & th ban3s or ban3 n+ nst t#t ons n the Ph l $$ nes/ 29 n(l#d n+ n%estments n bonds ss#ed by the +o%ernment o! the Ph l $$ nes/ ts $ol t (al s#bd % s ons and ts nstr#mental t es are hereby (ons dered as o! an absol#tely (on! dent al nat#re and may not be e"am ned/ n'# red or loo3ed nto by any $erson/ +o%ernment o!! ( al/ b#rea# or o!! (e. 5Se(. 2/ R.A. No. ,C)@9 1--# Fn 6arch 8(, (GG* a check for P ( illion was drawn against an account with .llied ,ank payable to 0ose .lvare@. 7he payee deposited the check with &nion ,ank which credited the a ount of P ( illion to the account of 0ose. When &nion presented the check for clearing through the Philippine $learing %ouse $orporation, a clearing discrepancy was co itted by &nion ,ank=s clearing staff when the a ount of P ( illion was erroneously !under?coded# to P(,*** only. &nion discovered the under?coding only a year later and it notified .llied by way of an auto atic debiting of the a ount of PGGG,***.** fro .llied=s account. .llied ay be inquired

E)

refused to accept the charge slip since the transaction was co pleted per &nion ,ank=s original instruction and client=s account is now insufficiently funded. &nion filed a co plaint against .llied before the $learing %ouse for the recovery of the a ount plus interest and other da ages. 7hereafter &nion filed a petition with the <7$ for the e3a ination of the .ccount with .llied. 6ay the account be e3a ined ? S.>>ESTED ANSWER? No/ ts does not !all #nder any o! the e"(e$t ons be(a#se t sho#ld be the Imoney de$os tedJ tsel! &h (h sho#ld be the s#b:e(t matter o! the l t +at on. 5.n on Ban3 o! the Ph l $$ nes %. 2o#rt o! A$$eals/ et al./ >.R. No. ,*CE88/ $rom. $rom. De(ember 2*/ ,8889 1-:# 7he Senate ,lue <ibbon $o ittee acting on a report ade by +S.DP $hief $ol. Lictor $orpu@, conducted an investigation in aid of legislation on the alleged ulti illion bank deposits of Sen.. Ping -acson, a public official with various local banks. 6ay the $o ittee subpoena records of the local banks to deter ine the e3tent of Sen. -acson=s deposits? 23plain # S.>>ESTED ANSWER? No. The Senate Bl#e R bbon 2omm ttee s not a (om$etent (o#rt hear n+ (ases o! br bery or derel (t on o! d#ty o! $#bl ( o!! ( als. The hear n+s o! the 2omm ttee are n a d o! le+ slat on.

$,%

Othe S5e)ia+ 7aws

$a% The &hatte+ Mo tgage 7aw $A)t 180@ in e+ation to A ts# 1:@:3 1:@83 21:0 and 21:1 o0 the New &ivi+ &ode%
===1-8# 7o secure a debt to 4, ", the owner of Supre e >rugstore, e3ecuted a chattel ortgage covering the goods contained in the drugstore. 7he deed of chattel ortgage provides that !all goods, stock?in?trade, furniture and fi3tures hereafter purchased by the ortgagor shall be included in and covered by the ortgage.# &pon default by ", 4 sought to foreclose the ortgage on the goods then found in the drugstore, half of which were ad ittedly acquired after the e3ecution of the chattel ortgage. +f you were the lawyer of ", what argu ents would you advance to defeat the foreclosure on the after?acquired property ? +f you were the 1udge, how would you decide. 5Bar? ,86C9 S.>>ESTED ANSWER? A!ter a('# red sto(3s n trade are not (o%ered by the (hattel mort+a+e. As :#d+e/ !ore(los#re &o#ld be allo&ed. Where sto(3s n trade are the s#b:e(t o! a (hattel mort+a+e/ they (o#ld n(l#de sto(3s s#bse'#ently $#r(hased to re$len sh those &h (h e" sted at the e"e(#t on o! the mort+a+e b#t are not anymore a%a lable be(a#se they ha%e been sold n the meant me. NOTES AND 2O--ENTS? a. Ins! an)e on )a )ove ed ./ )hatte+ *o tgage# Where the $ro% s ons o! the 2hattel -ort+a+e does not a#thor 0e the mort+a+ee to a$$ly $re% o#s $ayments !or the (ar to the ns#rer/ the mort+a+ee has to send not (e to the mort+a+or ! t de( des to (on%ert any o! the $re% o#s nstallments made by the mort+a+or to the $ayment !or the rene&al o! the ns#ran(e. 5Ser% (e& de S$e( al sts/ In(or$orated %. 2o#rt o! A$$eals/ et al./ >.R. No. ,,)@87/ -ay 6/ ,88E/ Se(ond D % s on9 ===b. (o e)+os! e o0 )hatte+ *o tgage on s!.4e)t o0 *o tgage $re(l#des re(o%ery o! de! ( en(y ! art (le !ore(losed s art (le $#r(hased and (o%ered by the (hattel mort+a+e. I! the (hattel mort+a+e s to se(#re a loan transa(t on/ other than one n%ol% n+ a $#r(hase/ there (o#ld be re(o%ery o! the de! ( en(y.

$.% Rea+ Estate Mo tgage 7aw $A)t -1-83 as a*ended ./ R#A# :11@% $)% The Inso+ven)/ 7aw $A)t 1<8,%
1-,# What is suspension of pay ents ? S.>>ESTED ANSWER? The remedy a%a lable #nder the Insol%en(y la& !or a nat#ral or :#r d (al $erson &ho/ ha% n+ s#!! ( ent assets to meet h s obl +at ons/ !oresees the

E,

m$oss b l ty o! meet n+ them &hen they !all d#e/ and there!ore $resents a $ro$osal to $ay h s obl +at ons on dates later than the r d#e dates. NOTES AND 2O--ENTS? === a. P o)ed! e 0o s!s5ension o0 5a/*ents# I! nat#ral $ersons are nsol%ent/ $et t on sho#ld be ! led & th the Re+ onal Tr al 2o#rt. ,9 A l n+ o! a $et t on a((om$an ed by an n%entory o! assets and a deta led s(hed#le o! obl +at ons/ amo#nts and the r d#e datesB 29 Iss#e by the (o#rt o! an order sett n+ the $la(e and date !or meet n+ o! (red torsB *9 P#bl (at on o! the order and ser% (e o! s#mmons to all (red tors l sted n the $et t onB C9 -eet n+ o! (red tors and a$$ro%al o! debtor1s $ro$osal by (red tors/ at least 2N* n n#mber re$resent n+ *N@ o! all the l ab l t esB @9 Ob:e(t ons/ ! any/ by the other (red torsB E9 Order o! the (o#rt to m$lement the a+reement.. ===b. Inso+ven)/ disting!ished 0 o* s!s5ension o0 5a/*ents# ,9 In nsol%en(y/ the l ab l t es o! the debtor are more than h s assets WDI4E n s#s$ens on o! $ayments the assets o! the debtor are more than h s l ab l t esB 29 In nsol%en(y/ the assets o! the debtor are to be (on%erted nto (ash !or d str b#t on amon+ h s (red tors/ WDI4E n s#s$ens on o! $ayments the debtor s as3 n+ !or t me & th n &h (h to (on%ert h s $ro$ert es nto (ash & th &h (h to $ay h s (red tors as the obl +at ons !all d#e. *9 In nsol%en(y the $#r$ose s to obta n d s(har+e !rom all debts and l ab l ty WDI4E n s#s$ens on o! $ayments the $#r$ose s to delay $ayment o! debts &h (h rema n #na!!e(ted altho#+h a $ost$onement o! $ayments s de(lared. 1-9# What is voluntary insolvency ? S.>>ESTED ANSWER? A $ro(eed n+ ta3en by a debtor/ ha% n+ obl +at ons e"(eed n+ P,/))).)) &ho/ & th h s e" st n+ assets (annot meet all o! them +oes to the (o#rt to ha%e h msel! be de(lared as an nsol%ent. NOTES AND 2O--ENTS? a. P o)ed! e 0o vo+!nta / inso+ven)/: ,9 A l n+ o! $et t on a((om$an ed by an n%entory o! assets and s(hed#le o! l ab l t esB 29 The (o#rt ss#es an order de(lar n+ h m as an nsol%entB *9 P#bl (at on o! the order/ and ser% (e o! the order on the (red tors ment oned n the $et t onB C9 2red tors meet to ele(t an ass +nee/ to &hom are (on%eyed all the debtor1s assetsB @9 4 '# dat on and $ayment o! (red torsB E9 2om$os t on 5a+reement bet&een debtor and (red tor9/ ! a+reedB 79 Order o! d s(har+e o! the nsol%ent. NOTES AND 2O--ENTS? a. The o.+igations o0 an inso+vent de.to that s! vives ad4!di)ation o0 inso+ven)/ o )+ai*s that )o!+d .e 5! s!ed against a de.to des5ite his having .een 5 ono!n)ed as inso+vent# ,9 Ta"es and assessments d#e the +o%ernment/ nat onal or lo(alB 29 Obl +at ons ar s n+ !rom embe00lement or !ra#dB *9 Obl +at on o! any $erson l able & th the nsol%ent debtor !or the same debt/ e ther as sol dary (o-debtor/ s#rety/ +#arantor/ $artner/ ndorser or other& seB C9 Al mony or (la ms !or s#$$ortB and @9 Debts not $ro%able a+a nst the estate 5s#(h as a!ter n(#rred obl +at ons9 o!/ or not n(l#ded n the s(hed#le s#bm tted by/ the nsol%ent debtor. b. Invo+!nta / inso+ven)/ disting!ished 0 o* vo+!nta / inso+ven)/# ,9 In%ol#ntary three or more (red tors are re'# red WDI4E !or %ol#ntary one (red tor may be s#!! ( entB 29 In%ol#ntary/ the (red tors m#st be res dents o! the Ph l $$ nes &hose (red ts or demand a((r#ed n the Ph l $$ nes and none o! the (red tors has be(ome a (red tor by ass +nment & th n th rty 5*)9 days $r or to the ! l n+ o! the $et t on WDI4E no s#(h re'# rements e" st !or %ol#ntary nsol%en(yB *9 In%ol#ntary/ the amo#nt o! ndebtedness m#st not be less than P,/))).)) WDI4E !or %ol#ntary/ t m#st e"(eed P,/))).))B C9 In%ol#ntary/ the $et t on m#st be a((om$an ed by a bond/ WDI4E %ol#ntary does not re'# re a bond

E2

1-@# What is involuntary insolvency ? S.>>ESTED ANSWER? A $ro(eed n+ ! led by three or more (red tors &hose (red ts a++re+ates not less than P,/))).))/ or by a (or$orat on or $artnersh $ to de(lare a debtor nsol%ent be(a#se he has (omm tted any one o! the a(ts o! nsol%en(y en#merated by la&. NOTES AND 2O--ENTS? a. P o)ed! e 0o invo+!nta / inso+ven)/# ,9 A l n+ o! $et t onB 29 Ans&er o! de!endantB *9 Tr al and order o! (o#rt ad:#d+ n+ debtor as an nsol%ent/ ! s#$$orted by the !a(tsB C9 P#bl (at on o! the order and ser% (e o! t on all (red torsB @9 Ele(t on by (red tors o! an ass +nee and (on%eyan(e o! debtor1s assets to h mB E9 4 '# dat on and $ayment o! (red torsB 79 2om$os t onB 69 D s(har+e o! the nsol%ent. b. A)ts o0 inso+ven)/ whi)h wa ants 0i+ing o0 5etition 0o invo+!nta / inso+ven)/: The debtor? ,9 Is de$art n+ !rom the Ph l $$ nesB 29 Is absent and (ont n#ed to be absentB *9 2on(eals h msel! !rom :#d ( al $ro(essB C9 Remo%es or (on(eals h s $ro$ert esB @9 Allo&ed h s $ro$ert es to be atta(hed by othersB E9 2on!essed or allo&ed :#d+ment to be ta3en a+a nst h mB 79 Allo&ed :#d+ment by de!a#lt a+a nst h mB 69 Allo&ed $ro$erty to be ta3en by le+al $ro(ess to + %e $re!eren(e to (erta n (red torsB 89 -a3e ass +nment/ + !t or saleB ,)9 In (ontem$lat on o! nsol%en(y/ made $ayments or + !t to anotherB ,,9 De!a#lted n $ayment o! obl +at ons !or *) daysB ,29 Aa led a!ter *) days to s#rrender money de$os ted n tr#st & th h mB ,*9 Ao#nd to ha%e ns#!! ( ent $ro$ert es to sat s!y a :#d+ment.

$d% T !th in the 7ending A)t $R#A# -9,8%3 $As a*ended ./ the &ons!*e A)t o0 1<<2%
1-<# What are required to furnished under the 7ruth in the -ending .ct, as a ended by the $onsu er .ct of (GG8, to a person to who credit sales is e3tended ? S.>>ESTED ANSWER? Any (red tor shall !#rn sh to ea(h $erson to &hom (red t s e"tended/ $r or to the (ons#mmat on o! the transa(t on/ a (lear statement n &r t n+ sett n+ !orth/ to the e"tent a$$l (able and n a((ordan(e & th r#les and re+#lat ons $res(r bed by the -onetary Board o! the "a*+ko Se*tra& *+ Pi&ipi*as/ the !ollo& n+ n!ormat on? ,9 the (ash $r (e or del %ered $r (e o! the $ro$erty or ser% (e to be a('# redB 29 the amo#nts/ ! any/ to be (red ted as do&n $ayment andNor trade- nB *9 the d !!eren(e bet&een the amo#nts set !orth #nder (la#ses 5,9 and 529B C9 the (har+es/ nd % d#ally tem 0ed/ &h (h are $a d or to be $a d by s#(h $erson n (onne(t on & th the transa(t on b#t &h (h are not n( dent to the e"tens on o! (red tB @9 the total amo#nt to be ! nan(edB E9 the ! nan(e (har+e e"$ressed n terms o! $esos and (enta%osB and 79 the $er(enta+e that the ! nan(e (har+e bears to the total amo#nt to be ! nan(ed e"$ressed as a s m$le ann#al rate on the o#tstand n+ #n$a d balan(e o! the obl +at on. B 69 the e!!e(t %e nterest rateB 89 the re$ayment $ro+ramB and ,)9the de!a#lt or del n'#en(y (har+es on late $ayments. NOTES AND 2O--ENTS? a. Re>!i ed to 0! nished !nde the T !th in the 7ending A)t3 as a*ended ./ the &ons!*e A)t o0 1<<23 to a 5e son to who* )ons!*e +oan is e6tended: ,9 the amo#nt o! (red t e"tendedB 29 the (har+es/ nd % d#ally tem 0ed/ &h (h are $a d or to be $a d by s#(h $erson n (onne(t on & th the transa(t on b#t &h (h are not n( dent to the e"tens on o! (red tB

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*9 the total amo#nt to be ! nan(edB C9 the amo#nt o! ! nan(e (har+e e"$ressed n terms o! $esos and (enta%osB @9 the e!!e(t %e nterest rateB E9 the $er(enta+e that the ! nan(e (har+e bears to the total amo#nt to be ! nan(ed e"$ressed as a s m$le ann#al rate on the o#tstand n+ #n$a d balan(e o! the obl +at on. B 79 the de!a#lt or del n'#en(y (har+es on late $aymentsB and 69 the des(r $t on o! the se(#r ty. b. T ansa)tions whi)h e>!i e the a.ove dis)+os! es: ,9 2red t salesB 29 O$en (ons#mer (red t $lanB *9 2ons#mer loans not o$en and (ons#mer (red tB and C9 Sale o! (ons#mer $rod#(ts on nstallment bas s. (. Hand+ing )ha ges not e0+e)ted on the 5 o*isso / notes )o!+d not .e )o++e)ted ./ the .an;# Ban3s are a#thor 0ed #nder 2entral Ban3 2 r(#lar No. @)C to (olle(t handl n+ (har+es. Se(t on 7 o! the same 2 r(#lar/ ho&e%er/ $ro% des that all ban3s and non-ban3 ! nan( al ntermed ar es a#thor 0ed to en+a+e n '#as -ban3 n+ !#n(t ons are re'# red to str (tly adhere to the $ro% s ons o! the Tr#th n 4end n+ A(t and shall ma3e the tr#e and e!!e(t (ost o! borro& n+ an nte+ral $art o! e%ery loan (ontra(t. 52onsol dated Ban3 and Tr#st 2or$orat on SSol dban3T %s. 2o#rt o! A$$eals/ et al./ >.R. No. 8,C8C/ H#ly ,C/ ,88@/ A rst D % s on9

?OO' 7U&F N A'CAN&E &ON?RATU7ATIONS N SEE BOU IN &OURT N