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Reviewer in Mercantile Law

(lifted from San Beda Reviewer 2012)
DISTINCTIONS

INTELLECTUAL PROPERTY CODE

Inter Parties
Proceedings
Civil Proceedings
Kinds
Patent
a. Petition to cancel an
invention, utility model
registration, industrial
design registration, or
any claim or parts of a
claim.
b. Petition for compulsory
licensing or a license to
exploit a patented
invention

Copyright, Patent,
Trademark
Action for
Infringement
Trademark
a. Opposition against the
registration of a mark
published for
opposition.
b. Petition to cancel the
registration of a mark.
Trademark
Action for Unfair
Competition
Nature of Proceedings
Administrative Judicial
Jurisdiction
IPO (Bureau of Legal Affairs) Regular Courts
Jurisdiction
Substantial Evidence Preponderance of Evidence


Patent Copyright
When a person, by
independent research arrives
at the same product or that is
already patented, he is
restrained by the arm of the
law from exploiting such an
invention by reason of the
patent granted the earlier
discoverer.
It may be vested in a work
closely similar or even identical
to an earlier, or already
patented work, provided that
the former is truly original, i.e.,
it owes its existence to its
creator.
Non-patentable inventions may
be subject of copyright.

Utility Model Industrial Design
Any new model of
implements or tools of any
industrial product even if not
possessed of the quality of
invention but which is of
practical utility. (Del Rosario
v CA)
Any composition of lines or
colors or any three-
dimensional form whether or
not associated with lines or
colors provided that such
composition or form gives a
special appearance to and can
serve as pattern for an
industrial product or handicraft
(Sec. 112.1)

Patent Utility Model Industrial Design
Requisites
a. Invention
technical
solution of a
problem in any
field of human
activity. (Sec
23)
b. New (novel)
that which does
not form part
of a prior art
(Sec 23)
c. Inventive An
invention
involves an
inventive step
if, having
regard to prior
act, it is not
obvious to a
person skilled
in the art at the
time of the
filing date or
priority date of
the application
claiming the
invention (Sec.
26)
d. Industrially
Patentable an
invention that
can be
produced and
used in any
industry (Sec.
27)
a. New
b. Industrially
applicable
New
Has all of the 4
essential requisites
No Inventive Step No Inventive Step
and Industrially
applicable
Term
20 years from the
filing date of the
application
7 years from the
filing date of the
application; non-
renewable
5 years from the filig
date of the
application, which is
renewable for not
more than 2
consecutive periods
of 5 years each
Applicable Rules
Secs. 20-107 Secs. 108-111 and
provisions on
patents applying
mutatis mutandis
Secs. 112-120 and
certain provisions on
patents applying
mutatis mutandis
Classes of Patentable
Inventions
Non-patentable Inventions
1. Useful machine
2. A product
3. A process
4. Improvement of (1),
(2), (3)
5. Micro-organism
1. Discoveries, scientific
theories and
mathematical method;
2. Schemes, rules and
methods of
performing mental
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6. Non-biological and
microbiological
process
acts, playing games or
doing businesses, and
programs for
computers;
3. Methods for
treatment of the
human or animal
body;
4. Plant varieties or
animal breeds of
essentially biological
process for the
production of plants or
animals;
5. Aesthetic Creations;
6. Anything which is
contrary to public
order or morality (Sec
22)

Situation Persons Entitled to Patent
2 or more persons invented
separately and independently
He who first files.
2 or more applications filed for
the same invention
Applicant who has the earliest
filing date or earliest priority
date.
Inventions created pursuant to
a commission
Person who commissioned the
work, unless agreed otherwise.
Employee makes the invention
in the course of employment
Employee: If the invention NOT
part of his regular duties even
if he uses the time, facilities
and materials of the employer;

Employer: If the invention is
the result of the performance
of his regularly assigned duties
unless agreed otherwise. (Sec.
30)

Persons who may file an Application for a Patent in the
Philippines
As to Nationality As to the Legal Personality of
the Applicant
1. Filipino Nationals;
2. Foreign Nationals or
those domiciled or
have a real and
effective commercial
establishment in a
country which is
bound by treaty
(such as the Paris
Convention and the
TRIPS Agreement) to
grant Filipinos the
same rights it grants
its own nationals;
3. Foreign Nationals
whose country also
accepts the patent
application of
Filipinos
1. Inventor or his
attorney-in-fact;
2. Assignee of the
invetor

Trademark Trade Name
Separate Existence
Has an existence distinct from
the existence of the proprietor
or juridical person doing
business and producing the
goods or the services offered
by such person or enterprise.
Attached to the natural and
juridical person who does
business and produces the
goods or services
Purpose
Designates the goods or
services offered by person or
enterprise
Identifies and distinguishes an
enterprise
Registration
Must be registered in order to
secure protection for them
No need to register in order to
secure protection for them
Transferability
May be transferred with or
without transfer of the
business (Sec. 149.1)
Change of ownership of trade
name must be made with
transfer of enterprise or part
thereof (Sec. 165.4)

Trademark Goodwill
Right which protects the
interests of producers in their
marks and in the goodwill
earned.
Reputation and public
confidence that a business
venture has earned through a
period of creditable dealings.

Trademark Label
Designed to identify the user or
origin.
Merely names what is within
the container or package; may
or may not be trademark.

Declaration of Actual Use or Non-Use
Under Sec. 124-2 Under Sec. 145
When to File
Within 3 years from the filing
date
Within 1 year from the 5
th

anniversary of the date of the
registration of the mark
Effect of Failure to File
Application shall be refused of
the mark shall be removed
from the register by the
Director
Mark shall be removed from the
Register by the office
What to File
Declaration of actual use with
evidence to that effect
1. Declaration of actual
use with evidence to
that effect; or
2. Show valid reasons
based on the
existence of obstacles
to such use
(declaration of non-
use)

Grounds for Cancellation of Registration
Within 5 Years from
Registration
At Any Time
Belief that the registered mark
has damage or will damage
the petitioner
1. Becoming the generic
name for the goods or
services for which it is
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registered;
2. Abandonment
3. Illegal or fraudulent
registration;
4. Use by, or with the
permission of the
registrant so as to
misrepresent the
source of the goods or
services in connection
with which the mark is
used;
5. Non-use for an
interrupted period of
3 years without
legitimate reason

Confusion of Goods/Services Confusion of Business/Origin
Exists when the ordinary
prudent purchaser would be
induced to purchase once
product or service because of
the similarity of the marks or
trade names used on the same
kind of product or service.
Exists when one partys
product or service though
different from that of another,
is such as might reasonably be
assumed to originate from the
latter and the public would
then be deceived into the
belief that there is some
connection between the
parties, which in fact is absent.
Confusingly similar marks are
used on the same kinds of
goods/services.
Confusingly similar marks are
employed in different or non-
competing goods/services.

Dominancy Test Holistic/Totality Test
Focuses on the similarity of the
main, essential, dominant or
prevalent features of a mark.

Exact duplication or imitation is
not necessary.

This test is incorporated in the
intellectual property code and
is controlling.

Relies on visual, aural, and
connotative comparisons and
overall impressions between
the two marks. (Societe Des
Produits Nestle, SA vs CA)
Mandates that the entirety of
the marks in question must be
considered in determining
confusing similarity.

Relies on visual comparison.

Infringement of Trademark Unfair Competition
Definition
Unauthorized use of a
trademark
The passing off of ones goods
as those of another
Fraudulent Intent
Fraudulent intent is
unnecessary
Fraudulent intent is essential
Registration
Prior registration of the
trademark is a prerequisites to
the action
Registration is not a
prerequisite to an action
Scope
Limited scope Wider scope
Goods Involved
Same class of goods or services
must be involved
Different classes of goods or
services may be involved



Creator To Whom it Belongs
Single Creator Author of the work, his heirs or
assigns
Joint Creator If work consists of
UNIDENTIFIABLE parts: Co-
authors jointly as co-owners,
unless there is agreement to the
contrary.

If work consists of IDENTIFIABLE
parts: author of each part owns
the part that he has created.
Employees Creation If the creation is PART of his
regular duties: EMPLOYER,
unless there is agreement to the
contrary

If it is not: EMPLOYEE
Commissioned Work Work itself: Person
Commissioning

Copyright: Creator, unless there
is a written stipulation to the
contrary
Cinematographic Works For exhibition purposes:
Producer

For all other purposes:
Producer, author of the
scenario, composer, film
director, author or the work
Anonymous and
pseudonymous works
Publishers are deemed
representative of the author,
unless:
i. The contrary
appears;
ii. Pseudonyms or
adopted name
leaves no doubt
as to the authors
identity; or
author discloses
his identity
Collective Works CONTRIBUTOR is deemed to
have waived his right, unless he
expressly reserves it (Sec. 196)
Letters Writer.
However, the court may
authorize their publication
dissemination if the public good
or the interest of justice so
requires.
Duration of Copyright
Type of Work Duration
Single Creation Lifetime of the creator and for
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50 years after his death
Joint Creation Lifetime of the last surviving
creator and for 50 years after
his death
Anonymous or a
pseudonymous work
50 years after the date of their
first publication;

Except where, before the
expiration of said period, the
authors identify is revealed or
is no longer in doubt, the 1
st

two mentioned rules shall
apply; or if unpublished, 50
years from their making
Work applied art, an artistic
creation with utilitarian
functions or incorporated in a
useful article, whether made by
hand or produced on an
industrial scale
25 years from the date of
making
Photographic work, audiovisual
work produced by photography
or analogous processes
50 years from the publication
of the work, or if unpublished,
from making the same
Newspaper article Lifetime of the author and 50
years thereafter

Collective Work Joint Work
Elements remain unintegrated
and disperate
Separate elements merge into
a unified whole
Work created by 2 or more
persons at the initiative and
under direction of another with
the understanding that it will
be disclosed by the latter under
his own name and that
contributions of natural
persons will not be identified
Work prepared by 2 or more
authors with the intention that
their contributions be merged
into inseparable or
interdependent parts of the
unitary whole.
Each author shall enjoy
copyright to his own
contribution
Joint authors shall be co-
owners. Co-ownership shall
apply
Unless the contributor
expressly reserves his right, it is
the putative author to whom
the work will be attributed
Joint authors shall be entitled
both to be acknowledged as
authors of the work

















































































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Distinctions on Copyright Patent and Mark
Copyright Patent Mark
Definition
It is that system of legal protection an author
enjoys in the form of expression of ideas.
(World Intellectual Property Organization)

An intangible, incorporeal right granted by
statute to the author or originator of certain
literary or artistic productions, whereby he is
invested, for a limited period, with the sole
exclusive privilege of multiplying copies of
the same and publishing and selling them
An exclusive right acquired over an invention,
to sell, use and make the same whether for
commerce or industry.

Refers to either the grant of rights, or the
instrument (sometimes called letters patent)
containing the grant, giving an inventor a
monopoly on the inventors invention for a
limited period.
Any visible sign capable of distinguishing the
goods of an enterprise (trademark) of the
services of an enterprise (service mark), and
includes a stamped or marked container of
goods
Purposes
1. To stimulate artistic creativity for
the general public good; and
2. To promote the progress of science
and useful arts
1. Not only to reward the individual,
but the advancement of the arts
and sciences;
2. To add to the sum of useful
knowledge; and
3. To encourage dissemination of
information concerning discoveries
and inventions
1. To indicate origin or ownership of
articles to which they are attached;
2. To guarantee that those articles
come up to a certain kind of
quality;
3. To advertise articles they
symbolize;
4. To assure the public that they are
producing genuine article; and
5. To protect the manufacturer
against substitution and sale of an
inferior and different article
Requirements
1. Originality
2. Expression
Any technical solution of a problem in any
field of human activity which is:
1. New or novel;
2. Inventive; and
3. Industrially applicable
1. Upon application:
Must be registrable:
a. Absolutely non-registrable
b. Qualified registrable
Doctrine of secondary
meaning
2. Within 3 years from the application
Declaration and evidence of actual
use
Term
See Table on Duration of Copyright 20 years from the filing date of the
application
10 years from the filing date of the
application, provided the registrant shall file
a declaration of actual use within a year from
the 5
th
anniversary of registration date and
renewable for another 10 years
How Created/Acquired
From the moment of creation First to file system Valid Registration
General Limitations
1. Duration/temporal The owner is limited by the terms of their property rights
2. Territorial/geographical The owner is protected by the law of the country where the violation is committed
3. For violations in another country, resort must be made to the law of the other country, subject to the principle of reciprocity













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BULK SALES LAW

Effects of False Statements in the Schedule of Creditors
False Statement Effect
Without knowledge of buyer If the statement is fair upon its
face, the buyer will be
protected. The creditors
remedy is not against the
goods but to prosecute the
seller criminally.
With knowledge or imputed
knowledge of buyer
The vendee accepts it at his
peril. The sale is VALID
between the vendor and the
vendee but void as against the
creditors
With names of certain creditors
without notice omitted
The sale is Void as to such
creditors, whether that
omission was fraudulent or
not.
With respect to an innocent
purchaser for value from the
original
Purchaser shall be protected.
However, purchaser will be
liable if there is constructive
notice.

Effects of Violation of BSL
Between the parties Valid Contract
Between persons Other than
the creditors
Valid Contract
As to affected creditors of the
seller/mortgagor
Valid Contract
Purchaser acts as a TRUSTEE OR RECEIVER for the benefit of the
creditors of the seller.
CRIMINAL LIABILITY, if expressly provided.


WAREHOUSE RECEIPT LAW

Negotiable Instrument Negotiable Warehouse Receipt
Subject
Money Merchandise
Object of Value
Instrument itself Goods deposited
Liability if Intermediate Parties
Secondary (NIL) None (for failure to deliver the
goods)
Effect of Deliberate Alteration
Null and void Valid, but enforceable only in
accordance with its original
tenor
Conversion from Bearer to Order
Originally bearer instrument
will always be such
Converted to an order WR of
specially indorsed
Significance of Holder in Due Course
May obtain a better title Obtains only the title which the
party negotiating has over the
goods.

Negotiable WR Non-negotiable WR
May be acquired through
negotiation
May be acquired through
transfer or assignment
Rights of the person to whom it Rights of transferee:
is negotiated (holder)
1. Title to the goods of
the person
negotiating the
receipt and title of
the person to whose
order the goods were
to be delivered;
2. Direct obligation of
the warehouseman
to hold possession of
the goods for him, as
if the warehouseman
directly contracted
with him.
1. Title of the goods, as
against the
transferor;
2. Right to notify the
warehouseman of
the transferor and
acquire the direct
obligation of the
warehouseman to
hold the goods for
him.
Negotiation defeats the lien of
the seller of the goods.

Goods represented cannot be
subject to attachment or levy
by execution, unless in proper
circumstances
Goods represented can be
subject to attachment or levy
by execution

TRUST RECEIPTS LAW

Rights and Obligations of Parties
Entruster Entrustee
Rights
Entitled to the
proceeds from the
sale of goods,
documents or
instruments;
Entitled to the
returns of goods, etc.
In case of non-sale;
To enforce all other
rights conferred on
him under the TRL;
Extent of security
interest:
As against
innocent
purchaser
for value
not
preferred
To cancel the trust,
take possession of
goods, and to sell the
goods in a public sale
in case of default;
May purchase at the
intended public sale
1. To receive the
surplus from the
public sale
2. To have possession of
the goods as a
condition for his
liability under the TRL
Obligations
1. To give possession of
the goods to the
entrustee;
2. To give at least 5 days
notice to the
entrustee of the
intention to sell the
goods at an intended
1. To hold the goods or
the sale proceeds in
trust for the
entruster;
2. To comply with his
alternative
obligation;
3. To insure against loss
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public sale the goods for their
total value;
4. To keep the goods or
sale proceeds
separate and
identifiable
5. To observe all the
conditions of the
trust receipt not
contrary to the
provisions of the TRL
Liabilities
Not liable as principal or
vendor and any sale or contract
to sell made by the entrustee.
Risk of loss of the goods.

CODE OF COMMERCE

Civil Law Code of Commerce
Perfection
Theory of Cognition
(acceptance made by letter or
telegram does not bind the
offeror except from the time it
came to his knowledge and
that the contract is presumed
to have been entered into in
the place where the offer was
made.)
Theory of Manifestation
(contracts shall be perfected
from the moment an answer is
made accepting the offer.)
Designation of Period
If the obligation does not fix a
period, action would have to
be filed with the courts for the
fixing of the period.
Obligations which do not have
a period previously fixed by the
parties shall be demandable
ten days (10) after having been
contracted if they give rise only
to an ordinary action, and on
the next day if they involve
immediate action.
Concept of Delay and Default
Depends on the actuations of
the oblige or creditor no
demand, no liability, EXCEPT of
time is of the essence in the
contract.
Every debtor would be in
default, without need of a
demand

Absolute Incapacity Relative Incapacity
Extends throughout the
Philippines
Extends only to the territory
where the officers exercising
his functions
Act is rendered null and void Subject the violator to
disciplinary action or
punishment

Commercial Partnership Joint Account
Common Name
A common name can be
adopted
No common name can be
adopted
Common fund
With a common fund No common fund
Juridical Personality
With a juridical personality No juridical personality
Liability of Partners
All general partners are liable Only the ostensible partner is
liable
Management
All partners participate in the
management, unless they
agree to have a managing
partner
Managed by ostensible partner
alone

Particular Partnership Joint Venture
Firm Name
Participating merchants can
transact business under their
own name
Informed partnership, with no
form name
Personality and Individual Liability
With a legal personality, but
partners can be individually
liable therefor if they transact
business in their own name
No legal personality,
participants are individually
liable
Number of transactions
Generally relates to a
continuing of business of
various transactions of a
certain kind
Usually limited to a single
transaction, although the
business of pursuing to a
successful termination may
continue for a number of years

Partnership Corporation
Creation
Created by mere agreement o
the parties
Created by law or by operation
of law
Number of Incorporators
May be organized by at least
two persons
Requires at least five
incorporators (except a
corporation sole)
Commencement of Judicial Personality
Acquires juridical personality
from the moment of execution
of the contract of partnership
Acquires juridical personality
from the date of issuance of
the certificate of incorporation
by the SEC
Powers
Partnership may exercise any
power authorized by the
partners (provided it is not
contrary to law, morals, good
customs, public order, public
policy)
Corporation can exercise only
the powers expressly granted
by law or implied from those
granted or incident to its
exercise
Management
When management is not
agreed upon, every partner is
an agent of the partnership
The power to do business and
manage its affairs is vested in
the board of directors or
trustees
Effect of Management
A partner as such can sue a co-
partner who mismanages
The suit against a member of
the board of directors or
trustees who mismanages must
be in the name of the
corporation
Rights of Succession
Partnership has no right of
succession
Corporation has a right of
succession
Extent of Liability to Third Persons
Partners are liable personally Stockholders are liable only to
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and subsidiarily (sometimes
solidarily) for partnership debts
to third persons
the extent of the shares
subscribed by them (limited
liability feature)
Transferability of Interest
Partner cannot transfer his
interest in the partnership so
as to make the transferee a
partner without the unanimous
consent of all the existing
partners because the
partnership is based on the
principle of delectus
personarum
Stockholder has generally the
right to transfer his shares
without prior consent of the
other stockholders because
corporation is not based on this
principle
Term of Existence
Partnership may be established
for any period of time
stipulated by the partners
Corporation may not be
formed for a term in excess of
50 years extendible to not
more than 50 years in any one
instance
Firm name
Limited partnership is required
by law to add the word Ltd.
To its name
Corporation may adopt any
name provided it is not the
same as or similar to any
registered firm name
Dissolution
May be dissolved at any time
by any or all of the partners
Can only be dissolved with the
consent of the State
Governing Law
Governed by the NCC Governed by the Corporation
Code

Primary Secondary
Nature of Franchise
Refers to the franchise of being
or existing as a corporation
Refers to the exercise of right
or privilege. Ex. Public Utility or
telecommunication franchise
To Whom Vested
Vested in the individuals who
compose the corporation
Vested in the corporation after
its incorporation and not upon
the individuals who compose
the corporation
Alienability
Cannot be sold or transferred,
in the absence of legislative
authority to do so. This is
because it is inseparable from
the corporation itself.
May be sold or transferred
under a general power granted
to a corporation to dispose of
its properties; may also be
subject to sale on execution or
levy.

CORPORATION CODE

Public Private
Government Control
Being mere instrumentalities of
the State, are subject to
Governmental visitation and
control
Not subject to visitation,
control, or charge by the State,
except in the exercise of police
power.
Consent as to Creation
May be created without the
consent of the locality to be
affected
Consent of the incorporators is
necessary to the creation

Incorporators Corporators
Nature of Membership
Signatory to the Articles of
Incorporation
Stockholder (stock corporation)
or member (non-stock
corporation)
Contractual Capacity
Must have contractual capacity May be such through a
guardian
Permanence
Fait accompli, accomplished
fact (the AOI cannot be
amended to replace them)
They may cease to be such if
they subsequently lose their
shareholdings
Number
Number is limited to 5-15 No restriction as to number

Share of Stock Certificate of Stock
Incorporeal or intangible
property
Tangible property
Represents the right or interest
of a person in a corporation
Written evidence of that right
or interest
May be issued even if the
subscription is not fully paid
As a rule, may not be issued
unless the subscription is fully
paid

Charter Franchise
Nature
The INSTRUMENT bestowing
upon the corporation the right
or privilege of being a
corporation
The right and privilege itself of
being a corporation

Differences between De jure, De facto and Corporation by
Estoppel
De jure De Facto By Estoppel
As to who can question its corporate existence
No one not even
the State
Only the State in a
direct proceeding
State or any third
person who relied
in good faith on its
representations
As Being Subject to a Direct and Collateral Attack
Not subject Direct Both collateral and
direct
As to creation
Complied with all
mandatory
requirements for
incorporation
Has not complied
with all
requirements but
has complied
sufficiently
Absence of
conditions
precedent needed
for a de facto
corporation
As to liabilities of officers and directors
Liable only to the
extent of their
subscription unless
acted in bad faith
Same as de jure All who have
knowledge of its
lack of authority to
act as such are
liable as general
partners
As to capacity to sue or be sued
Can sue and be
sued
Can sue and be
sued
General Rule:
Cannot sue or be
sued;

Exception: by a 3
rd

Page 9 of 26

party who relied on
its representations
in good faith

Stock Corporation Non-Stock corporation
Presence During Election
Owners of a majority of the
outstanding capital stock, in
person or by their authorized
representative as such by
written proxy, must be present
at the election of the directors
A majority of the members
entitled to vote, in person or by
proxy, if allowed in its AOI or
by-laws, must be present in the
election.
Manner of Voting
Cumulative voting is
mandatory; a matter of right
granted by law to each
stockholder with voting rights.
Cumulative voting is not
available unless allowed by the
articles or by-laws.

Corporate Officer Corporate Employee
Basis
Position is provided for in the
by-laws or under the
Corporation Code
Employed by the action of the
managing officer of the
corporation
Jurisdiction
RTC has jurisdiction in case of
dispute
NLRC has jurisdiction in case of
labor disputes

Classification of Powers or Authority
Inherent Express Implied
That authority to
act and bind the
corporation which
the officer has by
reason of his office
although it may not
be sanctioned by
express authority
Every power or
authority expressly
conferred upon him
by law and the by-
laws of the
corporation
Includes all such
incidental authority
as is necessary,
usual, and proper
to effectuate the
main authority
expressly conferred

Apparent or Ostensible Authority By Estoppel
When in the usual course of
the business an officer or agent
is held by such corporation or
has been permitted to act for it
in such way as to justify third
persons who deal with him in
assuming that he is doing an
act or making a contract within
the scope of his authority.
When a corporation, by its
voluntary act, places an officer
or agent in such a position or
situation that persons of
ordinary prudence are justified
an assuming that he has
authority to perform the act in
question

Section 31, 2
nd
paragraph Section 34
Applicable to directors,
trustees and officers
Only applicable to directors
Does not allow ratification of a
transaction by a self-dealing
directors, trustees or offers
Allows the ratification of a
transaction by a self-dealing
directors i.e. by the votes of
stockholders representing 2/3
of the outstanding capital stock
Covers stock and non-stock
corporations
Covers stock corporations only

Express Powers Implied Powers
Refers to the main business,
objects and purposes of the
corporation
Refers to the means and
methods of attaining those
objects and purposes
Determined by the corporate
charter and the applicable law
May change according to time,
place and surrounding
circumstances
The test is whether they are
found in the words of the
charter of the law
The test is whether they are
fairly incidental to the express
powers and reasonably
necessary to carry them out in
furtherance of the
corporations business

Bonded Indebtedness Debenture
Secured by a mortgage on
corporate properly
Serial obligations or notes
issued on the basis of the
general credit of the
corporation. Hence, they are
not bonded indebtedness

Pre-emptive Right Right of First Refusal
May be exercised even when
there is no express provision of
law
Arises only by virtue of
contractual stipulations but is
also granted under the
provisions on Close
Corporation
Pertains to unsubscribed
portion of the authorized
capital stock. A right that may
be claimed against the
corporation.
Exercisable against another
stockholder of the corporation
of his shares of stock.

Cash Dividends Stock dividends
Authority to declare
Declared only by the board of
directors at its discretion
Declared by the board with the
concurrence of the
stockholders representing at
least 2/3 of the outstanding
capital stock at a
regular/special meeting
Disbursements of funds
Involves a disbursement to the
stockholders of accumulated
earnings
Does not involve any
disbursement of funds
Corporate Capital
Does not increase the
corporate capital
Corporate capital is increased
Creation of debts
Its declaration creates a debt
from the corporation to each of
its stockholders
No debt is created by its
declaration
Liability to Corporate Creditors
When declared and paid
becomes the absolute property
of the stockholder and cannot
be reached by creditors of the
corporation in the absence of
fraud
Since it is still part of corporate
property, may be reached by
corporate creditors

Stock Dividends Stock Splits
There is capitalization of
earnings or profits, together
Merely a dividing up of
outstanding shares of a
Page 10 of 26

with a distribution of the added
shares which evidence the
assets transferred to capital.
corporation into a greater
number of units; without
disturbing the stockholders
original proportional
participating interest in the
corporation





Executive Committee Management Contract
Creation
Its creation must be provided
for in the by-laws
Express power of a corporation
Authority
A governing body which
functions as the board itself.
Management company must
always be subject to the
superior power of the board to
give specific directions from
time to time or to recall the
delegation of managerial
power.

Ultra Vires Acts Illegal Acts
Nature
Not necessarily unlawful, but
outside the powers of the
corporation
Unlawful; against law, morals,
public policy, and public order
Susceptibility of Ratification
Cannot be ratified,

Reason: In Civil Law, ratification
is an act of approving a
contract entered into by
another without authorization.
It is required that at the time of
the ratification, the cause of
nullity has already ceased to
exist. An ultra vires act is not
within the power of the
corporation; hence, the ground
for being such cannot cease
Cannot be ratified because
they are void ab initio
Binding effect
Can bind the parties if wholly
or partly executed on the basis
of estoppels
Cannot bind the parties

Articles of Incorporation By-Laws
Nature
Condition precedent in the
acquisition of corporate
existence
Condition subsequent; its
absence merely furnishes a
ground for the revocation of
the franchise
Purpose
Constitutes the charter or
fundamental law of the
corporation
Merely rules and regulations
adopted by the corporation
Time of Execution
Executed before incorporation May be executed after
incorporation. Sec. 46 allows
the filing of the by-laws
simultaneously with the AOI
Amendment
Amended by a majority of the
directors/trustees and
stockholders representing 2/3
of the outstanding capital
stock, or 2/3 of the members in
case of non-stock corporations
May be amended by a majority
vote of the BOD and majority
vote of outstanding capital
stock or a majority of the
members in non-stock
corporation
Delegation of Power to Amend
Power to amend/repeal articles
cannot be delegated by the
stockholders members to the
board of directors/trustees
Power to amend or repeal by-
laws or adopt new by-laws may
be delegated by the 2/3 of the
outstanding capital stock or 2/3
of the members in the case of
non-stock corporation

Resolution By-laws
Nature and Subject Matter
Merely a declaration of will of
the corporation in a given
matter and in the nature of a
manifested act; applies only to
a single act of corporation.
Permanent rule of action of the
conduct of corporation affairs.
Rule in case of conflict
Subordinate Prevail over resolution
Necessity of approval by SEC
No need for approval unless
required by law
Subject to the approval of SEC

Stockholders Board of Directors/Trustees
Regular: annually, provided
that notice is sent two weeks
before the meeting;

Special: at any time, provided
that notice is sent one week
before meeting
Regular meeting is held
monthly unless otherwise
provided by the by-laws. Notice
must be sent one day prior to
the meeting, unless held
abroad.
Called upon by any person
authorized or upon petition to
SEC by any stockholder
Called upon by the President,
unless otherwise provided in
the by-laws
Notice may be waived Notice may be waived
Must be held in the city or
municipality where the
principal office is located, if
practicable in the principal
office
May be held in or out of the
Philippines
Petitioner, person chosen by
majority stockholders or
President may preside at
meetings
President presides the
meetings
Proxy is allowed Proxy is not alloweds

Voting Trusts Proxy
Nature
The trustee votes as owner The proxy holder votes as
agent
Notarization
The agreement must be
notarized
Proxy need not be notarized
Legal title
Trustee acquires legal title to Proxy has no legal title to the
Page 11 of 26

the shares of the transferring
stockholder; only beneficial
title remains with the
stockholder
shares of the principal
Manner of voting
The trustee may vote in person
or by proxy unless the
agreement provides otherwise
The proxy must vote in person
Actions allowed
Trustee is not limited to act at
any particular meeting
Proxy can only act at a
specified stockholders meeting
(of not continuing)
Restrictions on Voting
A trustee can vote and exercise
all the rights of the stockholder
even when the latter is present
A proxy can only vote in the
absence of the owners of the
stock
Period
An agreement must not exceed
5 years at any one time except
when the same is made a
condition of a loan
A proxy is usually of shorter
duration although under Sec.
58 it cannot exceed 5 years at
any one time
Separability of Ownership and Voting Right
The voting right is divorced
from the ownership of stocks
The right to vote is inherent in
or inseparable from the right to
ownership of stock
Revocability
The agreement is irrevocable Revocable anytime except one
couple with interest

Subscription Purchase
Period
Can be made before or after
incorporation
Can only be made after
incorporation
Payment
Generally, the subscriber need
not pay unless there is a call
The purchaser under a deed of
assignment or sale shall pay
according to agreement
Release from Obligation to Pay
Subscriber cannot be released
from his obligation to pay the
subscription price
The stockholders who sells his
shares can condone the
obligation to pay the purchase
price
Statute of Frauds
The Statute of Frauds does not
apply to subscription contracts
The State of Frauds applies if
the purchase price is not less
than P500.00

Underwriting Agreement Stock Subscription Agreement
Obligation
The signers obligate
themselves to purchase the
shares of stock which cannot
be sold.
The obligation of the signer to
the purchasers and to the
public is absolute.
Commission
Underwriters are given
commission.
There is no commission.
Becoming a Stockholder
The signer can refuse to
become a stockholder/member
of the company.
He becomes a stockholder of
the company and is liable to
pay the amount due on the
stock.

Shares of Stock Certificate of Stock
Nature
Unit of interest in a corporation Evidence of the holders
ownership of the stock and of
his right as a shareholder
Classification
Incorporeal or intangible
property
Concrete and tangible
Condition for Issuance
May be issued by the
corporation even if the
subscription is not fully paid.
May be issued only if the
subscription of fully paid.

Merger Consolidation
A union whereby one or more
existing corporations are
absorbed by another
corporation which survives and
continues the combined
business.
The union of two or more
existing corporations to form a
new corporation called the
consolidated corporation.

Merger and Consolidation Sales of Assets
Acts involved
Sale of assets is always
involved
Merger/ consolidation is not
always involved
Transfer of title
Title to the assets are
transferred by operation of law
Transfer of title is by virtue of
contract
Assumption of Liabilities
There is automatic assumption
of liabilities
Purchasing corporation is not
generally liable for the debts
and liabilities of the selling
corporation
Dissolution
The constituent corporations
are automatically dissolved
The selling corporation is not
dissolved by the mere transfer
of all its property
Liquidation
There is continuance of the
enterprise and of the
stockholders
The selling corporation
ordinarily contemplates
liquidation of the enterprise

Stock Non-stock
Nature
Has capital stock divided into
shares and with authority to
distribute dividends to its
stockholders
Does not have shares and may
not distribute profits to its
members
Meeting/Voting of members/Stockholders
Stockholders and directors
must act in a meeting, except
where a mere written assent is
sufficient or a formal meeting
unnecessary
Members may be allowed by
the by-laws to vote by mail or
other similar means
Manner of voting
Cumulative voting is available
in the election of directors
Cumulative voting not available
unless otherwise provided in
the articles or by-laws
Proxy
Stockholders may vote by Members may be deprived of
Page 12 of 26

proxy the right to vote by proxy in
the articles or by-laws
Non-transferability of Membership
Stockholders may transfer their
shares
Members cannot transfer their
membership unless allowed by
the articles or by-laws
Directors/Trustees
Directors cannot exceed 15 in
number
Trustees may exceed 15 in
number
Term of director/trustee
The term of a director is 1 year The term of a trustee is 3 years;
1/3 of the Board shall be
elected annually
Election of Officers
Officers are elected by the
Board of Directors
Officers may be directly elected
by the members unless
otherwise provided in the
articles or by-laws
Place of meeting of Stockholders
Stockholders meetings shall be
held in the city or municipality
where principal office of
corporation is located, and if
practicable in the principal
office.

Board of Directors meetings
may be held in or outside the
Philippines, unless the by-laws
otherwise provides
The by-laws may provide that
members of a non-stock
corporation may hold their
meetings at any place within
the Philippines.

Trustees place of meetings
may also be held in or outside
the Philippine unless the by-
laws otherwise provides

Reason: The provisions
governing stock corporation,
apply suppletorily to non-stock
corporations, except as may be
covered by specific provisions
of the Code pertaining to non-
stock corporations

Ordinary Stock Corporation Close Corporation
Articles of Incorporation
Its articles of incorporation
need only contain the general
matters enumerated in Sec. 14
of the Code
Its articles must contain the
special matters prescribed by
Sec. 97, aside from the general
matters in Sec.14. Failure to do
so precludes a de jure close
corporation status
Ownership of Stocks
Its status as an ordinary stock
corporation is not affected by
the ownership of its voting
stock or voting rights
2/3 of its voting stock or voting
rights must not be owned or
controlled by another
corporation which is not a
close corporation
Classification of Directors
Its articles cannot classify its
directors
Its articles may classify its
directors
Election/appointment of Officers
The corporate officers and
employees are elected by a
majority vote of all the
members of the board of
directors
Its articles may provide that
any or all of the corporate
officers or employees may be
elected or appointed by the
stockholders
Management
Business of the corporation is
managed by the board of
directors
Business of the corporation
may be managed by the
stockholders if the articles so
provide, but they are liable as
directors
Pre-emptive right
The pre-emptive right is subject
to the exceptions found in Sec.
39.
The pre-emptive right is subject
to no exceptions unless denied
in the articles
Appraisal Right
The appraisal right may be
exercised by a stockholder only
in the cases provided in Secs.
81 and 42 of the Code.
The appraisal right may be
exercised and compelled
against the corporation by a
stockholder for any reason.
Purchase of its own shares
Except as regards redeemable
shares, the purchase by the
corporation of its own stock
must always be made from the
unrestricted retained earnings.
In case of an arbitration of any
intra-corporate deadlock by
the SEC, the corporation may
be ordered to purchase its own
shares from the stockholders
regardless of the availability of
unrestricted retained earnings
Remedy of Arbitration
Arbitration of intra-corporate
deadlock by the SEC is not a
remedy in case the directors,
stockholders are so dividend
respecting the management of
corporation
Arbitration of intra-corporate
deadlock by the SEC is an
available remedy in case the
director or stockholder are so
divided respecting the
management of the
corporation

Liquidation Rehabilitation
Nature
Connotes a winding up or
settling with creditors and
debtors
Connotes a reopening or
reorganization
Continuity of Corporate Life
Winding up process so that
assets may be distributed to
those entitled
Contemplates a continuance of
corporate life in an effort to
restore the corporation to its
former successful operation

NEGOTIABLE INSTRUMENTS LAW

Promissory Note Bill of Exchange
Nature
Unconditional promise Unconditional order
Number of Parties
Involves 2 parties Involves 3 parties
Liability of Creator
Maker is primarily liable Drawer is only secondarily
liable
Presentment
Only one presentment: for
payment
Generally two (2)
presentments: for acceptance
and for payment
Note: 2 presentments: only in
cases provided in Sec. 143
Right to Limit Liability
Maker of note may NOT insert
an express stipulation limiting
or negativing his own liability
Drawer may insert in the
instrument an express
stipulation limiting or
Page 13 of 26

to the holder negativing his own liability to
the holder

Exchange Check
When payable
May be payable on demand or
at a fixed or determinable
future time

Presentment
Must be presented for
acceptance
Need not to be presented, for
acceptance, however, if the
holder requests and the banker
desires, he may accept
Drawn on Deposit
Need NOT be drawn on a
deposit, hence it is not
necessary that the drawer of a
bill of exchange should have
funds in the hands of the
drawee
Is drawn on deposit, otherwise,
there would be fraud
When presentment made
May be presented for payment
within reasonable time after its
last negotiation.
Must be presented for
payment within a reasonable
time after its issue.
Effect of acceptance/certification
If accepted drawer/indorser
remains liable
If certified drawer/indorers
are discharged
Effect drawers death
Death of a drawer of a BOE,
with the knowledge of the
bank, does not revoke the
authority of the drawee to pay.
Death of the drawer of a check,
with the knowledge of the
bank, revokes the authority of
the banker to pay.

Negotiable Instruments Non-negotiable Instruments
Applicable
Only NI is governed by the NIL Application of the NIL is only by
analogy
Transferability
Transferable by negotiation or
by assignment
Transferable only by
assignment
Transferee
The transferee can be a HDC if
all the requirements are
complied with
The transferee remains to be
an assignee and can never be a
HDC
Defenses
A holder in due course takes
the NI free from personal
defenses
All defenses available to prior
parties may be raised against
the last transferee
Nature of title
Requires clean title, one that is
free from any infirmities in the
instrument and defects of title
of prior transferors
Transferee acquires a derivate
title onlys
Solvency of the Debtor
Solvency of debtor is in the
sense guaranteed by the
indorsers because they engage
that the instrument will be
accepted, paid or both and that
they will pay if the instrument
is dishonoured.
Solvency of debtor is not
guaranteed under Art. 1628 of
the NCC unless expressly
stipulated

Fund for Reimbursement Particular Fund for Payment
Acts Involved
Drawee pays the payee from
his own funds, afterwards the
drawee pays himself from the
particular fund indicated
There is only one act the
drawee pays directly from the
particular fund indicated.
Payment is subject to the
condition that the fund is
sufficient
Nature of Fund Indicated
Particular fund indicated is NOT
the direct source of payment
but only the source of
reimbursement
Particular fund indicated is the
direct source of payment
Effect
Unconditional Conditional
EXAMPLE
Pay to the order of X P1,000
and reimburse yourself from
the rentals of my house.

Sgd. Y
I Promise to pay X or order the
sum of P1, 000 out of my salary
in KYZ corporation.

Sgd. Y

Instruments payable to order Instruments payable to bearer
Payee
The payee must be named or
indicated with reasonable
certainty
The payee need not be
indicated, it is enough that it is
expressed to be so payable to
bearer
Negotiation
This is negotiated by
indorsement coupled by
delivery
This is negotiated by delivery
Conversion
Instrument originally payable
to order can be converted into
a bearer instrument through
blank indorsement
Instrument originally payable
to bearer cannot be converted
into order instrument. A bearer
is always a bearer and can be
negotiated by mere delivery
even if especially indorsed

Assignment Negotiation
Applicable law
Governed by the Civil Code Governed by the NIL
Type of transaction
Pertains to contracts in general Pertains to NI
Nature of the Transferee
The transferee is a mere
assignee
The transferee is a holder who
may be a holder in due course
Rights acquired
Assignee steps into the shoes
of the assignor and merely
acquires whatever rights the
assignor may have
Holder in due course may
acquire a better right than the
right of the transferor
Availability of defenses
Assignee takes the instrument
subject to the defenses
obtaining among the original
parties
Holder in due course takes it
free from personal defenses
available among the parties
As to possibility of becoming holder in due course
The transferee can never be a The transferee can be a holder
Page 14 of 26

holder in due course in due course in proper cases

Holder in due course Not HDC
Compliance with Requisites
All the circumstances under
Sec. 52 if NIL are present
One or some or all of the
requisites or circumstances
under Sec. 52 is/are absent
Real Defenses
His rights can be defeated by
real defenses
His rights can be defeated by
real defenses
Personal Defenses
His right cant be defeated by
personal defenses
His rights can be defeated be
personal defenses
Rights
He has right to enforce
payment, sue in his own name
and negotiate the instrument
He has right to enforce
payment, sue in his own name,
and negotiable the instrument

Liability Warranty
Liability to pay
Makes the parties liable to pay
the sum certain in money
stated in the instrument.
Impose no direct obligation to
pay in the absence of breach
thereof. In case of breach, the
person who breached the same
may either be liable or barred
from asserting a particular
defense.
Requisites to enforce liability
Conditioned on presentment
and notice of dishonour
Does not require presentment
and notice of dishonour
When action must be brought
Action cannot be brought until
maturity of instrument
May be brought at any time;
the breach may even occur at
the time of transfer

Primary Liable Secondary Liable
Liability
Who by the terms of the
instrument is absolutely
required to pay the same
Who by the terms of the
instrument is not absolutely
required to pay the same
Unconditionally bound to pay Conditionally bound to pay
When to Pay
Absolutely required to pay
upon maturity of instrument
Required to pay after
conditions have been fulfilled,
to wit due presentment for
payment or acceptance of
primary party, dishonour by
such party, and the taking of
the proceedings required by
law after dishonor.

Secondarily Liable
Drawer General Indorser Irregular Indorser
Admits the
existence of the
payee and his
capacity to indorse;
Warrants to all
subsequent HDC

That the
instrument is
genuine and in
all respect what
it purports to
A person, not
otherwise a party
to an instrument,
places his signature
thereon in blank
before delivery.

If instrument
be;
He has good
title to it;
All prior
parties had
capacity to
contract;
The instrument
is, at the time of
endorsement,
valid and
subsisting
payable to the
order of a 3
rd

person, he is liable
to the payee and
subsequent parties.
Engages that the
instrument will be
accepted or paid by
the party primarily
liable; and
Engages that the
instrument will be
accepted or paid, or
both, as the case
may be according
to its tenor, and
If the instrument
payable to order of
maker or drawer or
to bearer, he is
liable to all parties
subsequent to the
maker or drawer
Engages that if the
instrument is
dishonoured and
proper proceedings
are brought he will
pay to the party
entitled to be paid
If the instrument is
dishonoured and
necessary
proceedings on
dishonour be duly
taken, he will pay to
the party entitled
to be paid
If he signs for
accommodation of
the payee, he is
liable to all parties
subsequent to the
payee

Drawer Maker
Undertaking
Issues bill of exchange Makes a promissory note
Liability
Secondarily liable Primarily liable
Limitation of Liability
Can negative or limit his
liability
Cant limit his liability

Qualified Indorser Person Negotiating By delivery
Warranties
1. Instrument is genuine
and in all respects
what it purports to
be;
2. He has good title to
it;
3. All prior parties had
capacity to contract;
4. He has no knowledge
of any fact which
would impair the
validity of the
instrument or render
it valueless
Same warranties
To whom warranties extend
Liable to all parties who derive
their title through his
indorsement
Warranties extend to
immediate transferee only





Page 15 of 26

General Indorser Person Negotiating by Mere
Delivery or By Qualified
Indorsement
Nature of Liability
There is secondary liability and
warranties
No secondary liability; liable
only for breach of warranty
Warranty as to ignorance of Certain Facts
Warrants that the instrument
is, at the time of his
indorsement, valid and
subsisting regardless of
whether he is ignorant of that
fact or not
Warrants that he has no
knowledge of any fact which
would impair the validity of the
instrument or render it
valueless
To whom warranties extend
To subsequent holders in due
course; subsequent parties
deriving their title from holders
in due course and his
immediate transferee
Person Negotiating by Mere
Delivery to immediate
transferee only.

Qualified Indorser to all
parties who derive their title
through indorsement

Accommodation Party Regular Party
Purposes for Signing
Signs instrument for the
purpose of lending his name or
credit some other person
Does not sign for that purpose
in which the accommodation
party did
Value Received
Signs instrument without
receiving value therefor
Signs instrument for value
Availability of Parole Evidence
May always show by parole
evidence that he is only such a
party
Cannot disclaim or limit his
personal liability as appearing
on the instrument by parole
evidence
Availability of absence or failure of consideration as a defense
Cannot avail of the defense of
absence or failure of
consideration against a holder
NOT in due course
Can avail of said defense
against a person NOT a holder
in due course
Right to Sue
After paying the holder, may
sue for reimbursement the
accommodation party
May not sue any subsequent
party for reimbursement

Real Defenses Personal Defenses
Nature
Those that attach to the
instrument itself and are
available against all holders,
whether in due course or not,
but only by the parties entitled
to raise them
Those which are available only
against a person not a holder in
due course or a subsequent
holder who stands in privity
with him
Status of Contract
Void Voidable
Availability against HDC
Available against HDC Not available against HDC
Defenses
1. Prescription
2. Material Alteration
3. Illegality if declared
1. Non-delivery of
complete instrument
2. Ultra vires acts of
void for any
purposes;
4. Duress amounting to
forgery;
5. Want of authority of
agent;
6. Non-delivery of
Incomplete
Instrument
7. Forgery
8. Insanity where the
insane person has a
guardian appointed
by the court
9. Minority
10. Ultra vires Act of
Corporation
11. Discharge in
Insolvency
12. Fraud in Factum or
Esse Conctractus or
Fraud in Execution
13. Execution of
instrument between
public enemies
14. Marriage in the case
of a wife

Note: An instrument subject to
real defense cannot be
enforced against the person to
whom the defense is available
but it can be enforces against
those whom such defense is
not available such as under
Sec. 23
corporation where
the corporation has
the power to issue
negotiable paper bu
the issuance was not
authorized for the
particular purpose for
which it was issued
3. Negotiation in breach
of faith
4. Insertion of wrong
date in an instrument
5. Conditional delivery
of Complete
instrument
6. Filling up blank
beyond reasonable
time
7. Absence or failure of
consideration
whether partial of
total
8. Illegal consideration
9. Filling up blank not
within authority
10. Want of authority of
agent where he has
apparent authority
11. Fraud in inducement
12. Acquisition by force,
duress or fear
13. Intoxication
14. Mistake
15. Insanity where there
is no notice of
insanity on the part
of the one
contracting with the
insane person
16. Negotiation under
circumstances that
amount to fraud
17. Acquisition of the
instrument by
unlawful means

As Regards Immediate Parties
and Remote Parties who are
not HDC
As Regards HDC
Delivery must be coupled with
the intention of transferring
title to the instrument and
made either by or under the
authority of the party making,
drawing, accepting or
indorsing, as the case may be.
Delivery is conclusive if he is in
possession of a complete
instrument so as to make all
prior parties to him liable
It may be shown that:
a. There was no delivery
b. Delivery was not
authorized
c. Delivery was
conditional; or
d. Delivery was for a
It cannot be shown that there
was no delivery, or that
delivery was not authorized, or
that it was conditional, or
delivery was for a special
purpose only
Page 16 of 26

special purpose only


Comparison of Sections 14, 15 and 16 of the NIL
Sec 14 Sec 15 Sec 16
Delivery
Delivered Undelivered Undelivered

Note: Delivery may be conditional or for a
special purpose only and not for the purpose
of transferring the property in the
instrument
Completeness
Waiting in any
material particular
Blank paper with
signature
Mechanically incomplete Mechanically complete
Authority of person in possession
Prima facie authority
to complete it by
filling up the blanks
therein
Signature operates
as a prima facie
authority to fill it up
as such for any
account
No authority to complete and/or negotiate
instrument
May negotiate if delivered to him by or under
the authority of the party making, indorsing,
drawing or accepting, as the case may be
When enforceable
If filled up strictly in accordance with
authority given and within a reasonable time
Not enforceable When delivery is made by or under authority
of the party making, indorsing, drawing or
accepting as the case may be
Kind of Defenses
Personal Real Personal
Rights of Holder
1. If HDC, he can enforce the
instrument as completed against
parties prior or subsequent to the
completion
2. If not HDC, he can enforce the
instrument as completed only
against parties subsequent to the
completion but not against those
prior thereto.
None in the hands of any holder. However,
the invalidity of the instrument is only with
reference to parties whose signatures appear
on the instrument after delivery, the
instrument is valid
Can enforce the instrument

Note: Where the instrument is on the hands
of the HDC, a valid delivery thereof by all
parties prior to him so as to make them liable
to him is conclusively presumed. Where the
instrument is no longer in the possession of a
party whose signature appears thereon, a
valid and intentional delivery to him is
presumed until the contrary is proved.

Absence of Consideration Failure of Consideration
Definition
It is the total lack of any valid
consideration.
It is the neglect or failure of
one of the parties to give, to do
or to perform the
consideration agreed upon.

Order Instrument Bearer Instrument
Makers Signature Forged
Maker is not liable because he
never became a party to the
instrument
Maker is not liable

Indorsers subsequent to
forgery are liable because of
their warranties
Indorsers may be made liable
to those persons who obtain
title through their
indorsements
Party who made the forgery
liable
Party who made the forgery
liale
Payees signature forged
Majer and payee not liable Maker is liable
Indorsers subsequent to
forgery are liable
Indorsement is not necessary
to title and the maker engages
to pay holder
Party who made the forgery
liable
Party who made the forgery
liable
Indorsers signature forged
Maker, payee and indorser
whose signature was forged is
not liable
Maker is liable. Indorsement is
not necessary to title and the
maker engages to pay the
holder
Indorsers subsequent to
forgery are liable because of
their warranties
Indorser whose signature was
forged not liable
Party who made the forgery is
liable
Party who made the forgery is
liable










Page 17 of 26

Bills of Exchange
Order Instrument Bearer Instrument
Drawers signature forged
Drawer is not liable because he
was never a party to the
instrument
Drawer is not liable
Drawee is liable if it paid (no
recourse to drawer) because
he admitted the genuiness of
the drawers signature.

Drawee cannot recover from
the collecting bank because
there is no privity between the
collecting bank and the drawer.
The latter does not give any
warranty regarding the
signature if the drawer
Drawee is liable if it paid.
Drawee cannot recover from
the collecting bank because it is
bound to know the drawers
signature since the latter is its
depositor.

The drawee may recover from
the drawer when the latters
negligence is the proximate
cause of the loss or contributed
thereto.
Indorsers subsequent to
forgery liable (such as
collecting bank or last
endorser)

Party who made the forgery is
liable
Party who made the forgery is
liable
Payees signature forged
Drawer, drawee and payee not
liable. Cut-off Rule applies
Drawer is liable (his
indorsement is not necessary
to pass title)
Drawee is liable (No privity
between drawer and payee
because indorsement of payee
is not necessary)
Payee is not liable
Indorsers subsequent to
forgery are liable (such as
collecting bank)
But it may recover from the
person who forged the
indorsement on the check and
deposited or encashed the
same
Party who made the forgery is
liable
Party who made the forgery is
liable
Indorsers signature forged
Drawer, payee and indorser
whose signature was forged
not liable (Cut off Rule does not
apply)
Drawer is liable (indorsement
not necessary to title)
Drawee is liable if it paid Drawee is liable
Indorsers subsequent to
forgery are liable (such as
collecting bank)
Indorser whose signature was
forged is liable because
indorsement is not necessary
to title
Party who made the forgery is
liable
Party who made the forgery is
liable

When Notice of Dishonor is not Required to Be Given to
Drawer (Sec 114) Indorser (Sec 115)
Drawer and drawee are the
same
Drawee is a fictitious person or
does not have the capacity to
contract, and indorser was
aware of that fact at the time
he indorsed the instrument
Drawee is a fictitious person or
not having the capacity to
Indorser is the person to whom
the instrument is presented for
contract payment
Drawer is the person to whom
the instrument is presented for
payment
Instrument was made or
accepted for his
accommodation
The drawer has no right to
expect or require that the
drawee or acceptor will honor
the instrument

Where the drawer has
countermanded payment


Enforcement of Liability
Presentment Notice of Dishonor
Payment Acceptance
Promissory Notes
Bills of Exchange
Checks
Sec. 143
Bill payable
after sight or
when it is
necessary in
order to fix the
maturity of the
instrument
Bill expressly
stipulates
Bill drawn
payable
elsewhere than
at the residence
or place of
business of the
drawee
Promissory Notes
Bills of Exchange
Checks
By whom
Holder/Agent Holder/Agent Secs. 90 & 91
Holder/Agent
By or on behalf
or any party who
might be
compelled to
pay it to the
holder and who
have a right of
reimbursement
from the party
to whom the
notice is given
To Whom
Secs. 76, 77, 78
Person Primarily
Liable:

- Maker/
Drawer
- If the debtor is
dead, to his
personal
representative
- If liable as
partners,
presentment
may be made
to any one of
them
Sec. 145
Drawee/Agent
WITH AUTHORITY
TO ACCEPT OR
REJECT
(because
acceptance gives
rise to a liability on
the part of the
drawee)
- If there are
two or more
drawee who
are not
partners,
presentment
Secs. 89 & 97
Drawer/indorser or
any person
secondarily liable or
his Agent

Secs. 98-101
- If dead, to his
personal
representative
- If partners,
notice to any
one partner is
sufficient
- IF jointly liable,
notice must be
Page 18 of 26

- Any person
found at the
place of
presentment
(Substituted
Presentment)
must be made
to all of them
unless one has
authority to
accept or
refuse for all.
- If drawee is
dead,
presentment
must be made
to his personal
representative
- If adjudged
bankrupt or
insolvent or
has made an
assignment,
presentment
must be made
to him, his
trustee or
assignee
given to each
of them unless
one has
authority to
receive notice
for the others
- If adjudged
bankrupt or
insolvent or an
assignment
was made,
notice must be
given to him,
his trustee or
assignee.
How Made
Sec. 74
By exhibiting the
instrument
By producing the
bill (because the bill
will be stamped
ACCEPTEC)
Either VERBALLY or
in WRITING; must
describe the
instrument and
state the fact of
presentment and
the fact of
dishonor.
When Made
Secs. 72 & 85
If instrument is
payable on a future
determinable time,
must be presented
on DUE DATE,
except when it falls
due on a Saturday,
Sunday or a
holiday, in which
case, presentment
must be made on
the NEXT BUSINESS
DAY.

Sec. 85/194
If instrument is
payable on
demand, it must be
made with
REASONABLE TIME

Note after issue
Bill from the last
negotiation
Checks 6 months
after issue including
Saturday up to 12
noon
- If payable on a
future
determinable
time, it must
be presented
BEFORE IT IS
OVERDUE or
AT MATURITY
- If payable on
demand, the
bill must be
presented with
a REASONABLE
TIME FROM
LAST
NEGOTIATION
including
Saturdays up
to 12 nn.
- If living in the
SAME AREA,
notice must be
given within
24 HRS FROM
DISHONOR
- If living in
DIFFERENT
AREA, the
DROPPING OF
LETTE IN A
MAILBOX is
sufficient
compliance
Where Made
Sec. 73
- Place
designated by
the parties
- If none, at the
address of the
maker/
acceptor as
stated in the
instrument
- If none, at his
residence or
office
- If none, any
place where
he is found
NO REQUIREMENT
because it is
immaterial. What is
important is that
the bill was
accepted
- Address of
party
indicated/
added in his
instrument
- If none, at his
residence or
office
- If none, where
he is
sojourning
Secs. 79-82
When the drawer
has no right to
expect or require
that the drawee or
acceptor will pay
the instrument.

Where the
instrument was
made or accepted
for his
accommodation
and he has no
reason to expect
that the instrument
will be paid of
presented.

When the delay is
caused by
circumstances
beyond the control
of the holder and
not imputable to
his default,
misconduct or
negligence.

Even after the
exercise of due
diligence,
presentment
cannot be made.

Drawee is a
fictitious person.

Waiver, express or
implied.
Sec. 148
Drawee is dead,
adbsconded, a
fictitious person or
a person not having
the capacity to
contract by bill.

After the exercise
of due diligence,
presentment
cannot be made.

Although
presentment was
irregular,
acceptance has
been refused on
some other ground.
Secs. 122-114
(DRAWER)
After the exercise
of due diligence, it
cannot be given to
or does not reach
the parties sought
to be charged.

Delay is caused by
circumstances
beyond the control
of the holder and
nor imputable to
his default,
misconduct or
negligence.

Drawer and drawee
is the same person.

Drawee is a
fictitious person or
a person not having
the capacity to
contract.

Drawer is the
person to whom
the instrument is
presented for
payment.

Drawer has no right
to expect or require
that the drawee or
acceptor will honor
the instrument.

Drawer has
countermanded
payment.

Sec. 115 (
INDORSER)

When the draween
Page 19 of 26

is a fictitious person
or a person not
having the capacity
to contract and the
indorser was aware
of that fact at the
time he indorsed
the instrument.

Indorser is the
person to whom
the instrument was
presented for
payment

When the
instrument was
made or accepted
for his
accommodation

Inland BE Foreign BE
A bill which or on its face
purports to be both drawn and
payable WITHIN the
Philippines.
One which is or on its face
purports to be drawn or
payable OUTSIDE the
Philippines.

Notice of Dishonor Protest
When Required
Required in inland bill Required in foreign bill
Form
May be oral or written Always written
By Whom Made
May be made by a party or
agent
Made by a notary public or a
respectable resident in the
presence of witness
Where Made
Made id residence of parties Made in the place of dishonor

Ordinary Acceptance Acceptance for Honor
Necessity of Protest
Previous protest is not required Previous protest is required
Consent of Holder
Implied Required
Liability of Acceptor
Primary Secondary
By whom Accepted
Drawee is acceptor Acceptor must be stranger to
the bill
Number of Acceptors
No acceptors in the alternative
or in succession
There may be several acceptors
for honor for different parties
in the bill
For whose benefit
Benefits the holder and all
prior parties
Benefits parties subsequent to
party for whose honor the bill
is accepted
Effect of payment
Instrument is discharged upon
payment by the acceptor
Bill is not discharged upon
payment by acceptor for honor

Acceptance For Honor Payment for Honor
Bill
Bill must be overdue Bill may be overdue
Previous Protest
Previously protested for non-
acceptance or for better
security
Previously protested for non-
payment
Consent of Holder
Consent of the holder is
necessary
Consent of the holder is not
necessary
Liability
Acceptor is secondarily liable Acceptor is primarily liable
By whom Made
Made by a stranger or party
not liable on the bill
Made by any person whether a
party or stranger to the bill
Notarial Act
Notarial act of honor not
necessary
Notarial act of honor necessary
Effects
Secs. 164, 165 Secs. 175, 177

Payment by Person Primarily
Liable
Payment for Honor
Necessity of Protest
No need to protest for non-
payment or non-acceptance
Need to protest for non-
payment
Party Liable
A party the maker or the
drawee-accceptor
May ne a stranger or may be a
party
In whose favour payment is made
In favour of specific parties In favour od a specified person
and the law requires that there
is a statement of the person for
whose honor payment is made
Notarial Act
Not necessary Necessary
Payment in Due Course
Discharges the instrument Cannot be payment in due
course and payment discharges
only the parties after the party
in whose favor payment for
honor is mades




















Page 20 of 26

INSURANCE CODE

Wagering Contract Contract of Insurance
The parties contemplate gain
through mere chance.
The parties seek to distribute
the possible loss by reason of
mischance.
Gambler courts misfortune Insured seeks to avoid
misfortune
Tends to increase the
inequality of fortune
Tends to equalize fortune
Essence of gambling is that
whatever one wins from a
wager is lost by the other
wagering party.
The gains of the one insured
are not at the expense of
another insured.
As soon as the party makes a
wager, he creates a risk of loss
to himself where no such risk
existed previously.
The purchase of insurance does
not create a new and non-
existing risk of loss to the
purchaser.

Insurable Interest in Property Insurable Interest in Life
Extend
Insurable interest is limited to
the actual value of the interest
thereon
Insurable interest in life is
unlimited (save in life insurance
effected by a creditor on the
life of the debtor)
Existence of Insurable Interest
Must exist when the insurance
takes effect and when the loss
occurs, but need not exist in
the meantime.
It is enough that interest exist
at the time the policy takes
effect and need not exist at the
time of the loss.
Basis of expectation
There must be legal basis Expectation of the benefit
derived need not have legal
basis
Insurable Interest
The beneficiary must have an
insurable interest in the thing
insured.
If the insured secured the
policy, the beneficiary need not
have insurable interest over
the life of the insured; if
secured by the beneficiary, the
latter must have insurable
interest on the life of the
insured.

Standard or Union Mortgage
Clause
Open or Loss Payable
Mortgage Clause
Subsequent acts of the
mortgagor CANNOT affect the
rights of the assignee.

Reason: It is as if the insurer
made a new and independent
contract with the mortgage.
Acts of the mortgagor affect
the mortgagee.

Reason: Mortgagor does not
cease to be a party to the
contract (Secs. 8 & 9, Insurance
Code)

Concealment Misrepresentation
Act Involved
The insured withholds
information of material facts
from the insurer.
The insured makes erroneous
statements of facts with the
intent of inducing the insurer
to enter into the insurance
contract.
Materiality
Same rules apply to determine materiality
Effect
Same effect and gives the insurer the right to rescind the contract,
whether the concealment or misrepresentation be intentional or
not.

Warranty Representation
Nature
Part of the contract Mere collateral inducement
Form
Written on the policy, actually
or by referene
May be written in the policy or
may be oral
Materiality
Presumed material Must be proved to be material
Compliance
Must be strictly complied with Requires only substantial truth
and compliance
Effect of falsity/non-fulfillment
Falsity or non-fulfillment
operates as a breach of
contract
Falsity renders the policy void
on the ground of fraud

Condition Warranty
Effects
Limitation to the attachment of
the risk
Does not have that effect
Non-performance of which,
although in form executed by
the parties and delivered, does
not spring into life.
Does not suspend or defeat the
operation of the contract
The occurrence of breach temporarily renders the entire contract
voidable.

Over-insurance Double Insurance
Amount of Insurance
When the amount of the
insurance is beyond the value
of the insureds insurable
interest
There may be no over-
insurance as when the sum
total of the amounts of the
policies issued does not exceed
the insurable interest of the
insured
Number of Insurers
There may only be one insurer
involved
There are always several
insurers

Double Insurance Reinsurance
Interest
Involves the same interest Involves different interest
Subject
Subject of insurance is property Subject of insurance is the
original insurers risk
Insurer
Insurer remains in such
capacity
Insurer becomes the insured in
relation to the insurer
Insured
Insured is the party in interest
in the 2 contracts
Original insured has no interest
in the reinsurance contract
Insureds consent
Insured had to give his consent Insureds consent not
necessary

Page 21 of 26

Notice of Loss
In Fire Insurance In other types of Insurance
Required Not required
Effect of failure to furnish
Failure to give notice will
defeat the right of the insurer
to recover
Failure to give notice will not
exonerate the insurer, unless
there is a stipulation in the
policy requiring the insured to
do so.

Time for Payment of Claims
Life Policies Non-life Policies
A. Maturing upon the
expiration of the
term the proceeds
are immediately
payable to the
insured, except if
proceeds are payable
in instalments or
annuities, which shall
be paid as they
become due
B. Maturing at the
death of the insured,
occurring prior to the
expiration of the
term stipulated The
proceeds are payable
to the beneficiaries
within 60 days after:
presentation of claim
and filing of proof of
death
The proceeds shall be paid
within 30 days after the receipt
by the insurer of proof of loss,
and ascertainment of the loss
or damage by agreement of the
parties or by arbitration but
not later than 90 days from
such receipt of proof of loss,
whether or not ascertainment
is had or made

Perils of the Sea Perils of the Ship
Includes only those casualties
due to the:
1. Unusual violence; or
2. Extraordinary action
of wind and wave; or
3. Other extraordinary
causes connected
with navigation
A loss which in the ordinary
course of events, results from
the:
1. Natural and
inevitable action of
the sea;
2. Ordinary wear and
tear of the ship; or
3. Negligent failure of
the ships owner to
provide the vessel
with proper
equipment to convey
the cargo under
ordinary conditions

Marine Insurance Other Property Insurance
Information of 3
rd
persons
The information or the belief or
expectation of 3
rd
persons in
reference to a material fact is
material and must be
communicated
The information or belief of a
3
rd
party is not material and
need not be communicated,
unless it proceeds from an
agent of the insured whose
duty is to give information
Effects of concealment
The concealment of any fact in Concealment of any material
relation to any of the matters
stated in Sec. 110 does not
vitiate the entire contract but
merely exonerates the insurer
from a risk resulting from the
fact concealed.
fact will vitiate the entire
contract, whether or not the
loss results from the risk
concealed.s

General Average Particular Average
To whom inures
Has inured to the common
benefit and profit of all persons
interested in the vessel and
cargo
Has not inured to the common
benefit and profit of all persons
interested in the vessel and her
cargo
By whom borne
To be borne equally by all of
the interests concerned in the
venture
To be borne alone by the
owner of the cargo or the
vessel, as the case may be
Requisites
Requisites for the right to claim
contribution:
1. Common danger to
the vessel or cargo;
2. Part of the vessel or
cargo was sacrificed
deliberately;
3. Sacrifice must be for
the common safety
or for the benefit of
all;
4. Sacrifice must be
made by the master
or upon his authority;
5. It must not be caused
by any fault of the
party asking the
contribution;
6. It must be successful
ie. Resulted in the
saving of the vessel
7. It must be necessary


Co-Insurance Reinsurance
The insured procure insurance
at less than the value of the
insured property and is
deemed to be co-insurer as to
the deficiency. In case of loss,
the insured and insures shares
the same pro rata.
The insurer procures a 3
rd

person to insure him against
loss for liability by reason of
such original insurance. In case
of loss, the reinsurer will pay
the insurer for the risk
reinsured

Hostile Fire Friendly Fire
One that escapes from the
place where it was intended to
burn and ought to be.
One that burns in a place
where it was intended to burn
and ought to be
Insurer is liable Insurer is not liable

Suretyship Property Insurance
Classification
Accessory Contract Principal Contract
Number of Parties
3 parties; surety, obligor and
oblige
2 parties; insurer and insured
Page 22 of 26

Nature
Credit accommodation Contract of indemnity
Recovery
Surety can recover from
principal
Insurer has no such right; only
right of subrogation
Cancellation
Bond can be cancelled only
with consent of oblige,
Commissioner or court
May be cancelled unilaterally
either by insured or insurer on
grounds provided by law
Acceptance
Requires acceptance of oblige
to be valid
No need of acceptance by any
3
rd
party
Scheme
Risk-shifting device; premium
paid being in the nature of a
service fee
Risk-distributing device;
premium paid as a ratable
contribution to a common fund

TRANSPORTATION LAWS

Common Carrier Private Carrier
Governing Law
Law on Common Carriers Law on obligations and
Contract
State Regulation
Subject to State Regulation Not subject to state regulation
Availability
Holds himself out for all people
independently
Contracts with particular
individuals or groups only
Diligence
Extraordinary diligence is
required
Ordinary diligence is required
Presumption of Negligence
There is a presumption of fault
or negligence
No presumption of fault or
negligence
Exempting Circumstance
Prove extraordinary diligence
and Art. 1734, NCC
Caso fortuito, Art. 1174, NCC
Stipulation limiting liability
Parties may not agree on
limiting the carriers liability
except when provided by law
Parties may limit the carriers
liability, provided it is not
contrary to law, morals or good
customs

Time of Delivery
Stipulated in Contract/ Bill of
Lading
No stipulation
Carrier is bound to fulfil the
contract and is liable for any
delay; no matter from what
cause it may have arisen.

Ratio: Because it is presumed
that the carrier might have
provided a contingency for
such delay
a. Within a reasonable time
which shall depend on the
expected date of arrival in
the bill of lading or on the
nature of goods;
b. Carrier is bound to
forward them in the 1
st

shipment of the same or
similar goods which he
may make to the point of
delivery

Duty to Take Care of the Passengers Bags
In the Custody of the
Passengers (Hand-Carried)
In the Custody of the Common
Carrier (Checked-in)
Applicable Rules
Arts. 1998 and 2000-2003 of
the NCC
Arts. 1733-1753 of the NCC
Legal Nature of the Baggage
Necessary deposit Considered as goods
Required diligence by the Common Carrier
Diligence of a Depositary
(ordinary diligence)
Extraordinary diligence

For Acts of its Employees For Acts of Other Passengers
or Strangers
Required Diligence
Extraordinary diligence Ordinary Diligence
Nature of Liability
Tort; however the employee
must be on duty at the time of
the act
Not absolute; limited by Art.
1763 of the NCC

Cargo Manifest Bill of Lading
Declaration of entire cargo Declaration of specific part of
the cargo, is a matter of
business convenience based on
a contract
Purpose is to furnish Customs
officers with a list of goods
carried
Purpose is to protect the
importer or consignee

Breach of Contract Under Code of Commerce and COGSA
ART 366 COGSA Sec. 3 (6)
Applicability
1. Domestic/Inter-island/
coastwise transportation
2. Land, water, air
transportation
3. Carriage of goods
1. International/overseas/
foreign (from foreign
country to Phils.)

Note: Subject to the rule on
Paramount Clause

2. Water/maritime
transportation
3. Carriage of goods
Notice of Damage
1. Not a condition precedent
2. 3-day period from delivery
for claiming latent damage
3. If the damage is apparent,
the claim should be filed
immediately upon
discharge of the goods
Prescriptive Period
If none provided; Civil Code
applies
5 years no bill of lading
10 years with issued bill of
lading
One year from the date of
delivery (delivered but
damaged goods), or date when
the vessel left port or from the
date of delivery to the arrastre
(non-delivery or loss) which
shall run from delivery to the
arrastre operator and not to
the consignee.

The insurer who is exercising its
right of subrogation is also
bound by the one (1) yr
Page 23 of 26

prescriptive period.

However, it does not apply to
the claim against the insurer
for the insurance proceeds. The
claim against the insurer is
based on contract that expires
in ten (10) years.
Coverage
Damage, not misdelivery nor
delay
Loss or damage, not delay,
misdelivery or conversion
Effect of extrajudicial demand
Toll the prescriptive period
(must be written)
Does not toll the prescriptive
period
Stipulation as to shorter period
Parties can stipulate shorter
period
The 1-year period cannot be
shortened

Order of Preference in Case of Sale of Vessel
RA 6160 PD 1521
Effectivity Date
1969 1978
Applicability
Overseas shipping only Both domestic and overseas
shipping
Kind of Sale
Judicial Judicial and extrajudicial
Order of Preference
A preferred, mortgage shall
have priority over all claims
against the vessel, except the
following preferences in the
order stated:
1. Judicial costs of the
proceedings;
2. Taxes due the
Philippines
Government;
3. Salaries and wages of
the Captain and Crew
of the vessel during
its last voyage;
4. General average or
salvage including
contract salvage,
bottomry loans and
indemnity due
shippers for the value
of goods transported
but which were not
delivered to the
consignee;
5. Costs of repair and
equipment of the
vessel, and
provisioning of foods,
supplies and fuel
during its last voyage;
and
6. Preferred mortgages
registered prior in
time.
The preferred mortgage lien
shall have priority over all
claims against the vessel,
except the following
preferences in the order
stated:
1. Expenses and fees
allowed and costs
taxed due to the
Government;
2. Crews wages;
3. General average;
4. Salvage, including
contract salvage;
5. Maritime liens arising
prior in time to the
recording of the
preferred mortgage;
6. Damages arising out
of tort; and
7. Preferred mortgage
registered prior in
time.

Right of Abandonment
Shipowner or Ship Agent Consignee
What may be abandoned
Vessel Goods shipped
Instances
In case of civil liability from
indemnities to 3
rd
persons.

Sec. 138, Insurance Code

In case of leakage of at least
of the contents of cargo
containing liquids.
Partial non-delivery, where the
goods are useless without the
others.

Goods are rendered useless for
sale or consumption for the
purposes for which they are
properly destined; and

In case of delay through the
fault of the carrier.
Effects
Transfer of ownership of the
vessel from the shipowner to
the shippers or insurer.

In case of (2), the insurer must
pay the insured must pay the
insured as if there was actual
total loss of the vessel.
Transfer of ownership on the
goods from the shipper to the
carrier.

Carrier should pay the shipper
the market value of the goods
at the point of destination.

Lease Charter Party
If for a definite period, lessee
cannot give up the lease by
paying a portion of the amount
agreed upon.
Charterer may rescind charter
party by paying half of the
freightage agreed upon.
If the leased property is sold to
one who knows of the
existence of the lease, the new
owner must respect the lease.
The new owner is not
compelled to respect the
charter party so long as he can
load the vessel with his own
cargo.
Civil law concept Commercial law concept

Bareboat Affreightment
Liability
Charterer becomes liable to
others caused by its
negligence.
Owner remains liable as carrier
and must answer for any
breach of duty.
Charterer as Owner
Charterer regarded as owner
pro hac vice for the voyage.
Charterer is not regarded as
owner.
Possession & Command of Vessel
Owner of vessel relinquishes
possession, command and
navigation to charterer.
The vessel owner retains
possession, command and
navigation of the ship.
Conversion
Common carrier is converted
to private carrier.
Common carrier is not
converted to a private carrier.

Sublease Subcharter
A lessee may generally
sublease its property in the
absence of express prohibition.

Civil Nature
The charterer shall have the
right to subcharter the vessel
to a third person only if the is
authorized by the ship owner.
Otherwise, he shall be liable to
the shipowner for any damages
Page 24 of 26

caused to the latter by virtue of
the subcharter.

Commercial in nature.

Rights and Obligations of Parties
Shipowner or Ship Agent Charterer
1. If the vessel is
chartered wholly, not
to accept cargo from
others;
2. To observe
represented capacity;
3. To unload cargo
clandestinely placed
4. To substitute another
vessel if load is less
than 3/5 of capacity
5. To leave the port if
the charterer does
not bring the cargo
within the lay days
and extra lay days
allowed:
6. To place vessel in a
condition to navigate;
7. To bring cargo to
nearest neutral port
in case of war or
blockade.
1. To pay the agreed
charter price;
2. To pay freightage on
unboarded cargo;
3. To pay losses to
others for loading
uncontracted cargo
and illicit cargo;
4. To wait if the vessel
needs repair;
5. To pay expenses for
deviation

Rescission of a Charter Party
At charterers
request (Art. 688)
At shipowners
request (Art. 689)
Fortuitous Causes
(Art. 690)
1. By abandoning
the charter
and paying
half of the
freightage;
2. Error in
tonnage or
flag;
3. Failure to
place the
vessel at the
charterers
disposal;
4. Return of the
vessel due to
pirates,
enemies or
bad weather;
5. Arrival at a
port for
repairs.
1. If the extra lay
days terminate
without the
cargo being
placed
alongside the
vessel;
2. Sale by the
owner of the
vessel before
loading by the
charterer
1. War or
interdiction of
commerce;
2. Blockade;
3. Prohibition to
receive cargo;
4. Embargo;
5. Inability of the
vessel to
navigate.s

Loan on Bottomry Loan on Respondentia
Definition
Loan made by shipowner or
ship agent guaranteed by
vessel itself and repayable
upon arrival of vessel at
Loan take on security of the
cargo laden on a vessel, and
repayable upon sale arrival of
cargo at destination.
destination.

Note: No loan on bottomry
may however be made, in any
case, on the salaries of the
crew, nor or the profits which
may be expected.
Who may contract
Shipowner or ship agent.
Outside of the residence of the
owners the captain.
Only the owner of the cargo.
Common elements
1. Exposure of security to marine peril;
2. Obligation of the debtor conditioned only upon safe
arrival of the security at the point of destination.
Forms
1. Public Instrument
2. Policy signed by the contracting parties and the broker
taking part therein
3. Private instrument

Bottomry & Respondentia Simple Loan
Marine Risk
Duly established existence of a
marine risk is necessary.
Marine risk is not necessary.
Form and Manner
Must be executed in
accordance with the form and
manner prescribed by the code
of commerce.
Formal requisites of an
ordinary contract will suffice.
Registry of Vessels
Must be recorded in the
registry of vessels to be binding
to third persons.
No such registration is
required.
Preference
Preference is extended to the
last lender.
Preference is extended to the
first lender.

Marine Insurance Loan on Bottomry or
Respondentia
Indemnity is paid after the loss
has occurred.
Indemnity is paid in advance by
way of a loan.
In case of loss of the vessel due
to a risk insured against, the
obligation of the insurer
becomes absolute.
In case of loss of the vessel due
to a marine peril, the obligation
of the borrower to pay is
extinguished.
Consensual contract Real contract

Particular or Simple Average Gross or General Average
Definition
Damages or expenses caused
to the vessel or cargo that did
not inure to the common
benefit and borne by
respective owner.
Damages or expenses
deliberately caused in order to
save the vessel, its cargo or
both from real and known risk.
Liability
The owner of the goods which
gave rise to the expense or
suffered the damage shall bear
this average.
All the persons having an
interest in the vessel and the
cargo therein at the time of the
average shall contribute to
satisfy this average.
Page 25 of 26


The insurers and lenders on
bottomry and respondentia
shall likewise contribute.
Number of interests involved
Only one interest involved. Several interests involved
Share in the damage or expense
100% share In proportion to the value of
the owners property saved.
Right to recover
No reimbursement There may be reimbursement
Kinds (Not exclusive)
Art. 809 Art. 811

Domestic International
Deck cargo is allowed Deck cargo is not allowed
With shippers consent
General average Particular average
Without shippers consent
Captain is liable Captain is liable

Arrival Under Stress (Arribada)
When Lawful When Unlawful Who Bears
Expenses
The inability to
continue voyage is
due to lack of
provisions, well-
founded fear of
seizure, privateers,
pirates, or
accidents of the sea
disabling it to
navigate.
1. Lac of
provisions due
to negligence to
carry according
to usage and
customs;
2. Risk of enemy
not well known
or manifest
3. Defect of vessel
due to
improper
repair; and
4. Malice,
negligence, lack
of foresight or
skill of captain.
The shipowner or
ship agent is liable
in case of unlawful
arrival under stress.
But they shall not
be liable for the
damages caused by
reason of a lawful
arrival.

Salvage Towage
Governed by special law Governed by NCC on contract
of lease
Requires success, otherwise no
payment
Success is not required
Must be done with the consent
of the captain/crewmen
Only the consent of the
tugboat owner is needed
Vessel must be involved in an
accident
Vessel need not be involved in
an accident
Fees distributed among
crewmen
Fees belong to the tugboat
owner

BANKING LAWS

Ordinary Corporation Banking Corporation
Classification
May be a stock or non-stock
corporation
Must generally be a stock
corporation
Stocks issued
May issue par value or no par
value stocks.
Shall issue par value stocks only
Registration
May be registered with the SEC
without any certificate of
authority issued by a
government agency.
Must secure a certificate of
authority from the Monetary
Board before it can register
with SEC.
Acquisition of Shares
May purchase/acquire its own
shares for a legitimate
corporate purpose; provided
that, it has unrestricted
retained earnings in its books
to cover the shares to be
purchased/acquired.
May not purchase/acquire its
shares or accept them as
security for a loan.

Except: when authorized by the
Monetary Board. But the bank
must sell or dispose of said
shares within 6 months from
the time of their acquisition.
Number of Directors
Must be of 5 to 15 directors,
each of whom shall own at
least one (1) share of the
capital stock of the
corporation.
Also composed of 5 to 15
directors. In case of merger or
consolidation, the number of
directors shall not exceed 21.
Declaration of Dividends
May declare dividends
provided it has unrestricted
retained earnings.
May declare dividends, in the
absence of the conditions set
forth under sec. 57 (GBL)
Dissolution
Requires a certificate of tax
clearance as prior requirement
for the approval of the
dissolution by the SEC
Does not require a certificate
for BSP to approve dissolution

Universal Bank Commercial Bank
Additional Powers
Authority to exercise additional
powers other than those
authorized for commercial
banks.
No such additional powers
Type of Investments
May invest in the equities of
allied, whether financial or
non-financial, and non-allied
enterprises.
May only invest in equities of
allied enterprises, whether
financial or non-financial
Powers
1. The powers authorized for
a commercial bank;
2. The powers of an
investment house; and
3. The power to invest in
non-allied enterprises
1. General powers incident
to corporations
2. Such powers as may be
necessary to carry on the
business of commercial
banking:
i. Accepting drafts and
issuing letter of
credits;
ii. Discounting and
negotiating
promissory notes,
drafts, bills of
exchange and other
evidence or debt;
iii. Accepting or creating
demand deposits,
Page 26 of 26

receiving other types
of deposits and
deposit substitutes;
iv. Buying and selling
foreign exchange and
other debt securities;
v. Extending credit

Universal & Commercial Bank Other Banks
Quasi-banking Functions
Authorized to engage in quasi-
banking functions without
need for approval
Not so authorized
Demand Deposits
May accept or create demand
deposits without need for
approval

Demand deposits Liabilities
of the BSP and of other banks
which are denominated in
Philippine currency and are
subject to payment in legal
tender upon demand by the
presentation of checks.
Must seek approval of
Monetary Board before
accepting or creating demand
deposits

Universal Bank Commercial Bank
Total Investment in Allied Enterprises
50% of net worth 35% of net worth
Total Investment in Non-allied Enterprises
50% of net worth N/A
Equity Investment in any One Enterprise
25% of net worth 25% of net worth (Allied only)
Equity Investment of Financial Allied Enterprise
100% of equity

A publicly-listed bank may own
up to 100% of the voting stock
of only one other UB/CB
100% of equity of a thrift or
rural bank

In other financial allied
enterprises including another
commercial bank, investment
shall remain a minority holding
Equity Investment in Non-financial Allied Enterprises
100% of equity 100% of equity
Equity Investment in a Single Non-Allied Enterprise
Shall not exceed 35% of the
total equity in that enterprise
nor shall it exceed 35% of the
voting stock in that enterprise
N/A
Equity Investment in Quasi-Banks
40% 40%

Unclassified Loans Classified Loans
Those that do not have a
greater-than-normal risk and
the borrower has apparent
ability to satisfy it in full and no
loss in ultimate collection is
anticipated.
Those that have extraordinary
risks of loss in collection due to
some defects such as bad debts
or those under litigation.

Deposit Deposit Substitute
No security given to guarantee Guaranteed by certificates and
repayment; the depositor relies
on the stability and reputation
of the bank.
other instruments.

Judicial Foreclosure Extrajudicial Foreclosure
Right of Redemption
Within 1 yr from registration of
the foreclosure sale (Exception
to Rule 68)
1. Mortgagor is a natural
person - Within one year
after the registration of
sale with the Register of
Deeds
2. Mortgagor is a judicial
person At any time
before the registration of
the certificate of
foreclosure sale which in
no case shall be more than
3 months after
foreclosure, whichever is
earlier
Redemption Price
Amount due under the mortgage deed + interest + all the costs
and expenses incurred by the bank or institution from the sale
and custody of the property less the derived income therefrom.
Possession
Purchaser has the right to enter upon and take possession of the
property immediately after the date of the confirmation of the
auction sale and to administer the same in accordance with law.
Injunction and Bond
Any petition in court to enjoin or restrain the conduct of
foreclosure proceedings shall be given due course only upon filinf
by the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank may
suffer by the enjoining or restraint of the foreclosure proceedings.

Receivership of a Bank or Quasi-bank/Closure
Under NCBA Under GBL
Grounds
Inability to pay liabilities as
they become due in the
ordinary course of business,
but not including inability to
pay those caused by
extraordinary demands
induced by financial panic in
the banking community;
Notification to the BSP or
public announcement of a bank
holiday
Insufficiency of realizable
assets to meet its liabilities;
Suspension of payment of
deposit liabilities continuously
for more than 30 days
Inability to continue business
without involving probable
losses to its depositors or
creditors; or
Persistence in conducting
business in an unsafe or
unsound manner
Willful violation of a cease and
desist order under Sec. 37 that
has become final, involving acts
or transactions which amount
to fraud or a dissipation of the
assets of the institution