MERCANTILE LAW REVIEWER 1

SECURITIES REGULATION CODE *A security can only be sold within 10 days from
approval of the registration statement until it’s
terminated or until the end of the offering
What are the cases of the SRC transferred to
period. The Failure to commence the sale within
the jurisdiction of the RTC:
10 days
Shall cancel the registration statement.
 Devices and Schemes employed by the
directors that are detrimental to public
 Monitoring of the Securities and ensure
interest.
compliance with the laws.
 Intra Corporate disputes related to its
 Prohibits fraudulent practices and
franchise and existence
transaction
 Controversies in the election or
appointment of directors and trusties.
What if a security has no registration
 Petition for the declaration of suspension of
statement?
payments.
 Appointment of Rehabilitation receiver or
Without the registration statement a security
management committee.
cannot be sold, offer to be sold nor any
information pertaining to the security cannot be
What are securities?
disclose.
Securities are shares, participation or interest in
What are the Securities exempted from
a corporation, enterprise or profit-making
registration?
venture. Evidenced by a certificate, contract or
document, either written or electronic in
 Securities issued or offered by the
character.
government of the Philippines, political
subdivisions or persons under the
What are Investment Contracts?
supervision and control by the government.
 Securities offered by foreign government
This is a contract, transaction or scheme
that maintain a diplomatic relation with the
whereby an individual invests money in a
Philippines
common enterprise and was led to expect to earn
 Securities from the Insurance commission,
a profit from the effort of others.
HLURB or BIR
 Securities issued by a bank except its own
*Investment contracts are considered as
stock
Securities.
 Certificates issued by a receiver or trustee
in bankruptcy which is approved by an
What are the requisites of an investment
adjudicatory body.
contract?
What are the grounds for rejection or
 Contract, Transaction or Scheme.
revocation of registration of securities?
 The person invests money to a common
enterprise
 When an issuer is declared insolvent or
 There is expectation to earn a profit
violated a rule or order of the commission
primarily from the effort of others(This is
which he has notice in connection to the
the possibility or expectation to earn
security.
money without doing anything.)
 The registration statement is incomplete or
inaccurate on its face or contains
How does the SRC protect the public who
untrue/omits material facts.
wishes to invest?
 The Issuer, officer or person performing
similar functions(issuing securities) that are
 By requiring the full disclosure of
convicted of crimes involving moral
information pertaining to the securities
turpitude or fraud.
being sold to the public.
*Before the revocation or rejection of the
*The law requires that before securities are to
registration statement there must be a notice and
be sold to the public, there must first be
hearing.
approval of their registration statement and
second all information pertaining to the security
What is an insider?
should be spread to the public.
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A person whose relationship with the issuer
gives him access to non-public material
information which pertains to the security or
issuer.
*Insiders are prohibited to communicate non-
public material information about the issuer or
security to any person.
What is an insider trading?
Is when a insider unlawfully buys or sell
securities, while in possession of material
information not yet available to the public.
* There is no insider trading when, the insider
proves that the information he possessed, was
not gained from his relationship with the issuer/
That the insider disclosed the information to the
other party(issuer/third party?)/ The Insider has
reason to believe that the other party has
possession of the same information.
What is Tender offer rule?
The rule states that a person or group of persons
will publicly announce their intention to obtain
the equity securities of a public company
*Public company= 50,000,000 assets, 200 or
more holders and holding at least 100 shares.
When is tender offer mandatory?
 When the intention is to obtain 15% of the
equity securities of the public company
within 12 months
*A Declaration of intent must be sent to SEC.
 When the intention is to acquire more than
35% of the outstanding voting stock(OVS)
or OVS sufficient to gain control of the
board of a public company, through more
than 1 transaction within 12 months.
*The intention to acquire this percentage and
tender offer must be disclose to all holders
* If the percentage is to be acquired directly
from 1 or more shareholder, the offer must be
extended to all holder of the OVS
 If acquisition is less than 35% but sufficient
to own 51% of the total equity security. He
would be required to make a tender offer to
all stockholders of the remaining
outstanding equity security
PROXY SOLICITATION
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BROKER
MANDATORY CLOSE OUT RULE
FRIA
What is the purpose of FRIA?
The purpose of FRIA is to encourage the debtors
and creditors to collectively and realistically
settle their claims and property rights.
Who are excluded from the Scope of FRIA?
 Banks
 Pre-need Companies
 Insurance Companies
 National and Local Government
*The reason they are excluded is because they
are governed by their own special laws.
What is Rehabilitation?
The process of restoration to a successful
operation and solvency. If shown that its
continuance of operation is feasible and its
creditors can recover their payments
What is Voluntary Rehabilitation?
Is a proceeding initiated by the Debtor through a
verified petition, which the law requires that he
shows;
 The Debtor is insolvent.
 That Rehabilitation is Feasible.
Upon compliance the rehabilitation petition
would be given due course.
*If rehabilitation is not possible the solution left
is liquidation.
What is Involuntary Rehabilitation?
This is a proceeding initiated by a creditor or a
group of creditors. This can only be initiated
when:
 A creditor initiated a foreclosure
proceeding, against the debtor that will
prevent the debtor from paying his debt or
render him insolvent. This is unfavorable to
the other creditors;
 Debtor failed to meet his liabilities; or
 The payment has become due and payment
has not been made for at least 60 days.
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What is Out-of-court rehabilitation?
There is an OCR when:
 Debtor agrees to an out of court
rehabilitation and approved by;
 Creditors representing at least 67% of the
secured obligations of debtor.
 Creditors representing at least 75% of the
unsecured obligation
 Creditors representing at least 85% of the
total liabilities secured and unsecured of
debtor
What are the grounds for dismissal of rehab
petition?
 The debtor is not insolvent;
 Sham filing;
 The rehabilitation plan is materially false or
misleading;
 Acts of misrepresentation or fraud of
creditors were committed.
What is a rehabilitation plan?
A plan that shows how the financial well being
and solvency of the debtor can be restored.
* This plan is indispensable and attached
together with the petition for rehabilitation.
*This plan needs approval of the court, to bind
the parties that has interest in the rehabilitation.
What is the Cram down Rule?
The rule binds the debtor and all of the creditors
to the rehabilitation plan, whether they have
participated or opposed the rehabilitation plan,
upon approval by the court.
What is a Stay order(suspension order)?
A stay order is an order, that prevents all
proceedings or orders detrimental to the
rehabilitation of the debtor.
*The stay order is issued together with the
commencement order and both are effective
within the duration of the rehabilitation
proceeding.
*This order can be lifted, when it is shown that it
is not viable to rehabilitate the debtor.
*Properties held as security by the creditors
shall not be affected by the order
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*This order will lapse when 3 months have
passed without any agreement between the
debtor and creditor
*no creditor shall institute a collection
proceeding from the time of filing of petition for
suspension of payments.
Who are the creditors not affected by the Stay
order?
 Secured creditors
 Those that have claim for personal labor,
maintenance and expense prior to the filing
of claim.
Are there exceptions to the effects of the stay
order?
 Criminal actions against the debtor, partner,
director or officer shall not be affected;
 Pending cases in the SC (as of)
commencement date;
 Pending cases in Specialized courts or
quasi judicial agency, which based on
discretion of the court it is capable of
resolving the claim;
 Enforcement of claims against those who
are solidary liable or sureties
 Actions of a licensed broker to sell
“pledged securities” to the debtor in
accordance to an agreement; and
 Clearing and settlement of financial
transactions.
What is a commencement order?
A commencement order is an order that initiates
the rehabilitation of the debtor.
*the commencement date of the order retroacts
to the time of filing.
What is a Standstill period?
The effect of this period does not exceed 120
days from publication.
This rule would only take effect upon approval
of more than 50% of the creditors hold the total
liability of the debtor and publication in a
newspaper of general circulation for 2
consecutive weeks.
What is suspension of payments?
Only the debtor can file a petition for suspension
of payments to the RTC(Transferred jurisdiction
rule in SRC)
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He files this because:
 He foresees the impossibility of paying his
debts despite having sufficient properties;
 For the purpose of delaying payment.
The number of creditors is immaterial here and
the amount of indebtedness would not be
affected.
When is Liquidation proper?
Liquidation is proper, when rehabilitation is not
feasible.
*The issuance of the liquidation order
terminates the juridical existence.
*The assets of the debtor are transferred to the
liquidator or the court
*No foreclosure proceeding shall be allowed for
a period of 180 days
*No separate action shall be allowed for
unsecured claim. However, The liquidation
order shall not affect the right of a secured
creditor to enforce their lien. The rule of
foreclosure in liquidation will prevail over the
rights of the secured creditor.
*All contracts of debtor is terminated or
breached. Unless, declared otherwise and
creditor agrees.
BANKING LAWS
What are banks and Quasi banks?
Banks are entities engaged in lending of funds
obtained from the deposits of the public.
Quasi Banks are entities engaged in borrowing
of funds through an issuance, assignment or
endorsement for the purpose of relending or
purchasing or receivables and other obligations.
*The diligence required to be exercised by a
bank is extraordinary(utmost) diligence.
*No appointive or elected public official shall at
the same time serve as officer in any private
bank.
What kind of entities are banks?
Banks are stock corporations, this corporations
requires the certificate of authority from the BSP
before they can operate as a bank.
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*without the certificate of authority no entity
can perform any functions of a bank
*Banks are prohibited from engaging in
insurance business and outsourcing their
function.
*Investment companies solely engage in
investment are not banks. However, Those
engage in lending of money, collecting interest
and charging commission to lender or borrower
are considered as banks.
What is the remedy for strikes and lockouts
involving a bank?
The remedy in this circumstance arises when this
event is still unsettled after 7 days. The secretary
of labor has 2 options to resolve this, either:
 He assumes jurisdiction and settle it; or
 Recommend the settlement to the NLRC
for compulsory arbitration.
*The law also allows the President of the PH to
intervene, at any time, for its settlement.
What is the relationship of the bank and the
depositor?
The relationship of the bank(D) and depositor(C)
is of debtor and creditor.
*A third person has no claim in the deposit
unless there is a court order or garnishment.
*Bank accounts may be garnished by creditors.
Because this would not result to examination of
the contents of the account.
*Foreign currency deposit are exempt from
garnishment.
*If the money of the depositor was authorized to
be used by the officers of the bank, they cannot
be held liable for Estafa.
Can a minor open a bank account?
Yes, a minor can open a bank account. Provided,
that the minor is at least 7 years of age, able to
read and write, has no incapacity and limited
only to time and savings deposit.
*the rule on saving account is that, you cannot
withdraw any amount from the bank unless you
present the passbook. Because the bank is
prohibited from accepting or issuing withdrawal
slips without it. The exception is if the bank
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operates in a no passbook withdrawal system An Unclaimed balance is a dormant bank

authorized by BSP. account that has not been used or claimed for a
period of 10 years.
Are anonymous accounts allowed?
This account may be escheated in favor of the
Yes, it is only limited to foreign currency government. Provided, that there is notice to
deposit. An examples is a numbered account. the the depositor and publication of unclaimed
balance.
Are bank deposits confidential in nature?
What is the rule of the Single borrower’s limit?
Yes, Under the bank secrecy law. All bank
deposits of whatever nature are confidential The rule states that a person can only borrow a
cannot be examined. Unless the circumstance maximum amount of loan not exceeding 25% of
falls into the exceptions( page 322-324, page the net worth of the bank.
326-327 Sundiang.)
*Trust accounts and deposit records are within This percentage may be increased by 10%
the scope of bank secrecy. provided that additional liabilities are secured
from the borrower.
*Jurisprudence provides, that silence or failure
to object during a proceeding involving the What is the DOSRI rule?
confidentiality of bank deposits, is not an
implied waiver of the secrecy of the bank DOSRI pertains to the Director, Officer,
deposit. Stockholder and Related interest of the same
bank they are requesting to borrow loan.
*another rule in the exception in bank secrecy is
that, it must be established that the funds in the *this also includes the subsidiaries of the bank
deposit is the subject matter of the litigation. and those entities which the bank has a
controlling proportion of the shares.
Are deposits in the bank insured?
*the loan that can be borrowed is either in
Yes, The deposits are insured by PDIC. The
excess of 5% of the capital and surplus of the
insured deposit is only limited to an amount not
lending bank or the maximum permitted by
exceeding 500,000(per depositor regardless of
law(Whichever is lower.)
number of accounts) and only covers insured
banks and given to a bona fide depositor at the
What are the rules to be followed in DOSRI?
time it was closed.
 There must be a written approval of the
*The money for the insured deposit should be
majority of the directors, excluding the
paid within 6 months from the time of filing
borrowing director.
claim. While, the claim should be filed within 2
 The terms are not less favorable to the
years from actual takeover of receiver.
bank than those offered to others(arms
length rule)
What are those not covered by the insured
 The resolution approving the loan should
deposit?
be recorded in the bank.
 The aggregate and individual ceilings (p.
 those in excess of 500,000.
337-338 sundiang) does not apply to loans
 A deposit payable outside of PH.
secured by assets considered by as non-
 Fraudulent deposit accounts
risk.
 Those related to unsafe banking practice
 Proceeds from unlawful activity
*Law requires that the DOSRI waives his right to
 Inter branch deposits or splitting of money
the bank secrecy law and open all of his bank
deposits or money placement.
accounts in the Philippines for examination if
the borrowing of loan falls into the rules of
The powers of bank before and after
DOSRI. The information that would be obtained
closure(page 332-333 sundiang)
are confidential and would only be used if
necessary by BSP.
What are unclaimed balances?
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*the BSP may extend loans to banking
institutions for a period of 7 days, without any
collateral, to maintain its liquidity.
Conservatorship and Receivership(p. 347-349)
When a bank or quasi bank is in a state of
inability to maintain liquidity the MB will
appoint a conservator for a period not
exceeding 1 year.
The PDIC is the Statutory receiver.
What is the close now hear later scheme?
Prior hearing is not necessary in appointing a
receiver or closing the bank. It is sufficient that a
subsequent judicial review is provided for.
*Assets of an entity under receivership or
liquidation is placed under custodia legis in the
hands of receiver. This prevents the assets from
being placed in a attachment, garnishment, levy
or execution.
*Banks under liquidation retains their legal
personality and does not dissolve upon
appointment of receiver.
*the power of MB to close and liquidate banks is
an exercise of police power.
*a bank that was closed by BSP is not liable to
pay interest of deposit. But, Interest on loans
extended by BSP are still demandable.
*The BSP has the power to forbid the bank from
doing business. However,it can still foreclose
mortgage and prescriptive period is not tolled.
INTELLECTUAL PROPERTY LAW
What is Copyright?
A right that protects literary and artistic works
upon the moment of its creation. This is owned
by the author, heirs or assigns.
*If there are co-authors, the authorship is
governed by co-ownership, if there is no
agreement between them.
*If there is more than one author and the work
of each author can be separated and identified.
Each work shall be considered as the work of
that particular author and not both.
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What is the rule in copyright concerning
commissioned works?
The rule is the commissioned work itself is
owned, by the person who commissioned.
However, the copyright over the work is retained
by the author. Unless, there is an agreement
otherwise.
What is the rule in anonymous works?
The rule in anonymous works, states that the
publisher will represent the author in a
anonymous work unless if the author is known.
What is the rule in ownership of copyright
when it involves EE-ER relationship?
If the work was created as part of the duties of
the EE, the copyright belongs to the ER.
However, if the work created was not part of the
duties or functions of EE, the copyright is owned
by the EE. Regardless if EE used the facilities of
ER for its creation.
What is the Duration of copyright?
The duration of copyright is a lifetime and 50
years upon death.
*In joint-authorship the 50 years only starts
upon the death of the last author.
*anonymous work is protected by copyright for
50 years from its publication.
*photos are 50 years whether published or
unpublished
*Broadcast is 20 years from the time it was
broadcast. Broadcast organizations are granted
the right to rebroadcast their broadcast under
the neigboring rights in IPL.
What are unprotected works?
 Idea, procedure, system, method, concept
or data even if expressed or embodied in a
work.
 News of the day or mere items of press
information.
 Official text of legislative, administrative or
legal nature.
 Any work of the government of the
Philippines
*approval of government is necessary when its
works are to be exploited for profit.
 MERCANTILE LAW REVIEWER
*Format of a TV show is not subject to a
copyright.
Economic and Moral Rights(p. 527-528)
What is the Doctrine of Fair use?
This is a privilege to use a copyrighted work in a
reasonable manner without the consent or
authorization of the copyright owner
*Use for purposes of Criticism, teaching,
reporting, research and other similar means.
This is not infringement, but one of the factors of
fair use.
*The nature of the work must be factual and
fair. If it is creative, there may be a violation.
*The amount and substantiality reproduced
should be in accordance with the purpose.
Otherwise, if used commercially then there is a
violation.
*If the reproduction impacts the value of the
work negatively in the market. There may be a
violation.
When is there a copyright infringement?
There is copyright infringement if the work is
being pirated or reproduced commercially
without the consent of the copyright owner or
the substantial reproduction of the work
diminishes the value in the market.
*Knowledge or intent to infringe is not
necessary in this scenario.
Persons that benefit from the infringing activity
and those who induces or contributes to the
infringing act is also liable for copyright
infringement.
*Here knowledge or intent to infringe is
material.
an example is a lessor. A lessor who has
knowledge and benefited from the infringing act
and has the ability to control the activity, as well
as to stop it. Can be held liable for Infringement
What are the remedies of Copyright
infringement?
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The remedies that can be availed is either filing
an Injunction, action for damages or filing a
criminal case.
Is it infringement if the material is
reproduced in a different format?
It depends. As an example, if the material is
reproduced in a different format exclusively for
the blind, it would not constitute infringement as
long as it is not for commercial use and it
indicates the name of the original owner and the
date of publication.
What is a Trademark and Trade name?
A visible sign that distinguishes the products or
services offered or sold by a particular enterprise
A trade name is the name that distinguishes a
particular enterprise from another.
When is a trademark protected?
A trademark is protected upon registration and
actual use.
*there must be actual use after registration. This
can be established by filing a declaration of
actual use within 3 years from the filing date of
application. Another is by giving reason on its
non use within 1 year from the its 5th year
anniversary. Failure in any may result to
cancellation.
What is the doctrine of secondary meaning?
As a rule, generic terms cannot be registered as a
trademark. The exception is, when a term
develops a secondary meaning which creates its
own distinctiveness from the generic term, the
term can be registered for trademark.
*this doctrine only applies when the term is used
exclusively and continuously for a period of 5
years
What are the rules of international well
known marks?
The owner of IWKM can sue, oppose or contest
the filing of an application confusing similar or
translation of its mark.
Registration is not necessary for an owner of
IWKM to contest, oppose or sue an application.
*the law is based on the Paris convention.
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*A person or entity cannot use an IWKM even if
the goods are unrelated to the mark.
What is the duration of a Trademark?
The duration of a Trademark is 10 years. This
can be renewed for another 10 years.
What are the 2 test of trademark
infringement?
First, The Dominancy test. The test examines the
dominant features of both marks to determine if
there is confusing similarity. If there is, there is
infringement.
Second, the Holistic Test. The test examines both
marks as a whole including its labels and
package to determine if there is confusing
similarity. If there is, there is infringement.
*As a General rule, an identical mark used for
goods or services that is different from the goods
or services of the other mark may not amount to
infringement.
Exception: an International well known mark
*the mere fact that both goods belongs to the
same category in the classification goods does
not amount to infringement. Instead, this should
be determined in the similarity of the goods
under the identical marks.
What is the Idem sonans rule?
This rule considers the aural effect of the letters
and words contained in the marks to determine if
there is similarity. If there is, then there is
infringement.
What is Unfair Competition?
Is the act of passing off goods or services as if
the goods or service of another with an intent to
confuse or deceive an ordinary purchaser.
What is the requisite to be liable for Unfair
Competition?
 Confusing similarity of the goods and
service; and
 The intent to deceive or confuse an
ordinary purchaser.
*Registration is not necessary to be sued for
unfair competition.
What is a patent?
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A patent is a technical solution to a problem in
any human activity which is new, involves an
inventive step and industrially applicable.
What is the 3-fold purpose of patents?
 Seeks to foster and reward inventions.
 Promotes disclosure of the invention to
stimulate innovation and upon expiration of
the patent, to permit the practice invention.
 To ensure the ideas of the public domain
remains in the public for free use of the
public
Non patentable inventions(p. 559 sundiang)
What is the first to file rule?
This rule states that when there are 2 or more
inventors of the same invention, who worked
separately and independently. The first person to
file the application(based on application date)
has the right over the patent.
What is the Prejudicial and non-prejudicial
disclosure?
Prejudicial disclosure happens when the inventor
voluntarily discloses his idea to the public
without any protection of a patent. This results to
the public using it without any restraint nor
violation of the right of the inventor.
Non-Prejudicial disclosure is the disclosure of
the invention within 12 months from the
application date. There is protection of patent
here. The Disclosure can only be made by the
inventor, patent office or third person that
acquired the information from the inventor
directly or indirectly.
*the protection of the patent already arises from
the application date.
Limitation of patent rights(p. 560-561)
What is the duration of the patent?
The duration of the patent is 20 years. No
renewal.
What are the 2 tests to determine if there is
patent infringement?
Literal infringement is an infringement where
the device used or sold contains all the elements
of the patent claim.
Doctrine of Equivalents, is when a device
appropriates a prior art and incorporates an
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innovative concept and upon modification
performs substantially the same way,
substantially the same functions and achieves the
same results.
*The DoE test does not apply when the
invention is clearly different from what is written
in the patented claim(verba legis.)
What is a trade secret?
Is any plan, tool, process or mechanism that is
only known to the owner, employees and to
whom it is necessary to confide in.
*a trade secret is a proprietary right of the
owner and he cannot be compelled to disclose
this secret.
*example: secret formula. Not patented but
protected by law.
*The ingredients of a consumer product are not
covered by trade secrets.
PDIC
Can PDIC be appointed as receiver?
Yes, PDIC as receiver shall manage and
administer the affairs of the closed bank.
What happens to the assets and properties of
the closed bank?
The properties are placed under custodia legis in
the hands of the receiver.
The effect of custodia legis prevents the
properties being place under garnishment, levy,
attachment and execution.
A Judge who issues such orders may be held
criminally liable.
Can the PDIC collect claims for the closed
bank?
Yes, the PDIC has the power to collect loans and
other claims of the closed bank.
The liability of the bank for the deposits
however shall cease upon closure and Banks
closed by MB shall no longer be rehabilitated.
AMLA
What is money laundering?
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A criminal act whereby, the property or
monetary instruments that appears to be legal but
are actually, involved or related to proceeds from
a unlawful activity.
What are Covered transaction under AMLC?
This transactions covered by AMLC are those
that involves an amount exceeding 500,000 in
one transaction.
What are suspicious transactions(p. 361-362
sundiang)
What are the obligations of a covered
institution?
The institution has 3 obligations:
First, To determine the true identity of the client
through his official documents.
Second, To keep a record of the transaction
made by their client and to be kept safe in their
institution.
Third, To report any covered or suspicious
transactions within 5 working days to AMLC.
Failure to comply with this requirement can hold
the institution, officer or agent criminally liable
for violation of AMLA.
*the 5 working days may be extended by AMLC
to 15 days if necessary.
Who can issue a Freeze order?
The freeze order can only be issued by the CA,
upon filing by the AMLC a verified ex-parte
petition to CA. The court will issue the order
upon determination of probable cause and
effective immediately.
What is the duration of a Freeze order?
The duration of the freeze order should not
exceed 6 months.
*the person whose account has been frozen can
file a motion to lift the freeze order. The motion
should be resolved before expiration of the
freeze order.
*Upon end of duration the order automatically
expires.
What are the other remedies that can be
availed against a freeze order?
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Only the Supreme court can issue TRO or
injunction against the freeze order.
When is a court order necessary and not
necessary for examination of bank deposits?
A Court order is not necessary when the bank
deposit involve is for a crime of:
 Kidnapping for ransom
 Destructive arson
 Murder
 Comprehensive drug act
 Terrorism
A court order is necessary when:
 Violations involving AMLA or RA 9160
 For examination of Related accounts
*A related account are funds or sources
originated or linked to monetary instruments
subject to freeze order.
Letters of Credit
What is a Letter of Credit?
Is an engagement of the bank upon request of a
customer, that the issuing bank will honor the
drafts or demands for payment upon compliance
with the condition in the letter.
Who are the 3 parties involved in the letters
of credit?
 Buyer
The person who requested the issuance of the
letters of credit. His obligation is to reimburse
the issuing bank for the sum of money paid to
the seller, in compliance with the letters of
credit. He will need to issue a trust receipt if he
fails to reimburse the bank.
 Issuing bank
The bank obligates itself to issue the letters of
credit, to receive the document of title over the
goods and to pay the seller in compliance with
the letter of credit.
The bank will only surrender the drafts to buyer
upon reimbursement.
 Seller
To ship the goods to the issuing bank and
transfer the document of title to it upon receiving
payment.
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What is the doctrine of Independence?
The doctrine states that the bank would only deal
with the documents or drafts given by the seller
in compliance with the letters of credit. The bank
has no duty to verify any anomaly or defect in
the goods or contract between the buyer and
seller nor can the bank be held liable for it.
*in short the bank only holds the document of
title not the goods itself.
What is the Fraud exception principle?
The fraud exception principle states that when
there is fraud or forgery in the tender of
documents, the doctrine of independence may
not apply.
What is the doctrine of Strict Compliance?
The issuing has the duty to examine the tender
documents and to make sure that the terms and
condition of the letters of credit is strictly
complied.
*Failure thereof, is negligence on their part that
may result to the bank not being able to recover.
Trust Receipt
When is a Trust Receipt necessary?
A trust receipt is necessary, when the buyer
failed to reimburse the issuing bank for the
payment of the goods in compliance with the
letters of credit.
*Upon issuance their relationship changes to
entruster(bank) and entrustee(buyer)
What is the effect of a Trust Receipt?
The effect of a trust receipt is that, the issuing
bank releases the goods to buyer for the purpose
of being sold by the buyer and applying the
proceeds as reimbursement to the loan(payment
of bank to seller)
What are the obligation of entruster and
entrustee?
 Entruster
Release the possession of the goods to entrustee
for compliance of trust receipt.
 Entrustee
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The buyer merely holds the goods in trust for the
bank, but the title of the bank over the goods is
merely a security interest.
His obligation is to sell or dispose of the goods
and turnover the proceeds to entrustor to cover
the payment by the bank.
To return the goods if unsold or not disposed.
*Even if the goods are returned and unsold, it
will not extinguish the liability of entrustee to
entruster.
What are the remedies available to entruster?
 If the goods were sold but the proceeds
were not remitted, the entruster can file a
case for estafa or action to collect the
proceeds
*If the entrustee breach the TR he can be held
liable for estafa.
*There is also no relationship of agency between
them.
 If the goods are unsold, the entruster may
cancel the TR and take possession and sell
the goods. The proceeds will be used as
reimbursement for the bank.
*If there is deficiency to the proceeds, the
entruster can file an action to collect the
deficiency against the entrustee. While, if there
is an excess, the sum should be given to the
entrustee.
*The retaking of the goods does not terminate
the obligation of entrustee to the bank, which is
why the bank can still file an action against the
entrustee.
 Lastly, instead of cancelling the TR, the
bank can file a case to collect indebtedness.
What is the nature of Entruster title over the
goods?
The entruster has a security interest over the
goods.
*Security interest is a property interest to secure
the performance of the obligation of the
entrustee to the entruster.
*The security interest prevails over the interest
of all other creditors of entrustee. But, only the
duration of TR.
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Who bears the loss or damage of goods under
a trust receipt?
The entrustee shall bear the loss or damage to
the goods after delivery to him. Because the title
of entrustor over the goods is merely a security
interest and not a principal or vendor.
*A purchaser of good faith of entrustee acquires
the goods free from the interest of entruster.
Insurance
What is a contract of insurance?
This is a contract, whereby a person obligates
himself to indemnify another for loss or damage
over the thing insured upon the happening of an
event or contingency.
Can a contract of suretyship be deemed as
insurance?
Yes, if the surety is engage in an insurance
business.
When are you transacting an insurance
business?
 When you propose to make an insurance
contract;
 To make a contract of suretyship as a
vocation to any legitimate business of the
surety;
 Doing any insurance business or similar
acts;
 Any business equivalent;
What are the elements of an insurance
contract?
 Payment of premium;
 Insurable interest;
 Risk of loss;
 Assumption of risk;
 Distribution of risk.
*An insurance contract is consensual contract,
hence, perfected when there is meeting of the
minds.
*there must be approval on the part of insurer to
perfect the insurance contract. Mere submission
nor delay of application is not sufficient
What are the characteristics of an insurance?
 Risk distributing device
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Distributing the economic risk among those that
are subject to the same risk.
 Contracts of Adhesion
The contract is made by the insurer. The may
sign or not sign the contract. If he signed then he
must adhere to the contract. The contract is
strictly construed against the insurer.
 Aleatory
The obligation of the insurer to pay the proceeds
arises upon happening of the event or
contingent.
 Contract of Indemnity
The insured can only recover based on the actual
loss (property insurance)
 Good Faith
A contract of insurance is one of good faith
May an insurance policy be canceled?
The requisites must be complied with before an
insurance policy may be canceled:
 There must be notice to the insured
 Based on the grounds mentioned below
 Notice must be written and mailed to the
insured
 The notice must state the grounds relied
upon
What are the grounds to cancel an insurance
policy?
 Non-payment of premiums
 Fraud or material misrepresentation
 Conviction of a crime increasing the
hazards insured against
 Reckless acts or omission increasing the
hazards insured against
 Physical changes that makes the thing
uninsurable
 When the policy would be contrary to law
Who are the parties in an insurance policy?
There are 3 parties:
 Insurer
*obligated to indemnify the insured upon
happening of the risk.
* as a rule, only juridical persons authorized by
IC are allowed to be an insurer
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*natural persons are not allowed to be an
insurer except those solely in reinsurance
business
 Insured
*Has capacity to enter into a contract and have
insurable interest in life and property being
insured
*minors cannot enter into an insurance contract
and a public enemy may not be insured.
*The consent of a spouse is not necessary for the
validity of the insurance contract.
 Beneficiary
*The person designated to receive the proceeds
of the insurance. As a rule, any person may be
designated as a beneficiary in life insurance
except those mentioned under art. 739 and 2012
of NCC. If the person designated is within the
exception, the designation is void but not the
insurance policy.
*If the designation was void or the beneficiary
brought the death or at least participated, the
proceeds would go to the other beneficiary,
estate or in compliance with the contract
*The designation is revocable unless the right
was waived or the insured died
*An irrevocable beneficiary has a vested right
*in prop insurance, the beneficiary must have
insurable interest in the property and consent
from insurer has been secured
*if a third person takes the life insurance on the
life of another, the beneficiary should have
insurable interest and the amount only extend
the amount of debt.
Who are the persons that has an insurable
interest in life and health?
 Himself, spouse and children
 To whom he depends whole or partial for
support and education or has pecuniary
interest
 Those under legal obligation to him for
payment of money, and that their death or
illness may delay or prevent payment
 Upon whose life of the estate or interest
depends upon him
*the first only requires relationship while the
second requires that there must also be
pecuniary interest.
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When do you have insurable interest in
property?
A person has insurable interest in property if he
derives pecuniary benefit from its preservation
and pecuniary loss for its deterioration or
damage or loss.
When does a purchaser acquire insurable
interest over a property?
He acquires it upon perfection of contract of
sale. Delivery is not necessary.
How about in levy of property?
The owner of the levied property does not lose
insurable interest over it, until the duration of the
redemption period has expired. While, the
purchaser acquires insurable interest over the
property when it would not be redeemed
anymore.
Can hope or expectancy be insurable?
Yes, as long as it is coupled by an existing
interest out of which expectancy arises.
When should insurable interest in life and
property insurance exist?
In life insurance, the insurable interest should be
existing at the time of taking effect. While, in
property insurance it should be existing at the
time taking effect and when the risk arises.
What is the rule on insurable interest in
mortgage
The insurable interest of MGOR and MGEE are
separate and distinct. The former is only to the
extent of the value. While, the latter is to the
extent of the debt secured.
What is the effect of change in the thing
insured?
If the change is not accompanied by the change
of interest in the insurance. It would suspend the
insurance until both are vested in the same
person.
Exceptions(p. 101 and 103 sundiang)
When is an insurance valid and binding?
It is valid and binding upon actual payment of
the premium and acceptance of the insurer
*important exceptions: agreement of payment by
installment and partial payment has been made,
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credit term has been agreed upon and parties
are barred by estopel
When is an insurance agent authorize d to
receive premium?
When the insurance agent is authorized to
deliver the policy, it is deemed that agent is
authorized to receive the premium and the
insurer will be bound by the acknowledgement
or receipt of agent.
What is the effect of payment of post-dated
check for premiums?
If the post-dated check is to mature after the loss
the insurance policy would not take effect.
While, if it matures before the loss it is sufficient
for the insurance policy to take effect even if the
check is not encashed.
Return of premium(p. 105)
May an insurance policy be transferred
without consent of insurer?
In life insurance, consent of insurer is not
necessary. While in property insurance, consent
is necessary because it was approved based on
the personal qualifications of insured.
*if there was no consent in prop insurance the
policy is suspended.
What is the effect of concealment in the
insurance policy?
Concealment entitles the insurer to a right to
rescind, even if loss is caused by matters not
related to the concealed matter. Because the
effect of concealment is misleading the insurer
in forming his estimates of the risk
As long as there is concealment(material) the
right of rescission and vitiation of IP arises
It does not matter whether the concealment is
intentional or not.
The matter concealed need not be the cause of
loss or damage(as long as material)
What is the effect of Misrepresentation?
The insurer is entitled to a right to rescind. The
misrepresentation should be material, it should
reasonably influence the estimation of risk and
premium.
Mere acceptance of premium will not estop the
insurer from rescinding the policy.