CODE OF COMMERCE

1COMMERCIAL LAW

MEMORY AID

Ateneo Central Bar Operations 2001

CODE OF COMMERCE

COMMERCE - branch of human activity; purpose is to bring products to the consumer through operations habitually and with intent of gain

COMMERCIAL LAW - branch of private law which regulates the juridical relations arising from commercial acts

CHARACTERISTICS OF COMMERCIAL LAW:

1. universal

2. uniform3. equitable4. customary5. progressivePORTIONS OF CODE OF COMMERCE STILL APPLICABLE:

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

2. joint account association3. commercial barter4. transfers of non-negotiable credits5. commercial contracts of overland transportation6. letters of credit 7. maritime commerceOTHERS:

1. Commerce - bringing products from the manufacturers to the consumers

2. Characteristics of Commerce:a. habituality

b. rapidity - if period is fixed, debtor in delay without need of demand; if contract does not fix period, 10 daysc. intent to join3. Merchant:

a. Individuals - legal capacity, 21 years, or subject to parental authority, habitually engaged in commerce

b. Juridical Persons - commercial and industrial company organized in accordance with law, habitually engaged in business4. General Rule: Minors cannot engage in commerce

Exceptions:

a. to continue business of deceased parents through guardian

b. court authorizes guardian to place minor and property in business

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

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

a. suffering accessory penalty of civil interdiction (reclusion perpetua and reclusion temporal)

b. those judicially declared insolvent until they can obtain their discharge

c. prohibited by Constitution and special laws

6. Aliens

a. capacitated under his national law to engage in business

b. engaged in the business in the Philippines not reserved for the Filipinos

c. after securing license and BOI certificate

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

8. BOI Certificate must be obtained by:

a. alien

b. foreign firm

9. Meaning of Philippine National

a. citizen

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

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

10. Query: If a corporation is a shareholder of another corporation, how do you determine whether the latter corporation is a Filipino national?

Answer: The following must concur -

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

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

11. Tenor of BOI Certificate

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

b. Business will contribute to the sound and balanced development of the national economy in a self-sustaining basis

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

d. Business is not adequately exploited by Filipino nationals

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

12. Basic Principles/Conditions laid down by BOI

a. resident agent of foreign firm is a Filipino citizen

b. establishment of office in the Philippines

c. bringing assets tot he Philippine office as capital

d. complete set of accounting records

13. Merger and Consolidation subject to BOI requirements for the issuance of certificate:

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

14. SEC License issued upon compliance with the following requirements:

a. proof of compliance with principle of reciprocity

b. BOI certificate

c. Applicant for license gives required information

articles of incorporation

by-laws

names and addresses of resident agents

principal place of business in the Philippines

d. proof of solvency

e. deposit acceptable securities to protect future creditors

RETAIL TRADE NATIONALIZATION LAW

(Note: Material on the Retail Trade Liberalization Law will not be included in this reviewer. Supplement to follow)1. Retail Trade - any act, occupation, or calling of habitually selling direct to the general public, merchandise, commodities, or goods for consumption

Jurisprudence has held that the term retail should be associated with and limited to goods for personal, family or household use, consumption and utilization. The Retail Trade Nationalization Law refers to consumption goods or consumer goods which directly satisfy human wants and desires and are needed for home and daily life. Excluded from the law are those goods which are considered generally raw material used in the manufacture of other goods, or if not, as one of the component raw material, or at least as elements utilized in the process of production and manufacturing.

2. Elements of What Constitutes Retail Trade:

a. The seller habitually engages in selling;

b. The sale is direct to the general public; and

c. The object of the sale is limited to merchandise, commodities or goods for consumption.

3. General Rule: After 1964, only Filipinos or corporations whose capital is 100% Filipino may engage in retail trade.

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

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

b. farmer or agriculturist when selling his products;

c. manufacturer or processor selling to industrial or commercial users or consumers who use the produce to render service to the general public or to produce or manufacture goods which are sold by them to the public;

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

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

5. Query: How to determine citizenship of shares of the corporation when they are not held directly by individuals, but in turn held by another entity?

Answer: apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But, if lets say, 50% of the capital stock belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens.

However, while a corporation with 60% Filipino and 40% foreign equity ownership is considered a Philippine national for purposes of investment, it is not qualified to invest in or enter into a joint venture agreement with corporations or partnerships, the capital or ownership of which under the Constitution or other special laws are limited to Filipino citizens only. Hence, for purposes of the law, whatever the percentage of Filipino ownership in the owning corporation, the foreign ownership would always render a portion of its holding in the company as foreign equity and would disqualify the corporation to engage in retail trade.

ANTI-DUMMY ACT

1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are imposed on the president, manager, board member or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.

2. Disqualified aliens cannot intervene in the management, operation, administration or control of the business reserved to Filipinos whether as an officer, employee or laborer, with or without remuneration, except when:

a. alien takes part in technical aspects;

b. provided that no Filipino can do such technical work; and

c. with express authority from the President, upon the recommendation of the department head concerned.

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

a. Aliens may be elected to the Board of Directors to the extent of their allowable share in the capital of the corporation (in partially nationalized industries).

b. A registered enterprise may employ foreign nationals in supervisory, technical, and advisory positions for a period of 5 years subject to extension.

c. Where majority of stocks of a pioneer enterprise is owned by foreign investors, the following positions may be held by foreign nationals:

president

treasurer

general manager

equivalent positions

4. A Filipino common-law wife of an alien is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; however, allowing her common-law alien husband to take part in the management of the retail business would be a violation of the law.

5. What doing business means:

a. soliciting orders, purchases, service contracts;

b. opening offices whether called liaison offices or branches;

c. appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the country for a period totaling 180 days or more;

d. participating in the management or supervision or control of any domestic firm, entity or corporation in the Philippines;

e. any other act or acts that imply continuity in commercial dealings

6. When commissioned merchants/investors or commercial brokers act in their own name in selling foreign products, the foreign firm manufacturing these products is not doing business in the Philippines.

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

8. The following are NOT doing business:

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

b. exercise of rights as such investor;

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

d. appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own accounts. TRUST RECEIPTS LAW

1. Purpose:

a. to encourage use of and to promote transactions based on trust receipts;

b. to regulate the use of trust receipts2. Definition:

A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods, documents or instruments tot he possession of the former upon the ENTRUSTEES promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.

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

4. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE.

5. Risk of loss is borne by the ENTRUSTEE.

6. Pending the duration of the trust agreement, the ENTRUSTERS security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE.

7. Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER for the value thereof.

LETTERS OF CREDIT

1. Kinds:

a. Commercial Letters of Credit

b. Travelers Letters of Credit2. No protest required in case of dishonor.

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

4. Limited to a fixed account.

PRICE TAGS LAW

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

JOINT ACCOUNTS

1. It exists when a merchant interests himself in the transaction of another merchant, contributing thereto the amount of capital they may agree upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

2. Joint accounts do not adopt a firm name.

3. No suit may be maintained - investor and third persons dealing with the merchant conducting business.

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

BULK SALES LAW

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

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

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

a. Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade;

b. Sale transfer, mortgage or assignments of all, or substantially all, of the business of the vendor, mortgagor, transferor, or assignor;c. Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor, transferor, or assignor. 4. Only creditors at the time of the sale in violation of the law are within the protection of the laws and creditors subsequent to the sale are not covered.

5. Even if the transaction falls within the definition of bulk sale, the following are not deemed covered by the law:

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

b. The law does not apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under process.6. Obligations when transaction is a bulk sale:

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

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

amount of indebtedness due or owing to each of said creditorsb. The vendor must apply the purchase money to the pro-rata payment of bona fide claims of the creditors as shown in the verified statement.

c. The seller, at least 10 days before the sale, shall: make a full detailed inventory of the goods, merchandise, etc., cost price of each article to be included in the sale

notify every creditor at least 10 days before transferring possession of the goods, of the price, terms and conditions of the sale7. Consequences of Violation of Requirements under #6 above stated:

a. When 6(a) above is not complied with, the sale itself is void; the seller will be criminally liable.

b. When 6(b) above is not complied with, the sale itself is also void; seller is also criminally liable.c. When 6(c) is not complied with, the sale is not void; no criminal liability on the seller.INSURANCE LAW

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

a. Insurance Code

b. Civil Codec. General Principles prevailing on the subject in the US2. Contract of Insurance - an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown contingent event

3. Contract of Suretyship - deemed to be an insurance contract within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business

4. Definition of doing an insurance business:

a. making or proposing to make, as insurer, any insurance contract;

b. making or proposing to make as a surety, any contract of suretyship as a vocation and not merely incidental to any other legitimate business or activity of the surety;c. doing reinsurance business;d. doing or proposing to do any business in the substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Code.5. Requisites of Insurance:

a. existence of an insurable interest;

b. risk of loss;c. assumption of risk;d. scheme to distribute losses; ande. payment of premiums Note: If only a, b, and c are present, it is not a contract of insurance but a risk shifting device.

6. Characteristics of an insurance contract:

a. consensual

b. voluntaryc. aleatory - depends upon some contingent event; however, it is not a wagering nor a gambling contractd. executed as to the insured after payment of the premiume. executory as to insurer - not executed until payment for a lossf. personal - each party takes into account the character, credit and the conduct of the otherg. conditional - liability is based on the happening of the event insured against7. Parties to a contract of Insurance:

a. insurer - party who assumes the risk or undertakes to indemnify the insured or to pay a certain sum on the happening of a specified contingency

b. insured - person in whose favor the contract is operative, and who is indemnified against, or is to receive a certain sum upon the happening of a specified contingency c. beneficiary - may or may not be the same as the insured What perils may be insured?

(a) any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest; or

(b) any contingent or unknown event, whether past or future, which may create a liability against the person insured.

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

a. himself, his spouse and his children

b. any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interestc. any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might prevent the performance or delay itd. any person upon whose life any estate or any interest vested in him depends9. Insurable Interest in Property may consist of:

a. an existing interest

b. an inchoate interest, founded on an existing interestc. an expectancy, coupled with an existing interest out of which the expectancy arises Definition of Insurable Interest in Property: Interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured.

10. Instances when Insurable Interest must exist:

a. Interest in Property insured must exist when the insurance takes effect and when the loss occurs, but need not exist in the meantime.

b. Interest in the Life or Health of a Person Insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.c. Beneficiaries of Life Insurance need not have insurable interest in the life of the insured.d. Beneficiaries of Property Insurance must have insurable interest in the property insured.CategoryInsurable Interest in Life InsuranceInsurable Interest in Property

1. basismay be based on pecuniary interest, affinity, or consanguinitybased purely on pecuniary interest

2. when interest must existat the time the policy takes effect EXCEPT: life insurance taken by the creditor on the life of the debtor wherein interest must also exist at the time of the lossat the time the policy takes effect and at the time of the loss

3. amount of insurable interestno limit EXCEPT: if insurable interest is based on creditor-debtor relationship (only to the extent of the credit or debt)limited to the actual value of damage/injury/loss

11. General Rule: A change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.

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

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

c. a change of interest in one or more several distinct things, separately insured by one policyd. a change in the interest by will or succession on the death of the insured (interest passes to the heirs)e. a transfer of interest by one of several partners, joint owners in common who are jointly insured to the others (even though it has been agreed that the insurance shall seize upon the alienation of the thing insured)12. Revocation of Beneficiaries

General Rule: Insurance contracts are revocable.

Exception: Any person who is forbidden to receive any donation under Article 739 of the Civil Code cannot be named beneficiary of a life insurance policy by the person who cannot make the donation to him. The following donations shall be void:a. those made between persons who were guilty of adultery or concubinage at the time of the donation;

b. those made by persons found guilty of the same criminal offense, in consideration thereof;c. those made to a public officer or his wife, descendants, ascendants, by reason of his office. Other Pertinent Provisions on Revocation:

(a) The termination of a subsequent marriage shall allow the innocent spouse to revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable.

(b) After the finality of the decree of legal separation, the innocent spouse may revoke the donations as well as the designation of the latter as a beneficiary in any insurance policy, even if such designation is irrevocable. The revocation of or change in the designation shall take effect upon written notification thereof to the insured. The action to revoke the donation under this article must be brought within 5 years from the time the decree of legal separation has become final.

(c) The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

13. Suspension - a change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent until the interest in the thing and the interest in the insurance are vested in the same person.

14. Concealment - a neglect to communicate that which the party knows or ought to communicate

General Rule: The insured is not required to communicate the nature (or kind) or the amount of his insurable interest in the life or property insured to the insurer.

Exception: a. When the insurer makes inquiry from the insured of the nature or amount of the latters insurable interest, whether in life or property insurance;

b. insurance policy must specify the interest of the insured in the property insured, if he is not the absolute owner thereof.

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

Requisites:

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

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

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

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

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

Note: An insured need not die of the very disease he failed to reveal to the insurer. It is sufficient that the non-revelation has misled the insurer in forming his estimate of the disadvantages of the proposed policy or in making his inquiries in order to entitle the insurance company to avoid the contract.

Note: The insured is under an obligation to disclose not only such material facts as are known to him, but also those known to his agent where:

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

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

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

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

a. those of which the other knows;

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

c. those of which the other waives communication;

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

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

Neither party is bound to communicate his mere opinion, even upon inquiry, because such opinion would add nothing to the appraisal of the application.

Waiver of material facts may be:

(a) by the terms of the insurance; or

(b) by the neglect to make inquiry as to such facts, where they are distinctly implied in other facts which information is communicated

Materiality is to be determined not by the events but solely upon the probable and reasonable influence of the facts on the party to whom the communication is due in forming his estimate of the disadvantages of the proposed contract or in making his inquiries.

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

16. Representation

It is a factual statement made by the insured at the time of, or prior to, the issuance of the policy, to give information to the insurer and otherwise induce him to enter into the insurance contract.

It may be made orally or in writing.

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

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

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

A representation as to the future is to be deemed a promise unless it appears that it was merely a statement of belief or an expectation. (must be susceptible of present, actual knowledge)

The statement of an erroneous opinion, belief or information, or of an unfulfilled intention, will not avoid the contract of insurance, unless fraudulent.

Right to rescind because of false representation:

a. must be exercised previous to the commencement of an action on the contract (the action referred to is that to collect a claim on the contract)

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

Incontestable Clause: After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Exceptions: (a) absence of insurable risk

(b) cause of loss is an unexpected risk

(c) fraud

(d) non-payment of premium

(e) violation of conditions relating to naval or military services

(f) failure to comply with conditions subsequent to the occurrence of the loss

17. Warranties:

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

Exceptions:

a. when before the time for performance of the promissory warranty, a loss insured against occurs;

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

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

A statement or a promise set forth in the policy or by reference incorporated therein, the non-fulfillment of which in any respect and without reference to whether the insurer was in fact prejudiced by such non-fulfillment, renders the policy voidable by the insurer, wholly irrespective of the materiality of such statement or promise.

WarrantyRepresentation

part of the insurance contractcollateral inducement

always written on the policymaybe oral or written

conclusively presumed materialmateriality must be proved

must be strictly complied withrequires substantial truth

made by the insuredmay be made by insurer or insured

Note: If there is a breach of warranty, even if the cause of the loss is a different risk, the insurer is entitled to rescind the contract of insurance.

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

18. Policy

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

Cover Note: written memorandum of the most important terms of a preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy.

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

Exception: Where it is merely an acknowledgment on behalf of the company that the latters branch office had received from the applicant the insurance premium and accepted the application subject for processing by the insurance company and that the latter will either approve or reject the same.

Kinds of Policies:

a. Open - the value of the thing insured is not agreed upon, but is left to be ascertained at the time of the loss

b. Valued - expresses on its face an agreement that the thing insured shall be valued at a specific sum

c. Running - contemplates successive insurance which provides that the object of the policy may be from time to time defined especially as to the subject of insurance by additional statements or endorsements

Note: If an amount is written on the face of an open policy, it is merely a determination of the maximum limit of recovery and not as the value of the policy.

CategoryOpen PolicyValued Policy

what needs to be proven in order to be able to claimvalue of property upon lossno need for proof of value of property upon loss

determining value of lossvalue of property is to be ascertained upon lossvalue of property upon loss is conclusively stipulated to a specified amount

Period for commencing an action against the policy: Within 1 year from the time the cause of action accrues, i.e., from the time of rejection of the claim by the insurer. Any condition, stipulation, or agreement limiting the time to less than 1 year is void.

Grounds for Cancellation of a Policy by the Insurer:

For Policies Other than Life:

(1) prior notice of the cancellation to insured

(2) notice must be based on the ff. occurrences after effective date of the policy

(a) non-payment of premiums

(b) conviction of a crime arising out of acts increasing the hazard insured against

(c) discovery of fraud or material misrepresentation

(d) discovery of willful or reckless acts or omissions increasing the hazard insured against

(e) physical changes in the property insured which results in the property becoming uninsurable

(f) determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code

(3) notice must be in writing

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

(5) notice must state the ground relied upon and that upon written request of the insured, the insurer will furnish facts on which the cancellation is based

Renewal of the Policies Other than Life:

Insurer must mail or deliver to the insured notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages within 45 days before the policy ends. Otherwise, insured entitled to renew the policy upon payment of the premium due on the effective date of the renewal.

19. Premium

General Rule: No policy is binding until the premium thereof has been paid.

Exceptions: (a) in case of life or industrial life policy, whenever the grace period applies

(b) in case of estoppel

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

When insurer entitled to Return of Premiums

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

b. when on account of facts, the existence of which the insured was ignorant without his fault

c. when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy

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

e. in case of over-insurance by several insurers (ratable return of premiums, proportioned to the amount by which the aggregate sum insured in all policies exceed the insurable value of the thing at risk)

20. Loss

When Insurer is Liable:

a. where the peril insured against was the proximate cause, although a peril not contemplated by the contract may have been the remote cause or even the immediate cause of the loss

b. where the thing insured is rescued from the peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession in whole or in part

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

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

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

When Insurer Not Liable:

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

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

c. loss caused by the connivance of the insured

d. loss caused by the willful act of insured

e. loss caused by insureds negligence, if it amounts to bad faith

General Rule: The insurer is not liable for a loss caused by the willful act of the insured.

Exception: Suicide Clause in Life Insurance: Insurer liable in case insured committed suicide after the policy has been in force for a period of 2 years from the date of its issue or last reinstatement. If insured kills himself within a period of 2 years, insurer is not liable.

Exception to Exception: If suicide is committed in a state of insanity, regardless of the time of commission, the insurer is liable.

21. Double Insurance - exists where the same person is insured by several insurers separately in respect to the same subject and interest

Requisites: a. person insured must be the same

b. existence of several insurers

c. subject matter insured must be the same

d. interest the same

e. risk insured against also the same

Over InsuranceDouble Insurance

may be only one insurermust be 2 or more insurers

insurance covers more than the value of insurable interestinsurance may or may not exceed the value of insurable interest

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

Liability of Insurer:

Insurance taken

from each insurer

---------------------------------- x value of property received = liability of insurer

total insurance

22. Reinsurance: A process by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.

The original insured cannot recover from this insurance unless there is a specific grant, or assignment of, the reinsurance contract in favor of the insured, or a manifest intention of the contracting parties to the reinsurance contract to favor the insured.

General Rule: The insurer who obtains reinsurance must communicate:

a. all the representations of the original insured; and

b. all the knowledge and information he possesses, whether previously or subsequently acquired which are material to the risk

Exception: under automatic reinsurance treaties

ReinsuranceDouble Insurance

1. insurer becomes the insured

2. subject matter is the insured risk or liability

3. different risks and interests of insured

4. there must be consent of original

5. one who is original insured has no interest in the contract of reinsurance which is independent of the original contract of insurance1. insurer remains the insurer

2. subject matter is property

3. the same interest and risk are insured

4. insured has to give his consent

5. insured is the party in interest in all contracts

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

Perils of the SeaPerils of the Ship

covered by marine insurancenot covered by marine insurance

denote nature accidents peculiar to the sea which do not happen by intervention of man nor are to be prevented by human prudencedamage or losses resulting from:

1. natural and inevitable action of the sea

2. ordinary wear and tear of a ship, or

3. negligent failure of the ship owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions

Owner of the Ship has Insurable Interest:

a. in the ship even if it has been chartered by one who promises to pay him in value in case of loss (insurer is liable for what insured cannot recover from the charterer), even when hypothecated by bottomry (only the excess of its value over the amount secured by bottomry) and

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

Charterer has insurable interest in the ship to the extent that he is liable to be damnified by its loss.

Barratry: Any willful misconduct on the part of the masters or crew, in pursuance of some unlawful or fraudulent purpose, without the consent of the owners and to the prejudice of the owners interest.

Jettison: Intentional casting overboard of any part of a venture exposed to a peril, whether it be of the cargo, or the ships furniture or tackle, in the hope of saving the rest of the venture.

Insurable Interest in Marine Insurance: Determined when one will sustain loss from the destruction of the subject matter or derive benefit from its preservation.

Charter Party: Contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of which the owner or the agent of the vessel for the transportation of goods or persons from one port to another.

Loan on Bottomry: Contract in the nature of a mortgage whereby the owner of a ship borrows money for the use, equipment or repair of the vessel for a definite term, and pledges the ship as a security for repayment, with maritime or extraordinary interest on the account of the maritime risks to be borne by the lender. It is stipulated in such a contract that if the ship be lost in the course of the specific voyage or during a specified limited time caused by any of the perils enumerated in the contract, the lender shall resolutely lose his money.

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

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

Concealment: In marine insurance, information or the belief or expectation of a 3rd person, in reference to a material fact is material.

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

a. national character of the insured

b. liability of the thing insured to capture and detention

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

d. want of necessary documents

e. use of false and simulated papers

Implied Warranties:

a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of commencement of risk, except: (a) insurance for a specified length of time - at the commencement of every voyage it undertakes during that time; (b) cargo to be transshipped at indeterminate port - each vessel upon which cargo is shipped is seaworthy at the commencement of each particular voyage

b. that the vessel shall not engage in illegal venture

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

d. where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which may cast reasonable suspicion thereon

Seaworthiness depends on:

a. nature of the ship

b. nature of the voyage

c. nature of the service

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

Exceptions:

a. in a Time Policy - commencement of every voyage that must be undertaken

b. in a Cargo Policy - commencement of each particular voyage

c. in a Voyage Policy - commencement of each portion of the voyage

Deviation

a. a departure from the course of the voyage insured

b. unreasonable delay in pursuing the voyage

c. commencement of an entirely different voyage

When is Deviation proper?

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

b. when necessary to comply with a warranty or to avoid a peril whether it is insured against or not

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

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

Loss

a. Actual Total Loss

a total destruction of the thing insured

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

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

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

b. Constructive Total Loss - gives to the person insured the right to abandon

Average - any extraordinary or additional expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded

General Average - an expense or damage suffered deliberately in order to save the vessel, its cargo, or both from the real or known risk

Abandonment - act of the insured by which, after a constructive total loss, he declares the relinquishment to the insured of his interest in the thing insured (where the cause of loss is a peril insured against)

(a) more than thereof in value is actually lost or would have been expended to recover it from the peril

(b) it is injured to such an extent as to reduce its value by more than

(c) if the thing insured is the ship and the voyage cannot be lawfully performed without incurring an expense of more than of the whole, or a risk which a prudent man would not undertake under the circumstances

(d) if the thing insured is cargo or freightage, and the voyage cannot be performed on another ship procured by the master within a reasonable time and with reasonable diligence to forward the cargo without incurring an expense or a risk as stated above

Freightage cannot be abandoned unless ship is also abandoned.

Requisites of a Valid Abandonment:

a. must be total and conditional

b. made within a reasonable time

c. explicit notice

d. coupled with actual abandonment

Requisites for Valid Valuation in the Valued Marine Policy:

a. insured must have interest at risk

b. there must be no fraud on the insureds part

Notice of Abandonment:

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

b. must be explicit

c. must specify the particular cause for abandonment

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

Acceptance of Abandonment

a. may be express or implied (i.e. silence for unreasonable length of time)

b. conclusive upon the parties and admits the loss and sufficiency of abandonment

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

If insurer refuses to accept a valid abandonment - liable as upon actual total loss

Upon actual abandonment

a. freightage earned before loss - belongs to the insurer of freightage

b. freightage earned after loss - belongs to insurer of ship

Co-insurance: form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance

Co-insurance applies only where the:

a. insurance taken is less than the actual value of the thing insured

b. loss is partial

Primage - increase in freightage

24. Fire Insurance

Insurer is liable for loss or damage caused by hostile fire (fire that escapes from the place where it was intended to burn and ought to be in) and not that caused by friendly fire (fire which burns in a place where it is intended to burn).

Scope of Fire Insurance:

a. fire

b. lightning

c. windstorms

d. tornado

e. earthquake

f. other allied risks

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

a. such alteration violates a provision in the policy

b. it was made without the insurers consent

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

Rules:

a. policy shall not protect the insured from injury consequent upon his negligent use or management of fire, so long as it is confined to the place where it ought to be

b. if it escapes, even though the insured was negligent, the insurer is liable

c. even though a fire may remain in its proper place, it may become hostile if it by accident, becomes so extensive as to be beyond control

Options of the Insurer

a. purchase the property at appraised valuation

b. restore the property damaged - contract of insurance is discharged and parties enter into a new contract of insurance

25. Casualty Insurance: Any injury that is intended, unexpected and unusual, even though it results from an act or even which was intelligently done.

Insurer is Liable for death/injury to insured:

a. by his own hand while insane

b. by taking poison by mistake

c. by overdoes of drugs administered or taken by mistake, by ignorance or material pathological conditions

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

e. by unprovoked violence of others

Compulsory Motor Vehicle Liability Insurance

Persons subject to CMVLI:

a. motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose name such vehicle is registered with the LTO

b. land transport operator or one who is the owner of a motor vehicle or vehicles being used for conveying passengers for compensation (including school buses)

No Fault Indemnity Clause: The insurance company shall pay any claim for death or bodily injuries sustained by a passenger or 3rd party without the necessity of proving fault or negligence of any kind subject to certain conditions. This does not apply to property damage.

26. Suretyship - an agreement whereby the surety guarantees the performance of the principal or obligor of an obligation or undertaking in favor of a 3rd party called the obligee

27. Life Insurance: an insurance in human life and insurance appertaining thereto or connected therewith may be payable:

a. on the death of the insured

b. on his surviving a specified period

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

(b and c refer to endowment or annuities)

Uses and Common Kinds of Life Insurance:

a. Whole Life or Ordinary Policies - here, the insured agrees to pay annual, semi-annual or quarterly premiums while he lives. The insurer agrees to pay the face value of the policy upon the death of the insured.

b. Limited Payment Life Policy - premiums paid only for a specified period of years.

c. Term Policy - insurers liability arises only upon the death of the insured within the agreed term as period. If the latter survives the period, the contract terminates and the insurer is not liable

d. Endowment Policy - insurer agrees to pay a certain sum to the insured if the latter outlives a designated period; if he dies before that time, the proceeds are paid to the beneficiary

e. Life Annuity - debtor binds himself to pay an annual pension or income during the life of one or more persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him with the burden of income

28. The Business of Insurance

a. Life or Endowment Policies

Grace Period - 30 days for the payment of any premium due after the first premium has been paid

Period of Incontestability - after the lapse of 2 years from the date of issue or date of approval of last reinstatement

Reinstatement of Policy - within 3 years from the date of default of premium, upon:

a. production of evidence of insurability, and

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

Exceptions:

a. if cash surrender value has been paid

b. if period of extension has expired

b. Claims Settlement

Unfair Claims Settlement Practices:

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

(b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies

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

(d) no attempt in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear

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

Proceeds of Life Insurance - payable within 60 days after:

(a) presentation of claims, and

(b) filing of proof of death (upon failure to pay interest, at the rate of 2 times the ceiling prescribed by the Monetary Board unless based on the ground that the rate is fraudulent)

Proceeds of Policies other than Life - payable:

(a) upon proof of loss

(b) upon ascertainment of loss or damage (if not made within 60 days of proof of loss, payable in 90 days)

c. Power of Commissioner to Suspend/Revoke License

(a) if insurance contract is in unsound condition

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

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

(d) that its paid up capital stock, or its available cash assets, or its security deposits, as the case may be, is impaired or deficient

(e) that the margin of solvency required of each company is deficient

Insurance Agent - any person who for compensation solicits or obtains insurance on behalf of any insurance company or transacts for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in negotiating of such insurance. He must be first licensed as such before doing any acts as insurance agent.

Insurance Broker - any person for any compensation, commission or any other thing of value, acts, or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. A license is required.

WAREHOUSE RECEIPTS LAW

1. Warehouse - a building or place where goods are deposited and stored for profit.

2. Warehouseman - person lawfully engaged in the business of storing goods for profit.

Only a warehouseman may issue warehouse receipts.

3. Warehouse Receipt - written acknowledgment by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued.

4. Non-negotiable Receipt - receipt deliverable to a specified person.

5. Negotiable Receipt - receipt deliverable to order or to bearer.

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

a. location of the warehouse

b. date of the issue of the receipt

c. consecutive number of the receipt

d. statement whether the goods received will be delivered to bearer, or a specified person, or his order

e. rate of storage charges

f. description of the goods or packages containing them for identification purposes

g. signature of the warehouseman

h. statement of the amount of advances made and of liabilities incurred for which the warehouseman claims as lien

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

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

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

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

d. The issuance of a warehouse receipt in the form provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements are not observed, then the goods delivered for storage become ordinary deposits.

8. Terms which may be inserted in a Warehouse Receipt: Any other terms except (a) those contrary to the provisions of this Act; (b) those that would impair a warehousemans obligation to exercise that degree of care in the safekeeping of the goods entrusted to him.

9. Marks to be made on a warehouse receipt:

a. A non-negotiable receipt must be clearly marked non-negotiable or not negotiable, otherwise, the holder of the receipt who purchased it for value and who supposed it to be negotiable, may treat it as negotiable.

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

10. Warranties of a warehouseman as to duplicate receipts:

a. The duplicate is an accurate copy of the original receipt.

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

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

a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor.

b. If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable according to the terms of the altered receipt.

c. If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the warehouseman is liable on the altered receipt according to its original tenor.

d. If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman is liable:

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

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

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

12. Effects of misdescription of goods:

a. A warehouseman is under the obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner.

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

c. If the description consists merely of marks or label upon the goods or upon the packages containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels.

13. Principal Obligations of a Warehouseman:

a. To take care of the goods entrusted to his safekeeping

General Rule: A warehouseman is required to exercise such degree of care which a reasonable careful owner would exercise over similar goods of his own. He shall be liable for any loss or injury to the goods caused by his failure to exercise such care.

Exception: He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care.

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

b. To deliver the goods to the holder of the receipt or the depositor upon demand, provided demand is accompanied with:

(1) an offer to satisfy the warehousemans lien;

(2) an offer to surrender the negotiable receipt properly endorsed. If the receipt is non-negotiable, any person lawfully entitled to the possession of the goods may be entitled to delivery without surrender of the receipt.

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

14. Persons to whom goods must be delivered:

A. Persons lawfully entitled to the possession of the goods or his agent:

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

(1) where a negotiable instrument has been lost or destroyed, the court may order delivery to a person upon satisfactory proof of such loss or destruction and upon proper posting of a bond to protect the warehouseman from any liability or expense which he may incur by reason of the original receipt remaining outstanding.

(2) where more than one person claims title or possession of the goods the warehouseman may require all claimants to interplead. The court will then order delivery to the person having a better right.

b. an attaching creditor - Goods, while in the possession of the warehouseman and covered by a negotiable receipt, cannot be attached or levied upon under an execution unless:

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

(ii) its negotiation is enjoined, or

(iii) the receipt is impounded by the court

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

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

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

a. a person entitled to the delivery by the terms of the receipt, or

b. one who has written authority from letter a

C. If goods are covered by a negotiable receipt, a person in possession of the receipt, the terms of which the goods are deliverable:

a. to him or order

b. to bearer

c. indorsed to him

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

15. When is there Misdelivery?

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

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

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

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

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

16. Effects of Misdelivery:

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

17. What happens if there is proper delivery or partial delivery but the warehouseman fails to cancel the receipt or record on the receipt of such partial delivery?

a. If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he fails to take the receipt and cancel it, then he is still liable to one who purchases for value and in good faith such receipt.

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

18. Lawful excuses for refusal to deliver goods:

a. The warehouseman can refuse to deliver the goods if he has acquired title or right to the possession of the goods:

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

(2) from the warehousemans lien

b. If someone other than the depositor or person claiming under the depositor has a claim to the title or possession of the goods and the warehouseman has information of such claim, the warehouseman shall be excused from liability for refusing to deliver the goods either to the depositor or person claiming under him until he has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead.

c. The warehouseman will not be required to deliver the goods if such had been lost. But this is without prejudice to liabilities which may be incurred by him due to such loss.

d. The warehouseman having a valid lien against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

e. If goods have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not be liable for failure to deliver the goods.

19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming under him on the ground that adverse title to the goods belongs to a third person.

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

General Rule: A warehouseman may not co-mingle goods belonging to different depositors or belonging to the same depositor for which separate receipts had been issued.

Exception: A warehouseman may co-mingle fungible goods of the same kind and grade provided he is authorized by agreement or by custom.

21. Effect of Co-mingling of Goods:

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

b. The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate.

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

Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of preliminary injunction and serve the same on the depositor before he has a chance to negotiate the receipt. Once enjoined, there will be no longer a danger that a 3rd person will be prejudiced so the goods may now be attached, levied upon, or that the vendors lien or the right of stoppage in transit be exercised.

23. Warehousemans Lien

Extent of Warehousemans Lien:

A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands for:

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

b. all lawful claims for money advances, interest, insurance, transportation, labor, weighing, cooperating and other charges and expenses in relation to such goods

c. all reasonable charges and expenses for notice and advertisements of sale and for sale of the goods where default has been made in satisfying the warehouse lien

Goods Subject to lien:

a. goods belonging to the depositor who is liable to the warehouseman as debtor whenever such goods are deposited and

b. goods belonging to other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge

How is a lien enforced?

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

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

c. by filing a civil action for unpaid charges or by way of counterclaim in an action to recover the property from him

How is a lien lost?

a. when the warehouseman voluntarily surrenders possession of the goods without requiring payment of his lien; or

b. when the warehouseman wrongfully refuses to deliver the goods when a demand is made with which he is bound to comply

24. Negotiation and Transfer of Receipts

How do we negotiate a receipt deliverable to order?

a. by indorsing it in blank thereby making it deliverable to bearer or

b. by special indorsement - which would require further indorsements for further negotiations.

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

How do we negotiate a receipt deliverable to bearer?

There is no need to indorse for negotiation. Physical delivery of the instrument will suffice. But if the instrument is indorsed specially, the bearer character of the receipt is destroyed and for further negotiation, there will be a need for indorsement.

Who may negotiate warehouse receipts?

a. the owner of the receipt, or

b. the person to whom possession of the receipt was entrusted to by the owner

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

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

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

c. the direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him

May non negotiable receipts be negotiated?

No, even if the receipt is indorsed, the transferee acquires no additional right. That is why they are called non negotiable receipts. But they may be transferred or assigned by delivery.

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

a. the title to the goods as against the transferor

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

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

Distinction between a non negotiable receipt from a negotiable receipt with regard to attachment or execution upon goods:

Non-negotiable ReceiptNegotiable Receipt

Prior to notification of the warehouseman by the transferor or transferee, the warehouseman is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such warehouseman of the subsequent sale of the goods.The goods cannot be attached or levied under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined.

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

a. the right to the goods as against the transferor

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

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

Warranties of a person negotiating or transferring a receipt:

a. the receipt is genuine

b. he has a legal right to negotiate or transfer it

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

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

A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the debt from a person does not warrant the genuineness of the receipt not the quality or quantity of the goods therein described.

It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has been issued to require the negotiation of the receipt to him, otherwise his failure will have the same effect as an express authorization on his part to the seller, mortgagor, or pledgor in possession of such receipt to make any subsequent negotiation. The subsequent purchaser must have taken the receipt in good faith and for value.

A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he purchases from the owners agent within the actual or apparent scope of his authority. In sum, negotiation is valid despite having been made in breach of trust.

Distinctions between a negotiable instrument and a negotiable warehouse receipt:

Negotiable InstrumentNegotiable Warehouse Receipt

When a negotiable instrument is altered deliberately, it becomes null and void.When a warehouse receipt is altered, it is still valid but it may be enforced only in accordance with its original tenor.

If a negotiable instrument is originally payable to bearer, it will always remain so payable regardless of the way it is indorsed, whether specially or in blank.If a warehouse receipt, payable to bearer, is indorsed specially, it will be converted into a receipt deliverable to order and can only be negotiated further by indorsement and delivery.

A holder in due course may be able to obtain a title better than that which the party who negotiated the instrument to him had.An indorsee even if a holder in due course obtains only such title as the person negotiating has over the goods.

The indorsement of a negotiable instrument has a double effect. It is at the same time a conveyance of the instrument and a contract the indorser has with the indorsee that on certain conditions, the indorser will pay the instrument if the party primarily liable fails to do so.The indorsement of a warehouse receipt amounts merely to a conveyance by the indorser. Accordingly, an indorser of a receipt shall not be liable to the holder if, for example, the warehouseman fails to deliver the goods because they were lost due to his fault or negligence.

GENERAL BONDED WAREHOUSE LAW

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

a. obtain prior license from the Bureau of Commerce

b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against which bond depositors may sue directly

c. open to the public, no discrimination allowed

d. liable for double market value should he accept goods in excess of the capacity of warehouse if goods are damaged or destroyed

Note: for palay and corn license, a bond with the National Grains Authority is required; also an insurance cover is required.

Uniform Currency Law

1. Obligations Null and Void

a. obligations payable in gold/foreign currency

b. obligations payable in Philippine currency but measured in gold/foreign currency2. Exempt Transactions

a. government to government transactions or with international banking institutions

b. transactions affecting high priority economic projectsc. forward exchange transactions between banksd. import and export and other international banking, financial, investment and industrial transactions3. Merchants and Commercial Transactions

Classes of Investments:

a. Permitted - one allowed without need of prior authority from the Philippine Government. If registered status, invest up to extent as not to affect its registered status. If enterprise not registered, investment not to exceed 40%.

b. Permissible - invest in excess of 40% in unregistered enterprise but with prior approval of BOIc. Pioneer Area - (a) involves manufacturing, processing, production of product not produced at all/produced in non-commercial scale; (b) uses a design, scheme, formula that is new and untried in the Phils.; (c) agricultural activities/services essential to the attainment of food sufficiency; (d) produces non-conventional fuels/utilizes non-conventional sources of energy (all others are non-pioneer)4. Absolutely Disqualified to become Merchantsa. serving penalty of civil interdiction

b. insolventc. absolutely disqualified by special laws5. Relatively Disqualified

a. judicial and prosecuting officials in active service

b. administrative, economic, military chiefsc. government collection agents and custodian of fundsd. stock and commercial brokerse. by special laws cannot trade in specified territories6. Books a Merchant must keep

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

b. journal of day to day operationsc. ledger for classifying accountsd. copying book for letters and telegrams; if juridical person, include book of minutes and stock and transfer book7. Probative Value of Merchants Book

a. evidence against merchants themselves

b. in case of conflicts between 2 books - that which s properly kept prevailsc. if one keeps books and the other does not and cannot explain why, the former prevailsd. if both books are properly kept and there is a conflict, other proofs can be resorted to8. Commercial Contracts by Correspondence are perfected from the moment the offeree accepts the offer, even before knowledge of said acceptance by the offeror. This does not apply to deposit, guaranty, sales, loan, agency, partnership.

9. Joint Account Partnership - business arrangement whereby 2 or more persons interest themselves in the business of another by making contributions thereto and participating in the results thereof

a. only one member is ostensible, others are silent

b. no common namec. only ostensible partners can sue/be suedd. no juridical personalityTransportation Law

1. Contract of Transportation - contract whereby a certain person or association of persons obligate themselves to transport persons, things, news, from one place to another for a fixed price

2. Parties to the Contract of Transportation:

a. Shipper - one who gives rise to the contract of transportation by agreeing to deliver the things or news to be transported, or to present his own person or those of other or others in the case of transportation of passengers

b. Carrier/Conductor - one who binds himself to transport persons, things, or news, as the case may be, or one employed in or engaged in the business of carrying goods for others for hire

3. Common Carrier - person, corporation, firm, association engaged in the business of carrying or transporting passengers, goods or both, by land, water, air, for compensation, offering services to the public; must exercise extraordinary diligence

Private Carrier - not engaged in the business of carrying; no public employment; undertakes to deliver goods/passengers for compensation; requires only ordinary diligence

4. Requisites of Caso Fortuito

a. event independent of human will

b. occurrence makes it impossible for debtor to perform in normal mannerc. debtor free from aggravation/participationd. impossible to foresee or avoid5. Contributory negligence does not entitle passengers to recover moral/exemplary damages.

6. Bill of Lading - written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or his carrier

It is not indispensable to the creation of a contract of carriage. The contract itself arises from the moment goods are delivered by shipper to carrier and the carrier agrees to carry them.

The function of the Bill of Lading: the legal basis of the contract between the shipper and carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided, no exceptions being admissible other than forgery or material errors in the drafting thereof.

Carriers responsibility starts from the moment he receives unconditionally the merchandise personally or through an agent and lasts until he delivers them actually or constructively to the consignee or his agent.

Mere delay in the delivery of goods to consignee does not give right to refuse goods - only breach of contract, ergo damages. If delay is unreasonable, then he may refuse to accept and make carrier liable for conversion.

7. Vessels - those engaged in navigation, whether coastwise or on the high seas, including floating docks, pontoons, dredges, scows and any other floating apparatus destined for the services of the industry or maritime commerce

8. Persons Participating in Maritime Commerce:

a. ship owner and/or ship agent

b. captain or master

c. other officers of the vessel

d. supercargo

9. Liability of Ship owners and Ship agents:

a. civil liability for the acts of the captain

b. civil liability for contracts entered into by the captain to repair, equip and provision the vessel, provided that the amount claimed was invested for the benefit of the vessel

c. civil liability for indemnities in favor of 3rd persons which may arise from the conduct of the captain in the care of the goods which the vessel carried, as well as for the safety of the passengers transported

Ship owner/ship agent not liable for the obligations contracted by the captain if the latter exceeds his powers and privileges inherent in his position of those which may have been conferred upon him by the former. However, if the amount claimed were made use of for the benefit of the vessel, the ship owner or ship agent is liable.

10. Doctrine of Limited Liability - liability of shipowners is limited to amount of interest in said vessel because of the real and hypothecary nature of maritime law such that where the vessel is entirely lost, the obligation is extinguished.

Exceptions: (1) vessel is not abandoned

(2) claims under workmens compensation

(3) injury/damage due to shipowners fault(4) vessel is insured The doctrine also applies for claims due to death or injuries to passengers, aside from claims for goods.

In abandoning the vessel, there is no procedure to be followed. There is neither a prescriptive period within which the ship owner can make the abandonment. He may do so for so long as he is not estopped from invoking the same or do acts inconsistent with abandonment.

11. Roles of the Captain:

a. general agent of the ship owner

b. technical director of the vessels

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

12. Loan on Bottomry - made by shipowner/ship agent guaranteed by vessel itself, repayable upon arrival at destination

13. Loan In Respondentia - taken on security of the cargo repayable upon the safe arrival at cargo destination

14. Accidents and Damages in Maritime Commerce:

a. Averages

b. Arrivals Under Stress

c. Collisions

d. Shipwrecks

15. Average:

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

b. all damages or deterioration which the vessel may suffer from the time it puts to sea at the port of departure until it casts anchor at the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment

16. Simple Average - expenses/damages caused to the vessel/cargo not inured to common benefit and profit of all the persons interested in the vessel and her cargo; borne by respective owners

17. General Average - expenses/damages deliberately caused in order to save the vessel, its cargo or both from a real and known risk

Requisites:

a. deliberately incurred

b. intended to save vessel and cargo or both

c. from real and known risk

d. there is success

18. Formalities for Incurring Gross Average:

a. there must be an assembly of the sailing mate and other officers with the captain including those with interests in the cargo

b. there must be a resolution of the captain

c. the resolution shall be entered in the log book, with the reasons and motives and the votes for and against the resolution

d. the minutes shall be signed by the parties

e. within 24 hours upon arrival at the first port the captain makes, he shall deliver one copy of these minutes to the maritime judicial authority thereat

19. Arrivals under Stress - arrival of the vessel at a port not of destination on account of (a) lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of the sea disabling it to navigate

When Not Lawful:

a. lack of provisions due to negligence to carry according to usage and customs

b. risk of enemy not well known or manifestc. defect of vessel due to improper repaird. malice, negligence, lack of foresight or skill of captain20. Collision - impact of 2 vessels both of which are moving

21. Allision - striking of a moving vessel against one that is stationary

22. Cases of Collision:

a. due to the fault, negligence or lack of skill of the captain, sailing mate or the complement of the vessel - ship owner liable for the losses and damages (Culpable Fault)

b. due to fortuitous event or force majeure - each vessel and its cargo shall bear its own damages (Fortuitous)

c. it cannot be determined which of the 2 vessels caused the collision - each vessel shall suffer its own damages, and both shall be solidarily responsible for the losses and damages occasioned to their cargoes (Inscrutable Fault)

23. Error in Extremis - sudden movement made by a faultless vessel during the 3rd zone of collision with another vessel which is at fault, even if the said movement is wrong, no responsibility will fall on said vessel

24. Shipwreck - denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by the waves, by running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation

25. Salvage - the compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending peril, or such property recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture; a service which one person renders to the owner of a ship or goods by his own labor, preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect and secure; a permit is required to engage in the salvage business

26. Derelict - a ship or cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning it

27. Elements of a Valid Salvage:

a. a marine peril

b. service voluntarily rendered when not required as an existing duty or from special contract

c. success, in whole or in part, or that the services rendered contributed to such success

28. Contract of Towage - contract whereby a vessel usually motorized pulls another from one place to another for compensation. It is a contract of services.

29. Difference between Towage and Salvage:

SalvageTowage

crew of salvaging ship is entitled to salvage, and can look to the salvaged vessel for its sharecrew of the towing ship does not have any interest or rights with the remuneration pursuant to the contract

salvor takes possession and may retain possession until he is paidtower has no possessory lien; only an action for recovery of sum of money

court has power to reduce the amount of remuneration if unconscionablecourt has no power to change amount in towage even if unconscionable

Carriage of Goods by Sea Act

1. When Applicable:

a. contracts for the carriage of goods

b. by sea

c. to and from Philippine ports

d. in foreign trade

2. Notice of Loss or damage must be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery. If the loss or damage is not apparent, the notice must be given within 3 days of delivery. However, the carrier shall be discharged from all liability in respect of loss or damage of goods unless suit is brought within 1 year after delivery of the goods or the date when the goods should have been delivered. Notice of loss, if not given, that fact shall not affect or prejudice the right of the shipper to bring suit within the 1 year prescriptive period.

Warsaw Convention

1. When Applicable:

a. international transport by air

b. transport of persons, baggage, or goods

2. Liabilities under the Convention:

a. damage sustained in the event of the death or wounding of a passenger taking place on board the aircraft or in the course of any of the operations of embarking or disembarking

b. loss or damage to any check baggage or goods sustained during the transport by air

c. delay in the transport by air of passengers, baggage, or goods

Enumeration of causes of action as above stated is not an exclusive list. (Northwest Airlines vs. Cancer)

3. Meaning of Transport by Air - period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or in the case of landing outside an airport, in any place whatsoever

4. Action for damages must be brought