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to commit fraud or
5 questions
1. Intra-corporate Controversy
INTRA-CORPORATE CONTROVERSIES (Sec. 5 [b] of PD 902-A)
Intra-corporate controversies include those of corporations, partnerships and
associations.
Elements of intra-corporate controversies:
1. An intra-corporate relationship:
a. Between and among the stockholders, members, associates of a
corporation, partnership or association;
b. Between them and the corporation, partnership or association;
or
c. Between the corporation, partnership or association and the
State.
2. The controversy must arise out of said relationship.
The dispute among the parties must be intrinsically connected with the
regulation of the corporation. If the nature of the controversy involves
matters that are purely civil in character necessarily the case does not
involve an intra-corporate controversy.
The factor which decides whether the action is within the jurisdiction of the
Special Commercial Courts is that the controversy arose out of an intracorporate relation between and among the parties.
The filing of the civil/intra-corporate case before the SEC does not preclude
the simultaneous and concomitant filing of a criminal action before the
regular courts; such that, a fraudulent act may give rise to liability for
violation of the rules and regulations of the SEC cognizable by the SEC itself,
as well as criminal liability for violation of the Revised Penal Code cognizable
by the regular courts, both charges to be filed and proceeded independently,
and may be simultaneously, with the other.
2. Declaration of Dividends
Dividends can only be declared out of unrestricted retained earnings.
General rule: Stock corporations are prohibited from retaining surplus profits
in excess of 100% of their paid-in capital stock.
Exceptions:
1. When justified by definite corporate expansion projects or programs
approved by the board of directors; or
2. When the corporation is prohibited under any loan agreement with
any financial institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such consent has not
yet been secured; or
3. When it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there
is need for special reserve for probable contingencies.
The judgment of the board of directors in the matter of declaring dividends
is conclusive except when they act in bad faith, or for a dishonest purpose or
act fraudulently, oppressively, unreasonably or unjustly or abuse of
discretion can be shown so as to impair the rights of the complaining
stockholders to their just proportion of corporate profits.
Directors are not liable for declaration of dividend contrary to law, unless
attended with bad faith, gross negligence or willful and knowing assent.
The essential test of bad faith is to determine if the policy of the directors is
dictated by their personal interest rather than the corporate welfare.
3 questions
1. Interlocking Directors
Sec. 33. Contracts between corporations with interlocking directors. Except in cases of fraud, and provided the contract is fair and reasonable
under the circumstances, a contract between two or more corporations
having interlocking directors shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking director in one corporation is
substantial and his interest in the other corporation or corporations is merely
nominal, he shall be subject to the provisions of the preceding section
insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital
stock shall be considered substantial for purposes of interlocking directors.
A director who owns a substantial interest in one corporation dealing with
another where he has a nominal interest is a regarded as a self-dealing
director in so far as the latter corporation is concerned.
2. Incorporation requirements
Process of incorporation:
1. Drafting the articles of incorporation
2. Preparation and submission of additional and supporting documents
3. Filing with the SEC
4. Subsequent issuance of certificate of incorporation
Contents of the articles of incorporation
1. Name
2. Purpose
3. Principal office
4. Term
5. Incorporators
6. Number of directors/trustees
7. Names, nationalities and residences of directors/trustees
8. If a stock corporation, amount of authorized capital stock, number of
shares, par value, original subscribers
9. If a non-stock corporation, amount of capital, contributors
10. Such other matters not inconsistent with law and which the incorporator
may deem necessary and convenient
11. Treasurers certificate
CORPORATE NAME
A corporation has an exclusive right to the use of its name, which may be
protected by injunction upon a principle similar to that upon which persons
are protected in the use of trademarks and trade names.
In determining the existence of confusing similarity in corporate names, the
test is whether the similarity is such as to mislead a person using ordinary
care and discrimination. Proof of actual confusion need not be shown. It
suffices that confusion is probably or likely to occur.
PURPOSE CLAUSE
General limitations on the purpose clause: must be:
1. lawful
2. specific or stated concisely although in broad or general terms.
3. If there is more than one purpose, the primary as well as the
secondary ones must be specified.
4. capable of being lawfully combined.
THE PRINCIPAL OFFICE
The residence of the corporation is the place of its principal office as may be
indicated in its articles of incorporation and may, therefore, be sued only at
that place.
TERM OF EXISTENCE
A corporation shall exist for a period not exceeding fifty (50) years from the
date of incorporation unless sooner dissolved or unless said period is
extended. The corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding fifty (50) years in
any single instance by an amendment of the articles of incorporation, in
accordance with this Code; Provided, That no extension can be made earlier
than five (5) years prior to the original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier extension as may be determined
by the Securities and Exchange Commission.
INCORPORATORS
Any number of natural persons not less than five (5) but not more than
fifteen (15), all of legal age and a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or
purposes. Each of the incorporators of a stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the corporation.
General rule: Only natural persons can be incorporators.
Exception: Cooperatives and corporations primarily organized to hold
equities in rural banks.
THE DIRECTORS/TRUSTEES
General rule: There must be at least 5 but not more than 15 directors or
trustees in a private corporation.
Exceptions:
1. Educational corporations registered as a non-stock corporation
whose number of trustees, though not less than 5 and not more than
15 should be divisible by 5;
2. In close corporations where all the stockholders are considered as
members of the board of directors thereby effectively allowing 20
members in the board; and
3. Corporation sole.
The by-laws may provide for additional qualifications and disqualifications.
However, it may not do away with the minimum disqualifications laid down
by the Code.
Qualifications:
1. Directors must own at least one (1) share of the capital stock of the
corporation. Trustees must be members.
2. A majority of the directors or trustees must be residents of the
Philippines.
Disqualifications:
1. Conviction by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the date of election
or appointment.
2. Other disqualifications under applicable special laws.
A by-laws may validly provide that no person may be elected as director
unless he owns a specified number of shares required for the directorate
qualification.
It may likewise disqualify a stockholder from being elected into office if he
has a substantial interest in a competitor corporation to avoid any possible
adverse effects of conflicting interest of a director.
In order to be eligible as a director, what is material is the legal title to, not
beneficial ownership, of the stock as appearing on the books of the
corporation.
If no election is conducted or no qualified candidate is elected, the
incumbent director shall continue to act as such in a hold over capacity until
the election is held and a qualified candidate is so elected.
CAPITALIZATION
Authorized capital the maximum amount fixed in the articles to be
subscribed and paid-in or secured to be paid by the subscribers.
Subscribed capital stock the total number of shares and its total value
for which there are contracts for their acquisition or subscription.
Stocks shall not be issued for a consideration less than the par or issued
price thereof.
Stocks shall not be issued in exchange of promissory notes or future
services.
Shares of stock and their classification
Shares of stock designate the interest or right which the stockholder has in
the management of the corporation, and in the surplus profits and, in case of
distribution, in all assets remaining after the payment of its debts.
Stock certificate is a document or instrument evidencing the interest of a
stockholder in the corporation.
Par and no par value shares - those whose values are fixed in the articles
of incorporation which cannot be issued nor sold by the corporation at less
than par.
No par value shares those whose issued price are not stated in the
certificate of stock but which may be fixed in the articles of incorporation, or
by the board of directors when so authorized by the said articles or by the
by-laws, or in the absence thereof, by the stockholders themselves.
Limitations of no par value shares:
1. Such shares, once issued, are deemed fully paid and thus, non
assessable;
2. The consideration for its issuance should not be less than P5.00;
3. The entire consideration for its issuance constitutes capital, hence,
not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance
companies, public utilities and building and loan associations.
Voting and non-voting shares
Voting shares gives the holder thereof the right to vote and participate in
the management of the corporation through the exercise of such right, either
at the election of the board of directors, or in any manner requiring the
stockholders approval.
Non-voting shares do not grant the holder thereof the right to vote
except under the penultimate paragraph of Sec. 6.
Non-voting shares shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
CAPITAL REQUIREMENT
and
procedure
for
the
withdrawal
of
foreign
2 questions
1. Sole Proprietorship - Where the business enterprise is not endowed
with a separate juridical personality, is less saddled with the many
requirements and regulations to which corporations are often
subjected to by law, rules and regulations.
2. Bulk Sales Sale, transfer, mortgage or assignment of All, or
substantially all goods, business , or fixtures and equipment used in
the business of the vendor, mortgage, transferor, or assignor otherwise
than in the ordinary course of trade.
Exempted transaction
o When accompanied with written waiver by all the
seller/mortgagors creditors
o The law does not apply to executors, administrators, receivers,
assignees in insolvency, or public officers, acting under legal
process.
o Sale or mortgage is made in the ordinary course of business.
o Sale by assignee in insolvency or those beyond the right of
creditors
o Sale of properties exempt from the attachment or execution.
Exceptions:
i. By delegation of authority;
ii.
8.
9. Delinquent Stockholder
10. Unpaid subscription - are not due and payable until a call is made
by the corporation for payment.
11. Appraisal Right of Stockholders
12. Trust Fund Doctrine - Is the rule that the capital stock of a
corporation constitutes a trust fund for the benefit of its creditors as its
capital is the basis of its credit, but the trust does not arise until the
corporation becomes insolvent.
3. Protection of Investors
4. Tender Offer Rule
Tender Offers a publicly announced intention by the purchaser to
acquire a certain block of equities of a company through open market
purchases or private negotiations.
A tender offer is required of any person or group of persons acting in
concert who intend to acquire:
1. At least 15% of any class of any equity security of a listed
corporation or of any class of any equity security of a corporation
with assets of at least P50M and having 200 or more stockholders
with at least 100 shares each; or
2. At least 30% of such equity over a period of 12 months.
6 questions
1. Crossed Check
A check which in addition to the usual contents of an ordinary check
contains also the name of a certain banker or business entity through
whom it must be presented for payment.
3 questions
1. Liabilities of Prior and Subsequent Parties in Forgery
Primary Liable maker, drawee, acceptor, and certifier of checks.
Secondary Liable drawer, indorsers, and acceptors for honor.
Not liable drawee (until he accepts it).
Requisites:
1. It must be in writing and signed by the maker or drawer.
2. Must contain an unconditional promise or order to pay a sum
certain in money.
2. Bearer Instrument
A negotiable instrument payable to bearer or to cash, rather
than to an identifiable payee.
3. Liabilities of maker and indorsers
Irregular Indorser: He is liable as a general indorser because he
indorses without qualification.
General Indorser:
1. The matters and things mentioned in Sec. 65.
2. That the instrument is, at the time of his indorsement, valid and
subsisting.
Insurance Law
5 questions
1. Concealment
Concealment is a neglect to communicate that which a party knows
ought to communicate. (Sec. 26)
and
Requisites:
1. A party knows a fact (a material fact) which he neglects to
communicate or disclose to the other party;
2. Such party concealing is duty bound to disclose such fact to the
other;
3. Such party concealing makes no warranty as to the fact concealed
and;
4. The other party has no means of ascertaining the fact concealed.
5. The fact must be material
2. Material Concealment
Matters that must be disclosed even in the absence of inquiry:
1.
2.
3.
"It is well settled that the insured need not die of the disease he failed
to disclose to the insurer. It is sufficient that his nondisclosure misled
the insurer in forming his estimate of the risks of the proposed
insurance policy or in making inquiries.
3. Incontestability Clause
The insurer has two years from the date of issuance of the insurance
contract or of its last reinstatement within which to contest the policy,
whether or not, the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter how patent
or well founded, no longer lie.
Requisites:
1. It must be a Life insurance policy'
2. It must be Payable on the death of the insured; and
3. It must be in force during the life time of the insured for at least
2 years from its date of issue or of its last reinstatement.
The period of two years may be shortened but it cannot be
extended by stipulation.
3 questions
1. Insurable Interest : Life vs Property Insurance
Life Insurance:
1. It is a contract of investment.
2. Always regarded as valued policy
3. May be transferred or assigned to any person even if he has no
insurable interest.
4. The consent of the insurer is not essential to the validity of the
assignment of a life policy unless expressly required.
5. Insurable interest in the life or health of the person insured need
not exist after the insurance takes effect or when loss occurs.
6. Insurable interest need not have any legal basis.
7. Contingency that is contemplated is a certain event, the only
uncertainty being the time when it will take place.
8. The liability of the insurer to make payment is certain, the only
uncertain element being when such payment must be made.
9. May be terminated by the insured but cannot be cancelled by the
insurer and is usually a long term contract.
10. The loss to the beneficiary caused by the death of the
insured can seldom be measured accurately in terms of cash
value.
2. Double Insurance
Double insurance exists where the same person is insured by several
insurers separately, in respect to the same subject and interest. (Sec. 93)
Requisites:
1.
2.
3.
4.
5.
3. Accident vs Suicide
Accident vs. Suicide
Accident
That which happens by chance or fortuitously, without intention or
design which is unexpected, unusual and unforeseen.
Suicide
Willful exposure to needless peril which are excepted risk. It is
intentional and implies the exercise of reasoning faculties, consciousness and
volition.
Insurer liable in case of suicide:
1.
The suicide is committed after the policy has been in force for a
period of 2 years from the date of its issue or of its last
reinstatement.
2.
3.
The insurer is not liable if it can show that the policy was obtained with the
intention to commit suicide even in the absence of any suicide exclusion in
the policy.
2 questions
1. Irrevocable Beneficiary
A person who insures his own life may designate his beneficiary
revocable or irrevocably. For the designation to be irrevocable, the insured
should expressly state the irrevocable designation in the policy itself (Sec.
11, Insurance Code).
If the designation of the beneficiary is irrevocable, Insured cannot:
1. Assign the policy
Banking Laws
7 questions
1. Secrecy of Bank Deposit: exceptions, garnishment
Peso Deposits
The following are the deposits covered by RA 1405:
1. All deposits of whatever nature with banks or banking
institutions found in the Philippines; or
2. Investments in bonds issued by the Philippine government, its
branches, and institutions. (Sec. 2, R.A. 1405)
3. Trust accounts are included in the scope of the law.
GR: They are considered absolutely confidential and may not be
examined, inquired or looked into by any person, government official,
bureau or office (Ibid.).
Exceptions:
1. Upon written consent of the depositor. (Sec. 2, RA
1405)
2. In cases of impeachment. (ibid.)
3. Upon order of competent court in cases of bribery or
dereliction of duty of public officials. (ibid.)
4. Upon order of competent court in cases where the
money deposited or invested is the subject matter of
the litigation. (ibid.)
5. Upon order of the Commissioner of Internal Revenue in
respect of the bank deposits of a decedent for the
purpose of determining such decedents gross estate.
(Sec. 6[F][1], NIRC)
2 questions
1. Classification of Banks
1. Universal banks - Primarily governed by the General Banking Law
(GBL). They can exercise the powers of an investment house and
invest in non-allied enterprises and have the highest capitalization.
4. Receivership
3 questions
1. Trademark Infringement
The person without the owners consent, use in commerce any
reproduction, counterfeit, copy or colorable imitation of a registered
mark or the same container or a dominant feature thereof in
connection with the sale, offering for sale of any goods or services on
or in connection with which such use is likely to cause confusion, or to
cause mistake or to deceive.
2 questions
1. Copyright is an intangible incorporeal right to certain literary,
scholarly, scientific and artistic productions granted by statute to the
author or creator of the work, and giving him, his heirs and assigns
copyright or economic rights, which shall consist of the exclusive right
to carry out, authorize or prevent the following acts:
a.)
b.)
c.)
d.)
e.)
f.)
g.)
2. Infringement of Patents
The tests to determine infringement are
(a)
(b)
Transportation Law
5 questions
1. Limited Liability Rule : General Average Loss
The exclusively real and hypothecary nature of maritime law operates
to limit the liability of the ship-owner to the value of the vessel, earned
freightage and proceeds of the insurance, if any No Vessel, No Liability,
rule. The total destruction of the vessel extinguishes maritime lien as there
is no longer any res to which it can attach.
The limited liability rule, however, is not without exceptions, namely:
(1) where the injury or death to a passenger is due either to the fault of the
ship-owner, or to the concurring negligence of the ship-owner and the
captain; (2) where the vessel is insured; and (3) in workmen's compensation
claims.
4 questions
1. Prescription of Claims in COGSA
Under Section 3(6) of the COGSA, the carrier is discharged from
liability for loss or damage to the cargo "unless the suit is brought within one
year after delivery of the goods or the date when the goods should have
been delivered. Jurisprudence, however, recognized the validity of an
agreement between the carrier and the shipper/consignee extending the
one-year period to file a claim.
3 questions
1. Doctrine of Inscrutable Fault
Where fault is established and it cannot be determined which vessel is at
fault, both shall be deemed to be at fault. Each vessel shall also suffer its
own losses and both shall be solidarily liable for losses or damages on the
cargoes.
Special Laws
8 questions
Letters of Credit - are those issued by one merchant to another or
for the purpose of attending to commercial transaction.
a. Rights and obligations of parties
There are at least three parties to a letter of credit:
(1) Buyer/Exporter/Account Party one who procures the letter of credit and
obliges himself to reimburse the issuing bank upon receipt of documents of title.
(2) Issuing Bank the bank which undertakes:
(a) To pay the seller upon receipt of the draft and proper documents of title; and
(b) To surrender the documents to the buyer upon reimbursement.
The obligation of the issuing bank to pay the seller is direct, primary, absolute,
definite and solidary with the buyer, in the absence of stipulation in the letter of
credit
(3) Seller/Importer/Beneficiary one who ships the goods to the buyer in
compliance with a contract of sale and delivers the documents of title and draft to
the issuing bank to recover payment.
Depending on the transaction, the number of parties to the letter of credit may be
increased. Thus, the different types of correspondent banks:
* Advising/Notifying Bank the bank which conveys to the seller the existence
of the credit. The bank assumes no liability except to notify and/or transmit to the
seller the existence of the letter of credit. A notifying bank is not a privy to the
contract of sale between the buyer and the seller, its relationship is only with that
of the issuing bank and not with the beneficiary to whom he assumes no liability.
The bank may suggest to the seller its willingness to negotiate, but this fact alone
does not imply that the notifying bank promises to accept the draft drawn under
the documentary credit
* Confirming Bank the bank which lends credence to the letter of credit issued
by a lesser known issuing bank. The bank assumes a direct obligation to the seller
and its liability is a primary one as if the bank itself had issued the letter of credit
* Negotiating Bank the bank which discounts the draft presented by the seller.
The bank buys or discounts a draft under the letter of credit. Its liability is
dependent upon the stage of the negotiation. If before negotiation, it has no
liability with respect to the seller but after negotiation, a contractual relationship
will then prevail between the negotiating bank and the seller.
* Paying Bank the bank which undertakes to encash the drafts drawn by the
seller.
b. Doctrine of independence
The principle of independence assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing
bank from determining whether the main contract is actually accomplished or not.
Under this principle, banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or
for the general and/or particular conditions stipulated in the documents or
superimposed thereon, nor do they assume any liability or responsibility for the
description, quantity, weight, quality, condition, packing, delivery, value or
existence of the goods represented by any documents, or for the good faith or acts
and/or omissions, solvency, performance or standing of the consignor, the carriers,
or the insurers of the goods, or any other person whomsoever.
c. Doctrine of Strict Compliance
The settled rule in commercial transactions involving letters of credit requires that
the documents tendered by the seller must strictly conform to the terms of the
letter of credit. Otherwise, the issuing bank or the concerned correspondent bank
is not obliged to perform its undertaking under the contract.
5 questions
1. Trust Receipts Law
Trust Receipt shall refer to the written or printed document signed by the
entrustee in favor of the entruster containing terms and conditions substantially
complying with the provisions of this Decree. No further formality of execution or
authentication shall be necessary to the validity of a trust receipt.
a. Rights of the Entruster
The following are the rights of the entruster:
A)
Entitled to the proceeds from the sale of the goods, documents or
instruments;
B)
Entitled to the return of the goods, documents or instruments in case of
non-sale;
C)
To the enforcement of all other rights conferred on him in the trust receipt;
D)
The entruster may cancel the trust and take possession of the goods,
documents or instruments subject of the trust or of the proceeds realized
therefrom at any time upon default or failure of the entrustee to comply with any
of the terms and conditions of the trust receipt or any other agreement between
the entruster and the entrustee and to sell the goods in a public sale in case of
default;
E)
May purchase at the intended public sale (Sec.7, PD 115)
entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of this Decree. (Sec. 9, PD 115)
Liability of the Entrustee:
The risk of loss shall be borne by the entrustee. Loss of goods, documents or
instruments which are the subject of a trust receipt, pending their disposition,
irrespective of whether or not it was due to the fault or negligence of the
entrustee, shall not extinguish his obligation to the entruster for the value thereof.
(Sec. 10, PD 115)
c. Remedies Available
Q: What are the remedies available to the entruster against the entrustee?
ANS: If the entrustee did not comply with his obligations, he shall have the
following liability:
A)
Criminal liability for ESTAFA under both the TRL and the RPC;
B)
Liable for DAMAGES under Art. 33 of the NCC, without need of proving intent
to defraud because it is malum prohibitum (Prudential Bank vs. IAC, GR 74886,
December 8, 1992).
Q: What are the remedies available to the entrustee if he has been criminality
charged even though he compliedwith his obligations?
ANS: The following are the remedies of the entrustee:
A)
If the entrustee complied with his obligation before there has been a criminal
charge no criminal liability
B)
If the entrustee complied with his obligation after there has been a criminal
charge but before conviction extinguishment of criminal liability
d. Liabilities for estafa
The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with
the terms of the trust receipt shall constitute the crime of estafa, punishable under
the provisions of Article Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise
Kidnapping;
Hijacking;
Drugs;
Arson;
Murder. (Sec. 11 R.A. 9160, as amended)
3 questions
1. Bulk Sales Law covered transactions; obligations of vendor
A. COVERED TRANSACTIONS
Any sale, transfer, mortgage, or assignment
1. of goods other than in ordinary course of business
2. of all or substantially all of business
3. of all or substantially all of fixtures and equipments
B. OBLIGATION OF VENDOR
Duty of seller to perform the following when transaction is within the coverage of
law:
1. Make sworn statement of listing of creditors
2. Delivery of sworn statement to buyer
3. Apply the proceeds pro-rata to claims of creditors shown in verified statement
4. Written advance disclosure to creditors