Commercial Law Review Green Notes

COMMERCIAL LAW 2010
Table of Contents
I. Negotiable Instruments Law............................................................................... 2
II. Corporation Law (BP 68) ............................................................................................... 20
III. Insurance ............................................................................................................................... 50
I. !ransportation Laws
a. Common Carriers ............................................................................................... "02
b. Co#e o$ Commerce %&erlan# !ransportation .................................................. "0'
c. (ir !ransportation ............................................................................................... "0)
#. *aritime Commerce+ ,ater !ransportation ................................................. ""0
e. Carriage o$ -oo#s b. /ea (ct .............................................................................. "")
$. /al&age Law .............................................................................................................. "20
g. ,arsaw Con&ention ............................................................................................... "2"
0. Public /er&ice Law ............................................................................................... "21
. /pecial Commercial Laws
a. *erc0ants 222222222222222222222222222222.
"2)
b. 3oint (ccounts 222222222222222222222222222222.
"4"
c. Letters o$ cre#it 22222222222222222222222222"42
#. !rust receipts 222222222222222222222222222222
"44
e. Bul5 /ales 222222222222222222222222222222.
"45
$. ,are0ouse receipts 2222222222222222222222222.. "46
g. C0attel mortgages 22222222222222222222222222"4)
0. 67tra89u#icial $oreclosure o$ real estate mortgages 22222222.. "1"
i. Insol&enc. 222222222222222222222222222222.
"14
9. Central Ban5 (ct 22222222222222222222222222222.
"50
5. -eneral Ban5ing Law 22222222222222222222222222.. "52
COMMERCIAL LAW
l. P:IC 222222222222222222222222222222222222
"56
m. !rut0 in Len#ing 22222222222222222222222222222
"5'
I. !0e ;Insi#e /tor.< %n t0e ;/ecrec. o$ Ban5 :eposits< Law 222222222 "5)
II. Intellectual Propert. Co#e .............................................................................................. "6"
ACKNOWLEDGEMENT
!0ese notes were ma#e un#er t0e super&ision o$ Atty. Renato Rondez.
/pecial t0an5s to Atty. A!el"o Gala#$a# $or notes an# cases in Intellectual Propert. Co#e an# to Atty. Abe
D%a$"n$ $or notes an# cases in Negotiable Instruments Law.
NEGOTIA&LE IN'TR(MENT' LAW=
>0onella ?lip@ @ 3esebel (g#awi@ Norilen :e 3esus@ *iss. *aramba@ an# ictor *orales .
COR)ORATION LAW*
Precious Cabra#illa@ >ic0enn Lacamento@ >omel.n Aima.ong@ (nal.n Buiniones@ an# >o#ol$o
/antiago.
IN'(RANCE*
6rwin Lapitan@ (na Cristina Cawe#@ 3ulie Nicer@ 3an Aarlo LopeC@ an# 3o&encio >obles.
TRAN')ORTATION AND INTELLECT(AL )RO)ERT+ CODE*
*.rtle *ara.ag@ Lemwel (lapit@ (ileen Bugnosen an# 3ason Baban.
NEGOTIA&LE
IN'TR(MENT' LAW
(A#t No. 20,1- .ne 2- 1/110
8 ,ritten contracts $or t0e pa.ment o$ mone.D b. its
$orm@ inten#e# as a substitute $or mone. an#
inten#e# to pass $rom 0an# to 0an#@ to gi&e t0e
0ol#er in #ue course t0e rig0t to 0ol# t0e same an#
collect t0e sum #ue.(2005 B6B)
Note= ( negotiable instrument is not a legal ten#er.
LEGAL TENDER is t0at 5in# o$ mone. w0ic0 t0e
law compels t0e cre#itor to accept in pa.ment o$ 0is
#ebt. (lt0oug0 a NI is inten#e# to be a substitute
$or mone.D it is not generall. legal ten#er (c$. /ec.
60@ New Central Ban5 (ct)
Negotiable instruments pro#uce t0e e$$ect o$
pa.ment onl. w0en t0e. 0a&e been encas0e# or
t0roug0 t0e $ault o$ t0e cre#itor 0a&e been impaire#.
((rticle "21)@ NCC)
)!"n#"1al 2eat!es and C3a!a#te!"st"#s
a. negotiabilit. 8 rig0t o$ trans$eree to 0ol# t0e
instrument an# collect t0e sum #ue
b. accumulation o$ secon#ar. contracts 8
instrument is negotiate# $rom person to
person
INCIDENT' IN T4E LI2E O2 A
NEGOTIA&LE IN'TR(MENT 5IN)AD)DND0
(Commercial laws o$ t0e P0ilippines@ ol."@
(gue#o (gba.ani@ "))2 e#.)
". I ssue
2. N egotiation
4. ) resentment $or acceptance@ in certain
5in#s o$ bills o$ e7c0ange
1. A cceptance
5. D is0onor $or non8acceptance
6. ) resentment $or pa.ment
'. D is0onor b. non8pa.ment
8. N otice o$ #is0onor
). D isc0arge
DI'TINCTION'*
(2005 B6B)
Ne$ot"able
Inst!%ents
Non6ne$ot"able
Inst!%ents
Contains all t0e
reEuisites o$ /ec. " o$
t0e NIL
:oes not contain all t0e
t0e NIL
!rans$erre# b.
negotiation
!rans$erre# b.
assignment
Fol#er in #ue course
ma. 0a&e better rig0ts
t0an trans$eror
!rans$eree acEuires
rig0ts onl. o$ 0is
trans$eror
Prior parties warrant
pa.ment
Prior parties merel.
warrant legalit. o$ title
(C6&C2 COLLEGE O2 LAW
:ean >e.nal#o ?. (granCamen#eC Page 2 o$ 177
COMMERCIAL LAW
!rans$eree 0as rig0t o$
recourse against
interme#iate parties
!rans$eree 0as no rig0t
o$ recourse
Ne$ot"able Inst!%ents Ne$ot"able
Do#%ents of T"tle
Fa&e reEuisites o$ /ec. "
o$ t0e NIL
:oes not contain
NIL
Fa&e rig0t o$ recourse
against interme#iate
parties w0o are
secon#aril. liable
No secon#ar. liabilit.
o$ interme#iate parties
Fol#er in #ue course
ma. 0a&e rig0ts better
t0an trans$eror
!rans$eree merel.
steps into t0e s0oes o$
t0e trans$eror
/ub9ect is mone. /ub9ect is goo#s
Instrument itsel$ is
propert. o$ &alue
Instrument is merel.
e&i#ence o$ titleD t0ing
o$ &alue are t0e goo#s
mentione# in t0e
#ocument
)!o%"sso!y Note
&"ll of E8#3an$e
?ncon#itional promise ?ncon#itional or#er
In&ol&es 2 parties In&ol&es 4 parties
*a5er primaril. liable :rawer onl. secon#aril.
liable
%nl. " presentment 8 $or
pa.ment
-enerall. 2
presentments 8 $or
acceptance an# $or
pa.ment
)N C4ECK
8 !0ere are two (2)
parties@ t0e ma5er an#
t0e pa.ee
8 !0ere are t0ree (4)
parties@ t0e #rawer@ t0e
#rawee ban5 an# t0e
pa.ee
8 *a. be #rawn against
an. person@ not
necessaril. a ban5
8 (lwa.s #rawn against
a ban5
8 *a. be pa.able on
#eman# or at a $i7e# or
#eterminable $uture time
8(lwa.s pa.able on
#eman#
8 ( promise to pa. 8 (n or#er to pa.
GNote= PN@ B%6 an# C0e58 #e$initions (2002 B6B)
)ROMI''OR+ NOTE 8 uncon#itional promise to pa.
in writing ma#e b. one person to ant0er@ signe#
b. t0e ma5er@ engaging to pa. on #eman# or a
$i7e# #eterminable $uture time a sum certain in
mone. to or#er or bearer. ,0en t0e note is
#rawn to ma5er<s own or#er@ it is not complete
until in#orse b. 0im. (/ec. "81 NIL)
)a!t"es*
a. Ma9e! H one w0o ma5es a promise an#
sign t0e instrument
b. )ayee H one to w0om t0e promise is ma#e
or t0e instrument is pa.able.
&ILL O2 E:C4ANGE 8 uncon#itional or#er in
writing a##resse# b. one person to anot0er@
signe# b. t0e person gi&ing it@ reEuiring t0e
person to w0om it is a##resse# to pa. on
#eman# or at a $i7e# or #eterminable $uture
time a sum certain in mone. to or#er or to
bearer. (/ec. "26 NIL)
)a!t"es*
a. D!a;e! H one w0o gi&es t0e or#er to pa.
mone. to t0ir# part..
b. )ayee H one to w0om t0e bill is #rawn or is
pa.able
c. D!a;ee< a##e1to! H person to w0om t0e
bill is a##resse# an# w0o is or#ere# to pa..
C4ECK 8 bill o$ e7c0ange #rawn on a ban5 an#
pa.able on #eman#. (/ec. "85 NIL)
Re="s"tes of a Ne$ot"able Note 5)N0* Key*
('(DO)
It must=
a. be in writing s igne# b. t0e #rawer
b. contains an ncon#itional promise or or#er
to pa. a sum certain in mone.
c. be pa.able on d eman# or at a $i7e#
d. be pa.able to o r#er or to bearer (/ec. "
NIL)
Re="s"tes of a Ne$ot"able &"ll 5&OE0*Key*
('(DOC)
:ean >e.nal#o ?. (granCamen#eC Page , o$ 177
C4ECK &OE
8 (lwa.s #rawn upon a
ban5 or ban5er
8 *a. or ma. not be
#rawn against a ban5
8 (lwa.s pa.able on
#eman#
8 *a. be pa.able on
#eman# or at a $i7e#
or #eterminable
$uture time
8 Not necessar. t0at it be
presente# $or acceptance
8 Necessar. t0at it be
presente# $or
acceptance
8 :rawn on a #eposit 8 Not #rawn on a
#eposit
8 !0e #eat0 o$ a #rawer o$
a c0ec5@ wit0 5nowle#ge
b. t0e ban5s@ re&o5es t0e
aut0orit. o$ t0e ban5er pa.
8 !0e #eat0 o$ t0e
#rawer o$ t0e
or#inar. bill o$
e7c0ange #oes not
8 *ust be presente# $or
pa.ment wit0in a
reasonable time a$ter its
issue (6 mont0s)
8 *a. be presente#
$or pa.ment wit0in a
reasonable time a$ter
its last negotiation.
COMMERCIAL LAW
It must=
a. be in writing s igne# b. t0e #rawer
b. contains an ncon#itional promise or or#er
to pa. a sum certain in mone.
c. be pa.able on d eman# or at a $i7e#
#. be pa.able to o r#er or to bearer
e. t0e #rawee must be name# or ot0erwise
in#icate# wit0 reasonable # ertaint. (/ec. "
NIL)
OT4ER 2ORM' O2 )ROMI''OR+ NOTE
". De b"ll @ (n instrument w0ereb. one person
ac5nowle#ges 0is in#ebte#ness to anot0er an#
promises to pa. a sum certain in mone. .
2. &onds@ w0ic0 are in t0e nature o$ PN.
4. Ce!t"f"#ate of De1os"t issue# b. ban5s pa.able
to #epositor or 0is or#er@ or to bearer
2ORM' O2 &ILL O2 E:C4ANGE
". T!ade A##e1tan#e @ ( B%6 #rawn b. seller on
t0e bu.er $or t0e purc0ase price o$ goo#s.
2. Clean &"ll of E8#3an$e @ ( B%6 w0erein no
#ocument is attac0e# upon presentment $or
acceptance or pa.ment.
4. Do#%enta!y &"ll of E8#3an$e@ ( B%6
w0erein #ocuments are attac0e# upon presentment
$or acceptance or pa.ment .
1. &an9 A##e1tan#e @ ( #ra$t #rawn an# accepte#
b. a ban5.
5. D!afts@ w0ic0 are B%6 #rawn b. one ban5 upon
anot0er.
2ORM' O2 C4ECK
1. O!d"na!y C3e#9
2. Cas3"e!>s C3e#9@ ( C0ec5 pa.able to
t0ir# person w0ic0 is #rawn b. t0e ban5
upon itsel$. (2004 B6B)
4. Ce!t"f"ed #3e#9 @ ( personal c0ec5 wit0
guarantee# $un#s to co&er t0e pa.ment o$
t0e c0ec5.
?. @o#3e! C3e#9
A. T!aBelle!>s C3e#9
6. Mana$e!>s C3e#9 @ ( c0ec5 #rawn b. t0e
manager o$ t0e ban5. (2004 B6B)
'. C!ossed C3e#9 ( 2001@ 2005 B6B)
8. Me%o!and% C3e#9.
4OWE@ER- T4E'E ARE NON6
NEGOTIA&LE*
". T!eas!y ;a!!ant are non8negotiable
because t0ere is an in#ication o$ t0e
$un# as t0e source o$ pa.ment o$ t0e
#isbursement.
(*etroban5 &. C(@ ")1 /C>( "6))
2. /ince a 1ostal %oney o!de! is sub9ect
to restrictions an# limitations un#er
postal laws an# issue# b. t0e
-o&ernment w0ic0 is not engage# in
commercial transactions@ it is not
go&erne# b. NIL. (Phil. Educ. Co., Inc.
vs. Soriano, 39 SCRA 587)
4. Letters o$ cre#it
1. ,are0ouse receipts 8 Non8Negotiable
$or t0e same as Bill o$ la#ing it merel.
represents goo#s@ not mone..
2ORM O2 NI* 5'e#. 10 Key* 5W()OA0
". *ust be in Writing@ an# signe# b. t0e
ma5er or #rawerD
2. *ust contain an (ncon#itional promise or
or#er to pa. a sum certain in mone.D
4. *ust be )a.able on #eman#@ or at a $i7e#
or #eterminable $uture timeD
1. *ust be pa.able to Or#er or to bearerD an#
5. ,0en an instrument is A##resse# to a
#rawee@ 0e must be name# t0erein wit0
reasonable certaint..
Iactors t0at a$$ect t0e #etermination o$ negotiabilit.
o$ instruments=
a. ,0ole instrumentD
b. ,0at appears on t0e $ace o$ t0e instrumentD
c. >eEuisites enumerate# in /ec." o$ NILD an#
#. /0oul# contain wor#s or terms o$
negotiabilit..
(-openco@ Commercial law Bar >e&iewer@ cite# in
(Euino p. 24)
In #etermining t0e negotiabilit. o$ an
instrument@ t0e instrument in its entiret.
an# w0at appears on its $ace must be
consi#ere#. It must compl. wit0 t0e
reEuirements o$ /ec." o$ NIL. ( Calte7
P0ils. . C(@ 2"2 /C>( 118)
!0e acceptance o$ a bill o$ e7c0ange is not
important in t0e #etermination o$ its
negotiabilit.. !0e nature o$ acceptance is
important onl. on t0e #etermination o$ t0e
5in# o$ liabilities o$ t0e parties in&ol&e#.
(PBC%* &. (ruego@ "02 /C>( 540)
Notes on 'e#t"on 1*
- In or#er to be negotiable@ t0ere must be a
writing o$ some 5in#@ else t0ere woul# be
not0ing to be negotiate# or passe# $rom
0an# to 0an#. !0e writing ma. be in in5@
print or pencil. It ma. be upon parc0ment@
clot0@ leat0er or an. ot0er substitute o$
paper.
- It must be signe# b. t0e ma5er or #rawer.
It ma. consist o$ mere initials or e&en
numbers@ but t0e 0ol#er must pro&e t0at
w0at is written is inten#e# as a signature o$
t0e person soug0t to be c0arge#.
- !0e Bill must contain an or#er@ somet0ing
more t0an t0e mere as5ing o$ a $a&or.
- /um pa.able must be in mone. onl.. It
cannot be ma#e pa.able in goo#s@ wares@ or
merc0an#ise or in propert..
- ( #rawee<s name ma. be $ille# in un#er
/ection "1 o$ t0e NIL
A '(M I' CERTAIN E@EN I2 IT I' TO &E
)AID (/ec. 2)
:ean >e.nal#o ?. (granCamen#eC Page ? o$ 177
COMMERCIAL LAW
". wit0 interestD or
2. b. state# installmentsD or
4. b. state# installments@ wit0 acceleration clauseD
or
1. wit0 e7c0angeD or
5. wit0 costs o$ collection or an attorne.Js $ee
ACCELERATION CLA('EKren#ers t0e w0ole
#ebt #ue an# #eman#able upon $ailure o$ t0e
obligor to compl. wit0 certain con#itions.
Gene!al Rle* !0e promise or or#er s0oul# not
#epen# on a contingent e&ent. I$ it is
con#itional@ it is non8negotiable.
E8#e1t"ons*
a. In#ication o$ particular $un# $rom w0ic0 t0e
acceptor #isburses 0imsel$ a$ter pa.ment
b. /tatement o$ t0e transaction w0ic0 gi&es
rise to t0e instrument. (/ec. 4 NIL)
But an or#er or promise to pa. out o$ a
particular $un# is not uncon#itional
NOTE' ON 'ECTION ,
!0e particular $un# in#icate# s0oul# not be t0e
#irect source o$ pa.ment@ else it becomes
uncon#itional an# t0ere$ore non8negotiable.
!0e $un# s0oul# onl. be t0e source o$
reimbursement.
( statement o$ t0e transaction #oes not #estro.
t0e negotiabilit. o$ t0e instrument.
E8#e1t"on* ,0ere t0e promise to pa. or or#er
is ma#e sub9ect to t0e terms an# con#itions o$
t0e transaction state#.
Pa.able upon a dete!%"nable ft!e t"%e i$=
a. !0ere is a $i7e# perio# a$ter sig0t+#ate
b. %n or be$ore a speci$ie# #ate+$i7e#
c. %n or at a $i7e# #ate a$ter t0e occurrence o$
an e&ent certain to 0appen t0oug0 t0e e7act
#ate is not certain (/ec. 1 NIL)
Notes on 'e#t"on ?
I$ t0e instrument is pa.able upon a contingenc.@
t0e 0appening o$ t0e e&ent #oes not cure t0e
#e$ect (still non8negotiable)
Gene!al Rle* I$ some ot0er act is reEuire# ot0er
t0an t0e pa.ment o$ mone.@ it is non8
negotiable.
E8#e1t"ons*
a. /ale o$ collateral securities
b. Con$ession o$ 9u#gment
c. ,ai&es bene$it o$ law
d. -i&es option to t0e 0ol#er to reEuire
somet0ing to be #one in lieu o$ mone. (/ec.
5 NIL)
T3e Bal"d"ty and ne$ot"able #3a!a#te! of a
ne$ot"able "nst!%ent a!e NOT affe#ted by
t3e fa#t t3at*
". It is not #ate#D
2. It #oes not speci$. t0e place w0ere it is
#rawn or w0ere it is pa.ableD
4. It bears a sealD
1. It #esignates a particular 5in# o$ current
mone. in w0ic0 pa.ment is to be ma#e
(/ec. 6)
AN IN'TR(MENT I' )A+A&LE ON
DEMAND (/ec. ')*
". ,0en e7presse# to be pa.able on #eman#@ at
sig0t or on presentation
2. ,0en no perio# o$ pa.ment is state#
4. ,0ere issue#@ accepte#@ or in#orse# a$ter
maturit. (as to imme#iate parties)
Notes on 'e#t"on C
8 i$ t0e time $or pa.ment is le$t blan5 (as
oppose# to being omitte#)@ it ma. properl. be
consi#ere# as an incomplete instrument an# $all
un#er t0e pro&isions o$ /ec. "1@ "5@ or "6
#epen#ing on 0ow t0e instrument is #eli&ere#.
)A+A&LE TO ORDER (/ec. 8)
!0e instrument is pa.able to or#er w0ere it is #rawn
pa.able to t3e o!de! of a s1e#"f"ed 1e!son or to
3"% o! 3"s o!de!. It ma. be #rawn pa.able to t0e
or#er o$ H
". ( pa.ee @ w0o is not a ma5er @ #rawer@ or #raweeD
or
2. !0e #rawer or ma5er = or
G I$ t0e ma5er is ma#e t0e pa.ee@ t0e instrument
must be in#orse# in or#er to complete it. (/ec. "81)
G ,0en t0e instrument is pa.able to t0e or#er o$
t0e #rawer@ an# it is accepte# b. t0e #rawee@ t0e
instrument is eEui&alent to a promissor. note ma#e
b. t0e acceptor in $a&or o$ t0e #rawer.
( Commercial Laws o$ t0e P0ils.@ ol."@ (gue#o
(gba.ani@ "))2@e#.)
4. !wo or more pa.ees 9ointl. D or
1. %ne or more se&eral pa.ees D or
5. !0e 0ol#er o$ an o$$ice $or t0e time being
)A+A&LE TO &EARER (/ec.))
!0e instrument is pa.able to bearer w0en=
". It is e7presse# to be so pa.ableD or
2. It is pa.able to a person name# t0erein or bearerD
or
4. It is pa.able to t0e or#er o$ a $ictitious or non8
e7isting person@ an# suc0 $act was 5nown to t0e
person ma5ing it so pa.ableD or
1. !0e name o$ t0e pa.ee #oes not purport to be t0e
name o$ an. personD or
5. !0e onl. or last in#orsement is an in#orsement in
blan5.
!0e -eneral rule is t0at an instrument D1ayable to
o!de!E ma. be negotiate# b. proper in#orsement
plus #eli&er. . %n t0e ot0er 0an# @ an instrument
:ean >e.nal#o ?. (granCamen#eC Page A o$ 177
COMMERCIAL LAW
D1ayable to bea!e!E @ can be negotiate# b. mere
#eli&er. or i$ originall. a or#er instrument b. blan5
in#orsement plus #eli&er..
(n instrument o!"$"nally 1ayable to bea!e! can be
negotiate# b. mere #eli&er. e&en i$ it is en#orse#
speci$icall.. If o!"$"nally a bea!e! "nst!%ent- "t
;"ll al;ays !e%a"n a bea!e! "nst!%ent.
Fowe&er@ wit0 regar#s to an o!"$"nal o!de!
"nst!%ent - w0en speci$icall. in#orse#@ it can no
longer be negotiate# $urt0er b. mere #eli&er. D it
must be INDOR'ED.
G ( c0ec5 t0at is pa.able to t0e or#er o$ cas0 is
pa.able to bearer. >eason= !0e name o$ t0e pa.ee
#oes not purport to be t0e name o$ an. ot0er person.
( (ng !e5 Lian &. C(@ 8' P0il. 484)
Notes on 'e#t"on /
L$ictitious personM is not limite# to persons
0a&ing no legal e7istence. (n e7isting person
ma. be consi#ere# $ictitious #epen#ing on t0e
intention o$ t0e ma5er or t0e #rawer.
L$ictitious personM means a person w0o 0as no
rig0t to t0e instrument because t0e ma5er or
#rawer o$ it so inten#e#. Fe was not inten#e#
to be t0e pa.ee.
w0ere t0e instrument is #rawn@ ma#e or
prepare# b. an agent@ t0e 5nowle#ge or intent
o$ t0e signer o$ t0e instrument is controlling.
,0ere t0e agent 0as no aut0orit. to e7ecute t0e
instrument@ t0e intent o$ t0e principal is
controlling
AM&IG(O(' IN'TR(MENT'* R(LE' O2
CON'TR(CTION of NI (/ec. "') ("))8 Bar
67am)
!0e $ollowing rules o$ construction appl.=
". :iscrepanc. between t0e amount in $igures an#
t0at in wor#s8 t0e wor#s pre&ail@ but i$ t0e wor#s
are ambiguous@ re$erence will be ma#e to t0e
$igures to $i7 t0e amountD
2. Pa.ment $or interest is pro&i#e# $or8 interest
runs $rom t0e #ate o$ t0e instrument@ i$ un#ate#@
$rom issue t0ereo$D
4. Instrument un#ate#8 consi#er #ate o$ t0e issueD
1. Con$lict between written an# printe# pro&isions8
written pro&isions pre&ailD
5. ,0ere t0e instrument is ambiguous t0at t0ere is
#oubt w0et0er it is a bill or note@ t0e 0ol#er ma.
treat it as eit0er at 0is electionD
6. I$ one signs wit0out in#icating in w0at capacit.
0e 0as $i7e# 0is signature@ 0e is consi#ere# an
in#orserD
'. I$ two or more persons sign L,e promise to
pa.@M t0eir liabilit. is 9oint (eac0 liable $or 0is part)
but i$ t0e. sign LI promise to pa.M@ t0e liabilit. is
soli#ar. (eac0 can be compelle# to compl. wit0 t0e
entire obligation).
)RO@I'ION' t3at do not affe#t t3e
ne$ot"ab"l"ty of an "nst!%ent* D
". /um pa.able inclu#es pa.ment o$ interestD
2. Pa.ment in state# installmentsD
F!0e amount o$ eac0 installment
an# t0e #ue #ate o$ eac0 installment must be
in#icate#.
4. /um to be pai# on installments wit0 acceleration
clauseD
1. /um to be pai# wit0 cost o$ collection an# att.<s
$eesD
KL>easonable att.<s $eesM #oes not
a$$ect negotiabilit. but LPlus costs@ c0arges@ an#
att.<s $eesM a$$ects t0e negotiabilit. since t0e
sum is not certain.
5. In#ication o$ a particular $un# to w0ic0
reimbursement is to be pai# or a particular account
to w0ic0 it woul# be #ebite#.

OT4ER )RO@I'ION' not affe#t"n$ t3e
ne$ot"ab"l"ty of an "nst!%ent*
". /tatements w0ic0 ga&e rise to t0e
instrument<s issuanceD
2. Pro&isions o$ clauses in regar#s to sale o$
securitiesD
4. Clause a$$ecting con$essions o$ 9u#gmentD
1. ( wai&er o$ bene$it inten#e# $or t0e
obligorD
5. -i&ing t0e 0ol#er t0e election to reEuire
somet0ing to be #one in lieu o$ pa.ment o$
mone.D
6. (bsence o$ #ateD
'. No seal@ place o$ pa.ment@ place o$
issuanceD
8. (bsence o$ a statement o$ Lconsi#eration
0as been pai#MD
). Negotiation o$ a particular 5in# o$ mone.
)!oB"s"ons t3at affe#t t3e NEGOTIA&ILIT+ O2
T4E IN'TR(MENT*
". Promise+or#er to #o an act in a##ition to t0e
pa.ment o$ mone.D
2. Promise+or#er to pa. out o$ a particular
$un#D or
4. Promise+or#er to pa. #epen#s on a
contingenc.
ANTE6DATING<)O'T6DATING (/ec."2)
Ante G Dat"n$ is e$$ecte# b. =
".C0anging t0e #ate o$ t0e instrument to an earlier
#ate t0an w0en it was ma#e.
2. I$ t0e instrument is un#ate#@ b. placing an earlier
#ate t0an w0en it was actuall. issue#.
)ost 6 Dat"n$ is e$$ecte# b. =
". C0anging t0e #ate o$ t0e instrument to a later
time t0an w0en it was ma#e.
Rle* :oes not in&ali#ate+a$$ect t0e negotiabilit. o$
t0e instrument ?NL6// use# $or illegal+$rau#ulent
purposes.
COMMERCIAL LAW
IN'ERTION O2 A WRONG DATE (/ec."4)
Rle* I$ t0ere is a #ate an# it is c0ange#@ appl.
/ec."21 on (L!6>(!I%N %I (N
IN/!>?*6N!.
!0e date %ay be "nse!ted in an instrument w0en=
a. (n instrument e7presse# to be pa.able at a
$i7e# perio# a$ter #ate is issue# un#ate#
b. ,0ere acceptance o$ an instrument pa.able
at a $i7e# perio# a$ter sig0t is un#ate# (/ec.
"4 NIL)
Effects:
- (n. 0ol#er ma. insert t0e true #ate o$
issuance or acceptance
- !0e insertion o$ a wrong #ate #oes not
a&oi# t0e instrument in t0e 0an#s o$ a
subseEuent 0ol#er in #ue course
- (s to t0e 0ol#er in #ue course@ t0e #ate
inserte# (e&en i$ it be t0e wrong #ate) is
regar#e# as t0e true #ate.
(s to a 0ol#er in #ue course8 t0e #ate inserte# is t0e
true #ate.
'bse=ent 4olde! "n De Co!se not affe#ted
by t3e follo;"n$ def"#"en#"es*
a. Incomplete but #eli&ere# instrument (/ec.
"1)
b. Complete but un#eli&ere# (/ec. "6)
c. Complete an# #eli&ere# issue# wit0out
consi#eration or a consi#eration consisting
o$ a promise w0ic0 was not $ul$ille# (/ec
28)
4olde! "n De Co!se Affe#ted by
Abno!%al"ty<Def"#"en#y*
a. Incomplete an# un#eli&ere# instrument (/ec.
"5)
b. *a5er+#rawer<s signature $orge# (/ec. 24)
In#o%1lete bt Del"Be!ed Inst!%ent* (/ec."1)
(2001 N 2005 Bar 67am)
". ,0ere an instrument is wanting in an. material
particular=
a. Fol#er 0as prima aci! aut0orit. to $ill up
t0e blan5s t0erein.
b. It must be $ille# up strictl. in accor#ance
wit0 t0e aut0orit. gi&en an# wit0in a
reasonable time.
c. I$ negotiate# to a 0ol#er in #ue course@ it is
&ali# an# e$$ectual $or all purpose as t0oug0
it was $ille# up strictl. in accor#ance wit0
t0e aut0orit. gi&en an# wit0in reasonable
time. (/ec. "1 NIL)
2. ,0ere onl. a signature on a blan5 paper was
#eli&ere#=
a. It was #eli&ere# b. t0e person ma5ing it in
or#er t0at it ma. be con&erte# into a
negotiable instrument
b. !0e 0ol#er 0as prima aci! aut0orit. to $ill
it up as suc0 $or an. amount. (/ec. "1 NIL)
Notes on 'e#t"on 1?
Rle* /ec. "1 applies i$ t0ere is a signature on t0e
instrument $or t0e purpose o$ gi&ing e$$ect t0ereto.
Rle* I$ no signature@ re$er to /ec. "5 or 24.
Rle* /ec. "1 is merel. a P6>/%N(L :6I6N/6.
I$ t0e instrument is wanting in material particular@
mere possession o$ t0e instrument is enoug0 to
presume prima $acie aut0orit. to $ill it up.
*aterial particular ma. be an omission w0ic0
will ren#er t0e instrument non8negotiable (e.g.
name o$ pa.ee)@ an omission w0ic0 will not
ren#er t0e instrument non8negotiable (e.g. #ate)
In t0e case o$ t0e signature in blan5@ #eli&er. wit0
intent to con&ert it into a negotiable instrument
is reEuire#. *ere possession is not enoug0.
In#o%1lete and (ndel"Be!ed Inst!%ent*
(/ec."5) (2000@2001 N 2006 Bar 67am)
!0ere are two steps in t0e e7ecution o$ a NI=
". !0e act o$ writing t0e instrument comion o$
gi&ing e$$ect pletel. an# in accor#ance wit0
/ec. " o$ NILD an#
2. !0e #eli&er. o$ t0e instrument wit0 t0e
intentention o$ gi&ing e$$ect t0ereto
I$ Complete# an# negotiate# wit0out
aut0orit.@ not a &ali# contract against a
person w0o 0as signe# be$ore #eli&er. o$
t0e contract against a person w0o 0as
signe# be$ore #eli&er. o$ t0e contract e&en
in t0e 0an#s o$ a F:C but subseEuent
in#orsers are liable.
>6(/%N= !0e law #oes not ma5e an. #istinction
between a F:C an# one w0o is not a F:C.
Notes on 'e#t"on 1A
It is a real #e$ense. It can be interpose# against a
0ol#er in #ue course.
,0ere an INC%*L6!6 an#
?N:6LI6>6: instrument is in t0e 0an#s
o$ a F:C@ t0ere is P>I*( I(CI6
P>6/?*P!I%N o$ #eli&er..
:e$ense o$ t0e ma5er is to pro&e non8#eli&er. o$
t0e incomplete instrument.
Co%1lete bt (ndel"Be!ed* (/ec."6)
Gene!al Rle* 6&er. contract on a negotiable
instrument is incomplete an# re&ocable
until #eli&er. $or t0e purpose o$ gi&ing
e$$ect t0ereto. .
a. I$ between imme#iate parties an# remote parties
not 0ol#er in #ue course@ to be e$$ectual t0ere
must be aut0oriCe# #eli&er. b. t0e part.
ma5ing@ #rawing@ accepting or in#orsing.
:eli&er. ma. be s0own to be con#itional or $or
a special purpose onl.
:ean >e.nal#o ?. (granCamen#eC Page C o$ 177
COMMERCIAL LAW
b. I$ t0e 0ol#er is a 0ol#er in #ue course@ all prior
#eli&eries conclusi&el. presume# &ali#
c. I$ instrument not in 0an#s o$ #rawer+ma5er@
&ali# an# intentional #eli&er. is presume# until
t0e contrar. is pro&en (/ec. "6 NIL)
Rules on delivery of negotiable instruments*
") :eli&er. is essential to t0e &ali#it. o$ an.
negotiable instrument
2) (s between imme#iate parties or t0ose is li5e
cases@ #eli&er. must be wit0 intention o$
passing title
4) (n instrument signe# but not complete# b. t0e
#rawer or ma5er an# retaine# b. 0im is in&ali#
as to 0im $or want o$ #eli&er. e&en in t0e 0an#s
o$ a 0ol#er in #ue course
1) But t0ere is prima $acie presumption o$ #eli&er.
o$ an instrument signe# but not complete# b.
t0e #rawer or ma5er an# retaine# b. 0im i$ it is
in t0e 0an#s o$ a 0ol#er in #ue course. !0is
ma. be rebutte# b. proo$ o$ non8#eli&er..
5) (n instrument entruste# to anot0er w0o
wrong$ull. completes it an# negotiates it to a
0ol#er in #ue course@ #eli&er. to t0e agent or
custo#ian is su$$icient #eli&er. to bin# t0e
ma5er or #rawer.
6) I$ an instrument is complete# an# is $oun# in
t0e possession o$ anot0er@ t0ere is prima $acie
e&i#ence o$ #eli&er. an# i$ it be a 0ol#er in #ue
course@ t0ere is conclusi&e presumption o$
#eli&er..
') :eli&er. ma. be con#itional or $or a special
purpose but suc0 #o not a$$ect t0e rig0ts o$ a
0ol#er in #ue course.
Gene!al !le* a person w0ose signature #oes not
appear on t0e instrument in not liable.
E8#e1t"on*
a. %ne w0o signs in a tra#e or assume# name
(/ec. "8)
b. ( #ul. aut0oriCe# agent (/ec. "))
c. ( $orger (/ec. 24)
LIA&ILIT+ of a 1e!son 'IGNING A' AGENT*
An a"!n# is !$!mp# rom p!rsonal lia%ili#&,
provid!d h!'
". (cts wit0in t0e scope o$ 0is aut0orit.D
2. :iscloses t0e name o$ 0is principalD an#
4. :iscloses t0at 0e is acting in a representati&e
capacit. (/ec. 20)
Notes on 'e#t"on 20
Gene!al !le* an agent is not liable on t0e
instrument i$ 0e were #ul. aut0oriCe# to
sign $or or on be0al$ o$ a principal.
I$ an agent #oes not #isclose 0is principal@ t0e
agent is personall. liable on t0e instrument.
)e! )!o#!at"on 8 operates as notice t0at t0e agent
0as a limite# aut0orit. to sign.
Effects:
- !0e principal in onl. boun# i$ t0e agent
acte# wit0in t0e limits o$ t0e aut0orit.
gi&en
- !0e person w0o ta5es t0e instrument is
boun# to inEuire into t0e e7tent an# nature
o$ t0e aut0orit. gi&en. (/ec. 2" NIL)
Gene!al !le* In$ants an# corporations incur no
liabilit. b. t0eir in#orsement or assignment
o$ an instrument. (/ec. 22 NIL)
Effects:
- No liabilit. attac0e# to t0e in$ant or t0e
corporation
- !0e instrument is still &ali# an# t0e
in#orsee acEuires title
2ORGER+ (/ec.24)
A. *a5er<s /ignature
(")8) B6B)
B. :rawer<s /ignature
(2001@2006N200) B6B)
C. Pa.ee<s /ignature
( 2008 B6B)
D. In#orser<s /ignature
(2008 B6B)
Gene!al !le= a signature@ w0ic0 is $orge# or ma#e
wit0out aut0orit. is w0oll. inoperati&e.
(/ec. 24)
Effe#ts*
a. No rig0t to retain
b. No rig0t to gi&e a #isc0arge
c. No rig0t to en$orce pa.ment can be
acEuire#.
E8#e1t"on*
- !0e part. against w0om it is soug0t to be
en$orce# is preclu#e# $rom setting up t0e
$orger. or want o$ aut0orit.. (/ec.24)
Iorger. re$ers to bot0 a signature w0ic0 0as been
$orge# or ma#e wit0out aut0orit.. !0us@ /ection 24
is not limite# to counter$eit signatures since it also
applies to genuine ones.
G ( person w0ose signature is $orge# as ma5er@
#rawer@ pa.ee or in#orsee o$ a note or c0ec5 was
ne&er a part. to t0e instrument. /ince 0is signature
#oes not appear in t0e instrument@ 0e cannot be 0el#
liable t0ereon b. an.one. ((!mpsa) v. CA *+8
SCRA ,8*)
C(T6O22 R(LE*
General Rule= Parties prior to t0e $orge# signature
are cut8o$$ $rom t0e parties a$ter t0e $orger. in t0e
sense t0at prior parties cannot be 0el# liable an# can
raise t0e #e$ense o$ $orger.. !0e 0ol#er can onl.
en$orce t0e instrument against parties w0o became
suc0 a$ter $orger..
:ean >e.nal#o ?. (granCamen#eC Page H o$ 177
COMMERCIAL LAW
Exception: ,0en t0e prior parties are preclu#e#
$rom setting up t0e #e$ense o$ $orger. eit0er
because o$ t0eir warranties@ representation or
negligence. ((!mpsa) v. CA)
)e!sons )RECL(DED f!o% sett"n$ 1 t3e
defense of fo!$e!y*
". !0ose w0o a#mit+warrant t0e genuineness o$ t0e
signature in Euestion= in#orsers@ persons negotiating
b. #eli&er. an# acceptorsD
2. !0ose w0o b. t0eir acts@ silence@ or negligence@
are estoppe# $rom claiming $orger.D
4. Fol#er o$ a bearer instrument
KIorge# signature is not necessar.
to t0e title o$ t0e 0ol#er.
Notes on 'e#t"on 2,
/ection 24 applies onl. to $orge# signatures or
signatures ma#e wit0out aut0orit.
(lterations suc0 as to amounts or li5e $all un#er
section "21
Iorms o$ $orger. are a) $rau# in $actum b)
#uress amounting to $rau# c) $rau#ulent
impersonation
%nl. t0e signature $orge# or ma#e wit0out
aut0orit. is inoperati&e@ t0e instrument or ot0er
signatures w0ic0 are genuine are a$$ecte#
!0e instrument can be en$orce# b. 0ol#ers to
w0ose title t0e $orge# signature is not necessar.
#rawee ban5 is conclusi&el. presume# to 5now
t0e signature o$ its #rawer
i$ en#orser<s signature is $orge#@ loss will be
borne b. t0e $orger an# parties subseEuent
t0ereto
#rawee ban5 is not conclusi&el. presume# to
5now t0e signature o$ t0e in#orser. !0e
responsibilit. $alls on t0e ban5 w0ic0 last
guarantee# t0e in#orsement an# not t0e #rawee
ban5.
,0ere t0e pa.ee<s signature is $orge#@
pa.ments ma#e b. t0e #rawee ban5 to
collecting ban5 is ine$$ecti&e. No
#ebtor+cre#itor relations0ip is create#. (n
agenc. to collect is create# between t0e person
#epositing an# t0e collecting ban5. :rawee
ban5 ma. reco&er $rom collecting ban5 w0o
ma. in turn reco&er $rom t0e person #epositing.
Rles on l"ab"l"t"es of 1a!t"es on a fo!$ed
"nst!%ent
In a )N
- ( part. w0ose in#orsement is $orge# on a
note pa.able to or#er an# all parties prior to
0im inclu#ing t0e ma5er cannot be 0el#
liable b. an. 0ol#er
- ( part. w0ose in#orsement is $orge# on a
note originall. pa.able to bearer an# all
parties prior to 0im inclu#ing t0e ma5er
ma. be 0el# liable b. a 0ol#er in #ue
course pro&i#e# t0at it was mec0anicall.
complete be$ore t0e $orger.
- ( ma5er w0ose signature was $orge#
cannot be 0el# liable b. an. 0ol#er
In a &OE
- !0e #rawer<s account cannot be c0arge# b.
t0e #rawee w0ere t0e #rawee pai#
- !0e #rawer 0as no rig0t to reco&er $rom t0e
collecting ban5
- !0e #rawee ban5 can reco&er $rom t0e
collecting ban5
- !0e pa.ee can reco&er $rom t0e #rawer
- !0e pa.ee can reco&er $rom t0e recipient o$
t0e pa.ment@ suc0 as t0e collecting ban5
- !0e pa.ee cannot collect $rom t0e #rawee
ban5
- !0e collecting ban5 bears t0e loss but can
reco&er $rom t0e person to w0om it pai#
- I$ pa.able to bearer@ t0e rules are t0e same
as in PN.
- I$ t0e #rawee 0as accepte# t0e bill@ t0e
#rawee bears t0e loss an# 0is reme#. is to
go a$ter t0e $orger
- I$ t0e #rawee 0as not accepte# t0e bill but
0as pai# it@ t0e #rawee cannot reco&er $rom
t0e #rawer or t0e recipient o$ t0e procee#s@
absence an. act o$ negligence on t0eir part.
6&er. negotiable instrument is #eeme# prima $acie
to 0a&e been issue# $or a &aluable consi#eration.
(/ec. 21)
6$$ects=
- 6&er. person w0ose signature appears
t0ereon is a part. $or &alue
- Presumption is #isputable
,0ere &alue 0as at an. time been gi&en $or t0e
instrument@ t0e 0ol#er is #eeme# a 3olde! fo! Bale
in respect to all parties w0o become suc0 prior to
t0at time. (/ec. 26)
'e#.2H*6 Absen#e o! 2a"l!e of Cons"de!at"on*
("))5 an# "))6 Bar 67am)
6$$ect o$ ;ant of #ons"de!at"on=
a. Personal #e$ense to t0e pre9u#ice o$ a part.
an# a&ailable against an. person not 0ol#er
in #ue course.
b. Partial $ailure o$ consi#eration is a #e$ense
pro tanto@ w0et0er t0e $ailure is an
ascerataine# an# liEui#ate# amount
ot0erwise. (/ec 2))
Notes on 'e#t"on 2H
(bsence o$ consi#eration is w0ere no
consi#eration was inten#e# to pass.
Iailure o$ consi#eration implies t0at
consi#eration was inten#e# b. t0at it $aile# to
pass
!0e #e$ense o$ want o$ consi#eration is
ine$$ecti&e against a 0ol#er in #ue course
( #rawee w0o accepts t0e bill cannot allege
want o$ consi#eration against t0e #rawer
:ean >e.nal#o ?. (granCamen#eC Page / o$ 177
COMMERCIAL LAW
A##o%%odat"on G (ccommo#ation is a legal
arrangement un#er w0ic0 a person calle# t0e
accommo#ation part. len#s 0is name an# cre#it
to anot0er calle# t0e accommoda#!d par#&,
wit0out consi#eration.
Effe#t* ( person to w0om t0e instrument t0us
e7ecute# is subseEuentl. negotiate#@ 0as a rig0t o$
recourse against t0e accommo#ation part. inspite o$
t0e $ormer<s 5nowle#ge t0at no consi#eration
passe# between t0e accommo#ation an#
accommo#ate# parties.
Requisites of Accommodation:
". !0e accommo#ation part. must sign as
ma5er@ #rawer@ acceptor or in#orserD
2. No &alue is recei&e# b. t0e accommo#ation
part. $rom t0e accommo#ation part.D an#
4. !0e purpose is to len# t0e name.
(Crisolo"o-.os! v. CA, +77 SCRA 59/).
Accommodation Party H Is one w0o 0as signe# t0e
instrument as ma5er@ #rawer@ acceptor@ or in#orser@
wit0out recei&ing &alue t0ere$ore@ an# $or t0e
purpose o$ len#ing 0is name to anot0er person.
(2004 an# 2005 B6B)
( corporation cannot act as an accommo#ation
part.. /uc0 is an ultra &ires act. (Crisolo"o-
.os! v CA, ++7SCRA59/)
Liability of the Accommodation Party:
- !0e accommo#ation part. is liable on t0e
instrument to a 0ol#er $or &alue notwit0stan#ing
t0at suc0 0ol#er at t0e time o$ ta5ing t0e instrument
5new 0im to be onl. an accommo#ation part.. It is
a &ali# #e$ense t0at t0e accommo#ation part. #i#
not recei&e an. &aluable consi#eration w0en 0e
e7ecute# t0e instrument. Fe is liable to a 0ol#er $or
&alue b. &irtue o$ 0is being an accommo#ation
part..
G(n accommo#ation part. to a negotiable
instrument@ inspite o$ t0e lac5 o$ consi#eration
between 0im an# t0e accommo#ate# part.@ is liable
to an. ot0er 0ol#er N%! to t0e accommo#ate#
part.. (0rav!l-1n, Inc. v. CA, !# al, *+2 SCRA 35+).
G(n accommo#ation part.<s liabilit. as a
soli#aril. part. is uncon#itional part. is
uncon#itional an# is not a$$ecte# b. an e7tension o$
pa.ment grante# b. t0e cre#itor to t0e #ebtor.
F%,66>@ w0ere t0e 0ol#er allowe# pa.ments
b. t0e #rawer #irect to t0e contractor wit0out
a&ailing o$ t0e #ee# o$ assignment in its $a&or@ sai#
0ol#er is a ba# $ait0 0ol#er@ N%! a 0ol#er in #ue
course against w0om an e7tension to pa. grante# b.
t0e #rawer is a #e$ense b. t0e accommo#ation
part.. (Prud!ncio v. CA, +/3 SCRA ,).
G!0e liabilit. o$ an accommo#ation part.
#oes not e7ten# to corporate accommo#ation
because t0e act o$ t0e corporate o$$icers is ultra
&ires. Fowe&er@ t0ese o$$icers are personall. liable.
(Crisolo"o-.os! v. CA, +77 SCRA 59/).
G( promissor. note@ wit0 an
accommo#ation co8ma5er@ use# to settle an esta$a
case@ 0as an illegalit. o$ cause@ an# #oes not ma5e
t0e accommo#ation co8ma5er liable. (3ni#!d
(!n!ral Indus#ri!s v. Pal!r, ++* SCRA /2/)
G( promissor. note wit0 an
accommo#ation ma5er@ utiliCe# to settle an esta$a
case@ 0as an illegal consi#eration@ an# #oes not
ma5e t0e co8ma5er liable. (3ni#!d Indus#ri!s v.
Pal!r, ++* SCRA /2/)
RIG4T' O2 AN ACCOMMODATION )ART+
1. A$a"nst t3e A##o%%odated )a!ty
8 t0e accommo#ation part.@ i$ oblige# to pa. to
a 0ol#er o$ &alue@ can see5 reimbursement $rom
t0e accommo#ate# part..
2. A$a"nst t3e Co6a##o%%odat"on )a!tyo t3e
se of so%e ot3e! 1e!sons
8 w0ere a soli#ar. accommo#ation ma5er pai#
to t0e ban5 t0e balance #ue on a promissor.
note@ 0e ma. see5 contribution $rom t0e ot0er
soli#ar. accommo#ation ma5er@ in t0e absence
o$ a contrar. agreement between t0em. !0is
rig0ts springs $rom an implie# promise between
t0e accommo#ation ma5ers to s0are eEuall. t0e
bur#ens resulting $rom t0eir e7ecution o$ t0e
note. !0e. are 9oint guarantors o$ t0e principal
#ebtor. (Sada&a v. S!villa).
( soli#ar. accommo#ation ma5er ma.=
a. #eman# $rom t0e principal #ebtor
reimbursement o$ t0e amount w0ic0 0e pai# on
t0e promissor. note an#
b. #eman# contribution $rom 0is co8
accommo#ation ma5er@ wit0out $irst #irecting
0is action against t0e principal #ebtor@
P>%I:6: t0at=
b.". 0e ma#e t0e pa.ment b. &irtue o$ a
9u#icial #eman#@ or
b.2. t0e principal #ebtor is insol&ent.
(n instrument is ne$ot"ated ;3en=
a. It is trans$erre# $rom one person to anot0er
b. !0at t0e trans$er must be in a manner as to
constitute t0e trans$eree a 0ol#er
Ior a bearer instrument 8 b. #eli&er.
Ior pa.able to or#er 8 b. in#orsement an#
#eli&er. (/ec.
40)
Indo!se%ent to be %st be*
a. ,ritten
b. %n t0e instrument itsel$ or upon a piece o$
paper attac0e# (/ec. 4" NIL)
Notes on 'e#t"on ,1
!0e paper attac0e# wit0 t0e in#orsement is an
allonge
COMMERCIAL LAW
(n allonge must be attac0e# so t0at it becomes
a part o$ t0e instrument@ it cannot be simpl.
pinne# or clippe# to it.
K"nds of Indo!se%ents*
a. /pecial (/ec. 41)
b. Blan5 (/ec. 45)
c. >estricti&e (/ec. 46)
#. Buali$ie# (/ec. 48)
e. Con#itional (/ec. 4))
(. ')ECIAL6 speci$ies t0e person to w0om or
to w0ose or#er@ t0e instrument is to be
pa.able. (/ec. 41)
B. &LANK8 /peci$ies no person to w0om or
to w0ose or#er t0e instrument is to be
pa.able.
". Instrument becomes pa.able to bearer an#
ma. be negotiate# b. #eli&er. (/ec. 41)
2. *a. be con&erte# to a special in#orsement
b. writing o&er t0e signature o$ t0e in#orser
in blan5 an. contract consistent wit0
c0aracter o$ in#orsement. (/ec. 45)
C. A&'OL(TE8 %ne b. w0ic0 in#orser bin#s
0imsel$ to pa.=
a. ?pon No or#er con#ition t0an $ailure o$
prior parties to #o soD an#
b. ?pon #ue notice to 0im o$ suc0 $ailure.
:. CONDITIONAL8 rig0t o$ t0e in#orsee is
ma#e to #epen# on t0e 0appening o$ a
contingent e&ent. Part. reEuire# to pa. ma.
#isregar# t0e con#itions. (/ec. 4))
6. RE'TRICTI@E8 (n in#orsement is
restricti&e@ w0en it eit0er=
a. Pro0ibits $urt0er negotiation o$ t0e
instrumentD or
b. Constitutes t0e in#orsee t0e agent o$
t0e in#orserD or
c. ests t0e title in t0e in#orsee in trust
$or or to t0e use o$ some ot0er persons.
But mere absence o$ wor#s impl.ing power
to negotiate #oes not ma5e an in#orsement
restricti&e. (/ec. 46)
EE!" of Rest!"#t"Be "ndo!se%ent*
Con$ers upon t0e in#orsee t0e rig0t8
a. >ecei&e pa.ment o$ t0e instrumentD
b. Bring an. action t0ereon t0at t0e in#orser
coul# bringD
c. !o trans$er 0is rig0ts as suc0 in#orsee@
w0en t0e $orm o$ t0e instrument aut0oriCes
0im to #o so.
I. I(ALI2IED8 Constitutes t0e in#orser a
mere assignor o$ t0e title to t0e instrument.
( /ec48)
It is ma#e b. a##ing to t0e in#orser<s
signature wor#s li5e Lsans recourseM@
Lwit0out recourseM@ Lin#orser not 0ol#erM@
Lat t0e in#orsers own ris5M@ ot0er terms o$
similar import.
G Fence@ it 0as been 0el# t0at oral testimon. is not
a#missible to establis0 t0at an unEuali$ie#
in#orsement is in $act Euali$ie#. ( elasco &.
!an Liuan N Co.@ *arc0 "'@")22)
( Buali$ie# in#orser 0as limite# liabilit.@ i.
e. 0e is liable $or breac0 o$ warrant. i$ t0e
instrument is #is0onore# b. non8acceptance
or non8 pa.ment #ue to=
". Iorger.D or
2. Lac5 o$ goo# title on t0e part o$ t0e
in#orserD or
4. Lac5 o$ capacit. to in#orse on t0e part
o$ t0e prior partiesD or
1. !0e $act t0at at t0e time o$ t0e
en#orsement@ t0e instrument was
&alueless or nit &ali#@ an# 0e 5new o$
t0e $act.
( Buali$ie# in#orsement #oes not impair
t0e negotiable c0aracter o$ t0e instrument.
(s mentione# earlier@ Ne$ot"at"on is t0e trans$er o$
a negotiable instrument $rom one person to anot0er
as to constitute t0e trans$eree t0e 0ol#er t0ereo$.
!o be &ali#@ negotiation must in&ol&e t0e entire
instrument.

6$$ects o$ in#orsing an instrument originall.
pa.able to bearer=
- It ma. $urt0er be negotiate# b. #eli&er.
- !0e person in#orsing is liable as in#orser to
suc0 persons as to ma5e title t0roug0 0is
in#orsement (/ec. 10)
Notes on 'e#t"on ?0
/ection 10 applies onl. to instruments
originall. pa.able to bearer
It cannot appl. w0ere t0e instrument is pa.able
to bearer because t0e onl. or last in#orsement is
in blan5
( 0ol#er ma. stri5e out an. in#orsement w0ic0 is
not necessar. to 0is title. (/ec. 18)
Effe#ts*
- (n in#orser w0ose in#orsement is struc5 out
is #isc0arge#
- (ll in#orsers subseEuent to suc0 in#orser
w0o 0as been #isc0arge# are li5ewise
relie&e#
Effects of a t!ansfe! ;"t3ot endo!se%ent=
- !0e trans$eree acEuires suc0 title as t0e
trans$eror 0a#
- !0e trans$eree acEuires t0e rig0t to 0a&e t0e
in#orsement o$ t0e trans$eror
- Negotiation ta5es e$$ect as o$ t0e time t0e
in#orsement is actuall. ma#e (/ec. 1))
R"$3ts of a 3olde!*
- ( 0ol#er ma. sue in 0is own name
- ( 0ol#er ma. recei&e pa.ment.
COMMERCIAL LAW
Effects: (/ec. 5" NIL)
- I$ in #ue course it #isc0arges t0e instrument
JNote= Fol#er in #ue Course (/ecs. 52@5'N5))
Personal an# >eal :e$enses
( 2000 N 200) B6B)
>eEuisites $or a 4olde! "n De Co!se 54DC)=
a. >ecei&es t0e instrument complete an#
regular on its $ace
b. Became a 0ol#er be$ore it was o&er#ue an#
0a# no notice t0at it 0a# been pre&iousl.
#is0onore# i$ suc0 was t0e $act
c. !a5es t0e instrument $or &alue an# in goo#
$ait0
d. (t time 0e too5 t0e instrument@ no notice o$
in$irmit. in instrument or #e$ect in t0e title
o$ t0e person negotiating it (/ec. 52 NIL)
GNote= ?n#er t0e K'4ELTER )RINCI)LE@O t0e
0ol#er8in8#ue course@ b. negotiating t0e instrument@
to a part. not a 0ol#er8in8#ue course@ trans$ers all
0is rig0ts as suc0 0ol#er to t0e latter@ w0o t0us
acEuires t0e rig0t to en$orce t0e instrument as i$ 0e
was a 0ol#er8in8#ue course. Fowe&er@ t0is principle
presupposes t0at t0e Os0eltere#O 0ol#er is not a
part. to an. $rau# or illegalit. impairing t0e
&ali#it. o$ t0e instrument. (2008 B6B)
Notes on 'e#t"on A2
6&er. 0ol#er is presume# to be a F:C (/ec. 5))
% proo$ to pro&e ot0erwise
I$ one o$ t0e reEuisites are lac5ing@ t0e 0ol#er is
not F:C
(n instrument is consi#ere# complete an# regular
on its $ace i$ a) t0e omission is immaterial b) t0e
alteration on t0e instrument was not apparent on
its $ace
(n instrument is o&er#ue a$ter t0e #ate o$
maturit..
%n t0e #ate o$ maturit.@ t0e instrument is not
o&er#ue an# t0e 0ol#er is a F:C
(cEuisition o$ t0e trans$eree or in#orsee must be
in goo# $ait0
-oo# $ait0 means lac5 o$ 5nowle#ge or notice o$
#e$ect or in$irmit.
( 0ol#er is not a F:C w0ere an instrument pa.able
on #eman# is negotiate# at an unreasonable lengt0
o$ time a$ter its issue (/ec. 54 NIL)
R"$3ts of a 4DC=
- Fol#s t0e instrument $ree $rom an. #e$ect o$
title o$ prior parties
- Iree $rom #e$enses a&ailable to prior parties
among t0emsel&es (personal+ eEuitable
#e$enses)
- *a. en$orce pa.ment o$ t0e instrument $or t0e
$ull amount against all parties liable(/ec. 5'
NIL)
Notes on 'e#t"on AC
Personal or eEuitable #e$enses are t0ose w0ic0
grow out o$ t0e agreement or con#uct o$ a
particular person in regar# to t0e instrument
w0ic0 ren#ers it ineEuitable $or 0im t0roug0 legal
title to en$orce it. Can be set up against 0ol#ers
not F:C
Legal or real #e$enses are t0ose w0ic0 attac0 to
t0e instrument itsel$ an# can be set up against t0e
w0ole worl#@ inclu#ing a F:C.
(n instrument not in t0e 0an#s o$ a F:C is sub9ect
to t0e same #e$enses as i$ it were non8negotiable.
E8#e1t"on*
- ( 0ol#er@ w0o #eri&es 0is title t0roug0 a
F:C an# is not a part. to an. $rau# or
illegalit. a$$ecting t0e instrument@ 0as all
t0e rig0ts o$ suc0 F:C in respect to all
parties prior. (/ec. 58 NIL)
R"$3ts of a 3olde! not a 4DC
- *a. sue in 0is own name
- *a. recei&e pa.ment an# i$ it is in #ue
course@ t0e instrument is #isc0arge#
- Fol#s t0e instrument sub9ect to t0e same
#e$enses as i$ it were non8negotiable
- I$ 0e #eri&es 0is title t0roug0 a F:C an# is
not a part. to an. $rau# or illegalit. t0ereto@
0as all t0e rig0ts o$ suc0 F:C
Gene!al !le* e&er. 0ol#er is #eeme# prima $acie
to be a 0ol#er in #ue course.
E8#e1t"on*
- ,0ere it is s0own t0at t0e title o$ an.
person w0o 0as negotiate# t0e instrument is
#e$ecti&e@ t0e bur#en is on t0e 0ol#er to
pro&e t0at 0e is a F:C or t0at a person
un#er w0om 0e claims is a F:C (/ec. 5)
NIL)
)e!sonal Defenses Real Defenses
". (bsence or $ailure o$
consi#eration
(lteration
2. ,ant o$ #eli&er. o$
complete instrument
,ant o$ #eli&er. o$
incomplete instrument
4. Insertion o$ wrong
#ate w0ere pa.able at a
$i7e# perio# a$ter #ate
an# issue# un#ate#D or at
a $i7e# perio# a$ter sig0t
an# acceptance is
un#ate#
:uress amounting to
$orger.
1. Iilling up t0e blan5s
contrar. to aut0orit.
Irau# in $actum or in
esse contractus
COMMERCIAL LAW
gi&en or not wit0in
reasonable time
5. Irau# in in#ucement *inorit.
6. (cEuisition o$ t0e
instrument b. $orce@
#uress or $ear
*arriage in case o$ a
wi$e
'. (cEuisition o$ t0e
instrument b. unlaw$ul
means
Insanit. w0ere t0e
insane person 0as a
guar#ian appointe# b.
t0e court
8. (cEuisition o$ t0e
instrument $or an illegal
consi#eration
?ltra &ires acts o$ a
corporation w0ere its
c0arter or b. statue@ it is
pro0ibite# $rom issuing
commercial paper
). Negotiation in breac0
o$ $ait0
,ant o$ aut0orit. o$
agent
"0. Negotiation un#er
circumstances
amounting to $rau#
67ecution o$ instrument
between public enemies
"". *ista5e
Illegalit. o$ contract
ma#e b. statue
"2. Into7ication Iorger.
"4. ?ltra &ires acts o$
corporations
"1. ,ant o$ aut0orit. o$
t0e agent w0ere 0e 0as
apparent aut0orit.
"5. Illegalit. o$ contract
w0ere $orm or
consi#eration is illegal
"6. Insanit. w0ere t0ere
is no notice o$ insanit.
A %a9e! "s 1!"%a!"ly l"able*
6$$ects o$ ma5ing t0e instrument@ t0e ma5er=
a. 6ngages to pa. accor#ing to tenor o$
instrument
b. (#mits e7istence o$ pa.ee an# 0is capacit.
to in#orse (/ec. 60 NIL)
Notes on 'e#t"on 70
( ma5er<s liabilit. is primaril. an# uncon#itional
%ne w0o 0as signe# as suc0 is presume# to 0a&e
acte# wit0 care an# to 0a&e signe# wit0 $ull
5nowle#ge o$ its contents@ unless $rau# is pro&e#
!0e pa.ee<s interest is onl. to see to it t0at t0e
note is pai# accor#ing to its terms
,0en two or more ma5ers sign 9ointl.@ eac0 is
in#i&i#uall. liable $or t0e $ull amount e&en i$ one
#i# not recei&e t0e &alue gi&en
!0e ma5er is preclu#e# $rom setting up t0e
#e$ense o$=
a) !0e pa.ee is $ictional@
b) !0at t0e pa.ee was insane@ a minor or a
corporation acting ultra &ires
A dra#er is secondarily liable
6$$ects o$ #rawing t0e instrument@ t0e #rawer=
a. (#mits t0e e7istence o$ t0e pa.ee@
b. !0e capacit. o$ suc0 pa.ee to in#orse
c. 6ngages t0at on #ue presentment@ t0e
instrument will be accepte# or pai# or bot0
accor#ing to its tenor.
If t3e "nst!%ent "s d"s3ono!ed@ an# t0e
necessar. procee#ings on #is0onor #ul. ta5en
a. !0e #rawer will pa. t0e amount t0ereo$ to
t0e 0ol#er
b. ,ill pa. to an. subseEuent in#orser w0o
ma. be compelle# to pa. it. (/ec. 6" NIL)
Notes on 'e#t"on 71
( #rawer ma. insert an e7press stipulation to
negati&e or limit 0is liabilit.
An acceptor is primarily liable
B. accepting t0e instrument@ an acceptor=
- 6ngages t0at 0e will pa. accor#ing to t0e
tenor o$ 0is acceptance
- (#mits t0e e7istence o$ t0e #rawer@ t0e
genuineness o$ 0is signature an# 0is
capacit. an# aut0orit. to #raw t0e
instrument
- !0e e7istence o$ t0e pa.ee an# 0is t0en
capacit. in#orse
IRREG(LAR INDOR'ER 8 a person not ot0erwise a
part. to an instrument places 0is signature in
blan5 be$ore #eli&er. is liable as an in#orser in
t0e $ollowing manner=
a. I$ pa.able to or#er o$ a t0ir# person H liable
to t0e pa.ee an# to all subseEuent parties
b. I$ pa.able to or#er o$ t0e ma5er or #rawer H
liable to all parties subseEuent to t0e ma5er
or #rawer
c. I$ pa.able to bearer H liable to all parties
subseEuent to t0e ma5er or #rawer
#. I$ signs $or an accommo#ation part. H
liable to all parties subseEuent to t0e pa.ee
(/ec. 61)
GNote= Irregular In#orser &. -eneral In#orser (2005
B6B)
I!!e$la! Indo!se!@ is not a part. to t0e instrument
but 0e places 0is signature in blan5 be$ore #eli&er..
Fe is not a part. but 0e becomes one because o$ 0is
signature in t0e instrument. Because 0is signature
0e is consi#ere# an in#orser an# 0e is liable to t0e
parties in t0e instrument. 4hil!@ a Gene!al
Indo!se! warrants t0at t0e instrument is genuine@
t0at 0e 0as a goo# title to it@ t0at all prior parties 0a#
capacit. to contractD t0at t0e instrument at t0e time
o$ t0e in#orsement is &ali# an# subsistingD an# t0at
on #ue presentment@ t0e instrument will be accepte#
or pai# or bot0 accepte# an# pai# accor#ing to its
tenor@ an# t0at i$ it is #is0onore#@ 0e will pa. i$ t0e
necessar. procee#ings $or #is0onor are ma#e.
,arranties w0ere negotiating b. #eli&er. or
Euali$ie# en#orsement=
a. !0e instrument is genuine an# in all respect
w0at it purports to be
b. !0e in#orser 0as goo# title to it
:ean >e.nal#o ?. (granCamen#eC Page 1, o$ 177
COMMERCIAL LAW
c. (ll prior parties 0a# t0e capacit. to contract
#. In#orser 0as no 5nowle#ge o$ an. $act t0at
woul# impair t0e &ali#it. or t0e &alue o$ t0e
instrument.
L"%"tat"ons of ;a!!ant"es*
8 I$ b. #eli&er. H e7ten#s onl. to imme#iate
trans$eree
8 ,arrant. o$ capacit. to contract #oes not
appl. to persons negotiating public
or corporate securities (/ec. 65
NIL)
Notes on 'e#t"on 7A
( Euali$ie# in#orser is one w0o in#orses wit0out
recourse or sans recourse
>ecourse 8 resort to a person secon#aril. liable
a$ter #e$ault o$ person primaril. liable
( Euali$ie# in#orser cannot raise t0e #e$ense o$ a)
$orger. b) #e$ect o$ 0is title or t0at it is &oi# c) t0e
incapacit. o$ t0e ma5er@ #rawer or pre&ious
in#orsers.
( Euali$ie# In#orsement ma5es t0e in#orser mere
assignor o$ title o$ instrument@ relie&es 0im o$
general obligation to pa. i$ instrument is
#is0onore#@ but 0e is still liable $or t0e warranties
arising $rom instrument onl. up to warranties o$
general in#orser
!0e warrant. is to t0e capacit. o$ prior parties at
t0e time t0e instrument was negotiate#.
/ubseEuent incapacit. #oes not breac0 t0e
warrant..
lac5 o$ 5nowle#ge o$ t0e in#orser as to an. $act
t0at woul# impair t0e &ali#it. or t0e &alue o$ t0e
instrument must be subsisting all t0roug0out
( person Negotiating b. :eli&er. warrants same
as t0ose o$ Euali$ie# in#orser an# e7ten#s to
imme#iate trans$erees onl.
Wa!!ant"es of a $ene!al "ndo!se!*
a. !0e instrument is genuine an# in all respect
w0at it purports to be
b. !0e 0e 0as goo# title to it
c. (ll prior parties 0a# t0e capacit. to contract
#. !0at t0e instrument at t0e time o$ 0is
in#orsement was &ali# an# subsisting (/ec.
66)
In a##ition=
- 6ngages t0at t0e instrument will be
accepte# or pai# or bot0 accor#ing to its
tenor on #ue presentment
- 6ngages to pa. t0e amount t0ereo$ i$ it be
#is0onore# an# t0e necessar. procee#ings
on #is0onor are ta5en
Notes on 'e#t"on 77
!0e in#orser un#er /ection 66 warrants t0e
sol&enc. o$ a prior part.
!0e in#orser warrants t0at t0e instrument is &ali#
an# subsisting regar#less o$ w0et0er 0e is
ignorant o$ t0at $act or not.
,arranties e7ten# in $a&or o$ a) a F:C b)
persons w0o #eri&e t0eir title $rom F:C c)
imme#iate trans$erees e&en i$ not F:C
!0e in#orser #oes not warrant t0e genuineness o$
t0e #rawer<s signature
-eneral in#orser is onl. secon#aril. liable

Gene!al !le* Presentment $or pa.ment is not
necessar. to c0arge persons primaril. liable
on t0e instrument. Pr!s!n#m!n# or
pa&m!n# is n!c!ssar& #o char"! #h! dra)!r
and indors!rs. (/ec '0 NIL)
Notes on 'e#t"on C0
Presentation $or pa.ment H pro#uction o$ a B%6
to t0e #rawee $or 0is acceptance@ or to a #rawee
or acceptor $or pa.ment. (lso presentment o$ a
PN to t0e part. liable $or pa.ment o$ t0e same.
Consists o$ a0 a personal #eman# $or pa.ment at
a proper place b0 t0e bill or note must be rea#. to
be e70ibite# i$ reEuire# an# surren#ere# upon
pa.ment.
Parties primaril. liable H persons b. t0e terms o$
t0e instrument are absolutel. reEuire# to pa. t0e
same. E.$ ma5er an# acceptors. !0e. can be
sue# #irectl..
I$ pa.able at t0e special place@ an# t0e person
liable is willing to pa. t0ere at maturit.@ suc0
willingness an# abilit. is eEui&alent to ten#er o$
pa.ment.
Presentment is necessar. to c0arge persons
secon#aril. liable ot0erwise t0e. are #isc0arge#
(cts nee#e# to c0arge persons secon#aril. liable=
a) Presentment $or pa.ment+acceptance
b) :is0onor b. non8pa.ment+non8acceptance
c) Notice o$ #is0onor to secon#ar. parties
(cts nee#e# to c0arge persons secon#aril. liable
in ot0er cases=
a) Protest $or non8pa.ment b. t0e #rawee
b) Protest $or non8pa.ment b. t0e acceptor $or
0onor
)!o1e! 1!esent%ent*
a. B. t0e 0ol#er or an aut0oriCe# person
b. (t a reasonable 0our on a business #a.
c. (t a proper place
#. !o t0e person primaril. liable or i$ absent
to an. person $oun# at t0e place w0ere
presentment is ma#e (sec. '2 NIL)
Notes on 'e#t"on C2
%nl. t0e 0ol#er or one aut0oriCe# b. 0im 0as t0e
rig0t to ma5e presentment $or pa.ment
Presentment cannot be ma#e on a /un#a. or
0oli#a.
Presentment $or pa.ment is ma#e to t0e ma5er@ or
acceptor. Not to t0e person secon#aril. liable.
:ean >e.nal#o ?. (granCamen#eC Page 1? o$ 177
COMMERCIAL LAW
I$ t0e instrument is pa.able on #eman# H a) i$ it is
a note H presentment must be ma#e wit0in
reasonable time a$ter issue b) i$ it is a bill 8
presentment must be ma#e wit0in reasonable time
a$ter last negotiation.
Presentment not reEuire# to c0arge t0e #rawer=
a. Fe 0as no rig0t to e7pect
b. Fe 0as no rig0t to reEuire t0at t0e #rawee
or acceptor will pa. (/ec '))
Presentment not reEuire# to c0arge t0e in#orser
w0ere=
a. !0e instrument was ma#e or accepte# $or
0is accommo#ation
b. Fe 0as no reason to e7pect t0at t0e
instrument will be pai# i$ presente# (/ec.
80)
Gene!al !le* Presentment $or pa.ment necessar.
to c0arge persons secon#aril. liable
ot0erwise t0e. are #isc0arge#=
E8#e1t"on*
- /ection ') an# 80
Notes on 'e#t"on C/ and H0
%nl. t0e #rawer or in#orser are not #isc0arge#.
(ll ot0er parties secon#aril. liable are
#isc0arge#.
Presentment $or pa.ment e8#sed i$=
a. ($ter #ue #iligence@ presentment cannot be
ma#e
b. Presentment is wai&e#
c. !0e #rawee is a $ictitious person (/ec 82)
Notes on 'e#t"on H2
,0at is e7cuse# is t0e $ailure to ma5e
presentment. !0ere is no nee# to ma5e an.
presentment &ersus un#er section 8" (#ela. in
presentment) presentment $or pa.ment is still
reEuire# a$ter t0e cause o$ #ela. 0as cease#.
'%%a!y of !les as to 1!esent%ent fo!
1ay%ent*
a. Presentment not necessar. to c0arge persons
primaril. liable
b. Necessar. to c0arge persons secon#aril. liable
e8#e1t*
- !0e #rawer un#er /ec. ')
- !0e in#orser un#er /ec. 80
- ,0en e7cuse# un#er /ec. 82
- ,0en t0e instrument 0as been #is0onore#
b. non8acceptance un#er /ec. 84
Fow #is0onore# b. non8acceptance=
- !0e instrument was #ul. presente# but
pa.ment is re$use# or cannot be obtaine#
- Presentment is e7cuse# an# t0e instrument
is o&er#ue an# unpai# (/ec. 84)
Effe#ts o$ #is0onor b. non8pa.ment=
- (n imme#iate rig0t o$ recourse to all parties
secon#aril. liable accrues to t0e 0ol#er (/ec.
81)
Notes on 'e#t"on H?
Parties cease to be secon#aril. liable an# become
principal #ebtors.
Liabilit. becomes t0e same as t0at o$ t0e original
obligors.
Re="s"tes fo! 1ay%ent "n de #o!se* (sec. 88)
a. *a#e at or a$ter t0e maturit. o$ t0e
instrument
b. !o t0e 0ol#er
c. In goo# $ait0
#. ,it0out notice o$ an. #e$ect in t0e 0ol#er<s
title
$otes on %ection &&
Pa.ment must be ma#e to t0e possessor o$ t0e
instrument
Possession o$ t0e note b. t0e ma5er is
presumpti&e e&i#ence t0at it 0as been pai#
Notice o$ :is0onor ma. be gi&en=
a. B. or on be0al$ or t0e 0ol#er
b. B. or on be0al$ o$ an. part. w0o=
- Is a part. to t0e instrument an# mig0t
be compelle# to pa. t0e instrument.
- !o a 0ol#er w0o 0a&ing ta5en it up woul#
0a&e a rig0t o$ reimbursement $rom t0e
part. to w0om notice is gi&en. (/ec. )0)
Not"#e*
a. *a. be written or oral (/ec. )6)
b. ,ritten notice nee# not be signe# or ma.
be supplemente# b. &erbal communication
(/ec. )5)
c. *a. be b. personal #eli&er. or b. mail
(/ec. )6)
Notice ma. be wai&e# eit0er e7pressl. or implie#=
a. Be$ore t0e time o$ gi&ing notice 0as arri&e#
b. ($ter t0e omission to gi&e #ue notice (/ec.
"0))
Protest ma. be wai&e#=
Effe#ts*
- :eeme# a wai&er o$ presentment an# notice
o$ #is0onor as well (/ec. """)
Notes on 'e#t"on 111
,0ere notice is wai&e#@ presentment is not
wai&e#
,0ere presentment is wai&e#@ notice is also
wai&e#
,0ere protest is wai&e#@ notice an# presentment
is wai&e#
NOTICE O2 DI'4ONOR 8 gi&en b. t0e 0ol#er to t0e
parties secon#aril. liable@ #rawer an# eac0
:ean >e.nal#o ?. (granCamen#eC Page 1A o$ 177
COMMERCIAL LAW
in#orser@ t0at t0e instrument was
#is0onore# b. non8acceptance or non8
pa.ment b. t0e #rawee+ma5er
Gene!al !le* (n. #rawer or in#orser to w0om
suc0 notice is not gi&en is #isc0arge#.
E8#e1t"ons*
a. ,ai&er (/ec. "0))
b. Notice is #ispense# (/ec. ""2)
c. Not necessar. to :rawer (/ec. ""1)
#. Not necessar. to In#orser (/ec. ""5)
8 I$ notice is #ela.e#@ #ela. ma. be e7cuse# (/ec.
""4)
Instances w0en Notice o$ :is0onor Not Necessar.
to :rawer
a. :rawer an# #rawee same person
b. :rawee is a $ictitious+incapacitate# person
c. :rawer is t0e person to w0om presentment
$or pa.ment is ma#e
d. :rawer 0as no rig0t to e7pect t0at t0e
#rawee will accept+pa. t0e instrument
(/ec. ""1 NIL)
Instances w0en Notice Not >eEuire# to In#orser
a. :rawee was a $ictitious+incapacitate#
person an# t0e in#orser was aware o$ suc0
at t0e time o$ in#orsement
b. In#orser is t0e person to w0om instrument
was presente# $or pa.ment
c. Instrument ma#e+accepte# $or 0is
accommo#ation (/ec. ""5 NIL)
%mission to gi&e notice o$ #is0onor b. non8
acceptance #oe not pre9u#ice a F:C (/ec. ""' NIL)
Protest onl. necessar. $or a $oreign bill o$
e7c0ange. Protest $or ot0er negotiable instruments
is optional. (/ec. ""8 NIL)
Cases of D"s#3a!$e of t3e Inst!%ent
a. Pa.ment b. t0e #ebtor
b. Pa.ment b. accommo#ate# part.
c. Intentional cancellation b. 0ol#er o$
instrument
d. (n. ot0er act #isc0arging a simple
monetar. obligation
e. :ebtor becomes 0ol#er o$ t0e instrument
at+a$ter maturit. in 0is own rig0t (/ec "")
NIL)
NOTE' ON 'ECTION 11/
:isc0arge o$ t0e instrument #isc0arges all t0e
parties t0ereto
Pa.ment must be in #ue course@ an# b. t0e
principal #ebtor or on 0is be0al$
I$ pa.ment is not ma#e b. t0e principal #ebtor@
pa.ment onl. cancels t0e liabilit. o$ t0e pa.or
an# t0ose obligate# a$ter 0im but #oes not
#isc0arge t0e instrument.
Pa.ment b. an accommo#ation part. #oes not
#isc0arge t0e instrument.
:isc0arge o$ /econ#ar. Parties=
a. (n. act #isc0arging t0e instrument
b. Cancellation o$ in#orser<s signature b.
in#orsers
c. :isc0arge o$ prior part.
d. !en#er o$ pa.ment b. prior part.
e. >elease o$ principal #ebtor
f. 67tension o$ pa.ment b. t0e
0ol#er+postponement o$ rig0t to en$orce wit0out
assent o$ secon#ar. parties an# wit0out
reser&ation o$ rig0t o$ recourse against
secon#ar. parties (/ec "20 NIL)
RIG4T O2 )ART+ W4O DI'C4ARGE'
IN'TR(MENT. (/ec. "2")
( part. secon#aril. liable w0o pa.s t0e instrument
#oes not #isc0arge it @ but instea# acEuires certain
rig0ts D
".Collect $rom prior parties D or
2. Negotiate t0e instrument to new parties8 but not
to subseEuent parties.
4o;eBe! @ ?n#er t0e e7ceptions pro&i#e# in
/ec."2"@ t0e instrument is consi#ere# #isc0arge#
w0en D
".!0e B%6 is pa.able to t0e or#er o$ a t0ir# person
an# pai# b. t0e #rawer 0imsel$@ or
2. ,0ere it was ma#e or accepte# $or
accommo#ation @ an# 0as been pai# b. t0e part.
accommo#ate#.
REN(NCIATION &+ 4OLDER. (/ec "22)
Renn#"at"on8 !0e act o$ gi&ing up or aban#oning
a rig0t wit0out trans$erring t0e rig0t to anot0er.
(s a Rle @t0e 0ol#er ma. e7pressl. renounce 0is
rig0ts against an. part. to t0e instrument be$ore @ or
a$ter its maturit.. (n absolute an# uncon#itional
renunciation o$ 0is rig0ts against t0e principal
#ebtor at or a$ter maturit. o$ t0e instrument
#isc0arges t0e instrument.
4o;eBe! @ ( renunciation #oes not a$$ect t0e rig0ts
o$ a 0ol#er in #ue course wit0out notice o$ t0e
renunciation.
Notes on /ection "22
i$ renounce# in $a&or o$ a part. secon#aril. liable@
onl. 0e is e7onerate# $rom liabilit. an# all parties
subseEuent to 0im
#isc0arge b. no&ation is allowe#
Gene!al !le* ,0en materiall. altere#@ wit0out t0e
consent o$ all parties liable@ t0e instrument
is a&oi#e# e7cept as against=
a. !0e part. w0o 0as ma#e t0e alteration
b. !0e part. w0o aut0oriCe# or assente# to t0e
alteration.
c. /ubseEuent in#orsers
E8#e1t"on*
COMMERCIAL LAW
- I$ in t0e 0an#s o$ a F:C@ ma. be en$orce#
accor#ing to its original tenor
'ECTION 12?* MATERIAL ALTERATION
6 Any #3an$e in t0e instrument w0ic0 affe#ts o!
#3an$es t0e l"ab"l"ty of t3e 1a!t"es in an. wa..
!0ere is no #istinction between $rau#ulent an#
innocent alteration
G(n alteration is sai# to be material i$ it alters t0e
e$$ect o$ t0e instrument. In ot0er wor#s@ a material
alteration is one w0ic0 c0anges t0e items w0ic0 are
reEuire# to be state# un#er /ec."@ NIL. ( PNB &. C(
et al. 256 /C>( 1)")
T3e E22ECT' of alte!at"on*
". Alte!at"on by a )ART+
*aterial alteration b. t0e 0ol#er #isc0arge# t0e
instrument an# all prior parties t0ereto w0o #i# not
gi&e t0eir consent to suc0 alteration.
,0et0er t0e alteration ma#e is $a&orable or
un$a&orable to t0e part. ma5ing t0e alteration@ no
#istinction as to t0e e$$ect is ma#e. !0e intent o$ t0e
law is to 1!ese!Be t3e "nte$!"ty of t3e ne$ot"able
"nst!%ent.
2. Alte!at"on by a 'TRANGER 5 ')OLIATION 0
I$ subseEuentl. negotiate# to a non8Fol#er in :ue
CourseK( material alteration a&oi#s t0e
instrument as against an. prior part. w0o 0as not
assente# to t0e alteration.
I$ subseEuentl. negotiate# to a Fol#er in :ue
CourseKFe ma. en$orce pa.ment t0ereo$
accor#ing to its original tenor regar#less o$ w0et0er
t0e alteration was innocent or $rau#ulent.
C4ANGE' t3at #onst"tte MATERIAL
ALTERATION'
". !0e #ateD
2. !0e sum pa.able@ eit0er $or principal or interestD
4. !0e time or place o$ pa.mentD
1. !0e number or t0e relations o$ t0e partiesD
5. !0e me#ium or currenc. in w0ic0 pa.ment is to
be ma#eD
6. %r w0ic0 a##s a place o$ pa.ment w0ere no
place o$ pa.ment is speci$ie#D or
'. (n. ot0er c0ange or a##ition w0ic0 alters t0e
e$$ect o$ t0e instrument in an. respect. (/ec. "25)
( serial number is an item w0ic0 is not an
essential reEuisite $or negotiabilit. un#er
/ec. " o$ NIL@ an# w0ic0 #oes not a$$ect
t0e rig0t o$ t0e parties@ 0ence its alteration
is not material. (PNB &. C(@ 256 /C>(
1)") (")) B6B)
Instan#es ;3e!e a &OE %ay be t!eated as a )N*
a. ,0ere t0e #rawer an# t0e #rawee are one
an# t0e same
b. ,0ere t0e #rawee is a $ictitious person
c. ,0ere t0e #rawee 0as no capacit. to
contract (/ec. "40)
0h! hold!r has #h! op#ion #o #r!a# i# as a 51E or a
P6
ACCE)TANCE is t0e signi$ication b. t0e #rawee o$
0is assent to t0e or#er o$ t0e #rawer. It is an act
b. w0ic0 a person on w0om t0e B%6 is #rawn
assents to t0e reEuest o$ t0e #rawer to pa. it.
(/ec. "42)
(cceptance ma. be=
a. (ctual
b. Constructi&e
c. -eneral (/ec. "10)
#. Buali$ie# (/ec. "1")
>eEuisites o$ actual acceptance=
- In writing
- /igne# b. t0e #rawee
- *ust not e7press t0e #rawee will per$orm 0is
promise b. an. ot0er means t0an pa.ment o$
mone.
- Communicate# or #eli&ere# to t0e 0ol#er
( 0ol#er 0as t0e rig0t=
a. >eEuire t0at acceptance be written on t0e bill
an# i$ re$use#@ treat it as i$ #is0onore# (/ec.
"44)
b. >e$use to accept a Euali$ie# acceptance an#
ma. treat it as #is0onore# (/ec. "12)
Const!#t"Be A##e1tan#e*
a. ,0ere t0e #rawee to w0om t0e bill 0as
been #eli&ere# #estro.s it
b. !0e #rawee re$uses wit0in 21 0rs a$ter suc0
#eli&er. or wit0in suc0 time as is gi&en@ to
return t0e bill accepte# or not. (/ec. "4')
$otes on %ection '()
:rawee becomes primaril. liable as an acceptor.
*ere retention is eEui&alent to acceptance
,0en presentment $or acceptance is necessar.=
a. I$ necessar. to $i7 t0e maturit. o$ t0e bill
b. I$ it is e7pressl. stipulate# t0at it s0all be
presente# $or acceptance
c. I$ t0e bill is #rawn pa.able elsew0ere t0an
t0e resi#ence or place o$ business o$ t0e
#rawee (/ec. "14 NIL)
Notes on 'e#t"on 1?,
)RE'ENTMENT is t0e pro#uction o$ a B%6 to
t0e #rawee $or 0is acceptance.
P>6/6N!*6N!
Ior (cceptance (/ec. "14)
Ior Pa.ment ( /ec. '0)
( 2000 N 2004 B6B)
)(R)O'E* !o get acceptance o$ t0e d!a;e! $or
purpose o$ ma5ing 0im 1!"%a!"ly l"able as an
:ean >e.nal#o ?. (granCamen#eC Page 1C o$ 177
COMMERCIAL LAW
a##e1to!. Presentment is also 1!e!e="s"te to t0e
accrual o$ se#onda!y l"ab"l"ty against t0e d!a;e!
an# t0e "ndo!se!s.
W3en "s 1!esent%ent fo! a##e1tan#e
M('T be %ade. (/ec. "14)
In t0e $ollowing cases=
". ,0ere t0e bill is pa.able a$ter sig0tD
or in an. ot0er case@ w0ere presentment
$or acceptance is necessar. in or#er to
$i7 t0e maturit. o$ t0e instrument.
2. ,0ere t0e bill e7pressl. stipulates
t0at it s0all be presente# $or acceptance.
4. ,0ere t0e bill is #rawn pa.able
elsew0ere t0an t0e resi#ence or place o$
business o$ t0e #rawee.
T3e REI(I'ITE' of )!esent%ent*
". *a#e wit0in !easonable t"%e6 is meant not more
t0an 6 mont0s $rom t0e #ate o$ issue. Be.on# sai#
perio#@ it is Punreasonable time an# t0e c0ec5
becomes stale.
2. B. 3olde! or 0is a$ent
4. (t a !easonable 3o! on a bs"ness day
1. Be$ore bill oBe!de.
W4ERE )RE'ENTMENT I' E:C('ED. 5'e#.
1?H.0
Presentment $or acceptance is e7cuse# @ an# a bill
ma. be treate# as #is0onore# b. non acceptance @ in
eit0er o$ t0e $ollowing cases=
".,0ere t0e #rawee is #ea# @ or 0as abscon#e# @ or
is a $ictitious person or a person not 0a&ing
capacit. to contract.
2.,0ere@ a$ter t0e e7ercise o$ reasonable #iligence @
presentment cannot be ma#e.
4.,0ere@ alt0oug0 presentment 0as been irregular @
acceptance 0as been re$use# on some ot0er groun#.
Gene!al !le* Protest is reEuire# onl. $or $oreign
bills
E8#e1t"on*
- Inlan# bills an# notes ma. also be proteste# i$
#esire#
Protest is reEuire#=
a. ,0ere t0e $oreign bill is #is0onore# b. non
acceptance
b. ,0ere t0e $oreign bill is #is0onore# b. non8
pa.ment
c. ,0ere t0e bill 0as been accepte# $or 0onor@ it
must be proteste# $or non8pa.ment be$ore it is
presente# $or pa.ment to t0e acceptor $or 0onor
#. ,0ere t0e bill contains a re$eree in case o$
nee#@ it must be proteste# $or non pa.ment
be$ore presentment $or pa.ment to t0e re$eree
in case o$ nee# (/ec. "52)
NOTE' ON 'ECTION 1A2
Protest 8 $ormal statement in writing ma#e b. a
notar. un#er 0is seal o$ o$$ice at t0e reEuest o$ t0e
0ol#er@ in w0ic0 it is #eclare t0at t0e some was
presente# $or pa.ment or acceptance (as t0e case
ma. be) an# suc0 was re$use#.
It means all steps or acts accompan.ing t0e
#is0onor o$ a bill or note necessar. to c0arge an
in#orser
>eEuire# w0en t0e instrument is a $oreign bill o$
e7c0ange.
It must be ma#e on t0e same #ate o$ #is0onor@ b.
a notar.+respectable citiCen o$ t0e place in t0e
presence o$ 2 cre#ible witnesses so recourse to
secon#ar. parties
ACCE)TANCE 2OR 4ONOR (/ec. "6")H an
acceptance o$ a bill ma#e b. a stranger to it
be$ore maturirt.@ w0ere t0e #rawee o$ t0e
bill 0as=
a. >e$use# to accept it
b. (n# t0e bill 0as been proteste# $or non8
acceptance
c. %r w0ere t0e bill 0as been proteste# $or better
securit.
Re="s"tes fo! a##e1tan#e fo! 3ono!*
". !0e bill must 0a&e been proteste# a) $or
non8acceptance b) or $or better securit.
2. !0e acceptor $or 0onor must be a stranger
to t0e bill
4. Bill must not be o&er#ue
1. Fol#er must gi&e 0is consent
NOTE' ON ACCE)TANCE 2OR 4ONOR
)!1ose* to sa&e t0e cre#it o$ t0e parties to t0e
instrument or some part. to it as t0e #rawer@
#rawee@ or in#orser or somebo#. else.
(cceptor $or 0onor is liable to t0e 0ol#er an# to
all t0e parties to t0e bill subseEuent to t0e part.
$or w0ose 0onor 0e 0as accepte# (/ec. "61)
Fow acceptance $or 0onor is ma#e= (/ec. "62 NIL)
a. In writing an# in#icate# t0at it is an
acceptance $or 0onor
b. /igne# b. t0e person ma5ing t0e
acceptance
)A+MENT 2OR 4ONOR 8 pa.ment ma#e b. a
person@ w0et0er a part. to t0e bill or not@ a$ter it 0as
been proteste# $or non8pa.ment@ $or t0e bene$it o$
an. part. liable t0ereon or $or t0e bene$it o$ t0e
person $or w0ose account it was #rawn. (/ecs. "'"8
"'')
>eEuisites=
a. !0e bill 0as been #is0onore# b. non8
pa.mentD
b. It 0as been proteste# $or non8pa.mentD
c. Pa.ment supra protest is ma#e b. an. person@
e&en b. a part. t0eretoD
#. !0e pa.ment is atteste# b. a notarial act o$
0onor w0ic0 must be appen#e# to t0e protest
or $orm an e7tension o$ itD
e. !0e notarial act must be base# on t0e
#eclaration ma#e b. t0e pa.or $or t0e 0onor
:ean >e.nal#o ?. (granCamen#eC Page 1H o$ 177
COMMERCIAL LAW
or 0is agent o$ 0is intention to pa. t0e bill $or
0onor an# $or w0ose 0onor 0e pa.s.
2o!% fo! 1ay%ent of 3ono!*
a. Pa.ment must be atteste# b. notarial act
appen#e# to t0e protest@ or $orm an e7tension
to it.
b. Notarial act o$ 0onor must be base# on a
#eclaration b. t0e pa.er $or 0onor
&ILL' IN 'ET 8 bill o$ e7c0ange #rawn in se&eral
parts@ eac0 part o$ t0e set being numbere# an#
containing a re$erence to t0e ot0er parts@ t0e w0ole
o$ t0e parts 9ust constituting one bill (/ec "'8)
)!1ose* It is usuall. a&aile# o$ in cases w0ere a
bill 0a# to be sent to a #istant place t0roug0 some
con&e.ance. I$ eac0 part is sent b. #i$$erent
con&e.ances@ t0e c0ance t0at al least one part o$ t0e
set woul# reac0 its #estination woul# be greater.
C4ECK'
8 a bill o$ e7c0ange #rawn on a ban5 pa.able on
#eman#. (/ec. "85)
CONCE)T'*
Certi$ication o$ C0ec5s8 (n agreement
w0ereb. t0e ban5 against w0om a c0ec5 is #rawn@
un#erta5es to pa. at an. $uture time w0en presente#
$or pa.ment.
E22ECT'*
a. 6Eui&alent to acceptance (/ec "8') an#
is t0e operati&e act t0at ma5es t0e ban5
liable.
b. (ssignment o$ t0e $un#s o$ t0e #rawer
in t0e 0an#s o$ t0e #rawee (/ec "8))
c. I$ obtaine# b. t0e 0ol#er@ #isc0arges
t0e persons secon#aril. liable t0ereon
( /ec "88)
( c0ec5 must be presente# $or pa.ment wit0in
reasonable time a$ter its issue or t0e #rawer will be
#isc0arge# $rom liabilit. t0ereon to t0e e7tent o$ t0e
loss cause# b. t0e #ela.. (/ec. "86)
Reasonable T"%e* (/ec. ")4)
a. Nature o$ t0e instrument<
b. ?sage o$ business or tra#e
c. !0e $acts o$ t0e particular case
CRO''ED C4ECK= (2001 N 2005 B6B)
8 ( c0ec5 w0ic0 in a##ition to t0e usual contents o$
an or#inar. c0ec5 contains also t0e name o$ a
certain ban5er or business entit. t0roug0 w0om it
must be presente# $or pa.ment.
8 ( Crosse# C0ec5 un#er accepte# ban5ing
practice@ crossing a c0ec5 is #one b. writing two
parallel lines #iagonall. on t0e le$t top portion o$
t0e c0ec5s. !0e crossing is special w0ere t0e name
o$ t0e ban5 or a business institution is written
between t0e two parallel lines@ w0ic0 mean t0at t0e
#rawee s0oul# pa. onl. wit0 t0e inter&ention o$ t0at
compan..
E22ECT'*
a. !0at t0e c0ec5 ma. not be encas0e#D it ma.
onl. be #eposite# wit0 t0e ban5D
b. !0at t0e c0ec5 ma. be negotiate# onl. once
to a person w0o 0as an account wit0 t0e
ban5D an#
c. !0at it ser&es as a warning to t0e 0ol#er
t0at t0e c0ec5 0as been issue# $or a #e$inite
purpose. (Bataan Cigar &. C( 280 /C>(
614)
GNote= Crosse# C0ec5s &s. Cancelle# C0ec5s (2001
B6B)
( #!ossed #3e#9 is one wit0 two parallel lines
#rawn #iagonall. across its $ace or across a corner
t0ereo$. %n t0e ot0er 0an#@ a #an#elled #3e#9 is
one mar5e# or stampe# Opai#O an#+or Ocancelle#O
b. or on be0al$ o$ a #rawee ban5 to in#icate
pa.ment t0ereo$.
7S#a#! Inv!s#m!n# 8ous! v IAC ((R 7*7,/
+3.ul+989), t0e /C consi#ere# a crosse# c0ec5 as
sub9ecting a subseEuent 0ol#er t0ereo$ to t0e
contractual co&enants o$ t0e pa.or an# t0e pa.ee.
2 KIND'*
1. CRO'''ED ')ECIALL+8 !0e same
name o$ a particular ban5 or compan. is
written or appears between t0e&. !an
parallel lines in w0ic0 case t0e #rawee8
ban5 must pa. t0e c0ec5 onl. upon
presentment b. suc0 ban5 or compan.
(C0an ,an &. tan Aim "0) P0il '06) on
penalt. o$ being ma#e to pa. agin b. t0e
rig0t$ul owner s0oul# t0e $irst pa.ment
pro&e to 0a&e been erroneous.
2. CRO''ED GENERALL+8 onl. t0e
wor#s Lan# Co.M are written between t0e
parallel lines or w0en none at all is written
at all between sai# lines.
G !0is Court 0as ta5en 9u#icial cogniCance o$ t0e
practice t0at a c0ec5 wit0 2 parallel lines in t0e
upper le$t 0an# corner means t0at it coul# onl. be
#eposite# an# not con&erte# into cas0.
IRON CLAD R(LE H pro0ibits t0e
counterman#ing o$ pa.ment o$ certi$ie# c0ec5s.
(>ep. &. PNB@ :ec. "@ ")6")
GNote= !0e 0ol#er must be a 0ol#er in #ue course
be$ore t0e stop pa.ment or#er ma. not be
success$ull. in&o5e# against 0im. (*esina &. I(C@
"16 /C>( 1)'@ 505)
T+)E' O2 C4ECK' (Cesar illanue&a@
Commercial Law >e&iew@ 2001 e#.)
a. Cas3"e!>s C3e#98 %ne #rawn b. t0e
cas0ier o$ a ban5@ in t0e name o$ t0e ban5
against t0e ban5 itsel$ pa.able to a t0ir#
person. It is a primar. obligation o$ t0e
:ean >e.nal#o ?. (granCamen#eC Page 1/ o$ 177
COMMERCIAL LAW
issuing ban5 an# accepte# in a#&ance upon
issuance. (!an &. C( 24) /C>( 4"0)
b. Mana$e!>s C3e#98 ( c0ec5 #rawn b. t0e
manager o$ a ban5 in t0e name o$ t0e ban5
itsel$ pa.able to a t0ir# person. It is similar
to t0e cas0ier<s c0ec5 as to t0e e$$ect an#
use.
c. Me%o!and% C3e#98 ( c0ec5 gi&en b. a
borrower to a len#er $or t0e amount o$ a
s0ort loan@ wit0 t0e un#erstan#ing t0at it is
not to be presente# at t0e ban5@ but will be
re#eeme# b. t0e ma5er 0imsel$ w0en t0e
loan $alls #ue an# w0ic0 un#erstan#ing is
e&i#ence# b. writing t0e wor#
Lmemoran#umM@ LmemoM or LmemM on t0e
c0ec5.
#. Ce!t"f"ed C3e#98 (n agreement w0ereb.
t0e ban5 against w0om a c0ec5 is #rawn
un#erta5es to pa. it at an. $uture time w0en
presente# $or pa.ment. (/ec. "8')
e. T!aBele!>s C3e#98 It is one upon t0e
0ol#er<s signature must appear twiceD one
to be a$$i7e# b. 0im at t0e time it is issue#
an# t0e secon#@ $or counter8signature@ to be
a$$i7e# b. 0im in t0e presence o$ t0e pa.ee
be$ore it is pai#@ ot0erwise it is incomplete.
COR)ORATION LAW
&) &l$. 7H
7888888888888888888888888888888888888888888888888888888888887
I. Gene!al )!"n#"1les
( corporation is an arti$icial being create# b.
operation o$ law@ 0a&ing t0e rig0t o$ succession an#
t0e powers@ attributes an# properties e7pressl.
aut0oriCe# b. law or inci#ent to its e7istence. (/ec.
2@ BP blg. 68). It 0as a separate an# #istinct
personalit. $rom its incorporators. (2000 &a!
E8a%"nat"on0
T3eo!"es on 2o!%at"on
1. Con#ess"on t3eo!y
Taya$ B &en$et Consol"dated* corporation is
creature o$ /tate an# 0as no e7istence
in#epen#ent o$ state recognition+concession
2. Ente!1!"se ent"ty t3eo!y
Loo5s at t0e un#erl.ing enterprise or group@
w0ic0 0as to e7ist be$ore t0e corporate
$iction is grante#
3ust because it is a 9uri#ical entit.@ it is not
a creature o$ t0e /tate H it is a creature o$ its
own &olition an# maintains in0erent rig0ts
un#er t0e law H moral in#i&i#uals lie un#er
t0e corporate &eil
T!"6leBel e8"sten#e "n #o!1o!ate sett"n$
". Corporation as 9uri#ical entit. H /tate an#
Corporation relations0ip
2. Intra8corporation=
a. Corporation an# its agents
b. Corporation an# its /Fs
c. (mong /Fs
#. Between corporation an# t0ir# parties
4. L-oing concernM H business enterprise
Co!1o!at"on as #!eat!e of t3e la;
Constitution=
o Congress cannot create pri&ate
corporations e7cept b. general law
5A!t :II- 'e# 170
Pri&ate corporation create# b.
special law H nullit. 5NDC B
)3"l @ete!ans &an90
o -%CCs can be create# b. special
c0arters
200H &a! E8a%"nat"on* /ince Iebruar. 8@ ")45@
t0e legislature 0as not passe# e&en a single law
creating a pri&ate corporation. ,0at pro&ision o$
t0e Constitution preclu#es t0e passage o$ suc0 a
lawQ
Ci&il Co#e=
o Person o$ public corporations go&erne#
b. laws creating+recogniCing t0em
COMMERCIAL LAW
o Person o$ pri&ate corporations
go&erne# b. laws o$ general application
Iranc0ises o$ corporations
o Corporate+general $ranc0ises= essential
$or $ranc0ise to e7ist as corporationD
grante# to in#i&i#uals w0o compose t0e
corporation
o /pecial+secon#ar. $ranc0ises= rig0ts or
pri&ileges grante# to e7isting
corporations
D"st"n$"s3"n$ a #o!1o!at"on f!o% a 1a!tne!s3"1
(s to= (a) t0e manner o$ creation H a
corporation is create# b. law@ w0ile a
partners0ip is create# b. agreement (b) t0e
number o$ incorporators8 a corporation
generall. reEuires a minimum o$ 5 an# a
ma7imum o$ "5 incorporators@ w0ile a
partners0ip reEuires a minimum o$ 2. !0e
e7ception is a corporation sole (c)
commencement o$ e7istence8 a corporation
commences to 0a&e e7istence upon t0e
issuance o$ a certi$icate o$ incorporation@ w0ile
a partners0ip commences to 0a&e e7istence
upon agreement (#) t0e powers t0at ma. be
e7ercise#8 a corporation can onl. e7ercise
powers allowe# b. law@ w0ile a partners0ip
can e7ercise powers not contrar. to law or
public polic. (e) management H a corporation
is manage# b. a boar#@ w0ile a partners0ip is
manage# b. t0e managing partner+s ($) rig0t o$
succession8 a corporation en9o.s t0e rig0t o$
succession@ w0ile a partners0ip #oes not (g)
personal liabilit.8 as a general rule@
stoc50ol#ers #o not 0a&e personal liabilit.
be.on# t0e &alue o$ t0eir s0ares@ w0ile
partners are liable be.on# w0at t0e. 0a&e
contribute# (0) trans$erabilit. o$ interest8 one<s
interest in a corporation is trans$erable wit0out
consent@ w0ile t0at in partners0ip@ reEuires
consent (i) term o$ e7istence8 a corporation
can e7ist $or terms o$ no more t0an 50 .ears at
an. gi&en time but sub9ect to e7tension@ w0ile
a partners0ip is not limite# as to term (9)
#issolution8 a corporation cannot be #issol&e#
wit0out t0e consent o$ t0e state@ w0ile a
partners0ip can be #issol&e# wit0out nee# $or
t0e consent o$ t0e state.
!0eir similarities are= (a) bot0 0a&e 9uri#ical
personalit. (b) bot0 can onl. act t0roug0 its
agents (c) bot0 are compose# o$ an aggregate
o$ in#i&i#uals (#) #istribution o$ pro$its is
gi&en to t0ose w0o 0a&e contribute# capital (e)
bot0 can onl. be organiCe# i$ t0ere is a law
aut0oriCing its registration
A. Class"f"#at"on of Co!1o!at"on
*n Relation to the %tate
". Public an# Pri&ate Corporations
(D"st"n#t"ons* 200? &a! E8a%"nat"on0
)!"Bate )bl"#
$orme# $or some
pri&ate purpose@
bene$it or en#
$orme# $or t0e
go&ernment o$ a
portion o$ t0e /tate
$or t0e general goo#
or wel$are
create# b. special
legislation or act o$
Congress
*ust be organiCe#
un#er t0e
Corporation Co#e.
N%!6= T3e t!e test "s fo! t3e 1!1ose of
t3e #o!1o!at"on. I$ t0e corporation is
create# $or political or public purpose
connecte# wit0 t0e a#ministration o$
go&ernment@ t0en it is a public corporation.
I$ not@ it is a pri&ate corporation alt0oug0
t0e w0ole or substantiall. t0e w0ole interest
in t0e corporation belongs to t0e /tate.
2. Buasi8Public Corporations
As to Place of *ncorporation
". :omestic Corporations
2. Ioreign Corporations
Test To Dete!%"ne Nat"onal"ty Of Co!1o!at"on
i. Incorporation !est H #etermine# b. t0e
state o$ incorporation@ regar#less o$ t0e
nationalit. o$ its stoc50ol#ers
ii. :omicile !est H #etermine# b. t0e state
w0ere it is #omicile#.
iii. Control !est H #etermine# b. t0e
nationalit. o$ t0e controlling stoc50ol#ers
or members. !0is test is applie# in times o$
war. (lso 5nown as t0e ,(>!I*6 !6/!.
As to Legal %tatus
". :e 3ure Corporation
2. Corporation #e Iacto 5200? &a!
E8a%"nat"on0
( #e $acto corporation is one w0ic0
actuall. e7ists $or all practical purposes as a
corporation but w0ic0 0as no legal rig0t to
corporate e7istence as against t0e /tate. It is
essential to t0e e7istence o$ a #e $acto
corporation t0at t0ere be (") a &ali# law
un#er w0ic0 a corporation mig0t be
incorporate#@ (2) a bona $i#e attempt to
organiCe as a corporation un#er suc0 law@
an# (4) actual use or e7ercise in goo# $ait0
o$ corporate powers con$erre# upon it b.
law.
4. Corporation b. 6stoppel 5200? &a!
E8a%"nat"on0
It e7ists w0en persons assume to act as a
corporation 5nowing it to be wit0out
aut0orit. to #o so. In t0is case@ t0ose
persons will be liable as general partners
COMMERCIAL LAW
$or all #ebts@ liabilities an# #amages
incurre# or arising as a result o$ t0eir
actions.
1. Corporation b. Prescription
( bo#. not law$ull. organiCe# as a
corporation but 0as been recogniCe# b.
immemorial usage as a corporation wit0
rig0ts an# #uties maintainable b. law
As to Existence of %hares of %toc+s
". /toc5 Corporations
2. Non8/toc5 Corporations
D"st"n#t"ons bet;een 'to#9 and Non6 'to#9
Co!1o!at"ons 5200? &a! E8a%"nat"ons0
( stoc5 corporation is one t0at 0as capital
stoc5 #i&i#e# into s0ares an# is aut0oriCe#
to #istribute to t0e 0ol#ers o$ suc0 s0ares
#i&i#en#s or allotments o$ t0e surplus
pro$its on t0e basis o$ t0e s0ares 0el#. (ll
ot0er corporations are non8stoc5
corporations.
&. Co!1o!at"on- 9"nds by %et3od of
#!eat"on*
a. b. special law or c0arter
b. b. being organiCe# un#er t0e
corporation co#e
C. Co!1o!at"on- 3o; o!$an"zed*
P0ilippine corporate entities are organiCe#
as $ollows=
a. 6um%!r o incorpora#ors' 52007
&a! E8a%"nat"on0
Incorporators are reEuire# to be not less
t0an $i&e R5S but not more t0an $i$teen R"5S.
b. R!sid!nc& r!9uir!m!n#' 52007 &a!
E8a%"nat"on0
*a9orit. o$ t0e incorporators are reEuire#
to be resi#ents o$ t0e P0ilippines.
c. :ualiica#ions'
(ll incorporators=
". must be natural persons
2. must be o$ legal age
d. Compon!n#s o a corpora#ion
INC%>P%>(!%>/ C%>P%>(!%>/
/ignator. to t0e (rticles
o$ Incorporation
/toc50ol#er or
member
Number is limite# to 58
"5
No limit
e. Su%scrip#ion r!9uir!m!n#'
(ll incorporators must subscribe to at least
one (") s0are o$ stoc5 o$ t0e corporation
being organiCe#.
D. Co!1o!at"on- %"n"%% sbs#!"1t"on*
!0e law reEuires t0at t0e total capital stoc5
to be subscribe# at t0e time o$
incorporation s0oul# at least be twent. $i&e
percent R25TS o$ t0e aut0oriCe# capital
stoc5 o$ t0e corporation being organiCe#.
E. Co!1o!at"on- %"n"%% 1a"d61 #a1"tal*
!0e pai#8up capital o$ a P0ilippine
corporation must not be less t0an P0P5@
000.00. !0us@ it is reEuire# t0at at least
twent. $i&e percent R25TS o$ t0e subscribe#
capital stoc5 s0oul# be $ull. pai# up but t0e
amount o$ w0ic0 s0oul# not be less t0an
sai# P0P5@000.00.
2. Co!1o!ate Te!%* (50) .ears $rom t0e #ate
o$ incorporation unless sooner #issol&e# or
unless sai# perio# is e7ten#e#. (/ec. "")
G. Co!1o!at"on- ;3en #o!1o!ate e8"sten#e
#o%%en#es*
!0e corporate li$e or e7istence o$ a
P0ilippine corporation commences $rom t0e
time a Certi$icate o$ Incorporation is issue#
in its $a&or b. t0e /ecurities an# 67c0ange
Commission R/6CS.
4. Co!1o!at"on- effe#t of non6se*
RaS ( corporation is #eeme# #issol&e# i$ t0e
corporate c0arter grante# in its $a&or
e7pires b. non8use $or a perio# o$ at least
two R2S .ears $rom issuance t0ereo$.
RbS ( corporation is #eeme# suspen#e# or
its $ranc0ise re&o5e# i$ it 0as been #ul.
organiCe# but it $aile# to operate $or a
perio# o$ $i&e R5S .ears.
%t0er !.pe o$ Corporation= Corporation
/ole. 5200? &a! E8a%"nat"on0
/ection ""0 o$ t0e Corporation Co#e
#e$ines a Lcorporation soleM as one $orme#
$or t0e purpose o$ a#ministering an#
managing@ as trustee@ t0e a$$airs@ propert.
an# temporalities o$ an. religious
#enomination@ sect or c0urc0. It is $orme#
b. t0e c0ie$ arc0bis0op@ bis0op@ priest@
minister@ or ot0er presi#ing el#er o$ suc0
religious #enomination@ sect or c0urc0.
I. R(LE' ON CON@ER'ION
2!o% 'to#9 to Non6sto#9 #o!1o!at"on
Con&ersion ma. be ma#e b. mere amen#ment
o$ t0e articles o$ incorporation.
2!o% Non6sto#9 to 'to#9 #o!1o!at"on
!0e corporation must $irst be #issol&e#. *ere
amen#ment o$ t0e articles o$ incorporation woul#
not su$$ice because t0e con&ersion woul# c0ange
t0e corporate nature $rom non8pro$it to one $or
COMMERCIAL LAW
monetar. gain
7888888888888888888888888888888888888888888888888888888888887
II. 'o%e Do#t!"nes "n Co!1o!at"on La;
". DOCTRINE O2 COR)ORATE
O))ORT(NIT+ 5200A &a! E8a%"nat"on0
( #irector is ma#e to account to 0is
corporation@ gains an# pro$its $rom transactions
entere# into b. 0im+anot0er competing
corporation in w0ic0 0e 0as substantial interest@
w0ic0 s0oul# 0a&e been a transaction
un#erta5en b. t0e corporation. !0is is a breac0
o$ $i#uciar. relations0ip.
2. DOCTRINE O2 )IERCING T4E @EIL O2
COR)ORATE ENTIT+ 52007 &a!
E8a%"nat"on0
?n#er t0e #octrine o$ Lpiercing t0e &eil o$
corporate entit.M@ t0e legal $iction t0at a
corporation is an entit. wit0 a 9uri#ical
personalit. separate an# #istinct $rom its
members or stoc50ol#ers ma. be #isregar#e#
an# t0e corporation will be consi#ere# as a
mere associations o$ persons@ suc0 t0at liabilit.
will attac0 #irectl. to t0e o$$icers an# t0e
stoc50ol#ers (?mali &. Court o$ (ppeals@ "8)
/C>( 52)@ 512 R"))0S). It is an eEuitable
#octrine #e&elope# to a##ress situations w0ere
t0e separate corporate personalit. o$ a
corporation is abuse# or use# $or wrong$ul
purposes
a. To ;3at #"!#%stan#es ;"ll t3e do#t!"ne
a11lyL 52007 &a! E8a%"nat"on0
!0e #octrine o$ Lpiercing t0e &eil o$
corporate entit.M will appl. w0en t0e
corporation<s separate 9uri#ical personalit.
is use#=
". to #e$eat public con&enienceD
2. to 9usti$. wrong@ protect $rau#@ or
#e$en# crimeD
4. as a s0iel# to con$use t0e legitimate
issueD
1. w0ere t0e corporation is t0e mere alter
ego or business con#uit o$ a personD or
5. ,0ere t0e corporation is so organiCe#
an# controlle# an# its a$$airs are so
con#ucte# as to ma5e it merel. an
instrumentalit.@ agenc.@ con#uit or
a#9unct o$ anot0er corporation (?mali
&. Court o$ (ppeals@ "8) /C>( 52)@
512 R"))0S).
b. Tests "n dete!%"n"n$ ;3et3e! to 1"e!#e
Be"l of #o!1o!ate 1e!sonal"ty.
". Control@ not mere ma9orit. or complete
stoc5 control@ but complete #omination@
not onl. o$ t0e $inances@ but o$ polic.
an# business practice in respect to t0e
transaction attac5e# so t0at t0e
corporate entit. as to t0is transaction
0a# at t0e time no separate min#@ will
or e7istence o$ its ownD
2. /uc0 control must 0a&e been use# b.
t0e #e$en#ant to commit $rau# or
wrong@ to perpetuate t0e &iolation o$ a
statutor. or ot0er positi&e legal #ut.@
or #is0onest an# un9ust act in
contra&ention o$ plainti$$<s legal rig0tD
4. !0e a$oresai# control an# breac0 o$
#ut. must pro7imatel. pre&ent
Lpiercing t0e corporate &eil.M
1. !0e wrong8#oing must be clearl. an#
con&incingl. establis0e#. It cannot be
presume#. (Lim &. Court o$ (ppeals@ et
al.@ -.>. No. "21'"5@ prom. 3anuar.
21@ 2000)
4. TR('T 2(ND DOCTRINE
5200C &a! E8a%"nat"on0
!0e subscribe# capital stoc5 o$ t0e corporation
is a trust $un# $or t0e pa.ment o$ #ebts o$ t0e
corporation w0ic0 t0e cre#itors 0a&e t0e rig0t to
loo5 up to satis$. t0eir cre#its. Corporations
ma. not #issipate t0is an# t0e cre#itors ma. sue
t0e stoc50ol#ers #irectl. $or t0eir unpai#
subscriptions !0us@ #i&i#en#s must ne&er
impair t0e subscribe# capitalD subscription
commitments cannot be con#one# or remitte#D
nor #o t0e corporation bu. its own s0ares using
t0e subscribe# capital as t0e consi#eration
t0ere$ore. (National !elecommunications
Commission &. Court o$ (ppeals@ et al.@ -.>.
No. "2')4'@ prom. 3ul. 28@ "))))
Instan#es ;3e!e t3e Do#t!"ne ;as a11l"ed*
". ,0ere t0e corporation 0as
#istribute# its capital among t0e
stoc50ol#ers wit0out pro&i#ing
$or t0e pa.ment o$ cre#itorsD
2. ,0ere it 0a# release# t0e
subscribers to t0e capital stoc5
$rom t0eir subscriptionsD
4. ,0ere it 0as trans$erre# corporate
propert. in $rau# o$ its cre#itorsD
an#
1. ,0ere t0e corporation is insol&ent.
5. If t3e #o!1o!at"on "s solBent@ t0e
!I: e7ten#s to t0e capital stoc5
represente# b. t0e corporationJs
legal capital.
COMMERCIAL LAW
6. If t3e #o!1o!at"on "s "nsolBent@ t0e
!I: e7ten#s to t0e capital stoc5 o$
t0e corporation and all o$ its
propert. an# assets.
E8#e1t"ons to t3e T!st 2nd Do#t!"ne
". >e#emption o$ re#eemable s0ares
(/ec. 8)
2. In a close corporation@ w0en t0ere
is a #ea#loc5 an# t0e /6C or#ers
t0e pa.ment o$ t0e appraise# &alue
o$ t0e stoc50ol#erJs s0are. (/ec.
"01)
1. &('INE'' .(DGEMENT R(LE
Business 9u#gment rule e7ists to protect an#
promote t0e $ull an# $ree e7ercise o$ managerial
power grante# to #irectors. !0e rule is La
presumption t0at in ma5ing a business #ecision@
t0e #irectors o$ a corporation acte# on an
inorm!d %asis@ in goo# $ait0 an# in t0e 0onest
belie$ t0at t0e action ta5en was in t0e best interest
o$ t0e compan..M (Smi#h v ;an (or<am)
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III. A!t"#les of In#o!1o!at"on and &y6
La;s
(. !orporation, incorporation documents:
!0e $ollowing incorporation #ocuments are
reEuire#=
a. (rticles o$ IncorporationD
b. B.8lawsD
c. !reasurerJs ($$i#a&it w0ic0 s0oul# state
compliance wit0 t0e aut0oriCe# subscribe#
an# pai#8up capital stoc5 reEuirements.
#. Ban5 Certi$icate t0at t0e pai#8up capital
portion o$ t0e aut0oriCe# capital stoc5 0as
been #eposite# wit0 t0e issuing ban5.
B. !orporation, #here filed: !0e incorporation
#ocuments s0oul# be $ile# wit0 t0e /ecurities
an# 67c0ange Commission R/6CS o$ t0e
P0ilippines.
C. !orporation, #hat should be stated:
a. t0e name o$ t0e corporation w0ic0 must not
be i#entical or #ecepti&el. or con$usingl.
similar to an. e7isting corporationD
b. t0e purpose o$ t0e corporationD
c. principal o$$ice o$ t0e corporationD
#. !0e term or li$e o$ t0e corporation w0ic0
s0oul# not e7cee# $i$t. R50S .ears. !0is
corporate li$etime ma.@ 0owe&er@ be
e7ten#e# $or anot0er $i$t. R50S .ears but t0e
e7tension must not be e$$ecte# earlier t0an
$i&e R5S .ears be$ore t0e e7piration o$ its
term
2002 &a! E8a%"nat"on* +o 3aBe been as9ed to
"n#o!1o!ate a ne; #o%1any to be #alled 2'&
'aB"n$s M Mo!t$a$e &an9- In#. L"st t3e
do#%ents t3at yo %st sb%"t to t3e
'e#!"t"es and E8#3an$e Co%%"ss"on 5'EC0 to
obta"n a #e!t"f"#ate of "n#o!1o!at"on fo! 2'&
'aB"n$s and Mo!t$a$e &an9- In#.
A* !0e do#%ents to be sb%"tted to t3e
'e#!"t"es and E8#3an$e Co%%"ss"on 5'EC) to
incorporate a new compan. to be calle# I/B
/a&ings N *ortgage ban5@ Inc.@ to obtain t0e
certi$icate o$ incorporation $or sai# compan.@ are=
". (rticles o$ Incorporation
2. !reasurer<s ($$i#a&itD
4. Certi$icate o$ aut0orit. $rom t0e *onetar.
Boar# o$ t0e B/PD
1. eri$ication slip $rom t0e recor#s o$ t0e
/6C w0et0er or not t0e propose# name 0as
alrea#. been a#opte# b. anot0er
corporation@ partners0ip or associationD
5. Letter un#erta5ing to c0ange t0e propose#
name i$ alrea#. a#opte# b. anot0er
corporation@ partners0ip or associationD
6. Ban5 certi$icate o$ #eposit concerning t0e
pai#8up capitalD
'. Letter aut0oriCing t0e /6C or *onetar.
Boar# or it<s #ul. aut0oriCe representati&e
to e7amine t0e ban5 recor#s regar#ing t0e
#eposit o$ t0e pai#8up capitalD
8. >egistration s0eetD
7888888888888888888888888888888888888888888888888888888888887
I@. Co!1o!ate Mana$e%ent
LeBels of %ana$e%ent
!0ere are t0ree le&els o$ control in t0e
corporate 0ierarc0.= (a)!0e Boar#8 w0ic0
#etermines corporate polic. an# prescribes
t0e manner o$ general management o$ its
business acti&ities (b)!0e Corporate
%$$icers8 w0o are c0arge# wit0 t0e man#ate
to e7ecute t0e #ecisions o$ t0e boar# an#
w0o@ o$tentimes@ #etermine t0e best manner
b. w0ic0 t0e business is to be run (c) !0e
/toc50ol#ers or *embers8 w0o are
consi#ere# as 0a&ing resi#ual power o&er
$un#amental corporate c0anges as t0e. are
reEuire# b. law to gi&e t0eir assent b. t0e
e7ercise o$ t0e rig0t to &ote.
!0e powers t0at are e7pressl. reser&e# b.
law to stoc50ol#ers or members are=(a)
remo&al o$ #irectors or trustees (b) granting
o$ compensation@ ot0er t0an per #iems@ to
#irectors (c) rati$ication o$ acts o$ sel$
#ealing #irector or trustee@ interloc5ing
#irector+s@ #islo.al #irector+s (#) #elegation
o$ power to amen# b.8laws (e) calling o$ a
COMMERCIAL LAW
meeting@ upon goo# cause@ w0en no person
is aut0oriCe# to call it ($) w0en
management o$ a close corporation is
&este# in t0e stoc50ol#ers.
ARTICLE' O2 INCOR)ORATION &+6LAW'
Def"n"t"on Basic contract #ocument #e$ining t0e c0arter o$
t0e corporation
*eant to be an intramural #ocument@ to go&ern
t0e relations0ip between an# among t0e members
o$ a corporate $amil..
'"$n"f"#an#e Con#ition Prece#ent in t0e acEuisition o$
corporate e7istence
Con#ition subseEuent
Cont!a#tal
'"$n"f"#an#e
( contract between 4 parties= R"S t0e state an#
t0e corporation@ R2S t0e stoc50ol#ers an# t0e
state@ an# R4S t0e corporation an# its
stoc50ol#ers.
(lt0oug0 t0e power o$ t0e corporation to a#opt
b.8laws is an in0erent rig0t@ b.8law pro&isions
cannot contra&ene t0e law
Effe#t as to
Ots"de!s
Bin# a t0ir# person #ealing wit0 t0e corporation :oes not bin# outsi#ers
Re="s"tes fo!
@al"d"ty
". $ile# an# registere# wit0 t0e /6C
2. Ban5s@ public utilities@ insurance
companies= nee#s $a&orable
recommen#ation $rom appropriate agenc.
t0at articles are in accor#ance wit0 law.
4. /6C s0all e7amine (%I upon $iling an#
upon satis$action o$ all legal reEuirements@
issue certi$icate o$ incorporation an# onl.
t0en s0all Corporation 0a&e a personalit.
separate an# #istinct $rom its stoc50ol#ers
or members.
1. /worn /tatement o$ t0e !reasurer
regar#ing subscription reEuirement.
>eEuisites o$ (LI: BU H L(,/=
". B.8Law Pro&isions Cannot Contra&ene Law
2. B.8Law Pro&isions Cannot Contra&ene t0e
C0arter
4. B.8Laws *ust be reasonable an# Cannot
:iscriminate
6$$ecti&it. H upon issuance o$ /6C o$
certi$ication t0at b.8laws are not inconsistent wit0
Corporation Co#e
&as"# Content 'EC1?
". !0e name o$ t0e corporationD
2. !0e speci$ic purpose or purposes $or w0ic0
t0e corporation is being incorporate#.
4. !0e place w0ere t0e principal o$$ice o$ t0e
corporation is to be locate#@ w0ic0 must be
wit0in t0e P0ilippinesD
1. !0e term $or w0ic0 t0e corporation is to
e7istD
5. !0e names@ nationalities an# resi#ences o$
t0e incorporatorsD
6. !0e number o$ #irectors or trustees@ w0ic0
s0all not be less t0an 5 nor more t0an "5D
'. !0e names@ nationalities an# resi#ences o$
'e#?C
". !0e time@ place an# manner o$ calling an#
6. !0e time $or 0ol#ing t0e annual election o$
#irectors o$ trustees an# t0e mo#e or manner
'. !0e manner o$ election or appointment an#
t0e term o$ o$$ice o$ all o$$icers ot0er t0an
#irectors or trusteesD
8. !0e penalties $or &iolation o$ t0e b.8lawsD
). In t0e case o$ stoc5 corporations@ t0e manner
o$ issuing stoc5 certi$icatesD an#
"0. /uc0 ot0er matters as ma. be
necessar. $or t0e proper or con&enient
transaction o$ its corporate business an#
a$$airs.
COMMERCIAL LAW
persons w0o s0all act as #irectors or
trustees until t0e $irst regular #irectors or
trustees are #ul. electe# an# Euali$ie# in
accor#ance wit0 t0is Co#eD
8. I$ it be a stoc5 corporation@ t0e amount o$
its aut0oriCe# capital stoc5 in law$ul mone.
o$ t0e P0ilippines@ t0e number o$ s0ares
into w0ic0 it is #i&i#e#@ an# in case t0e
s0are are par &alue s0ares@ t0e par &alue o$
eac0@ t0e names@ nationalities an#
resi#ences o$ t0e original subscribers@ an#
t0e amount subscribe# an# pai# b. eac0 on
0is subscription@ an# i$ some or all o$ t0e
s0ares are wit0out par &alue@ suc0 $act must
be state#D
). I$ it be a non8stoc5 corporation@ t0e
amount o$ its capital@ t0e names@
nationalities an# resi#ences o$ t0e
contributors an# t0e amount contribute# b.
eac0D an#
"0. /uc0 ot0er matters as are not
inconsistent wit0 law an# w0ic0 t0e
incorporators ma. #eem necessar. an#
con&enient.
Ado1t"on Iile wit0 t0e /ecurities an# 67c0ange
Commission articles o$ incorporation in an. o$
t0e o$$icial languages :ul. signe# an#
ac5nowle#ge# b. all o$ t0e incorporators
2 IN/!(NC6/=
(. Prior to Incorporation@ simultaneous wit0 t0e
(%I
(ppro&e# N /igne# b. (LL
incorporators an# submitte# to /6C
B. ,it0in " mont0 a$ter receipt o$ o$$icial notice
o$ issuance o$ certi$icate o$ incorporation b.
/6C
*(3%>I!U %!6 %I
%?!/!(N:IN- C(PI!(L /!%CA
A%end%ent *a9orit. &ote o$ B%: + trustees (N:
&ote or written assent o$ 2+4 o$
outstan#ing capital stoc5@ wit0out
pre9u#ice to t0e appraisal rig0t o$
#issenting stoc50ol#ers
(men#ments ta5e e$$ect upon appro&al
b. /6C or $rom t0e #ate o$ $iling wit0
/6C i$ not acte# upon wit0in 6mont0s
$rom #ate o$ $iling $or a cause not
attributable to t0e corporation.
2 ,a.s=
(. *a9orit. ote o$ B%:+!rustees (N:
*a9orit. ote o$ %utstan#ing Capital
/toc5+members at a regular or special
meeting #ul. calle# $or t0e purpose o$
amen#ing or repealing an. b.8laws or
a#opting new b.8laws.
B. B. :6L6-(!I%N o$ 2+4 outstan#ing
capital stoc5 or members.
2o!% Iile wit0 t0e /ecurities an# 67c0ange
Commission articles o$ incorporation
In an. o$ t0e o$$icial languages
:ul. signe# an# ac5nowle#ge# b. all o$ t0e
incorporators
/igne# b. t0e /F or *embers &oting $or t0emD (
cop. #ul. certi$ie# to b. ma9orit. o$ #irectors or
trustees N counter8signe# b. Corporation
secretar. s0all be $ile# w+ /6C attac0e# to
original (%I.
G!onds fo!
ReNe#t"on o!
D"sa11!oBal
'EC 1C
". !0at t0e articles o$ incorporation or an.
amen#ment t0ereto is not substantiall. in
accor#ance wit0 t0e $orm prescribe# 0ereinD
2. !0at t0e purpose or purposes o$ t0e
corporation are patentl. unconstitutional@
illegal@ immoral@ or contrar. to go&ernment
rules an# regulationsD
4. !0at t0e !reasurerJs ($$i#a&it concerning
t0e amount o$ capital stoc5 subscribe#
an#+or pai# i$ $alseD
COMMERCIAL LAW
1. !0at t0e percentage o$ owners0ip o$ t0e
capital stoc5 to be owne# b. citiCens o$ t0e
P0ilippines 0as not been complie# wit0 as
reEuire# b. e7isting laws or t0e
Constitution.
788888888888888888888888888888888888888888888888888888888
7
@. &oa!d of D"!e#to!s- T!stees- Off"#e!s
A. )o;e!s of &oa!d of D"!e#to!s o! T!stees
". 67ercise corporate powers o$ all
corporations un#er Corporation Co#e
2. Con#uct all business
4. Control an# 0ol# all propert.
&. Te!% of D"!e#to!s
Ior " .ear@ or
?ntil t0eir successors are electe# an#
Euali$ie# RFol#8%&er PrincipleS
C. Re="!e%ents fo! D"!e#to!s
a) *ust own at least " s0are o$ capital
stoc5 o$ corporation@ w0ic0 s0all
stan# in FI/ name on t0e corporate
boo5s
b) (n. #irector w0o ceases to own at
least " s0are s0all cease to be a
#irector
c) *a9orit. o$ :irectors in Bo: must be
>6/I:6N!/
R(LE* !0e Boar# o$ :irectors+!rustees is t0e
repositor. o$ corporate powers. Fence@ all powers o$
t0e corporation s0all be e7ercise#@ all business
con#ucte# an# all propert. o$ suc0 corporation
controlle# an# 0el# b. t0e Boar# o$ :irectors or
!rustees. (/ec. 24)
E:CE)TION'*
1. E8e#t"Be Co%%"ttee #ul. aut0oriCe# in t0e
b.8lawsD
2. Cont!a#ted %ana$e! w0ic0 ma. be an
in#i&i#ual@ a
partners0ip or anot0er corporation.
4. Close #o!1o!at"ons@ t0e stoc50ol#ers ma.
manage t0e business o$ t0e corporation instea#
o$ a boar# o$ #irectors@ i$ t0e articles o$
incorporation so pro&i#e.
D. Co%1ensat"on
:irectors are not entitle# to compensation as
suc0 #irectors e7cept t0at t0e. are allowe#
reasonable per #iems. 4o;eBe!@ #irectors ma.
be gi&en compensation w0en
". !0ere is a pro&ision in t0e b.8laws
aut0oriCing pa.ment o$ compensationD or
2. B. a &ote o$ t0e /toc50ol#ers representing at
least ma9orit. o$ t0e outstan#ing capital stoc5 at
a regular or special meeting.
LIMIT= In eit0er case@ t0e total .earl.
compensation o$ t0e #irectors s0all not e7cee#
"0T o$ t0e net income be$ore income ta7 o$ t0e
corporation #uring t0e prece#ing .ear.
E. Re="!e%ents fo! T!stees
a) *ust be a member o$ t0e non8stoc5
corporation
b) *a9orit. o$ !rustees in Bo! must
be >6/I:6N!/
2. Cases of D"!e#to!s> L"ab"l"ty*
". Anowing aut0oriCation o$ wrong$ul actsD
2. NegligenceD an#
4. Con$lict o$ interest.
W3enL Ior a #irector to be 0el# liable $or t0e acts o$
corporate o$$icers@ t0e $ollowing con#itions must be
present =( L%,6LL F%I! N C%. . :6!I- 6!.
(L)
!0e #irector must 0a&e participate#
in t0e act complaine# o$D
Fe must be guilt. o$ lac5 o$
or#inar. an# reasonable
super&isionD an#
Fe must be guilt. o$ lac5 o$
or#inar. care in t0e selection o$
suc0 o$$icer.
INDE)ENDENT DIRECTOR
Is a person w0o@ apart $rom 0is $ees an#
s0are0ol#ings@ is in#epen#ent o$ management
an# $ree $rom an. business or ot0er relations0ip
w0ic0 coul#@ or coul# reasonabl. be percei&e#
to@ materiall. inter$ere wit0 0is e7ercise o$
in#epen#ent 9u#gment in carr.ing out 0is
responsibilities as a #irector.
Fe must not 0a&e an. personal@ $inancial@ or
pro$essional ties wit0 t0e corporation@ its
a$$iliates@ an# subsi#iaries t0at ma. a#&ersel.
a$$ect 0is abilit. to act ob9ecti&el.. %t0er
Euali$ications are owners0ip o$ at least one
s0are@ college gra#uate or 0as been engage# or
e7pose# to t0e business o$ t0e corporation $or
not less t0an 5 .ears@ be a person o$ integrit.@
probit. an# 0ar#wor5ing
?n#er /ection 48 o$ >( 8'))@ w0en t0e
corporation (a) 0as a class o$ eEuit. securities
liste# $or tra#ing on an 67c0ange or (b) is a
COMMERCIAL LAW
compan. wit0 assets o$ at least 50 million an#
0a&ing 200 or more 0ol#ers w0o 0ol# at least
"00 s0ares o$ a class o$ stoc5s or (c) w0ic0 0as
sol# a class o$ eEuit. securities to t0e public
pursuant to an e$$ecti&e registration statement
must 0a&e at least 2 in#epen#ent #irectors or at
least 20T o$ boar#.
?n#er /ection "5 o$ >( 8')"@ a ban5
must 0a&e 2 in#epen#ent #irectors.
ELECTION O2 DIRECTOR' OR TR('TEE'
(. Buorum in *eeting $or 6lection
*a9orit. o$ t0e outstan#ing capital stoc5
or members entitle# to &ote
Present eit0er in person or b.
representati&e BU ,>I!!6N P>%VU
B. Fow
i&a oce@ or
B. Ballot i$ reEueste# b. an. &oting
stoc50ol#er or member
C. /toc5 Corporations
Met3ods Of @ot"n$ On T3e Ele#t"on Of
D"!e#to!s*
'TRAIG4T @OTING8 6&er. stoc50ol#er
t0roug0 t0is met0o#@ ma. &ote suc0 number
o$ s0ares $or as man. persons as t0ere are
#irectors.
C(M(LATI@E @OTING6
". 6&er. stoc50ol#er is entitle# to suc0
number o$ &otes t0at 0is number o$
s0ares multiplie# b. t0e total
number o$ #irectors to be electe#
will bring. Fe ma. gi&e all suc0
&otes to one can#i#ate
(C?*?L(!I6 %!IN- I%>
%N6 C(N:I:(!6) or 0e ma.
#istribute t0em among as man.
can#i#ates as 0e sees $it
(C?*?L(!I6 %!IN- BU
:I/!>IB?!I%N). (/ec. 21)
2. ( minorit. #irector electe# t0roug0
cumulati&e &oting cannot be
remo&e# wit0out cause. (/ec. 28)
4. ( P>%VU is a written instrument@
signe# b. t0e stoc50ol#er or
member (as principal) an# $ile#
be$ore t0e sc0e#ule# meeting wit0
t0e corporate secretar.@ an# gi&en to
anot0er person (as agent)
aut0oriCing suc0 person to e7ercise
t0e &oting rig0ts o$ t0e $ormer.
W3at "s t3e 1e!"od of Bal"d"ty of 1!o8yL ?nless
ot0erwise pro&i#e# in t0e pro7.@ it s0oul# be &ali#
onl. $or t0e meeting $or w0ic0 it is inten#e#. No
pro7. s0all be &ali# an# e$$ecti&e $or a longer perio#
t0an $i&e .ears at an. one time. (/ec. 58)
Instan#es ;3e!eby R"$3t to Bote by 1!o8y %ay be
e8e!#"sed*
". 6lection o$ t0e boar# o$ #irectors or
trusteesD
2. oting in case o$ 9oint owners0ip o$
stoc5D
4. oting b. trustee un#er &oting trust
agreementD
1. Ple#ge or mortgage o$ s0aresD
5. (s pro&i#e# $or in its b.8laws.
/toc50ol#ers or members ma. atten# an# &ote in
t0eir meetings b. pro7. (/ec. 58)D &t d"!e#to!s
#annot do so. :irectors must alwa.s act in person
(/ec. 25).
( @OTING TR('T is an agreement w0ereb. one
or more stoc50ol#ers trans$er t0eir s0ares o$ stoc5s
to a trustee@ w0o t0ereb. acEuires $or a perio# o$
time t0e &oting rig0ts (an#+or an. ot0er rig0ts) o&er
suc0 s0aresD an# in return@ trust certi$icates are gi&en
to t0e stoc50ol#er+s@ w0ic0 are trans$erable li5e
stoc5 certi$icates@ sub9ect@ 0owe&er@ to t0e trust
agreement.
:. Non8/toc5 Corporations
*embers ma. cast as man. &otes as t0ere
are trustees to be electe# RseatsS
But ma. not cast more t0an one &ote $or a
single can#i#ate
6VC6P! H w0en t0e (oI or B.8laws
pro&i#e ot0erwise
6. (#9ournment o$ *eeting $or 6lections
*a. a#9ourn $rom #a. to #a. or $rom time
to time
But N%! /ine :ie or In#e$initel. i$
Euorum is not met Rma9orit. o$
stoc50ol#ers or members are not presentS
NOTE* Propose# amen#ment to b.8laws stipulating
1e!%anent d"!e#to! eBen ;"t3ot ele#t"on "s
#ont!a!y to la;. 5(rac! Chris#ian 8i"h School v CA)
COR)ORATE O22ICER'- I(OR(M
(. Corporate %$$icers
Presi#ent H must be a #irector
!reasurer H ma. or ma. not be a #irector
/ecretar. H s0all be a resi#ent an# a
citiCen o$ t0e P0ilippines
%t0er o$$icers pro&i#e# in t0e B.8Laws
B. (n. 2 or more positions ma. be 0el#
concurrentl. e7cept presi#ent an# secretar. or
presi#ent an# treasurer.
C. ,0en 6lecte#
Imme#iatel. a$ter election o$ #irectors
:. :uties to be Per$orme# b. %$$icers
6n9oine# on t0em b. law
6n9oine# b. corporate B.8Laws
6. Buorum H Boar# *ust (ct as a Bo#.
Ior transaction o$ corporate business H
ma9orit. o$ number o$ #irectors or trustees
as $i7e# in (oI.
Ior corporate act to be &ali# t0ere
must be a Euorum an# t0e act must be
appro&e# b. ma9orit. o$ #irectors or
trustees P>6/6N!.
COMMERCIAL LAW
Ior election o$ %$$icers H ma9orit. o$ (LL
members o$ t0e boar# o$ #irectors or
boar# o$ trustees@ w0et0er all members are
present or not.
I. :irectors or !rustees cannot (!!6N: or
%!6 b. pro7. at boar# meetings.
)OWER' O2 COR)ORATE O22ICER'
(. >ule on Corporate %$$icer<s Power to Bin# t0e
Corporation
(n o$$icer<s power as an agent o$ t0e
corporation must be soug0t $rom t0e statute@
c0arter@ b.8laws or in a #elegation o$ aut0orit.
$rom suc0 o$$icer@ $rom t0e acts o$ t0e boar# o$
#irectors $ormall. e7presse# or implie# $rom a
0abit or custom o$ #oing business.
&. W3en Co!1o!at"on &ond by t3e A#t of Its
)!es"dent
In t0e absence o$ a c0arter or b.law
pro&ision to t0e contrar.@ t0e presi#ent is
presume# to 0a&e t0e aut0orit. to act wit0in
t0e #omain o$ t0e general ob9ecti&es o$ its
business an# wit0in t0e scope o$ 0is or 0er
usual #uties. ( part. #ealing wit0 t0e
presi#ent o$ a corporation is entitle# to assume
t0at 0e 0as t0e aut0orit. to enter@ on be0al$ o$
t0e corporation@ into contracts t0at are wit0in
t0e scope o$ t0e powers o$ sai# corporation
an# t0at #o not &iolate an. statute or rule on
public polic..
D"st"n#t"on bet;een a Co!1o!ate Off"#e! and
Co!1o!ate E%1loyee
C%>P%>(!6
%IIIC6>
C%>P%>(!6
6*PL%U66
Position is pro&i#e# $or
in t0e b.8laws or un#er
t0e Corporation Co#e
6mplo.e# b. t0e action
o$ t0e managing o$$icer
o$ t0e corporation
>!C 0as 9uris#iction in
case o$ L(B%>
:I/P?!6
NL>C 0as 9uris#iction in
case o$ labor #ispute
N%!6= RTC 3as N!"sd"#t"on oBe! #ases "nBolB"n$
!e%oBal of #o!1o!ate off"#e!s.
D"s=al"f"#at"on of D"!e#to!s- T!stees o! Off"#e!s
". Con&iction b. $inal 9u#gment o$ o$$ense
punis0able b. imprisonment $or e7cess o$
6.ears@ or
2. iolation o$ Co#e committe# wit0in
5.ears prior to #ate o$ 0is election or
appointment
Re%oBal of D"!e#to!s o! T!stees
(. Fow ma. be remo&e#
". 2+4 &ote o$ stoc50ol#ers or members
entitle# to &ote
2. :uring a regular meeting or a special
meeting calle# b. t0e secretar. upon 8
%r#er $rom t0e presi#ent
,ritten #eman# $rom *a9orit. o$
stoc50ol#ers or members entitle# to
&ote
4. ?pon Pre&ious Notice to stoc50ol#ers or
members
%$ t0e intention to propose suc0
remo&al at t0e meeting
%$ t0e time an# place o$ meeting
*ust be gi&en b. publication or b.
written notice prescribe# in t0e Co#e
B. I$ secretar. re$uses+$ails to call $or t0e special
meeting or gi&e t0e notice@ or t0ere is no
secretar.
". Call ma. be #irectl. a##resse# to
stoc50ol#ers or members b. #eman#ing
stoc50ol#er or member
C. Causes $or >emo&al
". *a. be wit0 or wit0out case
Case "s sally !elated to t3e ,
Dt"es of an Off"#e!<D"!e#to! G
a) Lo.alt.
b) %be#ience
c) :iligence
2. Pro&i#e# t0at remo&al wit0out cause ma.
not be use# to #epri&e minorit.
stoc50ol#ers or members o$ t0eir rig0t o$
representation un#er sec21.
NOTE* Re%oBal of &oa!d of D"!e#to!< T!stee "s
d"ffe!ent f!o% !e%oBal of a #o!1o!ate off"#e!.
/toc50ol#ers< appro&al is necessar. onl. $or t0e
remo&al o$ t0e members o$ t0e Boar#. Ior t0e
remo&al o$ a corporate o$$icer or emplo.ee@ t0e &ote
o$ t0e Boar# o$ :irectors is su$$icient $or t0e
purpose . 52001 &a! E8a%"nat"on0
@a#an#"es "n t3e off"#e of d"!e#to! o! t!stee
(. -roun#s $or >emo&al
". >emo&al b. t0e stoc50ol#er or members
or upon e7piration o$ term
acanc. s0all be $ille# b. t0e
stoc50ol#ers in a regular or special
meeting calle# $or t0at purpose.
2. %t0er Causes t0an e7piration or remo&al
b. /F+*s
I$ remaining :irectors constitute
Buorum 8 *a. be $ille# b. t0e
*(3%>I!U &ote o$ t0e remaining
#irectors
I$ no Euorum 8 $ille# b. t0e
4. Propose# amen#ment o$ (oI resulting in
increase in number o$ #irectors+trustees
acanc. s0all be $ille# b. t0e
%r in t0e same meeting aut0oriCing
increase o$ #irectors or trustees i$ so
state# in notice o$ t0e meeting
B. :irector or !rustee so electe# s0all ser&e onl.
une7pire# portion o$ t0e term
L"ab"l"ty of D"!e#to!s- T!stees o! Off"#e!s
D(T+ O2 DILIGENCE
COMMERCIAL LAW
A. ;iola#ions o =u#& o =ili"!nc!
". ,il$ull. an# 5nowingl. &ote $or or assent
to patentl. unlaw$ul acts o$ t0e
corporation
2. -uilt. o$ gross negligence or ba# $ait0 in
#irecting t0e a$$airs o$ t0e corporation
4. (cEuire an. personal or pecuniar. interest
in con$lict wit0 t0eir #ut. as #irector or
trustee
1. Fe #onsents to t3e "ssan#e of ;ate!ed
sto#9s or w0o@ 0a&ing 5nowle#ge t0ereo$@
#oes not $ort0wit0 $ile wit0 t0e corporate
secretar. 0is written ob9ection t0eretoD
(0rama# >!rcan#il! Inc. v CA)
5. Fe a$!ees to 3old 3"%self 1e!sonally
and sol"da!"ly l"able ;"t3 t3e
#o!1o!at"on D or (0rama# >!rcan#il! Inc.
v CA)
6. Fe is ma#e@ b. a s1e#"f"# 1!oB"s"on of
la;@ to personall. answer $or 0is
corporate action. (0rama# >!rcan#il! Inc.
v CA)
B. Liabilit. $or iolation o$ :ut. o$ :iligence
/0all be liable 9ointl. an# se&erall. $or all #amages
resulting t0ere$rom su$$ere# b. t0e corporation@ its
stoc50ol#ers or members an# ot0er persons
D(T+ O2 O&EDIENCE
( corporation@ t0roug0 its Bo:@ s0oul# act in t0e
manner an# wit0in t0e $ormalities@ i$ an.@ prescribe#
b. its c0arter or b. t0e general law.
/ince t0e Co#e still a#0eres to t0e ultra &ires #octrine@
t0en t0e Bo: or !rustees o$ a corporation is boun# to
obser&e t0e #ut. o$ obe#ience@ w0ic0 means t0at t0e.
will #irect t0e a$$airs o$ t0e corporation onl. in
accor#ance wit0 t0e P?>P%/6/ $or w0ic0 it was
organiCe#.
D(T+ O2 LO+ALT+
(. !o act accor#ing to t0e corporation<s best
interest
DOCTRINE O2
COR)ORATE
O))ORT(NIT+
DI'LO+ALT+ O2 A
DIRECTOR
Co&er same sub9ect
w0ic0 is business
opportunit.
Co&er same sub9ect
w0ic0 is business
opportunit.
(pplicable to #irectors@
trustees an# o$$icers.
%nl. applicable to
:I>6C!%>/ an# not
to o$$icers
:oes not co&er
>ati$ication.
6&en i$ ))T o$ t0e /Fs
a$$irm t0e transactions@
t0e remaining minorit.
/Fs can still oppose
suc0 a sel$8#ealing
transaction an# $ile a
#eri&ati&e suit.
(llows
>(!IIIC(!I%N o$ a
transaction b. a sel$8
#ealing #irector b. t0e
&ote o$ a /Fs
representing 2+4 o$ t0e
%C/
(pplies to bot0 stoc5
an# non8stoc5
(pplies onl. to stoc5
corporations
corporations.
D(T+ TO CREDITOR' AND O(T'IDER'
(. ?pon t0e insol&enc. o$ t0e corporation@ t0e
Bo: are #ut. boun# to 0ol# t0e assets o$ t0e
corporation primaril. $or t0e pa.ment o$ t0e
corporation<s liabilities Run#er t0e !rust Iun#
:octrineS
B. ?n#er /ec65 on Liabilit. o$ :irectors $or
,atere# /toc5s@ i$ #irector or o$$icer=
consents to issuance o$ stoc5s $or a
consi#eration less t0an its par or
issue# &alue
consents to pa.ment in consi#eration
ot0er t0an cas0@ w0ic0 is &alue# in
e7cess o$ its $air mar5et &alue
0a&ing 5nowle#ge t0ereo$ #oes not
ob9ect in writing an# $ile t0e same
wit0 t0e corporate secretar..
C. /uc0 #irector or o$$icer s0all be
/%LI:(>ILU LI(BL6 wit0 t0e stoc50ol#er
concerne# Rbu.erS an# its cre#itors $or t0e
:III6>6NC6 between t0e $air &alue
recei&e# at time o$ issuance o$ t0e stoc5 an#
its par or issue# &alue.
Deal"n$s of D"!e#to!s- T!stees o! Off"#e!s ;"t3 t3e
Co!1o!at"on
'EL26DEALING'
Contract between t0e corporation an# one or more o$
its #irectors or trustees or o$$icers (>6 %I:(BL6 at
t0e option o$ t0e corporation
&(T @ALID I2 T4E 2OLLOWING ARE
)RE'ENT=
". Presence o$ #irector+trustee in t0e boar#
meeting w0ic0 appro&e# contract was
not necessar. to constitute a Euorum
2. ote o$ #irector or trustee not necessar.
$or appro&al o$ contract
4. Contract is $air an# reasonable un#er t0e
circumstances
1. In case o$ an o$$icer@ contract 0as been
pre&iousl. aut0oriCe# b. boar# o$
#irectors
NOTE* I$ #irector<s presence was reEuire# to meet t0e
Euorum R"
st
reEuisiteS an# i$ 0is &ote was necessar. $or
appro&al o$ t0e contract R2
n#
reEuisiteS@ t0e contract
ma. still be &ali# i$ it is >(!III6: b. 2+4 o$
stoc50ol#ers or members in a meeting calle# $or t0e
purpose.
CONTRACT' &ETWEEN COR)ORATION'
WIT4 INTERLOCKING DIRECTOR'
Contract between 2 or more corporations wit0
a common #irector+s ma. be &ali#.
Fowe&er@ to be &ali#@ it must be $air an#
reasonable.
( contract between t0e corporations wit0
interloc5ing #irectors is %I: i$ t0ere is
I>(?:.
:ean >e.nal#o ?. (granCamen#eC Page ,0 o$ 177
COMMERCIAL LAW
I$ t0e interest o$ t0e interloc5ing #irector in
one corporation is /?B/!(N!I(L Rmeaning
stoc50ol#ings e7cee# 20T o$ t0e outstan#ing
capital stoc5S an# 0is interest is merel.
N%*IN(L@ contract s0all be treate# as un#er
pro&isions o$ /el$8:ealings R&oi#able but ma.
be rati$ie#S@ inso$ar as t0e corporation w0ere
0e 0as a nominal interest is concerne#.
Note= Co!1o!ate off"#e!s a!e not 1e!%"tted to se
t3e"! 1os"t"on of t!st and #onf"den#e to f!t3e!
t3e"! 1!"Bate "nte!ests. T3e do#t!"ne of
K COR)ORATE O))ORT(NIT+ K "s 1!e#"sely
!e#o$n"t"on by t3e #o!ts t3at t3e f"d#"a!y
standa!ds #old not be 13eld ;3e!e t3e f"d#"a!y
;as a#t"n$ fo! t;o ent"t"es ;"t3 #o%1et"n$ "nte!ests.
5(o<on")!i .r. v SEC)
E:EC(TI@E COMMITTEE
*a. be create# b. t0e B.8Laws
") Composition
4 or more members o$ t0e Boar# o$
:irectors
(ppointe# b. t0e Boar#
2) /cope o$ Powers
!0ose speci$ic matters wit0in t0e
competence o$ t0e Bo: t0at t0e latter ma.
#elegate to t0e committee &ia=
B.8laws
*a9orit. &ote o$ t0e Boar#
4) ali# (ction b. t0e 67ecuti&e Committee
>eEuires ma9orit. &ote o$ all t0e members
o$ t0e committee
1) Fowe&er@ Committee C(NN%! act in t0e
$ollowing instances=
". (ppro&al o$ action w0ere
s0are0ol#er<s appro&al is reEuire#
2. Iilling o$ &acancies in t0e boar# o$
#irectors
4. (men#ment or repeal o$ b.8laws or
a#option o$ new b.8laws
1. (men#ment or repeal o$ an. boar#
resolution w0ic0 b. e7press terms is
not amen#able or repealable
5. :istribution o$ cas0 #i&i#en#s to
s0are0ol#ers
200A &a! E8a%"nat"on* ( Aorean national 9oine# a
corporation w0ic0 is engage# in t0e $urniture
manu$acturing business. Fe was electe# to t0e Boar#
o$ :irectors. !o complement its $urniture
manu$acturing business@ t0e corporation also
engage# in t0e logging business. ,it0 t0e a##itional
logging acti&it.@ can t0e Ko!ean nat"onal st"ll be a
%e%be! of t3e &oa!d of D"!e#to!sL E81la"n.
A* Ues. !0e Aorean national can still be a member
o$ t0e Boar# o$ :irectors@ i$ 0e 0as su$$icient eEuit.
to entitle 0im to a seat. /ince t0e corporation is onl.
reEuire# to be at least 60T owne# b. Iilipino
citiCens@ $oreigners can be members o$ t0e boar# o$
#irectors in proportion to t0eir eEuit. w0ic0 cannot
e7cee# 10T (/ec." P.:. No. '"5@ amen#ing C.(.
No. /ec. 28( o$ C.(. No. "08@ !0e (nti8:umm.
Law)
2001 &a! E8a%"nat"on* a by6la; 1!oB"s"on of
D:E Co!1o!at"on D !ende!"n$ "nel"$"ble o! "f
ele#ted- sbNe#t to !e%oBal- a d"!e#to! "f 3e "s also
a d"!e#to! "n a #o!1o!at"on ;3ose bs"ness "s "n
#o%1et"t"on ;"t3 o! "s anta$on"st"# to sa"d
#o!1o!at"onE Bal"d and le$alL 'tate yo! !easons.
A* Ues@ t0e b.8law pro&ision is &ali#. It is t0e rig0t
o$ a corporation to protect itsel$ against possible
0arm an# pre9u#ice t0at ma. be cause# b. its
competitors. !0e position o$ #irector is 0ig0l.
sensiti&e an# con$i#ential. !o sa. t0e least@ to allow
a person@ w0o is a #irector in a corporation w0ose
business is in competition wit0 or is antagonistic to
LVM Corporation@ to become also a #irector in LVM
Corporation woul# be 0arboring a con$lict o$ interest
w0ic0 is 0arm$ul to t0e latter.R-o5ongwei@3r. &.
/6C@ 8) /C>( 446 (")'))D )' /C>( '8 (")80)S.
7888888888888888888888888888888888888888888888888888888888887
@I. )o;e!s of t3e Co!1o!at"on
") Corporate powers
2) Power to e7ten# or s0orten corporate term
4) Power in increase or #ecrease capital stoc5@
incur@ create or increase in#ebte#ness
1) Power to #en. pre8empti&e rig0t
5) /ale or ot0er #isposition o$ assets
6) Power to acEuire s0ares
') Power to in&est corporate $un#s in anot0er
corporation or business or $or an. ot0er purpose
8) Power to #eclare #i&i#en#s
)) Power to enter into management contract
"0) ?ltra ires (ct o$ t0e Corporation
Class"f"#at"on of Co!1o!ate )o;e!s
67presse# b. law or b. t0e Corporation
Co#e an# its articles o$ incorporation ((%I)
!0ose necessar. to t0e e7ercise o$ t0e
e7press or inci#ental powers
!0ose inci#ental to its e7istence
Co!1o!ate 1o;e!s d"st"n$"s3ed f!o% nat!al
1e!sons o! 1a!tne!s3"1s
:istinguis0e# $rom t0ose e7ercise# b.
natural persons or partners0ips@ corporations
can onl. e7ercise t0ose e7pressl. aut0oriCe#
b. law@ can be implie# or are necessar. to
carr. out its purpose+s@ suc0 as acts in t0e
usual course o$ business or inci#ental to its
e7istence because t0e. attac0 to a
corporation upon its creation an# sai# to be
COMMERCIAL LAW
in0erent. Natural persons or partners0ips@ on
t0e ot0er 0an# can e7ercise or per$orm an.
act pro&i#e# it is not contrar. to law. !0e
reason being is t0at corporations owe t0eir
e7istence to t0e state@ w0ile natural persons
or partners0ips #o not.
D"st"n$"s3"n$ e81!ess 1o;e!s f!o% "%1l"ed
1o;e!s
67press an# Implie# powers can $urt0er be
#istinguis0e# as $ollows= (a) 67press
powers #eal wit0 main business@ ob9ect or
purposes o$ t0e corporation@ w0ile Implie#
powers #eal wit0 t0e means an# met0o#s o$
attaining t0e ob9ect or purpose (b) 67press
powers are #etermine# b. t0e language o$
t0e law an# its c0arter w0ile implie# powers
ma. c0ange accor#ing to time@ place an#
circumstances.
!0e !est o$ 67press Powers is w0et0er t0e.
are $oun# in t0e wor#s o$ t0e law + c0arter
w0ile t0e !est o$ Implie# Powers is w0et0er
t0e. are purel. inci#ental to its e7press
powers an# is reasonabl. necessar. to t0eir
being carrie# out.
COR)ORATE )OWER'
". /ue an# be sue#
AC03A??@ incid!n#al
Corporations #e $acto H ma. sue or be sue#
:issol&e# corporation a$ter t0e e7piration o$
t0e t0ree8.ear win#ing up perio# H ceases to
be #e 9ure or #e $acto 0ence cannot sue or be
sue#
Ioreign corporation wit0out license $rom
/6C cannot sue in P0ilippine courts
A #o!1o!at"on %ay 3aBe $ood !e1tat"on-
"f bes%"!#3ed- %ay be a $!ond fo! t3e
a;a!d of %o!al da%a$es
(!0e Law on Partners0ips an# Pri&ate
Corporations@ 2005 6#.)
2. /uccession
a. 610 incid!n#al or inh!r!n#, Aus# li<!
o#h!r po)!rs #ha# "o in#o #h! v!r&
na#ur!B!$#!n# o a corpora#ionCs
Auridical !n#i#&
4. (#opt+use seal
1. (cEuire an# con&e. propert.
8Inci#ent power
5. (men# articles o$ incorporation
6. (#opt+amen# b.8laws consistent wit0 law+PP
a. AC03A??@ incid!n#al
'. /!%CA= issue+sell stoc5s an# sell treasur.
stoc5sD N%N8/!%CA= a#mit members
8. !ransact wit0 real+personal propert. H inclu#ing
securities+bon#s o$ ot0er corps H as law$ul
business o$ corp. reEuires
). *erge+consoli#ate wit0 ot0er corporations
"0. *a5e reasonable non-poli#ical #onations
>eEuisites=
(mount is reasonable
*ust not ai# political part. or
can#i#ate or $or purposes o$
partisan political acti&it. (!0e
Law on Partners0ips an# Pri&ate
Corporations@ 2005 6#.)
"". 6stablis0 pension+retirement plans
)OWER TO E:TEND<'4ORTEN
COR)ORATE TERM 52000 &a! E8a%"nat"on0
*a9orit. o$ B%:@ 2+4r#s o$ capital stoc5
67tension H /ec 4'= rig0t o$ appraisal $or
#issenting stoc50ol#ers
/0ortening H /ec 8" allo)s $or rig0t o$
appraisal@ but tec0nicall. t0ere s0oul#n<t be@
because in&estors are also in it $or t0e s0ort8term
(t0ere is no no&ation)
)OWER TO INCREA'E<DECREA'E
CA)ITAL 'TOCK
Nee#s /6C appro&al
o Increase H t0ere must be certi$ication o$
subscription to at least 25T o$ increase#
stoc5@ an# at least 25T o$ t0at amount
pai#8up
o :ecrease H won<t appro&e i$ it
pre9u#ices corporate cre#itors
/ince t0is is not an in0erent power@ t0ere must
be strict compliance wit0 reEuirements in /ec 48
an# (men#ment pro&isions in /ec "6
No rig0t o$ appraisal
COMMERCIAL LAW
o Increase H woul# #e$eat &er. purpose o$
raising capital
o :ecrease H t0ere alrea#. is return o$ part
o$ in&estments an.wa.
(L/%@ in&esting into a corporation comes wit0
e7pectation o$ possible increase+#ecrease o$
s0ares
Ways of In#!eas"n$<De#!eas"n$ Ca1"tal 'to#9
". B. increasing (#ecreasing) t0e no. o$ s0ares
aut0oriCe# to be issue# wit0out
increasing+#ecreasing t0e par &alue t0ereo$
2. B. increasing (#ecreasing) t0e par &alue o$
eac0 s0are wit0out increasing (#ecreasing)
t0e no. t0ereo$
4. B. increasing (#ecreasing) bot0 t0e no. o$
s0ares aut0oriCe# to be issue# an# t0e par
&alue t0ereo$ (!0e Corporation Co#e o$ t0e
P0il. (nnotate# b. Fector :e Leon@ 2006
6# Page 4"584"6)
W3at a!e t3e aBa"lable %et3ods to !e1len"s3
#a1"talL
1) (##itional subscription to s0ares o$ stoc5 o$ t0e
corporation b. stoc50ol#ers or b. in&estorsD
2) (#&ances b. t0e stoc50ol#ers to t0e
corporationD or
3) Pa.ment o$ unpai# subscription b. t0e
stoc50ol#ers
2001 &a! E8a%"nat"on* /uppose LVM Corporation
0as an aut0oriCe# capital stoc5 o$ P"* #i&i#e# into
"00@000 s0ares o$ stoc5 par &alue o$ P"0 eac0.
a. G"Be t;o ;ays ;3e!eby sa"d at3o!"zed
#a1"tal sto#9 %ay be "n#!eased to abot 1.A
M.
!wo wa.s o$ increasing t0e aut0oriCe capital stoc5
o$ LVM Corporation to ".5 * are =
". Increase t0e number o$ s0ares $rom
"00@000 to "50@000 s0ares wit0 t0e
same par &alue o$ P"0 eac0.
2. Increase par &alue o$ t0e "00@000 s0ares
to "5 pesos eac0.
b. G"Be t3!ee 1!a#t"#al !easons fo! a #o!1o!at"on
to "n#!ease "ts #a1"tal sto#9.
!0e t0ree practical reasons $or a corporation
to increase its capital stoc5 are= (") to
generate more wor5ing capitalD (2) to 0a&e
more s0ares wit0 w0ic0 to pa. $or t0e
acEuisition o$ more assets li5e acEuisitions
o$ compan. car@ stoc5s@ 0ouse@ mac0iner. or
businessD an# (4) to 0a&e e7tra s0are wit0
w0ic0 to co&er or meet t0e reEuirement $or
#eclaration o$ stoc5 #i&i#en#.
)OWER TO INC(R<CREATE<INCREA'E
&ONDED INDE&TEDNE''
Co!1o!ate &ond* an obligation to pa. a #e$inite
sum o$ mone. at a $uture time at a $i7e# rate o$
interest
/6C %pinion (")8')= onl. co&ers in#ebte#ness
o$ corporation secure# b. * o&er real+personal
propert.
Nee#s /6C appro&al
o Corp must 0a&e minimum net wort0 o$
P25 * an# must 0a&e been operating $or
at least 4 .ears
?NLIA6 N%>*(L IN:6B!6:N6//@ w0ic0
#oes not reEuire 2+4r#s appro&al=
o ?suall. &er. large amount
o ?suall. wit0 $irst lien on important
assets
o ?suall. long perio# o$ time
No rig0t o$ appraisal =
o ,oul# #rain $inancial resources
o >egar#less@ corporationJs cre#itors
alwa.s 0a&e priorit. o&er assets an.wa.
RIG4T TO
'ELL<DI')O'E<LEA'E<ENC(M&ER
'(&'TANTIALL ALL assets
6nterprise8le&el transaction = (L!F%?-F t0ere
is no e$$ect in relations0ip between /tate an#
corporation 8 it<s 9ust as i$ t0ere is resetting to
starting point o$ business li$e
Compare=
o ?sual an# regular course o$ business
(business 9u#gment #octrine)
o Procee#s o$ sale $or con#uct o$
remaining business
!0e test= it 9ust 0as to be Lor#inar.M= so t0e sale
o$ all business o$ a corporation in lig0t o$ using
:ean >e.nal#o ?. (granCamen#eC Page ,, o$ 177
COMMERCIAL LAW
procee#s to set8up anew /!ILL N66:/
rati$ication
Lsubstantiall. allM= i$ t0e business will be
incapable o$H
o Continuing t0e business
o (ccomplis0ing its purpose $or
incorporation
(lt0oug0 tec0nicall.@ t0roug0
sale@ a corporation<s can al)a&s
pursue t0e business again2 so
t0e test is intent
o Bualitati&e test ($or all= Euantitati&e)
,0en no rati$icator. &ote $rom t0e stoc50ol#ers+
members nee#e#=
a. I$ it is necessar. in t0e usual an# regular
course o$ business
b. I$ t0e procee#s o$ t0e sale or ot0er
#isposition o$ suc0 propert. an# assets be
appropriate# $or t0e con#uct o$ t0e
remaining business
!0ere is rig0t o$ appraisal = because unli5e
s0ortening o$ corporate li$e@ w0ere t0ere is
automatic #issolution@ 0ere t0ere is none H so /F
ma. be stuc5 in a non8per$orming &enture
)OWER TO DEN+ )RE6EM)TI@E RIG4T
!0e pre8empti&e rig0t is t0e option pri&ilege o$ an
e7isting stoc50ol#er to subscribe to a proportionate
part o$ s0ares subseEuentl. issue# b. t0e corporation
be$ore same can be #ispose# o$ in $a&or o$ t0e
ot0ers.
E8tent and l"%"tat"ons of 1!e6e%1t"Be !"$3t nde!
t3e Code
Law inclu#es all issu!s or disposi#ions o$
s0ares o$ an& class
,0ere t0e s0ares are issue# in e7c0ange $or
prop nee#e# $or corporate purposes@ or $or a
#ebt pre&iousl. contracte#@ t0e /F cannot
#eman# 0is pre8empti&e rig0t $or rig0t ma.
pre9u#ice corporate interest
,0ere t0e s0ares are issue# b. one
corporation in e7c0ange $or s0ares in
anot0er corporation in pursuance o$ a
merger@ t0e pre8empti&e rig0t #oes not e7ist@
pro&i#e# t0at t0e issue is ma#e wit0
appro&al o$ 2+4 o$ t0e 0ol#ers o$ outstan#ing
stoc5 an# is not ma#e in ba# $ait0
Code allo;s ;a"Be! o! den"al of t3e 1!e6
e%1t"Be !"$3t 1!oB"ded "t "s %ade "n t3e
A!t"#les of In#o!1o!at"on e"t3e! as an
o!"$"nal 1!oB"s"on o! an a%end%ent
Wa"Be! of )!e6e%1t"Be R"$3t
(n. prior wai&er or #enial o$ t0e pre8
empti&e rig0t s0oul# appear in t0e (rticles
o$ Incorporation an# not merel. in an
or#inar. wai&er agreement
( wai&er t0roug0 an amen#ment to t0e
(rticles o$ Incorporation woul# nee# onl.
2+4 w0o ma. 0a&e #issente# but also all
subseEuent /F/
I$ all t0e e7isting /F/ unanimousl. agree to
a wai&er@ alt0oug0 $or some reason no
amen#ment o$ t0e (rticles o$ Incorporation
is ma#e no one among t0em can later
complain since t0e. are all boun# b. t0eir
pri&ate agreement. But it woul# not bin#
$uture /F/
/F/ must be gi&en reasonable time in w0ic0
to e7ercise t0eir pre8empti&e rig0ts.
2001 &a! E8a%"nat"on* /uppose t0at LVM
Corporation 0as alrea#. issue# t0e "000 originall.
aut0oriCe# s0ares o$ t0e corporation so t0at it<s
Boar# o$ :irectors an# stoc50ol#ers wis0 to increase
LV<sM aut0oriCe# capital stoc5. ($ter compl.ing wit0
t0e reEuirements o$ t0e law on increase o$ capital
stoc5@ LVM issue# an a##itional "000 s0ares o$ t0e
same &alue.
a.) Ass%e t3at sto#93olde! DAE 1!esently
3olds 200 ot of t3e 1000 o!"$"nal s3a!es.
Wold DAE 3aBe a 1!e6e%1t"Be !"$3t to 200 of
t3e ne; "sse of 1000 s3a!esL W3yL
Ues@ L(M woul# 0a&e a pre8empti&e rig0t to 200
o$ t0e new issue o$ "000 s0ares. L(M is a
stoc50ol#er o$ recor# 0ol#ing 200 s0ares in LVM
Corporation. (ccor#ing to t0e Corporation
Co#e@ eac0 stoc50ol#er 0as t0e pre8empti&e
rig0t to all issues o$ s0ares ma#e b. t0e
corporation in proportion to t0e number o$
s0ares 0e 0ol#s on recor# in t0e corporation
b.) W3en s3old sto#93olde! DAE e8e!#"se t3e
1!e6e%1t"Be !"$3tL
Pre8empti&e rig0t must be e7ercise# in
accor#ance wit0 t0e (rticles o$ Incorporation or
t0e B.8Laws. ,0en (rticles o$ Incorporation or
t0e B.8Laws are silent@ t0e Boar# ma. $i7 a
:ean >e.nal#o ?. (granCamen#eC Page ,? o$ 177
COMMERCIAL LAW
reasonable time wit0in w0ic0 t0e stoc50ol#ers
ma. e7ercise t0e rig0t.
)OWER TO )(RC4A'E OWN '4ARE'
T3e #ond"t"ons nde! ;3"#3 a sto#9 #o!1o!at"on
#an a#="!e "ts o;n s3a!e a!e* 5200A &a!
E8a%"nat"on0
(a) !0at it be $or a legitimate an# proper corporate
purposeD an# (b) t0at t0ere s0all be unrestricte#
retaine# earnings to purc0ase t0e same an# its
capital is not t0ereb. impaire#. (/ec. 1"@
Corporation Co#e)
Instan#es ;3en 1o;e! %ay be e8e!#"sed*
". !o eliminate $ractional s0ares
2. !o collect+compromise an in#ebte#ness to t0e
corporation arising $rom unpai# subscription@ in
a #elinEuenc. sale@ an# to purc0ase t0e s0ares
sol# #uring sai# sale
4. !o pa. #issenting+wit0#rawing stoc50ol#ers
entitle# to pa.ment $or t0eir s0ares w0en
e7ercising appraisal rig0t
1. !o #ecrease cost o$ #oing business@ b.
#ecreasing amount o$ #i&i#en#s to be pai# in t0e
$uture
5. %t0er similar situations @ since t0is is non8
e7clusi&e
)OWER TO IN@E'T COR)ORATE 2(ND' IN
ANOT4ER COR)ORATION<&('INE''
*a. in&est in corporation+business organiCe#
$or an. purpose apart $rom t0e primar. purpose
$rom w0ic0 t0e in&esting business was
organiCe#
*a9orit. o$ B%: W 2+4r#s &ote o$ stoc50ol#ers
/ec 12= ,0en in&estment is reasonabl.
necessar. to accomplis0 primar. purpose=
appro&al o$ stoc50ol#ers not necessar.
o Lies un#er business 9u#gment #octrine
o !F?/ )ha#!v!r #h! primar& purpos! o$
a corporation@ it 0as a c0oice o$ placing
$un#s in #eposit accounts@ mone.
mar5et@ treasur. bills@ or e&en stoc5s o$
ot0er corporations ($it into power@
#iscretion@ an# purpose to obtain best
returns $or t0e corporation)
/o in section 12@ in&estment reEuiring
rati$icator. &ote= w0en t0ere is management
in&ol&e# o$ t0e ot0er compan.@ an# not 9ust
in&estment p!r s!
o I$ t0ere is no rati$icator. &ote= ul#ra
vir!s w0ere t0ose entering into t0e
contract 0a&e no aut0orit.
)OWER TO DECLARE DI@IDEND'
DI@IDEND'* corporate pro$its set asi#e@ #eclare#
an# or#ere# to be pai# b. t0e #irectors $or
#istribution among s0are0ol#ers at a $i7e# time.
2o!%s*
a. Cas0
b. Propert.
c. /toc5
Re="s"tes*
". Existence of unrestricted retained earnings
out of #hich the dividends may be
declared and paid (200/ &a! E8a%"nat"on*
T!e o! 2alse IO 200A &a! E8a%"nat"on0
2. ( corporate resolution o$ t0e boar# o$
#irectors #eclaring t0e pa.ment o$ a portion
or all suc0 earnings to t0e stoc50ol#ers (!0e
Corporation Co#e o$ t0e P0il. (nnotate# b.
Fector :e Leon@ 2006 6# Page 4"584"6)
%ut o$ unrestricte# retaine# earnings@ pa.able in
cas0@ propert.@ or stoc5s
o !o all stoc50ol#ers@ base# on outstan#ing
capital stoc5 0el#
o F%,66>@ cas0 #i&i#en#s #ue on
#elinEuent stoc5=
(ppl. $irst to unpai# balance on
subscription
Plus costs an# e7penses
/toc5 #i&i#en#s wit00el# until unpai#
subscription is $ull. pai#
o No stoc5 #i&i#en# issue# wit0out appro&al
o$ 2+4r#s s0ares at regular+special meeting
o Nielson & Lepanto= corporation cannot
issue stoc5 #i&i#en#s to pa. $or a non8
stoc50ol#er
o >eport to /6C wit0in "5 #a.s $rom
#eclaration
GENERAL R(LE* 'to#9 #o!1o!at"ons #annot
!eta"n s!1ls 1!of"ts "n e8#ess of 100P of 1a"d6
1 #a1"tal sto#9 52001 &a! E8a%"nat"on0- e8#e1t*
:ean >e.nal#o ?. (granCamen#eC Page ,A o$ 177
COMMERCIAL LAW
". 3usti$ie# b. #e$inite corporate e7pansion
pro9ects+programs appro&e# b. B%:
2. Loan agreement@ w0ere cre#itor 0as to $irst
consent be$ore corporation can #eclare
#i&i#en#s
4. /pecial circumstances
200A &a! E8a%"nat"on* D"st"n$"s3 d"B"dend
f!o% 1!of"tO #as3 d"B"dend f!o% sto#9 d"B"dend.
Pro$its
belong to t0e corporation@ w0ile #i&i#en#s
belong to t0e stoc50ol#ers w0en #i&i#en# is
#eclare#.
( cas0
#i&i#en# in&ol&es #isbursement o$ earnings to
stoc50ol#ers@ w0ile stoc5 #i&i#en# #oes not
in&ol&e an. #isbursement. ( cas0 #i&i#en#
a$$ects t0e $ractional interest in propert. w0ic0
eac0 s0are represents@ w0ile a stoc5 #i&i#en#
#ecreases t0e $ractional interest in corporate
propert. w0ic0 eac0 s0are represents. ( cas0
#i&i#en# #oes not increase t0e legal capital@
w0ile a stoc5 #i&i#en# #oes@ as t0ere is no cas0
outla. in&ol&e#. Cas0 #i&i#en#s are sub9ect to
income ta7@ w0ile stoc5 #i&i#en#s are not.
:eclaration o$ stoc5 #i&i#en# reEuires t0e
appro&al o$ bot0 t0e ma9orit. o$ t0e members o$
t0e boar# o$ #irectors will su$$ice.
2001 &a! E8a%"nat"on* A!e t3e!e "nstan#es ;3en
a #o!1o!at"on s3all not be 3eld l"able fo! not
de#la!"n$ d"B"dendsL
!0e instances w0en a corporation s0all not be 0el#
liable $or not #eclaring #i&i#en#s are= 10 ;3en
Nst"f"ed by def"n"te #o!1o!ate e81ans"on 1!oNe#ts
o! 1!o$!a%s a11!oBed by t3e boa!d of d"!e#to!sO
o! 520 ;3en t3e #o!1o!at"on "s 1!o3"b"ted nde!
any loan a$!ee%ent ;"t3 any f"nan#"al "nst"tt"on
o! #!ed"to!- ;3et3e! lo#al o! fo!e"$n- f!o%
de#la!"n$ d"B"dends ;"t3ot "ts o! 3"s #onsent-
and s#3 #onsent 3as not been se#!edO o! 5,0
;3en "t #an be #lea!ly s3o;n t3at s#3 !etent"on
"s ne#essa!y nde! s1e#"al #"!#%stan#es
obta"n"n$ "n t3e #o!1o!at"on- s#3 as ;3en t3e!e
"s need fo! s1e#"al !ese!Be fo! 1!obable
#ont"n$en#"es.
)OWER TO ENTER INTO MANAGEMENT
CONTRACT
MANAGEMENT CONTRACT* is an agreement
w0ereb. a corporation un#erta5es to manage or
operate all or substantiall. all o$ t0e business o$
anot0er corporation@ w0et0er suc0 contracts are
calle# ser&ice contracts@ operating agreements or
ot0erwise. (/ec 11)
GENERAL R(LE* !0ere s0all be no management
contract wit0 anot0er corporation nless=
*a9orit. o$ B%:
/toc50ol#ers owning ma9orit. s0ares@ in B%!F
managing an# manage# corporation
o 6VC6P!@ w0ere 2+4 &otes nee#e#= i$ a
stoc50ol#er+s in bot0 managing an#
manage# corporation owns more t0an
"+4

o$ total outstan#ing vo#in" capital
stoc5 o$ managing corporation %>
ma9orit. o$ B%: in managing corp. is
also ma9orit. o$ B%: in manage#
corporation
!0e management contract must not be longer
t0an 5 .ears
(LTRA @IRE' 5Dbeyond 1o;e!sE0 ACT
200/ &a! E8a%"nat"on
(n act committe# outsi#e t0e ob9ect $or w0ic0 a
corporation is create# as #e$ine# b. t0e law o$ its
organiCation an# t0ere$ore be.on# t0e powers
con$erre# upon b. law. (>epublic &s. (co9e *ining
Co.@ Inc. ' /C>( 46")
Ty1es* (P0ilippine Corporate Law@ illanue&a@ 200"
e#.)
". (cts #one be.on# t0e powers o$ t0e
corporation as pro&i#e# in t0e laws or its (oID
2. (cts or contracts entere# into in be0al$ o$ t0e
corporation b. persons w0o 0a&e no corporate
aut0orit. (lt!a B"!es of off"#e!s and NOT t3e
#o!1o!at"on0
4. (cts or contracts@ w0ic0 are per se illegal as
being contrar. to law.
7888888888888888888888888888888888888888888888888888888888887
@II. Meet"n$s
W3y !e="!ed
*eetings are necessar. because
corporate powers are &este# in t0e
Boar# or stoc50ol#ers or members as a
bo#. an# not as in#i&i#uals. It ser&es as
protection an# assurance to stoc50ol#ers
or members as it a$$or#s t0em an
opportunit. to be 0ear# an# to #iscuss
t0e matter at 0an# an# &ote t0ereon.
W3en not ne#essa!y
!0e instances w0en meetings are not
necessar. are (a) w0en a corporation
COMMERCIAL LAW
amen#s its articles an# written asset is
su$$icient (b) w0en t0ere is an
agreement to be boun# #espite t0e
absence o$ a meeting (c) w0en t0e
(rticles o$ a close corporation allows
#irectors to ta5e action wit0out a
meeting
Re="s"tes of a Bal"d %eet"n$
( &ali# meeting is one t0at is= (a) 0el#
at t0e proper place (b)0el# at t0e state#
#ate an# time or at a reasonable time
t0erea$ter (c) calle# b. t0e proper person
(#) wit0 pre&ious notice (e) atten#e# b.
a Euorum.
Effe#ts of a#t"on ta9en d!"n$ "nBal"d %eet"n$s
In stoc50ol#er or member meetings@
t0ere being a Euorum consisting o$ a
ma9orit. o$ t0e outstan#ing capital
stoc5@ t0e business so transacte# s0all be
&ali# i$ wit0in t0e powers o$ t0e
corporation. 6&en i$ meeting is
improperl. calle# or 0el#@ acts are still
&ali# i$ wit0in t0e powers o$ t0e
corporation an# all stoc50ol#ers or
members are present or #ul.
represente#.
In #irectors or trustees meetings@ t0ere
being a Euorum@ all acts are &ali#. But i$
not un#erta5en in a #ul. con&ene#
meeting@ t0e. are generall. in&ali# but
ma. be rati$ie#.
)e!#enta$e of Botes !e="!ed
%r#inaril. a ma9orit. &ote is reEuire# o$
stoc50ol#ers or members in t0e
$ollowing instances= (a) election o$
members o$ t0e Boar# (b) remo&al o$
#irectors or trustees (c) appro&al o$
management contracts (#) a#opt b.
laws+amen#+or repeal or re&o5e power
#elegate# to t0e Boar# (e) $i7 issue#
price o$ no par &alue s0ares ($) $i7ing
compensation o$ #irectors. In all ot0er
instances@ a 2+4 &ote is reEuire#.
In #etermining compliance wit0 t0e 2+4
&ote@ non8&oting s0ares s0all be
inclu#e# i$ it in&ol&es t0e $ollowing= (a)
amen#ment o$ articles (b) a#option or
amen#ment o$ b. laws (c) sale@ lease@
e7c0ange@ ple#ge or ot0er #isposition o$
all or substantiall. all o$ corporate
propert. (#) increase+#ecrease o$
corporate bon#e# in#ebte#ness (e)
increase+#ecrease o$ capital stoc5 ($)
merger+consoli#ation (g) in&estment in
anot0er corporation or business@ an# (0)
#issolution
W3o #an Bote
/toc50ol#ers or *embers can e7ercise
t0e rig0t to &ote as it is t0roug0 its
e7ercise t0at t0e. are able to participate
in management. !0e rig0t to &ote is
in0erent in stoc5 owners0ip or in
members0ip. !0is rig0t e7ists pro&i#e#@
t0e. remain as suc0 in t0e boo5s o$ t0e
corporation as o$ t0e #ate $i7e# in t0e
notice.
I$ t0e stoc5 is co8owne#@ t0e consent o$
all is necessar. e7cept w0en all o$ t0em
0a&e e7ecute# a pro7.. I$ owne# in an
an#+or capacit.@ an. one can &ote.
(ll stoc50ol#ers can e7ercise t0e rig0t
to &ote pro&i#e# t0e s0ares are not
#elinEuent@ t0e. are non8&oting e7cept i$
/ection 6 applies@ or t0e s0ares are
treasur. s0ares.
( person not a stoc50ol#er ma. e7ercise
t0e rig0t to &ote w0en= (a) t0e. are
ple#gees or mortgagees an# are gi&en
t0e rig0t an# suc0 is recor#e# in t0e
boo5s o$ t0e corporation (b) t0e. are
e7ecutors@ a#ministrators@ recei&ers an#
ot0er legal representati&es appointe# b.
t0e Court (c) 0eirs o$ a stoc50ol#er w0o
0a&e e7ecute# a 9u#icial or e7tra89u#icial
settlement@ registere# wit0 t0e >egistr.
o$ :ee#s upon presentation o$ t0e
settlement.
Manne! of Bot"n$
!0e rig0t to &ote ma. be e7ercise# in
person or b. pro7.
( pro7. is a $ormal aut0oriCation gi&en
b. t0e 0ol#er o$ t0e stoc5 w0o 0as t0e
rig0t to &ote @ or b. a member@ to
anot0er person to e7ercise t0e &oting
rig0t o$ $ormer.
!0e reEuisites o$ a &ali# pro7. are (a) it
must be in writing an# signe# b. t0e
stoc50ol#er or member (b) $ile# be$ore
t0e sc0e#ule# meeting wit0 t0e
corporate secretar. (c) it s0oul# not be
&ali# an# e$$ecti&e $or a perio# o$ 5
.ears at an. one time (#) it is &ali# onl.
$or t0e meeting $or w0ic0 it is inten#e#
unless ot0erwise pro&i#e#.
@ot"n$ t!st a$!ee%ents
It is an agreement in writing w0ereb.
one or more stoc50ol#ers trans$er t0eir
s0are@ to an. person+s 0a&ing aut0orit.
to act as a trustee $or t0e purpose o$
:ean >e.nal#o ?. (granCamen#eC Page ,C o$ 177
COMMERCIAL LAW
&esting in suc0 person &oting or ot0er
rig0ts pertaining to t0e s0ares $or a
certain perio# not e7cee#ing t0at $i7e#
in t0e Corporation Co#e an# upon terms
an# con#itions state# in t0e agreement.
Its limitations are= (a) it s0oul# not be
e7ecute# $or a perio# not e7cess o$ 5
.ears@ e7cept i$ e7ecute# as a con#ition
$or a loan nor s0oul# it be e7ecute# to
circum&ent t0e law against monopolies
an# illegal combinations in restraint o$
tra#e or use# $or purposes o$ $rau# (b)
must be in writing@ notariCe# containing
an# speci$.ing all terms an# con#itions
(c) a certi$ie# cop. must be $ile# wit0
t0e /6C@ ot0erwise it is ine$$ecti&e or
unen$orceable (#) it s0oul# be sub9ect to
e7amination (e) it s0oul# automaticall.
e7pire at t0e en# o$ t0e agree# perio#
!0e &oting trustee s0all (a) possess t0e
rig0t to &ote (b) e7ercise t0e rig0t to
&ote in person + pro7. (c) 0as t0e rig0t
o$ inspection (#) since 0e is legal 0ol#er
H 0e can be electe# as a #irector
!0e #istinctions between a pro7. an# a
&oting trust are (a) pro7. 0as no legal
title@ trustor 0as legal title (b) t0e pro7.
is generall. re&ocable@ w0ile a &oting
trust generall. is not re&ocable (c) pro7.
can onl. act at a speci$ie# meeting
unless it is continuing@ a trustee is not so
limite# (#) pro7. can onl. &ote i$ pro7.
gi&er is not present w0ile a trustee &otes
ne&ert0eless (e) a pro7. is usuall.
s0orter in #uration t0an a &oting trust
7888888888888888888888888888888888888888888888888888888888887
@III. 'to#9s and 'to#93olde!s
DOCTRINE O2 EI(ALIT+ O2 '4ARE'
,0ere t0e articles o$ incorporation #o not
pro&i#e $or an. #istinction o$ t0e s0ares o$ stoc5@ all
s0ares issue# b. t0e corporation are presume# to be
eEual an# en9o. t0e same rig0ts an# pri&ileges an#
are li5ewise sub9ect to t0e same liabilities. (/ec. 6)
4o; a!e s3a!es CLA''I2IEDL
". COMMON '4ARE' are t0e basic class o$
stoc5 or#inaril. an# usuall. issue# wit0out
e7traor#inar. rig0ts an# pri&ileges. !0e owners
t0ereo$ are entitle# to a pro ra#a s0are in t0e
pro$its o$ t0e corporation an# in its assets upon
#issolution an#@ li5ewise@ in t0e management o$
its a$$airs wit0out pre$erence or a#&antage
w0atsoe&er.
2. )RE2ERRED '4ARE' are t0ose issue# wit0
par &alue@ an# pre$erences eit0er wit0 respect to=
a)assets a$ter #issolution (P>6I6>>6:
/F(>6/ (/ !% (//6!/)
b)#istribution o$ #i&i#en#s( P>6I6>>6:
/F(>6/ (/ !% :II:6N:/)@
c) or bot0@ an# ot0er pre$erences.
KPre$erre# or >e#eemable s0ares ma. be
#epri&e# o$ &oting rig0ts (/ec. 6).
KIND' O2 )RE2ERRED '4ARE' A' TO
DI@IDEND'
". Cumulati&e pre$erre# s0are 8 a s0are
w0ic0 entitles t0e 0ol#er t0ereo$ not onl.
t0e pa.ment o$ current #i&i#en#s but also
o$ #i&i#en#s in arrears.
2. Non H cumulati&e pre$erre# s0are8 a s0are
w0ic0 allows t0e 0ol#er t0ereo$ to t0e
pa.ment o$ current #i&i#en#s onl. wit0out
regar#s to #i&i#en#s in arrears.
4. Participating pre$erre# s0are8 a s0are
w0ic0 gi&es t0e 0ol#er t0e rig0t to
participate wit0 t0e 0ol#ers o$ t0e
common s0are in t0e remaining pro$its pro
rata@ asi#e $rom t0e rig0t to recei&e t0e
stipulate# #i&i#en#s at a pre$erre# rate.
1. Non H participating pre$erre# s0are8 a
s0are w0ic0 allows t0e 0ol#er to recei&e
t0e stipulate# #i&i#en#s at a pre$erre# rate
onl.. !0e 0ol#er s0all not s0are in t0e
#i&i#en#s #istribute# to common s0ares.
REDEEMA&LE '4ARE' are t0ose w0ic0 permit
t0e issuing corporation to re#eem or purc0ase its
own s0ares.
Limitations=
i. >e#eemable s0ares ma. be issue# onl.
w0en e7pressl. pro&i#e# $or in t0e articles
o$ incorporationD
ii. !erms an# con#itions a$$ecting sai# s0ares
must be state# bot0 in t0e articles o$
incorporation an# in t0e certi$icates o$
stoc5 representing suc0 s0aresD
iii. >e#eemable s0ares ma. be #epri&e# o$
&oting rig0ts in t0e articles o$
incorporation@ unless ot0erwise pro&i#e#
in t0e Co#e.
i&. >e#eemable s0ares ma. be re#eeme#@
!e$a!dless of t3e e8"sten#e of
n!est!"#ted !eta"ned ea!n"n$s (/ec. 8)@
an# 1!oB"ded f!t3e! t0at t0e corporation
0as@ a$ter suc0 re#emption@ sff"#"ent
assets in its boo5s to absorb corporate
#ebts an# liabilities.
TREA'(R+ '4ARE' are s0ares t0at 0a&e been
ea!l"e! "ssed as flly 1a"d an# 0a&e t0erea$ter been
acEuire# b. t0e corporation b. purc0ase@ #onation@
re#emption or t0roug0 some law$ul means. (/ec. ))
,0en treasur. s0ares are sol# below its par
or issue# &alue@ t0ere can be no watering o$
stoc5 because watering o$ stoc5
contemplates an o!"$"nal "ssan#e of
s3a!es.
)AR @AL(E '4ARE' are s0ares wit0 a &alue
$i7e# in t0e certi$icates o$ stoc5 an# t0e articles o$
incorporation.
NO )AR @AL(E '4ARE' are s0ares 0a&ing no
par &alue but 0a&e an issue# &alue state# in t0e
certi$icate or articles o$ incorporation.
LI*I!(!I%N/=
:ean >e.nal#o ?. (granCamen#eC Page ,H o$ 177
COMMERCIAL LAW
". No par &alue s0ares can 0a&e an issue#
price o$ less t0an P5.00D
2. !0e entire consi#eration $or its issuance
constitutes capital so t0at no part o$ it
s0oul# be #istribute# as #i&i#en#sD
4. !0e. cannot be issue# as pre$erre# stoc5sD
1. !0e. cannot be issue# b. ban5s@ trust
companies@ insurance companies@
public utilities an# buil#ing an# loan
associationD
5. !0e articles o$ incorporation must state t0e
$act t0at it issue# no par &alue s0ares as
well as t0e number o$ sai# s0aresD
6. %nce issue#@ t0e. are #eeme# $ull. pai#
an# non8assessable. (/ec. 6)
WATERED 'TOCK
,atere# /toc5 is stoc5 issue# not in
e7c0ange $or its eEui&alent in cas0@ propert.@ s0ares@
stoc5 #i&i#en#s or ser&ices. It inclu#es stoc5 t0at is
issue# (a) wit0out consi#eration (b) issue# as $ull.
pai# w0en t0e corporation recei&es a sum less t0an
par or issue# &alue (c)issue# $or a consi#eration
ot0er t0an cas0@ t0e $air &aluation o$ w0ic0 is less
t0an par or issue# &alue (#) stoc5 #i&i#en# wit0out
su$$icient returne# earnings or surplus.
WA+' TO &ECOME A 'TOCK4OLDER O2 A
COR)ORATION .
". /ubscription contract wit0 t0e corporation
2. Purc0ase or acEuisition o$ s0ares $rom e7isting
stoc50ol#erD an#
4. Purc0ase o$ treasur. s0ares $rom t0e
corporation
'(&'CRI)TION )(RC4A'E O2
'4ARE'
re$ers to unissue#
s0ares
re$ers to issue# s0ares
Corporation still to be
$orm or alrea#. in
e7istence
Can onl. be ma#e
w0en t0e corporation
is alrea#. in e7istence
!0e subscriber can
e7ercise all 0is rig0t as
a stoc50ol#er e&en
be$ore $ull pa.ment o$
t0e subscription.
!0e purc0aser can onl.
e7ercise 0is rig0t upon
$ull pa.ment o$ t0e
purc0ase price.
Corporate cre#itors
ma. procee# against
t0e subscriber $or 0is
unpai# subscription in
case t0e corporate
asset are not su$$icient
to satis$. t0eir claims.
Corporate cre#itor
cannot procee# against
t0e purc0aser $or t0e
balance o$ t0e
purc0ase price @
because o$ t0e lac5 o$
pri&it. o$ contact
between t0em.
/ubscriber ma. not be
legall. release# $rom
t0e pa.ment o$ 0is
unpai# subscription
?NL6// no cre#itors
woul# be pre9u#ice#
!0e corporation can
rescin# or cancel t0e
contract in case o$ non
$ul$illment b. t0e
bu.er.
an# all t0e
stoc50ol#ers agree
t0ereto.
/ubscription ma. be in
an. $orm @ not co&ere#
b. t0e statute o$
$rau#s.
Purc0ase o$ s0ares is
co&ere# b. t0e statute
o$ $rau#s in cases o$
purc0ases amounting
to more t0an P500.
ConseEuentl. t0e subscribers are not real
parties in interest in a case $or rescission o$
t0e subscription contract o$ anot0er
subscriber because t0e. are not parties
t0ereto. (%ng Uong &. !iu@ (pril 6@ 2004)
K"nds of sbs#!"1t"on #ont!a#t*
1. Pre8incorporation subscription
%ne entere# into be$ore incorporation. Pre8
incorporation subscription constitutes a bin#ing
contract among t0e subscribers.
Note= It s3all be "!!eBo#able fo! a 1e!"od of at
least 7 yea!s f!o% t3e date of sbs#!"1t"on
nless*
(ll o$ t0e ot0er subscribers consent to t0e
re&ocation@ or
!0e incorporation $ails to materialiCe.
It s0all li5ewise be irre&ocable a$ter t0e
submission o$ t0e articles o$ incorporations
to t0e /6C.
2. Post incorporation subscription
,. Con#itional subscription
?. (bsolute subscription
A. /ubscription wit0 a special term.
(NDERWRITING AGREEMENT
(n un#erwriting agreement between a
corporation an# a t0ir# person@ terme# t0e
un#erwriterM@ b. w0ic0 t0e latter agrees@ $or a certain
compensation@ to purc0ase a stipulate# amount o$
stoc5s or bon#s@ speci$ie# in t0e un#erwriting
agreement@ i$ suc0 securities are not purc0ase# b.
t0ose to w0om t0e. are $irst o$$ere#.
CON'IDERATION O2 'TOCK'
@al"d #ons"de!at"ons "n sbs#!"1t"on a$!ee%ent*
". Cas0 actuall. recei&e#D
2. Propert.@ tangible or intangible
necessar. or con&enient $or its use
an# law$ul purposeD
4. Labor or ser&ices actuall. ren#ere#
to t0e corporationD
1. Pre&iousl. incurre# corporate
in#ebte#nessD (Note= t0e
in#ebte#ness in&ol&e# must be one
t0at is ac5nowle#ge b. t0e boar#.)
5. (mounts trans$erre# $rom
unrestricte# retaine# earnings to
state# capitalD
6. %utstan#ing s0ares in e7c0ange $or
stoc5s in t0e e&ent o$
reclassi$ication or con&ersion.
:ean >e.nal#o ?. (granCamen#eC Page ,/ o$ 177
COMMERCIAL LAW
CERTI2ICATE O2 'TOCK AND TRAN'2ER
O2 '4ARE'.
CA)ITAL 'TOCK '4ARE' O2 'TOCK
Is t0e amount pai# in or
secure# to be pai# in b.
t0e stoc50ol#ers upon
w0ic0 t0e corporation is
to con#uct its operation.
It "s t3e 1!o1e!ty of t3e
#o!1o!at"on "tself.
Is t0e "nte!est o! !"$3t
;3"#3 t3e sto#93olde!
3as in t0e management
o$ t0e corporation@ its
surplus pro$its@ an# upon
#issolution@ in all o$ its
assets remaining a$ter
pa.ment o$ corporate
#ebts.
W4EN do sto#9s be#o%e DELINI(ENTL
If t3e sbs#!"1t"on #ont!a#t f"8es t3e date
fo! 1ay%ent@ $ailure to pa. on suc0 #ate
s0all ren#er t0e entire balance #ue an#
pa.able wit0 interest. !0irt. #a.s t0ere$rom@
i$ still unpai#@ t0e s0ares become #elinEuent@
as o$ t0e #ue #ate@ an# sub9ect to sale@ unless
t0e boar# #eclares ot0erwise.
If no date "s f"8ed "n t3e sbs#!"1t"on
#ont!a#t@ t0e boar# o$ #irectors can ma5e
t0e #all fo! 1ay%ent@ an# speci$. t0e #ue
#ate. T3e not"#e of #all "s %andato!y. !0e
$ailure to pa. on suc0 #ate s0all ren#er t0e
entire balance #ue an# pa.able wit0
interest. !0irt. #a.s t0ere$rom@ i$ still
unpai#@ t0e s0ares become #elinEuent@ as o$
t0e #ate o$ call@ an# sub9ect to sale@ unless
t0e boar# #eclares ot0erwise. (/ec. 6')
CERTI2ICATE O2 'TOCK'
It is t0e paper representation or tangible
e&i#ence o$ t0e stoc5 itsel$ an# o$ t0e &arious
interest t0erein.
It is not essential to t0e owners0ip an#+ or
e7istence o$ t0e s0are o$ stoc5.
Issan#e of Ce!t"f"#ate Of 'to#9
?n#er t0e Do#t!"ne of Ind"B"dal"ty of
'bs#!"1t"on @ subscription is one@ entire@
in#i&isible@ an# w0ole contract w0ic0 cannot
be #i&i#e# into portions. !0us@ no certi$icate
o$ stoc5 s0all be issue# until t0e $ull amount
o$ t0e subscription is pai#.
Lost #e!t"f"#ates
!0e proce#ure $or t0e procurement o$
lost or replacements certi$icates is as
$ollows= (a) t0e registere# owner or
legal representati&e s0all $ile an a$$i#a&it
in triplicate setting $ort0 (")
circumstances o$ t0e loss@ t0e$t@ or
#estruction (2) number o$ s0ares@
number o$ certi$icate an# name o$ t0e
corporation (4) suc0 ot0er matter or
e&i#ence 0e ma. #eem necessar. (b)
?pon &eri$ication o$ t0e a$$i#a&it an#
boo5s@ t0e corporation s0all cause notice
o$ loss to be publis0e# at stoc50ol#er
e7pense $or 4 consecuti&e wee5s@ stating
t0e speci$ics o$ loss an# t0at " .ear $rom
#ate o$ publication@ s0oul# no contest be
presente#@ it will cancel an# issue new
certi$icates@ unless t0e stoc50ol#er $iles
a bon# or suret. goo# $or " .ear
satis$actor. to t0e boar#. Pro&i#e#@ in
an. case@ i$ contest or suit is
broug0t+presente#@ t0e issuance o$ t0e
certi$icate s0all be suspen#e# until a
$inal #ecision o$ t0e court or
#etermination o$ owners0ip is ma#e.
67cept in case o$ $rau#@ ba# $ait0 or
negligence o$ t0e corporation@ no action
can be broug0t against it $or issuing a
certi$icate+s pursuant to t0e proce#ure
lai# #own.
MODE' O2 'TOCK TRAN'2ER
". In#orsement an# #eli&er. o$ stoc5 certi$icate an#
to issue a new certi$icate unless t0e original
certi$icate is surren#ere# $or cancellation or is
clearl. s0own to 0a&e been lost or stolen@ or
#estro.e#.
2. !rans$er ma#e in a separate instrument8 w0ile an
assignment ma. be &ali# an# bin#ing between
parties #espite non8compliance wit0 t0e
reEuisite en#orsement an# #eli&er.@ it #oes not
necessaril. ma5e t0e trans$er e$$ecti&e $or t0e
assignee cannot en9o. t0e status o$ a stoc50ol#er
until an# unless t0e issue o$ owners0ip is
resol&e# wit0 $inalit..
4. 3u#icial or e7tra 9u#icial settlement o$ estate8
upon t0e #eat0 o$ t0e stoc50ol#er@ 0is
a#ministrator or e7ecutor becomes &este# wit0
t0e legal title o$ t0e stoc5 until t0e settlement
an# #i&ision o$ t0e estate is ma#e.
W4AT ARE T4E RIG4T' O2
'TOCK4OLDER'L
". *anagerial >ig0ts
2. Proprietar. >ig0ts
4. Pre8empti&e >ig0t
1. >eme#ial >ig0ts
5. (ppraisal >ig0ts
6. Inspection >ig0ts
MANAGERIAL RIG4T'
". oting rig0tsD an#
2. >ig0t to remo&e #irectors
W3at a!e t3e LIMITATION' on t3e
sto#93olde!>s RIG4T TO @OTEL
". ,0ere t0e articles o$ incorporation pro&i#es
$or classi$ication o$ s0ares pursuant to /ec.
:ean >e.nal#o ?. (granCamen#eC Page ?0 o$ 177
COMMERCIAL LAW
6@ non8&oting s0ares are not entitle# to &ote
e7cept as pro&i#e# $or in t0e last paragrap0
o$ /ec. 6D
2. Pre$erre# or re#eemable s0ares ma. be
#epri&e# o$ t0e rig0t to &ote unless
ot0erwise pro&i#e# in t0e Co#eD
4. Iractional s0ares o$ stoc5 cannot be &ote#D
1. !reasur. s0ares 0a&e no &oting rig0ts as
long as t0e. remain in t0e treasur.D
5. Fol#ers o$ stoc5 #eclare# #elinEuent b. t0e
boar# o$ #irectors $or unpai# subscription
are not entitle# to &ote or to a representation
at an. stoc50ol#erJs meetingD an#
6. ( trans$eree o$ stoc5 cannot &ote i$ 0is
trans$er is not registere# in t0e stoc5 an#
trans$er boo5 o$ t0e corporation.
)RO)RIETAR+ RIG4T'
". >ig0t to #i&i#en#sD
2. >ig0t to issuance o$ stoc5 certi$icate $or
$ull. pai# s0aresD
4. Proportionate participation in t0e
#istribution o$ assets in liEui#ationD
1. >ig0t to trans$er o$ stoc5s in corporate
boo5sD
5. Preempti&e rig0tD
6. >ig0t to inspect boo5s an# recor#sD
'. >ig0t to be $urnis0e# o$ t0e most recent
$inancial statement+$inancial reportD
8. >ig0t to reco&er stoc5s unlaw$ull. sol# $or
#elinEuent pa.ment o$ subscription.
)REEM)TI@E RIG4T O2 'TOCK4OLDER
It is t0e s0are0ol#ersJ pre$erential rig0t to
subscribe to all issues or #ispositions o$ s0ares
o$ an. class in proportion to t0eir present
stoc50ol#ings.
GENERAL R(LE* !0ere is no preempti&e
rig0t. !0is is on t0e t0eor. t0at w0en a
corporation at its inception o$$ers its $irst s0ares@
it is presume# to 0a&e o$$ere# all o$ t0ose w0ic0
t0e corporation is aut0oriCe# to issue.
E:CE)TION* ,0en a corporation at its
inception o$$ers onl. a s1e#"f"ed 1o!t"on o$
its aut0oriCe# capital stoc5 $or
subscription. I$ subseEuentl.@ it o$$ers t0e
remaining unsubscribe# portion@ t0ere woul#
be preempti&e rig0t as to t0e remaining
portion o$$ere# $or subscription.
REMEDIAL RIG4T'
". Ind"B"dal s"tKa suit institute# b. a
s0are0ol#er $or 0is own be0al$ against t0e
corporationD
2. Re1!esentat"Be s"tKa suit $ile# b. a
s0are0ol#er in 0is be0al$ an# in be0al$ li5ewise
o$ ot0er stoc50ol#ers similarl. situate# an# wit0
a common cause against t0e corporationD an#
4. De!"Bat"Be s"t 5200/- 2007- 200A 200? &a!
e8a%"nat"on0Ka suit $ile# in be0al$ o$ t0e
corporation b. its s0are0ol#ers upon a cause o$
action belonging to t0e corporation@ but not #ul.
pursue# b. it@ against an. person or against t0e
#irectors@ o$$icers an#+or controlling
s0are0ol#ers o$ t0e corporation.
KCre#itors #o not $ile #eri&ati&e
suits@ but rat0er 0a&e reme#ies
w0ic0 are merel. subsi#iar. suc0 as
accion su%ro"a#oria an# accion
pauliana.
Re="s"tes fo! a Bal"d de!"Bat"Be s"t 5200?
&a! E8a%"nat"on0*
". 67isting cause o$ action in $a&or o$ t0e
corporationD
2. /toc50ol#er+member must $irst ma5e a
#eman# upon t0e corporation or t0e
management to sue unless suc0 a
#eman# woul# be $utileD
4. /toc50ol#er+member must be suc0 at t0e
time o$ t0e ob9ectionable acts or
transactions unless t0e transactions are
continuousl. in9uriousD an#
1. (ction must be broug0t in t0e name o$
t0e corporation w0ic0 must be allege#.
N%!6= T3e sto#93olde! "s only a no%"nal 1a!ty
"n a de!"Bat"Be s"t. T3e !eal 1a!ty "n "nte!est "s
t3e #o!1o!at"on.
A))RAI'AL RIG4T' 5200C &a! E8a%"nat"on0
(ppraisal rig0t is t0e rig0t o$ a stoc50ol#er@ w0o
#issents $rom a $un#amental or e7traor#inar.
corporate action@ to #eman# pa.ment o$ t0e $air
&alue o$ 0is s0ares. It is t0e rig0t o$ a stoc50ol#er to
wit0#raw $rom t0e corporation an# #eman# pa.ment
o$ t0e $air &alue o$ 0is s0ares a$ter #issenting $rom
certain corporate acts in&ol&ing $un#amental
c0anges in t0e corporate structure namel.= (A'IM0
". (n a%end%ent to t0e (rticles o$
incorporation t0at 0as t0e e$$ect o$K
2. 'ale@ encumbrance or ot0er #ispositions o$
all or substantiall. all o$ t0e corporate
propert. or assets
4. Me!$e! or consoli#ationD
1. InBest%ent o$ corporate $un#s in anot0er
corporation or in a purpose ot0er t0an t0e
primar. purpose (/ec 12)
GENERAL R(LE* a #issenting stoc50ol#er w0o
#eman#s pa.ment o$ 0is s0ares is no longer allowe#
to wit0#raw $rom 0is #ecisionD
E:CE)T W4EN*
". !0e corporation consents to t0e wit0#rawal
2. !0e propose# corporate action is aban#one#
or rescin#e# b. t0e corporation
4. !0e propose# corporate action is
#isappro&e# b. t0e /6C w0ere its appro&al
is necessar.D
COMMERCIAL LAW
1. !0e Commission #etermines t0at suc0
stoc50ol#er is not entitle# to appraisal rig0t
W3at "s an "nt!a6#o!1o!ate #ont!oBe!syL 52007
&a! E8a%"nat"on0
An "nt!a6#o!1o!ate #ont!oBe!sy "s a d"s1te
bet;een a sto#93olde! and t3e #o!1o!at"on of
;3"#3 3e "s a sto#93olde!- o! bet;een a
sto#93olde! and anot3e! sto#93olde! of t3e sa%e
#o!1o!at"on- ;3e!e t3e sbNe#t of t3e d"s1te o!
#ont!oBe!sy a!ose ot of s#3 !elat"ons3"1 (/unset
iew Con#ominium Corp. &. Campos@ 3r.@ "01
/C>( 404 R")8"S).
(n intra8corporate #ispute is a ci&il case
in&ol&ing t0e $ollowing= (a) #e&ices or
sc0emes emplo.e# b.@ or an. act o$@ t0e
boar# o$ #irectors@ business associates@
o$$icers or partners@ amounting to $rau# or
misrepresentation w0ic0 ma. be #etrimental
to t0e interest o$ t0e public an#+ or o$ t0e
stoc50ol#ers@ partners@ or members o$ an.
corporation@ partners0ip@ or associationD (b)
contro&ersies arising out o$ intra8corporate@
partners0ip@ or association relations@
between an# among stoc50ol#ers@ members
or associatesD an# between@ an. or all o$
t0em an# t0e corporation@ partners0ip@ or
association o$ w0ic0 t0e. are stoc50ol#ers@
members@ or associates@ respecti&el.D (c)
contro&ersies in t0e election or appointment
o$ #irectors@ trustees@ o$$icers@ or managers
o$ corporations@ partners0ips@ or
associationsD (#) #eri&ati&e suitsD an# (e)
inspection o$ corporate boo5s (/C (#m.
*emo. No. 0"82801 R200"S).
IN')ECTION RIG4T'
Co!1o!ate &oo9s and 2"nan#"al Re#o!ds
!0e $ollowing corporate boo5s an# recor#s must be
5ept an# preser&e# at its principal o$$ice (") recor#
o$ all business transactions (2) minutes o$
stoc50ol#ers or Boar# meetings@ setting $ort0= time
an# place@ 0ow aut0oriCe#@ notice gi&en@ w0et0er
regular or special@ t0ose present+absent@ e&er. act
#one or or#ere#. ?pon #eman#@ t0e time t0at t0e a
#irector@ trustee or o$$icer entere# or le$t@ t0e .eas
an# t0e na.@ an# an. protest ma. be recor#e# in $ull
(4) stoc5 an# trans$er boo5 w0ic0 s0oul# contain a
recor# o$ all stoc5s@ names o$ stoc50ol#ers@
installments pai#+unpai#@ statement o$ alienation@
#ate t0ereo$ an# ot0er matters prescribe# b. t0e B.8
Laws. !0ese recor#s are sub9ect to t0e inspection
rig0ts o$ t0e /toc50ol#ers.
LIMITATION' of t3e Ins1e#t"on !"$3ts*
". >ig0t must be e7ercise# #uring reasonable
0ours on business #a.sD
2. Person #eman#ing t0e rig0t 0as not
improperl. use#
4. an. in$ormation obtaine# t0roug0 an.
pre&ious e7amination o$ t0e boo5s an#
recor#s o$ t0e corporationD an#
1. :eman# is ma#e in goo# $ait0 or $or a
legitimate purpose. (/ec. '1)
7888888888888888888888888888888888888888888888888888888888887
I:. 'TOCK4OLDER )ROTECTION
DE@ICE'
". !en#er %$$ers is a public o$$er to purc0ase a
speci$ie# number o$ s0ares $rom s0are0ol#ers
usuall. at a premium in an attempt to gain control o$
t0e issuing compan.. Note t0at in some instances@
t0e premium is pa.able onl. i$ t0e o$$eror is able to
obtain t0e reEuire# number o$ s0ares.
"." ( !en#er %$$er #isclosure will be reEuire#
i$ a person (Inclu#es a partners0ip@ limite#
partners0ip@ s.n#icate@ corporation or an. ot0er
group) inten#s to acEuire at least t0irt. $i&e percent
(45T) or at least t0irt. $i&e percent (45T) o&er a
perio# o$ twel&e mont0s an. class o$ eEuit. securit.
o$ a liste# corporation or e&en i$ t0e acEuisition is
less t0an t0irt. $i&e percent (45T) it woul# result in
owners0ip o$ o&er $i$t. one percent (5"T).
2. Pro7. /olicitations is an action to secure t0e
rig0t to &ote o$ so muc0 a number o$ s0ares to
ensure t0e appro&al o$ a propose# corporate action+s.
It pro&i#es s0are0ol#ers wit0 appropriate
in$ormation to permit an intelligent #ecision on
w0et0er to permit t0eir s0ares to be &ote# as
solicite# $or a particular matter at a $ort0coming
stoc50ol#ers meeting.
7888888888888888888888888888888888888888888888888888888888887
:. Me!$e!- Consol"dat"on- and
D"ssolt"on
MERGER CON'OLIDATION
COMMERCIAL LAW
%ne or more e7isting
corporations are absorbe#
b. anot0er corporation
w0ic0 sur&i&es ((WB X(
or B)
?nion o$ 2 or more
corporations to $orm
a new corporation
calle# a consoli#ate#
corporation ((WB
XC)
Parties calle# constituent
corporations
/ame
(bsorbe# corporation
#issol&e# wit0out
liEui#ation o$ assets
(ll constituent
corporation are
#issol&e# wit0out
liEui#ation o$ assetsD
consoli#ate#
corporation sur&i&es
(bsorbing corporation
acEuires all assets an#
assumes liabilities o$ t0e
absorbe# corporation
regar#less o$ ,%N
cre#itors consente#
Consoli#ate#
corporation acEuires
all assets an# assumes
liabilities o$
constituent corps.
regar#less o$ ,%N
cre#itors consente#
/F/ o$ absorbe#
corporation become /F/
o$ absorbing corp.
/F/ o$ constituent
corps. becomes /F<s
o$ consoli#ate# corp.
DI''OL(TION
,0en t0e corporation ceases to be a 9uri#ical person.
MET4OD'* 5'e# 11C- &) 7H0
1. @olnta!y
2. InBolnta!y
( corporation ma. be #issol&e# b.
t0e /6C upon $iling o$ &eri$ie# complaint
an# a$ter proper notice an# 0earing on t0e
groun#s pro&i#e# b. e7isting laws@ rules an#
regulation. (/ec "2"@ BP 68)
T3e t3!ee 5,0 %et3ods by ;3"#3 a sto#9
#o!1o!at"on %ay be Bolnta!"ly d"ssolBed a!e*
52002 &a! E8a%"nat"on0
". @olnta!y d"ssolt"on ;3e!e no #!ed"to!s "s
affe#ted. !0is is #one b. a ma9orit. &ote o$ t0e
#irectors@ an# resolution &ote o$ at least 2+4
&ote o$ t0e stoc50ol#ers@ submitte# to t0e
/ecurities an# 67c0ange Commission.
2. @olnta!y d"ssolt"on ;3e!e #!ed"to!s a!e
affe#ted. !0is is #one b. a petition $or
#issolution w0ic0 must be $ile# wit0 t0e
/ecurities an# 67c0ange Commission@ signe# b.
a ma9orit. o$ t0e members o$ t0e boar# o$
#irectors@ &eri$ie# b. t0e presi#ent or t0e
secretar.@ an# upon a$$irmati&e &ote o$
stoc50ol#ers representing 2+4 o$ t0e outstan#ing
capital stoc5.
4. D"ssolt"on by s3o!ten"n$ of t3e #o!1o!ate
te!%. !0is is #one b. amen#ment o$ t0e articles
o$ incorporation.
W3en #o!1o!at"on "s dee%ed d"ssolBed*
*et0o# ,0en #eeme# #issol&e#
/ec. ""8@ w0en no
cre#itors are a$$ecte#
?pon issuance o$
certi$icate o$ /6C
/ec. "")@ w0ere
cre#itors are a$$ecte#
,0en 9u#gment is
ren#ere# #issol&ing t0e
corporation
/ec. "20@ #issolution b.
s0ortening corporate
term
?pon appro&al o$ t0e
amen#e# articles o$
incorporation or t0e
e7piration o$ t0e
s0ortene# term@ as t0e
case ma.be
IN@OL(NTAR+ DI''OL(TION
G!onds fo! InBolnta!y D"ssolt"on*
(. I$ t0e corporation #oes not $ormall.
organiCe an# commence t0e transaction o$
its business or t0e construction o$ its wor5s
wit0in 2.ears $rom t0e #ate o$ its
incorporation@ its corporate power ceases
an# t0e corporation s0all be #eeme#
#issol&e#D
B. I$ t0e corporation 0as commence# t0e
transaction o$ its business@ but
subseEuentl. becomes continuousl.
inoperati&e $or a perio# o$ at least 5 .ears@
t0e same s0all be a groun# $or suspension
or re&ocation o$ its corporate $ranc0ise or
certi$icate o$ incorporation
C. ,0en t0e corporation $ails to a#opt an#
$ile# a co#e o$ b.8laws in t0e manner
pro&i#e# $or b. law
:. ,0en t0e corporation 0as o$$en#e# against
a pro&ision o$ law $or its creation or
renewal
6. ,0en it 0as committe# or omitte# an act
w0ic0 amounts to a surren#er o$ its
corporate rig0ts@ pri&ileges@ or $ranc0ises
I. ,0en it 0as misuse# a rig0t@ pri&ilege@ or
$ranc0ise con$erre# upon it b. law@ or
w0en it 0as e7ercise# a rig0t@ pri&ilege@ or
$ranc0ise in contra&ention o$ law@ suc0 as
commission b. t0e corporation o$ ul#ra
vir!s or illegal acts.
-. ,0en on t0e basis o$ $in#ings an#
recommen#ations o$ a #ul. appointe#
management committee or re0abilitation
recei&er@ or base# on t0e /6C<s own
$in#ings@ t0e continuance o$ t0e business o$
t0e corporation woul# not be $easible or
pro$itable nor wor5 to t0e best interest o$
t0e /Fs@ parties8litigants@ cre#itors@ or t0e
general public
F. ,0en t0e corporation is guilt. o$ $rau# in
procuring its certi$icate o$ registration
I. ,0en t0e corporation is guilt. o$ serious
misrepresentation as to w0at t0e
corporation can #o or is #oing to t0e great
pre9u#ice o$ or #amage to t0e general
public.
:ean >e.nal#o ?. (granCamen#eC Page ?, o$ 177
COMMERCIAL LAW
3. >e$usal o$ t0e corporation to compl. or
#e$iance o$ an. law$ul or#er o$ t0e /6C
restraining commission o$ acts w0ic0
woul# amount to a gra&e &iolation o$ its
$ranc0ise an#
A. Iailure o$ t0e corporation to $ile reEuire#
reports in appropriate $orms as #etermine#
b. t0e /6C wit0in t0e prescribe# perio#
E22ECT' O2 DI''OL(TION
!0e e$$ects o$ #issolution are= (a) legal title
to corporate propert. is &este# in stoc50ol#ers or
members (b) corporation ceases as a bo#. politic to
continue t0e business $or w0ic0 it was organiCe# (c)
it cannot be re&i&e# (#) #issolution #oes not b. itsel$
impl. t0e #iminution or e7tinguis0ment o$ rig0ts (e)
upon e7piration o$ t0e win#ing up perio# o$ 4 .ears@
t0e corporation ceases@ it can no longer sue or be
sue#
COR)ORATE LII(IDATION
6&er. corporation w0ose c0arter e7pires b. its
own limitation or is annulle# b. $or$eiture or
ot0erwise@ or w0ose corporate e7istence $or ot0er
purposes is terminate# in an. ot0er manner@ s0all
ne&ert0eless be continue# as a bo#. corporate $or 4
.ears a$ter t0e time w0en it woul# 0a&e been so
#issol&e#@ $or t0e purpose o$
prosecuting an# #e$en#ing suits b. or
against it
enabling it to settle an# close its a$$airs@
to #ispose o$ an# con&e. its propert. an#
to #istribute its assets@
&(T NOT fo! t3e 1!1ose of #ont"n"n$ t3e
bs"ness fo! ;3"#3 "t ;as establ"s3ed. (t an. time
#uring sai# 4 .ears@ sai# corporation is aut0oriCe#
an# empowere# to con&e. all o$ its propert. to
trustees $or t0e bene$it o$ = stoc50ol#ers@ members@
cre#itors@ an# ot0er persons in interest.
&AR I(E'TION* 2001 &a! E8a%"nat"on
LVM Corporation s0ortene# its corporate li$e b.
amen#ing its articles in corporation. It 0as no #ebt
but owns a prime propert. locate# in BueCon Cit..
4o; ;old t3e 1!o1e!ty be l"="dated a%on$ t3e
f"Be sto#93olde!s of sa"d #o!1o!at"onL D"s#ss
t;o %et3ods of l"="dat"on.
(= !0e prime propert. o$ LVM Corporation can be
liEui#ate# among t0e $i&e stoc50ol#ers a$ter t0e
propert. 0as been con&e.e# b. t0e Corporation to
t0e $i&e stoc50ol#ers@ b. #i&i#ing or partitioning it
among t0emsel&es in an. o$ t0e $ollowing wa.s= (")
b. 13ys"#al d"B"s"on or partition base# on t0e
proportion o$ t0e &alues o$ t0eir stoc50ol#ingsD or
(2) sell"n$ t3e 1!o1e!ty to a t3"!d 1e!son an#
#i&i#ing t0e procee#s among t0e $i&e stoc50ol#ers
in proportion to t0eir stoc50ol#ingsD or (4) a$ter t0e
#etermination o$ t0e &alue o$ t0e propert.@ by
ass"$n"n$ o! t!ansfe!!"n$ t3e 1!o1e!ty to one
sto#93olde! ;"t3 t3e obl"$at"on on t3e 1a!t of t3e
sa"d sto#93olde! to pa. t0e ot0er $our stoc50ol#ers
t0e amount+s in proportion to t0e &alue o$ t0e
stoc50ol#ing o$ eac0.
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:I. Non6'to#9 Co!1o!at"ons
/ome signi$icant #i$$erences between stoc5
an# non8stoc5 are= (a) sub9ect to t0e (rticles
o$ Incorporation or B.8Laws@ t0e rig0t to
&ote ma. be limite#@ broa#ene# or #enie# to
some e7tent. ?nless so pro&i#e#@ eac0
member is entitle# to one &ote. In e7ercising
t0e rig0t@ 0e ma. &ote b. pro7. an# also b.
mail or ot0er similar means as aut0oriCe# b.
t0e (rticles o$ Incorporation or B.8Laws
wit0 t0e appro&al o$ an# un#er con#itions
prescribe# b. t0e /6C (b) members0ip an#
all rig0ts are personal an# non trans$erable
unless pro&i#e# in t0e (rticles o$
Incorporation or B.8Laws. It ma. be
terminate# in t0e manner an# $or causes
pro&i#e# in t0e (rticles o$ Incorporation or
B.8Laws. Courts 0a&e no power to strip
members0ip as it constitutes an unwarrante#
an# un#ue inter$erence wit0 t0e rig0t o$ a
corporation to #etermine its members0ip (c)
it ma. 0a&e an. number o$ trustees as $i7e#
in t0e (rticles o$ Incorporation or B.8law
$rom t0e ran5s o$ its members0ip. !0e term
o$ t0e original trustees is suc0 t0at "+4 o$
t0eir number s0all ser&e $or a .ear@ t0e
secon# "+4 $or two .ears an# t0e t0ir# "+4
$or t0ree .ears. !rustees subseEuentl.
electe# s0all t0en ser&e $or a term o$ t0ree
.ears. !rustees electe# to $ill &acancies@
s0all onl. ser&e $or t0e une7pire# portion (#)
corporate o$$icers are electe# b. t0e
members@ unless ot0erwise pro&i#e# b.
(rticles o$ Incorporation or B.8Laws (e)
meetings can be 0el# outsi#e t0e place o$
principal business. Pro&i#e#@ t0ere be notice
o$ t0e #ate@ time@ an# place but s0oul#
alwa.s be in t0e P0ilippines.
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:II. Close Co!1o!at"ons
( close corporation is a corporation w0ose
articles pro&i#e t0at= (a) all t0e corporation<s
issue# stoc5 o$ all classes@ e7clusi&e o$ treasur.
s0ares@ s0all be 0el# o$ recor# b. not more t0an
a speci$ie# o$ persons not to e7cee# 20 (b) all
issue# stoc5 o$ all classes s0all be sub9ect to one
or more speci$ie# restrictions on trans$er
permitte# in t0is title. (n. restriction can be put
pro&i#e#= (") t0e restriction must appear in t0e
(rticles o$ Incorporation+B.8Laws as well as t0e
certi$icate o$ stoc5@ ot0erwise it is not bin#ing
on a purc0aser in goo# $ait0 (2) it or t0e.
s0oul# not be more onerous t0an t0at granting
t0e e7isting stoc50ol#ers or t0e corporation t0e
option to purc0ase t0e s0ares wit0 suc0
reasonable terms@ con#itions or perio#s state#
t0erein. I$ at t0e en#+e7piration o$ t0e perio#@ a
:ean >e.nal#o ?. (granCamen#eC Page ?? o$ 177
COMMERCIAL LAW
stoc50ol#er+s or t0e corporation $ails to e7ercise
t0e option to purc0ase@ t0e trans$erring
stoc50ol#er ma. sell 0is s0ares to an. t0ir#
person (c)t0e corporation must not list in an.
stoc5 e7c0ange or ma5e an. public o$$ering o$
an. o$ its stoc5 o$ an. class. Notwit0stan#ing@ i$
2+4 o$ its &oting stoc5 or &oting rig0ts is owne#
or controlle# b. anot0er corporation w0ic0 is
not a close corporation wit0in t0e meaning o$
t0e Corporation Co#e@ t0e corporation s0all not
be #eeme# a close corporation.
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:III. '1e#"al Co!1o!at"ons
6#ucational Corporations are stoc5 or non8
stoc5 corporations organiCe# to pro&i#e
$acilities $or teac0ing or instruction an# are
go&erne# b. special laws an# b. general
pro&isions o$ t0e Corporation Co#e. Prior to
its incorporation@ a $a&orable
recommen#ation must be obtaine# $rom t0e
:epartment o$ 6#ucation.
>eligious Corporations are corporations
incorporate# b. one or more persons
classi$ie# as corporation sole or religious
societ.. !0e. are compose# o$ entirel.
spiritual persons an# w0ic0 is organiCe# $or
t0e $urt0erance o$ a religion or $or
perpetrating t0e rig0ts o$ t0e c0urc0 or $or
t0e a#ministration o$ c0urc0 or religious
wor5 or propert.
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:I@. 2o!e"$n Co!1o!at"ons
( $oreign corporation is one $orme#@ organiCe# or
e7isting un#er an. law ot0er t0an t0ose o$ t0e
P0ilippines an# w0ose law allow Iilipino citiCens
an# corporation to #o business in its own countr. or
state (sec "24)
It is N%! permitte# to transact or #o
business in t0e P0ilippines until it 0as
se#!ed a l"#ense $or t0at purpose $rom /6C
an# a #e!t"f"#ate of at3o!"ty $rom t0e
appropriate go&ernment agenc..
W3o "s a RE'IDENT AGENTL An
"nd"B"dal@ w0o must be o$ goo# moral
c0aracter an# o$ soun# $inancial stan#ing@
resi#ing in t0e P0ilippines@ o! a do%est"#
#o!1o!at"on law$ull. transacting business in
t0e P0ilippines@ #esignate# in a written
power o$ attorne. b. a $oreign corporation
aut0oriCe# to #o business in t0e P0ilippines@
on w0om an. summons an# ot0er legal
processes ma. be ser&e# in all actions or
ot0er legal procee#ings against t0e $oreign
corporation. (/ec. "2'8"28)
W3at "s t3e test of DOING OR TRAN'ACTING
&('INE'' IN T4E )4ILI))INE'L !0e
Corporation Co#e #oes not #e$ine t0e p0rase O#oing
or transacting business.O 52002 &a! E8a%"nat"on0
A. .(RI')R(DENTIAL TE'T'*
". !,IN CF(>(C!6>IY(!I%N !6/!
a. 'bstan#e TestK,0et0er t0e
$oreign corporation is maintaining
or continuing in t0e P0ilippines t0e
bo#. or substance o$ t0e business
$or w0ic0 it was organiCe# or
w0et0er it 0as substantiall. retire#
$rom it an# turne# it o&er anot0er)D
an#
b. Cont"n"ty TestK,0et0er t0ere is
continuit. o$ commercial #ealings
an# arrangements@ contemplating to
some e7tent t0e per$ormance o$ acts
or wor5s or t0e e7ercise o$ some
$unctions normall. inci#ent to an#
in progressi&e prosecution o$@ t0e
purpose an# ob9ect o$ its
organiCation
2. C%N!>(C! !6/!
,0et0er t0e contracts entere# into
b. t0e $oreign corporation@ or b. an agent
acting un#er t0e control an# #irection o$
t0e $oreign corporation@ are consummate# in
t0e P0ilippines.
&. 'TAT(TOR+ TE'T'*
?n#er t0e 2o!e"$n InBest%ent A#t of 1//1
(>.(. No. '012) t3e follo;"n$ a#ts #onst"tte
Kdo"n$ bs"nessK=
i. /oliciting or#ers@ ser&ice contract opening
o$$ices@ w0et0er calle# liaison o$$ices or
branc0esD
ii. (ppointing representati&es or #istributors
#omicile# in t0e P0ilippines or w0o in an.
calen#ar .ear sta. in t0e countr. $or a perio#
or perio#s totaling "80 #a.s or moreD
iii. Participating in t0e management@ super&ision
or control o$ an. #omestic business@ $irm or
entit. or corporation in t0e P0ilippinesD an#
i&. (n. ot0er act or acts t0at impl. a continuit.
o$ commercial #ealings or arrangements@ an#
contemplate to t0at e7tent t0e per$ormance o$
acts or wor5s@ or t0e e7ercise o$ some o$@ t0e
$unctions normall. inci#ent to@ an# in
progressi&e prosecution o$@ commercial gain
or o$ t0e purpose o$ t0e business
organiCation.
.!"s1!dent"al Rles
1. Do#t!"ne of Isolated T!ansa#t"ons
Ioreign Corporations@ e&en unlicense# ones@
can sue or be sue# on a transaction or series
o$ transactions set apart $rom t0eir common
:ean >e.nal#o ?. (granCamen#eC Page ?A o$ 177
COMMERCIAL LAW
business in t0e sense t0at t0ere is no
intention to engage in a progressi&e pursuit
o$ purpose an# ob9ect o$ t0e business
transaction. (eri5s Pte. Lt# &s. C(@ 26'
/C>( 56')
2. In )a!" Del"#to Rle
In t0e case o$ !op8,el# *anu$acturing &s.
6C6:@ /(.@ t0e Court #enie# t0e relie$
pra.e# $or b. t0e petitioner w0en it rule#
t0at t0e &er. purpose o$ t0e law was
circum&ente# an# e&a#e# w0en t0e
petitioner entere# into t0e sai# agreements
#espite t0e pro0ibition containe# in t0e
Euestione# law. !0e parties are consi#ere#
in pari #elicto because t0e. eEuall. &iolate#
>( 5155.
,. Esto11el Rle
( part. is stoppe# $rom Euestioning t0e
capacit. o$ a $oreign corporation to institute
an action in our courts w0ere it 0a# obtaine#
bene$its $rom its #ealings wit0 suc0 $oreign
corporations an# t0erea$ter committe# a
breac0 or soug0t to renege on its
obligations. (*errill L.nc0 &s. C(@ -> No.
)'8"60@ 3ul. 21@ "))2)
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:@. Co!1o!ate Re3ab"l"tat"on
W3o #an f"leL Iiling o$ t0e 6>III6: P%/I!I%N
wit0 t0e appropriate >!C b.=
a. Corporate #ebtor w0ic0 $oresees t0e
impossibilit. o$ meeting its #ebts w0en
t0e. respecti&el. $all #ueD or
b. Cre#itors 0ol#ing at least 25T o$ t0e
#ebtor<s total liabilities
?pon $iling an# subseEuent #etermination b.
t0e court t0at t0e petition is su$$icient in $orm
an# substance@ a sta. or#er ma. be issue#.
( stay o!de! ;"ll- a%on$ ot3e!s- #onta"n t3e
follo;"n$= (a)(ppointment o$ a re0abilitation
recei&er or a management committee@ w0o as
long is acting in goo# $ait0 is immune $rom suit
(b) /ta. o$ en$orcement o$ all claims@
w0et0er $or mone. or ot0erwise@ an# w0et0er
suc0 en$orcement is b. court action or
ot0erwise against t0e #ebtor@ its guarantors@ an#
sureties not soli#aril. liable wit0 t0e #ebtor (c)
Pro0ibiting t0e #ebtor $rom selling@
encumbering@ trans$erring@ or #isposing in an.
manner an. o$ its properties@ e7cept in t0e
or#inar. course o$ business (#) Pro0ibiting t0e
#ebtor $rom ma5ing an. pa.ment o$ its
outstan#ing liabilities as o$ t0e #ate o$ t0e $iling
o$ t0e petition (e)Pro0ibiting t0e #ebtor<s
supplies o$ goo#s an# ser&ices $rom
wit00ol#ing supplies an# ser&ices in t0e
or#inar. course o$ business $or as long as t0e
#ebtor ma5es pa.ments $or t0e ser&ices an#
goo#s supplie# a$ter t0e issuance o$ t0e sta.
or#er
)!o#eed"n$s %ay be te!%"nated "n #ase o$ (a)
$ailure o$ t0e #ebtor to submit t0e re0abilitation
plan (b) #isappro&al o$ t0e plan b. t0e court (c)
$ailure o$ re0abilitation #ue to $ailure to ac0ie&e
#esire# targets or goal (#) $ailure o$ #ebtor to
per$orm 0is obligations (e) #etermination t0at
t0e plan ma. no longer be implemente# wit0 its
terms@ con#itions or assumptions ($) upon
success$ul implementation o$ t0e plan.
2007 &a! E8a%"nat"on* W3at "s t3e !at"onale fo!
t3e 'tay O!de!L
T3e stay o!de! "s a !e#o$n"t"on t3at all assets of a
#o!1o!at"on nde! !e3ab"l"tat"on a!e 3eld "n t!st
fo! t3e e=al benef"t of all #!ed"to!s nde! t3e
do#t!"ne of De=al"ty "s e="tyM. (s all cre#itors
oug0t to stan# on eEual $ooting@ not an. one o$ t0em
s0oul# be pai# a0ea# o$ ot0ers (>ub. In#ustrial
Corp. &. Court o$ (ppeals@ 281 /C>( 115@ 1160
R"))8S). Iurt0ermore@ t0e sta. or#er will enable t0e
management committee or re0abilitation recei&er to
e$$ecti&el. e7ercise its or 0is powers $ree $rom
9u#icial or e7tra9u#icial inter$erence t0at mig0t
un#ul. 0in#er or pre&ent re0abilitation o$ t0e
corporation or 0in#er or pre&ent t0e LrescueM o$ t0e
#istresse# compan.@ rat0er t0an to waste its+0is time@
e$$ort an# resources in #e$en#ing claims against t0e
corporation (>ubberworl#( P0ils.)@ Inc. &. NL>C@
405 /C>( '2" R2000S).
'C a11!oBed Inte!"% Rles of )!o#ed!e
On Co!1o!ate Re3ab"l"tat"on 520000
". Iiling o$ t0e 6>III6: P%/I!I%N wit0 t0e
appropriate >!C b.=
a. Corporate #ebtor w0ic0 $oresees t0e
impossibilit. o$ meeting its #ebts w0en
t0e. respecti&el. $all #ueD or
b. Cre#itors 0ol#ing at least 25T o$ t0e
#ebtor<s total liabilities
2. !0e $ollowing s0all be (NN6V6: !% !F6
P6!I!I%N=
a. (u#ite# Iinancial /tatements at en# o$
its last $iscal .ear
b. Interim Iinancial /tatements
c. /c0e#ule o$ :ebts an# Liabilities
#. In&entor. o$ (seets
e. >e0abilitation Plan
$. /c0e#ule o$ Pa.ments N :isposition
o$ (ssets w+in 4 mos. prece#ing $iling
o$ Petition
g. /c0e#ule o$ Cas0 Ilow $or t0e last 4
mos.
0. /tatement o$ Possible Claims
i. ($$i#a&it o$ -eneral Iinancial
Con#ition
9. (t least 4 nominations $or re0ab.
recei&er
COMMERCIAL LAW
5. Certi$icate un#er oat0 t0at #irectors N
/Fs 0a&e irre&ocable
appro&e#+consente# to all
actions+matters necessar. un#er re0ab.
plan
4. !0e >6F(BILI!(!I%N PL(N
1. Issuance o$ /!(U %>:6> not later t0an
5#a.s $rom $iling o$ petition w0ic0@ among
ot0ers@ s0all=
a. (ppoint a re0abilitation recei&er $or
t0e petitioning corporate #ebtor
b. /ta. all actions $or claims against t0e
#ebtor@ w0ic0 s0all co&er bot0 secure#
N unsecure# cre#itors or claimants
c. /et an initial 0earing $or t0e PetitionD
an#
#. :irect t0e cre#itors N ot0er intereste#
parties to $ile t0eir &eri$ie# comment
on or opposition to t0e petition not
later t0an "0 #a.s be$ore t0e initial
0earing an# putting t0em on notice t0at
t0eir $ailure to #o so woul# bar t0em
$rom participating in t0e procee#ings
5. P?BLIC(!I%N %I !F6 /!(U %>:6> in a
newspaper o$ general circulation in t0e
P0ilippines once a wee5 $or 2 consecuti&e
wee5s w0ic0 ma5es t0e procee#ing in r!m in
nature.
6. INI!I(L F6(>IN- %N P6!I!I%N not
earlier t0an 15 #a.s but not later t0an 60 #a.s
$rom $iling o$ Petition
'. >6I6>>(L %I >6F(BILI!(!I%N PL(N
!% >6F(BILI!(!I%N >6C6I6> w0o
s0all submit 0is recommen#ation t0ereon to
t0e >!C not later t0an )0 #a.s $rom t0e initial
0earing
8. *66!IN-/ B6!,66N C%>P%>(!6
:6B!%> (N:+%> >6F(BILI!(!I%N
>6C6I6> wit0 t0e cre#itors an# ot0er
intereste# parties@ w0ic0 s0oul# ta5e place
be$ore t0e $inal re&ision o$ t0e plan prior to its
$inal submission to t0e >!C $or appro&al
). *%:IIIC(!I%N %> >6I/I%N b. t0e
#ebtor %I !F6 >6F(BILI!(!I%N PL(N.
"0. /?B*I//I%N %I ( IIN(L
>6F(BILI!(!I%N PL(N to t0e >!C $or
its appro&al
"". !0e P6!I!I%N /F(LL B6 :I/*I//6:
Rw0ic0 results into t0e automatic li$ting o$
t0e sta. or#er unless ot0erwise or#ere# b.
t0e >!CS i$ no re0abilitation plan is
appro&e# b. t0e >!C a$ter "80 #a.s $rom
t0e #ate o$ initial 0earing
"2. (PP>%(L %> :I/(PP>%(L o$ t0e
re0abilitation plan b. t0e >!C=
I$ appro&e#@ implementation o$ t0e plan an#
mo#i$ications in t0e course t0ereo$ i$ necessar. to
meet t0e #esire# business targetsD I$ not appro&e#@
Petition s0all be #ismisse#
7888888888888888888888888888888888888888888888888888888888887
:@I. Ot3e! Matte!s
'EC .!"sd"#t"on* original an# e7clusi&e
9uris#iction
(") $rau#ulent #e&ices an# sc0emes
emplo.e# b. #irectors #etrimental to
public interest
(2) intra8corporate #isputes an# wit0 t0e
state in relation to t0eir $ranc0ise an#
rig0t to e7ist as suc0
(4) Contro&ersies in t0e election@
appointment o$ #irectors@ trustees@ etc.
(1) petition to be #eclare# in a state o$
suspension o$ pa.ments
NOTE* A#t"ons "nBolB"n$ "nt!a6#o!1o!ate
#ont!oBe!s"es a!e #o$n"zable by t3e Re$"onal
T!"al Co!t N%! b. t0e /ecurities an# 67c0ange
Commission@ #esignate# b. t0e /upreme Court
un#er /C (#m. *emo No. 008""804@ w0ic0 0as
9uris#iction o&er t0e principal o$$ice o$ t0e
corporation@ partners0ip or association concerne#
(/ec. 5@ >ule "@ /C (#m. *emo. No. 028281). 52007
&a! E8a%"nat"on0
INTRA6COR)ORATE DI')(TE'
". Ior an intra8corporate #ispute to e7ist@ t0ere
must be an intra8corporate relations0ip an# t0e
contro&ers. must arise $rom t0e sai# relations0ip.
!0e contro&ers. must be intrinsicall. connecte#
wit0 t0e regulation o$ t0e internal a$$airs o$ t0e
corporation. ((rranCa &s. BI Fomes@ 444 /C>(
')))
2. >( 8'))@ w0ic0 became e$$ecti&e on
(ugust 8@ 2000@ trans$erre# t0e /6C<s 9uris#iction
o&er intra8corporate #isputes to courts o$ general
9uris#iction or regional trial courts.
4. ( court t0at is not #esignate# as a special
commercial court is not &este# wit0 9uris#iction o&er
cases pre&iousl. cogniCable b. t0e /6C an# #oes
not 0a&e t0e reEuisite power to or#er t0e trans$er o$
cases erroneousl. $ile# wit0 it to anot0er branc0 o$
t0e >!C@ t0e onl. action it coul# ta5e on t0e matter
is to #ismiss t0e petition $or lac5 o$ 9uris#iction
( Calle9a &s. Pan#a.@ 184 /C>( 680)
'EC(RITIE' AND T4EIR REG(LATION
". In general@ securities are /0ares@
Participation or Interest (/PI) in a Corporation or in
a Commercial enterprise or Pro$it8ma5ing &enture
(CCP) an# e&i#ence# b. a Certi$icate@ ContractD
Instrument@ w0et0er written or electronic in
c0aracter (CCI).
2. /ecurities >egistration is man#ate# to
accomplis0 its ob9ecti&e o$ #isclosure to potential
in&estors.!0e reasons $or man#ating registration are
(a) !o gi&e a#eEuate protection an# reliable
in$ormation to t0e in&esting public (b) !o ensure
compliance wit0 t0e law b. t0e issuer (c)!o allow
onl. an issuer w0o is sol&ent@ o$ goo# repute an#
c0aracter@ an# w0ose business is base# on soun#
business principles.
4. Commo#it. Iutures Contracts an# Pre8Nee#
Plans are also reEuire# to t0e registere#.
:ean >e.nal#o ?. (granCamen#eC Page ?C o$ 177
COMMERCIAL LAW
4." ( Commo#it. Iutures Contract is a present
rig0t to recei&e at a $uture #ate a speci$ic Euantit. o$
a gi&en commo#it. $or a $i7e# price. !0e. are
commitments to bu. or sell commo#ities at a
speci$ie# time an# place in t0e $uture. !0e ob9ect is
to realiCe pro$its in anticipation o$ a $a&orable
c0ange in price.
4.2 ( pre8nee# plan is a contract t0at pro&i#es
$or t0e per$ormance o$ $uture ser&ices or t0e
pa.ment o$ $uture monetar. consi#erations at t0e
time o$ actual nee#@ $or w0ic0 plan 0ol#ers pa. in
cas0 or installment at state# prices@ wit0 or wit0out
interest or insurance co&erages an# inclu#es li$e@
pension@ e#ucation@ internment@ an# ot0er plans
w0ic0 /6C s0all appro&e.
'EC(RITIE' MANI)(LATION
". *anipulation is an arti$icial control o$
securit. pricesD it is an attempt to $orce securities to
sell at prices eit0er abo&e or below t0ose w0ic0
woul# e7ist as a result o$ t0e normal operations o$
suppl. an# #eman#. !0e manipulator 0opes to pro$it
b. creating $ictitious prices at t0e e7pense o$ t0e
general tra#ing public.
IN'IDER TRADING
". Insi#er !ra#ing occurs w0en an insi#er sells
or bu.s a securit. o$ t0e issuer@ w0ile in possession
o$ material in$ormation wit0 respect to t0e issuer or
t0e securit. t0at is not generall. a&ailable to t0e
public@ unless= (a) t0e insi#er pro&es t0at t0e
in$ormation was not gaine# $rom suc0 relations0ipD
or (b) I$ t0e ot0er part. selling to or bu.ing $rom t0e
insi#er (or 0is agent) is i#enti$ie#@ t0e insi#er pro&es=
(i) t0at 0e #isclose# t0e in$ormation to t0e ot0er
part.@ or (ii) t0at 0e 0a# reason to belie&e t0at t0e
ot0er part. ot0erwise is also in possession o$ t0e
in$ormation.
( purc0ase or sale o$ a securit. o$ t0e issuer ma5e
b. an insi#er #e$ine# in /ubsection 4.8@ or suc0
insi#er<s spouse or relati&es b. a$$init. or
consanguinit. wit0in t0e secon# #egree@ legitimate
or common8law@ s0all be presume# to 0a&e been
e$$ecte# w0ile in possession o$ material non8public
in$ormation i$ transacte# a$ter suc0 in$ormation
came into e7istence but prior to #issemination o$
suc0 in$ormation to t0e public an# t0e lapse o$ a
reasonable time $or t0e mar5et to absorb suc0
in$ormation= Pro&i#e#@ 0owe&er@ !0at t0is
presumption s0all be rebutte# upon a s0owing b. t0e
purc0aser or seller t0at 0e was not aware o$ t0e
material non8public in$ormation at t0e time o$ t0e
purc0ase or sale.
2. (n LInsi#erM s0all inclu#e= (a) t0e Issuer (b)
a #irector or o$$icer o$@ or a person controlling@
controlle# b.@ or un#er common control wit0 Issuer
(c)a person w0ose relations0ip or $ormer
relations0ip to Issuer gi&es or ga&e 0im access to a
$act o$ special signi$icance about Issuer or t0e
securit. t0at is not generall. a&ailable (#) a
go&ernment emplo.ee@ or #irectors@ or o$$icer o$ an
e7c0ange@ clearing agenc. an#+or />% w0o 0as
access to material in$ormation about an Issuer or a
securit. t0at is not generall. a&ailable to t0e public
(e) a person w0o learns suc0 a $act $rom an. o$ t0e
$oregoing insi#ers wit0 5nowle#ge t0at t0e person
$rom w0om 0e learns t0e $act is an insi#er.
4. In$ormation is consi#ere# Lmaterial non8
publicM i$= (a) It 0as not been generall. #isclose# to
t0e public an# woul# li5el. a$$ect t0e mar5et price
o$ t0e securit. a$ter being #isseminate# to t0e public
an# t0e lapse o$ a reasonable time $or t0e mar5et to
absorb t0e in$ormationD or (b) woul# be consi#ere#
b. a reasonable person important un#er t0e
circumstances in #etermining 0is course o$ action
w0et0er to bu.@ sell or 0ol# a securit..
:ean >e.nal#o ?. (granCamen#eC Page ?H o$ 177
COMMERCIAL LAW
I N ' ( R A N C E I N ' ( R A N C E
)D 1?70
)RELIMINARIE'
A. Def"n"t"on of Cont!a#t of Ins!an#e
&. Re="s"tes of Ins!an#e Cont!a#t
C. Con#eal%ent and Re1!esentat"on
D. K"nds of )ol"#y
E. Wa!!ant"es "n Ins!an#e Cont!a#t
2. Doble Ins!an#e
G. Re"ns!an#e Cont!a#t
4. Ma!"ne Ins!an#e
I .Losses
. .Abandon%ent
K. K"nds of Ins!an#e
L. Moto! @e3"#le Ins!ane
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
6
W4AT LAW' GO@ERN IN'(RANCE
(a) Insurance Co#e (P: "160 H w0ose
a$$ecti&it. #ate is "" 3une ")'8)
(b) In absence o$ applicable pro&isions@ t0e
Ci&il Co#eD
(c) In absence o$ applicable pro&isions in
t0e Insurance Co#e an# Ci&il Co#e@ t0e
general principles on t0e sub9ect in t0e
?nite# /tates (!onstantino vs- Asia
Life *nsurance, &) Phil ./&0
W4AT I' A CONTRACT O2 IN'(RANCE
- It is an agreement w0ereb. one
un#erta5es $or a consi#eration to
in#emni$. anot0er against loss@
#amage@ or liabilit. arising $rom an
un5nown or contingent e&entD
- ( contract of suretyship s0all also
be #eeme# an insurance contract i$
ma#e b. a suret. w0o or w0ic0 is
#oing an insurance businessD
:oing an insurance business or transacting an
insurance business is=
(a) ma5ing or proposing to ma5e as insurer
an. insurance contractD
(b) ma5ing or proposing to ma5e as suret.
contract o$ suret.s0ip as a &ocation an#
not merel. inci#ental to an. ot0er
legitimate business or acti&it. o$ t0e
suret.D
(c) #oing an. business inclu#ing a
reinsurance business@ speci$icall. as
#oing an insurance business wit0in t0e
0earing o$ t0e Co#eD
(#) #oing or proposing to #o an. business
in substance eEui&alent to an. o$ t0e
$oregoing in a manner #esigne# to
e&a#e t0e pro&isions o$ t0e Co#e
(section 2)D
N(!?>6 (N: CF(>(C!6>I/!IC/ %I (
C%N!>(C! %I IN/?>(NC6
1. It "s an ALEATOR+ #ont!a#t G
2. It "s a #ont!a#t of INDEMNIT+ fo! Non6L"fe
G !eco&er. is commensurate to t0e loss. *t is an
investment in life insurance 1 secure# b. t0e
insure# as a measure o$ economic securit. $or
0im #uring 0is li$etime an# $or 0is bene$iciar.
upon 0is #eat0 e8#e1t one secure# b. t0e
cre#itor on t0e li$e o$ t0e #ebtorD
,. It "s a )ER'ONAL #ont!a#t
?. It "s E:EC(TOR+ and CONDITIONAL on
1a!t of t3e "ns!e!
A. It "s one of )ER2ECT GOOD 2AIT4
7. It "s a #ont!a#t of AD4E'ION G insurance
companies manage to impose upon t0e insure#
prepare# contracts@ w0ic0 t0e insure# cannot
c0ange. ConseEuentl.@ t0e. are to construe# as
$ollows=
(a) In case t0ere is no #oubt as to t0e terms o$
t0e insurance contract@ it is to be
construe# in its 1la"n- o!d"na!y- an#
1o1la! senseO
(b) I$ dobtfl- a%b"$os- #e!ta"n- it is to
be construe# strictl. against t0e insurer
an# liberall. in $a&or o$ t0e insure#
because t0e latter 0as no &oice in t0e
selection o$ t0e wor#s use#@ an# t0e
language use# is selecte# b. t0e law.ers
o$ t0e Insurer (Bua C0ee -an &s. Law
?nion >oc5 Ins. Co. Lt#. 52 %- ")82)
Illustrations=
a. P Ban5 obtaine# insurance against robber.@
w0ic0 e7clu#e# loss b. an. criminal act o$
t0e insure# or an. aut0oriCe# representati&e.
,0ile trans$erring $un#s $rom one branc0 to
anot0er@ t0e insure#<s armore# truc5 was
robbe#. !0e #ri&er was assigne# b. a labor
contractor wit0 t0e insure#@ w0ile t0e
securit. guar# was assigne# b. an agenc.
contracte# b. t0e insure#. Bot0 #ri&er an#
guar# were $oun# to be in&ol&e#. Can t0e
loss be e7clu#e#Q 4ELD* T3e loss "s
e8#lded - t3e d!"Be!<$a!d alt3o$3
ass"$ned by labo! #ont!a#to!s G a!e
at3o!"zed !e1!esentat"Bes. !0e terms are
clear an# unambiguous. (Iortune Insurance
&s. C(@ 211 /C>( 408).
b. Personal (cci#ent policies pro&i#ing
pa.ment $or Dloss of 3andE. !0e insurance
:ean >e.nal#o ?. (granCamen#eC Page ?/ o$ 177
COMMERCIAL LAW
polic. #e$ines it as amputation. !0e insure#
0as an acci#ent resulting in a temporar.
total #isabilit. but 0an# is not amputate#.
4ELD* Ins!e! "s not l"able. (!. &s. Iirst
National /uret. an# (ssurance Compan. H
"' /C>( 461) &t G In cas! )h!r! #h!
polic& provid!d loss o %o#h, l!"s %&
ampu#a#ion, a claim a"ains# #h! polic& )as
allo)!d or a #o#al paral&sis #o !$clud! #o#al
paral&sis is con#rar& #o pu%lic polic&, pu%lic
"ood and sound morali#&, as i# )ould orc!
#h! insur!d #o hav! his l!"s ampu#a#!d #o %!
a%l! #o claim on #h! polic&. (Panaton &s.
*ala.an H 2 Court o$ (ppeals '84)
#. ,arrant. in a $ire insurance polic.
pro0ibite# storage o$ oils 0a&ing a $las0
point o$ below 400 Ia0ren0eit. -asoline is
store#. Is t0ere a polic. &iolationQ 4ELD*
"he clause is ambiguous- *n ordinary
parlance oils means lubricants H not
gasoline. !0ere is no reason w0. gasoline
coul# not be e7presse# clearl. in t0e
language public can rea#il. un#erstan#.
(Bua C0ee -an)
d. (n action to reco&er t0e amount o$ PFP
2@000.00 #ue to #eat0 b. #rowning w0ere
t0e polic. pro&i#e# $or in#emnit. in t0e
amount o$ PFP "@000.00 to PFP 4@000.00
4ELD* "he interpretation of the obscure
stipulation in contract must not favor the
one #ho caused the obscurity- Fence@
9u#gment $or a##itional PFP 2@000.00 was
a$$irme#. (:el >osario &s. 6Euitable
Insurance an# Casualt. Compan.@ 8 /C>(
414)
e. :enial o$ a claim on t0e groun# t0at t0e
insure# &e0icle was a D1!"BateE t.pe
&e0icle on t0e groun# t0at t0e polic. issue#
to t0e insure# was a common carrier<s
liabilit.@ Insurance polic. w0ic0 co&ers a
public &e0icle $or 0ire. 4ELD* *nsurer is
liable as it #as a#are all along that the
vehicle of the insured #as a private
vehicle- (Iiel#man Insurance &s. *erce#es
argas &#a :e /ongco@ 25 /C>( '0)
f. :enial o$ a claim $or bene$it #ue to t0e
#eat0 o$ Ila&iano Lan#ic0o in a plane cras0
un#er t0e -/I/ polic. on t0e groun# o$ non
pa.ment o$ t0e premium. 4ELD* !0e
polic. containe# a pro&ision t0at t0e
application $or insurance is aut0orit. $or
-/I/ to cause t0e #e#uction o$ premium
$rom t0e insure#<s salar.. (Lan#ic0o &s.
-/I/@ 11 /C>( ')
%t0er case re$erence= Ne; L"fe Ente!1!"ses Bs. CA-
20C 'CRA 77/
*(>IN6 >I/A N%!6 I/ N%! (N IN/?>(NC6
P%LICU H Certainl. it woul# be obtuse $or us to
e&en to entertain t0e i#ea t0at t0e insurance contract
between *ala.an an# (BB Aoppel was actuall.
constitute# b. t0e *arine >is5 Note alone.
(*ala.an Insurance Co. &s. >egis Bro5erage
Corporation No&. 24 200' -.>. No. "'2"56)
W4AT ARE T4E ELEMENT' O2 AN
IN'(RANCE CONTRACT
". !0e insure# s0oul# possess an interest o$
some 5in#@ susceptible o$ 1e#n"a!y
est"%at"on H 5nown as D"ns!able
"nte!estE. -enerall. H a person 0as
insurable interest in t0e sub9ect matter
insure# w0en=
- Fe 0as suc0 a !elat"on or
#onne#t"on ;"t3 or #on#e!n in@
suc0 sub9ect matter t0at 0e will
#eri&e 1e#n"a!y benef"t or
adBanta$e $rom its 1!ese!Bat"on or
;"ll sffe! 1e#n"a!y loss or
da%a$e $rom its d!s#ruc#ion,
#!rmina#ion or inAur& %& #h!
happ!nin" o #h! !v!n# insur!d
a"ains#.
- It is necessar. because its absence
ren#ers t0e contract Bo"d. !0is is
base# on t0e principle t0at insurance
is a contract o$ in#emnit.. If t3e
"ns!ed 3as no "nte!est- 3e ;"ll not
stand to sffe! loss o! "nN!y by
t3e 3a11en"n$ of t3e eBent
"ns!ed a$a"nst.
IN'(RANCE CONTRACT H RLoss co&ere# b.
t0e insurance polic.D Bur#en o$ proo$ to pro&e t0at
sameS (n. loss or #amage 0appening #uring t0e
e7istence o$ abnormal con#itions (w0et0er p0.sical
or ot0erwise) w0ic0 are occasione# b. or t0roug0 in
conseEuence #irectl. or in#irectl.@ o$ an. o$ t0e sai#
occurrences s0all be #eeme# to be loss or #amage
w0ic0 is not co&ere# b. t0e insurance@ e7cept to t0e
e7tent t0at t0e insure# s0all pro&e t0e loss or
#amage@ 0appene# in#epen#entl. o$ t0e e7istence o$
suc0 abnormal con#itions.
(n Insurance contract@ being a contract o$
a#0esion@ s0oul# be so interprete# as to carr. out t0e
purpose $or w0ic0 t0e parties entere# into t0e
contract w0ic0 is to insure against ris5s o$ loss or
#amage to t0e goo#s. Limitations o$ liabilit. s0oul#
be regar#e# wit0 e7treme 9ealous. an# must be
construe# in suc0 a wa. as to preclu#e t0e insurer
$rom noncompliance wit0 its obligations. (:BP Pool
o$ (ccre#ite# Insurance Companies &. >a#io
*in#anao Networ5@ Inc. 3an. 2'@ 2006@ -.>. No.
"1'04))
ETERNAL GARDEN' MEMORIAL )ARK
COR)ORATION Bs. T4E )4ILI))INE
AMERICAN LI2E IN'(RANCE COM)AN+
5G.R. No. 1772?A- A1!"l /- 200H0
:ean >e.nal#o ?. (granCamen#eC Page A0 o$ 177
COMMERCIAL LAW
Philamlife2s assumption of ris+ of loss #ithout
approving the application- - !0e Euestion arises as
to w0et0er P0ilamli$e assume# t0e ris5 o$ loss
wit0out appro&ing t0e application.
!0is Euestion must be answere# in t0e a$$irmati&e.
It must be remembere# t0at an insurance contract is
a contract o$ a#0esion w0ic0 must be construe#
liberall. in $a&or o$ t0e insure# an# strictl. against
t0e insurer in or#er to sa$eguar# t0e latter<s interest.
!0us@ in >ala&an Insuranc! Corpora#ion v. Cour# o
App!als@ t0is Court 0el# t0at=
In#emnit. an# liabilit. insurance policies
are construe# in accor#ance wit0 t0e general
rule o$ resol&ing an. ambiguit. t0erein in
$a&or o$ t0e insure#@ w0ere t0e contract or
polic. is prepare# b. t0e insurer. A #ont!a#t
of "ns!an#e- be"n$ a #ont!a#t of
ad3es"on- 1a! e8#ellen#e- any a%b"$"ty
t3e!e"n s3old be !esolBed a$a"nst t3e
"ns!e!D in ot0er wor#s@ it s0oul# be
construe# liberall. in $a&or o$ t0e insure#
an# strictl. against t0e insurer. Limitations
o$ liabilit. s0oul# be regar#e# wit0 e7treme
9ealous. an# must be construe# in suc0 a
wa. as to preclu#e t0e insurer $rom
noncompliance wit0 its obligations.
In t0e more recent case o$ Philamcare 3ealth
%ystems, *nc- v- !ourt of Appeals@ we reiterate# t0e
abo&e ruling@ stating t0at=
,0en t0e terms o$ insurance contract
contain limitations on liabilit.@ courts s0oul#
construe t0em in suc0 a wa. as to preclu#e
t0e insurer $rom non8compliance wit0 0is
obligation. Being a contract o$ a#0esion@ t0e
terms o$ an insurance contract are to be
construe# strictl. against t0e part. w0ic0
prepare# t0e contract@ t0e insurer. B. reason
o$ t0e e7clusi&e control o$ t0e insurance
compan. o&er t0e terms an# p0raseolog. o$
t0e insurance contract@ ambiguit. must be
strictl. interprete# against t0e insurer an#
liberall. in $a&or o$ t0e insure#@ especiall. to
a&oi# $or$eiture.
20
G4L RE%5R"%, *$!-, vs. P3*L*PP*$E
!3AR"ER *$%4RA$!E !5RP5RA"*5$ (G-R-
$o- '67'7) 8ay '7, .9960
Provisions of insurance policy: no piecemeal
construction or segregation of certain stipulations
allo#ed: all parts should be reflective of clear
intent of parties-; !0e polic. cannot be construe#
piecemeal. Certain stipulations cannot be segregate#
an# t0en ma#e to controlD neit0er #o particular
wor#s or p0rases necessaril. #etermine its c0aracter.
Petitioner cannot $ocus on t0e eart0Eua5e s0oc5
en#orsement to t0e e7clusion o$ t0e ot0er pro&isions.
(ll t0e pro&isions an# ri#ers@ ta5en an# interprete#
toget0er@ in#ubitabl. s0ow t0e intention o$ t0e
parties to e7ten# eart0Eua5e s0oc5 co&erage to t0e
two swimming pools onl..
!ontract of insurance: payment of premium by the
insured, an important element of the contract:
!ourt2s finding that no premium payments #ith
regard to earthqua+e shoc+ coverage, except on the
t#o s#imming pools-; ( care$ul e7amination o$ t0e
premium recapitulation will s0ow t0at it is t0e clear
intent o$ t0e parties to e7ten# eart0Eua5e s0oc5
co&erage onl. to t0e two swimming pools. /ection
2(") o$ t0e Insurance Co#e #e$ines a contract o$
insurance as an agreement w0ereb. one un#erta5es
$or a consi#eration to in#emni$. anot0er against
loss@ #amage or liabilit. arising $rom an un5nown or
contingent e&ent. !0us@ an insurance contract e7ists
w0ere t0e elements concur.
IN ,F(! :%6/ ( P6>/%N F(6 IN/?>(BL6
IN!6>6/! IN (LII6)
6&er. person 0as an insurable interest in t0e
L"fe an# 4ealt3 o$=
".0imsel$@ 0is spouse an# o$ 0is c0il#renD
2.an. person on w0om 0e #epen#s w0oll. or
in $act $or e#ucation or support or in w0om 0e 0as
pecuniar. interest (Note article ")5 o$ t0e Iamil.
Co#e speci$.ing t0e persons obligate# to support
eac0 ot0er. E8a%1le G pecuniar. interest8partners@
emplo.ees)D
4.an. person un#er legal obligation to 0im
$or t0e pa.ment o$ mone.@ respecting propert. or
ser&ices o$ w0ic0 #eat0 or illness mig0t #ela. or
pre&ent per$ormance. E8a%1le G *ortgagors@
:ebtors.
1.(n. person upon w0ose li$e@ an. estate or
interest &este# in 0im #epen#s (E8a%1le G
?su$ructuar. V allows U to recei&e $ruits o$ t0e lan#
o$ t0e $ormer as long as 0e is ali&e. U 0as insurable
interest in li$e o$ V@ because t0e #eat0 o$ V will
terminate 0is rig0t an# cause 0im #amage. (/ection
"0)
W4AT I' T4E &A'I' O2 IN'(RA&LE
INTERE'T IN LI2E
- It e7ist w0en t0ere is reasonable groun#
$oun#e# on t0e relation o$ t0e parties@ eit0er
1e#n"a!y or #ont!a#tal or by blood or
by aff"n"ty to e7pect some bene$it $rom t0e
continuance o$ li$e o$ t0e insure#D
W4EN M('T IN'(RA&LE INTERE'T IN
LI2E E:I'T
- Insurable interest in li$e must e7ist at t3e
t"%e of t3e effe#t"B"ty of t3e 1ol"#y an#
nee# not e7ist at t0e time o$ t0e #eat0 o$ t0e
insure# as li$e insurance is not a contract o$
in#emnit.. It "s %eant to $"Be f"nan#"al
se#!"ty to t3e "ns!ed o! 3"s benef"#"a!"es
(/ection ")). Fowe&er@ insurable interest o$
a cre#itor on t0e li$e o$ t0e #ebtor must e7ist
onl. at t0e time o$ e$$ecti&it. but also at t0e
time o$ t0e #eat0 o$ t0e #ebtor H as in t0is
instance it is a contract o$ in#emnit.. 4"s
COMMERCIAL LAW
"nte!est "s #a1able of e8a#t 1e#n"a!y
%eas!e%ent.
W4AT I' T4E E:TENT O2 IN'(RA&LE
INTERE'T IN ONE>' LI2E
- Fe 0as unlimite# interest in 0is own li$e or
t0at o$ anot0er person regar#less o$ w0et0er
or not t0e latter 0as insurable interest.
Pro&i#e#@ t0at i$ t0e bene$iciar. 0as no
insurable interest@ t0ere is no $ore or ba#
$ait0. But i$ 0e ta5es out a polic. on t0e li$e
o$ anot0er an# names 0imsel$ as t0e
bene$iciar.@ 0e must 0a&e an insurable
interest in t0e li$e o$ t0e insure#D
IN'(RA&LE INTERE'T H !0e insurable interest
o$ e&er. member o$ petitioner<s 0ealt0 care program
in obtaining t0e 0ealt0 care agreement is 0is own
0ealt0. ?n#er t0e agreement@ petitioner is boun# to
in#emni$. an. member w0o incurs 0ospital@ me#ical
or an. ot0er e7pense asising $rom sic5ness@ in9ur. or
ot0er stipulate# contingenc. to t0e e7tent agree#
upon un#er t0e contract. (P0ilippine Fealt0 Care
Pro&i#ers Inc. . Commissioner o$ Internal
>e&enue@ 3un. "2 2008 -.>. "6'440)
I/ !F6 C%N/6N! %I !F6 IN/?>6:
>6B?I>6: ,F6N IN/?>(NC6 I/ !(A6N
- !0e law #oes not reEuire t0e consent o$ t0e
person insure# an# suc0 0as been
consi#ere# as not essential to t0e &ali#it. o$
t0e contract as long as t0ere is insurable
interest at t0e beginningD
IN ,F(! :%6/ ( P6>/%N F(6 IN/?>(BL6
IN!6>6/! IN P>%P6>!U
- ( person 0as insurable interest in propert.
as eBe!y "nte!est "n 1!o1e!ty- ;3et3e!
!eal o! 1e!sonal- o! any !elat"on t3e!eto-
o! l"ab"l"ty "n !es1e#t t3e!eof- of s#3
nat!e t3at a #onte%1lated 1e!"l %"$3t
d"!e#tly da%n"fy t3e "ns!ed "s an
"ns!able "nte!est (section "4). It ma.
consist o$=
(a) (n e7isting interest
(b) (n inc0oate interest $oun#e# on an
e7isting interest H (:e$ine#= Interest in
real estate w0ic0 is not a present
interest but w0ic0 ma. ripen into a
&este# interest i$ not barre#@
e7tinguis0e#@ or #i&este#.)
(c) (n e7pectanc. couple# wit0 an e7isting
interest in t0at out o$ w0ic0 t0e
e7pectanc. arisesD
Note*
- E$p!c#anc& mus# %! ound!d on an ac#ual
ri"h# #o #h! #hin" or a valid con#rac# or i#D
- A carri!r or d!posi#or& o an& <ind has
insura%l! in#!r!s# in #h! #hin" h!ld %& him
such #o #h! !$#!n# o his lia%ili#& %u# no# #o
!$c!!d #h! valu! #h!r!o (/ections "4@ "1@ an#
"5)D
- <ut, a mere contingent or expectant interest
in anything, not founded on contract or
actual right to the thing is not insurable 1 as
there is no insurable interest (/ection "6)D
W4O I' &O(ND &+ A CONTRACT O2
IN'(RANCE H !0e insurance contract between t0e
insurer an# t0e insure#@ un#er (rticle "4"" o$ t0e
Ci&il Co#e is bin#ing onl. upon t0e parties (an#
t0eir assigns an# 0eirs) w0o e7ecute t0e same.
INC4OATE RIG4T H !0e rig0t to la.
claim on t0e $un is #epen#ent on t0e sol&enc. o$ t0e
insurer an# is sub9ect to all ot0er obligations o$ t0e
compan. arising $rom its insurance contracts. !0us@
t0e respon#ents< interest is merel. inc0oate. Being a
mere e7pectanc.@ it 0as no attribute o$ propert.. (t
t0is time@ it is none7istent an# ma. ne&er e7ist.
Fence@ it woul# be premature to ma5e t0e securit.
#eposit answerable $or CI/C%<s present obligation
to :el *onte *otors. (>epublic o$ t0e P0ilippines &.
:el *onte *otors@ Inc.@ %ct.)@ 2006 -.>. No.
"56)56)
,F(! I/ !F6 !6/! %> *6(/?>6 %I
IN/?>(BL6 IN!6>6/! IN P>%P6>!U
- ,0et0er one will #eri&e pecuniary benefit
or advantage from its preservation or #ill
suffer pecuniary loss or damage from its
destruction: (/ection "')
IN'(RA&LE INTERE'T IN &ANK DE)O'IT'
2000 &AR E:AM 5@III 6 b0
B= B: 0as ban5 #eposit o$ 0al$ a million
pesos./ince t0e limit o$ tr0e insurance co&erage o$
t0e P0ilippine :eposit Insurance Corp (ct ( 45)") is
onl. one tent0 o$ B:<s #eposit@ 0e woul# li5e some
protection $or t0e e7cess b. ta5ing out an insurance
against all ris5s or contingencies o$ loss arising $rom
an. unsoun# or unsa$e ban5ing practices inclu#ing
un$oreseen a#&erse e$$ects o$ t0e continuing crisis
in&ol&ing t0e ban5ing an# $inancial sector in (sia.
:oes B: 0a&e insurable interest wit0in t0e meaning
o$ t0e Insurance Co#eQ
(= Ues@ B: 0as insurable interest in 0is
ban5 #eposit. In case o$ loss o$ sai# #eposit@ more
particularl. to t0e e7tent o$ t0e amount in e7cess o$
t0e limit co&ere# b. t0e P0ilippine :eposit
Insurance Corporation (ct@ B: will be #amni$ie#.
Fe will su$$er pecuniar. loss o$ P100@000.00@ t0at is@
COMMERCIAL LAW
0is ban5 #eposit o$ 0al$ a million pesos minus
P"00@000.00 w0ic0 is t0e ma7imum amount
reco&erable $rom t0e P:IC.
M('T T4E &ENE2ICIAR+ IN )RO)ERT+
4A@E IN'(RA&LE INTERE'T ON T4E
)RO)ERT+ IN'(REDL
- U6/@ as no contract or polic. o$ insurance
on propert. s0all be en$orceable. E8#e1t
$or t0e bene$it o$ some person 0a&ing
insurable interest in t0e propert. insure#D
W4EN M('T IN'(RA&LE INTERE'T IN
)RO)ERT+ E:I'T
- must e7ist at t0e time t0e insurance ta5es
e$$ect an# w0en t0e loss occurs but nee#
not e7its in t0e meantime (/ection "))D
C%*P(>6 ,I!F IN/?>(BL6 IN!6>6/! IN
LII6= 2002 &AR E:AM 5N0.:@II0
LI2E
)RO)ERT+
- not necessar.
H can be base# on
consanguinit. or
a$$init.
- base# on pecuniar.
interest
- onl. at e$$ecti&it.
e7cept t0at ta5en b.
a cre#itor in t0e li$e
o$ t0e #ebtor
- e7ist at t0e time o$
e$$ecti&it. an# loss
- no limit e7ist i$
base# on #ebtor
- limite# to actual
&olume insure#
IN >6L(!I%N !% !F6 N66: I%> !F6
6VI/!6NC6 %I IN/?>(BL6 IN!6>6/!@
PL6(/6 N%!6=
- !0at a c0ange in interest in an. part o$ a
t0ing insure# accompanie# b. a
correspon#ing c0ange in t0e insurance
suspen#s t0e insurance to an eEui&alent
e7tent until interest in t0e t0ing an# interest
in t0e insurance is &este# in t0e same
personD
- No claim in insurance contract w0ile it is
suspen#e# because it can 0appen t0at t0e
insurable interest will be returne#D
CF(N-6 %I IN!6>6/! IN P>%P6>!U
IN/?>6: (!rans$er or /ale o$ insure#
propert.) ("))1 N 200 Bar 67ams)
( c0ange o$ interest in an. part o$ a
t0ing insure# unaccompanie# b. a
correspon#ing c0ange o$ interest in t0e
insurance suspen#s t0e insurance to an
eEui&alent e7tent@ until t0e interests in t0e
t0ing an# t0e interest in t0e insurance are
&este# in t0e same person. (/ec. 20)
67ceptions= ") c0ange o$ interest a$ter
t0e lossD 2) c0ange o$ interest in one or more
o$ se&eral t0ings separatel. insure#D 4) c0ange
o$ interest b. will or successionD an# 1)
trans$er o$ interest b. a partner@ 9oint owner@ or
common owner@ to anot0er partner@ 9oint
owner or common owner.
")80 Bar 67am=
( insures 0is 0ouse $or P "0@ 000 commencing
3anuar. "@ ")52. %n Iebruar. "5@ ")52@ (
sells t0e 0ouse to B $or P"5@000 wit0out
en#orsing or trans$erring t0e $ire polic. to B.
%n (pril 20@ ")52@ t0e 0ouse is completel.
#estro.e# on account o$ t0e acci#ental $ire.
Can ( or B collect t0e procee#s o$ t0e polic.
$rom t0e insurerQ 67plain an# gi&e reasons $or
.our answer. (")52@ ")5)@ ")80 Bar)
(N/,6>=
Neit0er (@ t0e seller@ nor B@ t0e bu.er@ can
collect un#er t0e polic.. ( trans$er o$ interest
in propert. wit0out an. trans$er o$ interest in
t0e insurance suspen#s t0e latter until t0e
interest in t0e propert. an# in t0e insurance is
&este# in t0e same person. ( 0as trans$erre#
0is interest in t0e ob9ect o$ t0e insurance (t0e
0ouse) to B wit0out a trans$er o$ 0is interest in
t0e insurance to B. (s t0e interests in t0e
ob9ect an# in t0e insurance are in #i$$erent
persons at t0e time o$ t0e loss@ none can
reco&er un#er t0e polic..
W4AT C4ANGE I' CONTEM)LATED
(n absolute trans$er o$ t0e propert. not l"fe-
a lease<%o!t$a$eO
6VC6P!I%N/ !% !F6 >6B?I>6*6N!/ %I
IN/?>(BL6 IN!6>6/!=
510 Li$e@ 0ealt0 or
acci#ent insurance because t0e. are
not contracts o$ in#emnit. an#
insurable interest is not reEuire# at
t0e time o$ lossD
520 ( c0ange o$
interest a$ter occurrence o$ an in9ur.
an# results in loss H #oes not a$$ect
t0e rig0t o$ t0e insure# to in#emnit.D
8 ($ter a loss@ t0e liabilit. o$ t0e
insurer is $i7e#
5,0 ( c0ange o$
interest in one or more se&eral
#istinct t0ings@ separatel. insure# b.
:ean >e.nal#o ?. (granCamen#eC Page A, o$ 177
COMMERCIAL LAW
one polic.@ #oes not a&oi# as to t0e
ot0ers (/ection 22)D
5?0 ( c0ange o$
interest in one or more se&eral
#istinct t0ings@ separatel. insure# b.
one polic.@ #oes not a&oi# t0e
insurance as to t0e insure#D (/ection
24)
5A0 ( trans$er o$
interest b. one or se&eral partners@
9oint owners@ or owners in common@
w0o are 9ointl. insure# H to t0e
ot0ers@ #oes not a&oi# insurance e&en
t0oug0 it 0as been agree# t0at t0e
insurance s0all lease upon an
allocation o$ t0e t0ing insure#D
Note*
- !0ere must be no stipulation against
it H ot0erwise it is a&oi#e#D
- !rans$er to strangers a&oi# t0e
polic.
570 ,0en notwit0stan#ing a pro0ibition@ t0e
consent o$ t0e insurer is obtaine#D
5C0 ,0en t0e polic. is so $rame# t0at it will
insure to t0e bene$it o$ w0omsoe&er
ma. become t0e owner #uring t0e
continuance o$ t0e ris5D
CONTIN(ATION O2 ELEMENT'
1. Insurable interestD
2. !0e insure# is sub9ect to ris5 o$ loss t0roug0
t0e #estruction or impairment o$ t0at
interest b. t0e 0appening o$ t0e #esignate#
ris5D
,. !0e insurer assumes t0e ris5 o$ lossD
?. /uc0 assertion is part o$ a general sc0eme to
#istribute actual loss among a large group o$
persons bearing somew0at similar ris5D
A. (s a consi#eration $or t0e insurers promise@
t0e insure# ma5es a ratable contribution
calle# a premium to t0e general insurance
$un#D
W4AT MA+ &E IN'(RED AGAIN'T
- (n. un5nown or contingent e&ent@ w0et0er
past or $uture@ w0ic0 ma. #amni$. a person
0a&ing insurable interest or create a liabilit.
against 0im@ ma. be insure# against
(/ection 4)D
E8a%1le* Insurance against #amage@ liabilit.@
un5nown past e&ent (in marine insurance H
insurance is o&er t0e &essel against perils o$ t0e
sea@ lost or not lost)@ or $uture e&ent li5e loss or
t0e$t o$ t0e ob9ectD
- In !elat"on to t3e "ns!an#e so se#!ed-
note*
1. !0e consent o$ t0e 0usban# is not
necessar. $or t0e &ali#it. o$ an insurance
polic. ta5en b. a Ma!!"ed woman on 0er
li$e an# t0at o$ 0er c0il#ren. ?n#er art.
"15 o$ t0e $amil. co#e@ s0e can also insure
0er separate propert. wit0out t0e consent
o$ t0e 0usban#D
2. ( minor ma. ta5e out a contract $or li$e@
0ealt0 an# acci#ent insurance wit0 an.
compan. aut0oriCe# to #o business in t0e
P0ilippines@ pro&i#e# it be ta5en out on 0is
own li$e an# t0e bene$iciar. name# is 0is
estate@ $at0er@ mot0er@ 0usban#@ wi$e@
c0il#@ brot0er or sister. In so #oing@ t0e
marrie# woman+minor ma. e7ercise all
t0e rig0ts or pri&ileges un#er t0e polic.D
&t G ,0at is t0e e$$ect o$ t0e #eat0 o$ t0e original
owner o$ a polic.@ w0ic0 co&ers t0e li$e o$ a minor@
a0ea# o$ t0e minor H all rig0ts@ title an# interest in
t0e polic. s0all automaticall. &est in t0e minor
unless ot0erwise pro&i#e# in t0e polic.D
W4AT CANNOT &E IN'(RED
- (n insurance $or or against t0e
#rawing o$ an. lotter. or $or or against an.
c0ance or tic5et in a lotter. #rawing or
priCe. &e#ase $a%bl"n$ !eslts "n 1!of"t
and "ns!an#e only see9s to "nde%n"fy t3e
"ns!ed a$a"nst loss 5'e#t"on ?0
W4O ARE T4E )ARTIE' TO A CONTRACT
O2 IN'(RANCE
1. IN'(RER G e&er. person@ partners0ip@
association or corporation #ul. aut0oriCe#
to transact insurance business as pro&i#e# in
t0e co#e ma. be an insurer. It is t0e part.
w0o agrees to in#emni$. anot0er upon t0e
0appening o$ speci$ie# contingenc.D
2. IN'(RED G part. to be in#emni$ie# in case
o$ loss (section 6). (n.one e7cept a public
enem. (a nation at war wit0 P0ilippines an#
e&er. citiCen sub9ect o$ suc0 nation.
Reason* t0e purpose o$ war is to cripple t0e
power an# e70aust t0e resources o$ t0e
enem.@ an# it is inconsistent to #estro. its
resources t0en pa. it t0e &alue o$ w0at 0as
been #estro.e#) ma. be insure#D
2000 &AR E:AM 5@III 6 a0
B= *a. a member o$ t0e *%>o Islamic
Liberation Iront ( *ILI ) or it<s brea5aw. group@
t0e (bu /a.a$$@ be insure# wit0 a compan. license#
to #o business un#er t0e Insurance Co#e o$ t0e
P0ilippinesQ 67plainQ
(= ( member o$ t0e *ILI or t0e (bu
/a..a$ ma. be insure# wit0 a compan. license# to
#o business un#er t0e Insurance Co#e o$ t0e
P0ilippines. ,0at is pro0ibite# to be insure# is a
public enem.. ( public enem. is a citiCen or
:ean >e.nal#o ?. (granCamen#eC Page A? o$ 177
COMMERCIAL LAW
national o$ a countr. wit0 w0ic0 t0e P0ilippines is at
war. /uc0 member i$ t0e *ILI or t0e (bu /a..a$ is
not a citiCen or national o$ anot0er countr.@ but o$
t0e P0ilippines.
W4O MA+ IN'(RE A MO!TGAGED
)RO)ERT+
- Bot0 t0e mortgagor an# t0e mortgagee ma.
ta5e out separate policies wit0 t0e same or
#i$$erent companies. !0e %o!t$a$o! G to
t0e e7tent o$ 0is propert.@ t0e %o!t$a$ee G
to t0e e7tent o$ 0is cre#itD (section 8)
IN'(RANCE INTERE'T ON MORTGAGED
)RO)ERT+ 5200A &AR E:AM 5N0. : 6 26 a0
Armando Geagonia v- !A ./' %!RA '6/
'C R(LING
Con#ition 4 is w0at is 5nown as Lot3e! "ns!an#e
#laseM w0ic0 is a &ali# pro&ision allowe# b. t0e
insurance co#e in or#er to pre&ent in an increase in
t0e moral 0aCar# an# to ser&e as a warrant. t0at no
ot0er insurance e7ists. Its incorporation in $ire
policies pre&ents o&er insurance an# a#&erts t0e
perpetration o$ $rau#. Its &iolation will t0us a&oi# t0e
polic.. Fowe&er@ in or#er to constitute a &iolation@
t0e ot0er insurance must be upon t0e same sub9ect
matter@ t0e same interest t0erein@ an# t0e same ris5.
Doble "ns!an#e e7ists w0ere t0e same
person is insure# b. se&eral insurers separatel. in
respect o$ t0e same sub9ect an# interest.
!0e court rule# t0at since t0e stoc5s in tra#e
insure# wit0 PIIC were mortgage# propert.@
separate insurances co&ering #i$$erent insurable
interests ma.be obtaine# b. t0e mortgagor an#
mortgagee. !0e insurable interests o$ a mortgagor
an# mortgagee are separate an# #istinct@ t0us no
#ouble insurance e7ists since t0e policies o$ PIIC #o
not co&er t0e same interest as t0at co&ere# un#er t0e
polic. o$ Countr. Ban5er<s Insurance Corp. !0e
non8#isclosure o$ t0e policies wit0 PIIC was not
$atal to (rman#o<s rig0t to reco&er on 0is polic.
wit0 Countr. Ban5er<s Insurance Corp.
W4AT ARE T4E CON'EI(ENCE' W4ERE
T4E MORTGAGOR IN'(RE' T4E
)RO)ERT+ MORTGAGED IN 4I' OWN
NAME &(T MA+ T4E LO'' )A+A&LE
TO T4E MORTGAGEE OR A''IGN' T4E
)OLIC+ TO 4IM.
(NLE'' T4E )OLIC+ )RO@IDE'
OT4ERWI'E
a. !0e insurance is still #eeme# to be upon t0e
interest o$ t0e mortgagor w0o #oes not cease
to be a part. to t0e original contract. Fence@ i$
t0e polic. is cancelle#@ notice must be gi&en
to t0e mortgagorD
b. (n. act o$ t0e mortgagor@ prior to loss@ w0ic0
woul# ot0erwise a&oi# t0e polic. or
insurance@ will 0a&e t0e same e$$ect alt0oug0
t0e propert. is in t0e 0an#s o$ t0e mortgagee.
Fence@ i$ t0ere is a &iolation o$ t0e polic. b.
t0e mortgagor@ t0e mortgagee cannot reco&erD
#. (n. act reEuire# to be #one b. t0e mortgagor
ma. be per$orme# b. t0e mortgagee wit0 t0e
same e$$ect i$ it 0as been per$orme# b. t0e
mortgagor. E8a%1le= I$ notice o$ loss is
reEuire#@ t0e mortgagee ma. gi&e itD
d. ?pon t0e occurrence o$ t0e loss@ t0e
mortgagee is entitle# to reco&er to t0e e7tent
o$ 0is cre#it an# t0e balance i$ an. to be pai#
to t0e mortgagor@ since suc0 is $or bot0 t0eir
bene$itsD
e. ?pon reco&er. b. t0e mortgagee@ 0is cre#it is
e7tinguis0e#D
If on t3e ot3e! 3and- (section ))@ t0e insurer assents
to t0e trans$er o$ t0e insurance $rom t0e mortgagor
to t0e mortgagee@ an# at t0e time o$ 0is assent@
imposes $urt0er Euali$ications on t0e assignee@
ma5ing a new contract wit0 0im@ t0e acts o$ t0e
mortgagor cannot a$$ect t0e rig0ts o$ t0e assignee H
Note t0e (n"on Mo!t$a$e Clase G creates t0e
relation o$ insure# an# insurer between mortgagee
an# t0e insurer in#epen#ent o$ t0e contract o$ t0e
mortgagor. In suc0 case@ an. act o$ t0e mortgagor
can no longer a$$ect t0e rig0ts o$ t0e mortgagee H t0e
insurance contract is now in#epen#ent o$ t0at wit0
t0e mortgagorD
,F(! I/ !F6 6II6C! %I IN/?>(NC6
P>%C?>6: BU !F6 *%>!-(-66 ,I!F%?!
>6I6>6NC6 !% !F6 >I-F! %I !F6
*%>!-(-%>
a. !0e mortgagee ma. collect $rom t0e
insurer upon t0e occurrence o$ t0e loss to
t0e e7tent o$ 0is cre#itD
b. ?nless ot0erwise state#@ t0e mortgagor
cannot collect t0e balance o$ t0e procee#s
a$ter t0e mortgagee is pai#D
:ean >e.nal#o ?. (granCamen#eC Page AA o$ 177
COMMERCIAL LAW
#. !0e insurer@ a$ter pa.ment to t0e
mortgagee@ becomes subrogate# to t0e
rig0ts o$ t0e mortgagee against t0e
mortgagor an# ma. collect t0e #ebt to t0e
e7tent pai# to t0e mortgageeD
d. !0e mortgagee a$ter pa.ment cannot
collect an.more $rom t0e mortgagor B?!
i$ 0e is unable to collect in $ull $rom
insurer@ 0e can reco&er $rom t0e
mortgagorD
e. !0e mortgagor is not release# $rom t0e
#ebt because t0e insurer is subrogate# in
place o$ t0e mortgageeD
,. &ENE2ICIAR+ G t0e person w0o recei&es t0e
bene$its o$ an insurance polic. upon maturit.D
1!o1e!ty "ns!an#e G .es t0e insure# 0imsel$
but cant assign t0e procee#sD
l"fe "ns!an#e G not reEuire# to 0a&e insurable
interestD
W4O MA+ &E &ENE2ICIARIE' IN LI2E
IN'(RANCE
- (n.one@ e7cept w0o are pro0ibite# b. law
to recei&e #onations $rom t0e insure#. Note
art. '4) o$ t0e Ci&il Co#e@ 0ence t0e
$ollowing cannot be #esignate# as
bene$iciariesD
1. !0ose ma#e between persons guilt. o$
a#ulter. or concubinage at t0e time o$
t0e #esignationD
2. !0ose guilt. o$ t0e same criminal
o$$ense in consi#eration t0ereo$D
200H &AR E:AM
%n 3anuar. "@ 2000@ (ntonio >i&era secure# a
li$e insurance $rom /%/ Insurance Corp. $or P"
*illion wit0 -emma >i&era@ 0is a#opte# #aug0ter@
as t0e bene$iciar.. (ntonio >i&era #ie# on *arc0 1@
2005 an# in t0e police in&estigation@ it was
ascertaine# t0at -emma >i&era participate# as an
accessor. in t0e 5illing o$ (ntonio >i&era. Can /%/
Insurance Corp. a&oi# liabilit. b. setting up as a
#e$ense t0e participation o$ -emma >i&era in t0e
5illing o$ (ntonio >i&eraQ :iscuss wit0 reasons.
(1T)
Ans;e!* /ection "2. !0e interest o$ a bene$iciar. in
a li$e insurance polic. s0all be $or$eite# w0en t0e
bene$iciar. is t0e principal@ accomplice@ or accessor.
in will$ull. bringing about t0e #eat0 o$ t0e insure#D
in w0ic0 e&ent@ t0e nearest relati&e o$ t0e insure#
s0all recei&e t0e procee#s o$ sai# insurance i$ not
ot0erwise #isEuali$ie#.!0us@ t0e insurance compan.
must still pa. out t0e procee#s o$ t0e li$e insurance
polic. to t0e nearest Euali$ie# relati&e o$ t0e insure#.
,. !0ose ma#e to a public o$$icer or 0is
wi$e@ #escen#ants+ascen#ants b.
reasons o$ 0is o$$iceD
- A 1!"o! #onB"#t"on fo!
adlte!y<#on#b"na$e "s not !e="!ed- it
can be pro&en b. propon#erance o$
e&i#ence in t0e same action nulli$.ing t0e
#esignation. Note t0e cases o$ Insular ?i!
vs. E%rado, 82 SCRA +8+, )h!r! a common
la) )i! o #h! insur!d )ho is marri!d
could no# %! nam!d as a %!n!iciar& an#
SSS vs. =avac, +7 SCRA 8,3, w0ere t0e
insure# #esignate# 0is secon# wi$e as a
bene$iciar. was up0el# as t0e latter was not
aware o$ t0e $irst marriageD
- !0e #isEuali$ication #oes not e7ten# to t0e
c0il#ren o$ t0e a#ulter. or concubinage in
&iew o$ t0e e7press recognition o$ t0e
successional rig0ts o$ illegitimate c0il#ren
((rt. 28'@ NCC an# (rt. "'6@ Iamil. Co#e)D
M('T T4E &ENE2ICIAR+ 4A@E
IN'(RA&LE INTERE'T ON T4E LI2E O2
T4E IN'(RED
- It is recogniCe# t0at t0e insure# ma. name
an.one 0e c0ooses e7cept t0ose #isEuali$ie#
to recei&e #onations as a bene$iciar. in 0is
li$e insurance@ e&en i$ 0e is a stranger an#
0as no insurable interest in t0e li$e o$ t0e
insure#. !0e #esignation@ 0owe&er@ must be
in -%%: I(I!F (N: ,I!F%?!
I>(?: %> IN!6N! !% 6N!6> IN!% (
,(-6>IN- C%N!>(C!.
&enef"#"a!y "n l"fe and 1!o1e!ty "ns!an#e 5200A
ba! e8a%s0
)3"l"11"ne A%e!"#an L"fe Ins!an#e Co%1any B.
)"neda 51CA 'CRA ?170
%! Ruling:
?n#er t0e law@ t0e bene$iciar. #esignate# in a li$e
insurance contract cannot be c0ange# wit0out 0is or
0er consent because o$ t0e bene$iciar.<s &este#
interest in t0e polic.. In t0is regar#@ it is wort0
not0ing t0at t0e bene$iciar. #esignation in#orsement
w0ic0 $orms part o$ t0e polic. in t0e name o$
>o#ol$o :ima.uga states t0at t0e #esignation o$ t0e
bene$iciaries is irre&ocable an# no rig0t or pri&ilege
un#er t0e polic. ma. be e7ercise#@ or agreement
ma#e wit0 t0e insurance compan. to an. c0ange in
or amen#ment to t0e polic. wit0out t0e consent o$
t0e sai# bene$iciar.. (ccor#ingl.@ base# on t0e
pro&isions o$ t0e contract an# t0e law applicable@ it
is onl. wit0 t0e consent o$ all t0e bene$iciaries t0at
an. c0ange or amen#ment to t0e polic. concerning
t0e irre&ocabilit. o$ bene$iciaries ma. be legall. an#
&ali#l. e$$ecte#.
Ins!able "nte!est on 1!o1e!ty
%pouses $ilo !ha v- !A Aug- '&, '==)
.99= bar exams
'C R(LING*
". !0e lessor cannot &ali#l. be a bene$iciar. o$
t0e $ire insurance polic. ta5en b. t0e
spouses C0a. It 0as no insurable interest on
COMMERCIAL LAW
t0e merc0an#iCe insure# because it remains
wit0 t0e spouses.
2. !0e automatic assignment o$ t0e polic. to
t0e lessor is &oi# $or being contrar. to law
an# public polic.. !0e procee#s o$ t0e $ire
insurance polic. rig0t$ull. belong to t0e
spouses c0a.
4. !0e insurer cannot be compelle# to pa. t0e
procee#s o$ t0e polic. to t0e lessor w0o 0as no
insurable interest on t0e propert. insure#.
CAN T4E &ENE2ICIAR+ &E C4ANGED
- !0e insure# s0all 0a&e t0e rig0t to c0ange
t0e bene$iciar. 0e #esignate# H unless 0e
0as e7pressl. wai&e# t0e rig0t in t0e polic.
(/ection "")D
- I$ 0e 0as wai&e# t0e rig0t@ t0e e$$ect is to
ma5e t0e #esignation as irre&ocable. Note
t0at t0e #esignation o$ t0e guilt. spouse as
irre&ocable bene$iciar. is re&ocable as t0e
instance o$ t0e innocent spouse in cases o$
termination o$=
510 a subseEuent marriageD
520 nulli$ication o$ marriageD
5,0 annulment o$ marriageD an#
5?0 legal separation ((rt. 41@ (1) Iamil.
Co#e
W4AT I' T4E E:TENT O2 T4E INTERE'T
O2 T4E IRRE@OCA&LE &ENE2ICIAR+ IN A
LI2E IN'(RANCE CONTRACT
!0e bene$iciar. 0as a &este# rig0t t0at
cannot be ta5en awa. wit0out 0is consent. In $act
s0oul# t0e insure# #iscontinue pa.ment o$ t0e
premium@ t0e bene$iciar. ma. continue pa.ing.
Neit0er can t0e insure# get a loan or obtain t0e cas0
surren#er &alue o$ t0e polic. wit0out 0is consent
($ario vs- Philamlife, .9 %!RA /(/0.
Note= w0ere t0e wi$e an# minor c0il#ren
were name# irre&ocable bene$iciaries@ wi$e #ies@ t0e
0usban# see5s to c0ange t0e bene$iciaries wit0 t0e
consent o$ t0e c0il#ren. !0e consent is not &ali# #ue
to minorit.. 5)3"la%l"fe Bs. )"neda- 1C0 'CRA
?17).
200A &AR E:AM 5NO. I: 610
B= ,0at are t0e e$$ects o$ an irre&ocable #esignation
o$ a bene$iciar. un#er t0e Insurance Co#eQ 67plain.
(2T)
(= !0e irre&ocable bene$iciar. 0as a &este#
interest in t0e polic.@ inclu#ing its inci#ent suc0 as
t0e polic. loan an# cas0 surren#er &alue. (-rogorio
&. /un Li$e (ssurance Compan. o$ Cana#a@ 18 P0il.
54 R")25S)
200A &AR E:AM 5NO. I:6 20
B= 3acob obtaine# a li$e insurance polic. $or P"
*illion #esignating irre&ocabl. :iwata@ a $rien#@ as
0is bene$iciar.. 3acob@ 0owe&er@ c0ange# 0is min#
an# wants Uob an# 3o9o@ 0is ot0er $rien#s@ to be
inclu#e# as bene$iciaries consi#ering t0at t0e
procee#s o$ t0e polic. are su$$icient $or t0e t0ree
$rien#s.Can 3acob still a## Uob an# 3o9o as 0is
bene$iciariesQ 67plain. (2T)
(= !0e insure# cannot a## ot0er bene$iciaries as
t0is woul# #iminis0 t0e interest o$ :iwata w0o is t0e
irre&ocabl. #esignate# bene$iciar.. !0e insure# can
onl. #o so wit0 t0e consent o$ :iwata.
W4AT I' T4E INTERE'T O2 AN
IRRE@OCA&LE &ENE2ICIAR+ IN AN
ENDOWMENT )OLIC+
- Fis interest is contingent as bene$its are
to be pai# onl. i$ t0e assure# #ies be$ore
t0e speci$ie# perio#. I$ t0e insure#
outli&es t0e perio#@ t0e bene$its are pai#
to t0e insure#D
W4AT I' T4E E22ECT O2 2AIL(RE TO
DE'IGNATE OR &ENE2ICIAR+ I'
DI'I(ALI2IED
- !0e bene$its o$ t0e polic. s0all accrue to
t0e estate o$ t0e insure#D
W4O RECO@ER' I2 &ENE2ICIAR+
)REDECEA'E' T4E IN'(RED
- If t3e des"$nat"on "s "!!eBo#able- t0e
legal representati&es o$ t0e bene$iciar.
ma. reco&er unless it was stipulate# t0at
t0e bene$its are pa.able onl. D"f l"B"n$.E
If des"$nat"on "s !eBo#able- an# no
c0ange is ma#e@ t0e bene$its passes to t0e
estate o$ t0e insure#. !0e rule 0ol#s also
i$ bene$its were pa.able Donly "f l"B"n$E
or D"f s!B"B"n$E an# t0e bene$iciar. #ies
be$ore t0e insure#D
W4AT 4A))EN' TO INTERE'T O2 T4E
&ENE2ICIAR+ IN LI2E IN'(RANCE W4ERE
4E WILL2(LL+ KILL' T4E IN'(RED
- I$ t0e 5illing is ;"llfl- t0e interest is
$or$eite#@ i$ 0e is t0e principal@ an
accomplice@ or an accessor.. !0e nea!est
!elat"Be of "ns!ed $ets t3e 1!o#eeds "f
not ot3e!;"se d"s=al"f"ed (/ection "2).
I$ not will$ul or $elonious@ t0e pro&ision
#oes not appl.D
C C O O N N C C E E A A L L M M E E N N T T
W4AT I' CONCEALMENTL
- Concealment is a neglect to communicate
t0at w0ic0 a part. 5nows an# oug0t to
communicate (/ection 26)D
:ean >e.nal#o ?. (granCamen#eC Page AC o$ 177
COMMERCIAL LAW
W4AT I' T4E E22ECT O2
CONCEALMENTL
- ,0et0er intentional or not@ it entitles t0e in9ure#
part. to rescin# t0e contract o$ insurance
(/ection 2').
E8a%1les*
510 !0e insure# #oes not #isclose sic5ness
but #ies o$ anot0er cause. !0ere is
concealment because it is material to a
#etermination o$ t0e assumption o$ ris5
b. t0e insurerD
520 !0e $at0er o$ t0e insure# obtaine# an
insurance polic. o&er 0is #aug0ter@ but
#i# not #isclose t0at s0e was a mongoloi#
c0il#@ t0e c0il# #ies o$ in$luenCa@ t0e
concealment relie&es t0e insurer o$
liabilit. (-repali$e &s. C( 8) /C>( 514)
&A'I' O2 )RO@I'ION' ON
CONCEALMENT<RE)RE'ENTATION
- Iun#amental c0aracteristic o$ a contract o$
insurance t0at it is one o$ per$ect+utmost
goo# $ait0D
2001 &AR E:AM 5N0.:@I0* ( applie# $or a non8
me#ical li$e insurance. !0e insure# #i# not in$orm
t0e insurer t0at one wee5 prior to 0is application $or
insurance@ 0e was e7amine# an# con$ine# at /t.
Lu5es 0ospital w0ere 0e was #iagnose# $or lung
cancer. !0e insure# soon t0erea$ter #ie# in a plane
cras0. Is t0e insurer liable consi#ering t0at t0e $act
conceale# 0a# no bearing wit0 t0e cause o$ #eat0 o$
t0e insure#Q ,0.Q
(= No. !0e conceale# $act is material to t0e
appro&al an# issuance o$ t0e insurance polic.. It is
well settle# t0at t0e insure# nee# not #ie o$ t0e
#isease 0e $aile# to #isclose to t0e insurer. It is
su$$icient t0at 0is non8#isclosure misle# t0e insurer
in $orming 0is estimate o$ t0e ris5s o$ t0e propose#
insurance polic. or in ma5ing inEuiries.
W4O M('T )RO@E KNOWLEDGE O2 T4E
2ACT CONCEALEDL
- !0e part. claiming e7istence o$
concealment must pro&e t0at t0ere was
5nowle#ge on t0e part o$ t0e part. c0arge#
wit0 concealmentD
A' O2 W4AT TIME M('T T4E )ART+
C4ARGED WIT4 CONCEALMENT 4A@E
KNOWLEDGE O2 T4E 2ACT CONCEALEDL
- -enerall.@ a part. must 0a&e
5nowle#ge o$ t0e $act conceale# at t0e time
o$ t0e e$$ecti&it. o$ t0e polic.. Note t0at
e&en i$ a part. #i# not 5now o$ t0e
e7istence at t0e rime o$ application but
be$ore its e$$ecti&it.@ t0ere is concealmentD
- In$ormation acEuire# a$ter
e$$ecti&it. is not concealment an# #oes not
constitute groun# to rescin# t0e polic.@ as
a$ter t0e polic. is issue#@ in$ormation
subseEuentl. acEuire# is no longer material
as it will not a$$ect or in$luence t0e part. to
enter into contract. Fowe&er@ in case o$ t0e
reinstatement o$ a lapse# polic.@ $acts
5nown a$ter e$$ecti&it. but be$ore
reinstatement must be #isclose#D
4OW I' T4E MATERIALIT+ O2 T4E
CONCEALMENT OR RE)RE'ENTATION
DETERMINEDL
*aterialit. is #etermine# not b. t0e e&ent@
but solel. b. t0e probable an# reasonable in$luence
o$ t0e $acts upon t0e part. to w0om t0e
communication is #ue@ in $orming 0is estimate o$ t0e
#isa#&antages o$ t0e propose# contract or in ma5ing
0is inEuiries (/ection 4")D
W4AT I' T4E TE'T O2 MATERIALIT+L
!0e test o$ materialit. is w0et0er 5nowle#ge
o$ t0e true $acts coul# 0a&e in$luence a pru#ent
insurer in #etermining w0et0er to accept t0e ris5 or
in $i7ing t0e premiumsD
M('T T4ERE &E A CA('AL CONNECTION
&ETWEEN T4E 2ACT CONCERNED AND
T4E CA('E O2 T4E LO''L Not necessar.
Concealment nee# not be material@ be o$
$acts w0ic0 about or contribute to or are connecte#
o$ t0e insure#<s loss. It is immaterial t0at t0ere is no
causal relations0ip between t0e $act conceale# an#
t0e loss sustaine#. It is su$$icient t0at t0e non8
re&elation 0as misle# t0e insurer in $orming its
estimate o$ #isa#&antage o$ $i7ing t0e premium.
E8a%1les* Insure# conceale# 5i#ne. #isease an#
enlarge# li&er H later 0e #ie# o$ t0rombosis@ is t0e
insurer liableQ No@ since t0e $act conceale# was
material t0oug0 t0e insure# #i# not #ie t0ere$rom
(4enson Bs. )3"la% A0 OG C,?2H). Insure# 0a#
conceale# t0at 0e 0a# 5i#ne. #isease. Fe #ies in
plane cras0. !0e insurer is not liable 5'nl"fe Bs.
CA- 2?A 'CRA 27/0O
W4AT 2ACT' M('T &E COMM(NICATEDL
6ac0 part. to an insurance contract is boun# to
communicate to t0e ot0er all $acts t0at meet t0e
$ollowing reEuisites=
5a0 '#3 fa#t t3at %st be ;"t3"n 3"s
9no;led$e G as concealment reEuires
5nowle#ge o$ t0e $act conceale# b. t0e
part. c0arge# wit0 concealmentD
:ean >e.nal#o ?. (granCamen#eC Page AH o$ 177
COMMERCIAL LAW
5b0 2a#t<s %st be %ate!"al to t3e
#ont!a#t G it must be o$ suc0 nature t0at
0a# t0e insurer 5nown o$ it@ it woul# not
0a&e accepte# t0e ris5 or #eman#e# a
0ig0er premiumD
5#0 T3at t3e ot3e! 1a!ty 3ad no %eans of
as#e!ta"n"n$ s#3 fa#t<sO
5d0 T3at t3e 1a!ty ;"t3 a dty to
#o%%n"#ate %a9es no ;a!!anty
5'e#t"on 2H0 H as t0e e7istence o$ a
warrant. ma5e t0e reEuirement to
#isclose super$luous but H an intentional
$rau#ulent omission on t0e part o$ t0e
one insure# to communicate
in$ormation on a matter pro&ing or
ten#ing to pro&e $alsit. o$ a warrant.
entitles t0e insurer to rescin# (/ection
2)).
W4AT MATTER NEED NOT &E
COMM(NICATEDL
67cept in answer to t0e inEuiries o$ t0e ot0er=
510 T3ose ;3"#3 t3e ot3e! 9no;s H as t0e
insurer cannot sa. t0at it 0as been #ecei&e# or
misle#D
E8a%1le* Insure# #iscloses t0at 0e 0as
tuberculosis to 0e agent o$ t0e insurer@ w0o in
turn omits to state t0e same in t0e application
o$ t0e insure# was #eeme# 5nowle#ge o$ t0e
insurer (Insular Li$e (ssurance Co. &s.
Ieliciano@ '1 P0il 168). Insurer 0a# sur&e.e#
t0e location an# surroun#ing area o$ a
buil#ing t0at it is to be insure# against $ire@ an
omission to state t0at t0ere are neig0boring
buil#ings will not a&oi# polic.D

520 !0ose w0ic0 in t0e e7ercise o$ or#inar. care@
t0e ot0er oug0t to 5now@ an# o$ w0ic0@ t0e
$ormer 0as no reason to suppose 0im to be
ignorant. !0e $acts t0at t0e ot0er oug0t to
5now as per section 42 are=
5,0 !0ose o$ w0ic0 t0e ot0er wai&es
communication. ( wai&er ta5es place eit0er@
b. t0e terms o$ t0e insurance or b. 0e neglect
to ma5e inEuiries as to suc0 $acts w0ere t0e.
are #istinctl. implie# in ot0er $acts o$ w0ic0
in$ormation is communicate# (section 44).
5?0 !0ose w0ic0 pro&e or ten# to pro&e t0e
e7istence o$ a ris5 e7clu#e# b. a warrant.@
an# w0ic0 are not ot0erwise material.
5A0 !0ose w0ic0 relate to t0e ris5 e7empte# $rom
t0e polic.@ an# w0ic0 are not ot0erwise
material (section 40).
%4$L*E A%%4RA$!E !5- 5 !A$A>A ?%-
!A, @4$E .., '==6
('==7, '==), and .99' <ar Exams0
>obert Bacani was issue# li$e insurance non8
me#ical polic. $or P"00@000.00 wit0 0is mot0er as
bene$iciar.. In 0is application@ 0e conceale# 0is
con$inement at t0e Lung Center o$ t0e P0ilippines
$or certain illness. Fe #ie# o$ a plane cras0. !0e
insurance compan. re$use# to pa. $or breac0 o$ t0e
insurance contract.>!C an# C( grante# t0e claim
o$ t0e bene$iciar. because t0e conceale# $acts were
not material or irrele&ant to t0e cause o$ #eat0.
'C R(LING*
!0e /C re&erse# t0e ruling an# 0el# t0at t0e
in$ormation w0ic0 t0e insure# $aile# to #isclose
was material an# rele&ant to t0e appro&al an#
issuance o$ t0e polic.. !0e $acts conceale# woul#
0a&e a$$ecte# t0e insurer<s action on t0e application
eit0er b. c0arging a 0ig0er rate o$ premium or
re9ecting t0e same. !0e insure# nee# not #ie o$ t0e
#isease 0e conceale#. It is su$$icient t0at 0is non8
#isclosure misle# t0e insurer in $orming 0is
estimate o$ t0e ris5 in&ol&e# or in ma5ing inEuiries.
!0e contract o$ insurance can be rescin#e# b.
reason o$ concealment an# t0is 0as to be e7ercise#
wit0in t0e two .ear contestabilit. perio#.
R R E E ) ) R R E E ' ' E E N N T T A A T T I I O O N N
W4AT I' RE)RE'ENTATIONL
%ral or written statement o$ a $act or a
con#ition a$$ecting t0e ris5 ma#e b. t0e insure# to
t0e insurance compan.@ ten#ing to in#uce t0e insurer
to ta5e t0e ris5 (/ection 46)D
W4EN MA+ RE)RE'ENTATION &E MADE
/ince it is an in#ucement to entering a
contract H it must or#inaril. be ma#e at t0e same
time as or be$ore H t0e insurance o$ t0e polic.
(section 4'). Note t0at it can also be ma#e a$ter t0e
issuance o$ t0e polic. w0en t0e purpose t0ereo$ is to
in#uce t0e insurer to mo#i$. an e7isting insurance
contract H as t0e pro&isions also appl. to a
mo#i$ication (/ame wit0 concealment)
4OW '4O(LD RE)RE'ENTATION &E
CON'TR(ED
!0e language o$ a representation is to be
interprete# b. t0e same rules as t0e language o$ t0e
contracts in general (section 48). Fence@ it nee# not
be literall. true an# correct+accurate in e&er. respect@
rat0er@ it is su$$icient i$ it is substantiall. or
:ean >e.nal#o ?. (granCamen#eC Page A/ o$ 177
COMMERCIAL LAW
materiall. true. In case o$ a promissor.
representation@ it is su$$icient i$ it is substantiall.
complie# wit0D
W4AT ARE T4E 2ORM' AND KIND' O2
RE)RE'ENTATION
>epresentations ma. be O!al or W!"tten
an# can eit0er be=
5a0 Aff"!%at"Be G w0ic0 is an a$$irmation
o$ a $act e7isting w0en t0e contract
beginsD
5b0 )!o%"sso!y H w0ic0 is a statement b.
t0e insure# concerning w0at is to
0appen #uring t0e term o$ t0e
insuranceD
I' A RE)RE'ENTATION )ART O2 T4E
CONTRACT
No@ it cannot Euali$. as an e7press pro&ision
in a contract (it is a collateral in#ucement to t0e
contract but it ma. Euali$. an implie# warrant.
(section 10)D
CAN A RE)RE'ENTATION &E WIT4DRAWN
OR ALTERED
Ues@ as long as t0e insurance 0as not .et
been e$$ecte# an# t0e insurer 0as not .et been
in#uce# to issue t0e polic.. I$ wit0#rawn or altere#
a$terwar#s@ t0e contract can be rescin#e# as t0e
insurer 0as alrea#. been le# to issue t0e polic.
(section 1")D
TO W4AT DATE DOE' A
RE)RE'ENTATION RE2ER
It must be presume# to re$er to t0e #ate on
w0ic0 t0e contract goes into e$$ect (section 12)D
Note* !0ere is no $alse representation i$ it is
true at t0e time t0e contract ta5es e$$ect alt0oug0
$alse at t0e time it is ma#eD
W4EN I' A RE)RE'ENTATION 'AID TO &E
2AL'E
,0en t0e $acts $ail to correspon# wit0 its
assertions or stipulations (/ection 11)D
M('T T4E IN'(RED COMM(NICATE
IN2ORMATION O2 W4IC4 4E 4A' NO
)ER'ONAL KNOWLEDGE &(T MEREL+
RECEI@E' T4E 'AME 2ROM OT4ER'L
,0en a person 0as no personal 5nowle#ge
o$ $acts H 0e ma. or ma. not communicate suc0
in$ormation to t0e insurer. I$ 0e #oes communicate@
0e is not responsible $or its trut0 (section 14). Fence@
t0ere can be no misrepresentationD
W4EN I' T4E IN'(RED REI(IRED TO
DI'CLO'E IN2ORMATION 2ROM A ,RD
)ER'ON
,0en t0e in$ormation material to t0e
transaction was acEuire# b. an agent o$ t0e insure#@
as 5nowle#ge o$ t0e agent is also 5nowle#ge o$ t0e
principalD
W4AT I' T4E E22ECT O2
MI'RE)RE'ENTATION ON A MATERIAL
)OINTL
I$ it is $alse on material point@ w0et0er
a$$irmati&e or promissor. H t0e in9ure# part. is
entitle# to rescin# t0e contract $rom t0e time t0e
representation becomes $alse. Fowe&er@ t0e rig0t to
rescin# is consi#ere# wai&e# b. t0e acceptance o$
premium pa.ments #espite 5nowle#ge o$ t0e groun#
to rescin# (section 15)D
E8a%1les*
5a0 Insurer was aware o$ t0e lac5 o$ t0e
e7tinguis0ers reEuire# b. t0e
polic.. But t0ere is no wai&er H i$
t0e insurer 0a# no 5nowle#ge o$ t0e
groun# at t0e time o$ t0e acceptance
o$ t0e premiumD
5b0 ?naut0oriCe# #ri&er (/tro5es &s.
*ala.an@ "2' /C>( '66)
4OW I' MATERIALIT+ DETERMINEDL
!0e same as concealment (/ection 16)
probable an# reasonable in$luence o$ t0e $acts upon
t0e part. to w0om t0e representation is ma#e in
$orming 0is estimate o$ t0e a#&antage+#isa#&antages
o$ t0e contract or I ma5ing inEuiriesD
W4EN I' T4E RIG4T TO RE'CIND
'())O'ED TO &E E:ERCI'ED G 5'EC ?H0
!0e rig0t to rescin# must be e7ercise#
pre&ious to t0e commencement o$ an action on t0e
contract (section 18). Note t0e case o$ 0an Cha&
8in" vs. 4!s# Coas# ?i! Insuranc! Co., 5+ Phil 82,
w0ere an insurer interpose# t0e #e$ense in an action
to claim t0e procee#s t0at t0e contract is null an#
&oi#. /ection 18 was 0el# to appl. onl. w0en t3e!e
"s a #ont!a#t to !es#"nd.
It "s also =al"f"ed by 2
nd
1a!a$!a13 of
se#t"on ?H ;3"#3 1!oB"des t0at a$ter a polic. o$ li$e
insurance pa.able on t0e #eat0 o$ t0e insure# s0all
COMMERCIAL LAW
0a&e been in $orce #uring t0e li$etime o$ t0e insure#
$or a perio# o$ 2 .ears $rom t0e #ate o$ issue or its
last reinstatement@ t0e insurer cannot pro&e t0at t0e
polic. is &oi# ab initio or is sub9ect to rescission b.
reason o$ a $rau#ulent concealment or
misrepresentation o$ t0e insure# or 0is agent 59no;n
as t3e "n#ontestab"l"ty #lase0O
W4AT I' T4E T4EOR+ AND O&.ECT
&E4IND T4E INCONTE'TA&ILIT+ CLA('E
5a0 On t3e 1a!t of t3e "ns!e! G an insurer
0as+s0oul# 0a&e a reasonable
opportunit. to in&estigate t0e
statements w0ic0 are ma#e b. t0e
applicant an t0at a$ter a #e$inite perio#@
it s0oul# no longer be permitte# to
Euestion its &ali#it.D
5b0 On 1a!t of t3e "ns!ed G its ob9ect is to
gi&e t0e greatest possible assurance t0at
t0e bene$iciaries woul# recei&e pa.ment
o$ t0e procee#s wit0out Euestion as to
&ali#it. or t0e polic.D
REI(I'ITE' O2 INCONTE'TA&ILIT+
CLA('E
!0e reEuisites are=
510 It is a li$e insurance polic.D
520 It is pa.able on t0e #eat0 o$ t0e insure#D
5,0 It 0as been in $orce #uring t0e li$etime
o$ t0e insure# $or at least two .ears
$rom #ate o$ issue+or last reinstatementD
Tan Bs. CA- 1C? 'CRA ?0, G #uring t0e
li$etime o$ t0e insure# means t0at t0e polic. is no
longer in $orce i$ t0e insure# #ies. Iacts= P0ilam
issue# polic. on No&ember 6@ ")'4. %n (pril 26@
")'5 t0e insure# #ie#. !0e bene$iciaries claime# but
t0e insurer #enie# t0e claim on /eptember ""@ ")'5
an# rescin#e# t0e polic. on t0e groun# o$
misrepresentation an# concealment. 4eld* Insurer
0as two .ears $rom #ate o$ issue+reinstatement
wit0in w0ic0 to contest t0e polic. w0et0er or not t0e
insure# still li&es wit0in t0e perio#D
W4AT DE2EN'E' ARE NOT &ARRED &+
INCONTE'TA&ILIT+ E@EN A2TER T4E
LA)'E O2 2 +EAR'L
510 non8pa.ment o$ premiumsD
520 lac5 o$ insurable interestD
5,0 t0at t0e cause o$ #eat0 was e7cepte# or
not co&ere# b. t0e terms o$ t0e polic.D
5?0 t0at t0e $rau# was o$ a particular &icious
t.pe suc0 as=
a. polic. was ta5en in $urt0erance o$ a
sc0eme to mur#er t0e insure#D
b. w0ere t0e insure# substitute#
anot0er $or t0e me#ical
e7aminationD
c. w0ere t0e bene$iciar. $eloniousl.
5ille# t0e insure#D
5A0 &iolation o$ a con#ition in t0e polic.
relating to militar. or na&al ser&ice in
time o$ warD
570 t0e necessar. notice or proo$ o$ #eat0
was not gi&enD
5C0 action is not broug0t wit0in time
speci$ie# in t0e polic.@ w0ic0 in no case
s0oul# be less t0an " .ear as per section
64D
W4AT ARE T4E E22ECT' O2
INCONTE'TA&ILIT+L
!0e insurer can no longer escape liabilit.@
ten#er t0e polic. or be allowe# to pro&e t0at t0e
polic. is &oi# ab initio or ma. be rescin#e# b.
reason o$ concealment or misrepresentation b. t0e
agent o$ t0e insure# or t0e insure#D
DI'TING(I'4 CONCEALMENT 2ROM
RE)RE'ENTATION
Concealment is t0e neglect o$ one part. to
communicate to t0e ot0er material $acts. !0e
in$ormation 0e gi&es in compliance wit0 0is #ut. to
re&eal in$ormation is representation. >epresentation
t0ere$ore is t0e communication reEuire# to compl.
wit0 t0e pro0ibition against concealmentD
Concealment is t0e passi&e an#
misrepresentation is t0e acti&e $orm o$ t0e same ba#
$ait0D
CONCEALMENT AND RE)RE'ENTATION
COM)ARED
1. In concealment H t0e insure# wit00ol#s
in$ormation o$ material $acts@ w0ile in
representation H t0e insure# ma5es
erroneous statementsD
2. In concealment an# misrepresentation bot0
gi&e t0e insurer t0e rig0t to rescin# t0e
contract o$ insuranceD
,. !0e materialit. o$ concealment an#
representation are #etermine# b. t0e same
rulesD
?. ,0et0er t0e concealment or representation
is intentional or not@ t0e in9ure# part. can
rescin#D
A. /ince insurance contracts are o$ utmost
goo# $ait0 H t0e insurer is also co&ere# b.
t0e rulesD
) ) O O L L I I C C + +
DE2INE )OLIC+
It is t0e written instrument in w0ic0 a
contract o$ insurance is set $ort0 (/ection 1).)D
COMMERCIAL LAW
4OW I' IT CON'TR(ED- W4AT I2 T4E
IN'(RED DOE' NOT (NDER'TAND T4E
CONTENT' O2 T4E )OLIC+L
-enerall. in $a&or o$ t0e insure# an# against
t0e insurer. !0e bur#en o$ pro&ing t0at t0e terms o$
t0e polic. 0a&e been e7plaine# is upon t0e part.
see5ing to en$orce it. !0e claim o$ t0e bene$iciar.
t0at since t0e insure# was illiterate an# spo5e
C0inese onl.@ s0e coul# not be 0el# guilt. o$
concealment because t0e application an# polic. was
in 6nglis0 (!ang &s. C(@ )0 /C>( 246)D
2ORM O2 T4E )OLIC+
It s0all be printe# an# ma. contain blan5
spaces an# an. wor#@ p0rase@ clause or mar5@ sign@
s.mbol@ signature@ or number necessar. to complete
it s0all be written in t0e blan5 spaces (/ection 50). I$
t0ere are rid!rs, claus!s, )arran#i!s or
!ndors!m!n#s purporting to be part o$ t0e contract o$
insurance an# w0ic0 are paste# or attac0e# to t0e
polic. is no# %indin" on t0e insure# H unl!ss t0e
#escripti&e title o$ t0e same is also mentione# an#
written on t0e blan5 spaces pro&i#e# in t0e polic..
Note* i$ paste# or attac0e# to t0e original polic. at
t0e time it was issue# H t0e signature o$ t0e insure#
is not necessar. to ma5e it bin#ing. I$ a$ter t0e
original polic. is issue#@ it must be counter8signe#
b. t0e insure# unless applie# $or b. t0e insure#D
No ri#er@ clauses@ or warranties@ or
en#orsements s0all be attac0e#@ printe# or stampe#
on t0e polic. unless t0e $orm o$ suc0 application 0as
been appro&e# b. t0e insurance commissionerD

R"de!s G are $orms attac0e# to t0e polic. w0en t0e
compan. $in#s it necessar. to alter or amen# t0e
applicant<s answer to an. Euestion in t0e
applicationD
Clases G are $orms containing a##itional
stipulationsD
Wa!!ant"es G are written statement+stipulations
inserte# on t0e $ace o$ t0e contract or incorporate#
b. proper wor#s or re$erence H w0ere t0e insure#
contracts as to t0e e7istence o$ $acts@ circumstances
or con#itions H t0e trut0 o$ w0ic0 are essential to t0e
&ali#it. o$ t0e contractD
Endo!se%ents G are agreements not containe# but
ma. be written or attac0e# to polic. to c0ange or
mo#i$. a part t0ereo$D
W4AT M('T A )OLIC+ ')ECI2+L
( polic. must speci$.=
510 !0e parties w0om t0e contract is ma#eD
520 !0e amount to be insure# e7cept in
open or running policiesD
5,0 !0e premium@ or i$ t0e premium is to be
#etermine# at t0e termination o$ t0e
contract@ a statement o$ t0e basis an#
rates upon w0ic0 t0e $inal premium is
to be #etermine#D
5?0 !0e propert. or li$e insure#D
5A0 !0e interest o$ t0e insure# in t0e
propert. insure#@ i$ not t0e absolute
ownerD
570 !0e ris5s insure# againstD
5C0 !0e perio# #uring w0ic0 t0e insurance
is to continue (/ection 5")D
G4 *$%4RA$!E !5RP5RA"*5$ vs-
!A ( G-R- $o- '()))6- 8arch (', .9960
ortuitous event: >efinition- 1 Caso or#ui#o or
orc! maA!ur! (w0ic0 in law are i#entical inso$ar as
t0e. e7empt an obligor $rom liabilit.) b. #e$inition@
are e7traor#inar. e&ents not $oreseeable or
a&oi#able@ e&ents t0at coul# not be $oreseen@ or
w0ic0 t0oug0 $oreseen@ were ine&itable. It is
t0ere$ore not enoug0 t0at t0e e&ent s0oul# not 0a&e
been $oreseen or anticipate#@ as is commonl.
belie&e# but it must be one impossible to $oresee or
to a&oi#.
!0e $ortuitous e&ent s0oul# be t0e pro7imate an#
onl. cause o$ t0e lossD
,0ile t0e loss o$ t0e cargoes was
a#mitte#l. cause# b. t0e t.p0oon Sisan"@ a natural
#isaster@ (NC% coul# not escape liabilit. to
respon#ent /*C. !0e recor#s clearl. s0ow t0e
$ailure o$ petitioners< representati&es to e7ercise t0e
e7traor#inar. #egree o$ #iligence man#ate# b. law.
!o be e7empte# $rom responsibilit.@ t0e natural
#isaster s0oul# 0a&e been t0e pro7imate an# onl.
cause o$ t0e loss. !0ere must 0a&e been no
contributor. negligence on t0e part o$ t0e common
carrier. (s 0el# in t0e case o$ ?impan"co Sons v.
@an"co S#!amship Co.=
. !arelessness and negligence of the insured
or his agents constitute no defense on the part of
the insurer- 1
%ne o$ t0e purposes $or ta5ing out insurance is to
protect t0e insure# against t0e conseEuences o$ 0is
own negligence an# t0at o$ 0is agents. !0us@ it is a
basic rule in insurance t0at t0e carelessness an#
negligence o$ t0e insure# or 0is agents constitute no
#e$ense on t0e part o$ t0e insurer.
Ahen the insured2s negligence is gross as
to constitute a #illful act, the insurer must be
exonerated-; !0e Euestion now is w0et0er t0ere is a
certain #egree o$ negligence on t0e part o$ t0e
insure# or 0is agents t0at will #epri&e 0im t0e rig0t
to reco&er un#er t0e insurance contract. ,e sa.
t0ere is. Fowe&er@ to w0at e7tent suc0 negligence
must go in or#er to e7onerate t0e insurer $rom
liabilit. must be e&aluate# in lig0t o$ t0e
COMMERCIAL LAW
circumstances surroun#ing eac0 case. ,0en
e&i#ence s0ow t0at t0e insure#<s negligence or
rec5lessness is so gross as to be su$$icient to
constitute a will$ul act@ t0e insurer must be
e7onerate#.
!0e ?nite# /tates /upreme Court 0as ma#e a
#istinction between or#inar. negligence an# gross
negligence or negligence amounting to miscon#uct
an# its e$$ect on t0e insure#<s rig0t to reco&er un#er
t0e insurance contract. (ccor#ing to t0e Court@ w0ile
mista5e an# negligence o$ t0e master or crew are
inci#ent to na&igation an# constitute a part o$ t0e
perils t0at t0e insurer is oblige# to incur@ suc0
negligence or rec5lessness must not be o$ suc0 gross
c0aracter as to amount to miscon#uct or wrong$ul
actsD ot0erwise@ suc0 negligence s0all release t0e
insurer $rom liabilit. un#er t0e insurance contract.
W4AT ARE CO@ER NOTE'L
It is a written memoran#um o$ t0e most
important terms o$ a preliminar. contract o$
insurance inten#e# to gi&e protection pen#ing
in&estigation b. t0e insurer o$ t0e ris5 or until t0e
insurance o$ t0e $ormal polic. (/ection 52). It is also
5nown as binding slip or receipt or binder:
E22ECTI@IT+ O2 A CO@ER NOTE
!0e e$$ecti&it. o$ a co&er note is 60 #a.s H
as wit0in suc0 perio#@ a polic. s0all be issue#
inclu#ing in its terms t0e i#entical assurance $oun#
un#er t0e co&er rate an# t0e premium t0ere$ore. It
ma. 0owe&er@ be e7ten#e# be.on# 60 #a.s an# wit0
t0e written appro&al o$ t0e Insurance Commissioner
i$ 0e #etermines t0at it #oes not &iolate t0e Insurance
Co#eD
NOTE T4E 2OLLOWING R(LE' 4A@E
&EEN )ROM(LGATED &+ T4E IN'(RANCE
COMMI''IONER*
510 ( co&er note is &ali# $or 60 #a.s
w0et0er or not a premium is pai# but
ma. be cancelle# b. eit0er part. upon
at least ' #a. notice to t0e ot0er part.D
520 I$ t0e ot0er note is not cancelle#@ a
regular polic. must be issue# wit0in 60
#a.s $rom t0e #ate o$ issue o$ t0e co&er
note inclu#ing wit0in its terms t0e
i#entical insuranceD
5,0 It ma. be e7ten#e# wit0 t0e written
appro&al o$ t0e commissioner but ma.
be #ispense# wit0 b. a certi$ication o$
t0e Presi#ent@ ice8Presi#ent or -eneral
*anager o$ t0e insurer t0at t0e ris5s
in&ol&e# an# t0e e7tension #o not
&iolate t0e co#eD
5?0 Insurance companies ma. impose a
#eposit premium eEui&alent to at least
25T o$ t0e estimate# premium but in no
case less t0an P0p500.00D
W4EN WILL A CO@ER NOTE GI@E
ADEI(ATE IN'(RANCE )ROTECTIONL
It gi&es a#eEuate insurance protection w0en
it is a preliminar. contract o$ 1!esent "ns!an#e an#
not a mere agreement to insure a $uture time@ as on
acceptance o$ t0e application or issuance+#eli&er. o$
t0e polic.. (11 C3/ )58)
E8a%1le*
510 (gent issue# a pro&isional polic.
ac5nowle#ging receipt o$ premiums an#
stating t0at t0e insurance s0all be
e$$ecti&e upon appro&al an# issuance o$
t0e polic. b. t0e 0ea# o$$ice. !0ere is
no protection as it is a mere
ac5nowle#gement o$ t0e pa.ment o$
premiums as t0e e$$ecti&it. o$ t0e
insurance is e7pressl. pro&i#e# (Lim
&s. /unli$e@ 1" P0il 265)D
520 In li$e insurance@ a bin#ing slip #oes not
insure b. itsel$ as it was state# t0at it
was sub9ect to t0e appro&al o$ t0e
insurer an# t0e same was subseEuentl.
#isappro&e# (-repali$e &s. C(@ 8)
/C>( 516)D
I' )A+MENT O2 A )REMI(M )A+MENT
2OR T4E CO@ER NOTE NECE''AR+ TO &E
)ROTECTED AGAIN'T RI'K IN'(RED
AGAIN'TL
Co&er note 0el# to be bin#ing #espite t0e
absence o$ a premium pa.ment $or its issuance. No
separate premiums are inten#e# or reEuire# to be
pai# on a co&er note because t0e. do not #onta"n
1a!t"#la!s of t3e 1!o1e!ty "ns!ed t3at ;old
se!Be as t3e bas"s fo! t3e #o%1tat"on of
1!e%"%s H suc0 being t0e case no premium can be
$i7e#. T3e #oBe! notes s0oul# not be treate# as a
separate polic. but s0oul# be integrate# in t0e
regular polic. subseEuentl. issue# so t0at premiums
on t0e regular polic. s0oul# inclu#e t0at $or t0e
co&er note (Paci$ic !imber &s. C(@ ""2 /C>( ")))D
200/ &AR E:AM 5I@0
(ntarctica Li$e (ssurance Corporation
((L(C) publicl. o$$ere# a speciall. #esigne#
insurance polic. co&ering persons between t0e ages
o$ 50 to '5 w0o ma. be a$$licte# wit0 serious an#
#ebilitating illnesses. Buirico applie# $or insurance
co&erage@ stating t0at 0e was alrea#. 80 .ears ol#.
Nonet0eless@ (L(C appro&e# 0is
application.Buirico t0en reEueste# (L(C $or t0e
issuance o$ a co&er note w0ile 0e was tr.ing to raise
$un#s to pa. t0e insurance premium. (L(C grante#
t0e reEuest. !en #a.s a$ter 0e recei&e# t0e co&er
note@ Buirico 0a# a 0eart seiCure an# 0a# to be
0ospitaliCe#. Fe t0en $ile# a claim on t0e polic..
COMMERCIAL LAW
a. Can (L(C &ali#l. #en. t0e claim
on t0e groun# t0at t0e insurance co&erage@
as publicl. o$$ere#@ was a&ailable onl. to
persons 50 to '5 .ears o$ ageQ ,0. or w0.
notQ (2T)
b. :i# (L(C<s issuance o$ a co&er
note result in t0e per$ection o$ an insurance
contract between Buirico an# (L(CQ
67plain. (4T)
Ans;e!*
a. no. t0ere was no concealment on t0e
part o$ Euirico as to 0is age.
b. .es@ one o$ t0e e7ception o$ t0e cas0
an# carr. rule is in li$e insurance w0en t0e
grace perio# applies. in t0e case at bar@ t0e
issuance o$ t0e co&er note s0ows t0at t0e
insurer grante# a grace perio#.
W4O'E INTERE'T I' IN'(RED
510 !0e insurance procee#s s0all be applie#
e7clusi&el. to t0e proper interest o$ t0e
person in w0ose name or $or w0ose bene$it
it is ma#e unless ot0erwise speci$ie# in t0e
polic. (/ection 54).
E8a%1le*
5a0 In t0e case o$ Del @al Bs. Del @al- 2/
)3"l A,?- t0e #esignation o$ a sister as
a sole bene$iciar. in li$e insurance
cannot be #e$eate# b. t0e contention o$
t0e plainti$$ t0at t0e procee#s belong to
t0e estate o$ t0e insure# was
#isregar#e# as insurance is to be
go&erne# b. special law@ not b. t0e
law co&ering #onations or successionD
5b0 In t0e case o$ &on"fa#"o &!os. Bs.
Ma!a- G.R. No. 20HA,- 2/ May 1/7C-
action to reco&er cost o$ repairs an#
labor to a motor &e0icle w0ere t0e
polic. states loss is pa.able to F./.
>e.es@ t0e mortgagee o$ t0e &e0icle
w0o 0a# no 5nowle#ge o$ t0e $act t0at
*ara 0a# it repaire# wit0 Boni$acio
Bros.@ w0ere t0e court rule# t0at F./.
>e.es is t0e one entitle# to t0e
procee#s because a polic. o$ insurance
is a separate an# in#epen#ent contract
between t0e insure# an# t0e insurer@
an# t0at t0ir# persons 0a&e no rig0t to
t0e procee#s o$ t0e insurance.
MA+ A ,
RD
)ER'ON '(E T4E IN'(RER G No@
in general rule unless t0ere is stipulation. ?nless
ot0erwise speci$ie# in t0e polic.@ a 4
>:
person ma.
sue i$=
5a0 T3e "ns!an#e #ont!a#t #onta"n st"1lat"on
"n faBo! of a ,
RD
1e!son- t0e latter t0oug0
not a part. ma. sue to en$orce be$ore t0e
contract is re&o5e# b. t0e partiesD
E8a%1le* In case o$ Co="a Bs. 2"eld%ens
Ins!an#e Co. 27 'CRA 1C/@ t0e insurance
compan. un#ertoo5 to in#emni$. an.
aut0oriCe# #ri&er w0o was #ri&ing t0e motor
&e0icle insure#. CoEuia@ w0ile #ri&ing t0e
insure# motor &e0icle met an acci#ent an#
#ie#. Fis 0eirs were allowe# to sue t0e
insurer@ t0e polic. being consi#ere# in t0e
nature o$ a contract pour autrui an# t0ere$ore
t0e en$orcement t0ereo$ ma. be #eman#e# b.
a 4
r#
part. w0ose bene$it it was ma#eD
5b0 T3e "ns!an#e #ont!a#t 1!oB"des fo!
"nde%n"ty a$a"nst l"ab"l"ty to ,
RD
1e!sons.
E8a%1le* In t0e case o$ G"n$on Bs. Del
Monte- 20 'CRA 10?,- t0e insure# procure#
insurance t0at woul# in#emni$. 0im against
an. an# all sums@ w0ic0 0e ma. be legall.
liable to pa. in respect to t0e #eat0 or bo#il.
in9ur. to an. person. ( 9eepne. co&ere# b.
t0e insurance 0a# bumpe# -uingon an# 0a#
cause# 0is #eat0. !0e insurance was 0el# to
be one $or in#emnit. $or liabilit. to t0ir#
persons 5T3"!d )a!ty L"ab"l"ty0@ an#
t0ere$ore@ suc0 t0ir# person is entitle# to sue
t0e insurer. T3e test to dete!%"ne ;3et3e! a
,
!d
1e!son %ay d"!e#tly se t3e "ns!e! of
t3e ;!on$doe! "s* i #h! con#rac# provid!s
ind!mni#& a"ains# lia%ili#& #o 3
R=
p!rsons,
#h!n #h! la##!r #o )hom #h! insur!d is lia%l!
ma& dir!c#l& su! #h! insur!r, on the other
hand, i #h! insuranc! i or #h! ind!mni#&
a"ains# ac#ual loss or pa&m!n# E #h!n #h! 3
rd

p!rson canno# su! #h! insur!r E r!cours! is
a"ains# #h! insur!d alon!.
520 I$ t0e contract is e7ecute# wit0 an agent
or trustee as t0e insure#@ t0e $act t0at 0is
principal or bene$iciar. is t0e real part.
in interest ma. be in#icate# b.
#escribing t0e insure# as t0e
agent+trustee or b. general wor#s in t0e
polic. (/ection 51). I$ not in#icate#@ it
is as i$ t0e insurance is t0e ta5en out b.
t0e agent+trustee alone@ conseEuentl.
t0e principal 0as no rig0t against t0e
insurerD
5,0 I$ a partner or part owner e$$ects
insurance@ it is necessar. t0at t0e terms
o$ t0e polic. s0oul# be suc0 as are
applicable to t0e 9oint or common
interest so t0at it ma. be applicable to
t0e interest o$ 0is co8partners+owners
(/ection 55). ConseEuentl.@ t0e polic.
must state t0at t0e interest o$ all is
COMMERCIAL LAW
insure#@ i$ not@ it is onl. t0e interest o$
t0e one getting t0e polic. t0at is
insure#D
5?0 ,0en t0e #escription o$ t0e insure# in
t0e polic. is so general t0at it ma.
compre0en# an. person or an. class o$
persons@ onl. 0e w0o can s0ow t0at it
was inten#e# to inclu#e 0im can claim
t0e bene$it o$ t0e polic. (/ection 56).
5A0 ,0en a polic. is so $rame# t0at it will
inure to t0e bene$it o$ w0omsoe&er@
#uring t0e continuance o$ t0e ris5 ma.
become t0e owner o$ t0e interest
insure# (/ection 5'). !0e procee#s
become pa.able to w0o ma. be t0e
owner at t0e time t0e loss or in9ur.
occurs. !0is is an e7ception to section
20.
570 !0e mere trans$er o$ a t0ing insure#
#oes not trans$er t0e polic. but
suspen#s it until t0e same person
becomes t0e owner o$ bot0 t0e polic.
an# t0e t0ing insure# (/ection 58). Note
t0e e7ceptions to t0is rule as $oun# in
sections 20821 an# 5'D
W4AT ARE KIND' O2 IN'(RANCE
)OLICIE'
!0e 5in#s o$ policies are 510 %pen@ 520
alue#@ or 5,0 >unning (/ection 5))D
(n O1en )ol"#y is one in w0ic0 t0e
&alue o$ t0e t0ing insure# is not agree#
upon@ but is le$t to be ascertaine# in case
o$ loss (/ection 60). ,0at is mentione#@
as t0e amount is not t0e &alue o$ t0e
propert. but merel. t0e ma7imum limit
o$ t0e insurer<s liabilit.. In case o$ loss@
t0e insurer onl. pa.s t0e actual cas0
&alue at t0e time o$ lossD
( @aled )ol"#y is one@ w0ic0 e7presses
on its $ace t0at t0e t0ing insure# s0all be
&alue# at a speci$ie# sum (/ection 6").
!0e &aluation o$ t0e propert. insure# is
conclusi&e between t0e parties. In t0e
absence o$ $rau# or mista5e@ suc0 &alue
will be pai# in case o$ a total lossD
( Rnn"n$ )ol"#y 52loat"n$ )ol"#y0 is
one w0ic0 contemplates successi&e
insurances an# w0ic0 pro&i#es t0at t0e
ob9ect o$ t0e polic. ma. be $rom time to
time #e$ine# especiall. as to t0e sub9ects
o$ insurance@ b. a##itional statements or
in#orsements (/ection 62). !0is is also
5nown as a 2loat"n$ )ol"#y G usuall.
issue# to pro&i#e in#emnit. $or propert.@
w0ic0 cannot be co&ere# b. speci$ic
insurance because o$ a $reEuent c0ange
in location an# Euantit..
E8a%1le* Insurance procure# b. a retail
establis0ment to co&er its in&entor. t0at
$luctuates in Euantit.@ or is locate# in
se&eral areasD
@AL(ED )OLIC+ DI'TING(I'4ED 2ROM
AN O)EN )OLIC+
510 In a Baled 1ol"#y@ proo$ o$ &alue o$
t0e t0ing a$ter t0e loss is not necessar..
In an o1en 1ol"#y- t0e insure# must
pro&e t0e &alue o$ t0e t0ing insure#D
520 In a Baled 1ol"#y- t0e parties 0a&e
conclusi&el. stipulate# t0at t0e
propert. insure# is &alue# at a speci$ie#
sum. In an o1en 1ol"#y- t0e &alue is not
agree# but le$t to be ascertaine# upon
lossD
Note* t0is #oes not &iolate t0e principle
t0at a contract o$ insurance is a contract
o$ in#emnit. as long as t0e &aluation is
reasonable an# is bona$i#e).
O)EN AND @AL(ED )OLICIE'
PR5<LE8
/uppose ( constructe# a 0ouse in
"))0 at a cost o$ P 200@000.00 w0ic0 0e
insure# against $ire to t0e sai# amount. !0e
polic. $or P 200@000.00 was renewe# e&er.
.ear. In "))5@ w0en t0e sai# 0ouse was
alrea#. P 100@000.00@ Z o$ t0e 0ouse was
burne# or #estro.e# b. $ire. Fow muc0 can
0e reco&er $rom t0e insurerQ
A$%AER:
It #epen#s. I$ t0e polic. is a &alue#
polic.@ ( can reco&er onl. P 50@000.00. I$ a
polic. is an open polic.@ ( can reco&er 0is
actual loss o$ P "00@000.00.
CAN T4ERE &E AGREEMENT' A' TO
)RE'CRI)TION O2 AN ACTION OR
LIMITATION' ON T4E )ERIOD O2 TIME
TO &RING AN ACTION
+es- pro&i#e# t0e perio# agree# upon s0oul#
not be less t3an one yea! (/ection 64). I$ less t0an
one .ear@ t0e agreement is Bo"d. !0e perio# so
agree# s0all be consi#ere# as 0a&ing commence#
$rom t0e time t0e cause o$ action accrues. ?suall.@
t0e #ase of a#t"on accrues $rom t0e #ate o$ t0e
insurers re9ection o$ t0e claim o$ t0e bene$iciar. or
o$ t0e insure# H s"n#e befo!e !eNe#t"on t0ere is no
COMMERCIAL LAW
necessit. to bring suit. W3en no 1e!"od "s
st"1lated o! "f t3e st"1lat"on "s Bo"d- t0e perio# is
wit0in "0 .ears un#er article ""11@ New Ci&il Co#e@
it being a written contract (6agle /tar &s. C0ia Uu )6
P0il 6)6@ (CCI( &s. (lp0a Insurance@ 21 /C>(
"5"). If t3e "ns!ed as9s fo! a !e#ons"de!at"on of
t3e den"al- t0e perio# is still counte# $rom t0e time
t0e claim is #enie# at t0e $irst instance H not
!e#ons"de!at"on 8 as it gi&es t0e insure# a sc0eme
or #e&ise to waste time until e&i#ence t0at ma. be
consi#ere# against 0im can be #estro.e# (/un Li$e
%$$ice Lt#. s. C(>@ ")5 /C>( ")4). !0e perio#
#oes not run i$ action is broug0t against an agent o$
t0e insurerD
W4AT I' T4E )RE'CRI)TI@E )ERIOD O2
MOTOR @E4ICLE IN'(RANCE
%ne .ear $rom #enial o$ t0e claim H not
date of a##"dent G (/ummit -uarant. &s. :e
-uCman@ "5 /C>( 48))D
W4ERE I' T4E ACTION 2ILED
!0e action ma. be $ile# in t0e $ollowing=
510 CourtsD
520 Insurance Commissioner@ w0o 0as
concurrent 9uris#iction wit0 courts $or
claims not e7cee#ing P0p"00@000.00D
5,0 P%6(+:%L6 0a&e t0e power to compel
a suret. to ma5e goo# on a soli#ar.
un#erta5ing in t0e same procee#ing
w0ere t0e liabilit. o$ t0e principal
obligor is #etermine#.
Note t0at t0e claim becomes a#t"on upon
$iling wit0 t0e courtD
CANCELLATION O2 T4E )OLIC+
I$ polic. ot0er t0an li$e s0all be cancelle# b.
t0e insurer e8#e1t 1on 1!"o! not"#e t3e!eof to t3e
"ns!ed. No not"#e of #an#ellat"on s3all be
effe#t"Be "f not based on t3e o##!!en#e- afte!
effe#t"Be date of one o! %o!e $!onds* 5'e#t"on
7?0
510 Non pa.ment o$ premiumD
520 Con&iction o$ a crime arising out o$ acts
increasing t0e 0aCar# insure# against
5,0 :isco&er. o$ material representationD
5?0 :isco&er. o$ will$ul or rec5less acts or
omissions increasing t0e 0aCar# insure#
againstD
5A0 P0.sical c0anges in t0e propert.
insure# w0ic0 t0e result in t0e propert.
being uninsurableD
570 :etermination b. t0e insurance
commissioner t0at continuation o$ t0e
polic. woul# place t0e insurer in
&iolation o$ t0e co#e=
2ORM O2 NOTICE O2 CANCELLATION
It must be in writing@ maile# or #eli&ere# to
t0e name insure# at t0e a##ress s0own in t0e polic.
w0ic0 s0all state=
510 !0e groun#s relie# upon as per section
61@ an#D
520 !0at upon written reEuest o$ t0e name#
insure#@ t0e insurer will $urnis0 t0e
$acts on w0ic0 cancellation is base#
(/ection 65).
Notes*
510 ( $ire insurance polic. is cancelle# on
%ctober "5@ ")8". !0e insurer<s cler5
allege#l. got notice o$ cancellation b.
mail but t0ere was no proo$ t0at it was
actuall. maile# an# recei&e#. Insurer
relies on t0e presumption o$ regularit..
4eld* Consi#ering t0e strict language
o$ t0e law t0at no polic. can be
cancelle# wit0out prior notice H it
be0oo&e# on t0e insurer to ma5e sure
t0at cancellation was actuall. sent an#
recei&e# b. t0e insure# (*ala.an &s.
(rnal#o@ "56 /C>( '62)D
520 ( insure# 0is buil#ing against $ire an#
ma#e t0e loss pa.able to mortgagee.
?pon cancellation notice was sent to t0e
mortgagee. 4eld* !0ere was no &ali#
notice o$ cancellation. !0e notice is
personal to t0e insure# an# not to an.
unaut0oriCe# person (/aura Import
67port &s. P0ilippine International
/uret. Co.@ Inc.@ 8 /C>( "14)D
I' T4E IN'(RED 4A@E T4E RIG4T TO
RENEW 4I' )OLC+
+es- in insurance ot0er t0an li$e@ t0e na%ed
"ns!ed- ma. renew t0e polic. upon pa.ment o$ t0e
1!e%"% #ue on t0e e$$ecti&e #ate o$ t0e renewal@
i$@ 0e 0as not been gi&en notice by t3e "ns!e! of
t3e "ntent"on not to !ene; o! to #ond"t"on !ene;al
1on !ed#t"on of l"%"ts o! el"%"nat"on of
#oBe!a$es b. mail or #eli&er. at least fo!ty f"Be
days in a#&ance o$ t0e end o$ t0e 1ol"#yD
W W A A R R R R A A N N T T I I E E ' '
COMMERCIAL LAW
Def"ned
- It is a statement or promise state# in t0e
polic. or incorporate# t0erein b. re$erence@
w0ereb. t0e insure# H e7pressl. or
implie#l. (/ection 6') contracts as to t0e
past@ present or $uture (/ection 68)
e7istence o$ certain $acts@ con#itions or
circumstances H t0e l"te!al t!t3 o$ w0ic0
is essential to t0e &ali#it. o$ t0e contractD
2ORM
No particular $orm o$ wor#s is necessar. to
create a warrant. (/ection 6)). ,0at is essential is
w0at t0e parties inten# a statement to be an# i$ so
inten#e# as a warrant. it must be inclu#e# as part o$
t0e contractD
Note*
510 ,0et0er a warrant. is constitute#
or not #epen#s upon t0e intention o$
t0e parties@ t0e nature o$ t0e
contract@ or t0e wor#s use# t0eretoD
520 In case o$ #oubt@ t0e statement is
presume# to be a representation not
a warrant.D
W4AT ARE T4E KIND' O2 WARRANTIE'
510 Aff"!%at"Be G t0ose t0at relate to
matters t0at e7ist at or befo!e t0e
issuance o$ t0e polic.D
520 )!o%"sso!y G t0ose w0ere t0e insure#
promises or un#erta5es t0at certain
matters s0all e7ist or will be #one or
will be omitte# a$ter t0e polic. ta5es
e$$ect. It is a statement in t0e polic.@
w0ic0 imparts t0at it is inten#e# to #o
or not to #o a t0ing w0ic0 materiall.
a$$ects t0e ris5@ is a warrant. t0at suc0
act or omission s0all ta5e place (/ection
'2)D
Note t0at unless t0e contrar. intention
appears@ t0e courts will presume t0at t0e
warrant. is merel. an a$$irmati&e
warrant..
5,0 E81!ess G a statement in a polic. o$ a
matter relating to t0e person or t0ing
insure# or to t0e ris5 as a $act (/ection
'") an# w0ere t0e assertion or promise
is clearl. set $ort0 in t0e polic. or
incorporate# t0erein b. re$erence. !0e.
can be a$$irmati&e or promissor.
warrantiesD
An e81!ess ;a!!anty %ade at o!
befo!e t3e e8e#t"on of t3e 1ol"#y
s3old be #onta"ned 5a0 in t0e polic.
itsel$ 5b0 in anot0er instrument signe#
b. t0e insure# an# re$erre# to in t0e
polic. as ma5ing a part o$ it (/ection
'0). !0is inclu#es a !"de! G it is a part
o$ t0e polic.@ it nee# not be signe#
unless t0e ri#er was issue# a$ter t0e
original polic. too5 e$$ectD
5?0 I%1l"ed G w0ere t0e assertion or
promise is not e7pressl. set $ort0 in t0e
polic. but because o$ t0e general tenor
o$ t0e terms o$ t0e polic. or $rom t0e
&er. nature o$ t0e insurance contract@ a
warrant. is necessaril. in$erre# or
un#erstoo#. Note t0at t0e law onl.
pro&i#es $or implie# warranties in
contracts o$ marine insurance. /ee
section ""4 (seawort0iness) an# "26
(#e&iation)D

E22ECT O2 @IOLATION O2 A WARRANT+
!0e &iolation o$ a material warrant.@ or
ot0er material pro&ision o$ t0e polic.@ on t0e part o$
eit0er part. t0ereto@ entitles t0e ot0er to rescin#
(/ection '1) Note t0at t0e insure# can e7ercise t0e
rig0t also w0en t0e insurer &iolates a warrant.@ li5e
w0en it re$uses to grant a loan on t0e polic.. &t as
$ar as t0e insure#@ Note also t3at*
510 ,0ile a polic. ma. #eclare t0at a
&iolation o$ a speci$ie# pro&isions
t0ereo$ s0all a&oi# it@ ot3e!;"se t0e
breac0 o$ an immaterial pro&ision #oes
not a&oi# t0e polic. (/ection '5).
Mean"n$ o!d"na!"ly a b!ea#3 of an
"%%ate!"al 1!oB"s"on does not aBo"d a
1ol"#y@ 0owe&er@ i$ stipulate# t0at an.
breac0 a&oi#s t0e polic.@ t0e polic. is
a&oi#e#D
520 ( breac0 o$ a warrant. wit0out $rau#@
merel. e7onerates an insurer $rom t0e
time it occurs@ or w0ere it is bro5en at
its inception@ pre&ents t0e polic. $rom
attac0ing to t0e ris5 (/ection '6).
Mean"n$ G t0at i$ t0e breac0 is wit0out
$rau# H t0e polic. is a&oi#e# onl. $rom
t0e time o$ t0e breac0 it is still
e$$ecti&e. ConseEuentl.@ t0e insure# is
entitle# to a pro8rate return o$ t0e
premium pai# un#er section ') (b) or
all premiums@ i$ t0e breac0 occurs at t0e
inception o$ t0e contract@ as suc0 is &oi#
ab initio an# 0a# ne&er become bin#ingD
Note t0at a #asal #onne#t"on between t0e &iolation
o$ t0e warrant. is not necessar. H /o@ e&en i$ t0e
&iolation #i# act contribute in t0e loss H t0e ot0er
part. ma. still rescin#.
COMMERCIAL LAW
E8a%1le* ( insure# buil#ing against $ire. (
warrant. state# t0at no 0aCar#ous goo#s s0oul# be
store#. ( store# $irewor5s. !0e buil#ing was burne#
an# t0e $irewor5s were #isco&ere# store# in t0e area
not a$$ecte# b. t0e $ire. !0e insurer was not 0el#
liable as t0e storage 0a# increase# t0e ris5 5+on$
Bs. M"dland Te8t"les Ins. G ,0 )3"l 71C0O
T4E NON )ER2ORMANCE O2 A
)ROMI''OR+ WARRANT+ DOE' NOT
A@OID T4E )OLIC+ W4EN &E2ORE T4E
ARRI@AL O2 T4E TIME 2OR
)ER2ORMANCE 5'e#t"on C,0
510 !0e loss insure# against 0appensD
520 !0e per$ormance becomes unlaw$ul at
t0e place o$ t0e contractD
5,0 !0e per$ormance becomes impossibleD
DI'TING(I'4ING IT 2ROM
RE)RE'ENTATION'
WARRANT+ RE)RE'ENTATION
- ( warrant. is part
o$ t0e contractD
- ( warrant. is
e7pressl. set $ort0
in t0e polic. or
incorporate# t0erein
b. re$erenceD
- ( warrant. must
strictl. an# literall.
per$orme#D
- ( warrant. is
presume# materialD
- ( breac0 o$
warrant. is a breac0
o$ t0e contract itsel$
->epresentation is
merel. a collateral
in#ucement t0eretoD
-( >epresentation m.
be oral or written in
anot0er statementD
- >epresentation must
be substantiall. trueD
- ( representation
must be s0own to be
soD
- (mis)representation is
a groun# to rescin#
t0e contractD
) ) R R E E M M I I ( ( M M
DE2INED
!0e agree# price $or assuming an# carr.ing
t0e ris5D
W4EN I' T4E IN'(RER ENTITLED TO A
)REMI(ML
!0e insurer is entitle# to t0e pa.ment o$ a
premium as soon as t0e t0ing insure# is e7pose# to
t0e peril insure# against. Notwit0stan#ing an.
agreement to t0e contrar.@ no polic. or contract o$
insurance issue# b. an insurance compan. is &ali#
an# bin#ing unless an# until t0e premium is pai#
e8#e1t "n*
510 In case o$ li$e or in#ustrial li$e (li$e
insurance polic. w0ere t0e premium is
pa.able mont0l. or o$tener) w0ene&er
t0e grace perio# applies (/ection '')D
520 ,0en t0e insurer ma5es a written
ac5nowle#gement o$ t0e receipt o$
premium@ suc0 is conclusi&e e&i#ence
o$ t0e pa.ment o$ t0e premium to ma5e
it bin#ing notwit0stan#ing an.
stipulation t0erein t0at it s0all not be
bin#ing until t0e premium is pai#
(/ection '8) 4ENCE- t3e effe#t of an
a#9no;led$e%ent in a polic. or
contract o$ insurance o$ t0e receipt o$
t0e premium H is t0at it is conclusi&e
e&i#ence o$ pa.ment H so $ar as to ma5e
t0e polic. bin#ing. 4o;eBe!- it is
conclusi&e onl. to ma5e t0e polic.
bin#ing an# not $or t0e purpose o$
collecting premium@ an#D
5,0 ,0ere t0e obligee 0as accepte# t0e
bon# or suret.s0ip contract in w0ic0
case suc0 bon# or suret.s0ip contract
becomes &ali# an# en$orceable
irrespecti&e o$ w0et0er or not t0e
premium 0as been pai# b. t0e obligor
to t0e suret. (/ection "'')D
E:CE)TION' TO 'ECTION CC=
(C)& GENERAL IN'(RANCE CO.- INC.
&s.MA'AGANA TELAMART- INC. 5G.R. No.
1,C1C2 A1!"l ?- 20010
". In case o$ li$e or in#ustrial li$e insurance@ w0en
t0e grace perio#s appliesD (/ec. '')
2. ,0en t0e insurer ma5es a written
ac5nowle#gment o$ t0e receipt premiumD (/ec.
'8)
4. /ection '' ma. not appl. i$ t0e parties 0a&e
agree# to t0e pa.ment o$ t0e premium in
installments an# partial pa.ment 0as been ma#e
at t0e time o$ t0e loss. (*a5ati !uscan.
Con#ominium Corp. &. C(@ 2"5 /C>( 162)
1. I$ t0e insurer grante# t0e insure# a cre#it term
$or t0e pa.ment o$ t0e premium an# loss occurs
be$ore t0e e7piration o$ t0e term@ reco&er.
s0oul# be allowe# e&en t0e premium is pai#
a$ter t0e loss but wit0in t0e cre#it term.
5. ,0ere t0e parties are barre# b. estoppel.
?CPB -6N6>(L IN/?>(NC6 C%. /.
*(/(-(N( !6L6*(>!@ (P>IL 21@ 200"
Rl"n$
COMMERCIAL LAW
. It was establis0e# t0at ?CPB 0a#
been issuing $ire policies to *asagana an#
t0ese policies were annuall. renewe#. ?CPB
0a# been granting *asagana a 60 to )08#a.
cre#it term wit0in w0ic0 to pa. t0e premium
on t0e renewe# policies. !0ere was no &ali#
notice o$ non8renewal o$ t0e policies. !0e
premium were pai# wit0in t0e 60 to )0 #a.
cre#it term an# #ul. accepte# b. ?CPB. It
woul# be un9ust an# ineEuitable i$ *asagana
cannot reco&er on t0e policies. ?CPB is
estoppe# $rom ta5ing re$uge un#er /ection ''
since *asagana 0a# relie# in goo# $ait0 on
suc0 practice.
A8ER*!A$ 358E A%%4RA$!E !5- ?%-
A$"5$*5 !34A, @4$E .&, '===
'C R(LING*
/C sustaine#+a$$irme# t0e #ecision o$
t0e >!C an# C( because t0ere was a &ali#
c0ec5 pa.ment b. C0ua to t0e insurer. !0e
renewal certi$icate issue# to C0ua containe#
t0e ac5nowle#gment t0at premium 0as been
pai#.
@IRGINIA A. )EREQ Bs. CA 5G.R. No. 112,2/
.ana!y 2H- 20000
5nly #hen the applicant pays the premium and
receives and accepts the policy #hile he is in good
health that the contract of insurance is deemed to
have been perfected- ;Insurance is a contract
w0ereb.@ $or a stipulate# consi#eration@ one part.
un#erta5es to compensate t0e ot0er $or loss on a
speci$ie# sub9ect b. speci$ie# perils.
'
( contract@ on
t0e ot0er 0an#@ is a meeting o$ t0e min#s between
two persons w0ereb. one bin#s 0imsel$@ wit0 respect
to t0e ot0er to gi&e somet0ing or to ren#er some
ser&ice.
8
?n#er (rticle "4"8 o$ t0e Ci&il Co#e@
,0en Primiti&o $ile# an application $or insurance@
pai# P2@0'5.00 an# submitte# t0e results o$ 0is
me#ical e7amination@ 0is application was sub9ect to
t0e acceptance o$ pri&ate respon#ent BI Li$eman
Insurance Corporation. !0e per$ection o$ t0e
contract o$ insurance between t0e #ecease# an#
respon#ent corporation was $urt0er con#itione# upon
compliance wit0 t0e $ollowing reEuisites state# in
t0e application $orm=
t0ere s0all be no contract o$ insurance unless
an# until a polic. is issue# on t0is
application an# t0at t0e sai# polic. s0all not
ta5e e$$ect until t0e premium 0as been pai#
an# t0e polic. #eli&ere# to an# accepte# b.
me+us in person w0ile I+,e@ am+are in goo#
0ealt0.
)
!0e assent o$ pri&ate respon#ent BI Li$eman
Insurance Corporation t0ere$ore was not gi&en w0en
it merel. recei&e# t0e application $orm an# all t0e
reEuisite supporting papers o$ t0e applicant. Its
assent was gi&en w0en it issues a correspon#ing
polic. to t0e applicant. ?n#er t0e abo&ementione#
pro&ision@ it is onl. w0en t0e applicant pa.s t0e
premium an# recei&es an# accepts t0e polic. w0ile
0e is in goo# 0ealt0 t0at t0e contract o$ insurance is
#eeme# to 0a&e been per$ecte#.
In t0e case at bar@ t0e $ollowing con#itions were
impose# b. t0e respon#ent compan. $or t0e
per$ection o$ t0e contract o$ insurance=
(a) a polic. must 0a&e been issue#D
(b) t0e premiums pai#D an#
(c) t0e polic. must 0a&e been #eli&ere# to
an# accepte# b. t0e applicant w0ile 0e is in
goo# 0ealt0.
!0e con#ition impose# b. t0e corporation t0at t0e
polic. must 0a&e been #eli&ere# to an# accepte# b.
t0e applicant w0ile 0e is in goo# 0ealt0 can 0ar#l.
be consi#ere# as a potestati&e or $acultati&e
con#ition. %n t0e contrar.@ t0e 0ealt0 o$ t0e
applicant at t0e time o$ t0e #eli&er. o$ t0e polic. is
be.on# t0e control or will o$ t0e insurance compan..
>at0er@ t0e con#ition is a suspensi&e one w0ereb.
t0e acEuisition o$ rig0ts #epen#s upon t0e 0appening
o$ an e&ent w0ic0 constitutes t0e con#ition. In t0is
case@ t0e suspensi&e con#ition was t0e polic. must
0a&e been #eli&ere# an# accepte# b. t0e applicant
w0ile 0e is in goo# 0ealt0. !0ere was non8
$ul$illment o$ t0e con#ition@ 0owe&er@ inasmuc0 as
t0e applicant was alrea#. #ea# at t0e time t0e polic.
was issue#. Fence@ t0e non8$ul$illment o$ t0e
con#ition resulte# in t0e non8per$ection o$ t0e
contract.
$o contract of insurance, unless unless the minds
of the parties have met in agreement-; ( contract o$
insurance@ li5e all ot0er contracts@ must be assente#
to b. bot0 parties@ eit0er in person or t0roug0 t0eir
agents an# so long as an application $or insurance
0as not been eit0er accepte# or re9ecte#@ it is merel.
a proposal or an o$$er to ma5e a contract. !0e
contract@ to be bin#ing $rom t0e #ate o$ application@
must 0a&e been a complete# contract@ one t0at lea&es
not0ing to be #one@ not0ing to be complete#@ not0ing
to be passe# upon@ or #etermine#@ be$ore it s0all ta5e
e$$ect. !0ere can be no contract o$ insurance unless
t0e min#s o$ t0e parties 0a&e met in agreement.
>elay in acting on the application not
unreasonable so as to constitute gross negligence
for #hich the insurance corporation may be
penaliBed- ; >espon#ent corporation cannot be 0el#
liable $or gross negligence. It s0oul# be note# t0at an
application is a mere o$$er w0ic0 reEuires t0e o&ert
act o$ t0e insurer $or it to ripen into a contract. :ela.
in acting on t0e application #oes not constitute
acceptance e&en t0oug0 t0e insure# 0as $orwar#e#
0is $irst premium wit0 0is application. !0e
corporation ma. not be penaliCe# $or t0e #ela. in t0e
processing o$ t0e application papers. *oreo&er@
w0ile it ma. 0a&e ta5en some time $or t0e
application papers to reac0 t0e main o$$ice@ in t0e
case at bar@ t0e same was acte# upon less t0an a
wee5 a$ter it was recei&e#. !0e processing o$
applications b. respon#ent corporation normall.
COMMERCIAL LAW
ta5es two to t0ree wee5s@ t0e longest being a
mont0.
"2
In t0is case@ 0owe&er@ t0e reEuisite me#ical
e7amination was un#ergone b. t0e #ecease# on
No&ember "@ ")8'D t0e application papers were
$orwar#e# to t0e 0ea# o$$ice on No&ember 2'@ ")8'D
an# t0e polic. was issue# on :ecember 2@ ")8'.
?n#er t0ese circumstances@ we 0ol# t0at t0e #ela.
coul# not be #eeme# unreasonable so as to constitute
gross negligence.
W4AT I' T4E E22ECT O2 )ARTIAL
)A+MENTL
O!d"na!"ly- t0e obligation to pa. premium
w0en #ue is consi#ere# an "nd"B"s"ble obl"$at"on.
Fence@ $or$eiture is not pre&ente# b. a part pa.ment
nless- pa.ment b. installment 0as been agree#
upon or is t0e establis0e# practice H t3e bas"#
1!"n#"1les of e="ty and fa"!ness woul# not allow
t0e insurer to collect an# accept installments an#
later #en. liabilit. as premiums were not pai# in
$ull. (/ee P0ilippine P0oeni7 /uret. an# Ins. &s.
,oo#wor5s H 20 /C>( "2'0@ *a5ati !uscan.
Con#ominium Corporation &s. C(@ 8 pa.ment b.
installment was agree# upon@ note also !iba. &s. C(
H 25' /C>( "26 H an. partial pa.ment w0en t0ere
is an agreement t0at t0e polic. s0all not be e$$ecti&e
pen#ing pa.ment o$ $ull premium was in t0e concept
o$ #eposit.)
)A+MENT TO IN'(RANCE AGENT OR
&ROKER is pa.ment to t0e insurance compan.D
WILL )A+MENT &+ )ROMI'OR+ NOTE OR
C4ECK &E '(22ICIENT TO MAKE T4E
)OLIC+ &INDINGL
No- art. "21) 2
N:
paragrap0 o$ t0e Ci&il
Co#e@ t0at suc0 pro#uces pa.ment onl. w0en it is
ENCA'4EDO
W4EN I' T4E IN'(RED ENTITLED TO A
RET(RN O2 T4E )REMI(M' )AIDL
2000 &AR E:AM 5I: G a0
!0e insure# is entitle# to a return w0en=
510 !o t0e w0ole premium@ w0en no part o$
t0e interest in t0e t0ing insure# is
e7pose# to an. o$ t0e perils insure#
against (/ection ') H()D
520 ,0ere t0e insurance is ma#e $or a
#e$inite perio# o$ time an# t0e insure#
surren#ers 0is polic. be$ore t0e
e7piration o$ t0e perio#@ 0ere t0e
insure# onl. reco&ers a portion o$ t0e
polic. premiums correspon#ing wit0
t0e une7pire# time bt it #oes not appl.
i$=
5a0 t0e polic. is not so #e$initeD
5b0 a s0ort perio# rate (insurance is
$or a perio# o$ less t0an a .ear
an# a rate 0as been agree# to i$
t0e polic. is surren#ere#D
E8a%1le* I$ t0e polic. is in
$orce $or a mont0 t0e insurer
retains 20T o$ t0e premium)
0as been agree# uponD
5#0 t0e polic. is a li$e insurance
polic. H it is in#i&isible but 0e
0as a cas0 surren#er &alueD
5,0 ,0en t0e contract is &oi#able on
account o$ $rau# or misrepresentation o$
t0e insurer or t0e agent (/ection 8")D
5?0 ,0ere t0e contract is &oi#able on
account o$ $acts@ t0e e7istence o$ w0ic0
t0e insure# was ignorant wit0out 0is
$ault (/ection 8")D
5A0 ,0en b. an. #e$ault o$ t0e insure#
ot0er t0an actual $rau#@ t0e insurer
ne&er incurre# an. liabilit. un#er t0e
polic.D (/ection 8")D
570 In case o$ o&er insurance. Fere t0e
insurance is in e7cess o$ t0e amount o$
t0e insurable interest o$ t0e insure# an#
it is insure# b. se&eral insurers@ t0e
insure# is entitle# to a RATA&LE
RET(RN O2 )REMI(M-
proportional to t0e amount b. w0ic0 t0e
aggregate sum insure# in all t0e policies
e7cee#s t0e insurable &alueD
W4OM ARE T4E )REMI(M' RET(RNED
?nless ot0erwise state#@ t0e. s0all be
returne# to t0e insure# w0o pai# t0emD
W4EN ARE T4E+ NOT RECO@ERA&LE
Premiums cannot be reco&ere#=
510 I$ t0e peril insure# against 0as e7iste#@
an# t0e insurer 0as been liable $or an.
perio#@ t0e perio# being entire an#
in#i&isible (/ection 80)D
520 In li$e insurance H (/ection ')8b) cas0
surren#er &alueD
5,0 ,0en t0e insure# is guilt. o$ $rau# or
misrepresentation (/ection 8")D
L L % % / / / / ( ( N N : : N N % % ! ! I I C C 6 6 % % I I L L % % / / / /
:ean >e.nal#o ?. (granCamen#eC Page C0 o$ 177
COMMERCIAL LAW
,F(! (>6 !F6 >?L6/ !% :6!6>*IN6
,F6!F6> !F6 IN/?>6> I/ LI(BL6 I%> !F6
L%// %I !F6 !FIN- IN/?>6:Q
". Loss o$ w0ic0 a peril insure# is t0e
pro7imate cause. (lt0oug0 a peril not
contemplate# b. t0e contract ma. 0a&e been
a remote cause %u# t0e insurer is not liable
$or a loss o$ w0ic0 t0e peril insure# against
was onl. a remote cause. (/ection 81)
Pro7imate cause8 t0at w0ic0 in natural an#
continuous seEuence@ unbro5en b. an. e$$icient
inter&ening cause@ pro#uces an in9ur. an# wit0out
w0ic0 t0e in9ur. woul# not 0a&e occurre#)
E8a%1le* In li$e insurance t0at co&ers #eat0 b.
acci#ent@ i$ t0e insure# sustains an acci#ent t0at
ren#ers 0im wea5@ w0ile in sai# state@ 0e contracts a
col# t0at #e&elops into pneumonia. !0e pro7imate
cause is t0e acci#ent@ w0ile t0e remote cause is t0e
pneumonia@ t0e insurer is liableD
2. Loss cause# b. e$$orts to rescue t0e t0ing
insure# $rom a peril insure# against t0at
woul# ot0erwise 0a&e cause# a loss@ i$ in t0e
course i$ suc0 rescue@ t0e t0ing is e7pose# to
peril not insure# against@ w0ic0 permanentl.
#epri&es t0e insure# o$ its possession in
w0ole or in part@ or w0ere a loss is cause#
b. e$$orts to rescue t0e t0ing insure# $rom a
peril insure# against (/ection 85). Fere t0e
principle o$ pro7imate cause is e7ten#e# to
loss incurre# w0ile sa&ing t0e t0ing insure#.
67amples= (a) ,0en t0e t0ing
insure# is water #amage# #ue to
e$$orts to put out a $ire@ t0e $ire
being a peril insure# against
(b) !0e$t b. 4
>:
persons w0ile t0e
goo#s are broug0t out in t0e course
o$ rescuing t0em $rom a $ire@ w0ic0
is t0e peril insure# against B?! H
no loss i$ t0e goo#s are le$t out an#
are lost H it is now #ue to lac5 o$
reasonable care an# &igilanceD
(C) ( insures t0e contents o$ 0is
0ouse against $ire. ( $ire brea5s out@
w0ile remo&ing t0e contents@ t0e.
were stolen or t0e. were bro5en or
#amage#@ t0e$t or brea5age not
being perils insure# againstD
4. ,0ere a peril is especiall. e7cepte# in a
contract o$ insurance a loss@ w0ic0 woul#
not 0a&e occurre# but $or suc0 peril@ is
t0ereb. e7cepte# alt0oug0 t0e imme#iate
cause o$ t0e loss was a peril w0ic0 was not
e7cepte# (/ection 86). !0e imme#iate cause
is t0e C(?/6 %> C%N:I!I%N N6(>6/!
!F6 !I*6 (N: PL(C6 %I !F6
IN3?>U. Fere@ t0e insurer will be liable i$
bot0 t0e imme#iate cause an# t0e pro7imate
cause are not e7cepte#. I$ t0e pro7imate
cause is e7cepte# an# t0e imme#iate cause is
not@ t0e insurer is not liable.
1. (n insurer is not liable $or loss cause# b.
t0e will$ul act or t0roug0 t0e con&enience o$
t0e insure#D but 0e is not e7onerate# b. t0e
negligence o$ t0e insure#@ or o$ t0e insure#<s
agent or ot0ers (/ection 8'). ConseEuentl.@
i$ t0e insure# was merel. negligent@ t0e
insurer is still liable as one o$ t0e principal
reasons o$ procuring insurance is to protect
0imsel$ against t0e conseEuences o$ 0is own
negligence or t0at o$ 0is agents.
200C &AR E:AM 5I@0
Alf!edo too9 ot a 1ol"#y to "ns!e
3"s #o%%e!#"al b"ld"n$ a$a"nst f"!e. T3e b!o9e!
fo! t3e "ns!an#e #o%1any a$!eed to $"Be a 1A6
day #!ed"t ;"t3"n ;3"#3 to 1ay t3e "ns!an#e
1!e%"%. (1on del"Be!y of t3e 1ol"#y on May 1A-
2007- Alf!edo "ssed a 1ostdated #3e#9 1ayable
on May ,0- 2007. On May 2H- 2007- a f"!e b!o9e
ot and dest!oyed t3e b"ld"n$ o;ned by
Alf!edo.Reason b!"efly "n 5a0- 5b0 and 5#0.
a. May Alf!edo !e#oBe! on t3e "ns!an#e
1ol"#yL
Ues@ (l$re#o can reco&er on t0e insurance
polic.. (lt0oug0 /ection '' o$ t0e Insurance Co#e
pro&i#es t0at in $ire insurance@ pa.ment o$ premium
is necessar. $or &ali#it. o$ t0e polic. (also 5nown as
Lcas0 an# carr.M pro&ision)@ nonet0eless@ t0e rule
0as been mo#i$ie# b. t0e #ecisions o$ t0e /upreme
Court a$ter t0e promulgation o$ t0e Insurance Co#e.
!0us@ in ?CPB -eneral Insurance &. *asagana
!elemart@ -.>. No. "4'"'2@ (pril 1@ 200"@ it was
0el# t0at t0e insure# s0oul# be allowe# to reco&er on
losses sustaine# e&en w0en premium was pai# a$ter
t0e $act o$ loss@ pro&i#e# pa.ment was recei&e# b.
t0e insurer #uring t0e cre#it perio# gi&en to t0e
insure#. (/ee also /out0 /ea /uret. &. Court o$
(ppeals@ -.>. No. "02254@ 3une 2@ "))5D (merican
Fome (ssurance &. C0ua@ -.>. No. "4012"@ 3une
28@ ")))) w0ere t0e /upreme Court rule# t0at is t0e
c0ec5 pa.ment $or premium was recei&e# b. t0e
insurer prior to t0e loss or wit0in t0e cre#it perio#@
t0e insure# was allowe# to reco&er.
b. Wold yo! ans;e! "n 5a0 be t3e sa%e "f "t ;as
fond t3at t3e 1!o8"%ate #ase of t3e f"!e ;as an
e81los"on and t3at f"!e ;as bt t3e "%%ed"ate
#ase of loss and t3e!e "s no e8#e1ted 1e!"l nde!
t3e 1ol"#yL
Ues@ reco&ering un#er an insurance contract is
allowe# i$ t0e cause o$ t0e loss was eit0er t0e
pro7imate or t0e imme#iate cause as long as an
e7pecte# peril was not t0e pro7imate cause o$ t0e
loss. (/ection 86@ Insurance Co#e o$ t0e
COMMERCIAL LAW
P0ilippines.) !0e $ire being t0e imme#iate cause $or
t0e loss o$ t0e commercial buil#ing@ woul# warrant
reco&er. un#er t0e polic..
#. If t3e f"!e ;as fond to 3aBe been #ased by
Alf!edoRs o;n ne$l"$en#e- #an 3e st"ll !e#oBe! on
t3e 1ol"#yL
Ues@ 0e can still reco&er. !0e #octrine o$
contributor. negligence #oes not in an. wa. appl.
to rig0ts un#er a contract o$ insurance@ unless it is a
case o$ will$ul act. (/ection 8'@ Insurance Co#e o$
t0e P0ilippines)
ADMI''ION O2 )RI@ATE DOC(MENT' A'
E@IDENCE H Be$ore a pri&ate #ocument is
a#mitte# in e&i#ence@ it must be aut0enticate# eit0er
b. t0e person w0o e7ecute# it@ t0e person be$ore
w0om its e7ecution was ac5nowle#ge#@ an. person
w0o was present an# saw e7ecute#@ or w0o a$ter its
e7ecution@ saw it an# recogniCe# t0e signatures@ or
t0e person to w0om t0e parties to t0e instruments
0a# pre&iousl. con$esse# e7ecution t0ereo$. (sec.20
>ule "42 >%C as cite# in *ala.an Insurance Co.@
Inc. . P0ilippine Nails an# ,ires Corporation@
(pr."0@ 2002 -.>. No. "48081)
I//?(NC6 %I CL(I* I%> L%//D IILIN- %I
CL(I* ,I!FIN !F6 P6>I%: ( C%N:I!I%N
P>6C6:6N! H !0e issuance o$ claim $or loss or
#amages to cargo s0oul# be $ile# wit0in 21 0ours
$rom t0e time t0e goo#s were recei&e#.
!0e $iling o$ a claim wit0 t0e carrier wit0in t0e time
limitation t0ere$ore actuall. constitutes a con#ition
prece#ent to t0e accrual o$ a rig0t o$ action against a
carrier $or loss o$@ or #amage to@ t0e goo#s. !0e
s0ipper or consignee must allege an# pro&e t0e
$ul$illment o$ t0e con#ition. I$ it $ails to #o so@ no
rig0t o$ action against t0e carrier can accrue in $a&or
o$ t0e $ormer. !0e a$orementione# reEuirement is a
reasonable con#ition prece#entD it #oes not
constitute a limitation o$ action. 5)3"l"11"ne
C3a!te! Ins!an#e Co!1. B. C3e%o"l L"$3te!a$e
Co!1.- .n. 2/- 200A G.R. No. 1,7HHH0
>6C%-NIYIN- !F(! !F6>6 (>6 P>%BL6*/
IN :6!6>*ININ- P>%VI*(!6 C(?/6 H
N%!6 !F6 I%LL%,IN- >?L6/=
(a) I$ t0ere is a single cause w0ic0 is an insure#
peril@ clearl. it is t0e pro7imate cause an#
t0ere is liabilit.D
(b) I$ t0ere are concurrent causes (t0ose
0appening toget0er) wit0 no e7clu#e#
perils@ t0ere i$ liabilit. i$ one o$ t0e causes is
an insure# peril@ t0e ot0ers ma. be ignore#D
(c) I$ t0ere are concurrent causes wit0 an
e7cepte# peril (insure# peril operate
toget0er to pro#uce t0e loss) t0e claim will
be outsi#e t0e scope o$ t0e polic.D
(#) But i$ t0e results o$ t0e operation o$ t0e
insure# peril can be clearl. separate# $rom
t0e e$$ects o$ t0e e7cepte# peril@ t0e insurer
is liableD
(e) ,0ere a number o$ causes operate one $rom
t0e ot0er@ t0e original cause 0appens to be a
peril@ t0e insurer is liable.
TRAN'2ER O2 CLAIM'
(n agreement not to trans$er t0e claim o$ t0e
insure# a$ter t0e loss 0appens H is %I: i$ *(:6
B6I%>6 !F6 L%// e7cept as ot0erwise pro&i#e#
in case o$ li$e insurance (/ection 44).
!0is means t0at t0e insure# 0as an absolute
rig0t to trans$er 0is claim against t0e insurer (I!6>
!F6 L%// occurs@ w0at is pro0ibite# is a trans$er
prior to t0e loss.
!0is is so because suc0 stipulation a$ter t0e
loss occurs s0all 0in#er t0e transmission o$ propert..
Neit0er #oes it a$$ect t0e insurer as its liabilit. is
alrea#. $i7e# an# w0at is actuall. assigne# is t0e
mone. claim@ not t0e contract itsel$.
!0e e7ception in section "'4 t0at pro&i#es t0at t0e
trans$er o$ a $ire insurance polic. to an. person or
compan. w0o acts as an agent $or or ot0erwise
represents t0e issuing compan. is pro0ibite# an# is
&oi# inso$ar as it a$$ects ot0er cre#itors o$ t0e
insure#D
NOTICE AND )ROO2 O2 LO''
Notice o$ loss must be gi&en wit0out
unnecessar. #ela. b. t0e insure# or some person
entitle# to t0e bene$it o$ t0e insurance. II N%!
!F6N@ t0e insurer is e7onerate# (/ection 88).
,I!F%?! ?NN6C6//(>U :6L(U H is
wit0in a reasonable time@ #epen#ing on
circumstances o$ a peculiar case@ alt0oug0 courts
0a&e construe# t0e reEuirement liberall. in $a&or o$
t0e insure#.
)ROO2 O2 LO''
I$ t0e polic. reEuires Preliminar. Proo$ o$
Loss (e&i#ence gi&en t0e insurer o$ t0e occurrence
o$ t0e loss@ its particulars@ an# #ata necessar. to
enable it to #etermine liabilit. an# t0e amount
t0ereo$) I! I/ N%! N6C6//(>U t0at t0e insure#
gi&e suc0 proo$ H (/ *(U %> ,%?L: B6
N6C6//(>U IN ( C%?>! %I 3?/!IC6 ,F(!
I/ /?IIICI6N! is t0e B6/! 6I:6NC6 w0ic0 0e
0as in 0is power at t0at time (/ection 8))
COMMERCIAL LAW
W4EN ARE DE2ECT' IN T4E NOTICE OR
)ROO2 LO'' DEEMED WAI@ED &+ T4E
IN'(RER

". ,0en t0e insurer $ails to speci$. to t0e
insure# an. #e$ect w0ic0 t0e insure# can
reme#. wit0out #ela.D
2. ,0en t0e insurer #enies liabilit. on a
groun# ot0er t0an t0at #e$ect in t0e notice or
proo$ o$ lossD
E8a%1le* :enial is base# on nullit. o$ t0e
contract (/ection )0)
W4EN I' DELA+ IN T4E GI@ING O2
NOTICE WAI@ED
". I$ it is cause# b. an. act o$ t0e insurer.
2. I$ t0e insurer omits to ma5e an ob9ection
promptl. an# speci$icall. on t0at groun#. H
#espite #ela.@ t0e insurer #oes not ob9ect
(/ection )")D
REI(IREMENT O2 CERTI2ICATION OR
TE'TIMON+ O2 A T4IRD )ER'ON
In t0e gi&ing o$ preliminar. proo$ o$ loss@ a
certi$ication or testimon. o$ a t0ir# person ot0er t0an
t0e insure# is reEuire#@ it is su$$icient $or t0e insure#
to use >6(/%N(BL6 :ILI-6NC6 to procure it.
In case o$ >6I?/(L to gi&e it@ t0e insure# can
$urnis0 >6(/%N(BL6 6I:6NC6 to t0e insurer
t0at suc0 re$usal ,(/ N%! IN:?C6: BU (NU
3?/! ->%?N:/ %I :I/B6LI6I in t0e $acts
necessar. to be certi$ie# or testi$ie# H %NC6
/F%,N or -I6N t0e reEuirement ma. be
#ispense# wit0 (/ection )2).
,F(! F(PP6N/ (I!6> P(U*6N! BU !F6
IN/?>6> /?B/6B?6N! !% -IIN- %I
N%!IC6 %I L%//
In propert. insurance@ a$ter t0e insure# 0as recei&e#
pa.ment $rom t0e insurer o$ t0e loss co&ere# b. t0e
polic.@ t0e insurance compan. is /?B>%-(!6: to
t0e rig0ts o$ t0e insure# against t0e wrong#oer or t0e
person w0o 0as &iolate# t0e contract. !0e rig0t o$
subrogation accrues upon pa.ment o$ t0e insurance
claim.
NOTE* /ubrogation ta5es e$$ect b. operation o$ law
an# #oes not reEuire t0e consent o$ t0e wrong #oer
(Fir!manCs Fir! Insuranc! vs. .amilla G Compan&,
72 SCRA 3*3).
!F6>6 I/ N% /?B>%-(!I%N IN=
(a) Li$e insurance as it is not a contract o$
in#emnit.
(b) ,0en pro7imate cause o$ t0e loss is t0e
insure# 0imsel$
(c) ,0en t0e insurer pa.s to t0e insure# a loss
not co&ere# b. t0e polic.D
!0e insure# is no longer to collect $rom
t0e wrong#oer i$ t0e amount t0at 0e
recei&e# $rom t0e insurer 0as $ull.
compensate# $or t0e lossD
'(&ROGATION 5ART. 220C- NEW CI@IL
CODE0
P3*L*PP*$E A8ER*!A$ GE$-
*$%4RA$!E !5- ?%- !A C EL8A$
%3*PP*$G L*$E%, @4$E '','==)-
'C R(LING*
It or#ere# Ielman to pa. P0ialamgen P '55@
250.00 plus interest pursuant to (rt. 220' 0$ t0e
Ci&il Co#e w0ic0 pro&i#es=
L(rt. 220'. I$ t0e plainti$$<s propert. 0as been
insure#@ an# 0e 0as recei&e# in#emnit. $rom
t0e insurance compan. $or t0e in9ur. or loss
arising out o$ t0e wrong or breac0 o$ contract@
t0e insurance compan. s0all be subrogate# to
t0e rig0t o$ t0e insure# against t0e wrong#oer
or t0e person w0o &iolate# t0e contract.M
DO(&LE IN'(RANCE
W3en does doble "ns!an#e e8"stL
- ,0ere t0e same person is insure# b.
se&eral insurers separatel. in respect to
t0e same sub9ect or interest (/ection )").
200A &AR E:AM 5N0. : G 2 6b0
B= ,0at is t0e nature o$ t0e liabilit. o$ t0e se&eral
insurers in #ouble insuranceQ 67plain. (2T)
-
(= In #ouble insurance@ t0e insurers consi#ere# as
co8insurers. 6ac0 one is boun# to contribute ratabl.
to t0e loss in proportion to t0e amount $or w0ic0 0e
is liable un#er 0is contract. (/ection )1(e)@ Insurance
Co#e.
REI(I'ITE' O2 DO(&LE IN'(RANCE
". /ame person is insure#D
2. !0ere are se&eral insurersD
4. /ub9ect insure# is t0e sameD
1. Interest insure# is t0e sameD
5. >is5 o$ peril insure# against is t0e
sameD
!0ere is pro0ibition !% P>66N!
%6>8IN/?>(NC6@ t0us pre&enting
$rau#.
:ean >e.nal#o ?. (granCamen#eC Page C, o$ 177
COMMERCIAL LAW
200H &AR E:AM
!erraCas #e Patio er#e@ a con#ominium
buil#ing@ 0as a &alue o$ P50 *illion. !0e owner
insure# t0e buil#ing against $ire wit0 t0ree (4)
insurance companies $or t0e $ollowing
amounts=Nort0ern Insurance Corp. 20*@/ount0ern
Insurance Corp.40*@ 6astern Insurance Corp.50*.
a. Is t0e ownerJs ta5ing o$ insurance
$or t0e buil#ing wit0 t0ree (4) insurers
&ali#Q :iscuss. (4T)
b. !0e buil#ing was totall. raCe# b.
$ire. I$ t0e owner #eci#es to claim $rom
6astern Insurance Corp. onl. P50 *illion@
will t0e claim prosperQ 67plain. (2T)
Ans;e!* (. !a5ing out insurance
co&ering t0e same propert.@ same insurable
interest an# same ris5 wit0 t0ree insurance
companies is L#ouble insuranceM recogniCe#
un#er sec )4 o$ ICP. Fowe&er@ in (merican
Fome (ssurance Corp &s. C0ua 3une 28@
")))@ t0e court re$erre# to t0e common
inclusion o$ t0e ot0er insurance clause in t0e
$ire insurance policies reEuiring #isclosure
o$ co8insurance o$ t0e same propert. wit0
ot0er insurers.
Ans;e!* B Insure# can reco&er $rom
6astern Inssurance Corp up to t0e e7tent o$
0is loss. Fowe&er@ 6astern ma. re$use to
pa. i$ t0e polic. contains an L ot0er
insurance clauseM stipulating t0at non8
#isclosure o$ #ouble insurance will a&oi# t0e
polic.. ( -eagonia &. Countr. Ban5ers
Insurance )6 Iebruar.@ "))5. (s t0ere is no
in#ication o$ a contractual pro0ibition on
#ouble or ot0er insurance@ all insurance
contracts o&er t0e buil#ing are #eeme# &ali#
an# en$orceable.
!0e law pro0ibits #ouble or o&er8
reco&er.@ not #ouble insurance. /ince
eastern insure# t0e propert. up 50T t0e total
co&erage@ it is liable $or onl. 50T o$ t0e
total actual loss. 6astern Insurance Corp@ is
liable to t0e e7tent o$ its co&erage but ma.
reco&er one 0al$ o$ t0e total in#emnit. $rom
t0e co8insurers in t0e proportion o$ 60T
( /out0ern Insurance)8 10 T ( nort0ern
Insurance)
E22ECT' O2 O@ER6IN'(RANCE &+
DO(&LE IN'(RANCE
". Insure#@ unless t0e polic. ot0erwise pro&i#e@
ma. claim pa.ment $rom t0e insurers in
suc0 or#er as 0e ma. select up to t0e
amount $or w0ic0 t0e insurers are se&erall.
liable un#er t0eir respecti&e contracts.
2. ,0ere t0e polic. un#er w0ic0 t0e insure#
claims is a &alue# polic.@ t0e insure# must
gi&e cre#it as against t0e &aluation $or an.
sum recei&e# b. 0im un#er an. polic.
wit0out regar# to t0e actual &alue o$ t0e
sub9ect matter insure#.
4. ,0ere t0e polic. un#er w0ic0 t0e insure#
claims is an un&alue# polic.@ 0e must gi&e
cre#it@ as against t0e $ull insurable &alue@ $or
an. sum recei&e# b. 0im un#er t0e polic..
1. ,0ere t0e insure# recei&es an. sum in
e7cess o$ t0e &aluation in case o$ a &alue#
polic. or t0e insurable &alue in case o$ an
un&alue# polic.@ 0e must 0ol# suc0 sum in
trust $or t0e insurers@ accor#ing to t0eir rig0t
o$ contribution among t0emD
5. In relation paragrap0 (1) H 6ac0 insurer is
boun#@ as between 0imsel$ an# t0e ot0er
insurers to contribute ratabl. to t0e loss in
proportion to t0e amount $or w0ic0 it is
liable un#er 0is contract. (L/%
>6I6>>6: !% (/ !F6 )RINCI)LE O2
CONTRI&(TION G ,FICF F(/
(L>6(:U B66N INC%P%>(!6: IN
(L*%/! (LL P%LICI6/ H t0at s0oul#
t0ere be ot0er insurances co&ering t0e same
propert.@ t0e liabilit. o$ t0e compan. woul#
be limite# to its ratable proportion o$ t0e
loss or #amage ((lso 5nown as
CONTRI&(TION CLA('E0
TE'T TO DETERMINE E:I'TENCE O2
DO(&LE IN'(RANCE
- ,0et0er t0e insure#@ in case o$
0appening o$ t0e ris5@ can #irectl.
bene$ite# b. reco&ering on bot0
policiesQ I$ .es H t0ere is #ouble
insurance.
I' DO(&LE IN'(RANCE @ALIDL
- It #epen#s@ i$ t0ere is pro0ibition in t0e
polic. t0en it is not &ali#@ but i$ t0ere is
no pro0ibition@ it is &ali# pro&i#e# it
must $ollow t0e pro&isions o$ t0e law.
- I$ t0ere is an %!F6> IN/?>(NC6
CL(?/6 H one t0at pre&ents ot0er
insurance on t0e propert. e7cept wit0out
t0e consent o$ t0e compan. H !F6N I!
,ILL P>66N! 6NI%>C6*6N!
%I !F6 P%LICU@ t0e polic. will be
N?LL an# %I:. I$ t0ere is no %!F6>
IN/?>(NC6 CL(?/6@ t0en #ouble
insurance is allowe# but t0e pro&isions
o$ /ection )1 must be $ollowe# because
propert. insurance is a contract o$
in#emnit..
:ean >e.nal#o ?. (granCamen#eC Page C? o$ 177
COMMERCIAL LAW
DI'TING('4ING O@ER IN'(RANCE 2ROM
DO(&LE IN'(RACE
DO(&LE
IN'(RANCE
O@ER IN'(RANCE
- t0ere must be two
or more insurersD
- one insurer is
su$$icientD
- t0e total amount o$
t0e policies nee#
not e7cee# t0e
&alue o$ t0e
insurable interestD
- t0e &alue must
alwa.s be in e7cess
o$ t0e insurable
interestD
REIN'(RANCE
- occurs w0en an insurer procures a 4
>:
person to insure 0im against loss or
liabilit. b. reason o$ suc0 original
insurance. (/ection )5)
W4EN I' REIN'(RANCE COM)(L'OR+L
". ,0en a non8li$e insurer insure# in an. one
ris5 or 0aCar# an amount e7cee#ing 20T o$
its net wort0@ t0e insurer nee#s reinsurance
o$ t0e e7cess o&er suc0 limit (/ection 2"5
("))
2. ,0en a $oreign insurance compan.
wit0#raws $rom t0e P0ilippines@ it s0oul#
cause its primar. liabilities un#er policies
insuring resi#ents o$ t0e P0ilippines to be
reinsure# b. anot0er compan. aut0oriCe# to
transact an insurance business in t0e
P0ilippinesD
DO(&LE IN'(RANCE @'. REIN'(RANCE
DO(&LE IN'(RANCE REIN'(RANCE
- t0e insurer remains an
insurer
- insurer becomes
t0e insure#
- sub9ect matter is
propert.
- t0e sub9ect matter
is t0e insurer<s ris5
or liabilit.
- same interest an# ris5
is insure# wit0 anot0er
- #i$$erent
interest an#
ris5 are
insure#
DI22ERENTIATE DO(&LE IN'(RANCE-
REIN'(RANCE M M(T(AL IN'(RANCE
5fo! f!t3e! d"s#ss"on0
$EA L*E E$"ERPR*%E% ?%- !A , .9) %!RA
77= ('==.0
'C R(LING*
!0e terms o$ t0e contract are clear an#
unambiguous. !0e insure# is speci$icall. reEuire#
to #isclose to t0e insurer an. ot0er insurance an# its
particulars w0ic0 0e ma. 0a&e e$$ecte# on
t0e same sub9ect matter. !0e parties must abi#e b.
t0e terms o$ t0e contract because suc0 terms
constitute t0e measure o$ t0e insurer<s liabilit. an#
compliance t0erewit0 is a con#ition prece#ent to t0e
insure#<s rig0t o$ reco&er. $rom t0e insurer.
,F(! *?/! B6 C%**?NIC(!6: ,F6N
!F6 %>I-IN(L IN/?>6> %B!(IN/
>6IN/?>(NC6Q
E8#e1t "n ato%at"# !e"ns!an#e t!eat"es
5;3en t;o o! %o!e "ns!an#e #o%1an"es a$!ee "n
adBan#e t3at t3ey ;"ll !e"ns!e a 1a!t of any l"ne
of "ns!an#e ta9en by t3e ot3e!. '"n#e s#3
#ont!a#ts a!e self6e8e#t"n$ and t3e obl"$at"on
atta#3es ato%at"#ally- t3e "nfo!%at"on !e="!ed
to be #o%%n"#ated 3e!e"n #old not "nflen#e
t3e !e"ns!e! "n de#"d"n$ ;3et3e! o! not to a##e1t
t3e !e"ns!an#e be#ase "t "s ato%atQ
!e1!esentat"ons of t3e o!"$"nal "ns!edOall
"nfo!%at"on o! 9no;led$e 3e 1ossesses ;3et3e!
1!eB"osly o! sbse=ently a#="!ed- ;3"#3 a!e
%ate!"al to t3e !"s9 5'e#t"on /70O
,F(! AIN: %I C%N!>(C! I/
>6IN/?>(NC6Q
- It "s 1!es%ed to be a con#rac# o
ind!mni#& a$a"nst l"ab"l"ty- and %e!ely
a$a"nst da%a$e 5'e#t"on /C0.
- As a R(LE- t3e !e"ns!e! "s not l"able
to t3e !e"ns!ed fo! a loss nde! an
o!"$"nal 1ol"#y "f t3e !e"ns!ed "s not
l"able to t3e o!"$"nal 1ol"#y3olde!.
Note* "he subDect of the reinsurance contract is
the insurers ris+ not the property insured in the
original policy 1 "hus, it is not necessary that the
insurer first pay on the claim on the original policy
before claiming from the insurer:
,F(! I/ !F6 6V!6N! %I LI(BILI!U %I !F6
>6IN/?>6>Q
- T3e l"ab"l"ty of t3e !e"ns!e! "s
%eas!ed by t3e l"ab"l"ty of t3e
!e"ns!ed to t3e o!"$"nal 1ol"#y 3olde!
)RO@IDED- "t does not e8#eed t3e
a%ont of !e"ns!an#eO
67ample= A "ns!es 3"s 3ose Baled at 1 %"ll"on
to : "ns!an#e fo! 1.A M"ll"on. : "ns!an#e
!e"ns!ed ;"t3 Q "ns!an#e fo! 1.2 %"ll"on. T3e
3ose b!ns. T3e l"ab"l"ty of Q "ns!an#e "s only
1 to 1 %"ll"on- ;3"#3 "s t3e l"ab"l"ty of :
Ins!an#e. Ahat if the original insured and
insurance company settles for less, t3e l"ab"l"ty of
:ean >e.nal#o ?. (granCamen#eC Page CA o$ 177
COMMERCIAL LAW
Q Ins!an#e "s st"ll only 1 to ;3at "s 1a"d by :
Ins!an#e OT4ERWI'E- t3e o!"$"nal "ns!e!
1!of"ts and t3s B"olates t3at t3e 1!"n#"1le t3at "s
a #ont!a#t of "nde%n"ty.
,F(! I/ !F6 IN!6>6/! %I !F6 %>I-IN(L
IN/?>6: IN !F6 C%N!>(C! %I
>6IN/?>(NC6Q
- T3e o!"$"nal "ns!ed 3as no "nte!est "n
t3e #ont!a#t of !e"ns!an#e 5se#t"on
/H0. 4en#e only t3e !e"ns!ed #an
#la"% a$a"nst t3e !e"ns!e!O
!LA%%E% 5 *$%4RA$!E
M A R I N E I N ' ( R A N C E
,F(! I/ *(>IN6 IN/?>(NC6Q
- Ins!an#e a$a"nst loss o! da%a$e to*
5a0@essels- #!aft- a"!#!aft- Be3"#les- $oods
f!e"$3t- #a!$oes- %e!#3and"se effe#ts-
d"sb!se%ents- 1!of"ts- %oneys- se#!"t"es-
loses "n a#t"on- eB"den#es of debt- Balable
1a1e!s- botto%!y o! !es1ondent"a "nte!est
and all ot3e! 9"nd of 1!o1e!ty and
"nte!ests t3e!e"n- "n !es1e#t to-
a11e!ta"n"n$ to o! "n #onne#t"on ;"t3 any
and all !"s9s o! 1e!"ls of naB"$at"on- t!ans"t
o! t!ans1o!tat"on o! ;3"le be"n$
asse%bled- 1a#9ed- #!ated- baled-
#o%1!essed- o! s"%"la!ly 1!e1a!ed fo!
s3"1%ent o! ;3"le a;a"t"n$ s3"1%ent o!
d!"n$ any delays- sto!a$e- t!anss3"1%ent
o! !es3"1%ent "n#"dent t3e!eto-
5b0)e!son o! 1!o1e!ty "n #onne#t"on ;"t3 o!
a11e!ta"n"n$ to %a!"ne- "sland %a!"ne-
t!ans"t o! t!ans1o!tat"on "ns!an#e-
"n#ld"n$ l"ab"l"ty fo! loss o! "n #onne#t"on
;"t3 t3e #onst!#t"on- !e1a"!- o1e!at"on-
%a"ntenan#e- se of t3e sbNe#t %atte! of
t3e "ns!an#e. (<ut not including life
insurance, or surety bonds nor insurance
against loss by reason of bodily inDury to
any person arising out of the o#nership,
maintenance, use of automobiles0
5#0 )!e#"os stones- Ne;els- Ne;el!y- 1!e#"os
%etals ;3et3e! "n t3e #o!se of
t!ans1o!tat"on o! ot3e!;"seO
5d0 &!"d$es- tnnels o! ot3e!
"nst!%ental"t"es of t!ans1o!tat"on and
#o%%n"#at"ons 5e8#ld"n$ b"ld"n$s-
t3e"! f!n"t!e and f!n"s3"n$s- f"8ed
#ontents- and s11l"es 3eld "n sto!a$e0-
1"e!s- ;3a!Bes- do#9s- sl"1s- and ot3e!
a"ds to naB"$at"on and t!ans1o!tat"on
"n#ld"n$ d!y do#9s- %a!"ne !a"l;ays-
da%s and a11!tenant fa#"l"t"es fo! t3e
#ont!ol of ;ate!;aysO
AND G L*arine Protection an# In#emnit.
InsuranceM %ean"n$ "ns!an#e a$a"nst- o!
a$a"nst le$al l"ab"l"ty of t3e "ns!ed fo!
loss- da%a$e o! e81ense "n#"dent to
o;ne!s3"1- o1e!at"on- #3a!te!"n$-
%a"ntenan#e- se- !e1a"!- o! #onst!#t"on
of any Bessel- #!aft o! "nst!%ental"ty "n
se "n o#ean o! "sland ;ate!;ays-
"n#ld"n$ l"ab"l"ty of t3e "ns!ed fo!
1e!sonal "nN!y- "llness o! deat3 o! fo!
loss o! da%a$e to t3e 1!o1e!ty of
anot3e! 1e!son 5se#t"on //0.
NOTE* "hat marine insurance is really
0RA6SP1R0A0I16 I6S3RA6CE t3at "s a 9"nd of
"ns!an#e t3at "s #on#e!ned ;"t3 t3e 1e!"ls of
1!o1e!ty "n 5o! "n#"dental to0 t!ans"t as o11osed
to 1!o1e!ty 1e!"ls at a $ene!ally f"8ed lo#at"on.
&t does not "n#lde no!%al %oto! Be3"#le
"ns!an#e ;3"#3 "s t!eated se1a!ately by la;O
IN/?>(NC6 P%LICU H Re$$ect o$ $ailure to
present insurance polic.S H since t0e *arine
insurance polic. was ne&er presente# in e&i#ence
be$ore t0e trial court or t0e Court o$ (ppeals e&en@
t0ere is no legal basis to consi#er suc0 #ocument in
t0e resolution o$ t0is case@ 7 7 7 (*ala.an Insurance
Co. &s. >egis Bro5erage Corporation No&. 24 200'
-.>. No. "'2"56)
MARINE RI'K NOTE I' NOT AN
IN'(RANCE )OLIC+ G Certainl. it woul# be
obtuse $or us to e&en to entertain t0e i#ea t0at t0e
insurance contract between *ala.an an# (BB
Aoppel was actuall. constitute# b. t0e *arine >is5
Note alone. (*ala.an Insurance Co. &s. >egis
Bro5erage Corporation No&. 24 200' -.>. No.
"'2"56)
W4AT ARE T4E DI@I'ION' O2
TRAN')ORTATION IN'(RANCEL
1. %cean *arine Insurance H 1e!ta"n"n$
1!"%a!"ly to sea 1e!"ls of s3"1s and
#a!$oesO
2. Inlan# *arine Insurance H 1e!ta"n"n$
1!"%a!"ly to land o! oBe!land 5bt
COMMERCIAL LAW
so%et"%es0 t!ans1o!tat"on of 1!o1e!ty
s3"11ed by !a"l!oads- %oto! t!#9s-
a"!1lanes- and ot3e! %eans of
t!ans1o!tat"on. In#ldes $our basic
principles t3at a!e*
(a) Propert. in transit G 1!oB"d"n$
1!ote#t"on to 1!o1e!ty
f!e=ently e81osed to loss
;3"le "n t!ans1o!t f!o% one
1la#e to anot3e!O
(b) Bailee liabilit. G 1!oB"d"n$
1!ote#t"on to 1e!sons ;3o
3aBe te%1o!a!y #stody of
$oods o! 1e!sonal 1!o1e!ty of
ot3e!sO
(c) Ii7e# transportation propert. G
1!oB"d"n$ 1!ote#t"on to f"8ed
1!o1e!ty #ons"de!ed a"ds to
t3e %oBe%ent of 1!o1e!ty-
l"9e b!"d$es and tnnels- and
(#) Iloater G 1!oB"d"n$ 1!ote#t"on
to 1e!sonal 1!o1e!ty 5s#3 as
1!e#"os stones- Ne;el!y-
;o!9s of a!t0 ;3eneBe! "t %ay
be lo#ated sbNe#t al;ays to
te!!"to!"al l"%"ts of t3e
#ont!a#t and need not
ne#essa!"ly be "n t3e #o!se of
t!ans1o!tat"on.
N%!6= 8arine *nsurance may be in form of
property insurance, indemnifying the insured for
loss or damage to property (Par.+, S!c#ion 99) or
liability insurance, protecting the insured against
the consequences of legal liability for loss or
damage to property or for personal inDury, illness
or death of a person (Par.*, S!c#ion 99)D
,F(! >I/A/ (>6 IN/?>6: (-(IN/!Q
- T3e bas"# !"s9 "ns!ed a$a"nst "s
#o%%only 9no;n as P6>IL/ %I !F6
/6( 5all 9"nds of %a!"ne #asalt"es
and da%a$es done to t3e s3"1 o!
$oods at sea by t3e B"olent a#t"on of
t3e ;"nds o! ;aBes- one t3at #old not
be fo!eseen and "s not att!"btable to
t3e falt of anybody.
,F(! (>6 N%! C%6>6:Q
- Gene!ally- perils o$ t0e s0ip are not
co&ere# losses t3at !eslt f!o%*
5a0 nat!al and "neB"table a#t"on of
t3e seaO
5b0 o!d"na!y ;ea! and tea! of t3e
s3"1O
5#0 ne$l"$ent fa"l!e of t3e s3"1 o;ne!
to 1!oB"de t3e Bessel ;"t3 t3e
1!o1e! e="1%ent to #onBey t3e
#a!$o nde! o!d"na!y #ond"t"onsO
,F% *?/! CF6CA %N !F6 /6(
,%>!FIN6// %I ( 6//6LQ
- '"n#e t3e!e "s an "%1l"ed ;a!!anty of
sea;o!t3"ness- it becomes the
obligation of the cargo o#ner or the
insured to loo+ for a reliable common
carrier, #hich +eeps it vessels
sea#orthy- T3e "ns!ed %ay 3aBe no
#ont!ol on t3e Bessel bt 3as fll
#ont!ol "n t3e #3o"#e of #o%%on
#a!!"e!O
200H &AR E:AM 5I: Gb0
B= %n %ctober 40@ 200'@ *+ Paci$ic@ a P0ilippine
registere# &essel owne# b. Cebu /0ipping Compan.
(C/C)@ san5 on 0er &o.age $rom Fong Aong to
*anila. 6mpire (ssurance Compan. (6mpire) is t0e
insurer o$ t0e lost cargoes loa#e# on boar# t0e &essel
w0ic0 were consigne# to :eben0ams Compan..
($ter it in#emni$ie# :eben0ams@ 6mpire as
subrogee $ile# an action $or #amages against C/C.
b) (ssume t0at t0e &essel was not seawort0. as in
$act its 0ull 0a# lea5e#@ causing $loo#ing in t0e
&essel. ,ill .our answer be t0e sameQ 67plain. (2T)
(= ,0en t0e &essel is not seawort0.@ it is an
e7ception to t0e 0.pot0ecar. principle in maritime
commerce. !o limit its liabilit. to t0e amount o$ t0e
insurance procee#s@ t0e carrier 0as t0e bur#en o$
pro&ing t0at t0e unseawort0iness o$ its &essel was
not #ue to its $ault or negligence. !0e $ailure to
#isc0arge suc0 a 0ea&. bur#en preclu#es application
o$ t0e limite# liabilit. rule an# t0e carrier is liable to
t0e $ull e7tent o$ t0e claims o$ t0e cargo owners
((boitiC /0ipping &. New In#ia (ssurance
Compan.@ -.>. No. "56)'8@ 02 *a. 2006).
200H E:AM 5I: G#0
-
B=c) (ssume t0e $acts in Euestion (b).
Can t0e 0eirs o$ t0e t0ree (4) crew members w0o
peris0e# reco&er $rom C/CQ 67plain $ull.. (4T)
(= Ues@ because t0e crew members #ie# w0ile
per$orming t0eir assigne# #uties@ aggra&ate# b. t0e
$ailure o$ t0e s0ip owner to ensure t0at t0e &essel is
seawort0.. ,or5men<s compensation 0as been
classi$ie# b. 9urispru#ence as an e7ception to t0e
0.pot0ecar. nature o$ maritime commerce@ (bueg
&./an :iego@ '' P0il. '40 (")18)@ especiall. in t0is
case w0ere t0e &essel was not seawort0. at t0e time
it san5.
,F(! P6>IL/ (>6 IN/?>6: IN (N L(LL
>I/A P%LICUM
:ean >e.nal#o ?. (granCamen#eC Page CC o$ 177
COMMERCIAL LAW
- It "s to be #onst!ed as #!eat"n$ a
s1e#"al "ns!an#e and e8tend"n$ to all
!"s9 t3an a!e sally #onte%1lated
and ;"ll #oBe! all losses e8#e1t s#3
t3at %ay a!"se f!o% "ntent"onal f!ad-
"ntent"onal %"s#ond#t- o! t3at
ot3e!;"se e8#lded. It %ay "n#lde all
losses ;3et3e! a!"s"n$ f!o% a %a!"ne
1e!"l o! not to "n#lde 1"lfe!a$e
d!"n$ a ;a! (Filipino >!rchan#
Insuranc! Co. vs. CA, +79 SCRA ,38).
:6IINI!I%N %I !6>*/
5a0 &a!!at!y H "s ;"llfl a#t of t3e %aste!
and #!e; "n 1!san#e of so%e
f!adlent o! nla;fl 1!1ose
;"t3ot t3e #onsent of t3e o;ne! and
to t3e 1!eNd"#e of 3"s "nte!est.
67ample= &!n"n$ of t3e s3"1 o!
nla;flly sell"n$ t3e #a!$oO
5b0 In#3a%a!ee Clase G one that covers
any loss other than a #illful and
fraudulent act of the insured and
aBo"ds 1tt"n$ 1on t3e "ns!ed t3e
b!den of establ"s3"n$ t3at a loss ;as
de to a 1e!"l ;"t3"n t3e 1ol"#y>s
#oBe!a$e- ;3et3e! a!"s"n$ f!o% a
%a!"ne 1e!"l o! not provided t3e !"s9
"s not e8#ldedO
,F(! C%N/!I!?!6/ IN/?>(BL6 IN!6>6/!
IN %C6(N *(>IN6 IN/?>(NC6Q
1. T3e o;ne! of a Bessel 3as
"ns!able "nte!est "n t3e Bessel
s#3 s3all #ont"ne eBen "f t3e
Bessel 3as been #3a!te!ed by one
;3o #oBenants to 1ay t3e o;ne!
t3e Bale of t3e Bessel 1on loss
but "n #ase of loss- t3e o;ne! "s
l"able only fo! t3e 1a!t of t3e loss
;3"#3 t3e "ns!ed #annot !e#oBe!
f!o% t3e #3a!te!e!. 5'e#t"on 1000O
2. T3e "ns!able "nte!est of t3e
o;ne! of a s3"1 3y1ot3e#ated by
botto%!y "s only t3e e8#ess of "ts
Bale oBe! t3e a%ont se#!ed by
botto%!y. 5'e#t"on 1010O
B%!!%*>U+>6/P%N:6N!I(
"s a loan 1ayable only "f t3e Bessel $"Ben
as a se#!"ty fo! sa"d loan a!!"Bes safely
at 1o!t f!o% #onte%1lated Boya$e
5botto%!y0 o! a loan 1ayable only 1on
t3e safe a!!"Bal "n 1o!t of t3e $oods $"Ben
as a se#!"ty 5!es1ondent"a0.
- t3"s #ont!a#ts a!e "n t3e nat!e of a
%o!t$a$e as t3e o;ne! bo!!o;s %oney
fo! t3e se- e="1%ent o! !e1a"! of t3e
Bessel fo! a def"n"te te!% ;"t3 t3e s3"1 as
se#!"ty ;"t3 %a!"t"%e o! e8t!ao!d"na!y
"nte!est on a##ont of t3e !"s9s bo!ne by
t3e lende!- "t be"n$ st"1lated t3at "f a
s3"1 be lost d!"n$ t3e Boya$e o! ;"t3"n a
l"%"ted 1e!"od- t3e lende! also loses 3"s
%oney ($ote that the lender has insurable
interest to the extent of loan0O

,. T3e o;ne! of a Bessel also 3as
"ns!able "nte!est "n e81e#ted
f!e"$3ta$e- ;3"#3 a##o!d"n$ to t3e
o!d"na!y #o!se of t3"n$s 3e
;old 3aBe ea!ned bt fo! t3e
"nte!Bent"on of a 1e!"l "ns!ed
a$a"nst o! ot3e! 1e!"l "n#"dent to
t3e Boya$e. 5'e#t"on 1020
Ireig0tage G a!e t3e benef"ts de!"Bed by t3e o;ne!
f!o%*
5a0 #3a!te!"n$ of a s3"1O
5b0 "ts e%1loy%ent fo! t3e #a!!"a$e of
3"s o;n $oods o! t3ose of ot3e!s
5'e#t"on 1020
I! 6VI/! (a) *n case of a charter party 1 ;3en t3e
s3"1 3as b!o9en $!ond on t3e "ntended Boya$e
(b) "f a 1!"#e "s to be 1a"d fo! t3e #a!!"a$e of
$oods- ;3en t3ey a!e a#tally on boa!d o! t3e!e
"s #ont!a#t to 1t t3e% on boa!d AND t3e Bessel
and $oods a!e !eady fo! s1e#"f"ed Boya$e 5'e#t"on
10?0O
(>6 !F6>6 P6>/%N/+P(>!I6/ %!F6> !F(N
!F6 %,N6> ,F% F(/ IN/?>(BL6
IN!6>6/!Q U6/D
1. 5ne #ho has an interest in the thing from
#hich profits are expected to proceed, 3as
"ns!able "nte!est on t3e 1!of"ts 5'e#t"on
10A0O
E$ampl!' O;ne! of a #a!$o t!ans1o!ted on a
Bessel not only 3as "ns!able "nte!est on t3e
#a!$o bt also on t3e e81e#ted 1!of"ts f!o% a
ft!e saleO
:ean >e.nal#o ?. (granCamen#eC Page CH o$ 177
COMMERCIAL LAW
2. "he charterer of a ship has insurable
interest to the extent that he is liable to be
damnified by its loss 5'e#t"on 1070.
E$ampl!' A #3a!te!s &>s Bessel on #ond"t"on
t3at A ;old 1ay & "n #ase of loss t3e a%ont
,00-000.00. A 3as "ns!able "nte!est to t3e
e8tent of ,00-000.00
C%NC6(L*6N! IN *(>IN6 IN/?>(NC6
- A party is bound to communicate- "n
add"t"on to ;3at "s !e="!ed by
se#t"on 2H 5fa#ts ;"t3"n 3"s 9no;led$e-
%ate!"al to t3e #ont!a#t- ot3e! 1a!ty
3as not t3e %eans of as#e!ta"n"n$- as
to ;3"#3 1a!ty ;"t3 a dty to
#o%%n"#ate %a9es no ;a!!anty0
in$ormation t3at 3e 1ossesses- t3at a!e
material to t0e ris5 AND- to state t3e
6V(C! and ,F%L6 !>?!F in
r!la#ion #o all ma##!rs #ha# h!
r!pr!s!n#s- o! 1on "n="!y d"s#loses
o! ass%es to d"s#lose E:CE)T t3ose
t3at t3e "ns!e! 9no;s o! t3ose "n t3e
e8e!#"se of o!d"na!y #a!e- t3e ot3e!
o$3t to 9no;- and ;3"#3 t3e fo!%e!
3as no !eason to s11ose 3"% to be
"$no!ant nde! 'e#t"on ,0 5'e#t"on
10C0O
N%!6= "hat the rules on concealment in marine
insurance are stricter as it is sufficient that the
insured is in P1SSESSI16 1F 08E >A0ERIA?
FAC0, A?0813(8 8E IS 36A4ARE 1F I0-
67ample= If an a$ent fa"ls to not"fy
1!"n#"1al of t3e loss of t3e #a!$o and t3e latte!-
afte! t3e loss bt "$no!ant t3e!eof- se#!ed
"ns!an#e lost o! not lost- t3e "ns!an#e ;"ll be
Bo"d de to #on#eal%entO
( part. is also boun# to communicate- t3e
"nfo!%at"on bel"ef o! e81e#tat"on of a ,
!d
1e!son-
"n !efe!en#e to a %ate!"al fa#t- "s %ate!"al. Note=
under section (6 such is not required to be
communicated in ordinary insurance (section
'9&0:
P>6/?*P!I%N %I ( P>I%> L%//
- Ins!ed "n %a!"ne "ns!an#e "s
1!es%ed to 3aBe 9no;led$e- at the
time of insuring, or prior, if
information might possibly reached
him in the usual mode of
transportation and the usual rate of
communication (section '9=0
6II6C! %I C%NC6(L*6N!
- W3"le #on#eal%ent as a !le ent"tles
t3e "nN!ed 1a!ty to !es#"nd- t3e !le
%st y"eld to se#t"on 110 G as "t does
not B"t"ate t3e #ont!a#t bt %e!ely
e8one!ates t3e "ns!e! $rom a loss
resulting $rom t0e ris5s conceale# as
!elated to*
5a0 t3e nat"onal #3a!a#te! of t3e
"ns!edO
5b0 t3e l"ab"l"ty of t3e t3"n$ "ns!ed to
#a1t!e and detent"onO
5#0 t3e l"ab"l"ty to se"z!e f!o%
b!ea#3 of la;s of fo!e"$n la;s of
t!adeO
5d0 t3e ;ant of ne#essa!y do#%ents O
5e0 t3e se of false<s"%lated
do#%ents
67ample= T3e Bessel "s se"zed de to la#9
of do#%ents- t3e "ns!e! "s e8one!ated.
If t3e Bessel "s lost de to sto!%- t3e
"ns!e! "s l"able des1"te #on#eal%ent de
to la#9 ofO
:I/!IN-?I/FIN- %>:IN(>U
C%NC6(L*6N! I>%* !F(! IN *(>IN6
IN/?>(NC6
%r#inar. Insurance *arine Insurance
- O1"n"on o! bel"ef
of a ,
RD
1e!son o!
o;n Nd$%ent of
t3e "ns!ed "s not
%ate!"al and need
not be
#o%%n"#ated
5se#t"on ,A0O
- A #asal
#onne#t"on
bet;een t3e fa#t
#on#ealed and
#ase of loss "s not
ne#essa!y fo! t3e
"ns!e! to !es#"ndO
- &el"ef o!
e81e#tat"on of ,
RD
1e!son "n
!efe!en#e to a
%ate!"al fa#t "s
%ate!"al and 3as
to be
#o%%n"#atedO
- T3e #on#eal%ent
of any of t3e
%atte!s stated "n
se#t"on 110
%e!ely e8one!ates
t3e "ns!e! f!o%
loss- "f t3e !eslts
f!o% t3e fa#t
#on#ealedO
>6P>6/6N!(!I%N IN *(>IN6 IN/?>(NC6
- If t3e !e1!esentat"on "s intentionall.
$alse in an. material respect@ or@ "n
!es1e#t of any fa#t on ;3"#3 t3e
#3a!a#te! and nat!e of t3e !"s9
de1ends- t3e "ns!e! %ay !es#"nd
5'e#t"on 1110. But t3e eBental fals"ty
:ean >e.nal#o ?. (granCamen#eC Page C/ o$ 177
COMMERCIAL LAW
of a !e1!esentat"on as to an
e7pectation does not in t0e absence o$
$rau# aBo"d t3e #ont!a#t 5se#t"on 1120.
67ample= state%ent as to t"%e of sa"l"n$-
nat!e of t3e #a!$o o! a%ont of 1!of"tsO
,F(! (>6 !F6 I*PLI6: ,(>>(N!I6/ IN
*(>IN6 IN/?>(NC6Q
2000 &AR E:AM 5I: G b0
". In eBe!y #ont!a#t of %a!"ne "ns!an#e
1on a s0ip or $reig0t@ $reig0tage or upon
an.t0ing w0ic0 is t0e sub9ect o$ %a!"ne
"ns!an#e- t3e!e "s an "%1l"ed ;a!!anty
t3at t3e s0ip is sea wort0. 5se#t"on 11,0O
A ship is s!a )or#h& #hen it is
reasonably fit to perform the service
and encounter the ordinary perils of
the voyage, contemplated by the parties
(section ''/0- 6o#! #ha# "t "s !elat"Be
and "s %ade to de1end on t3e
#"!#%stan#es.
!0e implie# warrant. o$ seawort0iness
complie# wit0 as a general rule ;3en "t
"s sea;o!t3y at t3e t"%e of t3e
#o%%en#e%ent of t3e !"s9 e7cept=
5a0 ;3en t3e "ns!an#e "s %ade
fo! a s1e#"f"ed len$t3 of t"%e-
"t %st be sea;o!t3y at t3e
#o%%en#e%ent of eBe!y
Boya$e "t nde!ta9es at t3at
t"%eO
5b0 ;3en t3e "ns!an#e "s 1on
#a!$o- ;3"#3 by t3e te!%s of
t3e 1ol"#y des#!"1t"on of t3e
Boya$e- o! establ"s3ed #sto%
of t!ade- "t "s !e="!ed to be
t!anss3"11ed at an "%%ed"ate
1o!t "n ;3"#3 #ase G ea#3
Bessel 1on ;3"#3 t3e #a!$o "s
s3"11ed o! t!anss3"11ed %st
be sea;o!t3y at t3e
#o%%en#e%ent of ea#3
1a!t"#la! Boya$e 5se#t"on
11A0O
5#0 ;3e!e d"ffe!ent 1o!t"ons of t3e
Boya$e #onte%1lated "n t3e
1ol"#y d"ffe! "n !es1e#t to t3e
t3"n$s !e="s"te to %a9e t3e
s3"1 sea;o!t3y- I ;3"#3 #ase "t
%st be sea;o!t3y at t3e
#o%%en#e%ent of ea#3
1o!t"on 5se#t"on 11C0O
67ample= T3e Boya$e ;"ll 1ass t3!
!"Be!s G t3en seas G t3e ;a!!anty "s
not #o%1l"ed ;"t3 "f at t3e t"%e "t $oes
ot to sea G "t "s not sea;o!t3y to
en#onte! t3e 1e!"ls of t3e seaO
!% ,F(! :%6/ !F6 ,(>>(N!U %I
/6(,%>!FIN6// 6V!6N: !%=
T3e ;a!!anty of sea;o!t3"ness
e8tends not only to t3e #ond"t"on of
t3e st!#t!e of t3e s3"1- bt "t
!e="!es t3at*
5a0 "t be 1!o1e!ly laden o! loaded
;"t3 #a!$oO
5b0 "s 1!oB"ded ;"t3 a #o%1etent
%aste!- sff"#"ent n%be! of
off"#e!s and sea%enO
(c) "t %st 3aBe t3e !e="s"te
e="1%ent and a11!tenan#es li5e
ballast- #ables- an#3o!s- #o!da$e-
sa"ls- food- ;ate!- fel- l"$3ts and
ot3e! ne#essa!y and 1!o1e! sto!es
and "%1le%ents fo! t3e Boya$e
5se#t"on 1170O
Note t3at w0en a s0ip becomes
unseawort0. #uring t0e &o.age H "t ;"ll
not aBo"d t3e 1ol"#y G as long as G
t3e!e "s no unreasonable #ela. in
repairing t0e #e$ect. %t0erwise G t3e
"ns!e! "s e8one!ated on t3e s3"1 o!
t3e s3"1 o;ne!s> "nte!est f!o% any
l"ab"l"ty f!o% any loss a!"s"n$
t3e!ef!o% 5se#t"on 11H0. Fence@ "f loss
"s not one de to t3e defe#t o! 1e!"l
;as not "n#!eased by t3e defe#t insurer
is liableO
(lso@ ;3"le a s3"1 %ay be sea;o!t3y
fo! 1!1oses of "ns!an#e on "t- "t %ay
by !eason of being un$itte# to recei&e
cargo@ be nsea;o!t3y fo! t3e
1!1ose of "ns!an#e on t3e cargo
5se#t"on 11/0.
67ample= A #a!$o of ;3eat ;as laden on a
s3"1 ;3"#3 3ad a 1o!t 3ole "nse#!ely
fastened at t3e t"%e of lad"n$. T3e 1o!t
3ole ;as foot aboBe t3e ;ate! l"ne- and "n
t3e #o!se of t3e Boya$e- ;ate! ente!ed
t3e #a!$o a!ea and da%a$ed t3e ;3eat.
T3e s3"1 ;as dee%ed n;o!t3y ;"t3
!efe!en#e to t3e #a!$o- 3en#e t3e "ns!e!
of t3e #a!$o ;as not l"able (S#!!l vs.
S#a#!lin! S#!amship, ci#!d (o 0iaco vs.
3nion Soci!#& o Can#on, /2 Phil /2)O
2. It s3all #a!!y t3e !e="s"te do#%ents to
s3o; "ts nat"onal"ty o! net!al"ty and t3at
"t s0all not #a!!y any do#%ent t3at ;"ll
#ast !easonable ss1"#"on on t3e Bessel
:ean >e.nal#o ?. (granCamen#eC Page H0 o$ 177
COMMERCIAL LAW
5se#t"on 1200. !0is warrant. arises onl.
w0en nationalit. or t0e neutralit. o$ t0e
&essel or cargo is e7pressl. warrante#D
,. T3at t3e Bessel s3all not %a9e any
"%1!o1e! deB"at"on f!o% t3e "ntended
Boya$eO
F%, I/ !F6 IN!6N:6: %U(-6
:6!6>*IN6:
(a) W3en "ts "s des#!"bed by places o$
beginning an# en#ing- t3e Boya$e "s t3e
#o!se of sa"l"n$ f"8ed by %e!#ant"le
sa$e bet;een t3ose 1la#es 5se#t"on
1210O
(b) W3en "ts "s not $i7e# b. mere usage@
t3e Boya$e "s t3e ;ay bet;een t3e
1la#es s1e#"f"ed ;3"#3 to a %aste! of
o!d"na!y ;"ll and d"s#!et"on ;old
see% t3e %ost nat!al- d"!e#t and
adBanta$eos 5se#t"on 1220O
,F(! I/ :6I(!I%N
- "s a de1a!t!e f!o% t3e #o!se of t3e
Boya$e as def"ned by se#t"on 121 and
122 o! an n!easonable delay "n
1!s"n$ t3e Boya$e o! t3e
#o%%en#e%ent of an ent"!ely
d"ffe!ent Boya$e 5se#t"on 12,0O
,F6N I/ :6I(!I%N P>%P6>
5a0 W3en "t "s #ased by #"!#%stan#es
oBe! ;3"#3 ne"t3e! t3e %aste! no! t3e
o;ne! of t3e s3"1 3as any #ont!olO
E$ampl!' An ailment stri+es the cre#
of the vessel:
5b0 W3en ne#essa!y to #o%1ly ;"t3
;a!!anty- o! to aBo"d a 1e!"l- ;3et3e!
o! not t3e 1e!"l "s "ns!ed a$a"nstO
E$ampl!' Ahen repairs are necessary
or to avoid getting caught in a conflict:
5#0 W3en %ade "n $ood fa"t3- fo! t3e
1!1ose of saB"n$ 3%an l"fe o!
!el"eB"n$ anot3e! Bessel "n d"st!essO
E$ampl!' Ahen assistance is given
200A &AR E:AM 5N0. :I@ 616 b0
B= ?n#er w0at circumstances can a &essel properl.
procee# to a port ot0er t0an its port o$ #estinationQ
67plain. (1T)
(= ( &essel can properl. procee# to a port ot0er
t0an its port o$ #estination in t0e $ollowing cases=
". ,0en cause# b. circumstances o&er
w0ic0 neit0er t0e master or t0e owner o$ t0e
s0ip 0as an. controlD
2. ,0en necessar. to compl. wit0 a
warrant.@ or to a&oi# a peril@ w0et0er or not
t0e peril is insure# againstD
4. ,0en ma#e in goo# $ait0@ an# upon
reasonable groun#s o$ belie$ In t0e necessit.
to a&oi# perilD
1. ,0en ma#e in goo# $ait0 $or t0e
purpose o$ sa&ing 0uman li$e or relie&ing
anot0er &essel in #istress. (/ection "21@
Insurance Co#e)
GGG (NU :6I(!I%N !F(! I/ N%!
INCL?:6: I/ N%! P>%P6> (/6C!I%N "21
(N: "25)
200A &AR E:AM 5N0. :I@ 61 6 a0

B= %n a clear weat0er@ *+ /un#o@ carr.ing
insure# cargo@ le$t t0e port o$ *anila boun# $or
Cebu. ,0ile at sea@ t0e &essel encountere# a strong
t.p0oon $orcing t0e captain to steer t0e &essel to t0e
nearest islan# w0ere it sta.e# $or se&en #a.s. !0e
&essel ran out o$ pro&isions $or its passengers.
ConseEuentl.@ t0e &essel procee#e# to Le.te to
replenis0 its supplies.
a) (ssuming t0at t0e cargo was
#amage# because o$ suc0 #e&iation@ w0o
between t0e insurance compan. an# t0e
owner o$ t0e cargo bears t0e lossQ 67plain.
(= !0e Insurance compan. s0oul# bear
t0e loss. /ince t0e #e&iation was cure# b. a
strong t.p0oon@ it was cause# b.
circumstances be.on# t0e control o$ t0e
captain@ an# also to a&oi# a peril w0et0er or
not insure# against. :e&iation is t0ere$ore
proper. (/ection "15(a)@ Insurance Co#e)
C%N/6B?6NC6 %I I*P>%P6> :6I(!I%N
Ins!e! "s not l"able fo! any loss
3a11en"n$ to t3e t3"n$ "ns!ed
sbse=ent to an "%1!o1e! deB"at"on
5se#t"on 1270. T3"s a11l"es ;3et3e! t3e
!"s9 3as been "n#!eased o! d"%"n"s3ed.
?. T3at t3e Bessel does not o! ;"ll not
en$a$e "n any "lle$al Bent!eO
L%// IN *(>IN6 IN/?>(NC6
- Losses "n %a!"ne "ns!an#e %ay be
1a!t"al o! total 5se#t"on 12C0. A loss
t3at "s not total "s partial 5se#t"on 12H0O
B?>:6N %I P>%%I (/ !% L%// %> :(*(-6
H !0e bur#en o$ proo$M contemplate# b. t0e
a$oresai# pro&ision actuall. re$ers to t0e Lbur#en o$
e&i#enceM (Bur#en o$ going $orwar#). (s applie# in
COMMERCIAL LAW
t0is case it re$ers to t0e #ut. o$ t0e insure# to s0ow
t0at t0e loss or #amage is co&ere# b. t0e polic.. !0e
$oregoing clause notwit0stan#ing@ t0e bur#en o$
proo$ still rests upon petitioner to pro&e t0at t0e
#amage or loss was cause# b. an e7cepte# ris5 in
or#er to escape an. liabilit. un#er t0e contract.
(:BP Pool o$ (ccre#ite# Insurance Companies &.
>a#io *in#anao Networ5@ Inc. 3an. 2'@ 2006@ -.>.
No. "1'04))
AIN:/ %I !%!(L L%//6/
- a total loss %ay be actual o!
constructi&e 5se#t"on 12/0
(") If "t "s an (ctual !otal Loss "t %ay be
#ased by*
a. total dest!#t"on of t3e t3"n$
"ns!edO
b. t3e "!!et!"eBable loss of t3e
t3"n$ ;3"#3 !ende!s "t
Baleless to t3e o;ne! fo! t3e
1!1ose t3at 3e 3eld "tO
#. any ot3e! eBent ;3"#3
effe#t"Bely de1!"Bes t3e o;ne!
of t3e 1ossess"on at t3e 1o!t
of dest"nat"on of t3e t3"n$
"ns!ed 5se#t"on 1,00
67ample= W3en 1alay ;as
!ende!ed Baleless be#ase t3ey
be$an to $e!%"nate- t3s "t no
lon$e! !e%a"ns as t3e sa%e t3"n$-
"t ;as an actual total loss. (Pan
>ala&an vs. CA *2+ SCRA 38*)
(n actual total loss can also be
presume# f!o% t3e #ont"ned absen#e
of t3e s3"1 ;"t3ot be"n$ 3ea!d of
5se#t"on 1,20. T3e len$t3 of t"%e
;3"#3 "s sff"#"ent to !a"se t3ese
1!es%1t"on #epen#s on t3e
circumstances of t3e #aseO
I$ t0e &essel be pre&ente#@ at an
imme#iate port@ $rom completing t0e
&o.age@ by t3e 1e!"ls "ns!ed a$a"nst-
t3e l"ab"l"ty of t3e %a!"ne "ns!e! on
t3e #a!$o #ont"nes afte! t3ey a!e
!es3"11ed 5se#t"on 1,,0 and t3e
l"ab"l"ty e8tends to da%a$es- e81enses
of d"s#3a!$"n$- sto!a$e- s3"1%ent-
e8t!a f!e"$3ta$e and all ot3e!
e81enses "n#!!ed "n saB"n$ t3e #a!$o
!es3"11ed up to t0e amount insure# H
not0ing s0all ren#er t0e insurer liable
$or an amount in e7cess o$ t0e insure#
&alue or i$ none@ o$ t0e insurable &alue
5se#t"on 1,?0O
?pon actual total loss@ t3e "ns!ed "s
ent"tled to 1ay%ent ;"t3ot not"#e of
abandon%ent 5se#t"on 1,A0 an# i$ t0e
"ns!an#e "s #onf"ned to an actual loss
"t ;"ll not #oBe! a constructi&e loss- bt
;"ll #oBe! any loss- ;3"#3 ne#essa!"ly
!eslts "n de1!"B"n$ t3e "ns!ed of
1ossess"on- at t3e 1o!t of dest"nat"on
of t3e ent"!e t3"n$ "ns!ed 5se#t"on
1,C0O
(2) It "s a constructi&e total loss ;3en t3e
1e!son "ns!ed "s $"Ben a !"$3t to
aban#on nde! se#t"on 1,/ 5se#t"on
1,10O
%>I6N!(L (//?>(NC6 C%>P.@ /. C(
(N: P(N(*( /(,*ILL C%.@ INC. 200
/C>( 15) ("))")
/C >?LIN-=
!0e polic. in Euestion s0ows t0at t0e
sub9ect matter insure# was t0e entire s0ipment
o$ apitong logs. !0e $act t0at t0e logs were
loa#e# on two #i$$erent barges #i# not ma5e
t0e contract se&eral an# #i&isible as to t0e
terms insure#. !0e logs on t0e two
barges were not separatel. &alue# or
separatel. &alue# or separatel. insure#. %nl.
one premium was pai# $or t0e entire s0ipment@
ma5ing onl. one cause or consi#eration.
!0e insurance contract s0oul# be
consi#ere# in#i&isible. ?n#er t0e Insurance
Co#e@ a total loss ma. eit0er be an actual loss
or a constructi&e total loss. !0e appellate
court treate# t0e loss su$$ere# b. Panama as a
constructi&e total loss@ an# $or t0e purpose o$
computing t0e more t0an t0ree8$ourt0s &alue
o$ t0e logs actuall. lost@ consi#ere# t0e cargo
in one barge as separate $rom t0e logs in t0e
ot0er. !0e logs 0a&ing been insure# as one
inseparable unit@ t0e correct basis $or
#etermining t0e e7istence o$ constructi&e total
loss is t0e totalit. o$ t0e s0ipment o$ logs. %$
t0e entiret. o$ "@208 pieces o$ logs@ onl. 1)'
pieces t0ereo$ were lost or 1".15T o$ t0e
entire s0ipment. /ince t0e cost o$ t0ose 1)'
pieces #oes not e7cee# '5T o$ t0e &alue o$ all
"@208 pieces o$ logs@ t0e s0ipment cannot be
sai# to 0a&e sustaine# a constructi&e total loss
un#er /ection "4)(a) o$ t0e Insurance Co#e.
In t0e absence o$ eit0er actual or
constructi&e total loss@ t0ere can be no
reco&er. b. Panama against %riental
(ssurance.
200A &AR E:AM 5N0. : 616 a0
B= *+ Pearl. /0ells@ a passenger an# cargo &essel@
was insure# $or P10@000@000.00 against
Lconstructi&e total loss.M :ue to a t.p0oon@ it san5
near Palawan. Luc5il.@ t0ere were no casualties@
COMMERCIAL LAW
onl. in9ure# passengers. !0e s0ipowner sent a notice
o$ aban#onment o$ 0is interest o&er t0e &essel to t0e
insurance compan. w0ic0 t0en 0ire# pro$essionals
to a$loat t0e &essel $or P)00@000.00. ,0en re8
$loate#@ t0e &essel nee#e# repairs estimate# at
P2@000@000.00. !0e insurance compan. re$use# to
pa. t0e claim o$ t0e s0ipowner@ stating t0at t0ere
was Lno constructi&e total loss.M
a) ,as t0ere Lconstructi&e total lossM to entitle t0e
s0ipowner to reco&er $rom t0e insurance compan.Q
67plain.
(= !0ere was constructi&e total loss. ,0en t0e
&essel san5@ it was li5el. t0at it woul# be totall. lost
because o$ t0e improbabilit. o$ reco&er.. ((rnol#<s
Law o$ *arine Insurance an# (&erage@ "6
t0
e#.@ ol.
II@ pp. )518)55)
'$$ested Alte!nat"Be Ans;e!=
!0ere was no constructi&e total loss. !0e loss
is not more t0an [ t0e &alue o$ t0e &essel w0ic0 was
insure# $or P10@000@000.00. !0e cost o$ re$loating is
P)00@000.00 an# t0e nee#e# repairs amount
P2@000@000.00@ or a total o$ onl. P2@)00@000.00
w0ic0 #oes not constitute more t0an [ t0e &alue o$
t0e &essel.
T4E DOCTRINE O2 LIMITED LIA&ILIT+ H
Rw0en not applicableS H !0e #octrine o$ limite#
liabilit. un#er (rticle 58' o$ t0e Co#e o$ Commerce
is not applicable to t0e present case. !0is rule #oes
not appl. to situations in w0ic0 t0e loss or t0e in9ur.
is #ue to t0e concurrent negligence o$ t0e s0ip owner
an# t0e captain. It 0as alrea#. been establis0e# t0at
t0e sin5ing o$ t0e *+ Central Bo0ol 0a# been
cause# b. t0e $ault or negligence o$ t0e /0ip Captain
an# t0e crew@ as s0own b. t0e improper stowage o$
t0e cargo logs. LCloser super&ision on t0e part o$ t0e
s0ip owner coul# 0a&e pre&ente# t0is $atal
miscalculation.M (s suc0@ t0e s0ip owner was
eEuall. negligent. It cannot escape liabilit. b. &irtue
o$ t0e limite# liabilit. rule. (Central /0ipping
Compan.@ Inc. &. Insurance Compan. o$ Nort0
(merica@ /ept. 20@ 2001@ -.>. No. "50'5")
A&ANDONMENT H "s t3e a#t of t3e "ns!ed by
;3"#3- a$ter a constructi&e total loss@ 3e des"!es to
t3e "ns!e! t3e relinEuis0ment "n "ts faBo! 3"s
interest "n t3e t3"n$ "ns!ed 5se#t"on 1,H0O
A 1e!son "ns!ed by a #ont!a#t of %a!"ne
"ns!an#e %ay abandon t3e t3"n$ "ns!ed- o! any
1a!t"#la! 1o!t"on t3e!eof se1a!ately Baled by
t3e 1ol"#y- o! ot3e!;"se se1a!ately "ns!ed and
reco&er a total loss G w0en t0e cause o$ loss is a peril
insure# against i$=
1 .%o!e t3an S t3e!eof "n Bale "s a#tally
lost o! ;old 3aBe to be e81ended to !e#oBe! "t
fo!% t3e 1e!"l "ns!ed a$a"nstO
2 ."f "t "s "nN!ed to s#3 e8tent as to
!ed#e "ts Bale by %o!e t3an S of BaleO
, ."f t3e t3"n$ "nN!ed "s a s3"1 and
#onte%1lated Boya$e #annot la;flly be
1e!fo!%ed ;"t3ot "n#!!"n$ e"t3e! an e81ense to
t3e "ns!ed of %o!e t3an S t3e Bale of t3e t3"n$
abandoned o! a !"s9 ;3"#3 a 1!dent %an ;old
not ta9e nde! t3e #"!#%stan#esO
? ."f t3e "ns!ed "s $reig0tage or cargo G
and t3e Boya$e #annot be 1e!fo!%ed G nor
anot3e! s3"1 #annot be 1!o#!ed by t3e %aste! G
wit0in a reasonable time wit0 reasonable #iligence H
to fo!;a!d t3e #a!$o ;"t3ot "n#!!"n$ t3e l"9e
e81ense o! !"s9 %ent"oned "n "te% 5#0 but@
$reig0tage #annot be abandoned nless t3e s3"1 "s
abandoned 5se#t"on 1,/0O
(ban#onment must neit0er be partial nor
con#itional (section "10). 4en#e- "t %st be total
an# absoluteD
(ban#onment must be ma#e ;"t3"n a
!easonable t"%e afte! !e#e"1t of reliable
"nfo!%at"on of t3e loss but@ ;3e!e t3e "nfo!%at"on
"s of #oubt$ul c0aracter@ t3e insure# "s ent"tled to a
!easonable t"%e to %a9e an "n="!y 5se#t"on 1?10.
T3"s "s to enable t3e "ns!e! to ta9e ste1s to
1!ese!Be t3e 1!o1e!tyO
If t3e "nfo!%at"on 1!oBes incorrect o!
t3"n$ "ns!ed "s restore# ;3en t3e
abandon%ent ;as %ade t3at t3e!e
;as t3en "n fa#t no total loss G t3e
abandon%ent be#o%es ine$$ectual
5se#t"on 1?20O
F%, N%!IC6 %I (B(N:%N*6N! I/ *(:6
- &y $"B"n$ not"#e- o!al o! ;!"tten
not"#e to t3e "ns!e! but "f o!ally
$"Ben- a ;!"tten not"#e of s#3 %st be
sb%"tted ;"t3"n seBen days f!o%
$"B"n$ o!al not"#e 5se#t"on 1?,0. T3e
not"#e %st be e7plicit and s1e#"fy t3e
particular #ase of t3e abandon%ent
but need sta!t only eno$3 to s3o;
t3at t3e!e "s probable cause t0ere$ore
and need not be a##o%1an"ed by proo$
o$ interest or o$ loss 5se#t"on 1??0. T3e
!e="!e%ent as t3e e81l"#"tness of t3e
not"#e "s de to t3e fa#t t3at
abandon%ent #an only be ssta"ned
1on t3e #ase s1e#"f"ed "n t3e notice
5se#t"on 1?A0O
:ean >e.nal#o ?. (granCamen#eC Page H, o$ 177
COMMERCIAL LAW
200A &AR E:AM 5N0. : 6 16 b0
-
B= b) ,as it proper $or t0e s0ipowner to sen# a
notice o$ aban#onment to t0e insurance compan.Q
67plain. (5T)
-
(= It was proper $or t0e s0ipowner to sen# a notice
o$ aban#onment to t0e insurance compan.@ because
t0ere was reliable in$ormation o$ t0e loss o$ t0e
&essel.(/ection "1"@ Insurance Co#e)
6II6C!/ %I (B(N:%N*6N!
(") It "s e="Balent to a t!ansfe! by t3e
"ns!ed of 3"s "nte!est to t3e "ns!e!-
;"t3 all t3e #3an#es of !e#oBe!y and
"nde%n"ty 5se#t"on 1?70 Note t0oug0-
"f t3e "ns!e! 1ays fo! a loss as "f "t
;e!e an a#tal total loss- 3e "s ent"tled
to ;3ateBe! %ay !e%a"n of t3e t3"n$
"ns!ed- o! "ts 1!o#eeds o! salBa$e as
"f t3e!e 3as been a fo!%al
abandon%ent. Fere t0e insurer 0as
opte# to pa. $or total actual loss
not;"t3stand"n$ t3e absen#e on
a#tal abandon%entO
(2) A#ts done "n $ood fa"t3 by t3ose ;3o
;e!e a$ents of t3e "ns!ed "n !es1e#t
to t3e t3"n$ "ns!ed subseEuent to t0e
loss a!e at t3e !"s9 of t3e "ns!e! and
fo! 3"s benef"t 5se#t"on 1?H0. !0e
agents o$ t0e insure# become agents o$
t0e insurer. T3"s !et!oa#ts to t3e date
of t3e loss ;3en abandon%ent "s
effe#t"Bely %adeO
6II6C!II!U %I (B(N:%N*6N!
(") Abandon%ent be#o%es effe#t"Be 1on
t3e a##e1tan#e of t3e "ns!e!.
(cceptance %ay e"t3e! be e7press or
implie# f!o% t3e #ond#t of t3e insurer.
T3e mere silence of t3e "ns!e! fo! an
unreasonable lengt0 o$ time afte! notice
s3all be #onst!ed a##e1tan#e 5se#t"on
1A00. %nce accepte#@ "t "s #on#ls"Be
bet;een t3e 1a!t"es. T3e loss "s
ad%"tted to$et3e! ;"t3 t3e sff"#"en#y
of t3e abandon%ent 5se#t"on 1A10. It is
also irre&ocable 1on a##e1tan#e and
1on "ts be"n$ %ade unless t3e $!ond
1on ;3"#3 "s %ade 1!oBes to be
un$oun#e# 5se#t"on 1A20. T3s- "f t3e
"ns!e! a##e1ts t3e abandon%ent- "t
#annot !a"se any =est"on as to
"nsff"#"en#y of t3e fo!% nde! se#t"on
1?,- t"%e fo! $"B"n$ not"#e nde!
se#t"on 1?1- o! !"$3t to abandon nde!
1,/. !0e onl. e7ception t0e "s nde!
se#t"on 1A2 ;3en t3e $!ond "s
nfonded ;3"#3 "s def"ned "n se#t"on
1?2 and<o! as !elated to se#t"on 1?AO
- No abandon%ent of f!e"$3ta$e nless
s3"1 "s also abandonedO
(2) On an a##e1ted abandon%ent "nBolB"n$
a s3"1- $reig0tage ea!ned 1!eB"os to t3e
loss belon$s to t3e "ns!e! of t3e
$reig0tage@ t3at sbse=ently ea!ned
belon$s to t3e "ns!e! of t3e s0ip
5se#t"on 1A,0.
67ample= T3e #onte%1lated Boya$e of
t3e t!ans1o!t of #a!$o "s f!o% 1o"nt :
to 1o"nt +. In bet;een- a loss o##!s
and t3e s3"1 "s abandoned. T3e
f!e"$3ta$e al!eady ea!ned f!o% 1o"nt :
nt"l t3e 1o"nt of loss- belon$s to t3e
"ns!e! of t3e f!e"$3ta$e. If t3e s3"1 "s
sbse=ently !e1a"!ed- and #ont"nes
on to 1o"nt + t3e f!e"$3ta$e de
belon$s to t3e "ns!e! of t3e s3"1O
(4) I$ aban#onment is not accepte# des1"te "ts
Bal"d"ty- t3e "ns!e! "s l"able 1on an
actual total loss- ded#t"n$ f!o% t3e
a%ont any 1!o#eeds of t3e t3"n$
"ns!ed t3at %ay 3aBe #o%e to t3e
3ands of t3e t3"n$ "ns!ed 5se#t"on
1A?0. T3"s "s de t3e fa#t t3at nde!
se#t"on 1?/- ;3"#3 1!oB"des t3at "f
not"#e "s 1!o1e!ly $"Ben- "t does not
1!eNd"#e t3e "ns!ed- "f t3e insurer
!efses to a##e1t t3e abandon%entO
II (B(N:%N*6N! I/ N%! *(:6 %>
%**I!!6:
- T3e fa#t t3at abandon%ent "s not
%ade o! "s o%"tted does not 1!eNd"#e
t3e "ns!ed as 3e %ay neBe!t3eless
!e#oBe! 3"s actual loss 5se#t"on 1AA0O
LI(BILI!U I%> (6>(-6/
(6>(-6 :6IIN6: H "s any e8t!ao!d"na!y o!
a##"dental e81ense "n#!!ed d!"n$ t3e Boya$e
fo! t3e 1!ese!Bat"on of t3e Bessel- #a!$o- o! bot3
an# all da%a$es to t3e Bessel o! #a!$o f!o% t3e
t"%e "t "s loaded and t3e Boya$e #o%%en#ed nt"l
"t ends and t3e #a!$o "s nloadedO
AIN:/ %I (6>(-6/
5a0 Particular or simple a&erage H "s a
da%a$e o! e81ense #ased to t3e
Bessel- #a!$o- o! ;3"#3 3as not inure#
:ean >e.nal#o ?. (granCamen#eC Page H? o$ 177
COMMERCIAL LAW
to t3e common bene$it and pro$it of all
persons "nte!ested "n t3e cargo o! t3e
&essel. T3"s da%a$e o! e81ense "s
bo!ne o!d"na!"ly by t3e o;ne! of t3e
Bessel o! #a!$o t3at $"Bes !"se to t3e
e81enses o! sffe!ed t3e da%a$eO
67ample= Da%a$e ssta"ned by a
#a!$o f!o% t3e t"%e "t "s loaded to t3e
t"%e "t "s nloaded o! add"t"onal
e81enses t3at a!e "n#!!ed by t3e
Bessel f!o% t3e t"%e "t 1ts ot to t3e
sea nt"l "t !ea#3es "ts dest"nat"on
5b0 -eneral or gross a&erage "s an e81ense
o! da%a$e sffe!ed del"be!ately "n
o!de! to saBe t3e Bessel o! "ts #a!$o o!
bot3 f!o% real and 5nown ris5. !0us@
all 1e!sons 3aB"n$ an "nte!est "n t3e
&essel and cargo o! bot3 at t3e
o##!!en#e of t3e a&erage s3all
#ont!"bte.
67ample= .ett"son"n$ of #a!$oO
(s a rule w0en it 0as been agree# t0at an insurance
upon a particular t0ing or class o$ t0ings s0all be
$ree $rom particular a&erage@ a %a!"ne "ns!e! "s
not l"able fo! a 1a!t"#la! aBe!a$e loss not
#epri&ing t0e insure# o$ t0e possession@ at t0e port o$
#estination@ of t3e ;3ole s#3 t3"n$- o! #lass of
t3"n$s- eBen t3o$3 "t be#o%es ent"!ely ;o!t3less-
but s#3 "ns!e! "s l"able fo! 3"s 1!o1o!t"on of all
$ene!al aBe!a$e loss assessed 1on t3e t3"n$
"ns!ed 5se#t"on 1,70O
200/ &AR E:AM 5@II0
-lobal !ransport /er&ices@ Inc. (-!/I) operates a
$leet o$ cargo &essels pl.ing interislan# routes. %ne
o$ its &essels@ * :ona 3uana@ le$t t0e port o$
*anila $or Cebu la#en wit0@ among ot0er goo#s@
"0@000 tele&ision sets consigne# to >omual#o@ a !
retailer in Cebu.
,0en t0e &essel was about ten nautical
miles awa. $rom *anila@ t0e s0ip captain 0ear# on
t0e ra#io t0at a t.p0oon w0ic0@ as announce# b.
P(-8(/(@ was on its wa. out o$ t0e countr.@ 0a#
su##enl. &eere# bac5 into P0ilippine territor.. !0e
captain realiCe# t0at * :ona 3uana woul# tra&erse
t0e storm<s pat0@ but #eci#e# to procee# wit0 t0e
&o.age. !rue enoug0@ t0e &essel saile# into t0e
storm. !0e captain or#ere# t0e 9ettison o$ t0e "0@000
tele&ision sets@ along wit0 some ot0er cargo@ in or#er
to lig0ten t0e &essel an# ma5e it easier to steer t0e
&essel out o$ t0e pat0 o$ t0e t.p0oon. 6&entuall.@ t0e
&essel@ wit0 its crew intact@ arri&e# sa$el. in Cebu.
a. ,ill .ou c0aracteriCe t0e 9ettison o$
>omual#o<s ! sets as an a&erageQ I$ so@
w0at 5in# o$ an a&erage@ an# w0.Q I$ not@
w0. notQ (4T)
b. (gainst w0om #oes >omual#o 0a&e
a cause o$ action $or in#emnit. o$ 0is lost
! setsQ 67plain. (4T)
IN C(/6 %I -6N6>(L (6>(-6 L%//
- T3e "ns!e! "s l"able fo! t3e loss
fall"n$ 1on t3e "ns!ed- t3o$3 a
#ont!"bt"on "n !es1e#t to t3e t3"n$
"ns!ed ;3en !e="!ed to be %ade by
3"% to;a!ds a $ene!al aBe!a$e loss
#alled fo! a 1e!"l "ns!ed a$a"nst bt
l"ab"l"ty "s l"%"ted to t3e 1!o1o!t"on of
t3e #ont!"bt"on atta#3"n$ to 3"s
1ol"#y Bale ;3e!e t3"s "s less t3an t3e
#ont!"bt"n$ Bale of t3e t3"n$
"ns!ed 5se#t"on 17?0. *eaning t0at t0e
insure# can 0ol# 0is insurer liable $or
contribution up to t0e &alue o$ t0e
polic.O
>I-F! %I /?B>%-(!I%N
- W3en a 1e!son "nN!ed "n a #ont!a#t
of %a!"ne "ns!an#e 3as a de%and
a$a"nst t3e ot3e!s fo! contribution@ 0e
ma. claim t0e w0ole loss $rom 0is
insurer sb!o$at"n$ t3e "ns!e! to 3"s
o;n !"$3t to #ont!"bt"on but no s#3
#la"% #an be %ade 1on t3e "ns!e!
"f*
5a0 t3e!e "s se1a!at"on of t3e "nte!est
l"able to #ont!"bt"onO
67ample= W3en t3e #a!$o l"able fo!
#ont!"bt"on 3as been !e%oBed
f!o% t3e Bessel
(b) ;3en t3e "ns!ed 3aB"n$ t3e !"$3t
and o11o!tn"ty to enfo!#e
#ont!"bt"on f!o% ot3e!s- 3as
neglecte# or wai&e# t3e e8e!#"se of
t3e !"$3t 5se#t"on 17A0. *eaning
t3at t3e "ns!ed 3as a #3o"#e of
!e#oBe!y on t3e 3a11en"n$ of a
$ene!al aBe!a$e loss. T3ey a!e*
510 Enfo!#"n$ t3e
#ont!"bt"on a$a"nst
"nte!ested 1a!t"esO o!
520 Cla"%"n$ f!o% t3e
"ns!e!. If "t be t3e
latte!- sb!o$at"on
ta9es 1la#eO
/?B>%-66 H 7 7 7 rig0t to reco&er. #eri&es $rom
t0e contractual subrogation as an inci#ent to an
insurance relations0ip an# not $rom an. pro7imate
in9ur. to it in$licte# b. t0e respon#ents 7 7 7
:ean >e.nal#o ?. (granCamen#eC Page HA o$ 177
COMMERCIAL LAW
(*ala.an Insurance Co. &s. >egis Bro5erage
Corporation No&. 24 200' -.>. No. "'2"56)
/?B>%-(!I%N H RmeaningS /ubrogation is t0e
substitution o$ one person in t0e place o$ anot0er
wit0 re$erence to a law$ul claim or rig0t@ so t0at 0e
w0o is substitute# succee#s to t0e rig0ts o$ t0e ot0er
in relation to a #ebt or claim@ inclu#ing its reme#ies
or securities. !0e principle co&ers t0e situation
un#er w0ic0 an insurer t0at 0as pai# loss un#er an
insurance polic. is entitle# to all t0e rig0ts an#
reme#ies belonging to t0e insure# against a t0ir#
part. wit0 respect to an. loss co&ere# b. t0e polic..
It contemplates $ull substitution suc0 t0at it places
t0e part. subrogate# in t0e s0oes o$ t0e cre#itor@ an#
0e ma. use all means w0ic0 t0e cre#itor coul#
emplo. to en$orce pa.ment. (LorenCo /0ipping
Corp. &. C0ubb an# /ons@ Inc. 6t (l. 3un 8@ 2001
-.>. No. "1''21)
/?B>%-66 H !0e rig0ts to w0ic0 t0e subrogee
succee#s t0e same as@ but not greater t0an@ t0ose o$
t0e person $or w0om 0e is substitute# H 0e cannot
acEuire an. claim@ securit.@ or reme#. t0e subrogor
#i# not 0a&e. In ot0er wor#s@ a subrogee cannot
succee# to a rig0t not possesse# b. t0e subrogor. (
subrogee in e$$ect steps into t0e s0oes o$ t0e insure#
an# can reco&er onl. i$ insure# li5ewise coul# 0a&e
reco&ere#.
Fowe&er w0en t0e insurer succee#s to t0e
rig0ts o$ t0e insure#@ 0e #oes so onl. in relation to
t0e #ebt. !0e person substitute# (t0e insurer) will
succee# to all t0e rig0ts o$ t0e cre#itor(t0e insure#)@
0a&ing re$erence to t0e #ebt #ue t0e latter. (LorenCo
/0ipping Corp. &. C0ubb an# /ons@ Inc. 6t (l. 3un 8@
2001 -.>. No. "1''21)
DEL'AN TRAN')ORT LINE'- INC.
Bs. CA and AMERICAN 4OME A''(RANCE
COR)ORATION 5G.R. No. 12CH/C NoBe%be!
1A- 20010
!ommon !arriers: ailure to deliver cargo:
Payment by insurance company of insurable value
of the goods: *nsurance company subrogated to the
rights of the assured against the common carrier-
;!0e pa.ment ma#e b. t0e pri&ate respon#ent $or
t0e insure# &alue o$ t0e lost cargo operates as wai&er
o$ its (pri&ate respon#ent) rig0t to en$orce t0e term
o$ t0e implie# warrant. against Calte7 un#er t0e
marine insurance polic.. Fowe&er@ t0e same cannot
be &ali#l. interprete# as an automatic a#mission o$
t0e &essel<s seawort0iness b. t0e pri&ate respon#ent
as to $oreclose recourse against t0e petitioner $or an.
liabilit. un#er its contractual obligation as a
common carrier. !0e $act o$ pa.ment grants t0e
pri&ate respon#ent subrogator. rig0t w0ic0 enables
it to e7ercise legal reme#ies t0at woul# ot0erwise be
a&ailable to Calte7 as owner o$ t0e lost cargo against
t0e petitioner common carrier.
8
(rticle 220' o$ t0e
New ci&il Co#e pro&i#es t0at=
(rt. 220'. I$ t0e plainti$$<s propert. 0as
been insure#@ an# 0e 0as recei&e# in#emnit.
$rom t0e insurance compan. $or t0e in9ur.
or loss arising out o$ t0e wrong or breac0 o$
contract complaine# o$@ t0e insurance
compan. s0all be subrogate# to t0e rig0ts o$
t0e insure# against t0e wrong#oer or t0e
person w0o 0as &iolate# t0e contract. I$ t0e
amount pai# b. t0e insurance compan. #oes
not $ull. co&er t0e in9ur. or loss@ t0e
aggrie&e# part. s0all be entitle# to reco&er
t0e #e$icienc. $rom t0e person causing t0e
loss or in9ur..
Presentation of marine insurance policy not
necessary for insurance company to go after the
vessel;o#ner-; !0e presentation in e&i#ence o$ t0e
marine insurance polic. is not in#ispensable in t0is
case be$ore t0e insurer ma. reco&er $rom t0e
common carrier t0e insure# &alue o$ t0e lost cargo in
t0e e7ercise o$ its subrogator. rig0t. !0e subrogation
receipt@ b. itsel$@ is su$$icient to establis0 not onl.
t0e relations0ip o$ 0erein pri&ate respon#ent as
insurer an# Calte7@ as t0e assure# s0ipper o$ t0e lost
cargo o$ in#ustrial $uel oil@ but also t0e amount pai#
to settle t0e insurance claim. !0e rig0t o$
subrogation accrues simpl. upon pa.ment b. t0e
insurance compan. o$ t0e insurance claim.
*6(/?>6 %I IN:6*NI!U IN *(>IN6
IN/?>(NC6
II !F6 P%LICU I/ (L?6:D
1.A Balat"on "n t3e 1ol"#y of %a!"ne
"ns!an#e "s e8#ls"Be bet;een t3e 1a!t"es t3e!eto
"n t3e adNst%ent of e"t3e! a 1a!t"al o! total loss-
"f t3e "ns!ed 3as so%e "nte!est at !"s9 and t3e!e
"s no f!ad on 3"s 1a!t. If t3e!e "s f!ad "n
Balat"on- it entitles the insurer to rescind as it is
an exception as to conclusiveness 5'e#t"on 1A70O
2.If 3o;eBe!- 3y13ote#ated by t3e
botto%!y o! !es1ondent"a G befo!e "ns!an#e and
;"t3ot 9no;led$e of t3e 1e!son se#!"n$ "t G 3e
%ay s3o; t3e !eal Bale*
,.An "ns!e! "s l"able 1on a 1a!t"al loss G
only for such proportion of the amount insured by
him G as t3e loss bea!s to t3e ;3ole "nte!est of t3e
"ns!ed 5se#t"on 1AC0. T3e effe#t "s t3at t3e
"ns!ed "s dee%ed a #o6"ns!e! "f t3e Bale of t3e
"ns!an#e "s less t3an t3e Bale of t3e 1!o1e!ty.
"his applies even in the absence of a stipulation in
the contract and is also +no#n as the average
clause-
I
COMMERCIAL LAW
!0e two reEuisites $or t0e
application o$ t0e a&erage
clause=
510 "ns!an#e "s fo! less t3an
a#tal BaleO
520 t3e loss "s 1a!t"al
Note= T3at #o6"ns!an#e e8"st "n Ma!"ne
Ins!an#e* In 2"!e Ins!an#e- t3e!e "s no #o6
"ns!an#e nless e81!essly st"1lated
5se#t"ons 1C161C20. In l"fe "ns!an#e- t3e!e "s
none also as Bale "s f"8ed "n t3e 1ol"#y
5se#t"on 1H,0
?.In #ase 1!of"ts a!e se1a!ately "ns!ed "n
a #ont!a#t of %a!"ne "ns!an#e 5see se#t"on 10A0 -
t3e "ns!ed #an !e#oBe! "n #ase of a loss 5and
nde! se#t"on 170- t3e!e "s a #on#ls"Be
1!es%1t"on of a loss f!o% t3e loss of t3e
1!o1e!ty ot of ;3"#3 t3ey ;e!e e81e#ted to
a!"se- and t3e Balat"on f"8es t3e"! a%ont0- a
1!o1o!t"on of s#3 1!of"ts e="Balent to
1!o1o!t"on of t3e Bale of t3e 1!o1e!ty lost bea!s
to t3e Bale of t3e ;3ole 5se#t"on 1AH0.
(") II !F6
P%LICU I/ %P6N
5a0 T3e Bale of t3e s3"1 "s t3e Bale at
t3e be$"nn"n$ of t3e !"s9- "n#ld"n$
all a!t"#les o! #3a!$es ;3"#3 add to "ts
1e!%anent Bale o! ;3"#3 a!e
ne#essa!y to 1!e1a!e "t fo! t3e Boya$e
"ns!edO
(b) T3e Bale of t3e #a!$o "s "ts a#tal
#ost to t3e "ns!ed- w0en la#en on
boa!d ;3e!e t3e #ost #annot be
as#e!ta"ned- "ts Ma!9et @ale at t3e
t"%e and 1la#e of lad"n$. Add"n$ t3e
#3a!$es "n#!!ed "n 1!#3as"n$ and
1la#"n$ "t on boa!d G bt ;"t3ot
!efe!en#e to any loss "n#!!ed "n
!a"s"n$ %oney fo! "ts 1!#3ase o! any
:>(,B(CA on "ts
6VP>%P>I(!I%N o!
IL?C!?(!I%N of t3e %a!9et at t3e
1o!t of dest"nat"on o! e81enses
"n#!!ed on t3e ;ay o! on a!!"BalO
:rawbac5 G $oBe!n%ent allo;an#e 1on
dt"es on "%1o!ted %e!#3and"se ;3en t3e
"%1o!te! !e6e81o!ts "nstead of sell"n$ "tO
(c) @ale of f!e"$3ta$e "s t3e gross
$reig0tage@ e8#ls"Be o! primage
;"t3ot !efe!en#e to t3e #ost of
ea!n"n$ "tO
Primage H #o%1ensat"on 1a"d by t3e
s3"11e! to t3e %aste! of t3e Bessel fo! 3"s
#a!e and t!oble besto;ed on t3e $oods of
t3e s3"11e!- ;3"#3 3e !eta"ns "n t3e absen#e
of a #ont!a!y st"1lat"on ;"t3 t3e o;ne! of
t3e BesselO
5d0 T3e #ost of "ns!an#e "s "n ea#3 #ase
to be added to t3e Bale t3s
est"%ated 5se#t"on 1710O
II !F6 C(>-% IN/?>6: (-(IN/!
P(>!I(L L%//
If "t a!!"Bes at t3e 1o!t of dest"nat"on "n a
#amage# con#ition@ t3e loss of t3e "ns!ed "s
dee%ed to be t3e same proportion o$ t0e
&alue w0ic0 t0e mar5et price at t0at port o$
t0e t0ing so #amage# bears to t0e mar5et price
it woul# 0a&e broug0t i$ soun# 5se#t"on 1720.
Mean"n$ "f !ed#t"on "n Bale "s 1<A- t3en
a%ont of !e#oBe!y on t3e "ns!an#e "s also
1<A.
T3e fo!%la "s*
5a0 Ma!9et 1!"#e "n sond state less
%a!9et 1!"#e "n da%a$ed state e=als
!ed#t"on "n BaleO
5b0 Red#t"on "n Bale d"B"ded by %a!9et
1!"#e "n sond state %lt"1l"ed ;"t3
t3e a%ont of "ns!an#e e=als t3e
a%ont of !e#oBe!yO
I I I I > > 6 6 I I N N / / ? ? > > ( ( N N C C 6 6
C%6>(-6 IN II>6 IN/?>(NC6
Ins!an#e a$a"nst f"!e "n#ldes loss o!
da%a$e de to li"h#nin", )inds#orm, #ornado,
!ar#h9ua<! or o#h!r alli!d ris<s ;3en s#3 !"s9s
a!e #oBe!ed by e8tens"ons to t3e f"!e "ns!an#e
1ol"#y o! nde! se1a!ate 1ol"#"es 5se#t"on 17C0.
4en#e- ;3"le "t "s not l"%"ted to loss o! da%a$e
de to f"!e- #oBe!a$e as to ot3e! !"s9s "s not
ato%at"#O
2001 &AR E:AM 5N0.:@II0
B= 3B@ owner o$ t0e con#ominium unit@
insure# t0e same against $ire wit0 VUY Insurance
Corp. an# ma#e t0e loss pa.able to 0is brot0er.
*LB. In case o$ loss b. $ire o$ t0e sai#
con#ominium unit@ w0o ma. reco&er on t0e $ire
insurance polic.Q /tate t0e reasons $or .our answerQ
:ean >e.nal#o ?. (granCamen#eC Page HC o$ 177
COMMERCIAL LAW
(= 3B can reco&er on t0e $ire insurance
polic. $or t0e loss o$ t0e sai# con#ominium unit. Fe
0as t0e insurable interest as owner8insure#. (s
bene$iciar. in t0e $ire insurance polic.@ *LB cannot
reco&er on t0e $ire insurance polic.. Ior t0e
bene$iciar. to reco&er on t0e $ire or propert.
insurance polic.@ it is reEuire# t0at 0e must 0a&e
insurable interest in t0e propert. insure#. In t0is
case@ *LB #oes not 0a&e insurable interest in t0e
con#ominium unit.
II>6 :6IIN6:
In "ns!an#e- "t "s def"ned as t3e a#t"Be
1!"n#"1le of b!n"n$- #3a!a#te!"zed by 3eat and
l"$3t #o%bst"on. Co%bst"on ;"t3ot B"s"ble
l"$3t o! $lo; "s not f"!e. 67ample= Da%a$e #ased
by s%o9e f!o% a la%1 ;3en no "$n"t"on o##!!ed
ots"de t3e la%1.
To allo; !e#oBe!y- "t %st be t3e
1!o8"%ate of t3e da%a$e o! loss and f"!e %st be
3ost"le "f "t*
a. b!ns at a 1"e#e ;3e!e "t "s not
"ntended to b!nO
b. sta!ts as a f!"endly f"!e bt
be#o%es 3ost"le "f "t s3old
es#a1e f!o% t3e 1la#e ;3e!e "t
"s "ntended to b!n and
be#o%es n#ont!ollableO
c. "s a f!"endly f"!e ;3"#3 be#o%es
F%/!IL6 by not es#a1"n$ f!o%
"ts 1!o1e! 1la#e bt be#ase of
t3e ns"table %ate!"al sed to
l"$3t "t and "t be#o%es
"n3e!ently dan$e!os and
n#ont!ollableO
6as o11osed to $rien#l. $ire H one t3at
b!ns "n a 1la#e ;3e!e "t "s "ntended to b!n and
e%1loyed fo! t3e o!d"na!y 1!1ose of l"$3t"n$-
3eat"n$- o! %anfa#t!"n$. &t t3e 1ol"#y "tself
%ay l"%"t o! !est!"#t #oBe!a$e to losses nde!
o!d"na!y #ond"t"ons bt not t3ose de to e8t!a6
o!d"na!y #"!#%stan#es o! abno!%al #ond"t"ons
l"9e ;a!- "nBas"on- !ebell"on- #"B"l ;a! o! s"%"la!
#ase. In t3ese #ases !e#oBe!y "s st"ll 1oss"bleO
(L!6>(!I%N :6IIN6:
Is a #3an$e "n t3e se o! #ond"t"on of a
t3"n$ "ns!ed f!o% t3at to ;3"#3 "t "s l"%"ted by
t3e 1ol"#y- %ade ;"t3ot t3e #onsent of t3e
"ns!e!- by %eans ;"t3"n t3e #ont!ol of t3e
"ns!ed- and "n#!eas"n$ t3e !"s9- ;3"#3 ent"tles
t3e "ns!e! to !es#"nd t3e #ont!a#t of "ns!an#e
5se#t"on 17H0O
62!o% t3e fo!e$o"n$ def"n"t"on- t3e
>6B?I/I!6/ %st be 1!esent to #onst"tte an
alte!at"on so as to allo; t3e !es#"ss"on of t3e
#ont!a#t to ;"t*
(a) T3e se o! #ond"t"on of t3e t3"n$
"ns!ed "s s1e#"f"#ally l"%"ted o!
st"1lated "n t3e 1ol"#y but nde!
se#t"on 1C0- t3e #ont!a#t of
"ns!an#e "s not affe#ted by an a#t
of t3e "ns!ed sbse=ent to t3e
e8e#t"on of t3e 1ol"#y- ;3"#3 does
not B"olate "ts 1!oB"s"ons eBen
t3o$3 "t "n#!eases t3e !"s9 and "s
t3e #ase of t3e lossO
67ample= (") If t3e "ns!ed sto!ed t3"nne!- 1a"nts
and Ba!n"s3. A f"!e sbse=ently o##!s and t3e!e
"s no e81!ess 1!o3"b"t"on as to sto!a$e of s#3
"te%s- eBen "f t3e !"s9 "s "n#!eased- t3e "ns!e! "s
st"ll l"able (<achrach vs- <ritish Assurance, ')
Phil 6660:
(2) T3e 1ol"#y states t3at t3e 1
st
floo! "s
no##1"ed- "t "s late! o##1"ed. T3e!e "s no
alte!at"on t3at ent"tles t3e "ns!e! to !es#"nd- t3e
des#!"1t"on of t3e 3ose #annot be sa"d to be a
l"%"tat"on as to se (3odges vs- !apital *nsurance
79 5-G- ...)0

5b0 T3e!e "s an alte!at"on "n t3e sa"d
se o! #ond"t"onO
5#0 T3e alte!at"on "s ;"t3ot t3e
#onsent of t3e "ns!e!O
5d0 T3e alte!at"on "s %ade by %eans
;"t3"n t3e "ns!ed>s #ont!ol. If t3e
alte!at"on be by a##"dent o! %eans
beyond t3e #ont!ol of t3e "ns!ed-
t3e !e="s"te "s not %et.
67ample= T3e alte!at"on "s %ade by a tenant ;"t3
t3e #onsent o! 9no;led$e of t3e "ns!ed- t3e
"ns!e! #annot !es#"ndO
5e0 T3e alte!at"on "n#!eases t3e !"s9
of loss bt nde! se#t"on 17/ any
alte!at"on "n t3e se o! #ond"t"on
of t3e t3"n$ "ns!ed f!o% t3at to
;3"#3 "s l"%"ted by t3e 1ol"#y-
;3"#3 does not "n#!ease t3e !"s9
does not affe#t t3e #ont!a#tO
B?! !F6>6 *?/! N%! B6 (NU I%L(!I%N
%I !F6 C%N!>(C! %!F6>,I/6
- T3e bas"s fo! !es#"ss"on "s t3at
1ay%ent of t3e 1!e%"% "s based on
t3e !"s9 as assessed at t3e t"%e of t3e
"ssan#e of t3e 1ol"#y ;3en t3e !"s9 "s
"n#!eased ;"t3ot a #o!!es1ond"n$
"n#!ease "n 1!e%"% "s 1a"dO
*6(/?>6 %I IN:6*NI!U IN II>6
IN/?>(NC6
- In an open polic.- "t "s t3e e81ense "t
;old be to t3e "ns!ed at t3e t"%e of
t3e #o%%en#e%ent of t3e f"!e to
:ean >e.nal#o ?. (granCamen#eC Page HH o$ 177
COMMERCIAL LAW
!e1la#e t3e t3"n$ lost o! "nN!ed "n t3e
#ond"t"on "n ;3"#3 "t ;as at t3e t"%e
of t3e "nN!y.
- In a &alue# polic.- "t "s t3e sa%e as "n
%a!"ne "ns!an#e- t3e Balat"on as
a$!eed 1on by t3e 1a!t"es "s
#on#ls"Be "n t3e adNst%ent of e"t3e!
a 1a!t"al o! total loss "n t3e absen#e of
f!ad 5se#t"on 1C10.
F%, I/ (L?(!I%N *(:6
510 W3eneBe! t3e "ns!ed ;old l"9e to
3aBe a Balat"on stated "n a 1ol"#y
"ns!"n$ a b"ld"n$ o! st!#t!e a$a"nst
f"!e- "t %ay be %ade by an "nde1endent
a11!a"se!- ;3o "s 1a"d by t3e "ns!ed
and t3e Bale %ay be f"8ed bet;een t3e
"ns!e! and t3e "ns!edO
520 'bse=ently- t3e #lase "s t3en
"nse!ted "n t3e 1ol"#y t3at sa"d
Balat"on 3as t3s been f"8edO
5,0 In #ase of loss- 1!oB"ded t3e!e "s no
#3an$e "n#!eas"n$ t3e !"s9 ;"t3ot t3e
#onsent of t3e "ns!ed o! f!ad on t3e
1a!t of t3e "ns!ed- t3e "ns!e! ;"ll 1ay
t3e ;3ole a%ont so "ns!ed and stated
"n t3e 1ol"#y "s 1a"d. If "t "s a partial loss-
t3e ;3ole a%ont of t3e 1a!t"al loss "s
1a"d. In #ase t3e!e a!e 2 o! %o!e
1ol"#"esea#3 s3all #ont!"bte 1!o6!ata
to t3e total o! 1a!t"al loss bt t3e
l"ab"l"ty of t3e "ns!e!s #annot be %o!e
t3an t3e a%ont stated "n t3e 1ol"#yO
5?0 O! t3e 1a!t"es %ay st"1late t3at
"nstead of 1ay%ent- t3e o1t"on to
!e1a"!- !eb"ld o! !e1la#e t3e 1!o1e!ty
;3olly o! 1a!t"ally da%a$ed o!
dest!oyed s3all be e8e!#"sed. 5'e#t"on
1C20.
No 1ol"#y of f"!e "ns!an#e s3all be
1led$ed- 3y1ot3e#ated o! t!ansfe!!ed
to any 1e!son- f"!% o! #o%1any t3at
a#ts as a$ent fo! o! ot3e!;"se
!e1!esents t3e "ss"n$ #o%1any- s#3
s3all be Bo"d and of no effe#t "nsofa!
as "t %ay affe#t ot3e! #!ed"to!s of t3e
"ns!ed 5se#t"on 1C,0
C C ( ( / / ? ? ( ( L L ! ! U U I I N N / / ? ? > > ( ( N N C C 6 6

C(/?(L!U IN/?>(NC6 :6IIN6:
- Gene!ally- "t "s one t3at #oBe!s loss o!
l"ab"l"ty a!"s"n$ f!o% an a##"dent o!
%"s3a1 excluding those that fall
exclusively #ithin other types of
insurance li+e fire or marine- It
"n#ldes e%1loye!>s l"ab"l"ty-
;o!9%en>s #o%1ensat"on- 1bl"#
l"ab"l"ty- %oto! Be3"#le l"ab"l"ty- 1late
$lass l"ab"l"ty- b!$la!y and t3eft-
1e!sonal a##"dent and 3ealt3
"ns!an#e as ;!"tten by non6l"fe
#o%1an"es and ot3e! sbstant"ally
s"%"la! "ns!an#e 5se#t"on 1C?0O
:6IINI!I%N/
6*PL%U6></ LI(BILI!U
- "s "ns!an#e obta"ned by t3e e%1loye!
a$a"nst l"ab"l"ty to an e%1loyee fo!
da%a$es #ased o! a!"s"n$ f!o%
"nN!"es by !eason of 3"s e%1loy%entO
,%>A*6N</ C%*P6N/(!I%N
- "s "ns!an#e se#!ed by an e%1loye!
fo! t3e benef"t of 3"s e%1loyees and
labo!e!s fo! loss !eslt"n$ f!o%
"nN!"es- d"sable%ent- o! deat3
t3!o$3 "ndst!"al a##"dent- #asalty-
o! d"sease "n #onne#t"on ;"t3 t3e"!
e%1loy%ent. Note t3at %ost "f not all
ty1es of t3"s "ns!an#e "s
nde!;!"tten by t3e G'I' o! t3e ''.
P?BLIC LI(BILI!U
- "s "ns!an#e a$a"nst l"ab"l"ty of t3e
"ns!ed to 1ay da%a$es fo! a##"dental
bod"ly "nN!y o! da%a$e to 1!o1e!ty
a!"s"n$ f!o% an a#t"B"ty of t3e "ns!ed
def"ned "n t3e 1ol"#yO
*%!%> 6FICL6 LI(BILI!U
- "s "ns!an#e a$a"nst loss o! "nN!y
a!"s"n$ f!o% t3e se of a %oto!
Be3"#le by "ts o;ne! as o11osed loss o!
da%a$e to t3e Be3"#le "tself. CoBe!a$e
fo! bot3 %ay 3o;eBe! be #onta"ned "n
t3e 1ol"#yO
PL(!6 -L(//
- "s "ns!an#e t3at "nde%n"f"es t3e
"ns!ed a$a"nst loss #ased by t3e
a##"dental b!ea9"n$ of 1late $lass-
;"ndo;s- doo!s o! s3o; #asesO
B?>-L(>U (N: !F6I!
- "s "ns!an#e a$a"nst loss of 1!o1e!ty
t3!o$3 b!$la!y and t3eftO
P6>/%N(L (CCI:6N!
- "s "ns!an#e a$a"nst e81ense- loss of
t"%e and sffe!"n$ f!o% a##"dents t3at
#ase a 13ys"#al "nN!yO
:ean >e.nal#o ?. (granCamen#eC Page H/ o$ 177
COMMERCIAL LAW
'(N IN'(RANCE O22ICE Bs. CA .ly 1C- 1//2
51//, and 1//? &a! e8a%s0
V was issue# a personal acci#ent insurance $or
P200@000. !wo mont0s later@ 0e #ie# o$ a bullet
woun# in 0is 0ea#. Fe was pla.ing wit0 0is 0an#
gun $rom w0ic0 0e remo&e# t0e magaCine. Fe
pointe# 0is gun to 0is temple an# $ire#. !0e
insurance compan. re$use# to pa. t0e bene$iciar..
,as t0ere suici#e or acci#entQ
/C >uling=
". H )as n!"li"!n# %u# i# should no# pr!v!n# #h!
%!n!iciar& rom r!cov!r& %!caus! #h!r! is
no#hin" in #h! polic& #ha# !$!mp#s #h!
insur!r o #h! r!sponsi%ili#& #o pa&
ind!mni#& i #h! insur!d is sho)n #o hav!
con#ri%u#!d #o his o)n accid!n#.#
2. 0h! d!a#h is accid!n#al. Accid!n# happ!ns
%& chanc! )i#hou# in#!n#ion or d!si"n and
)hich is un!$p!c#!d or unor!s!!n.
F6(L!F
- "s "ns!an#e fo! "nde%n"ty fo!
e81enses o! loss o##as"oned by
s"#9ness o! d"seaseO
/ / ? ? > > 6 6 ! ! U U / / F F I I P P
:6IINI!I%N
- An a$!ee%ent ;3e!eby a 1a!ty #alled
t3e s!ety $a!antees t3e
1e!fo!%an#e by anot3e! 1a!ty #alled
t3e principal o! obligor of an
obl"$at"on o! nde!ta9"n$ "n faBo! of
a ,
RD
1a!ty #alled t3e obl"$ee 5se#t"on
1CA0O
In#ldes G off"#"al !e#o$n"zan#e>s-
bonds o! nde!ta9"n$s "ssed by any
#o%1any nde! a#t no. A,7- as
a%ended by a#t no. 2207 5$oBe!n%ent
t!ansa#t"ons G by at3o!"zed
#o%1an"es0
,F(! I/ !F6 LI(BILI!U %I !F6 /?>6!U
- It "s No"nt and seBe!al 5sol"da!y0 ;"t3
t3e obl"$o! bt l"%"ted to t3e a%ont
of t3e bond and dete!%"ned st!"#tly
by t3e te!%s of t3e #ont!a#t "n
!elat"on to t3e 1!"n#"1al #ont!a#t
bet;een obl"$o! G obl"$ee 5se#t"on
1C70O
I/ ( /?>6!U/FIP C%N!>(C! (LI: (N:
BIN:IN- ,F6>6 !F6 P>6*I?* F(/ N%!
U6! B66N P(I:Q
- Gene!ally- 1ay%ent of t3e 1!e%"% "s
a #ond"t"on 1!e#edent. 4en#e t3e
bond "s not Bal"d. An e8#e1t"on "s
;3en "t "s "ssed and a##e1ted by t3e
obl"$o!- "t "s Bal"d des1"te non
1ay%ent of t3e 1!e%"% 5'e#t"on
1CC0O
,F(! %!F6> L(,/ -%6>N (
/?>6!U/FIP C%N!>(C!Q
- In t3e absen#e of s1e#"f"# 1!oB"s"ons-
#"B"l #ode 1!oB"s"ons a11ly "n a
s11leto!y #3a!a#te! "f ne#essa!y to
"nte!1!et t3e #ont!a#t 1!oB"s"ons
5'e#t"on 1CH0O
:I/!IN-?I/F6: ,I!F -?(>(N!U
510 A s!ety ass%es l"ab"l"ty as a !e$la!
1a!ty to t3e a$!ee%ent- a $a!anto!>s
l"ab"l"ty de1ends on an "nde1endent
a$!ee%ent to 1ay "f 1!"%a!y debto!
fa"ls to 1ayO
520 A s!ety "s 1!"%a!"ly l"able- a
$a!anto! "s se#onda!"ly l"ableO
5,0 A s!ety "s not ent"tled to e83ast"on-
a $a!anto! "s ent"tled to e83ast"onO
N%N8N6C6//I!U %I ( :6*(N: %N !F6
/?>6!U H :eman# on t0e suret. is not necessar.
be$ore bringing t0e suit against t0em. %n t0is point@
it ma. be wort0 mentioning t0at a suret. is not e&en
entitle#@ as a matter o$ rig0t@ to be gi&en notice o$ t0e
principal<s #e$ault. (Intra8/trata (ssurance
Corporation@ 6t (l. &. >epublic o$ t0e P0ilippines@
6tc.@ 3ul. )@ 2008 -.>. No. "565'")
RE)(&LIC &s. CA and R M & '(RET+ AND
IN'(RANCE COM)AN+- INC. 5G.R. No.
10,0C, Ma!#3 1,- 20010
%urety of %ureties: Liability of: @oint and several
#ith the obligor: Limited to the total amount of the
bond- ;/ection "'6 o$ t0e Insurance Co#e pro&i#es=
O/6C!I%N "'6. !0e liabilit. o$ t0e suret.
o$ sureties s0all be 9oint an# se&eral wit0 t0e
obligor an# s0all be limite# to t0e amount o$
t0e bon#. It is #etermine# strictl. b. t0e
terms o$ t0e contract o$ suret.s0ip in
relation to t0e principal contract between t0e
obligor an# t0e obligee@ (as amen#e# b.
P.:. No. "155).O
L L I I I I 6 6 I I N N / / ? ? > > ( ( N N C C 6 6
:6IINI!I%N
- Is "ns!an#e on 3%an l"Bes and
"ns!an#e a11e!ta"n"n$ t3e!eto o!
#onne#ted t3e!e;"t3 5se#t"on 1C/0O
,F6N I/ I! P(U(BL6
:ean >e.nal#o ?. (granCamen#eC Page /0 o$ 177
COMMERCIAL LAW
- An "ns!an#e 1on l"fe %ay be %ade
1ayable 1on*
5a0 deat3 of t3e 1e!sonO o!
5b0 3"s s!B"B"n$ a s1e#"f"ed 1e!"odO
o!
5#0 ot3e!;"se- #ont"n$ently on t3e
#ont"nan#e o! #essat"on of l"feO
C%**%N AIN:/
,F%L6 LII6+%>:IN(>U LII6+/!>(I-F!
LII6
- 1!e%"%s a!e 1ayable fo! l"fe and t3e
"ns!e! a$!ees to 1ay t3e fa#e Bale
1on t3e deat3 of t3e "ns!edO
LI*I!6: P(U*6N! LII6
- "ns!ed 1ays 1!e%"%s fo! a l"%"ted
1e!"od afte! ;3"#3 3e sto1s ;"t3 a
$a!antee by t3e "ns!e! t3at 1on
deat3 t3e fa#e a%ont "s to be 1a"d G
"f deat3 o##!s ;3"le 1ay%ent "s not
#o%1lete G benef"#"a!y a#ts fa#e
a%ontO
!6>* P%LICU
- "ns!e! "s l"able only 1on deat3 of
t3e "ns!ed ;"t3"n t3e a$!eed te!% o!
1e!"od. If "ns!ed s!B"Bes t3e "ns!e!
"s not l"ableO
6N:%,*6N!
- 1!ote#t"on "s fo! a l"%"ted 1e!"od- "f
t3e "ns!ed "s st"ll al"Be at t3e end of
t3e 1e!"od- t3e Bale of t3e 1ol"#y "s
1a"d to 3"%. If 3e d"es befo!e t3e end
1e!"od- "t "s 1a"d to t3e benef"#"a!"esO
(NN?I!U
- ;3e!e t3e "ns!ed o! a na%ed
1e!son<s "s 1a"d a s% o! s%s
1e!"od"#ally d!"n$ l"fe o! a #e!ta"n
1e!"od 5note t3at #ont!a#ts fo! t3e
1ay%ent of endo;%ent o! ann"t"es
a!e #ons"de!ed as l"fe "ns!an#e
#ont!a#ts0O
:I/!IN-?I/FIN- LII6 IN/?>(NC6 I>%*
P(U*6N! %I (NN?I!U
510 In li$e insurance@ "t "s 1ayable 1on t3e
deat3 of t3e "ns!ed- ;3"le "n annuit.-
"t "s 1ayable d!"n$ t3e l"fet"%e of t3e
ann"tantO
520 In li$e insurance@ t3e 1!e%"% "s 1a"d
"n "nstall%ents- ;3"le "n annuit.@
ann"tant 1ays a s"n$le 1!e%"%O
5,0 In li$e insurance@ t3e!e "s l%1 s%
1ay%ent 1on deat3- ;3"le "n annuit.@
ann"t"es a!e 1a"d nt"l deat3O
,F(! >I/A/ (>6 C%6>6:Q
510 Gene!ally 6 all #ases of deat3 a!e
#oBe!ed nless e8#lded by la;- by
1ol"#y o! 1bl"# 1ol"#y.
67amples=
a. B. law G benef"#"a!y "s t3e
1!"n#"1al- a##o%1l"#e o! a##esso!y
"n b!"n$"n$ deat3 of t3e "ns!edO
b. B. polic. G ;3en "t does not #oBe!
assalt- %!de! o! "nN!"es
"nfl"#ted "ntent"onally by a ,
RD
1e!son bt ;3e!e t3e "ns!ed "s
not t3e "ntended B"#t"%- "ns!e! "s
l"able 5Calano# Bs. CA- /H )3"l
C/0. W3at %st be #ons"de!ed "s
t3at deat3 o! "nN!y "s not t3e
nat!al o! 1!obable !eslt of t3e
"ns!ed>s Bolnta!y a#t 52"n%an
Gene!al Ass!an#e Co!1o!at"on
Bs. CA- 21, 'CRA ?/,0 as
o11osed to an a#t of t3e "ns!ed to
#onf!ont b!$la!s 5&ala$tan Bs.
Insla! L"fe Ass!an#e Co%1any-
?? 'CRA AH0.
#. B. public polic. G ;3en t3e
"ns!ed "s e8e#ted fo! a #!"%e
#o%%"ttedO
520 '"#"de- "f #o%%"tted afte! t3e 1ol"#y
3as been "n fo!#e fo! a 1e!"od of t;o
yea!s f!o% date of "sse o! last
!e"nstate%ent nless 1ol"#y 1!oB"des a
s3o!te! 1e!"od bt "t "s neBe!t3eless
#o%1ensable "f #o%%"tted "n t3e state
of "nsan"ty !e$a!dless of date of
#o%%"ss"on 5'e#t"on 1H06A0
I/ ( LII6 IN/?>(NC6 P%LICU
!>(N/I6>(BL6 %> (//I-N(BL6Q
- +es- "t %ay 1ass by t!ansfe!- ;"ll o!
s##ess"on to any 1e!son- ;3et3e! 3e
3as "ns!able "nte!est o! not. 5'e#t"on
1H10O
- Effe#t- t3e 1e!son to ;3o% "t "s
t!ansfe!!ed %ay !e#oBe! 1on "t
COMMERCIAL LAW
;3ateBe! t3e "ns!ed %"$3t 3aBe
!e#oBe!edO
Note ;3"le t3e!e "s no need fo! t3e
ass"$nee<t!ansfe!ee to 3aBe "ns!able
"nte!est- "t s3old not be sed to
#"!#%Bent t3e la; 1!o3"b"t"n$
"ns!an#e ;"t3ot "ns!able "nte!est.
T3s- an ass"$n%ent contemporaneous
wit0 issuance %ay "nBal"date t3e
1ol"#y nless %ade "n $ood fa"t3O
I/ N%!IC6 !% !F6 IN/?>6> %> !>(N/I6>
%> B6B?6/! >6B?I>6:Q
- It "s not ne#essa!y to 1!ese!Be t3e
Bal"d"ty of t3e 1ol"#y nless t3e!eby
e81!essly !e="!ed 5'e#t"on 1H10O
I/ !F6 C%N/6N! %I !F6 B6N6IICI(>U
>6B?I>6:Q
- +es- "f 3e des"$nated as an "!!eBo#able
benef"#"a!y as 3e 3as a#="!ed a
Bested !"$3tO
,F(! I/ !F6 *6(/?>6 %I IN:6*NI!U IN
LII6 IN/?>(NC6Q
- (nless t3e "nte!est of a 1e!son "ns!ed
"s ss#e1t"ble of 1e#n"a!y est"%at"on-
t3e a%ont stated o! s1e#"f"ed "n t3e
1ol"#y "s t3e %eas!e of "nde%n"ty
5se#t"on 1H,0. 4en#e a l"fe "ns!an#e
1ol"#y 3as been 3eld to be a Baled
1ol"#yO
B B ? ? / / I I N N 6 6 / / / / I I N N / / ? ? > > ( ( N N C C 6 6
%>-(NIY(!I%N@ C(PI!(LIY(!I%N (N:
(?!F%>IY(!I%N
>6B?I>6*6N!/ I%> ( C6>!IIIC(!6 %I
(?!F%>I!U I>%* !F6 IN/?>(NC6
C%**I//I%N
5a0 Ial"f"ed by )3"l"11"nes La;s to t!ansa#t
"ns!an#e bs"nessO
5b0 4as a na%e t3at "s not "n any;ay s"%"la!
to anot3e! #o%1anyO
5#0 If o!$an"zed as a sto#9 #o!1o!at"on- "t
s3old 3aBe a 1a"d 1 #a1"tal of no less
t3at )31A-000-000.00O
5d0 If "t "s o!$an"zed as a %tal #o%1any 5one
;3ose #a1"tal fnds a!e not #ont!"bted by
sto#93olde!s bt by 1ol"#y 3olde!s0 "t %st
3aBe aBa"lable #as3 assets of at least
)31A-000-000.00 aboBe all l"ab"l"t"es fo!
losses !e1o!ted- e81enses- ta8es- le$al
!ese!Bes of all otstand"n$ !"s9s- and t3e
#ont!"bted s!1ls fnd e=al to t3e
a%onts !e="!ed of sto#9 #o!1o!at"ons
5)311-000-000.00 "f a l"fe "ns!an#e
#o%1any o! )31A00-000.00- "f a non l"fe
"ns!an#e #o%1any0.
5e0 If a fo!e"$n "ns!an#e #o%1any- "t %st
a11o"nt a !es"dent a$ent- de1os"t se#!"t"es
and %a"nta"n a le$al !ese!Be 5'e#t"on 1H?6
1/,0O
*(>-IN %I /%L6NCU
- T3e %a!$"n of solBen#y "s t3e e8#ess of t3e
Bale of "ns!an#e #o%1any>s ad%"tted
assets e8#ls"Be of "ts 1a"d 1 #a1"tal. In
#ase of a do%est"# "ns!an#e #o%1any and
t3e e8#ess of t3e Bale of "ts ad%"tted
assets "n t3e )3"l"11"nes e8#ls"Be of
se#!"ty de1os"ts oBe! t3e a%ont of "ts
l"ab"l"t"es- nea!ned 1!e%"%s- and
!e"ns!an#e !ese!Bes "n t3e )3"l"11"nes
5'e#t"on 1/?0O
- T3e !e="!ed %a!$"n "s "n #ase of l"fe
"ns!an#e #o%1an"es "s t;o 1e!#ent 52P0
of t3e total a%ont of "ts "ns!an#e "n fo!#e
as of t3e 1!e#ed"n$ #alenda! yea! on all
1ol"#"es e8#e1t te!% "ns!an#e and "n #ase
of non l"fe "ns!an#e #o%1an"es- at least
ten 1e!#ent 510P0 of total a%ont of "ts
net 1!e%"% d!"n$ t3e 1!e#ed"n$
#alenda! yea! bt "n no #ase to be less t3an
)31A00-000.00. If not %et- t3e "ns!an#e
#o%1any "s 5a0 not 1e!%"ted to ta9e on any
!"s9 and no d"B"dends #an be de#la!ed
5se#t"on 1/A0.
C C % % * * P P ? ? L L / / % % > > U U * * % % ! ! % % > > 6 6 F F I I C C L L
6 6
L L I I ( ( B B I I L L I I ! ! U U I I N N / / ? ? > > ( ( N N C C 6 6
C%NC6P! %I C%*P?L/%>U *%!%>
6FICL6 LI(BILI!U IN/?>(NC6
It "s to 1!oB"de 1!ote#t"on o! #oBe!a$e to
ans;e! fo! bod"ly "nN!y o! 1!o1e!ty da%a$e t3at
%ay be ssta"ned by anot3e! a!"s"n$ f!o% t3e se
of %oto! Be3"#le. )lease note t3o$3 t3at ;3at "s
no; #o%1lso!y "s deat3 of bod"ly "nN!y a!"s"n$
f!o% %oto! Be3"#le a##"dents as 1e! a%end%ent
to t3e "ns!an#e #ode by )D 1H1? and )D 1?AA
b!o$3t abot by "ns!an#e losses de to 1added
#la"%s fo! 1!o1e!ty da%a$e. 4en#e- 1!o1e!ty
da%a$e "s no; o1t"onalO
F%, I/ I!/ C%*P?L/%>U N(!?>6
6NI%>C6:Q
-T3e #o%1lso!y nat!e of t3e "ns!an#e "s
enfo!#ed by 1!es#!"b"n$ t3at any land
t!ans1o!tat"on o1e!ato! 5o;ne!<s o! %oto!
Be3"#les fo! t!ans1o!tat"on of 1assen$e!s
fo! #o%1ensat"on- "n#ld"n$ s#3ool bses0
COMMERCIAL LAW
o! o;ne! of a %oto! Be3"#le 5a#tal le$al
o;ne! of a %oto! Be3"#le "n ;3ose na%e
t3e Be3"#le "s !e$"ste!ed ;"t3 t3e LTO0
;old be #ons"de!ed as nla;flly
o1e!at"n$ a %oto! Be3"#le 5"s any Be3"#le as
def"ned "n 'e#t"on 5,0 RA ?1,7 ;3"#3 "s
1!o1elled by any 1o;e! ot3e! t3an
%s#la! 1o;e! s"n$ 1bl"# 3"$3 ;ays
;"t3 e8#e1t"ons*
5a0 !oad !olle!s- 3olley #a!s- st!eet
s;ee1e!s- s1!"n9les- la;n %oBe!s-
blldoze!s- $!ade!s- fo!9l"fts-
a%13"b"an t!#9s o! #!anes not
sed on 1bl"# 3"$3;aysO
5b0 T3ose t3at !n on !a"ls o! t!#9sO
5#0 T!a#to!- t!a"le!s 5;3en 1!o1elled o!
"ntended to be 1!o1elled by an
atta#3%ent to a %oto! Be3"#le "s
#lass"f"ed as a %oto! Be3"#le ;"t3ot
1o;e! !at"n$0- t!a#t"on en$"nes of
all 9"nds sed e8#ls"Bely fo!
a$!"#lt!al 1!1oses0 (nless t3e!e
"s*
510 1ol"#y of "ns!an#e 5#ont!a#t of
"ns!an#e a$a"nst 1assen$e! o!
,
RD
1a!ty l"ab"l"ty fo! deat3 o!
body "nN!y a!"s"n$ f!o% %oto!
Be3"#le a##"dents0O o!
520 $a!anty "n #as3O o!
s!ety bond
Co%1l"an#e by t3e %oto! Be3"#le o;ne! o! t3e
land t!ans1o!tat"on o1e!ato! "s %on"to!ed as t3e
Land T!ans1o!tat"on Off"#e s3all not allo;
!e$"st!at"on o! !ene;al of !e$"st!at"on ;"t3ot
#o%1l"an#e ;"t3 se#t"on ,C? 5se#t"on ,C70O
:I/!IN-?I/F6: I>%* %,N :(*(-6
C%6>(-6 (N: C%*P>6F6N/I6 *%!%>
6FICL6 IN/?>(NC6
5a0 T3"!d 1a!ty l"ab"l"ty ans;e!s fo!
l"ab"l"t"es a!"s"n$ f!o% deat3 o! bod"ly
"nN!y to ,
RD
1e!sons o! 1assen$e!sO
5b0 O;n da%a$e "ns!an#e ans;e!s fo!
!e"%b!se%ent of t3e #ost of
!e1a"!"n$ t3e da%a$e to Be3"#le of t3e
"ns!edO
5#0 Co%1!e3ens"Be "ns!an#e ans;e!s fo!
all l"ab"l"t"es<da%a$es a!"s"n$ f!o% t3e
se<o1e!at"on of a %oto! Be3"#le "t
"n#ldes t3"!d 1a!ty o;n da%a$e-
t3eft and 1!o1e!ty da%a$eO
,F6N :%6/ !F6 LI(BILI!U %I !F6
IN/?>6> (CC>?6Q
- "n an "ns!an#e 1ol"#y t3at d"!e#tly
"ns!es a$a"nst l"ab"l"ty- t3e "ns!e!s
l"ab"l"ty a##!es "%%ed"ately 1on t3e
o##!!en#e of t3e "nN!y 1on ;3"#3
l"ab"l"ty de1ends- and does not de1end
on t3e !e#oBe!y of Nd$%ent by t3e
"nN!ed 1a!ty a$a"nst t3e "ns!ed.
4en#e- t3e!e "s no need fo! t3e
"ns!ed to ;a"t fo! a de#"s"on of t3e
#o!t f"nd"n$ 3"% $"lty of !e#9less
"%1!den#e. T3e o##!!en#e of an
"nN!y fo! ;3"#3 t3e "ns!ed %ay be
l"able "%%ed"ately $"Bes !"se to
"ns!e! l"ab"l"ty 5'3afe! Bs. .d$e- 17C
'CRA ,H70. In fa#t a t3"!d 1a!ty #an
b!"n$ a #la"% o! an a#t"on d"!e#tly
a$a"nst t3e "ns!e! as t3e $ene!al
1!1ose of t3e statte "s to 1!ote#t t3e
"nN!ed a$a"nst t3e "nsolBen#y of t3e
"ns!edO
N(!?>6 %I !F6 LI(BILI!U %I !F6 IN/?>6>
- It "s not sol"da!y ;"t3 t3e "ns!ed. T3e
l"ab"l"ty of t3e "ns!e! "s based on
#ont!a#t- ;3"le t3at of t3e "ns!ed "s
based on to!t. 5Malayan Ins!an#e Bs.
CA- 17A 'CRA A,70O
,F% C(N I//?6 P%LICU %> /?>6!U B%N:Q
- T3ose at3o!"zed by t3e
#o%%"ss"one! "n t3e l"st f!n"s3ed to
t3e Land T!ans1o!tat"on Off"#e
5'e#t"on ,CA0. If t3e Moto! @e3"#le
O;ne! o! t3e Land T!ans1o!tat"on
O1e!ato! "s nable to obta"n o! "s
n!easonably den"ed t3e 1ol"#y of
"ns!an#e- t3ey ;"ll be !e="!ed to
s3o; 1!oof of a #as3 de1os"t ;"t3 t3e
#o%%"ss"one!- bt t3e at3o!"ty of t3e
"ns!an#e #o%1any to en$a$e "n
#asalty o! s!ety l"nes of bs"ness
s3all be ;"t3d!a;n "%%ed"ately
5se#t"on ,C/0O
C(NC6LL(!I%N %I !F6 P%LICU
5a0 B. t0e insurer H !e="!es ;!"tten
not"#e to %oto! Be3"#le o;ne!<land
t!ans1o!tat"on o1e!ato! at least 1A
days 1!"o! to "ntended effe#t"Be date.
If so #an#eled- t3e Land
T!ans1o!tat"on Off"#e %ay o!de! t3e
"%%ed"ate #onf"s#at"on of l"#ense
1lates nless "t !e#e"Bes a ne; Bal"d
"ns!an#e<s!ety<1!oof of #as3 de1os"t
o! !eB"Bal by endo!se%ent of t3e
#an#elled 1ol"#y 5'e#t"on 1,00O
5b0 B. t0e insure# H t3e %oto! Be3"#le
o;ne!<land t!ans1o!tat"on o1e!ato!
s3all se#!e a s"%"la! 1ol"#y o! s!ety
befo!e t3e #an#elled 1ol"#y<s!ety
#eases to be effe#t"Be o! %a9e a #as3
de1os"t and f"le t3e sa%e o! 1!oof
t3e!eof ;"t3 t3e Land T!ans1o!tat"on
Off"#e 5'e#t"on ,H10O
:ean >e.nal#o ?. (granCamen#eC Page /, o$ 177
COMMERCIAL LAW
6II6C! %I CF(N-6 IN %,N6>/FIP %>
CF(N-6 IN 6N-IN6
T3e!e "s no need to "sse a ne; 1ol"#y
nt"l t3e ne8t date of !e$"st!at"on 1!oB"ded t3e
"ns!e! s3all a$!ee to #ont"ne t3e 1ol"#y and
s#3 #3an$e s3all be "nd"#ated "n a se#ond
d1l"#ate ;3"#3 "s f"led t3e Land T!ans1o!tat"on
Off"#eO
%!F6> P>%FIBI!6: (C!/
510 T3e %oto! Be3"#le o;ne! o! t3e Land
T!ans1o!tat"on O1e!ato! #annot
!e="!e d!"Be!<s<e%1loyees to
#ont!"bte to t3e 1ay%ent of t3e
1!e%"% 5se#t"on ,HA0O
520 Any $oBe!n%ent off"#e o! a$en#y
3aB"n$ t3e dty to "%1le%ent t3e
1!oB"s"ons- off"#"al o! e%1loyee
t3e!eof s3all not a#t as an a$ent "n
1!o#!"n$ t3e 1ol"#y o! s!ety bond
and "n no #ase s3all t3e #o%%"ss"on of
t3e 1!o#!"n$ a$ent e8#eed 10P of
t3e 1!e%"%s 1a"d 5se#t"on ,HC0O
P6N(L!I6/ I%> I%L(!I%N
- T3e 1enalt"es fo! a B"olat"on by t3e
Moto! @e3"#le O;ne! o! t3e Land
T!ans1o!tat"on O1e!ato! "s a f"ne of
not less t3an )31A00.00 no! %o!e
t3an )311-000.00 and<o!
"%1!"son%ent fo! not %o!e t3an 7
%ont3s. If a Land T!ans1o!tat"on
O1e!ato! B"olates se#t"on ,CC
5%"n"%% l"%"ts of #oBe!a$e0 "t "s
sff"#"ent #ase fo! !eBo#at"on of a
#e!t"f"#ate of 1bl"# #onBen"en#e
5se#t"on ,HH0O
- If t3e B"olat"on "s #o%%"tted by a
#o!1o!at"on<asso#"at"on o!
$oBe!n%ent off"#e<ent"ty- t3e
e8e#t"Be off"#e!<s ;3o s3all 3aBe
9no;"n$ly 1e!%"tted o! fa"led to
1!eBent t3e B"olat"on s3all be 3eld
l"able as 1!"n#"1als 5'e#t"on ,H/0O
P(U*6N! %I CL(I*/
- A #la"% fo! 1ay%ent %st be f"led
;"t3ot any nne#essa!y delay- ;"t3"n
7 %ont3 f!o% t3e date of a##"dent by
$"B"n$ ;!"tten not"#e sett"n$ fo!t3 t3e
nat!e- e8tent and d!at"on of t3e
"nN!"es as #e!t"f"ed by a dly l"#ensed
13ys"#"an 5se#t"on ,H?0O
6II6C! %I I(IL?>6 !% IIL6 CL(I* ,I!FIN
P6>I%:
- T3e fa"l!e to f"le a #la"% ;"ll be
dee%ed a ;a"Be!. If a #la"% "s f"led
bt den"ed- an a#t"on %st be b!o$3t
;"t3"n 1 yea! f!o% date of den"al ;"t3
t3e Ins!an#e Co%%"ss"one! o! t3e
Co!t- ot3e!;"se t3e !"$3t of a#t"on
;"ll be dee%ed as 3aB"n$ 1!es#!"bedO
,F(! /F(LL IN/?>(NC6 C%*P(NU :%
?P%N IILIN- %I !F6 CL(I*Q
- It s3all fo!t3;"t3 as#e!ta"n t3e t!t3
and e8tent of t3e #la"% and %a9e
1ay%ent ;"t3"n A ;o!9"n$ days afte!
!ea#3"n$ an a$!ee%ent. If no
a$!ee%ent "s !ea#3ed- "t %st
neBe!t3eless 1ay t3e no falt
"nde%n"ty 5'e#t"on ,CH0 ;"t3ot
1!eNd"#e to a f!t3e! 1!s"t of t3e
#la% G "n ;3"#3 #ase 3e s3all not be
!e="!ed o! #o%1elled to e8e#te a
="t #la"% o! !elease f!o% l"ab"l"ty.
Note t3o$3 t3at "n #ase of d"s1te as
to enfo!#e%ent of 1ol"#y 1!oB"s"ons-
t3e adNd"#at"on s3all be ;"t3"n t3e
o!"$"nal and e8#ls"Be N!"sd"#t"on of
t3e #o%%"ss"one! sbNe#t to se#t"on
?17- ;3"#3 1!oB"des fo! #on#!!ent
N!"sd"#t"on bt t3e f"l"n$ ;"t3 t3e
"ns!an#e #o%%"ss"one! s3all
1!e#lde f"l"n$ ;"t3 t3e #o!t 5'e#t"on
,HA0O
-
,F(! I/ N% I(?L! IN:6*NI!UQ
- A no falt "nde%n"ty #la"% "s a #la"%
fo! 1ay%ent fo! deat3 o! "nN!y to a
1assen$e! of t3"!d 1a!ty ;"t3ot
necessit. o$ pro&ing $ault or negligence.
T3"s "s 1ayable by t3e "ns!e!
1!oB"ded*
5a0 "nde%n"ty "n !es1e#t of one
1e!son s3all not e8#eed
)31A-000.00O
5b0 t3e ne#essa!y 1!oof of loss
nde! oat3 to sbstant"ate t3e
#la"% "s sb%"tted- t3ese a!e*
police report of accident and
either the death certificate and
sufficient evidence to establish
the payee or medical report
and evidence of medical or
hospital disbursement in
respect of #hich refund is
made:
(-(IN/! ,F%* I/ !F6 P(U*6N! CL(I*6:
- a #la"% nde! t3e no falt "nde%n"ty
#lase %ay be %ade a$a"nst one
%oto! Be3"#le "ns!e! only as follo;s*
5a0 "n #ase of an o##1ant of a Be3"#le
G a$a"nst t3e "ns!e! of t3e Be3"#le
"n ;3"#3 t3e o##1ant "s !"d"n$-
%ont"n$ o! d"s%ont"n$ f!o%O
:ean >e.nal#o ?. (granCamen#eC Page /? o$ 177
COMMERCIAL LAW
5b0 "n any ot3e! #ase- f!o% t3e
"ns!e! of t3e d"!e#tly offend"n$
Be3"#leO
5#0 "n all #ases- t3e !"$3t of t3e 1a!ty
1ay"n$ t3e #la"% to !e#oBe!
a$a"nst t3e o;ne! of t3e Be3"#le
!es1ons"ble fo! t3e a##"dent s3all
be %a"nta"nedO
IN!6>P>6!(!I%N %I !F6 (?!F%>IY6:
:>I6> CL(?/6
- T3e at3o!"zed d!"Be! #lase "s
"nte!1!eted to !efe! to t3e "ns!ed o!
any 1e!son d!"B"n$ on t3e o!de! of t3e
"ns!ed o! ;"t3 3"s 1e!%"ss"on
1!oB"ded- s#3 1e!son "s 1e!%"tted to
o1e!ate a %oto! Be3"#le "n a##o!dan#e
;"t3 o! l"#ens"n$ la;s o! !e$lat"ons
and ;3o "s not ot3e!;"se d"s=al"f"edO
N%!6 !F6 I%LL%,IN- 3?>I/P>?:6NC6
510 If l"#ense "s e81"!ed- 1e!son "s not
at3o!"zed to o1e!ate a %oto! Be3"#le
5Ta!#o .!. Bs. )3"l Ga!anty- 1A
'CRA ,1,0O
520 Issed a te%1o!a!y o1e!ato!s 1e!%"t
o! a te%1o!a!y Be3"#le !e#e"1t- a
1e!son "s at3o!"zed to o1e!ate a
%oto! Be3"#le- bt "f "t 3as e81"!ed- "t
"s as "f 3e 3as no l"#ense 5G"te!ez Bs.
Ca1"tal Ins!an#e- 1,0 'CRA 71H-
)EQA Bs. Al"91ala- 170 'CRA ,10O
5,0 A to!"st ;"t3 l"#ense bt "n t3e
#ont!y fo! %o!e t3an /0 days- "s not
at3o!"zed to o1e!ate a %oto! Be3"#le
be#ase "t "s as "f 3e 3as no l"#ense
5't!o9es Bs. Malayan- 12C 'CRA
C770O
5?0 A d!"Be!s l"#ense t3at bea!s all t3e
ea!%a!9s of a dly "ssed l"#ense "s
1!es%ed $en"neO
5A0 A l"#ense "s not ne#essa!y- ;3e!e t3e
"ns!ed 3"%self "s t3e d!"Be! 5)ate!no
Bs. )y!a%"d Ins!an#e- 171 'CRA
7CC- 1/H7 &AR0
COM)(L'OR+ MOTOR @E4ICLE
LIA&ILIT+ IN'(RANCE5T3"!d)a!tyL"ab"l"ty
Ins!an#e0
!0e purpose o$ t0is 5in# o$ insurance is to
in#emni$. t0e #eat0 or in9ur. o$ a t0ir# person or
passenger $rom t0e use o$ t0e motor &e0icle. !0e
in9ure# part. can sue imme#iatel. an# #irectl. t0e
insurance compan.. !0is will protect t0e in9ure#
person against t0e insol&enc. o$ t0e insure#. It
allows t0e passenger to reco&er $rom t0e insurer o$
t0e &e0icle w0ere 0e was ri#ing.
'==7 <AR EEA8
PR5<LE8
".,0ile #ri&ing 0is car@ V si#eswipe# (
causing in9uries to t0e latter. ( sue# V an# t0e t0ir#
part. liabilit. insurer $or t0e #amage sustaine# b. (.
2. !0e insurance compan. mo&e# to #ismiss
t0e complaint conten#ing t0at t0eliabilit. o$ V 0as
not .et been #etermine# wit0 $inalit..
Is t0e contention o$ t0e insurance compan.
correctQ *a. t0e insurer be 0el# soli#aril. liable
wit0 V
A$%AER:
No. ,0en an insurance polic. insures
#irectl. against liabilit.@ t0e insurer<s liabilit.
accrues imme#iatel. upon t0e occurrence o$ t0e
in9ur..
No. !0e insurer cannot be 0el# soli#aril.
liable wit0 V because its liabilit. is base# on a
contract w0ile t0at o$ V is base# on torts. (#a. :e
*aglana &s. Consolacion@ (ugust 6@ "))2)
?>A- >E 8AGLA$A ?%-
!5$%5LA!*5$
'C R(LING*
,0ere an insurance polic. insures #irectl.
against liabilit.@ t0e insurer<s liabilit. accrues
imme#iatel. upon t0e occurrence o$ t0e in9ur. or
e&en upon w0ic0 t0e liabilit. #epen#s@ an# #oes not
#epen# upon t0e reco&er. o$ 9u#gment b. t0e
insure# part. against t0e insure#. !0e un#erl.ing
reason be0in# t0e t0ir# part. liabilit. o$ t0e
Compulsor. *otor e0icle Liabilit. Insurance is to
protect t0e in9ure# person against t0e insol&enc. o$
t0e insure# w0o causes suc0 in9ur.@ an# to gi&e suc0
in9ure# person a certain bene$icial interest in t0e
procee#s o$ t0e polic.. Fowe&er@ t0e #irect liabilit.
o$ t0e insurer un#er t0e in#emnit. contracts against
t0ir# part. liabilit. #oes not mean t0at t0e insurer
can be 0el# soli#aril. liable wit0 t0e insure# an#+or
t0e ot0er parties $oun# at $ault. !0e liabilit. o$ t0e
insurer is base# on contract an# t0e liabilit. o$ t0e
insure# is base# on tort. I$ t0e insurer was
to be 0el# soli#aril. liable wit0 t0e insure# un#er t0e
in#emnit. contract against t0ir# part. liabilit.@ t0en
t0is woul# &iolate t0e principles un#erl.ing soli#ar.
obligation an# insurance contracts. In $ine@ t0e court
conclu#es t0at t0e liabilit. o$ (II/C% base# on t0e
insurance contract is #irect@ but not soli#ar. wit0
t0at o$ :estra9o w0ic0 is base# on (rticle
2"80 o$ t0e Ci&il Co#e. (s suc0@ petitioners 0a&e
t0e option eit0er to claim t0e "5@ 000 $rom
(II/C% @ t0e P 5@000 0a# alrea#. been pai# un#er
t0e no8$ault clause@ an# t0e balance $rom
:estra9o or en$orce t0e entire 9u#gment $rom
:estra9o sub9ect to reimbursement $rom
(II/C% to t0e e7tent o$ t0e insurance co&erage.
:ean >e.nal#o ?. (granCamen#eC Page /A o$ 177
COMMERCIAL LAW
.-!58PRE3E$%*?E 85"5R ?E3*!LE
*$%4RA$!E ( '==( C .999 <ar Exam0
!0e liabilit. o$ t0e insurance compan. s
#irect an# soli#ar. wit0 t0e operator but onl. up to
t0e amount state# in t0e polic. an# accrues
imme#iatel. upon t0e occurrence o$ t0e acci#ent.
(n. amount awar#e# be.on# t0e amount state# in
t0e polic. is t0e sole responsibilit. o$ t0e carrier.
PERLA !58PA$*A >E %EG4R5%, *$!- ?%-
!54R" 5 APPEAL%
.9& %!RA /&) ('==.0
'C R(LING*
,0ere a car is a#mitte#l.@ as in t0is case@
unlaw$ull. an# wrong$ull. ta5en wit0out t0e
owner<s consent or 5nowle#ge@ suc0 ta5ing
constitutes t0e$t@ an# t0ere$ore it is t0e Lt0e$t
clauseM an# not t0e Laut0oriCe# #ri&er clause
t0at s0oul# appl.. Clearl.@ t0e ris5 against
acci#ent is #istinct $rom t0e ris5 against t0e$t. !0e
Laut0oriCe# #ri&erM clause in a t.pical insurance
polic. is in contemplation or anticipation o$ acci#ent
in t0e legal sense in w0ic0 it s0oul# be un#erstoo#@
an# not in contemplation or anticipation o$ an e&ent
suc0 as t0e$t. In t0e present case t0e loss o$ t0e
insure# &e0icle #i# not result $rom acci#ent w0ere
intent was in&ol&e#D t0e loss was cause# b.
t0e$t@ t0e commission o$ w0ic0 was atten#e# b.
intent. It is wort0. to note t0at t0ere is no casual
connection between t0e possession o$ a &ali#
#ri&er<s license an# t0e loss o$ t0e &e0icle. !o rule
ot0erwise woul# ren#er car insurance practicall. a
s0am since t0e insurance compan. can easil. escape
liabilit. b. citing restrictions w0ic0 are not
applicable or germane to t0e claim@ t0ereb. re#ucing
in#emnit. to a s0a#ow.
(- A4"35R*FE> >R*?ER R4LE ('=='
<ar Exams0
Ior purposes o$ reco&er.@ t0e #ri&er o$ t0e
&e0icle must be in possession o$ a &ali#@ subsisting
an# pro$essional #ri&er<s license. But t0is rule will
not appl. i$ t0e one #ri&ing t0e &e0icle at t0e
time o$ t0e acci#ent was t0e owner o$ t0e &e0icle.
(Palermo &. P.rami#s Ins.@ "6" /C>( 6'')
PALER85 ?- PGRA8*>% *$%4RA$!E !5-,
*$!-,
8AG (', '=&&
'C R(LING*
/ince t0e #ri&er o$ t0e insure# motor &e0icle
at t0e time o$ t0e acci#ent was t0e insure#
0imsel$@ 0e was an Maut0oriCe# #ri&erM un#er t0e
polic.. (n. in$raction o$ t0e *otor e0icle Law
w0ic0 pro0ibits a person $rom operating a motor
&e0icle on t0e 0ig0wa. wit0out a license or wit0 an
e7pire# license@ sub9ects 0im to penal sanctions
un#er t0e *otor e0icle Law but #oes not bar
reco&er. un#er t0e insurance contract. !0e
reEuirement t0at t0e #ri&er be permitte# in
accor#ance wit0 law an# regulations to #ri&e t0e
motor &e0icle an# is not #isEuali$ie# $rom #ri&ing
suc0 &e0icle b. or#er o$ a Court o$ law or b. reason
o$ an. enactment or regulation applies onl. w0en
t0e #ri&er is #ri&ing on t0e insure#<s or#er or
permission@ suc0 as a regular #ri&er@ a $rien#@ a
member o$ t0e $amil.@ or t0e emplo.ee o$ a car
ser&ice or repair s0op. It #oe not appl. w0en t0e
person #ri&ing is t0e insure# 0imsel$.
?. NON62A(LT CLA('E IN COM)(L'OR+
MOTOR @E4ICLE IN'(RANCE
)OLIC+ 52000 &a! E8a%0
Proo$ o$ $ault or negligence is not necessar.
$or t0e pa.ment o$ an. claim $or #eat0 or in9ur. to a
passenger or to a t0ir# part.. !0e ma7imum amount
o$ in#emnit. is P "0@ 000.00 upon submission o$
#eat0 certi$icate@ me#ical certi$icate an# police
report. !0e purpose is in or#er to gi&e imme#iate
assistance to t0e &ictim o$ motor &e0icle acci#ents
an#+or t0e #epen#ents speciall. i$ t0e. are poor@
regar#less o$ t0e $inancial capabilit. o$ t0e owner o$
t0e motor &e0icle or operator responsible $or t0e
acci#ent. !0is #oes not inclu#e propert. #amage.
8 !0e claim is collecte# $rom t0e
insurer o$ t0e &e0icle w0ere t0e claimant is
ri#ing@ mounting or #ismounting. In all
ot0er cases@ t0e claim is against t0e insurer
o$ t0e o$$en#ing &e0icle.
8 !0e insurer w0o pa.s t0e claim
can as5 reimbursement $rom t0e o$$en#ing
&e0icle.
8 !0e reco&er. b. t0e insure# $rom
t0e insurer is #irect an# not #epen#ent on t0e
reco&er. against t0e insurer b. t0e insure#
part..
NECE''IT+ TO REG(LATE IN'(RANCE
COM)ANIE' CO@ERING )(&LIC (TILIT+
@E4ICLE' H !0e present case s0ows a clear public
necessit. to regulate t0e proli$eration o$ suc0
insurance companies. Because o$ t0e P?
operators< complaints@ t0e L!I>B t0us assesse# t0e
situation. It $oun# t0at in or#er to protect t0e
interests o$ t0e ri#ing public an# to resol&e problems
in&ol&ing t0e passenger insurance co&erage o$
P?<s@ it 0a# to issue *emoran#um Circular No.
200"800" accre#iting P(*I an# P(IC II as t0e two
groups allowe# to participate in t0e program.
*emoran#um Circular No. 200"800" reEuire# t0at
IJaKll pu%lic u#ili#& v!hicl!s )hos! ?01 lic!ns!
pla#!, as p!r la#!s# ?01 1icial R!c!ip#, )i#h an
E;E6 middl! num%!r (2, *, /, , and 8) shall %!
insur!d )i#h 3CP5 insuranc! (PA>I) )hil! #hos!
)i#h an 1== middl! num%!r (+, 3, 5, 7 and 9) shall
%! insur!d )i#h (r!a# =om!s#ic Insuranc! (PAIC II)
$ $ $ .L
COMMERCIAL LAW
It s0oul# be stresse# t0at P?<s@ as common
carriers@ are engage# in a business a$$ecte# wit0
public interest. ?n#er (rticle "'56 o$ t0e Ci&il
Co#e@ in cases o$ #eat0 or in9uries to passengers@
common carriers are presume# to be at $ault an# are
reEuire# to compensate t0e &ictims@ unless t0e.
obser&e# e7traor#inar. #iligence. !o assure t0is
compensation@ P?<s are reEuire# to obtain
insurance policies. (6astern (ssurance an# /uret.
Corporation ReascoS &. Lan# !ransportation
Iranc0ising an# >egulator. Boar#@ %ct. '@ 2004
-.>. No. "1)'"')
%!F6> P>%I/I%N/
".C0apter II H *utual Bene$it (ssociations
5'e#t"on ,/0. Any so#"ety- asso#"at"on o!
#o!1o!at"on- ;"t3ot #a1"tal sto#9- fo!%ed o!
o!$an"zed not fo! 1!of"t bt %a"nly fo! t3e
1!1ose of 1ay"n$ s"#9 benef"ts to %e%be!s- o! of
f!n"s3"n$ f"nan#"al s11o!t to %e%be!s ;3"le
ot of e%1loy%ent- o! of 1ay"n$ to !elat"Bes of
de#eased %e%be!s of f"8ed o! any s% of %oney-
"!!es1e#t"Be of ;3et3e! s#3 a"% o! 1!1ose "s
#a!!"ed ot by %eans of f"8ed des o! assess%ents
#olle#ted !e$la!ly f!o% t3e %e%be!s- o! of
1!oB"d"n$- by t3e "ssan#e of #e!t"f"#ates of
"ns!an#e- 1ay%ent of "ts %e%be!s of a##"dent o!
l"fe "ns!an#e benef"ts ot of s#3 f"8ed and
!e$la! des o! assess%ents- bt "n no #ase s3all
"n#lde any so#"ety- asso#"at"on- o! #o!1o!at"on
;"t3 s#3 %tal benef"t feat!es and ;3"#3 s3all
be #a!!"ed ot 1!ely f!o% Bolnta!y
#ont!"bt"ons #olle#ted not !e$la!ly and o! no
f"8ed a%ont f!o% ;3o%soeBe! %ay #ont!"bte-
s3all be 9no;n as a %tal benef"t asso#"at"on
;"t3"n t3e "ntent of t3"s Code. Any so#"ety-
asso#"at"on- o! #o!1o!at"on 1!"n#"1ally o!$an"zed
as labo! n"on s3all be $oBe!ned by t3e Labo!
Code not;"t3stand"n$ any %tal benef"t feat!e
1!oB"s"ons "n "ts #3a!te! as "n#"dent to "ts
o!$an"zat"on.0 and t!st fo! #3a!"table
"nst"tt"ons 5'e#. ?10. T3e te!% Kt!st fo!
#3a!"table sesK- ;"t3"n t3e "ntent of t3"s Code-
s3all "n#lde- all t3e !eal o! 1e!sonal 1!o1e!t"es
o! fnds- as ;ell as t3ose a#="!ed ;"t3 t3e f!"ts
o! "n#o%e t3e!ef!o% o! "n e8#3an$e o!
sbst"tt"on t3e!eof- $"Ben to o! !e#e"Bed by any
1e!son- #o!1o!at"on- asso#"at"on- fondat"on- o!
ent"ty- e8#e1t t3e Nat"onal GoBe!n%ent- "t
"nst!%ental"t"es o! 1ol"t"#al sbd"B"s"ons- fo!
#3a!"table- beneBolent- ed#at"onal- 1"os-
!el"$"os- o! ot3e! ses fo! t3e benef"t of t3e
1bl"# at la!$e o! a 1a!t"#la! 1o!t"on t3e!eof o!
fo! t3e benef"t of an "ndef"n"te n%be! of
1e!sons.0 5'e#t"ons ,/7 to ?1,0O
2.C0apter III H Insurance Commissioner
5'e#t"on ?1? G Ad%"n"st!at"Be 2n#t"ons- 'e#t"on
?1A G )o;e! to "%1ose f"nes<ss1ens"ons G 'e#t"on
?1A- AdNd"#ato!y )o;e!s G Note* "t "s #on#!!ent
;"t3 #o!ts bt t3e f"l"n$ ;"t3 t3e #o%%"ss"one!
s3all 1!e#lde #"B"l #o!ts f!o% ta9"n$ #o$n"zan#e
of a s"t oBe! t3e sa%e sbNe#t %atte!. De#"s"ons
a!e a11ealable to t3e CA ;"t3"n ,0 days by not"#e
of a11eal 5'e#t"on ?170O
W4ITE GOLD MARINE 'ER@ICE'-
INC.- vs. )IONEER IN'(RANCE AND
'(RET+ COR)ORATION AND T4E
'TEAM'4I) M(T(AL (NDERWRITING
A''OCIATION 5&ERM(DA0 LTD.- . TG.R. No.
1A?A1?. .ly 2H- 200AU
>elate#l.@ a mutual insurance compan. is a
cooperati&e enterprise w0ere t0e members are bot0
t0e insurer an# insure#. In it@ t0e members all
contribute@ b. a s.stem o$ premiums or assessments@
to t0e creation o$ a $un# $rom w0ic0 all losses an#
liabilities are pai#@ an# w0ere t0e pro$its are #i&i#e#
among t0emsel&es@ in proportion to t0eir interest.
R"'S
(##itionall.@ mutual insurance associations@ or
clubs@ pro&i#e t0ree t.pes o$ co&erage@ namel.@
protection an# in#emnit.@ war ris5s@ an# #e$ense
costs. ( P N I Club is La fo!% of "ns!an#e against
t0ir# part. liabilit.@ w0ere t0e t0ir# part. is an.one
ot0er t0an t0e P N I Club an# t0e members. B.
#e$inition t0en@ /teams0ip *utual as a P N I Club is
a mutual insurance association engage# in t0e
marine insurance business.
!0e recor#s re&eal /teams0ip *utual is
#oing business in t0e countr. albeit wit0out t0e
reEuisite certi$icate o$ aut0orit. man#ate# b.
/ection "8'
R20S
o$ t0e Insurance Co#e. It maintains a
resi#ent agent in t0e P0ilippines to solicit insurance
an# to collect pa.ments in its be0al$. ,e note t0at
/teams0ip *utual e&en renewe# its P N I Club
co&er until it was cancelle# #ue to non8pa.ment o$
t0e calls. !0us@ to continue #oing business 0ere@
/teams0ip *utual or t0roug0 its agent Pioneer@ must
secure a license $rom t0e Insurance Commission.
/ince a contract o$ insurance in&ol&es public
interest@ regulation b. t0e /tate is necessar.. !0us@
no insurer or insurance compan. is allowe# to
engage in t0e insurance business wit0out a license or
a certi$icate o$ aut0orit. $rom t0e Insurance
Commission.
!0e test to #etermine i$ a contract is an
insurance contract or not@ #epen#s on t0e nature o$
t0e promise@ t0e act reEuire# to be per$orme#@ an#
t0e e7act nature o$ t0e agreement in t0e lig0t o$ t0e
occurrence@ contingenc.@ or circumstances un#er
w0ic0 t0e per$ormance becomes reEuisite. It is not
b. w0at it is calle#.
:ean >e.nal#o ?. (granCamen#eC Page /C o$ 177
COMMERCIAL LAW
TRAN')ORTATION LAW'
COMMON CARRIER'
5A!ts. 1C,261C77- Ne; C"B"l Code0
Co%%on Ca!!"e!s are persons@ corporations@ $irms
or associations engage# in t0e business o$ carr.ing
or transporting passengers or goo#s or bot0@ b. lan#@
water@ or air@ $or compensation@ o$$ering t0eir
ser&ices to t0e public.
T!ans1o!tat"on def"ned. a contract o$
transportation is one w0ereb. a certain person or
association o$ persons obligate t0emsel&es to
transport persons@ t0ings@ or news $rom one place to
anot0er $or a $i7e# price
Class"f"#at"on=
". (s to ob9ect= (") t0ingsD (2) personsD (4) news
2. (s to place o$ tra&el= (") lan#D (2) waterD (4) air
)a!t"es to #ont!a#t of t!ans1o!tat"on*
(") s0ipper or consignor.
(2) carrier or con#uctor.
(4) consignee
Co%%on Ca!!"e! )!"Bate Ca!!"e!
As to Availability
Fol#s 0imsel$ out $or
all people
in#iscriminatel.
Contracts wit0
particular
in#i&i#uals or
groups onl.
As to !e="!e D"l"$en#e
67traor#inar.
:iligence
%r#inar. :iligence
As to !e$lat"on
/ub9ect to state
regulation
Not sub9ect to state
regulation
't"1lat"on l"%"t"n$ l"ab"l"ty
Parties ma. agree on
limiting t0e carrier<s
liabilit. e7cept w0en
pro&i#e# b. law
Parties ma. limit
t0e carrier<s
liabilit.@ pro&i#e# it
is not contrar. to
morals or goo#
customs
E8e%1t"n$ #"!#%stan#es
Pro&e e7traor#inar.
#iligence an#
(rt."'41@NCC
Caso $or$uito@art.
""'1 NCC
)!es%1t"on of Ne$l"$en#e
!0ere is a
presumption o$ $ault
or negligence
No presumption o$
$ault or Negligence
GoBe!n"n$ la;
Law on Common
Carriers
Law on obligations
an# contracts
(.99. <ar exams0
Test fo! a #o%%on #a!!"e!*
". Fe must be engage# in t0e business o$ carr.ing
goo#s $or ot0ers as a public emplo.ment@ an#
must 0ol# 0imsel$ out as rea#. to engage in t0e
transportation o$ goo#s $or persons generall. as
a business@ an# not a casual occupation.
2. Fe must un#erta5e to carr. goo#s o$ t0e 5in# to
w0ic0 0is business is con$ine#.
4. Fe must un#erta5e to carr. b. t0e met0o#s b.
w0ic0 0is business is con#ucte#@ an# o&er 0is
establis0e# roa#s.
1. !0e transportation must be $or 0ire.
!0e true test is w0et0er t0e gi&en un#erta5ing is a
part o$ t0e business engage# in b. t0e carrier w0ic0
0e 0as 0el# out to t0e general public as 0is
occupation rat0er t0an t0e Euantit. or e7tent o$ t0e
business actuall. transacte#@ or t0e no. an# c0aracter
o$ t0e con&e.ances use# in t0e emplo.ment (t0e test
is t0ere$ore t0e c0aracter o$ t0e business actuall.
carrie# on b. t0e carrier.
C3a!a#te!"st"#s of #o%%on #a!!"e!s*
(") !0e common carrier un#erta5es to carr. $or all
people in#i$$erentl.D
(2) !0e common carrier cannot law$ull. #ecline to
accept a particular class o$ goo#s $or carriage to t0e
pre9u#ice o$ t0e tra$$ic in t0ose goo#s
E$c!p#ion ' $or some su$$icient reason@ w0ere t0e
#iscrimination in suc0 goo#s is reasonable an#
necessar. (substantial groun#s)
(4) No monopol. is $a&ore# 8 t0e Commission 0as
t0e power to sa. w0at is a reasonable compensation
to t0e utilit. an# to ma5e reasonable rules an#
regulations $or t0e con&enience o$ t0e tra&eling
public an# to en$orce t0em
(1) Public con&enience 8 $or t0e best interests o$ t0e
public
:ean >e.nal#o ?. (granCamen#eC Page /H o$ 177
COMMERCIAL LAW
T3e la; 1!o3"b"ts n!easonable d"s#!"%"nat"on
by #o%%on #a!!"e!s.66 !0e law reEuires common
carriers to carr. $or all persons@ eit0er passengers or
propert.@ $or e7actl. t0e same c0arge $or a li5e or
contemporaneous ser&ice in t0e transportation o$
li5e 5in# o$ tra$$ic un#er substantiall. similar
circumstances or con#itions. !0e law pro0ibits
common carriers (CC) $rom sub9ecting an. person@
etc. or localit.@ or an. 5in# o$ tra$$ic@ to an. un#ue
or unreasonable pre9u#ice or #iscrimination
w0atsoe&er.
E$c!p#ion' ,0en t0e actual cost o$ 0an#ling an#
transporting is #i$$erent@ t0en #i$$erent rates ma. be
c0arge#
Dete!%"nat"on of Nst"f"able !efsal* !0is in&ol&es
a consi#eration o$ t0e $ollowing=
". suitabilit. o$ t0e &essels o$ t0e compan. $or
t0e transportation o$ suc0 pro#uctsD
2. reasonable possibilit. o$ #anger or #isaster@
resulting $rom t0eir transportation in t0e
$orm an# un#er t0e con#itions in w0ic0 t0e.
are o$$ere# $or carriageD
4. t0e general nature o$ t0e business #one b.
t0e carrierD
1. all t0e atten#ant circumstances w0ic0 mig0t
a$$ect t0e Euestion o$ t0e reasonable
necessit. $or t0e re$usal b. t0e carrier to
un#erta5e t0e transportation o$ t0is class o$
merc0an#ise.
W3at "s t3e DILIGENCE !e="!ed by #o%%on
#a!!"e!sL
Common carriers@ $rom t0e nature o$ t0eir business
an# $or reasons o$ public polic.@ are boun# to
obser&e e7traor#inar. #iligence in t0e &igilance o&er
t0e goo#s an# $or t0e sa$et. o$ t0e passengers
transporte# b. t0em@ accor#ing to all t0e
circumstances o$ eac0 case.
67traor#inar. #iligence lasts $rom t0e time t0e
cargoes are loa#e# in t0e &essel until t0e. are
#isc0arge# an# #eli&ere# to t0e consignee.
(ir carriers can terminate ser&ices o$ pilots $or
serious miscon#uct an# #run5enness because o$ its
e7traor#inar. #iligence.
LIA&ILIT+ O2 COMMON CARRIER'* !0e
common carrier@ is at all t"%es@ reEuire# to obser&e
e7traor#inar. #iligence wit0 respect to transport o$
goo#s.
". !o bring passengers sa$el. to 0is place o$
#estination. Fe is oblige# to carr.
passengers sa$el. as $ar as 0uman care an#
$oresig0t can pro&i#e@ using t0e utmost
#iligence o$ a &er. cautious person wit0 #ue
regar# $or all circumstances. In case o$ #eat0
or in9ur.@ t0e common carriers are presume#
to 0a&e been at $ault or negligent in
transporting t0e passengers unless t0e.
pro&e t0at t0e. obser&e# e7traor#inar.
#iligence.
2. !o transport t0e goo#s+ cargoes sa$el. to t0e
point o$ #estination i$ t0ere is loss or
#amage to t0e goo#s+cargoes@ imme#iatel. a
presumption o$ negligence arises t0at t0e
loss+ #amage to t0e goo#s+ cargoes was #ue
to t0e negligence o$ t0e common carrier.
!0e s0ipper ma. onl. pro&e t0at t0e goo#s
arri&e# in a #amage# con#ition or t0at t0e.
#i# not arri&e at all.
LOAD'TAR '4I))ING CO.- INC @'.
)IONEER A'IA IN'(RANCE COR)..an 2?-
2007
A #o%%on #a!!"e! "s !e="!ed to obse!Be
e8t!ao!d"na!y d"l"$en#e "n t3e B"$"lan#e oBe! t3e
$oods "t t!ans1o!ts.
I. @IGILANCE O@ER T4E GOOD'
R(LE' $oBe!n"n$ #o%%on #a!!"e!>s
LIA&ILIT+ oBe! Goods*
-eneral >?L6= Common carriers are responsible $or
t0e loss@ #estruction@ or #eterioration o$ t0e goo#s@
(NLE'' t0e same is #ue to an. o$ t0e $ollowing
causes onl.=
") Iloo#@ storm@ eart0Eua5e@ lig0tning@ or ot0er
natural #isaster or calamit.D
2) (ct o$ t0e public enem. in war@ w0et0er
international or ci&ilD
4) (ct or omission o$ t0e s0ipper or owner o$ t0e
goo#sD
1) !0e c0aracter o$ t0e goo#s or #e$ects in t0e
pac5ing or in t0e containersD
5) %r#er or act o$ competent public aut0orit.. ((rt.
"'41)

T3e CC %ay absolBe "tself f!o% l"ab"l"ty by
1!oB"n$ any of t3e follo;"n$ DE2EN'E'*
(.99. <ar exams 0
() T3at t3e CC en#onte!ed*
a. An ac# o (odD
K t0ere must 0a&e been no #ela. on t0e part
o$ t0e common carrier. %t0erwise@ i$ #ela.e#
an# not $or goo# reason@ t0en it s0all be 0el#
liable notwit0stan#ing t0e $act t0at all t0e
subseEuent reEuisites were present.
K must be an un$oreseen e&ent or an e&ent
w0ic0 cannot be a&oi#e#
K !0e carrier must 0a&e e7ercise#
e7traor#inar.
#iligence be$ore@ #uring@ an# a$ter t0e time
o$ t0e acci#ent.
K!0e 1!o8"%ate #ase must not be
committe# b. t0e carrier. I$ t0e pro7imate
cause o$ t0e e&ent is cause# b. t0e carrier@
t0en 0e cannot in&o5e t0e act o$ -o#
#e$ense.
?n#er t0e rule on Cont!"bto!y Ne$l"$en#e@ i$ t0e
negligence attributable to carrier is not pro7imate in
c0aracter@ t0e carrier s0all be responsible@ alt0oug0
suc0 liabilit. s0all be mitigate#.

b. (ct o$ public enem. in warD
c. (ct b. a competent public aut0orit.D
#. (cts+omissions o$ t0e s0ipper or 0is agentD
:ean >e.nal#o ?. (granCamen#eC Page // o$ 177
COMMERCIAL LAW
e. !0e goo#s or t0e pac5aging is in0erentl.
#e$ecti&e.
6&en i$ t0e loss@ #estruction@ or #eterioration o$ t0e
goo#s s0oul# be cause# b. t0e c0aracter o$ t0e
goo#s@ or t0e $ault. nature o$ t0e pac5ing or o$ t0e
containers@ t3e #o%%on #a!!"e! %st e8e!#"se de
d"l"$en#e to fo!estall o! lessen t3e loss.
E:EM)TING CA('E
REI(I'ITE' $or nat!al d"saste! or calamit.
H
". !0e natural #isaster must 0a&e been t0e
pro7imate cause o$ t0e loss
2. It must 0a&e been t0e onl. cause o$ t0e loss
4. !0e common carrier must 0a&e e7ercise#
#ue #iligence to pre&ent or minimiCe
be$ore @ #uring an# a$ter t0e natural #isaster
1. !0e common carrier 0as not negligentl.
incurre# #ela. in transporting t0e goo#s
REI(I'ITE' fo! a#t of 1bl"# ene%y 8
". !0e act o$ public enem. must 0a&e been t0e
pro7imate o$ t0e loss
2. It must 0a&e been t0e onl. cause o$ t0e loss
4. !0e common carrier must 0a&e e7ercise#
#ue #iligence to pre&ent or minimiCe
be$ore @ #uring an# a$ter t0e act o$ public
enem. in war.
REI('ITE 2OR a#t o! o%"ss"on of '3"11e! 8
". !0at t0e act or omission o$ t0e s0ipper
+owner o$ t0e goo#s must 0a&e been t0e
pro7imate cause o$ t0e loss
2. !0at it must 0a&e been t0e onl. cause o$ t0e
loss.
REI('ITE' fo! #3a!a#te! of $oods - falt "n
1a#9"n$ o! #onta"ne!s6
". !0at t0e loss @ #estruction or #eterioration
was cause# b. t0e c0aracter o$ t0e goo#s D or t0e
$ault. nature o$ t0e pac5ing +containers
2. !0at t0e common carrier 0a# e7ercise# #ue
#iligence to $orestall or lessen t0e loss.
REI(I'TE' fo! t3e a#t of 1bl"# at3o!"ty G
". !0e common carrier must pro&e t0at t0e
public aut0orit. 0a# t0e power to issue t0e or#er
$or t0e #estruction + seiCure o$ t0e goo#s.
B.) Anot3e! defens"Be st!ate$y to escape liabilit. is
to in&o5e t0at it e7ercise# e7traor#inar. #iligence to
pre&ent or minimiCe t0e loss at t0e time t0e acci#ent
occurre#.
Ne$l"$en#e is t0e $ailure to obser&e #ue #iligence
wit0 respect to t0e circumstances at 0an#.
Cont!"bto!y Ne$l"$en#e is t0e $ailure to obser&e
#ue #iligence t0at an or#inar. or pru#ent man
un#erta5es in relation to t0e negligence o$ anot0er.
W3en does t3e #a!!"e!>s !es1ons"b"l"ty oBe! t3e
$oods a!"seL
!0e carrier s0all be liable t0e moment t0e goo#s
arri&e in 0is possession w0et0er actual or
constructi&e@ until suc0 time t0at t0e carrier #eli&ers
t0e same to t0e consignee %> t0e consignee 0as
been in$orme# o$ t0e arri&al o$ t0e goo#s an# t0e
consignee 0a# reasonable time to remo&e t0e same.
?n#er maritime laws@ t0e responsibilit. o$ t0e
carrier ends w0en t0e goo#s were transmitte# b. t0e
carrier to t0e customs a!!ast!e o1e!ato!. >ecall t0at
be$ore t0e goo#s are #eli&ere# to t0e consignee@ t0e
state 0as t0e responsibilit. to ensure t0at t0e goo#s
being broug0t in are in accor#ance wit0 t0e law.
E22ECT* !0e carrier woul# no longer be liable.
!0e succee#ing relations0ip woul# be between t0e
#ons"$nee and t3e a!!ast!e o1e!ato!@ t0e
relations0ip go&erning t0em woul# be a5in to a
#ont!a#t of De1os"t.
!0ere is alrea#. an e7isting Contract o$ carriage
w0en t0e carrier too5 possession o$ t0e cargo b.
placing it on a lig0ter or barge manne# b. its
aut0oriCe# emplo.ees. (!58PA$*A 8AR*"*8A
vs- *$%4RA$!E !58P )
( bill o$ la#ing t0at was issue# co&ering certain
s0ipment w0ic0 containe# a pro&ision t0at t0e
carrier #oes not assume liabilit. $or an. loss
+#amage to t0e goo#s once t0e. 0a&e been un#er t0e
custo#. o$ t0e custom or ot0er aut0orities or w0en
t0e. 0a&e been #eli&ere# at s0ip<s tac5le 0a&e been
consi#ere# &ali# @ because it was 0el# t0at it is not
contrar. to morals an# public polic. D sai#
stipulation is clear an# 0a&e been a#opte# to
mitigate t0e responsibilit. o$ t0e common carrier.
(L4 >5 vs- <*$A8*RA0
'to11a$e "n T!ans"t is t0e rig0t o$ t0e unpai#
seller w0o 0as parte# wit0 t0e possession o$ t0e
goo#s to stop t0em in transit@ w0en t0e bu.er o$
goo#s is or becomes insol&ent.
Re="s"tes*
". /eller must be an unpai# sellerD
2. -oo#s must be in transitD
4. Bu.er must be in a state o$ insol&enc.D
E22ECT* On#e t3e !"$3t "s e8e!#"sed- t3e
#o%%on #a!!"e! be#o%es a %e!e ;a!e3ose%an.
In t0e e&ent t0at t0e ?NP(I: /eller e7ercises its
rig0t o$ stoppage in transitu @ t0e carrier t0erea$ter
0ol#s t0e goo#s in t0e capacit. o$ an or#inar. bailee
or ware0ouseman an# s0all be liable onl. as suc0 @
upon t0e t0eor. t0at t0e e7ercise o$ t0e rig0t b. t0e
unpai# seller @ suc0 terminates t0e contract o$
carriage.
A 'TI)(LATION LIMITING LIA&ILIT+ I'
@ALID )RO@IDED T4AT "t be* 52002 ba!
E8a%0
". in writing signe# b. bot0 parties
2. supporte# b. a &aluable consi#eration ot0er
t0an t0e ser&ice ren#ere# b. common carrier
COMMERCIAL LAW
4. reasonable@ 9ust an# not contrar. to public polic.
'OME @ALID 'TI)(LATION' LIMITING
CARRIERR' LIA&ILIT+*
". account o$ stri5es or riotD
2. &alue o$ t0e goo#s appearing in bill o$ la#ing
?NL6// s0ipper #eclares a greater &alueD
4. contract $i7ing t0e sum t0at ma. be reco&ere#.
@OID 'TI)(LATION' LIMITING CARRIERR'
LIA&ILIT+ 52002 ba! e8a%s0
". t0at t0e goo#s are transporte# at t0e ris5 o$ t0e
s0ipperD
2. t0at t0e s0ipper is not liable $or an. loss or
#estruction o$ t0e goo#sD
4. t0at t0e common carrier nee# not obser&e an.
#iligence in t0e custo#. o$ t0e goo#sD
1. t0at t0e common carrier s0all e7ercise a #egree
o$ #iligence less t0an t0at o$ a goo# $at0er o$ a
$amil.D
5. t0at t0e common carrier s0all not be responsible
$or an. acts o$ its emplo.eeD
6. t0at t0e common carrier<s liabilit. $or acts
committe# b. t0ie&es@ or o$ robbers w0o #o not
act wit0 gra&e or irresistible t0reat@ &iolence or
$orce@ is #ispense# wit0 or #iminis0e#D
'. t0at t0e common carrier is not responsible $or
t0e loss@ #estruction@ or #eterioration o$ goo#s
on account o$ t0e #e$ecti&e con#ition o$ t0e car@
&e0icle@ s0ip@ airplane or ot0er eEuipment use#
in t0e contract o$ carriage.
( stipulation t0at t0e common carrierJs liabilit. is
limite# to t0e &alue o$ t0e goo#s appearing in t0e bill
o$ la#ing@ unless t0e s0ipper or owner #eclares a
greater &alue@ is bin#ing.
( contract $i7ing t0e sum t0at ma. be reco&ere# b.
t0e owner or s0ipper $or t0e loss@ #estruction@ or
#eterioration o$ t0e goo#s is &ali#@ i$ reasonable an#
9ust un#er t0e circumstances@ an# 0as been $airl. an#
$reel. agree# upon.
0h! la) o #h! coun#r& #o )hich #h! "oods ar! #o %!
#ranspor#!d go&erns t0e liabilit. o$ t0e common
carrier in case o$ loss@ #estruction or #eterioration.
!0e pro&isions o$ articles "'44 to "'54 s0all appl.
to t0e passengerJs baggage w0ic0 is not in 0is
personal custo#. or in t0at o$ 0is emplo.ee. (s to
ot0er baggage@ t0e rules in articles "))8 an# 2000 to
2004 concerning t0e responsibilit. o$ 0otel85eepers
s0all be applicable.
2"!e ma. not be consi#ere# as a natural #isaster or
calamit.. It #oes not $all wit0in t0e categor. o$ act
o$ -o# (NLE'' cause# b. lig0ting or b. natural
#isaster or calamit.. It ma. e&en be cause# b. actual
pri&. or $ault o$ t0e carrier. 5EA'TERN
'4I))ING @'. IAC0
!0e Ci&il Co#e pro&isions on Common carrier s0all
not be applie# w0en t0e carrier is not acting as suc0
but as a pri&ate carrier. !0e stipulation in t0e c0arter
part. absol&ing t0e owner $rom liabilit. $or loss #ue
to t0e negligence o$ its agent woul# be &oi# onl. i$
strict public polic. go&erning common carriers are
applie#. /uc0 polic. 0as no $orce w0en t0e public at
large is not in&ol&e#@ as in t0e case o$ a s0ip totall.
c0artere# $or t0e use o$ a single part. (358E
*$%4RA$!E vs- A8ER*!A$ %"EA8%3*P0
In case w0ere t0e Common #a!!"e! ;<o Nst #ase8
". :ela.s t0e transportation o$ goo#s
2. C0anges t0e stipulate# route + usual route
!0e annulment o$ t0e agreement limiting t0e
carrier<s liabilit. is no longer necessar. D !0e carrier
cannot simpl. a&ail o$ t0e bene$it +#e$ense o$ limite#
liabilit..
,0en t0e con#itions printe# in t0e bac5 o$ t0e tic5et
stub are in letters so small t0at t0e. are 0ar# to rea#@
t0is woul# not warrant t0e presumption t0at t0e
passenger were aware o$ t0ose con#itions suc0 t0at
0e 0a# L$airl. an# $reel. agree#M to t0em . !0e
passenger t0ere$ore is not boun# b. suc0
stipulations. (%3EAARA$ vs- PAL0
II. 'A2ET+ O2 )A''ENGER'
D(T+* ( common carrier is boun# to carr. t0e
passengers sa$el. as $ar as 0uman care an# $oresig0t
can pro&i#e@ using t0e utmost #iligence o$ &er.
cautious persons@ wit0 a #ue regar# $or all t0e
circumstances.
R(LE* !0e responsibilit. o$ a common carrier $or
t0e sa$et. o$ passengers as reEuire# in articles "'44
an# "'55 cannot be #ispense# wit0 or lessene# b.
stipulation@ b. t0e posting o$ notices@ b. statements
on tic5ets@ or ot0erwise.
E:CE)TION* ,0en a passenger is carrie#
$!at"tosly@ a stipulation limiting t0e common
carrierJs liabilit. $or negligence is &ali#@ but not $or
;"llfl a#ts o! $!oss ne$l"$en#e.
!0e common carrier is liable e&en i$ t0e tic5et issue#
to passenger pro&i#es e7emption o$ common carrier
$rom #eat0 or in9ur. o$ paseenger an# notices were
poste# #ispensing e7traor#inar. #iligence o$ t0e
common carrier or e&en i$ t0e passenger was gi&en a
#iscount o$ 0is $ares.52001 &a! e8a%s0
I$ t0e passenger is carrie# gratuitousl.@
stipulation limiting CC $or negligence is &ali# but
not $or ,ILLI?L (C! %> ->%//
N6-LI-6NC6.
( re#uction o$ $are #oes not 9usti$. an. limitation o$
t0e common carrierJs liabilit..
Is t0e carrier liable $or #eat0 o$ or in9uries to
t0e passengers #ue to t0e negligence or
will$ul acts o$ IT' EM)LO+EE'Q
U6/@ alt0oug0 suc0 emplo.ees ma. 0a&e acte#
be.on# t0e scope o$ t0eir aut0orit. or in &iolation o$
t0e or#ers o$ t0e common carriers.
Illustrati&e rule= !wo passengers engage in a $ist8
$ig0t insi#e a bus terminal. (n on6dty #ri&er
attempts to paci$. t0em but instea# 5ills one. !0e
carrier is liable\ But@ i$ t0e 5illing o$ t0e passenger
occurre# w0ile t0e #ri&er is off6dty@ t0e carrier is
not liable. (>ecall t0e case o$ -illaco &. *anila
>ailroa#@ t0e carrier was 0el# not liable w0en its
emplo.ee@ a securit. guar# w0o 0arbore# a gru#ge
COMMERCIAL LAW
against a $ellow passenger@ s0ot an# 5ille# t0e latter.
!0e guar# committe# t0e 5illing w0ile 0e was o$$8
#ut..)
!0e Common carrier is 0el# liable because 8
". !0e #ri&er @ alt0oug0 stopping t0e bus@
ne&ert0eless #i# not put o$$ t0e engine.
2. Fe starte# to run t0e bus e&en be$ore t0e
con#uctor ga&e 0im t0e signal to go an#
w0ile t0e passenger was still unloa#ing part
o$ t0e baggage . ( LA 8ALL5R!A vs- !A0
In t0e case o$ L(C(* &s. /*I!F @ t0e Court 0el#
t0at an acci#ent cause# b. #e$ects in t0e automobile
is not a caso $ortuito. !0e rationale o$ t0e carrier<s
liabilit. is t0e $act t0at t0e passenger 0as neit0er t0e
c0oice nor control o&er t0e carrier in t0e selection
an# use o$ t0e eEuipment an# appliances in use b.
t0e carrier.
GGGIs t0e carrier liable $or #eat0 o$ or in9uries to t0e
passengers #ue to t3e will$ul acts or negligence o$
OT4ER )A''ENGER' OR O2 'TRANGER'L
U6/@ a common carrier is responsible $or in9uries
su$$ere# b. a passenger i$ t0e common carrierJs
emplo.ees t0roug0 t0e e7ercise o$ t0e #iligence o$ a
goo# $at0er o$ a $amil. coul# 0a&e pre&ente# or
stoppe# t0e act or omission.
!0e act o$ t0e passengers stabbing anot0er passenger
in t0e bus. !o be absol&e#@ t0e common carrier must
pro&e t0at it was negligent in pre&enting t0e in9uries
$rom acci#entD ot0erwise@ it woul# be 0el# liable.
5&a#3elo! E81!ess Bs. Ca 1HH s#!a 2170
66 ri#ing on train w0o steppe# on watermelons.
Fel#= !0e con#uct o$ plainti$$ in un#erta5ing to
alig0t w0ile t0e train was .et slig0tl. un#erwa. was
not c0aracteriCe# b. impru#ence an# t0at 0e was not
guilt. o$ contributor. negligence.
!0e circumstances s0ow t0at it was no means so
ris5. $or 0im to get o$$ w0ile t0e train was .et
mo&ing. It is not negligence per se $or a tra&eler to
alig0t $rom a slowl. mo&ing train. (!angco vs
8RR (& Phil )7&0
!0e :?!U o$ t0e P(//6N-6> is to obser&e t0e
#iligence o$ a goo# $at0er o$ a $amil. to a&oi# in9ur.
to 0imsel$. !0e contributor. negligence o$ t0e
passenger #oes not bar reco&er. o$ #amages $or 0is
#eat0 or in9uries@ i$ t0e pro7imate cause t0ereo$ is
t0e negligence o$ t0e common carrier@ but t0e
amount o$ #amages s0all be eEuitabl. re#uce#.
Con#ition printe# on t0e bac5 o$ a passenger tic5et
commonl. 5nown as LCONTRACT O2
AD4E'IONE - being #ra$te# onl. b. one part. @
usuall. t0e corporation @ an# t0e onl. participation
o$ t0e ot0er part. (passenger ) is t0e signing o$ 0is
signature L0is a#0esion t0ereto calls $or greater
strictness an# &igilance on t0e part o$ t0e court o$
9ustice wit0 t0e &iew o$ protecting t0e wea5er part.
$rom abuses . /uc0 contract i$ en$orce# will be
sub&ersi&e o$ public goo# @ t0us placing t0e common
carrier at a #eci#e# a#&antage o&er t0ose w0o ma.
0a&e legitimate claims against it. !0e sai# con#ition
is t0ere$ore unen$orceable@ as contrar. to public
polic.8 to ma5e t0e court accessible to all t0ose w0o
0a&e nee# o$ t0eir ser&ices.
Mo!al da%a$es a!e not !e#oBe!able on b!ea#3 of
#ont!a#t of #a!!"a$e "n B"e; of ART.221/620 NCC
. E:CE)TION'6
". ,0ere t0e mis0ap results in t0e #eat0 o$ a
passengerD Because t0e common carrier
becomes sub9ect to t0e rule in (>!.2206
NCC entitles t0e spouse@ #escen#ants@
ascen#ants to moral #amages $or mental
anguis0 as a result o$ t0e #eat0 o$ t0e
#ecease#.
2. 2.,0ere it is pro&e# t0at carrier was guilt.
o$ $rau# or ba# $ait0 66N i$ #eat0 #oes not
result.
*ere carelessness #oes not per se 9usti$. an
in$erence o$ malice or ba# $ait0 on t0e part o$ t0e
common carrier D *ust be GRO'' negligence
Con#!!"n$ #ases of a#t"on a!"s"n$ f!o%
ne$l"$ent a#t of t3e #o%%on #a!!"e!*
". Culpa Contractual+breac0 o$ contract
(.99( <ar Exams0
%nl. t0e carrier is primaril. liable
not t0e #ri&er@ because t0ere is no
pri&it. between t0e #ri&er an# t0e
passenger.(art "'5)@ NCC.)
No #e$ense o$ #ue #iligence
in t0e selection an#
super&ision o$ t0e
emplo.ees.
2. Culpa aEuiliana (Euasi #elict)
!0e carrier an# t0e #ri&er are soli#aril. liable as
9oint tor$easors.((rt 2"80 NCC)
:e$ense o$ #ue #iligence in t0e
selection an# super&ision o$ emplo.ees is
a&ailable. E8#e1t"on* maritime tort resulting
"n #oll"s"on
(lt0oug0 t0e relation o$ passenger
an# carrier is contractual bot0 in origin an#
nature@ ne&ert0eless@ t0e act t0at brea5s t0e
contract ma. also be a tort.5 a"! f!an#e Bs.
Ca!!as#oso 1H 'CRA 1AA0
In t0e case o$ in9ur. to a passenger #ue to
t0e negligence o$ t0e #ri&er o$ t0e bus on
w0ic0 t0e passenger was ri#ing on an# o$
t0e #ri&er o$ anot0er &e0icle@ t0e #ri&ers as
well as t0e owners o$ t0e two &e0icles are
9ointl. an# se&erall. liable $or #amages. It
s0oul# not ma5e an. #i$$erence t0at t0e
liabilit. o$ t0e bus owner springs $rom a
contract w0ile t0at o$ t0e #ri&er springs $rom
a Euasi #elict.5t" Bs. a!!"es$ado0
4. Culpa criminal( Criminal Negligence)
!0e #ri&er is primaril. liable. !0e
carrier is subsi#iaarill. liable onl. i$
t0e #ri&er is con&icte# an# #eclare#
insol&ent.(art "00 >PC)
COMMERCIAL LAW
T3e 1!"n#"1le of last #lea! #3an#e woul# call $or
application in a suit between t0e owners an# #ri&ers
o$ t0e two colli#ing &e0icles. It #oes not arise w0ere
a passenger #eman#s responsibilit. $rom t0e carrier
to en$orce its contractual obligations.()3"l. Rabb"t
&s L"nes Bs. CA0
CODE O2 COMMERCE O@ERLAND
TRAN')ORTATION
Nature o$ Contract
(rt. 41). ( contract o$ transportation b.
lan# or waterwa.s o$ an. 5in# s0all be consi#ere#
commercial=
". ,0en it in&ol&es merc0an#ise or an.
ob9ect o$ commerce.
2. ,0en@ no matter w0at its ob9ect ma. be@
t0e carrier is a merc0ant or is customaril.
R0abituall.S engage# in transportation $or t0e public.
>eEuisites $or a contract o$ transportation b. lan# or
water to be commercial =
(") transportation o$ merc0an#ise is alwa.s
commercial
(2) transportation o$ person or news is
commercial onl. w0en t0e CC is a merc0ant or is
0abituall. engage# in transportation $or t0e public
G principal reEuirement = t0e CC is a
merc0ant or is 0abituall. engage# in transportation
$or t0e publicD t0e ob9ect carrie# is o$ little
importance
6$$ect o$ Ci&il Co#e on t0e pro&isions o$ t0e Co#e
o$ Commerce on %&erlan# !ransportation
!0e NCC #oes not e7pressl. repeal t0e
pro&isions o$ t0e Co#e o$ Commerce on
o&erlan# transportation. Instea#@ it ma5es
suc0 pro&isions suppletor. to t0e pro&isions
o$ t0e NCC on common carriers
&"ll of Lad"n$* W!"tten a#9no;led$e%ent of
!e#e"1t of $oods and a$!ee%ent to t!ans1o!t
t3e% to a s1e#"f"# 1la#e to a 1e!son na%ed o!
to 3"s o!de! o! bea!e!.
(mbiguit. is construe# against t0e
carrier@ t0e contract being one o$
a#0esion.
Minds o 5ills o ?adin"
". Ne$ot"able &"ll of Lad"n$ H one in w0ic0 it
is state# t0at t0e goo#s re$erre# to t0erein will be
#eli&ere# to t0e bearer@ or to t0e or#er o$ an.
person name# in suc0 #ocument.
2. NonGNe$ot"able &"ll of Lad"n$ H t0e goo#s
re$erre# to t0erein will be #eli&ere# to a
speci$ie# person.
4. Clean &"ll of Lad"n$ H %ne w0ic0 #oes not
in#icate an. #e$ect in t0e goo#s
1. 2ol &"ll of Lad"n$ H Contains a notation
in#icating t0at t0e goo#s are in ba# Con#ition.
5. '1ent &"ll of Lad"n$ H Co&ers goo#s t0at
0a&e alrea#. been #eli&ere# b. t0e carrier
wit0out a surren#er o$ a signe# cop. o$ t0e
La#ing.
6. T3!o$3 &"ll of Lad"n$ H Issue# b. a carrier
w0o is oblige# to use t0e $acilities o$ ot0er
carriers.
'. On &oa!d &"ll of Lad"n$ H one in w0ic0 it is
state# t0at t0e goo#s 0a&e been recei&e# on
boar# t0e &essel w0ic0 is to carr. t0e goo#s.
8. Re#e"Bed fo! '3"1%ent &"ll of Lad"n$ H it is
state# t0at t0e goo#s 0a&e been recei&e# $or
s0ipment wit0 or wit0out speci$.ing t0e &essel
b. w0ic0 t0e goo#s are to be s0ippe#.
). Cstody &"ll of Lad"n$ H issue# b. t0e
carrier to t0e w0om t0e goo#s 0a&e been
#eli&ere# $or s0ipment but t0e &essel in#icate#
in t0e bill o$ lea#ing w0ic0 is to carr. t0e goo#s
0as not .et reac0e# t0e port w0ere t0e goo#s are
0el# $or s0ipment.
"0. )o!t &"ll of Lad"n$ H one w0ic0 is issue# b.
t0e carrier to w0om t0e goo#s 0a&e been
#eli&ere#@ an# t0e &essel to carr. t0e goo#s is
alrea#. in t0e port w0ere t0e goo#s are 0el# $or
s0ipment.
T3!eeG2old Nat!e of &"lls of Lad"n$
". ( contract in itsel$ an# t0e parties are boun#
b. its termsD
2. ( receiptD an#
4. ( s.mbol o$ t0e co&ere# b. it
!0e. are also #ocuments o$ title@ an# i$
negotiable in $orm t0e. can constitute
negotiable #ocuments o$ title.
Le$al effe#t of t3e Issan#e of &"ll of Lad"n$
Bill o$ lea#ing constitute t0e legal e&i#ence
o$ t0e contract between t0e s0ipper an# t0e
carrier b. t0e contents o$ w0ic0 t0e #isputes
w0ic0 ma. arise regar#ing t0eir e7ecution
an# per$ormance s0all be #eci#e#@ no
e7ception being a#missible ot0er t0an t0ose
o$ $alsit. an# material error in t0e #ra$ting.
Effe#t of absen#e of a b"ll of lad"n$
It #oes not preclu#e liabilit. on a contract o$
transportation. !0e #ispute s0all be
#etermine# b. t0e legal proo$s w0ic0 t0e
parties ma. present in support o$ t0eir
respecti&e claims@ accor#ing to t0e general
pro&isions establis0e# in t0e Co#e $or
commercial contracts.
R"$3t to !efse 1a#9a$es
(!n. Rul!' H a common carrier cannot or#inaril.
re$use to carr. a particular class o$ goo#s to t0e
pre9u#ice o$ t0e tra$$ic in t0ose goo#s.
COMMERCIAL LAW
E$c!p#ion' Fowe&er@ un#er (rt. 465@ carriers are
aut0oriCe# to re$use pac5ages i$ t0e. are un$it
$or transportation.
T"%e fo! del"Be!y of $oods
W3e!e no 1e!"od f"8ed
!0e carrier s0all be boun# to $orwar# t0em in
t0e $irst s0ipment o$ t0e same or similar goo#s@
w0ic0 0e ma5es to t0e points w0ere 0e must
#eli&er t0em. /0oul# 0e not #o so@ t0e #amages
cause# b. t0e #ela. s0all be $or 0is account.
W3e!e fo! del"Be!y of $oods
!0e carrier must #eli&er t0e goo#s wit0in t0e
time $i7e#. Ior $ailure to #o so@ t0e carriers s0all
pa. t0e in#emnit. stipulate# in t0e bill o$ la#ing.
(lso@ #amages s0all be pai# i$ t0e carrier re$uses
to pa. t0e stipulate# in#emnit. or is guilt. o$
$rau# in t0e $ul$illment o$ 0is obligation.
L"%"tat"on as to #a!!"e!>s l"ab"l"ty 5 .99. <ar
exams0
510. No L"ab"l"ty
!0e carrier will not be liable at all $or
t0e negligent acts o$ its crew an#
emplo.ees. !0is is N?LL an# %I:
$or being contrar. to public polic.
520. L"%"ted L"ab"l"ty
>egar#less o$ t0e &alue o$ t0e cargo@ t0e
ma7imum liabilit. o$ t0e carrier will be@
$or e7ample@ P500. !0is is %I: $or
being contrar. to public polic..
5,0. Ial"f"ed L"ab"l"ty
( stipulation in t0e bill o$ la#ing
limiting t0e liabilit. o$ t0e carrier to a
&aluation unless t0e s0ipper #eclares a
0ig0er &alue an# pa.s a 0ig0er rate o$
$reig0t is &ali#.
Fowe&er@ t0e carrier cannot limit its
liabilit. $or in9ur. to@ or loss o$@
goo# s0ippe# w0ere suc0 in9ur. or
loss was cause# b. its own
negligence.
Re#oBe!y of Da%a$es f!o% #a!!"e!s fo!
#a!!"a$e of $oods*
(") Inte!6"sland H i$ goo#s arri&e# in #amage#
con#ition=
I$ #amage is apparent@ t0e s0ipper
must $ile a claim imme#iatel..
I$ #amage is Not apparent 0e s0oul#
$ile a claim wit0in 21 0ours $rom
#eli&er..
!0e $iling o$ claim is a
con#ition prece#ent $or reco&er..
I$ t0e claim is $ile#@ but t0e
carrier re$uses to pa.=
6n$orce carrier<s liabilit. in
court b. $iling a case=
,it0in 6 .ears @ i$ no
bill o$ la#ing 0as been
issue#@ or
,it0in "0 .ears @ i$ a bill
o$ la#ing 0as been issue#.
(2) OBe!seas H ,0ere goo#s arri&e# in a
#amage# con#ition $rom a $oreign port to a
P0ilippine Port o$ 6ntr.=
?pon #isc0arge o$ goo#s@ i$ t0e
#amage is apparent claim s0oul# be
$ile# imme#iatel.D
I$ #amage is not apparent@ claim
s0oul# be $ile# wit0in 4 #a.s $rom
#eli&er..
W3en %ay a #ons"$nee of $oods abandon t3e
$oods and !e#oBe! t3e Bale t3e!eof f!o% t3e
#a!!"e!L
In an. o$ t0e $ollowing cases=
(") ?n#er (rt. 464@ in case o$ partial non8
#eli&er.@ w0ere t0e consignee pro&es t0at 0e
cannot ma5e use o$ t0e goo#s capable o$
#eli&er. in#epen#entl. o$ t0ose not
#eli&ere#.
(2) ?n#er (rt. 465@ w0ere t0e goo#s are
ren#ere# useless $or sale an# consumption
$or t0e purpose $or w0ic0 t0e. are properl.
#estine#D or
(4) ?n#er (rt. 4'"@ w0ere t0ere is #ela. t0roug0
t0e $ault o$ t0e carrier.
T;o s1e#"al san#t"ons fo! t3e enfo!#e%ent by
t3e #a!!"e! of t3e 1ay%ent of e81enses and
t!ans1o!tat"on #3a!$es.
(") ?n#er (rt. 4'1@ 9u#icial sale o$ t0e goo#s
transporte#D an#
(2) ?n#er (rt. 4'5@ b. creating a lien in $a&or o$
t0e carrier on t0e goo#s transporte#.
AIR TRAN')ORTATION
!0e nature o$ an airline<s contract o$ carriage
parta5es o$ two t.pes@ namel.= a contarct to #eli&er a
cargo or merc0an#ise to its #estination@ an# a
contarct to transport passengers to t0eir #estination-(
british Air#ays vs- !A, .&6 scra /690
%pecial rules on liabilities:
*n case o$ $lig0t #i&ersion #ue to ba#
weat0er or ot0er circumstances be.on# t0e
pilot<s control@ t0e relation between t0e
carrier an# t0e passengers continues until t0e
latter 0as been lan#e# at t0e port o$
#estination an# 0as le$t t0e carrier<s
premises. !0e carrier s0oul# necessaril.
e7ercise e7traor#inar. #iligence in
sa$eguar#ing t0e com$ort@ con&enience an#
sa$et. o$ its stran#e# passengers until t0e.
0a&e reac0e# t0eir $inal #estination ( P0il
(irlines &s. C( sept "5@ "))4)
It is $irml. settle# t0at moral #amages are
reco&erable in suits pre#icte# on breac0 o$ a
contract o$ carriage w0ere it is pro&e# t0at
COMMERCIAL LAW
t0e carrier was guilt. o$ $rau# or ba# $ait08
in attention to an# lac5 o$ care $or t0e
interests o$ its passengers w0o are entitle#
to its utmost consi#eration@ particularl. as to
t0eir con&enience8 amount to ba# $ait0
w0ic0 entitles t0e passenger to an awar# o$
moral #amages(Dapan Airlines vs
%imangon, April .., .99=0
6&en w0ere o&erboo5ing o$ passengers is
allowe# as a commercial practice@ t0e airline
compan. woul# still be guilt. o$ ba# $ait0
an# still be liable $or #amages i$ it #i# not
properl. in$orm passenger t0at it coul#
breac0 t0e contract o$ carriage e&en i$ t0e.
were con$irme# passengers( Falamea vs-
!A GR '9/.(60
Neglect or mal$easance o$ t0e carrier<s
emplo.ees coul# gi&e groun# $or an action
$or #amages. Passengers 0a&e a rig0t to be
treate# b. t0e carrier<s emplo.ees wit0
5in#ness@ respect@ courtes. an# #ue
consi#eration an# are entitle# to be protecte#
against personal miscon#uct@ in9urious
language@ in#ignities an# abuses $rom suc0
emplo.ees.
(n air carrier is not liable $or t0e loss o$
baggage in an amount in e7cess o$ t0e limit
speci$ie# in t0e tari$$ w0ic0 was $ile# wit0
t0e proper aut0orities@ suc0 tari$$ being
bin#ing on t0e passenger regar#less o$ t0e
passenger<s lac5 o$ 5nowle#ge t0ereo$ or
assent t0ereto. In a contract o$ air carriage@ a
#eclaration b. t0e passenger o$ a 0ig0er
&alue is nee#e# to reco&er a greater amount.
(n open #ate# tic5et constitutes a complete
contract between t0e carrier an# passenger.
Fence t0e airline compan. is liable i$ it
re$use# to con$irm a passenger<s $lig0t
reser&ation (%ingson vs-!A, GR $o-
''===60
(n airline compan. w0ic0 issue# a
con$irme# tic5et to a passenger co&ering
successi&e trips on a trips on #i$$erent
airlines can be 0el# liable $or #amages
occasione# b. bumping o$$ b. one o$ t0e
successi&e airlines(Lufthansa german
Airlines vs- !A Gr no &(7'.0
MARITIME COMMERCE< WATER
TRAN')ORTATION
/pecial contract o$ maritime commerce=
". C0arter part.
2. Bill o$ la#ing
4. Loan o$ bottomr.+respon#entia
1. contract o$ transportations passengers
5. *arine insurance
@E''EL' 5"n $ene!al0e7ten#s to e&er.t0ing
$loating in an# on t0e water@ built in t0e $orm o$
&essel an# use# $or na&igation regar#less o$ $orm@
rig0t or moti&e power.
MERC4ANT @E''EL'8 engage# in t0e
transportation o$ passengers an# $reig0t $rom one
port to anot0er or $rom one place to anot0er.
JA!e Bessels !eal o! 1e!sonal 1!o1e!tyL
P6>/%N(L8 but t0e. parta5e to a certain e7tent@ o$
t0e nature an# con#itions o$ real propert.@ on
account o$ t0eir &alue an# importance o$ t0e worl#
o$ commerce.
C4ARACTERI'TIC' O2 MARITIME
TRAN'ACTION'*
". >eal8 similar to transactions o&er real propert.
wit0 respect to e$$ecti&it. against t0ir# persons@
w0ic0 are #one t0roug0 registration. !0e
e&i#ence o$ real nature is s0own b.=
t0e limitation o$ t0e liabilit. o$ t0e
agents to t0e actual &alue o$ t0e &essel
an# t0e $reig0t mone. an#
t0e rig0t to retain cargo@ embargo an#
#etention o$ t0e &essel e&en in cases
w0ere or#inar. ci&il law woul# not
allow more t0an a personal action
against #ebtor.
2. F.pot0ecar.8 t0e liabilit. o$ t0e owner o$ t0e
&essel is limite# to t0e &essel itsel$.
4. Pre$erence o$ cre#its8 *ortgage o$ a &essel
properl. registere# becomes o$ pre$erre#
mortgage lien w0ic0 s0all 0a&e priorit. o&er all
claims against t0e &essel in an e7tra9u#icial
$oreclosure $or=
a. cre#it in $a&or o$ t0e public treasur.D
b. 9u#icial cost o$ t0e procee#ingsD
c. pilotage an# tonnage c0arges an# ot0er sea
an# port c0angesD
#. salaries o$ #epositories an# 5eepers o$ t0e
&esselD
e. captain an# crewJs wagesD
$. general a&erage
g. sal&age inclu#ing contract sal&ageD
0. maritime liens arising prior in time to t0e
recor#ing o$ t0e pre$erre# mortgageD
i. #amages arising out o$ tortD an#
9. Pre$erre# mortgage registere# prior in time.
A.&ILL O2 LADING ( 1//H and 200A ba!
E8a%s0
( bill o$ la#ing ser&es two $unctions=
a. It is a receipt $or t0e goo#s s0ippe#D
b. It is a contract b. w0ic0 t0ree parties@
namel. t0e s0ipper@ t0e carrier@ an# t0e
consignee un#erta5e speci$ic responsibilities
an# assume stipulate# obligations.
( bill o$ la#ing #eli&ere# an# accepte#
constitutes t0e contract o$ carriage e&en t0oug0
not signe#@ because t0e acceptance o$ a paper
COMMERCIAL LAW
containing t0e terms o$ a propose# contact
generall. constitutes an acceptance o$ t0e
contract an# o$ all o$ its terms an# con#itions o$
w0ic0 t0e acceptor 0as actual or constructi&e
notice (9en$ 3a 1a1e! )!od#ts In#. Bs. CA-
feb 1//H)
( bill o$ la#ing is in t0e nature o$ a contract o$
a#0esion.
DOCTRINE O2 LIMITED LIA&ILIT+
(FUP%!F6C(>U N(!?>6 %I *(>I!I*6
C%**6>C6) (>!. 58'@ C%:6 %I
C%**6>C6
1//?- 1//C-1/// and 2000 ba! e8a%s
!0e liabilit. o$ t0e s0ip owner is limite# to
t0e &alue o$ t0e &essel. !0e limite# liabilit.
o$ t0e owner is con$ine# to t0e &essel@
eEuipment an# $reig0t or insurance@ i$ an.. I$
t0e s0ipowner 0as aban#one# t0e s0ip@
eEuipment an# $reig0t@ 0is liabilit. is
e7tinguis0e#.
I$ t0e &essel sin5s t0e liabilit. o$ t0e owner
is e7tinguis0e#@ alt0oug0 0e ma. 0a&e ot0er
properties.
I$ t0e &essel #oes not sin5@ t0e owner
*a. e7ercise t0e rig0t o$ aban#onment an#
t0e liabilit. o$ t0e s0ipowner is limite# to
t0e &alue o$ t0e &essel.
E:CE)TION' TO LIMITED LIA&ILIT+
R(LE*
". ,0en t0e &essel is not aban#one# b. t0e
owner or s0ipagent
2. ,0en t0e &essel is co&ere# b. insurance
4. 67penses $or repair o$ t0e &essel be$ore it
sails
1. Claims o$ emplo.ees un#er t0e labor laws
5. ,0en s0ipowner+s0ip captain is at $ault or
guilt. o$ negligence.
a. lac5 o$ proper an# a#eEuate
eEuipment(insu$$icient li$e&ests)
b. lac5 o$ proper tec0nical training
o$ t0e o$$ices an# o$ t0e &essel
Mona!#3 Ins Co.Bs. CaO All"ed $a!antee
"ns!an#e Co Bs CA M E="table Ins!an#e Bs.
CA- .ne H- 2000
As a $ene!al !le- a s3"1 o;ne!Rs l"ab"l"ty "s
%e!ely #o6e8tens"Be ;"t3 3"s "nte!est "n t3e Bessel-
e8#e1t ;3e!e a#tal falt "s att!"btable to t3e
s3"1o;ne!. !0us@ as an e7ception to t0e l"%"ted
l"ab"l"ty do#t!"ne@ a s0ipowner or s0ip agent ma. be
0el# liable $or #amages w0en t0e sin5ing o$ t0e
&essel is attributable to t0e actual $ault or negligence
o$ t0e s0ipowner or its $ailure to ensure t0e
seawort0iness o$ t0e &essel. !0e instant petitions
cannot be spare# $rom t0e application o$ t0e
e7ception to t0e #octrine o$ limite# liabilit. in &iew
o$ t0e unanimous $in#ings o$ t0e courts below t0at
bot0 (boitiC an# t0e crew $aile# to ensure t0e
seawort0iness o$ t0e >B; P. A%oi#iN.5 Abo"t"z
'3"11"n$ Co!1 Bs CA- O#tobe! 1C-200H0
)4ILI))INE COA'T G(ARD 5)CG0 &este#
wit0 e7clusi&e aut0orit. o&er t0e registration an#
#ocumentation o$ P0ilippine &essels@ issuance o$ all
certi$icates@ licenses or #ocuments@ necessar. or
inci#ent to registration.
@E''EL' REI(IRED TO &E REGI'TERED*
". (ll &essels use# in P0ilippine waterD
2. essels o$ 4 tons gross s0all not be registere#
?NL6// t0e owner s0all so #esireD
4. (ll un#ocumente# &essels.
W3e!e Re$"st!at"on to be effe#tedL
- at its 0ome port (w0en a coast guar# #istrict or
station is on t0e same port)D i$ none@ at t0e
nearest C%(/! -?(>: :I/!>IC! %>
/!(!I%N).
O)TION' A' TO 'MALL &OAT'*
1.) I$ &essel is o$ #omestic owners0ip an# "5 tons
gross or less certi$icate o$ P0ilippine registr.
is optional.
Purpose= #eclare nationalit. o$ a &essel
2.) essel (5 tons gross or less) N no certi$icate o$
P0ilippine registr. certi$icate o$ owners0ip is
optional.
Pri&ileges= rig0t to engage in P0ilippine
coastwise tra#e an# protection o$ t0e aut0orities
an# t0e $lag is also sub9ect to t0e same
pri&ileges.
3.) essel (4 tons gross or less) not to be
registere# unless t0e owner s0all so #esire.
)(R)O'E O2 REGI'TRATION*
Purc0aserJs rig0ts ma.be maintaine# against a claim
$ile# b. t0e !FI>: P6>/%N.
JW3o s3all be ent"tled to t3e f!e"$3ta$e and ;3o
s3all be obl"$ed to 1ay t3e #!e; and ot3e!
1e!sons ;3o %a9e 1 t3e #o%1l"%ent of t3e
BesselL
]It #epen#s upon t0e time o$ t0e sale.
I$ ma#e w0ile it is on a &o.age@ $reig0tage
s0all pertain entirel. to P?>CF(/6> an# pa.ment
o$ t0e crew an# ot0er persons w0o ma5e up its
compliment $or same &o.age s0all be $or 0is
account.
I$ ma#e a$ter t0e &essel 0as arri&e# at t0e
port o$ its #estination@ $reig0tage s0all pertain to t0e
6N:%> an# ot0er in#i&i#uals w0o ma5e up its
complement s0all be $or 0is account@ ?NL6// t0e
contrar. is stipulate# in eit0er case.
2ORMALITIE' 2OR @OL(NTAR+ 'ALE
A&ROAD*
". 67ecution o$ t0e bill o$ sale be$ore consul o$ t0e
P0ilippines at t0e port w0ere it terminates its
&o.ageD
2. Inscription in t0e registr. o$ t0e consulateD
4. Iorwar#ing b. t0e consul o$ a true cop. o$ t0e
instrument o$ purc0ase an# sale to t0e registr. o$
&esselD
COMMERCIAL LAW
1. /tatement w0et0er t0e &en#or recei&es its price
in w0ole or in part.
2ORMALITIE' 2OR 'ALE W4EN @E''EL
RENDERED ('ELE''*
". application $or e7aminationD
2. noti$ication o$ t0e consignee+ insurerD
4. proo$ o$ #amage an# impossibilit. o$ t0e repair
o$ t0e &esselD
1. or#er $or t0e sale o$ &essel at public auction.
R(LE' 2OR T4E 'ALE O2 @E''EL AT
)(&LIC A(CTION*
". articles o$ t0e &essel s0all be appraise# a$ter
ma5ing an in&entor.
2. posting o$ t0e or#er o$ t0e auction
4. announcement
1. auction s0all be 0el# on t0e #a. $i7e#
5. %bser&ance o$ special pro&isions@ go&erning t0e
sale o$ t0e &essel w0ile it is on t0e $oreign
countr..
2 MET4OD' O2 'ALE*
". 9u#icial
2. &oluntar.
JE22ECT O2 REGI'TRATION O2
@OL(NTAR+ 'ALE
- i$ it ta5e place w0ile t0e &essel is on a &o.age@
t0e pre$erre# N 0.pot0ecar. nature o$ t0e cre#it
subsists against t0e &essel until a$ter its return to
t0e port o$ registr. an# 4 mont0s a$ter t0e
inscription o$ t0e sale in t0e registr. o$ &essels
or a$ter t0e return@ so as to pre&ent t0e
possibilit. o$ $rau# upon cre#itors t0roug0
&oluntar. sale.
)ARTICI)ANT' IN MARITIME
COMMERCE*
a. s0ip owners an# s0ip agents
b. captains an# masters o$ t0e &essel
c. o$$icers an# crew o$ t0e &essel
c." sailing ("
st
mate)
c.2 Euartermaster (2
n#
mate)
c.4 engineer
#. seamen
e. supercargoes
A. '4I) OWNER' AND '4I) AGENT'
'3"1 o;ne! 6 ( person w0o 0as possession or
control in t0e management o$ t0e &essel an# t0e
conseEuent rig0t to #irect 0er na&igation an# recei&e
$reig0t earne# an# pai#@ w0ile 0is possession
continues.
'3"1 a$ent G ( person entruste# wit0 pro&isioning
an# representing t0e &essel in t0e port in w0ic0 it
ma. be $oun#D also inclu#es t0e s0ip owner
LIA&ILIT+ O2 '4I) OWNER AND '4I)
AGENT*
". $or t0e acts o$ t0e captain
2. contracts entere# into b. t0e captain to repair@
eEuip@ an# pro&ision t0e &essel P>%I:6: t0at
t0e amount claime# was in&este# $or t0e bene$it
o$ t0e &essel
4. In#emnities in $a&or o$ t0ir# person t0at ma.
arise $rom t0e con#uct o$ t0e captain in t0e care
o$ goo#s an# sa$et. o$ passengers transporte#.
1. !ort or Euasi8#elict committe# b. captain
6VC6P! collision wit0 anot0er &essel.
5. :amages in case o$ collision #ue to t0e $ault@
negligence or want o$ s5ill o$ captain@ sailing
mate or b. ot0er member o$ t0e complement.
'4I) AGENTR' AND OWNER>' LIA&ILIT+
LIMITED*
- B. aban#oning t0e &essel wit0 all 0er eEuipment
an# t0e $reig0t it ma. 0a&e earne# #uring t0e
&o.age(b. N6C6//(>U I*PLIC(!I%N)D
limite# to t0e &alue o$ t0e &essel or its insurance
in &iew o$ t0e so8calle# >6(L (N:
FUP%!F6C(>U nature o$ maritime law.
- 6$$ect= cessation o$ t0e responsibilit. o$ t0e
owner
)OWER AND 2(NCTION' AND LIA&ILITIE'
O2 '4I) AGENT*
". capacit. to tra#eD
2. #isc0arge #uties o$ t0e captain in case o$ t0e
latterJs absenceD
4. contract in t0e name o$ t0e owners wit0 respect
to repairs@ #etails o$ eEuipment@ armament@ an#
all t0at relate to t0e reEuirements o$ na&igationD
1. or#er o$ new &o.age an# ma5e a new c0arter or
insure t0e &essel a$ter obtaining aut0oriCation
$rom t0e s0ip owners.
D(T+ O2 '4I) AGENT TO DI'C4ARGE T4E
CA)TAIN AND MEM&ER' O2 T4E CREW*
8 I$ t0e seamen contract is not $or a #e$inite perio#
or &o.age@ 0e ma. #isc0arge t0em at 0is #iscretion
- I$ $or a #e$inite perio#@ 0e ma. not #isc0arge
t0em until a$ter t0e $ul$illment o$ t0eir contracts
6VC6P! on t0e $$. groun#s=
a. insubor#ination in serious matters
b. robber.
c. t0e$t
#. 0abitual #run5enness
e. #amage cause# to t0e &essel or to its cargo
t0roug0 malice@ mani$est or pro&en
negligence
E22ECT<LO''<DE'TR(CTION O2 @E''EL*
". e7tinguis0es liabilit. arising $rom t0e con#uct o$
t0e captain in t0e &igilance o$ t0e goo#s an# $or
t0e sa$et. o$ t0e passengers an# $or an. liabilit.
arising $rom negligent acts o$ t0e captain
2. e7tinguis0es liabilit. $or t0e wages o$ t0e
captain an# t0e crew an# $or a#&ances ma#e b.
t0e s0ip agent i$ t0e &essel is lost b. s0ipwrec5
or capture
4. liabilit. $or collision
&. CA)TAIN' AND MA'TER' O2 T4E
@E''EL
COMMERCIAL LAW
Ca1ta"n6 w0o go&ern &essels t0at na&igate t0e 0ig0
seas or s0ips o$ large #imensions an# importance@
alt0oug0 engage# in t0e coastwise tra#e
Maste!s8 w0o comman# smaller s0ips engage#
e7clusi&el. in t0e coastwise tra#e
NAT(RE O2 )O'ITION*
". -eneral agent o$ t0e s0ip owner
2. !ec0nical :irector o$ t0e &essel
4. >epresentati&e o$ t0e -o&ernment o$ t0e countr.
un#er w0ose $lag 0e na&igates
I(ALI2ICATION'*
". Iilipino citiCen
2. Legal capacit. to contract
4. *ust 0a&e passe# t0e reEuire# p0.sical@ mental
e7amination reEuire# $or licensing 0im as suc0
IN4ERENT )OWER' O2 T4E CA)TAIN*
". appoint crew in t0e absence o$ s0ip agent
2. comman# an# #irect crew
4. impose correctional punis0ment on t0ose w0o
w0ile on boar# &essel $ail to compl. wit0 0is
or#ers or are wanting in #iscipline
1. ma5e contracts $or t0e c0arter o$ &essel in t0e
absence o$ s0ip agent
5. suppl.@ eEuip@ an# pro&ision t0e &essel
6. or#er repair o$ &essel to enable it to continue its
&o.age
'O(RCE' O2 2(ND' TO COM)L+ WIT4
T4E IN4ERENT )OWER' O2 T4E
CA)TAIN*
". $rom t0e consignee o$ t0e &essel
2. $rom t0e consignee o$ t0e cargo
4. b. #rawing on t0e s0ip agent
1. b. a loan on bottomr.
5. b. sale o$ part o$ t0e cargo
D(TIE' O2 T4E CA)TAIN*
". bring on boar# t0e proper certi$icate an#
#ocument an# a cop. o$ t0e Co#e o$ Commerce
2. 5eep a logboo5@ accounting boo5 an# $reig0t
boo5
4. e7amine be$ore t0e &o.age
1. sta. on boar# #uring t0e loa#ing an# unloa#ing
o$ t0e cargo
5. be on #ec5 w0ile lea&ing or entering t0e port
6. see5s protest@ arri&al un#er stress an# in case o$
s0ipwrec5
'. $ollow instruction o$ an# ren#er accounting to
t0e s0ip agent
8. sa&e t0e &essel lost in case o$ wrec5
). 0ol# in custo#. properties le$t b. #ecease# b.
passengers an# crew members
"0. compl. wit0 t0e reEuirements o$ customs@
0ealt0@ etc. at t0e port o$ arri&al
LIA&ILITIE' O2 T4E '4I) AGENT<'4I)
OWNER 2OR ACT' DONE &+ T4E CA)TAIN
TOWARD' )A''ENGER' AND CARGOE'
MAKING T4EM 'OLIDARIL+ LIA&LE TO
T4E LATTER*
". #amages to &essel an# to cargo #ue to lac5 o$
s5ill an# negligence
2. t0e$t an# robber. o$ t0e crew
4. losses an# $ines in &iolation o$ laws
1. #amages #ue to mutinies
5. #amages #ue to misuse o$ power
6. #e&iations
'. arri&al un#er stress
8. #amages #ue to non8obser&ance o$ marine
regulations
NO LIA&ILT+ 2OR T4E 2OLLOWING*
". #amages cause# to t0e &essel b. $orce ma9eure
2. obligations contracte# $or t0e repair@ eEuipment
an# pro&isioning o$ t0e &essel ?NL6// 0e 0as
e7pressl. boun# 0imsel$ personall. or 0as signe# a
bill o$ e7c0ange or promissor. note in 0is name
CARGO6 w0ic0 inclu#es all goo#s@ wares an#
merc0an#ise aboar# a s0ip w0ic0 #o not $rom part o$
t0e s0ipJs stores.
REI(IREMENT' 2OR DE2EN'E O2 )(&LIC
ENEM+*
". act o$ public enem. in war was t0e pro7imate
an# onl. cause o$ t0e loss
2. common carrier e7ercise #ue #iligence to
pre&ent@ minimiCe loss be$ore@ #uring@ an# a$ter
occurrence o$ t0e act o$ t0e public enem. in war
2ORMALITIE' REI(IRED W4ERE @E''EL
4A' GONE T4RO(G4 4(RRICANE
". Captain must ma5e a protest be$ore competent
aut0orit. at t0e $irst port 0e touc0es
2. /uc0 a protest must be ma#e wit0in 21 0ours
$ollowing 0is arri&al
4. captain must rati$. it wit0in some perio# w0en
0e arri&es at 0is #estination
1. 0e must imme#iatel. procee# wit0 t0e proo$ o$
t0e $acts
2ORMALITIE' REI(IRED W4ERE @E''EL
'4I)WRECKED*
". captain must ma5e a protest be$ore t0e nearest
competent aut0orit.
2. protest be ma#e wit0in 21 0ours $ollowing 0is
arri&al
4. ma5e sworn statement o$ t0e $acts
1. aut0orit.+consul abroa# s0all &eri$. sai# $acts
5. suc0 aut0orit. s0all ta5e ot0er steps in carr.ing
at t0e $acts
6. suc0 aut0orit. s0all also ma5e statements o$
w0at ma. be t0e result o$ t0e procee#ing in t0e
logboo5 an# in t0at o$ t0e sailing mate
'. 0e s0all #eli&er t0e original recor#s to t0e
captain
8. captain must rati$. t0e protest
C. O22ICER' AND CREW
". /ailing mate+Iirst mate
COMMERCIAL LAW
- secon# c0ie$ o$ t0e &essel w0o ta5es t0e place o$
t0e captain in case o$ absence@ sic5ness@ or #eat0
an# s0all assume all o$ 0is #uties@ powers@ an#
responsibilities
D(TIE'*
". pro&i#e 0imsel$ wit0 maps@ an# c0arts wit0
astronomical tables necessar. $or t0e
#isc0arge o$ 0is #uties
2. 5eep t0e Binnacle boo5
4. C0ange t0e course o$ t0e &o.age on
consultation wit0 captain an# t0e o$$icers o$
t0e boat@ $ollowing t0e #ecision o$ t0e
captain in case o$ #isagreements.
1. >esponsible $or all t0e #amages cause# to
t0e &essel or to t0e cargo b. reason o$ 0is
negligence
2. /econ# mate
- ta5es comman# o$ t0e &essel in case o$ t0e
inabilit. or #isEuali$ication o$ t0e captain an#
t0e sailing mate@ assuming in suc0 case t0eir
powers an# responsibilities an# #uties
D(TIE'*
". preser&e t0e 0ull an# rigging o$ t0e &essel
2. arrange well t0e cargo
4. #iscipline t0e crew
1. assign wor5 to crew members
5. In&entor. t0e rigging an# eEuipment o$ t0e
&essel@ i$ lai# up.
4. 6ngineers
- %$$icers o$ t0e &essel but 0a&e no aut0orit.
6VC6P! in matters to motor apparatus. ,0en 2
or more are 0ire#@ one o$ t0em s0oul# be t0e
C0ie$ 6ngineer
D(TIE'*
". in c0arge o$ motor apparatus@ spare parts@
an# ot0er instruments pertaining to t0e
engines
2. 5eep t0e engines an# boilers in goo#
con#ition
4. not to c0ange or repair t0e engine wit0out
aut0orit. o$ t0e captain
1. in$orm t0e captain o$ an. #amage to t0e
motor apparatus
5. 5eep an 6ngine boo5
6. super&ise all personnel maintaining t0e
engine
1. *embers o$ t0e Crew
Fire# b. t0e s0ip agent. ,0ere 0e is present an# in
0is absence@ t0e captain 0ires t0em pre$erring
Iilipinos@ an# in t0eir absence@ 0e @a. ta5e in
$oreigners but not e7cee#ing "+5 o$ t0e crew.
CLA''E' O2 'EAMANR' CONTRACT*
". b. t0e &o.age
2. b. t0e mont0
4. b. s0are o$ pro$its or $reig0tage
.('T CA('E' 2OR T4E DI'C4ARGE O2
'EAMAN W4ILE CONTRACT '(&'I'T'*
". perpetration o$ a crime
2. repeate# insubor#ination@ want o$ #iscipline
4. repeate# incapacit. an# negligence
1. 0abitual #run5enness
5. p0.sical incapacit.
6. #esertion
CA('E' O2 RE@OCATION O2 @O+AGE*
". war
2. bloc5a#e
4. pro0ibition to recei&e cargo at #estination
1. embargo
5. inabilit. o$ t0e &essel to na&igate
R(LE' IN CA'E O2 DEAT4 O2 A
'EAMAN*!0e seamanJs 0eirs are entitle# to t0e
pa.ment as $ollows=
". i$ #eat0 is natural=
a. compensation up to time o$ #eat0 i$
engage# on &o.age
b. i$ b. &o.age8 0al$ o$ amount i$ #eat0
occurs on &o.age outD an# $ull i$ on
&o.age in
c. i$ b. s0ares8 none i$ be$ore #epartureD
$ull i$ a$ter #eparture
2. i$ #eat0 is #ue to #e$ense o$ &essel8 $ull pa.ment
4. i$ capture# in #e$ense o$ &essel8 $ull pa.ment
1. i$ capture# #ue to carelessness8 wages up to t0e
#ate o$ t0e capture
NO LIA&IL+ (NDER T4E 2OLLOWING
CIRC(M'TANCE'*
". I$ be$ore beginning &o.age@ captain attempts to
c0ange it or a na&al war wit0 t0e power to w0ic0
was #estine# occurs
2. I$ a #isease brea5s out an# be o$$iciall. #eclare#
an epi#emic in t0e port o$ #estination
4. I$ t0e &essel c0ange owner or captain
C1>P?E>E60 1F 08E ;ESSE?
- (ll persons on boar#@ $rom t0e captain to t0e
cabin bo.@ necessar. $or t0e management@
maneu&ers@ an# ser&ice@ t0us inclu#ing t0e crew@
t0e sailing mates@ engineers@ stal5ers an# ot0er
emplo.ees on boar# not 0a&ing speci$ic
#esignations
- It #oes not inclu#e t0e passengers or t0e person
w0om t0e &essel is transporte#
2ORMALITIE' REI(IRED 2OR 'EAMANR'
AGREEMENT*
". re#uce# to writing in (ccounting Boo5
2. signe# b. parties
4. &isae# b. marine aut0orit. i$ e7ecute# in
P0ilippine territor.+consul or consular agents i$
e7ecute# abroa#
COMMERCIAL LAW
1. rea# to t0e seaman concerne# an# suc0 $act must
be state# in t0e agreement
Inte!d"#t"on of Co%%e!#e
a go&ernmental pro0ibition o$ commercial
intercourse inten#e# to bring about an entire
cessation $or t0e time being o$ all tra#e
E%ba!$o
- a proclamation or or#er o$ t0e /tate usuall.
issue# in time o$ war+ t0reatene# 0ostilities
pro0ibiting t0e #eparture s0ips+ goo#s $rom
some or all t0e ports o$ suc0 /tate until $urt0er
or#er
&lo#9ade
- a sort o$ circum&allation o$ place b. all $oreign
connections an# correspon#ence is as $ar as
0uman power can a$$ect it to be cut8o$$
'()ERCARGOE'
- person w0o #isc0arge a#ministrati&e #uties
assigne# to 0im b. s0ip agent or s0ippers@
5eeping an account an# recor# o$ transaction as
reEuire# in t0e accounting boo5 o$ t0e captain
&.C4ARTER )ART+
- Contract b. &irtue o$ w0ic0 t0e owner or agent
bin#s 0imsel$ to transport merc0an#ise or
persons o$ a $i7e# price. It ma. eit0er be
contract o$ a$$reig0tment (time an# o.age
C0arter) an# bareboat or #emise c0arter.
CLA''E' O2 C4ARTER )ART+
". (s to e7tent o$ &essel 0ire#
a. total8 w0ole o$ t0e &essel is c0artere#
b. partial8 onl. part o$ t0e &essel is c0artere#
2. (s to time
a. until a $i7e# #a.+ $or a #etermine# number
o$ #a.s an# mont0s
b. $or a &o.age(outgoing+return+roun#trip)
4. (s to $reig0tage
a. $or a $i7e# amount $or t0e w0ole cargo
b. $or a $i7e# amount per ton
c. $or an amount per mont0
a. Contract o$ ($$reig0tment8 t0e owner o$ t0e
&essel leases a part or all o$ t0e space o$ t0e
&essel to carr. goo#s but retains t0e
possession @ comman# an# na&igation o$ t0e
&essel. !0e c0arter merel. 0a&e t0e use o$
t0e space in t0e &essel in return $or t0e
pa.ment o$ t0e c0arter 0ire.
b. Bareboat+ :emise C0arterKin&ol&es t0e
trans$er o$ $ull possession an# contol o$ t0e
&essel to t0e c0arterer. !0e entire control
an# management o$ t0e &essel is gi&en up to
t0e c0arterer. !0e c0arterer mans t0e &essel
wit0 0is own people. (*223 5ar !$ams)
!0e owner o$ t0e &essel 0as no more
insurable interest on t0e &essel. In case o$ loss o$
t0e &essel@ t0e s0ipowner can reco&er t0e &alue o$
t0e &essel $rom t0e c0arterer.5Calte8 Bs. sl1"#"o
l"ne- 1///0
2ORMAILITIE' REI(IRED 2OR A
C4ARTER )ART+*
". in writing
2. #rawn in #uplicate
4. signe# b. t0e parties
1. contain stipulation
not all reEuisites are essential $or t0e &ali#it. o$
c0arter part.
)!"%a$e
- belongs to owner+ $reig0tersD
- increase o$ t0e $reig0t rate
- consi#ere# gratuit. to master i$ is stipulate#
- a bonus to be pai# to a captain a$ter a success$ul
&o.age
De%!!a$e
- sum w0ic0 is $i7e# b. t0e contract o$ carriage@
or w0ic0 is allowe#@ as remuneration to t0e
owner o$ a s0ip $or t0e #etention o$ 0is &essel
be.on# t0e number o$ #a.s allowe# b. t0e
c0arter part. $or loa#ing+unloa#ing+sailing.
KLay daysK
8#a.s allowe# to c0arter parties $or loa#ing an#
unla#ing
- perio# w0en &essel will be #ela.e# in port $or
loa#ing an# unloa#ing.
KE8t!a Lay DaysK
- #a.s w0ic0 $ollowe# a$ter la. #a.s 0a&e elapse#
Deadf!e"$3t
H ( cargo not loa#e# is consi#ere# as #ea#$reig0t@
w0ic0 co&ers t0e amount pai# b. or reco&erable
$rom t0e c0arterer $or t0e portion o$ t0e s0ip<s
capacit. t0e latter contracte# $or but $aile# to
occup..
GOOD' TRAN'2ERRED MA+ &E*
". sol# b. captain to necessar. repairs
2. 9ettisone# $or t0e common sa$et.
4. loss b. reason o$ s0ipwrec5+stran#ing
1. seiCe# b. pirates+enemies
5. su$$er #eterioration+#iminutions
6. increase b. natural cause an# weig0t or siCe
RIG4T' AND O&LIGATION' O2 C4ARTER
)ART+*
(. %$ t0e s0ip owner or s0ip agent
". I$ t0e &essel is c0artere# w0oll. not to
accept cargo $rom ot0ersD
2. !o obser&e represente# capacit.D
4. !o unloa# cargo clan#estinel. place#D
1. !o substitute anot0er &essel i$ loa# is less
t0an 4+5 o$ capacit.D
COMMERCIAL LAW
5. !o lea&e t0e port i$ t0e c0arter #oes not
bring t0e cargo wit0in t0e la. #a.s an# e7tra
la. #a.s allowe#D
6. !o place in a &essel in a goo# con#ition to
na&igateD
'. !o bring cargo to nearest neutral port in case
o$ war or bloc5a#e.
B. %$ t0e c0arterer
". to pa. t0e agree# c0arter price
2. to pa. $reig0tage or unboar#e# cargoes
4. to pa. losses to ot0ers $or loa#ing
uncontracte# cargo an# illicit cargo
1. to wait i$ t0e &essel nee#s repair
5. to pa. e7penses $or #e&iation
RE%!*%%*5$ 5 !3AR"ER PAR"G
(. (t c0artererJs reEuest
". b. aban#oning t0e c0arter an# pa.ing 0al$ o$
t0e $reig0tage
2. error in tonnage or $lag
4. $ailure to place t0e &essel at t0e c0artererJs
#isposal
1. return o$ t0e &essel #ue to pirates@ enemies
or ba# weat0er
5. arri&al at t0e port $or repairs
B. (t s0ip owner<s reEuest
". I$ t0e e7tra la. #a.s terminate wit0out cargo
being place# alongsi#e t0e &essel
2. /ale b. t0e owner o$ t0e &essel be$ore
loa#ing
C. Iortuitous causes
". war
2. bloc5a#e
4. pro0ibition to recei&e cargo
1. embargo
5. inabilit. o$ t0e &essel to na&igate
:. LOAN' ON &OTTOMR+<
RE')ONDENTIA (")6"@")6'@N ")80 bar
e7ams)
!0ese loans are secure# b. t0e owner or captain o$
t0e &essel $or t0e use o$ t0e &essel. In t0e case o$
loans on bottomr.@ t0e securit. o$ t0e loan is t0e
&essel itsel$D w0ile loan on respon#entia@ t0e securit.
o$ t0e loan is t0e cargo.
!0e loan is in t0e nature o$ insurance. !0e loan will
onl. be pai# on t0e sa$e arri&al o$ t0e &essel or cargo
$ails to reac0 t0e port o$ #estination@ t0e cre#itor
loses 0is rig0t to reco&er t0e amount o$ t0e loan.
COMMON ELEMENT' O2 LOAN' ON
&OTTOMR+ AND RE')ONDENTIA
". e7posure o$ securit. or marine peril
2. obligation o$ t0e #ebtor con#itione# onl. upon
sa$e arri&al o$ securit. at t0e point o$ #estination
4+)OT4ECAR+ NAT(RE O2 &OTTOMR+
AND RE')ONDENTIA*
Gene!al Rle* t0e obligation o$ t0e borrower to pa.
is e7tinguis0e# i$ t0e goo#s gi&en as securit. are
absolutel. lost b. reason o$ an acci#ent o$ t0e
&o.age #esignate#@ an# i$ it is pro&en t0at t0e goo#s
were on boar#.
E:CE)TION'*
". loss #ue to in0erent #e$ect
2. loss #ue to t0e barratr. on t0e part o$ t0e captain
4. loss #ue to t0e $ault or malice o$ t0e borrower
1. t0at t0e &essel is engage# in contraban#
5. t0at t0e cargo loa#e# on t0e &essel be #i$$erent
$rom t0at agree# upon
Bottomr.+repon#entia /imple loan
*arine ris5
:ul. establis0e#
e7istence o$ a marine ris5
is necessar.
Not necessar.
Iorm an# manner
*ust be e7ecute# in
accor#ance wit0 t0e
$orm an# manner
prescribe# b. t0e co#e o$
commerce
Iormal reEuisites
o$ an or#inar.
contract will
su$$ice
>egistr. o$ essels
*ust be recor#e# in t0e
registr. o$ essel to be
bin#ing to t0ir# persons
No suc0
registration is
reEuire#
Pre$erence
Pre$erence is e7ten#e# to
t0e last len#er
Pre$erence is
e7ten#e# to t0e
$irst len#er
,0en loan on bottomr. or respon#entia regar#e# as
/imple Loan
". len#er loane# an amount larger t0an t0e &alue o$
t0e ob9ect #ue to $rau#ulent means emplo.e# b. t0e
borrower(art '26 co#e o$ commerce)
2. Iull amount o$ t0e loan is not use# $or t0e cargo
or gi&en on t0e goo#s i$ all o$ t0em coul# not 0a&e
been loa#e#@ t0e balance will be consi#ere# a simple
loan( art '2' Co#e o$ Commerce)
4.I$ t0e e$$ects on w0ic0 t0e mone. is ta5en is not
sub9ecte# to an. ris5('2) Co#e o$ commerce
Note= un#er e7isting laws@ t0e parties to a loan@
w0et0er or#inar. or maritime@ ma. agree on an. rate
o$ interest (Cb circular )05)D pro&i#e# t0e same is
not contrar. to law@ morals@ goo# customs@ public
or#er or public polic..(rt "406 NCC
ACCIDENT' IN MARITIME
COMMERCE52000 ba! e8a%s0
".a&erages
2. (rri&al ?n#er stress
4. collision
1.s0ipwrec5
ABe!a$e
(n e7traor#inar. or acci#ental e7pense incurre#
#uring t0e &o.age in or#er to preser&e t0e cargo@
&essel or bot0@ an# all #amages or #eterioration
su$$ere# b. t0e &essel $rom #eparture to t0e port o$
loa#ing to t0e consignment (ar# 82, Cod! o
comm!rc!)
!0e person w0ose propert. 0as been sa&e#
must contribute to reimburse t0e #amage cause# or
e7pense incurre# i$ t0e situation constitutes general
a&erage.
It is classi$ie# into= (") general or gross a&erage or
(2) simple or particular.
COMMERCIAL LAW
Particular+ simple -ross+ general
d!ini#ion
:amages or e7penses
cause# to t0e &essel
or cargo t0at #i# not
inure to t0e common
bene$it@ an# borne b.
respecti&e owner.( art
80))
:amages or e7penses
#eliberatel. cause# in
or#er to sa&e t0e
&essel@ its cargo
orbot0 $rom real an#
5nown ris5.(8"")
?ia%ili#&
!0e owner o$ t0e
goo#s w0ic0 ga&e
rise to t0e e7pense or
su$$ere# t0e #amage
s0all bear t0is
a&erage.(8"0)
(ll persons 0a&ing
an interest in t0e
&essel an# t0e cargo
t0erein at t0e time o$
t0e a&erage s0all
contribute to satis$.
t0is a&erage(8"2)
!0e insurers an#
len#ers on bottomr.
an# respon#entia
s0all li5ewise
contribute
6um%!rs o in#!r!s#s involv!d
%nl. one interest
in&ol&e#
/e&eral interests is
in&ol&e#
Shar! in #h! dama"!B!$p!ns!
"00T s0are In proportion to t0e
&alue o$ t0e owner<s
propert. sa&e#
Ri"h# #o r!cov!r
No reimbursement !0ere ma. be
reimbursement
Re="s"tes of G!oss o! Gene!al aBe!a$e
". Common #anger
t0at bot0 t0e s0ip an# t0e cargo@
a$ter 0as been loa#e#@ are sub9ect to
t0e &o.age@ or in t0e port o$ loa#ing
or unloa#ing
t0at t0e #anger arises $rom t0e
acci#ents o$ t0e sea@ #ispositions o$
t0e aut0orit. or $aults o$ men@
pro&i#e# t0at t0e circumstances
pro#ucing t0e peril s0oul# be
ascertaine# an# imminent or ma.
rationall. be sai# to be certain an#
imminent.
2.:eliberate /acri$ice
Gen. !le= sacri$ice is ma#e t0roug0 t0e
9ettison o$ t0e cargo or part o$ t0e s0ipis t0rown
o&erboar# :?>IN- !F6 %U(-6.
67ceptions=
a. w0ere t0e sin5ing o$ a &essel is necessar. to
e7tinguis0 a $ire in a port@ roa#stea#s@ cree5
or ba.
b. w0ere cargo is trans$erre# to lig0ten t0e s0ip
on account o$ a storm to $acilitate entr. into
a port.
4./ucess
Pupose=to be able to #eman# general contribution
1.Proper $ormalities an# legal steps
a. proce#ure $or reco&er.
b. assembl. an# #eliberation
c. resolution o$ t0e caption
#. entr. o$ t0e resolution in t0e logboo5
e. #etaile# minutes
$. #eli&er. o$ t0e minutes to t0e maritime9u#icial
aut0orit. o$ t0e $irst port@ wit0in 210ours $rom
arri&al
>ati$ication b. t0e captain un#er oat0.
-oo#s Not Co&ere# B. -eneral (&erage 6&en i$
sacri$ie#=
-oo#s carrie# on #ec5
".goo#s not recor#e# in t0e boo5s or recor#s o$
&essel
2.$uel $or t0e &essel i$ t0ere is more t0an su$$icient
$uel $or t0e &o.age.
36!!I/%N
(ct o$ t0rowing cargo o&erboar# in or#er to lig0ten
t0e &essel
ORDER O2 GOOD' TO &E CA'T
O@ER&OARD IN CA'E O2 .ETTI'ON*
". t0ose w0ic0 are on t0e #ec5@ pre$erring t0e
0ea&iest one wit0 t0e least utilit. o$ &alue
2. t0ose w0ic0 are below t0e upper #ec5 beginning
wit0 t0e one wit0 greatest weig0t an# smallest
&alue 9ettisone# goo#s are not res nullius nor
#eeme# aban#one# wit0in t0e meaning o$ ci&il
law so as to be t0e ob9ect o$ occupation b.
sal&age.
A!!"Bal (nde! st!ess
- arri&al o$ a &essel at a port o$ #estination on
account o$ lac5 o$ pro&ision@ well8$oun#e# $ear
o$ seiCure@ pirates@ or acci#ents in sea #isabling
na&igation
,0en law$ul ,0en
unlaw$ul
,0o bears
e7penses
!0e inabilit. to
continue &o.age is
#ue to lac5 o$
pro&isions@ well
$oun#e# $ear o$
seiCure@
pri&ateers@pirates
or acci#ents o$ t0e
sea #isabling it to
na&igate
". lac5 o$
pro&isions
#ue to
negligence
to carr.
accor#ing to
usage an#
customsD
2.ris5 o$
enemies not
well85nown
or mani$estD
4.#e$ect #ue
to improper
repairD
1.malice@
negligence@
lac5 o$
$oresig0t@
lac5 o$ s5ill
!0e
s0ipowner or
s0ip agent is
liable in case
o$ unlaw$ul
arri&al un#er
stress. But
t0e. s0all
not be liable
$or #amges
cau#e# b. a
reason o$ a
law$ul
arri&al.
Cases of #oll"s"on *
". du! #o #h! aul#, n!"li"!nc! or lac< o s<ill o #h!
cap#ain, sailin" ma#! or #h! compl!m!n# o #h!
v!ss!l88un#er 826@ t0e s0ipowner s0all be liable $or
t0e losses an# #amages
COMMERCIAL LAW
2. du! #o #h! aul# o %o#h v!ss!ls --O un#er 82'@
eac0 &essel s0all su$$er its own losses@ but as regar#s
t0e owners o$ t0e cargoes@ bot0 &essels s0all be
9ointl. an# se&erall. liable
4. )h!r! i# canno# %! d!#!rmin!d )hich o #h! *
v!ss!ls is a# aul# 88] un#er 828@ eac0 &essel s0all
su$$er its own losses@ an# bot0 s0all also be
soli#aril. responsible $or t0e losses an# #amages
cause# to t0eir cargoes
1. collision du! #o or#ui#ous !v!n# or orc! maA!ur!
88] un#er 840@ eac0 &essel s0all bear its own
#amages
5. )h!r! #)o v!ss!ls collid! )i#h !ach o#h!r )i#hou#
#h!ir aul# %u# %& r!ason o #h! aul# o a #hird v!ss!l
88] un#er 84"@ t0e owner o$ t0e t0ir# &essel causing
t0e collision s0all be liable $or t0e losses an#
#amages 6. a &essel w0ic0 is properl. anc0ore# an#
moore# ma. colli#e wit0 t0ose nearb. b. reason o$ a
storm or ot0er cause o$ $orce ma9eure 88] un#er 842@
t0e &essel run into s0all su$$er its own #amages an#
e7penses
Nat"#al Rles to dete!%"ne ne$l"$en#e *
". ,0en 2 &essels are about to enter a port@
t0e $art0er one must allow t0e nearer to enter $irstD i$
t0e. colli#e@ t0e $ault is presume# to be imputable to
t0e one w0o arri&e# later@ unless it can be pro&e#
t0at t0ere was no $ault on its part.
2. ,0en 2 &essels meet@ t0e smaller s0oul#
gi&e t0e rig0t o$ wa. to t0e larger one.
4. ( &essel lea&ing port s0oul# lea&e t0e
wa. clear $or anot0er w0ic0 ma. be entering t0e
same port.
1. !0e &essel w0ic0 lea&es later is presume#
to 0a&e colli#e# against one w0o 0as le$t earlier.
5. !0ere is also a presumption against t0e
&essel w0ic0 sets sail at nig0t.
6. !0e presumption also wor5s against t0e
&essel wit0 sprea# sails w0ic0 colli#es wit0 anot0er
w0ic0 is at anc0or@ an# cannot mo&e@ e&en w0en t0e
crew o$ t0e latter 0as recei&e# wor# to li$t anc0or@
w0en t0ere was not su$$icient time to #o so or t0ere
was $ear o$ a greater #amage or ot0er legitimate
reason.
'. !0e &essel w0ic0 is not properl. moore#
or #oes not obser&e t0e proper #istances@ 0as t0e
presumption against itsel$.
8. !0e &essel w0ic0 is moore# at a place not
use# $or t0e purpose@ or w0ic0 is improperl. moore#
or #oes not 0a&e su$$icient cables@ or w0ic0 0as been
le$t wit0out watc0@ 0as also against itsel$ t0e
presumption.
). !0e same rule applies to t0ose &essels
w0ic0 #o not 0a&e buo.s to in#icate t0e location o$
its anc0ors to pre&ent #amage to t0ese &essels w0ic0
ma. approac0 it.
Qones "n t"%e of #oll"s"ons 5, t"%e zones0*
". all t0e time up to t0e moment w0en t0e
ris5 o$ collision ma. 0a&e sai# to 0a&e begun
88] wit0in t0is Cone@ no rule is applicable
because none is necessar.. 6ac0 &essel is $ree to
#irect its course as it #eems best wit0 re$erence to
t0e mo&ements o$ t0e ot0er &essel.
2. t0e time between t0e moment w0en t0e
ris5 o$ collission begins an# t0e moment w0en it 0as
become a practical necessit..
4. t0e time between t0e moment w0en
collission 0as become a practical certaint. an# t0e
moment o$ actual contact
Effe#t of falt of 1!"B"le$ed Bessel d!"n$ t3"!d
zone *
I$ a &essel 0a&ing a rig0t o$ wa. su##enl.
c0anges its course #uring t0e t0ir# Cone@ in an e$$ort
to a&oi# an imminent collision #ue to t0e $ault o$
anot0er &essel@ suc0 act ma. be sai# to be #one in
e7tremis@ an# e&en i$ wrong@ cannot create
responsibilit. on t0e part o$ sai# &essel wit0 t0e rig0t
o$ wa.. !0us@ it 0as been 0el# t0at $ault on t0e part
o$ t0e sailing &essel at t0e moment prece#ing a
collission@ t0at is@ #uring t0e t0ir# #i&ision o$ time@
#oes not absol&e t0e steams0ip w0ic0 0as su$$ere#
0ersel$ an# a sailing &essel to get into suc0
#angerous pro7imit. as to cause ine&itable 0arm an#
con$usion@ an# a collision results as a conseEuence.
!0e steamer 0a&ing a $ar greater $ault in allowing
suc0 pro7imit. to be broug0t about is c0argeable
wit0 all t0e #amages resulting $rom t0e collissionD
an# t0e act o$ t0e sailing &essel 0a&ing been #one in
e7tremis an# e&en wrong@ is not responsible $or t0e
result.
CA'E' CO@ERED &+ COLLI'ION AND
ALLI'ION*
". one &essel at $ault8 suc0 &essel is liable $or
#amage cause# to innocent &essel as well as
#amages su$$ere# b. owners o$ cargo o$ bot0
&essels
2. bot0 &essels at $ault8 eac0 &essel must bear its
own loss but t0e s0ippers o$ bot0 &essel ma. go
against t0e s0ip owner w0o will be soli#aril.
liable
4. &essel at $ault not 5nown8 same as rule 2
1. t0ir# &essel at $ault8 same rule "
5. $ortuitous e&ent8 no liabilit.@ eac0 bear its own
loss
Rles $oBe!n"n$ LIA&ILITIE' of 1a!t"es "n #ase
of COLLI'ION * 5'==6, '==),'==&, C.99) bar
exams0
". ,0ere collision is #ue to t0e ne$l"$en#e o!
%al"#e of t3e #a1ta"n and<o! ot3e! s3"1 off"#e!s of
one Bessel@ t0e s0ip owner o$ suc0 &essel s0all be
liable $or all resulting #amages.
2. ,0ere collision is #ue to t0e falt of bot3
Bessels@ eac0 &essel s0all su$$er t0eir respecti&e
losses but as regar#s to t0e owners o$ t0e cargoes@
bot0 &essels s0all be 9ointl. an# se&erall. liable.
COMMERCIAL LAW
4. I$ it #annot be dete!%"ned ;3"#3 Bessel "s at
falt@ eac0 &essel s0all su$$er its own loses an# bot0
s0all be soli#aril. liable $or loses or #amages on t0e
cargo. 5DOCTRINE O2 IN'CR(TA&LE
2A(LT0
1. !0e &essels ma. colli#e wit0 eac0 ot0er t0roug0
fo!t"tos eBent o! fo!#e %aNe!e. In w0ic0 case@
eac0 s0all bear its own #amage.
5. !wo &essels ma. colli#e ;"t3ot t3e"! falt bt
by !eason of a t3"!d Bessel. !0e t0ir# &essel s0all
be liable $or losses an# #amages sustaine#.
Re="s"te fo! RECO@ER+ a!"s"n$ f!o% #oll"s"on*
". Protest must be ma#e wit0in 21 0ours be$ore=
a) Competent aut0orit. at t0e point o$
collision or
b) (t t0e $irst port o$ arri&al@ i$ in t0e
P0ilippines an# to t0e P0ilippine
Consul@ i$ t0e collision too5 place
abroa#.
In9uries to persons an# #amage to cargo o$ owners
not on boar# on time o$ collision nee# not be
proteste#.
A!t"#le H,A- Code of Co%%e!#e* In case o$
collision@ t0ere must be a marine protest to reco&er
collision #amageD in suc0 a case@ t0e marine protest
is a con#ition sine Eua non an# not merel. a
#isclaimer unli5e in t0e case o$ arri&al un#er stress
an# s0ipwrec5.
CARRIAGE O2 GOOD' &+ 'EA ACT
(pplicable to all transportation o$ goo#s b. sea in
$oreign tra#e to an# $rom P0ilippine ports (N: #oes
not appl. to purel. #omestic transport.
La;s a11l"#able to a #ont!a#t fo! t3e #a!!"a$e of
$oods by sea*
". :istinguis0 8 common carrier (Ci&il Co#e)
8 pri&ate carrier
2. ,0ere is t0e &essel goingQ
a. Common carrier coming to t0e P0ils.
"st= Ci&il Co#e
2n#= C%-/( (itJs more speci$ic t0an Co#e o$
Commerce)
8 in $oreign tra#e
4r#= Co#e o$ Commerce
b. Pri&ate carrier coming to t0e P0ils. in $oreign
tra#e
"st= C%-/( (because itJs more speci$ic)
2n#= Co#e o$ Commerce
4r#= Ci&il Co#e (pro&isions not on common
carriers e.g. torts@ contracts)
c. Irom t0e P0ils. to a $oreign countr.= appl. laws
o$ suc0 $oreign countr. ((rt. "'54)
8 wit0 respect to &essels #estine# $or $oreign ports@
t0e C%-/( #oesnJt appl. unless parties ma5e it
applicable.
B= In w0at situations #oes C%-/( primaril. appl.Q
(= ,0ere t0e parties e7pressl. stipulate t0at
C%-/( s0all go&ern t0eir respecti&e rig0ts an#
obligations.
B= Can t0e C%-/( appl. in #omestic s0ippingQ
(= -enerall.@ N%.
6VC6P!I%N= w0en parties agree to ma5e it appl..
B= ,0at application #oes C%-/( 0a&e in carriage
o$ passengersQ
(= None. (pplies onl. to carriage o$ goo#s.
W3at "s t3e DTACKLE TO TACKLEE R(LEL
!0e s0ipper s0all be responsible $or t0e goo#s t0e
moment it passes t0roug0 one si#e o$ t0e s0ip $or t0e
purpose o$ loa#ing until it passes t0roug0 t0e ot0er
si#e $or #isc0arging. !0e reason $or t0is being t0at
t0ere are two tac5les in&ol&e# in t0is operationD one
$or loa#ing@ t0e ot0er@ unloa#ing.
!0e s0ipper is responsible $or= Loa#ing@ 4an#ling@
Transport@
Carriage@ Custo#.@ Disc0arge
W3at "s t3e Rle fo! LO'' o! DAMAGE to t3e
$oodsL 5'==., '==6, .9999 C .996 bar exams0
If t3e da%a$e "s a11a!ent@ t0en notice must be
imme#iatel. gi&en. !0e notice ma. eit0er be in
writing or orall..
If t3e da%a$e "s not a11a!ent@ notice must be
gi&en wit0in t0ree #a.s $rom suc0 #eli&er..
Iailure to gi&e notice is not a bar to t0e action to $ile
pro&i#e# t0e $iling o$ t0e suit is ma#e wit0in one
.ear $rom #eli&er. to consignee.
Not"#e !e="!e%ents*
C%-/(= /ec. 4(6)
I$ loss or #amage is apparent 8 protest as soon as
receipt o$ goo#s
I$ not apparent 8] wit0in 4 #a.s o$ #eli&er.
>ationale be0in# t0e 48#a. notice an# relati&el. s0ort
prescripti&e perio#=
8 to pro&i#e carrier an opportunit. to loo5 $or
t0e lost goo#s
8 to #isco&er w0o was at $ault
8in case o$ transs0ipment@ to #etermine@ w0en
an# w0ere #amage occurre#.
Co#e o$ Commerce= (rt. 466
apparent 8 protest at time o$ receipt
non8apparent 8 wit0in 21 0ours a$ter receipt
,(>/(,= (rt. 26
in case o$ #amage o$=
baggage 8 wit0in 4 #a.s $rom receipt
goo#s 8 wit0in ' #a.s
in case o$ #ela.= wit0in "1 #a.s $rom receipt
)!es#!"1t"Be 1e!"od
COMMERCIAL LAW
t0e carrier an# t0e agent s0all be
#isc0arge# $orm liabilit. in respect o$ loss or
#amage unless suit is broug0t wit0in " .ear
$rom=
(") in case o$ #amage# goo#s= $rom t0e time #eli&er.
o$ t0e goo#s was ma#e
(2) in case o$ non8#eli&er. (i.e.@ lost goo#s)= $rom t0e
#ate t0e goo#s s0oul# 0a&e been #eli&ere#
Loss or #amage as applie# to t0e C%-/(
contemplates a situation w0ere no #eli&er. at all
times was ma#e b. t0e s0ipper o$ t0e goo#s because
t0e same 0a# peris0e#@ gone out o$ commerce@ or
#isappeare# in suc0 a wa. t0at t0eir e7istence is
un5nown or t0e. cannot be reco&ere#. It #oes not
inclu#e a situation w0ere t0ere was in#ee# a #eli&er.
but to t0e wrong person or a mis#eli&er. (An" vs.
Am!rican s#!amship A"!nci!s +9 scra+*3) an#
#amage arising $rom #ela. or late #eli&er.( >i#sui
1.S.M lin! l#d vs CA *87 scra 3,,) in suc0 instance
t0e ci&il co#e rules on prescription s0all appl..
Fence@ in case o$ mis#eli&er. (#eli&er. to
wrong person) or con&ersion o$ t0e goo#s@ t0e
rules on prescription $oun# in t0e Ci&il Co#e
s0all appl. ("0 .ears $or contractsD 1 .ears $or
tortuous obligations)
!0e one .ear perio# is suspen#e# b.=
a.t0e e7press agreement o$ t0e parties(?ni&ersal
/0ipping Lines Inc &s. I(C "))0)
b.t0e $iling o$ an action in court until it is #ismisse#
t0e ".r perio# s0all run $rom #eli&er. o$ t0e
last pac5age an# is not suspen#e# b.
e7tra9u#icial #eman#.
t0e one .ear perio# s0all run $rom #eli&er.
to t0e arrasstre operator an# not to t0e
consignee
'AL@AGE LAW 5ACT 27170
I. 2O(R REI(I'ITE' 2OR 'AL@AGE
REWARD TO &E WARRANTED*
(. !0ere must be a &ali# ob9ect o$ sal&age@
i.e.@ &essel@ cargo@ $reig0t or wrec5 o$
&essel or cargoD
B. /uc0 ob9ect must 0a&e been e7pose# to
marine perilD
C. /al&age ser&ices must be ren#ere#
&oluntaril.@ i.e.@ not arising $rom pre8
e7isting #ut.D
:. /al&age e$$ort must be success$ul.
II. '4I)WRECK AND DERELICT*
(. %hip#rec+- ( s0ipwrec5 re$ers to t0e
in9uries su$$ere# b. t0e &essel #isabling
t0e latter $or na&igation.
B. >erelict- It re$ers to t0e &essel or cargo
aban#one# at sea b. t0ose entruste# b.
suc0 &essel or cargo. ( #erelict is a
&essel or cargo ba#l. #amage# an#
aban#one# b. t0e crew to t0e merc. o$
t0e sea. *ere aban#onment o$ suc0
&essel or cargo #oes not ma5e it res
nullius so t0at an.bo#. can claim it. !0e
proper proce#ure must be $ollowe#.
III. )ROCED(RE*
(. I$ t0e &essel is aban#one#@ sal&or must
tow it to t0e nearest port w0ere it will be
#eli&ere# to t0e *unicipal !reasurer or
to t0e Collector o$ Customs w0o will
a#&ertise t0e $act o$ sal&ageD
B. I$ owner o$ sal&age# &essel appears@ 0e
ma. ta5e possession o$ t0e &essel an#
must pa. a rewar#@ t0e amount o$ w0ic0
is not more t0an 50T o$ t0e &alue o$ t0e
&esselD
C. I$ no claim $or t0e &essel is ma#e wit0in
4 mont0s a$ter t0e publication o$ t0e
a#&ertisement@ t0e *unicipal !reasurer
will sell t0e propert. sa&e# at a public
auction an# t0e rewar# an# e7penses
s0all be #e#ucte# $rom t0e procee#s.
!0e balance is #eposite# wit0 t0e
!reasur.D
:. I$ no one claims t0e same a$ter 4 .ears@
^ s0all go to t0e sal&ors an# t0e ot0er
0al$ to t0e go&ernment.
I@. CON'IDERATION' IN DETERMINING
T4E AMO(NT O2 REWARD
'-0 irst case
(. alue o$ t0e propert. sa&e#D
B. Yeal emplo.e# b. t0ose w0o ma#e t0e
sal&ageD
C. :anger to t0e li&es o$ t0ose w0o
participate#D
:. Number o$ persons w0o too5 partD
6. /er&ices ren#ere#D
I. 67penses incurre#
2.) %econd case: I$ one &essel sa&es anot0er
&essel@ t0e rewar# going to t0e $ormer s0all
be #i&i#e# as $ollows=
(. ^ to t0e s0ip ownerD
B. Z to t0e captainD an#
C. Z to t0e crew.
WAR'AW CON@ENTION
ConBent"on fo! t3e (n"f"#at"on of Ce!ta"n Rles
Relat"n$ to Inte!nat"onal T!ans1o!tat"on by A"!
!0e ,arsaw Con&ention=
man#ates carriers to issue passenger
tic5etsD
reEuires carriers to issue baggage
c0ec5s $or c0ec5e# luggageD
creates a limitation perio# o$ 2 .ears
wit0in w0ic0 a claim must be broug0t
((rticle 2))D an#
limits a carrierJs liabilit. to at most=
250@000 Irancs or "6@600 /pecial
:rawing >ig0ts (/:>) $or
personal in9ur.D
"' /:> per 5ilogram $or c0ec5e#
COMMERCIAL LAW
luggage an# cargo@ or _20?/:
per 5ilogram $or non8signatories
o$ t0e amen#e# *ontreal
Protocols.
5@000 Irancs or 442 /:> $or t0e
0an# luggage o$ a tra&eller.
I. NAT(RE AND 'CO)E O2 WAR'AW
CON@ENTION
'CO)E* (pplies to all international carriage o$
persons@ luggage or goo#s per$orme# b. aircra$t $or
rewar#. It applies eEuall. to gratuitous carriage b.
aircra$t per$orme# b. an air transport un#erta5ing.
Inte!nat"onal Ca!!"a$e*
*eans an. carriage in w0ic0@ accor#ing to t0e
contract ma#e b. t0e parties@ t0e place o$
#eparture an# t0e place o$ #estination@ w0et0er
or not t0ere be a brea5 in t0e carriage or a
trans0ipment@ are situate# eit0er wit0in t0e
territories o$ two Fig0 Contracting Parties@ or
wit0in t0e territor. o$ a single Fig0 Contracting
Part.@ i$ t0ere is an agree# stopping place wit0in
a territor. sub9ect to t0e so&ereignt.@ suCeraint.@
man#ate or aut0orit. o$ anot0er Power@ e&en
t0oug0 t0at Power is not a part. to t0is
Con&ention.
0h! 4arsa) Conv!n#ion #o )hich #h!
R!pu%lic o #h! Philippin!s is a par#& and
)hich has #h! orc! and !!c# o la) in #his
coun#r& appli!s #o all in#!rna#ional
#ranspor#a#ion o p!rsons, %a""a"! or "oods
p!rorm!d %& an aircra# "ra#ui#ousl& or or
hir!.
,0en a contract o$ carriage is a contract o$
international transportation@ pro&isions o$
t0e Con&ention automaticall. appl. an#
e7clusi&el. go&ern t0e rig0ts an# liabilities
o$ t0e airline an# its passengers. ((merican
(irlines &s. C(@ -.>. No. ""6011815 *arc0
)@ 2000)
T;o #ate$o!"es of Inte!nat"onal
T!ans1o!tat"on #oBe!ed*
".) t0at w0ere t0e place o$ #eparture
an# t0e place o$ #estination are
situate# wit0in t0e territories o$ two
Fig0 Contracting Parties regar#less
o$ w0et0er or not t0ere be a brea5 in
t0e transportation or a
transs0ipmentD an#
2.) t0at w0ere t0e place o$ #eparture
an# t0e place o$ #estination are
wit0in t0e territor. o$ a single Fig0
Contracting Part. i$ t0ere is an
agree# stopping place wit0in a
territor. sub9ect to t0e so&ereignt.@
man#ate@ or aut0orit. o$ anot0er
power@ e&en t0oug0 t0e power is not
a part. o$ t0e Con&ention. (*apa &s.
C(@ -.>. No. "22408 3ul. 8@ "))')
(Lhuillier vs- <ritish Air#ays, G-R- $o- ')'9=.
8arch '6, .9'90
,0en t0e airline tic5ets e&i#encing t0e
contract o$ transportation between *apa an#
!,(@ w0ic0 were purc0ase# in Bang5o5@ s0ow
t0e place o$ #eparture an# t0e place o$
#estination to be wit0in t0e ?nite# /tates@ t0e
contract cannot come wit0in t0e pur&iew o$ t0e
$irst categor. o$ LInternational !ransportation.M
!0e lin5age o$ t0e contract to t0e *anila8
Los (ngeles tra&el tic5ets obtaine# b. t0e
*apas $rom P(L cannot bring t0e arrangements
wit0in t0e secon# categor.@ w0ere t0e same
were $ille#8up onl. b. t0e *apas in response to
t0e Euer. LUour Complete Intinerar.M at t0e
time t0e. claime# $or t0eir lost pieces o$
baggage. (8apa vs- !A, G-R- $o- '..(9& @uly
&, '==)0
It does not 3o;eBe! 1!e#lde o1e!at"on of t3e
C"B"l Code o! ot3e! 1e!t"nent la;s*
(lt0oug0 t0e ,arsaw Con&ention 0as t0e
$orce an# e$$ect o$ law in t0is countr.@ being a
treat. commitment assume# b. t0e P0ilippine
go&ernment@ sai# con&ention #oes not operate as
an e7clusi&e enumeration o$ t0e instances $or
#eclaring a carrier liable $or breac0 o$ contract
o$ carriage or as an absolute limit o$ t0e e7tent
o$ t0at liabilit.. !0e ,arsaw Con&ention
#eclares t0e carrier liable in t0e enumerate#
cases an# un#er certain limitations. Fowe&er@ it
must not be construe# to preclu#e t0e operation
o$ t0e Ci&il Co#e an# pertinent laws. (PAL vs-
!A, G-R- $o- ''=7/' 8ay '), '==70
II. 'ALIENT A')ECT' O2 T4E WAR'AW
CON@ENTION
A. )!oB"s"on on t3e Balat"on of #a!$o
(rticle 22. (") In t0e transportation o$
passengers@ t0e liabilit. o$ t0e carrier $or eac0
passenger s0all be limite# to t0e sum o$
"25@000 $rancs. ,0ere in accor#ance wit0 t0e
law o$ t0e court to w0ic0 t0e case is
submitte#@ #amages ma. be awar#e# in t0e
$orm o$ perio#ical pa.ments@ t0e eEui&alent
capital &alue o$ t0e sai# pa.ments s0all not
e7cee# "25@000 $rancs. Ne&ert0eless@ b.
special contract@ t0e carrier an# t0e passenger
ma. agree to a 0ig0er limit o$ liabilit..
(rt 25 (") !0e carrier s0all not be entitle# to
a&ail 0imsel$ o$ t0e pro&isions o$ t0is
Con&ention w0ic0 e7clu#e or limit 0is
liabilit.@ i$ t0e #amage is cause# b. 0is will$ul
miscon#uct or b. suc0 #e$ault on 0is part as@
in accor#ance wit0 t0e law o$ t0e court to
w0ic0 t0e case is submitte#@ is consi#ere#
COMMERCIAL LAW
eEui&alent to will$ul miscon#uct.
(#mitte#l.@ in a contract o$ air carriage a
#eclaration b. t0e passenger o$ a 0ig0er &alue
is nee#e# to reco&er a greater amount@ an# t0at
t0e air carrier is not liable $or loss o$ baggage in
an amount in e7cess o$ t0e limits speci$ie# in
t0e tari$$ w0ic0 was $ile# wit0 t0e proper
aut0orities@ suc0 tari$$ being bin#ing on t0e
passenger regar#less o$ 0is lac5 o$ 5nowle#ge
t0ereo$ or assent t0ereto. NeBe!t3eless- t3e!e
#an be no bl"nd !el"an#e on ad3es"on of
#ont!a#ts ;3e!e*
".) t0e $acts an# circumstances 9usti$. t0at
t0e. s0oul# be #isregar#e#D an#
2.) w0en t0e bene$its o$ limite# liabilit. 0a&e
been wai&e# w0en t0e air carrier $aile# to
raise timel. ob9ections #uring t0e trial
w0en Euestions an# answers regar#ing
t0e actual claims an# #amages sustaine#
b. t0e passenger were as5e#. (<ritish
Air#ays vs- !A, G-R- $o- '.'&./
@anuary .=, '==&0
&. )!oB"s"on on l"%"t"n$ l"ab"l"ty
!0e Con&entionJs pro&isions #o not Oregulate or
e7clu#e t0e $ollowing areas=
".) liabilit. $or ot0er breac0es o$ contract
b. t0e carrierD
2.) miscon#uct o$ its o$$icers an#
emplo.eesD or
4.) $or some particular or e7ceptional t.pe
o$ #amage. ($orth#est Airlines vs- !A,
G-R- $o- '.9((/ @anuary .9, '==&)
@a!y"n$ B"e;s as !e$a!ds %"s#ond#t*
1
st
@"e; G Ots"de WC CoBe!a$e
!0e ,arsaw Con&ention #enies to t0e
carrier a&ailment o$ t0e pro&isions )hich
!$clud! or limi# his lia%ili#&, i #h! dama"! is
caus!d %& his )ilul misconduc# or %& such
d!aul# on his par# as@ in accor#ance wit0 t0e
law o$ t0e court seiCe# o$ t0e case@ is
consi#ere# to be eEui&alent to wil$ul
miscon#uct@ or i$ t0e #amage is similarl.
cause# b. an. agent o$ t0e carrier acting wit0in
t0e scope o$ 0is emplo.ment.
?n#er #omestic law an# 9urispru#ence (t0e
P0ilippines being t0e countr. o$ #estination)@
t0e atten#ance o$ gross negligence (gi&en t0e
eEui&alent o$ $rau# or ba# $ait0) 0ol#s t0e
common carrier liable $or all #amages w0ic0
can be reasonabl. attribute#@ alt0oug0
un$oreseen@ to t0e non8per$ormance o$ t0e
obligation@ inclu#ing moral an# e7emplar.
#amages. (%abena <eligian Aorld Air#ays vs-
!A, G-R- $o- '9/7&6 8arch '/, '==70
2
nd
@"e; 6 To!t"os #ond#t as $!ond fo!
t3e 1et"t"one!>s #o%1la"nt "s ;"t3"n t3e
1!B"e; of t3e Wa!sa; ConBent"on
(Lhuillier vs- <ritish Air#ays, G-R- $o-
')'9=. 8arch '6, .9'90
C. On l"%"tat"on of t"%e to f"le a#t"on
(rticle 2). (") !0e rig0t to #amages s0all be
e7tinguis0e# i$ an action is not broug0t
wit0in two .ears@ rec5one# $rom t0e #ate o$
arri&al at t0e #estination@ or $rom t0e #ate on
w0ic0 t0e aircra$t oug0t to 0a&e arri&e#@ or
$rom t0e #ate on w0ic0 t0e carriage stoppe#.
(2) !0e met0o# o$ calculating t0e perio# o$
limitation s0all be #etermine# b. t0e law o$
t0e court to w0ic0 t0e case is submitte#.
!0e two (2)8.ear limitation incorporate# in
(rt. 2) as an absolute bar to suit an# not to be
ma#e sub9ect to t0e &arious tolling pro&isions
o$ t0e laws o$ t0e $orum. !0is t0ere$ore
$orecloses t0e application o$ our own rules on
interruption o$ prescripti&e perio#s. (rticle 2)@
par. (2)@ was inten#e# onl. to let local laws
#etermine w0et0er an action 0a# been
commence# wit0in t0e two (2)8.ear perio#.
(4nited Airlines vs- 4y, G-R- $o- '.))7&
$ovember '=, '===0
)!es#!"1t"on of a#t"on #oBe!ed by Wa!sa;
#onBent"on d"st"n$"s3ed f!o% t3ose a!"s"n$
f!o% to!ts*
>espon#entJs complaint re&eals t0at 0e is
suing on two (2) causes o$ action= (a) t0e
s0abb. an# 0umiliating treatment 0e recei&e#
$rom petitionerJs emplo.ees at t0e /an
Irancisco (irport w0ic0 cause# 0im e7treme
embarrassment an# social 0umiliationD an#@ (b)
t0e slas0ing o$ 0is luggage an# t0e loss o$ 0is
personal e$$ects amounting to ?/ _5@4"0.00.
,0ile 0is secon# cause o$ action K an
action $or #amages arising $rom t0e$t or
#amage to propert. or goo#s K is well wit0in
t0e boun#s o$ t0e ,arsaw Con&ention@ 0is $irst
cause o$ action K an ac#ion or dama"!s
arisin" rom #h! misconduc# o #h! airlin!
!mplo&!!s and #h! viola#ion o r!spond!n#Ps
ri"h#s as pass!n"!r Q cl!arl& is no#.
ConseEuentl.@ inso$ar as t0e $irst cause o$
action is concerne#@ respon#entJs $ailure to $ile
0is complaint wit0in t0e two (2)8.ear limitation
o$ t0e ,arsaw Con&ention #oes not bar 0is
action since petitioner airline ma. still be 0el#
liable $or breac0 o$ ot0er pro&isions o$ t0e Ci&il
Co#e w0ic0 prescribe a #i$$erent perio# or
proce#ure $or instituting t0e action@
speci$icall.@ Ar#. ++/, #h!r!o )hich pr!scri%!s
our (/) &!ars or ilin" an ac#ion %as!d on
#or#s. 5(n"ted A"!l"nes vs- 4y, G-R- $o-
'.))7& $ovember '=, '===)
(se of delay"n$ ta#t"#s by t3e #a!!"e! ;on>t
1!e#lde enfo!#e%ent of a#t"on eBen beyond
t3e 1!es#!"1t"Be 1e!"od*
COMMERCIAL LAW
:espite t0e e7press man#ate o$ (rt. 2) o$
t0e ,arsaw Con&ention t0at an action $or
#amages s0oul# be $ile# wit0in two (2) .ears
$rom t0e arri&al at t0e place o$ #estination@ suc0
rule s0all not be applie# in t0e instant case
because o$ t0e #ela.ing tactics emplo.e# b.
petitioner airline itsel$. (?nite# (irlines &s. ?.@
supra)
I@. .!"sd"#t"on of Lo#al Co!ts nde! t3e
Wa!sa; ConBent"on
(rt. " (2) Ior t0e purposes o$ t0is Con&ention t0e
e7pression Ointernational carriageO means an.
carriage in w0ic0@ accor#ing to t0e contract ma#e
b. t0e parties@ t0e place o$ #eparture an# t0e place
o$ #estination@ w0et0er or not t0ere be a brea5 in
t0e carriage or a trans0ipment@ are situate# eit0er
wit0in t0e territories o$ two Fig0 Contracting
Parties@ or wit0in t0e territor. o$ a single Fig0
Contracting Part.@ i$ t0ere is an agree# stopping
place wit0in a territor. sub9ect to t0e so&ereignt.@
suCeraint.@ man#ate or aut0orit. o$ anot0er
Power@ e&en t0oug0 t0at Power is not a part. to
t0is Con&ention. ( carriage wit0out suc0 an
agree# stopping place between territories sub9ect
to t0e so&ereignt.@ suCeraint.@ man#ate or
aut0orit. o$ t0e same Fig0 Contracting Part. is
not #eeme# to be international $or t0e purposes o$
t0is Con&ention. (6mp0asis supplie#)
(rt. "'. !0e carrier s0all be liable $or #amage
sustaine# in t0e e&ent o$ t0e #eat0 or woun#ing o$
a passenger or an. ot0er bo#il. in9ur. su$$ere# b.
a passenger@ i$ t0e acci#ent w0ic0 cause# t0e
#amage so sustaine# too5 place on boar# t0e
aircra$t or in t0e course o$ an. o$ t0e operations o$
embar5ing or #isembar5ing.
(rt 28 (") (n action $or #amages must be broug0t
at t0e option o$ t0e plainti$$@ in t0e territor. o$ one
o$ t0e Fig0 Contracting Parties@ eit0er be$ore t0e
court o$ t0e #omicile o$ t0e carrier or o$ 0is
principal place o$ business or w0ere 0e 0as a
place o$ business t0roug0 w0ic0 t0e contract 0as
been ma#e@ or be$ore t0e court at t0e place o$
#estination.
D Dest"nat"onE Bs. DA$!eed 'to11"n$ )la#eE
(rticle "(2) also #raws a #istinction between
a O#estinationO an# an Oagree# stopping place.O It is
t0e O#estinationO an# not an Oagree# stopping placeO
t0at controls $or purposes o$ ascertaining 9uris#iction
un#er t0e Con&ention.
!0e contract is a single un#i&i#e# operation@
beginning wit0 t0e place o$ #eparture an# en#ing
wit0 t0e ultimate #estination. !0e use o$ t0e singular
in t0e e7pression in#icates t0e un#erstan#ing o$ t0e
parties to t0e Con&ention t0at e&er. contract o$
carriage 0as one place o$ #eparture an# one place o$
#estination. (n interme#iate place w0ere t0e
carriage ma. be bro5en is not regar#e# as a Oplace o$
#estination.O (Lhuillier vs- <ritish Air#ays, G-R-
$o- ')'9=. 8arch '6, .9'9)
.!"sd"#t"onal C3a!a#te! of A!t. 2H
,e $urt0er 0el# t0at (rticle 28(") o$ t0e ,arsaw
Con&ention is 9uris#ictional in c0aracter. !0us=
( number o$ reasons ten#s to support t0e
c0aracteriCation o$ (rticle 28(") as a 9uris#iction an#
not a &enue pro&ision. Iirst@ t0e wor#ing o$ (rticle
42@ w0ic0 in#icates t0e places w0ere t0e action $or
#amages OmustO be broug0t@ un#erscores t0e
man#ator. nature o$ (rticle 28("). /econ#@ t0is
c0aracteriCation is consistent wit0 one o$ t0e
ob9ecti&es o$ t0e Con&ention@ w0ic0 is to Oregulate
in a uni$orm manner t0e con#itions o$ international
transportation b. air.O !0ir#@ t0e Con&ention #oes
not contain an. pro&ision prescribing rules o$
9uris#iction ot0er t0an (rticle 28(")@ w0ic0 means
t0at t0e p0rase Orules as to 9uris#ictionO use# in
(rticle 42 must re$er onl. to (rticle 28("). In $act@
t0e last sentence o$ (rticle 42 speci$icall. #eals wit0
t0e e7clusi&e enumeration in (rticle 28(") as
O9uris#ictions@O w0ic0@ as suc0@ cannot be le$t to t0e
will o$ t0e parties regar#less o$ t0e time w0en t0e
#amage occurre#.
7 7 7 7
In ot0er wor#s@ w0ere t0e matter is go&erne# b. t0e
,arsaw Con&ention@ 9uris#iction ta5es on a #ual
concept. 3uris#iction in t0e international sense must
be establis0e# in accor#ance wit0 (rticle 28(") o$
t0e ,arsaw Con&ention@ $ollowing w0ic0 t0e
9uris#iction o$ a particular court must be establis0e#
pursuant to t0e applicable #omestic law. %nl. a$ter
t0e Euestion o$ w0ic0 court 0as 9uris#iction is
#etermine# will t0e issue o$ &enue be ta5en up. !0is
secon# Euestion s0all be go&erne# b. t0e law o$ t0e
court to w0ic0 t0e case is submitte#. (L0uillier &s.
Britis0 (irwa.s@ /upra.)
)(&LIC 'ER@ICE LAW
W3at "s a 1bl"# t"l"tyL (.999 bar exams0
( pu%lic u#ili#& is a business or ser&ice engage# in
regularl. suppl.ing t0e public wit0 some commo#it.
or ser&ice o$ public conseEuence suc0 as electricit.@
gas@ water@ transportation@ telep0one or telegrap0
ser&ice. (part $rom statutes w0ic0 #e$ine t0e public
utilities t0at are wit0in t0e pur&iew o$ suc0 statutes@
it woul# be #i$$icult to construct a #e$inition o$ a
public utilit. w0ic0 woul# $it e&er. concei&able
case. (s its name in#icates@ 0owe&er@ t0e term
public utilit. implies a public use an# ser&ice to t0e
public. (Am. .ur. *d ;. ,/, p.5/9-0 (Albano vs
Reyes0
ORDINAR+ AND )RIMAR+ )(R)O'E O2
T4E )(&LIC 'ER@ICE LAW
%>:IN(>U P?>P%/6=
!o sub9ect public ser&ices to state control
an# regulation.
/P6CIIIC P?>P%/6/=
COMMERCIAL LAW
". !o secure a#eEuate@ sustaine#
ser&ice $or t0e public at t0e least
possible cost@ an# protect t0e public
against unreasonable c0arges an#
poor ine$$icient ser&ice.
2. !o protect an# conser&e in&estments
w0ic0 0a&e alrea#. been ma#e $or
public ser&ice@ an# pre&ent ruinous
competition.
&A'I' O2 T4E LEGI'LATI@E )OWER TO
REG(LATE )(&LIC 'ER@ICE'*
P%LIC6 P%,6>@ $or t0e protection o$ t0e
public as well as t0e utilities t0emsel&es.
(Pantranco &. P./.C.@ '0 P0il 22")
C%N/!I!?!I%N(L B(/I/= C%N/!I!?!I%N(L B(/I/=
". (>!ICL6 VII@ /6C!I%N ""=
] ( $ranc0ise@ certi$icate@ or an. ot0er
$orm o$ aut0oriCation $or t0e operation
o$ public utilit. s0all be grante# to=
- Iilipino CitiCens
- Corporations or associations
organiCe# un#er P0ilippine
Laws w0ere at least 60T o$
t0e capital is owne# b.
Iilipino CitiCens.
- "00T Iilipino *anagement
] *ass me#ia an# commercial
telecommunications s0all be=
- "00T Iilipino Capital@ an#
- "00T Iilipino management
2. (>!ICL6 VII@ /6C "'=
In times o$ national emergenc.@ w0en t0e
public interest so reEuires@ t0e /tate ma.
#uring t0e emergenc. an# un#er reasonable
terms@ temporaril. ta5e o&er or #irect t0e
operation o$ an. pri&ate owne# public utilit.
or business a$$ecte# wit0 public interests.
4. (>!ICL6 VII@ /6C!I%N "8
!0e state ma.@ in t0e interest o$ national
wel$are or #e$ense@ establis0 an# operate
&ital in#ustries an# upon pa.ment o$ 9ust
compensation@ trans$er to public owners0ip
utilities an# ot0er pri&ate enterprises to be
operate# b. t0e go&ernment.
1. (>!ICL6 VII@ /6C!I%N ")
!0e state s0all regulate or pro0ibit
monopolies w0en t0e public interest so
reEuiresD no combination in restraint o$ tra#e
or un$air competition s0all be allowe#
D"st"n$"s3 a Ce!t"f"#ate of )bl"# ConBen"en#e
f!o% a Ce!t"f"#ate of )bl"# ConBen"en#e and
Ne#esss"ty
( cpc is issue# w0ene&er t0e Commission
$in#s t0at t0e operation o$ t0e propose# public
ser&ice will promote t0e public interests in a proper
an# suitable manner@ $or w0ic0 a municipal or
legislati&e $ranc0ise is not necessar.. %n t0e ot0er
0an#@ cpcn is issue# upon appro&al o$ an. political
sub#i&ision o$ t0e P0ilippines w0en in t0e
9u#gement o$ t0e Commission@ suc0 $ranc0ise or
pri&ilege will properl. conser&e t0e public interest
(PereC@ !ransportation Laws an# Public ser&ice (ct).
O22ICE' NOW C4ARGED WIT4
EN2ORCEMENT O2 )(&LIC 'ER@ICE LAW
!0e Public /er&ice Commission 0as been abolis0e#.
!0e $ollowing replace# it=
". L(N: !>(N/P%>!(!I%N 8 :epartment
o$ !ransportation an# Communication
(:%!C) an# t0e Lan# !ransportation
Iranc0ising an# >egulator. Boar# (L!I>B)
2. ,(!6> !>(N/P%>!(!I%N 8 *aritime
In#ustr. (ut0orit. (*(>IN()
4. (I> !>(N/P%>!(!I%N 8 (ir
!ransportation %$$ice ((!%) 0ea#e# b. an
assistant secretar. an# t0e Ci&il (eronautics
Boar#@ w0ic0 0as been place# un#er t0e
:%!C as an attac0e# agenc..
1. !6L6C%**?NIC(!I%N/ 8 National
!elecommunications Commission@ w0ic0
0as been place# un#er t0e :%!C as an
attac0e# agenc..
5. 6N6>-U 8 Boar# o$ 6nerg. but trans$erre#
to t0e 6nerg. >egulator. Boar# (6>B)
6. ,(!6>,%>A/ 8 National ,ater
>esources Council
LIMITATION' ON T4E )OWER' O2 T4E
REG(LATOR+ &OARD'-
COMMI''ION' AND CO(NCIL'*
1. Gene!al*
Powers are limite# $rom t0ose grante# in
t0e legislation creating t0e bo#..
2. Const"tt"onal*
>egulations impose# must not 0a&e t0e
e$$ect o$ #epri&ing an owner o$ 0is propert.
wit0out #ue process o$ law nor con$iscating
or appropriating pri&ate propert. wit0out
9ust compensation.
,. .d"#"al*
Boar#s@ commissions are not 9u#icial
tribunals an# t0ere$ore cannot #etermine
9u#icial Euestions suc0 as &ali#it. o$
contract.
?. .!"sd"#t"on*
67ten#s onl. to persons engage# in
public utilities@ or o&er a public utilit.@
w0ic0 0ol#s a Certi$icate o$ Public
Con&enience.
COMMERCIAL LAW
&. .(RI'DICTION
General Rule: %&er persons engage# in
public utilities@ or o&er a public utilit.@
w0ic0 0ol#s a Certi$icate o$ Public
Con&enience.
Exemption: &iolators o$ a &ali# regulation
promulgate# un#er t0e law
D"st"n$"s3 Le$"slat"Be 2!an#3"se f!o% a C)C
( $ranc0ise is a grant or pri&ilege $rom
t0e so&ereign power@ w0ile t0e certi$icate is a $orm
o$ regulation t0roug0 an a#ministrati&e agenc..
a $ranc0ise is a propert. rig0t an# cannot
be re&o5e# or $or$eite# wit0out #ue process o$ law
(PL:!@ Co. &. N!C an# C6LLC%*@ Inc. (67press
!elecommunications Co.@Inc. -.>. No. 88101@ "8
%ctober "))0)@ w0ereas a CPC or a CPCN as $ar as
t0e interest o$ t0e /tate is concerne# @ constitutes
neit0er a $ranc0ise nor a contract@ con$ers no
propert. rig0t@ an# is a mere license or a pri&ilege.
!0e 0ol#er o$ sai# certi$icate #oes not acEuire a
propert. rig0t in t0e route co&ere# t0ereb.. Nor #oes
it con$er upon t0e 0ol#er an. proprietar. rig0t or
interests or $ranc0ise in t0e public 0ig0wa.s.
>e&ocation o$ t0is certi$icate #epri&es 0im o$ no
&este# rig0t. New an# a##itional bur#ens alteration
o$ t0e certi$icate@ or e&en re&ocation or annulment
t0ereo$ is reser&e# to t0e /tate (Lugue &. illegas@
-.>. No. L822515@ 28 No&ember ")6)).
Essent"als befo!e G!ant"n$ a C)C< C)CN
". !0e granter must be a citiCen o$ t0e
P0ilippines or entit. si7t. percent o$ w0ic0
is owne# b. suc0 citiCens.
2. !0e grantee must 0a&e su$$icient $inancial
capabilit. to un#erta5e t0e ser&ice an#@
4. !0e ser&ice will promote public interests
an# con&enience in a proper an# suitable
manner.
Note= !0e o&erri#ing principle is a public interest@
necessit. an# con&enience (/un#iang N(Euino@
>e&iewer on Commercial Law).
Co&erage o$ CPC
a $err. boat ser&ice is consi#ere# as a continuation
o$ t0e 0ig0wa. w0en crossing ri&ers or la5es @ w0ic0
are small bo#ies o$ waterD 0ence a lan#
transportation compan. is no longer reEuire# to
secure a separate CPC in or#er to operate a $err.
boat $or t0e use o$ its buses.
G!onds fo! ReBo#at"on of Ce!t"f"#ate
". !0e 0ol#er &iolates or contumaciousl.
re$uses to compl. wit0 an. or#er@ rule or
regulation o$ t0e commission (/ec."6(n)o$
Public /er&ice (ct)
2. !0e 0ol#er is a mere #umm.
4. !0e operator cease# operation an# place#
0is buses on storageD or
1. !0e operator aban#ons totall. t0e ser&ice
(*anCanal &. (use9o@ No. L84"056@ (ugust
1@ ")88).
?nlaw$ul (cts o$ Public ?tilit. Companies
". 6ngagement in public ser&ice business
wit0out $irst securing t0e proper certi$icate
2. Pro&i#ing or maintaining unsa$e@ improper
or ina#eEuate ser&ice as #etermine# b. t0e
proper aut0orit.
4. Committing an. act o$ unreasonable an#
un9ust pre$erential treatment to an.
particular person@ corporation or entit. as
#etermine# b. t0e proper aut0orit.
1. >e$using or neglecting to carr. public mail
upon reEuest (/ecs."8 N")).
)!"o! Old O1e!ato! Rle
Be$ore permitting a new operator to in&a#e
t0e territor. o$ anot0er alrea#. establis0e# wit0 a
cpc@ t0e prior operator must $irst be gi&en t0e
opportunit. to e7ten# its ser&ice in or#er to meet
public nee#s in t0e matter o$ transportation. It means
t0at a public utilit. operator s0oul# be s0iel#e# $rom
ruinous competition b. a$$or#ing 0im t0e
opportunit. to impro&e 0is eEuipment an# ser&ice
be$ore allowing a new operator to ser&e in t0e same
territor. 0e co&ers(*an#alu.ong Bus Co. &.
Irancisco).
!0e law contemplates t0at t0e $irst licensee will be
protecte# in 0is in&estment an# will not be sub9ecte#
to a ruinous competition. It is not t0ere$ore t0e
polic. o$ t0e law to issue a CPC to a secon# operator
to co&er t0e same $iel# an# in competition wit0 a
$irst operator w0o is ren#ering su$$icient@ a#eEuate
an# satis$actor. ser&ice@ an# w0o in all t0ings an#
respects is compl.ing wit0 t0e rules an# regulations
o$ t0e commission. !0e ol# operator must be gi&en
t0e opportunit. to impro&e an# e7ten# 0is lines.
(<atangas "rans !o- v 5rlanes, 6. Phil /660
&A'I' O2 T4E )RIOR O)ERATOR
R(LE
Pre&ent ruinous an# waste$ul competition
an# interest o$ public will be preser&e#.
E:CE)TION' TO T4E )RIOR O)ERATOR
R(LE*
". %perator $ails+ neglects to ma5e impro&ement
or e$$ect t0e increase in ser&ice w0en
gi&en t0e opportunit..
2. ,0en Prior operator o$$ers to meet increases
in #eman# onl. w0en anot0er operator o$$ere#
to ren#er a##itional ser&ice
4. (ban#onment o$ operation
1. Prior operators #i# not oppose application
5. Prior operator cannot satis$. nee#s o$ t0e
public
6. ,0en opportunit. to impro&e ser&ice is raise#
b. prior operator onl. on appeal.
COMMERCIAL LAW
'. CPC grante# to t0e applicant is a mai#en
$ranc0ise co&ering a new route@ albeit
o&erlapping wit0 t0at o$ t0e ol# operator
8. 67piration o$ corporate e7istence o$ prior
operator.
). *onopol.
"0. Passage t0roug0 pri&ate sub#i&ision w0ic0
grante# permit to anot0er
)!"o! A11l"#ant Rle
,0ere t0ere are &arious applicants $or a
public utilit. o&er t0e same aut0orit.@ all con#itions
being eEual@ priorit. in t0e $iling o$ t0e application
$or a certi$icate o$ public con&enience becomes an
important $actor in granting or re$usal o$ a certi$icate
o$ con&enience an# t0e Commission is aut0oriCe# to
#etermine w0ic0 o$ t0e applicants can best meet t0e
reEuirements o$ public con&enience (delos %antos v-
Pasay "rans- !o-0-
)!ote#t"on of InBest%ent Rle
%ne o$ t0e purposes o$ t0e Public /er&ice
(ct is to protect an# conser&e in&estments w0ic0
0a&e alrea#. been ma#e $or t0at purpose b. public
ser&ice operators
Re$"ste!ed O;ne! Rle
!0e registere# owner o$ a certi$icate o$ a
public con&enience is liable to t0e public $or t0e
in9uries or #amages su$$ere# b. t0ir# persons
cause# b. t0e operation o$ sai# &e0icle@ e&en t0oug0
t0e same 0a# been trans$erre# to a t0ir# person.
!0e registere# owner is not allowe# to
escape responsibilit. b. pro&ing t0at a t0ir# person
is t0e actual an# real owner.
!0e registere# owner is t0e law$ul operator
inso$ar as t0e public an# t0ir# persons are
concerne#D conseEuentl.@ it is #irectl. an# primaril.
responsible $or t0e conseEuences o$ its operation. In
contemplation o$ law@ t0e owner+operator o$ recor# I
st0e emplo.er o$ t0e #ri&er@ t0e actual operator an#
emplo.er being consi#ere# as merel. its agent. !0e
same principle applies e&en i$ t0e registere# o$ an.
&e0icle #oes not use it $or public ser&ice (Equitable
Leasing !orp- v- %uyom, G- R- $o-'/((79,
%eptember 6, .99.0, or ot0erwise state#@ to
pri&atel.8owne# &e0icles.
( sale @ lease or $inancial lease t0at is not
registere# wit0 t0e L!% #oes not bin# t0ir# persons
w0o are aggrie&e# in tortuous inci#ents@ $or t0e latter
nee# onl. to rel. on t0e public registration o$ a
motor &e0icle as conclusi&e e&i#ence o$ owners0ip.
( lease is an encumbrance in contemplation o$ law@
w0ic0 nee#s to be registere# in or#er $or it to bin#
t0ir# parties (P!* Leasing !orp and inance *nc-
v- 4!P< General *nsurance !o-, *nc- G-R- $o-
'7..7), / @uly .99&0-
Re$"ste!ed O;ne! 3ad Re#o!se a$a"nst @endee<
T!ansfe!ee
( registere# owner w0o 0as alrea#. sol# or
trans$erre# a &e0icle 0as a recourse to a t0ir#8part.
complaint@ in t0e same action broug0t against 0im to
reco&er $or t0e #amage or in9ur. #one@ against t0e
&en#ee or trans$eree o$ t0e vehicle (?illanueva v-
>omingo, /(& %cra /&6,.99/0-
Kab"t 'yste%5 200A ba! E8a%s0
It is an arrangement w0ereb. a person w0o
0as been grante# a certi$icate o$ public con&enience
allows ot0er persons w0o own motor &e0icles to
operate un#er suc0 license@ $or a $ee or percentage o$
suc0 earnings. (lt0oug0 t0e parties to suc0
agreement are not out rig0tl. penaliCe# b. law@t0e
5abit s.stem is in&ariabl. recogniCe# as being
contrar. to public polic. an# t0ere$ore &oi# an#
ine7istent un#er (rt."10)@ New Ci&il Co#e ( Lim v-
!-A- G-R-$o- '.6&'), '7 @anuary .99.0
Effe#ts
". !0e trans$er@ sale@ lease or assignment o$ t0e
pri&ilege grante# is &ali# between t0e
contracting parties but not upon t0e public
or t0ir# persons (-elisan &. (l#a. No.L8
402"2@ 40 /eptember ")8')
2. !0e registere# owner is primaril. liable $or
all t0e conseEuences $lowing $rom t0e
operations o$ t0e carrier. !0e public 0as t0e
rig0t to assume t0at t0e registere# owner is
t0e actual or law$ul owner t0ereo$. It woul#
be &er. #i$$icult an# o$ten impossible@ as a
particular matter@ $or t0e public to en$orce
t0eir rig0ts o$ action $or in9uries in$licte# b.
t0e &e0icle i$ t0e. s0oul# be reEuire# to
pro&e w0o t0e actual owner is (<enedicto v-
*A! G-R $o- )9&)7, '= @uly '==90-
4. !0e t0rust o$ t0e law in en9oining t0e Aabit
s.stem is to i#enti$. t0e person upon w0om
responsibilit. ma. be $i7e# wit0 t0e en# in
&iew o$ protecting t0e ri#ing public-(Lim v-
!-A- G-R- $o '.6&'), '7 @anuary .99.0
1. (pplication o$ (rticle "1"2 o$ t0e NCC or
in pari #elicto rule. !0e registere#
ownercannot reco&er $rom t0e actual owner
an# t0e latter cannot obtain trans$er o$ t0e
&e0icle to 0imsel$@bot0 being in pari #elicto.
("eDa 8ar+eting ?s- *A!0
5. Ior t0e better protection o$ t0e public@ bot0
t0e registere# owner an# t0e actual owner
are 9ointl. an# se&erall. liable wit0 t0e
#ri&er (Famboanga "ransporatation !o- v-
!-A, .= $ovember '=7=0
6. !0e #etermining $actor w0ic0 negates t0e
e7istence o$ Aabit s.stem is t0e possession
o$ t0e $ranc0ise to operate an# not t0e
issuance o$ one // I.:. Number $or bot0 bus
line (<ali#ag "ransit ?- !-A, ) @anuary
'=&)0
Re="s"tes fo! t3e Ina11l"#ab"l"ty of t3e Kab"t
'yste%
COMMERCIAL LAW
". ,0en neit0er o$ t0e parties to t0e pernicious
Aabit s.stem is being 0el# liable $or
#amages.
2. ,0en t0e case arose $rom t0e negligence o$
anot0er &e0icle using t0e public roa# to
w0ic0 no representation or
misrepresentation as regar#s t0e owners0ip
an# operation o$ passenger 9eepne. was
ma#e.
4. ,0en t0e ri#ing public was not bot0ere# o$
incon&enience# at t0e &er. least b. t0e
illegal arrangement (Lim v- !-A- '7
@anuary .99.0
&onda!y 'yste%
". !0e #ri&er #oes not recei&e a $i7e# wage but
gets onl. t0e e7cess o$ t0e receipt o$ t0e
$ares collecte# b. 0im o&er t0e amount 0e
pa.s to t0e 9eep owner.
2. !0e gasoline consume# b. t0e 9eep is $or t0e
account o$ t0e #ri&er.
!0ese two $eatures are not su$$icient to
wit0#raw t0e relations0ip between t0e owner an# t0e
#ri&er $rom t0at o$ emplo.er an# emplo.ee. !0e
9eepne. owner is subsi#iaril. liable as emplo.er in
accor#ance wit0 (rt."04 o$ >PC (8agboo v-
<ernardo, (9 April '=7(0-
In#ee# to e7empt $rom liabilit. t0e owner o$
public &e0icle w0o operates it un#er t0e boun#ar.
s.stem on t0e groun# t0at 0e is a mere lessor woul#
be not onl. to abet $lagrant &iolations o$ t0e public
ser&ice law@ but also to ta5e place t0e ri#ing public
at t0e merc. o$ rec5less an# irresponsible #ri&ers
(%pouses 3enandeB v- %pouses >olor, (9 @uly
.99/0
!0e Ci&il (eronautics Boar# is e7pressl.
aut0oriCe# b. >.(. No. ''6 to issue a temporar.
operating permit o$ certi$icate o$ Public
Con&enience an# Necessit. (PAL v- !A< .7 8arch
'==)0
!0e Legislature 0as #elegate# to t0e #e$unct
Public /er&ice Commission an# presentl. t0e
L!I>B@ t0e power o$ $i7ing rates o$ public ser&ices.
But now0ere un#er t0e pro&isions o$ law are t0e
regulator. bo#ies@ t0e P/C an# L!I>B ali5e@
aut0oriCe# to #elegate t0at power to a common
carrier li5e transport operator@ or ot0er public ser&ice
(A*? Labor &. -arcia@ 24 :ecember ")81).
( public ?tilit. is entitle# to reasonable
compensation in return $or t0e ser&ice it pro&i#es
an# t0at it ma. e7act reasonable c0arges in
accor#ance wit0 t0e ser&ice pro&i#e# o$ t0e rates
establis0e# t0ere$ore. In computing t0e 9ust an#
reasonable rates to be c0arge# b. a public utilit.@
t0ree ma9or $actors are to be consi#ere#= "). >ate o$
>eturnD 20. !0e rate base@ 4) t0e return itsel$ or t0e
compute# re&enue to be earne# b. t0e public utilit.
base# on t0e rate o$ return an# base rate (>avao
Light and Po#er !ompany, *nc-, ( April .99(0
( rate is 9ust an# reasonable i$ it con$orms to t0e
$ollowing reEuirements=
". %ne w0ic0 .iel#s to t0e carrier a $air return
upon t0e &alue o$ t0e propert. emplo.e# in
per$orming t0e ser&iceD an#
2. %ne w0ic0 is $air to t0e public $or t0e
ser&ice ren#ere#.
'e!B"#e of a )bl"# (t"l"ty #ons"de!ed (nla;fl
It s0all be unlaw$ul $or an. public ser&ice to
pro&i#e or maintain ant ser&ice t0at is unsa$e@
improper@ or ina#eEuate@ or wit00ol# or re$use an.
ser&ice w0ic0 can be reasonabl. be #eman#e# an#
$urnis0e# as $oun#e# an# #etermine# b. t0e
Commission in a $inal or#er w0ic0 s0all be
conclusi&e an# s0all e$$ect an# s0all e$$ect in
accor#ance wit0 t0is (ct@ upon (ppeal $or ot0erwise
(/ec.") (a) Public /er&ice (ct)
Ce!t"f"#ate of )bl"# ConBen"en#e and Ne#ess"ty
a. ( certi$icate o$ Public Con&enience is issue#
w0ere no special go&ernment $ranc0ise is
reEuire#.
b. ( certi$icate o$ Certi$icate o$ Public
Con&enience an# Necessit. is issue# w0ere
t0e public ser&ice woul# reEuire in its
operation t0e use o$ go&ernment propert.@
suc0 as t0e installation o$ electric an#
telep0one posts an# lines along public
streets reEuiring a pre&ious $ranc0ise
t0ere$ore
c. No certi$icate is necessar. w0ere t0e ser&ice
o$ utilit. is owne#@ operate# an# manage#
$or a pri&ate use or w0ere t0e owner is not
engage# in public ser&ice.
L"ab"l"ty of Re$"ste!ed O;ne! and At3o!"zed
O1e!ato! nde! t3e Kab"t 'yste% and &onda!y
'yste%
Bot0 t0e registere# owner an# t0e
(ut0oriCe# operator o$ a common carrier un#er t0e
Aabit /.stem are 9ointl. an# se&erall. (soli#aril.)
liable $or an. #eat0 or in9ur. to t0e passengers an#
loss+#amage to t0e goo#s.
?n#er t0e Boun#ar. /.stem t0e aut0oriCe#
operator o$ a common carrier is liable $or t0e
con#uct o$ t0e #ri&er@ t0ere being an emplo.er8
emplo.ee relations0ip between t0e operator an# t0e
#ri&er
COMMERCIAL LAW
')ECIAL COMMERCIAL
LAW'J
G(Notes o$ (tt.. >enato >on#eC)
MERC4ANT' AND COMMERCIAL
TRAN'ACTION'*
". Commercial Law is t0at branc0 o$ law
relating to t0e rules t0at go&ern t0e rig0ts@
obligations an# relations o$ persons engage# in
commerce or tra#e.
"." It is t0at branc0 o$ pri&ate law w0ic0
regulates t0e 9uri#ical relations arising $rom
commercial acts an# accor#ing to w0ic0@ t0e
Euestions an# contro&ersies arising t0ere$rom are
resol&e#.
".2 Law *erc0ant is t0e commercial law
consisting o$ customs@ practices@ an# usages gi&en
t0e $orce an# e$$ect o$ law b. t0e courts t0roug0
9u#icial pronouncements. It is t0e common law o$
commercial law.
".4 Its t0ree principal c0aracteristics are= (a)
uni&ersal because it e7ists in e&er. ci&iliCe# societ.
as tra#e is necessar. (b) progressi&e as it
accumulates new i#eas an# 5eeps abreast wit0
contemporar. #e&elopments@ an# (c) eEuitable since
commercial transactions in&ol&e t0e e7c0ange o$
&alues or consi#eration.
2. *erc0ants are@ t0ose w0o 0a&ing legal
capacit. to engage in commerce@ 0abituall. #e&ote
t0emsel&es t0ereto.
2." B. #e$inition@ onl. in#i&i#uals ma. be
merc0ants@ but it must be note# t0at $oreigners an#
companies create# abroa# ma. engage in commerce
in t0e P0ilippines@ sub9ect to t0e law o$ t0eir countr.
wit0 regar# to capacit. to contract@ an# to t0e
pro&isions o$ t0e Co#e o$ Commerce as regar#s
creation o$ t0e t0eir establis0ments in t0e P0ilippines
((rticle "5@ Co#e o$ Commerce)@ w0ic0 pro&ision
s0all be wit0out pre9u#ice to w0at@ in particular
cases@ ma. be establis0e# b. treaties or agreements
wit0 ot0er countries. Fence@ it s0oul# necessaril.
$ollow t0at corporations engage# $or business an#
partners0ips are merc0ants $rom t0e time t0e. are
incorporate# or $orme#.
4. Persons s0all be #eeme# as 0a&ing met t0e
reEuire# legal capacit. to 0abituall. engage in
commerce i$=
4." Being an in#i&i#ual= (a) *ust be "8 .ears o$
age an# (b) 0a&ing $ree #isposal o$ propert.
4.2 (s $ar as an alien is concerne#@ 0is legal
capacit. is #etermine# b. 0is national law but is
limite# b. t0e nature o$ t0e in#ustr. t0at 0e woul#
li5e to participate in an# P0ilippine Law t0at will
go&ern t0e= (a) creation o$ t0e establis0ment (b)
mercantile operations@ an# (c) 9uris#iction o$ our
courts or t0e pro&isions o$ an. treat. obtaining
between t0e P0ilippines an# t0e countr. o$ w0ic0 0e
is a national ((rticle "5@ Co#e o$ Commerce).
4.4 Being a 9uri#ical person@ it is reEuire# t0at it
be organiCe# in accor#ance wit0 law. I$ it is a
$oreign 9uri#ical person@ it must obtain a license to
transact business in t0e P0ilippines an# is sub9ect to
t0e same limitations impose# on in#i&i#ual aliens.
COMMERCIAL LAW
4.1 !0e $ollowing cannot engage in commerce
nor 0ol# o$$ice or 0a&e an. #irect@ a#ministrati&e@ or
$inancial inter&ention in commercial or in#ustrial
companies= (a) Persons sentence# to t0e penalt. o$
ci&il inter#iction@ w0ile t0e. 0a&e not ser&e# t0eir
sentence or 0a&e not been amnestie# or par#one#
(b)Persons w0o 0a&e been #eclare# ban5rupts@ w0ile
t0e. 0a&e not obtaine# t0eir #isc0arge@ or been
aut0oriCe# b. &irtue o$ an agreement accepte# at a
general meeting o$ cre#itors an# appro&e# b.
9u#icial aut0orit.@ to continue at t0e 0ea# o$ t0eir
establis0mentsD t0e #isc0arge being consi#ere# in
suc0 cases is limite# to t0at e7presse# in t0e
agreementD an# (c) Persons w0o@ on account o$ laws
or special pro&isions@ ma. not engage in commerce
((rticle "4@ Co#e o$ Commerce)
4.5 Iurt0er@ t0e $ollowing cannot engage in t0e
commerce@ eit0er in person or b. pro7.@ nor can t0e.
0ol# an. o$$ice or 0a&e an. #irect@ a#ministrati&e@ or
$inancial inter&ention in commercial or in#ustrial
companies@ wit0in t0e limits o$ t0e #istricts@
pro&inces or towns in w0ic0 t0e. #isc0arge t0eir
#uties= (a) 3ustice o$ t0e /upreme Court@ 9u#ges
an# o$$icials o$ t0e #epartment o$ public prosecutors
in acti&e ser&ice. !0is pro&ision s0all not be
applicable to t0e municipal ma.ors@ 9u#ges an#
prosecuting attorne.s@ nor to t0ose w0o b. c0ance
are temporaril. #isc0arging t0e $unctions o$ 9u#ges
or prosecuting attorne.s (b) (#ministrati&e@
economic or militar. 0ea#s o$ #istricts@ pro&inces@ or
posts (c) 6mplo.ees engage# in t0e collection an#
a#ministration o$ $un#s o$ t0e /tate@ appointe# b.
t0e -o&ernment. Persons w0o b. contract
a#minister an# collect temporaril. or t0eir
representati&es are e7empte# (#)/toc5 an#
commercial bro5ers o$ w0ate&er class t0e. ma. be
(e) !0ose w0o b. &irtue o$ laws or special
pro&isions@ ma. not engage in commerce in a
#eterminate territor..
4.6 Note $urt0er@ t0e current pro0ibitions as
appearing in t0e Constitution as to (a) *embers o$
t0e /enate an# t0e Fouse o$ >epresentati&es
(/ection "1@ (rticle I) (b) Presi#ent@ ice8
Presi#ent@ *embers o$ t0e Cabinet@ t0eir #eputies or
assistants (/ection "4@ (rticle II) (c) *embers o$
Constitutional Commissions ( /ection 2@ (rticle IV)@
t0e >e&ise# (#ministrati&e Co#e@ as to municipal
o$$icers (/ection 2"'6)@ t0e (nti -ra$t an# Corrupt
Practices (ct@ as to public o$$icers (/ection 4 (0)@
>( 40"))@ Ci&il /er&ice >ules an# >egulations@ as
to public o$$icers an# emplo.ees (>ule VIII (5)@
C/C)
4.' :istinguis0ing between absolute an# relati&e
incapacit.@ t0e $ormer e7ten#s o&er all P0ilippines
an# t0e act is &oi#@ w0ile in t0e latter@ it is onl. co8
e7tensi&e wit0 t0e place w0erein t0e o$$icer
incapacitate# e7ercises $unctions an# t0e act is &ali#
but t0ere is a #isciplinar. sanction.
4.8 (cts o$ persons w0o are incapacite# are
generall. &oi#able as t0e. are unable to gi&e
e$$ecti&e consent ( (rticle "4)0@ Ci&il Co#e)
1. !0e legal presumption o$ 0abituall.
engaging in commerce s0all e7ist $rom t0e moment
t0e person w0o inten#s to engage t0erein announces
t0roug0 circulars@ newspapers@ 0an#bills@ posters
e70ibite# to t0e public@ or in an. ot0er manner
w0atsoe&er@ an establis0ment w0ic0 0as $or its
ob9ect some commercial operation ((rticle 4@ Co#e
o$ Commerce)
5. !0e applicable laws to commercial
transactions in 0ierarc0ical or#er are= (a) Co#e o$
Commerce (b) Commercial Customs@ an# (c) Ci&il
Co#e. !0e liste# laws s0all appl. to t0e reEuisites@
mo#i$ications@ e7ceptions@ interpretations@ e7tinction
o$ commercial contracts an# to t0e capacit. o$ t0e
contracting parties ((rticles 2 an# 50@ Co#e o$
Commerce)
6. Commercial Contracts are t0ose entere# into
b. merc0ants in t0e pursuit o$ t0eir acti&ities an#
in&ol&e articles o$ commerce. It is an agreement
between two or more merc0ants@ an# at times
between t0ose w0o are not@ w0ereb. t0e. bin#
t0emsel&es to gi&e or #o somet0ing in commercial
transactions. !0e rules to be obser&e# in respect to
commercial contracts are=
6." (s to $ormalities8 commercial contracts
s0all be &ali# an# s0all gi&e rise to obligations an#
causes o$ action in suits@ w0ate&er t0e $orm an#
language in w0ic0 t0e. ma. be e7ecute#@ t0e class to
w0ic0 t0e. ma. belong@ an# t0e amount t0e. ma.
in&ol&e@ pro&i#e# t0eir e7istence is s0own b. an.
means establis0e# b. t0e ci&il law. Fowe&er@ t0e
testimon. o$ witness alone s0all not be su$$icient to
pro&e t0e e7istence o$ a contract w0ic0 in&ol&es an
amount e7cee#ing "@500 pesetas unless supporte# b.
some ot0er e&i#ence ((rticle 5"@ Co#e o$
Commerce).
!0us@ a commercial contract e7cee#ing P400.00@
w0ic0 tra#itionall. 0as been accepte# as t0e
appro7imate eEui&alence o$ "@500 pesetas cannot be
pro&en b. parol e&i#ence onl..
6.2 !0e e7ceptions to t0e rule on $ormalities are=
(a) Contracts w0ic0@ in accor#ance wit0 t0is Co#e or
wit0 special laws@ must be re#uce# to writing or
reEuire $orms or $ormalities necessar. $or t0eir
e$$icac.. 67amples= Bottomr. or >espon#entia
(b)Contracts e7ecute# in a $oreign countr. in w0ic0
t0e law reEuires certain instruments@ $orms or
$ormalities $or t0eir &ali#it.@ alt0oug0 P0ilippine law
#oes not reEuire t0em. In eit0er case@ contracts
w0ic0 #o not satis$. t0e circumstances respecti&el.
reEuire# s0all not gi&e rise to obligations or causes
o$ action ((rticle 52@ Co#e o$ Commerce)
COMMERCIAL LAW
6.4 Illicit agreements #o not gi&e rise to
obligations or causes o$ action e&en i$ t0e. s0oul#
re$er to a commercial transaction ((rticle 54@ Co#e
o$ Commerce).
'. Contracts entere# into b. correspon#ence
s0all be per$ecte# $rom t0e moment an answer is
ma#e accepting t0e o$$er or t0e con#itions b. w0ic0
t0e latter ma. be mo#i$ie# ((rticle 51@ Co#e o$
Commerce).
'." -enerall.@ commercial contracts are
per$ecte# b. mere consent. ConseEuentl.@ prior to@
but ne&er a$ter@ t0e per$ection o$ t0e contract@ an
o$$eror ma. wit0#raw 0is o$$er. I$ a perio# is gi&en
to t0e o$$eree@ but no &aluable consi#eration is pai#
t0ere$ore@ t0e o$$er ma. still be wit0#rawn as a
matter o$ rig0t. But@ i$ t0e wit0#rawal is e7ercise#
arbitraril. or w0imsicall.@ an awar# $or #amage is
warrante#. ((rticle ")@ Ci&il Co#e@ /anc0eC &s
>igos@ 15 /C>( 468)
'.2 In commercial contracts entere# into b.
correspon#ence@ t0e contract is #eeme# per$ecte#
upon t0e ma5ing o$ an answer accepting t0e o$$er or
$rom t0e time t0e acceptance is #roppe# in t0e
mailbo7 e&en be$ore 5nowle#ge o$ t0e o$$eror.
!0ere is intent to be boun#. !0is is 5nown as t0e
*ani$estation !0eor.. In ot0er contracts not co&ere#
b. t0e Co#e o$ Commerce@ t0e acceptance is not
bin#ing until it is ma#e 5nown to t0e o$$eror. !0is is
5nown as t0e Cognition !0eor..
8. In a commercial contract containing an
in#emni$ication clause against t0e person w0o $ails
to compl. t0erewit0@ t0e aggrie&e# part. ma. ta5e
legal steps to #eman# t0e $ul$illment o$ t0e contract
or t0e in#emnit. stipulate#D but in resorting to eit0er
o$ t0ese two actions@ t0e ot0er one s0all be annulle#
unless t0ere is an agreement to t0e contrar. ((rticle
56@ Co#e o$ Commerce). Note (rticle "226 o$ t0e
Ci&il Co#e
). In interpreting commercial contracts@ t0e
$ollowing rules s0all be obser&e#=
)." Commercial contracts s0all be e7ecute# an#
complie# wit0 in goo# $ait0 accor#ing to t0e terms
in w0ic0 t0e. were ma#e an# #ra$te#@ wit0out
e&a#ing t0e 0onest@ proper an# usual meaning o$
written or spo5en wor#s wit0 arbitrar.
interpretations@ nor limiting t0e e$$ects w0ic0 are
naturall. #eri&e# $rom t0e manner in w0ic0 t0e
contracting parties ma. 0a&e e7plaine# t0eir wis0es
an# contracte# t0eir obligations ((rticle 5'@ Co#e o$
Commerce).
).2 In case o$ con$lict between copies o$ t0e
contract@ an# an agent s0oul# 0a&e inter&ene# in its
negotiation@ t0at w0ic0 appears in t0e agent<s boo5
s0all pre&ail ((rticle 58@ Co#e o$ Commerce)
).4 In case o$ a #oubt@ an# t0e rules enunciate#
cannot resol&e t0e con$lict@ issues s0all be #eci#e# in
$a&or o$ t0e #ebtor ((rticle 5)@ Co#e o$ Commerce)
"0. In commercial contracts@ time generall. is o$
t0e essence. ConseEuentl.@ e&er. #ebtor woul# be in
#ela. wit0out ma5ing a #eman#. ,0en compare# to
t0e Ci&il Co#e@ t0e general rule is t0e mere non8
compliance at t0e #esignate# time or perio# woul#
not constitute #e$ault@ e&en i$ a #ate 0as been $i7e#
$or t0e per$ormance o$ an obligation. !0us@ #eman#
is necessar..
"0." !0e rules on computing perio#s in
commercial contracts are= (a) In all computations o$
#a.s@ mont0s an# .ears@ it s0all be un#erstoo# t0at a
#a. 0as twent.8$our 0ours@ t0e mont0s as #esignate#
in t0e -regorian calen#ar@ an# t0e .ear 0as t0ree
0un#re# si7t.8$i&e #a.s ((rticle 60@ Co#e o$
Commerce). Note t0at un#er (rticle "4 o$ t0e Ci&il
Co#e@ a mont0 is 40 #a.s@ unless #esignate# b.
name (b) :a.s o$ grace@ courtes. or ot0ers w0ic0
un#er an. name w0atsoe&er #e$er t0e $ul$illment o$
commercial obligations@ s0all not be recogniCe#@
e7cept t0ose w0ic0 t0e parties ma. 0a&e pre&iousl.
$i7e# in contract or w0ic0 are base# on a #e$inite
pro&ision o$ law ((rticle 6"@ Co#e o$ Commerce).
67ample is t0e grace perio# pro&i#e# $or b. /ection
240 o$ t0e Insurance Co#e
"0.2 ( #ebtor in a commercial contract s0all be
#etermine# to be in #ela. w0en= (a) %n t0e ele&ent0
#a.@ in obligations w0ic0 #o not 0a&e a perio#
pre&iousl. $i7e# b. t0e parties or b. t0e pro&isions
o$ t0is Co#e@ as t0e. are #eman#able ten #a.s a$ter
0a&ing been contracte# i$ t0e. gi&e rise onl. to an
or#inar. action@ or on t0e #a. $ollowing t0e ne7t #a.
i$ t0e. in&ol&e imme#iate e7ecution ((rticle 62@
Co#e o$ Commerce) (b) in contracts wit0 a #a.
$i7e# $or t0eir compliance b. t0e will o$ t0e parties
or b. law@ on t0e #a. $ollowing t0eir maturit. or in
contracts in w0ic0 no suc0 #a. is $i7e#@ $rom t0e #a.
on w0ic0 t0e cre#itor legall. ma5es #eman# upon
t0e #ebtor or noti$ies 0im o$ t0e protest o$ losses an#
#amages ma#e against 0im be$ore a 9ustice@ notar.
or ot0er public o$$icial aut0oriCe# to a#mit t0e same.
"0.4 In summar.= (a) I$ perio# o$ per$ormance
$i7e#@ ne7t #a. in #ela. wit0out nee# o$ #eman#@
#ebtor in #ela. on t0e #a. $ollowing t0e #a. $i7e#D
(b) I$ no perio# $i7e#@ ten ("0) #a.s $rom e7ecution
o$ contract an# on ele&ent0 #a.@ #ebtor is in #ela.
wit0out nee# o$ #eman# (c) I$ t0ere is a Potestati&e
perio#@ t0e #ebtor is in #ela. $rom #eman#. Note
perio#@ as Lw0en t0e #ebtor #esiresM ((rticle ""82@
Ci&il Co#e) not con#ition as Li$ t0e #ebtor #esiresM
((rticle ""80)@ as t0e latter is a &oi# obligation.
.OINT ACCO(NT'
COMMERCIAL LAW
". ( 9oint account or cu!n#as !n par#icipacion
is an arrangement among merc0ants w0o interest
t0emsel&es in t0e transactions o$ ot0er merc0ants@
contributing t0ereto t0e part o$ t0e capital t0e. ma.
agree upon@ an# w0o participate in t0e $a&orable or
un$a&orable results t0ereo$ in t0e proportion t0e.
ma. #etermine ((rt. 24)).
(b) ( 9oint account ma. be $orme# wit0out an.
$ormalit. an# ma. be pri&atel. contracte# orall. or
in writing ((rt. 210).
(c) ( 9oint account s0all not a#opt a commercial
name common to all t0e participants@ nor s0all an.
$urt0er #irect cre#it be ma#e use o$ e7cept t0at o$ t0e
merc0ant w0o transacts an# manages t0e business in
0is own name an# un#er 0is in#i&i#ual responsibilit.
((rt. 21").
(#) !0ose w0o contract wit0 t0e merc0ant w0o
carrie# on t0e business s0all 0a&e a rig0t o$ action
against 0im onl. an# not against t0e ot0ers
intereste# t0erein. !0e latter s0all also 0a&e no rig0t
against t0e t0ir# person w0o contracte# wit0 t0e
manager@ unless t0e latter $ormall. ce#es 0is rig0ts
to t0em ((rt. 212)
(e) !0e liEui#ation o$ t0e 9oint account s0all be
ma#e b. t0e manager t0ereo$ w0o@ upon t0e
conclusion o$ t0e transactions@ s0all ren#er a &eri$ie#
account o$ t0eir results ((rt. 214)
LETTER' O2 CREDIT
". ( letter o$ cre#it is basicall. an open letter
o$ reEuest w0ereb. one person reEuests anot0er to
a#&ance mone. or gi&e cre#it to a t0ir# person $or a
certain amount an# promises to repa. t0e person
a#&ancing t0e mone..
"." !0e. are inten#e# generall. to $acilitate t0e
purc0ase an# sale o$ goo#s b. pro&i#ing assurance
to t0e seller o$ prompt pa.ment upon compliance
wit0 speci$ie# con#itions or presentation o$
stipulate# #ocuments wit0out t0e seller 0a&ing to
rel. upon t0e sol&enc. an# goo# $ait0 o$ t0e bu.er.
!0is is 5nown as t0e rule o$ strict compliance in a
letter o$ cre#it transaction means t0at t0e #ocuments
ten#ere# b. t0e seller or bene$iciar. must strictl.
con$orm to t0e terms o$ t0e letter o$ cre#it@ i.e.@ t0e.
must inclu#e all #ocuments reEuire# b. t0e letter o$
cre#it suc0 as= (a) a #ra$t w0ic0 is also calle# a bill
o$ e7c0ange@ is an or#er written b. an e7porter+seller
instructing an importer+bu.er or its agent to pa. a
speci$ie# amount o$ mone. at a speci$ie# time (b) a
bill o$ la#ing@ w0ic0 is a #ocument issue# to t0e
e7porter b. a common carrier transporting t0e
merc0an#ise@ an# (c) in&oices.
".2 !0e issuing ban5 in #etermining compliance
wit0 t0e terms o$ t0e letter o$ cre#it is reEuire# to
e7amine onl. t0e s0ipping #ocuments presente# b.
t0e seller an# is preclu#e# $rom #etermining w0et0er
t0e main contract is actuall. accomplis0e# or not.
!0is arrangement assures t0e seller o$ prompt
pa.ment@ in#epen#ent o$ an. breac0 o$ t0e main
sales contract. !0is 5nown as t0e in#epen#ence
principle in a letter o$ cre#it transaction.
2. !0e primar. purpose o$ a letter o$ cre#it is
to substitute $or@ an# t0ere$ore support@ t0e
agreement o$ t0e bu.er8importer to pa. mone. un#er
a contract or ot0er arrangement.!0is instrument is
basicall. a cre#it securit. t0roug0 a&ailment o$
cre#it $acilities o$ t0e participating ban5s.
4. !0e parties to a letter o$ cre#it are= (a) !0e
Bu.er8 0e is t0e one w0o procures t0e letter o$ cre#it
an# obliges 0imsel$ to reimburse t0e issuing ban5
upon receipt o$ t0e #ocuments o$ title (b) !0e
Issuing Ban58 is t0e ban5 $rom w0om t0e letter o$
cre#it is procure# an# w0ic0 un#erta5es to pa. t0e
seller upon receipt o$ t0e #ra$t an# proper #ocuments
o$ titles an# to surren#er t0e #ocuments to t0e bu.er
upon reimbursement@ an# (c) !0e seller8 w0o in
compliance wit0 t0e contract o$ sale s0ips t0e goo#s
to t0e bu.er an# #eli&er t0e #ocuments o$ title an#
#ra$t to t0e issuing ban5 to reco&er pa.ment.
4.". In an international cre#it transaction carrie#
t0roug0 a letter o$ cre#it@ t0e parties are= (a) !0e
Customer8 w0o is t0e part. w0o applies to a ban5 in
one countr. $or t0e opening o$ a letter o$ cre#it in
$a&or o$ t0e seller in anot0er countr. (b) !0e Issuing
Ban58 is t0e ban5 in t0e countr. o$ t0e customer to
w0ic0 t0e customer applies $or t0e issuance o$ a
letter o$ cre#it (c) !0e Bene$iciar.8 w0o is t0e part.
in anot0er countr. w0o is t0e cre#itor o$ t0e
customer. ?suall.@ 0e is t0e one selling goo#s to t0e
customer (#) !0e (#&ising Ban5 H is t0e ban5 in t0e
countr. o$ t0e bene$iciar. w0ic0 communicates to
t0e bene$iciar. t0e notice o$ t0e cre#it issue# b. t0e
issuing ban5 (e) !0e Con$irming+Correspon#ent
Ban58 is t0e ban5 t0at un#erta5es t0at t0e letter o$
cre#it will be $ull. pai#. ?suall. t0e con$irming
ban5 is also t0e a#&ising ban5@ ot0erwise it is
utiliCe# to len# cre#ence to t0e letter o$ cre#it issue#
b. a lesser 5nown issuing ban5 an# is #irectl. liable
to t0e bene$iciar..
4.2 !0e relations0ips o$ t0e parties are to be
go&erne# as $ollows= (a)Issuing ban5 an#
applicant+bu.er+importer H !0eir relations0ip is
go&erne# b. t0e terms o$ t0e application an#
agreement $or t0e issuance o$ t0e letter o$ cre#it b.
t0e ban5. ?nless t0e contrar. is pro&i#e# $or@ t0e
liabilit. o$ t0e issuing ban5 is soli#ar. wit0 t0e
bu.er (b) Issuing ban5 an#
bene$iciar.+seller+e7porter H !0eir relations0ip is
go&erne# b. t0e terms o$ t0e letter o$ cre#it issue#
b. t0e ban5@ an# (c) (pplicant an# bene$iciar. H
!0eir relations0ip is go&erne# b. t0e sales contract.
4.4 It is clearl. settle# in law t0at t0ere are t0us
t0ree contracts w0ic0 ma5e up t0e letter o$ cre#it
COMMERCIAL LAW
transaction= !0e contract between bu.er an# seller@
bu.er an# issuing ban5@ an# t0e letter o$ cre#it
proper. !0ese transactions are to be maintaine# in a
state o$ perpetual separation.
1. !0e essential con#itions o$ a letter o$ cre#it
are= (a) !0at it be issue# in $a&or o$ a #e$inite person
an# not to or#erD an# (b)!0at it be limite# to a $i7e#
an# speci$ie# amount@ or to one or more
un#etermine# amounts@ but wit0in a ma7imum t0e
limits o$ w0ic0 0as to be state# e7actl..
1." Fence@ a letter o$ cre#it is not a negotiable
instrument because it is reEuire# to be #rawn in
$a&or o$ a #e$inite person.
1.2 !0ose w0ic0 #o not 0a&e an. o$ t0e essential
con#itions s0all be consi#ere# merel. as a letter o$
recommen#ation.
1.4 !0e ban5 or #rawer o$ a letter o$ cre#it s0all
be liable to t0e person on w0om it was issue# $or t0e
amount pai# b. &irtue t0ereo$@ wit0in t0e ma7imum
$i7e# t0erein@ w0ile a noti$.ing ban5 #oes not incur
an. liabilit. e7cept to noti$. t0e bene$iciar. o$ t0e
letter o$ cre#it. Be$ore pa.ing@ it s0all 0a&e t0e rig0t
to #eman# t0e proo$ o$ t0e i#entit. o$ t0e person in
w0ose $a&or t0e letter o$ cre#it is issue#.
1.1 !0e #rawer o$ a letter o$ cre#it ma. annul it@
in$orming t0e bearer an# t0e person to w0om it is
a##resse# o$ suc0 re&ocation. !0e wai&er o$ t0e
rig0t to annul ma5es t0e letter o$ cre#it irre&ocable
1.5 !0e bearer o$ a letter o$ cre#it s0all pa. t0e
amount recei&e# to t0e #rawer wit0out #ela.. /0oul#
0e not #o so@ an action in&ol&ing e7ecution ma. be
broug0t to reco&er it@ wit0 legal interest an# current
e7c0ange in t0e place w0ere pa.ment was ma#e on
t0e place w0ere it is repai#.
1.6 ( letter o$ cre#it becomes &oi# i$ t0e bearer
o$ a letter o$ cre#it #oes not ma5e use t0ereo$ wit0in
t0e perio# agree# upon wit0 t0e #rawer@ or@ in
#e$ault o$ a perio# $i7e#@ wit0in 6 mont0s counte#
$rom its #ate@ in an. point in t0e P0ilippines@ an#
wit0in "2 mont0s an.w0ere outsi#e t0ereo$@ it s0all
be &oi# in $act an# in law.
5. ( stan#b. letter o$ cre#it is a ban58issue#
option on a loan in&ol&ing t0ree parties= t0e ban5
issuing t0e cre#it@ t0e part. reEuesting $or suc0
issuance (ot0erwise 5nown as t0e account part.) an#
t0e bene$iciar.. ?n#er t0e terms o$ stan#b. letter o$
cre#it (/LC)@ t0e bene$iciar. 0as t0e rig0t to trigger
t0e loan option (re$erre# to as ta5ing #own t0e loan)
i$ t0e account part. $ails to meet its commitment@ in
w0ic0 case t0e issuing ban5 #isburses a speci$ie#
sum to t0e bene$iciar. an# boo5s an eEui&alent loan
to its customer. /LCs ma. support non$inancial
obligations suc0 as t0ose o$ bi##ers@ or $inancial
obligations suc0 as t0ose o$ borrowers. In t0e latter
case@ t0e borrower purc0ases an /LC an# names t0e
len#er as bene$iciar.. /0oul# t0e borrower #e$ault@
t0e bene$iciar. 0as t0e rig0t to ta5e #own t0e /LC
an# recei&e t0e principal balance $rom t0e issuing.
5." (not0er #e$inition is t0at it is a ban58issue#
option on a loan in&ol&ing t0ree parties= t0e ban5
issuing t0e cre#it@ t0e part. reEuesting $or suc0
issuance (account part.) an# t0e bene$iciar.. ?n#er
its terms@ t0e bene$iciar. 0as t0e rig0t to trigger t0e
loan option i$ t0e account part. $ails to meet its
commitment@ in w0ic0 t0e case t0e issuing ban5
#isburses a speci$ie# sum to t0e bene$iciar. an#
boo5s an eEui&alent loan to its customer.
6. !0e common t.pes o$ letters o$ cre#it are=
(a) Irre&ocable &s. re&ocable H (n irre&ocable
letter o$ cre#it obligates t0e issuing ban5 to 0onor
#ra$ts #rawn in compliance wit0 t0e cre#it an# can
be neit0er cancelle# nor mo#i$ie# wit0out t0e
consent o$ all parties@ inclu#ing in particular t0e
bene$iciar.+e7porter. ( re&ocable letter o$ cre#it can
be cancelle# or amen#e# at an. time be$ore
pa.mentD it is inten#e# to ser&e as a means o$
arranging pa.ment but not as a guarantee o$
pa.ment (b) Con$irme# &s. uncon$irme# H (
letter o$ cre#it issue# b. one ban5 can be con$irme#
b. anot0er@ in w0ic0 case bot0 ban5s are obligate#
to 0onor #ra$ts #rawn in compliance wit0 t0e cre#it.
(n uncon$irme# letter o$ cre#it is t0e obligation onl.
o$ t0e issuing ban5. ,0. woul# an e7porter want a
$oreign ban5<s letter o$ cre#it con$irme# b. a
#omestic ban5Q %ne reason coul# be i$ 0e 0as #oubts
6." %t0er t.pes= (a) >e&ol&ing Letter o$ Cre#it8
one t0at pro&i#es $or renewe# cre#it to become
a&ailable as soon as t0e opening ban5 0as a#&ise#
t0e negotiating or pa.ing ban5 t0at t0e #ra$ts alrea#.
#rawn b. t0e bene$iciar. 0a&e been reimburse# to
t0e opening ban5 b. t0e bu.er (b) Bac5 to Bac5
Letter o$ Cre#it8 a cre#it wit0 i#entical #ocumentar.
reEuirements an# co&ering t0e same merc0an#ise as
anot0er letter o$ cre#it@ e7cept $or t0e #i$$erence in
price o$ t0e merc0an#ise as s0own b. t0e in&oice
an# #ra$t. !0e secon# letter o$ cre#it can onl. be
negotiate# a$ter t0e $irst is negotiate#.
TR('T RECEI)T'
". ( trust receipt is a commercial #ocument
w0ereb. t0e ban5 releases t0e goo#s in t0e
possession o$ t0e entrustee but retains owners0ip
t0ereo$ w0ile t0e entrustee s0all sell t0e goo#s an#
appl. t0e procee#s $or t0e $ull pa.ment o$ t0e
liabilit. to t0e ban5.
"." It is a securit. transaction inten#e# to ai# in
$inancing importers an# retail #ealers w0o #o not
0a&e su$$icient $un#s or resources to $inance t0e
importation or purc0ases o$ merc0an#ise@ an# w0o
ma. not be able to acEuire cre#it@ e7cept t0roug0
COMMERCIAL LAW
utiliCation@ as collaterals@ o$ t0e merc0an#ise
importe# or purc0ase#.
".2 !0e sub9ect matter o$ a trust receipt is
alwa.s c0attel. It will not appl. to c0attel so
attac0e# to lan# so as to become part t0ereo$.
2. ( trust receipt transaction is a transaction
between an entruster an# an entrustee w0ereb. t0e
entruster@ w0o owns or 0ol# absolute title or securit.
interests o&er certain speci$ie# goo#s@ #ocuments or
instruments@ releases t0e same to t0e possession o$
t0e entrustee upon t0e latter<s e7ecution an# #eli&er.
to t0e entruster o$ a trust receipt w0erein t0e
entrustee bin#s 0imsel$ to 0ol# t0e speci$ie# go#s@
#ocuments or instruments in trust $or t0e entruster
an# to sell or ot0erwise #ispose o$ t0e goo#s@
#ocuments or instruments wit0 t0e obligation to turn
o&er to t0e entruster t0e procee#s t0ereo$ to t0e
e7tent o$ t0e amount owing to t0e entruster@ or t0e
goo#s@ #ocuments or instruments t0emsel&es i$ t0e.
are unsol# or not ot0erwise #ispose# o$.
2." ( /ecurit. Interest means a propert. interest
in goo#s@ #ocuments or instruments to secure
per$ormance o$ some obligations o$ t0e entrustee or
o$ some t0ir# persons to t0e entruster an# inclu#es
title@ w0et0er or not e7presse# to be absolute@
w0ene&er suc0 title is in substance ta5en or retaine#
$or securit. onl..
2.2 ( trust receipt transaction #istinguis0e#
$rom=(a) ( ple#ge8in a ple#ge@ t0e person #oing t0e
$inancing 0as possession o$ t0e propert.D in a trust
receipt@ t0e propert. is in t0e possession o$ t0e
person $inance# (b) ( con#itional sale8in a
con#itional sale@ t0ere is a sale o$ t0e propert. $rom
t0e seller to t0e bu.erD in a trust receipt@ t0ere is no
sale o$ t0e propert. $rom t0e entruster to t0e
entrustee (c) ( c0attel mortgage8a c0attel mortgage
in&ol&es t0e creation o$ a lien upon t0e propert.D a
trust receipt #oes not in&ol&e t0e creation o$ a lien
(#) ( consignment8in a consignment@ t0e consignor
retains title to t0e propert. to secure t0e
in#ebte#ness #ue $rom t0e consigneeD in a trust
receipt@ t0e seller #oes not retain title to t0e propert.
but trans$ers suc0 title to t0e entruster@ not to t0e
entrustee
2.4 ,0en a #ebtor 0as recei&e# t0e goo#s $rom
a supplier t0ereb. acEuiring title an# will a$ter
borrow mone. $rom a ban5 to pa. $or t0e same@ t0e
transaction is a loan e&en 0e signs a trust receipt
agreement. It is essential $or a trust receipt
transaction $or t0e ban5 to $irst acEuire owners0ip
an# possession.
2.1 ,0en a *emoran#um o$ (greement is
entere# between a #ebtor corporation an# a cre#itor
ban5 is entere# into resc0e#uling t0e pa.ments #ue
$rom t0e $ormer@ t0e trust receipt transaction is
no&ate# an# trans$orme# into a simple loan.
4. !0e parties to a trust receipt transaction are=
(a) !0e entruster8 is t0e person 0ol#ing title o&er t0e
goo#s@ #ocuments or instruments sub9ect to a trust
receipt transaction@ an# an. successor in interest o$
suc0 person@ an# (b) !0e entrustee H is t0e person
0a&ing or ta5ing possession o$ goo#s@ #ocuments or
instruments un#er a trust receipt transaction@ an# an.
successor in interest o$ suc0 person $or t0e purpose
or purposes speci$ie# in t0e trust receipt
1. !0e rig0ts o$ t0e entruster are= (a) to be
entitle# to recei&e t0e procee#s o$ t0e sale o$ t0e
goo#s release# un#er a trust receipt to t0e entrustee
to t0e e7tent o$ t0e amount owing to t0e entruster (b)
to t0e return o$ t0e sai# goo#s@ in case t0e. coul# not
be sol#D an# (c) to cancel t0e trust in case t0e
entrustee #e$aults@ ta5e possession o$ t0e goo#s@ an#
sell t0e same at public or pri&ate sale.
1." !0e process o$ ta5ing possession an# selling
t0e goo#s is as $ollows= (a) t0e entruster ma. cancel
t0e trust an# ta5e possession o$ t0e goo#s@
#ocuments or instruments sub9ect o$ t0e trust or o$
t0e procee#s realiCe# t0ere$rom at an. time upon
#e$ault or $ailure o$ t0e entrustee to compl. wit0 an.
o$ t0e terms an# con#itions o$ t0e trust receipt or an.
ot0er agreement between t0e entruster an# t0e
entrustee (b) !0e entruster in possession o$ t0e
goo#s@ #ocuments or instruments ma.@ on or a$ter
#e$ault@ gi&e notice to t0e entrustee o$ t0e intention
to sell@ an# ma.@ not less t0an $i&e #a.s a$ter ser&ing
or sen#ing o$ suc0 notice@ sell t0e goo#s@ #ocuments
or instruments at public or pri&ate sale@ an# t0e
entruster ma.@ at a public sale@ become a purc0aser.
Notice o$ t0e sale s0all be #eeme# su$$icientl. gi&en
i$ in writing@ an# eit0er personall. ser&e# on t0e
entrustee or sent b. post8pai# or#inar. mail to t0e
entrustee<s last 5nown business a##ress (c) t0e
procee#s o$ an. suc0 sale@ w0et0er public or pri&ate@
s0all be applie# (") to t0e pa.ment o$ t0e e7penses
t0ereo$D (2) to t0e pa.ment o$ t0e e7penses o$ re8
ta5ing@ 5eeping an# storing t0e goo#s@ #ocuments or
instrumentsD (4) to t0e satis$action o$ t0e entrustee<s
in#ebte#ness to t0e entruster. !0e entrustee s0all
recei&e an. surplus but s0all be liable to t0e
entruster $or an. #e$icienc..
1.2 Cancellation o$ t0e trust receipt an#
repossession is not essential $or t0e entruster to 0a&e
a cause o$ action against t0e entrustee. !0e. are
options a&ailable to t0e entruster an# #o not
pre9u#ice resort to ot0er reme#ies.
5. !0e obligations o$ t0e entrustee are as
$ollows= (a) to 0ol# t0e goo#s in trust $or t0e
entruster an# to #ispose o$ t0em strictl. in
accor#ance wit0 t0e terms o$ t0e trust receiptD !0is
inclu#es t0e aut0orit. to manu$acture or process t0e
goo#s wit0 t0e purpose o$ ultimate sale. Pro&i#e#@
0owe&er@ t0at t0e entruster retains title o&er t0e
goo#s w0et0er in its original or processe# $orm until
t0e entrustee 0as complie# wit0 t0e obligation un#er
t0e receipt. It also inclu#es aut0orit. to loa#@
COMMERCIAL LAW
unloa#@ s0ip or transs0ip or ot0erwise #eal wit0 t0e
goo#s in a manner preliminar. or necessar. to t0eir
sale (b) !o recei&e t0e procee#s o$ t0e sale o$ t0e
goo#s in trust $or t0e entruster an# to turn o&er t0e
same to t0e entruster to t0e e7tent o$ t0e amount
owing to t0e entruster (c) to insure t0e goo#s $or
t0eir total &alue against loss $rom $ire@ t0e$t@
pil$erage or ot0er casualties (#) to 5eep t0e goo#s or
t0e procee#s t0ereo$@ w0et0er in mone. or w0ate&er
$orm@ separate an# capable o$ i#enti$ication as
propert. o$ t0e entrusterD an# (e) to return t0e
goo#s@to t0e entruster in case t0e. coul# not be sol#
or upon #eman# o$ t0e entruster.

5." Notwit0stan#ing t0e securit. interest o$ t0e
entruster@ t0e entrustee s0all be responsible as
principal or as &en#or un#er an. sale or contract to
sell ma#e b. t0e entrustee. Fence@ alt0oug0 t0e
entrustee is not t0e owner o$ t0e goo#s un#er a trust
receipt (owners0ip is retaine# b. t0e entrustor)
an.one w0o acEuires t0e goo#s $rom t0e entrustee
acEuires goo# title (owners0ip) o&er t0e goo#s. Note
t0at it runs counter to t0e pro&isions o$ (rticle "505
o$ t0e Ci&il Co#e@ w0ere t0ere is a contract o$ sale@
t0e bu.er is to acEuire onl. w0ate&er title t0e seller
0a# at t0e time t0e sale was per$ecte#.
5.2 >is5 o$ loss s0all aslso be borne b. t0e
entrustee. Fence@ t0e loss o$ goo#s@ #ocuments@ or
instruments w0ic0 are t0e sub9ect o$ a trust receipt@
pen#ing t0eir #isposition@ irrespecti&e o$ w0et0er or
not it was #ue to t0e $ault or negligence o$ t0e
entrustee@ s0all not e7tinguis0 0is obligation to t0e
entruster $or t0e &alue t0ereo$. !0is is not in
accor#ance wit0 t0e ci&il law principle t0at it is
generall. t0e owner w0o must bear t0e ris5 o$ loss
o$ t0e ob9ect
6. ( trust receipt arrangement #oes not in&ol&e
a simple loan transaction between a cre#itor an#
#ebtor8importer. !0e law warrants t0e &ali#it. o$
t0e trust receipt agreement. ConseEuentl.@ t0e goo#s
co&ere# b. t0e trust receipt cannot be le&ie# upon b.
t0e cre#itors o$ t0e entrustee. !0e &ali#it. o$
entruster<s securit. interest as against cre#itors8t0e
entruster<s securit. interest in goo#s@ #ocuments@ or
instruments pursuant to t0e written terms o$ a trust
receipt s0all be &ali# as against all cre#itors o$ t0e
entrustee $or t0e #uration o$ t0e trust receipt
agreement.
'. !0e acts punis0able b. t0e !rust >eceipts
Law as 6sta$a as #e$ine# b. (rticle 4"5@ /ection
"(b) o$ t0e >e&ise# Penal Co#e are= (a) !0e $ailure
to compl. wit0 t0e pro&ision re$erring to t0e
obligation in&ol&ing t0e #ut. to #eli&er (entregaria)
t0e mone. recei&e# to t0e owner o$ t0e merc0an#ise
sol#@ or(b)!0e $ailure to compl. wit0 t0e pro&ision
re$erring to t0e obligation in&ol&ing t0e #ut. to
return (#e&ol&era) t0e goo#s to t0e owner i$ not
#ispose# o$ in accor#ance wit0 t0e terms o$ t0e trust
receipt.
'." !0ere is no nee# to pro&e intent to #e$rau#
as t0e o$$ense is malum pro0ibitum.
'.2 !0ere is also no nee# to pro&e #amage to t0e
entrustor because t0e nature o$ a trust receipt
transaction an# t0e #amage cause# to tra#e circles
an# t0e ban5ing communit. in case o$ a &iolation
t0ereo$ is t0e basis $or t0e criminal o$$ense.
'.4 ConseEuentl.@ t0e law 0as consistentl. been
#eclare# as not &iolating t0e constitutional
proscription against imprisonment $or non8pa.ment
o$ #ebt. It is a #eclaration b. t0e legislati&e aut0orit.
t0at@ as a matter o$ public polic.@ t0e $ailure o$ a
person to turn o&er t0e procee#s o$ t0e sale o$ goo#s
co&ere# b. t0e receipt or to return t0e goo#s i$ not
sol# is a public nuisance to be abate# b. penal
sanctions.
&(LK 'ALE'
". ( sale is consi#ere# as a sale an# trans$er in
bul5 i$= (a) It is a sale@ trans$er@ mortgage@ or
assignment o$ a stoc5 o$ goo#s@ wares@ merc0an#ise@
pro&isions ot0erwise t0an in t0e or#inar. course o$
tra#e an# t0e regular prosecution o$ t0e business@ or
(b) It is a sale or trans$er o$ all or substantiall. all@ o$
t0e business or tra#eD or (c) It is a sale or trans$er o$
all@ or substantiall. all@ o$ t0e $i7tures an# eEuipment
use# in t0e business.
"." ( sale un#er /ection 10 o$ t0e Corporation
Co#e will be co&ere# i$ t0e business in&ol&es t0e
bu.ing an# selling o$ merc0an#ise.
".2 ( *erger or Consoli#ation 0owe&er is not
co&ere# as t0e sur&i&ing or consoli#ate# corporation
assumes all t0e liabilities o$ t0e constituent
corporations
2. ( sale or transaction in bul5 is not co&ere#
b. t0e Bul5 /ales Law w0en= (a)t0e transaction is in
t0e or#inar. course o$ tra#e an# t0e regular
prosecution o$ t0e business o$ t0e &en#or (b) t0e
&en#or in bul5 pro#uces an# #eli&ers a written
wai&er o$ t0e pro&isions o$ t0e Bul5 /ales Law $rom
t0e cre#itors (c) t0e sale in bul5 is ma#e b.
e7ecutors@ a#ministrators@ recei&ers@ assignees in
insol&enc.@ or public o$$icers acting un#er 9u#icial
processD an# (#) sales o$ properties t0at are e7empt
$rom attac0ment or e7ecution b. cre#itors (/ec. "4@
>ule 4) o$ >ules o$ Court)
4. !0e purpose o$ t0e law is to pre&ent t0e
#e$rau#ing o$ cre#itors b. t0e secret sale in bul5 o$
all or substantiall. all o$ a merc0ant<s stoc5 o$ goo#s
until t0e cre#itors o$ t0e sellers s0oul# 0a&e been
pai# in $ull.
1. !0e protection a$$or#e# to cre#itors o$ t0e
seller in bul5 are= (a) reEuirement t0at t0e &en#or
#eli&er to t0e &en#ee a written statement un#er oat0
COMMERCIAL LAW
o$ t0e names an# a##resses o$ all cre#itors to w0om
sai# &en#or is in#ebte# toget0er wit0 t0e amount o$
0is in#ebte#ness (b) reEuirement t0at at least ten
#a.s be$ore t0e sale@ t0e &en#or s0all ma5e a $ull
#etaile# in&entor. t0ereo$ s0owing t0e Euantit. an#
t0e cost price o$ t0e goo#s an# s0all noti$. e&er.
cre#itor o$ t0e price@ terms an# con#itions o$ t0e sale
(c) reEuirement t0at t0e purc0ase price pai# must be
applie# to t0e #ebt owing to t0e cre#itors. In
a##ition@ t0e law also pro0ibits t0e &en#or in bul5 to
trans$er title to t0e same wit0out consi#eration or $or
a nominal &alue.
1." I$ t0e sale in bul5 is not ma#e in accor#ance
wit0 t0e Bul5 /ales Law@ t0e sale is $rau#ulent an#
&oi#. !0e cre#itors ma. procee# against t0e &en#ee
w0o s0all 0ol# t0e stoc5 o$ merc0an#ise in trust $or
t0e cre#itors.
1.2 !0e pro&ision o$ t0e law t0at t0e sale is
L$rau#ulent an# &oi#M is not a mere presumption.
!0ere$ore@ t0e moti&ation o$ t0e parties or w0et0er
t0e. are in goo# or ba# $ait0 is immaterial
WARE4O('E RECEI)T'*
". !0e purpose o$ t0e ,are0ouse >eceipts Law
is to regulate t0e status@ rig0ts an# liabilities o$
parties. In particular@ it prescribes t0e rig0ts an#
#uties o$ a ware0ouseman an# to regulate 0is
relations0ip wit0 (a) t0e #epositor o$ t0e goo#s@ or
(b) t0e 0ol#er o$ a ware0ouse receipt@ or (c) t0e
person law$ull. entitle# to t0e possession o$ t0e
goo#s@ or (#) ot0er persons. It also co&ers all
ware0ouses@ w0et0er bon#e# or not.
".2 (s $ar as t0e e$$ect o$ t0e New Ci&il Co#e
pro&isions on #ocuments o$ title to goo#s w0ic0
inclu#e Eue#ans or ware0ouse receipts@ t0ere is no
con$lict between t0e two. !0e ,are0ouse >eceipts
Law re$ers to an# will appl. to ware0ouse receipts
issue# b. ware0ouseman@ w0ile t0e New Ci&il Co#e
re$ers to an# will appl. to receipts t0at are not issue#
b. ware0ouseman.
2. !0e purpose o$ t0e -eneral Bon#e#
,are0ouse (ct is to regulate t0e business o$
recei&ing commo#ities $or storage in or#er to protect
persons w0o ma. want to a&ail t0emsel&es o$
ware0ouse $acilities an# to encourage t0e
establis0ment o$ more ware0ouses.
2." :istinguis0ing between t0e 2 laws@ t0e
,are0ouse >eceipts Law re$ers to t0e rig0ts an#
obligations o$ parties in a ware0ousing contract@
w0ile t0e -eneral Bon#e# ,are0ouse (ct re$ers to
state regulation an# super&ision o$ ware0ouses
4. ( ware0ouse receipt is a written
ac5nowle#gment b. a ware0ouseman t0at 0e 0ol#s
certain goo#s in store $or t0e person to w0om t0e
#ocument is issue#. !0is is also 5nown as
Lware0ouse85eeper<s receiptM or Lstorage receipt.M
4." ,0ile no particular $orm is reEuire#@ it
s0oul# 0owe&er inclu#e t0e necessar. terms stating=
(a) Location o$ t0e ware0ouse (b) :ate o$ issue (c)
Number o$ receipt (#) :escription o$ t0e goo#s (e)
(#&ances ma#e ($) >ate o$ c0arges (g) %wners0ip o$
t0e goo#s b. language in#icating i$ t0e
ware0ouseman is an owner@ solel. or 9ointl. wit0
ot0ers@ o$ t0e goo#s #eposite# (0) /ignature o$ t0e
ware0ouseman@ an# (i) Person to w0om goo#s
s0oul# be #eli&ere# b. language in#icating w0et0er
t0e receipt is negotiable or non8negotiable@ t0at is
w0et0er t0e goo#s recei&e# will be #eli&ere# to t0e
bearer@ to a speci$ie# person@ or to a speci$ie# person
or 0is or#er
4.2 ( negotiable ware0ouse receipt is not a
negotiable instrument as t0e same #oes not compl.
wit0 t0e reEuisites o$ /ection "@ (ct 204". Fowe&er@
owners0ip t0ereo$ ma. be trans$erre# b. #eli&er. i$
it states t0at it is #eli&erable to bearer or a name#
person or bearer. I$ it is #eli&erable to a name#
person or or#er@ owners0ip ma. be trans$erre# b.
special en#orsement an# #eli&er.. !0e en#orsement
can be to bearer or to a speci$ie# person.
4.4 ( negotiable ware0ouse receipt is not
con&ertible to a non8negotiable receipt. !0e insertion
o$ a pro&ision ma5ing it non8negotiable is &oi#. !o
ma5e a ware0ouse receipt non8negotiable@ it must be
written out as suc0 an# to pre&ent an. person $rom
supposing it to be negotiable@ t0e wor#s Lnon8
negotiableM s0oul# be place# plainl. on its $ace. (
non8negotiable receipt ma. onl. be assigne#.
4.1 !0e a#&antages o$ a negotiable ware0ouse
receipt o&er one w0ic0 is non8negotiable are= (a)
goo#s cannot be garnis0e# or le&ie# upon
un#er e7ecution unless receipt is surren#ere#@ or
impoun#e# or its negotiation en9oine# (/ection 25@
,are0ouse >eceipts Law) (b) In case o$
negotiation@ 0ol#er acEuires t0e #irect obligation o$
t0e ware0ouseman to 0ol# possession o$ t0e goo#s
$or 0im (/ection 1"@ ,are0ouse >eceipts Law)@ an#
(c) -oo#s are not sub9ect to &en#or<s lien or
stoppage Lin #ransi#uM (/ection 1)@ ,are0ouse
>eceipts Law)
4.5 %t0er terms ma. be inclu#e# in a ware0ouse
receipt@ e7cept= (a) terms t0at are contrar. to t0e
pro&isions o$ t0is (ct@ or (b) terms w0ic0 will in
an.wa. impair t0e obligation to e7ercise #ue care in
t0e sa$e5eeping o$ t0e goo#s entruste# to t0e
ware0ouseman.
1. ( ware0ouseman #e$ine# 8 is a person
law$ull. engage# in t0e business o$ storing goo#s $or
pro$it. ?n#er t0e -eneral Bon#e# ,are0ouse (ct 0e
is #e$ine# as a person law$ull. engage# in t0e
business o$ storing goo#s $or pro$it. In ot0er wor#s@
:ean >e.nal#o ?. (granCamen#eC Page 1,0 o$ 177
COMMERCIAL LAW
0e is one w0o recei&es an# stores goo#s owne# b.
ot0ers an# collects $ees $or so #oing.
1." Inclu#e# in t0e p0rase Lt0e business o$
recei&ing commo#it. $or storageM inclu#es an.
contract or transaction w0erein= (a) t0e
ware0ouseman is to return same commo#it.
#eposite# or pa. its &alue (b) t0e commo#it. is to be
mille# $or t0e owner t0ereo$@ or (c) t0e commo#it.
#eli&ere# is commingle# wit0 t0e commo#it.
belonging to ot0er persons@ an# t0e ware0ouseman is
obligate# to return commo#it. o$ t0e same 5in# or
pa. its &alue.
5. !0e Primar. %bligations o$ t0e
,are0ouseman are=(a) 0e must issue a receipt $or
an. commo#it. t0at 0e recei&es $or storage (b) 0e
must e7ercise t0at #egree o$ care in t0e sa$e5eeping
o$ t0e goo#s entruste# to 0im w0ic0 a reasonable
care$ul man woul# e7ercise in regar# to similar
goo#s o$ 0is own. Fowe&er@ in t0e absence o$ an
agreement to t0e contrar.@ 0e s0all not be liable $or
an. loss or in9ur. to t0e goo#s w0ic0 coul# not 0a&e
been a&oi#e# b. t0e e7ercise o$ suc0 care (c) In t0e
absence o$ an. law$ul e7cuse@ 0e is boun# to #eli&er
t0e goo#s upon a #eman# b.= (") 0ol#er o$ a receipt
$or t0e goo#s@ or (2) b. t0e #epositor@ pro&i#e# t0at
t0e #eman# be accompanie# b. (a) an o$$er to satis$.
t0e ware0ouseman<s lien (b) an o$$er to surren#er
t0e receipt i$ it is negotiable@ an# (c) a rea#iness an#
willingness to sign ac5nowle#gment o$ #eli&er. o$
t0e goo#s i$ reEueste# b. t0e ware0ouseman.
5." ( ware0ouseman is oblige# to #eli&er goo#s
to= (a) person law$ull. entitle# to it. 67amples=
person #etermine# b. t0e court to be entitle# to it in
an interplea#er case@ person w0o purc0ases t0e
goo#s at an auction to satis$. a ware0ouseman<s lien
or because t0e goo#s are 0aCar#ous or o$ a
peris0able nature (b) t0e person w0o is 0imsel$
entitle# to #eli&er. b. t0e terms o$ t0e receipt. I$
receipt is non8negotiable@ #eli&er. will be to t0e
person entitle# to it un#er its terms or b. written
aut0orit. clearl. in#icate# t0erein or anot0er
#ocument. I$ receipt is negotiable@ to t0e person
name# or t0e last in#orsee.
5.2 ( ware0ouseman ma. t0us legall. re$use to
#eli&er goo#s co&ere# b. a ware0ouse receipt un#er
t0e $ollowing instances= (a),0en t0e #eman# is not
accompanie# b. t0e t0ree reEuirements pro&i#e# in
/ection 8 (b),0en 0e 0as a lien &ali# against t0e
person #eman#ing t0e goo#s@ 0e can re$use to
#eli&er t0e goo#s until t0e lien is satis$ie# an#@ (c) In
cases w0en t0ere are se&eral a#&erse claimants to t0e
title or possession o$ t0e goo#s. !0e ware0ouseman
can re$use to #eli&er to an. o$ t0e claimants until 0e
0as 0a# a reasonable to ascertain t0e &ali#it. o$ t0e
claims.
5.4 ( mis#eli&er. or con&ersion occurs w0en
(a) #eli&er. is ma#e to one not law$ull. entitle# to it@
or (b) e&en i$ #eli&er. is ma#e to a person 0ol#ing a
non8negotiable or negotiable receipt@ i$ prior to
#eli&er.@ 0e 0a# eit0er been reEueste# not to ma5e
#eli&er. b. t0e person law$ull. entitle# to a rig0t o$
propert. or possession in t0e goo#s or 0a#
in$ormation t0at #eli&er. about to be ma#e was to
one not law$ull. entitle# to possession o$ t0e goo#s.
5.1 ( ware0ouseman can protect against a
mis#eli&er. b.= (a) a&ailing o$ a t0e reasonable time
t0at 0e is entitle# to wit0in w0ic0 to ascertain t0e
&ali#it. o$ an a#&erse claim or to bring legal
procee#ings to $orce t0e claimants to interplea# or
ma. actuall. reEuire t0e claimants to interplea#.
5.5 ( ware0ouseman cannot commingle as 0e
is boun# to 5eep t0e goo#s o$ a #epositor separate
$rom t0e goo#s o$ ot0er #epositors or $rom t0e goo#s
o$ t0e same #epositor $or w0ic0 a separate receipt
0as been issue#. !0e purpose o$ t0e pro0ibition is to
permit inspection an# re#eli&er. at all
times.67ceptions are= (a) t0e goo#s are $ungible@ as
w0en an. unit o$ t0e goo# is $rom its nature or
mercantile usage@ treate# as an eEui&alent o$ an.
ot0er unit (/ection 58@ ,are0ouse >eceipts Law) or
(b) it is aut0oriCe# b. agreement or custom.
6. Ior $ailure to ta5e up an# cancel a
negotiable receipt@ or one t0e negotiation o$ w0ic0
woul# trans$er t0e rig0t to t0e possession o$ t0e
goo#s w0en goo#s are #eli&ere#(/ection ""@
,are0ouse >eceipts Law) or $or t0e $ailure to ta5e
up an# cancel a negotiable receipt or to place upon it
a statement o$ w0at goo#s 0a&e been #eli&ere#@
w0en goo#s are partl. #eli&ere# (/ection "2@
,are0ouse >eceipts Law). !0e ware0ouseman s0all
be liable $or $ailure to #eli&er t0e goo#s to an. one
w0o purc0ases $or &alue in goo# $ait0 suc0 receipt
w0et0er suc0 purc0aser acEuire# title to t0e receipt
be$ore or a$ter t0e #eli&er. o$ t0e goo#s b.
ware0ouseman

6." 67ception= !0e ware0ouseman s0all not be
liable $or $ailure to #eli&er t0e goo#s co&ere# b. t0e
receipt or be guilt. o$ a crime w0ere t0e goo#s (a)
0a&e been law$ull. sol# to satis$. t0e
ware0ouseman<s lien@ or (b) 0a&e been law$ull. sol#
or #ispose# o$ because o$ t0eir peris0able or
0aCar#ous nature (/ection 46@ ,are0ouse >eceipts
Law)
'. (n alteration in a ware0ouse receipt is sai#
to be=(a)Immaterial i$ it #oes not c0ange t0e tenor o$
t0e ware0ouse receipt (b)*aterial i$ it substantiall.
c0anges t0e tenor o$ t0e receipt (c) (ut0oriCe#
i$ it is ma#e wit0 t0e aut0orit. o$ t0e 0ol#er an# t0e
ware0ouseman (#)?naut0oriCe# i$ it is ma#e
wit0out t0e aut0orit. o$ t0e 0ol#er an#
ware0ouseman. !0is ma. be material or immaterial
(e) Irau#ulent i$ it is ma#e wit0 malice or ba# $ait0
b. t0e 0ol#er wit0 intent to #e$rau# subseEuent
0ol#ers ($) ,it0out $rau#ulent intent i$ its is
ma#e wit0out malice or ba# $ait0
COMMERCIAL LAW
'." !0e e$$ects o$ an alteration in a ware0ouse
receipt are= (a),0ere t0e alteration is immaterial@ t0e
ware0ouseman s0all be liable accor#ing to t0e terms
o$ t0e receipt as originall. issue# (b),0ere t0e
alteration is immaterial@ w0et0er $rau#ulent or not@
aut0oriCe# or not@ t0e ware0ouseman is liable
accor#ing to t0e terms o$ t0e receipt as originall.
issue# (c) ,0ere t0e alteration is material an#
is aut0oriCe#@ t0e ware0ouseman s0all be liable
accor#ing to t0e terms o$ t0e receipts as altere# (#)
,0ere t0e alteration is material@
unaut0oriCe# but wit0out $rau#ulent intent@ t0e
o$ t0e receipts as t0e. were be$ore t0e alteration (e)
,0ere t0e alteration is material@
unaut0oriCe# an# wit0 $rau#ulent intent@ t0e
o$ t0e receipts as originall. issue# e&en (") to a
purc0aser o$ t0e receipt $or &alue wit0out notice o$
t0e alteration@ or (2) to t0e person w0o ma#e t0e
alteration an# to an. person w0o too5 it wit0 notice
o$ t0e alteration. Fowe&er@ in t0e latter case@ suc0
material an# $rau#ulent alteration s0all e7cuse t0e
ware0ouseman $rom an. ot0er liabilit. to t0e sai#
persons. e7cept as regar#s t0e alterer an# subseEuent
0ol#ers wit0 notices.
8. Ior t0e non8e7istence or mis#escription o$
goo#s@ a ware0ouseman s0all be liable to t0e 0ol#er
o$ a receipt $or #amages cause# b. t0e non8e7istence
o$ t0e goo#s or b. t0e $ailure o$ t0e goo#s to
correspon# wit0 t0e #escription t0ereo$ in t0e receipt
at t0e time o$ its issue.
8." 67ception= No suc0 liabilit. s0all attac0 to
t0e ware0ouseman i$ t0e goo#s are #escribe# in t0e
receipt merel. (a) b. a statement o$ t0e mar5s or
labels upon t0em or upon t0e pac5ages containing
t0em@ or (b) b. a statement t0at t0e goo#s are o$ a
certain 5in# or t0at t0e pac5ages containing t0e
goo#s contain goo#s o$ a certain 5in# or b. wor#s o$
similar import.
). !0e ware0ouseman<s lien re$ers to t0e lien
o$ t0at a ware0ouseman 0as on t0e goo#s #eposite#
wit0 0im or on t0e procee#s t0ereo$ in 0is 0an#s $or
all law$ul c0arges $or storage an# preser&ation o$ t0e
goo#s@ mone. a#&ance# b. 0im in relation to suc0
goo#s suc0 as t0e e7penses o$ transportation or
labor@ or ot0er relate# e7penses.
)." !0e basis $or t0e lien is t0e obligation o$ t0e
#epositor to pa. t0e ware0ouseman $or (a) /torage
an# preser&ation c0arges (b) *one. a#&ance# (c)
Interest (#) Insurance (e) !ransportation ($) Labor
(g) ,eig0ing@ an# (0)Coopering an# ot0er similar
c0arges (/ection 2'@ ,are0ouse >eceipts Law)
).2 ,it0 t0e e7ception o$ storage an#
preser&ation c0arges@ t0e ot0er claims must be
e7pressl. speci$ie# in t0e ware0ouse receipt $or it to
ser&e as basis $or t0e lien (/ection 40@ ,are0ouse
>eceipts Law)
).4 !0e lien ma. be en$orce# against all goo#s
belonging to t0e person liable $or t0e c0arges@ as
well as against all goo#s belonging to t0e ot0ers
#eposite# b. t0e person liable $or t0e c0arges w0o
0as been entruste# wit0 t0e possession o$ t0e goo#s
an# coul# 0a&e &ali#l. ple#ge# t0e same (/ection
28@ ,are0ouse >eceipts Law). Fence@ it is
en$orceable against t0e #epositor<s goo#s an# t0e
goo#s o$ ot0er persons store# b. #epositor@ i$ ple#ge
o$ suc0 goo#s b. 0im are &ali# but not against t0e
true owner i$ t0e #epositor 0as neit0er title nor rig0t
o$ possession to t0e goo#s (/ection 4"@ ,are0ouse
>eceipts LawD Uoung &. Col.ear@ 20" Pac. 624)
).1 !0e ware0ouseman can en$orce 0is lien b.
t0e sale o$ t0e goo#s (/ection 44@ ,are0ouse
>eceipts Law) or b. an action in court (/ection 45@
,are0ouse >eceipts Law). Pro&i#e#@ 0owe&er@ t0at
notice o$ sale o$ goo#s in or#er to satis$. t0e
ware0ouseman<s lien is gi&en.
).5 !0e lien can be lost i$ a ware0ouseman
surren#ers possession o$ t0e goo#s@ or b. re$using to
#eli&er t0e goo#s w0en a #eman# is ma#e wit0
w0ic0 0e is boun# to compl. un#er t0e pro&isions o$
t0e (ct (/ection 2)@ ,are0ouse >eceipts Law)
).6 !0e e$$ect o$ t0e sale o$ goo#s to satis$. t0e
ware0ouseman<s lien or on account o$ t0e goo#s<
peris0able or 0aCar#ous nature un#er /ection 46
s0all not ma5e t0e ware0ouseman@ a$ter t0e sale@
liable $or $ailure to #eli&er t0e goo#s to t0e
#epositor@ or owner o$ t0e goo#s@ or to t0e 0ol#er o$
a receipt gi&en $or t0e goo#s w0en t0e. were
#eposite#@ e&en i$ suc0 receipt were negotiable.
"0. ( negotiable receipt is negotiate# b.
#eli&er. w0en= (a) t0e goo#s are #eli&erable to
bearer@ or (b) t0e goo#s are #eli&erable to a
speci$ie# person an# t0e latter 0as in#orse# it in
blan5 or to bearer. I$ en#orse# as #eli&erable to a
person@ t0e bearer receipt is trans$orme# into a an
or#er receipt.
"0." ( negotiable receipt is negotiate# b.
in#orsement w0en t0e goo#s are@ b. t0e terms o$ t0e
receipt@ #eli&erable to a speci$ie# person (/ection 48@
,are0ouse >eceipts Law)
"0.2 !0e negotiation ma. be ma#e b. t0e= (a)
owner or (b) t0e person to w0om possession o$ t0e
receipt was entruste# b. t0e owner (/ection 10@
"0.4 !0e rig0ts acEuire# b. one to w0om a
negotiable ware0ouse receipt 0as been #ul.
negotiate# are= (a) /uc0 title to t0e goo#s as t0e one
negotiating coul# con&e. to a purc0aser in goo#
$ait0 $or &alue (b) /uc0 title to t0e goo#s as t0e
#epositor or one to w0ose or#er t0e goo#s were to be
#eli&ere# coul# con&e. to a purc0aser in goo# $ait0
$or &alue@ an# (c) :irect obligation o$ t0e
COMMERCIAL LAW
ware0ouseman to 0ol# t0e goo#s $or 0im as i$ t0e
ware0ouseman contracte# wit0 0im #irectl.. Fence@
a person to w0om a ware0ouse receipt 0as been
negotiate# b. one w0o 0as stolen t0e goo#s state# in
t0e receipt cannot claim a mis#eli&er. i$ t0e
ware0ouseman #eli&ers t0e goo#s to t0e rig0t$ul
owner@ w0o is t0e person law$ull. entitle# to it.
"0.1 *ortgagee or ple#gee o$ a ware0ouse
receipt to w0om a negotiable ware0ouse receipt 0as
been in#orse# #oes not acEuire title o&er t0e goo#s.
Fe onl. acEuires t0e rig0ts o$ a ple#gee or
mortgagee@ namel. to $oreclose t0e ple#ge or
mortgage. !0e intent in t0is case is not t0e
negotiation o$ t0e receipt wit0 its conseEuent
trans$er o$ title@ but merel. as securit. (*artineC &.
P.N.B.@ )4 P0il. '65)D P.N.B. &. (ten#i#o@ )1 P0il.
251)
"". ( non8negotiable receipt is trans$erre# b.
#eli&er. accompanie# wit0 a #ee# o$ assignment or
trans$er. I$ t0is is in#orse#@ t0e in#orsement will not
gi&e t0e trans$eree an. rig0t w0atsoe&er (/ection 4)@
""." >ig0ts acEuire# b. a person to w0om a
ware0ouse receipt 0as been trans$erre# but not
negotiate# are= (a) !itle to t0e goo#s sub9ect to
t0e terms o$ an. agreement wit0 t0e trans$eror@ an#
(b)!0e rig0t to noti$. t0e ware0ouseman o$ t0e
trans$er in 0is $a&or an# t0ereb. acEuire t0e #irect
obligation o$ t0e ware0ouseman to 0ol# t0e goo#s
$or 0im (/ection 12@ ,are0ouse >eceipts Law).
Note t0at pen#ing noti$ication@ 0is rig0ts can still be
#e$eate# b. a subseEuent attac0ing cre#itor@ or le&.
on e7ecution@ a &en#or<s lien or rig0t o$ stoppage in
transitu.
C4ATTEL MORTGAGE'*
". ( c0attel mortgage #e$ine# 8 personal
propert. is recor#e# in t0e C0attel *ortgage
>egister as a securit. $or t0e per$ormance o$ an
obligation.
"." I$ t0e mo&able@ instea# o$ being recor#e#@ is
#eli&ere# to t0e cre#itor or a t0ir# person@ t0e
contract is a ple#ge an# not a c0attel mortgage.
".2 :istinguis0ing a c0attel mortgage $rom a
ple#ge= (a) t0e c0attel mortgage is recor#e# in t0e
C0attel *ortgage >egisterD t0e ple#ge is not@ instea#
t0e mo&able is #eli&ere# to t0e cre#itor (b) in a
c0attel mortgage@ t0e consent o$ t0e mortgagee to t0e
sale o$ t0e t0ing mortgage# must be in writing an#
annotate# on t0e bac5 o$ t0e mortgage instrumentD in
ple#ge@ t0e consent o$ t0e ple#ge nee# not be in
writing but ma. be oral (c) in a c0attel mortgage@ in
a##ition to ot0er $ormal reEuirements@ t0e mortgagor
must e7ecute an a$$i#a&it o$ goo# $ait0D in ple#ge@
t0ere is no reEuirement t0at t0e ple#gor e7ecute suc0
an a$$i#a&it (#) in a c0attel mortgage@ in case o$
$oreclosure o$ t0e t0ing mortgage#@ t0e mortgagee is
not entitle# to t0e entire procee#s o$ t0e sale but
onl. to a portion t0ereo$ su$$icient to pa. t0e
mortgage #ebt@ interest an# inci#ental e7pensesD in
ple#ge@ t0e ple#gee is entitle# to t0e entire procee#s
o$ t0e sale e&en i$ it e7cee#s t0e amount o$ t0e #ebt
(e) in a c0attel mortgagee@ t0e mortgagee is entitle#
to reco&er #e$icienc. as a ruleD in ple#ge@ t0e
ple#gee is not entitle# to reco&er #e$icienc..
".4 :istinguis0ing a c0attel mortgage $rom a
real estate mortgage= (a) in a c0attel mortgage@ t0e
t0ing mortgage# must be personal or mo&able
propert.D in a real estate mortgage@ t0e t0ing
mortgage# must be real or immo&able propert. (b)
an a$$i#a&it o$ goo# $ait0 is reEuire# to be e7ecute#
in a c0attel mortgage but not in a real estate
mortgage (c) in a c0attel mortgage@ t0e mortgagor
cannot alienate t0e t0ing mortgage# wit0out t0e
written consent o$ t0e mortgagee annotate# on t0e
bac5 o$ t0e mortgage instrumentD in real estate
mortgage@ t0e mortgagor can alienate t0e t0ing
mortgage# wit0out t0e consent o$ t0e mortgagee an#
an. stipulation pro0ibiting suc0 alienation is &oi# (#)
in a c0attel mortgage@ re#emption o$ t0e t0ing
mortgage# ma. be ma#e onl. be$ore t0e sale
t0ereo$D in real estate mortgage@ t0e t0ing mortgage#
ma. be re#eeme# a$ter it is 9u#iciall. sol# but be$ore
9u#icial con$irmation o$ t0e sale@ or i$ e7tra9u#iciall.
sol#@ wit0in one .ear $rom an# a$ter t0e #ate o$ sale
(e7cept w0ere t0e mortgagor is 9uri#ical person
w0ose propert. 0as been mortgage# in $a&or o$ a
ban5@ Euasi8ban5 or trust entit.@ in w0ic0 case t0e
re#emption s0all be ma#e until@ but not a$ter@ t0e
registration o$ t0e certi$icate o$ $oreclosure sale wit0
t0e applicable >egister o$ :ee#s w0ic0 in no case
s0all be more 4 mont0s a$ter $oreclosure w0ic0e&er
is earlier)
2. !0e essential reEuisites o$ a c0attel
mortgage are= (a) It must be constitute# to secure t0e
$ul$illment o$ a principal obligation (b) !0e
mortgagor must be absolute owner o$ t0e propert.
mortgage# (c) !0e mortgagor must 0a&e $ree
#isposal o$ suc0 propert. @ or be legall. aut0oriCe#
$or t0e purpose (#)!0e propert. in&ol&e# must be
personal or mo&able@ an# (e) Contract must be
recor#e# in t0e C0attel *ortgage >egister
2." ( c0attel mortgage w0ic0 pro&i#es t0at t0e
securit. state# t0erein is $or t0e pa.ment o$ an. an#
all obligations t0erein be$ore contracte# an# w0ic0
ma. t0erea$ter be contracte#@ or $uture #ebts an#
obligations@ b. t0e mortgagor in $a&or o$ t0e
mortgagee is &oi#. !0e law reEuires parties to a
mortgage to e7ecute an a$$i#a&it o$ goo# $ait0@ t0at
t0e #ebt is 0onestl. #ue an# owing. ( &ali#
mortgage cannot be ma#e to secure a #ebt to be
contracte# in t0e $uture (3aca &. :a&ao Lumber@ L8
25''"@ *arc0 2)@ ")82@ ""4 /C>( "0'D i#eD
LopeC &. C(@ ""1 /C>( 6'"@ Co &. PNB@ ""1
/C>( 812). (n a$$i#a&it o$ goo# $ait0 is a
certi$icate inclu#e# in t0e c0attel mortgage contract
e7ecute# b. bot0 mortgagor an# mortgagee t0at t0e
:ean >e.nal#o ?. (granCamen#eC Page 1,, o$ 177
COMMERCIAL LAW
mortgage is constitute# to secure t0e speci$ie#
obligation@ an# t0at sai# obligation is a &ali#@ 9ust
an# subsisting obligation an# not one entere# into
$or t0e purpose o$ $rau#.
2.2 (lt0oug0 a promise e7presse# in t0e c0attel
mortgage to inclu#e #ebts t0at are .et to be
contracte# can be a bin#ing commitment t0at can be
acte# upon@ t0e securit. itsel$ #oes not come into
e7istence or arise until a$ter a c0attel mortgage
agreement co&ering t0e newl. contracte# #ebt is
e7ecute# eit0er b. a $res0 c0attel mortgage #ee# or
b. amen#ing t0e ol# contract to con$orm to t0e law@
particularl. t0e e7ecution o$ an a$$i#a&it o$ goo#
$ait0 ((cme /0oe etal &. C(@ -> No. "045'6@
(ugust 22@ "))6)
2.4. !0e c0attel mortgage cannot be consi#ere#
to inclu#e a$ter8acEuire# properties as it s0all co&er
onl. t0e propert. #escribe# in t0e #ee# an# not an.
ot0er li5e or substitute# propert. (/ection ').
>ecogniCe# as e7ceptions are= (") properties t0at are
peris0able@ li5e $ruits or sub9ect to ine&itable wear
an# tear li5e tires or inten#e# to be sol# or use# but
wit0 t0e un#erstan#ing t0at t0e. woul# be replace#
wit0 similar properties to be t0erea$ter acEuire# b.
t0e mortgagor. (n 67ample is= ,0ere t0e #ebtor
gi&es as securit. t0e stoc5 or merc0an#ise in 0is
store an# it is t0e LintentionM o$ t0e parties t0at t0e
mortgage s0all co&er t0e stoc5 t0at will ta5e its place
in t0e course o$ t0e business. R!orres &. Lim9ap@ 56
P0il. "1" @")4"S (2) In t0e case o$ ot0er properties@ i$
t0eir inclusion is e7pressl. stipulate# an# a
supplement to t0e mortgage speci$icall. listing an#
#escribing t0e propert. is e7ecute# an# registere# in
t0e c0attel mortgage register
2.1 !0e registration in t0e c0attel mortgage
register is not necessar. to ma5e it bin#ing between
t0e parties. It is necessar. t0oug0 to ma5e it bin#ing
on t0ir# persons.
4. !0e reme#ies o$ a cre#itor are= (a)
67tra9u#icial Ioreclosure (b) (n action $or reple&in
(c) 3u#icial Ioreclosure@ an# (#) Bring an
action $or t0e pa.ment o$ a sum o$ mone.
4." ( cre#itor cannot $orceabl. ta5e possession
o$ t0e c0attel wit0out court inter&ention (BPI Cre#it
&. C(@ 201 /C>( 60"@ Iilin&est Cre#it Corporation
&. C(@ 218 /C>( 51))
4.2 Neit0er can t0e cre#itor ta5e possession an#
appropriate t0e c0attel@ since it woul# constitute
pactum commissorium@ re$erring to an act or a
stipulation gi&ing power to t0e cre#itor to
appropriate t0e t0ing gi&en as securit.@ i$ t0e
principal obligation is not $ul$ille# wit0out an.
$ormalit.@ suc0 as $oreclosure procee#ings an#
public sale. /uc0 an act or stipulation is null an#
&oi# ((rt. 2088@ N.C.C.). In ot0er wor#s@ t0e
mortgagor<s #e$ault #oes not operate to &est in t0e
mortgagee t0e owners0ip o$ t0e mortgage# propert..
4.4 (&ailment o$ t0e reme#. o$ bringing an
action to collect a sum o$ mone. is a wai&er or
aban#onment o$ t0e c0attel mortgage. !0is also
bars t0e reco&er. o$ a #e$icienc. 9u#gment w0ic0 is
onl. a&ailable w0en t0e procee#s o$ t0e sale are
insu$$icient to co&er t0e #ebts pursuant to a
$oreclosure. !0e prescripti&e perio# $or w0ic0 is ten
("0) .ears.
4.1. Note t0at w0en t0e $inancing compan. to
w0om a loan an# c0attel mortgage 0a&e been
re$inance# 0a# been constitute# as t0e attorne.8in8
$act o$ t0e borrower to $ile an. insurance claim
co&ering t0e c0attel@ an# it $aile# to #o so upon a
total loss o$ t0e same@ will relie&e t0e borrower8
mortgagor o$ 0is obligation (B( Iinance
Corporation &. C(@ 20" /C>( "5')

4.5 !0ere are limitations on t0e en$orcement o$
c0attel mortgages e7ecute# in relation to t0e sale o$
personal propert. in installments@ w0ere t0e
reme#ies are= (") 67act $ul$illment o$ t0e
obligation (2)Cancel t0e sale@ s0oul# t0e &en#ee<s
$ailure to pa. co&er two or more installmentsD or (4)
Ioreclose t0e c0attel mortgage on t0e t0ing sol#
s0oul# t0e &en#ee<s $ailure to pa. co&er two or more
installments. In t0is case@ 0e s0all 0a&e no $urt0er
action against t0e purc0aser to reco&er an. unpai#
balance o$ t0e price. (n. agreement to t0e contrar.
s0all be &oi# ((rt. "181@ N.C.C.). !0is reme#ies are
e7clusi&e not alternati&e.
E:TRA6.(DICIAL 2ORECLO'(RE O2 REAL
E'TATE MORTGAGE'*
". !0e resort to t0e process o$ e7tra89u#icial
$oreclosure emanates $rom t0e presence o$ a
stipulation t0at allows t0e cre#itor+mortgagee to
e7tra89u#iciall. $oreclose an# #esignating t0e sai#
part. as t0e attorne.8in8$act o$ t0e mortgagor to
cause t0e same an# to sell t0e sub9ect propert. at a
$oreclosure sale b. an insertion into or attac0ment to
t0e real estate mortgage.
"." ,0en a #ebt is secure# b. a real estate
mortgage@ t0e cre#itor 0as two options= (a) to
$oreclose@ or (b) $ile an or#inar. action to collect. I$
0e a&ails o$ t0e option to $oreclose@ 0e is still
allowe# to bring a claim $or an. #e$icienc.. %n t0e
ot0er 0an#@ i$ 0e a&ails o$ t0e option to $ile an
or#inar. action@ 0e aban#ons or wai&es 0is mortgage
lien@ wit0out pre9u#ice to 0is le&.ing on t0e same
propert. but sub9ect to t0e rig0ts o$ ot0er cre#itors@
i$ an..
".2 ,0en t0e mortgagor $iles a criminal case $or
&iolation o$ BP Blg 22 against t0e mortgage #ebtor@
0e is #eeme# to 0a&e alrea#. a&aile# 0imsel$ o$ t0e
reme#. o$ a collection suit@ an# $ollowing t0e rule
:ean >e.nal#o ?. (granCamen#eC Page 1,? o$ 177
COMMERCIAL LAW
on alternati&e reme#ies@ 0e is barre# $rom
subseEuentl. resorting to an action $or $oreclosure.
".4 ( mortgage contract is@ b. nature@
in#i&isible. !0e #ebtor w0o 0as pai# cannot as5 $or a
proportionate e7tinguis0ment o$ t0e mortgage as
long as t0e #ebt is not completel. satis$ie#.
-enerall.@ t0e #i&isibilit. o$ t0e principal obligation
is not a$$ecte# b. t0e in#i&isibilit. o$ t0e mortgage.
2. !0e $oreclose# propert. s0all be re#eeme#
wit0in " .ear $rom an# a$ter t0e #ate o$ t0e sale
(/ec. 6). !0e a$orementione# #ate o$ sale 0as been
construe# b. t0e /upreme Court to mean t0e #ate o$
registration o$ t0e s0eri$$<s certi$icate o$ $oreclosure
sale in t0e o$$ice o$ t0e >egister o$ :ee#s concerne#
(>e.es &s. Noble9as@ et al.@ -.>. No. L8246)"@
No&ember 25@ ")6'). Note t0at t0e perio# $or
re#emption ma. be t0e sub9ect o$ an e7tension as
ma. be agree# upon b. t0e parties.
2." !0e amount to be pai# at re#emption is t0e
Bi# Price@ plus "2T interest per annum. Note again
t0at un#er >( 8')"@ t0e re#emption amount is suc0
w0ic0 is #ue un#er t0e mortgage #ee# wit0 interest
at t0e speci$ie# rate t0erein.
2.2 >e#emption ma. be e$$ecte# b.= (a) !0e
#ebtor@ or (b) Fis successor in interest @ or (c) (n.
9u#icial cre#itor or 9u#gment cre#itor o$ t0e #ebtor@
or (#) (n. person 0a&ing a lien on t0e propert.
subseEuent to t0e mortgage.
2.4 Notwit0stan#ing t0e $oregoing pro&ision@
9uri#ical persons w0ose propert. is sol# pursuant to
an e7tra89u#icial $oreclosure@ s0all 0a&e t0e rig0t to
re#eem t0e propert. until@ but not a$ter@ t0e
registration o$ t0e certi$icate o$ $oreclosure sale
w0ic0 in no case s0all be more t0an t0ree (4) mont0s
a$ter $oreclosure w0ic0e&er is earlier@ as pro&i#e# in
/ection 1' o$ >epublic (ct. No. 8')" ((.*. No.))8
"080580)
2.1 Note t0e probable constitutional c0allenges
t0at ma. be broug0t against t0e Euote# pro&ision o$
>( 8')" on t0e basis o$ t0e eEual protection clause
as t0ere is no substanti&e #istinction between a
corporate an# in#i&i#ual #ebtor or between a ban5 or
non8ban5 len#er.
2.5 Iurt0er@ t0e application o$ t0e law s0oul# be
prospecti&e as a corporate mortgagor 0as acEuire# as
&este# rig0t to t0e one .ear re#emption perio# i$ 0is
mortgage was e7ecute# prior to >( 8')" as t0e
controlling consi#eration is t0e law on re#emption at
t0e time o$ t0e e7ecution o$ t0e mortgage.
2.6 !0e purc0aser o$ $oreclose# propert. is not
automaticall. entitle# to t0e possession t0ereo$
#uring t0e re#emption perio# as 0e must petition t0e
>egional !rial Court o$ t0e pro&ince or cit. w0ere
t0e propert. is situate# to gi&e 0im possession
t0ereo$ #uring t0e re#emption perio#. Fe must also
put up a bon# eEui&alent in &alue to t0e use o$ t0e
propert. $or a perio# o$ "2 mont0s to in#emni$. t0e
#ebtor in case it is s0own t0at t0e sale was ma#e
wit0out compl.ing wit0 t0e reEuirements o$ (ct No.
4"45 or t0at t0ere was no &iolation o$ t0e mortgage
#ee#.
4. In general@ $ormal an# substanti&e #e$ects in
t0e real estate mortgage an# t0e $oreclosure
procee#ings pro&i#e t0e legal an# eEuitable groun#s
to en9oin or e&entuall. nulli$. $oreclosure
procee#ings@ i$ not t0e real estate mortgage itsel$.
4." !0e general basis woul# be (rticle 5@ Ci&il
Co#e@ w0ic0 pro&i#es= (cts e7ecute# against t0e
pro&isions o$ man#ator. or pro0ibitor. laws s0all be
&oi#@ e7cept@ w0en t0e law aut0oriCes t0eir &ali#it.
1. :isputes in t0e amount o$ t0e obligation
ma. cause t0e $oreclosure to be en9oine# as a ban5
ma. legall. procee# wit0 $oreclosure onl. w0en t0e
e7act amount o$ t0e obligation o$ t0e mortgagor is
#etermine# in a trial on t0e merits an# t0e mortgagor
cannot meet t0e obligation $ollowing t0at
#etermination.
1." ,0ere t0e #ebtor is not gi&en an opportunit.
to settle t0e #ebt at t0e correct amount an# wit0out
iniEuitous interest impose#@ no $oreclosure
procee#ings can be institute#.
1.2 !0e total amount #ue on t0e mortgage is
also un#etermine# i$ some o$ t0e properties are
sub9ect to t0e co&erage o$ t0e C(>P@ in w0ic0 case a
portion o$ t0e mortgage in#ebte#ness will be
assume# b. t0e go&ernment up to t0e amount
eEui&alent to t0e lan#owner<s compensation. Fence@
until t0e $inal &aluation o$ t0e lan#s sub9ect to C(>P
is #etermine#@ t0e amount o$ t0e mortgage #ebt is
unliEui#ate#
5. Issue o$ t0e legalit. o$ t0e Iloating >ate o$
Interest@ w0ic0 re$ers to t0e rate o$ interest
perio#icall. $i7e# b. a ban5 base# on t0e pre&ailing
interest rate in t0e mar5et@ suc0 as t0e *anila
>e$erence >ate or !reasur. Bill >ate@ plus a margin
as #etermine# b. t0e ban5.
5." I$ t0is rate o$ interest is unilaterall. $i7e# b.
t0e ban5 $or eac0 interest perio# wit0out t0e written
con$ormit. o$ t0e borrower@ t0e interest ma. be
#eclare# null an# &oi# $or being potestati&e an# $or
lac5 o$ mutualit. base# on essential eEualit.
between t0e parties
5.2 Its being a potestati&e con#ition (one wit0in
t0e sole power o$ t0e one obligate# to per$orm)@
conseEuentl. null an# &oi# $in#s basis in (rticle
"408 o$ t0e Ci&il Co#e t0at pro&i#es t0at t0e
$ul$illment o$ a con#ition cannot be le$t to t0e sole
will o$ one o$ t0e contracting parties
:ean >e.nal#o ?. (granCamen#eC Page 1,A o$ 177
COMMERCIAL LAW
5.4 (s 0el# b. t0e /upreme Court in (lme#a &.
Court o$ (ppeals an# PNB@256 /C>( 2)4= !0e
bin#ing e$$ect o$ an. agreement between t0e parties
to contract is premise# on two settle# principles= (")
t0at an. obligation arising $rom contract 0as t0e
$orce o$ law between t0e partiesD an# (2) t0at t0ere
must be mutualit. between t0e parties base# on t0eir
essential eEualit.. (n. contract w0ic0 appears to be
0ea&il. weig0te# in $a&or o$ one o$ t0e parties so as
to lea# to an unconscionable result is &oi#. (n.
stipulation regar#ing t0e &ali#it. or compliance o$
t0e contract w0ic0 is le$t solel. to t0e will o$ one o$
t0e parties is li5ewise in&ali#.
5.1 !0e $loating rate o$ interest being
unilaterall. $i7e# an# #etermine# b. t0e ban5 also
&iolates t0e pro&ision o$ CB Circular No. "")" t0at
t0e interest rate $or eac0 re8pricing perio# is sub9ect
to mutual agreement between t0e Borrower an# t0e
Ban5.
5.5 ?n#er (rticle ")56 o$ t0e Ci&il Co#e@ no
interest is #ue unless it 0as been e7pressl. stipulate#
in writing. !0e $loating rate being unilaterall. $i7e#
b. t0e Ban5 wit0out t0e written mutual agreement o$
t0e Borrower $or eac0 re8pricing o$ interest is null
an# &oi# un#er (rt. ")56 o$ t0e Ci&il Co#e@ an# $or
&iolation o$ CB Circular No. "")" t0at t0e interest
rate $or eac0 re8pricing perio# un#er t0e $loating rate
o$ interest in sub9ect to mutual agreement.
5.6 ConseEuentl.@ i$ t0e interest is #eclare# null
an# &oi#@ t0e $oreclosure sale $or a 0ig0er amount
t0an w0at is legall. #ue is li5ewise null an# &oi#
because un#er t0e Ci&il Co#e@ a mortgage ma. be
$oreclose# onl. to en$orce t0e $ul$illment o$ t0e
obligation $or w0ose securit. it was constitute#.
5.' In $act@ because t0ere is a #ispute on t0e
amount o$ t0e interest legall. #ue@ t0e Ban5 ma.
legall. procee# wit0 $oreclosure or consoli#ation
onl. w0en t0e e7act amount o$ t0e obligations o$ t0e
*ortgagor is #etermine# a$ter trial on t0e merit an#
t0e mortgagor cannot meet t0e obligation $ollowing
t0at #etermination.
6. Issue o$ t0e mortgage as securit. $or $uture
loans. !0e rule is unless a continuing real estate
mortgage is in&ol&e#@ a real estate mortgage is not a
&ali# securit. $or $uture loans un#er t0e so calle#
L:ragnet ClauseM.
6." !0is $in#s basis in t0e $act t0at real estate
mortgage is an accessor. contract@ w0ic0 cannot
e7ist in#epen#entl. o$ t0e principal obligation. !0e
consi#eration $or t0e mortgage is t0e consi#eration
o$ t0e contract o$ loan. ConseEuentl.@ t0e amount o$
t0e loan must be speci$ie#@ ot0erwise t0e contract o$
loan@ as well as t0e accessor. contract o$ mortgage@
s0all not be per$ecte# $or lac5 o$ consi#eration wit0
respect to t0e unspeci$ie# loan in t0e $uture. !0e
/upreme Court 0as 0el# in C0ina Ban5ing
Corporation &s. Lic0uaco@ 16 P0il 160 t0at= a
mortgage is an accessor. contract@ its consi#eration
is t0e &er. consi#eration o$ t0e principal contract@
$rom w0ic0 it #eri&es li$e@ an# wit0out w0ic0 it
cannot e7ist as an in#epen#ent contract.
6.2 Iurt0er@ un#er (rticle 2"'6 o$ t0e Ci&il
Co#e@ a mortgage ma. onl. be $oreclose# $or t0e
$ul$illment o$ t0e obligation $or w0ose securit. it
was constitute#
6.4 *ortgages wit0 a #ragnet clause is a
contract o$ a#0esion t0at must be strictl. construe#
as against t0e ban5.
6.1 !o constitute a real estate mortgage as
securit. $or $uture loans@ t0e $uture loans must be
agree# upon an# $i7e# in t0e mortgage #ee# at t0e
time o$ t0e e7ecution o$ t0e same
6.5 ( stipulation t0at t0e amounts name# as
consi#eration in a contract o$ mortgage #o not limit
t0e amount $or w0ic0 t0e mortgage ma. stan# as
securit. i$ $rom t0e $our corners o$ t0e instrument
t0e intent to secure $uture an# ot0er in#ebte#ness
can be gat0ere# is &ali# an# bin#ing an# is 5nown in
(merican 3urispru#ence as t0e Lblan5et mortgage
clauseM.
'. Issue o$ P: 485 pro0ibiting t0e issuance o$
an in9unction against $oreclosure b. an.
go&ernment $inancial institution is arbitrar. an#
unreasonable. Fence@ ma. be argue# as being
unconstitutional. Fence@ it cannot be sustaine# i$
t0ere is a clear legal groun# to restrain $oreclosure
8. Issue o$ t0e rig0t to ta5e possession. !0e
rule is t0at t0e purc0aser still 0as to $ile a petition $or
t0e issuance o$ a writ o$ possession to obtain
possession.
8." !0e procee#ings relate# t0ereto allow t0e
mortgagor to participate alt0oug0 9urispru#ence
pro&i#es t0at t0e 0earings are e78parte. Fowe&er@
wit0 t0e man#ate o$ /ection 8 o$ (ct 4"45 w0ic0
allow t0e mortgagor to set asi#e $oreclosure in t0e
same procee#ings@ it is t0e better rule to actuall.
allow t0e mortgagor<s acti&e participation.
8.2 !0e obligation o$ t0e court to issue a writ o$
possession in $a&or o$ t0e purc0aser in an
e7tra9u#icial $oreclosure sale ceases to be ministerial
once it is s0own t0at t0ere is a t0ir# part. in
possession o$ t0e propert. w0o is claiming a rig0t
a#&erse to t0at o$ t0e mortgagor an# t0at suc0 t0ir#
part. is a stranger to t0e $oreclosure procee#ings in
w0ic0 t0e e78parte writ o$ possession was applie#
$or.
8.4 (s a limitation on t0e rig0t to possession@ a
writ o$ possession ma. be legall. issue# onl. i$ t0e
#ebtor is in possession an# no t0ir# person 0as
inter&ene#.
COMMERCIAL LAW
8.1 %r#er granting a writ o$ possession un#er
(ct 4"45 is a $inal or#er. Fence@ it is appealable. In
e7propriation@ it is interlocutor..
). -roun#s $or t0e proper annulment o$ t0e
$oreclosure sale are t0e $ollowing= (a) t0ere was
$rau#@ collusion@ acci#ent@ mutual mista5e@ breac0 o$
trust or miscon#uct b. t0e purc0aser (b) t0e sale was
not $airl. an# regularl. con#ucte# (c) price was
ina#eEuate an# t0e ina#eEuac. was so great as to
s0oc5 t0e conscience o$ t0e court.
IN'OL@ENC+*
". !0e purpose o$ t0e law is to pro&i#e $or an
or#erl. mec0anism b. w0ic0 t0e assets o$ t0e
insol&ent #ebtor coul# be con&erte# into mone. $or
#istribution among 0is cre#itors an# t0ereb. relie&e
t0e #ebtor $rom t0e weig0t o$ 0is #ebts an# permit
0im to start anew $ree $rom suc0 #ebts.
2. !0e situations contemplate# b. law are= (a)
suspension o$ pa.ments (b) &oluntar. insol&enc.@
an# (c) in&oluntar. insol&enc.
2." /uspension o$ Pa.ments contemplates a
state #esire# b. a #ebtor w0o@ possessing su$$icient
propert. to co&er all 0is #ebts@ $oresees t0e
impossibilit. o$ meeting t0em w0en t0e. $all #ue.
2.2 Insol&enc. contemplates a state w0ere t0e
#ebtor 0as more obligations t0an assets.
2.4 Iurt0er #istinguis0ing between t0e two=
/uspension o$ Pa.ments is alwa.s initiate# b. t0e
#ebtor@ w0ile Insol&enc. is initiate# b. t0e #ebtor
w0en it is &oluntar.@ or b. 0is cre#itors or ot0er
persons w0en it is in&oluntar..
2.1 %t0er #istinctions are= (a) !0e ob9ect
o$ a suspension o$ pa.ments is t0e #e$erment o$ t0e
pa.ment o$ #ebts until suc0 time as t0e #ebtor@ w0o
possesses su$$icient propert. to co&er all 0is #ebts@ is
able to con&ert suc0 assets into cas0 or ot0erwise
acEuires t0e cas0 necessar. to pa. 0is #ebts. In an
insol&enc. procee#ing@ t0e ob9ect is to compel t0e
presentment o$ all #ebts@ #ue or not #ue@ an# secure
a complete #isc0arge $rom suc0 #ebts (b)!0e
amount o$ #ebts in suspension o$ pa.ments is not
a$$ecte# alt0oug0 t0eir pa.ment is postpone#. In
insol&enc.@ t0e cre#itors recei&e less t0an w0at t0e.
are entitle# to. In some cases w0ere pre$erences are
proper@ some cre#itors ma. not recei&e an. amount
at all
's1ens"on of )ay%ents "n deta"l*
". ( petition $or t0e suspension o$ pa.ments is
initiate# b. t0e #ebtor@ w0et0er 0e is an in#i&i#ual@
corporation@ partners0ip or association.
"." ,0en initiate# b. a natural person@ 0e must
0a&e assets su$$icient to settle liabilities an# will not
bar en$orcement o$ claims b. cre#itors 0ol#ing
contractual mortgages. I$ b. a 9uri#ical entit.@ it ma.
a&ail o$ t0e reme#. e&en i$ it 0as no su$$icient assets
to co&er #ebts an# liabilities but is un#er t0e
management o$ a re0abilitation recei&er or
management committee an# it will result in
pre$erre# cre#itors not being able to en9o. t0eir
pre$erence.
".2 3uris#iction is &este# in t0e regular courts i$
initiate# b. a natural person. I$ b. a 9uri#ical person@
it is &este# wit0 t0e #esignate# /pecial Commercial
Court.
2. !0e petition ma. be $ile# wit0 t0e court o$
t0e pro&ince or cit. in w0ic0 t0e #ebtor 0as resi#e#
$or 6 mont0s ne7t prece#ing t0e $iling o$ t0e
petition.
4. ?pon t0e $iling o$ t0e petition@ t0e court
s0all issue an or#er calling $or a meeting o$ t0e
cre#itors@ w0ic0 to be publis0e# an# ser&e# on t0e
cre#itors.
1. /ubseEuentl.@ a meeting o$ cre#itors $or
appro&al or #isappro&al o$ t0e #ebtor<s proposition
is to be 0el#.
1." !0e meeting o$ t0e cre#itors on t0e #ebtor<s
proposal reEuires a Euorum an# minimum &ote
consisting o$ t0e presence o$ at least two t0ir#s o$
t0e cre#itors representing at least t0ree8$i$t0s o$ t0e
liabilities (/ection 8ReS). !0is is 5nown as t0e Ltwo8
t0ir#s+t0ree8$i$t0s ruleM. !0ere is no reEuirement $or
a ma9orit. to re9ect.
1.2 !0e action b. t0e cre#itors on t0e #ebtor<s
proposal s0all 0a&e t0e $ollowing e$$ects= (a) I$ t0e
reEuire# &ote 0as not been ac0ie&e#@ t0e procee#ings
are terminate# an# t0e cre#itors are at libert. to
en$orce t0eir respecti&e rig0ts (b) I$ t0e
cre#itors appro&e t0e proposition an# t0ere is no
ob9ection on t0e part o$ an. cre#itor@ t0e court issues
an or#er t0at t0e #ecision be carrie# out an# t0at it
s0all be bin#ing on all cre#itors inclu#e# in t0e
/c0e#ule w0o 0a&e been properl. summone#D an#
(c) I$ t0e cre#itors appro&e t0e proposition@ but
a cre#itor #isagrees wit0 or ob9ects to t0e #ecision@
t0e court s0all con#uct a 0earing on t0e ob9ection=
(") I$ t0e ob9ection is $oun# to be meritorious@ t0e
procee#ings will terminate an# cre#itors will be at
libert. to en$orce t0eir respecti&e rig0ts@ or (2) I$
$oun# to be wit0out merit@ court s0all procee# as
t0oug0 no ob9ection 0a# been ma#e.
1.4 !0e groun#s $or an ob9ection are= (")
:e$ects in call $or t0e meeting@ in t0e
0ol#ing t0ereo$@ or in #eliberations 0a# t0ereat@
:ean >e.nal#o ?. (granCamen#eC Page 1,C o$ 177
COMMERCIAL LAW
w0ic0 pre9u#ice# cre#itor<s rig0ts (2) Irau#ulent
conni&ance between one or more cre#itors an#
#ebtor to &ote in $a&or o$ t0e propose# agreementD or
(4) Irau#ulent conni&ance o$ claims to obtain a
ma9orit..
5. It s0all be $orbi##en o$ a petitioner $or
suspension o$ pa.ments to #ispose o$ 0is propert.@
unless suc0 #isposition is in t0e or#inar. operation
o$ 0is business@ or ma5e an. pa.ments outsi#e o$ t0e
necessar. or legitimate e7penses o$ 0is business.
6. !0e e$$ects o$ t0e $iling o$ a petition $or
suspension o$ pa.ments on t0e below liste#
situations=
6.". (n e7ecution pen#ing against t0e #ebtor8
(n. e7ecution pen#ing against t0e #ebtor s0all be
suspen#e# be$ore t0e sale o$ t0e propert. is ma#e.
Fowe&er@ t0e #ebtor must ma5e a reEuest $or t0is
purpose to t0e court be$ore w0ic0 t0e procee#ing $or
suspension o$ pa.ments is pen#ing. /uc0
suspension s0all lapse a$ter 4 mont0s wit0out t0e
propose# agreement being accepte# b. t0e cre#itors
or as soon as it is #enie#. (/ection 6)
6.2. (n e7ecution against a propert. o$ t0e
#ebtor speciall. mortgage# H t0e e7ecution is not
suspen#e# (/ection ))
6.4. (n action to be $ile# against t0e #ebtor $or
t0e collection o$ a sum o$ mone. H no cre#itor ma.
sue to collect 0is claim $rom t0e #ebtor $rom t0e
moment t0at suspension o$ pa.ments is applie# $or
an# w0ile t0e procee#ings are pen#ing sub9ect to
certain e7ceptions suc0 as claims $or personal labor@
maintenance@ e7penses o$ last illness an# claims b.
persons 0a&ing mortgages. (/ections 6 an# ))
@olnta!y InsolBen#y "n deta"l*
". oluntar. insol&enc. is t0e state #esire# b.
an insol&ent #ebtor w0o owes #ebts e7cee#ing t0e
sum o$ P"@ 000.00. Fe ma. appl. to be #isc0arge#
$rom 0is #ebts b. $iling a petition wit0 t0e >egional
!rial Court o$ t0e pro&ince or cit. in w0ic0 0e 0as
resi#e# $or 6 mont0s ne7t prece#ing t0e $iling o$
suc0 petition. !0e petition must be accompanie# b.
a sc0e#ule o$ #ebts an# an in&entor. o$ properties.
"." oluntar. Insol&enc. is #i$$erent $rom
In&oluntar. Insol&enc. in t0e $ollowing manner= In
&oluntar. insol&enc.@ a #ebtor is #eeme# insol&ent
upon 0is $iling o$ a petition $or &oluntar.
insol&enc.D w0ile in in&oluntar. insol&enc.@ t0e
#ebtor is consi#ere# insol&ent upon t0e issuance b.
t0e court o$ an or#er #eclaring 0im an insol&ent.
2. !0e proce#ure $or &oluntar. insol&enc. is
initiate# b. t0e $iling b. t0e #ebtor o$ a petition.
2." Issuance b. t0e court o$ an or#er #eclaring@
among ot0er t0ings@ t0at t0e petitioner is insol&ent.
Note t0at t0e $iling o$ suc0 petition s0all be an act o$
insol&enc.. !0us@ i$ t0e court $in#s t0e petition to be
in or#er@ it s0all issue on t0e same #ate it is $ile# an
%r#er o$ (#9u#ication t0at t0e #ebtor is insol&ent. I$
$oun# to contain a $alsit.@ t0e petition is #ismisse#.
2.2 Publication o$ or#er an# ser&ice t0ereo$ on
t0e cre#itors. Being a procee#ing in rem@ t0ere
must be publication@ as man. times as t0e court ma.
#eem proper@ an# all cre#itors appearing in t0e
sc0e#ule s0all be gi&en notice.
2.4 *eeting o$ cre#itors $or election o$ assignee
in insol&enc.. (n assignee in insol&enc. is a person
selecte# in bot0 &oluntar. an# in&oluntar.
procee#ings@ eit0er b. t0e cre#itors or b. t0e court@
to w0om a #ebtor #eclare# insol&ent@ b. legal
man#ate@ ma5es an assignment o$ 0is properties $or
t0e bene$it o$ cre#itors.Fis principal $unction is to
reco&er all t0e estate@ #ebts an# e$$ects o$ t0e
insol&ent. Fe s0all t0erea$ter as spee#il. as possible
con&ert t0e estate@ real or personal@ into mone.. !0e
$ollowing propert. o$ t0e insol&ent #ebtor s0all pass
to t0e assignee= (a) (ll real an# personal propert.
an# e$$ects (b) (ll #ee#s@ boo5s@ an# papers (c) !0e
#ebtor<s rig0t o$ action $or #amages to real propert.
(#)>ig0t to release propert. $rau#ulentl. con&e.e#.
!0e $ollowing propert. s0all not pass to t0e assignee
an# s0all remain wit0 t0e #ebtor= (a) ($ter
acEuire# propert.@ e7cept its $ruits an# income.
($ter8acEuire# propert. is t0at acEuire# b. t0e
#ebtor subseEuent to t0e $iling o$ petition $or
insol&enc. (b)Non le&iable assets@ suc0 as an
insurance polic. wit0out an. cas0 surren#er &alue or
t0e premium o$ w0ic0 #oes not e7cee# P500.00
(c)(n e7pectanc. to in0erit (#) >ig0t o$ action in
personal in9ur. cases w0ic0 pertains e7clusi&el. to
t0e #ebtor (e) Propert. 0el# in trust b. #ebtor or
merel. lease# b. #ebtor ($) Propert. e7empt $rom
e7ecution. (/ec. "2@ >ule 4)@ >ules o$ CourtD (rt.
224@ Ci&il Co#e).

2.1 It is t0e cre#itors w0o 0a&e $ile# t0eir claims
w0o are entitle# to elect t0e assignee an# w0en t0e.
submit t0e name to t0e court (/ection 2)). !0e court
will t0en appoint t0e person nominate# an# $rom
t0en on 0e will be an o$$icer o$ t0e court. ( ma9orit.
o$ t0e cre#itors concurring wit0 ma9orit. o$ t0e
claims will be necessar. to properl. elect t0e
assignee. (/ection 40).
2.5 !0e assignee<s #ut. is to con&ert t0e
propert. o$ t0e #ebtor to cas0 an#@ t0erea$ter@ 0e will
#eclare L#i&i#en#sM (/ec. 14) to t0e cre#itors.
L:i&i#en#sM are t0e eEuitable #istribution o$ t0e
propert. to t0e cre#itors. !0e. are t0e amounts pai#@
upon or#er o$ t0e court@ to t0e cre#itors o$ an
insol&ent out o$ t0e capital or assets o$ t0e
insol&ent<s estate $or t0e purpose o$ liEui#ating or
#isc0arging a #ebt.
:ean >e.nal#o ?. (granCamen#eC Page 1,H o$ 177
COMMERCIAL LAW
!0us@ t0e cre#itors must pro&e t0eir claims twice=
$irst@ un#er /ec. 2) in t0e election o$ t0e assigneeD
secon#@ un#er /ec. 14@ to entitle t0em to #i&i#en#s.
I$ t0e cre#itor $ails to pro&e 0is claim un#er /ec. 2)@
t0en 0e is not barre# $rom pro&ing 0is claim un#er
/ec. 14 in or#er to be entitle# to #i&i#en#s. (n#
e&en i$ t0e cre#itor #oes not present t0e best proo$ o$
0is claim un#er /ec. 2)@ 0e can still s0ow t0e best
proo$ o$ 0is cre#it un#er /ec. 14@ e&en i$ t0e claim
was re9ecte# un#er /ec. 2).
2.6. Composition@ i$ agree# upon. Composition
is an agreement w0ereb. t0e cre#itors o$ an
insol&ent agree to accept a certain percentage o$
t0eir claims in $ull settlement o$ suc0 claims. It is a
met0o# o$ #i&i#ing t0e estate o$ t0e insol&ent among
0is cre#itors amicabl..
2.' >eEuisites $or ali# %$$er o$ Composition
are= (a) %$$er must be ma#e a$ter t0e $iling o$ t0e
/c0e#ule o$ t0e #ebtor<s propert. an# t0e list o$ 0is
cre#itors (b) %$$er must be accepte# in writing b. a
ma9orit. o$ t0e cre#itors representing a ma9orit. o$
t0e claims w0ic0 0a&e been allowe# (c) %$$er must
be ma#e onl. a$ter t0e insol&ent #eposits t0e
consi#eration to be pai# to t0e cre#itorsD an# (#)
%$$er accepte# b. t0e cre#itors must be con$irme#
b. t0e Court. (/ec. 54).
2.8 !0e e$$ects o$ composition are= (")
Insol&enc. procee#ings #ismisse#@ t0e
amount agree# upon is #eposite# in court@ an# i$ t0e
court $in#s settlement meritorious it s0all appro&e
t0e same (2) (ll #ebts are #isc0arge# H 6$$ect
s0all be as i$ t0e #ebtor 0as obtaine# a #isc0arge@ so
t0at all claims against #ebtor are e7tinguis0e# an#
assignee must return all properties to #ebtor.
2.) :isc0arge is t0e release o$ t0e #ebtor $rom
0is #ebts w0ic0 were or mig0t be pro&e# in t0e
insol&enc. procee#ings suc0 t0at t0e. are no longer
a c0arge upon 0im. (n insol&ent #ebtor ma.
appl. to t0e court $or a #isc0arge $rom 0is #ebts an.
time a$ter t0e e7piration o$ 4 mont0s $rom t0e
a#9u#ication o$ insol&enc. but not later t0an " .ear
$rom suc0 a#9u#ication@ unless t0e propert. o$ t0e
insol&ent 0as not been con&erte# into mone..
2."0 !o obtain a #isc0arge@ t0e $ollowing s0oul#
be complie# wit0= (") :ebtor must 0a&e complie#
wit0 statutor. reEuirements regar#ing surren#er o$
0is assets $or t0e bene$it o$ cre#itors an# regar#ing
t0e ren#ition o$ an account o$ 0is assets an#
liabilities (2) Fe must 0a&e applie# $or #isc0arge
a$ter t0ree mont0s $rom #ate o$ a#9u#ication o$
insol&enc.@ but not later t0an one .ear t0erea$ter
(4):ebtor must not 0a&e committe# an. o$ t0e acts
o$ insol&enc. enumerate# in /ec. 65 o$ Insol&enc.
Law@ pre&enting #isc0arge o$ a #ebtor.
2."" I$ a$ter being a#9u#ge# insol&ent@ t0e #ebtor
$ails to appl. $or a #isc0arge wit0in t0e reEuire#
perio#@ 0e loses 0is rig0t to be #isc0arge#.
2."2 !0e #ebtor woul# be entitle# to a secon#
#isc0arge i$ it ta5es place a$ter 6 .ears $rom t0e $irst
#isc0arge or@ i$ ta5es place wit0in 6 .ears $rom t0e
$irst #isc0arge@ i$ t0e secon# insol&enc. procee#ing
is in&oluntar..
2."4 !0e e$$ect o$ a #isc0arge is t0at it releases a
#ebtor $rom all #ebts contracte# b. 0im prior to t0e
insol&enc. procee#ing@ wit0 t0e e7ception o$ t0ose
e7pressl. mentione# b. t0e law. !0e #ebts
t0at are not #isc0arge# are= (")!a7es an#
assessments #ue to t0e go&ernment@ national or local
(2):ebts create# b. t0e $rau# or embeCClement o$
t0e #ebtor (4) :ebts create# b. t0e #e$alcation o$
t0e #ebtor as a public o$$icer or w0ile acting in a
$i#uciar. capacit. (1) :ebts w0ic0 0a&e not been
sc0e#ule#@ unless t0e cre#itor 0a# actual 5nowle#ge
or notice o$ t0e procee#ings in insol&enc.D an# (5)
:ebts owing to cre#itors w0o were not #ul. noti$ie#
an# 0a# no actual 5nowle#ge o$ t0e insol&enc.
procee#ings.
2.8. >esolution o$ ob9ections to a #isc0arge@ i$
an.. /uc0 ob9ections are to be base# on an. one or
more o$ t0e $ollowing as t0e #ebtor is #eeme# in ba#
$ait0 an# not entitle# to #isc0arge i$=
a. :ebtor submitte# a $alse a$$i#a&it@ eit0er in
0is petition@ in&entor. or sc0e#uleD
b. Fe conceale# part o$ 0is estate or e$$ectsD
c. :ebtor was guilt. o$ $rau# or neglect in care
o$ 0is propert.D
#. :ebtor procure# an attac0ment or e7ecution
on 0is propert. #uring t0e one8mont0 perio# prior to
t0e insol&enc. procee#ingsD
e. :ebtor #estro.e# or $alsi$ie# important
papers an# #ocumentsD
$. :ebtor $rau#ulentl. ga&e certain cre#itors
pre$erencesD
g. :ebtor $aile# to #isclose t0at certain claims
w0ic0 0a# been pro&en were $alse or $rau#ulentD
0. Being a merc0ant@ #ebtor $aile# to 5eep
proper boo5s o$ accountD
i. :ebtor in$luence# t0e action o$ an. cre#itor
b. pecuniar. meansD
9. In contemplation o$ insol&enc.@ #ebtor ma#e
$rau#ulent con&e.ances o$ or encumbrances upon
0is propertiesD
:ean >e.nal#o ?. (granCamen#eC Page 1,/ o$ 177
COMMERCIAL LAW
5. :ebtor 0a# been con&icte# o$ an. o$ t0e
penal pro&isions o$ t0e Insol&enc. LawD or
l. In case o$ in&oluntar. insol&enc.@ #ebtor
0a# alrea#. a&aile# o$ t0e bene$its o$ t0e Insol&enc.
Law wit0in t0e si78.ear perio# prece#ing 0is
application $or #isc0arge.
Note t0at i$ #ebtor is one w0o is in ba# $ait0@ t0e
concept o$ La$ter8acEuire# propertiesM #oes not
appl.. In suc0 instance@ all properties o$ t0e #ebtor
acEuire# be$ore or a$ter t0e #ate o$ clea&age s0all be
liable $or t0e pa.ment o$ all 0is #ebts.
Clea&age is t0e #ate w0en t0e petition is $ile#@ $rom
w0ic0 t0e perio# o$ t0irt. #a.s is counte# $orwar# or
bac5war# in #etermining t0e e$$ects pro&i#e# $or in
t0e Insol&enc. Law@ as w0en= (a) ?n#er /ection 208
to #etermine i$ at least t0ree (4) cre#itors $ile# t0e
petition $or insol&enc.8a cre#itor b. assignment o$
cre#it ma#e wit0in t0irt. (40) #a.s $rom #ate o$
clea&age s0all be #isEuali$ie# as petitioning cre#itor
(b) ?n#er /ection 428 (") attac0ment le&ie# upon
wit0in a perio# o$ t0irt. (40) #a.s be$ore t0e #ate o$
clea&age ma. be set asi#e b. t0e assignee (2)
9u#gments on cases $ile# an# #eci#e# wit0in t0irt.
(40) #a.s prior to t0e #ate o$ clea&age ma. be set
asi#e b. t0e assignee (4)9u#gments on cases $ile#
be$ore t0irt. (40) #a.s $rom t0e #ate o$ clea&age but
#eci#e# wit0in sai# t0irt. (40) #a.s because o$
con$ession o$ 9u#gment or #eclaration o$ #e$ault o$
#ebtor ma. be set asi#e b. action o$ assignee (1)
properties acEuire# a$ter #ate o$ clea&age@ a$ter
#isc0arge o$ #ebtor in goo# $ait0 s0all not be liable
$or #ebts incurre# prior to #ate o$ clea&age (5) ?n#er
/ection '08$rau#ulent pre$erences ma#e wit0in t0irt.
(40) #a.s prior to t0e #ate o$ clea&age ma. be set
asi#e in an action broug0t b. assignee.
Note /ection '0 pertains to Irau#ulent Pre$erences
w0en #ebtor trans$erre# propert. to an. person to
gi&e 0im pre$erence@ suc0 trans$er ma. be set asi#e
b. proper court action b. t0e assignee pro&i#e# t0at
t0e trans$er too5 place wit0in 40 #a.s perio# $rom
t0e #ate o$ clea&age. !0e propert. trans$erre# will
be returne# to t0e insol&ent<s estate $or eEuitable
#istribution among 0is cre#itors. !0ere is a
Presume# Irau#ulent !rans$er i$= (a) Not in t0e
or#inar. course o$ business (b) ?n#er con$ession o$
9u#gment (c)Not $or &aluable consi#eration.
:ea# Persons Being ?n#er Insol&enc. (/ection '2)
H :ea# person ma. be sub9ect o$ insol&enc.
procee#ings. I$ procee#ings $ile# an# #ebtor #ies
be$ore %r#er o$ (#9u#ication@ case must be
#ismisse# an# reme#. o$ t0e cre#itors will be to $ile
a claim n t0e testate or intestate procee#ings. But i$
t0e #ebtor #ies a$ter t0e %r#er o$ (#9u#ication 0as
issue#@ procee#ings will continue.
2.). (ppeal to t0e /upreme Court in certain
cases= (a) Irom an or#er granting or re$using an
a#9u#ication o$ insol&enc. an#@ in t0e latter case@
$rom t0e or#er $i7ing t0e amount o$ costs@ e7penses@
#amages@ an# attorne.<s $ees allowe# t0e #ebtor (b)
Irom an or#er ma#e at t0e 0earing o$ an. account o$
an assignee@ allowing or re9ecting a cre#itor<s claim@
in w0ole or in part@ w0en t0e amount in #ispute
e7cee#s t0ree 0un#re# pesos (c) Irom an or#er
allowing or #en.ing a claim $or propert. not
belonging to t0e insol&ent@ presente# un#er section
$ort.8eig0t o$ t0is (ct (#) Irom an or#er settling an
account o$ an assignee (e) Irom an or#er against or
in $a&or o$ setting apart 0omestea# or ot0er propert.
claime# as e7empt $rom e7ecution (e) Irom an or#er
granting or re$using a #isc0arge o t0e #ebtor.
(/ection 82)
a. Note t0at t0e Insol&enc. Law pro&i#es t0at
t0e #ecision o$ t0e trial court is $inal an# not
appealable B?! #ue consi#eration must be accor#e#
t0e pro&isions o$ t0e "))' >ules o$ Ci&il Proce#ure
regar#ing appeals to t0e /upreme Court an# w0at
ma. be t0e sub9ect o$ an appeal@ w0ic0 woul# ten#
to impl. t0at Insol&enc. is a case t0at allows
multiple appeals@ being a special procee#ings case.

In&oluntar. Insol&enc. is :etail
". In&oluntar. insol&enc. is t0e state o$ w0ic0
a #ebtor ma. be place# b. 4 or more o$ 0is cre#itors@
resi#ents o$ t0e P0ilippines@ w0ose cre#its accrue# in
t0e P0ilippines an# t0e amount o$ w0ic0 cre#its are
in t0e aggregate not less t0an P"@000.00. !0e sai#
cre#itors ma. $ile a petition wit0 t0e >egional !rial
Court o$ t0e pro&ince or cit. in w0ic0 t0e #ebtor
resi#es or 0as 0is principal place o$ business. !0e
petition must allege t0e commission b. t0e #ebtor o$
one or more acts o$ insol&enc..
"." %ne or more o$ t0e $ollowing "4 acts o$
insol&enc. must be allege# in t0e petition=
a. !0e #ebtor is about to #epart or 0as #eparte#
$rom t0e P0ilippines wit0 intent to #e$rau# 0is
cre#itorsD
b. !0e #ebtor@ being absent $rom t0e
P0ilippines wit0 intent to #e$rau# 0is cre#itors@
remains absentD
c. !0e #ebtor conceals 0imsel$ to a&oi# t0e
ser&ice o$ process $or t0e purpose o$ 0in#ering@
#ela.ing or #e$rau#ing 0is cre#itorsD Personal
#. !0e #ebtor conceals or is remo&ing an. o$
0is propert. to a&oi# its being attac0e# or ta5en on
legal processD
e. !0e #ebtor 0as su$$ere# 0is propert. to
remain un#er attac0ment or legal process $or 4 #a.s
$or t0e purpose o$ 0in#ering@ #ela.ing or #e$rau#ing
0is cre#itorsD
:ean >e.nal#o ?. (granCamen#eC Page 1?0 o$ 177
COMMERCIAL LAW
$. !0e #ebtor 0as con$esse# or o$$ere# to allow
9u#gment in $a&or or an. cre#itor or claimant $or t0e
purpose o$ 0in#ering@ #ela.ing or #e$rau#ing an.
cre#itor or claimantD
g. !0e #ebtor 0as will$ull. su$$ere# 9u#gment
to be ta5en against 0im b. #e$ault $or t0e purpose o$
0in#ering@ #ela.ing o$ #e$rau#ing 0is cre#itorsD
3u#icial
0. !0e #ebtor 0as su$$ere# or procure# 0is
propert. to be ta5en on legal process wit0 intent to
gi&e a pre$erence to one or more o$ 0is cre#itors an#
t0ereb. 0in#er@ #ela. or #e$rau# an. one o$ 0is
cre#itorsD
i. !0e #ebtor 0as ma#e an. assignment@ gi$t@
sale@ con&e.ance or trans$er o$ 0is estate@ propert.@
rig0ts or cre#its wit0 intent to #ela.@ #e$rau# or
0in#er 0is cre#itorsD
9. !0e #ebtor 0as@ in contemplation o$
insol&enc.@ ma#e an. pa.ment@ gi$t@ grant@ sale@
con&e.ance or trans$er o$ 0is estate@ propert.@ rig0ts
or cre#itsD Pre$erence
5. !0e #ebtor@ being a merc0ant or tra#esman@
0as generall. #e$aulte# in t0e pa.ment o$ 0is current
obligations $or a perio# o$ 40 #a.sD
l. !0e #ebtor@ $or a perio# o$ 40 #a.s@ 0as
$aile# a$ter #eman# to pa. an. mone.s #eposite#
wit0 0im or recei&e# b. 0im in a $i#uciar. capacit.D
m. !0e #ebtor@ an e7ecution 0a&ing been issue#
against 0im on $inal 9u#gment $or mone.@ s0all 0a&e
been $oun# to be wit0out su$$icient propert. sub9ect
to e7ecution to satis$. t0e 9u#gment. *erc0ant
2. !0e proce#ure $or in&oluntar. insol&enc. is
as $ollows=
2.". Iiling o$ petition b. cre#itors o$ t0e #ebtor
(/ection 20)D
2.2. %r#er b. t0e court reEuiring t0e #ebtor to
s0ow cause w0. 0e s0oul# not be #eclare# insol&ent
(/ection 2")D
2.4. /er&ice o$ t0e or#er on t0e #ebtor an#
publication(/ection 22)D
2.1. Iiling o$ answer or motion to #ismiss b. t0e
#ebtor (/ection 24)D
2.5. !rial o$ t0e case (/ection 24)D
2.6. I$ t0e court $in#s $or t0e #ebtor@ t0en t0e
procee#ings s0all be #ismisse# (/ection 24)D i$ t0e
#ebtor #e$aults or t0e court $in#s $or t0e cre#itors@
t0en t0e court s0all issue an or#er a#9u#ging #ebtor
insol&ent (/ection 21)D
2.'. Publication o$ or#er an# ser&ice t0ereo$ on
t0e cre#itors (/ection 25)
2.8. *eeting o$ cre#itors $or election o$ assignee
in insol&enc. (section 40)D
2.). Con&e.ance o$ #ebtor<s propert. to assignee
in insol&enc. (/ection 42)D
2."0. LiEui#ation o$ assets an# pa.ment o$ #ebts
(/ections 44@ et seE.)D
2."". :isc0arge o$ t0e #ebtor (/ection 61)D
2."2. %b9ections to #isc0arge@ i$ an. (/ection 66)D
2."4. (ppeal to t0e /upreme Court in certain
cases (/ection 82).
6$$ects o$ t0e $iling o$ a oluntar. or In&oluntar.
Petition o$ Insol&enc. on Procee#ings against t0e
#ebtor=
". In general H t0e ci&il procee#ings against t0e
#ebtor@ upon application b. t0e #ebtor 0imsel$@ an.
cre#itor or t0e assignee@ will be sta.e# or suspen#e#.
2. /ecure# claims alrea#. begun H actions $or
secure# claims alrea#. begun are suspen#e# until t0e
assignee is electe#. ?pon election o$ t0e assignee@
t0e action will be continue# in t0e same court w0ere
it was $ile#.
2." !0e reme#ies o$ a secure# cre#itor@ or o$ one
w0o 0ol#s a real estate mortgage@ c0attel mortgage
an# or a ple#ge are= (a) >el. on t0e securit. H t0en
0e will not be eligible to ta5e part in t0e insol&enc.
procee#ings (b) 6&aluate t0is securit. H 0e can as5
t0is $rom t0e court@ t0e balance o$ t0e loan not
secure# ma. be claime# in t0e insol&enc.
procee#ings (c) Iile a contingent claim H t0e
cre#itor will $ile a claim in t0e insol&enc.
procee#ings@ t0at in case t0e procee#s $rom t0e sale
o$ t0e securit. is not enoug0 to co&er t0e loan@ t0e
#e$icienc. s0all be reco&ere# in t0e insol&enc.
procee#ings.
!0ese t0ree alternati&es are also a&ailable to a #ebt
secure# b. a c0attel mortgage wit0 t0e e7ception o$
t0ose $alling o$ t0ose un#er (rt. "181 o$ t0e Ci&il
Co#e (sale o$ mo&ables un#er installments)@ in
w0ic0 case t0e cre#itors s0all onl. be entitle# to
reme#ies (") an# (2). !0e same is true wit0 ple#ge as
t0e Ci&il Co#e e7pressl. pro0ibits a #e$icienc.
9u#gment in ple#ge.
4. /ecure# claims not .et begun H actions $or
secure# claims ma. be begun w0ile t0e insol&enc.
procee#ings are pen#ing wit0 t0e permission o$ t0e
insol&enc. court. Fowe&er@ i$ t0e assignee in
insol&enc. 0as not .et been electe#@ t0e sai# action
will be suspen#e# until t0e assignee is electe#.
COMMERCIAL LAW
1. ?nsecure# claims alrea#. begun H actions
$or unsecure# claims alrea#. begun are suspen#e#
e7cept in cases w0ere t0e amount #ue t0e cre#itor is
in #ispute. In suc0 cases@ t0e suit@ b. lea&e o$ t0e
insol&enc. court@ ma. procee# to 9u#gment $or t0e
purpose o$ ascertaining t0e amount #ue@ but
e7ecution s0all be sta.e#. ($ter t0e election o$ t0e
assignee in insol&enc.@ suc0 unsecure# claims s0all
be $ile# an# allowe# in t0e insol&enc. procee#ings@
not in t0e court w0ere t0e. were originall. $ile#.
5. ?nsecure# claims not .et begun H actions
$or unsecure# claims cannot be $ile# #uring t0e
pen#enc. o$ t0e insol&enc. procee#ings but it $ile#@
suc0 actions will be #ismisse# upon motion o$ t0e
assignee. /uc0 unsecure# claims s0all t0en be $ile#
an# allowe# in t0e insol&enc. procee#ings@ not in
t0e court w0ere t0e. were originall. $ile#.
Fow claims are resol&e# b. t0e (ssignee=
In resol&ing t0e claims o$ t0e cre#itor a$ter t0e
#ebtor<s assets 0a&e been liEui#ate#@ unless a
composition 0as been agree# upon b. t0e #ebtor<s
cre#itors@ obligations o$ t0e #ebtor s0all be pai# in
t0e $ollowing or#er=
". 6Euitable claims enumerate# in /ection 18
o$ Insol&enc. Law8 t0ese are t0e claims w0ic0 are
entitle# to $irst priorit. in pa.ment= (a)Parap0ernal
propert. o$ #ebtor<s wi$e (b) Propert. 0el# b.
#ebtor un#er lease or usu$ruct or on #eposit or $or
a#ministration (c)*erc0an#ise 0el# b. #ebtor on
commission@ $or $orwar#ing or on consignment an#
purc0ase price $rom sales on consignment
(#)Negotiable instruments sent to #ebtor $or
collection an# t0e mone. collecte# t0ereb. (e)
*one. in #ebtor<s possession $or remittance to
ot0ers ($) *erc0an#ise boug0t on cre#it@ i$ no
#eli&er. 0as been ma#e (g) -oo#s wrong$ull.
ta5en b. t0e #ebtor.
2. Pre$erre# claims un#er (rticles 221" an#
2212 o$ t0e Ci&il Co#e
2." (rticle 221"8wit0 respect to speci$ic
mo&able propert. o$ #ebtor@ t0e $ollowing claims are
pre$erre#= (a) ta7es (b) claims arising $rom
mal&ersation (c)&en#or<s lien (#) claims secure# b.
ple#ge or c0attel mortgage (e)mec0anic<s lien ($)
lien o$ laborers $or wages o&er goo#s
manu$acture# (g)sal&age (0)tenanc. (i) carrier<s lien
(9)inn5eeper<s lien (5) crop loan (l)rentals $or one
.earD an# (m) propert. on #eposit t0at 0as been
wrong$ull. sol#.
2.2 (rticle 22128wit0 respect to speci$ic real
propert.@ t0e $ollowing claims s0all be pre$erre#= (a)
ta7es (b) unpai# price realt. (c)contractor<s
lien ($or amounts #ue to laborers@ or arc0itects an#
engineers) (#) lien o$ suppliers o$ materials (e)
mortgage cre#its upon registere# real estate
mortgages ($)reimbursable e7penses $or
impro&ement an# preser&ation o$ real estate
(g)cre#its on propert. upon w0ic0 attac0ments or
e7ecutions 0a&e been ma#e (0)claims o$ co80eirs $or
warrant. in t0e partition o$ an immo&able among
t0em (i) claims o$ #onors $or pecuniar. or ot0er
c0arges on t0e immo&able #onate#D an# (9)
claims o$ insurers upon insure# propert.@ $or
premiums not e7cee#ing two .ears (repeale# b. new
Insurance Co#e)
2.4 (rticle 221" lists "4 claims or cre#its t0at
en9o. pre$erence wit0 respect to speci$ic immo&able
propert. an# real rig0ts o$ t0e #ebtor= (") !0ese
claims or cre#its are consi#ere# as liens or
mortgages or ple#ges@ respecti&el.@ o$ personal or
real propert. ((rt. 2214) (2) !0ese claims or cre#its
s0all be pai# pro rata a$ter t0e pa.ment o$ an. ta7es@
#uties@ $ees an# assessments@ as t0e case ma. be@ #ue
t0e /tate or an. sub#i&ision t0ereo$ (4) I$ an. e7cess
s0oul# remain a$ter pa.ment o$ t0e claims or cre#its
w0ic0 en9o. pre$erence wit0 respect to speci$ic
propert.@ real or personal@ t0e same s0all be a##e# to
t0e $ree propert. w0ic0 t0e #ebtor ma. 0a&e $or t0e
pa.ment o$ t0e ot0er cre#its@ i.e.@ t0ose cre#its w0ic0
#o not en9o. pre$erence wit0 respect to t0e speci$ic
propert..
4. Pre$erre# claims un#er (rticle 2211 o$ t0e
Ci&il Co#eD an#
4." (rticle 22118wit0 respect to propert. ot0er
t0an t0ose enumerate# in (rts. 221" an# 2212@ in t0e
or#er name#= (a)Iuneral e7penses o$ #ebtor an# 0is
c0il#ren (b) Cre#its $or ser&ices ren#ere# b.
emplo.ees an# 0ouse0ol# 0elp (c)67penses incurre#
#uring last illness o$ #ebtor@ 0is spouse an# c0il#ren
(#)Compensation #ue laborers in cases o$ labor
acci#ent or illness resulting $rom nature o$
emplo.ment (e) :ebts incurre# b. #ebtor $or support
o$ 0is $amil. #uring t0e .ear prece#ing insol&enc.
($) /upport #uring insol&enc. procee#ings an#
$or t0ree mont0s t0erea$ter (g) Iines an# ci&il
in#emni$ications arising $rom crime (0)Legal an#
ot0er e7penses $or a#ministration o$ insol&ent<s
estate (i)!a7es #ue national go&ernment (9)!a7es
#ue pro&incial go&ernment (5) !a7es #ue cit. or
municipalit. go&ernment (l) :amages arising
$rom a Euasi8#elict or tort (m) -i$ts #ue to c0aritable
institutionsD an# (n) Cre#its wit0out special
pri&ilege appearing in a public #ocument or resulting
$rom a $inal 9u#gment.
4.2 (rticle 2211 lists "1 claims or cre#its w0ic0
en9o. pre$erence wit0 respect to ot0er propert. o$
t0e #ebtor. Claims or cre#its wit0 respect to t0is
propert. s0all be pre$erre#@ an# pai#@ in t0e or#er
name#@ not pro rata. !a5e not o$ No. "1 w0ic0
re$ers to cre#its w0ic0@ wit0out special pri&ilege@
appear in a public instrument@ or in a $inal 9u#gment@
COMMERCIAL LAW
i$ t0e cre#its 0a&e been t0e sub9ect o$ litigation.
!0ese cre#its 0a&e pre$erence among t0emsel&es in
t0e or#er o$ priorit. o$ t0e #ates o$ t0e instruments
(more speci$icall.@ t0e #ate w0en t0e. became
public instruments@ i.e.@ t0e #ate o$ t0eir notarial
ac5nowle#gment) an# o$ t0e 9u#gments@
respecti&el..
1. %r#inar. claims un#er /ection 1) o$ t0e
Insol&enc. Law@ w0ic0 are claims ot0er t0an t0e
abo&e@ #ul. pro&e# an# allowe# in t0e insol&enc.
procee#ings@ w0ic0 s0all pro ra#a in t0e remain#er
o$ t0e #ebtor<s propert.@ wit0out an. priorit. or
pre$erence.
1." Common cre#its@ i.e.@ cre#its o$ an. ot0er
5in# or class@ or b. an. ot0er rig0t or title@ not
inclu#e# in (rticles 221"@ 2212@ 2214 or 2211@ en9o.
no pre$erence ((rt. 2215). !0e. s0all be pai# pro
rata regar#less o$ #ates ((rt. 225"R2S)
CENTRAL &ANK ACT
". !0e law was enacte# on 3une "1@ "))4 an#
0as $or its polic. t0e maintenance o$ a central
monetar. aut0orit. wit0 t0e power= (a) $unction an#
operate as an in#epen#ent an# accountable bo#. in
t0e #isc0arge o$ its responsibilities concerning
mone.@ ban5ing an# cre#it (b) en9o. $iscal an#
a#ministrati&e autonom..
"." ( central ban5 is a ban5 t0at 0ol#s t0e cas0
reser&es o$ a countr.<s commercial ban5s@ per$orms
monetar. ser&ices $or t0e go&ernment@ issues ban5
notes@ an# ma5es $un#s a&ailable to commercial
ban5s
Conse!Bato!s3"1
". !0e appointintment b. t0e *onetar. Boar#
o$ a conser&ator ta5es place w0ene&er a ban5 or
Euasi8ban5 is in a state o$ continuing inabilit. or
unwillingness to maintain a con#ition o$ liEui#it.
#eeme# a#eEuate to protect t0e interest o$ #epositors
an# cre#itors.
"." It is an attempt to sa&e t0e ban5 $rom
ban5ruptc. an# ultimate liEui#ation.
".2 !0e appointe# conser&ator is to ta5e c0arge
o$ t0e assets@ liabilities@ an# t0e management t0ereo$
$or a perio# not e7cee#ing one (") .ear
2. ( conser&ator ma. ta5e o&er a ban5 or
Euasi8ban5 wit0out t0e nee# o$ $irst #eclaring t0e
ban5 insol&ent (P.:. ")4'@ 3une 2'@ ")81).
Nonet0eless@ t0e #esignation o$ a conser&ator is not
a precon#ition to t0e #esignation o$ a recei&er
(/ection 40)
2." ( conser&ator is t0e person appointe# to
ta5e o&er t0e management o$ a ban5 an# s0all
assume e7clusi&e powers to o&ersee e&er. aspect o$
t0e ban5<s operation an# a$$airs.
"
4. !0e conser&ators0ip is terminate# w0en= (a)
,0en *onetar. Boar# is satis$ie# t0at
institution can continue to operate on its own an# t0e
conser&ators0ip is no longer necessar. (b)/0oul#
*onetar. Boar# #etermine t0at t0e continuance in
business o$ t0e institution woul# in&ol&e probable
loss to its #epositors or cre#itors@ in w0ic0 case
procee#ings $or recei&ers0ip an# liEui#ation s0all be
pursue#. (/ec. 2)).
)!o#eed"n$s "n Re#e"Be!s3"1*
". >ecei&ers0ip ensues w0ene&er t0e *onetar.
Boar# $in#s t0at a ban5 or Euasi8ban5= (a) Is unable
to pa. its liabilities as t0e. become #ue in t0e
or#inar. course o$ business &(T* /0all not
inclu#e inabilit. to pa. cause# b. e7traor#inar.
#eman#s in#uce# b. $inancial panic in t0e ban5ing
communit. (b) Fas insu$$icient realiCable assets to
meet its liabilities (c) Cannot continue in business
wit0out in&ol&ing probable losses to its #epositors or
cre#itorsD or (#) Fas will$ull. &iolate# a cease an#
#esist or#er t0at 0as become $inal@ in&ol&ing acts or
transactions w0ic0 amount to $rau# or a #issipation
o$ t0e assets o$ t0e institutionD
"." In w0ic0 cases@ t0e *onetar. Boar# ma.
summaril. an# wit0out nee# $or prior 0earing@ $orbi#
t0e institution $rom #oing business in t0e P0ilippines
an# #esignate t0e P:IC as recei&er o$ t0e ban5ing
institution.
".2 !0ere is no reEuirement t0at a 0earing be
$irst con#ucte# be$ore a ban5ing institution ma. be
place# un#er recei&ers0ip. !0e appointment o$ a
recei&er ma. be ma#e b. t0e *onetar. Boar#
wit0out notice an# 0earing but its action is sub9ect to
9u#icial inEuir.( >ural Ban5 o$ Bu0i &. Court o$
(ppeals@"62 /C>( 288)
".4 !0e Central Ban5@ t0roug0 t0e *onetar.
Boar#@ is &este# wit0 e7clusi&e aut0orit. to assess@
e&aluate an# #etermine t0e con#ition o$ an. ban5
an# i$ it $in#s t0e con#ition to be one o$ insol&enc.@
or its continuance in business woul# in&ol&e
probable loss to cre#itors an# #epositors@ it can
$orbi# t0e ban5 to #o business an# can #esignate a
recei&er to ta5e c0arge o$ its assets an# liabilities.
/ec. 2) o$ t0e Central Ban5 (ct #oes not
contemplate prior notice an# 0earing be$ore a ban5
is place# un#er recei&ers0ip. It is enoug0 t0at suc0
action is ma#e t0e sub9ect o$ a subseEuent 9u#icial
re&iew. LClose now an# 0ear laterM sc0eme un#er
t0e (ct is $or t0e purpose o$ protecting t0e
#epositors@ cre#itors@ stoc50ol#ers an# general
public (Central Ban5 &. Court o$ (ppeals@ 220
/C>( 546)
1
Central Ban5 &s. C(@ 208 /C>( 652
:ean >e.nal#o ?. (granCamen#eC Page 1?, o$ 177
COMMERCIAL LAW
".1 Prior notice an# 0earing is not reEuire#
be$ore placement o$ ban5 un#er recei&ers0ip.
/ection 2) #oes not contemplate prior notice an#
0earing be$ore a ban5 ma. be #irecte# to stop
operation an# place# un#er recei&ers0ip. ,0en
paragrap0 1 (now paragrap0 5 as amen#e# b. 6.%.
28)) pro&i#es $or t0e $iling o$ a case wit0in ten ("0)
#a.s a$ter t0e recei&er ta5es c0arge o$ t0e assets o$
t0e ban5@ it is unmista5able t0at t0e assaile# actions
s0oul# prece#e t0e $iling o$ t0e case. Plainl.@ t0e
legislature coul# not 0a&e inten#e# to aut0oriCe Lno
prior notice an# 0earingM in t0e closure o$ t0e ban5
an# at t0e same time allow a suit to annul it on t0e
basis o$ absence t0ereo$ (CB &s. C(@ 220 /C>(
54))
".5 3u#icial re&iew is allowe# to #etermine t0e
presence o$ arbitrariness an# ba# $ait0 in placing
ban5 un#er recei&ers0ip. (#mitte#l.@ t0e mere $iling
o$ a case $or recei&ers0ip b. Central Ban5 can
trigger a ban5 run. !0e proce#ure prescribe# in
/ection 2) is trul. #esigne# to protect t0e interest o$
all concerne#@ an# t0e summar. closure pales in
comparison to t0e protection a$$or#e# public
interest. (t an. rate@ t0e ban5 is gi&en $ull
opportunit. to pro&e arbitrariness an# ba# $ait0 in
placing t0e ban5 un#er recei&ers0ip@ in w0ic0 e&ent@
t0e resolution ma. be properl. nulli$ie# an# t0e
recei&ers0ip li$te# as t0e trial court ma. #etermine.
?ntil suc0 #etermination is ma#e@ t0e status Euo
s0all be maintaine#@ i.e.@ t0e ban5 s0all continue to
be un#er recei&ers0ip.

".6 >ecei&ers0ip is eEui&alent to an in9unction
to restrain in t0e ban5 o$$icers $rom interme##ling
wit0 t0e propert. o$ t0e ban5 in an. wa.. !0us@ t0e
appointment o$ a recei&er operates to suspen# t0e
aut0orit. o$ t0e ban5 an# o$ its #irectors an# o$$icers
o&er its propert. an# e$$ects (illanue&a &s. C(@ 211
/C>( 4)5)
L"="dat"on*
". LiEui#ation s0all ta5e place is t0e recei&er
#etermines t0at t0e institution cannot be
re0abilitate# or permitte# to resume business@ t0e
*onetar. Boar# s0all noti$. in writing t0e Boar# o$
:irectors o$ its $in#ings an# #irect t0e recei&er to
procee# wit0 t0e liEui#ation o$ t0e institution.
2. !0e $ollowing are t0e man#ator.
reEuirements to be complie# wit0 be$ore a ban5
$oun# to be insol&ent can be or#ere# close= (") an
e7amination s0all be con#ucte# b. t0e appropriate
CB #epartment as to t0e con#ition o$ t0e ban5 (2)
#isclose# in t0e e7amination is t0at t0e con#ition o$
t0e ban5 is one o$ insol&enc. (4) t0e #irector s0all
in$orm t0e *onetar. Boar# in writing o$ suc0 $act@
an# (1) t0e *onetar. Boar# s0all $in# t0e statement
o$ t0e #epartment to be true (Banco Iilipino &s.
*onetar. Boar#@ 201 /C>( '6')
4. !0e test o$ insol&enc. lai# #own in /ection
2) o$ t0e Central Ban5 (ct (now /ection 40 o$ t0e
New Central Ban5 (ct) is measure# b. #etermining
w0et0er t0e realiCable assets@ realiCable wit0in a
reasonable time b. a reasonabl. pru#ent person o$ a
ban5 are less t0an its liabilities@ not consi#ering
capital stoc5 an# surplus w0ic0 are not liabilities $or
suc0 purpose. (Ibi#)
1. ?pon liEui#ation@ t0e recei&er s0all t0en= (a)
Iile !$ par#! wit0 >egional !rial Court@ an# wit0out
t0e reEuirement o$ prior notice or an. ot0er action@ a
petition $or assistance in t0e liEui#ation o$ t0e
institution pursuant to a liEui#ation plan a#opte# b.
P:IC (b) ?pon acEuiring 9uris#iction@ >!C s0all@
upon motion b. t0e institution@ assist t0e
en$orcement o$ in#i&i#ual liabilities o$ t0e
stoc50ol#ers@ #irectors an# o$$icers@ an# #eci#e on
ot0er issues as ma. be material to implement t0e
liEui#ation plan a#opte# (c)Con&ert t0e assets o$ t0e
institution to mone.@ #ispose o$ t0e same to cre#itors
an# ot0er parties@ $or t0e purpose o$ pa.ing t0e #ebts
o$ suc0 institution in accor#ance wit0 t0e rules on
concurrence an# pre$erence o$ cre#it un#er t0e Ci&il
Co#e (#) Institute suc0 actions as ma. be necessar.
to collect an# reco&er accounts an# assets o$@ or
#e$en# an. action against@ t0e institution
/electe# Issues in&ol&ing >ecei&ers0ip an#
LiEui#ation=
". I$ t0e Central Ban5 (now Bang5o /entral)
t0roug0 its *onetar. Boar# 0as promise# to
re0abilitate t0e #istresse# ban5@ an# t0e stoc50ol#ers
on sai# assurance procee#e# to mortgage t0eir real
properties to guarantee CB promise# loan a#&ances
to sai# ban5@ CB cannot renege on sai# promise@
un#er t0e #octrine o$ promissor. estoppel@ an#
cannot insist in its liEui#ation (>amos &s. CB@ 1"
/C>( 565)
2. ,0ere t0e Central Ban5@ in t0e course o$ t0e
re0abilitation o$ a commercial ban5@ e7ten#e# loans
an# a#&ances@ but subseEuentl. t0e ban5 was $orce#
b. CB to close@ an# subseEuentl. allowe# to reopen@
interest #ue on sai# loans an# a#&ances@ cannot be
collecte# because it s0oul# be #eeme# rea# into
e&er. contract o$ #eposit wit0 a ban5 t0at t0e
obligation to pa. interest on a #eposit ceases $rom
t0e moment t0e operation o$ t0e ban5 is completel.
suspen#e# b. t0e #ul. constitute# aut0orit. t0e
Central Ban5 (Ibi#@D %&erseas Ban5 &s. C(@ "05
/C>( 1))
4. !0e prescripti&e perio# to institute t0e
$oreclosure procee#ing was legall. interrupte# w0en
t0e mortgagee8ban5 was place# un#er recei&ers0ip
wit0 e7press pro0ibition $rom transacting business@ a
circumstance consi#ere# as $orce ma9eure (Pro&i#ent
&s. C(@ 222 /C>( "25)
1. ,0ile t0e closure an# liEui#ation o$ a ban5
ma. be consi#ere# an e7ercise o$ police power@ t0e
:ean >e.nal#o ?. (granCamen#eC Page 1?? o$ 177
COMMERCIAL LAW
&ali#it. o$ its e7ercise is sub9ect to 9u#icial
#etermination@ an# coul# be set asi#e@ i$ it is
capricious@ #iscriminator.@ w0imsical@ arbitrar.@
un9ust or a #enial o$ t0e #ue process an# eEual
protection clauses o$ t0e Constitution (CB &s. C(@
"06 /C>( "14)
5. ( #eposit in a #istresse# ban5 alrea#.
$orbi##en b. CB to #o business #oes not become a
pre$erre# cre#it simpl. because some #epositors
went to court an# were able to secure 9u#gments
against t0e ban5 (CB &s. *or$e@ 64 /C>( ""1)
6. ,0ere in t0e course o$ ban5<s #istresse#
con#ition@ t0e Central Ban5 ga&e $inancial assistance
to restore t0e ban5<s &iabilit.@ but t0at inspite o$
t0ese mo&es@ t0e ban5 was close# b. CB on (ugust
")68@ an# allowe# to reopen on 3anuar. 8@ ")8"@
un#er a new name@ Commercial Ban5 o$ *anila@ t0e
obligation b. t0e ban5 to pa. interest on t0e CB
a#&ances remaine# suspen#e# #uring t0e w0ole
perio# o$ its closure@ $ollowing t0e ruling in %B*
&s. C( an# !apia ("05 /C>( 1)). Fence@ t0e
interest obligation starts to run $rom t0e #ate o$ t0e
reopening o$ t0e ban5 on 3anuar. 8@ ")8" (>amos
&s. CB@ "4' /C>( 685)
GENERAL &ANKING LAW
". !0e polic. o$ t0e /tate is t0e promotion an#
maintenance o$ a stable an# e$$icient ban5ing an#
$inancial s.stem t0at is globall. competiti&e@
#.namic an# responsi&e to t0e #eman#s o$ a
#e&eloping econom..
2. Ban5s are entities engage# in t0e len#ing o$
$un#s obtaine# in t0e $orm o$ #eposits.
2." !0e #e$inition un#er /ection 2 o$ t0e ol#
-eneral Ban5ing Law=
2
ban5s are entities #ul.
aut0oriCe# b. t0e *onetar. Boar# to engage in t0e
business o$ regularl. len#ing $un#s obtaine#
regularl. $rom t0e public t0roug0 t0e receipt o$
#eposits o$ an. 5in#. !0us@ entities w0ic0 len#
$un#s obtaine# $rom t0e public but not as #eposits
but rat0er as #ebts $or t0eir own account@ w0et0er
#one regularl. or not@ an# t0ose w0ic0 regularl. len#
$un#s obtaine# t0roug0 t0e occasional receipt o$
#eposits@ woul# not be consi#ere# as ban5s.
2.2 (n entit. t0at is engage# in t0e business o$
bu.ing accounts recei&ables an# is $un#ing t0eir
business $rom bon#s sol# to t0e public $rom time to
time is not a ban5 as it #oes not accept #eposits@
instea# it bu.s recei&ables.
Classi$ication o$ Ban5s=
". Ban5s are classi$ie# un#er t0e -eneral
Ban5ing Law as $ollows=
2
>( 44'
(a) ?ni&ersal ban5s8 t0ese are t0ose t0at use# to
be calle# e7pan#e# commercial ban5s an# w0ose
operations are now primaril. go&erne# b. t0e -BL.
!0e. can e7ercise t0e powers o$ an in&estment
0ouse an# in&est in non8allie# enterprises. !0e.
0a&e t0e 0ig0est capitaliCation reEuirement.
(n in&estment 0ouse is a compan. t0at earns
income solel. or primaril. b. 0ol#ing an# in&esting
in securities issue# b. ot0er companies or b.
go&ernment agencies.
(b) Commercial ban5s8 t0ese are or#inar. or
regular commercial ban5s@ as #istinguis0e# $rom a
uni&ersal ban5. !0e. 0a&e a lower capitaliCation
reEuirement t0an uni&ersal ban5s an# cannot
e7ercise t0e powers o$ an in&estment 0ouse an#
in&est in non8allie# enterprises.
(c) !0ri$t ban5s8t0ese are sa&ings an# mortgage
ban5s@ stoc5 sa&ings an# loan associations@ an#
pri&ate #e&elopment ban5s w0ic0 are go&erne#
primaril. b. t0e !0ri$t Ban5s (ct.
4

(#) >ural ban5s8t0ese are man#ate# to ma5e
nee#e# cre#it a&ailable an# rea#il. accessible in t0e
rural areas on reasonable terms an# w0ic0 are
go&erne# primaril. b. t0e >ural Ban5s (ct o$ "))2.
1
(e) Cooperati&e ban5s8t0ese are ban5s
organiCe# primaril. to ma5e $inancial an# cre#it
ser&ices a&ailable to cooperati&e ban5s an# are
go&erne# primaril. b. t0e Cooperati&e Co#e.
5

($) Islamic ban5s8t0ese are ban5s w0ose
business #ealings an# acti&ities are sub9ect to t0e
basic principles an# rulings o$ Islamic /0ari<a@ suc0
as t0e (l (mana0 Islamic In&estment Ban5 o$ t0e
P0ilippines w0ic0 was create# b. t0e >epublic (ct
No. 6818D an#
(g) %t0er classi$ications o$ ban5s as #etermine#
b. t0e *onetar. Boar#.
Incorporation an# %rganiCation o$ Ban5s
". !0e minimum con#itions t0at a prospecti&e
ban5 must compl. wit0 be$ore it ma. be aut0oriCe#
b. t0e B/P to be organiCe# as a ban5 are=
"." !0at t0e entit. must be organiCe# as a stoc5
corporationD
".2 !0at its $un#s must be obtaine# $rom t0e
public@ i.e.@ 20 or more personsD an#
".4 !0at t0e minimum capital reEuirement
prescribe# b. t0e *onetar. Boar# $or eac0 categor.
o$ ban5s are satis$ie#.
3
>( ')06
4
>( '454
5
>( 6)48
:ean >e.nal#o ?. (granCamen#eC Page 1?A o$ 177
COMMERCIAL LAW
2. !0e /6C cannot register t0e t0e articles o$
incorporation o$ an. ban5@ or an. amen#ment
t0ereto@ unless accompanie# b. a certi$icate o$
aut0orit. issue# b. t0e *onetar. Boar#@ un#er its
seal. /uc0 certi$icate s0all not be issue# b. t0e
*onetar. Boar# unless it is satis$ie# $rom t0e
e&i#ence submitte# to it=
4. In organiCing t0e ban5@ it can onl. issue par
&alue stoc5s onl..
/uper&ision an# >egulation o$ Ban5s=
". !0e entit. t0at 0as super&isor. an#
regulator. powers o&er ban5s is t0e B/P an# suc0
e7ten#s to all ban5s@ Euasi8ban5s@ trust entities@ an#
ot0er $inancial institutions.
2. !0is power o$ t0e B/P is $oun# in /ection
25 o$ t0e B/P Law w0ic0 man#ates t0e con#uct o$
perio#ic or special e7aminations@ to inclu#e t0ose o$
its subsi#iaries an# a$$iliates engage# in allie#
acti&ities@ but suc0 s0all be possible onl. in t0e in
t0e course o$ its e7amination o$ suc0 ban5.
2." ( subsi#iar. corporation is one more t0an
50T o$ w0ose &oting stoc5 is owne# b. t0e ban5 or
Euasi8ban5.
2.2 (n a$$iliate corporation is one less t0an 50T
o$ w0ose &oting stoc5 is owne# b. t0e ban5 or
Euasi8ban5 or w0ic0 is relate# or lin5e# to suc0 ban5
or Euasi8ban5 t0roug0 common stoc50ol#ers or suc0
$actors as ma. be #etermine# b. t0e *onetar.
Boar#.
6
*anagement o$ a Ban5=
". !0e principle t0at since a ban5 is a 9uri#ical
person t0at its powers are to be e7ercise#@ its
business is to be con#ucte#@ an# t0at its properties
are to be 0el# b. a boar# as pro&i#e# $or b. /ection
24 o$ t0e Corporation Co#e obtains.
2. Fowe&er@ an in#epen#ent #irector@ w0o is a
person ot0er t0an an o$$icer or emplo.ee o$ t0e
ban5@ its subsi#iaries or a$$iliates or relate# interests
must be electe# to t0e boar#. Note t0at t0e term
Lin#epen#ent #irectorM is also use# in t0e /ecurities
>egulation Co#e
'
to re$er to a person ot0er t0an an
o$$icer or emplo.ee o$ t0e corporation@ its parent or
subsi#iaries@ or an. ot0er in#i&i#ual 0a&ing a
relations0ip wit0 t0e corporation@ w0ic0 woul#
inter$ere wit0 t0e e7ercise o$ in#epen#ent 9u#gment
in carr.ing out t0e responsibilities o$ a #irector.
4. !0ere must also be a#0erence to t0e $it an#
proper rule
8
w0ic0 pro&i#es t0at to maintain t0e
6
/ection 25@ NCB(
7
/ection 48@ Par. "6.25
8
/ection "6@ -BL@ B/P Circular No. 2)6
Eualit. o$ ban5 management an# a$$or# better
protection to #epositors an# t0e public in general@
t0e *onetar. Boar# s0all=
4." prescribe@ pass upon an# re&iew t0e
Euali$ications an# #isEuali$ications o$ in#i&i#uals
electe# or appointe# ban5 #irectors or o$$icers an#
#isEuali$. t0ose $oun# un$itD or
4.2 ($ter #ue notice to t0e boar# o$ #irectors o$
t0e ban5@ t0e *onetar. Boar# ma. #isEuali$.@
suspen# or remo&e an. ban5 #irector or o$$icer w0o
commits or omits an act w0ic0 ren#er 0im un$it $or
t0e position.
4.4 In #etermining w0et0er an in#i&i#ual is $it
an# proper to 0ol# t0e position o$ a #irector or
o$$icer o$ a ban5@ regar# s0all be gi&en to 0is
integrit.@ e7perience@ e#ucation@ training@ an#
competence.
1. (n electi&e or appointi&e public o$$icial
cannot ser&e as an o$$icer o$ a pri&ate ban5 @ w0et0er
$ull8time or part8time s0all at t0e same time ser&e as
o$$icer o$ an. pri&ate ban5@ sa&e in cases w0ere suc0
ser&ice is inci#ent to $inancial assistance pro&i#e#
b. t0e go&ernment or a go&ernment8owne# or
controlle# corporation to t0e ban5 or unless
ot0erwise pro&i#e# un#er e7isting laws.
1." !0e >ural Ban5s (ct
)
@ allows an electe# or
appointi&e public o$$icial to ser&e as #irector@
o$$icer@ consultant or in an. ot0er capacit. in a rural
ban5.
5. ( ban5 is reEuire# to 0a&e a boar#
compose# o$ 5 no more t0an "5 #irectors@ two o$
w0om must be in#epen#ent #irectors.
"0
5." In case o$ a merger or consoli#ation between
ban5s@ t0e number o$ #irectors s0all not e7cee# 2".
""
5.2 Non Iilipino citiCens ma. become members
o$ t0e boar# to t0e e7tent o$ t0e $oreign participation
in its eEuit..
"2
Limitations impose# on Ban5ing %perations=
". /ingle Borrower Limit >ules
"4
8 t0ese rules
regulate t0e total amount o$ loans@ cre#it
accommo#ations an# guarantees t0at ma. be
e7ten#e# b. a ban5 to an. person@ partners0ip@
association@ corporation or ot0er entit..
"." !0e rules see5 to protect a ban5 $rom
ma5ing e7cessi&e loans to a single borrower b.
9
/ection 5@ >( '454
10
/ection "5@ -BL
11
/ection "'@ -BL
12
/ection "5@ Par. (2)@ -BL
13
/ection 45@ -BL
COMMERCIAL LAW
pro0ibiting it $rom len#ing be.on# a speci$ie#
ceiling. !0e current limit is 25T o$ t0e net wort0 o$
t0e ban5 concerne#.
"1
".2 !0e ceiling is sub9ect to possible increase b.
an a##itional "0T pro&i#e# t0e a##itional liabilities
o$ an. borrower are a#eEuatel. secure# b. trust
receipts@ s0ipping #ocuments@ ware0ouse receipts or
ot0er similar #ocuments trans$erring or securing title
co&ering rea#il. mar5etable@ non8peris0able goo#s
w0ic0 must be $ull. co&ere# b. insurance.
2. :%/>I >ules
"5
8 t0ese are rules promulgate#
b. t0e B/P@ upon t0e aut0orit. o$ /ection 46 o$ t0e
-BL@ w0ic0 regulate t0e amount o$ cre#it
accommo#ations t0at a ban5 ma. e7ten# to its
#irectors@ o$$icers@ stoc50ol#ers an# t0eir relate#
interests@ t0us t0e term@ :%/>I.
2." -enerall.@ a ban5<s cre#it accommo#ations
to its :%/>I must be in t0e regular course o$
business an# on terms not less $a&orable to t0e ban5
t0an t0ose o$$ere# to non8:%/>I borrowers.
2.2 >elate# Interests s0all inclu#e t0e $ollowing=
(a) /pouse or relati&e wit0in t0e $irst #egree o$
consanguinit. or a$$init.@ or relati&e b. legal
a#option@ o$ a #irector@ o$$icer or stoc50ol#er o$ t0e
ban5D (b) Partners0ip o$ w0ic0 a #irector@ o$$icer or
stoc50ol#er or 0is spouse or relati&e wit0in t0e $irst
#egree o$ consanguinit. or a$$init.@ or relati&e b.
legal a#option@ is a general partnerD (c) Co8owner
wit0 t0e #irector@ o$$icer@ stoc50ol#er or 0is spouse
or relati&e wit0in t0e $irst #egree o$ consanguinit. or
a$$init.@ or relati&e b. legal a#option@ o$ t0e propert.
or interest or rig0t mortgage#@ ple#ge# or assigne# to
secure t0e loans or cre#it accommo#ations@ e7cept
w0en t0e mortgage@ ple#ge or assignment co&ers
onl. sai# co8owner<s un#i&i#e# interestD (#)
Corporation@ association@ or $irm o$ w0ic0 a #irector
or o$$icer o$ suc0 corporation@ association or $irm@
e7cept (") w0ere t0e securities o$ suc0 corporation@
association or $irm are liste# an# tra#e# in t0e big
boar# or commercial an# in#ustrial boar# o$
#omestic stoc5 e7c0anges less t0an $i$t. percent
(50T) o$ t0e &oting stoc5 t0ereo$ is owne# b. an.
one person or b. persons relate# to eac0 ot0er wit0in
t0e t0ir# #egree o$ consanguinit. or a$$init.D or (2)
w0ere t0e #irector@ o$$icer or stoc50ol#er o$ t0e
len#ing ban5 sits as a representati&e o$ t0e ban5 in
t0e boar# o$ #irectors o$ suc0 corporation= Pro&i#e#@
!0at t0e ban5 representati&e s0all not 0a&e an.
eEuit. interest in t0e borrower corporation e7cept $or
t0e minimum s0ares reEuire# b. law@ rules an#
regulations@ or b. t0e b.8laws o$ t0e corporation=
Pro&i#e#@ $urt0er@ !0at t0e borrowing corporation
un#er (") or (2) is not among t0ose mentione# in
Items (e) an# ($) 0ereo$D (e) Corporation@ association
or $irm o$ w0ic0 an. or a group o$ #irectors@
o$$icers@ stoc50ol#ers o$ t0e len#ing ban5 an#+or
14
B/P Circular No. 125
15
/ection 46@ -BL
t0eir spouses or relati&es wit0in t0e $irst #egree o$
consanguinit. or a$$init.@ or relati&e b. legal
a#option 0ol#+own more t0an twent. percent (20T)
o$ t0e subscribe# capital o$ suc0 corporation@ or o$
t0e eEuit. o$ suc0 association or $irmD ($)
Corporation@ association o$ $irm w0oll. or ma9orit.8
owne# or controlle# b. an. relate# entit. or a group
o$ relate# entities mentione# in Items (b)@ (#) an# (e)
0ereo$.
2.4 ( ban5 ma. allow a :%/>I to= (a) borrow
$rom t0e ban5D (b) become a guarantor@ in#orser or
suret. $or loans $rom suc0 ban5 to ot0ersD (c) be an
obligorD or (#) incur an. contractual liabilit. wit0 t0e
written appro&al o$ t0e ma9orit. o$ all t0e #irectors
o$ t0e ban5@ e7clu#ing t0e #irector concerne#.
"6

Fowe&er@ t0e written appro&al s0all not be reEuire#
$or loans@ ot0er cre#it accommo#ations an# a#&ances
grante# to o$$icers un#er a $ringe bene$it plan
appro&e# b. t0e B/P.
2.1 ConseEuentl.@ an. #irector or o$$icer w0o
ma. wis0 to borrow $rom t0e ban5 must obser&e t0e
$ollowing $ormalities= (a) !0e borrowing must be in
accor#ance wit0 t0e (rms Lengt0 >ule@ or w0ic0
must be upon terms not less $a&orable to t0e ban5
t0an t0ose o$$ere# to ot0ers @must be wit0 t0e written
appro&al o$ a ma9orit. o$ t0e ban5<s boar# o$
#irectors@ e7clu#ing t0e #irector concerne# (b)/uc0
appro&al must be entere# upon t0e recor#s o$ t0e
ban5@ i.e.@ t0e minutes o$ t0e boar# meeting in w0ic0
t0e appro&al was gi&enD an# (c) ( cop. o$ t0e entr.
o$ suc0 appro&al s0all be transmitte# $ort0wit0 to t0e
appropriate super&ising #epartment o$ t0e B/P.
2.5 !0e ot0er con#itions are= (a) !0e :%/>I
borrower is reEuire# to wai&e t0e secrec. o$ 0is+0er
#eposits o$ w0ate&er nature in all ban5s in t0e
P0ilippines
"'
an# (b) !0e ceiling+limitation as to
loans are $ollowe#.
2.6 !0e amount o$ t0e borrowing is limite# to
t0e amount eEui&alent to t0eir unencumbere#
#eposits an# boo5 &alue o$ t0eir pai# in capital
contribution@ unless t0e. are= (a) secure# b. assets
consi#ere# b. t0e *onetar. Boar# as non ris5 (b)
un#er a $ringe bene$it plan appro&e# b. t0e B/P@ or
is (c) e7ten#e# b. a cooperati&e ban5 to its
cooperati&e stoc50ol#ersD
2.' /0oul# t0ere be a &iolation o$ t0e :%/>I
rules@ a$ter #ue notice to t0e boar# o$ #irectors o$ t0e
ban5@ t0e o$$ice o$ an. ban5 #irector or o$$icer w0o
&iolate# t0e rules ma. be #eclare# &acant an# t0e
#irector or o$$icer s0all be sub9ect to t0e penal
pro&isions o$ NCB(.
16
/ection 46@ -BL
17
/ection 26@ NCB(
:ean >e.nal#o ?. (granCamen#eC Page 1?C o$ 177
COMMERCIAL LAW
2.8 Loans@ cre#it accommo#ations or guarantees
e7ten#e# b. a ban5 to :%/>I are also terme# as
LInsi#er Len#ing.M
Ban5 :eposits an# Ban5 >esponsibilit. to
:epositors
". (s to nature@ all 5in#s o$ #eposits w0et0er
$i7e# or current are to be treate# as loans an# are to
be co&ere# b. t0e law on loan.
"8

"." !0e. are also consi#ere# in t0e nature o$
irregular #eposits@ t0e. are reall. loans because t0e.
earn interest.
")
Consi#ering a #eposit in&ol&es t0e
#eli&er. o$ a t0ing $or sa$e5eeping wit0 t0e
obligation to return t0e &er. same t0ing upon
#eman#
20
an# a loan is a contract w0ereb. one o$ t0e
parties #eli&ers to anot0er mone. or ot0er
consumable t0ing upon t0e con#ition t0at t0e same
amount o$ t0e same 5in# an# Eualit. s0all be pai#.
2"

".2 Ban5s ma. use t0e mone. #eposite# wit0
t0em as mone. #eposite# in ban5s@ w0et0er $i7e#@
sa&ings an# current@ are reall. loans to a ban5
because t0e ban5 can use t0e same $or its or#inar.
transactions an# $or ban5ing business in w0ic0 it is
engage#.
22

".4 In $act ban5s are not obligate# to return
e7actl. t0e mone. #eposite# in t0e same
#enomination as it was #eposite#. ,0ile t0e ban5s
0a&e t0e obligation to return t0e amount #eposite#@
t0e. 0a&e no obligation to return or #eli&er t0e same
mone. #eposite#. !0us@ esta$a will not prosper.
24

".1 ( ban5<s $ailure to 0onor a #eposit is $ailure
to pa. its obligation as #ebtor an# not a breac0 o$
trust arising $rom a #epositor.<s $ailure to return t0e
sub9ect matter o$ #eposit
2. !0e relation create# between t0e ban5 an#
#epositor is t0at o$ a cre#itor an# #ebtor wit0 t0e
ban5 as #ebtor an# t0e #epositor as cre#itor.
21

2." !0e relations0ip is $i#uciar. in nature.
25
!0e
ban5 assumes to act as an agent $or anot0er an# t0e
ot0er reposes con$i#ence in 0im@ alt0oug0 t0ere is no
written contract or nor contract at all.
4. ( ban5 s0oul# e7ercise its $unctions an#
treat t0e accounts o$ t0eir clients not onl. wit0 t0e
#iligence o$ a goo# $at0er o$ a $amil. but it s0oul#
18
People &s. %ng@ 201 /C>( )12
19
BPI &s. Court o$ (ppeals@ 242 /C>( 402
20
(rticle ")62@ Ci&il Co#e
21
(rticle ")44@ Ci&il Co#e
22
!an !iong !ic5 &s. (merical (pot0ecaries@ 65 P0il 1"'
23
-uingona &s. Cit. Iiscal@ "28 /C>( 5''
24
/errano &s. Court o$ (ppeals@ )6 /C>( )6
25
PBCom &s. Court o$ (ppeals@ 26) /C>( 6)5@ BPI &s. I(C@
206 /C>( 108
#o so wit0 t0e 0ig0est #egree o$ care consi#ering t0e
$i#uciar. nature o$ t0eir relations0ips wit0 t0eir
#epositors.
26

4." !0e #epositor e7pects t0e ban5 to treat 0is
account wit0 utmost $i#elit.@ w0et0er suc0 account
consists onl. o$ a $ew 0un#re# pesos or millions.
!0is is especiall. true since t0e ban5 is engage# in
business impresse# wit0 public interest an# it is its
#ut. to protect in return man. clients@ an# #epositors
w0o transact business wit0 it.
2'

4.2 !0e ban5 is un#er obligation to treat t0e
accounts o$ its #epositors wit0 meticulous care
alwa.s 0a&ing in min# t0e $i#uciar. nature o$ t0eir
relations0ip.
4.4 Fowe&er@ t0e 0ig0est #egree o$ #iligence is
not e7pecte# to be e7erte# b. ban5s in commercial
transactions t0at #o not in&ol&e t0eir $i#uciar.
relations0ip wit0 t0eir #epositors.
28

4.1 In case o$ negligence in 0an#ling t0e #eposit
o$ its clients on account o$ a ban5 o$$icer<s gross
negligence w0ic0 causes incon&enience@ 0umiliation
an# embarrassment to a #epositor entitles t0e latter
to an awar# o$ #amages.
2)
!0is notwit0stan#ing t0e
absence o$ malice an# ba# $ait0 as i$ t0e negligence@
ne&ert0eless cause# serious an7iet.@ embarrassment
an# 0umiliation to t0e #epositors.
40
(s long as t0e
ban5 0as committe# a serious mista5e an# t0e
ban5<s negligence was a result o$ lac5 o$ #ue care
an# caution reEuire# o$ managers an# emplo.ees o$
a $irm engage# in so sensiti&e an# #eman#ing
business as ban5ing@ it is liable $or moral #amages.
4"

4.5 In &iew o$ t0e $i#uciar. nature o$ t0e
relations0ip o$ ban5s an# its clients an# because
ban5ing is imbue# wit0 public interest@ a ban5 was
also ma#e liable $or #amages in t0e $ollowing
instances= (a) Iailure to 0onor+pa. a c0ec5 o$ a
merc0ant+tra#er w0en t0e #eposit is su$$icient.
42
Con&ersel.@ a ban5 is not liable $or its re$usal to pa.
a c0ec5 on account o$ insu$$icient $un#s@
notwit0stan#ing t0e $act t0at a #eposit ma. be ma#e
later in t0e #a.. Be$ore a #epositor ma. maintain a
suit to reco&er a speci$ic amount $rom 0is ban5@ 0e
must $irst s0ow t0at 0e 0a# on #eposit su$$icient
#eposits to meet 0is #eman#. (b) ,0en a ban5 teller
&ali#ates an incomplete #uplicate #eposit slip t0at
lac5s t0e name o$ t0e account 0ol#er.
44
(c) ,0en t0e
#eposit o$ PPF 4"@500.00 to co&er si7 post#ate#
c0ec5s was not cre#ite# to t0e account o$ t0e
#epositor because o$ t0e omission o$ one LCeroM in
t0e account number.
41
(#) !0e ban5 allowe# an
26
BPI &s. Court o$ (ppeals@ 426 /C>( 61"
27
Cit.trust Ban5ing &s. I(C@ 242 /C>( 55)
28
>e.es &s. Court o$ (ppeals@ -> No. ""81)2@ (ugust "5@ 200"
29
-o &s. I(C@ ")' /C>( 22
30
BPI &s. I(C@ 206 /C>( 108
31
Pru#ential Ban5 &s. Court o$ (ppeals@ 428 /C>( 261
32
*oran &s. Court o$ (ppeals@ 240 /C>( '))
33
P0ilban5 &s. Court o$ (ppeals@ 26) /C>( 6)5
34
Cit.trust &s. I(C@ 242 /C>( 55)
:ean >e.nal#o ?. (granCamen#eC Page 1?H o$ 177
COMMERCIAL LAW
impostor to negotiate treasur. c0ec5s.
45
(e) !0e
new accounts teller erroneousl. use# t0e ol# account
o$ a #epositor instea# o$ t0e newl. opene# 9oine#
account o$ t0e #epositor an# 0is spouse@ lea#ing to
t0e #is0onor o$ two c0ec5s issue# b. t0e #epositor.
46
4.6 !0e #e$ense o$ #iligence in t0e selection an#
super&ision o$ emplo.ees is not a &ali# #e$ense to
escape or at least mitigate a ban5<s liabilit.. (
ban5<s liabilit. is not merel. &icarious but primar.D
t0e #e$ense o$ e7ercise o$ #ue #iligence in t0e
selection an# super&ision o$ its emplo.ees is o$ no
moment. B. t0e &er. nature o$ t0e wor5 o$ ban5s@
t0e #egree o$ responsibilit.@ care an# trustwort0iness
e7pecte# o$ t0eir emplo.ees an# o$$icials is $ar
greater t0an t0ose o$ or#inar. cler5s an# emplo.ees.
Ban5s are e7pecte# to e7ercise t0e 0ig0est #egree o$
#iligence in t0e selection an# super&ision o$ t0eir
emplo.ees.
4'

4.' *alice an# ba# $ait0 nee# not be pro&en
su$$icientl. to ma5e a ban5 liable $or moral #amages
#ue to t0e error or negligence o$ a ban5 emplo.ee as
long as t0e ban5 0as committe# a serious mista5e
an# t0e ban5<s negligence was a result o$ lac5 o$ #ue
care an# caution reEuire# o$ managers an#
emplo.ees o$ a $irm engage# in so sensiti&e an#
#eman#ing business as ban5ing@ it is liable $or moral
#amages.
48

1. ( ban5 cannot pro0ibit a borrower $rom
prepa.ing 0is loan as a borrower ma. at an. time
prior to t0e agree# maturit. #ate prepa.@ in w0ole or
in part@ t0e unpai# balance o$ an. ban5 loan an#
ot0er cre#it accommo#ation@ sub9ect to suc0
reasonable terms an# con#itions (suc0 as t0e
pa.ment o$ a prepa.ment $ee) as ma. be agree#
upon between t0e ban5 an# borrower.
)4ILI))INE DE)O'IT IN'(RANCE
COR)ORATION 5)DIC0
". !0e P0ilippine :eposit Insurance
Corporation (ct create# t0e P0ilippine :eposit
Insurance Corporation w0ic0 is a go&ernment
corporation promoting an# sa$eguar#ing t0e interests
o$ t0e #epositing public b. pro&i#ing permanent an#
continuing insurance co&erage on all insure#
#eposits.
2. It insures t0e #eposit liabilit. o$ all ban5s to
a ma7imum #eposit insurance co&erage (*:IC) o$
P500@000 per #epositor in consi#eration o$ a
premium pai# b. t0e ban5 to t0e sai# corporation.
((s per >( )5'6)
35
-o &s. I(C@ ")' /C>( 22
36
BPI &s. I(C@ 206 /C>( 108
37
PCIBan5 &s. Court o$ (ppeals@ 450 /C>( 116
38
Pru#ential Ban5 &s. Court o$ (ppeals@ 428 /C>( 261
4. !0e ris5 insure# against is t0e closure o$ a
ban5.
4.". !0e nature o$ t0e co&erage is compulsor. as
t0e law pro&i#es t0at t0e #eposit liabilities o$ an.
ban5 or ban5ing institution w0ic0 is engage# in t0e
business o$ recei&ing #eposits or w0ic0 t0erea$ter
ma. engage in t0e business or recei&ing #eposits@
s0all be insure# wit0 P:IC.
4.2 :eposits t0at are co&ere# are sa&ings
accounts@ current account@ time #eposits an# #eposits
in acceptable $oreign currencies pursuant to Ioreign
Currenc. :eposit (ct.
4.4 67empte# t0oug0 $rom t0e co&erage o$ t0e
law are trust $un#s as it was was e7pressl. e7clu#e#
$rom t0e term L#epositM un#er >.(. '100 an#
mone. mar5et placement as it is not inclu#e# in t0e
term L#epositM
:6!6>*IN(!I%N %I !F6 (*%?N! :?6 !F6
:6P%/I!%>
". Insure# #eposits un#er t0e law means t0e net
amount #ue t0e #epositor $or an. #eposits in t0e
insure# ban5 a$ter #e#ucting an. o$$sets but s0oul#
not e7cee# PFP 500@000.00.
2. Fence@ i$ a #epositor 0as two or more
accounts maintaine# in t0e same rig0t an# capacit.@
t0e co&erage o$ PFP 500@000.00 s0all be 0el# to
appl. to t0e sum o$ all suc0 accounts.
4. ( 9oint account (w0et0er Lan#+or@ LorM@
Lan#M s0all be insure# separatel. $rom an.
in#i&i#ual8owne# account. I$ 0el# b. a 9uri#ical
person or entit. wit0 a natural person@ t0e account
s0all be presume# to belong to t0e 9uri#ical person.
4." (ccounts un#er 9oint owners0ip is
consi#ere# eEuall. s0are# among co8#epositors
unless ot0erwise in#icate# in t0e #eposit #ocument.
TR(T4 IN LENDING
:eclare# Polic. o$ t0e /tate
". !0e law@ w0ic0 is to be implemente# b. t0e
*onetar. Boar# o$ t0e Bang5o /entral ng Pilipinas
#eclares t0at it is t0e polic. o$ t0e state to protect its
citiCens $rom a lac5 o$ awareness o$ t0e true cost o$
cre#it to t0e user b. assuring a $ull #isclosure o$
suc0 cost wit0 a &iew o$ pre&enting t0e unin$orme#
use o$ cre#it to t0e #etriment o$ t0e national
econom..
2. /peci$icall.@ it= (a) aims to protect a #ebtor
$rom t0e e$$ects o$ misrepresentation or concealment
(b) permits 0im to $ull. appreciate an# e&aluate t0e
real cost o$ 0is borrowing (c) a&oi# t0e
circum&ention o$ usur. laws
:ean >e.nal#o ?. (granCamen#eC Page 1?/ o$ 177
COMMERCIAL LAW
Co&erage o$ t0e Law
". (s use# in t0e law@ t0e term Lcre#itM means=
(a) loan@ mortgage@ #ee# o$ trustD a#&ance or
#iscount (b) con#itional sales contract
(c)contract to sell or contract o$ sale o$ propert. or
ser&ices (#)rental8purc0ase contract (e)contract $or
0ire@ bailment or leasing o$ propert. ($) option@
#eman#@ lien@ ple#ge or ot0er claim against or $or t0e
#eli&er. o$ propert. or mone. (g)purc0ase o$
acEuisition o$ an. cre#it upon securit. o$ an.
obligation arising out o$ an. o$ t0e abo&e (0) an.
transaction wit0 similar purpose
2. !0e pro&isions o$ t0e law appl. to cre#itors@
w0o is #e$ine# b. law as= an. person engage# in t0e
business o$ e7ten#ing cre#it@ inclu#ing an. person
w0o as a regular business practice ma5es loans or
sells or rents propert. or ser&ices on a time@ cre#it or
installment basis eit0er as principal or agent@ w0o
reEuires as an inci#ent to t0e e7tension o$ cre#it t0e
pa.ment o$ a $inance c0arge.
2." !0e application o$ t0e law is compulsor. $or
(a) ban5s (b) non8ban5 $inancial interme#iaries
aut0oriCe# to engage in Euasi8ban5ing are reEuire#
strictl. to a#0ere to t0e law. Ban5s an# non8ban5
$inancial interme#iaries aut0oriCe# to engage in
Euasi8ban5ing $unctions are reEuire# to strictl.
a#0ere to t0e pro&isions o$ t0e L!rut0 in Len#ing
(ctM an# s0all ma5e t0e true an# e$$ecti&e cost o$
borrowing an integral part o$ e&er. loan contract
(Consoli#ate# &s. C(@ 216 /C>( ")5)
4. !0e pro&isions o$ t0e law #oes not appl. to
t0e $ollowing cre#it transactions=
a. t0ose t0at #o not in&ol&e t0e pa.ment o$ an.
$inance c0arge b. t0e #ebtorD an#
b. t0ose in w0ic0 t0e #ebtor is t0e one
speci$.ing a #e$inite an# $i7e# set o$ cre#it terms
suc0 as ban5 #eposits@ insurance contracts@ sale o$
bon#s@ etc.
4." Iinance c0arges (/ec. 4R4SD /ec. 2R0S@ CB
Circular "58) are t0e amounts to be pai# b. t0e
#ebtor inci#ent to t0e e7tension o$ cre#it suc0 as
interests@ #iscounts@ collection $ees@ cre#it
in&estigation $ees an# attorne.<s $ees.
4.2 Non Iinance c0arges (/ec. 2R$S@ CB Circular
"58) are t0e amounts a#&ance# b. a cre#itor $or
items normall. associate# wit0 t0e owners0ip o$
propert. or t0e a&ailment o$ t0e ser&ices purc0ase#
w0ic0 are not inci#ent to t0e e7tension o$ cre#it. Ior
e7ample@ w0en a #ebtor purc0ases a car on cre#it@
t0e cre#itor ma. a#&ance t0e insurance premium as
well as t0e registration $ee $or t0e account o$ t0e
#ebtor.
1. !o accomplis0 t0e polic. o$ t0e law to
protect citiCens $rom a lac5 o$ awareness o$ t0e true
cost o$ cre#it to t0e user b. assuring a $ull #isclosure
o$ suc0 cost@ a cre#itor or len#er is oblige# to
pro&i#e t0e #ebtor or borrower wit0 a statement in
writing@ be$ore per$ection o$ t0e contract containing
t0e $ollowing= (a) Cas0 price o$ propert. or
ser&ice to be acEuire# (b) (mount cre#ite# as
#own pa.ment an# or tra#e8in(c) C0arges
pai# or to be pai# not inci#ent to t0e e7tension o$
cre#it (#) C0arges pai# or to be pai# not
inci#ent to t0e e7tension o$ cre#it (e)!otal amount to
be $inance# ($) Iinance c0argeD an# (g)Percentage
o$ $inance c0arge to total amount to be $inance#.
1." !0e #isclosure must be ma#e in a separate
#ocument@ an# not one t0at is merel. incorporate# in
a #ocument b. t0e statement t0at t0e transaction
sub9ects t0e #ebtor to a $inance c0arge.
1.2 !0e $ailure to compl. #oes not ren#er t0e
principal contract in&ali# or unen$orceable@ but
woul# entitle t0e #ebtor to reco&er an. interest
pa.ment ma#e.
1.4 ( &iolation o$ t0e law ma. sub9ect t0e
&iolator to= (a) a ci&il action broug0t wit0in one .ear
to reco&er $rom t0e seller+len#er an amount o$
P"00.00 or #ouble t0e $inance c0arge impose#@
w0ic0e&er is greater@ but not to e7cee# P2@000.00@
plus attorne.<s $ees an# costs@ an# (b) a criminal
action against t0e seller+len#er w0o i$ con&icte# ma.
be impose# a $ine ranging $rom P"@000 to P5@000 or
imprisone# $rom 6 mont0s to " .ear or bot0. Note
t0at a $inal 9u#gment t0at ma. be ren#ere# in an.
criminal procee#ing to t0e e$$ect t0at t0e #e$en#ant
0as will$ull. &iolate# t0e act s0all be prima $acie
e&i#ence against suc0 #e$en#ant in an action or
procee#ing broug0t b. an. ot0er part. against suc0
#e$en#ant un#er t0e (ct as to all matters respecting
w0ic0 sai# 9u#gment woul# be estoppel as between
t0e parties t0ereto.
:ean >e.nal#o ?. (granCamen#eC Page 1A0 o$ 177
COMMERCIAL LAW
"3E H*$%*>E %"5RG2 5$ "3E
H%E!RE!G 5 <A$I
>EP5%*"%2 LAA
Atty. Renato '. Rondez
)a!tne!- La; 2"!% of Rondez M )a!tne!s
)!ofesso!- Colle$e of La;
(n"Be!s"ty of t3e Co!d"lle!as
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ
B?6/!I%N/ (N: (N/,6>/ %N /6C>6CU %I
B(NA :6P%/I!/8>( "105 (N: >6L(!6:
L(,/
10 W3at "s t3e 1!1ose of t3e la;L
!0e purpose o$ t0e law is to encourage
people to #eposit t0eir mone. in ban5s an#@ t0ereb.@
#iscourage pri&ate 0oar#ing so t0at t0e ban5s ma.
len# out t0e mone. an# assist in t0e economic
#e&elopment o$ t0e countr.
4)
.
20 W3at does t3e la; 1!o3"b"tL
(a) !0e e7amination an# inEuir. or loo5ing
into all #eposits o$ w0ate&er nature wit0 ban5s or
ban5ing institutions in t0e P0ilippines inclu#ing
in&estments in bon#s issue# b. t0e -o&ernment or
its political sub#i&isions an# instrumentalities b.
an. person@ go&ernment o$$icial@ bureau or o$$ice
10
D
an#
(b) !0e #isclosure b. an. o$$icial or
emplo.ee o$ an. ban5ing institution to an.
unaut0oriCe# person o$ an. in$ormation concerning
sai# #eposits.
Note t0at t0e law is applicable to trust
accounts or an account t0at 0as been set up as an
inter &i&os or testamentar. trust as /ection 2 0as
been 0el# to co&er not onl. mone. t0at 0as been
#eposite# but also to mone. w0ic0 0as been in&este#
alt0oug0 no cre#itor8#ebtor relations0ip is create#
between t0e ban5 an# t0e client.
1"
!0e law #oes not appl. to mone. mar5et
placements as t0e. are not #eposits@ rat0er@ t0e. are
tra#es in s0ort term negotiable instruments suc0 as
securities or treasur. bills.

,0 W3at d"s#los!es o! "n="!"es "nto de1os"ts a!e
not 1!o3"b"tedL
a) ?pon written permission o$ t0e #epositorD
b) In cases o$ impeac0mentD
c) ?pon or#er o$ a competent court in cases o$
briber. or #ereliction o$ #ut. o$ public
o$$icialsD
d) In cases w0ere t0e mone. #eposite# or
in&este# is t0e sub9ect matter o$ litigation
12
D
e) ?pon or#er o$ t0e court or subpoena issue#
b. t0e %mbu#sman in cases o$ une7plaine#
wealt0
14
D !0is is sub9ect to t0e $ollowing
reEuisites= (") onl. an in8camera inspection
39
/ec. "@ >( "105.
40
/ec. 2@ >( "105.
41
69ercito &s. /an#iganba.an@ -> Nos. "5'2)18)5@ No&ember
40@ 2006
42
/ec. 2@ >( "105.
COMMERCIAL LAW
is allowe# (2) t0ere must be a pen#ing case
be$ore a court o$ competent 9uris#iction (4)
account is clearl. i#enti$ie# (1) e7amination
is limite# to account sub9ect o$ t0e court
case@ an# (5) ban5 personnel an# t0e account
0ol#er must be noti$ie# to be present #uring
t0e inspection.
f) ?pon or#er o$ t0e Commissioner o$ Internal
>e&enue in respect o$ t0e ban5 #eposit<s o$ a
#ece#ent $or t0e purpose o$ #etermining
suc0 #ece#ent<s gross estate
11
D
g) ?pon or#er o$ t0e Commissioner o$ Internal
>e&enue w0en a ta7pa.er $iles an
application to compromise 0is ta7 liabilit.
b. reason o$ $inancial incapacit.
15
D
0) ?pon e7amination ma#e in t0e course o$ a
special or general au#it o$ a ban5 as
aut0oriCe# b. t0e *onetar. Boar# a$ter
being satis$ie# t0at t0ere is reasonable
groun# to belie&e t0at a ban5 $rau# or
irregularit. is being committe# an# it 0as
become necessar. to loo5 into t0e #eposit to
establis0 t0e sameD
i) ?pon e7amination o$ a ban5<s in#epen#ent
au#itor@ t0e result o$ w0ic0 are $or t0e
e7clusi&e use o$ t0e ban5D
j) In case o$ suspicious transactions un#er t0e
(nti8*one. Laun#ering Law
16
D
k) ?n#er t0e (nti8*one. Laun#ering Law
w0ere ban5s are reEuire# to report to t0e
(nti8*one. Laun#ering Council an.
transaction in cas0 or ot0er eEui&alent
monetar. instrument in e7cess o$ P500@000
in an. one #a.
1'
D
l) (lso un#er t0e *one.8Laun#ering Law@ t0e
(nti8*one. Laun#ering Council ma.
inEuire into a #eposit or in&estment
maintaine# wit0 an. $inancial institution
upon or#er o$ a competent court@ in cases o$
&iolation o$ t0e (ct@ w0en t0ere is probable
cause t0at t0e #eposit or in&estment is in an.
wa. relate# to an unlaw$ul acti&it. as
#e$ine# in t0e (ct or a mone. laun#ering
o$$ense un#er t0e (ct
18
D
m) ,0en a #irector@ o$$icer@ stoc50ol#er@ an#
relate# interest (:%/>I) obtains a loan $rom
0is ban5 or its subsi#iaries@ or wit0 relate#
controlling interests o$ more t0an 5T o$ t0e
capital or surplus o$ t0e ban5@ it s0all
constitute a wai&er o$ secrec. o$ all 0is
#eposits o$ w0ate&er nature in all ban5s in
t0e P0ilippinesD an#
n) ?n#er t0e ?nclaime# Balances Law
1)
.
o) !0e e7amination o$ a ban5 account un#er
/ection "0@ >ule 5' in relation to t0e
43
/ec. 6@ >( 40")D PNB &s -anca.co@ "5 /C>( )"@ *arEueC
&s. :isierto@ 4)) /C>( ''2
44
/ec. 6@ NI>C.
45
/ec. 6@ NI>C.
46
/ec. 4 (b8") @ >( )"60.
47
/ec. 4 (b)@ >( )"60.
48
/ec. "@ >( )"60.
49
>( 4)46.
e7amination o$ a part. w0ose propert. is
attac0e# an# persons in#ebte# to a #e$en#ant
or controlling 0is propert..
50
?0 W3o a!e 1!"%a!"ly l"able fo! B"olat"ons of t3e
la;L
!0e persons primaril. liable $or a &iolation
o$ t0e law woul# be a ban5 emplo.ee or o$$icer an#
t0e person@ go&ernment o$$icer@ agenc. or o$$ice
loo5ing into t0e #eposit w0en not aut0oriCe# b. an.
o$ t0e e7ceptions to t0e law.
Note also@ t0at since in&estigations b. t0e
*onetar. Boar# an# t0e Bureau o$ Internal >e&enue
are con$i#ential in nature@ an. #isclosure in &iolation
o$ t0e con$i#entialit. will create liabilit..
A0 W"ll t3e $a!n"s3%ent of a ban9 de1os"t B"olate
t3e la;L
No@ garnis0ment o$ a ban5 #eposit will not
&iolate t0e law. I$ t0e e7istence o$ t0e #eposit is
#isclose#@ t0e same is consi#ere# as purel.
inci#ental to t0e e7ecution process
5"
.
,0at is to be #isclose# onl. is t0e e7istence
o$ t0e #eposit@ particularl. w0et0er or not it is
su$$icient to satis$. t0e garnis0ment. Fence@ a
#isclosure o$ t0e balance ma. constitute a &iolation
o$ t0e law.
70 Is a de1os"to! ;"t3 a safety de1os"t bo8
1!ote#ted by t3e la;L
No@ t0e #eposits ma#e b. a #epositor in a
sa$et. #eposit bo7 are not t0e #eposits contemplate#
b. t0e law as t0e ban5 is ne&er in possession or
control o$ t0e contents o$ t0e sa$et. #eposit bo7 in
t0is instance@ t0e #epositor is merel. leasing t0e
#eposit bo7 $rom t0e ban5.
Pre&ailing 9urispru#ence is t0at t0e ensuing
relations0ip between t0e ban5 renting out t0e sa$et.
#eposit bo7 an# t0e client wit0 respect to t0e
contents o$ t0e bo7 is t0at o$ bailor8bailee@ t0e
bailment being $or 0ire an# mutual bene$it. !0e ban5
woul# be liable $or loss o$ t0e contents o$ t0e bo7 i$
it is guilt. o$ $rau#@ negligence or #ela. or
contra&ention o$ t0e tenor o$ t0e agreement.
52
$5"E: ,it0out or#er o$ a court o$ competent
9uris#iction@ #isclose to an. aut0oriCe# person an.
in$ormation relati&e to t0e $un#s or properties in t0e
custo#. o$ t0e ban5 belonging to pri&ate in#i&i#uals@
corporations@ or an. ot0er entit.D Pro&i#e#@ t0at wit0
respect to ban5 #eposits@ t0e pro&isions o$ e7isting
laws s0all pre&ail
54
.
') ,oul# t0e e7amination o$ t0e ban5 #eposits o$
anot0er person in connection wit0 an inEuir. into
50
%nate &s. (brogar@ 240 /C>( "8"
51
C0ina Ban5ing Corp. &s Court o$ (ppeals@ ")4 /C>( 151
52
/ia &s. Court o$ (ppeals@ 222 /C>( 21
53
/ec. 55."(b)@ >( 8')".
COMMERCIAL LAW
illegall. acEuire# propert. o$ t0e #e$en#ant in anti8
gra$t cases &iolate t0e lawQ
!0e permitte# inEuir. into illegall. acEuire#
propert. in anti8gra$t cases e7ten#s to instances
w0ere suc0 propert. is conceale# b. being 0el# b.
or recor#e# in t0e name o$ ot0er persons.
H0 In a #ase ;3e!e t3e %oney de1os"ted o!
"nBested "s t3e sbNe#t %atte! of t3e l"t"$at"on-
#old an "n="!y "nto t3e ;3e!eabots of t3e
a%ont e8tend to t3e de1os"ts 3eld "n t3e na%e of
1e!sons ot3e! t3at t3e one !es1ons"bleL
6&en in cases not in&ol&ing prosecution
un#er (nti8-ra$t an# Corrupt Practices (ct@ an
inEuir. into t0e w0ereabouts o$ t0e amount
con&erte# necessaril. e7ten#s to w0ate&er is
conceale#@ 0el# or recor#e# in t0e name o$ persons
ot0er t0an t0e one responsible inasmuc0 as t0e case
is aime# at reco&ering t0e amount con&erte#.
/0 A!e fo!e"$n #!!en#y de1os"ts #oBe!ed by t3e
la;L
,0ile t0e law #oes not co&er $oreign
currenc. #eposits@ t0e. 0owe&er are absolutel.
con$i#ential an# cannot be #isclose# pursuant to
>epublic (ct No. 6126@ ot0erwise 5nown as t0e
Ioreign Currenc. :eposit (ct@ t0e onl. e7ception to
#isclosure being upon t0e written consent o$ t0e
#epositor
51
.
(n a##itional e7emption 0as been pro&i#e#
b. t0e (nti *one. Laun#ering Law w0en it 0as
been establis0e# t0at t0ere is probable cause t0at t0e
#eposits in&ol&e# are in an. wa. relate# to t0e
o$$ense o$ mone. laun#ering.
55

100 W"ll an nla;fl e8a%"nat"on of a ban9
a##ont !ende! t3e "nfo!%at"on obta"ned
"nad%"ss"bleL
!0ere is not0ing in t0e law t0at pro&i#es t0at
an unlaw$ul e7amination s0all ren#er t0e e&i#ence
obtaine# t0ere$rom to be ina#missible.
110 W3at "s t3e 1enalty fo! a B"olat"on of t3e la;L
?pon con&iction@ a &iolator ma. be
sentence# to imprisonment o$ not more t0an 5 .ears
o$ a $ine o$ not more t0an P200@000.00@ or bot0 at
t0e #iscretion o$ t0e court.
54
/ec. 8@ >( 6126.
55
/ec. ""@ >( )"60
INTELLECT(AL
)RO)ERT+ CODE
R.A. No. H2/,
INTELLECT(AL )RO)ERTIE'
!0ose propert. rig0ts w0ic0 result $rom t0e p0.sical
mani$estation o$ an original t0oug0t.
(5allan#in!Cs ?a) =ic#ionar&)
Purpose= to strengt0en t0e intellectual an# in#ustrial
propert. s.stem in t0e P0ilippines as man#ate# b. t0e
countr.<s accession to t0e (greement establis0ing t0e
,orl# !ra#e %rganiCation (>irpuri vs. CA (R no
++/528)
CO@ERAGE 6"ntellectual propert. rig0ts consists o$=
a) Cop.rig0ts an# relate# rig0tsD
b) !ra#emar5s an# ser&ice mar5sD
c) -eograp0ic in#icationsD
#) In#ustrial #esignsD
e) PatentsD
$) La.out8#esigns (!opograp0ies) o$ Integrate#
CircuitsD an#
:ean >e.nal#o ?. (granCamen#eC Page 1A, o$ 177
COMMERCIAL LAW
g) Protection o$ ?n#isclose# In$ormation. (/ec.
1)
ROMA DR(G Bs. RTC O2 G(AG(A- )AM)ANGA
5G.R. No. 1?//0C- A1!"l 17- 200/0
2ACT'* NBI operati&es an# inspectors o$ t0e BI(:
con#ucte# a rai# on >oma :rug. !0e rai#ing team seiCe#
se&eral importe# me#icines. !0e seiCe# me#icines@ w0ic0
were manu$acture# b. /mit0Aline@ were importe#
#irectl. $rom abroa# an# not purc0ase# t0roug0 t0e local
/mit0Aline@ t0e aut0oriCe# P0ilippine #istributor o$ t0ese
pro#ucts. !0e NBI subseEuentl. $ile# a complaint against
>o#rigueC $or &iolation o$ /ection 1 (in relation to
/ections 4 an# 5) o$ >epublic (ct No. 8204@ also 5nown
as t0e /pecial Law on Counter$eit :rugs (/LC:). In t0is
case@ t0ere is no #oubt t0at t0e sub9ect seiCe# #rugs are
i#entical in content wit0 t0eir P0ilippine8registere#
counterparts. !0ere is no claim t0at t0e. were a#ulterate#
in an. wa. or mislabele# at least. !0eir classi$ication as
Ocounter$eitO is base# solel. on t0e $act t0at t0e. were
importe# $rom abroa# an# not purc0ase# $rom t0e
P0ilippine8registere# owner o$ t0e patent or tra#emar5 o$
t0e #rugs.
I''(E* *a. >o#rigueC@ t0e proprietor o$ >oma :rug@ be
prosecute# un#er t0e >( 8204Q
4ELD* No. !0e issue 0as been moote# wit0 t0e passage
in 2008 o$ >epublic (ct No. )502@ also 5nown as t0e
O?ni&ersall. (ccessible C0eaper an# Bualit. *e#icines
(ct o$ 2008O.
/ection ' o$ >ep. (ct No. )502 amen#s /ection '2 o$ t0e
Intellectual Propert. Co#e in t0at t0e later law
uneEui&ocall. grants t0ir# persons t0e rig0t to import
#rugs or me#icines w0ose patent were registere# in t0e
P0ilippines b. t0e owner o$ t0e pro#uct.
!0e c0allenge# pro&isions o$ t0e /LC: apparentl.
proscribe a range o$ constitutionall. permissible be0a&ior.
It is lau#able t0at wit0 t0e passage o$ >ep. (ct No. )502@
t0e /tate 0as re&erse# course an# allowe# $or a sensible
an# compassionate approac0 wit0 respect to t0e
importation o$ p0armaceutical #rugs urgentl. necessar.
$or t0e people<s constitutionall.8recogniCe# rig0t to
0ealt0.
'TATE )OLIC+ IN RE')ECT O2
INTELLECT(AL )RO)ERT+ RIG4T' 5I)R0
8!0ere is a #eclaration o$ /tate Polic. t0at@
among ot0ers@ t0e /tate recogniCes t0at an e$$ecti&e
intellectual an# in#ustrial propert. s.stem is &ital to t0e
#e&elopment o$ #omestic an# creati&e acti&it.@ $acilitates
trans$er o$ tec0nolog.@ attracts $oreign in&estments an#
ensures mar5et access $or our pro#ucts@ 0ence it s0all
protect an# secure e7clusi&e rig0ts o$ scientists@ in&entors@
artists@ an# ot0er gi$te# citiCens to t0eir intellectual
propert. an# creations. (/ec. 2)
INTERNATIONAL CON@ENTION AND
RECI)ROCIT+
8an. person w0o is a national or w0o is #omicile# or
0as a real an# e$$ecti&e in#ustrial establis0ment in a
countr. w0ic0=
") is a part. to an. con&ention@ treat.@ or
agreement relating to intellectual propert.
rig0ts or t0e repression o$ un$air competition
to w0ic0 t0e P0ilippines is also a part.@ or
2) e7ten#s reciprocal rig0ts to nationals o$ t0e
P0ilippines b. law@
/0all be entitle# to bene$its to t0e e7tent necessar. to gi&e
e$$ect to an. pro&ision o$ suc0 con&ention@ treat.@ or
reciprocal law@ in a##ition to t0e rig0ts to w0ic0 an.
owner o$ an intellectual propert. rig0t is ot0erwise
pro&i#e# b. law. (/ec. 4)
RE@ER'E RECI)ROCIT+ O2 2OREIGN LAW'
H ma5es reciprocall. en$orceable on nationals o$
a $oreign state wit0in P0ilippine 9uris#iction all
con#itions@ restrictions@ limitations@ #iminutions@
reEuirements or penalties t0at ma. be impose# b. suc0
$oreign state on a Iilipino national see5ing intellectual
propert. protection in t0at countr.. (/ection 24")
TEC4NOLOG+ TRAN'2ER ARRANGEMENT'
8contracts or agreements in&ol&ing t0e trans$er o$
s.stematic 5nowle#ge $or t0e manu$acture o$ a pro#uct@
t0e application o$ a process@ or ren#ering o$ a ser&ice
inclu#ing management contractsD an# t0e trans$er@
assignment or licensing o$ all $orms o$ intellectual
propert. rig0ts@ inclu#ing licensing o$ computer so$tware
e7cept computer so$tware #e&elope# $or mass mar5et.
(/ec. 1)
)RE'CRI)TI@E )ERIOD O2 ACTION' 2OR
DAMAGE' (NDER T4E I)C
8No #amages ma. be reco&ere# a$ter $our (1)
.ears $rom t0e time t0e cause o$ action arose (/ec. 226)
.(RI'DICTION O@ER DI')(TE' (NDER I)C
A- 5riginal @urisdiction
10 D"!e#to! Gene!al 5I)O0
80as original 9uris#iction to resol&e #isputes
relating to t0e terms o$ a license in&ol&ing t0e
aut0or<s rig0t to public per$ormance or ot0er
communication o$ 0is wor5.
20 &!ea of Le$al Affa"!s
80as 9uris#iction o&er t0e $$=
i. %pposition to applications $or
registration o$ mar5sD
ii. Cancellation o$ tra#emar5sD
iii. Cancellation o$ patents@ utilit. mo#els
an# in#ustrial #esignsD
i&. Petition $or compulsor. licensing o$
patentsD
&. (#ministrati&e Complaints $or
&iolations o$ laws in&ol&ing IP> w0ere
t0e total #amages claime# is not less
t0an P200@000.00
,0 Do#%entat"on- Info!%at"on and Te#3nolo$y
T!ansfe! &!ea
80as 9uris#iction to settle #isputes in&ol&ing
tec0nolog. trans$er pa.ments
?0 Re$la! Co!ts
<- Appellate @urisdiction
:ean >e.nal#o ?. (granCamen#eC Page 1A? o$ 177
COMMERCIAL LAW
10 D"!e#to! Gene!al
8o&er all #ecisions ren#ere# b. t0e $$=
:ir. o$ Legal ($$airs
:ir. o$ Patents
:ir. o$ !ra#emar5s
:ir. o$ t0e :ocumentation@ In$ormation
an# !ec0nolog. !rans$er
20 Co!t of A11eals
8o&er #ecisions o$ t0e :irector -eneral in t0e
e7ercise o$ 0is appellate 9uris#iction o&er t0e
#ecisions o$ t0e=
:ir. o$ Legal ($$airs
:ir. o$ Patents
:ir. o$ !ra#emar5s
,0 'e#!eta!y of T!ade and Indst!y
8o&er #ecisions o$ t0e :irector -eneral on t0e
e7ercise o$ 0is appellate 9uris#iction o$ t0e
:irector o$ :ocumentation@ In$ormation an#
!ec0nolog. !rans$erD (N:
8o&er #ecisions o$ t0e :irector -eneral in t0e
e7ercise o$ 0is original 9uris#iction relating to t0e
terms o$ license in&ol&ing t0e aut0or<s rig0t.
ADMINI'TRATI@E )ENALTIE' IM)O'ED 2OR
@IOLATION' O2 LAW' IN@OL@ING I)R
8!0e :irector $or Legal ($$airs ma. impose t0e
$$=
a) Issuance o$ a cease an# #esist or#er (C:%)D
b) (cceptance o$ &oluntar. assurance compliance
((C) or &oluntar. assurance o$ #iscontinuance
((:)D
c) Con#emnation or seiCure o$ pro#ucts sub9ect o$ t0e
o$$enseD
#) Ior$eiture o$ properties use# in t0e commission o$ t0e
o$$enseD
e) Imposition o$ a#ministrati&e $inesD
$) Cancellation o$ permit@ license@ aut0orit. or
registrationD
g) ,it00ol#ing o$ permit@ license@ aut0orit. or
registrationD
0) (ssessment o$ #amagesD
i) CensureD
9) (nalogous penalties or sanctions (/ec. "0.2 RbS)
IN6N6O(T &(RGER Bs. 'E4WANI- 5G. R. No.
1C/12C- De#e%be! 2?- 200H0
2ACT'* %n 2 3une "))'@ petitioner $ile# tra#emar5 an#
ser&ice mar5 applications wit0 t0e Bureau o$ !ra#emar5s
(B%!) o$ t0e IP% $or LIN8N8%?!M an# LIN8N8%?!
Burger N (rrow :esign.M Petitioner later $oun# out@
t0roug0 t0e %$$icial (ction Papers issue# b.
t0e Intellectual Propert. %$$ice (I)O0 on 4" *a. 2000@
t0at respon#ent /e0wani@ Incorporate# 0a# alrea#.
obtaine# !ra#emar5 >egistration $or t0e mar5 LIN N
%?! (t0e insi#e o$ t0e letter L%M $orme# li5e a star).M B.
&irtue o$ a licensing agreement@ BenitaIrites@ Inc. was
able to use t0e registere# mar5 o$ respon#ent /e0wani@
Incorporate#.

Petitioner e&entuall. $ile# on 1 3une 200" be$ore t0e
Bureau o$ Legal ($$airs (BL() o$ t0e IP% an
a#ministrati&e complaint against respon#ents $or un$air
competition an# cancellation o$ tra#emar5 registration.
!0e C( 0el# t0at t0e IP% :irector $or Legal ($$airs an#
t0e IP% :irector -eneral 0a# no 9uris#iction o&er t0e
a#ministrati&e procee#ings to rule on issue o$ un$air
competition@ because /ection "64 o$ t0e Intellectual
Propert. Co#e con$ers 9uris#iction o&er particular
pro&isions in t0e law on tra#emar5s on regular courts
e7clusi&el..
I''(E'*
". ,+N t0e C( was correct in ruling t0at t0e IP%
:irector $or Legal ($$airs an# t0e IP% :irector
-eneral 0a# no 9uris#iction o&er t0e
a#ministrati&e procee#ings to rule on issue o$
un$air competitionQ
2. ,+N t0ere was an un$air competitionQ
F6L:= !0e Court o$ (ppeals erroneousl. reasone# t0at
/ection "0(a) o$ t0e Intellectual Propert. Co#e@ con$erring
upon t0e BL(8IP% 9uris#iction o&er a#ministrati&e
complaints $or &iolations o$ intellectual propert. rig0ts@ is
a general pro&ision@ o&er w0ic0 t0e speci$ic pro&ision o$
/ection "64 o$ t0e same Co#e@ $oun# un#er Part III
t0ereo$ particularl. go&erning tra#emar5s@ ser&ice mar5s@
an# tra#e names@ must pre&ail. Procee#ing t0ere$rom@ t0e
Court o$ (ppeals incorrectl. conclu#e# t0at all actions
in&ol&ing tra#emar5s@ inclu#ing c0arges o$ un$air
competition@ are un#er t0e e7clusi&e 9uris#iction o$ ci&il
courts.

/uc0 interpretation is not supporte# b. t0e pro&isions o$
t0e Intellectual Propert. Co#e. ,0ile /ection "64 t0ereo$
&ests in ci&il courts 9uris#iction o&er cases o$ un$air
competition@ not0ing in t0e sai# section states t0at t0e
regular courts 0a&e sole 9uris#iction o&er un$air
competition cases@ to t0e e7clusion o$ a#ministrati&e
bo#ies. %n t0e contrar.@ /ections "60 an# "'0@ w0ic0 are
also $oun# un#er Part III o$ t0e Intellectual Propert.
Co#e@ recogniCe t0e concurrent 9uris#iction o$ ci&il courts
an# t0e IP% o&er un$air competition cases.
On t3e "sse of nfa"! #o%1et"t"on.
!0e essential elements o$ an action $or un$air competition
are (") con$using similarit. in t0e general appearance o$
t0e goo#s an# (2) intent to #ecei&e t0e public an# #e$rau#
a competitor. !0e con$using similarit. ma. or ma. not
result $rom similarit. in t0e mar5s@ but ma. result $rom
ot0er e7ternal $actors in t0e pac5aging or presentation
o$ t0e goo#s. !0e intent to #ecei&e an# #e$rau# ma. be
in$erre# $rom t0e similarit. o$ t0e appearance o$ t0e
goo#s as o$$ere# $or sale to t0e public. (ctual $rau#ulent
intent nee# not be s0own.
MERRIAM 'C4OOL AND O22ICE '())LIE'
COR) Bs. CA 5G.R. No. L6?H?1, .ne ,0- 1/H00
2ACT'* National Boo5 /tore was awar#e# t0e rig0t to
reprint t0e boo5 entitle# 0h! 8!ad 6urs!' 8!r
?!ad!rship Rol!. !0is@ notwit0stan#ing@ *erriam /c0ool
an# %$$ice /upplies Corporation &iolate# NationalJs
reprinting rig0t b. printing two t0ousan# copies o$ t0e
sai# boo5@ an#@ in concert wit0 ,ebster /c0ool an#
%$$ice /upplies@ Inc.@ 0a&e sol# an# #istribute# t0e
reprinte# copies.

4ELD* It appears t0at National Boo5 /tore@ Inc. 0a#
complaine# to t0e >eprinting Committee about t0e
:ean >e.nal#o ?. (granCamen#eC Page 1AA o$ 177
COMMERCIAL LAW
suppose# &iolation o$ t0e Presi#ential :ecree No. 285 b.
t0e *erriam an# ,ebster $irms.
(cting on t0at complaint@ t0e >eprinting Committee@
t0roug0 its sta$$ attorne.@ in$orme# National boo5store@
Inc. in a letter #ate# %ctober ")@ ")'6 t0at its complaint
about t0e printing #istribution o$ t0e boo5 in Euestion b.
t0e *erriam an# ,ebster $irms@ w0ic0 were not
aut0oriCe# b. t0e committee@ is not t0e con$lict or claim
contemplate# in section 1 an# is t0ereo$@ outsi#e t0e
CommitteeJs 9uris#iction.
!0e >eprinting Committee opine# t0at t0e *erriam $irm@
not being awar#ees@ #i# not 0a&e an. claim or rig0t w0ic0
was in con$lict wit0 t0e rig0t o$ National Boo5 /tore@ Inc.
an# w0ic0 s0oul# be a#9u#icate# b. t0e Committee un#er
section 1.
,it0out pre9u#ging Ci&il Case No. "0)1"1 $or in9unction
an# #amages@ we 0ol# t0at t0e Court o$ Iirst Instance 0as
9uris#iction o&er t0e case an# t0at t0ere is no merit in
petitioners@ contention t0at National Boo5 /tore@ Inc. #i#
not e70aust its a#ministrati&e reme#ies.
LAW ON )ATENT'
)ATENT H an e7clusi&e rig0t acEuire# o&er an in&ention@
to sell@ use@ an# ma5e t0e same w0et0er $or commerce or
in#ustr.-(.996 .997 bar exams0
)ATENTA&LE IN@ENTION'
8an. tec0nical solution o$ a problem in an. $iel#
o$ 0uman acti&it. w0ic0 is 5a.06E4(61;E?0@0@ in&ol&es
an 5b0.I6;E60I;E S0EP an# is 5#0.I6=3S0RIA??@
APP?ICA5?E s0all be patentable. ( Elidad Iho s !,
8arch '=,.99.0!0e patentable in&ention ma. be@ or ma.
relate to@ a pro#uct@ or process@ or an impro&ement o$ an.
o$ t0e $oregoing. (/ec. 2")
Re="!e%ents*
1.Te#3n"#al solt"on of a 1!oble% "n any f"eld of
3%an a#t"B"ty
2.NoBelty H t0at w0ic0 #oes not $orm part o$ a prior art.
(/ection 24)
)!"o! A!ts*
a. t0at w0ic0 0as been ma#e a&ailable to t0e public
an.w0ere in t0e worl# be$ore t0e $iling #ate or t0e
priorit. #ate o$ t0e application
b. t0at w0ic0 $orms part o$ an application w0et0er $or
patent@ utilit. or in#ustrial #esign@ e$$ecti&e in t0e
P0ilippines@ pro&i#e# t0at=
i. t0e in&entors or applicants are not t0e same
ii. !0e contents o$ t0e application are publis0e#
in accor#ance wit0 t0e reEuirements o$ patent
application rules.
iii. !0e $iling #ate o$ t0e prior art is earlier.
Non61!eNd"#"al D"s#los!es
6t0e #isclosure o$ in$ormation containe# in t0e
application #uring t0e twel&e ("2) mont0s prece#ing t0e
$iling #ate or t0e priorit. #ate o$ t0e application s0all
not pre9u#ice t0e applicant on t0e groun# o$ lac5 o$
no&elt. i$ suc0 #isclosure was ma#e b.=
5a0 !0e in&entor (inclu#es an. person w0o@ at t0e $iling
#ate o$ application@ 0a# t0e rig0t to t0e patent)D
5b0 ( patent o$$ice an# t0e in$ormation was containe#
(a) in anot0er application $ile# b. t0e in&entor an#
s0oul# not 0a&e been #isclose# b. t0e o$$ice@ or (b) in
an application $ile# wit0out t0e 5nowle#ge or consent
o$ t0e in&entor b. a t0ir# part. w0ic0 obtaine# t0e
in$ormation #irectl. or in#irectl. $rom t0e in&entorD or
(#0 ( t0ir# part. w0ic0 obtaine# t0e in$ormation
#irectl. or in#irectl. $rom t0e in&entor. (/ection 25)
1.0InBent"Beness<InBent"Be 'te1
8an in&ention in&ol&es an in&enti&e step i$@
0a&ing regar# to prior art@ it is not ob&ious to a person
s5ille# in t0e art o$ t0e time o$ t0e $iling #ate or priorit.
#ate o$ t0e application claiming t0e in&ention. (/ec. 26)
2.0Indst!"al A11l"#ab"l"ty
8an in&ention t0at can be pro#uce# an# use# in an.
in#ustr.. (/ec. 2')
NON6)ATENTA&LE IN@ENTION'
!0e $ollowing s0all be e7clu#e# $rom patent protection=
a) :isco&eries@ /cienti$ic !0eories an# *at0ematical
*et0o#sD
b) /c0emes@ rules an# met0o#s o$ per$orming mental
acts@ pla.ing games or #oing business@ an#
programs $or computerD
c) *et0o#s $or treatment o$ t0e 0uman or animal
bo#. b. surger. or t0erap. an# #iagnostic
met0o#s practice# on t0e 0uman or animal bo#.D
#) Plant &arieties or animal bree#s o$ essentiall.
biological process $or t0e pro#uction o$ plants or
animalsD
e) (est0etic creationsD
$) (n.t0ing w0ic0 is contrar. to public or#er or
moralit. (/ec. 22)
RIG4T TO A )ATENT
!0e rig0t to a patent belongs=
a) to t0e in&entor@ 0is 0eirs@ or assigns
b) w0en 2 or more persons 0a&e ma#e t0e
in&ention separatel. an# in#epen#entl. H to
t0em 9ointl.
c) i$ two (2) or more persons 0a&e ma#e t0e
in&ention separatel. an# in#epen#entl. o$ eac0
ot0er H to t0e person w0o $ile# an application
$or suc0 in&ention 52IR'T TO 2ILE R(LE0
#) w0ere 2 or more applications are $ile# $or
t0e same in&ention H to t0e applicant w0o 0as
t0e earliest $iling #ate or t0e earliest priorit.
#ate 52IR'T TO 2ILE R(LE0 (/ec. 2))
e) In case o$ in&entions create# pursuant to a
commission H to t0e person w0o commissions
t0e wor5 36?ESS agree# ot0erwise.
$) in case an emplo.ee ma#e t0e in&ention
in t0e course o$ 0is emplo.ment@ t0e
patent s0all belong to=
t0e emplo.ee H i$ in&ention not
part o$ 0is regular #uties e&en
i$ 0e uses t0e time@ $acilities
an# materials o$ t0e emplo.erD
%>
!0e emplo.er H i$ t0e
in&ention is t0e result o$ t0e
per$ormance o$ 0is regularl.
assigne# #uties unless agree#
ot0erwise.
R"$3t to )!"o!"ty
8an application $or patent $ile# b. an. person w0o 0as
pre&iousl. applie# $or t0e same in&ention in anot0er
COMMERCIAL LAW
countr. w0ic0 b. treat.@ con&ention@ or law a$$or#s
similar pri&ileges to Iilipino citiCens@ s0all be consi#ere#
as $ile# as o$ t0e #ate o$ $iling t0e $oreign application
Re="s"tes*
(a) !0e local application e7pressl. claims priorit.D
(b) It is $ile# wit0in twel&e ("2) mont0s $rom t0e
#ate t0e earliest $oreign application was $ile#D
an#@
(c) ( certi$ie# cop. o$ t0e $oreign application
toget0er wit0 an 6nglis0 translation is $ile# wit0in
si7 (6) mont0s $rom t0e #ate o$ $iling in t0e
P0ilippines. (/ec. "5@ >.(. No. "65a)
RIG4T' ACI(IRED &+ T4E )ATENTEE
!0e patentee acEuires t0e $ollowing rig0ts un#er
0is patent=
a. ,0ere t0e sub9ect matter o$ a patent is a produc#@
to restrain@ pro0ibit an# pre&ent an.
unaut0oriCe# person or entit. $rom ma5ing@
using@ o$$ering $or sale@ selling or importing t0at
pro#uctD
b. ,0ere t0e sub9ect matter o$ a patent is a proc!ss@
to restrain@ pre&ent or pro0ibit an. unaut0oriCe#
person or entit. $rom using t0e process@ an# $rom
manu$acturing@ #ealing in@ using or o$$ering $or
sale@ or importing an. pro#uct obtaine# #irectl.
or in#irectl. $rom suc0 processD
c. to assign@ or trans$er b. succession t0e patent@
an# to conclu#e licensing contracts $or t0e same
(/ec. '")
CONTENT' O2 )ATENT A))LICATION
( patent application s0all contain=
") a reEuest $or t0e grant o$ patentD
2) a #escription o$ t0e in&entionD
8t0e #isclosure o$ t0e in&ention must be in a
manner su$$icientl. clear an# complete $or
it to be carrie# out b. a s5ille# in t0e art.
4) :rawings necessar. $or t0e
un#erstan#ing o$ t0e in&entionD
1) %ne or more claims
5) (n abstract (/ec. 42)
must contain rele&ant in$ormation as to t0e
i#entit. o$ t0e person (no anon.mous person)
i$ t0e applicant is not t0e in&entorD 0e must s0ow
proo$ o$ aut0orit. to see5 application $or
registration
(NIT+ O2 IN@ENTION
8e&er. application $or patent registration must
contain an application o&er a single in&ention or se&eral
in&entions but must $orm part o$ a single general
in&enti&e concept
)ROCED(RE 2OR T4E GRANT O2 )ATENT
a) (ccor#ing a $iling #ate to t0e application
(/ec. 1")D
b) 67amination o$ compliance b. applicant wit0
t0e $ormal reEuirements speci$ie# in /ec. 42@
i.e.@ contents o$ application (/ec. 12)D
c) Classi$ication o$ application an# searc0 $or
prior art (/ec. 14)
#) Publication o$ patent application in t0e IP%
-aCette (/ec. 11)D
e) Inspection o$ t0e application #ocuments b.
an. intereste# part. an# written obser&ations
b. an. t0ir# part. concerning t0e
patentabilit. o$ t0e in&ention (/ec. 11.2 an#
1')D
$) ,ritten reEuest b. t0e applicant@ wit0in 6
mont0s $rom t0e #ate o$ publication o$ 0is
patent application@ $or t0e substanti&e
e7amination b. t0e IP% o$ 0is application.
(/ec 18)D
g) -rant o$ t0e patent (/ec. 50)@ or re$usal o$ t0e
e7aminer to grant t0e patent (/ec. 5")D in t0e
latter case@ t0e re$usal ma. be appeale# to
t0e :irector o$ t0e Bureau o$ PatentsD
0) Publication o$ t0e grant o$ patent in t0e IP%
-aCette (/ec. 52)
TERM O2 A )ATENT- (TILIT+ MODEL-
IND('TRIAL DE'IGN
a) Patent H 20 .rs $rom t0e $iling #ate o$ application@
wit0out renewal
b) ?tilit. mo#el H ' .rs@ w+out renewal
c) In#ustrial #esign H 5 .rs@ renewable twice
(t"l"ty Models
8mo#els o$ implement or tools o$ an. in#ustrial
pro#uct e&en i$ not possesse# o$ t0e Eualit. o$ in&ention
but w0ic0 is o$ Lpractical utilit.M
Indst!"al Des"$n
8an. composition o$ lines or colors or an. t0ree8
#imensional $orm@ w0et0er or not associate# wit0 lines or
colors pro&i#e# t0at suc0 composition or $orm gi&es a
special appearance to an# can ser&e as pattern $or an
in#ustrial pro#uct or 0an#icra$t.
CANCELLATION O2 )ATENT'
1. W3o %ay f"leL
an. person
IP% mo#u proprio
2. G!onds
a) !0at t0e patent is in&ali# (/ec. 8")D
b) !0at w0at is claime# as t0e
in&ention is not new or patentableD
c) !0at t0e patent #oes not #isclose
t0e in&ention in a manner
su$$icientl. clear an# complete $or
it to be carrie# out b. an. person
s5ille# in t0e artD or
#) !0at t0e patent is contrar. to public
or#er or moralit.. (/ec. 6")
e) $ailure to ma5e pa.ments o$ annual
$ees or #ues
,. W3e!e to f"leL
BL( H i$ in &iolation o$ IPC
(a#ministrati&e)
>!C H ot0erwise
IN2RINGEMENT
8t0e ma5ing@ using@ o$$ering $or sale@ selling or
importing a patente# pro#uct or a pro#uct obtaine#
#irectl. or in#irectl. $rom a patente# process or t0e use o$
a patente# process wit0out t0e aut0oriCation o$ t0e
patentee. (/ec. '6)
Test of )atent Inf!"n$e%ent
10 L"te!al Inf!"n$e%ent H resort is 0a# to t0e
Lwor#sM o$ t0e claim.
20 Do#t!"ne of E="Balents H i$ two #e&ices #o t0e
same wor5 in substantiall. t0e same wa.@ t0e
same result@ an# pro#uce substantiall. t0e same
result@ t0e. are t0e same e&en t0oug0 t0e. #i$$er
in name@ $orm@ or s0ape.
REMEDIE' IN CA'E O2 IN2RINGEMENT
:ean >e.nal#o ?. (granCamen#eC Page 1AC o$ 177
COMMERCIAL LAW
A0 2"le civil case fo! t3e follo;"n$
1!1oses*
1. !o reco&er $rom t0e in$ringer suc0 #amages as
t0e court ma. awar# consi#ering t0e
circumstances o$ t0e case pro&i#e# it s0all not
e7cee# 4 times t0e amount o$ t0e actual #amages
sustaine# plus attorne.<s $ees an# ot0er e7penses
o$ litigationD
2.!o secure an in9unction $or t0e protection o$ 0is
rig0tsD
3.!o recei&e a reasonable ro.alt.@ i$ t0e #amages
are ina#eEuate or cannot be rea#il. ascertaine#
wit0 reasonable certaint.D
1. !o 0a&e t0e in$ringing goo#s@ materials an#
implements pre#ominantl. use# in t0e
in$ringement #ispose# o$ outsi#e t0e c0annels o$
commerce@ or #estro.e# wit0out compensationD
5. !o 0ol# t0e contributor. in$ringer 9ointl. an#
se&erall. liable wit0 t0e in$ringer.
&0 2"le criminal case
6wit0in 4 .ears $rom #ate o$ commission o$ t0e crime
$or repetition o$ in$ringement@ wit0out pre9u#ice to
t0e rig0t $or #amages(/ec. 81)
1//A M200? &AR
V Corporation commissione# , to paint t0e *a.on
olcano on t0e lobb. o$ t0e new buil#ing o$ V Corp. $or a
price o$ P"*. ,0o owns t0e paintingQ ,0o owns t0e
cop.rig0t o$ t0e paintingQ
V Corporation owns t0e painting but t0e cop.rig0t
belongs to , unless t0ere is a written stipulation to t0e
contrar.. (/ec."'8.1)
A&'6C&N Bs. )4ILI))INE M(LTI6MEDIA
'+'TEM- INC. 5 G.R. Nos. 1CAC7/6C0- .ana!y 1/-
200/0
2ACT'* P*/I is t0e operator o$ :ream Broa#casting
/.stem. (B/8CBN conten#s t0at P*/I<s unaut0oriCe#
rebroa#casting o$ C0annels 2 an# 24 is an in$ringement o$
its broa#casting rig0ts an# cop.rig0t un#er t0e Intellectual
Propert. Co#e (IP Co#e)D t0at t0e Court o$ (ppeals<
interpretation o$ t0e must8carr. rule &iolates /ection ) o$
(rticle IIIo$ t0e Constitution because it allows t0e ta5ing
o$ propert. $or public use wit0out pa.ment o$ 9ust
compensation.
>espon#ents@ on t0e ot0er 0an#@ argue t0at P*/I<s
rebroa#casting o$ C0annels 2 an# 24 is sanctione# b.
*emoran#um Circular No. 01808888D t0at t0e must8carr.
rule un#er t0e *emoran#um Circular is a &ali# e7ercise
o$ police power.
I''(E'*
". ,+N P*/I rebroa#casts C0annels 2 an# 24 o$
(B/8CBN t0us@ in$ringing t0e broa#casting
rig0ts an# cop.rig0ts o$ t0e latter.
2. ,+N t0e must8carr. rule &iolates t0e rig0ts o$
(B/8CBN un#er t0e IPL.
4ELD* !0e :irector8-eneral o$ t0e IP% correctl. $oun#
t0at P*/I is not engage# in rebroa#casting an# t0us
cannot be consi#ere# to 0a&e in$ringe# (B/8CBN<s
broa#casting rig0ts an# cop.rig0t.
(B/8CBN creates an# transmits its own signalsD P*/I
merel. carries suc0 signals w0ic0 t0e &iewers recei&e in
its unaltere# $orm. P*/I #oes not pro#uce@ select@ or
#etermine t0e programs to be s0own in C0annels 2 an#
24. Li5ewise@ it #oes not pass itsel$ o$$ as t0e origin or
aut0or o$ suc0 programs. Inso$ar as C0annels 2 an# 24
are concerne#@ P*/I merel. retransmits t0e same in
accor#ance wit0 *emoran#um Circular 01808888. ,it0
regar# to its premium c0annels@ it bu.s t0e c0annels $rom
content pro&i#ers an# transmits on an as8is basis to its
&iewers. Clearl.@ P*/I #oes not per$orm t0e $unctions o$
a broa#casting organiCationD t0us@ it cannot be sai# t0at it
is engage# in rebroa#casting C0annels 2 an# 24.
!0us@ w0ile t0e >ome Con&ention gi&es broa#casting
organiCations t0e rig0t to aut0oriCe or pro0ibit t0e
rebroa#casting o$ its broa#cast@ 0owe&er@ t0is protection
#oes not e7ten# to cable retransmission. !0e
retransmission o$ (B/8CBN<s signals b. P*/I H w0ic0
$unctions essentiall. as a cable tele&ision H #oes not
t0ere$ore constitute rebroa#casting in &iolation o$ t0e
$ormer<s intellectual propert. rig0ts un#er t0e IP Co#e.
2.!0e Lmust8carr. ruleM un#er t0e *emoran#um Circular
01808888 reEuires all cable tele&ision s.stem operators
operating in a communit. wit0in -ra#e L(M or LBM
contours to carr. t0e tele&ision signals o$ t0e aut0oriCe#
tele&ision broa#cast stations (67= broa#casting
organiCations wit0 $ree8to8air signals suc0 as -*(8'@
>PN8)@ (BC85@ an# IBC8"4)
!0e carriage o$ (B/8CBN<s signals b. &irtue o$ t0e must8
carr. rule in *emoran#um Circular No. 01808888 is
un#er t0e #irection an# control o$ t0e go&ernment t0oug0
t0e N!C w0ic0 is &este# wit0 e7clusi&e 9uris#iction to
super&ise@ regulate an# control telecommunications an#
broa#cast ser&ices+$acilities in t0e P0ilippines. !0e
imposition o$ t0e must8carr. rule is wit0in t0e N!C<s
power to promulgate rules an# regulations@ as public
sa$et. an# interest ma. reEuire@ to encourage a larger an#
more e$$ecti&e use o$ communications@ ra#io an#
tele&ision broa#casting $acilities@ an# to maintain
e$$ecti&e competition among pri&ate entities in t0ese
acti&ities w0ene&er t0e Commission $in#s it reasonabl.
$easible. (s correctl. obser&e# b. t0e :irector8-eneral o$
t0e IP%=

(ccor#ingl.@ t0e DMst6Ca!!y RleE un#er N!C
Circular No. 1808888 $alls un#er t0e $oregoing categor. o$
limitations on cop.rig0t.
LAW ON TRADEMARK'
DE2INITION'
T!ade%a!9 H an.t0ing w0ic0 is a#opte# an# use# to
i#enti$. t0e source o$ origin o$ goo#s@ an# w0ic0 is
capable o$ #istinguis0ing t0em $rom goo#s emanating
$rom a competitor
In 'o#"ety Des )!od#ts Nestle Bs. CA A1!"l ?- 2001-
tra#emar5 is #e$ine# as an. wor#@ name s.mbol or #e&ise
a#opte# an# use# b. a manu$acturer or merc0ant to
i#enti$. 0is goo#s an# #istinguis0 t0em $rom t0ose
manu$acture# an# sol# b. ot0er.
'e!B"#e Ma!9 H #istinguis0es t0e ser&ices o$ an
enterprise $rom t0e ser&ice o$ ot0er enterprises. It
per$orms $or ser&ices w0at a tra#emar5 #oes $or goo#s.
Colle#t"Be Ma!9 G an. &isible sign #esignate# as suc0 in
t0e application $or registration an# capable o$
#istinguis0ing t0e origin or an. ot0er common
c0aracteristic@ inclu#ing t0e Eualit. o$ goo#s an# ser&ices
:ean >e.nal#o ?. (granCamen#eC Page 1AH o$ 177
COMMERCIAL LAW
o$ #i$$erent enterprises w0ic0 use t0e sign un#er t0e
control o$ t0e registere# owner o$ t0e collecti&e mar5
(/ec. "2".2)
T!ade Na%e H t0e person (w0et0er natural or 9uri#ical)
w0o #oes business an# pro#uces t0e goo#s or t0e ser&ices
is #esignate# b. a t!ade na%e.
8?n#er t0e law@ t0ere is no nee# to register tra#e names in
or#er to secure protection $or t0em.
T!ade D!essH in&ol&es t0e total image o$ a pro#uct@
inclu#ing suc0 $eatures as siCe@ s0ape@ color or color
combinations@ te7ture@ an#+or grap0ics.
4OW MARK' ARE ACI(IRED
8?n#er >( 82)4@ t0e rig0ts in a mar5 s0all be
acEuire# t0roug0 registration ma#e &ali#l. in accor#ance
wit0 its pro&isions. (/ec. "22)
8!0is proposition o$ law@ 0owe&er@ ma. not be
con&erte# $or it is not true t0at w0ere t0ere is no
registration@ t0ere is no protection.
A#="s"t"on t3!o$3 se
,0et0er or not a registere# tra#emar5 is
emplo.e#@ w0en a person 0as i#enti$ie# in t0e
min# o$ t0e public t0e goo#s 0e manu$actures or
#eals in 0is business or ser&ices $rom t0ose o$
ot0ers@ suc0 a person 0as a propert. rig0t in t0e
goo#will o$ sai# goo#s or ser&ices w0ic0 will be
protecte# in t0e same manner as ot0er propert.
rig0ts (/ec. "68.")
RIG4T' CON2ERRED
8t0e owner o$ a registere# mar5 s0all 0a&e t0e
e7clusi&e rig0t to pre&ent all t0ir# parties not 0a&ing t0e
owner<s consent $rom using in t0e course o$ tra#e
i#entical or similar signs or containers $or goo#s or
ser&ices w0ic0 are i#entical or similar to t0ose in respect
o$ w0ic0 t0e tra#emar5 is registere# w0ere suc0 use
woul# result in a li5eli0oo# o$ con$usion. (/ec. "1')
D(RATION
8t0e certi$icate o$ registration o$ a tra#emar5
s0all be ten ("0) .ears $rom t0e $iling #ate o$ application
pro&i#e# t0e registrant s0all $ile a #eclaration o$ actual
use wit0in a .ear $rom t0e 5
t0
anni&ersar. o$ registration
#ate (/ec. "15)
8renewable $or anot0er "0 .rs. (/ec. "16)
NON6REGI'TRA&LE TRADEMARK'- TRADE
NAME' AND 'ER@ICE MARK
A %a!9 #annot be !e$"ste!ed "f "t=
a) Consists o$ immoral@ #ecepti&e or
scan#alous matter@ or matter w0ic0 ma. #isparage or
$alsel. suggest a connection wit0 persons@ li&ing or
#ea#@ institutions@ belie$s@ or national s.mbols@ or
bring t0em into contempt or #isreputeD
b) Consists o$ t0e $lag or coat o$ arms or
ot0er insignia o$ t0e P0ilippines or an. o$ its political
sub#i&isions@ or o$ an. $oreign nation@ or an.
simulation t0ereo$D
c) Consists o$ a name@ portrait or signature
i#enti$.ing a particular li&ing in#i&i#ual e7cept b. 0is
written consent@ or t0e name@ signature@ or portrait o$
a #ecease# Presi#ent o$ t0e P0ilippines@ #uring t0e
li$e o$ 0is wi#ow@ i$ an.@ e7cept b. written consent o$
t0e win#owD
#) Is i#entical wit0 a registere# mar5
belonging to a #i$$erent proprietor or a mar5 wit0 an
earlier $iling or priorit. #ate@ in respect o$=
(i) !0e same goo#s or
ser&ices@ or
(ii) Closel. relate# goo#s
or ser&ices@ or
(iii) I$ it nearl. resembles
suc0 a mar5 as to be li5el. to
#ecei&e or cause con$usionD
e) Is i#entical wit0@ or con$usingl. similar
to@ or constitutes a translation o$ a mar5 w0ic0 is
consi#ere# b. t0e competent aut0orit. o$ t0e
P0ilippines to be well85nown internationall. an# in
t0e P0ilippines@ w0et0er or not it is registere# 0ere@ as
being alrea#. t0e mar5 o$ a person ot0er t0an t0e
applicant $or registration@ an# use# $or i#entical or
similar goo#s or ser&ices= pro&i#e#@ t0at in
#etermining w0et0er a mar5 is well85nown@ account
s0all be ta5en o$ t0e 5nowle#ge o$ t0e rele&ant sector
o$ t0e public@ rat0er t0an o$ t0e public at large@
inclu#ing 5nowle#ge in t0e P0ilippines w0ic0 0as
been obtaine# as a result o$ t0e promotion o$ t0e
mar5D
$) Is i#entical wit0@ or con$usingl. similar
to@ or constitutes a translation o$ a mar5 consi#ere#
well85nown in accor#ance wit0 t0e prece#ing
paragrap0@ w0ic0 is registere# in t0e P0ilippines wit0
respect to goo#s or ser&ices w0ic0 are not similar to
t0ose wit0 respect to w0ic0 registration is applie# $or=
pro&i#e#@ t0at use o$ t0e mar5 in relation to t0ose
goo#s or ser&ices woul# in#icate a connection
between t0ose goo#s or ser&ices@ an# t0e owner o$
t0e registere# tra#emar5= Pro&i#e# $urt0er t0at t0e
interests o$ t0e owner o$ t0e registere# mar5 are
li5el. to be #amage# b. suc0 useD
g) Is li5el. to mislea# t0e public@
particularl. as to t0e nature@ Eualit.@ c0aracteristics or
geograp0ical origin o$ t0e goo#s or ser&icesD
0) Consists e7clusi&el. o$ signs t0at are
generic $or t0e goo#s or ser&ices t0at t0e. see5 to
i#enti$.D
i) Consists e7clusi&el. o$ signs or o$
in#ications t0at 0a&e become customar. or usual to
#esignate t0e goo#s or ser&ices in e&er.#a. language
or in a bona$i#e an# establis0e# tra#e practiceD
9) Consists e7clusi&el. o$ signs or
in#ications t0at ma. ser&e in tra#e to #esignate t0e
5in#@ Eualit.@ Euantit.@ inten#e# purpose@ &alue@
geograp0ical origin@ time or pro#uction o$ t0e goo#s
or ren#ering o$ t0e ser&ices@ or ot0er c0aracteristics
o$ t0e goo#s or ser&icesD
5) Consists o$ s0apes t0at ma. be
necessitate# b. tec0nical $actors or b. t0e nature o$
t0e goo#s t0emsel&es or $actors t0at a$$ect t0eir
intrinsic &alueD
l) Consists o$ color alone@ unless #e$ine#
b. a gi&en $ormD or
m) Is contrar. to public or#er or moralit.
(/ec. "24)
2ILING DATE O2 AN A))LICATION
8!0e $iling #ate o$ an application s0all be t0e
#ate on w0ic0 t0e o$$ice recei&e# t0e $ollowing
in#ications an# elements in 6nglis0 or Iilipino=
a) (n e7press or implicit in#ication t0at t0e
registration o$ a mar5 is soug0tD
b) In#ications su$$icient to contact t0e applicant
or 0is representati&e@ i$ an.D
c) In#ications su$$icient to contact t0e applicant
or 0is representati&e@ i$ an.D
#) ( repro#uction o$ t0e mar5 w0ere registration
is soug0tD an#
:ean >e.nal#o ?. (granCamen#eC Page 1A/ o$ 177
COMMERCIAL LAW
e) !0e list o$ t0e goo#s or ser&ices $or w0ic0
t0e registration is soug0t. (/ec. "2'.")
N% $iling #ate s0all be accor#e# until t0e
reEuire# $ee is pai# (/ec. "2'.2)
)ROCED(RE 2OR REGI'TRATION
a) 67amination to #etermine w0et0er t0e
application satis$ies t0e reEuirements $or t0e
grant o$ a $iling #ate.
b) 67amination to #etermine w0et0er t0e
application meets t0e reEuirements o$ /ec.
"21 an# t0e mar5 is registrable un#er /ec.
"24.
c) :enial o$ t0e application or amen#ment
t0ereo$ or publication o$ t0e applicationD
#) %pposition to t0e applicationD noticeD
0earingD #ecision b. e7aminerD appeal to t0e
:irector o$ Bureau o$ !ra#emar5sD appeal to
t0e IP% :irector -eneralD appeal to t0e C(D
e) Issuance o$ Certi$icate o$ registration
$) Publication in t0e IP% -aCette o$ t0e $act o$
registration
CANCELLATION O2 TRADEMARK OR
TRADENAME
1. W3o %ay f"leL
- an. person w0o belie&es t0at 0e is an#
will be #amage# b. t0e registration o$ a
mar5
2. W3e!e to f"leL
- BL(
,. G!onds*
a) *ar5 becomes generic $or goo#s $or
w0ic0 it is registere#D
b) (ban#onment o$ t0e mar5D
c) >egistration obtaine# $rau#ulentl. or
contrar. to pro&isions o$ >( 82)4D
#) *ar5 use# b.@ or wit0 permission o$@
registrantD
e) Iailure to use t0e mar5 wit0in t0e
P0ilippines $or 4 uninterrupte# .ears or
longer.
E22ECT' O2 NON6('E
*a. be e7cuse# i$ cause# b. circumstances
arising in#epen#entl. o$ t0e will o$ t0e
tra#emar5 owner@ suc0 as militar. coup@ or
political c0anges t0at impe#e commerce
>egistration is an a#ministrati&e act
#eclarator. o$ a pre8e7isting rig0t t0at #oes
not@ o$ itsel$@ per$ect a tra#emar5@ $or w0at it
#oes is ac#ual us!
Non8use is a groun# $or remo&ing a mar5
$rom t0e register
DOCTRINE O2 'ECONDAR+ MEANING
8,0ile a generic@ in#icati&e or #escripti&e mar5
will@ as a general rule@ be #enie# registration@ t0ere is a
circumstance t0at will allow it to be registere#. ?n#er t0e
doc#rin! o s!condar& m!anin", w0en a mar5 0as become
#istincti&e o$ t0e applicant<s goo#s in commerce an#@ in
t0e min# o$ t0e public@ in#icates a single source o$
consumers@ it ma. be registere#.
W4AT CON'TIT(TE' AN IN2RINGEMENT
8?n#er >( 82)4@ an. person s0all@ wit0out t0e
consent o$ t0e owner o$ t0e registere# mar5=
") ?se in commerce an. repro#uction@
counter$eit@ cop.@ or colorable imitation o$ a
registere# mar5 or t0e same container or a
#ominant $eature t0ereo$ in connection wit0
t0e sale@ o$$ering $or sale@ #istribution@
a#&ertising an. goo#s or ser&ices inclu#ing
ot0er preparator. steps necessar. to carr.
out t0e sale o$ an. goo#s or ser&ices on or in
connection wit0 w0ic0 suc0 use is li5el. to
cause con$usion@ or to cause mista5e@ or to
#ecei&eD or
2) >epro#uce@ counter$eit@ cop. or colorabl.
imitate a registere# mar5 or a #ominant
$eature t0ereo$ an# appl. suc0 repro#uction@
counter$eit@ cop.@ or colorable imitation to
labels@ signs@ prints@ pac5ages@ wrappers@
receptacles@ or a#&ertisements inten#e# to
be use# in commerce upon or in connection
wit0 t0e sale@ o$$ering $or sale@ #istribution@
or a#&ertising o$ goo#s or ser&ices on@ or in
connection wit0 w0ic0 suc0 use is li5el. to
cause con$usion@ or to cause mista5e@ or to
#ecei&e@ s0all be liable $or in$ringement.
(/ec. "55)
TE'T O2 TRADEMARK IN2RINGEMENT
10 Do%"nan#y Test G consists in see5ing out
t0e main@ essential or #ominant $eatures o$ a
mar5.
20 4ol"st"# Test H ta5es stoc5 o$ t0e ot0er
$eatures o$ a mar5@ ta5ing into consi#eration
t0e entiret. o$ t0e mar5s.
DI22ERENTIATED 2ROM (N2AIR
COM)ETITION
") !ause of action: in in$ringement@ t0e cause
o$ action is t0e unaut0oriCe# use o$ a
registere# tra#emar5D in un$air competition@
it is t0e passing o$$ o$ one<s goo#s as t0ose
o$ anot0er merc0ant.
2) raudulent inten# is not necessar. in
in$ringement@ but necessar. in ?C.
4) Registration of trademar+s: in
in$ringement@ it is a pre8reEuisiteD in ?C@ it
is not reEuire#.
1) !lass of goods involved: in in$ringement@
t0e goo#s must be o$ similar classD in ?C@
t0e goo#s nee# not be o$ t0e same class.
in$ringement is a $orm o$ un$air competition
REMEDIE' A@AILA&LE IN CA'E O2
IN2RINGEMENT O2 A REGI'TERED MARK
a) /ue $or #amages (/ec. "56.")D
b) Fa&e t0e in$ringing goo#s impoun#e# (/ec.
"56.2)D
c) (s5 $or #ouble #amages (/ec. "56.4)
#) (s5 $or in9unction ("56.1)
e) Fa&e t0e in$ringing goo#s #ispose# o$
outsi#e t0e c0annels o$ commerce (/ec.
"5'.")
$) Fa&e t0e in$ringing goo#s #estro.e# (/ec.
"5'.")
g) Iile criminal action (/ec. "'0)D
0) (#ministrati&e /anctions
(N2AIR COM)ETITION
8an. person w0o s0all emplo. #eception or an.
ot0er means contrar. to goo# $ait0 b. w0ic0 0e s0all pass
COMMERCIAL LAW
o$$ t0e goo#s manu$acture# b. 0im or in w0ic0 0e #eals@
or 0is business@ or ser&ices $or t0ose o$ t0e one 0a&ing
establis0e# suc0 goo#will@ or w0o s0all commit an. acts
calculate# to pro#uce sai# result@ s0all be guilt. o$ un$air
competition.
4o; Co%%"tted
a) *a5ing one<s goo#s appear as t0e
goo#s o$ anot0erD
b) ?se o$ arti$ice or #e&ice to in#uce t0e
$alse belie$ t0at one<s goo#s are t0ose o$
anot0erD
c) Ialse statements in t0e course o$ tra#eD
or
#) (n. act contrar. to goo# $ait0
calculate# to #iscre#it anot0er<s goo#s
TE'T O2 (N2AIR COM)ETITION
8!0e test is w0et0er certain goo#s 0a&e been
clot0e# wit0 an appearance li5el. to #ecei&e t0e or#inar.
purc0aser e7ercising or#inar. care.
REMEDIE' IN CA'E O2 (N2AIR COM)ETITION
a) :amages w0ic0 ma. eit0er be=
reasonable pro$it w0ic0 woul# 0a&e been
realiCe#@ or
actual pro$its collecte# b. t0e #e$en#ant@
or
a certain percentage o&er t0e gross sales
o$ #e$en#ant in case o$ t0e measure o$ #amages
cannot be rea#il. ascertaine#D
b) :amages ma. be #ouble# in cases w0ere
actual intent to mislea# t0e public or to #e$rau#
t0e complaint is s0ownD
c) Impoun#ing o$ sales in&oices an# ot0er
#ocuments e&i#encing salesD
#) In9unction
e) :estruction o$ goo#s $oun# to be
in$ringing@ an# all parap0ernalia.
TAVADA Bs. ANGARA 5G.R. No. 11H2/A- May 2-
1//C0
!0e Constitution #i# not inten# to pursue an isolationist
polic.. It #i# not s0ut out $oreign in&estments@ goo#s an#
ser&ices in t0e #e&elopment o$ t0e P0ilippine
econom.. ,0ile t0e Constitution #oes not encourage t0e
unlimite# entr. o$ $oreign goo#s@ ser&ices an#
in&estments into t0e countr.@ it #oes not pro0ibit t0em
eit0er. In $act@ it allows an e7c0ange on t0e basis o$
eEualit. an# reciprocit.@ $rowning onl. on $oreign
competition t0at is un$air.
*oreo&er@ -(!! itsel$ 0as pro&i#e# built8in protection
$rom un$air $oreign competition an# tra#e practices
inclu#ing anti8#umping measures@ counter&ailing
measures an# sa$eguar#s against import surges. ,0ere
local businesses are 9eopar#iCe# b. un$air $oreign
competition@ t0e P0ilippines can a&ail o$ t0ese
measures. !0ere is 0ar#l. t0ere$ore an. basis $or t0e
statement t0at un#er t0e ,!%@ local in#ustries an#
enterprises will all be wipe# out an# t0at Iilipinos will be
#epri&e# o$ control o$ t0e econom.. Buite t0e contrar.@
t0e wea5er situations o$ #e&eloping nations li5e t0e
P0ilippines 0a&e been ta5en into accountD t0us@ t0ere
woul# be no basis to sa. t0at in 9oining t0e ,!%@ t0e
respon#ents 0a&e gra&el. abuse# t0eir #iscretion. !rue@
t0e. 0a&e ma#e a bol# #ecision to steer t0e s0ip o$ state
into t0e .et unc0arte# sea o$ economic liberaliCation. But
suc0 #ecision cannot be set asi#e on t0e groun# o$ gra&e
abuse o$ #iscretion@ simpl. because we #isagree wit0 it or
simpl. because we belie&e onl. in ot0er economic
policies. (s earlier state#@ t0e Court in ta5ing
9uris#iction o$ t0is case will not pass upon t0e a#&antages
an# #isa#&antages o$ tra#e liberaliCation as an economic
polic.. It will onl. per$orm its constitutional #ut. o$
#etermining w0et0er t0e /enate committe# gra&e abuse o$
#iscretion.
CO)+RIG4T H s.stem o$ legal protection an aut0or
en9o.s in t0e $orm o$ e7pression o$
i#eas(.99/,.997,.99),.99= bar exams0
&A'IC )RINCI)LE'
,or5s are protecte# b. t0e sole $act o$ t0eir
creation@ irrespecti&e o$ t0eir mo#e or $orm
o$ e7pression@ as well as t0eir content@
Eualit. or purpose (/ec. "'2.2)
Protection e7ten#s onl. to t0e e7pression o$
t0e i#ea@ not to t0e i#ea itsel$ or to an.
proce#ure@ s.stem@ met0o# or operation@
concept or principle@ #isco&er. or mere #ata.
!0e cop.rig0t is #istinct $rom propert. in
t0e material ob9ect sub9ect to it.
Cop.rig0t@ in t0e strict sense@ is purel.
statutor. rig0t. Being mere statutor. rig0t
are limite# to w0at t0e statute con$ers. It
ma. be obtaine# an# en9o.e# onl. wit0
respect to t0e sub9ects an# b. t0e persons @
an# on terms an# con#itions speci$ie# in t0e
statute. (ccor#ingl.@ it can co&er onl. wor5s
$alling wit0in t0e statutor. enumeration or
#escription (P!arl G =!an ;s sho!mar# (R
+/8*** Au"us# +5,*223).
CREATION O2 A WORK
( cop.rig0t wor5 is create# w0en t3e t;o 520
!e="!e%ents are met=
10 O!"$"nal"ty H #oes not mean no&elt. or
ingenuit.@ neit0er uniEueness nor creati&it.. It
simpl. means t0at t0e wor5 Io)!s i#s ori"in #o
#h! au#horL
20 E81!ess"on H t0ere must be Ii$a#ion.L !o be
L$i7e#M@ a wor5 must be embo#ie# in a me#ium
su$$icientl.=
permanentD or
stable
!o permit it to be percei&e#@ repro#uce#@ or ot0erwise
communicate# $or a perio# o$ more t0an transitor.
#uration.
8i$ it is not reEuire# t0at t0e me#ium be &isible as
long as t0ere is a possibilit. o$ retrie&al@ t0en t0ere is
$i7ation
8it is $i7ation t0at #e$ines t0e time $rom w0en
cop.rig0t subsists. Be$ore $i7ation@ t0ere can be no
in$ringement.
WORK' )ROTECTED &+ CO)+RIG4T
A. O!"$"nal Wo!9 8 Literar. an# artistic wor5s are
original intellectual creations in t0e literar. an#
artistic #omain protecte# $rom t0e moment o$ t0eir
COMMERCIAL LAW
creation@ irrespecti&e o$ t0eir mo#e or $orm o$
e7pression@ as well as o$ t0eir content@ Eualit. an#
purpose@ an# s0all inclu#e in particular=
a) Boo5s@ pamp0lets@ articles an# ot0er
writings
b) Perio#icals an# newspapers
c) Lectures@ sermons@ a##resses@ #issertations
prepare# $or oral #eli&er.@ w0et0er or not
re#uce# in writing or ot0er material $orm
#) Letters
e) :ramatic or #ramatico8musical
compositionsD c0oreograp0ic wor5s or
entertainment in #umb s0ows
$) *usical compositions@ wit0 or wit0out
wor#s
g) ,or5s o$ #rawing@ painting@ arc0itecture@
sculpture@ engra&ing@ lit0ograp0. or ot0er
wor5s o$ artD mo#els or #esigns $or wor5s o$
art
0) %riginal ornamental #esigns or mo#els $or
articles o$ manu$acture@ w0et0er or not
registrable as an in#ustrial #esign@ an# ot0er
wor5s o$ applie# art.
i) Illustrations@ maps@ plans@ s5etc0es@ c0arts
an# t0ree8#imensional wor5s relati&e to
geograp0.@ topograp0.@ arc0itecture or
science
9) :rawings or plastic wor5s o$ a scienti$ic or
tec0nical c0aracter
5) P0otograp0ic wor5s inclu#ing wor5s
pro#uce# b. a process analogous to
p0otograp0.D lantern sli#es
l) (u#io&isual wor5s an# cinematograp0ic or
an. process $or ma5ing au#io8&isual
recor#ings
m) Pictorial illustrations an# a#&ertisements
n) Computer programs
o) %t0er literar.@ sc0olarl.@ scienti$ic an#
artistic wor5s (/ec. "'2)
&. De!"Bat"Be Wo!9s H t0e $ollowing #eri&ati&e wor5s
s0all also be protecte#=
a) :ramatiCations@ translations@ a#aptations@
abri#gments@ arrangements@ an# ot0er
alterations o$ literar. wor5s
b) Collections o$ literar.@ sc0olarl. or artistic
wor5s@ an# compilations o$ #ata an# ot0er
materials w0ic0 are original b. reason o$ t0e
selection or coor#ination or arrangement o$
t0eir contents. (/ec. "'4)
WORK' NOT )ROTECTED
!0e $ollowing wor5s are not protecte#=
") (n. i#ea@ proce#ure@ s.stem@ met0o# or
operation@ concept@ principle@ #isco&er. or
mere #ata as suc0@ e&en i$ e7presse#@
e7plaine#@ illustrate#@ or embo#ie# in a
wor5D
2) News o$ t0e #a. an# ot0er $acts 0a&ing t0e
c0aracter o$ mere items o$ press
in$ormationD
4) (n. o$$icial te7t o$ a legislati&e@
a#ministrati&e or legal nature@ as well as an.
o$$icial translation t0ereo$. (/ec. "'5)
1) (n. wor5 o$ t0e -o&ernment o$ t0e
P0ilippines. (/ec. "'6)
80owe&er@ prior appro&al o$ t0e
go&ernment agenc. or o$$ice w0erein t0e
wor5 is create# s0all be necessar. $or
e7ploitation o$ suc0 wor5 $or pro$it. /uc0
agenc. or o$$ice@ ma.@ among ot0er t0ings@
impose as a con#ition t0e pa.ment o$
ro.alties
5) Plea#ingsD
6) :ecisions o$ courts an# tribunals.
8t0is pertains to t0e Iori"inal
d!cisionsL not to t0e /C>( publis0e# in
&olumes since t0ese are protecte# un#er
#eri&ati&e wor5s.
RIG4T' O2 AN A(T4OR
((ut0or H a natural person w0o 0as create# t0e wor5.)
A. E#ono%"# R"$3ts 5'e#. 1CC0
8e7clusi&e rig0t to carr. out@ aut0oriCe or pre&ent
t0e $ollowing acts
1. >epro#uction o$ t0e wor5 or substantial portion
o$ t0e wor5
2. :ramatiCation@ translation@ a#aptation@
abri#gement@ arrangement or ot0er
trans$ormation o$ t0e wor5D
4. !0e $irst public #istribution o$ t0e original an#
eac0 cop. o$ t0e wor5 b. sale or ot0er $orms o$
trans$er o$ owners0ipD
1. >ental o$ t0e original or a cop. o$ an
au#io&isual or cinematograp0ic wor5@ a wor5
embo#ie# in a soun# recor#ing@ a computer
program@ a compilation o$ #ata an# ot0er
materials or a musical wor5 in grap0ic $orm@
irrespecti&e o$ t0e owners0ip o$ t0e original or
t0e cop. w0ic0 is t0e sub9ect o$ t0e rentalD (n)
5. Public #ispla. o$ t0e original or cop. o$ t0e
wor5D
6. Public per$ormance o$ t0e wor5D an#
'. %t0er communication to t0e public o$ t0e wor5
&. Mo!al R"$3ts 5'e#. 1/,0
") >ig0t o$ attribution or paternit. rig0t
!o reEuire t0at t0e aut0ors0ip o$ t0e
wor5s be attribute# to 0im@ in a
prominent wa. on t0e copies@ an# wit0
t0e public use o$ t0e wor5D
2) >ig0t o$ alteration or non8publication
4) >ig0t to preser&ation o$ integrit.
!o ob9ect to an. #istortion@
mutilation or ot0er mo#i$ication o$@ or ot0er
#erogator. action in relation to@ 0is wor5
w0ic0 woul# be pre9u#icial to 0is 0onor or
reputationD an#
1) >ig0t not to be i#enti$ie# wit0 wor5 o$
ot0ers or wit0 #istorte# wor5.
Te!% of %o!al !"$3t
8li$etime o$ t0e aut0or an# 50
.ears a$ter 0is #eat0
Wa"Be! of %o!al !"$3t
") b. a written instrument (/ec.
")5)
2) b. contribution to a collecti&e
wor5 unless e7pressl. reser&e#
(/ec. ")6)
)RINCI)LE O2 A(TOMATIC )ROTECTION
?n#er t0e Berne Con&ention@ t0e en9o.ment an#
e7ercise o$ cop.rig0t@ inclu#ing moral rig0ts@ s0all not be
t0e sub9ect o$ an. $ormalit..
COMMERCIAL LAW
OWNER'4I) O2 CO)+RIG4T
". %ingle creator H cop.rig0t belongs to t0e aut0or
o$ t0e wor5@ 0is 0eirs or assigns.
2. @oint creation H cop.rig0t belongs to t0e co8
aut0ors 9ointl. as co8owners. But i$ t0e wor5
consists o$ i#enti$iable parts@ t0e aut0or o$ eac0
part owns t0e part t0at 0e 0as create#.
4. Employee2s creation H cop.rig0t belongs to t0e
emplo.ee i$ t0e creation is not part o$ 0is regular
#uties e&en i$ 0e uses t0e time@ $acilities an#
materials o$ t0e emplo.erD ot0erwise it belongs
to t0e emplo.er
1. !ommissioned #or+ H t0e wor5 belongs to t0e
person commissioning but t0e cop.rig0t remains
wit0 t0e creator unless t0ere is a written
stipulation to t0e contrar..
5. !inematographic #or+s H t0e pro#ucer 0as
cop.rig0t $or purposes o$ e70ibitionD $or all ot0er
purposes@ t0e pro#ucer@ t0e aut0or o$ t0e
scenario@ t0e composer@ t0e $ilm #irector@ t0e
aut0or o$ t0e wor5 are t0e creators.
6. Anonymous and pseudonymous #or+s H t0e
publis0ers s0all be #eeme# t0e representati&e o$
t0e aut0or unless=
a. t0e contrar. appears
b. t0e pseu#on.ms or a#opte# name lea&es
no #oubt as to t0e aut0or<s i#entit. or
c. I$ t0e aut0or #iscloses 0is i#entit. (/ec.
"')).
'. !ollective #or+s H t0e contributor is #eeme# to
0a&e wai&e# 0is rig0t unless 0e e7pressl.
reser&es it. (/ec. ")6)
Colle#t"Be Wo!9 H a wor5 create# b. two or
more persons at t0e initiati&e an# un#er t0e
#irection o$ anot0er wit0 t0e un#erstan#ing t0at
it will be #isclose# b. t0e latter un#er 0is own
name an# t0at t0e contributions o$ natural
persons will not be i#enti$ie#. (/ec. "'".2)
8. In #ase of t!ansfe!s@ t0e trans$eree s0all own
one or more or all t0e economic rig0ts
trans$erre# pro&i#e#=
a. t0e assignment@ i$ inter &i&os@ be in
writing (/ec. "80.2)
b. !0e assignment be $ile# wit0 t0e
National Librar. upon pa.ment o$ t0e
prescribe# $ee. (/ec. "82)
D(RATION O2 CO)+RIG4T
Literary artistic #or+s and derivative #or+s of a
%*$GLE !REA"5R 8 li$etime o$ t0e creator
an# $or 50 .ears a$ter 0is #eat0
.oin# cr!a#ion H li$etime o$ last sur&i&ing co8
creator an# $or 50 .ears a$ter 0is #eat0.
Anonymous or a #or+ under a pseudonym not
identifiable #ith the true name of the creator H
50 .ears a$ter t0e #ate o$ t0eir $irst publication.
67cept w0ere@ be$ore t0e e7piration o$ sai#
perio#@ t0e aut0orJs i#entit. is re&eale# or is no
longer in #oubt@ t0e rule $or single an# 9oint
creation s0all appl.
Photographic #or+s H 50 .ears $rom t0e
publication o$ t0e wor5@ or $rom ma5ing t0e
same term is gi&en to au#io&isual wor5s
pro#uce# b. p0otograp0. or analogous
processes.
Aor+ of Applied Art H 25 .ears $rom t0e #ate o$
ma5ing
$e#spaper Article H li$etime o$ t0e aut0or an#
50 .ears a$ter 0is #eat0
( pure news report will no longer $in# protection
un#er t0e new law@ B?! a column or publis0e#
comment will.
"he #or+ of performers not incorporated in
RE!5R>*$G, PR5>4!"% 5 %54$>
*8AGE RE!5R>*$G%, and <R5A>!A%"% H
protecte# $or perio#s o$ 50 .ears@ 50 .ears@ an#
20 .ears@ respecti&el.@ counte# $rom t0e en# o$
t0e .ear o$ per$ormance@ recor#ing@ or
broa#casts@ respecti&el..
0h! #!rm o pro#!c#ion shall %! coun#!d rom #h!
irs# da& o .anuar& o #h! &!ar ollo)in" #h!
d!a#h o #h! au#hor or o las# pu%lica#ion (S!c.
*+/)
LIMITATION' TO T4E RIG4T' ON CO)+RIG4T
10 )!"Bate 1e!fo!%an#e- 1!"Bate and 1e!sonal
se H applicable onl. Lw0en a wor5 0as been law$ull.
ma#e accessible to t0e public.M
)e!sonal (se
8ma5ing a single repro#uction@ a#aptation@
arrangement or ot0er trans$ormation o$ anot0er<s wor5
e7clusi&el. $or one<s own in#i&i#ual use in suc0 cases
as personal researc0@ learning or amusement
)!"Bate (se
8ma5ing a repro#uction@ a#aptation or ot0er
trans$ormation o$ it@ in a single person as in t0e case o$
Lpersonal useM but also $or a common purpose b. a
speci$ic circle o$ persons onl..
20 2a"! (se of a Co1y!"$3ted Wo!9
2a"! (se 8 a pri&ilege in persons ot0er t0an t0e
owner o$ t0e cop.rig0t to use t0e cop.rig0te# material
in a reasonable manner wit0out its consent@
notwit0stan#ing t0e monopol. grante# to t0e owner b.
t0e cop.rig0t.
8t0e #octrine o$ $air use is meant to balance t0e
monopolies en9o.e# b. t0e cop.rig0t owner wit0
interests o$ t0e public an# o$ societ..
CRITERIA TO DETERMINE W4ET4ER ('E I'
2AIR OR NOT
a) Purpose an# t0e c0aracter o$ t0e use
b) Nature o$ t0e cop.rig0te# wor5
c) (mount an# substantiall. o$ t0e
portions use#
#) 6$$ect o$ t0e use upon t0e potential
mar5et o$ t0e cop.rig0te# wor5 (/ec. "85)
T4E D2AIR6('E'E O2 )ROTECTED MATERIAL
ARE
CriticiCing@ commenting@ an# news reportingD
?sing $or instructional purposes inclu#ing
pro#ucing multiple copies o$ classroom use@ $or
sc0olars0ip@ researc0 an# similar purposes (/ec.
"85)
,0 Wo!9"n$ of A!#3"te#t!e 5'e#. 1H70
8inclu#e t0e rig0t to control t0e
erection o$ an. buil#ing w0ic0 repro#uces t0e
w0ole or a substantial part o$ t0e wor5 eit0er in
its original or in an. $orm recogniCabl. #eri&e#
$rom t0e originalD Pro&i#e#@ t0at t0e cop.rig0t in
an. suc0 wor5 s0all not inclu#e t0e rig0t to
control t0e reconstruction@ or re0abilitation in t0e
COMMERCIAL LAW
same st.le as t0e original o$ a buil#ing to w0ic0
t0at cop.rig0t relates
?0 Re1!od#t"on of )bl"s3ed Wo!9
8e7clusi&el. $or researc0 an# pri&ate stu#..
A0Re1!o$!a13"# Re1!od#t"on by L"b!a!"es
8an. librar. or arc0i&e w0ose acti&ities are not $or
pro$it ma.@ wit0out t0e aut0oriCation o$ t0e aut0or o$
cop.rig0t owner@ ma5e a single cop. o$ t0e wor5 b.
reprograp0ic repro#uction.
70Re1!od#t"on of Co%1te! )!o$!a%s
8allowe# on t0e $$. con#itions=
a) onl. one cop. is ma#eD
b) law$ul owner ma#e t0e cop.D
c) purpose o$ w0ic0 t0e repro#uction is
ma#e is legal li5e=
use to w0ic0 t0e program is ma#e an# $or
w0ic0 it was purc0ase# #eman# t0e repro#uction o$ a
cop.D or
t0e repro#uction o$ a cop. is necessar. to
guarantee against loss or #estruction (/ec. "8).")
A0 I%1o!tat"on fo! )e!sonal )!1oses
8t0e importation o$ a cop. o$ a
wor5 b. an in#i&i#ual $or 0is personal purposes s0all
be permitte# wit0out t0e aut0oriCation o$ t0e aut0or
o$@ or ot0er owner o$ cop.rig0t in@ t0e wor5 un#er t0e
$ollowing circumstances=
a) Copies o$ t0e wor5 are no# availa%l! in t0e
P0ilippines an#=
i. not more t0an one cop. at one time is importe# $or
strict in#i&i#ual useD
ii. importation is b. aut0orit. an# $or t0e use o$
P0ilippine -o&ernmentD or
iii. >eligious@ c0aritable@ or e#ucational
societ. importe# not more t0an 4 copies per title
pro&i#e# t0e. are not $or sale.
b) Copies $orm part o$ libraries an# personal
baggage belonging to persons or $amilies arri&ing
$rom $oreign countries an# are not inten#e# $or sale=
Pro&i#e#@ t0at suc0 copies #o not e7cee# t0ree (4).
(/ec. ")0)
REMEDIE' IN CA'E O2 IN2RINGEMENT
") *nDunction to pre&ent in$ringement
2) >amages assesse# on t0e basis o$ t0e proo$
allege# b. t0e plainti$$ o$ sales ma#e b. t0e
#e$en#ant o$ t0e in$ringing wor5 minus w0ate&er
costs t0e #e$en#ant ma. be able to pro&e an#
appreciate# b. t0e court.
4) >elivery under oath o$ all implements emplo.e#
in t0e pro#uction o$ t0e in$ringing pro#ucts
t0emsel&es an# t0e in$ringing items@ $or
impoun#ing or #estruction as t0e court ma.
or#er.
1) Payment of moral and exemplary damages
un#er t0e #iscretion o$ court.
60 !riminal Action
DE'TILERIA A+ALA- INC. Bs. TAN TA+ M CO.
5G.R. No. L6?HC/, A$st 7- 1/?,0
2ACT'* B. reason o$ s0ortage o$ bottles o$ its own@
#e$en#ant !an !a. N Co. in selling wine similar to t0at o$
t0e plainti$$@ 0a#@ prior to t0is action@ been using bottles
registere# in t0e name o$ t0e plainti$$ but wit0 t0e wor#
O(.alaO generall. erase# or obliterate# t0ere$rom@ lea&ing
onl. t0e wor# O:estileriaO legible on sai# bottles.
Plainti$$ pra.s t0at t0e respon#ent be in0ibite# $rom using
glass receptacles #ul. registere# b. $ormer.
4ELD* !o ma5e t0e use o$ suc0 containers illegal@ it is
not essential t0at t0e. be use# b. ot0er persons wit0 t0e
#istincti&e name@ mar5 or #esign engra&e# t0ereon. I$ t0e
containers originall. con$orme# to t0e #escription
containe# in t0e certi$icate o$ registration an# it appears
t0at t0e. are t0e same containers being use# b. t0e ot0er
persons@ t0e use is illegal regar#less o$ w0et0er or not
t0eir #istincti&e name@ mar5 or #esign is partl. or entirel.
erase# t0ere$rom. I$ t0e illegalit. o$ t0e use ma. be
remo&e# b. erasing or obliterating $rom t0e containers
t0eir #istincti&e name@ mar5 or #esign@ t0e protection o$
t0e law woul# become useless. In ot0er wor#s@ it is t0e
use o$ t0e containers t0emsel&es 8 not merel. t0e use o$
t0e tra#e8mar5 engra&e# t0ereon 8 t0at is pro0ibite# b.
law.
A.M. No. 0?6C6076'C
RE* CONDITION' ON T4E COMMERCIAL
E:)LOITATIONO2 '()REME CO(RT
DECI'ION'
RE'OL(TION
a. !0e person compiling an# selling t0e #ecisions
s0all pro&i#e t0e /upreme Court Librar. twent. (20)
$ree copies o$ t0e compile# #ecisions in t0e $ormat
t0e compilation is sol# to t0e publicD
b. I$ t0e compilation is in printe# copies@ t0e
/upreme Court Librar. s0all 0a&e t0e rig0t to
#igitiCe t0e compilation fo! e8#ls"Be se fo!
!esea!#3 1!1oses b. 3ustices@ 3u#ges an# court
attorne.s o$ t0e 3u#iciar.D
#. I$ t0e compilation is in #igitiCe# $ormat@ t0e
/upreme Court Librar. s0all 0a&e t0e rig0t to ma5e
a&ailable t0e #igitiCe# compilation fo! e8#ls"Be se
fo! !esea!#3 1!1oses b. 3ustices@ 3u#ges an# court
attorne.s o$ t0e 3u#iciar.. !0e person compiling
s0all submit to t0e /upreme Court Librar. a te7t8$ile
#igitiCe# cop. o$ t0e compilationD
d. !0e Court s0all 0a&e t0e rig0t to purc0ase
copies o$ t0e compilation at cost@ t0at is@ b. pa.ing
onl. t0e cost o$ repro#ucing t0e compilation@ t0e
cost o$ installation@ an# t0e cost o$ an.
accompan.ing so$tware license. /uc0 copies s0all
be use# e7clusi&el. b. 3ustices@ 3u#ges an# court
attorne.s o$ t0e 3u#iciar. an# s0all not be re8sol# b.
t0e CourtD
e. !0e compilation s0all bear t0e notice LCompile#
$or sale to t0e public wit0 t0e permission o$ t0e
/upreme CourtMD
f. !0ese con#itions appl. to an. up#ating o$ t0e
compilation
COMMERCIAL LAW
COMMERCIAL LAW
Co1y!"$3t )atent Ma!9
Def"n"t"on
It is t0at s.stem o$ legal protection an
aut0or en9o.s in 0e $orm o$ e7pression
o$ i#eas (,orl# Intellectual Propert.
%rganiCation R,IP%S.)
>e$ers to eit0er t0e grant o$ rig0ts@ or t0e
instrument (sometimes calle# letters patent)
containing t0e grant@ gi&ing an in&entor a
monopol. on t0e in&entor<s in&ention $or a
limite# perio#.
(n. &isible sign capable o$ #istinguis0ing
t0e goo#s o$ an enterprise (tra#emar5) or
t0e ser&ices o$ an enterprise (ser&ice
mar5)@ an# inclu#es a stampe# or mar5e#
container o$ goo#s (/ec."2".").
)!1oses
". !o stimulate artistic
creati&it. $or t0e general
public goo#D an#
2. !o promote t0e progress o$
science an# use$ul arts.
". Not onl. to rewar# t0e in#i&i#ual@
but t0e a#&ancement o$ t0e arts an#
sciencesD
2. !o a## to t0e sum o$ use$ul
5nowle#geD an#
4. !o encourage #issemination o$
in$ormation concerning #isco&eries
an# in&entions.
". !o in#icate origin or owners0ip o$
articles to w0ic0 t0e. are attac0e#D
2. !o guarantee t0at t0ose articles come
up to a certain 5in# o$ Eualit.D
4. !o a#&ertise articles t0e. s.mboliCesD
1. !o assure t0e public t0at t0e. are
pro#ucing genuine articleD an#
5. !o protect t0e manu$acturer against
substitution an# sale o$ an in$erior an#
#i$$erent article.
Re="!e%ents
". %riginalit. an#
2. 67pression
(n. tec0nical solution o$ a problem in an.
$iel# o$ 0uman acti&it. w0ic0 is=
". New or no&el
2. Insensiti&eD an#
4. In#ustriall. applicable (/ec.2")
". ?pon application=
*ust be registrable (/ec."24.")=
a. (bsolutel. non8registrable8
(a8") N (m) o$ /ec."24."
b. Buali$ie#l. registrable8 (9)@
(5)@ (l) o$ /ec."24."D
:octrine o$ /econ#ar.
meaning (/ec."24.2).
2. ,it0in 4 .ears $rom application=
:eclaration an# e&i#ence o$
actual use (/ec."21.2).
Te!%
/ingle+3oint Creator H li$etime o$ t0e
creator+last sur&i&ing co8creator an# 50
.ears a$ter 0is #eat0
(non.mous+Pseu#on.m 8 50 .ears
a$ter #ate o$ $irst publication
P0otograp0ic ,or5s 8 50 .ears $rom
publication+ma5ing
,or5 o$ (pplie# (rt 8 25 .ears $rom
#ate o$ ma5ing
Newspaper (rticle (Column+Publis0e#
Comment) H li$etime o$ t0e aut0or an#
50 .ears a$ter 0is #eat0
,or5 o$ per$ormers not incorporate#
in >6C%>:IN-@ P>%:?C!/ %I
/%?N: I*(-6 >6C%>:IN-/@ an#
B>%(:C(/!/ H protecte# $or
perio#s o$ 50 .ears@ 50 .ears@ an# 20
.ears@ respecti&el.@ counte# $rom t0e
en# o$ t0e .ear o$ per$ormance@
recor#ing@ or broa#casts
Patent 8 20 .ears $rom t0e $iling #ate o$ t0e
application (/ec.51).
?tilit. *o#el H ' .ears wit0out renewal
In#ustrial :esign H 5 .ears renewable twice
"0 .ears $rom t0e $iling #ate o$ t0e
application@ pro&i#e# t0e registrant s0all
$ile a #eclaration o$ actual use wit0in a
.ear $rom t0e 5
t0
anni&ersar. o$
registration #ate (/ec."15) an# renewable
$or anot0er "0 .ears (/ec."16).
4o; C!eated< A#="!ed
Irom t0e moment o$ creation ($i7ation) Iirst8to8$ile s.stem ali# >egistration
Gene!al l"%"tat"on
". :uration +temporal8 t0e owner is limite# b. t0e terms o$ t0eir propert. rig0ts.
2. !erritorial +geograp0ical8 t0e owner is protecte# b. t0e law o$ t0e countr. w0ere t0e &iolation is committe#.
4. Ior &iolations in anot0er countr.@ resort must be ma#e to t0e law o$ t0e ot0er countr.@ sub9ect to t0e principle o$ reciprocit.
in /ec.4

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COMMERCIAL LAW 2010

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